WENTWORTH v ROGERS; WENTWORTH & RUSSO v ROGERS - [2006] NSWCA 145 - NSWCA 2006 case summary — Zoe

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WENTWORTH v ROGERS; WENTWORTH & RUSSO v ROGERS

[2006] NSWCA 145

Court of Appeal (NSW)|2006-03-14|Before: Santow JA, Basten JA, Hislop J

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Source facts

Court

Court of Appeal (NSW)

Decision date

2006-03-14

Before

Santow JA, Basten JA, Hislop J

Source

Original judgment source is linked above.

Judgment (38 paragraphs)

[1]

Background 69 The litigation between Ms Wentworth and her former husband, Mr Rogers, commenced in June 1981 when she commenced criminal proceedings relating to alleged domestic violence in January 1977. Civil proceedings in relation to the same events were commenced by her in late 1982. In July 1985 Mr Rogers was acquitted of the criminal charges and on 12 August 1985 commenced proceedings by way of cross-claim in Ms Wentworth's civil proceedings, seeking damages for malicious prosecution. 70 On 20 December 1985, Mr Rogers obtained judgment in his favour on his malicious prosecution claim and in relation to Ms Wentworth's civil claim, but that judgment was set aside and a retrial ordered on 6 March 1987. 71 On 8 April 1994 Sully J ordered that Mr Rogers' cross-claim be heard separately from Ms Wentworth's damages claim and that the latter proceed to a hearing. That hearing occurred two months later, Ms Wentworth recovering a small award of damages and half her costs. 72 In the second half of 1994, Ms Wentworth sought and obtained from Loveday AJ an order ex parte dismissing Mr Rogers' cross-claim for malicious prosecution. 73 Ms Wentworth then having judgments in her favour for a small amount of damages and what was probably a significant amount of costs, challenged certain property transactions involving Mr Rogers and his current wife. 74 By November 1994 Ms Lydiard, barrister, had agreed to act for Mr Rogers and had obtained an adjournment of the property matters on account of his illness. At some stage in December 1994 Ms Preston, barrister, was recruited as a junior to assist Ms Lydiard. 75 On 12 December 1994 Mr Rogers filed a motion seeking to set aside the order dismissing his cross-claim for malicious prosecution. It appears from the commendably restrained bundle of materials before this Court that Mr Rogers intended to resurrect his claim for malicious prosecution, which had been dismissed ex parte because of his failure to prosecute it, with the expectation that, if successful, he would have a judgment against Ms Wentworth to set off against the judgments she had obtained against him. On that basis, he wished to contend that the property matters should be adjourned until after the malicious prosecution claim was resolved. 76 On 4 April 1995 Sperling J severed the hearing of the property matter from Mr Rogers' motion to reopen the dismissal of his claim and directed that the latter be heard first. 77 On 10 September 1996 Sperling J gave judgment indicating that he would set aside the orders of Loveday AJ and dismiss Ms Wentworth's motion for a permanent stay of the malicious prosecution proceeding. However, he made no orders on that occasion, but merely directed that counsel for Mr Rogers should bring in short minutes of order disposing of the matters which had been addressed in the judgment and invited both parties to bring in short minutes of order to reflect directions which should be made in relation to the balance of the proceedings. 78 Lest it be thought that the motions in issue were disposed of following a short hearing, it is appropriate to note that the dates of the hearing before Sperling J, listed at the beginning of his judgment of 10 September 1996, run from 23 March 1995 to 24 April 1996 and cover 37 days. In a submission on costs prepared by the two counsel involved in the case, and dated 1 May 1997, an "estimate" of Mr Rogers' costs was provided, which included an amount of $271,017 for counsel, $7,575 disbursements for Mr Rogers and the relatively modest amount of $6,675 fees and disbursements due to Richard Licardy & Co, solicitors. 79 On 26 February 1997 Sperling J made orders giving effect to his judgment of 10 September 1996, other than with respect to costs. He directed that the parties exchange written submissions with respect to the costs other than those concerning the property matter. On 12 March 1997 Ms Wentworth filed a summons seeking leave to appeal against the orders made on 26 February. 80 The next step in the proceeding was a matter of some consequence, but it is necessary to identify some further factual matters before dealing with it. The first is that on 10 February 1997 Mr Rogers appears to have signed two documents, each entitled "costs agreement". The one with respect to Ms Lydiard, read as follows: "I, Gordon Rogers, agree that fees and disbursements incurred by Ms Virginia Lydiard, barrister, in relation to the matter of Wentworth v Rogers are to be paid by me as follows: (1) Ms Lydiard's legal services and disbursements are provided to me on a pro bono basis in that I am not obliged to pay Ms Lydiard (subject to paragraph 3 below) if I am unable to recover any costs against Ms Wentworth in this litigation. (2) My obligation to pay such reasonable fees and disbursements does not arise upon a costs order being made in my favour but on costs being successfully recovered as against Ms Wentworth. (3) In the event that such reasonable fees and disbursements cannot be recovered from Ms Wentworth I undertake to pay same when and if I am in a position to do so. Notation: Such agreement was entered into orally on or about 12 December 1994. [Signed] Gordon Rogers Date: [Handwritten date 10-2-96 crossed out and handwritten date 10-2-97 initialled by GR.] 81 On 10 March 1997 Mr Rogers swore an affidavit which, so far as relevant, read as follows: "… 2. I was present in court on 26 February 1997 when this matter was listed for mention. The plaintiff made certain comments to his Honour Mr Justice Sperling concerning my obligation to pay my legal representatives for their services in relation to my legal requirements. … 4. When Ms Lydiard agreed to act for me in or about November 1994, it was on the basis that her fees would be met when we were successful in my efforts to re-establish the cross-claim. I would pay her for legal representation from any monies I recovered as costs. It was also agreed between Ms Lydiard and myself that if I was not successful in obtaining a costs order against Ms Wentworth in the future I would compensate her for her efforts if and when I was in a position to do so. 5. When Ms Preston appeared on my behalf as junior counsel with Ms Lydiard on 12 December 1994 it was my agreement with Ms Preston that she would represent me on the same terms as Ms Lydiard in terms of my liability to pay her for professional services. … 7. I had considerable difficulty retaining a solicitor to act on my behalf. Mr Licardy generously agreed to act for me on the same conditions as my barristers. I had hoped that he would be reimbursed for disbursements from the Law Society but I understand that he has not received to date any money. It would appear that Mr Licardy will not be reimbursed for disbursements unless I can pay him myself." 82 On 13 February 1997 Mr Licardy wrote to the Law Society asking the following question: "Would you please advise me as a matter of urgency as to whether I am precluded under the Pro-Bono Scheme from receiving costs in this matter. Whilst at all times the agreement with Mr Rogers in respect of fees had been on a contingency basis both with this office and counsel, we believe that we should be able to pursue costs from Ms Wentworth in this matter." 83 This and other material was before this Court because it was before the costs assessor. Although the record is by no means complete, it appears that such material was supplied to Ms Wentworth shortly after the affidavit was filed because on 26 March 1997 she appeared before Sperling J seeking to adduce evidence relating to pro bono arrangements between Mr Rogers and his legal representatives. That application was refused. 84 On 28 August 1997 Sperling J ordered Ms Wentworth and her solicitor, Mr Russo (the Second Appellant) to pay Mr Rogers' costs on an indemnity basis and without set-off against costs orders made in favour of Ms Wentworth. The judgment noted that submissions filed by Mr Rogers included a request "for an order for costs on an indemnity basis against both Ms Wentworth and her solicitor, Mr Russo": Judgment, p 4. The judgment explains why the costs order was made against the solicitor as well as the litigant. There is nothing in the judgment which addresses the question of whether Mr Rogers had any legal liability to either his barristers or his solicitor. Despite an application by Mr Rogers for a lump sum payment, to avoid the need for costs to be assessed, his Honour declined to make such an order. As a result, absent agreement, the costs required assessment. 85 It was the costs subject to the order made by Sperling J on 28 August 1997 which became the subject of the first bill assessed by the costs assessor and also, as appears from the judgment of Patten AJ, the costs of an application for leave to appeal to this Court, refused on 29 October 1999. 86 The second bill, which concerned Ms Wentworth alone, involved costs of proceedings in this Court heard on 12 June 1997 and 21 October 1998. Each hearing involved the leave application filed on 12 March 1997 in relation to the substantive orders made by Sperling J on 26 February 1997. 87 The refusal of the March 1997 leave application gives rise to a number of factual issues, which were not explored in this Court. On the one hand, the costs agreements signed by Mr Rogers in February 1997 permit an inference that, at least thereafter, Ms Lydiard and Ms Preston were appearing on a contingent fee basis consistent with the terms of those agreements. On the other hand, the agreements would appear, in their terms, to apply only to the proceedings in the Common Law Division between the parties identified. No separate costs agreement is in evidence with either of the barristers or the solicitor in relation to the application for leave to appeal. Accordingly, the factual basis for the proposed challenge to liability for the two bills may not be the same.

[6]

(4) If the answer to question (3) is that the determination was required to be made by a judge of the Court, was it properly to be made by - (a) the trial judge from whom the costs order was sought; (b) a judge hearing an appeal from the costs assessor, or (c) a judge hearing a separate application? 89 Implicit in question (1) is a proposition for which the amicus contended, namely that the indemnity principle has no operation in this State, at least since the commencement of the Legal Profession Reform Act 1993, which, it was said, allowed costs to be assessed for the purpose of recovery from another party to the litigation (whether assessed on a party and party or indemnity basis), regardless of any legal obligation of the receiving party to pay his or her counsel and solicitors. For that reason, it is convenient to address that question first, followed by the related and procedural questions. 90 For reasons which will be noted in more detail below, there are aspects of the arguments presented by both parties which are inconsistent with the reasons of this Court in Wentworth v Rogers [1999] NSWCA 403. As against the amicus, the reasoning in that case appears to have proceeded upon the basis that the Appellants could successfully resist an order costs if they could establish that counsel and solicitor acted on an unconditional no-fee basis. On the other hand, the reasoning is also inconsistent with the contention for the Appellants in the present appeal that the costs assessor had no power or authority to address this question. Further, although the issue of his jurisdiction was raised before the trial judge, in a judgment of 26 March 1997 he declined to allow Ms Wentworth to file evidence in relation to that issue holding, on the basis of a judgment of this Court in Graham v Aluma-Lite Pty Ltd (unrep, 25 March 1997) that it was not an appropriate matter for him to deal with. That interlocutory finding could have been challenged by the Appellants in seeking leave to appeal from the costs judgment of 28 August 1997, and it appears that the issue was raised. Accordingly, the 1999 judgment of this Court also stands in the way of a challenge to that aspect of the judgment of Sperling J. 91 The Appellants' arguments depend fundamentally on a factual question, namely what were the terms of the retainer agreed between Mr Rogers and his barristers in late 1994 and (to a lesser extent) with his solicitor the following year? Their complaint is that this issue has never been properly determined on the evidence. Before the costs assessor, numerous documents were produced which might have had a bearing on the answer to that factual question. As Barrett J noted at [76] "the expression 'pro bono' is not of itself determinative of the question whether a lawyer is entitled to recover costs". The documents, therefore, left the question in doubt. There was no discussion of the party on which the onus of proof fell in such circumstances. It was made clear at the opening of the proceedings before Barrett J on 1 August 2002 that the Appellants sought to call evidence as to these matters: Tcpt, 1 August 2002, p 2. As it turned out, his Honour refused leave to appeal without considering any further evidence. It may thus be accepted that the matter has been dealt with in the absence of a full judicial exploration of the factual issues in dispute. The question for this Court is ultimately whether that omission amounts to error.

[7]

Nature of appeal to this Court 92 It will be necessary to consider below more broadly the effect of statutory provisions introduced into the Legal Profession Act 1987 by the Legal Profession Reform Act 1993 (NSW) ("the 1993 Reform Act"). The changes introduced by that legislation have been continued in the Legal Profession Act 2004 (NSW). At this stage it is convenient to note key elements of the statutory scheme, and changes therein, relevant to the scope of the present appeal. 93 Following the issue of two certificates by the costs assessor, the Appellants appealed and sought leave to appeal, to the extent that leave was necessary, in order to challenge each of the determinations of the costs assessor. These separate matters came before Barrett J in the Common Law Division on 12 August 2002. In a judgment delivered on 15 August 2002, his Honour noted that the substance of the challenge to each certificate was directed to the proposition that an amount was payable by way of costs, in circumstances where the lawyers for the Respondent had acted "pro bono" or, arguably on a "no win/no fee" basis. To the extent that the costs agreements were relied upon, he noted that they were said to be void pursuant to s 184(4) of the 1987 Act and it was further said that the costs assessor had failed to provide sufficient reasons for his decision, in accordance with cl 26IJ of the Legal Profession Regulation 1994 (NSW) as amended by the Legal Profession Amendment (Costs Assessment) Regulation 1999. These questions could, it had been submitted, be dealt with pursuant to an appeal as of right with respect to a "matter of law", as provided by s 208L(1) of the 1987 Act. However, to the extent that it was necessary to determine the terms of the lawyers' retainers, it was accepted by the Appellants that there were mixed questions of fact and law, which required leave under s 208M of the 1987 Act. Although no formal order was made pursuant to Part 31, r 2 of the Supreme Court Rules, as then in force, the procedure for the determination of a separate question was adopted, the question being whether leave should be granted pursuant to s 208M. Barrett J dismissed the applications for leave in a lengthy judgment which gave extensive consideration to both the material tendered before him and to relevant legal principles: see Wentworth v Rogers [2002] NSWSC 709. 94 Had attention been given to the formulation of a specific issue or issues, for the purposes of separate determination under Part 32, it might have been appreciated that the expedient of separating the issues would almost certainly lack utility. The expedient appears to have been adopted because the primary judge had only one day available for the hearing at that time and was seeking to identify some part of the matter which could proceed to finality before him on that day. However, if he granted leave, it would have been necessary to re-list the matter for further hearing; if he did not grant leave it would again be necessary to re-list the matter for further hearing to deal with the questions of law. In a practical sense, his Honour's judgment on the leave applications effectively dealt with the questions of law which might otherwise have been agitated as of right, adversely to the Appellants. However, because that aspect of the cases had been separated, he did not give judgment in relation to those issues. Having dealt with the leave applications, he then faced an application to disqualify himself from considering the other aspects of the matter, to which he acceded: Wentworth v Rogers [2002] NSWSC 1198 at [35]. These came before Patten AJ for hearing on 10 December 2004. On 21 February 2005 his Honour delivered judgment holding that the costs assessor made no error with respect to a matter of law. The appeals were dismissed: Wentworth v Rogers [2004] NSWSC 1273. 95 The separation of the issues gave rise to a further complication in that the original applications for leave to appeal to this Court were filed following the judgment of Barrett J in 2002 and were then amended to add an order seeking leave to appeal from the judgment of Patten AJ of 21 February 2005. Leave having been granted by this Court, notices of appeal were filed on 12 September 2005, maintaining the separate proceedings with respect to each bill of costs, but dealing globally with the two separate judgments in the Common Law Division. 96 On 1 October 2005 the 1987 Act was repealed upon the commencement of the Legal Profession Act 2004: see s 735 and Schedule 1. 97 The appeals to this Court are governed by s 75A of the Supreme Court Act 1970, which provides that the appeal shall be by way of rehearing: s 75A(5). That being so, the rights of the parties must be determined by reference to the evidence and the law at the time of the appeal: see Victorian Stevedoring & General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73 at 107 and CDJ v VAJ (1998) 197 CLR 172 at [111] (McHugh, Gummow and Callinan JJ). 98 It is possible that this principle can give rise to difficulty in circumstances where the law has changed between the date of trial and the date of appeal. Generally, that effect will be avoided by the operation of s 30 of the Interpretation Act 1987 (NSW), pursuant to which the amendment or repeal of an Act does not affect any right which has accrued or any liability incurred, under that Act. 99 Despite the Interpretation Act, it has become common practice to insert savings and transitional provisions of some complexity. Schedule 9 to the Legal Profession Act 2004 deals with savings, transitional and other provisions and has 27 clauses. Broadly speaking, cl 3 deems a thing done under the 1987 Act to have been done under the Legal Profession Act 2004, as if the latter had been in force when it was done. The corresponding provision of the Legal Profession Act 2004 "applies in relation to that thing, and so applies with any necessary adaptations". However, clause 3 is subject to other provision being made by Schedule 9, the regulations, or where "the context or subject matter otherwise indicates or requires". 100 Clause 22 is in the following terms: 22 Appeals or review (1) An appeal or review that was pending under or in relation to any matter under a Part or Division of the old Act immediately before the commencement of a corresponding provision of this Act is taken to be an appeal or review under this Act and may, subject to any order of the appeal body or review body, continue to be dealt with as if this Act had not been enacted. (2) The appeal body or review body may make orders declaring how the decision on the appeal or review is to have effect in relation to the provisions of this Act.

[9]

The indemnity principle 102 The substantive issue at the heart of the Appellants' case was the principle that the fundamental purpose of an order that one party to litigation pay the legal expenses or 'costs' of another party is to provide an indemnity in relation to the whole, or usually part, of the legal obligation incurred by the other party to his or her lawyers. If that party is under no legal obligation to pay lawyers' fees, no amount can be recovered from the unsuccessful party. This principle, sometimes known as the indemnity principle, was explained in Gundry v Sainsbury [1910] 1 KB 645. 103 The principle does not apply only to the case in which the party has no financial obligation at all to his or her lawyer. It must also operate in the case where the lawyer has agreed to appear at a reduced fee, below that which might, in the ordinary course, be recoverable or has agreed to appear without fee, but on the basis that he or she would be reimbursed for disbursements, such as filing fees or travel expenses. In some cases an agreement with a solicitor to pay disbursements might include counsel's fees. However, that would seem not to be this case, in which counsel were engaged, without an instructing solicitor, well before the solicitor, Mr Licardy, agreed to act. 104 The indemnity principle has been held to operate in two circumstances which might not obviously fall within its terms. The first is where the lawyers will be paid for their services, but not, as a matter of practice, by the client. Examples of that situation include cases where the litigant is indemnified by an insurer, by an association, such as a trade union, of which the litigant is a member, or where legal aid is obtained: see, eg, R v Archbishop of Canterbury [1903] 1 KB 289; Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495; Electrical Trade Unions v Tarlo [1964] Ch 720 and Johnson v Santa Teresa Housing Association (1992) 83 NTR 14. In each case, the primary liability was held to be that of the litigant or client and hence the indemnity principle was satisfied. In other circumstances, a lawyer may be employed by the litigant, either a trading corporation or some similar body, or the Crown. In such cases it has again been accepted that the litigant incurs costs, although questions may arise as to the amount which can be recovered: see, eg, Backhouse v Judd [1925] SASR 395; Davies v Taylor [No. 2] [1974] AC 225 at 234 (Lord Cross of Chelsea) and Joyce v Kammac Ltd [1996] 1 All ER 923 at 928. 105 The second example, which may appear to be a qualification to the indemnity principle, involves the litigant in person who is a solicitor. However, that case really provides an exception to a different principle, namely that costs are not recoverable by a litigant in person. That principle is itself consistent with, and indeed an illustration of, the indemnity principle. The exception, where the litigant is a solicitor, suggests that the availability of costs to a litigant in person depends upon a different basis for recovery, namely that costs may extend beyond those required to pay a lawyer if they are otherwise properly capable of assessment. In that case, the courts have adopted what may be described as a rule of convenience, namely that the time and expense incurred by the litigant personally will not be recoverable unless it is 'capable of' assessment as professional fees or as witness fees: see Guss v Veenhuizen [No. 2] (1976) 136 CLR 47. 106 The Appellants' case was squarely based upon their right to establish, by evidence, that there was a "no fee" agreement between Mr Rogers and his lawyers. However, on 10 March 1997, Mr Rogers swore an affidavit asserting that there was a 'contingent' fee agreement which he and Ms Lydiard had entered into in November 1994. A similar agreement was said to have been reached with Ms Preston on 12 December 1994. The costs agreements apparently signed on or about 10 February 1997, purport to record the same agreement, although not in precisely the same terms and, in relation to Ms Lydiard, asserting that the oral agreement was entered into at the same time as the agreement with Ms Preston, namely on or about 12 December 1994. The reliance on these documents appears to have triggered an argument based on s 184(4) of the 1987 Act to the effect that the oral agreements were void. 107 In these circumstances, two issues arise. The first concerns the operation of the indemnity principle and its potential application in the present case. The second concerns the enforceability of an oral agreement in relation to fees for legal assistance provided in relation to contentious legal business. 108 The relevance of the indemnity principle arose in both of the judgments in the Common Law Division. It was dealt with in some little detail by Barrett J: [2002] NSWSC 709 at [35]-[38]. It was dealt with more briefly by Patten AJ, who noted that the principle had not been challenged by the Respondent, presumably meaning that its application in the present circumstances was not challenged. However, it was challenged in this Court by counsel who appeared for the amicus. This was, perhaps, unfortunate, the Respondent having put on no notice of contention or sought to raise such an argument. 109 The way in which the indemnity principle came to be considered on the appeal may not, in the circumstances, be critical. That is because the Respondent asserted an entitlement to be paid costs because he had a liability under a conditional costs agreement. The term "conditional costs agreement" was identified in s 186 of the 1987 Act as one "under which the payment of all of the barrister's or solicitor's costs is contingent on the successful outcome of the matter in which the barrister or solicitor provides the legal services". (See now s 323 of the current Legal Profession Act.) Section 186 provided further: (4) A conditional costs agreement must set out the circumstances constituting the successful outcome of the matter. 110 This latter condition may be thought to reflect general contractual principles requiring a degree of certainty in order to give rise to a legal obligation. 111 As noted above, the costs agreements entered into by Mr Rogers with his barristers expressly provided that his obligation did "not arise upon a cost order being made in my favour but on costs being successfully recovered as against Ms Wentworth". This agreement creates a real difficulty in applying the indemnity principle. If the entitlement to recover costs from another party to the proceedings is dependent upon the legal liability to pay those costs to one's legal advisors, but the obligation to pay is contingent upon establishing a right to recover, the circularity is readily apparent. However, if, as in the present case, the obligation to pay depends not on a right to recover an identifiable amount of costs, but on the actual recovery of those costs, there may be no extant legal obligation to be indemnified even when a costs order is made. 112 A similar element of circularity attaches to the prohibition contained in s 182(2) with respect to the obligation to disclose estimated costs as soon as reasonably practicable after accepting a retainer to act. Section 182(2) of the 1987 Act read as follows: (2) A barrister or solicitor who fails to make a disclosure in accordance with this Division of the matters required to be disclosed by section 175 or 176 in relation to costs may not maintain proceedings for the recovery of the costs unless the costs have been assessed under Division 6.

[10]

To the extent that this provision operated as a bar to the recovery of costs from Mr Rogers, there was no obligation with respect to which an indemnity could operate when the Court order was made against the Appellants, nor, indeed, until the assessment which was the subject of dispute in these proceedings, was determined. It will be necessary to return to that aspect of the matter below. 113 In Clyne v NSW Bar Association (1960) 104 CLR 186 at 203, the High Court held that "a solicitor may with perfect propriety act for a client who has no means, and expend his own money in payment of counsel's fees and other outgoings, although he has no prospect of being paid either fees or outgoings except by virtue of a judgment or order against the other party to the proceedings". The Court noted that this statement was subject to two conditions: "One is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject matter of litigation or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding … ." 114 The indemnity principle used to be recognised by a practice, pursuant to which counsel's fees, being a disbursement incurred by the solicitor, would not be allowed on taxation unless evidence of payment were provided. However, perhaps in recognition of the fact that a properly drafted conditional fee agreement may create a sufficient liability, the practice seems no longer to be followed. 115 In the United Kingdom, the potential difficulty of maintaining a liability on the part of the client to pay costs, whilst agreeing to appear on a 'no win/no fee' basis, surfaced as early as 1917 in McLean v Carlish (1917) 61 SJ 399, only a few years after the decision in Gundry v Sainsbury [1910] 1 KB 645. Lord Finlay set out the terms of the agreement proposed by the solicitor (McLean) to the client (Carlish) in the following terms: "I beg to confirm our arrangement regarding the general costs of matters in which I am to act as your solicitor:- (1) for all such matters as I shall be able and willing to undertake for you personally during the year commencing 20 November, 1911, I am to receive the sum of £10. (2) In addition to this sum I am to receive payments from you of all sums paid as out-of-pocket expenses and disbursements on your behalf or other payments made by me in respect to the matters undertaken for you." 116 That was a clear of agreement that for a sum of £10 and out-of-pocket expenses and disbursements, litigation was to be conducted by the appellant for the respondent. Then it obviously occurred to the parties that there was danger ahead of them in respect of the Solicitors Act, 1870, and the decision in Gundry v Sainsbury. Having that in view, it could be inferred from the terms of clause 3 of the agreement that the parties desired that that decision should have no application to their agreement, for it set out in clause 4: "This agreement is not to deprive you or me of the benefit of costs by virtue of the Solicitors Act , 1870, or the decision in the case of Gundry v Sainsbury (supra). If, therefore, you would in any action or matter be entitled to any costs or expenses but for the Act or decision aforesaid, you are to be responsible for and to reimburse me in any event to the same extent to which you would have been entitled to recover the same in the absence of this agreement."

[13]

The reference to being primarily liable was designed to cater for cases where the client was effectively indemnified by a third party, such as a trade union or an insurer: see [104] above. The reference to being "potentially legally obliged" appears to have been intended to refer to the case where the client had no means to discharge the legal obligation, rather than to refer to some legal obligation which did not exist, but which might exist in the future. It was made clear, by extensive reference to Gundry v Sainsbury , that the principle enunciated in that case was being applied. 120 In a case which has some resonance for Australian ears, Thai Trading Co v Taylor [1998] QB 781 at [33], Millet LJ held that "there is nothing unlawful in a solicitor acting for a party to litigation to agree to forego all or part of his fee if he loses, provided that he does not seek to recover more than his ordinary profit, costs and disbursements if he wins". Hutchinson LJ and Kennedy LJ agreed. 121 For English purposes, doubt was cast on that conclusion in Hughes v Kingston Upon Hull City Council [1999] QB 1193 (Rose LJ and Mitchell J) on the basis that, consistently with earlier House of Lords authority, such an arrangement would constitute an unlawful contingency fee agreement under the Solicitors Practice Rules. 122 Putting to one side the question of contingency agreements and the effect of the Legal Profession Act, it is difficult to resist the conclusion that the indemnity principle remains at the heart of the power of the Court to order that costs be paid by one party to another. Although now replaced by the Uniform Civil Procedure Rules 2005 (NSW), at the time Sperling J made the costs order which gave rise to the present dispute, he was exercising the power conferred by s 76(1) of the Supreme Court Act 1970 (NSW). That section provides that "the Court shall have full power to determine by whom and to what extent costs are to be paid": s 76(1)(b) (and see s 98(1)(b) of the Civil Procedure Act 2005 (NSW)). The exercise of that power, and the effect of exercise, was then dealt with in Part 52A of the Supreme Court Rules. Part 52A r 8 provided: 8. Subject to this Part, a party to the proceedings in the Court shall not be entitled to recover any costs of or incidental to the proceedings from any other party to the proceedings except under an order of the Court. 123 Before referring to the relevant discussion in Australian authority, it is as well to note that the 'indemnity principle' here discussed concerns questions of liability; an order that costs be assessed "on an indemnity basis" deals with the approach to be adopted in identifying and valuing those legal services for which payment is to be made. Nevertheless, the two concepts have more than a semantic link. The underlying concept of assessment on an indemnity basis is that the successful party will receive all, or at least the greater proportion of, the fees and disbursements for which the party is liable to his or her solicitor. 124 The operation of the indemnity principle in Australia, and particularly New South Wales, at least as a matter of general law, is beyond contradiction: see G E Dal Pont Law of Costs (2003) at [7.6]-[7.12]. At [7.6] the author states: "When a court makes an order for costs against a litigant, most commonly an unsuccessful litigant pursuant to the 'costs follow the event' principle, it does so with the object of providing to the opposing (successful) litigant an indemnity (but no more) for the costs liability the latter has incurred to his or her own legal representatives as a result of the litigation (hence often termed the 'indemnity rule'). In fact, it has been judicially observed that it is because the general purpose of an order for costs in favour of a successful party is to compensate that party by way of an indemnity for the costs incurred that the usual principle observed in civil litigation is that legal costs are ordered in favour of the successful party." 125 In England, the principle that the opposing litigant was required to pay no more than the costs incurred by the successful litigant was set out in s 60(3) of the Solicitors Act 1974 (UK), discussed in General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301. However, the Australian case law is replete with statements to the same effect. For example, in Oshlack v Richmond River Council (1998) 193 CLR 72 at [1], Brennan CJ opened his judgment with the following sentence: "Costs are awarded to indemnify a successful party in litigation, not by way of punishment of an unsuccessful party."

[16]

His Honour referred to this as "the compensatory principle". In discussing the limits to the 'costs follow the event' principle, his Honour continued at [143]: "Once it is appreciated that compensation to the successful party is the reason why that party will ordinarily have a reasonable expectation of recovering its proper costs, the limits of the principle are clear." 126 Accordingly, it is beyond dispute that the purpose of an adverse costs order is to compensate or partly indemnify one party to litigation (usually the successful party) for the legal costs incurred in the course of the proceedings. The principle does not require that the costs have been paid, but it does require that there be a legal liability to pay costs. 127 The next question is whether that liability must be extant at the time the costs order is sought, or made, or whether it can be a contingent liability. 128 As a matter of logic, it may seem curious that an order of the Court, which arguably should not be made unless there is a legal liability, should be relied upon as the justification for its own existence. On the other hand, it would be surprising if the long-standing practice by which lawyers appear in Australian courts on a 'speculative basis' or 'no win/no fee' basis, was based on a misconception, and did not allow for a costs order from which fees could be recovered, in the event of success. However, the conflict is more apparent than real. As noted by Millet LJ in Thai Trading (supra) at [28] conditional fee agreements gave effect to the principle that "there is nothing improper in a lawyer acting in a case for a meritorious client who to his knowledge cannot afford to pay his costs if the case is lost". As his Lordship continued: "Not only is this not improper; it is in accordance with current notions of the public interest that he should do so." 129 Once that practice was accepted, it was equally appropriate to formalise the arrangement in contractual terms which would provide that the lawyer would accept a reduced fee in full settlement of his or her account, or would waive his or her right to require payment, in the event that the proceedings were unsuccessful. In each case, there is an immediate and quantifiable obligation imposed on the client when the retainer is created, the contingency operating as a condition subsequent. 130 Labels are notoriously slippery customers. Lawyers frequently do work on a no-fee basis and describe it as acting 'pro bono publico'. Many public charities, community groups and similar organisations obtain free legal services on this basis. Another form of 'pro bono' practice widely supported by legal practitioners has involved the voluntary attendance to give advice and assistance at Aboriginal legal services and community legal centres since the early 1970s. In 2000, the federal Attorney-General, the Hon Daryl Williams AM QC, convened a conference described as "The First National Pro Bono Law Conference". Following the conference he established a Pro Bono Taskforce. These events and the establishment of the National Pro Bono Resource Centre by the Public Interest Advocacy Centre in New South Wales are recorded in the report of the Legal and Constitutional References Committee of the Senate, "Legal Aid and Access to Justice" (June 2004, Chapter 9). It appears from that report that the term "pro bono services" was used to refer to services provided "free of charge or for a reduced fee": at par 9.8, p 162. 131 In Chancliff Holdings Pty Ltd v Bell [1999] FCA 1783, Lee J considered the operation of Order 80 r 9 of the Federal Court Rules, being the provision relating to professional fees in respect of the pro bono legal assistance scheme provided for by Order 80. Rule 9 provided: 9.(1) Subject to rule 10, a legal practitioner who provides legal assistance to a litigant under the scheme must not seek or recover any professional fees or disbursements for the legal assistance. (2) However, if an order for costs is made in favour of a litigant who is assisted under the scheme, the legal practitioner who has provided the assistance is entitled to recover the amount of fees and disbursements that another party is required to pay under the order.

[17]

His Honour noted at [14]: "Order 80 serves the public interest by encouraging practitioners to render public service by providing advice and representation free of charge to indigent parties engaged in litigation in the court. In part, the services are provided by practitioners in performance of a duty to assist the administration of law that arises out of rights and privileges practitioners obtain upon being admitted to practise, or upon being registered as entitled to practise, by a superior court." 132 Whether the term 'pro bono' now extends to situations where the lawyer, satisfied that the client has a meritorious claim, nevertheless enters a speculative fee arrangement to charge a usual fee, taking some risk of non-payment, is a question of fact to be determined in the context of the particular case. 133 Although it may seem arbitrary to insist that, for the purposes of the indemnity principle, there must be a contractual entitlement to charge fees, subject to a condition subsequent, rather than an entitlement which arises as a result of a successful outcome, there are reasons why that is not so. First, as appears from the costs agreements presented in the present case, a successful outcome will usually involve not merely obtaining a costs order, but actual recovery of costs. It is not possible to make the existence of a right to charge dependent on recovery of the moneys from which the charges would be paid. That would be to take the circularity noted at [111] above one step too far. 134 Secondly, the existence of an immediate and on-going obligation is consistent with other aspects of the statutory scheme of fee regulation, including the disclosure obligations. Section 175 of the 1987 Act made the following provision: 175 (1) A barrister or solicitor must disclose to a client in accordance with this Division the basis of the costs of legal services to be provided to the client by the barrister or solicitor. (2) The following matters are to be disclosed to the client: (a) the amount of the costs, if known, (b) if the amount of the costs is not known, the basis of calculating the costs, (c) the billing arrangement, (d) the client's rights under Division 6 in relation to a review of costs, (e) the client's rights under Division 4 to receive a bill of costs, (f) any other matter required to be disclosed by the regulations. 135 There is also a statutory obligation to disclose estimated costs, where the actual amount is not disclosed pursuant to s 175: see s 177(1). That obligation is on-going and requires disclosure of "any significant increase in that estimate": s 177(3). 136 The form of disclosure is identified in the following terms: 179 (1) A disclosure under this Division must be made in writing and be expressed in clear plain language. (2) The disclosure may be made separately or in a costs agreement or in any other contract relating to the provision of the legal services concerned. 137 Subject to an exception where disclosure is not reasonably practicable (s 180), the effect of non-disclosure is that "the client need not pay the costs of the legal services unless the costs have been assessed under Division 6": s 182(1). The practitioner is required to pay the costs of such assessment: s 182(3). There is nothing in Division 2, relating to disclosure, which suggests that the obligations do not arise in relation to a conditional costs agreement. But they are posited upon a contractual agreement to pay for the services to be provided at a known or quantifiable rate.

[19]

Patten AJ, at [30], expressed the same conclusion. 139 In order to understand the purpose and effect of the statutory provisions relating to costs, it is necessary to read them in their general law context. 140 As noted by Lowe J in Woolf v Trebilco [1933] VLR 180 at 190, regulation of solicitor's remuneration extends back to 1605. Thus, the earliest legislation required the delivery of a signed bill before the lawyer was permitted to charge the client and, from 1728, the solicitor was limited to recovery of such fees as might be allowed on taxation, if the client referred the bill to be taxed by an officer of the court. It was held by the courts that the client could not contract out of his entitlement to have the bill taxed and accordingly an agreement which provided for a higher rate of remuneration than that which might be permitted on taxation, would be unenforceable against the client. 141 Section 4 of the Solicitors Act 1870 (UK) provided as follows: "An attorney or solicitor may make an agreement in writing with his client respecting the amount and manner of payment for the whole or any part of any past or future services, fees, charges or disbursements in respect of business done or to be done by such attorney or solicitor." 142 In Clare v Joseph [1907] 2 KB 369, a solicitor sought to enforce his entitlement to a fair and reasonable fee, to which the client asserted an oral agreement to undertake the work for less. A jury found that such an oral agreement had been concluded. The question was whether that oral agreement was effective in the face of s 4 of the 1870 Act. The Court of Appeal (Lord Alverstone CJ and Fletcher-Moulton and Buckley LLJ) found against the solicitor. As explained by Buckley LJ at 378: "In order to succeed in this action, the defendant [solicitor] must shew that under the Act of 1870 he is not bound by his bargain. The law in existence when the Act of 1870 was passed is clear; the solicitor could not charge his client more than the amount of his bill of costs when taxed, and it was his duty to advise his client that it was contrary to his interest to pay more. … Then came the Act of 1870. Its effect is as if it recited that the solicitor was under these disabilities, and then enacted that, notwithstanding such disabilities, he might make an agreement in writing with his client as to his remuneration, provided he complied with the requirements of the Act. The Act, when complied with, relieved the solicitor of his disability." 143 In relation to the case before him, his Lordship concluded at 379: "Before the Act of 1870 the solicitor was bound by such an agreement as the present one; the Act was wanted, not for the protection of the client, but for the benefit of the solicitor, in order to relieve him of the disability with which he was affected." 144 In Gundry v Sainsbury [1910] 1 KB 645, a Court which included Fletcher-Moulton and Buckley LLJ affirmed the principle identified in Clare v Joseph and applied it in a case where it was not the solicitor's client, but the defendant whom the client was suing, that sought to set up the agreement between the client and the solicitor. 145 Until the Legal Profession Reform Act 1993, there was no statutory provision in this State dealing with contentious business agreements (being those dealing with litigation), equivalent to s 4 of the 1870 Solicitors Act. Nor, if there had been, would it necessarily have been determinative of this case, unless it applied to barristers as well as solicitors. Putting to one side questions relating to the peculiar position of barristers contracting to provide services, it should be assumed that both barristers and solicitors were entitled to enter into costs agreements prior to 1993 in relation to contentious business, subject to the entitlement of the client to submit the bill for taxation and subject to the equitable jurisdiction of the Court to set the agreement aside in whole or in part if procured through undue influence. That conclusion is supported by the reasoning of Studdert J in Emeritus Pty Ltd v Mobbs (1991) NSW Conv R ¶55-588, adopted by Rogers CJ Comm D in Singleton v Macquarie Broadcasting (1991) 24 NSWLR 103 at 111-112. 146 Against that background, the reasoning in Clare v Joseph would suggest that s 184 was not directed to agreements generally, but only to those agreements as to fees for legal services which could not lawfully have been entered into under the general law. In its terms, s 184(1) is directed to the barrister or solicitor, and provides that "an agreement as to costs … may be made with a client … ." Only an agreement under s 184 is a "costs agreement", at least for the purposes of that Division. But it then follows that a costs agreement which is rendered void, if not in writing or evidenced in writing, pursuant to sub-s (4), would not be read to include a costs agreement favourable to the client, which required no statutory authority for its enforceability. 147 That conclusion obtains confirmation from the clear purpose of the amendments contained in the new Part 11, inserted in the 1987 Act by the Legal Profession Reform Act 1993, which, whilst increasing the flexibility of solicitors and clients to reach agreement as to costs which were conventionally considered unfair or unethical, nevertheless imposed constraints which were protective of the client's position. That purpose is reflected not only in the disclosure obligations discussed above, but also in the broad power given to a costs assessor under s 208D to determine that a term of a particular costs agreement is "unjust" in accordance with criteria which reflect s 9 of the Contracts Review Act 1980 (NSW). Given this statutory context, it would be a startling proposition that s 184(4) render invalid or void an oral agreement between practitioner and client under which the practitioner agreed to charge at a reduced basis or to act without fee. That construction should be rejected.

[20]

Entitlement to fair remuneration 148 It appears to have been part of the case presented below that, absent a written agreement, the lawyers were entitled to charge a fair and reasonable fee for their services, that liability arising on a quantum meruit basis. That entitlement appears to have been justified below according to general law principles. 149 Barrett J concluded at [28], with respect to a situation where there is no costs agreement or such agreement is void: "Where a lawyer does work and the client has the benefit of it, an entitlement to remuneration generally arises. But the lawyer is precluded from taking proceedings for recovery until after a bill of costs complying with the statutory requirements has been delivered to the client: s 192. It is the delivery of the bill of costs that secures to the client or the lawyer (or both) access to the costs assessment process. If there is no assessment, the lawyer will recover according to ordinary contractual principles, subject always to the effect of s 184(4) in making void any terms constituting a 'costs agreement', in which event there is no apparent reason why there should not be recovery upon a quantum meruit ." 150 His Honour considered the principles established in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, the proper application of which was the subject of submissions before this Court. However, before turning to the availability of a quantum meruit claim, it should be noted that such a basis for recovery cannot arise without compliance with the statutory scheme. Thus, it is necessary to consider whether such an entitlement arises absent an assessment. Section 192, to which his Honour referred, deals not with the entitlement, but the right to take proceedings for recovery of costs. As noted above, in the absence of disclosure, there is no right in a lawyer to recover, and no obligation of a client to pay, costs, absent assessment: s 182(1). Similarly, the question raised by Pavey & Matthews, in relation to a contract rendered unenforceable by statute, is whether it is inconsistent with the statutory scheme to allow non-contractual recovery, a consideration expressly raised by Deane J in Pavey & Matthews at 261-262; see also, Vital Finance Corporation Pty Ltd v Taylor (1996) 40 NSWLR 25. 151 A question arose in the course of argument as to the effect of s 182(4), which stated that any failure to make disclosure in accordance with that provision "does not of itself amount to a breach of this Act", but is capable of being unsatisfactory professional conduct or professional misconduct. On one view, that provision may have been intended to avoid any suggestion of illegality and any need to consider the issues addressed in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, a case concerning the effect of non-compliance with licensing requirements with respect to a loan transaction entered into by the unlicensed lender. 152 In any event, the short answer to the suggestion that costs may be assessed on a quantum meruit basis is that no such entitlement could arise inconsistently with the terms of an express contractual provision: see, eg, Pavey & Matthews at 266-267 (Dawson J). Accordingly, if, because of an oral agreement, the lawyers had no legal entitlement to require the client to pay costs, no basis for imposing a restitutional obligation can arise.

[21]

Statutory exclusion of indemnity principle 153 In this Court, the argument was put by the amicus on a somewhat different basis. Mr Slattery QC argued that the structure of Division 6 of Part 11, dealing with assessment of costs, precluded the consideration of any contractual agreement between solicitor and client, when considering the costs payable by the opposing party. This followed, he submitted, from the separate consideration of solicitor/client assessments under Subdivision 2 and of "assessment of party/party costs" under Subdivision 3. 154 The term "party/party costs" is something of a misnomer in the heading of Subdivision 3. That term is usually used to describe the basis on which costs are assessed, not to describe the fact that they are being assessed pursuant to an order of a court that one party pay the costs of another. The term is often used in contra-distinction to assessment on "an indemnity basis" a phrase also used in Subdivision 3. The same language is used in the heading to s 202. Nevertheless, the scope of the provision and the Subdivision is clear. 155 Although it is true that Subdivision 3 appears to be confined to applications for assessment of costs payable as a result of an order made by a court or tribunal, it is by no means clear that the provisions of other Subdivisions do not operate in relation to such an assessment, to the extent that they are not specifically excluded. For example, although the considerations identified in ss 208A (in Subdiv 2) and 208F (in Subdiv 3) differ, it is not clear that matters dealt with in s 208A, or indeed in s 208B, and not dealt with in ss 208F and 208G, are by implication taken to be prohibited considerations in Subdiv 3. 156 In any event, the argument did not need to go so far as to assert that Subdivisions 2 and 3 were entirely separate and independent of each other: it was sufficient for the purposes of the argument to note the different ways in which costs agreements were addressed in each Subdivision. Thus, under Subdivision 2, a costs assessor was required to "decline to assess a bill of costs" if the disputed costs were subject to a costs agreement that complied with Division 3 and the costs agreement specified the amount of the costs or the dispute related only to the rate specified in the agreement for calculating the costs. (It will be necessary to return to this provision below in considering the power and authority of the costs assessor.) Otherwise, s 208B permitted the costs assessor to take any relevant costs agreement into account (par (d)) and, if otherwise entitled to assess the bill, the rate specified in the agreement was to be applied and not a "fair and reasonable" rate as might have been required by s 208A. By contrast, under Subdivision 3, s 208H made completely different provision in relation to the relevance of a costs agreement. As enacted in the Legal Profession Reform Act 1993, it stated: 208H A costs assessor is not to take into account any costs agreement in assessing costs payable as a result of an order by a court or a tribunal. 157 In its form at the time the present assessment was made, and as amended in 1996, the section provided: 208H (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. 158 Again, this provision may have relevance to the power and authority of the costs assessor, as discussed below, but the purpose of s 208 in its revised form (in which it is to be found in s 365 of the Legal Profession Act 2004) appears to be to ensure that the costs assessor applied a "fair and reasonable" rate, and not the contractual rate. However the significance of this fact is that the costs assessor, so it was argued, would disregard any reduced rate and would similarly disregard any contractual provision that costs were not payable. 159 With respect, that argument should not be accepted. First, the term "costs agreement" is defined in s 184(3), as noted above, to refer to an agreement under that section. It should be given that meaning in s 208H. If, as indicated above, that provision does not cover all agreements between lawyers and their clients as to payment of fees and disbursements, s 208H is silent in relation to legally valid oral agreements which do not require the authority of the Act to be effective. Secondly, it would be remarkable if the restraint imposed by s 208H undercut the basic compensatory purpose of adverse costs orders by removing the need for such costs to be restricted to those for which the successful party was liable to his or her own lawyers. An alternative construction, which would not have so radical a result, would be that the costs assessor is not entitled to determine the extent of the contractual obligation; if there is a dispute in that regard, it must be determined elsewhere, presumably by a court. 160 There are reasons for accepting the last conclusion as appropriate. The first is that s 208F spoke of "costs payable as a result of an order made by a court". It is not for the costs assessor to determine whether costs are payable or not. Secondly, that conclusion is consistent with s 208C which appears to remove from the power and authority of a costs assessor contractual disputes in relation to a costs agreement, unless the costs assessor determines that a provision of the agreement is unjust or the lawyer has failed to make disclosure in accordance with Division 2. It follows that the indemnity principle, which underpins the concept of an adverse costs order, continues to operate and provides a constraint on the costs recoverable by the party which has the benefit of a costs order. Such an agreement, beneficial to the client, pursuant to which the lawyer agrees to work for no fee or for a reduced fee, is effective and enforceable even though it does not comply with Division 3 of Part 11, for example it is not in writing or evidenced in writing. 161 Santow JA differs from the approach set out above in relation to the indemnity principle in two main respects. First, adopting language used by McColl JA in Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203 at [100], he concludes that the principle must be applied "flexibly and reasonably". Secondly, his Honour considers that some further qualification is necessary to take account of the statutory provision for conditional costs agreement, now found in the Legal Profession Act. Dyktynski involved the costs of an appeal with respect to a costs order made in the Compensation Court. The question addressed on the first appeal had been the entitlement of the successful party (and hence his solicitor) to recover interest on a delayed payment of costs. The applicant had been successful in that respect and had obtained judgment in this Court, with costs. The second appeal concerned the costs order made in this Court on the first appeal. The respondent's argument was that because the solicitor had pursued the first appeal on behalf of and in the name of the client, but for their own financial benefit, they had entered into an agreement with the client that he would in no circumstances be liable for any costs. Accordingly, the operation of the indemnity principle arose with respect to the costs of the first appeal, and not with respect to the costs in the Compensation Court. This Court held that the solicitor could recover costs of the first appeal because, although brought in the name of the client, the issue had been one of interest only to the solicitors (and other practitioners appearing in the Compensation Court) and hence the client had been, in effect, a nominal party to the appeal, without any real financial interest in its outcome. 162 The so-called "nominal party exception" was derived, relevantly for Dyktynski, from a judgment involving an arbitration and the removal of an arbitrator, New Pinnacle Group Silver Mining Co v Luhrig Coal & Ore Dressing Appliances Co (1902) 2 SR (NSW) 50. As summarised by Mason P at [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 the 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." 163 In Dyktynski, other cases were identified in the course of the judgments, as examples of "exceptions" to the indemnity rule. One such case, identified by reference to the South Australian judgment in Lenthall v Hillson [1933] SASR 31 was that of a complainant in a summary prosecution who was represented by a legal practitioner employed by the Crown Law Department. The police officer was not personally liable for the salary of the Crown Law legal practitioner, but the unsuccessful defendant was nevertheless required to pay costs. However, contrary to the position in Gundry v Sainsbury, there was no suggestion that the legal practitioner would not be paid for his services: the question was who would pay the expense and on what basis. 164 A second supposed exception, is said to be the solicitor who acts in person. However, the real issue with respect to the litigant in person is not that they do not incur expenses, but rather whether those expenses can be appropriately quantified. Thus, the rule affirmed in a number of cases, including Cachia v Hanes (1994) 179 CLR 403, is that the lawyer appearing in person can recover his or her costs, because those costs are assessable, whereas the lay person cannot because the costs cannot be properly assessed. Whether or not the distinction has merit, it provides no assistance in considering the continued operation of the indemnity principle as a applied in Gundry v Sainsbury. 165 Dyktynski, accordingly gives no assistance with the present case: this is not a case where the solicitors (in the name of the client) instituted proceedings in order to test the scope of a costs order made in favour of the client, but rather a challenge, as in Gundry v Sainsbury, by the other party to the initial proceedings, who was ordered to pay costs. If in such a case, the successful party should always be treated as a "nominal party" in relation to the costs dispute, Gundry v Sainsbury itself would have been such a case and the indemnity principle could never be relied on by the other party. An approach to the indemnity principle which results in its universal subversion is not a "flexible and reasonable" approach. 166 The second matter raised by Santow JA concerns the statutory provision for conditional costs agreements. No adaptation of the indemnity principle is required to accommodate this statutory position, for two reasons. The first is that conditional costs agreements depend on the indemnity principle for their effectiveness. In other words, a properly drafted conditional costs agreement expressly provides for liability to pay costs in the case of success. As noted by Mason P in Dyktynski, at [17], noting the distinction between the usual form of conditional costs agreement and the agreement entered into between the plaintiff and his solicitors, stated: "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." There may seem to be some artificiality in this condition on the liability of a client, but it is invoked precisely because of the indemnity principle; without such a formulation, the indemnity principle will preclude recovery in the event of success. 167 Nor is a conditional costs agreement a new statutory concept. Such arrangements, formerly known as "speculative agreements" existed, and were probably common in the common law damages jurisdiction, before the decision in Clyne v NSW Bar Association (1960) 104 CLR 186. There is no relevant aspect of the statutory regime which requires a different understanding or application of the indemnity principle.

[25]

(4) a court hearing an application in separate proceedings. 169 In the present case, as noted above, the Appellants sought to agitate the issue, including by calling evidence, before the trial judge, Sperling J. His Honour rejected that application, apparently in reliance on the decision of this Court in Graham v Aluma-Lite Pty Ltd (unrep, 1997). However, whether his Honour held that he had no power to hear the application or, rather, that in the exercise of his discretion he declined to hear it, is not entirely clear. His Honour noted the inconvenience which might attend the acceptance of such a jurisdiction on the part of a court in terms of "policy reasons". His Honour stated: "Were it otherwise, the court - if not on every occasion, then on a multitude of occasions - would be required to examine the arrangements between litigants and their legal representatives concerning the payment of costs as a consideration relevant to the order for costs which ought to be made. This can as readily be done by an assessor when necessary." 170 Graham v Aluma-Lite involved an application to reconsider a costs order made in this Court. The Court, comprising Mason P, Priestley and Cole JJA, refused the application. The judgment, delivered by Priestley JA, noted that there were two matters raised, one of which was that "Mrs Graham's costs could include nothing for [counsel's] fees, since counsel had been acting pro bono" and that "pro bono meant absolutely free of any charge". 171 There was another point, which the Court rejected on the ground of its late appearance. The same reason was also treated as sufficient to dispose of the pro bono argument, but Priestley JA continued: "In addition, the matter raised in that point was something for the costs assessor to consider. It appears from the materials before us in this application that submissions were put to him on the point. Presumably, the proper way of pursuing that point would be to pursue whatever avenues of review or appeal may be available against the Costs Assessor." 172 It might thought that this reasoning says nothing about the jurisdiction of a trial judge to address the issue, when properly raised. Furthermore, because of the manner in which the point arose, no consideration was given to the statutory powers of a costs assessor. On the other hand, the argument that the matter should have been dealt with by the costs assessor was raised in Wentworth v Rogers [1999] NSWCA 403. The passage from the judgment of Priestley JA in Graham was set out at [55] and the Court noted: "56. During the course of the hearing we indicated to the parties that we were disposed to follow what Priestley JA had said. His judgment was agreed in by Mason P and Cole JA and it behoves us to follow it unless we are convinced that it is not correctly decided. In our respectful opinion, it is correctly decided. We do not see what other course there is that could be taken. It follows that the submissions made by Ms Wentworth and Mr Russo that no order for costs should be made in favour of Mr Rogers because his counsel and solicitor had acted pro bono should be rejected. 57. Of course that does not mean that eventually Ms Wentworth and Mr Russo may not be successful on the point they have taken. The reason the submission has been rejected is because this Court is not the appropriate forum to deal with it. Even if Mr Rogers is not entitled to recover any professional costs for the work done by his counsel and solicitor, he may still be entitled to recover on an assessment for any disbursements and witnesses' expenses he has incurred. See Cachia v Hanes (1994) 179 CLR 403." 173 The suggestion that the adoption of the reasoning in Graham was inconsistent with the application made by the Appellants for leave to appeal from the judgment of Sperling J suggests that closer attention may be required to the issue actually raised on that application. A similar comment may be made in relation to the statement that "this Court is not the appropriate forum to deal with" the submission put. 174 At [51], the Court identified the second substantial matter raised by the submissions in the following terms: "Whether the evidence established that counsel and solicitors for Mr Rogers were retained " pro bono ", and, if so, whether the consequence was that Mr Rogers was not entitled to recover any costs because he had incurred none?" 175 That statement of the issue, together with the discussion which follows, suggests that the Court did not treat the question as, in effect, an application for leave to appeal from the costs decision of 28 August 1997, because of error in the interlocutory judgment of 26 March 1997. Indeed, the latter judgment is not referred to in the reasons of this Court. It will be necessary to return to the consequence of that aspect. 176 Despite what was said in Graham and in Rogers v Wentworth [1999], there is no statement to which the Court's attention has been drawn which expressly holds that a trial judge does not have power to consider the issue now in dispute. Indeed, Gundry v Sainsbury is based on the contrary assumption. In that case the plaintiff gave evidence in the course of claiming damages for injuries sustained from being bitten by the defendant's dog that he could not pay his solicitor's costs and had an agreement with him that the solicitor would not charge. As a result, the trial judge, on the defendant's application, gave judgment for the amount of damages awarded by the jury, without costs. Ironically for the present case, the trial judge declined to reopen the evidence to allow the plaintiff's solicitor to give evidence as to the terms of their agreement. Cozens-Hardy MR said that it was not possible to interfere with that discretionary decision: the appeal was dismissed. 177 There are certainly considerations which militate against the desirability of the trial judge dealing with such an issue. For example, the lawyers might each need to give evidence to establish the terms of the agreement and might be subject to cross-examination. If the costs order were made, as in this case, on an interlocutory basis, one effect might be to require the instruction of separate lawyers, at least for the purposes of the costs argument and possibly beyond. However, it is unlikely that, as Sperling J suggested, this power would result in a multitude of applications, or that, by appropriate directions, such applications might not generally be deferred until the end of the trial. Flood-gates arguments are rarely persuasive and, in this case, would only have validity if the disclosure and costs agreement provisions of the Legal Profession Act were failing in their intended effect. 178 In my view Sperling J had power to consider this issue and, to the extent that he held that he did not have power, he was in error. There may have been discretionary reasons for not entertaining the application at that stage, but that would probably have meant the deferment of the costs order to a later date. In any event, it is too late now to reopen that decision, unless it is not possible to review the entitlement to recover costs following a costs assessment.

[26]

Nature of costs assessment 179 The second possibility is that the costs assessor had at least concurrent jurisdiction to consider these issues. There are significant statutory indications that he or she does not have such power or authority: see below. Against those indications are the reasons given in two cases in this Court to a contrary effect. However, in neither case was the power of a costs assessor in issue and in neither case was any consideration given to the statutory scheme under which costs assessors operate. 180 The order requiring the Appellants to pay the Respondent's costs of the proceedings was made on 28 August 1997, by Sperling J. Neither the bills nor the applications for assessment are before this Court, but, on 24 October 2001, a costs assessor provided to the Appellants certificates of assessment and statements of reasons in relation to each bill. Each certificate was headed "Application by giver of bill", which appears to have been the language used in relation to the legal practitioner who gave the bill to his or her client: see ss 199(1) and 201(1) of the 1987 Act. On the other hand, each certificate refers to the "applicant" as Mr Rogers and is also headed "Assessment of party/party costs". One may assume that each application was made pursuant to s 202(1), as an application for assessment of "party/party costs" by the person entitled to receive costs as a result of the order for payment made by the Court. The applications were presumably made to "the proper officer of the Supreme Court". 181 The proper officer was required, pursuant to s 206(1), to refer such an application to a "costs assessor". Costs assessors are appointed by the Chief Justice of New South Wales pursuant to s 208S, which provided: (4) A costs assessor is not an officer of the court when acting as a costs assessor. 182 Each of the certificates is entitled as if it were a proceeding in the Common Law Division of the Court and has a matter number. A certificate records the determination of the costs assessor: s 208J(1). It did not purport to be a judgment or order of the Court. 183 Under the 1987 Act, the costs assessor had various powers, including the power by notice in writing to require a person to produce documents, to require further particulars to be furnished and to require that the particulars be verified by statutory declaration: s 207 of the 1987 Act. Further, the costs assessor was required to allow a reasonable opportunity for written submissions and to give due considerations to such submissions: s 208(1). Section 208 continued: (2) In considering an application, a costs assessor is not bound by rules of evidence and may inform himself or herself on any matter in such manner as he or she thinks fit. (3) For the purposes of determining whether an application for assessment may be made or is required to be made, or for the purpose of exercising any other function, a costs assessor may determine any of the following: (a) whether or not disclosure has been made in accordance with Division 2 and whether or not it was reasonably practicable to disclose any matter required to be disclosed under Division 2, (b) whether a costs agreement exists, and its terms. 184 It was common ground that the costs assessor did not have powers to take oral evidence on oath, or permit cross-examination of witnesses: see Ryan v Hansen (2000) 49 NSWLR 184 at [23]-[39] (Kirby J). Adopting language which appears anomalous in those circumstances, s 208L provided for an appeal on a question of law to the Supreme Court and, on remittal for redetermination by that Court further provided: (3) On a re-determination of an application, fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given.

[28]

Appeal from costs assessor 186 The next question, which is in substance the question which arises on the current appeal, is whether a judge in the Common Law Division could (and should) have addressed that issue pursuant to an appeal from the costs assessor. Unless a judge had such a power, it would seem that the only means by which the Appellants could litigate this issue would be by commencing separate proceedings, by way of a collateral challenge to the enforceability of the costs orders made against them. That would seem to be an undesirable result. 187 Although the costs assessor is not an officer of the Court, there are two provisions for "appeal" against the decision of a costs assessor. The first involves a right of appeal against a decision as to a matter of law. Section 208L, so far as relevant, provides: 208L(1) 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, in accordance with the rules of the Supreme Court, appeal to the Court against the decision. 188 The second provision, headed "Appeal against decision of costs assessor by leave", is s 208M, which relevantly provides: 208M (1) A party to an application relating to a bill of costs may, in accordance with the rules of the Supreme Court, seek leave of the Court to appeal to the Court against the determination of the application made by a costs assessor. (2) A party to an application relating to costs payable as a result of an order made by a court or a tribunal may, in accordance with the rules of the court or tribunal, seek leave of the court or tribunal to appeal to the court or tribunal against the determination of the application made by a costs assessor. (3) The Supreme Court or court or tribunal may, in accordance with its rules, grant leave to appeal and may hear and determine the appeal. (4) An appeal is to be by way of a new hearing and fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given. 189 In accordance with established authority, the reference to a "decision … as to a matter of law", in s 208L(1), should be understood to include any decision which is material to the determination made by the costs assessor, whether separately identified as a matter of law or not, so long as it satisfies that description: see, eg, Custom Credit Corporation Ltd v Commercial Tribunal (NSW) (1993) 32 NSWLR 489, 499-500 (Meagher JA); cf Grygiel v Baine [2005] NSWCA 218 at [26]-[29]. Otherwise, the functions imposed on the costs assessor are expressed in terms of determining an application or making a determination. The only power not identified in those terms is the power and obligation under s 208C(1) to decline to assess a bill. 190 Assuming that the costs assessor has power to decide whether or not there is an agreement not to charge, or to charge at a reduced rate, any decision that the assessor might make is open to reconsideration, by leave, pursuant to s 208M. If there is disputed evidence, which in substance the costs assessor does not have power to deal with in the manner usually considered procedurally fair with respect to contractual disputes, and absent countervailing considerations, it would seem generally desirable that leave would be given to allow those matters to be agitated in a relevant court or tribunal. In some cases, there might be a right of appeal with respect to such a finding, where an error of law can be identified. However, it is more likely, as in the present case, that the real challenge is sought to be made in relation to findings of fact because the evidence was not complete, perhaps because there had been no cross-examination of any witnesses, who might have been required to give oral evidence in a court proceeding. 191 If the costs assessor did not have power to make findings in relation to such contractual matters, and purported to do so, his or her decision might be set aside as demonstrating legal error. In that case, it would be futile to remit the matter to the assessor; the dispute must be resolved elsewhere. On the other hand, it may be asked whether, if the costs assessor correctly refused to determine the contractual questions, leave could be granted under s 208M and those issues could be raised in the relevant court or tribunal. 192 The appropriate resolution of these uncertainties may be found in the principle that administrative officers and bodies, which have no power to make binding determinations of law, are nevertheless required, for the purpose of exercising their powers, to consider matters of law. Thus, in considering the power of a tax agents' board, under the Income Tax Assessment Act 1936 (Cth), Brennan J (sitting as President of the Administrative Appeals Tribunal) held in Re Adams and the Tax Agents' Board (1976) 12 ALR 239 at 242: "An administrative body with limited authority is bound, of course, to observe those limits. Although it cannot judicially pronounce upon the limits, its duty not to exceed the authority conferred by law upon it implies a competence to consider the legal limits of that authority, in order that it may appropriately mould its conduct. In discharging its duty, the administrative body will, as part of its function, form an opinion as to the limits of its own authority. The function of forming such an opinion for the purpose of moulding its conduct is not denied to it merely because the opinion produces no legal effect." 193 It would undoubtedly be desirable if a costs assessor had power to refer a question of law to the Supreme Court for determination, being the kind of power sometimes conferred on tribunals. On the other hand, it may have been thought sufficient that the costs assessor would have an implied power not to continue with the assessment of the application, so as to allow the parties to have the contractual issue determined in the court in which the proceedings arose. At least where that court is a court with appropriate jurisdiction, that approach would have much to commend it. In any event, it is not necessary to resolve the precise extent of the assessor's powers for present purposes. The existence of a dispute of this kind, combined with the lack of relevant procedural mechanisms for allowing a hearing and determination in an appropriate manner, would, absent other considerations, generally mandate a grant of leave pursuant to s 208M of the 1987 Act.

[29]

Application of principles 194 The final step is to identify the basis upon which Barrett J declined to grant leave to appeal under s 208M of the 1987 Act. The test to be applied, his Honour held, was that "there is an obvious error on the face of the record and that there will be substantial injustice to the plaintiffs if the determination … is allowed to stand", relying upon Reynolds v Whittens (2002) NSWLR 271. In that case, the test was accepted by the parties and, by O'Keefe J, subject to an apparent concern that there was no need for the error to be obvious: at [25]. 195 Absent binding authority to that effect, that test seems to be far too inflexible and restrictive. The first limb sounds like the traditional requirement for the grant of certiorari. There is no basis for adopting such an approach in relation to an unconstrained discretion to grant leave. Further, as Barrett J appears to have recognised, no such constraints were imposed by the passage his Honour extracted from this Court in Chapmans Ltd v Yandell [1999] NSWCA 361. There, Fitzgerald JA held (Mason P and Davies AJA agreeing) at [12]: "In considering whether or not leave to appeal is granted, it must be decided whether or not, there not being a matter of law arising in the proceeding and there being an appeal as of right only as to a matter of law, there is some other matter which in justice requires that leave to appeal be granted to allow that matter to be relitigated. The party seeking leave to appeal obviously bears the burden of establishing that justice does require that leave to appeal be granted. Further, the master when considering whether to grant leave to appeal obviously has a very wide discretion: … ." 196 Reference to High Court authority in this context is inapposite, the power of that Court to grant special leave to appeal being tightly constrained by express criteria set out in s 35A of the Judiciary Act 1903 (Cth). 197 At [94], the primary judge noted his acceptance of the relevance of "the existence or non-existence of a written agreement denying the lawyer's right to charge". Similarly he accepted the relevance of "a non-binding but activating representation or arrangement" to similar effect. His Honour then noted that the assessor's reasons sufficiently showed that he had the possibility of such an agreement in mind as he reviewed the material before him and reached a conclusion that there was an agreement to charge on a "no win/no fee basis", rather than a "pure pro bono" basis. He concluded that it had not been demonstrated that the assessor "may have overlooked relevant matters or failed to take into account the message conveyed by the 'pro bono' references". 198 With respect, if he had committed the errors last mentioned, there would have been an error of law with an appeal as of right. Similarly, to show that the assessor had something "in mind" is to say no more than he took account of relevant considerations, again denying an error of law. There is no consideration of the limited fact-finding exercise which the costs assessor was able to carry out and the relevance that might have had to the basis on which he considered the matter. 199 Rather, his Honour appears to have determined the matter largely on the basis of an assumption. Thus, at [90], his Honour stated: "Practical marketplace considerations of this kind make it inherently improbable that a lawyer and a client entering into an arrangement they called 'pro bono' in relation to litigation would intend that the lawyer have no right to charge costs in any circumstances whatsoever."

[30]

At [91] his Honour concluded, in similar vein: "Clearly persuasive displacement of the market realities to which I have referred would be needed to support a view that there was, in the understanding and arrangements between lawyer and client, no right to costs on the part of the lawyer sufficient to prevent the operation of the costs order on the ground that the indemnity principle was not satisfied." 200 First, there is, with respect, a difficulty in relying, absent relevant evidence, upon "marketplace realities" in seeking to determine the specific terms of a contract between two parties. Secondly, resort was had to marketplace realities because the terminology adopted in some documents was ambiguous or vague. Marketplace realities are unlikely to identify the precise terms of the agreement struck. Thirdly, it is only when such clear terms as to the basis and nature of liability can be identified, on a prima facie basis, that any burden of "persuasive displacement" could arise. Finally, there is no discussion of the inference in the last part of this conclusion that an onus lies on the person seeking to "prevent the operation of the costs order". To the extent that questions of onus arise, the better view is that, once an issue as to entitlement has been raised, the onus lies on the party seeking to establish a legal liability to prove the elements necessary for success. For present purposes, however, there is no need to reach a final conclusion in relation to that issue. 201 At [95], the primary judge noted that the question whether the speculative arrangement constituted a "costs agreement" within s 184 was "irrelevant to the assessment of costs, given the effect of s 208H …". Rather, the purpose of the assessment was to determine what was "a fair and reasonable amount for costs". If his Honour were in fact asserting that the existence and content of a costs agreement, speaking generally, would always be irrelevant to the exercise being undertaken by the assessor under Subdivision 3, that would have been inconsistent with the approach adopted by Sperling J in declining to consider evidence of such an agreement, the dicta of this Court in Graham v Aluma-Lite and the following of those dicta by this Court in Rogers v Wentworth [1999] NSWCA 403. I do not understand his Honour to have been reaching that conclusion, but rather to have been asserting that, in the circumstances of the case, no error was shown on the part of the assessor in approaching his task on that basis. 202 Nor does it appear that these last matters were relied on as constituting countervailing considerations, against the exercise of a power to grant leave, which might otherwise have been appropriate. Given the limited ability of the costs assessor to determine disputed issues as to the existence of a contractual arrangement of the kind contended for by the Appellants, the powerful countervailing consideration would have been needed to avoid the conclusion that a grant of leave was the only tenable way to exercise the discretion, as justice required. It follows, in my view, that the refusal of Barrett J to grant leave to appeal pursuant to s 208M of the 1987 Act involved an error of principle of the kind which both permitted and required the intervention of this Court in accordance with the well-established principles in House v The King (1936) 55 CLR 499. In my opinion, the appeal from that judgment should be upheld, the decision set aside, leave granted and the matter remitted to the Common Law Division for consideration of the appeal under s 208M. 203 That leaves open the question whether the judgment of Patten AJ with respect to the appeal under s 208L should be allowed to stand. 204 His Honour proceeded on the basis that, leave having been refused under s 208M, it was necessary for the Appellants to demonstrate errors of law on the part of the assessor. If he had known that the correct resolution of the application under s 208M was to grant leave to appeal, it would have been unnecessary and inappropriate for his Honour to consider the further application, given that the matter would need to be reconsidered by a single judge in the Common Law Division in any event. To the extent that there are questions of law to be determined pursuant to the appeal, the Divisional judge will no doubt follow the law as identified by this Court, rather than Patten AJ, to the extent that there are discrepancies. However, there are further concerns with the judgment of his Honour. In identifying the issues for decision at [6], Patten AJ stated that he was taking the questions of law for decision from the written submissions of the Appellants. That was not a sufficient basis for determining the appeal, it being necessary to consider whether the issues so formulated were in fact questions of law at all. In my view they were not. The second and third involved, at best, mixed questions of fact and law. The first question, which asked whether the assessor "was entitled to determine the nature of the retainers", appears to have been intended to ask whether the assessor was entitled to determine the contractual issue, namely whether Mr Rogers had any legal obligation to pay costs to his lawyers. For reasons noted above, there is some ambiguity in the use of the phrase "entitled" to make a finding. The correct answer may have been that he could make findings as to legal liability, but that they would not necessarily bind the parties, possibly absent the registration of a certificate in a court. 205 Further, at [45], his Honour concluded: "I hold that in this case, the solicitors for Mr Rogers, as a matter of law, are not precluded from recovering costs from their client."

[31]

With respect, his Honour had no jurisdiction to reach such a conclusion. The only question before him was whether the assessor made any decision as to a matter of law which demonstrated error. If not satisfied of such an error, the proper conclusion was that the appeal should be dismissed. Whether the Appellants would, absent a grant of leave to appeal under s 208M have had any alternative means of resisting the registration of the certificate, from which Mr Rogers' entitlement would have flown, is another matter, which was not before his Honour. However, that conclusion and the statement at [46] that his Honour did "affirm the costs assessor's decisions" did not find their way into the orders entered on 21 March 2005 and, accordingly, need not be set aside. 206 On the basis that leave should be granted under s 208M, the appeal under s 208L lacks utility and subject to one qualification, the appeal to this Court in respect of the orders made below could properly be dismissed. The qualification is that the first order made by the Court was that "the appeal against the decision of the costs assessor as to matters of law is dismissed". The form of the order assumes that the final determination of the costs assessor was a "decision … as to matters of law", which it was not. Further, there were in fact two determinations of the costs assessor in any event. It may therefore be appropriate to set aside the order and affirm the result, in different terms. The remaining question concerns the costs of those proceedings below. 207 As already noted, the notice of appeal with respect to the judgment of Barrett J had been filed in 2002, well before the hearing of the appeal under s 208L, by Patten AJ, which took place on 10 December 2004. This procedural confusion resulted from the informal separation of the appeal and the leave application, which, as noted above, apparently occurred by consent of both parties, in an attempt to make use of the inadequate time available for the hearing before Barrett J, in August 2002. 208 Mr Rogers did not appear on the hearing of the appeal, nor did he take any part in the leave application. He should be taken to be aware that he was at risk of losing not only the substantive orders made in the Court below, but also the costs orders made in his favour. In my view both parties should share responsibility for the wasted costs of the hearing before Patten AJ and that, in place of his Honour's order that the plaintiff pay the defendant's costs of that appeal, there should be no order as to the costs of that part of the proceeding identified as the s 208L appeal.

[32]

Costs 209 In relation to the costs in this Court, Mr Rogers has not appeared or opposed the orders sought by the Appellants and, accordingly, no order for costs should be made against him. Although he was the respondent to an "appeal" in the proceedings in the Common Law Division, no costs order in his favour was made by Barrett J, nor was a certificate granted under the Suitors' Fund Act by Patten AJ. Despite the form in which the cost certificates were given, it is doubtful whether a costs assessor constitutes a "court" for the purposes of s 6(1) of the Suitors' Fund Act 1951. Subsection 6(1B) deemed "a taxing officer" to be exercising the jurisdiction of a court of first instance for the purposes of that section. Whether that provision applies in relation to a costs assessor is unclear, but does not matter for present purposes. 210 The Law Society appeared as amicus curiae and, in some respects, acted as a contradictor. However, it should not be seen as an adversary party, even to the extent that its submissions were in opposition to those of the Appellants. Accordingly, as is the usual course, it should neither pay nor receive costs. It follows that there should be no order as to the costs of the appeal. 211 To the extent that the Appellants have incurred the costs of legal representation, the result of that conclusion is that they are precluded from obtaining a certificate under the Suitors' Fund Act, despite the fact that they have demonstrated error on the part of the primary judge in the application for leave under s 208M. Where there is no order as to costs, a respondent may nevertheless be entitled to a certificate under the Suitors' Fund Act and be able to recover part of its own costs of an appeal: see Wyong Shire Council v MCC Energy (No. 2) [2005] NSWCA 196. It may seem anomalous that an appellant who is successful, but who does not obtain an order for costs against a respondent, through no fault of his or her own, does not get the benefit of any indemnification from public funds. 212 The circumstances of the case are perhaps unusual, as, in the absence of opposition, the Court would normally have made the orders sought by the Appellants without a full hearing. However, in the present case there were issues as to the power and authority of the costs assessor and the propriety of granting leave under s 208M. Rather than having the matter remitted to a single judge for reconsideration of the leave application, the Appellants have obtained a grant of leave in this Court. That course could not have occurred without the Court being satisfied that such a grant was appropriate. A hearing was required to achieve that result. Nevertheless, the Appellants are not entitled to recoup the costs of the hearing.

Legislation Cited (13)

Legal Profession Act 1987(NSW)

Legal Profession Act 2004(NSW)

Legal Profession Amendment (Costs Agreement) Regulation 1999(NSW)

Legal Profession Regulation 1994(NSW)

Suitors' Fund Act 1951(NSW)

Legal Profession Reform Act 1993(NSW)

Civil Procedure Act 2005(NSW)

Contracts Review Act 1980(NSW)

Income Tax Assessment Act 1936(Cth)

Interpretation Act 1987(NSW)

Judiciary Act 1903(Cth)

Supreme Court Act 1970(NSW)

Uniform Civil Procedure Rules 2005(NSW)

Cases Cited (31)

CITATION: WENTWORTH v ROGERS; WENTWORTH & RUSSO v ROGERS [2006] NSWCA 145 This decision has been amended. Please see the end of the judgment for a list of the amendments.

ABB Power Generation Ltd v Chapple (2001) 25 WAR 158 Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 Backhouse v Judd [1925] SASR 395 Baker & Anor v Kearney [2002] NSWSC 746 Cachia v Hanes (1994) 179 CLR 403 CDJ v VAJ (1998) 197 CLR 172 Chancliff Holdings Pty Ltd v Bell [1999] FCA 1783 Chapmans Ltd v Yandell [1999] NSWCA 361 Clare v Joseph [1907] 2 KB 369 Clyne v NSW Bar Association (1960) 104 CLR 186 Custom Credit Corporation Ltd v Commercial Tribunal (NSW) (1993) 32 NSWLR 489 Davies v Taylor [No. 2] [1974] AC 225 Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203 Electrical Trade Unions v Tarlo [1964] Ch 720 Emeritus Pty Ltd v Mobbs (1991) NSW Conv R 55-588 General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301 Graham v Aluma-Lite Pty Ltd (NSWCA, unrep, 25 March 1997) Grygiel v Baine [2005] NSWCA 218 Gundry v Sainsbury [1910] 1 KB 645 Guss v Veenhuizen [No. 2] (1976) 136 CLR 47 Harold v Smith (1860) 5 H & N 381; (1860) 157 ER 1229 House v The King (1936) 55 CLR 499 Howard & Ors v Mechtler & Ors [2000] NSWSC 455 Hughes v Kingston Upon Hull City Council [1999] QB 1193 CASES CITED: Johnson v Santa Teresa Housing Association (1992) 83 NTR 14 Joyce v Kammac Ltd [1996] 1 WLR 805 Lenthall v Hillson [1933] SASR 31 McCullum v Ifield [1969] 2 NSWR 329 McLean v Carlish (1917) 61 SJ 399 Muriniti v Lyons [2004] NSWSC 135 New Pinnacle Group Silver Mining Co v Luhrig Coal & Ore Dressing Applicances Co (1902) 2 SR (NSW) 50 Oshlack v Richmond River Council (1998) 193 CLR 72 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 R v Archbishop of Canterbury [1903] 1 KB 289 Re Adams and the Tax Agents' Board (1976) 12 ALR 239 Re Wilson [1978] VR 147 Reynolds v Whittens (2002) 57 NSWLR 271 Ryan v Hansen (2000) 49 NSWLR 184 Singleton v Macquarie Broadcasting (1991) 24 NSWLR 103 Thai Trading Co v Taylor [1998] QB 781 Victorian Stevedoring & General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73 Vital Finance Corporation Pty Ltd v Taylor (1996) 40 NSWLR 25 Wentworth v Rogers [1999] NSWCA 403 Wentworth v Rogers [2002] NSWSC 709 Wentworth v Rogers [2002] NSWSC 1198 Wentworth v Rogers [2004] NSWSC 1273 Woolf v Treblico [1993] VLR 180 Wyong Shire Council v MCC Energy (No. 2) [2005] NSWCA 196 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410

Was there a "costs agreement" within the Act and was it rendered void? 31 The first question to be determined is whether this agreement, referred to in more detail later, was a "costs agreement" within the definition of that term in s184 of the Act and, if so, whether it was rendered void insofar as "not in writing or evidenced in writing". 32 The definition of a "costs agreement" in s184(1) of the Act is "an agreement as to the costs of the provision of legal services". I would respectfully differ from Basten JA insofar as his reasoning proceeds on the basis that s184(4) should not be read to include a "costs agreement favourable to the client"; that is to say, s184 is not directed to costs agreements generally, but only those agreements as to fees for legal services which could not lawfully have been entered into under the general law. I do not consider that the statute should be read as mandating such a result, notwithstanding decisions such as Clare v Joseph [1907] 2 KB 369 on the differing UK law. Necessarily costs agreements can include features favourable to the client. Such a criterion would prove illusory as a basis for escaping the definition of costs agreement. The width of the statutory definition is emphasised by catching any agreement "as to" the costs of the provision of legal services; see Menhennitt J in Re Wilson [1978] VR 147, cited by Barrett J at [39]. 33 But in any event, to the extent that the present agreement can be reliably understood as an agreement to pay "reasonable fees and disbursements" upon the condition of "costs being successfully recovered from Ms Wentworth", it is no less an agreement "as to the costs of the provision of legal services" than one without such a condition. The clear purpose of the Act is to require agreements as to costs to be reduced to writing. I agree here with the observations of Barrett J at [19]: "[19] The purpose behind s184(4) is clear enough. If there is to be reliance on the terms of a contract as to the quantum or manner of computation of, or other matters "as to", a lawyer's costs, that contract must either be a written contract or a contract evidenced in writing. This ensures that the terms are set down in tangible form so that any doubt about the way in which they are expressed is avoided. If, because of the lack of writing, there is room for speculation or argument about what was agreed as to costs, then the legislative policy is that any agreement should be treated as non-existent and rights and obligations on the subject of the lawyer's remuneration should be determined without regard to the supposed agreement." 34 It is arguable that the extreme case of an oral agreement to charge no fees at all in any and all circumstances is not a "costs agreement" within the Act, notwithstanding the conclusion to the contrary by Barrett J at [39]. But that is not this case, insofar as the written version of the costs agreement is concerned. 35 Whether this costs agreement was rendered void by s184 because not "in writing or evidenced in writing" is a matter that itself can only be resolved once the material terms of the originally oral agreement have been determined. This is in order to ascertain whether any such material terms were omitted from what was evidenced in writing. 36 I consider that this question in the present case is only able to be determined definitively by a court, upon oral evidence from the principals, able to be tested in cross-examination, for reasons elaborated later.

The Indemnity Principle 45 The indemnity principle is long-established at general law. It is however not to be applied rigidly, or uninfluenced by statute or by practice recognised by statute, such as in relation to conditional fee agreements. I do not agree with the amicus' submissions that the principle has ceased to exist. Certainly there have been inroads to it brought about by the Act and by analogical reasoning from recognised exceptions. Where a party to an action has an agreement with their legal adviser that they do not have to pay any costs, then the general law principle states that that party cannot recover party and party costs against their adversary: McCullum v Ifield [1969] 2 NSWR 329 at 330 per Taylor J citing Gundry v Sainsbury [1910] 1 KB 645. 46 This principle has been applied to applications for assessment of party and party costs under the Act. Thus in Howard & Ors v Mechtler & Ors [2000] NSWSC 455 at [11] Master Malpass observed: "Under an order for costs, the paying party is only obliged to pay such costs as the receiving party was primarily and potentially legally obliged to pay to his solicitor. There is an indemnity only in respect of the costs covered by the order. A receiving party cannot recover a sum in excess of the liability to his own solicitor. ... It is necessary to prove that under no circumstances does the client have any liability to pay costs to his solicitors." 47 The same principle has also been applied in respect of the assessment of costs between a client and his or her legal representatives under the Act: Baker & Anor v Kearney [2002] NSWSC 746. In that case the written costs agreements furnished by counsel provided an amount as the "Total Estimate" which was to be paid by the client four weeks in advance of the provision of the agreed legal services. None of the agreements contained any other provision obliging the payment of fees. No memoranda for advance payments in accordance with the agreements were rendered. As a matter of contract or agreement the client was under no obligation to pay the fees. Master Malpass at [14] stated "… it seems to me that a Costs Assessor should not proceed with an assessment of costs where there is no liability to pay those costs." Dunford J in Muriniti v Lyons accepted that principle. 48 I consider that the costs assessor in this case necessarily had to determine in the first instance whether the indemnity principle had application in the circumstances in which Mr Rogers was placed. I consider that the effect of Graham v Aluma-Lite Pty Ltd and Wentworth v Rogers required that the costs assessor do so rather than the judge at first instance, here Sperling J. Here I differ respectfully from the conclusion of Basten JA to the contrary. As it happens, nothing hangs on that difference. I agree with Basten JA that it is clearly too late to re-open the decision of Sperling J that he did not have power to consider the issue. The whole purpose of the Act is for these kinds of matters to be resolved, subject to the review power, by the costs assessor operating expeditiously, economically and in a less formal way than a court. That, as here, a court may ultimately be faced with an application to review such a determination, does not detract from that consideration. 49 The ultimate application of the indemnity principle will depend on the content and proper construction of the costs agreement. However, I would offer the following as some guidance to the applicable principles. 50 First, the indemnity principle is not immutable, and should be applied flexibly rather than made into a rigid rule, as the examples given by Basten JA demonstrate. This was said as long ago as 1902 by Walker J in New Pinnacle Group Silver Mining Co v Luhrig Coal and Ore Dressing Appliances Co (1902) 2 SR(NSW) 50. It has been frequently affirmed since, most recently by the Court of Appeal in Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203. There, by analogy with the nominal party cases, a party who successfully conducted litigation for the benefit of his solicitor was not denied recovery from the other party by the indemnity principle. There was in reality no bonus to the successful party, nor punishment of the unsuccessful one, invoking the rationale for the rule articulated 150 years ago by Bramwell B in Harold v Smith (1860) 5 H & N 381 at 385; (1860) 157 ER 1229 at 1231. 51 Second, the Act now recognises conditional costs agreements of the kind where payment of the barrister's or solicitor's costs "is contingent on the successful outcome of the matter"; s186. No distinction is drawn between such a contingency expressed as a condition precedent or subsequent. I am inclined to the view that the application of the indemnity principle should not depend on that distinction either, though that is not necessary to decide. The costs agreement, to comply with the Act, must "set out the circumstances constituting the successful outcome of the matter". I consider that the indemnity principle must at least accommodate the kind of conditional costs agreement recognised by s186. Otherwise, it will operate as a powerful disincentive from using the now statutorily recognised conditional costs agreement, facilitating access to justice, if the lawyer concerned will not recover costs from the other party where successful against that other party. 52 Here, the written version of the agreement is predicated first upon "costs being successfully recovered against Ms Wentworth". Second, it appears to impose a residual obligation to make payment where there is no such recovery. This is by way of an undertaking to "pay when and if … in a position to do so". That is, however, under the umbrella of what is referred to as a "pro bono" arrangement, an expression susceptible of more than one interpretation. Depending on the nature of that residual obligation as determined more definitively by a court, it may in any event satisfy the indemnity principle. 53 In Dyktynski (supra) the nominal party principle was applied by analogy. So in the present case, and depending on the ultimate content and interpretation of the agreement, I would provisionally conclude that the fee arrangement was in general conformity with the conditional costs agreements permitted by statute such that the indemnity principle would not be contravened. As required by s186(4), the written version of the agreement does "set out the circumstances constituting successful outcome of the matter"; it is based on successful recovery. 54 The general law governing the indemnity principle with its emphasis on flexibility is, in my opinion, quite capable of accommodating conditional fee agreements of this kind. It should do so recognising the importance of such agreements in promoting access to justice which may otherwise be unaffordable. The residual undertaking to pay, though qualified, strengthens the case for conformance with the indemnity principle. It is reasonable, not just in this ferocious litigation but more generally, to recognise in a costs agreement that the unsuccessful party who is subject to a costs order may delay or defeat recovery. Hence predicating payment on successful recovery is not unreasonable. In the words of Bramwell B this gives no unjustified bonus to the successful party nor does it impose any punishment on the losing one, so as to invoke the rationale behind the indemnity principle.