Supreme Court: Law firm waived equitable lien with new retainer

Supreme Court: Unanimous ruling

A law firm waived its equitable lien when it replaced its original retainer with a fixed-fee agreement (FFA) and deed of charge over the client’s assets, the Supreme Court has ruled.

Lord Kitchin, giving the unanimous decision of the court, rejected the argument that ruling otherwise would discourage solicitors from taking on certain cases.

This is the third time in recent years that the Supreme Court has considered the solicitor’s lien, after Gavin Edmondson in 2018 and Easyjet v Bott & Co last year, with this case examining when it may be inferred that the solicitor has waived or surrendered their lien.

London litigation firm Candey acted for the liquidators of Peak Hotels and Resorts Ltd (PHRL), a company registered in the British Virgin Islands, between April 2014 and March 2016 in respect of worldwide litigation and various other matters. It initially worked under its standard terms and conditions.

In 2015, with PHRL “desperately short of funds” and owing Candey hundreds of thousands of pounds in fees, the company and some of its backers negotiated the FFA with Candey of nearly £3.9m to cover all litigation going forward, excluding Candey’s outstanding invoiced costs of £941,000 plus disbursements.

A deed of charge was entered into on the same day as the FFA in October 2015, giving Candey a floating charge over PHRL’s assets.

The firm was dis-instructed shortly after a case in London settled, upon which Candey sought payment of its outstanding fees and asserted its lien over the proceeds.

The liquidators responded that Candey had waived or in some other way surrendered its right to the lien in accepting additional security for its fees with the FFA and deed of charge, an argument accepted at first instance by Mr Andrew Hochhauser QC, sitting as a deputy High Court judge, and by the Court of Appeal.

Lord Kitchin said that, if the new security was inconsistent with the retention of the equitable lien, “it is incumbent on the solicitor to give express notice to the client if he or she intends to retain the lien”.

It did not matter if, as here, the client had agreed to take independent legal advice on the new security. “That is because the independent adviser is not in a better position than the client to discern the solicitor’s intention.

“Accordingly, if, despite the apparent inconsistency between the new security and the lien, the solicitor does not make clear his or her intention to retain the lien, it remains reasonable to infer an intention to surrender it.”

That was the case here, the justice held. There was no express reservation of rights in the new retainer and the FFA said “in terms” that it superseded and replaced any previous agreement between Candey and PHRL in respect of fees.

“The FFA and the deed of charge form part of a single transaction which was intended to provide a new package of rights and obligations and new security arrangements. This supports the inference that this package was indeed intended to replace the equitable lien, and the Court of Appeal was entitled and right so to find.”

The FFA and deed also expressly changed the priority on the charge by ranking Candey behind PHRL backer Campion Maverick, an American company.

“In my view the judge and the Court of Appeal were right to say that this creates a further incompatibility between the equitable lien and the new arrangements embodied in the deed of charge and FFA, and that this reinforces the inference that the lien has been abandoned.”

Lord Kitchin acknowledged that “an important purpose of the solicitor’s equitable lien is to promote access to justice”, by enabling a client to obtain legal representation where it was likely that payment could only be made out of the proceeds of litigation.

But he rejected Candey’s argument that “it would be highly undesirable for the court too readily to conclude that solicitors have waived their equitable lien, and particularly so where that waiver can only have been inadvertent”.

The justice said the analogy drawn by the firm with the doctrine of election was “not a good one”.

“The doctrine of election is applicable where the putative elector is faced with two alternative rights which are inconsistent with each other, and where he or she has to make a choice between them. We are not concerned with such a case.

“The question we have to consider is whether solicitors, in taking new security, have waived their equitable lien. That does not involve giving up one of two rights which exist at the same time, and it is not something solicitors can decide unilaterally. It depends upon the intention of both parties.”

The justice also warned that “proceedings of this kind are at risk of becoming overly complex and technical” when the simple question was whether in all the circumstances “it is to be inferred that it was the intention of the parties that the solicitor’s lien should no longer exist”.

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