In the recent decision of United Petroleum Australia Pty Ltd v Freehills [2020] VSCA 15, the Victorian Supreme Court extended the High Court's decision in Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555 by ruling that self-represented law firms are not entitled to recover costs incurred for their professional services in acting for themselves in legal proceedings. The decision is a sign of things to come in other jurisdictions in Australia. 

The Chorley exception is left high and dry

In September 2019, we published an article about the High Court decision of Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555, in which it was ruled that the "Chorley exception" is not part of the common law of Australia.

By way of recap, the general rule is that self-represented litigants are not entitled to recover their costs for their time spent or work performed in the course of legal proceedings. The so-called "Chorley exception" is a principle developed in the common law of the United Kingdom that allows self-represented clients who are solicitors to recover their professional costs for acting in the proceedings.

In that decision, the plurality of the High Court held that the Chorley was not only an anomaly in Australian law, it was an affront to the fundamental notion of equality before the law. Accordingly, it was held that a barrister was not entitled to recover their costs for representing themselves in proceedings. However, the plurality maintained that the abolition of the Chorley exception would not disturb the independent "well-established understanding" that government agencies and corporations are entitled to recover costs of their inhouse solicitors.

In our earlier article, we noted that the High Court decision left the door open on the issue of whether a self-represented law firm is entitled to recover costs on account of the professional time incurred by its employed solicitors.

In a unanimous decision, the Supreme Court of Victoria has now stepped through that door.

The writing on the wall – the Supreme Court of Victoria finishes what the High Court started

Herbert Smith Freehills (Freehills) commenced proceedings against United Petroleum Australia Pty Ltd (United Petroleum) to recover outstanding legal fees. United Petroleum commenced separate proceedings against Freehills for negligence in the provision of its legal services. Freehills was successful in both sets of proceedings and obtained judgment for its fees and special costs orders in its favour.

The decision of United Petroleum Australia Pty Ltd v Freehills [2020] VSCA 15 concerns an application for leave to appeal the decisions in both proceedings.

By a cruel twist of fate, the hearing of the application commenced on the same day that the High Court handed down the decision of Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555.

In applying the reasoning of the plurality in the High Court decision, the Supreme Court of Victoria framed the issue before it as whether a claim by a law firm to recover costs for the work of its employed solicitors would only be available via application of the Chorley exception, or whether it would be available by virtue of the "well-established understanding" relating to the recovery of costs of inhouse counsel in government agencies and corporations. If it was the former, the High Court had seemingly shut that door. If it was the latter, it was open to the Supreme Court of Victoria to order that United Petroleum pay Freehills' costs.

Ultimately, the Supreme Court of Victoria held that employed solicitors of law firms are not analogous to inhouse counsel. In the former case, the employer law firm is both the party and the solicitor on the record (i.e. it is self-represented). In the latter case, the employer government agency is the party and the inhouse counsel is the solicitor on the record.

As a result, the Supreme Court of Victoria held that Freehills was not entitled to recover the fees incurred for work undertaken by its employed solicitors.

However, the Court affirmed that self-represented solicitors are entitled to recover the costs of their disbursements, including barristers' fees.

The canary in the mine – implications of the decision

As foreshadowed in our earlier article, the decision of the Supreme Court of Victoria is an expected development following the High Court decision and a sign of things to come in other jurisdictions.

One obvious implication of the decision of the Supreme Court of Victoria is that law firms will be less likely to represent themselves in proceedings, and will outsource the work to either independent solicitors or barristers whose costs can be recovered.