Ensure there is a proper basis for seeking a personal cost order

29 July, 2016

LPLC has seen an increase in the number of claims involving personal cost orders since the Civil Procedure Act 2010 (Vic) was introduced. However, a recent decision of the Victorian Supreme Court shows that practitioners who threaten to seek a personal cost order against another practitioner may themselves be in breach of the Act if the threat is made without a proper basis.

In ACN 005 490 540 Pty Ltd v Robert Frederick Jane Pty Ltd [2016] VSC 217, the defendants applied unsuccessfully to restrain the plaintiffs’ lawyers from acting in the proceeding. The plaintiffs then applied for indemnity costs against the defendants and their lawyers.

The plaintiffs argued the defendants’ application was an abuse of process, brought without a proper basis in breach of the Act, and the plaintiffs had given the defendants and their lawyers six warnings to that effect.

Judd J reviewed the approach the court had previously taken to cost orders against practitioners under section 29 of the Act. He said that although such orders had been made in Yara Australia Pty Ltd & Ors v Oswal [2013] VSCA 337 and other cases, caution is required in concluding that an actionable breach has occurred.

Judd J made an order for indemnity costs against the defendants but refused to make an order for costs against the defendants’ lawyers. He said that facts justifying an order for indemnity costs against a party do not automatically translate into a basis for an order against that party’s lawyers.

He found that the plaintiffs’ threat to apply for costs against the defendant’s lawyers was based on the plaintiffs’ subjective assessment of the defendants’ prospects of success, made prior to the defendants filing all of their material. Consequently, it was premature, provocative and unjustified.

According to Judd J, a practitioner alleged to have breached an overarching obligation is not under any burden to satisfy the court that he or she had a reasonable belief in a proper basis to make a claim or advance a particular case. From the evidence that was available, a practitioner could have reasonably concluded that an application to restrain the plaintiffs’ lawyers from acting in this proceeding was arguable.

Judd J commented that where a threat to apply for a cost order against a practitioner is intended as no more than bluster or negotiating rhetoric, it is improper and potentially in breach of the Act.