You are a practitioner working pro bono on your own or in a community legal centre. You have agreed to waive your fees for representing a client facing Goliath in a litigation matter
With your expertise and hard work, you win the case for your client. Under Regulation 42.1 of the Uniform Civil Procedures Rules 2015 (the UPCR), costs follow the event unless it appears that some other order should be made. This means the successful party is responsible for indemnifying the successful party for the legal costs they have incurred. Can you recover your costs from the unsuccessful party even though you agreed to waive your fees?
The recent case of E1 v E2; E Pty Limited v E2 [2023] NSWDC 411 (E1 v E2) appears to indicate not. E1 v E2 highlights the importance of lawyers providing gratis services to ensure their arrangements are covered by the statutory pro bono scheme under Division 9 of the UPCR.
The Indemnity Principle
The indemnity principle underlies the saying, “costs follow the event”.[1] The phrase is commonly understood to mean the costs that can be recovered by the successful party is limited to the amount the successful party owe their lawyer(s). For example, if the successful party has incurred $5,000 worth of legal fees in the proceedings, the maximum costs that the unsuccessful party is liable to pay would be $5,000.
If the lawyer of the successful party has agreed to work pro bono, arguably, the successful party has not incurred any legal fees. It can therefore be contested that there is nothing for the unsuccessful party to indemnify. It follows that the pro bono lawyer in this scenario may not be entitled to recover fees even when their client wins the case and obtains a favourable costs order.
Judicial views in Wentworth v Rogers and subsequent decisions
The legal position on the recovery of costs by a pro bono lawyer is however, far from settled. There are currently differing judicial views regarding pro bono lawyers trying to recover costs by circumventing the indemnity principle via contract (see, for example, Mainieri & Anor v Cirillo [2014] VSCA 227). Examples include inserting specific terms in the costs agreement providing that the work is pro bono unless a costs order is awarded in the client’s favour. Such terms usually specify that the pro bono lawyer can charge the client, but only to the extent they can recover their legal fees under the costs order.
The case of Wentworth v Rogers [2006] NSW CA 145 reflected different judicial views on the viability of contractual terms bypassing the indemnity principle. Santow JA, in obiter, noted that a contractual term like the above in a costs agreement should be able to allow the successful party to recover costs. [2] Basten JA on the other hand, also in obiter, found the term above has a ‘fatal circularity’[3]. Chesterman JA in the subsequent case of King v King [4] explained the ‘fatal circularity’ as:
“when properly analysed, there is no obligation for the successful party to pay until a costs order is made, and a costs order cannot be made until there is a liability in the successful party to pay his own lawyers’ costs. Catch 22 it may be, but the reality is that the client’s liability to pay his solicitors stands on a whirligig which moves beneath it, and cannot support the need for an indemnity”.
In other words, this ‘fatal circularity’ as described above would be at odds with the indemnity principle.
The difference in opinion is further exacerbated by subsequent conflicting decisions. Some judges endorse the views of Santow JA and support recovery of costs by pro bono lawyers by giving effect to the specific provision in the costs agreement.[5] Other judges prefer Basten JA’s views and refuse to allow the pro bono lawyer to recover costs from the losing party, insisting on the strict application of the indemnity principle.[6] The law on this issue therefore remains uncertain. Seemingly, the results depend on the specific facts of each case and the precise wording used in the engagement letters, including the court’s determination of whether such wording creates a liability to pay and if so, when that liability arises.
E1 v E2 – case summary
E1 v E2 concerned a pro bono lawyer who sought to recover her costs from the losing party.
Facts of the case
Two plaintiffs[7] lodged a claim against the defendant for money loaned for house renovations.
The defendant was originally self-represented. The Court noted that the defendant had difficulty in handling the case so suggested they contact the Bar Association’s Scheme to attain legal representation. The defendant was successful in attaining pro bono representation under the Scheme. No formal order for appointment was made. There was also no order for a referral to the Court’s Pro Bona Scheme under R7.36 of the UPCR (R7.36 provides for the Court, in the interests of the administration of justice, to refer a litigant to the registrar for referral to a barrister under the statutory Pro Bono Panel Scheme under Division 9 of the UCPR).
The defendant was successful in the proceedings in defending the claims. The defendant’s pro bono barrister sought two gross sum costs orders against both plaintiffs. The basis for the costs orders was that the defendant’s pro bono barrister had a conversation with the defendant before the hearing. The agreement was the pro bono barrister would keep a record of her time spent at her usual rate but that she would not charge the defendant unless the defendant was successful in the proceeding and the defendant could recover the barrister’s fees from the plaintiff.
The defendant’s barrister also sought her appointment to be made nunc pro tunc under R7.36 of UCPR .
Decision
Gibson DCJ dismissed the defendant’s pro bono barrister’s application for the costs orders on the following grounds:
- The purpose of the indemnity principle is to compensate the successful party for the costs that the successful party is obligated to pay to his legal presentative for their work in litigation. The indemnity principle arises in the context of pro bono representation. The successful party is not to be compensated where no loss has been incurred. Costs have generally not been recoverable where legal services have been provided on a “pro bono” basis as distinct from a “no win no fee” basis, citing Wentworth v Rogers as authority. (Paras 14 and 16 of the judgment)
- The unfairness of denying pro bono organizations the right to recoup legal costs has been remedied to certain extent by legislative amendments i.e. R4.19 of the Federal Court Rules 1979 and schemes set out in R7.36 and 7.41 of UCPR. (Paras 20 and 21);
- However, for the present case, the appointment of the defendant’s barrister was not made under the relevant UPCR provisions. The defendant’s barrister just relied on the oral agreement with the defendant to continue to act for her. (Para 22); an
- The appointment of the defendant’s barrister should not be made nunc pro tunc because the District Court does not have the statutory power to make such order(Paras 31 and 32)
In addition, Gibson DCJ referred to several cases, including Basten JA’s reasoning in Wentworth v Rogers and King v King & Ors [2012] QCA 81. His Honour Gibson DCJ considered that, ‘there can be no payment of a pro bono lawyer even where that pro bono relationship has changed as a result of a conversation of the kind deposed to by [the defendant’s barrister]. The only circumstances in which an order to pay the costs of a pro bono lawyer can be made is within the narrow exceptions created for such appointments in the relevant procedural legislation of the courts in which they appear.’ (para 55).
Points to take away from E1 v E2
E1 v E2 seems to add to the body of jurisprudence indicating pro bono lawyers may have difficulty recovering their legal costs despite including specific provisions in their costs agreements entitling them to do so.
Are there any means for a pro bono lawyer to secure recovery of costs?
Division 9 of UPCR contains a statutory referral scheme in which the Court, for the administration of justice, may refer a litigant to the registrar for referral to a solicitor or barrister for pro bono legal assistance under R7.36 of UPCR. R7.41(2) expressly provides that the pro bono lawyer that has provided the legal assistance under the scheme is entitled to recover costs. A similar provision exists under R4.19 of the Federal Court Rules 2011.
It seems that the best means to ensure a pro bono lawyer can recover costs from the losing party is to therefore have the pro bono arrangement covered by the statutory pro bono scheme under Division 9 of UPCR, which provides for a statutory exception to the indemnity principle. If the defendant’s counsel in E1 v E2 case had initially asked for court orders for the pro bono assistance to be covered by the statutory scheme, then the defendant’s barrister would very likely have had no difficulty in recovering her costs under R7.36 of UPCR.[8] The statutory pro bono scheme would also avoid the uncertainty and risks as to which approach a judge may prefer when considering the case of Wentworth v Rogers.
Further reading
The Australian Pro Bono Centre provides many useful resources for pro bono lawyers, including a specific section on the Australian case law on “Cost recovery when acting on a pro bono basis”[9]
Further support and guidance
If further support or guidance is needed, practitioners can contact the Law Society’s Professional Support Unit (PSU) for assistance.
PSU provides free and confidential guidance, support and legal information to legal practitioners seeking assistance with their obligations under the legal profession legislation.
| Costs | (02) 9926 0116 | [email protected] |
| Ethics | (02) 9926 0114 | [email protected] |
| Regulatory Compliance | (02) 9926 0115 | [email protected] |
