Supreme Court has jurisdiction under s.3 of 1876 Act to make charging orders on costs awarded in its own proceedings.

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

Judgement of Ms. Justice Dunne delivered the 10th day of March, 2015

An application was brought before this Court by the solicitors for the plaintiff herein (Matheson) seeking an order pursuant to s. 3 of

the Legal Practitioners (Ireland) Act 1876 (the 1876 Act) declaring that the solicitors for the plaintiff are entitled to a charge upon

the costs awarded to the plaintiff pursuant to an order of this honourable Court dated the 17th February, 2012 in respect of the

professional fees, charges, expenses and outlay incurred in representing the plaintiff in the above entitled proceedings together with

ancillary relief at paras. 3 and 4 of their Notice of Motion. In addition, the solicitors for the plaintiff also sought a declaration that

they held a common law lien over the costs awarded to the plaintiff pursuant to the order of this Court of the 17th February, 2012 in

respect of the professional fees, charges, expenses and outlay incurred in representing the plaintiff in the proceedings.

When these proceedings were first listed for hearing before the Court, the Court sought submissions from the parties as to the

jurisdiction of the Supreme Court to deal with an application such as this ab initio. The parties have furnished written submissions on

this issue.

S. 3 of the 1876 Act provides as follows:

“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 against such charge or right: Provided always, that no such order shall be made by any such court

or judge in which the right to recover payment of such costs, charges, and expenses is barred by any Statute of

Limitations.”

Background

It would be helpful to set out in some detail the background to the application pursuant to s.3 of the 1876 Act. The costs at the

heart of this application arise from two orders: one being an order of the High Court made on the 22nd day of June, 2007 (Clarke J.) in

which it was ordered “That the plaintiff do recover as against the second and third named defendant its costs of this action (including

reserved costs the costs of discovery the costs of stenography and the costs of the provision of visual aids at the hearing herein)

when taxed and ascertained”; an order was made in favour of the first named defendant as against the plaintiff for its costs and the

plaintiff obtained an order over against the second and third named defendants in respect of those costs. Following the order of the

High Court which included an award of damages against the second and third named defendant, an appeal was brought to this Court

and by order of the 17th February, 2012, the amount awarded to the plaintiff in the High Court was reduced and it was further

ordered:

“That the High Court order in relation to costs do stand affirmed that the plaintiff do recover against the second and third

named defendants the costs of this appeal when taxed and ascertained . . .”

The application pursuant to s. 3 of the 1876 Act was grounded on an affidavit of Stuart Margetson, a consultant in the firm of

Matheson Solicitors. Matheson had represented the plaintiff in the proceedings before the High Court. The background to those

proceedings is that the plaintiff was a company involved in mussel farming in Wexford. A decision was taken to upgrade sewage

facilities for Wexford town and its environs together with the construction of a waste treatment plant. The plaintiff issued the

proceedings seeking damages for a breach of its legitimate expectation that it would receive compensation by reason of the

imposition of an exclusion zone of five hundred metres radius around an outfall pipe for the proposed waste treatment plant which

encompassed the plaintiff’s mussel beds in Wexford Harbour.

The proceedings in the High Court were heard over twenty nine days between the 4th July, 2006 and the 8th February, 2007. On the

23rd May, 2007 damages in the sum of €1,150,000 were awarded to the plaintiff to be paid by the second named defendant and the

order for costs was made in favour of the plaintiff as against the second and third named defendants in the terms set out above.

The second, third and fourth named defendants appealed the judgment of the High Court and the appeal was allowed as to quantum

only with the result that the award to the plaintiff was reduced to the figure of €650,000 by way of compensation. An order for costs

was made in favour of the plaintiff in respect of the appeal in the terms set out above.

Mr. Margetson in his affidavit said that a balance of approximately €1,128,408 (inclusive of VAT) remains due and owing to Matheson

in relation to the professional fees, costs and expenses (including counsel’s fees) incurred in representing the plaintiff. The plaintiff

has been invoiced in respect of professional fees but not in the full amount due and owing. The reason for this was explained as being

due in part to discussions with the plaintiff as a result of which it became apparent that the plaintiff was in severe financial

difficulties. If Matheson continued to issue invoices for the outstanding balance, Matheson would become liable for substantial sums in

respect of VAT.

Mr. Margetson accepted that the plaintiff had paid substantial sums in respect of professional fees at various stages during the

currency of the proceedings. He then set out details of the sums now said to be due and noted that the taxation of the party and

party costs in respect of the High Court and the Supreme Court was now proceeding before the Taxing Master on the plaintiff’s

instructions. He further noted that the plaintiff had not paid any sum due by way of professional fees since 2007 with the exception

of a sum paid on account to senior counsel in respect of the Supreme Court appeal which sum was paid in June 2011.

In May 2012, the plaintiff received the sum of €908,950.16 directly into their bank account from the State. This was made up of the

sum of €650,000 being the amount of the award determined by the Supreme Court together with interest in the sum of €258,950.16.

The sum of €650,000 was paid over to IBRC (to whom the plaintiff is indebted). €56,000 was paid into pension funds of the plaintiff’s

directors. A sum of €170,000 was retained to discharge potential stamp duty liability in respect of the taxation of costs. The plaintiff

offered to pay a sum of €30,000 to the solicitors but this did not in fact occur.

Mr. Margetson has expressed concern that any further sum paid to the plaintiff by the State in respect of costs will be paid to IBRC.

In those circumstances, Matheson seek a charge over the costs pursuant to s. 3 of the Legal Practitioners (Ireland) Act 1876 given

that Matheson was instrumental in obtaining the order for costs in favour of the plaintiff.

During the taxation of costs, a sum of €500,000 was paid on account to Matheson and was lodged by them in the plaintiff’s client

account with Matheson. It was stipulated by the State that if the costs taxed at less than €500,000, any balance would be refunded

to the State and this was agreed to in writing by Matheson in a letter dated the 2nd October, 2013.

A dispute has arisen between the plaintiff and Matheson as to how that sum should be dealt with and ultimately, Matheson complied

with the request from the plaintiff to retain the same sum and not to apply it towards any outstanding invoices. It appears that the

plaintiff wanted to use some €270,000 of that figure to pay IBRC and trade creditors. It is in these circumstances that Matheson

initiated this application seeking an order pursuant to s. 3 of the 1876 Act and further ancillary relief is sought in the notice of motion

before this Court directing that the funds already received from the second and third defendants in relation to the plaintiff’s costs and

held in the plaintiff’s client account are to be paid out to discharge the professional fees, charges, expenses and outlay of the

solicitors for the plaintiff including the fees due to counsel. A further order is sought that the balance of any sum found to be due in

respect of party and party costs are paid to Matheson given the fear that if any such sum was paid direct to the plaintiff, it would be

paid in a similar manner by the plaintiff as previously occurred. In other words it would be paid by the plaintiff to creditors to the

detriment of solicitors and counsel.

A number of replying affidavits were filed in response to the affidavit of Mr. Margetson. The first of those was sworn by Geoffrey

Johnston of LSF Pine Investments Limited (Pine Investments). He outlined the details of the plaintiff’s borrowings from Anglo Irish Bank

Corporation Plc, subsequently known as IBRC. IBRC went into special liquidation on the 7th February, 2013. Pine Investments

purchased a portfolio of loans from the liquidators of IBRC including that of the plaintiff in an arrangement completed in January 2014.

Pine Investments relies on a provision in a mortgage debenture made between Anglo (as it then was) and the plaintiff to contend that

the costs payable to the plaintiff are “receivables” within the meaning of the debenture and that, as a consequence, Pine

Investments is entitled to enforce its security in respect of the costs. By letter of the 13th April, 2014, Pine Investments notified the

plaintiff that “For the avoidance of doubt, the monies which are due and owing to you by the second named defendant/appellant in

discharge of an order for costs in proceedings bearing record No. 2004/7059P and Supreme Court Appeal No. 2007/196P, the amount

of which is due to be ascertained by the Taxing Master, must be remitted to us in full by virtue of Clause 4.4 of the debenture, such

monies to be applied to reduce the loan balance under the facility letter”.

Thus it is contended by Pine Investments that the monies over which Matheson seek an order pursuant to s. 3 of the 1876 Act

represents money payable to the plaintiff which is the property of Pine Investments under the mortgage debenture. Mr. Johnston

added that Mr. James Lett of the plaintiff agreed that the costs are receivables and should be remitted to Pine Investments.

Mr. Richard Lett swore an affidavit on behalf of the plaintiff. He described various discussions with the company’s legal

representatives prior to the commencement of the proceedings. It was clear that a bank loan would be required in respect of legal

fees. Complaint was made by him that no “section 68” letter was provided by Matheson. He said that the case took twenty eight to

twenty nine days before the High Court in contrast to the twelve to fourteen days hearing that was suggested by Matheson and

counsel in advance of the proceedings. Funding was provided by Anglo supported by personal guarantees of three directors of the

plaintiff. That funding was limited to €750,000 and it was not possible to obtain further funding from Anglo. Thus costs incurred

beyond that figure were paid from the day to day working capital of the plaintiff causing a severe impact on the plaintiff.

Mr. Lett went on to describe the manner in which the sum received by way of damages of €650,000 plus interest was dispersed. He

referred to the fact that it had been necessary to fund a sum of €30,250 (including VAT) for counsel in respect of the appeal before

this Court. Reference was made to an e-mail of the 30th May, 2011 in this context in which Matheson acknowledged that the sum of

€30,250 was funded by taking that sum out of the directors’ pension funds. Because of tax implications, the sum of €56,550 had to be

withdrawn from the pension funds and Matheson in an e-mail to the plaintiff stated:

“I confirm that, assuming a successful outcome to the appeal, that we agree that the refund of your pension fund monies

will be the first item to be paid out of any judgment sum received in this case.”

Mr. Lett went on to describe the concern and disappointment of the plaintiff over the duration of the case in the High Court and the

consequences of that in respect of costs. That concern was communicated to Matheson on a number of occasions.

Mr. Lett went on to explain that following receipt of the sum of €500,000 from the State defendants on account of costs, a series of

meetings took place between Matheson and representatives of the plaintiff to attempt to agree on “a fair distribution of the payment

on account”. These discussions were obviously unsuccessful. Finally, Mr. Lett criticised the lack of a VAT invoice for the balance of

costs due, leaving the plaintiff in the position that it does not know what the final remaining bill will be. His last observation was to

note that there have been severe reductions and cutbacks in costs on taxation. He urged the Court in all the circumstances to refuse

the reliefs sought by Matheson.

Mr. Margetson swore a further affidavit on the 14th May, 2014 taking issue with a number of the matters disposed to by Mr. Lett and

Mr. Johnston in their affidavits. In particular, he referred to a letter from Matheson Ormsby Prentice as Matheson was then known

dated the 2nd July, 2009 This letter was addressed to Anglo in connection with the sum of €750,000 being borrowed by the plaintiff

to fund the litigation and the letter stated:

“We hereby undertake, on behalf of Lett and Company Limited to pay to Anglo Irish Bank Corporation Plc (“the Bank”), 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 & Company Limited by the Supreme Court against any or all 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 or Lett & Company Limited by the Bank.

We confirm that we have our client’s irrevocable authority to provide this undertaking.”

Mr. Margetson noted that the undertaking was to pay the balance of any award or settlement following the deduction of all proper

charges due to Matheson. Mr. Margetson expressed the view that the undertaking as accepted by Anglo made it clear that it was

never contemplated that Anglo might be entitled to receive payment of any costs recovered when such costs were still outstanding

to Matheson.

Mr. Margetson also dealt with the issue of the refunding of the sum of €56,000 approximately to the pension fund and suggested that

the refund should have been confined to the sum of €30,250 and was stated to be payable from any “judgment” and not costs.

A final affidavit was then sworn by Mr. Lett in which he reiterated that the definition of receivables contained in the mortgage

debenture between Anglo and the plaintiff was such as to include any costs awarded. Further, he made the point that the

undertaking furnished by Matheson and sought by Anglo was without prejudice to Anglo’s rights under the mortgage debenture. He

contended that no monies would have been advanced by Anglo if Matheson was to have an entitlement to the award of damages

over and above the entitlement of Anglo.

A number of observations may be made at this stage. The first observation to make is that the reliefs sought herein are confined to

the costs of these proceedings. No issue arises as to any disbursements made out of the sum awarded for damages together with

interest. Therefore, the application before this Court concerns only the sum of €500,000 already paid on account in respect of costs

and such further sum (if any) found to be due by way of costs on the completion of the party and party taxation.

The second observation to make is 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. Equally, there was no appearance on behalf of the State defendants given that they are the parties

who will be making the payment if a further sum is found to be due by way of costs on the completion of taxation. The final

observation to make is that this judgment is only concerned with the jurisdiction of this Court to consider an application pursuant to

s.3 of the 1876 Act. The merits of the application await a further hearing.

Discussion on the question of jurisdiction

The jurisdiction contained in s. 3 of the 1876 Act to make a charging order on property is conferred on “the Court or Judge before

whom any such suit, matter, or proceeding has been heard or shall be depending . . .”. Thus the Court or Judge concerned may make

such order over the “property recovered or preserved”. The word “depending” may seem to be somewhat unusual but clearly means

“pending”, a view which is supported by the provisions of s. 32 of the Arbitration Act 1954 (now repealed) but which provided:

“Section 3 of the Legal Practitioners (Ireland) Act, 1876, (which empowers a court before which any proceeding has been

heard or is pending to charge property recovered or preserved in the proceeding with the payment of solicitors' costs)

shall apply as if an arbitration were a proceeding in the Court, and the Court may make declarations and orders

accordingly”. (emphasis added)

The order for costs made in favour of the plaintiff against the State defendants in this case comes within the meaning of property

recovered and preserved as provided for in s. 3 of the 1876 Act. Cordery on Solicitors, 5th edition 1961 considered the scope of the

equivalent section in England and Wales, saying at page 399 as follows:

“The section only confers jurisdiction on the court which heard the proceedings wherein the property was recovered or

preserved: thus where an administrator recovered judgment in the common pleas against beneficiaries who afterwards

had the estate administered by a county court the application was properly made to the court of common pleas, and

where judgment was recovered in the High Court, and the judgment debtor having become bankrupt, his estate was

administered in the county court, that court had no jurisdiction under the section.”

Cordery further commented at p. 399:

“One object of the section is to secure a judicial inquiry into the extent to which property should be charged, which can

only be done properly by the judge who heard the case, and therefore the application should, where possible, be made to

him even though other judges have equal jurisdiction . . ..”

Cordery was considering the provisions of s. 72 of the U.K. Solicitors Act 1957 which mirrors closely the provisions of s. 3 of the 1876

Act which, in turn, was in similar terms to the provisions of s. 28 of the Solicitors Act 1860.

The decision of the Court of Appeal in Guy v. Churchill [1887] 35 Chancery Div. 489 provides some guidance. That was a case in

which there was an action brought by the plaintiffs seeking an account from the defendants. The action was dismissed with costs

which were taxed and then paid to the defendants. On appeal that judgment was reversed. The defendants were ordered to repay to

the plaintiffs the costs they had received and to pay to the plaintiffs the cost of the appeal. The plaintiffs then became bankrupt. An

application was brought to the Court of Appeal pursuant to s. 28 of the Solicitors Act 1860 (the predecessor of s. 72 of the Solicitors

Act 1957) on the basis that the costs paid under the order of the court below and ordered by the Court of Appeal to be refunded

were property recovered within the meaning of s. 28. The solicitors were successful in that application. Cotton L.J. at page 491

stated:

“The other question relates to a lien on a sum which had been ordered by the Court below to be paid by the Plaintiffs to

the Defendants, but was ordered by this Court to be repaid. The question is a nice and novel one, but I think that it is

governed by the principle that a solicitor has a lien on what is recovered in an action, although the recovery of this sum

was not the direct result of the action. This Court ordered the refunding of a sum which had been paid under an order of

the Court below, and I think that this was a sufficient recovery, though it was not the general result of the suit. The lien

of a solicitor is grounded on the principle that it is not just that the client should get the benefit of the solicitor's labour

without paying for it. Here the official receiver wishes to get the benefit of the solicitor's exertions by which the £298 7s.

1d. has been recovered, without paying for them.”

Accordingly, it was found that the solicitors were entitled to succeed in their application. Thus the case is authority for the

proposition that an appellate court when reversing a costs order is “recovering or preserving” property within the meaning of the

section. The Court of Appeal in that case had jurisdiction to deal with the application in circumstances where it had reversed the

order made in the court below.

Lismore Buildings Ltd. v. Bank of Ireland Finance Ltd. (No. 2) [2000] 2 I.R. 316 provides further support for the proposition. This was

the only authority cited by the parties before this court. That was a decision of the Supreme Court in which an application was made

by the solicitors acting for the plaintiff seeking an order pursuant to s. 3 of the 1876 Act. The solicitors contended that as the

plaintiff company was insolvent they would have difficulty in recovering costs unless they could do so from the taxed costs awarded

to the plaintiff. They further contended that the third, fourth and fifth defendants intended to issue garnishee proceedings in order to

attach the sums due to the plaintiff from the first two defendants. The Supreme Court granted the relief sought in the notice of

motion. In that case the High Court had made five orders relating to security for costs. The orders were then appealed to the

Supreme Court. On appeal, orders for costs in respect of the appeals were made in favour of the plaintiff against the first two

defendants. In addition orders for costs were made in favour of the third, fourth and fifth defendants against the plaintiff. In the

circumstances, the plaintiff’s solicitor applied for the order pursuant to s. 3 of the 1876 Act. Barrington J. giving the judgment of the

Court (with which Hamilton C.J. and Barron J. agreed) stated at page 319 as follows:

“There is no doubt that a solicitor, whose fees and outlay have not been paid by his client, will normally have a lien on a

property or fund recovered by his efforts to secure professional costs and outlay incurred by him. The same principle

applies to a fund recovered under an order for the payment of costs. For the same reason it is proper for a court to

protect the solicitor's position by granting him a charge on property or costs recovered or preserved as a result of his

efforts. Section 3 of the Act of 1876, also contemplates that the charging order should be made by the court which made

the order under which the claim to costs arises. The solicitor's application is therefore properly made in this court and this

court will therefore make an order charging all monies recovered under the said first and second orders of this court dated

the 11th February, 1998, with the payment of all costs and outlay due and owing by the plaintiff to his solicitor arising

out of the solicitor's conduct of these proceedings.”

The Supreme Court in this case made an order on the 17th February, 2012 providing for costs in relation to the appeal before the

Supreme Court and also made an order affirming the order in relation to costs made in the High Court. I am satisfied that the High

Court costs, subsequently affirmed by the Supreme Court, and the Supreme Court costs constitute “property recovered or preserved”

as a result of the appeal to this Court in accordance with the decisions in the cases of Guy v. Churchill and Lismore Buildings Ltd. v.

Bank of Ireland Finance Ltd. (No. 2).

The statutory power conferred by s. 3 of the 1876 Act empowers the court which made the order by which property was recovered

or preserved to charge that property. Thus, it appears to me that in relation to property recovered or preserved by virtue of an order

of the Supreme Court, it is to that court the application pursuant to s. 3 of the 1876 Act should be made. That being so, it is difficult

to see how it could be said that the High Court could have jurisdiction to make an order over an award of costs made in the Supreme

Court. It may be the case that in circumstances where an order is made in the Supreme Court affirming the order of the High Court

that the High Court has jurisdiction to make an order over that element of the costs awarded but I cannot see the basis upon which

it could be said that the High Court has jurisdiction to make an order pursuant to s. 3 in respect of an award of costs made by the

Supreme Court. Thus, by virtue of the order made on the 17th February, 2012, this Court has jurisdiction to make an order pursuant

to s. 3 of the 1876 Act.

It could be suggested that by virtue of the decision in Re Deakin [1900] 2 QB 489 that the High Court has jurisdiction to make an

order under s. 3 of the 1876 Act in respect of orders of the High Court and Supreme Court which had the effect of recovering or

preserving costs. Rigby L.J., in the course of his judgment in that case at page 495 commented:

“I was somewhat alarmed at the suggestion that, because the Court of Appeal made the order by means of which the

property of the debtor was recovered or preserved, that Court alone could make the charging order. I have never heard it

doubted that any judge of the court which had seisin of the suit, matter, or proceeding was entitled to make the charging

order.”

The other two judges of the Court of Appeal in that case did not deal with that issue. The gravamen of the decision was that any

judge of the High Court, whether sitting in bankruptcy or not can make a charging order under s. 28 of the Solicitors Act, 1860; and,

semble, so also can a judge who is a judge of the Court of Bankruptcy alone, where in the course of bankruptcy proceedings property

has been “recovered or preserved”. That case is authority for the proposition that the application for the order need not necessarily

be made to the particular judge who heard the suit, matter, or proceeding. In the circumstances, I am not satisfied that the obiter

comment of Rigby L.J. in that case is authority for the proposition that the High Court has jurisdiction to make an order under s. 3 of

the 1876 Act in respect of an order for costs made in the Supreme Court. Indeed, it would be difficult to come to such a conclusion in

the light of the decision of this court in Lismore.

Having said that, the argument was also put forward on behalf of the plaintiff that there was a constitutional element to this issue

and that the application should be remitted to the High Court for hearing, thus providing for the possibility of an appeal to any party

dissatisfied with the outcome of the hearing. At first sight, this may seem to be an attractive proposition. However, it is the case

that this court from time to time hears applications which arise for the first time in this court but which arise out of existing

proceedings. The fact that parties aggrieved by a decision of this court on such an application have no right of appeal does not

create a constitutional impediment to the hearing of such applications. Thus, in the case of an application pursuant to Order 58, R. 8

of the Rules of the Superior Courts to admit further evidence, the application is heard and determined by this court and any party

aggrieved by the order cannot appeal from the decision as this is the Court of Final Appeal as provided in Article 34. 4.6 of Bunreacht

na hÉireann. S.3 of the 1876 Act confers jurisdiction on the Court which heard the proceedings wherein the property was recovered

or preserved. In this case, the property consisting of the costs was recovered by virtue of the order of this court which made an

order affirming the order for costs made in the High Court and made the order for costs in respect of the appeal before this court.

Accordingly, I am satisfied that there is jurisdiction to deal with this application in this court, ab initio.

In coming to this conclusion, I should emphasise that I am satisfied that this Court has jurisdiction to deal with an application by

virtue of s. 3 of the 1876 Act and to make any appropriate ancillary orders but I am not of the view that Matheson is entitled to

enforce its common law lien before this court. There is no statutory provision conferring jurisdiction on this court to grant such relief.