COST BITES 95: A SOLICITOR’S BILL IS “PAID” WHEN FUNDS ARE DEDUCTED FROM DAMAGES AND A COMPLIANT BILL SENT TO THE CLIENT

In Menzies v Oakwood Solicitors Ltd [2023] EWCA Civ 844 the Court of Appeal held that a solicitors bill is “paid” when the claimant’s solicitor sends a compliant bill to the claimant, after deducting damages.  The Court, it has to be said, was a little frustrated at having to deal with somewhat aged concepts, and a great deal of case law, in order that they could reach this conclusion.

“This court has previously said in Belsner that the 1974 Act, the wording of which has barely changed in many relevant respects since the Solicitors Act 1843, is in need of reconsideration. We repeat that view. The world of 2023 is a far cry from the early days of Queen Victoria’s reign. The balance between the protection of consumers on the one hand and certainty on the other needs to be re-evaluated in order to produce a system fit for the current century.”

A RELEVANT WEBINAR: THE COSTS JUDGE OVER YOUR SHOULDER: DEDUCTING COSTS FROM THE CLIENT’S DAMAGES

On the 20th September 2023 I am presenting a webinar looking at issues relating to the deduction of costs from the client’s damages in a personal injury claim.This webinar looks at the regulations and case law relating to the deduction of costs.  Booking details are available here.

THE CASE

The respondent solicitors had acted for the claimant in a personal injury case under the terms of a Conditional Fee Agreement.  The matter settled. The respondent retained some of the damages for the purpose of costs and then sent an account to the claimant together with the balance of the damages.  The claimant, some time later, sought an assessment of the costs.  The first issue to be determined was whether the claimant was out of time.

Costs Judge Rowley found that the claimant was out of time. That decision was reversed on appeal.  The solicitors further appealed to the Court of Appeal.

SECTION 70 OF THE SOLICITORS ACT 1974

1. 1. Section 70 of the Solicitors Act 1974 relevantly provides:

(1) Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed.

(2) Where no such application is made before the expiration of the period mentioned in subsection (1), then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the assessment), order –

(a) that the bill be assessed; and

(b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.

(3) Where an application under subsection (2) is made by the party chargeable with the bill –

(a) after the expiration of 12 months from the delivery of the bill, or

(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or

(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,

no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.

(4) The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.

THE SOLICITOR’S SUCCESSFUL APPEAL TO THE COURT OF APPEAL

The Court of Appeal carried out a detailed review of the legislation and the authorities.

1. 1. The only questions in this appeal concern, as we have said, what is required by section 70(4) to constitute “payment” and whether those requirements have been satisfied. In our judgment, the use of the phrase “settlement of the accounts” should no longer be used in this context. It is not a phrase that is used in section 70. Its meaning is unclear, and its origin lies in cases in which there was no written contract of retainer. Nowadays, solicitors and clients normally enter into a written contract of retainer, and in some cases they are legally required to do so.

1. 1. The phrase used in the statute is “payment of the bill”. We agree with the view expressed in Hemming that the action of payment of a solicitor’s bill ought to be no different to the action of payment of any other bill. We are content to adopt the meaning proposed by Aldous LJ in Gough, namely that payment for the purposes of section 70 is a transfer of money (or its equivalent) in satisfaction of a bill with the knowledge and consent of the payer.

1. 1. In order for a transfer of money to be in satisfaction of a bill, there must be a bill to be satisfied. A “bill” in this context means a bill that complies with the requirements of section 69. The delivery of a compliant bill will give the client the necessary knowledge. The requirement of consent does not, in our view, require that consent be given after the delivery of the bill, if the client has already validly authorised the solicitor to recoup his fees by deduction from funds in his hands. What the client needs to consent to, in order for payment to take place, is “the transfer of money”, not necessarily the precise amount to be transferred. We reject the submission that the client must agree to a deduction quantified in pounds and pence. It is the process of assessment that fixes the precise amount that the client is required to pay.

1. 1. The statute itself lays down the timetable, which is triggered by the delivery of a compliant bill. It is wrong in principle for judge-made law to qualify that timetable by the introduction of such indeterminate concepts as “a reasonable time” after delivery of a compliant bill. Either payment has taken place, or it has not.

1. 1. It must not be forgotten that, even if money has been transferred with the consent or authority of the client, the client still has the right to challenge the precise amount through the medium of section 70, subject to the time limits laid down in the statutory timetable. That right exists whether or not the client has agreed the precise amount, whether before or after the transfer.

1. 1. Whether the client has authorised the solicitor to recoup fees by way of a deduction from funds in hand is a question of interpretation of the written contract of retainer. In our judgment it is clear that the CFA in this case, and its accompanying documents, specifically authorised the Solicitors to recoup their fees out of the Client’s compensation, up to a maximum of 25% of that compensation. Payment of the bill took place when, after delivery of the bill, the Solicitors made that deduction. It follows, in our view, that payment of the bill took place more than one year before the bill was challenged and that, consequently, the court’s power of assessment was barred by section 70(4).

Conclusions

1. 1. For the reasons we have given, we allow the appeal from the judge’s decision, and restore the decision of Costs Judge Rowley.

1. This court has previously said in Belsner that the 1974 Act, the wording of which has barely changed in many relevant respects since the Solicitors Act 1843, is in need of reconsideration. We repeat that view. The world of 2023 is a far cry from the early days of Queen Victoria’s reign. The balance between the protection of consumers on the one hand and certainty on the other needs to be re-evaluated in order to produce a system fit for the current century.