1500/02 STEPHEN PAUL FIRTH v CENTRELINK (FORMERLY KNOWN AS THE DEPARTMENT OF SOCIAL SECURITY) & ANOR
JUDGMENT
1 HIS HONOUR: Mr Firth is a solicitor. In November 1995 he received instructions to act on behalf of Mr Jack Koushkarian in a District Court action in which Mr Koushkarian sought damages for personal injury arising out of a motor vehicle accident. The motor vehicle accident had happened on 28 April 1989, and the proceedings had been on foot since 1990, being conducted by another solicitor.
2 A signed Fee Agreement was entered into between Mr Firth and Mr Koushkarian, dated 18 June 1996. Mr Firth paid out of his own pocket on behalf of Mr Koushkarian certain disbursements, and did professional work.
3 Mr Firth gives evidence, which I accept, as follows:
"6 Pursuant to instructions received from Mr Koushkarian on or about 2 May 1997 I settled his third party claim for the sum of $20,000 inclusive of costs.
7 Pursuant to an authority from Mr Koushkarian dated 3 May 1997 my professional fees and disbursements of and incidental to acting on his instructions in relation to the proceedings were to be deducted from the said settlement."
4 GIO General Ltd, which carried on business under the name "GIO Australia" ("GIO"), had the conduct of the District Court litigation for the defendant, and it was with GIO that Mr Firth negotiated the settlement. The evidence does not disclose anything about the detail of the negotiations, does not include any documentation which constituted the settlement, and does not disclose whether the authority dated 3 May 1997 ever came to the attention of GIO.
5 GIO sent to Mr Firth a letter dated 5 June 1997 which said:
"We refer to the above matter which has been settled for $20,000 inclusive.
We wish to advise that the deductions for GIO payments ($1,788.20) plus advance payment to the Health Insurance Commission ($2,000) amounted to $3,788.20, leaving a balance of $16,211.80.
There was also a deduction of $23,188.68 to be refunded to Department of Social Security as garnishee. After contacting the Department of Social Security, they agreed to accept the balance of $16,211.80. We enclose herewith a copy of their agreement.
We advise that no payment [is] outstanding to be forwarded to your office."
6 The document enclosed with that letter, was a letter dated 5 June 1997 from the Department of Social Security to GIO. It said:
"Garnishee Notice relating to Jack Koushkarian Employer Reference Number MAC 032508.02.
This is a garnishee notice issued under section 1233 of the Social Security Act 1991 (the Act).
It relates to Jack Koushkarian (the debtor), whose last-known address is 193 Old Northern Road CASTLE HILL NSW 2154. Jack Koushkarian is indebted to the Commonwealth under the Act.
I advise that, in the exercise of the powers delegated to me by the Secretary to the Department of Social Security, under Section 1299 of the Act, I require you to pay to the Department of Social Security an amount of:
$16211.80 or the whole of the money referred to in paragraph (a), (b), (c) or (d) below if it is less than $16211.80.
This notice is issued to you on the basis that you are a person:
a) by whom is due or accruing or may become due to the debtor [sic]; or
b) who holds or may subsequently hold money for or on account of the debtor; or
c) who holds or may subsequently hold money on account of some other person for payment to the debtor; or
d) who has authority from some other person to pay money to the debtor.
You must comply with this notice:
· immediately the money becomes due to the debtor or is held by you; or
· after a period of 14 days has elapsed following service of this notice on you;
whichever is the later.
If you do not comply with this notice, or if you do not comply with the notice to the extent that you are able to comply, then (under section 1230 of the Act) you may become liable to pay the debt to the Commonwealth and the Department may seek to recover money due or owing to the debtor from you directly. The amount that may be sought from you is the lesser of:
(a) as much of the amount that you are required by the notice to pay as you were able to pay; or
(b) as much of the debt due by the debtor at the time that the notice was given as remains due at the time that the recovery action is taken against you.
In addition, you may be charged with an offence under section 1233 of the Act. If you are found guilty of such an offence, you may be liable to serve a term of imprisonment of up to 12 months. You may also be liable to pay a fine instead of or in addition to that term of imprisonment.
I will notify you if any amount is paid in reduction or satisfaction of the debt due by the debtor so as to reduce the amount that you are required to pay, as specified in this notice.
Copies of sections 1230 and 1233 of the Act are attached for your information."
7 This was the first that Mr Firth knew about any money being owed by Mr Koushkarian to the Department. It was the first intimation to Mr Firth that neither he, nor Mr Koushkarian, would receive any part of the settlement which he had negotiated.
8 Mr Firth has been in practice as a solicitor for some 20 years, and is an experienced personal injuries solicitor. He is aware that personal injury plaintiffs often owe money to the Department of Social Security, and has a practice, if a client who is a plaintiff has been on social security benefits, to check with the Department of Social Security what amount will be owing to the Department from any verdict or settlement which might be arrived at. However, his understanding was that Mr Koushkarian had not received any kind of benefit from the Commonwealth, and so did not make any enquiry to the Department so far as Mr Koushkarian was concerned before effecting the settlement.
9 The costs and disbursements owing to Mr Firth, pursuant to the Fee Agreement, totalled $6,385.00. On 11 November 1998 Mr Firth began proceedings in the Local Court at Sydney against Mr Koushkarian seeking that sum, together with interest and costs. On 8 April 1999 judgment was entered, in those Local Court proceedings, in the sum of $7,632.22.
10 Mr Firth received no payment from Mr Koushkarian pursuant to the judgment. On 23 August 1999 he made application for issue of a Writ of Execution against Mr Koushkarian. That Writ was not satisfied.
11 Mr Koushkarian made an application to set aside the judgment. On 12 November 1999 the Local Court dismissed the application, and ordered Mr Koushkarian to pay Mr Firth's costs of that application.
12 Mr Firth has received nothing from Mr Koushkarian. On 25 January 2000 Mr Firth wrote to the Department of Social Security, asserting that he was entitled to a lien over the fruits of the litigation to protect his professional costs and disbursements, and complaining that the full settlement proceeds had been paid to the Department. He asserted that in those circumstances an amount of $8,105.01 was due and payable to his firm. He threatened litigation if it was not paid.
13 On 4 February 2000 a delegate of the Secretary to the Department of Family and Community Services replied. This was the start of a repetitive chain of correspondence to and fro, in which Mr Firth asserted the validity of his lien, and the Department asserted its entitlement to receive the whole of the net verdict monies pursuant to its Garnishee Notice.
14 On 3 November 2000, Mr Firth wrote to the Department enclosing a written authority from Mr Koushkarian "to release to my solicitors, Firths - The Compensation Lawyers all information they require including reports, notes and records relating to the Garnishee Order against me which was issued in June 1997." This produced no response, so Mr Firth made a Freedom of Information Act request for the file of Mr Koushkarian. Under cover of a letter from the Department dated 23 February 2001, Mr Firth received copies of documents from the electronic file of Mr Koushkarian.
15 By this time the paper file of the Department relating to Mr Koushkarian had been destroyed. In accordance with the ordinary procedures of the Department, it would probably have been destroyed towards the end of 1999, on the ground that there was no debt remaining outstanding in it. After receiving the settlement proceeds from GIO, the Department had written off the balance of what it said was Mr Koushkarian's debt, and the Department destroys closed files after two years.
16 The documents with which Mr Firth was provided in February 2001 show that the Department raised a debt against Mr Koushkarian in the sum of $23,568.68, on 18 June 1990. It was a debt arising from Mr Koushkarian having given an assurance of support to the Department, concerning his parents. It seems that, notwithstanding that assurance of support, Mr Koushkarian's parents sought, and were paid, social security benefits within some specified time after their migration to Australia. The Department claimed (and, for reasons which will appear later, I do not decide whether this claim is correct or not) that Mr Koushkarian was obliged to repay the amount they had received, and the amount that he was obliged to repay was $23,568.68. Mr Koushkarian in fact made eight payments each of $20.00 during 1991, but after 30 September 1991 made no more payments to the Department.
17 The Department wrote to Mr Koushkarian on 14 November 1993 requiring payment of the balance outstanding.
18 Some additional documents have been tendered in evidence by the Department in these proceedings. They are documents which the Department obtained from GIO this year. Those extra documents show that on 9 July 1992 the Department sent to GIO a notice under section 1233 Social Security Act 1991, relating to a debt of $23,188.68 which Mr Koushkarian owed.
19 On 15 October 1992 GIO wrote to the Department saying:
"Your correspondence in relation to the above matter is acknowledged.
In the event of a settlement or verdict in favour of the beneficiary, your interests will be protected."
20 On 4 June 1997 GIO wrote to the Department. The letter said:
"RE: JACK KOUSHKARIAN
MOTOR VEHICLE ACCIDENT ON 28/04/89 AT WILLOUGHBY
YOUR REFERENCE: Q288/2597613/CRR35/CG
We refer to the above matter and to your Notice issued under Section 1233 of the Social Security Act requiring GIO to impose a garnishee equivalent to $23,188.68.
We wish to advise that the above claim has been settled for $20,000.00 inclusive of Solicitor's costs and inclusive of payments paid by GIO.
The payments paid in advance by GIO was $1,788.20. There is also the deduction for $2,000.00 as 10% of the settlement amount to pay to the Health Insurance Commission to comply with the provisions of Sections 23,33A and 33B of The Health and Other Services (Compensation) Act 1995 (The Act).
After deducting the above payments, the balance outstanding will be $16,211.80. Therefore the difference between DSS Garnishee and the residual amount left is $6,976.88 debit (-$6,976.88). Would you advise us what is your attitude towards the balance. We look forward to hearing from you."
21 The "Your Reference" in the heading to this letter is the same as the reference number on the section 1233 notice which had been issued in July 1992.
22 These proceedings were commenced by summons filed on 14 February 2002. The orders claimed were:
"1 A declaration that the garnishee notice dated 5 June 1997 over the hand of V S Morrison delegate of the Secretary of the then Department of Social Security and issued to GIO Australia is invalid.
2 An order that the defendants pay to the plaintiff the sum of $10,828.41.
3 Costs."
The Two Defendants
23 The summons named as the first defendant "Centrelink (formerly known as the Department of Social Security)" and "Commonwealth of Australia" as second defendant. Only the second defendant has filed an appearance in the proceedings. Counsel for the Commonwealth submits that "Centrelink" is the popular name of the statutory authority established by section 6 of the Commonwealth Services Delivery Agency Act 1997 (Cth), that "Centrelink" is not a legal person, and that consequently the proceedings against it must be dismissed. The plaintiff does not dispute that contention. I will act in accordance with that concession by the plaintiff.
The Statutory Provisions
24 The Commonwealth relies on the notice issued on 5 June 1997 to justify its having received the money from GIO. It does not rely on the notice issued in July 1992 for that purpose. The legislation relating to such a notice, as at June 1997, was section 1233 of the Social Security Act 1991. It said:
"(1) If a debt is recoverable from a person (in this section called the debtor ) by the Commonwealth under section 1227A or 1230C of this Act, under the 1947 Act or under the Social Security (Fares Allowance) Rules 1998, the Secretary may by written notice given to another person:
(a) by whom any money is due or accruing, or may become due, to the debtor; or
(b) who holds or may subsequently hold money for or on account of the debtor; or
(c) who holds or may subsequently hold money on account of some other person for payment to the debtor; or
(d) who has authority from some other person to pay money to the debtor;
require the person to whom the notice is given to pay the Commonwealth:
(e) an amount specified in the notice, not exceeding the amount of the debt or the amount of the money referred to in the preceding paragraph that is applicable; or
(f) such amount as is specified in the notice out of each payment that the person becomes liable from time to time to make to the debtor until that debt is satisfied; or
(g) such percentage as is specified in the notice of each payment that the person becomes liable from time to time to make to the debtor until that debt is satisfied.
(2) The time for making a payment in compliance with a notice under subsection (1) is such time as is specified in the notice, not being a time before the money concerned becomes due or is held or before the end of the period of 14 days after the notice is given.
(3) A person who fails to comply with a notice under subsection (1) is guilty of an offence.
Penalty: Imprisonment for 12 months.
Note 1: Subsection 4B(2) of the Crimes Act 1914 allows a court that convicts an individual of an offence to impose a fine instead of, or in addition to, a term of imprisonment. The maximum fine that a court can impose on the individual is worked out by multiplying the maximum term of imprisonment (in months) by 5, and then multiplying the resulting number by the amount of a penalty unit. The amount of a penalty unit is stated in section 4AA of that Act.
Note 1A: If a body corporate is convicted of the offence, subsection 4B(3) of the Crimes Act 1914 allows a court to impose a maximum fine of an amount that is 5 times the maximum fine that could be imposed on an individual convicted of the same offence.
Note 2: see also section 1230 (consequence of failure to comply with notice under this section).
(3A) Subsection (3) applies only to the extent to which the person is capable of complying with the notice.
(3B) Strict liability applies to the element of an offence against subsection (3) that a notice is a notice under subsection (1).
(4) If the Secretary gives a notice to a person under subsection (1), the Secretary must give a copy of the notice to the debtor.
(5) A person who makes a payment to the Commonwealth in compliance with a notice under subsection (1) is to be taken to have made the payment under the authority of the debtor and of any other person concerned.
(6) If:
(a) a notice is given to a person under subsection (1) in respect of a debt due; and
(b) an amount is paid by another person in reduction or in satisfaction of the debt;
the Secretary must notify the first-mentioned person accordingly, and the amount specified in the notice is to be taken to be reduced by the amount so paid.
(7) If, apart from this subsection, money is not due or repayable on demand to a person unless a condition is fulfilled, the money is to be taken, for the purposes of this section, to be due or repayable on demand, as the case may be, even though the condition has not been fulfilled.
(7A) Subject to subsections (7C), (7D) and (7E), action under this section for the recovery of a debt is not to be commenced after the end of the period of 6 years starting on the first day on which an officer becomes aware, or could reasonably be expected to have become aware, of the circumstances that gave rise to the debt.
…
(7C) If:
(a) subsection (7A) applies so that action under this section for the recovery of a debt must be commenced within a particular period; and
(b) within that period part of the amount owing is paid;
action under this section for the recovery of the balance of the debt may be commenced within the period of 6 years starting on the day of payment.
…
(7E) If:
(a) subsection (7A) applies so that action under this section for the recovery of a debt must be commenced within a particular period; and
(b) within that period:
(i) action is taken under this section or section 1231 (deductions) or 1232 (legal proceedings) for the recovery of the debt; or
(ii) a review of a file relating to action for the recovery of the debt occurs; or
(iii) other internal Departmental activity relating to action for the recovery of the debt occurs;
action under this section for the recovery of the debt may be commenced within the period of 6 years after the end of the activity or action referred to in paragraph (b).
(7F) This section applies to money in spite of any law of a State or Territory (however expressed) under which the amount is inalienable.
(8) In this section, "person" includes:
(a) the Commonwealth; and
(b) a State; and
(c) a Territory; and
(d) any authority of the Commonwealth or of a State or Territory."
The Plaintiff's Claim that the Notice was Invalid
25 The plaintiff advanced various arguments as to why the notice was invalid. He submitted that the Commonwealth had not established that any debt at all was owing by Mr Koushkarian to the Commonwealth. Alternatively, he submitted that a lien attached to the fruits of the litigation in GIO's hands, in consequence of which there was not money due or accruing to Mr Koushkarian in the full amount to which the notice related. Hence, it was said, the requirements of section 1233(1) were not satisfied, and so the notice was invalid. He submitted that the Commonwealth had not established that Mr Koushkarian had been given a copy of the notice, as section 1233(4) required, and that in consequence the notice was invalid. He submitted that, as Mr Koushkarian's debt (assuming for the purposes of the argument that the Commonwealth's electronic records adequately prove it) was raised on 18 June 1990, by the time of issue of the notice on 5 June 1997 more than the six-year period permitted by section 1233(7A) had elapsed.
26 The Commonwealth submitted I had no jurisdiction to examine these arguments. Section 9 of the Administrative Decisions (Judicial Review) Act 1977 says:
Limitation of jurisdiction of State courts
(1) Notwithstanding anything contained in any Act other than this Act, a court of a State does not have jurisdiction to review:
(a) a decision to which this section applies that is made after the commencement of this Act;
(b) conduct that has been, is being, or is proposed to be, engaged in for the purpose of making a decision to which this section applies;
(c) a failure to make a decision to which this section applies; or
(d) any other decision given, or any order made, by an officer of the Commonwealth or any other conduct that has been, is being, or is proposed to be, engaged in by an officer of the Commonwealth, including a decision, order or conduct given, made or engaged in, as the case may be, in the exercise of judicial power.
Note: This subsection has effect subject to the Jurisdiction of Courts (Cross-vesting) Act 1987 and to subsection 1337B(3) of the Corporations Act 2001.
(2) In this section:
"decision to which this section applies" means:
(a) a decision that is a decision to which this Act applies; or
(b) a decision of an administrative character that is included in any of the classes of decisions set out in Schedule 1.
"review" means review by way of:
(a) the grant of an injunction;
(b) the grant of a prerogative or statutory writ (other than a writ of habeas corpus ) or the making of any order of the same nature or having the same effect as, or of a similar nature or having a similar effect to, any such writ; or
(c) the making of a declaratory order.
(4) This section does not affect:
(b) the jurisdiction conferred on the Supreme Court of a State by section 32A of the Federal Court of Australia Act 1976 ; or
(c) the jurisdiction of a court of a State in respect of any matter that is pending before it at the commencement of this Act.
27 The decision to issue the notice dated 5 June 1997 is a decision made under the Social Security Act 1991. The Social Security Act 1991 is an "enactment" within the meaning of the definition of that term in section 3 of the Administrative Decisions (Judicial Review) Act 1977. Further, the decision to issue the notice dated 5 June 2002 is a decision of an administrative character. Thus, it is a "decision to which this Act applies", within the meaning of that expression in section 3 of the Administrative Decisions (Judicial Review) Act 1977. To make a declaration that that notice is invalid, on any of the grounds for which the plaintiff contends, is to review that decision by way of the making of a declaratory order. The Commonwealth is right in submitting that section 9 denies jurisdiction to this Court to make such a declaration.
The Claim for Payment of Money
28 The conclusion I have just reached does not mean that the plaintiff's action must fail. As well as seeking a declaration of the invalidity of the notice, the plaintiff's summons sought an order for the payment of money.
29 One basis on which the plaintiff sought such an order was that the notice was invalid. As a matter of judicial comity I should follow the decision in Aerolineas Argentinas v Federal Airport Corporation (1993) 32 NSWLR 595, and hold that entertaining such an argument is outside the jurisdiction of this court, by reason of section 9 of the Administrative Decisions (Judicial Review) Act 1977.
30 However, there is another basis upon which the plaintiff claims repayment of money from the Commonwealth. That basis does not challenge the validity of the notice dated 5 June 1997, but instead enquires what that notice has, as a matter of construction of the notice, and as a matter of property law, effectively done.
31 The plaintiff contends that the notice was not one which required GIO to pay to the Commonwealth the whole of Mr Koushkarian's settlement proceeds (after deduction of those amounts which GIO actually deducted). Rather, the plaintiff contends, the notice effectively required the payment to the Commonwealth only of so much of the settlement proceeds as remained after the amount for which the plaintiff had an equitable security, by reason of the funds being the fruits of the plaintiff's efforts, had also been deducted. An examination of whether the plaintiff's contentions in this respect are correct is not prohibited by section 9 of the Administrative Decisions (Judicial Review) Act 1977: Delmore Pty Ltd v Commonwealth of Australia (1985) 2 NSWLR 179 at 185-186.
Equitable Liens
32 There are various circumstances in which equity recognises a person as having a right, akin to a security, to be paid or recouped money from a particular item of property of another person, and refers to that right as being a "lien". Examples include the lien of an unpaid vendor of real estate over that real estate for payment of the purchase price (Reliance Finance Corporation Pty Ltd v Heid [1982] 1 NSWLR 466 at 477-478; affirmed on appeal: Heid v Reliance Finance Corporations Pty Ltd (1983) 154 CLR 326), the lien of a purchaser of real estate over that real estate for money paid prior to completion (Hewett v Court (1983) 149 CLR 639), and the lien of a trustee over the trust property to secure liabilities incurred by the trustee in the authorised conduct of the trust (Jennings v Mather [1902] 1 KB 5; Jacobs Law of Trusts in Australia, 6th edition, paragraph [2104]). Other examples of the heterogeneous collection of circumstances in which such a lien arises are set out in Fisher and Lightwood's Law of Mortgage, Australian edition, paragraph [2.8] - [2.17]. These equitable liens are alike in that they do not depend upon the person who has the lien having possession of the property over which the lien exists. In this respect, equitable liens differ from common law liens. While the equitable liens possess some common features (identified in Hewett v Court (1983) 149 CLR 639 at 663 per Deane J), "it is difficult, if not impossible, to formulate any satisfactory statement of the necessary or sufficient circumstances for the implication of an equitable lien which is applicable to any relationship at all" (Hewett v Court at 668 per Deane J).
Nature of a Solicitor's "Fruits of the Action" Lien
33 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 so recovered.
34 In Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 Jordan CJ gave what has become a classic exposition of the solicitor's right, contrasting that right with a common law lien. Jordan CJ said, at 100-101:
"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: Welsh v Hole 1 Doug 238. If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; and payment by the judgment debtor to the client after notice of the solicitor's claim is no answer to an application for such a rule: Read v Dupper 6 TR 361; Ormerod v Tate 1 East 464; Ross v Buxton 42 Ch D 190. Further, if the client and a judgment debtor make a collusive arrangement for the purpose of defeating the solicitor's right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor's claim had been given to the judgment debtor prior to the arrangement: Ross v Buxton . These special rights have no resemblance to a solicitor's general possessory lien, although they are sometimes miscalled liens: Bozon v Holland 4 My & Cr 354. In Barker v St Quinton 12 M & W 441 at 451 Parke B said that "the lien which an attorney is said to have on a judgment (which is, perhaps, an incorrect expression) is merely a claim to the equitable interference of the Court to have that judgment held as security for his debt, "a remark which is reproduced in Chitty's Archbold, and has been repeated in many later authorities: cf also Smedley v Philpot 3 M & W 573 at 585-7; North v Stewart 15 App Cas 452 at 463. In practice, however, the solicitor has always been treated as possessing equitable rights in the judgment independently of any declaration of those rights, and the Court's assistance is invoked not to create the rights but to enforce them: Lord v Colvin 2 Drew & Sm 82 at 92-3; Haymes v Cooper 33 Beav 431 at 433. The rights are assignable: Briscoe v Briscoe [1892] 3 Ch 543.
35 The authorities establish the following propositions concerning this right of the solicitor: