Trust Funds on Hold: Solicitors’ Liens vs. Duties to Client

In the recent case of Studio B Hair Design Pty Ltd t/as Studio B Hair Design v Kerrison t/as Kerrisons Legal Services [2025] NSWSC 924, the New South Wales Supreme Court dealt with the issue of whether a solicitor could retain funds in trust for a client in order to secure unpaid legal fees. The case arose from a dispute between a hair salon, Studio B, and its former solicitor (the Law Practice) after Studio B sold its business.

The proceeds from the sale, amounting to $91,180.38, were held in The Law Practice’s trust account. However, when Studio B engaged a new solicitor and instructed The Law Practice to transfer the funds, he refused to release the full amount, claiming a right to hold the funds until his outstanding legal fees were paid.

The Dispute: Key Arguments

Studio B's Arguments:

Studio B contended that The Law Practice was not entitled to hold the entire sum of $91,180.38, as his outstanding fees, which totalled $37,940, were significantly lower than the trust funds. Studio B argued that The Law Practice had a fiduciary duty under Section 138 of the Legal Profession Uniform Law 2014 (NSW) (‘LPUL’) to release the balance of the trust funds after retaining only the amount due for his legal fees. Specifically, Studio B cited Section 138, which mandates that trust funds must be held exclusively for the benefit of the person from whom they were received, and that disbursements should only be made in accordance with the client's directions.

Section 138(1) of the LPUL stipulates:

"(1) Except as otherwise provided in this Part, a law practice must:(a) hold trust money deposited in the law practice's general trust account exclusively for the person on whose behalf it is received;(b) disburse the trust money only in accordance with a direction given by the person."

Studio B further argued that the term “legal costs” in Section 144 of the LPUL does not extend to costs arising from subsequent disputes but only covers the original unpaid fees.

Section 144(2) of the LPUL provides that:

"(2) A law practice may do any of the following, in relation to trust money held in the practice’s general trust account or controlled money account:(a) exercise a lien, including a general retaining lien, for the amount of legal costs reasonably due and owing by the person to the law practice, where the law practice is otherwise entitled to do so;

(b) withdraw money for payment to the law practice's account for legal costs owing to the practice if the relevant procedures or requirements specified in the Uniform Rules for the purposes of this Division are complied with."

The Law Practice's Defence:

The Law Practice, on the other hand, argued that he had not been fully compensated for the legal services rendered and was entitled to retain the funds in trust as security for the outstanding balance of $37,940. He maintained that his right to exercise a general lien was not limited to the unpaid fees but extended to any costs associated with the legal services provided, including those related to any dispute over the fees.

The Court's Decision

The Supreme Court sided with The Law Practice, affirming his entitlement to exercise a general lien over the $91,180.38 held in trust. The Court found that the provisions of Section 138 of the LPUL, which obligate solicitors to follow their clients' instructions regarding trust money, were superseded by the specific provisions in Section 144, which allow solicitors to retain funds in trust for "legal costs reasonably due and owing."

The Court held that the general lien, as recognized at common law, applied to all funds held in trust by the solicitor, not just the amount of unpaid fees. In rejecting Studio B's claim that The Law Practice had breached his fiduciary duty, the Court concluded that the solicitor's right to secure his fees through a lien was consistent with the principles of trust law.

Key Takeaways for Clients

• Solicitors' Liens: Clients should be aware that trust money may not always be automatically available for withdrawal. A solicitor may lawfully retain trust funds if there are unpaid legal fees, even if the fees are lower than the total amount held in trust.

• Broad Scope of Solicitor's Liens: The solicitor’s lien can extend beyond the original unpaid fees to include any additional costs arising from disputes over those fees. This means that clients cannot avoid paying their former solicitor by simply switching to a new legal representative.

• Fiduciary Duty and Lien: While solicitors have a fiduciary duty to act in the best interests of their clients, this duty may be overridden by the solicitor’s right to exercise a lien in respect of unpaid legal costs, as established under Section 144 of the LPUL.

  
  

How The Legal Costs Consultants Can Assist Law Practices and Clients

If you are a client facing a situation where your former solicitor is withholding trust funds due to unpaid legal fees, or if you are a law practice seeking to ensure your legal costs are properly secured, The Legal Costs Consultants can provide the expert assistance you need. Here's how we can assist:

For Clients:

• Reviewing and Challenging Legal Fees: At The Legal Costs Consultants, we specialize in evaluating legal fees to ensure they are fair, reasonable, and compliant with the applicable laws. If you believe that your solicitor’s charges are excessive or incorrect, we can provide an objective assessment and help identify potential overcharges.

• Negotiating with Your Solicitor: If your former solicitor is withholding trust funds, we can step in to facilitate negotiations. Our team can assist as an intermediary to help resolve disputes and ensure that you receive a fair agreement regarding the release of trust money.

• Ensuring Legal Compliance: We ensure that all procedures for the release of trust funds are fully compliant with the Legal Profession Uniform Law, safeguarding your interests and minimizing the risk of further legal complications.

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For Law Practices:

• Securing Your Legal Fees: If your firm is holding trust funds to secure unpaid legal fees, The Legal Costs Consultants can offer expert guidance on how to ensure your lien is legally enforceable and properly documented.

• Fee Dispute Resolution: We assist law firms in resolving disputes over legal fees by reviewing billing practices, ensuring all charges are justified, and helping to prevent costly litigation. Our goal is to protect your practice’s reputation and financial interests.

• Compliance with Legal Requirements: At The Legal Costs Consultants, we ensure that your practice stays compliant with the Legal Profession Uniform Law and other relevant regulations when dealing with client funds and trust accounts. Our support helps mitigate risks and ensures that your firm’s trust management practices are above reproach.

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No matter whether you're a client or a law practice, The Legal Costs Consultants are here to provide expert, tailored advice to help you resolve trust fund disputes, secure outstanding legal fees, and ensure full compliance with the law. Our team brings deep knowledge and experience to ensure that your interests are protected and your legal matters are handled efficiently and fairly.

If you find yourself in a dispute over trust money or need assistance with managing legal costs, don't hesitate to contact The Legal Costs Consultants on 02 9054 3180.