New South Wales Supreme Court CITATION : Jackson Smith v Richards [2004] NSWSC 915 HEARING DATE(S) : 10 September 2004 JUDGMENT DATE : 10 September 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Part of proceeds of sale of property ordered to be set aside to answer possible solicitor's claim to charge over it. CATCHWORDS : LEGAL PRACTITIONERS - costs - question of whether charge over property to secure solicitor's costs was not enforceable if solicitor had failed to make disclosure required by section 175 Legal Profession Act 1987 not convenient to decide on interlocutory application LEGISLATION CITED : Legal Profession Act 1987 Property (Relationships) Act 1984 CASES CITED : Kelly v Hogan [2004] NSWSC 238 PARTIES : Peter Alan Jackson and Gregory Hilliard Smith Trading as Jackson Smith Solicitors - Plaintiff Gary Noel Richards - Defendant FILE NUMBER(S) : SC 4960/04 COUNSEL : S Kaur-Bains - Plaintif P Cullen - Defendant SOLICITORS : Jackson Smith - Plaintiff Unrepresented - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST CAMPBELL J FRIDAY 10 SEPTEMBER 2004 4960/04 PETER ALAN JACKSON AND GREGORY HILLIARD SMITH TRADING AS JACKSON SMITH SOLICITORS v GARY NOEL RICHARDS JUDGMENT – Ex Tempore (Revised 1 October 2004) 1 HIS HONOUR: This is an application brought by a solicitor against his former client. The solicitor had acted for the client in connection with some proceedings under the Property (Relationships) Act 1984. 2 In this application, the solicitor seeks an interim order whereby the proceeds of sale of a property, which had been the home in which the de facto couple had lived, be partly set aside in a controlled monies account to answer a claim which the solicitor has to have a security interest in those proceeds of sale. 3 The claim for a security interest is put on two separate bases. The first basis is that there was an oral agreement to create a charge over the proceeds of sale, to secure the costs. The second basis is that the solicitor is entitled to a "fruits of the action" lien. 4 There was a period of time in which the solicitor was helping the defendant in connection with the litigation, by providing him with occasional advice, but not being the solicitor on the court record. The time came when the client found it too difficult to continue acting for himself, and asked the solicitor to go on the record. The solicitor gives evidence that the client said to him, at that stage, "You will get paid from my share of the property settlement. I have come to accept that the house may have to be sold to pay my costs." 5 The solicitor gives evidence that he said, "On the basis that our account will get paid, we will act for you in these proceedings." The defendant denies that there was such a conversation. There is a file note which the solicitor made, on 16 April 2003, which records the giving to the client an estimate for the costs of the litigation totalling $24,000, and continues: "I asked him how he would deal with this in the event that the action did not succeed or if he did not succeed as well as he thought and he was left with paying the bulk of it. He said if he had to he would not worry about selling the house. He said that he had already resigned himself to the idea that he may have to sell the house. I said I hoped that it would not come to this." 6 The way that this file note puts the matter is not as indicative of an agreement to create a charge over the proceeds of the property settlement as is the oral evidence of the solicitor. 7 There is, also, a file note of the solicitor dated 19 June 2003, of a conversation which he had with someone he was seeking to retain as an expert. The solicitor told the expert that the client had no money. His file note continues: "I said that the client proposed that accounts be paid from the sale of the house. I said that there appeared to be equity on the house. I said there was an element of risk in us being paid but I hoped it was controllable and small. Bill said he was happy to be involved in the matter on that basis." 8 When that is the state of the evidence, I am satisfied there is a serious question to be tried about whether there was an agreement to create a charge over the defendant's share of the proceeds of sale. 9 Mr Cullen, counsel for the defendant, draws my attention to the obligations of a solicitor under section 175 of the Legal Profession Act 1987, to disclose to a client the basis of the costs of the legal services to be provided to the client, and the particular matters required by section 175(2) to be disclosed. He points to section 182 of the Legal Profession Act 1987, which says that if the solicitor fails to make a disclosure to the client of the matters required by section 175, "the client need not pay the costs of the legal services unless the costs have been assessed under Division 6." 10 There was a fee disclosure document provided by the plaintiff to the defendant on 3 December 2002. While that was provided at a time when the solicitor was being consulted only on an ad hoc basis, rather than was acting on the record in the proceedings, the work to which it related was described as "acting on your instructions in relation to your dealings with Property (Relationships) Act 1984 matter." 11 Counsel has not pointed out to me any particular topic which is listed in section 175(2) which is not covered by that document. I have not gone through, at my own initiative, the exercise of seeing whether every topic in section 175(2) is covered, but the argument looks fairly comprehensive. 12 In Kelly v Hogan [2004] NSWSC 238, Austin J, at [35] - [36] considered a "fruits of the action" lien which was claimed by a solicitor for unpaid fees. That solicitor had never provided to his client a costs agreement or estimates of costs by the firm. His Honour considered an argument that, in circumstances where section 182 would mean that the client need not pay the costs until the costs had been assessed, the "fruits of the action" lien would not attach. A similar argument might possibly be available concerning a security which was expressly agreed, but in circumstances where the solicitor had not disclosed all the material he was required to disclose by section 175. 13 In Kelly v Hogan [2004] NSWSC 238, Austin J decided that, on an interlocutory application, it was preferable that any argument such as the one put to him should be deferred until the costs assessment process was complete. 14 In the present case, I am not persuaded, at least on the evidence before me now and the submissions which have been made to me now, that there is any serious question about whether the plaintiff has failed to make the disclosure that section 175 requires. This has the effect that I am not persuaded, today, that there is a serious question to be tried about whether section 182 has the consequence that the costs which the solicitor claims are not recoverable. However, even if I were wrong in taking that view, I would adopt the course which Austin J took in Kelly v Hogan [2004] NSWSC 238, so far as deciding that legal question at the interlocutory stage was concerned. 15 The evidence establishes that the property in question has been sold, that settlement is to occur on 15 September 2004, and that the defendant expects to receive about $240,000 as his share of the net proceeds of sale. Morando Solicitors are acting for the defendant in connection with that sale. 16 The plaintiff has made a claim for costs initially in the sum of $157,658.38. Of recent times, he has rendered a bill for $137,914.14. That bill has yet to be assessed. There is no real basis for me to have a view about whether there is a prospect of the size of the bill being cut down on assessment, or not. 17 There is evidence that the defendant has been served with a Bankruptcy Notice, on 31 August 2004, by a former solicitor. That Bankruptcy Notice relates to a debt of the order of $8,000. The defendant has instructed his present solicitor to challenge it. He owes another amount of the order of $8,000 from certain earlier proceedings (which is in the process of being assessed), as well as the amount claimed by the present plaintiff, and the $8,000-odd claimed by his former solicitor. 18 There is no evidence of any particular inconvenience to the defendant if the orders which the plaintiff seeks were to be made. In the circumstances to which I have outlined, the plaintiff would lose the security which he claims to be entitled to, if an interim preservation order were not made. In these circumstances, it is preferable, on the balance of convenience, for the funds to be preserved while the litigation is coming to finality. I note, in connection with this, that the plaintiff offers not only the usual undertaking as to damages, but also undertakings to proceed with expedition to have assessed his claim for costs, and to proceed with expedition to have this present litigation determined. 19 When I have come to that conclusion, concerning the claim for a charge over the proceeds of sale, it is not necessary to consider the alternative basis upon which the claim was made, based upon a "fruits of the action" lien. 20 I order that: (A) until the hearing of the suit or further order, the defendant, by himself, his servants and his agents be restrained from dispersing or otherwise dissipating any part of the proceeds of sale of the property known as 1 Gears Avenue, Drummoyne up to the sum of $137,914.14 otherwise than in accordance with these orders; (B) that the defendant take, and request Morando solicitors to take, all steps that are necessary to set up a controlled interest bearing account in the joint names of the plaintiff, and the present solicitors of the defendant, by 1pm 13 September 2004; (C) that the defendant direct Morando Solicitors to take steps so that the purchaser of 1 Gears Avenue, Drummoyne provides a cheque upon settlement of the property in the sum of $137,914.14 made payable to the controlled interest bearing account that is to be established; (D) that the defendant take steps to require Morando Solicitors to pay that cheque into the controlled monies account in the names of the plaintiff, and of the defendant's present solicitors. 21 I reserve the costs of the present application. My reason for so doing is that the affidavit of the plaintiff which was read on today's application is far longer than was necessary for the purpose only of today's application. Whether all the costs of that affidavit should be allowed will depend upon whether other use is made of it in the course of the proceedings. It is an affidavit of a nature which might conceivably be useful in a final hearing. 22 These orders may be entered forthwith. ********** Last Modified: 10/06/2004 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.