Candey Ltd v Crumpler & Anor (Liquidators of Peak Hotels & Resorts Ltd)

In this matter the Court has to determine two separate applications between Candey Limited, a firm of solicitors ("Candey"), and Mr Russell Crumpler and Ms Christopher Farmer^l , the joint liquidators ( "the Liquidators") of Peak Hotels & Resorts Limited ("PHRL"), a company registered in the British Virgin Islands ("the BVI"), which was a former client of Candey. They are:

The evidence before me in relation to the Exemption Issue and the Lien Application consisted of the Fifth Affidavit of Mr Crumpler sworn on 24 May 2018 ("Crumpler 5"), with two exhibits RC5 and RC6, on behalf of the Liquidators, and the Sixth Witness Statement of Mr Ashkhan Candey dated 14 June 2018 ("Candey 6") on behalf of Candey. There were also references made to evidence that had been filed at earlier hearings, namely the First to Third Affidavits of Mr Crumpler and the First to Fourth Witness Statements of Mr Ashkhan Candey and the First Witness Statement of John Brisby QC ("Brisby 1"), who had been instructed by Candey as Leading Counsel on behalf of PHRL.

At the hearing, Candey was represented by Mr David Lord QC, leading Messrs Daniel Saoul and Stephen Ryan and the Liquidators were represented by Mr David Holland QC, leading Mr Stephen Robins. I am grateful to them for their helpful written and oral submissions.

This matter has a long and contentious history and arises against a backdrop of extensive previous litigation, including two appeals to the Court of Appeal, the first of which was heard on 21 June 2018, with judgment being handed down on 16 October 2018.

There were four major sources of funding for the joint venture:

Relations between the joint venture partners soon broke down and PHRL became involved in a plethora of international litigation, for which Candey acted as PHRL's legal representatives. Candey was first instructed by PHRL in April 2014 and continued to act for PHRL until 2 March 2016 when they were disinstructed by the Liquidators

By August 2015, PHRL was indebted to Candey for several hundreds of thousands of pounds in fees and did not have the cash to continue to finance the various proceedings in which it was involved. Consequently, PHRL, together with the stakeholders who had invested in it, negotiated a fixed fee with Candey to cover all litigation going forward, that fixed fee being payable when monies became available. Those negotiations resulted in the conclusion on 21 October 2015 of a 'Fixed Fee Agreement' ("the FFA") between Candey and PHRL, by which:

By clause 1, the FFA was made subject to Candey's terms of business ("the Terms"), which were attached. Paragraph 3 of the Terms provided:

Pursuant to this, on 21 October 2015, the same day as the conclusion of the FFA, a Deed of Charge and Security was executed ("the Deed of Charge"), by which PHRL purported to create in favour of Candey (i) a fixed charge over its assets and undertakings, (ii) a fixed charge over all damages, costs, monies and other sums and/or benefits flowing from all claims, and (iii) a floating charge over all such or further assets of PHRL's that were not then capable of being charged by way of a fixed charge "(including any such assets described at (1) or (2) above in the event thefixed charge is defective for any reason) "

The Deed of Charge also provided:

The clauses referred to above were not numbered but followed on from clause (3). I have therefore numbered them sequentially for ease of reference. The Deed of Charge was registered in the BVI.

In order to cover PHRL's additional expenses (i.e. the Outstanding Costs and also disbursements), funding of US$5million was obtained in January 2016, pursuant to which Candey received US$1,999,962.80 on 12 January 2016 and an amount of US$279,989.99 on 26 February 2016.

Meanwhile, Jinpeng, having called in its loan (leading to the arbitration proceedings in Hong Kong and related proceedings in the BVI) successfully petitioned for PHRL's winding up, such that PHRL was placed into liquidation in the BVI on 8 February 2016, on which date the Liquidators were appointed as joint liquidators. Candey lodged a proof of debt on 19 February 2016 (i.e. prior to the subsequent settlement of the London Litigation and the receipt by the Liquidators of monies pursuant to that settlement). In box 8, which required "Particulars of any security held, the date it was given and the value of the security", it simply referred to the Deed of Charge and made no reference to any pre-existing solicitor's equitable lien for their unpaid fees.

The Liquidators took the view that Candey's charge under the Deed of Charge was a floating charge, rather than a fixed charge, because the necessary element of control, on which a fixed charge depends, was entirely absent. Candey disagreed with the Liquidators' analysis and maintained that it had the benefit of a fixed charge, pursuant to the Deed of Charge, rather than a floating one. It was common ground that Candey's security interest was governed by the FFA and the Deed of Charge. The debate as to whether the security was fixed or floating turned on the proper interpretation of the rights conferred by the Deed of Charge. Prior to 29 March 2018, Candey did not suggest that it had any other or further rights which were not governed by the FFA and the Deed of Charge.

The Liquidators also considered that the Company had been unable to pay its debts when it entered into the Deed of Charge and that the floating charge in favour of

In order to resolve the disagreement as to the correct characterisation of Candey's security interest, the Liquidators sought a determination of the issue from the English court. However, because the Liquidators were not appointed in England, being appointed in the BVI, they had no automatic right to seek any relief from the English court. As a preliminary step, thereföre, the Liquidators brought a recognition application ("the Recognition Application") under the Cross-Border Insolvency Regulations 2006 ("the CBIR") for recognition of the liquidation of the Company in the B VI as the "foreign main proceeding" in respect of the Company. On 24 February 2016, Registrar Derrett made an order in the terms sought ("the Recognition Order").

The trial in the London Litigation was due to commence in April 2016. By this point, Candey had been acting for PHRL in relation to the London Litigation for almost two years, having been instructed from the pre-action stage, through pleadings, multiple interlocutory hearings, a CMC, PTR and disclosure. However, on the day that witness statements were due to be exchanged, the parties compromised the proceedings, agreeing terms of settlement on 2 March 2016 embodied in a consent order of Mrs Justice Asplin (as she then was) dated 7 March 2016 ("the Consent Order"), in terms of which:

The net result of (2) and (3) above was that an amount of US$10,013,000 and El ,648,000 were paid to PHRL ("the Settlement Proceeds") on 5 and 10 May 2016 respectively. In addition, as part of the settlement, Tarek and PHRL agreed to cooperate to achieve the release of the SCB Monies (US$3 million), with half going to

The settlement was reached by the Liquidators without the involvement of Candey or Counsel they had instructed and indeed when they discovered its tenns, they regarded it as very unsatisfactory. Mr John Brisby QC described it in an email dated 9 March 2016 to the legal team as "pathetic".

On the same day that the parties achieved the settlement embodied in the Consent Order, Candey was informed by the Liquidators that it was no longer instructed on behalf of PHRL. The following day Stephenson Harwood LLP sent Candey a Notice of Change of Legal Representative.

After being dismissed by the Liquidators, Candey concluded a conditional fee agreement ("the Candey CFA") with Candey LLP, which is a law firm regulated by the Solicitors Regulation Authority separately to Candey, although they operate from the same offices and appear to have the same fee earners. Candey owns and controls more than 75% of Candey LLP, with the remainder being owned and controlled by individual partners of Candey and the wife of Mr Ashkhan Candey. Under the Candey CFA, Candey LLP was instructed by Candey in relation to disputes against the Liquidators, and in the event of being successful in litigation against the Liquidators, Candey was obliged to pay a 100% success fee to Candey LLP. The Candey CFA was entered into on 31 March 2016. Its date, however, is recorded in the Order of HHJ Raeside QC dated 5 December 2017 as being 8 May 2016. Candey state that this date is an error. 8 May 2016 is, however, relevant, because it was on 9 May 2016 that Candey gave notice to the Liquidators of the Candey CFA; in accordance with the relevant rules, it is from the date of that notice that Candey seeks to recover the success fee from Liquidators (and thus in its costs schedules, Candey claimed costs without an uplift until 8 May 2016).

On 27 September 2016 the Liquidators brought the Liquidators' Application, seeking (a) a direction as to whether and to what extent the Deed of Charge was to create a fixed charge or a floating charge over all or any of the assets of PHRL, and (b) a declaration under Section 245 of the 1986 Act that the value of services supplied to

The Liquidator's Application was considered first by HHJ Davis-White QC on 6 to 8 March 2017. At that hearing, the Liquidators raised a preliminary point as to whether Candey's charge (whether fixed or floating) could extend to the Settlement Proceeds at all. In summary, the Liquidators argued that the Settlement Proceeds, which were paid from money PHRL had paid into court, were not existing assets of the Company as at the commencement of its liquidation to which Candey's charge could attach, but were new monies obtained by the Liquidators subsequent to the commencement of the liquidation, which fell outside the ambit of Candey's charge (the "New

On 23 June 2017 HHJ Davis-White QC held that:

Although the Judge found that the Deed of Charge was a charge created at the relevant time when PHRL was unable to pay its debts within the meaning of s245 of the 1986 Act, he considered that he had insufficient evidence to determine the value of the services supplied by Candey, which would be secured by the charge pursuant to section 245 of the 1986 Act ("the Value of Services Issue") and he adjourned this issue.

The Liquidators appealed (with the permission of HHJ Davis-White QC) on the New Monies Point. As stated above, that appeal was heard by the Court of Appeal on 21

Candey did not appeal against HHJ Davis-White QC's decision that Candey's security in the Settlement Proceeds and the SCB Monies took the form of a floating charge (rather than a fixed one) or that the Company had been insolvent as at the date of the Deed of Charge so as to engage section 245 of the 1986 Act.

The Value of Services Issue was detennined by HHJ Raeside QC, who held in his judgment dated 22 November 2017 that:

Thereafter there was a costs and consequentials hearing, pursuant to which HHJ Raeside QC ordered on 5 December 2017 that (amongst other things) the Liquidators were to pay 80% of Candey's costs of the Liquidators' Application, to be assessed by way of detailed assessment on the standard basis, if not agreed. He further ordered the Liquidators to pay €538,780.40 to Candey as a payment on account. The Exemption Issue was adjourned. Permission to appeal was granted to the Liquidators in relation to the Value of Services Issue. That appeal was heard on 13 December 2018 and judgment was reserved.

On 17 April 2018 Candey brought the Lien Application, and on 24 April 2018 Hildyard J gave directions for the hearing of that application. That Order records an agreement between the parties that the law of the BVI is materially the same as English law in relation to the surrender by a creditor of his security in a liquidation, mutatis mutandis.

The recovery of success fees as part of a costs order was abolished by section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (amending s.58A(6) of the Court and Legal Services Act 1990, which applies to CFAs entered into after

However, the effect of this was made subject to the provisions of the LAPSO Order.

Pursuant to Article 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No. 12) Order (SI 2016/345), this saving provision was removed in relation to retainers concluded after 6 April 2016. Although, as set out in paragraph 37 of their skeleton argument, the Liquidators have raised a number of challenges to the recoverability of the success fee, including the contention that it has "all the hallmarks QT a sham", altematively it is a "wholly artificial device which was intended solely to inflate the recoverable fees and lacks any genuine commercial rationale. they are content, for the purposes of this hearing, for the Coun to answer the Exemption Issue on the assumption that the CFA was made on 31 March 2016 and is otherwise enforceable. I shall do so on that basis.

Accordingly, the effect of Article 4(c)(i) for present purposes is that the success fee will be recoverable from the Liquidators if these proceedings qualify as 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. That is the issue that I have to decide. It is a short point of construction.

Candey accepts that it bears the burden of establishing that it falls within the exemption. I turn to the parties' submissions

Candey submits that although PHRL is a company being wound up in the BVI, the Liquidators are acting in the capacity of liquidators of a company being wound up in England and Wales, because they applied for and obtained a Recognition Order under the CBIR which has precisely that effect:

That the Recognition Order had the effect that the Liquidators acted in the capacity of liquidators of a company being wound up in England and Wales is demonstrated by the fact that following the Recognition Order, the Liquidators brought the Liquidators' Application, in which, at paragraph 1, they expressly relied upon Article 21(1)(g) of Schedule 1 to the CBIR to allow them to bring an application under section 168(3) of the Insolvency Act 1986. An application under section 168(3) is a domestic application made under the provisions of Part IV of the Insolvency Act 1986. Section 168 provides:

Since section 168 can only apply in the case of a company which is being wound up by the Court in England and Wales, by bringing an application under section 168(3), the Liquidators acted in the capacity of liquidators of a company which is being wound up in England or Wales, having expressly sought powers and standing to act in that capacity by virtue of the Recognition Order under the CBIR.

In Fibria Celulose SA v Pan Ocean [2014] EWHC 2124 (Ch), the administrators sought to argue that reference to "any appropriate relief" in Article 21(1)(g) allowed the Court the power to order relief which would be available to the administrator in a Korean court applying Korean insolvency law. Morgan J dismissed this suggestion and held that Article 21(1)(g) does not authorise the Court to apply foreign law (or to apply English law in a manner that replicates or achieves an identical result to relief available under foreign law if such a result could DQ_t be achieved under domestic English law); it only authorises the Court to grant relief that may be available to a British insolvency officer-holder under the law of Great Britain. He stated at paragraph 80 of the

15

Furthermore, it is stated in Richard Sheldon QC et al. Cross-Border Insolvency 4^th ed.

In other words, the effect of recognition under the CBIR is to treat the foreign office holder as if he were a British insolvency office holder in domestic insolvency procccdings. That is synonymous with saying that recognition under the CBIR allows a foreign liquidator to "act in the capacity" of a liquidator of a company which is being wound up in England and Wales. The reference to "capacity" is not a reference to status, but a referencc to someone's abilities or powers. It is thereföre directed to whether or not someone is using the capabilities or the powers that a liquidator of a company being wound up in England and Wales would have. The fact that the Liquidators are not officers of the Court is irrelevant. The relief one can seek identifies the capacity in which one is acting. Furthermore the Liquidators' contention that the rights afforded by recognition arc not identical to the rights afförded to an English liquidator docs not stand scrutiny, when one properly examines the provisions of Article 22 of Schedule I to the CBIR.

This conclusion is strengthened by the Courts' interpretation of the effect of recognition under the common law. As was stated by _Lord Hoffmann (sitting in the Privy Council) In Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors ofNavigator Holdings plc [2007] I AC 508 (PC) at paragraph 22:

Further support for this conclusion is found in the fact that if it were otherwise, the words "in the capacity of" in the saving provision would be redundant. It is significant that the saving provision does not, for example, use words such as "acting as", which Mr Lord submitted is more narrow and which is to be found in section 388 of the 1986 Act, which contains the meaning of "act as insolvency practitioner" and provides: "(1) A person acts as an insolvency practitioner in relation to a company by acting (a) as its liquidator... ' If Article 4 of the LAPSO Order had the meaning contended for by the Liquidators, the words "acts as" would have been used.

In his reply submissions, however, he accepted that within the context of section 388, there was no material difference, and he conceded that had the words "acts as" been used in Article 4, Candey would not be entitled to come within the exception.

Indeed if the position adopted by the Liquidators was correct, the form of words used in the saving provision would not make any sense and the wording underlined below would be completely otiose:

Plainly the underlined words are to be construed in a manner that does not render them devoid of any meaning and effect.

Accordingly, for the purposes of the saving provision in Article 4 of the LAPSO Order, the Liquidators' Application constitutes "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", with the effect that the prohibition on the inter-partes recovery of a success fee does not apply, so that Candey is entitled to recover that success fee from the Liquidators.

The ministerial statement relied upon by the Liquidators, referred to at paragraph 64 below, is of no assistance because, although there may be cases where foreign liquidations bring no economic benefit to the Inland Revenue or the British economy, there may be circumstances, depending on the facts, where such benefits are conferred.

Finally the fact that there were different methods by which a foreign liquidator could come before the English Courts to claim relief, which would not give rise to the exemption, did not affect Article 4 of the LAPSO Order being construed as Candey contended.

Haq v Singh [2001] 1 WLR 1594 relied upon by the Liquidators, referred to at paragraphs 68-69 below did not assist and did not detract from the submission that the construction advanced by the Liquidators would render the words "in the capacity of' otiose.

Mr Holland submits that Candey do not come within the exemption for the following reasons: PHRL is not being wound up in England and Wales and is not being wound up under either Part IV or Part V of Insolvency Act 1986. Part IV applies only to companies incorporated in England and Wales and could not apply to the Company, but in any event no winding-up order has been made under Part IV. Part V is capable of applying to foreign companies but no winding-up order was made under Part V either. As the Recognition Application and the accompanying statement made clear, the Company was incorporated in the BVI; did not carry on business within England and Wales; and had no place of business or branch office within England and Wales. The order placing the company in liquidation was made by the BVI court under the British

By Articles 2 and 17(2) of Schedule 1 to the CBIR, a foreign main proceeding is one which is "taking place in the State where the debtor has the centre of its main interests".

By Article 20(1) and (2) of Schedule 1 to the CBIR, it is provided that:

Article 21 provides:

Article 25 provides:

Thus, whilst recognition allows the foreign liquidation to be treated in many respects by the Court as if the foreign company was in liquidation in England and Wales, it does not become an English liquidation. It remains expressly a "foreign...proceeding". A foreign liquidator who has been recognised expressly remains a "foreign representative" and does not becomc a "British insolvency Qfficeholder". As Mr Robin Dicker QC, sitting as a Deputy Judge of the High Court, cmphasised in Glasgow v ELS Law Ltd [2017] EWHC 3004 (Ch) at [82] to [86], the effect of recognition is not to make the foreign liquidator an officer of the English court (as English liquidators are).

Candey's argument confuses status with relief. There is nothing in the CBIR which makes or deems the Liquidators to be the liquidators of a company which is being wound up in England and Wales under the 1986 Act. Article 21 of the CBIR simply allows a foreign representative to obtain certain forms of relief from the English court. It is "concerned with procedural matters" and the relief "is of a procedural nature" (see

As the Court made clear in In re Hartmann Capital [2015] EWHC 1514, the wording of Article 4 of the LAPSO Order is clear and is to be interpreted narrowly. Newey J (as he then was) made clear that Article 4 of the LASPO Order applied only to administrators "appointed pursuant to the provisions ofPart Il Qfthe 1986 Act". In that case the administrators were appointed pursuant the Investment Bank Special Administration Regulations 2011, and not Part Il of the 1986 Act. In such circumstances, although the Judge could "think of no sensible reason for denying the administrators of an investment bank the funding possibilities which are available to ordinary administrators", he said "I cannot however, see how I can achieve the result for which [Counsel for the joint administrators] contends consistently with the wording of Article 4..." [8]. Mr Holland submitted that this decision indicates that there is no room for expanding the application of Article 4 of the LASPO Order by purposive interpretation. It is a narrow exception to a wide exclusion.

Mr Holland's primary submission was that the words were clear on their face but, if one is to take a purposive approach, looking more widely, there is nothing irrational in Parliament seeking to favour only English liquidations. It might well be said that the intention behind Article 4(c) of the LAPSO Order was to facilitate, for a short and transitional period, the recovery of assets by liquidators and trustees in British insolvency proceedings for the benefit (largely) of British creditors.

The ministerial statement referred to in the Hartmann case at [2] refers to "insolvency proceedings". Immediately before the passage quoted it states (in relation to the delay in the abolition of success fee recovery in Article 4(c)):

Further, it is important to note that a foreign liquidator may have a number of different options for seeking relief from the English court:

In the second, third and fourth of these options, the relief available is not defined by reference to the relief "available to a British insolvency officeholder under the law of Great Britain". Indeed:

Therefore, according to Candey's argument about the construction of the concept of

The words "in the capacity of' are not otiose on the Liquidators' construction of Article 4 of the LASPO Order. It draws a distinction of a liquidator acting as such as opposed to acting in a personal capacity, for example, by suing for his fees. Mr Holland placed reliance on the Court of Appeal decision of Haq v Singh [2001] 1 WLR 1594, where the Court was looking at "capacity' in the context of CPR 17.4, which provides:

At of Haq v Singh, Arden LJ held that "to alter the capacity" in CPR 17.4(4) meant an alteration from a representative capacity or personal capacity to another representative capacity, or (in the case of a representative claim) to a personal capacity. On the facts of that case it did not apply because the claimant brought her claim in her personal capacity both before and after the assignment on which reliance was placed. At [20] she stated: "[Capacity] denotes the characteristics which a person has and which give him an ability to sue or be sued on the claim or restrict that ability. " Mr Holland submitted that a similar approach should be taken in relation to Article 4 of the

I have reached the conclusion that the Liquidators' Application does not amount to

I do so for the following reasons:

I therefore decide the Exemption Issue in favour of the Liquidators.

On 29 March 2018, Candey wrote to the Liquidators' solicitors contending that it had the benefit of a common law lien to secure the payment of the Fixed Fee and that it was entitled to ask the Court to convert this lien into a charge pursuant to s. 73 of the 1974 Act ("s.73") This was the first time that Candey had mentioned any such lien. It had not asserted this in previous correspondence, its proof of debt, or in any of the other documents which it had previously filed.

By the Lien Application, Candey seeks a charge under s. 73(1), which provides:

In relation to this section, the authorities make clear a number of propositions:

There are three objections raised by the Liquidators to Candey's claim to a lien:

I begin by considering the authorities.

The Court cannot grant a new charge to a creditor after the commencement of the Company's liquidation, since to do so would to be interfere with the statutory scheme for distribution: see, for example, Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192, in which the House of Lords held that the Court should not make a charging order over the property of a company in liquidation, because such an order would be inconsistent with the statutory scheme for distribution.

However, the right under s. 73 is different, because, under the section, the Court does not grant a new security interest but merely makes a charging order to give effect to the solicitor's pre-liquidation lien. The authorities make clear that the Court's ability to make a charge under the 1974 Act after the commencement of the client's liquidation depends on the fact that the charge is merely replacing the solicitor's existing security in the form of the lien. See Re Born (see paragraph 75(2) above) and Addleshaw Goddard v wood 2015 WL 4578583 at [105] per Master Campbell.

Thus, if the solicitor did not have a lien at the commencement of the client's liquidation, the Court will not improve the solicitor's position by granting a charge to him after the commencement of the client's liquidation. However, if the solicitor had a lien at the commencement of the client's •liquidation, the Court will be able to grant a charge in his favour under s.73 consistently with the scheme ofpari passu distribution

They rely upon Clifford Harris No l, where Richards J stated at [23]:

The Liquidators submit that there are at least four relevant inconsistencies here:

Further, Candey did not purport to reserve its lien. Its contentions to the contrary are misconceived and wrong. In summary:

There was no reservation of the clear and unequivocal type which the authorities have required in order for the lien to be preserved. The Liquidators submit is clear that the agreement embodied in the FFA and the Deed of Charge (which must of course be read together and with the attached "Terms & Conditions") was intended to demarcate thoroughly all the rights granted by the Company to Candey and there is simply no room to imply that any additional common law or statutory rights were to be preserved.

It follows that Candey waived its lien prior to the Company's liquidation.

If Candey did not waive its lien when it entered into the Deed of Charge, the Liquidators submit that it is clear that Candey has since waived it by filing a proof of debt in the liquidation which did not mention the lien (and indeed by making no mention of it prior to 29 March 2018). In his oral submissions, Mr Holland relied upon the case of Re Safety Explosives Ltd [1904] 1 Ch 226. There solicitors, who had a lien for costs upon title deeds, of a company, stated in the proof that they held no security for the debt, and they voted at a meeting of creditors in respect of the whole debt (without making any deduction for the value of the security). The result was that they were deemed to have surrendered the security. The Court of Appeal refused leave to amend or withdraw the proof because (a) they had not satisfied the burden of showing the proof was sworn by inadvertence and (b) importantly they had released the title deeds and any relief granted would be illusory. Reliance was also placed by him on Hammonds v Thomas Muckle & Sons [2006] BPIR 704 at In that case, however, Hammonds did no more than commence winding-up proceedings and, as an administration intervened, the stage of proof never arrived.

Section 214 of the BVI Insolvency Act 2003 provides:

In its proof of debt dated 19 February 2016 filed in the Company's liquidation in the BVI, Candey mentioned its security under the Deed of Charge. It did not, however, mention any lien or right at common law or under statute. Therefore, if it had a lien prior to that point in time, by lodging a proof of debt without mentioning the lien,

Further, Candey has not applied to the BVI court for relief under section 214(2).

Candey appears to contend that it could not have surrendered its lien when it lodged its proof of debt, because it did not have a lien at that time. Candey seems to say that it did not obtain its lien until a later date, when the English court made an Order for the payment of the Settlement Proceeds to the Liquidators (see the Order of Asplin J dated 7 March 2016).

Candey appears to rely on the fact that the Court's jurisdiction under s. 73 is not exercisable until there is a "fund in sight": see Re Fuld (at page 736). However, this confuses the existence of the lien with the Court's statutory jurisdiction to grant a charge to enforce it.

In any event, Candey's contention that the lien did not arise until the English court made an order for the payment of the Settlement Proceeds to the Liquidators is selfdefeating. If correct, it would mean that Candey did not have a lien at the commencement of the Company's winding-up, when its rights in the liquidation were fixed. As the authorities set out above make clear, the Court will not exercise the jurisdiction under s. 73 to turn an unsecured creditor into a secured creditor after the commencement of the client's winding-up. To the contrary, it will grant a statutory charging order to a solicitor only if and to the extent that the solicitor was secured by its lien before the commencement of the client's winding-up.

In the present case, the true position is that Candey lodged a proof of debt in the liquidation without refen•ing to any lien. The Liquidators submit that Candey thereby waived any lien that it might have otherwise had. By waiving its lien, Candey lost any right to a charge under s. 73.

In relation to the nature of a solicitor's equitable lien, Candey relies upon the analysis of Lord JSC in the Haven Insurance case at [37] and the Addleshaw

In the two authorities referred to by Master Campbell above, Candey rely upon the following passages which show the justice and fairness in allowing the solicitor's lien:

The repeated references to the justice and fairness underlying the solicitor's lien is relevant to s. 73 in that although the section gives a discretion to courts, it should ordinarily be exercised in favour of the solicitor: see Clifford Harris N02 per Mr

Candey contends that there was no waiver when they entered into the Deed of Charge, because of an express, alternatively an implied reservation. On a correct reading of the relevant principles, there is no reason why an implied reservation is not sufficient to avoid a waiver. As I observed in paragraph 76(5)(e) above, Buckley LJ in Re Morris at page 477 refers to a solicitor who "expressly or, having regard to all the facts, impliedly reserves his lien ", and at page 479 cited with approval Lindley LJ's statement in Re Tavlor that "whether a lien is waived or not by taking a security depends upon the intention expressed or to be innerred from the position of the parties and all the circumstances ofthe case".

It submits there are two bases upon which Candey can be said to have reserved its lien. First, the FFA was expressly made subject to Candey's terms of business, which were attached, and clause 3 of those terms, which states "We are entitled to retain all papers until our fees are paid in full." and expressly refers to the solicitor's lien. Second, clause 7 of the FFA itself reserves Candey's right to be paid from monies recovered by PHRL at its discretion and thereby explains in plain language the effect of the reservation to the client. Clause 7 reads: "Any monies recovered by PHRL from the date of this agreement (whether costs or otherwise) will be applied by CANDEY towards the Outstanding Costs and/or the Fixed Fee and/or disbursements al

In Candey's submission, this provides a basis for saying that it expressly reserved its lien when the Deed of Charge was concluded. Mr Lord refers to Candey 6, where Mr Candey states at paragraph 8: "In response to Mr Crumpler 's position that Candey waived its rights to its solicitor's lien by entering into a legal charge, I explained to PHRL 's director that Candey would be paid first from the fruits of litigation and I believed that she understood this." In any event, it certainly provides a basis for saying that Candey impliedly reserved its lien. Clause 7 of the FFA clearly explains the effect of this reservation of rights to the clients, namely that Candey would be paid first from any recovery.

In oral argument Mr Lord made two further points:

Secondly, as is clear from Mr Christopher Nugee QC's analysis in Clifford Harris no. 2, and from the cases referred to therein, the question of inconsistency is not to be approached by seeing whether the two security rights cover the same ground, but rather whether "there is some feature of the security which is incompatible with the lien such that the h,vo rights cannot sensibly have been intended to subsist in parallel" [43].

The intention in Candey obtaining the charge under the Deed of Charge, which is to be determined on an objective basis, as confirmed by the Court of Appeal in Metall Market at [45], was clearly to obtain the best security possible: a fixed charge over all assets and undertakings of PHRL in all jurisdictions worldwide, a fixed charge over any damages, costs, monies or other sums and/or benefits flowing from all claims together

This case is unlike Clifford Ilarris no,2 in that the Deed of Charge does not purport to grant Candey (for example) a right to interest that would not otherwise be payable, nor is there any other inconsistency between the Deed and the lien. They subsist together. The fact that there is provision made in clause 4 of the FFA for interest of 8% per annum to accrue from judgment or settlement does not create an inconsistency, because that is part of the retainer, rather than being contained in the Deed of Charge. Mr Lord relies on the passage in Haven Insurance case at [66], where he stated:

It is unreal to suggest that Candey, by seeking, with its client's agreement and ultimately for its client's benefit (enabling it to continue to pursue the litigation), to obtain the best security possible, should in fact undermine its entitlement to a s. 73 charge and therefore find itself worse off.

Thirdly, there is no presumed intention to waive where the Deed of Charge was not effective to create a fixed charge. The Liquidators sought in the Liquidators' Application to challenge the Deed of Charge as being invalid. Since the presumption about an intention to waive a lien is based upon inconsistency, Candey could never be taken to have intended to waive its lien in circumstances where its additional security did not give it a fixed char e over PHRL's property. In the Liquidators* Application, it was held that the Deed of Charge was ineffective to create a fixed charge; it only gave Candey a floating charge. Accordingly, even if (i) Candey did not reserve its lien and (ii) the Deed of Charge cannot subsist in parallel with the lien, then at best for the

This argument is exactly what was contemplated by the Deputy Judge in Clifford Harris no. 2 at [62] as set out at paragraph 77(5)(h) above: a solicitor should not be presumed to have intended a waiver to continue to have effect if the security he thought he was taking turns out not to have been valid and binding; and if the security is avoided, the parties are entitled to be put back into the same position as that in which they would have been had it never been granted, which in practical terms means that the solicitor's s. 73 rights would exist as if they had never been waived.

Further at [23], in the Deputy Judge stated:

This has obvious parallels with this case. Candey previously thought it had a fixed charge under the Deed of Charge. This was subsequently found to be incorrect — the Deed of Charge was ineffective to create a fixed charge. It cannot be correct, or in accordance with justice, that Candey has waived its fixed charge under the lien on the basis of its having accepted a fixed charge under the Deed of Charge, only subsequently to learn that it never had that charge in the first place, with the result that it cannot rely on either.

Insofar as it is argued that Candey waived its lien by failing to reserve it or mention it in its proof of debt, they make three points.

Secondly, the proof of debt was filed approximately two weeks prior to the settlement. The notion that a solicitor must assert rights over the proceeds of a settlement that has not yet been reached, failing which he is deemed to waive any rights he may have over those hypothetical proceeds, is unrealistic in the extreme and again without any legal foundation.

Thirdly, and returning to the principles relating to waiver, and the presumed intentions of the parties, the simple point is that the principles discussed above apply to the taking of additional security; they cannot simply be transposed onto a different factual situation i.e. where a solicitor submits a proof of debt to its client's liquidators. The difference between the two situations is clear. In the case of taking additional security, the presumption that a solicitor has waived his lien by failing to mention it is based upon a positive duty owed to his client to explain. In the case of submitting a proof of debt to a company's liquidators, there is no such positive duty on the solicitor to inform the liquidator as to what other security rights might exist against the Company (and in this regard it is notable that the Liquidators' case is that they did not rely on Candey at all after their appointment⁴).

There has been no waiver of the lien, either by entering into the Deed of Charge prior to the liquidation or post-liquidation and the Liquidators contention to the contrary should be dismissed.

I turn first to the question of inconsistency:

That takes one to the next question of reservation of rights:

In relation to the question of reviver, unlike the illustration provided in [54] of Clifford Harris no. 2 the Deed of Charge has not been avoided, it remains in place but as a floating, not a fixed, charge. In such circumstances, I cannot see how it can be said that the fact it is of lesser effect than Candey would have wished is sufficient to revive a lien, otherwise waived. The Deed of Charge is still valid but ranking at a floating charge level only. They still have a security on which they can rely, albeit one which is not effective as a lien which will rank ahead of liquidation expenses, which as stated above creates an inconsistency. As the Liquidators submit, correctly in my view, that this creates a problem because Candey's claim will rank simultaneously at two different levels in the priority waterfall: see Groom v Cheesewright at page 733.

I have therefore reached the conclusion that when entering into the Deed of Charge at the time of the FFA on 21 October 2015, without any express or implied reservation, Candey has waived its solicitor's lien and thereby any rights to which it may have been entitled under s. 73(1) of the 1974 Act. It did not, therefore, have a lien at the commencement of the liquidation.

My finding in relation to pre-liquidation waiver is sufficient to dispose of the Lien Application, but in case this goes further I will address the arguments raised by the parties in relation to post-liquidation waiver, instrumentality and abuse of process, albeit in rather less detail.

In my judgment, had there been no waiver of the lien and s. 73 rights as result of entering into the Deed, there was no waiver by Candey lodging its proof of debt without expressly referring to the lien. I accept Candey's submission that, in normal circumstances, there would be no obligation to refer to the lien in a proof of debt. As stated by Sir John Romilly MR in Haymes v Cooper [1865] 33 BEAV. 43, and subsequently by the Court of Appeal in Faithfull v Ewen (1878) 7 Ch D 495, all persons aware of litigation are to be treated as being on notice of a solicitor's right to payment out of the proceeds of that litigation. The solicitor is not required to spell this out.

The position is no different were there to be a valid, co-existing additional security, which had not been waived at the date of the liquidation. Once again, I accept Candey's submission that there is a distinction to be drawn between a waiver based upon a solicitor's obligation to explain the position to a client at the time of taking additional security, and the obligation towards the Liquidator when filing a proof of debt in relation to a solicitor's lien. The facts here are very different to those in Re Safety Explosives.

I do not, however, accept Candey's submission that the fact that the settlement had not been reached could be relied upon as a reason for not referring to the lien, if there was otherwise an obligation so to do.

This issue arises because section 73 of the 1974 Act applies only to monies recovered or preserved through the solicitor's instrumentality. In the Haven Insurance case

The funds which Candey asks the Court to charge consist of the Settlement Proceeds and the SCB Monies.

The Liquidators contend that the assets over which Candey says it has a charge were not recovered through Candey's instrumentality; rather the assets were obtained as a result of the Liquidators' efforts, and Candey had "absolutely no role in, or causative effect upon, the result that was achieved'. Candey's response is that it is absurd to suggest that Candey, who acted as PHRL's solicitors in those proceedings and in various other proceedings and who were its solicitors on the record at the time of settlement, were not instrumental in causing PHRL to be in a position where a settlement on any terms favourable to PHRL was even remotely possible. Candey were similarly instrumental in the separate proceedings concerning the SCB Monies, but in any event the preservation and recovery of PHRL's portion of the SCB Monies was duc to Candey's instrumentality in the London Litigation.

The Liquidators submit that Candey's evidence makes clear that it was implacably opposed to the settlement agreement in respect of the London Litigation which the Liquidators negotiated and would not have negotiated such an agreement itself. As Mr

Indeed, the Liquidators deliberately excluded Candey from settlement negotiations because they considered that it was hindering a settlement. Thus, far from being instrumental, Candey had to be excluded in order to allow the settlement to occur.

The Settlement Proceeds were not the fruits of the litigation but were rather sums which originally came from the Company and had to be paid into court by it in order for the London Litigation to continue. But for the intervention of the liquidation and the Liquidators, all the evidence is that the Company and Candey would have sought to continue the London Litigation to trial and beyond.

The Liquidators also say that, quite separately, the SCB Monies are not property recovered or preserved through Candey's instrumentality as they were simply not in issue in the London Litigation.

On this basis, the Liquidators say that the Settlement Proceeds and the SCB Monies fall outside of s. 73.

Candey submits that the authorities show that the word 'instrumental' should be broadly and purposively construed and encompasses the present situation. That it does so is confirmed by a number of authorities dealing with analogous circumstances, see Moxon v Sheppard (1890) 24 QBD 627, Re Meter Cabs Limited [1911] 2 Ch. 557, Hyde v White [1933] P. 105, Hanlon v The Law Society [1981] AC 124 (HL) and Hammonds v Thomas Muckle & Sons [2006] BPIR 704.

Reliance is placed upon the dictum of Romer J in Scholev v Peck (1893) 1 Ch 709, where he expressed the test as being one of "but for" causation:

From the above authorities Candey submit the following principles are clear:

Applying these principles to the facts of this case, it is clear that Candey was instrumental in obtaining the Settlement Proceeds and the SCB Monies. It relies upon the following facts:

The Liquidators' argument to the contrary is flawed for the following reasons:

I have reached the conclusion that there is no basis on which Candey should to be denied any rights under s. 73 on the basis of an alleged lack of instrumentality.

I do so for the following reasons:

The Liquidators contend that it is an abuse of process for Candey to seek to rely on a lien at this late stage in the proceedings, having previously asserted only that its debt was secured by the Deed of Charge. They submit that Candey is precluded from seeking an order under s. 73 or that the Court should exercise its discretion under s. 73 by declining to grant a charge or by ensuring that any charge does not confer on Candey any rights which exceed those under the Deed of Charge. Candey submits that the Liquidators' contentions do not come close to the exceptional circumstances required to disentitle a solicitor from an order under s. 73 and further there is no basis for declining to grant or restricting the relief under s. 73.

The Liquidators submit that this falls within the Henderson v Henderson species of res judicata, recently described by Lord Sumption in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2014] AC 160 at [17] as a rule which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been, raised in the earlier ones. If Candey is right to contend that it has a lien which falls outside of section 245 of the 1986 Act, then the existence of this right would have been a complete answer to the Liquidators' Application which Candey could and should have raised at the time.

They rely upon the following matters:

If Candey still does have such a lien, the Liquidators contend that it would be an impermissible abuse of process for Candey to seek now to rely on its lien at this late stage in the proceedings and that Candey should not be permitted to do so. Alternatively, the Court should exercise its discretion under s. 73 of the 1974 Act to achieve the same result.

The Court of Appeal has, on a number of occasions (see for example Havmes v Cooper and Faithfull v Ewen cited above) made it clear any person aware of litigation is deemed to be on notice of a solicitor's right to be paid out of the proceeds of that litigation. The Liquidators were always on notice of Candey's rights. In those circumstances, it is not open to them to accuse Candey of abusive conduct merely for not asserting those rights at an earlier time.

Secondly, it was the Liquidators that brought the Liquidators' Application against Candey, which was required to defend it in order to protect its security rights. The Liquidators have, prior to the issue of that application, raised numerous challenges to the FFA itself, contending that it was (i) obtained by undue influence and (ii) a preference: arguments which the Liquidators have since abandoned. ^{I I}

Thirdly, in the present circumstances the doctrine of abuse of process does not apply. Under that doctrine, a party should bring its entire claim or defence within the same proceedings and may be estopped from putting forward additional claims or defences that they could and should have put forward in the earlier litigation: Henderson v Henderson (1843) 3 Hare 100. In this case, however, it would not have been a defence to the Liquidators' Application for Candey to assert some other security right, since the issue in that application concerned the validity of the security rights under the Deed of Charge and the FFA. In those circumstances, on what basis could it be said that Candey should have put forward an entirely irrelevant defence? On any view, it is well established that the mere fact that a claim could have been brought in earlier proceedings does not mean that it should have been: see, e.g. Henley v Bloom [2010] 1 WLR 1770.

Fourthly, the Liquidators' contention that the Liquidators' Application could have been avoided if Candey had asserted its lien at an earlier stage is wrong. Had the Liquidators not brought the Liquidators' Application, they would not have obtained an order to the effect that the Deed of Charge only created a floating charge, so the Liquidators would in any event have had to challenge the Deed of Charge. Furthermore, the Liquidators' Application also determined the disputed issue of whether Candey's fees were fair and reasonable; an issue that would no doubt also have arisen in the context of a s. 73 application, such that the costs of those proceedings would have had to have been incurred in any event. (Footnote: ⁹)

Finally, in the course of argument, Mr Lord indicated that the reason the lien was not asserted earlier, "may be that it was not thought of before... The reality is that it did not matter all the time Candey thought they had a fixed charge .

Accordingly, the Liquidators' contentions based on abuse of process are insufficient to disentitle Candey from its entitlement under s.73 and further, in the circumstances there is no basis for the Court to exercise its discretion to Court under s. 73 by declining to grant a charge or by ensuring that any charge does not confer on Candey any rights which exceed those under the Deed of Charge.

I have reached the conclusion that if there had not been a waiver of the lien, I would not have found that there was an abuse of process by Candey, so as to disentitle it to an order under s. 73; nor would I have declined to grant a charge or to do so in restricted terms sought by the Liquidators. It seems to me that the distinction drawn by

I decide the Exemption Issue in favour of the Liquidators and I dismiss the Lien Application. I invite the parties, if possible, to agree a draft Order in advance of the handing down of this Judgment.