Canatan Holdings Pty Ltd v Audori Pty Ltd
[1995] FCA 131
•22 FEBRUARY 1995
CATCHWORDS
COSTS - solicitor's lien over costs - whether solicitor entitled to be paid out of a judgment for party and party costs
Worrall v Power & Power [1993] 46 FCR 214
Colgate Palmolive Co & Anor v Cussons Pty Ltd [1993] 118 ALR 248
Re Allied Glass Manufacturers Ltd [1936] 36 SR (NSW) 409
Mercer v Graves [1872] LR 7 QB 499
CANATAN HOLDINGS PTY LIMITED v AUDORI PTY LIMITED AND CYRIL EDWARDS; MICHAEL PAUL CARROLL & PETER STANLEY KNUDSEN and JOHN LAURENCE ORFORD
No. NG 23 of 1992
EINFELD J
SYDNEY
22 FEBRUARY 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 23 of 1992
GENERAL DIVISION )
Between: CANATAN HOLDINGS PTY LIMITED
ACN 003 981 548Applicant/First Respondent to Motion
And: AUDORI PTY LIMITED
ACN 001 105 040First Respondent/Second Respondent to Motion
CYRIL EDWARDS
Second Respondent/Third Respondent to Motion
MICHAEL PAUL CARROLL & PETER STANLEY KNUDSEN trading as Michael P. Carroll & Peter S. Knudsen Solicitors
Applicants on Motion
JOHN LAURENCE ORFORD trading as John Orford & Associates
Fourth Respondent to Motion
MINUTE OF ORDERS AND DECLARATIONS
Declare that the applicants on the motion have a lien over the party and party costs currently held in trust by the fourth respondent.
Order the fourth respondent to pay the said moneys to the applicants on the motion.
The applicants on the motion are thereafter to hold the said moneys in trust for the first respondent to the motion until the issue of a certificate of taxation as between solicitor and client.
The applicants on the motion are thereupon to account to the first respondent to the motion after and including the payment of the taxed solicitor and client costs and any other moneys owing by the directors and associated entities.
There is liberty to apply on 3 days notice by not later than 4pm February 28 1995 for any additional or alternative orders.
The first respondent to the motion is to pay the costs of the applicants on the motion.
Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
EINFELD J
SYDNEY
22 FEBRUARY 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 23 of 1992
GENERAL DIVISION )
Between: CANATAN HOLDINGS PTY LIMITED
ACN 003 981 548Applicant/First Respondent to Motion
And:AUDORI PTY LIMITED
ACN 001 105 040
First Respondent/Second Respondent to Motion
CYRIL EDWARDS
Second Respondent/Third Respondent to Motion
MICHAEL PAUL CARROLL & PETER STANLEY KNUDSEN trading as Michael P. Carroll & Peter S. Knudsen Solicitors
Applicants on Motion
JOHN LAURENCE ORFORD trading as John Orford & Associates
Fourth Respondent to Motion
REASONS FOR JUDGMENT
EINFELD J SYDNEY 22 FEBRUARY 1995
On 16 July 1993, in proceedings under the Trade Practices Act between the applicant (Canatan) and the respondents (Cyril Edwards and his company Audori Pty Ltd (Audori)) I gave judgment in favour of the applicant (the proceedings). Subsequently a costs order was made in favour of the applicant on 20 August 1993 (the costs in the proceedings). The solicitors for Canatan in the proceedings were a firm consisting of Michael Paul Carroll and Peter Stanley Knudsen (the firm) of whom Mr Knudsen was the partner in charge of this matter. The firm had acted for Canatan and its directors, Ross and Jan Stoodley, and an associated company, for a number of years. Mr Knudsen and the Stoodleys were personal friends; at relevant times Mr Knudsen employed the Stoodleys' daughter Leanne as his personal secretary.
On or about 1 September 1993, the firm rendered a lump sum account to Canatan for its costs, as between solicitor and client, of representing the company in the proceedings. The account has not been paid. A dispute having arisen about these costs, the firm has moved the Court for a declaration that the costs in the proceedings stand charged pursuant to section 39A of the Legal Practitioners Act 1898 with the taxed costs of the firm, or that the firm has an equitable charge over the costs in the proceedings to the extent of its solicitor and client costs. Canatan is the first respondent and Mr Edwards and Audori are the second and third respondents to the motion. Ancillary or supportive relief is sought in the form of an order that the costs in the proceedings be paid into the firm's trust account pending taxation of its solicitor and client bill of costs, and a declaration that pending the payment of its costs, the firm have a lien over Canatan's file and either a legal or equitable lien over any moneys received on Canatan's behalf. Pending the outcome of the firm's motion, the costs in the proceedings have been paid to John Laurence Orford, the solicitor for the unsuccessful respondents in the proceedings and the fourth respondent to the motion. Mr Orford has informed the Court that he will abide the orders of the Court but did not wish to incur the costs of appearing.
The parties have subsequently agreed in written submissions that section 39A of the Legal Practitioners' Act was not re-enacted in the Legal Profession Act 1987 when that Act repealed the 1898 legislation. The claimed charge is therefore not available. The firm submitted, however, that the repealed section which would before repeal have been applicable to these facts and entitled the firm to the charge it seeks should be taken into account in the exercise of the Court's discretion on the balance of the motion. No argument of principle or otherwise was advanced to support the novel proposition that a repealed statute should still have effect on a postulated discretionary basis that if it had not been repealed it would have entitled the moving party to the relief sought, and I do not accept the proposition. However, the parties seem to be agreed that in "a proper case": see Re Allied Glass Manufacturers Ltd [1936] 36 SR (NSW) 409 at 425-6, the Court could pronounce a form of equitable lien in favour of the firm which would have a similar result to the section 39A charge. Long Innes J said in Allied Glass at 425:
In Barker v St Quintin (12 M & W 441, at 451) Parke B said: "The lien which an attorney is said to have on a judgment (which is, perhaps, an incorrect expression) is merely a claim to the equitable interference of the Court to have that judgment held as a security for his debt". Again in Mercer v Graves (LR 7 QB 499, at 503) Cockburn CJ said: "Although we talk of an attorney having a lien upon a judgment, it is in fact only a claim or right to ask for the intervention of the Court for his protection, when, having obtained judgment for his client, he finds there is a probability of the client depriving him of his costs". See also H.S. Bird & Co v The Ship "Karu" (27 SR 476, 479) and Mason v Mason ([1933] P. 199, 214). This so-called lien differs from the charging order which may be made under s. 39A of the Legal Practitioners Act, 1898, which was introduced by s. 8 of the Legal Practitioners (Amending) Act, 1935, inasmuch as it is acquired by the solicitor immediately the property has been recovered or preserved by his proceedings, while the granting or refusing of a charging order is in the discretion of the Court; and it may be conceded that the "equitable interference of the Court" to ensure the protection of the solicitor will always be exercised in a proper case as a matter of right. The question may, however, always arise as to whether a particular case is a proper one in which that equitable interference should be exercised.
The orders and declarations sought are of their nature temporary. Moreover, despite my waiting for it to be done before delivering this judgment, the firm has not yet taxed a bill of costs or has not informed the Court that it has. Thus at present it is strictly only a contingent creditor of Canatan and any pronounced relief will be interlocutory. On the other hand, as it is not disputed that the firm is and will be owed money by Canatan for its costs -- the firm suggests, and it has not been challenged, that it will be between $60,000 and $75,000 although this may include costs in other matters -- the interlocutory relief will finally dispose of the dispute and no permanent relief will be necessary. I am therefore of the opinion, contrary to Canatan's submissions, that the matter should be dealt with on its full merits rather than by testing the firm's contentions on the usual interlocutory bases of arguability and balance of convenience.
The firm's case for equitable relief is essentially that Canatan agreed that the firm's costs could be deducted from the moneys paid for the costs in the proceedings, and that equity should enforce the agreement. The circumstances were that after the verdict moneys had been paid to the firm, a conversation between Mr Knudsen and Mrs Stoodley took place on or about 22 November 1993 to the following effect:
Myself:
Jan, we have got a cheque in from Orford. It is in favour of Canatan. I'm going to send the cheque home with Leanne. Ordinarily a Solicitor would expect to be paid his costs and disbursements, at the very least his disbursements, from the Verdict monies. I'm not sure that my partner is going to be entirely happy with what I am doing. You know I have paid Greg Scragg $10,000 myself on account of his fees, and one or two other Counsel other money. We will wait to be paid when we obtain the party/party costs from Edwards and I need to be repaid the money that I paid personally. I can't do this unless I'm sure that we are entitled to be paid from the party/party costs we recover.
Mrs Stoodley:
That's very good of you Peter, that's o.k. We have some financial problems at the moment and that will be a great help.
(Greg Scragg was Canatan's counsel at the hearing.) The firm alleges that this conversation amounted to an agreement to something along the lines of the essential relief sought in the motion.
Later a further payment of verdict moneys was also sent home by Mr Knudsen with Leanne. On 3 December 1993, Canatan paid the firm the sum of $43,279.17 to cover its disbursements. Subsequently on 17 May 1994 Mrs Stoodley on behalf of Canatan instructed Mr Knudsen to settle the costs in the proceedings as between party and party for $62,500 payable by agreed instalments and an agreement to this effect was struck and embodied in short minutes of orders sent to Canatan by letter of 31 May 1994. Then on 1 June 1994 Canatan wrote to the firm as follows:
1 June 1994
Michael P. Carroll & Peter S Knudsen
Level 7 Skygarden Tower
77 Castlereagh Street
SYDNEY NSW 2000
Attention Mr P.S. Knudsen
Dear Peter,
We have today received your letter dated 31st May 1994. We noted in the "Short Minutes of Order" that a payment by Mr Edwards of $10,000 was due on the 20th May 1994. As informed in your conversation with Jan on 1st June 1994 you have received this payment. There are a number of creditors still to be paid from this Court action.
Therefore we ask that you forward the cheques as received from Mr Edwards to us to enable the disbursements to all creditors.
Thank you
R. Stoodley
On 3 June Mr Knudsen had a telephone conversation with Mrs Stoodley about this letter to the following effect:
Myself:
Jan, I have just got this letter from Ross. If it means what I think it means it's outrageous. You know I have gone out on a limb for you in this matter -- I've put my own money in, I've put myself in jeopardy with my partner. It was agreed that the party/party costs in this matter would be appropriated by us for our costs and disbursements.
Mrs Stoodley:
I thought it was our responsibility to pay the accounts in relation to the matter.
Myself:
The only accounts outstanding in this matter are this firm, me, and Warwick Dolman who is owned about $15,000 for which I am personally responsible since I asked for him to prepare the expert Economic Loss report -- all he has to do is phone the Law Society and I would have to pay him myself, immediately. I really don't want to pay any more money out. I have already agreed with Counsel to pay $4,000 a month in relation to the outstanding fees on the Paslett matter.
Mrs Stoodley:
I'm sorry, Peter, I guess I must be naive.
Myself:
Jan, we haven't been paid any fees for the last three or four years. I have been paying your daughter $35,000 a year. She gets paid even though she spends an enormous amount of time on your work. Michael Carroll is with me. He is very annoyed about it. You really must send my another letter withdrawing those instructions. If you are not prepared to do that I think you would be better of with another solicitor.
Mrs Stoodley:
Alright Peter, I'll talk to Ross about it.
Later that day Mr Stoodley faxed Mr Knudsen as follows (sic):
Further to this mornings conversation with Jan we regret that you apparently misunderstood my letter of 1/6/94. There were no inferences meant as it was a simple request. We believed our obligation was to clear our debts.
No specific issue or complaint was ever raised with the firm by Canatan in relation to the firm's account until later in June 1994, more than nine months after it was rendered, when Canatan retained Messrs Taylor Kearney Reed and Owen as its new solicitors (the new solicitors). Indeed the payment of part of the bill on 3 December 1993 without relevant comment is some evidence that it was not disputed. There followed the appointment of the new solicitors an exchange of quite acrimonious correspondence which added little except the raising of blood pressure levels. The new solicitors raised some objections to the lump sum bill and sought a bill in taxable form. Although this request was well beyond the due time for objection, the firm thereupon commissioned an itemised bill of costs. When taxed, the certificate of taxation of this bill will fix the amount Canatan owes the firm subject to any moneys of Canatan the firm already holds or has already applied to its costs. The new solicitors stated on 21 June 1994:
Our clients choose to remain in charge of the timing and payment of all their creditors.
They also stated in a letter dated 24 June 1994:
You may accept that our clients will pay all amounts properly due and owing by them .....
Amongst several other quite extreme assertions, the new solicitors alleged that the firm wrongly expropriated some $10,000 to itself in contravention of the Legal Profession (Trust Accounts and Control Money) Regulation 1988. The firm has strongly denied the allegations but it is not necessary for me to decide the matter which has apparently been referred to the Law Society.
Without a certificate of taxation, no proceedings may be commenced for the recovery of costs. Indeed, without an itemised bill of costs, Canatan cannot decide or be advised whether and what it should pay. On the other hand, the behaviour of Canatan in the course of the dispute does not support the suggestion that its attitude in the matter has been motivated by such legal considerations. In fact, the evidence suggests that the Stoodleys were at relevant times short of money and wanted to trade on their friendship with Mr Knudsen to keep the firm waiting, other than for disbursements which Mr Knudsen had already paid out of his own pocket, while they paid other debts with whatever they could receive from the proceedings. Their later protestations through the new solicitors appear to me to be nothing more than dire threats and bluster designed to frustrate and delay the recovery by the firm of what is or is likely to be a large sum of money which at the end of the day will not be disputed to be, and to have for many years been, owing and unjustifiably withheld. It is against this background that Canatan's suggestion that no relief should be granted because there is no equity and no reason to believe that the costs will not be paid when taxed should be viewed.
The law for a case such as this is established by Worrall v Power & Power [1993] 46 FCR 214, a decision of a Full Court of this Court (Wilcox, Ryan and Gummow JJ) which concerned the position of a solicitor in the administration of the estate of a client. The specific issue in the case was the time at which the solicitor gained an interest in the costs paid in the proceedings. Their Honours concluded at 224:
In the present case it is clear that the success in the proceedings was due to the efforts of the firm. It follows that in this case the firm had an equitable right in the costs order immediately it was pronounced. They are therefore entitled to an order that their account be paid out of the costs in the proceedings.
Furthermore, I find that Canatan agreed that the firm could have first access to the costs in the proceedings for moneys owed by Canatan, the Stoodleys personally and an associated company. That was the basis on which the firm facilitated and expedited the receipt by Canatan of the verdict moneys. In the circumstances law, if not equity, should enforce the agreement.
Were the parties not at apparent loggerheads I would call upon them to agree on an appropriate order. However, as agreement seems unlikely, I shall have to frame an order myself on the basis of the minimum necessary to protect the firm. I therefore propose to declare that the firm have a lien over the costs in the proceedings held in trust by the fourth respondent and to order him to pay the said moneys to the applicants to be held by them in trust for Canatan until the issue of a certificate of taxation as between solicitor and client. The said moneys are then to be accounted for to Canatan after and including the payment or deduction of their taxed solicitor and client costs of these proceedings and other moneys owing by the Stoodleys and associated entities. I reserve liberty to apply for any additional or alternative orders or declarations to be exercised on three days notice by not later than 4pm on February 28 1995.
The firm seeks costs of this motion on an indemnity basis. The salient fact in this case, and the real reason for the dispute, is the breakdown in trust between the firm and Canatan. Without this mistrust, and a certain amount of malice, the present motion would not have been necessary. There does not appear any material advantage to Canatan in denying the firm immediate access to the costs in the proceedings, when it has indicated that it is willing and able to pay a taxed solicitor and client bill. Its refusal to do so is quite unjustified. On the other hand, the firm has chosen to take advance proceedings to demonstrate a stand on the issue, rather than proceeding immediately to a bill of costs, and if necessary taxation, to test the bona fides of Canatan and its new solicitors. I was not informed whether a lack of liquidity of Canatan underlay this decision. Assuming it did not, it appears to me that these proceedings reflect no merit on either party, in which circumstance I am not willing to order indemnity costs. It is noteworthy although not decisive that this case does not fit into any of the criteria listed by Justice Sheppard in Colgate Palmolive Co & Anor v Cussons Pty Ltd [1993] 118 ALR 248 at 257. Canatan will pay the firm's costs of the motion on a party and party basis.
Counsel and solicitor for Mr M. Duncan instructed by the applicant on the motion Mr P. Knudsen
Counsel and solicitor for Mr J. Trebeck instructed by the first respondent to Mr G. Owen of Taylor
the motion Kearney Reed & Owen
The second and third respondents to the motion did not appear
The fourth respondent made a submitting appearance
Date of Hearing 1 August 1994
Written submissions 18 August 1994
completed
Date of Judgment 22 February 1995
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