Glasgow (The Bankruptcy Trustee of Harlequin Property Svg Ltd) v ELS Law Ltd & Ors

An unsecured creditor does not acquire a lien merely because its work or expenditure preserved or enhanced an insolvent estate. The court will not create a new proprietary priority by analogy with a solicitor’s lien where the issue raises significant policy questions affecting the statutory insolvency distribution scheme and can be addressed by contract. Nor may a party who contracted for an unsecured claim obtain security by asserting a lien inconsistent with that agreement.

The ex parte James principle controls the conduct of officers of the court. It does not apply to a foreign bankruptcy trustee merely because foreign insolvency proceedings have been recognised under the Cross-Border Insolvency Regulations 2006. In any event, the principle cannot ordinarily be used to prefer a creditor who has an ordinary provable claim.

The applicant, the bankruptcy trustee of Harlequin Property SVG Limited, sought directions concerning approximately £7.9 million held in court following the company’s successful claim against Wilkins Kennedy. After other disputes settled, the remaining issue was whether three insurers had proprietary claims over the fund for unpaid insurance premiums.

The insurers relied principally on a lien analogous to a solicitor’s lien over litigation recoveries. Alternatively, they relied on the principle in Ex p James; In re Condon (1874) LR 9 Ch App 609. The central questions were whether the court should extend the solicitor’s lien to insurers and whether the foreign bankruptcy trustee was subject to the relevant supervisory jurisdiction.

1. The lien claim failed. The general rule is that work, labour or expenditure benefiting another’s property creates no lien or restitutionary obligation, absent agreement or a recognised exception. Insolvency does not improve the position of an unsecured creditor whose expenditure enhanced the estate. The statutory scheme requires rateable distribution among unsecured creditors.

2. The solicitor’s lien is a distinct historical exception. It is more accurately a right to ask the court to charge litigation proceeds in the solicitor’s favour, and it does not justify extending the doctrine to insurers. Whether insurers should receive such a proprietary priority raises policy questions for Parliament, particularly because the proposed lien would create an unregistered non-possessory security interest and would alter insolvency priorities. There was no pressing need for judicial development because insurers could contract for security.

3. The Priorities Agreement independently defeated the claim. It provided proprietary priority for specified insurance payments in settlement cases but expressly excluded premiums from the proceeds where recovery resulted from judgment. Having agreed that the balance was payable without first discharging premiums, the insurers could not obtain a lien to give them the priority for which they had not contracted.

4. The alternative claim under Ex p James; In re Condon (1874) LR 9 Ch App 609 also failed. The principle concerns the court’s control over its own officers. The applicant was appointed bankruptcy trustee by the High Court of St Vincent and the Grenadines. Recognition under article 17 and relief under article 21 of the Cross-Border Insolvency Regulations 2006 did not make him an officer of the English court or confer supervisory and disciplinary jurisdiction over him.

5. Even if the principle could apply, it was not engaged. The insurers had ordinary unsecured claims and had agreed to that position in the event of judgment. Applying the principle would improperly confer a preference rather than relieve a claimant who would otherwise have no remedy. The insurers’ claims therefore ranked only as unsecured claims in the foreign insolvency. The parties were invited to agree an order and consequential costs matters.