FEDERAL COURT OF AUSTRALIA Schokker v Commissioner of Taxation of the Commonwealth of Australia [2000] FCA 1734 COSTS – pro bono representation – contingency fee – representation for appellant on appeal – appellant impecunious – counsel agreeing to recover normal costs if and only if appellant successful – appellant successful – respondent declining to pay counsel's fees – set-off of costs order at first instance – motion for referral to counsel under Order 80 as a legal practitioner on the Pro Bono Panel – whether such a referral can be made retrospectively – whether single judge has power to make an order under Order 80 – whether contingency fee arrangement unlawful or contrary to public policy Federal Court Rules Order 80 Legal Practitioners Act 1893 (WA) s 63 Clyne v New South Wales Bar Association (1960) 104 CLR 186 applied Awwad v Geraghty & Co (a firm) [2000] 1 All ER 608 not followed HANK BERNARD SCHOKKER v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA WG 21 OF 1998 FRENCH J 29 NOVEMBER 2000 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WG21 OF 1998 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: HANK BERNARD SCHOKKER APPELLANT AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 29 NOVEMBER 2000 WHERE MADE: PERTH THE COURT ORDERS THAT: The motion is dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WG21 OF 1998 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: HANK BERNARD SCHOKKER APPELLANT AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: FRENCH J DATE: 29 NOVEMBER 2000 PLACE: PERTH REASONS FOR JUDGMENT Introduction 1 A Senior Counsel at the Western Australian Bar agreed, on a pro bono basis, to represent a taxpayer in an appeal to the Full Court. He would only recover fees if the appeal were successful and a costs order made against the Commissioner of Taxation who was the respondent. The appeal was successful and a costs order was made in favour of the taxpayer. But the Commissioner says his liability is to the taxpayer, not counsel and that the costs recoverable by the taxpayer are subject to a set-off of costs awarded against the taxpayer before the primary judge. That award was left partly undisturbed by the Full Court. Senior Counsel representing the taxpayer has now asked this Court for a referral under O 80 to provide legal assistance, albeit after the assistance has been provided. This, he contends, would enable him, under O 80 r 9, to recover his costs directly from the Commissioner. The Commissioner says O 80 has no retrospective operation. Further, and surprisingly, the Commissioner argues that counsel's agreement with the taxpayer was contrary to public policy. Factual Background 2 On 12 May 1999 a Full Court of this Court allowed an appeal by Hank Schokker against a judge's decision, given on 23 January 1998, which had dismissed an appeal by him against a decision of the Administrative Appeals Tribunal, given on 24 July 1997. The factual background and circumstances of the appeals are set out in the judgment of the Full Court and it is not necessary to repeat them here. On 17 September 1999 the Court ordered that the Commissioner pay Mr Schokker's costs of and incidental to the appeal. It also ordered that he pay Mr Schokker's taxed costs of the hearing at first instance on the issue on which Mr Schokker was successful on the appeal. However the order of the Judge at first instance that Mr Schokker pay the whole of the Commissioner's costs stood save for that variation. 3 Mr Schokker represented himself before the primary judge. Early in February 1998 he telephoned Mr R O'Connor QC at his chambers and asked Mr O'Connor to represent him in the appeal to the Full Court. He told Mr O'Connor of his financial difficulties. Mr O'Connor agreed to represent him: "…on the basis that [Mr Schokker] would pay any disbursements to be incurred, and if he failed in his Appeal to the Full Court I would not charge any professional fees, but if he succeeded and the Full Court awarded costs in his favour I would then be entitled to payment of my professional fees, to the extent of the costs awarded in my favour, in acting for [Mr Schokker] in the Appeal." Mr O'Connor was not aware at this time of O 80 of the Federal Court Rules, providing for referral of indigent litigants to a panel of pro bono practitioners. It had commenced operation on 7 December 1997. He believed that previously existing informal arrangements for representation through Law Access were still in place. He was not aware therefore of the possibility of a Referral Certificate from the Court under O 80 and, indeed, did not become aware of the provisions of O 80 until earlier this year. 4 Mr GP Mohen of Law Access went on the record as instructing solicitor for the purposes of the appeal but on the basis that Mr O'Connor would do whatever was necessary in the preparation of the appeal whether it be normally the work of a solicitor or of a barrister. Following the costs order made on 17 September 1999, Mr O'Connor forwarded a claim for his costs to Law Access having regard to the order that the Commissioner pay Mr Schokker's costs of and incidental to the appeal. Approaches were made on behalf of Mr O'Connor to the Australian Government Solicitor for the payment of his fees on the appeal. These approaches did not yield any result as the Commissioner maintained that the costs order in favour of Mr Schokker was not enforceable against the Commissioner by Mr O'Connor. There was, in any event, a concern about the amount of the fees. The Commissioner argued that the costs payable to Mr Schokker, notwithstanding that they would include a component for Mr O'Connor's fees, would be subject to a set-off to the extent of the costs payable to the Commissioner in respect of the proceedings before the Judge at first instance. Had the legal assistance provided by Mr O'Connor been provided pursuant to a Court appointed referral under O 80 then he would have been entitled to recover his fees and disbursements from the Commissioner direct under O 80 r 9(2). 5 In an endeavour to remedy the situation, Mr Schokker filed a motion seeking orders that: "A Judge of the Court determine, pursuant to Order 80, subrule 4(1), that it is in the interests of the administration of justice that the abovenamed Applicant be referred under Order 80 for the legal assistance provided to him in 1998 and 1999, the particulars being as follows – Nature of Legal Assistance for which Referral made: . to settle the Notice of Appeal to the Full Court . to carry out the duties of a solicitor and a barrister in getting up the case for the hearing of the Appeal and attending to all necessary requirements in relation thereto . to appear as Senior Counsel at the hearing of the Appeal . to prepare the "Appellant's Further Amendments to the Amended Notice of Appeal and to Tender Further Evidence, and the Appellant's Further Written Submissions" . to prepare the "Appellant's Reply to Respondent's Submissions on Appellant's Application for Leave to Amend Notice of Appeal" . to prepare the Appellant's written submissions on costs . to prepare the Appellant's Reply to the Respondent's Submission on Costs" The Statutory Framework 6 Order 80 of the Federal Court Rules was made in 1998 and took effect on 7 December of that year. It provides for the maintenance by the Registrar of a list of legal practitioners who have agreed to participate in the scheme for the provision of legal assistance for which the order provides (O 80 r 3). Order 80 r 4 provides for referral to a legal practitioner thus: "4(1) The Court or a Judge may, if it is in the interests of the administration of justice, refer a litigant to the Registrar for referral to a legal practitioner on the Pro Bono Panel for legal assistance. 4(2) For subrule (1), the Court or Judge may take into account: (a) the means of the litigant; and (b) the capacity of the litigant to obtain legal assistance outside the scheme; and (c) the nature and complexity of the proceeding; and (d) any other matter that the Court, or Judge, considers appropriate. 4(3) A referral to the Registrar is effected by the issue of a Referral Certificate in accordance with Form 161 in relation to the litigant. 4(4) If a Referral Certificate has been issued, the Registrar must attempt to arrange for the legal assistance mentioned in the certificate to be provided to the litigant by a legal practitioner on the Pro Bono Panel. 4(5) However, the Registrar may refer a litigant to a particular legal practitioner only if the practitioner has agreed to accept the referral." 7 Referral may be for advice, the drafting or settling of documents for use in proceedings and representation (O 80 r 5). A legal practitioner who agrees to accept a referral must provide assistance to the litigant in accordance with the referral (O 80 r 6). A practitioner who has agreed to accept a referral cannot cease to provide legal assistance except by leave of the Registrar, the written agreement of the litigant or in any circumstances set out in practice rules governing professional conduct that apply to the practitioner (O 80 r 7). Order 80 r 9 provides for recovery of legal fees thus: "9(1) Subject to rule 10, a legal practitioner who provides legal assistance to a litigant under the scheme must not seek or recover any professional fees or disbursements for the legal assistance. 9(2) However, if an order for costs is made in favour of a litigant who is assisted under the scheme, the legal practitioner who has provided the legal assistance is entitled to recover the amount of fees and disbursements that another party is required to pay under the order." Whether the Order can be made 8 The primary issue which is raised by the motion in this case is whether or not I have the power to make a referral order under O 80 r 4 after the completion of the legal assistance for which the referral is made. I have no doubt that, had the question of a referral under O 80 come up before the appeal was heard, the circumstances would have warranted referral under r 4. Mr Schokker was impecunious, he apparently had no capacity to obtain legal assistance otherwise and the proceeding was one of some complexity. Had such a referral been made then counsel providing the legal assistance would have been entitled to recover his fees and disbursements from the Commissioner pursuant to O 80 r 9(2) on the strength of the order for costs made in favour of his client. 9 Unfortunately the language of O 80 does not permit the making of a referral for legal assistance after such assistance has been given. The language is entirely prospective. The stated purpose of O 80 is to facilitate, where it is in the interests of the administration of justice, the provision of legal assistance to litigants who are otherwise unable to obtain assistance (O 80 r 1(2)). And in the interpretation of the order preference must be given to a construction that will promote and be consistent with that purpose (O 80 r 1(1)). Nevertheless, the whole structure of the order contemplates the decision to refer and the issue of the Referral Certificate preceding the provision of legal assistance. For it is upon the issue of a Referral Certificate that the Registrar must attempt to arrange for the legal assistance to be provided to the litigant. This is a complete answer to the motion. The order sought cannot be made. 10 There are two other matters to which I should refer. The first is the question of jurisdiction. I expressed a concern at the hearing of the motion whether, in appellate proceedings, it is open to a judge sitting alone to make a referral order. In my opinion it is so open. The making of an order under rule 4 is an administrative function in aid of the jurisdiction of the Court. It does not itself involve the exercise of appellate jurisdiction nor, in my opinion, the exercise of judicial power. 11 The second matter goes to the nature of the arrangement between Mr Schokker and his counsel. It was submitted for the Commissioner that the arrangement involved the payment of counsel fees upon the contingency that counsel's client was successful and an order for costs made in his favour. This was said to be contrary to public policy and contrary to section 63 of the Legal Practitioners Act 1893 (WA). It is surprising, in my opinion, to hear from the mouth of a Commonwealth authority, the submission that counsel is acting unlawfully or contrary to public policy who agrees to act for an impecunious client on the basis that he will be paid his normal fees if and only if he is successful and an order for costs is made against the unsuccessful party. The Commonwealth, through its first law officer, has vigorously promoted the provision of pro bono legal assistance to impecunious litigants for whom government funded legal aid is unavailable. How such an arrangement, which does not involve counsel taking an interest in the proceeding, can be contrary to public policy was not demonstrated in submissions made on behalf of the Commissioner. In Clyne v New South Wales Bar Association (1960) 104 CLR 186 at 203 it was said: "…it seems to be established that a solicitor may with perfect propriety act for a client who has no means, and expend his own money in payment of counsel's fees and other outgoings, although he has no prospect of being paid either fees or outgoings except by virtue of a judgment or order against the other party to the proceedings. This, however, is subject to two conditions. One is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject-matter of litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding…." The same is true in my opinion for counsel acting on such a basis. Reliance was placed, by counsel for the Commissioner, on a decision of the Court of Appeal in Awwad v Geraghty & Co (a firm) [2000] 1 All ER 608 in which the Court held it was against public policy for a solicitor to act for a client under a conditional normal fee agreement save in circumstances sanctioned by statute. In so far as the proposition enunciated in that decision is expressed so widely as to cover the case in which a solicitor or counsel agrees to act for an impecunious client on the basis that normal fees will be recovered if and only if a costs order is made in favour of the client, then it is expressed too widely and does not reflect the law in this country. 12 In my opinion, however, and for the reasons I have expressed earlier, the motion must be dismissed. It would not be inappropriate for the Commissioner in this case to honour the spirit of O 80 which is, after all, consistent with the Commonwealth's promotion of pro bono representation and come to an agreement with counsel in relation to the payment of fees. That observation does not involve any reflection one way or the other as to the quantum of fees charged by counsel which are in dispute. But that could be a matter dealt with in taxation if it came to that. In the present case I will order that the motion be dismissed. I will not order any further costs to be paid by Mr Schokker who has brought this motion only in order to assist counsel to recover fees for his successful representation of Mr Schokker. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French . Associate: Dated: 29 November 2000 Counsel for the Applicant: Mr DJ Garnsworthy Solicitor for the Applicant: Law Access Counsel for the Respondent: Mr EM Corboy Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 14 November 2000 Date of Judgment: 29 November 2000