Drew, Sharon --- "Costs column: Pro bono agreements and costs recovery" [2018] PrecedentAULA 63; (2018) 148 Precedent 47

---

PRO BONO AGREEMENTS AND COSTS RECOVERY

By Sharon Drew

The general rule in Australian litigation is that costs follow the event, with a successful party usually benefitting from an order that the unsuccessful party pay costs. Costs are awarded to indemnify a successful party in litigation, not to punish an unsuccessful party.^[1]

The extent to which costs can be recovered from another party is limited to the amount which the successful party is obliged to pay his/her lawyers (the ‘indemnity principle’).^[2] The operation of the indemnity principle is complicated where legal services are provided to the successful party on a pro bono or conditional basis.

While standard ‘no-win no-fee’ costs agreements (where payment of legal costs is conditional on recovery of damages or other benefit) do not appear to pose significant issues, costs agreements where payment is conditional upon a costs order or recovery of costs have been viewed differently. For example, in Wentworth v Rogers, Santow JA expressed the view that the application of the indemnity principle should not depend on the distinction between the different types of conditional costs agreements,^[3] whereas Basten JA concluded that only the first type of conditional costs agreement satisfied the indemnity principle.^[4]

The distinction was also upheld in King v King,^[5] where Chesterman JA noted that ‘The circularity noted by [Basten JA] ...shows when properly analysed that there is no obligation in the applicant to pay costs until a costs order is made and a costs order cannot be made until there is a liability in the successful litigant to pay his own lawyers’ costs. Catch 22 it may be, but the reality is that the client’s liability to pay his solicitors stands on a whirligig which moves beneath it, and cannot support the need for an indemnity.’^[6] The fact that the costs agreement in that case was altered shortly before judgment, in a manner which was held not to comply with the Legal Profession Act, was likely to have been a significant factor in the court’s determination in King. The opposing view was subsequently upheld in circumstances where from the outset the costs agreement provided that no costs would be payable unless an order was made by the court in favour of the party, and the costs charged would be limited to the amount of costs recovered from the other party.^[7]

In Manieri & Anor v Cirillo^[8] the Victorian Court of Appeal held that a conditional costs agreement – where payment of legal costs was conditional on either a costs order being made or settlement including a costs component – satisfied the indemnity principle. Court of Appeal Justices Nettle, Hansen and Santamaria concluded that as the Legal Profession Act did not distinguish between types of conditional costs agreements, the application of the indemnity principle should not depend on such distinction.^[9] However, costs being conditional on recovery of costs from another party may not be sufficient to satisfy the indemnity principle.^[10]

Broadly speaking, more recently courts in various jurisdictions appear inclined to the view that where the successful party’s liability to pay costs is conditional on a costs order, that will be sufficient to satisfy the indemnity principle and the courts will make a costs order in the successful party’s favour.^[11]

True pro bono cases are distinguished from conditional costs agreements in that lawyers are not entitled to recover costs from the client irrespective of the outcome or orders made. Pro bono work in the context of the legal profession generally means providing free legal services to clients who would not otherwise be able to access the legal system, or whose matters raise an issue of public interest.^[12] In pro bono matters, costs recovered are generally re-invested in the pro bono program or may be donated to a community legal centre or other charity aligned with pro bono services, whereas in ‘no-win, no-fee’ matters costs recovered are generally treated as income for the lawyer.^[13]

In certain jurisdictions, recovery of costs from another party where legal services have been provided pro bono is determined by legislation.^[14] Pro bono advocates support further legislative reform to promote the public policy rationale underlying pro bono services and, in particular, fairness in parties’ exposure to costs.

The policy arguments in favour of granting costs orders where the successful party is represented on a conditional or pro bono basis are thus the assistance provided to parties who would otherwise be unable to access legal services or may be unrepresented and the assistance to courts in promoting efficient administration of justice. Where both parties face similar risks of an adverse costs order, irrespective of whether one party’s legal representation is provided on a pro bono or conditional basis, the use of delaying or cost-increasing tactics is also likely to diminish.

Compliance with the relevant regulatory legislation in terms of disclosure and a valid costs agreement is likely to increase the probability of a costs order being made, whether legal services are provided pro bono or conditionally. The Australia Pro Bono Centre provides sample letters of engagement, which are a useful resource. The precise nature of the lawyer/client relationship including the basis on which legal costs will become payable should be carefully considered and, where appropriate, a standard conditional costs agreement should be tailored to the particular circumstances.

Sharon Drew is Principal of Blue Ribbon Legal – specialising in legal costs disputes. PHONE [phone] EMAIL [e-mail] WEB www.blueribbonlegal.com.au.

---

^[1] Oshlack v Richmond River Council [1998] HCA 11, per Brennan CJ at [1].

^[2] See Wentworth v Rogers [2006] NSWCA 145, particularly Basten JA at [126]; Trevorrow v State Of South Australia (No 7) [2008] SASC 5, [17].

^[3] [2006] NSWCA 145, [54].

^[4] Ibid, [133]-[135].

^[5] [2012] QCA 81.

^[6] Ibid, [13].

^[7] LM Investment Management Limited (Administrators Appointed) v The Members of the LM Managed Performance Fund [2014] QSC 54.

^[8] [2014] VSCA 227.

^[9] Ibid, [51].

^[10] See Mourik v Von Marburg [2016] VSC 601, the correctness of which has been doubted in Royal v El Ali (No 3) [2016] FCA 1573.

^[11] See, for example, Mansfield v Townend (No. 2) [2018] NSWDC 177.

^[12] See, for example, Australian Pro Bono Centre at <http://www.probonocentre.org.au> .

^[13] Australian Pro Bono Centre, ‘Victorian Supreme Court provides clarity around costs for litigants in pro bono matters’, Australian Pro Bono News, Issue 118, May 2017, <https://www.probonocentre.org.au/apbn/may-2017/victorian-supreme-court-provides-clarity/>.

^[14] For example, Part 3A Supreme Court (General Civil Procedure) Rules 2015 (Vic) which arguably applies to both pro bono and conditional legal services; r7.41 Uniform Civil Procedure Rules 2005 (NSW) which applies only to court-appointed pro bono services; r4.19 Federal Court Rules 2011 (Cth).