Solicitors waived lien on litigation costs
Lawyers who took their fight for £4m litigation costs to the Supreme Court – only to suffer a unanimous loss – today said they had ‘no regrets’ about pursuing the case so far.
In Candey Ltd v Crumple and another, justices found the Court of Appeal had been entitled to rule that London firm Candey’s equitable lien was waived when the parties entered into a fixed fee agreement to continue providing representation.
The Supreme Court dismissed the appeal with unanimous approval. Lord Reed, Lord Briggs, Lord Hamblen, and Lord Stephens agreed with Lord Kitchin’s decision.
Whether an equitable lien held by a solicitor has been waived depends on the parties’ intentions. The key question is whether it can be assumed that the parties intended for the lien to be eliminated. Given all the facts, the aim must be evaluated objectively. How far the new security is inconsistent with the lien will be a crucial issue in cases when solicitors take additional security. Another important consideration is whether the clients were informed that the solicitors were reserving their rights to an equitable lien, taking into account the professional connection between the solicitors and their clients.
Candey had acted for Peak Hotels & Resorts Ltd for two years in worldwide litigation, including a case at the High Court in London. Halfway through the retainer, the firm agreed to switch from an hourly rate to a fixed fee, which would be deferred until the handing down of the judgment or until Peak entered an insolvency process. The London litigation was settled shortly before trial and Candey dis-instructed by the liquidators in March 2016.
The firm argued that its outstanding fees were payable in priority to sums payable to other Peak creditors, and asserted an equitable lien over sums of money recovered or preserved in the litigation.
The authorities show that it is likely reasonable to assume that a lien has been released if solicitors take additional security that conflicts with the lien and fail to specify that the lien is being kept. This is especially true when the solicitors acquire new security over the same piece of real estate to which the lien would apply.
When these principles are applied to the particular situation, the FFA and the Deed of Charge create a package of rights and obligations as well as new security arrangements that are incompatible with the equitable lien.
Having lost on first instance and on appeal, Candey challenged the decision in the Supreme Court but was unsuccessful.
The court found that the fixed fee agreement and deed of charge entered into on the same day formed a ‘package of rights and obligations’ which were inconsistent with the equitable lien.
This is due to two factors. First, the Deed of Charge creates a new security interest that covers the same property as an equitable lien would (being the Settlement Proceeds). Despite the fact that other property is covered by the Deed of Charge, this is the case.
Second, unlike an equitable lien, which would come first, the FFA and the Deed of Charge expressly grant priority to one of PHRL’s backers in the case of insolvency. This results in a different set of priorities. However, an equitable lien is not in conflict with the FFA’s provisions for generating and securing interest on the Fixed Fee.
Giving the lead judgment, Lord Kitchin said the new arrangement had ‘substantially altered’ the position of a solicitor’s lien taking first priority. He added: ‘The Court of Appeal was entitled to find that Candey’s equitable lien was waived when the parties entered into the FFA and the Deed of Charge in October 2015.
‘The lien was not expressly reserved and there were ample grounds to infer that the parties intended the lien to be replaced by the deed of charge in conjunction with the FFA.’
Following the ruling, Candey said it had taken on extra risk by switching to a fixed fee and had sought to recoup this risk element through the action.
Managing partner Ashkan Candey said: ‘We believe that lawyers should take more risk on behalf of meritorious clients and have adopted an active approach to litigation in this area, given that absent such risk taking, often only those with cash can win litigation.
‘Where we have sued in our own name, where we are the client, we do so with a greater appetite for risk. We obviously act in our own financial interest but we are also motivated by a desire to fight for change to the law, to seek to make new law and influence the jurisprudence of the English court.’
Paul Hollands, who acted for Stephenson Harwood for the respondents of the appeal, said the ruling was an important decision about the extent of a solicitor’s right, on the insolvency of its client, to be treated as a priority creditor.
He added: ‘Although many of the key takeaways from this decision concern the position of solicitors, the principles involved may well have ramifications more widely, for commercial and other parties seeking to rely on other types of equitable lien and security (for example, a vendor’s lien for the purchase money and the purchaser’s lien for the deposit), since this is the first time that the Supreme Court has considered the principles involved.’
The client seeking independent legal counsel does not relieve the solicitors’ professional need to give specific notification if they intend to keep an equitable lien when the new security conflicts with the lien. Therefore, the court’s judgement is unaffected by Candey’s requirement that PHRL obtain independent legal counsel about the FFA and the Deed of Charge.
The FFA and the Deed of Charge make no explicit or implied claims that Candey reserved its lien, and conversations between Candey and PHRL provide no more support for this claim.
Since the parties to the FFA and the Deed of Charge agreed to relinquish Candey’s equitable lien, the Court of Appeal was correct to reach that conclusion. Therefore, the appeal was dismissed.
