Withers LLP v Rybak & Ors

A conventional freezing order restricts disposal of assets but does not create a security interest in them. The same distinction applies to money paid into an account under an order which merely freezes or restricts its use. A solicitor may nevertheless have a common-law retaining lien over money in the solicitor’s client account, provided the money is held in the solicitor’s professional capacity, belongs to the client, and is not held for a particular purpose incompatible with the lien. The lien extends to the client’s assessable costs, charges and expenses incurred in the solicitor’s professional capacity. Court orders may restrict or confine the lien, but do not necessarily extinguish it.

Withers LLP applied for an order permitting it to retain approximately £410,000 held in its client account. The money had been paid there by the Rybak parties pursuant to earlier court orders made during litigation with Langbar International Limited. After obtaining judgment, Langbar received an assignment of the Rybak parties’ interest in the fund.

The principal questions were whether the earlier orders had created a security interest in Langbar’s favour and whether Withers had a common-law retaining lien or an equitable charge securing its unpaid fees. The application was heard at first instance by the High Court (Chancery Division).

1. Langbar’s security interest. An order creates a security interest over a fund where it obliges the debtor to pay the debt out of that fund. An order which merely restricts disposal of the fund, like a conventional freezing order, creates no charge. Applying Flightline Ltd v Edwards [2003] 3 All ER 1200, and the principles stated in Palmer v Carey [1926] AC 703 and applied in Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584, the orders of 19 December 2008 and 11 September 2009 did not give Langbar a proprietary or security interest in the fund.
2. Withers’ capacity. The money was held in Withers’ ordinary client account and in its professional capacity as solicitors for the Rybak parties. The orders imposed constraints on the client’s use of the money, but did not convert Withers into a stakeholder or trustee holding under a special tripartite arrangement. The position was therefore materially different from Halvanon Insurance Co Ltd v Central Reinsurance Corp [1988] 1 WLR 1122.
3. Retaining lien. Money in a client account can be subject to a retaining lien even where the solicitor holds it on trust for the client: Loescher v Dean [1950] Ch 491. The lien extends to the solicitor’s assessed costs, charges and expenses incurred on the client’s instructions in the solicitor’s professional capacity. It is enforceable against the client and persons claiming through the client who have no better right.
4. The orders did not make exercise of a retaining lien incompatible with their terms. The lien was established in respect of Withers’ reasonable legal fees and expenses in the proceedings, although the order of 11 September 2009 might limit the lien as against fees for unrelated matters.
5. Withers failed to establish an alternative equitable charge. The evidence did not show that the Rybak parties had directed Withers to pay itself from the fund or undertaken specifically to discharge its fees from that fund.

Withers was therefore entitled to the substance of the relief sought. The detailed form of order was to be settled after further submissions.

No appeal history is stated. The judgment records earlier interlocutory and trial orders in the related litigation.