News — Section 272 of the Legal Profession Act and a Solicitor’s right
to take Security for Costs

Section 272 of the Legal Profession Act 2008 WA (the Act) provides that a law practice may take reasonable security for their costs. 

 

Written by Dr Stephen Shaw BA LLB (Hons) – April 2019

 

A lawyer may refuse to act, or cease to act, if that security is not provided. The other state jurisdictions have similar or exactly the same provisions.

Fair enough. Lawyers, like every other person who works for a living, need to get paid. Other professionals may well invoice at the end of works with no upfront security, but they are rarely in the position where their invoices may run to the tens or even hundreds of thousands of dollars.

Most lawyers are not in that position either. They take money on trust and expect regular monthly payment of their invoices. That said, there are some areas of law where the clients are often not able to make up front or regular payment.  Personal Injury and Family Law spring immediately to mind. For clients needing legal services in those areas the lawyer’s right to take security can act as a very strong tool for access to justice.

The Act does not specify what security a solicitor can take, but, in most cases, it is likely to be in relation to land. Section 272 does not in itself create an interest in land, but many costs agreements make it clear that the lawyer will not act, or will cease acting, if the client refuses to allow providing security by way of a mortgage on real property.

This may be problematic if ownership of that land is a substantial question in the litigation that is covered by the retainer.  Such instances, which are likely to be common in family law retainers, are arguably champerty, in that the lawyer is maintaining the lawsuit with a view to sharing the proceeds of the suit. Champerty and maintenance are torts in Western Australia, although the Law Reform Commission of Western Australia is currently looking into whether those torts should be abolished (the torts have been abolished in some Australian jurisdictions).

Tort or not, it is clear that Western Australian practitioners are taking mortgages and placing caveats to secure their fees. If it is something you do, or are thinking of doing, there are better and worse ways of going about it.

For preference, you should deal with this matter at the time you enter into the retainer. Section 272 makes it clear that you can refuse to act if the client is not willing to offer the security. It is more problematic if you wait until you have done substantial works and, possibly, have substantial monies owing to you.  Problematic for you as your debt will be unsecured if the client refuses; problematic for both you and your client as your moving to take security part way through the matter may damage the relation of trust and confidence that should exist between you.

It is also preferable to identify particular and sufficient security rather than to lodge caveats on a range of properties or over ‘’all assets”.

Despite my comments above, it is clear that the court may uphold a caveat lodged pursuant to a costs agreement wherein the clients agreed to secure payment of fees payable to the solicitors by charging all their real property (See Murfett Legal Pty Ltd v Frigger [2015] WASC 406).

That said, Windeyer AJ, as he then was, in MJ Leonard Pty Ltd v Bristol Custodians Ltd (in Liq) [2013] NSWSC 1734, discussing the equivalent statutory provision, noted that costs agreements that gave a right to take security over land “may not be uncommon but there is no evidence they are standard. Neither should they be as there is an obvious conflict [59]”.  He went on to say that “security over all one’s assets is unlikely to be reasonable. Security, if taken, should be by separate document making the position quite clear. The purpose of costs agreements is to set out the work to be done and the basis of charging. In most cases no more should be required. If it is, and there are clearly cases where more is required, then a separate document is desirable [61]”.

Taking security over a client’s assets to protect your fees is clearly legal, but it enters into dangerous and not particularly well charted waters. There will be many occasions where your doing so is as much in your clients’ interests as it is your own.  If you are going to do it, do it carefully and well, and above all, do it reasonably.