Cosgriff v McAra
[2012] VSC 21
•6 February 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 04647
IN THE MATTER of an application by Maree Anne Cosgriff for payment out of Court of funds paid into Court on her behalf in respect of her entitlement from the estate of John Graham Edwards deceased, as between:
| MAREE ANNE COSGRIFF | Plaintiff |
| – and – | |
| NATALIE MAREE McARA and | |
| BRENDAN MARCHESI (as trustee of the bankrupt estate of Issac Alexander Brott) | Defendants |
---
JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5, 19, 20 December 2011 | |
DATE OF JUDGMENT: | 6 February 2012 | |
CASE MAY BE CITED AS: | Cosgriff v McAra and anor | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 21 | |
---
SOLICITOR’S LIEN ― “Fruits of judgment” lien over client’s settlement moneys ― Nature and features of lien.
COSTS ― Fees rendered for conduct of litigation ― Subsequent settlement of litigation ― Solicitor’s lien over “fruits of judgment” ― Sale of debts due to solicitor ― No express assignment of lien to purchaser― Purchaser’s right to take benefit of lien ― No implied entitlement to take benefit of lien under sale of debt agreement ― No independent right at law to take benefit of lien.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Ritchie | Mirabelli, D’Ortenzio & Co |
| For the First Defendant | Mr S. Thomas | Pinto Law |
HIS HONOUR:
The administrator of the deceased estate of John Graham Edwards has paid into this Court under section 69(1) of the Trustee Act the sum of $100 616.29 stating that to be the balance of funds held on behalf of Maree Anne Cosgriff, the daughter of the deceased. That occurred in June 2011. Her claim to that money arises from a compromise of her claim in litigation involving her father’s deceased estate, which gave her a right to be paid money. The administrator took the impartial course of paying the money into this Court because a law firm, Issac Brott and Co, asserted the law gave it a right to have all of that money because it stands as security for legal fees owing by her to them for their professional services in connection with that litigation. That is an assertion of what is commonly known as a “fruits of litigation” lien.
The case has its complications. In circumstances and with timing I am about to expose, before Maree Cosgriff’s litigation was settled the principal of the law firm, Mr Issac Brott, had his practising certificate cancelled for misconduct and unsatisfactory conduct. Cosgriff then obtained new solicitors to continue the litigation. Brott was later made bankrupt and his name was struck off the roll of practitioners at this Court. But before his bankruptcy, he sold his debts to his de facto wife, Natalie Maree McAra under a written agreement for a stated purchase price of $30 000. McAra now contends she is entitled to Brott’s lien over the money in Court as those funds were the partial result of Brott’s exertions as Cosgriff’s ex‑solicitor. She is not seeking an order that she be paid the money yet, because there is a simmering claim by Cosgriff that she was overcharged and has never been given a bill in taxable form. McAra’s position, as I understand it, is that Cosgriff should not get the money as is sought in this proceeding.
At the beginning of the proceeding, there were three substantial issues for determination. First, was there ever a fruits of litigation lien? At the time of the settlement on 17 February 2009, which is the only time when a lien could arise, Brott was no longer practising as a solicitor. He had not yet been struck off the Supreme Court roll, but his practising certificate was cancelled. Does that undermine the very legal basis for the creation of the lien? The second issue was whether a fruits of litigation lien is capable of being the subject of an assignment. If it is purely personal as between solicitor and client, and not proprietary, would the law allow it to be enforced at the hands of an assignee with whom the client had no personal professional relationship? The third issue is that even if the equitable lien was created and even if it was assignable, was it actually assigned under the (factoring) agreement by which Brott sold his debts to McAra, for the agreement does not expressly say so. Is it to be implied? If not, is there something about the nature of the equitable lien that means it somehow enures for her benefit anyway?
On the second day of argument in this case, after the Court had ordered McAra (and Brott’s trustee in bankruptcy) to be joined as a party, and was endeavouring to have the evidence put into order and to ensure that all evidence was properly before the Court on a final basis, it was clear that this case had progressed without much regard being paid to its proper evidentiary requirements. Of greatest concern was the absence of any evidence at all of a causal connection or a nexus between the work done by Brott and the settlement sum actually obtained. After all, the right to a lien over the proceeds of litigation or a settlement sum is based upon the fact that a solicitor was “instrumental” in obtaining the judgment or compromise and that the judgment or compromise came about by reason of the solicitor’s exertions: see Roam Australia Pty Ltd v Telstra Corporation.[1] That is, there has to be a sufficient causal link between the solicitor’s work and the ultimate settlement. There must be evidence that the settlement was brought about, or partially brought about by the efforts of the solicitor. There was simply no evidence of this at all and the position of McAra in this case at the outset was simply to say that for as long as there was a lien then Cosgriff’s application should be refused. However, I was not willing to take that approach. I was more interested in finding who the claimants were, the quantification of the claims, and seeking to make an order that finally disposed of rights by reference to the funds in court.
[1](1997) FCA 980.
It was in those circumstances that counsel for Cosgriff, acting responsibly if I may say so, was willing to make a written concession (placed on the Court file) that:
The eventual settlement of the proceeding on 17 February 2009 was partially brought about by the past efforts of Mr Brott.
Those efforts were sufficient to establish the causal link which was a legal prerequisite for the equitable right − or “fruits of litigation lien” − in favour of a solicitor to be paid costs (when agreed, taxed or otherwise determined) from the settlement fund.
That concession left open a controversy about the amount of the debt but it cleared the way for the Court to determine what the parties accept are the dispositive issues in the case which are: did the agreement under which she bought his debts impliedly give her the benefit of the solicitor’s lien? or, outside the agreement, does the law, by some other means, provide that she takes the benefit of the lien? If the answer is no, then that means McAra as purchaser of Brott’s debt has to take whatever action she thinks fit in a Court of competent jurisdiction to recover the (unsecured) debt and Cosgriff can resist such action on whatever legal grounds are open to her.
Before getting to the point of enabling the issues to be reduced, the Court had to traverse a body of evidence about the various dealings not all of which are strictly relevant to the clinical question whether the lien had been assigned. But it is just as well, in the way this case has proceeded, to rehearse the facts which help I think to better understand the case generally and give a convenient record for possible future purposes.
The facts
In about April 2004, the plaintiff Maree Cosgriff engaged the law firm of Issac Brott and Co, whose sole principal is Issac Alexander Brott, to act as her solicitor. She was in dispute with her only brother, and with the trustee of a family trust (Grajon Pty Ltd) about her entitlements to certain land in Skene’s Creek, shares in Grajon and other property. The disputations arose in the context of the administration of her deceased father’s estate. The plaintiff and her brother were the only children of John Graham Edwards who died on 13 January 2002.
Brott commenced legal proceedings on Cosgriff’s behalf in this court some time around April 2004. The litigation was against the trustees of her father’s deceased estate. By 15 August 2008, the trial was fixed for trial on 17 February 2009 with an expected duration of 10 days. But before trial, the Victorian Civil and Administrative Tribunal (“the VCAT”) ordered on 18 September 2008 that Brott’s practising certificate be cancelled, effective from 4 October 2008, and that he be not entitled to apply for a practising certificate before 4 July 2009. That order was made following his admitted numerous contraventions of the Legal Practice Act 1996 which constituted misconduct and unsatisfactory conduct. The charges giving rise to that outcome did not concern anything to do with the solicitor-client relationship between Brott and Cosgriff. Avoiding details, they concerned breaches of the trust accounting rules; permitting an unqualified person to engage in his legal practice; and his dealings with a former client, one Schaja, who the Tribunal said lacked the mental capacity to provide competent instructions.
As a result of the provisions of the Legal Profession Act 2004, that order by the VCAT had the consequence that Brott became unable to act for Cosgriff. But, so I am told by the parties, the legal result of this state of affairs is that although Brott was not able to practise, he remained on the roll of practitioners admitted to the Supreme Court, or at least, that was the effect of the pre-existing Legal Practice Act 1996. The transitional effect from the previous Act to the 2004 Act do not matter for present purposes.
Following the orders of the VCAT, Cosgriff then instructed the law firm of Slater & Gordon to act for her in the litigation. Brott was told of that change on 25 September 2008, and was requested to deliver to the new solicitors the whole file concerning the litigation. He refused to do so. He asserted a possessory lien over the file for unpaid fees. This provoked an application on Cosgriff’s behalf in this Court, commenced on about 22 October 2008 to compel Brott to deliver up the file to the new solicitors. Then, on 27 October 2008, the day before that application was due to be heard, Issac Brott and Co, the firm, sent Cosgriff a tax invoice as a “Final Account” for professional fees and disbursements for a total of $133 974.15. As I comprehend the invoice, that was the balance claimed as owing from a total amount of $256 998.67 towards which Cosgriff had already paid $123 024.25, either directly or from transfers from money held in the solicitor’s trust account. There is an unexplained statement in an affidavit from Cosgriff that prior to changing solicitors, there had been a dispute with Brott relating to excessive fees charged by him. [2]
[2]See her affidavit sworn 2 September 2011, at para 15.
On 28 October 2008 Byrne J of this Court granted the application and ordered Issac Brott & Co to deliver up the litigation file to Messrs Slater & Gordon. His Honour did so on the basis that it was a well‑established legal principle that where the retainer is determined by the client for misconduct or breach of contract by the solicitor, a possessory lien over the file comes to an end. In the situation at hand, his Honour reasoned that by the solicitor’s own wrongful conduct, he had caused himself to be discharged and it was his wrongful acts that rendered him legally incompetent to continue with the retainer. His Honour said:
It would be altogether contrary to any principle of equity that a solicitor whose misconduct rendered a blameless client bereft of legal representation should nonetheless be permitted to retain the file so that the client was unable to retain fresh representation.[3]
[3][2008] VSC 515 at [10].
His Honour’s judgment also notes Cosgriff’s willingness to give security for the outstanding accountant’s fees and counsel’s fees for the case. Accordingly, the Court’s orders required security of $5000 and $23 315.25 to be paid into Court for those respective disbursements, and in that event, for the file to delivered to the new solicitors. Issac Brott and Co were ordered to pay the costs of that application which, it is said, were taxed at $19 358. Cosgriff swears that those costs were not paid by Brott and there were counter assertions that the $5000 security was not paid. I cannot, for myself, make sense or clarify all of the facts precisely. What matters is that the files were handed over to the new solicitors.
The next event occurred on 17 February 2009. On that day, the litigation was settled under a deed of settlement between Cosgriff, her brother and the trustee company Grajon. The details of the settlement are not material but a few things are worth mentioning to better understand the financial relativities of the case, and this application. The deed recites that according to the executor there was at that time an amount of $165 000 in the deceased’s estate. Under clause 1 of the deed, Cosgriff and her brother agreed to direct the executor to distribute the remainder of the estate by paying $125 000 to her and $40 000 to her brother. She disclaimed any interest in the land and forever abandoned any interest in the land, including any claim as beneficiary of the estate. She agreed to transfer her interest in any shares held in Grajon to her brother and to renounce and relinquish any interest she had as beneficiary of the family trust. As I read the terms, her expected gain from the deed was a payment of $125 000. But as events turned out, there was less than $165 000 available from the estate, a possibility that was envisaged under clause 2 of the deed. Come early 2011, the administrator held for her was the sum of $100 616 as paid into Court.
On 20 August 2009, there was sent to Cosgriff under the letterhead of “Issac Brott & Co” an overdue notice seeking payment of $133 974.15 under the earlier tax invoice which was dated 28 November 2008. The letterhead shows the “principal/director” of that business named to be one Nelson Pinto. I shall not expose the thrust and parry of the correspondence. It is sufficient to say that Cosgriff’s lawyers were insisting, as matter of legal entitlement, that Pinto provide a bill of costs in taxable form. Pinto resisted on the ground that the costs of preparing such a bill would be considerable; that consultants had assessed the bill at $210 000; that Cosgriff should hire consultants to make an assessment; and they should then confer. Cosgriff insisted on a bill in taxable form. That has never been produced.
The next event is the most significant for present purposes. Natalie Maree McAra of 17 Lansell Road Toorak has sworn an affidavit that she is the de facto partner of Brott. She swears that on 1 June 2010 “I purchased the debtors of Issac Alexander Brott pursuant to a Agreement for the Sale of Debtors dated 1 June 2010.” Like any commercial document, it has to be construed as a whole so it is best I set out its entire contents. It is called “Agreement for the Sale of Debtors”. It is expressed to be made on 1 June 2010 and it identifies Issac Brott, formerly trading as Issac Brott & Co of 493-495 Little Bourke Street Melbourne as the vendor and Natalie Maree McAra as the purchaser. The agreement says:
1.The Vendor sells and the Purchaser buys all of the vendor’s debtors inclusive of but not restricted to the debtors as detailed in the attached schedule for the sum of $30,000.00.
2.the Purchase shall pay the price as follows:
2.1a deposit of $3,000.00 on the signing hereof
2.2the balance of $27,000.00 within 7 days of the date of this agreement, or earlier by mutual agreement.
3.Property in the debtors shall not pass to the purchaser until the purchase price shall have been paid in full.
4.There will be no other adjustments to the prices as between the Vendor and the Purchasers,
5.The Vendor shall deliver the debtors and all files and documents relating to the debtors to the Purchaser on payment of the purchase price in full on an “as is” basis and the Purchaser will not make any claim against the Vendor for any loss or damage allegedly suffered by the Purchaser by reason that any of the debtors are uncollectable.
6.The Purchaser agrees, acknowledges and declares that in entering into this agreement the Purchaser has relied on the purchaser’s (the Purchaser’s employees and agents) own assessment of the value of the debtors sold and purchased; and
7.The Purchaser agrees and acknowledges that to the fullest extent permitted by law, none of the vendor, the vendor’s solicitor, or their respective agents or employees have made or make any representations to or warranties to or agreements with the Purchasers as to the nature of the debtors and their collectability, other than that for a variety of reasons, costs will be incurred by the purchaser to complete preparation of Bills of Costs, Taxable bills of Costs and recovery proceedings against defaulting debtors and that the net recoverability of the debtors is unknown.
8.No covenants, or provisions other than those appearing in this agreement are to be implied into this agreement by way of collateral or other agreement or by reason of any promise, representation, warranty, or undertaking given, made or alleged to be given or made by any of the Vendor.
9.The Vendor agrees to provide to the purchaser whatever assistance is reasonable requested of him to explain matters within file of each debtor to enable the purchase to seek recovery of the debtors.
10.Time is of the essence of this agreement.
11.If the Purchaser defaults in the payment of any moneys payable under this agreement the vendor:
11.1May sue for the unpaid money immediately without giving notice and without affecting any other right.
11.2The vendor may enter any premises of the Purchaser and retake possession of any assets in respect of which property has not passed, and no claim shall be made by the Purchaser against the vendor howsoever arising as a consequence of the Vendor exercising the right conferred pursuant to this clause.
12.If either party defaults in that party’s obligations under this agreement, the other party is entitled to:
12.1reasonable expenses (including, without limitation, legal expenses calculated on a solicitor and own client basis incurred as a result of the default; and
12.2interest on any money overdue during the period of default at a rate of 2 percentage points higher than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as at the date of the default.
13.If the Purchaser defaults in the payment of any moneys payable under this Agreement and if such default continues for more than seven days, the whole of the moneys payable under this agreement then become forthwith due and payable without necessity for the Vendor to give any notice to the purchaser.
14.Any demand notice or document under this agreement may be made or given by a party or its or his lawyer and will be sufficiently served or delivered if served or delivered personally or if posted by prepaid post addressed to the party to be served at its address herein or to its lawyer or if served in any other manner authorised by the Supreme Court General Rules of Procedure in Civil Proceedings 1985 for the service of documents upon parties or their lawyers.
The agreement that is in evidence does not attach the schedule as referred to in clause 1. Thus the most the Court has is evidence that the agreement for $30 000 was to purchase the vendor’s debtors without any understanding of the proportionality of the purchase price to the magnitude of the debts purchased.
Brott was made bankrupt a little over 6 months later on 17 December 2010. Mr Brenda John Marchesi of Bent and Cougle Pty Ltd was appointed as trustee of the bankrupt estate. Soon after his appointment, he as trustee alleged that the agreement with McAra was void under s 120 of the Bankruptcy Act. That provision makes void as against trustee a transfer of a property the person who later becomes the bankrupt if the transferee gave consideration of lesser value than the market value of the property purchased.
The trustee and McAra, and another party, then made a deed of settlement on 12 October 2011 to settle not only the dispute concerning the validity of the assignment but also the trustee’s challenge to some other pre‑bankruptcy payments made by Brott to McAra. The details are not relevant. In essence, in final settlement of all claims, McAra agreed to pay the trustee $60 000. That was to be done by her releasing $23 302 from money she had already received from Brott’s debtors and another amount of $36 698. She also agreed not to prove in the bankrupt estate.
By this time, Cosgriff still had not received any money from the executors or administrator of the deceased estate under the deed of settlement. In the meantime, on 7 February 2011, the VCAT found Brott guilty of another four charges of misconduct at common law and ordered that he not apply for a practising certificate before 4 January 2019. The Tribunal also referred Brott to the Supreme Court with a recommendation that his name be struck off the roll of practitioners.[4] On 25 March 2011, Habersberger J of this Court ordered by consent that Brott be struck off the roll of practitioners kept by the Supreme Court.
[4]See Legal Services Commissioner v Brott (2011) VCAT 110.
On about 3 June 2011, the solicitors for the administrator of the deceased estate paid into the Senior Master’s (Funds in Court) office the sum of $100 616.29 being the balance of funds held on behalf of Maree Cosgriff. That payment was made not before the administrator received an advice from counsel (which is in open evidence) that there was no basis for the assertion that either Brott or Issac Brott & Co had an equitable lien over any sum of money that is now available to be distributed to Cosgriff from the estate by the administrator. The very brief opinion from counsel which refers back to extensive and detailed advice on 26 June 2009 (not in evidence) says that Brott was not entitled to any fees or costs that money paid by Cosgriff to Brott was recoverable; and that the retainer was liable to be cancelled for non‑compliance with provisions of the Legal Practice Act. The view is also taken, as I read the opinion, that Brott’s disqualification from practice, the winding up of his practice, and the fact that he was a bankrupt and being treated for a psychiatric disorder meant there was no basis for an assertion that Brott or his firm had any equitable lien over any of the money that is now available to be distributed from the estate by the administrator. The claim for an equitable lien was said to be without legal foundation. There is no need for me to pass any judgment or comment about the correctness of those opinions.
Thus, it is almost three years since the deed of settlement and the applicant has still not obtained payment under the settlement. Her most recent affidavit, sworn 2 September 2011, says she is unemployed and needs the money to carry on a normal life and to relieve the severe financial pressure she is under. As for Ms McAra, on 14 November 2011, her solicitors Pinto Law, filed a summons for taxation returnable in the Costs Court on 6 December 2011. On that return date, the Court ordered that a bill of costs be filed and that the matter be called over in April 2012. To add to the complications, there is a question whether it was necessary or competent for a summons for taxation to be filed. Mr Ritchie, counsel for the plaintiff, submitted (and this seemed to be agreed to by Mr Thomas) that the applicable legislation was the “old” Legal Practice Act 1996. Under Part IV of that Act, there was a different regime to the one that now operates under the Legal Profession Act 2004 which came into operation on 12 December 2005. In substance, under the previous Act, there was a restriction on a solicitor being able to sue a client for costs until a bill was served (see s 106). It was then open for the client to request a taxable bill and then within certain time limits apply for a taxation. I am proceeding on the basis, as I was invited to, that it is now open for “Issac Brott & Co” to sue on the bill without any necessity for an assessment by the Costs Court. It still leaves open the right of the client to, of course, challenge recoverability on various grounds including excessive charges or negligent work or any other defence.
The first step I think is to consider the nature of the “fruits of litigation” lien.
The fruits of litigation lien
There is no doubt that a solicitor has at law what is commonly called a “fruits of litigation” lien. The authoritative statement of that right in Australia is Ex parte Patience; Makinson v The Minister.[5] Jordan CJ explained the nature of such a lien as follows (omitting references):
A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client’s right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor’s costs. …
[5](1940) 40 SR (NSW), a decision of the Full Court of the Supreme Court of New South Wales.
The exposition of the nature and characteristics of the equitable rights which underlie this type of solicitor’s lien had been accepted in numerous cases of which I mention only: Worrell v Power;[6] Roam Australia Pty Ltd v Telstra Corporation;[7] Carew Counsel Pty Ltd v French;[8] Firth v Centrelink;[9] Simpson v Rowe.[10] In Roam, Lehane J conveniently summarised some of the ancillary principles concerning the lien which I summarise as follows
[6](1993) FCA 551; (1993) 46 FCR 214.
[7](1997) FCA 980 (Lehane J).
[8][2002] VSCA 1.
[9][2002] NSWSC 564.
[10][2011] VSC 149 (Habersberger J).
(a) the principle applies equally to judgments as it does to compromises.
(b) the right does not depend upon any intervention by the Court, and the Court’s jurisdiction is invoked not to create the rights but to enforce them.
(c) the amount which the solicitor is entitled to recover from the debt or the settlement sum is the amount of costs and disbursements which the solicitor is entitled to recover from the client, even though that may depend upon agreement, a taxation or assessment.
(d) the claim or lien may be asserted even though the precise amount has not yet been ascertained.
(e) the lien is based upon the fact that the solicitor was “instrumental” in obtaining the judgment or the settlement or that it somehow came about by reason of the solicitor’s exertions even though they may have come to an end before the judgment was obtained or the compromise negotiated. What has to be shown though is a sufficient causal link or nexus that the judgment or compromise was brought about or partially brought about by the efforts of the solicitor. The causal link may not be difficult to show if for example the solicitor has acted throughout the litigation right up to the settlement or the judgment.
A search for a unifying principle for the creation of the lien is not easy to find. In Sykes, The Law of Securities[11] the authors describe the equitable lien as of the general hypothecation type which is not created by the acts of the parties but by virtue of the implication of law. The authors express doubt whether the lien arises from common law or is purely of an equitable character saying that:
It has been said that this “so-called” lien is really only a right to ask for the intervention of the court to protect the solicitor when he or she finds that there is a probability of the client depriving her or him of costs and that it is a right only to ask the court for a charging order. It seems true that the solicitor can enforce the lien only by taking some court action to prevent the fund or specific property recovered from being paid or transferred to the client. Nevertheless, the lien attaches by the recovery of the fund or property; it is not, like the statutory charge, dependent for its existence on the judgment of the court.
[11]5th edition at 750.
Essayists in this field refer to the lien as a scheme of equitable adjustment of mutual rights and obligations as a consequence of particular legal relationships, and a right which was invented for the purpose of doing justice.[12] The search for a more general basis or some unifying principle takes us to statements by Deane J in Hewett v Court.[13] That case did involve a solicitor’s lien but the following passage exposes this principled basis:
It has been said that the doctrine of equitable lien “was introduced for the sole purpose of furnishing a ground for the specific remedies which equity confers, operating upon particular identified property, instead of general pecuniary recoveries granted by courts of law.” [references omitted] General statements of this type lend some support for the approach that one should seek to identify a comprehensive principle covering the implication of any type of equitable lien. Apart from broad generalisations such as “the phrase equitable lien may not … do much more than express the opinion of the court that the facts give a priority to the party said to have it” … however, it is difficult, if not impossible, to formulate any satisfactory statement of the necessary or sufficient circumstances for the implication of an equitable lien which is applicable to any relationship at all (e.g. the trustee’s lien over trust assets; the solicitor’s lien over the proceeds of an action). I do not propose to essay that task here. It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances have, to some extent, been indicated in what has been said above. They are:
(i)that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it;
(ii)that the property (or arguably property including that property … ) be specifically identified and appropriated to the performance of the contract; and
(iii)that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property … to a stranger without the consent of the other party or that the actual or potential liability had not been discharged. …
[12]See John Phillips, “Equitable Liens – a search for a unifying principle” in Securities Over Personalty (editor, Michael Gilloolly, Federation Press) chapter 2.
[13]1982) 149 CLR 639.
In this case, McAra seeks to prevent Cosgriff obtaining the settlement funds on the basis that she, in effect the assignee, has taken the benefit of Brott’s equitable lien. The only evidence of such an asserted right is the “Agreement for the Sale of Debtors”. It is plain, as Mr Ritchie, counsel for Cosgriff submitted, that nothing in that agreement expressly assigns the equitable lien to McAra assuming that the lien is assignable. Clause 1 says no more than that “the Vendor sells and the Purchaser buys all of the vendor’s debtors inclusive of but not restricted to the debtors as detailed in the attached schedule for the sum of $30,000.” Nowhere else in this agreement is there a sale or disposition or assignment of the equitable lien. To the contrary, clauses 6, 7 and 8, which might be described as typical “boilerplate clauses” all amount to saying that the purchaser of Brott’s debt is buying the debt and getting no more and that there is nothing else being offered by the vendor concerning the net recoverability of the debtors. Clause 8 says that there are no other covenants or provisions other than those appearing in the agreement to be implied.
All of the clauses seem to be concerning themselves with relieving Brott as vendor from incurring any obligations concerning the recoverability of the factored debts. That is inconsistent with an intention to not only sell the debt but to also assign the equitable lien. Thus, on the face of this agreement there is simply no revelation of an intention that Brott had assigned or otherwise disposed of his equitable lien.
But, Mr Thomas contends that such an assignment is to be implied in order to give the agreement business efficacy. I cannot see how that is so. It is sufficient to say for present purposes that under the law of contract, it is not enough to say that such an implication is reasonable; it has to be so obvious that it goes without saying and that the agreement cannot work without the implication being made. That is what “business efficacy” means. Here, Mr Thomas submits that the lien as security would be “useless” if Brott had sold the debt but left the security unassigned.
True it is, the security in the hands of Brott will be useless if he agreed to dispose of the debt for which the security stands to ensure payment. But that does not deprive the agreement of business efficacy, for the purchaser has got what she bargained for, that is, the right to pursue the debt. Furthermore, as Mr Ritchie submitted, the issue is not whether the lien is useless without the debt; the question is whether the assignment of the debt is useless without the lien. It clearly is not. The agreement as I construe it is saying no more than the vendor sells the debt. The vendor is not saying to the purchaser that the purchaser is to be in no worse position than the vendor. To the contrary, the whole tenor of the agreement is very much “buyer beware” when it comes to the recoverability of the debt sold. I would hold therefore there is no basis at law to imply into the agreement an agreement to assign the lien.
Although it was not submitted, all that has occurred to me is the possible application of the general rule applicable to every contract that each party agrees by implication to do all such things as are necessary to enable the other party to have the benefit of the contract: see amongst many other cases, Secured Income Real Estate (Aust) v St Martins Investments Pty Ltd.[14] But the ambit of the implication is defined by what has been promised under the contract. Here the benefit is the sale of the debt. The principle, which really creates a duty to cooperate, requires performance only of acts to preserve the benefit of the contract, not the benefit of the party: see generally Chesire and Fifoot’s Law of Contract.[15]
[14](1979) 144 CLR 597 at 607.
[15](9th Aust ed) at 10.42
Mr Thomas’ ancillary submission was that when a debt is assigned, that, of itself, carries with it all rights over the debt including any securities which in this case took the form of the equitable lien. I think that begs the question. Mr Thomas could point to no legal principle or doctrine which supported such a general proposition. He relied upon a decision of the Full Court of the Federal Court of Australia in Pacific Brands Sport & Leisure v Underworks.[16] I do not think that case supports such a general proposition as advanced. That case involved a licensee of certain clothing trademarks who sub-licensed the trademark rights to the defendant. Under the terms of the sub-licence, the licensee had a right to terminate the sub licence in certain circumstances. The assignee then assigned to the plaintiff the benefit of the sub-licence agreement. The plaintiff then terminated the sub licence for alleged breach.
[16][2006] FCAFC 40.
The issue in Pacific Brands was whether the assignment of the “benefit” of the sub-licence to the plaintiff was effective to assign all rights including the right to terminate the sub-licence agreement. It was contended that the assignment of “the benefit” of a contract only operated to assign those contractual rights that were proprietary in character, and not rights that were personal in character such as the right to terminate for breach. That argument was rejected in substance on the basis that a party’s bundle of rights under a contract are part of a single chose in action which has a proprietary character and that all rights under a contract are to be regarded as prima facie assignable. It is only if certain rights are not assignable under statute or public policy or under terms of the relevant contract, or if they cannot be severed, that an issue may arise about assignability. In Pacific Brands the Court found that the rights in question were personal and under the terms of the agreement could not be assigned without the consent of certain parties. As that had not been given, there was no assignment.
Part of the appellate discussion in Pacific Brands concerned the “atomistic approach” taken at first instance which involves the question whether benefits under a contract can be disaggregated in some way so that not all benefits may necessarily pass on assignment. That conception lead Mr Thomas to submit that Brott’s equitable lien formed an integral (one would have to say composite or inextricable) part of the debt itself and therefore an intention to sell the debt carried with it an intention to pass on the equitable lien.
I cannot accept this submission. By ordinary conception a security is given to enable recourse to property to ensure satisfaction of a separate obligation to pay. It is distinct from the obligation for which it stands as security. A paradigm example is a mortgage of land. Absent a principle of law to say that a sale of a debt carries with it by necessity the transmission of any ancillary security, I can see no basis for concluding that this sale agreement assigned the solicitor’s lien without it saying so. That is, there is nothing in the nature of the equitable lien (see Hewett v Court) that means the lien is transmitted to McAra by its own equitable force. It is a matter of construing the agreement and as I have said, there is no such apparent intention for the equitable lien to pass.
In reaching this conclusion, I need not therefore concern myself with the submission that under s 53(1)(c) of the Property Law Act any assignment of the equitable lien would have to be in writing and ineffective if it is not. That is certainly the view of the learned authors of Meagher Gummow & Lehane’s, Equity Doctrines & Remedies.[17] Mr Thomas seemed to concede that was the effect of the section, but he submitted that the provisions of s 134 of the Property Law Act prevailed or covered the field on the question of assignment. It does in a very loose sense but I have trouble seeing how it displaces the writing requirements under s 53. Section 134 is designed to make “any absolute assignment by writing under the hand of the assignor … of which express notice has been given to the debtor” effectual in law. Without going into the history of the provision,[18] s 134 came into being to overcome difficulties with assignments at common law or equity where the assignee could not sue the debtor directly but would have to sue the debtor by joining or using the name of the assignor. That is because debt was looked upon as a personal obligation and assignment was viewed as merely an assignment of the right to bring an action against the debtor. Equity viewed the debt as a piece of the assignee’s property so the assignor could be compelled to allow an action to be brought in his name. That helps to understand that s 134 is not prescriptive but merely renders assignments effective and actions can be brought without joining the assignor. But, as I say, it is not necessary for me to decide this question.
[17]4th edition at [7-050].
[18]As to which see Cheshire and Fifoot’s Law of Contract, Chapter 8,
Conclusion
I would hold that the agreement made with McAra certainly did not expressly, and has not impliedly assigned to her the benefit of the “fruits of litigation” lien that might have been held by Issac Brott & Co, assuming but not deciding that the lien is valid despite his disqualification from practice and assuming but not deciding that it is assignable. Given the history of this case, the amount involved, and Cosgriff’s personal financial difficulties, there ought be finality as far as this proceeding is
concerned and an order made disposing of the funds in court. I will hear the parties on the final disposition of the matter, including costs.
---
0
4
0