Sladen Snippet - Overarching obligations and the Court’s discretion to award costs

Overarching obligations and the Court’s discretion to award costs
ACN 005 490 540 Pty Ltd v Robert Frederick Jane Pty Ltd [2016] VSC 217 (ACN)

The Civil Procedure Act 2010 (Act) provides the Court with a relatively broad power to make orders in respect of a person that has breached any overarching obligation in the Act. In particular, section 29 of the Act gives the Court the discretion to sanction parties and/or lawyers by making costs orders against them. Yara Australia Pty Ltd v Oswal [2013] VSCA 337 (Yara) is one of the most publicised cases to examine the scope of the Court’s discretion under section 29 of the Act. In Yara the Court ordered that each applicant was to pay the respondents’ costs and that the lawyer for each applicant was to indemnify the applicant for 50% of these costs. However, there is a general recognition that the Courts must exercise the discretion to award costs against lawyers with caution.

On 2 May 2016, the Supreme Court of Victoria in ACN refused the plaintiffs’ application for a costs order to be paid by the defendants’ lawyers. The plaintiffs’ claimed that the defendants and their lawyers had breached their obligations under that Act by bringing an application without a proper basis. The Court granted an order for costs against the defendants, however disallowed the application for a costs order against the defendants’ lawyers. When handing down its decision, the Court considered the inherent difficulties and risks associated with making costs orders against lawyers under section 29 of the Act, many of which were originally considered by Dixon J in the matter of Dura (Australia) Construction Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400. In particular, the Court in ACN referred to the following risks and issues:

  1. the ability to pursue lawyers for a costs order may result in a ‘backdoor’ avenue to recover costs that would otherwise be unrecoverable from an impoverished litigant;
  2. section 29 of the Act allows a finding of fault against a lawyer which may significantly damage their professional reputation; 
  3. the ability to obtain costs orders against a lawyer under section 29 of the Act may encourage the development of ‘a new and costly form of satellite litigation’;
  4. client legal privilege may be breached if a lawyer is forced to defend their conduct when a Court makes enquiries with a view to making an order against the lawyer under section 29 of the Act; and
  5. the Court’s ability to make an order against a lawyer may be in conflict with the common law principle of a lawyer’s immunity from suit. 

For the reasons listed above, the Court was of the view that care should be taken when exercising its discretion to make costs orders against lawyers.  It is important that Courts consider the competing interests of a lawyer’s overarching obligations together with a lawyer’s duty to their client.

If you have any further questions on the judgment, or for further information, please contact:

Ben Wyatt
Sladen Legal
03 9611 0115

Annabelle Moylan
Sladen Legal
03 9611 0148