Birketu v Castagnet

[2022] NSWSC 1435

Supreme Court

New South Wales

Medium Neutral Citation:

Birketu v Castagnet [2022] NSWSC 1435

Hearing dates:

26 September 2022

Date of orders:

26 October 2022

Decision date:

26 October 2022

Jurisdiction:

Common Law

Before:

Brereton JA

Decision:

(1)   Declare that under the costs order made in proceedings 2018/164411 on 19 June 2020 being the subject of the cost assessment proceeding 2022/029349 before the first defendant, the second defendants are not entitled to recover costs for work done by the employed solicitors of their own firm.

(2)   Otherwise dismiss the summons.

(3)    Order that the second defendants pay one half of the plaintiff’s costs of the proceedings in this Court, subject to order (4) below.

(4)   Without confining the jurisdiction or the discretion of the relevant assessor in any other way, direct that in the assessment of the costs recoverable by the plaintiffs under order (3) above, the costs of exhibiting and reproducing the documents that comprise tabs 1 through to and inclusive of tab 6 of exhibit CAP1 referred to in the affidavit of Craig Anthony Powell of 29 July 2022, be disallowed.

Catchwords:

COSTS – General rule that self-represented litigant cannot recover costs of its own time – Chorley exception for self-represented litigants who are themselves lawyers – Abrogation of Chorley in Bell Lawyers v Pentelow – Whether abrogation extends to bar recovery of costs of employed solicitors of a litigant law firm acting for itself – Historical right of litigant law firm to recover costs of its employed solicitors derives from Chorley exception, and not “employed solicitor exemption” which permits recovery of costs of “in-house” solicitors – Held that abrogation of Chorley exception in Bell Lawyers extends to preclude recovery of costs of employed solicitors of litigant law firm acting for itself

ADMINISTRATIVE LAW – Remedies – Certiorari – Reviewability of decision – Indication in correspondence by costs assessor that it will consider an element of a claim in the course of assessment, rather than as a preliminary point, has no a discernible effect on legal rights – Decision not amenable to certiorari – Whether reviewable error of law – Mere indication of intention to embark on process is not itself a jurisdictional error

ADMINISTRATIVE LAW — Remedies — Equitable remedies — Declaratory relief – Substantive question of principle – Application of law to circumstances relevant to pending costs assessment – Resolution of question would simplify costs assessment – Binding decision made by Court on preliminary point in costs assessment

Legislation Cited:

Legal Profession Uniform Law Application Act 2014 (NSW) s 83, s 89, s 93C

Supreme Court Act 1970 (NSW), s 69(3)

Cases Cited:

Atanaksovic v Birketu [2020] NSWSC 573

Atanaskovic Hartnell v Birketu (2021) 105 NSWLR 542; [2021] NSWCA 201

Atanaskovic v Birketu [2019] NSWSC 1006

Atanaskovic v Birketu [2020] NSWSC 779

Attorney General v Shillibeer (1849) 4 Exch 606; (1849) 154 ER 1356

Bank of Western Australia Ltd v O'Neill (Supreme Court of Western Australia, White J, 22 January 1999, unreported).

Bell Lawyers v Pentelow (2019) 269 CLR 333; [2019] HCA 29

Blackall v Trotter (No 1) [1969] VR 939

Burrows v MacPherson & Kelley Lawyers (Sydney) [2021] NSWCA 148

Cachia v Hanes (1994) 179 CLR 403

Commissioner of Police v Attorney General for New South Wales [2022] NSWSC 595

CommonwealthBank of Australia v Hattersley (2001) 51 NSWLR 333; [2001] NSWSC 60

Environment Protection Authority v Taylor Woodrow (Australia) Pty Ltd (No 2) (1997) 97 LGERA 368

Frieda and Geoffrey, Re [2009] NSWSC 133

Galloway v Corporation of London (1867) LR 4 Eq 90

Henderson Borough Council v Auckland Regional Authority [1984] 1 NZLR 16

Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434

Hot Holdings Pty Limited v Creasey (1996) 185 CLR 149; [1996] HCA 44

Irving v Gagliardi; Ex parte Gagliardi (No 2) (1895) 6 QLJ 200

Johnson v Santa Teresa Housing Association (1992) 83 NTR 14; (1992) 107 FLR 441

Lenthall v Hillson [1933] SASR 31

London Scottish Benefit Society v Chorley (1884) 13 QBD 872

McCullum v Ifield (1969) 90 WN (NSW) Pt 1 525; [1969] 2 NSWR 329

Nolan v George [1959] Qd R 315

Pennington v Russell (No 2) (1883) 4 LR (NSW) Eq 41

R v Collins; ex parte ACTU-Solo Enterprises Pty Ltd (1976) 8 ALR 691

Raymond v Lakeman (1865) 34 Beav 584; (1865) 55 ER 761

Ritson v Leighton [2015] NSWCA 62

Spencer v Coshott (2021) 106 NSWLR 84; [2021] NSWCA 235

United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15

WA Grubb Pty Ltd, Ex parte; Re Johnston (1949) 66 WN (NSW) 224

Walton v McBride (1995) 36 NSWLR 440

Texts Cited:

JW Shaw QC & FJ Gwynne, “Certiorari and Error on the Face of the Record” (1997) 71 ALJ 356

Report of the Chief Justice’s Review of the Costs Assessment Scheme (2013)

Category:

Principal judgment

Parties:

Birketu Pty Ltd (first plaintiff)
WIN Corp Pty Ltd (second plaintiff)
Maurice Jocelyn Castagnet (first defendant)
John Ljubomir Atanaskovic, Anthony Geoffrey Hartnell, Jeremy Martin Kriewaldt, Michael John Sophocles, Jon Thomas Skene & Lawson Andrew Jepps, trading as Atanaskovic Hartnell (second defendant)

Representation:

Counsel:
B Walker AO SC w A Vincent (plaintiffs)
DFC Thomas SC w D Birch (defendants)

Solicitors:
HWL Ebsworth Lawyers (plaintiffs)
Submitting appearance (first defendant)
Atanaskovic Hartnell (second defendant)

File Number(s):

2022/226444

Judgment

1. HIS HONOUR: The case of Burrows v MacPherson & Kelley Lawyers (Sydney) ^[1] was characterised by Leeming JA as one that fell at the intersection of two principles, both of which were confirmed by the High Court’s judgment in Bell Lawyers v Pentelow, ^[2] namely that, on the one hand, a self-represented party who obtains a costs order in litigation, even a legal practitioner, may not recover costs in respect of his or her own time and effort deployed in the litigation in his or her own interest; whereas on the other, a party which employs salaried solicitors (such as a government department, a statutory authority, a bank or another private corporation) may recover costs for their time, by reference to rates charged in private practice, even though the employed solicitor represents a fixed cost to the employer. This case too falls at that same intersection, but in a materially different context: in Burrows, the incorporated legal practice that acted in the relevant proceedings as the solicitors for the solicitor litigant was a separate and distinct legal entity, which was retained by the solicitor litigant (another incorporated legal practice). In this case, as in the Victorian case of United Petroleum Australia Pty Ltd v Herbert Smith Freehills,^[3] the lawyers in respect of whose work costs are claimed were the employed solicitors of the law firm which was the litigant.

   1. [2021] NSWCA 148 at [110] (“Burrows”).

   2. (2019) 269 CLR 333; [2019] HCA 29 (“Bell v Pentelow”).

   3. [2020] VSCA 15 (“United Petroleum”).

2. The second defendants, being the partners in the law firm Atanaskovic Hartnell (“the Firm”), sued the first plaintiff Birketu Pty Ltd (“Birketu”) to recover their professional fees and disbursements for having acted for Birketu in six matters, covered by seven invoices totalling $1,093,648. On 9 August 2019, Hammerschlag J, as the Chief Judge in Equity then was, gave judgment for the Firm for $928,982 (relating to six of the invoices) and reserved for further consideration the seventh (“the investigation invoice”), which related to a retainer to investigate the circumstances in which the Firm’s former employed solicitor Brody Clarke had perpetrated frauds on Birketu for which the Firm was potentially, and ultimately held to be, vicariously liable. ^[4] Subsequently, on 15 May 2020, his Honour held that the Firm was not entitled to recover on the investigation invoice, except to a very small extent, and gave judgment for the Firm for the additional amount of $14,930, otherwise dismissing the summons. ^[5] On 19 June 2020, after a hearing on the papers, his Honour made orders that Birketu pay the Firm’s costs up to and including 16 September 2019 attributable to its claim on the six invoices, assessed on the ordinary basis, and that the Firm pay Birketu’s costs of the proceedings from 10 August 2019, assessed on the indemnity basis. ^[6]

   4. Atanaskovic v Birketu [2019] NSWSC 1006.

   5. Atanaskovic v Birketu [2020] NSWSC 573. An appeal was dismissed: Atanaskovic Hartnell v Birketu (2021) 105 NSWLR 542; [2021] NSWCA 201.

   6. Atanaskovic v Birketu [2020] NSWSC 779 (“Costs judgment”).

3. Throughout the proceedings in the Equity Division, the Firm acted for itself. His Honour’s reasons in the costs judgment include the following observation:^[7]

“[19] Recently, that is a month after the first Judgment, the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 93 ALJR 1007 reversed the so-called Chorley exception which allowed solicitors to charge for their own time in representing themselves. The result is that AH will not be able to recover for time spent by its own employees in bringing the fee proceedings. It argues that the Court should take into account, as a matter in AH’s favour, in exercising its discretion as to costs, that the law changed after AH had acted for itself. I reject this submission. AH’s decision to act for itself was its own and it has no role to play in the exercise of the Court’s discretion.”

7. Costs judgment at [19].

4. On 24 December 2021, the Firm served a copy of its proposed application for costs assessment on Birketu. The costs which it foreshadowed claiming included costs for work done by the Firm’s employed solicitors, though not by its partners. On 13 January 2022, solicitors acting for Birketu wrote to the Firm objecting to the entirety of its claim for professional costs for work done by the Firm’s employed solicitors. The Firm responded taking issue with that objection on 24 January 2022, and filed its application for costs assessment on 1 February 2022, still including claims for work done by its employed solicitors.

5. The assessment was assigned to the first defendant, a costs assessor, who notified the Firm and Birketu’s solicitors that he had been so appointed on 17 February 2022. On 9 March, submissions were made to him on behalf of Birketu in respect of the further conduct of the assessment, and on 10 March the Firm made submissions (relating to costs agreements between the Firm and their counsel, and as to whether the costs claimed were proportionately and reasonably incurred). On 16 March, the Firm made further submissions, in response to Birketu’s 9 March submissions. On 23 March, Birketu’s solicitors applied by email to the costs assessor for an extension of time to put on further submissions, which extension was granted, and on 6 April 2022 Birketu made further submissions in reply to the Firm’s earlier submissions.

6. On 22 April, the assessor wrote to the Firm and Birketu’s solicitors, relevantly as follows:

“[The Firm]’s claim for professional costs pursuant to order 2.

I have received lengthy submissions of the parties on this issue (Birketu’s submissions dated 9 March 2022 and 6 April 2022 and [the Firm]’s submissions dated 16 March 2022).

The parties’ submissions refer to Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29 and the subsequent authorities dealing with the consequences of the change in the law and the development in the law since that decision.

The costs order which is the subject of this assessment is:

‘Birketu is to pay [the Firm]’s costs of the proceedings up to and including 16 September 2019, attributable to its claim on the six invoices assessed on the ordinary basis.’

I have read the costs judgment of Hammerschlag J of 19 June 2020, in particular, paragraph [19] and [20].

At [20] his Honour says that [the Firm] should have its costs pursuant to the costs order and that such costs are a matter for assessment.

In its application, [the Firm], a large commercial partnership law firm, has included a claim for the professional costs of its employed solicitors. It has made submissions on the authorities it relies [sic] and its interpretation of the law.

I reject the submissions that this gives rise to issues of estoppel or abuse of process. Under the costs order, [the Firm] is at liberty to claim whatever it contends is within the scope of the costs order.

Whether [the Firm] is entitled to such costs and the amount of costs to which it is entitled will be determined in this assessment. Any sustainable submissions Birketu may make would be on the costs of the costs assessment.”

7. On 6 May 2022, Birketu’s solicitors wrote to the assessor, asserting that although the 22 April email was not strictly an interim determination, it constituted a finding capable of appeal, and requesting the assessor’s formal reasons for the decision set out in that email. On 6 July, Birketu’s solicitors requested a response to their email of 6 May, reiterating the request for formal reasons for the decision set out in the 22 April email. The assessor responded on the same day, rejecting the request, and stating that he had not made any interim determination, and that the only determination that he would make in the matter would be his final determination, which would be accompanied by reasons.

8. By summons filed on 2 August 2022, Birketu claims a declaration that the Firm is not entitled to recover in the assessment the professional costs of its employed solicitors in the proceedings; an order setting aside the assessor’s decision not immediately to cease with the assessment of those costs; an injunction restraining the assessor from assessing those costs; and an injunction restraining the Firm from claiming those costs.

9. The Firm submitted that there was no reviewable decision of the assessor, that even if such a decision could be identified there was no jurisdictional error nor error of law on the face of the record, and that in any event prerogative relief should be refused on discretionary grounds, particularly because there was a full scheme of merits and judicial review available following conclusion of the assessment process. However, the Firm joined with Birketu in inviting the Court to resolve for the parties the substantive legal question of the application of Bell v Pentelow to the professional costs of employed solicitors of a litigant law firm operating in a traditional partnership (as distinct from an incorporated legal practice), so long as that could be done without resort to contentious matters of fact. Below, I deal first with the question of judicial review, before turning to the question of declaratory relief.

Prerogative relief

10. Birketu’s summons included claims in the nature of certiorari and prohibition. ^[8] The basis of Birketu’s claim for judicial review, and the nature and character of the decision of which it claims to seek review, has been somewhat fluid. Originally, the decision was characterised as one by the assessor that:

    8. Claims [3] and [4] in the Summons.

1. the Firm is at liberty to claim whatever it contends is within the scope of order (2) of the orders made by Hammerschlag J;

2. whether the Firm is entitled to the costs it has claimed is a matter to be determined by the assessor in the assessment;

3. he would not cease with the assessment of professional costs of employed solicitors of the Firm insofar as they were claimed; and

4. the costs order entitled the Firm to seek to recover by way of assessment the professional costs of its employed solicitors.

11. Birketu contended that the assessor erred in failing immediately to determine that the Firm was not entitled to recover the professional costs of its employed solicitors and by not immediately ceasing with the assessment of those costs, “contrary to the judgment of Justice Hammerschlag in Atanaskovic v Birketu [2020] NSWSC 779, applying Bell Lawyers Pty Ltd v Pentelow…”. The grounds of review were said to be:

1. that the assessor’s decision was beyond the scope of the powers and functions conferred on him and therefore amounted to a jurisdictional error capable of review by the Court in its supervisory jurisdiction; and

2. further or alternatively, the decision amounted to an error of law on the face of the record also capable of review including pursuant to Supreme Court Act 1970 (NSW), s 69(3).

12. In the reply submissions, however, the case was refined, in substance, to the contention that, by declining to refuse to consider whether the Firm’s recoverable costs included charges for work done by its employed solicitors (as distinct from work done by its principals in respect of which costs were admittedly not recoverable), the assessor threatened to embark on the determination of an issue which he had no jurisdiction to consider, namely the recoverability under the costs order of costs in respect of work done by the Firm’s employed solicitors.

No reviewable decision

13. Certiorari lies only in respect of a decision that has a discernible or apparent effect on legal rights. ^[9] However, this is not necessarily confined to the ultimate decision in the decision-making process, and embraces a preliminary stage of the decision making process which has a sufficient effect on the final or ultimate decision, such as where the preliminary decision is a condition precedent to the ultimate decision. ^[10]

    9. Hot Holdings Pty Limited v Creasey (1996) 185 CLR 149 at 159; [1996] HCA 44 (Brennan CJ, Gaudron and Gummow JJ).

    10. Hot Holdings Pty Limited v Creasey (1996) 185 CLR 149 at 159-161 (Brennan CJ, Gaudron and Gummow JJ); R v Collins; ex parte ACTU-Solo Enterprises Pty Ltd (1976) 50 ALJR 471 at 473 (Stephen J).

14. The indication given by the Assessor in the 22 April email does not satisfy this requirement. It has no effect on legal rights. It is merely a statement that the Assessor will consider the recoverability of costs for work done by employed solicitors in the course of the assessment, rather than as a preliminary point. It is unnecessary to resort to his later correspondence for that conclusion, though it confirms it. The rights of all parties are entirely unaffected by it, and it is not amenable to certiorari.

No jurisdictional error

15. The Assessor’s 22 April email does not reveal any misconception of his jurisdiction, which is to determine the quantum of costs recoverable under the costs orders of 19 June 2020. By s 93C(3) of the Legal Profession Uniform Law Application Act 2014 (NSW) (“LPULAA”), the Assessor’s jurisdiction includes jurisdiction to determine any question of law anterior or incidental thereto:

(3)  For the purpose of determining an application for assessment or exercising any other function as a costs assessor, a costs assessor may determine any anterior or incidental question of fact or law, but not so as to establish an issue estoppel for that question for the purpose of any other proceedings.

16. That provision was introduced for more abundant caution, to put to rest any doubt as to an Assessor’s capacity to resolve such questions. ^[11] Assessors frequently have to determine issues such as whether there is an enforceable costs agreement, whether counsel’s fees or expert’s fees are recoverable in particular circumstances, and whether the costs of agents or paralegals or other unqualified persons are recoverable in a particular case. They also often have to construe costs orders to determine their scope. In principle, if a rule of law precludes recovery of costs in respect of work done by employed solicitors then they should apply that rule, and they may err in law if they do not do so. If so, that is amenable to correction on review by a review panel,^[12] or on appeal. ^[13] But even if to err in law in so doing were to amount to an error of jurisdiction, rather than an error within jurisdiction – which may be doubted in the light of s 93C which would seem to give jurisdiction to decide questions of law – merely to indicate that the Assessor will embark on the process of considering the question is not.

    11. Report of the Chief Justice’s Review of the Costs Assessment Scheme (2013), Recommendation 29, [3.10.12].

    12. Under LPULAA, s 83.

    13. Under LPULAA, s 89.

No error of law

17. Nor is any error of law apparent, on the face of the record or otherwise, in declining summarily to refuse to consider the Firm’s claim for costs in respect of work done by its employed solicitors. It is unnecessary for this purpose to resolve whether the limitation in Supreme Court Act 1970 (NSW), s 69(3) to an “ultimate determination” has the effect that reasons do not form part of the record where a decision under review is not necessarily the final determination of proceedings, although I incline to the view that its true effect is only to exclude reasons for decisions anterior to those for the decision immediately under review, and to render part of the record the reasons for the decision under review, whether or not it is the “ultimate” decision in the proceedings. ^[14] Here, assuming that the 22 April email and the later 6 July email constitute part of the record, there is no error of law in merely stating that the Assessor will consider the recoverability of costs for work done by employed solicitors in the course of the assessment, rather than as a preliminary point.

    14. Commissioner of Police v Attorney General for New South Wales [2022] NSWSC 595 at [235] (Wright J); cf Re Frieda and Geoffrey [2009] NSWSC 133 at [35]-[38] (White J); Ritson v Leighton [2015] NSWCA 62 at [72]-[73] (Ward JA); and see the discussion in JW Shaw QC & FJ Gwynne, “Certiorari and Error on the Face of the Record” (1997) 71 ALJR 356.

Conclusion

18. The Assessor’s “decision” that he will consider the recoverability of costs for work done by the Firm’s employed solicitors in the course of the assessment and not summarily disallow them is not amendable to certiorari, involves no error of jurisdiction, and involves no error of law. The claim for prerogative relief is misconceived.

Declaratory relief

19. Although it might be objected that resolving the issue by the grant of declaratory relief would in effect be giving an advisory opinion to the Assessor, as I have indicated above,^[15] Birketu, notwithstanding its opposition to prerogative relief, agreed that there would be benefits for the parties, including a significant saving of time and costs, if this Court were to resolve the substantive question of principle, so long as that could be done without resort to controversial facts. Both parties made extensive submissions in respect of Bell v Pentelow and its application to work done by a litigant law firm’s employed solicitors, including whether United Petroleum should be followed in this State. I have considered whether it would be better to await the decision of the Assessor and any Review Panel before a Court considers the question, and whether its determination would benefit from their consideration of the question of principle and elucidation of the facts, but have come to the conclusion that the scale of the dispute, the neat question of principle on which it turns, and the great extent to which its resolution will simplify the costs assessment, all favour deciding the question now. Doing so is more than giving advice to the Assessor; a declaration that binds the parties will conclusively establish their rights. In making a declaration, the Court will in effect be deciding a preliminary point in the assessment.

    15. Above at [9].

No res judicata, issue estoppel or abuse of process

20. Birketu’s submissions were replete with suggestions that the question had been determined by Hammerschlag J, and that it was somehow inappropriate if not improper for the Assessor to do other than accept what his Honour had said. I reject this submission. The question of the recoverability of costs for work done by the Firm’s employed solicitors was not argued before his Honour. The judgment contains a passing observation on the question, but it was not informed by argument, nor was it necessary to his Honour’s decision. The purpose of the reference was merely to found his Honour’s rejection of the Firm’s submission that the change in the law wrought by Bell v Pentelow was somehow a consideration relevant to his Honour’s exercise of the costs discretion.

Recoverable costs do not include compensation for a party’s own time

21. Costs are awarded as between parties to litigation to compensate the successful party for the expenses it has incurred in vindicating its position. The recovery of costs is governed by the indemnity principle, namely that a costs order compensates for expenditure incurred, and is not intended to be a source of profit. However, a party/party costs order does not provide a complete indemnity, and the beneficiary of an order is not entitled simply to recover whatever amount it has agreed to pay to its own lawyers. In order to avoid injustice to the paying party, recoverable costs as between parties are controlled, historically by taxation and now by assessment, to those that are objectively a “fair and reasonable amount of costs for the work concerned”. ^[16]

    16. LPULAA, s 76.

22. The recoverable costs are limited, in principle, to the amount expended by a party on the litigation, chiefly on its lawyers, but also including associated expenditure such as reasonable witness expenses and out-of-pocket expenses. It is well established that the costs which a party is entitled to recover under a costs order do not include compensation for its own time and labour in preparing for or conducting litigation. ^[17] The rule that self-represented litigants are not entitled to their time is not a special rule for self-represented litigants, but an application of the general rule that costs are not recoverable in respect of a litigant’s own time or labour. These principles were recognised in the joint judgment of Kiefel CJ, Bell, Keane and Gordon JJ in Bell Lawyers v Pentelow (footnotes omitted):^[18]

“[33] In that regard, costs are a creature of statute. 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. That is because costs are awarded by way of indemnity; they are not awarded as compensation for lost earnings, much less as a reward for a litigant’s success. The courts have long regarded the statutory power to make an order for costs as confined by the concern to provide the successful party with a measure of indemnity against the expense of professional legal costs actually incurred in the litigation. Thus, the majority in Cachia said:

“It has not been doubted since 1278, when the Statute of Gloucester introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation. They were never intended to be comprehensive compensation for any loss suffered by a litigant.””

17. Cachia v Hanes (1994) 179 CLR 403 at 417 (Mason, Brennan, Deane, Dawson and McHugh JJ); Walton v McBride (1995) 36 NSWLR 440 at 452-3 (Kirby P), 461, 464 (Powell JA).

18. Bell v Pentelow at [33].

The Chorley exception and the employed solicitor exception

23. Notwithstanding the general rule that a litigant was not entitled to recover costs in respect of its own time and labour, until the decision of the High Court in Bell v Pentelow, lawyers who being parties to litigation acted for themselves and received the benefit of a costs order were permitted, under the Chorley exception,^[19] to recover in their capacity as a litigant the costs of legal work done by themselves, including by their employed solicitors. Separately, the rule that a party is not entitled to compensation for its own time and labour has been held, under the “employed solicitor exception”, not to prevent a litigant who employs an in-house lawyer, rather than an external law firm, from recovering costs assessed on the same basis as would be the case had an external lawyer done the work (although it has been acknowledged that this might not be appropriate if it was clear that allowing costs on such a basis might confer a substantial profit on the litigant and thus infringe the indemnity rule). ^[20] Bell v Pentelow abrogated the Chorley exception, but without disturbing “the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity”. ^[21]

    19. A “rule of practice” stated by the Court of Appeal of England and Wales in London Scottish Benefit Society v Chorley (1884) 13 QBD 872 at 877 but earlier recognised in this State in Pennington v Russell (No 2) (1883) 4 LR (NSW) Eq 41 (Faucett J).

    20. The authorities which establish this “exception” are discussed below, at [25]-[34]. For convenience I have retained the terminology of the “employed solicitor exception”, though for reasons which will appear it might be better styled the “in-house solicitor exception”. It has been suggested that it might not be an exception but an application of the general rule that a party is entitled to professional legal costs actually incurred in the conduct of litigation: Bell v Pentelow at [68] (Gageler J); insofar as I treat it as an exception, it is an “exception” to the rule that a party is not entitled to recover costs for its own time and effort.

    21. Bell v Pentelow at [50].

24. The issue in the present case is whether abrogation of the Chorley exception involves denying that solicitor litigants can recover costs in respect of work done by their employees (though not of work done by themselves personally); or whether preservation of the employed solicitor exception involves that they are entitled to recover such costs. The reasons of the High Court in Bell v Pentelow do not explicitly address this question. It was addressed by the Victorian Court of Appeal in United Petroleum, in which it was held that, in the light of Bell v Pentelow, recovery ought not be permitted. Birketu submits that I am bound to follow the decision of the Victorian Court of Appeal; while the Firm submits that it is distinguishable and “plainly wrong”. In light of the submission that it is “plainly wrong”, it is more satisfactory first to consider the question as a matter of principle.

Evolution and rationale of the employed solicitor exception

25. In Attorney General v Shillibeer,^[22] it was held that the Crown was entitled to ordinary costs in respect of work done by its salaried solicitor. Parke B said:^[23]

“We took time to consider the case, and are clearly of opinion that the argument ought not to prevail, and that the Crown is entitled to full costs of suit. The statute gives full costs, and that means the ordinary costs of suit as between subject and subject,—such as are taxed on the usual scale. We think that the meaning of the statute was to give the Crown solicitor the same fees. Then it was argued on the part of the defendant, that any agreement which the Crown chooses to make for the benefit of the public, as this agreement obviously is,—that the solicitor should only receive an annual stipend,—could not affect the defendant, who must pay the ordinary fees. It is perfectly clear that the Crown incurred expenses about this suit, and that, unless the Crown is compensated by payment of the ordinary costs, there would be no mode of compensation ; because it is impossible to say what proportion the expense of conducting this particular suit would bear to the entire salary for the year, until the end of the year, when all the suits are known, and when the expense of each can be calculated. Then it was said, that it is the fault of the Crown in having made such a bargain with the solicitor, so as to be unable to tell how much salary is paid for the costs of a particular suit. We think that objection really has no weight. The Crown has a solicitor, and makes a perfectly fair bargain with him, and one which is very much to the benefit of the public; and therefore that ought to make no difference in the case. We think that the costs of this case are to be taxed on the same principle as if the Crown solicitor himself were conducting each suit at the expense of the Crown in the ordinary way.”

22. (1849) 4 Exch 606; (1849) 154 ER 1356.

23. (1849) 4 Exch 606 at 612-3; (1849) 154 ER 1356 at 1359.

26. In Raymond v Lakeman, ^[24] Romilly MR denied that the party/party costs recoverable by a company which had a salaried solicitor were controlled by the agreement between the company and its solicitor. In argument, his Lordship responded to an objection that, inasmuch as the standing solicitors of a company were paid by a fixed salary, the company had no right to charge the paying party – one Mr Curling – with more than their own solicitors could have charged them, as follows:^[25]

“I do not think that Mr. Curling is entitled to the benefit of any such agreement between the company and their solicitors as to costs.”

24. (1865) 34 Beav 584; (1865) 55 ER 761.

25. (1865) 34 Beav 584 at 585; (1865) 55 ER 761 at 761.

27. Then in delivering judgment, the Master of the Rolls said:^[26]

“I think the Taxing Master is mistaken when he says that the costs which Mr. Curling ought to pay are such charges as a solicitor could properly sustain against his employer. … Mr. Curling cannot have the benefit of any private agreement between the solicitor and company as to costs. I give no costs of this application.”

26. (1865) 34 Beav 584 at 585-6; (1865) 55 ER 761 at 761-2.

28. In Galloway v Corporation of London,^[27] the plaintiff’s suit against the Corporation of London had been dismissed with costs. The City Solicitor was a salaried officer of the Corporation. Page Wood VC said:^[28]

“To describe an agreement of that kind as an engagement to carry on the business of a client for the profit of the client, would be, I think, a perversion of language. The agreement is simply this: that the solicitor, instead of charging his client with all those sums which he would be entitled to put down to his debit, charges the client with a fixed sum per annum, and agrees that he shall be remunerated in that way. When the client is ordered to be paid costs, the bill is to be taxed in the ordinary way, and the certified amount is to go in relief of the salary engaged to be paid, and the surplus, if any, is to be carried over.”

27. (1867) LR 4 Eq 90.

28. (1867) LR 4 Eq 90 at 96.

29. After rejecting an argument that such an arrangement was unlawful, the Vice Chancellor concluded:^[29]

“The argument which struck me most was that with regard to the indemnity; but I cannot apprehend that the Court can investigate agreements of this nature with respect to such a question. Mr. Bagshawe cited a case which tended to support his view, with reference to the principle of indemnity, where a person is ordered to pay costs; and, for aught I know, if an agreement has been entered into by a client with a solicitor that he shall pay no costs, it may be a question whether or not the opposite party can avail himself of that agreement, and say to the client, you do not require indemnity. But it cannot be so in a case of this kind, where it is impossible for the Court, without directing an account between the corporation and the solicitor, to know whether these costs will or not exceed the salary they pay. There are no means of investigating whether the corporation will or will not be indemnified without such an account being directed, and an application to the Court to direct such an account, would be wholly groundless.”

29. (1867) LR 4 Eq 90 at 97.

30. These cases were followed in this country by the Full Court of the Supreme Court of Queensland in Irving v Gagliardi; Ex parte Gagliardi (No 2),^[30] in which Griffith CJ, with whom Harding and Chubb JJ concurred, regarded them as binding. His Honour said:^[31]

“All these judges came independently to the same conclusion upon similar facts, and I think we are bound by their decisions, unless the law has been since altered in some particular which governs the present case. I confess that I do not like the possibility of the Crown making a profit by recovering costs in litigation which may amount to more than would pay the expenses of the Crown Solicitor’s Department, or so much of the expense of that department as are attributable to litigation with unsuccessful parties; but I do not see how we can escape from the authority of those three cases, unless there is some subsequent law to the contrary.”

30. (1895) 6 QLJ 200.

31. (1895) 6 QLJ 200 at 201.

31. In Henderson v Merthyr Tydfil Urban District Council, ^[32] a public body employed a solicitor as their clerk at a fixed annual salary, for which (inter alia) he was to prosecute and defend all legal proceedings taken by or against them. Out-of-pocket expenses were to be paid for by them. In an action brought against them, judgment was entered for them with costs, to be taxed as between solicitor and client. On taxation the registrar struck out all items, except out-of-pocket expenses paid by the solicitor, on the ground that all work done by him in the conduct of the action was covered by his salary. That decision was held to be wrong. Channell J said:^[33]

“No doubt the sum of 400l. per annum was paid to the solicitor in respect both of the litigious and the non-litigious work done by the solicitor for the district council. A certain proportion of the 400l. — it is quite impossible to say how much — was, therefore, paid in respect of this particular work which was done by the solicitor in this action. It is for the party objecting to the allowance of the usual costs under such circumstances to shew that the allowance will give more than an indemnity, and in all ordinary cases, such as the present, it is impossible for him to shew it. In some cases, however, he might be able to do so.

Suppose for a moment that the litigation had been very heavy and expensive, that the case had gone to the House of Lords and so forth, and that the solicitor's profit costs had been 500l. Then it would be plain that, as the total sum paid by the district council to the solicitor was 400l. per annum, they were not paying him the 500l., and therefore could not recover it, and the costs which the opposite party would have to pay would be diminished in proportion. Here, however, the registrar was wrong in disallowing the whole of the solicitor's profit costs. A certain part of the salary of 400l. was paid by the district council in respect of them, and that portion ought to have been allowed and paid by the opposite party. It must be assumed until the contrary is shewn that 400l. is a proper sum to be paid to the solicitor for his whole year’s work, and also that 11l. 12s. 7d. was a proper sum to be paid to him for this part of his work. The district council must, therefore, be presumed to be paying their solicitor 11l. 12s. 7d. out of the 400l. for this very work. It seems to me that the registrar was clearly wrong in disallowing the whole of the amount charged by the solicitor in respect of work done by him, and, further, that unless something could be shewn which it is most improbable in this case can be shewn, the whole ought to have been allowed.”

32. [1900] 1 QB 434.

33. [1900] 1 QB 434 at 437.

32. In this State, these cases were applied by Taylor J in McCullum v Ifield, ^[34] to hold that the fact that the solicitor for the Government Insurance Office who acted for the insured defendant was paid a salary was no bar to the recovery by the defendant of full party-party costs against the plaintiff. His Honour explained the cases as holding that the fact that a solicitor is employed and paid a salary does not affect the principle that the successful party is entitled to an indemnity against its costs, and pointed to the irrelevance of the private arrangements between the solicitor and the employer: ^[35]

“The defendant is, in my view, entitled to recover party and party costs because he was represented by a solicitor and was successful. What arrangements that solicitor had with the Government Insurance Office is not material.”

34. (1969) 90 WN (NSW) Pt 1 525; [1969] 2 NSWR 329. See also Ex parte WA Grubb Pty Ltd; Re Johnston (1949) 66 WN (NSW) 224.

35. (1969) 90 WN (NSW) Pt 1 525 at 528D-E.

33. This approach has been applied consistently and ubiquitously. ^[36] It was reviewed in this State in Commonwealth Bank of Australia v Hattersley,^[37] in which Davies AJ held that the costs of work done by corporate employed solicitors were to be assessed on the same basis as those of comparable work performed by independent solicitors exercising comparable skills. His Honour explained:^[38]

“[11] In a case 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. The assumption has been made that, in an ordinary case, the indemnity principle will not be infringed by taking this approach.

[12] This traditional approach was clearly stated in Re Eastwood, decd [1975] Ch 112 at 132 where Russell LJ delivering the judgment of the court, which included Stamp LJ and Lawton LJ, said:

“In summary, therefore, in our opinion. (1) It is the proper method of taxation of a bill in a case of this sort to deal with it as though it were the bill of an independent solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all the circumstances of the case. (2) There is no reason to suppose that the conventional method is other than appropriate to the case of both independent and employed solicitors. (3) 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. (4) There may be special cases in which it appears reasonably plain that that principle will be infringed if the method of taxation appropriate to an independent solicitor's bill is entirely applied: but it would be impracticable and wrong in all cases of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the principle is not infringed, and it is doubtful, to say the least, whether by any method certainty on the point could be reached. To adapt a passage from the judgment of Stirling J in In re Doody [1893] 1 Ch 129, 137, to make the taxation depend on such a requirement would, as it seems to us, simply be to introduce a rule unworkable in practice and to push abstract principle to a point at which it ceases to give results consistent with justice.””

36. See for example Lenthall v Hillson [1933] SASR 31; Nolan v George [1959] Qd R 315 (Mansfield CJ; Matthews and Mack JJ agreeing); Blackall v Trotter (No 1) [1969] VR 939; Johnson v Santa Teresa Housing Association (1992) 83 NTR 14; (1992) 107 FLR 441 (Mildren J); Environment Protection Authority v Taylor Woodrow (Australia) Pty Ltd (No 2) (1997) 97 LGERA 368 (Lloyd J, NSWLEC); and Bank of Western Australia Ltd v O'Neill (Supreme Court of Western Australia, White J, 22 January 1999, unreported).

37. (2001) 51 NSWLR 333; [2001] NSWSC 60.

38. (2001) 51 NSWLR 333; [2001] NSWSC 60 at [11]-[12].

34. These cases show that the rationale for the “employed solicitor exception” is that a party entitled to the costs of litigation who is represented by a solicitor is entitled to recover the costs of engaging a solicitor; that entitlement is unaffected by the circumstance that the solicitor is a salaried employee of the party as distinct from a conventionally retained independent solicitor; and (arguably subject to the indemnity rule), as between party and party those costs are assessed objectively, and do not depend on the private arrangements between the litigant and its (employed) solicitor.

Bell v Pentelow

35. As has been noted, the judgment of the High Court in Bell v Pentelow does not explicitly resolve the present question. In those circumstances, it is necessary to explore the policy and intent that underlies that judgment to ascertain how that policy and intent informs the answer to the question.

36. First, I do not think that the High Court had in mind a litigant solicitor’s own employed solicitors when it made clear that it was not intending to displace the “employed solicitor exception”. Kiefel CJ, Bell, Keane and Gordon JJ said (footnotes omitted): ^[39]

    39. Bell v Pentelow at [46]-[51].

“[46] The respondent argued that serious inconvenience would be occasioned in relation to the use of in-house solicitors by governments and corporations, including incorporated legal practices, if the Chorley exception were not recognised by this Court as part of the common law. It was argued that governments and other employers, and incorporated legal practices operating through a sole director, would be prevented from recovering costs for professional legal services rendered by employed solicitors.

[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 “remuneration” 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. In Commonwealth Bank of Australia v Hattersley, Davies AJ explained that:

“[W]here 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. The assumption has been made that, in an ordinary case, the indemnity principle will not be infringed by taking this approach.”

[48] In Ly v Jenkins, Kiefel J (as her Honour then was) adopted that explanation and the view expressed by Russell LJ, with whom Stamp and Lawton LJJ agreed, in Re Eastwood (dec’d):

“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.”

[49] Similarly, in the decision of the Court of Appeal of New Zealand in Henderson Borough Council v Auckland Regional Authority, Cooke J, with whom Woodhouse P and Richardson J agreed, said:

“In New Zealand I do not think it can be said to be improper for an employed barrister to represent his employer … A fortiori an employed solicitor duly enrolled and with a current practising certificate may properly act as solicitor for his employer. Against that background it appears to me that the fact that an employed practitioner has acted for the successful party is not a sufficient reason for denying that party an award of party and party costs: after all, the time of a salaried employee has been occupied.”

[50] A decision by this Court that the Chorley exception is not part of the common law of Australia would not disturb the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity.

[51] Whether the same view should be taken in relation to a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder stands in a different position. It might be queried whether such a solicitor has sufficient professional detachment to be characterised as acting in a professional legal capacity when doing work for the incorporated legal practice. And it might be queried whether costs claimed by an incorporated legal practice for work of its sole director and shareholder are within the expansive view of indemnity that has been adopted in the authorities.”

37. It is important to observe that in Henderson Borough Council v Auckland Regional Authority,^[40] referred to in Bell v Pentelow at [49], the New Zealand Court of Appeal was concerned with a barrister and solicitor (in a fused profession) employed by the Auckland Regional Authority, one of the litigants – and not with an employed solicitor in a law firm.

    40. [1984] 1 NZLR 16.

38. Gageler J said (emphasis added):^[41]

“[68] Recovery of costs by a party using an employed solicitor predated introduction of the Chorley exception [Attorney-General v Shillibeer (1849) 4 Ex 606 [154 ER 1356]; Raymond v Lakeman (1865) 34 Beav 584 [55 ER 761]]. The better view, explained in a number of cases to which the Supreme Court of New Zealand appears not to have been referred, is that recovery of costs by a party using an employed solicitor is an application of the general principle rather than an exception to it [For example, Registrar of Titles v Watson [1954] VLR 111 at 112–13; [1954] ALR 237; Commonwealth Bank of Australia v Hattersley (2001) 51 NSWLR 333; [2001] NSWSC 60 at [11]–[12], [17]–[25]]. The general rule is engaged on the basis that the costs of using the employed solicitor are still awarded as indemnity for professional legal costs actually incurred in the conduct of litigation by the employer who is a party to the litigation, albeit that those professional legal costs are incurred in the form of an overhead and are therefore not reflected in a severable liability.”

41. Bell v Pentelow at [68].

39. The authorities cited by Gageler J confirm that his Honour was addressing the position where a party is represented in the proceeding by a solicitor who is an employee of the party, typically a government officer or instrumentality.

40. In my view, the High Court had in mind “in-house” lawyers employed by government departments and corporations, who act as solicitor for the employing department or corporation in litigation, and not employed solicitors in a law firm which as a party to litigation has some or all of the work done by those employees.

41. Secondly, the High Court’s rejection of the Chorley exception was founded on three main considerations, namely:

1. the view that solicitors should be encouraged to act for themselves is contrary to the modern orthodoxy that it is undesirable, as a matter of professional ethics, for a solicitor to act for himself or herself in litigation; ^[42]

2. to act upon a principle that evidence enabling the quantification of the value of the time of non-solicitor litigants in person should not be received or acted upon by the courts is to exalt the position of solicitors in the administration of justice to an extent that is an affront to equality before the law; ^[43] and

3. the exception was recognised as the solicitor’s privilege that, to modern eyes, it patently is. A privilege of that kind is inconsistent with the equality of all persons before the law. ^[44]

   42. Bell v Pentelow at [18]-[20].

   43. Bell v Pentelow at [24].

   44. Bell v Pentelow at [25].

42. As it seems to me, those same reasons unambiguously favour the position that a solicitor litigant should not be able to recover costs in respect of work done by his or her own employees, any more than for work done by him or herself. To permit a solicitor to recover such costs would be to provide an incentive for solicitors to act for themselves, while allocating as much of the work as they could, to their employees; and it would preserve the appearance that a solicitor was in a privileged position as a self-represented litigant in being able to recover costs for work done by his or her own firm.

43. Thirdly, one of the reasons which historically supported the Chorley exception but was found by the High Court in Bell v Pentelow to be “not persuasive”^[45] specifically included the costs of a litigant solicitor’s employed solicitor. In Chorley, Bowen LJ explained the rationale for the exception as follows (emphasis added): ^[46]

“Professional skill and labour are recognised and can be measured by the law; private expenditure of labour and trouble by a layman cannot be measured. It depends on the zeal, the assiduity, or the nervousness of the individual. Professional skill, when it is bestowed, is accordingly allowed for in taxing a bill of costs; and 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.”

45. Bell v Pentelow at [22].

46. Chorley at 877.

44. In Cachia v Haines, Mason CJ, Brennan, Deane, Dawson and McHugh JJ, commenting on this rationale for the Chorley exception, said (emphasis added): ^[47]

“Those assertions that it would be ‘unadvisable’ or ‘absurd’ to refuse to allow a solicitor who acts for himself ‘to charge’ for the work done by himself or his clerk ignore the questionable nature of a situation in which a successful litigant not only receives the amount of the verdict but actually profits from the conduct of the litigation.”

47. Cachia v Hanes at 412.

45. Thus recovery of costs where work was done by the solicitor litigant’s own employee was thought to be justified by the Chorley exception (rather than by the in-house solicitor rule). The rejection in Bell v Pentelow of the reasoning of Bowen LJ set out above as “not persuasive” involves rejection of the rationale upon which it had until then been supposed that a solicitor litigant could recover costs for work done by his or her employed solicitor.

46. Thus it seems to me that in Bell v Pentelow, the High Court did not have a law firm litigant’s employed solicitors in mind when it preserved the “employed solicitor exception”; the policy reasons which moved it to abrogate the Chorley exception equally favour denying a law firm litigant recovery of costs for work done by its employed solicitors; and the rationale which had previously been supposed to support recovery of by a solicitor litigant of costs for work done by his or her employed solicitor was rejected.

United Petroleum

47. In United Petroleum, the Victorian Court of Appeal held that a litigant law firm was not entitled to recover costs of work done by its own employed solicitors.

48. For the Firm, it was argued that United Petroleum was distinguishable, on the basis that the Victorian legislation did not expressly include “remuneration” in the definition of costs – an aspect of the NSW definition which was given some significance in Bell v Pentelow. ^[48] However, the Victorian Court itself attributed no significance to the absence of “remuneration” from the definition, recognising that the issue in Bell v Pentelow was not definitional but involved the broader question of whether the Chorley exception should continue to be recognised as part of the common law of Australia. The Court said (footnotes omitted):

“[94] It is clear, in our opinion, that the answer does not lie in any differences between the statutory powers to award costs in Victoria and those of New South Wales considered in Bell Lawyers. The analysis undertaken by the High Court involved a discussion of the broader question whether the Chorley exception should be recognised as part of the common law of Australia. That exception developed as a rule of practice grafted on to generally expressed powers to order costs. Its abolition reflects a development of the common law rather than the application of any statutory language particular to New South Wales. There is no reason to treat the Victorian provisions as giving rise to any different result. Like the New South Wales provisions, they are expressed in very general terms. The definition of ‘costs’ in s 3 of the Supreme Court Act 1986, on which Freehills relied, includes ‘fees, charges and disbursements’, but it does not provide any basis for recovery independently of the common law principles.”

48. Bell v Pentelow at [44].

49. The case cannot be distinguished on a basis that the Court itself eschewed as one for its decision.

50. It was next argued that each of the three reasons given by the Victorian Court for its conclusion was “problematic”. The first was: ^[49]

“[102] First, and most significant, the relevant class of cases does not include self-represented litigants. The applicants rightly point out that a government, government agency or corporate litigant may be represented in litigation by employed solicitors. In those cases the party is separate and distinct from the solicitor on the record. In no meaningful sense would a government or a corporation, represented by an employed solicitor, be described as a self-represented litigant. That is not true of Freehills in the present proceedings. The firm is the solicitor on the record, and the litigation is under the control of one of its partners, albeit no claim for costs is sought in respect of the partners.

[103] It seems to us that all of the members of the Court in Bell Lawyers recognised a distinction between the position where solicitors who are parties represent themselves, and the position where a party is represented by an employed solicitor. In the latter case the party is not unrepresented or self-represented. It is represented by the employed solicitor, and an issue which has then arisen at times is what amount of costs should be recoverable given the employment relationship.”

49. United Petroleum at [102]-[103].

51. Although the Firm submits that the distinction referred to in that passage is illusory, I disagree. In the cases of solicitors employed by government departments or corporations, the litigation is being prosecuted or defended for the benefit of the department or corporation that is the employed solicitor’s client, albeit that it is also his or her employer. That employed solicitor is on the record as the solicitor acting for the client/employer. The employer is not self-represented: it has a solicitor acting for it, who has his or her own independent professional obligations. It is therefore not self-represented, but represented by a solicitor in the litigation, albeit one that is “employed” rather than “retained”. In the case of a law firm’s own employed solicitors, however, the position is otherwise. The litigation is being prosecuted or defended for the benefit of the firm; the partners in which do not engage their employees to act for them, but merely allocate the work to them. The firm does not have a solicitor as a distinct entity acting for them; the firm is acting for itself, albeit that some of the work is performed by employees of the firm. Although some of the work may be performed by its employed solicitors, the firm is acting for itself. As the Victorian Court pointed out, this distinction was recognised by the High Court in the passage quoted earlier^[50] when the plurality said, referring to lawyers employed by governments and others, that “such a solicitor appears in proceedings to represent his or her employer”. In the context of the conduct of litigation, in the eyes of the law the salaried in-house solicitor is independent of his or her employer, whereas a law firm’s employed solicitors are not.

    50. Above at [36].

52. The second reason was as follows:^[51]

“[108] Secondly, allowing a solicitor to recover fees when acting for him or herself would perpetuate the unequal treatment that Bell Lawyers sought to eradicate. The fact that the work was done by an employee is not, in that respect, significant. There is no reason why a firm of solicitors should be permitted to recover in circumstances where an individual solicitor cannot.”

51. United Petroleum at [108].

53. For the reasons I have given, it seems to me that the policy that underlies Bell v Pentelow, of removing an apparent privilege, supports its removal in the case of work done by a solicitor’s employees as well as work done by the solicitor personally. This is in substance the same as the second reason advanced by the Victorian Court.

54. The third reason given by the Victorian Court was:^[52]

“[110] Thirdly, none of the cases referred to in Bell Lawyers establishes that solicitors employed by a law firm have been treated as falling within the employed solicitor rule.”

52. United Petroleum at [110].

55. However, the Victorian Court did not found on this, appreciating that it was of limited significance:^[53]

“In part, that may be explicable because the Chorley exception rendered such an analysis redundant. The firm could recover costs under Chorley and had no reason to seek recourse to the employed solicitor rule. The fact that no authority stands in support of the proposition is a factor in the mix, but it is not particularly powerful as it may be explained by the fact that costs were recoverable by another route.”

53. United Petroleum at [110].

56. I respectfully agree – while the absence of authority is of limited significance, the very fact that recovery of costs for work done by an employed solicitor of a litigant law firm has hitherto been treated as based on the Chorley exception is a reason for treating the abrogation of that exception as extending to deny recovery for work done by an employed solicitor as well as work done by a principal of the firm.

57. The Victorian Court added: ^[54]

“[117] Although not decisive in Bell Lawyers, it emerges clearly enough that there is a risk of a lack of objectivity and professional detachment when lawyers appear for themselves in litigation. Although there may be a degree of separation within the firm, and each lawyer has their own professional obligations, nevertheless the person ultimately responsible for the legal conduct of the litigation is likely to be a partner in the firm with a direct personal interest in the outcome.

…

[119] Ultimately, we have come to the conclusion that to treat employee solicitors of a legal firm as falling within the ‘well-established understanding’ would considerably undermine Bell Lawyers. It would extend the ‘well-established understanding’ to cases of self-represented legal firms and perpetuate a significant degree of special treatment not accorded to non-lawyer litigants, referred to in Chorley as ‘ordinary litigants’.

[120] In substance it would, anomalously, allow firms of solicitors to recover for their own time spent in the litigation. It would also mean that a legal practice with employees could recover fees when a sole practitioner could not.”

54. United Petroleum at [117]-[120].

58. That analysis is consistent with what I have identified above as the policy reasons underlying Bell v Pentelow.

59. The Firm argued that two decisions of this Court told against the extension of Bell v Pentelow to work done by a solicitor litigant’s employees. The first was Burrows; and the second was Spencer v Coshott. ^[55]

    55. [2021] NSWCA 235; 106 NSWLR 84 (“Spencer”).

60. In Burrows, Leeming JA confirmed that the abrogation by the High Court of the Chorley exception did not affect the ability of a litigant to recover amounts calculated at professional rates for work done by salaried solicitors as part of party/party costs,^[56] and concluded:

“[133] Thus the critical point which is dispositive of these grounds of appeal is the failure of Ms Burrows’ submission that M&K Lawyers Group is to be equated to M&K Sydney. The result is that the costs attributable to work done by employed solicitors of M&K Lawyers Group, which company was acting for M&K Sydney, are recoverable. Far from casting any doubt about the recoverability of costs in those circumstances, Bell Lawyers confirms as has long been the case that those costs are recoverable.”

56. Burrows at [112].

61. The decisive point, therefore, was that the lawyers acting in the litigation were employees of M&K Lawyers Group, an incorporated legal practice which was a distinct legal identity from the client M&K Sydney. As to the position of work done by a solicitor litigant’s own employed solicitors, his Honour said:

“[134] Accordingly, it is not necessary to express a view on the correctness of United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15, although the respondents submitted that it was clearly wrong, if not distinguishable. The Victorian Court of Appeal was not dealing with the position of an incorporated legal practice, nor was it dealing with a case where the litigant was represented by a different corporation. I see no reason to lengthen these reasons with a full account of the careful reasoning of that Court (which I have found of assistance in preparing these reasons). I acknowledge that insofar as the Victorian Court of Appeal regarded the “employed solicitor” rule as inapplicable to a firm of solicitors, as opposed to a corporation or statutory authority (see at [101]-[121]), then it tends against the conclusion I have reached. But that is scarcely surprising. As I have sought to explain, there is a tension between the abrogation of “the Chorley exception” and the retention of the “employed solicitor” rule. I do not think that tension undermines the reasoning applicable to the present, materially different, case. The position would be different if I had acceded to Ms Burrows’ submission concerning piercing the corporate veil.”

62. Thus his Honour did not express a view as to the correctness of United Petroleum. The Firm submitted that his Honour’s acknowledgement – that the Victorian Court’s treatment of the “employed solicitor” rule as inapplicable to a firm of solicitors tended against his Honour’s conclusion – involved an acknowledgement of at least some degree of inconsistency, and that I should therefore not follow United Petroleum. However, as I understand Leeming JA’s judgment, his Honour accepted that in “manifestly different” cases which fall at the intersection of the two principles, there may properly be different results. In Burrows, the existence of distinct legal identities between the litigant and the lawyers was critical. In the case of a law firm’s own employees, there is no such distinction.

63. In Spencer, Simpson AJA, with whom Bell P and Emmett AJA agreed, said:^[57]

“The findings by the primary judge that Mr Spencer, as a solicitor, provides legal services through Kejus, and that Mr Spencer had entered a binding costs agreement with Kejus, conclude the issues. The professional costs rendered to Mr Spencer by Spencer and Co Legal (or Kejus) are, within the meaning of s 3(1) of Civil Procedure Act, “costs payable” by Mr Spencer to Spencer and Co Legal. They are therefore within the costs order made by this Court. Recovery of those costs is not precluded by anything in Bell Lawyers.”

57. Spencer at [102].

64. Again, the existence of distinct legal identities between the solicitor litigant and the lawyers (relevantly, an incorporated legal practice) acting for him was critical, and her Honour distinguished United Petroleum on that basis:^[58]

“What is important about United Petroleum for the purpose of the present case is that the decision says nothing about the entitlement of a successful litigant who happens to be a solicitor and who acts through an incorporated legal practice of which the solicitor is the principal, sole director and shareholder, to recover costs incurred in the litigation by retaining, or acting through, the incorporated legal practice.”

58. Spencer at [65].

65. Accordingly, neither Burrows nor Spencer governs the present situation, whereas United Petroleum is precisely on point.

66. It follows that, in my respectful judgment, United Petroleum is not only not plainly wrong, so that I should follow it as a matter of precedent, but it is correct in principle.

Disposition

67. Birketu’s claim for prerogative relief was misconceived and must be dismissed. However, in order to resolve the dispute between the parties, at least in a respect which will substantially reduce the scale, scope and cost of the assessment process, it is appropriate to make a declaration to the effect that the Firm is not entitled to recover costs for work done by their employed solicitors.

68. For the foregoing reasons, the following orders should be made:

1. Declare that under the costs order made in proceedings 2018/164411 on 19 June 2020 being the subject of the cost assessment proceeding 2022/029349 before the first defendant, the second defendants are not entitled to recover costs for work done by the employed solicitors of their own firm.

2. Otherwise dismiss the summons.

[Counsel addressed on costs]

69. On the question of costs, the plaintiffs although unsuccessful in the application for prerogative relief have in substance obtained a substantial victory, both as a matter of principle, and as a matter of money when the implementation of that principle is translated to the costs assessment. On the other hand, the costs of the proceedings were unnecessarily increased by the inclusion of the misconceived application for prerogative relief. It is not appropriate in these cases to take too fine a comb to the apportionment of costs. In my view, justice will be done if the second defendants are required to pay one half of the plaintiff’s costs of the proceedings in this Court, subject to the following further remarks.

70. The plaintiffs’ affidavit evidence unnecessarily exhibited and therefore reproduced copies of judgments of the Court, sometimes including the same judgment on multiple occasions. The Court expects solicitors to exercise responsible judgment as to whether it is necessary to annex or exhibit and reproduce documents, and not simply to exhibit everything that is thought remotely to touch on the issue. Without confining the jurisdiction or the discretion of the relevant assessor in any other way, I direct that in the assessment of the costs recoverable by the plaintiffs under the preceding order, the costs of exhibiting and reproducing the documents that comprise tabs 1 through to and inclusive of tab 6 of exhibit CAP1 referred to in the affidavit of Craig Anthony Powell of 29 July 2022, be disallowed.

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Endnotes

Decision last updated: 27 October 2022