THE SUPREME COURT
[Appeal No. 2007/196P]
McKechnie J.
Laffoy J.
Dunne J.
BETWEEN
LETT AND COMPANY LIMITED
PLAINTIFF
AND
WEXFORD BOROUGH COUNCIL, THE MINISTER FOR COMMUNICATIONS, MARINE AND NATURAL RESOURCES, IRELAND AND THE ATTORNEY GENERAL
DEFENDANTS
Judgment of Ms. Justice Laffoy delivered on the 16th of March, 2016
The parties and the background to the application
1. The applicant on this application is Matheson (the Solicitors), the firm of solicitors which acted for Lett & Company Limited (Lett), the plaintiff in these proceedings in the High Court and the appellant on the appeal to the Supreme Court. The respondent on the application is Lett. No other party sought to participate in, or appeared, on the hearing of the application.
2. In the proceedings by Lett against the defendants, which are reported at [2012] 2 I.R. 198, 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. The High Court action was heard in 2006 and 2007. Judgment was delivered in the High Court by Clarke J. on 23rd May, 2007. Lett was successful and was awarded compensation in the sum of €1,150,000. The order of the High Court was made on 22nd June, 2007 and, in addition to the declaration of the entitlement of Lett to compensation in the sum of €1,150,000 against the second defendant, it was ordered that Lett recover against the second and third defendants (the State defendants) its costs of the action when taxed and ascertained. Execution on foot of the order was stayed, in the event of an appeal, until the final determination of the appeal.
3. The State defendants and the Attorney General did appeal the decision of the High Court. On the appeal, the Supreme Court allowed the appeal as to quantum only and varied the order of the High Court by substituting the sum of €650,000 by way of compensation. The judgment, with which the other judges concurred, was delivered in the Supreme Court on 3rd February, 2012 by O’Donnell J. The order of the Supreme Court was made on 17th February, 2012 and in it, it was ordered that the order of the High Court in relation to costs should stand affirmed and that Lett should recover against the State defendants the costs of the appeal when taxed. It was also ordered that the State defendants pay to Lett interest on the sum of €650,000 from 22nd June, 2007.
4. While this is only of peripheral relevance to the issues the Court has to determine on this application, the State defendants paid directly into Lett’s bank account by way of transfer the sum of €908,950.16, representing the sum of €650,000 in respect of compensation, together with interest thereon in accordance with the order of the Supreme Court, in May 2012. None of that sum was paid to the Solicitors, although Lett had agreed to pay over €30,000 portion thereof.
5. The position in relation to the costs which the Solicitors contend is due to them in relation to the proceedings in the High Court and the appeal to the Supreme Court as at 24th March, 2014 has been presented to this Court in tabular form as follows:
Statement of Costs and Outlay (all figures inclusive of VAT)
€ €
Sums invoiced by the Solicitors
excluding Counsel’s fees 1,147,330
Sums invoiced by Counsel 1,029,849 2,177,179
Less payments made by Lett 1,128,721
Balance outstanding on invoices issued 1,048,458
All work in progress as yet not invoiced 79,950
1,128,408
The position of the Solicitors, accordingly, is that there remains an outstanding balance due and owing to them in the sum of approximately €1,128,408 (inclusive of VAT) based upon bills for party and party costs drawn up by Lett’s Legal Costs Accountants, William J. Brennan & Company, who were retained directly by Lett to prepare the party and party bills of costs in respect of both the High Court and the Supreme Court proceedings. The bills of costs were drawn up and served on the State defendants in February 2013 and the taxation of the party and party costs commenced before the Taxing Master on 9th December, 2013. That process was still ongoing when the appeal was heard and this Court was informed that it was to be resumed before the Taxing Master later that year, on 27th November 2015.
6. In October 2013 the State defendants made a payment on account in the sum of €500,000 in partial discharge of the costs due and owing by them to Lett on foot of the order of the Supreme Court dated 17th February, 2012. The payment was made by electronic transfer to the Solicitors and was lodged to Lett’s client account with the Solicitors. At the insistence of Lett, the full amount remains in the client account.
The application
7. The Solicitors’ application was initiated by a notice of motion filed on 27th March, 2014, in which the Solicitors sought a number of reliefs. The first relief sought was an order pursuant to s. 3 of the Legal Practitioners (Ireland) Act 1876 (the Act of 1876) declaring that the Solicitors are entitled to “a charge upon the costs awarded to [Lett]” pursuant to the order of this Court dated 17th February, 2012 (that is to say, the High Court costs and the Supreme Court costs) in respect of professional fees, charges, expenses and outlay incurred in representing Lett in the proceedings. As regards that relief, what it is necessary to emphasise is that what the Solicitors are seeking is a charge upon the costs awarded to Lett, which in due course will be quantified in the taxation process before the Taxing Master on a party and party basis.
8. When the application was first before this Court, an issue arose as to whether this Court has discretion to hear the application for a charge under s. 3 of the Act of 1876 and it was urged on behalf of Lett that this Court ought to exercise its discretion to remit the matter to the High Court for hearing. That issue was considered separately by this Court. The majority decision delivered on 10th March, 2015 was that the Court does have jurisdiction to deal with the application by virtue of s. 3 of the Act of 1876 and to make appropriate ancillary orders (per the majority judgment of Dunne J. delivered on 10th March, 2015 ([2015] IESC 24)). Arising from that decision of this Court, the alternative relief sought by the Solicitors on the application, namely, that they hold a lien over the costs awarded to Lett, does not now fall for consideration by this Court.
9. The following ancillary orders sought by the Solicitors are still relevant:
10. Lett has vigorously disputed the Solicitors’ entitlement to an order under s. 3 of the Act of 1876. In so doing, the point which it has, on my assessment, pursued most vigorously is that, if the Court were to accede to the Solicitors’ application and were to declare that the Solicitors have a charge on the costs, such charge would be subject to Lett’s bankers’ prior charge, which would render the application moot. The argument, as I understand it, is that Lett’s bankers are owed an amount greatly in excess of the likely outcome of the taxation of the costs and that, given, it is argued, that the bankers have a prior charge which gives them security over the costs, when the bankers’ charge is discharged there will be nothing left to pay over to the Solicitors. In my view, it would be more correct to characterise the application, if that were to happen, as a fruitless exercise rather than as being moot. The bankers’ charge relied on, a mortgage debenture given by Lett to Anglo Irish Bank Corporation Plc (Anglo), is now vested in LSF VIII Pine Investments Limited (Pine Investments), as successor in title to Irish Bank Resolution Corporation Limited (IBRC), which, in turn, was the successor in title of Anglo.
11. In response to the Solicitors’ application, an affidavit was filed on behalf of Lett, which was sworn by Jeffrey Johnston, a director of Pine Investments, in which Pine Investments’ position in relation to the Solicitors’ application was set out. In her judgment delivered on 10th March, 2015, Dunne J. observed that -
“. . . it is somewhat surprising given that an affidavit was sworn on behalf of Pine Investments herein that Pine Investments chose not to be represented at the hearing of this application notwithstanding that it has acquired the interests of Anglo under the mortgage debenture and stands to benefit if the contentions of the plaintiff in the interpretation of the mortgage debenture are correct.”
It is even more surprising that, notwithstanding those observations, Pine Investments did not participate in the proceedings. This Court has been put in the invidious position of being asked by Lett to adjudicate, in the absence of Pine Investments, on the priority status of a security owned by Pine Investments as against a charge upon the costs which the Court may declare in favour of the Solicitors under s. 3 of the Act of 1876. In any event, it is necessary to consider the factual basis of the security held by Pine Investments.
Pine Investments’ security
12. Of the documents put by Pine Investments before the Court, the earliest in time is a mortgage debenture dated 28th February, 2007 made between Lett of the one part and Anglo of the other part (the Mortgage Debenture). Under the Mortgage Debenture, Anglo got security for the “Secured Liabilities” as defined in Clause 1.1, meaning all monies then or at any time and from time to time due or owing to Anglo by Lett. As one would expect, security was given to Anglo over various forms of property. What is relevant for present purposes is Clause 4.4, wherein Lett assigned and charged in favour of Anglo by way of first fixed charge, inter alia, “the Receivables”. Attention was drawn by Mr. Johnston in his affidavit to the definition of “Receivables” in Clause 1.1, where that expression was defined as meaning Lett’s -
“present and future book debts and other debts, revenues and claims (including choses inaction which may give rise to a debt, revenue or claim and the proceeds of any insurance or similar claim) due or owing or which may become due or owing to or purchased or otherwise acquired by [Lett] and the proceeds of payment or realisation of the same and the full benefit of all rights and remedies relating thereto including, but not limited to, any negotiable or non-negotiable instruments, guarantees, indemnities, debentures, legal and equitable charges, and other securities, reservation of title or other proprietary rights, rights of tracing, liens and all other rights and remedies of whatsoever nature in respect of the same.”
While Mr. Johnston did not allude to it, counsel for the Solicitors drew the Court’s attention to clause 7 of the Mortgage Debenture, which imposes restrictions on dealing with Receivables. He did so in the context of a submission that, while he accepts that costs fall within the definition of “Receivables”, they are not necessarily covered by the Mortgage Debenture. Like every other question as to the proper construction and application of the Mortgage Debenture, the proper construction and application of Clause 7 is a matter to be resolved between Lett and Pine Investments.
13. Mr. Johnston also referred to Clause 10.1 of the Mortgage Debenture which sets out the circumstances in which the security shall become enforceable. According to Mr. Johnston’s affidavit, referring to a Facility Letter dated 8th September, 2010, Lett’s loan was repayable on demand, or without prejudice to the demand nature of the facility, by 31st March, 2011 and, accordingly, he averred that the right to enforce the security has accrued to Pine Investments. In fact there are two Facility Letters before the Court, both issued by Anglo to Lett. The earlier Facility Letter was dated 18th October, 2007. It covered two facilities and Facility B has been pointed to as being relevant here. It was expressed to be a facility of €750,000 “to renew the existing Facility of which €500,000 is currently drawn”, the account reference number, which seems to date back to 2006, being given. In an affidavit sworn on behalf of Lett by Richard Lett, a director of Lett, it is averred that Lett had to get approval from Anglo to provide funding for the litigation and that the loan was drawn down from Anglo on 18th October, 2007, which seems to be inconsistent with what is stated in the Facility Letter in relation to Facility B. Mr. Lett also averred that the advance was guaranteed on a joint and several basis “by family directors”. The later Facility Letter, that dated 8th September, 2010, covered six facilities, Facility B being then in the sum of €758,000 and being expressed to renew the existing facility, which I assume was Facility B in the earlier Facility Letter, although, as almost invariably happens with lending institutions, the account numbers had changed!
14. As to Pine Investments’ involvement, Mr. Johnston has averred that Pine Investments obtained Lett’s loan and the interest of IBRC in the Mortgage Debenture from IBRC by a loan sale deed dated 12th December, 2013. He has averred that the balance outstanding by Lett to Pine Investments as at 30th April, 2014 was €3,765,841.24, which he asserted exceeds “the amount of the costs”, without setting out the basis of that assertion. In any event, the position of Pine Investments, per the affidavit of Mr. Johnston, is that the costs are the property of Pine Investments under the Mortgage Debenture and that James Lett, whom I assume is a director of Lett, has agreed that the costs are Receivables under the Mortgage Debenture and should be remitted to Pine Investments. From the evidence before the Court it is reasonable to infer that it is in the interest of the directors of Lett that Lett’s debt to Pine Investments be reduced, thereby reducing the directors’ personal liability on foot of guarantees to Pine Investments. Their approach to the Solicitors’ application is, therefore, understandable.
15. There is another matter in relation to the creditor/debtor relationship of Lett with Anglo, the predecessor of Pine Investments, which has been raised in the affidavits. On 2nd July, 2009 the Solicitors (then known as Matheson Ormsby Prentice) gave a letter of undertaking to Anglo in relation to the proceedings and, in particular, the Supreme Court appeal. In that letter, the Solicitors, having stated that they were instructed by Lett, the respondent on the Supreme Court appeal, undertook on behalf of Lett to pay to Anglo -
“out of the net proceeds of any settlement agreement with any or all of the Defendants to these proceedings or any damages awarded to Lett . . . by the Supreme Court against all or any of the Defendants, if and when received by us, and having deducted all proper charges due to this office, or other charges which may be required by law to be deducted, the balance of any award or settlement to be held to the credit of Lett by the bank.”
What is significant about the wording of that undertaking is that it expressly provided for the deduction of all proper charges due to the solicitors, although, of course, the scope of the undertaking is a matter primarily to be resolved between the Solicitors and Pine Investments.
The law: general observations
16. Section 3 of the Act of 1876 has been in force in this jurisdiction for approximately 140 years and has generated quite an amount of judicial authority. It was a verbatim replication of a provision introduced in England sixteen years earlier: s. 28 of 23 & 24 Vict. c. 127, known as the Solicitors Act 1860 (the Act of 1860). The Act of 1860 and its legislative substitutes have over the years also generated a considerable amount of judicial authority in the United Kingdom.
17. Counsel for each of the parties relied on a large number of authorities. The approach I propose adopting in relation to outlining the legal principles is to set out s. 3 of the Act of 1876 first and then to consider the various components of it by reference to the very helpful commentary on the section contained in O’Callaghan on The Law of Solicitors in Ireland (Dublin, 2000) and also by referring to more recent decisions of the courts in this jurisdiction.
18. I will then consider the authorities relied on by the respective parties, in particular, on the issue of priority.
Section 3 of the Act of 1876
19. Section 3, which was the only substantive provision in the Act of 1876, provides:
“In every case in which an attorney or solicitor shall be employed to prosecute or defend any suit, matter, or proceeding in any court of justice, it shall be lawful for the court or judge before whom any such suit, matter, or proceeding has been heard or shall be depending to declare such attorney or solicitor entitled to a charge upon the property recovered or preserved; and upon such declaration being made such attorney or solicitor shall have a charge upon and against and a right to payment out of the property, of whatsoever nature tenure or kind the same may be, which shall have been recovered or preserved through the instrumentality of any such attorney or solicitor, for the taxed costs, charges, and expenses of or in reference to such suit, matter, or proceeding; and it shall be lawful for such court or judge to make such order or orders for taxation of and for raising and payment of such costs charges and expenses out of the said property as to such court or judge shall appear just and proper; and all conveyances and acts done to defeat or which shall operate to defeat such charge or right shall, unless made to a bona fide purchaser for value without notice, be absolutely void and of no effect as against such charge or right: Provided always, that no such order shall be made by any such court or judge in any case in which the right to recover payment of such costs, charges, and expenses is barred by any Statute of Limitations.”
Overview of significant features of section 3
20. Before considering the significant features of s. 3, it is worth recording, as O’Callaghan points out at para. 9.67, that the statutory charging provision created by s. 3 operates in addition to the common law charging power by virtue of which a solicitor’s lien is enforced in exercise of the inherent jurisdiction of the court. However, on this application, this Court is only concerned with the jurisdiction conferred by s. 3 of the Act of 1876.
21. The first significant feature of s. 3 is that it relates to a case in which a solicitor is employed to prosecute or defend an action in court. In other words it is concerned with the costs of litigation. The relief which the Solicitors are seeking relates to the costs of litigation and, indeed, counsel for the Solicitors made it clear that the relief sought relates to the party and party costs awarded to Lett.
22. Secondly, the jurisdiction is conferred by the words “it shall be lawful for the court”. It is well settled that, by the use of those words, the jurisdiction conferred is not mandatory. In his judgment in Mount Kennett Investment Company & Anor. v. O’Meara & Ors. [2012] IEHC 167 (Mount Kennett), Clarke J. stated (at para. 4.4) that it is clear that those words are not mandatory in operation. He cited Roche v. Roche (1892) 29 L.R. Ir. 339 at p. 343 in support of that. The passage he was referring to is obviously the passage in the judgment of Warren J. in the Probate Court where he stated:
“The question has been discussed whether the words of the statute ‘it shall be lawful’ are mandatory or directory: it is sufficient to say that in my opinion they are not so mandatory as that they must prevail against equities of third persons arising in consequence of the delay, or omission, or acts of the solicitor.”
The Court of Appeal upheld the decision of Warren J.
23. Thirdly, the jurisdiction conferred on the Court is “to declare such . . . solicitor entitled to a charge upon the property recovered or preserved”. In the context of considering the use of the words “to declare”, O’Callaghan points outs (at para. 9.77) that the provisions of s. 3, although they are statutory in origin, are overlaid with equitable principles. In this case, that is not disputed by either party. It is acknowledged that, even if the Solicitors are prima facie entitled to a declaration of entitlement to a charge, the Court has to consider whether there are countervailing considerations on the basis of which the Court should not exercise the jurisdiction. The entitlement to a charge is over “the property recovered or preserved”. In this case, the claim relates to the costs payable to Lett, the Solicitors’ client, of the proceedings in the High Court and on the appeal in this Court. It is well settled that such costs are chargeable as property recovered or preserved, as was held in Dallow v. Garrold, Ex p. Adams (1884) 14 QBD 543 (Dallow). It is interesting to note, however, that such costs are listed at nineteen and twenty in the list in Halsbury’s Laws of England (5th Ed. 2009), Volume 66 (at para. 1013) of the forms of property which have been held to be chargeable as property recovered or preserved under the corresponding statutory provision in England. Obviously, the range of categories of property which come within s. 3 must inform the proper construction of the section.
24. Fourthly, the effect of a declaration made by the Court is clearly spelt out in s. 3: the solicitor “shall have a charge upon and against and a right of payment out of the property . . . which shall have been recovered or preserved through the instrumentality of” the solicitor. There is no question in this case but that the costs awarded to Lett against the State defendants have been recovered through the instrumentality of the Solicitors. The charge and the right to payment out relates to “the taxed costs, charges and expenses of or in reference to” the litigation, in this case the proceedings in the High Court and the appeal in the Supreme Court. As has been outlined earlier, the taxation process had been ongoing for approximately two years and the hearing before the Taxing Master was due to be resumed on 27th November, 2015. There is very helpful guidance in O’Callaghan as to the approach to be adopted where the costs have not been quantified because the taxation process has not concluded. O’Callaghan suggests that it is good practice in all cases where the costs are to be subsequently taxed to state the maximum limit of costs. On the facts here, there should be little difficulty in determining the maximum limit because, as counsel for the Solicitors pointed out, in the context of suggesting how the sum of €500,000 paid by the State defendants on account of costs should be distributed, Lett acknowledged, at least implicitly, that costs amounting to €1,050,000 are owing to the Solicitors. As demonstrated in the table set out in para. 5, the Solicitors claim that the amount of costs outstanding is €1,128,408.
25. Fifthly, the Court has a discretion to make ancillary orders for, inter alia, the raising and payment of the costs out of the relevant property, in this case, the monies in respect of costs which will be recovered from the State defendants, as shall appear “just and proper”. It seems to me that, subject to adequately protecting the client, the type of ancillary orders sought by the Solicitors would meet the just and proper criterion, assuming the Court were to make a declaration in favour of the Solicitors.
26. That brings one to the portion of s. 3 which deals with priority. With one exception, it is provided that all conveyances and acts done to defeat or which shall operate to defeat a solicitor’s charge or right shall be absolutely void and of no effect as against such charge or right. It is not specified whether that provision is intended to cover conveyances and acts which occur before or after the charge, or the coming into existence of an entitlement to apply for a charge, or both before and after. However, 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. The summary in Halsbury (op cit.) on the priority of charging orders (at para. 1018) is enlightening. The editors state:
“The charge which a solicitor obtains under the statutory charging order is usually a first charge on the property but the making of the order and thus its terms, and the priority it confers, are matters of discretion.”
The editors then go on to outline various circumstances in which the solicitor may obtain priority, one being “over a repurchaser including a mortgagee who has notice of the right to claim the order, that is in effect notice that the property is being recovered or preserved in proceedings”, citing, inter alia, Cole v. Eley [1894] 2 QB 350 (Cole), which will be considered later. The editors then go on to say that all conveyances and acts done to defeat or operating to defeat the charge are void as against the solicitor, although he does not obtain priority over the rights of a bona fide purchaser for value who has taken a conveyance without notice, from which it is clear that the provision now in force in England and Wales which corresponds to s. 3, s. 73 of the Solicitors Act 1974, is in terms similar to s. 3.
27. Finally, the proviso at the end of s. 3 is of no relevance here because there is no question of the Solicitors’ right to recover costs being statute-barred. However, counsel for Lett did submit that the Court should have regard to what was alleged to be delay on the part of the Solicitors in determining how to exercise its discretion, but it was made clear that that point was not being pressed too hard. In any event, in my view, it has not been demonstrated that there was any delay on the part of the Solicitors which would have a bearing on the manner in which the Court should exercise its discretion. As I understand the position, there was a stay on the order for costs made in the High Court until the order of the Supreme Court was made on 17th February, 2012. Therefore, in real terms, the Solicitors were not in a position to invoke s. 3 until the order of the Supreme Court was made on 17th February, 2012 affirming the order for costs made in the High Court and awarding Lett its costs of the appeal. From the facts outlined earlier, it is clear that Lett promptly embarked on the preparation of the bill of costs and that the taxation process was initiated as soon as reasonably possible. While, in terms of dealing with the quantification of costs, the Solicitors were out of the picture, because the legal costs accountants retained by Lett were dealing directly with the State defendants’ advisers, the Solicitors were aware of the situation at the end of October 2013, when the payment on account of €500,000 was made by the State defendants directly to them. The application under s. 3 was initiated within five months. The taxation process was still ongoing when the appeal was heard and it was by no means clear when it would conclude. The timeline which has been outlined does not in any way suggest that Lett could have been prejudiced by the fact that the s. 3 application was only initiated in March 2014.
28. Before concluding this overview of s. 3, it is perhaps worth recording that the only decision of the Supreme Court on the application of s. 3 to which the Court was referred on this application was the decision in Lismore Buildings Limited v. Bank of Ireland Finance Limited (No. 2) [2000] 2 IR 316 (Lismore). The facts with which the Court was concerned on that application are succinctly summarised in the headnote in the report. The High Court had made five orders relating to security for costs. All the orders were appealed to the Supreme Court. On the appeal, orders for costs in respect of the appeals were made in favour of the plaintiff against the first two defendants, but orders for costs were made in favour of the third, fourth and fifth defendants against the plaintiff. The solicitors acting for the plaintiff sought an order pursuant to s. 3 of the Act of 1876 to secure the costs awarded to the plaintiff against the first and second defendants. It is recorded in the judgment of Barrington J. that it was common case that the plaintiff company was insolvent, so that its solicitor would have difficulty recovering costs, if he could not recover them out of the taxed costs awarded to the plaintiff against the first and second defendants. Further, it is recorded in the judgment that the third and fourth defendants had intimated their intention to issue garnishee proceedings to attach all sums due to the plaintiff under the orders against the first and second defendants to satisfy their award for costs against the plaintiff. The Supreme Court acceded to the application of the plaintiff. All of the parties to the proceedings were before the Court, but no third party was before the Court. It was recorded in the judgment that there was some dispute as to whether some items on the plaintiff’s bill of costs had already been defrayed by the plaintiff or some third party. However, the Court made no finding on that point. It was emphasised that it would not be appropriate that the Court, on an application under s. 3, should attempt to resolve disputed questions of fact or disputed questions of priority as between charges or prospective charges.
Issues identified by the Solicitors
29. Counsel for the Solicitors identified the issues which on the Solicitors’ s. 3 application the Court has to determine as:
(a) whether the Solicitors are prima facie entitled to a declaration under s. 3 and, if so, whether there is a countervailing consideration on the basis of which the Court should not exercise its discretion; and
(b) the issue of priority, namely, whether the prima facie entitlement of the Solicitors, which it is suggested has been established, is defeated by the terms of the Mortgage Debenture now vested in Pine Investments.
Prima facie entitlement
30. In the light of the analysis of the significant features of s. 3 above, I am satisfied that the Solicitors do have a prima facie entitlement to a charge. Apart from the priority issue, a number of factors were relied on by Lett as forming the basis for the Court to refuse to exercise its discretion. One of those was the allegation of delay, which has been rejected at para. 27 above. The other factors will now be considered, following which it will be necessary to consider the principal countervailing factor relied on by Lett, namely, the asserted priority of the Mortgage Debenture.
31. It was submitted that it would be inequitable to grant relief to the Solicitors under s. 3 given that the Solicitors did not send a letter in accordance with the requirements of s.68 of the Solicitors (Amendment) Act, 1994 to Lett. In response to that ground, counsel for the Solicitors relied on the decision of the High Court (Peart J.) in A. & L. Goodbody Solicitors v. Charles Colthurst and Tenips Limited (Unreported, High Court, Peart J., 5th November, 2003). In his judgment in that case, one of the questions addressed by Peart J. was whether the failure by the plaintiffs’ solicitors to furnish to the defendants, their clients, a letter as provided for in s. 68 was fatal to the recovery of costs by the plaintiffs’ solicitors. Peart J. held that it was not fatal, stating:
“Section 68 is not part of an overall scheme created by the Act. Rather it is a ‘stand alone’ section designed to put in place a number of requirements, intended to provide greater protection to clients of solicitors in the matter of costs, but are not intended as a substitute for the statutory role of the Taxing Master who is charged with the task of ensuring that a client is only charged appropriately for services rendered, upon a Bill of Costs being presented for taxation. The client’s right to have all costs taxed in this fashion is the ultimate protection available, and the Taxing Master is fully empowered to take all relevant matters into account when performing that task, including the power to attach such significance to the absence of a section 68 letter as he deems appropriate in any particular case. There is of course also the right of a party dissatisfied with the determination of the Taxing Master to seek a review of the taxation by the High Court.”
As counsel for the Solicitors made clear, the charge which the Solicitors are seeking is a charge for the balance of the party and party costs as taxed by the Taxing Master. The taxation process is ongoing and it is a process which is designed to ensure that the quantification of costs is arrived at on a just and equitable basis. The absence of a s. 68 letter does not raise a countervailing consideration which could override the Solicitors’ entitlement to a declaration under s. 3.
32. Another ground is that there is a factual dispute between the parties as to quantum. The reality of the situation is that s. 3 of the Act of 1876 only confers a right to a charge for taxed costs on a solicitor. In this case, as has been noted earlier, the Solicitors are merely seeking a charge in respect of the taxed party and party costs, which are the subject of the pending taxation process. The taxation will be determinative as to the quantum of party and party costs, whether at Taxing Master level or on review to the High Court. I fail to see the relevance of the decision of the High Court (Birmingham J.) in Eugene F. Collins v. Gharion [2013] IEHC 316 to the Solicitors’ application, because in that case the plaintiff’s solicitors were seeking a declaration at an interlocutory stage, which, understandably, the High Court was not prepared to grant.
33. A further ground is that Lett is not insolvent, citing the decision of this Court in Lismore. While, as a matter of fact, in the Lismore case the plaintiff company was insolvent, there is nothing in s. 3 or, indeed, in the analysis of s. 3 contained in the judgment of Barrington J. in Lismore, to suggest that the client litigant being insolvent is a pre-condition to a declaration being made under s. 3. What is implicit in s. 3 is that the entitlement to a right to a charge arises where fees and outlay have not been paid by the litigant client to the solicitor by whose efforts the costs were procured for the client.
34. Finally, it was submitted on behalf of Lett that public policy requires that, if parties are to be able to engage in expensive commercial litigation to vindicate their legal rights, they should be able to finance their participation in that litigation by means of borrowing, which entails granting the lender security which may rank higher in priority than a solicitor’s right to fees. The rather terse response from counsel for the Solicitors was that the fees are earned by the solicitor and, if the solicitor does not get priority for the fees for which he has worked, he may not be prepared to take on the task and this may impede access to the courts. This Court is not concerned with whether, as a matter of policy, it would make more sense to protect the lender who funds the litigation rather than the lawyer who does the work. The function of the Court is to apply the provisions of s. 3 of the Act of 1876 on its proper construction, as the analysis of the priority issue now embarked on will demonstrate.
Priority issue
35. On the priority issue, I propose considering first, in chronological order, the authorities relied on by counsel for the Solicitors in support of their contention that the Mortgage Debenture, as it was put, does not “trump” the Solicitors’ right to a charge under s. 3. I will then consider the three authorities relied on by counsel for Lett in support of the contrary argument, again in chronological order.
36. The earliest of the authorities relied on by counsel for the Solicitors is Dallow. The factual situation in that case was that Dallow had an order for costs against the defendant Garrold. A fi.fa. was issued against Garrold’s goods, in consequence of which, the Sheriff received a sum of money, most of which related to the costs payable to Dallow. A third party, Davies, who had a judgment against Dallow then sought to garnishee the monies in the hands of the Sheriff. Dallow’s solicitor, in the action against Garrold, then made a claim under s. 28 of the Act of 1860 which, as noted above, corresponds to s. 3 of the Act of 1876, and an order was made under that provision charging the fund recovered with costs due to the solicitor. That order was appealed. On the appeal, Pollock B. found that the charging order was very properly made and that the solicitor’s claim for costs ought to have priority over that of the judgment creditor under garnishee summons. Pollock B. stated as follows in relation to the relevant statutory provision, s. 28 of the Act of 1860 (at p. 545):
“. . . the question is whether that charging order is to be dealt with as if it were a mere voluntary charge given by the party entitled in favour of another, or whether it is to be looked upon as intended to give the solicitor priority over all persons whatsoever claiming any interest in the fund, so long as the fund remains under the control of the Court. It seems to me that the latter is the effect intended by the Act. It is a question of discretion no doubt whether such an order shall be made. If a solicitor had been guilty of any breach of faith, or if he had stood by while the fund was dealt with under circumstances which would render it unjust that the interests of others should be postponed to his lien, the Court would have a discretion to refuse the order. But as a general rule it is clearly laid down by the cases that all persons of business when dealing with a fund obtained by litigation must be assumed to be aware that the fund is to be considered as subject to the deduction of the costs to be paid to the solicitor who had conducted the litigation which is successful.”
37. The facts in the next case, Scholey v Peck [1893] 1 Ch 709 (Scholey), were quite complicated. Suffice it for present purposes to say that the plaintiff, Scholey, was constrained to bring an action, by way of an action for specific performance, against the defendants to get title to a house, which he had agreed to purchase and in which, prior to the action, he had mortgaged his interest to a Miss Cardale. Pending the trial, Miss Cardale had refused to release her charge over the house in question or to concur in any way with Scholey in the prosecution of his action. In any event, Scholey was successful and the defendants were ordered to convey the house to him. The solicitors for Scholey applied for a charging order under s. 28 of the Act of 1860 to secure to them their taxed costs of Scholey’s action. It was held that they were entitled to the order and that it had priority over Miss Cardale’s mortgage. The reasoning of Romer J. (at p. 711) was as follows:
“The 28th section of the Act is very general in its terms. It authori[s]es a charge not on the mere interest of the Plaintiff, but on all property recovered in the action, whether for the Plaintiff only, or for him in connection with others. It is not necessary that the property charged should belong to the same person as employed the solicitor; but it must be that by reason of the employment that the property is preserved. Here undoubtedly the property was preserved by the action brought by these persons on behalf of the Plaintiff, and but for the proceedings taken by them the mortgagee would have lost her security. . . . I hold, therefore, that the solicitors are entitled to the charge for which they ask, not only against the Plaintiff, but also against the mortgagee, who is taking the benefit of the action and over whose mortgage they must have priority.”
38. Cole also concerned the application of s. 28 in the Act of 1860. The facts on the appeal before the Court of Appeal are summarised in the headnote. A solicitor had acted for the plaintiff in an action, which was compromised by the defendant’s agreeing to pay a sum of money to the plaintiff by instalments. The plaintiff assigned for valuable consideration the money payable to him under the compromise to a person who had been a witness in the action. It was not proved that express notice of the claim of the plaintiff’s solicitor for costs had been given to the assignee. Subsequently to the assignment the solicitor obtained a charging order upon the money recovered in the action for costs. The Court of Appeal, affirming a judgment of a Divisional Court, held that the assignee, being aware that the subject matter of the assignment to him was money recovered in an action in which the solicitor had acted for the plaintiff, must be taken to have notice of the solicitor’s rights in respect of his costs and therefore was not “a purchaser for value without notice” within the meaning of the Act of 1860. Consequently the solicitor was entitled to a charge upon such money in priority to the assignee. The decision in the Court of Appeal was based on precedent. Lord Esher M.R., referring to an earlier decision of the Court of Appeal in Faithfull v. Ewen (1878) 7 Ch. D. 495, which was also referred to in Dallow, stated (at p. 351) that it -
“. . . undoubtedly decided what Collins J., in the Court below said that it decided, viz., that notice that the subject-matter of the assignment is the subject-matter of a suit amounts to notice to the assignee of the existence of the solicitor's right to a lien. Such notice prevents an assignee from being a ‘purchaser for value without notice’.”
That passage is the source of the statement by the editors of Halsbury quoted at para. 26 above that, in the case of a mortgagee, notice of the right to claim the order is, in effect, notice that the property is being recovered or preserved in proceedings. Therefore, prima facie, it would appear to be relevant to the issue as to whether Anglo took the Mortgage Debenture “without notice”. Apart from that, the older authorities seem to me to be of little relevance to the application of s. 3 to the Solicitors.
39. Moving on to the more recent authorities from this jurisdiction, the facts in Larkin v. Groeger [1990] 1 I.R. 461 (Larkin) were also complicated. The plaintiff, Mr. Larkin, had been involved in arbitration proceedings, which had concluded in December 1986, in which he had been awarded a sum of money against the defendants Mr. Groeger and Mr. Eaton. He was dissatisfied with the amount of the award and he sought to have the award set aside in the High Court proceedings between the plaintiff and the defendants. In April 1988 the High Court (Barrington J.) declined to set aside the award and awarded costs in the High Court to the defendants against the plaintiff. The complications arose from a multiplicity of applications, out of which three issues arose. First, the defendants applied to set off their costs of the High Court proceedings against their liability on foot of the arbitrator’s award. Secondly, there was another matter before the High Court which arose out of High Court proceedings brought by Bank of Ireland against Mr. Larkin, in which Bank of Ireland had obtained judgment in February 1984. In March 1987 Bank of Ireland had sought and obtained from the High Court a conditional order of garnishee attaching the proceeds of the arbitration in part satisfaction of the debt due by Mr. Larkin to it. That application lay fallow until after the decision in April 1988 in the proceedings to set aside the arbitration award, after which it was re-entered and Bank of Ireland applied to have the order made absolute. Thirdly, in May 1988 the solicitors who acted for Mr. Larkin in the arbitration and in the High Court applied for an order pursuant to s. 3 of the Act of 1876 declaring that they were entitled to a charge for their costs in relation to the arbitration proceedings and the High Court proceedings upon the proceeds of the arbitrator’s award. In fact, s. 3 of the Act of 1876 had been applied to arbitrations by virtue of s. 32 of the Arbitration Act 1954.
40. In the High Court, Barrington J. addressed all of those issues which were before him in the judgment delivered on 8th July, 1988, having heard submissions on behalf of the plaintiff, Mr. Larkin, the plaintiff’s solicitors, the defendants and Bank of Ireland. On the first issue, it was decided that the Court would grant a set off to the defendants for the High Court costs, notwithstanding its effect on the plaintiff’s solicitors’ lien, being a type of outcome which is explained as follows by Clarke J. in Mount Kennett (at para. 4.7):
“In truth, the proper characterisation of a setoff is that the person from whom the property may be recovered is not obliged to pay the full sum to the client concerned for that party is entitled to a setoff. The money notionally awarded before a setoff is applied is not, therefore, money actually recovered or preserved for the client. It is for that reason that a person entitled to a setoff does not have that entitlement disturbed by any entitlement of the solicitor for his opponent to a charging order under s. 3.”
On the second issue, as regards the balance of the arbitrator’s award, having deducted the defendants’ High Court costs, it was decided that Bank of Ireland, as the holder of a conditional order of garnishee, could not be regarded as a bona fide purchaser for value within the meaning of s. 3 of the Act of 1876 and, therefore, could not defeat the plaintiff’s solicitors’ lien. On this point, Barrington J. stated (at p. 467):
“A question arises as to whether the bank's claim has priority over the plaintiff's solicitors' claim for a charging order pursuant to s. 3 of the [Act of 1876], to protect his lien. Mr. O'Neill, on behalf of the bank, has argued that the bank's claim should have priority over the plaintiff's solicitors' claim on the basis that both claims are equitable claims and that the first in time should prevail. Mr. McCracken on the other hand claims that his client is not relying upon a mere equity but upon a statutory right to invoke the discretion given to the court by s. 3 of the [Act of 1876]. It is clear from the wording of s. 3 that a charging order under that section, once made, takes precedence over all other claims except that of a bona fide purchaser for value without notice. A person who held an absolute order of garnishee would not be a bona fide purchaser for value. Therefore, it would appear to be wrong to prefer the holder of a conditional order of garnishee to a solicitor who claimed a charging order to protect an existing lien.”
On the third issue, a declaration under s. 3 was granted to the plaintiff’s solicitors.
41. There was an additional complication in Larkin, in that the plaintiff’s solicitors had given an undertaking to a Mr. Leahy to discharge out of the damages and compensation awarded in the arbitration a debt due by the plaintiff, Mr. Larkin, to Mr. Leahy and the undertaking, unlike the undertaking given by the Solicitors to Anglo and quoted at para. 15 above, did not expressly exclude the solicitors’ own costs. Barrington J. took the view that whether the plaintiff’s solicitors, having recovered their costs, were bound by their undertaking to pay Mr. Leahy out of the costs recovered was a matter between them and Mr. Leahy. He rejected an argument on behalf of Bank of Ireland that the solicitors’ lien was effectively carrying Mr. Leahy on its back, which it was alleged was unfair to Bank of Ireland.
42. The factual context in which Mount Kennett was decided by the High Court is also very complicated and, although a priority issue arose in that case as between the clients’ solicitors and a receiver appointed by NAMA over the client companies, overall the factual context is far removed from the factual background here. Nonetheless, in setting out the general principles in relation to the application of s. 3 of the Act of 1876, the judgment is a very helpful authority. As regards the priority issue, counsel for the Solicitors relies on para. 6.3 of the judgment. Notwithstanding the complexity of the factual context, I think it is useful to quote the following passage from that paragraph:
“As noted in O'Callaghan ‘The Law of Solicitors in Ireland’, what a charging order gives the solicitor priority over is the rights of all other creditors except a purchaser for value without notice of ‘the right of the solicitor to a charging order’. Priority does not stem from the charging order itself but rather priority stems from the entitlement of the solicitor to seek a charging order. The entitlement to seek a charging order arose in this case at the very latest when judgment was given.”
43. The earliest of the authorities relied on by counsel for Lett on the priority issue is a decision of a Divisional Court of the King’s Bench Division in England in James Bibby Ld v. Woods and Howard [1949] 2 K.B. 449 (Bibby). The facts underlying that decision were that Mr. Howard (the garnishee) was involved in cross-claims in the litigation with Mr. Woods (the judgment debtor), which cross-claims were compromised on the basis that the garnishee paid to the judgment debtor the sum of £90. James Bibby Ld. (the judgment creditor) obtained judgment against the judgment debtor and applied for the attachment of the debt of £90 owed by the garnishee to the judgment debtor. In February 1949, the judgment creditor obtained a garnishee order nisi and a few days later the solicitor for the judgment debtor heard of that order. The judgment creditor applied to have the order made absolute. At the hearing of that application, the judgment debtor’s solicitor, by the judgment debtor’s counsel, claimed for the first time that he had a lien on the debt of £90 for his costs in the proceedings between the judgment debtor and the garnishee. However, the garnishee order was made absolute. The judgment debtor then appealed and the appeal was dismissed. The rationale underlying the dismissal is to be found in the judgment of Lord Goddard C.J. where he stated (at p. 453):
“A solicitor has a lien on papers of his clients which are in his possession; he can refuse to give up those papers so long as his costs are not paid. He is also commonly said to have a lien on a sum of money which comes into existence owing to his exertions, but in that case the term ‘lien’ is really a misnomer. The solicitor's right in that case is not strictly and accurately a lien because it has not the characteristics of a lien. That was made clear by Cockburn C.J. in Mercer v. Graves [(1872) L.R. 7 Q.B. 499, 503], in which he said: ‘There is no such thing as a lien except upon something of which you have possession . . . although we talk of an attorney having a lien upon a judgment, it is in fact only a claim or right to ask for the intervention of the court for his protection, when, having obtained judgment for his client, he finds there is a probability of the client depriving him of his costs’. . . . That passage was cited by Lord Merrivale P. in Mason v. Mason. . . .
Those dicta show what the nature of the solicitor's lien is in such a case as the present. It is the solicitor's right to go to the court and to ask the court to charge property in his favour; until that is done he has no right in it. In the present case, when the application for the garnishee order absolute was before the district registrar no charging order had been made or applied for. There was therefore no lien or charge on the money at that time. There was no lien on it in the strict sense of the term, and there was no charge on it because a charging order had not been applied for.”
44. There are a number of features of the decision in Bibby which are striking. First, nowhere in the judgments is there any reference to the statutory provision in force at the time in the United Kingdom which corresponds with s. 3 of the Act of 1876. Secondly, in the official report in the headnote it is queried whether the judgment debtor had any right to bring an appeal since only his solicitor, not he himself, was adversely affected by the garnishee order being made absolute. That case is not cited at all in the paragraph in Halsbury (op cit.) dealing with the priority of charging orders under the statutory regime, that is to say, para. 1018. I do not think it can be regarded as a persuasive authority in relation to the application of the provision in s. 3 of the Act of 1876 in relation to priority.
45. The decision of the Divisional Court in Bibby was followed by the High Court in this jurisdiction in Fitzpatrick v. DAF Sales Limited [1988] I.R. 464, which is also relied on by Lett. In that case, the plaintiff, Mr. Fitzpatrick, had obtained judgment in the High Court on foot of a hire purchase agreement against the first defendant, DAF Sales Limited, which had supplied certain goods the subject matter of the agreement to him. The judgment was for £24,000 and it was stayed on condition that the first defendant paid the sum in two instalments of £12,000 by specified dates. In the same action the second defendant, Allied Irish Finance Company Limited, which was the hire purchase company, succeeded in its counterclaim against the plaintiff in the sum of £18,000. That judgment was stayed on condition that monthly instalments were paid by the plaintiff to the second defendant. The plaintiff having defaulted, the second defendant entered judgment against the plaintiff and obtained a conditional order of garnishee to attach the £12,000 still owing by the first defendant to the plaintiff. The application before the High Court (O’Hanlon J.) was an application to make the conditional order of garnishee absolute. It was resisted by the plaintiff on grounds which are not material for present purposes.
46. Having dealt with that dispute, O’Hanlon J. stated (at p. 468):
“There remains an additional claim, not referred to in the affidavit of the plaintiff but referred to in a supplemental affidavit sworn on his behalf by his solicitor, Mr. Ringrose, in which . . . he concludes by claiming that there was a further agreement on the part of the plaintiff to pay to him, Mr. Ringrose, an agreed sum of £1,500 ‘as solicitor costs’.”
O’Hanlon J. then stated that it had been submitted by counsel for the plaintiff that the claim of the judgment creditor (Allied Irish Finance Company Limited) should be further deferred to rank behind the claim of the solicitor, in reliance upon the solicitor’s lien for costs. O’Hanlon J. then stated (at p. 468):
“That issue was dealt with in [Bibby], where it was held that the claim of the judgment creditor applying to make absolute a conditional order of garnishee took precedence over a solicitor’s claim for costs where the solicitor had not applied for or obtained a charging order in respect of his claim for costs over the monies due by the judgment debtor before the hearing of the application to make absolute the garnishee order.”
I find it rather difficult to relate that summary of the factual position in Bibby to the facts in Bibby as outlined earlier, from which it is clear that it was over the monies due by the garnishee to the judgment debtor which the judgment debtor’s solicitor sought a charge. In any event, O’Hanlon J. then quoted parts of the passage from the judgment of Lord Goddard C.J. which is quoted above. O’Hanlon J. said that he found the judgment in Bibby quite convincing and he saw no reason why he should not follow it. He observed that it had stood the test of time during forty odd years which had elapsed since the judgment was given. What is of significance for present purposes is that there is no mention whatsoever of s. 3 of the Act of 1876 in the official report of the Fitzpatrick decision. As happened in Bibby, the plaintiff’s solicitor was not a party in any application before the Court.
47. The decision in Fitzpatrick has been the subject of controversy. For instance, O’Callaghan suggests that it was wrongly decided (at para. 9.61) and should not be followed (at para. 9.105). Like O’Malley J. in Galway County Council v. QDM Limited [2015] IEHC 171 (at para. 32), I do not think I need express a view on whether Fitzpatrick was wrongly decided or not. However, I am of the view that neither the decision of the Divisional Court in Bibby nor the decision of the High Court in Fitzpatrick is relevant to the adjudication of an application by a solicitor for a declaration under s. 3 of the 1876 Act.
48. Finally, on this application, counsel for Lett also relies on a recent decision of the High Court (Ryan J.) in a case entitled In the Matter of Belohn Limited (Belohn), in which the judgment of Ryan J. was delivered on 31st January, 2014 ([2014] IEHC 36). The substantive action in that case was an application under s. 316 of the Companies Act 1963 between The Merrow Limited, as applicant, and Bank of Scotland Plc and David O’Connor, as respondents. In the proceedings on the s. 316 application, The Merrow Limited had been awarded costs, presumably against the respondents or one of them. The judgment of Ryan J. concerned an application by the solicitor who had acted for The Merrow Limited for an order pursuant to s. 3 of the Act of 1876 charging the costs due to him on licensed premises at No. 1 Merrion Row and No. 17 Upper Merrion Street in the City of Dublin. What emerges from the judgment is that those properties were owned by Belohn Limited of which The Merrow Limited was the sole shareholder, the solicitor and his wife being the shareholders of The Merrow Limited. The issue at the heart of the s. 316 application was whether the second respondent, Mr. O’Connor, had been properly appointed as a receiver on foot of securities given by Belohn Limited and then vested in Bank of Scotland Plc over the properties at Merrion Row and Upper Merrion Street. It was held by the High Court (Gilligan J.) in a judgment delivered on 22nd March, 2013 ([2013] IEHC 130) that the appointment of Mr. O’Connor was invalid, void and of no effect. On the practical consequences of the outcome of the s. 316 application in the context of the question whether any property was recovered or preserved through the solicitor’s instrumentality, Ryan J. stated as follows:
“The plaintiff in the proceedings sought to free itself from its bank-appointed receiver and succeeded in doing so. But what property was recovered or preserved? The answer is none; the alteration that took place temporarily was in the control of the company but all of its assets and liabilities remained unchanged. Its interest in The Belohn did not alter; that company's property was still mortgaged to the bank, just as it was before the case.”
On whether a declaration that the solicitor should have a charge over the licensed premises should be made, Ryan J. concluded as follows:
“Overall, it would be unconscionable for the [solicitor] to be able to trump the interest of the mortgagee and leapfrog into a position in regard to the property that was superior to any interest or claim that his client, however defined, might have been in a position to assert. [Counsel for the solicitor] highlighted Scholey v. Peck . . . where the mortgagee had to take subsequent to the solicitor but the facts and circumstances are wholly incomparable and no principle relevant to this application can be derived. In the Scholey case, the mortgagee was going to lose her mortgagee interest and it was held inequitable for the solicitor to lose out because [the mortgagee, Miss Cardale] had a mortgage. In this case the property was never lost by the company.”
49. Another aspect of the judgment in Belohn which was highlighted was reference in it to the decision in Mount Kennett. Having stated that another important element was the close connection of the solicitor to the client company or companies, Ryan J., having quoted from the judgment of Clarke J. (at paras. 5.1 and 5.2) to the effect that it would be unreal to disregard the fact that the relationship between the client and the solicitor in Mount Kennet” was “less than at arms length”, continued:
“I also hold that if the applicant were to be able to claim that he had by his efforts recovered or preserved property, it would be subject to the mortgagee's prior interest and liable to be set off.”
That statement, according to counsel for the Solicitors, was an incorrect application of the principle applied by Clarke J. in Mount Kennett. Counsel for Lett made it clear that he was relying on that statement, which he suggested was obiter, but which he submitted was a development of the law in a more nuanced way. Save to note that it is clear beyond doubt in this case that the Solicitors are entirely at arm’s length from Lett, I do not find it necessary to express any view on that controversy between the Solicitors and Lett for the reasons set out in the next paragraph.
50. In general, because of the specific factual matrix in which the application under s. 3 of the Act of 1876 was determined in Belohn, where the application of the solicitor was for a declaration of a charge over licensed premises for the costs due to him by his client in respect of the s. 316 application, and where the licensed premises were not owned by the client but were owned by a distinct corporate entity, which is entirely different from the factual matrix in which this application of the Solicitors is being considered, I do not find that decision to be of any assistance in applying s. 3 to the circumstances in which the Solicitors here seek a declaration over the party and party costs to be paid by the State defendants to Lett.
Priority issue: conclusion
51. While I have considered the authorities relied on by both counsel for the Solicitors and counsel for Lett in considerable detail above, unfortunately, save for the consideration of the relevant general principles as set out in Mount Kennett, and to a lesser extent in Larkin and Lismore, I have not found 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. I have already indicated that I consider that the Solicitors are prima facie entitled to such a declaration. The difficult issue here is whether, as submitted on behalf of Lett, the existence of the Mortgage Debenture is a countervailing consideration which defeats that prima facie entitlement. It seems to me that reaching a conclusion on that question, in the first instance, necessitates applying first principles to the wording of the relevant portion of s. 3. It must not be overlooked that the Court’s function is to apply a statutory provision, which is not under any challenge to its validity or enforceability on any ground.
52. The wording of s. 3 is very clear in stating 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. If the Mortgage Debenture in favour of Anglo had the effect suggested on behalf of Lett, namely, that it 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, which might accrue to a solicitor who acted for Lett in the litigation in the future and through the instrumentality of whom costs were paid to Lett, such as the Solicitors in this case. On the assumption that it had the contended for effect, 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”. In assessing the application of the provision, on the basis of that analysis of Lett’s argument, two questions arise, namely:
53. Answering the first question involves ascertaining the proper construction of the terms of the Mortgage Debenture and their application to the factual situation when it was created. As stated at para. 12 above, that is a question to be resolved between Lett, on the one hand, and Anglo’s successor, on the other hand. Anglo’s successor, Pine Investments, is not before the Court. Moreover, in my view, it is a question which could raise difficult legal issues. That observation is prompted by the fact that counsel for Lett in their Outline Legal Submissions, in support of their submission that Anglo’s charge over the Receivables was over a specific fund and had crystallised prior to any charging order being made, cite the decision of the Supreme Court in Re Wogan’s (Drogheda) Limited [1993] 1 I.R. 157, in which, as the headnote in the report discloses, one issue was whether the terms of the deed in issue there “created the precise characteristics of a fixed charge set out by McCarthy J. in In re Keenan Bros. Limited [1985] I.R. 401”. Aside from the possibility of difficult legal issues being involved in its resolution, in my view, it would be wholly inappropriate for this Court, in the absence of Pine Investments, to express any view in relation to the construction and application of the provisions of the Mortgage Debenture, including Clause 7 referred to by counsel for the Solicitors.
54. Answering the second question is even more problematical. While I am satisfied that it would be proper to treat the Mortgage Debenture as a conveyance to a bona fide purchaser for value, the problem relates to the necessity, because of Lett’s argument, to determine whether Anglo took the Mortgage Debenture without notice of the Solicitors’ right under s. 3 of the Act of 1876. Given that the purpose of such determination is to determine whether the Mortgage Debenture is absolutely void and of no effect against the Solicitors’ right, in other words, that, in reality, its purpose is to resolve a priority contest between Anglo’s successor in title, Pine Investments, and the Solicitors, it is a question which it is not appropriate to express a view on in the absence of Pine Investments. While the priority contest was introduced into the proceedings by Lett, obviously with the assistance of Pine Investments, because of the participation of Mr. Johnston in swearing an affidavit, that contest is not properly before the Court, because Pine Investments is not before the Court.
55. Accordingly, in the absence of Pine Investments as a party before the Court claiming priority over the Solicitors’ right to a charge under s. 3 of the Act of 1876, the only conclusion open on the evidence before the Court is that there is a possibility that Anglo took the Mortgage Debenture from Lett without notice of the Solicitors’ potential right to a declaration under s. 3 for a charge upon costs awarded to Lett in the event of an order for costs being made in favour of Lett against one or more of the defendants in the proceedings. That there is such a possibility cannot defeat the Solicitors’ application for a declaration that it is entitled to a charge in the current circumstances. 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. If Pine Investments was before the Court claiming priority over the Solicitors, the following timeline would certainly give rise to many questions as to whether Anglo took the Mortgage Debenture without notice for the purposes of s. 3:
(a) that the proceedings commenced in 2004 and that the hearing commenced in the High Court on 4th July, 2006;
(b) that the Facility Letter of 18th October, 2007 suggests that €500,000 of Facility B, under an account number which appears to date from 2006, was then currently drawn down;
(c) that, as Mr. Johnston averred, Facility B was advanced by Anglo to Lett “to allow [Lett] to fund its participation in these proceedings”; and
(d) that the Mortgage Debenture, which was dated 28th February, 2007, post-dated the commencement of the proceedings, although it pre-dated the Solicitors’ entitlement to seek a charging order, which, to adopt the terminology used by Clarke J. in Mount Kennett, first arose at the very latest when the judgment was given in favour of Lett on 23rd May, 2007 and was reflected in the order of the High Court dated 22nd June, 2007.
56. Leaving aside the possibility that a contest could arise as to the priority of the Solicitors’ entitlement to a charge as against the Mortgage Debenture, the position of the Solicitors as against Lett is absolutely clear. There is no doubt but that the Solicitors are entitled, as against Lett, 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.
57. Accordingly, I consider that the proper course is for the Court to make 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. I also consider that, subject to some refinement, the Solicitors are entitled to ancillary orders.
Summary of conclusions and order to be made
58. For the reasons outlined above, I am satisfied that the Solicitors are prima facie entitled to a declaration under s. 3 of the Act of 1876 and that no countervailing consideration has been established on the basis of which the Court should not exercise its discretion under s. 3 to make such a declaration. Moreover, I am satisfied that, subject to some refinement for the protection of Lett, the Solicitors are entitled to ancillary orders.
59. While no determination is made as to the priority of the Solicitors’ charge thus declared and the Mortgage Debenture now vested in Pine Investments as successor in title to Anglo, for the purposes of this application, I am not satisfied that Lett has discharged the burden it has assumed of proving that the Mortgage Debenture was taken by Anglo without notice of the Solicitors’ right to a charge. The determination of any issue between the Solicitors and Pine Investments as to priority is for another day, and, in my view, for a court of first instance, that is to say, the High Court.
60. Accordingly, I consider that the Court should make the following orders:
