Gilshenan & Luton v. Federal Commissioner of Taxation.

Andrews SPJ

Supreme Court of Queensland

Judgment date: Judgment handed down 21 November 1983.

Andrews S.P.J.

The plaintiff is a firm of solicitors of which Mr. Christopher John Cooney, whose affidavit filed herein is relied upon by the plaintiff, is a partner. The plaintiff seeks declarations and an injunction against the defendant, the Commissioner of Taxation, as follows:

``1. A declaration that the Plaintiff is not required to pay to the Defendant any amount forming part of the moneys now standing in its Trust Account as security for the costs of Robin David Huston incurred and to be incurred by the said Robin David Huston as legal fees payable to the Plaintiff in the defence of the prosecutions instituted against him on or about the 18th November 1982 except insofar as the taxed costs of such defence are exceeded by the total of the said moneys.

2. A declaration that until the final determination of such prosecutions, or the termination of the retainer of the Plaintiff for the purposes of the defence of same, and taxation of the bill of costs of the Plaintiff in respect thereof, it is not required to pay to the Defendant any amount of the said moneys.

3. An injunction restraining the Defendant, until the final determination of such prosecutions, or the termination of the retainer of the Plaintiff for the purposes of the defence of same, and taxation of the bill of costs of the Plaintiff in respect thereof, from commencing legal proceedings against the Plaintiff in respect of any of the moneys standing in the trust account of the Plaintiff as security for the costs of Robin David Huston incurred and to be incurred by the said Robin David Huston as legal fees payable to the Plaintiff in the defence of the prosecutions instituted against him on or about the 18th November 1982.''

Apart from Mr. Cooney's affidavit the plaintiff relies upon an affidavit of Robin David Huston, referred to above.

Huston in his affidavit stated that on 30th November 1982 the Australian Taxation Office issued income tax assessments for various years in respect presumably, of income earned by himself, his wife Jill Lorraine Huston, ``the trustee for the Huston Family Trust No. 3 t/a Australena Holdings'', Australena Investments Pty. Ltd. and Australena Computer Services Pty. Ltd.; that the amounts of the assessments and amended assessments totalled $3,948,793.79; that on 2nd December 1982 the Deputy Commissioner of Taxation issued notices pursuant to sec. 218 of the Income Tax Assessment Act 1936 (as amended) in respect of money of each of the five said taxpayers to the plaintiff.

The notice in respect of Robin David Huston contains the following:

``TAKE NOTICE that in exercise of the powers conferred upon the Commissioner of Taxation by sec. 218 of the Income Tax Assessment Act 1936 (as amended) and

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delegated by him to me, I hereby require you, being a person:
  • (a) by whom any money is due or accruing or may become due to;
  • (b) who holds or may subsequently hold money for or on account of;
  • (c) who holds or may subsequently hold money on account of some other person for payment to; or
  • (d) having authority from some other person to pay money to;


  • now or previously of P.O. Box 54 SAMFORD

a taxpayer by whom the amount of $1,591,142.86 is due in respect of tax, fines and costs to pay to me so much of that money as is sufficient to pay the said amount of $1,591,142.86 due by the taxpayer or the whole of the money if it is equal to or less than that amount AND if the money is now due by you to (or) now held by you, directly or indirectly, for or on account of, the said ROBIN DAVID HUSTON the payment to me is required to be made forthwith, but if the money becomes due by you to (or) comes to be held by you for or on account of the said ROBIN DAVID HUSTON in the future, the payment to me is required to be made within nine (9) days of the money so becoming due (or) coming to be held by you.

AND TAKE FURTHER NOTICE that if you fail to comply with this notice you will be guilty of an offence against sec. 218 abovementioned and be liable to a penalty of $100.''

The notice follows the wording of subsec. (1) and (2) of sec. 218 which therefore I do not regard it necessary to set out.

It is interesting to note that the only consequence of failure to comply with such a notice is to incur a maximum penalty of $100.

When the notice was received by the plaintiff there was an amount of $29,416.48 standing to the credit of a trust account ``in respect of security for costs'' to be incurred by the plaintiff in connection with its acting on Huston's behalf in respect of its defending Huston or arranging for his defence in respect of three charges brought against him on 18th November 1982 alleging offences by Huston under sec. 430 and 438 of the Criminal Code of Queensland. Apparently the proceedings are expected to be rather complex and protracted and applications for issue of prerogative writs against the Magistrates Court to obtain a timely hearing of the matter are in contemplation.

On 18th November 1982 Huston gave necessary instructions to the plaintiff which advised him by letter dated 26th November 1982 [see exhibit ``G'' to Huston's affidavit] of some possible complications and that it would be appropriate for him to provide $100,000 security for costs. In the letter Huston was asked to pay the plaintiff $100,000 to be placed in a special trust account for him.

On 1st December 1982 the plaintiff received $28,300 apparently paid by Huston's wife. The trust account receipt said that the money was received on behalf of ``Huston - You a.t.s. Police, Security for costs''.

Three further amounts of $100, $200 and $816.48 received respectively from B.J. & I.M. & B.J. Winkel, Magnum Products and Australian Holdings P/L were similarly credited.

On 18th November 1982 Huston gave to the plaintiff an authority signed by him which reads thus:

``I, Robin David Huston, do hereby authorise you to act on our behalf in the above transaction and to withdraw from our account in your Trust Account and pay to your General Account such reasonable costs and outlays if any as may be properly payable by us in accordance with the requirements of the Trust Account Act as amended and to take effect from 1st July 1983.''

[Exhibit ``F'' to Huston's affidavit.]

The plaintiff argues to the effect that it has been given security for its costs under a contract of retainer with Huston which must be terminated by Huston before the security could be discharged and that such discharge may only occur upon payment of plaintiff's costs incurred up until the time of such termination.

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Implicit in that argument is the proposition that whatever moneys are credited to the Huston account to which reference has been made become subject to the charge presumably until such time as all litigation directly related to the charges levelled against Huston or incidental thereto is complete. This could be a comfortable arrangement indeed for Huston and the plaintiff.

For the Commissioner it is argued that whether the plaintiff has been given security for his costs by Huston or has a lien over money held in his said account the security or the lien amounts to nothing more than a mere retaining lien which attaches only to the amount actually due and that as no bill of costs has been delivered or taxed there is no amount actually due.

Section 22 of the Costs Act 1867 provides that no attorney is entitled to sue for professional fees, charges or disbursements until one month has expired after delivery to his client of a signed bill of costs. The client may have the bill taxed by the appropriate taxing officer (see sec. 24).

According to sec. 4 of the Trust Accounts Act 1973-1978 ``trustee'' for the purposes of that Act includes ``solicitor''. By sec. 7 money received by a trustee is to be paid into a trust account. By sec. 8 withdrawals may not be made by the trustee except for certain specified purposes including payment to himself for professional costs, statutory duties and charges and other proper outlays, which payment requires authorisation in writing by the person for or on behalf of whom the money was received or held except upon production of a certificate of taxation of a Bill of Costs covering the withdrawal or where an untaxed Bill of Costs has been delivered to which there is no evidence of objection by the client at the expiration of one month after delivery or to cover outlay made by the solicitor on his client's behalf which were authorised by the client and being moneys which, if included in a Bill of Costs would be taxable.

Section 11 of the Trust Accounts Act (supra) provides that nothing in the Act shall be construed as taking away or affecting any lawful claim or lien which any person has against or upon any moneys held in a trust account or against or upon trust moneys before such moneys are paid into a trust account.

Section 3 of the Solicitors Act 1891 as amended provides as follows:

``A solicitor may make an agreement in writing with his client respecting the amount and manner of payment for the whole or any part of any past or future services, fees, charges, or disbursements in respect of business done or to be done by such solicitor in any capacity, either by a gross sum or by commission or percentage or by salary or otherwise, and either at the same or at a greater or at a less rate as or than the rate at which he would otherwise be entitled to be remunerated subject to the provisions and conditions in this part of this Act contained:

Provided always that, when any such agreement is made in respect of business done or to be done in any action in the Supreme Court of Queensland, the amount payable under the agreement shall not be received by the solicitor until the agreement has been examined and allowed by the taxing officer, and if it appears to the taxing officer that the agreement is not fair and reasonable, he may require the opinion of the court or a judge to be taken thereon by motion or petition, and such court or judge shall have power either to reduce the amount payable under the agreement or to order the agreement to be cancelled, and the costs, fees, charges, and disbursements in respect of the business done to be taxed in the same manner as if no such agreement had been made.''

The proviso could become relevant should prerogative writs be sought on Huston's behalf by the plaintiff as mentioned previously.

By sec. 7 and 8 of the Solicitors Act agreements may be examined before being enforced and improper agreements may be set aside.

It seems clear enough that in order to entitle a solicitor to recover costs out of moneys held to the credit of a trust account a specified amount must be due whether after taxation as taxed or as set out in a bill of costs delivered and not objected to or as authorised by the client.

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By sec. 16 of the Solicitors Act a solicitor may take security from his client for his future fees, charges and disbursements, to be ascertained by taxation or otherwise.

Here it could be contended that the plaintiff has a retaining lien entitling it to hold the moneys held to the credit of Huston's trust account to cover costs incurred. This does not entitle the plaintiff to pay money from that account to its general account at least until an amount can be specified after satisfaction of conditions discussed above.

It seems to me that to obtain the deposit of money to the credit of Huston's trust account does not alter the requirements to be complied with before payment may be made to the plaintiff's general account. What has happened here merely amounts to an agreement that the plaintiff may receive payments of costs from money held to the credit of Huston's trust account.

Until such compliance and payment to the general account the money remains Huston's subject to the lien.

A question as to ownership of money in such circumstances fell for discussion in
Johns v. Law Society of N.S.W. (1982) 2 N.S.W.L.R. 1. At pp. 18-19 Hope J.A. said:

``A solicitor may receive money to be held for or on behalf of a client either from that client, or from a third person. When it is received from a third person, it may be money which the solicitor has recovered from his client, or it may be money otherwise paid to the solicitor for his client. Over all money which the solicitor holds for his client, as well as other property of his client which he holds, the solicitor has a general lien for costs. This lien, however, is a mere retaining lien, i.e., it gives a right to withhold the property from the client until payment of costs; it does not give any right to payment out of money (or other property) which is the subject of the lien. In the case of money recovered by a solicitor for his client, the solicitor has a particular lien which he may enforce by application to the court. If the money is in his hands the solicitor may retain his costs out of the recovered money and pay the balance to his client. In respect of either class of money, the client may, quite apart from any lien, agree with his solicitor that he, the solicitor, may take his costs out of moneys held by him for the client, and such an agreement may be express or implied.''

Further at pp. 20-21 his Honour said:

``When a solicitor holds money for a client in his trust account, his entitlement to a general lien for his costs does not mean that the money is not beneficially the money of the client. It is; the solicitor merely has the right to retain the money until his costs are paid, and he cannot pay any part of it to himself:
Stewart v. Strevens (1976) 2 N.S.W.L.R. 321. Since the money is held for the client, it must be credited in an account in the trust ledger in the name of the client. To show it as transferred in part to an account in the solicitor's name would not only be a breach of reg. 7(3); the accounts would not show the true position in relation to the money, i.e., that it belongs to the client. If the solicitor has his client's authority to transfer any part of the money for costs, it remains the client's until transferred. When transferred, it should be transferred out of the trust account to the solicitor's general account. In this way the true position will be disclosed, i.e., money in the trust account to the credit of a particular client has been used to pay the solicitor's costs. It is no longer trust money; it has been disbursed for costs in accordance with the client's directions, and belongs absolutely to the solicitor. If, for whatever reason it may be, the solicitor is not yet entitled to be paid his costs, he cannot remove money from his client's trust ledger account in respect of his prospective claim for costs. He holds the money for his client, and he has no authority, in the events which have so far occurred, to transfer any part of it from that account.

The position of money recovered by a solicitor over which he has a particular lien was not raised in the present case, and need not be considered here. I would merely say that as at present advised the position seems to me to be analogous (so far as relevant to the question now under consideration) to the position where the solicitor has his client's authority to pay himself his costs out of the money he

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holds for that client. Until the solicitor pays money out of the client's trust account in satisfaction of his costs, the money in that account, although subject to the lien, belongs to the client. When part is paid to the solicitor for costs, that part belongs to the solicitor absolutely.''

The right whether under the agreement between Huston and the plaintiff or a retaining lien exists only as between Huston and the plaintiff.

It may be that upon eventual compliance with the requirements or conditions to which I have referred a solicitor may have recourse to money otherwise payable by him to his client (being a right to set-off one amount against another). His lien gives him no property in the client's money. He has a possessory right against his client.

I think that until payment may be insisted upon legitimate claims of third parties are enforceable against the property, in this case money. [See In
re Hawkes Ackerman v. Lockhart (1898) 2 Ch. 1 at pp. 6-7 and 13-15, a case dealing with production of documents subject to a general lien for costs in favour of a solicitor.]

Loescher v. Dean (1950) 1 Ch. 491; (1950) 2 All E.R. 124 was a case in which solicitors sought a charging order in respect of costs owing to them by their client who had been the unsuccessful defendant/vendor in specific performance proceedings. The plaintiff/purchaser who paid what was presumably a balance of purchase moneys to the defendant's solicitors and which they paid into their ``client account'', had obtained a garnishee order, in respect of his costs, to attach all debts due to the defendant by his solicitors.

For reasons which appear sound but which I need not go into the charging order was refused. On the summons to make absolute the charging order it was held that the solicitors had a lien on the money in the client account to the extent of the defendant's debt to them and that the garnishee order could only be made absolute subject to that lien.

Harman J. there reasoned that a general lien operated in favour of a solicitor until he is paid costs due to him. At Ch. pp. 495-496; All E.R. pp. 127-128 he said:

``It is difficult to find authority for the proposition that the ordinary solicitor's retaining lien, which goes back, of course to a time long before the Solicitors Acts, is a thing which extends to money; but in Mr. Cordery's book on The Law Relating to Solicitors, 4th ed., p. 455, where the author is discussing solicitors' liens, he points out that they exist in two forms.

  • `... one is a right to retain property already in his possession until he has been paid costs due to him in his professional character; the other is a right to ask the court to direct that personal property recovered under a judgment obtained by his exertions stand as security for his costs of such recovery.'

Then he points out that the latter right is a statutory one. The former (which he calls the `retaining lien') still remains and is independent of the statute, and he says:

  • `The retaining lien is founded on the general law of lien which springs from possession, and is in general governed by the same rules as other cases of possessory lien.'

There is then set out a list of items to which the lien can attach, ending with `or money, but money being divisible the lien only attaches on the amount actually due'.

The authority for that is
Miller v. Atlee 13 Jur. 431, where the decision appears merely to have been that there was no lien in favour of a solicitor on any sum in hand beyond the amount of his debt. It was assumed or conceded that the solicitor had a lien on the money to the extent of his debt. I do not see why a solicitor, if he has money in his possession, has not got an ordinary lien on it. The fact that he puts it in a client account does not mean that it is any the less his account, although it is earmarked in that way; and it seems to me that the client could not demand that the money be handed over. It would be an answer to say: `You have not paid my bill and I shall not pay you out your money until you have.' Consequently, it seems to me that, as the debtor could not obtain the money from the solicitor without paying his bill, a creditor cannot attach it, and therefore I

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must discharge the garnishee order nisi against this money to the extent of the sum due under the solicitor's lien.''

This decision seems to me at odds with the reasoning of Hope J.A. in Johns v. Law Society of N.S.W. (supra). The passage cited seemed to be based on an assumption of the existence of a debt which in my view requires more than the performance of work by a solicitor to bring it into being. Again in his reference to payment of a bill Harman J. appeared to overlook the fact that there was no bill. The result was that the garnishee order was ruled to be subject to the right of the solicitors to a lien in respect of the sum properly due to them for costs at the date of the order nisi which was to be the subject of an inquiry to ascertain the amount. The only evidence as to costs here is that they are estimated to be approximately $4,000 to date.

If Loescher v. Dean were to govern the matter here the effect would be that I would rule to the effect that the Commissioner was required to await taxation of the plaintiff's costs against Huston or some other step taken to fix upon the amount owing before effect could be given to the notice under sec. 218. Certain it is that it is the plaintiff which seeks declarations here and that I might possibly impose conditions upon granting of the relief sought including taxing of a bill or the like but I cannot see that to be an appropriate means of disposing of the matter thinking the condition to be inappropriate according to my view of the law which is that in the circumstances the notice attaches to all money presently in the trust account to the credit of Huston pursuant to sec. 218(1)(b) of the Income Tax Assessment Act.

As the declarations sought by the plaintiff relate to money presently standing to the plaintiff's credit it is not necessary to consider the effect of events which may not occur. For example a retainer may be terminated by either party at any time and it may be that no further payments will be made to the plaintiff to the credit of Huston's trust account or the like.

On the views expressed the plaintiff is entitled neither to the declarations nor the injunction sought and it remains for me simply to dismiss the application.

I have been asked by consent to treat the motion as the trial of the action. I therefore dismiss the action and give judgment for the defendant with costs to be taxed.


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