Supreme Court New South Wales Medium Neutral Citation: PND Civil Group Limited v Emprise Legal Pty Limited [2017] NSWSC 130 Hearing dates: 16/02/2017 Date of orders: 16 February 2017 Decision date: 16 February 2017 Jurisdiction: Equity Before: McDougall J Decision: Defendant to deliver up files on payment into Court of $181,708, to abide the outcome of assessment of costs owed by the plaintiff to the defendant. Catchwords: LEGAL PRACTITIONERS - liens - general lien - change of solicitors - documents required for continued conduct of proceeding – court's general discretion to release files – satisfactory security for costs – significant element of compromise by solicitors Cases Cited: Bechara v Atie [2005] NSWCA 268 Gigi Entertainment Pty Limited v Macree (No 2) [2011] NSWSC 869 Tyneside Property Management Pty Limited v Hammersmith Management Pty Limited [2011] NSWSC 202 Category: Procedural and other rulings Parties: PND Civil Group Pty Ltd (Plaintiff) Emprise Legal Pty Ltd (Defendant) Representation: Counsel: D P O'Connor (Plaintiff) M Castle (Defendant) Solicitors: Adams Partners Lawyers (Plaintiff) Emprise Legal (Defendant) File Number(s): 2017/47074 Judgment (ex tempore – revised 22 february 2017) 1. HIS HONOUR: The plaintiff (PND) retained the defendant (Emprise) as its solicitor in several pieces of litigation in the District Court. One of those pieces of litigation is referred to as the "Bastow" matter. The other (which might in fact comprise several disputes) is referred to as the "Construido" matters. 2. PND was unsuccessful in the Bastow matter. It is lodged an appeal to the Court of Appeal. It has now instructed new solicitors. They require access to files held by Emprise to enable the preparation of the appeal books. 3. The position taken by Emprise is that PND owes it a substantial amount, said to be about $238,000, for fees and disbursements in the Bastow matter and the Construido matters. Although the dispute with which I am concerned deals only with the Bastow files, Mr O'Connor of counsel, for PND, accepted that Emprise's lien was a general lien. 4. PND contends that the amount owing is, in round figures, $181,000. It says that because Emprise has offered to accept that sum in full settlement of all debts. That offer has been made more than once in open correspondence. 5. Perhaps not surprisingly, given the extent of the disputes between the parties, they were unable to agree even on the applicable statutory regime. However, they accepted that whichever statutory regime applied, the court had a general discretion under the applicable legislation to order the release of the files "on such conditions as [the court] may determine". They agreed further that, at least in the first instance, reference to the applicable rules would suggest that the mode of exercise of that discretion required the court to consider how it was that Emprise's costs could be "satisfactorily secured". 6. Nonetheless, as Mr O'Connor submitted, the cases show that the discretion is one to be exercised at large upon a consideration of all relevant facts. He referred to Gigi Entertainment Pty Limited v Macree (No 2) [2011] NSWSC 869, and other decisions. In that case (the facts of which were markedly different to the facts before me), Slattery J referred to the discretion as involving an "holistic valuation" of what the court regards as appropriate (see at [45]). However, as is clear, from that case and from another decision on which Mr O'Connor relied, that of Pembroke J in Tyneside Property Management Pty Limited v Hammersmith Management Pty Limited [2011] NSWSC 202, the particular facts of the case may dictate that what represents satisfactory security or, more accurately, an appropriate exercise of the discretion might mean that the practitioner should be less than fully secured for the amount in dispute. 7. PND has offered to pay, apparently unconditionally, what it regards as the amount of the disbursements outstanding, in the sum of $87,330.50. It is correct to say that those are the disbursements claimed by Emprise in the Bastow matter. However, as Ms Castle of counsel, who appeared for Emprise, pointed out, there are also disbursements totalling in excess of $35,000 said to be owing in the Construido matters. Thus, the total amount of disbursements claimed, for which Emprise is either out of pocket or liable to pay is, in round figures, $123,000. 8. In addition to PND's offer to pay the sum to which I have referred, Mr Di Cello, the sole director of PND, has offered his personal guarantee to pay anything left that might be found to be owing. I should have said earlier that the amount that might be found to be owing is somewhat conjectural, because it is common ground that Emprise, having failed to make revised and updating disclosures of costs, must await completion of the process of assessment before it can sue to recover whatever is found to be owing. 9. Mr Di Cello says that he has the capacity to pay any amount that might be assessed. He referred to "approximately $600,000 in equity" in his residence at Wilton. His affidavit was completely devoid of details to support that conclusion or assertion. 10. The affidavit of Ms Boustani, the principal of Emprise, shows that in fact Mr Di Cello and someone who is presumably his wife own that property as joint tenants. Thus it is not clear whether the equity that Mr Di Cello claims is his alone, allocating a notional half-share to his co-joint tenant, or the total equity. 11. Further, Ms Boustani's affidavit discloses that there is a caveat lodged against the title to the Wilton residence. That caveat was lodged by a company known as Hanson Construction Materials Pty Ltd. As one might expect (from the nature of PND's business and the name of the caveator) the caveat is said to be referable to an equitable interest "for payment of monies pursuant to a personal guarantee provided by the registered proprietor to the caveator to secure payment of monies owing". 12. Mr Di Cello is said to be one of those guarantors. It does not appear that his co-joint tenant is another guarantor. 13. Mr Di Cello's affidavit did not mention the caveat. It gave no indication of the amount (if any) which might be owed by PND to the caveator. There is thus no evidence of the extent to which Mr Di Cello's asserted interest and associated equity in the residence took into account the contingent liability that Mr Di Cello would appear to have as a guarantor of his company's obligations to what the court cannot help but know is a substantial supplier of materials used by those in the building and construction industry. 14. Mr Di Cello says in para 14 of his affidavit that although PND is solvent, to pay the amount for which Emprise is prepared to settle, which is, in exact figures, $180,708 "would cause [it] severe cash flow problems… and would also cause problems for the prosecution of the current Appeal". 15. Those conclusory statements are not illuminated by any evidence. However, PND's balance sheet as at 31 January 2017 (some fortnight before Mr Di Cello swore his affidavit) discloses that PND appeared to have cash at hand in excess of $530,000 and accounts receivable in excess of $507,000. 16. It may be wondered why, in those circumstances, paying money as security for the amount claimed by Emprise would truly have the consequences to which Mr Di Cello deposed. 17. Mr O'Connor submitted, correctly, that the assertions in para 14 had not been challenged. However, that does not mean that the court is bound to accept them uncritically in circumstances where there is other evidence that might appear to lead in a different direction. It would be different, perhaps, if Mr Di Cello had descended to some level of detail in showing why it was that if $181,000 were extracted from the current assets to which I have referred, there would follow the consequences that he fears. 18. It is, of course, correct to say, as Mr O'Connor submitted, that there are authorities that make it clear that in particular cases the court may order something less than complete security. What is appropriate is very much dependent on the particular facts of the particular case. 19. In this case, there is the fact that Emprise is prepared to accept an amount which is something like $57,000 less than the full amount of its claim. There is thus already a significant degree of compromise as to what is really in dispute. 20. There is also the fact that PND (or Mr Di Cello) can pay $87,330.50, more than half of the disputed amount, apparently without ill effects in terms of cash flow problems or the prosecution of the appeal. There is the unexplained evidence of the apparent relative abundance of current assets - cash at bank and receivables - in the accounts to which I have referred. 21. True it is of course that PND carries on a substantial contracting business with an annual turnover of around $10 million. True it is, as Mr Di Cello points out (by implication) that the conduct of such a business requires significant capital resources. Why the capital resources to which I have referred are insufficient is unexplained. 22. I should say that Mr Di Cello referred to a related company, PND Civil Holdings Pty Limited, which he said owned plant and equipment used by PND, identified in an asset register (to the extent that it is legible) as apparently having a value of some millions of dollars. 23. I do not know if that were intended to provide some degree of comfort either as to the worth of PND or as to the worth of Mr Di Cello's guarantee. However, the fact is, as Ms Castle pointed out by reference to Ms Boustani's affidavit, PND Civil Holdings has granted numerous securities over its assets. The nature of the debts for which the securities have been granted is not apparent, and neither is their total. Thus, there is no means of assessing whether in fact, after allowing for amounts secured, the assets owned by PND Civil Holdings have any net value whatsoever. Even if they did, there would have to be a question of whether the application of that company's assets in satisfaction of the debts owed by a separate company, PND, would be an appropriate use of the former's resources. 24. At the end of the day, what is required is an evaluation of the best way to exercise the broad discretion that the legislation confers, guided by the proposition that, to the extent the competing interests of the parties permit, the solicitor who is being forced to give up its lien should have some satisfactory security for the amount of its costs. 25. In Bechara v Atie [2005] NSWCA 268, the Court of Appeal expressed the view at [64] that satisfactory security should be understood "to refer to the provision, in lieu of payment of something of monetary value which would ensure the satisfaction of the possessory lien." In some cases, as was pointed out at [65], [66], that might take the form of a tripartite agreement under which the former solicitor would be secured against any verdict to be recovered by the client and the new solicitor would undertake to honour that security. That is not available in the present case. 26. Ms Castle submitted that a personal guarantee, or even a personal guarantee supported by a charge and caveat (I know that this was not offered), could not be regarded as satisfactory security, because it might very well involve her client in further litigation before obtaining payment of whatever might be found to be owing on completion of the process of assessment (including any challenge to the assessment itself). 27. I think in principle that this is correct. Thus, in principle, I find it a little difficult to understand why, on the facts of this case, like would be replaced with like - why it is that the provision of a personal guarantee is something that would ensure the satisfaction of the possessory lien. It might go part of the way towards doing so; but in my view it does not go far enough. 28. If there were satisfactory evidence that the impact on PND of ordering security in the amount for which Emprise is prepared to settle would be as severe as Mr Di Cello prognosticates, then I might perhaps consider that on the facts of this case, there should be something less than full monetary security. 29. However, for the reasons I have given, I do not regard that evidence as having any particular compelling force. Thus, I am not prepared to conclude that provision of security in the amount to which I am about to refer would be so deleterious that it would, in effect, either bring about the destruction of PND's business or, alternatively, stultify the appeal. 30. I repeat that a salient feature, which in my mind needs to be kept at the forefront of consideration of the discretionary exercise, is that there is already a very significant element of compromise in Emprise's position. As I have pointed out, the amount for which it is prepared to settle is already $57,000 less than the full amount of its claim. 31. Accepting, as I do, that the full amount of Emprise's claim might be regarded as an absolute high water mark, unlikely to be lapped by the tides of assessment in this case, nonetheless there is no reason for thinking that the assessment process will be so destructive that it would bring the total amount owing down below the figure for which Emprise is prepared to settle. 32. In expressing that view, I take into account, as I have said, that there are about $124,000 of disbursements for which Emprise is liable. 33. In those circumstances, bearing in mind the broad nature and the discretion and the requirement, as expressed by the Court of Appeal, to provide something of monetary value which will ensure satisfaction of the possessory lien in lieu of the payment of the amount needed to discharge that lien, I have come to the conclusion that the appropriate order is that the files should be released upon payment into court, to abide the outcome of the assessment process or the agreement of the parties, of the sum of $180,708. 34. In coming to that view, I take into account, as I think I have said already, the unsatisfactory nature of the evidence as to the suggested deleterious impact of making such an order. 35. I take into account also that if the process of assessment concludes that something less is found to be owing, payment into court would, prima facie, mean that part of the amount paid in would go back to PND. 36. In those circumstances, I will make orders to the effect that Emprise deliver up the relevant files on condition that the sum to which I have referred be paid into court. Of course, if the parties agree, it may be paid into some other account to be held in such a manner as will ensure that it is available to enable the competing interests on resolution of the process of assessment to be discharged. 37. In my view the parties are better able to draft the precise form of orders than I am and I will direct them to bring in short minutes of order to give effect to these reasons. 38. That leaves the question of costs and I will hear counsel on that. ********** 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: 27 February 2017