Blog 78 Mortgage and caveat securing solicitor’s fees survive.

Dixon (as trustee of the bankrupt estate of Toufic Sassine) v Lennon & Anor [2023] VSC 426, Barrett AsJ.

This is the first case covered by this Blog involving a solicitor’s costs agreement.  The agreement was held non-binding for breach of the Legal Profession Uniform Law (Vic) but nonetheless a charge and all monies mortgage in respect of the solicitor’s costs were valid, a term in the deed of charge permitting the solicitor to lodge a caveat.   The facts were as follows –

• The first defendant (Lennon) was the principal and registered proprietor of Lennon Lawyers being a registered firm pursuant to the Business Names Registration Act 2011(Cth).
• Toufic Sassine (Sassine) and Andrew Sassine (the Sassines) were registered as tenants in common in equal shares of certain land (the Land) encumbered by a registered mortgage to a bank.
• On or around 20 November 2020 (as deposed by Lennon on 22 November 2022) the firm was retained to act for the Sassine family and their related corporate entities and a Disclosure Statement and Costs Agreement (costs agreement) bearing the date of 20 November 2020 was provided to the Sassines. Lennon exhibited to his affidavit a copy of the costs agreement which identified the law practice as Lennon Lawyers, stated that the clients were Sassine and Angela Sassine, and stated that the matter was “(SUP) Our Ref: 20/0723” with no description of the legal services to be provided.  The document provided that “it may be accepted by writing to us indicating your acceptance, by returning a signed copy of this document as provided in the Acknowledgement at the end of this document or by continuing to give us instructions in this matter”.
• Lennon also deposed that to secure payment for legal services for the Sassine family it authorised Sassine and Andrew Sassine to execute a deed of charge in favour of the firm over their interest in the Land, and that a deed of charge and mortgage were executed accordingly.
• On 20 November 2020 a deed of charge (the charge) was executed between Lennon Lawyers and the Sassines. It inter alia:
  • recited that the firm had provided and would provide professional services (the Services) to the Sassine family and their corporate entities;
  • provided that the firm had provided and would provide the Services up to the value of $100,000 (cl. 1);
  • provided that the Sassines hereby charged as security for the Services all their interest in the Land, agreed to execute a mortgage, and agreed that the firm “shall register a caveat over the said property to better secure the Services in accordance with this Deed” (cl. 2).
• On 24 November 2020 Lennon caveated claiming an interest as chargee on the grounds of an agreement with the registered proprietor(s) dated 20 November 2020.
• On 30 November 2020 a mortgage was executed over the Land by the Sassines as mortgagors and Lennon as mortgagee. This inter alia provided –
  • the mortgagor mortgaged the land to the mortgagee “as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage”;
  • under the heading “Terms and Conditions of this Mortgage” were the words “Document Reference AA3553” being an incorporation by reference of Memorandum of Common Provisions AA3553 whose provisions included:
    1. “Secured Money” was defined to include: (a) the Advance; (d) all amounts that are or may become owing to the Mortgagee under any agreement between the Mortgagor and the Mortgagee now or in the future (cl. 11.1);
    2. The Mortgagor promised to pay all the Secured Money to the Mortgagee (cl. 1.2(a));
    3. The Mortgagor was entitled to a discharge when all the Secured Money was paid and the Mortgagee was reasonably satisfied that it would not have to repay anything and that the Mortgagee did not have any contingent liability (cl. 2.6(b));
    4. the Mortgagor must pay the Mortgagee the Secured Money in accordance with this mortgage (cl. 5.2(a)).
• On 24 February 2021 a sequestration order was made against the estate of Sassine and the plaintiff was appointed as the trustee of his bankrupt estate.
• On 1 March 2021 Lennon registered the mortgage.
• On a number of occasions from February to December 2021 the plaintiff attempted, invoking ss. 77A, 90 and 91 of the Bankruptcy Act, to obtain extensive information and documents from Lennon about his asserted security interest and the affairs of the bankrupt. Lennon did not respond to the plaintiff for many months and when he did, on 18 June, the response was less than complete, being provision of the charge, mortgage and mortgage form lodged with PEXA on 24 February 2021.  He did not provide any details of any fee agreement, work, invoices, payments, mortgage balance, valuation, or related documents.  Pursuant to s. 77C of the Bankruptcy Act the Australian Financial Security Authority sought similar information to that sought by the plaintiff, with no response.
• In June 2022 the plaintiff commenced this proceeding seeking a declaration that the mortgage was invalid and for orders removing it and the caveat from the certificate of title of the Land.
• Lennon swore an affidavit on 22 November 2022 to which (as an exhibit) he produced the costs agreement for the first time. The final paragraph of the affidavit read –

  “At the date of swearing this affidavit, LL is owed substantial fees for the provision of legal services which I believe to be in the order of at least $40,000.  The costs include the costs necessary to defend this proceeding.  The legal work necessitated by the difficulties the Sassine family have encountered are ongoing.”

Barrett AsJ. dismissed the proceeding, holding –

1. The charge was “an agreement” as described in the caveat, notwithstanding that it recited that Lennon Lawyers not Lennon had provided and would provide services, as Lennon was the legal entity carrying on business under that business name. The use of the business name in the charge did not render it incapable of supporting the caveat. [37], [45]
2. The costs agreement was not binding because –

1. 1. 1. Although its provision for acceptance was consistent with cl. 180(3) of the Legal Profession Uniform Law (Vic) (LPUL) there was no evidence that the clients had accepted the offer, whether by signing and returning the document or by continuing to give instructions. The final paragraph of Lennon’s affidavit was insufficient: its first sentence did not state who owed the fees or pursuant to what agreement, if any; its last sentence did not identify whether Lennon had been retained to perform any work and if so, what or pursuant to what, if any, retainer. [49]-[51]
      2. The fact that Lennon did not produce a signed copy of the costs agreement, or written instructions or file notes of such instructions constituting acceptance of it, supported the inference that he did not have them. [55]
      3. Clause 174(3) of the LPUL required the solicitor to take all reasonable steps to satisfy himself that the client had understood and consented to the proposed course of action for the conduct of the matter and the proposed costs. There was no evidence of this. [52]-[53]

Accordingly, Lennon had not discharged the onus of establishing that the costs agreement was entered into or that legal services were provided pursuant to it. [55]

3. As to documents requested in a notice under s 77A of the Bankruptcy Act sent on 20 April 2021, Lennon neither produced them nor stated whether had had them, permitting the inference that he did not have them and consequently that neither the charge or mortgage secured any monetary amount owing. [55]
4. However, the charge supported a caveatable interest notwithstanding the lack of a binding costs agreement.  More particularly –
   1. The charge did not purport to secure the provision of any costs that may be identified by, or referable to, any particular costs agreement alone, but rather, secured the costs of such legal services as may be provided to the extended Sassine family and related entities. A charge could validly, before any particular retainer, not secure an extant monetary liability but be a security available to be employed between the parties in accordance with their agreement. [37], [56], [57]
   2. The term in the charge permitting Lennon Lawyers to lodge a caveat supported the caveat. Unless there was evidence of an intention to the contrary, the grant (by a borrower to its creditors) of an authority to lodge a caveat implied the grant of an estate or interest in the land affected by the caveat sufficient to resist its removal. [57]
   3. The recovery of legal fees did not depend upon the existence of a valid and enforceable fee agreement: an agreement not satisfying the LPUL may be void (cl. 178(1)(a)) but the client may still have to pay costs once assessed or the subject of a determination of a costs dispute by the designated local regulatory authority (cl. 178(1)(b)). [58]

   [59]

5. It was not a requirement of validity of a charge or other security that it secure a sum certain liability, eg an “all moneys” mortgage (such as the mortgage here) could secure potential legal fees up to a particular sum. It was accordingly permissible for the charge to stipulate that the firm would provide the Services up to the value of $100,000. [16], [37], [61]
6. There was accordingly at least some probability that the caveator would be found to have the equitable rights or interest in the land asserted in the caveat sufficient to justify the practical effect of the caveat on the ability of the plaintiff to deal with it. [63]
7. The balance of convenience favoured maintenance of the caveat. The prejudice occasioned to the caveator by removal outweighed the prejudice to the plaintiff by maintenance of the caveat because removal would occasion: the loss of the security for payment of fees incurred in accordance with the terms of the charge; the mortgage (for reasons stated below) prevented the plaintiff dealing with the title anyway; and the plaintiff could still seek partition of the co-ownership or redemption of the mortgage. [64], [65]
8. The mortgage was expressed as security “for the debt or liability described in the terms and conditions set out or referred to in this mortgage”, and, although no debt or liability was specified in the mortgage document itself, the terms in the Memorandum of Common Provisions including particularly cl 11.1 rendered this an “all moneys” mortgage.  “All monies” clauses were to be construed in light of the language used and having regard to the context of the mortgage and its commercial purpose.  There was no reason to read this clause down to exclude any future liability resulting from any of the Sassine family or related entities engaging Lennon to provide legal services as described in the charge. [38], [68] – [70], [72]
9. When all amounts owing under the mortgage had been paid the mortgagor was entitled to redemption, if necessary by compelling the mortgagee to provide a discharge of the mortgage. Where a mortgagor became bankrupt, the trustee had rights under s. 136 of the Bankruptcy Act to redeem. [74], [76]
10. Proceedings between tenants in common of mortgaged property could not affect the mortgagee’s interest in the entirety, and so, if a co-tenant mortgagor obtained partition, the mortgage would affect each severed portion, and a co-tenant, or the trustee in bankruptcy of a co-tenant, wishing to redeem a mortgage must redeem it entirely. Given Lennon’s failure to provide information the plaintiff understandably had not offered to redeem, but this was not a basis for declaring the mortgage invalid or to discharge it on the application of the trustee in bankruptcy of only one tenant in common. [76], [77]

Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, November 28, 2023