Clifford Harris & Co v Solland International Ltd & Ors [2004] EWHC 2488 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2004] EWHC 2488 (Ch)Case No Case No: HC04C02248Venue Royal Courts of Justice, Strand,, London,, WC2A 2LL
Between
Clifford Harris & CoClaimantSolland International Ltd & OrsDefendants
Before
Mr Justice David RichardsSarah Harman (instructed by Clifford Harris & Co) for the ClaimantPhillip Marshall QC and Benjamin Elkington (instructed by Bird & Bird) for the DefendantsHearing dates: 19 and 20 October 2004
[1]Mr Justice David Richards : There are two applications before the court which arise in an application made under CPR Part 8 by Clifford Harris & Co, a firm of solicitors, against four former clients. The former clients are Mr and Mrs Solland and two companies controlled by them (the defendants). By their claim Clifford Harris & Co seek orders pursuant to section 73 of the Solicitors Act 1974, including a declaration that they are entitled to a charge on a sum of £497,000 (the settlement sum) recovered under the terms of a settlement agreement relating to proceedings in which they acted for the defendants. The settlement sum is currently held to the order of the defendants in the client account of their current solicitors Bird & Bird.[2]On 5 October 2004, on a without notice application, Patten J made an order restraining the defendants from demanding, receiving, disposing of or dealing with any money received by them or Bird & Bird pursuant to the settlement agreement. At that time it was not known precisely how much had been paid pursuant to the settlement agreement. The first application before me is an application by Clifford Harris & Co for a continuation of this injunction until trial of the Part 8 claim or further order in the meantime. The second is an adjourned application for directions on the Part 8 claim itself. On that application the defendants seek an order summarily dismissing the Part 8 claim on the grounds that it has no reasonable prospect of success. In making that application they rely on CPR Part 1.4(2)(c) and the decision of the Court of Appeal in Peppin v Taylor [2002] EWCA Civ 1522 . It is not suggested for Clifford Harris & Co that, if appropriate, an order dismissing the Part 8 claim cannot be made at this stage.[3]The defendants were four out of seven defendants in proceedings brought in the Chancery Division by Daraydan Holdings Limited and other claimants (the Chancery action). It was commenced in July 2002 and involved serious allegations against all the defendants. Clifford Harris & Co were retained as solicitors for Mr and Mrs Solland and their two companies, but not the other defendants. They were very substantial proceedings. Leading and junior counsel were engaged for the defendants at an early stage and advised throughout the preparation for trial, which commenced before Lawrence Collins J on 19 January 2004. On 17 February 2004, before judgment had been given, the claimants entered into a settlement agreement with Mr and Mrs Solland and their two companies. Under the terms of the agreement the claimants undertook to seek recoveries from the other defendants and agreed to pay 50% of the net recoveries to Clifford Harris & Co or other solicitors acting on behalf of Mr and Mrs Solland and their two companies, subject to a limit of £500,000. On 26 March 2004 Lawrence Collins J gave judgment in favour of the claimants against the remaining defendants. On 15 June 2004 Clifford Harris & Co's retainer was terminated and Bird & Bird were appointed in their place. At some point between mid-July and early October the settlement sum was paid to Bird & Bird.[4]The Chancery action was undoubtedly a substantial piece of litigation and the costs of defending it and pursuing the defendants' counterclaim were clearly heavy. On any footing a significant amount of solicitors' costs, counsels' fees and other disbursements were incurred both in the preparation for trial and in the trial itself. There is at present a great deal of dispute about what bills have at any stage been rendered by Clifford Harris & Co and how much may be found to be due to them. The only common ground is that at least £415,000 was paid on account to Clifford Harris & Co, mainly between July 2002 and January 2004 but with a final payment of £45,000 in April 2004, and that Clifford Harris & Co had rendered no bills for their profit costs for any work done after 30 July 2003 until October this year. Clifford Harris & Co allege, but the defendants deny, that five bills totalling some £214,727 for profit costs, counsel's fees and other disbursements were rendered between August 2002 and July 2003, with a further bill for miscellaneous disbursements of £8,012 in December 2003. Clifford Harris & Co also allege, and again the defendants deny, that counsel's fee notes for further fees totalling at least £164,000 were handed to Mr or Mrs Solland during the early months of 2004. Clifford Harris & Co say that these bills and fees have been met out of the sums paid to them on account and, together with some other disbursements, have exhausted those sums. Mr Sunil Varma, a partner in Clifford Harris & Co, has exhibited a detailed bill of costs for the period August 2003 to June 2004 showing an unpaid total of £655,477 comprising £484,150 profit costs and £171,327 disbursements, principally counsel's fees (although it now appears that this latter figure erroneously includes £40,000 of fees which had already been paid). Whatever the precise amount found to be due on an assessment of this bill, it seems likely that a substantial amount of costs and disbursements will be due.[5]On 31 January 2004 Mr and Mrs Solland executed in favour of Clifford Harris & Co a legal charge over their freehold house in London (the legal charge), which was subject to a prior charge in favour of a bank. Putting it shortly, it secured the present and future costs and disbursements of the Chancery action and interest. I will come back to the terms of the charge and the allegations regarding the circumstances of its creation.[6]On 13 July 2004, following some correspondence, Clifford Harris & Co issued the Part 8 claim form in which they seek pursuant to section 73 of the Solicitors Act 1974(i) a declaration that they are entitled to a charge on the settlement sum for their taxed costs in relation to the Chancery action and(ii) orders for taxation and payment of the costs out of that sum. There were no unpaid bills for profit costs at that time, and there may not have been any outstanding fee notes for counsel's fees which had actually been delivered to the defendants. However, as mentioned above, it seems likely that a substantial amount will be found due in respect of unpaid costs and it is not suggested that an application under section 73 could not be made in advance of the delivery of bills.[7]Evidence was filed in support of the Part 8 claim and in opposition to it. A first hearing for directions was fixed for 6 October 2004.[8]On 4 October 2004, Bird & Bird for the defendants wrote to Clifford Harris & Co with a view to agreeing directions for a substantive hearing of the claim. They also wrote a separate letter, faxed to Clifford Harris & Co at about 5.15pm, stating that they had received the settlement sum and inviting Clifford Harris & Co "by the close of business on Tuesday 5 October to explain (if it is your position) why we should not pay these monies over to our client, failing which we intend to do so." In the circumstances, with the directions hearing fixed for 6 October 2004, this was a surprising threat to make, particularly on such short notice. The defence intimated in Mr Solland's witness statement in opposition to the Part 8 claim was that the defendants wished to receive detailed bills and to have them assessed. If any sum was found due, Mr Solland stated that he would pay it. On 30 September 2004 Clifford Harris & Co had informed Bird & Bird that a detailed bill of costs was being prepared by a costs draftsman.[9]On 5 October 2004, with little time to prepare, Clifford Harris & Co applied, without notice, for an injunction restraining the defendants from demanding, receiving, disposing of or dealing with any of the settlement money received by them or by Bird & Bird. Patten J made the order in those terms.[10]The principal issue which arises on the applications before me is whether Clifford Harris & Co have no reasonable prospect of success in their Part 8 claim so that it should be summarily dismissed and, if not, whether they have a seriously arguable case, sufficient for the purposes of the grant of an interim injunction. As will appear, my decision will not turn on any difference between these two tests. The defendants submit in the alternative that there was material non-disclosure on the application to Patten J, with the result that the injunction should not in any event be continued.[11]The defendants accept that the settlement sum is property recovered through Clifford Harris & Co's instrumentality in the Chancery action for the purposes of section 73(1) of the Solicitors Act 1974. However, they submit that Clifford Harris & Co have no reasonable prospect of success on the grounds that the grant of the legal charge by Mr and Mrs Solland on 30 January 2004 constituted a waiver by Clifford Harris & Co of their right to any lien or charging order, at common law or under section 73, on any proceeds of the Chancery action, including the settlement sum.[12]A solicitor has three sources of security for his costs arising by operation of law. First, at common law he has a possessory or retaining lien over documents and other property in his possession. Secondly, also at common law he has a right to apply to court for a direction that personal property, including money, recovered or preserved as a result of his work in litigation should stand as security for his costs. Thirdly, under section 73 of the Solicitors Act 1974, he has a right to apply for a charging order on property recovered or preserved through his instrumentality in litigation. This statutory right has been held to extend to real property, as well as to personal property.[13]It is well established that, at least in certain circumstances, the taking of security by a solicitor will be treated as a waiver of his right to a common law lien. This principle is shortly stated in Cordery on Solicitors at para L [954]:
"…if a solicitor takes security for costs generally and that security is inconsistent with his lien and the solicitor does not in doing so reserve the lien then prima facie he will be taken to have abandoned it."
It is accepted by Clifford Harris & Co that the legal charge was for their costs generally and that they did not expressly reserve any common law or statutory charge or lien. Mr Marshall QC for the defendants submits that the legal charge is inconsistent with any lien or charge at common law or under section 73 and that therefore any such lien or charge was waived. Miss Harman, for Clifford Harris & Co, submits that the legal charge is not inconsistent with any such lien or charge, the right to which was not therefore waived.[14]Before coming to that issue, Miss Harman takes a prior point, that the waiver principle as set out in the extract from Cordery applies only to a solicitor's possessory lien on documents and other property at common law and not to a charge at common law or under section 73 on property recovered in litigation. It is true that all except one of the authorities to which I was referred were concerned with a possessory lien. Miss Harman also rightly emphasises that a solicitor's right in relation to property recovered in litigation, whether at common law or under section 73, is no more than a right to apply to a court for a charge: see James Bibby Ltd v Woods and Howard [1949] KB 449. The significance of an earlier express charge should therefore be a matter for the discretion of the court, to take into account along with other factors, rather than being treated as a waiver and hence an inevitable bar to relief. She submits that the point is all the stronger as regards section 73, which contains no such express restriction on the court's discretion and should not be construed as imposing any such limitation on the court's power.[15]I can see no reason in principle why waiver should apply to a possessory lien but not to a right at common law or under section 73 to apply for a charge on property recovered as a result of litigation. The basis of the waiver is that there exists an inconsistency or incompatibility between the express security and the solicitor's other rights. An express security can as well be inconsistent with a statutory right to apply for a charge as with a right to a possessory lien at common law. There is at least one reported authority in which the statutory right has been treated as waived by an express security taken by the solicitor: Groom v Cheesewright [1895] 1 Ch 370.[16]Mr Marshall also submitted that section 73 was merely a procedural provision, making specific provision for an application to the court in which the relevant litigation had proceeded, so that this point should not turn on the construction of section 73. To a very considerable extent it is right to describe it as procedural. In making an order under the predecessor section, Farwell J said in In re Born, Curmock v Born [1900] 2 Ch 433 that he was "merely enabling them more cheaply and speedily to enforce a right they already possess". However, as the decision that it applies to real property as well as personal property shows, it has not been treated as purely procedural.[17]The issue which then arises is whether the taking of the legal charge had the effect of waiving Clifford Harris & Co's rights under section 73. Miss Harman submitted that in deciding this issue the court must consider all the circumstances of the case and the intentions of the parties and in support she drew attention to passages in the authorities to which I shall later refer. In considering a security taken by a solicitor, the inquiry is not in my judgment as broadly based as Miss Harman submits. What emerges from the authorities is that there are two key questions, as reflected in the passage cited above from Cordery : is the security inconsistent with the solicitor's rights at common law and under section 73, and, because of the fiduciary relationship between them, did the solicitor inform the client that he was reserving those legal rights. If it is inconsistent, it will be taken to waive the solicitor's other rights, unless he has reserved them.[18]Before turning to the question of inconsistency, I shall deal briefly with the various circumstances relied on by Miss Harman to show that there was not in this case any waiver. They were that there was in fact no intention on the part of Clifford Harris & Co or Mr and Mrs Solland to waive Clifford Harris & Co's rights on any recoveries in the Chancery action either at the time of taking the charge or at the time of the negotiations for the settlement agreement, that at the time of taking the legal charge no recovery had been made in the Chancery action and the prospects of doing so did not appear good and that Mr and Mrs Solland received legal advice in relation to the grant of the legal charge. In my judgment none of these factors assists Clifford Harris & Co. There is no evidence that at the time of taking the legal charge, any party gave any thought to Clifford Harris & Co's rights over any recoveries. An absence of an intention to waive is insufficient: there must be communication by the solicitor to the client of his intention to reserve his rights. The waiver, if any, occurs at the time the charge is taken. Later discussions, in this case following the settlement agreement, might in certain circumstances revive a previously waived right but they cannot affect whether there was originally a waiver. As to the second point, the absence of any recovery in the litigation at the time of taking the charge does not, as Miss Harman accepted, preclude a waiver: Groom v Cheesewright . In my view, it cannot affect the question of waiver, although it may explain why no-one discussed it at the time. Future rights can be waived just as much as present rights. As for legal advice, the relevant facts are very much in dispute. However, even if Clifford Harris & Co establishes its version of events, legal advice to Mr and Mrs Solland cannot take the place of information from Clifford Harris & Co as to whether they intend to reserve their common law and statutory rights. There is no evidence of any advice on this point to Mr and Mrs Solland but, on the authorities, the correct advice would have been that, if there was inconsistency, Clifford Harris & Co would lose their rights unless they expressly reserved them.[19]The central question is therefore whether the legal charge was inconsistent with Clifford Harris & Co's rights at common law and under section 73. Miss Harman submits that as the charge is over an asset which is entirely unrelated to the settlement sum, there was no inconsistency with their rights over that sum. There is nothing inconsistent about a creditor having security for the same debt on separate assets. Mr Marshall submits that, in the context of a solicitor's rights, any security which gives the solicitor some advantage that he would not otherwise have, such as a right to interest or a charge on property, is inconsistent with his lien and other legal rights and acts as a waiver of them, unless expressly reserved. As well as the charge itself, Mr Marshall points to the interest reserved under the legal charge granted by Mr and Mrs Solland, but Miss Harman counters that interest was payable in any event under Clifford Harris & Co's terms of business.[20]The leading case on waiver of a solicitor's rights is the decision of the Court of Appeal in In re Taylor, Stileman, & Underwood [1891] 1 Ch 590 . The precise facts are important. The solicitors acted for a married woman, receiving her share of the income of a residency estate and making advances to her and payments on her behalf. As security for her indebtedness to them, she and her husband gave the solicitors a promissory note for £200, payable on demand with interest from the date of the note at a rate of 5%. The note was initially unsecured, but a few weeks later the client gave a charge on her interest in a life assurance policy to secure the principal and interest payable under the promissory note. When asked to return her papers, the solicitors refused and relied on their possessory lien. A final account showed about £81 due to the solicitors, of which about £20 was for their costs.[21]The Court of Appeal held, first, that a possessory lien extended only to the taxable costs, charges and expenses incurred by the solicitors in that capacity, and not to any ordinary loans or advances. Secondly, it was held that the security taken in that case constituted a waiver of the solicitors' common law lien. It is important to note from the judgments, first, that "security" was used in a wider sense than mortgages and other charges and included the unsecured promissory note and, secondly, that the decision depended on the specific form of security taken in that case, and was not based on a proposition that any form of security is inconsistent with a solicitor's lien. Lindley LJ said at p.597:
"There was another important point raised by Mr Cozens-Hardy. He contends that whatever lien the solicitor had was waived by his having taken a security, the security in this case being a promissory note for £200 given by the solicitor's client, who was a married woman, and by her husband, and bearing interest at 5 per cent per annum, and also a charge upon a certain policy. Mr Cozen-Hardy urges, that taking that security was a waiver of the lien which the solicitor would otherwise have, and in support of that contention he relies mainly upon the case of Robarts v Jefferys . The point which was decided in that case appears to me to be the exact point which arises here. In considering this point, we must be careful. Whether a lien is waived or not by taking a security depends upon the intention expressed or to be inferred from the position of the parties and all the circumstances of the case. In this particular instance we are dealing with a solicitor and his client. It strikes me that if a solicitor takes from his client such security as this solicitor took [emphasis added] the prima facie inference is that he waives his lien. That appears to me the right and proper conclusion to come to, bearing in mind that it is the solicitor's duty to explain to his client the effect of what he is about to do. In the case of a banker, I should not draw the same inference, since a banker has not a similar duty towards his customer. Bearing in mind the position of the parties, and having regard to the decision of Sir John Leach in Robarts v Jefferys , we are justified in saying that in the absence of evidence to the contrary, the true inference from the circumstances is that the lien was waived."
To the same effect were Lopes LJ at pp. 598-599:
"Another point is raised by the Appellant, that the solicitors have lost their lien by taking security. It appears to me that in each case the question whether the lien is waived by taking security must be decided according to the particular circumstances. I do not mean to say that taking a security necessarily imports an abandonment of the lien ; but if there are circumstances in the taking of the security which are inconsistent with the continuance of the old security it is to be inferred that the solicitor intended to abandon his lien. In the present case the security given is a promissory note payable on demand with interest at 5 per cent under which the amount could be recovered at once. There is also a charge upon a policy. The promissory note is not given by the wife alone, but the husband joins as surety. Under these circumstances it is only a fair inference to draw that there was an intention between the parties to give up the old security of the lien and to rely on the security I have mentioned. I may add that we are deciding this point in accordance with the decision of Sir John Leach in Robarts v Jefferys …"
[emphasis added] and Kay LJ at pp. 600-601:
"I take it that the true rule is that stated by Lord Justice Lindley, that in every case where you have to consider whether a lien has been waived you must weigh all the circumstances of that particular case, and it is an important consideration that we are here dealing with a transaction between a solicitor and his own client. A solicitor has a duty to perform towards his client to represent to his client all the facts of the case in a clear and intelligible manner and to inform him of his rights and liabilities, and where you find a solicitor dealing with his client and taking from him such a security as was given in this case , not expressly reserving his right of lien, I quite agree that the inference ought to be against the continuance of the lien. In Robarts v Jefferys Sir John Leach held that a promissory note of the same kind as that in the present case took away the lien."
[emphasis added][22]It is clear that the Court of Appeal treated the promissory note as a security, irrespective of the subsequent charge on the life policy, and they applied the decision in Robarts v Jefferys 8 LJ (OS) (Ch) 137 which concerned only an unsecured promissory note. Although the promissory note in both cases was given by both the client and another person, the key feature giving rise to a waiver appears from the judgment of Sir John Leach in Robarts v Jefferys at p 140 to be the obligation to pay interest:
"I am of opinion that the taking of this promissory note was altogether a waiver of the lien of the solicitor; I am of opinion it would have been a waiver, if it had been a promissory note of the client alone, and upon this principle – a promissory note, payable on demand, bears interest from the time of the demand; the demand might have been made the moment after the promissory note was received, and interest would have run therefore upon the promissory note from that day. Now, my opinion is, that, inasmuch as a solicitor has no claim to interest upon the amount of his bill of costs, if he takes a security for the amount of his bill of costs, which will, in fact, give him interest, as here, that security is a waiver of his lien; and upon that ground I am of opinion, that Mr Jefferys taking the promissory note did lose his lien, as solicitor, upon these deeds."
The charge on the life policy in In re Taylor, Stileman, & Underwood was relevant only because it secured the principal and interest under the promissory note. The case is not authority for the proposition that the creation of a charge on an unrelated asset to secure costs and other amounts in any event due to the solicitor waives a lien or the right to apply for a charge on recoveries in litigation.[23]There is clear authority that a charge on the same asset as that covered by a lien or right to apply for a charge will displace the lien or right. The decision of the Northern Ireland Court of Appeal in Curry v Rea [1937] NILR 1 is authority in respect of a possessory lien, and puts it on the basis of either waiver or merger. Waiver of the right to apply for a charge is the effect of Groom v Cheesewright . There is an obvious inconsistency between an express charge, and a lien or right to apply to a court for a charge, on the same asset.[24]In re Taylor, Stileman, & Underwood was considered by the Court of Appeal in Bissill v The Bradford and District Tramways Co Ltd (1893) 9 TLR 337 and in In re Morris [1908] I KB 473. In Bissill , the solicitors had taken a charge on the client company's interest in the Bradford and District Tramways (Extension) Order 1890 for payment of outstanding costs and the charge provided for the payment of interest. It was held that they had thereby waived their lien on documents of title in their possession, including title deeds and Acts of Parliament. It is unclear whether the 1890 Order was one of the documents over which they were seeking to exercise their lien. If so, there was a clear inconsistency between the charge and the lien. However, in any event, the provision for the payment of interest would be enough to constitute the waiver, on the authority of Robarts v Jefferys and In re Taylor, Stileman, & Underwood. Lord Esher MR cited passages from the latter authority and continued:
"The rule in respect of matters of this kind was there laid down, and the Court had to apply that rule in the present case. Mr Justice Stirling had found that those solicitors did take security, and security which was of substance and value, and at the time they did not in any way intimate to their client that they meant to insist on their lien. Under the circumstances the proper inference was that the lien was done away with."
Lindley LJ concurred in Lord Esher's judgment. Mr Marshall relied on that passage as stating a general proposition applicable to the facts of this case.[25]In the case of In re Morris , which contains an important discussion of the principles, all members of the Court of Appeal agreed that Lord Esher was not meaning to go beyond the judgments in In re Taylor, Stileman, & Underwood. However, there was a division of opinion as to the effect of those judgments and the precise state of the law. Kennedy LJ considered that, in the case of a solicitor, it was not necessary to show any inconsistency or incompatibility between an express charge and a lien. It was enough that the solicitor did not warn his client that he was reserving his lien, whenever he took a security, whatever its nature. He thought the law was correctly stated in the head-note in In re Taylor, Stileman, & Underwood:
"prima facie where a solicitor whose duty it is to advise his client as to his rights and liabilities takes from his client a security for costs without explaining that he intends to reserve his lien, the lien is abandoned…"
[26]The majority, Lord Alverstone CJ and Buckley LJ, considered that this head-note was wrong, and that inconsistency between the security and the lien was an essential feature, even in the case of solicitors. Buckley LJ gave three examples: security on property already included in the lien, security which postpones payment by the client, and security which gives a right to interest which would not otherwise be payable. In considering the decision in In re Taylor, Stileman, & Underwood he identifies the provision for the payment of interest and the charge on the life policy to secure the principal and interest as the relevant features. Having identified a charge and a lien on the same property as an example of inconsistency, it is noticeable that he does not identify a charge on an unrelated asset as also inconsistent, although the charge in issue was on unrelated assets. The actual basis for the decision was a different point, that the charge did not secure costs generally.[27]Mr Marshall relied on what Kennedy LJ identified as what the majority meant by inconsistency between a security and a lien:
"it gives the solicitor something beyond that which he could get by the exercise of his right of lien."
(p.481) or:
"it confers a right of interest which would not otherwise be payable, or gives time for payment, or some other special advantage to him, which the enforcement of the payment of his costs through the exercise of his right of lien would not give."
Applying that test, Mr Marshall submits that a charge on separate property unconnected with the subject-matter of the lien gives the solicitor something beyond that which he could get through the exercise of his right of lien. I am far from convinced that this formula is apt to describe the creation of a charge on an unrelated asset, but in any case the views of the majority are best gleaned from their own judgments in which there is no indication of a principle which would make a charge on an unrelated asset inconsistent with a lien.[28]I was also referred to a more recent decision of the Court of Appeal in Twigg Farnell v Wildblood [1998] PNLR 211. In that case also, observations on the extent of the waiver principle are obiter, because the decision was that it did not apply as between a solicitor and a former client. There is nothing in the judgment of Mummery LJ which is inconsistent with the judgments in either In re Taylor, Stileman, & Underwood , to which he refers, or In re Morris , which does not appear to have been cited to the court. In a short concurring judgment Schiemann LJ said:
"The reason for the inference during the continuance of the solicitor/client relationship that the solicitor intended to waive his lien when taking further security is this. It is assumed that solicitors will intend to act in accordance with their duty. Their duty, if they are not waiving the lien, is to inform the client of what they are doing. If they do not inform the client it is assumed, in the absence of evidence to the contrary, that this is because they are waiving the lien. For that reason, which is no different from that in substance expressed by my Lord, I would dismiss the appeal."
In the context of the facts of the case, the reference to "further security" cannot I think be taken to mean more than security on the property for which the solicitor already holds the title deeds.[29]I have not therefore been referred to any case which either decides, or in which the majority supports the view, that the taking of a charge on an unrelated asset is inconsistent with a possessory lien or a solicitor's right to apply for a charge on different property. I consider it well arguable that as a matter of principle there is no inconsistency between them.[30]In contrast, it is clearly established that if a "security" is created which confers a right to interest not otherwise payable, it will be taken to be inconsistent with a lien or, I would add, a right to apply for a charge on recoveries in litigation. The legal charge in this case confers a right to interest in terms which are confusing and contradictory. Clause8.1 refers to the Chancery action and the first of two clauses8.2 recites that Clifford Harris & Co have agreed to continue to act on behalf of the defendants on condition that Mr and Mrs Solland enter into and provide a guarantee "in relation to the costs of [Clifford Harris & Co], disbursements, VAT and expenses including without prejudice to the foregoing Counsel's fees and expenses ("the Debt") incurred and to be incurred by [Clifford Harris & Co] in relation to the Claim and all matters relating thereto not only on behalf of themselves but also in relation to their companies". The second clause 8.2 contains an agreement and guarantee to pay on demand the Debt and "interest from the date of demand until payment". Clause8.3 contains a covenant by Mr and Mrs Solland to pay "the Debt including interest both before and after any demand made or judgment obtained…at the rate of 8% per annum on the times [sic] on which such monies shall have become due until payment" together with costs in obtaining payment. Clause8.4 contains the charge by way of legal mortgage on the property to secure the liabilities of Mr and Mrs Solland under the terms of the charge.[31]Taking account of the inconsistencies, it seems to me that on a proper construction of these provisions interest at a rate of 8% pa is payable on sums due from the date of demand to the date of payment. The legal charge must be read with any terms of business already agreed between Clifford Harris & Co and the defendants. In July 2002 each of the defendants had signed Clifford Harris & Co's standard Terms of Business. Clause 2 makes provision for interim bills to be sent at the end of each month to enable the client to budget and for a final bill after completion of the work. It continues:
"Payment due to us within 28 days of our sending a final bill. We will charge you interest on the bill at 15% per year from the date of the bill, if you do not pay our bill within this time. Interest will be charged on a daily basis."
No interest is payable on interim bills and in the event of non-payment of interim bills Clifford Harris & Co may terminate the retainer, following which they would render a final bill. It therefore appears to be the final bill, rather than any interim bills, which creates a debt. The terms of the legal charge do not in my judgment change the position.[32]On the basis of these Terms of Business, Clifford Harris & Co were already entitled from the time of their retainer to interest on an unpaid final bill. The interest under the legal charge is at the lower rate of 8% pa. It may be said that under the legal charge interest is payable from the date of demand, whereas under the Terms of Business it is payable from the date of bill only if not paid within 28 days. Again, reading them together I agree with Miss Harman's submission that a demand under the legal charge cannot be made until 28 days after the bill has been sent.[33]Mr Marshall suggested that the Terms of Business, despite being signed by the defendants, were not in fact followed and did not therefore govern the relationship by January 2004. I could not come to that conclusion on this application, and I would not think that variations in practice would mean that the Terms of Business had ceased to have any application.[34]The position is therefore , as presently appears, that the legal charge did not confer any new right to interest, and may indeed have reduced the applicable rate of interest. In In re Morris Buckley LJ stated that a security may well be inconsistent with a lien if it "gives a right to interest which would not otherwise be payable" (see pp 477 and 479). It is at the least seriously arguable that that is not the position on the facts of this case.[35]Mr Marshall further submits that the initial question is not whether interest was otherwise payable but whether it could be secured by a charge under section 73. He points to the terms of section 73(1)(a) which provide for a charge "for his taxed costs" and to Kennedy LJ's formulation of the test in In re Morris that the legal charge is inconsistent "if it gives the solicitor something beyond that which he could get by exercise of his right of lien." Mr Marshall appears to me to be right that a charge under section 73 does not secure interest, but I think that Mr Marshall is reading Kennedy LJ's formulation out of context. The test referred to by Kennedy LJ at p 480, as well as by the majority, is whether the security confers a right to interest which would not otherwise be payable.[36]I therefore conclude that it is at least seriously arguable that the grant of the legal charge in this case was not inconsistent or incompatible with the exercise by Clifford Harris & Co of its right to apply for a charge under section 73. It follows that the defendants' application for summary judgment fails.[37]This makes it strictly unnecessary for me to deal with two further submissions made by Miss Harman on behalf of Clifford Harris & Co. The first arises because Mr and Mrs Solland are currently suggesting that they were induced by duress or undue influence to grant the legal charge and that they may apply to have it set aside or may defend any enforcement proceedings on that basis. Miss Harman points to the injustice of a situation in which the defendants could rely on the grant of the legal charge as a waiver of rights under section 73 and then have the legal charge set aside. The difficulty is that until set aside the legal charge is valid and binding and the court cannot assume otherwise. The injustice, however, can be addressed by the court at the time that it is asked to set it aside. It could then require reconstitution of the fund presently held by Bird & Bird and a recognition of the rights of Clifford Harris & Co over it as a condition of the grant of relief in respect of the legal charge. Alternatively, it might be that by relying on the legal charge in this application, Mr and Mrs Solland would be taken to have affirmed it so that it would no longer be open to them to apply to have it set aside.[38]Secondly, Miss Harman relied on negotiations and correspondence at the time of and following the settlement agreement to show that the parties agreed that the settlement sum should be applied first in payment of their costs. This, she submitted, either revived Clifford Harris & Co's rights over the fund or created an equitable charge over it. The possibility of a revival of rights was discussed, but not decided, in Curry v Rea , in which Andrews LJ said at pp 14-15:
"In my opinion the revivor of such a solicitor's lien would at least require evidence of as clear an intimation to his client of his intention to assert his right to the lien as I have shown to be required from him if he wishes to retain the lien when accepting a higher security such as a mortgage."
It appears from e-mail correspondence, particularly e-mails sent by Clifford Harris & Co on 25 February and 8 March 2004, that they were asserting a right to be paid out of any settlement sum and that no objection was raised by the defendants. Whether that is sufficient to revive previously waived rights or to create an equitable charge would require further consideration and I do not intend to express a view on it now.[39]The other principal ground on which the defendants resist a continuation of the interim injunction is non-disclosure on the without notice application to Patten J. This was first raised in Mr Marshall's skeleton delivered late on 21 October 2004, the day before the return date of the application for the injunction. Reliance was placed on three items. First, the court was not referred to any of the case law relating to the effect of the grant of a charge on a solicitor's lien or other rights. Secondly, the court was not invited to look at or consider the effect of the legal charge. Thirdly, when Patten J enquired in relation to the points made by the defendants as to the payments on account of at least £415,000, he was incorrectly told by counsel then instructed that these monies had been used to discharge prior bills.[40]On receipt of this skeleton, counsel who had appeared before Patten J made a witness statement setting out his recollection. He explained that he had not drawn the court's attention to the case law on the effect of prior security as he had been unaware of it. He had invited the judge to read Mr Solland's witness statement dated 3 August 2004 which refers to the legal charge and gives Mr Solland's account of the circumstances in which it was created. He answered the judge's question as he did, because he understood that the payments on account had been applied in discharging prior bills.[41]The first two items of suggested non-disclosure go together. I have no doubt that if counsel had been aware of the relevant case law on prior security he would have shown it to the judge. It was an innocent omission, and an understandable one. Although Mr Solland had referred to the legal charge in his witness statement in opposition to the Part 8 claim, he had given no indication that he intended to rely on it by way of defence to the claim. On the contrary, there is a separate section of the witness statement headed "Current Issues". I think I am entitled to infer that at the time of preparing the witness statement, those then advising the defendants were also unaware of the relevant case law. That does not surprise me; it is not a well-known corner of the law. It is also fair to say that in view of the terms of Bird & Bird's letter of 4 October 2004, giving a deadline of 24 hours, there was little time to prepare for an unexpected application.[42]The answer given by counsel to the judge's question as to the use of the sums paid on account to Clifford Harris & Co was wrong, but only because they had been used to pay counsel's fees and other disbursements as well as prior bills. The prior bills amounted to some £222,000 but by April 2004 a further amount totalling approximately £190,000 had been used to pay disbursements, rising to £194,025 by July 2004. There is of course a dispute as to whether any of the prior bills or fee notes for counsel's fees were ever given to the defendants. The answer given to the judge's question was inaccurate but it was not significantly misleading.[43]I have been referred to the more recent leading cases on the effects of non-disclosure, Lloyds Bowmaker Ltd v Britannia Arrow Holdings Ltd [1988] 1 WLR 1337, Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, Behbehani v Salem [1989] 1 WLR 723 and Memory Corporation plc v Sidhu [2000] 1 WLR 1443 . The instances of non-disclosure in this case were certainly not deliberate, in the sense of an intentional omission of information thought to be material, nor in the particular circumstances of this case would it be fair to call them blameworthy. I think it highly likely that the judge would have made the order even if he had been referred to the law on the effect of other security. The failure to refer to disbursements when answering the judge's question was immaterial. Taking due account of the vital importance of a full and frank disclosure on a without notice application, I am nonetheless satisfied that these items of non-disclosure would not justify a discharge of the injunction granted by Patten J or a refusal to continue the injunction.[44]In the course of his submissions in answer to those of Miss Harman, Mr Marshall relied on further heads of alleged non-disclosure, which he developed in a four-page note. The first head was non-disclosure of inadequacies in the two-page summary of costs exhibited to Mr Varma's first witness statement of 12 July 2004. I was very critical in the course of the hearing about this summary. It gives figures for hours worked by fee-earners which are on their face highly implausible and are flatly inconsistent with the note on the summary that it "does not include work done outside office hours/weekends". However, it is clear that very substantial costs were incurred after July 2003 which are now claimed in the detailed bill of costs in a larger sum than shown in the summary. Moreover, the defendants have been well aware of the defects in the summary from an early stage. In his witness statement in response dated 3 August 2004 Mr Solland described it as a flawed document and gave examples of its defects. This therefore is a matter which has been well known to the defendants for a long time and if they intended to rely on it as a head of non-disclosure they should have given earlier notice.[45]The second head is described as "non-disclosure of irregular billing practices" and refers principally to matters arising out of Mr Varma's third witness statement served late on 18 October 2004, the day before the hearing. The principal points made are that Clifford Harris & Co could not produce direct evidence of the despatch of the six bills in 2002–2003 for sums totalling £222,289, that no bills had been sent for the disbursements of £194,000 paid out of the moneys on account and that at the time of the hearing before Patten J no invoice was outstanding. None of this was brought to his attention and he was left with the impression that the billing was entirely regular and no issues arose in connection with it. As regards disbursements, I was told that it is not necessary to have bills as such and it is sufficient if counsel's fee notes are passed to the client and no objection is raised to them. Clifford Harris & Co say that the relevant fee notes were given to Mr and Mrs Solland, but they deny it. So far as bills are concerned, Clifford Harris & Co are presently unable to produce direct evidence that they were sent, although the copies produced by them have internal markings which they say evidence that they were sent. There are certainly criticisms to be made of the way in which Clifford Harris & Co have organised their billing procedures. Their failure to keep proper records of the bills and counsel's fee notes (if any) sent or given to the defendants, and their failure on any footing to send any bills for their costs after July 2003 has led to justifiable criticism by the defendants of their invoicing arrangements. Nevertheless, although a clear and concise statement on the position as regards bills, disbursements and unbilled costs should have been put before the judge, I am satisfied that the presentation of the case to Patten J would not justify the discharge of his order or a refusal to continue it on grounds of non-disclosure. It was clear from the evidence before him that Clifford Harris & Co had not delivered any bills for the costs to be secured by the charge under section 73. Thus, Mr Varma had exhibited only the two-page summary to his first witness statement, which he said was a summary only, prepared in haste and not purporting to be a full bill of costs, and not exhaustive of "the costs which will become payable". Mr Solland's witness statement, read by the judge, made clear his case that he had received no invoices or fee notes and, as I have already mentioned, specifically challenged the summary of costs. Mr Varma in his affidavit on 5 October 2004 did not suggest that any bills for the unpaid costs had been sent.[46]The third new head related to a payment of £40,000 to counsel which was said to have been one of the disbursements which exhausted the balance of the monies paid on account, yet was shown in the recent detailed bill as unpaid. There was insufficient time for Miss Harman to take instructions and deal with this point orally. She has since sent a written submission from which it is clear that, for an understandable reason, it was incorrectly shown in the detailed bill as unpaid. That deals with the point.[47]Apart from the issues of whether Clifford Harris & Co had a seriously arguable case and the effect of any non-disclosure, there was only limited argument on other factors relevant to the continuation of the injunction. Mr Marshall pointed out that Clifford Harris & Co had the benefit of the legal charge. In view of Mr and Mrs Solland's indication that they may seek to set it aside, this is not a strong point. In any case the only evidence before the court as to the value of the legal charge is a statement by Mr Solland in his witness statement dated 14 October 2004 that the amount secured by the prior charge is approximately £1.64 million and the "approximate value of my house is £3 million." Mr Marshall also drew attention to Mr Solland's statement that the defendants need access to the settlement sum to pay existing and future legal fees, which they are otherwise unable to fund. This suggests that they will equally be unable to pay Clifford Harris & Co's taxed costs from other sources.[48]In my judgment it is appropriate to continue the injunction until judgment in the Part 8 claim or further order in the meantime. I will hear counsel on any further directions needed to bring the claim to a final hearing.

Cited in 4 later judgments