Kerry Underwood

DAMAGES-BASED AGREEMENTS AND SOLICITORS’ LIENS AND SECTION 73

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THIS SOLICITORS’S LIONS

In

Candey Limited v Tonstate Group Limited & Others [2021] EWHC 1826 (Ch)

the Chancery Division of the High Court rejected the solicitor’s application for recognition of a lien over shares recovered or retained by their client in the litigation.

I reported the earlier decision in the same case

Tonstate Group Limited and Others v Wojakovski and Others  [2021] EWHC 1122 (Ch)

where the court held that there could only be a charge to a client under a Damages-Based Agreement if something was actually recovered, and not just preserved.

Although the solicitors obtained a lien over the shares, their application was defeated as the firm was on notice of a Final Charging Order involving Tonstate, and that took priority over the lien.

The court held that even if, contrary to its earlier decision, the Damages-Based Agreement gave the solicitors an enforceable right to payment, they were not entitled to a Charging Order under section 73 of the Solicitors Act 1974, nor any other security.

Section 73 of the Solicitors Act 1974 provides

“73         Charging orders.

(1) Subject to subsection (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 assessed costs in relation to that suit, matter or proceeding; and

(b)          make such orders for the assessment 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 bona fide purchaser for value without notice, be void as against the solicitor.

(2) No order shall be made under subsection (1) if the right to recover the costs is barred by any statute of limitations.”

In fact, as the court here observed, a solicitor’s lien is often not a true lien at all, as that can only exist where the person claiming a lien is in possession of the property over which it is claimed.

It is better described as an equitable charge.

The nature of the security was set out in

Welsh v Hole [1779] 1 Doug KB 238

“An attorney has a lien on the money recovered by his client, for his bill of costs; if the money come to his hands, he may retain to the amount of his bill. He may stop it in transit if he can lay hold of it. If he apply to the court, they will prevent its being paid over till his demand is satisfied. I am inclined to go still farther, and to hold that, if the attorney give notice to the defendant not to pay till his bill should be discharged, a payment by the defendant after such notice would be in his own wrong, and like paying a debt which has been assigned, after notice. But I think we cannot go beyond those limits.”

The so-called solicitors’ lien creates a propriety interest in the judgment debt, even before the intervention of the court, and the proposition to the contrary in

James Bibby Ltd v Woods and Howard [1949] 2 KB 449, 453f

cannot survive the decision of the Supreme Court in

Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21

19.         In Haven Insurance, multiple claimants with road traffic claims retained the solicitors on identical conditional fee agreements. Pursuant to the Pre-action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the “RTA Protocol”, which had been agreed by stakeholders under the auspices of the Civil Justice Council), claims were notified by the claimants’ solicitors to the defendants’ insurers via an online portal. Where liability was admitted, a settlement was negotiated or determined by the court at a fraction of the cost if the matter were resolved in ordinary court proceedings. It was an express objective of the RTA Protocol that solicitors were paid their fixed costs and charges direct by the defendant’s insurers. One of the insurers responded to notification of claims on the portal by settling directly with the client, with the intention of avoiding having to add to the settlement amount the fixed costs and disbursements of the solicitors.

20.         The Supreme Court held that the solicitors had a lien on the agreed settlement debts payable by the insurer, as security for their charges, and that the insurers had the requisite notice of the lien such that it could be enforced against them. The insurers were accordingly ordered to pay the charges due under the protocol directly to the solicitors, in addition to the settlement sums already paid to the clients.

21.         The description of the solicitors’ lien in the judgment of Lord Briggs JSC (with whom the other members of the Supreme Court agreed) is indeed inconsistent with the analysis in Bibby. Lord Briggs, at [2], referred first to the ancient common law retaining lien, and to the fact that it afforded no assistance where there was nothing of value in the possession of the solicitor. He continued:

“But equity deals with that deficiency in the common law by first recognising, and then enforcing, an equitable interest of the solicitor in the fruits of litigation, against anyone who, with notice of it, deals with the fruits in a manner which would otherwise defeat that interest.”

The obiter comment by Lewison and LJ in

Bott & Co Solicitors Limited v Ryanair DAC [2019] EWCA Civ 143

to the contrary, is wrong.

That decision is being appealed to the Supreme Court.

Thus, here the solicitors had an equitable interest in the shares, from the moment there was a fund in sight.

The High Court here said that the rationale behind the solicitors’ lien over recoveries in the action applies equally to render that lien effective as against a third party who has obtained its own assignment or charge over those recoveries.

The rationale has sometimes

“… been described by analogy with the principle of salvage. The recoveries in the action exist as a result of the solicitor’s efforts, so the solicitor ought to have a right to those recoveries as security for its fees in priority to the client. Equally, the solicitor should have such right in priority to a third party who acquires a charge over the recoveries, because the value of that charge is similarly dependent on the solicitors’ efforts.”

Here, the court had already decided that the solicitors were not entitled to anything under the Damages-Based Agreement; a party could not be on notice of a non-existent right.

Assessed Costs

The court also considered whether “assessed costs” which can be the subject of the charge in favour of the solicitor as security for costs, included costs due under a Damages-Based Agreement.

The court held that it did.

Comment

This is a well-argued and helpful judgment dealing with liens, but it re-inforces the point that the Solicitors Act 1974, based in part on the Attorneys and Solicitors Act 1728, simply does not deal in any useful way with modern methods of funding and charging.

Kerry Underwood of Underwoods Solicitors is advising Bott & Co Solicitors Limited in relation to their appeal to the Supreme Court against the decision in

Bott & Co Solicitors Limited v Ryanair DAC [2019] EWCA Civ 143

Written by kerryunderwood

July 21, 2021 at 2:51 pm

Posted in Uncategorized

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