Can a solicitor’s lien preserve a statute-barred action?

Key Points 
  • The exercise of a lien does not revive a cause of action in respect of any underlying debt/claim after the lapsing of the limitation period.
  • An executor has a duty to refrain from wasting an estate. In NSW this duty requires an executor to refrain from paying out statute-barred claims.​


Solicitors have long been entitled to assert a lien over a client’s property where the property is held as security, until the client has paid the solicitor’s fees and disbursements. Hicksons acted for the respondents in the matter of Coshott v Parker [2018] FCA 596 which required the Federal Court of Australia to consider whether a solicitor’s right to recover statute-barred legal fees was preserved, in circumstances where a solicitor’s lien was maintained.

In this case, the applicants asserted that the respondents breached their duties as executors of their father’s estate, by failing to pay legal fees allegedly owed by the deceased to the applicants out of the estate. The legal fees related to work allegedly performed in 1988 to 1991.  They argued that even though the debt was statute-barred under section 14(1)(a) of the Limitation Act 1969 (“Act”), the effect of section 68 of the Act was to ensure that, in circumstances where there was an extant lien, the underlying debt had not been extinguished.

The applicants asserted that they held a possessory lien over various files belonging to the deceased and argued that the effect of section 68 was that not only was the operation of the lien preserved, but also the underlying debt was also preserved at the same time.

Further it was argued that Section 82 of the Probate Administration Act (1898) (“Probate Act”) requires all debts to be paid equally, including statute-barred debts.

Under section 14(1)(a) of the Act a cause of action founded on contract is not maintainable if brought after the expiration of a limitation period of 6 years running from the date on which the cause of action first accrues. The expiry of the limitation period extinguishes the cause of action entirely (section 63 of the Act).   Section 68 of the Act qualifies that where a person maintains a possessory lien over property, the right and title underpinning the lien is not extinguished until the owners’ rights in conversion and/or detention become extinguished by the limitation period, but only so far as is necessary to support and give effect to the lien.

Decision

The Federal Court found in favour of the respondents and held that section 68 does not preserve a statute-bared debt claim merely because a lien is maintained. Accordingly the respondents were not liable to pay the statute-barred debts and the respondents had not breached their duties as executors.  
The decision of  his Honour  Lee J was based on the following:

  • Solicitors are entitled to a lien as a passive remedy which enables them to hold onto their client’s property, pending payment of their legal fees. A lien and cause of action are distinct. Unlike a cause of action, a solicitor has no right to actively enforce their lien and a lien is of no benefit where a solicitor does not physically possess items to retain. A lien does not act as a charge and merely acts as a defence to a countervailing action in conversion or detention for the retained property;
  • Section 68 operates to preserve the lien holder’s right only insofar as is necessary to maintain the lien, that is by enabling the solicitor to hold onto a client’s papers and/or exercise a power of sale. Accordingly the exercise of a lien does not revive a cause of action in respect of any underlying debt/claim after the lapsing of the limitation period; and
  • An executor has a duty to refrain from wasting an estate. In NSW this duty requires an executor to refrain from paying out statute-barred claims. Accordingly persons seeking payment of statute-barred claims are not deemed ‘creditors’ within the meaning of Section 82 of the Probate Act. To the contrary, ‘creditors’ are persons to whom the estate has a subsisting legal liability, that is, a debt which is actually owing. 

The applicants have now appealed this decision and the outcome remains to be seen.

For more information on the case please click on the link here. 

What does this mean?

Although a debt may continue to exist to support the exercise of a lien it cannot to be enforced where it is otherwise statute-barred. Payment of a statute-barred debt is inconsistent with an executor’s duty not to waste an estate.

This gives rise to the question – what is the use of such a lien? A good example of how a solicitor’s possessory lien can be of value is Coshott v Barry (2016) 248 FCR 534. In that case the solicitors asserted a lien for unpaid legal fees over a certificate of title to property - the solicitor produced the certificate of title, to enable the sale of the property, but only on the basis that a portion of the sale proceeds was paid into Court.

Post by Elham Bolbol and Chloe Ellis
 

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