Costs, fruits of litigation lien

Helm v Helm & Anor; Application of Conti [2011] NSWSC 1595. White J.

 6 In Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 100, Jordan CJ authoritatively stated the basis upon which at common law a solicitor is entitled to his costs and disbursements from money recovered from a client.

Jordan CJ said:

'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 ."

7 It is clear on the evidence that the plaintiffs' solicitors do have what has been called a fruits of the action lien.

For such a lien to exist the fruits of the action must be produced by the industry of the solicitor.

As I observed in Jackson v Richards [2005] NSWSC 630, that is not an exacting standard.

It is not necessary to demonstrate that a judgment came about as a result of specific efforts by the solicitor.

But there must be some causal link between the solicitor having acted for the client in the proceedings and the resulting payment. That is demonstrated in this case.

Patterson v Cohen [2005] NSWSC 635. Hamilton J.

2 The law in relation to what is commonly called “fruits of litigation” liens has been the subject of considerable discussion in the courts of recent years.

The locus classicus in this State is in the judgment of Jordan CJ in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 100. [see above]

A compendious account of the recent law was given by Lehane J in Roam Australia Pty Ltd v Telstra Corporation Ltd (FCA 22.09.97 unrep). There his Honour said:

The solicitors’ claimed equitable interest

The general principle is now well established: 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: Ex parte Patience: Makinson v The Minister (1940) 40 SR (NSW) 96 at 100 per Jordan CJ.

The Full Court of this Court approved and applied Patience in Worrell v Power & Power (1993) 46 FCR 214 at 223, 224.

It has been applied in several later decisions: they include Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 474; Kison v Papasian (1993) 61 SASR 567; Twigg v Keady (1996) FLC 92-712; Doyles Construction Lawyers v Harsands Pty Ltd (McLelland CJ in Eq, unreported, 24 December 1996).

Patience and the cases which have followed it make a number of things clear.

First, the principle applies equally to judgments and compromises;

secondly, the right does not depend upon any intervention by the Court, the assistance of which ‘is invoked not to create the rights but to enforce them' [sic] Patience at 101;

thirdly, the amount which a solicitor is entitled to recover out of the judgment debt or amount owing under the compromise is the amount of costs and disbursements which the solicitor is entitled to recover from the client (no doubt that entitlement may depend upon agreement, taxation or assessment) and the claim may be asserted even though the precise amount to which the solicitor is entitled has not, by the appropriate means, been ascertained: Patience at 105; Twigg at 83,552; Canatan.

The right appears to be based upon the fact that the solicitor was ‘instrumental’ in obtaining the judgment or compromise: Patience at 103, or Worrell at 224 that the judgment or compromise has ‘come about by reason of [the solicitor’s] exertions’.

The entitlement may, nevertheless, arise although the solicitor's exertions came to an end before the judgment was obtained or the compromise negotiated.

In Twigg, the solicitors acted in property settlement proceedings under the Family Law Act 1975 for some years, but ceased to act about 13 months before judgment in the proceedings was obtained. Their claim was, nevertheless, upheld.

In Doyles the solicitors acted in District Court proceedings. The proceedings were settled by an agreement negotiated directly between the parties. The solicitors were not involved. The agreement provided for payment to the solicitors' client of $40,000. Shortly after the agreement was made, but before any payment was made under it, the solicitors ceased to act.

McLelland CJ in Eq (at 4) said this:

It was submitted ... that there was no sufficient causal link between work that Doyles had done in relation to the proceedings and the ultimate settlement, since the March settlement agreement was negotiated directly between the parties and Doyles had ceased to act before the ultimate settlement was negotiated.

In my opinion it is unnecessary for Doyles to demonstrate that the settlement came about as the result of specific efforts by them.

According to the statement of principle [in Patience] ... 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.

[Lehane J] I do not think it follows that solicitors will always, in a case where they have acted for a party to proceedings in which ultimately a judgment is obtained, or which are compromised, obtain an equitable interest in the judgment or settlement proceeds commensurate with the amount they are owed for costs and disbursements, no matter how slight or fleeting their participation may have been or even if they acted only for a short period after the commencement of proceedings later conducted by others through interlocutory procedures and trial to judgment.

In each case, in my view, it must be a question whether the requisite causal link is established, whether the judgment or compromise is, on the evidence, to be regarded as brought about or partially brought about by the efforts of the solicitors.

In Doyles the causal link was not difficult to see: although others had acted for the plaintiffs at earlier stages in the proceedings, Doyles acted for a period of about ten months up to, and overlapping with the time when the compromise was negotiated.

Though they were not involved in the negotiation, no doubt they could be seen to have carried the litigation to the point where a successful negotiation could take place.

In Twigg (see the judgment of Finn J at 83,562) it was admitted on the pleadings that work had been done by the solicitors towards the attainment of the judgment.

Where solicitors have been actively involved over a considerable period in acting for a party to successful litigation, the conclusion is likely to follow that the solicitors have been instrumental in obtaining the result, or that the result is (at least in part) due to the solicitors' efforts.”

[Hamilton J] 3 I should add to the collection of authority made by Lehane J additional cases, two of them decided after Roam Australia.

They are the decisions of Young J in Kelso v McCulloch (NSWSC 24 October 1994 unreported) and Abdul-Karim v The Attorney General's Department [1999] NSWSC 79 and the decision of the Court of Appeal in Twigg v Kung (2002) 55 NSWLR 485.

Kindly also refer @Costs, apportionment between practitioners >>