Australia: The Cost of No Reasonable Prospects

A case which the NSW Court of Appeal categorises as ‘hopeless’ and ‘with no redeeming features’ is precisely what the legislature had in mind when it passed section 198M of the Legal Practitioners Act 1987 (NSW).

On 21 February 2006 his Honour Justice Ipp directed the plaintiff’s solicitor and barrister to indemnify Eurobodalla Shire Council for its costs incurred in the plaintiff’s appeal (Eurobodalla Shire Council v Wells & 2 Ors [2006] NSWCA 5). The judgment reminds practitioners that section 198M is not a toothless tiger.

The plaintiff alleged she was sitting on a park bench on 14 February 2000 when it collapsed beneath her. The plaintiff alleged the collapse of the bench was the fault of the Eurobodalla Shire Council (the Council) as occupier of the park.

Judge Goldring in the NSW District Court found the Council had not been negligent. He added that even if the Council had been found negligent, the plaintiff would not have reached the 15% non-economic loss threshold and would only have been awarded $1,000 for out of pocket expenses.

The plaintiff’s application for leave to appeal was refused on 8 November 2005. By reason of the existence of a prior Calderbank offer, the plaintiff was ordered to pay costs on an indemnity basis. An application was then made by the Council for a variation of that costs order. The Council sought an order directing the plaintiff’s legal representatives to indemnify the Council for its costs incurred in the appeal.

Justice Ipp considered section 198M of the Legal Profession Act 1987 (NSW) (the Act). Section 198M provides that if the court considers a case did not have reasonable prospects of success, the court may direct that the plaintiff’s solicitor and/or barrister pay some or all of the other party’s costs.

The section had previously been considered in another NSW Court of Appeal judgment, Lemoto v Able Technical Pty Ltd [2005] NSWCA 153. In that case, McColl JA stated that:

‘The question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were ‘fairly arguable’ These are matters about which reasonable minds might differ. The question will be whether the solicitor or barrister’s belief that they had material which objectively justified proceeding with the claim or the defence ‘unquestionably fell outside the range of views which could reasonably be entertained’: Medcalf v Mardell [2003] 1 AC 120.’

Justice Ipp noted the overriding problem for the plaintiff’s legal representatives was that at trial there was no evidence to establish what had caused the bench to collapse. His Honour noted that since it could not be proved what caused the collapse, it could not be proved it had been caused by some act or omission on the Council’s part. His Honour considered that gap in the evidence meant an essential element of the plaintiff’s cause of action at trial had been missing.

His Honour noted other defects and concluded the case was ‘hopeless’. He considered that this ‘should have been obvious prior to the launching of Mrs Aldridge’s application for leave to appeal and her appeal’.

His Honour concluded that the case had no reasonable prospects of success. He noted that while he retained a discretion as to whether to make the costs order, he could ‘see no redeeming feature in this case’. His Honour elected to exercise his discretion under section 198M of the Act since:

• The prospects of the plaintiff paying the costs of the application for leave were zero. (The plaintiff was a 55 year old unemployed woman who at one time lived with friends in a tin shed with no heating and only one or two blankets).
• The evidence adduced at the trial did not establish the necessary elements for the plaintiff's cause of action.
• The missing elements and the 'insuperable defects' in the plaintiff's case should have been obvious to the plaintiff's legal representatives before the appeal was commenced.
• The appeal would have inevitably failed.

His Honour found the plaintiff's legal representatives had been ‘reckless, in light of section 198M, in continuing to prosecute an appeal’ on the plaintiff’s behalf.

In years gone by, a verdict for the defendant was often considered a Pyrrhic victory because of the high unrecoverable costs incurred in defending the case. As part of the recent civil liability reforms, section 198M helps turn the tide against this. However, the discretion to award costs against a practitioner is not taken lightly by the courts and defendants should rely on the provisions judiciously.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.