Latest developments to the Chorley exception

The general rule is a self-represented party cannot recover their costs of time spent in litigation. There is an exception for solicitors to this general rule which was established in the decision of the Court of Appeal of England and Wales of London Scottish Benefit Society v Chorley (1884) 13 QBD 872 at 877 (the “Chorley exception”).

In NSW, the Supreme Court had applied a rule like that of the Chorley exception in the earlier decision of Pennington v Russell [No 2] [1883] NSWLawRp 47; (1883) 4 LR (NSW) Eq 41. In that case, Faucett J in contemplating the question of whether a self-represented Solicitor’s costs were: “costs of a solicitor appearing for another person as his client, or as the costs of a person not a solicitor appearing in person, and conducting his own case” observed that there was:

no reliable express authority on the question… and after a great deal of investigation I have not found any, nor have I found any evidence as to the practice of this Court in… the cases of solicitors or attorneys acting for themselves – if I may say so – as their clients.

Faucett J had in that decision decided “with very great doubt” that the self-represented solicitor was entitled to recovery of their costs of time spent in litigation.

The Chorley exception has since become the “rule of practice” for solicitors, and in some courts, but not in others, the Chorley exception was extended to barristers – until the decision in Bell. In NSW, it was the practice that the Chorley exception did not apply to a barrister.[1]

Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29

The case of Bell involved a question of whether a barrister was entitled to recover legal costs for time spent in litigation. It was rejected at various lower jurisdictions that the Chorley exception applied to barristers. At the Court of Appeal, the majority – of Beazley ACJ and Macfarlan JA, with Meagher JA dissenting – reversed the “rule of practice” of NSW, and found the Chorley exception did apply to barristers.[2] The case was then appealed to the High Court.

At the High Court it was determined that the Chorley exception should “not be recognised as a part of the Common Law of Australia”[3] – it was abolished – and self-represented lawyers (solicitors or barristers) cannot recover legal costs for time spent in litigation from the losing party even if they win the case.  The High Court considered the Chorley exception to be based on “a privilege on solicitors in relation to the conduct of litigation… [which is] inconsistent with the equality of all persons before the law.”[4]

The High Court did recognise that it is possible for a successful party to recover the costs of their in-house lawyers even if the in-house lawyers represent their own employer. The definition of costs in section 3(1) of the Civil Procedure Act 2005 (NSW) (CPA) expressly includes “remuneration” – this includes remuneration for professional services rendered under a contract of services (e.g. employees) and contract for services (e.g. independent contractors). The recovery of the costs of time spent in litigation for in-house employed solicitors by way of indemnity to the employer litigant is therefore expressly covered by the definition of “costs” in the CPA.  The High Court thus concluded that the recovery of such costs is therefore not affected by the abolishment of the Chorley exception.[5] This exception with respect to costs for time spent by employed solicitors is referred to as the ‘employed lawyer rule.’

As one of the objections raised in Bell with respect to abolishment of the Chorley exception was that an “incorporated legal practices operating through a sole director, would be prevented from recovering costs for professional legal services rendered by employed solicitors”[6] the decision by the court with respect to the “employed lawyer rule” is implied to apply to incorporated legal practices by the term “others” at [50], and in the decision of Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 the Court unanimously decided the “employed lawyers rule” applied to incorporated legal practices,[7] but it did not address whether it applied to unincorporated legal practices.

The High Court also considered whether a “solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder” would be considered an in-house lawyer or not and thereby be entitled to recovery of costs of time spent in litigation, but the Court concluded that “the resolution of this question may be left for another day”[8] and is “ultimately a matter for the legislature.”[9]

Two recent cases – Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312 and Penhall (as executor of the estate of the late Paul Sukkar) v Abu.Tony Pty Ltd atf Abu.Tony Discretionary Trust (No 2) [2023] NSWSC 1630 – have further clarified the recovery of costs when a law practice or in-house solicitor is a party to the proceedings.

Can a partnership law firm recover costs incurred by its employed solicitors when the solicitors act for the firm in the proceedings?

The case of Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312 addressed the question of whether an unincorporated law firm was entitled to claim costs for work done by solicitors employed by the firm when the firm acts for itself in suing the firm’s client for outstanding fees and disbursements.

The majority – of Kirk JA and Simpson AJA – at Court of Appeal held that section 98 of CPA empowered the court to award costs and further reasoned that the definition of costs under section 3 of the CPA expressly includes “remuneration” and that “remuneration” is a general term referring to money paid for work or services rendered.[10]  Accordingly, the majority determined that there is “no sound reason” to construct “remuneration” as excluding remuneration of employed solicitors of an unincorporated law firm, given that Bell decided “remuneration” included costs payable to employed lawyers even if those costs were paid by litigants as overheads.[11]

The majority also stated that the “employed lawyer rule”:

• is an application of the general principle of indemnity and not an exception to it;[12] and
• is separate and distinct from the Chorley exception that had been abolished in Bell,[13] and accordingly,

there is no basis to exclude unincorporated law firms from the application of the “employed lawyer rule”.  The Court further observed that it would be difficult to argue that a corporation that employs legal practitioners should be in a different position from a partnership that employs legal practitioners.

According to the majority, a law firm (incorporated or unincorporated) is therefore still entitled to recover the costs for the work done by its employed solicitors in circumstances where that firm wins the case and obtains a favourable costs order.

Whilst the majority had determined the ‘employed lawyer rule’ applied to unincorporated law practices, it should be noted that Ward P dissented and observed that “[Bell’s] explicit reference in relation to incorporated legal practices says nothing as to the application of the general indemnity rule in relation to unincorporated legal practices”[14] and concluded that there is “a real and meaningful distinction between (as recognised in Bell Lawyers) a corporation or government department represented by its (employed) in-house lawyers and the partners of an unincorporated law firm litigant represented by their own employed solicitors.”[15]

If a solicitor is a substituted plaintiff in his capacity as the executor of a deceased plaintiff’s estate and is also the solicitor acting for the deceased plaintiff, can the solicitor recover his costs?

In the decision of Penhall (as executor of the estate of the late Paul Sukkar) v Abu.Tony Pty Ltd atf Abu.Tony Discretionary Trust (No 2) [2023] NSWSC 1630, the Court decided that a solicitor can recover their costs from the losing party where the solicitor was a substituted plaintiff in their capacity as the executor of a deceased plaintiff’s estate – the solicitor would not be acting for themselves but acting for the beneficiaries of the estate when assuming the role as the executor.

The principal proceeding of the case involved the late plaintiff, Mr Sukkar, seeking specific performance for two contracts of sale of home units against the defendants. Mr Sukkar passed away during the proceedings.  His solicitor, Mr Penhall, became the substituted plaintiff in his capacity as the executor of Mr Sukkar’s estate. Mr Penhall also represented Mr Sukkar and his estate in the legal proceeding against the defendants. The principal proceedings decided that the contracts of sale had to be specifically performed and defendants would have to pay damages and interest to the plaintiff.

The purpose of the No 2 proceedings was to decide the issue on costs. The defendants agreed in principle to pay for the costs of the plaintiff but argued they were not liable for the costs incurred by Mr Penhall after the death of Mr Sukkar. The defendants relied on Bell, arguing that Mr Penhall was acting for himself when he became the substituted plaintiff after the death of Mr Sukkar.

The Court decided that when solicitors are acting as executor, they are “not acting for themselves, but for the beneficiaries of the estate.”[16]  It would be permissible for a solicitor, who is an executor, to recover their professional fees as part of the costs awarded against another party in the proceedings.

The Court did not accept that Bell had the effect of denying a solicitor the ability to recover costs under a favourable costs order when the solicitor is acting as the personal representative of a deceased estate.[17]

The NSW Law Society’s Professional Support Unit provides free and confidential guidance to legal practitioners about their compliance, costs and ethical obligations under the Uniform Law.

Costs: [email protected]  or (02) 9926 0116

Ethics: [email protected] or (02) 9926 0114

Regulatory compliance: [email protected] or (02) 9926 0115

[1] c.f. Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150 at [7] – [11]

[2] Ibid at [115] – [117]

[3] Bell [2019] at [3]

[4] Ibid at [25]

[5] Ibid at [47]-[50]

[6] Ibid at [46]

[7] c.f. Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 at [109] – [112]

[8] Bell [2019] at [52]

[9] Ibid at [53]

[10] c.f. Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312 at [173] – [174]

[11] c.f. ibid at [188]

[12] c.f. ibid at [194]

[13] c.f. ibid at [200]

[14] c.f. ibid at [163]

[15] c.f. ibid at [165]

[16] Penhall (as executor of the estate of the late Paul Sukkar) v Abu.Tony Pty Ltd atf Abu.Tony Discretionary Trust (No 2) [2023] NSWSC 1630 at [45]

[17] c.f. Ibid