In the recent decision of Manzo v CSM Lawyers Pty Ltd [2024] FCAFC 96, the Full Court of the Federal Court of Australia determined that an incorporated legal practice which had represented itself in litigation was not entitled to recover its professional costs from its unsuccessful opponent.
In doing so, the Court considered conflicting authority from the Courts of Appeal in both Victoria and New South Wales and also seemingly closed-off a possible loophole which had been left ajar by the decision of the plurality in the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333 (Bell Lawyers Decision).
Background
The Chorley Exception (so named after the decision London Scottish Benefit Society v Chorley (1884) 13 QBD 872) is (or was, in Australia) an exception to the well-established rule that because an order for costs is intended to provide an indemnity for costs actually incurred (as opposed to providing compensation for productive time expended), a self-represented litigant is not entitled to professional costs for acting for him or herself in legal proceedings. The Chorley Exception provided that self-represented litigants who are solicitors are entitled to recover professional costs for work they have undertaken in legal proceedings.
In Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150, the New South Wales Court of Appeal held that the Chorley Exception applied to work undertaken by self-represented litigants who were barristers, in addition to those who were solicitors.
On appeal, in September 2019 the High Court of Australia overturned the decision of the NSW Court of Appeal, finding that the Chorley Exception did not form a part of the common law of Australia ([2019] HCA 29). In so doing, the High Court effectively abolished the Chorley Exception in Australia.
The plurality in the High Court left the door slightly ajar in respect of whether a self-represented incorporated legal practice (ILP) may recover costs of acting on its own behalf (Bell Lawyers Decision at [51]).
Since the Bell Lawyers Decision, conflicting authorities have arisen in the Courts of Appeal in Victoria and New South Wales regarding whether a self-represented ILP may recover costs of acting on its own behalf.
In United Petroleum Australia Pty Ltd v Freehills [2020] VSCA 15 (United Petroleum) the Victorian Court of Appeal denied an ILP its costs in respect of work done on its behalf by its employed solicitors.
In Atanaskovic v Birketu Pty Ltd [2023] NSWSC 312 (Atanaskovic), although at first instance the partners of an unincorporated practice had been denied costs in respect of work undertaken by their employed solicitors, on appeal the NSW Court of Appeal determined that the inclusion of “remuneration” within the definition of “costs” in the relevant NSW legislation entitled an ILP to recover costs incurred by its employed solicitors in representing the firm. That decision, however, turns upon the specific terms of the NSW legislation.
The present proceeding
The firm, CSM Lawyers Pty Ltd (CSM) is an ILP.
An issue arose as to whether CSM ought to be entitled to recover its costs in respect of work undertaken by its employed solicitors on its behalf against Mr Manzo relating to an appeal proceeding instituted by Mr Manzo.
In support of its application for its costs CSM submitted, in effect, that because it was an ILP with more than one director and shareholder (i.e. it was not a sole-director and sole-shareholder ILP), there was sufficient independence (or detachment) between the firm as party and the employed solicitors undertaking the work on its behalf so as not to infringe the indemnity principle if it were to be awarded its costs of the proceeding. That position was consistent with the observations of the plurality in the Bell Lawyers Decision.
After considering the Bell Lawyers Decision and those decisions that have followed in Victoria and NSW, the Full Court preferred the approach taken by the Victorian Court of Appeal in United Petroleum and stating that if CSM’s submissions were accepted, “[i]n effect, it would create an artificial distinction based on the size of an incorporated legal practice.”
The Full Court did, however, permit CSM to recover their outlays in the proceeding, including counsel’s fees.
The effect of the decision
The decision closes the door, at least in courts in the Federal jurisdiction, on the potential loophole left in the decision of the plurality in the Bell Lawyers Decision in respect of the costs of self-represented ILPs acting on their own behalf in proceedings.
Although not strictly binding upon courts in the state jurisdictions, the decision is likely to be persuasive in the state courts (perhaps other than in NSW, where it is inconsistent with the Atanaskovic Decision).
Furthermore, the decision will likely serve as an effective block upon the pursuit of bankruptcy proceedings founded upon costs orders awarded in favour of self-represented ILPs.
Where to now?
The Atanaskovic Decision is the subject of an appeal to the High Court, special leave having been granted in April 2024.
The determination of that decision may resolve, once and for all, whether the last limited element of the Chorley Exception remains in Australian Law.
