Guneser v Aitken Partners Pty Ltd
[2020] VSC 329
•5 June 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2018 01010
| GENCO GUNESER | Appellant/Cross Respondent |
| v | |
| AITKEN PARTNERS PTY LTD (ACN 128 769 602) (trading as ‘Aitken Partners’) | Respondent/Cross Appellant |
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JUDGE: | Macaulay J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 February 2020 |
DATE OF JUDGMENT: | 5 June 2020 |
CASE MAY BE CITED AS: | Guneser v Aitken Partners (Cross appeal on costs) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 329 |
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COSTS – Incorporated legal practice acting for itself in proceeding – Whether entitled to costs order in respect of work done by employee solicitors and other staff after High Court abolished the Chorley exception as part of the common law of Australia – Whether recoverable under the ‘well-established understanding’ in relation to in-house lawyers employed by governments and others – Appeal from a Costs Judge who denied the cross-appellant, an incorporated legal practice, its professional costs for acting for itself in litigation and only awarded reasonable disbursement costs – Costs Judge’s decision confirmed – Bell Lawyers Pty Ltd v Pentelow (2019) 93 ALJR 1007; [2019] HCA 29 - United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15.
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APPEARANCES: | Counsel | Solicitors |
| For the Cross Appellant | Ms C Harris QC with Ms L Dawson | Aitken Partners Pty Ltd |
| For the Cross Respondent | Appeared for himself |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
Bell Lawyers decision........................................................................................................................ 4
United Petroleum decision................................................................................................................ 8
Costs Judge’s reasons for decision................................................................................................ 12
Principles of law on appeal............................................................................................................ 13
Did the Costs Judge make an error?............................................................................................. 14
Should some other decision have been made, and if so what?.............................................. 17
Does an incorporated practice fit within the general exclusionary rule?........................... 17
Does Aitken Partners’ claim fall within the ‘well-established understanding’?............... 19
Conclusion......................................................................................................................................... 22
HIS HONOUR:
Introduction
In Bell Lawyers Pty Ltd v Pentelow[1] (Bell Lawyers) the High Court decided that what was known as the Chorley exception to the rule that self-represented litigants could not recover the value of their time spent in litigation did not form part of the common law of Australia. The effect of that decision was that neither barristers nor solicitors who successfully acted for themselves in litigation could recover their professional costs for doing so.
[1]Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; (2019) 93 ALJR 1007.
In United Petroleum Australia Pty Ltd v Herbert Smith Freehills[2] (United Petroleum), the Victorian Court of Appeal, applying Bell Lawyers, held that a law firm (trading as a partnership) was precluded from recovering professional costs for the work of its employee solicitors after it had acted for itself in litigation. The firm conceded that it could not recover any professional costs for the work of its partners.
[2]United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15.
Both decisions acknowledged that the abolition of the Chorley exception did not affect the continued entitlement of in-house lawyers employed by government departments or corporations from recovering their professional costs when successfully acting in litigation on behalf of their employer.
But neither Bell Lawyers nor United Petroleum determined the entitlement of an incorporated legal practice to recover professional costs when acting successfully for itself in litigation, whether by its principal or its employed solicitors. That is the question that arises for decision in this matter.
Aitken Partners Pty Ltd is an incorporated legal practice. It succeeded upon a taxation of its costs (the taxation) initiated by a former client, Mr Guneser; further succeeded in a review of that taxation by a Costs Judge (the review); and also succeeded on an appeal from that Costs Judge’s decision (the appeal).[3] On the review, the Costs Judge set aside the Costs Registrar’s decision awarding Aitken Partners its full professional costs and disbursements for acting for itself on the taxation and instead allowed only its reasonable disbursement costs.[4] Similarly, the Costs Judge allowed Aitken Partners only its reasonable disbursement costs for having successfully resisted Mr Guneser’s review of the taxation. In making those determinations the Costs Judge relied upon Bell Lawyers.
[3]Guneser v Aitken Partners Pty Ltd [2020] VSC 2010 (‘Guneser appeal decision’).
[4]Guneser v Aitken Partners [2019] VSC 649 (‘Costs Judge’s decision’).
Was the Costs Judge correct to do so? In my view, for the reasons that follow, he was correct, and his determination of Aitken Partners’ costs both on the taxation and the review should be confirmed.
Background[5]
[5]A more detailed description of the factual background is set out in the Guneser appeal decision (n3).
The Legal Practice Uniform Law 2014 (Vic) (Uniform Law) allows a number of different structures for a ‘law practice’. A law practice may consist of a sole practitioner, a law firm (a partnership of legal practitioners, including of incorporated law practices),[6] a community legal service, an incorporated legal practice and an unincorporated legal practice.[7] An incorporated legal practice is a company within the meaning of the Corporations Act (or which meets other specified criteria) which has notified its intention to engage in legal practice and is neither limited to only providing in-house services for the corporation or a related entity or those not required to be provided by a legal practitioner.[8] A principal of an incorporated law practice is an Australian legal practitioner who holds a practising certificate to engage in legal practice as a principal of a law practice and is also a director of the company conducting the law practice.[9]
[6]Legal Profession Uniform Law Application Act 2014 (Vic) s 9A, substituting a different definition of ‘law firm’ from that which appears in s 6 of the Uniform Law.
[7]Uniform Law s 6, definition of ‘law practice’.
[8]Uniform Law s 6, definition of ‘incorporated legal practice’.
[9]Uniform Law s 6, definition of ‘principal’.
As stated, Aitken Partners Pty Ltd is such an incorporated legal practice. Although there was no direct evidence describing the structure of its practice, from affidavits filed in the taxation and on the review it appears that the practice has at least two principals and a number of non-principal lawyers described as either a ‘senior associate’ or a ‘lawyer’. Without needing to take judicial notice of the fact that Aitken Partners is a well-established medium sized legal practice in Victoria with a number of principals and employed solicitors, I will take it as fact that it has at least two principal solicitors and a number of employed solicitors.
Aitken Partners acted as solicitor for Mr Guneser in a County Court proceeding against his former joint venturer. The retainer was governed by a fixed fee costs agreement. After Mr Guneser terminated Aitken Partners’ retainer, he disputed the bill which the practice rendered and ultimately sought a taxation of the claimed costs. On the taxation, Costs Registrar Conidi affirmed the costs billed by Aitken Partners and ordered Mr Guneser to pay its costs of the taxation fixed at $13,500, assessed on an indemnity basis.
Mr Guneser applied for a review of the Costs Registrar’s decision. Aitken Partners acted for itself on both the taxation and the review, although it also retained counsel and a costs expert for which it incurred disbursement costs.
On the review, a Costs Judge, Wood AsJ, affirmed the Registrar’s decision insofar as the taxation of the costs was concerned, but set aside the Registrar’s decision as to the costs of the taxation itself. The Costs Judge made a new order for the costs of the taxation confined to Aitken Partners’ reasonable disbursements and, likewise, made a costs order in favour of Aitken Partners on the review similarly confined to its reasonable disbursements. In other words, the Costs Judge disallowed any professional costs for Aitken Partners for acting for itself on either the taxation or the review. In doing so, the Costs Judge purported to apply the High Court’s decision in Bell Lawyers.
Aitken Partners appealed the Costs Judge’s decision on both the costs of the taxation and the review. It did so by way of cross-appeal to an appeal which Mr Guneser had brought against the substantive decision on the taxation itself.[10] Its cross-appeal came on for hearing with Mr Guneser’s appeal on 18 February 2020. Mr Guneser chose not to participate in the cross-appeal[11] but I received both written and oral submissions from Aitken Partners. There was, in substance, no contradictor.
[10]The appeal was decided by the Guneser appeal decision (n3).
[11]Guneser appeal decision [19], [20].
The High Court’s decision in Bell Lawyers was delivered on 4 September 2019, before the Costs Judge delivered his decision on the review. The United Petroleum decision was handed down on 13 February 2020, after the review decision but before the appeal. There having been no application for special leave to appeal the Court of Appeal’s decision in United Petroleum, it currently remains the final word on the recovery of professional costs for work done by employed solicitors for a partnership law firm acting for itself.
Bell Lawyers decision
Ms Pentelow, a New South Wales barrister, had sued Bell Lawyers for fees owed to her. In prosecuting her claim she employed lawyers to represent her, but also performed some of the preparatory legal work for herself. After being successful, she was, at first, denied recovery of that component of her legal costs attributable to her own preparatory work but the New South Wales Court of Appeal held she could recover those costs under the Chorley exception. It was that issue that made its way to the High Court. Did the Chorley exception apply to barristers as well as solicitors?
Rather than extend the Chorley exception to barristers, the High Court (by majority)[12] focused on whether the Chorley exception formed part of the Australian common law at all. Stating succinctly the general rule, the exception and the result, the plurality (Kiefel CJ, Bell, Keane and Gordon JJ) said:
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.
…
The Chorley exception has rightly been described by this Court as “anomalous”. …[It] 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.[13]
[12]Keifel CJ, Bell, Keane and Gordon JJ, with whom Gageler and Edelman JJ agreeing, Nettle J disagreeing on this point.
[13]Bell Lawyers [1], [3].
In separate judgments, Gageler, Edelman and Nettle JJ agreed in the result that the Chorley exception did not extend to barristers, with Gageler and Edelman JJ agreeing with the plurality that the exception is not Australian law at all.[14]
[14]Nettle J was content to simply refuse the extension of the Chorley exception to barristers without denying the existence of the exception itself.
The court began with the proposition that, at common law, costs are a creature of statute, albeit that judicial decisions have, over the course of time, interpreted and applied the typically broad language in which the entitlement to recover costs has been expressed.[15] The very notion of ‘costs’ as used in the statutes has been interpreted to mean ‘a measure of indemnity against the expense of legal costs actually incurred in the litigation’.[16]
[15]Bell Lawyers [15], [33] (Kiefel CJ, Bell, Keane and Gordon JJ); [59] (Gageler J); [81] (Edelman J).
[16]Bell Lawyers [33] (Kiefel CJ, Bell, Keane and Gordon JJ); [60] (Gageler J).
Neither this conception of costs, nor the broad statutory definition of costs in the relevant New South Wales legislation, allowed for the notion of ‘payment to a person by himself or herself for work done by himself or herself’.[17] It was for that reason that the allowance of legal costs for solicitors who represented themselves necessarily depended on an exception to the general rule – that is, because no indemnity or reimbursement is called for where there is no actual incurrence of a liability or a payment made to another. Rejecting an argument that, if the Chorley exception was to be altered or abrogated, it should only be with prospective effect, the plurality said –
To hold that the Chorley exception is not part of the common law is to hold that there was no basis in law for the decision of the Court of Appeal. [18]
[17]Bell Lawyers [44] (Kiefel CJ, Bell, Keane and Gordon JJ).
[18]Ibid [55].
Several reasons were advanced for the rejection of the Chorley exception:
·It is inequitable and anomalous given that no other self-represented litigant can recover compensation for their own time in conducting litigation;[19]
·Allowing solicitors to recover costs for acting for themselves in litigation runs counter to the ethical obligations imposed on legal practitioners to be independent and impartial in providing legal services;[20] and
·Allowing solicitors to recover costs for acting for themselves also opens the prospect of them profiting from the conduct (or process) of the litigation itself, beyond merely obtaining the benefit of the substantial remedy pursued, which is ‘unacceptable in point and principle’.[21]
[19]Bell Lawyers [38], [39] (Kiefel CJ, Bell, Keane and Gordon JJ); [63] (Gageler J); [91] (Edelman J).
[20]Bell Lawyers [19] (Kiefel CJ, Bell, Keane and Gordon JJ).
[21]Bell Lawyers [32] (Kiefel CJ, Bell, Keane and Gordon JJ); [71] (Nettle J).
Significantly, Edelman J identified another reason for equating the solicitor who acts for himself or herself with the unrepresented lay litigant, especially one who can employ his or her own expertise in the litigation, thus further highlighting the anomalous nature of allowing the solicitor to recover recompense for time spent but not the lay litigant. It lay in the lack of any true, separate representation of the litigant by the lawyer. His Honour explained –
Nor is there any reason to treat solicitors differently from other professions due to the particular duties that they owe in the course of representing others. Although an unrepresented solicitor who is party to an action is often described as “self-represented”, the solicitor, like any other unrepresented litigant, does not “represent herself or himself”. The solicitor’s role as an agent for another is absent.[22] (emphasis added).
[22]Bell Lawyers [92] (Edelman J).
As will be seen,[23] this question of separate representation (or agency) was later taken up by the Court of Appeal in United Petroleum as an important conceptual tool for distinguishing the use of employed in-house solicitors by a government agency or private company from the use of employed solicitors by a law partnership.
[23]See [33(a)] below.
Importantly, for present purposes, the High Court specifically considered the consequence of rejecting the Chorley exception for two particular forms of legal practice – one, an in-house solicitor employed by a government agency or private company; and, the other, an incorporated legal practice used as the vehicle for a sole-practitioner to conduct legal practice. Notably, the High Court did not specifically advert to the costs of legal practices that are attributable to the work of employee solicitors (other than as in-house solicitors) nor did it discuss incorporated legal practices which have more than one principal or which employ solicitors who are not also principals.
In respect of in-house solicitors for government agencies or private companies, the court explained that the rejection of the Chorley exception had no impact on
the well-established understanding…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’[24] [underlining added]
[24]Bell Lawyers) [50] (Kiefel CJ, Bell, Keane and Gordon JJ.
The chief reason for that outcome was that the entitlement of those parties to their costs did not rest upon the Chorley exception. Rather, their recovery of legal costs was an application of the indemnity principle rather than an exception to it. That is to say, the recovery of their costs was justifiable as an indemnity for costs actually incurred in the conduct of the litigation[25] albeit that those professional legal costs are incurred in the form of an overhead and not reflected as a severable liability.[26] The plurality acknowledged that this amounted to an ‘expansive view’ of the indemnity that had been adopted in the authorities.[27]
[25]Bell Lawyers [47], [50] (Kiefel CJ, Bell, Keane and Gordon JJ).
[26]Bell Lawyers [68] (Gageler J).
[27]Bell Lawyers [51] (Kiefel CJ, Bell, Keane and Gordon JJ).
Turning to the position of incorporated legal practices, of most importance to the present question, after explaining why the employer of in-house lawyers could still recover their legal costs the plurality continued –
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. In this regard, in McIlraith, Brereton J was disposed to attribute “no significance” to the circumstance that the party seeking an order for costs was an incorporated legal practice whose director was the solicitor who actually performed the work for which costs were sought. It is neither appropriate nor necessary to come to a conclusion as to whether Brereton J was correct in this regard.
The resolution of this question may require close consideration of the legislation which provides for incorporation of solicitors’ practices and the intersection of that legislation with the provisions of the Civil Procedure Act in light of the general rule; and so the resolution of this question may be left for another day, when all the legislation that bears on the question has been the subject of argument.
It is sufficient for present purposes to say that whether or not an incorporated legal practice that is a vehicle for a sole practitioner should be able to obtain an order for costs for work performed by its sole director and shareholder is ultimately a matter for the legislature. Whether the Chorley exception is part of the common law of Australia is a matter for this Court.[28] (emphasis added).
[28]Bell Lawyers [51]-[53] (Kiefel CJ, Bell, Keane and Gordon JJ).
The emphasised words make it clear that the plurality was focused on a particular species of incorporated legal practice: one which consists of only one legal practitioner, namely the sole director and shareholder. Just why their Honours’ remarks were confined to that particular form of incorporated legal practice is not clear. Earlier in their judgment their Honours noted the argument put by Ms Pentelow that if the Chorley exception was not recognised, then ‘government 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’.[29] So, perhaps it was simply that this was the argument that the court was addressing. If so, it remains unclear why the argument itself was confined to a sole-director incorporated legal practice.[30]
[29]Bell Lawyers [46] (Kiefel CJ, Bell, Keane and Gordon JJ).
[30]A possible explanation is that because the focus of the appeal was on the entitlement of a sole-practitioner barrister the appropriate analogue for an incorporated legal practice was the sole-practitioner variant.
United Petroleum decision
Herbert Smith Freehills (Freehills) is an international partnership of lawyers with multiple partners and employed solicitors. Having acted in a non-litigious matter for United Petroleum it sued for its fees in the Victorian Supreme Court and United Petroleum countered with a suit for alleged negligent legal advice. Freehills was successful in both actions and the trial judge awarded costs in its favour on both matters assessed on an indemnity basis. United Petroleum sought leave to appeal both outcomes to the Court of Appeal, including in respect of the costs orders.
Common to its applications was the contention that Freehills was not entitled to recover legal costs for representing itself in the litigation having regard to the Bell Lawyers decision. Freehills conceded that it could not recover its legal costs to the extent they were generated by the work of its partners, but disputed that Bell Lawyers meant it could not recover costs for the work done by its employed lawyers. The Court of Appeal resolved that issue against Freehills. It held that the conclusion in Bell Lawyers that the Chorley exception is not the law of Australia meant that a law firm trading as a partnership could not recover legal costs for acting for itself regardless of whether those costs were generated by the partners or their employees.
Noting the distinction made by the plurality in Bell Lawyers between the costs of a solicitor or barrister acting for himself or herself, and the costs of in-house lawyers for government agencies and companies acting for those entities, in approaching the question of costs generated by employed lawyers for self-representing law firms the Court framed the issue as follows:
Applying the approach of the plurality, the issue is whether a claim by a firm of solicitors to recover costs for the work of its employees fits within the general rule [precluding recovery for the value of their own time] and is only justified under the Chorley exception, or whether it fits within the ‘well-established understanding’ relating to employed solicitors and stands outside the general rule. If it is the former, then as a matter of logic and principle the claim must fail once the Chorley exception was abandoned as part of Australian law. If it is the latter, then costs would appear to be recoverable on the same basis as in the case of other employed solicitors.[31]
[31]United Petroleum [95].
In dealing with that issue, the court asked itself two questions: does Freehills fit within the general (exclusionary) rule, and if so, does its claim fall within the ‘well-established understanding’ or, as Court of Appeal termed it, the ‘employed solicitor rule’?
It is first helpful to note that the court did not see that the analysis in Victoria should be any different to the analysis applied by the High Court in Bell Lawyers by reason of any differences between the statutory powers to award costs under New South Wales and Victorian legislation. The court observed that the abolition of the Chorley exception reflected a development of the common law rather than the application of any language particular to New South Wales legislation and that there was no reason to treat the Victorian provisions as giving rise to any different result.[32]
[32]United Petroleum [94].
In answering the first question, the court referred to several pertinent features of Freehills representing itself. The Freehills partnership was both the party and the solicitor on the record; its employees did not represent their employer in the litigation, rather, they worked on the matter as employees of the firm under the supervision of the partners who were each jointly and severally liable in the litigation; and the relevant supervising partner had overall oversight and control of the litigation such that there was little real functional separation between partner and employee lawyers.[33] In conclusion, therefore, the court held that by acting for itself Freehills came within the general exclusionary rule:
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.[34]
[33]Ibid [97] – [99].
[34]Ibid [100].
On the second question, as to whether Freehills’ claim fitted within the ‘employed solicitor rule’ applicable to in-house lawyers of government agencies and corporations, the court listed what it considered were the significant considerations to weigh:
(a) First, when represented by their in-house lawyers, government agencies and corporations are not ‘self-represented’: the party is separate and distinct from the solicitor on the record, in contrast to Freehills which was both. The court noticed that all 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.[35]
[35]United Petroleum [103].
(b) Secondly, allowing a solicitor to recover fees when acting for him or herself would perpetuate the unequal treatment that Bell Lawyers sought to eradicate;[36]
[36]Ibid [108].
(c) 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;[37]
[37]Ibid [110].
(d) Fourthly, on the other hand, if the organising principle in relation to costs orders is to ensure that costs are an indemnity or reimbursement for expenses actually incurred, arguably the overhead expense of employed solicitors ought be recoverable as an indemnity regardless of whether the employer is a solicitor or not;[38]
(e) Fifthly, even though there may be a degree of separation between lawyers within a law firm with each having their own professional obligations, when a firm acts for itself there is a risk of lack of objectivity and professional detachment because, typically, the supervising partner ultimately responsible for the legal conduct of the litigation has a direct personal interest in the outcome; and
(f) Finally, although a number of members of the High Court in Bell Lawyers expressed concern about the possibility of a solicitor profiting from conducting their own litigation, that concern does not appear to have been decisive and, in any event, may be avoided by taxing the recovery rather than precluding it altogether.[39]
[38]Ibid [112].
[39]Ibid [118].
Ultimately, in concluding that the principles enunciated in Bell Lawyers prevented recovery of costs for the time spent by Freehills’ employee lawyers, the court explained 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’.
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.[40]
[40]United Petroleum [119], [120].
The court confined Freehills to recovering only its disbursements incurred in the course of litigation (including in so far as it retained external solicitors for some aspects of the litigation).
Costs Judge’s reasons for decision
Aitken Partners was invited by the Costs Judge to file written submissions about the correctness of the Costs Registrar’s order in its favour for the costs of the taxation in light of the recent decision of Bell Lawyers. (To reiterate, United Petroleum had not been decided at that point.) Aitken Partners submitted that the decision provided guidance only to the Victorian courts when exercising their costs powers in relation to the Crown, statutory authorities and incorporated entities who employ or otherwise use in-house solicitors, but that such guidance ‘rests comfortably atop’ the broad costs discretion vested in the court by s 24 of the Act and ‘atop “the well-established understanding”’.[41]
[41]Costs Judge’s decision [67].
The Costs Judge noted the High Court’s reference to the indemnity rationale for awarding costs and its concern with the potential lack of objectivity and impartiality if a solicitor acted for himself or herself.[42]
[42]Ibid [71].
Addressing incorporated legal practices, and Aiken Partners in particular, the Costs Judge noted that the evidence revealed Aitken Partners to have at least two principals and that its written submissions also referred to the work of its employee solicitors, adding that, ‘[s]uch a distinction may not be relevant’.[43] His Honour then extracted in full the same paragraphs from Bell Lawyers concerning incorporated legal practices as set out above.[44]
[43]Costs Judge’s decision [75].
[44]Above [25].
His Honour saw as important that s 33 of the Uniform Law required all legal practitioners and law practices to comply with the Uniform Law, Uniform Rules and other professional obligations regardless of the business structure in which the legal services are provided. Quoting the plurality’s statement in Bell Lawyers that modern professional obligations made it undesirable for a solicitor to act for himself or herself in litigation, the Costs Judge said —
Given that these professional ethical considerations underpin Bell Lawyers, and the abolition of the Chorley exception, it is clear that a business structure cannot be used as a basis to avoid the underlying rationale. The Uniform Law governing the practice of law in Victoria makes that clear.[45]
[45]Costs Judge’s decision [79].
His Honour considered that the Costs Registrar’s allowance of Aitken Partners’ professional costs (as distinct from its disbursement costs) of the taxation was made on the understanding that it was ‘in play under the Chorley exception’. However, he said, the ‘effect of Bell was that it was never in play’ and that ‘there was no basis in law’ for the registrar to have fixed costs for any amount other than for disbursements.[46]
[46]Ibid [81], [82].
Principles of law on appeal
Procedurally, the cross-appeal is brought in the context of Mr Guneser’s appeal pursuant to s 17I of the Supreme Court Act 1986 (Vic) (Act), a provision which relates specifically to appeals from a decision of a Costs Judge (who must also be an Associate Judge).[47] Rule 63.96 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules) applies to such appeals, and provides, in sub-rule (5), that the procedure is governed by rr 63.96 – 63.107 rather than the procedure that governs appeals from Associate Judges.
[47]A Costs Judge must be an Associate Judge –Supreme Court Act 1986 (Vic) s 17E.
Rule 63.105 specifically provides for a cross-appeal to an appeal under s 17I and applies the same provisions to a cross appeal as if it was an appeal. Importantly, r 63.102 provides that an appeal (and thus a cross-appeal) under s 17I of the Act is ‘an appeal by way of a rehearing, not an appeal de novo’ and the Costs Judge’s decision ‘may only be challenged for error’. I treat that requirement as being at least as limiting as that which would apply to an appeal from a decision of an Associate Judge under Order 77 of the Rules which ordinarily requires the appellant to show legal, factual or discretionary error on the part of the Costs Judge before appellate power may be exercised.[48]
[48]Oswal v Carson [2013] VSC 355; Applebee v Monash City Council [2013] VSC 481; Nom De Plume Nominees Pty Ltd v Wallace-Smith (in his capacity as liquidator of Ascot Vale Self-Storage Centre Pty Ltd) [2014] VSC 75, (2014) 98 ACSR 243.
The powers of a judge of the trial division hearing such a cross-appeal are wide, including to confirm, set aside or vary the determination or make such further or other determination as the judge considers necessary or appropriate.[49]
[49]The Rules r 63.103.
Did the Costs Judge make an error?
Essentially, Aitken Partners identified two aspects of the Costs Judge’s reasoning which amounted to alleged legal error. First, it argued the judge considered he was compelled by Bell Lawyers to conclude that self-representing incorporated legal practices could not recover professional costs when in fact Bell Lawyers did not stand for any such proposition. Secondly, it submitted, he was wrong in considering that, in the light of Bell Lawyers, the Costs Registrar had no ‘basis in law’ to award professional costs in favour of Aitken Partners when in fact he had a discretion under s 24 of the Act which was not affected by Bell Lawyers and it had not been shown that the registrar committed any error in the exercise of that discretion.
In substance, on close analysis, both arguments are different ways of putting the same thing — that is, that the High Court’s decision in Bell Lawyers did not purport to finally determine the position of incorporated legal practices and, in fact, deliberately left that question open. One possibility left open was that incorporated legal practices could recover their costs when acting for themselves on the same basis as in-house solicitors employed by government agencies and private corporations.
Turning to the first alleged error, as recorded above,[50] the judge considered that the abolition of the Chorley exception meant that the professional costs of self-representing incorporated legal practices were not recoverable chiefly because the ethical rationale for denying costs to self-representing solicitors equally applied to them. That, he saw, was a consequence of the principle that all solicitors in different business structures were subject to the same professional obligations. Hence, the professional costs of self-representing incorporated legal practices were not ‘in play’, and were never ‘in play’, if the Chorley exception was not part of Australian law.
[50]Above, [39] and [40].
Aitken Partners argued that this analysis ignored the possibility that such costs could be justified under the ‘well-established understanding’. Because all lawyers (principals or otherwise) in an incorporated legal practice were employees of the corporation, and because the High Court expressly preserved the entitlement of corporate litigants to recover the value of their employed solicitors’ time spent in representing them in litigation, the abolition of the Chorley exception did not foreclose the possibility of self-representing incorporated legal practices recovering all the costs for acting for themselves.
Perhaps it was an error of analysis on the part of the Costs Judge not to expressly consider the possibility that the costs of an incorporated legal practice may be recoverable under the ‘well-established understanding’. But, as will appear, I am of the view that his Honour was correct to assume, as I think he probably did, that incorporated legal practices could not relevantly be equated with in-house solicitors for government agencies or private corporations.
Nevertheless, although it might be debated whether the Costs Judge committed a legal error or merely assumed, correctly, that a particular alternative did not apply, for the sake of argument I will proceed on the basis that the judge was in error in considering that the abolition of the Chorley exception, of itself, meant that the professional costs of self-representing incorporated legal practitioners were not recoverable at law.
I come to the second alleged error. As stated, I think that it amounts to much the same as the first.
To explain its decision in Bell Lawyers in respect of self-representing barristers and solicitors, the High Court set out its reasoning toward that decision. In concluding, as he did, that there was ‘no basis in law’ for the Costs Registrar to have awarded professional costs to Aitken Partners, the Costs Judge applied his understanding of that reasoning to incorporated legal practices. Of course, the High Court did not make any decision on that issue, in part because it did not have to do so. But the Costs Judge did have to decide that issue. It was squarely raised.
If his Honour was correct in his conclusion, then the common law of Australia does not allow for the recovery of legal costs for a self-representing incorporated legal practice, in the same way that it does not allow for such recovery for a self-representing barrister or solicitor. If that is also correct, such an outcome would not simply have prospective effect. As the High Court explained, it would mean that such costs were never recoverable at law. There would have been ‘no basis’ for the Costs Registrar to have made the order he did.
To refer to the continuing existence of s 24 of the Act and the undoubted discretion of judicial officers to award costs is not to the point. The same could have been said about the power to award costs for self-representing barristers or solicitors before or after Bell Lawyers. But as explained in Bell Lawyers, the statutory discretion to award costs under such legislation does not extend to awarding costs to recompense self-representing lawyers for the value of their time spent in representing themselves in litigation.
The question before the Costs Judge was whether the rationale behind the Bell Lawyers decision similarly removed the power to award costs to recompense a self-representing incorporated legal practice for the value of its time spent in litigation, or whether its costs could be independently justified under the ‘well-established understanding’.
Either way, the two alleged errors come back to the same question: did the Costs Judge err in not considering and concluding that Aitken Partners’ professional costs were justified by the ‘the well-established understanding’?
Should some other decision have been made, and if so what?
The question of the recoverability of the professional costs of an incorporated legal practice when acting for itself in litigation may be approached by asking the same two questions which the Court of Appeal asked in analysing the recoverability of the value of the work of employed solicitors in a law partnership. That is: does an incorporated legal practice fit within the general exclusionary rule for self-represented litigants and, if so, does its claim fall within the ‘employed solicitor rule’ so that its costs are recoverable? As will become apparent, there is a degree of repetition in the factors that bear upon the answers to the two questions.
Does an incorporated practice fit within the general exclusionary rule?
Turning to the first question, I will consider the same features in relation to Aitken Partners acting for itself on the taxation and the review as the Court of Appeal considered in respect of Freehills when it acted for itself in the litigation in United Petroleum.
First, Aitken Partners was both a party to the taxation and review and the solicitor on the record for itself. So far as the record disclosed, it was a self-representing legal practice.
Secondly, when doing the work they did on behalf of Aitken Partners in the two matters, Aitken Partners’ employees (whether principals or not) did not have any practical independent identity from their litigant-employer. Acting under the supervision and control of a director-principal — in corporate terms, a member of the controlling mind of the corporate entity — the employees were in a substantial sense the arms of the corporate legal practice itself, rather than lawyers standing outside of or apart from it. So, as with Freehills, there was little in the way of any real functional separation between the corporate legal practice and its employees.
Indeed, being a purely legal person, an incorporated legal practice can only function through its employed lawyers and its operational existence can hardly be separated from them. As the litigating party, to act for itself in the litigation it must do so through the work of its employees. Its employees did not so much ‘represent’ Aitken Partners in the litigation; in a practical sense, they were Aitken Partners acting for itself in the litigation.
An incorporated legal practice, then, is in no different position to the sole practitioner or the law partnership merely because its claims for its costs turns on the work of its employed solicitors. For the purpose of determining whether the general principle is engaged there is no reason to treat the work of an incorporated legal practice, of necessity performed through its employees, differently to the work of a partner in a firm or the work of a sole practitioner. Since the work of those employees is the work of the law practice, to allow the incorporated legal practice to recover costs referable to work done by its employees would be to recompense the legal practice for its own time spent in litigation.
It follows, that unless Aitken Partners can justify the recovery of the value of its time spent in acting for itself in the taxation and review on the same basis as in-house lawyers under the ‘well-established understanding’, its ability to recover its professional costs was abolished with the abolition of the Chorley exception.
Does Aitken Partners’ claim fall within the ‘well-established understanding’?
The essential question here is whether the position of an incorporated legal practice is more closely analogous to the unincorporated law firm, with partners and employees, or to in-house solicitors employed by government agencies or private corporations.
I start with a consideration of the indemnity principle that underlies the notion of recoverable legal costs. An argument for equating an incorporated legal practice with a private company that employs in-house lawyers is that the legal practice incurs overhead costs employing the solicitors who work on the piece of litigation. In turn, this may justify the application to it of the ‘expansive view’ of the indemnity principle which, as the High Court accepted, supported the conclusion that companies which are represented by their in-house lawyers actually incur a liability in the conduct of the litigation.
But, as the Court of Appeal in United Petroleum pointed out, the same could be said of the law partnership which employed solicitors to undertake work in litigation in which the partnership is a party.[51] In the end, this consideration, of itself, was not decisive in United Petroleum although it was a matter to be taken into account. Likewise, here, I view it as a matter to be considered although not decisive of itself.
[51]United Petroleum [112].
On virtually every other feature which the Court of Appeal took into account in United Petroleum, the position of an incorporated legal practice is shown to be more analogous to that of a law firm when considering whether the costs of acting for itself should be recoverable. Applying each of those features to the incorporated legal practice:
(a) as already noted, there is no practical or functional separation between the party to the litigation and the solicitor on the record;
(b) allowing an unincorporated legal practice (which only exists to provide legal services) to recover costs for acting for itself, would perpetuate the unequal treatment that Bell Lawyers sought to eradicate;
(c) there is no case that directly supports its entitlement to recover the costs of acting for itself,[52] and none of the authorities relied upon by the High Court for the ‘well-established understanding’ concerned an incorporated legal practice;[53] and
(d) because the ultimate supervision and control of the legal work of its employees is likely to be in the hands of those who constitute the controlling mind of the corporate entity (unlike the situation for in-house lawyers in a non-legal company), the risk of lack of objectivity and professional detachment between the lawyers and the litigant starkly arises.
[52]And see D A Starke Pty Ltd v Yard & Anor (No 2) [2020] SASC 81 in which Judge Bochner (a Master of the Supreme Court) decided that the abolition of the Chorley exception abolished any entitlement of an incorporated legal practice to recover its professional costs for acting for itself.
[53]See footnote 87 in United Petroleum where the Court of Appeal listed the relevant identity of the employer in each of the cases cited by the High Court in Bell Lawyers in support of the principle.
Additionally, there are some fundamental differences between in-house lawyers of companies and government agencies, on the one hand, and incorporated legal practices on the other, in connection with the generation and use of legal services which makes equating one with the other inapt for this purpose. Those differences are that:
(a) the essential enterprise of the government agency or private corporation that employs in-house lawyers is generally non-legal, with the provision of in-house legal services being ancillary to that primary enterprise; whereas, the essential enterprise of an incorporated legal practice is the provision of legal services; and,
(b) related to that observation, a company or government agency receives advice from its employed in-house lawyers as the ‘consumer’ of their legal services; whereas, ordinarily, an incorporated legal practice, through its director-principals, oversees the legal work of its employed lawyers in order to supply legal services to consumers of those services.
The Victorian legislature has pointedly distinguished the roles of the two by the way it chose to delineate an incorporated legal practice from other forms of practice. The Uniform Law defines an incorporated legal practice by contrasting it with an in-house legal service, specifying as one of its defining characteristics that—
the legal services it provides or proposes to provide are not limited to … in-house legal services for the corporation or a related entity[54]
[54]Uniform Law s 6(c)(i), definition of ‘incorporated legal practice’.
Of course, it is also correct to say that there are some clear differences in the characteristics of a law partnership and an incorporated legal practice. Self-evidently, an incorporated legal practice has the various incidents of being a corporation whereas the law partnership does not. Ownership and control of a law practice conducted by partners are generally co-extensive, with those in control also being entitled to the profits and liable for the losses. Whereas a director of an incorporated legal practice must be an Australian lawyer holding a practising certificate, there is no such requirement for shareholders of the legal practice. This allows for a lack of overlap, or even a complete separation, between the control of the legal practice (through its directors) and the ownership of it.
Separate control and ownership of an incorporated legal practice may (where that is the case) reduce concern about the potential for there to be a conflicting financial interest to profit from the litigation such as may exist where those features are coextensive, as in the case of a law partnership. Against that, it has not been suggested that there is any significant degree of independence between control and ownership within Aitken Partners whereas I would have expected that to have been put in evidence it if was the case. In any event, concern for the potential to profit from litigation did not appear to figure decisively in the reasoning of the plurality, Gagelar or Edelman JJ in Bell Lawyers, or in the reasoning of the Court of Appeal in United Petroleum.[55] Most likely that was because it was recognised that any concern about undue profiteering can be controlled through the taxation of costs rather than denial of recovery.
[55]See [33(f)] above.
More generally, for the purpose of assessing with which form of legal practice an incorporated legal practice is most closely aligned in order to decide whether it can recover its legal costs for acting for itself in litigation, the fact that those who practice through that business structure enjoy some of the advantages of the ‘corporate veil’ is not of telling significance. In more pertinent operational and practical ways, such a legal practice is more closely aligned to a law partnership with employed lawyers than it is to a government department or non-legal company employing in-house lawyers.
For these reasons, the various incidents of incorporation is of lower importance among the range of matters to be weighed for determining whether, alongside in-house solicitors, an incorporated legal practice is a beneficiary of the ‘well-established understanding’.
In the result, in my opinion the reasoning of the Court of Appeal in United Petroleum, which, in turn, adapts the principles of Bell Lawyers to the costs of work done by solicitors employed by law partnerships, applies in substantially in the same fashion to the costs of a self-representing incorporated legal practice attributable to the work of its employed lawyers.[56] Such a practice does not fit comfortably within the ‘well-established understanding’ referable to the in-house legal services of private corporations or government agencies.
[56]Specifically, the Court of Appeal’s conclusion extracted at [34] above could be repeated by substituting ‘incorporated legal practice’ for ‘legal firm’.
Conclusion
On my analysis the decision made by the Costs Judge was correct. That is, Aitken Partners was not entitled to it professional costs for acting for itself in the taxation, and the Costs Judge was correct to substitute an order that it only recover its reasonable disbursements for the order made by the Costs Registrar. Similarly, the Costs Judge was correct to award only reasonable disbursements to Aitken Partners for successfully defending Mr Guneser’s review of the taxation itself.
It follows that even if the Costs Judge made an error of the kind described earlier — which I have only assumed for the purposes of argument — his decision should nonetheless be confirmed.
It also follows that the orders to be made on the appeal (in which orders on costs were reserved) and the cross appeal are that:
(a) Mr Guneser pay Aitken Partners’ reasonable disbursement costs of the appeal; and
(b) the cross-appeal be dismissed and Aitken Partners pay Mr Guneser’s reasonable disbursement costs thereof (if any).
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