Stewart v Eastern Health
[2012] VSC 197
•15 May 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. SCI 2007 05047
| MICHELLE STEWART | Plaintiff |
| v | |
| EASTERN HEALTH | Defendant |
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JUDGE: | J FORREST J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 May 2012 | |
DATE OF RULING: | 15 May 2012 | |
CASE MAY BE CITED AS: | Stewart v Eastern Health | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 197 | |
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PRACTICE AND PROCEDURE - Costs – Solicitor’s lien – Whether agreement between Plaintiff and former solicitors affected the solicitors’ equitable entitlement and the basis for a lien.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Brett | Arnold Thomas & Becker |
| For the Defendant | No appearance | |
| For Clark Toop & Taylor | Mr B Hutchison | Clark, Toop & Taylor |
HIS HONOUR:
Introduction
Ms Stewart settled her claim against Eastern Health for $50,000 inclusive of costs in April of this year. Absent any other consideration, her former solicitors, Clark, Toop & Taylor,[1] had an equitable entitlement with an associated lien to their costs out of the settlement funds – often referred to as a “fruits of the action” or “fruits of the judgment” lien.
[1]“the solicitors”.
The issue on this application is whether, by an agreement[2] reached between the solicitors and Ms Stewart in November 2011, Ms Stewart was released from any obligation to pay costs to the solicitors in respect of this claim with the result that the solicitors have lost their entitlement to costs from Ms Stewart and therefore have no basis for asserting a lien.
[2]“the agreement”.
In my opinion, the agreement did not relieve Ms Stewart of her obligation to pay the solicitors’ costs, nor did it constitute an abandonment of the solicitors’ right to exercise a lien over the settlement funds. The solicitors are entitled to orders giving effect to their entitlement.
Background
Both this proceeding, issued in 2007, and a related proceeding[3] against the State of Victoria (Department of Human Services)[4] arose out of the tragic death of Ms Stewart’s son, Nathan, on 4 April 2005.
[3]Proceeding number 4755 of 2008.
[4]“the DHS claim”.
Ms Stewart engaged the solicitors on 9 May 2005 to act on her behalf in both claims.
On 18 May 2005, the solicitors wrote to Ms Stewart providing information pursuant to s 86(1) of the Legal Practice Act1996 (Vic).
In another letter of the same date, the solicitors set out the basis for their retainer which included estimates of details of legal costs, the effect of the Goods and Services Tax, the consequences of the claim failing and the following:
Should you choose to revoke your instructions or transfer your file from Clark & Toop to another legal firm before the completion of the file, the full amount of professional fees and disbursements must be paid within seven days.
Lest there be no doubt, this notice does not constitute a “no-win/no-fee” costs agreement. The work undertaken by the solicitors and staff in this office is undertaken in good faith with the expectation that we will be paid for our endeavours. If it becomes apparent to us that the client has no intention of paying our account then we reserve the right to withdraw from the matter and render our final account.
In relation to the recovery of costs from the other party, the following appeared:
Costs orders are in the discretion of the court/tribunal in the majority of the matters. A party has no right to costs unless and until the Court awards them. If you are successful in the litigation it is possible that the court will make an order that requires the other party to pay some of your costs. These are known as party/party costs and for the most part are calculated according to a Scale set by the Court. In some unusual circumstances a successful party may recover solicitor/client costs. In some circumstances, even though a party may be successful, no costs order will be made in their favour.
The trial of both claims was fixed for August 2011. The claims were unsuccessfully mediated on 16 and 17 March 2011.
On 16 May 2011, Mukhtar AsJ ordered that the solicitors have leave to file a Notice of Ceasing to Act.[5]
[5]Rule 20.03 of the Supreme Court (General Civil Procedure) Rules 2005 (“SCR”).
In June and July 2011, the solicitors rendered accounts to Ms Stewart for services in relation to both claims and a bill in taxable form, amounting to approximately $281,000, was prepared.
On 28 July 2011, the solicitors issued this application seeking a declaration that it had:
1.…a lien over any proceeds of any settlement payable to the Plaintiff, or the benefit of any order for a money sum or damages to be assessed made in this proceeding in favour of the Plaintiff, for their proper legal costs and disbursements in a sum to be determined.
2.An order that any sum payable by the Defendant to the Plaintiff as a result of a compromise or order in this proceeding be paid by the defendant into Court to be retained until further order.
After the withdrawal of the solicitors, the August trial date was vacated (as was a subsequent trial date of 13 March 2012) with the case ultimately being re-fixed for trial on 16 April 2012.
In August 2011, as a result of a PILCH referral, Adviceline Injury Lawyers[6] acted for Ms Stewart in her negotiations with the solicitors.[7]
[6]“Adviceline”.
[7]The firm did not file an appearance but it was not in issue that it had authority to act on behalf of Ms Stewart.
In November 2011, an agreement between Adviceline, on behalf of Ms Stewart, and the solicitors was reached in relation to costs. I shall return to this in a moment.
On 15 December 2011, Habersberger J made orders in relation to this application. His Honour struck out the application with a right to reinstatement should the Plaintiff settle her claim and ordered the withholding of the settlement sum so the application could be finally determined.
In March 2012, the DHS claim was settled for $230,000 plus costs. On 20 April 2012 I made orders that the proceeding be struck out and that the DHS pay Ms Stewart’s party/party costs.
On 7 April 2011, the solicitors were advised by Eastern Health’s solicitor that the claim in this proceeding had settled for $50,000 inclusive of costs. On 18 April I made orders dismissing the proceeding with no order as to costs.
The agreement
The agreement was set out in the solicitors’ letter to Adviceline of 16 November 2011:
In consideration for Clark Toop & Taylor reducing any non-recoverable costs and disbursements sought and allowing the release of the file to Ms Stewart, I confirm that Clark Toop & Taylor is prepared to agree to:
1.Reduce the non-recoverable solicitor/client costs and disbursements to $50,000.00. (inclusive of GST). Should the matter resolve, your firm to forward the said $50,000.00. to this office upon receipt and clearance of the settlement funds.
2.In the event that the damages claim settles, Ms Stewart agrees that Clark Toop & Taylor will be permitted to go back onto the court record as her solicitors, so as to recover for itself the party/party costs and disbursements from the Defendants. The party/party costs and disbursements will include those costs and disbursements up until the date that Clark Toop & Taylor went off the record and after Clark Toop & Taylor are back on the record including those costs and disbursements involved in the recovery of the party/party costs and disbursements including any taxation if the costs and disbursements can not be agreed. For clarity, Ms Stewart agrees that Clark Toop & Taylor retain the party/party costs and disbursements recovered.
3.That the application for the lien over the proceeds of the litigation be struck out with a right of reinstatement upon giving the parties 14 days notice.
4.In the event that the matter does not settle within the next 2 weeks, then Ms Stewart will be provided with her file to enable her to run the litigation in person. The file will be copied by Clark Toop & Taylor and then released to Ms Stewart.
I would appreciate if you could advise the Defendants that the costs dispute between this office and Ms Stewart has resolved. In this regard, I enclose a copy of a letter which I have recently received from Messrs DLA Piper. I propose to respond to that correspondence and will provide you, as a matter of courtesy, with a draft of my letter to them prior to it being forwarded.
I await your written confirmation that the matter is now resolved in these terms and await your advice in respect to the substantive matters.
On 17 November 2011, Ms Tsalamandris of Adviceline confirmed agreement as set out in the letter,.
On 12 December 2011, the solicitors wrote to Ms Stewart noting the following:
· You will notify me at such time as the case is resolved;
· The non-recoverable disbursements and costs of Clark Toop & Taylor will be capped in the sum of $50,000;
· That Clark Toop & Taylor will be entitled to go “back onto the record” to seek the party/party costs and disbursements in respect of the proceeding up until the time of going off the record.
Submissions of the parties
Initially, counsel for Ms Stewart relied on the letter of 12 December 2011 as the basis of the agreement between Ms Stewart and the solicitors; but it became clear in argument that this letter was simply an explanation of the agreement which had been reached as a result of the letter of 16 November 2011 from the solicitors to Adviceline and the acceptance of the offer made in the letter.
Counsel for Ms Stewart accepted that the agreement:
(a)obliged Ms Stewart to pay $50,000 to the solicitors in relation to “non-recoverable solicitor/client costs and disbursements”; and
(b)entitled the solicitors to apply to the Court for an order for party/party costs and disbursements up until the time it ceased to act for Ms Stewart from the defendants.
But, so he argued, that was the end of its entitlement. The right to recover costs from Ms Stewart over and above the $50,000 was, in effect, abandoned and the only subsisting right related to “going back on record” and recovering party/party costs from the defendants. The solicitors had no right, given the terms of the agreement, to seek any amount from Ms Stewart in relation to the claim against Eastern Health. As it had settled on an “all in” basis (i.e. inclusive of costs) and no order for party/party costs had been made against Eastern Health then that entitlement may well be worthless – but, he argued, that was the clear meaning of the agreement. On the other hand, such a right remained in the DHS claim as it was settled on the basis that party/party costs would be paid and orders made accordingly. He summarised it in this way: the agreement terminated any right the solicitors had to recover costs from Ms Stewart, apart from that of the $50,000 for non-recoverable costs.
Counsel for the solicitors contended that as there was an entitlement to recover non-recoverable costs in both proceedings from Ms Stewart then the entitlement to a lien in this proceeding remained. Secondly, he argued that the settlement sum of $50,000 must implicitly contain an amount for party/party costs which, so it was said, was held for the benefit of the firm. He said that the agreement was intended to encompass such a situation.
Considerations
It is well settled that a solicitor has a “fruits of the action” lien over the proceeds of a settlement or judgment in respect of work on a claim which has contributed to money being payable to the client.[8] Despite initial reluctance, it was accepted by counsel for Ms Stewart that the solicitors had such a lien for the work done in respect of both this proceeding and the DHS claim.
[8]Simpson v Rowe [2011] VSC 149 at [5].See also Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980; and Colour Point Pty Ltd v Markby’s Communication Group Pty Ltd [1998] FCA 1516.
In Roam Australia Pty Ltd v Telstra Corporation Ltd,[9] Lehane J said as follows in relation to the application of this principle:
First, the principle applies equally to judgments and compromises; secondly, the right does not depend upon any intervention by the Court, the assistance of which “is invoked not to create the rights but to enforce them; thirdly, the amount which a solicitor is entitled to recover out of the judgment debt or amount owing under the compromise is the amount of costs and disbursements which the solicitor is entitled to recover from the client (no doubt that entitlement may depend upon agreement, taxation or assessment) and the claim may be asserted even though the precise amount to which the solicitor is entitled has not, by the appropriate means, been ascertained. (references omitted)
[9][1997] FCA 980 (‘Roam’)
It follows then that, absent any other consideration, the solicitors’ right to have their costs paid out of the funds extended to Ms Stewart’s settlement with Eastern Health in this proceeding.
Ms Stewart’s argument boils down to this: did the agreement mean that the solicitors abandoned any right to recover costs from her arising out of a settlement and confine its entitlement to recovering party/party costs from one or other of the defendants? If so, no basis exists upon which a claim for an equitable entitlement and a consequential lien can be advanced.
For the following reasons the answer must be no.
The agreement is to be interpreted in accordance with the statements of principle of the High Court in Codelfa Constructions Pty Ltd v State Rail Authority,[10] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[11] and Pacific Carriers Ltd v BNP Paribas.[12] The meaning of the words in the agreement are to be determined objectively, by reference as to what a reasonable person would have understood them to mean. The primary consideration is the text of the agreement but the surrounding circumstances known to the parties and the purpose or object of the transaction are also relevant.[13]
[10](1982) 149 CLR 337.
[11](2004) 219 CLR 165.
[12](2004) 218 CLR 451.
[13] See also Reading Properties Pty Ltd v Mackie Group Pty Ltd [2012] VSCA 90 at [21], [22].
I accept that in an appropriate case it would be possible for a solicitor to agree to forego or abandon an entitlement to recover costs from a client in a proceeding – including abandoning its right to the fruits of the action. I think this proposition emerges from general principle and not from what was said by Lehane J in Roam. His Honour’s reference, relied upon by Ms Stewart, to the term “agreement” was, as is clear from the text, in the context of the resolution of the quantum of the costs (particularly the references to taxation or assessment).
By her 2005 retainer of the solicitors, Ms Stewart agreed to pay the costs of the solicitor involved in prosecuting her claims.
The agreement was the product of negotiations between two experienced personal injury solicitors: Mr Clark on behalf of the solicitors and Ms Tsalamandris on behalf of Ms Stewart. The agreement was reached in circumstances where the solicitors had worked for over six years on the case and had, at least, an arguable entitlement to over $280,000 in costs incurred in respect of both claims. Both the solicitors and Ms Tsalamandris must have been aware that a party/party costs order was necessary for the solicitors, if the firm was to obtain costs from a defendant: r 63.13 of the SCR.
At the time of entering into the agreement the solicitors had, as I have explained, a right or entitlement to the fruits of the action (if monies were received). Nowhere in the agreement is there a suggestion that the solicitors’ right to those monies in either proceeding was surrendered or abandoned. Similarly, nowhere in the agreement is it suggested that the solicitors no longer possessed a right to exercise a lien over the fruits of the action. Given the involvement of two experienced personal injury solicitors one would have expected the abandonment of such a claim to be specifically set out if this was the intention of the parties.
The critical point of the agreement relied upon by Ms Stewart is contained in paragraph two which entitles the solicitors to go back onto the record and seek party/party costs from the defendants. In my view this does not, implicitly, amount to an abandonment of the solicitors’ rights against Ms Stewart. Nor does it constitute an abandonment of the solicitors’ equitable rights to the fruits of the action in either proceeding. Rather, it was designed to provide a mechanism enabling the solicitors to recover its costs (without recourse to Ms Stewart), in the event of settlement or judgment, from one or other of the defendants. So, rather than await payment to Ms Stewart’s current solicitors and then reimbursement by the solicitors or Ms Stewart, the solicitors, by reason of the agreement, had the right to file a bill on behalf of Ms Stewart in accordance with r 63.39 of the SCR and then proceed to tax or negotiate settlement of its costs. But the agreement did not, either in its express terms or implicitly, constitute an abandonment of the solicitors’ entitlement – it gave the solicitors a means by which to recover its costs from the defendants up until the time it went off the record. Its right to seek costs from Ms Stewart remained and the solicitors would be entitled, if they desired, to seek taxation of these costs pursuant to Part 6 of Order 63 of the SCR.
It would be, in my opinion, an extraordinary and totally unintended result, if the subsequent mode of settlement of this proceeding – that is on an “all in” basis – extinguished the solicitors’ rights to costs where the agreement was silent on such an eventuality.
Indeed, the result urged on behalf of Ms Stewart would lead to an absurdity: if both proceedings had been settled on an inclusive of costs basis (a not uncommon circumstance) then the solicitors, on her argument, would have no right to seek costs from Ms Stewart (apart from the $50,000 of non-recoverable costs), albeit that such settlements invariably include an amount attributable to party/party costs.
I think that the answer is clear and Ms Stewart’s contention must fail. But I should add one other point. Even if Ms Stewart’s argument was accepted, the agreement did not terminate her obligation to the solicitors. She was still obliged to pay the solicitors $50,000 for non-recoverable costs and disbursements. Although the contents of the agreement are not a model of clarity, I think it is sufficiently clear that those costs related to both claims. In other words, there remains extant an obligation to pay a fixed amount to the solicitors which, in turn, supports the solicitors claim to a lien.
Finally, I should say that I do not accept as relevant the contention of the solicitors that the settlement for $50,000 inclusive of costs must have included an amount for party/party costs. That is to put the cart before the horse. The real question, as I have tried to explain, is that of the meaning of the agreement.
Conclusion
I reject the argument that the agreement prevents the exercise by the solicitors of the firm’s equitable right over the proceeds of the settlement and propose to make the orders sought by the solicitors subject to amendments reflecting the fact that the proceeding has been settled. Ms Stewart should pay the costs of this application.
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