AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade; Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning

Judgment 1REIN J: The applicants on this Notice of Motion, for whom Mr Mitchell of counsel appears, are the partners of Rockcliffs Solicitors & IP Lawyers a law firm ("Rockcliffs"). Rockcliffs acted for AMC Commercial Cleaning (NSW) Pty Ltd ("AMC NSW") in two sets of proceedings against Australian Maintenance and Cleaning Pty Ltd ("AMC National"). Following various judgments of this Court, including a decision of the Court of Appeal, an hearing for the assessment of damages in relation to breaches of the franchise agreement between the parties commenced on 5 September 2011 before Hallen J. AMC NSW and AMC National resolved their differences by means of a deed of settlement entered into on 7 September 2011 ("the Deed"). 2By the Deed, AMC National agreed to pay $200K to Rockcliffs in settlement of all claims between it and AMC NSW: see clause 1 of the Deed, Exhibit A p 67. 3A week before the Deed was entered into AMC NSW, by its directors, granted on irrevocable authority to AMC National, Stephen Coade and Linacre Lawyers on the following terms (see Exhibit A, affidavit of Ms Anthi Balafas of 21 August 2012 p 64): "You are hereby authorised and directed for valuable consideration to pay all monies due to ... [AMC NSW] ... to our solicitor, Rockcliffs..." 4On 6 April 2009 AMC NSW had entered into a Costs Agreement with Rockcliffs (see Exhibit A, affidavit of Ms Anthi Balafas of 21 August 2012, p1 - 7). 5The $200K payable under the Deed was to be paid in instalments. $50K was paid to Rockcliffs within 7 days as required. On 14 September 2011 an order for winding up of AMC NSW was made. Mr Schon Condon, who is the respondent on the motion and for whom solicitor Mr Orlizki appears, was appointed as liquidator of AMC NSW. Mr Condon sought to prevent payment of the remaining $150K to Rockcliffs which he claimed could not be enforced. An agreement was reached between Rockcliffs and Mr Condon that the $150K should be paid into a controlled monies account pending determination of the dispute between Rockcliffs and Mr Condon. Mr Condon makes no claim for recovery of the $50K already paid to Rockcliffs. 6The dispute over the lien originally centred upon allegations made by Mr Condon that the payment of the $150K constituted, or would constitute if received by Rockcliffs, a preference. There were also allegations made that the Deed was brought about by undue pressure, was unconscionable and that Rockcliffs had breached fiduciary obligations owed by Rockcliffs to AMC NSW. All of these claims were expressly abandoned (see T2.49 - T3.23, T6.44 - 45 and T1.30 - 49.). The only ground on which Mr Condon now challenges the lien is that it was a term of the settlement that AMC NSW transfer to AMC National certain phone numbers and book debts of approximately $688K: see clause 2 of the Deed, Exhibit 1, p 67, pp 72 - 81 and p 84. 7Mr Orlizki draws attention to the fact that the book debts were not a matter raised in the litigation and there is no evidence that Rockcliffs gave advice in respect of them to AMC NSW. He submits that Rockcliffs cannot claim a "fruits of litigation lien" because the $200K paid (or to be paid to Rockcliffs) has not come about solely as a result of the work performed by them for AMC NSW. 8The basic principles, relevant to this case (and drawn from Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451 and omitting citations therein) are that: (1)A solicitor whose efforts result in the recovery of money for his client has an equitable right to have his proper costs and disbursements paid from the money recovered. (2)The solicitor's rights to a lien arise by virtue of his exertions and the Court's assistance is not by way of creating rights but enforcing them. (3)The monies which are the subject of the lien can be obtained by judgment or compromise and include an award of costs in favour of the client. (4)The lien exists over money in the possession of the solicitor and also money paid into Court. (5)The solicitor need not be still acting for the client at the time the money is recovered. (6)For the right to arise there must be shown to be a sufficient causal link between the solicitor's exertions and the recovery of the funds. (7)If the client is a company which goes into liquidation, the solicitor is entitled, in relation to costs arising from work done before the start of liquidation, to claim the full amount of the costs from the fund and is not required to prove in the liquidation. 9Mr Condon does not dispute that the costs and disbursements owing by AMC NSW to Rockcliffs as at September 2011 exceeded the amount payable by AMC National under the Deed, and no point was taken that the settlement sum was significantly lower than even the total costs claimed by Rockcliffs from AMC (NSW). It would seem from Patience, Ex Parte: Makinson v The Minister (1940) 40 SR (NSW) 96; (1940) 57 WN (NSW) 65 that the amount of judgment recovered in comparison to the costs incurred is not in any event relevant. There is no contention advanced here that AMC NSW had some basis to resist the costs and disbursements claimed on the grounds that Rockcliffs had given inadequate advice or acted negligently in some other way in the conduct of the matter. As I have noted, the contention that Rockcliffs had acted unconscionably or in breach of duty in having AMC NSW sign the deed directing payment of the $200K to Rockcliffs was earlier abandoned. 10Mr Orlizki accepted that were it not for the fact the inclusion in the Deed of the term relating to transfer of book debts, Rockcliffs would be entitled to the claimed lien but he contends that once it is clear that the settlement was achieved not only by virtue of the litigation, but also by reason of the transfer of the book debts, it cannot be said that the settlement was solely a product of the work done by the solicitors in the litigation. Rather, Mr Orlizki submits, it was a combination of both the work done by the solicitors and something for which they were in no way responsible and hence, there would need to be evidence of what part the book debts played and how AMC NSW viewed the book debts to enable the Court to apportion the share of the $200K which could be ascribed to the solicitors work: see paragraph 17 of the submissions of Liquidator dated 21 February 2013. 11 Mr Mitchell responded to those contentions as follows: (1)The authorities recognise that for the lien to apply the settlement does not have to be solely as a result of the exertions of the solicitor. Mr Mitchell relies on Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia [1997] FCA 980, Doyles Construction Lawyers v Harsands Pty Ltd (Supreme Court of New South Wales, 24 December 1996, unreported BC9606389), Carew Counsel Pty Ltd v French (2002) 4 VR 172; (2002) 190 ALR 690; (2002) 166 FLR 460; [2002] VSCA 1 and he also draws attention to the fact a solicitor's fruits of litigation lien has been described as similar to a lien to a claim for salvage; (2)The proposition advanced by the respondent would involve the Court undertaking considerable time and work in endeavouring to determine exactly what was attributable to the proceedings and, even more difficult, where a global sum is referred to without any break up. (3)The settlement negotiations was conducted by Rockcliffs or by the barrister retained by them. (4)If, contrary to Mr Mitchell's main contentions, a minute examination of the settlement were required it can be seen that the book debts transfer was in return for AMC National's release of AMC NSW: see clauses 3.2 and 4.1. 12In Doyles Construction Lawyers v Harsands Pty Ltd McLelland CJ in Equity said: In my opinion the $40,000.00 must be taken to have been obtained by Harsands as the result, at least in part, of Doyles' exertions, and the equitable right vesting in Doyles in accordance with the principles already referred to prevail over the bank's security interest, since the money would not be available to the bank without the benefit of Doyles' exertions (see also Worrell at 244-5). In Akki Windeyer J recognised the validity of these principles but held them inapplicable to the special circumstances in that case (see Akki at 475-6) which are not replicated in the present case. (Emphasis added) 13The principles to which his Honour had earlier referred were those stated by Jordan CJ in Patience, Ex Parte: Makinson v The Minister as follows: A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs ... 14In Patience, Ex Parte: Makinson v The Minister in respect of statutory charging orders under the Legal Practitioners Act 1898 (NSW) Jordan CJ commented: ...it has always been held that the solicitor's claim is in the nature of a claim to salvage, and that the charge will therefore be made upon all the property recovered or preserved as the result of the solicitor's exertions and not merely on his client's interest therein... 15In Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia Lehane J said: Certainly nothing in the authorities suggests that any such comparison [between the terms of compromise and the relief claimed by Roam] is relevant: the questions seem to be, first, did the proceeding result in a judgments award or compromise under which money is payable to the party for whom the solicitors acted; and, secondly, was the part played by the solicitors sufficient to justify the conclusion that there is a sufficient causal link between the solicitors' efforts and the result, so that the solicitors may be regarded as having been instrumental in obtaining the result. (Emphasis added) 16In Carew Counsel Pty Ltd v French, the Justices of the Court of Appeal Winneke P, Buchanan and Vincent JJA said: As a matter of general principle, a solicitor has an equitable lien over the fruits of litigation, whether obtained by way of judgment or compromise, where those "fruits" have been gained, at least in part by the solicitor's exertions on behalf of the client. (Emphasis added) 17In Jackson v Richards [2005] NSWSC 630, (2005) 12 BPR 23, 091 White J said after quoting Grogan v Orr [2001] NSWCA 114: It is clear from [62] of the judgment of Sheller JA, which I have quoted, that the court accepted that for a solicitor to be entitled to a lien over the fruits of litigation, those fruits must be "produced by the industry of the solicitor". This is not an exacting standard. It is not necessary to demonstrate that a judgment or settlement came about as a result of specific efforts by the solicitor, but there must be some causal link between the solicitor having acted for the client in the proceedings and the resulting payment to the client: Doyles Construction Lawyers v Harsands Pty Ltd (NSWSC, McClelland CJ in Eq, 24 December 1996, unreported, BC9606389) at 4; Roam Australia Pty Ltd v Telstra Corporation Ltd (t/as Telecom Australia) (FCA, Lehane J, 22 September 1997, unreported, BC9704567) (at 4-5); Firth v Centrelinkat 463-4. 18Mr Orlizki submitted that what was said by Lehane J in Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia on the question of whether there needs to be a comparison between the terms of settlement and the relief sought was obiter dictum since the party resisting the lien did not contend otherwise. Nevertheless, in my view his Honour's comments are of value and, with respect, correct. 19Mr Orlizki drew attention to the fact that in Jackson v Richards White J held that the lien was not attracted. That, however, was because the property in question was property of the client which was preserved - the case was not concerned with a fund obtained from the other party to the litigation. 20The authorities establish that the fact that the solicitors were retained to conduct litigation and that the proceedings conducted by them (and with counsel retained) were settled following settlement negotiations conducted by them, or counsel retained by them, establishes a sufficient causal nexus between the attainment of the fund and their efforts. I do not think that to recover under their lien the solicitors need to establish that it was their efforts alone that produced the settlement nor, where other factors have helped produce the settlement, to establish a proportionate responsibility for the settlement. 21At its core the underlying rational for the solicitor's lien is that in a normal case where judgment is obtained by the plaintiff, it would be unfair to permit the client to receive the judgment sum without paying the solicitors their agreed legal costs and disbursements since, without the solicitors efforts, the judgment would not have been obtained. The same rationale applies to a settlement, and in both cases the position is similar to a workman who is entitled to a lien until his repair charges have been paid - the client should not have the benefit of the judgment (or settlement) or object repaired until the solicitor or workman is recompensed for his or her efforts. 22Where there is no dispute about the following: (1)that the fees said to be the subject of the lien were incurred by the client, (2)that the amount of the fees due from the client exceed the value of the funds obtained by judgment or settlement, (3)that the solicitors conducted the proceedings on behalf of the client, and (4)that the efforts of the solicitors helped to produce the settlement of the proceedings, I can see no rational for examining and assessing what part a particular element of the settlement played. I do not think it is necessary to consider the precise role that the book debts played and I therefore do not need to consider Mr Mitchell's contention that the transfer of the book debts was a precondition to release by AMC National of AMC NSW and hence points to the transfer being related to the cross claim. 23I think there are sound policy reasons for rejecting the need for any such analysis not only because the proportionate responsibility may be very difficult to assess but also because I think solicitors involved in litigation (and counsel) should be encouraged to examine ways in which settlement can be achieved and to encourage parties to a dispute, where such a possibility exists, to consider accepting solutions that involve, to some degree, matters that do not arise directly, or even indirectly, out of litigation. Further, solicitors and counsel should not be dissuaded from such a course by a concern that their right to be paid costs and disbursements will be jeopardised by including items which they have not worked upon or that are not the subject of dispute within the current litigation. 24In the course of oral submissions, Mr Orlizki made submissions (see T17.48 - T18.13 and T26.3-23) which appear to raise doubts about the genuineness of the settlement and to challenge the contention that the payment of $200K represented, even in part, a compromise of the litigation. 25He sought to draw support from Grogan v Orr in which it was said (at [60] per Sheller JA with whom Meagher JA agreed) that Welsh v Hole (1779) 1 Dougl 238; 99 ER 155 decided inter alia that: ...where money is received or paid as a compromise of a suit, and that money is in truth and in substance the fruit of the action, the solicitor's lien for costs extends to it... (Emphasis added) 26To the extent that Mr Orlizki was contending that that the Deed of itself establishes that the solicitors' efforts did not even, in part, help produce the settlement, I do not think such a contention is open to the liquidator as it is inconsistent with the written submissions on behalf of the liquidator: see paragraphs 10, 17-22 of the submissions of liquidator 21 February 2013, which were not abandoned and inconsistent with Mr Orlizki's concession at T4.34 - T5.11: HIS HONOUR: You don't dispute that the settlement was brought about in part by reason of their work? ORLIZKI: No, we don't dispute that. In any event, the Deed was signed whilst the proceedings before Hallen J were on foot which encourages the inference that the Deed was brought about by "pressure" of the proceedings and hence that there is a sufficient causal link between the efforts of the solicitors in conducting the litigation and the settlement negotiations, on the one hand, and the fund obtained on the other. Moreover, the Deed itself makes it clear that the settlement of the proceedings has produced the fund, and AMC NSW's direction to AMC National that the monies be paid to Rockcliffs, and the express abandonment of any contention that AMC's execution of the Deed was somehow brought about improperly or was a preference, are inconsistent with the proposition that Rockcliffs' efforts had nothing to do with the monies which AMC National agreed to pay.