N3340

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CIA NO. 5 OF 2008

BETWEEN:

ISLAND HELICOPTER SERVICES LTD TRADING AS ISLANDS NATIONAIR
Appellant

And:

WILSON SAGATI, THE DIRECTOR (AVIATION SAFETY REGULATION)
OF THE CIVIL AVIATION AUTHORITY
First Respondent

AND:

JOSEPH KINTAU, THE DIRECTOR, CIVIL AVIATION AUTHORITY
Second Respondent

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Respondent

Waigani: Injia, DCJ
2008: 7 & 16 May

CIVIL – Practice and procedure- Application for costs on lawyer-client basis- General rule of practice - Application must be made by Notice of Motion supported by affidavit – Order 22 r 65(1) & (2), National Court Rules.

Cases Cited:

Papua New Guinea cases
Polye v Sauk [2000] PNGLR 168
PNG Waterboard v Gabriel M Kama (2005) SC821
Gulf Provincial Government v Baimuru Trading Ltd [1998] PNGLR 311
Jacob Sarapel v Fred Kulumbu (2003) N2405
POSF V Silas Imanakuan (2001) SC667
Benny Balepa v Commissioner for Police (1994) N1374
Aigilo v Morauta (2001) N2102
Salvation Army (PNG) Property Trust v Ivar Jorgenson and Rex Vagi (1997) N1644
Alex Latham and Kathleen Marie Latham v Henry Peni [1997] PNGLR 435
Bishop Brothers Engineering Pty Ltd v Ross Bishop (1989) N705
Willie Mel v Coleman Pakalia (2005) SC790
Mision Asiki v Manasupe Zurenoc (2005) SC797

Overseas cases
Orchard v Southern Electricity Board [1987] QB 565
P.C R.Z Investments Pty Ltd v National Golf Holdings Ltd & Anor (2002) VSCA 24
Austrim Nylex Ltd v Knoll and Ors (No. 3) VSC 290 
Myers v Elman [1940] AC 282
Holden & Co. v Crown Prosecutions Service [1990] 2 QB 262
Ridehalgh v Horsefied [1994] 3 All ER 848
Sirios v Centennial Pontiac Buick GMC and General Motors of Canada Ltd (1988), 89 N.B.R. (2d) 244
Rosiniak v Gio (1996 - 1997) 41 NSWLR 608

Counsel:
F Griffin, for the Appellant
T Manjin, for the Respondents

16 May, 2008

1. INJIA, DCJ: On 15th April 2008, the Court granted the appellant leave to discontinue the appeal. The appellant agreed to pay the respondents’ costs on a party-party basis but the respondents sought costs on a lawyer-client basis. The question of costs was reserved and argued on 7th May 2008 and I reserved my ruling.

2. The award of costs on lawyer-client basis is discretionary. A lawyer who causes his client or the other party to incur unnecessary costs through improper conduct or by default may be ordered to pay costs on a lawyer-client basis. The Court’s jurisdiction to order costs on a lawyer-client basis is given by Order 22 r 65 of the National Court Rules. Sub rules (1) and (2) are relevant and they provide:

"65. Personal liability of solicitor for costs. (52/66)

(1) Where costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a solicitor is responsible (whether personally or through a servant or agent), the Court may, after giving the solicitor a reasonable opportunity to be heard – 
(a) disallow the costs as between him and his client; and
(b) direct the solicitor to repay to his client costs which the client has been ordered to pay to any other party; and
(c) direct the solicitor to indemnify any party other than his client against costs payable by the party indemnified.

(2) Without limiting the generality of Sub-rule (1) a solicitor is responsible for default for the purposes of that Sub-rule where any proceedings cannot conveniently proceed, or fail or are adjourned without useful progress being made, because of the failure of the solicitor –
(a) to attend in person or by a proper representative; or
(b) to file any document which ought to have been filed; or
(c) to deliver any document which ought to have been delivered for the use of the Court; or
(d) to be prepared with any proper evidence or account; or
(e) otherwise to proceed."

3. There are three kinds of orders that can be made under r 65(1). Although they are expressed conjunctively, they are alternative orders which may be made by the Court. There are five (5) types of misconduct or default enumerated in r 65(2) but the list is not exhaustive.

4. The purpose and effect of O 22 r 65(1) was considered by the Supreme Court in Polye v Sauk [2000] PNGLR 168. The Court adopted the principle stated by Sir John Donaldson M.R in the English case of Orchard v Southern Electricity Board [1987] QB 565, that the discretion conferred by this jurisdiction must be "exercised with care and discretion and only in the clear cases". The test is stated in other cases as "only in rare and exceptional cases", or "in special circumstances" or "in special and unusual aspects of the case": P.C.R.Z. Investments Pty Ltd v National Golf Holdings Ltd & Anor (2002) VSCA 24, Austrim Nylex Ltd v Knoll and Ors (No.3) (2002) VSC 290. 

5. In Polye v Sauk, the Supreme Court also applied the English House of Lords decision in Myers v Elman [1940] AC 282 and the English Court of Appeal decision in Holden & Co v Crown Prosecution Service [1990] 2 QB 262 which state that whilst a wasted costs order is mostly compensatory, it is also an act of discipline and therefore punitive. The Supreme Court adopted the three stage test for the exercise of the jurisdiction set out in the English Court of Appeal decision in Ridehalgh v Horsefield [1994] 3 All ER 848, as follows:

(1)	Has the legal representative of who complaint is made, acted improperly, unreasonably or negligently?
(2)	If so, did such conduct cause unnecessary costs?
(3)	If so, is it in all the circumstances just, to order the legal representative to compensate any party to proceedings for the whole or any part of the relevant cost.

6. In the Canadian Court of Appeal (of New Brunswick) case of Sirois v Centennial Pontiac Buick GMC Ltd and General Motors of Canada Ltd (1988), 89 N.B.R. (2d) 244, the Court adopted a passage from Okin, The Law of Costs (2nd Ed. 1987), at pages 2 – 61 and 2 – 62 which sets out a useful summary of different types of cases which warrant an order for costs on lawyer-client, as follows:

"An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court’s disapproval of the conduct of a party in the litigation. Orders of this kind have been made where a litigant’s conduct has been particularly blameworthy, for example, where there were allegations of fraud or impropriety either proven or abandoned at trial; or wanton and scandalous charges; or allegations of perjury; or collusion; or where the responsible party perpetrated a fraud on the court, e.g., by preparing and presenting forged documents; or by filing a deliberately deceptive affidavit in support of an order without notice; or by concealing a document until trial and then relying on it; or prolonged the trial by engaging in obstructionist tactics; or brought motions without merit to exhaust an opponent’s resources; or intentionally misled the court by giving false evidence as to material facts; or in contempt proceedings. Solicitor-and-client costs have been awarded to successful party where an action was without any foundation in law, or where an appeal was considered to be without merit; and in a libel action where fault was admitted, only the amount of damages being contested; or in an action for indemnification by an insured against his insurer where the insurer, in refusing to settle a personal injury claim had not used reasonable care for the protection of its insured, acted in bad faith and the plaintiff ought not to have had to bring an action".

7. There are many cases in the National Court and Supreme Court in which costs have been awarded on lawyer-client basis in different kinds of cases. These include the following: 

(a) Abuse of Court process by invoking Court’s review jurisdiction without reasonable cause by pursuing an hopeless application: Polye v Sauk [2000] PNGLR 168; the application for review was filed without basis at all, it was mischievous, unmeritorious and a clear abuse of process: PNG Waterboard v Gabriel M Kama (2005) SC 821; or by bringing a proceeding which is vexatious and abuse of Court process: Gulf Provincial Government v Baimuru Trading Ltd [1998] PNGLR 311, Jacob Sarapel v Fred Kulumbu (2003) N2405. 

(b) Running a defence case on complete lack of defence, the claim could be settled but which was delayed by the defendant and as a result, caused the plaintiff unnecessary litigation and expenses: POSF Board v Sailas Imanakuan (2001) SC 677; or the defendant took a position at the trial when it had no basis on the facts or the law: Benny Balepa v Commissioner of Police (1994) N1374; or where the defendant’s conduct in terminating the plaintiff’s contract of employment was harsh and oppressive, the defendant had no good defence to the claim, the claim could be settled but the plaintiff was put to unnecessary expense in litigating the claim: Peter Aigilo v Morauta (2001) N2102; or defending a claim by a charitable organization on complete lack of defence: Salvation Army (PNG) Property Trust v Ivar Jorgenson and Rex Vagi (1997) N1644; or wanton, deliberate and unprovoked wrongful assault by the defendant: Alex Latham and Kathleen Marie Latham v Henry Peni [1997] PNGLR 435; 

(c)	Wilful and deliberate defiance of Court Order: Bishop Brothers Engineering Pty Ltd v Ross Bishop (1989) N705. 

(d) The respondents’ lawyers failed to appear at the hearing of an Appeal: Willie Mel v Coleman Pakalia (2005) SC 790; Mision Asiki v Manasupe Zurenuoc (2005) SC 797. 

8. The practice adopted by lawyers in seeking costs on a lawyer - client basis varies and is somewhat confusing and it requires clarification. On several occasions including the present case, costs on a lawyer-client basis under O 22 r 65 (1) was not specifically pleaded and sought in a Notice of Motion. Lawyers seeking costs on lawyer-client basis simply announce at the bar table they are seeking such costs and make submissions on the pleadings and conduct of the case by lawyers. In some cases, they hand up copies of correspondence exchanged between lawyers to establish the alleged misconduct or default and then make their submissions and ask the Court to rule on their application.

9. Costs on a party-party basis is the norm in any Court proceeding. Costs awarded on a lawyer-client basis is a departure from the norm and it requires proper exercise of judicial discretion. An order for costs on lawyer-client basis is a serious matter for the lawyer concerned, both in terms of financial burden placed on the lawyer and adverse effect on his/her professional reputation; and the onus, which is no doubt a heavy one; falls on the lawyer seeking such costs to persuade the Court to exercise this discretion in his or her favour. The Court exercises a judicial discretion and the Court expects that party to make proper application supported by affidavit. The lawyer affected has a right to be heard on that application and he or she may wish to file affidavit material in response. The applicant must give the lawyer concerned adequate notice of the proposed application and the Court should give the lawyer reasonable opportunity to be heard. These principles are embodied in the scheme of O 22 r 65. This process is best facilitated by requiring a party who seeks costs under O 22 r 65 to move a motion on notice supported by affidavit. The Notice of Motion should state clearly and precisely the types of order(s) sought under any of the three types of orders enumerated in r 65(1): see r 8 of Motion Amendment Rules 2005, which in the case of appeals, is adopted by r 12(2)(b) of Appeals Rules 2005. 

10. The practice of forewarning the lawyer against whom costs is proposed to be sought under O 22 r 65, is a good practice and a relevant consideration in the exercise of discretion and it should be followed in every case. Copies of correspondences exchanged between lawyers on this issue should be annexed to the affidavit. The practice of forewarning was noted in PNG Waterboard v Gabriel M Kama (2005) SC 821. The applicant filed an application for review of a decision of the National Court in the Supreme Court after an earlier Supreme Court dismissed the appeal against the same decision for want of prosecution. The Court dismissed the application on the basis that there was no basis at all to file the application, the application was mischievous, unmeritorious and a clear abuse of process of the Court. In awarding costs to the respondent on an indemnity basis, the Court said:

"In relation to costs on a solicitor client basis, the applicant had been forewarned by the respondent that if the application proceeded, the respondent would claim costs on a solicitor client basis. We are therefore of the view that the applicant is quite entitled to costs on an indemnity basis".

11. The party seeking costs on lawyer-client basis must put relevant material or evidence before the Court. The nature of the conduct complained of must be clearly set out in affidavit. In Rosniak v Gio (1996-1997) 41 NSWLR 608 at 616, Mapson J stated:

"[T]he Court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because the party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity."

12. As a general rule of practice, an applicant for an order of costs on a lawyer-client basis under O22 r65 should be made by Notice of Motion and supported by affidavit. Of course there are those very rare cases where the conduct of the parties or lawyers in the proceedings is known to the Court, especially in a case where the proceedings are conducted and completed before the same judge, in which case formal notice of motion and affidavit may be unnecessary. In those cases, a party or a lawyer may make an oral application for such costs and the matter may be argued based on the pleadings, the material already before the Court, any new material such as copies of correspondences exchanged between the parties which may be handed up from the bar table by consent of the parties and the conduct of the parties or their lawyers throughout the proceedings. The Court may be in a good position to determine the matter. In all other cases where a party seeks costs on a lawyer-client basis, the application should be made by motion on notice and supported by affidavit.

13. In the present case, Mr Manjin of counsel for the respondent made an oral application for costs on an indemnity basis without filing a Notice of Motion and without any supporting affidavit. Except for a short hearing before Justice Salika on 22 February 2008 where the appellant applied for and was granted interim injunctive relief, the rest of the preliminary hearing leading to the discontinuance of the appeal was conducted before me and so I am in a position to determine the matter. 

14. Mr Manjin submits the appellant filed the appeal without basis. An appeal under s.310 and s.311 of the Civil Aviation Act 2000 does not lie against a notice issued by the Director of Civil Aviation to suspend or cancel the appellant’s aircraft operating licence (AOL) and maintenance organization certificate (MOC). It is the actual decision to suspend or cancel those licences which attracts an appeal under these provisions. In this case the appellant appealed against a notice of suspension or cancellation of the appellant’s AOL and MOC. Initially the appellant commenced proceedings by way of judicial review in OS 160 of 2008 which was subsequently discontinued. Then it commenced this appeal. Both proceedings were commenced prematurely and without basis in law. The interim orders issued in favour of the appellant by Salika J which restrained the respondents from further acting on the notices were made without regard to s 312 (1) which says the decision of the Director that is appealed against "shall continue in force pending determination of the appeal and no person shall be excused from complying with any of the provisions of the Act or decision on the grounds that an appeal is pending". This Court discharged those orders under s 312 (1). The appellant has now abandoned its case midstream and has not proved its case. As a result the respondent has been put to unnecessary costs. It is in these circumstances that the respondents seek costs on an indemnity basis.

15. Mr Griffin of counsel for the appellant submits the onus is on the respondent to prove its case for an order on an indemnity basis. There is no evidence to support its application. No notice of forewarning was given by the respondent’s lawyer. The respondent objected to the competency of the appeal on the basis that no appeal lies against a notice of suspension or cancellation of the appellants AOL and MOC but this court dismissed the application and granted leave to the appellant to file an amended notice of appeal. The amended notice of appeal was filed and an appeal book was prepared and filed. The appeal was ready for an expedited hearing. The decision to discontinue the appeal (and the judicial review proceeding) was made by the appellant and it was a "commercial decision". In these circumstances, the appellant’s lawyer did not act improperly or without reasonable cause and it should not be punished with costs on an indemnity basis. 

16. In my view, the type of order(s) sought by the respondent under O 22 r (1) is not made clear by Mr Manjin. The nature of the misconduct or neglect of the appellant’s lawyers is also not made clear in any affidavit or by copies of any correspondence exchanged between the lawyers. There is no evidence of any forewarning given by the respondent’s lawyer. 

17. The appeal procedure under Part XVII of the Civil Aviation Act is a new regime and appeals before this Court are not common. To my knowledge, there is little or no case precedent to guide lawyers in filing an appeal under the Act. The scheme of the Act is such that the decision –making process and the decision itself, in matters as complex and technical as control of aircraft operations, can also give rise to confusion as to at what stage a decision is made on a particular technical aspect. For instance an expression of intention to suspend or revoke an AOL or MOC followed by actions taken by the authority under such notices may be taken as the decision itself which may be appealed against. Aircraft operators and their lawyers, even experienced lawyers for that matter, may easily misunderstand the nature of any such notice issued under the Act. That appears to be what happened in this case. In such situation I would not go far to blame the appellant’s lawyer for gross negligence and improper conduct in instituting this appeal.

18. The appellant’s counsel acted promptly in seeking to prosecute the appeal without delay. They sought an urgent hearing of the substantive appeal after I discharged the interim orders on 13th March 2008. On 20th March 2008, the appellant filed an appeal book. The appeal was ready to be fixed for hearing. The discontinuance of the appeal, it seems to me, appears to be a well thought out decision and I can only agree with Mr Griffin that it is a "commercial decision". It has saved considerable time and expense for both parties and the Court. 

19. In these circumstances, I do not think the conduct of the appellant’s lawyer or his client is improper or unreasonable such that it should be punished by costs on a lawyer-client basis or on an indemnity basis. I consider too that the respondent should be adequately compensated by costs on a party-party basis. 

20. For these reasons, I refuse to award costs on a lawyer-client basis. Instead I award costs to the respondent on a party-party basis.

Young & Williams: Lawyers for the Appellant
T. Manjin: Lawyer for the Respondent