The High Court has abolished the much-maligned so-called Chorley exception. Solicitors are no longer entitled to recover costs in respect of their time spent on their own litigation: Bell Lawyers Pty Ltd v Pentelow  HCA 29.
The law with respect to the power to award costs, as generally understood until Pentelow, was as follows:
An award of costs is a partial indemnity for professional legal costs (including disbursements) incurred in litigation.
A corollary of that general rule is that litigants in person are not entitled to any payment for their time spent in litigation (although they may recover their costs in the nature of disbursements: court fees, expert witnesses' fees and the like).
An exception to the general rule was the litigant in person who was a solicitor.
This exception was recognised, though not created, in London Scottish Benefit Society v Chorley (1884) 13 QBD 872. It has been doubted and criticised: see eg the cases referred to in Pentelow,  (Edelman J).
The High Court, with the exception of Nettle J, has torpedoed the exception.
Whilst the result was unanimous, because the entire Court agreed that Chorley does not apply to barristers, the abolition of the rule was by majority: Kiefel CJ, Bell, Keane and Gordon JJ delivering joint reasons and each of Gageler, Nettle and Edelman JJ delivering separate reasons.
Kiefel CJ, Bell, Keane and Gordon JJ
The plurality judgment was the strongest in its rebuke of the exception. In their summary at , their Honours said:
the Chorley exception is not only anomalous[;] it is an affront to the fundamental value of equality of all persons before the law. It cannot be justified by the considerations of policy said to support it.
Unpacking this, their Honours said at  that solicitor-litigants lacked "impartial and independent advice that the court expects its officers to provide to the litigants they represent". This created the risk of higher costs being incurred in litigation. This was contrary to the theory espoused by Brett MR in Chorley.
The idea that a layperson's time could not be measured like a solicitor's (according to Bowen LJ in Chorley) was also a nonsense. Courts do exactly that in claims for services rendered whether based on contract or quantum meruit: .
And, contrary to Fry LJ's assertion, the exception is "patently" "the solicitor's privilege", which is "inconsistent with the equality of all persons before the law": .
In a short judgment agreeing with the plurality, Gageler J took a fascinating path through the history and structure of the common law and the law of costs: -. As if to put to bed any doubt about what the Court was doing about the Chorley exception, his Honour said: "there is in Australia no legislative impediment to its wholesale judicial abolition": .
Taking a characteristically academic approach, Edelman J agreed broadly with the plurality and Gageler J. The general point of difference in the analysis was the significance of the wording of the Civil Procedure Act 2005 (NSW). Oddly enough, his Honour agreed with the approach of Nettle J (who dissented) to interpretation of the statute, but only to support his premise, at , that:
in Australia, re-enacted statutory costs powers have left rules, such as the Chorley rule, to judicial development by the judicial application of the general costs power.
Taking his own shot at Bowen LJ's justification for the exception, Edelman J said at :
If a distinction were said to lie in the skill often possessed by unrepresented solicitors but not by other unrepresented litigants then costs should be permitted for the time of an unrepresented builder, plumber, engineer, architect, or accountant who relies on their expertise to perform work on their own case including preparing submissions on matters within their expertise.
His Honour's conclusion is neatly stated at :
In summary, since the Chorley rule was a judicially developed rule which did not form an underlying assumption of any later statutory enactment, and since it is inconsistent with the underlying foundation of principle upon which costs rules have developed, those decisions that have adopted the Chorley rule in Australia should be overruled.
The plurality and Gageler J dismissed concerns that abolition of the Chorley exception would mean that governments and corporations who use in-house solicitors would no longer be able to recover their in-house solicitors' costs. This was because, said the plurality at :
it is accepted that the recovery of the professional costs of in-house solicitors enures by way of indemnity to the employer, as is confirmed by the inclusion of "remuneration" in the definition of "costs" in the Civil Procedure Act. Where a government or corporate litigant has been represented by an employed solicitor, the courts have proceeded on the footing that the actual cost to the government or corporation of the legal services provided by its employed solicitor would not exceed, in any substantial amount, the sum recoverable by it for professional legal costs.
(Gageler J said much the same thing: .)
Accordingly, it is said at :
A decision by this Court that the Chorley exception is not part of the common law of Australia would not disturb the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity.
But where it becomes (on one view) tricky is where the litigant is an incorporated legal practice using its own solicitors. The High Court said this is a question to be answered on another occasion: -. A hint of the approach that might be taken appears in , where the plurality said:
It might be queried whether [a solicitor who is the sole director and sole shareholder of an incorporated legal practice] has sufficient professional detachment to be characterised as acting in a professional legal capacity when doing work for the incorporated legal practice.
Dissent: Nettle J
Although his Honour agreed with the result, Nettle J would not have done so on the basis of the abolition of the Chorley exception. His Honour took what might be described as a conservative approach. At , his Honour said:
The ramifications of abrogating the exception are potentially very wide, and, without this Court first hearing argument on behalf of the interests likely to be affected, to a large extent unknowable.
Nettle J saw the unanswered questions above as a serious problem for the abolition of the exception. At , his Honour said (footnote omitted):
It has long been accepted, and costs have long been taxed on the basis, that firms of solicitors, corporations and government and semi-government agencies that employ solicitors may, under the Chorley exception, recover the taxed costs of the work performed by such employee solicitors in representing their employers. Logically, abolition of the Chorley exception would mean that the entitlement to do so ceases to exist. It may be open to declare, as the plurality do, that the abolition of the Chorley exception should not be taken to disturb the well-established understanding in relation to in-house solicitors employed by governments and others. But why should there be a distinction? There are potentially many forensic and social considerations relevant to a determination of whether the employed solicitor rule should be permitted to survive the Chorley exception, and, if so, in what form; and none of that analysis has been or can be undertaken in this proceeding.
Despite seeing force in the submission that the Civil Procedure Act 2005 (NSW) led to the conclusion that there was no room (at least in NSW) for the Chorley exception, his Honour disagreed with it: . Briefly put, the modernisation of language in a statute was not intended to invite a reinterpretation of the effect of the statute.
Rant: a bit about nomenclature
The plurality used the term "self-represented". This term has been a bee in my bonnet for a while. It is an oxymoron. Edelman J hit the nail on the head at :
Although an unrepresented solicitor who is party to an action is often described as "self-represented", the solicitor, like any other unrepresented litigant, does not "represent herself or himself". The solicitor's role as an agent for another is absent.
Perhaps the term has been used to avoid confusion over the use of "unrepresented", which might mean (as Gageler J used it) in the sense of being without an agent, or which might also mean absent from the hearing or the proceeding entirely.
The alternative? The phrase "in person", for example: "a litigant in person"; "The plaintiff appeared in person".
The hotbed for this area of law will be claims for employee solicitors' work. My view is that it is absurd to say that Chorley has been abolished "wholesale", but legal practices may still be able to recover legal costs of their solicitors' time because the solicitors are employees or the sole director and shareholder of an incorporated legal practice.
Law firms have traditionally been partnerships or sole traders. Incorporated legal practices have been around for decades (and the ethical sky has not fallen). Each of these business structures may, and frequently do, have employees. In that context, the plurality's fixation on a sole director and sole shareholder doing the work of an incorporated legal practice is curious, arguably even misplaced.
What each of the judgments demonstrates is that, although the power to award costs is a creature of statute, the control of that power is almost exclusively judge-made law. The plurality's reasoning did not depend on their Honours' interpretation of the NSW statute, although their Honours said that the statute supported their conclusion.
It is equally clear that the controls on the power are driven in no small part by policy considerations. The policy driver in the plurality's judgment in Pentelow was the want of independence of solicitors in the conduct of their own litigation. This, I think, will easily form the cornerstone justifying the apparent inconsistency between, for example, a bank being able to recover costs for the time of its in-house solicitor and a law firm not being able to recover the time of its employee-solicitor handling the firm's file. The bank's in-house solicitor ought to be regarded as more independent than the law firm's employee-solicitor: the solicitor at the bank is employed precisely because he or she has a practising certificate and brings value with his or her independence as a legal practitioner and the ethical duties associated with that. Once the bank employs the solicitor, the bank is effectively the solicitor's sole client. The law firm's employee-solicitor is employed to do work for and at the direction of the employer-solicitor, whose business in turn is to serve the firm's clients. The employee-solicitor at the law firm does not bring the same kind of independence to serve the employer-client.
The distinction between a bank's in-house solicitor and a law firm's employee-solicitor is not entirely free from difficulty. Perhaps the inconsistency can be overcome by reference to definitions of "law practice", "law firm" and "incorporated legal practice" and sections 111 and 112 of the Legal Profession Uniform Law or like legislation.
Alternatively, there are two possible solutions:
litigants who employ solicitors (as opposed to retaining external solicitors) ought not be covered by the general rule; or
law firms avoid the effect of Pentelow by having employees do the work.
It is this inconsistency of approach that, justifiably I think, concerned Nettle J. However, if the effect of Pentelow is that a legal practitioner acting as a litigant in person is unable to recover costs for his or her own time, it must follow that their partners', employees' or corporate officers' time is equally unrecoverable.
Another problem/solution (depending on your view)
There is one further issue that was not considered in Pentelow, and that is the effect of a contractual right to recover costs. In Taree Pty Ltd v Bob Jane Corporation Pty Ltd  VSC 228, Vickery J said at  that it is a "firmly established" principle that "the discretion to award costs in the case where there is a contractual right to those costs will ordinarily be exercised so as to reflect that contractual right". His Honour further said:
The principles are that:
(a) An order for the payment of costs of proceedings by one party to another party is always a discretionary order. (b) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.
So, I wonder whether now solicitors will include a term in their costs agreements that in any proceeding to recover their fees (Ms Pentelow was a barrister who sued to do just that), the client agrees to pay the solicitors' costs. Presumably, if such a device is potentially enforceable post-Pentelow, it would be easier to enforce if it provides that the costs are to be assessed on a standard basis rather than on an indemnity basis (to use the language of the Victorian rules).