Phoenician Holdings Pty Limited t/as Cadmus Lawyers v George Maroun Rahme
[2013] NSWSC 174
•28 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: Phoenician Holdings Pty Limited t/as Cadmus Lawyers v George Maroun Rahme [2013] NSWSC 174 Hearing dates: 27 and 28 February 2013 Decision date: 28 February 2013 Jurisdiction: Equity Division Before: Bergin CJ in Eq Decision: Application dismissed
Catchwords: [EQUITY] - Where mortgage and caveat secured solicitor's costs - where caveat removed and fund set aside in place of security - where solicitor suing for costs - where parties at issue on solicitor's entitlement to costs - application for payment out of funds set aside. Legislation Cited: Civil Procedure Act 2005, Legal Profession Act 2004, Real Property Act 1900 Cases Cited: Branson v Tucker [2012] NSWCA 310
Phoenician Holdings Pty Ltd v Rahme [2012] NSWSC 1604Category: Principal judgment Parties: Phoenician Holdings Pty Limited t/as Cadmus Lawyers (Plaintiff)
George Maroun Rahme (Defendant)Representation: RJ Burbidge QC/DE Baran (Plaintiff)
File Number(s): 2012/273084 Publication restriction: Nil
EX TEMPORE Judgment
This case was listed before me for three days commencing on 27 February 2013. It had previously been managed by other judges but, more particularly, it had been recently case managed by Gzell J.
On the first day of the hearing, the plaintiff, Phoenician Holdings Pty Limited t/as Cadmus Lawyers, represented by Mr RJ Burbidge QC and Mr DE Baran, of counsel, and the defendants, George Maroun Rahme and Nouha Rahme, represented by Mr GA Elliott, of counsel, indicated that there were some procedural difficulties (to use a neutral term).
The plaintiff was granted leave to file in Court a Notice of Motion. That was returnable instanter. Consent orders were made in respect of some of the pleading matters with which that Motion dealt. It was not in issue that the Cross-Claim needs to be repleaded and an order was made striking out the Cross-Claim, with leave to replead.
The real issue that arose on the Notice of Motion was the plaintiff's application for an order that the sum of $1,362,500 be paid out to it from the controlled moneys account jointly held by RM Legal Sydney Pty Limited and Elias Gates & Associates Pty Limited, in trust for the plaintiff.
The history of the matter is that in August 2012, the plaintiff, who had acted as the defendants' solicitor, filed a Summons before the Duty Judge returnable at 10am on 4 September 2012 in which an order was sought pursuant to section 74K of the Real Property Act 1900 that the Caveat on the defendants' property in Double Bay (the Property) be extended until further order.
The final relief sought in the Summons is a Declaration as to the ranking of the Caveat and an order that the defendants withdraw a lapsing notice that has been served. There is an alternative Order sought that the Caveat be removed forthwith and an Order that the defendants produce to the plaintiff the Certificate of Title to enable the plaintiff to register a Mortgage that it had obtained from the defendants as security for its fees. The plaintiff also sought an order for the appointment of a receiver to the Property for the sale of the Property and the payment "of all fees and costs of the plaintiff into court". There is also a claim for an order for indemnity costs.
The matter proceeded on an interlocutory basis for the removal of the Caveat because the defendants wished to sell the Property. The plaintiff's Caveat was an impediment to that sale. The matter came before a number of judges of this Division sitting in the Duty List, including myself, at which time the difficulty in identifying the quantum of the plaintiff's fees was exposed. The plaintiff had issued a bill dated 30 August 2012. That bill has been effectively reissued on 4 October 2012 and 26 February 2013. However, it is not in issue that the plaintiff was wishing to charge more than the amount contained in that bill. The bill that was served on 26 February 2013 seeks payment in the amount of $386,180.21, it having previously been a different figure. It is not necessary to detail the differences but to note simply that the plaintiff seeks the payment of its costs.
Although the Summons includes an order that the defendants pay the plaintiff's costs into Court, that claim was not particularised until much later. The question in respect of the sale of the property and what was to happen in respect of the proceeds of sale, came before Rothman J, as vacation judge, in the first week of the vacation in 2012: Phoenician Holdings Pty Ltd v Rahme [2012] NSWSC 1604. Rothman J dealt with the matter on an interlocutory basis and identified the issues as follows:
9 Notwithstanding that on this interlocutory hearing the parties have tendered four volumes of documents, various affidavits and other exhibits, the issues between the parties are within very short compass. It may be appropriate first to state some of the matters that are not in dispute, at least for these interlocutory purposes.
10 There is no dispute that legal services were provided by the respondent to the applicants. There is also no dispute that counsel were briefed and provided services for which payment is due. There is no dispute that the charge and mortgage were executed in order to secure legal fees (including costs of recovery thereof and interest) and that the Caveat was lodged to protect the interests created or purportedly created by that charge and mortgage. The parties also accept that the charge and mortgage, if valid, give rise to a "Caveatable" interest.
11 Further, there is no dispute between the parties that, as a matter of the proper exercise of the discretion of the Court, and, subject to appropriate security being provided, orders should be made the effect of which would be to allow the above-mentioned sale to proceed.
12 The issues between the parties are, as a consequence of the foregoing, confined to the form that any security should take, the method by which the security should be effected, the amount of any such security and whether, in obtaining that security, the respondent should give the usual undertaking as to damages.
His Honour then said:
17 Given that there is no dispute that the applicants executed the charge and mortgage, it is difficult to see how the applicants could submit that the respondent does not have a sufficiently arguable case for a Caveatable interest.
18 The applicants do not, in these interlocutory proceedings, seek to establish their claim for relief under the Contracts Review Act or Australian Consumer Law. Nor do the applicants seek to establish an arguable case for relief under any such provisions. As a consequence, the charge and mortgage are extant and create an interest in the property that may be protected by the lodging of a Caveat.
19 I turn to the balance of convenience. It is accepted by all of the parties, and the Court, that the balance of convenience favours a course that would allow the applicants to complete the contract for sale. However, the balance of convenience overwhelmingly favours the protection of the respondent by appropriate security.
20 Some of the factors that have brought the Court to that view are that the final hearing will occur within a month or so of any substituted security; the lack of any real challenge in these interlocutory proceedings to the efficaciousness of the charge and mortgage; the acceptance that legal services have been rendered and that moneys are owed to senior counsel and should be paid out; and the existence of current security in the form of the charge and mortgage, which is sought to be replaced.
...
23 Nevertheless, the amounts suggested by the respondent as being owed to it, leaving aside fees to senior counsel, have not been appropriately supported by evidence. During the course of directions hearing before the Chief Judge in Equity, the respondent suggested that the amount owing was $1.35 M. It seems, from a proper analysis of the discussion with the Chief Judge, that $1.35 M was an estimate of fees, not including fees to senior counsel. To that amount must be added the costs of recovery and possible interest.
24 I do not intend to be precise. In accordance with the agreement between the parties, the Court will order that payment be made to senior counsel. Further, the Court will order security of a further amount to cover the estimated fees to the respondent and the fees to junior counsel, plus a buffer of $350,000 to cover the costs of recovery and interest. In other words, the Court will order security in the sum of $1.7 M together with the payments to senior counsel.
25 The trial judge will have the capacity, at the conclusion of the hearing in February, to alter significantly the terms of any interlocutory order. As a consequence, these interlocutory orders will be in place for approximately one month or slightly more. At the moment, there is no undertaking by the respondent as to damages. In my view, for the short period for which these orders are likely to operate, there should be no requirement on the respondent to give any such undertaking and, in so doing, put themselves in a worse position than would be the case if the Caveat continued. In those circumstances, I will not order or require that the respondent give an undertaking as to damages, except in the unlikely event that the respondent causes the contract for sale not to complete by reason of its non-attendance at the notified completion appointment.
There was an order for the payment of senior counsel's fees that were itemised in the orders of the Court, leaving the costs of the solicitor and junior counsel outstanding. The matter was, as I say, listed for hearing before Gzell J who held a directions hearing for the preparation of the case on 7 February 2013. His Honour made the following orders:
1. The orders in the short minutes of order initialled, amended and dated by Gzell J are made, as follows:
1. The plaintiff to serve all outstanding detailed tax invoices for legal services rendered by 5pm on 17 February 2013.
2. The defendants to serve the plaintiff with any objections to all tax invoices served upon the defendants by 5pm on 26 February 2013.
3. Costs reserved.
2. The Plaintiff is to file and serve a verified statement of claim by close of business on Monday 11 February 2013.
3. The Defendants are to file and serve a verified defence and a verified cross-claim statement of cross-claim by the close of business on Thursday 14 February 2012.
As can be seen from those orders, it was anticipated that the defendants would serve objections to the anticipated tax invoices that the plaintiff was to provide. Thus, it was the question of the plaintiff's entitlement to be paid the costs that it claimed from the defendants, subject to objections, that would be litigated before Gzell J. It appears that the day before this directions hearing, the defendants lodged an application for assessment of costs. There is complaint made by the plaintiff that Gzell J was not informed of that step. In any event, the orders made by Gzell J were not complied with in respect of the service of the tax invoices. His Honour also made an order that the plaintiff was to file and serve a verified Statement of Claim by 11 February 2013. That was done.
The Statement of Claim includes claims for declarations and orders in respect of the claims the plaintiff makes for fees and costs owing to it. A Declaration is sought that the defendants are jointly and severally indebted to the plaintiff in the sum of $2,361,498.59 less the payments made to senior counsel pursuant to the orders made by Rothman J on 21 December 2012. There is an alternative Declaration sought in the Statement of Claim that the defendants are indebted to the plaintiff in such sum or sums as the court so determines. The relief claimed includes an order that the sum due and payable by the defendants, either jointly or severally, be paid to the plaintiff forthwith from the sum of $1.7 million held in the controlled moneys account, in accordance with the orders made by Rothman J. The sale proceeds were ordered to be placed into the controlled moneys account pursuant to his Honour's orders as security, the plaintiff effectively having lost its security (the Caveat over the Property and the unregistered Mortgage). The Statement of Claim also includes a claim for an order that the defendants pay the costs of these proceedings on an indemnity basis in the sum of $350,000.
Mr Burbidge submits that the approach that was adopted in 2012, and, in particular, the manner in which the parties proceeded before Rothman J, was that the fund that was set aside as a result of the sale of the defendants' property was a fund to be made available to the plaintiff. The plaintiff seeks the payment out at this stage, not of the whole amount, but of the amount referred to in the Notice of Motion.
It is submitted that the defendants have behaved without candour in failing to inform the Court of the assessment that was filed on 6 February 2013. It is also submitted that, in respect of a further claim for assessment that has been filed since that date, that the defendants are engaging in a strategem to disentitle the plaintiff to that which it is entitled - access to the fund. It is submitted that the defendants are seeking to delay these proceedings and to adopt a strategy that will deny what Mr Burbidge colourfully described as the "sinews of war".
Mr Elliott makes a number of points in relation to the proceedings generally. He submitted that what the plaintiff is today seeking amounts to an application for summary judgment, that is, for the payment out of the very moneys that are sought to be recovered in the litigation. Mr Elliott submitted that, if this be truly a summary judgment application, then I could not be satisfied that there is no proper defence to this application. He is correct in that submission. There are many issues for debate between these parties, including whether there has been a proper disclosure by the plaintiff in respect of his fees or costs and whether proper estimates have been made by the plaintiff in respect of the costs.
The plaintiff has acted for the defendants in various aspects of litigation as described in, for example, Exhibit 1, an email from the plaintiff to the defendants of 3 July 2012. Indeed, that exhibit is relied upon by the defendants to submit that one can see that there are serious issues to be tried in respect of whether the Defence pleaded by the defendants of a failure to disclose is made out. I am satisfied that there are serious issues to be tried between these parties and if this application could be characterised as a summary judgment application, it would not succeed.
Mr Elliott makes a number of other points. He relies upon the provisions of the Legal Profession Act 2004 (NSW) to claim that the proceedings themselves are fatally flawed because the plaintiff has commenced proceedings inconsistently with the provisions of section 331, which provides relevantly:
331 Legal costs cannot be recovered unless bill has been served
(1) Subject to section 332A (Person may request itemised bill), a law practice must not commence legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person in accordance with sections 332 (Bills) and 333 (Notification of client's rights).
(2) The Supreme Court may make an order authorising a law practice to commence legal proceedings against a person sooner if satisfied that:
(a) the law practice has given a bill to the person in accordance with sections 332 and 333, and
(b) the person is about to leave this jurisdiction.
(3) A court or tribunal before which any proceedings are brought in contravention of subsection (1) must stay those proceedings on the application of a party, or on its own initiative.
(4) This section applies whether or not the legal costs are the subject of a costs agreement.
Mr Elliott submitted that 31 August 2012 (the day the Summons was filed) was but one day after the bill to which I have referred was served. During the course of debate, I raised with Mr Elliott the fact that the Statement of Claim was not filed until 11 February 2013 and therefore, his submission in relation to the plaintiff acting inconsistently with section 331 may not have force. However, he submitted that the date upon which the plaintiff commenced the proceedings should be seen as the date on which the Summons was filed. It is true that the main and most urgent interim relief sought at that time was to deal with the lapsing notice in respect of the Caveat. However the plaintiff did seek the payment of an amount into court in respect of the fees and costs owed to it at that time. I do not have to decide this issue today but it seems to me that there is also a serious issue to be tried in respect of the question of whether the plaintiff has acted inconsistently with section 331 of the Legal Profession Act. The complicating feature to it is that Gzell J made the order for the Statement of Claim to be filed. The question arises then as to whether the process is one to which the observations in Campbell JA's judgment in Branson v Tucker [2012] NSWCA 310 apply, particularly at [101] and [102]. As I say, I do not have to decide that finally today. There is a serious issue to be tried.
Mr Elliott makes a further point that the proceedings are effectively stayed by reason of the filing of the applications for assessment. This submission is made in reliance upon section 355 of the Legal Profession Act, which provides as follows:
355 Consequences of application
If an application for a costs assessment is made in accordance with this Division:
(a) the costs assessment must take place without any money being paid into court on account of the legal costs the subject of the application, and
(b) the law practice must not commence or maintain any proceedings to recover the legal costs until the costs assessment has been completed.
Mr Burbidge submitted that, first of all, the bills must be seen in the context of the claim being made on 11 February 2013 and not 31 August 2012. He also submitted that there is a real question about the validity of the applications for assessment. These are all matters that are extant in the litigation but do not need to be decided today. The application today is an application by Motion for payment out of a portion of a fund. The parties are at issue about almost everything. The bills that have been delivered to the defendants are not the totality of the bills to be delivered to the defendants. Gzell J appears to have been concerned to make sure that the defendants knew exactly how much the plaintiff was claiming in this litigation. The Declaration sought relates to a specific figure and without the tax invoices it is impossible for the defendants to know how to defend a claim for that amount.
Mr Burbidge submitted that the power to make the order for the payment out is found not only in s 366 of the Legal Profession Act but also in s 98 of the Civil Procedure Act 2005 (NSW) and relies on the abovementioned passages of Branson v Tucker [2012] NSWCA 310. I will assume for the moment that the power might stem from either of those sections but also from the Court's inherent jurisdiction. It must be remembered that this fund was created in the circumstances described by Rothman J. It was created as an alternative security to that which the plaintiff had prior to the sale of the Property. The security that the plaintiff had prior to the sale of the Property was the Mortgage supported by the Caveat.
There was and is a real question in the litigation about the plaintiff's conduct in obtaining that Mortgage from the defendants. There are questions about the validity of the mortgage and thus, if one looks at the alternative security, about the plaintiff's entitlement to access that security as the alternative to its mortgage.
Mr Burbidge submitted that the plaintiff is a sole practitioner who has obviously done an enormous amount of work for the defendants. That appears to be an accurate description of what appears in the bills but what appears in the bills is in issue between the parties, not only from the point of view of a failure to disclose but also from the point of view of the rate charged and the work done. Mr Burbidge also relied upon a lack of definition of what it was that the defendants objected to in respect of the bills. Indeed, he pointed to the process of this litigation yesterday when the parties conferred in respect of what sum it was that the defendant was willing to indicate was not in issue out of the approximately two million dollars which is the subject of the Statement of Claim (less the fees paid to Senior Counsel).
Mr Elliott made an open offer without prejudice that the defendants will agree to pay to the plaintiff $26,000. That figure is reached, as I apprehend it, from an amount that is left between the figure of a bill and that which is the subject of the application for assessment. It is not an indication that the defendants have in any way conceded that this amount is owing.
All of the issues raised today will need to be decided in the main claim. There is nothing in the affidavits of Mr Elias that convinces me that I should make an order in his favour that the whole or any part of the security be paid to him forthwith. Assuming for the purpose of the argument that Mr Elias had taken the step of seeking to enforce his Mortgage, it seems to me that the same objection would have been raised at the time he did so having regard to the objections that have been raised by the defendants to the amounts of money charged by the plaintiff. At that stage there may well have been an application to injunct the plaintiff from moving under the Mortgage with the same arguments raised as to its validity.
Mr Burbidge submitted that the fund was established, not to sit there for years to await the outcome of a slow costs assessment regime, but so that the plaintiff can have access to it. I have no doubt that the fund was created as security for the plaintiff, should the plaintiff be successful in the litigation. As I read Rothman J's judgment there is no doubt that that is the basis upon which the fund was established. In my view it is not just or equitable that the plaintiff have access to that fund now.
I refuse to make the orders sought in paragraph 3 of the Notice of Motion. The application is dismissed.
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Decision last updated: 07 March 2013
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