Burrows v Macpherson and Kelley Lawyers

The Principles

1. The Court has power pursuant to r 13.4 of the Uniform Civil Procedure Rules, to summarily dismiss proceedings in the event that they are: 1. Frivolous or vexatious; 2. Disclose no reasonable cause of action; or 3. Are an abuse of process.
2. The defendants argue that all three grounds for dismissal arise in the present case. It pointed to the following principles which I did not understand to be in dispute.
3. As to (a), a claim may be vexatious where it lacks bona fides and is hopeless (Batistatos v RTA (NSW) (2006) 226 CLR 256 at [9]-[15], Gleeson CJ, Gummow, Hayne and Crennan JJ).
4. As to (b), the test applied in determining the absence of a cause of action is as set out in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. 129-130. Broadly speaking, for summary judgment to be entered, there must be no material dispute about issues of fact or law.
5. As to (c), the categories of abuse of process are not closed, but include proceedings that are vexatious or oppressive, which are instituted for an improper purpose, or which are productive of, or instituted with the dominant purpose of causing, serious and unjustified trouble and harassment: Batistatos v RTA (NSW) at [9]-[15] (Gleeson CJ, Gummow, Hayne and Crennan JJ); Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at [27]-[28] (French CJ, Gummow, Hayne and Crennan JJ); Urban Traders v Michael [2009] NSWSC 1072 at [36]-[38] (McDougall J).
6. The defendants/applicants no doubt cognisant of the fact that the Court would not resolve contested factual issues on an application such as the present, submitted that it was appropriate to consider its strike out application on the hypothesis that the alleged misrepresentations were in fact made. I should emphasise that this concession was made on a without admissions basis.
7. The Appellants case was that even if each of the misrepresentations were made, and were fraudulent, the plaintiff's proceedings were still hopeless and destined to fail.

Bell Lawyers v Pentelow

1. In Bell Lawyers v Pentelow the High Court decided that the 'Chorley Exception' should not be recognised as part of the common law of this country, and accordingly the exception should not extend to barristers. The Chorley Exception had permitted solicitors to recover costs on account of their own professional fees in prosecuting or defending litigation, to which they were personally a party (at [2]-[3]).
2. The Plaintiff however, contended that the decision in Bell Lawyers v Pentelow should be extended to an incorporated legal practice (as M & K Sydney was). This proposition faced significant difficulties insofar as the plurality in Bell Lawyers v Pentelow held: "[51] 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. (my emphasis) [52] Whether the same view should be taken in relation to a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder stands in a different position. It might be queried whether such a solicitor has sufficient professional detachment to be characterised as acting in a professional legal capacity when doing work for the incorporated legal practice. And it might be queried whether costs claimed by an incorporated legal practice for work of its sole director and shareholder are within the expansive view of indemnity that has been adopted in the authorities. In this regard, in McIlraith, Brereton J was disposed to attribute "no significance" to the circumstance that the party seeking an order for costs was an incorporated legal practice whose director was the solicitor who actually performed the work for which costs were sought. It is neither appropriate nor necessary to come to a conclusion as to whether Brereton J was correct in this regard. [53] The resolution of this question may require close consideration of the legislation which provides for incorporation of solicitors' practices and the intersection of that legislation with the provisions of the Civil Procedure Act in light of the general rule; and so the resolution of this question may be left for another day, when all the legislation that bears on the question has been the subject of argument. [54] It is sufficient for present purposes to say that whether or not an incorporated legal practice that is a vehicle for a sole practitioner should be able to obtain an order for costs for work performed by its sole director and shareholder is ultimately a matter for the legislature. Whether the Chorley exception is part of the common law of Australia is a matter for this Court.
3. It should be noted that the High Court did not limit the operation of what it referred to as "the well-established understanding" to government departments. Rather it is clear that the understanding applied to other situations. The Court to my mind clearly intended that solicitors employed by other corporations, including incorporated legal practices would be encompassed by the "well-established understanding".
4. This seems clear from paragraph [46] where the Court in dealing with the "well-established understanding", treated government departments and corporations including incorporated legal practices as being part of the same category. That this is the case, I believe also flows from paragraph [44] where their Honours held that the costs of employed solicitors are recoverable pursuant to the meaning of the word "remuneration", where it appears in the definition of "Costs" pursuant to s 3(1) of the Civil Procedure Act 2005 (NSW)
5. The employer of such solicitors was entitled to recover costs by way of indemnity.
6. What the High Court left open was whether the same result would ensue in relation to an incorporated legal practice of which a solicitor was the sole director and shareholder.
7. This is not such a case.

Court of Appeal Consideration of Bell Lawyers

1. The Court of Appeal considered Bell Lawyers in Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd. The Court held that M & K Group being a separate legal entity from M & K Sydney, whom it represented was entitled to recover its costs of that representation. As such the Court concluded that the decision in Bell Lawyers v Pentelow did not arise for consideration (see [16]-[17] (Meagher JA); to the same effect, [122]-[133] (Leeming JA, White JA agreeing).
2. As I read the judgment, it is clear that the Court's ultimate decision was based on the fundamental issue of the separate legal personalities of the two M & K companies.
3. I should also add that Meagher JA observed (without considering it necessary to decide) that even if the corporate veil were to be 'pierced' such that M & K Group and M & K Sydney were to be regarded as one and the same, the costs would nonetheless be recoverable: at [19]; [15]-[16]; [134] (Leeming JA, White JA agreeing).
4. That approach has been expressly adopted in two subsequent decisions of the Court of Appeal; namely Spencer v Coshott and Atanaskovic v Birketu.
5. In Spencer v Coshott (2021) 106 NSWLR 84 at [101]-[102]. The Court considered a case involving a sole practitioner incorporated legal practice. In that case, Simpson AJA stated in relation to what the High Court had reserved its position in paragraph [53] of Bell Lawyers: "[101] I interpret that to mean that the existing law that recognises the separate legal personality of a corporation, including an incorporated legal practice, is to be applied unless and until the legislature intervenes (or consideration of the already existing legislation dictates a different result). [102] The findings by the primary judge that Mr Spencer, as a solicitor, provides legal services through Kejus, and that Mr Spencer had entered a binding costs agreement with Kejus, conclude the issues. The professional costs rendered to Mr Spencer by Spencer and Co Legal (or Kejus) are, within the meaning of s 3(1) of the Civil Procedure Act, "costs payable" by Mr Spencer to Spencer and Co Legal. They are therefore within the costs order made by this court. Recovery of those costs is not precluded by anything in Bell Lawyers." (Bell P and Emmett AJA agreed)
6. More recently in Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312, a majority of the Court of Appeal held that even an unincorporated legal partnership which is a party to proceedings and which acts for itself, may recover the costs of employed solicitors who provided services in defence of the firm.
7. In Atanaskovic, Kirk JA considered the judgment of Simpson AJA in Spencer v Coshott. His Honour stated: [253] "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]). [254] 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. [255] 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] HCA Trans 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]]. [256] This description of the employed lawyer rule is expressed by reference to employers, not just government departments and corporations. It is consistent with the view I expressed above at [201]-[203] that there is nothing in the joint judgment in Bell Lawyers inconsistent with regarding the rule as encompassing unincorporated law firms." (my emphasis)
8. In Atanaskovic Simpson AJA stated: [333] "To repeat, costs are awarded by way of "indemnity … for professional legal costs actually incurred in the conduct of litigation": Cachia at 410. That excludes costs of a self-represented legal practitioner, who does not incur costs payable to himself or herself. Similarly, "remuneration" in the extended meaning of "costs" in the s 3 definition, does not extend to a self-represented legal practitioner, because, as the plurality said in Bell Lawyers at [44]: "… '[r]emuneration' is simply not a word which is apt to include the notion of payment to a person by himself or herself for work done by himself or herself." [334] These observations in Bell Lawyers answer the questions in relation to self-represented legal practitioner litigants in the uncomplicated class of case that is illustrated in Bell Lawyers. They do not answer the question in relation to the more complicated class of cases illustrated in scenarios (iv), (v), (vi), (vii), (viii) or (ix). These reasons do not attempt to provide answers to those questions in respect of scenarios (iv), (v), (vi), (viii) or (ix). But they must provide answers to the questions in respect of scenario (viii) - preferably answers that do not create potential incoherence if and when a court is confronted with answering the same questions with respect to those scenarios. [335] The outcomes in both Burrows and Spencer show that, where the entity to which the legal costs are payable is an incorporated legal practice, the costs are not payable by the legal practitioner to himself or herself. They are payable to a separate entity, the incorporated legal practice. (my emphasis) [336] In the present case, the costs were not payable to an incorporated legal practice. Nor can it be said that they were payable to the employed legal practitioners who performed the legal work. Those legal practitioners were, presumably, paid by way of remuneration from the partnership - that is, by the partners (the appellants). It may be assumed that their salaries were not dependent on the quantity or nature of the work they undertook in this particular litigation. They were, nevertheless, paid by the appellants, for the professional legal work they undertook. In my opinion, those salaries, to the extent that they covered the legal professional work involved in the litigation against the respondents, are properly characterised as "professional legal costs actually incurred in the conduct of [the] litigation". [337] That is consistent with an important observation in Bell Lawyers by Gageler J, at [68]. There, his Honour said: "Recovery of costs by a party using an employed solicitor predated introduction of the Chorley exception. The better view … is that recovery of costs by a party using an employed solicitor is an application of the general principle rather than an exception to it. The 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, albeit that those professional legal costs are incurred in the form of an overhead and are therefore not reflected in a severable liability." (Internal citations omitted) [338] Gageler J's observation, which does not appear to have been either adopted or rejected by any other member of the Court, would support the view that an incorporated legal practice such as Bell Lawyers and a partnership such as the present appellants would be entitled to recover, as "costs actually incurred in the conduct of litigation", an appropriate amount by reference to the costs of employing the legal practitioners to whom the legal work was assigned, in a way similar to that which applies where the litigant is a government instrumentality or corporation using employed legal practitioners. It would also engage the concept of "remuneration" in the s 3 definition, which is, as noted above, inapplicable where the legal work has been performed by the legal practitioner litigant. It does not, in my opinion, involve payment by the litigant to himself or herself." [333] - [338]
9. It is also important to note that in Atanaskovic the Court expressly declined to follow the decision of the Victorian Court of Appeal in United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15.
10. As I interpret them, the authorities to which I have referred, stress the need to apply the fundamental principle of the separate legal identities of companies to the issue of costs recovery in situations such as the present.
11. Thus, in my view these authorities present insurmountable obstacles to the prospects of success for the plaintiff in these proceedings. They are moreover authorities which bind me.
12. I take the view that the obstacles to the plaintiff's success in these proceedings are insurmountable as the Court of Appeal has in summary found that Bell Lawyers has no application to either: 1. Incorporated Legal Practitioners; 2. or Unincorporated legal practitioners.
13. Accordingly in my view, authority which binds me, leads me to the conclusion that as both M & K Sydney and M & K Group were separate incorporated legal practices, even if the plaintiff made out all of the misrepresentations which she pleads, her case would nonetheless fail.
14. Her case therefore is doomed to fail, and thus within the proper exercise of the discretion to summarily dismiss.

The Plaintiff's Submissions

1. In her submissions, the plaintiff contended that it was inappropriate to decide the matter on the summary judgment basis as there was a factual issue as to whether M & K Sydney ceased to practice law on 30 June 2015.
2. This submission is a curious one. I take this view as the plaintiff in her Amended Statement of Claim, pleads this to be a fact, and the defendants admit it (Amended Statement of Claim [9] and Defence [9]).
3. Paragraph 9 of the Amended Statement of Claim is in the following terms: "On 30 June 2015, MK Sydney ceased to engage in the business of providing legal services in NSW, but continued to exist as a legal entity."
4. The defence relevantly states at: "In answer to paragraph 9, the defendants do not admit MK Sydney continued to exist as "a legal entity" as they do not know what is intended by that phrase, but admit MK Sydney continued to exist as a registered corporation with legal personality, and otherwise admit the paragraph." [9]
5. The plaintiff faced with the conundrum created by her own pleading, attempted to draw the distinction between M & K Sydney ceasing to practice in providing legal services to third parties, as distinct from acting for itself. To my mind this appeared to be a distinction without a difference.
6. Mr Ward of Counsel, who appeared for the plaintiff, stated that consistent with authority, I should give a beneficial interpretation to his clients pleading in my consideration of a summary judgment application such as this . In that regard he relied upon Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735. He alternatively submitted that I should grant leave to his client to further amend the Amended Statement of Claim.
7. Noting that submission, I shall adopt such a beneficial view of paragraph 9 of the Amended Statement of Claim and paragraph 9 of the Defence. In my view, such a beneficial interpretation of the pleading does not assist the plaintiff's case. I take this view as even if the plaintiff could establish that M & K Sydney and not M & K Group acted in this Court, this would not lead to the plaintiffs' success.
8. This is so as regardless of whether M & K Sydney was defended through the efforts of solicitors which it employed, or by solicitors which M & K Group employed, such costs are recoverable.
9. The plaintiff also made submissions which I consider to be verging on heretical. In her written submissions she put the following: "…(E)ven if there is binding intermediate appellate or other non-High Court authority deciding that a self-represented ILP's professional fees are indeed recoverable (contrary to the foundational principle that underpins Bell Lawyers), this case would still not be an appropriate one for summary dismissal. The existence of such authority would not "be the end of the matter", because "[e]xisting authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law." That principle is particularly apposite in circumstances where: (1) as observed above at [41], there is authority in at least three Australian jurisdictions in support of Burrows' position; (2) as also observed above at [41], that position has attracted leading academic support; (3) there are now inconsistent intermediate appellate decisions on the interpretation of Bell Lawyers (though not on the specific issue in this proceeding) in Victoria and NSW; and (4) the NSW Court of Appeal itself is closely divided on that same topic, with the President having delivered a 166-paragraph dissent in Birketu. In short, this is the very last kind of legal issue that this Court should foreclose on a summary dismissal application.
10. This submission involves the proposition that I should not follow the decisions of the Court of Appeal which in my view are on point, and are as a consequence binding upon me. This submission to the extent to which it involved such an invitation, flies in the face of the doctrine of stare decisis. It is for that reason that I have described it as verging on heretical.
11. The submission also invites me to not follow binding decisions of the New South Wales Court of Appeal, but rather to follow appellate decisions of intermediate appellate Courts of other states. In my opinion, that submission, as well as doing damage to the doctrine of stare decisis, ignores the authorities which warn against reliance being placed on judgments of interstate intermediate appellate courts on the topic of costs. This warning stems from the fact that interstate appellate authorities often arise out of different statutory regimes: (Atanaskovic v Birketu Pty Ltd at [258]-[259], [277]- [283] (Kirk JA) and [354]-[359] (Simpson AJA).
12. The plaintiff also submitted that I should not deal with the matter on a summary basis as following Bell Lawyers the law was "in a state of flux". The foundation for that submission was that in Atanaskovic, Simpson AJA stated: There are, however, numerous other scenarios that are not so straightforward, and which cannot readily be seen to come within the reasoning in Bell Lawyers. Possible scenarios include: (i) a legal practitioner litigant who represents himself or herself (or, as in the case of Ms Pentelow), who, although represented, performs, and claims costs for, some legal work in pursuit or defence of the litigation; (ii) a government body or agency, or a corporate litigant, which employs one or more legal practitioners by whom it is represented in litigation; (iii) a legal practitioner litigant in a private legal practice which is structured as an incorporated legal practice, of which the legal practitioner is the sole director and shareholder (and effectively the controlling mind or the alter ego of the corporation), and who is represented in the litigation by the incorporated legal practice; (iv) conversely, an incorporated legal practice litigant having a single director and shareholder who is a legal practitioner, the incorporated legal practitioner being represented in the litigation by the legal practitioner; (v) a legal practitioner litigant in a private practice which is structured as an incorporated legal practice of which there are multiple or numerous shareholders and multiple or numerous directors, the incorporated legal practice being represented in the litigation by one or more of the directors and shareholders; (vi) a legal practitioner litigant in a private practice which is structured as an incorporated legal practice, the legal practitioner litigant being (personally) represented in the litigation by one or more legal practitioners employed by the incorporated legal practice; (vii) a legal practitioner litigant in a private practice with others, structured as a partnership, with employed legal practitioners, who is represented in the litigation by a partner where legal work is undertaken by employed legal practitioners; (viii) a legal practitioner litigant (or litigants) in a private practice with others, structured as a partnership, with employed legal practitioners, the litigant or litigants being represented in the litigation by an employed legal practitioner (or practitioners); (ix) an incorporated legal practice litigant, with employed legal practitioners, the incorporated legal practice being represented in the litigation by an employed legal practitioner. This list does not purport to be exhaustive.
13. I do not accept this submission.
14. As the preamble to the paragraph set out above shows her Honour did not consider the law to be uncertain following Bell Lawyers, rather as I read her judgment, her Honour was commenting on the fact that certain fact scenarios fell within the reasoning in Bell Lawyers, while others arguably did not.
15. The plaintiff's problem is that following Bell Lawyers, Spencer and Atanaskovic, the application of Bell Lawyers to cases such as the present is quite clear.

Conclusion

1. For these reasons, I conclude that even if the plaintiff's case is put at its highest, it must fail. I take this view as the plaintiff's case confronts High Court and Court of Appeal authority which deny it any prospects of success.
2. Accordingly the defendants' are entitled to the primary relief which it seeks.

Orders 1. That the proceedings be dismissed. 2. The plaintiff pay the defendants' costs.

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