Candey Ltd v Tonstate Group Ltd

JurisdictionEngland & Wales
JudgeMr Justice Zacaroli
Judgment Date02 July 2021
Neutral Citation[2021] EWHC 1826 (Ch)
Docket NumberCase No: BR-2020-000450
CourtChancery Division
Between:
Candey Limited
Applicant
and
(1) Tonstate Group Limited
(2) Tonstate Edinburgh Limited
(3) Dan-Ton Investments Limited
(4) Arthur Matyas
Respondents

[2021] EWHC 1826 (Ch)

Before:

Mr Justice Zacaroli

Case No: BR-2020-000450

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES COURT LIST (ChD)

7 Rolls Building, Fetter Lane

London EC4A 1NL

Benjamin Williams QC and Stephen Ryan (instructed by Candey Limited) for Candey Limited

Andrew Fulton QC (instructed by Rechtschaffen Law) for the Respondents

Hearing dates: 19 May 2021

APPROVED JUDGMENT

Mr Justice Zacaroli Mr Justice Zacaroli

Introduction

1

On 30 April 2021 I gave judgment ( [2021] EWHC 1122 (Ch)) on two out of three aspects of an application by Candey Limited (“Candey”) under section 73 of the Solicitors Act 1973 (the “Section 73 Application”), seeking the grant of a charge over 22,500 ordinary shares (the “Shares”) in Tonstate Group Limited (“TGL”). I subsequently heard argument on the third of those aspects, and this is my judgment on that aspect.

2

I refer to my earlier judgment for the relevant background. As explained there, Candey entered into a damages based agreement dated 20 September 2019 (the “DBA”) with Mr Wojakovski in relation to numerous proceedings between him and Mr and Mrs Arthur Matyas and companies in the Tonstate group. Although Mr Wojakovski lost most aspects of the underlying litigation, he succeeded in partially resisting Mr and Mrs Matyas' claim to rescind the transfer of shares in TGL to him. By a settlement agreement reflected in a consent order dated 21 May 2020, Mr Wojakovski was permitted to retain the Shares.

3

In my earlier judgment, I concluded that on the true construction of the DBA, it only entitles Candey to any payment from Mr Wojakovski if Mr Wojakovski recovers something in or as a consequence of the proceedings. Accordingly, the fact that Mr Wojakovski retained the Shares does not entitle Candey to payment under the DBA. Moreover, even if the “Proceeds” under the DBA did include the Shares, the DBA would not be enforceable to that extent.

4

On that basis, the third aspect of the Section 73 Application – whether Candey is entitled to a charge over the Shares with priority over the final charging order in favour of the claimants in the Main Action (as defined in my earlier judgment) (the “Claimants”) – does not arise.

5

There is an outstanding application for permission to appeal by Candey against that decision. The parties were in agreement that I should go on to determine the third aspect of the Section 73 Application (there having been insufficient time to do so in the time allotted for the hearing of the application on the last occasion) before the application for permission to appeal was addressed.

6

This judgment accordingly proceeds on the basis that the conclusion in my earlier judgment was wrong.

7

In brief outline:

(1) Candey contends that it acquired an equitable charge over the Shares immediately upon the execution of the consent order on 21 May 2020;

(2) On 9 June 2020, the Claimants acquired an interim charging order over the Shares, by way of enforcement of the judgment (at that time in excess of £15 million) obtained in the Main Action;

(3) On 7 July 2020 Candey, on behalf of Mr Wojakovski, consented to the interim charging order being made final;

(4) The final charging order over the Shares in favour of the Claimants is dated 21 July 2020;

(5) Mr Wojakovski was made bankrupt on 15 October 2020;

(6) On 3 December 2020, Candey issued the Section 73 Application.

8

The Claimants rely on four independent grounds for contending that Candey has no entitlement to an order under section 73:

(1) The alleged equitable charge is inconsistent with undertakings given by Mr Wojakovski in an order dated 1 February 2018;

(2) Section 73 only entitles a solicitor to a charge in respect of “assessed costs”, which does not include a right to payment under a DBA;

(3) The Claimants' charging order takes precedence because (i) the Section 73 Application was made too late; (ii) Candey waived their entitlement to an equitable charge; (iii) Candey's application amounts to an abuse of process; and (iv) the Claimants had no notice of Candey's equitable charge at the time they obtained the final charging order; and

(4) An order under section 73 is not justified because Candey cannot prove it is necessary or justified by work done.

9

Alternatively, the Claimants contend that these points ought to lead the court to refuse to exercise its discretion under section 73 to make an order in favour of Candey.

The solicitor's lien

10

Section 73 provides as follows:

“(1) Subject to subsection (2), any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceedings may at any time –

(a) declare the solicitor entitled to a charge on any property recovered or preserved through his instrumentality for his assessed costs in relation to that suit, matter or proceeding; and

(b) make any such orders for the assessment of those costs and for raising money to pay or for paying them out of the property recovered or preserved as the court thinks fit.

and all conveyances and acts done to defeat, or operating to defeat that charge shall, except in the case of a conveyance to a bona fide purchaser for value without notice, be void as against the solicitor.”

11

It is common ground that this reflects a pre-existing right at common law to seek the protection of the court in respect of a solicitor's lien: Harris v Solland International Ltd (No.2) [2005] EWHC 14 (Ch) per Christopher Nugee QC at [21(ii)].

12

At the heart of the dispute between the parties is the question as to the true nature and character of a solicitor's “lien” as it relates to the fruits of litigation which his or her efforts have produced for the benefit of the client.

13

This right has long been referred to as a lien, and was described as follows by Lord Mansfield in Welsh v Hole (1779) 1 Doug KB 238:

“An attorney has a lien on the money recovered by his client, for his bill of costs; if the money come to his hands, he may retain to the amount of his bill. He may stop it in transit if he can lay hold of it. If he apply to the court, they will prevent its being paid over till his demand is satisfied. I am inclined to go still farther, and to hold that, if the attorney give notice to the defendant not to pay till his bill should be discharged, a payment by the defendant after such notice would be in his own wrong, and like paying a debt which has been assigned, after notice. But I think we cannot go beyond those limits.”

14

It is not, however, a true lien, which can only exist where the person claiming the lien is in possession of the property over which the lien is claimed: Harris v Solland International Ltd (No.2) (above), at [21(iii)].

15

The Claimants contend that a solicitor has no proprietary right over the fruits of litigation which are not in his or her possession unless and until the court grants a charge (whether under section 73 or under a parallel right which exists at common law). Until then, all that the solicitor has is “a claim or right to ask for the intervention of the court for his protection”: see Harris v Solland (No.2) (above), at [21(iii)], citing Mercer v Graves (1872) LR 7 QB 499, 503, per Cockburn CJ and James Bibby Ltd v Woods and Howard [1949] 2 KB 449, 453f per Lord Goddard CJ.

16

In the latter case ( Bibby), Mr Howard and Mr Woods began actions against each other arising out of the dissolution of a partnership between them. These were compromised on terms that Mr Howard paid Mr Wood £90. Bibby Ltd obtained judgment against Mr Woods in a separate action and applied for attachment of the £90 debt due from Mr Howard. On 25 February 1949, Bibby Limited obtained a garnishee order nisi. At the hearing of the application for that order to be made absolute, Mr Woods' solicitor (having heard of the order nisi) claimed that he had a lien over the debt of £90 for his costs in the partnership proceedings. The master made the order absolute. Mr Woods appealed to the Divisional Court (although as Lord Goddard CJ pointed out, in truth it was an appeal by his solicitor). The Divisional Court dismissed the appeal, holding that the “so-called ‘lien’” of the solicitor was, until such time as he obtained a charging order from the court, “only … at the most an inchoate right to apply for one” (p.453) and “until that is done, he has no right in it … In the present case, when the application for the garnishee order absolute was before the district registrar no charging order had been made or applied for [by the solicitor]. There was therefore no lien or charge on the money at that time. There was no lien on it in the strict sense of the term, and there was no charge on it because a charging order had not been applied for” (p.454).

17

The Claimants contend that the present case is indistinguishable from Bibby. At the time that the Claimants obtained their final charging order over the Shares, Candey had not made the Section 73 Application. For that reason alone, it is said, Candey are not entitled to an order under section 73 and do not otherwise have any interest in the Shares which takes precedence over the Claimant's final charging order.

18

Mr Williams QC, who appeared with Mr Ryan for Candey, accepted that if Bibby represented the law, then that would be its effect. He contended, however, that I ought not to follow Bibby because it is inconsistent with prior authority and with the subsequent decision of the Supreme Court in ...

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