In brief - Lawyers may be directed by courts to pay the other party's costs

In the recent Victorian Court of Appeal judgment of Yara Australia Pty Ltd & Ors v Oswal [2013] VSCA 337, the court found that the legal practitioners acting for the applicants in an unsuccessful appeal had breached their overarching obligations to use reasonable endeavours to ensure that the costs incurred were reasonable and proportionate to the complexity and importance of the issues and sums in dispute.

Overarching obligations of legal practitioners under the Civil Procedure Act 2010 (Vic)

The ANZ, receivers appointed by the ANZ and two other applicants had sought security for costs in proceedings in the amounts of $86,361, $31,808.20 and $22,810.80 respectively. Associate Justice Efthim awarded security, but those orders were set aside by Whelan J.

An application to the Court of Appeal for special leave to appeal from the orders of Whelan J was refused and the question of costs was dealt with in the joint judgment delivered by Redlich JA, Priest JA and Macaulay AJA on 27 November 2013.

The court observed that the enforcement of the overarching obligations under the Civil Procedure Act 2010 (Vic) ("the Act") had not previously been considered in any detail at appellate level. The court took the opportunity in its judgment to discuss the overarching obligations at length so as to provide guidance to judicial officers and practitioners.

Purpose of Civil Procedure Act 2010 (Vic) and Civil Procedure Act 2005 (NSW)

The Victorian court noted that the Act's purpose was to reform and modernise the laws, practice, procedure and processes relating to civil proceedings in Victorian courts. The need to ensure that costs were reasonable and proportionate was a core objective.

The court noted that it is obliged to give effect to the overarching purpose of the Act "to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute."

This is similar to the terms of the Civil Procedure Act 2005 (NSW), where the overriding purpose of the Act is expressed to be to facilitate the just, quick, and cheap resolution of the real issues in the proceedings.

Lawyers' overarching responsibility cannot be set aside because of instructions of client

Significantly, the Victorian court noted that the legal practitioner will not be relieved of this overarching responsibility because of the instructions of their client:

The legal practitioner's duty is non-delegable. The obligation will override their duty to their client where the discharge of that duty would be inconsistent with the overarching obligations. The legal practitioner will not be relieved of this overarching responsibility because of the instructions of their client. [14]

Level of representation required and extent of material to be filed with the court

The court also commented that the legal practitioner must give careful consideration to the level and extent of the representation that is necessary for a party:

Even where a party provides informed instructions to their legal practitioners that they wish particular counsel to be briefed, the legal practitioners who act on their behalf have an overriding duty to consider whether, having regard to their overarching obligation to ensure costs are reasonable and proportionate, the engagement of particular counsel will contravene the Act. [36]

The overarching obligation is also relevant to the extent of material to be filed with the court.

The court noted that the Act is designed to protect against the inappropriate use of the courts as a public resource:

Overly voluminous application material strains the administrative resources of the Court and the time of Judges themselves. Where a large volume of material is provided to the Court that is unnecessary and excessive, there will be a prima facie case that the overriding obligation has been breached. [40]

Level of representation of applicants found to be not excessive

Each of the four applications for security for costs was supported by submissions that were to a large extent in the same terms. The court noted that the applicants were represented by seven counsel, three of them senior counsel.

The court accepted that each applicant had a separate and distinct interest and was entitled to separate representation, and the Act does not require a party to forfeit that right. The court also accepted that the parties were not overrepresented in this matter:

In the context of the broader litigation, which is likely to be immensely complex and expensive, it was appropriate that each party be represented in this application by the counsel that were engaged. [39]

The court also noted that the conduct of counsel at the hearing itself did not breach the overarching obligation as there is no unnecessary duplication of submissions, with parties simply adopting the primary submissions and, when necessary, making "discrete and brief but important submissions which were relevant to the client's position." [38]

Material in application books found to be excessive and unnecessary

The court's real concern was with the material in the application books.

The court was provided with six application folders, comprising submissions, affidavit material, transcript and authorities running to over 2,700 pages. The court considered "much of this material was either peripheral to the application or entirely unnecessary." [40]

The court stated:

The Act's objective is the reform of the culture of unnecessary expenditure in civil litigation. Parliament has intended that this reform can only be achieved by holding parties to account for undesirable civil litigation practices that are unfortunately too common. The Court was burdened with excessive material. The applicants and the respondent were burdened with the cost of that material. There has been a breach of the overarching obligation to ensure that costs are reasonable and proportionate by including in the application books voluminous material that was extraneous or repetitious and excessive. [52]

Solicitors for appellants penalised by cost orders

The respondents argued for indemnity costs. The court accepted that the applicants had not "engaged in unmeritorious or deliberate improper conduct such as would warrant the Court showing its disapproval and at the same time preventing the respondents being left out of pocket." [57]

The court did, however, penalise the solicitors for the appellants with the following orders:

  • each applicant pay the respondent's costs
  • each applicant's solicitor indemnify the applicant for 50% of the respondent's costs incurred as a consequence of the excessive or unnecessary quantum of the application books
  • each applicant's solicitor be disallowed recovery from the applicants of 50% of the costs relating to preparation of the application books and the costs incidental thereto

The court further directed that the solicitors for each of the applicants provide their clients with a copy of the reasons of the court and of the orders.

Courts in NSW also take a dim view of excessive material being filed with court

In an earlier decision delivered by RS Hulme J in Harris v Villacare Pty Limited [2012] NSWSC 452, following the hearing of an application for preliminary discovery, his Honour had cause to query whether the incurring of costs should be borne by the solicitors personally. Significantly, the judge's concern was the volume of material that had been filed by way of supporting affidavit by the defendant's solicitor. The affidavit was four and a half pages long and attached 78 pages of annexures separated by 25 dividers.

The judge referred to section 56 of the Civil Procedure Act and emphasised its requirement that the parties identify each relevant component of the "real issues in the dispute or proceedings". Hulme J was critical of the affidavit and went so far as to describe 90% of it as "a waste of paper" that failed to address the real issues in dispute.

Although the judge did not find any "serious neglect, serious incompetence or serious misconduct" by the actions of the defendant's solicitor, he was of the view that costs had been incurred "without reasonable cause".

Courts should not be deluged with unnecessary supporting documents

The quantum of the costs was small in this case, however it was apparent that the judge wanted to impress upon the solicitors involved the significance of the "overriding purpose" of the Civil Procedure Act.

Notably, he opined:

One of the most important tasks of lawyers engaged in litigation is to sort the relevant from the irrelevant and to make the judgments enabling this to occur. Experience over 40 years shows that, increasingly, this is not being done and the Court and the parties are obliged to deal with, as occurred here, 50 or so pages and in other cases hundreds of pages when, at the most, one or a much smaller number would do. Although the circumstances are different, one only has to reflect on the number of occasions when, of hundreds of documents included in the "Tender Bundles" only a relative few are referred to, to illustrate the point.

Whether the change in practice is inspired by a greater fear of being sued, or the fact that charging for time or copies often rewards an increase in the size of the task or in the volume of paper, or simply avoids having to make decisions, there can be no doubt that the courts are being deluged with material that years ago would not have passed solicitors' desks or counsel's chambers and should not now.

Lawyers must be wary of incurring excessive costs or risk penalties

It is now clear that, in both jurisdictions, legal practitioners must use reasonable endeavours to ensure that the costs incurred in connection with a proceeding are reasonable and proportionate to the complexity and importance of the issues and the amount in dispute.

The courts will now examine the level of representation and the relevance of the material filed with the court. If the practitioner is found in the conduct of proceedings to have breached the overarching obligations, the practitioner personally may be ordered to pay the extra costs incurred by the other party and prevented from recovering those extra costs from the practitioner's own client.