Withers LLP v Rybak [2011] EWHC 1151 (Ch)

The Respondents were clients of the Applicant solicitors’ firm. Following settlement of litigation with a third party, a court order was made that money from a property sale by the Respondents should be paid into the Applicant’s client account. Such payment was to be made on terms that the money could only be withdrawn by order of the court to discharge the Respondents’ debt to the third party, or for living or legal expenses. The monies were paid into the client account, and subsequently became the subject of a worldwide freezing order over the Respondents’ assets.

An order was subsequently made permitting the Respondents to direct payments to be made from the client account to satisfy all legal expenses incurred by the Respondents, with permission to apply for an order permitting additional payments.

Judgment was given in favour of the third party on its counterclaim against the Respondents, and the court ordered that the Applicant’s fees plus interest be retained in the client account. A month later, the Respondents assigned to the third party all of its interest in the relevant monies in the client account.

The Applicant applied to vary the court’s order on the basis that it was entitled to assert a solicitor’s common law retaining lien over the monies in its client account. It submitted that the previous court orders did not create any interest in the monies by way of a security for the benefit of the third party, in respect of monies claimed by it against the Respondents.  

The application was granted. The Court held that the freezing order had not created a charge over the frozen assets in favour of the third party, as it did not impose an obligation on the Respondents to pay any monies to the third party out of the sums to be paid into the client account.  

Further, the Court held that the Applicant clearly held the monies in its client account in its professional capacity as the Respondents’ solicitors. The monies were held on trust for the client, but the client was subject to restraints imposed by the court orders. It was not right, in relation to monies in the client account, to replace the ordinary solicitor-client relationship with an implied contractual relationship involving the Applicant, Respondents and the third party. The court orders did not produce the result that the Applicant held the monies for a particular purpose that was incompatible with the Applicant having a retaining lien for their fees over those monies.