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  •   Notable Unreported Decision

Magnamain Investments Pty Ltd v Baker Johnson Lawyers

 

[2008] QSC 245

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

10 October 2008

DELIVERED AT:

Brisbane 

HEARING DATE:

25 June 2008

JUDGE:

Daubney J

ORDER:

  1. That the application be dismissed
  2. That the first respondent pay the second respondent’s costs of and incidental to the application

CATCHWORDS:

PROFESSIONS AND TRADES – LAWYERS – LIENS – POSSESSORY LIEN – When lien arises – where first respondent held monies in trust on behalf of second respondent – where monies the subject of a dispute between second respondent and applicant – whether a lien is capable of existing over the monies in favour of first respondent

PROFESSIONS AND TRADES – LAWYERS – LIENS – POSSESSORY LIEN – Determination – where first respondent held monies in trust on behalf of second respondent – where monies the subject of a dispute between second respondent and applicant – where monies paid into court by consent – where no claim to lien communicated at time of payment into court – where six year delay in claiming lien – whether claimed lien relinquished

Barrat v Gough-Thomas [1951] Ch 242

Bolster v McCallum (1966) 85 WN (Part 1) 281

Caldwell v Sumpters (a firm) [1972] 1 Ch 478

Hughes v Hughes [1958] 3 All ER 179

Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266

Re Ly; Ex parte Dixon v Ly (1995) 62 FCR 432

Re Till; Ex parte Parsons (1871) 19 WR 325

COUNSEL:

M J Byrne for the first respondent

SOLICITORS:

Queensland Law Group for the first respondent

Tucker & Cowen for the second respondent

Background

[1] The first respondent (Baker Johnson) applies for the payment out of court of 165,338.23 paid into court pursuant to an order made by consent by Muir J (as he then was) on 17 May 2002.

[2] Prior to his Honour’s order, these monies had been paid into the first respondent’s trust account by the applicant (Magnamain Investments Pty Ltd) for and on behalf of the second respondent (Jezer Construction Group Pty Ltd) apparently to enable the second respondent to satisfy the prudential requirements of the Building Services Authority.

[3] The order of 17 May 2002 relevantly required that:

“The First Respondent forthwith pay into Court the sum of $165,000 deposited into its trust account on or about 5th October 2001, together with accretions thereto since the deposit of the said sum to be dealt with in accordance with the Court’s determination as to the entitlement, as between the Applicant and the Second Respondent, to the fund, or earlier order.”

[4] The first respondent, who formerly served as the solicitor to the second respondent, contends that it holds a lien over the monies presently in court. This lien is said to be a retaining (or ‘possessory’) lien arising as a result of work performed, as well as outlays and counsel’s fees incurred by the first respondent in its representation of the second respondent.

[5] In the course of argument it became apparent that there are three main considerations before me:

(a) whether it is possible for a lien to subsist over the monies in favour of the first respondent;

(b)whether any lien was relinquished as a consequence of the order of 17 May 2002; and

(c)whether the first respondent is able to demonstrate, on proper evidence, an entitlement to be paid the monies purportedly subject to the lien.

[6] I will consider each of these matters in turn.

Does the first respondent have the benefit of a lien over the monies?

[7] It is convenient to begin the first of these enquiries with a brief examination of the nature of a solicitor’s retaining lien. Essentially, a retaining lien is a right to retain possession of a client’s property until such time as the client meets his or her obligations in respect of the solicitor’s costs. The right is long established, with many authorities on the point dating to the 19th century. The lien was neatly characterised by Evershed MR in Barrat v Gough-Thomas[1]:

“It is a right at common law depending (it has been said) upon implied agreement. It has not the character of an incumbrance or equitable charge. It is merely passive and possessory: that is to say, the solicitor has no right of enforcing his demand. It confers upon him merely the right to withhold possession of the documents or other personal property of his client or former client - in the words of Sir E Sugden LC, "to lock them up in his box, and to put the key in his pocket, until his client satisfies the amount of the demand.” (Citations Omitted)

[8] The practical underpinnings of the lien were explained by Hodson LJ in Hughes v Hughes[2]:

“The litigant need not change his solicitor without good cause. It would be odd if he were in effect able to get solicitors’ work done for nothing by the simple expedient of changing his solicitor as often as he chose, leaving a trail of unpaid costs in his wake and demanding the papers without payment when he had no just cause to complain of the conduct of the solicitors instructed and discarded”.

[9] The lien is often spoken of as applying to documents in the possession of a particular solicitor. The weight of authority, however, appears to indicate that the lien can also apply to money, including, relevantly for these purposes, money held in a solicitor’s trust account. This possibility was considered by the Court of Appeal in Phillipa Power & Associates v Primrose Couper Cronin Rudkin[3] where Macrossan CJ and White J stated[4]:


“However, without in this case expressing any final view, it may be suggested that broad principle and consistency in approach as well as a substantial body of authority could justify acceptance of the view that a possessory lien can exist over money in a bank account. It seems excessively literal to assert that relevant possession can exist only over physical items held and that money in a bank account gives rise to no more than a debt in favour of the depositor. The essential feature of possession is, after all, control, and the solicitor in whose trust account moneys are held is the one who, like any customer of a bank, controls its disposition by giving directions in respect of it which the bank must follow. This view of the matter is not impaired by the fact that the solicitor has his right to control operations on his trust account regulated by certain statutory provisions found in the Trust Accounts Act 1973. This regulation does not deprive him of his essential control or in its effect substitute any other controller. There does not appear to be any unwarranted extension of principle involved in saying that control of the funds in the bank account, equivalent to possession, remains with the solicitor, with the bank being responsive to his directions in much the same way that possession of a physical object can be held on a person’s behalf by a servant or agent answerable to him. Whilst final determination of this question may be left to another day, the following authorities may be included amongst those accepting that a possessory lien may exist over moneys in a bank account: Re Jalmoon Pty Ltd; Gilshenan & Luton v. Commissioner of Taxation (whatever might be said about certain other propositions stated in that case); Loescher v. Dean [1950] Ch. 491; 15 Prekookeanska Plovidba v. L.N.T. Lines S.R.L. [1989] 1 W.L.R. 753; Johns v. Law Society of N.S.W. [1982] 2 N.S.W.L.R 1 at 20 per Hope J.A.”

[10] Derrington J, in the same case, also noted that it was strictly unnecessary to determine the application of the lien to monies held in trust. Nevertheless, his Honour observed[5]:

 

“…the preponderance of authority strongly supports the conclusion that a lien may exist in respect of the assets represented by the credit in the trust account notwithstanding that it does not consist of a physical entity capable of physical possession. See Re Jalmoon Pty Ltd [1986] 2 Qd.R. 264; Gilshenan & Luton v. Commissioner of Taxation [1984) 1 Qd.R. 199; Loescher v. Dean [1950] Ch. 491.”

[11] In light of these comments, and the authorities referred to therein, I would be prepared to find that monies held in a trust account can be subject to a solicitor’s retaining lien. Money in a trust account may not be in the physical possession of a solicitor but, as observed by Macrossan CJ and White J, it remains under their control for so long as it is in the trust account. Accordingly, I see no reason why the principles applying to documents in the physical possession of a solicitor should not apply to monies in a solicitor’s trust account.

[12] That being said, a determination that money in a trust account is capable of being subject to a lien does not finally resolve the question of whether the first respondent actually holds such a lien.

Payment into court pursuant to a court order

[13] The next hurdle confronting the first respondent is the possibility that, as a result of the order of 17 May 2002 set out in [3] above, any lien then existing over the monies was relinquished.

[14] A retaining or possessory lien is, as the name would suggest, possessory in nature. As a general rule, therefore, it will be determined where possession of the documents (or, as the case may be, monies) over which the lien is claimed is voluntarily relinquished.[6] 

[15] The order of 17 May 2002 was made by consent. Accordingly, it appears at first blush that there has been a voluntary surrender of the monies such that the lien would be extinguished. Counsel for the first respondent opposed this preliminary view. In doing so he made reference to a passage from Halsbury’s Laws of Australia which, as presently updated, reads as follows[7]:

“A lien may not be lost where possession passes for a limited and specific purpose, with the intention of maintaining the lien:

(1) to an agent of a person subject to the lien;

(2) to an arbitrator to enable him or her to draw up an award;

(3) to a recipient who agrees to hold the documents subject to the lien; or

(4) to the court when it requests the production of documents.” (citations omitted)

[16] It was said, for the first respondents, that the present circumstance falls within the fourth of these hypothetical scenarios. The authority for the proposition that a lien will not be lost where it is passed to the court in response to a request for the production of documents is said in Halsbury’s to be contained in Re Till; Ex parte Parsons.[8]

[17] Re Till; Ex parte Parsons was an appeal against an order made in an English county court impounding a deed of assignment previously held by a solicitor for his client. This impounding occurred in the course of an appearance before the registrar and in spite of the solicitor’s protests that he held a lien over the documents. Bacon CJ ultimately found that the court below had “no right whatever to impound the deed” and ordered the return of the deed to the solicitor. The decision does not, however, provide any meaningful detail of the principles underpinning this result and, as such, does not offer any great assistance in the resolution of the present matter.

[18] There is, however, more convincing authority available for the general proposition that “the delivery of an article for a limited and specific purpose and with the intention of maintaining the lien does not prevent possession from being continuous and therefore does not destroy any lien.”[9]

[19] The operation of this principle can be observed in Caldwell v Sumpters and Anor.[10] There, a solicitor who was formerly retained by the plaintiff in a matter forwarded title deeds over which a lien was claimed to the plaintiff’s new solicitors. The deeds were accompanied by a letter proclaiming that they were sent “on the understanding that [the new solicitor’s] will hold them to our order, pending the payment of fees.”

[20] As to the impact of this reservation, Salmon LJ made the following observations:

“The crucial factor in this case is that [the solicitors], because of their lien, had the legal right to possession of the documents. The documents were being offered on the terms of the letter of January 15. The law does not, in my view, allow retention of the documents and repudiation of the terms upon which they are offered. This seems to me to be clear on principle. There is little authority on the point, possibly because it is so plain. What authority there is tends to support the view I have formed. There is certainly no authority the other way. The text books all proclaim that a lien is not lost by parting with physical possession if the circumstances show, as in the present case, that the lien is being expressly or impliedly reserved.”

[21] More recently, in Re Ly; Ex parte Dixon v Ly[11], the Federal Court considered whether a solicitor’s lien had been destroyed in circumstances where the Certificate of Title over which the lien was claimed had been lodged with the registrar pending the determination of an application for a declaration as to whether a lien existed. This application was dismissed and an order made for the delivery up of the Certificate of Title to a trustee in bankruptcy. This latter order was initially stayed for 28 days. Prior to the conclusion of the stay, the solicitors filed an appeal in respect of the primary decision. On the last day on which the stay was operative, the solicitors filed a notice of motion seeking a further stay pending the determination of the appeal. Before the application for a further stay could be dealt with, the Certificate of Title was uplifted from the registry by the solicitor for the trustee. 

[22] There was, in Re Ly, no issue that the initial lodgement of the certificate with the court did not destroy a retaining lien (if, in fact, one existed). Rather, the delivery up of the certificate was, according to Beazley J, merely ‘a demonstration of good faith.’ Further, by lodging an appeal from the decision on the lien application, the solicitors were said to “have indicated that they continue to claim the lien.” In those circumstances, it was held that “[t]he trustee obtained possession of the Certificate of Title by order of the Court and not by any voluntary and unconditional parting with possession by the fourth and fifth respondents.”[12]

[23] The circumstances by which the monies in the present case came to be paid into court are less than perfectly clear, but it would seem that the present situation can be distinguished from the facts of Re Ly. In the course of the application before me, the first respondent sought to tender a copy of an affidavit sworn by Steven James Johnson, a partner of the first respondent, on 17 May 2002 (the date of the order). This affidavit was never filed and confirmation of its service was not able to be provided. The first respondent offered no explanation as to the location of the original affidavit. Ultimately, the affidavit was accepted on the basis that it would be relied upon only to the extent of the contents of paragraph 15 contained therein:-

“However, in the event that this Honourable court should hold that the Jezer Construction Group stands entitled to the subject monies, the Respondent does and shall claim and assert an entitlement to a lien over the subject monies as against the Jezer Construction Group in relation to professional fees and disbursements incurred by the Jezer Construction Group.” 

[24] This claim may well have been privately maintained by the first respondent, but there is nothing before me to indicate that any such entitlement was asserted, either at the time the order was made, or when the monies were actually paid into court. There has not, on the material, been any communication of a reservation of the type considered in the authorities. The order was by consent, and it resulted in the payment of the funds into court “to be dealt with in accordance with the court’s determination as to the entitlement, as between the Applicant and the Second Respondent, to the fund.” It did not require any interest of the first respondent to be considered prior to a payment out of court. Indeed, nothing in the order is in any way reflective of the possibility that such an interest existed. That the first respondent would now, six years after the order, seek to assert for the first time publicly that it holds a lien over the fund in court, is peculiar to say the least. It may be that the failure to file Mr Johnson’s affidavit or otherwise assert that a lien was held was an oversight. No explanation was given to me. Irrespective of this failure’s origins, the payment of monies into court pursuant to a consent order must, in the absence of any express reservation prior to the making of the order, at the time of the payment, or at any time in the subsequent six years, be held to constitute a clear relinquishment of any possessory lien that might otherwise have existed in respect of the monies.

[25] I would, on that basis, dismiss the application for payment out of court.

Demonstration of entitlement to payment

[26] In light of this finding it is unnecessary to further consider whether the material before me would be sufficient to allow for the payment out of court of the specific amount claimed by the first respondent in its application.

[27] I would note in passing that the material placed before me, consisting primarily of a document headed ‘Jezer Outlays and One Bill not Paid Prior to January 2002’ annexed to counsel’s submissions is manifestly insufficient to support such a claim.

[28] In saying this, it is relevant to note the comments of Asprey JA in Bolster v McCallum[13] regarding the boundaries of a solicitor’s retaining lien:

“At common law a solicitor has a lien upon any documents which come into his possession in the course of his employment and in his capacity as a solicitor with the sanction of his clients and which are the property of his clients (see Halsbury’s Laws of England, 3rd ed, vol 36, par 238). The lien only extends to the solicitor’s taxable costs, charges and expenses incurred on the instructions of the clients against whom the lien is claimed and for which those clients are personally liable; and the lien is a general lien extending to all costs due to the solicitor and is not limited to the costs incurred in relation to the particular documents in question or upon the particular instructions in consequence of which the documents came into the possession of the solicitor.”[14]

[29] It is clear then, that a solicitor can only claim a lien to the extent of his or her ‘taxable costs, charges and expenses’. These costs, as well as the entitlement of a solicitor to them, must necessarily be specified with some precision before a payment out of court pursuant to a purported lien could be made.

[30] Counsel for the first respondent was not able to take me to any material by which an entitlement to payment was actually deposed to. Moreover, the document annexed to counsel’s submissions would, even if appropriately sworn to, not be sufficient to underpin the payment out of court sought; it itemises various outlays including counsel’s fees in the amount of $40,051.49, but then refers simply to a ‘Previous Bill’ in the amount of $66,554.14 which, in tandem with the first amount, is said to comprise a total of $109,901.13. It is difficult to see, in circumstances where this ‘Previous Bill’ was not put before me, how a payment out of court, whether for 165,000.00 or the $109,901.13 ultimately advocated for by the first respondent, could properly be ordered. 

Limitation on claim

[31] As a final point, the second respondent sought to undermine the first respondent’s application by contending that, even if otherwise maintainable, payment out of court would be barred by virtue of the Limitation of Actions Act 1974 (Qld).

[32] The material before me would tend to indicate that the claim of the first respondent relates to legal services rendered prior to the payment into court on 24 May 2002. This would put the present application outside a six year limitation period. It is not, however, clear that the Limitation of Actions Act 1974 (Qld) would apply so as to extinguish a lien of the type claimed here. In any event, it is unnecessary for me to determine the point, and I express no view on the matter, except to say that the mere possibility that the limitations statute could apply is a telling reflection on the dilatory conduct of the present litigation. 

Order

[33] I order:

1.that the application be dismissed; and

2.that the first respondent pay the second respondent’s costs of and incidental to the application.

Footnotes

[1] [1951] Ch 242 at 250.

[2] [1958] 3 All ER 179 at 180-181

[3] [1997] 2 Qd R 266.

[4] at 272-273.

[5] at 276.

[6] Caldwell v Sumpters (a firm) [1972] 1 Ch 478, Pennington v Reliance Motor Works Limited [1923] 1 KB 127 at 129.

[7] At [250-1065].

[8] (1871) 19 WR 325.

[9] Re Ly; Ex parte Dixon v Ly (1995) 62 FCR 432.

[10] [1972] 1 Ch 478 at 495-96.

[11] (1995) 62 FCR 432.

[12] (1995) 62 FCR 432 at 436.

[13] (1966) 85 WN (Part 1) 281.

[14] at 286.

Close

Editorial Notes

  • Published Case Name:

    Magnamain Investments Pty Ltd v Baker Johnson Lawyers

  • Shortened Case Name:

    Magnamain Investments Pty Ltd v Baker Johnson Lawyers

  • MNC:

    [2008] QSC 245

  • Court:

    QSC

  • Judge(s):

    Daubney J

  • Date:

    10 Oct 2008

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status