Cade Pty Ltd & Anor v Thomson Simmons & Anor (No 2) No. Scgrg-92-2686

[2000] SASC 369

CADE PTY LTD & ANOR v THOMSON SIMMONS & ANOR (NO 2)
[2000] SASC 369

Civil

1................ DOYLE CJ...... An application was made to the court by the Plaintiffs’ former solicitors in this action.  This action was heard and decided by me in 1997.

1. The solicitor is Mr Johnson, who practises as Johnson Lawyers.  He acted for the Plaintiffs before and during the trial.  At some later stage he ceased to act for the Plaintiffs.

2. The legal costs claimed by Mr Johnson from the Plaintiffs have not been paid.  He has brought an action in the District Court, claiming those costs from the Plaintiffs.  His claim is for a balance owing in excess of $170,000.

3. It is well established that a solicitor has, at common law, a lien over a fund or the proceeds of a judgment recovered for the solicitor’s client in the course of litigation as a result of the solicitor’s exertions:  see Halsbury’s Laws of Australia, Vol 16, para [250-1070].  Mr Johnson seeks an order declaring that he has a lien over the judgment sum awarded to Mr Figallo, the second plaintiff in the action, and over any costs payable to Mr Figallo.  Mr Johnson seeks a charge over all moneys payable by the Defendants to Mr Figallo.

4. Once again, it appears to be well established that the solicitor’s lien may be enforced by a solicitor seeking an order from the court in respect of property recovered or judgment obtained by the solicitor’s client, and that the order may direct the judgment debtor to pay the solicitor the relevant amount, and may restrain the judgment debtor from paying and the client from receiving the proceeds of a judgment:  see Halsbury’s Laws of Australia, Vol 16, para [250-1080] and Gadens Ridgeway v Paroulakis & Ors (1992) 108 FLR 195 (“Gadens”).

5. After hearing submissions for counsel for Mr Johnson, counsel for the Defendants and Mr Figallo, who appeared in person, I refused to make the orders sought, and dismissed the application made by Mr Johnson.  What follows are my reasons for the orders that I made.

6. Mr Figallo and Cade Pty Ltd (“Cade”), a company that he controlled, sued the Defendants for damages for professional negligence.  After a rather lengthy hearing I awarded Mr Figallo damages against each defendant.  The damages awarded were far less than he had claimed.  I dismissed the claim by Cade.  Each of the two defendants had claimed unpaid professional fees from the plaintiffs.  I entered judgment for each defendant against the Plaintiffs for the appropriate amount.

7. The affidavits before me indicate that the Second Defendant has already paid its share of the judgment amount to Mr Figallo.  The First Defendant has set-off, or has purported to set-off, its share of the judgment amount against the professional fees ordered to be paid by the Plaintiffs to it.  In short, at the time of the application to me no further moneys were due to be paid to Mr Figallo under the judgment of the Court.

8. After I published my reasons in the action, I made an order for costs in favour of Mr Figallo, against each defendant.  I ordered that he recover part of his costs only.  I ordered that each defendant recover part of its costs against Cade.  As yet, none of the parties to the action have taxed their costs, nor have any payments been made on account of costs.  Accordingly, Mr Figallo still has a claim for costs against each of the defendants.  Those costs are likely to be substantial.  Each of the defendants has lodged a Bill of Costs for taxation as against Cade.  The costs have not yet been taxed.  The amount claimed by each defendant is of the order of $140,000.

9. It is common ground that Cade is insolvent.  There is no prospect of Mr Johnson or of either of the defendants recovering costs from Cade.  Mr Figallo is in financial difficulty, and the likelihood of Mr Johnson recovering costs from him is not high.   During the course of the trial, on several occasions I ordered Cade to provide security for costs to the Defendants.  Cade did so, but by and large that security has now proved to be worthless.  A possible exception is a guarantee by Renior Pty Ltd, in the sum of $40,000.  That company is a trustee of a family trust of which members of Mr Figallo’s family are beneficiaries.

10. In August of this year each of the defendants made an application to me for an order that the costs recoverable by the Defendants from Cade be set-off against the costs recoverable by Mr Figallo from each defendant.  I heard submissions on the applications.  The substance of the argument was that Mr Figallo controlled Cade, would have benefited if Cade had succeeded in the action, and had caused Cade to pursue the action.  The Defendants submitted that the circumstances were such that I could at the outset have ordered that Mr Figallo be liable for the costs payable by Cade, and that in the light of it subsequently emerging that Cade was insolvent, and that the security was worthless, I should now in effect achieve that result, by at least ordering a set-off, and possibly by ordering that Mr Figallo be responsible for the costs payable by Cade:  see Knight & Anor v F P Special Assets Ltd & Ors (1991‑1992) 174 CLR 178.

11. I heard submissions on those applications, and reserved my decision.  Before I had reached a decision Mr Johnson made the application previously referred to.  He had become aware of the application made by the defendants only after it was heard.

12. When Mr Johnson’s application came on for hearing, Mr Figallo and counsel for the Defendants informed me that they had reached an agreement.  The agreement was that neither Mr Figallo nor the Defendants would enforce the respective cost orders that they had obtained.  Nor would the Defendants attempt to enforce the security given by Renior Pty Ltd.  The effect of this was to release Cade from any claim against it.  To what extent that will assist Mr Figallo’s circumstances, I do not know.  The agreement also means that none of the parties will have to proceed with what might be a substantial and fairly costly taxation.  The agreement secures the release of Renior Pty Ltd from its guarantee.

13. I was informed that a Deed had been prepared recording the agreement already reached between Mr Figallo and the Defendants.  However, the parties had refrained from executing the Deed because they were aware that Mr Johnson would submit to the Court that I should make an order enforcing Mr Johnson’s lien, notwithstanding the agreement, because the agreement had not been made in good faith.  Understandably, the solicitors did not want to do anything that might be said to be in furtherance of an arrangement not made in good faith.

14. As I understand the law, the court has flexible powers to protect and to enforce a solicitor’s lien over money recovered by a client as a result of the work of the solicitor.  I accept the following proposition that appears in Halsbury’s Laws of England (4th Ed Reissue), Vol 44(1), para 254:

    “This lien, although always referred to as a ‘lien’, is more accurately described as a mere right to ask for the court’s intervention for the solicitor’s protection when, having obtained judgment for his client, he finds that there is a probability of the client depriving him of his costs.”

15. It appears to be well established that, in relation to a judgment amount, if there would otherwise be a set-off of judgment amounts as between the parties to the action, the court will not deprive the relevant party of the right of set-off merely because the set‑off will have the effect of eliminating a fund over which a solicitor would otherwise have a lien:  see In re a Debtor (1951) 1 Ch 612 at 618 and 621; Currie & Co v The Law Society (1977) QB 990 at 999; Akki Pty Ltd v Martin Hall Pty Ltd & Anor (1994-1995) 35 NSWLR 470 at 482-483. To my mind, to so conclude is not in conflict with the decision of the Full Court of the Federal Court in Worrell v Power and Power (1993) 118 ALR 237 to the effect (at 246) that the solicitor’s lien:

    “... involves more than a personal right of the solicitor to approach the court to obtain a charging order, and that the lien arises when the judgment for costs is obtained, and before there has been a taxation of the costs.  The assistance of the court is invoked not to create rights but to enforce them.”

The point is that the right of set-off must also be accommodated.  As Younger J said in Puddephatt v Leigh (No 2) (1916) 2 Ch 168 at 180:

“... prima facie a set-off should not owing to such a lien be refused if as between the parties themselves it would be fair and just to allow it and if no fraud or imposition has been practised upon the solicitor by collusion between them.”

1. In my opinion, these authorities support the conclusion that the claim made by Mr Johnson cannot succeed in relation to the judgment moneys ordered to be paid by the Defendants to Mr Figallo.  Those moneys have either been paid over to Mr Figallo or have been the subject of a set-off.  There is no suggestion in the material before me that notice was given to either defendant of the claim to a lien before payment was made to Mr Figallo or before the right of set-off was exercised.  In fact, in the submissions that Mr Soulio put on behalf of Mr Johnson, there was no suggestion that a claim was made in relation to the judgment moneys.  As I understood the submissions, they related entirely to the order for costs.

2. I turn now to the effect of the agreement reached between Mr Figallo and the Defendants in relation to costs.  There is no evidence before me that establishes whether that agreement was made before or after Mr Figallo and the Defendants received notice of Mr Johnson’s claim.  I was informed by counsel for the Defendants that an agreement had been reached with Mr Figallo, and that all that remained was for the parties to that agreement to sign the Deed that recorded that agreement.  My understanding of the position is that a binding agreement has been made, although, as I have already said, there is no evidence indicating whether or not that agreement was made before or after the parties received notice of Mr Johnson’s claim.

3. The relevant law is stated in Halsbury’s Laws of England (4th Ed Reissue), Vol 44(1), para 258 as follows:

   “A solicitor’s lien against property recovered may be affected by the compromise of the action.  For the purpose of preserving the lien, the court does not interfere with a compromise made in good faith, whether the damages sought to be affected are liquidated or unliquidated.”  (footnotes omitted)

4. In Gadens the abovementioned principles were applied.  That was a case in which parties had sought to compromise an appeal on terms which would deprive the former solicitor for one of the parties of the ability to enforce its lien as to costs, over moneys payable under the judgment subject to appeal.  Before orders were made, the former solicitors sought leave to intervene and to prevent the appeal being compromised as proposed.   Nygh J proceeded on the basis that the parties should be permitted to compromise their respective claims, notwithstanding the impact of that compromise upon the solicitor’s lien, unless it were shown that the proposed arrangement was collusive.  That approach seems to me, with respect, to be consistent with principle.  The parties to the action should not be deprived of their ordinary rights by the existence of the solicitor’s lien.  I note that in Ex Parte Patience;  Makinson v The Minister (1940) 40 SR(NSW) 96 at 100, Jordan CJ said:

   “Further, if the client and a judgment debtor make a collusive arrangement for the purpose of defeating the solicitor’s right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor’s claim had been given to the judgment debtor prior to the arrangement.”

What Jordan CJ said implied that an arrangement between a client and a judgment debtor may have the effect of defeating the solicitor’s right, provided that it is not a collusive arrangement.  This proposition appears to be supported by the authority referred to by Jordan CJ, the decision of Stirling J in Ross v Buxton (1889) 42 Ch D 190 at 201 where His Lordship said, in reference to previous authority:

“... a bona fide compromise entered into before verdict or judgment, and even after notice of the solicitor’s claim for costs, is good, and will not be set aside or affected at the instance of the solicitor unless collusion or fraudulent conspiracy exists between the parties.”

1. I approach the matter on the same basis as these authorities.  That is, on the basis that Mr Figallo and the Defendants are at liberty to compromise their respective claims for costs, notwithstanding that the compromise might defeat Mr Johnson’s right to recover his costs from the costs payable to Mr Figallo by the Defendants.  However, if the court is satisfied that the compromise is not made in good faith, or is made for the purpose of defeating the claim advanced by Mr Johnson, it may enforce Mr Johnson’s claim notwithstanding the making of the compromise.

2. Mr Soulio submitted that I should find that Mr Figallo had not acted in good faith.  He made no such submission in relation to the Defendants.  He accepted that they had acted entirely in their own interests, and had acted properly at all times.  I adjourned the application to enable Mr Johnson, if he wished, to file an affidavit in support of his contention, but no affidavit was filed.

3. I am not prepared to infer that the agreement between Mr Figallo and the Defendants was, on Mr Figallo’s part, anything other than a genuine compromise of the claim by the Defendants to recover their costs from him.  When the agreement was reached I had reserved my decision on the application made by the Defendants.  I suffice to say that the case advanced by the Defendants was a substantial one.  Had I been aware at the time of making the original order for costs that not only was Cade insolvent, but that the orders for security were worthless, I might well have made an order that Mr Figallo be liable for the costs payable by Cade.  It is arguable, in my opinion, that I had power to make the order more recently sought by the Defendants, or alternatively, even at that stage, to make an order that Mr Figallo be liable for the costs payable by Cade.  It suffices to say that, when Mr Figallo reached his agreement with the Defendants, there was a prospect of them obtaining an order setting off Cade’s liability to them against their liability to Mr Figallo, and the risk of an order that would have the result that Mr Figallo would be personally liable for any balance in favour of the Defendants.  The making of the order also secured the release of Renior Pty Ltd, a company in which Mr Figallo’s family had an interest.  The consequence from Mr Johnson’s point of view, must have been obvious to Mr Figallo, but that does not mean that the reaching of the compromise might not have been a sensible thing to do, from Mr Figallo’s point of view, in all the circumstances.  For those reasons, I reject the submission that I should find that Mr Figallo acted in bad faith, or with a view to defeating Mr Johnson’s claim, when he entered into a compromise with the Defendants in relation to the various orders for costs.

4. That being so, and the effect of that compromise being that there are no moneys recoverable by Mr Figallo by way of costs, there is no basis for the making of the order sought by Mr Johnson, and it was for that reason that I refused that aspect of his application as well.  There are no circumstances which entitle Mr Johnson to relief in the form sought.