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Accountants Liens

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.


By John Wojtowicz (Director - Law Central Legal)

In general terms, a lien is the right to retain possession of someone else’s property as security for their unpaid debt to you. This bulletin will address liens in the context of accountants, but this will necessarily involve discussion around liens more generally. There are multiple ways in which the legal right to exercise a lien can arise. The right to exercise a lien can arise from the common law (case law); from a party’s rights under a contract; or under statute. Examples of statutory liens are the liens which arise in the sale of goods legislation enacted by various Australian states. However, those statutory liens have limited application to accountants and therefore will not be addressed in any detail in this bulletin.

Common Law Liens

Liens have long been recognised under the common law. Since the beginning of the 19th century the Courts in the U.K. have recognised the rights of various industries to exercise liens to ensure they receive payment for their work. These industries include (but are not limited to) arbitrators, architects, conveyancers, solicitors, bankers, stockbrokers and insurance brokers. There are two distinct types of liens which arise under the common law. The two types of common law liens are “general liens” and “particular liens”.

General Liens

General liens were considered by the Australian Courts in the case of Stapley v Towing Masters Pty Ltd (trading as Dynamic Towing) [2009] NSWSC 139 (“Stapley v Towing Masters”). In that case, the Court stated that “A general lien entitles the holder to retain the chattel as security for payment of the full indebtedness of the owner, no matter on what account the indebtedness may be due.” An important legal principle relating to general liens is that there is no restriction on what property the holder of the general lien may exercise the lien over, provided they have received possession of the property by lawful means.

The Court then stated in Stapley v Towing Masters that a general lien may arise in one of two ways. Firstly, because it has arisen in an occupation which is recognised under law as having the right to exercise a general lien. The Court set out those occupations in its judgment “Those occupations are: solicitors, bankers, factors, stockbrokers, insurance brokers and calico printers”. The second way that a general lien may arise is by custom or usage in the particular industry in which the lien holder operates. Of this second way of asserting a general lien, the Court in Stapley v Towing Masters stated, “the Defendant must prove that the industry uniformly acknowledges the right to a general lien.”

The Courts in Australia have generally formed the view that accountants do not satisfy either of the two ways of asserting a general lien. This was expressed by the New South Wales Supreme Court in the unreported judgment of Malouf v Rowley (1980) NSWSC (“Malouf v Rowley”). As such, accountants are unlikely to be able to lawfully exercise a common law general lien over property which they hold for their clients.

Particular Lien

A particular lien is a common law lien which limits the property which the lien holder can exercise the lien over. It has been decided by the Courts on several occasions that accountants are able to exercise a particular lien to ensure they receive payment for services which they have rendered. Notably decided by Lawton LJ in the U.K case of Woodworth v Conroy where he stated “I would adjudge that accountants in the course of doing their ordinary professional work of producing and auditing accounts, advising on financial problems, and carrying on negotiations with the Inland Revenue in relation to taxation and rating have at least a particular lien.”  

As a particular lien can only apply to certain property, it is important that accountants and their clients understand what that property is. This issue was addressed by Powell J in the Australian case of Malouf v Rowley where he stated that the accountant “could exercise a lien in respect only of those records or documents which he or his staff prepared or wrote up; no such lien could be exercised in respect of other records or documents in his possession.” As such, accountants are able to exercise a lien over a particular document provided they prepared or wrote up that document; and they are unpaid for that particular document.

A particular lien could be considered within the context of a tax return. The client provides their receipts and other tax related documents to the accountant to enable the accountant to prepare the tax return. The accountant prepares the tax return on the basis of those receipts and documents only to find that the client is not providing payment for the tax return. The accountant is permitted under common law to exercise a particular lien over the tax return because that is a document which the accountant prepared. The accountant would not be able to exercise a particular lien over the receipts and other tax related documents which the client provided because they were not prepared by the accountant.

Contractual Liens

Liens can automatically arise without the need for any action under statute and the common law. However, it is possible to create a lien by entering into a contract and these liens are referred to as contractual liens. Many accountants will enter into a contract with their clients in the form of a retainer. This retainer should always be the first reference should the situation arise where an accountant may want to exercise a lien. This is because if a lien exists under contract or in the retainer then the terms of the lien will likely be decided in accordance with what is stated in that contract or retainer. Many accountants will consider this to be advantageous because they can put a further reaching lien in their retainer than is available under common law. If the contractual lien is properly drafted, then the accountant will be able to exercise all the rights conferred by a General Lien which is normally not available to them under the common law.  Accountants should review their current retainers to ensure the retainer gives them the right to exercise a lien over all of the client’s property which is in the accountant’s possession. This will give the accountant better security for their unpaid work and maximise the accountant’s chances of getting paid for their services.  

Note: Some liens may need registering in order to be effective or to have priority over other creditors. The discussion in this bulletin has assumed that such a registration is either not required or has already been completed. 

Gold and Platinum members read on for a case analysis of how an accountant unintentionally surrendered his right to exercise a lien over his client’s documents and how that can be prevented.  

Platinum Members, click here to view content

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.


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