The High Court’s decision in Birketu Pty Ltd v Atanaskovic [2025] HCA 2 changes the landscape around unincorporated law firms recovering legal fees when their employed solicitors act for them, and will bring further comfort to in-house and government lawyers.
The case involved the question as to whether or not an unincorporated law firm could recover costs relating to the work done by its employed solicitors in the course of recovering costs against a former client.
The court noted and asked itself the following:1
A partner in an unincorporated law firm represents the firm in litigation against a former client. The firm is successful in the litigation and procures an order for costs in its favour. The order for costs does not entitle the firm to obtain recompense for legal work performed by the partner: that much is clear from Bell Lawyers Pty Ltd v Pentelow.2 But does the order for costs entitle the firm to obtain recompense for legal work performed by an employed solicitor of the firm?
The primary judge found against the firm, deciding that they could not recover costs for work done for them by their employed solicitors.
The firm appealed successfully, with the New South Wales Court of Appeal finding that the firm was entitled to be compensated for legal work done by an employed solicitor of the firm. The former clients appealed that decision, but were unsuccessful, with the majority of the High Court holding that the firm could claim professional fees under a costs order for work done by its employed solicitors.
In coming to its decision, the majority invoked the common law principle which confines professional legal cost to those actually incurred by a litigant, in the context of the in-house solicitor rule. That rule allows that a litigant represented by a lawyer they employ can recover the costs of that representation. The majority specifically noted that the decision in Bell Lawyers Pty Ltd v Pentelow,3 which found that the Chorley exception was not part of the common law of Australia, did not disturb the in-house solicitor rule.4
The majority also unequivocally explained the court’s view of the effect of the decision in Bell Lawyers:
The rejection of the Chorley exception in Bell Lawyers means that the general common law principle that costs are awarded by way of indemnity or partial indemnity for professional legal costs actually incurred in the conduct of litigation now falls to be applied to litigant solicitors or unincorporated law firms in the same way as it applies to other litigants. Like any other litigant, the solicitor or firm cannot obtain recompense for their own legal work. And like any other litigant, the solicitor or firm can obtain recompense for legal work done by their employees, on the basis that the expenses of the salaries and overheads associated with having that legal work done by their employees constitute professional legal costs actually incurred by the solicitor or firm.5
It should be noted that the dissenting Justices, Steward and Jagot JJ, were unequivocal and indeed robust in their dissent, with Steward J noting that allowing the firm to recover their costs would “..make a mockery of what was decided in Bell Lawyers…”.6 Jagot J noted that such a decision would “…restore the very affront to the equality of all persons before the law which motivated the decision in Bell Lawyers.”
Of comfort to government and in-house lawyers is that all members of the court firmly endorsed their right to recover costs. Following the decision in Bell Lawyers, there was division7 on whether an unincorporated firm could recover costs when having an employed solicitor act for it in a proceeding; clearly, that is no longer the case.
Footnotes
1 Birketu Pty Ltd v Atanaskovic [2025] HCA 2, [1] (Birketu Pty Ltd v Atanaskovic).
2 [2019] HCA 29.
3 Ibid.
4 Birketu Pty Ltd v Atanaskovic (n 1) [20].
5 Ibid [25].
6 Ibid [39].
7 Birketu Pty Ltd v Atanaskovic [2025] HCA 2, [2].
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