When accountants and their clients disagree and part company, it is not uncommon for the accountant to exercise a common law “lien” over the client’s papers, holding on to them until their fees are paid. Tactically, the lien can provide some leverage in resolving the fee dispute and draw an end to the matter.
But what happens if the former client argues that no fees are due because the accountant’s work was negligent? Whether to maintain a lien at this point will likely to depend on the former client’s appetite for litigation. Without the papers, it is difficult to satisfy the requirements of the court’s Civil Procedure Rules (CPR) and the pre-action protocol, which require a claimant to particularise allegations of negligence and identify key evidence. By continuing to deny the former client access to the papers, the accountant is at risk of being deemed an “obstructive” defendant and the court can impose costs sanctions.
Against this background, it is bizarre that the following case, Ellis v John Hodge, ever got to court. The issue was whether the professional’s right to retain the file pending payment of fees should take precedence over the court’s disclosure rules; the answer is not rocket science. It involved a solicitor’s lien but the decision is relevant to all professions including accountants.
Background
The Claimant (“Mr Ellis”) instructed John Hodge Solicitors (“JHS”) in his personal injury claim of c.£500,000. He rejected various settlement offers from his opponent, the highest being £200,000, but at trial he was awarded just £11,813.63.
Mr Ellis brought proceedings against JHS alleging the firm negligently failed to advise him on the risks of litigation. JHS refuted the allegations and counterclaimed for its unpaid fees.
The proceedings were subject to rules of disclosure in the Business and Property Courts which provide that, unless the parties agree otherwise, each party must provide initial disclosure of key documents at the time of serving statements of case. JHS served a Defence and Counterclaim but did not provide initial disclosure so as to preserve its lien over the file. Mr Ellis argued the lien had no application because the parties must provide disclosure in accordance with the court rules.
Decision
There was no previous legal authority on whether the lien could restrict disclosure of the client file in court proceedings. The court considered Woodworth v Conroy relating to an accountant's lien and held:
- The courts have the power to modify duties of disclosure where the party from whom disclosure is sought has a valid lien over the file;
- On the facts, it was not appropriate to exercise this power because inspection of the file was central to determining the evidential issues in the case;
- An alternative solution proposed by JHS, namely sharing the file with Mr Ellis’s new solicitors for a brief period without showing Mr Ellis (known as a Robins undertaking), would not be practical because if Mr Ellis was told the full content of the documents, the lien would lose its value just as much as if he saw the documents.
The court concluded the file must be disclosed in order to sensibly determine the allegations of negligence and JHS’s counterclaim for unpaid fees.
Comment
The accountant’s lien remains a useful tool in cases where clients refuse to pay outstanding fees but they want (or need) access to their papers. Here, the lien can provide some leverage in fee negotiations and may result in a recovery of all or some of the outstanding fees.
However, where fees are unpaid because the client considers the accountant was negligent, and there is appetite to pursue a negligence claim, the lien will swiftly lose its bite. Principles of access to justice and fairness require disclosure of all relevant documents which are pertinent to the issues before the court, and these principles will override the right to exercise a lien over the file.
