New South Wales Supreme Court CITATION : Abbott trading as Piper Alderman v Pilot Development Corporation Pty Limited (in liq) [2006] NSWSC 1178 HEARING DATE(S) : 1 November 2006 JUDGMENT DATE : 1 November 2006 JUDGMENT OF : Bergin J EX TEMPORE JUDGMENT DATE : 11/01/2006 DECISION : Solicitors' equitable lien for costs applies to damages awarded consequent upon the usual undertaking as to damages. CATCHWORDS : [SOLICITORS' EQUITABLE LIEN FOR COSTS] - usual undertaking as to damages - injunctions discharged - whether solicitors' equitable lien for costs applies to damages awarded as a result of an inquiry as to damages. Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 Churnin v Pilot Developments Pty Ltd [2003] NSWCA 391 Churnin v Pilot Developments Pty Ltd [2003] NSWSC 592 CASES CITED : Clift v Windrum (Mahoney, Clarke and Meagher JJA) Court of Appeal, unreported, 2 September 1991. Doyles Construction Lawyers v Harsands Pty Limited (McLelland CJ in Eq) Supreme Court of New South Wales, unreported, 24 December 1996. F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 Firth v Centrelink (2002) 55 NSWLR 451 Roam Australia Pty Limited v Telstra Corporation Limited [1997] FCA 980 Anthony Norman Abbott and 16 others trading as Piper Alderman - Plaintiffs PARTIES : Pilot Development Corporation Pty Limited (in liq) - 1st Defendant Brian Silvia - 2nd Defendant FILE NUMBER(S) : SC 50168/05 Mr S Bell - Plaintiffs COUNSEL : No appearance - 1st Defendant Mr RA Parsons - 2nd Defendant Piper Alderman - Plaintiffs SOLICITORS : No appearance - 1st Defendant Verekers - 2nd Defendant - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 1 NOVEMBER 2006 50168/05 ANTHONY NORMAN ABBOTT AND 16 ORS TRADING AS PIPER ALDERMAN v PILOT DEVELOPMENT CORPORATION PTY LTD (IN LIQUIDATION) & ANOR JUDGMENT 1 This is an application brought by the plaintiffs, to whom I shall refer as Piper Alderman, against the company in liquidation and in receivership and management, Pilot Development Corporation Pty Ltd (Pilot), and also against the receiver and manager, Mr Brian Raymond Silvia. Pilot was the defendant in Equity proceedings in this Court brought by prospective purchasers of units at Clovelly. In October 2001 those purchasers obtained injunctive relief against Pilot restraining it from selling any of the units that were the subject of each of the proceedings. When those injunctions were granted each of those plaintiffs gave to the Court the usual undertaking as to damages. Piper Alderman was not retained by Pilot until June 2002. 2 Windeyer J heard the Equity proceedings and the parties have informed me that the injunctions remained in force throughout those proceedings. The plaintiffs/purchasers failed in those proceedings and Windeyer J granted leave to Pilot to claim damages flowing from the plaintiffs' respective undertakings as to damages: Churnin v Pilot Developments Pty Ltd [2003] NSWSC 592. There was an appeal from Windeyer J's judgment and the orders made by his Honour were stayed pending the appeal. In July 2003 Ipp JA continued the injunctions with the usual undertakings as to damages until the appeal was heard. Ipp JA also required the appellants (the plaintiffs before Windeyer J) to pay into a controlled money account amounts equivalent to a deposit on each of the contracts the subject of the dispute, or alternatively to provide an unconditional bond by a bank or licensed insurance company as security. The Court of Appeal proceedings were concluded on 22 December 2003 and Pilot was once again successful. The appeal was dismissed and as I understand it the injunctions were discharged: Churnin v Pilot Developments Pty Ltd [2003] NSWCA 391. Subsequently, Verekers Solicitors, who now act for Pilot and for Mr Silvia, replaced Piper Alderman. 3 In the present case Piper Alderman claim an equitable lien on the costs of the proceedings before Windeyer J and the proceedings in the Court of Appeal. Piper Alderman's entitlement to that lien is accepted and the parties have requested that I make consent declarations and orders in respect of that aspect of the matter, and I will do so. Pursuant to Windeyer J's leave, Pilot has moved for an inquiry as to damages as against the unsuccessful plaintiffs/purchasers who proffered the usual undertakings as to damages. The dispute between the parties today is whether Piper Alderman is able to claim an equitable lien over any damages that may be awarded after that inquiry. There is no dispute that if Piper Alderman is entitled to such a lien, it will rank in priority after Verekers, but before any secured creditors. 4 I should say at the outset that the parties have been pragmatic about the way in which the evidence has proceeded today. It is agreed that Piper Alderman acted for Pilot from June 2002, that it acted for Pilot when it achieved its success before Windeyer J and when it achieved its success in the Court of Appeal. There is an issue as to how that process is characterised and whether solicitors' equitable liens are applicable to damages and costs that are awarded as a result of an inquiry as to damages after an injunction has been discharged. 5 In Firth v Centrelink (2002) 55 NSWLR 451 Campbell J reviewed the authorities and set out the principles applicable in relation to a solicitors' lien in respect of costs. His Honour summarised the principles, at 463, relevantly to this case as: (1) the solicitors' right exists over money recovered through obtaining judgment in litigation and also over money recovered through the settlement of litigation; (2) such right exists over both the amount of a judgment in favour of the client and the amount of an order for costs in favour of the client; (3) it exists over the money which is in the possession of the solicitor and also over money which is in court; (4) the solicitor need not be retained at the time that the money is recovered; and (5) for the right to arise it must be shown that there is a sufficient causal link between solicitors' exertions and the recovery of the fund of money; see also pages 464 and 465. 6 In Roam Australia Pty Limited v Telstra Corporation Limited [1997] FCA 980 Lehane J said: The questions seem to be, first, did the proceeding result in a judgment award or compromise under which money is payable to the party for whom the solicitors acted; and secondly, was the part played by the solicitors sufficient to justify the conclusion that there is a sufficient causal link between the solicitors' efforts and the result so that the solicitors may be regarded as having been instrumental in obtaining the result? 7 In Doyles Construction Lawyers v Harsands Pty Limited & Others, unreported 24 December 1996, McLelland CJ in Eq said: It is sufficient to give rise to the equitable right that the settlement resulting in payment to the client came about as a result of the legal proceedings and that the solicitor had acted for the client in those proceedings, this being treated as a sufficient causal link. 8 Mr Parsons, counsel for Mr Silvia, submitted that the obtaining of an award of damages pursuant to an inquiry as to damages resultant upon the undertaking as to damages is a matter quite different to those matters to which Campbell J and Lehane J were referring. He submitted that the abovementioned cases are distinguishable, in that they were matters of compromise or settlement of the main proceedings. Mr Parsons is correct to characterise the process of an award of damages consequent upon the usual undertaking as to damages as different from an award of damages in the main proceedings. 9 Prior to the introduction of the Uniform Civil Procedure Rules (UCPR) there was a requirement for the usual undertaking as to damages to be given to the Court in connection with any interlocutory injunction. Under UCPR part 25 rule 8, (which is equivalent to the old part 28 rule 7) provides as follows: The 'usual undertaking as to damages' if given to the Court in connection with any interlocutory order or undertaking is an undertaking to the Court to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking. 10 In F Hoffman-La Roche and Co AG v Secretary For State and Trade and Industry [1975] AC 295 Lord Diplock said at 361, Besides mitigating the risk of injustice to the defendant, the practice of exacting an undertaking as to damages facilitates the conduct of the business of the courts. It relieves the Court of the necessity of embarking at an interlocutory stage upon an inquiry as to the likelihood of the defendant being able to establish facts to destroy the strong prima facie case which ex hypothesi will have been made out by the plaintiff. The procedure on motions is unsuited to inquiries into disputed facts. This is best left to the trial of the action, and if the plaintiff then succeeds in establishing his claim he suffers no harm from having given the undertaking, while if he fails to do so the defendant is compensated for any loss which he may have suffered by being temporarily prevented from doing what he was legally entitled to do." 11 It is important to analyse the process a little further. In resisting an interlocutory application for an injunction a respondent may argue that the applicant's undertaking is worthless and may seek to persuade a court that the balance of convenience favours the respondent because it would not be able to be compensated for the consequences of granting an injunction that is subsequently discharged. 12 Mr Parsons submitted that what happened in this case was that the plaintiffs/purchasers in the Equity proceedings proffered voluntary undertakings as to damages and Pilot is now seeking to obtain damages pursuant to the leave granted by Windeyer J. He submitted that what happened "at the beginning and the end", as he put it, is the important and determinative factor and not what happened, as he put it, "in the middle". He emphasised that Piper Alderman was not retained "at the beginning and the end" when the undertakings were given and when damages are being sought. He submitted that once the injunction was granted it just stayed in place, and that it is the efforts of the solicitors now acting for Pilot, and Pilot's efforts, that are to be characterised as the causal link to obtaining such damages. 13 Mr Parsons submitted that Piper Alderman's efforts should not be held to have had sufficient causal link because of the nature of the undertaking as to damages; that is, because it was voluntary and because the damages that may be awarded are not the fruits of the litigation. He submitted that those damages are under the control of the Court and the Court has the discretion whether to order an inquiry as to damages and to award damages. It is true that the Court has those discretions. 14 In support of his submissions, Mr Parsons relied upon the decision of the Court of Appeal in Clift v Windrum, 2 September 1991, (per Mahoney, Clarke and Meagher JJ) in which the Court referred to what was said by Gibbs J in Air Express Ltd v Ansett Transport Industries Pty Ltd (1997-81) 146 CLR 249 at 311.2 and Stephen J at 319. Those passages set out the special character of the undertaking and the nature of the award of damages - see also the discussion of the nature of the award of such damages in Spry Equitable Remedies, 6th Edition at 661-662. 15 The parties have not referred me to any case in which this particular point has been decided. It seems to me that there is no principle identified by Campbell J that would prohibit the extension of the principles in relation to a solicitors' equitable lien to the award of damages against a party who had given the usual undertaking as to damages to obtain an injunction. That being so it is necessary to consider whether it is appropriate to extend those principles to such a fund. 16 The authorities to which I have referred make clear that one of the reasons for the undertaking as to damages is to mitigate the risk of injustice to a defendant, in other words to make available a fund should the defendant be damaged by the order obtained. It is true that such damages are separate from any award of damages in the main proceedings. However an award of damages consequent upon the usual undertakings as to damages is an integral part of the proceedings in which Pilot was exposed to the damages by reason of the injunction that the plaintiffs/purchasers obtained. It is not the fruit of the main cause of action. It is, however, a "fruit" in the respect that Pilot has been successful in defeating the plaintiffs/purchasers' entitlement to maintain a restraint upon it. It has succeeded in discharging the injunctions. That is what entitles Pilot to seek the damages it now claims in the Equity proceedings. It seems to me that Piper Alderman's efforts in assisting the defendant to achieve that step - that is, in discharging the injunction - is a sufficient causal link to entitle it to an equitable lien over the fund that may be available as a result of the inquiry as to damages. 17 In those circumstances I am satisfied that I should make the declarations and orders, the terms of which have been agreed between the parties should I reach this view. 18 By consent I make declaration (a) in the document entitled "short minute of order" initialled by me and dated today. By consent I make the declaration in para (b) of that short minute of order together with "Rider No 1". I make the declaration in para (c) of that short minute of order together with "Rider No 2". By consent I make the order in para 1 of the short minute of order marked (b), initialled by me and dated today. I make the order in paras 2 and 3 of those short minutes. 19 During the course of today a number of adjournments have occurred to accommodate the various agreements that have been reached between these parties. There was an assumption made that the only secured creditors that may be affected by the declarations and orders that I have made were the secured creditors who appointed Mr Silvia, the second defendant. However, when I asked for clarification that that was the case, it appeared that there is another secured creditor, Capital Access NSW Pty Ltd. The status of that company is uncertain, albeit that the plaintiffs, Piper Alderman, were in possession of a document that suggested that it may not have been paid out. I required the plaintiffs' solicitors to make contact with the liquidator or the receiver or the company to see whether they had been made aware of the application made by the plaintiffs. Some contact was made and it appears that further discussion may now need to take place. 20 Mr Bell, counsel for the plaintiffs, submits that I should make an order staying all the orders and declarations until the company, Capital Access NSW Pty Ltd, has an opportunity to be heard should it so wish. That step is not objected to today by Mr Parsons and it seems to me appropriate in the circumstances. I stay these declarations and orders up to and including 17 November 2006. I list the matter for directions at 9.15 on 17 November 2006. I grant liberty to apply on one day's notice. ******************************* 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. 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