[1966] HCA 37
Bechara trading as Bechara and Company v Bates [2016] NSWCA 294
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29
93 ALJR 1007
Cachia v Hanes (1994) 179 CLR 403
[1994] HCA 14
Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516
[1990] HCA 53
Condensing Vaporisers Aust Pty Ltd trading as RJ Tinker & Son v FDC Construction & Fitout Pty Ltd (No 2) (2014) 86 NSWLR 360
Source
Original judgment source is linked above.
Catchwords
[1966] HCA 37
Bechara trading as Bechara and Company v Bates [2016] NSWCA 294
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 2993 ALJR 1007
Cachia v Hanes (1994) 179 CLR 403[1994] HCA 14
Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516[1990] HCA 53
Condensing Vaporisers Aust Pty Ltd trading as RJ Tinker & Son v FDC Construction & Fitout Pty Ltd (No 2) (2014) 86 NSWLR 360[2004] HCA 40
Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49[1999] HCA 67
FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340
Gammage v The Queen (1969) 122 CLR 444[1969] HCA 68
Gazecki v McCabes Lawyers Pty Ltd (2020) 102 NSWLR 259[2020] NSWCA 98
Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 214 CLR 269[2003] HCA 33
Gray v Motor Accident Commission (1998) 196 CLR 1[1998] HCA 70
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298[2003] NSWCA 10
Hunter Area Health Service v Marchlewski (2000) 51 NSWLR 26894 ALJR 818
New South Wales v Commonwealth (2006) 229 CLR 1[2013] UKSC 34
Re Pacific Coal Pty LtdEx parte Construction, Forestry, Mining and Energy Union (2000) 203 CLR 346
[2000] HCA 34
The Age Company Ltd v Liu (2013) 82 NSWLR 268
Judgment (29 paragraphs)
[1]
td (2020) 102 NSWLR 259; [2020] NSWCA 98
Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 214 CLR 269; [2003] HCA 33
Gray v Motor Accident Commission (1998) 196 CLR 1; [1998] HCA 70
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10
Hunter Area Health Service v Marchlewski (2000) 51 NSWLR 268; [2000] NSWCA 294
James Hardie & Co Pty Ltd v Hall (1998) 43 NSWLR 554
Maund v Crown in right of the State of New South Wales [2013] NSWCA 226
McIlwraith v Ilkin (Costs) [2007] NSWSC 1052
Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29; 94 ALJR 818
New South Wales v Commonwealth (2006) 229 CLR 1; [2006] HCA 52
Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150
PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168
Prest v Petrodel Resources Ltd [2013] 2 AC 415; [2013] UKSC 34
Re Pacific Coal Pty Ltd; Ex parte Construction, Forestry, Mining and Energy Union (2000) 203 CLR 346; [2000] HCA 34
The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26
The London Scottish Benefit Society v Chorley (1884) 13 QBD 872
United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15
Wilkie v Brown [2016] NSWCA 128
Texts Cited: A Burrows, "The Relationship Between Common Law and Statute in the Law of Obligations" (2012) 128 Law Quarterly Review 232
C Witting, Liability of Corporate Groups and Networks (Cambridge University Press, 2018)
Category: Principal judgment
Parties: Zali Burrows (Applicant)
Macpherson & Kelley Lawyers (Sydney) Pty Ltd (First Respondent)
Melinda Di Condio (Second Respondent)
Representation: Counsel:
R Winfield (Applicant)
D Neggo (Respondents)
[2]
Solicitors:
Macpherson Kelley Pty Ltd (Respondents)
File Number(s): 2020/219817; 2020/17047
Publication restriction: Nil
Decision under appeal Court or tribunal: District Court of New South Wales
Jurisdiction: Civil
Citation: Unreported
Date of Decision: 20 December 2019, 26 February 2020, 28 February 2020
Before: Craig QC ADCJ
File Number(s): 2015/00323343
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
Ms Burrows retained Macpherson & Kelley (Sydney) Pty Ltd ("M&K Sydney") to act for her in proceedings in the Family Court in 2011 against her former partner, Mr Alexander. Ms Di Condio was the solicitor with carriage of Ms Burrows' matter. On 4 October 2011, the Family Court made a costs order in favour of Ms Burrows. On 1 February 2012, M&K Sydney erroneously applied to the Supreme Court to have the costs assessed; the application was returned to M&K Sydney the following day and refunded. On 18 April 2012, Ms Burrows wrote personally to the Family Court saying she was self-represented. It appears, however, that she continued to receive advice from M&K Sydney. In October 2012, Ms Burrows applied to the Family Court to quantify the costs order. Other substantive aspects of the Family Court proceedings remained in dispute at that time. There was evidence indicating Ms Burrows was represented by Legal Aid in relation to parenting matters and appeared for herself in relation to costs. On 2 August 2013, the Registrar made orders in terms of "Consent Orders" signed by the parties, which commenced with the words "That all prior Orders are discharged and dismissed".
In November 2015, Ms Burrows sued M&K Sydney and Ms Di Condio in contract and in tort in the District Court, claiming they had caused her loss by failing to enforce the 4 October 2011 costs order. M&K Sydney was represented in the District Court proceedings and the subsequent appeal by M&K Lawyers Group Pty Ltd ("M&K Lawyers Group"), an incorporated legal practice and the sole shareholder of M&K Sydney (which had ceased to carry on business by the time of the District Court proceedings). The amount recoverable under the costs order appears to have been some $12,239.83 (the total fees charged by counsel and solicitors were $4,785 and $12,763.35 respectively). Ms Burrows claimed an additional $50,000 for aggravated damages and $50,000 for exemplary damages. It was common ground that the costs assessment application made to the Supreme Court had been misconceived and should have been brought in the Family Court. Rule 19.21 of the Family Law Rules 2004 (Cth) provided that "[a] person entitled to party and party costs must serve an itemised costs account on the person liable to pay the costs within 28 days after the end of the case".
The primary judge found that although r 19.21 imposed an obligation to serve an itemised cost account, the parties had continued in dispute after 1 November 2011 as Mr Alexander had filed an application on that date seeking that the costs order (and other orders) be discharged. His Honour rejected Ms Burrows' submission that the orders of 2 August 2013 were limited to discharging the parenting orders and did not extend to the costs order. His Honour further held that even if that construction were wrong, since Ms Burrows' application to the Family Court to have the costs assessed had been made after she had terminated her retainer with M&K Sydney, it was for her to pursue and agitate it, which she had failed to do. It followed that she had not demonstrated damage caused by the respondents for the purposes of her negligence claim and she had failed to mitigate any loss for her contract claim. Ms Burrows' claims for exemplary and aggravated damages were also dismissed.
M&K Sydney thereafter sought a gross sum costs order against Ms Burrows in the amount of $130,000. The motion was listed for 6 February 2020, however Ms Burrows sought and obtained an adjournment until 26 February 2020. On 26 February, counsel for Ms Burrows sought a further adjournment to 28 February 2020, which was refused. The primary judge made a lump sum costs order in favour of M&K Sydney in the amount of $130,000.
Ms Burrows sought leave to appeal to the Court of Appeal in respect of the substantive decision, the second adjournment decision and the costs decision. The application for leave was heard concurrently with the substantive issues on appeal. The issues on appeal were:
(i) whether the primary judge erred in finding that M&K Sydney had not been required to serve an itemised costs account by 1 November 2011 and that the 4 October 2011 costs order had been discharged by the orders of 2 August 2013, such that no breach of duty of care or contract by M&K Sydney, and no loss by Ms Burrows, had been established (grounds 1-12 and 13.1);
(ii) whether the primary judge erred in refusing Ms Burrows' second adjournment application, and whether that refusal amounted to a denial of procedural fairness (grounds 15-17); and
(iii) whether the primary judge misapplied Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 in awarding costs in favour of M&K Sydney in respect of work done by M&K Lawyers Group (grounds 13.2 and 14).
The Court held, granting leave to appeal in respect of proposed grounds 13.2 and 14 and dismissing the appeal:
As to issue (i), per Leeming JA (Meagher JA and White JA agreeing):
[5]
Judgment
MEAGHER JA: I have had the benefit of reading Leeming JA's judgment in draft. Unless indicated otherwise in what follows, I agree with his Honour's reasons and proposed orders. In my additional observations with respect to proposed grounds of appeal 13.2 and 14 I have adopted his Honour's abbreviations for the two incorporated legal practices.
The first, M&K Sydney, was the client and a wholly owned subsidiary of the second, M&K Lawyers Group, which provided legal services to the first. Until about October 2012 M&K Sydney carried on a legal practice under the name "Macpherson Kelley". From that time M&K Lawyers Group conducted the legal practice carried on under that name. In mid-July 2011 Ms Burrows retained M&K Sydney to act for her in Family Court proceedings. That retainer continued until October 2012. It is not suggested that M&K Lawyers Group ever provided legal services to Ms Burrows. The negligence proceedings brought by her against M&K Sydney were commenced in November 2015. M&K Lawyers Group acted on behalf of M&K Sydney in the defence of those proceedings.
[6]
The power to award costs and Bell Lawyers
In Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 the question was whether a barrister, who whilst retaining an incorporated legal practice to act on her behalf had also undertaken preparatory legal work as a party to proceedings, was entitled to recover her "fees" for doing so pursuant to a costs order made in her favour. In the present case the question is whether M&K Sydney as the defendant in proceedings brought by Ms Burrows was entitled to an order for payment of legal costs said to be due to M&K Lawyers Group for professional legal services provided by it in those proceedings.
The answers to these questions ultimately turn on whether the expenditure or fees in issue were or are recoverable as "costs" ordered to be paid by a Court in New South Wales exercising the power conferred under Civil Procedure Act 2005 (NSW), s 98(1).
Recognising that to be the position, in Bell Lawyers the plurality addressed the "proper effect" of section 98(1), taking account of the definition of "costs" in section 3(1), in the context of the "broader question whether the Chorley exception" remained part of the common law of Australia (at [13]-[16]).
The "Chorley exception" was a qualification to the general principle according to which the statutory authority to award costs has been understood and exercised (per Gageler J at [59]). That general principle continues to be that according to the common law "costs are awarded by way of indemnity (or, more accurately, partial indemnity) … for professional legal costs actually incurred in the conduct of litigation" (Cachia v Hanes (1994) 179 CLR 403 at 410-411; [1994] HCA 14). Under the exception "a self-represented litigant who happens to be a solicitor may recover his or her professional costs of acting in the litigation" (plurality in Bell Lawyers at [1]).
In Bell Lawyers it was decided (Nettle J dissenting) that the Chorley exception is not a part of the common law of Australia.
Had the Chorley exception continued as a qualification to the general principle informing the common law notion of costs, the existence of that qualification to the general principle would have been a factor to be taken into account in construing the language of section 98 and the "costs" definition in section 3(1). See Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 214 CLR 269; [2003] HCA 33 at [36] (per McHugh J); and Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309; [2004] HCA 40 at [19] (per Gleeson CJ).
[7]
The present case and Bell Lawyers
Applying the construction of "costs payable" (s 3(1)) adopted by the plurality and Gageler J, it is necessary that M&K Sydney as client incurred a liability to M&K Lawyers Group, as legal services provider, for the professional costs sought to be made the subject of the award of costs in the District Court. Subject to Ms Burrows' contention, dealt with below, that question should be answered in the affirmative. The latter's undertaking and provision of the relevant legal services pursuant to an express or implicit request that it do so gave rise to an entitlement to be paid.
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 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.
That conclusion makes it unnecessary to consider what the position may have been if there was only one incorporated legal practice which was both party to the litigation and acting for itself by its employed solicitors in defending it. It would seem that the cost to the incorporated legal practice of providing the services of its employed lawyers would be within the extended definition of "costs" (Bell Lawyers at [44], [50], [60], [68]), the present case not being one in which the party seeking the order for costs is an incorporated legal practice and the costs claimed are for work performed by its sole director and shareholder.
LEEMING JA: This application for leave to appeal, which was heard concurrently as if it were an appeal, is brought from three judgments of the District Court. The applicant, Ms Zali Burrows, was a party to proceedings in the Family Court in 2011. She retained the first respondent, Macpherson & Kelley (Sydney) Pty Ltd ("M&K Sydney"), to act for her. The second respondent, Ms Melinda Di Condio, was the employed solicitor who had carriage of the matter. Years later, Ms Burrows sued the respondents in the District Court, claiming they had failed to enforce a costs order obtained in her favour. By that time, M&K Sydney had ceased to carry on business, although the company continued in existence. Its sole shareholder, Macpherson Kelley Pty Ltd, then known as M&K Lawyers Group Pty Ltd ("M&K Lawyers Group"), was an incorporated legal practice which conducted the defence of the District Court proceedings on behalf of its subsidiary. After a four day trial, Ms Burrows' proceedings were dismissed. M&K Sydney then sought a lump sum costs order, which was opposed. The District Court granted one adjournment sought by Ms Burrows, but refused a second, and ultimately made a lump sum costs order.
[8]
Challenge to the principal judgment (proposed grounds 1-12)
Proposed grounds 1-12 allege error in the principal judgment of the District Court dismissing Ms Burrows' action, heard over four days, for a relatively small amount of damages, all said to be derived from her former solicitors' failure to enforce a costs order in her favour made by the Family Court. It is not necessary to summarise the proposed grounds of appeal, save to say that they seek to challenge many aspects of his Honour's reasons on breach, loss, the construction of the Family Law Rules and the orders made by the Family Court.
[9]
Costs ordered by the Family Court
Ms Burrows retained M&K Sydney in around July 2011 to act on her behalf in Family Court proceedings. The litigation was listed for an interlocutory hearing on 4 October 2011, and M&K Sydney had retained counsel to appear at that hearing. It is not perfectly clear, but it appears that Mr Chris Frawley was the solicitor on the record as acting for Ms Burrows. He was at the time a "Principal Lawyer" of M&K Sydney, which he said was "roughly equivalent" to a partner. It also appears that at no stage was any of his time billed in respect of Ms Burrows' proceedings in the Family Court.
Shortly before the hearing on 4 October 2011, it seemed that the dispute had been resolved. Orders in respect of the children were made by consent on the day. Costs of the litigation remained in issue. On 4 October 2011, the Family Court, constituted by a Principal Registrar, heard argument, gave brief reasons and ordered:
"2. The mother's costs be paid by the father Stephen Alexander on a party/party basis as agreed or in default of agreement, as assessed.
3. That Counsel's costs are certified."
The fees charged by counsel and the law firm were $4,785 and $12,763.35 respectively. At trial, Ms Burrow's case was that the total amount that could be recovered under the order for solicitor costs and disbursements, including counsel fees, based on Schedule 3 of the Family Law Rules 2004 (Cth) in the form it then took, was $12,239.83. (There was a dispute, not resolved during the hearing in this Court, and which need not be resolved for present purposes, whether the cost assessor's report from which this amount was derived was ultimately read. The amount was mentioned in the parties' submissions and in the judgment of the primary judge.)
[10]
Ongoing proceedings in the Family Court
On 1 November 2011, Mr Alexander filed an application seeking that the costs order be discharged (this appears to have been pursuant to r 18.08(2) of the Family Law Rules). However, it seems that his application was not immediately served.
The primary judge proceeded on the basis that Ms Burrows terminated the retainer with her solicitors at some stage thereafter (at [34]). Based on the submissions in this Court, I think that finding was wrong, although it is easy to see why his Honour concluded that that had occurred prior to 18 April 2012. By letter of that date, to which the primary judge referred, Ms Burrows wrote personally to the Family Court seeking an assessment of the costs order, saying that she had formerly been represented by M&K Sydney but was now self-represented. However, Ms Winfield, who appeared for Ms Burrows in this Court but not in the District Court, pointed to emails between Ms Burrows and Ms Di Condio at around this time, and also to the firm's time costing, which suggested that advice was still being provided, and in some cases correspondence drafted, by employed solicitors in the firm, and that Ms Burrows was advised that it would be in her interests to make her application as an unrepresented litigant. On the view I take, nothing turns on this error of fact.
What precisely happened to Mr Alexander's application is not clear from the materials. It is clear that an application was made (in around February 2012) to the Supreme Court for the costs order to be assessed. Ms Burrows submits, and it may be the case, that M&K Sydney was involved in making that application. It is common ground that that application was misconceived, and that the order if it were to be quantified needed to be the subject of an application to the Family Court under Schedule 3 of the Family Law Rules. Part of Ms Burrows' complaint concerns the costs incurred needlessly in making the application to the Supreme Court. By my count around $648 was involved. According to Ms Winfield, the amount was closer to $2,400. I suspect that Ms Winfield's sum includes amounts after 2 February 2012 when it became clear that the application had to be made under the Family Law Rules rather than to the Supreme Court.
Around a year after the costs order had been made, in October 2012, Ms Burrows made an application to the Family Court to quantify the costs order. The documents relating to that application appear not to have been in evidence. However, it seems clear from further documents supplied to the Court during the hearing of the appeal without objection, which had inadvertently been omitted from the appeal book although they had been tendered at trial (they became pages 923A-C of the blue book) that that dispute was live until at least August 2013, because it was specifically addressed by order 12 made by a Registrar on 5 June 2013 under the heading "Costs". The same document records that a solicitor apparently from Legal Aid appeared for Ms Burrows in relation to "Parenting", while Ms Burrows appeared for herself in relation to "Costs".
[11]
Proceedings in the District Court
In November 2015, Ms Burrows sued her former solicitors in contract and tort in the District Court. Her principal complaint was that they had caused her loss by failing to enforce the costs order in her favour made on 4 October 2011. She relied upon r 19.21 of the Family Law Rules 2004 which required a person entitled to party/party costs to serve an itemised costs account on the person liable to pay the costs "within 28 days of the end of the case". By the time of the trial, it was accepted that no such itemised cost account was supplied.
It is not necessary to summarise all of the defences advanced by the first respondent at trial. Not all were successful. Nonetheless, by judgment delivered on 20 December 2019, the primary judge entered judgment for the defendants.
His Honour's reasons may sufficiently be summarised as follows.
First, the primary judge appears partially to have accepted Ms Burrows' submission that there was an obligation to serve an itemised costs account in accordance with r 19.21, but nonetheless found that the parties continued in dispute, reflected in the extant challenge by Mr Alexander to discharge the costs order and other orders after 1 November 2011.
Secondly, the primary judge rejected Ms Burrows' submission that the consent orders made on 2 August 2013 were limited, as a matter of construction, to discharging the parenting orders and did not discharge the costs order. His Honour relied, inter alia, upon the ordinary meaning of the words of the order, coupled with the fact that the parenting orders themselves had also been made on 4 October 2011, and the costs order made on that date was merely consequential.
Thirdly, in the event that that construction of the orders were wrong, the primary judge stated that her application for payment of a fixed sum or leave to bring an assessment remained to be determined, but since her application had been made subsequent to terminating M&K Sydney's retainer (which his Honour regarded as occurring no later than 18 April 2012), it was for her to pursue and agitate it, which she had failed to do. It followed that she had not demonstrated damage caused by the respondents for the purposes of her claim in negligence. It also followed, according to his Honour, that she had failed to mitigate any loss for the purposes of her claim in contract.
[12]
Leave should not be granted in respect of proposed grounds 1-12
In light of the above, these proposed grounds may be resolved concisely.
First, the claims for aggravated and exemplary damages were at all times scarcely arguable, if indeed they were arguable at all. None of the proposed grounds challenged the rejection of those claims. Exemplary damages are not available for breach of contract: Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10 at [28]. They are not available for a claim in negligence where there was no conscious wrongdoing, and no conscious wrongdoing was alleged: see Gray v Motor Accident Commission (1998) 196 CLR 1; [1998] HCA 70 at [22]. It is unnecessary to consider the availability of aggravated damages (which this Court doubted were available in negligence in Hunter Area Health Service v Marchlewski (2000) 51 NSWLR 268; [2000] NSWCA 294 at [110]) because once again nothing was alleged that was reasonably capable of warranting any award of such damages even if they were available. It follows that the amount in issue in this part of the appeal is very substantially less than the $100,000 threshold imposed by s 101(2)(r) of the Supreme Court Act 1970 (NSW).
Secondly, the costs of preparing for and running a four day trial in the District Court must vastly have exceeded the original claimed failure to enforce an interlocutory costs order, which Ms Burrows quantified at $12,239.83. Regrettably, litigation where the costs exceed the amount in issue is not unfamiliar. Such litigation is a poor candidate for a grant of leave. Section 60 of the Civil Procedure Act 2005 (NSW) reflects an important legislative purpose that costs be proportionate to what is at stake: see Condensing Vaporisers Aust Pty Ltd trading as RJ Tinker & Son v FDC Construction & Fitout Pty Ltd (No 2) (2014) 86 NSWLR 360; [2014] NSWCA 89 at [25] and [28].
Thirdly, it is generally only appropriate to grant leave in matters that involve issues of principle, questions of public importance or in circumstances where it is reasonably clear that an injustice has occurred by reason of error in the judgment, going beyond what is merely arguable: The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]. Plainly, proposed grounds 1-12 raise no question of principle or public interest.
Further, none of Ms Burrows' submissions raises a reasonably clear injustice. Indeed, none identifies even a reasonably arguable error which might, if corrected, lead to a different outcome. That is so for the following reasons.
[13]
Challenge to the refusal of the second adjournment (proposed grounds 15-17)
These proposed grounds challenged the dismissal of Ms Burrows' application for an adjournment on 26 February 2020. Grounds 15 and 17 assert error in refusing the adjournment, and ground 16 alleges that there was a denial of procedural fairness because Ms Burrows would have been "allowed" to address the complexities in the relationship between the two incorporated legal practices and whether one was independent from the other. Ms Burrows adduced evidence that had the adjournment been granted, she would have tendered documents suggesting a close relationship between M&K Sydney and M&K Lawyers Group. These included statements of a trust account (which showed that $50 held by M&K Sydney on trust for her was transferred to a trust account of M&K Lawyers Group in her favour), correspondence of M&K Lawyers Group with a footer that referred to "Macpherson + Kelley Lawyers (Sydney) Pty Ltd" and other emails which illustrated a confusion between M&K Sydney and M&K Lawyers Group. All were said to refute representations which were said to have been made to the Court that the two companies were independent.
[14]
Factual background
Judgment on Ms Burrows' action was delivered on 20 December 2019. The primary judge directed that any application for a special costs order be notified by 24 January 2020. Notification was given on that day that a gross sum costs order in the amount of $130,000 was sought against Ms Burrows, based on a series of non-compliances with directions and the previous history of Ms Burrows contesting her obligation to pay outstanding fees which had been assessed. The motion was listed on 6 February 2020. Ms Burrows sought an adjournment for 8 weeks, based on the size of the amount, the decision in Bell Lawyers, the fact that she was a sole practitioner mostly appearing in legal aid matters, and the fact that a further affidavit of Mr Frawley had only just been served. The application was not made by motion, was unsupported by evidence and appears only to have been notified by email on the previous evening. Counsel appeared on Ms Burrows' behalf, and obtained an adjournment, in circumstances which the primary judge described as "entirely unsatisfactory", on the basis that the Bell Lawyers decision raised an important point of principle. His Honour directed an exchange of outlines of submissions, and that Ms Burrows file and serve any evidence in response by 19 February 2020, and set the motion for hearing on Wednesday 26 February 2020.
No part of Ms Burrows' application for leave to appeal challenges that decision.
It must have been clear to all that the adjournment for 20 days granted on 6 February was unlikely to be extended further without good reason. Yet Ms Burrows filed no evidence nor any outline of submissions as directed. Counsel appeared for her on 26 February to seek a further adjournment until Friday 28 February at 2pm. He told the Court, in answer to his Honour's question, that no previous notice had been given to the other side of the application. He tendered an email which suggested that Ms Burrows' computer had malfunctioned on the previous day. No other evidence was tendered. The respondents opposed the application for an adjournment, saying that no basis had been put forward for a second adjournment and that he was not confident that the matter could be heard and determined on the Friday afternoon. During submissions, the trial judge explored in some detail the possibility and practicality of the hearing being adjourned until Friday, but ultimately refused the adjournment, giving an oral judgment.
[15]
Reasons of the primary judge
After setting out the background and the parties' submissions, the primary judge gave the following dispositive reasoning:
"Having heard the respective arguments, I invited Mr Foster to seek instructions from the plaintiff in order to determine two matters. First, if I was to adjourn the matter and gave directions for a written outline of submissions by 5pm tomorrow, whether that direction would be likely to be met. Upon his return to court he indicated that would be so. That said, while it may reflect the present intention of the plaintiff, taking into account her history of compliance with procedural directions, both in the substantive proceedings and in the various interlocutory steps that preceded it, as recorded in the affidavit of Mr Frawley, that history shows compliance with such directions to be poor. Indeed, the plaintiff's failure to comply with directions given for the conduct of the present motion demonstrated that to be the case.
The second matter, which is of concern, arose out of the capacity of the plaintiff to argue the case on Friday. Mr Foster fairly stated that he was in another case on Friday and that he was not confident that he would necessarily be available to advance the submissions intended to be put on behalf of the plaintiff. Should he not be available, then it was left uncertain as to who it was who would appear for the plaintiff, whether herself or some other legal practitioner. That is unsatisfactory.
As I had indicated on the last occasion and repeated again this morning, the essential issue that seems to arise in this notice of motion is the entitlement of the defendant to recoup its professional costs as a result of its success in the proceedings, having regard to the decision in Bell Lawyers. There the question arose, but was not decided as to whether an incorporated law practice had the same advantage in being able to recoup costs as did a corporation, who employed lawyers to conduct its litigation. It is unfortunate that I am not given the benefit, nor is Mr Neggo given the benefit, of a written outline of submissions directed to that important topic for consideration today.
I am conscious of the fact that, although the plaintiff framed her case in a way which was very optimistic as to the damages she would succeed in recovering, in reality her case was all about a sum of money that was little more than $12,000, as is reflected in my principal judgment. The costs incurred in this litigation now seem to be out of all proportion to the amount that was originally at stake.
In the circumstances it seems that the proceedings must be brought to an end and brought to an end promptly. For those reasons I am not prepared to grant the adjournment that has been sought."
[16]
Leave should not be granted
Very little was said in support of these proposed grounds orally. Ms Burrows' written submissions advanced only two points. One was that in circumstances where the primary judge had reserved for 20 months, a short extension was not unreasonable, in light of her other professional and personal commitments. The second was that she was unable to retrieve from her computer documents which asserted the lack of independence between the two incorporated legal practices.
The time taken for the primary judge to deliver the substantive judgment is regrettable, but provides no sound reason for Ms Burrows to obtain a second adjournment of a hearing concerning costs, in circumstances where she had repeatedly failed to comply with the court directions and provided no evidentiary basis for her application, save that her computer had broken the previous day. There was nothing to suggest that Ms Burrows had taken any steps to prepare evidence by the (already adjourned) date of 19 February 2020. There was no explanation for the continuing failure on the part of Ms Burrows to comply with directions. There was no explanation for the absence of earlier notice of the application for an adjournment (which appears only to have been given minutes before it was made).
Ms Burrows and her counsel, and the Court, were subject to the overriding obligation to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Section 56(3) of the Civil Procedure Act 2005 (NSW) imposed a duty upon Ms Burrows "to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court". Plainly that duty was breached, repeatedly, and without real explanation. I do not regard the assertion that Ms Burrows' duties to another client in a criminal trial precluded or excused her from complying with her own obligations as plaintiff in civil proceedings commenced by her against her former solicitors, for the entirety of February, as a satisfactory explanation. The fact that Ms Burrows was not only a party but a legal practitioner meant that she should have been acutely conscious of her obligations to the Court.
Granting the adjournment would have increased costs, in a matter that was only about costs, and in which costs already had exceeded, by an order of magnitude, the principal claim. Granting the adjournment would also have increased delay, and run the risk, in the event the hearing could not be completed in the time available on Friday, of substantially increasing delay. There was no basis founded in evidence to think that a hearing on the Wednesday would be less just than a hearing on the Friday. Indeed, practicalities favoured proceeding on the Wednesday, being a day when counsel for Ms Burrows was in fact available. He had other commitments on Friday, and it was not clear how extensive those commitments would prove to be.
[17]
The challenge to the costs order (proposed grounds 13 and 14)
Ms Burrows submitted that the abolition of the "Chorley exception" in Bell Lawyers meant that the costs order ought be set aside and replaced by one confined to the actual disbursements incurred by the first respondent, exclusive of the costs based on the time and hourly rates of principals and employed solicitors of the successor incorporated legal practice.
This was argued by counsel on both sides before the primary judge on Wednesday 26 February 2020. The primary judge reserved and delivered judgment that Friday 28 February 2020. His Honour considered that the principle identified in Bell Lawyers was "directed to the identification of the legal entities, namely the companies, that differed as between the defendant and the incorporated legal practice representing the defendant company in these proceedings". It followed that there was no self-representation. His Honour saw no basis to lift the corporate veil. This amounted to an acceptance of the primary submission advanced on behalf of the respondents.
The primary judge noted that Ms Burrows accepted the appropriateness of a lump sum of $130,000, including disbursements of $38,651.63, in the event that he came to the conclusion as to the effect of Bell Lawyers which he reached.
[18]
New submissions on appeal
Ms Burrows' oral submissions raised a range of considerations which her counsel accepted (transcript, 19 February 2021, p 32) had not been made to the primary judge. This included that there was no evidence of any tax invoice rendered, or disclosure in accordance with the rules, or indeed any obligation to pay let alone capacity to pay.
The respondents maintained that there was plainly albeit implicitly a request to the new incorporated legal practice to provide legal services to defend the District Court action. Even if there were no contract, the performance of work pursuant to a request gave rise to an entitlement to be paid. The non-compliance with disclosure and the non-existence of any tax invoice was not to the point, so it was said, in circumstances where Ms Burrows at first instance had agreed on quantum and the appropriateness of a lump sum costs order, and made a single submission, namely, that Bell Lawyers stood in the way of any recovery in respect of work done by the firm.
I agree with the respondents. The evidence established work done by M&K Lawyers Group at the request of M&K Sydney. That gives rise to either a contractual or a quasi-contractual liability on the part of the client. Of course, that entitlement may be subject to statute, and if there were non-compliance with the costs disclosure obligations in ss 174-177 of the Uniform Law, then s 178 provided that the client was not required to pay the costs, and the law practice was forbidden to commence or maintain proceedings to recover the costs, until those costs had first been assessed. The operation of those provisions in relation to an incorporated legal practice providing legal services to its own subsidiary is far from clear, but I see no reason why any contravention, even if established, precludes the making of a lump sum costs order. I note that such an order was made in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 where similar points were raised but not fully argued.
I am conscious that applications for lump sum costs orders can give rise to acute conflicts where fees are high or where there is a dispute as to whether the disclosure requirements have been satisfied: see for example Crosby v Fica (No 4) [2018] NSWSC 632. However, the fact that the incorporated law practice owned the client means that there is no realistic possibility that the difference between the lump sum and solicitor/client fees will ever be sought, which goes some way to alleviating those issues.
[19]
Proposed grounds of appeal and notice of contention
Proposed ground 13.1 challenged the order on the basis that judgment should have been entered in Ms Burrows favour. This ground falls with grounds 1-12.
By proposed grounds 13.2 and 14, Ms Burrows pointed to a range of matters pointing to the identicality of M&K Sydney and M&K Lawyers Group. She said that the latter was at all times the 100% shareholder of the former, that Mr Frawley was a Principal Lawyer of both companies at all material times, as a result of which, so she maintained, there was a lack of independence. She said that the primary judge had failed properly to consider the issue of independence, which was a significant part of the reasoning in Bell Lawyers and that his Honour had erred in failing to lift the corporate veil between the two incorporated legal practices. She said that it was necessary to consider the individual legal practitioners employed by both incorporated legal practices.
It was put orally:
"we say that the way the companies are intertwined, the same personalities et cetera, indicates that they are the same company in effect, especially if the subsidiary company is no longer trading, but the practice has been taken over by the holding company, then it's somewhat artificial to say, 'Well, we'll siphon off that other company in the work that it did, and we're acting for it,' when the holding company is now doing all the work that the subsidiary company used to do in Sydney."
The submission continued:
"the facts in this particular case are that notwithstanding there were two ACNs, there really was only one firm or one practice. And that's the difference in this case. That's the tricky part of this particular argument. There just isn't any evidence of the separation, notwithstanding two separate ACNs."
It may be seen that Ms Burrows' principal submission was that in substance the same incorporated legal practice defended the proceedings which had been brought against it, such that this was a case of a self-represented solicitor seeking to recover that solicitor's own costs.
By paragraph 2 of a notice of contention, the respondents submitted that the abolition of the Chorley exception did not extinguish or otherwise affect the entitlement of an incorporated legal practice, where it was a self-represented party to litigation, to be indemnified in relation to the professional costs and remuneration of its employed solicitors, at least where that incorporated legal practice was not a vehicle for a sole legal practitioner who was the only director and shareholder of the practice.
[20]
The significance of "independence"
Ms Burrows reiterated a general submission that M&K Sydney was not "independent" from M&K Lawyers Group. In one sense it is trite that the two companies were not independent. One owned the other. One by members' resolution could at any time cause the other to perform any corporate act. There may also very well have been day-to-day control of the subsidiary's board.
However, it may be noted that this is the opposite of the usual case where independence is in issue. Ordinarily, applications to "pierce the corporate veil" seek to extend the liability of a subsidiary to the parent shareholders. One can also contemplate submissions that legal advice by employees of the client might not be independent. But in the present case, the incorporated legal practice owned and controlled the client, not vice versa. I shall return to the significance of "independence" amongst the considerations relied on in Bell Lawyers.
[21]
The evidence on which Ms Burrows relied
The evidence established that M&K Sydney had, in 2011, employed Mr Frawley as a "Principal Lawyer". After July 2015, Mr Frawley was employed as a "Principal Lawyer" by M&K Lawyers Group. He was one of some 13 Principal Lawyers. Each of the lawyers who worked to defend the District Court proceedings were employees of M&K Lawyers Group and reported to Mr Frawley.
M&K Lawyers Group changed its name to Macpherson Kelley Pty Ltd on 1 May 2019. It seems that both incorporated legal practices traded under the name "Macpherson Kelley".
For reasons which were not explained in evidence, Mr Frawley became one of the directors of M&K Sydney in March 2014. At no stage had he been a director of M&K Lawyers Group. However, at all material times after Ms Burrows had commenced proceedings in the District Court, M&K Lawyers Group acted for M&K Sydney, with Mr Frawley as both director of the client, and Principal Lawyer of the incorporated legal practice.
Ms Burrows did not contend that the restructuring was intended to obtain any advantage in the event that the Chorley exception was overturned, or in any other way connected with her claim.
Ms Burrows pointed to the evidence, parts of which suggested that from time to time employed solicitors failed to distinguish one incorporated legal practice from the other, and other parts of which reinforced the distinction (for example, the transfer of $50 in the M&K Sydney trust account to the M&K Lawyers Group trust account). She also placed reliance on an email to the Family Court from an employed solicitor of M&K Lawyers Group, seeking access to the file, on the basis that her firm had acted for Ms Burrows in 2011. She contended that the request showed that M&K Lawyers Group "improperly accessed [Ms Burrows'] confidential and sensitive affidavit materials regarding her parenting matter in the Family Court, when this action would not have been taken by an independent legal entity representing another legal entity in [a] civil matter". I disagree. The solicitor told the Family Court, squarely and unambiguously, that her firm had acted for Ms Burrows but no longer did so. There was no occasion at the time for the solicitor to clarify that her firm had restructured such that she was now employed by the incorporated legal practice which was the 100% shareholder of the incorporated legal practice which Ms Burrows had once retained.
[22]
The significance of statute
There are two statutory regimes in play. The first comprises the provisions which permit a company to be treated as a solicitor. That is a relatively new development. The second is the provisions empowering a court to order costs. They date back many centuries.
The power conferred on the District Court to order costs is found in s 98(1) of the Civil Procedure Act. It provides that (a) costs are in the discretion of the court, (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. The power is subject to rules of court and to "this or any other Act". "Costs" are defined in s 3(1) to mean "costs payable in or in relation to the proceedings" and to include "fees, disbursements, expenses and remuneration".
The reasoning in Bell Lawyers concerned the recovery of costs by a natural person who was a barrister as well as a party, and most of the decisions (not least of which is Chorley itself) concern solicitors who were sole practitioners or partnerships. Only by dint of statute can a company provide legal services and therefore fall within the ambit of the Chorley exception or some extrapolation of it. An essential part of the legal analysis is the statute which requires the conclusion that the legal services (which in fact were provided by natural persons without whom the company cannot act at all) were provided by the company. Only by reason of that statute does the question whether a company infringes a restriction on the ability to recover party/party costs arise. Thus, on the view I take, it is necessary to start with statute, as is so often the case: see Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29; 94 ALJR 818 at [14].
Incorporated law practices have been permitted under New South Wales legislation, in various forms, since the Legal Profession (Solicitor Corporations) Amendment Act 1990 (NSW). That statute permitted firms to incorporate as "solicitor corporations" by application to the Law Society Council for a certificate of approval. A report by the Commonwealth Attorney-General in 1998 was critical of the restrictions imposed by the Law Society, and recommended that a more flexible corporate structure be permitted. In circumstances that need not be summarised here, that led to the enactment of the Legal Profession Amendment (Incorporated Legal Practices) Act 2000 (NSW), which permitted (under new Division 2A of Part 3) legal services to be provided by corporations incorporated under the (former) Corporations Law and subsequently the Corporations Act 2001 (Cth), so long as they had one director who held an unrestricted practising certificate. The general regulatory approach was that the existing regime applicable to solicitors was extended to apply to incorporated legal practices. In particular, new s 47J(1), which was titled "Application of Part 11 (Legal fees and other costs)", provided:
"Part 11 applies to legal services provided by an incorporated legal practice as if a reference in that Part to a solicitor included a reference to the incorporated legal practice and to any external administrator."
[23]
The current regime applicable to incorporated legal practices
The Legal Profession Uniform Law Application Act 2014 (NSW) makes applicable as a law of New South Wales the Legal Profession Uniform Law (which is Schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic)). The uniform law distinguishes "law firms" and "law practices". The former are defined to be partnerships consisting only of Australian legal practitioners or Australian-registered foreign lawyers (with a proviso that there must be at least one Australian legal practitioner). The latter is defined to mean "(a) a sole practitioner; or (b) a law firm; or (c) a community legal service; or (d) an incorporated legal practice; or (e) an unincorporated legal practice": s 6. Thus every law firm is a law practice, but while an incorporated legal practice is a law practice, it is not a law firm.
The definitions in s 6 also define a "principal" of a law practice differently depending on the type of practice. A sole practitioner is a principal, as is a partner of a law firm. A principal of an incorporated legal practice is a person who "holds an Australian practising certificate authorising the holder to engage in legal practice as a principal of a law practice", and, if the practice is a company, is "a validly appointed director of the company".
It will be seen that a "Principal Lawyer" is quite different from a "principal" for the purposes of the Uniform Law. Mr Frawley was a "Principal Lawyer" of M&K Sydney when that incorporated legal practice provided legal services to Ms Burrows, but he was never during that period a "principal" of that incorporated legal practice (for he only became a director of the company in 2014).
Law practices are regulated by Part 3.2 of the Uniform Law. That part is introduced by s 32:
"Legal services may be provided under any business structure, subject to the provisions of this Law and the Uniform Rules."
Principals of law practices are required to ensure that all legal practitioner associates of the practice comply with their obligations, and may be subject to disciplinary measures if that does not occur. Section 38(1), within that Part, provides:
"An Australian legal practitioner who provides legal services in the capacity of an officer, director, partner or employee of a law practice, or in the capacity of a corporate legal practitioner or government legal practitioner, does not lose the professional privileges of an Australian legal practitioner."
[24]
Bell Lawyers Pty Ltd v Pentelow
The High Court held in Bell Lawyers that "the Chorley exception" was no longer part of "the common law of Australia". That was a reference to what had been held to flow from the decision of the English Court of Appeal in The London Scottish Benefit Society v Chorley (1884) 13 QBD 872 (although the same approach had previously been adopted in the United Kingdom and in the colony of New South Wales) that while a costs order in favour of an unrepresented litigant does not extend to that person's time, but "only for costs out of pocket", a solicitor who brings or defends proceedings is entitled to the same costs as an ordinary litigant who appears by solicitor. Sir William Brett MR rested his decision on pragmatic considerations: that there are things which a solicitor can do for himself, but for which he could also employ another solicitor or a clerk, and that if the solicitor could not recover for his own time, he would always employ another: at 875. Bowen LJ acknowledged that costs were the creature of statute, regarded the statutory entitlement to costs as being confined to costs which could be measured, and distinguished between a solicitor's professional skill and labour and that of any other litigant on the basis that the former could be measured by the law, while "private expenditure of labour and trouble by a layman cannot be measured" because it depended on "the zeal, the assiduity, or the nervousness of the individual": at 877.
Ms Pentelow, a barrister, had been retained by the incorporated legal practice Bell Lawyers. Bell Lawyers and the barrister fell into a dispute concerning the latter's fees, and the barrister sued. Although the barrister was separately represented in the course of that latter litigation, she also performed some work on her own behalf, in respect of which she sought to recover from Bell Lawyers pursuant to orders that it pay her costs. Bell Lawyers succeeded in the High Court, and did not have to pay any amount for the costs attributable to work done by Ms Pentelow.
The High Court decision holds that a legal practitioner who is a natural person cannot recover costs for legal services provided by him or her in the prosecution or defence of his or her own litigation. Ms Pentelow was a barrister, but all judgments save that of Nettle J extend to legal practitioners more generally.
But what precisely is "the Chorley exception" which the High Court abrogated? What Chorley itself decided is an unsafe guide to what "the Chorley exception" is. The decision pre-dated companies being able to provide legal services. Did "the Chorley exception" apply where legal services were supplied by an incorporated legal practice?
[25]
Common law or statute?
Complicating an understanding of the effect of the reasoning in Bell Lawyers is an anterior question. Was the issue presented for determination in the High Court, and is the issue presented for determination in this appeal, to be regarded as a question of statutory construction, or the development of the common law?
Earlier decisions of this Court favoured an approach based on statutory construction, turning on the word "payable" in the power to make costs orders: see Wilkie v Brown [2016] NSWCA 128 at [40]-[43], Bechara v Bates at [64]; Coshott v Spencer [2017] NSWCA 118 at [106]-[107] and Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150 at [83]-[95] (Beazley ACJ), [125]-[128] and [137]-[140] (Meagher JA, dissenting).
The joint judgment in Bell Lawyers recorded that "costs are a creature of statute" at [33], and identified the source of the power to make the order for costs in the Civil Procedure Act 2005 (NSW): at [13]-[14]. The joint judgment deferred the consideration of statute (at [16]) returning to it at [40]-[45] when dealing with a submission that the "Civil Procedure Act itself embraced the Chorley exception". The submission was that the explicit inclusion of "fees, disbursements, expenses and remuneration" within the definition of "costs" demonstrated an intention to maintain "the Chorley exception". The focus was on "remuneration", which was said to extend to the recovery by a lawyer for work on his or her own case. This submission was rejected at [43]-[44], including the following passage which is highly relevant for the position of employed solicitors:
"In s 3(1) of the Civil Procedure Act, the 'means' part of the definition, in referring to 'costs payable', is a restatement of the general rule that costs are awarded only for professional costs actually incurred. The 'includes' part of the definition, in referring to 'remuneration', can be seen readily enough to encompass remuneration for professional services rendered under a contract of service as well as remuneration for professional services rendered under a contract for services. In so doing, it 'makes plain' that the cost of professional legal services rendered by an employed lawyer is included in the definition of 'costs'. The definition, being otherwise exhaustive, leaves no room for the Chorley exception as a matter of legislative intention. 'Remuneration' is simply not a word which is apt to include the notion of payment to a person by himself or herself for work done by himself or herself."
[26]
Piercing the corporate veil?
"'Piercing the corporate veil' is an expression rather indiscriminately used to describe a number of different things." So commenced Lord Sumption's analysis of the expression in Prest v Petrodel Resources Ltd [2013] 2 AC 415 at 478; [2013] UKSC 34 at [16]. The most common objective of invoking the principles associated with departing from the prima facie distinction between shareholder and company is to attribute liability of the company to the shareholder. But the present case is unusual, in that Ms Burrows' objective is to cause M&K Sydney to be self-represented and therefore within "the Chorley exception" abrogated in Bell Lawyers and thus unable to recover professional costs incurred by its parent M&K Lawyers Group.
It is well settled that mere control is not sufficient to disregard corporate identity. In James Hardie & Co Pty Ltd v Hall (1998) 43 NSWLR 554 at 583-584, Sheller JA said, when declining to create a duty of care owed by the parent company to an employee of its subsidiary:
"It has been suggested that in company law the corporate veil between parent and subsidiary may be lifted where the latter was so controlled by the former as to be its agent for the purposes of liability: Smith, Stone & Knight Ltd v City of Birmingham [1939] 4 All ER 116. However, in Woolfson v Strathclyde Regional Council [1978] SLT 159 (at 160) Lord Keith of Kinkel said, in approving the reasons for the judgment appealed from, that the separate legal status of a limited company and its incorporators must, as held in Salomon v A Salomon & Co Ltd, normally receive full effect in relations between the company and persons dealing with it. His Lordship referred to a passage in the judgment of Ormerod LJ in Tunstall v Steigmann [1962] 2 QB 593 at 601 to the effect that any departure from a strict observance of the principles laid down in Salomon v A Salomon & Co Ltd has been made to deal with special circumstances when a limited company might well be a facade concealing the true facts.
This passage was discussed by Dr Rixon in an article "Lifting the Veil between Holding and Subsidiary Companies" in 102 LQR 415. The learned author observed (at 423):
'That the corporator has "complete control of the company" is not enough to constitute the company a mere facade; rather that term suggests, in the context, the deliberate concealment of the identity and activities of the corporator. Certainly the term calls to mind expressions used by the Court when lifting the veil in (cases which are then cited), all cases in which the company was formed in order to enable the corporator to do through, and under the cover of, the company what he might not do openly and in person.'"
[27]
Miscellaneous points
Accordingly, it is not necessary to express a view on the correctness of United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15, although the respondents submitted that it was clearly wrong, if not distinguishable. The Victorian Court of Appeal was not dealing with the position of an incorporated legal practice, nor was it dealing with a case where the litigant was represented by a different corporation. I see no reason to lengthen these reasons with a full account of the careful reasoning of that Court (which I have found of assistance in preparing these reasons). I acknowledge that insofar as the Victorian Court of Appeal regarded the "employed solicitor" rule as inapplicable to a firm of solicitors, as opposed to a corporation or statutory authority (see at [101]-[121]), then it tends against the conclusion I have reached. But that is scarcely surprising. As I have sought to explain, there is a tension between the abrogation of "the Chorley exception" and the retention of the "employed solicitor" rule. I do not think that tension undermines the reasoning applicable to the present, materially different, case. The position would be different if I had acceded to Ms Burrows' submission concerning piercing the corporate veil.
A possibility raised in the course of argument with Ms Winfield and Mr Neggo was that the conclusion I have reached is one which might be abused. A solicitor who is sued might incorporate a legal practice, of which he or she was a principal, and cause that company to conduct his or her defence, and in that fashion evade the outcome of Bell Lawyers in the event that a favourable costs order was obtained. However, there is a general principle in the law that what is prohibited directly cannot be done indirectly: see Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516 at 522-523; [1990] HCA 53; Re Pacific Coal Pty Ltd; Ex parte Construction, Forestry, Mining and Energy Union (2000) 203 CLR 346; [2000] HCA 34 at [29], approved in New South Wales v Commonwealth (2006) 229 CLR 1; [2006] HCA 52 at [228]. And there is a specific principle in cases where a corporate structure has been adopted so as to evade an existing obligation, identified by Lord Sumption in Prest v Petrodel at [35] as follows:
"[T]here is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality."
[28]
Orders
For those reasons, M&K Sydney was not a self-represented litigant, and its ability to obtain a costs order based on its representation by M&K Lawyers Group is unaffected by anything in Bell Lawyers. Leave should be granted in relation to proposed grounds 13.2 and 14, but the appeal should be dismissed. Otherwise leave should be refused.
Ms Burrows purported to file a notice of appeal on 20 March 2020, and an amended notice of appeal on 8 October 2020. That appeal is incompetent in the absence of a grant of leave. Wisely, she also filed a summons seeking leave to appeal, on 27 July 2020. Given that a notice of appeal has already been filed, there is no point in requiring Ms Burrows to file a further notice of appeal confined to the only grounds which raise a question of principle.
The orders reflecting the above which I propose are as follows:
In proceeding 2020/17047:
Dismiss the appeal as incompetent.
Ms Burrows to pay the respondents' costs.
In proceeding 2020/219817:
Grant leave to appeal, confined to proposed grounds 13.2 and 14, and otherwise dismiss the summons filed on 27 July 2020.
Dispense with the need to file and serve a notice of appeal limited to proposed grounds 13.2 and 14.
Appeal dismissed with costs.
WHITE JA: I substantially agree with the reasons for judgment of Leeming JA. I would add the following observations.
I agree for the reasons Leeming JA gives that the applicant requires leave to appeal and that leave should be refused in respect of grounds 1 to 12 and 15 to 17 of the purported amended notice of appeal. I agree that leave should be given in respect of grounds 13.2 and 14.
The law practice conducted by the respondent, Macpherson & Kelley Lawyers (Sydney) Pty Ltd ("M&K Sydney") acted for the appellant in her family law proceedings. She unsuccessfully sued M&K Sydney in the District Court. The primary judge made a gross sum costs order in favour of M&K Sydney premised on the finding that the costs to which M&K Sydney was entitled as the successful defendant included professional fees payable to M&K Lawyers Group Pty Ltd ("M&K Lawyers Group") that represented M&K Sydney in the District Court proceedings (J [37]).
M&K Sydney is a wholly owned subsidiary of M&K Lawyers Group (now called Macpherson Kelley Pty Ltd). M&K Sydney traded under the name "Macpherson Kelley". Mr Chris Frawley deposed that the business previously carried on by M&K Sydney has, since about 2012, been carried on by M&K Lawyers Group.
[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: 16 July 2021
There was no sound basis to doubt that when it was ordered by consent that all prior orders were discharged and dismissed, "all prior orders" included the costs order in Ms Burrows' favour: at [47]. In light of the unambiguous nature of the word "all" and Ms Burrows' October 2012 application to enforce the costs order and the subsequent developments in respect of that application, there was nothing in the text and surrounding circumstances to support a conclusion that "all prior orders" meant "all prior parenting orders": at [48].
Where the parties had been in communication with a view to seeking to agree the amount of costs Ms Burrows was entitled to and where Mr Alexander had formally applied to discharge the order, the "end of the case" for the purposes of r 19.21 appeared not to have been reached: at [50].
As to issue (ii), per Leeming JA (Meagher JA and White JA agreeing):
Ms Burrows' professional commitments, problems with her computer, and the fact that the primary judge had reserved judgment in the substantive proceedings for 20 months provided no sound basis for Ms Burrows to obtain a second adjournment of a hearing concerning costs, in circumstances where her counsel was not available on the suggested date, and where she had repeatedly failed to comply with directions, had provided no evidentiary basis for her application, save that her computer had broken the previous day, had failed to serve evidence by 19 February as directed, and had not given notice of the adjournment application prior to the morning of the day of the hearing: at [58]-[60]. The primary judge's refusal of the second adjournment application disclosed no reviewable error or procedural unfairness: at [61], [62].
As to issue (iii), per Meagher JA:
It was necessary that M&K Sydney as client incurred a liability to M&K Lawyers Group, as legal services provider, for the professional costs sought to be made the subject of the award of costs in the District Court: at [17].
If M&K Sydney and M&K Lawyers Group were to be regarded as one and the same legal entity, there could be no "costs payable" within the first part of the s 3(1) definition. However, there was no basis in the evidence for disregarding the legal reality of the separate incorporated legal practices: at [18].
Discussion of the recoverability of legal costs where an incorporated legal practice sues or is sued and acts for itself by its employed solicitors: at [16], [19].
Civil Procedure Act 2005 (NSW), s 3(1) considered.
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 applied.
As to issue (iii), per Leeming JA:
The evidence established that work was done by M&K Lawyers Group at the request of M&K Sydney which gave rise to a contractual or quasi-contractual liability on the part of M&K Sydney: at [69].
More than mere control of one company by another is required to disregard corporate identity: at [124], [127]. M&K Lawyers Group and M&K Sydney had traded successively under the same name and had employed some of the same legal practitioners, including Mr Frawley, the Principal Lawyer of each practice: at [127], [130]. However, the rights and liabilities of M&K Sydney did not vest in M&K Lawyers Group after M&K Sydney ceased to trade, and there was no reason to doubt that the change from one corporation to another was done for commercial reasons unconnected to Ms Burrows' claim: at [128], [129]. M&K Lawyers Group was not to be equated to M&K Sydney: at [133].
The High Court in Bell Lawyers endorsed the proposition that costs associated with an employed solicitor are recoverable: at [132]. It followed that the costs attributable to work done by employed solicitors of M&K Lawyers Group, which company was acting for M&K Sydney, were recoverable: at [133].
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 applied.
Discussion of the statutory provisions empowering a court to order costs and governing incorporated legal practices: at [89]-[100] and the nature of the Chorley exception: at [113]-[122].
As to issue (iii), per White JA:
The paid up capital of M&K Sydney is $1,093,154. The paid up capital of M&K Lawyers Group is $25,613,674. The clear inference is that M&K Lawyers Group's business interests extend well beyond its ownership of M&K Sydney. Although M&K Lawyers Group succeeded to the practice of M&K Sydney, there is no substantial equivalence between the directors of each company and no reason to think that there is any substantial equivalence between the former shareholder of M&K Sydney and the shareholders of M&K Lawyers Group's holding company: at [145]-[146].
The assessment of costs payable by the appellant in the gross sum of $130,000 does not infringe the indemnity principle if M&K Sydney is liable to pay M&K Lawyers Group for the services the latter provided to the former. There was at least a quasi-contractual liability on the part of M&K Sydney to M&K Lawyers Group for the services the latter provided to the former: at [147]-[148].
Unless the separate legal personalities of M&K Sydney and M&K Lawyers Group are to be disregarded, the indemnity principle is not infringed and no question of the Chorley exception arises: at [155].
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 considered.
Discussion of the statutory provisions relating to solicitor corporations in New South Wales and extrinsic material: at [156]-[160].
Parliament intended solicitors to enjoy all the benefits of being able to conduct a legal practice through a company provided appropriate professional indemnity insurance was maintained: at [161]. To deny M&K Sydney and M&K Lawyers Group 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: at [162].
The plurality did address the construction of these provisions, albeit in their consideration of the "broader question". Specifically, they considered whether any Australian legislature had adopted or embraced the Chorley exception (plurality at [41]). They concluded at [44] that the definition of "costs" in Civil Procedure Act, section 3(1) "leaves no room for the Chorley exception as a matter of legislative intention", having earlier explained in that same paragraph:
In s 3(1) of the Civil Procedure Act, the "means" part of the definition, in referring to "costs payable", is a restatement of the general rule that costs are awarded only for professional costs actually incurred. The "includes" part of the definition, in referring to "remuneration", can be seen readily enough to encompass remuneration for professional services rendered under a contract of service as well as remuneration for professional services rendered under a contract for services. In so doing, it "makes plain" that the cost of professional legal services rendered by an employed lawyer is included in the definition of "costs". The definition, being otherwise exhaustive, leaves no room for the Chorley exception as a matter of legislative intention. "Remuneration" is simply not a word which is apt to include the notion of payment to a person by himself or herself for work done by himself or herself.
Gageler J agreed at [67], adding:
As to the immediate statutory setting for the present appeal, the reasons given by Kiefel CJ, Bell, Keane and Gordon JJ show that the definition of "costs" in s 3(1) of the Civil Procedure Act 2005 (NSW) reflects the general principle in a manner which leaves no room for an exception for recovery of costs by a legal practitioner acting on his or her own behalf. The legislative history of the Civil Procedure Act contains nothing to suggest legislative endorsement of the Chorley exception.
Whilst dissenting in his conclusion on this question of construction, Nettle J's reasoning proceeded as follows (at [78]):
The definition of "costs" in s 3(1) was enacted against the background of the long history of the Chorley exception. Accordingly, if Parliament had intended to abrogate the exception, it is to be expected that it would have done so expressly, and most improbable that it would choose to do so by the inclusion of a single word of ambiguous import in an Act designed to effect a general consolidation of the law of civil procedure in New South Wales "without radical changes in substance or form". As it is, although a primary natural and ordinary meaning of "payable" is payable to someone other than the payer, the word also conveys the sense of that which can be paid. Alternatively, it may mean no more than "'payable' pursuant to costs orders made in proceedings". Either way, however, in the context in which "payable" appears in the definition of "costs", it conveys the sense of that which would be payable if the solicitor had not acted for him or herself.
In their consideration of the broader question the plurality also addressed the "use of in-house solicitors by governments and corporations, including incorporated legal practices" if the Chorley exception was not recognised (at [46], emphasis added). They did so on the basis that arrangements for the use of such in-house solicitors have been treated as being "outside the general rule because it is accepted that the recovery of the professional costs of in-house solicitors enures by way of indemnity to the employer" (at [47]). As appears below, whilst accepting that professional costs of in-house solicitors would continue to be recoverable if the Chorley exception was abolished, Gageler J (at [68]) considered that recovery of such costs by a party using a solicitor employed by the party is an application of, rather than an exception to, the general principle that costs are awarded by way of indemnity.
The plurality concluded that the inclusion within the definition of "costs" in section 3(1) of the professional costs of in-house solicitors was confirmed by the presence of the word "remuneration" in the "includes" part of that definition, noting at [47]:
Where a government or corporate litigant has been represented by an employed solicitor, the courts have proceeded on the footing that the actual cost to the government or corporation of the legal services provided by its employed solicitor would not exceed, in any substantial amount, the sum recoverable by it for professional legal costs. In Commonwealth Bank of Australia v Hattersley [(2001) 51 NSWLR 333 at 337 [11]], Davies A-J explained that:
"[W]here an employed solicitor is involved, the traditional approach has been to award costs on a basis comparable to the costs which would have been incurred and allowed on taxation had an independent solicitor been engaged. The assumption has been made that, in an ordinary case, the indemnity principle will not be infringed by taking this approach."
Gageler J agreed, observing at [68]:
Recovery of costs by a party using an employed solicitor predated introduction of the Chorley exception. The better view, explained in a number of cases to which the Supreme Court of New Zealand appears not to have been referred, 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.
In so concluding, the plurality (at [50]) considered that the rejection of the Chorley exception 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" (emphasis added). Whether the same conclusion follows with respect to "a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder" was said to stand in a different position (at [51]). The resolution of that question, having regard to the "provisions of the Civil Procedure Act in light of the general rule" was expressly left open (at [52]).
On the face of it, this reasoning of the plurality resolves the question which arises as to the recoverability of legal costs when an incorporated legal practice sues or is sued and acts for itself by its employed solicitors, provided that the self-represented incorporated legal practice is not a "vehicle for a sole practitioner" (at [53]). However as Leeming JA says, once Ms Burrows' "piercing the corporate veil" submission is rejected, that question could not have arisen in the present case because the incorporated legal practice, M&K Sydney, was not acting for itself.
The first decision from which Ms Burrows seeks leave to appeal is the judgment dismissing her claim with costs. The second and third decisions from which Ms Burrows seeks leave to appeal are the refusal of the second adjournment, and the making of the lump sum costs order itself, insofar as that order related to legal services supplied by M&K Lawyers Group to its subsidiary M&K Sydney.
Contrary to Ms Burrows' primary submission, there is no appeal as of right. For the reasons which follow, I would not grant leave to appeal against the first or second decisions. The third decision involves a question of principle, based on the application of Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 being the entitlement of one incorporated law practice to recover party/party costs when acting for another incorporated law practice which, according to the applicant, were in substance one and the same. Although I would grant leave to appeal, I would dismiss the appeal.
Notwithstanding a four day trial raising a variety of issues and a further contested interlocutory hearing, my reasons for not favouring a grant of leave in relation to the first and second decisions are concise. I will then turn to the grounds directed to the effect of Bell Lawyers.
The dispute concerning costs (and other substantive aspects) thereafter continued in the Family Court until consent orders were made on 2 August 2013. The order was based on a document supplied to the Court, signed by Ms Burrows and Mr Alexander, and titled "CONSENT ORDERS". It commenced with the words "That all prior Orders are discharged and dismissed". The Registrar's order made that day was:
"1. BY CONSENT and pursuant to Part 10.4 of the Family Law Rules, orders, declarations and notations are made in terms of the 'Consent Orders' attached."
Three additional aspects to Ms Burrows' claim at trial may be mentioned. The first was the allegation that the law firm breached the terms of the retainer when it paid counsel from funds held by it on trust. This was a claim for $4,400. The primary judge rejected this. His Honour noted that Ms Burrows had embraced counsel's fee for the purpose of her claims against Mr Alexander. The primary judge regarded that as being "tantamount to a waiver of any noncompliance and an adoption by her of that fee": at [86]. His Honour ultimately rejected this claim on the basis of cl 12.3 of the retainer, which expressly authorised the firm to transfer money held on trust to pay disbursements from time to time.
The second was a claim for costs incurred by Ms Burrows in connection with her opposition to the law firm's assessment, registration, and enforcement of its unpaid fees. Those fees were in the amount of $12,412.05. The costs assessment was registered in the Local Court as a judgment, and Ms Burrows brought an appeal to the District Court and thereafter filed a notice of intention to appeal in this Court. No further steps were taken in this Court. (In any event, no further appeal lies to this Court from the judgment of the District Court on an appeal from a costs assessment: Gazecki v McCabes Lawyers Pty Ltd (2020) 102 NSWLR 259; [2020] NSWCA 98 at [5].) The primary judge recorded at [103] that no adequate explanation was provided by Ms Burrows as to how her unsuccessful steps to challenge the Local Court (deemed) judgment could found an arguable cause of action.
The third was a claim for $50,000 for aggravated damages and $50,000 for exemplary damages. The primary judge rejected these on the basis that they were consequential upon Ms Burrows' other claims.
There is no sound basis to doubt the conclusion of the primary judge that when by consent it was ordered that "all prior orders are discharged and dismissed", in circumstances where Ms Burrows' entitlement to costs had been reagitated by her own application (as well as disputed by Mr Alexander's application in November 2011), the words "all prior orders" included the costs order in her favour. "All" is a tolerably unambiguous word. The notion of parties resolving the whole of their dispute in a single set of orders, and vacating all earlier orders, with the result that their agreed position can be determined by a single set of orders, is familiar.
Even though it is not clear on the face of the documents what happened to Mr Alexander's application to discharge the costs order, it is clear that Ms Burrows' application to enforce the costs order, made a year later, was at the forefront of the parties' minds in the weeks and months preceding the consent orders. It had been identified separately in orders made by a Registrar on 5 June, it was one of the applications set down for 20 September, and Ms Burrows had made special provision for her appearing personally in respect of costs, while she was represented in respect of the substantive issues. Ms Burrows' application had somehow to be resolved, and it would remain unresolved if "all prior orders" somehow bears a narrower meaning so as to exclude the costs order of 4 October 2011. There is nothing in the text or surrounding circumstances to support a conclusion that "all prior orders" means "all prior parenting orders".
Against this, Ms Burrows submitted that the discharge of the order in 2013 was not an answer to her claim for damages based on a breach by her former solicitors over the previous 18 months. I disagree. The plaintiff bears the onus of establishing loss, and if it is said that Ms Burrows' loss was the loss of obtaining money from Mr Alexander by enforcing the Registrar's costs order, the probability is that if Ms Burrows' solicitors had taken earlier steps to enforce the order, the result would have been no different from what occurred when she herself took steps to enforce it in October 2012. The parties would have reached an impasse.
Further, where the parties had been in communication with a view to seeking to agree the amount of costs to which Ms Burrows was entitled, and where Mr Alexander had formally applied to discharge the order, it would appear that the "end of the case" had not been reached for the purposes of r 19.21 (as the respondents contend by paragraph 1 of their notice of contention). Even if that is not so, it remained open to Ms Burrows to seek to supply an itemised costs account. Ms Burrows' submission that she suffered recoverable loss immediately upon the expiration of the 28 days is belied by the fact that, appearing for herself, she was able 12 months later to apply for the enforcement of that order.
No basis has been established for a grant of leave in relation to grounds 1-12.
In those circumstances, it was amply open to the primary judge to refuse an application for a second adjournment, made on the morning of the day of the hearing, unsupported by any evidence save that Ms Burrows' computer had encountered difficulties the previous day (a week after her evidence and submissions were due to be filed and served). What occurred discloses no error which is reviewable in this Court, nor any error whatsoever.
It has not been established that there was any procedural unfairness. Ms Burrows was heard in support of the grant of the second adjournment, even though her application was made without notice and unsupported by a notice of motion or any substantial evidence. Insofar as this ground extends to a complaint that the consequence of refusing the application was that Ms Burrows was denied the ability to tender evidence bearing on the interrelationship of M&K Sydney and M&K Lawyers Group, she had failed to serve any evidence in response to the application made on 24 January 2020, despite being directed to do so by 19 February, and she provided no evidence to explain or excuse her failure to do so.
There is no basis for a grant of leave. In any event, I propose to consider the evidence which Ms Burrows said she would have adduced on 28 February had her second adjournment been granted.
The critical point is that a person faced with an application for a lump sum costs order may choose to make no issue with compliance with the costs disclosure obligations, and if so, no issue arises.
The threshold question is whether there should be a grant of leave. Ms Burrows seeks leave to appeal from the final judgment (which, including interest, raises an amount in issue in the order of $20,000) and costs which, insofar as they are in contest, are around $90,000. The costs component does not contribute to the $100,000 threshold imposed by s 101(2)(r): the authorities are collected in Maund v Crown in right of the State of New South Wales [2013] NSWCA 226 at [7]. Some of the points now sought to be deployed might have been the subject of evidence had the point been taken below (in particular, I have in mind the asset position of the first respondent (including its professional indemnity insurance), its capacity to raise funds and indeed whether any provision had been made for the liability occasioned by Ms Burrows' claim). Leave should not be granted to permit Ms Burrows to advance new bases to attack the lump sum costs order which were not advanced below and which might have been met by evidence.
(For completeness, Ms Burrows maintained that the limited opposition to the lump sum costs order reflects the procedural unfairness occasioned by the failure to grant the second adjournment. I have addressed that above, and I will in due course address the evidence which Ms Burrows maintains she was denied the chance to adduce.)
The notice of contention reflects the fact that there are two quite distinct elements to this part of Ms Burrows' claim.
1. The first is whether the abolition of "the Chorley exception" says anything at all in the case where legal services are being provided by an incorporated legal practice, as opposed to a legal practitioner.
2. The second is whether, assuming the rule against self-represented litigants recovering costs extends to cases where an incorporated legal practice is providing legal services, it applies here where the two companies are distinct.
Ms Burrows also relied on a statement by Mr Neggo early in the trial in the District Court where he said that the first defendant had gone on the record for itself and Ms Di Condio. Mr Neggo said that he had been wrong then, in respect of an irrelevant point at the opening of the trial, a year before Bell Lawyers was delivered, and that his error did not affect the identity of the incorporated legal practice which appeared in the District Court. I agree that nothing which was said on that occasion could contribute to the resolution of this issue.
Part 11 of the Legal Profession Act 1987 (NSW) dealt with "Legal fees and other costs", and included the right conferred by (former) s 202 to apply to the Supreme Court for assessment of a favourable costs order, which would then, pursuant to (former) s 206, be referred to a costs assessor. (Former) s 208F required the costs assessor to consider "whether or not it was reasonable to carry out the work to which the costs relate" and "what is a fair and reasonable amount of costs for the work concerned".
Section 47J expressly applied Part 11 to incorporated legal practices. An incorporated legal practice could not, ex hypothesi, itself perform legal services; it could only do so by its directors, officers, employees and agents. The current regime is more complex but appears to be to the same effect, insofar as the regime regulates "law practices" (which may be inter alia a natural person, a partnership of natural persons, or an incorporated legal practice). There is, to my mind, force in the submission that this statutory regime is inconsistent with an implied restriction which prevents an incorporated legal practice from recovering on the assessment of a costs order amounts representing a fair and reasonable amount for work done by its employed lawyers acting on its behalf as a party to litigation. That relates squarely to paragraph 2 of the notice of contention. However, the statutes underlying that conclusion were not fully explored in submissions, and on the view I take it is not necessary to address the notice of contention.
Part 3.7 of the Uniform Law, and rules in Part 3.7 of the Legal Profession Uniform General Rules 2015 (NSW), regulate incorporated and unincorporated legal practices, although not in terms which appear to be material to this appeal.
The structure of the reasons of the joint judgment in Bell Lawyers commences with a consideration of principle, authority and statute, and reaches the conclusion at [39] that in the absence of a compelling reason to the contrary, the Court should take the step foreshadowed in Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14 and "hold that the Chorley exception is not part of the common law of Australia". Their Honours thereafter address and reject four arguments advanced by the respondent with a view to demonstrating compelling reasons to the contrary. This is done under the headings "Independently acted upon?", "Unacceptable inconvenience", "A matter for the legislature" and "Prospective overruling", after which at [57] is stated the conclusion that there is no compelling reason to refrain from holding that "[t]he Chorley exception is not part of the common law of Australia".
The second of the four arguments, under the heading "Unacceptable inconvenience", at [46]-[53], addresses the submission that serious inconvenience "would be occasioned in relation to the use of in-house solicitors by governments and corporations, including incorporated legal practices, if the Chorley exception were not recognised by this Court as part of the common law". The essential reasoning was to reject the submission on the basis that it "fails to appreciate that in relation to the use of in-house solicitors, such arrangements have been treated as being outside the general rule": at [47]. That was because the recovery of costs in respect of employed solicitors was by way of indemnity to the employer, something which is reflected in the inclusion of "remuneration" within the definition of "costs", and by a presumption that the recoverable costs of an employed solicitor would not exceed, in any substantial amount, the actual costs incurred by the employer: at [47]. After mentioning decisions which illustrated that presumption, the joint judgment then concluded at [50], subject to a possible qualification, that:
"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."
The possible qualification was the position of an incorporated law practice of which the employed solicitor is the sole director and shareholder. The joint judgment identified at [51] two considerations which might warrant a different treatment:
"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."
The joint judgment said that it was neither appropriate nor necessary to resolve the position in relation to solicitors who were the sole employees of an incorporated legal practice.
On one view, that reasoning resolves the question in the case of an incorporated practice such as M&K Lawyers Group, which was far removed from a practitioner who is the sole employee of an incorporated legal practice owned and controlled by the practitioner (as noted above M&K Lawyers Group had 13 "Principal Lawyers" and many other staff in its Sydney office alone). I shall return to this below. Against this, Ms Burrows went so far as to submit that "Bell Lawyers left undecided the issue of an incorporated legal practice and whether or not it could take advantage of the Chorley exception." Ms Burrows' submission may be criticised as not paying sufficient heed to the express inclusion in the passage at [46]-[53] which is framed as dealing with "governments and corporations, including incorporated legal practices", and treats incorporated sole practitioners separately. On another view, aspects of the reasoning which led to the joint judgment reserving the position of incorporated sole practitioners might seem apposite to the case where the conduct for which the incorporated practice is sued was the conduct of a particular employed solicitor, and that solicitor acts in defence of the incorporated practice. But even if that be so, that is not the present case, because a different incorporated legal practice, M&K Lawyers Group, acted on behalf of its predecessor M&K Sydney.
The parties' submissions as to the effect of Bell Lawyers reflect the fact that the issue arising on this aspect of the appeal falls at the intersection of two principles, both of which are confirmed by the High Court's judgment.
1. On the one hand, 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. That gives rise to the possibility of profit, in circumstances where the legal practitioner could not be independent, and would place legal practitioners in a preferred position to ordinary litigants.
2. On the other hand, an employer (such as a government department or a statutory authority, or a bank or other private corporation) 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.
The first principle is confirmed by the outcome of the case. The second is confirmed by what the joint judgment said at [50] concerning the preservation of the position of in-house solicitors, notwithstanding the abolition of "the Chorley exception", which is reproduced above. Further, Gageler J wrote to the same effect at [68]:
"Recovery of costs by a party using an employed solicitor predated introduction of the Chorley exception. The better view, explained in a number of cases to which the Supreme Court of New Zealand appears not to have been referred, 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." (footnotes omitted)
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.
It is difficult to read that passage, which was determinative of what appears to have been an important submission of the respondent, as other than an endorsement of the proposition that the costs of an employed solicitor fell within the statutory power conferred by s 98. The passages at [50] and [68] reproduced above are also consistent with this.
Nonetheless, the joint judgment was at pains to describe "the Chorley exception" as a rule of the common law. The issue was initially framed at [2] as "whether the Chorley exception should be recognised as part of the common law of Australia", and repeatedly referred to in those terms throughout the reasons: at [16], [26], [27], [39], [46], [50], [53], [54], [55] and [57].
The concurring judgments of Gageler and Edelman JJ deal with this point. (Nettle J took a narrower approach, and held that the Chorley exception ought not extend to a barrister acting for herself, and did not address the distinctions mentioned above.)
Gageler J was explicit about the appropriateness of the use of the term "common law". His Honour referred to the statutory source of the power to order costs, and the "comparatively recent judicial creation" which was the Chorley exception whereby a legal practitioner, unlike any other litigant, could be remunerated at a professional rate for his or her time. He said at [63]:
"Using the term 'common law' in the broad sense of judge-made law, it is therefore not inappropriate to refer to the general principle and the Chorley exception as part of the common law, originally of England and then, by application of the rules of reception (in the case of the principle) and by application of the rules of precedent (in the case of the exception), also of Australia. Treating both the principle and the exception as part of the common law of Australia, it is entirely appropriate for this Court in its capacity as ultimate custodian of the contemporary common law of Australia now to take the step foreshadowed in Cachia of determining that the exception to the general principle should be abandoned." (footnotes omitted)
Edelman J observed that the position was different at common law and in equity. It was "generally understood that there was a difference between the source of the rules in Chancery and at common law. The authority to order costs in Chancery was inherent. Hence, the development of those rules in Chancery was purely a matter of judge-made law. By contrast, ... it was thought that at common law the authority was entirely statutory": at [81]. Edelman J then (at [82]) identified the nature of the issue raised by "the Chorley exception":
"The question considered in Chorley did not concern the interpretation of the essential meaning of the statutory words that were thought to be the sole source of a power to order costs. In cases of the interpretation of the essential meaning of statutory words, where a statute has been re-enacted or amended on a "settled understanding", it will generally be assumed that Parliament intended the words to have that settled meaning. The question in Chorley was different. The essential meaning of the statutory words was established: it was to confer a broad power upon the judiciary to award costs. As Denman J said in the Divisional Court, the 'origin of costs is to be traced to some early statutes: but none of the statutes and none of the rules have at all, I think, affected the question'. The question in Chorley concerned the manner in which the broad statutory power to award costs should be developed and applied by the judiciary." (footnotes omitted)
His Honour concluded that the re-enacted Australian statutes and rules of court had "not incorporated the approach taken by judicial decisions concerning the application of such provisions", but rather, "re-enacted statutory costs powers have left rules, such as the Chorley rule, to judicial development by the judicial application of the general costs power": at [84]. He summarised the position at [93]:
"In summary, since the Chorley rule was a judicially developed rule which did not form an underlying assumption of any later statutory enactment, and since it is inconsistent with the underlying foundation of principle upon which costs rules have developed, those decisions that have adopted the Chorley rule in Australia should be overruled."
It may be seen that Gageler J and Edelman J explicitly, and the joint judgment implicitly, contrasted issues which are matters of statutory construction, and issues which although ultimately sourced in statute, are best regarded as matters of common law. This is no different from familiar instances such as treating the law of part performance, or the law of trusts, as part of the law of equity, rather than aspects of the construction of the Statute of Frauds or the Statue of Uses. But much may depend on the timeframe involved. Professor Burrows once distinguished between "pure common law" and "statute-based common law": A Burrows, "The Relationship Between Common Law and Statute in the Law of Obligations" (2012) 128 Law Quarterly Review 232. Even the basal distinction between common law and statute is, on analysis, much more complex than it might at first appear. Decisions on the construction of statutes are themselves in due course applied in later litigation, in a process which comes to bear the character of judge-made law. Thus "[s]ignificant elements of what now is regarded as 'common law' had their origin in statute or as glosses on statute or as responses to statute": Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67 at [19]. The reader of Windeyer J's insightful account of the inter-relationship between common law and statute bearing upon the defence of qualified privilege in a New South Wales defamation action in Australian Consolidated Press Ltd v Uren (1966) 117 CLR 185 at 204-208; [1966] HCA 37 will appreciate the artificiality of a distinction between common law and statute, and the force of that judge's later observation (this time in the context of homicide) in Gammage v The Queen (1969) 122 CLR 444 at 462; [1969] HCA 68 that "it is misleading to speak glibly of the common law in order to compare and contrast it with a statute".
That passage was followed in Al-Shennag v Statewide Roads Ltd [2008] NSWCA 300 at [41] (Tobias JA, Beazley and Bell JJA agreeing).
If control were sufficient to disregard corporate personality, then it would apply in the large majority of cases of wholly owned subsidiaries. That is not the law. In FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [206] (in a passage quoted with approval in PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168 at [32]), in the context of third party costs orders, Basten JA wrote:
"In the present case, it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the 'real party' to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case."
Ms Burrows therefore needs to point to something more than control. She relied on the identicality of the trading names, and (at least implicitly) the occasional confusion on the part of employees as to the precise corporate entity employing them and on behalf of which they were acting. The confusion is understandable, given the similarity in names and identicality of trading name. However, there is no reason to doubt that the distinction was real. It is reflected in the way in which M&K Lawyers Group appeared in the District Court action on behalf of M&K Sydney, and in the handling of the $50 held by first M&K Sydney, and later by M&K Lawyers Group, on trust for her.
I have also considered whether the fact that M&K Lawyers Group is in a sense the "successor" of M&K Sydney matters, although this was not squarely raised by Ms Burrows. M&K Lawyers Group was not the successor in the sense that all of the rights and liabilities of M&K Sydney were vested in M&K Lawyers Group. Nonetheless, the evidence is that M&K Sydney ceased to trade, and I would infer in accordance with Ms Burrows' submission that its practice came to be conducted by M&K Lawyers Group.
What is critical to my mind is that there is no reason to think that the change from one corporation to another was in any way connected with Ms Burrows' claim. There is no reason to doubt that it was done for extraneous commercial considerations. Just as it was open to the natural persons who controlled M&K Sydney to conduct their profession through an incorporated legal practice, it was open to them to choose for some good corporate reason to restructure so that the practice which had been conducted by M&K Sydney was transferred to a practice conducted by M&K Lawyers Group.
True it is that there are a number of similarities in the practice carried on by the first respondent and that carried on by M&K Lawyers Group. Both appear to have traded under the same name. Some of the legal practitioners were the same, and, in particular, Mr Frawley's position as the equivalent of the partner of an unincorporated law practice was the same in 2011 at M&K Sydney as it was at M&K Lawyers Group in the District Court litigation.
Ms Burrows pointed to the emphasis on the absence of independence in Bell Lawyers. The joint judgment said at [19]:
"Importantly, the view that solicitors should be encouraged to act for themselves is contrary to the modern orthodoxy that it is undesirable, as a matter of professional ethics, for a solicitor to act for himself or herself in litigation. In McIlraith v Ilkin (Costs), Brereton J said:
'Where a solicitor represents a litigant, the court is entitled to expect the litigant to be impartially and independently advised by an officer of the court. Indeed, where the court concludes that a solicitor is not in a position to give impartial and independent advice to a party, because of the solicitor's own interest in the outcome, the court has restrained the solicitor from continuing to act ... Where a solicitor acts for himself or herself there cannot be independent and impartial advice, and this is in principle a strong reason for holding that a solicitor litigant should not be entitled to costs of acting for him or herself.'" (footnote omitted)
It may be necessary in some later case to reconcile that passage with the express confirmation later in the judgment (as well as by Gageler J) that a company which employs a solicitor to provide legal services can nonetheless recover professional costs. An employed solicitor is subject to personal ethical obligations to the Court. Nonetheless, he or she is scarcely independent of his or her employer. But for present purposes, it suffices to say that all of the natural persons who actually provided legal services on behalf of M&K Lawyers Group in defending the District Court action were solicitors employed by that company, each owing personal ethical obligations to the Court, and if the client M&K Sydney were unable to recover professional costs in respect of those employed solicitors, that would cut across the express endorsement of the proposition that costs associated with an employed solicitor are recoverable.
Thus the critical point which is dispositive of these grounds of appeal is the failure of Ms Burrows' submission that M&K Lawyers Group is to be equated to M&K Sydney. The result is that the costs attributable to work done by employed solicitors of M&K Lawyers Group, which company was acting for M&K Sydney, are recoverable. Far from casting any doubt about the recoverability of costs in those circumstances, Bell Lawyers confirms as has long been the case that those costs are recoverable.
The British cases are considered in C Witting, Liability of Corporate Groups and Networks (Cambridge University Press, 2018), pp 331-334. It is not this case, but I would think it is tolerably clear that the prohibition upon a sole practitioner recovering costs for representing himself or herself could not be outflanked by the practitioner incorporating a legal practice which employs the practitioner to provide legal services in the prosecution or defence of the legal practitioner's own claim.
Mr Chris Frawley is a director of M&K Sydney. He has been employed by M&K Lawyers Group as a "Principal Lawyer" since about 1 July 2015. He deposed that that role was the equivalent of the role of "partner" in a traditional law firm. Prior to 1 July 2015, Mr Frawley had also been a "Principal Lawyer" of M&K Sydney and he remained a director of that company.
M&K Sydney's former shareholder was M&K (Old) Pty Ltd. It shared the same address as M&K Lawyers Group. The paid up capital of M&K Sydney is $1,093,154. The paid up capital of M&K Lawyers Group is $25,613,674. It has one shareholder, M&K Lawyers Holdings Pty Ltd. There was no evidence as to the shareholders of that company.
The clear inference is that M&K Lawyers Group's business interests extend well beyond its ownership of M&K Sydney. Although M&K Lawyers Group succeeded to the practice of M&K Sydney, there is no substantial equivalence between the directors of each company and no reason to think that there is any substantial equivalence between the former shareholder of M&K Sydney and the shareholders of M&K Lawyers Group's holding company. There appears to have been a takeover of M&K Sydney by M&K Lawyers Group and some lawyers, including Mr Frawley, who had the status of a principal lawyer with M&K Sydney, had the same status as a principal lawyer with M&K Lawyers Group, equivalent to that of a partner in a law firm.
The assessment of costs payable by the appellant in the gross sum of $130,000 does not infringe the indemnity principle if M&K Sydney is liable to pay M&K Lawyers Group for the services the latter provided to the former.
As Leeming JA observes (at [68]), there was no evidence of any tax invoice having been rendered. Nor was there any evidence of a costs agreement between M&K Sydney and M&K Lawyers Group or any disclosure by the latter to the former of likely costs. Nonetheless, for the reasons given by Leeming JA, there was at least a quasi-contractual liability on the part of M&K Sydney to M&K Lawyers Group for the services the latter provided to the former.
In Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 93 ALJR 1007 the High Court rejected what was known as the Chorley exception to the principle affirmed in Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14 that a successful unrepresented litigant who obtains an order for costs in his or her favour is not entitled to recover remuneration for his or her time spent in bringing or defending proceedings. The Chorley exception was that a solicitor entitled to practise could recover such remuneration.
The reasons given by the High Court for rejecting the Chorley exception arguably suggest that M&K Sydney should not be entitled to recover costs payable by it to its parent.
The first is the High Court's holding in Bell Lawyers at [19] that there is a strong reason for holding that a solicitor litigant should not be entitled to costs for acting for himself or herself because he or she cannot be independent and give himself or herself impartial advice (approving in this respect McIlwraith v Ilkin (Costs) [2007] NSWSC 1052 at [25], Brereton J). In United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15, the solicitors who were employed by Freehills operated independently from the partners and solicitors who were the subject of the litigation, but nonetheless the Victorian Court of Appeal held that Freehills was not entitled to recover the costs of their services. In the same way, it may be said that M&K Lawyers Group, being the parent company of M&K Sydney, could not be regarded as a provider of independent and impartial advice to M&K Sydney.
A second reason for the High Court's rejection of the Chorley exception of present relevance is that if a solicitor who represents him or herself in litigation were entitled to recover professional remuneration under an order for costs, then the solicitor litigant could profit from the conduct of the litigation (Cachia v Hanes at 412; Bell Lawyers at [71], Nettle J).
A third reason for rejecting the Chorley exception was that the application of that exception to solicitors conferred a privilege on a solicitor litigant compared with other unrepresented litigants. In Bell Lawyers Kiefel CJ, Bell, Keane and Gordon JJ said (at [25]) that a privilege of that kind is inconsistent with the equality of all persons before the law.
In this case, the order under appeal allows the owner of M&K Sydney to profit from the conduct of the litigation. If M&K Lawyers Group and M&K Sydney were equated because they are parent and wholly owned subsidiary, that is, if the corporate veil were removed, then the order under appeal puts M&K Lawyers Group and its subsidiary, M&K Sydney, in a privileged position compared with self-represented litigants.
These grounds for rejection of the Chorley exception apply to the claim for recovery of professional fees payable to M&K Lawyers Group. But those grounds were advanced in Bell Lawyers as reasons for rejecting an exception to the indemnity principle. Unless the separate legal personalities of M&K Sydney and M&K Lawyers Group are to be disregarded, the indemnity principle is not infringed and no question of the Chorley exception arises.
Solicitor corporations have been known in New South Wales since 1990. In 2001 legislative amendments to the Legal Profession Act 1987 (NSW) provided that any corporation was eligible to be an incorporated legal practice (s 47D(1)). An incorporated legal practice was a corporation that provided legal services (s 47C(1)). An incorporated legal practice could provide any lawful service other than conducting a managed investment scheme (s 47C(2)). It was required to have at least one solicitor director who was responsible for the management of the legal services provided in New South Wales by the incorporated legal practice (s 47E(2)). Solicitor directors would be guilty of professional misconduct if they failed to ensure that appropriate management systems were implemented and maintained to enable the legal services provided by the incorporated legal practice to be in accordance with the professional obligations of solicitors (s 47E(3)(a)). There were no restrictions on shareholdings. Those amendments were introduced by the Legal Profession Amendment (Incorporated Legal Practices) Act 2000 (NSW). In the second reading speech for that Act, the Attorney-General said:
"The report of the review, which I tabled late in 1998, found that New South Wales was doing well in removing anti-competitive restrictions on practice. However, a key issue identified in the report was the continuing restrictions on the business structures of the profession. The report recommended that solicitors should be permitted to practise in corporations governed by the Corporations Law, and the bill before the House gives effect to that recommendation.
…
It is not proposed that the company itself will hold a practising certificate, or any other kind of special licence, in order to provide legal services. This is because the Government has taken the view that the regulation of the profession is a matter for each individual practitioner, not the corporate structure.
…
The reforms outlined in the bill will ensure that the legal profession is well placed to meet the challenges of the globalisation of business services, while at the same time ensuring that consumers receive a high level of protection from the consequences of poor practice."
In 2004, the Legal Profession Act 2004 (NSW) came into operation. Part 3, Division 2A of the old act was replaced by Part 2.6, Division 2 of the new act. In giving the bill's second reading speech, the Hon Bob Debus explained:
"I turn now to part 2.6, which concerns incorporated legal practices and multi-disciplinary practices. All States and Territories, either presently or previously, restricted the ability of legal practitioners to share profits with non-practitioners. These restrictions were intended to ensure that legal practitioners adhered to legal professional obligations and duties to consumers and courts. National competition policy reviews by New South Wales, Western Australia and Tasmania recommended relaxing the restrictions on the sharing of profits and allowing incorporated legal practices and multidisciplinary partnerships. In late 1999 New South Wales removed restrictions on profit sharing in multi-disciplinary partnerships, and in July 2001 it also permitted incorporated legal practices.
However, differences in legislation around Australia allowing incorporated legal practices and multi-disciplinary partnerships restrict the use of these entities. The objective of the model provisions is to establish uniform provisions in all jurisdictions, ensuring that incorporated legal practices and multi-disciplinary partnerships can practise across State and Territory borders with ease. Part 13 (sic) adopts the national model provisions relating to incorporated legal practices and multi-disciplinary partnerships and strengthens the regulatory requirements to ensure that clients' rights are protected and that professional obligations on legal practitioners are not affected by the business structures. An incorporated legal practice must have at least one director who is a legal practitioner. Before carrying on business the corporation must notify the Law Society that it intends to provide legal services.
As corporations are separate legal entities at law, clause 143 ensures that legal practitioner employees of the practice cannot use the corporation to shield themselves from liability. The clause specifies that any breach by them of a professional obligation can amount to unsatisfactory professional conduct or professional misconduct. Clause 144 ensures that all insurable solicitors in an incorporated legal practice have appropriate professional indemnity insurance. Under clause 146, an incorporated legal practice that provides legal and non-legal services must inform its clients of which services are being provided by legal practitioners and which are not. This is to ensure that their clients are fully informed and not acting under a misapprehension about who is providing the services. The Law Society Council may apply to the Supreme Court to ban a corporation from providing legal services under clause 153. Directors can be banned from managing incorporated legal practices under clause 154."
The scheme under the 2004 Act preserved much of the scheme which operated under the amendments introduced to the 1987 Act in 2001.
In 2014, the Legal Profession Uniform Law 2014 (NSW) came into operation. Although the Uniform Law alters the vocabulary and some of the legislative machinery dealing with incorporated legal practices, there were no radical departures from the previous NSW regime. Under s 105, "[a] law practice to which this Division applies must have at least one authorised principal." A principal is relevantly defined in s 6 of the act as an Australian legal practitioner who:
(d) in the case of an incorporated legal practice or an unincorporated legal practice -
(i) holds an Australian practising certificate authorising the holder to engage in legal practice as a principal of a law practice; and
(ii) is -
(A) if the law practice is a company within the meaning of the Corporations Act - a validly appointed director of the company
An authorised principal is a principal who is authorised by his or her practising certificate to supervise others.
It is clear that Parliament intended solicitors to enjoy all the benefits of being able to conduct a legal practice through a company provided appropriate professional indemnity insurance was maintained.
In Bell Lawyers the majority considered that it was a matter for the Legislature to say whether 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 (at [53]). To deny M&K Sydney and M&K Lawyers Group 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.
For these reasons I agree with the orders proposed by Leeming JA.