Thomas Baena trading as Baena Legal v Zuhair Nakhleh Habeebeh

EX TEMPORE Judgment

The plaintiff, Baena Legal, acted until recently as the solicitor for the defendant, Zuhair Habeebeh, in certain family law property settlement proceedings between Mr Habeebeh and his former wife.
For convenience, the plaintiff will be referred to in these reasons as "the solicitor", and the defendant will be referred to as "the client". The solicitor no longer acts for the client, who appears to have lost confidence in the solicitor, and retained another legal advisor to represent him in the balance of his family law proceedings, namely, Ms Carmeline van Langenberg.
There is a residual dispute between the solicitor and the client concerning the costs charged by the solicitor to the client in the family law proceedings. That dispute has evolved into a contest about whether or not the solicitor has a subsisting equitable interest in the matrimonial real property to which the client is entitled, and which has just been sold.
The proceedings between the client and his former wife are not yet fully resolved. But the whole of the net proceeds from the sale of the matrimonial property are now held in Ms van Langenberg's trust account. But it is anticipated in early 2021, that the family law proceedings will resolve and the client will become entitled to a portion of that money, which the Court is told is in excess of $400,000.
The existing orders of this Court Darke J made on 9 July 2020 require a sum of $100,000 to be retained in Ms van Langenberg's trust account pending the resolution of the costs dispute between the solicitor and the client. In the contest today, the solicitor seeks by motion to maintain the existing injunction keeping the sum of $100,000 in Ms van Langenberg's trust account, until the final resolution of the costs assessment.
In answer to this application, the client seeks the dismissal of these proceedings and the payment out to him of the whole $100,000 as soon as the family law proceedings are resolved.
Some further background is required in order to set the scene for this contest. Mr Thomas Baena appeared for the plaintiff firm himself, and Mr J. Moshides of counsel appeared on behalf of the client.

The Solicitor and the Client's Family Law Proceedings - 2018 to 2020

Initially, Jessie Icao Solicitors represented the client in the client's matrimonial dispute in the Federal Circuit Court. The solicitor was at the time an employee of that firm. But the solicitor subsequently formed his own firm and took on the client as one of the clients of his new law firm. The client made a first costs agreement on 27 August 2018 with Jessie Icao Solicitors and a second costs agreement on 1 July 2019 with the solicitor.
Clause 17 of the costs agreement between the solicitor and the client on 1 July 2019 provided for the imposition of a caveat on the matrimonial property in the following terms: "17. Charge securing costs In order to secure our costs, you hereby charge the property known as [property address omitted] with the payment of all amounts that may become due and payable to us. This entitles us to lodge a caveat on the title of the property restricting transactions with the property until our costs are paid."
The costs agreement also created a solicitor's lien over documents, records, papers and other material created in the performance of the costs agreement.
On 21 February 2020, the solicitor placed a caveat on the title to the matrimonial property on account of $96,239 in alleged unpaid legal fees claimed to be owed to the solicitor for legal work in the family law proceedings. The caveatable interest claimed was said to arise by virtue of clause 17 of the costs agreement. By early this year, the solicitor and the client were in dispute about the amount of costs that were owing by the client to the solicitor.
This dispute between the solicitor and the client about the quantum of costs was referred to a Supreme Court costs assessor by the Manager, Costs Assessment.
In the meantime, the family law proceedings were progressing. On 29 April 2020, the Federal Circuit Court made orders requiring the client and his former wife to sell the former matrimonial home and pay the proceeds of sale into the trust account of Langenberg Law, pending settlement or final resolution of the family law proceedings.
To effect settlement of the sale in compliance with the Family Court's orders, the client served a caveat lapsing notice on the solicitor. In response, the solicitor commenced these proceedings by Statement of Claim and sought interim orders preventing the lapsing of the caveat.
The matter came before Darke J on 9 July 2020. As it was in the interests of both parties, and in conformity with the orders of the Federal Circuit Court, for the former matrimonial property to be sold, Darke J allowed the caveat to lapse upon the client's undertaking to hold $100,000 out of the client's share of the property sale proceeds in the Langenberg Law trust account. This sum was said to be a substitute security for the solicitor's billed costs of $96,239, plus some margin for interest and costs recovery.
There the matter stood for four months, while the costs assessment took place. The costs assessor published her costs assessment determination on 5 November 2020. The costs assessor dramatically discounted the solicitor's claim for costs from $96,239 to $13,860. The costs assessor ordered that the solicitor should pay the costs of the costs assessor, those costs amounting to the sum of $8,889.17. That means that, in substance, of all the costs that the solicitor claimed, the current costs assessment determination would result in the solicitor receiving a little under $5,000. That is the amount of $13,860 less the amount of $8,898.17 that was ordered to be paid to the costs assessor.
The costs assessor was highly critical of the solicitor's conduct of the proceedings. She commented upon the poor quality of evidence supporting the claim for costs and the excessive nature of some of the claims for costs. The costs assessor's criticism of the solicitor does not need to be covered in any detail in these reasons. But the costs assessor referred the solicitor to the Office of the Legal Services Commissioner pursuant to Legal Profession Uniform Law 2014, s 202.
The costs assessor's determination represented a significant change in the circumstances that existed at the time that Darke J fixed the amount to be held in the Langenberg Law practice trust account at $100,000.
On 20 November 2020, Ward CJ in Eq removed these proceedings from the Real Property List into the Equity General List and ordered the solicitor to file and serve an Amended Statement of Claim. At least one good reason for the filing and service of an Amended Statement of Claim is that the present Statement of Claim is deficient in form in that it only claims relief for the removal of a caveat and does not seek final equitable relief. Order 1 of the relief claimed in the Statement of Claim is: "Order that until further order by the Court caveat number (number not published) be extended pursuant to the Real Property Act 1900, s 74K. Apart from that order the statement of claim claims costs of these proceedings on an indemnity basis of the money claimed of costs."
The Statement of Claim does not seek a declaration as to the equitable interest that lies behind the caveat, which would justify this matter remaining in the Supreme Court Equity Division. A money claim for less than $100,000 would ordinarily be remitted to the Local Court for determination.
The solicitor's submissions in this case put that the Amended Statement of Claim need not be filed. I disagree. In my view, an Amended Statement of Claim should be filed. The Court will require the solicitor to amend the Statement of Claim.
Notwithstanding a lack of service of an Amended Statement of Claim, on 3 December 2020, the solicitor served the present motion on the client, seeking the following relief: "1. Pursuant to Rule 36.1 order that the proceedings be stayed until after all the costs assessment processes of the plaintiff's legal bill are completed or until further order of the Court. 2. Order that the order made by the court on 9 March 2020 is not disturbed".
The thrust of the solicitor's present submissions is that the solicitor has now made an application to the Review Panel to review the costs assessor's determination, and Legal Profession Uniform Law, s 86 now suspends that determination.
The solicitor filed the application for the review of the determination of the costs assessor on 2 December 2020. That review is yet to take place. It can be accepted that the costs assessor's determination is thereby suspended under Legal Profession Uniform Law, s 86 pending the determination. But notwithstanding that suspension, the costs assessor's determination is nevertheless a relevant new development for the Court to take into account when addressing what orders should be framed for the continuation of any restraint upon the client's moneys in the Langenberg Law trust account.
The present contest therefore maybe shortly summarised. The solicitor's motion seeks to affirm the suspension of the costs assessor's determination, during the review under Legal Profession Uniform Law, s 86, by staying the proceedings until the review is complete.
The client on the other hand seeks under Uniform Civil Procedure Rules 2005 ("UCPR"), r 18.6 orders based upon the costs assessor's determination. He seeks orders dismissing the proceedings on the basis that the whole purpose for the caveat has now been undermined by the costs assessor's reasons to the conclusion that the costs agreement between the solicitor and the client is void due to non-compliance by the solicitor with the costs disclosure provisions of the Legal Profession Uniform Law. Mr Moshides submits for the client that the costs agreement is void and that voidness would, if established, extinguish any charge created under the agreement.
But it seems to the Court that the solicitor's motion and the client's application are each asking for too much. The solicitor's motion is too widely framed in seeking a stay of the whole proceedings. All the solicitor really needs is a stay upon the use of the costs assessor's determination until the review is completed. This is a stay which Legal Profession Uniform Law, s 86 effects in any event.
The client's claim is also too widely framed as well. In substance, the client is seeking summary judgment in these proceedings. The client's application to dismiss the proceedings really seeks one of two things: (a) an application for a final hearing of the proceedings leading to a determination against the solicitor; or, (b) a claim to strike out the solicitor's proceedings under UCPR, r 13.4 on the grounds that they are frivolous and vexatious, or because they disclose no reasonable cause of action, in light of the determination of the costs assessor.
But such relief is not available to the client on this motion for several reasons. First, apart from the client's written submissions, which were only served shortly before this hearing, there has been no prior notice to the Court or to the solicitor that the client was seeking a final hearing today. And it is not clear that all the evidence suitable for a final hearing is on from either side. It was not argued that the administrative determination of the costs assessor binds the Court and forecloses argument at a final hearing. That is unlikely but whether or not it does has not been the subject of submissions.
As to UCPR, r 13.4, the denial of a final hearing to a plaintiff is a serious matter and should not lightly be undertaken. Moreover, the solicitor's Statement of Claim does disclose a reasonable cause of action. The Statement of Claim, although not felicitously expressed, certainly claims an equitable charge based upon the costs agreement. It could not be said, based upon the text of the costs agreement, that this is a frivolous claim. At a prima facie level it may be established. Whether or not reasoning such as that of the costs assessor is available to avoid the agreement is clearly a matter for final hearing.
But there may also be other ways that the solicitor could claim an equitable interest in the fund by amending the Statement of Claim. It does seem at least, at the prima facie level, that the solicitor, notwithstanding the issues raised against the validity of the written costs agreement, may possibly have an equitable charge, known as a "fruits of the action" equitable lien, over the funds which have been brought into the solicitor's hands as the result of the sale of the matrimonial property.
The sale of the matrimonial property does appear to have arguably resulted in part from the actions of the solicitor which led to the sale of the matrimonial property. It is at least theoretically possible for the solicitor to argue that he has a fruits of litigation lien over that fund: Firth v Centrelink (formerly known as the Department of Social Security) and Another (2002) 55 NSWLR 451; [2002] NSWSC 564 (Campbell J) and Abbott t/as Piper Alderman v Pilot Development Corporation Pty Ltd [2006] NSWSC 1178 (Bergin J).
These issues are all yet to be ventilated and can be at final hearing. This is not a case appropriate for the application of UCPR, Part 13, r 4.
But what is to happen from here? The picture presented to the Court now is very different to that which applied when Darke J made his orders. Unless the solicitor improves his position on the review, his claim for $96,239 may end up being a debt claim for a little less than $5,000. It does not seem readily justifiable to maintain a restraint over $100,000 when the judgment of the costs assessor is that only $13,860 is probably claimable.
The Court has been provided with both the reasons for decision of the costs assessor and the application for review. It is not the function of the Court on an application such as this to try to predict the outcome of the review. But a reasonable starting point is the costs determination, which appears to the Court to be well reasoned. The grounds for review appear to be highly contestable. But the Court is not making a prediction about the outcome of the review. All that the Court needs to do now is to assess the balance of convenience, looking ahead pending final hearing of the proceedings.
The Court should take into account the change of circumstances introduced by the costs assessment. The solicitor urged the Court not to publish a judgment which would vary the amount being kept under a restraint. The argument was that publication would influence the review. The Court is not inclined to withhold publication. The Court is not intending to influence the review and is unlikely, by what is merely an interlocutory judgment, to do so. All the Court is seeking to do is to adjust the existing interlocutory orders in light of the costs assessment.
It would, in the Court's view, work an injustice to the client for the client to have his funds constrained to the extent of $100,000 when the costs assessment has come in at $13,860. On the other hand, some allowance needs to be made for fairness to the solicitor, so that if the review results in a determination of a higher amount, there is some security for that. Doing the best it can, the Court will vary the orders for the retention of moneys in the Langenberg Law trust account from $100,000 down to $40,000, which seems to be as balanced as the Court can be.
Rather than accept further undertakings, the Court will order that pending the resolution of these proceedings, the sum of $40,000 from the proceeds of sale of the matrimonial home shall be held in the van Langenberg Law practice trust account on account of the solicitor's claim for fees in these proceedings. And I will extend the time for the solicitor to file an Amended Statement of Claim to Monday, 25 January 2021.
The costs of this application will be each party's costs in the proceedings. If either of the parties are successful in the proceedings, they will recover the costs.

At a glance

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Judgment (4 paragraphs)

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Cases Cited (3)

Cited By (1)