By Matthew Lo and Mary Tabaco -
Snapshot
- Since the High Court decision of Birketu Pty Ltd v Atanaskovic [2025] HCA 2, two decisions in the Supreme Court of New South Wales have considered an unresolved question left open by the High Court in Birketu: whether incorporated legal practices represented by their employed solicitors may recover those legal costs.
- This article will explore those post-Birketu decisions and the recovery of costs by incorporated legal practices for costs of representation by their employed solicitors.
- One thing is for certain, solicitors in incorporated legal practices who are a sole shareholder and/or a director should be wary.
The Chorley exception is named after the historical English decision, London Scottish Benefit Society v Chorley (1884) 13 QBD 872. That decision found solicitors may recover costs for their work and time spent for self-representation in litigation. In other words, solicitors were excepted from the indemnity principle. In Australia, states had differing approaches as to whether this exception extended also to barristers. New South Wales was a ‘solicitor only’ state and, in a case which was intended to answer whether the Chorley exception should apply to barristers in NSW, the High Court rather abolished the Chorley exception in Australia (Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29 (‘Bell Lawyers’)).
In Bell Lawyers, a question which was left open was whether a law firm defending themselves with their employed solicitors may recover their legal costs. Simply put, does the employed solicitor rule apply to legal practices? The employed lawyer rule allows the recovery of legal costs for representation by in-house lawyers, such as those working for government or corporations, in respect of ‘remuneration’ pursuant to the Civil Procedure Act 2005 (NSW).
Birketu Pty Ltd v Atanaskovic [2025] HCA 2 (‘Birketu’) clarified that the employed solicitor rule extended to unincorporated legal practices (at [25]), and that unincorporated legal practices could recover costs of their employed solicitors’ representation.
