Solicitor Liens And Set-Off Rights vs Third Party Debt Orders

Next Generation Holdings Ltd & Anor v Finch & Ors [2024] EWHC 927 (Ch) involved a dispute between Next Generation Holdings Limited and Ambon Brokers Limited (the Claimants) and Alec Finch and Robert Andrew Finch (the Defendants) in which the Claimants obtained judgments against the Defendants in the sum of £6,124,430.02 plus pre-judgment interest of £2,209,313.41, for a total of £8,333,743.43.

The Claimants applied for an interim third party debt order against Ward Hadaway LLP (the Third Party), the Defendants’ solicitors, in respect of monies held by Ward Hadaway in its client account on behalf of the First Defendant, Alec Finch.

The key issue was whether Ward Hadaway had a solicitor’s lien over the monies in its client account in respect of its unpaid fees, which would take priority over the third party debt order.

Chronology of relevant events:

• 17 August 2020: Ward Hadaway sends retainer letter to Alec and Robert Finch. The letter provides that invoices are payable immediately and authorizes Ward Hadaway to deduct invoice amounts from client funds.
• May 2023: Discussions between Alec Finch and Ward Hadaway regarding using proceeds from sale of Italian property owned by Alec Finch to pay Ward Hadaway’s fees.
• June 2023: Trial before HH Judge Johns KC. Ward Hadaway represents the Defendants.
• Early July 2023: Claimants’ solicitors raise concerns about dissipation of proceeds from Italian property sale. Injunction sought to prevent dealings without notice.
• 12 September 2023: £47,000 deposit from Italian property sale paid into Ward Hadaway client account.
• 15 September 2023: Consent order provides Alec Finch’s share of Italian property sale proceeds to be paid into Ward Hadaway client account.
• 26 September 2023: Worldwide freezing order granted against Defendants. Allows proceeds from Italian property to be paid to Ward Hadaway but otherwise freezes the proceeds.
• 27 September 2023: Judgment handed down in favor of Claimants for £6,124,430.02.
• 28 September 2023: Date of Ward Hadaway’s last pre-judgment invoice to Alec Finch. Total unpaid invoices at this point are £386,417.36.
• 16 October 2023: £448,947.05 balance from Italian property sale paid into Ward Hadaway client account. On same date, Claimants apply for interim third party debt order over the client account monies.
• 24 October 2023: Interim third party debt order granted by Master Teverson.

The issues to be decided by the Court were:

1. Did Ward Hadaway have a solicitor’s lien over any of the monies in its client account that took priority over the third party debt order?
2. If not, did Ward Hadaway have a contractual or equitable set-off against the monies in respect of its unpaid invoices to Alec Finch, such that the monies did not constitute a debt owed by Ward Hadaway to Alec Finch that was amenable to the third party debt order?

The parties’ positions were as follows:

The Claimants argued that no solicitor’s lien arose over the monies paid into the Ward Hadaway client account because they were paid in for the specific purpose of preventing dissipation in light of the freezing order, a purpose incompatible with a lien. They also argued that any set-off was precluded by the freezing order. In the alternative, the Claimants argued that if a lien or set-off did apply, it was limited to a portion of Ward Hadaway’s unpaid invoices.

Ward Hadaway argued that it had a lien over the initial £47,000 deposit monies paid in prior to the freezing order, and a valid contractual and equitable set-off against the client account monies of £386,417.36, representing unpaid invoices issued prior to the interim third party debt order. Ward Hadaway conceded it had no lien or set-off over funds paid in after the interim order was granted.

Court’s Findings

The Court found that Ward Hadaway has a solicitor’s lien over the £47,000 deposit monies paid into its client account on behalf of Alec Finch prior to the freezing order being granted on 26 September 2023, because at the time the deposit was paid in, there were no restrictions on its use inconsistent with a lien, and the subsequent freezing order did not displace this pre-existing lien:

“At the point when the deposit reached Ward Hadaway, there were no restrictions, or constraints, as to its use. The restrictions on completion, which existed up to 15 September, did not preclude the payment to Ward Hadaway of the deposit. The undertakings, in place from 15 September, did not restrict the use to which the deposit monies could be put, but merely required notification to Devonshires in advance of any use of the monies in the account… In those circumstances, it seems to me that a lien came into being in respect of those monies.” [31-32]

“In my view, the already existing lien was not displaced, or affected, by that order. As already stated, a freezing order does not create a proprietary interest over the funds subject to the order. Nor does it displace existing proprietary, or other rights, to which the monies, or assets, subjected to the freezing order, are themselves, already, subject.” [34-35]

The Court found that no lien exists in favor of Ward Hadaway over the £448,947.05 balance paid into the client account after the freezing order was granted, because at that point the monies were being held for the specific purpose of preventing dissipation, which was incompatible with a lien for legal fees:

“There seems to me to be no doubt but that the effect of the freezing order, as it pertained to the monies paid into Ward Hadaway’s account, after the grant of that order, was to preclude any lien coming into existence in respect of those monies.” [25]

“It follows that, once the freezing order was in place, the monies in the client account, subject to that order, were held for the particular purpose of preventing, or precluding, their dissipation and therefore, as explained in Withers, at paragraph 31, for a purpose inconsistent with Ward Hadaway having a prior interest, by way of lien, over those monies.” [27]

However, the Court found that by virtue of the terms of its retainer letter and general legal principles, Ward Hadaway has a valid contractual and equitable set-off against the client account monies, to the extent of £386,417.36 in unpaid invoices that were issued to Alec Finch prior to service of the interim third party debt order, and that the freezing order did not preclude or displace this set-off right:

“It seems to me that the retainer letter and terms of business establish a clear contractual right of set-off, in favour of Ward Hadaway; a clear right to deduct its fees from such monies as were held in favour of Alec in its client account, or to apply those monies towards its unpaid fees, as from the date of presentation of each relevant invoice; with the result that, as from the service of, or presentation, of the last such relevant invoice (28 September 2023), Ward Hadaway had an accrued right of set-off to the extent of £386,417.36.” [45]

“It further seems to me that, irrespective of the specific provisions of the retainer letter and the terms of business, Ward Hadaway has the benefit of a common law set-off, in respect of its unpaid fees and in the like amount as last set out. I agree with Morris J, in BCS Corporate Acceptances, at paragraph 64, that a solicitor has a right of set-off ‘over money in a client account in respect of services rendered and for which it has delivered a bill’.” [46]

The Court held that to the extent of the £386,417.36 covered by Ward Hadaway’s lien and set-off rights, the client account monies do not constitute a debt owed by Ward Hadaway to Alec Finch that is amenable to a third party debt order:

“Where such a set-off exists, then, to the extent of that set-off, monies otherwise owing by the solicitor to his client and held in client account do not, by reason of that set-off, constitute a debt owing by the solicitor to his client (see: BCS Acceptances at paragraphs 53 and 88) and cannot, therefore, fall within the ambit of an interim, or final, third party debt order.” [47]

“In the result and bringing the strands of this judgment together, I am satisfied that Ward Hadaway has a lien for its fees to the extent of the deposit monies emanating from the Italian Property and, further, that Ward Hadaway has a set-off over the proceeds of the Italian Property paid into its client account, including over the deposit monies, to the extent of £386,417.36, with the consequence that, to the extent of that amount, the monies standing in Ward Hadaway’s client account are not a debt due from Ward Hadaway to Alec and do not, therefore, fall within the ambit of a third party debt order.” [57]

The Court therefore concluded that the Claimants are entitled to have the interim third party debt order made final only to the extent of £109,529.69, representing the £495,947.05 that was in the account when the interim order was served, less the £386,417.36 covered by Ward Hadaway’s lien and set-off:

“Of Ward Hadaway’s outstanding fees of £450,665.36, it is accepted that the sum of £64,248.00 was billed and became payable after service of the interim third party debt order, with the result that the maximum extent of any lien, to which Ward Hadaway is entitled, in priority to the interim third party debt order and the maximum set off which Ward Hadaway can assert, in extinction of the debt otherwise owing to Alec in respect of the monies in Ward Hadaway’s client account is £386,417.36 (£450.665.36 less £64,248.00) and with the further result that it is not disputed by Ward Hadaway but that Next and Ambon are entitled to have their interim third party debt order made final in the sum of £109,529.69 (£495,947.05 less £386,417.36).” [11]

“The further consequence of the foregoing, having regard to the limitation upon the ambit of the interim third party debt order identified in paragraph 11 of this judgment, is that the amount, in respect of which the interim third party debt order should be made final, is the amount of £109,529.69 referred to in that paragraph.” [58]

In reaching these conclusions, the Court rejected the Claimants’ arguments that Ward Hadaway had not produced adequate evidence of its unpaid invoices, and that certain expert fee disbursements were not covered by the set-off:

“Notwithstanding this lack of detail, I am satisfied that Ward Hadaway has provided sufficient ‘good evidence’, in respect of their invoices. This is not a case, like BCS Acceptances, where no invoices or fee notes were produced and no evidence had been provided that the fees in question had fallen due by the date of service of the interim order. Here, the invoices are before the court, the dates of presentation, or service, are known, the terms as to liability are in evidence and there is no evidence at all that any challenge has been made to the invoices, or to the quality of service, underwriting the invoices.” [54]

“Dealing with the second point first, it is not suggested that the expert fees, which appear as disbursements in Ward Hadaway’s invoices, have not been incurred, nor that Ward Hadaway has not, as part of its provision of professional services to Alec, settled the relevant fees. In those circumstances, it seems to me that those disbursements properly falls within Ward Hadaway’s right of set-off.” [51]