Supreme Court of Victoria refuses application for costs against legal practitioners: ACN 005 490 540 Pty Ltd v Robert Frederick Jane Pty Ltd

In brief - Judge warns against improper use of section 29 of the Civil Procedure Act 2010 

A recent decision of the Victorian Supreme Court in ACN 005 490 540 Pty Ltd v Robert Frederick Jane Pty Ltd [2016] VSC 217 highlights that a party threatening to seek costs from an opponent's solicitors for alleged breaches of the Civil Procedure Act 2010, based on the perceived strength or weakness of an opponent's case, must itself have a proper basis to make that threat. 

Applications for costs for alleged Civil Procedure Act breaches may lessen due to Supreme Court decision
Since the introduction of the Civil Procedure Act in January 2011, there has been a steady flow of claims (or threats of claims) against legal practitioners, in which the practitioner is threatened with, or subjected to, an application for costs under section 29 of the Civil Procedure Act, arising out of alleged breaches of the Civil Procedure Act.
 
A recent decision of Judd J of the Victorian Supreme Court may have a "chilling effect" on the frequency of such claims.  

Court orders indemnity costs but refuses costs order against defendants' practitioners

This decision concerned an unsuccessful application, brought by the defendants, to restrain a solicitor and his firm from acting for the plaintiffs. The plaintiffs then made an application for indemnity costs, and (relevantly for this article) for an order that costs be paid by the defendants' counsel and their solicitors, on the following grounds:

1. That the unsuccessful application was an abuse of process in which the practitioners participated
2. The practitioners breached their obligations under the Civil Procedure Act by bringing the application without a proper basis
3. The plaintiffs' solicitors and counsel had given the defendants and their practitioners six warnings to the effect that there was no proper basis for the application

An order for indemnity costs was made against the defendants, however an order for costs against the defendants' practitioners was refused.

Application for costs found to be "premature, provocative and unjustified"

Judd J considered the principles under section 29 of the Civil Procedure Act and the case of Yara Australia Pty Ltd v Oswal [2013] VSCA 337, noting that there was a material difference between the scenario in Yara (which related to the preparation of application books by solicitors) and the conduct of practitioners advocating a client's case in court.

His Honour then considered the case of Dura (Australia) Construction Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400, in which Dixon J looked at the principles of section 29 and identified some aspects of the section which "may go some way to explain why it has not been deployed more frequently." (At [13].)

In this case, the plaintiffs had made a number of warnings to the defendants' practitioners through letters and submissions, which included two letters threatening them with an application for costs. Judd J stated that there was a "material difference between giving notice to an opposite party of an intention to seek indemnity costs at the conclusion of an application or trial, and such a threat made against legal practitioners engaged by the opposite party." (At [17].)

He noted that applications for costs against practitioners invited consideration of factors well beyond that of costs between parties, including those outlined in Dura (the risk that an application for costs may itself be an abuse of process, the difficulties in finding fault, the risk of satellite litigation and client legal privilege), as well as the integrity of the adversarial system, and the "dependency of the courts on continuing representation of litigants by competent counsel and solicitors." (At [18].)

Judd J called the plaintiffs' application "premature, provocative and unjustified", as it was based on a subjective assessment of the defendants' prospects of success prior to the filing of all their material, and without an adjudication by the court. 

His Honour also stated (at [19]):

Impact on litigants' abilities to advance a case for adjudication considered by Court

His Honour noted that a threat intended as "no more than bluster or negotiating rhetoric" is improper. He suggests that "if such a threat is to be taken seriously, a moment's reflection should cause the maker to realise that it may have the tendency to interfere with the ability of a litigant, the practitioner's client, to advance a case for adjudication by the court." (At [21].) 

His Honour was not satisfied that the defendants' lawyers engaged in an abuse of process. Importantly, he was also not convinced that the conduct of the defendants' lawyers was a breach of an overarching obligation. He said (at [24]):
He reiterated that there is no suggestion in the authorities that a practitioner who is alleged to have breached an overarching obligation has any burden to prove that they had a reasonable belief in a proper basis to make the claim. They may do so, however they "will be entitled to expect a court to approach the enquiry into alleged misconduct in the usual way." (At [26].)

Judd J said that in this matter a practitioner, on the evidence available, could have reasonably concluded that the application to restrain was "arguable". He noted (at [34]):

Improper use of section 29 of the Civil Procedure Act may itself constitute breach of the Act

Judd J's decision highlights that improper use of section 29 of the Civil Procedure Act itself runs the risk of breaching the Civil Procedure Act, and undermines the adversarial system of justice.