Baker Johnson Lawyers v Suncorp General Insurance Ltd [1999] QDC 297

DISTRICT COURT OF QUEENSLAND REGISTRY: BRISBANE NUMBER: D1994 OF 1999 Plaintiff: BAKER JOHNSON LAWYERS AND Respondent: SUNCORP GENERAL INSURANCE LIMITED JUDGMENT - McGILL D.C.J. Judgment Delivered: 23 December 1999. Catchwords: LEGAL PRACTITIONERS - Solicitor and Client - lien over proceeds of claim - whether third party has equitable defence to action to enforce. Ex parte Patience, Makinson v The Minister (1940) 40 SR (NSW) 96 - applied. Tooth v Brisbane City Council (1928) 41 CLR 212 - applied. JGL Investments Pty Ltd v Maracorp Financial Services Ltd [1991] 2 VR 168 - considered. Counsel for the appellant: M.D. Martin Counsel for the respondent: P.C.P. Munro Solicitor’s for the appellant: Baker Johnson Solicitor’s for the respondent: Bradley & Co. Hearing Dates: 27 September 1999 -- 1 of 8 -- DISTRICT COURT OF QUEENSLAND REGISTRY: BRISBANE NUMBER: D1994 OF 1999 Plaintiff: BAKER JOHNSON LAWYERS AND Defendant: SUNCORP GENERAL INSURANCE LIMITED REASONS FOR JUDGMENT - McGILL D.C.J. Delivered the 23rd day of December 1999 This is an appeal from a judgment of a Stipendiary Magistrate at Brisbane who on 16 February 1999 gave judgment for the appellant against the respondent in the sum of $3,981.15, together with $2,670 for costs. The appellant appeals on the ground that the Magistrate should have given judgment for $9,481.15, together with an amount of costs on the scale appropriate for a judgment in that amount. Background Facts On 28 January 1995 a Ms. Smith was involved in a motor vehicle accident, as a result of which she suffered some personal injuries. Shortly thereafter she consulted the appellants and engaged them to pursue a claim on her behalf for damages in respect of her injuries. The respondent was the insurer of the vehicle whose driver was alleged to have been responsible for the injuries suffered by Ms. Smith. The solicitors gave notice of claim under s.37 of the Motor Accident Insurance Act 1994 on her behalf and thereafter followed the ordinary procedure contemplated by that Act. As a result of negotiations between the appellant and the respondent on or about 4 August 1997 Ms. Smith’s claim was settled for $10,000 plus with party and party costs and outlays together with any amount payable to the Health Insurance Commission pursuant to a charge by that Commission. Subsequently the appellant’s party and party costs and outlays were assessed by a cost assessor in the sum of $5,819, and it was ultimately agreed that this amount be payable by the respondent pursuant to the terms of the settlement. On 9 October 1997 the appellant wrote to Ms. Smith advising of the resolution of the party and party costs in question, enclosing a memorandum of fees in an amount of $9,481.15, and -- 2 of 8 -- 3 proposing that this amount be paid from the total payable under the settlement, with the balance of $6,337.85 being paid to Ms. Smith. She was asked to execute and return a confirmation of this disbursement and acceptance of the account, which she did. She also signed a form of discharge required by the respondent, and returned them to the appellant. On 11 November 1997 the appellant forwarded the signed discharge and other documents to the respondent and sought payment of the amount of $15,897.10 to their trust account; the Magistrate found that the respondent did not receive that letter or the enclosures. On 26 November the respondent wrote seeking advice as to the assessment of party and party costs, and enclosing a copy of the HIC Notice of Charge. Subsequently the appellant discovered that Ms. Smith had been in contact with the respondent direct seeking the settlement monies, and on 10 December copies of the documents forwarded earlier were sent with a request for prompt resolution of the matter. The following day the respondent advised that it had arrange for a settlement cheque of $10,000 to be sent directly to Ms. Smith, as well as paying the Health Insurance Commission. On the same day the appellant replied claiming a charge over all settlement funds, in respect of party and party costs. However, the respondent paid the settlement monies, including the agreed party and party costs and outlays, to Ms. Smith, and advised the appellant that it had done so on 17 December 1997. The Magistrate referred to the decision of Ex parte Patience, Makinson v. The Minister (1940) 40 SR (NSW) 96, where at p.100, Jordan CJ said that where a solicitor had an equitable right to have his costs paid out of money achieved by way of inter alia a compromise, analogous to a right created by an equitable assignment by the client to the solicitor of that part of the money. If the solicitor gives notice to the person liable to pay the money, only the solicitor and not the client can give a good discharge for the amount equivalent to the solicitor’s costs. He noted that that decision had been followed in Roam Australia Pty Ltd v. Telstra Corporation Ltd (NG 391/95, Federal Court, Lehane J, 22.9.97). On the basis of these authorities, the Magistrate found that the appellant had a right to receive the costs out of the settlement monies, notwithstanding that the final settlement occurred after the appellants ceased to act for Ms. Smith. That conclusion was not challenged before me. Thus prima facie the appellant was entitled to recover from the respondent the amount of costs recoverable by Ms. Smith, namely the amount of $9,481.15 she had agreed to pay. That proposition was not challenged on appeal. At the trial, however, the Magistrate was persuaded to uphold a partial equitable defence, to the extent of -- 3 of 8 -- 4 $5,500, and gave judgment for the balance. A number of other defences were put forward at the trial, but none of those were pursued before me. The appellant had previously sued Ms. Smith, and obtained default judgment against her for the full amount. After obtaining a default judgment, the appellant had Ms. Smith orally examined in October 1998. Prior to that her new solicitor’s tendered the sum of $6,660 in satisfaction of the claim for costs, but this was rejected and the cheque returned. Exhibit 14, the letter by which the cheque was tendered, made clear that the offer was that amount in full and final settlement of the appellant’s claims, but that offer was rejected and the cheque returned: Exhibit 15. During the oral examination, a further cheque was tendered, in an approximate amount of $5,500, but it was also not accepted. According to the representative of the appellant who was present to conduct the oral examination, when the cheque was tendered he neither accepted it nor rejected it, but wanted to proceed with the oral examination in order to assess her financial situation, and during the course of that examination she withdrew the offer. The Magistrate found that this was not an offer to pay this amount in full settlement of the claim, but an offer as part payment of the amount claimed. The Magistrate found that the actions of the appellant were not reasonable in refusing to accept this cheque and held that because of this unreasonable failure to accept payment of part of the monies claimed, the appellant had not come into the court with clean hands, and that therefore the respondent had a good equitable defence to this extent. Arguments On the Appeal On behalf of the appellant it was submitted that the finding that the appellant had unreasonably failed to accept the offer of $5,500 was unjustified. The person present at the oral examination had neither accepted nor rejected the offer, but had telephoned the Brisbane office in order to obtain instructions about the offer, but before he was able to speak to anyone able to give him instructions from the Brisbane office, the offer was withdrawn. It was also submitted that there was no evidence that the cheque would have been met on presentation, and that there was no basis for concluding that the appellant had refused the offer deliberately in order to harm the respondent. It was further submitted that even if the solicitor did not behave in a way which was commercially sensible, that did not give rise to any equitable defence. The authorities characterise the position of the solicitor as someone having the benefit of an equitable charge, analogous to someone having the benefit of an equitable assignment of part of -- 4 of 8 -- 5 the proceeds of the settlement. It seems that a person with a benefit of an equitable charge over a debt or other chose in action is entitled to proceed against the fundholder for that part of the debt the subject of the charge: Sykes “The Law of Securities” (4th ed., 1986), p.705. In the case of an equitable assignment once notice is given to the debtor, the debt must be paid to the assignee, and the assignor cannot give good discharge; the debtor pays the assignor at his peril: Tooth v. Brisbane City Council (1928) 41 CLR 212 at 222. Payment of a sum still in the hands of the debtor was compelled by way of equitable order to pay rather than a judgment at law. Hence Jordan CJ in Ex parte Patience (supra) p.100 spoke of the solicitor obtaining a “rule of court directing that the amount of his costs be paid to him and not to the client”. The Magistrates Court can give equitable relief in the form of a money judgment, which is I think a sufficient basis for jurisdiction to entertain the claim. It is clear that the solicitor’s right against the fund does not arise only as a result of something done in or by the court, nor does it depend upon the solicitor actually getting possession of the fund himself: Philippa Power and Associates v. Primrose Couper Cronin Rudkin [1997] 2 Qd.R. 266 at 273. It seems to follow that the solicitor is regarded as having an equitable interest in the fund as soon as his right arises and notice has been given: see Roam Australia (supra). See also Ex parte Patience (supra) at 101. It is true that as a general proposition equitable relief is subject to the doctrine that a party seeking the assistance of a court of equity must do equity, and that the court will look at what is practically just for both parties: Staples v. Baker [1999] 1 Qd.R. 317 at 327. It has also been said that the court retains a discretion allowing it to control the extent of the charge or to place limitations on the manner in which it may be exercised: Akki Pty Ltd v. Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 483. In that case it was pointed out that “the purpose of the lien is to prevent the client from deflecting the monies away from the solicitor and, in ordinary circumstances, there is no problem in describing that as a right analogous to that which would be created by equitable assignment from client to solicitor the right being available where there is some risk the solicitor may go unpaid. ... It follows that I do not consider the court should make an order which would give the solicitor an advantage which would be inequitable when considered in the light of the positions of the respective parties to litigation out of which the claim to the lien arose.” For example, the lien will not be enforced in circumstances where the client would not be able to enforce payment because of some defence or setoff. This is analogous -- 5 of 8 -- 6 to the position where an equitable assignee of a chose in action takes subject to the defences available against the assignor. But that is a means of protecting the debtor from being in a worse position than he would have been in had the lien not existed. I did not understand His Honour to be suggesting that such a proposition could justify protecting the debtor from being in the position where his difficulty has arisen because he has paid the client (i.e. the assignor) in circumstances where, as Isaacs J said, if he pays he does so at his peril. Indeed, the respondent did not submit that the mere fact that it has paid Ms. Smith gave rise to a good defence; rather, the argument was that the appellant, having had the opportunity to recover some of the funds from Ms. Smith and having (as the Magistrate found) unreasonably failed to pursue that matter, it would be inequitable for the appellant now to recover the full amount against the respondent. In the ordinary case of an assignment, the assignee is free to pursue the claim assigned against a debtor who has paid the assignor after notice, and is under no obligation first to attempt to recover from the assignor. Often he would be unable to do so. The appellant in the present case was under no obligation to pursue Ms. Smith, and a failure to have first done so would not have afforded the respondent any defence. In such circumstances it is difficult to see why a failure to pursue Ms. Smith more vigorously or more effectively should give rise to any defence. Whether or not the solicitor’s right in such circumstances is properly characterised as a lien, it is a right which gives an equitable interest in the property before it comes into the solicitor’s hands, and is, I think, properly characterised as a security for payment of the solicitor’s costs: Halsbury’s Laws of Australia, vol 16, para. 250-1080n10. It is a general rule with securities that a creditor having benefit of a security is entitled to pursue and enforce the security without having first to attempt to pursue the principal debtor personally. It is because there may be difficulties in obtaining payment of his costs that a solicitor has the benefit of this equitable charge. In a situation like this, it is difficult to see why a failure to recover money from Ms. Smith should provide a good defence to the respondent. It may be that it would have been sensible for the appellant to have taken the cheque for $5,500 which was offered, but a failure to do so does not give rise to a defence on the part of the respondent unless there was some obligation on the part of the appellant to protect the interest of the respondent. There is no duty of care owed in such circumstances, and at least in the absence of some reason to think that the refusal to accept the cheque, or rather the failure promptly to take the cheque, was motivated by a desire to harm the respondent, I cannot see why that failure gives right to an equitable defence. In the analogous -- 6 of 8 -- 7 case of a surety, there is no discharge of the surety in equity because of a failure of the credit to obtain a security from the debtor, unless as between the creditor and the surety the creditor is under an obligation, express or implied, to obtain that security. There mere fact that there is an opportunity to obtain that security is not enough: JGL Investments Pty Ltd v Maracorp Financial Services Ltd [1991] 2 VR 168 at 175 per Tadgell J where there is a helpful discussion of the relevant principles. In the present case the cheque was perhaps technically a security from the client for payment of part of the debt, although not much of a security. See also Carter v White (1884) 25 Ch D 666 at 670. There is no duty of care owed to the surety, and no duty to enforce a security, in this situation: China and South Seas Bank Ltd v Tan [1990] AC 536. It was submitted that it was a matter for the respondent to prove the cheque would have been, or probably have been, met on presentation, but I think that in the circumstances it was reasonable for the Magistrate to conclude that the cheque probably reflected funds available. Besides, it would have been a criminal offence to hand over the cheque if there were not reasonable grounds for believing it would be met on presentation: Criminal Code s.427A. I think that a court should prefer to assume that Ms. Smith had not been attempting to commit a criminal offence when she offered the cheque. It may well have been however that if the cheque had been taken, her later change of heart, which as it happened prompted the offer of the cheque to be withdrawn, may have led her to have stopped payment of the cheque if it had already been handed over. In the circumstances therefore I am a little wary about the finding that it was not reasonable to refuse to take the cheque, although I think there is some force in the proposition that so long as the cheque was not offered in full satisfaction of the claim, the appellant could not have been any worse off by taking the cheque, so there was no reason not to do so. But I do not think that this gives rise to any defence, equitable or otherwise. The Magistrate referred to the doctrine that “He who comes into equity must come with clean hands”. That doctrine is concerned with preventing the assistance of equity being afforded to someone who is seeking to give effect to some improper purpose, or a situation where the person seeking relief has been responsible for the particular matter of which he complains: Meagher Gummow & Lehane “Equity Doctrine and Remedies” (3rd ed., 1992) p.82, where it is pointed out that the relevant impropriety is legal impropriety. But there is nothing inequitable or improper in seeking to enforce a security of this nature, and I do not think that that changes because the appellant failed to take a cheque which was offered to it. Even if commercially -- 7 of 8 -- 8 unwise, it was not wrongful or improper not to take the cheque. With all due respect I do not think that that doctrine has any application in a situation such as this. The position here was that the respondent, notwithstanding notice of the appellants claim, chose to pay Ms. Smith who was not able to give a good discharge for the obligation to pay the agreed amount, with the result the respondent was “at peril” of having to pay it again to the party properly entitled to it. It follows that in my opinion the appellant was entitled to recover the full amount of the claim against the respondent, and the Magistrate erred in allowing the partial equitable defence on the basis to which I have indicated. It was submitted that the effect of the authorities was that the defence which was successful should be treated as a discretionary defence and therefore subject to appeal only on the limited grounds upon which a discretion can be challenged on appeal. In my opinion, this is not a situation where the Magistrate had a discretion as to whether and to what extent to enforce the lien or equitable charge, so that consideration does not arise, but even if it did I think that the discretion would have miscarried as a result of a misapprehension of the scope and the effect of the doctrine that “He would comes into equity must come with clean hands”. The appeal is therefore allowed and the judgment varied by substituting for the amount of $3,981.15 the amount of $9,481.15. Since this will affect the scale of costs in the Magistrates Court, it will be necessary for the figure by way of costs to be varied, and I will invite the parties to submit an agreed figure in respect of costs, or give them the opportunity to make further submissions about the matter. I will circulate these reasons and invite the parties to agree on a form of order which reflects the conclusion to which I have come, and which deals with the question of costs, although I would expect that they will simply follow the event. Counsel for the appellant: M.D. Martin Counsel for the respondent: P.C.P. Munro Solicitor’s for the appellant: Baker Johnson Solicitor’s for the respondent: Bradley & Co. Hearing Dates: 27 September 1999 -- 8 of 8 --