Solicitors able to recover fees despite prior security claims

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The firm of solicitors, Matheson, had represented Lett and Company Limited in proceedings against Wexford Borough Council, the Minister for Communications, Marine and Natural Resources, Ireland and the Attorney General, in which Lett claimed damages against the defendants arising from a breach of its legitimate expectation that it would receive compensation due to the imposition of an exclusion zone encompassing its mussels beds resulting from the upgrade of sewage facilities in Wexford Harbour.

Lett was successful and was awarded compensation in the sum of €1,150,000, amended to €650,000 on appeal.

The current application concerned the contention by the Solicitors that there remained an outstanding balance due and owing to them in the sum of approximately €1,128,408.

Their application sought an order pursuant to s. 3 of the Legal Practitioners (Ireland) Act 1876 declaring that they were entitled to “a charge upon the costs awarded to ” in respect of professional fees, charges, expenses and outlay incurred in representing Lett in the proceedings.

It also sought ancillary orders directing that the funds already received from the State defendants held in Lett’s client account by the Solicitors are to be paid out to discharge the professional fees, charges, expenses and outlay of the Solicitors, including any and all fees due to counsel; and an order directing the State defendants to pay the balance of the costs awarded to Lett to the Solicitors within a reasonable period of time following the conclusion of the party and party taxation.

However, Lett argued that their bankers were owed an amount greatly in excess of the likely outcome of the taxation of the costs and that given that the bankers had a prior charge which gave them security over the costs, when their charge was discharged there would be nothing left to pay over to the Solicitors.

The bankers’ charge relied on, a mortgage debenture given by Lett to Anglo Irish Bank Corporation Plc, was found to now be vested in LSF VIII Pine Investments Limited as successor in title.

The issues before the Court were therefore, whether the Solicitors were prima facie entitled to a declaration under s.3, and whether that entitlement was defeated by the terms of the Mortgage Debenture vested in Pine Investments.

The Court considered the legal framework, exploring the different components of s.3 of the 1876 Act, which allows courts to declare solicitors employed to prosecute or defend proceedings before the court, entitled to a charge upon property recovered or preserved for their clients by the proceedings.

The Court noted that this section related to costs of litigation, that the section did not make such orders mandatory, that the section was overlaid with equitable principles, that the right to payment arose from property recovered or preserved through the instrumentality of the solicitors, and that the Court could also make ancillary orders for the raising and payment of funds.

In relation to priority, it was found that “the overall clear intention of the legislature in s. 3 is to give priority to the Solicitors’ charge subject to the one exception stipulated. Having said that, depending on its nature, the property recovered or preserved may already be subject to an encumbrance in respect of which the owner would be entitled to retain priority. Each case must be considered on its own facts. The exception is a conveyance or an act made to a bona fide purchaser for value without notice, which obviously means without notice of the charge or right of the solicitor under s. 3.”

In the light of the analysis of the significant features of s. 3 above, the Court was satisfied that the Solicitors did have a prima facie entitlement to a charge.

Both parties submitted a number of authorities in relation to the priority of the different claims, however, the Court did not find them to be of particular assistance in determining whether it is appropriate that the declaration under s. 3 of the Act of 1876 sought by the Solicitors be made.

Instead, the Court applied first principles to the wording of the relevant portion of s. 3.

It was found that the wording of s.3 very clearly stated that a conveyance which shall operate to defeat the solicitors’ charge or right shall be absolutely void and of no effect against such charge or right, “unless” it comes within the exception stipulated.

Thus, if the Mortgage Debenture in favour of Anglo created a first fixed charge over any costs of litigation which Lett would recover at any time in the future in favour of Anglo or Anglo’s successor, it would have the effect of operating to defeat the charge or a right to a charge under s. 3 of the Act of 1876.

On the assumption that it had the effect contended by Lett, the Mortgage Debenture would be absolutely void and of no effect against the Solicitors’ charge, unless it could be established that it came within the exception by having been made “to a bona fide purchaser for value without notice”.

The Court found that ascertaining the proper construction of the terms of the Mortgage Debenture was a question to be resolved between Lett and Pine Investments, who was not before the Court.

Aside from the possibility of difficult legal issues being involved in its resolution, the Court found that it would be inappropriate, in the absence of Pine Investments, to express any view in relation to the construction and application of the provisions of the Mortgage Debenture.

The Court found that “On the wording of s. 3 it is clear that once a prima facie entitlement to a declaration is established by the solicitor, the onus shifts to the client, or to the bona fide purchaser for value, as the case may be, to establish, on the balance of probabilities, that the conveyance (in this case, the Mortgage Debenture), or the act which would preclude the Solicitors’ charge having priority, was made (in this case, given to Anglo) without notice. Lett has not discharged that burden and Pine Investments has not participated in this application.”

The Court therefore found that “there is no doubt but that the Solicitors are entitled to a declaration that they have a charge on the costs payable by the State defendants to Lett, when taxed, in respect of the balance of the taxed costs due to Lett which remain undischarged, which on the evidence adduced by the Solicitors has a maximum monetary limit of €1,128.408.”

Accordingly, the Court made an order under s. 3 of the Act of 1876 in the terms sought by the Solicitors, imposing a maximum limit of €1,128,408, but giving either party liberty to apply to the Court to vary the order when the taxation process is completed.

The ancillary orders sought by the Solicitors were also given, provided that the Solicitors shall be liable to account to Lett for the aggregate of the sum of €500,000 and the balance of the said costs, taking into account payments in respect of costs already made by Lett to the Solicitors.