Atlantic 3-Financial (Aust) P/L & Anor v Marler & Anor [2003] QCA 529

[1] DAVIES JA: I agree with the reasons for judgment of Jones J and with the orders he proposes.

[2] JERRARD JA: In this matter I have read and respectfully agree with the reasons for judgment and orders proposed by Jones J. I note that construing rule 84(1) to require that a request specify the matter or particular work to which the request relates allows the practitioner to identify the size of the task being requested and thereby identify if a month is too short a period within which to comply, and what is a reasonable period. It also allows the practitioner to identify whether a bill of costs has already been rendered for that work. That construction also protects a practitioner against a loss pursuant to rule 84(2) of a lien to which the practitioner might otherwise be entitled, which could occur (if a general or "all matters" request could be made) if one small matter on which work had been done for the client was over looked when preparing bills of costs for a considerable quantity of other unbilled work.

[3] JONES J: The appellants are members of a firm of solicitors (hereinafter "the practitioner") which between 1996-2001 acted on behalf of the respondents (hereinafter "the clients") in a large number of matters. The clients terminated the retainer and then requested that bills of costs concerning all work undertaken be rendered. The request dated 22 November 2002 was purportedly made pursuant to r 84 of Queensland Law Society Rules ("the rules") in the following terms:

"TAKE NOTICE that we request you to render to us within 30 days bills of costs concerning all work undertaken by you for us since January 1996."[1]

[4] The practitioner rendered separate accounts in short form in respect of some 20 matters but the clients refused to pay, choosing instead to challenge each account. The practitioner identified a further 54 matters to be costed but sought that the earlier accounts be paid before embarking on the expense and inconvenience of preparing any further accounts.

[5] The clients applied for an order that the practitioner deliver up all files and documents. Any such order would thereby terminate the practitioner's lien over the documents. The practitioner sought an order to extend time for rendering further accounts.

[6] The practitioner appeals against orders made in the Supreme Court requiring it to deliver up all files save for those files in respect of which bills of costs had been rendered but remained unpaid.

[7] The practitioner, having filed an amended notice of appeal, seeks leave now to adduce fresh evidence going to the clients' insolvency. That fresh evidence consists of two affidavits. The first, an affidavit of Daniel Francis Kerrigan, alleges facts explaining why evidence as to the clients' financial state was not available to the practitioner at the time of the initial hearing. The other affidavit is by Warwick Leslie Marler which exhibits a copy of a report by an investigative accountant concerning the affairs of the first-named client which report was obtained in connection with unrelated proceedings before this court.

[8] The clients oppose the receipt of such fresh evidence contending that it is not relevant to the question of the reasonableness of the time allowed for the preparation of bills of costs.

[9] The issues raised for determination on this appeal are:

2. the validity of the request made by the respondents purportedly pursuant to r 84;

3. the scope of the lien surrendered by virtue of non-compliance with the request;

4. whether the fresh evidence ought to be received; and

5. whether the learned primary judge erred in determining that a reasonable time had elapsed for the delivery of the bills of costs.

[10] An initial costs agreement, dated 11 November 1996 and signed by a director of both clients, Dr Acker, specified the hourly rate which would be charged by the various classes of persons attending to the clients' work. Thereafter, and pursuant to the costs agreement, accounts for work done and outlays incurred were rendered by the appellants in a short form and not as bills of costs in taxable form. That form of accounting was obviously acceptable to the clients because the majority of the accounts were paid. At some stage the specified hourly rates were increased and there is an issue whether the variation was authorised by the clients. The issue does not fall to be determined on this appeal.

[11] The practitioner replied to the notice of 22 November 2002 by recounting some of the history relating to unpaid accounts, expressing concerns about the clients' solvency and their unwillingness to pay, even for uncontentious outlays, and requesting that the clients identify the files in which the bills of costs should be rendered first so that priority could be given to those matters. The practitioner requested that a timetable and protocol be established for the delivery of the bills.[2]

[12] The practitioner claimed its resources did not permit the preparation of bills of costs in such a large number of matters within the one month stated in the request. That fact appears to have been recognised by the clients who granted an extension of time until 10 January 2003[3] and then on 13 December 2002 enquired if any further extension was needed. The practitioner made no response to this latter enquiry. On 21 February 2003, the clients made application to have delivered to them all their files and documents in the possession of the appellants arguing that any lien attaching to those files and documents was now lost.

[13] The practitioner resisted the application on the grounds that it was unreasonable in the circumstances for them to prepare such extensive bills of costs given the resources available to them and the fact that the bills previously rendered had not been paid. The clients had by this time challenged every item in every bill which rather indicated that the payment of the existing accounts would be delayed. The practitioner also argued, though based on limited evidence, that the clients were insolvent. Certainly there was ample evidence of an unwillingness on the part of the clients to pay some accounts when they fell due but the director of the clients, Dr Acker swore an affidavit and tendered balance sheets of each respondent so as to maintain that the clients were solvent.[4] As a consequence, the question of the clients' insolvency did not feature in the reasons of the learned primary judge.

[14] His Honour considered whether a reasonable time had elapsed for the rendering of the bills noting that only six bills had been rendered in a period between 10 February - 21 March 2003 and that no further extension had been requested. His Honour then found:-

"Taking all of those matters into account, it would seem to me that the one month referred to in rule 84(2) was too short a time to expect the respondents to render the bills, but that, bearing in mind also that the respondents were no doubt aware of their responsibilities under rule 84 - as all practitioners would no doubt be, the time that has elapsed since the request was made in November is a reasonable time for them to have finalized their accounts to the applicants. I therefore conclude that it is now open to the applicants to rely on rule 84(2) on the basis that a reasonable time has now elapsed and that they are now entitled to the delivery of all of their documents."[5]

[15] The rules are made pursuant to s 5A of the Queensland Law Society Act 1952 ("the Act"). The present rules were approved by Order-in-Council on 25 June 1987 following their consideration at three meetings of the Council of the Queensland Law Society. It is accepted by all parties that the rules constitute subordinate legislation. The rules are divided into parts identified alphabetically, each part having a specific focus, eg Objects, Membership, General Meetings, etc. Rule 84 is located in Part N which deals with "Discipline" and makes specific references to such matters as unfair practices and a practitioner's duty to give explanations to the Law Society.

[16] Rule 84 relates to a practitioner's duty to render a bill of costs when requested to do so. The use of the term "bill of costs" is indicative of the age of the rule and the fact that it has not been reviewed following the changes effected by various enactments since 1995.[6] Costs are no longer "taxed" but "assessed" and a "bill of costs" now means a "costs statement" for the purpose of UCPR[7] and more commonly an "account" for the purposes of the Act. The account comprises fees (professional charges) and costs (disbursements or outlays). It will make for easier understanding, if hereafter the word "account" is used to denote what it is the practitioner is now required to render.

[17] An account should be in a form contemplated by s 48J of the Act namely an account that :-

"(a) is in a form agreed to in a client agreement between the practitioner or firm and the client; or

(b) clearly sets out all items of work done for the client and the amount charged (whether by way of fees or costs) for each item."[8]

[18] Turning then to r 84, it is appropriate that I set out its terms in full.

84(1) A practitioner shall within a reasonable time after being so requested in writing by a client render to the client a bill of costs covering all work for that client to which such request relates or for which he has not already rendered a bill of costs or been paid.

(2) If such practitioner fails or neglects to render such bill of costs within one month after receiving such request or within such further period as the client in writing allows or as may in the circumstances be reasonable he shall if requested by the client forthwith pay to the client all moneys and if so requested shall deliver to the client all documents which he is holding on behalf of that client, notwithstanding that he might otherwise be entitled to a lien upon those moneys or documents for payment of his bill of costs."

[19] It is obvious that the rule has not been drawn with precision. The word "or" first appearing in sub-rule (1) does not appear to introduce a true alternative to what goes before it. It seems to me that the "or" needs to be deleted, thereby allowing the words which follow to act as a limitation on the scope of "all the work for that client". The rule construed in this manner appears to be how it is commonly understood by courts and practitioners.

[20] Mr Davis of Counsel on behalf of the clients did concede that the word "or" caused some difficulty in the interpretation of the rule[9] but suggested that there was a construction open which required that a bill of costs must be rendered for work identified by a request and as an alternative, a general request for work which had not been previously billed or work for which payment had been made. Such a construction does not make sense since the work identified in the second alternative could just as simply be requested as the specific work in the first instance. Also the utility of the third alternative is not particularly obvious. I do not see any basis for adopting this construction.

[21] The evident purpose of the rule is to ensure that a client will be made aware of his or her financial obligation to a practitioner. This will be achieved by the rendering of an account which complies with s 48J of the Act. Thereafter challenges to the account may be made pursuant to various sections of the Act.[10] The exclusion of work for which costs have already been rendered, or in fact paid, is consistent with that purpose. It would make little sense to provide for the surrender of a lien by making a request for a different type of accounting on an account that had already been paid. A client's position is protected by being able to require an account to be presented in a form agreed or as required by the Act before payment. If the legal costs are paid without recourse to such opportunity then it seems to me to be a prima facie waiver of the right and the position should not be reversed by the simple expedient of sending a request in writing.

[22] The better construction in my view is to delete the word "or" and to regard the words which follow as being exceptions identifying the work in respect of which a request for the purpose of r 84 cannot be made. In construing the rule in this way, there is no dilution of the purpose of the rule or its effect. The rendering of any account gives rise to the client's right to seek that it be presented in the proper form and, if it is not already so presented, in either event, to challenge the account by referring the matter to the Law Society Council or the Tribunal. If the practitioner sues to recover, the court can refer the account to costs assessors.

[23] Mr Dunning of Counsel, for the practitioner, argues that r 84 should be read as requiring an account for work which is the subject of an individual file or matter and that the rule does not contemplate a request for accounts for multiple or unspecified matters nor certainly for completed matters in respect of which costs have been paid. Such a position would not necessarily require multiple written requests but rather a request which specifies particular files or matters.

[24] The practitioner further argues that if the request is in such terms as not to comply, or substantially comply, with sub-rule (1) then it should not be effective in bringing about the surrender of the lien as a consequence of the operation of sub-rule (2). On this basis, he argues that the request of 10 November 2002 embracing as it does "all work undertaken since January 1996" was not valid.

[25] At the time of its receipt, the practitioner did not contend that the request was invalid but, rather, he set about attempting to comply with it. In the end result, some 20 bills were rendered, 15 of which are referred to in the affidavit of Gerilyn Polanski sworn 28 January 2003 ("GMP-1") showing a total indebtedness of in excess of $270,000.[11] The point of the validity of the request was not taken before the learned primary judge and is raised now for the first time. The question raises an important point of law which means that the practitioner is entitled to have it considered on the appeal. The Court was informed that this point has not been the subject of prior judicial consideration.

[26] The practitioner's submission appears to have some support in the case of Queensland Mushrooms Pty Ltd v Hawthorn Cuppaidge & Badgery[12] where White J found that a request made in general terms in correspondence was insufficient to constitute an "unambiguous request for a bill of costs of the kind to which r 84 refers".[13]

[27] The need for a request made under r 84 to comply, at least substantially, with the terms of the rule arises because of the significant consequences which flow from non-compliance with the request. For reasons which will soon be mentioned, I have taken the view that the scope of the extinguishment of the lien is wide, embracing all the files and documents held by the solicitor on behalf of the client. The lien is seen as a valuable right and one which is "the policy of the law to protect".[14] Consequently, a practitioner's default in failing to respond to a request might have serious consequences, particularly if the retainer between practitioner and the client involves a large number of matters, or matters of considerable complexity.

[28] For this reason the purposes of r 84, in my view, demand that the request must identify with reasonable specificity the work to which the request relates. It may not be possible for a client to identify precisely the file, or system of files, employed by the practitioner to organise the work, but the request should at least identify the substance of the matter which is the subject of the retainer. The practitioner should not be left to speculate as to the true focus of the request.

[29] The request, in this instance, is in general terms, and impermissibly (on my construction) includes matters in which costs have been paid and matters in respect of which accounts have been rendered. I have therefore come to the view that the request made by the clients on 20 November 2002 was not a valid request.

[30] The practitioner argued that the scope of invalidation of the lien, which sub-rule (2) brings about, relates only to the documents connected with the work specifically identified in the request. The practitioner contends that sub-rule (2) should not be construed so as to relate to files and documents unconnected with the specified work, arguing that clear words would be needed to take away such a valuable possessory right.[15]

[31] In my view, those express words are indeed found in sub-rule (2) which makes reference to the practitioner failing or neglecting to render "such bill of costs" within the appropriate period with the result that the solicitor shall "deliver up to the client all documents which he is holding on behalf of the client, notwithstanding that he might otherwise be entitled to a lien upon those moneys or documents for payment of his bill of costs". These words identify that it is the solicitor's general lien which is contemplated by the rule and not a lien limited to a particular file, document or sum of money. The distinction between a general lien and other liens available to a solicitor is discussed in Halsbury's 4th ed vol 44(1) para 246 in the following terms:-

"The lien is a general lien extending to all costs due to the solicitor and is not limited to the costs incurred in relation to the particular documents in question or upon the particular instructions in consequence of which the property came into the solicitor's possession. In this respect the retaining lien differs from the lien on property recovered."

[32] The right of a solicitor to claim upon moneys recovered in an action is a different right as Darley CJ pointed out in In re Suttor[16]:-

"It is quite clear that this so-called lien of an attorney upon moneys recovered in an action or suit does not extend beyond the costs of the particular action or suit which created the fund. This right of the attorney is not to be confounded with his right to retain deeds and papers in his possession to meet his general costs, no matter how occasioned. This latter right is a right of lien properly so-called. The claim upon moneys recovered is not in truth a lien (which right cannot exist without possession), but is "merely a claim to the equitable interference of the Court to have that judgment held as a security for his debt."[17]

[33] The extent of the general (or retaining) lien by its coverage of all documents and property brought into the solicitors possession is wide indeed and thus provides an understanding of what is meant by "all documents" for the purpose of rule 84.

[34] Rule 84 finds itself in that part of the rules dealing with discipline and, like the rule which precedes it, has a punitive effect if there is any breach of the duty to which it relates. In those circumstances there is no warrant for reading down the express words which, as I have indicated, contemplate the extinguishment of the solicitor's general lien for the breach of the duty identified in sub-rule (1).

[35] The evidence which the practitioner sought to introduce on the appeal goes to the issue of the solvency of the first respondent. In unrelated proceedings commenced by the Australian Securities and Investments Commission, investigative accountants were appointed to report on the affairs of the first respondent. The report was delivered only on 24 June 2003. Certain statements in the report contradict the evidence which the clients led before the learned primary judge when balance sheets were produced suggesting the first respondent had nett assets of approximately $2 million. The clients conducted their case below on the basis that both clients were solvent to answer the practitioner's expressed concerns about the cost of preparing accounts which might never be paid.

[36] The test for the admission of further evidence upon appeal is well established.[18] Three conditions are identified as prerequisites to its reception:

(i) It must be shown that the evidence could not have been obtained with reasonable diligence for use at the hearing;

(ii) the evidence must be such that it would probably have an important influence on the result of the case, although it need not be decisive; and

(iii) the evidence must be apparently credible though it need not be incontrovertible.

[37] The new material about the first respondent's financial status was not available to the practitioner. Pre-hearing attempts to gain some information of this kind from a former employee, Mr Kerrigan, have been described in his affidavit filed by leave on this issue. The evidence about the first respondent's financial status, if it were accepted, would have had an important influence on the learned primary judge's assessment insofar as the new material tends to support the practitioner's concern about the clients' solvency and the impact that concern had on the practitioner's inaction.

[38] The new evidence coming from an independent source following an investigation by professional accountants satisfies the third criterion of being "apparently credible".

[39] In my view, each of the conditions has been satisfied and the new evidence should be received. Some aspects of this new evidence are contentious and the use to be made of it on appeal is necessarily limited. However, this new material does suggest that the evidence available to the learned primary judge on the question of the first respondent's insolvency was less complete than ought to have been the case. But how that impacts on the remaining issue to be determined can be discussed in that context.

Was there error in the determination of what is a reasonable time

[40] Sub-rule (2) identifies three timeframes within which an account should be rendered following a request pursuant to r 84. No difficulty is likely to attend the first and second periods - one month, and such further time as the client in writing allows - but there is a question as to what circumstances are relevant in determining what is reasonable for the purpose of the third period.

[41] The clients contend for a restrictive interpretation and argue that the only relevant circumstances are those which go to the physical preparation of the account. This would focus on such things as whether this is a substantial matter, the current length of the retainer and the practitioner's resources.

[42] The practitioner argued for a broader approach where reasonableness fell to be determined in all of the circumstances, including prior relationship between client and practitioner, previous indulgences about paying of accounts and the insolvency or unwillingness of the clients.

[43] Counsel for each of the parties relied on statements of Thomas J in Re Muller[19] where his Honour said (at 407):

"In my view the rule specifies a period of one month as the period that is prima facie reasonable having regard to the respective rights and duties of solicitors and clients. Although it is not a hard and fast prescription, something special or unusual would need to be shown before a solicitor could allow a longer period to elapse and still hold on to his lien. For example, in very substantial matters the preparation of the bill might justify a longer period in order that it be done properly; or the client may act in such a way as to mislead the solicitor or otherwise contribute to a delay; or there may be circumstances akin to waiver of the prescribed period or other circumstances related to the conduct of the parties which may contribute to a finding that a reasonable time in the circumstances is something greater than a month.

In the present case the circumstances are not really of this character. The factor that has given me the greatest cause for concern is the known impecuniosity or unwillingness to pay on the part of the client which creates a setting against which the solicitor could take the view that the preparation of the bill was a somewhat academic exercise and that the prospect of payment was at best a long-term one. In those circumstances it is easy to understand a feeling of lack of urgency and the giving of a low priority to the preparation of the memorandum. However the solicitor did not descend to detail in relation to the actual reasons for the delay ... I do not suggest that the prescription of one month is more than a prima facie guide, but I consider that something more than is shown in the present case is required in order to justify a greater period than a month as being reasonable in the circumstances."

[44] It is clear from the remarks of Thomas J that he did not intend a comprehensive examination of circumstances which might be relevant in such a question. His Honour was concerned with the preparation of a bill in a single matter concerning a partnership dispute. From the size of the fees discussed it appears to have been a relatively simple matter in no way to be compared with the circumstances of this case. His Honour's remarks about impecuniosity and unwillingness could not be read as suggesting there was a rejection of those features as relevant considerations. He simply determined the case on the basis that there was insufficient evidence to explain why a greater period than a month was reasonable in the circumstances. Consequently I do not regard Re Muller as support for the restrictive approach contended for by the respondents.

[45] In my view, the Court ought to regard evidence which, in any way, may be relevant to reasonably explain the delay beyond one month. Some explanations will no doubt be given more weight as justification for delay than others, but it seems to me that the prior relationship between the client and the practitioner, where the various retainers have continued for a long period and have related to numerous and complex matters, is a relevant matter.

[46] In my view, for practical reasons, the clients' financial capacity to pay fees is also relevant. The entitlement of a solicitor to payment of professional fees and the right of a client to know how the fee is assessed will arise in circumstances of infinite variety. It is unlikely that an exhaustive list of factors relevant to the assessment of reasonable time for the preparation of accounts could be determined. The circumstance of having, at considerable expense, to prepare accounts for a client who is either impecunious or unwilling to pay and who has yet to pay previously rendered accounts is, in my view relevant to the question of reasonable time. A determination of whether a client is impecunious or unwilling to pay may well invite a consideration of a programme for payment over a period and the progressive rendering of accounts. The consideration of what is reasonable should not be limited to a consideration of the time and cost of preparation of accounts.

[47] The learned primary judge formed a tentative view during the hearing of submissions to the effect that the practitioner "had to face up to the obligation in r 84"[20] notwithstanding the "difficulties [the practitioner] face[s]".[21] His Honour felt that the suggestion that bills of costs be rendered only after prior bills had been paid was "hedging it around with the obligation".[22] His Honour appears to have considered only the factor of time for the preparation of bills of costs in order to meet the practitioner's obligation.

[48] In the most unusual circumstances of this case, where 20 accounts totalling approximately $300,000 had been rendered but had not been paid and where there were 54 further matters to be costed, the balancing between the practitioner's obligation to advise, and the client's right to know, the extent of the liability for fees, required a consideration of more factors than a reference to the preparation time alone. The proposal for delayed rendering of accounts conditional upon payment of earlier accounts was reasonable to consider in the circumstances of this case. There was also a question of the respondents' bona fides evidenced by challenging virtually every item in the accounts that were rendered after the request pursuant to r 84 was made.

[49] The issue of the respondents' insolvency was not addressed in his Honour's findings. This, no doubt, was the consequence of the way in which the practitioner's submissions below were formulated based upon an acceptance of the only sworn evidence which was to the effect that each of the clients was solvent.[23] What was not revealed in the balance sheet tendered before the primary judge was that the asset shown as "receivables" was indeed unsecured loans to directors of the company. The new evidence from the investigative accountant, if accepted, raises a serious question about the solvency of the first named respondent. As well there was a significant body of evidence of the respondents' unwillingness or refusal to pay legal fees and even uncontentious costs and outlays. Examples of this were found in exhibits to the affidavit of Mr Marler sworn 20 December 2002.[24]

[50] The issue about insolvency was not one of easy resolution in the context of the primary hearing. But there was sufficient material before the learned primary judge to raise concerns as to whether there would be payment of fees in any of the 54 matters for which accounts were yet to be rendered, when none of the fees in those accounts already rendered had been paid. The new evidence relating to the clients' insolvency, though contentious, is, it seems to me, relevant in considering the balancing of the practitioner's obligation and the clients' right referred to above. It would appear from the approach taken by the learned primary judge that he did have any regard to such a consideration.

[51] Primarily because of the invalidity of the notice, which was not argued before the learned primary judge, I think that his Honour erred in ordering the delivering up of the documents identified.

[52] In submissions before the learned primary judge, and again in this appeal, counsel for the clients made reference to the inherent jurisdiction this Court undoubtedly has to regulate the conduct of practitioners. This would include the power to order the delivering up of a client's documents if the circumstances warranted such a measure. However no arguments independent of r 84 were raised such as now to require a separate consideration of the conduct of the respective parties and whether that might call for the exercise of the inherent jurisdiction.

[53] In my view the appeal should succeed and I would order that the respondents' application in the Court below be dismissed.

[54] No other substantive order is sought in the Notice of Appeal save for costs. The appellants have succeeded on grounds other than the issue raised for the first time on appeal and so should have their costs on appeal. The question of the costs of the primary hearing gives rise to more difficulty. There the question of validity of the notice was not raised at all and the evidence of financial standing of the clients was limited necessitating the introduction of fresh evidence on appeal. Though some explanation has been given for the lack of such evidence at the hearing, this lack and the failure to take the validity point has obviously impacted on the outcome at first instance. In all the circumstances it seems to me neither party should have an order for the costs of the hearing.

[55] I would therefore propose that the orders made on 21 March 2003 be set aside and, in lieu thereof, I would order that the application be dismissed. I would further order that the respondents pay the appellants' costs of the appeal to be assessed on the standard basis.

[1] Ex WLM-7 to affidavit of Warwick Leslie Marler sworn 20.12.2002 - Record, 113.

[2] Ex WLM-9 to the affidavit of Marler 20.12.2002 - Record, 117-120.

[4] Affidavit of Fredric Acker sworn 28 January 2003 Record, 136

[6] Legal Practitioners Act 1995; Civil Justice Reform Act 1998; Queensland Law Society Amendment Act 1999; Uniform Civil Procedure Rules 1999.

[7] Rule 679

[12] [2002] QSC 76

[14] See In the Estate of Fuld,(dec'd) (No 4) [1968] P 727, 736. See also Re Jalmoon Pty Ltd [1986] 2 QdR 264, 267 per Thomas J.

[16] [1890] NSWLawRp 89; (1891) 7 WN(NSW) 83

[17] Ibid at p 84; See also per Jordan CJ in Ex parte Patience; Makinson v The Minister [1940] NSWStRp 11; (1940) 40 SR (NSW) 96

[18] See Langdale v Danby [1982] 3 All ER 129, 137-8; Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 QdR 404, 408.

[19] [1993] 1 QdR 405.

[24] See particularly exs WLM-4, WLM-5 and WLM-11.