Kyriackou and Ors v Martin and Anor
[2014] VSC 122
•26 March 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2014 00961
| MICHAEL KYRIACKOU (and others according to the attached schedule) | Plaintiffs |
| v | |
| NICHOLAS JOHN MARTIN (in his capacity as liquidator of Pinto Law Pty Ltd (ACN 137 381 269) (in liquidation)) and JENNY GIAVRIS (in her capacity as the External Manager of Pinto Law Pty Ltd (ACN 137 381 269) (in liquidation)) | First Defendant Second Defendant |
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JUDGE: | EMERTON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 March 2014 | |
DATE OF JUDGMENT: | 26 March 2014 | |
CASE MAY BE CITED AS: | Kyriackou & Ors v Martin & Anor | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 122 | |
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SOLICITOR’S LIEN – Solicitor’s possessory lien over litigation files – Retainer terminated by solicitor – Application for delivery-up of files – Delivery of files subject to payment of invoice for legal fees - Bodycorp Repairers Pty Ltd v Edwards [2007] VSC 124 - Cosgriff v Issac Brott & Co [2008] VSC 515 - Gamlen Chemical (UK) Ltd v Rochem Ltd[1980] 1 All ER 1049.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Schlicht | John Yianoulatos Barrister and Solicitor |
| For the Defendants | Mr M Wise | K & L Gates |
HER HONOUR:
Introduction
The plaintiff, Mr Kyriackou,[1] seeks orders requiring the first defendant to release to him legal files relating to two proceedings brought by him in this Court; (a) a common law proceeding for professional negligence against his former solicitor (the ‘Supreme Court proceeding’); and (b) an appeal to the Court of Appeal from the decision of a judicial member of the Victorian Civil and Administrative Tribunal disqualifying Mr Kyriackou pursuant to the provisions of the Legal Profession Act 2004 (Vic) from practising as a ‘lay associate’ in a law firm by reason of statutory and common law misconduct (the ‘Appeal’).
[1]The second and third plaintiffs are companies controlled by Mr Kyriackou. I shall refer to the plaintiffs simply as Mr Kyriackou.
The Supreme Court proceeding is fixed for trial on 12 May 2014 on an estimate of eight days; the Appeal is listed for hearing on 23 June 2014. Procedural orders have been made in each proceeding readying it for trial/hearing.
The first defendant is the liquidator of an incorporated legal practice, Pinto Law Pty Ltd, of which Mr Nelson Pinto was the former principal and director. Pinto Law was placed in liquidation by the Federal Court of Australia on 14 February 2014 on the petition of the Deputy Commissioner of Taxation.
The second defendant is an employee of the Law Institute of Victoria and was appointed the manager of Pinto Law’s practice on 25 February 2014 pursuant to Part 5 of the Legal Profession Act.
Pinto Law was incorporated on 28 May 2009. Mr Kyriackou was a client of the legal practice taken over by Pinto Law upon its incorporation. As at the date Pinto Law was placed in liquidation, it represented Mr Kyriackou in at least eight matters. In his affidavit made on 14 March 2014, Mr Pinto estimates that almost $700,000 worth of fees in respect of these matters remained either unbilled (for the most part) or unpaid.
On 17 February 2014, three days after the appointment of the liquidator, Mr Kyriackou retained a new solicitor, Mr Yianoulatos. On 25 February 2014, Mr Yianoulatos wrote to the liquidator requesting delivery of the firm’s files in the Supreme Court proceeding and the Appeal. He also requested that these files not be provided to any other person. On the same day, the solicitors for the liquidator wrote to Mr Yianoulatos enclosing a bill in the Supreme Court proceeding in the amount of $126,579.12 and referring to an earlier invoice dated 27 January 2012 for $112,316 in respect of which payment remained outstanding. The liquidator also claimed $125,000 for additional amounts to be invoiced and asserted a general lien over all of Mr Kyriackou’s files.
The liquidator’s principal position is that the files to which Mr Kyriackou seeks access are subject to a solicitor’s lien to secure the payment of fees. As a result, no order should be made requiring the liquidator to deliver to Mr Yianoulatos litigation files relating to existing court proceedings. In the alternative, the liquidator submits that if orders are made requiring him to deliver the files to Mr Yianoulatos, delivery should be subject to Mr Kyriackou making payments in satisfaction of the invoices that had been rendered by Pinto Law and providing security for approximately $450,000, representing the liquidator’s claim for outstanding legal costs payable to Pinto Law.
Legal principles
In Bodycorp Repairers Pty Ltd v Edwards,[2] Hargrave J summarised the principles governing a dispute over the existence and effect of a lien where a solicitor’s retainer related to current litigation. His Honour said:
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.[3]
[2][2007] VSC 124.
[3]Ibid [5].
To similar effect, in Cosgriff v Issac Brott & Co,[4] Byrne J said as follows:
Where a solicitor is discharged by the client otherwise than for some breach of conduct or misconduct, the solicitor is entitled to maintain their lien. Where the retainer is determined by the client for misconduct or breach of contract by the solicitor, the lien comes to an end. Where the solicitor discharges the client for good cause, then the lien becomes a qualified one. In this type of case, the normal practice, in England at least, is that the court will then order the solicitor, without prejudice to the lien, to yield up the papers requested for the litigation to the replacement solicitor upon an undertaking by that solicitor to allow the former solicitor access to them, and to return them on the conclusion of the litigation. The position is otherwise where the discharge by the solicitor is not for good cause, in such a case the lien comes to an end.[5]
[4][2008] VSC 515.
[5]Ibid [7].
Justice Byrne further observed that whether it is the client or the solicitor which terminates the relationship is to be resolved ‘in a practical way’[6].
[6]Ibid [8].
In Gamlen Chemical (UK) Ltd v Rochem Ltd,[7] Templeman LJ qualified the simple proposition that where the solicitor has discharged the retainer, the court will normally make a mandatory order obliging the solicitor to hand over the client’s papers against an undertaking by the new solicitor to preserve the lien. An automatic order is inconsistent with the inherent discretion of the court to grant or withhold a remedy which is equitable in character. Whether the discretion should be exercised in favour of the client depends ‘on the nature of the case, the stage which the litigation has reached, the conduct of the solicitor and the client respectively and the balance of hardship which might result from the order the court is asked to make’.[8] In exceptional circumstances, the court may impose terms where justice so requires.
[7][1980] 1 All ER 1049, 1058 (‘Gamlen Chemical’).
[8]Ibid. Likewise, in Rafferty v Time 2000 West (No 3) (2009) 257 ALR 503, Besanko J, having reviewed the authorities, concluded that where the solicitor terminates the retainer, an order for production will be made, but that the rule can be modified in exceptional circumstances. The modification will generally involve the imposition of terms such as payment or part payment, or payment into court or the provision of security.
Who terminated the retainer?
The threshold question is who terminated the retainer and why. If Mr Kyriackou terminated the retainer otherwise than for misconduct by Pinto Law, the Court has no power to interfere with the lien. On the other hand, if Pinto Law terminated the retainer without good cause, the lien has come to an end and the files will have to be delivered up to Mr Kyriackou.
However, if Pinto Law terminated the retainer with good cause, then the lien persists but an order may be made by the Court requiring the delivery of files to Mr Kyriackou in accordance with the principles set out above.
Mr Kyriackou submits that he did not terminate the retainer but was forced to find a new solicitor because Pinto Law had been placed in liquidation and it could no longer provide him with the legal services that he required. He therefore relies on the fact of the liquidation and the impossibility of the firm continuing to provide services pursuant to the retainer. However, he also relies on what Mr Pinto said to him about the termination of the retainer. Mr Kyriackou deposes[9] that he and Mr Pinto had the following exchange on 14 February 2014 by text message:
Mr Pinto: Pinto Law is no more.
Mr Kyriackou: So what does that mean?
Mr Pinto: It is wound up right now. I am not entitled to practice anymore.
[9]In his affidavit made on 17 March 2014.
Mr Kyriackou further deposes to a conversation with Mr Pinto in which Mr Pinto said to him:
You need to get new solicitors as I am no longer a solicitor and cannot act for you anymore.
Although Mr Kyriackou deposes that this was said on 14 February 2014 (that is, on the same day as both the text message and the appointment of the liquidator), his counsel told the Court that the conversation in fact occurred on 17 February 2014 (that is, on the day that Mr Kyriackou retained new solicitors).
On 18 March 2014, Mr Pinto made an affidavit in reply to Mr Kyriackou’s affidavit in which he said nothing about the text message, but deposed that the contents of the paragraph in Mr Kyriackou’s affidavit about the conversation were ‘not correct’. He deposed only that he did not personally speak with Mr Kyriackou on 14 February 2014.
I find that Mr Pinto told Mr Kyriackou both by text message and in a subsequent conversation that Pinto Law could no longer act for him. In the conversation, he advised Mr Kyriackou that he would have to retain new solicitors. This was also the clear inference to be drawn from the text message.
This is plainly what Mr Kyriackou did.
The liquidator submits that the issue of who terminated the retainer is to be determined objectively and not according to what Mr Pinto may have believed to be the case and told Mr Kyriackou. He submits that an order for the winding up of an incorporated legal practice does not effect the termination of contracts by clients retaining that practice. This is implicit in s 5.5.4 of the Legal Profession Act 2004, which empowers an appointed manager of a legal practice that is being wound up to continue legal proceedings with the approval of existing clients.
The liquidator submits that Mr Kyriackou terminated the retainer of Pinto Law when Mr Yianoulatos advised the liquidator that he had been retained to take over all the matters then handled by Pinto Law. The liquidator says that until contacted by Mr Yianoulatos, he had made no determination as to what was to be done with the files of Pinto Law. Mr Pinto continued to hold a practising certificate. With Mr Kyriackou’s approval, the manager could have employed Mr Pinto to continue to carry on the litigation files. However, the parties were deprived of the opportunity of continuing the relationship by reason of Mr Kyriackou’s termination of the retainer.
In argument before me, the liquidator also submitted that as the liquidation of Pinto Law was caused by Mr Kyriackou failing to make payments to the firm when requested by Mr Pinto, Mr Kyriackou effectively brought about the termination of the retainer by forcing the firm into liquidation.
In order to understand this submission, it is necessary to have regard to some matters deposed to by Mr Pinto in his affidavit of 14 March 2014.
Mr Pinto deposes that Pinto Law was a one solicitor firm which had two major clients who were indebted to it for substantial amounts. Pinto Law had done work for Mr Kyriackou and his associated interests amounting in value to $698,272.64[10] which was either billed and unpaid or not yet billed at the time of liquidation. It had also done work for another client which was billed and listed for taxation in the Costs Court on 11 April 2014. The amount outstanding on the bill in taxable form in respect of the other client was approximately $560,000. At the time of liquidation, the creditors of Pinto Law were the Australian Tax Office (the ‘ATO’) in the amount of approximately $210,000 and sundry creditors in the amount of approximately $30,000.
[10]Inclusive of GST.
Mr Pinto deposes that during the course of the winding up proceeding, he had numerous conversations with Mr Kyriackou seeking to obtain payment from him. In November and December 2013, he had a number of discussions in which he told Mr Kyriackou that Mr Kyriackou had to pay Pinto Law enough money to enable it to negotiate with the ATO to allow sufficient time to conclude the taxation of costs in the other client’s matter. Substantial funds were already lodged in court in the other client’s matter, so that, as soon as an order was made on the taxation, Pinto Law would be in a position to pay the ATO.
Mr Pinto deposes that prior to a hearing in the winding up proceeding on 6 December 2013, he rang Mr Kyriackou and told him he was sick of fighting the winding up and that he was prepared to consent to an order winding up Pinto Law. This meant that the liquidator would have to deal with Mr Kyriackou and his files. Mr Kyriackou told Mr Pinto that he would pay $40,000 to $60,000 in January 2014 and a further $30,000 in February 2014. On that basis, Pinto Law opposed the winding up and obtained an adjournment until 14 February 2014. However, notwithstanding his assurances, Mr Kyriackou did not pay any money to Pinto Law in January or February 2014.
Mr Pinto deposes that in January 2014, he contacted Mr Kyriackou and asked whether the money had come through as he required $50,000 to be paid immediately. On 21 January 2014, Mr Pinto received a text message from Mr Kyriackou saying that he could get $10,000 by the next Friday and $20,000 by the following Wednesday. Again, neither payment was forthcoming.
Mr Pinto deposes that as late as 12 or 13 February 2014, Mr Kyriackou encouraged him to attempt to hold off the winding up, saying that he would get Mr Pinto some money. Mr Pinto stressed that without funds he could not see a way to negotiating with the ATO. Although Pinto Law sought a further adjournment of the winding up application to allow for the taxation of the other client’s matter, an adjournment was not granted and the winding up order was made.
Mr Kyriackou does not dispute that these conversations took place or that he gave the assurances about making payments to Pinto Law.
Indeed, it would be consistent with the evidence given by Mr Kyriackou as to the nature of his arrangement with Pinto Law with respect to legal costs. Mr Kyriackou deposed that the ‘engagement of Pinto Law by the Plaintiffs in the Supreme Court proceedings and the Appeal was on the basis that payment of the professional costs of Pinto Law was deferred to the conclusion of proceedings, however part payments would be made as requested by Pinto Law, for contribution to Pinto Law office expenses from time to time.’[11]
[11]Affidavit of Michael Kyriackou sworn on 4 March 2014, [10].
In this context, the liquidator alleges that even if Mr Kyriackou’s evidence is accepted as to his obligation to pay legal fees, the agreement asserted by Mr Kyriackou required him to make payments as requested by Mr Pinto for contribution to Pinto Law office expenses from time to time. This agreement was breached by Mr Kyriackou when he failed to make the payments that he had promised to make in January and February 2014. Moreover, Mr Kyriackou’s breaches took place in the knowledge that if payments were not made, it was likely that Pinto Law would be wound up in insolvency.
I do not accept that Pinto Law was in a position to meet its obligations to Mr Kyriackou under the retainer once the liquidator was appointed. Although theoretically possible, the evidence was that the practice manager was not appointed until 10 days later and that she has not assumed any day to day responsibilities in the firm. The firm is effectively being ‘run’ by a team of accountants. In the circumstances, putting aside for one moment any responsibility Mr Kyriackou may have for the demise of Pinto Law, he can hardly be blamed for seeking out new legal advisers, particularly given the need to comply with pressing orders in the Supreme Court proceeding and in the Appeal.
In my view, Mr Pinto’s advice to Mr Kyriackou to find a new solicitor reflected the reality on the ground at Pinto Law.
Moreover, while I do accept that Mr Kyriackou played a significant role in making it impossible for Pinto Law to hold off the ATO’s petition in the winding up proceeding and that he thereby contributed to the appointment of the liquidator, I do not agree that this conduct alone can be characterised as terminating the retainer.
In my view, the retainer was terminated by reason of the appointment of a liquidator to Pinto Law and therefore by the solicitor rather than by the client.
Discretionary considerations
Notwithstanding that the termination of the retainer was effected by Pinto Law, I find that the termination was for reasonable cause, in the sense that it was due, at least in part, to the failure of the client, Mr Kyriackou, to keep the solicitor in funds to operate the practice. Mr Kyriackou was asked, agreed to but failed to make payments to Mr Pinto in December 2013 and in January and February 2014, which may have allowed Pinto Law to enter into a holding arrangement with the ATO until taxation of the other client’s matter and the release of the funds paid into court.
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. Mr Yianoulatos has written to the liquidator’s solicitor offering the relevant undertaking.
I am satisfied that Mr Kyriackou’s litigation would suffer ‘catastrophe’ if he were denied access to the files that he seeks by reason of the lien. The trial/hearing dates are rapidly approaching and no doubt much remains to be done by way of preparation, particularly in the Supreme Court proceeding.
The question remains, however, as to whether the files should be made available to Mr Kyriackou on terms (in addition to the undertaking offered by Mr Yianoulatos).
The liquidator has expressed concern as to whether, absent the lien, Mr Kyriackou will make any payment of legal costs. He refers to the fact that the Victorian Civil and Administrative Tribunal found Mr Kyriackou to have conducted himself dishonestly and to Mr Kyriackou’s failure to fulfil the promises to make payments to Mr Pinto in December 2013 until February 2014.
Mr Kyriackou has had the benefit of a large amount of legal work from Pinto Law in respect of which he has paid little in the way of legal costs. He contends that this was the agreement that he struck with Mr Pinto. According to Mr Kyriackou, he was not required to pay legal costs until the proceedings had been concluded. Mr Pinto denies that there was any such arrangement and has put in evidence cost agreements for both the Supreme Court proceeding and the Appeal which, although unexecuted, were provided to Mr Kyriackou. The costs agreements provide for interim bills to be rendered from time to time and for a final bill to be rendered at the conclusion of the matter. Although it appears that Mr Pinto made very few demands of Mr Kyriackou by way of interim bills, I do not accept that Mr Kyriackou could, as of right, hold off paying for the extensive legal work that had been provided until the conclusion of the proceedings. He was obliged to pay legal costs incurred as and when he was invoiced.
In any event, there is in existence an invoice dated 27 January 2012 for professional costs of $112,316.66 (the ‘2012 invoice’) which remains outstanding. The 2012 invoice is for costs in Federal Court proceedings commenced by ASIC in October 2008 and now concluded. Mr Kyriackou has had the file costed and does not dispute the 2012 invoice. Indeed, the 2012 invoice is (or was) proposed to be relied on by him in other proceedings as evidence of damage suffered by him.
Although the 2012 invoice covers a period before the incorporation of Pinto Law, Mr Pinto deposes that the file was current when he acquired the practice that was previously acting for Mr Kyriackou (the ‘previous practice’) and that Pinto Law took over the conduct of Mr Kyriackou’s files at this time. I accept that Pinto Law was able to recover costs for the work provided to Mr Kyriackou prior to Pinto Law taking over the previous practice. Again, I note that Mr Kyriackou does not dispute the 2012 invoice.
It was submitted in argument that the 2012 invoice, having been prepared for the purposes of litigation and being unrelated to the matters in respect of which Mr Kyriackou seeks files, should not be taken into account for the purposes of the exercise of the Court’s discretion in this application. I reject this submission. The lien asserted by the liquidator on behalf of the firm is a general one. The 2012 invoice is for legal services provided to Mr Kyriackou for which payment has not yet been made. The fact that the invoice has been issued and that payment remains outstanding is a relevant matter.
In my view, the delivery of the files to Mr Kyriackou should be subject to Mr Kyriackou paying to the liquidator the sum of $112,316.66 in satisfaction of the 2012 invoice.
Since the appointment of the liquidator, Mr Kyriackou has received a further invoice from Pinto Law in the amount of $126,579.12. Mr Kyriackou has raised objections to a number of items in the invoice, but their worth is relatively small. I consider that a proportion of the amount of that invoice should also be paid prior to the delivery of the files. Doing the best that I can in fairness to the parties, I consider that Mr Kyriackou should be ordered to pay close to 80% of that invoice, namely $100,000, as a condition of being given access to the files.
The liquidator seeks a payment into Court of approximately $450,000, being his claim for outstanding legal costs payable to Pinto Law. Although no evidence has been adduced to satisfy the Court that Mr Kyriackou could not provide adequate money security in substitution for the lien, I am reluctant to impose too great a burden on him. It is the case that, rightly or wrongly, he did not anticipate having to pay at this stage all of the legal costs that have accrued. It is also the case that none of these costs have been billed, so he has had no earlier opportunity to attempt to raise the funds to pay them and he requires the files as a matter of some urgency.
I do not propose to require Mr Kyriackou to provide security for the outstanding legal costs.
I will hear from the parties as to the form of the orders that should be made to reflect these reasons.
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