The High Court rules on whether an employer can claim the costs of inhouse counsel in court proceedings

Litigation is often expensive. Due to the rule that “costs follow the event”, a successful party will usually be able to partially recover its legal costs from the unsuccessful party. But it is 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 stated by the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29 and more recently in Birketu Pty Ltd v Atanaskovic [2025] HCA 2.

Bell Lawyers

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”: a rule established by London Scottish Benefit Society v Chorley (1884) 13 QBD 872. Generally, a self-represented litigant cannot claim recompense for time spent on 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. A majority of 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.”

Birketu

In Birketu, the High Court considered a similar situation to that in Bell Lawyers. In Birketu, a partner in an unincorporated law firm represented the firm in litigation against a former client. The firm was successful in the litigation and received an order for costs in its favour. The order for costs did not entitle the firm to recompense for legal work performed by the partner. That outcome arose because the Chorley exception had been abolished in Bell Lawyers so that a self-represented solicitor could not claim their own legal costs. The issue for the High Court in Birketu was whether the firm was entitled to costs for legal work performed by an employed solicitor of the firm. A majority of the High Court decided that the firm was entitled to such costs. The High Court unanimously endorsed the "in-house solicitor rule" or "in-house lawyer rule". The majority said the rule is "that a litigant represented by a lawyer employed by the litigant could obtain recompense for legal work performed by the lawyer on behalf of the litigant".

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 so as to protect the costs entitlement that may arise from the "in-house solicitor rule" recognised in Bell Lawyers and Birketu.

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 a 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". This was referred to as the "traditional approach" in Bell Lawyers and Birketu. 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 is necessary to estimate the amount of costs a party may be entitled to if that matter proceeds to judgment; for example, a party 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) or a party may wish to seek security for their 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.