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Family law litigation can be very expensive. This is labor-intensive work, and the strong emotions aroused in clients watching their families crumble around them can add complexities not found anywhere else in the legal system. And when the going gets tough, clients sometimes express their dissatisfaction and disappointment by changing lawyers.

This can present significant headaches for practitioners who might have incurred costs for a client in the expectation that those costs would be paid at the end of the case out of the proceeds of a scheduled property settlement. If there is no trust money and no security of ownership, what rights do practitioners have to the fruits of their labor?

What are the principles?

A distinction should be made here between the property of the client which falls directly into the hands of the lawyer in the course of his professional employment and the other property of the client.

As we all know, at common law we are entitled to a general possessory lien for all business expenses on the first class of property until the expenses have been paid. But as early as 1940, Jordan CJ noted in Patience ex parte; Makinson v. The Minister (1940) 40 SR (NSW) 96 at 99 that an “attorney has no lien for his costs on any property which has not come into his possession”.

So does this mean that if the lawyer is not in possession of any of the client’s assets, he must whistle “Dixie”, even if the client gets a large property settlement in his favor after the lawyer stopped working?

Hopefully not.

Jordan CJ continued:

[i]f, however, as a result of legal proceedings in which the attorney acted for the client, the client
gets a judgment or an award or a compromise for the payment of a sum of moneyalthough the lawyer acquires no common law title to his client’s right to receive the money or any part of that right, he does acquire a right to payment of his fees 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 lawyer.

This right resulting from a judgment, an award or a compromise for the payment of a sum of money is often described as an equitable lien on the fruits of a dispute.

Is “equitable privilege” really a privilege?

The right to have costs paid out of the fruits of litigation bears no resemblance to a privilege, and there is extensive case law establishing that it is, in the words of Chief Justice Jordan, “simply of a claim to the fair inference of the Court that this judgment be held as security” for the debt.

How is the right activated?

The real right exists independently of the intervention of the court; therefore, while it may be useful to seek declaratory relief from the court in certain circumstances, it is not necessary either to give life to the right or to make it assignable. The authorities are clear that the role of the court is in the application of the law rather than in its creation.

Note

As with most other equitable rights, notice is absolutely essential. Once notice has been given to the person who owes money to the client, only the attorney can give a valid release for the portion of the total that equals the attorney’s fees. And if the third-party debtor refuses to pay, the lawyer can go to court for assistance in enforcement. If the debtor paid the debt to the former client after receiving a notice, he still has no response to the lawyer’s request.

The big exception to notice arises in cases of collusion. In
Patience ex parte; Makinson v. The Minister (mentioned above) Chief Justice Jordan had noted that “if the client and a judgment debtor enter into a collusive agreement for the purpose of defeating the attorney’s right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding the absence of notice of the debt of the solicitor had been given to the judgment debtor before the arrangement.”

So what constitutes collusion?

The central problem that arose in Gadens Ridgeway vs. Paroulakis (1992) FLC 92-311 was that after a long and bitter battle in family court as a result of which the husband was awarded $400,000.00 (equivalent to less than half the fees his attorneys charged him!), the woman appealed to ask for the judgment of first instance to be quashed.

At the gates of the Full Court, the parties agreed to terms that attributed nothing to the now bankrupt husband. The lawyers sought to intervene in the appeal and, among other things, to conduct the appeal on behalf of the husband.

Quoting from Brunsdon vs. Allard (1859) 2 El&El 18 at 28, Nygh J noted that

“the court will not interfere with any just settlement that
[the parties] can happen, although it will probably prevent them from implementing a collusive arrangement made on purpose to defraud one or the other’s lawyer.

His Honor went on to observe that the onus is on counsel to establish that the arrangement was collusive.

In Gadens Ridgeway vs. Paroulakis, Nygh J eventually concluded that the wife had no intention of depriving the lawyers of any interest they might have in a judgment, as she had always been of the opinion that “the husband should not receive a single penny”. Accordingly, her decision to appeal was irrefutable, and if the collusion required her to conspire with the husband against the lawyers, then there would have been no collusion.

But it had also been argued before His Honor that it was enough for the husband to intend to defraud his former lawyers for there to be collusion. Unlikely as this may be the case, Nygh J concluded that in any event he was satisfied that the parties had decided to bring the proceedings to an agreed end to end the trauma that the conflict was inflicting on their children. .

Significantly, provided this was the husband’s main motivation, His Honor did not consider it important that the husband had also been willing to enter into the arrangement with the wife on the grounds that he had no nothing to gain personally from judgment:

“In my view, the husband was entitled to conclude that in view of the lack of personal benefit to him, the difficulty of obtaining any payment from the Paspalis group of companies and the harm he was causing to his family, including the children and his own impecuniosity, it was no longer worth continuing the procedure and his best solution was to obtain from his wife the best conditions possible. He was, in my view, not obligated to protect the interests of the proposed interveners until he was primarily motivated by a desire to deprive them of their costs.” [emphasis
added]

Chilling words indeed for the husband’s former attorneys, who not only ended up saying goodbye to over $600,000.00 in unpaid fees, but also had to bear the costs of their claim before Nygh J and the Full Court.

Among the many lessons to be learned from this wreckage of a case (from the lawyer’s point of view at any rate) is the caution to be taken in intervening too hastily on the basis of perceived collusion: Just because a settlement looks like a set-up, doesn’t mean it will be easy to overcome what is a fairly high evidentiary hurdle.

Of course, there’s also the one to keep a close eye out for unsecured cost blowouts!

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.