Fazche Pty Ltd v Mounzer - [2020] SADC 113

District Court of South Australia
(Civil: Interlocutory Application)
FAZCHE PTY LTD v MOUNZER & ORS
[2020] SADC 113
Decision of His Honour Judge O'Sullivan
17 August 2020
PROFESSIONS AND TRADES - LAWYERS - LIENS - POSSESSORY LIEN - PRODUCTION OF DOCUMENTS
By interlocutory application, the applicant (“Fazche”) seeks an order that solicitors Commercial and Legal deliver up to Fazche’s solicitors all files relating to work done for it from the date of its incorporation in 2011 to date.
The substantive proceedings concern building work done by Fazche in the construction of multiple dwellings. Commercial and Legal is not a party to those proceedings.
Fazche went into voluntary administration on 16 August 2019 with the creditors voting in favour of a Deed of Company Arrangement on 4 October 2019. Commercial and Legal lodged with the Deed Administrators a proof of debt of $19,692.45 for the provision of legal services. This debt allegedly remains outstanding and Commercial and Legal have exercised a solicitor’s lien over all the files in its possession, including those on which the fees have been paid in full, until the outstanding amount is paid.
Held:
1. Insofar as Commercial and Legal hold any files for which Fazche was the client and for which Fazche has paid Commercial and Legal its fees for the work done on those files, Commercial and Legal are to produce those files at no cost to Fazche within 7 days of the date of this order.
2. Fazche is to secure the outstanding fees due to Commercial and Legal in the sum of $19,692.45 by paying that sum into Court. Within 7 days of the date of payment of that sum into Court, Commercial and Legal are to produce to Fazche the files Fazche seeks and for which there are outstanding fees, at no further cost to Fazche.
3. Upon receipt by Fazche of those files, Commercial and Legal may apply to the Court for release of the sum of $19,692.45 on account of its outstanding legal fees.
Legal Practitioners Act 1981 (SA) s 39; District Court Civil Rules 2006 (SA) r 26, referred to.
Shircore v Andersons [1996] SASC 5513, [20]; Sampson v Gluche [2009] SASC 222; Bodycorp Repairers Pty Ltd v Edwards [2007] VSC 124, [5]; Gamlen Chemical Co (UK) Ltd v Rochem Ltd [1980] 1 All ER 1049, 1058; Oliveri v PM Sulcs & Associates Pty Ltd (in liq) [2013] NSWSC 590, [11]; Firth v Centrelink [2002] NSWSC 564, considered.

FAZCHE PTY LTD v MOUNZER & ORS
[2020] SADC 113
Introduction

By interlocutory application[1] dated 31 January 2020, the applicant (“Fazche”) seeks an order, amongst others, that solicitors Commercial and Legal deliver up to the applicant’s solicitors within 14 days all files relating to work done for Fazche Pty Ltd from the date of its incorporation in 2011 to date.
[1] FDN30.
Fazche clarifies in its written submissions that the application is limited to the order sought set out above.
Background
The proceedings concern building work done by Fazche in the construction of multiple dwellings. Fazche has brought numerous claims against the owners of the land on which the houses were built, as well as Hayssam Hamra (“Mr Hamra”), a consultant to Fazche from 2011 to 2018, and Satori Projects Pty Ltd (“Satori Projects”), a company of which Mr Hamra’s wife, Ms Noura El Hamra, is the sole director and shareholder.
This application seeks the delivery up of documents by Commercial and Legal, who is not a party to the proceedings. It is alleged by Fazche that Commercial and Legal was its sole solicitor from 2011 to 2019.
Fazche went into voluntary administration on 16 August 2019 with the creditors voting in favour of a Deed of Company Arrangement (“DOCA”) on 4 October 2019. Commercial and Legal allege that as at that date, Fazche was indebted to it for the sum $19,692.45 for the provision of legal services. This debt allegedly remains outstanding and Commercial and Legal have exercised a solicitor’s lien over all the files in its possession until the outstanding amount is paid.
Documents relied upon
The applicant reads and relies on the following affidavits:
1Second Affidavit of Nicola Fazzari sworn 31 January 2020 (incorrectly filed in action 980 of 2019 and in typewriting described as the fourth affidavit);
2Fifth Affidavit of Nicola Fazzari 1 April 2020;
3Affidavit of Elias Farah sworn 24 March 2020;
4Second Affidavit of Elias Farah sworn 15 April 2020;
5The Second Affidavit of Nicola Fazzari sworn on 6 November 2019 and the Third Affidavit of Nicola Fazzari sworn on 13 December 2019 filed in opposition to the application for security for costs; and
6Report to creditors exhibited to the affidavit of Mr David Elix sworn 29 November 2019.
The applicant also relies upon its written submissions dated 22 April 2020.
Commercial and Legal reads and relies on the following affidavits:
1Affidavit of Elias Farah filed on 24 March 2020;
2Affidavit of Elias Farah filed on 15 April 2020; and
3Affidavit of Elias Farah filed on 12 May 2020.
Commercial and Legal also relies upon its written submissions dated 12 May 2020.
Legal Principles
The application is made pursuant to s 39(1) of the Legal Practitioners Act 1981 which gives power to a court, on application, to order a person to deliver up documents held by the person or relating to proceedings taken or work done by the person on behalf of the applicant. Under s 39(2) of the Act, this power may be exercised notwithstanding the existence of a lien on the documents.
Rule 26 of the District Court Civil Rules 2006 provides:
(1)The Court may, on application by a client or former client of a solicitor, order the solicitor—
(a)     to deliver to the applicant an account of money and property received, disbursed or held by the solicitor on behalf of the applicant; or
(b)     to deliver up to the applicant money or property (or both) held by the solicitor on behalf of the applicant; or
(c)     to pay into the Court money held by the solicitor on behalf of the applicant; or
(d)     to deliver up the solicitor's file relating to work done for the applicant.
(2)On an application under this rule, the Court may make any order it considers appropriate to secure payment of the solicitor's costs.
In exercising the discretion under s 39, the court is to weigh the position of the solicitors if an order is made against them with the position of the former client if such an order is refused.[2]
[2] Shircore v Andersons [1996] SASC 5513, [20].
In Sampson v Gluche [2009] SASC 222, Judge Withers, Master of the Supreme Court, considered the duty of solicitors to transfer their former client’s documents to their new solicitor. His Honour said:[3]
In my view, the primary duty of a practitioner whose client has terminated his instructions is to facilitate, so far he or she reasonably can, the transfer of the client’s papers to a newly instructed solicitor. The former practitioner is entitled to take proper steps to secure his fees having regard to the circumstances of the particular matter, but is not entitled to insist upon conditions that are unreasonable in those circumstances.
[3] Sampson v Gluche [2009] SASC 222, [24].
In Bodycorp Repairers Pty Ltd v Edwards,[4] the Court considered a solicitor’s lien which related to current litigation. Hargrave J outlined the principles as followed:
In summary, where a solicitor's retainer relates to current litigation, as here, the principles may be distilled as follows. First, where a client discharges the solicitor, the solicitor's lien continues in force unless the client was entitled to terminate the retainer for breach of contract or misconduct by the solicitor. Second, where the solicitor discharges the client without good cause, the solicitor's lien comes to an end. Third, where the solicitor discharges the client for good cause, the solicitor's lien continues, but is subject to the qualification stated by Templeman LJ in Gamlen Chemical that the file must be handed over to the new solicitors, provided that they undertake to return it at the end of the litigation, to save the client's litigation from catastrophe.
[4] [2007] VSC 124, [5].
Hargrave J referred to the observations of Templeman LJ in Gamlen Chemical Co (UK) Ltd v Rochem Ltd,[5] where his Lordship said:
Where the solicitor has himself discharged his retainer, the court then will normally make a mandatory order obliging the original solicitor to hand over the client's papers to the new solicitor against an undertaking by the new solicitor to preserve the lien of the original solicitor.
[5] [1980] 1 All ER 1049, 1058.
In Oliveri v PM Sulcs & Associates Pty Ltd (in liq),[6] the Court referred to and summarised the principles in Firth v Centrelink,[7] noting that a solicitor need not prove a lien against the liquidation of a client company. Black J said:
If the client is a company which goes into liquidation, the solicitor is entitled, in relation to costs arising from work done before the start of the liquidation, to claim the full amount of the costs from the fund, and is not required to prove in the liquidation … This has the same practical effect as enforcing the right against the other creditors of the company. The solicitor's lien attaches to property recovered through his exertions, even if the actual recovery occurs after the client goes into liquidation.
[6] [2013] NSWSC 590, [11].
[7] [2002] NSWSC 564.
Applicant’s Submissions
The applicant submits that there was a solicitor-client relationship between the applicant and Commercial and Legal. It refers to the various affidavits sworn by Mr Nicola Steven Fazzari (“Mr Fazzari”) who is the sole director of Fazche.
Mr Fazzari deposes that in 2011 he was introduced to Mr Elias Farah (“Mr Farah”), a solicitor who describes his position at Commercial and Legal as “Principal Partner”,[8] and that from 2011 to 2019 Commercial and Legal were the only solicitors engaged by the applicant.[9] Accounting services were also provided to the applicant by Commercial and Legal, although Commercial and Legal submit that Sims Stewart Pty Ltd provided these services.
[8] Second Fazzari Affidavit sworn on 31 January 2020 at paragraph 3.1.
[9] Fifth Fazzari Affidavit sworn on 1 April 2020 at paragraph 4.
The applicant premises its application on the basis that the information in the files is relevant to the conduct of Mr Hamra alleged in both the District Court and Magistrates Court proceedings, and is needed to investigate further actions against both Mr Hamra and Satori Projects.
Mr Fazzari deposes[10] that Commercial and Legal attended all company meetings with Mr Farah as the company’s representative and that the applicant’s financial problems and their cause was discussed in these meetings. Mr Fazzari further deposes[11] that Commercial and Legal ceased to be its solicitor when he raised with them concerns about Mr Hamra’s management of the applicant. He says that Mr Farah advised him that he could no longer act for Fazche due to a conflict of interest as Commercial and Legal were also acting for Mr Hamra and Satori Projects.
[10] Second Fazzari Affidavit sworn on 31 January 2020 at paragraphs 8, 12.
[11] Second Fazzari Affidavit sworn on 31 January 2020 at paragraph 11, Fifth Fazzari Affidavit sworn on 1 April 2020 at paragraphs 8-10.
In particular, Fazche relies on an email exchange between Mr Fazzari and Commercial and Legal,[12] sent on 4 April 2019:
Mr Fazzari: Hi Chris, could you let me know if you have had a chance to speak with Elias. In regards C/L helping me recoup what was stolen by my ex business partner….
Commercial and Legal: I have spoken to Elias and he has advised that he cannot act, it is a clear a conflict he cannot help one client sue another client…
[12] Fifth Fazzari Affidavit sworn on 1 April 2020, Exhibit 2.
The applicant submits it was Mr Farah who terminated the retainer and that Commercial and Legal ceased acting for the applicant due to a conflict of interest, rather than the applicant terminating Commercial and Legal’s instructions. Fazche submits further that Commercial and Legal allowed themselves to be placed into a position of conflict of interest by performing work for both the applicant and Mr Hamra and Satori Projects, which, it says, it should have never allowed to happen.
It notes further that Mr Farah has not provided an explanation for the email referred to above nor denied that Commercial and Legal was Fazche’s sole solicitor from 2011 to 2019.
The applicant observes that after the creditors voted in favour of the DOCA on 4 October 2019, Commercial and Legal lodged with the Deed Administrators a proof of debt of $19,692.45 and says that Commercial and Legal have rendered accounts since 2011 totalling $210,273 of which $190,962.45 has been paid.
The applicant observes that Commercial and Legal have not identified which particular files are the subject of the unpaid sum, and submits that any solicitor’s lien cannot relate to files for which the work has been paid in full. On that basis it submits that Commercial and Legal should deliver up the files in relation to which there is no claim for outstanding costs. In relation to the files on which there is a claim for costs, the applicant seeks an order for delivery up despite the existence of a lien.
The applicant points to the proposed undertaking by the applicant’s solicitor, Mr Tropeano, to re-deliver the documents at the end of the proceedings, and that the files will be preserved not destroyed.
The applicant invites the Court to find that the retainer was terminated without good cause because Commercial and Legal should not have accepted instructions to act for Mr Hamra and submits that the consequence of such a finding is that there is no lien. In the alternative, the applicant submits that if I was to find that the retainer was terminated with good cause, the usual practice should follow with the files being delivered up on the undertaking of Mr Tropeano to maintain the files and return them at the end of any litigation.
The applicant submits that the litigation is largely for the benefit of the creditors under the DOCA, one of which is Commercial and Legal, and not having the files disadvantages the interests of creditors as a whole. It further submits that the amount of unpaid fees is insignificant compared to the total amount of fees rendered and paid.
Commercial and Legal’s Submissions
Commercial and Legal agrees that it provided legal and conveyancing services to Fazche from its incorporation in 2011 until 2019, and that accounting services were provided by Sims Stewart. It submits that the two entities have their own separate files and work done for Fazche was invoiced and paid for separately. It submits that Mr Farah was primarily responsible for the provision of legal advice to Fazche, whilst Mr Chris Stewart (“Mr Stewart”), a director of Sims Stewart, was primarily responsible for the provision of accounting services to it. Commercial and Legal submits it has no legal right to possession of the documents held by Sims Stewart and therefore cannot comment on the fees that may remain outstanding to Sims Stewart or the documents in its possession.
Commercial and Legal agrees it was engaged by Fazche but says that was periodic and on a case by case basis to assist with various legal matters and provide legal advice on those matters.
It submits that there were numerous retainers between itself and Fazche and the usual practice was for Fazche to engage Commercial and Legal if and when it required legal services. A contract would come into existence in respect of those services, with a new file being opened upon receipt of an instruction to do so. Commercial and Legal submits that if it was unable to act for Fazche in a particular matter, this did not affect its ability and availability to act for Fazche in other matters.
At the time Fazche went into Voluntary Administration on 16 August 2019, it was indebted to Commercial and Legal for the sum of $19,692.45. Commercial and Legal submits that neither the applicant nor Mr Fazzari have disputed the provision of the legal services relating to the unpaid invoices or the sum of those invoices, nor have they been made aware of any reason for Fazche’s failure to pay those invoices, nor any reason as to why it is not entitled to payment.
Commercial and Legal submits that Fazche was entitled to make an application for an adjudication of costs 6 months after the invoice in question was rendered or the request for payment was made pursuant to section 37(4) of Schedule 3 to the Legal Practitioners Act 1981. As this did not occur, it submits that the outstanding amount is due and payable.
Commercial and Legal acknowledges that there may have been no alternative solicitors acting for Fazche during the period of 2011 to 2019, however it submits that there was nothing preventing Fazche from engaging alternative solicitors.
Commercial and Legal asserts that the lien is not limited to documents in the files upon which fees remain outstanding and that it is entitled to enforce its lien over all property of Fazche it holds in its possession, including documents in respect of files on which there are no outstanding invoices.
Commercial and Legal submits it did not cease acting for Fazche by reason of a conflict of interest, nor did Mr Fazzari request that Commercial and Legal act for Fazche in pursuing Mr Hamra or other clients of Commercial and Legal. Rather it alleged that no retainer came into existence and that Fazche merely ceased engaging Commercial and Legal. Since it did not discharge any retainer it had with Fazche, nor did Fazche discharge any retainer on the grounds of misconduct by Commercial and Legal, it submits the lien remains valid and enforceable.
In particular, it submits that on 16 April 2019, Mr Farah informed Mr Fazzari by telephone that Commercial and Legal, as well as Mr Stewart of Sims Stewart, would continue to act for Fazche however they required part payment of their fees or a proposal of a payment plan. It maintains that it continued to act for Fazche after April 2019, with the last invoice being issued to Fazche on 31 May 2019.
Commercial and Legal distinguishes the present situation from that in Bodycorp Repairers Pty Ltd v Edwards,[13] in that Commercial and Legal’s previous retainers do not relate to the current litigation. It argues that no files were prepared in relation to the current litigation and therefore the files to which the solicitor’s lien relates are not directly relevant to any current or future litigation.
[13] [2007] VSC 124.
As to Mr Tropeano’s proposed undertaking, Commercial and Legal submits that is “inappropriate” and “insufficient” and that undertakings of this nature should only be considered appropriate in circumstances where Commercial and Legal acted for Fazche in the current proceedings. It submits further that Fazche has not provided sufficient detail as to how the files are directly relevant to these proceedings and has failed to provide sufficient particulars as to how the documents are relevant to investigating further potential actions against Mr Hamra and related entities.
Relying on the principles in Oliveri v PM Sulcs & Associates Pty Ltd,[14] Commercial and Legal submit that the lien need not be proved against the voluntary administrators of a company and that the DOCA only binds creditors who voted in favour of the resolution, which it says it did not.
[14] [2013] NSWSC 590.
Commercial and Legal submits that the lien is maintained notwithstanding that it has filed a proof of debt, and it is entitled to the full amount of the invoices that are outstanding. It further submits that the interests of the creditors as a whole do not outweigh Commercial and Legal’s right to payment and that the unpaid amount is not substantial compared to the monies that Fazche is seeking to recover in any litigation, such that payment of its fees is unlikely to hinder Fazche’s position in pursuing the litigation.

In conclusion, Commercial and Legal submit that if I was to order delivery up of the documents, I should order that Fazche pay the outstanding amount together with interest and costs of the interlocutory application prior to delivery of the files.
Consideration
Insofar as Commercial and Legal claim a lien over and refuse to deliver those files for which the fees have been paid, there is no basis for that position and, in my view, no lien.
There is no doubt that Commercial and Legal retain a lien over that file or files on which there are outstanding fees.
In an email from the Senior Finance Manager of Commercial and Legal to the applicant’s solicitors sent 23 October 2019[15] and a letter from Commercial and Legal to the applicant’s solicitors dated 2 March 2020, Commercial and Legal advised that it charges a fee of $90 per file for removal of the file from archive and copying the file. Whether Commercial and Legal wish to copy the file is a matter for it. Otherwise I see no basis for charging a former client who has paid any outstanding fees for providing that client’s file to the client.
[15] Exhibits EF1 and EF3 respectively to the affidavit of Elias Farah sworn 24 March 2020.
Further, Commercial and Legal assert that a number of the files are not relevant to the proceedings.[16] That may or may not be the case, but it is not a matter for Commercial and Legal. Insofar as it seeks to rely on that assertion as a basis not to produce the files to Fazche, I reject it.
[16] Exhibit EF3 to the affidavit of Elias Farah sworn 24 March 2020.
There has been no challenge by Fazche to the quantum of Commercial and Legal’s outstanding fees. In my view, neither party terminated the other’s services or instructions as the case may be. This is a case where a firm decided it had a conflict of interest on a new matter and could not act.
Mr Fazzari, who is the sole director of Fazche is funding the actions in question. It has not been shown that Fazche should not secure Commercial and Legal’s outstanding fees.
In the circumstances, I see no reason why Commercial and Legal’s fees should not be paid. I do not consider Fazche are required to pay interest on those fees for the purpose of this application.
Accordingly, I order pursuant to s 39 of the Legal Practitioner’s Act 1981 that:
1Insofar as Commercial and Legal hold any files for which Fazche was the client and for which Fazche has paid Commercial and Legal its fees for the work done on those files, Commercial and Legal are to produce those files at no cost to Fazche within 7 days of the date of this order;
2Fazche is to secure the outstanding fees due to Commercial and Legal in the sum of $19,692.45 by paying that sum into Court. Within 7 days of the date of payment of that sum into Court, I order Commercial and Legal to produce to Fazche the files Fazche seeks and for which there are outstanding fees, at no further cost to Fazche;
3Upon receipt by Fazche of those files, Commercial and Legal may apply to the Court for release of the sum of $19,692.45 on account of its outstanding legal fees;
4I will hear the parties on the question of costs.