Recent Developments of Solicitor’s Liens
At common law, a lien is defined as the right of a person to retain possession of the goods of another until his claims are satisfied or the disputes are resolved. The lien depends on possession and, as such, it lasts only as long as possession is retained; but while it exists, it is good against the whole world. In equity, a lien confers a charge upon property until certain claims are satisfied, and the only difference between an equitable lien and an equitable charge is that the former arises by operation of equity from the relationship of the parties, while the latter arises by the parties’ own act(s). An equitable lien exists independently of possession, but will not avail against a bona fide purchaser for value of a property without notice of it. See Stephenson v. Barclays Bank Trust Co. Ltd. (1975) 1W.L.R.882 at 890.
A solicitor may have two kinds of liens for his unpaid bills. Firstly, he may have a common law lien on his client’s property in his possession, which gives him the right to retain the property until he is fully paid. Secondly, he may have an equitable lien on property recovered or preserved through his means, which gives him a charge on the property that can subsequently be realized by sale.
Where a solicitor seeks the court’s assistance on his unpaid bill or lien, the court’s duty is to intervene only if it is necessary for the protection of the solicitor and then only to the extent necessary to safeguard his lien, so long as the intervention will not prejudice the rights of his client or former client [see Re Fuld (No. 4) (1968) 2 All ER 727].
2. Lien on Client’s Property in his Possession
This is a general lien and is commonly known as solicitor’s retaining lien, which gives a solicitor a right to withhold from the client, until his bill for professional costs is paid, all deeds, documents, money, books and papers (other than client’s will) and other moveable properties which are the properties of the client and have been entrusted to the solicitor in his professional capacity during the course of the engagement.
a. Common Law Lien
It appears that the money in client’s account (not just office account) is included [see Loescher v. Dean (1950) Ch. 491], but not trust money. For example, a solicitor has no right to withhold the spouse’s matrimonial maintenance adjudged by the court. If a solicitor has the right to retain client’s papers, the client is not entitled to inspect/see the documents or to take copies of them, as by so doing, it will destroy the entire principle of a solicitor’s lien if client was to be at liberty to see the documents in his possession and to carry away their contents in his head or to make photocopies of them. [see Re Biggs and Roche (1897) 41 S.J. 277] This long-established principle is still good law in England, Hong Kong and all other Countries having common law jurisdictions.
b. Extent of Common Law Lien
The lien extends only to the extent of the solicitor's taxable costs and expenses arising from the retainer, for which the client is personally responsible. The lien does not include any debts, fees or expenses, which are due to the solicitor in a capacity other than a solicitor. However, such lien is a general one, which embraces all costs due from the client, and is not restricted merely to the costs incurred in connection with the property over which the lien is claimed. Until the solicitor's costs are paid in full, he has the right to retain the property in his possession as against the client and all other persons (who have no greater right than the client) claiming through him. It follows, therefore, that no third party has a better title to inspect the property, or to see the documents and/or take copies of them, if the client himself is not entitled to do so.
c. Lien Commensurate with Client’s Right to Retain
A solicitor having a retaining lien over property in his possession is entitled to keep the property in his possession, until the full amount of the solicitor’s taxed costs payable by the client, are fully paid. However, as the common law lien exists only as between solicitor and client, the solicitor cannot refuse to produce documents on the lawful demand of a third party if the rights of the third party (e.g. client’s mortgagee) were, or have been, expressly reserved on delivery of the documents to the solicitor [see Re Golden Properties Ltd. (1988) I.R. 213]. Further, a company’s solicitor has no lien as against the liquidator on documents required by statute to be kept at a designated place (e.g. registered office) [see Bennett & Co. v. CLC Corp (2001) 23 WAR 344] or the documents come into solicitor’s possession after the commencement of a winding up. [see Re Aveling Barford Ltd. (1989) 1W.L.R. 360] In the event that a solicitor discharges himself from further conduct of an action on behalf of a client, he is required to give up all the documents in that action to the new solicitor, but without prejudice to his lien. The court would normally make an order requiring the former solicitor to handover client’s documents to the new solicitor against an undertaking to preserve his lien. [see Order 29 Rule 6, RHC, Ismail v. Richards Butler (1996) Q.B. 711 and also Bentley v. Gaisford (1997) 1 All ER 842 (CA)].
d. Solicitor’s Undertakings
A solicitor is bound by the terms of an undertaking (i.e. any unequivocal declaration of intention addressed to someone who reasonably places reliance on it) given by him, his partners and staff. The undertakings given by the new solicitor in this situation are (where appropriate):-
i. to hold all papers and documents delivered subject to the lien;
ii. not to photocopy the documents;
iii. to afford the old solicitor’s reasonable access to the papers for the purpose of preparing a bill of costs;
iv. to settle the old solicitor’s bill of costs after taxation or upon request/demand;
v. to conduct the action in an active manner;
vi. to re-deliver the papers and documents to the old solicitor after the conclusion of the case.
In Ismail v. Richards Butler (ante), the court held, while enforcing O29 R6 RSC, that the defendant’s lien was likely to be considerably diminished if the papers were handed over and in the interest of justice, the papers should be delivered to the new solicitor only upon payment into court, bank guarantee or other acceptable means. In A v. B (1984) 1 All ER 265, the court held that the balance of hardship would be far greater on the solicitors if the liens were not enforced, whereas the clients could continue the litigation by paying the solicitors’ costs. The court therefore refused to order that the papers be handed over. In Caldwell v. Sumpters (1972) 1 All ER 567 (CA), the court ruled that where a new law firm received papers as against its entering into an undertaking in specific terms, the new law firm must either give the undertaking or return the papers to the former firm. This principle tallies with Commentary 7 of Principle 14.01, Solicitors’ Guide to Professional Conduct. In Bentley v. Gaisford (ante) the Court of Appeal considered the consequences of an undertaking and ruled that the photocopying of the papers by the new firm was in breach of its undertaking to hold the papers to the former solicitor’s order, since it would effectively destroy rather than maintain the security of the former solicitor claiming lien.
e. Loss or Discharge of Lien
A solicitor’s retaining lien may be lost or discharged by:-
i. the solicitor parting with possession of the documents without reservation;
ii. the solicitor receiving payment of his costs in full;
iii. his client mortgaging the property to which the documents relate, to another client [Once lost, the lien will not revived on redemption (see Barratt v. Gough-Thomas (1951) Ch. 242];
iv. proving in bankruptcy or in a winding up the amount of the costs without valuing or mentioning the lien;
v. waiver where the solicitor takes a security for costs inconsistent with the retention of his lien, unless he expressly reserves his lien. However, the enforcement of an judgement for costs or the taking of security after the solicitor has ceased to act for the client, does not imply an intention to waive it [see Twigg Farnell v. Wildblood (1998) P.N.L.R. 211]
3. Lien on Property or Funds Recovered or Preserved
a. Equitable Lien
A solicitor has a lien on the fund recovered by his means or exertions, including any costs recovered; but his lien does not extend to land or real property, nor generally to maintenance payments. An equitable lien does not have to depend on the fund being in the possession of the solicitor [see Euro Commercial Leasing v. Cartwright & Lewis (1995) 2 B.C.L.C. 618]; and such lien gives the solicitor a right to apply to the court for a charge.
b. Statutory Lien
Section 70, Legal Practitioners Ordinance (“LPO”) provides that “Any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceeding may at any time declare the solicitor entitled to a charge on the property recovered or preserved through his instrumentality for his taxed costs in reference to that suit, matter or proceeding……”. An executor or assignee of the solicitor may also be declared entitled to this charge, which applies to all types of real or personal properties. As equitable lien does not cover real property, the statutory lien has now made up such deficiency.
c. Extent of Equitable Lien
The solicitor’s charge will normally be subject to the prior right of an executor or trustee to his costs. However, in respect of a partnership action, the right of the claimant’s solicitor to a charge on the assets recovered by the receiver, has priority over the partnership creditors’ claims. It is also provided in S. 70 LPO that all conveyances and acts done in defeasance of the charge are, except in favour of a bona fide purchaser for value without notice of the solicitor’s right to apply for a charging order, void as against the solicitor. Although the solicitor’s charge may extend to the entire costs of the litigation, it will normally be confined to the costs in the recovery or preservation of the property.
As a well-established principle, a solicitor has no greater right than his client and takes subject to all the equities between his client and the other party interested in the property.
d. Set-off and Compromise
Under the inherent jurisdiction, the high court has a discretion to allow a judgement for costs or for damages between the parties to be set off against the fund due to a solicitor under a lien. A solicitor’s lien may also be defeated by a compromise of the action if it has been entered into reasonably, but not if it is deliberately designed to defeat the lien or is otherwise an attempted fraud on the solicitor by a third party who has notice of such lien.
4. Period of Limitation
It is interesting to note that there is no period of limitation applicable to a solicitor’s common law lien, whether on documents or on the fund recovered. However, the court cannot declare a charge under LPO if the claim to recover the costs is statute-barred, though it will not refuse to do so on the ground of delay, unless a third party has already acquired a right on the property. Although the client may claim that the payment of the solicitor’s costs has been statute-barred after the lapse of 6 years, the court should, if the client seeks an order for delivery of the documents, direct a taxation extending to stature-barred items so as to ascertain the amount for which the solicitor has a lien.
Generally, a lien may be enforced by a solicitor in the following three ways:-
a. if the money (other than trust money) subject to the lien is in his possession (even it is in his client account at the bank), he may recoup his fees from such fund, by withdrawing the same from client account and transferring it to office account;
b. he may apply to the court for a charging order either at common law or under S.70 LPO and subsequently for an order for sale. In this connection, it should be noted that Rule 14 of the Solicitors’ Account Rules provides that “Nothing in these rules shall deprive a solicitor of any recourse or right, whether by way of lien, set-off, counter-claim, charge or otherwise, against moneys standing to the credit of a client’s account”;
c. he may give written notice of his lien to the person legally liable to pay his client as a result of a compromise of an Action [see Ross v. Buxton (1889) 42 Ch. D. 190]. If that person ignores the notice of a valid lien after it is served on him and re-pays his client directly, that person is obliged to pay the solicitor again [see Re Turner Wood v. Turner (1907) 2 Ch. 126, 539 C.A.].
In relation to c above, the writer takes the view that the person who has been given express notice of the solicitor’s lien, is liable to the solicitor if the compromise is a collusive one entered into between the plaintiff and the defendant specifically for the purpose of depriving the solicitor of his lien, or fraud or deception is established. In such a case, the court will interfere for the solicitor’s protection and order payment of the costs by that person [see Re Margetson and Jones (1897) 2 Ch. 314].
GYC Mok, Senior Partner
George Y.C. Mok & Co.
Copyright © GYC Mok 2006 H.K.