Conditional fee agreements and liens

Some years ago, at a solicitor-own client detailed assessment, I was told by my professional client that her policy was to obtain 75% of her fees on account and to regularly bill her client on an interim basis, to ensure that never more than 25% of her fees were outstanding. As she remarked to me at the time she had no interest in being a “busy fool”. She had a wise policy.

In personal injury litigation now largely funded by way of Conditional Fee Agreements, as a matter of practicality such a policy is not possible. The reason our current system of financing litigation costs exists is because most clients cannot afford to pay for legal representation on a privately paid basis and the state is unwilling to underwrite legal fees through a comprehensive Legal Aid scheme. Solicitors depend on succeeding in cases and obtaining their costs by payment from a third party.

Sometimes during the course of such litigation a relationship between a solicitor and client breaks down. The client may not co-operate and the solicitor terminates the Conditional Fee Agreement. The client may become dissatisfied and wish to change solicitors, himself terminating the retainer. The client may go on to instruct alternative solicitors. In such circumstances the Conditional Fee Agreement will usually give the former solicitors an entitlement to send the client a bill for their fees and disbursements.

What is a bill of costs in these circumstances? It is what is called a statute bill. It must comply with section 64 of the Solicitors Act 1974. But the client (absent being in receipt of an interim payment from the third party) is unlikely to be able to pay it until the end of the case.

In such circumstances, a lien over the client’s file will assume crucial importance in ensuring that the entitlement of the former solicitors to be paid is safeguarded.

A solicitor’s lien, is one of those creatures of the common law that everyone has heard of, but no one is quite sure what it means. It is accordingly appropriate to consider what a lien is and how it works.

The starting point in modern authority, concerns the position where a client discharges his solicitor and may be taken from the case of Leo Abse and Cohen v Evan G Jones Builders Limited 1984 WL 282817 where Eveleigh LJ noted as follows:

Now, a solicitor who is discharged by clients in the case is entitled to hold the papers until his fees are paid. There are exceptions to that position, of course. There nearly always are exceptions to any proposition, and one exception is that rights of third parties are affected. An instance of that is to be found in the case of Belaney v. French, reported in (1872) 8 Chancery Appeal Cases at page 918 , in which the head-note reads: “Solicitors for the trustees of an estate which is under the administration of the Court have not, after their discharge, such a lien for costs and money advanced in the suit as will enable them to refuse production of documents which are required by the receiver for the management of the estate”. In the present case there is no third party interested in this matter; so that it is simply a case of asking whether grounds exist for depriving the Solicitor of his lien.

In the case of Hughes v. Hughes, reported in 1958 Probate at page 224, Lord Justice Hodson said at page 227: “There is no doubt that a solicitor who is discharged by his client during an action, otherwise than for misconduct, can retain any papers in the cause in his possession until his costs have been paid: see In re Rapid Road Transit Co., 1909 1 Chancery, page 96. This rule applies, as the authorities show, whether the client’s papers are of any intrinsic value or not …”. At page 229 he said: “As the matter stands, we do not think there is an existing or potential third party interest which should override the solicitor’s lien. This lien should be preserved in the public interest in order that litigation may be properly conducted with due regard to the interest, not only of litigants, but also of the officers of the court who serve those interests”.

However the situation is different where it is the solicitor who ends the retainer, and much depends on whether the litigation is ongoing, or is concluded. In such circumstances, the usual practice is that the lien is relieved, on receipt of undertakings from the new firm of solicitors.

The starting point in modern authority to support this proposition, is the case of Gamlen Chemical Ltd.v.Rochem Ltd [1980] 1 WLR 614, where solicitors discharged themselves from acting for their client, who instructed new solicitors, Oliver J made the following Order:

Upon the undertaking of counsel for the defendants Rochem Ltd., Rochem International Ltd. and Rochem (Equipment) Ltd., on behalf of the solicitors for the said defendants (1) to hold all papers and documents delivered to them by Amhurst, Brown, Martin & Nicholson under this order subject to the lien of the said Amhurst Brown, Martin & Nicholson for costs (2) to afford the said Amhurst, Brown, Martin & Nicholson and their costs draftsman reasonable access to the said papers and documents for the purpose of preparing their bill of costs (3) to defend this action in an active manner and (4) to re-deliver the said papers and documents to the said Amhurst, Brown, Martin & Nicholson after the conclusion of this action. Let the said Amhurst, Brown, Martin & Nicholson so soon as may be reasonably practicable and in any event forthwith upon the receipt by them of written authorities from the defendants” — then a number of defendants are named — “deliver (on oath if required) to Douglas Goldberg & Co. all papers in this action and all other documents in the custody or power of the said Amhurst, Brown, Martin & Nicholson relating to this action and belonging to the said defendants or any of them.”

An appeal against that Order was dismissed by the Court of Appeal: Goff LJ noting the effect of earlier authority:

Mr. Ormrod cited three cases in support of that analysis, and we have been referred to one of them, namely Heslop v. Metcalfe (1837) 3 My. & C. 183 which seems to me to be of the utmost significance in this case, and to afford conclusive reasons why we should not at this late stage reverse the decision in Robins v. Goldingham, because Heslop v. Metcalfe shows quite clearly that in those days the court had fully adverted to the factual effect upon the lien on the making of such an order, and to the hardship which it would impose upon a solicitor. Lord Cottenham L.C., giving judgment, said at pp. 188–190:

“Undoubtedly, that doctrine may expose a solicitor to very great inconvenience and hardship, if, after embarking in a cause, he finds that he cannot get the necessary funds wherewith to carry it on. But, on the other hand, extreme hardship might arise to the client, if, — to take the case which is not uncommon in the smaller practice in the country, — a solicitor, who finds a poor man having a good claim, and having but a small sum of money at his command, may go on until that fund is exhausted, and then, refusing to proceed further, may hang up the cause by withholding the papers in his hands. That would be great grievance and means of oppression to a poor client who, with the clearest right in the world, might still be without the means of employing another solicitor. The rule of the court must be adapted to every case that may occur, and be calculated to protect suitors against such conduct … I then take the law as laid down by Lord Eldon, and, adopting that law, must hold that Mr. Blunt is not to be permitted to impose upon the plaintiff the necessity of carrying on his cause in an expensive, inconvenient and disadvantageous manner. I think the principle should be, that the solicitor claiming the lien, should have every security not inconsistent with the progress of the cause.”

In the same case Templeman LJ noted this:

I entirely agree. This appeal illustrates the difficulties which arise when a client and his solicitor part company in the midst of litigation. A solicitor who accepts a retainer to act for a client in the prosecution or defence of an action engages that he will continue to act until the action is ended, subject however to his costs being paid. That principle was re-affirmed in Bluck v. Lovering & Co., 35 W.R. 232, 233.

If before the action is ended, the client determines the retainer, the solicitor may, subject to certain exceptions not here material, exercise a possessory lien over the client’s papers until payment of the solicitor’s costs and disbursements. Thus, in Hughes v. Hughes [1958] P. 224, 227–228, Hodson L.J. said:

“There is no doubt that a solicitor who is discharged by his client during an action, otherwise than for misconduct, can retain any papers in the cause in his possession until his costs have been paid … This rule applies, as the authorities show, whether the client’s papers are of any intrinsic value or not, …”

The solicitor himself may determine his retainer during an action for reasonable cause, such as the failure of the client to keep the solicitor in funds to meet his costs and disbursements; but in that case the solicitor’s possessory lien, i.e. his right to retain the client’s papers of any intrinsic value or not, is subject to the practice of the court which, in order to save the client’s litigation from catastrophe, orders the solicitor to hand over the client’s papers to the client’s new solicitors, provided the new solicitors undertake to preserve the original solicitor’s lien and to return the papers to the original solicitor, for what they are worth, after the end of the litigation.

This practice was settled many years ago, and as Goff L.J. has shown, from the citation which he gave of Heslop v. Metcalfe, 3 My. & C. 183, 188, there are convincing reasons why the practice should be followed, and it has been followed, at least in the cases Goff L.J. has cited, Webster v. Le Hunt (1861) 9 W.R. 804; Robins v. Goldingham, L.R. 13 Eq. 440, and is to be found also in the argument of counsel in Hughes v. Hughes [1958] P. 224.

What this means, is that where litigation is ongoing, papers should normally be handed over, subject to a lien to be preserved by an undertaking.

This means in turn that the starting point, is that the papers should be produced subject to the lien. But that is not the end of the matter, as the court retains a discretion to enable the former solicitors to ask for an undertaking or indeed, seek an Order containing terms, which can go beyond the “usual” undertaking noted above.

The lien, and the notion of  undertakings, is subject to an exception. The equitable jurisdiction in Slatter.v.Ronaldsons [2002] 2 Costs LR 267 indicates that the court might retain a residual discretion, if the facts warrant it, to order delivery up of the papers but I doubt that would be exercised commonly, at all, where it is the client who has chosen to end the retainer.

Supposing the new firm of solicitors breaches its undertaking? The case of Udall.v.Capri Lighting Ltd [1988] 1 QB 907 indicates that although a claim for compensation can be made, any award of compensation is discretionary, rather than a right.

On parting company with the client, the wisest solution is to get payment in full, in line with the terms of the Conditional Fee Agreement. But the client may well show empty pockets.

In such circumstances careful consideration must be given to both billing the client and taking care to obtain an appropriate undertaking from any new firm of solicitors prior to handing over any file.

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