William David Shircore v Andersons (Reg) No. SCGRG 96/474 Judgment No. 5513 Number of Pages 7 Professions and Trades Lawyers Liens

[1996] SASC 5513

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MASTER BURLEY

CWDS
Professions and trades - lawyers - liens - application for production of solicitor's file - possessory lien - claim - nature of lien - whether retainer terminated by client or solicitor - effect of statutory provisions on lien - factors affecting exercise of discretion. Legal Practitioners' Act s39, referred to. A v B (1984) 1 All ER 265, discussed.

HRNG ADELAIDE, 12, 19 March 1996 #DATE 22:3:1996

Counsel for plaintiffs:     Mr J Daenke

Solicitors for plaintiffs:    Daenke O'Donovan

Counsel for defendant:        Mr Frayne

Solicitors for defendant:     Andersons

ORDER
Orders made

JUDGE1 BURLEY J This is an application brought pursuant to the provisions of s39 of the Legal Practitioners Act. That section is as follows:-
    "39. (1) The Supreme Court may, on the application of any
    person, order a legal practitioner or former legal
    practitioner to deliver up papers -
    (a) held by the practitioner or former practitioner on
    behalf of the applicant; or
    (b) relating to proceedings taken or work done by the
    practitioner or former practitioner on behalf of the
    applicant.

(2) The powers conferred by subsection (1) may be exercised
    notwithstanding the existence of lien on the papers.

(3) An order may be made under this section on such terms
    and conditions as the Supreme Court thinks fit and, in
    particular, on conditions protecting the rights of the legal
    practitioner or former legal practitioner to costs for legal
    work done by the practitioner on behalf of the applicant."

2. Both parties agree, and I accept, that s39 should not be interpreted such that its provisions go no further than the common law. In other words, it confers a discretion upon the Court which is broader than the discretion which the Court has, in its inherent jurisdiction, to order production of a solicitor's file. It is nevertheless instructive to ascertain the position at common law because the cases provide some guidance as to the way in which the statutory discretion is to be exercised.

3. In A v B (1984) 1 All ER 265 Leggatt J reviewed the cases. His Lordship came to the conclusion that where the retainer is terminated by the client for other than misconduct on the part of the solicitor, the solicitor is, as a general rule, entitled to retain the file. Where the retainer was terminated by the solicitor, it was generally the case that the solicitor would be obliged to hand the file over to the new solicitors instructed by the former client on the basis that any lien on the file claimed by the former solicitor would be preserved. His Lordship was of the view that this was not an absolute rule and in the circumstances of that case, declined to order the production of the file by the former solicitors, notwithstanding that they had terminated the retainer.

4. In this matter, the defendants, the former solicitors, were retained by the plaintiff in relation to proceedings brought by a Mr and Mrs Papps. The plaintiffs had sold a business to the Papps and part of the agreement between the plaintiffs and Mr and Mrs Papps provided for a lease of the premises by the Papps from the plaintiffs. Settlement in respect of the sale of the business took place and the Papps took possession of premises owned by the plaintiffs pursuant a lease. Mr and Mrs Papps later brought proceedings in the Commercial Tribunal seeking, in effect, a reduction in the rent because, it was alleged, the plaintiffs had misled them as to the viability of the business. Mr and Mrs Papps were unsuccessful in the Commercial Tribunal because it was held by that Tribunal it had no jurisdiction to entertain the action brought by Mr and Mrs Papps. The proceedings were then transferred to the District Court. An order for costs was made by the Tribunal in favour of Mr and Mrs Shircore and those costs were subsequently agreed and paid by the Papps to the solicitors representing Mr and Mrs Shircore, the present defendants.

5. The present defendants were retained to defend the proceedings in the District Court. A costs agreement was entered into between the plaintiffs and the defendants and Mr Shircore signed an authority given to the defendants which enabled them to apply the proceeds of a personal injury claim that he had in respect of which the defendants had also been retained. That claim was subsequently settled and the sum of approximately $8,000 was applied by the defendants towards costs.

6. The costs agreement also provided for the rendering of monthly bills. Eventually a stage was reached where the costs recovered by the order of the Commercial Tribunal and the amount paid in settlement of the personal injury claim were exhausted and monthly bills were rendered in the context where they could only be met by payment of the amount claimed by the plaintiffs to the defendants. Several bills were rendered which were not paid and during, the course of 1995, the defendants became concerned about the plaintiffs' non-payment of bills which had been rendered in accordance with the costs agreement previously entered into between them. The defendants asked the plaintiffs for some form of security in relation to their costs. I infer, from the affidavit material before me, that that request was made on the basis that it was thought by the defendants that the plaintiffs did not have sufficient cash-flow to enable the bills to be paid but had assets which could be used as security for past and future costs. Discussions about costs and providing security for same took place between the parties for most of 1995. Towards the end of that year it became clear from statements made by Mr Parr on behalf of the defendants to the plaintiffs, that the defendants would not continue to act for the plaintiffs in the District Court proceedings if a mortgage which had been prepared by the defendants in order to secure unpaid costs, were not signed by the plaintiffs. It was said by Mr Parr, and I accept his evidence, that the defendants did not realise until the 19th December 1995 that the plaintiffs assets were so encumbered that there was no equity which would provide security for their costs.

7. It was suggested by the defendants that the plaintiffs had "strung the defendants along" in relation to payment of costs during 1995. I do not think that such a conclusion is open on the evidence before me and I reject that submission.

8. By letter dated 5th January 1996 the plaintiffs wrote to the defendants in order to advise the defendants that they had instructed the plaintiff's present solicitors to act for them in relation to the District Court proceedings. It is the plaintiff's contention that the retainer had been terminated by the defendants because of Mr Parr's statement that the defendants would not act for the plaintiffs if the mortgage remained unsigned. It was implicit from the terms of the letter of 5th January 1996 that the plaintiffs would not sign the mortgage proffered by the defendants.

9. It was the defendants' contention that the retainer had been terminated by the plaintiffs because the plaintiffs had instructed their present solicitors to act in the District Court action. In those circumstances, it was argued, the defendants were under no obligation to produce the file to the plaintiff's new solicitors. However, it was put that if the plaintiffs and their present solicitors were to agree that the defendants outstanding costs were to be paid in priority to any costs payable as between the plaintiffs and their present solicitors, they would not object to an order for the production of the file.

10. Had this application been dealt with by reference solely to the inherent jurisdiction of the Court to order production of the solicitors' file, the distinction which has been made in the case law between termination by the solicitor and termination by the client would have assumed an overriding significance but, in my view, the discretion conferred by s39 of the LegalPractitioners Act is not so fettered but, of course, it must be exercised judicially. I must have regard, on the one hand, to the position of the defendants who rightly wish to retain their file because their costs have not been paid (and, it seems, will not be paid) with the position of the plaintiffs who wish to defend the action brought against them by Mr and Mrs Papps.

11. The distinction between termination of the retainer by the solicitor as opposed to termination of the retainer by the client is now crucial not so much to the exercise of the discretion under s39 of the Legal PractitionersAct, but more to the question of the nature of the lien held by the solicitor on termination of the retainer. This point was dealt with by Leggatt J in A v B at page 269 where his Lordship said:
    "The authority most closely in point on an application of
    this nature is the decision of the Court of Appeal in Gamlen
Chemical Co. (UK) Ltd. v Rochem Ltd. (1980) 1 All ER 1049,
(1980) 1 WLR 614. That was a case in which solicitors
    asserted a lien for their costs. They did so in
    circumstances where the plaintiffs joined one of the
    defendants' solicitors' partners as a defendant. Thereupon
    the solicitors informed the defendants of their difficulties
    in conducting a defence and requested payment of their fees
    up to date. Fees were disputed. On the hearing of a
    summons for removal from the record the question was whether
    the solicitors had discharged themselves, and whether, in
    the circumstances, their possessory lien had been lost. It
    may save the need to cite from the judgments in that case at
    any length if I say that it is common ground that, if, while
    litigation is continuing for which a solicitor is retained,
    his retainer is terminated the rights of the solicitor
    depend on whether he is discharged by the client or
    discharges himself. If he is discharged by the client other
    than for misconduct, he is entitled to keep his lien and the
    court has no power to interfere with the exercise of it.
    If, on the other hand, he discharges himself, he enjoys what
    has been called a 'qualified lien' and the court will, as a
    matter of general practice, order the solicitor, without
    prejudice to his lien, to yield up papers required for use
    in the litigation to the solicitor who replaces him, against
    an undertaking by the new solicitor, so long as he retains
    the papers, to allow the old solicitor to have access to
    them and to return them to him as soon as the litigation has
    been concluded. It is also common ground in this case that,
    at least as a matter of form, the solicitors discharge
    themselves and also that they did so in circumstances which
    made this action reasonable."

12. In light of the above, the question of who terminated the retainer determines the nature of the lien possessed by the defendants.

13. It is to be noted that on the 19th December 1995 the defendants became aware that the assets held by the plaintiffs would not secure their costs. There was no indication thereafter by the defendants that they would be willing to act and I infer that after 19th December 1995 the defendants would not have continued to act for the plaintiffs so long as their bills remained unpaid. That, in my view, was a perfectly proper position for them to have taken. However, it means that the effective cause of the termination of the retainer was the action of the defendants based on the non-payment of fees due and owing by the plaintiffs.

14. Having found that the retainer was terminated by the defendants, it follows that the nature of the lien that they hold is one whereby they are required "without prejudice to (their) lien, to yield up papers required for use in the litigation to the solicitor who replaces them, against an undertaking by the new solicitor, so long as he retains the papers, to allow the old solicitor to have access to them and to return them to him as soon as the litigation has been concluded".

15. As Leggatt J said, that is not the only result possible where the retainer is terminated by the solicitor but it is the result which generally follows. In my view, for the purpose of ascertaining the nature of the lien held by the defendants (as opposed to determining the exercise of the discretion under s39 of the Legal Practitioners Act), the circumstances of the case before me are such that there is no warrant for departing from the general rule. Unlike the case of A v B, there has been an explanation as to the position of the plaintiffs with regard to payment of the former solicitors' costs. Whilst there is an apparent unfairness in the defendants' unpaid costs not being met whilst it is likely that monies will be advanced by the plaintiffs to their new solicitors, that is not, in my view, sufficient to displace the general application of the Rule.

16. In order to defend the District Court proceedings, the plaintiffs need not only to have the file but also to be in a position to pay their present solicitors for work done. There is no direct evidence on file as to the arrangement between the plaintiffs and their present solicitors with regard to the conduct of the District Court action and payment of fees in respect thereof but I am able to infer that, at least so long as the present solicitors continue to act for the plaintiffs, they will require to be paid for the legal work done by them in respect of the District Court proceedings. That inference gives rise to the conclusion that, if it has not already occurred, there will, in the foreseeable future, be monies paid by the plaintiffs to their present solicitors in respect of work carried out by those solicitors in the District Court action. The defendants in this action say that that would be unfair to them because, whatever monies the plaintiffs are able to lay their hands on should be applied towards the payment of their costs.

17. Mr Daenke, on behalf of the plaintiffs, submitted that even if the defendants were permitted to retain their file, there is nothing to suggest that this would enhance the defendants' position with regard to payment of costs. That submission is correct insofar as it goes, but it does not, in my view, properly take into account and address the proper complaint of the defendants that their costs should be paid before the plaintiffs have to meet any liability to pay the present solicitors' costs. The defendants' position so taken is only addressed, it was submitted by Mr Frayne, if, as a condition of ordering the production of the file, a direction be given that the defendants' costs are paid in priority to the present solicitors' costs. Mr Daenke's response to that contention was that the plaintiffs would not be able to retain their present solicitors if such a direction were given.

18. The defendants' contention that they should be paid in priority to the present solicitors raises a matter of real concern in the circumstances of this case. It seems to me that because the plaintiffs are unable to pay their unpaid costs they are in a position where they are not able to pay their debts as they become due out of their ordinary resources and, as such, they are insolvent. It would therefore not be appropriate for the Court to direct that, as a condition of the production of the solicitors' file, the former solicitors be paid in priority to the present solicitors because that would constitute a preferential payment. That is so, even if there are no other creditors, other than the present solicitors, affected by the priority payment because it takes only one other creditor to receive less than he or she would otherwise be entitled to by virtue of the payment in priority to the defendants. Accordingly, I do not think it is lawful to impose such a condition and I therefore have to decide this matter without reference to the possibility of a condition conferring priority of payment upon the defendants. The only step which the defendants may take to protect themselves against payments to the present solicitors is to seek the bankruptcy of the plaintiffs.

19. I mention also the plaintiffs' contention that third party rights were affected by the application in that other defendants to the District Court proceedings would need to have access to the plaintiffs' documents retained by the solicitors. In my view, no third party rights are affected because the other defendants would be able to call for production of the documents because they have been discovered and the defendants in this action accept that they would have to produce them with appropriate steps being put in place to preserve their lien.

20. The process leading to the exercise of the discretion conferred by s39 of the Legal Practitioners' Act, reduced to its essence in the circumstances of this case, requires that I weigh the position of the defendants if an order is made against them with the position of the plaintiffs if such an order is refused. On the one hand the defendant would not be paid their outstanding costs and the production of the documents would effectively do away with any security that they might have by retention of the documents. On the other hand, the plaintiffs would be unable properly to pursue their defence in the District Court to the proceedings brought by Mr and Mrs Papps. In circumstances where the defendants hold only a qualified possessory lien, I consider that the latter outweighs the former and the defendants should be required to produce the documents with orders being made protecting, to the extent possible, the rights that they have to the qualified possessory lien that exists in respect of the file retained by them. There will be an order and directions accordingly.