In Supreme Court case of Candey Ltd v Crumpler and another (as Joint Liquidators of Peak Hotels and Resorts Ltd (In Liquidation))[2022] UKSC 35 the question in issue was that under what circumstances will solicitors have waived (or be inferred to have waived) their equitable lien when a solicitor enters into a security arrangement with a client?
Peak Hotels & Resorts Ltd. (“PHRL“), a business founded in 2014 in the British Virgin Islands (“BVI“), hired the appellant to serve as its attorney. In significant litigation in England and other countries, the appellant represented PHRL. The BVI court appointed the Respondents to serve as joint liquidators for PHRL after it was wound up in insolvency proceedings there. The Appellant claimed that PHRL owed it unpaid legal expenses, and this led to a dispute between the Appellant and Respondents concerning this claim. Some of the Appellant’s legal fees were ordered to be paid by the Respondents.
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History between Candey & PHRL
Between April 2014 and March 2016, Candey Ltd (“Candey“) served as counsel for PHRL in connection with international litigation and other matters. One such case was an action in the London High Court (“The London Litigation”).
On October 21, 2015, Candey and PHRL signed a fixed fee agreement (“FFA“) in which Candey promised to continue representing PHRL in exchange for a set amount (“Fixed Fee“). Payment of the Fixed Fee was postponed until a liability ruling was rendered or the London Litigation was settled. PHRL started the insolvency procedure, or PHRL received money. On the same day as the FFA, a deed of charge (the “Deed of Charge”) was signed, granting a floating charge (a type of security) over the assets of PHRL.
On February 8, 2016, the British Virgin Islands (“BVI”) declared PHRL to be under liquidation. The BVI court designated the Respondents (the “Liquidators”) as the PHRL’s liquidators. As soon as the Fixed Fee became due, Candey lodged a proof of debt.
PHRL settled the London litigation just before trial, and on March 3, 2016, Candey was no longer instructed by the liquidators. The “Settlement Proceeds” are the total amount of funds that PHRL received as part of the settlement.
Candey asserted an equitable lien over any funds collected or preserved during the London Litigation, arguing that its overdue fees should be paid ahead to those due to other creditors in PHRL’s liquidation. This lien is a type of security that develops via the operation of equity for the payment of solicitors’ fees for the proper management of a lawsuit out of the money the client recovers or saves during that lawsuit (or its settlement). In addition, Candey asserted that under section 73 of the Solicitors Act of 1974 (the “1974 Act“), the lien should be changed to a charge over that sum of money.
The deputy judge determined that, Candey had relinquished its right to an equitable lien by revising its retainer agreement and accepting more security for its payments in October 2015. On this issue, the Court of Appeal concurred with the deputy judge. Candey appealed to the Supreme Court.
What did the Supreme Court decide?
The Supreme Court dismissed the appeal with unanimous approval. Lord Reed, Lord Briggs, Lord Hamblen, and Lord Stephens agreed with Lord Kitchin’s decision.
Reasons for the 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.
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.
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.
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.
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