E1 v E2; E Pty Limited v E2

[2023] NSWDC 411

District Court

New South Wales

Medium Neutral Citation:

E1 v E2; E Pty Limited v E2 [2023] NSWDC 411

Hearing dates:

23 May, 13 June and 8 August 2023

Date of orders:

06 October 2023

Decision date:

06 October 2023

Jurisdiction:

Civil

Before:

Gibson DCJ

Decision:

(1) Pursuant to s 8 of the Court Suppression and Non-Publication Orders Act 2010 (NSW), the names of the parties are suppressed and replaced with the pseudonyms adopted in this judgment.

(2) Application by defendant’s pro bono legal representative for costs dismissed.

(3) Each party to pay their own costs of this application and of the proceedings.

Catchwords:

COSTS – defendant represented at the submissions stage of proceedings by pro bono lawyer – no orders sought or made at any stage for a referral under UCPR rr 7.36 and 7.41 - pro bono lawyer seeks a gross sum costs order for her fees after the defendant is successful – whether referral under UCPR r 7.41 should be made nunc pro tunc – whether, in the absence of such an order and/or a written costs agreement, the defendant’s pro bono lawyer is entitled to payment of costs – the indemnity principle – application for costs refused.

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98

Court Suppression and Non-Publication Orders Act 2010 (NSW), s 8

Family Law Act 1975 (Cth)

Federal Court Rules 1979 (Cth) r 4.19; Order 80 (repealed)

Legal Aid Commission Act 1979 (NSW)

Legal Profession Uniform Law 2014 (NSW), ss 174, 175, 178, 181, 185

Uniform Civil Procedure Rules 2005 (NSW), rr 7.18, 7.33 – 7.42, 42.1

Cases Cited:

1465778 Ontario Inc et al v 1122077 Ontario Ltd et al (2006) 275 DLR (4th) 321

AT Air Group Pty Ltd v Dieter Siewert [2013] NSWSC 1993

Bahamad v Wong [2020] NSWSC 991

Bazzi v Dutton [2022] FCAFC 84

Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333

Bobolas v Waverley Council (2012) 187 LGERA 63; [2012] NSWCA 126

Capilano Honey Ltd v Mulvany [2017] NSWSC 833

Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109

Chancliff Holdings Pty Ltd v Bell [1999] FCA 1783

Emanuele v Australian Securities Commission (1997) 188 CLR 114

Enterprise Finance Solutions Pty Ltd v Ciszek [2014] NSWDC 314

In the matter of Idylic Solutions Pty Ltd and ors - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 581

In the matter of Optimisation Australia Pty Ltd (Costs) [2018] NSWSC 280

Kassam v Hazzard; Henry v Hazzard (No 2) [2021] NSWSC 1599

King v King & Ors [2012] QCA 81

Larter v Hazzard [2022] NSWCA 238

Larter v Hazzard (No 3) [2021] NSWSC 1595

LFDB v SM (No 4) [2017] FCA 753

London Scottish Benefit Society v Chorley [1881-5] All ER Rep 1111; (1884) 13 QBD 872

Malkinson v Trim [2002] All ER (D) 66 (Sep); [2003] 2 All ER 356; [2003] 1 WLR 463; [2002] EWCA Civ 1273

Matsen v Matsen [2008] NSWSC 226

McCullum v Ifield [1969] 2 NSWR 329

Mourik v Von Marburg [2016] VSC 601

Northern Territory v Sangare (2019) 265 CLR 164

Riva NSW Pty Ltd v Key Nominees Pty Ltd [2023] NSWSC 711

Watkins v Tatana [2023] FCA 248

Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145

Texts Cited:

New South Wales Law Reform Commission Report 137 “Security for Costs and Associated Costs Orders”, December 2012

Category:

Costs

Parties:

2021/00153579
E1 (Plaintiff)
E2 (Defendant)

2021/00153598
E Pty Limited (Plaintiff)
E2 (Defendant)

Representation:

Counsel:
Mr H Atkin (Plaintiff)
Ms S Fendekian (Defendant)

Solicitors:
Cole & Butler Solicitors (Plaintiff)

File Number(s):

2021/00153579
2021/00153598

Publication restriction:

Pursuant to s 8 of the Court Suppression and Non-Publication Orders Act 2010 (NSW), the names of the parties are suppressed and replaced with the pseudonyms adopted in this judgment.

Judgment

Introduction

1. On 14 April 2023, I delivered judgment in these two matters, dismissing the plaintiffs’ claims and granting liberty to apply in relation to costs. One of the two judgments, but not the other, is the subject of an appeal. There are associated proceedings under the Family Law Act 1975 (Cth) and the earlier judgments in these proceedings have not been published on Caselaw. As the issue of the entitlement of a pro bono lawyer to obtain costs is the subject of little authority, this judgment has been published, but the parties’ names have been anonymised.

2. The two plaintiffs brought claims against the defendant for moneys asserted to have been loaned for house renovations. The evidence (in a one-day trial on 13 May 2022) was to be followed by a timetable for written submissions. At the end of the day of hearing, I observed that the defendant, who was self-represented, was in deep distress. It was obvious to me that she was out of her depth in terms of understanding the legal issues in her case. As is set out in the extract from the transcript below, I suggested that she contact the Bar Association’s Pro Bono Scheme to see if she could find a pro bono lawyer to give her advice, adding that I would ask my associate to contact the Bar Association to see if this kind of assistance was available (Tcpt, 13 May 2022, p 135(4)-p 136(30)):

“HER HONOUR: … Ms [E2], you really do need to get legal advice, and I am not sure what I can do to assist, but you need to see somebody who understands family law and understands building work and understands how to help you, and I honestly don't know where to start to tell you to get such advice, except you could try - have you been to the Bar Association’s Pro Bono Scheme.

DEFENDANT: No, I haven't, no.

HER HONOUR: What I'll do, I'll ask my associate to check and see if somebody at the Bar Association’s Pro Bono Scheme can help. It may be that--

DEFENDANT: Thank you, your Honour.

HER HONOUR: --we can find a barrister who can assist you there, but any barrister coming in to this matter looking at all of this material is just going to feel a terrible wave of despair, I suspect. If I stand the matter over, I can be reading those and I can advise the parties what further material I need, because I think actually when you look at it, once I've got this schedule I really do have all of your submissions about how you say it’s a loan, don't I?

ATKIN: Yes, your Honour.

HER HONOUR: You don't really need to say much more.

ATKIN: No. No, your Honour.”

3. Shortly afterwards, I repeated that I would ask my associate to contact the Bar Association but warned that “their answer will probably be you should contact them yourself and throw [yourself] on their mercy so maybe you can go in there and be persuasive in a way that my associate may not be”. Mr Atkin responded with some helpful information:

ATKIN: Their referral system has recently changed, your Honour, and there's quite a useful form of email that goes out to the barristers who signed up for the scheme.

HER HONOUR: Really? Thank you for letting me know. That's very helpful, because I just want this matter to be resolved properly and not to have to guess at things, and perhaps make errors that might..(not transcribable)..who would say, “If her Honour had looked at this more carefully she would've realised whatever.” It’s always a difficulty.” (Tcpt, 13 May 2022, p 135(4)-p 136(30))

4. When the matter next came before the Court, the defendant was represented by Ms Fendekian, who indicated that she had accepted a pro bono brief through the Bar Association Scheme and would appear for the defendant for the submissions stage of the proceedings. A timetable was entered into for this purpose. No request for any formal orders for appointment was made.

5. In the best traditions of the Bar, Mr Atkin, counsel for the plaintiffs, assisted Ms Fendekian in every way possible. This included accommodating a long delay while Ms Fendekian obtained the necessary documentation and prepared submissions.

6. During that time, I was not asked to make any orders concerning Ms Fendekian’s status and, in particular, I was not asked to make any orders for a referral to the court’s Pro Bono scheme under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 7.36.

7. I reserved judgment on 21 February 2023 and handed down judgment on 14 April 2023. Both counsel provided careful and thorough submissions and, as noted above, thanks almost entirely to Ms Fendekian’s assistance, the defendant was successful in relation to both claims.

8. I reserved the question of costs with liberty to apply because that is the rule that I usually make, and because I was conscious that the defendant was entitled, as a self-represented litigant, to disbursements of a limited nature such as photocopying and other preparation-related costs. The defendant had referred to paying solicitors for advice in the past and if so, any such payments might be the subject of a costs order in her favour.

9. Ms Fendekian has invoked the leave but does not seek any order for payment of the defendant’s disbursements, which she tells the court the defendant does not seek. Instead, she seeks a gross sum costs order for payment of her fees in both matters. Those fees are as follows:

1. The sum of $26,119.50 (including GST) for the proceedings brought by Ms E, the calculation for which is as set out in a Tax Invoice dated 8 May 2023.

2. The sum of $37,158.00 (including GST) for the proceedings brought by E Pty Ltd, the calculation for which is as set out in a Tax Invoice dated 8 May 2023.

10. The basis upon which Ms Fendekian says that she appeared pro bono but subject to certain provisos if she won was that she had a conversation with the defendant on or about 30 May 2022 as follows:

“Counsel: I will keep a record of my time at my usual rate, but I will not charge you any professional fee unless you are successful and a costs order is made in your favour. And I will seek payment from you only to the extent that you are able to recover fees from the other party.

Defendant: Thank you very much. I am happy to accept.”

The orders sought by Ms Fendekian

11. Ms Fendekian seeks the following costs orders:

1. An order pursuant to s 98 of the Civil Procedure Act 2005 (NSW) (CPA) that the plaintiff pay the defendant’s costs in the E1 v E2 proceedings, being a specified gross sum instead of assessed costs, in the amount of $26,119.50.

2. An order pursuant to s 98 of the CPA that the plaintiff pay the defendant’s costs in the E Pty Limited v E2 proceedings, being a specified gross sum instead of assessed costs, in the amount of $37,158.00.

3. The plaintiffs in each of the E1 v E2 and E Pty Limited v E2 proceedings to pay in equal proportion the defendant’s costs in connection with the defendant’s costs application including the preparation of written submissions, and preparation for and appearance at hearings on 23 May 2023, 13 June 2023 and 8 August 2023 in the amount of [the sum found to be reasonable by the court] being a specified gross sum instead of assessed costs.

4. Pursuant to UCPR r 7.41, order that Stephanie Fendekian, being a barrister who has provided legal assistance to the defendant under the scheme for the provision of legal assistance to litigants under Division 9, Part 7 of the UCPR, is entitled to recover the amount of costs that the plaintiffs are required to pay under orders 1, 2 and 3.

5. The costs payable in accordance with orders 1, 2 and 3 above, are to be paid:

1. Within 21 days;

2. To a bank account nominated by the defendant’s counsel to be advised to the plaintiffs’ counsel.

6. Order 4 made on 14 April 2023 be discharged to the extent necessary to give effect to orders 1 to 5 above.

12. When I drew to the parties’ attention that no orders had been made under the provisions of UCPR referred to in the orders sought, Ms Fendekian additionally sought an order for such an appointment to be made nunc pro tunc.

13. The application for a gross sum costs order is opposed by the plaintiffs on the basis that Ms Fendekian is not entitled to fees at all by reason of the fact that she appeared pro bono without a valid costs agreement and/or appointment under the UCPR pro bono provisions. No challenge is made to the quantum of the sums claimed or to the evidence provided in support of the application.

Costs provisions in New South Wakes

14. Section 98 (1)(a) of the Civil Procedure Act provides that costs are in the discretion of the court. UCPR r 42.1 recognises the general law presumption that, unless some other order should be made, ‘costs follow the event’. Whether made on an ordered or indemnity basis, the purpose of the costs order is to compensate the successful party for those costs the successful party is obligated to pay to his legal representatives for their work in the litigation. This is known as the indemnity principle.

15. Where a successful litigant is under no obligation to pay his lawyer, there is no scope for the indemnity principle to operate other than in specifically defined exceptions, of which the so-called “Chorley principle” or “Chorley exception” (London Scottish Benefit Society v Chorley [1881-5] All ER Rep 1111; (1884) 13 QBD 872) was one. This principle has now been overset by the High Court: Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333, in part because the Chorley principle violates the indemnity principle.

16. Similar indemnity rule principles arise in the context of pro bono representation. This is because, without there being an appropriate solicitor/client agreement which involves payment for services, the successful party is not to be compensated where no loss has been incurred. Costs have generally not been recoverable where legal services have been provided on a “pro bono” basis — as distinct from a “no win no fee” basis: Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [45], [102]. The basic indemnity principle is that costs are only recoverable to the extent that the party has either paid them, or has an enforceable liability to pay them.

The pro bono legal advice regime in New South Wales

17. There has only ever been one inquiry into legal costs issues in New South Wales, namely the New South Wales Law Reform Commission Report 137 “security for costs and associated costs orders”, published December 2012 ( As one of the areas under consideration was whether pro bono proceedings (and pro bono representatives) should occupy a special position in relation to security for costs, the authors of the report encouraged submissions from organisations providing pro bono assistance and included an overview of the pro bono system generally.

18. Report 137 identified the following sources of pro bono assistance in New South Wales:

1. The system of referral set out in UCPR rr 7.36 and 7.41, which permits the award of costs as a form of statute-based contingency agreement (Bobolas v Waverley Council (2012) 187 LGERA 63; [2012] NSWCA 126; Matsen v Matsen [2008] NSWSC 226; In the matter of Idylic Solutions Pty Ltd and ors - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 581). There is no reference in Report 137 as to the ramifications (if any) for the failure to require a written costs agreement if such costs are sought from the opposing party.

2. The Legal Aid Commission Act 1979 (NSW) (‘Legal Aid Commission Act’) established the Legal Aid Commission of NSW (‘Legal Aid NSW’), an independent statutory body that provides legal services to disadvantaged people. A plaintiff can obtain legal aid assistance in a civil law matter if the matter comes within the Legal Aid NSW policies, satisfies the relevant merit and availability of funds tests, and the plaintiff meets the relevant means test.

3. There are pro bono organisations such as the National Pro Bono Resource Centre and the Public Interest Law Clearing House, (discussed in the Report at 3.44 ff). The NSW Bar Association Scheme under which Ms Fendekian appeared in these proceedings would fall into this category. The disadvantage for these schemes is that, although they are providing pro bono services, there is no right to recover fees for these services from the opposing party.

4. Although not a pro bono or contingency fee scheme, litigation lending is another source of financial assistance, particularly in personal injury litigation. A party may also enter into a private agreement with a third party such as a parent or employer for the payment of legal costs.

19. In the decade since Report 137 was published, there has been an explosion of very expensive litigation. As a result, there have been profound changes to the pro bono landscape, due to the introduction of “crowdfunding”, through websites dedicated to raising money for legal costs. These public appeals are most commonly made in “public interest” actions about matters asserted to be of national concern, such as opposition to Adani litigation. They are also used for high-cost defamation proceedings conducted in the Federal Court of Australia. The most widely used crowdfunder, “GoFundMe”, is helpfully described by Adamson J in Larter v Hazzard (No 3) [2021] NSWSC 1595 (appeal dismissed with costs: Larter v Hazzard [2022] NSWCA 238; see also Kassam v Hazzard; Henry v Hazzard (No 2) [2021] NSWSC 1599). Crowdfunding was initially regarded as an exciting new way to fund litigation but has disadvantages compared to the other schemes, such as there being no guarantee of good quality legal advice (Capilano Honey Ltd v Mulvany [2017] NSWSC 833 at [8] – [11] per McCallum J). Interestingly, for the purposes of this application, it appears to be accepted that the indemnity principle is not applicable when crowdfunding is used; an application for leave to appeal to the High Court of Australia from Bazzi v Dutton [2022] FCAFC 84 was settled on this basis (“Awarding $248,000 in legal costs would be a ‘windfall’ for Shane Bazzi, Peter Dutton warns”, The Guardian, 29 July 2022).

20. The unfairness of denying pro bono organisations the right to recoup legal costs is recognised in Report 137, but it is an unfairness of very long standing. In Watkins v Tatana [2023] FCA 248, O’Callaghan J traces the history of pro bono representation by the Victoria Bar back to 1855, when four members of the Victorian Bar represented diggers charged after the Eureka Stockade on a pro bono basis.

21. The pro bono barrister in Watkins v Tatana had been appointed under the pro bono legal assistance scheme set out in Rule 4.19 of the Federal Court Rules 1979 (Cth), a system not dissimilar to the scheme set out in UCPR rr 7.36 and 7.41, except that it includes a requirement for a costs agreement to be entered into by the assisted person and the pro bono lawyer. Prior to the enactment of this rule, there had been similar provisions in the Federal Court for costs to be awarded where a pro bono representative, if asked to appear by the court, won the case. In Chancliff Holdings Pty Ltd v Bell [1999] FCA 1783, Lee J considered it was possible to make an order for costs in circumstances where the successful party received legal assistance under the then existing Federal Court pro bono scheme (Order 80 of the Federal Court Rules 1979 (Cth)). In Watkins v Tatana, O’Callaghan J also noted similar provisions in Canada (1465778 Ontario Inc et al v 1122077 Ontario Ltd et al (2006) 275 DLR (4th) 321).

22. The difference between these awards of costs and the proceedings the subject of this judgment is that, while the source of the referral often came from Bar Association pro bono schemes, orders were made by the court for representation of the party to be assisted. In the present case, no such order was either sought or granted. All that happened was that Ms Fendekian continued to appear for the defendant in circumstances where she had had the oral agreement with the defendant as set out above. The first issue Ms Fendekian raises is, therefore, whether a referral order of a nunc pro tunc kind can be made now.

Can a nunc pro tunc order be made under UCPR r 7.36?

23. The order sought nunc pro tunc is for a referral to a barrister or solicitor under UCPR r 7.36, which provides as follows:

7.36   Referral to a barrister or solicitor

(cf SCR Part 66A, rule 4; DCR Part 28C, rule 4)

(1)  If satisfied that it is in the interests of the administration of justice, the court may, by order, refer a litigant to the registrar for referral to a barrister or solicitor on the Pro Bono Panel for legal assistance.

(2)  For the purposes of subrule (1), the court may take into account—

(a)  the means of the litigant, and

(b)  the capacity of the litigant to obtain legal assistance outside the scheme, and

(c)  the nature and complexity of the proceedings, and

(d)  any other matter that the court considers appropriate.

(2A)  The court may not refer a litigant for assistance under this rule if the litigant has obtained assistance under a previous referral at any time during the immediately preceding period of 3 years unless the court is satisfied that there are special reasons that justify a further referral.

(3)  The power to refer may be exercised in the absence of the public and without any attendance by or on behalf of any person.

(4)  If a litigant is referred for assistance under this rule, the registrar must attempt to arrange for legal assistance to be provided to the litigant by a barrister or solicitor on the Pro Bono Panel.

(4A)  If the registrar is unable to arrange legal assistance for a litigant who is referred under this rule within 28 days after the litigant’s referral, the registrar may make an order terminating the litigant’s referral.

(5)  The registrar may refer a litigant to a particular barrister or solicitor only if the barrister or solicitor has agreed to accept the referral.

(6)  A referral to a barrister does not prevent a referral also being made to a solicitor and a referral to a solicitor does not prevent a referral also being made to a barrister.

7.38   Provision of assistance by barrister or solicitor

(cf SCR Part 66A, rule 6; DCR Part 28C, rule 6)

Subject to rule 7.39, if a barrister or solicitor agrees to accept a referral, he or she must provide assistance to the litigant in accordance with the referral.

24. The rule concerning costs recovery is as follows:

7.41   Costs

(cf SCR Part 66A, rule 9; DCR Part 28C, rule 9)

(1)  Subject to subrules (2) and (3) and rule 7.42, a barrister or solicitor who provides legal assistance to a litigant under the scheme must not seek or recover any costs for the legal assistance.

(2)  If an order for costs is made in favour of a litigant who is assisted under the scheme, the barrister or solicitor who has provided the legal assistance is entitled to recover the amount of costs that another person is required to pay under the order.

(3)  A barrister or solicitor must account to the litigant for any money received by the barrister or solicitor in respect of any disbursements that have been paid by the litigant.

25. The rule is the basis for a claim for legal services provided by a practitioner appointed under the referral system set out in UCPR rr 7.33–7.42. The legal practitioner cannot recover any costs from the assisted litigant, but may recover, from the losing party, the amount of any costs order that has been made in favour of the assisted person: UCPR r 7.41. It is a tripartite agreement between the person seeking legal assistance, the legal representative and the registrar on behalf of the court. It has many of the “no win no fee” costs agreement features, but they are not the same. For example, the legal representative appointed must make an application to the registrar if he or she wishes to cease to act (although UCPR rr 7.39 and 7.40 are somewhat inconsistent on this issue).

26. In Matsen v Matsen, Hamilton J described the scheme at [16]:

“That there was always some case on the defendant’s part seriously to be considered is evidenced by the fact that, as early as 21 April 2006, Barrett J made an order for referral of the defendant to the Registrar under Part 66A r 4 of the Supreme Court Rules 1970 (“the SCR”) for referral to a barrister or solicitor on the pro bono panel for legal assistance. Despite the reference in Part 66A to the pro bono panel as the source of representatives to be appointed under Part 66A of the SCR, Mr Rowe, of counsel for the plaintiff, is correct in submitting that Part 66A does not really provide a pro bono scheme, but provides for representation on a no-win no-fee basis, allowing for the recovery by counsel and solicitor of costs if awarded in favour of the party they represent: see Part 66A r 9.”

27. Further explanation is provided by In the matter of Idylic Solutions Pty Ltd & ors - Australian Securities and Investments Commission v Hobbs, where Ward J stated at [119]:

“As noted in Ritchies commentary to the rule, referral for pro bono assistance is conditional on satisfaction that the referral is in the "interests of the administration of justice" and mere satisfaction that a litigant cannot otherwise obtain legal assistance for the proceedings is not of itself a sufficient reason to refer a litigant under the present rule, it being relevant also to consider the actual availability of voluntary pro bono legal assistance (as to which there is no evidence in the present case other than an inference to be drawn from the withdrawal of Prime Lawyers, the weight that could be placed on this being limited). Reference is made in this regard to Matsen v Matsen [2008] NSWSC 226 at [16]).”

28. These costs are in addition to the entitlement of a litigant in person to claim recoverable costs and disbursements, including costs and disbursements for legal work done by others: Malkinson v Trim [2002] All ER (D) 66 (Sep); [2003] 2 All ER 356; [2003] 1 WLR 463; [2002] EWCA Civ 1273. For example, at one stage in the litigation, the defendant referred to having consulted solicitors whom she had been obliged to pay.

29. The history of nunc pro tunc orders is set out in Emanuele v Australian Securities Commission (1997) 188 CLR 114 at 132 (per Toohey J) and 152 – 153 (per Kirby J). Ms Fendekian draws my attention to the observations of Meek J in Riva NSW Pty Ltd v Key Nominees Pty Ltd [2023] NSWSC 711 at [174] – [175] where an “irregularity or defect” can be cured. Another example of such an order being made occurred in Bobolas v Waverley, where a tutor was appointed nunc pro tunc in order to avoid the consequential stay of proceedings under UCPR r 7.18 necessitated by a party needing a tutor but not having one (at [62]; see order 1). It is argued that the order here is similarly procedural in nature.

30. Mr Atkin opposes the application for four reasons:

1. An order under r 7.36(1) is irrelevant to the court’s power to make a costs order in these proceedings, even as a precursor to costs orders under other provisions of the Civil Procedure Act 2005 (NSW). UCPR r 7.41(2) is not a source of power to award costs, which are a creature of statute: Northern Territory v Sangare (2019) 265 CLR 164 at [12]. It is merely a conditional exception to the prohibition on recovering costs following a successful result for a pro bono party. It cannot be used to retrospectively validate an existing invalid and void oral costs agreement.

2. Even if r 7.36(1) were relevant to the making of a costs order, such an order should not be made simply for the purpose of supporting the defendant’s application for costs, having regard to the non-compliance with statutory obligations imposed not only by the LPUL but also by the system for appointment of a legal representative to act pro bono.

3. Such an order would promote procedural irregularity in that the registrar would be required to follow the appointment procedure set out in r 7.36(4). That would be meaningless, given the litigation is over, and could lead to further confusion, as the registrar is not obliged to select Ms Fendekian.

4. The District Court does not have any inherent jurisdiction; it is a creature of statute. The court’s implied or incidental power to make orders ancillary to the exercise of the court’s statutory jurisdiction would not extend to the making of an order of this kind.

31. The most compelling of these arguments is the submission that a referral order should not be made nunc pro tunc because it would not be an order for rubber-stamping the existing appointment of Ms Fendekian, but for the Court to satisfy itself that such an order be made and for the registrar to take a series of steps for someone to be appointed. Even if the making of such an order were possible, there is the question of what statutory power such an order would be based on.

32. I am prepared to accept that whether there is a costs agreement compliant with the Legal Profession Uniform Law 2014 (NSW) (“LPUL”) is not an obstacle to the recovery of inter-partes costs: Bahamad v Wong [2020] NSWSC 991 at [78]; see also LFDB v SM (No 4) [2017] FCA 753, or to the seeking of a gross sum costs order, but Ms Fendekian has no argument to combat Mr Atkin’s submissions as to the lack of power to make a nunc pro tunc order and the pointlessness and irregularities of procedure that would follow any attempt to make such an order.

33. As I am not prepared to make a nunc pro tunc order, any claim Ms Fendekian seeks to make for her fees is the same as any other lawyer appearing pro bono.

Is a written costs agreement necessary?

34. Mr Atkin relies on the following provisions in the Legal Profession Uniform Law to argue that a written costs agreement must be provided.

35. Section 174 of the LPUL provides:

174 Disclosure obligations of law practice regarding clients

(1) Main disclosure requirement A law practice—

(a) must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and

(b) must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client—

together with the information referred to in subsection (2).

(2) Additional information to be provided Information provided under—

(a) subsection (1)(a) must include information about the client’s rights—

(i) to negotiate a costs agreement with the law practice; and

(ii) to negotiate the billing method (for example, by reference to timing or task); and

(iii) to receive a bill from the law practice and to request an itemised bill after receiving a bill that is not itemised or is only partially itemised; and

(iv) to seek the assistance of the designated local regulatory authority in the event of a dispute about legal costs; or

(b) subsection (1)(b) must include a sufficient and reasonable amount of information about the impact of the change on the legal costs that will be payable to allow the client to make informed decisions about the future conduct of the matter.

(3) Client’s consent and understanding If a disclosure is made under subsection (1), the law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.

(4) Exception for legal costs below lower threshold A disclosure is not required to be made under subsection (1) if the total legal costs in the matter (excluding GST and disbursements) are not likely to exceed the amount specified in the Uniform Rules for the purposes of this subsection (the lower threshold), but the law practice may nevertheless choose to provide the client with the uniform standard disclosure form referred to in subsection (5).

(5) Alternative disclosure for legal costs below higher threshold If the total legal costs in a matter (excluding GST and disbursements) are not likely to exceed the amount specified in the Uniform Rules for the purposes of this subsection (the higher threshold), the law practice may, instead of making a disclosure under subsection (1), make a disclosure under this subsection by providing the client with the uniform standard disclosure form prescribed by the Uniform Rules for the purposes of this subsection.

(5A) To avoid doubt, the uniform standard disclosure form prescribed by the Uniform Rules for the purposes of subsection (5) may require the disclosure of GST or disbursements or both.

(6) Disclosure to be written A disclosure under this section must be made in writing, but the requirement for writing does not affect the law practice’s obligations under subsection (3).

(7) Change in amount of total costs—where previously below lower threshold If the law practice has not made a disclosure, whether under subsection (1) or (5), because the total legal costs in the matter are not likely to exceed the lower threshold, the law practice must, when or as soon as practicable after the law practice becomes aware (or ought reasonably become aware) that the total legal costs (excluding GST and disbursements) are likely to exceed the lower threshold—

(a) inform the client in writing of that expectation; and

(b) make the disclosure required by subsection (1) or (if applicable) subsection (5).

(8) Change in amount of total costs—where previously below higher threshold If the law practice has not made a disclosure under subsection (1) but has made a disclosure under subsection (5) because the total legal costs in the matter are not likely to exceed the higher threshold, the law practice must, when or as soon as practicable after the law practice becomes aware (or ought reasonably become aware) that the total legal costs (excluding GST and disbursements) are likely to exceed the higher threshold—

(a) inform the client in writing of that expectation; and

(b) make the disclosure required by subsection (1).

36. Section 181 of the LPUL provides:

181 Conditional costs agreements

(1) A costs agreement (a conditional costs agreement) may provide that the payment of some or all of the legal costs is conditional on the successful outcome of the matter to which those costs relate.

(2) A conditional costs agreement must—

(a) be in writing and in plain language; and

(b) set out the circumstances that constitute the successful outcome of the matter to which it relates.

(3) A conditional costs agreement must—

(a) be signed by the client; and

(b) include a statement that the client has been informed of the client’s rights to seek independent legal advice before entering into the agreement.

(4) A conditional costs agreement must contain a cooling-off period of not less than 5 clear business days during which the client, by written notice, may terminate the agreement, but this requirement does not apply where the agreement is made between law practices only.

(5) If a client terminates a conditional costs agreement within the cooling-off period, the law practice—

(a) may recover only those legal costs in respect of legal services performed for the client before that termination that were performed on the instructions of the client and with the client’s knowledge that the legal services would be performed during that period; and

(b) in particular, may not recover any uplift fee.

(6) A conditional costs agreement may provide for disbursements to be paid irrespective of the outcome of the matter.

(7) A conditional costs agreement may relate to any matter, except a matter that involves—

(a) criminal proceedings; or

(b) proceedings under the Family Law Act 1975 of the Commonwealth; or

(c) proceedings under legislation specified in the Uniform Rules for the purposes of this section.

(8) A contravention of provisions of this Law or the Uniform Rules relating to conditional costs agreements by a law practice is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

37. The legal consequences of the non-compliance with disclosure obligations are set out in ss 178 and 185 of the LPUL. Section 178 provides:

178 Non-compliance with disclosure obligations

(1) If a law practice contravenes the disclosure obligations of this Part—

(a) the costs agreement concerned (if any) is void; and

(b) the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and

(c) the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and

(d) the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

(2) In a matter involving both a client and an associated third party payer where disclosure has been made to one of them but not the other, this section—

(a) does not affect the liability of the one to whom disclosure was made to pay the legal costs; and

(b) does not prevent proceedings being maintained against the one to whom the disclosure was made for the recovery of those legal costs.

(3) The Uniform Rules may provide that subsections (1) and (2)—

(a) do not apply; or

(b) apply with specified modifications—

in specified circumstances or kinds of circumstances.

38. Section 185 provides:

185 Certain costs agreements are void

(1) A costs agreement that contravenes, or is entered into in contravention of, any provision of this Division is void.

Note

If a costs agreement is void due to a failure to comply with the disclosure obligations of this Part, the costs must be assessed before the law practice can seek to recover them (see section 178(1)).

(2) A law practice is not entitled to recover any amount in excess of the amount that the law practice would have been entitled to recover if the costs agreement had not been void and must repay any excess amount received.

(3) A law practice that has entered into a costs agreement in contravention of section 182 is not entitled to recover the whole or any part of the uplift fee and must repay the amount received in respect of the uplift fee to the person from whom it was received.

(4) A law practice that has entered into a costs agreement in contravention of section 183 is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related and must repay any amount received in respect of those services to the person from whom it was received.

(5) If a law practice does not repay an amount required by subsection (2), (3) or (4) to be repaid, the person entitled to be repaid may recover the amount from the law practice as a debt in a court of competent jurisdiction.

39. Mr Atkin submits that the contraventions of ss 174 and 181 mean that the costs agreement between the defendant and her counsel is void. She is not required to pay any legal costs until these have been assessed: s 178(1)(b).

40. This does not answer the fact that costs do not need to be assessed for the purpose of a gross sum costs order, as this effectively replaces the assessment process. If, as part of the gross sum costs order being made, certain portions of the costs are not permitted, those costs cannot be claimed in any event, and s 185(2) has no work to do. In fact, none of these provisions have any real work to do if there is a gross sum costs order determination. This is because generally, as to gross sum costs orders, the absence of any fee agreements in writing, or even the illegality of the agreement, does not necessarily prevent recovery. In addition to observations to this effect in decisions such as Bahamad v Wong, the Court of Appeal recently accepted the correctness of the Review Panel’s citing of Enterprise Finance Solutions Pty Ltd v Ciszek [2014] NSWDC 314 in Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109 at [34] – [35].

39. However, these decisions all relate to work carried out by practitioners in circumstances other than pro bono work. For the court to make a costs order, the court must be satisfied that costs have actually been incurred in terms of a liability to pay where the express nature of the contract is one for pro bono payment. The issue before me is which of the two conflicting judgments I should follow on this topic. The difficulty is that these two judgments are set out by Santow JA and Basten JA in the same appeal: Wentworth v Rogers. It does not help that there have been differing views as to which of these decisions is correct by judgments in other courts, including an intermediate appellate court.

40. The facts in Wentworth v Rogers were as follows. Ms Wentworth and Mr Rogers embarked on lengthy criminal and civil proceedings following the breakdown of their relationship. During the course of litigation, Mr Rogers and his lawyers signed two documents entitled “costs agreement” to the effect that his obligation to pay his lawyers arose upon costs being successfully recovered against Ms Rogers. Santow JA held that the indemnity principle continued to exist, but should be applied flexibly, rather than made into a rigid rule. No distinction should be drawn between a contingency expressed as a condition precedent or subsequent and the indemnity principle must at least accommodate the kind of conditional costs agreement recognised by s 186 of the 1987 Act: at [50]-[56]. Basten JA took a stricter view, stating that the fundamental purpose of an order that one party to litigation pay the legal expenses or ‘costs’ of another party is to provide an indemnity in relation to the whole, or usually part, of the legal obligation incurred by the other party to his or her lawyers. By reason of the indemnity principle, if that party is under no legal obligation to pay lawyers’ fees, no amount can be recovered from the unsuccessful party: at [102]. In addition, oral agreements represented a particular problem. If, because of an agreement initially oral, the lawyers had no legal entitlement to require the client to pay costs, no basis for imposing a restitutional obligation can arise: at [152].

41. Basten JA stated at [128]-[129]:

“As a matter of logic, it may seem curious that an order of the Court, which arguably should not be made unless there is a legal liability, should be relied upon as the justification for its own existence. On the other hand, it would be surprising if the long-standing practice by which lawyers appear in Australian courts on a ‘speculative’ basis or ‘no win/no fee’ basis, was based on a misconception, and did not allow for a costs order from which fees could be recovered, in the event of success. However, the conflict is more apparent than real. As noted by Millet LJ in Thai Trading Co … conditional fee agreements gave effect to the principle that ‘there is nothing improper in a lawyer acting in a case for a meritorious client who to his knowledge cannot afford to pay his costs if the case is lost’. As his Lordship continued … ‘Not only is this not improper; it is in accordance with current notions of the public interest that he should do so.’

Once that practice was accepted, it was equally appropriate to formalise the arrangement in contractual terms which would provide that the lawyer would accept a reduced fee in full settlement of his or her account, or would waive his or her right to require payment, in the event that the proceedings were unsuccessful. In each case, there is an immediate and quantifiable obligation imposed on the client when the retainer is created, the contingency operating as a condition subsequent.”

44. His Honour drew a distinction between that kind of contractual arrangement and one in which, such as the present, in a client has no obligation to pay his own lawyers unless and until an order is made by a court that he recover costs from an opponent in litigation (at [133]):

“Although it may seem arbitrary to insist that, for the purposes of the indemnity principle, there must be a contractual entitlement to charge fees, subject to a condition subsequent, rather than an entitlement which arises as a result of a successful outcome, there are reasons why that is not so. First, as appears from the costs agreements presented in the present case, a successful outcome will usually involve not merely obtaining a costs order, but actual recovery of costs. It is not possible to make the existence of a right to charge dependent on recovery of the moneys from which the charges would be paid. That would be to take the circularity noted … one step too far.”

45. The “circularity noted” was explained by Basten JA as follows (at [111]):

“… If the entitlement to recover costs from another party to the proceedings is dependent upon the legal liability to pay those costs to one’s legal advisors, but the obligation to pay is contingent upon establishing a right to recover, the circularity is readily apparent. However, if, as in the present case, the obligation to pay depends not on a right to recover an identifiable amount of costs, but on the actual recovery of those costs, there may be no extant legal obligation to be indemnified even when a costs order is made.”

46. In Mourik v Von Marburg [2016] VSC 601, Wood AsJ appeared to prefer the position taken by Santow JA (at [23]), referring (at [22] to the entitlement to claim costs by a successful party under a liability to pay “even though the likelihood of being called upon to do so is remote”).

47. However, a very different view was taken by the Court of Appeal in Queensland in King v King & Ors [2012] QCA 81. The facts in that case were very similar to the present, in that a pro bono costs arrangement was the subject of last-minute change to permit the recovery of costs, shortly before judgment was handed down.

48. Chesterman JA commenced his judgment by stating that, before the right to indemnity can arise the successful litigant must be under a legal liability to his solicitors to pay costs (at [8]). If a successful litigant’s lawyers acted for him without charge, he was not entitled to an order for costs as there was nothing to indemnify him against (citing McCullum v Ifield [1969] 2 NSWR 329 at 330, which had in turn been cited by Santow JA in Wentworth v Rogers (2006) 66 NSWLR 474 at 486). After considering the judgments of Santow JA and Basten JA, Chesterman JA concluded:

“I prefer Basten JA’s analysis. The distinction described by his Honour is both real and substantial. It is more than a preference for one form of agreement over another. The circularity noted by his Honour, and described in paragraph 6 of these reasons, shows when properly analysed that there is no obligation in the applicant to pay costs until a costs order is made and a costs order cannot be made until there is a liability in the successful litigant to pay his own lawyers’ costs. Catch 22 it may be, but the reality is that the client’s liability to pay his solicitors stands on a whirligig which moves beneath it, and cannot support the need for an indemnity.”

49. White JA concurred, but the debate was not over, as Margaret Wilson AJA added:

“I do not wish to express any view on the circularity argument or the different views expressed by Santow and Basten JJA in Wentworth v Rogers (2006) 66 NSWLR 474.”

50. This nevertheless is binding intermediate appellate court authority (albeit by majority) that I must follow.

51. There are additional reasons for preferring the approach taken by Basten JA. Since King v King & Ors was handed down, the High Court of Australia has considered the indemnity principle and the meaning of the word “payable” in Bell Lawyers Pty Ltd v Pentelow. Ms Pentelow was a lawyer who sought payment of costs which included the costs for acting for herself, reliant upon the longstanding “Chorley principle” or “Chorley exception”, set out in London Scottish Benefit Society v Chorley. Kiefel CJ, Bell, Keane and Gordon JJ stated at [15]:

“On one view, the reference to "costs payable" in this definition is an indication that an order for costs may be made only in respect of costs payable by the party in whose favour the order is made to another person for services rendered. On this view the Chorley exception is inconsistent with the statutory definition of costs and, costs being a creature of statute, the Chorley exception has been displaced by the Civil Procedure Act.”

52. Their Honours went on to state at [44]:

“In s 3(1) of the Civil Procedure Act, the "means" part of the definition, in referring to "costs payable", is a restatement of the general rule that costs are awarded only for professional costs actually incurred. The "includes" part of the definition, in referring to "remuneration", can be seen readily enough to encompass remuneration for professional services rendered under a contract of service as well as remuneration for professional services rendered under a contract for services. In so doing, it "makes plain" that the cost of professional legal services rendered by an employed lawyer is included in the definition of "costs". The definition, being otherwise exhaustive, leaves no room for the Chorley exception as a matter of legislative intention. "Remuneration" is simply not a word which is apt to include the notion of payment to a person by himself or herself for work done by himself or herself.”

53. Their Honours do not refer to decisions concerning pro bono arrangements, so what do agreements to act pro bono and a solicitor acting for himself/herself have in common?

54. The answer is that in neither case is the indemnity principle satisfied. Where there is an agreement to act on a pro bono basis, any costs agreement put in place could not satisfy the indemnity principle because disclosure of fees and other costs-related issues are not matters for negotiation between the beneficiary of the pro bono arrangement and the party appearing for that beneficiary. There is simply no obligation to pay. Whether the pro bono lawyer sought to charge a million dollars or only one dollar, the pro bono lawyer’s client could have no input whatsoever, making the concept of “payable” costs a fiction. Similarly, where the represented party and the representative are the same person, there can be no satisfaction of the indemnity principle because a person cannot sue himself/herself and the concept of costs being “payable” is a fiction.

55. For all of the above reasons, I accept and apply the observations of Basten JA and Chesterman JA and the interpretation of Bell Lawyers Pty Ltd given by Mr Atkin. I consider that there can be no payment of a pro bono lawyer even where that pro bono relationship has changed as a result of a conversation of the kind deposed to by Ms Fendekian. The only circumstances in which an order to pay the costs of a pro bono lawyer can be made is within the narrow exceptions created for such appointments in the relevant procedural legislation of the courts in which they appear.

56. In the event that I have erred in this regard, I would have made orders for the sums claimed, the quantum of which was not challenged.

The orders to be made

57. Mr Atkin submitted that the defendant was not even entitled to the formality of a costs order.

58. I do not accept this submission. The defendant referred to paying solicitors for advice in these proceedings and those sums may be claimable, even though the defendant has eschewed any intention to do so at present. She has clearly also incurred disbursements. She may still be entitled to claim these costs, some of which might be payable now in relation to the claim brought by E Pty Ltd, which is not the subject of appeal. However, if she did so, some adjustment to any such costs should be made for the fact that this application has failed, and the costs of this application probably outweigh the defendant’s very limited entitlement to costs.

59. Accordingly I consider the appropriate order, taking into account the “broad axe” (At Air Group Pty Ltd v Dieter Siewert [2013] NSWSC 1993 at [3]; In the matter of Optimisation Australia Pty Ltd (Costs) [2018] NSWSC 280 at [16]) approach favoured by Brereton J, is for each party to bear their own costs.

Orders:

1. Pursuant to s 8 of the Court Suppression and Non-Publication Orders Act 2010 (NSW), the names of the parties are suppressed and replaced with the pseudonyms adopted in this judgment.

2. Application by defendant’s pro bono legal representative for costs dismissed.

3. Each party to pay their own costs of this application and of the proceedings.

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Decision last updated: 09 October 2023