Grope Hamilton Lawyers (REG'D) v Prater & Prater Kitchens Pty Ltd (ACN 165 514 929) - [2017] SASC 54

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
GROPE HAMILTON LAWYERS (REG'D) v PRATER & PRATER KITCHENS PTY LTD (ACN 165 514 929)
[2017] SASC 54
Judgment of The Honourable Justice Parker
11 April 2017
PROCEDURE - COSTS - RECOVERY OF COSTS
MAGISTRATES - ORDERS AND CONVICTIONS - COSTS - OTHER CASES
Application for a declaration that Grope Hamilton Lawyers has a right to transfer to its firm account $30,000 held on trust for the second defendant. The $30,000 was paid to the plaintiff to hold on trust for the second defendant by Maras Construct Pty Ltd in settlement of proceedings in the magistrate’s court in favour of the second defendant. Plaintiff applied to the magistrate’s court to recover unpaid legal fees amounting to $47,618.17. Magistrate granted default judgment in favour of the plaintiff for $47,618.17.
Held (per Parker J), granting the application and making the declaration sought:
1. The requirements of reg 45(3) of the Legal Practitioners Regulations 2014 were not satisfied because of the particular wording of the letter sent to Ms Prater on 3 November 2016.
2. The requirements of reg 45(4) of the Legal Practitioners Regulations 2014 have been satisfied as the plaintiff provided the defendants with a bill relating to the money sought to be paid from trust and no objection has been made within seven days and nor has a review of the legal costs been sought within sixty days.
3. It is very unlikely that the amount payable to the plaintiff would be found to be less than $30,000 if the fees were to be taxed following an application under clause 37 of Schedule 3 to the Legal Practitioners Act 1981.
4. Nevertheless, having regard to the uncertainty about the right of legal practitioners to apply funds held in trust in payment of fees expressed by the Law Society and by counsel I will make a declaration in the terms sought by the plaintiff.
Legal Practitioners Act 1981 Schedule 2, Schedule 3; Legal Practitioners Regulations 2014 reg 45, Part 7; Supreme Court Civil Rules 2006 Schedule 2, referred to.
Anthony Hordern & Sons Ltd v Amagamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1; Barratt v Gough-Thomas [1951] CH 242; Batrouney v Forster [2016] VSCA 80; Johns v Law Society of New South Wales [1982] 2 NSWLR 1; Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; R v Toohey; Ex parte Attorney-General (NT) (1980) 145 CLR 374, considered.

GROPE HAMILTON LAWYERS (REG'D) v PRATER & PRATER KITCHENS PTY LTD (ACN 165 514 929)
[2017] SASC 54
Magistrates Appeal: Civil

PARKER J: This is an application by Grope Hamilton Lawyers (“GHL”) for a declaration that the firm has a right under either or both of reg 45(3)(b) and reg 45(4) of the Legal Practitioners Regulations 2014 (the Regulations) to transfer to its firm account the sum of $30,000 currently held on trust for the defendant company, Prater Kitchens Pty Ltd (“PK”).
Alternatively, GHL seeks an order permitting it to transfer the sum of $30,000 from its trust account to its firm account pursuant to cl 13(2) of Schedule 2 to the Legal Practitioners Act 1981(the Act).
Mr Mark Hamilton, the managing partner of GHL, has stated in an affidavit that he was advised by the Law Society that he should obtain an opinion from counsel or apply to this Court for a declaration that GHL was entitled to transfer the relevant sum from its trust account to its firm account. Counsel advised that he should apply to the Court.
For the reasons that follow I will make a declaration to the effect sought by GHL.
Background
The background to these proceedings is set out at in some length in the judgment that I have delivered concurrently in Prater and Prater Kitchens v Grope Hamilton Lawyers. The essential facts are that a default judgment was entered in the Magistrates Court in favour of GHL in proceedings against Rachel Prater and PK relating to unpaid legal fees amounting to $46,075.40. The default judgment was in the sum of $47,618.17. The difference apparently arises from costs and fees incurred in the proceedings that led to the default judgment. A magistrate dismissed an application to set aside the default judgment. However, her Honour also observed that “a cursory review of the invoices indicate that the defendants’ claim that they have been overcharged may have merit”.
In the concurrent judgment I have dismissed an appeal by Ms Prater and PK against the dismissal by the magistrate of the application to set aside the default judgment.
GHL is holding the sum of $30,000 in its trust account on behalf of PK. That amount was paid by Maras Construct Pty Ltd (“Maras”) in settlement of proceedings conducted in the Magistrates Court by GHL on behalf of Ms Prater and PK.
GHL was also instructed in relation to two other matters by PK and Ms Prater. Those matters related to disputes with Tagara Builders Pty Ltd (“Tagara”) and a Jamie Nicholas. In an affidavit filed in the Magistrates Court Ms Prater deposed to the fact that Tagara went into liquidation in June 2015 and owed close to $30 million. Ms Prater and PK have not recovered any monies from either Tagara or Mr Nicholas.
The total sum of unpaid fees claimed by GHL against Ms Prater and PK arising from the work done in relation to the Tagara and Nicholas matters and the Maras litigation amounts to $46,075.40. That figure includes the sum of $9,629.51 claimed by GHL in respect of the Maras proceedings. The issue before this Court is whether GHL is entitled to apply the $30,000 held in its trust account in part payment of the outstanding fees.
In June 2016 GHL filed an application in the Magistrates Court seeking an order that it be permitted to transfer the $30,000 from its trust account in part payment of the judgment sum of $47,618.17. The magistrate dismissed that application on the basis that if the retainers entered with GHL by Ms Prater and PK complied with the Act and the Regulations and, if it gave them notice of the intended withdrawal, there was no need to obtain an order. Alternatively, the magistrate also found that GHL was permitted to transfer the monies if PK had not applied for a review of the bills within sixty days. The magistrate further found that the Magistrates Court did not have power under its rules to make the orders sought.
The letters of engagement
On 14 January 2015 GHL forwarded to Ms Prater and PK letters of engagement relating to her claims against Maras and Tagara respectively. While the description in the letters of the legal work to be performed and also the estimates of the likely fees were materially different, the two letters were otherwise identical save for the fact that the letter sent in respect of the Maras matter included an additional paragraph 12.7. That additional paragraph stated that prior to the settlement of a litigation matter a reasonable estimate of the fees and the likely contribution by the other party would be provided so as to enable calculation of the net amount to be received.
On 3 February 2015 GHL sent a further letter of engagement to Ms Prater and PK in relation to the dispute with Mr Nicholas. Apart from the scope of the legal work and the estimated fees, this letter was identical to that sent in relation to the Maras matter.
Each of the three letters of engagement included an instructions form relating to the particular matter. Ms Prater signed each of the instructions forms in her own right and on behalf of PK. Each of the instructions forms included a specific acknowledgement by Ms Prater that she and PK were jointly and severally liable for GHL’s fees.
Clause 26 of each of the three letters of engagement displayed the heading “Authorisation”. The terms of clause 26 in each case was as follows:
26.1You irrevocably authorise us and to receive directly into our trust account any judgment or settlement money, or any money recovered from any source.
26.2It is a term of the engagement that should we receive any money from you or on your behalf other than for a specified purpose, we are at liberty to apply that money in payment of our outstanding accounts if nothing has been heard from you disputing the accounts within fourteen days after delivery.
The three letters of engagement explained the basis upon which fees would be charged and accounts rendered. The letters were extremely detailed and extended over eleven or twelve pages respectively. In addition, each letter had attached to it a Schedule A and a Schedule B. Schedule A set out the fee earner charge out rates and the basis upon which disbursements and other expenses would be charged. Schedule B comprised the scale of costs in Schedule 2 of the Supreme Court Civil Rules 2006. Clause 17 of each letter set out the avenues available to PK and Ms Prater if they were not happy with a bill from GHL.
Clause 10.1 of each of the letters contained an estimate of the fees likely to be incurred in respect of the particular matter. In the Maras matter the fees were estimated to be between $7,500 and $10,000. The estimate provided in relation to the Tagara matter was from $25,000 to $50,000 while in the Nicholas case the fees were estimated to range from $5,000 to $10,000. In each instance the fees were stated to be exclusive of GST.
The rate specified for “other lawyers” (ie practitioners who were neither partners nor senior associates) in Schedule A to the letters of engagement ranged from $250 to $270 per hour (plus GST). The fees charged for the work of a particular practitioner, Rohan Vardaro, became an issue in the present proceedings. As Mr Vardaro was neither a partner nor a senior associate the effect of Schedule A to each of the three letters of engagement was that his work was to be charged at the “other lawyer” rate. I will return to that issue.
I am satisfied that each of the three letters of engagement complied with the obligations imposed upon legal practitioners by Schedule 3 to the Act and Part 7 of the Regulations to disclose costing arrangements to a client and to inform the client of their rights in respect of calculation and recovery of legal costs. Ms Prater and PK did not contend that these requirements had not been satisfied.
The fees charged
Mr Mark Hamilton, the managing partner of GHL, has deposed in an affidavit dated 23 January 2017 to the details of the fees charged by his firm. He has stated that while the letters of engagement in each of the three matters entitled GHL to charge for his work at the rate of $350.00 per hour plus GST he had in fact charged at $333.33 per hour plus GST. The letters of engagement provided for the work done by the other solicitor involved with the relevant matters, Mr Rohan Vardaro, to be charged at up to $275.00 per hour plus GST. In fact, the work done by Mr Vardaro had been variously charged at $200.00, $250.00 and $333.33 per hour plus GST.
Mr Hamilton stated that the value of the work done by Mr Vardaro for which an amount greater than the agreed maximum of $275.00 per hour had been charged was $2,675.97. Nevertheless, because much of the work done by Mr Vardaro had been charged at a rate less than $275.00 per hour, the net result was that GHL had charged Ms Prater and PK $708.03 less than the amount that could have been charged if the maximum agreed rate had been applied. Mr Hamilton also stated that if the entirety of the work performed by him and by Mr Vardaro had been charged at the maximum agreed rates an additional $1,005.29 plus GST may have been charged.
Mr Hamilton also deposed to the fact that a total discount of $7,943.11 had been granted to Ms Prater and PK prior to certain invoices being issued. In addition to that discount, fees to the value of $214.32 were written off.
Mr Hamilton also stated that sixteen separate itemised invoices had been forwarded to Ms Prater and PK. The invoices described each item of work and specified the sum charged, the date when the work was performed and by whom it had been undertaken. Mr Hamilton also stated that the GHL office manager had reviewed the invoices so as to identify any obvious charging errors such as duplications or matters being charged on the wrong file.
In that light Mr Hamilton suggested that if the costs were to be taxed in this Court there would not be a material reduction in the fees claimed. He further suggested that a taxation of costs would be likely to incur increased costs without producing any net benefit to PK and Ms Prater. Mr Hamilton also canvassed the possibility as to whether GHL would be entitled to recover the value of all work done at the rates provided in the letters of engagement or whether it would it be restricted to the taxation of the existing invoices.
Request for permission to transfer funds from the trust account to the firm account
On 16 May 2016 GHL wrote to PK and Ms Prater confirming that the settlement sum of $30,000 received from Maras had been paid into the GHL trust account to the credit of PK. The letter noted that Ms Prater had accepted in writing the terms set out in the letters of engagement. Clause 26 of each of the letters of engagement authorised GHL to apply the funds held in trust in payment of fees if an account had not disputed within 14 days. The letter also asserted a general lien over the entire sum held in trust that was referrable to the fees owed by PK in respect of the three matters in which GHL had acted. The existence of a fruits of litigation lien was also asserted in relation to the fees of $9,629.51 owing in relation to the Maras matter.
In response to my question, the Court was informed after the hearing that Ms Prater and PK had purported to withdraw consent to the transfer of the $30,000 from trust by email message dated 19 May 2016.
On 3 November 2016 following the dismissal by the magistrate of the application to set aside the default judgment, GHL wrote to Ms Prater and PK to seek consent to transfer the sum of $30,000 held in trust in part payment of the judgment sum of $47,618.17. The letter warned that if consent was not provided an application would be made to this Court.
On an unspecified date subsequent to 3 November 2016 Ms Prater sent an email message on behalf of herself and PK in which she refused consent to transfer the $30,000 from trust.
The legislative scheme
Schedule 2 to the Act governs the obligations of legal practitioners with respect to trust money and trust accounts. Certain provisions of the Regulations also deal with those issues.
The relevant provisions of Schedule 2 are as follows:
13—Holding, disbursing and accounting for trust money
(1)     A law practice must—
(a)     hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received; and
(b)     disburse the trust money only in accordance with a direction given by the person.
Maximum penalty: $50 000.
(2) Subclause (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.
(3)     The law practice must account for the trust money as required by the regulations.
Maximum penalty: $50 000.
20—Protection of trust money
(1) Money standing to the credit of a trust account maintained by a law practice is not available for the payment of debts of the practice or any of its associates.
(2)Money standing to the credit of a trust account maintained by a law practice is not liable to be attached or taken in execution for satisfying a judgment against the practice or any of its associates.
(3)This clause does not apply to money to which a law practice or associate is entitled.
22—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 prescribed by this Act and the regulations are complied with;
(c)     after deducting any legal costs properly owing to the practice, deal with the balance as unclaimed money under the Unclaimed Moneys Act 1891.
(2) Subclause (1) applies despite any other provision of this Schedule but has effect subject to Schedule 3.
Schedule 3 to the Act sets out in considerable detail the obligations of practitioners to disclose to clients the basis upon which legal costs will be calculated, the content of costs agreements and the rights of clients.
Clause 37 of Schedule 3 provides that a client may apply to this Court for adjudication of the whole or part of legal costs. Such an application must be made within six months after payment was requested. In the case of a person who is not a “sophisticated client” if, after having regard to the delay and the reasons for the delay, the Court considers it just and fair the application may be dealt with after the six month period.
No application has been made by Ms Prater or PK under clause 37. If an application were to be made, questions would arise as to whether they were sophisticated clients and whether it was just and fair that the application should be dealt with after the six month period.
The relevant provisions of the Regulations are:
45—Withdrawing trust money for legal costs (Schedule 2 clause 22 of Act)
(1) This regulation prescribes, for the purposes of Schedule 2 clause 22(1)(b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.
(2) The trust money may be withdrawn in accordance with the procedure set out in either subregulation (3) or (4).
(3)     The law practice may withdraw the trust money—
(a)     if—
(i) the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal; or
(ii) the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal; or
(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person; and
(b)     if, before effecting the withdrawal, the practice gives or sends to the person—
(i)      a request for payment, referring to the proposed withdrawal; or
(ii)      a written notice of withdrawal.
(4)     The law practice may withdraw the trust money—
(a)     if the practice has given the person a bill relating to the money; and
(b)     if—
(i)the person has not objected to withdrawal of the money within 7 days after being given the bill; or
(ii) the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill; or
(iii)     the money otherwise becomes legally payable.
(5)     Instructions mentioned in subregulation (3)(a)(ii)—
(a)     if given in writing, must be kept as a permanent record; or
(b)     if not given in writing, must be confirmed in writing either before, or not later than 5 business days after, the law practice effects the withdrawal and a copy must be kept as a permanent record.
(6) For the purposes of subregulation (3)(a)(iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited.
The plaintiff’s submissions

GHL submit that it is authorised by the three letters of engagement to transfer from its trust account to its firm account the sum of $30,000 held in trust for PK. It contends that the right to transfer arises under either or both reg 45(3)(b) and reg 45(4) of the Regulations. On that basis GHL seeks either a declaration that it is entitled to transfer the $30,000 to its firm account or an order permitting it to transfer the money under clause 13(2) of Schedule 2.
The oral argument on behalf of GHL was brief. In essence, the firm relied upon an undated opinion provided to it in about January 2017 by a barrister, Daniella DiGirolamo, as setting out the test to be applied in relation to its right to transfer the trust monies and also the basis upon which the Court may make an order authorising the transfer of trust monies to the firm account. GHL waived its legal professional privilege in respect of that advice.
After considering the operation of the provisions of the Act and the Regulations set out above and also the judgment of the High Court in Legal Services Board v Gillespie-Jones[1], Ms DiGirolamo concluded that unless PK authorised payment of the monies held in trust towards the judgment sum, GHL cannot transfer the funds to its firm account without an order of a court of competent jurisdiction or as authorised by law. She then went on to consider what authorisation may be provided by law.
[1] (2013) 249 CLR 493.
Ms DiGirolamo advised GHL that it had a general or retaining lien over the settlement sum until its outstanding fees had been paid. That lien was a protective and possessory right. It only permitted GHL to refuse to pay the settlement sum to PK. The lien did not provide any right to transfer money from trust without the permission of PK.
Ms DiGirolamo also advised GHL that it had a particular or “fruits of litigation” lien over the settlement sum. That lien only applied to the costs of the proceedings in which the money was recovered. Accordingly, the fruits of litigation lien held by GHL only extended to the sum of $9,629.51, being the outstanding fees from the Maras dispute. While a fruits of litigation lien could be enforced through an application to the court, in the absence of an order there was no right to the property that was subject to the lien. Ms DiGirolamo referred to the decision of the Victorian Court of Appeal in Batrouney v Forster as authority for the principle that the existence of a fruits of litigation lien does not authorise a solicitor to withdrawn monies from a trust account unless the provisions of the relevant legislation have been satisfied.[2]
[2] [2016] VSCA 80.
Ms DiGirolamo advised that if the costs agreement entered by PK and Ms Prater with GHL satisfied the statutory requirements, and if PK had not disputed the accounts within fourteen days after being given notice, GHL would be authorised by reg 45(3) to transfer the $30,000 from its trust account to its firm account. Alternatively, if PK had not sought a review of the accounts within sixty days, GHL could transfer the money under reg 45(4). In that context Ms DiGirolamo noted that PK had withdrawn its authorisation to apply the $30,000 in payment of GHL’s fees. She expressly did not consider the effect of that change of position.
Ms DiGirolamo concluded her advice with the observation that she agreed with the decision by GHL, as a matter of caution, to seek an order from this Court.
The respondent’s submissions
Ms Prater appeared on her own behalf and on behalf of PK. She did not make any submissions concerning the issue of whether GHL was entitled to apply the monies held on trust in part payment of the fees that were owed by her and PK. However, she did inform the Court that she did not object to payment of fees relating to the work done by GHL concerning the Maras and Nicholas matters but did object to being required to pay for the Tagara matter. The basis of her objection was her contention that GHL had acted negligently in relation to the Tagara matter.
The aggregate of the fees relating to the Maras and Nicholas matters is substantially less than the sum of $30,000 which is the subject of this application. Thus, the concession by Ms Prater that she was not concerned about her liability to pay the fees claimed for the Maras and Nicholas matters does not remove the need to decide the application.
Consideration
In Legal Services Board v Gillespie-Jones the High Court considered the operation of the provisions of the (now repealed) Legal Profession Act 2004 (Vic) (Victorian Act) that are cognate to Schedule 2 of the Legal Practitioners Act and the relevant provisions of the Regulations. The circumstances were that the principal of a law practice had briefed a barrister to appear for a client in criminal proceedings. The principal misappropriated monies paid by the client on account of legal costs. The barrister made a claim on the Legal Practitioners Fidelity Fund so as to recover his unpaid fees on the basis that there was a default by the solictor. French CJ, Hayne, Crennan and Kiefel JJ decided the matter on the basis that there had been no direction given by the client to the solicitor to pay the barrister’s fees. Thus, there was no failure to pay or deliver trust money to the barrister and accordingly no default. Bell, Gageler and Keane JJ decided the matter on the basis that the barrister did not have a beneficial interest in the amount held on trust.
Bell, Gageler and Keane JJ stated:
99         Two restrictions imposed by the Part on the holding of trust money deposited in a general trust account of a law practice are of particular importance.
100       First, the law practice is obliged by s 3.3.14 to hold the trust money so deposited "exclusively for the person on whose behalf it is received" and must "disburse the trust money only in accordance with a direction given by the person". Failure of the law practice to comply is, again, a criminal offence. While the word "for", like the expression "on behalf of", "may be used in conjunction with a wide range of relationships", the word is undoubtedly used in that context to "describe a relationship of trustee and cestui que trust"[3]. The statutory obligation of the law practice, in other words, is to hold trust money deposited in its general trust account exclusively for the benefit of the person (or persons) on whose behalf the money was received by the law practice and to disburse that money only at the direction of that person (or those persons).
101       Secondly, by s 3.3.18 the money "is not available for the payment of debts of the practice or any of its associates" save in respect of money to which the law practice or an associate of the law practice "is entitled".
102       By s 3.3.20(1)(b), a law practice is empowered to withdraw money held in its general trust account "for payment to the practice's account for legal costs owing to the practice if the relevant procedures or requirements prescribed by [the Act and the Regulations] are complied with". It accords with ordinary principles of construction[4], and furthers the protective purpose of Pt 3.3, to read that specific power as limiting the general power of a law practice to disburse money from its general trust account in accordance with a direction given by the person on whose behalf the money was received by the law practice. Whether or not that person has directed that the money be withdrawn for payment of legal costs (including disbursements) owing to the practice, the effect of s 3.3.20(1)(b) is that the money cannot be withdrawn by the legal practice from its general trust account for that purpose save on two conditions. One is that the withdrawal is for payment to the practice's own account. The other is that the withdrawal is in compliance with the relevant requirements of the Act and the procedures prescribed by the Regulations.
103       The relevant requirements of the Act are principally those that arise under Pt 3.4, the purposes of which include to regulate the billing of costs for legal services and to provide a mechanism for review of those costs[5]. The requirements of Pt 3.4 ordinarily have the effect that (if not the subject of disclosure made by the practice and a written agreement about the payment of costs entered into between the law practice and the client) legal costs owing to a law practice need not be paid by the client unless they are reviewed by a taxing master and are not recoverable by the law practice unless they accord with the fair and reasonable value of the services provided[6].
104       The procedures prescribed by the Regulations allow a law practice to withdraw trust money for payment of legal costs owing to the practice by the person for whom the trust money was paid into the general trust account in two relevant circumstances. One is where the money is withdrawn in accordance with a costs agreement or instructions authorising the withdrawal, or is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person, provided that, before effecting the withdrawal, the practice gives or sends to the person a request for payment, referring to the withdrawal, or a written notice of withdrawal[7]. The other is where the law practice has given the person a bill relating to the money and the person has not within a specified time objected to the withdrawal of the money or the person has objected but has not within a further specified time applied for review of the legal costs or the money otherwise becomes legally payable[8].
105       In relation to trust money held in its general trust account, a law practice is authorised by s 3.3.20(1)(a) of the Act to "exercise a lien, including a general retaining lien, for the amount of legal costs reasonably due and owing by the person to the practice". The incidents of a general retaining lien of a law practice over money held on trust for a client are well understood. The lien is a common law right, implied by law, to retain the money until the costs of the law practice are paid. It is wholly passive and possessory in nature[9]. It "does not mean that the money is not beneficially the money of the client" and it does not mean that the law practice can pay any part of the money to itself[10].
[3]    R v Toohey; Ex parte Attorney-General (NT) (1980) 145 CLR 374 at 386; [1980] HCA 2.
[4]    Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7; [1932] HCA 9.
[5]    Section 3.4.1.
[6]    Sections 3.4.17 and 3.4.19.
[7]    Regulation 3.3.34(3).
[8]    Regulation 3.3.34(4).
[9]    Barratt v Gough-Thomas [1951] Ch 242 at 250.
[10] Johns v Law Society of New South Wales [1982] 2 NSWLR 1 at 20.
The relevant provisions of the now repealed Victorian Act considered by the High Court in Gillespie-Jones are indistinguishable from the cognate provisions in Schedule 2 to the Act and the Regulations. Section 3.3.14 of the Victorian Act imposed identical obligations to clause 13 of Schedule 2, ie a law practice must hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received and must disburse the trust money only in accordance with a direction given by the person.
Section 3.3.18 of the Victorian Act operated identically to clause 20 of Schedule 2, ie money standing to the credit of a trust account maintained by a law practice is not available for the payment of debts of the practice or any of its associates with the exception of money to which a law practice or associate is entitled.
Section 3.3.20(1)(b) of the Victorian Act conferred the same rights upon a law practice as clause 22 of Schedule 2. Both the Victorian and South Australian provisions entitled a law practice to withdraw money for payment to the practice’s account for legal costs owing to the practice if the relevant procedures or requirements prescribed by the Act and Regulations are complied with. Additionally, both s 3.3.20(1)(a) of the Victorian Act and clause 22 of Schedule 2 permit a law practice to exercise a lien, including a general retaining lien, for the amount of legal costs reasonably due and owing to the practice.
I consider the effect of the legislative scheme to be as follows. Clause 13 of Schedule 2 requires trust money to be deposited in a general trust account of the practice exclusively for the person on whose behalf it was received. Thus, GHL was required to hold the sum of $30,000 received from the Maras settlement in trust for PK. Clause 13(1) stipulated that GHL was only entitled to disburse that money in accordance with a direction given by PK. However, clause 13(2) authorised that money to be disbursed without a direction from PK if a court of competent jurisdiction so orders. I will refer later to the operation of that provision.
Clause 20 of Schedule 2 prohibits the application of trust money for the payment of the debts of the legal practice or those of its associates. However, that prohibition does not apply to money to which the law practice or associate is entitled. Clause 20 is not relevant in the present case as there is no suggestion that the monies were to be applied to meet the debts of GHL.
Clause 22(1)(a) of Schedule 2 entitles GHL to exercise a lien, including a general retaining lien, for the amount of the legal costs reasonably owed to GHL by PK and Ms Prater. Of course, as Bell, Gageler and Keane JJ observed in Gillespie-Jones, a lien does not entitle GHL to pay any part of the trust money to itself. The lien is a wholly passive and possessory right.[11]
[11] (2013) 249 CLR 493 at [106].
Most importantly, clause 22(1)(b) of Schedule 2 authorises a law practice to withdraw money for payment to its account for legal costs owing to the practice if the relevant procedures or requirements prescribed by the Act and the Regulations are complied with.
Clause 22(2) provides that sub-clause 22(1) applies despite any other provision of Schedule 2 but has effect subject to Schedule 3. The latter schedule deals with costs, disclosure and adjudication. I have already noted that GHL has complied with the costs disclosure obligations in Schedule 3.
The effect of clause 22(1)(b) of Schedule 2 is that GHL may withdraw the $30,000 from trust and apply that sum to payment of the costs owed to the firm by PK and Ms Prater if the relevant provisions of the Act and Regulations have been complied with.
The relevant provisions are found in reg 45. Regulation 45(3) and 45(4) establish two alternative regimes under which a law practice may withdraw trust money for payment of its fees.
I will first consider the operation of reg 45(3). This sub-regulation will authorise the withdrawal of moneys held in trust to pay fees where the requirements of both paragraph (a) and paragraph (b) are satisfied.
Regulation 45(3)(a)(i) contains two requirements that must be satisfied before GHL will be entitled to withdraw the $30,000 from trust. First, the money may only be withdrawn in accordance with a costs agreement that complies with Schedule 3. Secondly, the agreement must authorise that withdrawal.
I have already found that each of the three letters of engagement provided to Ms Prater and PK by GHL complied with the obligations imposed by Schedule 3 in relation to costs agreements. I also consider that clause 26 of each of the three letters authorised GHL to apply settlement monies that had been paid into trust to meet outstanding fees. Thus, both of the requirements of reg 45(3)(a)(i) have been satisfied, ie the withdrawal is in accordance with a complying costs agreement and that agreement authorises the withdrawal.
Regulation 45(3)(a)(ii) provides that a law practice may withdraw trust money if that occurs in accordance with instructions that have been received by the practice and that authorised the withdrawal. That provision clearly contemplates an authorisation that is given other than by way of a provision in a costs agreement. PK and Ms Prater have not provided such instructions outside the costs agreement.
It is unnecessary to consider the possible application of 45(3)(a)(iii). That provision only applies where a law practice is seeking reimbursement of money paid on behalf of the person.
Regulation 45(3)(b) imposes a further obligation upon a law practice before monies may be withdrawn from trust for the payment of fees. The requirement is that before effecting the withdrawal the practice must give or send to its client a request for payment referring to the proposed withdrawal or a written notice of withdrawal. The question therefore arises as to whether the letter sent by GHL to Ms Prater and PK on 3 November 2016 was either a request for payment referring to the proposed withdrawal or a written notice of such a withdrawal.
The letter made clear that even though the magistrate had indicated that GHL was entitled to transfer the $30,000 from its trust account to its firm accounts, GHL was not prepared to do so in the absence of written consent from PK and Ms Prater. If she failed to provide written consent then an application would be made to this Court. It is apparent that the letter was not written notice of a withdrawal.
The further question is whether the letter of 3 November 2016 was a request for payment referring to the proposed withdrawal. I consider that for a communication to fall within reg 45(3)(b) it must clearly indicate that payment of the money owed is required and that the funds are to be withdrawn from trust if payment is not received. The letter was not couched in those terms and instead sought permission for the withdrawal of the $30,000 and threatened court action if permission was withheld.
Accordingly, I do not consider that the letter sent by GHL on 3 November 2016 satisfied either limb of reg 45(3)(b). For that reason, I consider that GHL was not entitled to withdraw the funds from trust under reg 45(3). That difficulty could have been avoided if the letter sent on 3 November 2016 had been drafted so as to comply with reg 45(3)(b).
The further question is whether GHL was authorised by reg 45(4) to withdraw the funds from trust. The first requirement under reg 45(4) appears in paragraph (a). This requires that the legal practice has given the person a bill relating to the trust money that is proposed to be withdrawn. The evidence clearly establishes that this requirement has been satisfied. GHL sent a series of tax invoices to PK requesting that the specified payments be made within fourteen days.
Regulation 45(4)(b) imposes further alternative requirements before a law practice becomes entitled to withdraw trust money for payment of its fees. The first such alternative requirement under reg 45(4)(b)(i) is that the person has not objected to withdrawal of the money within seven days after being given the bill. Neither PK nor Ms Prater objected to withdrawal of the money within seven days after service of the tax invoices. It is important to note that the time period of seven days runs from when the client was given the bill. The last bill was sent to Ms Prater on behalf of PK on 28 August 2015. Her email message of 19 May 2016 was received by GHL almost nine months after the seven days allowed for an objection to the withdrawal of the money held in trust.
The second alternative requirement under reg 45(4)(b)(ii) applies where the person has objected within seven days after being given the bill but has not then applied for a review of the legal costs under the Act within sixty days after being given the bill. At no time has PK or Ms Prater sought a review of the legal costs. Thus, the second alternative requirement is also satisfied.
It is not necessary to consider the third alternative contained in reg 45(4)(b)(iii), ie that the money has otherwise become legally payable.
I find that the requirements of reg 45(4) have been satisfied. That is because GHL has given PK and Ms Prater a bill relating to the money sought to be paid from trust and no objection has been made within seven days and nor has a review of the legal costs been sought within sixty days.

The magistrate observed that the claim by PK that they may have been overcharged may have some merit. Because the magistrate found that the Magistrates Court had no jurisdiction to deal with the issue, she did not need to enlarge upon her views. Thus, I have no information as to the basis for her possible concern.
It is important to note that the only issue before the Court is whether GHL is entitled to withdraw the $30,000 from its trust account in part payment of the outstanding fees. I have already observed that no application has been made by Ms Prater or PK to review the fees charged under clause 37 of Schedule 3 to the Act. The six months allowed for making such an application has long expired. If an application were now to be made a question would arise as to whether or not Ms Prater or PK were sophisticated clients. If they were found not to be sophisticated clients, the further question for the Court would be whether it was just and fair that the application be dealt with out of time.
The information provided in the affidavit from Mr Hamilton does make it clear that, when viewed on an overall basis, fees were charged at a rate less than those authorised under the letters of engagement and which Ms Prater and PK had agreed to pay. The fees charged in respect of each of the three matters were also within the range indicated in the letters of engagement. The discounting and write off of fees exceeded more than $8,000.
While some of the work done by Mr Vardaro was charged at a rate higher than had been authorised under the letters of engagement, GHL contends that on an overall basis the amount charged for his work was $708.03 less than the amount that could have been charged if the maximum agreed rate had been applied. As the fees have not been taxed, I cannot determine the correctness of that assertion. Nevertheless, Ms Prater and PK engaged GHL to perform work on an ongoing basis at fees that were set by reference to upper limits for each category of practitioner. Thus, I consider that overcharging in relation to work done by Mr Vardaro can be offset by those instances where his work, or that of others, was billed at less than the agreed rate.
I do not consider that the purported withdrawal of consent in the email message sent by Ms Prater on 19 May 2016 to the transfer of the $30,000 from trust was valid or effective. GHL had performed substantial work in reliance upon the contracts entered by Ms Prater and PK. They were bound by those contracts and were not entitled to repudiate their obligations. Moreover, GHL had relied to its detriment on the promises made by Ms Prater and PK. Accordingly, they were estopped from withdrawing the consent they had given under clause 26 of the letters of engagement for the use of moneys held in trust to pay outstanding fees.
Without dismissing the tentative concern expressed by the magistrate about some possible overcharging, I am satisfied that it is very unlikely that the amount payable to GHL would be found to be less than $30,000 if the fees were to be taxed following an application under clause 37 of Schedule 3.
Fees of $9,629.51 were claimed by GHL in respect of the Maras proceedings. The sum of $30,000 was paid in settlement of that matter. The balance of the fees in excess of $9,629.51 relate to the Tagara and Nicholas matters. It might possibly be contended that the right to withdraw funds from trust to pay fees should be limited to those incurred in the Maras proceedings. The protection provided by a fruits of litigation lien is limited in that fashion. However, for the reasons that follow, I do not consider that the right of GHL to recover its fees from trust monies is limited to the litigation to which the money held in trust relates.
Clause 26 of the letters of engagement provided that monies held in trust could be applied to pay “our outstanding accounts”. Regulation 45(3) authorises payment where permitted by a costs agreement. While any such authorisation should be strictly construed, I consider that, if reg 45(3) had been applicable in this case, the wording used in clause 26 is sufficiently broad to cover all outstanding accounts and not merely those that directly relate to the money held in trust.
Regulation 45(4) authorises transfer of trust money to pay outstanding fees provided that a bill has been served and the time limits of 7 days and 60 days have passed. There is nothing in this provision to suggest that the application of trust money is limited to those fees that directly relate to the source of the money.
For these several reasons I am satisfied that GHL is entitled to transfer the sum of $30,000 held on trust as the proceeds of the Maras settlement to its trust account in payment of the fees owed by PK and or Ms Prater.
Having regard to the uncertainty about the right of legal practitioners to apply funds held in trust in payment of fees expressed by the Law Society and by counsel I will make a declaration in the terms sought by GHL.
GHL has also applied for the approval of the court under clause 13(2) of Schedule 2 to the Act to the transfer the $30,000 from its trust account to its firm account in payment of the outstanding fees. Clause 13(2) operates as an exception to the requirement under clause 13(1) that a law practice may only disburse trust money in accordance with a direction given by the person for whom the money is held. In view of my finding that clause 26 of the letters of engagement authorised GHL to use the sum of $30,000 held in trust from the Maras settlement to pay its fees, there is no need for the court to make an order under clause 13(2). The trust money will be disbursed in accordance with the direction given by Ms Prater.
It was suggested on behalf of GHL during the course of submissions that there was some uncertainty as to whether a provision in a costs agreement, such as clause 26 of the letters of engagement that formed the terms of the contract between GHL and Ms Prater and PK, was sufficient to authorise withdrawal of money held in trust so as to pay outstanding fees. The possibility was canvassed that a specific authorisation may be required and that a costs agreement may not suffice.
I do not consider that to be correct. Regulation 45(3)(a)(i) specifically refers to authorisation provided by a complying costs agreement. There is no reason to impose an additional requirement of express consent when the regulation clearly provides that authorisation under a costs agreement is sufficient. Regulation 45(3)(a)(ii) provides that express consent is an alternative to a complying costs agreement and not an additional requirement. In Gillespie-Jones Bell, Gageler and Keane JJ recognised that to be the case under the identically worded Victorian provision.[12]
[12] Ibid at [104].
While the requirements of reg 45(3) were not satisfied in this case because of the particular wording of the letter sent to Ms Prater on 3 November 2016, I have found that GHL was entitled to withdraw the sum of $30,000 under reg 45(4). The latter provision operates as an alternative to reliance upon an authorisation provided by a costs agreement in accordance with reg 45(3)(a)(i).
Conclusion
I will make a declaration that Grope Hamilton Lawyers is entitled by reg 45(4) of the Regulations to transfer from its trust account to its firm account the sum of $30,000 received in settlement of proceedings with Maras Construct Pty Ltd in part payment of the fees payable by Prater Kitchens Pty Ltd and Rachel Lee Prater.