Brandon v Hanley (No 2)
[2014] VSC 179
•23 April 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 3227 of 2012
| DAVID ROBERT BRANDON | Plaintiff |
| v | |
| DIANA LOUISE HANLEY (who is sued in her capacity as the proving executrix of the Will and Estate of the abovenamed deceased) | Defendant |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 April 2014 | |
DATE OF RULING: | 23 April 2014 | |
CASE MAY BE CITED AS: | Brandon v Hanley (No 2) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 179 | |
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LIEN — Solicitor’s retaining lien — Whether solicitor can enforce lien over money held in controlled money account — Estate money
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Wells | Wainwright Ryan Eid |
| For the Defendant | Mr R Shepherd | Armstrong Legal |
| For The Probate Professionals | Mr M Corrigan | The Probate Professionals |
HER HONOUR:
In this proceeding, the plaintiff, Mr David Robert Brandon, made a claim for further provision from his father’s estate pursuant to s 91 of the Administration and Probate Act 1958. That claim was defended by his sister, Ms Diana Louise Hanley, the executrix and the residuary beneficiary of the estate. The trial proceeded over six days in December 2013.
The major asset in the estate was the former home of the deceased at 16 Boronia Avenue, St Ives, New South Wales, which was agreed by the parties to have a value of $1,005,000.
At the trial, counsel for the defendant indicated that the defendant’s position was that the Court did not have jurisdiction to make an order against or affecting the estate’s real property in New South Wales. If this submission were accepted, it would leave moveable assets of $846,817.35 available to meet any order for further provision made in favour of the plaintiff.
Counsel for the plaintiff resisted the submission that the Court could not make orders affecting the New South Wales property.
The statement of financial affairs filed by the defendant indicated that some $161,202.12 had already been paid out of the estate for legal costs incurred by the defendant with a further $23,592 charged as a liability to the estate but unpaid. The statement of financial affairs also indicated that the sum of $50,000 was held in the trust account of defendant’s solicitor, which was a non interest bearing account, for the purpose of paying the defendant’s trial costs.
It was accepted by the parties that the liquid assets of the estate at the date of the trial were in the vicinity of $379,000. This was as a result of the costs already paid out of the estate and distributions that had been made to the plaintiff, the defendant and their sister, Ms Denise Moss.
Although the parties opened their respective cases on the first day of the trial, little evidence was called as the parties sought and were granted an extended adjournment to allow for further discussions in light of an indication that the possibility of a settlement remained open. The parties informed the Court later that day that the matter would be proceeding.
On the second day of the trial, the plaintiff sought orders limiting the manner in which the defendant could deal with the moveable assets of the estate because of a concern of the possibility of further depletion of those assets. The particular concern raised by counsel for the plaintiff was that the moveable assets of the estate would be significantly depleted if the defendant’s legal costs continued to be paid out of the estate during the course of the trial. Counsel for the defendant sought further time to get instructions on the application, and after the luncheon adjournment, the parties agreed to draft a form of orders by consent.
The significant depletion of the moveable assets of the estate and the amount of the legal costs already incurred and to be incurred was also a concern to the Court. As a result, I referred the parties to the overarching obligations contained in the Civil Procedure Act 2010:
I am concerned at the high level of costs, and under s 29 the court has very wide powers to determine and make decisions about costs and whether or not the client should be paying the costs if there’s a breach of the overarching obligations. Now thus far — I haven't got a concluded view about it — but thus far there seems a duplication of a substantial amount of work.
…
What I’m raising with you is there is a concern on my part as to the level of costs in regard to both sides, but particularly it impinged on the estate, and if the plaintiff is successful, it’s a cause for concern.
On the third day of the trial, and with the consent of the parties, I made orders restraining the defendant from paying any estate expenses, withdrawing any moneys or otherwise dealing in any way with the estate bank accounts or funds, or other moveable estate of the deceased. Those orders made allowances for the defendant to pay the costs of the transcript at the trial, certain liabilities to the Australian Taxation Office, and a liability to her accountant for the preparation of taxation returns. The orders also provided that:
3.The defendant may transfer any monies held in a non interest bearing trust account or other bank account, into an interest bearing account (within Victoria), but must provide the plaintiff’s solicitors with details of any such transfer of estate funds, including details of:-
(a)the date of such transfer;
(b)the account from which the funds were withdrawn; and
(c)the account into which the funds were deposited and the applicable interest rate for that account.
This order was suggested by the plaintiff on the basis that it would be beneficial to all concerned if that money were transferred to an interest bearing account pending the hearing and determination of the trial. The defendant did not object to that order, noting that it provided only that the defendant ‘may’, not ‘must’, transfer the money.
On the sixth and final day of the trial, the solicitor on the record for the defendant, Mr David Boots of The Probate Professionals, appeared by counsel and orally sought leave to apply to cease acting and withdraw from the proceeding.[1] The application was made by reason of an apparent conflict,[2] on which counsel indicated Mr Boots had sought the advice of the Ethics Committee of the Law Institute (although it was said he had been unable to obtain a ruling). Counsel indicated that the basis of the conflict of interest was confidential, but that it was between Mr Boots and the defendant, his client.
[1]Pursuant to r 20.03(iii) of the Supreme Court (General Civil Procedure) Rules 2005.
[2]Counsel specifically referred to r 9.2 of the Professional Conduct and Practice Rules 2005, which provides that ‘a practitioner must not accept instructions to act or continue to act for a person in any matter when the practitioner is, or becomes, aware that the person's interest in the matter is, or would be, in conflict with the practitioner's own interest or the interest of an associate’.
I indicated that it would be undesirable in the interests of the administration of justice to disrupt the trial at such a late stage in the proceeding and I referred counsel to a decision of Pagone J that I recalled as being relevant.[3] I then stood the application down until shortly before the luncheon adjournment at which time Mr Boots, through his counsel, appeared and consented to remain as the defendant’s instructing solicitor until the conclusion of closing submissions (which occurred that afternoon).
[3]Investec Bank Australia v Mann [2012] VSC 81 (13 March 2012).
Counsel for Mr Boots also referred to my comments made on the second day of the trial regarding the high level of costs incurred in the proceeding at that stage, and in particular, the Court’s powers under the Civil Procedure Act 2010 to make a costs order against legal practitioners. He noted that, if any such order were contemplated, Mr Boots would seek to be heard.[4]
[4]Rule 63.23(3) of the Supreme Court (General Civil Procedure) Rules 2005 requires that a practitioner against whom such an order is contemplated must be given a reasonable opportunity to be heard.
Mr Boots subsequently filed a notice of withdrawal of solicitor. A notice of change of solicitor was filed by Armstrong Legal on 12 March 2014.
On 21 March 2014 I delivered judgment ordering that further provision be made for the plaintiff from the estate of the deceased by the payment of a further pecuniary legacy of $427,000.[5]
[5]Brandon v Hanley [2014] VSC 103 (21 March 2014) [259].
On 4 April 2014 the matter was listed for hearing as to the appropriate form of orders to be made and costs.
At the hearing, the plaintiff sought payment of at least part of the legacy I had ordered from the liquid funds available to the estate, including the funds the subject to the orders I had previously made at trial. It was acknowledged by both sides that the liquid funds would be less than the total amount of the legacy awarded to the plaintiff. Specifically, the plaintiff sought orders that:
3.Within 7 days of the date hereof, the Defendant shall cause to be paid to the Plaintiff’s solicitors the total of amount of all funds held by the estate (whether in a solicitor’s account, or bank accounts) together with all accrued interest thereon in part satisfaction of the further legacy to the paid to the Plaintiff pursuant to this Order.
4.Subject to compliance with paragraph 3 of this Order, the Orders made on 11 December 2013 in this proceeding are otherwise discharged.
The defendant was represented at the hearing by counsel who appeared at the trial. Mr Boots was present at the hearing and appeared by counsel. He resisted the orders sought by the plaintiff on the ground that he held a lien for the costs of the trial over the money held in the controlled money account.[6] He contended that the lien prevented an order that those funds be paid to the plaintiff.
[6]Although no material has been brought before the Court as to the amount now in the account, it was estimated to be just over $40,000.
I determined that the asserted lien of Mr Boots did not prevent the order from being made, and made orders in the form proposed by the plaintiff.[7]
[7]On the application of the defendant, and with the consent of the plaintiff, the time for compliance was extended to 14 days in the orders made. The defendant noted that she did not consent to the order being made.
By e-mail dated 11 April 2014, Mr Boots requested written reasons for the dismissal of his submission. Those reasons are as follows.
A solicitor has a lien at common law for professional charges on chattels, including money, in the solicitor’s possession. It confers on the solicitor a right to withhold possession of money from a client until those costs are paid.[8]
[8]Leeper v Primary Producers’ Bank of Australia Ltd (in liq) (1935) 53 CLR 250, 256 (Rich, Dixon, Evatt and McTiernan JJ), 261 (Starke J).
The solicitor’s right to the lien is co-extensive with the client’s interest in the money held.[9] The lien only attaches to money that is the property of the client. It affords to the solicitor no higher right against third parties than the client has.[10] If the money is subject to the interest of a third party that has priority over the interest of the client, the lien is also subject to that interest.[11] The authority for the limitation on the lien is as old as the authority for its existence. In Pelly v Wathen, Cranworth LJ noted:
It is a right derived entirely through the client, and therefore, on the most obvious principles of justice, cannot go beyond the right of the client himself. If the client’s right to the deeds which came to the hands of the solicitor is absolute, so will be the right of the solicitor. If the deeds in the hands of the client are subject to any rights outstanding in third parties, such rights will follow them into the hands of the solicitor.[12]
[9]Pelly v Wathen (1851) 1 De GM & G 16, 23; 42 ER 457, 459–60.
[10]Rath v M’Mullan [1916] 1 IR 349.
[11]A-G v Trueman (1843) 11 M & W 694; 152 ER 983.
[12](1851) 1 De GM & G 16, 23; 42 ER 457, 459–60. See also In re Llewellin (1891) 3 Ch 145, 148; Sawyers v Kyte (1870) 1 VR 94, 97; McLeish v Palmer (1921) 22 SR (NSW) 53, 57; Re Ly Ty Tran Cao (Bankrupt) Ex Parte: Thomas William Frederick Dixon v Ly Ty Tran Cao, Thanh Phuong Cao and Thanh Phu Cao [1995] FCA 1409 (28 July 1995) [8].
Counsel for Mr Boots took the Court to the relevant section of Dal Pont on Costs regarding the scope for a lien to extend to money in a trust account:
Whether or not a solicitor may retain moneys in clients’ trust accounts in the exercise of a retaining lien has been the subject of conflicting authority. As a lien generally refers to a right to retain physical possession of a specific thing, a solicitor who banks trust moneys loses possession of those moneys and retains a chose in action only — a claim for the sum banked against the bank in which he or she has deposited it — and so on one view a solicitor cannot maintain a lien on money in a trust account. The leading authority to the contrary is Loescher v Dean, where Harman J reasoned as follows:
I do not see why a solicitor, if he has money in his possession, has not got an ordinary lien on it. The fact that he puts it in a client account does not mean that it is any the less his account, although it is earmarked in that way; and it seems to me that the client could not demand that the money be handed over. It would be an answer to say: ‘You have not paid my bill and I shall not pay you out your money until you have’. Consequently, it seems to me that, as the debtor could not obtain the money from the solicitor without paying his bill, a creditor cannot attach it, and therefore I must discharge the garnishee order nisi against the money to the extent of the sum due under the solicitor’s lien.
The issue has now been addressed by statute. Statute in each jurisdiction that has to date implemented the core uniform provisions of the national Model Laws project entitles a law practice to exercise a retaining lien in relation to trust money held in a general trust account or controlled money account of the practice for a person, for the amount of legal costs reasonably due and owing by the person to the practice.[13]
[13]G E Dal Pont, Law of Costs (LexisNexis Butterworth, 2nd ed, 2009) 897 [26.10]–[26.11] (citations omitted).
The relevant section in Victoria is s 3.3.20(1)(a) of the Legal Profession Act 2004, which provides that:
(1)A law practice may do any of the following, in relation to trust money held in a general trust account or controlled money account for a person—
(a)exercise a lien, including a general retaining lien, for the amount of legal costs reasonably due and owing by the person to the practice;
However, the statutory imposition of the lien over money in the trust account of a solicitor does not change the nature or extent of the lien. In respect of the lien imposed by the statute, Bell, Gageler and Keane JJ in Legal Services Board v Gillespie-Jones said:
The incidents of a general retaining lien of a law practice over money held on trust for a client are well understood. The lien is a common law right, implied by law, to retain the money until the costs of the law practice are paid. It is wholly passive and possessory in nature. It ‘does not mean that the money is not beneficially the money of the client’ and it does not mean that the law practice can pay any part of the money to itself.[14]
[14](2013) 87 ALJR 985, 1001; [2013] HCA 35 (14 August 2013) [105] (citations omitted).
In this case, the money in the solicitor’s trust account was estate money. It was described as estate money in the statement of financial affairs filed prior to trial. The defendant through her counsel undertook and consented to refrain from using estate funds in orders made at trial. Pursuant to those orders, the defendant transferred the money from the solicitor’s trust account to an interest-bearing controlled money account. In doing so, the funds did not become money belonging to the defendant, but remained money belonging to the estate of the deceased.
Mr Boots’ claim to the money can rise no higher than the defendant’s claim to it, for it is a right derived from the client. It follows that Mr Boots can no more resist order 3 than the defendant can. If the defendant is bound to pay money belonging to the estate to the solicitors for the plaintiff, so is Mr Boots. Mr Boots cannot rely on a retaining lien to defeat that order.
Counsel for Mr Boots further submitted that, whether or not money comes from the estate, where the trustee and executrix of an estate pays money in order to get legal advice for matters relating to the estate, that money ought to be treated as the executrix’s money at least to the extent of any lien claimed. To restrict the ability of solicitors to ensure payment for estate cases, particularly where executrices are impoverished, would be a ‘travesty’ that ‘defied all logic’. It would also prevent executrices from obtaining legal advice.
Counsel for the plaintiff submitted that that legal characterisation was incorrect. Unless and until the Court makes an order that the defendant is entitled to her costs out of the estate, her decision to use estate funds to meet her legal expenses is merely on an assumption that she will be entitled to that reimbursement. It may be that, in the ordinary course of events, she will be entitled to that reimbursement. But until that determination is made, the money remains estate money.
Mr Boots represented the defendant throughout the period leading up to trial, and at trial when the orders referred to above were made. Mr Boots assisted in the preparation of a statement of financial affairs that described the money in his trust account as estate money. He was acting for the defendant when the defendant consented to orders restraining the use of that money on the basis that it was estate money. He is an officer of this Court. If his position was that the money in question was not estate money, but the money of the defendant, then he was under an obligation to inform the Court that those orders were being made under a misconception. He chose not to do so. He cannot now be heard to say that the money could not be subject to the orders because it was money belonging to the defendant, over which he now claims a lien.
The consequence of my judgment is that the plaintiff is entitled, from the estate, to a further pecuniary legacy of $427,000. He is entitled to that legacy ahead of the defendant, as the residuary beneficiary. The fact that assets of the estate have been placed in the account of a solicitor to whom the defendant owes money is no bar to orders effecting payment of his legacy.
For those reasons, I made the orders sought by the plaintiff, and dismissed the submissions of Mr Boots.
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