Supreme Court New South Wales Medium Neutral Citation: Gigi Entertainment Pty Limited v Basil John Macree [2011] NSWSC 856 Hearing dates: 3 August 2011 Decision date: 05 August 2011 Jurisdiction: Equity Division - Duty List Before: Slattery J Decision: Directions given for the parties to attempt to resolve remaining issues in relation to the possible transfer of the litigation file with the defendant to the new solicitor for the plaintiff, in light of the Court's finding that the defendant terminated his retainer by the plaintiff. If no resolution occurs the proceedings are adjourned to 11 August 2011 for further hearing. Catchwords: LEGAL PRACTITIONERS - solicitor's retainer - client's retainer of solicitor terminated - client seeks transfer of file to new solicitor - solicitor claims possessory lien for unpaid fees - whether solicitor or client terminated retainer - HELD: solicitor terminated retainer. Legislation Cited: Legal Profession Act 2004 (NSW), s 728 Cases Cited: Bechara t/as Bechara & Co v Atie & Anor [2005] NSWCA 268 Bolster v McCallum (1966) 85 WN (Pt 1)(NSW) 281 Cosgriff v Isaac Brott & Co [2008] VSC 515 Gamlen Chemicals Co (UK) Ltd v Rochem (1980) 1 WLR 614 Hughes v Hughes [1958] P 224 Jankowski v Mastoris (1996) ANZ ConvR 324 Major Projects Pty Limited v Sibmark Pty Limited [1992] ANZ Conv R 349 Nicholson v Knaggs (No. 2) [2009] VSC 187 Category: Interlocutory applications Parties: Plaintiff- Gigi Entertainment Pty Limited Defendant- Basil John Macree Representation: Plaintiff- J.P. Redmond (on 3 August 2011) Defendant- M.Bateman Plaintiff- M. Chenowerth (on 5 August 2011), O'Neill Partners File Number(s): 2011/239722 Publication restriction: No. EX TEMPORE Judgment 1The issue in this Duty List matter concerns the breakdown of a solicitor-client relationship between Gigi Entertainment Pty Limited ("the client") and Basil John Macree, ("the solicitor"). The client has now engaged a new solicitor, O'Neill Partners ("the new solicitor") for the client's commercial litigation. The client seeks the transfer of the file to the new solicitor. But the solicitor resists that course and claims a possessory lien over the file for alleged unpaid costs. Urgency arises because the principal litigation is listed for hearing in the Common Law Division of this Court for several days commencing on 22 August 2011. 2This matter has been conducted, efficiently on both sides. As a result the parties have presently asked me to decide just one question, which I agree is the first question in issue: namely whether the solicitor or the client terminated the retainer between them. 3The consequences of deciding this first issue are significant. The position at common law and the relevant considerations that apply when the Court is exercising its statutory discretion under Legal Profession Act , s 728 (to consider whether or not to order the solicitor's file to be given to the new solicitor and on what terms), differ depending upon whether it is the solicitor or the client who terminates the retainer. The parties wish me to decide the termination issue first so that they can try and work out a regime for dealing with the file by agreement. 4The facts are not particularly complicated. On 22 January 2008 a costs agreement was made between the solicitor and the client for the solicitor to act in relation to contested litigation in this Court in which the client is at issue with a commercial tenant. The costs agreement provides for termination in clauses 20 and 21. Clauses 20 and 21 provide as follows:- "20 Termination By Us 20.1 We may elect not to perform further work for you while any bills rendered remain unpaid. We will also not continue to do your work if you fail to provide us with adequate instructions or indicate to us that we have lost your confidence. We will give you at least 14 days notice of our intention to terminate this agreement and of the grounds on which our notice of termination is based. You will be required to pay our charges for work done and for disbursements incurred up to the date of termination. 21. Termination By You 21.1 You may terminate this Agreement in writing at any time without notice. However, if you do so you will be required to pay our costs and disbursements incurred up to the time of termination." 5Differences have arisen between the solicitor and the client about whether the solicitor's bills have been paid in a timely way. The evidence also indicates a loss confidence between the parties. I do not have to decide any issues related to those matters, which do not seem to be in dispute. Rather I am concerned with the narrow question of whether the communications in the first week of July of this year between solicitor and client are to be characterised as a termination of the retainer by the client or a termination by the solicitor. 6Ms Bateman, who appears for the solicitor, has provided a concise summary of the key communications between the parties between 4 July and 8 July. The short account of events set out here is based closely on that summary 7About 4 July 2011, the client's principal, Mr George Gerzilis contacted counsel briefed on the client's behalf by the solicitor and said to him that the solicitor had ceased to act for the client. It is not in dispute that the solicitor was in fact still acting for the client at the time that Mr Gerzilis contacted counsel. 8About 12.40 pm on 4 July 2011, the solicitor wrote to the client, and stated:- "It was improper for you to contact Mr Hicks [of counsel] direct and to say that we had ceased to act for you. In the circumstances however we can no longer act for you and shall notify the Court and the Defendant forthwith. In light of above we have withdrawn Mr Hicks instructions to act and have requested that he return the brief to us. You might kindly attend to the payment of our account and we advise that any arrangement for a reduction or deferment is hereby withdrawn." 9During the period commencing at or about 12.40 pm on 4 July 2011 and about 3.57 pm on 4 July 2011, the client did not communicate with the solicitor. Nor did the solicitor communicate with the client during this period. 10About 3.57 pm on 4 July 2011, the solicitor wrote to the client and said:- "Your actions this morning in our view, and in the view of the Law Society of New South Wales, have had the effect of putting you in a position detrimental to your action. We are of the view that there is barely sufficient, if enough, time to have fresh solicitors engaged, acquaint themselves with the proceedings up to now and engage Counsel to represent you. In the light of the above circumstances we shall to continue acting for you to bring this matter to a resolution one way or the other. Please contact this office to make an immediate appointment for a conference. If however you are determined to cease instructing us please notify us immediately." 11During the period commencing at or about 3.57 pm on 4 July 2011 and ceasing upon receipt of the new solicitor's letter dated 7 July 2011, the solicitor continued to work on the file in the client's matter. 12At an unidentified time on 4 July 2011, the new solicitor made a file note in respect of the first receipt of instructions from the client. 13The new solicitor billed the Client for work performed on 5 July 2011. The client and the new solicitor made a costs agreement on 6 July 2011. The new solicitor wrote to the solicitor on 7 July 2011 and said:- "We act for the Company. We are instructed that on 4 July 2011 you terminated your retainer with our client. In such circumstances, we are instructed to act for the Company in respect of the above proceedings and generally. We therefore enclose for your attention a Notice of Change of Solicitor which has been filed on behalf of our client today. As you are aware, the above proceedings are listed for hearing before the Court on 22 August 2011, and our client's file is essential to the prosecution of those proceedings." 14The short question arising out of these facts is whether the solicitor terminated the retainer, by his first letter at 12.40pm on 4 July 2011 or whether the client did so, through his new solicitor's letter on 7 July 2011. 15At the time this case was first argued before me in the Duty List yesterday, it was unclear exactly when the new solicitor, O'Neill Partners, had received instructions from the client. That matter has now been clarified to a considerable degree and is reflected in the summary account of events above. Exhibit A, tendered this afternoon, a file note of the new solicitor, shows that the client first gave instructions to the new solicitor, O'Neill Partners on 4 July 2011. But the file note does not say at what time the instructions were given. 16The applicable law is not controversial. In Hughes v Hughes (1958) P 224 at 227-228 Hodson LJ summarised the applicable principles as to the relative rights of solicitors and clients depending upon which of them has initiated the termination of the retainer. These principles have been applied on numerous occasions since that statement, both in England and here: see for example Gamlen Chemicals v Rochem (1980) 1 WLR 614, Bolster v McCallum (1966) 85 WN (Pt 1)(NSW) 281, per Asprey J at 287 and Bechara v Atie [2005] NSWCA 268, per McColl JA at [50]. They are also recorded conveniently in Rule 29 of the Law Society of New South Wales, Revised Professional Conduct and Practice Rules and in the recent decision of McLelland J in Major Projects Pty Limited v Sibmark Pty Limited [1992] ANZ Conv R 349 where his Honour said: "Where during the course of litigation, solicitors for a party terminate their retainer and the client retains new solicitors who for the purposes of the litigation require documents of the client in the possession of the former solicitors, who in turn claim a possessory lien over the documents to secure payment of outstanding costs, the normal practice of the Court is to order the former solicitors to deliver the documents to the new solicitors, subject to an undertaking being given by the new solicitors to preserve the former solicitors' lien and to return the documents to the original solicitors at the conclusion of the litigation. This practice is designed "to save the client's litigation from catastrophe", and the principle is that the former solicitors' security should be interfered with only so far as necessary for the progress of the litigation. Where the former solicitors have declined to continue to act for the client unless outstanding costs are paid, and the client, being unable or unwilling to pay those costs retains the new solicitors, the former solicitors are treated as having terminated the retainer for the purposes of the application of this practice (see generally Gamlen Chemicals v Rochem (1980) 1 WLR 614, and cf. Ex Parte Clowes 87 WN (1) 364 and Bolger v Bolger 82 FLR 46)." 17The precise question of whether the solicitor or the client is the discharging party is not decided in a technical way or upon the fine construction of the language used. Rather, the matter is looked at as a question of real substance: Jankowski v Mastoris (1996) ANZ ConvR 324 at 327. And it is usually resolved in a practical way: Cosgriff v Isaac Brott & Co [2008] VSC 515 at [8] per Byrne J and Nicholson v Knaggs (No. 2) [2009] VSC 187 at [20]. 18The competing contentions are these. The solicitor says that as a matter of substance the relationship was brought to an end by the client through the new solicitor's letter sent on 7 July 2011. Consistently with this contention, the solicitor points to the fact that the solicitor continued to act for the client for some days after the solicitor's change of mind on the afternoon of 4 July. But the client says, in contrast, that the terms of the solicitor's letter on 4 July were so unambiguous that the client was entitled to treat the retainer as at an end and instruct other solicitors as the client says it did, the same day. The client says that it, in effect, quickly accepted the position put by the solicitor in that letter. 19This case presents the following neat factual issue. A solicitor writes at 12.40 pm terminating the retainer with the client in unambiguous terms. He accuses the client of misconduct by speaking behind the solicitor's back to the barrister engaged in the client's litigation and by wrongly telling the barrister that the solicitor no longer acts. Approximately three and a half hours later, having spoken to the Law Society, the solicitor sends another letter in which the solicitor withdraws the earlier termination, and says he will continue to act in the matter. But did the client act on the solicitor's termination before it was withdrawn? If it did, in my view, these facts are better characterised as the solicitor's termination, rather than the client's termination. 20The Court now knows that the client did engage the new solicitors the same day. But it is unclear on the evidence as to whether that engagement took place before 12.40 pm, when the termination letter was sent, or between 12.40pm and 3.57 pm, when the termination letter was withdrawn, or whether it was sent after 3.57 pm. That is left to the Court's to infer. 21It is not very satisfactory to decide a matter of this importance on such little evidence but that is what the parties ask the Court to do. It seems to me that it is more likely that the client acted to engage the new solicitor after 12.40pm and in response to the solicitor's letter terminating the retainer, before it was withdrawn at 3.57pm. Despite the unsatisfactory nature of the evidence, in my view it was the solicitor who terminated the retainer. 22I say that for these reasons. Timing is important. This was a relationship which had lasted for three years. It clearly was under stress, financial and otherwise, at this time. The solicitor's letter of 4 July is strong and the terms in which it terminated the relationship were unambiguous. The new solicitor's records clearly show the client went to the new solicitor for the first time on that day. There being no evidence that the client had engaged a new solicitor during the prior three years of the solicitor/client relationship but did the day of the solicitor's firm letter, I infer that it is probable that the receipt of the solicitor's letter at 12.40pm caused the client promptly to seek out the new solicitors that day. 23The greater proportion of the ordinary business hours left in the day after the solicitor's first communication at 12.40pm were business hours in which the termination had not been withdrawn. Even the withdrawal, received at 3.57pm, is unlikely to have come immediately to the client's notice. 24It is more likely, in my view, despite the general lack of evidence about this, that the client went to the new solicitor by about 4 o'clock the same day. The client, in my view, probably acted on the termination before the withdrawal took place. Whilst a binding costs agreement with the new solicitors was not created until 6 July, the process of engaging the new solicitors was clearly in train by the afternoon of 4 July. The client seems to have, in a practical sense, accepted the termination the same day. 25But the solicitor says that he continued to work on the matter as he was still the client's solicitor. That is true. This solicitor's submission is well supported by the solicitor's costs records, which show that the solicitor continued to work on the file. The solicitor's letter sent at 3.57pm the same afternoon on 4 July, clearly indicates that the solicitor would continue to do further work on the matter, as he did. 26But when one looks at the solicitor's bill for that afternoon and the following days, the work all appears to have been related to the question of termination, or to be closely associated with it. The recorded services do not seem to me to be work of great substance, independently advancing the client's interests in the litigation apart from resolving the issue of termination of the retainer. Here are the solicitor's billings for July 2011. " July 2011 04/07/11 Receipt of advice of Counsel that offer has been made and further advice 0.4 Telephone Counsel re matter generally 0.4 Emails to George and Gina x 3 0.3 06/07/11 Email to George and Gina 0.3 07/07/11 Receipt letter from O'Neill Partners 1.2 08/07/11 Review issues and draft letter to O'Neill Partners 1.0 3.6 $1,620.00" 27Importantly too there is no evidence that the solicitor communicated with the client to the effect that its interests were being advanced in the litigation in the period between 4 and 8 July. I infer from the client's response to the 12.40pm letter, by engaging the new solicitors, that had the solicitor been able to speak with the client during this period and said that he was continuing to work on the file, that the client would have told him to stop. 28The fact that there was no verbal communication between solicitor and client during the 4 to 7 July period tends, in my view, to indicate that the solicitor had reason to believe that the relationship had ended despite the second letter of 4 July. I would expect a solicitor who genuinely believed he had a continuing solicitor/client relationship which had not been terminated would have had more active communication with his client during that period. Whatever the solicitor's attempts to communicate with the client, and there were a few, they were not successful. This is hardly a basis to say that the solicitor enjoyed a continuing solicitor/client relationship, before the new solicitor's letter arrived, especially after such a dramatic change of position on the solicitor's part. 29The solicitor did not by his 4 July 2011 letter terminate the retainer on 14 days notice, as is provided for in Clause 20 of the costs agreement. The solicitor says that this indicates that he did not terminate the contract, but the client did. I do not agree. All this indicates is that in his letter of 4 July 2011 the solicitor responded quickly to the client's speaking with the barrister and ignored the notice period provided for in Clause 20. I do not think this assists the solicitor's case. 30For those reasons I conclude that, in substance, the retainer was terminated by the solicitor. The counter hypothesis that it was terminated by the client seems to assume that the solicitor and client were both content for the solicitor to continue to act for the client for the three days between 4 and 7 July. The lack of mutual communication evidencing a relationship between them seems to me to be quite inconsistent with that conclusion. 31For those reasons I find that the solicitor terminated the retainer on 4 July 2011. I will adjourn the proceedings for a short period to allow the parties to attempt to agree upon a regime for dealing with the file, so that the litigation can proceed in the common law division on the date listed for hearing, without further disturbance from these issues. If the parties cannot agree then the remaining issues will be heard on 11 August 2011. ********** 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. Decision last updated: 10 August 2011