Solicitors’ liens and legal fees in liquidation

Subsequently, PHRL was wound up in the BVI and the liquidators appointed.  They were granted a recognition order under the Cross-Border Insolvency Regulations 2006.

The liquidators subsequently settled certain litigation, dis-instructed Candey and challenged the Security.  In return, Candey sought payment of its legal fees from the settlement proceeds. 

Candey entered into a CFA with Candey LLP (a firm with the same fee earners) on 31 March 2016 covering disputes against the liquidators.  The CFA included a 100% success fee.

At earlier hearings the Court had held in favour of Candey that the settlement proceeds fell within its Security.  Candey now also sought to rely on its solicitors’ lien in respect of unpaid fees under the FFA.

The Court had to decide two issues:-

1. Whether the Candey pre 6 April 2016 CFA fell within the exemption to LASPO;​

Held

The exemption applies to “proceedings in England and Wales brought by a person acting in the capacity of … a liquidator of a company which is being wound up in England and Wales … under Parts IV or V of the Insolvency Act 1986”.

The Court found that the recognition order did not turn a foreign liquidation into a liquidation under the Act.  The effect of recognition was not to make a foreign liquidator an officer of the English Court.

Therefore, the proceedings did not fall within the exemption, and the success fee was not recoverable.

2. Whether Candey had the benefit of its common law lien to secure its fees under the FFA and was entitled to ask the Court to convert this to a charge pursuant to section 73 of the Solicitors Act 1974.

Held

The Court held that the Security in this case was inconsistent with a lien and so Candey had waived its right to a lien.  The Court also indicated that failure to mention the lien in the proof of debt would not have amounted to a waiver, that Candey had been instrumental in the recovery of the settlement, and that raising the lien at such a late stage was not an abuse of process (although it could have been penalised in costs).

This case is instructive for solicitors how to best protect their interests in the proceeds of litigation even after their client has entered an insolvency process.   

Candey Limited v Crumpler and Farmer as joint liquidators of Peak Hotels and Resorts Limited [2019] EWHC 282 (Ch)