Court of Appeal upholds law firm’s floating charge to secure £3.8m fee

Fee: CA upholds ruling that firm had charge over payments into court

A law firm had a floating charge to secure a fixed fee of over £3.8m from a collapsed hotel company, appeal judges have ruled.

Sir Colin Rimer said London litigation specialist Candey had the charge over millions of pounds returned to Peak Hotels from earlier, bigger payments into court.

The work carried out by Candey before the hotel group went into liquidation was estimated at only £1.2m.

Having analysed apparently conflicting authorities on payments into court, Sir Colin said “the current of that authority flows firmly in favour of Candey and against the liquidators”; the payer of money into court for purposes similar to Peak’s “retains its property in the money”, meaning that the charge could apply.

Sir Colin said it was “counter-intuitive and contrary to principle” to argue that, on making a payment into court by way of security for courts or by way of fortification of a cross-undertaking in damages, the payer was “parting with his property in it”.

The court heard in Crumpler and another v Candey [2018] EWCA Civ 2256, that Peak was incorporated in the British Virgin Islands in January 2014 and borrowed around $35m to buy a 32.5% holding in a joint venture vehicle, which owned a hotel group.

Only a few months later, by June 2014, Peak had launched proceedings in the Chancery Division arising from disputes over control of the hotels and the funding arrangements. The defendants included its joint venture partner and the joint venture’s funder.

Peak was ordered to pay $10m into court by way of fortification of a cross-undertaking in damages in September 2014, and in February 2015 to provide £3.1m as security for the defendants’ costs.

Candey acted for Peak in the litigation and entered into a fixed-fee agreement in October 2015, which covered arrears of fees owed to the law firm and provided for future legal services. The fee was set at £3.86m.

To secure its fee, Candey obtained a deed of charge and security from Peak, including both a fixed and floating charge over its assets.

Peak’s funder commenced winding-up proceedings against the company in September 2014 and an order was made 18 months later.

The London litigation was settled and in March 2016 the High Court ordered two sums of $10m and £1.6m to be paid out to the liquidators.

Candey claimed to be a secured creditor for the £3.86m fixed fee. The liquidators did not challenge the fee, but challenged the claim that the charge gave it security for the fee over the money paid out.

After careful consideration of the authorities, Sir Colin concluded that “the various decisions of the court that support the view that the payer retains a property interest in the money have favoured a correct and principled view”.

Sir Colin said he recognised that a payment into court “gives the other party a security interest in the money and that the ultimate entitlement to the money in court” was subject to the court’s discretion.

“But the ultimate destination of the money is not dependent upon anything akin to an unpredictable judicial lottery.

“In the light of the outcome of the litigation, it will in most cases be obvious what payment out orders the court ought to and will make.”

Dismissing the liquidator’s appeal against a ruling by HHJ Davis-White QC that the deed of charge signed by Peak created a floating charge, Sir Colin said: “I regard the answer to the question raised by liquidators as simpler than the one the judge provided.

“I would hold that Peak retained the property in the money that it paid into court, the money thus continued to be one of its existing assets and so it was able to, and did, charge its interest in it to Candey by the charge.”

Lord Justices Henderson and Patten agreed.

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