March 2007

Claiming legal costs in litigation of in-house counsel

It is usual in commercial proceedings, where parties are legally represented, for costs to be awarded against an unsuccessful party. An award of party/party costs provides the recipient with a partial indemnity for the legal costs expended over all or part of the life of the proceedings.

Both practice and principle are clear where an external lawyer is retained ? but what about the costs to a company of the involvement of in-house counsel in proceedings?

Cases in which the ability of a successful party to claim in-house counsel's costs have shown there is no real difference between in-house and external lawyers for this purpose.

The In-House Lawyer's Retainer

In the 1999 decision of Bank of Western Australia Ltd v O'Neill the Court was asked to determine the question "where a party to legal proceedings is represented by a certificated solicitor who is employed by that party on salary and is awarded costs, do the recoverable costs include the professional legal costs of such solicitor?".

His Honour Justice White found that the relationship between the Bank of Western Australia Ltd (Bank WA) as a corporate entity and the solicitors it chose to employ "is similar to that between any solicitor and client and the remuneration of the solicitors is governed by a written retainer which appears to be not dissimilar to a costs agreement". His Honour found that Bank WA had incurred liabilities for professional legal services and saw the retainer as evidence of that fact. It was held that "the bill of costs should have been taxed on the same basis as a bill of costs rendered by a certificated practitioner who is not the employee of the party in whose favour the costs have been awarded."

If No Retainer

Can costs of in-house counsel be recovered where there is no retainer? In the 2001 decision in Commonwealth Bank of Australia v Hattersley a Court appointed cost assessor advised the costs applicant, the Commonwealth Bank of Australia (CBA), that he did not consider in-house counsel's claim of $220.00 per hour an accurate figure reflecting the cost to CBA of using its in-house counsel. The cost assessor advised the costs applicant that an accurate hourly rate for in-house counsel could only be reached by dividing the wage earned by in-house counsel by the amount of hours worked. The same was required for each of the Bank's employees whose work was claimed in the bill of costs. CBA objected to this method and appealed to the Supreme Court of NSW.

His Honour Acting Justice Davies disagreed with the costs assessor saying "it is not the manner in which the practitioner carried on his or her profession which counts, it is the nature of the work, the time spent and the skill, care and responsibility involved". His Honour found that "there are no facts in the present case which show any cause for undertaking the task required or directed by the assessor". In addition, the Court found that the cost assessor's request would not lead to an accurate hourly rate for in-house counsel and would have led to an assessment of the costs on a wrong basis.

His Honour also addressed the "indemnity principle", that costs awarded are to indemnify the party to whom they are awarded and should not result in a profit to the party. His Honour stated that "In many cases, the possibility that an assessment on the usual basis might result in a profit has been disregarded". In addition, His Honour argues that "The principle of indemnity is one which must be applied flexibly and reasonably".

The Spectre of Time Sheets

The ruling in Commonwealth Bank of Australia v Hattersley is not all good news for in-house counsel. His Honour held that the costs assessor, if he so choose, could request or direct "the Commonwealth Bank of Australia to redraw the bill of costs so that it claims, inter alia, allowances for time spent". It is not always the practice of in-house counsel to keep timesheets of work carried out on each file. The judgment in Commonwealth Bank of Australia v Hattersley seems to indicate that this information can be called upon by the costs assessor in making his determination. It is unclear whether a failure to provide the costs assessor with time sheets or some form of contemporaneous recording of time spent in preparing for the proceedings will be grounds to greatly reduce the amount awarded for work carried out by in-house counsel, but it would appear that time recording may become a serious issue in assessing costs.

The recent 2006 decision in Collex Pty Ltd v Roads and Traffic Authority of NSW (RTA) followed the judgment in Commonwealth Bank of Australia v Hattersley and acknowledged that His Honour Acting Justice Davies' judgment was a comprehensive treatise of judgments concerning the issue of in-house legal costs.

In summary:

  • Costs can be claimed for work carried out by in-house counsel on the same basis as costs claimed for work carried out by external lawyers.

  • The hourly sum allowed for in-house counsel's work is a reflection of the nature of the work, the time spent and the skill, care and responsibility involved.

  • In-house counsel may be asked by a cost assessor to justify the bill of costs with proof of the time he or she spent on the work.