1. Solicitors rarely get involved in the costs argument, preferring instead to leave that to specialist costs consultants, rather that is, to other lawyers who are experts in costs claims processes. We can share our limited experience in the costs process by reference to an unreported District Court decision that can be downloaded here: FSA
2. Too often people become adversarial and run to their lawyers but before they do, it is well worth looking at the process from the back end. Ask yourself what happens if you “win”? Will you really be adequately compensated? When should you stand or co-operate? When should you settle? Obviously you get a lawyer to tell you your rights, but having rights and proving them are worlds apart. Enforcing them still further away and being adequately compensated when your rights are traversed is all but a dream to the average punter. You should do whatever possible to manage that risk and avoid construction disputes. Our industry doesn’t need lawyers. We need participants who faithfully uphold the bargains that they have made and accept responsibility for their allocated risks, even when it might cost them more than they expected.
2. According to Paula Gerber the critical areas leading to construction disputes are:
o Defective Work
o Latent Conditions
o Delays and extensions of time
o Superintendent’s decisions
3. You would think that it ought to be simple to resolve right? After some time in the industry an Architect providing a full range of services is confronted with these potential causes for dispute time and time again. It ought to be a simple matter of procedure to resolve them, but then it never is.
1. Should you settle your dispute without lawyers? Our advice is to do whatever is reasonable to avoid the dispute or settle it without intervention. Construction law is complicated, not only by the number of people potentially involved in such disputes, their insurers, banks and agents, but by the complexity and diversity of the applicable laws involved. These considerations complicate the issue. A construction team does not need to know the law, they should know how to recognise when legal issues arise, how to respond to those issues, how to protect their interests, and how to best assist their legal team to deal with problems when they arise. (See PG1) Knowing when to introduce a legal team though is the critical deliberation. Involve your lawyers too early and you risk generating polarised positions, a costly adversarial culture of case building until completion and potentially beyond. Involve them too late and you risk the negative impact of prolonged and arduous dispute mechanisms that benefit nobody but the lawyers involved. It is a delicate balancing act.
2. Having a good set of construction documents and a co-operative team of experienced superintendents and builders can help avoid disputes, but even then, parties to construction disputes inadvertently depart from the documents, disputes develop and the co-operative culture can sour. At that point nobody wins unless you resolve your differences amicably. That is why a group of construction experts who have done the hard yards, can communicate well and work as a team is most desirable. A co-operative nature is always more productive than an adversarial one.
3. Failing to reach agreement will escalate the dispute and you need to seek independent professional advice from a construction expert as well as a opinion of the legal position from an experienced construction lawyer’s point of view. Either way, there is no “win”. You will be spending money you did not intend or budget to spend and you may be feeling terribly bitter about the whole process.
4. Usually as a litigant, even when you win such disputes, you will never actually win. That is because the legal fees you have remitted to your lawyer are not entirely recoverable from your unfortunate opponent. That is, if you are lucky and your opponents have not already divested themselves of every asset with which they might have compensated you.
6. In NSW, legal costs are usually assessed by a Costs Assessor to calculate an amount that is reasonable for the work performed by the lawyers in your particular case. Lawyers of course will have no sense of humour when you suggest that your lawyer should only have charged a reasonable amount to begin with, but therein lies the rub, you will usually be charged and bound to pay more to your lawyer than you can ever recover for legal costs from the other side.
1. There is no doubt that the arguments surrounding your simple construction dispute will twist as if the argument has a life of its own and the home truth is frankly that lawyers driving that seemingly weird course on your behalf invariably always win. You can sit in on a session in any civil court in NSW and you will not see construction litigants winning anything. You will see lawyers arguing the point over seemingly silly details ad nauseum at the expense of construction litigants.
2. That’s the culture that has developed from the legal system currently in place, and lawyers have established for themselves an apparently privileged position in our legal system. They are privileged because their interests are protected more than any litigant’s interests. Successful solicitor litigants for example are entitled to be compensated to represent themselves whereas any other litigant is not.
3. Let’s therefore look at this situation in detail by examining the Court’s purpose for awarding legal costs and the apparently anomalous exception to it applicable to solicitors. In their ball park, we can say very confidently that usually only lawyers win and here’s the evidence.
The Indemnity Principle
1. .1 The indemnity principle is intrinsic to the concept of costs. An award of costs should not exceed the amount of costs the receiving party is required to pay, i.e. what it cost. Anything in excess of what the case cost would be profit and not costs.
10.2. The indemnity principle, as a long standing legal doctrine, has been stated clearly and succinctly on numerous occasions: Harold v Smith (1865) H&N 381 per Bramwell VC:
““Costs” as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them nor given as a bonus to the party who receives them… Therefore if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained.”
10.3. The comparatively recent judgment in NSW of Hamilton J in Grynberg v Muller; Re Estate of Bilfeld  NSWSC 350 is equally lucid and consistent:
“It flows from this principle that for a costs order to be made there must be some liability, satisfied or unsatisfied, to indemnify or compensate for.”
10.4. Most recently, Fullerton J in Coates v Harbour Radio Pty Ltd & Anor  NSWSC 796 also summarised the indemnity principle:
“35 The uncontroversial rationale behind the operation of the indemnity principle is to ensure that the successful party to litigation is indemnified against the costs they have incurred in vindicating or upholding their legal rights. Equally as plainly, if the successful party to the litigation is not liable to meet his or her lawyers’ costs, the compensatory aim of the indemnity rule has no function, since in those circumstances a costs order would serve to unjustifiably enrich the successful party.”
10.5. The indemnity principle must still be satisfied even though its application is not always in every instance immediately obvious.
The Liability Component
10.6. The effect of the indemnity principle when practically applied is that it clearly establishes that a successful litigant can recover no more costs in relation to proceedings, than the litigant’s liability extant at the date of the assessment of costs. For convenience, I have referred to that determinate of costs as a “liability component”.
The Chorley Exception
10.7. The Chorley exception applies to law firm litigants. It has been said that the Chorley exception is a rule of convenience. The rule has had a convenient application when determining the liability component in exceptionally limited circumstances, rather than it being a rule of general exception to the concept of indemnity.
10.8. However, the application of the Chorley exception requires considerable discretion. Basten JA said:
The exception, where the litigant is a solicitor, suggests that the availability of costs to a litigant in person depends upon a different basis for recovery, namely that costs may extend beyond those required to pay a lawyer if they are otherwise properly capable of assessment. In that case, the courts have adopted what may be described as a rule of convenience, namely that the time and expense incurred by the litigant personally will not be recoverable unless it is ‘capable of’ assessment as professional fees or as witness fees: see Guss v Veenhuizen [No. 2]  HCA 57; (1976) 136 CLR 47
10.9. Basten JA inferred that he doubted the logic. The High Court doubted it in Cachia and the majority in that dispute went on to reject the proposition that a litigant in person should recover the cost of time in representing himself or herself.
10.10. The logic of the Chorley exception should be doubted in NSW. From the highest authority, the law is that a self represented litigant should not recover the cost of time in representing himself or herself. The suggestion derived from Cachia is that without enacting expressly worded legislation and Rules to that effect there can be no general rule that costs extend beyond those required to pay a lawyer if they are otherwise capable of assessment.
10.11. That a costs assessor can measure the time and expense incurred by a layperson speaks for itself because he could do so on a fair and reasonable basis for the work done. The premise that it is only a lawyer’s fees that are capable of quantification is illusionary, anomalous and it is obviously and plainly wrong.
10.12. However, that the time and expense of a litigant should not be measured is a legal precedent that has remained undisturbed since 1278.
Not as convenient as it once was.
10.13 A succession of law reports have struggled to justify the Chorley exception meaningfully. The earlier law reports surrounding the application of the Chorley exception as a rule of convenience in Australia merely assumed that the exception applied but have never openly tested it.
10.14. The Chorley decision apparently involved a law firm as opposed to an individual solicitor representing himself or herself and that seems to be some significant consideration which hasn’t really been given any weight, yet it was one of the matters considered at the pointy edge of Bowen LJ’s, reasoning:
“it would be absurd to permit a solicitor to charge for the same work when it is done by another solicitor, and not to permit him to charge for it when it is done by his own clerk.”
10.15. Historians of the general practice of law in 1884 might confirm, and we can perhaps speculate, that the reference made to “another solicitor” was more particularly, a reference to another firm of solicitors. At least that would confirm the application of compensation for the cost of the time lost by a litigant’s employed solicitors without completely transgressing the intention of the indemnity principle.
10.16 However, the “loss of opportunity” reason for the Chorley exception seems to be desperately clutching at straws. The only benefit of the rule of convenience has been to line solicitor’s pockets. The law has truly struggled to justify the exception. Further, there is now perhaps a more informed public than that which existed in 1884 and a feeble line of anomalous legal doctrine drawn from the bosom is a rather poor excuse for exclusivity and privilege bestowed upon lawyers by the common law.
10.17. Just as the word “clerk” might have meant something different in 1884, the word “profession” really meant something very different than compared with today. Being included as a member of a profession was in many ways reflective of a gentleman’s integrity in Victorian times. It may have been an illusionary concept even then, however for the word “professional” to apply today, sad as it might seem, all the credentials a person apparently needs is a job. There is no longer any mystery surrounding professional lawyers because universities now churn them out in great numbers and, with exceptions, they are truly common people. The courts can least expect lawyers to behave with the independence that they ought to when representing themselves.
10.18 Finding the balance between the application of the principle of indemnity on one hand, and the practicality of costing the litigation of a self represented law firm on the other, is a fair view of the underlying pre-determinate that has engrossed a rule of convenience that provides for a law firm litigant to recover its profit costs.
10.19 The obvious anomaly in the law as it presently stands in NSW is that a litigant, such as a law firm, bank, insurance company or an industry association, who directly employs their own lawyers apparently has a legal right to recover the costs of its employee lawyer’s time whereas any other litigant whose employee’s time, being that of a layman, is thrown away.
10.20 If such litigants are indeed entitled under LPA 2004 to the cost of lawyer employee’s time in representing itself, then this provides a basis for recovery of the expense incurred by any corporation litigant in representing itself, by reason that its costs in the circumstances of representing itself are indeed costs of a kind which may be charged by a law practice for legal services. That remains arguable in circumstances where no lawyers are employed to represent that corporation because an employee does not contravene s14 of LPA 2004.
10.21 There is therefore a considerable flaw in the present line of authority supporting the recovery of costs by a self represented litigant merely by reason that it employs its own legal team or is a solicitor litigant. Furthermore, that those employed lawyers can operate with the necessary independence ought to be very seriously questioned.
10.22 There are no expressly enacted provisions allowing that a self represented litigant recovers the cost of its time, irrespective of that litigant’s profession. There are no exceptions under the relevant legislature.
The equality principle
10.23 The one rule that has been overlooked in advocating the Chorley exception, seems from the outside, to have been the equality principle which is fundamental to Australian society. All are equal before the law.
10.24 The burden, whether a difficult one or otherwise, of sufficiently satisfying a costs assessor of the cost claimed, should reasonably be vested with the party most capable of providing evidence of it, that is to say, with the litigant claiming its costs. This burden is generally applied by the costs assessment process to all litigants, yet It was ignored when assessing a solicitor’s costs for its own time.
10.25. On an ordinary basis, a solicitor litigant is apparently bestowed by court convenience and privilege, with the entitlement to profit for its time, unfettered by the usual burden of evidence, in circumstances where there is no statutory support for an exception to the liability component. Solicitor litigants are apparently being singled out for special privilege by their colleagues and, in circumstances where costs are ordered on the ordinary basis, solicitors seem to be paid in excess of the indemnity basis, by way of a profit.
10.26 The Chorley “exception” as it has been applied, is an anomalous remnant of policy from centuries past, that appears to be little more than a grubby perk conferred upon the professional colleagues of a Costs Assessor, excluding all others. Now, in those circumstances more than any other, shouldn’t the process be seen to be fair to all, rather than anomalous and exclusive?
Expansion of the Chorley exception in NSW
10.27 The High Court in Cachia made it expressly clear that the Chorley exception was anomalous and it specifically found after much consideration, that the exception must not become the rule. The implication in these words is to restrict the expansion of the exception.
10.28 Despite that authority, just 16 years have passed since the High Court made its determination, and the application of the Chorley exception is apparently expanding rapidly in NSW, from unstable foundations of logic.
10.29 At the turn of last century and for 116 years before that, the Chorley exception only applied to solicitors when acting for themselves. At the turn of this century it was said by a NSW court to apply to a bank with an in house team of lawyers.
10.30 Along with banks we can presume that insurance companies, local governments and various other sophisticated litigants can gain advantage of the shift in court attitudes. More recently, without thoroughly testing the legislation, the Chorley exception was said to apply to the Law Society of NSW and by inference, to corporations large or small, who employ their own lawyers. No doubt other industry associations, town planning firms for instance, a myriad of sporting clubs, $2 corporations and sophisticated private litigants will get savvy with the floodgates open to them. Soon enough a litigant will claim that no lawyer is necessary to be employed.
10.31 It seems from a layman’s point of view that this “relatively rare” exception will swiftly become the general rule in NSW if all a cashed up litigant needs to do is employ a lawyer, perhaps jobless and fresh out of university. The outcome must surely result in an uneven playing field between those who do and those who can’t. These circumstances must provoke a litigious mindset from those who do against those who can’t.
10.32 There is no independence for the lawyer and integrity in the developing system is merely illusionary. There is probably only one certainty if the trend of broadening the Chorley exception continues and that is that the Chorley exception will apply to all except the people with the least access to financial resources.
10.33 The anomalous nature of an exception is revealed when it is considered that a litigant that is a corporation or a firm retaining employees, who are not lawyers, also expend considerable costs in researching, preparing and presenting for litigation, and such a corporation also suffers its opportunity costs, all litigants suffer from a lost income, none of which is recognised as a recoverable cost by the court.
10.34 The exception in the terms that it is presently justified by authorities, applying to the limited few being solicitors and law firms, and now it seems also corporations such as banks, insurance companies, incorporated industry associations and the like that employ lawyers on salaries, is not laudable. That is why the exception ought to be abandoned.
10.35 The Chorley exception appears to be completely at odds with both the legislation and the indemnity principle.