Preston v Nikolaidis

[2023] NSWSC 316

Supreme Court

New South Wales

Medium Neutral Citation:

Preston v Nikolaidis [2023] NSWSC 316

Hearing dates:

12 July, 12 October, and 18 November 2022 followed by submissions in chambers in December 2022.

Date of orders:

31 March 2023

Decision date:

31 March 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Defendants’ lien is maintainable over the contested files. Plaintiff required to confirm whether he will comply with a condition of obtaining the files that the Court will impose that he must pay money into Court at least in the amount of the fees originally claimed by the solicitors.

Catchwords:

LIENS – enforcement of liens – statutes of limitation – Limitation Act 1969, s 68 – plaintiff’s legal files held by the defendant solicitors, a firm – plaintiff claims return of files from the firm – in a previous judgment the Court determined that the firm’s action for recovery of legal fees against the plaintiff is statute barred – whether the firm may maintain a lien over the files notwithstanding the extinguishment of the firm’s action against the plaintiff.

Legislation Cited:

Civil Procedure Act2005

Uniform Civil Procedure Rule

Judicial Officers Act1986

Limitation Act1969, ss 14, 63, 68

Cases Cited:

Coshott v Parker [2019] FCAFC 14

Preston v Nikolaidis [2017] NSWSC 1527

Preston v Nikolaidis [2021] NSWSC 36

Preston v Nikolaidis: [2022] NSWSC 521

Texts Cited:

The First Report on the Limitation of Actions [1967] LRC 3 – New South Wales Law Reform Commission

Category:

Consequential orders

Parties:

In the 1993/00023395 proceedings:

First plaintiff: John Preston
Second plaintiff: Western Suburbs Constructions Pty Limited (formerly Preston Erections Pty Ltd)
First defendant: Doreen Philomene Nikolaidis (as the executrix of the estate of the late Mithofanis Demetrius)
Second defendant: Leon Niloaidis t/as M D Nikolaidis & Co
Third defendant: Michael Zwar

In the 2015/00331795 proceedings:

Plaintiff: John Preston
First defendant: Leon Nikolaidis
Second defendant: Michael Zwar

Representation:

In the 1993/00023395 proceedings:

Counsel:
First and second plaintiffs:
First, second and third defendants: T. Hale SC

Solicitors:
First and second plaintiffs: In person
First, second and third defendants: Michael Zwar, Diamond Conway Lawyers

In the 2015/00331795 proceedings:

Counsel:
First and second plaintiffs:
First and second defendants: T. Hale SC

Solicitors:
First and second plaintiffs: In person
First and second defendants: Michael Zwar, Diamond Conway Lawyers

File Number(s):

1993/23395; 2015/331795

Publication restriction:

Nil

Judgment

1. The Court gave a procedural judgment in this matter on 2 May 2022: Preston v Nikolaidis [2022] NSWSC 521. As was explained in this May 2022 judgment these proceedings brought by the former client (“the plaintiff”) of a firm of solicitors (“the Firm”) have had a lengthy history since they were commenced in 1993. A convenient overview of their unfortunate history is given in two recent judgments in the proceedings, my 2017 judgment and Williams J’s 2021 judgment: see Preston v Nikolaidis [2017] NSWSC 1527 and Preston v Nikolaidis [2021] NSWSC 36.

2. For the convenience of the reader this judgment should be read with these recent judgments of the Court. Without further introduction, events, matters, and persons are referred to in this judgment in the same way as they are in my 2017 judgment.

3. In the May 2022 judgment, the Court concluded on what became known as the ‘files return election issue’ that it was open to the plaintiff, Mr Preston, to seek the return from the Firm of the solicitors’ files the subject of the costs assessment conducted under the 1993 proceedings and that nothing said in Court on behalf Mr Preston on 14 May 2018 precluded him from continuing to seek the return of these files.

4. The Firm’s 4 June 2021 motion seeks orders that if Mr Preston were allowed to “resile from his election” and if the Court were to order the delivery up of the files, then as a condition of doing so Mr Preston should be required to pay into Court the amount of $95,749.40, or an amount of $250,000 as security for the defendant’s costs.

5. This judgment deals with these orders in the Firm’s 4 June 2021 motion. The Court has not yet required delivery up of the files as it must first determine the terms upon which delivery up will be ordered, as the Firm claims that a lien still subsists over the files and that an order for delivery should not be made without the payment of funds into Court. Mr Preston claims that no such lien exists. This judgment resolves that question.

6. Consequent upon the May 2022 judgment the Court held several directions hearings to assist in isolating the present issue and it received written submissions from the parties which were completed in December 2022.

7. The plaintiff, Mr Preston continues to appear for himself in these proceedings. Mr Hale SC continues to appear for the defendant solicitors, directly instructed by the Firm.

8. The present issues are raised in the Firm’s motion dated 4 June 2021 and Mr Preston’s 2015 Motion and Summons, prayer for relief (2)(c) and relate to some 16 files identified in the Summons.

The Submissions and the Court’s Analysis

9. The Firm advanced legal submissions in support of its contention that it could still maintain a lien over the files being sought by Mr Preston. Mr Preston put-on wide-ranging submissions addressing the injustice of his situation and the way the Firm had treated him over many years. Whilst he undoubtedly has a just grievance in respect of his past treatment by some members of the Firm, which resulted in one of them being convicted and imprisoned for fraud in his dealings with Mr Preston, it is still necessary for the precise legal issues now raised by the Firm to be addressed directly with focus on the arguments raised by the firm.

10. As Mr Preston’s submissions did not do that the Court approached this matter by looking at the submissions advanced by the Firm to see whether they were legally sound. As will be seen, the Court has found in the reasoning below that the Firm’s submissions should be accepted, as in the Court’s view they represent a correct application of relevant legal principle.

11. The Firm submits that in order to succeed in his application on the 2015 Motion and Summons for an order under 2(c) to deliver up the particular files the subject of the lien without payment Mr Preston must establish both of the following: (a) that the underlying cause of action for the recovery of the costs the subject of the bill of costs secured by the lien had been extinguished pursuant to Limitation Act, ss 14 and 63; and (b) that the Firm’s lien had not been saved from extinction by s 68.

12. The Court accepts the Firm’s submission that if Mr Preston were to fail on either of these two steps, the 2015 Notice of Motion and the 2015 Summons must be dismissed. It is common ground that Mr Preston has succeeded on the first limb, which was decided in his favour by my 2017 judgment. The Court considers the second limb in this judgment.

13. The question is: has the Firm’s lien been saved from extinction notwithstanding that the Firm’s cause of action for recovery of its costs has been extinguished. The controlling principle for answering this question is found in Limitation Act s 68, which saves possessory liens from extinction, notwithstanding the operation of Limitation Act, s 63, which extinguishes the underlying cause of action. Limitation Act, s 68 provides as follows:

“68   Possessory Lien

Notwithstanding this Division, where—

(a)   a person is in possession of goods, and

(b)   the person has a lien on the goods for a debt or other money claim payable by a second person,

the right and title of the first person to the debt or other money claim is, as against the second person and the second person’s successors, saved from extinction under this Division for so long as a cause of action of the second person or of a person claiming through the second person for the conversion or detention of the goods or to recover the proceeds of sale of the goods has not accrued or is not barred by this Act, but only so far as is necessary to support and give effect to the lien.”

14. The Firm claims a lien over the files for a debt or other money claim against the Mr Preston (namely for the alleged unpaid fees under the bills of costs). The Firm submits that s 68 operates so that its debt or money claim against Mr Preston is saved from extinction but only so far as it is necessary to support and give effect to the lien.

15. The Firm submits that the intent of s 68 is to sustain the possessory lien for persons in the position of the Firm, such that the Firm’s rights are not extinguished even though the Firm’s cause of action to recover the unpaid fees is not maintainable and has been extinguished by the combined operation of Limitation Act, ss 14 and 63.

16. This analysis of s 68 is well supported both by the provision’s legislative history and by decided authority. As to the provision’s legislative history, the enactment of the Limitation Act closely followed the publication of a report of the New South Wales Law Reform Commission (“NSWLRC”), which proposed model legislation including s 68. The NSWLRC report entitled The First Report on the Limitation of Actions [1967] LRC 3 (the Report), which said (at [314]-[315]) that the Report’s proposal for the enactment of the present s.68 was to save possessory liens – which could be enforced without bringing an action – from being extinguished consequent upon the operation of s 63:

“314.    But those provisions would not affect the case where a creditor has in his possession a security which he could enforce without bringing an action, nor did the Wright Committee think that the right to enforce such a security in such circumstances ought to be limited. A creditor naturally refrained from bringing an action so long as he held an ample collateral security, and it would be inconvenient to both parties if he were compelled to enforce the security or lose his right altogether. The Committee did not desire to bring this about.

315. We think that the case of a possessory lien on goods requires special treatment. We would save a debt secured by possessory lien on goods from extinction for as long as the owner of the goods has a cause of action for the conversion or detention of the goods or to recover the proceeds of sale of the goods, but only so far as is necessary to support and give effect to the lien. Section 68 of the Bill so provides. A possessory lien is. not within the definition of 'mortgage" in section 11 (1) of the Bill.”

17. This passage sets out the critical policy reasoning of the NSWLRC for recommending the enactment of s 68: namely, it would be inconvenient to both parties to the lien relationship, if the creditor holding the lien were compelled to enforce the security or lose his right altogether. The NSWLRC’s reasoning and Report are quite clear that the NSWLRC did not wish to bring this result about. And it is difficult to disagree with the policy wisdom of the NSWLRC on this issue. Limitation Act, s 68 avoids the Courts been clogged up with unnecessary litigation which neither side of the lien relationship needs to bring, provided a sufficient collateral security is in place. The existence of the lien itself will often provide a satisfactory foundation for alternative dispute resolution outside the court system which is in the public interest.

18. Limitation Act, s 68 applies to Mr Preston’s claim. Here the files Mr Preston seeks are relevantly “goods” within the meaning of s 68 and the Firm is in possession of those goods and is claiming a lien over them in respect of unpaid fees.

19. But an incidental matter should be noted. The debt is saved from extinction in s 68 as a countermeasure: the saving of the lien from extinction occurs only “for so long as” the owner of the goods (Mr Preston, the “second person” within s 68) has a cause of action for conversion or detention of the goods against the Firm (the “first person” within s 68), or to recover their proceeds of sale. For the purposes of the present discussion, it can be assumed that Mr Preston’s cause of action for conversion or detention of the goods still subsists. This is not a matter which is necessary for the Court to determine, this given the conclusion that has been reached here. But the statutory interdependence created by s 68 means that whilst Mr Preston has rights to recover his files from the Firm that the Firm has rights to exercise its lien.

20. Decided authority leads to the same conclusion. In Coshott v Parker [2018] FCA 596 Lee J considered Limitation Act, s 68. Lee J referred to the NSWLRC report and said (at [22]-[24]):

“[22] Having set out the above, it seems to me that the statutory intention is quite plain. The rationale of s 68 of the Act arises by reason of the introduction of the notion of extinguishment in s 63. Without a provision such as s 68, the holder of a lien (of which, as noted above, several types were considered) would be compelled to enforce the security (if such a lien was capable of enforcement) prior to the expiration of the limitation period or lose it altogether on the basis that the underlying debt would, by force of s 63, be extinguished.

[23] In circumstances where the type of lien held was, in contradistinction to the current circumstances, one which gave active rights, such as the ability to exercise the power of sale (for example a wharfinger’s right to sell the property the subject of a lien) or a charge on shares enforceable by foreclosure or sale, s 68 of the Act acts so as to preserve the right of the holder to exercise the lien. Of course, s 68 does not transmogrify or augment the nature of the right which the lien represents. As I previously explained, the lien in issue here is merely passive and possessory, and hence s 68 does not create any rights in relation to the lien.

[24] It follows from the above analysis that the principled construction of s 68 of the Act is that where a person lawfully maintains a lien, the right and title to the debt that it supports is not extinguished, but only insofar as it is necessary to maintain the lien (that is, to exercise whatever rights the particular lien provides, given its nature). As can be seen from the LR Report, s 68 is only necessary because of the concept introduced in s 63 of extinguishment, because a lien is only able to be maintained when the debt, underlying it, exists.”

21. An appeal brought from Lee J’s decision was dismissed. On the appeal the Full Court of the Federal Court (Logan, Jagot and Davies JJ) affirmed Lee J’s construction of s 68: Coshott v Parker [2019] FCAFC 14, dismissing (at [18] – [19]) a contrary construction based on Coshott v Barry in the following terms:

“[18] One of the appellants’ arguments is this: s 68 saves relevant debts from extinction but does not resurrect an extinguished debt. Four of the debts were extinguished (see McCallum J in Coshott v Barry). Thus, s 68 does not save those extinguished debts.

[19] We disagree. Section 68 operates notwithstanding, relevantly, s 63. The finding of extinguishment in Coshott v Barry was based on the operation of the Limitation Act and the expiry of six years since accrual of the causes of action in respect of the debts. It follows that s 68 operates according to its terms. The finding of extinguishment in Coshott v Barry is therefore immaterial.”

22. The Court accepts the Firm’s contentions about the meaning of s 68. The Firm’s lien over the files of the Plaintiff has not been extinguished. This means that the second step necessary to be established for the success of Mr Preston’s argument fails.

23. The result is that the prayer for relief 2(c) in each of Mr Preston’s 2015 Motion and Summons should be dismissed. Mr Preston will not be permitted to seek delivery up of the files the subject of the lien without the payment of the costs secured by the lien. The Plaintiff’s claim for orders that the files the subject of the lien be delivered to the Plaintiff without payment of the costs secured by the lien must fail.

24. It should also be observed that Mr Preston’s claim would have failed in any event in respect of the subject files in which he was not the client in his own name. Mr Preston is not himself the client in most of the matters referred to in Schedule A to the 1993 Summons. Mr Preston therefore does not have standing as a plaintiff to seek the relief sought in prayer for relief 2(c) for the return of files. Prayer for relief 2(c) seeks an order that the Firm return to him copies of all files in the Firm’s possession concerning matters in which the Firm acted for Mr Preston, or one of his companies.

The Future Course of These Proceedings

25. The Firm submits that orders should now be made to finalise the 1993 proceedings now that the Firm says that Mr Preston has indicated that he does not seek to pursue the assessment of costs. The Firm submits that Mr Preston informed the Court in 2018 that he did not wish to pursue the costs assessment after the 2017 judgment. The Firm also urged the Court not only to determine the present motion but also to make certain other orders disposing of aspects of the 2015 summons.

26. The Firm says that the Defendants should no longer be burdened by these proceedings. The Firm’s submission hardly needs emphasis. These proceedings have been going for 30 years and must be finalised.

27. But in the Court’s view the first thing to be done immediately after this judgment is for Mr Preston to be required to indicate whether he is prepared to pay any sum into Court as a condition of his receiving the files he has requested. The Court has decided that the Firm’s lien still subsists, and the Court will protect it as a condition of return of any files in which Mr Preston was the client. The Court will not order the return of files which Mr Preston, the plaintiff in these proceedings, was not the client.

28. On his past indications to this Court Mr Preston appears likely to refuse to pay money into Court as a condition of receiving the files. If he makes it clear that that is still his position, then the Court will not require the production of any files from the possession of the solicitors. The proceedings will then move on to the resolution of final issues.

29. It seems to the Court that the bare minimum that Mr Preston should be obliged to pay into Court as the price for the return of his files is the original amount claimed by the Firm of $95,749.40. If Mr Preston indicates he is prepared to comply with such a condition, he will be required to indicate why the higher amount claimed by the firm of $250,000 to cover interest and potential costs should not also be paid into Court.

30. This can be done simply by the Court holding a directions hearing in which Mr Preston is required to indicate whether he will meet such a condition which will be imposed by the Court on the return of the files. The Court proposes to hold such a directions hearing in the week commencing Monday 3 April 2023.

Conclusions and Orders

31. For these reasons the Court makes the following orders and directions:

1. Note that on prayer for relief 2(c) in each of Mr Preston’s 2015 Motion and Summons Court will require payment of monies into Court in the sum of no less than $95,749.40 as a condition of the return of the 16 files requested; and the Court will not order the return of any of the 16 files in which Mr Preston is not the client retaining the firm;

2. List the proceedings for directions on at 9:30 AM on Wednesday, 5 April 2023 at which time the plaintiff will be required to indicate whether he will comply with a condition to be imposed by the Court for the return of the 16 files the subject of prayer for relief 2(c) that he pays into Court at least the sum of $95,749.40; and if he is prepared to comply with such a condition to show cause why he should not pay into Court the sum claimed by the defendants of $250,000; and

1. Grant liberty to apply.

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Decision last updated: 31 March 2023