Background
Benjamin and James Madsen sought orders under ss 98 or 99 of the Civil Procedure Act 2005 (NSW), or the Court’s inherent jurisdiction, requiring solicitor Jonathan O’Loughlin and his law practice, RJCR Holdings Pty Ltd trading as O’Loughlin Westhoff, personally to pay the Madsens’ costs of an earlier interlocutory process. The requested costs were on an indemnity basis or, alternatively, the ordinary basis.
In the earlier ruling, the Court found that proceedings had been commenced and conducted in Meribel Invest FIR Pty Ltd’s name on Simon Raftery’s instructions even though he lacked authority to give them, and that the steps had not then been ratified. The underlying proceedings were not dismissed for want of authority. Meribel FIR’s sole director subsequently adopted the agency of Raftery and O’Loughlin Westhoff, retrospectively ratifying their acts. The Madsens later compromised their claims against Meribel FIR and Raftery, including any claim for costs.
The Court’s Holding
The Court dismissed the Madsens’ application to make O’Loughlin and O’Loughlin Westhoff personally pay the earlier interlocutory costs. Once Meribel FIR ratified their acts, the company assumed the benefits and risks of the proceedings and became the natural and proper party against which those costs should have been sought. The Madsens’ subsequent compromise of their right to pursue costs from Meribel FIR did not justify shifting liability to the solicitor and law practice.
The Court accepted that O’Loughlin should have appreciated that Raftery lacked authority and that aspects of his conduct warranted criticism. It nevertheless found that he had not deliberately misled the Court or the Madsens and had not knowingly acted without authority; his conduct was better explained by neglect and a mistaken understanding of the position than deceit. Given that personal costs orders against legal practitioners must be reserved for clear cases and exercised with care, the Court was not satisfied that such an order should be made.
Key Takeaways
- A company’s later ratification of previously unauthorized litigation acts operates retrospectively and may expose the company itself to an adverse costs order.
- Personal costs orders against solicitors are discretionary and require particular caution; criticism or negligence does not automatically make the practitioner personally liable.
- A party that compromises its costs claim against the ratifying company cannot assume it may instead recover those costs from the company’s solicitor or law practice.
Why It Matters
The decision illustrates how ratification can change the proper target of a costs application arising from litigation initially commenced without authority. Although a solicitor may face a powerful personal-costs claim where no client ever authorized the proceeding, retrospective adoption by the purported client can remove the central reason for pursuing the solicitor rather than the client.
For practitioners, the case also underscores the need to verify corporate authority before commencing proceedings. For litigants challenging a solicitor’s retainer, it highlights the risk that the defect may later be cured and that settling with the ratifying company may foreclose the most conventional route to recovering costs.