Candey Ltd, solicitors for Peak Hotels and Resorts Ltd, claimed an equitable lien over litigation settlement proceeds. The Supreme Court held Candey had waived the lien by entering into a new fixed fee agreement and deed of charge without expressly reserving it, as the new security arrangements were inconsistent with the lien’s continuation.
Background
Candey Ltd (‘Candey’), an English solicitors’ firm, acted for Peak Hotels and Resorts Limited (‘PHRL’), a BVI-registered company, from April 2014 to March 2016 in worldwide litigation. PHRL was involved in proceedings in London, Hong Kong, the BVI and New York arising from a failed joint venture relating to the Aman resorts group of luxury boutique hotels. In the London proceedings (‘the London Litigation’), injunctions were obtained and sums totalling approximately US$10 million and £3,128,000 were paid into court.
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By August 2015, PHRL was desperately short of funds and heavily indebted to Candey. Negotiations culminated on 21 October 2015 in a Fixed Fee Agreement (‘FFA’) under which Candey agreed to continue acting for a deferred fixed fee of £3,860,637.48. On the same date, a Deed of Charge was executed purporting to grant Candey a fixed and floating charge over all of PHRL’s assets, including monies in court. The FFA stated it ‘supersedes and replaces any previous agreement between CANDEY and PHRL in respect of fees’ and recorded that PHRL had obtained independent legal advice. The Deed of Charge subordinated Candey’s security to a prior charge in favour of Campion Maverick Inc, a litigation funder.
PHRL was placed into liquidation in the BVI on 8 February 2016. Candey lodged a proof of debt referring to the Deed of Charge as its security but made no reference to any pre-existing solicitor’s equitable lien. The London Litigation was subsequently settled in March 2016, producing settlement proceeds over which Candey later asserted an equitable lien, applying under section 73 of the Solicitors Act 1974 for a declaration that it was entitled to a charge. The High Court dismissed the application on the ground that Candey had waived the lien. The Court of Appeal upheld that result.
The Issue(s)
The central question was whether Candey had waived its solicitor’s equitable lien by entering into the FFA and the Deed of Charge in October 2015. Subsidiary issues included: (i) whether the requirement that PHRL take independent legal advice displaced the inferential approach to waiver; (ii) whether the new arrangements were inconsistent with the lien; and (iii) whether Candey had expressly or impliedly reserved the lien.
The Court’s Reasoning
The Nature and Importance of the Solicitor’s Equitable Lien
Lord Kitchin, delivering the unanimous judgment, emphasised the lien’s role in promoting access to justice. He noted the lien is a first-ranking equitable charge over the proceeds of litigation, akin to a right of salvage, which survives insolvency events and binds third parties with notice. However, he rejected Candey’s submission that waiver should require an unequivocal representation, holding the analogy with the doctrine of election to be inapt:
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 and that must be ascertained in the way I now turn to consider.
The Test for Waiver
Lord Kitchin confirmed that waiver is assessed objectively, drawing upon established authority. He endorsed the approach of Lord Alverstone CJ in In re Morris [1908] 1 KB 473:
if solicitors take any security which is in any degree inconsistent with the retention of the lien, it is their duty to give express notice to the client if they wish and intend to retain the lien, and that if they do not do so, it is very likely that the lien will be taken to have been abandoned.
The ultimate question was stated to be:
whether, in all the circumstances, considered together, it is to be inferred that it was the intention of the parties that the solicitor’s lien should no longer exist. Put another way, the question is whether in light of all the circumstances the new security was intended to supplement the solicitor’s lien or to replace it, and thus whether the lien has survived or been extinguished.
Independent Legal Advice
Lord Kitchin rejected Candey’s argument that PHRL’s receipt of independent legal advice displaced the duty to give express notice of an intention to retain the lien. He held that the independent adviser is no better placed than the client to discern the solicitor’s intention:
A solicitor is not absolved of that obligation simply because the client has agreed to take independent legal advice in relation to the new security and that is because the independent adviser is not in a better position than the client to discern the solicitor’s intention.
Inconsistencies Between the New Arrangements and the Lien
Three alleged inconsistencies were considered:
(1) Security over the same property
The Deed of Charge covered all of PHRL’s assets including the settlement proceeds—the same property over which the equitable lien would have operated. Lord Kitchin held this created an obvious inconsistency:
There would have been an obvious inconsistency between the creation of consensual security over certain property and the retention of a statutory right to ask the court to impose non-consensual security over that same property.
This was reinforced by clause 1 of the FFA which stated it ‘supersedes and replaces any previous agreement between CANDEY and PHRL in respect of fees.’
(2) Different priority
The equitable lien ranks first in priority. The Deed of Charge expressly subordinated Candey’s security to the Campion Maverick charge. Lord Kitchin held this created a further incompatibility:
Any suggestion that the lien survives and has priority would undermine the express agreement in the FFA and the Deed of Charge that the Campion Maverick charge has priority over all of PHRL’s assets including the Settlement Proceeds.
(3) Right to interest
The FFA provided for interest at 8% per annum, whereas the equitable lien carried no such right. However, Lord Kitchin was ‘very doubtful’ this amounted to an inconsistency, agreeing with the deputy judge’s reasoning that if there had been a fixed fee agreement with interest but no deed of charge, the lien would have applied to the retainer inclusive of its interest provision without creating inconsistency.
No Express or Implied Reservation
Candey relied on clause 7 of the FFA, paragraphs 4, 5 and 6 of the Deed of Charge, and oral communications. The Court found none of these constituted a reservation of the lien. Paragraph 4 of the Deed of Charge, providing that PHRL had not created and would not permit to subsist any other security or charge, was particularly telling. Clause 7 of the FFA was characterised merely as reversing the debtor’s usual right of appropriation. The oral evidence of Mr Candey’s communications with PHRL’s director could not override the express contractual terms.
Practical Significance
This decision provides authoritative Supreme Court guidance on the circumstances in which solicitors will be taken to have waived their equitable lien. Key principles established or confirmed include: (i) waiver is assessed objectively from all the circumstances; (ii) if new security is inconsistent with the lien, solicitors must give express notice of an intention to retain it; (iii) the requirement for the client to take independent legal advice does not relieve solicitors of this professional duty; and (iv) security over the same property and different priority rankings are strong indicators of inconsistency warranting an inference of waiver. Taking security inconsistent with the lien without reserving it can support the inference that the parties intended the new security to replace it.
Verdict: The Supreme Court unanimously dismissed Candey’s appeal, holding that Candey had waived its solicitor’s equitable lien when it entered into the Fixed Fee Agreement and the Deed of Charge in October 2015. The lien was not expressly reserved and there were ample grounds to infer that the parties intended the lien to be replaced by the new security arrangements. The Court did not decide whether omitting the lien from the proof of debt would separately have surrendered it under BVI law, or whether the later lien application was an abuse of process.
Source: Candey Ltd v Crumpler & Anor, Re Peak Hotels and Resorts Ltd [2022] UKSC 35
Reported citations [2023] 1 WLR 342; [2023] 2 All ER 527; [2023] Bus LR 191; [2023] PNLR 9
