FEDERAL COURT OF AUSTRALIA

A & D Douglas Pty Ltd ACN 008 404 180 v Lawyers Private Mortgages Pty Ltd ACN 010 556 751 [2006] FCA 690

A & D DOUGLAS PTY LTD ACN 008 404 180, GRAHAM LESLIE ANDERSEN and HILARY ANDERSEN, YVONNE ELLEN ANDREW, DAVID WILLIAM ARMSTRONG, CHERYL LYNETTE BACKWELL and PHILIP ASHLEY RYAN (as executor of the Estate of ELSIE EDITH BACKWELL), HEINRICH BAUER and SABINE BAUER, DONALD BENGSTON, WILLIAM MALCOLM BRYDEN and MARGARET ANNE BRYDEN, FIONA MARY CAMPBELL (as trustee of the F CAMPBELL SUPERANNUATION FUND), FREDRIKA JANE CARSON, ROBERT JOHN CHARLES MCINTYRE (as executor of the Estate of ALAN STANSFIELD CHENEY), JAMES DAVID CLADINGBOEL and MARIAN ELSIE CLADINGBOEL, KENNETH BARRY DUNCAN and JOAN EDITH DUNCAN (as trustees of the DUNCAN FAMILY SUPERANNUATION FUND), LYNETTE KAY HAMATY, KEITH EDWARD HOLMES (as trustee of the MELZTNER TRUST), PATRICK FYSK HOWDEN, JILLIAN ANNE HUGHES, INFOTEC M.S. PTY LTD ACN 003 954 523, JOHN FRASER KENNEDY and VIVIAN JESSICA KENNEDY, MICHAEL COLIN MELLISH, WADE RICHARD MELLISH, ERIC JAMES MITCHELL and JULIE ANNE MITCHELL (as trustees of the MITCHELL RETIREMENT FUND), RONALD JOHN MOHR and MARGARET STEWART MOHR, ALLAN JOHN MORRISON and PATRICIA JOY MORRISON (as trustees of the A & P MORRISON PENSION FUND), DELIA MURDOCH, BRIAN CHRISTIAN NIELSEN, KAREN ROSE PARKER, PETER JOHN PERRING, KEITH PRINCE, ROBERT RITORZE, NICOLA SCOTT, NARELLE VIDA SHALLARD (as trustees of the C & N SHALLARD SUPERANNUATION FUND), IAN ARCHIBALD STEWART and DOROTHY STEWART, WARREN GEORGE TROTMAN and CARMEL MYNETTA TROTMAN (as trustees of the WGCM TROTMAN SUPERANNUATION FUND), W J & A M LUKE PTY LTD ACN 000 884 266, GRAHAM ROBERT WATT and PATRICIA ANNE WATT, ANNIE CATHERINE WEBB, DIETER HOLMAN (in his own right and as executor of the Estate of MILDRED HOLMAN, ALICE JOY TANGEY (in her own right and as executor of the Estate of KEVIN HERBERT TANGEY) v LAWYERS PRIVATE MORTGAGES PTY LTD ACN 010 556 751, JONATHAN JAMES McCARTHY, BRUCE MICHAEL DURIE, PHILIP ASHLEY RYAN and IAN ALEXANDER NEIL, ST PAUL INTERNATIONAL INSURANCE COMPANY LIMITED and QBE INSURANCE (AUSTRALIA) LIMITED ACN 003 191 035

QUD 113 OF 2005

DOWSETT J

26 MAY 2006

BRISBANE

REASONS FOR JUDGMENT

1                     I appreciate that this matter may involve a substantial sum of money.  However, given the history of this case, it is undesirable that there be any avoidable delay in its ultimate resolution.  To the extent that I am capable of facilitating that outcome I should do so.  Further, the volume of work with which I am faced at the moment, at least partly as a result of the time devoted to this case, means that if I were to reserve my decision, I would probably not be able to deliver it until well into the second half of the year, probably not until about September.  That would be an unsatisfactory outcome.  For those reasons, I propose to give an ex tempore judgment.  In so doing I neither overlook the seriousness of the matter nor reflect adversely upon the submissions which have been made.  They have been very helpful.  I am sure that even with the benefit of a further adjournment, they could not have been any more helpful.

2                     The present question concerns the proper construction of a contract of insurance between the cross-claimant (“MDRN”) and the second cross-respondent (“QBE”).  Clause 1.2 of the policy provides that:

‘QBE agrees to pay, in addition to the Limit of Indemnity, the Costs and Expenses incurred with the written consent of QBE in the defence or settlement of any Claim covered by this Policy.’

3                     The term “Costs and Expenses” is defined in par 7.2 as follows:

‘ “Costs and Expenses” shall mean the expenses incurred by or on behalf of the Insured or QBE in the investigation or defence of a claim and shall include legal costs and disbursements.’

4                     It is important to note that the expression “Costs and Expenses” when used in cl 1.2, is not limited to costs in the legal sense.  The expression means “expenses”, and that word includes, but is not limited to, “legal costs and disbursements”. 

5                     In this case, MDRN acted on its own behalf.  Having been successful in establishing a right of indemnity against QBE, it seeks to recover, as part of that indemnity, its professional costs and outgoings incurred in defending the claim by the applicants against it.  The question is one of construction of the covering clause in the policy.  However a substantial amount of time has been spent in examining the state of the authorities in connection with costs orders made in favour of solicitors who act for themselves.  Those cases are of considerable interest but, at the end of the day, I doubt whether they are more than marginally relevant to the construction question.  I will say a little about them.  

6                     The starting point for present purposes is the decision in London Scottish Benefit Society v Chorley (1884) 13 QBD 872.  The headnote states:

‘Where an action is brought against a solicitor who defends it in person and obtains judgment, he is entitled upon taxation to the same costs as if he had employed a solicitor, except in respect of items which the fact of his acting directly renders unnecessary.’

7                     The High Court referred to that proposition in Guss v Veenhuizen (No 2) (1976) 136 CLR 47, where Gibbs  ACJ, Jacobs and Aickin JJ said at 51:

‘The appellant did not claim costs incurred by him in retaining the professional services of a solicitor in his litigation.  He appeared in person.  He sought taxation of costs on the basis that he was a solicitor who acted for himself and did so according to the well established rule of practice which entitles a person, being a solicitor, to certain professional costs in those circumstances.

…

Those authorities establish that the litigant in person does not recover such costs in such circumstances in the capacity of a solicitor, but because, he happening to be a solicitor, his costs are able to be quantified by the court and its officers.’

8                     The entitlement of a solicitor to recover costs is said to be an exception to the general rule that a litigant in person is not entitled to such an order.  The High Court (Mason CJ, Brennan, Deane, Dawson, and McHugh JJ) said in Cachia v Hanes (1993-94) 179 CLR 403 at 412:

‘Both the general principle and the exception have been accepted in this Court.  In Guss v. Veenhuizen [No. 2], Gibbs A.C.J., Jacobs and Aickin JJ., after citing [Chorley], said of a solicitor who acts for himself:

“Those authorities establish that the litigant in person does not recover such costs in such circumstances in the capacity of a solicitor, but because, he happening to be a solicitor, his costs are able to be quantified by the Court and its officers.”

They went on to cite with approval the passage from the judgments of Brett M.R. and Bowen L.J. in [Chorley] which we have cited above.  It is, however, important to note that no general submission was advanced in Guss v. Veenhuizen [No. 2] to the effect that a successful solicitor litigant who acts for himself is never entitled to recover “costs” in respect of his own time and services.  The argument in the case was about whether the solicitor litigant was precluded from recovering “costs” in respect of his own time and services in relation to an appeal to this Court by reason of the fact that he was not on this Court’s Register of Practitioners.

If the explanations for allowing the costs of a solicitor acting for himself are unconvincing, the logical answer may be to abandon the exception in favour of the general principle rather than the other way round.  However, it is not necessary to go so far for the purposes of the present case.  It suffices to say that the existence of a limited and questionable exception provides no proper basis for overturning a general principle which has, as we have said, never been doubted and which has been affirmed in recent times.’

9                     Were Cachia v Hanes to stand as the most recent pronouncement on the subject, the appropriate course would be to apply both the principle and the exception.  However, since that decision, three state appellate courts have addressed the matter, with varying outcomes.  The Full Court of the Supreme Court of Western Australia considered it in Dobree v Hoffman (1996) 18 WAR 36, concluding that the exception should not be applied.  Similarly, in Burford v Allen (1996-97) 68 SASR 217, the Full Court of South Australia concluded that insofar as concerns an award of costs under that court’s statutory power, the exception should no longer be applied.  On the other hand, in Atlas v Kalyk [2001] NSWCA 10, the Court of Appeal of New South Wales took the view that the decision in Guss v Veenhuizen, which was cited in Cachia v Hanes, was binding upon it and should be followed.  I am told that in New South Wales numerous decisions at first instance and on appeal have since followed that decision, particularly that of the Court of Appeal in Khera v Jones [2006] NSWCA 85. 

10                  Sitting at first instance, I should not seek to arbitrate between these two very respectable lines of authority.  Rather, I should act upon my understanding of what was said in Cachia v Hanes.  With all respect to those who have apparently thought to the contrary, I have great difficulty in reading the decision as other than an assertion that the law for Australia is, for all relevant purposes, reflected in Chorley and in Guss v Veenhuizen.  The court asserted that both the general principle and the exception had been accepted.  That, to my mind, settles the matter.  I am therefore of the view that where one is addressing the question of costs to be awarded pursuant to a statutory power vested in a court, a solicitor litigant, acting for him- or herself, may recover professional costs and appropriate outlays. 

11                  I turn to the construction question.  The words “Costs and Expenses” tend, as Mr Barlow for QBE has suggested, to bear a certain “financial” sound.  Clause 1.2 speaks of QBE agreeing to “pay” such Costs and Expenses, suggesting that they are amounts capable of payment.  However the expression “Costs and Expenses” means “expenses”, including legal costs and disbursements.  The Shorter Oxford Dictionary defines the word “cost” as:

‘What must be given in order to acquire, produce, or effect something; the price (to be) paid for a thing.’

12                  In the plural form, it is said to include:

‘Charges, expenses; [and at law], the expenses of litigation, prosecution, or other legal transaction, esp. those allowed in favour of the winning party or against the losing party.’

13                  A third meaning is:

‘Expenditure of time or labour; what is borne, lost, or suffered in accomplishing or gaining something.’

14                  The word “expense” is said to mean:

‘The action or an act of expending something; the state of being expended; disbursement; consumption; loss.’

15                  It also means:

‘Money expended; an amount expended;   Burden of expenditure; the charge or cost involved in or required for something.’

16                  In the plural form, it means:

‘The charges, etc. incurred by a person in the course of working for another, or undertaking any enterprise;  the amount paid in reimbursement.’

17                  It is significant that the word may connote both outgoings and an amount paid in reimbursement of such outgoings. 

18                  The word “incur” means:

‘Find, or make, oneself subject to (danger, displeasure, etc);  bring on oneself (expense, obligation, etc).   Run into;  come upon, meet with.  Cause to be incurred; bring (something) on someone; entail.’

19                  QBE’s argument is, that, in the relevant context, the expression “Costs and Expenses”, means actual outgoings incurred in connection with the defence of the claim.  As I have said, the use of the verb “pay” in cl 1.2 might suggest that each “expense” should be an amount capable of payment, and that only an outgoing of money could be an expense capable of payment.  However, as I have also observed, the word “expenses” may describe amounts payable by way of re-imbursement.  It is arguable that the word “incurred” suggests that such Costs and Expenses must be actual outgoings.

20                  On the other hand, as Mr Dunning for MDRN pointed out in argument, if a person were to apply some item of value which he had previously owned in defence of a claim, there would be little doubt that he had incurred a cost or expense in so doing, notwithstanding the fact that he had not paid any amount with the purpose of advancing the defence.  It seems unlikely that it could successfully be argued in such a case that an insurer was not obliged, under a clause such as cl 1.2, to pay the value of the item so used. 

21                  Clearly, the intention of cl 1.2, read with cl 7.2, is that legal costs and disbursements incurred in connection with defence of the claim be recoverable.  It is tempting to impute to the parties knowledge of the state of the authorities concerning solicitor litigants.  However, given the conflict, there would be no point in so doing.

22                  In the end, the real question is whether it was intended by the parties that QBE should indemnify MDRN for its legal costs and disbursement only if such amounts are payable by MDRN to another solicitor or have been so paid.  Alternatively, the question may be whether a solicitor “incurs” an expense in acting for him- or herself if he or she consumes time which would otherwise have been expended in acting for another person who would have paid for the services provided.

23                  Clearly, the parties intended that MDRN be indemnified in respect of its defence of the claim, including legal costs and disbursements.  There is no reason to believe that the parties had in mind issues such as those discussed in the cases concerning solicitor litigants.  They obviously were aware that MDRN was a firm of solicitors.  That might at least have suggested the possibility that MDRN would act for itself, notwithstanding the profession’s general disapproval of self-representation in contentious matters.  In those circumstances, one might have expected that, had QBE wished to exclude indemnity for the costs of such self-representation, it would have said so expressly, and not merely by using the word “incurred”.  In any event, given the wide meanings attributable to the words “costs”, “expenses” and “incurred”, I have no difficulty in concluding that a solicitor who defends him- or herself, and so is unable to devote time and effort to his clients, incurs expense in the relevant sense, namely lost professional income.   Although the matter is not free from doubt, the better view is that MDRN may recover an amount equal to the value of such lost income. 

24                  A second question arises in connection with disbursements such as photocopying for which MDRN normally charges clients at rates above the cost to MDRN of supplying them.  In my view, such items should be treated differently.  A solicitor has only limited time to devote to professional work, whether he or she is working for him- or herself or for a paying client.  For that reason, and subject to various other factual matters which have been referred to in argument, which matters the parties may have to sort out at a later stage, professional time should be recoverable at the rate at which it would have been supplied by MDRN to clients.  However, when MDRN consumes, for its own purposes, goods and services (other than professional services) which it normally supplies to clients at a profit, the cost to it of such goods and services is not that at which it sells to its clients, but the cost of supplying such goods and services, at least where such items are in plentiful supply.  The need to devote such goods and services to the conduct of this action did not deprive MDRN of the capacity to supply similar goods and services to clients at a profit.  The amount to be recovered in respect of such items ought be the cost to MDRN of supplying them. 

Associate:

Dated:              2 June 2006