Atanaskovic v Birketu Pty Ltd

Catchwords

[1993] HCA 15 Banksia Securities Limited v The Trust Company (Nominees) Ltd [2017] VSC 583 Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333[1994] HCA 14 Commonwealth Bank of Australia v Hattersley (2001) 51 NSWLR 333[2013] NSWCA 250 Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203[2004] NSWCA 154 Ex parte KingRe Blackley (1938) 38 SR (NSW) 483 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89[2007] HCA 22 Galloway v Corporation of London (1867) LR 4 Eq 90 Garcia v National Australia Bank Ltd (1998) 194 CLR 395[1976] HCA 57 Hasler v Singtel Optus Pty LtdCurtis v Singtel Optus Pty LtdSingtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609[2014] NSWCA 266 Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434 Hill v Zuda Pty Ltd (2022) 275 CLR 24[2022] HCA 21 Hofer v The Queen (2021) 274 CLR 351[2021] HCA 36 In re Eastwood (deceased) [1975] Ch 112 Irving v Gagliardi[2010] HCA 19 Kelly v Jowett (2009) 76 NSWLR 405[2009] NSWCA 278 Latoudis v Casey (1990) 170 CLR 534[1998] HCA 11 Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404

Judgment (29 paragraphs)

[1]

Background

Proceedings were commenced by the then six partners of Atanaskovic Hartnell in 2018 (the plaintiffs) in the Commercial List of the Equity Division in the Supreme Court (2018/00164411) (the Equity proceedings), the partners seeking recovery of solicitors' fees and disbursements, totalling in excess of $1 million, plus interest from two clients, Birketu Pty Ltd (the first respondent in the present proceedings) (Birketu) and WIN Corporation Pty Ltd (the second respondent) (WIN).
On 9 August 2019, Hammerschlag J, as his Honour then was, gave judgment in the plaintiffs' favour in the sum of $928,982, plus interest, relating to six of the seven invoices in question and reserved for further consideration the seventh invoice (Atanaskovic v Birketu Pty Ltd [2019] NSWSC 1006). Subsequently, on 15 May 2020, his Honour held that the plaintiffs were not entitled to recover on the seventh invoice (an invoice relating to a retainer to investigate the circumstances in which a former employee of the law firm had perpetrated frauds on Birketu for which the firm was ultimately held to be vicariously liable), save for a small amount of $14,930 (Atanaskovic v Birketu Pty Ltd [2020] NSWSC 573). Thus, ultimately, the plaintiffs were awarded the sum of $943,912 plus interest.
In the Equity proceedings, the legal representative identified in the summons and the subsequent commercial list statements was the first applicant, Mr Atanaskovic, a partner of the firm. Another then partner of Atanaskovic Hartnell (Mr Michael Sophocles, himself one of the plaintiffs in the Equity proceedings) was initially identified in the court documents as the contact person at Atanaskovic Hartnell but, by the time of filing of the amended commercial list statement on 5 September 2018, Mr Paul Springthorpe (then an employed solicitor but subsequently a salaried or "non-equity" partner) was named as the contact person. At all relevant times, therefore, the solicitor formally on the record for the plaintiffs (and himself one of the plaintiffs) in the Equity proceedings was Mr Atanaskovic (cf some of the submissions made in this Court to the effect that Mr Springthorpe was the solicitor on the record). The plaintiffs were represented by Counsel (instructed by Atanaskovic Hartnell) at the hearing before Hammerschlag J.
On 19 June 2020, after a hearing on the papers, his Honour made a costs order in favour of the plaintiffs, ordering Birketu to pay the plaintiffs' costs of the proceedings, up to and including 16 September 2019, attributable to the plaintiffs' claims on six of the invoices, to be assessed on the ordinary basis. His Honour also ordered that the plaintiffs pay Birketu's costs of the proceedings from 10 August 2019 (the date of the first judgment), to be assessed on the indemnity basis (see Atanaskovic v Birketu Pty Ltd - Costs [2020] NSWSC 779 (Costs Judgment)).
In the Costs Judgment, Hammerschlag J noted that the High Court (in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29 (Bell Lawyers)) had (then only recently) reversed the so-called "Chorley exception" (eponymously named by reference to London Scottish Benefit Society v Chorley (1884) 13 QBD 872 (Chorley)), which allowed solicitors to charge for their own time in representing themselves; and his Honour there observed that the result was that the firm (i.e., Atanaskovic Hartnell) would not be able to recover for time spent by its own employees in bringing the Equity proceedings (see at [19] of the Costs Judgment). (The making of that observation gave rise to subsequent debate as to whether an estoppel arose on that issue - Hammerschlag J found that it did not and no issue is here taken with this.)
The plaintiffs filed an application for costs assessment on 1 February 2022, pursuant to s 74 of the Legal Profession Uniform Law Application Act 2014 (NSW), claiming the sum of $500,408.11. That sum comprised an amount of $305,463 for professional fees for legal services provided by solicitors employed by the law firm and $194,945.11 in disbursements . The applicants here (at [15] of their submissions) emphasise that the claim for the firm's professional fees was limited to the services provided by its employed solicitors; and that no claim was made for any work performed by any of the firm's partners (whether equity or salaried partners). In oral submissions before this Court, the applicants made clear that (although not conceding the point in relation to salaried partners) no fees were claimed for work performed by Mr Springthorpe after he became a salaried partner (see AT 1-2).
The third respondent in the present proceedings (who has filed a submitting appearance) was appointed as the costs assessor on 17 February 2022 (see the primary judgment at [5]). (As the costs assessor has not taken any active role in the proceedings, references to the respondents in these reasons are to Birketu and WIN only, unless otherwise indicated.) Both sides made submissions to the costs assessor. Relevantly, the respondents argued that the applicants were not entitled to recover the professional costs of their employed solicitors and requested that the costs assessor cease the assessment of those costs. When the costs assessor declined to make such a determination at that stage of the assessment process, the respondents filed a summons in the Common Law Division on 2 August 2022, seeking judicial review of what was identified as an interim decision by the costs assessor not to accede to the application that the costs assessor immediately determine that the partners of Atanaskovic Hartnell (the second defendant in the judicial review proceedings) were not entitled to recover the professional costs of the firm's employed solicitors and that the costs assessor immediately cease the assessment of those costs.
In the judicial review proceedings before Brereton JA , the relief sought included: a declaration that the partners of Atanaskovic Hartnell were not entitled to recover in the assessment process the professional costs of their employed solicitors; an order setting aside the costs assessor's decision not immediately to cease the assessment of those costs; and injunctive relief in relation thereto (see summons filed 2 August 2022; [8] of the primary judgment).
It was submitted by the partners of Atanaskovic Hartnell in the judicial review proceedings that there was no reviewable decision of the costs assessor but that, even if there was, there was no jurisdictional error nor error of law on the face of the record; and that prerogative relief ought be refused on discretionary grounds (see [9] of the primary judgment). However, as noted by the primary judge at [9], the parties joined in seeking a determination as to the question of the application of the High Court's decision in Bell Lawyers to the professional costs of employed solicitors of a litigant law firm operating in a traditional partnership (as distinct from an incorporated legal practice), provided that this could be done without resort to any contentious matters of fact (a caveat that is relevant to the current proceeding insofar as the respondents in their submissions make assertions as to factual matters that the applicants complain were accepted not to be in contention in the proceedings before his Honour - see below).
The primary judge considered that the application for judicial review was misconceived (as to which there is no challenge in the present proceedings) but made the declaration sought by the respondents for the reasons summarised below (see the primary judgment at [11]-[18]).

[2]

Primary judgment

At the outset of his Honour's reasons, the primary judge observed (at [1]) that the case before him fell at the intersection of two principles (as had been identified was also the case in Burrows v MacPherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 (Burrows) - see at [110] per Leeming JA, albeit there in a materially different context), both of which principles had been confirmed by the High Court's judgment in Bell Lawyers. Those intersecting principles were described as: first, that a self-represented party who obtains a costs order in litigation (even a legal practitioner, following the decision in Bell Lawyers) may not recover costs in respect of his or her own time and effort deployed in the litigation in his or her own interest; and, second, that a party which employs salaried solicitors (such as a government department, statutory authority, bank or another private corporation) may recover costs for their time (by reference to rates charged in private practice) even though the employed solicitor represents a fixed cost to the employer. At least on one view, the distinction between the scenarios described in those two principles is the concept of a "self-represented" litigant.
The primary judge noted (at [1]) the different context in which the present case arose as being that, whereas in Burrows the incorporated legal practice that acted in the relevant proceedings as the solicitors for the solicitor litigant was a separate and distinct legal entity that was retained by the solicitor litigant (another incorporated legal practice), in the present case the lawyers in respect of whose work costs were claimed were the employed solicitors of the law firm which was the litigant. His Honour likened the situation in the present case to that of United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 (United Petroleum). (Pausing here, the reference by his Honour to the law firm being the litigant must be understood as a shorthand expression for the partners of the law firm being the litigant, since the unincorporated law firm has no separate legal identity - a matter of which the primary judge was clearly aware.)
The primary judge, having addressed (from [10]-[18]), and dismissed as misconceived, the application for prerogative relief, turned at [19]ff to the respondents' claim for declaratory relief. His Honour noted (at [22]) that it is well established that the costs which a party is entitled to recover under a costs order do not include compensation for the party's own time and labour in preparing for or conducting litigation (citing Cachia v Hanes (1994) 176 CLR 403at 417; [1997] HCA 14 (Cachia v Hanes) (Mason CJ, Brennan, Deane, Dawson and McHugh JJ); Walton v McBride (1995) 36 NSWLR 440 at 452-3 (Kirby P) 461, 464 (Powell JA)). His Honour explained that the rule that self-represented litigants are not entitled to their time is not a special rule for self-represented litigants but, rather, an application of the general rule that costs are not recoverable in respect of a litigant's own time or labour (referring to Bell Lawyers at [33] per the plurality - Kiefel CJ, Bell, Keane and Gordon JJ).

[3]

Grounds of Appeal

The applicants raise the following grounds of appeal: 1. The primary judge erred in holding that, at law, an unincorporated law firm may not recover costs for work done by the employed solicitors of their own firm. 2. The primary judge erred in declaring that the appellants are not entitled to recover costs for work done by the employed solicitors of their own firm under the costs order made in proceedings 2018/164411 on 19 June 2020, being the subject of the costs assessment proceeding 2022/029349. Particulars of grounds 1 and 2 i. The primary judge ought to have found that the appellants are entitled at law to recover costs for work done by the employed solicitors of their own firm, including by reason of the principle commonly known as the 'employed solicitor rule'.
In essence, both grounds of appeal raise the same issue, that being (as stated earlier) whether partners of an unincorporated law firm may recover costs for work done by their own employed solicitors in prosecuting or defending legal proceedings brought by or against the partners themselves. The applicants (at [28]-[32] of their submissions) maintain that the import of the indemnity principle in relation to costs is that a party may recover expenses incurred by the litigant in acting in legal proceedings; and that the employed solicitor rule (which they say is not an "exception" but an application of the general indemnity principle, citing Gageler J's observation in Bell Lawyers at [68] - see below) makes clear that such expenses include the costs of solicitors employed by the litigant (the quantum of such costs being able to be calculated at professional or "market" rates).
Much emphasis was placed in the course of submissions by the applicants on the perceived perversity or inequality of an outcome whereby the costs of solicitors employed in an incorporated law practice may be recoverable by a litigant who in effect controls that incorporated law practice (say, as its sole director and shareholder) but those costs would not (on the primary judge's conclusion) be recoverable if the law practice is a traditional unincorporated partnership. The respondents dispute the proposition that there is any perversity of outcome and emphasise the import of the separate corporate personality involved in the former instance. To my mind, the structure adopted by the principals of a law practice is a matter for them; and the fact that there may be advantages or disadvantages of any particular partnership or corporate structure should not determine the outcome of the question here in issue.

[4]

Leave to appeal

It is convenient first to address the applicants' contention that they have a right of appeal pursuant to s 101(1) of the Supreme Court Act 1970 (NSW) (Supreme Court Act).
The applicants submit (at [26] of their written submissions) that leave is not required under s 101(2)(c) (which, relevantly, applies where the proposed appeal is from a judgment or order "as to costs only which are in the discretion of the Court") nor under s 101(2)(q) (which applies where the judgment or order is with respect to the taxation or assessment of costs); noting that the amount in issue in the costs assessment process in respect of the applicant's professional costs of their employed solicitors ($305,463) exceeds the threshold specified in s 101(2)(r) in relation to an appeal from a final judgment or order.
The applicants argue (at [20] of their written submissions) that there is therefore an appeal as of right from the declaration given on a final basis of the parties' rights at law (noting that at [19] of the primary judgment, his Honour made reference to a declaration that binds the parties and will conclusively establish their rights).
In any event, if leave be necessary, the applicants submitted (at [22]ff of their written submissions) that it should be granted on the basis that the present case involves an issue of principle which raises a question of public importance (satisfying the test in Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46] per Campbell JA). The applicants submit that a grant of leave will assist in resolving divergences which it is perceived have arisen between New South Wales and Victoria in the wake of Bell Lawyers; and that the present case is a suitable vehicle for determination of the question posed, the matter having been dealt with at first instance on the basis that the question of declaratory relief could be determined on the basis of uncontested facts.
In my opinion, leave to appeal is not necessary. The appeal is from a final declaration made as to the applicants' entitlement (pursuant to the costs order already made in the Equity proceedings) to recover their employed solicitors' costs; and is thus not a judgment in the exercise of the costs discretion or given as to costs only. That said, nothing turns on this because, if leave were to be necessary, I would grant leave to appeal for the reason that the issue raised is clearly one of principle that is of general importance, as the applicants contend.

[5]

Appeal

Turning then to the appeal itself, I propose to deal with the grounds of appeal together.
The applicants have emphasised that the starting point must be construction of the relevant statutory regime in this State. Certainly, as recognised in Bell Lawyers at [33] by the plurality (their Honours citing, among others, Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 (Latoudis) at 557 (per Dawson J) and Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at 85-86 [33]-[34] (per Gaudron and Gummow JJ), 120 [134] (per Kirby J)), costs are a creature of statute. The power to award costs is conferred by s 98 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act). Although there is a broad judicial discretion as to costs, it is clear that costs are awarded by way of indemnity (for professional legal costs actually incurred in the conduct of litigation) rather than being compensatory in nature (see Cachia v Hanes at 410-411 per Mason CJ, Brennan, Deane, Dawson and McHugh JJ); and hence such costs are not awarded as compensation for lost earnings or as a reward for success (see Bell Lawyers at [33]) or for travel and lost time (see Cachia v Hanes at 411, referring to Coke's observations on the Statute of Gloucester (1278) 6 Edw 1 c 1).
There is no dispute in the present case that the costs recoverable by a successful litigant in this State may include costs referable to the professional legal services of employed solicitors. "Costs" is defined in s 3(1) of the Civil Procedure Act to mean "costs payable in or in relation to the proceedings" and it includes "fees, disbursements, expenses and remuneration". As recognised in Bell Lawyers (at [44]), the reference to "remuneration" encompasses remuneration for professional services rendered under a contract for services; the plurality considering that the reference to remuneration makes plain that the costs of professional legal services rendered by an employed lawyer are included in the definition of costs, though also noting that remuneration is not a word apt to include the notion of payment to a person by himself or herself for work done by himself or herself.
The applicants argue that there is nothing in the definition of "costs" in s 3(1) of the Civil Procedure Act (or the High Court plurality's explanation of that definition in Bell Lawyers) which allows a conclusion that the remuneration which a company or government agency pays its employed solicitors falls within the definition of "costs" but that the remuneration which a law firm pays its employed solicitors falls outside the definition of "costs". Thus, the applicants maintain that professional legal services rendered by an employed lawyer are included in the definition of "costs".

[6]

Bell Lawyers

With that introduction, it is convenient now to address the complaint by the applicants that the primary judge erred in reaching the conclusion that the effect of Bell Lawyers was to prevent a law firm operating as a traditional partnership from claiming the professional costs of its employed solicitors.
The issue in Bell Lawyers arose in the following way. Ms Pentelow, a barrister who had been retained by Bell Lawyers Pty Ltd (an incorporated legal practice) in proceedings before the Supreme Court of New South Wales, brought proceedings against the firm for the payment of outstanding legal fees owed to her. During those fee proceedings, Ms Pentelow was represented by different solicitors and by senior counsel, but Ms Pentelow also did some of the preparatory legal work for the matter. Ms Pentelow's claim for costs included the time and work undertaken by herself as a barrister in the conduct of the proceedings brought by her. It was not disputed that she was entitled to the fees of the solicitors and senior counsel retained in the matter. However, the law firm disputed her entitlement to costs relating to her own professional legal services.
The High Court allowed the appeal brought by the law firm from the decision of the New South Wales Court of Appeal under which Ms Pentelow had been permitted to recover her own costs of the fee recovery litigation. By majority (Nettle J deciding the matter on the more limited basis as referred to above), the High Court held that the Chorley exception was not part of the common law of Australia (see the plurality at [3]; with whom Gageler J agreed at [63], as did Edelman J at [99]).
In so concluding, the plurality expressed the view that it was "undesirable, as a matter of professional ethics, for a solicitor to act for himself or herself in litigation" (at [19]). Citing Brereton J (as his Honour then was) in McIlraith v Ilkin (Costs) [2007] NSWSC 1052 (McIlraith v Ilkin (Costs)) at [25], the plurality noted the importance for a solicitor to act impartially and independently as an officer of the Court, and for the Court be entitled to expect as such, as now codified in the various Australian Solicitors' Conduct Rules across Australia; and identified the consequence of encouraging a solicitor to act for himself or herself through the prospects of a costs order (or monetary reward) as being the removal of any independent or impartial advice. Further, the plurality noted the observation in Cachia v Hanes as to the questionable nature of a situation in which a successful solicitor litigant not only receives the amount of the verdict but is able, by recovering recompense for their legal services, also to profit from the litigation (Bell Lawyers at [23]). The plurality considered it "an affront to equality before the law" (and something which would impermissibly exalt the position of solicitors in the administration of justice, conferring on them a privilege inconsistent with the notion of equality before the law) to quantify the value of a solicitor litigant's time but not that of a non-solicitor litigant (see at [24]-[25]), finding unpersuasive the reasoning of Bowen LJ in Chorley as to the difficulty in measuring the "private expenditure of labour and trouble by a layman".

[7]

Court of Appeal decisions after Bell Lawyers

It is convenient at this stage to note that the question as to what is encompassed by the expression "in-house lawyers employed by governments and others" (as used in Bell Lawyers) was considered in two decisions of this Court: Burrows and Spencer v Coshott.
Burrows concerned the question of recompense for the costs of an incorporated legal practice that acted in the relevant proceedings for the solicitor litigant but was a separate and distinct legal entity from the solicitor litigant. Similarly, in Spencer v Coshott, the solicitor who was a party to civil proceedings was represented by an incorporated legal entity of which he was the sole director and shareholder.
In both cases, it was held that the litigant was entitled to recover costs, primarily on the basis of the separate legal personality of the respective corporations (Burrows at [18] (per Meagher JA), [109], [129]-[133] (per Leeming JA), [162] (per White JA); Spencer v Coshott at [101]-[102] (per Simpson AJA, with whom Bell P and Emmett AJA agreed)).
So, for example, in Burrows, Meagher JA said at [18] that: If her contention that M&K Sydney and M&K Lawyers Group were to be regarded as one and the same legal entity (whether incorporated or not is not clear) is made out, it would follow that there could be no "costs payable" within the first part of the [Civil Procedure Act] section 3(1) definition. However, for the reasons given by Leeming JA there is no basis in the evidence for disregarding the legal reality of the separate incorporated legal practices. The first was alleged to have incurred a liability to Ms Burrows at a time when it was carrying on a legal practice as Macpherson Kelley. The second then provided legal services to the first in the proceedings subsequently brought by Ms Burrows and at a time when it was carrying on that legal practice. from which it is clear that his Honour considered that there would be no costs payable if the legal services were provided by one and the same legal entity, whether incorporated or not.
In Burrows, Leeming JA, after referring to the intersection of the two principles confirmed by the High Court's judgment in Bell Lawyers (at [110]), said (at [112]) that it was clear that "whatever be the scope of "the Chorley exception" which was abrogated by the High Court, it did not alter the ability of a litigant to recover amounts calculated at professional rates for the work done by salaried solicitors as part of party/party costs".

[8]

Primary judge's analysis of Bell Lawyers

Turning then to the primary judge's analysis of the decision in Bell Lawyers, the primary judge considered that what the plurality had in mind, when making it clear that it was not intending to displace the "employed solicitor exception", was not the litigant solicitor's own employed solicitors (referring to the plurality judgment at [46]-[51]) but, rather, the position of "in-house" lawyers employed by government departments and corporations (who act as solicitors for the employing department or corporation in litigation), contrasting these with "employed solicitors in a law firm which as a party to litigation has some or all of the work done by those employees" (see primary judgment at [36]-[40]). His Honour considered that the authorities cited by Gageler J at [68] of Bell Lawyers (see above) confirmed that what Gageler J was there addressing was the position where a party is represented in the proceeding by a solicitor who is an employee of the party "typically a government officer or instrumentality" (see the primary judgment at [39]).
The primary judge considered that the High Court's rejection of the Chorley exception was founded on three main considerations (as identified by the primary judge at [41]) and that these considerations unambiguously favoured the position that a solicitor litigant should not be able to recover costs in respect of work done by his or her own employees, any more than work done by himself or herself (since to permit the solicitor to recover such costs would provide an incentive for solicitors to act for themselves, while allocating as much work as possible to their employees; and it would preserve the appearance that the solicitor was in a privileged position as a self-represented litigant in being able to recover costs for work done by his or her own firm) (at [42]).
At [45], his Honour said that the recovery of costs where work was done by the solicitor litigant's own employee was thought to be justified by the Chorley exception rather than the in-house solicitor rule (referring to Chorley at 877 per Bowen LJ; Cachia v Hanes per the plurality in the High Court at 412); and hence his Honour considered that the rejection in Bell Lawyers of the reasoning of Bowen LJ in Chorley (as not persuasive) involved rejection of the rationale that a solicitor litigant could recover costs for work done by his or her employed solicitor. (This reflects the reasoning of Nettle J at [75] - see above.)

[9]

Applicants' submissions that primary judge erred in analysis of Bell Lawyers

As noted above, the applicants contend that the primary judge erred in his analysis of the High Court decision in Bell Lawyers. They argue that the primary rationale for the High Court's abolition of the Chorley exception was that it was an affront to the fundamental value of equality of all persons before the law; and they maintain that the exclusion of unincorporated law firms from the employed solicitor rule is also an affront to that fundamental value of equality.
As to the primary judge's first reason for his conclusion as to the effect of Bell Lawyers (see at [40] of the primary judgment) (namely that what the High Court had in mind was the position of in-house lawyers employed in government departments and corporations, not employed solicitors in law firms), the applicants submit that the cases referred to at [25]-[34] of the primary judgment as demonstrating the evolution and rationale of the employed solicitor exception were not principally concerned with providing a rationale for the principle that a party can recover professional costs in respect of employed solicitors; rather, they assumed that such costs were recoverable and were concerned with the manner in which those costs are calculated (whether by reference to the employed solicitor's salary, or by reference to the employed solicitor's charge-out rate, i.e., the market value of their services as if the solicitor had been an independent solicitor).
The applicants submit that the passages cited by the primary judge from the reasons of the plurality and of Gageler J in Bell Lawyers demonstrate that it is part of the ratio decidendi of that decision that the abolition of the Chorley exception leaves the entitlement to employed solicitor costs as part of the law of Australia; and they emphasise that the language used by the plurality to explain the ongoing operation of the employed solicitor rule was inclusive rather than exhaustive (referring to in-house lawyers employed by governments "and others" at [50]). The applicants argue that there is nothing in the reasons of the plurality at [46]-[51] to suggest that the removal of the Chorley exception was intended to place law firms (however structured) in a worse position than other litigants, by preventing them (and only them) from recovering costs for professional legal services rendered by employed solicitors. Rather, the applicants contend that the plurality proceeded on the basis that the removal of the Chorley exception would have no impact on such arrangements.

[10]

Respondents' submissions as to alleged erroneous treatment of Bell Lawyers

As to the criticism by the applicants of the primary judge's conclusion at [40] as to what the High Court had in mind in relation to the concept of "in-house" lawyers, the respondents point to [39] of the primary judgment where his Honour stated that "the authorities cited by Gageler J confirm that his Honour was addressing the position where a party is represented in the proceeding by a solicitor who is an employee of the party, typically a government officer or instrumentality". The respondents point out that the same view was taken of Gageler J's reasons by the Victorian Court of Appeal in United Petroleum at [105] (see below); and they refer to the primary judge's reasons in the present case (at [45]-[46]), which explain his Honour's reasoning in this regard (see at [30]-[34] of the respondents' written submissions).
I note that the applicants, in their submissions in reply at [34]ff, point out that the primary judge's reasons at [39] relates only to the consideration of Gageler J's reasons (the applicants maintaining their criticism that the primary judge did not offer any specific analysis of the plurality's reasons to support his Honour's conclusion at [40] of the primary judgment, which refers to what the plurality "had in mind"). Further, the applicants contend that the flaw in the primary judge's reasoning at [39] that the principle is confined only to situations involving employed solicitors of government departments or corporations (because the cases cited by Gageler J at [68] were such cases) is that it is inconsistent with the express statement of principle by Gageler J, the applicants noting that Gageler J referred to "recovery of costs by a party using an employed solicitor" as an application of the general principle and said that "[t]he general rule is engaged on the basis that the costs of using the employed solicitor are still awarded as indemnity for professional legal costs actually incurred in the conduct of litigation by the employer who is a party to the litigation". (The applicants similarly criticise the primary judge's observation at [37] on the basis that it limits the effect of the plurality's statements of principle by reference to the particular factual situation of a case which the plurality cited.)
Returning then to the respondents' submissions, the respondents say (as to the applicants' contentions in relation to the three considerations identified by the primary judge at [41]), that the applicants' reliance on Burrows is misguided and that the decision in Burrows is distinguishable on the facts (that being a case which concerned two incorporated legal practices, one being the litigant client and the other acting as the former's solicitor) (see at [37]-[38] of the respondents' written submissions). The respondents argue that the separate legal personalities of each of the incorporated legal practices (and the benefits attributed to those separate legal personalities) was a key circumstance in Burrows (the respondents here referring to [162] of that decision where White JA said that to deny the respective entities the benefits of separate legal personality "on the ground that to do so would advance substantially the same policy reasons for which the High Court in Bell Lawyers rejected the Chorley exception would exceed the limits of the judicial role").

[11]

United Petroleum

The case most closely on point with that of the present is United Petroleum. There, a firm of lawyers operating under the traditional partnership model (i.e., an unincorporated legal practice), Herbert Smith Freehills, was sued by its client, United Petroleum. Judgment was entered in favour of the law firm and there was an award of costs (partly on an indemnity basis). United Petroleum successfully relied on Bell Lawyers in its appeal on costs.
Addressing a submission that Bell Lawyers could be distinguished because the statutory power to order costs under the Supreme Court Act 1986 (Vic) and the Supreme Court (General Civil Procedure) Rules 2015 (Vic) permitted recovery independently of the common law position propounded in Bell Lawyers, the Victorian Court of Appeal stated (referring to Bell Lawyers) at [93]-[95] that (footnotes omitted): 93 The reasons for judgment in Bell Lawyers do not expressly answer whether a firm of solicitors, which is itself a party to litigation, is entitled to recover professional costs in relation to legal and other services provided by its employees. 94 It is clear, in our opinion, that the answer does not lie in any differences between the statutory powers to award costs in Victoria and those of New South Wales considered in Bell Lawyers. The analysis undertaken by the High Court involved a discussion of the broader question whether the Chorley exception should be recognised as part of the common law of Australia. That exception developed as a rule of practice grafted on to generally expressed powers to order costs. Its abolition reflects a development of the common law rather than the application of any statutory language particular to New South Wales. There is no reason to treat the Victorian provisions as giving rise to any different result. Like the New South Wales provisions, they are expressed in very general terms. The definition of 'costs' in s 3 of the Supreme Court Act 1986, on which Freehills relied, includes 'fees, charges and disbursements', but it does not provide any basis for recovery independently of the common law principles. 95 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 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.

[12]

Primary judge's analysis of United Petroleum

Turning then to the analysis by the primary judge of this decision, his Honour, from [47], addressed the arguments put by the applicants to the effect that the Victorian Court of Appeal decision in United Petroleum was distinguishable or its conclusion "problematic".
His Honour did not accept the argument that United Petroleum was distinguishable because the Victorian legislation did not expressly include "remuneration", noting that the Victorian Court of Appeal had itself eschewed any such basis for its decision (at [49]). (The applicants here complain that the Victorian Court of Appeal's reasoning at [94] was not persuasive given that no real attempt was made to grapple with the significance (or lack thereof) of the inclusion of "remuneration" in the New South Wales statute and its omission from the Victorian statute (see [68] of their written submissions).)
Nor did his Honour accept the applicants' submission that the distinction referred to by the Victorian Court of Appeal (United Petroleum at [103], the Court referring to Bell Lawyers) (i.e., the distinction between solicitors who are parties representing themselves and the position where a party is represented by an employed solicitor) was illusory (at [51]). The primary judge said at [51]: In the cases of solicitors employed by government departments or corporations, the litigation is being prosecuted or defended for the benefit of the department or corporation that is the employed solicitor's client, albeit that it is also his or her employer. That employed solicitor is on the record as the solicitor acting for the client/employer. The employer is not self-represented: it has a solicitor acting for it, who has his or her own independent professional obligations. It is therefore not self-represented, but represented by a solicitor in the litigation, albeit one that is "employed" rather than "retained". In the case of a law firm's own employed solicitors, however, the position is otherwise. The litigation is being prosecuted or defended for the benefit of the firm; the partners in which do not engage their employees to act for them, but merely allocate the work to them. The firm does not have a solicitor as a distinct entity acting for them; the firm is acting for itself, albeit that some of the work is performed by employees of the firm. Although some of the work may be performed by its employed solicitors, the firm is acting for itself… In the context of the conduct of litigation, in the eyes of the law the salaried in-house solicitor is independent of his or her employer, whereas a law firm's employed solicitors are not.

[13]

Applicants' submissions

As they did before the primary judge, the applicants submit that the decision in United Petroleum is distinguishable (on two bases) or in the alternative is plainly wrong.
The applicants argue that the decision is distinguishable: first, on the basis that it concerned an entitlement to costs under the Victorian costs regime, which differs materially from the New South Wales scheme (the central difference here identified being the absence of a reference to remuneration in the concept of costs in the Victorian scheme); and, second, that a component of the Victorian Court of Appeal's reasoning in United Petroleum was that the person ultimately responsible for the legal conduct of the litigation was a partner in the firm with a direct personal interest in the outcome (referring to [99], [117] of United Petroleum) whereas, in the present case, it is said that the solicitor on the record for Atanaskovic Hartnell at the relevant times was Mr Springthorpe, a "non-equity partner" (i.e., a salaried partner) who did not have a direct personal interest in the outcome and was not jointly and severally liable for the profits and losses arising from acting and from the result of the litigation (at [63]-[70] of the applicants' written submissions). Pausing here, as noted earlier, the person identified as the legal representative of the plaintiffs in the Equity proceedings (as discerned from the summons and commercial list statements filed in these proceedings) was Mr Atanaskovic, not Mr Springthorpe; the latter simply being the contact person at the law firm for part of the proceedings.
As to the first of those bases for distinguishing between the cases, the applicants emphasise the recognition in Bell Lawyers that costs are "a creature of statute" (referring to Bell Lawyers at [15]). They complain that the Victorian Court of Appeal could not speak authoritatively (or persuasively) on the position that pertained in this State.
As to the second, the applicants say that, in any event, the course adopted in this State means that it is not open to impugn the independence of employed solicitors solely on that basis (referring to Burrows at [132]). The applicants complain that the reasoning in United Petroleum at [117] does not explain why (for example) a solicitor employed by a corporation (such as a bank) is considered to have more objectivity and professional detachment than a solicitor employed by a multi-partner law firm, when each is acting in litigation for their employer.

[14]

Respondents' submissions

The respondents submit that the differences in the statutory regimes between this State and Victoria are not relevant (noting that the Court of Appeal in United Petroleum 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).
The respondents say that in the present case there are no "costs payable" between separate entities; that no liability arises as between the partners of Atanaskovic Hartnell and Mr Springthorpe; and that there was no evidence adduced at trial that there was any separate costs agreement, let alone tax invoices subsequently rendered. The respondents argue that these circumstances tend strongly against any form of liability (referring to Burrows at [18]-[17]). The respondents further say that the separate legal status of a limited company and its incorporators must, as held in Salomon v A Salomon & Co Ltd [1897] AC 22, normally receive full effect in relations between the company and persons dealing with it.
Insofar as the applicants draw a distinction between the position of Mr Springthorpe and the applicants (on the basis that the former did not have a direct personal interest in the outcome and was not jointly and severally liable for the profits and losses arising from acting and from the result of the litigation), the respondents maintain that this distinction is of little consequence where the evidence demonstrates that it was the appellants themselves who were at the apex of the team conducting the litigation on behalf of the law firm partnership.
Reference is made in this context to the timesheets submitted by Atanaskovic Hartnell in its costs application filed 1 February 2022, which the respondents submit disclose that the applicants were intimately involved in the conduct of the litigation including: regularly conferring with and instructing counsel; and regularly conferring with and directing Mr Springthorpe regarding strategy, preparation of court documents and other matters relating to the conduct of the litigation. In particular, reference is made to the narrations in relation to various time entries by Mr Springthorpe in August 2018 which refer to communications as to the proceedings with the applicants and attendances by the applicants with Counsel. The respondents maintain that, in light of the timesheets submitted as part of the applicants' costs application, the applicants share in the profits generated by legal work undertaken by Mr Springthorpe.

[15]

The employed solicitor rule

Given the significance attributed to the employed solicitor rule in the present appeal, it is worth setting out separately the parties' entitlements as to the so-called rule.
The respondents argue that the fundamental flaw in the applicants' argument is that the applicants conflate the position of a self-represented incorporated legal practice with the position of an individual solicitor who is a party to litigation in a personal capacity and who engages an incorporated legal practice of which he or she is the sole director and shareholder. The respondents maintain that there is a critical difference; namely, that the former is self-represented while the latter is not. The respondents maintain that an incorporated legal practice is not one and the same as a natural person who is that corporation's sole director and shareholder.
The respondents thus argue that the applicants' true grievance is not with the primary judge's "approach" nor in the way his Honour treated Bell Lawyers but, rather, with the well-settled doctrine of separate corporate personality; and they say that is not the issue before the Court in this appeal. The respondents argue that any perceived controversy caused by application of Bell Lawyers to litigants that are incorporated legal practices is not something that this Court is required to resolve in this appeal, noting that the present case involves a traditional law firm partnership (the partners of which are both the litigant parties and the solicitors on the record in the proceedings before the Supreme Court). Thus, the respondents say that the applicants were, and remain, self-represented.
The respondents argue that, however the "employed solicitor rule" should be characterised (whether as an exception to the general rule or an application of it), the rule does not assist the applicants. The respondents say that there is no authority which supports the proposition that a legal practice, regardless of business structure, may recover its costs of representing itself in proceedings on the basis of the "employed solicitor rule"; and that in all cases where the "employed solicitor rule" has applied to entitle a party to recover the professional fees of its employed solicitor, that party: has not been an entity capable of conducting legal practice; and has not been (and could not have been) self-represented, but instead, was represented by its employed in-house solicitor.

[16]

Determination

The relevant starting point, noting that "costs" for the purposes of the statutory costs regime in this State includes "remuneration" and that this reference to remuneration has been held to encompass remuneration paid under a contract for services (and hence the costs referable to the provision of legal services by employed solicitors in an appropriate case), must be the general principle or rule that costs are awarded to compensate for actual costs incurred in relation to the provision of professional legal services (and not as compensation for lost time or the like).
Also relevant to note at the outset are the observations of Leeming JA in Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 (at [93]ff) as to the passage in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 (Farah) at [135], in which the High Court emphasised, relevantly, that intermediate appellate courts should not (unless convinced that the interpretation is plainly wrong) depart from decisions in intermediate appellate courts in another jurisdiction on both the interpretation of Commonwealth legislation or uniform national legislation or in relation to non-statutory law (as to the latter, this being because there is a common law of Australia rather than of each Australian jurisdiction). Leeming JA, in the context of considering the decision of the Western Australian Court of Appeal in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 as to the meaning to be attributed to the reasons of the High Court in Farah, noted that although considerations of comity required regard to be had to decisions of intermediate appellate courts in applying and developing the common law of Australia, this Court is not bound indirectly by another court's interpretation of what the High Court had said (see at [98]-[100]).
The relevance of this in the present context is that, while this Court is bound by what the High Court has said in Bell Lawyers (for example as to the Chorley exception not forming part of the common law of Australia), this Court would not be bound (though it would be required to pay proper regard to) by the understanding of the Victorian Court of Appeal as to the import of that decision applied to the present fact situation. Hence, the applicants emphasise that this Court is not bound by what was said in United Petroleum about Bell Lawyers. That, however, does not gainsay the persuasive force of the reasoning in United Petroleum nor does it mean that the primary judge was in error in following that decision.

[17]

Orders

For the above reasons, I propose the following orders: 1. If leave be necessary, grant leave to appeal. 2. Dismiss appeal with costs.
KIRK JA: This appeal concerns whether partners of an unincorporated law firm who obtained a costs order in their favour in proceedings in the Supreme Court are entitled, as part of their costs recovery, to claim with respect to work done by solicitors employed by the partnership. In my view they can.
That result: 1. is mandated by the relevant statutory text, as construed by the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29; 2. follows as a matter of legal principle in light of the High Court's decisions in Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14 and Bell Lawyers; 3. is supported by an understanding of the historical origins of the relevant principles; and 4. whilst contrary to the conclusion reached by the Victorian Court of Appeal in United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15, that decision is not one that this Court is required to follow unless plainly wrong given the different statutory context and given that, at heart, both courts are seeking to understand and give effect to binding High Court authority.
The circumstances of the current dispute are outlined by Ward P, and her Honour also summarises the decision of Brereton JA (the primary judge) and the submissions of the parties.
The case raises a significant issue of principle. I agree with Ward P that if leave to appeal is required - an issue which need not be determined - it should be granted. The appeal should be upheld.
I will address the issues that arise by: referring to the statutory provisions (as construed in Bell Lawyers); examining relevant High Court authority as to common law principle; explaining the evolution of the principles at issue in prior case law; considering three appellate decisions subsequent to Bell Lawyers; then drawing the threads together by setting out the ways in which I respectfully disagree with the conclusions of the primary judge.

[18]

The statutory provisions

As explained by the primary judge, the order of the Supreme Court that is at issue required the first respondent to pay the appellants' costs of the proceedings, assessed on the ordinary basis up to 9 August 2019 and on an indemnity basis thereafter: Birketu v Castagnet [2022] NSWSC 1435 (PJ) at [2].
That order was authorised by statutory provisions and must be understood in the context of those provisions. Section 98(1) of the Civil Procedure Act 2005 (NSW) (CPA) provides that, subject to the Act and any rules of court, "costs" are in the discretion of the court; the court has full power to determine by whom, to whom and to what extent costs are to be paid; and the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
The term "costs" is defined in s 3(1) of the CPA as follows: costs, in relation to proceedings, means costs payable in or in relation to the proceedings, and includes fees, disbursements, expenses and remuneration.
The word "remuneration" is not defined in that Act, nor in the Interpretation Act 1987 (NSW). Part 42 of the Uniform Civil Procedure Rules 2005 (NSW) deals with various aspects of costs orders, but not in a way that is material here.
In Bell Lawyers, in this Court, the majority held that a barrister litigant was entitled to costs for her own work, applying the "Chorley exception" (as explained further below): Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150. Meagher JA dissented. His Honour accepted that he was bound by authority to recognise that exception as a matter of general law, but did not consider it should be extended to encompass barristers. Relevantly, he expressed scepticism that the Chorley exception was consistent with the statutory definition of "costs" in the CPA, picking up on earlier judicial doubts about that point. That was so because it did not represent any cost that was "payable" to anyone else; it was a claim for an amount the claimant wanted for themselves for their own work: see at [134]-[141].
In the joint judgment of Kiefel CJ, Bell, Keane and Gordon JJ in the High Court, their Honours noted that view of Meagher JA, then said that it was "preferable to address the proper effect of ss 3 and 98(1) of the Civil Procedure Act in the context of a discussion of the broader question whether the Chorley exception should be recognised as part of the common law of Australia" (at [16]). Their Honours held that the exception should no longer be recognised as part of the common law of Australia: see at [2]-[3], [39], [54] and [57]. The term "common law" is used here in the sense of judge-made law, albeit built on a statutory foundation: see similarly Gageler J at [63], Edelman J at [80]-[84]. But their Honours' statement that it was preferable to address the broader question did not mean that they were only determining the issue based upon the common law.

[19]

The trio of High Court decisions

The High Court's decision in Guss v Veenhuizen (No 2) (1976) 136 CLR 47; [1976] HCA 57 concerned a claim for costs by a solicitor who acted as solicitor on the record for himself in a High Court appeal, which he won. It emerged that, through no fault of his own, the solicitor was not listed on the High Court roll. The issue was whether he could claim costs for himself given that fact. The applicability of the Chorley exception was presumed; the majority of Gibbs ACJ, Jacobs and Aickin JJ referred to "the well established rule of practice which entitles a person, being a solicitor, to certain professional costs" where they have acted for themselves (at 51). The majority viewed the rule of practice as based not upon a "privilege of a solicitor" but rather on the fact that solicitor's costs "can be quantified on a taxation of costs" (at 52). That being so, the solicitor could obtain the benefit of the exception even though not on the roll. The minority of Mason and Murphy JJ saw the issue as determined by the effect of certain statutory provisions.
In Cachia v Hanes, in 1994, a litigant in person had succeeded in a case in the Supreme Court of this State, with an order of costs made in his favour. The main issue was whether those costs extended to recompensing him for his lost time, for which he sought payment at the hourly rate he charged as a self-employed consulting engineer. The relevant court rule provided that all such costs could be allowed "as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party". The majority of Mason CJ, Brennan, Deane, Dawson and McHugh JJ held that that did not extend to the time spent by the litigant, stating (at 410, citation omitted): Costs, within the meaning of the Rules, are reimbursement for work done or expenses incurred by a practitioner or practitioner's employee. Compensation for the loss of time of a litigant in person cannot be said to constitute costs within the meaning of the Rules. This is hardly surprising. It has not been doubted since 1278, when the Statute of Gloucester introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation.
The majority referred subsequently to the "general rule" (at 411) or "general principle" (at 412 and 413), by which they referred to two linked points: that costs are awarded as an indemnity for costs actually incurred, limited to legal costs. The majority did not seek to delineate what constituted "legal costs", but it was clear that that phrase did not include a cost relating to the use or loss of the litigant's own time. Thus the engineer's claim for compensation for the opportunity cost of his own time failed: it was neither a payment for costs he had actually incurred, nor was it legal costs.

[20]

Authorities addressing the employed lawyer rule

The Chorley exception was authoritatively recognised in the decision of the English Court of Appeal in London Scottish Benefit Society v Chorley (1884) 13 QBD 872. There are aspects of the reasoning which lend some support to the view of Nettle J that the Chorley exception is linked to the employed lawyer rule. Bowen LJ, for example, said (at 877): Professional skill, when it is bestowed, is accordingly allowed for in taxing a bill of costs; and it would be absurd to permit a solicitor to charge for the same work when it is done by another solicitor, and not to permit him to charge for it when it is done by his own clerk.
Brett MR made a similar point (at 875). However, in substance the decision was not directed to claims made based on the costs of employed clerks or solicitors. Brett MR noted at the beginning of his judgment that in that case solicitors had defended an action brought against them in person, and had obtained a costs order. The solicitors "claimed to have their costs taxed as if they had been acting for a client, that is, a different person", and "[t]he question is whether this view can be maintained". In answering that question in the affirmative, Brett MR effectively accepted that the position of solicitors was regarded as exceptional. He acknowledged that "[w]hen an ordinary party to a suit appears for himself, he is not indemnified for loss of time", but said that "[w]hen, however, we come to the case of a solicitor, the question must be viewed from a different aspect" (at 875). Moreover, no member of the Court referred to case law relating to costs of employed solicitors.
The employed lawyer rule is of earlier and distinct provenance. The foundational decision is Attorney-General v Shillibeer (1849) 4 Ex 606; 154 ER 1356, which was referred to by both Gageler and Nettle JJ. It was decided some 35 years before Chorley. The issue was whether the Attorney-General could claim costs with respect to the Crown Solicitor, even though "the Crown employed the solicitor of Excise at an annual salary, and did not incur any expenditure in matters depending in the particular suit". The Court upheld the claim. Parke B, speaking for the Court, said (Ex at 612-613; ER at 1359) It is perfectly clear that the Crown incurred expenses about this suit, and that, unless the Crown is compensated by payment of the ordinary costs, there would be no mode of compensation; because it is impossible to say what proportion the expense of conducting this particular suit would bear to the entire salary for the year, until the end of the year, when all the suits are known, and when the expense of each can be calculated.

[21]

Intermediate appellate authority subsequent to Bell Lawyers

Three decisions of intermediate courts of appeal were invoked by the parties, two of this Court decided in 2021, and one of the Victorian Court of Appeal decided in 2019.

[22]

Burrows v Macpherson & Kelley

Ms Burrows had been represented in Family Court proceedings by one incorporated law practice, which was referred to in the judgment as M&K Sydney. She subsequently brought proceedings against it in the District Court relating to an aspect of its representation of her. The firm was represented in that proceeding by M&K Lawyers Group, another incorporated law practice, which was also the sole shareholder of M&K Sydney. Ms Burrows was unsuccessful in the claim and ordered to pay M&K Sydney's costs. She then argued that in substance M&K Sydney had acted for itself given its close corporate relationship with M&K Lawyers Group, such that she should not be liable for such costs in light of Bell Lawyers. She placed significant reliance on the fact that the joint judgment in Bell Lawyers (at [51]) reserved the question of claims for costs with respect to a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder. In separate judgments, all three members of the Court rejected the argument. At the heart of that conclusion was that the two entities had separate legal personalities such that the premise of Ms Burrows' claim was not made out. It is relevant to note some particular aspects of the reasoning.
Meagher JA emphasised the construction of "costs" as defined in the CPA and as construed in the joint judgment and that of Gageler J in Bell Lawyers: at [4] and [16]-[18].
Leeming JA, too, gave some emphasis to that construction. His Honour explained at [110] that the issue on the appeal arose "at the intersection of two principles", both of which were confirmed in Bell Lawyers: first, that "a self-represented party, even a legal practitioner, may not recover costs for his or her own professional services deployed in his or her own interest"; secondly, that "an employer … which sues or is sued and which employs solicitors may recover for their time, and may do so by reference to rates charged in private practice, even though the employed solicitor represents a fixed cost to the employer".
His Honour quoted Gageler J's explanation of the employed lawyer rule at [68] of Bell Lawyers (quoted above at [205]), then said: [112] It is therefore clear that whatever be the scope of "the Chorley exception" which was abrogated by the High Court, it did not alter the ability of a litigant to recover amounts calculated at professional rates for the work done by salaried solicitors as part of party/party costs.

[23]

Spencer v Coshott

The issue in Spencer was a variant of the very point on which the joint judgment in Bell Lawyers had reserved the position. A litigant solicitor, Mr Spencer, had retained his own incorporated law firm - of which he was sole director and shareholder - to act for him in a dispute with a former client about costs (whether Mr Spencer was the proper party to that dispute, as opposed to his incorporated law firm, was not grappled with in the first instance judgment). This Court resolved the issue by holding that he could claim the costs charged by his own law firm - including, by implication, for work done by himself. Simpson AJA, speaking for the Court, concluded that as the joint judgment had indicated it was a matter for Parliament, and as the Parliament had provided for the incorporation of legal practices with separate legal personality, that sufficed to distinguish the position from a solicitor claiming for the costs of their own services (at [100]-[102]). In substance, thus, the issue was resolved by reference to the formal separate legal personality of a corporation, consistently with Burrows. Her Honour also relied on the construction given to the definition of "costs" in the CPA in Bell Lawyers (at [86] and [102]).
Implicit in this decision, as in Burrows, is the conclusion that the independence issue identified in Bell Lawyers is not a determinative consideration. There is no independent relationship between a sole practitioner and the law firm they have incorporated and which they control.
Her Honour referred to an earlier decision of Keane J, sitting by himself in the High Court (just after Bell Lawyers had been determined), in which his Honour upheld a decision by a taxing officer to allow Mr Spencer to recover costs in essentially the same situation in a High Court iteration of the dispute: Coshott v Spencer [2019] HCATrans 183. Keane J so held even though he noted that "it may be said that it is quite artificial that an individual may render services for a corporation, of which he or she is a sole shareholder and director, at the same time as the corporation provides those services for the same individual as a client of the corporation" (at lines 123-126). His Honour also referred to the employed lawyer rule (at lines 175-180): It is well settled that, in a case where the solicitor acts in proceedings on behalf of his or her employer, the employer is entitled to recover its costs quantified by a taxation of the costs of the services performed by the employed solicitor. In such a case, the employer is entitled to recover costs incurred on its behalf by its employee just as it would be entitled to an indemnity for costs payable to an external solicitor [citing Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333 at 337 [11]; Ly v Jenkins [2001] FCA 1640; (2001) 114 FCR 237 at 280 [160]].

[24]

United Petroleum

In this matter an unincorporated law firm, Herbert Smith Freehills (HSF), was in dispute with a former client; it sued the client for unpaid fees, and the client sued it for negligence in separate proceedings. The two proceedings were heard together in the Supreme Court of Victoria. HSF acted for itself in the fee proceeding, and acted for itself for a time in the negligence proceeding, then retaining a separate law firm as solicitors on the record to represent it whilst continuing to do some legal work itself (see at [56]). HSF succeeded in both matters and obtained costs orders. It then claimed costs referrable to work done by employed solicitors, but not for any work done by partners of the firm. The HSF solicitors working on the litigation were subject to a confidentiality regime in order to preserve their independence, and recorded their time in the usual way (see at [58]). The Victorian Court of Appeal rejected HSF's claim for costs relating to work by its employed solicitors.
The applicable statutory definition of "costs", in s 3(1) of the Supreme Court Act 1986 (Vic), was simply that it "includes fees, charges and disbursements". Unlike the definition in the CPA, thus, it did not also include "remuneration". And the CPA definition spoke of "expenses" rather than "charges". The Court said this (citation omitted): [94] It is clear, in our opinion, that the answer does not lie in any differences between the statutory powers to award costs in Victoria and those of New South Wales considered in Bell Lawyers. The analysis undertaken by the High Court involved a discussion of the broader question whether the Chorley exception should be recognised as part of the common law of Australia. That exception developed as a rule of practice grafted on to generally expressed powers to order costs. Its abolition reflects a development of the common law rather than the application of any statutory language particular to New South Wales. There is no reason to treat the Victorian provisions as giving rise to any different result. Like the New South Wales provisions, they are expressed in very general terms. The definition of 'costs' in s 3 of the Supreme Court Act 1986, on which Freehills relied, includes 'fees, charges and disbursements', but it does not provide any basis for recovery independently of the common law principles.
In my respectful view the Court was correct to regard itself as bound by Bell Lawyers even noting the difference in language between the provisions, given that the High Court clearly did decide the point as a matter of common law. However, I respectfully disagree with the Court's suggestion that that was the only basis of the decision, and that it did not involve "the application of any statutory language particular to New South Wales". As I have sought to show above, the definition of "remuneration" was a further basis for the decision.

[25]

Is this Court bound to follow United Petroleum unless plainly wrong?

An issue was raised as to whether this Court is bound to follow the decision of the Victorian Court of Appeal unless it considers that the decision is plainly wrong, invoking Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [135]. In my view it is not.
As regards the independent statutory basis for the joint judgment, this Court must follow the decision of a majority of the High Court rather than the decision of another intermediate court of appeal. I agree with the following observations of Leeming JA in Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266: [98] This court is bound by what the High Court said … It is bound directly. Ultimately, it is bound by reason of s 73 of the [Commonwealth] Constitution. This court is not bound indirectly by another court's interpretation of what the High Court said. To paraphrase the words of McHugh J in Marshall, the primary guide to understanding the law as stated by the High Court is the language of that court's reasons, and a judicial decision as to what those reasons mean is at best a guide to, but cannot control, the meaning of that language.
The principle about intermediate courts of appeal following decisions of coordinate courts on issues of common law or the interpretation of federal or uniform legislation is a principle which "concerns the relationships between intermediate appellate courts and between intermediate appellate courts and trial judges": Hill v Zuda Pty Ltd (2022) 275 CLR 24; [2022] HCA 21 at [26]. It reflects the importance attributed to uniformity of decision-making: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492; [1993] HCA 15; note also Farah at [135]. Uniformity is a significant legal value but not one of overriding importance. Thus it militates in favour of following decisions of coordinate courts, but not at all costs - in particular, not if they are considered to be plainly wrong by the court considering the question.
The relationship between intermediate courts of appeal and the High Court is different to the relationship between themselves; it is hierarchical. And it is "the duty of judges in the hierarchy of courts, including judges of this Court, to obey the authority of the rationes decidendi of decisions which are binding on them": Vickers Cockatoo Dockyard Pty Ltd v El Ali (unreported, New South Wales Court of Appeal, 17 December 1987, per Kirby P); see also eg Viro v The Queen (1978) 141 CLR 88 at 129 per Stephen J, [1978] HCA 9. Thus it is "for [the High] Court alone to determine whether one of its previous decisions is to be departed from or overruled": Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 at [17]. It is not relevant whether or not a court lower in the hierarchy considers the ratio of a decision of a court above it to be right or wrong. The "duty of judges in the hierarchy of courts is to obey authority; not to be convinced by it": Vickers per Kirby P, quoted approvingly by Gageler J in Hofer v The Queen (2021) 274 CLR 351; [2021] HCA 36 at [96].

[26]

The primary judge's decision

It is necessary now to address directly the reasons of the primary judge and, in so doing, to draw together the threads of analysis set out above.
At PJ [23] his Honour used the label of the "employed solicitor exception" for what I have called the employed lawyer rule. In a footnote, he said: It has been suggested that it might not be an exception but an application of the general rule that a party is entitled to professional legal costs actually incurred in the conduct of litigation: Bell v Pentelow at [68] (Gageler J); insofar as I treat it as an exception, it is an "exception" to the rule that a party is not entitled to recover costs for its own time and effort.
As explained above at [204]-[207], the view expressed by Gageler J in Bell Lawyers that the employed lawyer rule is a manifestation of the principle of indemnity rather than an exception to it is also a step in the reasoning in the joint judgment, in particular at [47]. Furthermore, as addressed above at [214]-[241], examination of the historical case law reveals that the employed lawyer rule developed distinctly from the Chorley exception. That fact serves to reinforce that the employed lawyer rule is distinct from the exception which was overruled by the High Court in Bell Lawyers.
Characterising the basal principles correctly is important. When it is understood that the employed lawyer rule was not undermined by Bell Lawyers, and is in fact a manifestation of the general principle of indemnity which was affirmed in both that decision and Cachia, then it is incumbent on the respondent to show why unincorporated law firms should be excluded from application of these general principles.
In the primary judgment his Honour then gave three reasons in favour of his conclusion, prior to his consideration of United Petroleum. First, he referred to the history of the employed lawyer rule, considered how it had been addressed in Bell Lawyers, and then said: [40] In my view, the High Court had in mind "in-house" lawyers employed by government departments and corporations, who act as solicitor for the employing department or corporation in litigation, and not employed solicitors in a law firm which as a party to litigation has some or all of the work done by those employees.
As discussed above at [201], I disagree with that understanding of the joint judgment, and the other two judgments that address the issue are not supportive of his Honour's characterisation. The joint judgment referred to "the use of in-house solicitors by governments and corporations, including incorporated legal practices" (at [46]) and "employed by governments and others" (at [50]). Gageler J referred simply to an "employed solicitor" (at [68]). Nettle J included "firms of solicitors" (at [75]), although, as was correctly noted in United Petroleum (at [111]), none of the cases his Honour cited in that paragraph involved a claim by a firm of solicitors as a party. Edelman J did not address the issue.

[27]

Orders

The appeal should be upheld with costs. In my view the partners of an unincorporated law firm are entitled in this State, as part of their costs recovery for a proceeding, to recover in relation to work done by solicitors employed by the partnership performing legal work with respect to the litigation in their capacity as solicitors.
The orders of the Court should be as follows: 1. If leave be necessary, grant leave to appeal. 2. Appeal allowed. 3. Set aside the orders made by the primary judge on 26 October 2022 and in lieu thereof make the following orders: 1. The summons filed on 2 August 2022 is dismissed. 2. The plaintiffs are to pay the defendants' costs. 1. The first and second respondents are to pay the appellants' costs of the appeal.
SIMPSON AJA: The facts and circumstances relevant to this appeal are fully set out in the judgments of Ward P and Kirk JA, each of which I have read in draft. Other than as is necessary to explain my reasoning, I will not restate the facts. I agree with their Honours, that, if leave to appeal is necessary, that leave ought to be granted. I will therefore refer to Messrs Atanaskovic and Jepps (the partners in Atanaskovic and Partners) as the appellants.
As is made clear in the judgments of Ward P and Kirk JA, the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29 ("Bell Lawyers") identified and left untouched a "general rule" that a self-represented litigant is not entitled to recompense for the value of time spent in the litigation.
The Court also identified, but did not leave untouched, a long-standing exception to the general rule. The exception was derived from the decision of the English Court of Appeal in London Scottish Benefit Society v Chorley (1884) 13 QBD 872 and was to the effect that, where the self-represented litigant happened to be a solicitor, the general rule did not apply and the self-represented solicitor was entitled to recover his or her professional costs of acting in the litigation ("the Chorley exception").
The plurality in the High Court (Kiefel CJ, Bell, Keane and Gordon JJ) adopted an earlier description of the Chorley exception as "anomalous": Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14 ("Cachia") (see also Gageler J at [62] and Edelman J at [86]-[87]). All members of the Court declined to extend the exception to barristers who represent themselves in litigation. The Court went further and, by majority (Nettle J dissenting), declared the Chorley exception to be not part of the common law of Australia: the plurality at [3]-[39] and [57], Gageler J at [63], Edelman J at [93], [99].

[28]

United Petroleum v Herbert Smith Freehills

As I have indicated, the relevant facts in United Petroleum were very nearly identical with the facts of the present. The respondent in United Petroleum (Herbert Smith Freehills, to which the Victorian Court of Appeal referred as "Freehills", nomenclature it is convenient to adopt) was a large multi-member legal practice structured as a partnership. Freehills became embroiled in litigation with United Petroleum. There were two strands to the litigation - a claim by Freehills for unpaid fees, and a claim by United Petroleum against Freehills in negligence. Freehills succeeded in both. According to the Court of Appeal judgment (at [56]-[58]), "Freehills were the solicitors on the record for the fees proceeding and in the applications for leave to appeal arising from that proceeding", and the solicitors on the record for the negligence proceeding, until (later) they were represented by external lawyers. "Freehills staff" carried out "substantive legal work" in both proceedings, even after the external lawyers had assumed carriage of the negligence proceedings. Each of the "Freehills staff" who carried out work held a practising certificate and recorded the time spent working on the proceedings "in the usual way", which I take to mean in the same way as they would have done had they been undertaking work for external clients.
As in the present case, Freehills sought to recover costs in respect of the work performed by employed solicitors but did not seek to recover costs in respect of any work performed by partners.
The Victorian Court of Appeal identified the relevant issue as "whether Freehills [was] precluded from cost recovery because it acted for itself in the proceeding[s]": at [6].
Section 24(1) of the Supreme Court Act 1986 (Vic) relevantly provides that, unless otherwise provided, the costs of and incidental to all matters in the court are in the discretion of the court and the court has full power to determine by whom and to what extent the costs are to be paid. There is no material difference between that provision and s 98(1)(a) and (b) of the Civil Procedure Act.
Section 3 of the Supreme Court Act 1986 (Vic) defines "costs" to include "fees, charges and disbursements". There is no mention of "remuneration". The Court of Appeal concluded, having analysed the reasoning in Bell Lawyers, that Freehills were not entitled to recover costs "for the time spent by its own employees": at [121].

[29]

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 December 2023

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Galloway v Corporation of London (1867) LR 4 Eq 90 Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 Gugy v Brown (1867) LR 1 PC 411 Guneser v Aitken Partners Pty Ltd [2020] VSC 329 Guss v Veenhuizen (No 2) (1976) 136 CLR 47; [1976] HCA 57 Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434 Hill v Zuda Pty Ltd (2022) 275 CLR 24; [2022] HCA 21 Hofer v The Queen (2021) 274 CLR 351; [2021] HCA 36 In re Eastwood (deceased) [1975] Ch 112 Irving v Gagliardi; Ex parte Gagliardi (No 2) (1895) 6 QLJ 200 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Jervis v Dewes (1836) 4 Dowl 764 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 Leaver v Whalley (1833) 2 Dowl 80 London Scottish Benefit Society v Chorley (1884) 13 QBD 872 Ly v Jenkins (2001) 114 FCR 237; [2001] FCA 1640 Maher v Commonwealth Bank of Australia [2008] VSCA 122 Maules Creek Coal Pty Ltd v Environment Protection Authority [2023] NSWCCA 275 McCullum v Ifield [1969] 2 NSWR 329 McGuire v Secretary for Justice [2019] 1 NZLR 335; [2018] NZSC 116 McIlraith v Ilkin (Costs) [2007] NSWSC 1052 New South Wales Land and Housing Corporation v Quinn [2016] NSWCA 338 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404; [1994] HCA 54 Parsloe v Foy (1833) 2 Dowl 181 Pennington v Russell (No 2) (1883) 4 LR (NSW) Eq 41 Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150 Ratkovic v Hadzic [2019] NSWSC 1627 Raymond v Lakeman (1865) 34 Beav 584; 55 ER 761 Registrar of Titles v Watson [1954] VLR 111 Riva NSW Pty Limited v Fraser; Fraser v Riva (NSW) (No. 4) [2022] NSWSC 1624 Salomon v A Salomon & Co Ltd [1897] AC 22 Spencer v Coshott (2021) 106 NSWLR 84; [2021] NSWCA 235 United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 Vickers Cockatoo Dockyard Pty Ltd v El Ali (unreported, New South Wales Court of Appeal, 17 December 1987) Viro v The Queen (1978) 141 CLR 88; [1978] HCA 9 Walton v McBride (1995) 36 NSWLR 440 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 Texts Cited: A Summary of the Law and Practice Relating to Attorneys (V&R Stevens, Sons and Hayne, 3rd edn, 1862) Lush's Practice of the Superior Courts of Law at Westminster (Butterworths, 3rd edn, 1865) Category: Principal judgment Parties: John Ljubomir Atanaskovic (First Applicant) Lawson Andrew Jepps (Second Applicant) Birketu Pty Ltd (First Respondent) WIN Corporation Pty Ltd (Second Respondent) Maurice Jocelyn Castagnet (Third Respondent) Representation: Counsel: DFC Thomas SC with D Birch (Applicants) B Walker SC with A Vincent (First and Second Respondents)

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