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High Court of New Zealand Decisions |
Last Updated: 15 April 2013
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV 2007-441-562 [2013] NZHC 685
BETWEEN SATNAM SINGH DUGH Plaintiff
AND JOGINDER RAM DUGH, PARDEEP KUMAR DUGH AND NARESH KUMAR DUGH
Defendants
Hearing: 1 February 2013
Counsel: E J Forster for Plaintiff
M J Wenley for Defendants
Judgment: 8 April 2013
JUDGMENT OF THE HON JUSTICE KÓS
[1] In September 2010 the plaintiff succeeds in proceedings against the defendants. The judgment debt payable to the plaintiff is a little over $174,000. Absent payment of that sum, however, the plaintiff cannot afford to pay his counsel and solicitors. He owes them just over $50,000 in fees and disbursements. Separately the defendants have guaranteed the plaintiff’s obligations to Westpac. In March 2011 demand is made on them by the bank. Over $1.4 million is due. The defendants manage to settle with the bank for $280,000 or so. Naturally they set that payment off against the earlier judgment debt.
[2] Where does this leave the lawyers? In the midst of all this, in April 2011, they notify the defendants and the bank that they claim a litigation lien against the judgment debt. Its practical effect would be to require the defendants to meet the plaintiff’s lawyers’ unpaid costs.
[3] Should the Court now recognise such a lien?
DUGH v DUGH & ORS HC NAP CIV 2007-441-562 [8 April 2013]
Facts
[4] The background to this dispute is set out in the opening passage of an earlier judgment in these proceedings, delivered by Williams J:1
[1] The plaintiff and defendants are all family. Satnam Dugh is the plaintiff. Joginder Dugh is his father and Pardeep and Naresh Dugh are his brothers.
[2] As at November 2005 they were also trustees and beneficiaries of the Joginder & Sons Trust whose primary business was operating rental accommodation in Hawkes Bay (the Trust). At that time they all agreed that the trustees would distribute 20% of the value of the Trust to Satnam to allow him to make his own way. The sum arrived at was $303,044 and it was agreed that this be paid in instalments. $100,000 was paid in two $50,000 instalments before payment stopped.
[3] In the present proceedings, Satnam seeks to enforce the agreement, and claims the remaining $203,044 owing under it together with interest.
[4] His father and brothers say that the agreement should be set aside and Satnam should be made to pay them $245,000 being the total of withdrawals they say he took from the Trust for his own personal benefit while he was a trustee. They say these withdrawals were made without authority and without the other trustees’ knowledge. Alternatively, they want the agreement rectified so that it takes account of all of Satnam’s withdrawals together with repayment of any overdrawing.
[5] The outcome of the judgment of Williams J was as follows. First, the agreement was rectified. That had the effect of increasing the plaintiff’s 20 per cent share in the distributed capital of the Trust. Secondly, the Judge held that the plaintiff’s previous withdrawals from trust assets were lawful. Thirdly, the plaintiff was entitled to a further $121,275, together with interest of $52,752.
[6] The plaintiff then did two things to enforce that judgment. First, he filed charging orders over ten properties owned by the Trust. Secondly, he issued bankruptcy notices against the defendants.
[7] At about the same time the Court was dealing, in separate proceedings, with an application for summary judgment by the Wine Country Credit Union (WCCU) against the plaintiff. This arose from loans made by WCCU to the plaintiff in 2007
and 2008. They appear to have related to property development enterprises which later failed. On 9 December 2010 Associate Judge Gendall entered summary judgment for $957,286 in favour of WCCU against the plaintiff and a company associated with him, CSun Limited.
[8] On 16 December 2010 WCCU obtained an interim charging order charging
the plaintiff’s judgment proceeds in the present proceeding:
This Court orders that until it discharges or finalises this order, your estate, right, title or interest in the proceeds of the judgment dated 14 September
2010 for the sum of $174,027.24 together with interest in proceeding CIV-
2007-441-562 awarded to you against JR Dugh, PR Dugh and NK Dugh as trustees of the Joginder & Sons Trust, is charged with payment of the
amount for which the entitled party, Wine Country Credit Union, has
obtained judgment. The amount charged is $957,295.85.
That order had the effect provided in High Court Rule 17.55. It prohibited payment of any part of the judgment debt by the defendants without leave of the Court. Thus from 16 December 2010, or the point at which the order was served, the defendants were prohibited from paying the judgment debt to the plaintiff.
[9] It followed also that the bankruptcy notices issued on 14 October 2010 had to be set aside. Gendall AJ did so on 23 February 2011.2
[10] The judgment debt in the present proceeding remains unpaid. The plaintiff in turn is unable to pay the lawyers who acted for him.
[11] By March 2011 the plaintiff’s creditors were circling. Not just WCCU, but Westpac New Zealand Limited (Westpac). On 29 March 2011 Westpac wrote to the defendants in their capacity as trustees of the Joginder & Sons Trust. The letter pointed out that in 2001 the Trust had guaranteed the obligations of the plaintiff to Westpac. The plaintiff was in default. The amount owing under the guarantee was said to be some $1.405 million. Now Westpac wanted that money from the defendants. Demand was made for that sum, to be paid within 48 hours.
[12] Next, on 13 April 2011 the plaintiff’s counsel, Mr Eric Forster, wrote to both
Westpac and the Trust’s solicitors stating:
We claim a solicitor’s litigation lien from the proceeds of judgment for my costs, Mr Porteous’ costs (instructing solicitor) and Tax Link’s expert accountant’s costs.
It is clear that at least from mid-April 2011 Westpac, the Trust and the defendants were on notice of the claim to the litigation lien against the September 2010 judgment debt.
[13] On 19 May 2011 a compromise was reached between Westpac and the defendants in relation to the $1.405 million debt. The defendants agreed to pay
$120,000, along with the net proceeds of sale of two properties. A total payment of
$280,300 was made on 13 June 2011.
Application for a litigation lien
[14] On 29 November 2012, the plaintiff applied for an order:
... granting a litigation lien over the proceeds of the judgment for the sum of
$50,337.94 [in favour of] David Porteous, Solicitors of Hastings.
The words in parentheses represent a revision to the application, made at the hearing before me.
[15] The plaintiff has sworn an affidavit in support of the application. Curiously that affidavit was sworn in June 2011 – eighteen months before the present application was filed. The plaintiff deposes that he is not in a position to pay his legal fees without the judgment sum. He owes counsel (Mr Forster) some $36,832, the instructing solicitor $1,150 and the expert accountant who gave evidence for him
$12,356. In all, $50,338: the amount in respect of which the lien is asserted.
[16] The application asserts, as one ground, that such a lien is available pursuant to Rule 7.78 of the High Court Rules. That assertion is misconceived. As I will
explain shortly, a litigation lien is equitable rather than statutory.3 Rule 7.78 simply provides a mechanism for the release of specific property where the defendant purports to retain it by virtue of a lien. It enables the lien security to be replaced by a payment into Court by the plaintiff. Rule 7.78 is quite irrelevant here.
[17] The application is opposed by the defendants on the basis that the judgment debt of the Trust (arising from the 14 September 2010 judgment) was:
... fully satisfied by them paying the sum of $280,300.14 to Westpac Bank on
13 June 2011 in reduction of the liability of the plaintiff ... to Westpac Bank.
Alternatively, the defendants claim equitable set off and a defence of laches.
[18] There is no suggestion that the payment made by the defendants to Westpac was otherwise than in reduction of their liability as guarantors of the plaintiff’s borrowings from Westpac. A memorandum filed by the plaintiff ’s counsel in November 2012 appears to confirm that fact.
Litigation liens
[19] A litigation lien is an equitable charge that may be recognised in favour of a lawyer “on a fund or on the fruits of a judgment recovered by his exertions for the costs of recovery, or those immediately incidental thereto”.4 It is, therefore, to be distinguished from the better known lawyers’ retaining lien which enables lawyers to retain a client’s papers or funds pending payment of costs. A litigation lien does not involve retention. It is really a charge rather than a lien.5
[20] The litigation lien was a creature of both common law and Equity.6 In its modern manifestation however, the charge created is seen as equitable in nature.7 In
Ex parte Patience Jordan CJ explained the litigation lien in these terms:8
3 Its existence is however recognised by the High Court Rules: see HCR 11.25(2).
4 Re Meter Cabs Ltd [1911] 2 Ch 557 (Ch) at 559.
5 See Atkinson v Pengelly [1995] 3 NZLR 104 (HC) at 105-106.
6 Holdsworth A History of English Law (Methuen & Co, London, 1938) vol 12 at 60-61.
7 Garrow & Fenton Law of Personal Property in New Zealand (7th ed, LexisNexis, Wellington,
2010) vol 1 at 720; Re H & W Wallace Ltd (In Liquidation) [1994] 1 NZLR 235 (HC) at 238.
8 Ex parte Patience [1940] NSWStRp 11; (1940) 40 SR (NSW) 96 (NSWSC) at 100-101.
... [A]lthough 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 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 ...
In Barker v St Quinton Parke B said that “the lien which an attorney is said to have on a judgment (which is, perhaps, an incorrect expression) is merely a claim to the equitable interference of the Court to have that judgment held as security for his debt”, a remark which ... has been repeated in many later authorities ... In practice, however, the solicitor has always been treated as possessing equitable rights in the judgment independently of any declaration of those rights, and the Court’s assistance is invoked not to create the rights, but to enforce them...
[21] As that passage indicates, the Court’s role is declaratory rather than creative. The charge may be imposed over a defined property interest – either money paid to meet a judgment debt (but which is not in the lawyer’s possession, to which a retaining lien might otherwise apply) or where there is at least a quantified judgment debt.9
[22] Inasmuch as the litigation lien is an equitable remedy, its acknowledgment and imposition involves a significant measure of judicial discretion. As Scarman J observed in Re Fuld (No 4):10
The duty of a Court is to intervene only if it be necessary for the solicitor’s
protection, and then only to the extent necessary to safeguard his lien.
The Courts have, therefore, broad equitable powers as to whether, and on what conditions, a litigation lien is to be recognised. That is of particular significance in a case where there are competing interests and equities involved.
[23] Strong public policy considerations justify the litigation lien, although its imposition is relatively infrequent. It is of particular value where an intending party in litigation (particularly a plaintiff) has worth too great to obtain civil legal aid, but
too slender to enable him or her to pay costs in advance.
10 Re Fuld (No 4) [1968] P 727 (PDA) at 737.
[24] Of fundamental importance is that the litigation lien is “entirely derivative from the client”.11 The solicitor’s proprietary right, if recognised, cannot be greater than that of his or her client. So the lien or charge is subject to all equities between clients and other persons interested in the charged property.12
[25] The litigation lien (or charge) attaches to the net benefit achieved for the client. Accordingly, it is said to be “subject to the prior rights of the parties to set- off”. That was made clear in a Chancery case called Puddephatt v Leith (No 2).13
There the defendant L had first sued the plaintiff P for interest in arrears under a loan. That proceeding was brought in the Kings Bench Division. It resulted in a judgment for approximately £300 in favour of L. Subsequently, P sought an injunction in Chancery to restrain L from voting shares (transferred to him by way of mortgage security) otherwise than as she instructed. P was successful in obtaining that injunction. She obtained an order for £75 costs payable to her by L. Thereafter L sought an order in Chancery enabling him to set off that £75 costs liability against the £300 payable to him by P. An issue arose as to whether set off should be refused because of a lien in favour of P’s solicitor (in respect of the £75 costs sum otherwise payable to P). After reviewing the authorities, Younger J (later, Lord Blanesburgh)
said:14
... prima facie a set-off should not owing to such a lien be refused if as between the parties themselves it would be fair and just to allow it and if no fraud or imposition has been practised upon the solicitor by collusion between them.
Should a litigation lien be recognised here?
[26] Had the defendants’ liability to Westpac accrued prior to the judgment delivered by Williams J on 14 September 2010, set off could not have been in doubt. By meeting the plaintiff ’s debts under the guarantees, the defendants obtained an
independent legal right to indemnity. The right arises either as a matter of contract
11 Dal Pont Lawyers Professional Responsibility (5th ed, Thomson Reuters, Sydney, 2013) at
[16.135].
12 Taylor v Popham (1808) 15 Ves 72 (Ch); Halvanon Insurance Co Ltd v Central Reinsurance
Corp [1988] 1 WLR 1122 (QBD) at 1130-1131.
13 Puddephatt v Leith (No 2) [1916] 2 Ch 168 (Ch).
14 At 180.
(express or implied)15 or in parallel in restitution.16 It is a right recognised at law rather than in Equity. Its product is a debt by principal to surety; once quantified, it may be set off. Had that been the factual position, no remaining judgment debt capable of being charged would have remained. No litigation lien would have been recognised.
[27] Instead the facts here are these:
(a) The judgment debt accrued on 1 October 2010, when the judgment was sealed.
(b) Westpac’s demand against the defendants as guarantors of the plaintiff’s debt was made on 29 March 2011 (with payment due on 31
March 2011).
(c) The claim to the litigation lien was made on 13 April 2011.
(d) The defendants’ liability to Westpac was satisfied by the $280,300
payment made on 13 June 2011.
(e) The right to set off that payment against the judgment debt was claimed at some point in time after 13 June 2011.17
[28] Once demand is made of a guarantor, he or she has an immediate equitable right to claim exoneration from the principal debtor.18 On payment, the guarantor’s legal right to indemnity accrues.19 Here that legal right post-dated the lawyer’s claim to the litigation lien. The plaintiff does not contest the proposition that as from 13
June 2011, when the defendants paid Westpac, a right of set off against the
September 2010 judgment debt existed. But he says that that remains subject to the
15 Andrews & Millett Law of Guarantees (6th ed, Sweet & Maxwell, London, 2011) at [10–006].
16 McCarthy v McCarthy & Stone plc [2008] 1 All ER 221 (CA) at [39].
19 Re a Debtor [1937] Ch 156 (CA) at 163-164.
equitable right to the lien, the existence of which was known to the defendants before they made their payment to Westpac.
[29] There is in this argument a degree of artificiality that in my view offends Equity. The defendants were precluded by order of this Court in December 2010 from paying the judgment debt.20 They were indebted to Westpac as the plaintiff’s guarantors as from the end of March 2011. That was two weeks before the claim to the litigation lien was made. In making the payment to the bank in June they were not acting as volunteers. The payment was one they were contractually obliged to make, in reduction of the plaintiff’s indebtedness to the bank. They were fortunate that the payment exacted by the bank was not much larger, given the scale of the
plaintiff’s indebtedness. It cannot be said that in making that payment they were setting about trying to defeat the litigation lien claim. Instead it was a payment they had no option but to make. And it was one brought upon them by the fecklessness or misfortune (it is not clear which) of the plaintiff.
[30] As noted earlier,21 the lawyer’s right to a lien is derivative from the client, and is subject to any equities impressed on the client’s right to the judgment sum. In my view any equitable right to a lien here must take effect subject to the defendants’ equitable right to exoneration from the plaintiff.22 That right predated the assertion of a lien right. To permit the defendants to then set off their payment to the bank, in reduction of the plaintiff ’s debts, against their judgment debt to the plaintiff, is just. That right should not be upset by the intervening claim made to the lien. The payment to the bank was not optional, and it was not calculated to evade the lien. To
require the defendants to then pay a further $50,388 to satisfy the plaintiff’s legal bills would, on the other hand, be entirely unjust. The net effect would be to compel the defendants to meet not only the plaintiff’s debts to Westpac (for which, admittedly, they bargained, but which they should be entitled to set off against the judgment debt), but also the lawyers’ costs and disbursements (for which they had
not bargained at all). As Derham has noted,23 the true nature of set off in this sort of
20 See [8] above.
21 See [24] above.
22 See [28] above.
23 Derham on the Law of Set-Off (4th ed, Oxford University Press, Oxford, 2010) at [2.104].
case lies in the Court’s inherent jurisdiction to prevent absurdity or injustice and to
do what is fair.
[31] In this case, as in Puddephatt, set off in full should be allowed.
Result
[32] Application dismissed.
[33] If costs cannot be agreed, I will receive brief memoranda.
Stephen Kós J
Solicitors:
Souness Stone Law Partnership, Hastings for Plaintiff
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