NA & J Investments Pty Ltd - v - minister administering the water management act 2000 (no.2) [2011] NSWLEC 98

Clarification of ‘wasted cost orders’ by the Land and Environment Court

The Land and Environment Court has recently dismissed a notice of motion seeking an order that there be a wasted cost order under section 99 of the Civil Procedure Act, 2005 against the former lawyers for the parties seeking the order.  In doing so, the Court has clarified the scope of such orders and held that they can only apply where the lawyer has breached his duty to the Court and there is no basis for seeking such an order where the alleged breach of duty by the lawyer is to his client.

Background

Section 99 was part of the Civil Procedure Act as enacted in 2005.  It conferred on the Court express powers which had formerly been part of the inherent powers of the Supreme Court of New South Wales, based on that Courts right and duty to supervise the conduct of its legal practitioners.  Until the passing of the Civil Procedure Act in 2005, inferior Courts and Courts of statutory jurisdiction did not possess such powers – that lay only with the Supreme Court.  The jurisdictions in relation to the inherent power has been said to be only exercised sparingly and only where the conduct involves serious dereliction of duty or gross negligence.[1]  One of the issues in this case, was whether the manner in which the inherent power was exercised also applied to the exercise of power under section 99.  [1] Lemoto v Able Technical Pty Ltd [2005] NSWCA 153

Facts and Issues

The Plaintiffs were three companies who were ordered to pay the costs of the Crown after their involvement in the proceedings were discontinued.  Under section 99, the Plaintiffs sought wasted costs from their former solicitors and barrister.

The issues were based on whether the costs were incurred as a result of a failure to comply with the solicitor and/or barrister’s retainer and whether the circumstances resulted in a valid claim for a wasted costs order under section 99.  

The Judges Decision

Pain LECJ dismissed the application and held that:-

• Professional negligence claims were not permissible under section 99;
• No wasted court costs were demonstrated to have arisen from any breach of the solicitor and/or barrister’s retainer
• Lengthy costs applications under section 99 should be discouraged;
• Where material is subject to legal professional privilege, caution should be exercised in making adverse findings against the solicitor and/or barrister in question;
• The onus of establishing a high standard of serious neglect and incompetence and that this resulted in unnecessary costs, lies with the applicant.

Pain LECJ ultimately found that she was not satisfied on the evidence that the former lawyers had been negligent or that the Plaintiffs had suffered loss as a result of the former lawyers’ conduct or that it was appropriate that an order under section 99 be made.

The interest in the case, however, does not lie in respect of Her Honour’s factual findings, but in the fact that ultimately she decided that they were not necessary because the claims made by the Plaintiffs did not satisfy threshold requirements under section 99.  Those threshold questions were of three categories, namely: 

• A professional negligence action could be brought in the guise of an application for wasted costs under section 99;
• Because there was no breach of duty to the Court or related matters, that an order could be made;
• Whether the costs application should be obtained, given the principals of section 56 of the Civil Procedure Act which relate to the just, quick and cheap disposal of proceedings.

Disguised Professional Negligence Claim

Pain LECJ found that the wasted costs motion was a disguised professional negligence claim.  She held that the claims made in regard to the neglecting of the amalgamation claims in favour of the validity claims and the issue of pleadings were not self evident and, no evidence having been called by the Plaintiffs on these issues, she was not able to draw any conclusion that the claims against the former lawyers and Counsel would have succeeded.  She also found, in relation to the claim that the joinder of additional parties was without instructions, that it was not self evident that that had caused the Plaintiffs any loss – on the contrary, one of the benefits of having multiple applicants was that the costs could be shared, and that as a result it could not be established that the Plaintiffs had suffered any loss.

Finally she noted that professional negligence claim had to identify with precision various matters as to the standard of care and no articulation of the standard of care had been made beyond broad generalities.  

No breach of duty to the Court   

The former lawyers for the plaintiffs argued that their conduct:

• did not breach any duty that they had to the Court.
• did not cause the Plaintiffs to breach any duty they owed to the Court.
• no breach of duty to the Court had occurred by the Plaintiffs.
• no orders of the Court had been breached.
• there was no allegation of any Court time being wasted or costs incurred in relation to wasted time.
• there was no delay in the conduct of the substantive proceedings.
• there was no waste of public resources.

Pain LECJ accepted that for a wasted costs order to be made, allegations under one of the above headings had to be made and demonstrated by evidence.  She therefore held that without a breach of duty to the court as set out above, an order could not be made under section 99 and an order could not be founded on the breach of duty owed by a lawyer to his client.  She found that liability incurred by the Plaintiffs for the costs of the Crown were not wasted costs for the purposes of section 99, as they were the costs of the Plaintiffs deciding to withdraw from the substantive proceedings.

Lengthy Hearings to be avoided

Pain LECJ noted that the hearing of the matter had, to her regret, extended for a period of twelve days. She considered what had occurred had been a costly form of satellite litigation as referred to in Lemoto and many days were spent on evidence about events which occurred outside the court process and could not be known to her as presiding judge.  She therefore considered the conduct particularised by the Plaintiffs was removed from the scope of section 99.

Summary

Her Honour’s decision means that the scope of section 99 has been clarified, and the application of section 99 is only appropriate where the court is fully appraised of the conduct which is criticized and in a position to make findings about that without further evidence or lengthy argument.   The case establishes that the principles under which section 99 costs orders are made do not differ significantly in practice from the previously existing inherent power possessed by the Supreme Court and section 99 has not expanded the scope for such orders to be made to the extent that the language of the section might indicate.

Blackstone Waterhouse acted for the former lawyers on the instructions of their insurers.