02/07/2021

Zacaroli J clarifies solicitors’ right to obtain security for their unpaid fees

Candey Ltd v Tonstate Group Ltd and others [2021] EWHC 1826 (Ch)

Zacaroli J has today given judgment offering much needed clarification as to the nature and effect of a solicitor’s rights over the fruits of litigation. The dispute arose between the solicitors Candey and the judgment creditors of their bankrupt client Edward Wojakovski. Whilst a director of companies within the Tonstate group, Mr Wojakovski had unlawfully extracted millions of pounds into offshore entities under his control. In proceedings for their recovery, the companies had struck out Mr Wojakovski’s defence ([2019] EWHC 3363 (Ch)) and obtained judgment for more than £15 million which they were seeking to enforce, including through a final charging order over shares owned by Mr Wojakovski.

Candey, however, asserted that they had a pre-existing and prior-ranking equitable interest over the same shares, securing their own right to payment of £2.4m under a Damages Based Agreement. In a prior judgment ([2021] EWHC 1122 (Ch)), Zacaroli J held that Candey had no such right under the DBA. However, since Candey wished to appeal on that issue, Zacaroli J went on in this second judgment to decide whether Candey’s claim to security was otherwise well founded.

He held that even if (contrary to his earlier decision) the DBA gave Candey an enforceable right to payment, Candey were still not entitled to a charging order under s.73 of the Solicitors Act 1974 or any other relief by way of security. It was fatal to Candey’s claim to security that the judgment creditors had applied for and obtained their final charging order over the shares without notice of Candey’s rival claim.

Zacaroli J analysed the solicitor’s lien as a proprietary interest which would crystallise immediately when a “fund was in sight” as a consequence of the solicitor’s efforts in the proceedings. In doing so he declined to follow Lord Goddard CJ in James Bibby Ltd v Woods and Howard [1949] 2 KB 449 who had described the right as merely an “inchoate” right to apply to court for relief. Zacaroli J concluded that Bibby had been implicitly overruled by the Supreme Court in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21 where a solicitor’s lien was described as akin to an equitable charge.

On the facts, however, the solicitors’ lien had been defeated by the final charging order, which the judgment creditors had obtained without notice of any right on the solicitors’ part. Zacaroli J therefore held that the creditors had taken their own security free of the solicitors’ claim over the assets. Given that conclusion, it was unnecessary for him to decide whether, procedurally, the solicitors lost any right to assert their security interest after failing to raise it during the charging order proceedings against their client.

The decision is relevant to solicitors generally. Solicitors are at risk of their lien being defeated if a third party without notice of the lien enforces against the same asset before the solicitors have obtained a charging order. Delay in making an application under s.73 of the Solicitors Act 1974 is therefore dangerous.

Andrew Fulton QC appeared for the successful defendants to the solicitors’ claim.

Read the full judgment