Twigg & Anor. v. Kung & Anor. [2002] NSWCA 220

Court of Appeal (NSW)|2002-07-02|Before: Stein JA, Hodgson JA

CITATION : Twigg & Anor. v. Kung & Anor. [2002] NSWCA 220 revised - 29/11/2002 FILE NUMBER(S) : CA 40647/00 HEARING DATE(S) : 2 July 2002 JUDGMENT DATE : 11 July 2002

Peter Twigg & Mark Twigg (trading as Adrian Twigg & Co.) - appellant PARTIES : Patrick Kam Chiu Kung - 1st respondent Ross Elder McGlynn & Stephen Michael Hahn (trading as McGlynn & Partners) - 2nd respondent JUDGMENT OF : Stein JA at 1; Hodgson JA at 2; Foster AJA

LOWER COURT JURISDICTION : District Court LOWER COURT 2762/99 FILE NUMBER(S) : LOWER COURT Rolfe DCJ JUDICIAL OFFICER :

Mr. P. Brereton SC for appellant COUNSEL : Mr. J. Whittle SC with Mr. A. O'Brien for 1st respondent Mr. G. Inatey SC for 2nd respondent SOLICITORS : Adrian Twigg & Co. for appellant Phillip Yip & Associates for respondents CATCHWORDS : LEGAL PRACTITIONERS - Solicitor's lien - Notice - Whether notice can be given before lien crystalises - Whether authority to receive can be notice of lien - Requirement of clarity - Effect of lapse of time and change of solicitors. Re Dallas [1904] 1 Ch. 385 Grogan v. Orr [2001] NSWCA 114 James Talcott Ltd. v. John Lewis & Co. Ltd. [1940) 3 AllER 592 Johnstone v. Cox (1881) 19 Ch. 17 CASES CITED: Ex Parte Patience (1940) 40 SR(NSW) 96 Lloyd v. Banks (1868) LR 3 Ch.App. 488 Ross v. Buxton (1889) 42 Ch. 190 Squires v. South Australian Steel & Sheet Pty. Ltd. (1987) 45 SASR 142 Welsh v. Hole (1779) 1 Dougl 238 William Brandt's Son & Co. v. Dunlop Rubber Co. Ltd. [1905] AC 454 DECISION : Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40647/00 DC 2762/99

STEIN JA HODGSON JA FOSTER AJA

Thursday 11 July 2002 TWIGG & ANOR. V. KUNG & ANOR.

Judgment 1 STEIN JA: I agree with the reasons of Hodgson JA set out below. 2 HODGSON JA: On 21 July 2000, Rolfe DCJ determined proceedings in which a firm of solicitors Adrian Twigg & Co. sued the respondent Patrick Kung and also another firm of solicitors McGlynn & Partners claiming $115,301.91 plus interest, and in which Mr. Kung cross-claimed against McGlynn & Partners for a similar amount. Relevantly, the orders made by Rolfe DCJ were as follows: 1. Verdict and judgment for the defendants on the plaintiff's claim. 2. Cross-claim dismissed. 3 Adrian Twigg & Co. have appealed by leave to this court from that decision, to the extent that it was in favour of Mr. Kung, claiming against him judgment in the sum of $62,220.71 plus interest. McGlynn & Partners have been joined as respondents, but at present no order is sought against them; and I will refer to Mr. Kung as the respondent.

CIRCUMSTANCES 4 In 1988, the appellants received instructions from the respondent's wife to act for her in Family Court proceedings against the respondent; and they continued to act for her until about April 1992. 5 On 27 September 1989, the respondent's wife signed a document addressed to the respondent and his then solicitors Parish Patience, in the following terms: Re: Family Law Application On completion of this matter, I hereby irrevocably authorise and direct you to pay any settlement or verdict moneys I may receive in relation to the above claim as follows: (i) To my solicitors Messrs. Adrian Twigg & Co.

This authority is for valuable consideration received, is irrevocable and cannot be cancelled without the prior written consent of Adrian Twigg & Co. 6 This authority was sent to Parish Patience under cover of a letter in the following terms: Please find enclosed authority to receive. Kindly acknowledge receipt.

This letter was received by Parish Patience shortly afterwards. 7 On 14 November 1991, the respondent withdrew his instructions from Parish Patience, and in their place instructed McGlynn & Partners to act for him. McGlynn & Partners did not, at any time prior to 6 May 1993, become aware of the authority of 27 September 1989 or of any claim made by the appellants for a lien for their costs. 8 In about April 1992, the appellants ceased to act for the respondent's wife. The wife's new solicitors were Somerville & Co. By that time, the appellants had done a considerable amount of work for the respondent's wife. The respondent's wife had paid them $13,000.00 on account of their costs, and subsequently a further $35,000.00 being the proceeds of a litigation loan made by Westpac to the respondent's wife and guaranteed by the appellants. The appellants later had to repay that $35,000.00; and they claim now to be entitled to over $53,000.00 in costs plus interest. 9 In February 1993, there was a hearing before Rowlands J in the Family Court of Australia. When his Honour gave judgment after that hearing, the respondent read the judgment and ascertained from it that his wife had outstanding legal fees. When asked in cross-examination before the primary judge whether he knew that some of these fees were due to the appellants, the respondent replied "Yeah maybe". 10 On 14 April 1993, Rowlands J ordered that the respondent's wife should receive from the respondent $128,586.00. 11 On 21 April 1993, Mark Twigg, one of the appellants, telephoned Mr. Hahn, of McGlynn & Partners, who was acting for the respondent. Mr. Hahn informed Mr. Twigg that a property owned by the respondent and his mother was being sold, with $128,000.00 to be paid to the respondent's wife from the proceeds of sale. In a subsequent telephone conversation on 23 April 1993, Mr. Hahn told Mr. Twigg that the sale was to be settled on 4 May 1993. Mr. Twigg did not mention the authority or any claim for a lien, or any outstanding costs owed by the respondent's wife in respect of the matter, in either of these conversations. 12 On 3 May 1995, the wife's solicitors Somerville & Co. wrote to McGlynn & Partners directing them to make the following payments on her behalf on settlement of the sale: S. Kung (the respondent's wife) $49,711.99; Somerville & Co. $41,808.88; A.C. Todd $13,775.00; William B. Beilby & Co. $350.00; and Hermina Keady $21,241.80. These sums totalled $126,887.67. 13 On 6 May 1993, the appellants wrote to Somerville & Co. advising them that the appellants' claimed a lien in respect of the proceeds of sale; but it appeared that this letter was not received by Somerville & Co. prior to the settlement and dispersal of the proceeds, and in any event the appellants did not provide any similar advice to McGlynn & Partners. 14 The sale was settled on 6 May 1993, and the proceeds of sale were paid substantially in accordance with the direction from Somerville & Co. 15 The appellants took proceedings against the respondent's wife and Hermina Keady with a view to recovering costs; but those proceedings were settled because the appellants became satisfied they could not recover anything from those persons. The respondent's wife became bankrupt on 14 March 1994. 16 The respondent gave evidence, and denied that he had seen or knew about the authority. The primary judge did not regard him as a credible witness, but did not infer that Parish Patience had shown him or told him about that document; and no challenge is made to this. 17 Mr. Hahn of McGlynn & Partners also gave evidence. He conceded that it must have occurred to him that the appellants' only remaining interest at the time of the telephone conversations in April 1993 was their costs; and that he would have presumed they were looking to be paid their costs out of the proceeds of sale of the Lane Cove property. The primary judge accepted Mr. Hahn as a truthful witness, and was satisfied that he (and McGlynn & Partners) had no actual knowledge of the authority or of any claim of a lien before the proceeds of sale had been distributed.

DECISION OF PRIMARY JUDGE 18 The primary judge accepted the appellants' submission that they were instrumental in obtaining the judgment in favour of the respondent's wife, and that they had a solicitor's lien for their costs when Rowlands J made the order requiring the respondent to pay his wife $128,588.00. He also accepted that, if a solicitor gives notice of such a lien to a person liable to pay the judgment in question to the solicitor's client, only the solicitor can give a good discharge for so much of the judgment as equals the solicitor's costs. 19 The primary judge rejected a submission from McGlynn & Partners that the authority had no effect because it was given before any right to assert a lien had arisen. However, he found that the appellants had no claim against that firm because they had not shown that the firm had actual, constructive or imputed notice of the appellants' claim for a lien. 20 As regards the appellants' claim against the respondent, the primary judge noted the concession of the respondent that it was within Parish Patience's authority to receive notices such as the authority on his behalf; but he held that this did not give the respondent imputed notice of the authority, because Parish Patience were not the respondent's agents at the relevant time, namely the time when the solicitor's lien came into existence. Accordingly, his Honour dismissed the claim against the respondent.

GROUNDS OF APPEAL 21 The appellants rely on the following grounds of appeal: 1. His Honour was in error - having found that (1) the respondent had conceded that it was within the authority of his former solicitors Parish Patience to receive notices such as the Authority on his behalf, and (2) that Parish Patience had received the Authority on or about 10 October 1989 - in holding that the respondent did not have imputed notice of the Authority and thus of the appellant's claim to a lien.

His Honour was in error in holding that the only relevant time for determining whether notice should be imputed to the respondent was the time at which the lien arose. 22 The respondent has put on a Notice of Contention raising the following ground: That the Authority relied upon by the appellant on its true construction did not give notice to the respondent that the appellant's (sic) asserted the existence of a solicitor's lien.

SUBMISSIONS 23 Mr. Brereton SC for the appellants submitted that there were two erroneous assumptions in the primary judge's reasoning; first, that notice of a lien can be effectively given only after the lien crystallises; and second, that a notice imputed through one's solicitor is lost upon a change of solicitors. Mr. Brereton submitted that a solicitor's lien is an inchoate interest until the fund over which the lien exists is constituted; but upon a judgment or compromise being made the interest arises immediately. The question of notice is not relevant to the existence of the equitable interest, but is important in that the party will be affected by the interest only if he or she has notice of it. 24 Mr. Brereton submitted that, by analogy with other equitable interests, the real question is the actual or presumed state of mind of the relevant person at the time of dealing with the property. So long as the notice gives rise to that state of mind, a notice before the judgment or compromise must be sufficient. This was in accordance with the statements of principle in Ex Parte Patience (1940) 40 SR(NSW) 96 at 100-1. Mr. Brereton submitted that practical considerations confirmed that this must be so, because a former solicitor would often not know, or be in a position to know, when a judgment or compromise will happen. 25 Mr. Brereton submitted that from 27 September 1989, the respondent was on notice of the appellants' interest in such fund if any as might become payable to his wife on judgment or settlement. The notice given to Parish Patience was in substance not to settle with the respondent's wife until the solicitors' costs had been paid: this was in accordance with the kind of informal notice contemplated in the leading case of Welsh v. Hole (1779) 1 Dougl 238, 99 ER 155. There was no basis for asserting that the subsequent change of solicitors affected the imputed notice. 26 Mr. Whittle SC for the respondent dealt first with the issue raised by the Notice of Contention. He submitted that a person is not bound to give effect to a solicitor's lien unless that person has clear, unambiguous and actual notice of the lien. Mr. Whittle submitted that the authority in this case could not amount to such a notice. It was not notice given by the solicitors, but only an authority from the client: this was confirmed by the terms of the covering letter. It contained no express or implied assertion from the appellants that they were seeking to meet costs out of those moneys: indeed, it contained no suggestion that there were costs outstanding, or were expected to be costs outstanding, on the basis of work done in the relevant matter (any interest of the appellants in receiving the moneys could have been based on other dealings such as loans or work in other matters). The document required payment of the whole of any settlement or verdict moneys, not any amount referable to costs; and once there was a change of solicitors, the appellants became very unlikely to be recipients of the whole of settlement or verdict moneys. Three and a half years passed from the provision of that document, during which no notice or claim of any lien was conveyed to the respondent or his solicitors, despite ample opportunities to do so. 27 Mr. Whittle submitted that the analogy of notice of equitable assignment of debts or equitable interests supported the requirement of clarity. In those cases, constructive notice is not enough: Lloyd v. Banks (1868) LR 3 Ch.App. 488 at 490; and the notice must plainly convey that the debt and the right to receive it have been transferred to a third party: William Brandt's Son & Co. v. Dunlop Rubber Co. Limited [1905] AC 454 at 462; James Talcott Limited v. John Lewis & Co. Limited [1940] 3 AllER 592 at 595, 599; Squires v. South Australian Steel & Sheet Pty. Limited (1987) 45 SASR 142 at 144-5. 28 Mr. Whittle submitted that this analogy also supported the existence of a requirement that the lien must exist before the notice is given. Although an equitable assignment of future property is effective if supported by consideration, notice of such assignment is effective only if given when the subject matter has become present property: Meagher Gummow & Lehane; Equity Doctrines & Remedies, 3rd Ed., par.833, Johnstone v. Cox (1881) 19 Ch. 17, Re Dallas [1904] 2 Ch 385. 29 Mr. Whittle also referred to Grogan v. Orr [2001] NSWCA 114. In that case, a solicitor had sent to solicitors subsequently acting for the same client an authority signed by the client purported to irrevocably authorise and direct the latter to pay the former's costs from the sale of identified property. The solicitors seeking those costs claimed on the basis of a lien, but the Court of Appeal held that no notice of the lien had been given. 30 In reply, Mr. Brereton submitted that in Grogan v. Orr the solicitor "did not rely on [the authority] or any other writing as notice of the existence of a particular lien": Grogan v. Orr at [56]. Further to this, the authority in that case was distinguishable from the one in this case, because not merely was the authority expressed to be irrevocable and to be for valuable consideration, but also it contained the assertion that it could not be cancelled without the prior written consent of the appellants. 31 In relation to the submission that the notice did not have sufficient clarity, Mr. Brereton submitted that in most reported cases the notice does not explicitly assert a lien. It is not necessary that the notice refer expressly to costs and disbursements: the question was whether the notice was sufficient to convey the relevant information to a reasonable solicitor receiving it. This authority would convey that a lien for the costs of the action was being asserted: although a solicitor might have other interests in receiving the property on behalf of the client, overwhelmingly the most probable reason in the context of litigation in the Family Court of Australia by specialist Family Court solicitors was that the property was required in satisfaction of a lien for the costs of those proceedings. As regards the suggestion that the appellants were unlikely recipients of the whole of the judgment or settlement moneys after a change of solicitors, Mr. Brereton submitted that they were certainly a likely recipient of some of the judgment money; and that one very simple way in which the status quo could have been changed was by the written consent: the whole purpose of having terms such as the requirement of written consent is to avoid there being doubt or question as to whether a particular arrangement does or does not continue. Although a lien had not expressly been asserted subsequently, Mr. Hahn clearly understood in April 1993 that the appellants were owed money and looking to be paid it from the proceeds of the judgment.

DECISION 32 In my opinion, notice of a lien can be effectively given at a time when the interest is still inchoate, in that there has not yet been a judgment or settlement to which the lien could attach. The important matter is the actual or presumed state of mind of the person dealing with the property at the time when that dealing takes place: if the person in question has notice of the lien at the time the property is dealt with, that will be sufficient, and it will not matter that the communication occurred at a time before the lien attached to particular property. I think this follows as a matter of principle concerning the circumstances in which persons can be bound by notice of equitable interests, and it is also assumed in some of the cases, including the leading case of Welsh v. Hole. In my opinion, the contrary view suggested by Johnstone v. Cox and Re Dallas is not applicable, because those cases were concerned with questions of priority; and held merely that a notice of an assignment of a future equitable interest, given before that interest actually arose, could not give priority over an assignment of that interest of which notice was given after the equitable interest in question arose. 33 In my opinion, it follows from this approach that the adequacy of the notice must be considered as at the time when the challenged dealing takes place; and the question whether a notice is sufficient to bring about the required actual or presumed state of mind must have regard, not only to the terms of the notice itself and the circumstances in which it was given, but also to the circumstances that have ensued in the meantime. I accept Mr. Brereton's submission that the change of solicitors would not of itself do away with notice imputed to the respondent through his previous solicitors; but the change of solicitors is a circumstance to be taken into account in determining whether the notice should be considered as being effective as at the time of the challenged dealing, that is in May 1993. 34 I noted a submission by Mr. Whittle that constructive notice was not sufficient, but I did not understand Mr. Whittle to submit that imputed notice was not sufficient. There is a suggestion in Ross v. Buxton (1889) 42 Ch. 190 at 202 that imputed notice might not be sufficient; but I will proceed on the assumption that it is. 35 In my opinion, the cases of Lloyd v. Banks, William Brandt's and James Talcott, referred to by Mr. Whittle, do confirm that notice of an assignment should be such as to convey to the recipient, not merely the possibility that an assignment may have occurred, but the fact that it has. In relation to a solicitor's lien, in my opinion, the notice must, viewed in all the circumstances occurring up to the time of the dealing with the affected property, be such as to convey to the recipient as at that time that a lien is being asserted in respect of costs incurred in the relevant matter and unpaid. It is not sufficient that it merely raise a possibility that such is the case. 36 In my opinion, the authority and accompanying letter sent to the respondent's solicitor in October 1989 did not have the clarity necessary to fix the respondent with notice of the appellant's lien in May 1993. As has been noted, the document itself made no reference to costs or to a lien, and in particular did not suggest that there were then any costs incurred in the matter which were owing, or assert that it was anticipated that there would be costs incurred in the proceedings which would need to be paid out of the property in question. It is true, as asserted by Mr. Brereton, that the reference to the authority being irrevocable and for valuable consideration, and the reference to the need for written consent of the appellants for the authority to be cancelled, strongly suggests that the solicitors were seeking to protect some interest of their own; and that, although that interest could arise from other dealings such as loans or work on other matters, it is likely that the interest would include costs incurred in the particular proceedings. However, when in April 1992 the appellants ceased to act for the respondent's wife, it did in my opinion become objectively unlikely that they would be the persons to whom the whole of any verdict or settlement would be paid; and the authority in its terms only referred to the whole of such moneys, not to any part referable to costs. Furthermore, at no time during the three and a half year period after the authority was sent was any notice given by the appellants to the respondent that there were unpaid costs which could support a lien or that any lien continued to be asserted, notwithstanding ample opportunities to do so, including the conversations in April 1993. 37 It is true, as submitted by Mr. Brereton, that Mr. Hahn conceded that, at the time of those telephone conversations, it must have occurred to him that the appellants' only remaining interest in the matter was their costs; and that he would have presumed that they were looking to be paid their costs out of the proceeds of sale of the Lane Cove property. However, in my opinion the circumstance that that matter must have occurred to Mr. Hahn, and that he would have made that presumption, does not convert those conversations into any kind of notice either to Mr. Hahn or to the respondent that the appellants were asserting that there were costs owing to them in respect of which they had a lien over the proceeds of the judgment. 38 The failure of the appellants to convey their claim to Mr. Hahn during these conversations, or indeed at any other time, could well have amounted to laches; but that defence was never raised and could not be given effect to. However, in my opinion, it is also a circumstance very relevant to the question whether the document sent to the respondent's previous solicitors three and a half years earlier was sufficient to fix the respondent with notice of a lien in May 1993. 39 Having regard to all the circumstances I have outlined, my opinion is that the document provided in October 1989 was not such as, in the circumstances that existed in May 1993, to give the respondent notice that the appellants claimed a lien for outstanding costs and disbursements over the proceeds of the judgment. 40 For those reasons, in my opinion the appeal should be dismissed with costs. 41 FOSTER AJA: I agree with Hodgson JA. **********

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