Menzies v Oakwood Solicitors Ltd [2022] EWHC 3199 (KB)
Just when we thought we were done for the year (and what a year it has been for Solicitor own Client cases!) another case turns up.
This case centred around an Appeal over the issue of whether a client was out of time to challenge Solicitor’s fees.
To give some background, the Solicitors had acted under a Conditional Fee Agreement in respect of a personal injury matter. The case settled, and the Solicitor retained (not unusually) some of the damages for the purposes of costs. An account was then sent to the Client with the balance of the damages and the Client then sought an assessment of the costs. So far so good, however, the first issue that arose was in respect of timing and whether the Client was out of time to raise an issue in respect of those costs.
In this case, the chronology of events is important. Following settlement being reached , as mentioned, sums were retained to cover the potential shortfall in costs.
On 18 April 2019 the Solicitors wrote to the Client, enclosing an “Interim Statute Bill” showing their total costs, an “Opponent Bill of Costs” showing the amounts potentially recoverable from the Defendant and a “Claimant Bill” showing non-recoverable costs of £2,797.20.
The Claimant Bill included the ATE insurance premium of £2,167.20. However, the Solicitor’s letter gave a potentially confusing indication that the premium – which was said to be £1,921.73 – was in addition to the Claimant Bill.
The Solicitors explained that the amount payable by the Defendant for costs was usually determined by negotiation. He said that if the Client did not indicate to the contrary within 7 days, he would assume that he was authorised to negotiate an agreement with the Defendant as to costs. There was no response from the Client.
The Solicitor’s letter also stated that the firm would retain 25% of the damages on account pending conclusion of negotiations, and that it would pay the ATE insurance of £1,921.73 from the sum retained.
The Interim Statute Bill showed that the total costs were £83,711.20. That included a £10,000 court fee in respect of which the Client was entitled to fee remission, leaving a net total of £73,711.20.
The Solicitors then negotiated a settlement of the costs recoverable from the Defendant. The sum recovered was only £38,000. That left a shortfall of £35,711.20. When that sum was deducted from the figure of £58,340.29 for the sum retained by the Solicitor, a balance of £22,629.09 was owing to the Client.
The Solicitors returned that sum to the Client on 11 July 2019.
On the same date, the Solicitor sent the Client a further letter, enclosing a further bill headed Final Statute Bill. That document reproduced the figures from the Interim Statute Bill but also deducted the £10,000 court fee and showed a credit for the £38,000 received from the Defendant. It identified the shortfall of £35,711.20 and then gave a figure for fees retained which, excluding the ATE premium, totalled £58,340.29. Subtracting the shortfall from the sum retained, it arrived at the total of £22,629.09 to be returned to the Client.
During the case, the Client said in evidence that he was confused about the basis for this repayment and had thought the agreement was that his Solicitors would take 25% of his compensation. He trusted them to have worked out the payment sum correctly. He also experienced health problems and was then preoccupied by family matters, and did not challenge the calculation at that time.
However, on 1 April 2021, more than 21 months later and now represented by new solicitors, he commenced proceedings against the Solicitors seeking an assessment of the Final Statute Bill.
Initially, Master Rowley had found that the Client was time barred which on first blush would make complete sense. He ruled that the claim was barred by section 70(4) of the 1974 Act because it had been brought more than 12 months after payment of the bill.
However, on appeal this was overturned, the reasons for which are important for practitioners to consider and take on board in terms of practical and procedural issues.
Counsel for the Client had referred the Costs Judge to Re Ingle (1855) 25 L.J.Ch. 169 for the proposition that payment from monies retained must occur by agreement and “on the settlement of accounts between [the client] and his solicitor.” Counsel submitted that in the present case the Solicitors had not proved an agreement for it to take payment by retaining a specific sum. However, the Costs Judge referred to the CFA, the surrounding correspondence and the Client’s witness evidence, which showed that the Client expected (incorrectly) to pay 25% of his compensation.
In short, Master Rowley held that payment took place at the time of the settlement correspondence by way of a pre-authorised deduction from the money held by the Respondent.
However, because the section 70 time limits relate to an application for assessment of a bill of costs, there can be no “payment” for this purpose until a bill of costs is delivered: see In re Street (1870) L. R. 10 Eq. 165 per Lord Romilly MR at 167, as applied in Re Foster [1920] 3 KB 306.
However, if payment is made before the bill is delivered, subsequent delivery of the bill can then cause time to run for the purposes of section 70. In Re Thompson [1894] 1 QB 462, a client agreed in writing that a sum paid by him to the solicitor could be taken as payment of an agreed sum for his costs, and the solicitor then delivered a written cash account showing the respective debit and credit sums. This was held to be a “payment” for the purposes of section 41 of the Act of 1843 because (per Pollock B at 465) it was “payment followed by the delivery of a bill of costs to which the payment could be referred”.
On Appeal , it was felt that what was missing was a settlement of account rather than a mere statement of account.
The account was stated by the Solicitors in the Final Statute Bill and the covering letter of 11 July 2019.
Payment by retention of money from damages had been authorised in principle by the CFA. However, the Solicitors now needed to obtain the Client’s agreement to payment of the actual shortfall of £35,711.20 in order to demonstrate that the account was settled. If the Client had objected to that sum, settlement of account could not have been said to have occurred.
In that situation, the Court did not consider that the Client could prevent payment from occurring simply by ignoring the Respondent’s bill and letter. It was said that it must be possible for a Solicitor to give a client a reasonable time in which to notify any dispute, after which agreement can be assumed if there is no reply.
The problem in this particular case was the terms in which the Solicitor expressed the position. In the letter of 11 July 2019 the Solicitors wrote:
“If you wish to challenge the deduction sought from your damages in relation to costs, you have 30 days from receipt of this letter to file your complaint. A copy of our Complaints Procedure is available upon request. You have the right to have your charges reviewed by the Court. This is called “assessment”. The procedure is set out in s.70, 71 and 72 of the Solicitors Act 1974.”
That paragraph did not clearly identify that the Client had a choice between (1) declining to agree the deduction, in which case the Solicitor might apply for its own bill to be assessed, and (2) agreeing to the deduction, in which case the Client could still apply for assessment of the bill if he wished.
On the contrary, the letter introduced the separate topic of the Solicitor’s complaints procedure. It stated or at least implied that the Client could not challenge the deduction without resorting to that procedure, which was contained in an external document not in the Client’s possession. The paragraph also appeared to elide that process with the option of assessment under the 1974 Act, not making clear that the two were separate.
On the facts of this case, it was therefore concluded that the Solicitor did not inform the Client with sufficient clarity that he could object to the deduction with a reasonable time, failing which it would be taken to be agreed subject to his statutory assessment rights.
In those circumstances it was concluded that payment was not effected by a settlement of account. The appeal was therefore allowed.
So what can we take from this?
The Court have set out in the Judgment that it should be clearly identified to the Client that they have a choice regarding the position in respect of the deductions and that the choice should be set out to the Client appropriately along with their options. That is not to say that the Solicitor should have to wait an inordinate amount of time for a response or engagement, quite often once Clients have obtained their compensation, engagement with their Solicitor decreases dramatically. However, the Solicitor should give the Client a reasonable time in which to notify any dispute, after which agreement can be assumed if there is no reply. However, this must go hand in hand with the fact that the Client has to be made fully aware of their options.