Birketu Pty Ltd ACN 003 831 392 & Anor v Atanaskovic & Ors

[2024] HCATrans 72

[2024] HCATrans 072

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S52 of 2024

B e t w e e n -

BIRKETU PTY LTD ACN 003 831 392

First Appellant

WIN CORPORATION PTY LTD ACN 000 737 404

Second Appellant

and

JOHN LJUBOMIR ATANASKOVIC

First Respondent

LAWSON ANDREW JEPPS

Second Respondent

MAURICE JOCELYN CASTAGNET

Third Respondent

GAGELER CJ
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J
BEECH‑JONES J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 17 OCTOBER 2024, AT 10.00 AM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend MR A.R.R. VINCENT for the appellants.  (instructed by HWL Ebsworth Lawyers)

MR S.J. FREE, SC:   May it please the Court, I appear with my learned friend MR D. BIRCH for the first and second respondents.  (instructed by Atanaskovic Hartnell)

GAGELER CJ:   There is a submitting appearance for the third respondent.  Mr Walker.

MR WALKER:   May it please the Court.  This is a case that involves, as to the relevant entities, a partnership which was a litigant – a partnership of lawyers – suing for fees.  When costs were ordered in favour of the partnership as a result of that proceeding, those costs for which the indemnity was sought pursuant to the statutory claim was for work done by employees of the litigant, not by the members of the firm which was the litigant.

That discrimination reflected an understanding of the general position concerning those general statutory provisions and an understanding of the underlying indemnity, as a general principle, denying a right to a litigant for any recompense for time spent and trouble taken in being a litigant.  And an acceptance, obviously – and we submit, with respect, correctly – that the members of the firm constituting the litigant would be in such a position, were they to call in aid their special position as lawyers to claim an indemnity for the costs of the partners’ work in pursuing their claim for fees.

As such, it reflected an acceptance – principled and correct, we submit, so far as it went – with the abolition of the special positional privilege by this Court in Bell Lawyers v Pentelow, then with respect to the so‑called Chorley exception, which will not be a central part, but which is an essential element in the background of the arguments today.

The significance of the employees, the costs in respect of whom was by majority considered to be claimable under the statutory provision and in light of such general understanding as the common law or the background of practice would reveal – is that they were, of course, employed to be lawyers in the practice of the firm as lawyers.  That is, they were employed to work for others outside the form – call them “clients” – exactly as the members of the firm engaged in work for others, clients, all and indifferently – that is, the work of the employees or the work of the partners – to derive profit by way of costs which include a profit cost element – that is, the reward for the professional over and above recovery of expenditures in supplying legal services.

If we are right, that is a significant aspect of the relation between the employee and the litigant – that is, that the employee is not employed in any sense to be the lawyer for the litigant.  The employer – like the partner – happens to be a lawyer available – like the partners – to do the legal work of the firm as a litigant.  There is involved, of course, in the position of an employee, the role of servant or agent – that is, the actions of my employee are my actions, and the earnings of my employee are my earnings in terms of the fees generated and reimbursable expenses created.

It is against that background, then, that we start by submitting that the common law – a term I use slightly gingerly, because it may include the somewhat arcane notion of a court’s special concern with the practices of the lawyers who are its officers, but nonetheless using it as it has been deployed in the authorities – was particularly important in Bell Lawyers v Pentelow in order to evaluate the argument in that case concerning the role of the relevant statute governing the recovery and nature of recoverable costs to see whether there was, for example, an abolition by the costs statute of what was called the Chorley exception:  the creation of a privileged position for litigants who were lawyers compared to litigants who were not lawyers.

Your Honours will recall that in the Court of Appeal in Bell Lawyers v Pentelow and in the argument of the appellant in Pentelow the argument had been put that the statute, simply understood, did not extend to permit a litigant who happened to be a barrister to present a bill to the unsuccessful party for her legal work in preparing and assisting others to present her case in court.

Now, the Court in Bell did not deal with the matter as simply as Justice Meagher did in the Court of Appeal though, with respect, we submit that the ratio in this Court certainly does not involve detecting any error in the approach that Justice Meagher took.  There was a radical difference between the position his Honour was in and the position this Court was in, namely, his Honour was not in a position to deal with the previous decisions in this Court that had been as it were, placed on the brink in Cachia v Hanes and only this Court, and certainly not the Court of Appeal, could complete that push, the push that did take place as a result of Bell Lawyers v Pentelow.

But that does not mean that there is nothing to be gained by way of an understanding of the application of the statute – and this is a statutory question – from the consideration of those matters which include the policy of the law in a general sense that you see in the reasons in particular of the plurality in Bell v Pentelow.

Now, the effect of the relevant provisions, and your Honours know that they are the same provisions as were before this Court in Bell, commences obviously with a distinct emphasis on the definition of the critical expression “costs” in section 98 of the Civil Procedure Act.  We are here talking about the provisions that you will see reproduced at pages 14 and 15 of the Part A authorities and, most particularly, on page 11, the definition of “costs” contained in that Act’s subsection 3(1). 

I do not need to dwell on it, they are well known.  The definition has been divided into two in some discussion of it:  the “means” part, and the “includes” part.  We probably do not need to explore the possible different ways in which “includes” relates to “means”, but one thing is clear:

costs payable in or in relation to the proceedings –

is, on any view of it, a governing requirement without which there cannot be the character of “costs” caught by section 98.  Of course, notoriously, the word in the “includes” part of the definition – “remuneration” – is properly a central focus of the argument in this case, though ultimately, in our submission, the case falls to be determined by reference to what are “costs payable in or in relation to the proceedings”.  Naturally, that is an expression which, construed appropriately, includes its immediate verbal context of the word “remuneration” appearing in the “includes” part of the definition – all of that is accepted.

GAGELER CJ:   You say that the word “includes” is not a word of extension, do you?

MR WALKER:   I have not actually said, one way or the other.

GAGELER CJ:   You seem to be saying that.

MR WALKER:   Your Honour asks me and so – one possibility, obviously and ordinarily is, in a definition, particularly if it does not have an antecedent means part to it – a definition that simply says X includes Y, or sometimes not‑X – as a matter of ordinary English, there is no question that that is an extension.  It is not so clear whether it is these two parts of a definition:

costs . . . means costs payable in or in relation to the proceedings –

On any view of it, without going any further, it means:  unless they are costs payable in or in relation to the proceedings, then they are not “costs” within the meaning of the relevant provision.

It is possible as a reading that the “includes” specifies – that is, provides a number of species within that genus of “costs payable in or in relation to the proceedings” as, for example, most obviously, “fees” and “disbursements”.  The words “expenses and remunerations” are not so obviously particular to legal costs – “fees” may not be confined, by the way, only to fees, but if they are not legal fees then they will fall within disbursements, within the ordinary understanding of that word.

So, it is possible to read the “includes” part of the definition, and it may be appropriate – bearing in mind the primacy of costs being payable in or relation to the proceedings – as not materially or at all expanding beyond an ordinary understanding of that expression of “costs” and simply insuring that there is inclusion of those four kinds of costs.

EDELMAN J:   There is fairly limited benefit that one can get from text in the context of a provision that has been enacted against an understanding that this is a very fluid area originating in common law and being developed by common law.

MR WALKER:   Your Honour, I am bound to say we will not take the approach of moving away from the statutory text.  Our argument is that the way that we put the matter is entirely textually supported, but it is true that particular variance in what I will call the English costs rule – as it has been enacted and re‑enacted – in quite different forms in terms of the actual words around this country over the last century‑and‑a‑half has been seen, as recently as the Freehills decision in Victoria, as not necessarily driving any differences of outcome.  Those differences of verbiage nonetheless all capture different words, same concept, a number of things, including what I will call the overriding principle of indemnity, and then the qualifications to that, one of which arises in this case.

STEWARD J:   Mr Walker, I assume it is an important part of your case that we need to read that definition in the broader context of how litigation is conducted in Australian and, in particular, New South Wales, and that there is a distinction between someone who is a self‑represented litigant and someone who is represented by a solicitor on the record.

MR WALKER:   Yes.  It is a statute called the Civil Procedure Act ‑ ‑ ‑

STEWARD J:   Yes.

MR WALKER:   ‑ ‑ ‑ which is not talking about social politeness – “civil procedure” – it is talking about litigation.

STEWARD J:   Here, the solicitor on the record, I think, was a partner of the firm.

MR WALKER:   Yes.  May I say this – I hope, not out of turn.  Our argument will not turn on who has been selected within the firm to go on the record.

STEWARD J:   I would not be too hasty to say that, because, as you recall, when the government is acting in litigation – subject to statutory exceptions for people like the Commissioner of Taxation – it is the AGS that is the solicitor on the record, or a private firm, and when a company uses an employee’s solicitor, it is the name of that solicitor that is on the record, not the company.

MR WALKER:   Yes.  No, I accept all of that, entirely.  What I am saying is, when the litigant is a legal firm, not the Commonwealth Bank, not a Commonwealth department – when the litigant is a legal firm and happens to employ solicitors to earn profits from the public, as well as having constituent partners to earn profits from the public – when the litigant is a legal firm, it does not matter, in our submission, in principle, and certainly for our argument, as to whether it is one of the partners or an employee – that is, an employed solicitor – or that current phenomenon of which your Honours would be aware, a salaried partner who is designated to be and assumes the responsibilities of being the solicitor on the record, the individual.

STEWARD J:   Well, there is an authority in New South Wales that says employee solicitors cannot be solicitors on the record – the case of Kelly v Jowett.

MR WALKER:   Your Honour, I am familiar with it.  Can I simply say that may not be, if I may say so, an edict for the ages and it will not matter whether the law permitted and whether or not practice reveals only partners or also employed solicitors being solicitors on the record.  That important status, which is a formal and concrete pivot between the officers of the court and the court, with respect to the responsibilities that a person retained with duties to a client nonetheless bears to do things which may be contrary to the client’s instructions, and not to do things which the client seeks to have done.  That role is a very important role but does not, in our submission, throw any light upon the meaning and application against the background of practice and convention of the word “costs” in a case such as the present.

We have said in proposition 2 that those statutory provisions have to be addressed by reference to the common law; we mean by that, the background against which the courts, including this Court in Bell, have construed from time to time, and, as it happens from place to place, different jurisdictions, costs provisions of the kind that are before the Court.

We are not suggesting that this is some anomalous or maverick situation where one can ignore the text, or, to put it another way, of course, there could be sufficiently plain words – indeed, some people would regard it as a desirable law reform – for a costs provision to make it clear that anybody, lawyer or not, who has to take time away from their livelihood in order to defend themselves or to enforce their right to payment, should be recompensed for that by the losing party.

So, of course, statutory text is governing, but in our submission, in line with the approach taken for the purposes of examining the Chorley exception in Bell, this Court will also, in this case, with respect to what I will call the correctness of the outcome in Victoria, ought to regard the nature of costs as being informed by the considerations which occupied a deal of the attention in the reasons in Bell.

The first of those, which I can deal with very briefly, is our proposition 3.  It was fundamentally and powerfully – with respect – reasoning founded upon the undesirability of departures from equality before the law; or, to put it another way, the strong resistance that ought to be experienced to construing a statute so as to either institutionalise or preserve some conventional privilege, particularly where the policy of the law identified in this Court concerning the indemnity principle as it affected the position of litigants doing their own legal work was, in our submission, one that threw up the privilege – the so‑called Chorley exception – granted and granted only to lawyers.

In our proposition 4, we draw to attention the reasoning that was specifically identified in paragraph 17 in particular, which was then the subject of the further quotation in paragraph 21.  This is, by the way, Bell 269 CLR 333, pages 124 and 125 in the report, 124 and 125 of the book of authorities. So, in paragraph 17 there is the first quotation from the Master of the Rolls concerning what might be called a kind of device or a possibility that was wrongly regarded as being self-evidently bad – I quote:

it would be unadvisable to lay down that he shall not be entitled to ordinary costs –

That is, the solicitor:

if he appears in person, because in that case he would always employ another solicitor.”

It is very terse and, ultimately, in this Court, not self-evidently a bad thing with respect to defeating the notion of the exception.  When it comes to paragraph 21, most particularly, one sees even stronger language, Lord Justice Bowen:

it would be absurd to permit a solicitor to charge for the same work when it is done by another solicitor, and not to permit him to charge for it when it is done by his own clerk.”

Leaving aside the use to which that rhetoric was turned in Chorley and at the moment simply noting that the very next sentence, in paragraph 22 of Bell, was that the reasoning was “not persuasive”, could we draw to attention that the distinction between “another solicitor” and “own clerk” in context obviously means a solicitor who is not a member of the firm – it does not just mean another natural person – and it is not, obviously, an employee or clerk.

The distinction, obviously, which Lord Justice Bowen thought was absurd, but which this Court certainly did not think was absurd, was between the retainer by a lawyer‑litigant of another lawyer – that is, not a member of the firm or not an employee of the firm – contrasted with either doing it yourself or keeping it in‑house by having an employee – a clerk – do it.  That distinction, which Lord Justice Bowen thought was absurd, is, in our submission, a real and important distinction, for the reasons we will develop.

The reasoning in paragraph 22, of course, drawing on the majority’s explanation of what I will call the general law in this area, governed by statute, starts by way of the notion of indemnity, or more properly, so‑called partial indemnity.  As your Honours know, the adverb “actually” has been deployed for many years and in all the relevant contexts, although you will not necessarily find it in any of the iterative forms of statute – so, professional legal costs “actually” incurred in the conduct of litigation.  In our submission, that is plainly involved in the notion of costs “in or in relation to proceedings”.

EDELMAN J:   That is really just excluding opportunity costs, is it not?

MR WALKER:   It certainly excludes opportunity costs, it may not only exclude opportunity costs, but that is its main purpose.

EDELMAN J:   What else does it exclude?

MR WALKER:   In our submission, it also includes – it depends on how broad opportunity costs are – but it also includes what I will call the overheads of keeping your office open while you are not earning.

EDELMAN J:   But they are real costs – they are actual costs.

MR WALKER:   A non‑lawyer litigant, pursuing their own architectural practice, sues for fees or is sued for negligence, wins, gets a costs order.  The law – that is, the statute as understood – forbids that architect insisting on the losing party paying for his or her lost opportunity to derive professional architectural fees and would also extend to denying the architect putting in some aliquot claim for the rent and utilities of the professional premises which are not being used to derive fees while the architect is distracted by pursuing fees or defeating a claim of negligence.

So, it may be that those are a part of opportunity costs as well, but it would extend to ensure that you are not recompensed for what any economist or accountant would say was plainly a cost, or loss, or expense you suffer.

EDELMAN J:   Would you say, then, that the statements – I think some of the statements in the joint judgement in Bell Lawyers that government lawyers that incur, effectively, overhead expenses in the same sense can recover – that those costs can be recovered – that those statements, then, are wrong?

MR WALKER:   No, no.

EDELMAN J:   But they are overheads in the same broad sense, are they not?

MR WALKER:   Sorry, when your Honour says “they” – no, there is not yet an understanding that costs, properly payable – because there has been an actual incurring of an expense of the lawyer in question – when the employee is employed to be the employer’s lawyer – which is not the case with an employee of a legal firm who is employed to be a lawyer alongside the partners to charge the public – but when the – it is what we call in our outline a “non‑lawyer employer” – the lawyer employee is employed precisely to be, and the remuneration of the lawyer is precisely for, the provision of legal services to the employer.

In that case, of course there is an element of overhead in the cost to that employer of employing that person to be its lawyer.  I hope we will never get to the fact where public service lawyers ply their profession in bus stops.  So, there are offices, there are all the utilities, et cetera, and there is a salary; and there is superannuation; and there is insurance.

GLEESON J:   But those costs are not incurred in relation to the proceedings, are they?

MR WALKER:   No.

GLEESON J:   There is an opportunity cost, because the government department could send them off to act in multiple pieces of litigation.

MR WALKER:   No.  There are two parts of your Honour’s question.  The first is, no, of course the costs I have just talked about – the electricity company for the light, the landlord for the office – they are not costs actually incurred in relation to proceedings.  It is the cost of the lawyer who is employed to be the lawyer.  He is not incidentally available to act for the firm, though employed in truth to make profit from others for the firm ‑ ‑ ‑

GLEESON J:   But the point that I was trying to address was the position of the in‑house government lawyer who is employed to act for a single client, but it is a single client who we can posit is involved in multiple pieces of litigation.

MR WALKER:   Yes.

GLEESON J:   So, deploying them in litigation proceedings A, means that they are not deployed in proceedings B.

MR WALKER:   But there is no opportunity in terms of the fact that that employer is not in the business of making money out of litigation.

GLEESON J:   Not in the business of – it is not an opportunity.

MR WALKER:   So, there is no opportunity.  We are not talking about an opportunity to ply a trade or to make a profit.

GLEESON J:   So, you say opportunity costs can only relate to profit?

MR WALKER:   Yes, yes, yes.  So that is why, if a person who has no trade and no business and whose income is derived from investments only – which are utterly undeflected in their success by spending time as a litigant – then, were the law to say you can get opportunity cost as a lay litigant, that person would still get zero, because there had been no opportunity cost.

Where somebody cannot be in two places at once or cannot think about two important things at once and, therefore, loses the opportunity, say, to charge fees or has to take leave from a salaried position in order to represent themselves in a proceeding, there is an obvious opportunity cost, which will be measured, were the law to permit such a thing – which it presently does – by reference to what they have lost and sometimes, as I answered to Justice Edelman, might actually go further to say, and I have had to spend money on a wasted capital outlay or a wasted expenditure because I was not able to turn that to account during the time.

But in what your Honour Justice Gleeson has asked me, no, there is no opportunity cost in that sense at all for a non‑lawyer employer who has employed a lawyer precisely to be that non‑lawyer’s lawyer.  There is no lost opportunity when you are doing the job in proceeding A and therefore cannot be doing the job in proceeding B, because A and B are simply part of the indifferent mass of work for which that person is employed to be the employer’s lawyer; and it is not possible, logically, to say that there has been any loss suffered because the person is doing a job of work which is the same job of work as they are employed to do, regardless of which proceedings they are involved in.

Now, I might as well jump ahead, because of what your Honours have asked me, to confront the question of whether any part of our argument is either precluded by or threatens a beneficial understanding of what has been variously called the employed solicitor or, to adopt Justice Kirk’s proper expansion, the employed lawyer rule.  In our submission, the difference does inhere in the fundamentally different approach and orientation of the employment as between the employee of a legal firm who, like the partners, is devoted to doing professional work for others which generates profit for the firm, and an employee of a non‑lawyer employer, be it a government department, a corporation, bank, insurer, who of course is employed in order to be a lawyer, including in litigation, if they have the necessary professional certification.

The radical and different orientation is that partner and employee in a legal firm are indifferent in who they are acting as in their relations to the whole of the world:  whether you are a member of the firm of an employee of the firm, you are the firm in the legal work you do.  You have individual and personal obligations, no doubt, but you are still representing, in every sense the firm, and indifferently between partner and employee.

There is no such analogy, no relation of that kind, when there is a non‑lawyer employer and an in‑house solicitor or general counsel or legal counsel, as they are variously called.  That simply reflects a variety of modes of remuneration, to use a loaded term, which is to be encouraged as a general common law approval of enterprise, variety, et cetera, in terms of the conduct of business.

So, we all know that it is not every legal service that is provided by a lawyer that generates, pursuant to an ad hoc retainer, a fee for just that work.  Particularly with routine work, whether it be debt collection or warranty claims, et cetera, of course, outside lawyers – that is, separate legal firms – can and often are retained on arrangements which do not work case by case but which work, for example, period by period or by reference to the sums at stake, and that variety is to be encouraged because it is an aspect of competition for that work.  There is no doubt that all of those various modes amount to remuneration.

BEECH‑JONES J:   Mr Walker, just in terms of the statute, in the case of the employed solicitor of, say, a government department, are we accepting that their salary and overheads are expenses and remuneration payable in or in relation to the proceedings?

MR WALKER:   Yes, because they are employed to do just that.

BEECH‑JONES J:   To do the proceedings.  And then the question of the amount of costs recoverable is pragmatically done by reference to what a solicitor can be expected to charge.

MR WALKER:   Yes, and I might as well confront that now as well.  Your Honour says, with respect, gracefully, pragmatic, others have used expression “rough justice” – that is, there has to be an end to things.  Justice Davies captured the notion of the problem in Commonwealth Bank v Hattersley, the passage that your Honours are familiar with.

There may come a time when, either at the level of overt law reform or maybe only at the level of internal professional considerations, if there be an observable discrepancy on account of profit costs between that which is actually outlaid for the Commonwealth Bank to employ its legal officer and that which what used to be called the taxing master in what is now called an assessment produces for the losing party to pay, then the “assumption” – to use Justice Davies’ word – concerning what I will call a rough‑and‑ready equivalence may need to be examined.

But that will be because of amounts of money generated by particular cases, scarcely apt to generate any concern of principle at all.  In other words, a proxy – rather than doing a job of work that might involve a whole accounting period, even, God forbid, a year, or even worse – because litigation often goes for more than a year – whereby you look back and say, they did 17 cases over 18 months, and the rent went up – which, really, this is about civil procedure, it is about litigation, there has to be some fitness and proportionality to the inquiries that the governing laws involve – and this is obviously all being legislated against the long‑established – longer, it is thought, even than the so‑called Chorley exception – the long‑established right to enforce the English costs rule to get an amount from the losing, the other party by reference to the employment, or retainer, or officership of somebody who is not an outside lawyer retained ad hoc.

BEECH-JONES J:   Just putting aside quantum, is your argument, in terms of the statute in this case, that where the solicitor’s job is fundamentally to represent clients as a firm, their salary is not truly a cost payable in relation to the proceedings involving the firm?

MR WALKER:   That is a salary paid to them to be earning profits for the firm just as drawings or any other arrangement that partners have among themselves are paid to them to incentivise them to earn profits for the partnership.  The costs will be incurred regardless of them ever doing work for the firm.  But the cost of employing the Treasury solicitor, the Australian Government solicitor, the costs of doing that will not be incurred, regardless of whether they ever do any legal work – it is the only thing they are being paid for.

BEECH-JONES J:   What about a firm – big one, that has a lot of fees – who employs a solicitor solely for the purpose of recovering the firm’s fees?  It is not this case, I am not saying ‑ ‑ ‑

MR WALKER:   Your Honour, in preparing – it is not the case, but I accept it as a test.

BEECH‑JONES J:   Yes.

MR WALKER:   In preparing to answer just such a question, I rather grimly posited there was a large firm whose bad debts were so bad – that is, enough clients who are not willing to pay them either at all or on time, or enough clients were disgruntled at the quality of the work that they had, as it were, a standing position to beat off negligence claims.  If there were such a firm – and it would need to be a pretty big firm for this to be worthwhile, and offhand, I cannot think of any that would, without outrageous defamation of a fantastic kind, give colour to this example – then one might suppose that, just as they might have a librarian unit, or a document retention unit, and certainly a bookkeeping unit, they might have a fee recovery and negligence refutation department.

If and when that arises and the arrangements can actually be understood factually, then it might be that one will say that though in form they are employees of the firm, they are a kind of, as it were, subset of a sufficient satellite kind to stand exactly for an in‑house firm of a Commonwealth department or a bank.  If and when that arises – and, may I say, I would somewhat confidently suggest that it will be a long time before any firm advertises that fact – if and when that arises, then the principles upon which we base our argument – which is ultimately statutorily based – could well produce a proper indemnity in that case, because you will be able to say that person is employed only to act for an entity that just so happens to be a legal firm employer, as opposed to a bank or government employer.  So, that is a possibility – theoretical, but rather gruesome – which will fit rather than falsify the approach that we are urging.

GAGELER CJ:   Mr Walker, I think the point that you had just been addressing is the point at paragraph 12 of your outline, and I have just been looking at the references you give there.  Is the point captured by President Ward at paragraph 92, quoting the primary judge – is that the same point, or is yours a variation of that?

MR WALKER:   It is related to exactly ‑ yes, it is the same concept.

GAGELER CJ:   Because it does take me back to a question Justice Steward asked of you; because it seems to be related to who is on the record, who is the solicitor on the record ‑ ‑ ‑

MR WALKER:   Your Honour means the individual now.

GAGELER CJ:   I am just trying to understand the distinction that is drawn in that passage, and the distinction appears to be between the litigant and the solicitor on the record performing some role independent of the litigant.  That is as I understand the distinction.

MR WALKER:   No, can I ‑ ‑ ‑

GAGELER CJ:   Yes, please.

MR WALKER:   In the passage that your Honour draws to attention, yes, where exactly the same concept is being addressed, the distinction that we have tried to draw out – we think it is explicit but not perhaps quite so emphasised in this passage – is between what is called in this passage “client/employer” who is a lawyer, and “client/employer” who is not.  That is shorthand for who is a lawyer and plies that trade, and who employs people to ply that trade, as well as having partners who ply that trade.  It is in that sense that the non‑lawyer employer is, to use the expression:

not self‑represented:  it has a solicitor acting for it –

It is:

represented by a solicitor . . . albeit one that is “employed” rather than “retained”.

But then the contrast is made:

In the case of a law firm’s own employed solicitors . . . the position is otherwise.

Et cetera – I will not read on.  That, in our submission, has very little to do with the procedural requirement at the moment with someone called a solicitor on the record.

STEWARD J:   It is more than a procedural requirement from the court’s perspective.

MR WALKER:   No, it is very important.

STEWARD J:   It is critically important.  And it is the touchstone because it tells you that someone is representing someone else.

MR WALKER:   Your Honour, as I said earlier, I do not ‑ ‑ ‑

STEWARD J:   It is the court’s recognition of a relationship of representation.

MR WALKER:   I am not saying it is not important.  I could not say that.  I am just saying it is a current mode of producing that pivotal relationship between the profession and the court for the public good in litigation.  It could be done differently, is all I am saying.

STEWARD J:   Yes, of course.

MR WALKER:   It could be simply the law that a firm who acts for a litigant must, by appropriate notices of appearance and notices of ceasing to appear, at all times keep current and accurate the identity and address of the firm, and in other official records who are the members of the firm, and yet other official records who are the employees of the firm who are lawyers, so that professional discipline and observers of duties to the court can at all times be such as not to be defeated by obscurity of identity through trade names or business names.

What I am saying is the actual form of an individual who is the solicitor on the record is just a way of serving that very, very important purpose.  And, in our submission, in no sense is the individual who appears on that line in process the only lawyer professionally engaged in the eyes of the court for that litigant.  That, of course, is not its purpose of designation, and it is not the law.  The firm, all its partners and all its employees owe the same undiluted duty of fidelity and care to that client, not just the solicitor on the record.

That is why, when a member of a legal firm which is the litigant – we have that in this case, a member – or in this case – in our case today, an employee of the firm is a solicitor on the record.  Whether it is a member or an employee, they are thereby designating themselves as the solicitor on the record from the same firm – not from a different firm – whether by way of being partner or employee.  In our submission, in that sense, it is seen that the firm is acting for itself, which leads to – it is not a particularly useful variant of expression; whether it is self‑represented or unrepresented really does not matter.  It means that there is no‑one outside the litigant who is representing professionally in a way that, were it for a client, would generate a right to fees.  There is no‑one of that kind in such a case.

As I say, it is accepted in these very proceedings as being what the law produces with respect to partners who do work on their case.  The only question here is whether the Victorian Court of Appeal – with, admittedly, a different statutory wording, which their Honours did not think drove a difference – was right in saying that the employees are acting for the firm in precisely the same way that the partners might act for the firm.  That is, the firm is acting for itself, and that then produces the outcomes that we have tried to identify.

As the Chief Justice has identified, in deference to try to answer some of the concerns your Honours have raised, I have jumped ahead.  It will probably enable me to shorten things.  But the next point I wanted to come at was propositions 5 and following, where the language is strong:  “unacceptable in point of principle”.  That is a clue that in interpreting statutes, you would seek to avoid that if you could, and, of course, there are no words in the statutes before the Court in Bell, and the same words are before the Court here, that, in our submission, would produce the notion of a possibility of profiting from the lawyer’s own participation in the conduct of litigation where the solicitor is the litigant.  I will not take your Honours to the passages; you are familiar with it.

Now, there is no question that that is what happens, or has happened in this case.  That is exactly what has happened.  Because of that possibility being “unacceptable in point of principle”, the law, including the governing statute, was understood in Bell, and accepted in this case, as preventing the presentation of a bill for the so‑called costs of the partners, which, of course, would have included – as is familiar – what are called, accurately, profit costs.  That is, the reward for being a skilled professional with duties over and above the amount of money you have to outlay, either by overhead or individual expenditure, in order to carry out your work for the client.

Those profit costs, the margin that that represents, unless the business model or the conduct of the business is completely inefficient – that margin is what this Court means when it refers to the possibility of profit.  So, getting more than cost.  Of course, it is totally different where you retain someone like Freehills, you not being Freehills.  Freehills are going to make a profit, but you make no profit by being reimbursed, as it happens partially, for the costs represented by the bill Freehills presents to you.

GLEESON J:   It is hard to imagine that an in‑house legal department could become a profit centre rather than a cost centre.

MR WALKER:   That is part of my argument, your Honour.  For a bank or an insurance company or a government, they are obviously not a profit centre and that is why I was talking earlier about the possibilities flagged not only by Justice Davies in Commonwealth Bank v Hattersley, but remarked in a number of places, that it may be that an eye will need to be kept on any discrepancy, if it matters.

EDELMAN J:   That may be answered in a different way, which may be that the recoverable amount is confined to the relevant proportion of the salary rather than the salary plus charge‑out rates.

MR WALKER:   At the moment in practice – and the understanding is noted in a number of the authorities that your Honours have – there is no delving into an accounting attribution which, in many cases, could only be done retrospectively.  It is a kind of a rough and ready proxy, if you like, that until somebody blows a whistle, the assessment of costs for the AGS will proceed by reference to what I will call the market, even if from time to time the Commonwealth is overpaying or underpaying by reference to the market for employed lawyers.

So, in our submission, we do not have, ever, in the taxation or assessments of costs an exploration of the financial model and performance to the minute level of understanding the degree to which the employment of a lawyer has been at what might be called a “loss”, or “break even”, or generating a profit.  It would be a meaningless endeavour when it comes to the notion of a solicitor employed by a non‑lawyer, because the non‑lawyer is obviously not in the business of deriving profit from the employment of a person; they are just a cost.  Mind you, they are a cost worth undertaking because they will, one hopes, financially enhance the employer’s position by getting the payment of money due or by resisting damages being payable.  So, there is, if you like, finance or commerciality behind all of this but nothing to do with profit.

EDELMAN J:   I realise that is how, practically, it is done in the outworking, but if one were to come back to idea of what is an expense in relation to the proceedings, the employed solicitor who does work on the proceeding is incurring an expense in relation to the proceeding if you take away your profit element, because the employed solicitor is being paid a salary, an overhead, in relation to the proceeding.

MR WALKER:   No, in the ordinary case – not this case – there is, as your Honours know, a so‑called “charge‑out rate” which presents the profit/cost possibility.  So, you pay $100 an hour, if you can do it by the hours of works bargained for, for a person for whose work the clients are then charged $300.  The costs rule against the counterparty will have the $300 payable by what is called a “cost” and that is because the charge‑out rate being higher than the actual expense of employing the person to earn the fee is regarded as a cost to the client, because it is a cost a to the client; it is in the bill.  That does not exist with respect to a lawyer who does the work, himself or herself, in the most simple case – a sole practitioner suing for fees or rebutting an allegation of negligence, alas, will get no recompense under the law for the obvious opportunity cost of no longer being able to work during those periods to get fees from others.

We say, exactly the same follows if that solicitor has an employee who has been employed and the cost of whose employment is for the purpose of deriving fees from others, and if they are deflected or diverted from that opportunity of making a profit for the employer by acting for the employer or, as in this case, doing some of the work necessary for the employer to advance their position in litigation.

EDELMAN J:   What I am putting to you is:  that may be right for the opportunity cost of the employed solicitor, but it may not necessarily be right for the salary component of the employed solicitor.

MR WALKER:   If your Honour is pointing in particular, say, to the expression, “expense”, which has been in other places and cases, there is little doubt, if one were to jump a universe into, say, an insurance policy, that that that is a word which, contextually, could easily – cost, loss, expense, et cetera – include the cost of your engineering department no longer being able to dig oil wells but having to deal with some allegation by an oil major that you have done something wrong on their oil well.

When it comes to an insurance policy, it may well be that that would fall within cost or expenses, dependent upon context, and it is not, as it were, will‑driven; it is entirely just a matter of textual interpretation.  In this case, it is because of the background concerning the avoidance of the unacceptable possibility of a litigant making a profit from doing their own legal work – and that means the firm doing its own legal work by a mixture of partners and employees.

One would not read it so as to say that either the drawings of the partner who does the work, or the salary of the employee who does the work – and then there is that modern phenomenon of the salaried partner; a constituent part of the firm, but still just a salary, and going to be paid regardless of profit.  Those are, in our submission, matters, all of which are subsumed by saying that it does not and cannot fall within the notion of a cost in or in relation to the proceedings, because they are costs that were going to be incurred in any event, regardless of whether there was ever any legal work to do for the firm.

They have not been incurred because of the litigation.  They would have been incurred otherwise.  And the opportunity cost, which unquestionably – economically or financially – exists, you would have to report it to your bank if they were interested.  That opportunity cost is precisely what the general principle says cannot be recovered, or, more to the point, only Parliament can take the very large step of increasing the cost and burden of litigation – or, perhaps, enhancing its justice, in a party‑party sense, by saying that anybody, lawyer or not, who spends time on litigation should be recompensed accordingly.

No one is proposing that this statute comes anywhere near doing that, but in our submission what the decision below has done, and contrary to the proper approach taken in Victoria, what the court below has done has achieved a situation where, of course, Atanaskovic Hartnell will make a profit because the costs they claim for their employees are charge-out rates.

Nobody is proposing, or least of all them, that there is going to be some utterly unprecedented and invidious investigation of how you actually distribute that work.  It would be perverse, because it means that if you were to do that – look at the fixed costs, salary and overhead of an employed solicitor – there would be more recovery if the firm was highly unsuccessful and that was the only work that was available for that solicitor and that is why you put them on the job, because you might as well keep idle hands doing something – that is absurd.

Nobody else has proposed a way except for the rough and ready – so far, it seems to be acceptable in practice – approach well understood and long established, long before Justice Davies talked about it in Commonwealth Bank v Hattersley, by which one says, they could have gone to an outside firm, they have not gone to an outside firm but what has happened is exactly what an outside firm does, you have a lawyer employed for the purpose.  It happens to be full master and servant relationship for the Commonwealth Bank, but it is still employed in the general use of being “used” if you get Freehills.

The fact that there is a different renumeration structure does not mean that it is not within the meaning of “costs”, including renumeration, when there is the in-house lawyer as well as the fully traditional, outside, ad hoc retained lawyer.  That is what this Court meant when it said nothing in Bell would disturb that well-established practice – which, I stress, probably predates Chorley, particularly in terms of public authorities, but since then, of course, has been, with respect, a very important and highly successful – that is, in social and ethical terms – part of the legal profession.

So, the in-house legal department of a bank or an insurance company is not something that this Court, unless it was compelled to, by plain words of a statute – no statute has ever come anywhere near doing it – would never dream, with respect, of outlawing the possibility of the person who will not pay their overdraft having to pay the costs of the Commonwealth Bank’s lawyers; whether they are MinterEllison or the internal legal department.

GORDON J:   One issue which I would like you to address at some point is the disconnect you identify in relation to employed solicitors of an unincorporated legal practice.  At a matter of practical analysis, it is the same disconnect with the government lawyers, in terms of the way in which we have the rough and ready justice.

MR WALKER:   Can I do that now?

GORDON J:   Yes, please.

MR WALKER:   Or I will try now, I think.  The starting place is to note that the question Justice Gordon has raised is of what I might call a consequentialist and overall nature with respect to our argument, because, obviously enough, there is no incorporated legal practice here.  That is the first thing.  The second thing to note is that there have been decisions to which the parties have drawn attention, upon which I will not dwell at all, which have turned on Salomon v A Salomon, that is, separate corporate identity, no form of piercing the veil.  Burrows, for example, in New South Wales, is an example of that.

None of that is before this Court, and so I am proceeding on the basis that in answering Justice Gordon, I am intent to ensure that none of my argument will run aground on the approach that either is or ought to be taken with respect to incorporated legal practices.  Now, can I explain what I mean by that expression, because it is not exactly uniform around the country.  By “incorporated legal practice”, I mean that for some reason, Parliament has seen fit to permit a corporation, without body or soul, being a lawyer – well, not quite, but to stand in for being a lawyer.  Corporations obviously do not pass law school and do not pass character requirements; it is all done by extension or by derivation.

But it is evident that the policy decisions that led to those legislative amendments have extended to a position which used to be criminal; namely, the involvement of lay persons, by reference to invested equity and return of profits, in the practice of law.  So, incorporated legal practices are a device which, whether for tax, liability or capital provision purposes interposes an artificial person between client and the actual human lawyers whereby it is the artificial person who is retained.  Fairly good reason, by the way, to keep the system as it is for individuals to be solicitors on the record, because the idea of a corporation being on the record is alarming with respect to the intimacy of the relation between individual lawyers and the court.

Be that as it may, that gives rise, of course, to the likelihood – probably near certainty – that every lawyer involved will be either an employee or a contractor, so either a contract of service or a contract for services where the counterparty is the incorporated legal practice.  And a question obviously will arise as to whether that has any influence on the application to such a case of the employed lawyer rule, that is, in favour of a recovery by that incorporated legal practice of the costs as if charged externally of the employed lawyer – they will all be employed – or contracted lawyer who does the work of pressing or defending claims for the incorporated legal practice itself.

Now, this Court noted the matter very generally in paragraphs 51 and 52 in Bell, and, of course, that was apropos an argument noted in paragraph 46 where the expression is used:

in‑house solicitors by governments and corporations, including incorporated legal practices –

Now, come the day – and this is not the day – it may well be that in no acceptable sense of the good colloquialism “in‑house” is a person who is employed by a corporation but who is in fact a senior partner, in‑house.  “In‑house” means that I, a bank, have, in house, rather than outside the bank, my solicitor; just as you may have an in‑house medical practitioner rather than a doctor down the road.

So, come the day, there may be scepticism as to whether or not there is any true analogy of a kind in particular which would avoid the possibility of profiting from doing your own legal work in the case of a so‑called incorporated legal practice and, as has been shown in the few cases that have looked at such matters, much depends upon the care that is taken to present factual detail as to the actual arrangements.  And where one looks at the appellate decisions to which we have drawn attention in this regard, one sees that so far, at least, no case has presented itself in which arguments either have been put, or could have, on the factual basis presented, been put along the lines of the argument that I am about to sketch.

The argument that I am about to sketch is, of course, provoked by the openness of the matter signified by this Court’s paragraph 51 in Bell:

Whether the same view should be taken –

and the “same view” is the view that culminates in paragraph 50, and which is the employed lawyer rule as we have urged it should be understood.  In paragraph 51:

Whether . . . incorporated legal practice –

Probably, with great respect, more or less meaning how I have described them to be – whether that should be included is, possibly, one that produces a “different position”.  What that means is, the mere fact of employment – that is, master/servant or, for that matter, contract for services – was not seen by this Court as being an immediate reason, why of course it will be treated the same way.  If I may say so, I do not suggest for a moment that the employed lawyer rule will always require master/servant.  It may be that, in some contexts, the holding of an office will suffice – and so it should, given the history.

But in paragraph 51 you will notice the repetition of “it might be queried” – and I stress this is not our case – but in deference to what Justice Gordon has asked, we accept that it is, again, a test, perhaps, of our argument overall.  You will see the very first consideration is one to which we have drawn attention – namely, the matter of the necessary detachment.

This is, perhaps, a can of worms because, on the one hand, it may be talking about actual psychology and, perhaps, a pathological departure from professional standards – probably not really what is being talked about – and, on the other hand, the more formal status considerations that arise when a professional, owing publicly mandated and enforced duties, is employed to carry out that professional work – be they a medical practitioner, a surveyor or a lawyer.  Detachment, particularly with lawyers, obviously involves the paramount observance of the law over and above the desires of the client – disinterested in the technical sense, not, obviously, uninterested or non‑diligent.  So, in paragraph 31, the second “it might be queried” refers to:

the expansive view of indemnity –

for the case which, alas, has become not only possible but practised in this country, of an incorporated legal practice with a sole director and shareholder – a true one‑man or one‑woman company – which at least strains, for a layperson, credulity as to that producing radically different outcomes from what principle would otherwise indicate – it smacks of device.

I am not talking about piecing a corporate veil here, I am talking about whether or not, for the purpose of understanding costs and remuneration, the relation between a corporation constituted, qua shareholder, by one person managed, qua director, by one person – the same person – is to be treated as a situation in which there is no difference to be perceived between that and the legal department of the Commonwealth Bank.  We submit that, at the very least, eyebrows ought to be raised but, most importantly, that matter should await a case in which it is concrete and there are facts to be understood.

We know that the citation with what I will call, if I may, apparent approval or at least no indicated disapproval of Justice Brereton’s observations concerning what I will call detachment in McIlraith v Ilkin that you will see back in paragraph 19 of Bell, is an echo when one sees a reference to the same dictum in paragraph 51 that I am presently dwelling on.  This Court very plainly left open whether or not his Honour was correct in perceiving no significance to that kind of incorporation for the purposes of the issues at hand.

Now, I stress, our case does not depend upon that, but if and when such a case arises, in our submission, the argument which we press is, in our submission, easily to be understood, straightforwardly to be applied in such a case so as to deny that so‑called employee the capacity – lo and behold, with the other hat of “capitalist” – to profit from doing the work which only an employee can do for a corporation – corporations cannot be lawyers, only employees or persons retained can be.

If they are all “in‑house”, in the unsuitable meaning of that – namely, they are employees of the litigant – then, in our submission, it ought to be the case that will be determined on the basis that one asks, what is the employee employed to do, so that one can understand what are the costs – undoubted costs of salary, superannuation, housing – in what sense can those costs be said to be “in or in relation to proceedings”, given that in the paradigm case of sole practitioner being sued, doing all the work, the undoubted cost to that sole practitioner of not being able to derive fees is, as a matter of first principles, in the general principle or the general rule, not entitled to recover.

In our submission, that is how those cases ought to be determined if and when they arise.  Nothing about those cases suggests any true analogy with the in‑house lawyer – properly so called – for government, bank, insurance company, et cetera.  In particular, in no sense does an incorporated legal practice – a device adopted for financial and liability structure purposes – employ its lawyers – the only people that can do legal work to earn profits – to be the lawyer for that corporation.  Nonsense.  They are employed to be lawyers for anybody but that corporation, which, were the law different, would be the very first person to put their hand out and say, I have had to use one of my lawyers, who should be out in the field getting fees, I have had to use them to beat off this unmeritorious claim for which I got costs, opportunity cost, et cetera, et cetera.

In our submission, of course, in such a case, one can readily see a radical distinction – fundamental contrariness – between that situation and that of the in‑house bank, or insurance, or government solicitor.  Is that a convenient time, your Honour?

GAGELER CJ:   Yes.  We will take the morning adjournment.

AT 11.16 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.29 AM:

MR WALKER:   Your Honours, on review, I have covered everything but for one short topic, so I will sit down in a very short time.  The propositions that we advance in 12 and 13 are an aspect – not the central aspect – of the distinction between solicitors employed, as in this case, for the same purpose as the partners are engaged in business – namely, to generate profits from providing legal services to others, not themselves – and the case, entirely salutatory, and not at all disturbed by this Court’s previous decision or anything that we ask this Court decide in this case of the so‑called employed solicitors by governments, corporations, et cetera. 

We draw to attention in our propositions 12 and 13 that, after all, in the practice of law in a firm, really, however it is organised, there will be something in the nature of a hierarchy, even if it is simply a majority vote among partners, and that in order that they proceed lawfully, and on the supposition that they all do proceed lawfully, then, of course, there will be room from time to time for disagreements among the lawyers – be they partners or employees – in their practice of law, serving clients outside the firm, as to what a professional duty requires or forbids in a particular case.

The old language, of one’s master solicitor, or one’s tutor, et cetera, conjures the idea that it is just possible that somebody who has been doing it for a longer time will have wisdom about what ought and ought not to be done.  Often that will also be reflected in managerial hierarchy – that is, you are an employee who is called a junior solicitor and then you climb to be an associate and then a senior associate, and you are all under the direction of, and the directions are in accordance with the law of employment.  That is, they are either lawful or not. 

There is no doubt that in that case of disagreement among professionals, the most junior solicitor and the most grizzled senior partner – there will come times when hierarchy will be an appropriate way for people all acting lawfully to say, this is what we are going to do; that document is discoverable.  That is a lawful direction among professionals all acting lawfully.  It is not possible to suppose anything like that at the level of the Commonwealth Bank where a bank manager or a State manager which is not a lawyer, has no practising certificate, owes no duties to the court, is obviously never in a position to give a lawful direction about saying, I do not care what you say about discoverability, that document is not being discovered; it is going to hurt our case.

That is a distinction – a real, practical, everyday distinction – and it is one of the reasons why, obviously, corporations do employ solicitors, to do their work properly, and it is one of the reasons why, obviously, at the level of corporate management, the role of general counsel is one which is quite special with respect to the duties inter se of members of a board or management groups or committees in which general counsel’s advice is sought.  It would be absurd to own a dog and bark.  If you ask your lawyer for a legal opinion, you get that lawyer’s legal opinion, not something crafted by what the risk committee thinks would be suitable for the controversy at hand.  That is a real difference and, in our submission, it is one that helps to inform the more general proposition that, obviously enough, the employed lawyer rule applies in cases where someone has been employed to be the employer’s lawyer.

May it please the Court.

GAGELER CJ:   Thank you, Mr Walker.  Yes, Mr Free.

MR FREE:   May it please the Court.  Your Honours, in our submission, the appeal falls to be resolved and dismissed on the basis of application of clear rules and principles that were established in the Bell Lawyers case in this Court.  Can I ask your Honours, though, to begin just by turning up page 140 of the core appeal book, paragraph 287, in the judgment of Justice Kirk in the court below, where his Honour makes two points that we would seek to draw attention to immediately.  In paragraph 287, his Honour says:

Characterising the basal principles correctly is important.  When it is understood that the employed lawyer rule was not undermined by Bell Lawyers, and is in fact a manifestation of the general principle of indemnity which was affirmed in both that decision and Cachia, then it is incumbent on the respondent to show why unincorporated law firms should be excluded from application of these general principles.

It is a point we emphasise at the outset because we respectfully submit that his Honour’s analysis – which we respectfully say is correct – bears out the point that characterising the basal principles arising from Bell Lawyers is critical and it does lead to posing the question in a way that his Honour then did in the second sentence.

We say that reveals, once the basal principles are properly analysed, the harmony between the governing statutory provisions in this case and the Civil Procedure Act as to costs and the articulation of the principles and rules in Bell, and also shows why the outcome of this case really follows from a fairly elementary application of the principles as articulated in Bell. 

The first of those principles, which, really, was the primary reason for overturning the Chorley exception, was recognising the centrality of the general indemnity principle.  That is, the costs are awarded by way of indemnity or, more accurately, partial indemnity for professional legal costs actually incurred in the conduct of litigation.  As your Honour Justice Edelman just observed this morning, what the words “cost actually incurred” serve to differentiate are opportunity costs, which are not caught, and other species of costs, which are caught.

That is what brings one to what used to be called the general rule, but after Bell Lawyers is the universal rule, when it comes to the treatment of a personal investment of time and effort by a litigant.  The general rule now – the universal rule – is the litigant is not entitled to recover as a purported cost of litigation an amount that is said to correlate to that person’s own wasted time or effort.  That is why, principally, the Chorley exception was never compatible with the general indemnity principle.  It always required a fiction to pretend that the lawyer’s own time and effort was a form of cost, because it was not a cost incurred.  It was, at most, an opportunity cost, and involved some transformation into a cost.

Our learned friends have drawn attention to the fact that in one of the passages from Chorley, the Lord Justice referred to work by the solicitor’s own clerk rather than the solicitor themselves.  Can we just draw to attention in Bell Lawyers the various passages in which reference is made to the general rule to describe what the general rule is, and in dealing with why the Chorley exception to that rule ought no longer be recognised, the way the various judgments in Bell Lawyers articulate the rule and the exception are clearly focused upon the time and effort of the litigant themselves, not of any third‑party who is providing services for the litigant.  So, one sees that, for instance, in paragraph 1, the plurality judgment, the very first line articulating the general rule:

As a general rule, a self‑represented litigant may not obtain any recompense for the value of his or her time spent in litigation.

The exception in the next sentence articulated as:

a self‑represented litigant who happens to be a solicitor may recover his or her professional costs of acting in the litigation.

In the subsequent references in the plurality, there is the same distinction maintained between lost time of the litigant and other forms of expense.  For instance, in paragraph 17, where their Honours set out the statement of the general rule from the Master of the Rolls, that, your Honours will see, is concerned with loss of time.  Master of Rolls in the first sentence of that passage:

“When an ordinary party to a suit appears for himself, he is not indemnified for loss of time; but when he appears by solicitor, he is entitled to recover for the time expended by the solicitor –

It goes on to analyse what was then thought to be a justified differentiation of that treatment of the loss of time in those two scenarios.

BEECH-JONES J:   If you are not paying your employed solicitor on the basis of an hourly rate, are you not just seeking recovery of their loss of time?

MR FREE:   With respect, no, your Honour.  We would say – and here there is no relevant distinction between employed lawyers of other species as opposed to law firms, so whoever the employed lawyer is employed by, the analysis of the relationship between that employer and employee is that when it comes to the salary they are paying the employee to perform work on litigation, it is treated as a cost incurred, and the fact that one might be able to observe, at least in some cases – it would not be universally true – you might have employed them anyway, you might have paid them the same amount regardless of litigation, has not been seen as a reason not to recognise that as a cost incurred.

EDELMAN J:   So, your case, really, is based upon costs payable rather than expenses?

MR FREE:   Well, yes, your Honour.  I am not sure it necessarily turns on the distinction.  We would say costs payable certainly includes remuneration because an inclusive component of the definition.  It also includes expenses.  Whether one characterises salary as an expense is really neither here nor there, given that remuneration is a form of cost payable.

EDELMAN J:   Except if salary were the characterised expense, then one would be quantifying by reference to salary rather than charge‑out rate.

MR FREE:   Well, the point of the proxy as, with respect, our learned friend has correctly described it, is that as a method of cost assessment the appropriate approach – and only a default approach, because our learned friend has recognised the authority, which is Hattersley – reserved the exceptional circumstance where someone might object to an assessment on the basis that that approach is going to allow too much and will go beyond indemnification. 

It effectively starts with the recognition that you are paying the employee – may take the form of a salary – and you are incurring costs in respect of that employee.  The appropriate way of quantifying the work done in respect of the particular litigation is to use the comparable external rates as a proxy, but what you are trying to compensate for is the damnification or the cost in the form of paying for that employee to do that work.

GLEESON J:   In the case of a law firm, that will always involve overcompensation.  In the case of a bank, we do not know how the in‑house lawyer is renumerated.

MR FREE:   With respect, no, your Honour.  We would say the logic of the approach – and if I could take you to paragraph 47 of Bell Lawyers, which deals with this very point about both the character of the employed lawyer exception as a form as coming within the indemnity principle, but also as to how it is quantified.

The argument described in 46 was that one of the reasons not to overturn the Chorley exception was that it would also disturb the well‑established principle in relation to the use of in‑house solicitors by governments and corporations, including incorporated legal practices.  In explaining why that is not the case, the plurality says in 47:

This submission fails to appreciate that in relation to the use of in-house solicitors, such arrangements have been treated as being outside the general rule because it is accepted that the recovery of the professional costs of in-house solicitors enures by way of indemnity to the employer, as is confirmed by the inclusion of “renumeration” in the definition of “costs” in the Civil Procedure Act.  Where a government or corporate litigant has been represented by an employed solicitor, the courts have proceeded on the footing that the actual cost to the government or corporation of the legal services provided by its employed solicitor would not exceed, in any substantial amount, the sum recoverable by it for professional legal costs.

Just pausing there, the first point comes back to what I was saying in response to your Honour Justice Edelman’s question about how this is characterised.  In effect, the renumeration payable between employer and employee is characterised as a form of cost, and then to the question of quantification.  It has proceeded on the footing that the actual cost would not exceed any substantial amount: 

the sum recoverable by it for professional legal costs.

That is the context in which their Honours refer to what Acting Justice Davies had said in Commonwealth Bank v Hattersley.

EDELMAN J:   But that is by way of saying professional legal costs is a ceiling, not necessarily even a default method of quantification. 

MR FREE:   Yes, your Honour – but in terms of it being a default method of quantification, that is really what is addressed in Hattersley, as shown in the passage extracted there, where: 

an employed solicitor is involved, the traditional approach has been to award costs on a basis comparable to the costs which would have been incurred and allowed on taxation had an independent solicitor been engaged.

This is critical – the next sentence:

The assumption has been made that, in an ordinary case, the indemnity principle will not be infringed by taking this approach.

We would respectfully submit Acting Justice Davies is to be understood as observing that the reason the indemnity principle will not be infringed is because that assumption underpinning that default approach is that it will not deliver a profit; it is a proxy, albeit a default one, intended to indemnify, not to confer a profit.  That will be true whether you are talking about an employed lawyer within a bank, whether you are talking about an employed lawyer in a government department, or an employed lawyer who happens to be in a law firm.

EDELMAN J:   But then by reference to scaled costs rather than particular firm charge‑out rates.

MR FREE:   Yes, your Honour, that is so.  And consistently with that, their Honours go on in 48 to refer to what Justice Kiefel, as her Honour then was in Ly v Jenkins – her Honour had adopted that explanation in Hattersley, and also the view expressed by Lord Justice Russell with whom Lord Justices Stamp and Lawton had agreed in In re Eastwood (Deceased):

“It is a sensible and reasonable presumption that the figure arrived at on this basis will not infringe the principle that the taxed costs should not be more than an indemnity to the party against the expense to which he has been put in the litigation.”

STEWARD J:   Mr Free, how do you address the cost of the clerk being rejected?

MR FREE:   In context, your Honour, the Chorley exception was not understood in Bell Lawyers as being a principle about the time of the solicitor plus the costs of the clerk.

STEWARD J:   It is just that in paragraph 21, they quote Lord Justice Bowen who makes the point:

it would be absurd –

that you cannot recover the costs to your clerk and then the next sentence is:

This reasoning is not persuasive.

MR FREE:   I know, your Honour, but what their Honours then go on to deal with in explaining why that reasoning is not persuasive is:

The notion that the “private expenditure of labour and trouble by a layman cannot be measured” is not the basis for the general rule.

Then they say:

The general rule that a self‑represented litigant may not obtain any recompense for his or her time spent on litigation is not based on a concern about the difficulty of valuing the appropriate amount of recompense, but, as was explained by the majority in Cachia v Hanes, because “costs are awarded by way of . . . partial indemnity . . . for professional legal costs actually incurred –

Et cetera.  Then they say:

Accordingly, to say that the value of legal services rendered by a solicitor to himself or herself can be measured is not to justify an exception to the general rule.

So, in context, and just to give your Honours a few other references in the plurality to where reference is made to the solicitor’s own time and expense, if I could ask you to turn to 33.  Likewise, I should observe at the end of 32 – second last line of 32 – they refer to:

the possibility of allowing the solicitor to profit from his or her participation in the conduct of litigation.

We would say that is referring to a personal concept, not a concept encompassing work of employees.  Likewise in 33, second sentence:

It has never been thought that any of the ubiquitous statutory provisions empowering courts to order costs are available to compensate a litigant for his or her time and trouble in participating in litigation.

Likewise, in 38, about halfway through the paragraph, their Honours refer to the passage from Chorley in respect of “lost time and trouble”.  So, all of those particular references, we would say, are consistent with the plurality having understood both the general rule and the exception as being concerned with personal expense of time and trouble by the litigant themselves.

STEWARD J:   Why is it limited to personal?  Going back to what Justice Beech‑Jones asked you about, why cannot it include – from a partner’s perspective – the lost time of their employees?

MR FREE:   If it analysed in terms of the lost of time of employees to work on other matters, then that would not be recognised as a cost actually incurred, and that the reason there is not really so much because that falls within the conception of the Chorley exception but ‑ ‑ ‑

STEWARD J:   It may just be simply lost time of using your employee lawyer for a whole range of tasks.  Employee lawyers work on non‑billable matters, they work on internal matters.

MR FREE:   Yes.

STEWARD J:   I seem to recall doing some of this stuff myself.  Why is the principle confined to your own individual personal lost time, as a matter of principle?

MR FREE:   As a matter of principle?  Because the general indemnity principle works by reference to the costs you have incurred in engaging in litigation.  If you were an engineer or if you were a lawyer, your own time is not compensated for ‑ ‑ ‑

STEWARD J:   So, you say, the general indemnity principle is apt to capture all actual outgoings?

MR FREE:   If they otherwise fit the description of being ‑ ‑ ‑

STEWARD J:   In relation to ‑ ‑ ‑

MR FREE:   In relation to the proceedings.  Yes, your Honour. 

STEWARD J:   Yes, I see, I understand.

BEECH-JONES J:   It may come back to it.  So, if you are a law firm, you pay a solicitor – shows how out of touch I am – maybe $80,000 a year.  They are paid to do a whole range – you have a whole broad practice, and you get them to do one case.  It takes a few hours in the local court.  Why is the salary payable in relation to that case?

MR FREE:   This really comes to the heart of the point our learned friend has developed today to suggest that the touchstone is:  what is the solicitor employed for?  To frame it that way, with respect, begs the question of:  when are you asking that question?  Are you asking that question on the day they were taken on as an employee?  If that is the way it is posed, we would say that is misdirected in terms of the application of the indemnity principle.

The way employed lawyers come within the employed lawyer rule is to ask:  what was the devotion of resources – if I can try to use that neutral term – by the litigant in meeting this litigation?  They devote the resources of an employed lawyer – it might be for two years; a large team within the firm because the law firm is caught up in protracted litigation; it might take on new staff.  It is just a decision about how to devote available resources and it is about the character of the resources expended.  The law uses the proxy of saying, in effect, you are paying them to do that work.  You may be paying them in the form of a salary.  We will use this proxy of taxation by reference to costs – what it would have cost you if you had someone external – on the assumption that that will indemnify you for the true cost.

GLEESON J:   The problem is, is it not, that the proxy operates in the case of the legal partnership to give you a profit?

MR FREE:   No, with respect, your Honour.  If the proxy works in the way that it is articulated as working, it is precisely not to give you a profit, but to reflect the cost of those resources to you.

GLEESON J:   But that applies when you are making the assumption for a government department, or for a corporation, but it just cannot apply when you are dealing with a legal partnership.

MR FREE:   When dealing with a law firm – and I will use that term neutrally, because for the purposes of this point, it does not matter what form the firm takes, whether it is a partnership, a sole practitioner, or a incorporated law firm – their core business, if you can put it that way, is likely to be the provision of legal services to external people.  At least as a general observation, that is likely to be the case.  They are also an entity in their own right conducting business.  They are renting premises, having disputes with landlords, they are employing people, having disputes with employees, they are contracting with people, having disputes over debts, et cetera.

For all of those purposes for which they are engaged in that type of business in their capacity as an entity, they are the same as a government department, or the CBA, or any other corporation.  They need to transact, litigate, and deal with people.  So, when acting in that capacity, it is just a question of:  what are the resources I am going to devote to meet this end?  They may hire entirely external lawyers; they may take advantage of internal lawyers.

Our learned friend suggested that it is some remote theoretical possibility that there may become a time when there are firms that are large enough to have distinct in‑house components, and that that might somehow mean that you need to treat them differently.  The first thing we would observe is the Court has no evidence before it about the prevalence one way or the other, and you could not take judicial notice of the fact that that is not the case.

One knows, given the scale of law firms, that they do routinely engage in large‑scale business in their own right as firms – litigating, having disputes, and, naturally, can take advantage of their own resources.  To say what is an employee of a law firm employed for, if one is posing that at the outset, they are employed to provide such services as the law firm requires from time‑to‑time.

That might often engage being effectively charged out to third parties, but it can also be providing the law firm itself with the legal services it needs.  It is entirely artificial to stamp that employee with a permanent character of, you are not an in‑house lawyer – as if that has some magic to it – because you are predominantly charged out and you are not part of our special in‑house team.  That is not the way the business works, and it is not a stable basis on which to effectively exclude just one category of employer from the employed lawyer rules.

GORDON J:   Can I ask – I put to Mr Walker that his disconnect applied across the board.  Is that your answer to the same question?

MR FREE:   Our answer to that, your Honour, is that what your Honour is observing, that if is there is a complaint that profit will be delivered by the application of these rules to employed lawyers of law firms, then the same complaint would be raised again employed lawyers of banks and ‑ ‑ ‑

EDELMAN J:   It may be that one of the difficulties is that there are two different senses in which indemnity can be understood.  One sense of an indemnity is making sure that someone is not worse off, making sure not that they do not make a profit, but that they are placed in a position that they have not suffered a loss.  That type of view of indemnity does run into a bit of difficulty with both government lawyers, in‑house lawyers, salaried lawyers, because if they are going to be paid a salary in any event then to put the government or the corporation or the firm into the same position by reference to an indemnity, you do not need to give them any money, because the costs would have been incurred in any event.

The alternative approach to an indemnity is that an indemnity is just concerned with the work done other than by the person themself, like a quantum meruit, and that is where the analogies in some of the earlier cases referred to quantum meruit, which is not concerned about whether it would have been done in any event or whether the time would have been spent in any event, it is quantifying the value of someone else’s work done.

MR FREE:   Yes, your Honour.  We would not see there as being a necessary tension between the two conceptions, including for this reason.  The first way your Honour put it assumed that there is no loss in the sense that the person would have been employed anyway and paid the same amount, but we would caution against any universal assumption in that regard.  That is simply not something that can be assumed to be the case.  You may well have large‑scale litigation where you take on employees you otherwise would not have taken on.

EDELMAN J:   True, but you could not assume the opposite, either.

MR FREE:   No, I accept that, your Honour.  But the best that the law has done in a principled way that is generic to all employed lawyers is the approach we have drawn attention to in 47 and 48, and that really would serve either measure, we would respectfully submit.

Your Honour Justice Gordon, on the question of other employed lawyers, we would say if the complaint is that a profit is delivered by the application of these rules, that is really our observation about how the employed lawyer rule works.  It does not work any differently for employed lawyers in law firms than it does for banks, government departments, et cetera.

GORDON J:   As I understand it, it is, regardless of where that employed lawyer sits – bank, government, incorporated, unincorporated legal practice – they do work in relation to a proceeding.  The question is, what are the costs payable in relation to the work that they do in relation to the proceeding?

MR FREE:   Yes.

GORDON J:   Pragmatically, recognising that it is an indemnity about which you are not to recover more than you should; pragmatically, that has been charged, or costed, or determined by reference to a set of standards.

MR FREE:   Quite.

GORDON J:   And if those standards are applied, one would get a figure, and that figure would – on Mr Walker’s analysis – include an element of profit, because of the way in which those things are structured, and that would apply whether it is the bank, the government department, the employed solicitor in either an incorporated or unincorporated legal practice.

MR FREE:   Yes, your Honour, and I would add this observation:  the complaint that that will involve an element of profit is really suggesting that the assumption and the proxy are wrong, and ‑ ‑ ‑

GORDON J:   And that is a quantification question.

MR FREE:   Exactly, and as recognised in Hattersley and In re Eastwood, it is a default position, so, in any given case, although the default position exists because the courts have recognised that it is a completely disproportionate and untenable exercise to try and work out exact costings and apportionment, et cetera, of overheads, and all those things, and it works as a default proxy, but in any given case, a party subject to that costs order could complain that this is going to result in something more than indemnification.  So, as part of the costs assessment process, that is the solution to that concern.

STEWARD J:   Mr Free, do you accept that when an employee’s solicitor in this matter did work in relation to the proceeding, it was not in a representative capacity?  You may say that is irrelevant.

MR FREE:   That is certainly our primary answer to it, your Honour, I just do not know whether that is necessarily true in every sense.  There may have been appearance work.  My client was represented by counsel, if employed solicitors happened to appear in court, that may have had a representative element to it; if they corresponded, that may have had a representative element to it ‑ ‑ ‑

STEWARD J:   They would have corresponded on firms’ letterhead, but then there would be emails as well, of course.

MR FREE:   Indeed, your Honour.  But the very fact that that answer is so fact‑dependent and I am not in a position to tell your Honour a complete or accurate answer really feeds into the irrelevance of it.  The indemnity principle works by reference to what are the costs actually incurred in relation to proceedings.  There is no magic in the application of that concept to who is the representative at any given moment, whether you see that in terms of the solicitor on the record or any other representative actions.

STEWARD J:   It is just that it may be of significant that, in the case of governance and corporations, the solicitor on the record is not the government and not the corporation but a firm like the AGS or the name of an in‑house employee‑solicitor, whereas here, the name on the record here is a partner of a firm.

MR FREE:   Your Honour, with respect, we would say those differences ‑ ‑ ‑

STEWARD J:   Sorry, I was just going to say, so that you could characterise the firm here as self‑represented.

MR FREE:   Those labels, with great respect, your Honour, we say do not assist in the application of these principles.  They are not a relevant criterion of difference exposed in Bell Lawyers for the application of the general indemnity principle.  And it can really be readily illustrated by considering how the facts could change.

My client might have used an agent to be the solicitor on the record, and that agent might have done very little work – otherwise, assume all of the facts are the same, counsel are retained, in‑house Atanaskovic Harntell lawyers are working on the matter, incurring costs in relation to the proceedings.  The facts of who has been nominated as the representative as the solicitor on the record would not change the character of those costs or their connection with the proceeding.  That is why we say representative or non‑representative will not help answer the question and equally, to pick up another point your Honour has made, does not help articulate any relevant distinction between a government department – whether acting through the AGS or some other lawyer – and a law firm.

GAGELER CJ:   So, really it is as simple as this, I think.  It does not matter who the litigant is, if the litigant has an employed solicitor and the solicitor actually carries out professional work, then that is a professional legal cost actually incurred, because the employed solicitor is getting paid to do it.

MR FREE:   Precisely, your Honour.

GAGELER CJ:   That is kind of the long and the short of it, is it not?

MR FREE:   With respect, your Honour, yes.  That is why we ‑ ‑ ‑

GORDON J:   The only qualification would be work done in relation to a proceeding.

MR FREE:   Yes, it has to meet that character in order to be eligible at all, and that is ‑ ‑ ‑

GAGELER CJ:   And the rest is quantification.

MR FREE:   Precisely, your Honour.  And can I add this observation about quantification.  Our learned friends’ complaint about profit, which we have suggested really, when you scratch the surface, is a complaint that the proxy does not work at it should or that the assumption is wrong – if that is a sound complaint, it is really saying the whole employed lawyer rule is misconceived.

GORDON J:   Is it, or is it just saying that quantification is wrong? 

MR FREE:   We think that is the more direct answer to it ‑ ‑ ‑

GORDON J:   But that is the reason why you have been asked these questions.  We know what the principle is, we know the fundamental underlying assumption of it is; the question is quantification, we will have a debate elsewhere about the proxy.

MR FREE:   Yes, your Honour; but to be clear, when we say you are complaining about quantification, the point I am seeking to make is that is recognised within the existing principles and the proxy, that if you have a complaint about how it will apply in a particular case, you can say the default should not apply, this is going to lead to excessive recovery.

GORDON J:   This is about the flexibility at quantification stage; that someone can come along and say, you want to apply the standard set of rules and scales, but for these reasons they should be disapplied and some other measure should be adopted.

MR FREE:   Yes, I think the example given in In re Eastwood is if you know that applying that proxy is going to result in an amount far in excess of what anybody was paid by way of salary, then you could make a complaint that you have got beyond indemnification.

BEECH-JONES J:   They will ask the taking officer to lop another 10 per cent off, or something like that.

MR FREE:   Yes.  You could then have to articulate an alternative, better measure.

BEECH-JONES J:   But your point is, if that is a problem, it is a problem for employed solicitors of governments; but that does not help this issue, does it?

MR FREE:   Indeed, your Honour – when our learned friends’ argument proceeds – as it really has to, after Bell Lawyers, because you are not being asked to decide Bell Lawyers was wrong – our learned friends’ argument has to proceed on an acceptance of the employed lawyer rule; that was endorsed plainly in Bell Lawyers.  It was a reason expressly ‑ ‑ ‑

EDELMAN J:   Is Eastwood really right?  Is it really a proxy in that sense?  Is it open to a party to come to the taxing master and say:  we want to challenge these scale cost rates that are performed by this junior solicitor, what we want to do is we want to have a look at the solicitor’s annual salary and divide that by 365, because there was only one day worked on this, and we can work out that that amount plus any particular overheads is going to be slightly less than the scaled cost rates.  That is the type of reasoning that would be allowed, if it were truly only just a proxy.

MR FREE:   That is the possibility left open on the authorities; that would obviously, in any assessment, have to be dealt with under the rules governing the assessment and, obviously, the party doing that, facing the threat of having to pay the costs of the exercise ‑ ‑ ‑

EDELMAN J:   Unless, of course, indemnity is used in the same sense when one is talking about work done as a quantum meruit, which is the reasonable taxable value of the work – or a quantum valebant.

MR FREE:   Yes, I accept that would avoid that – that would suggest the same response would not be engaged.

BEECH-JONES J:   This may all affect the ability of the employed lawyers to get the so‑called indemnity costs order to have any effect in relation to – because we have been talking about scale, but there may be a conceptual problem with that in this context – but I suppose you say, that is not my problem now.

MR FREE:   No, your Honour, but I accept the logic of your Honour’s point that the nature of the assessment is a little hard to see as differentiating between the two.  Can I just add this point, your Honours, about the complaint suggestion, and our learned friend went so far as to say profit will in fact be delivered to Atanaskovic Hartnell through this assessment.

I have sought to answer why, in the proper application of the principles you certainly cannot assume that result, but it also has an important implicit concession, which is the only reason these costs are caught and the only reason we are having this debate is a recognition that costs have been actually incurred.  So, our learned friend, in proposing what is an exclusionary rule just for lawyers within law firms, is effectively saying there will be a species of cost actually incurred which is excluded.

That is why, coming back to where I started with the way Justice Kirk posed the question, it is really incumbent on the appellant to explain, why should there be this unique exception for lawyers within law firms from the rules which otherwise apply to every other type of employed lawyer?  And this is where we get to the perverse situation of inequality, after where we started in Bell and Chorley.  What was offensive about the Chorley exception was that a litigant’s time was not valued for the purposes of costs recovery unless they happened to be a solicitor.  Here our learned friends are pushing the opposite end.  The expense of employing a lawyer to perform work on proceedings is recoverable unless your employed lawyer happens to work in a law firm, or unless you, the litigant, happened to be a law firm, and there is no good justification for that unique exclusion.

Like our learned friend, I think, through the debate, a lot of what we were proposing to cover has effectively been exposed.  Can I deal briefly with the proposition about detachment and the notion that there is some problem with the independence of lawyers.  Firstly, we would respectfully submit that in quoting the passage from Justice Brereton, the plurality was not seeking to endorse any general proposition that it is inappropriate for lawyers to perform legal services in their own cause, and there is no universal ethical constraint on a law firm using its own employed lawyers to assist the firm when it has legal needs of its own.

Their Honours referred in paragraph 19 in Bell Lawyers to what Justice Brereton had said in McIlwraith v Ilkin, but that was, one has to remember, not seeking to establish some general proposition but seeking to explain why part of the reason for the Chorley exception was unpersuasive.  The reason originally in the Chorley exception was that it was considered desirable for lawyers to act in their own cause, and the Court was – the plurality, rather, were expressing doubt about that.  Their Honours in paragraph 20, after quoting from Justice Brereton, say:

The view expressed by Brereton J is reflected in rr 17.1 and 27.1 of the Australian Solicitors’ Conduct Rules –

We just draw to attention that those rules certainly do not go so far as to suggest that there is anything ethically wrong with a law firm acting for itself in litigation in which it is a litigant.  Those are very specific ethical constrictions on not being a mere mouthpiece in court and not acting as a solicitor in a cause where you may be a witness.

So, they are quite confined principles and, given that the plurality goes on, we would say, in 47 through to 51, clearly to contemplate that the employed lawyer rule is capable of applying to law firms.  You would not read the judgment as expressing any endorsement of a notion that there is some principle of independence of non‑detachment which means that you should exclude lawyers from the benefit of the employed lawyer rule.

I think, your Honours, I have, in substance, dealt with most of what we wish to cover.  We would just make the general observation – and this really follows from the way we have articulated the general principles and, with respect, the way your Honour the Chief Justice summarised the simplicity of those principles in the ultimate analysis – much of the reasoning of the primary judge and of Justice Ward below, and of the Victorian Court of Appeal in the United Petroleum Case, with respect, miscarried because of a failure to appreciate the fundamental distinction between the litigant as a person in their own right and the separate identity of the people performing work.

So, where the Victorian Court of Appeal talks about a firm representing itself, it fuses the concept of the partners of the firm with the people who are retained to provide services for the firm, whether they be employees or other.  As soon as you do that – ignore the critical distinction between the litigant and those providing work for the purposes of the proceedings – you are going to misapply the principles and, with respect, that is what is reflected in the judgment of the dissenting judge below, the primary judge and the Victorian Court of Appeal.

GAGELER CJ:   Mr Walker does say that where the litigant is a partner and a person doing the work is an employed solicitor, there is a unique relationship which allows the litigant in that case, not in other cases, to direct the professional work that is done.

MR FREE:   Yes, your Honour.  Can I address that suggested point of distinction.  Firstly, we would observe that all lawyers will have their own ethical obligations pursuant to conduct rules and other governing legislation, and that is going to be true whether employed in a bank, employed at the AGS, employed in the Treasury department, or employed in a law firm.  Those will be overriding, and they will be something that cannot be avoided by a direction from a superior.

That will provide a level distinct characterisation of the legal services which is going to be true in all cases.  In‑house legal departments will take many forms, as all your Honours will know, they may themselves be highly sophisticated, large legal departments that will have hierarchies of their own, including of lawyers.  There is going to be managerial control, but there is also going to be legal supervision precisely of the kind your Honour has talked about.  A general counsel of a bank will exercise control over the lawyers below the general counsel, which is both conventional managerial but also that specific relationship of a superior lawyer.

Because of that possibility, it will not provide a universal point of distinction anyway.  The more fundamental point, we would observe, is that that relationship does not provide a relevant criterion of deference anyway.  It does not change the character of the costs incurred; it does not change the character of those costs being incurred for the litigant who is in the proceedings.  Would your Honours bear with me for a moment.

If the Court pleases, those are our submissions.

GAGELER CJ:   Thank you.  Mr Walker.

MR WALKER:   If it please, your Honours.  That last matter, combined of course with the relation of employment to which I referred in opening in chief, does show the reality by which an employed solicitor doing legal work in the conduct of litigation for the law firm – that is, lawyer employer – is an instance of that employer litigant doing work for itself.  That is the first point.

In no sensible way is the employee solicitor in such a case a third party any more than a partner who does work for the legal firm as a litigant a third party.  Yes, they are all natural persons with their own legal and statutorily mandated duties as individuals with practising certificates, but they are not, with respect to the party to the litigation, separate in any way.

That is distinctly different when it comes to the provision of legal services to an employer by in‑house lawyers for a bank, government, et cetera, where there can be no identity between the individual lawyer and the employer qua their role or operation as a lawyer, for the reasons that both parties have put for their opposite reasons in argument.  In our submission, there is an elision to be avoided.  The statutory expression is not work in or in relation to the proceedings, but costs “payable in or in relation to the proceedings”, because the work is indistinguishably legal work in the proceedings in order to give rise to any question of how the statute applies in cases such as the present.

As we said in chief – and with respect, there has been no answer to this except by resort to the so‑called proxy approach – it is simply not the case that the costs of employing a person, like the costs of having a partner join in order to ply one’s trade in the world with outside clients to generate revenues to pay everyone and produce a profit, one hopes, it cannot be said that that means that the costs of maintaining the firm and its apparatus – human and material, including partners and employees – has been incurred in or in relation to those proceedings at all.

It is for those reasons that when one gives proper effect, as you should, because these cost claims are always focused on the proceedings in which an order has been made, one sees that it is a fundamental question to ask, whether it is going to be stood in for by a proxy or not, why does the money in question have the character of being payable in or in relation to proceedings?

It is in or in relation to the litigant doing the work itself – one day by a partner, the other day by an employee – an acceptance by our friends, and surely a holding in this Court, that as to the partner, no possibility of these costs provisions permitting a claim against the counterparty ordered to pay costs, but apparently it will be so for the employee.  Now, that is the result of the Court of Appeal in New South Wales and is, of course, the opposite of what the Court of Appeal in Victoria came to.  It comes down to this.  One day in a proceedings, say, that takes seven days – one day a partner does the work, the next day an employed solicitor does the work, and turn and turn about until the end.

The same derivation of profit, if costs can be levied against anybody, will apply regardless of whether it is partner or solicitor, except the possibility, obviously, that a partner’s charge‑out rate will be higher than the solicitor’s, and it may be that depending upon the nature in which the mark‑up is administered there might be even more profit from a partner.  That depends upon the business model.  Now, they have both lost.  That is, with respect, the firm has lost an opportunity for the partner to be getting revenue from the outside, and for the employed solicitor to get revenue from the outside.  The same opportunity is lost to ply their trade, as lawyers, to charge profit costs so as to produce revenue which will enable the doors to be kept open and people to be rewarded for their work.

Yet, day in, day out – it is partner, employed solicitor, et cetera – there will be opposite results, according to the Court of Appeal in this case, for the Monday, as for the Tuesday, for the Wednesday, as for the Thursday.  That, in our submission, is the mark of something which is produced by resort to reasoning by device rather than by reasoning according to principle.

When one calls in aid, first of all, the simple principles that an entity – a firm – that acts by partners or employees is acting, by whomever, then, in our submission, the identity is such as to firmly place the legal work done by a partner and the legal work done by an employee for the firm as a litigant in exactly the same case:  the litigant is doing its own work.  That, in our submission, is the first of the principles.

The second of the principles, which is subordinate and is excited by the concerns with respect to the indemnity principle as it may apply to lawyers – because we are talking about legal costs, it is special to lawyers because only lawyers do the work which can attract legal costs – the avoidance of profit is one which, in our submission, is by no means answered by anything my learned friend has said about the employed lawyer rule where the employer is not a law firm.  Let me explain.

It is clear that a charge‑out rate – which, of course, is the basic, plain, vanilla way in which a costs order will be assessed for enforcement against the counterparty ordered to pay the costs – will include, because lawyers are not charities, so‑called “profit cost” – a mark‑up, if you like.  In other words, “profit” in the sense it is used in the authority Bell – is guaranteed to follow to a lawyer – a law firm – charges, who wants to charge the losing party, the same way as the lawyer would charge an outside client.

It is not an accident, not a coincidence – it is inherent, intrinsic to the whole exercise.  Of course, it comes about because the so‑called proxy adopts what the costs would be, had the litigant gone to an outside firm – the outside firm would not have been donating their services, there would be a mark‑up, so‑called “profit costs” – and it is when the lawyer is doing its own work that by this artificial method, an imaginary – imaginary, fictious – bill is delivered to itself, marking‑up, to itself, with a profit component, the work of (a) a partner, and (b), an employee.

They do not press against the opposite party ordered to pay costs the first of those – even if it was the larger part – they cannot, on authority and principle, we would say.  But, according to the Court of Appeal, you can do it, and, according to our friends’ argument, you can do it for the employee because it is a cost.  But it is, with respect, no more a cost in or in relation to the proceedings than the cost of keeping a partner in the corner office with all the staff and with the drawings that the partner expects.

It is for those reasons, in our submission, that at a simple level of divining the policy of the law that produces the requisite principle which has informed the interpretation of these provisions, in our submission, and contrary to the suggestion made by the Chief Justice, it is not a simple matter of observing that costs have been incurred, because employees do not donate their services; it is a matter of observing that those are not costs payable in or in relation to the proceedings, unlike what happens when you retain an outside firm to do the work.

The flipside concerns the position of the employed solicitor – the lawyer employed by a non‑lawyer:  a government, bank, insurance company, et cetera.  In no sense can it be said that there is anything that stands for the equivalent of the revenue by way of fees from clients with respect to such an employer.  Their employment of the lawyer cannot, on pain of criminal sanction, be the subject of a charge to anyone by way of a fee.

Indeed, one reason why there should be particular sensitivity to the notion of the proxy being a rule rather than, as it were, simply a workable approximation to avoid the horrors of disproportionate investigation, is precisely in order to insure that there is not the entirely fantastical notion

that the Commonwealth Bank has a legal department in order to make money out of enforcing party‑party costs orders, which is a joke, with respect.

It is for those reasons, in our submission, coupled with the notion that of course there ought to be a difference between the employer of a lawyer to do legal work for the employer and the employment of a lawyer to do legal work alongside the employer as a lawyer, deriving revenue from clients, because there is a distinction that has always been observed and sometimes criminally sanctioned between those who are entitled to derive profit from the practice of the law and those who are not.

Now, it may not be a distinction as clear, solid and transparent as it once was, bearing in mind the nature of permitted investment in incorporated legal practices, but that is surely an exception that proves the rule.  By and large, people who are not lawyers cannot share in the profits of legal practice and, in our submission, what that demonstrates is, again, the identity of the employed solicitor where there is a lawyer employer litigant as working for that firm.  That means, that firm is doing its own legal work.

It is for those reasons, in our submission, that the basal requirement of these being costs “payable in or in relation to the proceedings” is defeated by saying it is not – that is, work done by somebody, the cost of employment of whom is not payable in relation to the proceedings, but rather, payable in or in relation to an employment – which does not exist because of those proceedings, contra the employment of in‑house lawyers who are employed precisely and explicitly to do that very work, that is why the costs of their employment has been incurred.

May it please the Court.

GAGELER CJ:   Thank you, Mr Walker.  The Court will consider its decision in this matter and will adjourn until 9.30 am on Friday, 25 October.

AT 12.31 PM THE MATTER WAS ADJOURNED