Precedent (Australian Lawyers Alliance)

FRUITS OF LITIGATION LIEN

By Phillipa Alexander

The Supreme Court of NSW has dismissed an application, made by solicitors who are entitled to an equitable lien for their costs, that funds paid into court be paid out to them to the extent of their unpaid costs. In Goldberg v Beckett,^[1] Harrison J ordered the funds to remain in court until assessment of the solicitors' costs, which are in excess of $3.3 million. Given the quantum of these costs, assessment could take a protracted period.

On the basis of a conditional costs agreement, Turner Freeman had acted for Roseanne Beckett in relation to her claim for damages for malicious prosecution against the NSW Police Force since 2009. The substantive proceedings were determined in favour of Ms Beckett in October 2015 and she became entitled to judgment for $4,091,717 plus costs, including indemnity costs from 30 May 2014.

The conditional costs agreement authorised Turner Freeman to deduct its costs and disbursements from the verdict monies. Ms Beckett also signed an authority to receive in favour of Turner Freeman. On 10 November 2015, the authority to receive was forwarded to the Crown Solicitor's Office (CSO) which acted for the defendant. Shortly thereafter, Ms Beckett instructed the CSO and Turner Freeman that she did not consent or authorise any money to be paid into any account other than her own. Turner Freeman immediately notified the CSO of its claim to an equitable lien in accordance with the decision of Twigg & Anor v Kung & Anor.^[2] When the CSO indicated that the judgment monies might be paid into court, Turner Freeman indicated that that was not appropriate and submitted that it would not discharge the liability under the equitable lien. Turner Freeman also wrote to Ms Beckett stating that her instruction to the CSO to pay the judgment monies direct to her was a breach of the conditional costs agreement and terminated the retainer due to the conflict of interest that had emerged.

In early December 2015, Turner Freeman commenced proceedings seeking an order that the state of NSW pay the judgment monies to Turner Freeman to the extent of the unpaid costs. Ms Beckett then indicated to the court that she wished to challenge the validity or enforceability of the costs agreement and sought an order that the verdict monies be paid to her forthwith or alternatively that the proceedings be stayed, pending determination of an application by her to set aside the costs agreement. On 8 December 2015, the CSO paid the sum of $4,091,717 into court and the court was required to consider the entitlement of each party to the fund.

A fruits of litigation lien was described by Jordan CJ in Ex Parte Patience; Mackinson v The Minister,^[3] as follows:

‘A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs.’

The relevant principles were also analysed by Campbell J in Firth v Centrelink,^[4] as referred to in Goldberg v Beckett,^[5] as follows:

‘The authorities establish the following propositions concerning this right of the solicitor:

(a) The solicitor’s right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation.^[6]

(b) The solicitor’s 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.^[7]

(c) It exists over money which is in the possession of the solicitor, and also over money which is in court,^[8] and money which is owed to the client but not paid into court.^[9]

(d) The solicitor need not be still acting for the client at the time that the money was recovered.^[10]

(e) For the right to arise it must be shown that there is a sufficient causal link between solicitor’s exertions and the recovery of the fund of money.^[11]

(f) The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement.^[12] In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor’s right exists in the fund prior to the occurrence of the taxation.^[13]

(g) The solicitor’s equitable right exists before the court is asked to intervene to protect it; it “arises immediately upon the recovery of monies through the exertions of the solicitor”^[14]; if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for costs.^[15] If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into.^[16] (These statements concern when the lien comes into existence as an item of present property – they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence.)

(h) The right of the solicitor is one which the solicitor can enforce against the client, entitling the solicitor to an injunction to prevent the payment of the fund to the client without notice to the solicitor until such time as the quantum of the solicitor’s entitlement to be paid from the fund is ascertained.^[17] If the quantum of the solicitor’s entitlement has been ascertained, the solicitor is entitled to an order that the amount of his entitlement be paid to him from the fund, notwithstanding opposition from the client.’^[18]

Ms Beckett contended that Harrison J could order payment out to Turner Freeman only if he was ‘persuaded that Turner Freeman had a legal or equitable entitlement that trumped Ms Beckett's rights as owner of the fund’.^[19] Ms Beckett argued that Turner Freeman had no present right to payment of the amounts claimed in their lump sum bill because of their alleged failure to make disclosure in accordance with the Legal Profession Act 2004 (NSW) (LPA). Turner Freeman maintained that even if that was found to be the case, there was nothing in the LPA which derogated from its entitlement to maintain its lien while the assessment process was being undertaken.

This is an important question: if the costs are not presently payable due to non-disclosure, can the lien be maintained? In Waldemar Drexler t/as Drexler & Partners Litigation Lawyers v Karabay & Ors,^[20] White J referred to G Dal Pont, The Law of Costs,^[21] where the learned author says:

‘The existence of the lien itself is not dependent upon the process of taxation or assessment having been either commenced or completed.’

White J also said:^[22]

‘Professor Dal Pont refers to differing first instance authority in this State on the question whether a lien would be lost if there is a failure by the solicitor to comply fully with disclosure requirements. He expresses the view, which in my opinion is correct, that as the Legal Profession Act does not identify the loss of the lien as an outcome of failing to fulfil the disclosure requirements, the preferable view is that non-disclosure does not oust either the client's liability to pay the costs, or the lien to secure them.’

In considering the orders to be made in Goldberg v Beckett,^[23] Harrison J did not accept that Turner Freeman were presently entitled to the fund and held:

‘It is clear from authority that in relation to those situations where an assessment is necessary to ascertain the quantum owing to the solicitor, the solicitor’s right created by the lien exists in the fund prior to the occurrence of the assessment. It is not, however, clear that a solicitor is correspondingly entitled to pay himself or herself from funds over which a lien exists before the amount that is payable has been ascertained by assessment or otherwise. The very nature of the lien suggests that its fundamental characteristic is that of a security, not a device for effecting satisfaction of an outstanding account whose precise quantification remains in doubt.’

Turner Freeman provided an undertaking to restore so much of the fund that it was entitled to apply to payment of its fees as may exceed its assessed costs, which Harrison J considered a sensible way of resolving the dispute. However, Ms Beckett was not prepared to agree to the proposal and His Honour considered that in the absence of agreement he could not authorise the payment of the funds to Turner Freeman. Harrison J also considered that he could not order payment to be made to Ms Beckett, as it would be contrary to the security provided by the equitable lien.

Orders were made that the funds should remain in court, pending assessment of Turner Freeman's bill of costs. The costs of the application were ordered to be Turner Freeman's costs in the proceedings.