High Court: Barristers may be entitled to lien but legal expenses insurers are not

Agreement: Insurers said clause inserted by mistake

Barristers may now be entitled to same lien that solicitors can have over the proceeds of litigation, the High Court has suggested, as it ruled that legal expenses insurers do not.

Though there were good historic reasons for barristers not having a lien, it said that “given recent developments in the structure and conduct of the legal profession, it is difficult to identify any reason why, as a matter of principle, solicitors, but not also barristers, should be entitled to a lien”.

Robin Dicker QC, sitting as a deputy High Court judge, said: “In modern times, law firms, partnerships, LLPs and limited companies through which the relevant legal services are provided may all assert a lien in their own name, although such entities are not strictly solicitors.”

It was, he said, “illogical, unprincipled and potentially unfair” that, for example ,a lien would arise in respect of the fees of a solicitor conducting litigation, but not a barrister performing the same function under a direct retainer with the client.

Though the Bar Council intervened in Glasgow (The Bankruptcy Trustee of Harlequin Property Svg Ltd) v ELS Law Ltd & Ors [2017] EWHC 3004 (Ch), the point was not ultimately argued to conclusion because the claims by the solicitors and barristers in the case settled at the start of the hearing.

The ruling is the latest in the long-running claim over Harlequin Property’s failed development in St Vincent and the Grenadines. This led to a successful negligence claim against Harlequin’s accountants Wilkins Kennedy.

The application before the court by Harlequin’s bankruptcy trustee was for a direction on how to distribute the £7.9m net proceeds of the claim still held by the Court Funds Office.

After the settlement with Harlequin’s lawyers, who took the case on a damages-based agreement, the court was left to decide the £3m claim for deferred premiums by two after-the-event (ATE) insurers – DAS (£2.2m) and Elite (£275,000) – along with Acasta, which provided a financial guarantee policy for £577,000.

The case was also supported by funding agreements with BC Investments and Sparkle Capital.

A problem for the insurers was a priorities agreement signed by Harlequin, ELS, the insurers and funders over their respective rights to any recoveries.

This included a clause providing that, in the event proceeds were received as a result of a judgment, any premium due wold not form part of the proceeds for distribution.

The insurers said this wording – which dated back to the time when ATE premiums were recoverable – was included by mistake, but none of them noticed it when they separately entered into the agreement.

They accepted that they had no statutory or contractual right to a lien, but argued that they had a proprietary claim over the fund by way of a lien analogous to a solicitor’s lien because, were it not for them, Harlequin would never have obtained judgment against Wilkins Kennedy.

Mr Dicker rejected this for two reason – first, that granted the insurers a lien would create an exception to the statutory regime for the distribution of the assets of an insolvent debtor amongst its creditors, which he said was “self-evidently a matter for the legislature, not the courts”.

The second reason was that holding that the insurers were entitled to a lien was inconsistent with the terms of the priorities agreement.

The judge said: “The general rule is that, where a party has contracted for an unsecured right only, the court will not elevate it to a secured status by means of a lien.

“Having agreed that the balance of the fund is to be paid to the company without first discharging sums due to them by way of premium, it is not now open to the insurers to contend that they are nevertheless entitled to a lien as security for the payment of such sums so as to give them priority.”

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