Dyktynski v BHP Titanium Minerals Pty Ltd

CATCHWORDS : COSTS - Indemnity principle - whether a nominal party is entitled to recover the costs of proceedings where the benefit of the costs enures to a third party with a real interest in the proceedings - operation of sections 112 and 116 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW). (D) Compensation Court Repeal Act 2002 (NSW) s 4 Justices Act 1921 (SA) s 77 LEGISLATION CITED : Legal Profession Act 1987 (NSW) Pt 11, s 174, s 174(1)(a), Pt 11 Div 2, s 175(1), s 178, s 179, s 184(1)(a), s 184(3), s 184(4), s 186, Pt 11 Div 6, s 202, s 208F(1), s 208F(1A), s 208F(2), s 208H, 208KI, s 208L, s 208L(2)(a), s 208L(2)(b) Supreme Court Act 1970 (NSW) s 76, s 76(2)(b) Supreme Court Rules 1970 (NSW) Pt 52A r 2, r 32 Workplace Injury Management and Workers Compensation Act 1998 (NSW) s 110, s 111A, s 112, s 112(2), s 112(2)(b), s 112(3), s 113, s 116, s 116(1), s 116(7), s 250 Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 A Goninan & Co Ltd v Gill [2001] NSWCA 77; (2001) 51 NSWLR 441; (2001) 21 NSWCCR 552 Angor Pty Ltd v Ilich Motor Co Pty Ltd (1992) 37 FCR 65 Backhouse v Judd [1925] SASR 395 Blackall v Trotter (No 1) [1969] CR 939 Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403 Clarke and Chapman v Hart (1858) 6 HL Cas 632, 667; (1858) 10 ER 1443 Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333 Dyktynski v BHP Titanium Minerals Pty Ltd [2001] NSWCA 54; (2001) 50 NSWLR 710 Dyktynski v BHP Titanium Minerals Pty Ltd [2002] NSWSC 1112 Ex parte Slack (1844) 6 ALT 23 Gundry v Sainsbury [1910] 1 KB 645 Guss v Veenhuizen (No 2) (1976) 136 CLR 47 CASES CITED : Harold v Smith (1860) 5 H&N 381; (1860) 157 ER 1229 Inglis v Moore (No 2) (1979) 46 FLR 470 Knight v F P Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178 Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Lenthall v Hillson [1933] SASR 31 London Scottish Benefits Society v Chorley (1884) 13 QBD 872 MacLaurin v Hall (1913) 13 SR (NSW) 114 McCullum v Ifield [1969] 2 NSWR 329 New Pinnacle Group Silver Mining Co v Luhrig Coal and Ore Dressing Appliances Co (1902) 2 SR (NSW) 50 Nolan v George [1959] Qd R 315 Public Trustee v A M Hoipo Pty Limited [1999] NSWCA 466; (1999) 19 NSWCCR 215 R v Archbishop of Canterbury [1903] 1 KB 289 Tarry v Pryce (No 2) (1987) 88 FLR 270 Wilson v Richmond River Shire Council [2000] NSWSC 71 PARTIES : Samuel Scott Dyktynski (Appellant) BHP Titanium Minerals Pty Ltd (Respondent) FILE NUMBER(S) : CA 41197/02 COUNSEL : J L Glissan QC/B G McManamey (Appellant) M A Elkaim SC/Ms E G Wood (Respondent) SOLICITORS : Stacks The Law Firm (Appellant) Sparke Helmore (Respondent)

LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 13487/01 FILE NUMBER(S) : LOWER COURT Malpass M JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41197/02 SC 13487/01

MASON P McCOLL JA DAVIES AJA

Friday, 14 May 2004 Samuel Scott DYKTYNSKI v BHP TITANIUM MINERALS PTY LTD

The appellant brought proceedings in the Compensation Court against the respondent. An award was made in his favour. The respondent was ordered to pay the appellant's costs. The solicitors for the parties agreed those costs. The respondent paid the agreed costs soon after the agreement, approximately 11 months after the costs order was made.

The appellant's solicitors sought interest on the costs. The respondent refused to pay interest. The appellant's application in the Compensation Court for an order for the interest was refused. The appellant appealed to the Court of Appeal (the "first appeal").

Prior to pursuing the first appeal the appellant's solicitors wrote to the appellant asking him to sign a costs agreement. The covering letter explained that the appeal had been brought in his name, that he would not be required to pay any legal costs whatever the outcome and that this was because the proceedings did not stand to benefit him in any way but were brought to determine a legal principle for the assistance of the firm. The costs agreement provided that the appellant would "not have to pay any costs or disbursements to us in relation to the proceedings".

In the first appeal the Court held that the appellant was entitled to interest on costs. The Court ordered the respondent to pay the appellant's costs of the first appeal and of the motion in the Compensation Court. In an assessment of costs pursuant to s 202 of the Legal Profession Act 1987 (NSW), the costs assessor concluded that the indemnity principle operated to preclude the appellant recovering the costs of the first appeal. The costs assessor's decision was affirmed on review and by Master Malpass on an appeal pursuant to s 208L of the Legal Profession Act 1987 (NSW).

This appeal was brought, by leave, against the orders made by Master Malpass.

HELD per McColl JA (Mason P and Davies AJA agreeing), allowing the appeal:

A nominal party to proceedings is entitled to recover the costs of those proceedings where the benefit of the costs enures to a third party with a real interest in the proceedings: New Pinnacle Group Silver Mining Co v Luhrig Coal and Ore Dressing Appliances Co (1902) 2 SR (NSW) 50 applied. Gundry v Sainsbury [1910] 1 KB 645 distinguished. Lenthall v Hillson [1933] SASR 31; Blackall v Trotter (No 1) [1969] CR 939; McCullum v Ifield [1969] 2 NSWR 329; Inglis v Moore (No 2) (1979) 46 FLR 470; Clarke and Chapman v Hart (1858) 6 HL Cas 632, 667; (1858) 10 ER 1443; Harold v Smith (1860) 5 H&N 381; (1860) 157 ER 1229; London Scottish Benefits Society v Chorley (1884) 13 QBD 872; R v Archbishop of Canterbury [1903] 1 KB 289; Guss v Veenhuizen (No 2) (1976) 136 CLR 47; Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534; Knight v F P Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178; Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403; Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333 referred to.

The appellant was a nominal party in the first appeal which was pursued for the benefit of his solicitors. He was entitled to recover the costs of the first appeal.

Sections 112 and 116 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) deal only with costs awarded by the Compensation Court in respect of proceedings in that Court. They do not deal with costs in the Court of Appeal: A Goninan & Co Ltd v Gill [2001] NSWCA 77; (2001) 51 NSWLR 441; (2001) 21 NSWCCR 552 referred to; Public Trustee v A M Hoipo Pty Limited [1999] NSWCA 466; (1999) 19 NSWCCR 215 distinguished.

per Mason P (Davies AJA agreeing, McColl JA not deciding):

Section 208H of the Legal Profession Act 1987 (NSW) does not prevent the indemnity principle being engaged.

2. Set aside the order of Master Malpass dated 22 November 2002.

3. Remit the matter to the costs assessor for determination of fair and reasonable costs in accordance with the law.

4. Declare that the indemnity principle does not apply to the costs ordered to be paid by the Court of Appeal in this case and in matter number CA 40894/1999.

Respondent to pay the appellant's costs of this appeal and of the proceedings before the Master, of the Costs Review Panel and of the costs assessment.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41197/02 SC 13487/01

MASON P McCOLL JA DAVIES AJA

Friday, 14 May 2004 Samuel Scott DYKTYNSKI v BHP TITANIUM MINERALS PTY LTD Judgment

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).

19 The letter might have been drafted differently, but unfortunately for Stacks it was framed as it was. Perhaps it was thought necessary to do so to ensure that the client was content to lend his name to the appeal in which he had no financial or other interest. No issue was raised as to the propriety of this particular arrangement. Accordingly, this judgment should not be read as endorsing or disendorsing what was done. 20 Are there any relevant exceptions to the indemnity principle? The appellant suggests two exceptions. They were invoked in the court below, but tersely rejected. A third exception arising out of the Legal Profession Act 1987 was suggested in the course of the hearing before this Court. 21 The first exception to the indemnity principle invoked by the appellant stems from the early Full Court decision in The New Pinnacle Group Silver Mining Co v The Luhrig Coal and Ore Dressing Appliances Co (1902) 2 SR (NSW) 50. An application by Luhrig Co to set aside the appointment of an arbitrator by Pinnacle Co was granted with costs. The costs were taxed, and Pinnacle Co applied for a review of the taxation. Luhrig Co was indemnified against costs pursuant to a solicitor's letter. The reference to arbitration had been entered into by a Mr Lempriere, on behalf of himself and as attorney for Luhrig Co. But (according to the letter) the arbitration was really carried on by Mr Lempriere on his own account. The letter gave formal instruction for the proceedings to set aside the arbitrator's appointment to continue in Luhrig Co's name (the proceedings having apparently been instituted in that name without authority). The letter stated: "As to the costs incurred in the application, we, of course, look to Messrs Blake and Riggall, who in turn look to Mr Lempriere, and therefore there will not be any liability whatever on your company in that respect….". (See The New Pinnacle Group Silver Mining Co NL v The Luhrig Coal and Ore Dressing Appliances Co Ltd (1900) 21 NSWLR 297 for a detailed explanation of issues touching the extent of Lempriere's authority as general agent for Luhrig Co.) 22 Pinnacle Co invoked the indemnity principle as stated in Harold v Smith. The Court held that this was an exceptional case not caught by the indemnity principle. Luhrig Co was described by Cohen J (at 54) as a nominal plaintiff, similar to the assignor of a chose in action who permitted the assignee to sue in the assignor's name or a beneficiary suing in the name of his trustee subject to an indemnity as to costs. 23 These situations, including the circumstances of New Pinnacle itself, all involve a pre-existing representative relationship between the nominal plaintiff who sues and the principal/assignee/beneficiary on whose behalf the right asserted in the proceedings is litigated. But, as McColl JA demonstrates, the applicable principles require a substantive as distinct from a formal approach in identifying the real party to proceedings. If that party incurs the legal expenses of proceedings brought on his or her behalf by the "nominal" plaintiff, then recovery of costs awarded to the nominal plaintiff is not defeated by the indemnity principle. 24 I have been greatly assisted by McColl JA's analysis of this issue and its application in favour of the appellant. I agree with what she has written. 25 The second matter relied upon related to ss112 and 116 of the Workplace Injury Management and Workers Compensation Act 1998 (WIM Act). These sections apply only in respect of existing claim matters (see s111A). Such matters are defined in s250 of that Act. 26 Section 112 is headed "Costs (cf former s116)". It deals with the power of the Compensation Court to award costs in proceedings in that court. Subsection (2) is a common provision about costs being in the discretion of the court. Subsection (3) provides: Subject to this section the Court may not order the payment of costs by a person claiming compensation unless the Court is satisfied that the application for compensation was frivolous or vexatious, fraudulent or made without proper justification. 27 A worker who obtains an award usually obtains an order for costs in his or her favour from the Compensation Court. Costs orders against workers are rare, in light of s112 (3). 28 Section 113 provides for regulations fixing maximum costs recoverable by legal practitioners or agents. 29 Section 116 further regulates costs as between solicitor and client. It provides: 116 Solicitor/client costs in compensation proceedings (cf former s 122)

(1) The legal representative or agent of a person claiming compensation under this Act is not entitled: (a) to recover from the person any costs in respect of the claim, or (b) to claim a lien in respect of those costs on, or deduct those costs from, the sum awarded, ordered or agreed as compensation, unless those costs are awarded by the Compensation Court. (2) Any such award may be made on the application either of the person claiming compensation or the person's legal representative or agent. (3) Any sum so awarded is subject to assessment in accordance with Division 6 of Part 11 of the Legal Profession Act 1987 . (4) This section prevails to the extent of any inconsistency with Part 11 of the Legal Profession Act 1987 . (5) A person must not: (a) claim a lien that the person is not entitled to claim because of subsection (1), or (b) deduct costs from a sum awarded, ordered or agreed as compensation that the person is not entitled to deduct because of subsection (1).

(6) A person who has paid an amount in respect of costs to another person that the other person was not entitled to recover because of subsection (1) is entitled to recover the amount paid as a debt in a court of competent jurisdiction or by proceedings in the Compensation Court. (7) A reference in this section to a claim includes a reference to a prospective claim (whether or not the claim is ever actually made). 30 This section deals with costs as between party and party and as between solicitor and client, but in each case it is confined to costs referable to proceedings involving claims (and prospective claims: see s116(7)) in the Compensation Court. This restriction is in my view clearly implicit from the context as well as from the provisions that empower the Compensation Court to make orders displacing, for example, s112(3) and s116(1). It is unthinkable that the Compensation Court would exercise a power to fix or regulate costs referable to proceedings in the Court of Appeal. These matters are addressed in the Supreme Court Act 1970 and the Supreme Court Rules. 31 The appellant submits that s116 has the effect that, unless the Compensation Court orders otherwise, a worker has no liability to pay his or her legal representative in respect of any work carried out when making a claim for compensation. This is a broad but fair summary of the combined effect of ss112 and 116 (see also Public Trustee v AM Hoipo Pty Ltd (1999) 19 NSWCCR 215, [1999] NSWCA 466 at [31]-[36]). But the submission does not assist the appellant in the present matter, for two reasons. Section 116 confines itself to costs as between solicitor and client. And s116 does not address costs in this Court. 32 The third matter, which arose in the course of argument in this Court, concerns s208H of the Legal Profession Act 1987 which provides: 208H Effect of costs agreements in assessments of party/party costs (1) A costs assessor may obtain a copy of, and may have regard to, a costs agreement. (2) However, a costs assessor must not apply the terms of a costs agreement for the purposes of determining appropriate fair and reasonable costs when assessing costs payable as a result of an order by a court or tribunal. 33 It was suggested that s208H might possibly prevent the indemnity principle being engaged, because the cost assessor is precluded from applying the terms of the costs agreement as between solicitor and client in the assessment of party and party costs. In deference to senior counsel for the appellant it should be pointed out that the suggestion was raised by the Court. In my view this would involve a forced reading of s208H. That provision addresses the computation of party/party costs. It permits the assessor to have regard to a costs agreement, but precludes that agreement from being determinative in setting a tariff for what are appropriate fair and reasonable party/party costs. The indemnity principle is engaged at an earlier stage in the process. If it precludes the recovery of party/party costs in the particular case, no question of their reasonableness arises. 34 I agree with the orders proposed by McColl JA. 35 McCOLL JA: The issue in this appeal is whether an agreement between the appellant and his solicitor which provided that the appellant would not have to pay any costs or disbursements to his solicitors in relation to Court of Appeal proceedings brought in his name but for the solicitors' benefit (the "first appeal"), precludes the appellant from recovering the costs of the appeal from the unsuccessful respondent. 36 In my view the indemnity principle the essence of which (to adopt Mason P's précis) is that as party/party costs are an indemnity for costs incurred by the client, a successful party cannot recover costs if he or she is not liable to pay them to the solicitor, does not preclude the appellant from recovering the costs of the first appeal. Statement of the case 37 I set out some of the salient facts in order to put my judgment in context. 38 The appellant took proceedings in the Compensation Court against the respondent seeking an award of weekly compensation (the "compensation proceedings"). Judge O'Toole made an award in his favour and ordered the respondent to pay the appellant's costs. The solicitors for the parties agreed those costs. The respondent paid the agreed costs soon after the agreement, approximately 11 months after the costs order was made. 39 The appellant's solicitors sought interest on the costs. The respondent refused to pay interest. The appellant moved the Compensation Court for an order for the interest. Judge O'Toole refused that application. The appellant appealed to the Court of Appeal. Prior to pursuing the appeal from Judge O'Toole's decision the appellant's solicitors wrote to him on 10 June 1999, asking him to sign a costs agreement "as a formality under the Legal Profession Act". The letter and relevant portions of the agreement are set out in Mason P's judgment. It is sufficient to note for present purposes that the solicitors explained to the appellant that the appeal had been "brought in his name as required under the relevant legislation and Rules of Court", that he would " not be required to pay any of our legal costs no matter what the outcome of this appeal" and that this was because "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." 40 In the first appeal Meagher JA (with whom Spigelman CJ and Powell JA agreed) held that s 110 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (the "WIM Act") entitled the appellant to interest on costs calculated from the date the costs order was made: Dyktynski v BHP Titanium Minerals Pty Limited [2001] NSWCA 54; (2001) 50 NSWLR 710. The Court ordered the respondent to pay the appellant's costs of the appeal and of the motion before Judge O'Toole. 41 The parties were unable to reach agreement about the costs ordered by the Court of Appeal. The appellant applied for an assessment of costs pursuant to s 202 of the Legal Profession Act 1987 (NSW). The application was referred to a costs assessor. The respondent submitted a Notice of Objections. Save as to two minor items, it did not object to the costs in relation to the motion before Judge O'Toole. It objected to all the costs claimed in respect of the Court of Appeal submitting that the indemnity principle precluded their recovery. 42 The appellant's solicitors placed before the costs assessor their letter to the appellant dated 10 June 1999 and the document headed "Conditional Costs Agreement between solicitor and client" which, although unsigned, they said constituted their agreement with the appellant concerning the costs of the first appeal.

43 The costs assessor concluded that the indemnity principle operated to preclude the appellant recovering the costs of the first appeal. The costs assessor's decision was affirmed on review and by Master Malpass on an appeal pursuant to s 208L of the Legal Profession Act 1987 (NSW).

The legislative framework 44 Proceedings on behalf of a worker in the Compensation Court prior to its abolition on and from 31 December 2003 (Compensation Court Repeal Act 2002 (NSW), s 4) were conducted on the basis that, subject to s 112 of the WIM Act, the Court could not order a person claiming compensation to pay costs. 45 Subject to the WIM Act, the regulations and rules of the Compensation Court and subject to any other Act, costs in or in relation to any proceedings in the Court were in the discretion of the Court which had full power to determine by whom, to whom and to what extent costs were to be paid in or in relation to any proceedings: s 112(2). A costs order could not be made against a worker unless the Court was satisfied that the application for compensation was frivolous or vexatious, fraudulent or made without proper justification: s 112(3). 46 The legal representative or agent of a person claiming compensation under the WIM Act was not entitled either to recover from that person any costs in respect of the claim or to claim a lien in respect of those costs or deduct the costs from the sum awarded, ordered or agreed as compensation unless those costs were awarded by the Compensation Court: s 116(1). 47 The "formality" to which the appellant's solicitors referred in their 10 June 1999 letter was, no doubt, a reference to Part 11 of the Legal Profession Act 1987 (NSW) which deals with "Legal fees and Other Costs". Section 174 sets out the rights of clients of a solicitor under that Part. A client is to be given information about how a solicitor will charge for costs for legal services including an estimate of the likely costs of those legal services: s 174(1)(a). 48 Division 2 of Part 11 requires the solicitor to disclose to a client the basis of the costs of legal services which the solicitor will provide to that client: s 175(1). That disclosure must be made before the solicitor is retained to provide the legal services concerned unless it is not reasonably practicable, in which case the disclosure is to be made as soon as practicable after the solicitor is retained: s 178. The disclosure is required to be in writing: s 179. 49 A solicitor who is retained by a client to provide services may make an agreement as to the costs of the provision of legal services with a client: s 184(1)(a). Such an agreement is a "costs agreement": s 184(3). A costs agreement is void if it is not in writing or evidenced in writing: s 184(4). 50 A solicitor may also make a conditional costs agreement under which the payment of all of the solicitor's costs is contingent on the successful outcome of the matter in which the solicitor provides the legal services: s 186. The appellant's costs agreement purported to be in that category, being entitled "Conditional Costs Agreement". 51 The effect of the costs order in the first appeal was that the costs awarded were payable on a party and party basis: Supreme Court Rules Part 52A rule 32. Where costs are payable on a party and party basis, the basis of assessment is set out in Division 6 of Part 11 of the Legal Profession Act 1987: Supreme Court Rules Part 52A rule 2. 52 Subdivision 3 of Division 6, "Assessment of party/party costs", deals with the assessment of costs a court or tribunal has ordered be paid. When dealing with an application for assessment of costs pursuant to Division 6 where the costs are payable as the result of an order made by a court, a costs assessor must consider whether or not it was reasonable to carry out the work to which the costs relate: s 208F(1). The assessment must be made in accordance with the operation of the rules of the relevant court which made the order for costs: s 208F(1A). 53 The costs assessor is required to determine the costs payable as a result of the order by assessing the amount of costs that in the costs assessor's opinion is a fair and reasonable amount: s 208F(2). While a costs assessor is entitled to obtain a copy of, and have regard to, a costs agreement, the costs assessor must not apply the terms of that agreement in order to determine fair and reasonable costs when assessing costs payable as a result of an order by a court: s 208H. 54 A party to a costs 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 against the decision: s 208L. That is the course the appellant took. After deciding the questions the subject of the appeal, the Supreme Court may, unless it affirms the costs assessor's decision, either make such determination in relation to the application as, in its opinion, should have been made by the costs assessor: s 208L(2)(a), or remit its decision on the question to the costs assessor and order the costs assessor to re-determine the application: s 208L(2)(b).

Consideration 55 The appellant submitted that the indemnity principle did not apply for three reasons.

Sections 112 and 116 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) 56 The appellant first submitted that the indemnity principle had no application to costs incurred in the Compensation Court. He argued that the costs regime which operates in the workers' compensation jurisdiction which contemplates that the employer will be liable to meet the costs of the successful worker precluded the operation of the indemnity principle. He relied upon ss 112 and 116 of the WIM Act and Public Trustee v A M Hoipo Pty Limited [1999] NSWCA 466; (1999) 19 NSWCCR 215 ("Hoipo"). 57 In Hoipo Beazley JA (with whom Sheller JA and Hodgson CJ in Eq agreed) held (at [36]) that "the entire scheme of the costs provisions of the Workplace Injury Management and Workers Compensation Act recognises that the employer will be liable for costs of a claim for compensation, regardless of whether an applicant commences proceedings or not, unless the claim is determined to have been made or brought frivolously or vexatiously." 58 Hodgson CJ in Eq added (at [41] - [42]): "41 …[A]s pointed out by Beazley JA, ss. 112 and 116 of the Workplace Injury Management and Workers Compensation Act make it clear that the claimants cannot, other than in exceptional circumstances, be liable for the costs of other parties or even their own costs. That being so, the effect of a finding that neither the Public Trustee nor Hoipo is liable for the claimants' costs would be that the legal advisers of the claimants could not recover costs or even disbursements from anyone. 42 I do not believe it could have been the legislature's intention that claimants should be represented, in apportionment proceedings, only by such lawyers as might be willing to receive no payment for their professional services and to be out of pocket for disbursements. In my opinion, the intention of the legislature was to make employers liable for the costs of successful claims; and if the final resolution of a claim requires apportionment, then normally the employer will be liable for the costs of apportionment." 59 Hoipo did not concern the question whether the indemnity principle operates in relation to costs awarded by the Compensation Court. As I understand the appellant's argument, he contends that because the Court held in Hoipo that an employer is liable to pay costs of Compensation Court proceedings even though the claimant is not and cannot be liable for those costs, it must follow that the indemnity principle does not apply. 60 The appellant next submitted that the costs "scheme" which operates in the Compensation Court also operated on appeal so that "the Court of Appeal or other reviewing court, [including a Master of the Supreme Court], stands in the shoes, and exercises the jurisdiction, of the court below - including that relating to costs". In other words, the appellant submitted that in making the costs order in the first appeal, the Court of Appeal was exercising the jurisdiction of the Court below and, assuming his argument about the effect of Hoipo was correct, the indemnity principle did not apply. 61 The respondent did not submit that Hoipo did not have the effect for which the appellant contended. It argued, however, that Hoipo was distinguishable because the costs disputed in this matter were not incurred in the Compensation Court, but in the Court of Appeal.

62 The appellant's argument should, in my view, be rejected. First, Hoipo did not decide that the indemnity principle does not apply in Compensation Court proceedings. It may be possible to glean an argument to that effect by reading between the lines, but it is unnecessary to embark upon that exercise because the appellant's argument is plainly wrong for the reasons to which I now turn. 63 It is plain that s 112 deals only with costs awarded by the Compensation Court in respect of proceedings in that Court. Section 112 appears in Division 6 of Part 2 of Chapter 4 of the WIM Act which deals with compensation claims before the Commission or the Compensation Court. The reference to the "Court" awarding costs in s 112 is clearly to the Compensation Court exercising its Division 6 jurisdiction dealing with the outcome of the claim by considering the costs order it should make. 64 The costs order made in the first appeal was made by the Court of Appeal pursuant to s 76 of the Supreme Court Act 1970 (NSW) as amended. Section 76 empowered the Court to order costs in relation to the proceedings in the Court itself and also the costs of and incidental to the proceedings giving rise to the appeal: s 76(2)(b). That is what the Court did. Section 112 of the WIM Act played no part in the Court's costs order in the first appeal. As the respondent submitted, had the appellant failed in the first appeal, he would, most probably, have suffered an adverse costs order. 65 A similar argument to that relied upon by the appellant was considered and rejected in A Goninan & Co Ltd v Gill [2001] NSWCA 77; (2001) 51 NSWLR 441; (2001) 21 NSWCCR 552. In that case Heydon JA (with whom Sheller and Giles JJA agreed) held (at [26]) that a costs assessor assessing a worker's costs consequent upon a costs order in the worker's favour made in the Compensation Court was not bound by s 112(3) of the WIM Act and could, therefore, order the worker to pay the costs of the costs assessment. In the Compensation Court Bishop CCJ had reached the same conclusion but regarded himself as bound to apply two decisions of the Compensation Court which had reached the opposite conclusion. His view, however, was that once the Compensation Court had made a costs order in favour of the worker, "the operation of s 112(3) is exhausted": see A Goninan & Co Ltd v Gill at [16]. The Court of Appeal held (at [59]) that the conclusions he would have preferred, if unconstrained by authority, were correct.

Construction of the Costs Agreement 66 The appellant submitted, in the alternative, that the indemnity principle did not apply because the costs agreement contemplated some circumstances in which the appellant would or might become liable for costs to his solicitors. I agree with Mason P that the effect of the costs agreement was that the appellant had no liability to pay costs to his solicitors and, thus, he personally incurred no costs.

The Nominal Plaintiff Argument 67 Finally, the appellant submitted that the indemnity principle did not apply to a nominal plaintiff and that such a party could recover costs even though he was indemnified in respect of those costs by a third party. He relied upon New Pinnacle Group Silver Mining Co v Luhrig Coal & Ore Dressing Appliances Co (1902) 2 SR (NSW) 50 ("New Pinnacle"). The appellant submitted that the correspondence between himself and his solicitors made it clear that the proceedings were brought in his name but for the benefit of others so that he was for all practical purposes a nominal plaintiff. He submitted that the class of nominal plaintiffs to whom the New Pinnacle principle applied was not closed. The respondent sought, wrongly in my view, to distinguish New Pinnacle on the basis that in that case the solicitor had acted for himself and was therefore entitled to be paid as if he had legal representation. 68 The fundamental principle to be applied in deciding whether a costs order ought be made was stated by Lord Cranworth in Clarke and Chapman v Hart (1858) 6 HL Cas 632, 667; (1858) 10 ER 1443 at 1457: "I think that the general principle upon the subject of costs is, and ought to be ... that the costs ought never to be considered as a penalty or punishment, but merely a necessary consequence of a party having created a litigation in which he has failed ... ". 69 Lord Cranworth's statement is reflected in the underlying rationale of a costs order that "it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred": Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 556 - 567 per McHugh J. 70 Consideration of the indemnity principle frequently commences with a reference to Harold v Smith (1860) 5 H & N 381; (1860) 157 ER 1229 where Bramwell B said (at 385; 1231): "Costs as between party and party are given by the law as an indemnity to the person entitled to them: they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained. Of course, I do not say there are not exceptional cases, in which certain arbitrary rules of taxation have been laid down; but, as a general rule costs are an indemnity, and the principle is this, - find out the damnification, and then you find out the costs which should be allowed". (emphasis added) 71 Bramwell B focussed on identifying the "damnification" because Harold v Smith concerned the question whether, upon taxation of costs, a plaintiff should be allowed costs in relation to work said to have been undertaken preparatory to the trial. The plaintiff had been nonsuited at trial when seeking to recover the balance of £130 he alleged was due under a building contract. He had earlier accepted £79 on account of his claim. The defendant had paid those moneys into court after he obtained leave to amend to make that payment and plead the general issue and payment to the remainder. The order to amend amounted to leave to do so upon payment of the costs of and occasioned by the amendment. 72 The plaintiff acknowledged that he would have undertaken the same preparatory work if the £79 had been paid into court when the defendant originally pleaded. In such circumstances, Bramwell B concluded that the plaintiff had not been "damnified" in respect of the preparatory work because the plaintiff would have undertaken that work in any event to pursue his ultimately unsuccessful claim at the trial. The Master had allowed the costs of the preparatory work in his taxation. Bramwell B concluded that he had erred. According to Bramwell B, "if his taxation is correct, the plaintiff would be a gainer by the mistake of the defendant in not pleading payment into Court at the proper time". 73 The indemnity principle as articulated by Bramwell B in Harold v Smith was not immutable. Bramwell B acknowledged there might be "exceptional cases". 74 In New Pinnacle a company plaintiff which was fully indemnified by a third party against all costs was held entitled to recover costs upon taxation notwithstanding the indemnity principle. New Pinnacle concerned a motion brought in Luhrig Co's name to set aside the appointment of an arbitrator appointed by New Pinnacle. A Mr Lempriere was, apparently, the person interested in setting aside the arbitration. Luhrig Co authorised solicitors to conduct the proceedings in its name on the basis that the solicitors would look to Mr Lempriere for costs so that, according to the solicitors' letter to Luhrig Co, "there will not be any liability whatsoever on your company in … respect" of costs. 75 The motion to set aside the appointment of the arbitrator was granted with costs. On taxation New Pinnacle Co objected to any costs being allowed because Luhrig Co was indemnified for its costs by the solicitors. Cohen J treated (at 54) Luhrig Co's position as that of a "nominal plaintiff with a complete indemnity against any liability for costs, given by the real plaintiff". He referred to cases of an assignor and assignees in which the assignee needs to use the assignor's name to sue and can only do so upon giving the assignor an indemnity against costs and those of a cestui que trust suing in the name of his trustee as nominal plaintiff analogies. In such cases, the indemnity against costs in favour of the nominal plaintiff had never precluded the nominal plaintiff from recovering costs. In Cohen J's view there was no rule of law or authority which precluded recovery. He held that the indemnity principle as enunciated in Harold v Smith did not preclude Luhrig Co from recovering costs. 76 Walker J (at 56) rejected the attempt to construct a "rigid rule" out of Harold v Smith. His Honour saw Harold v Smith as being confined to its facts and, in particular, to the proposition that allowing the plaintiff in Harold v Smith costs would have enabled the plaintiff "contrary to reason and principle, to be a gainer by the mistake of the defendant". He also regarded the indemnified assignor cases as illustrating that even a nominal plaintiff can recover costs. In his Honour's view (at 57), it was "[o]nly by torture" that the indemnity principle could be made to apply to the case of a nominal plaintiff. 77 New Pinnacle was applied in McCullum v Ifield [1969] 2 NSWR 329 by Taylor J who held that a defendant who had not incurred any liability for costs to his solicitor as the solicitor was retained by the defendant's third party insurer, the Government Insurance Office, was nevertheless entitled to recover the costs of the litigation against the plaintiff. 78 Taylor J referred (at 330) to New Pinnacle and also to Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, as authority for the proposition that the fact that the party to civil proceedings is indemnified by insurance or other agreement against his liability to pay the costs does not prevent him recovering his party and party costs. He distinguished Gundry v Sainsbury [1910] 1 KB 645 which he said established that if a party to an action has an agreement with his solicitor that he will not have to pay any costs then he cannot recover party and party costs against the adversary.

79 Gundry v Sainsbury [1910] 1 KB 645 was a case in which the successful plaintiff who recovered £15 damages in respect of a dog bite had agreed with his solicitor that he should not have to pay the solicitor any costs. The Court of Appeal held that he could not recover party and party costs on the basis of the indemnity principle. Cozens-Hardy J said (at 649) that if the plaintiff had recovered a costs order, he would have received a "bonus" which "is contrary to justice and to common sense and also to the law as laid down in Harold v Smith." 80 Walker J's concern in New Pinnacle that the indemnity principle should not become a rigid rule was echoed in Lenthall v Hillson [1933] SASR 31 at 36. Sitting in Banco, Angas Parsons and Napier JJ observed (at 36): "… [T]he 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." 81 Lenthall v Hillson was a prosecution in a court of summary jurisdiction brought by a complainant who was a police officer. He laid the complaint in the course of his duty. He was represented by a legal practitioner who was an officer of the Crown Law Department remunerated by an annual salary whose duties included appearing as counsel. The complainant was under no liability for any costs or fees to his counsel. The Court held that on a successful prosecution a counsel fee could be ordered in respect of the Crown Law officer's appearance despite the fact the complainant was not personally liable to pay his counsel. 82 The Court looked at the practice in the Courts of Common Law prior to the Judicature Act to understand the sense in which the word "costs" was used in s 77 of the Justices Act 1921 (SA) (which was the Court's power to make a costs order). It referred to Lush's Practice (3rd ed., at pp 225 - 6) which, in a chapter dealing with the practice of "suing in another's name", referred to cases such as an indemnified assignor and a cestui que trust and said "…in all cases the person whose name is on the record as the plaintiff is entitled to an indemnity to cover his liability for costs, and no action should be commenced until that person's consent had been sought for and a sufficient indemnity tendered and refused". 83 The Court held (at 38) that in courts of common law "costs" was understood as an indemnity to the real party bringing the action without regard to the "liability of the nominal party, whose name must necessarily appear on the record." The Court said that this view was adopted in R v Archbishop of Canterbury [1903] 1 KB 289 "where the Court of Appeal refused to disallow the taxed costs of the solicitor to the Treasury who, defended on behalf of the Treasury." Applying that principle they held that a counsel fee could be awarded in respect of the Crown Law officer who appeared as counsel even though the complainant had incurred no liability for the costs of that representation. 84 Although there was no reference in Lenthall v Hillson to New Pinnacle, it is plain the Court applied the same principle, namely that where there was a nominal plaintiff who had incurred no costs but a third party with an interest in the litigation who had, the indemnity principle did not preclude a costs order in favour of the successful, albeit nominal, party. 85 In Blackall v Trotter (No 1) [1969] VR 939 at 947 the Full Court of the Supreme Court of Victoria held that where the Crown had an interest to protect in legal proceedings and instructed a solicitor employed by it to act for one of the parties, that party was entitled to recover costs awarded to him against the other party, notwithstanding that he was not personally liable for costs to the solicitor who acted for him. In reaching that conclusion it followed and applied R v Archbishop of Canterbury; Lenthall v Hillson; Ex parte Slack (1844) 6 ALT 23; MacLaurin v Hall (1913) 13 SR (NSW) 114 and Nolan v George [1959] Qd R 315. It distinguished (at 941) Gundry v Sainsbury on the basis that, in that case, no expense was incurred in the employment of the solicitor. 86 The Full Court of the Supreme Court of Victoria rejected the submission that as costs are recoverable only on the principle of indemnity, where the party on the record is under no liability for costs, no indemnity is involved and, therefore, no costs are recoverable. It held that the principle reflected in cases such as Lenthall v Hillson and MacLaurin v Hall, which entitled an informant in summary criminal proceedings to recover the costs of being represented by a Crown-employed solicitor, also applied to civil proceedings. The Court said (at 941): "… the present case cannot be distinguished, and should not be distinguished by any process of subtle refinement from the above-mentioned decisions of long standing and several jurisdictions. As in our view such decisions, if we may say so, produce a sensible and just result, they should, in our opinion, if applicable to the facts of this case, be followed and applied." (emphasis added) 87 The Court added (at 941), referring to New Pinnacle, that while the case before it involved a Crown-employed solicitor, it was "not to be taken as deciding that the principle is limited to such a case." 88 Lenthall v Hillson and Blackall v Trotter (No 1) were referred to with approval in Inglis v Moore (No 2) (1979) 46 FLR 470 at 472 where the Full Federal Court (St John, Brennan and Davies JJ) held that "[i]t has long been the rule that a successful party who is represented by the Crown Solicitor in litigation in which the Crown has an interest is not disentitled to costs from an unsuccessful party merely because he is not under a personal liability to the Crown Solicitor for costs". 89 Gundry v Sainsbury is distinguishable from the nominal plaintiff authorities because there the plaintiff was the only party with an interest in the litigation and he was under no liability for his costs. Accordingly the indemnity principle was properly applied to preclude him recovering a costs order. 90 A G Saddington's Taxation of Costs Between Parties (1919) Sydney Law Book Company (at 17-19) deals with the recovery of costs in the case of a nominal plaintiff. In his view: "The nominal litigant … is indemnified from all liability for costs by the real litigant…[the nominal party] is, in reality, a trustee for the person to whom he lends his name, and his opponent cannot escape payment of costs on the ground that such person is not personally liable to pay any costs any more than he can defeat the claim by showing that such person has no personal interest in the subject matter of the action. The real party to the action is the man to whom he has lent his name, and just as he is liable, at the instance of the nominal party, to pay the costs of an unsuccessful proceeding, so he can recover in the name of the nominal party, the costs of a successful proceeding." 91 Quick on Costs (Lawbook Co, 2001, at [2.2690]), after referring to New Pinnacle, expressed the view that "the unarticulated reason for this infringement of the doctrine of indemnity is probable (sic) the obligation imposed upon a nominal plaintiff to give security for the party and party costs of proceedings at first instance." That is not a rationale which appears in any of the authorities to which I have referred. 92 This review of authorities demonstrates that courts have consistently held that a nominal plaintiff, whether one who had not incurred any liability for costs (Lenthall v Hillson, Inglis v Moore, MacLaurin v Hall, Blackall v Trotter (No 1)) or who had received an express indemnity in respect of such costs (New Pinnacle), was entitled to a costs order even though the benefit of that costs order enured to a third party with an interest in the litigation.

93 There are two ways of looking at such cases. In New Pinnacle, the Court held that the indemnity principle did not apply. The better interpretation, in my view, is that expressed in Lenthall v Hillson, namely that even before Bramwell B's enunciation of the indemnity principle in Harold v Smith, "costs" was understood as an indemnity to the real party bringing the action without regard to the "liability of the nominal party, whose name must necessarily appear on the record." In such cases the indemnity principle operated on the substance rather than the form to produce a sensible and just result. 94 The principle does not, in my view, rest upon the narrow proposition that there was a pre-existing representative relationship between the nominal plaintiff who sues and the third party on whose behalf the right asserted in the proceedings was litigated. Neither New Pinnacle nor Lenthall v Hillson turned on identifying such a relationship. The nominal plaintiff cases rest upon the proposition that costs have been incurred by the "real" not the "nominal" party and that costs are a "necessary consequence of a party having created litigation in which he has failed." The cases recognise that the indemnity principle must be "reasonably understood and applied." 95 Applying the indemnity principle to ensure that a real party with an interest in the litigation can recover the costs incurred in proceedings brought in another's name accords with the proposition that "it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred": Latoudis v Casey, above. 96 Other illustrations can be given of the flexible application of the indemnity principle. 97 Solicitor litigants who represent themselves have been held entitled to recover professional costs associated with their personal litigation as if they had employed a solicitor: London Scottish Benefits Society v Chorley (1884) 13 QBD 872. In Guss v Veenhuizen (No 2) (1976) 136 CLR 47 at 51 Gibbs ACJ, Jacobs & Aickin JJ said that the solicitor was able to recover costs in such circumstances because "he happening to be a solicitor, his costs are able to be quantified by the Court and its officers". 98 In Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403 at 411 the majority (Mason CJ, Brennan, Deane, Dawson and McHugh JJ) referred to the solicitor litigant cases as being a "somewhat anomalous exception" and (at 413) a "limited and questionable exception" to the indemnity principle. 99 Despite their Honours' criticism, the exception exists and must be recognised. Accordingly, had Stacks been able to bring proceedings in the firm's name to pursue the costs awarded in the compensation proceedings, and acted for themselves, the solicitor litigant exception would have ensured they could have recovered the costs of the first appeal. 100 Another exception to the indemnity principle applies in the case of employed solicitors. In such cases the costs of an ordinary solicitor are allowed on taxation as between party and party even though the solicitor who appeared for the successful party was remunerated by a salary. This exception was discussed in Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333 by Davies AJ who (at 340) observed that the exception operated in the context of applying the indemnity principle "flexibly and reasonably". 101 Before turning to consider the applicability of these principles to the present case I would finally note that the principle that a Court was empowered to order costs in favour of a nominal party secured against a costs order by a "real party" was mirrored by the Court's power to order costs against the "real party" to a suit. The history of that jurisdiction was considered in Knight v F P Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178 where Mason CJ and Deane J (with whom Gaudron J agreed) explained (at HCA 23; CLR 188) that: "The cases awarding costs against non-parties are more readily explicable on the footing that there was no absence of jurisdiction to order costs against non-parties in the strict sense and that the jurisdiction could be exercised against persons who could be considered to be the 'real parties' to the litigation. … [I]n Reg v Greene (1843) 4 QB 646; 114 ER 1042 at 650; 1144 … Lord Denman CJ said: 'We take the true rule to be that the Court may adjudge from all circumstances who is the party, and give costs against any party, or against any attorney, if the affidavit … shews good ground for imposing them …' ". 102 Their Honours concluded (at HCA 34; CLR 192 - 193): "For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, whether the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation . Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." (emphasis supplied) 103 Dawson J, in his separate judgment, also held (at HCA 20; CLR 202) that there was a "long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings". That jurisdiction included situations where "that person is the effective litigant standing behind an actual party".

Conclusion 104 The argument in this Court recognised that, consistently with the statutory scheme prescribed by the WIM Act as explained in Hoipo, the appellant could not incur liability for his costs of the compensation proceedings. The respondent did not cavil with the appellant's assertion that the costs agreement reflected the statutory scheme. There was no suggestion, nor could there properly have been, that the costs agreement the appellant had entered into with his solicitors was improper. 105 The argument thus proceeded on the basis that the appellant's legal representatives were entitled to enforce, albeit in the appellant's name, the costs order made in the compensation proceedings and also recover, if necessary by proceedings, any interest which accrued on those costs pursuant to s 110 of the WIM Act. The respondent clearly accepted, in my view, that the appellant's solicitors were the "real party" with an interest in the first appeal and, indeed, in the present appeal. 106 The respondent did not quibble with the proposition that it was liable to pay the appellant's costs of the Compensation Court proceedings. This was despite the fact that it is plain from the provisions of the WIM Act to which I have referred that the appellant could not incur any liability to his solicitors for costs in respect of the compensation proceedings. The respondent submits, however, that the position which prevails in the Compensation Court has no application when considering the appellant's ability to recover costs in relation to the successful outcome of the first appeal. It submitted that the appellant's solicitors should have avoided the operation of the indemnity principle in relation to the costs of the first appeal by seeking a costs order pursuant to s 112(2)(b) of the WIM Act. It did not identify the Court it suggested should have made that order. As I have demonstrated elsewhere in this judgment s 112 applies only to the Compensation Court. It was not a power which could have been exercised by the Court of Appeal in the first appeal. 107 It is clear, in my opinion, that the case falls within the principles identified in the nominal party cases. The appellant's solicitors stood to benefit from an order awarding interest on the costs recovered in respect of the compensation proceedings. They were entitled to recover interest on the costs because the respondent had delayed their payment. The entitlement to interest was, as was held in the first appeal, clearly set out in s 110 of the WIM Act. Stacks could only enforce that right to interest, as it could only enforce the costs order, in the appellant's name. The appellant was an essential, albeit nominal, party to the appeal. Stacks incurred the costs of the first appeal as the real party to that appeal. 108 Returning to Bramwell B's words in Harold v Smith it is clear that the effect of permitting the appellant to recover the costs of the first appeal does not flout the rationale of the principle his Lordship espoused. It does not give the appellant a bonus, nor punish the respondent. It is plain from the letter and costs agreement that the appellant's solicitors will recover the costs to defray the expenses they incurred in pursuing the first appeal. On the other hand if the appellant is not permitted to recover the costs of the first appeal, the respondent will profit from its erroneous decision to withhold interest on the costs awarded in the compensation proceedings. 109 The jurisdiction to award costs in the nominal plaintiff cases is long-standing. It exists despite the indemnity principle. It produces a sensible and just result. 110 In my view the costs assessor erred in deciding that the indemnity principle precluded him from assessing the appellant's solicitor's costs.

2. Set aside the order of Master Malpass dated 22 November 2002.

3. Remit the matter to the costs assessor for determination of fair and reasonable costs in accordance with the law.

4. Declare that the indemnity principle does not apply to the costs ordered to be paid by the Court of Appeal in this case and in matter number CA 40894/1999.

5. Respondent to pay the appellant's costs of this appeal and of the proceedings before the Master, of the Costs Review Panel and of the costs assessment. 112 DAVIES AJA: I agree with Mason P and McColl JA.

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