1 MASON P: This appeal, brought by leave, relates to the assessment of the costs that this Court ordered to be paid in an earlier appeal between the same parties (Dyktynski v BHP Titanium Minerals Pty Ltd (2001) 50 NSWLR 710; [2001] NSWCA 54). (The matter at issue in that appeal was whether a costs order made in the Compensation Court in favour of the worker carried interest on the costs, and if so from what date.)
2 The appellant's solicitor prepared a bill of costs and forwarded it to the respondent's solicitor. Agreement could not be reached so assessment of the costs was referred to a costs assessor in accordance with Part 11 of the Legal Profession Act 1987. The respondent took various objections to the bill of costs, including invocation of the "indemnity principle" as regards the costs incurred in this Court. In brief, the principle states that, since an award of party/party costs is an indemnity for the costs incurred by the client, the successful party cannot recover costs if he or she is not liable to pay them to the solicitor.
3 The party and party costs order was made without any objection and without intimation of a special costs arrangement entered into between the worker and his solicitor. The appellant does not suggest that it foreclosed the respondent from invoking the indemnity principle at the cost assessment stage.
4 The indemnity principle is well-established. In Cachia v Hanes (1994) 179 CLR 403, Mason CJ, Brennan J, Deane J, Dawson J, and McHugh J said (at 410) that:
It has not been doubted since 1278, when the Statute of Gloucester introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation.
5 As Bramwell B put it in Harold v Smith (1860) 5 H&N 381 at 385, 157 ER 1229 at 1231, "... find out the damnification, and then you find out the costs which should be allowed".
6 One corollary of the principle is the rule that a litigant in person who is not a lawyer cannot recover compensation for time spent in preparing and conducting the case (Cachia).
7 Another corollary is invoked by the respondent in the present case. If a party to an action has agreed with the solicitor that the party does not have to pay any costs, then costs cannot be recovered against the adversary under a party and party order (Gundry v Sainsbury [1910] 1 KB 645, McCullum v Ifield [1969] 2 NSWR 329 at 330). Alternatively, if the solicitor-client agreement caps the amount of costs recoverable, this enures to the benefit of the client's adversary (Tarry v Pryce (No 2) (1987) 88 FLR 270).
8 The situation is different if the client has the benefit of an indemnity from a third party, so long as the client remains under a legal liability to the solicitor (Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, Backhouse v Judd [1925] SASR 395, Angor Pty Ltd v Ilich Motor Co Pty Ltd (1992) 37 FCR 65, Wilson v Richmond River Shire Council [2000] NSWSC 71).
9 The distinction is neatly stated by Bankes LJ in Adams, in a passage explaining why a plaintiff, who was a member of a trade union that instructed a solicitor on his behalf in a successful action, could recover the solicitor's costs. His Lordship said (at 501):
When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs.
10 The first question at issue in this appeal is whether the arrangement between the appellant and his solicitor as regards the costs of the earlier proceedings in this Court was of the nature stated in the last sentence of the passage quoted from Adams. The second question is whether the circumstances fall within some exception to the indemnity principle.
11 This appeal is brought against orders made by Master Malpass in the exercise of the limited appellate jurisdiction conferred by section 208L of the Legal Profession Act 1987. A party to an application who is dissatisfied with a decision of a costs assessor as to a matter of law arising in the proceedings to determine the application may appeal to the Supreme Court. Likewise, for a party dissatisfied with a review panel's determination to affirm the cost assessor's determination (cf s208KI), which was the situation in the present case.
12 The Master set aside the determination and remitted the matter back to the assessor for re-determination (Dyktynski v BHP Titanium Minerals Pty Ltd [2002] NSWSC 1112). However, the appeal was largely unsuccessful, because the Master left undisturbed the assessor's determination that no costs were recoverable as regards the earlier proceedings in the Court of Appeal.
13 The appellant's decision to bring the earlier appeal was in consequence of and with the comfort of the clearest of undertakings by his solicitor that no costs or disbursements would be charged for legal work done in that appeal, regardless of its outcome. The reasons for such an arrangement appear from the letter from Stacks - The Law Firm dated 10 June 1999 which I set out:
RE: THE APPEAL
We refer to our recent discussions regarding this matter and confirm our advice that there has been a dispute continuing regarding an issue which does not concern you directly, being whether interest is payable by the insurance company on the costs and disbursements where payment of those costs was substantially delayed.
As discussed, and in accordance with your instructions we confirm that we have now lodged an appeal against the determination of this issue by the Compensation Court, the appeal having now been lodged in the Court of Appeal (a division of the Supreme Court of New South Wales).
As discussed, the appeal has been brought in your name as required under the relevant legislation and Rules of the Court, but will not require any action on your part and there will be no requirement for you to attend Court or take any part in the proceedings.
We also confirm our advice that you will not be required to pay any of our legal costs no matter what the outcome of this appeal, and we further confirm our advice that if the appeal is unsuccessful and there is an order from the Court requiring you to pay any of the other side's legal costs we will attend to payment of those costs on your behalf so that you are not required to pay any amount. The reason we are standing in your shoes for any costs liability is that these appeal proceedings do not stand to benefit you in any way if successful, and are brought purely to have the Court of Appeal determine an important legal principle for the assistance of this firm and other legal practitioners. As this firm will benefit directly from a successful outcome in this appeal rather than any benefit flowing to yourself, we believe it would be unfair for you to carry any of the risk if the appeal were to be unsuccessful.
As a formality under the Legal Profession Act, would you please sign and return the enclosed costs agreement in respect of these appeal proceedings, so that we will be in a position to recover our professional costs from the other side if we win the appeal. The costs agreement has been drafted to reflect the above arrangement protecting you from any costs liability. If you have any queries about this costs agreement please telephone the writer for clarification.
We thank you for your assistance and look forward to receiving the signed costs agreement. Please advise if you would like us to let you know the outcome of the appeal when it is determined, otherwise we will not bother you with this matter any further.
14 Accompanying this letter was a Conditional Costs Agreement Between Solicitor and Client. It described "the Work" as the appeal against orders of the Compensation Court regarding the payment of interest on costs. Clauses 2, 3 and 7 provided (emphasis in original):
2. It is agreed between us that you will not have to pay any costs or disbursements to us in relation to the proceedings which we are bringing on your behalf in the Court of Appeal (a Division of the Supreme Court of NSW) irrespective of the result of the claim. In consideration of our agreement to forego payment of such costs and disbursements, it is hereby agreed that we are entitled to receive into our general account (without having to account to you) any costs and disbursements payable on a party and party basis by the respondent and/or the respondent's insurers provided that we will reimburse you for that part of any expenses paid by you which is recovered as part of those costs from the respondent or the respondent's insurer.
3. We will pay disbursements such as filing fees, service fees, travel expenses and the like on your behalf. If the appeal is successful we would expect to recover those expenses from the insurer.
…
7. An account for our professional costs which are payable only on the successful outcome of the Work will be given to the insurer after completion of the work.
15 The balance of the Agreement sets out rates of charges for costs and disbursements. Like portions of the clauses I have set out, it proceeds on the contestable assumption that the indemnity principle has no application.
16 Master Malpass said (at [18]):
This is clearly one of those cases in which, by reason of the costs agreement made between them, the plaintiff did not have any liability whatsoever to pay costs to his solicitors. The order made was for the payment of his costs. He did not incur any costs. Accordingly, the application had to be so assessed.
17 I agree with this conclusion. The letter and Agreement went well beyond an arrangement where a solicitor accepts a retainer on a "no win, no fee" basis. In such a retainer there is an agreement that a fee will be charged if the client "wins". The concept of "winning" is usually defined to include the obtaining of an award of costs in the proceedings. Depending on text and context the solicitor's right to charge the client is usually coterminous with the client's right to go against the other party under the costs order. In other words, where party/party costs are disallowed the client's liability to pay the solicitor is adjusted accordingly.
18 By contrast, the letter from Stacks - The Law Firm clearly acknowledged that the client had nothing to gain by the appeal, which was being "brought purely to have the Court of Appeal determine an important legal principle for the assistance of this firm and other legal practitioners". And, unlike a "no win, no fee" agreement, the contractual arrangement between Stacks and the appellant as regards the costs of the appeal was one in which no liability could or would arise as between solicitor and client. The opening part of cl 2 of the Agreement is quite emphatic. In my view, it extends to negating any liability to pay costs or disbursements. This is confirmed by the later references to "our agreement to forego payment of such costs and disbursements"; the references in cll 3 and 7 to an intention by the solicitor to seek payment from the insurer; and by the terms of the accompanying letter (including the reason it spells out for the whole arrangement).