Michell Sillar McPhee (A Firm) v First Industries Corp

[2006] WASCA 24

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   MICHELL SILLAR McPHEE (A FIRM) -v- FIRST INDUSTRIES CORP [2006] WASCA 24

CORAM:   STEYTLER P

WHEELER JA
PULLIN JA

HEARD:   8 NOVEMBER 2005

DELIVERED          :   17 FEBRUARY 2006

FILE NO/S:   FUL 71 of 2004

BETWEEN:   MICHELL SILLAR McPHEE (A FIRM)

Appellant

AND

FIRST INDUSTRIES CORP
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :FIRST INDUSTRY CORP -v- GOH & ANOR [2004] WASC 89

File No  :CIV 1301 of 2002

Catchwords:

Legal practitioners - Rights and privileges - Statutory charge for costs incurred in proceedings resulting in recovery or preservation of property

Legislation:

Legal Practitioners Act 1893 (WA), s 73

Result:

Appeal allowed

Category:    A

Representation:

Counsel:

Appellant:     Mr A O Karstaedt

Respondent:     Dr J T Schoombee

Solicitors:

Appellant:     Michell Sillar McPhee

Respondent:     Summers Legal

Case(s) referred to in judgment(s):

Akki Pty Ltd v Martin Hall Pty Ltd & Anor (No 2) (1994) 35 NSWLR 470

Bailey v Birchall (1865) 2 Hem & M 371

Berrie v Howitt (1869) LR 9 Eq 1

Bulley v Bulley (1878) 8 Ch D 479

Charlton v Charlton (1883) 52 LJ Ch 971

Color Point Pty Ltd v Markby's Communication Group Pty Ltd [1998] FCA 1516

Dallow v Garrold; Ex parte Adams (1884) 13 QBD 543

Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96

First Industry Corp v Goh & Anor [2002] WASC 143

First Industry Corp v Goh & Anor [2003] WASC 216

Firth v Centrelink (2002) 55 NSWLR 451

Foxon v Gascoigne (1874) 9 Ch App 654

Greer v Young (1882) 24 Ch D 545

Groom v Cheesewright [1895] 1 Ch 730

Guy v Churchhill (1897) 35 Ch D 489

Halvanon Insurance Co Ltd v Central Reinsurance Corp [1988] 1 WLR 1122

Henderson v Johnson & Henderson [1969] WAR 3

In Re Keane (1871) LR 12 Eq 115

Mercer v Graves (1872) LR 7 QB 499

National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481

North West Construction Co Pty Ltd (in liq) v Marian [1965] WAR 205

Philippa Power & Associates v Primrose, Couper, Cronin Rudkin [1997] 2 Qd R 266

Pilmer v HIH Casualty & General Insurance Ltd & Ors (No 2) (2004) 212 ALR 636

Pinkerton v Easton (1870) LR 16 Eq 490; 42 Law J Rep Chanc 878

Re Carl Zeiss Pty Ltd's Application (1969) 122 CLR 1

Re De Groot [2001] 2 Qd R 359

Roam Australia Pty Ltd v Telstra Corporation Limited t/as Telecom Australia [1997] FCA 980

Scholey v Peck [1893] 1 Ch D 709

Sewell v Hampel (1910) 13 WALR 44

Shaw v Neale (1858) 6 HL Cas 581; 10 ER 1422

The Dirigo [1920] P 425

Till v Till [1974] 1 QB 558

Townsville Harbour Board v Scottish Shire Line Ltd (1914) 18 CLR 306

WA Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] QB 1038

Winbourne v Fine [1952] 1 Ch 869

Worrel v Power & Power (1993) 46 FCR 214

Case(s) also cited:

Nil

1. STEYTLER P: I have read the judgment of Pullin JA. I agree with it. However, I wish to add a number of comments concerning the construction of s 73 of the Legal Practitioners Act 1893 (WA) (since repealed and replaced by s 244 of the Legal Practice Act 2003 (WA)).

2. The section replaced s 43 of that Act, which was in identical terms.  That section, in turn, had its origins in s 28 of the Solicitors Act 1860 (23 and 24 Vict. c 127) which read as follows:

   "In every Case in which an Attorney or solicitor shall be employed to prosecute or defend any Suit, Matter, or Proceeding in any Court of Justice it shall be lawful for the Court or Judge before whom any such Suit, Matter, or Proceeding has been heard, or shall be depending, to declare such Attorney or Solicitor entitled to a Charge upon the Property recovered or preserved, and upon such Declaration being made such Attorney or Solicitor shall have a Charge upon and against and a Right to Payment out of the Property, of whatever Nature, Tenure, or Kind the same may be, which shall have been recovered or preserved through the Instrumentality of any such Attorney or Solicitor, for the taxed Costs, Charges, and Expenses of or in reference to such Suit, Matter, or Proceeding; and it shall be lawful for such Court or Judge to make such Order or Orders for Taxation of and for raising and Payment of such Costs, Charges, and Expenses out of the said Property as to such Court or Judge shall appear just and proper; and all Conveyances and Acts done to defeat, or which shall operate to defeat, such Charge or Right, shall, unless made to a bonâ fide purchaser for Value without Notice, be absolutely void and of no Effect as against such Charge or Right."

3. At the time of the enactment of s 28 there existed, under English common law, a so‑called "particular" lien which, like the solicitors' general lien, was designed to safeguard solicitors' costs but, unlike that lien, arose over any personal property recovered or preserved, or any judgment obtained, for the client by the solicitor's exertions in litigation:  see, generally, G E Dal Pont Law of Costs (2003) at [27.1] and following. The rationale for the lien has been said to be that "when a solicitor has expended his brains and time and resources in working for a client, he should be paid out of the produce of his industry and skill" (Groom v Cheesewright [1895] 1 Ch 730 at 732, per Kekewich J), or that "it is not just that the client should get the benefit of the solicitor's labour without paying for it": Guy v Churchhill (1897) 35 Ch D 489 at 491, per Cotton LJ. The lien was described by Cockburn CJ in Mercer v Graves (1872) LR 7 QB 499 at 503 as being a right of the solicitor to "ask for the intervention of the Court for his protection, when, having obtained judgment for his client, he finds there is a probability of the client depriving him of his costs".

4. The decision to enact s 28 was taken, in England, after the House of Lords decided (Shaw v Neale (1858) 6 HL Cas 581; 10 ER 1422) that the common law lien did not attach to real property: Guy v Churchill at 490.  The charging order provided for by that section could operate over any property and, while it was discretionary, the discretion was one which was ordinarily exercised in favour of the solicitor "unless he has been guilty of some mala fides, or has stood by while the fund was being dealt with so as unfairly to prejudice the position of others":  Dallow v Garrold; Ex parte Adams (1884) 13 QBD 543 at 546 per Pollock B.

5. The question whether a charge created under s 28 must be confined to the interest of the solicitor's client in the property recovered or preserved was considered on a number of occasions between the time of the enactment of that section and that of the enactment of the Western Australian Act.

6. In Bailey v Birchall (1865) 2 Hem & M 371, the petitioner, a solicitor, had represented only some of the persons who claimed an entitlement to a fund, but was given a charge in respect of his costs over the whole of the fund. The Vice Chancellor, Sir W Paige Wood, said, at 379:

   "In such cases as the present, the Act gives a lien, and it would be dangerous to say that where property is secured for all parties a solicitor should be deterred from taking steps beneficial to everyone, because his client on taking the accounts, may turn out to be a debtor to the estate in question in the particular suit.

   The Legislature gives the solicitor a lien on the fund secured irrespective of his client's interest."

7. In Berrie v Howitt (1869) LR 9 Eq 1 a rather different approach was taken by Lord Romilly MR, who held that what the statute provided was only a charge on the property of the person who employed the solicitor. The Master of the Rolls said that the charge could not be extended to the property of other persons who had not employed the solicitor.

8. In Pinkerton v Easton (1870) LR 16 Eq 490; 42 Law J Rep Chanc 878, the petitioner failed because the Lord Chancellor, Lord Selborne, formed the opinion that the property there in question had not in fact been recovered or preserved. However, Lord Selborne said, of s 28 (at 492 – 493):

   "This has, undoubtedly, received a liberal interpretation, and has been held to apply even to property not belonging to the client, by whom the solicitor has been employed.  It has also been applied to a case in which property was deemed to have been preserved by the appointment of a receiver, upon an interlocutory motion before decree.  The real question, in such cases, must be, whether proof has been given, to the satisfaction of the Court, of the actual recovery or preservation of property, by means of the suit …".

9. Then, in In Re Keane (1871) LR 12 Eq 115, the Vice Chancellor, Sir John Wickens, was prepared to give a solicitor who had recovered or preserved an annuity for his client in court proceedings a charge upon the annuity only, and not upon the trust fund from which it was paid.

10. In Bulley v Bulley (1878) 8 Ch D 479 Bacon VC distinguished In Re Keane as turning upon its own facts. In dealing with the construction of s 28, he said, at 484:

    "This case is one, no doubt, of nicety and great importance, because it is of great importance that the statute which has been so often referred to should be well understood and not carried beyond its true meaning, although the Courts have said occasionally that it must be liberally construed.  I do not know any more liberal or more just way of construing it than by considering what the words of the statute are, and bearing in mind what the policy of the law is.  The law of salvage is well enough known, depending upon plain principles, not the subject of any particular statute (except the Shipping Acts), nor depending upon any statutory enactment.  A ship at sea about to founder is saved by some other vessel.  Then there comes the question of the right of the salvors to be paid the money coming to them out of that ship and its contents.  There is no inquiry as to who is the owner of the ship.  Nobody ever heard of such a thing.  They may settle among themselves their averages or anything else.  The law is, if you have a sinking ship, you shall be paid what is just out of the value of that ship.  That I take to be the principle of the Solicitors Act referred to, for the words are distinct and clear, and carry into effect plainly that principle.  The 28th section of the Act is this: 'In every case in which an attorney or solicitor shall be employed to prosecute or defend any suit or proceeding in any Court of justice, it shall be lawful for the Court or judge … to declare such attorney or solicitor entitled to a charge upon the property recovered or preserved' – that is, the sinking ship – 'and upon such declaration being made, such attorney or solicitor shall have a charge,' and so on.  The words of the statute appear to me to be beyond doubt, and the only question I have to ask myself is, what is the property that has been preserved.  It is quite indifferent who was the owner of it; if the property has been preserved, the solicitor is entitled, according to the words of the statute, to a charge upon it for his costs."

11. When the decision of the Vice Chancellor came before the Court of Appeal, Jessel MR, in the course of argument, doubted the soundness of the decision in Berrie v Howitt. In the course of his judgment, at 490, he said that he was "by no means prepared to assent" to the construction of the Act contended for by the appellant, to the effect that the property to be preserved must be the property of the client of the solicitor. In the same case, Cotton LJ said, at 491, of s 28 that it:

    "does not say that a charge is to be given against the interests of the parties by whom the solicitor is employed, but that when the solicitor is employed to prosecute or defend any suit it shall be lawful to the Court to give him a charge for his costs, charges, and expenses, on any property recovered or preserved …, through the instrumentality of any such attorney or solicitor."

12. The question came again before the Court in Greer v Young (1882) 24 Ch D 545. Chitty J had no hesitation in rejecting a contention that the charge, in that case, ought to be confined to the interests of the plaintiffs who had been represented by the solicitor in the action. He said, at 548, that, apart from decision, he had no doubt whatever that, the action having resulted in the recovery of property, the solicitor employed in prosecuting it ought to have a charge on the property for his costs. His review of the cases, including Bulley, Bailey, InRe Keane (which he considered to have been a peculiar case) and Pinkerton fortified him in that conclusion. 

13. In the ensuing appeal to the Court of Appeal, Brett MR (at 552) agreed with what had been said by Bacon VC, in Bulley, to the effect that the charge was one in the nature of salvage.  While he did not adopt the idea of salvage as an accurate analogy in all respects, he said:

    "… I think the fundamental theory is, that what is recovered by the action of the solicitor is to be treated as if he had earned salvage, and that he is to be paid for his services on the theory that salvage services have been rendered."

    After referring to Pinkerton, in which he considered that Lord Selborne LC had used all of the expressions that described the theory of salvage, he went on to say, at 552 ‑ 553:

    "Therefore … it is immaterial whether the person whose property is recovered employed the solicitor.  The Act does not allow the solicitor to be a mere volunteer, but it is sufficient that he should be bona fide employed by some person interested.  He must be a solicitor – there is nothing in the Act which says that he must be the solicitor of the person whose property is preserved – and it must be by reason of the employment that the property is preserved for somebody; in that case the statute gives power to the Court to give him a charge.  It is difficult to imagine property being recovered by a solicitor, unless he is in some way employed in a suit.  Whether it is recovered in any particular suit is a question of fact, not such a question as would be submitted to a jury, but depending on a question of law which the judge must decide.  But where the Court comes to the conclusion that the property was recovered in the suit, it is no objection that the solicitor was not employed by the person whose property was recovered or that the person could not have employed the solicitor."

14. Cotton LJ, at 555, expressed a similar opinion.  He said:

    "First, it was said, that there was no power to charge any property except the property of the person who had employed the solicitor.  But that is contrary to the words of the section, which does not say 'upon the property of the person who employed him,' but 'upon the property recovered or preserved'.  Undoubtedly the quantum of the interest of the person who employed the solicitor is an important element of consideration. It is, generally speaking, the interest of the plaintiff or of the defendant which is recovered in the action, and to determine whether a fund has been recovered in the action, it is material to consider what is the interest of the plaintiff, or defendant.  But to say that the Court has only power to charge the interest of the plaintiff or the defendant would be to repeal the Act.  It was suggested that there is a danger of encouraging strangers to bring actions respecting the property of others, in which they have themselves no interest, with a view to obtaining a charge upon it for the costs.  But I have yet to learn that a stranger can bring an action for property in which he has no interest, and if he has merely a small interest, it will be for the Court to decide whether he has such an interest as will justify a charge being made."

    The third judge, Bowen LJ, expressed a like opinion.  One of the propositions which had been advanced by counsel who had appeared on behalf of the appellant (a Mr Whiteborne) had been to the effect that the solicitor must be actually employed by the person whose property is charged and that an infant's estate could not be charged because he could not employ a solicitor.  Bowen LJ said of this contention (at 556 – 557):

    "The difficulty in Mr Whitehorne's way is a broad one.  He reads words into the Act which are not there.  If the words are read in a natural sense they mean that a charge can be made on the property of an infant whether the infant had anything to do with the action or not, and whether he employed any solicitor in it or not.  The section is a very general one.  It applies to every case in which a solicitor is employed.  It authorizes a charge not on the mere interest of the plaintiff but on all property recovered in the action whatever, for the plaintiff only, or for him in connection with others.  It appears clear to me that it is a salvage section.  The solicitor is treated as a salvor who has recovered or preserved something in a time of danger by his work and labour.  Into whatever hands it may fall it is charged with the salvage.  Mr Whitehorne argued that because an infant is not bound by the engagement of the solicitor the charge cannot affect him.  But it is not necessary that the property charged should belong to the same person as employed the solicitor.  What reason is there why property recovered for the benefit of a remainderman should not be charged simply because he was not a party to the action?  It may be that he could not be made a party:  he may have had no knowledge of the suit, or he may have had no power to interfere with the prosecution of the plaintiff's rights.  Still if the property is recovered for him by means of the action there is nothing in the section which precludes the Court from making a salvage charge on it."

15. Then, in Charlton v Charlton (1883) 52 LJ Ch 971 North J expressed the opinion, at 973, that if the matter was free from authority he would say that a solicitor would be entitled to have a charge on the fund recovered, although he only acted on the instructions of one of several persons entitled to share in the fund when it was recovered. He went on to review the cases and concluded, from that review (at 975), that he had "no doubt that the conclusion … [he] must come to is that the charge need not be confined to the share of the person employing the solicitor".

16. Finally, so far as this review of the early cases is considered, in Scholey v Peck [1893] 1 Ch D 709 at 711, Romer J said that the authorities showed that what was recovered by the action of the solicitor was to be treated as if he had earned salvage, and that he was to be paid for his services on the theory that salvage services had been rendered. He went on to say:

    "The 28th section of the Act is very general in its terms.  It authorizes a charge not on the mere interest of the Plaintiff, but on all property recovered in the action, whether for the Plaintiff only, or for him in connection with others.  It is not necessary that the property charged should belong to the same person as employed the solicitor; but it must be by reason of the employment that the property is preserved."

17. This was consequently the background against which the framers of the Western Australian provision chose their language in enacting s 43 of the 1893 Act (which, as I have said, is identical to s 73 of the Act, being that which was current at the time of these proceedings). While the language of s 43 is, in some respects, different to that of s 28, there was a seemingly deliberate choice to retain the words "upon the property recovered or preserved", which had, by then, been given the settled construction to which I have referred in the English cases. Because the legislature should be taken to have known of the construction put upon these words in England, it seems to me that it should be taken to have intended that the words chosen by it should be given a similar meaning in Western Australia: see National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 529; Townsville Harbour Board v Scottish Shire Line Ltd (1914) 18 CLR 306 at 315, and Re Carl Zeiss Pty Ltd's Application (1969) 122 CLR 1 at 6.

1. I should add, for the sake of completeness, that, since 1893, the courts in England have adopted a similar approach to that taken in the earlier cases:  see for example, The Dirigo [1920] P 425 at 428 and 429 and Winbourne v Fine [1952] 1 Ch 869.

2. Next, and as to the meaning of the words "recovered or preserved", this was considered by Lord Denning MR in Till v Till [1974] 1 QB 558, in the context of s 72 of the Solicitors Act 1957 which, by then, had replaced the former s 28.  Lord Denning, with whom Cairns LJ was in agreement, considered that the best guide to the meaning of those words was to be found in the judgment of Sir George Jessel MR in Foxon v Gascoigne (1874) 9 Ch App 654 at 657 (note) as follows:

   "it means that where the plaintiff claims property, and establishes a right to the ownership of the property in some shape or other, there the property has been recovered; that where a defendant's right to the ownership of property is disputed, and that right has been vindicated by the proceedings, there the property has been preserved … recovery and preservation are correlative terms,  … they both relate to the ownership of the property."

3. The third issue upon which I propose to comment is that of causation.  Because the property must have been recovered or preserved by the efforts of the solicitor (even though the Western Australia Act, unlike that in England, does not expressly spell out that the recovery or preservation must have been "through the instrumentality of" the solicitor), there must, self evidently, be a causal connection between the recovery or preservation of the property and the work performed by the solicitor:  Groom v Cheesewright, at 732; Greer v Young, at 552.

4. The fourth, and last, issue upon which I wish to add some comments relates to the question whether s 73 operates to confer a charge without the need for a court order.

5. There is no doubt that, under s 28 of the English Act, a court order is required. As will be apparent, unlike s 73, s 28 merely makes it "lawful" for the Court to declare that the solicitor is entitled to a charge and it is only "upon such declaration being made" that the "solicitor shall have a charge". The Court, in England, consequently has a discretion whether or not to make the declaration: Greer, at 557; Dallow at 546. That approach accorded with the view which was then taken under the common law in respect of the operation of the "particular" lien: see Mercer, above, at 503. Indeed, that remains the position under the common law in England where the particular "lien" is regarded as being merely a personal claim, in equity, to seek the Court's intervention for the protection of the solicitor's costs and for permission to resort to a particular fund: Dal Pont, above, at [27.4]; Quick on Costs at [7-1688].  In Australia, the position is different, at least once there has been a judgment for costs.  Australian courts (at least since 1940) have regarded particular liens as being equitable in nature and as existing independently of any declaration thereof.  Consequently, in this country, the assistance of the Court is invoked for enforcement, rather than creation, of the common law right:  Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 102, per Jordan CJ, delivering the judgment of the Court; Worrel v Power & Power (1993) 46 FCR 214 at 224; Roam Australia Pty Ltd v Telstra CorporationLimited t/as Telecom Australia [1997] FCA 980; Color Point Pty Ltd v Markby's Communication Group Pty Ltd [1998] FCA 1516 at 21 ‑ 22, per Weinberg J; Philippa Power & Associates v Primrose, Couper, Cronin Rudkin [1997] 2 Qd R 266 at 271 – 272; Firth v Centrelink (2002) 55 NSWLR 451 at 465.

6. The decision of the Western Australian legislature to depart from the wording of the English Act in this respect seems to me also to have been deliberate. Section 73, unlike s 28, provides that, in every case of the kind described, the practitioner "shall be entitled to" a first charge on the property recovered or preserved and that the practitioner "shall have" a prior right to payment in respect of taxed costs, charges and expenses. These words seem to me to point very strongly in the direction of an intention that the charge is to accrue by virtue of the section, without the intervention of the Court, and it is difficult to think why, otherwise, the framers of the provision should have elected to depart from the form of words used in s 28.

7. However, that was not the conclusion at which the Court arrived in Sewell v Hampel (1910) 13 WALR 44. In that case, Parker CJ, at 48, considered that the word "entitled" merely meant that the solicitor should have "a right to a charge" and that the charge was not given by the statute itself. He went on to say:

   "and bearing in mind the authority given to a Judge in the subsequent portion of the section to make ex parte such order for taxation, and for raising and paying such costs as to such Court or Judge shall appear fit, I prefer to think it was contemplated by this section that in every case where a solicitor was entitled under the section to a charge, he should go before a Judge, or before the Court, and obtain an order charging the property, directing that the costs should be taxed, and the mode in which the money should be raised and paid".

   McMillan J expressed a similar opinion.  He mentioned, at 49, presumably in relation to the common law as it then stood, that it has been pointed out in different cases that a solicitor has not in fact a lien, but has merely a right to ask for the intervention of the Court for his protection when, having obtained a judgment for his client, he finds that there is a probability of his client depriving him of his costs.  He went on to say, at 51 ‑ 52, that he could not agree with the contention that, under the statute, no application to the Court was necessary.  While recognising that s 43 differed, in its earlier part, from the corresponding section in the English Act, he said that the latter words of the section showed that there was an intention to impose "this duty" on the Court and that the Court was not called upon to exercise merely a ministerial act.

8. As will be apparent from what I have already said, I respectfully differ from the conclusion arrived at by Parker CJ as regards the meaning of the word "entitled".  It seems to me that that word and the words "shall have a prior right" demonstrate an intention that the charge should take effect by virtue of the operation of the section rather than by virtue of any declaration by the Court.  Moreover, it seems to me that the discretion given to the Court, in the concluding words of the section, "to make, ex parte, such order or orders for taxation of and for raising and paying such costs, charges and expenses out of the property as to the Court appears just and proper", is restricted to the matters to which it refers.  In other words, the charge exists by virtue of the section, without the need to resort to the Court, but the Court has a discretion to make orders of the kind referred to.  The comments of McMillan J, dealing with the common law (or, perhaps, the statutory position) in England, do not seem to me to advance the matter.  As I have already mentioned, the choice of different words seems to have been deliberate, with a view to introducing a regime which differed, in this respect, from that in England:  see Henderson v Johnson & Henderson [1969] WAR 3 at 9, per Jackson CJ (who mentioned that the absence, in s 73, of the express requirement of a charging declaration under the English section is "noteworthy") and see also North West Construction Co Pty Ltd (in liq) v Marian [1965] WAR 205 in which Nevile J appears to have assumed that the statutory charge attaches without the need for any order by the Court (although his Honour does not appear to have been referred to Sewell).

1. As to the balance of the matters raised in the appeal, I agree with what has been said by Pullin JA, as I have already mentioned.  I would consequently make orders in the terms suggested by him.

2. WHEELER JA:  I have had the advantage of reading in draft the reasons for decision of Pullin JA.  I agree with those reasons and have nothing to add.

3. PULLIN JA: The appellant appeals against the decision of Master Sanderson who dismissed an application by the appellant for a declaration that the appellant had a first charge pursuant to s 73 of the Legal Practitioners Act over funds held in a Bankwest Account in the name of "M J McPhee & K O Tang".

Facts

1. Bean San Goh ("BSG"), who became a client of the appellant, was a shareholder in Sanford Securities Ltd ("Sanford").  Sanford made a rights issue.  BSG did not have the funds available to take up his right to 681,818 shares in Sanford.  In order to take up his entitlement, BSG approached another shareholder of Sanford, Mr CJ Goh, who agreed to lend him money via the respondent ("FIC").  BSG then took up his entitlement.  The shares in Sanford which he took up were not registered in BSG's name.  Instead they were registered in the name of a Singaporean company "Healthy Skin Pte Ltd".  The loan by FIC to BSG was recorded in a loan agreement dated 26 May 1999.  It contained cl 2 which read:

   "2.0PURPOSE AND SECURITY

   2.1The Borrower will apply the loan to the purchase of shares in Sanford Securities Pty Limited ACN 076 515 930 of 8th Floor, 225 St Georges Terrace, Perth, Western Australia ('Sanford').

   2.2The loan will be secured by shares registered in the name of the Borrower or nominee in Sanford.

   2.3The nominee is Healthy Skin Pte Ltd of 9 Raffles #12-01, Republic Plaza, S048619."

2. On 20 February 2000, FIC agreed to lend BSG a further sum of money.  BSG's son Steven Goh guaranteed repayment. 

1. On 26 May 2000, BSG was not in a position to repay the two loans on the promised date so an extension was agreed.  The agreement was recorded in two acknowledgement of debt agreements dated 10 April 2001.  The date for repayment was extended to 31 December 2001.  Each of these acknowledgement of debt agreements contained clauses to the effect that:

   "2.2If requested by the lender, the borrower will arrange for the loan to be secured by shares … in Sanford Limited.  The number of Sanford Limited shares held by Healthy Skin is 681,818.

   2.3The guarantor irrevocably guarantees to the lender the due and punctual payment by the borrower to the lender in the manner and at the times agreed upon between the borrower and the lender in this Deed (and failing agreement upon demand) of all money which is now or may hereafter from time to time be owing by the borrower pursuant to the Deed provided that the liability of the guarantor hereunder shall not exceed USD … plus all interest accrued."

2. The amount of USD in the last line of cl 2.3 in the first acknowledgment of debt agreement was $329,000 and in the second $63,500.

3. The moneys were not repaid on the agreed date on 31 December 2001.

4. On 11 January 2002, Feinauer & Associates, acting for FIC, wrote to BSG demanding payment under the first agreement and also demanding that:

   "Dr B S Goh and Healthy Skin Pte Ltd perfect the securities required to be given under clause 2.2 of the Loan Agreement by giving registered debentures in favour of our client or its nominee on such terms as are acceptable to our client subject to any statutory escrow obligations."

5. It was later decided by Master Sanderson in First Industry Corp v Goh & Anor [2003] WASC 216 that the two agreements and the letter of 11 June 2002 had the effect of creating an equitable charge over the Sanford shares in favour of FIC.

6. On 8 March 2002, FIC issued a writ against BSG claiming the moneys due under the two agreements, and on 5 June 2002, Master Sanderson granted summary judgment against BSG for the total amount.  Steven Goh was also a defendant to those proceedings because he was the guarantor, but he was granted leave to defend the proceedings.  During the course of the Master's reasons for that decision in First Industry Corp v Goh &Anor [2002] WASC 143, when discussing the effect of cl 2 in the two acknowledgement of debt agreements, he said at [27]:

   "It is not easy to characterise the effect of cl 2 in the agreements.  The wording of the clauses does not suggest a standard mortgage of shares, a common form of security provided by a borrower.  The Loan Agreements do not suggest the plaintiff has any right to call upon the shares as security if the loan was not repaid by the first defendant.  In my view, Healthy Skin can be properly regarded as being in a position similar to that of a stakeholder.  It has legal title to the shares but the beneficial interest is held by the first defendant.  He is in the position where, having called for the shares to be transferred to him, equity would enforce that right.  It is difficult to see how any similar right is held by the plaintiff.  The wording of the agreements does not provide it with any legal rights and it has not sought to argue it has have any equitable entitlement to the shares.  That being the case, the provisions of cl 2 do not impact upon the outcome of this application and can be put to one side."

7. There is nothing in the reasons of the Master which suggests that any reference was made to the letter of 11 January 2002 which I have quoted above. 

8. Soon after judgment had been granted against BSG on 25 June 2002 the appellant, which had unsuccessfully sought to require Healthy Skin to execute transfers of the Sandford shares, wrote to Feinauer & Associates stating:

   "Your client signed a Deed naming Healthy Skin Pte Ltd as the company to hold the shares as security for your client. …

   The continuing relationship between your client, C J Goh and Heng Seng Goh, in relation to the various shares is well demonstrated by the emails attached to our client's primary affidavit.  Healthy Skin held these shares in trust if not for our client then for yours and your client has every ability to require Healthy Skin to honour its agreement. 

   In those circumstances our instructions are to continue to request C J Goh arrange for the transfer of these shares and we do so again by this letter. 

   If your client refuses to even ask Healthy Skin through Seng Heng Goh for the shares please let us know."

9. Feinauer & Associates by letter dated 26 June 2002 responded by stating:

   "I note that the matter of the shares held by Healthy Skin has been adequately dealt with at the hearing of the summary judgment application against your client and we do not propose to revisit this issue."

10. This was a most puzzling response given that later and in this appeal, FIC argued, and successfully so, that as from 11 January 2002 FIC had security over the shares.  

11. The appellant then responded on the same day, 26 June 2002, with a letter to Feinauer & Associates which read in part:

    "… the only inference to be drawn is that your client requires the benefit of the judgment without crediting the value of the shares held by Healthy Skin; and that your client will not make any effort to assist our client redeem the value of those shares. 

    If our client is wrong in this inference please advise by return and let us know your client's position on the matter."

12. Feinauer & Associates replied on 27 June 2002 stating:

    "Once again, this firm will not revisit the issue of the Healthy Skin shares.  All that had to be said about this has already been said not once, but on repeated occasions. 

    Irrespective of the Master's determination of the issue, your continued attempts to attribute the ability to control the 'Healthy Skin share' issue to my client whether in the guise of Mr C J Goh or as part of the Plaintiff is simply not sustainable. 

    The fact that the Plaintiff required security over a known alleged asset (alleged by Dr B S Goh!) is not a basis for drawing the conclusions which Dr B S Goh seeks to draw. 

    Your client obviously has a separate issue with Healthy Skin and I suggest that your client takes this matter up with the company itself.  You have the necessary contact details."

13. It would have been sensible for FIC through Feinauer & Associates to have responded to the two letters from the appellant by agreeing that Healthy Skin held the shares in trust for BSG as beneficial owner subject to FIC's equitable charge, and (if FIC did not wish to exercise any of its powers as equitable chargee) agreeing that it would ask Healthy Skin to transfer the title to the shares to BSG so BSG could sell the Sanford shares and pay or partly pay FIC (depending on the value of the shares).

14. On this appeal, counsel for FIC argued that Feinauer & Associates' letter of 27 June 2002 should be read merely as refuting the suggestion that there was any relationship between C J Goh and Heng Seng Goh (who controlled Healthy Skin).  Feinauer & Associates' letter does make that point, but their letter makes no attempt to assert rights as the equitable chargee.  As has since been determined, FIC had, at that time, an equitable charge over the shares.  FIC could have exercised the remedies available to an equitable chargee, namely to apply for judicial sale or, alternatively, for the appointment of a receiver.  See Sykes & Walker "Law of Securities", 5th ed at 198.

15. The unsatisfactory response from FIC naturally left BSG in the position where FIC appeared to deny it had an interest in the Sanford shares or at least intended to take no positive steps to enforce any right it had in them.

16. Not surprisingly, BSG then decided that it would pursue further action to obtain the shares from Healthy Skin.  It did this by issuing a third party notice against Healthy Skin, claiming a declaration that the shares were held by Healthy Skin on trust for BSG "absolutely", after seeking leave to do so from Justice Wheeler.  Justice Wheeler also granted an injunction, on the application of BSG, restraining Healthy Skin from selling, transferring and disposing of the 681,818 shares in Sanford.  Healthy Skin filed a memorandum of conditional appearance.  Feinauer & Associates attended at a special appointment of the third party proceedings to oppose them on the basis that the proceedings should not continue given that the main action had not ended, and that FIC wished to continue with action against Steven Goh, who was the guarantor of the BSG loans.

17. On 2 April 2003 the appellant filed a statement of claim against Healthy Skin seeking a declaration that the Sanford shares were held by Healthy Skin on trust for BSG absolutely and seeking an order that the shares be transferred to BSG.  The appellants then wrote to Feinauer & Associates by letter dated 4 April 2003 suggesting that they and the appellant should approach Healthy Skin to request that the shares held by Healthy Skin be "transferred to your client, or a stakeholder, … pending overall settlement of matters outstanding … between our respective clients."

18. A takeover offer for shares in Sanford was then made by IWL Ltd.  The appellant and Tang Lawyers, who were acting as solicitors for Healthy Skin, reached an agreement that the Sanford shares the subject of the injunction granted by Wheeler J could be sold to IWL and the proceeds placed in an interest bearing account in the joint names of Tang Lawyers and the appellant "pending resolution of the issue of beneficial ownership of the shares".

19. On 1 May 2003, Tang Lawyers wrote to Feinauer & Associates, and a copy to the appellant, acknowledging that Healthy Skin did not have a beneficial interest in the shares or in the proceeds of sale and seeking a statement of position from FIC.  On 8 May 2003 Feinauer & Associates wrote to Tang Lawyers mentioning the agreement to provide security over the shares referred to in the Acknowledgement of Debt and asserting that FIC sought "to claim a right in respect of [those] shares".  They demanded that the shares or proceeds of their sale be held in trust by Tang Lawyers pending the resolution of the dispute over the proceeds between FIC and BSG.  On 15 May 2003, Feinauer & Associates wrote to the appellant demanding payment of the entire fund on the basis that the shares had been converted into cash and should be applied to repayment of FIC's debt. 

1. On 16 May 2003, the appellant received a cheque from IWL in the sum of $129,545, being the proceeds of the takeover of the Sanford shares.  On 5 June 2003 the IWL cheque was finally deposited into a Bankwest account. 

2. On 10 June 2003, Feinauer & Associates wrote to the appellant disputing that FIC had disclaimed any interest in the shares in the course of the summary judgment proceedings and claiming that FIC was entitled to the proceeds of the shares "as an unsatisfied judgment creditor".  The letter also mentions that the shares had been converted into cash and suggests that an issue therefore arose "whether or not there can be any security" and that the "more sensible position" was that BSG, being indebted to FIC, was "required to call in those funds on behalf of the debt".

3. FIC, on 1 August 2003, filed a statement of claim as cross‑claimant in the third party proceedings claiming entitlement to the share proceeds.

4. On 22 August 2003 the share proceeds were deposited into a new joint account in the name of Mr McPhee and Mr Tang.

5. On 15 September 2003 Master Sanderson heard summary judgment applications by FIC and BSG, and on 11 November 2003 in First Industry Corp v Goh& Anor [2003] WASC 216 he determined that FIC was entitled to the moneys in the joint account. He held this because, he said, the combined effect of cl 2.2 of the two agreements and the demand by letter dated 11 January 2002 meant that FIC held an equitable charge as from 11 January 2002 and that as a result FIC was entitled to the proceeds.

6. Then on 10 December 2003 the appellant made the application for a declaration that it had a first charge, pursuant to s 73 of the Legal Practitioners Act, over the moneys in the Bankwest account to secure payment of its taxed costs, charges and expenses as between solicitor and client of and in reference to the third party proceedings up until 1 August 2003, which is about the time FIC became involved in the third party proceedings as a cross‑claimant.

Master Sanderson's reasons for decision

1. The Master, in his reasons in relation to this application ([2004] WASC 89), recorded the submissions made, on behalf of the appellant, to the effect that the shares or the proceeds of their sale were recovered and preserved within the meaning of s 73. The Master noted that it was clear that the applicants undertook considerable work and incurred significant costs in relation to the third party proceedings. He also noted that this resulted in the joinder of the third party, that the shares or proceeds were brought into the jurisdiction and in a proper sense recovered or preserved.

2. The Master also noted the FIC response which was that the appellant could only have a lien on property recovered or preserved for BSG.  FIC's submission was that there was no such property and that BSG had recovered nothing.  FIC referred to Halvanon Insurance Co Ltd v Central Reinsurance Corp [1988] 1 WLR 1122 at 1130, where Hobhouse J noted that a solicitor's particular lien gave a solicitor no greater rights than his client had, and is subject to all the equities between his client and the other parties interested in the property. The Master considered that these submissions were unanswerable, and concluded that from the date that demand for payment of the loan was made, BSG had no interest in the shares or the proceeds of the sale of the shares, and that "[c]ertainly from the date upon which the joint account was opened in the names of the respective solicitors, the funds in that account were the property of [FIC]". As a result the Master dismissed the application.

The appellant's grounds of appeal

1. The appellant contends that:

   (a) the Master erred in concluding that the solicitor's charge can only relate to property recovered or preserved for the solicitor's client;

   (b)in the alternative that the property or moneys the subject of the appellant's claim were recovered or preserved for BSG;

   (c)that the Master erred in deciding that the matter was governed by Halvanon's case and contended that Halvanon's case was distinguishable;

   (d)that the Master erred in finding that from the date that demand for repayment of the loan was made BSG had no interest in the shares or the proceeds of sale of the shares; and

   (e)that the Master erred in finding that from the date upon which the joint account was opened the funds were the property of FIC.

FIC's notice of contention

1. FIC filed a notice of contention which contained mostly submissions, but did contain a contention that the Master should have also reasoned that the outcome of the third party proceedings vindicated FIC's entitlement to the proceeds of the shares in terms of the equitable charge which had come into existence on 11 January 2002.

Section 73 of the Legal Practitioners Act 1893 (WA)

1. Section 73 reads:

   "In every case in which a practitioner shall be employed to prosecute or defend any suit, matter, or proceeding in any court of justice whatsoever, such practitioner shall be entitled to a first charge upon the property recovered or preserved, and such practitioner shall have a prior right to payment out of the same for the taxed costs, charges, and expenses as between solicitor and client of or in reference to such suit, matter, or proceeding; and the Court before which such suit, matter, or proceeding has been heard or is pending, or a Judge thereof in Chambers, may make ex parte such order or orders for taxation of and for raising and paying such costs, charges, and expenses out of the said property as to such court or Judge shall appear just and proper."

2. A question has been raised about whether this section operates to confer the solicitor's charge without the need for a court order.  In Henderson v Johnson & Henderson [1969] WAR 3 at 9, Jackson J (as he then was) said:

   "There is clear authority that the chose in action created by an order for costs in favour of a party is 'property recovered or preserved' within the meaning of s 73 of the Legal Practitioners Act 1843 which 'entitles a solicitor employed to prosecute or defend any suit, matter or proceeding in any court of justice' to a first charge upon 'such property': see Dallow v Garrold (1884) 14 QBD 543; [1881‑5] All ER Rep 849, and Re Blake [1945] Ch 61; [1945] Ch 61; [1945] 1 All ER 1. It may be arguable whether the solicitor's charge attaches by virtue of s 73 without more, or whether some order or declaration by a court is necessary as in the similar provision in England under the Solicitors Act 1932, s 69. The absence in s 73 of our Act of the express requirement of a charging declaration under the English section is noteworthy; yet in Sewell v Hampel (1910) 13 WALR 44, Parker CJ and McMillan J thought that a charging order was necessary. Contrast the recent decision of Nevile J in North West Construction Co Pty Ltd v Marian [1965] WAR 205. But even if a charging order is necessary, it may be argued that the order of the Summary Relief Court in authorizing payment of the costs to the solicitor was intended to and did in law charge the moneys in his favour, or, alternatively, operated as an order giving effect to his common law lien over the costs."

3. The two other members of the Court did not address this issue. In my opinion, the charge, if it exists, does so by operation of s 73. While the word "entitled" may be ambiguous (it may mean the giving of a right or title to something or it may mean the furnishing of grounds for laying a claim: "Macquarie Dictionary") the following statement that the practitioner "shall have a prior right to payment" is entirely unambiguous. The latter phrase confers the right to payment, which in my opinion requires the word "entitled" to be read as meaning that the charge arises when the circumstances described in the section occur. A solicitor may wish to obtain a declaration in order to be certain about the existence of a charge particularly if there is a dispute, but the declaration is merely a statement of a right which already exists. The declaration does not create the charge. The section does so. As Jackson J pointed out, s 73 is notably different from the English sections - s 74 of the Solicitors Act 1974 (UK) formerly s 28 Solicitors Act 1860 (UK) - which require a declaration of the court to bring the charge into existence.

4. There was no dispute that the shares, or the proceeds of the sale of shares, was "property" and, in my opinion, the Master was correct to hold that steps taken by the appellant both "recovered" and "preserved" the property which was originally in the legal ownership of Healthy Skin, and by reason of the legal proceedings was brought under the control of the appellant firm when that money was placed into a trust account in the name of Mr McPhee of the appellant firm and Mr Tang, a solicitor for Healthy Skin.  The appellants were the legal practitioners employed to prosecute the proceedings.

5. The respondent contends that this was not a recovery or preservation of property because it was recovered in circumstances where the appellants, on behalf of BSG, were asserting an absolute entitlement to the property without conceding that FIC had an interest as equitable chargee and secondly, because it would not be just to declare such a charge in such circumstances.

6. In relation to those submissions, I repeat that the charge arises by virtue of s 73 and it exists whether a declaration is made or not. However, a declaration has been sought. Declaratory relief is a discretionary remedy. While a court may decline to make a declaration if there are circumstances justifying that refusal, no grounds were put up here other than the argument presented by the respondent, namely that it would not be "just and proper" to make the declaration where the appellant, on behalf of BSG, was asserting that BSG was the absolute owner of the shares and denying FIC's interest in the shares and the proceeds. This was an argument based on the provisions of s 73 which authorises the Court to make an order which is "just and proper". However, the order which is the subject of that phrase is the order for taxation or orders necessary to effect payment if the charge exists. The phrase does not give the Court the power to decide whether the charge is "just and proper".

7. I now turn to the first and third grounds of appeal.  These grounds in effect contend that the learned Master erred in relying on Halvanon's case, insofar as that case indicated that the solicitor's charge could create no greater rights than his client has in the property.

8. Unfortunately, it appears that  a number of relevant authorities which bear upon the conclusions that Hobhouse J reached in Halvanon's case were not referred to in that case.  It was a case concerning moneys paid into court, and Hobhouse J held that the money paid into court, as a condition of being given leave to defend an action, remained the general property of the defendants who paid the money in.  As Mullighan J pointed out in Pilmer v HIH Casualty & General Insurance Ltd & Ors (No 2) (2004) 212 ALR 636 at [107], Hobhouse J did not have drawn to his attention the Court of Appeal decision of WA Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] QB 1038, which in my opinion would have led Hobhouse J to the opposite conclusion on this point. Hobhouse J's statement in Halvanon's case at 1130, that the solicitor had no greater rights "than his client has and is subject to all equities between his client and other parties interested in the property", was a reference to the common law or equitable lien (as explained in Mercer v Graves (1872) LR 7 QB 499) and not to a statutory charge. Hobhouse J however said at 1126 that a solicitor's particular lien "corresponds to the right of a solicitor to apply for a charging order under s 73 of the Solicitors Act 1974".  If by that he meant that the situation was the same under the statute and at common law and equity, then in my opinion what he said was per incuriam.  It appears that his Honour did not have drawn to his attention the Court of Appeal decisions in Bulley v Bulley (1878) 8 Ch D 479, Greer v Young (1882) 24 Ch D 545 and The Dirigo [1920] P 425. In the latter case at 428, Sir Henry Duke, the President in Admiralty, said about Bulley's and Greer's case:

   "In both of those cases the principle which is applicable was considered, and it was laid down broadly and generally that the right which is either recognised or created under the statute is in the nature of a salvage right, and that what entitles a solicitor to a charge is that the property or funds shall have been recovered or preserved by the instrumentality of the solicitor and have been so recovered or preserved 'in the proceedings.  It appears from the judgments of the Lord Justices in both these cases, and from other authorities, that, the right being in the nature of a salvage right, the solicitor may recover against the fund beyond the interest of his own client."

9. The section under consideration in The Dirigo, Bulley and Greer was s 28 of the Solicitors Act 1860 (UK) but it was not materially different in effect from s 73 of the Solicitors Act 1974 (UK).

10. In my opinion, grounds (a) and (c) are therefore made out.

11. While dealing with the first three grounds, the respondent referred to some cases dealing with the question of priorities.  In particular, he referred to Akki Pty Ltd v Martin Hall Pty Ltd & Anor (No 2) (1994) 35 NSWLR 470 and Re De Groot [2001] 2 Qd R 359, which discussed questions of priority between competing equitable claims in relation to a solicitor's lien. In my opinion, those cases have no relevance here, because we are concerned in this case not with a solicitor's equitable lien, but with a statutory charge where Parliament has provided that such a charge is to be a "first" charge and that the practitioner has a "prior" right to payment. Questions of priority between competing legal or equitable interests do not arise.

12. The respondent's contention that the third party proceedings resulted in a vindication of FIC's claim to the proceeds is true, but those proceedings had two aspects to them.  First, they involved proceedings by BSG conducted by the appellant to recover the Sanford shares from Healthy Skin.  The costs of that part of the proceedings and the costs of preserving the proceeds of the sale of the Sanford shares and arranging for their payment into the Bankwest account are costs the subject of the charge.  The costs associated with the other aspect of the proceedings, that is the costs of resolving the dispute between BSG and FIC are not covered by the statutory charge.

13. The second and fourth ground of appeal contend in effect that the Master erred in finding that from the date demand for repayment of the loan was made by FIC, BSG had no interest in the Sanford shares or the proceeds of the sale of the shares.  In my opinion, the Master erred in making this finding.  BSG was still the beneficial owner of the shares which were subject to FIC's equitable charge.  As FIC made no effort to exercise any of its rights as equitable chargee, BSG was entitled to seek to gain control of the shares and of the proceeds.  These grounds of appeal should be upheld.

14. The final ground of appeal should also be upheld.  It contends that the learned Master erred in finding that from the date upon which the joint account was opened, the funds were the property of FIC.  It is true that FIC could have taken steps to obtain the money by order of the court or by the appointment of a receiver, but it did not do so and BSG remained the beneficial owner of the shares and then of the money which had been recovered or preserved by the efforts of the appellant subject to the equitable charge held by FIC.

15. In my opinion the appellant is entitled to a declaration that it is entitled to a first charge upon the funds in the Bankwest account in relation to the prosecution of the proceedings against Healthy Skin which resulted in the recovery and preservation of the shares and then the proceeds of the sale of the shares.  However, as mentioned above, the charge does not secure any costs involved in resolving the dispute between FIC and BSG.  The separation of these costs from the costs the subject of the charge will have to be undertaken by a taxing officer if the parties cannot reach agreement about the quantum.

16. The orders should be:

    (a)Appeal allowed.

    (b)The Court declares that the appellant is entitled to a first charge over the funds in Bankwest account No 306089135385‑4 in the name of M J McPhee and K O Tang for the payment of its taxed costs, charges and expenses as between solicitor and client reasonably incurred with respect to the conduct of the third party proceedings to resolve issues between Healthy Skin Pte Ltd and Bean San Goh and with respect to the arrangements made to settle those proceedings by bringing the funds into the said account.

    (c)the costs referred to in par (b) be taxed.

    (d)The taxed costs be paid to the appellant.

    (e)Liberty to apply.