D A Starke Pty Ltd v Yard & Anor (No 2) - [2020] SASC 81

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
D A STARKE PTY LTD v YARD & ANOR (No 2)
[2020] SASC 81
Judgment of Judge Bochner a Master of the Supreme Court
14 May 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS
Application of Bell Lawyers Pty Ltd v Pentalow & Anor to incorporated legal practices - "the Chorley exception" - application considered on the papers.
Supreme Court Act 1935 ; Legal Practitioners Act 1991 , referred to.
Bell Lawyers Pty Ltd v Pentelow & Anor [2019] HCA 29; United Petroleum Ltd v Herbert Smith Freehills [2020] VSCA 15; McIlraith v Ilkin & Anor [2007] NSWSC 1052; Guss v Veenhuizun (No 2) (1976) 136 CLR 47, considered.

D A STARKE PTY LTD v YARD & ANOR (No 2)
[2020] SASC 81
Introduction

On 4 September 2019, the High Court of Australia delivered its decision in Bell Lawyers Pty Ltd v Pentelow & Anor (“Bell Lawyers”).[1] By this decision, the Court made it clear that “the Chorley exception” is not part of the common law of Australia, in respect of either barristers or solicitors. The Court said, at [1] – [3]:
As a general rule, a self‑represented litigant may not obtain any recompense for the value of his or her time spent in litigation. Under an exception to the general rule, a self‑represented litigant who happens to be a solicitor may recover his or her professional costs of acting in the litigation. This exception is commonly referred to as "the Chorley exception", having been authoritatively established as a "rule of practice" by the Court of Appeal of England and Wales in London Scottish Benefit Society v Chorley.
One issue raised by this appeal is whether the Chorley exception operates to the benefit of barristers who represent themselves. Another, more fundamental, issue is whether the Chorley exception should be recognised as part of the common law of Australia.
The Chorley exception has rightly been described by this Court as "anomalous". Because it is anomalous, it should not be extended by judicial decision to the benefit of barristers. This view has previously been taken by some courts in Australia. Dealing with the matter more broadly, however, the Chorley exception is not only anomalous, it is an affront to the fundamental value of equality of all persons before the law. It cannot be justified by the considerations of policy said to support it. Accordingly, it should not be recognised as part of the common law of Australia.
(citations omitted)
[1] [2019] HCA 29.
The Court did not decide the question whether an incorporated legal practice, through which a sole practitioner operates his or her practice, should be able to obtain a costs order for work performed by its sole director and shareholder, or its employees.[2]
[2] [2019 HCA 29 at [53].
Background
The background to this litigation is set out in my judgment delivered on 16 January 2020.[3] I do not repeat it here, except to note that, from the late 1990’s, Mr Starke, through his corporate entity, D A Starke Pty Ltd, acted for Alfred Yard, Trevor Yard, Gladys Yard and Yardoo Pty Ltd (or a combination of them) (“the various defendants”) in a number of actions. After the finalisation of these claims, the various defendants refused to pay a significant portion of Mr Starke’s fees and disbursements.
[3] [2020] SASC 3.
In this action, D A Starke Pty Ltd sued Alfred Yard and Yardoo Pty Ltd for its fees and disbursements. I will refer to this action as the recovery action. D A Starke Pty Ltd was largely successful in the recovery action, which went to trial in October 2011, with judgment being delivered in February 2013. D A Starke Pty Ltd was also awarded the costs of the recovery action.
Throughout, I will refer to D A Starke Pty Ltd as the plaintiff, where it is necessary to differentiate it from Mr Starke personally.
Ultimately, five allocaturs were issued. Some of these related to the costs of the actions wherein Mr Starke represented the various defendants. Others related to the recovery action. Two related to the fees of counsel, Mr Stevens, which Mr Yard and Yardoo required to be separately taxed. Two related to costs incurred by Mr Starke in respect of proceedings brought for contempt by him against various of the defendants.
A question has now arisen as to the extent to which Mr Starke is entitled to recover the fees incurred by him in the recovery action. The issue in dispute is whether the fees incurred by him are caught by the decision in Bell Lawyers.
Mr Starke’s representation in the recovery action
Mr Starke says that for the period 3 June 2009 to 18 January 2015, the plaintiff represented itself.[4] During this time, the plaintiff retained Mr Cogan, a costs expert, to assist him with the recovery action. For the trial of the recovery action, the plaintiff retained counsel from the independent bar.
[4] FDN 126 at [8].
On 19 January 2015, Mr Starke’s legal practice was transferred from the plaintiff to Starke Legal Pty Ltd (“Starke Legal”). He says that, from this point, Starke Legal represented the plaintiff.[5] He says that there was a proper arm’s length arrangement between the plaintiff and Starke Legal, by which the plaintiff retained Starke Legal to act for it.
[5] FDN 126 at [21].
Mr Starke says that he was the only solicitor employed by the plaintiff, although it made use of contract paralegals, solicitors and book keepers as required.[6] He says that he is Starke Legal’s sole director, secretary and shareholder, and that it employs three full time solicitors, support staff and contractors.[7] Starke Legal engaged contractors and deployed its own staff to work on the recovery action.[8] He says that Starke Legal is charging the plaintiff the firm’s usual rates for the work performed.[9]
[6] FDN 126 at [11].
[7] FDN 126 at [23].
[8] FDN 126 at [26].
[9] FDN 126 at [31].
The plaintiff’s position
The plaintiff says that all of the costs incurred by Starke Legal in the recovery action should be recoverable by it in accordance with the usual principles in relation to costs. This is on the basis that there is an arm’s length arrangement between Starke Legal and the plaintiff. The plaintiff accepts that any charges for its own time are not recoverable as a result of the decision in Bell Lawyers.
The plaintiff submits that Bell Lawyers does not prohibit the recovery of disbursements, or the costs related to the recovery of disbursements. Mr Starke says that the vast majority of work carried out, first by the plaintiff and then by Starke Legal, was for the recovery of disbursements, and in particular, Mr Stevens’ fees. In respect of disbursements, Mr Starke made the following submission:
There is no prohibition in Bellor in United Petroleum Ltd v Herbert Smith Freehills[2020] VSCA 15, for the time spent and taken to collect disbursements, respond to the request for taxation of Mr Stevens (sic) fees, for collecting other disbursements and out of pocket expenses. There is a cost for doing that work and no benefit to the Plaintiff other than fulfilling its duty to pay counsel or recover out of pocket expenses.[10]
[10] Submissions dated 21 April 2020 at [19].
He further submitted that United Petroleum Ltd v Herbert Smith Freehills[11] (“United Petroleum”) should be distinguished on the basis that it involved a partnership rather than a corporate practice, and on the basis that it does not consider statutory provisions on the application of costs to corporate practices. He submitted that, in any event, the decision in United Petroleum is not binding on this Court.
[11] [2020] VSCA 15.
The plaintiff submitted that it is necessary to consider the provisions of the costs legislation in South Australia, the Supreme Court Act 1935, the Legal Practitioners Act 1991 and the Supreme Court Civil Rules. It says that there is nothing in those acts or rules “to displace the findings of the High Court in respect of the subject practice company – the Plaintiff.”[12]
[12] At [25].
The position of the second defendant
The second defendant submitted that the decision in Bell Lawyers applies to the circumstances in this matter, having been extended in its scope by the decision of the Victorian Court of Appeal in United Petroleum. In United Petroleum, the Court found that, where an employed solicitor represents his or her employer law practice, where that practice is a partnership, the employer law firm is not entitled to recover the costs of its employee.
Further, the second defendant submitted that the decision in Bell Lawyers applies regardless of the provisions of local rules in respect of costs.
The second defendant submitted that “Starke Lawyers” has been recorded on the court file as the solicitor representing the plaintiff since the commencement of this matter, with no change in address for service throughout its duration. Mr Starke has, himself, attended the majority of court hearings. It must be concluded, therefore, that Mr Starke has been acting for the plaintiff, either in his personal capacity, or as the principal of the incorporated legal practice carrying on the business of Starke Lawyers.
It is the position of the second defendant that the substitution of a different corporate entity for the plaintiff has not affected the operation of Bell Lawyers. Mr Starke has remained the controller of both entities and has retained the benefit of each of them, and has continued to act in this matter throughout. The second defendant submits that, to allow the plaintiff to recover the fees of Starke Legal, would be to perpetuate the same inequity condemned by the High Court.
The second defendant concedes that disbursements, such as Mr Cogan’s fees, are properly claimable by the plaintiff.
Finally, I note that submissions have been filed on behalf of Mr Stevens in relation to the application of Bell Lawyers to the recovery of his fees. These submissions appear to have been prepared in the context of FDN 128. As that application has been dismissed by consent, I do not consider those submissions further.
Consideration
It is necessary, first, to deal with a number of the plaintiff’s submissions.
Firstly, the plaintiff has provided no evidence of an arm’s length arrangement between it and Starke Legal. He has not provided a retainer agreement, invoices or evidence of any payment by the plaintiff of fees rendered by Starke Legal. It is no more than assertion by Mr Starke that such an arrangement exists.
Secondly, I reject Mr Starke’s submission that the work carried out to recover disbursements was not for the benefit of the plaintiff. This is patently incorrect. Mr Cogan’s and Mr Stevens’ retainers were with the plaintiff; it is the plaintiff who carries the liability to pay their accounts, regardless of whether it recovers any of those fees from the defendants. Thus, the work carried out to recover disbursements is directly to the benefit of the plaintiff. The same applies for any other disbursements. The work carried out to recover disbursements is in the same category as the work carried out to recover legal fees.
Thirdly, while the plaintiff may be correct, in a strict sense, that the decision in United Petroleum is not binding on this Court, this submission ignores the fact that it is highly persuasive, and that it would be most unusual for a judicial officer in my position to depart from a decision of a Court of Appeal in a matter such as this.
Fourthly, I have had difficulty understanding the plaintiff’s submission in relation to consideration of the costs legislation and rules in South Australia. It did not point to the particular provisions of the Supreme Court Act, the Legal Practitioners Act or the Supreme Court Civil Rules that it wished me to consider. I also do not understand the submission that there is nothing in those acts or rules “to displace the findings of the High Court in respect of the subject practice company”. I understand this to mean that there is nothing in the Supreme Court Act, the Legal Practitioners Act or the Supreme Court Rules which would mean that the abolition of the Chorley exception did not apply to incorporated legal practices; that is, the abolition of the Chorley exception is not prevented from applying to incorporated legal practices by the operation of any local laws or rules. However, in the context of this matter, I assume that I cannot be correct in this understanding.
The only submission of the plaintiff with any merit is the submission that United Petroleum must be distinguished from the present case as it relates only to partnerships.
In McIlraith v Ilkin & Anor,[13] (“McIlraith”) Brereton J considered the situation where a solicitor sought costs where the solicitor acting for him was a solicitor corporation of which he was the director. At [12], Brereton J said:
… I have attributed no significance to this distinction, and proceed on the basis that Mr Ilkin is to be regarded as having acted as his own solicitor.
[13] [2007] NSWSC 1052.
However, Brereton J felt himself bound to follow the decision of the High Court in Guss v Veenhuizun (No 2),[14] which was decided on the basis of an assumption that the Chorley exception was part of the law of New South Wales, and various other decisions of the New South Wales Court of Appeal. Nonetheless, he expressed the view that:
Where a solicitor acts for himself or herself there cannot be independent and impartial advice, and this is in principle a strong reason for holding that a solicitor litigant should not be entitled to costs of acting for him or herself.[15]
[14] (1976) 136 CLR 47.
[15] [2007] NSWSC 1052 at [25].
In United Petroleum, the Court, at [100] – [108], said:
It might also be said that the partnership should be permitted to ameliorate the opportunity cost of not having the employees available to do external remunerative work. However, to use the examples given by Edelman J [in Bell Lawyers], a plumber, engineer, architect, or accountant who is a party to a proceeding is not entitled to recover the value of his or her own labour or that of an employee who has to spend time in the conduct of the litigation. As a matter of principle, given the outcome in Bell Lawyers, a different answer is not given because the lawyer uses his or her time, or that of his or her employees, to provide legal services. At least for the purpose of determining whether the general principle is engaged, there is no reason to treat the employees of a solicitor differently. It follows that to allow a solicitor to recover costs referable to the work done by its employees would recompense that solicitor for its time spent in the litigation.
…
Edelman J, in the passages which we have quoted and to which we have referred, emphasised that where the solicitor is both party and lawyer the solicitor is ‘unrepresented’, and the solicitor’s role as an agent for another is absent. That is Freehills’ position here. It is not the position where an employed solicitor represents, and is the solicitor on the record for, their employer.
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.
It was on this basis that the Court found that the principles enunciated in Bell Lawyers applied equally to partnerships as it did to individual practitioners.
I am of the view that the same reasoning, and conclusion, must apply to incorporated legal practices. To adopt the language of United Petroleum, to allow a solicitor to use a corporate vehicle to recover fees for work done by its employees, when the solicitor is, himself or herself, the controlling mind of the corporate vehicle, would be to allow an incorporated legal practice to recover fees where an individual solicitor could not, and would serve to perpetuate the inequity deplored by the High Court in Bell Lawyers.
The plaintiff is not assisted by the fact that Starke Legal took over the practice formerly run by the plaintiff. It is the same legal practice, albeit run through a different corporate entity. It is telling that no notice of change of address for service was ever filed by the plaintiff, and all of the document filed by the plaintiff were endorsed as having been filed by Starke Lawyers, until 15 April 2020.
There can be no question that, throughout and regardless of the corporate entity through which Starke Lawyers operated, instructions were given by Mr Starke, he attended the majority of directions hearing, he oversaw the conduct of the litigation where services were provided by others such as Mr Cogan and Mr Stevens, and as director and shareholder of each of them, he had a direct interest in the outcome of the litigation. In my view, the same concerns expressed by Brereton J in McIlraith as to the inability of a solicitor litigant to maintain the impartiality, independence and objectivity required of a solicitor acting for a party[16] apply equally in this case.
[16] [2007] NSWSC 1052 at [25].
In McIlraith, Brereton J considered that, for the purpose of costs recovery, an incorporated legal practice and its director solicitor should be treated as one and the same. I reach the same conclusion here. The reasoning applied by the Victorian Court of Appeal in relation to partnerships must be applied to incorporated legal practices. The plaintiff, whether it was represented by D A Starke Pty Ltd or Starke Legal Pty Ltd, was self represented in this action.
The legislation and rules in South Australia are silent on the question of recovery of costs by incorporated legal practices.
By its decision in Bell Lawyers, the High Court sought to remove a principle which it regarded as not only an anomaly, but as “an affront to the fundamental value of equality of all persons before the law”. If it were allowed to subsist in relation to incorporated legal practices, it would provide a mechanism by which solicitors could perpetuate that inequality. The inequality is not removed by the insertion of a second corporate vehicle which effectively stands in the shoes of the first.
The plaintiff is not entitled to recover fees for work carried out by D A Starke Pty Ltd or by Starke Legal Pty Ltd, in the recovery action. This is regardless of whether that work was for the recovery of fees, or the recovery of disbursements. The plaintiff is entitled to recover disbursements in the ordinary way.