The English Law of Liens

Extracts from Halsbury’s Laws of England, widely regarded within the legal profession as ‘the bible of English Law’.

701. Types. The concept of lien in the simple sense of a legal right to keep possession of property until a claim has been met and has been extended to cover a number of analogous rights. Liens are now variously described as legal, non-possessory, equitable, general, particular, statutory, contractual, judicial and subrogatory. Some of these may exist concurrently. A lien arising by operation of law or equity and not contractual in its nature does not seem to fall within the definition of ‘security’ in the Consumer Credit Act 1974 but is included for the purposes of the Insolvency Act 1986.

702. Legal Lien. In its primary or legal sense ‘lien’ means a right at common law for a man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied, but this is given by law and not by contract. A written agreement to grant a lien is not a bill of sale, for a legal lien does not as a rule arise until possession of the property is obtained. However, in exceptional cases, possession is no essential to constitute a legal lien.

703. Non-possessory Lien. In its secondary sense, ‘lien’ may be applied to a right subsisting in a person who has no possession of the property concerned but who nevertheless has a right against the owner analogous to a legal lien. Such a right may arise in equity, by statute or under a court order. Thus, a trustee has an equitable lien on the estate or fund for money properly expensed on it and a solicitor, in addition to his legal lien on the client’s documents in his possession, has a statutory lien right to ask the court to direct that property recovered is to stand security for his costs. So also where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses are a first claim on the fund; and a provisional liquidator’s remuneration and his solicitor’s expenses are charged on the funds of the liquidation so that the provisional liquidator has a lien over the company’s assets in his hands.

Likewise, a receiver or receiver and manager appointed by the court has an indemnity over assets and is a secured creditor with a lien for his expenses, remuneration and costs. A trustee’s lien on the trust estate or fund for money properly expended on it seems to extend to the payment of costs of proceedings authorised by the court. However, where a beneficiary or minority shareholder is entitled to a similar indeminity there can be no legal lien because there is no possession; and it is not clear whether an equitable or judicial lien could be said to arise in such a case, or whether such a proposition could have any useful effect. A trustee’s equitable and statutory rights to impound a beneficiary’s interest, where the trustee has committed a breach of trust at the instigation of the beneficiary, do not depend on the trustee’s actual possession of the trust fund.

704. Equitable Liens. An equitable lien is a specie of equitable charge arising by operation of law independent of possession. Re Bond Worth Ltd [1980] Ch 228 at 250-251, [1985] 3 WLR 610 at 613-614 per Nourse J. A right which arises by express contractual agreement is sometimes described as a lien; see Re Bond Worth Ltd supra.

Although the vendor’s and the purchaser’s equitable liens arise in circumstances where there is a contract, a contract is not necessary for the creation of an equitable lien. Eg the trustee’s lien: see Shirlaw v Taylor (1991) 102 ALR 551 at 557, Aust Fed Ct, Full Ct.

Since it arises in equity, it is subject to all the usual conditions affecting equitable rights. Thus relief may be refused where the conduct of the person claiming the right has been questionable or improper. __It is not possible to state a general principle which accounts for the diversity of situations in which an equitable lien arises. __Hewett v Court (1983) 149 CLR 639 at 645, Aust HC, per Gibbs CJ.

Apart from equitable liens arising from contractual dealings in property, equitable liens have been based upon general considerations of justice or upon the principle that he who seeks the aid of equity in enforcing some claim must admit the equitable rights of others associated with the subject matter. Shirlaw v Taylor (1991) 102 ALR 551 at 557-558, Aust Fed Ct, Full Ct.

The vendor’s lien is founded on the principle of equity that he who has obtained possession of property under a contract for payment of its value will not be allowed to keep it without payment. Where through the deposit of deeds and compliance with the statutory formalities, an equitable mortgage arises, there is a lien on the documents.

705. Concurrent Legal and Equitable Liens. Legal and equitable liens may both arise in the same transaction. Thus on the sale of land the vendor’s or purchaser’s equitable lien exists concurrently with a more limited legal lien before conveyance and a legal lien on the title deeds in the claimant’s possession; and it would also seem that a legal lien arising by statute on the sale of goods may exist concurrently with an equitable lien on the same goods. An equitable charge over a chattel can co-exist with a bailment of the chattel: Re Cosslett (Contractors) Ltd [1996] 4 All ER 46 at 61, [1996] 3 WLR 299 at 314 per Jonathan Parker J.

706. Statutory Lien. Where a lien arises by virtue of statute there will be different considerations from those raised by a common law or equitable lien, because the primary question will be the meaning of the statute; and it will not necessarily follow that the principles affecting a common law or equitable lien are intended by the statute to apply. Statute law may also destroy or nullify a lien which would otherwise be enforcable.

An accountant’s lien in respect of unpaid fees over a client’s books of accounts, files and papers is unenforcable in so far as the existence of the lien conflicts with the requirement imposed by the Companies Act 1985 s 222 (as substituted) […] that a company’s accounting records must be kept at the company’s registered office or such other place as the director’s think fit, and must at all times be open to inspection by the company’s officers: DTC (CNC) Ltd v Gary Sargeant & Co (a firm) 2 All ER 369, [1996] 1 WLR 797.

It may not be clear whether the statute creates a general or a particular lien. __See eg Consumer Credit Act 1974 ss 70(2), 73(5); cf s 72(4). __An example of a statutory particular lien is that created in favour of the unpaid seller by the Sale of Goods Act 1979 [ss 39, 42, 43, 47, 48, 55].

707. Contractual Lien. Where a lien arises by contract there will usually be different considerations from those raised by a common law or equitable lien, because the primary question will be the meaning of the terms of the contract. Contract has been said to supersede lien and to limit the rights of the person claiming under contract to those for which provision has been made in the contract. Walker v Birch (1795) 6 Term Rep 258; Re Leith’s Estate, Chambers v Davidson (1866) LR 1 PC 296; Fisher v Smith (1878) 4 App Cas 1, HL; Seka Pty Ltd (in provisional liquidation) v Fabric Dyeworks (Aust) Ltd (1991) 4 ACSR 455, Aust Fed Ct.

An example of a contractual lien is a security within the terms of the Consumer Credit Act 1974. A contract which puports to create a general lien will be strictly construed. Squamish Terminals Ltd v Price-Waterhouse Ltd (1980). Just as a contract may suersede the lien, so a course of dealing inconsistent with the lien may destroy it. Fisher v Smith (1878 4 App Cas 1, HL.

708. Subrogatory Lien. A lien may arise by subrogation in equity where there is a primary and secondary liability of two persons for one and the same debt, the debt being (as between the two) that of one of those persons only, and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid. Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10-11, HL. As to subrogation see also Orakpo v Manson Investments Ltd [1978] AC 95, [1977] 3 All ER 1, HL; Lord Napier and Ettrick v Hunter [1993] AC 713, [1993] 1 All ER 385, HL.

This right of subrogation arises independently of contract or guarantee and is equivalent to the right of contribution which exists in equity where a creditor has a right to come upon more than one person of fund for payment of the debt. In such a case there is an equity between the persons interested in the different funds that each shall bear no more than due proportion. Deering v Earl of Winchelsea (1787) 2 Bos & P 270, Ex Ch; Stirling v Forrester (1821) 3 Bli 575.

That principle applies equally where ultimately one person is liable for the whole debt and the other is ultimately liable for none of it. The right of subrogation will only carry with it the right to a lien where the person primarily liable was subject to such a lien and not, for instance, where the original loan was clearly intended to be unsecured or where a trustee has no indemnity rights against the trust fund because its contract is unauthorised. Eclesiastical Comrs v Pinney [1900] 2 Ch 736 at 743, CA.

Paul v Speinway Ltd (in liquidation) [1976] Ch 220 at 232, [1976] 2 All ER 587 at 597 per Oliver J (applying Wylie V Carlyon [1922] 1 ch 51. The ordinary and typical example of subrogation is that ‘where A’s money is used to pay off the claim of B, who is a second creditor, A is entitled to be regarded in equity as having had assignment to him of B’s rights as a secured creditor’: Burston Finance Ltd v Speirway Ltd [1974] 3 All ER 735 at 738 [1974] 1 WLR 1648 at 1652 per Walton J. This is similar to the statutory transfer of a mortgage, where the receipt for mortgage money indicates that payment has been made by some person not immediately entitled to the equity of redemption: see the Law of Property Act 1925 s 115(2) […] It has been held that ‘it is not open to doubt that where a third party pays off a mortgage he is presumed, until the contrary appears, to intend that the mortgage be kept alive for his own benefit. Ghana Commercial Bank v Chandiram [1960] AC 732 at 745, [1960] 2 All ER 865 at 871, PC.

COMPARISONS AND DISTINCTIONS

709. Distinctions. A lien must be distinguished from a mortgage, a pledge, a bill of sale and an equitable charge.

710. Legal Lien and Mortgage. A legal lien has been held to differ from a mortgage in that it is generally assignable without the express or implied authority of the owner of the subject goods. See 719 post; Tobin v Melrose [1951] SASR 139, S Aust SC. For departures from the supposed principle that a legal lien is not freely assignable see paras 708 ante, 719 post. A mortgage, in comparison, can be transferred at the will of the mortgagee. See the Law of Property Act 1925 ss 114, 115(2); Taylor v Russell ’1892] AC 244 at 255, HL. There is, however, authority for the rule that a legal lien can be acquired along with the secured debt itself. See Vered v Inscorp Holdings Ltd (1993) 31 NSWLR 290, NSW SC, per Hodgson J, following Bullv Faulkner (1848) 2 De G & SM 772.

A more substantial difference between legal lien and mortgage may be that, whereas a legal lien lasts only so long as possession of the goods is sustained, a mortgage does not depend on possession, and can arise or subsist without any delivery of possession to the mortgagee. The mortgagee may, however, be entitiled to possession: see Western Bank Ltd v Schindler [1977] Ch 1 at 9, [1976] 2 All ER 393 at 396, CA, per Buckley LJ.

Further, a legal lien in its true sense arises by operation of law, whereas a mortgage is contractual in origin. Note that for the purposes of the Law of Property Act 1925, ‘mortgage’ includes a lien for securing money or money’s worth: see Law of Property Act 1925 s 205(1)(xvi). A lien is also an ‘incumbrance’: see 205(1)(vii). Where an equitable mortgage is created through the deposit of the title deeds, the mortgagee has a legal lien on the deeds deposited. The former rule that a deposit of title deeds to a property by way of security created by itself an equitable mortgage of the property has not survived the enactment of the Law of Property (Miscellaneous Provisions) Act 1989 s 2 (as amended): United Bank of Kuwait v Sahib [1997] Ch 107, [1996] 3 All ER 215, CA.

711. Concomitant Legal Lien and Equitable Mortgage. Where a valid equitable mortgage of land has been created through deposit of title deeds, the mortgagee has a concomitant legal lien on the deeds. However, there must now be a contract which complies with the statutory formalities for the equitable mortgage to arise.

As to the historical devlopment of the equitable mortgage by deposit of the title deeds see Russel v Russel (1783) 1 Bro CC 269; Ex p Mountford (1808) 14 Ves 606; London & Cheshire Insurance Co Ltd v Laplagrene Property Co Ltd [1971] Ch 499 at 514, [1971] All ER 766 at 779 per Brightmann J;[…] See now, however, the Law of Property (Miscellaneous Provisions) Act 1989 s 2 (as amended) (seenote 3 infra); and REAL PROPERTY. See also United Bank of Kuwait plc v Sahib [1997] Ch 107, [1996] 3 All ER 215, CA; and para 710 note 6 ante.

712. Equitable Lien and Mortgage. The main distinction between equitable lien and mortgage is that the mortgage is contractual but the lien arises by operation of equity. An equitable lien does not depend on possession and in theory, as an equitable right to a charge, it is assignable; but since it is dependent for enforement on a court order, it is not in practice assignable. A lien is not, then, in the strictest sense of the word a mortgage, but for the purposes of the Law of Property Act 1925, a mortgage included any charge or lien on any property for securing money or money’s worth. See the Law of Property Act 1925 s 205(1); para 710 text and note 5 ante; and MORTGAGE.

It follows that an equitable lien affecting a legal estate in land will rank for priority according to its registration as a land charge and may be void as against a purchaser if not so registered. See ibid s 97 (as amended); and the Land Charges Act 1972 s 2(1). It also follows that an equitable lien may be realised by a court as an equitable mortage. See ibid s 90 (amended by the County Courts Act 1984 s 148(1), Sch 2 Pt II para 3(1); and the High Court and County Courts Jurisdiction Order 1991, SI 1991/724, art 2(8), Schedule). As to the consequence of lien being included as a mortgage within the Law of Property Act 1925 see MORTGAGE vol 32 para 895.

713. Pledge or Pawn. A pledge of pawn is a bailment of goods or chattels as security for some debt or engagement. It gives a special assignable interest in the property to the pledgee Donald v Suckling (1866) LR 1 QB 585 at 612. and carries an inherent power of sale in the event of default See Palmer Bailment (2nd Edn, 1991) p 1379 et seq.. It differs from both legal and equitable lien in being essentially contractual, but is similar to legal lien in that actual or constructive delivery occurs and possession passes to the pledgee Dublin City Distillery Ltd v Doherty [1914] AC 823, HL..

The right to possession of the property vests in the pledgee so far as is necessary to secure the debt; in this sense pledge or pawn is intermediate between a simple lien and a motgage which wholly passes the property in the thing conveyed Halliday v Holgate (1868) LR 3 Exch at 302.. The manner in which a possessor’s security is designated in the parent contract or other instrument is a persuasive, but not necessarily decisive, indication as to whether the security is a pledge or a lien.

714. Bill of Sale. A bill of sale is in some sense the converse of a legal lien in that possession is not given but the property in goods or chattels is transferred by a written instrument. Since a lien arises by operation of law or equity there is no document, and so the registration requirements of the Bills of Sale Acts do not apply.

715. Equitable Charge. An equitable charge is normally a right founded on contract, whereas both legal and equitable liens, in their true sense, arise by operation of law or equity. The effects of an equitable lien and an equitable charge are similar in that both are equitable interests and not mere equities and both are liable to be defeated under the Limitation Act 1980 s 20(1) (action time-barred after 12 years); and LIMITATION OF ACTIONS para 1002 post. and for non-registation.

LEGAL LIEN

(1) NATURE AND ESSENTIALS

716. General Lien. A general lien entitles a person in possession of chattels to retain them until all claims or accounts of the person in possession against the owner of the chattel are satisfied. It can exist (1) as a common law right arising from general usage; or (2) by express agreement. General liens are discouraged because they give special privileges as against other creditors and tend to upset the equitable distribution of assets in bankruptcy. They have been regarded as an encroachment upon the common law. However, where the usage has been frequently recognised the right of lien becomes part of common law and is accepted by the courts without further evidence.

717. Particular Lien. A particular lien at common law is the right to retain goods for which charges have been incurred until those charges have been paid; if the owner of the goods is willing to pay these charges, the goods may not be retained until payment of any general balance due to the person having the particular lien. Jones v Tarleton (1842) 9 M & W 675.

Being consistent with the principal of natural equity, particular liens are favoured by the law, which is contrued liberally in such cases. Jackson v Cummins (1839) 5 M & W 342. As general liens may arise from general usage, or by express contract, it follows that particular liens may arise in the same manner.

The terms of a contract may be such as to negative a particular lien which might otherwise have arisen Hatton v Car Maintenance Co Ltd [1915] 1 Ch 621., but a particular lien cannot be extended by contract so as to become a general lien against the goods of strangers to the contract. Thus an unpaid seller’s right of stoppage in transitu cannot be defeated by an agreement between the carrier and the buyer: see Oppenheim v Russell (1802) 3 Bos & P 42.

718. Legal Lien by contract. A lien, whether general or particular, may be created and defined by contract. A lien so arising bears in some respects a closer resemblance to a pledge, althought it can exist without an inherent or agreed power of sale, which is a concimitant of pledge. A general lien often arises by contract between a company and its members under the articles of association. An agreement which is void from the beginning for want of legal formalities cannot give rise to a right of lien, but an agreement to do something which is illegal could give rise to a lien if the work was done. Just as a legal lien may be created by7 contract, it may be negatived by the terms of the contract, either expressly or by implication because it is inconsistent with the terms of the contract, or it may be discharged or superseded by the contract.

719. Nature of Legal Lien. A legal lien is a right of defence to an action in respect of the chattel an action in conversion brought by the owner to recover the chattel. and is not a right of action in itself Tappenden (t/a English and American Autos) v Artus [1964] 2 QB 185 at 194-195, [1963 3 All ER 213 at 215-216, CA, per Diplock LJ, holding further that lien is a self-help remedy, triggered by the performance of work which improves a chattel of which the performer has lawful possession, and does not depend on any implied contractual term. But a lien, depending necessarily on possession of the subject chattel, normally entitles the holder to sue any third party who commits a wrong (such as trespass or conversion) against the chattel during the period of that possession: The Winkfield [1902] P 42, CA. See also para 745 text and note 2 post; and BAILMENT vol 2 (Reissue) para 1889. As to legal lien see also para 702 ante..

Its limited character has both advantages and disadvantages for the party entitled. On the one hand, lien can be asserted even where the secured debt is statute-barred See Higgins v Scott (1831) 2 B & Ad 413. See also BANKRUPTCY AND INSOLVENCY vol 3(2) (Reissue) para 490; LIMITATION OF ACTIONS para 1002 et seq post., and the chattel cannot be taken in execution Goods the subject of a lien cannot be taken in execution, because lien is merely a personal right continuing during the possession of the goods: Legg v Evans (1840) 6 M & W 36. As to what can be seized in execution see EXECUTION.. On the other hand, a lien confers no power to sell the chattel As to the enforcement of a legal lien see para 745 et seq post..

It has been held that, in contrsdistinction to a pledge, a lien confers a mere personal right, which cannot be granted to a third party merely by granting the third party possession of of the chattel, without the consent of the owner. But decisions on solicitors and accountant’s liens have readily inferred the necessary authority and have held the lien to be assignable in cases where the secured debt is also assigned. The benefit of a lien can therefore be assigned along with the debt in respect of which it arises. It is arguable that these decisions afford one of several indications that common law possessory liens are beginning to be recognised as a limited form of property interest.

Donald v Suckling (1866) LR 1 QB 585 at 612-613 per Blackburn J, and at 618-619 per Cockburn CJ. The rule stated in the text does not apply where there is an equitable right of subrogation: see para 708 ante. The purchaser of an article which is subject to a lien having called upon his vendor to pay off the sum claimed may himself pay off the sum in order to obtain possession of what he has purchased and sue the vendor for any sum properly paid (Bevan v Waters (1828) 3 C & P 520); and goods may, it seems, be delivered by a person who has a lien on them to another person as his agent with notice of the lien so as to preserve his lien (see M’Combie v Davies (1805) 7 East 5). The right to pledge conferred on factors (see AGENCY vol 1(2) (Reissue) para 160) arises entirely by statute, and is an exception to the general rule: Cole v North Western Bank (1875) LR 10 CP 354, Ex Ch.

Bull v Faulkner (1848) 2 De G Sm 722; and see SOLICITORS vol 44 (Reissue) para 250. Vered v Inscorp Holdings Ltd (1993) 31 NSWLR 290. NSW SC. In these decisions it was held that, as the law allows the assignment of debts, it also allows the assignment of the benefit of any lien held over the client’s papers in respect of the debt.

Vered v Inscorp Holdings Ltd (1993) 31 NSWLR 290. NSW SC. The proposition in the text must be read subject to any express or implied prohibition on such assignment by the owner. That might occure, for example, where the chattel subject to the lien is a valuable work of art and the party having the lien has some personal characteristic or resourse, known to the owner, which makes him especially well qualified to hold and safeguard it.

For another suh indication see The Freightline One [1986] 1 Lloyd’s Rep 266 at 272 per Sheen J (possessory lien, in common with the statutory right of detention conferred by the Port of London Act 1968 s 39, may survive a change of ownership of the chattel). In Teppenden (t/a English and American Autos [1964] 2 QB 185 at 195, [1963] 3 All ER 213 at 216, CA, Diplock LJ described lien as a remedy in rem, requiring for its exercise no intervention by the courts.

720. Registration. A common law possessory lien, being dependent for its existence on possession, does not require to be registered under statutory provisions relating to bills of sale and company charges.

721. Care and Custody. The holder of a lien voluntarily in possesssion of a chattel which belongs to another [see BAILMENT vol 2 (Reissue) para 1801.], is a bailee of the chattel [the bailment is probably one for mutual advantage] and (subject to contrary agreement or special circumstances) owes the normal duty of care owed by the bailee towards the owner. This includes a duty to exercise reasonable care in the safekeeping and management of the chattel and a duty to answer for the deliberate wrongs of those to whom the holder of the lien has entrusted the chattel and delegated any part of that duty of care. In general, the party asserting the lien cannot charge the owner for the cost of keeping the chattel during the period of his possession by reason of the lien, and cannot add such costs to the charges in respect of which the lien is asserted.

722. Possession. No legal lien can arise until possession has been obtained by the person claiming the lien. A racehorse trainer may not, therefore, have a lien for his fees where discretion as to the place at which, and the jockey by whom, the horse is to be raced is reserved by contract to the owner. The transfer of deeds to a client’s deeds box by a solicitor may be sufficient to give possession to the client for this purpose. The possession must have been rightfully obtained before a lien can arise. Thus a person who rejects goods for which he has paid is no longer entitled to possession and may assert no lien for the purchase price; and a person who has obtained possession of the property of another by misrepresentation may not set up a lien to which he might otherwise have been entitled; nor may a person paying freight duty or other charges on goods of which he has obtained possession wrongfully retain the goods until repayment of the freight duty or charges.

Similarly, money paid by insurers to brokers under a mistake of fact is not the property of the assured and is not therefore subject to the broker’s lien for unpaid premiums of the assured. A person cannot have a lien over property which he has acquired in an assumed character. Agents employed by a person who subsequently becomes bankrupt by obtaining possession after the bankrupty, either through an act of the bankrupt or their own, set up a lien against the bankrupt’s trustee for money due to them from the bankrupt.

Halsbury’s Laws of England 4th Edition.