Tyneside Property Management Pty Limited & Ors v Hammersmith Management Pty Limited & Ors

Supreme Court of NSW|2011-01-25|Before: Pembroke J

EX TEMPORE 1This is an application by the plaintiffs pursuant to a Notice of Motion filed on 14 January 2011. The respondents are the partners of Russell McClelland Brown, a firm of solicitors. The plaintiffs are their former clients. The application is for an order pursuant to s 728 of the Legal Profession Act that Russell McClelland Brown, which I will call the former solicitors, deliver up to Moray & Agnew, the current solicitors, their file or files in respect of these proceedings. There is urgency in the matter because a hearing date in the proceedings is fixed for next month. It is agreed that the documents are essential for the hearing.

The Facts 2The material facts are these. On 4 February 2008 a fee agreement was entered into between the clients and the former solicitors. It had two principal aspects. The first was that the former solicitors agreed to act on the basis that they would not charge until the conclusion of the case either by settlement or verdict, or following the termination of their retainer. The second aspect was that they reserved the right to review and change those arrangements in future at their discretion. Termination could occur if the client failed to pay the invoices issued by the former solicitors. On termination the former solicitors were entitled to retain possession of the client's papers and documents while there was money owing for charges and expenses unless and until security was provided for those costs. 3On 24 July 2008 the relevant solicitor met with a representative of the client and explained to him that although he was still waiting for the advice of MrStevenson SC on prospects, it was apparent to him that there were a number of difficulties in the case. He said to the client that he would need to find some way to fund the litigation because the firm would only carry the matter through to hearing on the basis that costs were paid as they go. The client said that he would have a hard think about how to fund the litigation. 4On 2 September 2008 there was a further meeting at which agreement was reached. On 8 September 2008 the agreement was recorded in a letter from the former solicitors to MrHaggis, the representative of the client. The letter stated that in the light of the opinion of MrStevenson SC, there were significant evidentiary hurdles and a number of critical issues in the case which indicated that the plaintiffs faced difficulties. The letter observed that MrHaggis appeared to be supremely confident of the prospects of success of his case but that the solicitor did not share that confidence and took the view that the plaintiffs' prospects of success were less than fiftypercent. For those reasons the letter went on to explain that going forward the former solicitors required payment of outstanding charges for costs and disbursements and would in the future provide monthly invoices for the work performed which would be required to be paid on normal terms. 5On 15 October 2008 there was another meeting at which a cost plan was formulated and agreed. It included, among other things, provision for payment of ongoing costs and disbursements as and when they were incurred and invoiced. The letter also stated "that the cost plan outlined above sets out the practical manner which the client's legal costs would be handled but does not override the provisions of the costs agreement and disclosure letter". 6In accordance with the arrangements that were made the client then paid the invoice rendered on 2 March 2009 and the invoice rendered on 30 April 2009. It did not pay the invoice rendered on 23 August 2009. That has led to the current stand-off.

Contractual Argument 7Two arguments are advanced by the plaintiffs. The first is a contractual argument. It depends on the proposition that they have a contractual entitlement to withhold payment until the conclusion of the case by settlement or verdict. It is therefore said no monies are owing and no basis for retaining the client's files or asserting a lien is revealed. There is no sound factual basis for this contention. The former solicitors preserved the right from the outset to vary the contractual arrangements about payment of costs and disbursements. They did so. The client understood why they were doing so. It agreed to pay on the varied basis and continued to do so until August2009. The solicitor's statement that the agreed plan sets out "the practical manner in which the client's legal costs would be handled" does not detract from the force and clarity of the underlying evidence of the consensus that was reached between the parties. Nor does anything else.

Section 728 8The second contention is based upon s 728 of the Legal Profession Act. It provides relevantly as follows: 728Supreme Court may order delivery up of documents etc (1) On the application of a client of a law practice, the Supreme Court may order the law practice: (a)to give to the client a bill of costs in respect of any legal services provided by the law practice, and (b)to give to the client, on such conditions as the Supreme Court may determine, such of the client's documents as are held by the law practice in relation to those services. 9That provision gives rise to the exercise of a discretion to be effected by the imposition of such conditions as I determine. There was a threshold point about whether it applies to former clients. But for reasons of purpose and context that seem to me to be compelling, I have taken the view that the section may not work satisfactorily, and may not operate to give effect to the purpose for which it was intended, if it were construed so as to exclude former clients. I note that the Chief Judge in Equity made some observations about the same argument in a case where the issue was available to be taken, but was not contested by either party in Spence v Gerald Malouf & Partners Pty Limited (2010) NSWSC 764 at [3] and [4]. 10The exercise of the discretion pursuant to s 728 involves consideration of several issues. The first is that on the findings that I have made, the client agreed in July, September and October2008 to pay its former solicitor's costs as and when they were incurred and invoiced. It did so in respect of two invoices and afterwards failed to do so. For that reason the former solicitors understandably terminated the retainer. 11Second, while the exercise of discretion under s 728 of the Legal Profession Act may frequently follow the Solicitors' Rules it need not to do so. The relevant Solicitors' Rules are expressly made subject to any contrary order by the Supreme Court and s 728 itself is not expressed by reference to any explicit or implicit qualification. The Solicitors' Rules provide a framework for the steps that solicitors must observe where a former client seeks access to documents. But they do not impose binding guidelines on the court. Nor, for that matter, are they entirely free of ambiguity: Bechara v Atie [2005] NSWCA 268 at [61]-[63]. 12In this case the evidence suggests that the client may well not succeed in its underlying claim against the defendants. Neither MrStevenson SC nor the former solicitors are confident of the client's prospects of success. The client's own optimism may be unjustified. If the client does not succeed, there will be no verdict, judgment or settlement from which the former solicitor's costs can be paid. In that event the standard form of tripartite agreement referred to in the Solicitors' Rules will not protect the former solicitors. The former solicitors will have handed over the documents over which they have a valid possessory lien and will be left with nothing more than an empty contractual right against the client. 13As I have made clear, s 728 permits an order to be made that would have an effect which is different to that which would result from the application of the Solicitors' Rules. I do not think that it is necessary that extraordinary circumstances be demonstrated. I am only concerned with what conditions are appropriate to attach to an order that the former solicitors deliver documents to the client over which the former solicitors have a contractual and possessory lien. The language of extraordinary circumstances is inapposite. 14I am satisfied that the client's financial position is not strong; that the underlying proceedings may well not succeed; and that the client agreed long ago to the abandonment of the original agreement to defer the payment of costs until after the conclusion of the proceedings. I am also satisfied that the current situation has arisen because the client has not paid the former solicitors' costs as it agreed to do and chose instead to engage new solicitors.

Satisfactory Security 15There are some other relevant facts. The former solicitors are owed $156,375, subject to assessment. As at 12 January 2011 the current solicitors held $179,000 in trust. The notion that the former solicitors' costs should be "satisfactorily secured" is fundamental to the Solicitors' Rules. The requirement that, before delivery up of the documents, the former solicitors' costs should be satisfactorily secured is expressly stated in Rule 8.4.2. It appears again in Rule 29.4.1. I regard it as being equally fundamental to the exercise of discretion pursuant to s 728 of the Legal Profession Act. It is an enduring and sensible objective in these cases. 16Ordinarily, satisfactory security will mean something of monetary value which will ensure the satisfaction of the possessory lien: Bechara v Atie (supra) at [64]. However what amounts to satisfactory security will vary depending on the parties' agreement and the relevant facts. Where the parties have agreed that the costs will only be paid out of a verdict, judgment or settlement, if any, then satisfactory security will be less than if, as in this case, the parties' agreement provides for payment of costs as and when incurred and invoiced. In the former category of case the solicitor is prepared to take a chance; in the latter he is not. What is satisfactory security will be conditioned by matters such as these. Thus the option of entering into a tripartite agreement as contemplated by Rule 29.4.2 and Rule 8.4.2 will sometimes result in a satisfactory outcome. And sometimes it will not. It does not do so in this case. 17As a matter of discretion under s 728 I am not compelled to accept the plaintiffs' proffer of a tripartite agreement as an acceptable condition that should be attached to an order for the delivery up of the client's documents. Clauses 6, 7 and 8(c) of the standard form of tripartite agreement provide little or no protection to the former solicitors in the event that the proceedings are unsuccessful. 18It was that very prospect which resulted in the former solicitors exercising their right to vary the original arrangements for payment of costs. The client went along with the agreed variation, then chose not to adhere to it and brought the current situation upon itself. 19Finally, the exercise of my discretion as to what is satisfactory security permits me to attach conditions which relate to part only of the former solicitors' costs. I have made an holistic evaluation of an amount which in my view, in the totality of the circumstances, represents satisfactory security. I regard it as appropriate, but it is of course a discretionary matter on which minds might differ.

Orders 20For those reasons I will make the following orders: (a) I order pursuant to s 728 of the Legal Profession Act that the respondents deliver to Moray & Agnew their file or files in respect of the proceedings number 2003/83732. (b) That order is subject to the condition that the plaintiffs first cause $100,000 to be held on trust for the outstanding costs due to the respondents pending assessment or agreement between the parties. (c) I order the plaintiffs to pay half the respondent's costs of this application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 February 2011

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