Fees stoush reaches Vic Appeals … Abolition of the Chorley exception applies to law firms acting for themselves in litigation … Herbert Smith Freehills not entitled to recover costs in dispute over failed float of petrol distributor … Hi-ho Silver … Argument rejected that employed solicitors working for partners should be able to recover fees … Solicitors on the record acting in their own cause … Not even Bret Walker could save the day … Stephen Murray reports
The judgment follows the High Court decision in Bell Lawyers v Pentelow, which abolished the “Chorley exception” permitting solicitors to claim for costs where they represented themselves in litigation.
The High Court decision was delivered on the first day of argument in the Court of Appeal last September, and saw a change in tack by counsel for United Petroleum.
The decision of the Court of Appeal addresses an issue left ambiguous by Bell Lawyers as to whether a firm of solicitors, which is itself a party to litigation, is entitled to recover professional costs in relation to legal and other services provided by its employees.
The High Court had said the position of in-house lawyers to government organisations and corporations could still be recovered, but it was not clear if this applied to a legal firm which was party to litigation.
The Court of Appeal squarely says it is not open to a legal firm to recover costs in these circumstances, and that it would “considerably undermine” Bell Lawyers, and “perpetuate a significant degree of special treatment” to self-represented legal firms not accorded to ordinary litigants and sole practitioners.
Before the bench could survey the lay of the land post-Bell Lawyers, it had to deal with the question on appeal from Justice John Elliott’s decision in June 2018 that Freehills was entitled to $650,000 in outstanding fees plus interest arising from the failed float of United Petroleum.
The dispute hinged on a fresh retainer sent in August 2016. It modified an earlier retainer by providing for full recovery of costs in the event the float did not proceed. While the second retainer was not executed, Justice Elliott held that it had been agreed and was binding.
On appeal, United Petroleum argued that director Avi Silver had read an email enclosing the new retainer but had not read the attached letter, and thus had not accepted the new terms. It said arguments that it had paid new invoices after August 2016 was not evidence of accepting the new terms as it was open to Freehills to increase fees charged under the 2014 retainer.
The Court of Appeal found that Justice Elliott’s conclusion that Silver had read the email and the attached letter was “unimpeachable”. It said even in the event Silver had not read the letter, that would not avail United Petroleum.
First, Silver had read a fee explanation memorandum before August 2016 which provided for a discount/uplift arrangement, including full costs recovery if the float did not proceed.
Second, there was enough signalled in the covering email to alert Silver to the new arrangements.
Third, new invoices paid by United Petroleum related to specific matters set out in the new retainer.
Finally, the agreed summary recorded as an agreed fact that although the letter was not sent directly to Silver, he saw it and read it. No explanation was given as to why United Petroleum sought to resile from that position.
Accordingly, the Court of Appeal said Justice Elliott was correct to conclude that United Petroleum was bound by the second retainer.
In the fees proceedings, Freehills made an offer of settlement of $750,000 which was rejected in June 2017. Justice Elliott subsequently ruled that Freehills was entitled to recover nearly $650,000 in outstanding fees and just over $54,000 in interest, and payment of outstanding invoices, as well as costs on a standard basis up to the offer of settlement, and on an indemnity basis thereafter.
Justice Elliott also flatly rejected a counter-claim by United Petroleum that Freehills’ negligence had resulted in the failed float. He awarded indemnity costs against United Petroleum from the commencement of those proceedings
In the Court of Appeal, United Petroleum argued that Freehills was not entitled to cover professional fees when it acted for itself, or alternatively, once the costs were reduced to take into account that Freehills could not recover its own costs, the law firm did not do better than the offer of settlement.
United Petroleum had not mounted that line of argument in the first instance, with the Chorley exception permitting solicitors to recover professional costs in acting for themselves. However, with the High Court abolishing the exception in Bell Lawyers, it was game on for the appellants.
Freehills sought to make a distinction between partners working on the United Petroleum and employed solicitors engaged in various in-house practice groups, including corporate, dispute resolution, and alternative legal services (ALT).
In the fee proceedings, Freehills acted for itself and a number of employed solicitors from the dispute resolution group ran the day to day conduct of the proceedings, supported by ALT. This group also worked on the negligence proceedings against Freehills. Freehills sought to recover costs in respect of work performed by employed solicitors and other employed staff, but not in respect of work performed by partners.
United Petroleum argued that a party can only recover legal costs incurred in retaining a lawyer to act for it in a professional capacity, underpinned by the concept of indemnity.
The appellants accepted a party, that is not a lawyer, such as a government department or corporation, may recover costs provided by in-house lawyers. These cases fell within the indemnity principle even though no liability to pay a third party was incurred.
It was submitted that there was no well-established undertaking outside the Chorley exception that would allow for a costs order for a lawyer representing itself, and this exception was overruled in Bell Lawyers.
Freehills argued that Bell Lawyers could be distinguished because Victoria had a statutory regime for ordering costs which permitted recovery independently of the common law position propounded in Bell Lawyers. It also argued that the employed solicitors worked independently of the partners and the solicitors subject of the litigation and that a costs order would indemnify them for the overhead costs of employment.
The Court of Appeal said that while there was a statutory regime for costs, as a matter of practice the statutory power was subject to general rules developed over time, including the general rule that a self-represented litigant may not be compensated for the value of time spent in litigation.
Until Bell Lawyers, an exception to this rule was the circumstances of a self-represented litigant who was a solicitor.
The Court of Appeal observed that the plurality in Bell Lawyers had held that the “well-established understanding” that governments and corporations could recover costs for in-house lawyers was not because of the general rule, to which Chorley was an exception, but because the recovery of such costs “enures by way of indemnity to the employer”.
The Court of Appeal said the issue before it was whether a claim by a firm of solicitors fits within the general rule and thus was only justified by the Chorley exception, or whether it fits within the “well-established understanding” that permitted recovery of costs in respect of in-house solicitors:
“If it is the former, then as a matter of logic and principle the claim must fail once the Chorley exception was abandoned as part of Australian law. If it is the latter, then costs would appear to be recoverable on the same basis as in the case of other employed solicitors.”
Addressing whether Freehills fell within the “well established understanding” of the employed solicitor exception to the general rule, the Court of Appeal said the case with governments and corporations is that the party is separate and distinct from the solicitor on the record:
“In no meaningful sense would a government or a corporation, represented by an employed solicitor, be described as a self-represented litigant. That is not true of Freehills in the present proceedings. The firm is the solicitor on the record, and the litigation is under the control of one of its partners, albeit no claim for costs is sought in respect of the partners.”
The Court of Appeal said the distinction was between in-house lawyers representing a party to the proceedings, and a firm of solicitors acting in its own cause.
It said that allowing a solicitor to recover fees when acting for him or herself would “perpetuate the unequal treatment that Bell Lawyers sought to eradicate”. The fact that the work was done by an employee in this context was not significant:
“There is no reason why a firm of solicitors should be permitted to recover in circumstances where an individual solicitor cannot.”
The court said that while Freehills was not entitled to recover costs for the time spent by its employees, it did not mean it was not entitled to an order for other costs, including disbursements and retention of external solicitors.
Addressing the question of whether the costs on an indemnity basis on the fees proceedings should have been ordered for the period following Freehills’ offer of settlement, the Court of Appeal said the difference between the $702,192 awarded and the offer of $750,000 was accounted for by Justice Elliott in outstanding invoices and interest. Having regard to these, United did not do better whether or not an amount for costs was included.
On the issue of United Petroleum’s failed negligence claim against Freehills, and whether indemnity costs should have been awarded, the Court of Appeal observed there was “ample foundation” for Justice Elliott’s conclusions. The decision was subject to the ruling made on Freehills’ claim for costs.