Solicitor's lien - When lien waived - Turns on own facts

In re Weedman & Ors; In the matter of Bills of Costs of Lynch & Co [1996] 1112 FCA 1

Jankowski & Anor v Mastoris, unreported; SCt of NSW (Eq) (Hodgson J); 19 September 1995

1 MCKECHNIE J: This is an originating summons for the release of papers held by the plaintiff's former solicitors, now the second defendants. The plaintiff has a trial listed for 11 August 2003 and the papers are said to be required for that trial. In that action the plaintiff is suing Mr Hatzikostis and another. The second defendant acted for the plaintiff in the action until October 2000.

2 There has been considerable delay, to an extent unexplained, which reflects poorly on those involved. On the plaintiff's part there was inaction for nearly a year until 17 June 2003, while the second defendant, despite several communications from the plaintiff's solicitors from that date in circumstances where the matter was obviously urgent, did not formally respond until 9 July 2003 when he asserted a lien over the papers in respect of a sum owing for costs in excess of $17,000. At a period when the lists are full, time had to be found for a Judge to hear and determine this application urgently.

3 The plaintiff is a tutor and the first defendant is a solicitor who practices in the name of the second defendant. The parties for a time had entered into, what I will describe as a partnership, without legally characterising it as such, to provide Internet tuition services. They fell out, and judging by contemporaneous correspondence, it was a rancorous split. There is presently, I am told, an action in this Court in respect of the failed venture the Internet Tuition College Pty Ltd. The first defendant formally terminated the retainer in respect of the Hatzikostis action on 16 October 2000. Whether he was doing so as a result of misconduct on the first defendant's part or the plaintiff's part I am unable to determine by evidence, which is on affidavit, and it is unnecessary for me to do so. Certainly the relationship of trust had broken down irretrievably but I do not need to apportion blame in order to decide this application.

4 The plaintiff says that on 26 July 2000 he received advice from second defendant that the amount billed in relation to the Hatzikostis matter was $24,808.42. He says that he paid $10,654.50 of that amount. He says further that there was a set-off in respect of some $14,000-odd of the balance of this account in relation to management fees in respect of the Internet Tuition College. He says that Mr Bennett agreed to pay these fees but did not do so.

5 In brief terms, the first defendant, it is said, agreed to fund the Internet Tuition College while the plaintiff contributed his expertise. The plaintiff claims that the first defendant owes him moneys for outstanding management fees. The plaintiff said he prepared a schedule of moneys owing which he gave to the first defendant. Part of that schedule included a range of expenses said to be set off against the amount actually owing, including amounts for legal fees totalling $14,792.

6 By itself, the plaintiff's evidence does not take the matter further. However, the same amount, $14,792 is found on a reconciliation prepared by Mr Bestall, the chief financial officer of the second defendant. This is a reconciliation for a company called Cityfield Pty Ltd, a company associated with the first defendant. Mr Bestall's evidence is that it was prepared to assist Mr Bennett in dealing with a prospective purchaser of his interest in Internet Tuition College in order to show Mr Bennett the financial exposure to the Internet Tuition College venture and the dealings with Mr Soia. The first defendant's explanation is, and I quote par 41 of his affidavit of 24 July 2003:

"The inclusion of legal fees of Soia's matter was done by Mr Bestall to provide me with an overall financial picture of my dealings with Soia. It does not reflect and did not at the time reflect a release by Bennett and Co of Soia for payment of these fees. I do not know whether the document was provided to Soia in July 2000 prior to our relationship breaking down by Mr Bestall or whether Soia obtained it from Aerodata. In any event, Aerodata abandoned its contract and the fees were never paid."

7 By itself, I would have to say that the reconciliation statement is equivocal. However, there is more.

8 On the plaintiff's estimate, after payment of fees of $10,654 there remained a balance of $14,153.92 unpaid. The set-off figure, on those calculations, in the reconciliation statement was $14,792. It is in these circumstances that the second defendant's letter of 19 December 2000 to the plaintiffs' new solicitors becomes important. It states:

We have reviewed our outstanding accounts in this matter. Your prospective client Mr Soia and Personalised Tuition Services Ltd's account details are as follows: (a) $2398.46 in outstanding accounts, (b) $1537 work in progress -

and then explains the content of the amount of $1537. The fees outlined in the letter totalled $3,935.46. The letter included an offer to settle in respect of the fees in the sum of $3000 but that offer was not taken up.

9 This letter of 19 December 2000 is consistent with the first defendant acting on the basis that there had been a set-off in respect of the amount of $14,153.92 in relation to the fees otherwise owed to the plaintiff.

10 I use the word "set-off" colloquially and without any intention that this should construe any finding relevant to the pending action between the parties. It is certainly consistent with intention on the part of the first defendant not to claim that amount against the plaintiff and inconsistent with an assertion of a lien.

11 The next event of significance is a letter from the second defendant of 14 January 2002. It appears to have been written by a solicitor in the firm on letterhead and says:

"We are pleased to record that the above matter has been completed on your behalf. We have reviewed your file and intend now to close the file and archive it. Accordingly this letter confirms:

(a) all our outstanding accounts have been paid. Thank you in this regard.

(b) we have prepared your file for archiving.

It is the policy of this Firm to hold file records in archives for a minimum period of 7 years. Each file is assessed according to its own requirements. At the completion of that minimum 7 year period, the file records will be reviewed and if appropriate our records will be destroyed.

Of course if you require access to your file during this period, please do not hesitate to contact us.

It has been a pleasure acting for you in respect of this matter and thank you for your instructions. ..."

12 The plaintiff wrote on 23 January 2002 to the second defendant authorising the second defendant to release his file to his present solicitors. There was an unexplained delay until a letter of 22 July 2002 from the second defendant, "We have prepared your file for archiving ...".

13 It is significant that no lien was asserted in either letter.

14 In summary, from December 2000 until July 2003 no claim for $17,000 in fees was made and no lien was claimed as against unpaid fees. This is explained by the first defendant. He refers to the computer system in his firm and says:

"4.1 the computer accounting package my firm uses for client accounting purposes is a package called 'Open Practice';

4.2 within Open Practice a solicitor can search details of current debtors of my firm;

4.3 when an account is written off for tax purposes as a debt, recovery of which is doubtful, or is a bad debt, it is removed from that part of Open Practice which records current debtors and is separately recorded as a bad debt;

4.4 at the time Mr Lemonis prepared Mr Soia's file for archiving, Mr Soia's debts had been unpaid for a period of over 12 months and had been written off from current debtors."

15 This is not an entire explanation for the positive assertion in the letter of 14 January 2002 that "all outstanding accounts have been paid" and thanking for instructions. Mr Christensen argues on behalf of the defendants that of course having regard to the letter of 19 December 2000 the plaintiff would know that there was an amount outstanding of some $3900. There is some force in that submission. However, the letter of 14 January 2002 from the second defendant in its terms is clearly inconsistent with an intention to claim a lien over the papers and, significantly in these circumstances, no lien was claimed after receipt of the plaintiff's handwritten fax, the subsequent solicitor's note, or relevantly in the letter of 22 July 2002.

16 In the circumstances therefore I find as follows:

(a) the plaintiff had a liability to the second defendant in relation to the action against Hatzikostis, in the sum of $28,743.88 being the amount of $24,808.42 and $3935.46;

(b) the plaintiff discharged his liability in the sum of $10,654.50 by payment;

(c) the second defendant treated the amount of $14,153.92 as discharged by way of set-off as evidenced by the Cityfield reconciliation statement and by the letter of 19 December 2000;

(d) the amount due in that letter of $3935.46 (subject of course to any action taken by the plaintiff under the Legal Practitioners Act to tax the bill) remains owing;

(e) the letter of 14 January 2002 confirmed by the letter of 22 July 2002 constitutes a waiver of the lien in the particular circumstances of this case notwithstanding the explanation by the first defendant. It constitutes an indication that a lien would not be insisted upon for payment of the fees so that the subsequent assertion of the lien in the letter of 9 July 2003 is ineffective. The plaintiff is therefore entitled to orders in terms of order 2 of his summons.