Lien - Money in client account - Money placed in solicitors’ client account in relation to main litigation

Withers LLP v Langbar International Ltd: CA (Civ Div) (Lord Justices Lloyd, Kitchin and Sir Robin Jacob): 5 December 2011

The applicant solicitors’ clients (the clients) had been sued for a substantial sum by the respondents, who were the claimants in the main action.

In April 2008, the proceedings were settled by agreement, by which the clients agreed to pay approximately £30m to the respondents. The sum was equal to nearly all of the clients’ worldwide assets. The agreement provided for the sale of a property owned by the clients, and for a sum of €7.6m to be paid from the proceeds of its sale, regardless of the price achieved. The court made an order providing that the proceeds would be paid into a relevant escrow account (the account).

The sale was for €13m, and, accordingly, approximately €5m was left in the account. The clients started a new action against the respondents, who counterclaimed. The clients made an application for an order that £400,000 be released from the account to pay the solicitors’ legal costs. The respondents were successful in the sum of €3.8m, together with a further €900,000 in costs. By that stage, the solicitors had asserted a lien or equitable charge over the money in the account.

The judge made an order to preserve the position over the money claimed by the solicitors. The court subsequently held that the solicitors had a common law lien over the money claimed, but dismissed the claim that the solicitors had an equitable charge over the money on the ground that there had been no agreement for valuable consideration for the payment of the solicitors' fees. The respondents appealed and the solicitors cross-appealed.

The respondents submitted that the money had gone into the account so that it would remain available and subject to the court’s directions as to its disposition, and that was inconsistent with the claimants having any lien. The solicitors submitted that the order had not been inconsistent with a lien arising at a time later than the order, if and when the clients in some way became entitled to the money in the account or the purpose for which it was in the account expanded to include payment of their fees. The appeal would be allowed.

The general rule was that the retaining solicitor’s lien extended to any deed, paper or personal chattel which had come into the solicitor’s possession in the course of his employment, and in his capacity as solicitor with the client’s sanction and which was the client’s property. The lien did not extend to documents which did not come into the solicitor’s hands in his capacity as solicitor for the person against whom the lien was claimed, but as trustee.

Moreover, where money was paid to the solicitor for a particular purpose so that he became a trustee of the money, no lien arose over that money unless subsequently left in the solicitor’s possession for general purposes. Accordingly, the key question was whether money in a client account was there for general purposes. It would not be for general purposes where it was the subject of a purpose trust. A purpose trust was not the only way in which a lien over money in a client account would not arise. The question would always be why the money was there, and if the reason was inconsistent with a lien, then there would be no lien (see [19]-[22] of the judgment).

In the circumstances, the orders had been to ensure that the money had been held in the jurisdiction so as to be available to satisfy or go towards satisfying the respondents’ claim against the clients. It was true that the orders had not created a purpose trust in favour of the respondents, but it was equally true that the orders did not create any proprietary right, actual or potential, in favour of the solicitors.

Accordingly, the real purpose of the money being in the account had been to protect the respondents’ interest in non-dissipation. Additionally, the judge had been right to find that there had been no agreement for valuable consideration and, accordingly, there could be no equitable charge (see [31]-[39], [43] of the judgment).Decision of Morgan J [2011] 3 All ER 842 reversed in part.

Joanna Smith QC and Sebastian Allen (instructed by Withers) for the solicitors; Andrew Fletcher QC and Charlotte Eborall (instructed by Jones Day) for the respondent.