Candey Ltd v Russell Crumpler and Christopher Farmer (as Joint Liquidators of Peak Hotels & Resorts Ltd ((in Liquidation)))

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Rose,Lord Justice Moylan,Lord Justice McCombe
Judgment Date23 January 2020
Neutral Citation[2020] EWCA Civ 26
Docket NumberCase No: A2/2019/0703

[2020] EWCA Civ 26

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

(BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES)

MR ANDREW HOCHHAUSER QC (Sitting as a Deputy Judge of the High Court)

[2019] EWHC 282 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice McCombe

Lord Justice Moylan

and

Lady Justice Rose

Case No: A2/2019/0703

Between:
Candey Limited
Appellants
and
Russell Crumpler and Christopher Farmer (As Joint Liquidators of Peak Hotels & Resorts Limited (In Liquidation))
Respondents

David Lord QC, Daniel Saoul QC and Stephen Ryan (instructed by Candey LLP) for Candey Limited

David Holland QC and Stephen Robins (instructed by Stephenson Harwood LLP) for the Joint Liquidators

Hearing dates: 10 and 11 December 2019

Approved Judgment

Lady Justice Rose
1

THE BACKGROUND

1

This appeal against the order of Andrew Hochhauser QC sitting as a Deputy Judge of the Chancery Division raises two separate issues relating to the recovery of legal costs incurred in the course of extensive litigation conducted in London and in several other jurisdictions around the world. The Appellant, Candey Limited (‘Candey’), is an English registered company based in London. For a number of years Candey acted as the legal representative for a party to that litigation, Peak Hotels & Resorts Ltd (‘Peak’), a company incorporated in the BVI. Peak is now being wound up in insolvency proceedings brought in the BVI court and the Respondents (‘the Liquidators’) were appointed by that court as the liquidators of Peak on 8 February 2016. Shortly after they were appointed, the Liquidators replaced Candey with other solicitors. A dispute then arose between the Liquidators and Candey about Candey's claim to unpaid fees owed to it by Peak. For the purpose of that dispute, Candey was represented by an English firm of solicitors, Candey LLP. Following one of many hearings that have taken place to resolve that dispute, the Liquidators were ordered to pay some of Candey's legal costs. The first issue in this appeal is whether the Liquidators are bound under that costs order to pay a success fee which Candey asserts it is bound to pay its lawyers Candey LLP under a conditional fee agreement (‘CFA’) between Candey and Candey LLP. For reasons that will become clear, this issue has been called the Exemption Issue because it turns on whether an exemption from the general prohibition on the recovery of a success fee from opposing parties applies to the proceedings between Candey and the Liquidators. The judge decided the Exemption Issue in favour of the Liquidators, holding that the proceedings were not covered by the exemption and so the success fees were not recoverable from the Liquidators as part of Candey's costs. Candey appeals against that decision.

2

The second issue relates to Candey's claim in the Peak insolvency proceedings to recover the unpaid fees it was owed by Peak for the legal work done. Candey asserts an equitable lien which it submits the court can and should convert into a charge on Peak's assets under section 73 of the Solicitors Act 1974 to secure those unpaid fees. This is referred to as the Lien Issue. On this issue the judge also found in favour of the Liquidators that the lien over Peak's assets had been waived by Candey and was no longer enforceable. Candey appeals against this finding. The judge did not agree with all the arguments that the Liquidators put forward as to why the lien no longer operated in Candey's favour. There is a Respondents' Notice from the Liquidators raising again some of the arguments that the judge rejected as alternative reasons for upholding his decision that the lien has been waived.

3

The factual background to this dispute was set out in the judge's clear and comprehensive judgment reported at [2019] EWHC 282 (Ch). I need only provide a brief outline here. Peak was incorporated in January 2014 to hold shares in a joint venture vehicle which owned a group of boutique luxury hotels. Relations between the joint venture partners broke down and Peak became embroiled in litigation for which Candey acted as its legal representative between April 2014 until 2 March 2016. There were proceedings in London, Hong Kong, in the BVI and in New York. One set of proceedings in which Candey acted on Peak's behalf was the claim brought by Peak in June 2014 in the Chancery Division of the High Court in London. This was referred to by the parties as the ‘London Litigation’. In the course of the London Litigation, Peak paid first $10 million and then £3 million into court to fortify its cross-undertaking in damages when it was granted injunctive relief and to provide security for the defendants' costs. By August 2015 Peak owed Candey several hundreds of thousands of pounds in unpaid legal fees and could not continue to finance the litigation in which it was involved. Peak and some of its backers negotiated a fixed fee with Candey to cover all the litigation going forward. Those backers included the American company Campion Maverick Inc although it was not involved in negotiating the fixed fee. The negotiations culminated in an agreement between Candey and Peak dated 21 October 2015 (‘the FFA’) under which Candey agreed to continue to act for Peak in various proceedings including the London Litigation. The FFA provided that Peak would pay:

i) The Fixed Fee of £3,860,637.48 in respect of future fees, payable only once judgment on liability was handed down or settlement agreed in the London Litigation or on Peak receiving other cash enabling it to pay;

ii) Outstanding Costs, that is the unpaid invoiced costs of £941,358.94 payable in three roughly equal instalments;

iii) Disbursements including counsel's fees payable on request.

4

Pursuant to an obligation in clause 11 of the FFA, a deed of charge and security was executed between Peak and Candey also on 21 October 2015 (‘the Deed of Charge’). By the Deed of Charge Peak 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 or benefits flowing from all the claims it was involved in; and (iii) a floating charge over any further assets which were not capable of being charged by a fixed charge. The Deed of Charge was then registered in the BVI. The Lien Issue is, in short, whether by entering into this Deed of Charge with Peak, Candey has waived its entitlement to rely on its equitable lien over any fruits of the London Litigation.

5

On 19 February 2016 Candey submitted a proof of debt in the insolvency proceedings in the BVI stating that the total amount of the claim as at the date of the appointment of the Liquidators was £3,860,637.48, being the Fixed Fee. The proof of debt referred to the Deed of Charge as the security for the debt, describing it as creating ‘fixed and floating charges’ over all of Peak's assets.

6

It rapidly became clear that there was going to be a dispute between Candey and the Liquidators over the payment of the sums due under the FFA. The Liquidators took the view that Candey's charge under the Deed of Charge was only a floating charge rather than a fixed charge. Moreover, they considered that Peak had been unable to pay its debts when it entered into the Deed of Charge so that the floating charge in favour of Candey could only secure the value of services provided by Candey after the creation of the Deed of Charge, in accordance with section 245 of the Insolvency Act 1986 (‘the IA 1986’).

7

In order to deal with actual and potential litigation taking place in London, the Liquidators applied on 22 February 2016 to the English High Court for recognition of the BVI liquidation pursuant to the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) (‘CBIR’). A recognition order was made by Registrar Derrett on 24 February 2016, recognising the BVI liquidation as foreign main proceedings in accordance with the UNCITRAL Model Law as set out in Schedule 1 to the CBIR. The order stayed all proceedings against Peak except for the proceedings listed in paragraph 3 of the order. Paragraph 4 of the order provided that the Liquidators have liberty to apply for relief under Article 21 of the Model Law. On 31 March 2016 Candey concluded a CFA with Candey LLP which is an English law firm regulated by the Solicitors Regulation Authority. It is a separate entity from Candey although it operates from the same offices and appears to have the same fee earners. Under the CFA, Candey was obliged to pay a 100% success fee to Candey LLP in the event that Candey was successful in its dispute with the Liquidators. Candey gave notice to the Liquidators of the CFA on 9 May 2016.

8

Meanwhile, the London Litigation was compromised by the Liquidators shortly before it was due to come to trial. A consent order was made by Asplin J dated 7 March 2016. The order directed the payment out of the sums that Peak had paid into court, directing that some of it be paid to Peak. The result was that about US$10 million and £1.6 million were paid back to Peak in May 2016. Subsequently, Peak received a further $1.5 million arising from the settlement (referred to as ‘the SCB Monies’ because they were held in an account at Standard Chartered Bank). Those are the monies, referred to as ‘the Settlement Proceeds’ over which Candey now asserts its solicitors' equitable lien.

9

On 27 September 2016 the Liquidators applied to the court to determine the nature of the Deed of Charge which Candey claimed made it a secured creditor for the sums due from Peak under the FFA. The Liquidators issued an application seeking a direction or other order pursuant to Article 21(1)(g) of Schedule 1 to the CBIR and/or section 168(3) of the IA 1986. This application is referred to in the judgment as ‘the Liquidators’ Application' and comprises the ‘proceedings’ on which the...

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