Legal Profession Conduct Commissioner v Scragg

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
LEGAL PROFESSION CONDUCT COMMISSIONER v SCRAGG
[2023] SASC 179
Decision of Judge Dart a Master of the Supreme Court
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL MATTERS - NATURE OF COSTS: INDEMNITY DOCTRINE - APPLICATION TO PARTICULAR PERSON OR PARTY - SALARIED OFFICER OF CROWN OR STATUTORY AUTHORITY
Respondent instituted an appeal in the Legal Practitioners Disciplinary Tribunal - appeal dismissed - Tribunal awarded costs to the applicant - applicant has made a claim for costs on the Higher Courts costs scale - costs are an indemnity - applicant was represented in the appeal by employed solicitors - respondent says a true indemnity would occur if costs allowed on the hourly salary of the employed solicitors - in the circumstances appropriate to tax on the Higher Courts costs scale.
Held:
1. Taxation to proceed on the Higher Courts costs scale.
Legal Practitioners Act 1981 (SA); Crown Proceedings Act 1992 (SA), referred to.
Oshlack v Richmond River Council (1998) 193 CLR 72; Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; London Scottish Benefit Society v Chorley (1884) 13 QBD 872; Guneser v Aitken Partners Pty Ltd [2020] VSC 329; Far West Coast Native Title Claim v State of South Australia (No 8) [2014] FCA 635; Mancorp Pty Ltd v Baulderstone Hornibrook (1993) 169 LSJS 165, considered.

LEGAL PROFESSION CONDUCT COMMISSIONER v SCRAGG
[2023] SASC 179

This matter involves an issue that has arisen in a taxation of costs. Central to the awarding of costs in a civil dispute is the concept that such costs are awarded to indemnify a party against the legal costs incurred in a proceeding. The respondent here has put in issue what the appropriate amount of costs required to satisfy the indemnity is. The applicant used legal practitioners employed in his office and did not incur external legal costs.
Background
The applicant is a statutory officer.[1] He is not, unlike many other commissioners appointed by the government, an agency of the Crown.[2] He runs an office and employs a number of legal practitioners.
[1] The office is created by s 71 of the Legal Practitioners Act 1981.
[2] Crown Proceedings Regulations 2023.
The applicant undertook an investigation into the conduct of the respondent and made findings adverse to him. A sanction was imposed on the respondent.
A practitioner who is dissatisfied with a determination of the Commissioner has a right of appeal. The appeal lies to the Legal Practitioners Disciplinary Tribunal. The respondent pursued an appeal. The right of appeal arises from the following section of the Legal Practitioners Act 1981:
77K—Appeal against determination of Commissioner
(1) Subject to subsection (3), an appeal to the Tribunal against a determination of the Commissioner under section 77J(1)(a) or (3)(a)(i) may be instituted by—
(a)     the legal practitioner or former legal practitioner in relation to whom the determination was made; or
(b)     the complainant.
(2) Subject to subsection (3), an appeal to the Tribunal against a determination of the Commissioner under section 77J(1)(b), (2) or (3)(a)(ii) or (b) after conducting an investigation into the conduct of a legal practitioner or former legal practitioner following receipt of a complaint may be instituted by the person who made the complaint.
(3) An appeal must be instituted within 1 month of the date on which the appellant is notified of the determination unless the Tribunal is satisfied that there is good reason to dispense with the requirement that the appeal should be so instituted.
(3a) Subject to subsections (3b) and (3c), the Tribunal will, in exercising its review jurisdiction, examine the determination of the Commissioner by way of rehearing.
(3b) On a rehearing, the Tribunal must reach the correct or preferable decision but in doing so must have regard to, and give appropriate weight to, the determination of the Commissioner.
(3c) A procedure on a rehearing will include—
(a)     an examination of the evidence or material before the Commissioner (unless any such evidence or material is to be excluded under another provision of this Act or under any other law); and
(b)     a consideration of any further evidence or material that the Tribunal decides, in the circumstances of the particular case, to admit for the purposes of rehearing the matter.
(4) The Tribunal may, on the hearing of the appeal—
(a)     affirm, vary, quash or reverse the determination subject to the appeal and administer any reprimand, or make any order, that should have been administered or made in the first instance; and
(b)     make such orders as to costs as it considers appropriate.
(5) Section 85(2) to (4) (inclusive) apply in relation to an order as to costs made under subsection (4).
The Tribunal heard the appeal. It made some minor amendments to the sanctions imposed by the applicant but otherwise dismissed the appeal.
Pursuant to the provision in s 77K(4)(b) it made an order that the respondent pay the applicant’s costs of the Tribunal proceedings. The Act provides that the costs of proceedings before the Tribunal are to be taxed in the Supreme Court if not otherwise agreed.[3]
[3] Legal Practitioners Act 1981, s 85(2).
The applicant filed a claim for costs in the usual form. The quantum claimed is $13,328.59 and is calculated on the Higher Courts costs scale.[4]
[4] The scale was formerly known as the Supreme Court scale.
The issue raised by the respondent is whether, when a party uses employed solicitors, is it appropriate for the Court to calculate the costs on the scale or whether it is more appropriate to adopt some other method of calculation. The respondent says that the costs should be taxed based on the hourly rate paid to the employed practitioners.
The purpose of a costs order
The power to award costs arises from statute. There was no common law right to costs. The usual order is a party and party costs order, which now travels under the nom de plume of standard costs basis. That is the form of the order we are dealing with.
The basic premise is that costs are awarded as an indemnity. The position was described in Oshlack v Richmond River Council[5] where his Honour Justice McHugh said:[6]
The expression the “usual order as to costs” embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
(footnote omitted)
[5] (1998) 193 CLR 72.
[6] (1998) 193 CLR 72 at [67].
In the more recent case of Bell Lawyers Pty Ltd v Pentelow[7] Gageler J said:[8]
The “general principle” that “costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation” is a judicial creation of considerable antiquity. A comparatively recent judicial creation until now has been the “Chorley exception”, according to which a legal practitioner has been able to be indemnified at a professional rate for time spent acting on his or her own behalf.
(footnote omitted)
[7] [2019] HCA 29.
[8] [2019] HCA 29 at [60].
The Bell Lawyers case has had a significant impact on the taxation of costs because it abolished the Chorley exception.[9] The Chorley exception permitted a solicitor who acted for him or herself to claim costs at a professional rate. The High Court decided that the Chorley exception, although a longstanding practice in this country, was not part of the law of Australia. The position now is that a solicitor acting for him or herself is treated the same as any other self‑represented litigant. There is no entitlement to an order for costs.
[9] London Scottish Benefit Society v Chorley (1884) 13 QBD 872
Since the Bell Lawyers decision there have been a number of cases which have considered its effect. It would be fair to observe that the full effect of the Bell Lawyers decision is not yet known and that related issues will continue to be developed on a case by case basis.
One relevant case is Guneser v Aitken Partners Pty Ltd[10] where Macaulay J was dealing with a claim for costs by an incorporated legal practice which had been acting for itself. On a taxation, it accepted that the partners of the practice could not recover costs for their time but sought to make a distinction between partners and the legal practitioners employed by it:[11]
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.
[10] [2020] VSC 329.
[11] [2020] VSC 329 at [60]-[61].
His Honour also said:[12]
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. 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.
(footnote omitted)
[12] [2020] VSC 329 at [73].
In the result his Honour refused to distinguish between classes of solicitors in the practice and disallowed the claim for costs. The firm had no entitlement to an order for costs. That is different to the issue at hand which relates only to quantum. The respondent accepts that the applicant was entitled to a costs order.
There is no dispute that when a government entity is represented by solicitors employed by it, the Crown is entitled to a costs order in its favour if successful. The principles were explained in Far West Coast Native Title Claim v State of South Australia (No 8)[13] where Mansfield J said:[14]
The position is well-established. In The Begarin (1916) 12 Tas LR 26 at 26- 27, Nicholls CJ found that the Crown does not have its cases conducted free of cost, but instead pays salaries which must be taken to be merely the mode in which it remunerates its legal officers who conduct its cases for it. This is not dissimilar to salaries paid to salaried lawyers from legal aid institutions and public bodies and authorities.
Going back further, Lord Stormonth Darling observed in Lord Advocate v Stewart (1899) 36 Sc LR 945 at 945:
So long as fees proposed to be charged are reasonable in amount…there is no reason why he should escape part of the consequences of his unrighteous litigation merely because of this arrangement between the Crown and its officers. In one sense, no doubt, he does not cause any additional expense to the Crown; because the salaries would have to be paid whether he litigated or not. But it is to be presumed that the salaries have been calculated on the footing of there being an average amount of litigation, and each salary therefore may be said to contain the equivalent of each separate fee; if so, there is no injustice in the Crown being recouped to that extent by the losing party.
The established jurisprudence is that a party who is represented by the Crown Solicitor or Australian Government Solicitor notionally incurs cost to his solicitor although he will not have to pay any money to the solicitor: see Ditton v Gallagher (1992) 110 ACTR 12 at 15 per Gallop J.
[13] [2014] FCA 635.
[14] [2014] FCA 635 at [19]-[21].
In Bell Lawyers the plurality said as follows:[15]
A decision by this Court that the Chorley exception is not part of the common law of Australia would not disturb the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity.
[15] [2019] HCA 29 at [50].
The usual practice that has developed is that a government body, which obtains an order for costs, has its claim taxed on the appropriate court scale. This is so, even if it may have no obligation to pay legal costs.
There is a case, which by way of analogy, supports the respondent’s contention. In Mancorp Pty Ltd v Baulderstone Hornibrook[16] Debelle J was dealing with the question of what costs should be awarded to a party which had been subpoenaed to produce documents. The party was a professional firm and it had commercial charge out rates for its staff. The compliance costs included the costs of staff locating and collating documents in answer to the subpoena. Those costs were claimed on the usual charge out rates for the staff involved. His Honour said:[17]
No Compensation for Loss of Profit
The next objection concerns the basis on which each of the applicants have charged for the time spent in taking advice, collating and photocopying the documents. In the case of each company, both directors and employees were engaged in the task. In each case, the costs sought to be recovered have been charged at rates usually charged to clients of each company. The rate includes a profit element and is higher than the respective hourly rates for salary or wages paid to executives and clerical staff in each company. The purpose of Rule 81.09 is to compensate for outgoings incurred. It is not intended to provide compensation for loss of profit. If a person has to employ staff to search for, identify and collate documents in answer to a subpoena, that person is entitled to recover a proper portion of the salary or wages paid to those employees, which is perhaps most accurately determined by reference to the hourly rate of wages or salary of those employees. The use of the word “loss” in the expression “such loss or expense as is reasonably incurred or lost” in Rule 81.09 does not I think alter this conclusion. Even if the word “or” is being used conjunctively and not disjunctively, it is not the intention of the rule to provide compensation over and above outgoings incurred by the person served with the subpoena. The taxing officer should, therefore, reduce the amount claimed by the applicants to eliminate the profit element.
[16] (1993) 169 LSJS 165.
[17] (1993) 169 LSJS 165 at 169.
The case is an example of the indemnity principle in operation.
What is required to indemnify the applicant?
As mentioned, there is a practice of longstanding that a government body’s costs are taxed on what is now the Higher Courts costs scale. My research does not show any statutory basis for the practice. The applicant does not point to any statutory basis. It just seems to have developed over time as it is a convenient and well understood way to calculate the value of a costs order. What Bell Lawyers demonstrates, however, is that a long-established practice may be contrary to law.
There is some statutory intervention in relation to such costs. It is limited. It is found in the Crown Proceedings Act 1992 (SA), in particular:
15—Costs
(1) The State Crown is not required to pay any fee or charge for commencing, or taking any step in, proceedings or for obtaining a transcript of any proceedings or evidence in any proceedings to which it is a party.
(2) Any costs to which the State Crown is entitled will be calculated as if the State Crown were liable to pay, and had in fact paid, fees and charges from which it is exempt under subsection (1).
The effect of the section is to create in the Crown an entitlement to costs that go beyond the right to be indemnified. It seems to be the only statutory provision which allows it to do so.
The present hourly rate, provided for in the Higher Courts costs scale, for a legal practitioner is $408. An employed solicitor who is paid an annual salary of $150,000 is being paid about $75 per hour. An employer, of course, incurs many other costs in employing a person in addition to the salary. Even if the hourly rate is doubled to $150 to allow for those additional costs, there remains a significant gap between the amount being paid by the applicant to its employed solicitors and the hourly rate which may be recovered under the scale. It cannot be disputed that there is a tension between the concept of costs being an indemnity and allowing the applicant to recover on the Higher Courts costs scale.
All that is required in the present case is to determine if the costs can appropriately be taxed on the scale. For the reasons that follow, they can be. The big picture issue of how the costs of a government body calculated on the court scale can be squared against the indemnity principle can await a more suitable case.
Consideration
The respondent says that the applicant is not entitled to claim on the Higher Courts costs scale because that would result in overcompensation. There is a difficulty in this case because the amount claimed is very modest.
The applicant, assuming the respondent’s contention to be correct or at least arguably correct, would have to retain a forensic accountant to establish the true costs incurred in the matter. The costs of that exercise would form part of the costs of the taxation. The costs of obtaining such a report is likely to exceed the total amount of costs claimed in this matter. In the circumstances of this matter, the interests of justice are satisfied by allowing the applicant to make its claim for costs on the Higher Courts costs scale. The taxation is to proceed on that basis.

[2023] SASC 179

20 December 2023