Case Note: Cost consequences for late appeal discontinuance and the risks of using AI in Family Law

Mertz & Mertz (No 3) [2025]

Background

The appeal was listed for hearing on 19 November 2025, but the appellant filed a Notice of Discontinuance just two days earlier, on 17 November 2025. At the hearing, the respondent sought their costs of the appeal. The Court ultimately ordered costs and delivered reasons addressing two significant issues:

The costs consequences of very late discontinuance; and
The professional implications of using generative AI to prepare court documents, including the filing of authorities that did not exist.

The AI Issue

The Full Court devoted the bulk of its reasons to the inappropriate use of generative AI in the preparation of the appellant’s Summary of Argument and List of Authorities.

What occurred?

The Summary of Argument filed on 17 October 2025 contained incorrect and non-existent authorities, a result of AI-generated citations.
A “corrected” amended version filed on 3 November 2025 still contained errors, and the changes were not identified.
Counsel confirmed that AI had been used, though the extent of use remained unclear.
A solicitor for the appellant later stated that a paralegal had used AI to alphabetise and insert authorities into the document.
The Court noted that this resulted in misleading citations and risked undermining the administration of justice.

Why was this significant?

The Court emphasised:

AI-generated research must be verified.
AI cannot absolve practitioners of their duties of competence, diligence, and the obligation not to mislead the Court.
There are serious confidentiality risks when practitioner documents are entered into AI tools because of s 114Q Family Law Act 1975 (publication restrictions) and the Harman undertaking.
The Court referenced growing judicial commentary and interstate guidelines on responsible AI use (including NSW and Victorian guidance)

Regulatory Referrals

The Court referred the conduct of:

Ms G (solicitor) to the South Australian Legal Profession Conduct Commissioner, and
Mr AX KC and Mr AY (counsel) to the Victorian Legal Services Board and Commissioner.
The Court stated it was in the public interest for regulators to consider issues arising from AI use in legal practice.

The Costs Issue

Upon discontinuing the appeal two days before the hearing, the appellant left the respondent with significant preparation costs.

Costs Order

The Court ordered the appellant to pay the respondent’s party-party costs, fixed at $36,955, noting that the late discontinuance constituted relevant conduct under s 114UB(3)(c) Family Law Act 1975.
Additionally, by consent, an order was made that the appellant’s solicitor (Ms G) pay an additional $10,000 to compensate for costs wasted due to the AI-generated errors.

The Court noted the extensive materials the respondent’s senior counsel had to consider, including 1,234 pages of transcript and a 1,295 page appeal book, supporting the reasonableness of the costs sought.

Why This Case Matters for Family Lawyers

1. AI must be used with extreme caution

This is one of the leading Australian family-law decisions addressing the misuse of generative AI.

Key lessons include:

Always verify AI outputs, especially case citations.
Never input confidential or prohibited material into AI tools unless safe and legally permissible.
Maintain clear supervision over staff using AI.
Expect regulatory scrutiny where AI errors mislead the Court.

2. Late discontinuance carries major costs consequences

The case reinforces that parties cannot expect to avoid costs consequences by discontinuing late. Where the other side has incurred substantial preparation expenses, fixed-sum costs orders are likely.

3. Practitioner conduct is central, even in appeals

The Court reinforced that duties of candour, competence and diligence apply strictly in appellate work, where accuracy of authorities is critical.

This information does not constitute legal advice. You should consult with a lawyer to obtain independent legal advice relevant to your situation