The High Court of Australia has refused leave in El Ali v Royal & Ors; Zreika v Royal & Ors, thereby leaving undisturbed the unanimous decision of the Full Court of the Federal Court in Zreika v Royal and Royal v El Ali (No 3), write Dr Christopher Birch SC and Penny Thew.
The Full Court of the Federal Court decision confirms that the indemnity principle is satisfied provided there is a contingent liability to pay fees at the time of making a costs order. This is in line with previous judicial statements recognising the importance of conditional costs agreements in promoting access to justice which may otherwise be unaffordable, as was said by Santow JA in Wentworth v Rogers, and as was recognised by the Victorian Court of Appeal in Mainieri & Anor v Cirillo as just and socially desirable.
The series of decisions leading to the High Court refusing leave arose from a finding in Royal v El Ali that a bankrupt [individual] had disposed of shares in his companies, and had thereafter caused the dissipation of real property owned by those companies, at undervalue with an intent to defraud creditors within the meaning of s37A of the Conveyancing Act 1919 (NSW), thereby rendering the transactions voidable.
Orders were then made in Royal v El Ali (No 2) giving effect to the principal decision, including orders vesting the shares in the bankruptcy trustee (being an applicant in the principal decision along with two creditors) and orders in respect of the proceeds of sale of the properties. Thereafter, in the costs hearing, the respondents argued unsuccessfully that the indemnity principal was not satisfied in respect of the costs agreements of both counsel and the solicitors and that therefore no costs orders could be made in favour of the successful applicants, which argument was rejected in Royal v El Ali (No 3).
The respondents appealed all decisions to the Full Court of the Federal Court of Australia in Zreika v Royal and were unsuccessful in all appeals other than on one point not argued in the proceedings below. In relation to the appeal of the costs decision, the Full Court adopted in whole the findings in Royal v El Ali (No 3). The appellants then sought special leave only on the question of whether the indemnity principle had been satisfied, which the High Court refused in El Ali v Royal & Ors; Zreika v Royal & Ors.
The implications of this are that the findings in Zreika v Royal, which adopted Royal v El Ali (No 3) in which the unanimous findings in Mainieri & Anor v Cirillo were applied, constitute the current statement of law on the satisfaction of the indemnity principle under conditional costs agreements.
Dr Christopher Birch SC and Penny Thew, instructed by Michael France of Watson Mangioni Lawyers Pty Limited, appeared for the respondents in El Ali v Royal & Ors; Zreika v Royal & Ors  HCATrans 227 and Zreika v Royal  FCAFC 82, and the applicants in Royal v El Ali  FCA 782, Royal v El Ali (No 2)  FCA 1156, Royal v El Ali (No 3)  FCA 1573 and Royal v El Ali (No 4)  FCA 299.