- The separate legal personality of the incorporated legal practice and the shareholder director who is also a litigant cannot be ignored to attempt to apply Bell Lawyers Pty Ltd v Pentelow to prevent recovery of professional costs pursuant to an order for costs.
- Two decisions referred to below are a reminder to solicitors that close attention must be paid to the requirements for disclosure of costs and other related information, prior to the entry of a costs agreement which has the effect of ‘contracting out’ of the fixed costs provisions.
- Practitioners ought be aware of the real possibility of challenges raised in costs assessment to costs incurred in circumstances of conflict given the Court of Appeal decision in Atanaskovic Hartnell.
- When considering an appeal from a decision of a review panel, practitioners should be mindful of what comprises the record before the review panel, and also whether the error is material such that there would be a different outcome.
2021 was a year in which there were numerous interesting cases on costs. Knowledge of these will assist practitioners to navigate various issues which arise commonly in practice.
The Chorley exception
The application of the High Court’s decision in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333;  HCA 29 (‘Pentelow’) to the incorporated legal practice (‘ILP’) has been considered in a number of cases, not all of which are referred to here. Two decisions in the Court of Appeal squarely addressing the issue were Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd  NSWCA 148 (‘Burrows’) and Spencer v Coshott  NSWCA 235 (‘Spencer’). Burrows concerned unsuccessful proceedings for professional negligence against the defendant ILP. During the proceedings, the ILP was represented by a different but related ILP. At the conclusion of the proceedings, a gross sum costs order was sought by the defendant ILP and made against the litigant (who is also a solicitor). The issue on appeal was whether the Court was correct to allow costs in favour of the ILP party. The primary judge was found justified in making the gross sum costs order where:
- if a single entity, assuming it was not a sole-director shareholder company, the ILP here would have been entitled to recover costs under the employed solicitor exception retained in Pentelow, but that question didn’t arise given the separate legal personalities here (Meagher JA at ; Leeming JA at , );
- there was no basis in the evidence for disregarding the legal reality of the separate incorporated legal practices (Meagher JA at );
- there was an implicit request by the ILP to the related ILP to perform legal services in defending the District Court action which was sufficient, and even if there was no contract, the performance of work pursuant to a request gave rise to an entitlement to be paid (Leeming JA at , or there is a quasi-contractual entitlement: White JA at ).
Spencer involved a solicitor who was sole director and shareholder of an ILP and the respondent who unsuccessfully sought to participate in a costs assessment as a third party payer: an idea rejected in costs assessment, and on appeal. This decision concerned an assessment of a costs order previously made in the Court of Appeal in 2017. The costs assessor allowed professional costs and disbursements for work performed. The review panel disallowed the professional costs component, applying Pentelow. The District Court dismissed the appeal.
The issues of relevance include the continued application of Pentelow and what comprises the ‘record’ (which we deal with subsequently, below) and whether or not the solicitor party entered into a costs agreement with his ILP. The primary judge dismissed the appeal for reasons that the Court could either pierce the corporate veil to treat the solicitor litigant as self-representing, or alternatively, by finding that the ILP is, in effect, the agent of the solicitor. The Court of Appeal found the primary judge to have erred in disregarding the separate legal status of the solicitor and his ILP who acted in the Court of Appeal proceedings in 2017, and that the decision was contrary to the approach taken by Keane J in the High Court on a review of a taxation of costs. The Court also found the primary judge was in error to have relied upon McIlwraith v Ikin  NSWSC 1052 and McMahon v John Fairfax Publications Pty Ltd (No 8)  NSWSC 673 as supporting an agency principle which justified treating the ILP as being in a similar position as a self-represented solicitor litigant.
In Dennis v Joukhador  NSWSC 870, Davies J declined to follow a South Australian Supreme Court case and a decision of the ACT Supreme Court in which the separate legal personality of the party and its lawyer were ignored in denying the party the right to recover under the Court’s order for costs.
This is another instance in which it was held that separate legal personality cannot be cast aside in order to achieve an outcome which is comparable to the self-represented solicitor-litigant who acts for themselves.
One matter despite termination
Martinez v Al Maha Pty Ltd  NSWSC 932 involved a termination of a retainer, an invoice issued (contended for by the law practice as a ‘final bill’), followed by a reinstatement of the retainer, further work and three further invoices issued before completion – two of which became the subject of an application for costs assessment subsequently filed. The costs assessor determined that the application was within time. On appeal it was held that although terminated, the reinstated retainer required the same work in the same matter (at -). The invoice dated 16 August 2019 was therefore the ‘final bill’ in the ‘matter’ (at ), and the application in time.
Contracting out of capped costs
The following two decisions are both subject to an appeal. In Todorovska v Brydens Lawyers Pty Ltd  NSWDC 382, the plaintiff client failed to establish that the disclosure of information by the solicitor prior to entry into the costs agreement was inadequate. The Court found that the firm had provided the separate written document prior to entry into the costs agreement (at , -, ).
In Stjepanovic v Petrovich Law Group Pty Ltd t/as NSW Compensation Lawyers and Pavlovic v Petrovich Law Group Pty Ltd t/as NSW Compensation Lawyers  NSWDC 432, former clients sued the solicitor, claiming that it had failed to contract out of fixed costs provisions in motor accidents and workers compensation proceedings respectively. Gibson DCJ found the law firm had complied with the disclosure requirements under the relevant legislative provisions and accordingly the plaintiff was not entitled to recover (at ).
Ahern v Aon Risk Services Australia Limited  NSWCA 166 is one of two decisions delivered by the Court of Appeal considering what comprises the ‘record’ in relation to an appeal from a decision of a review panel where that appeal decision is later subjected to judicial review. The second decision is Spencer, which we have mentioned above. In Ahern a difference arose between the justices about the content of the record, which was:
All justices considered the record comprised the Summons, the reasons and orders of the primary judge and the certificate of the review panel setting out its determination (Meagher JA at , ; White JA at  (it makes no difference if record is limited or broader); Brereton JA at -);
- Meagher JA considered the requirement for reasons with certificates is insufficient to incorporate them into the record (at ), and the costs assessor’s certificates, reasons and the application for assessment were not part of the record (at );
- White and Brereton JJA referred to a difference in reasoning in Wende v Horwath (2014) 86 NSWLR 674 (‘Wende’) concerning an extended view of ‘record’, with White JA considering the reasons here were incorporated by reference (at ), and Brereton JA considering it was at least arguable that the record extended to reasons (at ).
Materiality of error
Lowe v Tu  NSWDC 396 involved an assessment of ordered costs in two separate proceedings and a straight application of Wende, meaning there ought to have been separate certificates for the separate costs orders. Notwithstanding this issue, the defendant contended the plaintiff needed a ‘practical injustice’ before the determination is disturbed, whereas the plaintiff contended for a possibility the result could have been different (with reference to a number of administrative law decisions on materiality). The Court was satisfied the plaintiff had lost a possibility of a different outcome had the review panel, or even the costs assessor, conducted separate assessments (at -).
Recovering costs where the solicitor acts in a conflict of interest
Atanaskovic Hartnell v Birketu Pty Ltd  NSWCA 201 is significant for its consideration of whether a solicitor can recover costs when acting in a position of conflict, what constitutes fully informed consent and, in obiter, whether some conflicts are so profound that fully informed consent is not practically possible (per Gleeson JA at , ); Basten & McCallum JJA agreeing. The Court of Appeal affirmed the decision of the trial judge that the solicitor was in a position of conflict and was not entitled to recover the costs of doing that work. This is an important decision; solicitors should ensure that they are aware of conflicts of interest and the necessity to either cease acting or obtain fully informed consent, if that is even practically possible.
Michelle Castle is a barrister practising at 13th Floor St James Hall chambers.
Andrew Bailey is a barrister practising at Frederick Jordan Chambers.*
* Of the decisions discussed, Michelle did not appear in Burrows, Ahern and Atanaskovic Hartnell, but did appear in the other cases.
Andrew appeared in Spencer.