Brown v Forrest

These proceedings concern a fund of approximately $38,000 in Court. It represents a part of the proceeds of the sale of a property at Glebe. The property in question was owned by Tara Forrest, the first defendant, and her former husband, Demetrios Douramanis.

The property was sold pursuant to orders made by the Family Court in property division proceedings under the Family Law Act 1975 (Cth), s 79 brought against Ms Forrest by Mr Douramanis. The second defendant, Broun Abrahams Burreket Lawyers Pty Ltd (“BAB”), acted for Ms Forrest at an earlier stage of those Family Court proceedings. The Family Court orders provided for the sale of the property by Mr Douramanis. They also provided for a sum of $50,000 to be retained out of the proceeds for each of Ms Forrest and Mr Douramanis.

The plaintiff, Paul Andrew Brown, is a solicitor who acted for Mr Douramanis on the sale of the Glebe property. Before completion of the sale in July 2016, BAB notified Mr Brown of a claimed equitable lien over Ms Forrest’s $50,000 for approximately $37,000 in unpaid fees. Ms Forrest would not agree to the $37,000 claimed by BAB being paid out and eventually Mr Brown commenced these proceedings to resolve the dispute and paid the disputed figure into Court.

On 24 November, I ordered that the sum of $19,348 be paid out to Mr Brown for his costs of the proceedings with the remainder of the funds in Court being paid out to Ms Forrest. The effect of this order was that the burden of Mr Brown’s costs fell on the residue of Ms Forrest’s fund. I reserved for further consideration whether an order should be made altering the incidence of those costs and I have received submissions on the question from BAB.

In this judgment, I first deal with the way in which these proceedings have been constituted. I then explain the reasons for the orders I made in favour of Mr Brown on 24 November. Finally, I address the incidence of Mr Brown’s costs, but first it is necessary to describe the background in more detail.

In June 2015, the Family Court made orders by consent for the sale of the Glebe property. The orders provided for both Ms Forrest and Mr Douramanis to do all acts and things necessary to have the sale take place and were clearly based on the assumption that Ms Forrest and Mr Douramanis would be able to cooperate for that purpose. Paragraph 15.2 of the orders provided relevantly:

It appears that Ms Forrest and Mr Douramanis could not achieve the cooperation required to sell the property between them and on 18 November 2015 the Family Court made an order that Mr Douramanis effect the sale “in his capacity as trustee for sale”. The earlier order concerning the priority for distribution of the proceeds remained unaffected.

The relevant order, 15.2.4, contemplated the payment of the sum of $50,000 relevantly to the “solicitors for … the wife. At this time, it appears that there was no one acting as solicitor for Ms Forrest. As I have mentioned, Mr Brown was retained by Mr Douramanis to effect the sale and his instructions came from Mr Douramanis, but the case has been conducted on the footing that Ms Forrest is his client so far as the $50,000 that she was to receive under the orders is concerned.

On 18 May 2016, BAB wrote to Mr Brown concerning the sale, noting that the auction had been fixed for 21 May. The letter referred to the orders which had been made by the Family Court in June 2015 and stated:

The letter sought confirmation that Mr Brown would account to BAB for the sum that was claimed for them, which was put at $36,993.91. It ended on this note:

In June, BAB made an application to the Family Court to have orders made by the Court for the $36,993.91 then claimed by BAB to be paid out to it. The application came before Gill J who delivered his decision on 4 August. The critical issue debated before his Honour was whether there was a sufficient causal link between work done by BAB in previously acting for Ms Forrest and the $50,000 fund. In fact, BAB had ceased to act for Ms Forrest before the June 2015 orders had been made. His Honour said:

His Honour refused the application. On the following day, however, BAB wrote to Mr Brown stating:

They continued to assert that position in subsequent correspondence. For her part, Ms Forrest continued to maintain a claim to the monies. On 7 November, she wrote to Mr Brown (and also to the Law Society) in the following terms:

Ms Forrest made a number of further allegations along the same lines in subsequent correspondence.

Meanwhile, it appears that BAB had sought assessment of the bills which were the subject of their claim against Ms Forrest. On 6 February 2017, BAB emailed Mr Brown enclosing a copy of the costs assessor’s certificate of determination of costs which had issued in the sum of $37,833.05. BAB’s email said:

Mr Brown evidently treated this email as a claim on the part of BAB that it maintained a claim to an equitable lien over the $50,000 fund despite the parenthetical exclusion of that fund in BAB’s letter of 5 August 2016.

On 23 February, Mr Brown paid the amount standing to Ms Forrest’s credit in his trust account out to her apart from the sum of $37,833.05 claimed by BAB. On 3 March, he wrote to both parties referring to the fact that he held this remaining amount in trust. He said:

There does not appear to have been any formal reply to this letter from Mr Brown. Instead, on 6 March, BAB obtained the issue of a garnishee order out of the Local Court (the costs certificate had presumably been registered as a judgment in the meantime) addressed to Mr Brown as garnishee. That order was served on 7 March. On 20 March, Mr Brown commenced these proceedings and subsequently the sum of $37,833.05 was paid into Court.

Initially, I was concerned at the possibility that these proceedings represented an interference with money which was under the control of the Family Court as a result of the orders made in June 2015. It will be noted that the June 2015 orders concerning distribution of the proceeds of the Glebe property were expressed to be made “pending further order” and that the sum of $50,000 was described as a “partial property settlement”. So long as those orders remained current, the money, although not held by the Family Court, was effectively under its control. It would have been open, on the terms of the orders, at any time for the Family Court to vary the allocation of the monies and, in that sense, Ms Forrest had no absolute right to the $50,000. I considered that in such circumstances it would be inappropriate for this Court (or for the Local Court) to make orders against the money or requiring the person holding the money to dispose of it in a particular way. However, evidence before me now shows that final orders were made in the property division proceedings in November 2016. As a result, the exercise by the Family Court of its jurisdiction under s 79 is spent and no further adjustment of rights in relation to the $50,000 sum, or any part of it, is possible. Accordingly, I consider that the proceedings were properly brought in this Court and did not need to be brought in the Family Court.

In accordance with the relevant provisions of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) (Pt 41), these proceedings were commenced by Mr Brown as plaintiff without naming any defendant. BAB subsequently appeared in the proceedings and a direction was made for submissions to be made by BAB in support of its claim, although it appears that no such submissions were ultimately made. Ms Forrest was given an opportunity to appear but did not. A second concern which was raised by counsel for Mr Brown was whether the proceedings had properly been brought under Pt 4 of the Trustee Act 1925 (NSW). The relevant provision in Pt 4 of the Trustee Act is s 95, which relevantly provides as follows:

The concern raised by counsel was whether this provision applies where there is only one trustee. Under the Interpretation Act 1987 (NSW), s 8(b), the plural “trustees” would usually include the singular but this is subject to any contrary intention which arises expressly or by way of implication. It could be argued based on the terms of s 95 that the provision is directed towards resolution of disputes among trustees and, accordingly, that the contrary intention is manifested by the use of the plural and in particular the reference to “the majority of trustees”.

A further complication arises out of s 99. That section contains a particular definition of “trustee” which applies to Pt 4. It provides:

In Residential Housing Corporation v Esber (2011) 80 NSWLR 69, Campbell JA (with whom Macfarlan JA agreed) was considering the obligations of the mortgagee holding surplus funds under the Real Property Act 1900 (NSW), s 58(3). His Honour expressed the view that such a mortgagee was a trustee for the purpose of s 99 and expressly said that it was open to a mortgagee in such circumstances to make an application under UCPR Pt 41 under Trustee Act Pt 4: at 95 [116]. In that case, there was only one mortgagee and, accordingly, only one “trustee” for the purposes of s 95, but it does not appear that the point raised by counsel in this case concerning the plural term being used in s 95 was raised with the Court of Appeal.

It is not necessary in these proceedings to decide the point finally because, whether or not the Pt 4 procedure is available, the Court has available to it the interpleader procedure under UCPR Pt 43. That procedure was described and its history was traced by the English Court of Appeal in the De La Rue v Hernu, Peron & Stockwell Ltd [1936] 2 KB 164 at 170-173. The procedure is available to a person who faces conflicting claims from two or more claimants, typically as to entitlement to property where that person has no interest in the property of his or her own. The procedure allows the interpleader to bring proceedings as plaintiff naming the claimant parties as defendants. The Court then requires the claimant parties to formulate their claims and disposes of them. In substance, the proceedings are a vehicle for the multiple actions by the claimants against the interpleader to be dealt with.

The procedure was clearly applicable in the present case and in order to regularise the position I made orders joining Ms Forrest as the first defendant and BAB as the second defendant. It is not necessary further to consider what relief might have been available under Pt 4 of the Trustee Act.

At the hearing before me on 24 November both Mr Brown and BAB were represented. There was no appearance for Ms Forrest. The solicitor then appearing for BAB stated that BAB no longer pressed its alleged entitlement by way of equitable lien to the fund.

This meant that there was no contest to Ms Forrest’s ownership deriving from the Family Court orders of June 2015 and it was common ground that, subject to the question of costs, any monies left in Court should be paid out to Ms Forrest. Counsel for Mr Brown sought an order for payment of Mr Brown’s costs out of the monies paid into Court, and payment was sought on an indemnity basis.

Counsel relied on the judgment of Lowe J in McPherson, Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295 where his Honour said (at 301):

Having regard to the background of these proceedings, which I have recited above, I was satisfied that they had properly been brought by Mr Brown in order to resolve the dispute which had arisen from competing claims being made against him. Proceedings were not, at least initially, brought by the interpleader but I do not think that matters as Mr Brown was seeking to use the Pt 4 procedure in a way which was effectively the same as the interpleader procedure. The solicitor for BAB did not dispute Mr Brown’s entitlement to costs out of the fund or that such costs would be on an indemnity basis.

I therefore received evidence from Mr Brown of those costs and I fixed the sum of $19,348, to which I have referred, by reference to that evidence. I ordered that that sum be paid out of Court and that the balance be released to Ms Forrest.

While the entitlement to the interpleading party to obtain costs out of the fund on an indemnity basis is well established, there remains a question about the ultimate incidence of those costs. Although interpleader proceedings have some unusual features, they remain proceedings inter partes and subject to the usual rules concerning the incidence of costs inter partes.

It is an essential element of interpleader proceedings that the plaintiff should be able to demonstrate that there is in fact more than one claim being made against him with respect to property that he holds. If a plaintiff commences proceedings purporting to interplead between two defendants and it turns out that in fact one of the defendants is making no claim then the basis for intervention by the Court will not be established and the proceedings will be dismissed. In accordance with the usual rule, in such a situation the plaintiff will (assuming he either knew or ought to have known that there was no dispute) be ordered to pay the defendants’ costs, having failed to establish the elements which were necessary to obtain interpleader relief.

By the same token, if the proceedings are ultimately resolved in favour of one claimant over the other, then, as between the interpleading plaintiff and the unsuccessful claimant, the plaintiff has had to come to Court and has obtained relief which has disposed of the unsuccessful claimant’s foreshadowed claim against him. In such circumstances, as a matter of principle, the plaintiff ought to be entitled to an order for costs against the unsuccessful claimant, at least on a party/party basis.

Of course, the plaintiff should not be put in the position of having to enforce payment of those costs from the unsuccessful claimant before being reimbursed. The plaintiff will be entitled to rely upon his rights against the fund, but in such a situation the plaintiff’s costs should ultimately fall upon the unsuccessful claimant. In my view, in such circumstances the usual order would be that the plaintiff’s costs, at least on a party/party basis, should be reimbursed to the successful claimant (where they have been taken out of the fund and thereby reduced the amount of money available to the successful claimant) by the unsuccessful claimant.

As I have mentioned, Ms Forrest did not appear in these proceedings and does not appear to have incurred any costs. The question is whether an order should be made in her favour in relation to Mr Brown’s costs, seeing that they have fallen on the fund to which she was entitled.

I have received submissions on this question from Ms Granger of counsel on behalf of BAB. Ms Granger submits that although BAB did not press its claim to an equitable lien before me, the claim was one that was validly made. I am not satisfied that this is so. In Jackson v Richards (2005) 12 BPR 23,091, White J (as his Honour then was) had to consider a somewhat similar situation where proceedings had previously been brought for the adjustment of property interests pursuant to the Property (Relationships) Act 1984 (NSW). The defendant in the proceedings before White J had also been the defendant in the property proceedings. A claim had been made against the defendant, which resulted in orders in the property proceedings that the property in question be sold and the defendant receive 40 per cent of the proceeds. This order had been made over the defendant’s opposition. His solicitors as plaintiffs then brought proceedings against him claiming an equitable lien over the sale proceeds.

White J reviewed the authorities dealing with the assertion of an equitable lien over property which has been the subject of s 79 proceedings. In the earlier case in the Court of Appeal of Grogan v Orr [2001] NSWCA 114, the Court upheld a claim for an equitable lien over the proceeds of a property which had been the subject of orders under s 79. Sheller JA, who gave the leading judgment, referred to the need to demonstrate a link between the work of the solicitor and the fund in question, but finding that one existed in that case and observing that in a sense “the whole of the parties’ property is under consideration” in a s 79 application: at [62]. But White J said (at 23,100 [51]):

His Honour went on to find that, in the circumstances of the case, it was impossible to say that the whole of the defendant’s share of the proceeds were the fruit of the litigation which he had received as a result of the solicitor’s efforts: at 23,100 [52].

It is not necessary in the present case to determine finally whether BAB could demonstrate that there was a causal link between the $50,000 fund and work which they had previously done for Ms Forrest. It is enough to say that, in the circumstances of this case, and especially in the circumstance that Ms Forrest seems to have been the responding party in the Family Court, the mere fact that BAB acted for her at an earlier stage of the proceedings did not mean that the fund should be seen as the product of the solicitor’s efforts.

Ms Granger, however, referred to a further basis on which she submitted BAB had a proprietary interest in the fund. As I have mentioned, shortly before the proceedings were commenced, a garnishee order was issued against, and served upon, Mr Brown in relation to the judgment debt of Ms Forrest to BAB (as it had then become). Mr Brown appears to have believed that this did not necessarily give BAB a proprietary interest in the fund. He referred to the judgment of Darke J in Australia and New Zealand Banking Group Limited v S & Co [2014] NSWSC 1094 as supporting the view that at the time the garnishee order was issued against him, there was not in existence a debt from him to Ms Forrest as the judgment debtor. This view appears to have been based on the fact that there was a competing claim from BAB.

Ms Granger submitted that this view was misconceived. With great respect to Mr Brown, I think that there is force in that contention. If the equitable lien had been claimed by a third party, then it may well be that it was not sufficiently clear that the money was owed to Ms Forrest to say that Ms Forrest was the debtor. But the competing claim in this case was from BAB itself. It is difficult to see how the existence of an alternative basis of claim would be a reason why Mr Brown should not act on the garnishee order.

Mr Brown also referred to provisions of the Legal Profession Uniform Law, which prevents solicitors from dealing with money in their trust account, otherwise than in accordance with instructions from their clients, but those provisions are subject to exceptions in the case of compulsion of law, which would appear to have applied in this case as a result of the fact that the garnishee order had been issued by the Local Court.

With the benefit of hindsight, therefore, it appears that at the time these proceedings were instituted BAB did not need to rely upon any claim of an equitable lien in order to assert a proprietary interest in the disputed fund in Mr Brown’s hands.

The service of the garnishee order had the effect of attaching the funds which Mr Brown was holding for Ms Forrest and that in itself gave BAB a proprietary interest. Ms Granger did not submit that Mr Brown had behaved unreasonably but she did say that having regard to BAB’s entitlements as they now appear, it would be wrong to regard BAB as having been the cause of the litigation and, accordingly, it would be wrong to make any costs order against BAB.

This is an attractive submission. The difficulty that I think it faces, however, is that it involves an element of retrospective analysis. At the time the proceedings were commenced, BAB had recently reaffirmed its claimed entitlement to the equitable lien. The argument now advanced by Ms Granger was never put to Mr Brown before the proceedings were commenced. The garnishee order was simply served on him without, it seems, any suggestion that it made any difference to the analysis.

In this regard, I do not think it can be ignored that BAB had been asserting for more than seven months before the proceedings were commenced that it was entitled to an equitable lien. The entitlement, which arose from the garnishee order, arose only at the point that it was actually served and it could not, of course, be served until a judgment was obtained, which it seems did not happen before February 2017.

BAB never expressly withdrew before the commencement of proceedings its claim to be entitled to an equitable lien and had it not advanced that claim over the period of seven months or so leading up to the institution of the proceedings, Mr Brown would have been obliged to pay the money out to Ms Forrest and the occasion for issuing a garnishee order could never have arisen.

Despite the attraction of Ms Granger’s argument, I feel that it really invites me to ignore the whole of the previous dealings between the parties, up to and including the hearing on 24 November when the solicitor then appearing for BAB did not oppose the release of the remaining funds to Ms Forrest. As such, it comes too late in the day to assist BAB when dealing with the costs of the proceedings.

I have earlier referred to the possibility that orders inter partes should be made on the basis of party/party costs rather than on an indemnity basis. In St George Bank v Meredith [2017] NSWSC 961, I concluded the Court also has power in interpleader proceedings to order the unsuccessful claimant to pay interest on the funds in Court by way of compensation to the successful claimant for the loss of the use of the money while they are held in Court pending the outcome of the dispute.

As I have mentioned, Ms Forrest did not appear in these proceedings and has not sought any such order. Bearing in mind the relatively small amount of costs awarded and the (no doubt much smaller) potential difference between party/party and indemnity costs, I do not propose to complicate matters any further by providing for the reimbursement of Mr Brown’s costs by BAB to be further assessed down to a party/party level.

For these reasons, I make the following orders: