Riva NSW Pty Limited v Mark A Fraser; Fraser v Riva (NSW) (No. 4)

This is my fourth judgment in this long-running pair of proceedings between a firm of solicitors and their former client. It is but one of many judgments given by judges in this Court in the proceedings. Despite constant judicial admonition, these parties have seemed eager to litigate one another to exhaustion. This judgment brings this dispute close to a conclusion by resolving disputes about indemnity costs and the charging of legal costs by incorporated legal practices controlled by the firm of solicitors.

My three earlier judgments in the proceedings may be shortly identified. This judgment should be read with them. Persons, matters, and events are referred to in my judgments the same way, in the two proceedings that the parties and the Court have conventionally called “the Riva damages proceedings” and the “receiver proceedings”.

My first judgment struck out a Statement of Claim for damages, in the Riva damages proceedings that was filed by Riva NSW Pty Ltd (“Riva”) against Fraser Clancy Lawyers (“the FCL partnership”, or “the solicitors”), pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”), r 14.28(1)(b), on the grounds that the pleading was embarrassing: Riva NSW Pty Ltd v Mark A Fraser; Fraser v Riva (NSW) Pty Ltd [2019] NSWSC 1310 (“my first judgment”).

My second judgment dealt with several procedural matters. With the objective of more efficient trial management, the second judgment sought to limit any further evidence the parties could deploy against one another. This judgment required the FCL partnership to elect whether it was relying upon, and must therefore produce, or whether it was abandoning, two costs agreements between the solicitors and Riva referred to in its evidence: Riva NSW Pty Ltd v Mark A Fraser (No. 2) [2020] NSWSC 1162 (“my second judgment”). In the result, Riva elected not to rely upon these two costs agreements, a matter of significance for the issues determined in this judgment.

My third judgment resolved a contest about the management of the balance of both proceedings. That judgment rejected an argument that the Court should entertain certain preliminary legal issues before dealing with the balance of the issues. It resolved that the parties must prepare for final hearing on the basis that all issues would be decided based on one set of written submissions on each side: Riva NSW Pty Ltd v Mark A Fraser (No. 3) [2020] NSWSC 1472 (“my third judgment”). This third judgment put the parties on notice that they had one last opportunity to put before the Court all the evidence and submissions upon which they sought to rely before the Court made this decision. Regrettably, it required a lengthy series of directions hearings and orders to organise the evidentiary material after the third judgment before the evidence was in a sufficiently satisfactory state for the Court to direct comprehensive written submissions dealing with all the issues on a final basis.

These and related proceedings have a complex history. It is not necessary to reproduce that history on the present application. It has been concisely summarised in several other judgments of the Court: see for example, Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers [2014] NSWCA 454 (Emmett JA); Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers [2018] NSWCA 53 (Simpson JA); Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers (No.3) [2018] NSWCA 186 (Gleeson and Leeming JJA, and Emmett AJA), Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers (No.3) [2018] NSWCA 326 (Leeming JA), and Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers [2020] NSWCA 210 (Macfarlan and McCallum JJA and Wright J).

This judgment deals with all remaining issues between these parties apart from some limited remaining questions concerning the quantification of legal costs. The issues decided by this judgment can be reduced to four questions. Those questions are: (1) whether orders for costs on the indemnity basis should be substituted for the existing orders made on the ordinary basis in both proceedings; (2) whether the solicitors can recover legal costs charged to them by the incorporated legal practices that they control and who acted for them in the proceedings, or whether the solicitors should be treated as self-represented litigants; (3) whether the solicitors have established their legal liability to pay professional costs and disbursements that the incorporated legal practices retained to conduct the two proceedings have charged to them, sufficient for the Court to order that the solicitors should be indemnified against that costs liability; and, (4) whether the Court should make a specified gross sum costs order instead of assessed costs under Civil Procedure Act, s 98(4)(c) (“CPA”) for any amount of professional costs and disbursements that the solicitors are found to be liable to their incorporated legal practices.

Before embarking upon these issues some background is required.

Riva was once a client of the solicitors in unrelated litigation. Riva is a corporate entity associated with the interests of Mr Angelo Ferella, who was banned for five years from October 2006 from acting as a company director and in November 2006 given a suspended jail sentence for failing to comply with ASIC notices. Mr Ferella is Riva’s manager. Mr Ferella’s sister, Tiziana, acted as Riva’s director.

A dispute arose between Riva and the solicitors as to the quantum of costs to which the solicitors were entitled for acting in the earlier litigation. The costs were assessed, and the assessment was confirmed on review by the Costs Review Panel. Riva then commenced proceedings against the solicitors in the District Court appealing against the costs assessment.

On 10 August 2012, Curtis DCJ determined that $38,118.57 was the fair and reasonable amount of the legal costs for the solicitors’ legal work in the litigation for Riva. Curtis DCJ noted the parties had agreed that Riva had paid $3,268.02 on account of those costs, leaving a balance owing of $34,850.55. Curtis DCJ entered judgment for the solicitors against Riva for $38,867.02, including interest of $4,016.47. But Curtis DCJ did not make orders for the costs of the District Court proceedings appealing against the costs assessment.

On 20 December 2013, Curtis DCJ determined that the proceedings in the District Court, and other proceedings involving Riva in the Local Court had been vexatious, and that certain Local Court proceedings additionally involved bad faith, as he had explained on in his reasons 10 August 2012. Curtis DCJ therefore ordered that the costs in the District Court and Local Court proceedings be paid by Riva on an indemnity basis. Curtis DCJ fixed costs in both proceedings at $78,256 and ordered Riva to pay that sum to the solicitors.

On 11 April 2014, the solicitors sought interlocutory relief in aid of the 20 December 2013 judgment in their favour, including an injunction preventing Riva from dealing with the credit balance of a bank account at Macquarie Bank, that was held in Riva’s name as trustee of the Cavallino Unit Trust (“the Trust”). On 11 April 2014, Curtis DCJ made freezing orders ex parte restraining Riva from transferring or otherwise dealing with the moneys in the Macquarie Bank Account to the extent of $106,325.81, until further order of the District Court.

The matter came back before Curtis DCJ again on 17 April 2014 when Riva had its own legal representatives present. On that occasion, the injunction that had been obtained on 11 April 2014 was continued with the consent of Riva’s legal representatives. On 2 June 2014, Curtis DCJ heard an application by Riva to withdraw its consent to the freezing orders. But that application failed, and they were continued. The freezing orders were eventually set aside by consent in September 2018 after various other contests between these parties.

On 16 September 2014, Riva filed a summons seeking judicial review under s 69 of the Supreme Court Act 1970 of the orders made by the District Court (“the 2014 Judicial Review Proceedings”) and relief quashing the 20 December 2013 orders, setting aside the freezing orders, and seeking an order that the solicitors pay Riva damages. This summons fell within the jurisdiction of the Court of Appeal.

On 14 October 2014, the solicitors moved the Court of Appeal for summary dismissal of the 2014 Judicial Review Proceedings. On 29 October 2014, the Court of Appeal dismissed the 2014 Judicial Review Proceedings and ordered Riva to pay the solicitors’ costs of the 2014 Judicial Review Proceedings and Riva’s motion for dismissal on the indemnity basis.

Riva soon made another attempt to challenge the freezing orders. On 7 November 2016, Riva filed a motion in the District Court seeking to have the freezing order set aside. On 3 August 2017, the District Court made orders, which were varied on 4 August 2017 (the 2017 Orders), that Riva’s motion of 7 November 2016 be dismissed. By summons filed in the Court of Appeal on 5 September 2017, Riva commenced further proceedings in the Court of Appeal seeking orders that the 2017 Orders be set aside and that, in lieu thereof, the freezing order be set aside (“the 2017 Judicial Review Proceedings”). These reasons will return shortly to the course of the 2017 Judicial Review Proceedings.

In 2017 the parties commenced two sets of proceedings in the Equity Division, the costs of which comprise the present dispute before the Court. On 24 February 2017, Riva commenced the Riva damages proceedings, alleging that the solicitors had engaged in misleading or deceptive conduct and unconscionable conduct in seeking to enforce the judgment for costs against Riva and in applying for the freezing orders. And on 2 June 2017, the solicitors commenced the receiver proceedings, seeking relief including the appointment of a receiver to Riva so as to enforce judgments against Riva in its role as trustee.

Neither the Riva damages proceedings nor the receiver proceedings progressed very far. Their lack of progress underpins the parties’ present contest about costs. On 11 December 2017, I stayed the Receiver proceedings and the Riva damages proceedings upon terms that the parties comply with the orders and directions of this Court in the 2017 Judicial Review Proceedings on which they had defaulted. I also ordered on that occasion Riva not to deal with any assets and undertakings of the Trust or of Riva, otherwise than in the ordinary course of business and not to dispose of certain real property without first giving 21 days’ advance written notice to the solicitors of its intention to do so.

The 2017 Judicial Review Proceedings became enmeshed in procedural contests in the Court of Appeal, which will be described later.

On 11 April 2018, I made orders consequent upon the settlement of the receiver proceedings. These orders included orders that Riva would forthwith exercise its right of indemnity as trustee of the Trust and cause the solicitors to be paid the sum of $220,844.72 by 26 April 2018 and in default of payment, Riva, as trustee of the Trust and otherwise, agreed to the Court appointing a receiver on the terms set out in the summons in the receiver proceedings.

Relevantly that settlement included Riva’s agreement, in its capacity as trustee of the Trust and otherwise, to pay the solicitors’ costs of the receiver proceedings, and to exercise its right of indemnity to assets of the Trust to pay any such costs as are agreed or ordered by the Court. The question of whether these costs should be ordered on an indemnity basis was left open. Also, the parties agreed that upon payment of the sum of $220,844.72 by 4 pm on 26 April 2018, the receiver proceedings would be otherwise dismissed, and the parties would do all necessary acts and things when the matter was relisted to cause the receiver proceedings to be dismissed, with consequent vacation of the orders made on 11 December 2017. The sum of $220,844.72 was paid by the time and date specified into the solicitor’s trust account.

But the issue of whether a special costs order should be made in the receiver proceedings was reserved, as was the issue of whether specified gross sum costs orders should be made under CPA, s 98(4)(c). The receiver proceedings were only on foot as a substantive contest between 2 June 2017 and 11 April 2018, a period of less than 11 months.

The Riva damages proceedings were also short lived. My first judgment on 30 September 2019 struck out the Statement of Claim with costs and gave leave to Riva to re-plead, on condition that it paid the solicitors’ costs. Riva decided by October 2019 it would not file another pleading. So, the Riva damages proceedings came to an end but for questions of indemnity costs. The Riva damages proceedings were only on foot for a period of a little over two years and eight months between February 2017 and October 2019. The solicitors now apply for an order for indemnity costs and either a cost assessment, or orders for a specified gross sum instead of assessed costs in those proceedings.

Finally, an account should be given of the disposition of the 2017 Judicial Review Proceedings. In March 2018 the solicitors successfully applied for security for costs of the 2017 Judicial Review Proceedings. Simpson JA made orders for security mandating dismissal of the 2017 Judicial Review Proceedings if the security were not paid. The security was not paid. Riva sought to avoid the consequences of non-payment of the security (dismissal of the proceedings) by applying to vary the order for security on the grounds of a change in circumstances. But that application was unsuccessful, and the 2017 Judicial Review Proceedings stood dismissed in accordance with the orders of Simpson JA: Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers (No.3) [2018] NSWCA 186 at [33].

But that was not the end of Riva’s attempts to challenge the freezing orders. In December 2018 Leeming JA dismissed Riva’s summons seeking an extension of time to commence proceedings to set aside the orders of the District Court made on 4 August 2017 and in lieu thereof the making of orders that set aside the District Court’s freezing orders made on 11 April 2014: Riva NSW Pty Ltd v Mark A Fraser & Christopher P Clancy trading as Fraser Clancy Lawyers (No.3) [2018] NSWCA 326.

Leeming JA observed (at [14]) that there was no utility in Riva’s summons because the 11 April 2014 freezing orders had already been set aside by consent on 4 September 2018. If Riva’s summons had been successful, the result would be an undetermined motion pending in the District Court seeking to set aside District Court orders made on 11 April 2014, which had in any event consensually been set aside. It appears from Leeming JA’s reasons for decision (at [14]) that Riva wished to argue that the District Court had no power to make the 11 April 2014 orders. Counsel for Riva appearing before Leeming JA appeared to be under the impression that it was necessary to set aside the 11 April 2014 freezing orders to maintain proceedings on the undertaking as to damages leading to the orders, such as appears to have been the thrust of the Riva damages proceedings. But Leeming JA corrected that impression, pointing out (at [19]) that setting aside the freezing orders was not a prerequisite to bringing an action on the undertaking as to damages on which the freezing orders were founded.

Various other contests both in the District Court and in the Court of Appeal between these parties have no relevance to the issues joined between these parties.

The present applications in these proceedings have faced significant procedural challenges which have caused delay. The parties, and in particular the solicitors, have sought to rely upon multiple affidavits sworn in previous proceedings. The parties sought to rely upon multiple exchanges of submissions as the issues for final determination were refined. The Court ultimately ordered that the parties should each submit one set of consolidated written submissions dealing with all the issues so that the Court could deal with the issues so far as possible on a final basis with one set of submissions. After those consolidated submissions were produced, several rounds of written submissions in reply were permitted by directions made in chambers, ultimately concluding early in 2022.

Confining the evidence and the issues. The parties could not agree upon what issues the Court would determine and remained vague about the evidence being relied upon. As the Court made clear in its third judgment (see especially at [11] to [13]) the parties were directed to prepare their cases on the basis that there would be a single judgment on all the evidence that the parties indicated that they were relying upon. The Court indicated that judgment would cover issues of indemnity costs, issues relating to the Chorley exception, and the application for a specified gross sum instead of assessed costs.

The Court has approached the matter in that way in these reasons, based upon the evidence and the submissions filed. As is evident from the Court’s reasoning below all the issues have been resolved apart from fixing a specified gross sum instead of assessed costs, an issue that requires the parties to have a further opportunity to put limited submissions after considering these reasons.

The Court’s second judgment resulted in two important limitations on the evidence available to Riva and the solicitors. The first limitation was on the parties’ capacity to file additional evidence. Given the parties had already had years to prepare their respective cases and were showing little sign of confining the evidence and the issues, the Court explained (at [47] to [49]) and directed (at [52](5) as follows:

As a result, the parties were expected to rely upon evidence already filed. That restriction is enforced later in these reasons in relation to the last unresolved issue of the fixing of a specified gross sum instead of assessed costs.

The second limitation had important consequences for the ultimate path of reasoning followed by the Court in this judgment. In the second judgment the Court gave the solicitors an opportunity to avoid production of the original soft copies of two costs agreements apparently being relied upon by the solicitors as part of their evidence. Riva indicated that it wished to test the metadata of the soft copy of the agreements. The Court accepted that was a legitimate forensic purpose and ordered their production if the solicitors wished to rely upon them. But the Court left it open to the solicitors to elect either to rely upon the two costs agreements and submit their metadata being forensically tested or to disclaim reliance upon them. The election not to rely upon the two costs agreements needed to be communicated to the plaintiff, Riva, by 5pm on Thursday, 3 September 2020: second judgment at [52](2)(a).

In accordance with this direction, the solicitors communicated to Riva that they did not seek to rely upon either of the two costs agreements. The tender of the two costs agreements is therefore rejected and they are not part of the evidence. The contents of those agreements cannot be relied upon. It is not in issue that the agreements exist, but their terms are unproven. This was a puzzling decision on the part of the solicitors.

The conduct of the proceedings since making the costs orders. Notwithstanding the directions of the Court attempting to control and confine the issues and identified the evidence with clarity, the Court was faced with evidence that was haphazardly organised in a manner which is difficult to follow. The Court directed that a single bundle of documents, a court book, be created with all the material upon which the solicitors and Riva relied. Regrettably that bundle is incomprehensible in places. Its pagination shows that it omits annexures to certain affidavits; other affidavits are incomplete; and documents being tendered are incomplete. It is not the function of the Court in a proceeding in which both parties have legal assistance, for the Court to audit the adequacy of the construction of the court book.

The Court ultimately took the view after consideration of the written submissions that having further directions hearings to try and make the court book more comprehensible would merely add further delay to the resolution of these proceedings and would be unlikely result in a better court book, given the parties’ poor history of compliance with the Court’s orders. The Court will deal with the evidence as it is.

The submissions given to the Court were repetitive and covered matters of peripheral relevance in excessive detail. This defect mainly occurred in the solicitors’ submissions. Finding all the material referred to in the submissions and isolating the real issues emerging from the submissions was a challenging task. It has therefore been necessary for the Court to be selective in its analysis of the submissions and the evidence, to keep these reasons to a reasonable length and focussed on the essential matters for decision.

Except to the extent that specific rulings have been made in these reasons to exclude material, the Court admits the whole court book into evidence. Only one issue needs a more detailed evidentiary ruling.

The Harman undertaking. The solicitors have taken issue with the Riva’s use of some of the material upon which the solicitors rely, contending that the material is being used in breach of the implied obligation with respect to the use of the documents known as “the Harman undertaking”. The material objected to is mostly affidavits of Mr Ferella in the earlier proceedings.

The Harman undertaking applies when one party to litigation is compelled either by reason of a rule of Court or by reason of a specific order of the Court or otherwise to disclose documents or information, so that the party obtaining the disclosure cannot, without the leave of the Court, use it for any purpose other than that for which it was given, unless it is received into evidence: Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 (“Hearne”).

The implied undertaking applies to a wide range of material including documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Pillar order, witness statements served pursuant to a judicial direction, and affidavits: Hearne at [96].

If the Harman undertaking applies, the parties subject to it can apply for a release from it in later proceedings in the same Court, and sometimes in a different court’s inherent jurisdiction, if the documents are to be used for the purposes of the proceedings before the second court: Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; [1991] FCA 269; McCabe v British American Tobacco Australia Services Limited [2002] VSC 150; Patrick v Capital Finance Pty Ltd (No. 4) [2003] FCA 436; Jarra Creek Central Packaging Shed Pty Ltd v Amcor Limited [2008] FCA 554; Australian Medi-Care Company Limited v Hamilton Funds Pharmaceutical Pty Ltd (No. 3) [2008] FCA 976; and Clifford v Vegas Enterprises Pty Ltd [2009] FCA 1204.

Special circumstances must be shown in relation to the documents to justify release of the obligation: Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 at 289-290. There is no exhaustive list of factors relevant to the exercise of the court’s discretion to relieve from the Harman undertaking in relation to a document, but the factors can include the nature of the document, circumstances in which the document came into existence, whether the document pre-existed the litigation, the nature of the information in the document, circumstances in which the document came into the applicant’s hands, the likely contribution of the document to achieving justice in the second proceeding, whether the subsequent proceedings are between identical parties, and the broader public interest: Springfield Nominees Pty Ltd v Bridgelands Securities Limited (1992) 38 FCR 217; [1992] FCA 472 (per Wilcox J at [26]), Griffith & Beerens Pty Ltd v Duggan (No. 2) [2008] VSC 230 at [11], and Ashby v Slipper (No. 2) [2016] FCA 550. Whether special circumstances exist is a matter of judicial discretion and the relevance of each factor will depend upon the facts of each case.

Here, there are compelling reasons why this Court should dispense with any Harman undertaking that applies to all the material being advanced before the Court and admit into evidence the material to which objection is taken on that basis. All the documents objected to arise in proceedings between these same parties, proceedings in which both parties have used the compulsory processes of the court actively against one another for many years and where both parties have sought to take advantage of evidence in previous proceedings to assist their cases upon the present application in these proceedings. Moreover, it is very difficult to do justice to the arguments in the present application without reference to the evidence in the previous proceedings between these parties. And much of the material has been admitted into evidence in earlier proceedings and is not caught by the undertaking. To the extent necessary to allow the evidence to be admitted at Riva’s request the Court will relieve Riva from its Harman undertaking obligations.

The Court’s existing costs orders in both sets of proceedings provide for the awarding of costs on the ordinary basis. The solicitors seek costs on the indemnity basis. Riva resists their application.

The relevant legal principles may be shortly stated. Unless this Court orders otherwise, costs are to follow the event: UCPR, r 42.1. Such costs are to be assessed on the ordinary basis, unless the Court orders otherwise: UCPR, r 42.2. CPA, s 98 provides for the Court’s broad power to make orders as to costs including indemnity costs:

Authority establishes that when the question of indemnity costs is under consideration the question to be asked is whether the circumstances justify an order for indemnity costs in the individual case: Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506; Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 (“Colgate-Palmolive”). The categories of case in which indemnity costs will be awarded are not closed: Colgate-Palmolive at 233-234 per Sheppard J.

Delinquency in the conduct of proceedings may attract an indemnity costs order: Degmam Pty Ltd (in liquidation) v Wright (No 2) [1983] 2 NSWLR 354 (“Degmam”); and Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299. If the case involves “some relevant delinquency on the part of the unsuccessful party” an order for indemnity costs may be made against that party: Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 at 89. But even deliberate false evidence in proceedings will not automatically qualify as “relevant delinquency”, attracting an indemnity costs order: Harrison v Schipp [2001] NSWCA 13 at [132] - [139] (“Schipp”). And on their own, findings of unconscionable conduct or breach of fiduciary duty will ordinarily lead to compensatory or other relief and an order for costs on the normal basis; so that more must be established for a special order as to costs: Schipp at [136].

What may qualify as “relevant delinquency” has taken a variety of forms in the cases. It includes making deliberately false allegations in a defence and by prolixity and prevarication grossly prolonging the litigation: Degmam. It includes the situation of a defendant, who properly advised, should have known that they would be found liable: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364 at 401. It includes circumstances in which the Court’s time and the plaintiff’s money were wasted on “totally frivolous and thoroughly unjustified defences”: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362. Some of the matters thought to justify the making of such an order were collected by Sheppard J in Colgate-Palmolive; (1993) 118 ALR 248 at 233-4. But beyond identifying a sufficiently “special or unusual feature in the case”, no fixed rule can be laid down as to when indemnity costs will be ordered: Schipp at [139].

Caution should be exercised when the conduct of a party prior to the commencement of the litigation is raised as a basis to ask the Court to exercise its indemnity costs discretion: see Schipp at [136] – [139] per Giles JA; Velissaris v Fitzgerald [2008] VSCA 152 at [20] per Maxwell P and Mandie JA. Such pre-litigation conduct is usually irrelevant to the Court’s indemnity costs consideration. But a party’s conduct leading up to the litigation may be relevant, if it bears upon, or informs, the conduct of the party in the litigation: see Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No. 3) [2010] NSWSC 1479 at [12] citing Hypec Electronics Pty Limited (in liquidation) v Mead; BL GY International v Hypec Electronics Pty Ltd (in liquidation) (2004) 61 NSWLR 169 at 179 [42], 180, [45] – [47] per Campbell J.

The solicitors advance a range of reasons in their submissions why indemnity costs should be awarded against Riva in both the Riva damages proceedings and the receiver proceedings. A high-level summary of those submissions is sufficient in respect of each proceeding, followed by consideration of whether indemnity costs order should be made in each proceeding.

The parties’ submissions. As to the Riva damages proceedings, the solicitors allege the following: Riva made inconsistent allegations in its statement of claim, striking out the statement of claim shows that Riva never had a maintainable case, Riva was delinquent in the related asset freezing order proceedings in the District Court, Riva’s damages claim was premised on an entitlement to remain in breach of previous orders of the District Court, Riva refused to accept reasonable settlement offers, Riva never had a valid damages claim, Riva’s timing of the filing of the Riva damages proceedings shows an ulterior motive on its part, Riva lacked candour in its submissions and Riva’s damages pleading was contrary to the evidence in the previous proceedings, and finally Angelo Ferella was not authorised to initiate the Riva damages proceedings on behalf of Riva.

As to the receiver proceedings, the solicitors allege the following: the solicitors had to bring the receiver proceedings because of Riva’s truculent refusal to use trust assets to meet Riva’s debts incurred as a trustee of the Trust, Riva had publicly declared that it would deploy “whatever means available” to defeat the solicitors’ claim, Riva has acted unconscionably as a trustee, Riva never articulated a maintainable defence to the receiver proceedings other than by seeking to delay their conclusion by launching the Riva damages proceedings, Riva prolonged the receiver proceedings by seeking adjournments, and Riva misstated the nature of the Trust to defend the receiver proceedings.

Riva disputes all these submissions and cautions that indemnity costs should only be awarded by reason of relevant delinquency in the conduct of the litigation itself and that most of the solicitors’ submissions about the alleged misconduct of Riva canvas events occurring in earlier proceedings and not in the two proceedings under consideration.

But Riva’s submissions are the more persuasive on this issue in respect of both the Riva damages proceedings and the receiver proceedings. The Court will first deal with the Riva damages proceedings.

Indemnity costs – the Riva damages proceedings. It is not necessary to travel beyond the four corners of the Riva damages proceedings themselves to see why indemnity costs should be ordered against Riva in those proceedings; and second, within permissible limits, conduct earlier than the proceedings in question can be examined to determine relevant delinquency and here that examination reinforces the Court’s conclusions about relevant delinquency during the proceedings. The Court will deal with each of these matters in turn.

As to the first matter, the pleaded claim in the Riva damages proceedings was so embarrassing and so lacking in maintainable coherence that the Court struck it out. The pleading was so deficient that it did not plead a single complete maintainable cause of action. Its problems were fully explained in my first judgment. The deficiencies included the following. Riva was unable to articulate any sensible relationship between the freezing orders and Riva’s alleged inability to comply with the security for costs orders in the Provident proceedings: first judgment at [19] – [21]. Riva’s pleading that the solicitors had acted in trade and commerce under the Australian Consumer Law and engaged in unconscionable conduct by undertaking public action in proceedings in a court room between represented parties made little sense: first judgment at [22] – [25].

It is the usual course when a party’s pleading is struck out to give that party an opportunity to replead. In the case of a plaintiff this conserves the plaintiff’s financial resources by avoiding the need for the plaintiff to commence fresh proceedings and it saves the plaintiff from the disadvantage of facing additional defences based on the expiry of intervening limitation periods. This also avoids unnecessary argument about the costs of the proceedings as a whole and often results in cost savings to the defendant.

My first judgment allowed Riva to replead provided Riva paid the solicitors’ costs to date. Riva submits that an order for indemnity costs should not now be made because leave to replead was granted, which according to Riva “suggests that there was some basis demonstrated for a claim”.

That is not the inference that should be drawn from the Court’s decision to allow Riva to replead. The Court was not giving implicit approval to the possible merits of the claim by allowing the repleading but merely taking the fairest and most cost-effective course for both parties that is commonly taken in most strikeout cases. By allowing repleading the Court was not making a judgment that Riva’s damages claim had any merit.

Moreover, despite having been given three deadlines (8 October 2019, 28 October 2019, and 13 November 2019) to do so, Riva did not take up the opportunity to replead, leading to the ending of the Riva damages proceedings. This neutralises any submission by Riva that it had a maintainable case that could properly have been pleaded. If Riva had a genuinely maintainable case, then it is difficult to understand why it did not replead to lay that case out, rather than submit to the rapid ending of the proceedings followed by an order for costs. Such conduct of proceedings is out of the ordinary and delinquent.

Riva delicately characterises its failure to replead as, “Riva ultimately did not take up this opportunity, which led to the end of the proceedings”. This understates the implications of Riva’s decision, which was taken after a detailed court room debate over the merits of the first pleading in which the Court pointed out the pleadings deficiencies in a manner that was quite sufficient to allow them to be repaired if they were repairable. The proper inference from the failure to replead is to strengthen the original conclusion from the nature of the pleading itself: that genuinely maintainable causes of action were never at any stage of the proceedings demonstrably articulated on behalf of Riva. This is a sufficiently special or unusual feature of this case to warrant the making of an order for indemnity costs in the Riva damages proceedings.

Indemnity costs – the receiver proceedings. Indemnity costs should also be awarded against Riva in the receiver proceedings.

Some of the solicitors’ arguments in relation to the receiver proceedings are less persuasive than others. The solicitors’ arguments that they had to bring the receiver proceedings because of Riva’s truculent refusal to use trust assets to meet Riva’s debts incurred as a trustee of the Trust is not a remarkable feature of the receiver proceedings and does not distinguish Riva’s conduct of these proceedings from other similar cases. Riva’s public declaration that it would deploy “whatever means available” to defeat the solicitors’ claim was always tempered by its statement that it would do so according to law. Riva’s position as a trustee dealing with a creditor does not of itself entitle the creditor to indemnity costs.

But aspects of Riva’s actual conduct of the receiver proceedings warrant an indemnity costs order against it in those proceedings. Riva resisted the receiver proceedings without ever articulating any reasoned discretionary consideration against the appointment of a receiver to enforce debts against the Trust in respect of judgments against it that had never been stayed. Riva used the Riva damages proceedings, an action of no demonstrable substance, in a manner calculated to defer the resolution of receiver proceedings across several adjournments. This conduct is sufficient to warrant an order for indemnity costs in favour of the solicitors in the receiver proceedings.

Reconfiguring the existing costs orders. Thus, the Court will amend the existing costs order in the Riva damages proceedings to an order for indemnity costs. This order was made on 30 September 2019 and the indemnity costs order applies only up to about that time. The incurring of these costs would have commenced on or shortly before 24 February 2017, when Riva commenced the Riva damages proceedings against the solicitors and will conclude on 30 November 2019. The choice of this later date gives an allowance for a short period after the first judgment in which the Court struck out the pleading whilst Riva was signalling that it might take up the opportunity to replead. The Court will order indemnity costs in respect of the Riva damages proceedings for the period up to 30 November 2019. But for the reasons given later in this judgment, the Court will not make any further costs orders in the Riva damages proceedings.

The Court will amend the costs orders in the receiver proceedings so that Riva pay the solicitors’ costs on the indemnity basis up to and including the date that it made final orders in the proceedings on 11 April 2018. These costs would have commenced to be incurred on or shortly before 2 June 2017. But for the reasons given later in this judgment, the Court will not make any costs orders beyond that date in the receiver proceedings.

The next question is whether the solicitors can recover legal costs charged to them by the incorporated legal practices they control. This issue is referred to in these reasons in abbreviated form as “the incorporated legal practice issue”.

The Structure of the Retainers. The parties’ submissions do not clearly set out the change in the structure of the solicitors’ practice during the period being considered in the present contest. But the relevant chronology of the structural changes can be gleaned from Mr Clancy’s affidavit of 22 November 2019. Mr Clancy explains that the partnership between himself and Mr Fraser, called for convenience in these reasons “the FCL partnership”, ceased to practice on 29 May 2017. The same expression is used to describe the structure that existed after Mr Fraser retired from the partnership.

FCL Pty Ltd was incorporated on 8 March 2017. On 27 May 2017 FCL Pty Ltd became an incorporated legal practice under the Legal Profession Uniform Law (NSW) (“LPUL”), employing Mr Clancy, who is also a director of FCL Pty Ltd and its “principal” in its role as a “law practice” under the LPUL. The evidence does not reveal that anyone other than Mr Clancy and Mr Fraser had a shareholding interest in FCL Pty Ltd at any relevant time. After FCL Pty Ltd became an incorporated legal practice Mr Fraser and Mr Clancy gave it instructions on 29 May 2017 to act on their behalf in defending the Riva damages claim.

On the same day the FCL partnership instructed FCL Pty Ltd to commence the receiver proceedings, seeking the limited relief of the appointment of a receiver to Riva to advance the objective of payment of the solicitors’ fees. Mr Clancy was the solicitor on the record in both the Riva damages proceedings and the receiver proceedings. Mr Clancy says, and the Court accepts that he received information that he did not need to change his status as the solicitor on the record in either of these proceedings by reason of the commencement of FCL Pty Ltd as an incorporated legal practice conducting the litigation. He remained as the solicitor on the record in his personal name.

In June 2017 Mr Clancy says and the Court accepts that he instructed his legal clerk to prepare a costs agreement between the FCL partnership (Mr Clancy and Mr Fraser) and FCL Pty Ltd. But the terms of that first costs agreement are not in evidence. Whilst the incorporation and engagement of FCL Pty Ltd approximated in time the commencement of the receiver proceedings and the defence of the Riva damages proceedings nothing in the evidence suggests that the dominant reason for the incorporation of FCL Pty Ltd was either of those proceedings.

FCL Pty Ltd traded until 1 April 2019. Mr Clancy and Mr Fraser appeared to have gone their separate ways by about that time. Thereafter Mr Clancy incorporated a new entity to act as an incorporated legal practice under the LPUL, Clancy Lawyers Pty Ltd, which operated in much the same way that FCL Pty Ltd had done up to 1 April 2019. Mr Clancy was its director and its “principal” in its role as a “law practice” under the LPUL. The Court accepts Mr Clancy’s evidence that he made a costs agreement with Clancy Lawyers Pty Ltd, but like the costs agreement with FCL Pty Ltd, it is not in evidence.

Because of this change in structure and the similarity of these two incorporated legal practices, it has become convenient for the Court to use the abbreviations “FC1” to refer to FCL Pty Ltd and “FC2” to refer to Clancy Lawyers Pty Ltd, terminology used in the parties submissions.

The parties advance competing submissions about the legal position during each of three periods in which a different retainer arrangement exists on the solicitors’ side of the record in relation to the conduct of both the Riva damages proceedings and the receiver proceedings. The three periods are: (1) prior to 26 May 2017, when Mr Clancy and Mr Fraser were acting for themselves in the FCL partnership in preparing for both proceedings; (2) from 27 May 2017 to 30 March 2019, when Mr Fraser and Mr Clancy as the FCL partnership retained FC1; and (3) from 1 April 2019, the period during which Mr Clancy as the FCL partnership retained FC2. But before analysing the contest during each of these periods, the applicable law should be shortly stated. For convenience these periods will be referred to in these reasons as, period (1), period (2) and period (3) where it is necessary to distinguish among them.

Applicable Legal Principles. Ordinarily a self-represented litigant may not be compensated in costs for the value of the litigant’s time spent on the litigation: Cachia v Hanes (1994) 179 CLR 403 at 410-11. But under a longstanding exception to that general rule, a self-represented litigant who is a solicitor might recover professional costs for acting in litigation. This rule was authorised in England in the Court of Appeal decision London Scottish Benefits Society v Chorley (1884) 13 QBD 872 at 877 as a rule of practice and became known as the “Chorley exception”.

In Bell Lawyers Pty Ltd v Pentelow (2020) 269 CLR 333; [2019] HCA 29 (“Bell Lawyers”) the High Court of Australia decided that the Chorley exception is not part of the common law of Australia. Bell Lawyers concerned a barrister who was acting for herself in litigation. The High Court in Bell Lawyers did not consider whether a solicitor, like the FCL partnership, who had been successful in litigation and who had retained an incorporated legal practice controlled by the solicitor to act in litigation in which the solicitor was also an employee of the corporate entity would be able to recover legal costs from the unsuccessful party. That issue arises in this case.

The solicitors conceded that because of the abolition of the Chorley exception in Bell Lawyers, that they could not claim any costs for the period prior to 29 May 2017; that is period (1), the period before FC1 first began to act in the proceedings on behalf of the solicitors. This concession would appear only to relate to the Riva damages proceedings which commenced on 24 February 2017; the receiver proceedings not commencing until 2 June 2017. The FCL partnership then comprised Mr Fraser and Mr Clancy, who were therefore acting for themselves in the proceedings. It is accepted on all sides that Bell Lawyers applies directly to the situation during this period, barring the recovery of solicitor’s professional legal costs up to 28 May 2017.

But the solicitors may recover disbursements during this first period. The Victorian Court of Appeal has recognised in United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 (“United Petroleum”) (at [119] – [121]) that the principles in Bell Lawyers applied to the recovery of the professional costs of a private legal partnership, the members of which were parties to the action but that a costs order in favour of solicitors, on existing authority, still enabled them to recover the disbursements they had incurred in the litigation. United Petroleum is discussed in more detail below. Thus, up to 28 May 2017 the solicitors may recover disbursements incurred in conducting the Riva damages proceedings and any minor amounts that may by that stage have related to the yet to be commenced receiver proceedings. There is presently a lack of clarity in the evidence as to what these disbursements may be, a matter dealt with in the last section of these reasons relating to the making of a specified gross sum costs order.

The parties contested whether they were each entitled to recompense for the value of their professional time spent on these two proceedings in the period after the incorporation and operation of FC1 (from 27 May 2017) – period (2) and FC2 (from 1 April 2019) – period (3). The solicitors claimed for their professional fees and disbursements including counsel’s fees for both these periods.

Riva answers the solicitors’ claim for professional fees during periods (2) and (3) by submitting that the interposition of an incorporated legal practice between the solicitor parties and the person providing the work does not overcome the general rule stated in Bell Lawyers that a party that is self-represented in litigation is not permitted to recover costs for time spent in undertaking legal work in that litigation. The solicitors submitted that they could recover professional fees and that the incorporation of FC1 and FC2 took them outside the abolition of the Chorley exception. The incorporated legal practice issue was not decided in Bell Lawyers.

Despite the dispute about professional costs in the incorporated legal practice issue, Riva concedes that the solicitors may be entitled to disbursements, provided the disbursements have been proved to have been incurred in relation to a retainer that existed for the conduct of either the Riva damages proceedings or the receiver proceedings. But Riva nevertheless submits there is insufficient evidence before the Court to quantify the recovery of disbursements by the solicitors, and in the alternative Riva submits that any disbursements that can be identified are not fair or reasonable charges.

The incorporated legal practice issue may be shortly stated. The issue is whether the general principle abolishing the Chorley exception stated in Bell Lawyers applies to the situation of a lawyer, who conducts litigation as a party and who retains for that purpose an incorporated legal practice controlled by the lawyer and employing the lawyer, such that the lawyer should nevertheless be treated as a self-represented litigant who may not obtain recompense for the value of his or her time spent in the litigation.

The applicable legislation is readily identified. FC1 and FC2 was each at the time of its retainer an “incorporated legal practice” within the meaning of that term in the LPUL, as applied in NSW by the Legal Profession Uniform Law Application Act 2014. An incorporated legal practice is one of several modes in which a “law practice” may practice under the LPUL: cf LPUL, s 6. An incorporated legal practice is a company within the meaning of the Corporations Act that has given notice under LPUL, s 104 that it intends to engage in legal practice in Australia and that notice is still operative and it does not merely provides “in-house” legal services itself and similar services: LPUL, s 6.

Incorporated legal practices must have at least one authorised “principal”: LPUL, s 105. The principal of an incorporated legal practice must hold an Australian practising certificate authorising the holder to engage in legal practice as a principal of a law practice and must be a validly appointed director of the company: LPUL, s 6, the definition of a “principal”.

The starting point for the analysis of the authorities is Bell Lawyers itself. The plurality in Bell Lawyers considered the incorporated legal practice issue (at [50] – [52]) in dicta, pointing out that their decision that the Chorley exception was not part of the 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”. The plurality said in full on this issue the following:

The reasoning of the plurality on the incorporated legal practice issue was clear: the principle to be applied to recovery of legal costs by a sole practitioner who uses an incorporated legal practice as a vehicle is ultimately one for the legislature.

The plurality in Bell Lawyers dealt with an argument put on behalf of the legal practitioner, in that case a barrister, that the definition of “costs” in the CPA, s 3(1) is apt to encompass costs within the Chorley exception. CPA, s 3(1) provides that “‘Costs’ in relation to proceedings, means costs payable in or in relation to the proceedings, and includes fees, disbursements. expenses and remuneration”. In rejecting that argument, the plurality in Bell Lawyers said:

In his separate judgment, agreeing in the orders of the plurality, Gageler J (at [68]) explained that the recovery of costs by a party using an employed solicitor was unauthorised practice predating the introduction of the Chorley exception:

Nettle J (at [79]) agreed in the orders proposed by the plurality but on the narrower ground only, that the Chorley exception should not be extended to barristers. In reaching that view Nettle J expressed the opinion (at [75]) that the abolition of the Chorley exception should logically also lead to the cessation of the entitlement to firms of solicitors, corporations and government and semi-government agencies that employ solicitors recovering taxed costs for the work performed by such employee solicitors in representing their employers. Edelman J agreed with the plurality, adding reasons not relevant to the present issue.

The decision of Brereton J (as his Honour then was) of McIlraith v Ilkin & Anor [2007] NSWSC 1052 (“McIlraith”), referred to by the High Court in Bell Lawyers (at [51]), involved consideration of the Court’s jurisdiction to order costs in favour of a defendant (Mr Ilkin) who had succeeded in having the proceedings brought by the plaintiff (Mr McIlraith) summarily dismissed. The question was whether Mr Ilkin, who was a solicitor, providing services for a solicitor corporation of which he was a director was entitled to recover costs. It was in that context that Brereton J made the observations (at [11]) that were referred to by the High Court in Bell Lawyers:

On the then state of authorities, in McIlraith Brereton J applied the Chorley exception as part of the law of New South Wales and required (at [27]) the plaintiff, Mr McIlraith to pay Mr Ilkin’s reasonable costs of acting as his own solicitor. Brereton J’s reasoning in McIlraith proceeds on the basis that there was no distinction between the solicitor Mr Ilkin and his incorporated legal practice.

Following the High Court’s decision in Bell Lawyers, the Supreme Court of Victoria considered the present question in two cases, United Petroleum & Guneser v Aitken Partners Pty Ltd [2020] VSC 239 (“Guneser”).

In United Petroleum, a firm of solicitors, Herbert Smith Freehills (“Freehills”) had provided legal services to various entities described collectively as “United Petroleum” in relation to an initial public offering of shares. The public offering did not proceed as scheduled. Freehills sued to recover its outstanding professional fees and United Petroleum counter sued Freehills in negligence. Freehills was successful in both proceedings, obtaining judgment for its fees and a special costs order in its favour in both proceedings. United Petroleum sought leave to appeal, raising several issues, one of which was the application of Bell Lawyers to Freehills’ claim for costs. The Victorian Court of Appeal (Whelan, McLeish, and Niall JJA) analysed the reasoning of the High Court in Bell Lawyers and noted (at [93]) that the reasons for judgment in Bell Lawyers did not expressly answer the question of whether a firm of solicitors which itself is a party to the litigation is entitled to recover professional costs in relation to legal and other services provided by its employees.

In United Petroleum Freehills were not seeking to claim recovery of professional costs incurred by the partner of the firm responsible for the legal services provided to United Petroleum. Rather, Freehills limited the claim to the costs the firm incurred in relation to the employees who were working on the matter for United Petroleum. The decision therefore squarely raised the question of whether the High Court’s decision in Bell Lawyers that the Chorley exception is not part of the common law of Australia nevertheless would allow a firm of solicitors acting for itself to invoke “the well-established understanding in relation to in-house lawyers employed by governments and others” referred to in Bell Lawyers (at [50]), as a basis to recover the costs of employed solicitors representing the firm.

The Victorian Court of Appeal in United Petroleum concluded that Freehills could not be placed outside the general rule in relation to self-represented litigants reflected in the Chorley exception. The Victorian Court of Appeal reached this conclusion for several reasons. Government departments and corporations represented by an employed solicitor cannot readily be described as self-represented litigants, which Freehills was in the United Petroleum proceedings, as the firm was the solicitor on the record: United Petroleum at [102]. Allowing a solicitor to recover fees when acting for him or herself would perpetuate the unequal treatment that Bell Lawyers sought to eradicate: United Petroleum at [108]. The caselaw referred to in Bell Lawyers does not establish that solicitors employed by a law firm have been treated as falling within the “well-established understanding in relation to in-house lawyers”: United Petroleum at [110].

In United Petroleum the Victorian Court of Appeal rejected (at [119] – [121]) Freehills’ claim to recovery of costs incurred by its employee solicitors, stating that the claim was not within “the well-established understanding in relation to in-house lawyers employed by governments and others”:

After the judgment in United Petroleum was given, Guneser considered the question whether an incorporated legal practice was entitled to recover professional costs when acting successfully for itself in litigation, whether by its principal or its employed solicitors: Guneser at [4]. In Guneser Macauley J was considering an appeal from a costs judge, who had determined that the respondent, Aitken Partners Pty Ltd, an incorporated legal practice, was not entitled to its full professional costs and disbursements for acting for its related firm of solicitors in contested proceedings and should only be allowed to recover its reasonable disbursements. Macauley J applied United Petroleum, in posing and answering two questions: whether an incorporated legal practice comes within the general rule excluding recovery by self-represented litigants; and whether Aitken Partners fell within the “well-established understanding in relation to in-house lawyers”.

On the first question Macauley J concluded that Aitken Partners’ claim was precluded by the abolition of the Chorley exception (at [57] – [62]). On the second question Macauley J rejected the contention that Aitken Partners’ claim fell within the “well-established understanding in relation to in-house lawyers” (at [63] – [67]).

Finally, Macauley J considered that there are undoubtedly differences in the characteristics of a law partnership and an incorporated legal practice. Macauley J recognised that ownership and control of a law practice conducted by partners are generally co-extensive: those in control are also entitled to the profits and liable to the losses of the business: at [69]. He contrasted that with the position of a director of an incorporated legal practice who must be an Australian lawyer holding a practising certificate, but he stated that there is no similar requirement for shareholders of a legal practice, allowing for separation between ownership and control of an incorporated legal practice: at [69]. But Macauley J commented that this contrast was of little significance in Guneser.

Several other cases have, like Gunesar, either applied or referred to United Petroleum and declined to allow incorporated legal practices who were successful in litigation to recover costs, incurred by employed solicitors, using similar reasoning: namely, that the logic of United Petroleum should be applied to incorporated legal practices controlled by firm or sole practitioner and that a solicitor should not be allowed to use a corporate vehicle to recover fees for work done by its employees, when a solicitor was the controlling mind of the vehicle, because that would perpetuate the inequity deployed by the High Court in Bell lawyers: see for example D A Starke Pty Ltd v Yard & Anor (No 2) [2020] SASC 81 [31] and [34] (“D A Starke”) and Hurst-Meyers v Aulich Civil Law Pty Ltd [2021] ACTSC 16 (“Hurst-Meyers”).

Since this matter was argued, the Court of Appeal has delivered judgment in Burrows v Macpherson and Kelley Lawyers (Sydney) Pty Ltd [2020] NSWCA 148 (“Burrows”). The parties in these proceedings were given an opportunity to put submissions in relation to the effect Burrows might have on the arguments they had advanced.

Burrows involved an incorporated legal practice which had obtained a lump sum (specified gross sum) costs order against a former client who had unsuccessfully sued the practice. One of the issues on the appeal concerned whether the decision in Bell Lawyers prevented the making of the lump sum costs order in circumstances where employees of the legal practice had also acted for the practice in the litigation. There had been a change in the legal structure of the practice in Burrows since the retainer by the former client, with the result that the successor legal practice (M & K Lawyers Group) acted for the former legal practice (M & K Sydney) in the litigation against it, with the employed solicitors of the successor legal practice doing the work. Burrows was ultimately decided allowing the recovery of costs by the successor legal practice, because the successor legal practice was not to be equated to the former legal practice, and the Court of Appeal concluded that it was open therefore to apply the “well-established understanding in relation to in-house lawyers employed by governments and others” in the circumstances to allow the recovery of legal costs.

As Davies J pointed out in Dennis v Joukhador [2021] NSWSC 870 at [83] (“Dennis”) the judgments in Burrows suggest that the abolition of the Chorley exception in Bell Lawyers will not affect the recovery of costs by an incorporated legal practice where the legal work was carried out by an employee of that practice. Although Burrows did not decide the precise issue presently before the Court, its reasoning gives useful guidance in this case.

The three judges in Burrows (Meagher, Leeming and White JJA) all agreed in the result that the former legal practice was not a self-represented litigant and its ability to obtain a costs order based upon its representation by the successor legal practice was unaffected by anything that was said in Bell Lawyers. Leeming JA wrote the principal judgment in Burrows, which was agreed in by Meagher JA and White JA, who each added additional reasons.

Leeming JA examined the statutory basis for the recovery of costs, including the definition of ‘costs’ in CPA, s 3. His Honour referred to the passage in the judgment of the plurality (at [44]) in Burrows cited earlier in these reasons and commented on it in the following way (at [116]):

Leeming JA then addressed the question whether “the corporate veil should be pierced” is those to identify the incorporated legal practice with its associated legal practitioners. That, adopting the words of Lord Sumption in Prest v Petrodel Resources Ltd [2013] 2 AC 415; [2013] UKSC 34 at [16] that this is “an expression rather indiscriminately used to describe a number of different things”: Burrows at [123]. Leeming JA referred to the well-settled law that mere control is not sufficient to disregard corporate identity: Burrows (at [124]).

Looking at the facts in Burrows, Leeming JA was unpersuaded that the former legal practice, the client, should be identified with the subsequent legal practice, but was acting in the proceedings. Moreover, Leeming JA said that the solicitors there did not appear to have adopted corporate identity for reasons that had anything to do with avoiding the cost recovery disadvantages of being a self-represented litigant. Leeming JA said (at [129]) on that subject:

Applying what had been decided in Bell Lawyers with respect to employed lawyers to the circumstances in hand, Leeming JA concluded in Burrows that there was no basis, to pierce the corporate veil in a way that would deny the recoverability of legal costs incurred by employed solicitors, saying:

Leeming JA then said that it was not necessary for him to consider the correctness of United Petroleum (which appears to take a different view of the recoverability of legal costs by employed solicitors):

Both Meagher JA and White JA agreed with Leeming JA. Meagher JA restated that Bell Lawyers had affirmed “the well-established understanding in relation to in-house lawyers”:

And in agreeing with Leeming JA, White JA drew attention to the expression of caution by the plurality in High Court in Bell Lawyers (at [53]) in the passage cited above:

Like Davies J in Dennis (at [90]), I consider I should adopt a similar approach to the reasoning in Burrows. I will respectfully not follow, Gunesar, D A Starke and Hurst-Meyers. And the decision in United Petroleum did not concern an incorporated legal practice and its employees, the situation faced in this case. And I follow Burrows to the extent that it differs from United Petroleum by applying the well‑established understanding in relation to in-house lawyers employed by governments and others.

The relevant force of the judgments in Burrows for the present case, applying and interpreting Bell Lawyers may be summarised as follows. First, “the well-established understanding in relation to in-house lawyers employed by governments and others” namely 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” is the law. Second, Burrows affirms the importance of the High Court’s statement in Bell Lawyers that it is for the legislature to say whether an incorporated legal practice that is used as a vehicle for a sole practitioner should be able to obtain an order for costs for work performed by its sole director and shareholder. Third, short of such legislative intervention to address that issue, the question of cost recovery should be approached by adopting conventional legal analysis that recognises the separate legal personality of the incorporated legal practice. Fourth, the application of such conventional legal analysis may permit piercing of the corporate veil but only in the limited and well-recognised circumstances where that approach is permissible.

Two final cases should be considered that reinforce the above analysis of the applicable legal principles. Both cases occurred in the course of long-running litigious warfare between a solicitor, Mr Keith Spencer, and his former client, Mr Ronald Coshott. Mr Spencer carried on practice through an incorporated legal practice, Kejus Pty Ltd (“Kejus”), trading under the name “Spencer & Co Legal”. He sought recovery of his fees from his former client. Mr Spencer was a shareholder and director of Kejus.

In the first case, (Coshott v Spencer and Ors, High Court of Australia, unreported 11 September 2019) Mr Coshott was an unsuccessful applicant for special leave to the High Court who had a costs order made against him. He sought review before Keane J of the taxation of those costs. On the review Mr Coshott contended that Mr Spencer was under no liability to pay for the legal work performed by him as an employee of Kejus but provided to him by Kejus as the solicitor on the record. In the course of delivering an ex tempore judgment, which was given only one week after the decision in Bell Lawyers, Keane J restated the law that an individual who is the sole director and shareholder of the corporation may contract with a corporation for the provision of services by it so as to give rise to an obligation to pay for those services: Keane J at [13] applying Hamilton v Whitehead (1988) 166 CLR 121 at 128. Citing Bray CJ in R v Godall (1975) 11 SASR 94 at 99-100, Keane J said this was “the logical consequence of Salomon’s Case (Salomon v Salomon & Co Ltd [1897] AC 22). And Keane J (at [18]) reaffirmed the “the well-established understanding in relation to in-house lawyers” and that the High Court had not decided the incorporated legal practice issue that had been reserved in Bell Lawyers at [50] – [53].

In the second case, Spencer v Coshott [2021] NSWCA 235 (Bell P as the Chief Justice then was, Emmett and Simpson AJA), the Court of Appeal was considering an application by Mr Spencer for judicial review of a decision of the District Court that Mr Spencer was not entitled to recover from Mr Kershaw costs that Mr Spencer owed to Kejus.

Simpson JA wrote the primary judgment which was agreed in by Bell P and Emmett AJA. In granting the judicial review sought, her Honour found that an error of law on the face of the record had occurred when the primary judge, departing from the approach taken by Keane J, disregarded the effect of the distinct legal personalities of Mr Spencer and Kejus, which had been the foundation for the disposition by Keane J of the application with which he dealt. Her Honour said (at [63]):

Coshott is binding on a trial judge in this Court. It requires a course of reasoning different from that taken by the primary judge in Coshott and prohibits a trial judge from disregarding the effect of the distinct legal personalities of a sole practitioner in the position of Mr Spencer and an incorporated legal practice such as Kejus when considering issues of cost recovery.

Before concluding this survey of the relevant law that applies in the making of the present determination between these parties, regard should be had to the High Court’s statement in Bell Lawyers (at [53]) that the present issue is a matter for the legislature. This statement is consistent with a concern that that judicial development of the law in this area may provide a poor vehicle to set coherent legal rules to address all the permutations that will arise when an incorporated legal practice seeks to recover legal costs after success in litigation.

The incorporated legal practice issue is not susceptible to broad and uniform judgments about sole practitioners using incorporated legal practices employing themselves to provide legal services. Allowing costs recovery by a sole practitioner solicitor, who is a successful party in litigation and who retains an incorporated legal practice controlled by the sole practitioner who is a director and “principal” for the purposes of the LPUL and who was employed by the incorporated legal practice, will not necessarily perpetuate the unequal treatment before the law that Bell Lawyers sought to eradicate.

Attempting to equate a sole practitioner to an incorporated legal practice is a field of boundless nuance. Even though the solicitor may be a controlling shareholder of the incorporated legal practice and its employee, the solicitor may not be the only shareholder or the only employee. The terms of employment of the sole practitioner, or the terms upon which shares in the incorporated legal practice are issued to the solicitor may limit the quantum of the financial benefits that the solicitor receives from the incorporated legal practice. The incorporated legal practice may be part of a wider trust structure. It may be constituted for non-profit or charitable purposes, so the solicitor derives no personal benefit notwithstanding the solicitor’s control and controlling shareholding interest. The creation of the incorporated legal practice may be wholly accounted for by wider well justified commercial considerations which bear no relationship to the litigation in which the sole practitioner was successful. As the High Court has said, the legislature rather than judge made law is a far better agent to provide near term certainty in relation to such a nuanced issue.

Applying these principles. How do these principles apply to the facts in this case? The starting point is that the separate legal personality of FC1 and FC2 from the FCL should be recognised and that cost recovery in respect of work done by Mr Clancy as the employee of FC1 and FC2 should be allowed unless the piercing of the corporate veil of FC1 and FC2 should be justified on conventional grounds.

But there is no basis here to look past the separate legal personality of FC1 and FC2. There is no significant divergence between the ownership and control of FC1 and FC2 and the legal partnerships that they represented, FC1 representing Mr Fraser and Mr Clancy and FC2 representing Mr Clancy. Both Mr Clancy and Mr Fraser controlled FC1. Mr Clancy controlled FC2. But as Leeming JA explained in Burrows (at [124]) it is well-settled that mere control is not sufficient to disregard corporate identity: James Hardie and Co Pty Ltd v Hall (1998) 43 NSWLR 554 at 583 – 584.

The evidence does not ground any inference that Mr Fraser or Mr Clancy set up FC1, or Mr Clancy set up FC2 to adopt a corporate structure to facilitate the recovery of the FCL partnership’s legal costs in these proceedings, which would otherwise have attracted the prohibition against costs recovery by self-represented litigants, including legal practitioners, upheld in Bell Lawyers. Mr Clancy was not cross-examined to suggest this was his intention in setting up FC1 and FC2.

An unusual feature of this case is that Mr Clancy was a solicitor on the record in both sets of proceedings and in that sense might be said to have been representing himself. But he has explained that legal services were provided through FC1 and FC2 and that he was advised that he did not need to change his entry on the court record. His presence there is explained in his role as an employee of FC1 and FC2. Moreover, the tax invoices in question were issued in by FC1 and FC2.

For these reasons the Court’s determination on this second issue is that the solicitors, who now have the benefit of indemnity costs orders, can recover their reasonable disbursements in respect of all three periods for which they claim recovery of fees of in the litigation other than disbursements which were unreasonably incurred. And for periods (2) and (3), when FC1 and FC2 were providing legal services to the FCL partnership, the solicitors are not precluded by the decision in Bell Lawyers from recovering such professional costs as they can prove they have incurred on an indemnity basis.

As will be seen in the next section of these reasons, further analysis is required to determine exactly what liability to pay professional costs and disbursements the solicitors have established.

This section of these reasons deals with two issues. The first issue is raised by the solicitors’ argument that Riva is precluded from questioning the solicitors’ claim for be of their legal costs in both proceedings by reason of various concessions Riva is said to have made accepting those costs. The second issue is whether the solicitors can prove the quantum of their professional costs without the assistance of the two costs agreements that have been rejected from the evidence.

Riva’s alleged concessions of the quantum of the solicitors’ costs. The solicitors contend in final submissions that Riva’s current position is that it does not challenge the FCL partnerships’ retainers of FC1 and FC2 but that Riva improperly seeks to put the solicitors to proof of these retainers. The solicitors argue that in taking this position Riva misapprehends the onus of proof as there is a strong legal presumption that the retainers exist: see Halliday v SACS Group Pty Ltd (1993) 67 ALJR 678; [1993] HCA 13 (“Halliday”) per Mason CJ (at [7]). The solicitors submit that Riva bears the evidential onus as the party disputing the existence of a retainer to rebut the presumption with evidence: Halliday at [7]. The solicitors submit that Riva has adduced no evidence in rebuttal of that presumption.

Rather, the solicitors submit (in their submissions of 12 February 2020) that Riva has conceded the FCL partnerships’ retainer and that they accordingly can now make no challenge to the FCL partnerships’ entitlement as to costs. According to the solicitors the only issue is whether the costs should be awarded on the indemnity or the ordinary basis. The solicitors draw upon a range of material from Riva’s submissions to ground this argument. Much of the material remains uncontroversial: FC1 and FC2 are incorporated legal practices, FC1 and FC2 acted for the FCL Partnership, Mr Clancy was an employee of FC1 and FC2, and FCL Partnership retained FC1 and FC2. All these matters are not in dispute. But to the extent that the solicitors relied upon other so-called concessions about hourly rates, the experience of Mr Clancy, counsel’s fees and other similar matters in Riva’s submissions, these concessions should be understood as being put in the alternative and as not abandoning Riva’s principal arguments against the recovery of any costs by the solicitors. In particular, the Court does not accept the solicitors’ characterisation that Riva’s concessions amount to an acceptance that the FCL partnership retaining FC1 and FC2 leads to the conclusion that “Riva has no objection as to the question of costs claimed by FCL Partnership on the indemnity basis”.

The solicitors put the argument broadly. They submitted that the Court’s acceptance that FC1 and FC2 were retained by the FCL partnership meant that “Riva is obliged to abandon its Chorley challenge”. The solicitors thereby seek to sidestep the whole dispute about the quantum of costs by the acceptance that there was a retainer.

This is argument bears little relationship to the true contest that has taken place between these parties in oral and written submissions. It is quite evident from Riva’s detailed submissions that it does dispute the quantum and costs claimed by the solicitors.

The solicitors make too much of Riva’s submissions of 11 February 2020 as constituting major concessions. The written submissions of Mr D. Raphael of counsel of that date clearly do at least the following: they dispute the claim for indemnity costs; they take some issues with the quantum of costs without conceding any costs are payable; and they contend that only disbursements are recoverable because of the abolition of the Chorley exception. These submissions do not contain the broad range of concessions upon which the solicitors purport to rely.

Riva conceded, appropriately, that the FCL partnership is entitled to disbursements falling within the scope of a costs order, which the FCL partnership has a liability to pay and which are otherwise fair and reasonable.

The solicitors’ submissions on this subject blur the difference between a “retainer” and a “costs agreement”. They contend that proof of a retainer is enough to ground costs recovery. The two are not identical. A costs agreement may evidence a retainer. But in the absence of a costs agreement, the solicitors cannot directly establish that they have a liability to pay legal costs either to FC1 or FC2 and the rates at which those professional legal costs are payable. But they may be able to do so indirectly, a matter raised by the second issue in this section.

Proof of The FCL partnership’s liability to FC1 and FC2. The Court has concluded that Bell Lawyers does not preclude the FCL partnership from claiming an indemnity from Riva for the professional legal costs charged to them by FC1 and FC2. But Riva next fields various alternative arguments with the overarching theme that the solicitors have not established any liability to pay costs to FC1 or FC2. They contend that as party/party costs “are awarded by way of indemnity…to provide the successful party with a measure of indemnity against the expense of professional legal costs actually incurred in the litigation” (Bell Lawyers at [33]) a liability must be established in the FCL partnership to pay costs FCL1 and FCL2, to trigger the indemnity. This principle of law is not in issue.

But an issue arises because the solicitors’ attempt to prove the quantum of their professional costs without the assistance of the two costs agreements that have been rejected from the evidence. The solicitors contend that they have established applicable hourly rates and a liability of the FCL partnership to pay FC1 and FC2 for identifiable legal services by reason of both oral and documentary evidence apart from the two costs agreements.

The solicitors point to the following evidence. FC1 issued invoices to the FCL Partnership at certain calculated hourly rates and Mr Clancy on affidavit affirmed those hourly rates. FC1 and FC2 recorded the time of the employed solicitors apparently at those hourly rates. Mr Clancy says in affidavit evidence that he seeks to read that the FCL partnership has paid those invoices. The solicitors claim that FC1 and FC2 appear on the record and in correspondence with Riva was acting on behalf of FCL partnership and FC1 and FC2 have paid income tax and GST on the income received from the FCL Partnership.

This indirect evidence should be scrutinised very closely as to the binding nature of the hourly rates concerned when Mr Clancy has declined to submit the most direct evidence – the costs agreements. Mr Clancy’s surprising refusal to allow the metadata of the two costs agreements to be tested and the authenticity of those two costs agreements to be subject to scrutiny represents a strange position for a professional person relying upon documents claimed to be genuine. In these circumstances the Court is not willing to accept Mr Clancy’s affidavit evidence about hourly rates reflected in the costs agreement. But hourly rates in respect of work done are recorded to a limited extent in the invoices in evidence and the Court accepts they are genuine tax invoices. Mr Clancy has not been cross-examined to suggest otherwise.

Riva counters these contentions in several ways, which are set out and analysed in this section. For the reasons explained here the Court has found unpersuasive Riva’s answer to the solicitors’ limited case based on the FC1 and FC2 tax invoices that the Court is prepared to uphold.

First, Riva argues that as the solicitors have elected not to rely on the two written costs agreements, Mr Clancy’s evidence that he caused the FCL partnership to enter into these costs agreements with FC1 and FC2 is no more than mere assertion and the Court should not find this evidence establishes any liability in contract grounding an “indemnity against the expense of professional legal costs actually incurred in the litigation”.

This argument is correct as far as it goes. But it does not go very far. To the extent that it contends that the solicitors have not proved the precise terms of the costs agreements including the charge out rates and other contractual terms entitling FC1 and FC2 to charge professional fees, this submission can be accepted. But the Court is still capable of inferring from other materials that binding legal obligations to pay costs existed between the FCL partnership and FC1 and FC2 that are reflected in documents that were apparently created between the parties and probably passed between them at the time. As will be seen below this inference can be drawn at the bare minimum from the tax invoices issued contemporaneously on behalf of FC1 and FC 2 that record hours worked by personnel and hourly charge out rates. Whilst it may not be the only evidence from which inferences about legal liability can be made, it is some evidence and the Court is prepared to act upon it in the absence of cross examination suggesting to the solicitors that the invoices were a sham. But the Court is not prepared to accept Mr Clancy’s affidavit evidence about hourly rates, which is in substance secondary oral evidence about the costs agreements that he has declined to tender.

Second, Riva argues that the solicitors cannot rely in the alternative upon any liability of the FCL partnership in quasi-contract to pay costs. As was explained in Burrows, Riva accepts that a liability to pay costs giving rise to a right of indemnity can arise either in contract or quasi-contract. But Riva submits that quasi-contractual or restitutionary obligations cannot sit on top of an express contractual arrangement such as this, which the FCL partnership continues to propound. The solicitors cite Coshott v Lenin [2007] NSWCA 153 (“Lenin “) in support of their argument, a case in which a solicitor claimed for unpaid fees in restitution. Mason P observed in Lenin (at [10]) that a restitutionary cause of action “cannot sit on top of an effective and continuing contractual arrangement where that would subvert or undermine the contractual allocation of risk”.

This argument can also be accepted as far as it goes. But it does not preclude recovery of some of the costs claimed to be recovered in this case. All the judges in Burrows (Meagher JA at [17], Leeming JA at [67] – [68], and White JA at [148]) observe that the undertaking and provision of legal services pursuant to an express or implicit request do provide those services may give rise to an entitlement to be paid, either in contract or quasi-contract, and qualifying within the definition of “costs payable” in CPA, s 3(1). Here the solicitors do not have to rely upon quasi-contract. The Court can accept that there was some contract for the provision of legal services between the FCL partnership and FC1 and FC2 at different times. The terms of that contract are obscure and are only evidenced indirectly for professional fees and charges by the record of the tax invoices in evidence. The solicitors do not have to rely upon quasi-contract, so no question of competition between the operation of contractual and restitutionary remedies arises here.

Third, Riva argues that very little evidence exists to support the FCL partnership having any liability to pay costs to FC1 and FC2. Some of that evidence is objected to on hearsay grounds, such as evidence of alleged conversations with Mr Fraser. These conversations are objected to on hearsay grounds in Riva’s schedule of objections. Mr Fraser was not called to give evidence.

Moreover, Riva submits it is not obvious either from the conversations or from any of the tax invoices relied upon that Mr Fraser provided any legal services in respect of either the Riva damages proceedings or the receiver proceedings. Riva submits that the Court should draw a Jones v Dunkel inference from the solicitors’ failure to call Mr Fraser as a witness to establish a genuine contractual liability to pay costs to FC1 and FC2, further undermining the solicitors’ claim to a costs indemnity.

The Court rejects Mr Clancy’s alleged conversations with Mr Fraser. They are hearsay. But the invoices in evidence do not show that Mr Fraser undertook legal work himself on the Riva damages proceedings or the receiver proceedings and he was not a shareholder or director of FC2 during period (3). As he was not involved in the work in period (2) only a very weak Jones v Dunkel inference, if at all, might arise from the failure to call him. And the Court has other direct and reliable evidence of charges for legal services through the contemporaneous tax invoices.

Fourth, Riva claims that payments were made to FC1 and FC2. Riva objects to this evidence as no bank statements have been provided proving the payments. Riva submits that the Court should not find that payments were made and that there is no support from this for the Court to infer the existence of a genuine liability for the FCL partnership to pay costs to FC1 and FC2.

The Court rejects secondary evidence from Mr Clancy that various invoices were paid without the provision of direct evidence of bank records evidencing the payments. But the solicitors do not need to establish that the tax invoices have been paid to attract the Court’s jurisdiction to provide an indemnity in relation to costs under CPA, s 98. They might need to do that if they were claiming interest on costs. But that is not this case. The tax invoices themselves are evidence of a legal liability to pay the amounts they record and particularise under a contract which is otherwise not proven in the evidence. But the inference is only available to the limited extent of those invoices.

Fifth, Riva rejects the solicitors’ contention, relying upon cases such Halliday; (1993) 113 ALR 637 per Mason CJ at [7], that a presumption of a retainer can be invoked here to establish a liability to pay costs between the FCL partnership and FC1 and FC2. Riva argues that all the cases the solicitors cite in support of their contention about the presumption of a retainer relate to clients and law firms that are operating at arm’s length; and do not speak to situations where the client is also a lawyer in the law firm who is presumed to be retained. Riva submits that the presumption cannot be applied here.

The presumption of retainer argument has no relevance to the issues in this case and does not assist either party. Halliday and the cases referred to in it apply where a person appears on the record as the solicitor for a party that may in certain circumstances raise a presumption that there is a contract of retainer between the solicitor and the party. But for periods (2) and (3) in this case when FC1 and FC2 were retained, Mr Clancy was in fact the solicitor on the record. If there is a presumption of retainer it would amount to an inference that Mr Clancy was self-represented. But the tax invoices issued on behalf of FC1 and FC2 to the FCL partnership are sufficient to displace any inference of that character that might arise from Mr Clancy’s position as a solicitor on the record. The proper analysis here is that Mr Clancy’s name was left on the court record acting in his role as an employee of FC1 and FC2 during period (2) and period (3).

These reasons now turn to the third issue, whether a specified gross sum costs order can be made.

The above analysis simplifies the approach to the making and quantification of a specified gross sum order instead of assessed costs. Counsel’s fees and disbursements proven to be incurred in respect of the Riva damages proceedings and the receiver proceedings can be recovered against Riva. And professional costs incurred in periods (2) and (3) may be recovered to the extent that they are recorded in tax invoices issued by FC1 and FC2 to the FCL partnership.

Applicable legal principles. The principles governing the exercise of the Court’s jurisdiction to make a specified gross sum costs order instead of assessed costs may be shortly stated. The Court’s specified gross sum costs jurisdiction is embodied in CPA, s 98(4)(c). Reported Australian case law on the topic of specified gross sum costs orders is scant until the early to mid-1990s when, in cases such as Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 199 ("Beach Petroleum"), judges began to more commonly apply Australian rules of court that were precursors to s 98(4)(c).

But Courts have long exercised the power to fix a specified gross sum instead of assessed costs as part of the Court’s inherent costs discretion, without the need to rely upon specific rules. One early example of the High Court of Australia exercising such inherent jurisdiction is Edgar & Walker v Mead (1916) 23 CLR 29; (1916) 23 ALR 259; [1916] HCA 70 in which Isaacs J (at 46) applied the practice which Jessel MR had described and adopted in Willmott v Barber (1881) 17 Ch D 772:

The principles for the making of specified gross sum costs orders instead of assessed costs are well settled and reflect many of the considerations mentioned by Isaacs J. CPA, s 98(4)(c) is expressed in general terms and is not limited to cases of a particular type: Australasian Performing Rights Assoc Ltd v Marlin [1999] FCA 1006 (Burchett J). The power to award a s 98(4)(c) specified gross sum instead of assessed costs is exercised whenever circumstances warrant its exercise; the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum. The case law frequently emphasises the adaptability of the power and that it is not confined to previously defined classes of cases.

Probable inability to pay a costs order is but one example of a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered, then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also being unrecoverable: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (“Schipp”) at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 (“Hadid”) (Lehane J).

The adaptability of the power means it can be assessed for deployment in new situations. The specified gross sum can be fixed under s 98(4)(c) by the application of what has been described as a “broad brush” approach, having regard to all the information available to the Court: Schipp at [22] and Hadid at [27] and Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121 at [7] and [25]. The approach taken to the estimation of costs must be “logical, fair and reasonable” and the powers should only be exercised when the Court considers it can do so “fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available”: Schipp at [22] per Giles JA.

A definitive statement of the applicable law on the application of s 98(4)(c) in this State appears in Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820] (“Hamod”). Some of the relevant principles stated in Hamod are: that before exercising the power the Court should be confident that the approach taken to estimating costs is fair, logical and reasonable; that the terms of s 98(4), together with the more general considerations reflected in CPA, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include the degree of any disproportion between the issue litigated and the costs claimed and the complexity of proceedings in relation to their cost; that the power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceeding; that the assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing; that in the exercise of its discretion, the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment; that the costs ordered should be based on an informed assessment of the actual costs, having regard to the information before the Court (for example, by relying on costs estimates or bills); and that the approach taken to estimate the costs to be ordered may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.

The Court has long indicated to the parties in these proceedings that this case is suitable for the making of an order for a specified gross sum instead of assessed costs. Not the least of the reasons why the exercise of the Court’s s 98(4)(c) jurisdiction is clearly appropriate here is that this is a contest about a costs assessment between parties who have been engaged in over 10 years of litigation about a costs assessment. To order another cost assessment is to invite a further cycle of predictable litigious trench warfare.

But the material placed before the Court makes it difficult to make a specified gross sum costs order in this case. The parties have been made fully aware that they were required to put forward their best evidence to enable a specified gross sum costs order to be made. The Court will do the best it can with the material available.

Courts are not infrequently presented with incomplete evidence about costs liability to pay costs when making specified gross sum orders instead of assessed costs. The Court has an incomplete evidentiary picture of the costs arrangements in the retainer between the FCL partnership and FC1 and FC2. Similar though not identical problems arose in Burrows. The appellant raised in Burrows an issue that no evidence had been adduced of any tax invoice rendered or costs disclosure made in accordance with the rules by the successor legal practice to the former legal practice. This was held not to be a bar to be making of a specified gross sum cost order. Leeming JA explained the position in the following passage (at [67] – [70]).

The evidentiary problems are different here but they are not an insuperable obstacle to making a s 98(4)(c) order.

But the Court will allow the parties an opportunity to draw attention to any matters which may have been overlooked by the Court in reaching the figures set out here. That opportunity does not afford an invitation to the parties to tender any further evidence, as that has been precluded by the Court’s management of this part of the proceedings, a matter that has been clearly communicated to the parties.

Analysis of the materials for a specified gross sum assessment. The following are the invoices that Riva advances with all amounts being expressed inclusive of GST:

These amounts add up to $175,314.08. Strangely in written submissions, in a way that had not been explained far as the Court can see, the solicitors claimed costs of $525,106.21. The Court will first analyse the five tax invoices in evidence, to analyse what costs they establish were incurred.

(1) Tax Invoice 30592 dated 26 June 2018. This invoice for $153,862.50 from Fraser Clancy Lawyers to Mark Fraser and Christopher Clancy contains no breakdown of this lump sum. The invoice simply describes the sum claimed as “total of our fees, disbursements and office expenses as detailed below” stating an amount due of $139,875 plus GST of $13,987.50. The Court has no basis to analyse the detail what work the charges are for, when the work is alleged to have started except for the following very limited “description of work”

But no account was attached. No account has been separately provided. This very general statement of the work is wholly inadequate for the Court to have confidence in determining what work was done, whether it was pursuant to a binding costs agreement between the FCL partnership and the incorporated legal practices and whether it really related to the Riva damages proceedings and the receiver proceedings. Based on this tax invoice the Court does not have confidence in ordering a specified gross sum instead of assessed costs for the period indicated and the Court declines to do so. No individual disbursements are identified in this invoice.

For these reasons the Court will not award any amount by way of a specified gross sum instead of assessed costs based on this invoice.

(2) Tax Invoice 1370 dated 26 November 2019. This invoice is from Peter Barham barrister to Mr C Clancy of Clancy Lawyers Pty Ltd in the total amount of $29,363.95. It turns out upon analysis to be an invoice for fees in an amount of $5,109.50 inclusive of GST. The balance of the invoice of $24,254.45 in fact is not an invoice but a financial statement recording “outstanding” amounts net of payments. This invoice is entitled as relating to the receiver proceedings and it can be accepted that the work is in respect of those proceedings. The work invoiced for $5,109.50 relates to the period of approximately 18 months between 19 June 2018 and 25 November 2019. Whilst the earlier outstanding fees of $24,254.45 might seem reasonable for that period and might relate to matters that fall within the Court’s general understanding of the course of the receiver proceedings during that period.

But without particularisation of any of the amount of $24,254.45 it is impossible to have confidence in the fixing of a specified gross sum to be able to test the reasonableness of this amount in relation to identified barrister’s work that relates to the receiver proceedings. This invoice 1370 also straddles a period when FC1 and then FC2 were acting on instructions from Mr Fraser and Mr Clancy and then Mr Clancy on his own. The invoice does not make a distinction between legal services provided to FC1 and FC2.

The balance amount of this invoice in the amount of $5,109.50, can be assessed as part of a specified gross sum costs order, as on its face it is related to the active phase of the receiver proceedings between 2 June 2017 and 11 April 2018 and provides sufficient detail of the work done. The Court will allow this amount in full as is usual with counsel’s fees when costs are ordered to be paid on the indemnity basis.

(3) Tax Invoice 31043 dated 2 December 2019. This invoice for $2,558.80 issued by Clancy Lawyers Pty Ltd (FC2) to Mark Fraser and Christopher Clancy comprises work which is itemised over the period between 10 September 2019 and 30 September 2019 totalling $2,260.50. The work is said to relate to both the Riva damages proceedings and the receiver proceedings, and this can be accepted. A 2% surcharge is added for “telephone postage and sundries” and for a disbursement print title search totalling $65.68 plus GST of $6.57, totalling $2558.80 inclusive of GST (being $2326.18 plus GST of $232.62. The period covered leads up to my first judgment which struck out the statement of claim in the Riva damages proceedings. The fees and charges set out in the invoice appear to be reasonable and to be the kind of work that might be expected to relate to the Riva damages proceedings and the receiver proceedings at the time.

Riva objects to some individual disbursements identified in this invoice, including the 2% surcharge. But it can be inferred that these amounts are billed in accordance with the costs agreement not in evidence and as an indemnity costs order has been made the Court sees no reason why all of these costs should not be recoverable by the solicitors. The Court is conscious that when a specified gross sum cost order is made in respect of indemnity costs orders that full indemnity is not always ordered. But the amounts in this invoice are obviously reasonable and should be allowed in full as the Court sees no basis to reduce them.

(4) Tax Invoice 31134 dated 19 March 2020. This invoice for $8,531.33 issued by Clancy Lawyers Pty Ltd (FC2) to Christopher Clancy is a fully itemised invoice for the work done between 2 October 2019 and 9 October 2019 in both the receiver proceedings and the Riva damages proceedings. The work itemised is what would be expected in both sets of proceedings at that time. Some individual disbursements are identified in this invoice.

The amounts itemised in this invoice are within the active phase of the Riva damages proceedings but not the receiver proceedings. For that reason, they will only be allowed in part in respect of the Riva damages proceedings. They are reasonable in relation to the Riva damages proceedings. And most of the costs would have been incurred in relation to the Riva damages proceedings whether the receiver proceedings existed or not. For that reason, the Court will allow $6,500 as part of a specified gross sum instead of assessed costs in respect of this invoice.

(5) Tax Invoice 31287 dated 14 December 2020. This invoice for $10,361.45 issued by Clancy Lawyers Pty Ltd (FC2) to Christopher Clancy is said to relate to both the Riva damages proceedings and the receiver proceedings. It contains no breakdown of the work done, nor is there even a description of the work done despite the amount billed being described as the “total of our fees disbursements and office expenses as detailed below”. Individual disbursements are not clearly identified below.

The Court cannot with any confidence fix any amount by way of a specified gross sum costs order based upon this invoice and declines to do so.

Thus, in summary based on the above invoices Court is prepared to fix an amount of $14,168.30 (being $5,109.50 plus $2,558.80 plus $6,500) as a specified gross sum instead of assessed costs based on the evidence presented.

Further directions. Two matters remain. The first matter is whether any other evidence of costs incurred in the two proceedings has been omitted from these reasons. The second matter concerns the costs of the parties after the active phase of the receiver proceedings and the Riva damages proceedings.

As to the first matter, can anything else be recovered here by the solicitors under a specified gross sum costs order? The solicitors’ submissions of 5 August 2021 claimed total costs incurred by the FCL Partnership, FC1 and FC2 of $525,106.21, comprised of counsel’s fees of $59,985.25, disbursements of $17,448.01 and professional fees of $447,673. But as was explained earlier, it is not obvious how these amounts are justified or how they relate to any of the invoices that the solicitors rely upon in the court book.

The Court’s reasons mean that the professional fees of $447,673 could be dismissed due to a lack of proof of the solicitor’s liability to pay legal fees to FC1 and FC2 in respect of these amounts. And the counsel’s fees of $59,985.25 and disbursements of $17,448.01 are not cross-referenced to any invoices so far as the Court can see. Nor is it clear that they were incurred during the Riva damages proceedings and the receiver proceedings. An increased specified gross sum costs order can be made if the solicitors are able to identify in the existing materials before the court how these amounts are proven in case the Court has perhaps overlooked them.

The Court is prepared to accept that some disbursements and professional costs were incurred by the solicitors in addition to those which the Court has now indicated it is prepared to make part of a specified gross sum costs order. But they need to be strictly proved, by reference to documents in evidence. It is understandable that the solicitors have not focused on proving these disbursements incurred within the relevant periods of the proceedings due to the wide range of issues that have been in play in these proceedings up until now. These reasons have markedly narrowed the nature of the solicitors’ possible recovery.

It is therefore appropriate to give the solicitors a very short opportunity to identify the professional costs, the counsel’s fees and disbursements that are said to fall within the period in which the solicitors were acting in case they have been overlooked. The Court has made the directions below to permit that to happen. But in a case as long running as this, with as many opportunities that have already been afforded to the parties to file evidence, the Court will not permit either side to file any further evidence in support of the recovery of professional fees counsel’s fees and disbursements. The material must be identified in the existing evidence and submissions made upon that evidence. The submissions in these proceedings have been so unreasonably voluminous that the Court will place a page limit upon submissions of what is now a very narrow issue.

As to the second matter, the parties should be given an opportunity to put submissions about the appropriate order for costs after the active phase of the receiver proceedings and the Riva damages proceedings: that is, in the Riva damages proceedings after 30 November 2019 and in the receiver proceedings after 11 April 2018.

The solicitors have been partially successful in obtaining an indemnity costs order obtaining an order up to a limited period and have been successful on the Chorley exception issue. But on a claim for $525,106.21 in legal costs they have so far only been able to make out proof of a liability $14,168.30 (or 2.7% of their claim) to fix a specified gross sum instead of assessed costs. As much time has been spent on the issues on which the solicitors were unsuccessful as on the issues on which they succeeded. Moreover, the solicitors have propounded repetitive and confusing submissions and constructed a court book of limited value. The Court is disinclined to compensate such conduct in litigation with any form of costs order in favour of the solicitors after the active phase of the receiver proceedings and the Riva damages proceedings.

But this issue was not obvious to the parties at the time that they put submissions to the Court, so the Court will permit of short further opportunity for written submissions on what costs order should be made with respect to the period after the active phase of the receiver proceedings and the Riva damages proceedings. But costs orders during this period may make little difference to the outcome for the parties, as they will still be limited to what costs are proved on the existing evidence.

For these reasons the Court will make the following orders and directions in both the Riva damages proceedings and the receiver proceedings: