Law firm as litigant can not recover employed Solicitors fees under Costs Order

United Petroleum Australia Pty Ltd (ACN 164 398 832) v Herbert Smith Freehills [2020] VSCA 15

COSTS – Firm of solicitors acting for itself in proceeding – Whether entitled to costs order in respect of work done by employee solicitors and other staff – Costs not recoverable – No error in form of order – Bell Lawyers Pty Ltd v Pentelow (2019) 93 ALJR 1007; [2019] HCA 29 – Appeals dismissed

Herbert Smith Freehills the Respondent was successful defending claims by the Appellant with costs to be ordered on an Indemnity Basis. This Appeal was in part in respect to the lower courts decision to allow the costs attributable to the time incurred by the employed solicitor but not the costs of the partner where Costs were ordered to be paid following Bell Lawyers v Pentelow. Bell Lawyers overturned the Chorley exception where a self-represented Solicitor can recover fees where otherwise a self-represented party can-not. It was noted that Bell Lawyers did not expressly deal with the issue in respect to the recovery of fees by employed Solicitors [93].

As a Partnership the partners were jointly and severely liable/ beneficiaries and Solicitors on the Record. Employed Solicitors act on instructions from the Partners who have overall conduct of the matter [97]. It was argued by the Respondent that there was function separation between the Solicitors who conducted the litigation and the Partners who liable/ beneficiaries of the Litigation , however the Court found that this was not the case in this matter. [99]

The Court considered that employed Solicitors for Government of Corporations fall outside the general rule in that they can recover the “functional reimbursement of the expenditure, in the form of salary and overheads, that the party incurs in obtaining legal assistance” Bell Lawyers (2019) 93 ALJR 1007, 1019-20 [47]–[50]. It was noted there was no function separation as law firms as litigants are representing themselves as against employed Solicitors of Government or Corporations as the Solicitors are representing their employers. It was noted there is a lack of professional detachment where law firms represent themselves, notwithstanding the degree of separation, the ultimate obligation of the employed Solicitor is to that of the Partners.

The Court held that the Respondent can not recover the costs of its employed Solicitors but otherwise held that it can recover disbursements and Counsel’s fees otherwise incurred. [121] It can be noted law firms in a Partnership or where the Solicitors are shareholders of an Incorporated Legal Practice can not recover the fees of employed Solicitor and may only recover in exception circumstances. These exceptional circumstances may be where the Solicitors representing the Law firm is functionally separated to those decision makers who are providing instructions (separate division).