Loumbos v Gray

[2019] NSWSC 569

Supreme Court

New South Wales

Medium Neutral Citation:	Loumbos v Gray [2019] NSWSC 569
Hearing dates:	15 May 2019
Date of orders:	20 May 2019
Decision date:	20 May 2019
Jurisdiction:	Common Law
Before:	Harrison J
Decision:	Respondents to furnish the plaintiff’s file to plaintiff forthwith upon plaintiff complying with the condition that he pays either into Court or a mutually satisfactory trust fund the sum of $30,000 as security for respondents’ costs
Catchwords:	COSTS – where respondents validly assert a lien over file of plaintiff as security for unpaid costs – where there is no evidence that the plaintiff could not pay the amount claimed by the respondents – whether current litigation would be stultified if plaintiff required to provide security to the respondents beyond an offer to pay the claimed costs at a later time – whether the security that the plaintiff should furnish as a condition of the provision of the file by the respondents is reasonable – whether respondents’ alleged failure to comply with Legal Profession Uniform Law s 174(1) affects their right to claim a lien – plaintiff to pay by way of security for the release of the file a proportion of the costs claimed by respondent
Legislation Cited:	Legal Profession Uniform Law (NSW), ss 174, 178, 472 Legal Profession Uniform Law Australian Solicitors’ Conduct Rules (NSW) 2015, r 15
Category:	Procedural and other rulings
Parties:	Valentine John Loumbos (Plaintiff) Fortis Law Group Pty Limited (Respondents)
Representation:	Counsel: D Moujalli (Plaintiff)   Solicitors: Australian Business Lawyers & Advisors (Plaintiff) Fortis Law Group Pty Limited (Respondents)
File Number(s):	2017/208822
Publication restriction:	Nil

Judgment

1. HARRISON J: By notice of motion filed on 6 May 2019, the plaintiff seeks an order that his former solicitors Fortis Law Group Pty Ltd [“the respondents”] deliver to his current solicitors Australian Business Lawyers and Advisors Pty Ltd [“ABLA”] the whole of the client file in respect of these proceedings. That application arises in the following circumstances.

Background

2. By further amended statement of claim filed on 10 December 2018, the plaintiff sues the defendants, a firm of solicitors, claiming damages for negligence and breach of retainer. He alleges that he instructed the defendants in about July 2011 to act for him in a commercial transaction for the purchase of a property in Justin Street, Lilyfield. The plaintiff was then in a relationship with Deborah Ward and the property was to be acquired for occupation by her. In the events that occurred, the property was purchased in her name using funds provided entirely by the plaintiff. The plaintiff’s contribution to the purchase of the property was neither documented nor secured in a way that either recognised or protected that contribution or any interest that he may have had in it. When the relationship with Ms Ward subsequently came to an end, she retained the property as the registered proprietor. The plaintiff alleges that the solicitors were instructed to structure the transaction in a way that protected his financial contribution to its acquisition, particularly having regard to the relationship between him and Ms Ward, or that they should have done, but that they failed to do so. In the events that occurred, the plaintiff alleges that he has suffered loss and damage, presumably calculable by analogy with the principles relating to constructive or resulting trusts.

3. That summary is not intended to be a comprehensive analysis of the plaintiff’s alleged causes of action against the defendants. It is sufficient for present purposes simply to note that the respondents acted up until quite recently for the plaintiff in those proceedings.

4. The respondents’ retainer was terminated by them following the service of a notice of intention of ceasing to act filed on 21 February 2019. They claim that they are entitled to enforce a lien over their file for unpaid costs amounting to approximately $36,000. The validity of their assertion of a lien is not disputed. However, the plaintiff and the respondents have so far been unable to come to any agreement about the conditions upon which that file might be provided to the plaintiff’s new solicitors and the respondents have refused to hand over their file until their outstanding costs are either paid or satisfactorily secured.

The evidence

5. The plaintiff relies upon two affidavits sworn by Hayden Fox on 3 May 2019 and 14 May 2019. Mr Fox was not cross-examined. The respondents read no evidence on the motion.

6. Mr Fox has indicated that he has instructions from the plaintiff that he (the plaintiff) will give an undertaking to the respondents “that after payment of ABLA’s fees, [Mr Fox’s firm] will retain in [its] trust account the sum of $36,000 from the proceeds of and settlement or judgment [sic] to cover payment of [the respondents’] fees in respect of these proceedings as agreed or assessed”.

7. The relevant starting point would appear to be ABLA’s letter dated 15 April 2019 to the respondents in the following relevant terms:

“We act for Valentine Loumbos.

We are instructed to assume conduct of the proceedings commenced by Mr Loumbos against his former solicitors, John Gray and the partners of the firm known as ClarkeKann Lawyers.

Please promptly deliver to our office all of Mr Loumbos’ files. We enclose an authority signed by Mr Loumbos authorising you to release the file to us.

We are instructed to enquire whether you assert a lien over any of Mr Loumbos’ files. If so, please provide details including the documents affected by the lien and the basis for the lien. If any asserted lien is based upon unpaid invoices, please furnish us with copies of all accounts which have been issued and are unpaid to enable us to seek Mr Loumbos’ agreement to pay your reasonable costs upon completion of the proceedings.”

8. By letter dated the following day, the respondents advised that the sum of $36,221 remained outstanding and that a lien was asserted by them with respect to that sum. Supporting invoices were attached.

9. The plaintiff’s solicitors replied by letter dated 2 May 2019 in the following relevant terms:

“The invoices do not set out a full itemisation of the fees claimed, in that individual entries do not identify the lawyer who undertook the work, the amount of time spent on the task and the hourly rate at which the fees are charged. We are instructed to request a fully itemised bill of costs in respect of the fees claimed in each invoice…

You have asserted a lien over Mr Loumbos’ files. We are instructed to request the urgent release of Mr Loumbos’ files relating to the [present] proceedings in exchange for our undertaking, hereby given, that after payment of this firm’s fees, we will retain the sum of $36,000 from the proceeds of settlement or judgment in our trust account to cover payment of your fees in respect of the [present] proceedings as agreed or assessed, before the sum is remitted to Mr Loumbos.”

10. The respondents replied the following day:

“On my reading, your client’s offer is that he will undertake to pay into your trust account the sum of $36,000 out of any monies that are received from the settlement of judgment in the proceedings. Put another way, your offer treats our fees as though they are to be paid on a speculative basis. This was not the basis on which we were engaged and we are unwilling to release our files on that basis.”

11. The evidence contains reference to, and examples of, other correspondence between the solicitors and between the plaintiff and the respondents. The relevance of that correspondence does not appear to me to rise any higher than the material to which I have just referred.

Consideration

12. Section 472(1) of the Legal Profession Uniform Law (NSW) provides as follows:

“472 Supreme Court may order delivery up of documents etc

(1) On the application of a client of a law practice, the Supreme Court may order the law practice-

(a) to give to the client a bill of costs in respect of any legal services provided by the law practice; and

(b) to give to the client, on any conditions that the Supreme Court may determine, any of the client's documents that are held by the law practice in relation to those services.”

13. Rule 15 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 is also relevant. It provides as follows:

“15 Lien Over Essential Documents

15.1 Notwithstanding Rule 14, when a solicitor claims to exercise a lien for unpaid legal costs over client documents which are essential to the client’s defence or prosecution of current proceedings:

15.1.1 if another solicitor is acting for the client, the first solicitor must surrender the documents to the second solicitor:

(i) if the second solicitor undertakes to hold the documents subject to the lien and with reasonable security for the unpaid costs, or

(ii) if the first solicitor agrees to the second solicitor agreeing to pay, or entering into an agreement with the client to procure payment of, the first solicitor’s costs upon completion of the relevant proceedings, or

15.1.2 alternatively, the solicitor, upon receiving reasonable security for the unpaid costs, must deliver the documents to the client.”

14. There is no dispute that the documents in the plaintiff’s file, currently in the respondents’ possession, are essential to his prosecution of the current proceedings.

15. The power given to the Court by s 472 calls for the exercise of a discretion. That discretion can only be exercised by reference to the evidence. The exercise of that discretion is also informed by the Solicitors’ Rules.

16. In the present case, the significant, if indeed not the only, issue is the reasonableness of any security that the plaintiff should be required to furnish as a condition of the provision of the file by the respondents. I agree with the respondents that the only offer made by the plaintiff would, if accepted, be tantamount to reducing them to the status of solicitors acting for the plaintiff on a speculative or conditional basis. The costs agreement furnished to the plaintiff was never one that made the payment of the respondents’ legal fees conditional upon a successful outcome. Moreover, the offer appears inexplicably and, from the respondents’ point of view, unacceptably to rank them behind the plaintiff’s current solicitors in access to the fruits of the litigation, if any, as a fund for the payment of the claimed legal fees.

17. There are two conspicuous aspects of the evidence that call for comment in the present application. First, there is no suggestion that the plaintiff’s current financial position is such that he could not pay the amount of the claimed costs to the respondents forthwith or, subject to the ultimate resolution of any dispute about the amount that may be owing, directly into court or a suitable trust account. This application has proceeded before me upon what is the untested and unproved assumption that the plaintiff’s financial situation is such that he cannot afford to secure the payment of the claimed costs by provision of the funds in specie.

18. As the transcript will reveal, I invited counsel for the plaintiff to tell me, or to seek instructions, about whether or not the plaintiff was able from his available funds to pay the amount of the claimed costs to the respondents or to deposit them into some suitable trust account pending assessment. Without intending to suggest or imply criticism of counsel for the plaintiff, I was not provided with an explanation that assisted me in any way at all. I therefore invited counsel to tell me why in the absence of evidence about this aspect of the matter I would not be entitled to infer that the plaintiff was in fact in a financial position to do so. It was conceded by counsel, quite properly in my opinion, that such an inference would be available in the circumstances.

19. The second and related matter is the question of whether or not the current litigation would be stultified if the plaintiff were required to provide security beyond an offer to pay the claimed costs at some later time. There is no evidence that the plaintiff would be unable to proceed with his claim if he were ordered further to secure the respondents’ lien by the payment of the claimed costs or some part thereof to the respondents or into some suitable fund. The litigation is not at some particularly critical stage and the costs that have been incurred by the plaintiff thus far are relatively moderate in the scheme of commercial litigation in this Court.

20. Counsel for the plaintiff also made submissions suggesting that the circumstances that led the respondents to terminate their retainer with him somehow produced an unfairness, or possibly even some prejudice, that ought properly to inform the exercise of my discretion. Unfortunately, that submission was unsupported by any evidence of unfairness or prejudice, beyond the understandable fact that the plaintiff has been required to retain alternative solicitors to act for him in this litigation, and that that has caused some disruption. However, the breakdown of their professional relationship was to some extent influenced by a number of factors, including with respect to the payment of costs in this and other matters in which the respondents held the plaintiff’s instructions so that the consequences cannot therefore be laid exclusively at the respondents’ feet.

21. It must also be said that it is somewhat artificial to be arguing about the conditions that might attach to the production of documents by a solicitor who claims a lien over them if there is either no dispute that the claimed fees are owing, in whole or in part, or about the client’s ability to pay them. The wisdom of the authorities that inform this area of discourse includes that a client’s ability to conduct or defend proceedings should not be frustrated or defeated by an inability to obtain essential documents from solicitors who have ceased to act for the client in the ongoing litigation. It does not, however, assume the character of a mechanism by which a client can, or might be able to, avoid paying fees to a former solicitor simply because they no longer represent that client in the subject proceedings. That is particularly relevant in this case when one considers that the plaintiff did not have a conditional costs arrangement with the respondents and in fact made payment of accounts rendered to him from time to time. The fact that he fell into a dispute with the respondents about their fees in the latter stages of their relationship is entirely beside the point. As I have indicated, the assessment process continues to apply to the fees claimed by the respondent, and the lien secures only the amount of the costs for which the client may ultimately be found liable.

22. I note as well in this last respect that the plaintiff contends that the respondents did not comply with s 174(1) of the Legal Profession Uniform Law (NSW) by providing him as soon as practicable after instructions were given with information disclosing the basis on which legal costs would be calculated or an estimate of the total costs. However, failure to comply with that provision does not disentitle the respondents to their costs: see s 178(1) of the Act. Moreover, nothing in these provisions in particular or the Act in general has any effect upon the respondents’ right to claim a lien over the client’s file for the unpaid costs, whatever the quantum of those costs might, after assessment or agreement, turn out to be.

Conclusion

23. It is not in dispute that the plaintiff owes legal costs to the respondents for work done by them for him in these proceedings. There is a dispute as to the quantum of those costs. There is no dispute that the respondents are entitled to assert or claim a lien over the plaintiff’s file in their possession as security for the payment of the costs that are in due course found or agreed to be owing. The plaintiff does not say that he is unable to pay all of the claimed costs as a condition of the provision of his file or that the conduct of this litigation will be frustrated or stultified if he is required to do so. Instead, having regard to the terms upon which the plaintiff has offered to secure the payment of the respondents’ costs, he is in effect asking them to be his banker. I do not consider that he should be permitted to do so.

Orders

24. In my opinion, the respondents should be required to furnish the plaintiff’s file to him forthwith upon him complying with a condition that he pays either into Court or, perhaps preferably, into some mutually satisfactory trust fund, the sum of $30,000 as security for their costs. That sum seems to me, having regard to the evidence, to be a reasonable security for the respondents’ unpaid costs. In the absence of any evidence suggesting that the plaintiff is unable to pay that sum, I have inferred that he is able to do so. Clearly enough, nothing contained in the orders I have proposed prevents the plaintiff and the respondents otherwise from securing payment of the respondents’ costs, or from entering into some agreement to procure payment of the respondents’ costs, upon completion of these proceedings.

25. I will accordingly direct the parties to bring in short minutes of order giving effect to my reasons with 7 days.

Costs

26. The plaintiff sought the costs of his motion. I did not hear submissions on that matter, presumably upon the basis that the plaintiff and the respondents both accepted that costs should follow the event. That is particularly so in an application such as this where the respondents are not parties to the principal proceedings and cannot be expected to be made subject to a costs order that is tied to the end result.

27. It seems to me that the respondents were successful inasmuch as I have in effect ordered the plaintiff to pay by way of security for the release of the file what amounts to the significant bulk of the costs claimed by them. It would in those circumstances follow that the plaintiff should pay the respondents costs of the motion. However, if the plaintiff wished to contend for some different order he should have the opportunity to do so.

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Decision last updated: 20 May 2019