These proceedings concern a claim by a solicitor, Herbert Weller, against his former client, Michael Peter Museth, in which Mr Weller contends that he has an entitlement to security over certain properties owned by Mr Museth.
The proceedings were commenced by Summons, on an urgent basis. The Summons seeks an order for an extension of a caveat which Mr Weller has lodged over the properties in question and declarations in relation to the alleged interest of Mr Weller over the properties. An order has been made on an interim basis extending the operation of the caveat until the hearing of the application for an extension of the caveat in the Summons. It is this application which is before me today.
It is clear from the debate which has so far taken place that the proceedings will give rise to issues, or at least potential issues, of fact; as well as, potentially, significant debates as to the applicable law. Irrespective of the outcome of today's application, it will be necessary for directions to be made providing for the proceedings to continue by way of pleadings and preparing the proceedings for trial of the factual issues.
Mr Weller has filed an affidavit in support of his application. According to that affidavit, he was instructed by the defendant in January 2012 to act on Mr Museth's behalf in a number of matters, including workers compensation claims, family law disputes, claims involving the Child Support Agency, an apprehended violence order and damage caused by water inundation at one of the properties in question (which is at South Windsor). Apparently, the last matter resulted in the institution of proceedings initially against AAMI, Mr Museth's household insurer. Those proceedings were subsequently amended so as to join as an additional defendant the Windsor Country Golf Club Ltd, to which I will refer to as "the Club".
Mr Weller's caveat refers to a number of costs disclosures and costs agreements in letter form. I will refer to these as the "costs letters".
The earliest costs letter is dated 14 June 2012. It is headed:
Advice concerning the proposed proceedings against the Golf Club
Costs disclosure and proposed costs agreement.
The document includes both a disclosure and various clauses in agreement form. It does not identify the nature of the work to be done other than by reference to the heading, which I have already quoted. Clauses 20 and 21 provide:
20. If your proceedings involve a claim for damages or compensation my fees shall be payable by you upon the following contingencies:
(a) the proceedings being resolved on Favourable Terms (as defined in 21) to you.
(b) if my retainer is terminated by you prior to the conclusion of the proceedings.
(c) if I terminate my retainer following a refusal by you to accept my advice.
21. For the purpose of this agreement, Favourable Terms will involve an outcome in the proceedings which has the effect of you receiving damages or compensation.
Mr Weller relies in support of his alleged security interest on a later paragraph of the letter, which is unnumbered but to which I will refer as "the charging clause". It provides as follows:
In the event that you are unable to pay the fees as they fall due, or I do not render an account up until the proceedings are concluded, you hereby give me a charge over and assign me your property for the amount of the legal fees and disbursements. If you own real property, you hereby agree that I will be entitled to lodge a Caveat on the title of your real property and in this respect, you give me a charge over and assign your property to me, for the whole of the amount of the fees rendered to you, interest if applicable, Counsel's fees and disbursements.
The second costs letter is in similar form, dated 15 July 2013, and is headed:
The proposed proceedings against AAMI
Costs disclosure and proposed costs agreement.
It contains cl 20 and 21 in the same form as in the June 2012 letter. It also contains a charging clause in similar, if not the same, terms.
There are three other letters in the same form. One dated 17 September 2013 is headed:
Your claim for damages against AAMI Insurance.
The next, dated 18 March 2015, is headed:
Your claim for damages against the golf club
Updating costs disclosure and proposed costs agreement.
Finally, on 11 September 2015, there is a further updating costs disclosure and proposed costs agreement relating to "your claim for damages against the golf club".
I have not looked carefully at the provisions of the last three costs letters, but I proceed on the basis that they contain the same or similar provisions to those which I have already quoted.
According to Mr Weller, Mr Museth accepted an offer to settle the AAMI claim in December 2014 for the sum of $70,000. Subsequently, Mr Weller issued what he described in his affidavit as an "interim tax invoice" in the sum of $46,805 inclusive of GST. The invoice itself is not in evidence. According to Mr Weller's affidavit, it has been partly paid, but the amount paid is not identified in the evidence.
The settlement of the claim against AAMI did not affect the claim against the Club, which proceeded to hearing in the District Court between 7 and 16 September 2015. It appears that judgment was reserved.
On 24 November 2015, Mr Weller issued a further tax invoice to Mr Museth. The amount of the invoice, which included both Mr Weller's professional costs and counsel's fees and disbursements, was $265,550.72 inclusive of GST. According to Mr Weller's affidavit, a part payment has been made which reduces the balance claimed under the invoice to $253,887.22.
On 16 December 2015, a judgment was given in the claim by Mr Museth against the Club. Mr Museth was unsuccessful and there was judgment for the defendant with costs. I should say that the form of judgment/order tendered is not entirely clear in that regard, but an appeal was subsequently brought from the judgment of the District Court to the Court of Appeal and it is clear from the Court of Appeal judgment that the claim against the Club had been unsuccessful. The appeal likewise was unsuccessful, with that decision being handed down in November 2016.
In the meantime, Mr Weller had lodged a caveat over the properties in question. According to Mr Weller's affidavit, the caveat was lodged on 25 February 2016. I assume that it was not until shortly before these proceedings were commenced in November this year that Mr Museth took steps to have the caveat lapse.
The principles to be applied by the Court on an application of this sort are not in doubt. The Court proceeds on the basis that an application to extend a caveat is analogous to an application for an interlocutory injunction and, accordingly, that the onus lies on the caveator to satisfy the Court both that there is a seriously arguable case raised by the claimed interest in the property to justify maintenance of the caveat and also that the balance of convenience favours extending the caveat pending a trial to substantiate the interest claimed: CJ Redman Construction Pty Ltd v Tarnap Pty Ltd (2005) 12 BPR 23,395 at 23,396 [3].
The interest claimed by Mr Weller's caveat is not specified in the form of caveat itself, which simply contains a cross-reference to an annexure which sets out Mr Weller's claim in narrative form. However, it is clear enough from the annexure that Mr Weller was seeking to rely upon the charging clause in the costs agreement documents to which I have referred. The annexure also referred to the November 2015 tax invoice and asserted:
[A]n equitable interest in and a charge over the said property pursuant to the said assignment and charge contained in the said Fee Agreement to the extent of the unpaid fees, counsel's fees and disbursements amounting to $253,887.22.
At today's hearing, counsel for Mr Weller suggested that the claim was one which arose by way of constructive trust. I do not accept this analysis. It seems to me plain that the substance of Mr Weller's claim is one for specific performance of an agreement by Mr Museth for valuable consideration (namely, Mr Weller undertaking work on the matters in question) to grant a charge over the properties to secure Mr Weller's fees. In my opinion, the interest claimed would properly have been described as an equitable charge over the properties in question to secure payment of fees and disbursements owing pursuant to Mr Weller's retainer as solicitor in the matter or matters in question.
Counsel for Mr Museth criticised the formulation of the caveat, with some justification; but I consider that its substance sufficiently appears from the annexure, although it should have been stated, in something like the form I have stated, in the body of the caveat itself.
Counsel for Mr Museth raised a number of arguments to the effect that the evidence before the Court did not establish that there was a sufficiently strong prospect of Mr Weller establishing his claimed entitlement to justify extension of the caveat.
Counsel's first point was that the costs letters had not been signed by Mr Museth and counsel submitted that there was no sufficient evidence that they had ever been agreed to. In this regard, evidence had been given in Mr Weller's affidavit asserting that Mr Museth had "accepted the terms" of the agreements and "entered into" the agreements; but this was bad in form and I rejected it.
However, each of the letters contains the following paragraph:
I should be grateful if you would carefully read this document. Such is my offer and disclosure to you. It may be accepted by signing a copy of this fee disclosure or by giving further instructions to me in this matter.
It was, therefore, not necessary for the letters to be countersigned to be effective. The evidence before the Court establishes, at least on a prima facie basis, that further instructions were indeed given.
Accordingly, I reject counsel's first point.
Counsel for Mr Museth's next argument was that the charge in terms was not effective. Counsel pointed to the fact that the charging clause was expressed in terms apparently making it conditional upon the client being "unable to pay the fees as they fall due". Counsel submitted that there was no evidence of Mr Museth's inability to pay the fees claimed by Mr Weller and, accordingly, that no entitlement to security had yet arisen under the terms of the charging clause.
This is not a contention which I can resolve in favour of Mr Museth on an application such as this. One possible interpretation of the reference to the client's inability to pay fees as they fall due is that the parties have agreed to the client paying fees at the end. The clause was also expressed to apply where Mr Weller did not render an account up until the proceedings were concluded. Given the conditional nature of the costs agreements, that is what one would expect since there would be no entitlement to payment of fees until the outcome was known in any event. A factor in favour of reading the clause in this way is that otherwise its utility would be questionable. In my opinion, the point made by counsel gives rise to an issue which must be determined at the trial. It is a question of construction, but the construction of the clause, which admittedly is clumsily worded, may be affected by surrounding circumstances as ultimately revealed in the evidence.
Accordingly, I reject counsel's second point.
Counsel's third contention fastened on the conditional nature of the costs agreements. Evidence presented by Mr Museth, as I have noted, demonstrated that the claim against the Club had failed in the District Court and again on appeal. On the wording of cl 20 and 21, it seems quite plain that Mr Weller has no entitlement to recover fees for the claim against the Club. However, that leaves the question of disbursements and, in particular, counsel's fees, up in the air. There is evidence of substantial fees having been rendered by counsel in the matter and there is no evidence as to whether counsel's retainer was likewise on a conditional basis. Furthermore, the claim against AAMI appears to have been resolved favourably for the purposes of the costs agreements.
Mr Weller's tax invoice of November 2015 is in short form. It simply identifies in one line the fees claimed, which are $180,000 plus GST. The disbursements are then listed. It is not possible to discern from the tax invoice whether the fees related to the AAMI claim or to the claim against the Club or indeed to other matters.
This brings me to counsel's fourth point. He observed that the bill was not in assessable form. It appears that far more detail would be required to identify a precise figure for the amount claimed, if any, by Mr Weller in relation to the claim against AAMI. Counsel submitted that the bill did not establish an entitlement to the amount claimed and, as I understood his submission, counsel may have been suggesting that there was as yet no entitlement to be paid at all.
However, I do not think that this is necessarily fatal to Mr Weller's claim. The interest claimed, as I have characterised it, is a charge to secure the amounts which may ultimately be found to be owing. It is not an essential requirement for the validity of such a charge that the amount be specified or ascertainable in advance, and it would be no answer to a claim for specific performance of an agreement to grant such a charge that, at the time the application was made for specific performance, the amount of the fees had not been finally determined. Indeed, so far as I can see, it would not be necessary even to show that a particular amount had been claimed.
Counsel for Mr Museth is, with respect, quite right to suggest that the evidence before me falls far short of establishing any quantifiable security interest in the properties; but I do not think that that is a reason why the interest claimed, as I have formulated it, can never be sustained.
Counsel's final point related to the circumstances in which the costs agreements had been entered into. Counsel asserted that there was a relationship of influence between Mr Weller as solicitor and Mr Museth as his client. He also suggested that there had been a breach of fiduciary duty in that, so he alleged, there had been a failure to properly explain the terms of the costs agreements and, in particular, the terms of the security. It was also suggested that the terms of the security were open for review on the grounds that they were "unreasonable": see, generally, Malouf v Constantinou [2017] NSWSC 923 at [133]-[179].
There may be considerable force in these contentions when the matter goes to trial; but, in my opinion, they raise matters of arguable defence which do not deny a prima facie case on the part of the plaintiff. Ultimately, their force will depend on exactly what was said by Mr Weller to Mr Museth, if anything, at the time the agreements were entered into.
Accordingly, I do not see these points as excluding a prima facie case that Mr Weller is entitled to register a charge over the properties in question.
For these reasons, I am satisfied, albeit barely, that Mr Weller has demonstrated an arguable case in support of the caveatable interest claimed in the terms in which I have formulated it.
As to balance of convenience, again Mr Weller's case is extremely weak. There is no real evidence of the prejudice that he will suffer. Indeed, as I have pointed out, there is no satisfactory evidence which would quantify how much of the fees claimed would arguably be covered by the charge which Mr Weller claims. However, it is usually the case that the balance of convenience favours the extension of a caveat because if the caveat is not extended, it will be open to the defendant to create registered interests in the property which would defeat the interest claimed by the caveator. This would not necessarily be decisive if there were evidence of prejudice to Mr Museth as defendant, for instance, that there was some transaction which he had entered into which required him to have the caveats discharged. But Mr Museth did not present any evidence to the Court which would explain why it was that he delayed for a period of more than a year before causing a lapsing notice to be issued; and there was no evidence of any transaction involving the properties which is contemplated and the deferral of which might lead to loss.
I should note that counsel for the plaintiff offered the usual undertaking for damages. Although such an undertaking may not necessarily have to be given in any case where a caveat is extended, in my view, it should be required in this case. Any order I make extending the caveat will require the undertaking to be given.
For these reasons, I am satisfied, but only barely, that Mr Weller is entitled to an extension of the caveat. However, I am troubled by two particular features of the case, which are related. One is that it was not until this hearing itself that the Court was informed of the conditional nature of the costs agreements. Only the first appearance in this matter was on an ex parte basis, and that appearance was made only for the purpose of obtaining orders for short service. Nonetheless, I regard the conditional nature of the costs agreements and the effect they apparently have on the quantum of Mr Weller's security claims as a matter of very great significance which should have been disclosed to the Court at the earliest possible opportunity. Instead, as I have said, it has only emerged today as a result of evidence led by the defendant. Mr Weller's affidavit to which I have referred, although purporting to summarise the terms of the costs agreements, did not annex them; so it is only today, when the documents themselves have been tendered, that the Court has been able to see their conditional nature.
The second concern is that, as I have stated, the quantum of Mr Weller's claimed entitlement to security, as distinct from his entitlement to register a charge, is very unclear. I would be troubled to think that, in making an order for the extension of the caveat until further order, the properties in question could be locked up and Mr Museth might be unable to deal with them for a significant period of time. No application has been made by Mr Weller for expedition.
I cannot, of course, bind future judges who may deal with this case; but it seems to me that if, following the exchange of pleadings and some further specification of how the sums claimed in Mr Weller's invoice are broken up, Mr Museth moves the Court to vary or discharge the order, the Court might well consider such an application favourably.
I think that the factors that I have raised are relevant to costs. The application has been only barely successful and, as I have mentioned, a matter which should have been disclosed at a much earlier time has not been. Ordinarily, a successful plaintiff whose application for interlocutory relief is resisted unsuccessfully by a defendant might expect to receive an order for costs in his or her favour, or at least an order for costs in the cause. In the present case, I do not think that would be appropriate. I think Mr Weller ought to pay the costs of this application.
The orders of the Court are:
I note that the plaintiff gives the usual undertaking for damages.
I order that caveat number AK245652 be extended until delivery of judgment at first instance in the proceedings or further order of the Court.
I order that the plaintiff pay the defendant's costs of the application for extension of the caveat.
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Decision last updated: 20 December 2017