Firth v Leek

(2) That the garnishee pay the creditor's costs of this Motion. 2 The garnishee order which issued on 8 December 2005 included the following particulars: Name of garnishee: Partners of Russell McClelland Brown (hereinafter referred to as 'Russell McClelland Brown' or 'garnishee')

Judgment creditor: Cathy Leek Amount due under judgment debt: $28,533.72 (which includes interest of $5,965.47 to date)

Details of debt attached Under garnishee order: Professional legal services rendered by the plaintiff to the defendant pursuant to Fee Agreement dated 15 December 2000 and more particularly set out in Memorandum of Fees and Disbursements dated 5 September 2002.

3 The Affidavit of Stephen Paul Firth in support of the Motion to the garnishee cause deposed as follows: 'The garnishee has admitted holding $18,529.00 in their Trust Account on behalf of the judgment debtor but has declined to pay any amount pursuant to the garnishee on the grounds that they have a lien over this money.'

4. The garnishee RMB file relied on an Affidavit of its partner Martin Anthony Culleton the garnishee in the matter sworn 6 November 2006. I propose to set out a chronology based on his Affidavit and other facts appearing on the file. It did not appear to me that there were any real factual disputes in the matter. 4 I set out the following chronology: 15 December 2000 Cathy Leek (hereinafter referred to as Leek) enters into Cost Agreement with Firth.

6 March 2002 Leek becomes bankrupt. 2 July 2002 Leek instructs Russell McClelland Brown to act for her in accident claim in which she had previously instructed Firths.

5 September 2002 Firth renders tax invoice claiming $20,996.35. 15 November 2002 Firth issues Statement of Claim in these proceedings seeking payment of $20,996.35 from Leek for costs and disbursements.

24 December 2003 Firth obtains default judgment in the sum of $22,568.25. 16 May 2003 Russell McClelland Brown write to Firths advising that Leek had been declared bankrupt and requesting that they correspond directly with her Trustee in Bankruptcy and lodge their claim with the Trustee. 28 January 2005 Fee note rendered by S.J. Longhurst, Barrister at Law. The fee note notes that the matter was listed for hearing on 23 February 2005, but had been settled for $50,000.00 plus costs. 7 March 2005 Leek discharged from bankruptcy.

10 January 2006 Garnishee Notice served on Russell McClelland Brown. 10 January 2006 $21,109.00 held by RMB in trust account on behalf of Leek as at time of service. 9 November 2006 Date of hearing of Motion. Amount held by Russell McClelland Brown on behalf of Leek $15,949.05. 5 Mr Culleton annexed to his Affidavit a letter dated 22 August 2006 to the solicitors acting for the defendant assessing Ms Leek's costs and disbursements in relation to her claim at $28,085.23 plus Counsel's fee of $10,587.50. The assessment would seem to include costs for work done by Mr Firth. 6 Mr Culleton deposed that his firm asserted a solicitor's lien over the money in their trust account in respect of Ms Leek's liability to them for solicitor/client costs. He asserted that the costs due by Ms Leek to exceed the monies held in the firm's trust account on behalf of Ms Leek. 7 I received helpful submissions from Mr Robinson of Counsel on behalf of the garnishee and from Mr Goodridge of Counsel on behalf of the plaintiff/judgment creditor.

SUBMISSIONS FOR THE GARNISHEE 8 Mr Robinson pointed out that the court's power to give judgment against a garnishee in favour of a judgment creditor is found in s.124 of the Civil Procedure Act 2005 which provides as follows: 'S124 (1) On the application of a judgment credit who considers that a garnishee order has not been complied with, the court: (a) may her and determine any question as to the liability of the garnishee to pay the debt, wage or salary sought to be attached by the garnishee order, and (b) if satisfied that the garnishee is so liable, may give judgment in favour of the judgment creditor against the garnishee: (i) for the amount of that debt, wage or salary, or (ii) for the unpaid amount of the judgment debt, whichever is the lesser. (2) The court may refuse to give such a judgment if it is of the opinion that such a judgment should not be given. (3) Without limiting subsection (2), the reasons that may lead the court to form such an opinion may include: (a) the smallness of the amount outstanding under the judgment, and, (b) the smallness of the debt, wage or salary to be attached. (4) As between the garnishee and the judgment debtor, an amount paid to the judgment creditor by the garnishee under a judgment given under this section is taken to have been paid to the judgment debtor.

9 Mr Robinson submitted that it was not competent for the judgment creditor, Stephen Firth, to commence proceedings against a bankrupt without the leave of the court (see Bankruptcy Act 1966 s53(3)(b)). He pointed to the fact that Ms Leek had become bankrupt on 6 March 2002. The Statement of Claim issued by Firth in respect of its fees was issued on 13 November 2002. Mr Robinson further submitted that the judgment creditor was not able to enforce any remedy against Mr Leek pursuant to s58(3)(a) of the Bankruptcy Act. He submitted that the judgment obtained by the judgment creditor was a nullity and was void. 10 Mr Robinson further submitted that the judgment creditor had entered into the Cost Agreement with Ms Leek on or about 15 December 2000. The debt which she incurred to the judgment credit or was, he submitted, a debt provable in her bankruptcy pursuant to s82 of the Bankruptcy Act 1966. Mr Robinson restated his submissions that the commencement of the action against Ms Leek by the issue of the Statement of Claim was taken contrary to s58(3)(b) of the Bankruptcy Act without leave of a competent court. The entry of judgment was also a step taken contrary to s58(3)(b) in the absence of proper leave and as such was a nullity. 11 Mr Robinson also relied on s153 of the Bankruptcy Act under which a bankrupt is discharged from bankruptcy and released from all debts provable in bankruptcy. Mr Robinson referred to the fact that the judgment creditor was aware of Ms Leek's bankruptcy, having been so advised by Russell McClelland Brown on 16 May 2003. He submitted Ms Leek was discharged from the debt to Firth by s153. 12 Mr Robinson submitted s60(4) of the Bankruptcy Act 1966 which preserves the right of a bankrupt to continue personal injury proceedings already on foot, did not assist the judgment creditor. Mr Robinson submitted its claim was for legal fees and it was in the same position as all other creditors. It had to prove in the bankruptcy.

THE GARNISHEE'S LIEN 13 Mr Robinson relied on r39.41 of the Uniform Civil Procedure Rules which provides as follows: 39.41 (1) This rule applies in circumstances in which the garnishee claims that some person, other than the judgment debtor, is or may be entitled to: (a) any money paid under a garnishee order, or (b) any debt, wage or salary attached by a garnishee order, or (c) any charge or lien on, or other interest in, any such money, debt, wage or salary. (2) In these circumstances, the court may hear and determine the garnishee's claim and give such judgment or make such order in respect of the claim (including an order barring the claim and an order for the payment into court by a judgment creditor of money received under the garnishee order) as the nature of the case requires.

14 Mr Robinson submitted that Russell McCelland Brown have a solicitor's lien based on their efforts which resulted in the recovery of the money for Ms Leek and have an equitable right to have their proper costs and disbursements paid from the money so recovered. He submitted that the solicitor's equitable right arises immediately upon the recovery of monies through the exertion of the solicitors. He relied on the following propositions: i) The solicitor's equitable right arises immediately upon the recovery of monies through the exertion of the solicitors ( Carew Counsel Pty Ltd v French (2002) VSCA 1 at [33]. ii) If the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for costs (Phillipa Power & Associates v Primrose Couper Cronin Rudkin (1997) 2 Qd R 266. iii) If the lien is over the proceeds of settlement it arises when the settlement figure is entered into (Re de Groot (2001) 2 QD R 359 at 368. iv) If the money recovered is held in the solicitor's trust account and the solicitor is served with a garnishee notice issued to enforce a debt which the client owes to another person, the garnishee notice is not effective to attach the money in the trust account to the extent that the solicitor has a lien over it (Firth v Centrelink & Anor (2002) NSWSC 564).

15 Mr Robinson therefore submitted that the garnishee's lien in effect defeated or barred the judgment creditor's claim under the garnishee summons and that no judgment should be entered against the garnishee. He submitted that Firth's were relying on their judgment obtained in the Local Court. He submitted that if Firth's wished to rely on any lien, then they had to commence proceedings in a court having equitable jurisdiction. He submitted the Local Court does not have such jurisdiction. 16 Mr Robinson finally submitted that the judgment creditor could not in these proceedings rely on the fact that the judgment creditor's claim was found upon a similar solicitor's lien. He submitted that this court could not hear such a claim, as the claim relies upon an equitable jurisdiction which the Local Court does not have.

JUDGMENT CREDITOR'S WRITTEN SUBMISSIONS 17 Mr Goodridge submitted that Mr Robinson's submissions under the Bankruptcy Act should be rejected as similar arguments were considered by Campbell J in Firth v Centrelink & Anor (2002) NSWSC 564. I propose to discuss that case in some detail. 18 Mr Goodridge submitted that there was no reason for the court to exercise any discretion in favour of the garnishee on the basis that Mr Culleton had conceded during cross examination: 1. That Russell McCelland Brown had used the work done by Mr Firth in continuing to act for Ms Leek. 2. Russell McCelland Brown were aware at all relevant times of Mr Firth's claim for costs. 3. Notwithstanding (2) above, Russell McCelland Brown made a payment out of the funds they received to Ms Leek of $17,500.00. 4. Notwithstanding that Russell McCelland Brown had been served with a garnishee notice, it continued to make payments out to other persons who were not judgment creditors. 5. Russell McCelland Brown are solicitors who well understood, or ought to have understood, the full legal consequences of their actions.

DISCUSSION OF LEGAL PRINCIPLES 19 The nature of a solicitor's 'fruits of the action' lien was examined very comprehensively by His Honour Campbell J in Firth v Centrelink & Anor. (2002) NSWSC 564. His Honour stated: "A solicitor whose efforts result in the recover of money for his client has an equitable right to have his proper costs and disbursements paid from the money so recovered."

20 Campbell J set out the excerpt from His Honour Jordan CJ's judgment in Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 which Campbell J said had 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. n 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 inference 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 independently of any declaration of those rights, and the Court's assistance in invoked not to create the rights but to enforce them: Lord v Colvin 2 Drew & Sm 82 at 92-3; Haymes v Copper 33 Beav 431 at 433. The rights are assignable: Briscoe v Briscoe [1892] 3 Ch 543.'

21 His Honour Campbell J then very helpfully set out the following propositions concerning the right of the solicitor: '(a) The solicitor's right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation: Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4. (b) The solicitor's right exists over both the amount of a judgment in favour of the client, and the amount of an order for costs in favour of the client: In The Estate of Fuld (No 4) [1968] P727 at 736; Twigg v Keady (1996) 135 FLR 257 at 266-267 per Finn J; In Re Blake; Clutterbuck v Bradford [1945] Ch 61 (a case concerning a statutory charging order rather than a lien arising in equity's exclusive jurisdiction, but dependent on the same principle as the equitable right - see paragraph 44 below). (c) It exists over money which is in the possession of the solicitor, and also over money which is in court (In Re Meter Cabs [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld (No 4) [1968] P 727; Re de Groot [2001] 2 Qd R 359 at 375). (d) The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld (No 4) [1968] P727; Kelso v McCulloch (Supreme Court of NSW, Young J, 24 October 1994 unreported); Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4. (e) For the right to arise in must be shown that there is a sufficient causal link between solicitor's exertions and the recovery of the fund of money; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4-5; Carew Counsel Pty Ltd v French [2002] VSCA ` at [33]. (f) The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement: Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 997, unreported at 4). In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor's right exists in the fund prior to the occurrence of the taxation (Johns v Cassel (1993) 6 BPR 13,134 at 3,136 per Hodgson J; Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; In The Estate of Fuld (No 4) [1968] P727 at 740; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 6). (g) The solicitor's equitable right exists before the court is asked to intervene to protect it; it "arises immediately upon the recovery of monies through the exertions of the solicitor": Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for costs: Phillipa Power & Associates v Primrose Couper Cronin Rudken [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re de Groot [2001] 2 Qd R 368. (These statements concern when the lien comes into existence as an item of present property - they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence). (h) The right of the solicitor is one which the solicitor can enforce against the client, entitling the solicitor to an injunction to prevent the payment of the fund to the client without notice to the solicitor until such time as the quantum of the solicitor's entitlement to be paid from the fund is ascertained: In The Estate of Fuld (No 4) [1968] P 727. If the quantum of the solicitor's entitlement has been ascertained, the solicitor is entitled to an order that the amount of his entitlement be paid to him from the fund, notwithstanding opposition from the client: Leamey v Heath [2001] NSWSC 1095 (Campbell J, 22 November 2001, unreported). (i) The right can also be enforced against people other than the client, in certain circumstances. When the money recovered takes the form of a debt owed to the client, which has been assigned, the right of the solicitor will prevail over the rights of an assignee of the debt, save where the assignee is a bona fide purchaser for value without notice: Re de Groot [2001] Qd R 359. (If the assignee is a bona fide purchaser for value without notice, it may be that priorities between the solicitor's right and the right of the assignee are to be determined in accordance with the rule in Dearle v Hall, (see Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 3rd edition, at [819] ff) or it may be that the court considers who, of the solicitor and the assignee, has the superior equity - Re de Groot [2001] 2 Qd R 359 at 368 - 376 - but it is not necessary for me to consider that matter further).

(j) 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 the liquidation, to claim the full amount of the costs from the fund, and is not required to prove in the liquidation: In Re Born; Curnock v Born [1900] 2 Ch 433; In Re Meter Cabs [1911] 2 Ch 577. This has the same practical effect as enforcing the right against the other creditors of the company. The solicitor's lien attaches to property recovered through his exertions, even if the actual recovery occurs after the client goes into liquidation: North West Construction Co Pty Ltd (In Liquidation) v Marian [1965] WAR 205 at 211. (k) Likewise if the client is a natural person who becomes bankrupt, the solicitor is not required to prove in the bankruptcy for the amount of costs incurred, but can recover the costs from the debt which is the result of his efforts: Guy v Churchill (1887) 35 Ch D 489; Worrell v Power & Power (1993) 46 FCR 214. The trustee in bankruptcy takes the debt subject to the equitable right of the solicitor to be paid his costs, and if the amount of the solicitor's costs exceeds the value of the debt, the debt does not vest in the trustee in bankruptcy at all; if the client is discharged from the creditors, and any amount that the client then receives is also subject to the solicitor's lien: Kison v Papasian (1994) 61 SASR 567. (l) If the client is the liquidator of a company in liquidation, the solicitor's lien over property recovered through his exertions is to be satisfied before the statutory order of priorities for distribution of the property of the corporation comes into effect: Jeffcott Holdings Ltd (In Liq) v Paior (1995) 18 ACSR 213. (m) If the money recovered is held in the solicitor's trust account, and the solicitor is served with a garnishee notice, issued to enforce a debt which the client owes to another person, the garnishee notice is not effective to attach the money in the trust account, to the extent that the solicitor has a lien over it: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266. Likewise if the money recovered is held by a third party, and a garnishee notice is served on that third party, the solicitor's lien prevails over the garnishee notice: Dallow v Garold; Excavation parte Adams (1884) 14 QB D 543.'

22 In Firth the solicitor settled the plaintiff's claim with the GIO for $20,000.00 inclusive of costs. The Commonwealth Department of Social Security served a Garnishee Notice on the GIO seeking payment on behalf of the plaintiff of the sum of $16,211.80. The GIO paid the amount to the Commonwealth. The amount due to Mr Firth for his costs and disbursements totalled $6,385.00. Mr Firth obtained a judgment against his client Mr Koushkarian for the amount of the costs and disbursements. Mr Firth was unable to recover the same. Mr Firth commenced proceedings in the Equity Division of the Supreme Court. His Honour Campbell J found that the Commonwealth had received the money from the GIO which amount was subject to a lien in favour of Mr Firth. His Honour found that Mr Firth was able to recover the amount of his costs and interest from the Commonwealth pursuant to his lien. 23 I have considered the decision of the Court of Appeal in Twigg & Anor v Kung & Anor (2002) NSWCA 220. I do not believe the decision affects the issues in this case.

DECISION 24 I accept the submissions of Mr Goodridge that the provisions of the Bankruptcy Act do not affect at all the right of Mr Firth to proceed to sue for and obtain judgment for his costs in acting for Ms Leek. I reject the submissions to the contrary made by Mr Robinson. 25 I accept the statement of law of His Honour Campbell J at subparagraph (k) of para 36 in Firth v Centrelink & Anor. His Honour specifically stated: 'If the client is a natural person who becomes a bankrupt, the solicitor is not required to prove in the for the amount of costs incurred, but can recover the costs from a debt which is the result of his efforts.'

26 That is exactly the position here. Moreover, His Honour went on to state that if the client is discharged from bankruptcy, the solicitor can sue to enforce the debt as if it never was property divisible amongst the creditors. His Honour's statements were obiter, but I have reviewed the cases referred to by Campbell J and I am satisfied his statement of the law was correct. 27 In my view the position is therefore clear and the garnishee cannot defeat the judgment creditor's claim on the basis of Miss Leek's bankruptcy. 28 However, in these proceedings I am satisfied that the garnishee Russell McCelland Brown also have a 'Solicitor's fruits of the action' lien over the proceeds of the claim in relation to their costs and disbursements and I am satisfied that in these proceedings Russell McCelland Brown can rely on that lien as a defence in this Motion by Firth, the judgment creditor. They can do so pursuant to r 39.41 of the Uniform Civil Procedure Rules. 29 I am satisfied that the garnishee has established its Solicitor's 'Fruits of the Action' lien over the money held in its trust account. I am satisfied that in these proceedings such lien constitutes a bar to the judgment creditor's claim on the garnishee summons. 30 In making that finding, I do so on the basis that the judgment creditor's garnishee claim is based on a judgment in the Local Court. The fact that the judgment was obtained by the judgment creditor for legal costs and disbursements against Ms Leek, does not have any special significance in so far as these garnishee proceedings are concerned. I am satisfied that the judgment creditor cannot before this court rely on the garnishee summons as being an enforcement of any lien. 31 It may well be that Firth also has a solicitor's 'fruits of the action' lien over the amount held in the garnishee's trust account. However, if the Firth wishes to assert that lien, then he would be required to commence proceedings in the Equity Division of the Supreme Court (or some other court having equitable jurisdicaiton) to obtain a declaration from the court in exactly the same manner as was done in Firth v Centrelink & Anor. I am satisfied this court does not have the jurisdiction to make a declaration in relation to a solicitor's claim based on a 'fruits of the action lien'. On that basis, in my view, the motion must fail. 32 It would be inappropriate for me to comment on the relative merits of the claims of each firm of solicitors in relation to the lien which each seeks to assert. I note however that it would appear that Russell McCelland Brown should be aware of the lien Firth seeks to assert. I can only assume that the Russell McCelland Brown were aware of the likely consequences if they deal with the money in their trust account contrary to the lien which Firth seeks to assert in the event that Firth applies and succeeds in obtaining a declaration in support of such lien. 33 I make the following order: The garnishee summons is dismissed.

34 I would propose the following order in relation to costs: The judgment creditor is to pay the garnishee's costs and disbursements of the Motion on an ordinary basis which I assess in the sum of $1,000.00 within 28 days.

35 I shall hear from the parties in relation to the proposed order for costs.

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