Rafferty v Time 2000 West Pty Limited

The application by the respondents (and cross-claimants) that the cross-respondent produce the papers it holds 25 In the context of this application, it is convenient to refer to the respondents and cross-claimants simply as the cross-claimants. 26 The order sought by the cross-claimants is as follows: "Upon the undertaking of Cowell Clarke to return such documents at the conclusion of the within proceedings, Madgwicks produce to Cowell Clarke within 7 days all documents, including copies, which they hold in the following categories which relate to the within proceedings: 1.1 pleadings, affidavits, orders, transcript, reasons and all other documents filed at or generated by the Court; 1.2 discovered documents of all parties; and 1.3 all other documents held on file with respect to the within proceedings, including but not limited to communications between the parties' solicitors, file notes of telephone conversations, draft documents, witness statements and advices."

Background 27 The cross-respondent acted as legal adviser for the cross-claimants in relation to the transactions which are the subject of the claim made by the applicants. It prepared the Heads of Agreement, the Joint Venture and Shareholders' Agreement and the Rights Agreement. Members of the cross-respondent were involved in meetings held during the period leading up to the execution of the agreements. In addition, the cross-respondent was involved in the implementation of the agreements. Under the Rights Agreement, it received the licence fee of $1 million and was authorised to disburse it in the manner set out in the agreement. In substance, the cross-claimants claim in their cross-claim that, if they failed to comply with the provisions of the TPA, that resulted from negligent advice provided by the cross-respondent. There is also a claim based on s 75B of the TPA, but for present purposes it is sufficient to refer to the cross-claimants' claim as a claim in negligence. The relief claimed is damages and an order that the cross-claimants be indemnified by the cross-respondent against any amount they are found liable to pay the applicants. 28 The cross-respondent acted for the cross-claimants in this proceeding from the date it was commenced on 14 August 2008 to 1 May 2009. The relationship between the cross-claimants and the cross-respondent broke down in April 2009 and, on 1 May 2009, the cross-respondent filed a notice of ceasing to act for the cross-claimants in this proceeding. Before that date, the cross-respondent had written to the cross-claimants on 23 April 2009, terminating its retainer to act for the cross-claimant in the proceeding. It said that it did so because of outstanding fees and "our difficulty in obtaining instructions". There is evidence before the Court as to outstanding fees, but no evidence of the alleged difficulty in obtaining instructions. 29 The evidence before the Court is not precise as to the amount of the cross-respondent's outstanding fees in relation to this proceeding. As far as accounts rendered are concerned, and doing the best I can, the outstanding fees seem to be in the order of $70,000. In addition, legal services have been rendered by the cross-respondent for which accounts have not yet been sent totalling approximately $120,000. 30 The cross-respondent also carried out legal work for the cross-claimants in a number of unrelated matters in 2008. Again, the evidence is not precise as to the amounts, and, doing the best I can, the outstanding fees appear to be between approximately $110,000 and $140,000. 31 The parties put before the Court a number of emails which passed between Mr Donovan, representing the cross-claimants, and Mr Graeme Levy, representing the cross-respondent. Mr Levy is a partner of the cross-respondent. Some of the emails were sent in October and November 2008 and others in February and March 2009. It is clear that I do not have all the emails. Nor do I have evidence of other communications between the parties. In those circumstances, and bearing in mind I am not conducting a final hearing at this stage, it is not for me to make firm and complete findings dealing with the relationship between the cross-claimants and the cross-respondent. 32 The cross-respondent asked me to conclude from the emails that the cross-claimants have at no time raised any matter (other than the possibility of a counter-claim), which suggests that they are not liable for the outstanding fees in relation to the unrelated matters. In fact, various proposals for the payment of those fees were discussed, and apparently agreed. I think those conclusions should be drawn. 33 The cross-claimants asked me to conclude from the emails that from an early stage in the proceeding they have claimed that they will look to the cross-respondent to meet their loss if they are held liable to the applicants. The cross-respondent raised a conflict of interest as a result of that assertion and it was agreed, or apparently agreed, that the cross-claimants would seek advice from an independent barrister as to their rights against the cross-respondent. For reasons which are not explained, that matter was not progressed as quickly as it could have been. Again, having regard to the emails, I think those conclusions should be drawn.

Relevant principles 34 A solicitor's lien over the papers of his client secures the payment of his outstanding fees. It is a possessory lien. In other words, the lien exists only for so long as a solicitor has possession of the papers. The lien is a general lien in that it enables a solicitor to retain the papers in a matter, even though the outstanding fees it secures have arisen in relation to another matter. The papers must have come into the solicitor's possession in his capacity as a solicitor. 35 Difficulties arise where a solicitor's retainer is terminated during the course of an existing proceeding. A client is likely to need the papers in order to conduct the proceeding. A failure to obtain the papers may have grave consequences in terms of the result of the proceeding. Solicitors are officers of the court and, in order to avoid the grave consequences of a client being unable to obtain his papers, the courts have exercised a jurisdiction of an equitable nature to make an order which effectively qualifies the lien, namely, an order that the papers be handed over to the client or his new solicitor upon an undertaking to return them at the conclusion of the proceeding. 36 The exercise of the jurisdiction depends on a number of considerations. The principal one appears to be whether it was the client who terminated the retainer or the solicitor who terminated his retainer. In Robins v Goldingham (1872) 13 LR Eq 440, Malins V-C said (at 442): "Now it is well settled that where a solicitor is discharged by the client he has a lien for his costs upon the papers in his hands, and can retain them till he is satisfied; but it is different where the discharge is by the solicitor. There is no blame to be imputed to Mr. Suckling for declining to go on with the suit; but it is clear that a solicitor is not entitled to stop litigation, because he cannot obtain funds to enable him to carry it on. There is no injustice in this view, because when the papers are in the hands of the new solicitor, Mr. Suckling will retain any lien to which he is entitled." 37 The question of determining the party who terminated the retainer is approached as a matter of substance, not form. In other words, it may be that, although it is the client who has formally terminated the retainer of his solicitor, he has been compelled to do so by the solicitor's misconduct. In that case, a court will have regard to the solicitor's misconduct and not confine itself to the fact, as a matter of form, that the client terminated the retainer. 38 Assuming no misconduct by the solicitor, the general rule is that, where the client terminates the retainer of his solicitor then the Court will not exercise the power to order that the solicitor produce his client's papers. The interest in the client having his papers for the purpose of conducting an existing proceeding is outweighed by the unfairness to the solicitor (or possibly a number of solicitors) in having to give up his lien in circumstances where, without any just or reasonable cause, the client has terminated his instructions and retained a new firm of solicitors. 39 The position is different where it is the solicitor who brings his retainer to an end. In that case, it is said in the authorities that the general rule is that the solicitor will be required to produce the client's papers upon an undertaking that they be returned to the solicitor upon the completion of the proceeding. The rationale for the general rule was explained by Lord Cottenham LC in Heslop v Metcalfe (1837) 3 My & Cr 183 at 188-9; 40 ER 894 at 896-897: "Undoubtedly, that doctrine may expose a solicitor to very great inconvenience and hardship, if, after embarking in a cause, he finds that he cannot get the necessary funds wherewith to carry it on. But, on the other hand, extreme hardship might arise to the client, if - to take the case which is not uncommon in the smaller practice in the country - a solicitor, who finds a poor man having a good claim, and having but a small sum of money at his command, may go on until that fund is exhausted, and then, refusing to proceed further, may hang up the cause by withholding the papers in his hands. That would be a great grievance and means of oppression to a poor client, who, with the clearest right in the world, might still be without the means of employing another solicitor. The rule of the Court must be adapted to every case that may occur, and be calculated to protect suitors against such conduct. Now, a solicitor, if he knows that he must trust to the result of the cause for his remuneration will, of course, be disposed to proceed with it in such a way as, while it promotes the interest of his client, is most likely to render his lien available. I have no doubt, therefore, that the existence of the lien, while it is a great protection to the solicitor against his client, is also a great benefit to the client; but the benefit would be entirely lost, if the solicitor might stop short in the middle of the suit, and insist upon retaining the papers, because then no other solicitor could take up and carry on the cause." 40 This general rule is subject to an exception, but the precise boundaries of the exception have not been clearly identified in the authorities. 41 In Gamlen Chemical Co (UK) Ltd v Rochem Ltd [1980] 1 WLR 614; [1980] 1 All ER 1049 ("Gamlen"), Goff LJ held that the general rule in a case where the solicitor terminates the retainer applied. His Lordship did not rule out an exception where the solicitor discharged himself for good cause but said that the solicitor would have difficulty establishing that fact in circumstances where the client alleges that the solicitor's charges were excessive or there had been a breach of duty by the solicitor. His Lordship said (at 623; 1057): "… a solicitor can withdraw for good cause and 'good cause' is 'non-payment.' But we cannot decide the questions which the defendants have raised when they say that the appellants' charges are excessive, and also a further charge which they have made, of some kind of negligence or breach of duty on the part of the appellants. They have not yet formulated that in any definite terms, but one way is suggested in the correspondence in that they allowed their partner, then an assistant solicitor, to become so involved that the plaintiffs have seen fit to add him as a defendant. There may be absolutely nothing in this at all, but Mr. Churchward still remains a party, and the allegation that he joined the conspiracy still remains upon the record. As it seems to me, we cannot decide the question of 'good cause' either on the point of the allegation that the charges are excessive, or on the second ground." 42 Templeman LJ referred to the general rule and the exception to it in the following passages (at 624-625; 1058-1059): "The solicitor himself may determine his retainer during an action for reasonable cause, such as the failure of the client to keep the solicitor in funds to meet his costs and disbursements; but in that case the solicitor's possessory lien, i.e. his right to retain the client's papers of any intrinsic value or not, is subject to the practice of the court which, in order to save the client's litigation from catastrophe, orders the solicitor to hand over the client's papers to the client's new solicitors, provided the new solicitors undertake to preserve the original solicitor's lien and to return the papers to the original solicitor, for what they are worth, after the end of the litigation.

Where the solicitor has himself discharged his retainer, the court then will normally make a mandatory order obliging the original solicitor to hand over the client's papers to the new solicitor against an undertaking by the new solicitor to preserve the lien of the original solicitor. I wish to guard myself against possible exceptions to this general rule. The court in fact is asked to make a mandatory order obliging the original solicitor to hand over the papers to the new solicitor. An automatic order is inconsistent with the inherent, albeit judicial, discretion of the court to grant or withhold a remedy which is equitable in character. It may be, therefore, that in exceptional cases the court might impose terms where justice so required. For example, if the papers are valueless after the litigation is ended and if the client accepts that he is indebted to the original solicitor for an agreed sum and has no counterclaim, or accepts that the solicitor has admittedly paid out reasonable and proper disbursements, which must be repaid, the court might make an order which would only compel the original solicitor to hand over the papers to the new solicitor providing that in the first place the client pays to the original solicitor a sum, fixed by the court, representing the whole or part of the moneys admittedly due from the client to the original solicitor. Much would depend on the nature of the case, the stage which the litigation had reached, the conduct of the solicitor and the client respectively, and the balance of hardship which might result from the order the court is asked to make." 43 Templeman LJ considered whether there were exceptional circumstances which justified a modification of the general practice. His Lordship said (at 627; 1060): "In my judgment, there are no grounds for modifying the usual practice. This action was begun in 1974; the appellants acted until June 1979 and the action was set down for March 1980 - possibly a little optimistically. Whether the defendants this day can lay their hands on the money to pay the appellants' demands, I know not, but the defendants dispute the appellants' right to be paid in principle and in quantum. It would be disastrous for the defendants if their new solicitors could not, at this stage, obtain the papers held by the appellants." 44 In A v B [1984] 1 All ER 265 ("A v B"), Leggatt J applied the exception to the general rule and refused to order production of the client's papers. In refusing the order, Leggatt J relied on the following matters: (1) the solicitors had a default judgment for their legal fees against the client; (2) the solicitors had performed a "massive" amount of work against a payment of no more than $10,000; (3) the possibility of considerable hardship to the client if the order for production was not made had passed; (4) the solicitors had behaved impeccably and their conduct could not be criticised; and (5) by contrast, the client had not advanced any reason for not paying the solicitors' fees, nor had it produced any evidence to show that it could not do so. 45 In Ismail v Richards Butler (a firm) [1996] QB 711 ("Ismail"), Moore-Bick J varied an order made by a master that there be production subject to the client paying £150,000 to the solicitors and £310,000 into Court by requiring instead that the client provide security for £450,000. The case for an exception to the general rule was not as strong as the case of A v B because there was not on the material before the Court sufficient to enable the judge to decide whether at the conclusion the solicitor would be held entitled to recover the full amount of his claim, or indeed any particular amount. Nevertheless, security was appropriate and Moore-Bick J said (at 731): "However, when I consider the other aspects of this case I do think that some departure from the normal practice is called for in the interests of justice. I can see no basis for criticising Richards Butler's conduct in this matter, and such indications as there are suggest that in some respects the plaintiffs' attitude may owe more to negotiating tactics than to a real sense of grievance. I accept that the plaintiffs require the immediate delivery of the papers in the three matters mentioned in their summons which remain fully live, but if Richards Butler are required to hand over the papers on the usual terms their lien is likely to prove of little value when the papers are returned to them. It has not been suggested, on the other hand, that the plaintiffs are likely to suffer any real hardship if they are required to provide security of another kind other than the general effect on their cashflow of having to fund a payment into court. That is a difficulty which can probably be largely overcome by providing security in some other recognised form. Taking all these matters into account I am satisfied that the interests of justice in this case require that the plaintiffs provide some security for Richards Butler's claim." 46 I refer also to the discussion of the general principles by Drummond J in In the Matter of an Application by Weedman (unreported, Drummond J, 17 December 1996) and by Keane JA in Stark v Dennett [2008] 2 Qd R 72. 47 The scope of the exception is complicated by two considerations which arise out of the context in which the court's decision is ordinarily made. First, as I read the authorities, a Court generally does not examine the papers and attempt to make a fine judgment as to their significance to the proceeding. Secondly, a dispute about the client's liability to pay outstanding fees based on an allegation of negligence or excessive charging can rarely, if ever, be resolved at the time the client's application for the production of papers is brought. The Court will not be in a position to form any views about these matters or, at best, its views will be no more than tentative views. 48 It seems to me that the effect of the authorities is that the general rule is that, where the solicitor terminates the retainer, an order for production will be made. There may be exceptional circumstances which lead to a modification of the general rule. The modification of the general rule will, generally speaking, involve the imposition of terms, such as part payment or payment into court or the provision of security. In an extreme case like A v B, where the factors identified in [44] are present, that may lead to a refusal of an order for production. However, generally speaking, the presence of exceptional circumstances will lead to the imposition of terms. That to my mind is the effect of the decision in Gamlen and, I think the decision of Moore-Bick J in Ismail is consistent with that conclusion. In Ismail, Moore-Bick J said (at 731) that he could see no basis for criticising the conduct of the solicitors and that there was evidence to suggest that the client's attitude owed more to negotiating tactics than a real sense of grievance. 49 The matters identified by Templeman LJ in Gamlen as going to whether or not a departure from the general rule is justified are as relevant to whether security is provided as they are to whether an order for production is refused. In other words, it is not the case that the only question in determining whether there should be terms such as part payment or payment into court or security is whether the client has negated an ability to pay. That is a relevant factor, no doubt, but it is only one factor among the others which have been identified. 50 When, in the present case, the cross-claimants' new solicitors asked the cross-respondent to produce the cross-claimants' papers, the cross-respondent offered to do so in accordance with the professional conduct rules which govern its practice as a firm of solicitors, namely, the Professional Conduct and Practice Rules 2005 made by the Law Institute of Victoria Limited ("the Victorian Rules")(cll 7, 23.4). The effect of the Victorian Rules is that, where the solicitor terminates the retainer and the client's papers are essential to the client's defence or prosecution of current proceedings, the solicitor must hand over the papers to the client upon receiving satisfactory security for the unpaid costs, or to the client's new solicitor upon the new solicitor providing reasonable security for the payment of the solicitor's costs on entering into an agreement with the client and the solicitor to procure payment of the solicitor's costs upon completion of the relevant proceedings. As far as I can see, the South Australian Rules of Professional Conduct & Practice are to the same effect (cll 7, 23.4). The professional conduct rules set out circumstances in which a practitioner must hand over his client's papers. They do not purport to define exhaustively the circumstances in which a practitioner must hand over his client's papers. In any event, they could not do that, or do it in a way which binds the Court.

Application of principles 51 The cross-respondent terminated its retainer with the cross-claimants. The cross-claimants are engaged in an existing proceeding and I am satisfied that they need their papers for the proceeding, and, in view of the proximity of the trial date, the papers are needed as a matter of urgency. 52 The cross-claimants may have a substantial counter-claim against the cross-respondent. That counter-claim is potentially much larger than the cross-respondent's claim for outstanding fees. That counter-claim has been brought and, subject to events not presently foreseeable, will be determined in the very proceedings for which the cross-claimants seek their papers. It seems common ground that at least some of the papers will be produced on discovery. Furthermore, I do not think I can, on the evidence before me, find that the cross-claimants have delayed in bringing forward their allegations against the cross-respondent. A conflict of interest in the cross-respondent acting for the cross-claimants while the cross-claimants were alleging negligence on the part of the cross-respondent was identified at an early stage. Unfortunately, the conflict was not resolved at that early stage. Of course, it may transpire that the cross-respondent is innocent of any negligence or of any criticism for its conduct of the proceeding. The point is that I cannot, on the evidence before me, find that the cross-claimants may not have a substantial claim against the cross-claimants which has not been brought forward in a timely, or reasonably timely, fashion. 53 I recognise on the other hand that if the cross-respondent is right it is owed a substantial amount of money and that there appears to be no dispute that its fees for unrelated matters are due and owing. I also recognise that the cross-respondent's lien is likely to be of little value to it at the conclusion of the proceeding if the order now sought is made. I also recognise that the cross-claimants have not adduced any evidence that they are unable to provide security. Having said that, I do not think that there are the type of exceptional circumstances which might justify a refusal to make an order for production or the making of an order which is conditional on part payment or payment into court or the provision of security. 54 It seems to me that this case is clearly distinguishable from the case before Leggatt J in A v B. It is also distinguishable from Ismail because I cannot say that the cross-claimants do not have a real sense of grievance or indeed a substantial cause of action against the cross-respondent. It seems to me that this case is analogous to the decision in Gamlen. It presents the same problem identified by Goff LJ (see [41] above) in that there may prove to be nothing in the cross-claimants' allegations against the cross-respondent, but it is simply not possible to say that at this stage. They are substantial, they arise directly out of the applicants' claim and they are the subject of a cross-claim. 55 In my opinion, it is proper to make the order for production sought by the cross-claimants.

Conclusion 56 The respondents should pay the applicants' costs of the notice of motion dated 8 October 2008. I refuse to order that those costs or the costs the subject of the other two orders identified by the applicants be paid forthwith. 57 The cross-claimants' application for the production of their papers should be granted. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate: Dated: 9 July 2009 Counsel for the Applicants: Mr R J Whitington QC with Mr A S Rosser

Solicitor for the Applicants: Cosoff Cudmore Knox

Counsel for the Second Respondent (Second Cross-claimant), the Third Respondent (Third Cross-claimant), the Fourth Respondent (Fourth Cross-claimant) and the Fifth Respondent (First Cross-claimant): Mr B C Roberts

Solicitor for the Second Respondent (Second Cross-claimant), the Third Respondent (Third Cross-claimant), the Fourth Respondent (Fourth Cross-claimant) and the Fifth Respondent (First Cross-claimant): Cowell Clarke

Counsel for the Cross-respondent: Ms D R Lane

Solicitor for the Cross-Respondent: Mouldens