Commonwealth Bank of Australia v Hattersley & Anor

Leonard S Hattersley PARTIES : (First Defendant)

RAAFBYE Corporation Pty Limited (Second Defendant)

Attorney General for State of New South Wales (Intervener)

LOWER COURT Costs Assessment JURISDICTION : LOWER COURT n/a FILE NUMBER(S) : LOWER COURT Mr Hattersley JUDICIAL OFFICER :

P: Mr J R Sackar QC with Mr A J Payne 1D: Submitting Appearance COUNSEL : 2D: Mr W Roddick (Director) Int: Mr M J Leeming Amicus Curiae: Mr R E Quickenden P: L E Taylor SOLICITORS : 1D: I V Knight 2D: In person Int: I V Knight CATCHWORDS : Costs - what is the basis on which the legal services provided by a solicitor employed by a corporation should be assessed - whether work done by practitioner employed by corporation should be assessed on same basis as that of an independent solicitor - principle of indemnity - judicial review at interlocutory stage. Supreme Court Act, 1970, ss 23, 75 LEGISLATION CITED : Supreme Court Rules, 1970, Pt 52 r 23 Legal Profession Act, 1987, Pt 11, ss 48F, 202, 208F-G Cachia v Hanes (1994) 179 CLR 403 Re Eastwood (deceased); Lloyds Bank Ltd v Eastwood [1974] 3 All ER 603 London Scottish Benefit Society v Chorley (1884) 13 QBD 872 Attorney-General v Shillibeer (1849) 4 Ex 606; 154 ER 1356 Raymond v Lakeman (1865) 34 Beav 584, 55 ER 761 Galloway v Corporation of London (1867) LR 4 Eq 90 Lenthall v Hillson [1933] SASR 31 Nolan v George [1959] QdR 315 CASES CITED : Blackall v Trotter (No 1) [1969] VR 939 McCullum v Ifield (1969) 2 NSWR 329 Bank of Western Australia Ltd v O'Neill [1999] WASC 10 Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434 Sankey v Whitlam (1978) 142 CLR 1 Director-General of Social Services v Chaney (1980) 31 ALR 571 Overton Investments Pty Ltd v Carnegie [2000] NSWSC 581 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Attorney General for New South Wales v Smits (1998) 45 NSWLR 521 DECISION : See paragraphs 32 and 33.

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ADMINISTRATIVE LAW LIST

TUESDAY, 20 FEBRUARY 2001 30095/99 - COMMONWEALTH BANK OF AUSTRALIA v LEONARD S HATTERSLEY & ANOR JUDGMENT 1 HIS HONOUR: In these proceedings, the Commonwealth Bank of Australia ("the CBA") seeks relief in the inherent jurisdiction of the Court, as exemplified in ss 23 and 75 of the Supreme Court Act, 1970, in relation to certain expressions of view and requests or directions given by the first defendant, Mr Leonard S Hattersley ("the Assessor"), a solicitor, who is acting as a costs assessor under Subdivision 3 of Division 6 of Part 11 of the Legal Profession Act, 1987. 2 In the proceedings, Mr J R Sackar QC and Mr A J Payne appeared for the CBA, Mr M J Leeming of counsel appeared for the Attorney General for the State of New South Wales, Mr R E Quickenden of counsel appeared as Amicus Curiae and Mr W Roddick, a director of the second defendant, represented that company. 3 On 22 October 1998, the Local Court of Sydney gave judgment in favour of the CBA dismissing a claim brought against it by Raafbye Corporation Pty Limited ("Raafbye"). A certificate of the judgment shows that the Court ordered that Raafbye pay the CBA's costs of the hearing, of a notice of motion and of an application to set aside judgment. The Court ordered that the costs be agreed and, if not agreed, be assessed. The CBA applied under s 202 of the Legal Profession Act for an assessment of the costs and, subsequently, the Assessor was appointed. 4 The issue in these proceedings has arisen from the fact that the solicitor on the record for the CBA in the Local Court proceedings, Mr L E Taylor, and the solicitor who undertook the general control of those proceedings on behalf of the CBA, Mr J M Lanser, were salaried employees of the CBA. The Assessor took the view that an assessment of the costs awarded in favour of the CBA necessitated an ascertainment of what had been the cost to the CBA of the provision of the legal services. 5 The CBA had put forward a bill of costs based upon a former District Court scale which, though it had lapsed, was often used by assessors as a guide when assessing costs awarded by the Local Court. In a letter dated 17 September 1999, the Assessor indicated that he was not prepared to proceed on the basis of the District Court scale. 6 The Assessor's letter of 17 September 1999 contains, inter alia, the following passages:- "Party and party costs are costs in the nature of an indemnity provided by a losing party to the winner in legal proceedings before a Court or Tribunal and accordingly a party is not entitled to make a profit from such costs. That is a well known legal concept with much authority to support it. I venture to say that by charging out Mr Lanser's time during his involvement in the subject litigation at the rate of $200.00 per hour the Bank would derive a significant profit from those costs if those costs were so paid by the respondent company. There are many other items claimed in the bill where profitable services were provided by other members of the staff of the Bank; see Item 24 where $90.00 was claimed for typing 3 pages of material and see also all of those items dealing with charges for copying. Before I proceed further with this assessment I request that you:- (1) calculate and advise me the cost of Mr Lanser's time to the Bank as an employee of the Bank expressed in units of 1 hour. I suggest you may commence such calculation by taking his annual gross salary and adding to that appropriate amounts for workers' compensation, sick leave and other leave, holiday pay, long service leave and suchlike. It may well be also that the cost of some components of the infrastructure of the Bank applicable to Mr Lanser's employment should be taken into account. The resultant gross figure should then be divided by the figure which represents the number of hours Mr Lanser might reasonably have claimed to have worked over the period of twelve months spanning the conduct of the proceedings by the Bank against the respondent. Please provide me with the working papers showing the compilation and makeup of the foregoing figures. (2) identify for me all other employees of the Bank who performed services described in the bill of costs and furnish to me the hourly value of their time calculated in the manner described in (1) above.

(3) redraw the bill of costs so that it relates to charges made for time spent only; that is delete all references to costs chargeable for folios and pages.

(4) furnish a copy of your replies to this request to the respondent company and confirm to me when that has occurred. You will also appreciate that I see it inappropriate that the Bank should claim or be allowed any sums of money for 'skill, care and responsibility'. In this respect I note $1,617.45 is claimed." 7 Mr Taylor responded by letter dated 23 November 1999 which stated, inter alia:- "I refer to your letter of the 17th September and would mention, with respect, that you appear to be approaching this exercise on the basis that corporate lawyers are in a somewhat different category to solicitors in private practice as far as handling litigation is concerned. The Courts have consistently held that the former District Court scale applied to both in-house Solicitors and Solicitors in private practice. … In the absence of any contrary authority, I would request that you comply with the law and that the assessment proceed on the basis that the Bank's solicitor is entitled to recover his costs according to the scale claimed by the costs consultants." 8 It is now conceded by counsel for the CBA that the Assessor was entitled, if he so wished, to request that the bill of costs be drawn up specifying the time spent by officers of the CBA on the litigation and the amount claimed in respect of each item of work. The issue which has been debated before the Court is whether the Assessor was entitled to require that a calculation be made of the cost to the CBA of the legal services which its officers provided. 9 The general principle with respect to party and party costs is that stated in Part 52 rule 23(2) of the Supreme Court Rules which reads:- (2) On a taxation on a party and party basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.

However, that rule does not mean that a litigant will obtain a full indemnity for costs necessarily incurred. As Mason CJ, Brennan, Deane, Dawson and McHugh JJ said in Cachia v Hanes (1994) 179 CLR 403 at 414-415:- "… costs are ordinarily awarded … as an indemnity for legal costs actually incurred. …' '… it is to be borne in mind that party and party costs have never been regarded as a total indemnity to a successful litigant for costs incurred, let alone total recompense for work done and time lost." 10 One can immediately perceive a flaw in the Assessor's reasoning. The Assessor took the view that the sum of $200 per hour charged internally in the CBA for Mr Lanser's time involved an element of profit. Even if this fact were true, it would not follow that the party and party costs which the Assessor would be likely to award for the Local Court proceedings would exceed the cost to the CBA of the legal services which were provided to it. It would be surprising if the actual cost to the CBA of the legal services did not substantially exceed any sum which the Assessor would be likely to award. 11 In a case where 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. 12 This traditional approach was clearly stated in Re Eastwood (deceased); Lloyds Bank Ltd v Eastwood [1974] 3 All ER 603 where, at p 608, Russell LJ delivering the judgment of the Court, which included Stamp and Lawton LJJ, said:- "In summary, therefore, in our opinion: (1) It is the proper method of taxation of a bill in a case of this sort to deal with it as though it were the bill of an independent solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all the circumstances of the case. (2) There is no reason to suppose that the conventional A B method is other than appropriate to the case of both independent and employed solicitors. (3) It is a sensible and reasonable presumption that the figure arrived at on this basis will not infringe the principle that the taxed costs should not be more than an indemnity to the party against the expense to which he has been put in the litigation. (4) There may be special cases in which it appears reasonably plain that that principle will be infringed if the method of taxation appropriate to an independent solicitor's bill is entirely applied: but it would be impracticable and wrong in all cases of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the principle is not infringed, and it is doubtful, to say the least, whether by any method certainty on the point could be reached. To adapt a passage from the judgment of Stirling J in Re Doody [1893] 1 Ch at 137 to make the taxation depend on such a requirement would, as it seems to us, simply be to introduce a rule unworkable in practice and to push abstract principle to a point at which it ceases to give results consistent with justice." 13 The approach that was taken in Re Eastwood reflects a view taken in relation to party and party costs, namely, that, "Professional skill and labour are recognized and can be measured by the law" (see Bowen LJ in London Scottish Benefit Society v Chorley (1884) 13 QBD 872 at 877). This is one of the pillars on which the refusal to allow costs to a litigant who has appeared for himself has been justified. See Cachia v Hanes at 411-412. 14 I need hardly add that, although the taxation or assessment of costs sometimes becomes a complex and difficult exercise, it is not intended that that should be so in the general run of cases. Experts such as Mr Hattersley, a solicitor, are appointed to assess costs because they are familiar with the general value of professional skill and labour. Their ability to assess the value of professional work is the means adopted in Division 6 of Part 11 of the Legal Profession Act for the quantification of allowable costs. 15 Relevant provisions of the Legal Profession Act read as follows:- 208F Assessment of costs - costs ordered by court or tribunal (1) When dealing with an application relating to costs payable as a result of an order made by a court or a tribunal, the costs assessor must consider: (a) whether or not it was reasonable to carry out the work to which the costs relate, and

(b) what is a fair and reasonable amount of costs for the work concerned.

208G Additional matters to be considered by costs assessors in assessing costs ordered by court or tribunal In assessing what is a fair and reasonable amount of costs, a costs assessor may have regard to any or all of the following matters: (a) the skill, labour and responsibility displayed on the part of the barrister or solicitor responsible for the matter,

(b) the complexity, novelty or difficulty of the matter,

(c) the quality of the work done and whether the level of expertise was appropriate to the nature of the work done,

(d) the place where and circumstances in which the legal services were provided,

(e) the time within which the work was required to be done,

(f) the outcome of the matter. 16 It is to be noted that s 208F(1)(b) uses the term "costs for the work" and not "costs of the work". Neither that provision nor any of the paragraphs of s 208G contain any element which suggests that a distinction should be drawn between the work of an independent solicitor and comparable work performed by a solicitor employed by a corporation. 17 The general appropriateness of treating the work of an employed lawyer on the same basis as that of an independent lawyer has been accepted since the decision in The Attorney-General v Shillibeer (1849) 4 Ex 606, (1849) 154 ER 1356. In that case, the question was whether the Solicitor of Excise, who was paid a fixed yearly salary, was entitled to the costs of an ordinary solicitor on a taxation as between party and party. Baron Parke, in delivering the judgment of the Exchequer Court, held that the Crown was entitled to the ordinary costs of suit as between subject and subject. As one ground for adopting this view, his Lordship pointed to the difficulty of determining the cost of one suit. As the Solicitor was entitled to a yearly salary, his activities in relation to other suits would have to be taken into account, if apportionment was required. 18 Similarly, in Raymond v Lakeman (1865) 34 Beav 584, (1865) 55 ER 761, Sir John Romilly held that salaried solicitors employed by a corporation were entitled to recover costs on the ordinary basis. In Galloway v Corporation of London (1867) LR 4 Eq 90, Sir W Page Wood VC held that the Corporation of London was entitled to have its costs taxed in the usual way notwithstanding that it employed its own solicitor. 19 Counsel for the Attorney General, Mr Leeming, has referred me to many Australian cases which have applied the same principle, including Lenthall v Hillson [1933] SASR 31, Nolan v George [1959] QdR 315, Blackall v Trotter (No. 1) [1969] VR 939, McCullum v Ifield (1969) 2 NSWR 329 and Bank of Western Australia Ltd v O'Neill [1999] WASC 10. In McCullum v Ifield, the Government Insurance Office was held to be entitled to recover party and party costs on the ordinary basis notwithstanding that its solicitor was employed by it. Taylor J said, at p 528, "It has been held that a party who employs a solicitor who is paid a salary by way of remuneration may nevertheless recover full costs on a party and party basis". 20 There is a point of principle behind the approach enunciated in all these cases. It is that employed solicitors are not to be treated as second-class professionals. Lawyers are entitled to practice in their profession in a number of ways, one of which is to be a legal officer in a corporation which engages in commercial activities. Section 48F of the Legal Profession Act makes this perfectly clear. It provides that the restrictions which exist upon the sharing of the receipts do not apply to any business conducted by a practitioner on behalf of his or her employer if the business concerns a proceeding or transaction to which the employer or a related body is a party. 21 Practitioners who choose to carry on their profession as an employee of the Crown, of a statutory authority or of a corporation are entitled to have their work assessed on the same basis as that of independent solicitors exercising comparable skills in the performance of comparable work. It is not the manner in which the practitioner carries on his or her profession which counts, it is the nature of the work, the time spent and the skill, care and responsibility involved. Assessors are chosen for their expertise in assessing a fair and reasonable reward for the work done by practitioners, not for their skill in determining the operational costs of a commercial enterprise. 22 In many cases, the possibility that an assessment on the usual basis might result in a profit has been disregarded. Thus, in The Attorney-General v Shillibeer, Baron Parke said, at p 1359, "We think that the costs of this case are to be taxed on the same principle as if the Crown solicitor himself were conducting each suit at the expense of the Crown in the ordinary way". As I have mentioned above, his Lordship considered it impractical to apportion an annual salary of the solicitor of Excise so as to arrive at a cost of the particular suit. 23 In Bank of Western Australia Ltd v O'Neill, White J similarly disregarded the possibility of a profit and held, "The bill of costs should have been taxed on the same basis as a bill of costs rendered by a certificated practitioner who is not the employee of the party in whose favour the costs have been awarded". In Lenthall v Hillson, Angas Parsons and Napier JJ placed no limitation on the order as to costs which they made and, at p 36, expressed the following point:- "We think that the principle that costs are given as an indemnity can be carried too far. It comes from the unwritten law, and depends upon considerations of public policy and convenience, and it follows that it must be reasonably understood and applied". 24 In some cases it has been said that it is for the party objecting to the allowance of the usual costs to prove that the allowance will give more than an indemnity. In Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434, Channell J said at p 437:- "It is for the party objecting to the allowance of the usual costs under such circumstances to shew (sic) that the allowance will give more than an indemnity, and in all ordinary cases, such as the present, it is impossible for him to shew (sic) it. In some cases, however, he might be able to do so." 25 However, in Re Eastwood (deceased); Lloyds Bank Ltd v Eastwood, the Court did not lay down any point as to onus of proof, merely limiting itself to the comment that, "There may be special cases in which it appears reasonably plain that that principle [of indemnity] will be infringed if the method of taxation appropriate to an independent solicitor's bill is entirely applied". 26 Although there may be cases where it would be open to an assessor to investigate the issue of the costs of the employing corporation, so as to ensure that the principle of indemnity is not infringed, this task is not one which should be undertaken without a good and sufficient cause. The principle of indemnity is one which must be applied flexibly and reasonably. It is not one of the factors specified in either s 208F or s 208G. There are no facts in the present case which show any cause for undertaking the task requested or directed by the Assessor. 27 I need hardly mention that, in the present case, the task of assessing the cost of the litigation to the CBA would be very difficult, for the Local Court proceedings were only a very small part of the activities of the corporation. First, there would be the problem of allocating direct labour costs as between the Local Court proceedings and other work undertaken by the relevant legal officers. Then there would be the problem of allocating the direct costs of items such as accommodation, plant and consumables. The costs of maintenance, cleaning and the like would have to be apportioned. Then it would be necessary to allocate and apportion the indirect costs, including the overheads which are inherent in the carrying on of the operations of the CBA. It would be a long and expensive task. If cost-accountants and actuaries became involved, the expense of the exercise would be likely to exceed the party and party costs otherwise to be awarded for the Local Court proceedings. One of the reasons why the practice embraced in the cases I have mentioned has been adopted is because any other approach would be likely to introduce into the taxation of costs complexities which are unwarranted. 28 For these reasons, I am satisfied that the Assessor has approached his task on the wrong basis. 29 Mr R E Quickenden of counsel, the Amicus Curiae, has submitted that, even if it is found that the Assessor erred in his approach, the Court ought, in the exercise of its discretion, to refuse to make an order. 30 I agree with Mr Quickenden that, in general, it is thoroughly undesirable to engage in judicial review of proceedings which are at an interlocutory stage. In many fields, courts have made it plain how undesirable this is. See Sankey v Whitlam (1978) 142 CLR 1 at 25-26 and Director-General of Social Services v Chaney (1980) 31 ALR 571. In Overton Investments Pty Ltd v Carnegie [2000] NSWSC 581, I discussed some of the problems involved in reviewing proceedings which have not been heard and determined. The powers conferred on the Court by its inherent jurisdiction and ss 23 and 75 of the Supreme Court Act should not be exercised lightly so as to overcome the restrictions which exist on the ambit of the prerogative writs. 31 However, I am satisfied that, in the present case, the request or direction given by the Assessor would, if complied with, have led to an assessment of the costs on a wrong basis and that fulfilment of the request or direction would have involved the CBA in a very great deal of unnecessary work and expense. In the circumstances, I think it is appropriate to make an order. See Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 and Attorney General for New South Wales v Smits (1998) 45 NSWLR 521. 32 I shall declare that the Assessor is not entitled to make the request or direction set out in item (1) of his letter of 17 September 1999. I shall declare that the Assessor is entitled, if he so chooses, to request or direct that the Commonwealth Bank of Australia redraw the bill of costs so that it claims, inter alia, allowances for time spent. 33 Counsel for the CBA did not seek an order as to costs. **********

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