Withers LLP v Langbar International Ltd

The Court of Appeal considered whether funds paid into a solicitor's client account pursuant to court orders were subject to a solicitor's retaining lien and whether the solicitors held an equitable charge over those funds. The court held that the Morgan order and its subsequent variations placed the money in the account for the purpose of preserving the respondent's (Langbar's) interest and to be dealt with under the court's directions, and therefore the money was not held for "general purposes" so as to attract a retaining lien in favour of Withers. The court also held that there was no equitable charge because there was no contract or agreement imposing an obligation to pay Withers' fees out of the fund (the Carey v Palmer test for equitable assignment was not satisfied).

Background and parties. Withers LLP acted for members of the Rybak group who had settled a claim with Langbar for about Not stated in the judgment.

The practical factual background was that proceeds from the sale of a Monaco apartment were paid into Withers' client account pursuant to a High Court order made by Morgan J (the "Morgan order") so that the funds would remain in the jurisdiction and be available under the court's directions. The Morgan order was later varied by an order of HHJ Waksman QC (the "Waksman order") and the sums were, for a time, also affected by a criminal restraint order made by HHJ Gordon in the Central Criminal Court.

Procedural posture. Morgan J in the Chancery Division held that Withers had a common law retaining lien over the money in its client account but rejected an alternative claim that Withers had an equitable charge. Langbar appealed to the Court of Appeal; Withers cross-appealed on the equitable charge point. The appeal was heard by Lloyd LJ, Kitchin LJ and Sir Robin Jacob.

Nature of the applications/relief sought. Withers sought to retain Not stated in the judgment.

Issues framed by the court.

• Whether money held in a solicitor's client account pursuant to the Morgan order (and as varied) was held for "general purposes" so as to attract a solicitor's retaining lien.
• Whether Withers held an equitable charge over the money in the account, i.e. whether there was an agreement for valuable consideration that imposed an obligation to pay Withers out of that fund (the Carey v Palmer test).

Court's reasoning and conclusions. The court analysed the law on retaining liens and purpose trusts, observing that whether a lien exists depends on the reason why the money was held and whether that reason is consistent with a lien. It concluded that the Morgan order put the money into the account so that it would remain available under the court's directions to preserve Langbar's position, a purpose inconsistent with a solicitor claiming priority by way of a retaining lien. The Waksman order, which permitted certain payments only subject to third-party consent or further court determination, did not produce the degree of control by Rybak necessary to render the monies available "for general purposes" and therefore did not convert the monies into funds subject to a lien. The court drew analogy with Halvanon Insurance v Central Reinsurance where money paid to satisfy leave to defend was held not to be subject to a solicitor's lien. On the equitable charge point, the court applied the Carey v Palmer principle and found no agreement imposing an obligation to pay Withers out of the fund; correspondence did not disclose an offer and acceptance producing a binding contract for valuable consideration. Accordingly the appeal was allowed and the cross-appeal dismissed.

Wider context. The court noted that the underlying analysis turns on the purpose for which funds are held and that regulatory and practical constraints on solicitors' handling of client money make the distinction between money held for "general" and "particular" purposes significant in determining the availability of a retaining lien.

Appeal allowed and cross-appeal dismissed. The Court of Appeal held that monies paid into Withers' client account pursuant to the Morgan order (as varied) were not held for general purposes and that the terms and purpose of the court orders were inconsistent with the existence of a retaining lien in favour of Withers. The court further held there was no equitable charge because no contract or obligation was shown that would subject the fund to an equitable assignment in favour of Withers.

Appeal to the Court of Appeal from the Chancery Division (Morgan J) [2011] EWHC 1151 (Ch). The Court of Appeal delivered judgment allowing Langbar's appeal and dismissing Withers' cross-appeal: [2011] EWCA Civ 1419 (case no. A3/2011/1435).