Burrell Solicitors v Reavill Farm [2011] NSWSC 1615

A solicitor agreed to act for a client on the provision of security (second mortgages) for his fees totalling over $600,000. In earlier proceedings, the court ordered that proceeds of the sale of the client’s property to be paid into court. The solicitor lodged a caveat claiming an interest as equitable mortgagee, but the caveat lapsed and the solicitor then sought to lodge a fresh caveat claiming the same interest pursuant to section 74O(2)(a) of the Real Property Act 1900.

A further agreement was entered into whereby the client agreed to sell certain properties to reduce the debt owed to the solicitor. The solicitor claimed a caveatable interest in these properties on the basis of its specifically enforceable contractual right to have the properties sold. The solicitor sought specific performance of the agreements.

The clients claimed that the costs were far in excess of the original costs estimate, the solicitor was negligent and the agreements were entered into under duress. The solicitor emailed the client after proceedings were commenced to indicate that costs would far exceed the initial cost estimates but did not provide any further cost estimate, except in one of the matters, where the estimate was late and inaccurate. The solicitor also failed to issue regular bills.

The law
Section 316 of the Legal Profession Act requires solicitors to disclose in writing to a client any substantial change to its costs estimate as soon as is reasonably practicable after it becomes aware of the change.

The court found that the solicitor’s excuse for failing to issue updates estimates and bills, namely that it would only highlight his client’s cash flow problems lacked substance. The clients needed to know.

The court found a serious question to be tried as to whether the clients gave their informed consent to the agreements and whether the agreements and the mortgage were enforceable.

The court noted that the mortgage secured amounts due under the solicitor’s invoices rendered now or in the future. However, amounts are only due under the Legal Profession Act if the solicitor has complied with its obligation to disclose substantial changes to its costs estimates, which the court found the solicitor had not. The court also noted that such revised estimates as were given were both late and inaccurate. The court held that accordingly, that no sum would be due by the clients until costs had been assessed. The court held that such costs could not be said to be due under the invoices but only under the assessor’s determination, and the security as worded did not apply to such sums due following a costs assessment. The court noted that to construe the mortgage terms more broadly would reward the solicitor for its breach of disclosure obligations. The court held that no debt was or would be secured by the mortgage and did not permit the solicitor to lodge a fresh caveat to claim an interest as equitable mortgagee.

However the court found a serious question to be tried that the agreement to apply net proceeds of properties sold to reduce such debts as become owing following a costs assessment should be specifically enforced and the interests are caveatable interests. The court found the balance of convenience favoured that grant of leave under section 74O to the solicitor to lodge these caveats on the solicitor giving the usual undertaking as to damages and subject to their withdrawal to permit completion and subject to the solicitor giving an undertaking to the court to get costs assessed.

The court declined to order any further constraints on the client’s dealings with any of their other assets because this went beyond the agreements.

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