A GUIDE TO RECENT SANCTION AND COMPENSATION … · in civil litigation to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in the parties’

Georgia Douglas, Young’s List _____________________________________________________________________________________

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A GUIDE TO RECENT SANCTION AND COMPENSATION DECISIONS

UNDER THE CIVIL PROCEDURE ACT 2010

Georgia Douglas Young’s List

The impact of the Civil Procedure Act 2010 (CPA)

1. The Civil Procedure Act 2010 (CPA) was introduced to reform and modernise the laws

and practice of procedure and processes relating to the resolution of civil disputes in the

Magistrates, County and Supreme Court of Victoria. This paper and presentation is

focused upon examining the case law that has applied the CPA and in particular, s.29 of

the CPA.

2. Section 7 of the CPA introduced an ‘overarching purpose’ which requires those involved

in civil litigation to ‘facilitate the just, efficient, timely and cost-effective resolution of the

real issues in the parties’ dispute. Section 8 provides that the court is to give effect to this

overarching purpose when exercising its powers, and this even extends to powers

exercised in the inherent jurisdiction of the court.1

3. The objectives of the CPA are ‘not only to change the formal rules for the conduct of

proceedings, but also to change litigation culture itself.’2 It has ‘significantly recast the

expression of the duties owed by solicitors, amongst others, to the court.’3

4. The CPA also includes 10 overarching obligations which may not be delegable4:

a. Paramount duty to further the administration of justice in relation to any civil

proceeding (s16);

b. To act honestly (s17);

c. To ensure claims/defences have a proper basis (s18)

d. To only take steps to resolve or determine dispute (s19)

e. To cooperate in the conduct of civil proceeding (s20)

f. Not to mislead or deceive (s21)

1 Sullivan v Greyfriars [2015] VSCA 196 at [22] 2 Hudspeth v Scholastic (Ruling No 8) [2014] VSC 567 at [190] (‘Hudspeth Ruling No 8’) 3 Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400 (‘Dura No 5’) at [76] per Dixon J. 4 Ibid., Dura No 5 at [131]: Dixon J noted that the matter was not argued before him and is not the subject of authority, but found support for the non-delegable nature of the duty in Mason J’s comments in Konis v State Transport Authority (1984) 154 CLR 672, at 687.


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g. To use reasonable endeavours to resolve dispute (s22)

h. To narrow issues in dispute (s23)

i. To ensure costs are reasonable and proportionate (s24)

j. To minimise delay (s25)

k. To disclose existence of documents critical to resolution of dispute (s26)

5. The ‘proper basis’ obligations in s18 work in collaboration with s42, which requires a

Proper Basis Certificate to be signed by the legal practitioner and attached to statements

of claim and defences. The certificate itself must be based on the reasonable belief as to

the truth or the untruth of the matter denied or not admitted. The proper basis must exist

at the moment that the claim or pleading is filed, and must exist on the basis of factual

and legal material available to the person making the claim or response.

6. The CPA imposes obligations on litigants, legal practitioners, law firms, litigation funders,

insurers, and some obligations also apply to experts.

7. Section 13(1) of the CPA provides that overarching obligations do not override

obligations to clients, where they can operate consistently. However, under s13(2) a legal

practitioner is required to comply with an overarching obligation regardless of any

instruction or wishes of the client. Where there is inconsistency between the client’s

wishes/instructions and the overarching obligation, the overarching obligation prevails

and the practitioner is not required to comply with the instruction of the client: s13(3).

Sanctions under the CPA

8. Pursuant to s28 and s29 of the CPA the court may take into account a contravention of

an overarching obligation when exercising any power, including applications regarding

costs. Section 29 of the CPA enables the court to make orders against persons to:

a. Pay legal costs of others arising from the breach;

b. Pay legal costs of others in the proceeding generally;

c. Pay compensation to any person for loss materially contributed to by the

contravention;

d. Take steps to remedy the contravention or to stop other steps from being taken;

and

e. Make any other order the court considers appropriate in the interests of the

persons prejudiced.


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9. The imposition of a sanction by the court for a breach of an overarching obligation is

discretionary. Where other people have been involved in the breach of the overarching

obligation, their involvement will be relevant to the exercise of the discretion.

10. An application for orders under s.29 can be brought by parties to the proceeding, any

person with a sufficient interest in the proceeding or on the court’s own motion. Pursuant

to s30, the application must be brought before the finalisation of the civil proceeding to

which the application relates. The time for bringing the application can be extended

(s31).

11. In Kenny & Anor v Gippsreal Ltd [2015] VSC 284 the court considered a summons under

s.29 brought 2 years after a consent judgment, in which the successful defendant sought

to allege the barrister and solicitor for the plaintiff had pursued an argument that was

without a proper basis. It was held that the summons was incompetent, as it had been

filed two years after the finalisation of the proceedings, by way of the consent judgment

entered in August 2012.

12. The case law has held that the emphasis of s.29 is compensation rather than punishment

(but there is a punitive element to the process). It seems that this focus has limited the

amount awarded under s.29, as the award have focused on the loss that actually flowed

from the breaches of the overarching obligations.

13. Litigants should be aware that the power given to the Victorian courts through s.28 and

s.29 is novel and no other jurisdiction in Australia has anything like these provisions.

Yara Australia Pty Ltd v Oswal [2013] VSCA 337

14. Yara was the decision that paved the way for sanction orders in Victoria under s.29 of the

CPA. This case concerned an application for leave to appeal from an order setting aside

security for costs order, where the total security sought was approximately $140,000.

There were 5 silks, 6 junior counsel and 5 solicitors firms representing parties in the

Court of Appeal, and 6 lever arch folders of materials filed in the leave to appeal.

15. The court was concerned about the over representation of counsel and unnecessary and

voluminous material produced in comparison to the issues and quantum. The court

asked the parties to explain the level of representation and launched an inquiry as to

whether there had been a breach of s.24 of CPA: the obligation to ensure costs are

reasonable and proportionate to the issues in dispute.


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16. To examine if there has been a breach of an overarching obligation the court should

determine ‘by an objective evaluation of their conduct having regard to the issues and the

amount in dispute in the proceeding.’

17. In Yara Australia Pty Ltd v Oswal5, the Victorian Court of Appeal made it clear that the

court may impose a sanction under s.29 even where the legal practitioner acts on the

instructions of their client when undertaking the breach of the overarching obligations. It

is this tension between following instructions and not breaching an overarching obligation

which can pose a difficult balance for practitioners.

18. This decision is a real ‘call to arms’ for the judiciary to actively manage matters and make

use of the broader powers they are given under the CPA to control the conduct of parties

and ensure the courts resources are not wasted. The Court of Appeal stated that s.29

has been underused by practitioners and the court, and perhaps there was a

misconception that the CPA has not changed the rules and obligations of practitioners.

The appellate court encouraged trial judges not to be hesitant to conduct court led

inquiries into CPA breaches and said these inquiries can be dealt with swiftly through

inviting oral submissions as to why there wasn’t a breach and through succinct reasons.

19. The explanation proffered by the parties for the level of representation was accepted byt

the Court and no breach of s24 was found through over-representation by counsel.

Although the explanation was accepted the court noted it is the responsibility of counsel

and solicitors to consider whether there is appropriate or unnecessary representation.

Huge costs and quantum were at stake in the primary proceeding and there were

complex legal and factual issues, hence the court accepted the level of representation as

appropriate in the application.

20. However, there was held to be a breach of s.24 by the solicitors through unnecessary

and voluminous material produced in appeal books in comparison to the issues and

quantum. Each applicant’s solicitor was ordered to indemnify the applicant for 50% of

respondent’s costs caused by unnecessary content of application books.

Hudspeth v Scholastic Cleaning (various rulings) (VSC)

21. Hudspeth v Scholastic Cleaning [2014] VSC 622 began as a personal injury jury trial

concerning a cleaner who slipped and fell on soap from a soap dispenser on the floor of

a school bathroom. The problems with the plaintiff’s expert evidence began when the

5 [2013] VSCA 337 at [20]


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plaintiff’s counsel attempted to lead evidence from the expert on a set of assumptions

which differed to the filed version of the expert’s report. The expert’s report that was

attached to the filed and served Order 44 notice was based on an erroneous series of

facts which differed from the plaintiff’s evidence at trial. The expert had misunderstood

the plaintiff’s factual assumptions when he was briefed and had transcribed the sequence

of events incorrectly. The senior counsel for the plaintiff had realised the forensic issue

before trial, telephoned the expert the day before trial and asked him if the different

version of facts altered his opinion. The expert confirmed his opinion was not altered and

the senior counsel asked him to prepare a further report based on the correct factual

assumptions contained in the plaintiff’s original witness statement. The expert drafted a

third report and provided it to the senior counsel who ultimately did not decide to serve

the new report on the opposing parties during the course of the trial.

22. During the expert’s evidence in chief, the senior counsel for the plaintiff did not refer to

the revised report but attempted to lead evidence from the expert based on the new set

of assumptions which mirrored the evidence given by the plaintiff. After the defendants’

objected to this course, the expert was restricted to giving evidence based on his filed

report, served under Order 44. Critically, the expert nor the senior counsel for the plaintiff

mentioned to the court or their opponents the recently prepared further expert report

when attempting to lead evidence in chief on the revised assumptions.

23. Whilst the plaintiff’s OH&S expert was being cross-examined, one of the defendants’

counsel discovered that the expert had prepared two versions of the filed expert report,

which differed in regards to a key finding, and not all parties to the proceeding had been

served with the same version of the report. The distinction between the versions of the

report concerned the expert’s assumptions about whether the plaintiff had or had not

previously seen and reported other instances of soap dispenser vandalism in the

bathroom to her employer, which was a pivotal point to the case. The cross examination

also uncovered the existence of the third draft report, apparently prepared after the

commencement of trial and on a different set of assumptions, apparently at the request of

senior counsel.

24. Whilst the expert was in the witness box he was ordered to hand up his file concerning

the case. In front of the jury, the court and parties inspected the file and it contained the

draft further third report prepared after the commencement of trial, which the expert said

he had prepared to ‘get the facts as right as I was directed to’.


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25. As a result of this discovery, in closing address to the jury one of the defendant’s counsel

alleged that the plaintiff’s counsel had attempted to mislead the court by leading

evidence from the expert on the assumptions contained in the third report, without

revealing the existence of this third report or serving the report.

26. Subsequently, the jury returned a finding of no liability in favour of the defendants, and

the judge, of his own motion commenced a Civil Procedure Act inquiry under s29 into the

conduct of the expert, senior counsel and the instructing solicitor regarding the expert

reports with altered versions and un-served draft report.6 The judge’s inquiry concerned

whether their conduct in regards to the third report that was prepared but not served and

not mentioned during the expert’s evidence in chief amounted to a breach of the

paramount duty (s16); the duty to act honestly (s17); the duty not to mislead or deceive

the court (s21); and the duty to disclose documents critical to the resolution of the dispute

(s26).

27. The Court of Appeal overturned the jury verdict of no liability due to the comments made

by counsel for one of the defendants in closing to the jury and remitted the matter to the

trial judge for consideration.7 Upon the remittal of the matter to the trial judge, Dixon J

found in favour of the plaintiff, awarding the plaintiff $610,400 in damages.8

28. After the remitted trial, Dixon J handed down his findings in regard to the s.29 CPA

inquiry which he had instigated after the jury verdict at the end of 2012. His Honour

delivered a lengthly judgment analysing the overarching obligations.

29. Dixon J found that the obligation under s21, not to mislead or deceive, imported the

jurisprudence regarding s18 of the ACL into the obligation, but in the context of civil

proceedings. Accordingly, there was no requirement to show that an individual had

‘knowingly’ misled or deceived, as this is not part of the written provision and not a

requirement under s18 of the ACL.

30. In regards to the obligation to disclose critical documents under s26, the solicitor had

claimed that she was not aware that the expert had prepared a third report and she was

not in possession of the third report. There was no evidence that the expert had sent the

third report to the solicitor, and the expert appears to have only sent the draft through to

senior counsel. The solicitor claimed that all she knew of the third report was that senior

counsel had telephoned her on the eve of the trial and informed her that the expert ‘may

6 See Hudspeth v Scholastic Cleaning and Consultancy Services & Ors (Ruling No 4) [2013] VSC 14 7 Hudspeth v Scholastic [2014] VSCA 3 8 Hudspeth v Scholastic (Ruling No 7) [2014] VSC 542 (20 November 2014)


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prepare a further report’ and she claimed that she did not turn her mind to the report or

discuss the report or proposed report again with senior counsel or junior counsel during

the course of the trial. The court noted that the solicitor had allowed the barrister to

engage directly with the expert, and that was the nature of the barrister’s retainer. Dixon

J found that the possession, custody and control of the report by the senior counsel

acting on retainer meant that his knowledge of the document was imputed to the solicitor

and she was held to be aware of the document in the sense required for disclosure under

s.26 of the CPA: [225]-[228].

31. Despite the plaintiff’s successful appeal, the CPA inquiry continued and the various

contraveners filed affidavits explaining their involvement in the preparation of the expert

evidence. They were not cross examined, but the inquiry resulted in findings of

contraventions of obligations by the QC, solicitor and expert (Hudspeth v Scholastic

Cleaning (No 8))9 and it was held that:

a. Plaintiff’s QC had breached the paramount duty to court (s16); duty to disclose

existence of a critical document (s26); and duty not to mislead or deceive in

respect of the expert’s evidence (s21).

b. Expert had breached obligation not to engage in misleading and deceptive

conduct (s21): based on his conduct in not revealing the existence of third report

in evidence in chief.

c. Solicitor breached paramount duty to court (s16); and duty to disclose existence of

a critical document (s26); and duty not to mislead or deceive in respect of the

expert’s evidence (s21).

32. Dixon J held that it was clear that s.29 of the CPA has eroded at advocates’ immunity

from suit.10 The court may therefore consider costs orders against solicitor and counsel

under s.29 of the CPA, if the interests of justice call for such an order.

33. The final orders in the Hudspeth matter were complicated by the plaintiff’s successful

appeal, which limited the impact of the breach of the CPA upon her case and upon her

opponents. Accordingly, the costs and compensation orders regarding the CPA breaches

and inquiry were:

a. Although plaintiff won appeal, her QC and solicitor bore 40% of appellate costs

previously ordered against the respondents (H v S [2014] VSCA 78);

9 [2014] VSC 567 (20 November 2014) 10 Hudspeth v Scholastic (Ruling No 8)[2014] VSC 567 at [175]


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b. The only person prejudicially impacted by the primary trial CPA breaches was the

plaintiff as she lost the jury trial, so the other parties could not recoup costs for

breaches (H v S Ruling No 9)11;

c. Expert was ordered to pay apportioned costs of appeal (s29), as the judge was not

persuaded that the expert had limited control over what occurred regarding his

reports.

d. Each contravenor was ordered to pay 1/9th of the respondents’ costs of

responding to the court’s motion.

34. Key lessons for practitioners from Hudspeth include:

a. Clarify that the expert’s assumptions in their report accord with the instructions/lay

evidence.

b. Consider carefully what may be considered a critical document –expert reports are

likely to be critical!

c. Counsel’s knowledge/possession of documents will be imputed to solicitor for the

purpose of s.26 if the knowledge/possession is within the scope of their retainer.

d. Section 29 CPA compensation orders will be greater in quantum if the impact of

the breach has cost consequences for opponents.

e. Advocates’ Immunity has been eroded by s.29 costs orders.

f. Sanctions will be ordered even when the contraveners’ client was ultimately

successful in the proceeding.

Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014]

VSC 400

35. The primary matter was a long running construction dispute in which the defendant was

successful in claiming that there had been an invalid termination of the contract by Dura.

36. The defendant (Hue) filed a motion under s.29 of the CPA against the plaintiff’s (Dura)

law firm, seeking that they pay legal costs of the proceeding, on the basis that the

solicitors proceeded with a claim against Hue that was without a proper basis and that

the solicitors ought reasonably have known that it had no proper basis (s.18).12 Hue

alleged that by Dura refusing to accept a Calderbank offer made by Hue to Dura after the

service of expert reports, Dura had proceeded with a matter that it must have known or

11 [2014] VSC 622 12 Also proceeded on the wasted costs jurisdiction of s24(1) of the Supreme Court Act 1986 and r 63.23 of the Supreme Court (General Civil Procedure) Rules 2005.


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ought to have known had no proper basis as its expert evidence was so deficient that it

could not have reasonably been considered to have a proper basis to its claim.

37. The CPA motion was supported by two affidavits from Hue’s solicitors and two from

Dura’s solicitors. Hue’s lawyers also contended that the expert and lay evidence upon

which Dura relied was grossly inadequate and unable to refute Hue’s claim or to advance

their own case.

38. Hue alleged that some of the problems with Dura’s expert evidence at trial included that:

a. It was incompetently briefed to experts without the requisite expertise;

b. the experts gave irrelevant opinions;

c. the experts were withheld information that was fundamental to validly forming

their opinions;

d. it was not independent, as some of Dura’s lay witnesses had assisted the experts

with their processes of inquiry;

e. it was therefore not admissible and would not be supported by lay witnesses.

39. If those problems with Dura’s evidence were true, then Hue alleged that Dura’s solicitors

had:

a. Unreasonably or improperly initiated and continued the proceeding, with no, or

substantially no, prospects of success.

b. Acted in willful disregard of known facts and law.

c. Failed to give reasonable attention to the relevant law and facts.

d. Breached overarching obligation to only make claims with a proper basis

e. Caused costs to be incurred without reasonable cause ($3M+)

40. When considering the lack of proper basis allegations, Dixon J noted that proper basis

obligations must be met whenever a substantive document is filed and upon the

assertion of any ‘claim’ by a party. This could include interlocutory applications, security

for costs, for better discovery, objections or even oral applications at trial.13 However, the

proper basis obligation is not ongoing – it applies at the time the claim is made.14

41. In response to the CPA motion, Dura’s solicitors contended that it was difficult for them to

fully answer the allegations against them that the matter was launched without a proper

basis, as this would require leading evidence that they Dura refused to waive legal

professional privilege over. Hue was critical of this as the law firm could not identify the

13 Dura No 5 at [87]-[88]. 14 Dura No 5 at [89].


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relevant privileged communication which restrained them from providing a full

explanation to the court.

42. Dixon J was not attracted to this argument and commented: ‘Having been Dura’s solicitor

since 2006, I would have expected that Mr Noble would be able to give evidence of the

material facts and path of reasoning that demonstrated the basis for his beliefs as

expressed in his affidavit.’ (at [24]).

43. Dixon J set out the common law principles to be considered when a wasted costs order

against a solicitor was being considered, such as under the r63.23 jurisdiction:

a. A lawyer is not to be held to have acted improperly, unreasonably or negligently

simply because he or she acts for a party who pursues a claim or a defence

plainly doomed to fail.

b. A lawyer is not the judge of the credibility of the witnesses or the validity of the

argument.

c. If LPP hinders ability to rebut complaint, the court must make allowances and give

the practitioner benefit of the doubt.

d. A client properly advised that a case is weak and likely to fail, may direct a lawyer

to proceed and it is not ethically inappropriate for the lawyer to do so.

44. Despite clarifying these principles, Dura’s solicitors’ claims that legal professional

privilege restrained them giving a more fulsome explanation of the proper basis to their

pleadings, were not relevant as s13(3) of the CPA restrained their reliance on LPP. The

court held that overarching obligations apply despite any instructions or wishes of the

client. The obligations therefore prevail above inconsistent instructions.

45. The solicitor argued that barristers had been involved in briefing experts and preparing

the claim, but he could not point to advice from the barristers which showed a proper

basis or advice where the barristers considered the expert’s qualifications. It was held

that the overarching obligations upon lawyers/solicitors, and professionals cannot hide

behind the fact they have briefed counsel, as the obligations are non-delegable: [146].

46. Hue’s allegation that poor expert evidence meant there was no proper basis was not

accepted as Hue did not raise these contentions during the pre-trial expert evidence

objection phase and only raised any objection to expert evidence on day 17 of trial. They

could not later claim wasted costs based on expert evidence that they did not object to at

the earlier appropriate time.

47. Dixon J held that in both the wasted costs jurisdiction and s.29 of the CPA, the

touchstone is unprofessional conduct ([102]). The appropriate standard of proof is the


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Brigingshaw v Briginshaw standard, the court should take into account the seriousness of

the allegation and the gravity of consequences that would flow from any finding against

the individual ([108]).

48. His Honour held that Dura’s lawyers actions in continuing a claim for costs involved in

provisional scaffolding, despite being on notice that Dura had not paid the amounts

claimed, was not a breach of a proper basis obligation as that obligation was not

ongoing. However, the continuation of the claim entitled Hue to a wasted costs order

against the solicitors under the r63.23 jurisdiction in the amount of $113,092, spent in

continuing to respond to that particular claim, to be paid by Dura’s lawyers.

49. Although Dura’s expert evidence was poorly prepared, the conduct did not amount to a

breach of an overarching obligation or warrant a wasted costs order (at [237]). The other

problems with Dura’s lay witnesses were somewhat excused due to the limited resources

of Dura. It was considered to be conduct no so plainly unjustifiable to warrant a general

wasted costs order against Dura’s solicitors.

Brown v Guss (No 2) [2015] VSC 57

50. Brown v Guss involved a testamentary dispute, in which the defendant alleged that the

deceased had lacked testamentary capacity and that an earlier will was procured by

undue influence of plaintiff. The solicitor acting for the defendant was the defendant’s

father, Guss Snr. There existed three wills from 2007, Jan 2010 and April 2010. The

defendant argued that the April 2010 and 2007 wills should be quashed, in favour of Jan

2010 will.

51. The matter was filed in 2011, yet the defendant didn’t allege reliance on the January

2010 will until amendments were pleaded by Guss in November 2012.

52. The Defendant’s solicitor (Guss Snr) filed significant evidence, which included material

that made little sense and detailed personal grievances about the plaintiff and his family

from 1991 to 2010. These allegations lengthened the trial significantly and increased the

cost of litigation. Justice McMillan found that the filed material revealed there was no

substance to the allegations against the plaintiff that they had unduly influenced the

deceased.

53. The plaintiff brought an application pursuant to s.29 of the CPA for indemnity costs

against Guss Snr., for breaches of obligations of honesty (s17), to have proper basis to

the claim (s18), the duty not to mislead or deceive (s21).


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54. The plaintiff argued that an inference should be found that the evidence of the

defendants’ witnesses at trial should be rejected because it was deliberately false. The

plaintiff alleged that the evidence revealed that there had been collusion of witnesses

including Guss Jr., other witnesses and Guss Sr.

55. When considering the application under s29, Justice McMillan held that despite the large

volume of evidence filed by Guss Snr there had been no evidence of undue influence on

the part of the plaintiff, and accordingly there must have been no proper basis to the

amended pleading filed in November 2012.

56. Further, acting as the solicitor on his son’s behalf in a testamentary dispute concerning

his deceased mother in law, against his brother in law, he was personally interested in

the success of the proceeding for his children. He had filed substantial affidavits of his

own evidence that were ultimately not filed as full of inadmissible evidence. Her Honour

did not find there was collusion of the witnesses (incl. Guss Snr) or that Guss Snr had not

acted honestly.

57. Guss Snr claimed he had briefed counsel and this was relevant to the alleged breaches.

McMillan J found that you cannot hide from your CPA obligations by relying on the fact

you briefed counsel, endorsing Dixon J’s obiter in Dura v Hue regarding the non-

delegable nature of obligations.

58. McMillan J held that there was no proper basis to the defendant’s claim and regardless of

the intention of the defendant, the court had been misled and deceived by the solicitors

conduct (breach of s21 of CPA). Her honour held that:

‘There was not sufficient doubt or concern as to the issues relied

on by the defendant such that they required investigation by way of evidence to be

given and tested in court. In reality, it was unnecessary for there to have been a

proceeding challenging the April 2010 will at all.’

59. Accordingly, the solicitor for the defendant (Guss Snr) was ordered to pay the costs of

the proceeding on an indemnity basis.

Gibb v Gibb [2015] VSC 35

60. The deceased left an entire estate valued at $151,000 to twin children, who lived with ex-

partner of deceased, to be accessed when they turn 25. The deceased’s parents were

trustees of the estate. The will gave the trustees discretion to administer the estate

towards children’s education or advancement.


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61. The mother of children brought Part IV action on behalf of twins, seeking money for

private health insurance, ballet, swimming and dancing lessons for the children. Prior to

bringing claim, the mother of children had made no request for this financial maintenance

for these provisions to the trustees.

62. Justice McDonald held that if there was substance to plaintiff’s allegations of inadequate

provision for the twins then she should have brought an application for the trustees to be

removed under Trustee Act. However, there was no evidence that the trustees were

acting with mala fides. Ultimately, the deceased had provided for the entire estate to go

to the children and could not have done more for them, therefore a Part IV action on their

behalf was unnecessary.

63. The trustees were forced to spend $26,000 defending the unnecessary Part IV action.

The plaintiff incurred $57,394 in professional fees to solicitors and counsel that were to

be paid out of the very small estate and it was clear the plaintiff would have been

financially ruined if the costs orders were made against her.

64. Justice McDonald therefore held that the Part IV action was brought without proper basis

in breach of s18 as there was no evidence to substantiate the concern that the children's

educational and maintenance costs would not be paid out of the estate. It was a most

“unusual” action to bring.

65. His Honour was concerned that those solicitors advising the plaintiff must have been

aware of the devastating the cost burden of litigation on a modest estate, and the pursuit

of this action was therefore also a breach of the s24 requirement to keep costs

reasonable and proportionate. McDonald J launched a s.29(1) motion to examine

whether a costs order should be made against the plaintiff’s solicitors. The Defendants

were also given an opportunity to file a s.29 application in their favour as well.

Kenny & Anor v Gippsreal Ltd [2015] VSC 284

66. As discussed above, this was a matter in which the successful defendants filed a s.29

summons against the barrister and solicitor who had acted on behalf of the plaintiff in the

original proceeding. The matter had been settled by a deed of settlement entered into in

March 2012. In April 2012 a dispute arose as to whether judgment could be entered for

the defendant in terms of the deed of settlement. The defendant contended that if this

argument was pursued by the plaintiff, then it would seek orders under the Civil

Procedure Act against the solicitor and barrister for the plaintiff, on the grounds that their

opposition to the entry of judgment was without a proper basis.


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67. Ultimately, the judgment was entered by consent on 7 August 2012, when the previous

barrister and solicitor for the plaintiff were no longer acting.

68. In 2014, the defendant filed two summons under the Civil Procedure Act alleging

breaches of the CPA by the plaintiff’s solicitor and barrister in the dispute about the

settlement deed in 2012. The summons sought orders for their costs incurred as a result

of the delay between April and August 2012 in the entry of the judgment. It was alleged

that the delay was incurred due to the barrister and solicitor agitating an opposition that

was without a proper basis.

69. The barrister and solicitor opposed the applications on the grounds that the applications

were incompetent as they were out of time and not filed prior to the finalisation of the civil

proceedings, as required by s.30 of the CPA. The defendant contended that the consent

judgment was not the finalisation of the proceeding as the order still anticipated that the

costs would require taxation, and there was an order allowing for questions regarding

third party costs to be reserved. The summons in question did not concern third party

costs.

70. Justice Vickery held that the summons were both incompetent, as they were not

accompanied with applications for an extension of time under s.31, accordingly they were

filed after the finalisation of the civil proceedings. His Honour considered that the matter

was finalised on 7 August 2012, when the consent judgment was authenticated. His

Honour held that it made no difference that one aspect of the order was reserved, or that

there was a requirement for costs to be taxed. The substantive proceeding had been

concluded by the order and therefore it was finalised and the summons was out of time.15

Locker Group Pty Ltd v HEA Australia Pty Ltd [2015] VSC 752

71. This judgment occurred in the context of winding up proceedings. The company had

been wound up by third party creditor after a substitution application. One week after the

winding up, the company applied to have the winding up set aside, on the grounds that

the company was served late with application in Perth. Gardiner AsJ had not been

informed by creditor of the late service of the company when his Honour made the

winding up order.

15 Kenny & Anor v Gippsreal Ltd [2015] VSC 284 at [101].


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72. Randall AsJ ordered the liquidation be set aside and then considered who should pay the

costs of the liquidators. The liquidators had incurred $30,000+ in costs and expenses in

the first week of winding up.

73. It was held that at the time that the third party creditor had applied to the court for the

winding up order it did not have a proper basis to do so (s18 CPA), as it knew it was in

breach of the service obligations. By failing to bring this service issue to the court’s

attention, the creditor failed to discharge its paramount duty to the court. The third party

creditor was therefore ordered to pay the reasonable remuneration and expenses of the

liquidators, pursuant to s.29 of the CPA.

Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758

74. The plaintiff employer brought proceedings seeking orders for breach of contract, breach

of fiduciary duties, breach of confidence action against former employee. Six months

prior to trial the employer abandoned most claims and persisted with breach of contract

claim with only prospect of nominal damages.

75. There were substantial expenses incurred by both parties; plaintiff: $600K and $300K for

defendant. Ultimately, at trial the plaintiff established that they had right to an order that

there was a breach of contract, but this breach would only have obtained an award for

nominal damages of $1.

76. After the trial the defendant applied under s.28 and s.29 of the CPA for an order that the

proceeding be dismissed after trial on grounds that there was breach of s.24 obligation to

ensure reasonable and proportionate costs.

77. It was ordered that the proceeding be dismissed. The court considered that the plaintiff’s

persistence with the proceeding when it only faced a nominal award of damages was a

‘egregious breach’ of the CPA requirement to keep costs reasonable and proportionate.

The plaintiff had argued that it pursued the litigation ‘out of principle’. As a result of this

conduct the plaintiff was required to pay the defendant’s costs on indemnity basis from

beginning of proceeding, despite being found to have been entitled to its nominal

damages order.

Other recent decisions

78. In Grech v Deak-Fabrikant (No 4) [2016] VSC 35 (Daly AsJ), the defendant was ordered

to compensate other litigants under s.29 for failing to show up for 6 days of trial and due


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to her combative behaviour which resulted in the trial being prolonged with irrelevant

evidence. This conduct was held to be a breach of s.19, 20, 23, 24 and 25 of the CPA.

79. In Re Manilo [2015] VSC 733 (McDonald J), the barrister and solicitor for the applicant

were required to make submissions to justify why they should be entitled to charge fees

to a client who was illiterate and had limited intellectual capacity, and very low prospects

of success. McDonald J was concerned whether there was a proper basis to the claims

brought in the application and sought an explanation.16 The respondent was also found

to have breached s.20 and s.21 of CPA by interfering with a witnesses evidence as she

was found to have been nodding and signaling to her son during his evidence.17

80. In Batrouney v Forster (No 2) [2015] VSC 541 the receivers of law firm pursued

proceedings against the former principal for double disbursement accounting issues,

failing to have signed fee agreements and other issues. Deloitte had been asked to

prepare an expert report which had shown there was no problem with the accounting.

The proceedings were pursued despite the expert advice and without putting the

allegations to the principal for comment before filing. It was held that the receivers had

breached s.18 (proper basis) and s24 (requirement to keep costs reasonable and

proportionate) of the CPA. The Receivers were required to pay the defendant’s costs on

indemnity basis pursuant to s.29 and were also required to refund any fees to the law

firm that they charged whilst acting in their role as receivers in pursuing the litigation

against Forster.

CPA sanction trends

With the support of the CPA, Victorian courts are much more willing to investigate and

inquire as to legal practitioners’ conduct in proceedings and flexible orders will be made

(ie. Liquidators’ expenses as a sanction).

Legal Professional Privilege will not protect against a failure to explain proceeding

without a proper basis.

The CPA has ‘pierced the veil’ of advocates’ immunity by imposing costs obligations on

counsel and solicitors in litigation: Hudspeth v Scholastic Cleaning No 8.

Experts are not going to be spared from sanctions under s.29, so they and their insurers

should be on notice of their obligations.

Impecunious defendants are behind most of the s.29 applications against solicitors.

16 Re Manilo [2015] VSC 733 At [87]-[89] 17 Ibid at [93]


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Ensure that if you are amending the assumptions relied on by an expert witness and then

attempting to lead evidence based on those new assumptions, any supplementary report

should be served immediately.

Sanctions can be imposed under s.29 even if acting on instructions: Yara v Oswal at [20].

A barrister’s knowledge of critical documents will be imputed to solicitors if the barrister is

acting within their retainer: Hudspeth.

The courts appear hesitant to award wasted costs or indemnity costs against lawyers for

the entire proceeding where their conduct is ‘somewhat justifiable’ or not egregious: Dura

v Hue (No 5) [2014] VSC 400 cf Brown v Guss [2015] VSC 57.

Applications under s.29 should be made before or at the delivery of judgment for the

proceeding: Kenny & Anor v Gippsreal Ltd [2015] VSC 284.

Georgia Douglas

(03) 9225 6715

Owen Dixon Chambers West

28 April 2016

Documents

A GUIDE TO RECENT SANCTION AND COMPENSATION … · in civil litigation to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in the parties’