FEDERAL COURT OF AUSTRALIA

Perazzoli v Bank SA, a division of Westpac Banking Corporation Limited [2019] FCA 1707

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act):

(a)    the terms of the settlement of the proceedings as recorded in the Settlement Deed executed by the applicants on 28 June 2019 and the first respondent on 1 July 2019 (Settlement Deed) are approved; and

(b)    the terms of the Settlement Distribution Scheme (SDS) appearing at pages 286 to 299 of Confidential Exhibit AV-2 to the Affidavit of Antonietta Vozzo sworn on 16 August 2019 (First Vozzo Affidavit) are approved.

2.    The Court declares that GMG Legal Services Pty Ltd trading as Griffins Lawyers (Griffins) has an equitable right to be paid its unpaid legal costs in the amount of $141,529 inclusive of GST out of the Settlement Sum referred to in the Settlement Deed.

3.    Pursuant to s 33ZB(a) of the Act, the persons affected and bound by the settlement are the applicants, the group members who have not opted out (Group Members) and the first respondent.

4.    Pursuant to s 33ZF of the Act, for the purposes of the Settlement Deed and SDS, the persons and entities listed at page 783 of Confidential Exhibit AV-2 to the First Vozzo Affidavit shall be deemed to be Registered Group Members.

5.    Pursuant to s 33W(1) of the Act, and for the purposes of the SDS:

(a)    the Court approves the settlement of the separate and standalone causes of action of the applicants as pleaded in paragraphs 86 to 95 of the Third Statement of Claim in the amount of the Credit Reference Claim Payment as defined in the Settlement Deed, but without affecting the applicants’ right of recovery in respect of their representative claims in accordance with the SDS;

(b)    upon the satisfaction of the preconditions set out in cl 4(a) of the Settlement Deed the Administrator is to pay the Credit Reference Claim Payment from the Distribution Fund to the applicants on a pro-rata basis in proportion to the value of their respective losses calculated in accordance with the Loss Assessment Formula in the SDS.

6.    Pursuant to s 33V of the Act and for the purposes of the SDS, the Court approves:

(a)    the applicants’ legal costs in the amount of up to $4,027,362.03 inclusive of GST comprising the reasonable costs and disbursements incurred or estimated to be incurred by the applicants in the conduct of the proceeding, up to and including the dismissal of the proceeding (including an amount of $151,899 inclusive of GST payable to Griffins comprising the amount of $141,529 the subject of the declaration above plus an amount of $10,370 inclusive of GST on account of Griffins’ disbursements); and

(b)    the amount of approximately $3,966,413 inclusive of GST to be paid to LCM comprising:

(i)    an amount of approximately $3.3 million from the Settlement Sum payable to a Group Member who has entered into a Funding Agreement with LCM before any deductions (Funding Commission); and

(ii)    an amount of $666,413 in respect of costs and expenses (including disbursements) paid or incurred directly by LCM under the Funding Agreement associated with the investigation and prosecution of the proceeding (Funder’s Reimbursement);

(c)    the amount of $40,000 to reimburse the first and fourth applicants and four Group Members for their contribution to Griffins Lawyers’ costs (Group Member Reimbursement);

(d)    an amount of up to $110,000 inclusive of GST to the Administrator of the SDS, for the costs and disbursements incurred by the Administrator in connexion with the administration of the SDS including any bank charges, taxes or other statutory fees or charges.

Funding Equalisation Order

7.    Pursuant to s 33V and/or s 33ZF of the Act, the Funding Commission and Funder’s Reimbursement be apportioned on a pro rata basis between the applicants and all Registered Group Members who are entitled to recoveries pursuant to the SDS and deducted from the Settlement Sum pursuant to the SDS.

Return of security for costs

8.    The $20,000 security paid into the Federal Court Investment Account on behalf of the applicants as security for the first respondent’s costs of the proceeding pursuant to order 16 of the Orders made by Justice White on 12 December 2018, and any interest accrued on that amount, be repaid to LCM.

Dismissal

9.    The proceedings are dismissed with no order as to costs (but such dismissal is not to have any effect until after the Effective Date within the meaning of the Settlement Deed) and all current listings of the proceeding be vacated.

Administration of Settlement

10.    Pursuant to s 33ZF of the Act, the applicants’ solicitors, Johnson Winter & Slattery (JWS), be appointed as Administrator of the SDS.

11.    JWS have liberty to apply to Justice Lee for any directions regarding the administration of the Scheme and/or for an order approving its costs in acting as Administrator of the SDS.

Objectors

12.    Before any Final Assessment under the SDS, the Administrator is to provide the Associate to Justice Lee with a document which summarises the Claim Data, estimated scheme payment, the Objectors’ contentions and the Administrator’s response for each of:

(a)    David and Sharon Niehus;

(b)    Andre Mielke (Mr Meilke) and related Registered Group Member individuals and entities; and

(c)    Antonio Pizi,

(collectively, the Objectors).

13.    Liberty to the Objectors to apply to relist the proceedings before Justice Lee on short notice within five business days after the document referred to in order 12 above is provided to the Court for the purpose of raising any concern in respect of the assessment of their respective claim in accordance with the SDS.

14.    If an Objector wishes to apply to relist the proceedings (pursuant to the liberty under order 13 above), they shall notify the Administrator by email: toni.vozzo@jws.com.au

15.    Upon Mr Mielke making a request to the applicants’ solicitors within seven days of this order and providing the applicants’ solicitors with an executed confidentiality undertaking to the Court in the form attached to this order as Schedule 2, Mr Mielke will be permitted to inspect a copy of the Confidential Advice of senior counsel (being the advice at pages 300 to 355 of Confidential Exhibit AV-2 to the First Vozzo Affidavit).

Confidentiality

16.    Pursuant to ss 37AF and 37AG(1)(a) of the Act in order to prevent prejudice to the proper administration of justice:

(a)    the advice of senior counsel (being the advice at pages 300 to 355 of Confidential Exhibit AV-2 to the First Vozzo Affidavit) is to remain confidential and its publication is prohibited until further order of the Court;

(b)    [3.2] (including (a) and (b)), [4], [15] and the third sentence of [56] of the applicants’ Approval Submissions dated 11 October 2019 are to remain confidential and their publication is prohibited until further order of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Schedule 1

No: SAD 307 of 2014

Federal Court of Australia

District Registry: South Australia

Division: General

Schedule 2

-    Federal Court of Australia      No. SAD 307 of 2014

-    District Registry: South Australia            

-    Division: General

GALLIANO PERAZZOLI and others

Applicants

BANK SA, A DIVISION OF WESTPAC BANKING CORPORATION LIMITED ABN 33 007 457 141 and another

Respondents

CONFIDENTIALITY UNDERTAKING

I, _______________________________ (name) of _________________________________________ (address) hereby UNDERTAKE TO THE COURT THAT:

1.    I ACKNOWLEDGE THAT my right to inspect a copy of the Memorandum of Advice of Mark Hoffmann QC dated 16 August 2019 (Confidential Advice) is subject to my entering into this Confidentiality Undertaking to the Court, which sets out my obligations of confidentiality in relation to the Confidential Advice.

2.    I WILL keep the contents of the Confidential Advice confidential in accordance with the terms of this Confidentiality Undertaking.

3.    I WILL NOT disclose the contents of the Confidential Advice to any other person EXCEPT to my wife/husband [delete as applicable] BUT ONLY after she/he [delete as applicable] has provided the applicants’ solicitors with a confidentiality undertaking in the same terms as this document.

Executed as a deed poll

Date:

REASONS FOR JUDGMENT

Revised from the transcript

LEE J:

a    introduction

1    Before the Court is both an application for approval of the settlement of a class action pursuant to s 33V of the Federal Court of Australia Act 1976 (Act) and also an originating application filed by the former solicitors for the applicants (Griffins) asserting an equitable interest being a right analogous to a “fruits of the action” lien in relation to outstanding legal costs, which they seek to be paid out of the proposed sum to be paid pursuant to the settlement, if approved (Declaratory Proceeding).

2    I will come back to the Declaratory Proceeding which raises novel issues below, but it is appropriate first to deal with the approval application.

B    The settlement approval application

3    These proceedings arise out of a failed Ponzi scheme conducted by Mr Michael Samra, a director of ALC Group Pty Ltd (ALC Group). Mr Samra is a rogue who has been made a bankrupt and is currently serving time in gaol.

4    Like many rogues, he has left a trail of destruction, including causing very considerable financial and untold emotional damage to a large number of people, including some of the group members in these proceedings. ALC Group purportedly conducted a private lending business making loans to builders and property developers, but in truth, there was no private lending business and no loan book. ALC Group was wound up in 2009 and there were (as almost invariably appears to be the case in matters of this type) no assets recovered, and no dividends paid to the creditors.

5    The group members, naturally enough, sought to pursue every available avenue to them to recover the losses they suffered. This included providing funding for bankruptcy examinations and obtaining legal advice as to whether or not a Pt IVA representative proceeding should be commenced.

6    To describe the proceeding thereafter commenced as being akin to trench warfare would not be an overstatement. It has been bedevilled by interlocutory controversy, including at intermediate court of appeal level. By way of illustration, the following judgments have been published:

    Perazzoli v Bank SA [2015] FCA 373

    Perazzoli v Bank SA (No 2) [2016] FCA 260

    Perazzoli v BankSA (No 3) [2016] FCA 677

    Perazzoli v BankSA (No 4) [2016] FCA 725

    Perazzoli v BankSA, a division of Westpac Banking Corporation Limited [2017] FCAFC 204

    Perazzoli v BankSA (No 5) [2018] FCA 1187

7    The extent of this disputation, combined with two other factors, has caused very considerable legal fees to be expended. The first additional matter was a change of representation: Griffins initially acted for the applicants and other investors at the time the firm was also acting for the trustee in bankruptcy examinations, and there was an allegation made as to a misuse of documents provided in answer to examination summonses, with the consequence that Griffins voluntarily ceased acting for the applicants in around February 2015. The current solicitors (JWS) took over the conduct of the proceeding from that date.

8    The second factor causing significant expense in the proceeding arises from its very nature. It is unnecessary for the purpose of this application to wade into the brume of allegations made, and it suffices to note that the applicants and group members seek variously equitable compensation, common law damages or statutory compensation based on claims that the respondent bank (Bank):

(1)    knowingly assisted in breaches of fiduciary duty and trust obligations owed by ALC Group and/or Mr Samra in his capacity as principal of ALC Group and/or as a director of ALC Group to the applicants and group members;

(2)    received moneys obtained by ALC Group by reason of breaches of fiduciary duty and trust obligations owed by Mr Samra as principal of ALC and a director of ALC Group to the applicants and group members;

(3)    is liable for the tort of conversion in connexion with a loan, deposit or investment made by cheque paid into the ALC Group bank account operated by the Bank;

(4)    in respect of those group members who were also customers of the Bank, has acted in breach of the Bank’s contractual duty of care to them; and

(5)    engaged in contravening conduct contrary to the statutory norms prohibiting misleading and deceptive conduct.

9    The common thread running through all these claims (at least in a broad sense) is that the applicants and group members allege that the Bank, as banker to ALC Group, Mr Samra and his related entities, was aware of facts and matters sufficient to put an honest and reasonable banker on notice to make further inquiries, a course which the Bank failed to pursue.

10    Merely providing a summary of the above claims gives an indication, detailed at length in a confidential opinion provided by senior counsel for the applicant, of the factual and legal complexities of the matter. Ponzi schemes are notorious for raising complex issues, not only as to liability of third parties, but also as to loss theory. This case is no exception. Following a mediation conducted by the Hon Peter Jacobson QC, a conditional settlement of the proceeding has been reached on the basis that:

(1)    the applicants’ and group members’ claims, save for the applicants’ claims consequent on the Bank’s credit references, be fully and finally settled on the basis of payment by the bank of $13 million inclusive of interest and costs; and

(2)    the applicants’ credit reference claims (which are not group claims) be resolved on the basis of a payment to them of $250,000 to be shared pro-rata to the applicants’ claimed losses.

11    I am satisfied by reference to the confidential opinion that properly analysed, the applicants’ and group members’ claims for loss from 1 June 2007 total, at best, $25.314 million plus interest in the amount of $18.794 million. I am further satisfied, having regard to the way in which the proceeding has been defended to date by the Bank, it is expected the Bank will continue to defend stoutly not only the individual claims of the applicants, but also the group member claims, and that very substantial further costs will likely be incurred. In my view, costs for the purposes of the initial trial and any appeals from the decision of the trial judge could be expected to be certainly in excess of $2 million, and perhaps more.

12    It is not necessary for me to descend into the detail provided in the confidential opinion, but some aspects of the case, in my view, presented real challenges in establishing the liability of the Bank – a factor which has been important in forming the view that the proposed settlement is fair and reasonable. I consider, having reviewed the material, and in particular the confidential opinion, that:

(1)    there was a high likelihood that the claims made by the group members who were customers of the Bank, as to damages for breach of contract by the Bank would fail;

(2)    there were reasonable prospects of establishing the Bank’s liability in respect of the conversion claims, but any such claims which are not statute barred are likely to be apportionable (this is a significant factor because the fraudster, Mr Samra, was principally responsible for the losses suffered by the group members);

(3)    in relation to the knowing assistance claim (which is not apportionable), it is fair to say that there was substantial risk that liability would not be established by reason of the fact that the alleged fiduciary relationship between Mr Samra, ALC Group and the group members does not fall within an ordinarily accepted category of fiduciary relationship and is further complicated by the fact that Mr Samra and the ALC Group as borrowers had a self-interest in the transactions as distinct from subjugating their interests in favour of investors (which is ordinarily required of a fiduciary); and

(4)    how one was to attribute and then categorise the Bank’s knowledge for the purposes of establishing legal liability raised particular complications, which would be evident to anyone experienced in litigation of this type.

13    Why these conclusions are important is that the settlement sum is a little under 70% of the group members’ most realistic knowing assistance claim without interest and before any deductions. This seems to me, given the overall merits of the claim, to be within the range of settlements which could be properly regarded as reasonable. The difficulty with the settlement is not so much the sum of $13 million, being the amount struck as between the applicants acting in their representative capacity and the Bank, but the fact that only approximately 40% will be distributed to eligible participating group members. This is a function, as would have already been appreciated from what I have stated above, of the significant legal costs that have been incurred together with the fact that this is funded litigation (a matter to which I will return shortly).

14    As is conventional, a settlement distribution scheme has been proposed which provides that, upon approval by the Court, the settlement sum will be distributed first to legal costs.

15    Secondly, a payment to the litigation funder (LCM), being an amount for payment of a funding commission, which if a funding equalisation order is made, will equate to 25.1% of the gross settlement sum together with some disbursements incurred by the funder, including for after the event insurance.

16    Thirdly, a payment to the applicants and four group members, including two group members who appeared before me today, paid by them to Griffins to fund initial investigations.

17    Fourthly, a payment to the administrator of a settlement distribution scheme for costs and disbursements incurred by the administrator in connexion with the administration of the scheme.

18    Fifthly, the balance to group members.

19    The settlement distribution scheme and the methodology adopted for distinguishing between various claims is explained in great detail in the material and seems to me to reflect a rational and sensible approach to the distribution of the residual amount following the necessary deductions. In this regard, the Court has again been assisted by the opinion of senior counsel as to the reasonableness of the operation of the scheme, which, in my view, appears to be cogent.

20    Turning now to the funding arrangements, there were both funded and unfunded group members in the proceeding. The funded group members comprise 104 out of 165 group members. In these circumstances, the funder seeks what has become known in the authorities as a “funding equalisation order”. The purpose of such an order is, of course, to provide some equality across the group, reflecting the fact that only some group members are contractually obliged to pay the funding commission. It does not operate so as to augment the amount paid to the funder in total but, rather, spreads the contribution towards that amount over all group members, given it is only through the availability of funding that the matter has been brought to a conclusion.

21    I am satisfied that a funding equalisation order is appropriate in the circumstances of this case.

22    This brings me to the objections that have been advanced, both in writing and before me orally today. Three group members, being Mr Mielke, Mr Niehus and Mr Pizi, have appeared and provided very useful articulation of their subjective perspectives of the settlement.

23    Efforts made by group members in coming along to settlement hearings and expressing their views is of considerable help to the Court. Apart from assisting in testing the Court’s discharge of its supervisory and protective role, it brings home the fact that litigation of this type has a human dimension. The present litigation is the result of failed hopes and endeavours and it is important for a Judge, in forming a view as to the fairness and reasonableness of the settlement, to bear steadily in mind that in approving a settlement such as this, one is not dealing with some abstract commercial enterprise, but rather, one is dealing with people’s real lives and, in cases such as this, their profound disappointments. I am grateful for the participation and submissions of the group members.

24    The objections can be put roughly into three categories.

25    The first is a particular complaint made by Mr Niehus and Mr Mielke concerning the individual calculations of their figures. It seems to me this objection can be addressed by me making an order requiring the provision to me of a document which summarises the contentions of these objectors and the detailed response of the administrator and reserving liberty to the objectors to relist the proceeding to agitate any concern they have concerning the operation of the settlement distribution scheme.

26    Secondly, the complaint was advanced, particularly by Mr Niehus, concerning losses relating to advances made before 1 June 2007. I am satisfied, however, that advances made prior to 1 June 2007 have been dealt with appropriately. The real problem seems to arise from whether any amounts advanced prior to 1 June 2007, which were said to be “rolled over” on or after 1 June 2007 (that is, where there was no “new” money paid), could be taken into account in assessing loss. In part, this issue is complicated by the fact that generally (although I do not make any specific comment in relation to the case of Mr Niehus and Mr Mielke) there was a lack of documentation and lack of formality in respect of “rollovers” of earlier investments. The cogent view taken ultimately was that these “rolled over” amounts should not be considered in the calculation of losses in light of the nature of the “no transaction case” against the Bank because:

(1)    the pleaded case against the Bank is to the effect that had the Bank not allowed Mr Samra to conduct the ALC Group bank account in the way he did, the Ponzi scheme would have collapsed and therefore no new money would have been advanced and there would not have been any further payments of interest or repayment of principal to earlier investors; and

(2)    including losses on money advanced prior to the claim commencement date of 1 June 2007, would have been inconsistent with this case theory because the Bank could not have prevented this money being advanced or the related losses being incurred.

27    This is no doubt a disappointment to those with significant pre-1 June 2007 losses, but it seems to me to be the rational approach to loss given the unfortunate circumstances that occurred.

28    The third objection was the strength of the claim against the Bank and whether or not the overall settlement was fair and reasonable. I have addressed the issue of whether the settlement is fair and reasonable above. But I understand the disquiet of the objectors receiving relatively modest amounts out of the settlement given they had understood, at the beginning of the case, that there was a relatively good claim against the Bank. As I said during the course of submissions, litigation is a difficult and unpredictable endeavour at times, and prospects of success can change significantly during the course of proceeding. In my experience I have also observed there is often a human tendency, at the outset of litigious endeavours, to discount or not fully wish to contemplate problems that may become evident as the case goes on. All I can say is that whatever expectations there may have been at the commencement of this class action, the view as to prospects taken by those representing the applicant now is both sensible and realistic.

29    A further issue was raised by Mr Mielke as to obtaining a copy of the confidential opinion of senior counsel. This opinion is, obviously enough, privileged as between the applicants, being clients of JWS (the firm instructing senior counsel) and the firm. I understand that consistently with the maintenance of this claim for privilege, it has not been distributed to group members, but a group member has made a specific request to see the document. In quelling the controversy generally, I am also quelling the individual controversy between the group member concerned, Mr Mielke, and the Bank. He has expressed a consistent interest in seeing the opinion which, as the above reasoning indicates, was a key consideration in me reaching the views I have formed as to reasonableness.

30    Mr Mielke not only sought access to the claim for his purposes, but also to potentially provide it to solicitors. When asked why this was the case, he indicated that he wished to obtain advice as to whether the settlement was fair and reasonable. Ultimately, however, the evaluative task of considering whether the settlement is fair and reasonable is one that falls to me and for the reasons outlined above, I have come to the firm conclusion that this settlement is one that falls within that description. Despite this, I think Mr Mielke has a legitimate interest in understanding why it is that I have reached this conclusion.

31    Subject to the provision of a confidentiality undertaking given to the Court by Mr Mielke, I am prepared to allow him to inspect a copy of the opinion at the offices of the solicitors for the applicant, provided that such a request is made within seven days of the date of this order. I do not, however, think there is any utility in extending this further, in particular, allowing him to discuss it with his solicitors in order to obtain an opinion on a question which has already been authoritatively determined by the settlement approval.

32    The only additional controversy to which I should make reference is an issue that arose concerning the costs of JWS. A referee provided a report as to costs on 8 October 2019. The referee was Mr Roland Matters, a highly experienced costs consultant and someone experienced in preparing reports of this type. The applicants (although having no personal liability, as I understand it, to pay the costs which have already been paid by the funder) opposed the adoption of part of the report, which involved a reduction of costs of $220,927.50 (approximately 5.7%). The applicants submitted that aspects of this proposed reduction should not be accepted because: (a) a reduction for concurrent attendances of various solicitors of some $90,005 is wrong in principle and was fastened upon arbitrarily; and (b) a reduction in legal fees charged because of partial success on an application for leave to amend in May 2018 is wrong in principle.

33    As I explained in CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) (No 2) [2018] FCA 2112; (2018) 364 ALR 129 at 145-146 [67]-[68], the principles which deal with the adoption of referee reports are well known and include a discretion to adopt the report where the interests of justice so require. If the report shows an apparently appropriate approach to the assessment of the subject matter of the reference, the Court has a disposition towards the acceptance of the report, for to do otherwise would negate the purpose of the report by delving into only those aspects of the report to which attention has been directed, rather than the overall thrust of the report, which was directed to a broader question.

34    In my view, the report of Mr Matters does not manifest some perversity or manifest unreasonableness in the fact finding, indeed the contrary is the case. In the absence of a patent misapprehension of the type discussed in the relevant authorities, I should accept and adopt the report and not undermine the utility of the process by descending into the detail of what would amount to a “rehearing” of a relatively minor dispute as to whether some costs were unreasonably incurred, particularly when the balance of the costs were otherwise regarded as reasonable and there would be no challenge to this aspect of the report.

35    Nothing about the implicit fact finding upon adoption of the report detracts from the fact that, insofar as I can judge, it appears JWS have acted both properly and conscientiously on behalf of the applicants in the conduct and resolution of this proceeding. For the avoidance of doubt, this finding means that the amount of costs I have implicitly found not to be reasonable are not to be borne by the group members. It is not relevant to the discharge of my current task to deal with any issues of entitlement as between funders and solicitors inter se.

c    The Declaratory Proceeding

36    As noted above, Griffins seek an order, either in the equitable jurisdiction of the Court by way of declaration, or an order pursuant to s 33V of the Act, in relation to a sum of $141,529, together with some miscellaneous expenses associated with this litigation, being paid out of the settlement sum. As far as I am aware, this is the first occasion in which the question of whether a fruits of litigation lien (or fruits of the action lien) extends to circumstances where a common fund has been created upon the settlement of a class action.

37    In the seminal judgment of Sir Frederick Jordan in Ex parte Patience; Makinson v Minister (1940) 40 SR (NSW) 96 relating to a solicitor’s equitable right to have their costs and disbursements paid from money recovered for a client, the Chief Justice said at 100:

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: Welsh v Hole. If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; and payment by the judgment debtor to the client after notice of the solicitor’s claim is no answer to an application for such a rule: Read v Dupper; Ormerod v Tate; Ross v Buxton. Further, if the client and a judgment debtor make a collusive arrangement for the purpose of defeating the solicitor’s right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor’s claim had been given to the judgment debtor prior to the arrangement: Ross v Buxton.

(footnotes omitted)

38    In Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451, Campbell J, as his Honour then was, considered the nature of a solicitor’s lien over money recovered and set out the following presently relevant propositions at 463-464 [35]:

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: Carew Counsel Pty Ltd v French (2002) 166 FLR 460 at 476 [33]; Roam Australia Pty Ltd v Telstra Corporation Ltd (trading as Telecom Australia) (Federal Court of Australia, Lehane J, 22 September 1997, unreported) at 4.

(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: In The Estate of Fuld, Decd (No 4) [1968] P 727 at 736; Twigg v Keady (1996) 135 FLR 257 at 266–267, per Finn J; Re Blake; Clutterbuck v Bradford [1945] Ch 61 (a case concerning a statutory charging order rather than a lien arising in equity’s exclusive jurisdiction, but dependent on the same principle as the equitable right — see (at 467 [44] supra)).

(c)    It exists over money which is in the possession of the solicitor, and also over money which is in court (Re Meter Cabs Ltd [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld, Decd (No 4); Re De Groot [2001] 2 Qd R 359 at 375).

(d)    The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld, Decd (No 4); Kelso v McCulloch (Young J, 24 October 1994, unreported); Twigg v Keady (at 289) per Kay J; Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4).

(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: Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4–5); Carew Counsel Pty Ltd v French (at 476 [33]).

(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: Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4). 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 (Johns v Cassel (1993) 6 BPR 13,134 at 13,136, per Hodgson J; Twigg v Keady (at 289) per Kay J; In The Estate of Fuld, Decd (No 4) (at 740); Roam Australia Pty Ltd v Telstra Corporation Ltd (at 6)).

(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”: Carew Counsel Pty Ltd v French (at 476 [33]); 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 cost: Philippa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re De Groot (at 368). (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: In The Estate of Fuld, Decd (No 4). 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: Leamey v Heath [2001] NSWSC 1095 (Campbell J, 22 November 2001, unreported).

(i)    The right can also be enforced against people other than the client, in certain circumstances. When the money recovered takes the form of a debt owed to the client, which has been assigned, the right of the solicitor will prevail over the rights of an assignee of the debt, save where the assignee is a bona fide purchaser for value without notice: Re De Groot. (If the assignee is a bona fide purchaser for value without notice, it may be that priorities between the solicitor’s right and the right of the assignee are to be determined in accordance with the rule in Dearle v Hall (1828) 3 Russ 1; 38 ER 475 (see R P Meagher, W M C Gummow & J R F Lehane, Equity Doctrines and Remedies, 3rd ed (1992) Sydney, Butterworths, at 237 [819]ff) or it may be that the court considers who, of the solicitor and the assignee, has the superior equity — Re De Groot (at 368–376) – but it is not necessary for me to consider that matter further.) ...

39    His Honour considered the nature of the equity and said (at 466 [38]) that “it is apparent that the equitable right which a solicitor has to be paid costs and disbursements from the fund which his efforts have recovered, is a kind of proprietary interest in that fund”, and confirmed (at 468 [48]) that the rationale for the existence of the lien is that if the solicitor had not done the work and spent the money, there would not be any fund in existence.

40    Recently, in Klemweb Nominees Pty Limited v BHP Group Limited [2019] FCAFC 107; (2019) 369 ALR 583 at 609-611 [127]-[130], I referred to the way that this Court, as a court of equity, will apply fundamental equitable doctrines and principles in the execution of its jurisdiction, including the underlying maxim that equity is equality, which informs a range of equitable principles and remedies. I also referred to a series of cases in the United States which stand for the proposition that the foundation for the historic practice of granting reimbursements for the cost of litigation “is part of the original authority of the chancellor to do equity in a particular situation”: Sprague v Ticonic National Bank 307 US 161 (1939) at 166.

41    As I went on to note (at [128] and [130]):

Indeed, after making reference to observations in the second edition of Daniell’s Chancery Practice at 1381-1410, Frankfurter J in Sprague referred to the “power of equity in doing justice as between a party and the beneficiaries of his litigation”: at 167. Relying upon equitable principles, it is well established in the United States that a court may order that the financial burden of legal fees is to be spread “proportionately among those benefited by the suit”: Boeing Company v Van Gemert 444 US 472 (1980) at 478. Thus, as was said by Powell J, in delivering the opinion in the leading case of Boeing, the common fund doctrine reflects the traditional equitable practice, which rests on the perception that persons who obtain the benefit of an action without contributing to its cost are unjustly enriched: at 478.

…

It is beyond the scope of this judgment to dwell further on these matters but the first step for a party explaining why a properly framed order should be made, one would think, would be to examine the jurisprudential basis for such an order including explaining why it might be thought to be consistent with equitable principles that a person who benefits from another’s efforts in producing a fund is obliged to provide appropriate value in return, as is reflected in the underlying principle that it would be inequitable for the person who has created or realised a valuable asset, in which others claim an interest, “not to have his or her costs, expenses and fees incurred in producing the asset paid out of the fund or property created”: Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 at 154-155 [41] (where Davies J described the principle in the different context of an assertion of an equitable lien); see also IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240 at 254-257 [63]-[78] (North, Emmett and Rares JJ))...

42    There is no reason why the learning in respect of a fruits of the action lien is not entirely consistent with this broader equitable principle to which reference in made above that somebody whose exertions have brought a common fund into existence should be entitled to recover their costs, expenses and fees incurred in producing the asset.

43    Accordingly, the declaration sought should be made. As to the costs associated with bringing the separate proceeding, those costs can be the subject of an order pursuant to s 33V of the Act.

44    I should make one further comment concerning procedure. The declaration was sought by way of a separate application. On reflection, it was probably unnecessary to do so. In G E Dal Pont’s Law of Costs (2nd ed, LexisNexis, 2008) at [27.4], it is noted that:

To obtain the benefit of a particular lien, the solicitor must make an interlocutory application, in the proceedings in which the client’s monetary entitlements arise, for a declaration both of the existence of the lien and for ancillary orders to facilitate the protection of the moneys the subject of the lien.

45    Such was the procedure adopted in both Rome Australia and in Ex parte Patience. Despite this, the relief by way of declaration is final in nature. As I have previously explained elsewhere, there is no inhibition in the Court making a declaration, even if it is not sought in separate proceedings, provided that such a declaration quells a final controversy or part of a controversy on a final basis between parties and thus is a proper exercise of judicial power: see Dillon v RBS Group (Australia) Pty Limited [2017] FCA 896; (2017) 252 FCR 150 at 156-157 [25]–[30]. The declaration sought here falls into that category.

Associate:

Dated:    31 October 2019

SCHEDULE OF PARTIES