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This is the third in a trilogy of recent cases in which the Supreme Court has had to consider the ambit and application of the so-called solicitors lien. The others are: Gavin Edmondson v Haven Insurance [2018] UKSC 21 and Bott v Ryanair [2022] UKSC 8. In this case, the Supreme Court had to consider the circumstances in which solicitors will have waived (or be inferred to have waived) their equitable lien when they enter into a security arrangement with a client. Facts The Appellant (“Candey”) acted as solicitor for Peak Hotels &; Resorts Ltd (“PHRL”), a company incorporated in 2014 in the British Virgin Islands (“BVI”). The Appellant represented PHRL in extensive litigation in England and other jurisdictions. On 21 October 2015, PHRL entered into a fixed fee agreement (the “FFA”) with Candey, under which Candey agreed to continue to act for PHRL in return for a fixed fee (the “Fixed Fee”). Payment of the Fixed Fee was deferred until the handing down of judgment on liability or settlement of the London Litigation, PHRL entering an insolvency process, or PHRL receiving funds. A deed of charge (the “Deed of Charge”) was entered into on the same day as the FFA, which granted a floating charge (a form of security) over PHRL’s assets. PHRL was wound up in insolvency proceedings in the BVI and the Respondents were appointed by the BVI court to act as joint liquidators for PHRL. Candey was dis-instructed, and the London Litigation was settled by the Liquidators through their new solicitors shortly before trial. This resulted in PHRL receiving settlement monies. A dispute ensued between the Appellant and Respondents about a claim by the Appellant for unpaid legal fees owed to it by PHRL. Candey claimed that the Fixed Fee under the FFA was payable in priority to sums due to other creditors of PHRL in the liquidation. Candey initially claimed that the Deed of Charge was a fixed charge over the settlement proceeds. The High Court held however that the Deed of Charge constituted only a floating charge. Candey then asserted that the Fixed Fee was protected and gained priority because of its solicitors’ lien. The solicitors’ lien is a form of security over the proceeds of litigation which arises by operation of equity for solicitors to be paid their proper fees for the successful conduct of the litigation. It is a form of equitable charge and is recognised by section 73 of the Solicitors Act 1974 In proceedings before the High Court, it was determined that Candey had waived its solicitors lien when it entered into the FFA and Deed of Charge. The High Court held that the FFA and the Deed of Charge were inconsistent in some respects with Candey’s rights under the pre-existing equitable lien. The Court of Appeal dismissed the Appellant’s appeal on both issues. The Appellant appealed to the Supreme Court which unanimously dismissed the appeal. The court held that, whether a solicitor’s equitable lien has been waived depends on the intention of the parties. The question is whether it is to be inferred that it was the intention of the parties that the lien should no longer exist. The intention must be assessed objectively in light of all the circumstances. Where solicitors take additional security, a relevant factor will be to what extent the taking of new security is inconsistent with the lien. A further relevant factor is whether, considering the professional relationship between solicitors and their clients, the solicitors explained to the clients that they were reserving their rights to an equitable lien. The authorities illustrate that if solicitors take additional security which is inconsistent with the lien and do not explain that the lien is being retained, then it is likely to be reasonable to infer that the lien is surrendered. This is particularly so where the solicitors take new security over the same property that the lien would apply to. Applying these principles to the present case, the FFA and the Deed of Charge formed a package of rights and obligations and new security arrangements which are inconsistent with the equitable lien. This is for two reasons. First, the new security created by the Deed of Charge extends over the same property as the equitable lien would do (being the Settlement Proceeds). This is regardless of the fact that the Deed of Charge also covers other property. Second, the FFA and the Deed of Charge expressly confer priority, in the event of insolvency, to one of PHRL’s backers, and therefore create different priorities than that of an equitable lien which would rank first. However, the provisions in the FFA for the earning and securing of interest on the Fixed Fee are not inconsistent with an equitable lien. The professional obligation on solicitors to give express notice if they intend to retain an equitable lien where the new security is inconsistent with the lien is not displaced by the client obtaining independent legal advice. Therefore, the fact that Candey required PHRL to take independent legal advice in relation to the FFA and the Deed of Charge does not change the court’s conclusion. There is no express or implied assertion in the FFA or the Deed of Charge that Candey reserved its lien, and evidence of communications between Candey and PHRL take the matter no further. The Court of Appeal was therefore entitled to find that Candey’s equitable lien was waived when the parties entered into the FFA and the Deed of Charge. David Holland KC of Landmark Chambers acted for the Respondent Liquidators leading Stephen Robins KC of South Square instructed by Susan Moore of Faegre Drinker and Paul Hollands of Stephenson Harwood. David Holland KC also acted for the Law Society in the Gavin Edmondson appeal. The judgement may be found here.
