The Court of Appeal has had the opportunity promptly to provide a decision illustrating the limits of its previous decision in Kuek v Devflan Pty Ltd  VSCA 25, which I posted about here. The opportunity arose in Shaw v Yarranova Pty Ltd  VSCA 55, a unanimous decision of Justices of Appeal Redlich and Mandie. A third party payer was principally responsible for the fees of the victorious litigant. The vanquished litigant sought to avoid the adverse costs order by invoking the indemnity principle of legal costing by establishing that the victorious litigant had no obligation to pay its lawyers. The Court of Appeal said that the law presumes that there is an obligation on the client to pay its lawyers even if there is evidence of an obligation on a third party to pay the lawyers as well. It made clear that it would not sanction fishing expeditions to displace the presumption. Here, the litigant’s parent company, which was the third party payer, did not have a costs agreement with the lawyers and neither did the litigant. But unless lawyers agree to do work for a client for free, they are entitled to payment on scale even in the absence of a costs agreement.
Mr Shaw suffered some costs orders against him. He appealed the taxations of those costs all the way to the Court of Appeal. He argued that the company to whom he was ordered to pay the costs had not incurred any costs, and so had no expenditure against which to set off the limited indemnity provided by an award of party party costs. That was because it was not that company but its parent company which had promised to pay its lawyers fees. Let me say that this was not a bad argument for a pro se litigant to come up with. Ultimately, however, as with so many of Mr Shaw’s many adjudicated upon arguments, it did not meet with approval where it mattered.
Mr Shaw had obtained an order requiring production in the taxation proceedings of any costs agreement entered into by the party to whom he had been ordered to pay costs. It responded that there was no costs agreement. On that basis, Mr Shaw succeeded in defining the maximum payable by him as the amount payable by that company to its solicitors on scale. But Mr Shaw had also sought the bills and costs disclosures, and Costs Judge Wood and Justice Beach had successively knocked him back. The notice for the production of those documents was nothing but a fishing expedition, their Honours said. Unlike in Kuek v Devflan Pty Ltd, there was no evidence to support the proposition that it was ‘on the cards’ that the amount for which the party whose costs Mr Shaw had been ordered to pay was liable to its solicitors in an amount less than that sought as party party costs.
One might think that the fact that the holding company of the litigant entered into a costs agreement was cogent evidence that the litigant was not itself liable for the fees, but the law bristles with presumptions to avoid those who lose from calling this kind of argument in aid. Unless the solicitor and their client (as opposed to the third party who specifically promises to pay their bills) specifically agree that the client will not be liable for fees, the law presumes that the client is under a liability as well as the third party payer. In the case where a costs agreement is entered into between the lawyer and the third party payer, that might give rise to the situation where the third party payer has an obligation to pay fees calculated in accordance with the costs agreement and the client fees calculated in accordance with scale, and it seems to be the litigant’s liability to its own solicitors which sets the limit imposed by the indemnity principle.
The Court set out the law as follows:
‘Presumption of a retainer
17 The retainer is a contract between the solicitor and the client for the provision of legal services by the solicitor for a fee. Proof of its existence may, like any other contract, be implied from conduct. An argument which raised similar issues to those raised by Mr Shaw was considered by Dawson J and then by Mason CJ in Halliday v High Performance Personnel Pty Ltd (in liq). Dawson J in an unreported judgment had dismissed an application for a review of a taxation of costs, one of the grounds being that the successful party had never proved that the solicitors who purported to act for it were really retained by it, rather than by the insurer who had given instructions to the solicitors. Mason CJ in rejecting an application for an extension of time in which to appeal said:
Dawson J held that the party who challenges the existence of a retainer bears the onus of establishing the absence of it. In this case, there never was a challenge to the existence of the retainer during the course of the proceedings. His Honour went on to say:The mere fact that a person appears on the record as the solicitor for a party does not necessarily justify the conclusion that there is a contract of retainer between the solicitor and that party. (See, by way of analogy only, Hall v Laver  EngR 883; 1 Hare 571, at 575–6;  Eng R 883; 66 ER 1158, at 1160). But, at least where the party is aware of this and takes no steps to rectify it, then a presumption must arise that there is a contract of retainer between them. (See, by way of analogy only, Reynolds v Howell (1873) LR 8 QB 398, per Blackburn J at 400).
18 In rejecting an argument that if the solicitors were engaged, then it must have been a term of that engagement that the client would not be liable for the solicitors’ costs, Mason CJ stated that ‘there was no evidence for this assertion, and such an agreement is not only unlikely but there is a presumption that no such agreement exists.’
19 Courts generally accept the existence of a contract of retainer when a solicitor has performed work on behalf of a person with his or her knowledge and assent, in circumstances which are consistent with that person being the solicitor’s client. The existence of a contract of retainer and the liability of the client for the solicitor’s costs will be presumed, and the party who challenges the existence of the retainer in such circumstances bears the onus of establishing the absence of it.
Failure to prove that there was no obligation to pay costs
20 Where the party against whom the costs order has been made seeks to displace the rule, it is necessary to prove that under no circumstances does the client have any liability to pay costs to his or her solicitors. In Adams v London Improved Motor Coach Builders Ltd Bankes LJ found that although the plaintiff was represented by the solicitors for the union, he became liable to the solicitors for costs, and that liability was not excluded merely because the union also undertook to pay the costs. To displace the obligation to indemnify the plaintiff, Bankes LJ stated that it was necessary to go a step further and prove that there was a bargain, either between the union and the solicitors or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs. Atkin LJ stated that the solicitors’ personal claim against the union could coexist with an obligation of the plaintiff to the solicitors. There was no doubt that a retainer, even if only implied, existed between the solicitors and the plaintiff. A similar situation arises in the case of a party who is insured and is represented by a solicitor engaged by the insurer.
21 In Halliday the applicant had also contended before Mason CJ that the judgments in Adams do not support the approach taken by Dawson J. Mason CJ was of the view that what his Honour said plainly accorded with the judgments of Bankes LJ and Atkin LJ in that case.
22 Adams’ case has been cited and followed in numerous decisions in this country. The principle for which it stands has been consistently applied. In Victoria and elsewhere in Australia the indemnity rule has been treated as permitting recovery of costs from the party against whom the order is made, although a third party has indemnified the successful party or paid their costs.
Co-existing obligations to pay solicitors’ costs
23 Payment by MAB Corporation of the respondents’ costs did not give rise to an inference that the respondents had no liability for their solicitors’ costs. The existence of a concurrent obligation by MAB to pay the respondents’ solicitors’ costs pursuant to its retainer, and the fact that the accounts for services may not have been rendered to the respondents, did not preclude the presumption from applying. A litigant who is liable to his or her own solicitor for the costs of proceedings and is indemnified in whole or in part for those proceedings is entitled to recover his or her taxed or assessed costs for the benefit, in whole or in part, of the party providing that indemnity. Having paid or agreed to pay the solicitors for the successful party’s costs, the indemnifier would become subrogated to all rights of the successful party, subrogation being an equitable right which does not depend upon a contractual entitlement.
24 There being a strong presumption of a retainer, it was for the applicant to either prove that there was no retainer or establish that there was an express or implied agreement between the respondents and their solicitors that under no circumstances whatsoever were they to be liable for their solicitors’ fees.
-  Inglis v Moore & Others (No 2) (1979) 25 ALR 453, 464-5 (Davies J); Ernst & Young (Reg) v Tynski Pty Ltd  FCAFC 233; (2003) 47 ACSR 433, 441 (Branson, Marshall and Stone JJ); McKenzie v Director General of Conservation and Natural Resources & Ors  VSC 220, – (Gillard J); Hawksford v Hawksford  NSWSC 463; (2005) 191 FLR 173; Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd (2009) 263 LSJS 87 (White J).
  1 KB 495 (‘Adams’).
 Backhouse v Judd  SASR 395; Angor Pty Ltd v Ilich Motor Co Pty Ltd  FCA 348; (1992) 37 FCR 65, 72; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 2)  VSC 212; O’Keefe v Hayes Knight GTO Pty Ltd (2005) 218 ALR 604, 612.
 Davies v Taylor (No 2)  AC 225; R v Miller  3 All ER 186; Hudgson v Endrust (Aust) Pty Ltd (1986) 11 FCR 152; Johnson v Santa Teresa Housing Association  NTSC 29; (1992) 83 NTR 14; Wilson v Richmond River Shire Council  NSWSC 71; North Australian Aboriginal Legal Aid Service Inc v Bradley (No 2)  FCA 564; Dyktynski v BHP Titanium Minerals Pty Ltd  NSWCA 154; (2004) 60 NSWLR 203; Trevorrow v State of South Australia (No 7)  SASC 5.
 McKenzie v Director General of Conservation and Natural Resources  VSC 220, ; Brott v Levene  VSC 79; Australian Beverage Distributors v The Redrock Co  NSWSC 114; Coshott v Woollahra Municipal Council  NSWCA 221, ; Backhouse v Judd  SASR 395, 400; Coogi Australia Pty Ltd v Hysport International Pty Ltd  FCA 1331; Grundmann v Georgeson  QCA 394, –; Trevorrow v State of South Australia (No 7)  SASC 5, – (Gray J). See also G E Dal Pont, Law of Costs (2nd ed, 2009) [7.10].
 Morris v Ford Motor Co Ltd  QB 792, 800–801; Coshott v Woollahra Municipal Council  NSWCA 176; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd  HCA 45; (1978) 141 CLR 335, 348; Lord Napier v Hunter  AC 713.
- Costs disclosure obligations and consequences of not complying: part 1
- Third party payer taxations where client bankrupt: WASCA
- More on the indemnity principle
- No problems with right to costs contingent on recovery from other side on costs order?
- Nicholson v B&S — the first important Victorian decision about setting aside costs agreements