Edwards and Peters & Anor
[2014] FamCAFC 51
•27 March 2014
FAMILY COURT OF AUSTRALIA
| EDWARDS & PETERS AND ANOR | [2014] FamCAFC 51 |
| FAMILY LAW – APPEAL – LEGAL PRACTITIONERS – SOLICITOR’S POSSESSORY OR RETAINING LIEN - Where the appellant solicitor appealed the Federal Magistrate’s refusal to make a declaration that a retaining lien claimed by the solicitor in respect of funds held by the solicitor in trust for a husband was unaffected by orders for property settlement made in proceedings between the husband and his former wife – Where section 258(1) (a) of the Legal Profession Act 2007 (Qld) permits a solicitor to exercise a general retaining lien – Where the Federal Magistrate was not informed of the lien or of the liability in respect of which the lien was claimed either prior to the trial when the Federal Magistrate issued an injunction restraining the husband from dealing with the trust funds or during the course of the trial – Where the Full Court did not accept the submission by the appellant solicitor that the solicitor had no notice of the likely effect of the orders for property settlement on the husband’s capacity to pay his legal fees – Where the Full Court concluded that the lien if it existed had been impliedly waived – Appeal dismissed. FAMILY LAW – APPEAL - COSTS – Where the appellant solicitor was ordered to pay respondent wife’s costs. |
| Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) |
Chorn and Hopkins (2004) FLC 93-204
Ex parte Patience; Makinson v The Minister (1940) 40 SR NSW 96
Farnell and Farnell (1996) FLC 92-681
Hodges Hall and Jovanovic and Markov (1995) FLC 92-611
Magnamain Investments Pty Ltd v Baker Johnson (a firm) and Jezer Construction Group Pty Ltd [2008] QSC 245
Official Trustee in Bankruptcy v Mateo (2003) FLC 93-128
Phillipa Davies and Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266
Twigg v Keady (1996) FLC 92-712
Worrell v Power (1993) 46 FCR 214
| APPELLANT: | Mr Edwards as trustee for the X unit trust trading as X Firm |
| 1ST RESPONDENT: | Mrs Peters |
| 2ND RESPONDENT: | Mr Peters |
| FILE NUMBER: | BRC | 503 | of | 2009 |
| FIRST APPEAL NUMBER: | NA | 22 | of | 2012 |
| SECOND APPEAL NUMBER: | NA | 23 | of | 2012 |
| DATE DELIVERED:: | 27 March 2014 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Finn, Strickland and Kent JJ |
| HEARING DATE: | 1 May 2013 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court of Australia |
| LOWER COURT JUDGMENT DATE: | 1 March 2012 |
| LOWER COURT MNC: | [2012] FMCAfam 167 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Hackett |
| SOLICITOR FOR THE APPELLANT: | X Firm |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Cooper |
| SOLICITOR FOR THE 1ST RESPONDENT: | Cooper Family Law |
| COUNSEL FOR THE 2ND RESPONDENT: | In person |
Orders
The appeals (NA 22 of 2012 and NA 23 of 2012) be dismissed.
The appellant pay the first respondent’s costs of and incidental to the appeals with such costs to be assessed in default of agreement.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Edwards & Peters and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 22 of 2012; NA 23 of 2012
File Number: BRC 503 of 2009
| Mr Edwards as trustee for the X unit trust trading as X Firm |
Appellant
And
| Mrs Peters Mr Peters |
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
On 10 and 11 March 2010 Federal Magistrate Coates (as his Honour then was) heard proceedings between Mr Peters (“the husband”) and Mrs Peters (“the wife”) with respect to parenting and property matters. Following the receipt of written submissions, his Honour delivered reasons for judgment and made orders on 21 July 2010.
Only his Honour’s orders with respect to property are presently relevant; they provided that the parties’ property (which was found by his Honour to be valued at approximately $390,850), should “be divided equally” (Order 19).
A further order (Order 20) provided that “such distribution” was to be achieved by subtracting the value of the property in each party’s possession “from the funds held in trust [by the husband’s solicitors] before distribution” of such funds.
On 12 August 2010 his Honour heard further applications by the husband and the wife relating to the interpretation of his orders made on 21 July 2010 and also relating to costs. On 11 April 2011 his Honour delivered reasons for judgment and made an order that the wife was “entitled to $177,857.91 from the monies belonging to the parties and held in trust by [X Firm] and half of the total interest therein” subject to certain cost orders which his Honour then made in favour of the husband.
On 19 September 2011 his Honour heard a further application filed by the wife on 17 May 2011 in which she sought orders that the husband’s solicitor
(“the solicitor”), Mr Edwards “as trustee for the [X] unit trust trading as [X Firm] be joined in the proceedings as second respondent”, and that the order made on 11 April 2011, which provided for the wife to be entitled to $177,857.91, be amended to provide that the solicitor pay her $174,130.72 out of the money held on trust.
There was also before his Honour on 19 September 2011 a response filed on
16 September 2011 by the solicitor, seeking an order that the wife’s application filed 17 May 2011 be dismissed and a declaration:
that no Order of the Court affects the right of [the solicitor] from maintaining a Solicitor’s Lien over any funds it holds in [its] trust account or the right of the [solicitor]to be paid for legal costs and outlays owed by the [husband] to the [solicitor].
In the alternative, the solicitor sought that the order made on 11 April 2011 be set aside and directions given as to the further conduct of the matter.
On 1 March 2012 his Honour delivered reasons for judgment and made an order dismissing the application contained in the solicitor’s response. He did not make an order with respect to the wife’s application filed 17 May 2011.
On 5 March 2012 the solicitor filed a Notice of Appeal (in which he also sought leave to appeal) against the Federal Magistrate’s order of 1 March 2012 dismissing the solicitor’s application (NA 22 of 2012).
On 14 May 2012 May J made orders granting the solicitor an extension of time to file an appeal against the orders of the Federal Magistrate made on
21 July 2010 and 11 April 2011, and granting the husband an extension of time to file an appeal also against the orders made on 21 July 2010.
On the same day (14 May 2012) the husband filed a Notice of Appeal against the orders of 21 July 2010 (NA 38 of 2012). He subsequently filed an amended Notice of Appeal on 25 May 2012.
On 18 May 2012 the solicitor filed his Notice of Appeal against the orders of 21 July 2010 and 11 April 2011 (NA 23 of 2012).
On 1 May 2013 which was the day on which we heard the solicitor’s appeals against the orders of 1 March 2012 (NA 22 of 2012) and the orders of
21 July 2010 and 11 April 2011 (NA 23 of 2012), we dismissed with the husband’s agreement, his appeal against the orders of 21 July 2010 (NA 38 of 2012) for want of prosecution. On 19 June 2013 reasons were published for our order dismissing the husband’s appeal.
These reasons for judgment are therefore concerned with the solicitor’s two appeals.
Difficulties with the presentation of the appellant solicitor’s case on appeal
The solicitor’s Notice of Appeal (NA 23 of 2012) against:
· the property orders made on 21 July 2010 in the proceedings only between the husband and the wife, and
· the order made (also in proceedings only between the husband and the wife) on 11 April 2011 which provided that the wife was entitled to receive $177,857.91 from the parties’ monies held in trust by the solicitor,
contained five grounds of appeal, none of which were expressly directed to either the orders of 21 July 2010 or the order of 11 April 2011. Further, the solicitor’s written summary of argument which related to both of his appeals (NA 23 of 2012 and NA 22 of 2012) did not address specifically any of the grounds of appeal (as is required by Rule 22.22(2)(a) of the Family Law Rules 2004).
The solicitor’s Notice of Appeal (NA 22 of 2012) against the order made on
1 March 2012 dismissing the application by him (contained in a response) for a declaration to the effect that he had a lien over trust funds held by him, contained eleven grounds of appeal; although these grounds were directed to the order appealed, again the solicitor’s written summary of argument did not address specifically any of those eleven grounds of appeal.
The oral submissions made to us by counsel for the solicitor also did not address specifically any ground of either appeal, nor in any sequential way, matters in the written summary of argument. When these deficiencies were raised with counsel (Appeal Transcript, page 67, lines 28-30), counsel informed us that the primary ground on which he relied was Ground 7 and that it was allied to Grounds 9 and 10. These three grounds (which appear in the
Notice of Appeal against the order of 1 March 2012 (NA 22 of 2012)) assert that the Federal Magistrate was in error
7.…when he determined that the Wife had a greater entitlement than the Appellant to the funds resting in the Appellant’s Trust Account for the Husband.
…
9.…in pronouncing any Order which bound a third party such as the Appellant, if that is what he intended, to pay money to the Wife on behalf of the Husband, without providing notice to the Appellant that that was what he proposed to do.
10.…in pronouncing any Order other than one which created an obligation on the Husband to pay money to the Wife and that an endeavour to create an obligation after the event on a third party such as the Appellant wrongfully deprives the third party of a fair hearing and natural justice.
We note that the first five of the eleven grounds of appeal against the order of
1 March 2012 are in virtually identical terms to the five grounds contained in the Notice of Appeal directed to the orders of 21 July 2010 and 11 April 2011. We will also now set out those five grounds (as they appear in the Notice of Appeal against the orders of 21 July 2010 and 11 April 2011 (NA 23 of 2012) in an endeavour to provide some further insight into the solicitor’s case on these appeals:
1.The learned Federal Magistrate misdirected himself or otherwise failed to adequately understand or appreciate the concept of pre-paid legal costs which were conceded as notional add-back by the Husband during the hearing before him.
2.The learned Federal Magistrate was in error when he determined, contrary to the evidence and submissions, that the pre-paid legal costs were somehow “available” or had been somehow “replenished” by the Solicitors for the Husband so as to again become physically available and divisible in real terms.
3.Having regard to the error in relation to the principles of notional
add-backs and the nature of the concession being made, the learned Federal Magistrate failed to appreciate or consider or give reasons in relation to the effect of any proposed order on the ability of a creditor of a party, namely the Appellant, to recover the creditor’s debt as he was required to do under section 75(2).4.The learned Federal Magistrate failed to afford procedural fairness to any party, including the Husband and/or the Wife and/or any Third Party including the Appellant, concerning the occurrence of an event such as his intention to find that funds were “available” or had been somehow “replenished” by the Solicitors for the Husband, particularly when such a determination/finding was unsupported by evidence and was contrary to the nature of any concession before the Court.
5.Having regard to the misdirection, errors and the failure to afford natural justice, the learned Federal Magistrate failed in the exercise of his functions in this matter, to have proper regard for the net financial result of the Orders he proposed to pronounce in terms of whether or not it was just and equitable to pronounce such Orders in the manner required by Section 79(2) of the Family Law Act.
As we have indicated, the oral submissions by counsel for the solicitor did not address the grounds of appeal, nor in any sequential way the issues raised in the written summary of argument. Rather having submitted in opening that the appeal raised “…an important practical question for all Family Law practitioners, namely are funds held in trust and the subject of the usual solicitor’s possessory lien at risk in property settlement proceedings involving their client who provided the funds and where the solicitor is not a party to the proceedings”
(Appeal Transcript, page 5, lines 31-34), counsel then carried out an examination in a chronological way of the course of the proceedings before the Federal Magistrate and of his Honour’s decisions, with asserted errors being identified. We consider that we have no option other than to follow counsel’s approach, and in so doing, to address the errors which he asserted were made by his Honour.
The course of the proceedings before the Federal Magistrate
It may assist an understanding of what follows if we explain at the outset that prior to the initiation of property settlement proceedings between the husband and the wife, there had been deposited with the solicitor on trust for
the husband funds to which the husband was entitled on account of other
non family law litigation in which the solicitor had acted for the husband. Property settlement orders were eventually made in the Federal Magistrates Court in relation to the assets of the husband and the wife, including the trust funds held by the solicitor. The solicitor now claims a possessory lien in relation to the balance remaining of those trust funds for his unpaid costs of acting for the husband in the family law proceedings, and he does so on the basis of s 285 of the Legal Profession Act 2007 (Qld) and of his costs agreement with the husband. If the lien is given effect to, the wife will not receive her full entitlement under the property settlement orders.
(1) The trial and first judgment
We were taken first by counsel for the solicitor to the case outline documents filed by the husband and by the wife in preparation for the parenting and property trial. Our attention was particularly directed to the orders sought by each party in relation to monies held in trust by the solicitor on behalf of the husband.
The husband’s case outline when read together with his financial statement (filed 17 February 2010) reveals that there were the following two trust funds held by a branch of the ANZ bank in the following names, with the following account numbers and balances:
·X Firm Trust Account (on behalf of Mr Peters)
Acc. [number omitted]
Current balance $35,055.88
·At Call Account Mr Edwards ATF Mr Peters
Acc. [number omitted]
Current balance $180,195.97
The orders sought by the husband in his case outline document (which was prepared by a solicitor employed by the firm of the appellant solicitor) were then relevantly as follows:
1.That the Husband shall do all acts and things as are necessary to authorise and direct [X Firm] to pay to the Wife the sum of $40,000.00 from the funds held on behalf of the Husband in their Trust Account.
2.That the Husband retain all property in his possession and/or held in his name, including but not limited to: -
a.Subject to Order 1 hereof, the funds held in the Trust Account of [X Firm] on behalf of the Husband.
…
3.That the Wife retain all property in her possession and/or held in her name, including but not limited to:-
a.The funds pursuant to Order 1 hereof.
…
4.Save for aforesaid, each party shall bear responsibility for any debt which is in their respective names.
Our attention was particularly directed by counsel to the submission made at page 9 of the husband’s case outline document that “the court ought not
add-back notionally the post separation expenditure and legal fees increased by the husband.”
Order 1 of the orders sought by the wife in her case outline document was as follows:
1.That total monies held in trust account of [X Firm] (Account
No: [number omitted] and Account No: [number omitted] ) on behalf of the Husband, be divided 80% to the Wife and 20% to the Husband;…The remaining orders sought by the Wife provided for each party to otherwise retain the property in his or her possession.
We were next taken by counsel to the transcript of the first day of the trial, and our attention directed to the passage where in opening, counsel for the husband (who was instructed by the appellant solicitor’s firm) provided his Honour with an aide-memoire apparently prepared by the wife’s counsel, but which according to counsel for the husband “largely follows the list of assets and liabilities contained in the husband’s own outline.” Then going through the items in the aide-memoire, counsel for the husband said “there’s no dispute about the monies in trust” (Transcript 10 March 2010, page 1067, lines 39-41).
We note that the aide-memoire contained the following items which would come within the description of “monies in trust” (and which correspond with the trust funds listed in the husband’s case outline document, although there is a slight variation in the amount in one fund):
·Monies held by X Firm in trust on account [number omitted]- Value: $35,055.88
·At call Mr Edwards as trustee for Mr Peters A/C [number omitted]– Value: $180.100.97
We note also that the aide-memoire showed as an “add back” (which we understand to have been asserted by the wife, but contested by the husband) the sum of $81,552.93, as an “[a]mount paid to [the appellant solicitor] by the husband for family law proceedings”; however the aide-memoire did not show, as was conceded to us by counsel for the solicitor, any then current liability on the part of the husband to the solicitor.
Counsel for the solicitor also conceded to us that there was nothing before his Honour at the commencement of the trial to indicate that a lien was being claimed by the solicitor (Appeal Transcript, page 9, lines 35-37). A little later counsel further conceded that “the topic of a lien was not before the court at the trial” (Appeal Transcript, page 35, lines 1-2). In the same context it was also conceded that no current amount owed to the solicitor was before the court at trial (Appeal transcript, page 35, lines 6-10).
At the conclusion of the trial there was no time for oral submissions, and thus to facilitate the preparation of written submissions, his Honour made an order by consent for the release of “sufficient funds” from the solicitor’s trust account to obtain transcript of the trial.
There was also at that time an application made by the husband’s counsel for the release of $40,000 from the trust funds to each party to pay legal fees. This application was opposed by the wife with her counsel submitting that an injunction which his Honour had made a week before the trial, which restrained the husband from accessing or dealing with the trust funds, should remain in place.
In the event his Honour ordered that $10,000 be released to each of the parties from the solicitor’s trust account “by way of a partial property distribution.” (Transcript 11 March 2010, page 170). No reasons for that order were before us.
In relation to the written submissions subsequently made to his Honour, counsel for the solicitor drew to our attention the concession made by counsel for the husband at [41] of his written submissions that the monies amounting to $81,522 applied by the husband to his legal fees “should be added back as they come from capital assets of the parties”.
We note that the figure of $81,522 used in the written submissions on behalf of the husband is slightly different from the figure of $81,552.93 used in the
aide-memoire. We also note that the former figure of $81,522 was then used by the Federal Magistrate in his first judgment.
We were next taken to his Honour’s first judgment, in which with reference to the composition of the parties’ property, his Honour said:
176. There was agreement that the husband’s legal fees, $81,522.93 be added back. It is not a notional figure as the amount is held in trust.
It was accepted before us that the second sentence of that paragraph was wrong; the fees which had already been paid to the solicitor were not part of the trust funds. It will, be necessary to return to this issue later in these reasons.
After having considered the wife’s claims concerning excessive expenditure by the husband post-separation and determined that a notional amount of $57,802 should be added back to the value of the parties’ property on account of that matter, his Honour incorporated into his reasons (at [214]) the following schedule of his findings in relation to the parties’ property (emphasis in original):
ASSET SCHEDULE
DESCRIPTION
AMOUNT
Monies held by [X Firm] in trust on account [number omitted]
$35,055.88
At call [Mr Edwards] as trustee for [Mr Peters] account [number omitted]
$180,100.97
Husband’s Car [omitted]
$12,000.00
Husband’s Boat [omitted]
$12,000.00
Wife’s [S] Superannuation policy
$7,252.51
Wife’s [O] Fund Superannuation policy
$313.45
Husband’s [A] Super Superannuation policy and [S] Superannuation policy
$4,770.00
Amount paid to [X Firm] by husband for family law proceedings
$81,552.93
Unidentified expenditure by husband, notionally added back
$57,802.00
Total
$390,847.74
Net Total after interim equal distribution per Court Order $20,000
$370,847.74
It should be pointed out that although his Honour did not identify in his schedule that the first two items in the schedule, being the trust funds, were held on behalf of the husband only, there was no issue before us, but that that was so.
Then having determined that the parties’ contributions should be equal and that no adjustment should be made on account of the matters contained in
s 75(2) of the Family Law Act 1975 (Cth), his Honour expressed himself satisfied at [273] of his reasons that “it is just and equitable to equally divide the property”.
Unfortunately his Honour did not then explain (by way of schedule or otherwise) what monies or assets would make up each party’s equal share of the value of their property. Rather his Honour simply made the following orders:
(19) The property of the parties be divided equally.
(20)To achieve such distribution, the value of the property and resources outlined in Orders (21) and (22) below be subtracted from the funds held in trust before distribution if [sic] such funds.
(21)The husband retain as his personal property or resources the notional sum (added back to the pool) of $57,802.00, his superannuation, bank accounts, goods and chattels, vehicle and boat in his possession.
(22)The wife retain as her personal property or resources her superannuation, bank accounts, goods and chattels and vehicle in her possession.
(23)That each party shall be solely liable for and indemnify the other against any liability encumbering any item of property to which the parties are entitled pursuant to this Order.
(2) The wife’s application for an interpretation of the first judgment and the second judgment
Following the delivery of his Honour’s first judgment, an application was filed on behalf of the wife on 6 August 2010 seeking orders which included an order that “pursuant to Rule 16.05 of the Federal Magistrates Court Rules 2001, … that the [husband] pay from the trust account of [X Firm] the amount of $177,857.91, in accordance with orders 19 to 22 of the orders dated 21 July 2010.”
The wife’s application (together with an application by the husband for costs orders) was heard by his Honour on 12 August 2010. At the commencement of that hearing, the solicitor appearing for the wife informed his Honour that his firm had that day received correspondence from the husband’s solicitor (the appellant in the present appeals)
… to the effect that they were maintaining a lien over funds that they presently held in trust, and that such lien may be offended if…your Honour was to order that the solicitors pay a certain amount of moneys from their trust account to give effect to what [the wife says] is your Honour’s judgment.
The wife’s solicitor then submitted to his Honour that the interests of the husband and of his solicitor were in conflict and that the solicitor should be restrained from acting. However, the issue of a restraint on the husband’s solicitor appears not to have been pursued once counsel who appeared that day for the husband, informed his Honour that he was only appearing for the husband and that he was not instructed to act on behalf of the solicitor.
Before us counsel for the solicitor confirmed that the first time that the lien had been asserted was in the correspondence referred to before his Honour on
12 August 2012 (Appeal Transcript, page 27, line 29).
In response to questions from us as to the amount of money in relation to which the lien was asserted, we were referred to an affidavit (sworn on
6 August 2010) from a solicitor employed by the appellant solicitor in which it was stated at [41] that the husband had “outstanding legal fees from the trial in the amount of $55,120.63 as well as the costs of this application for costs.”
After submissions were made to his Honour on behalf of the husband to the effect that his Honour could not amend his previous order under Rule 16.05 of the Federal Magistrates Court Rules 2001 (Cth) and that any variation of the previous order would have to be by way of appeal, and after submissions were made on behalf of both parties in relation to costs, his Honour reserved his decision.
His honour delivered his decision (being his second judgment) on
11 April 2011. In outlining the applications which were to be the subject of his decision, his Honour referred to the oral application that had been made on behalf of the wife that the husband’s solicitor be restrained from acting in the proceedings because of an alleged conflict of interest. His Honour concluded that he did not need to deal with that application. His reasons for that conclusion were as follows:
8.Mr Cooper had received correspondence from the husband’s solicitor advising that the firm held a lien over funds held in its trust account as against the husband for his costs and any order I may make may offend that lien. The submission was that the interests of the solicitor and the husband were now in conflict.
9.Mr Cooper’s pre-emptive submission about a conflict of interest was more out of acceptable precaution in my view.
10.Any lien held by the husband’s solicitor is a matter concerning the solicitor and the husband, not a matter for me under the wife’s current applications. It is an alleged debt for the performance of an obligation or service, but cannot be taken from joint marital funds held in trust or as trustee which are the subject of these proceedings. There is no need to deal further with the oral application.
His Honour then identified at [11] and [16] the “first dispute” which was before him and which concerned the meaning of the orders made dividing the property equally. His Honour acknowledged at [22] that he could not give additional reasons, but that he could only interpret his orders.
Counsel for the solicitor directed our attention to [32] to [46] of this second judgment where his Honour dealt with a submission made on behalf of the wife in support of her application for a precise definition of the amount of money to which she was entitled under his first judgment; that submission was that the first judgment should be amended to make it clear “that the expenditure by the husband of joint funds on his legal fees being $81,552.93 (sic) be treated as
a notional add back.”
It emerges from [32] to [46] of his reasons that while his Honour was prepared to accept that the sum already spent by the husband by the time of the trial on his legal fees was not part of the trust monies, which were identified as the first two items in the asset schedule contained in his first judgment (see [36] of these reasons), he was not prepared to accept that that sum was only a notional sum (albeit to be added to the value of the parties’ property). Rather as is clear from [46] of his reasons, his Honour regarded that sum as “part of the cash assets … available and ready to be distributed”.
His Honour then proceeded to make an order (Order 1) that the wife was entitled to the sum of $177,857.91 from the trust monies held by the solicitor together with some interest, but less the amounts which she had to pay to the husband by way of costs. We do not need to explain how his Honour arrived at the figure of $177,857.91.
In regarding the sums already spent by the husband on legal fees as “cash” available for distribution between the parties rather than as a notional asset to be taken into account as an asset of the husband (in the calculation of his entitlements in the division of parties’ property), his Honour appears to have misunderstood authorities such as Farnell and Farnell (1996) FLC 92-681 and Chorn and Hopkins (2004) FLC 93-204. This apparent misunderstanding on his Honour’s part would seem to be the basis of the complaint embodied in at least the first two of the solicitor’s grounds of appeal which are common to both his appeals (see [16] above).
However, this error on his Honour’s part is not one which could cause us to allow these appeals by the solicitor. As we endeavoured to explain to counsel for the solicitor at the hearing of the appeal, it makes no difference for present purposes whether the husband was notionally credited with the sum of $81,500 (approximately) which he had already paid to his lawyers, or whether he was to receive that sum in cash to then pay his lawyers (see Appeal transcript,
p 43-44). This is because there was no obligation on his Honour when making his original orders to consider how either of those possible fact situations would impact on the husband’s ability to pay any other debts given, as was conceded before us by counsel for the solicitor, his Honour had not at that time prior to his delivery of the first judgment been informed of the existence of any other debts (nor of any lien in respect of a particular debt) (see Appeal Transcript, page 44-45).
(3) The solicitor’s application for a declaration of a lien and the third judgment
In relation to his Honour’s third judgment (delivered on 1 March 2012), and as counsel explained to us, that judgment related both to an application filed by the wife on 17 May 2011 for orders joining the solicitor as a second respondent and for orders amending the precise amount to be paid to the wife, and to
a response filed by the solicitor on 16 September 2011 seeking that the joinder application be dismissed as well as a declaration that the court’s orders did not impact on his lien and also the setting aside of the order made on 11 April 2011 which specified the wife’s entitlement to the sum of $177,857.91.
These various applications were heard by his Honour on 19 September 2011. On that day, and in addition to receiving oral submissions, his Honour was provided with written submissions on behalf of both the wife and the solicitor, which were directed principally to the issue of the lien asserted by the solicitor.
His honour delivered his reasons for judgment in relation to these various applications by the wife and the solicitor on 1 March 2012. In his reasons, and after describing the applications which were before him, his Honour recorded that there had been an application made to the Supreme Court of Queensland in respect of the dispute concerning the asserted lien, and that that application had been adjourned pending the outcome of the proceedings in the Federal Magistrates Court. His Honour also recorded that the solicitor had now released to the wife the sum of $117,055.33 and retained only the sum of $48,449.88.
His honour then set out the following useful background history concerning the solicitor’s claim with particular reference to the source of the trust funds held by the solicitor on behalf of the husband:
20. Before going to the cases, the position of the husband’s solicitors is that:
a)When acting for the husband, they requested him to deposit monies into their trust account on 9 September 2009, prior to the commencement of proceedings;
b) The wife’s application was filed 20 days later;
c)The wife did not seek orders against the second respondent in the family law proceedings;
d)The source of the funds deposited into the solicitor’s trust account was the settlement of a commercial claim between the husband and a property developer;
e)The funds had been invested with the developer and the husband received them from a personal injuries claim;
f)The solicitors specifically sought those funds from the husband to be placed in trust on account of costs and outlays of the intended family law proceedings – see paragraph 32 of the submissions filed on behalf of the solicitor on 19 September 2011;
g)During the proceedings the husband authorised the solicitors to hold a portion of the funds to be available for immediate application and a larger proportion to be held on trust in an interest bearing deposit;
h)The husband authorised sufficient funds from the interest bearing deposit to pay for accounts rendered; and
i) The husband does not “cavil with the claim by” the solicitors;
21.The solicitor’s position is that the wife should have realised that a solicitor’s lien existed and exists over the monies held and did not give the solicitors notice, as a creditor, of the orders she sought.
His Honour also recorded that the solicitor relied on s 258 of the
Legal Profession Act 2007(Qld) which is in the following terms:
s.258 Dealing with trust money--legal costs and unclaimed money
(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 of the practice 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;
(b) withdraw money for payment to the practice's account for legal costs owing to the practice if the relevant procedures or requirements under this Act or prescribed under a regulation are complied with;
(c) after deducting any legal costs properly owing to the practice, deal with the balance as unclaimed money under section 713.
(2) Subsection (1) applies despite any other provision of this part but has effect subject to part 3.4.
After referring to various authorities his Honour reached the following conclusion in [49] of his reasons, which counsel for the solicitor agreed before us was the critical paragraph in his reasons (Appeal Transcript, page 55,
lines 14-18):
49. It cannot be the case, on the authorities I have referred to and the wording of the Act, that the solicitor has any claim whatsoever, any entitlement whatsoever, to that property which now belongs to the wife. From what I have said, it cannot be the case that the solicitor had a claim before orders altering the interests were made, on the basis that a decision was to be made on the contents of the pool. Further, the argument at trial did not claim that the solicitor had an interest as now being defined by the solicitor.
Then before saying at [57] that the solicitor’s response filed on 16 September 2011 was to be dismissed, his Honour observed:
54.Since orders have been made the legal and professional obligation of the solicitor holding the money in trust is to handover the wife’s property, including the money held on trust.
55.The solicitor has no right and has had no right (sic) retain the wife’s money, other than for a claimed mistake in the calculations I made, which only requires clarification by the parties. There was no lack of natural justice and if the solicitor was a creditor or claimed an interest, then as I have stated, the solicitor should have notified the court, sought to become a party and stepped away from the husband’s representation. …
In the final paragraph of his reasons, his honour dealt with the wife’s claim for amendment to the figure which the order of 11 April 2011 had provided should be paid to her:
58.Finally, while the wife claims that the figures have to be altered, the husband or his solicitors seem to say that I cannot alter the figures. I can if the figures represent an order that I did not intend to make or there was a simple mistake in calculation of figures. Subject to clarification about a mistake in calculations, the monies must be paid to the wife, without delay. I have also considered the alternative orders sought by the solicitor that the matter be adjourned and directions given but the fact is I have delivered final judgment.
It is not clear to us, nor as appears from the submissions made to us at the conclusion of the hearing of the appeal (Appeal transcript, pages 77-80), is it clear to the parties, what his Honour decided about the wife’s application for the amendment of the figure to be paid to her which was before him. It is, however, clear that his Honour made only one order on 1 March 2012, and that was an order dismissing the solicitor’s response filed on 16 September 2011. We note that when his Honour handed down his judgment on 1 March 2012, there was some discussion about the date of the wife’s application, but unfortunately, it is an inconclusive discussion.
In seeking to persuade us that his Honour erred in his third judgment in dismissing the solicitor’s claim in respect of his asserted lien, counsel for the solicitor referred us to an affidavit from the solicitor (filed on 16 September 2011) in which it was stated that on 29 March 2010, that is following the trial and before his Honour had delivered his first judgment, an account had been delivered by the solicitor for an amount of $32,175.40. Counsel submitted that having regard to s 258 of the Legal Profession Act and the terms of the costs agreement between the solicitor and the husband, and since he was in possession of the funds, the solicitor was entitled to exercise a lien over those funds before judgment was delivered. Therefore, it was submitted his Honour had been wrong to say in [49] of his third judgment that the solicitor did not have any claim or interest in the funds before the orders altering the husband’s interest in the fund in favour of the wife were made. (Appeal Transcript, page 62-64).
It was further submitted by counsel for the solicitor that because the solicitor had not been a party to the property settlement proceedings between the husband and the wife, he was therefore not bound by the orders made in those proceedings and was entitled to commence his own proceedings for recognition of his lien (Appeal Transcript, page 62-67).
It is fair to say that as the solicitor’s appeals were ultimately argued before us, the principal issue became whether his Honour was wrong to refuse to make
a declaration, which would, in the terms sought in the Notice of Appeal against the order of 1 March 2012, be “that the lien held by [the solicitor] over the funds held in the trust account of [the solicitor] is unaffected by the Orders of the Federal Magistrates Court of Australia [of 21 July 2010 and 4 April 2011]."
Discussion of the asserted lien and other matters
It is important to point out that what the solicitor claims in the case and what we are thus concerned with, is a possessory or retaining lien over the funds which he holds in trust (such as was discussed by Daubney J in Magnamain Investments Pty Ltd v Baker Johnson (a firm) and Jezer Construction Group Pty Ltd [2008] QSC 245 and where it was accepted on the basis of the decision of the Queensland Court of Appeal in Phillipa Davies and Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266, that such a lien can exist over funds held in a trust account.)
It is expressly stated in the solicitor’s written summary of argument (at [63]) that because the solicitor has been paid for the work which resulted in the receipt of the funds, “this is not contended to be a case of a particular lien.” A “particular lien” protects interest in a judgment or award obtained by a solicitor’s exertions (Halsbury, 4th edition, vol 44, [254]) and is the type of lien discussed in Ex parte Patience; Makinson v The Minister (1940) 40 SR NSW 96, Worrell v Power (1993) 46 FCR 214 and Twigg v Keady (1996)
FLC 92-712.
Section 258(1)(a) of the Legal Profession Act 2007 (Qld) (at [57] above) permitted the solicitor to exercise “a lien including a general retaining lien for the amount of legal costs reasonably due and owing” by the husband to him.
On the material before us, that lien could only have been exercised on, or perhaps at the expiration of seven days after (see clause 6 of the costs agreement between the solicitor and the husband) 29 March 2010, being the date when an account for $32,175.40 was delivered by the solicitor. This date was, of course, some months before his Honour’s first judgment (delivered on 21 July 2010) which provided for the wife to receive a payment out of the trust funds, thereby creating an interest in the wife in the funds (Official Trustee in Bankruptcy v Mateo (2003) FLC 93-128).
However, the difficulty which the solicitor must face in seeking to establish that his lien (accepting that it existed on, or within seven days of,
29 March 2010) should take priority over the wife’s interest in the trust funds (even if that interest was not precisely quantified until 11 April 2011 when his Honour delivered his second judgment), is that he took no steps to bring to the attention of the wife, or of the Court, the asserted lien, or even the relatively large debt of over $32,000 owed by the husband to him, until 12 August 2010, that is, some weeks after delivery of the first judgment on 21 July 2010.
Earlier in these reasons when tracing the history of the proceedings before his Honour, we referred to the concessions made to us by counsel for the solicitor that at no time during the trial was his Honour told of the debt that the husband would owe to the solicitor at the end of the trial, nor that there was any suggestion of a lien. Nor, it seems clear, was any attempt made by the solicitor to have the trial re-opened before, or even at the time of delivery of, the first judgment on 21 July 2010.
Moreover, on 3 March 2010, that is about one week prior to the commencement of the trial, his Honour had issued an injunction (apparently on the wife’s application) restraining the husband “from accessing or dealing in any way with the funds held in [the solicitor’s] Trust Account.”
Unfortunately, we were not provided with a transcript of the proceeding on the day on which the injunction was granted, nor of his Honour’s reasons for granting it. But the formal order records that the solicitor was the solicitor on the record that day for the husband and that the husband was represented by counsel who represented him at trial. We find it difficult to understand why the likelihood of a claim by the solicitor to part of those funds, which would be supported by a possessory lien, was not raised before his Honour at that time.
Before us it was submitted on behalf of the solicitor that given the orders sought by each party before his Honour (see [21] to [24] of these reasons), it could not have been anticipated that there would be insufficient trust funds left to the husband out of which he could discharge any liability to the solicitor.
However, when regard is had to the total value of the parties’ assets at just under $391,000 (as found by his Honour), and bearing in mind that the husband’s case before his Honour had been that the notional amount of $57,802 on account of the husband’s post-separation expenditure should not have been included in that value, and also that all of the assets were in the husband’s possession apart from superannuation valued at about $7,500 belonging to the wife, the submission that it was anticipated that after the wife’s entitlement was paid, there would have been trust funds still available to satisfy the husband’s legal fees for an amount in excess of $30,000, cannot be accepted.
When all these matters are considered, it is difficult not to conclude that any lien that existed, had been, at least impliedly, waived; and indeed we are prepared to so conclude.
Before us the solicitor also relied, notably in Grounds 9 and 10 of his Notice of Appeal against the order of 1 March 2012, on a lack of notice to him of the likely effect of his Honour’s orders on his capacity to be paid his fees, thereby raising natural justice and procedural fairness issues.
Given that at all relevant times the solicitor, or an employee of his firm, had the carriage of the husband’s family law proceedings, these arguments concerning lack of notice, and thus of natural justice or procedural fairness, cannot be sustained. The facts of the case are materially different from those of
Hodges Hall and Jovanovic and Markov(1995) FLC 92-611, which concerned the adequacy of notice to solicitors who no longer acted for a party in the proceedings, to enable them to take steps in the proceedings to protect the debt owed to them by that party.
Finally, we mention that there was reliance in the solicitor’s appeals on his Honour’s failure to have regard in making his property orders to the matter specified in s 75(2)(ha) of the Family Law Act being:
the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant;
Again no criticism could be levelled at his Honour on the basis of this matter if neither the husband, nor the solicitor (who represented the husband in the proceedings) told his Honour before he made his property orders on
21 July 2010 of the debt or even likely debt owed to the solicitor.
Conclusion
Although as may have emerged from what we have said in these reasons, we do not agree with all of his Honour’s reasons in his various judgments, we consider that he did not err in refusing to make the declaration sought by the solicitor, being to the effect that the lien (asserted by the solicitor) was unaffected by the orders for property settlement made by the Federal Magistrates Court.
We note that leave was sought to appeal the order of 1 March 2012 whereby the solicitor’s application for such a declaration was dismissed. We are not persuaded that leave was necessary for such an appeal. We will proceed on the basis that it was not and will therefore simply dismiss both appeals.
At the conclusion of the hearing of the appeal counsel for the wife raised with us her application which was filed 17 May 2011 and which was before his Honour at the hearing on 19 September 2011 but not dealt with in his judgment delivered on 1 March 2012 (see [59] and [60] above). Counsel asked if we could remit the matter for definition of the precise amount due to the wife to his Honour for determination. As we explained at the hearing, it would not be possible for us to do this if we were to dismiss the appeal. But again as we explained at the hearing, there would be nothing to prevent the parties approaching his Honour once more in relation to that matter.
Costs of these two appeals
Having received oral submissions in relation to the costs of these appeals at the conclusion of the hearing before us, we propose to order that the appellant solicitor should pay the costs of the wife of and incidental to these appeals as agreed or as assessed in default of agreement; he has been wholly unsuccessful in his appeal (s 117(2A)(e) of the Family Law Act). By our use of the expression “incidental”, any costs reserved in earlier hearings relating to the appeals would be covered by our order.
I certify that the preceding eighty three (83) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Finn, Strickland and Kent JJ) delivered on 27 March 2014
Associate:
Date: 27 March 2014
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