New South Wales Supreme Court CITATION : Margiotta v Legal Services Commissioner [2000] NSWSC 835 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 02600/00 05/06/00 HEARING DATE(S) : 17/07/00 14/08/00 18/08/00 JUDGMENT DATE : 22 August 2000 PARTIES : Anthony Steven Margiotta Legal Services Commissioner JUDGMENT OF : Dowd J at 1 COUNSEL : Mr R Perrignon Mr T Lynch SOLICITORS : Margiotta Solicitors Mr K Pehm CATCHWORDS : Legal Profession - Solicitor's lien - Power of the Legal Services Commissioner to order waiver LEGISLATION CITED : Legal Profession Act 1987 (NSW) Bankruptcy Act 1966 (Cth) Re Jalmoon Pty Ltd (1986) 2 Qd R 264. CASES CITED : In re Carter; Carter v Carter (1885) 55 LJ Ch 230. Bolster v McCallum (1966) 85 WN (NSW) 281. Hammerstone v Lewis (1994) 2 Qd R 267. DECISION : 1. That the notice issued by the defendant on 5 May 2000 be set aside; 2. In holding any documents of the plaintiff, that such documents the subject of the complaint be held by the defendant so as to maintain the plaintiff's solicitor's lien over those documents; 3. That the defendant pay the plaintiff's costs of these proceedings. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DOWD J Tuesday 22nd August 2000 N02600/00 ANTHONY STEVEN MARGIOTTA V LEGAL SERVICES COMMISSIONER REASONS FOR JUDGMENT 1 These are proceedings to set aside a notice issued by the defendant against the plaintiff under the Legal Profession Act 1987 ('The Act'), directing the plaintiff to waive a solicitor's lien claimed over certain files held by the plaintiff for unpaid costs. 2 The plaintiff solicitor is a principal of Margiotta Solicitors, who acted for a Mr and Mrs Agostino Bertone in court proceedings, both in bringing court proceedings and in defending bankruptcy proceedings brought against them. As a result of the latter, both Mr and Mrs Bertone were declared bankrupt. 3 The Bertones were subsequently discharged from bankruptcy by operation of law in 1997. 4 In October 1999, the Bertones brought a complaint to the defendant, the Legal Services Commissioner, concerning the failure by the plaintiff's firm to release all files held by the solicitors relating to the Bertones' affairs. This was supported by a series of requests by the Bertones' solicitors and an organisation called the Building Action Review Group. 5 A previous complaint against the plaintiff by the Bertones had been investigated by the Law Society Professional Standards Committee. As a result of this investigation , on 14 July 1998, the complaint was dismissed by the Professional Standards Committee as it was satisfied that there was no reasonable likelihood that the plaintiff would be found guilty by the Legal Services Tribunal of either unsatisfactory professional conduct or professional misconduct. The complaint had related to a series of alleged failures by the plaintiff in relation to the litigation and the conduct of the matters relating to the bankruptcy. 6 A complaint to the defendant resulted in a review of the Law Society's handling of the Bertones' complaint to that body. The decision of the Law Society was upheld by the defendant. This decision was communicated to the plaintiff by letter dated 4 June 1998. 7 In a letter dated 11 October 1999, the plaintiff claimed a solicitor's general lien for unpaid costs for work carried out for the Bertones. In that letter he pointed out that the bankruptcy did not extinguish the lien, and the lien continued to exist notwithstanding that the debt for legal costs was statute-barred. 8 By letter dated 18 November 1999, the office of the defendant sought the release of the Bertones' files to him, pursuant to s152(2) of the Act. Section 152 of the Act is in the following terms: s152 Powers of Councils or Commissioner when investigating complaint (1) For the purpose of investigating a complaint, a Council or the Commissioner may, by notice in writing served on any legal practitioner or interstate legal practitioner, require the legal practitioner or interstate legal practitioner to do any one or more of the following: (a) to provide written information, by a date specified in the notice, and to verify the information by statutory declaration, (b) to produce, at a time and place specified in the notice, any document (or a copy of any document) specified in the notice, (c) to otherwise assist in, or co-operate with, the investigation of the complaint in a specified manner. (1A) A Council or the Commissioner may inspect any document produced before the Council or Commissioner under this section any may retain if for such period as the Council or Commissioner thinks necessary for the purposes of the an investigation in relation to which it was produced. A Council or the Commissioner may make copies of the document or any part of the document. (2) If a legal practitioner or interstate legal practitioner against whom a complaint is made claims a lien over documents relating to the matter the subject of the complaint, the Council or the Commissioner may require the legal practitioner or interstate legal practitioner to waive the lien if satisfied it is necessary for the orderly transaction of the client's business. (3) A requirement under this section is to be notified in writing to the legal practitioner or interstate legal practitioner and is to specify a reasonable time for compliance. (4) A legal practitioner or interstate legal practitioner who, without reasonable excuse, fails to comply with such a requirement is guilty of professional misconduct. (5) A legal practitioner or interstate legal practitioner must not mislead or obstruct a Council or the Commissioner in the exercise of any function under this Division. The wilful contravention of this subsection is capable of being professional misconduct. Note . Documents has a wide meaning. The term is defined in the Interpretation Act 1987 to mean any record of information. The term would include any file that was itself a record of information. 9 In that letter, the defendant sought a submission from the plaintiff as to whether the defendant should exercise his discretion pursuant to s152(2) to require that lien be waived. At that point, the solicitors for the Bertones raised the fact that no bill of costs had been rendered. 10 The Bertones' reason for requiring the files was to ascertain whether there was an action against the plaintiff for professional negligence. The plaintiff then lodged submissions as to why the defendant should not exercise his discretion under s152(2) of the Act. 11 By letter dated 5 May 2000, a notice was issued by the defendant to the plaintiff on the complaint of the Bertones, which determined that the defendant was satisfied that it was "….necessary for the orderly transaction of the business" of the Bertones that the lien in certain files held by the plaintiff be waived and directed the handing over of those files on 30 May 2000. 12 In its reasons for the determination, the defendant asserted that the subsection does not have regard to the defendant's power to investigate complaints. Rather, it has regard to a client's particular circumstances, and stated that "…. if the Commissioner is only able to waive a lien in the course of investigating a complaint, unconnected with the alleged improper holding of a file, the empowering intention of s152(2) would be defeated". 13 The defendant declined to exercise his power under s155(4) of the Act to dismiss the complaint, notwithstanding the plaintiff claiming that there was no reasonable likelihood on the facts in the complaint that the legal practitioner would be found guilty of professional misconduct or unsatisfactory professional conduct. 14 The fact that there had been such a finding in the earlier complaint does not affect the powers of the defendant or the Council for that matter to investigate the new complaint. In examining each complaint, the defendant must go through the process of investigation using the powers given by s152. 15 Section 152(5) contemplates that in the course of an investigation, there may in fact be a wilful contravention on the part of a solicitor whose conduct may be capable of becoming professional misconduct. In my view, the defendant was clearly correct in not dismissing the complaint concerning the handing over of the documents, as it was necessary for him to carry out the investigation. 16 The defendant disagreed with the narrow interpretation of 'business' contended by the plaintiff in construing s152(2) of the Act to mean some commercial activity. The defendant construed business to mean the client's legal matters. It was the view of the defendant that the file was required to investigate whether there was any outstanding legal remedy, and that was sufficient to meet the standard set out in the Act. The Existence of the Lien 17 It is submitted on behalf of the plaintiff that the agreed sum of $42,000for costs, is not discharged by the clients' bankruptcies. The plaintiff relies on s58(5) of the Bankruptcy Act 1966 (Cth), which provides that in vesting the property of a bankrupt, nothing affects the right of a secured creditor to realise or dispose of their security. Creditor includes some person having a lien. The lien is not adversely affected by any limitation which bars an action for recovery of the debt: In re Carter; Carter v Carter (1885) 55 LJ Ch 230. 18 It is further submitted that the bill of costs has not been served. However, as decided in Re Jalmoon Pty Ltd (1986) 2 Qd R 264, this does not prevent the lien operating on work which generates costs that continue to accrue. 19 It is clear that the lien continues to exists, and indeed it is not suggested by the defendant that it does not. A solicitor's lien is not just for the benefit of the solicitor, but that it enables the client to have legal work carried out similarly to other trades and professions without necessarily having to pay in advance. A lien is for the benefit of both parties. In this respect, I rely on Re Jalmoon Pty Ltd , cited above. 20 It must be remembered that although a debt may be statute-barred, it may be revived by acknowledgment, or indeed may be paid out notwithstanding that it is so barred by a judgment debtor for whatever that judgment debtor's purposes may be. Structure of the Complaints Mechanisms under the Act 21 Part Ten of the Act sets up a complaints and disciplinary procedure, and established the Office of the Legal Services Commissioner. The Commissioner has enumerated functions, as set out in s131 of the Act. This includes receiving complaints, assisting and advising complainants, initiating complaints, referring complaints to the appropriate Council, either for solicitors or barristers, and to monitor investigations and to review the decisions of Councils. The Commissioner may also take over investigations, and may assist the Councils in promoting community education and enhancing the ethics and standards of the legal profession. 22 The Office of the Legal Services Commissioner is part of an intricate mechanism established by the Act for the referring of matters by or to the respective Councils, and for the initiating of complaints. 23 Part Ten also establishes a mechanism for the mediation of consumer disputes, and is a mechanism for dealing with complaints. 24 Under Division Five of Part Ten of the Act, the Commissioner is given power to conduct an investigation into a complaint, instead of referring it to a Council, or indeed may take over the investigation of a complaint from a Council if the defendant considers it appropriate. 25 Under Division Five of Part Ten, the Council may investigate complaints, and the Commissioner is given the power to monitor the conduct of an investigation. The Commissioner may give the Council directions about investigations or may refer matters to an independent investigator. 26 Section 152 of the Act not only sets out the Council's power, but the Commissioner's powers when investigating a complaint. Either the Commissioner or the Council, using s152, may require the production of documents, written information or require co-operation. The Council and the Commissioner have a power to inspect any document and may retain it for as long as they deem necessary. 27 There is then the power, which is the primary subject of these proceedings, which as set out above, provides a discretion in both the Council and the defendant to require a legal practitioner to waive a lien "…. If satisfied it is necessary for the orderly transaction of the client's business". 28 It is submitted by the plaintiff that the power of the defendant to require waiver of a lien is ancillary to the investigation of a complaint. Suggested Limitation on s152(2) 29 It is submitted by the plaintiff that the power of the defendant and for that matter, the Council, under s152(2) of the Act, can only be exercised as ancillary to an investigation under s152(1) of the Act, and can only be exercised "….for the purposes of investigating a complaint". In the present case, the complaint relating to the failure to hand over the documents does not relate to the earlier complaint. 30 It is submitted by the plaintiff that if there is no investigation, the power to order production does not arise. I can see no limitation in the terminology of s152(2) of the Act, to limit the exercise of that power. There may be circumstances where it has not been necessary for the defendant to exercise powers under s 152(1), where a simple refusal by a legal practitioner to hand over a document arises, as is the case here. All that is necessary is that a complaint has been made, and a lien claimed. Subsection 152(2) of the Act is a power which the defendant can exercise as part of the powers available to him. Limitation on the Power to Order Production 31 It is submitted by the plaintiff that the principles exercised by a court in exercising powers such as discovery and subpoena, that the defendant is limited in the exercise of his discretion by those principles guiding the courts. It is submitted that he can thus only order production where it will not render the lien practically valueless to the solicitor: Bolster v McCallum (1966) 85 WN (NSW) 281. 32 It is put that a court can order production where proceedings are in place for negligence, and where the files were relevant to a fact issue. In Hammerstone v Lewis (1994) 2 Qd R 267, production was ordered where a sum of money was to be paid, which substituted for the lien. This of course is a discretionary power which the defendant could have attached as a condition to the exercise of his discretion, as indeed he could any provision that did not destroy the effectiveness of the solicitor's lien. 33 The defendant must, in the exercise of his discretion power, take note of the fact that the documents are of little use to the plaintiff, other than as a means of providing evidence to commence proceedings against the plaintiff. It is obvious that the plaintiff has an interest in not making the client's capacity to sue him easier, notwithstanding that the plaintiff holds the view that no negligence can be established. 34 The submission by the plaintiff that there has already been a finding as set out above on the earlier complaint, does not determine the issue of negligence. This will be determined according to normal common law principles, and not on the standard of a tribunal endeavouring to establish guilt on the part of the plaintiff. The Application of s152 of the Act 35 This section clearly invests in the defendant a discretion to be applied in accordance with the law, using all those factors which may be taken into account by courts in the exercise of discretion. In my view however, there is a preliminary requirement that the defendant, before exercising the discretion, has to firstly be satisfied that "….it is necessary for the orderly transaction of the client's business". If the defendant is initially satisfied that that condition is met, then he may still also need to take into account the nature of the client's business, and the orderly transaction of it as part of the exercise of the discretion invested in the defendant. 36 The defendant contends that the words relating to his being satisfied that "….it is necessary for the orderly transaction of the client's business", should be given a wide meaning, and should be construed to mean the general affairs of the client. 37 If the legislature had intended that to be the case, then the words "the client's business" would be unusual words to import the general affairs of the clients. However, the words "the client's business", if they were the only words used, could be so interpreted. Yet the power to exercise a discretion to waive a lien is limited by the addition of the words "necessary" and for the "orderly transaction". These words, particularly "orderly transaction", cannot in my view, have been included by the legislature to give a power to destroy something as fundamental as a solicitor's lien, without being given their ordinary meaning in establishing the condition precedent to the exercise of the discretion. The words have some work to do. 38 Clearly, "orderly transaction of the client's business" has a meaning other than just the "affairs" or the "interests" of the client. In my view, "orderly transaction of the client's business" can only mean something relating to a business or professional undertaking of a commercial or corporate activity including the business of government, or some semi-government or non-government activity. The words should be given the widest interpretation, but in the context of the activity on the part of the client, that is just not simply the satisfying of an otherwise legitimate need, such as obtaining evidence to sue for a private citizen or corporation where activities do not involve a system which could be described as "orderly transaction of the client's business". 39 It therefore seems to me that the defendant has not given effect to the words of the section in deeming himself satisfied that the waiver of the lien is necessary, and therefore his discretion has miscarried in the determination that has been made. Orders 40 Accordingly, the orders that I make are as follows: 1. That the notice issued by the defendant on 5 May 2000 be set aside. 2. In holding any documents of the plaintiff, that such documents the subject of the complaint be held by the defendant so as to maintain the plaintiff's solicitor's lien over those documents. 3. I order that the defendant pay the plaintiff's costs of these proceedings. o0o Last Modified: 09/27/2000 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.