Candey Ltd v Crumpler and another (as Joint Liquidators of Peak Hotels and Resorts Ltd (In Liquidation))

A solicitor’s equitable lien may be waived when new security is taken. Waiver depends on the parties’ objectively inferred intention, assessed from all the circumstances. The central question is whether the new security was intended to supplement or replace the lien.

Security over property already covered by the lien is ordinarily inconsistent with its retention. A different priority may reinforce that conclusion. If the new security is inconsistent with the lien, the solicitor must give the client express notice of an intention to retain the lien. Independent legal advice obtained by the client does not remove that professional obligation.

Candey Ltd acted for Peak Hotels and Resorts Ltd in worldwide litigation. When the client encountered financial difficulty, the parties entered into a fixed fee agreement and a deed purporting to charge the client’s assets, including litigation recoveries. After the client entered liquidation, Candey asserted an equitable lien over settlement proceeds and sought a charge under section 73 of the Solicitors Act 1974.

The High Court dismissed the lien application, holding that Candey had waived the lien by accepting the new security: [2019] EWHC 282 (Ch). The Court of Appeal upheld that conclusion and also found post-liquidation waiver: [2020] EWCA Civ 26.

The central issue before the Supreme Court was whether the fixed fee agreement and deed of charge objectively demonstrated an intention to replace, rather than supplement, the equitable lien.

1. Appeal dismissed unanimously. Lord Kitchin, with whom Lord Reed, Lord Briggs, Lord Hamblen and Lord Stephens agreed, held that the Court of Appeal was entitled to find that Candey waived its equitable lien when the fixed fee agreement and deed of charge took effect.

2. Whether an equitable lien has been waived depends on the parties’ intention. Where that intention is inferred, the court must take an objective approach and consider all the circumstances. The single ultimate question is whether a reasonable observer would understand the new security to supplement the lien or replace it.

3. Taking additional security does not invariably waive a lien. Where, however, the security is inconsistent to any degree with retention of the lien, a solicitor who wishes to retain the lien must give the client express notice. Without such notice, abandonment is very likely to be inferred. This professional obligation is not removed merely because the client obtains independent legal advice about the new arrangements.

4. The deed covered the same settlement proceeds as the equitable lien. It was inconsistent to create consensual security over those proceeds while retaining the right to seek non-consensual security over them under section 73 of the Solicitors Act 1974. The fixed fee agreement also stated that it superseded and replaced previous fee arrangements. Together, the documents established a new package of rights, obligations and security.

5. The equitable lien would have ranked first, whereas the new security expressly ranked behind the charge and liabilities of the litigation funder. That difference in priority further supported replacement of the lien. By contrast, the provision for interest at 8% in the fixed fee agreement did not itself establish inconsistency. A lien could secure fees and interest arising under a retainer even without a deed of charge.

6. Neither the documents nor the communications relied upon expressly or impliedly reserved the lien. The documents instead supported its replacement. It was therefore unnecessary to decide whether lodging a proof of debt without mentioning the lien surrendered it under section 214(1) of the BVI Insolvency Act 2003, or whether the later lien application was an abuse of process.

1. United Kingdom Supreme Court: The appeal was dismissed unanimously. The court upheld the conclusion that Candey had waived its equitable lien: [2022] UKSC 35.
2. Court of Appeal: The court dismissed Candey’s appeal, upheld pre-liquidation waiver and additionally found post-liquidation waiver: [2020] EWCA Civ 26; [2020] Bus LR 1452.
3. High Court, Chancery Division: A deputy judge dismissed the lien application because Candey had waived the lien when it accepted the new security. He rejected post-liquidation waiver, lack of instrumentality and abuse of process: [2019] EWHC 282 (Ch); [2019] Bus LR 1901.