For whom the Bell tolls: it tolls for Chorley but not in-house lawyers' litigation costs

Litigation is often expensive. There are non-financial costs, such as the distraction of management from their normal activities, but it’s the financial costs that are usually most important to a business since they can be put into dollars. A significant part of these financial costs are the costs of external lawyers. Due to the rule that “costs follow the event”, a successful party will often be able to partially recover these costs from the unsuccessful party. But it’s important not to forget that an organisation may also be entitled to recover costs for in-house lawyers in a litigious matter if the in-house lawyers acted as the lawyers on the court record for that proceeding. This principle has been confirmed in the recent High Court decision of Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29.

Bell Lawyers v Pentelow

Bell Lawyers engaged a barrister, Janet Pentelow, to act for one of their clients, but paid only a portion of her fees. Ms Pentelow successfully sued Bell Lawyers for the balance of her fees. She engaged solicitors and a barrister to represent her but performed some legal work herself. Ms Pentelow was awarded her costs, which is normal when a party succeeds in litigation. The question was whether she was entitled to recompense for the time she spent performing work herself, as opposed to the work performed by the solicitors and barrister she engaged. The amount at stake was $44,880. Ms Pentelow failed in the District Court of NSW but succeeded in the NSW Court of Appeal. Bell Lawyers then appealed to the High Court.

The High Court was asked to rule on the status of the “Chorley exception”. Generally, a self-represented litigant cannot claim recompense for time spent in litigation. However, under the Chorley exception, a self-represented litigant who is a solicitor may do so. The High Court was asked to address whether this exception should be extended to barristers and, more generally, whether it should be part of the common law of Australia at all. The High Court decided that it should not be part of the common law of Australia at all. The end result was that Ms Pentelow did not receive her $44,880.

So, what does a dispute about whether a barrister gets paid for the time they spent working on their own case have to do with practising as an in-house lawyer? One of Ms Pentelow’s arguments was that the Chorley exception should continue as part of the common law because if it were abolished “governments and other employers ... would be prevented from recovering costs for professional legal services rendered by employed solicitors.”

The High Court did not accept this argument and said that 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.”

Some key costs points for in-house lawyers acting as the lawyers on the court record

In-house lawyers may act as lawyers on the court record, either initially before engaging external lawyers or for the entire court proceeding. The latter is more common for regulators or large businesses with a disputes section within their in-house team. Whatever the case, a few things should be kept in mind when acting as the lawyers on the court record.

First, in-house legal teams should identify at an early stage of a dispute whether it is likely to lead to a court proceeding that may result in a costs award in favour of their employer. If so, they should conduct themselves in a way that protects their employer’s ability to recover their costs from the opposing side. Accurate file maintenance is key to this.

Second, there is authority that where an in-house lawyer acts as the solicitor on the record for the court proceeding, costs should be assessed "on a basis comparable to the costs which would have been incurred and allowed on taxation had an independent solicitor been engaged".¹ For this reason, it is helpful to be familiar with the manner in which costs are assessed for the particular court in which the matter is being litigated. The method of assessment is likely to consider the amount of time spent on a task and the length of documents that are reviewed or prepared.

Third, at various stages of a court proceeding, it's necessary to estimate the amount of costs a party may be entitled to if that matter proceeds to judgment. This may vary depending on whether the party is a plaintiff or defendant. For example, a plaintiff may receive an offer to settle that is inclusive of costs (ie. the costs and principal claim amount are wrapped up as one settlement amount). In that case, the plaintiff will need to assess whether the offer is better than what they might achieve if they proceed to judgment and obtain a costs award. As a further example, a defendant or plaintiff-by-counterclaim may wish to seek security for their costs at an early stage of a proceeding. This will also involve an estimation of their future costs.

Fourth, costs is a specialised area dealt with by specialist costs lawyers, and it often pays off to consult them throughout the litigation process.

¹ Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; 51 NSWLR 333 at [11]. See also Ly v Jenkins [2001] FCA 1640; 114 FCR 237 (Full Court) at [160] (per Kiefel J).