COSTS – against non-party

COSTS – against non-party – whether solicitor sole director and shareholder of incorporated legal practice should pay costs of unsuccessful application to remove to this Court proceedings pending against that company in District Court including proceedings already listed for hearing – whether solicitor funded litigation – whether conduct of litigation was unreasonable – whether solicitor had an interest in the proceedings – whether company was insolvent or a “person of straw”

PROCEDURE – interlocutory orders – whether freezing order made on an ex parte basis should be dissolved on basis of non-disclosure by moving party – whether freezing order should be extended against solicitor who has given an undertaking to the Court not to dispose of assets

Paramount Lawyers Pty Ltd v Haffar (No 2) [2016] NSWSC 906 (30 June 2016)

An application made by Paramount Lawyers Pty Ltd that seven proceedings pending against it in the District Court by its former clients (the defendants) be transferred to the Supreme Court was dismissed: Paramount Lawyers Pty Ltd v Haffar [2016] NSWSC 651. It was ordered that Paramount pay the clients’ costs of the proceedings. However, seven days later Paramount went into liquidation.

The clients sought an order that the sole director and shareholder of Paramount, Mr Marocchi, and Paramount Compensation Lawyers Pty Ltd (“PCL”) pay those costs. Freezing orders were made against Mr Marocchi and PCL. The issue before the judge was whether such a costs order should be made and whether the freezing order should be extended.

Stevenson J proposed to order that Mr Marocchi, but not PCL, pay the clients’ costs of 4 May 2016 and that the freezing order be dissolved in light of undertakings given to the Court.

The judge considered the background of the matter, the commencement and progress of the District Court proceedings, the incorporation of PCL and the transfer of files from Paramount to PCL.

Costs are in discretion of the Court (s 98(1) of the Civil Procedure Act 2005 (NSW)) and the Court has jurisdiction to order that costs be paid by a third party to the litigation: Knight v FP Special Assets Ltd [1992] HCA 28. The judgment of FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 sets out a non-exhaustive list of the factors relevant to the exercise of the Court’s discretion in these matters. The jurisdiction is exceptional meaning “no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense" (see Yu v Cao [2015] NSWCA 276 at [139]).

The judge found that it was a clear case in which to make a third party costs order against Mr Marocchi because:

· Paramount was the unsuccessful moving party;

· Mr Marocchi was the source of funds;

· The conduct of the litigation in the Court was unreasonable;

· Mr Marocchi had an interest in the proceedings equal to that of Paramount; and

· Paramount was “a person of straw”;

Accordingly, Stevenson J found that it was neither necessary nor appropriate to make a third party costs order against PCL as they played no part in the proceedings and a third party costs order against Mr Marocchi suffices to achieve justice for the clients. The judge was not prepared to order indemnity costs.

In relation to the freezing order, the judge saw no basis to continue the freezing order against PCL. In relation to whether the freezing order should be set aside, it was submitted that there was non-disclosure. A failure to make full disclosure on an application for an ex parte injunction may result in the injunction being dissolved (for example, Thomas A Edison Ltd v Bullock [1912] HCA 72). However, the judge found that the matters relied upon by Mr Parker did not provide a basis to set aside the freezing order. The judge found no reason to extend the freezing order against Mr Marocchi because he is an officer of the court and the consequences of him not complying with an undertaking to the Court are obvious. In relation to the apprehension that Mr Marocchi might dispose of or encumber his assets to frustrate or defeat the clients’ prospective claims, the judge found no substance in Mr McLure’s submission. It was ordered that Mr Marocchi be jointly and severally liable with Paramount for the costs ordered on 4 May 2016. The undertakings were noted and the freezing orders were not extended beyond the date of the delivery of the judgment. It was ordered that the defendant’s notice of motion of 17 May 2016 be dismissed and Mr Marocchi pay the defendants’ costs of that motion.