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Home , Lien

SOLICITORS’ AFTER HAVEN

by

David Holland QC

Landmark Chambers

LANDMARK CHAMBERS

180 Fleet Street

London EC4A 4HG

Tel: 020 7430 1221

Fax: 020 7421 6060

Email: [email protected]

Website: www. landmarkchambers.co.uk

Introduction

1. Solicitors’ liens have long been recognised and upheld by the courts, not least because their important role of increasing access to justice. As long ago as 1815, Plumer VC in Ex p Bryant1 said this:

“I do not wish to relax the doctrine as to , for it is to the advantage of clients, as well as solicitors; for business is often transacted by solicitors for needy clients, merely on the prospect of having their costs under the doctrine as to lien.”

2. Half a decade later, the Master of the Rolls, Lord Romilly, also highlighted the importance of the solicitor’s lien in promoting access to justice. In In re Moss2, he said:

“I think it of great importance to preserve the lien of solicitors. That is the real security for solicitors engaged in business. It is also beneficial to the suitors. It would frequently happen, but for the lien which solicitors have upon papers and , that a client who is not able to advance money to enable them to carry on business would be deprived of justice, through inability to prosecute his claims in the suit…”

3. Earlier this year, the relevant principles were considered by the Supreme Court in the first case on solicitors’ liens ever to reach that court or the House of Lords. The context of that appeal, which I will come on to later, was an attempt by the Court of Appeal to reformulate and, indeed, extend the relevant equitable principles to the modern age of low-value RTA litigation. In spite of the Society’s measured submissions in support of the Court of Appeal’s decision, the Supreme Court reined in the law of , in the process providing some valuable clarification of the role of the solicitors’ line in modern litigation. 4. Broadly, solicitors have three options for protecting their right to recover costs from their client. At , they have the right to retain clients’ documents pending payment of fees, and a separate so-called equitable lien over recovered or preserved by their efforts. The third lien is provided by section 73 of the Solicitors Act 1974, which gives statutory teeth to the common law principles. 5. In this talk, I will give an overview of all three forms of solicitors’ lien, and discuss some of the recent developments in the law.

(1) The solicitors’ retaining lien

1 (1815) 1 Madd 49. 2 (1866) LR 2 Eq 345 6. At common law, a solicitor has a right to impose a lien over a client’s deeds, papers and all other personal chattels of the client which come into the solicitor’s in the course of the professional employment. In Barratt v Gough- Thomas3 in 1951, Lord Evershed expressed the nature of the right in this way:

“It has not the character of an incumbrance or equitable charge. It is merely passive and possessory, that is to say the solicitor has no right of actively enforcing his demand. It confers on him merely the right to withhold possession of the documents or other of his client or former client.”

7. Lord Evershed referred to Sir E. Segden’s speech in Blunden v Desart4 in 1842, where he said that the solicitor’s right in respect of his client’s documents is “to lock them up in his box and to put the key into his pocket until his client satisfies the amount of the demand”. 8. Although the right has been recognised “since time immemorial”5, as the Supreme Court recently put it, the courts have also stressed the passive nature of the retaining lien, and highlighted the limits to its effectiveness. For instance, in the 1839 case of Bozon v Bolland6, the Lord Chancellor7 put it this way:

“The solicitor’s lien upon, or right to retain, his client’s papers till the bill is paid is of a nature wholly different (from a fund realised in the cause). It applies to all his bills of costs; but he cannot actively enforce it. So long as the client leaves the papers in the solicitor’s hands, the solicitor’s lien is unavailing. It is merely a right to retain; and if the solicitor refuses to act for the client it is of little if any value, as he cannot in that case deprive the client of the full use of his the papers… But if the client discharges or ceases to employ the solicitor, the solicitor is not compellable to afford any facilities to the client by the use of the papers.”

9. In more modern times, the Supreme Court has noted that the retaining lien is:

“an essentially defensive remedy, which merely enables them to hold on to their clients’ papers and other property in their actual possession, pending payment. It affords no assistance where there is nothing of value in the solicitor’s possession, and is powerless where, in a litigation context, the defendant to the claim pays the judgment or agreed settlement amount direct to the solicitor’s client, the claimant.”

10. It is important to note that the lien extends only to those documents which are the property of the solicitor’s client. Since the right to impose the lien derives entirely from the client’s own right to the documents or other property, it cannot

3 [1951] Ch. 242 4 [1842] 2 Dr. & War. 405 5 Per Lord Briggs in Gavin Edmonson Solicitors Ltd v Haven Co Ltd [2018] UKSC 21 at [2]. 6 41 E.R. 138 7 Lord Cottenham be imposed over a third party’s documents, or documents which are the solicitor’s own property. That was made clear in the 1878 decision in Sheffield v Eden8, a case decided on interesting facts. A client actually granted a mortgage to his solicitors, who then purported to impose a lien over the mortgage deeds. The Lord Justices all agreed9 that from the moment the client executed the and delivered it to the solicitor, the deed formed part of the solicitor’s own property and therefore outside the scope of any retaining lien. 11. It should be kept in mind, however, that where a solicitor separately takes security for his costs, by way of a charge or cash, then the retaining lien is usually forfeit, absent agreement to the contrary. 12. The limits of the retaining lien were considered in a recent decision of the Court of Appeal in Withers LLP v Rybak and others10, in the context of client money paid into the solicitor’s clients account. 13. The background facts were fairly intricate but, in summary, they were these. Withers’ clients were a number of individuals from and a company related to the Rybak family. They were sued for a substantial sum by a company called Langbar International Ltd. In April 2008, the proceedings were settled, with the Rybak parties to pay £30 million to Langbar. In order to satisfy the settlement, the Rybaks proposed to sell a property in Monaco for €7.5 million. Langbar initially sought to prevent the sale, fearing that the proceeds would be dissipated. The Rybaks applied for an order preventing Langbar interfering with the sale. That application was heard by Morgan J, who granted the Rybaks the order they sought, but on condition that the sale proceeds would be paid into Withers’ client account until further order, with permission to each side to apply for payment of legal expenses. 14. A further dispute then arose over compliance with the settlement agreement, and the Rybaks issued proceedings against Langbar, which then counterclaimed for a sum in excess of that in the client account. The Rybaks’ assets were frozen, including the money paid into Withers’ client account. However, the freezing order was then varied to allow the Rybaks to direct payments to be made from the Withers client account for legal expenses, subject to Langbar’s consent. However, Langbar was successful in the settlement agreement proceedings, and the Rybaks assigned all their rights in the money in the Withers client account to Langbar. 15. Morgan J at first instance held that the money in the client account was subject to a lien for Withers’ costs. He reasoned that when the money was paid into the account, it was not subject to a or trust. The fact that it was frozen only restrained dissipation – it did not give anyone any security or charge over it. So, it followed, the money belonged to Rybak and had been placed into the client account under Rybak’s instructions, such that there was a lien over it.

8 (1878) 10 Ch.D. 291 9 James, Baggallay and Theisiger LLJ 10 [2011] EWCA Civ 1419; [2012] 1 W.L.R. 1748 16. In the Court of Appeal, Sir Robin Jacob gave the lead judgment. He cited Halsbury’s of England11 as authority for the principle that the solicitor’s lien does not extend to money which is paid to a solicitor for a particular purpose so that he becomes a of the money, unless that money is subsequently left in the solicitor’s possession for “general purposes”. In relation to money in a client account, he said this12:

“The question must always be, why is it there? And if the reason is inconsistent with a lien, then there be no lien. A purpose trust is merely an example of inconsistency with a lien. In deciding whether there is inconsistency a key question will therefore be whether the money is there “for general purposes” or for a particular purpose?”

17. Langbar’s case was that the money went into the account so that it would remain available and subject to the court’s directions as to its disposition, and that this was inconsistent with Withers having any lien over it. Otherwise, the lien might consume such amount of the funds that the money would not be available to satisfy Langbar’s claim. Withers accepted that no lien arose when the money was originally paid into their account, because control of the money had passed to the courts, but argued that the variation order gave sufficient control to Rybak to enable a lien to arise. 18. Sir Robin said this13:

“I am unable to accept [Withers’] submissions. Firstly I think that Mr Fletcher was right in contending that the Morgan order was inconsistent with a lien coming into existence at the time the money was paid in. The whole purpose of the order was to ensure that the money was held in this jurisdiction so as to be available, if the court thought fit, to satisfy, or go towards satisfying, Langbar’s claim. The payment had no other purpose. The money could easily have been paid into court or into a joint solicitors’ account instead. No one could realistically have supposed, when Langbar… proposed that the money be paid into a Withers client account, that Withers wold have any claim ahead of Langbar over the money.”

19. Under the circumstances, Withers’ claim that it had a lien over the money failed, since the purpose for which it was held was inconsistent with the existence of a lien. 20. Difficulties with this sort of lien commonly arise where a client instructs different solicitors, and requires his papers to be transferred to them. In that situation, the courts have to strike a balance between upholding a solicitor’s right to be paid for the work they have done, and the principle that a litigant should not be deprived of the papers relevant to his case.

11 5th Edn, vol 66 (2009) para 997 12 At [22]. 13 At [31]. 21. In applying this balance, a number of principles are consistently applied. (I) Where a solicitor is discharged by his client, apart from in cases of misconduct, the solicitor is under no obligation to deliver, produce or allow inspection of any of the client’s papers until his bill is paid. (II) However, a solicitor who discharges himself is not allowed to exert his lien so as to interfere with the course of justice. In those circumstances, a client may be entitled to an order that the papers required for the conduct of pending litigation be delivered to the new solicitor against an undertaking to return them at the end of the litigation. Importantly, a refusal by a solicitor to act unless he is put in funds will generally be treated as a discharge of his retainer. 22. Finally, a word of caution: where a solicitor gives an undertaking to hold documents to the order of another firm of solicitors in order to preserve that firm’s lien for unpaid fees, the undertaking will be breached if photocopies of the documents in question are sent to the client. That was held to be the case in the 1997 case of Bentley v Gaisford.14

(2) The equitable lien on property recovered or preserved

23. The law of equity developed a more valuable form of lien, which allowed solicitors actually to realise the due to them. The so-called equitable lien has been recognised since at least the 1779 decision in Welsh v Hole15. Lord Kenyon CJ in Read v Dupper16 identified the principle in 1795 as being: “that the party should not run away with the fruits of the cause without satisfying the legal demands of his attorney, by whose industry, and in many instances at whose expense, those fruits are obtained”. The principle was applied to arbitration awards six years later, in 1801, again by Lord Kenyon in Ormerod v Tate,17 partly in order to enforce the uphold the public interest in encouraging litigants to use arbitration. 24. The Supreme Court considered this remedy earlier this year in Gavin Edmonson Solicitors Ltd v Haven Insurance Co Ltd18, in which Lord Briggs summarised the nature of the remedy as follows:

“In its traditional form it is the means whereby equity provides a form of security for the recovery by solicitors of their agreed charges for the successful conduct of litigation, out of the fruits of that litigation. It is a judge-made remedy, motivated not by any fondness for solicitors as fellow or even

14 [1997] Q.B. 627. 15 (1779) 1 Doug KB 238 16 (1795) 6 Durn & E 361 17 (1801) 1 East 464. 18 [2018] UKSC 21; [2018] 1 W.L.R. 2052 as officers of the court, but rather because it promotes access to justice. Specifically it enables solicitors to offer litigation services on credit to clients who, although they have a meritorious case, lack the financial resources to pay up front for its pursuit. It is called a solicitor’s lien because solicitors used to have a virtual monopoly on the pursuit of litigation in the higher courts.”

25. Notably, the Supreme Court described the lien as a form of equitable charge, rather than as a lien in the true sense. 26. The equitable lien may therefore be of more value to solicitors faced with recalcitrant clients. As Lord Briggs went on to note, equitable principles may to a certain extent be flexibly applied against one whose conscience was affected in some way:

“Equity would also enforce the security where the defendant (or his agent or insurer) paid the debt direct to the claimant, if the payer had either colluded with the claimant to cheat the solicitor out of his charges, or dealt with the debt inconsistently with the solicitor’s equitable interest in it, after having notice of that interest. In an appropriate case the court would require the payer to pay the solicitor’s charges again, direct to the solicitor, leaving the payer to such remedy as he might have against the claimant. This form of remedy, or intervention as it is sometimes called, arose naturally from the application of equitable principles, in which equitable interests may be enforced in personam against anyone whose conscience is affected by having notice of them, either to prevent him dealing inconsistently with them, or by holding him to account if he does.”

27. It was at one point the case that the lien would only arise in the course litigation or arbitration by the solicitor’s exertions. So, in Meguerditchian v Lightbound19 in 1917, the Court of Appeal rejected the contention that the solicitor’s equitable lien extended to property recovered as a result of negotiation. Swiffen Eady LJ was unpersuaded a lien would be obtained by a solicitor where there were no proceedings, “but merely negotiations with regard to a matter and correspondence taking place between the solicitors on either side”. 28. However, in Haven, Lord Briggs departed from this position, identifying a clear policy reason for doing so. He said that:

“Provided that the debt has arisen in part from the activities of the solicitor there is no reason in principle (and none has been suggested) why formal proceedings must first have been issued, all the more so in modern times when parties and their solicitors are encouraged as a matter of policy to attempt to resolve disputes by suitable forms of ADR, and when pre-action protocols of widely differing kinds have been developed precisely for that purpose.”

19 [1917] 2 K.B. 298, CA. 29. However, it remains the case that the lien is strictly limited to the recovery of the costs properly incurred in the recovery of that particular property. 30. The limitations of the so-called equitable lien can be seen in some recent decisions of the Supreme Court and the Court of Appeal. 31. The appeal to the Supreme Court in Gavin Edmonson v Haven this year was an appeal which, as Lord Briggs put it, “tests the limits, in a modern context, of the long-established remedy known as the solicitor’s equitable lien”. That context was the pursuit of modest claims for personal injuries arising out of road traffic accidents, by solicitors retained under a CFA using the RTA pre-action protocol. The litigation underpinning the appeal was sparked by the appellant insurer, Haven, responding to notification of claims on the RTA portal by offering to settle direct with claimants, on terms which included no amount for their solicitors’ costs or disbursements. The rationale was that the claimant could be enticed in with the inducements of a speedier and more generous payment than would be likely to be available from settlement using the RTA protocol and portal. The financial consequences of this sort of conduct, the Supreme Court heard, ran to many millions of pounds. 32. The respondent, Edmondson solicitors, was a ‘victim’ of three such settlements, and it accordingly sued Haven for wrongful inducement to its clients to breach their retainer and, on its amended case, sought equitable enforcement of its solicitors’ lien. Haven’s argument in the Court of Appeal and Supreme Court was that Edmondson’s retainers created no contractual liability to pay its charge upon which an equitable lien or charge could be founded. In the Supreme Court it argued that the Court of Appeal had been wrong to extend the intervention of equity as it did. Edmondson’s argument was that its retainers did contain a sufficient contractual liability for their fees to support their equitable lien on conventional grounds. Alternatively, Edmondson argued that the Court of Appeal had been right to extend the intervention or equity. 33. The Law Society intervened in the Supreme Court in order to argue that the Court of Appeal’s more expansive formulation of the equitable lien should be upheld. Haven, then, was an appeal of some considerable public importance. 34. In the Supreme Court, Lord Briggs adopted as correct the summary of the law set down by Sir Stephen Sedley in the Court of Appeal in the 2014 decision of Khans Solicitors v Chifuntwe20. That summary is as follows:

“the law is today (and, in our view, has been for fully two centuries) that the court will intervene to protect a solicitor’s claim on funds recovered or due to be recovered by a client or former client if (a) the paying party is colluding with the client to cheat the solicitor of his fees, or (b) the paying party is on notice that the other party’s solicitor has a claim on the funds for outstanding fees.

20 [2014] 1 W.L.R. 1185. The form of protection ought to be preventative but may in a proper case take the form of dual payment.”

35. The Supreme Court then went on to determine whether the Court of Appeal in Haven had correctly that settled principle, or legitimately extended it. 36. It began by overturning the Court of Appeal’s finding that Edmondson’s retainer created no contractual liability for its fees, deciding instead that its client care letter preserved and affirmed the basic contractual liability between client and solicitor. Lord Briggs held that the client care letter “merely limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant.” Thus, there was a contractual entitlement of Edmondson against its claimant clients to form the basis of a claim to an equitable lien over the agreed settlement debts payable by Haven on behalf of its insured drivers. 37. It was not disputed that those settlement debts owed their creation to Edmondson’s services under the CFAs. The next question, then, was whether Haven had notice of Edmondson’s interest in the settlement debts. Making clear his rather dim view of Haven’s conduct, Lord Briggs said this:

“Once a defendant or his insurer is notified that a claimant in an RTA case has retained solicitors under a CFA, and that the solicitors are proceeding under the RTA Protocol, they have the requisite notice and knowledge to make a subsequent payment of settlement moneys direct to the claimant unconscionable, as an interference with the solicitor’s interest in the fruits of the litigation. The very essence of a CFA is that the solicitor and client have agreed that the solicitor will be entitled to charges if the case is won. Recovery of those charges from the fruits of the litigation is a central feature of the RTA Protocol.”

38. The Court of Appeal having held that there was no contractual liability on the client to pay, had rested its conclusion on two alternative grounds. The first was that Edmondson had its own entitlement to recover its charges from Haven under the terms of the RTA protocol. The second was that its clients had such an entitlement under the protocol, and Edmondson had a right to sue Haven for its enforcement using the client’s name for that purpose. The effect of this was that the equitable remedy could be deployed to provide a means for Edmondson to recover from Haven precisely those fixed costs, disbursements and success fee provided for under the RTA Protocol, regardless of the amount agreed to be paid in settlement to its clients. 39. The Supreme Court rejected those alternative formulations. It held that where a client had no contractual obligation to a solicitor to pay its fees, there could be no lien at all, and therefore no legal entitlement of the solicitor direct against the insurer which a lien could support by way of security. It also held that any attempt by Edmondson to stand in its clients’ shoes by way of and sue Haven would be met by an unanswerable defence from Haven: it had already settled their claims by agreement, and Edmondson as their solicitor could not be put in a better position as against the insurer than its clients. 40. Accordingly, the Supreme Court laid down, or reaffirmed, the limits of the equitable lien in the modern age. In response to Edmondson’s submissions that equity should provide a remedy wherever there was unconscionable conduct by an insurer, and that the Court of Appeal’s more expansive reformulation was therefore entirely justified, Lord Briggs said this:

“I acknowledge that equity operates with a flexibility not shared by the common law, and that it can and does adapt its remedies to changing times. But equity none the less operates in accordance with principles. While most equitable remedies are discretionary, those principles provide a framework which makes equity part of a system of English law which is renowned for its predictability. I have sought to identify from the cases the settled principles upon which this equitable remedy works. One of them is that the client has a responsibility for the solicitor’s charges.

It is simply wrong in my view to seek to distil from those cases a general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges… If the court were to step in to grant coercive remedies to those affected by [the portal’s] misuse by others, [the balance of competing interests enshrined in the RTA Protocol] would in all probability be undermined.”

(3) Section 73(1) of the Solicitors Act 1974

41. The third form of lien is established under by section 73 of the Solicitors Act 1974. The section provides as follows:

“(1) Subject to sub-section (2), any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceedings may at any time

(a) Declare the solicitor entitled to a charge on any property recovered or preserved through his instrumentality for his taxed costs in relation to that suit, matter or proceeding; and (b) Make such orders for the taxation of those costs and for raising money to pay or for paying them out of the property recovered or preserved as the court thinks fit;

And all conveyances and acts done to defeat, or operating to defeat, that charge shall, except in the case of a conveyance to a for value without notice, be void as against the solicitor. 42. This section replaces various earlier statutory provisions to the same effect going back least as far as the Attorneys and Solicitors Act 1860. It adds to the two common law remedies by giving a solicitor a right to apply for a charging order. The courts have stressed that the effect of the section is not to create any new right, but rather to give statutory aid to the existing common law liens – in other words, “enabling them more cheaply and speedily to enforce a right they already possess”, as Farwell J put it in Re Born in 1900.21 43. However, the section is expansive in at least one respect: it extends to a charge over , which the common law rights do not. 44. It is important to remember that section 73 does not confer an absolute right to a charging order. The court has a discretion. And, like the equitable lien, it may be waived where a solicitor takes alternative security for his costs without expressly preserving those rights. That is so regardless of whether the solicitor actually has any intention to waive his rights. See Re John Morris [1908] 1 KB 473 (at pages 475, 477, 479, 480-1); Clifford Harris (No.1) (at paragraphs 15-17) Clifford Harris (No.2) (at paragraphs 26-9, 35, 38, 43 and 49-50).

Conclusions

45. By way of concluding observations, it can be seen that solicitors’ liens are here to stay, and have been recognised by the Supreme Court as continuing to play an important role in the modern age of low-cost CFA litigation. Though to a lesser extent that the Law Society and many firms would have liked, the Supreme Court also confirmed that the courts will strive where possible to uphold and enforce the equitable lien. 46. However, to avoid losing the right, two things are vital. First, solicitors should ensure that their retainers give them a clear contractual right to recover their fees from their clients. Without such a right, there is nothing on which for the equitable lien to bite. Secondly, it is vital, if relying on the equitable lien or on section 73, to avoid taking any other security for costs which may be inconsistent with that lien, without first expressly agreeing with clients that such security is in addition to the lien. If this is done, then (to restate the words of Plumer VC in 1815), solicitors in the modern world need have nothing to fear from transacting business for needy clients – even those with such little respect for the hard and worthy travails of their lawyers as Edmondson’s clients

David Holland was called to the Bar in 1986 and took silk in 2011.

21 [1900] 2 Ch 433. The core of David’s practice is all forms of property litigation but he also practices in the areas of costs and professional negligence.

David has immense experience of litigating at all levels of court.

His recent cases include: Dreamvar v Mishcon de Reya [2018] EWCA Civ 1082; Gavin Edmondson v Haven Insurance [2018] UKSC 21; Gorst v Knight [2018] EWHC 613 (Ch); Lunar Office v Warborough Investments [2018] EWCA Civ 427; Budana v The Leeds Teaching Hospital NHS Trust [2017] EWCA Civ 1980; Grimes v of the Essex Farmers and Union Hunt [2017] EWCA Civ 361; Michael Wilson & Partners v Sinclair [2017] EWCA Civ 3; Various Claimants v Ministry of Defence [2016] 3 Costs LO 477. He also appeared in Denton v White [2014] EWCA Civ 906 (in which he represented both the Bar Council and the Law Society) and was counsel for the successful guarantor in Good Harvest v Centaur [2010] Ch 426. He has advised and acted for the Law Society in costs cases for many years as well as acting for many of the largest Telecoms Code Operators.

David has been ranked in the legal guidebooks as a leading practitioner in his fields for many years. In the Chambers & Partners 2018 Guide in Real Litigation it is said that he "is a seriously smooth silk" and "an extremely talented advocate who is ruthless in cross-examination. Very user-friendly and extremely charismatic, he has a wicked sense of humour." In the Costs Litigation section he is described as "an experienced litigator” and it states that he is, “energetic, enthusiastic and like a dog with a bone in court." "Persistence is his hallmark”. In the latest edition of the Legal 500 in Property Litigation section he is ranked in Tier 1. It states that, “he is a bright and tenacious individual, who inspires confidence”, whilst in the Costs section it states that: "His advocacy is focused and clear." He has previously been named as the Silk of the Year in the Chambers & Partners Bar Awards.

David is a Deputy High Court Judge and also sits as a Recorder and as a part time Judge of the First-tier (Property Chamber). He also acts as an arbitrator.

DAVID HOLLAND QC

LANDMARK CHAMBERS

20TH NOVEMBER 2018