s70 Solicitors Act 1970 | What Amounts To “Payment” When Transferring Client Funds

Full Summary

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The case of Menzies v. Oakwood Solicitors revolved around the interpretation of s70 Solicitors Act 1974.

The client, Mr. Menzies, had engaged Oakwood Solicitors to represent him in a personal injury claim following a road traffic accident. The solicitors operated under a Conditional Fee Agreement (CFA), which stipulated that the client would pay the solicitors’ basic charges, disbursements, and a success fee out of his compensation. The success fee was capped at 25% of the damages awarded.

Chronology of relevant events

• On 29 November 2015, Mr Menzies suffered serious injuries in a road traffic accident. He instructed Oakwood Solicitors to act for him to pursue a claim for damages for personal injury against the other party involved in the accident.
• The parties entered into a Conditional Fee Agreement (CFA) which stipulated that if the client won his claim, he would pay the solicitors’ basic charges, disbursements, and a success fee out of his compensation. The success fee was capped at 25% of the damages awarded.
• The CFA included terms by which the client agreed in advance to the deduction of the solicitors’ fees, as follows:

“You agree to pay into a designated account any cheque received by you or by us from your opponent and made payable to you. Out of the money, you agree to let us take the balance of the basic charges; success fee; insurance premium; our remaining disbursements; and VAT. You take the rest.”

• On 1 March 2019, the solicitors put to the client an offer made by the defendant to settle the claim for a global sum of £275,000. The solicitors advised the client to continue with the claim. However, the client decided to accept the offer.
• On 18 March 2019, the solicitors received the balance of the Client’s damages totalling £210,004.85, net of £39,995.15 paid to the Compensation Recovery Unit (CRU) and interim payments of £25,000.
• On 18 April 2019, the solicitors sent the client an interim statutory bill showing their total costs and informed the client that they would retain 25% of his damages on account pending conclusion of the negotiations with the defendant.
• In June 2019, recoverable costs were ultimately agreed with the defendant at £38,000.
• On 11 July 2019, the solicitors sent the client a final statutory bill. The accompanying letter clarified that the sum claimed (£35,711.20) was less than 25% of the damages.
• The rubric at the end of the bill itself stated that:

“unless otherwise stated in the covering letter, the total charge has been deducted from your damages, as agreed.”

• The client did not challenge the bill at this time.
• However, he did challenge it on 1 April 2021, nearly 2 years later.

The client said that he did not question the bill at the time as he had just placed his trust in the solicitors “that they had worked out the payments that were due to be paid to me appropriately“.

Issue to be decided by the court

The issue to be decided by the court was whether the bill was paid before 1 April 2020 (i.e., one year before the proceedings were issued), as per section 70(4) of the Solicitors Act 1974. If the bill was paid before that date, then the court’s power to assess the bill was precluded by section 70(4).

The decisions of Costs Judge Rowley and the judge on the first appeal

Costs Judge Rowley held that the application for an assessment was barred by section 70(4). His essential reason was that the communications between the Client and the Solicitors at the time of settlement provided the Client’s agreement to the payment of the Solicitors’ bills in a sum up to 25% of the compensation received from the defendant.

The client appealed against that decision and the judge, sitting with Master Brown as an assessor, allowed the appeal. Having considered a number of authorities, he set out the principles of law that he derived from them. The relevant one for present purposes was as follows at [25(ii)]:

“Retainer by a solicitor of his costs out of money in his hands belonging to the client can amount to a “payment” under the legislation, but only if there has been a settlement of account between the parties …”

Applying that principle, he said at [34] that what was missing here was “a settlement of account rather than a mere statement of account”. He accepted that a client could not prevent payment from occurring simply by ignoring the solicitor’s bill. He considered that it would be possible for a solicitor to give the client a reasonable time in which to notify any dispute, after which agreement could be assumed if there were no reply. But he held that the Solicitors’ letter of 11 July 2019 was not clear enough for that purpose, because it did not clearly identify that the Client had a choice between declining to agree the deduction or agreeing to the deduction.

The Judge concluded at [41]:

“On the facts of this case, I therefore conclude that [the Solicitors] did not inform [the Client] with sufficient clarity that he could object to the deduction with[in] a reasonable time, failing which it would be taken to be agreed subject to his statutory assessment rights.”

The Solicitors appealed.

Parties’ respective positions and arguments

The solicitors’ position was that the deduction of their fees from the settlement monies they held in their client account constituted “payment” for the purposes of the provisions in section 70 of the Act, which restricts the time within which there can be a court assessment of their bill. Therefore, the client was barred by section 70(4) from seeking an assessment of the bill when he started proceedings in 2021, as the bill had been paid (within the meaning of section 70(4)) before 1 April 2020.

The client argued that “payment” of the Solicitors’ costs for the purposes of section 70(4) can only take place when there has been “a settlement of account between the parties”. On the facts of this case, the client contends that there was no “settlement of account” between him and the solicitors, so it was open to him to seek an assessment notwithstanding the delay between the deduction of the costs and the commencement of these proceedings.

The client’s position was, in effect, that solicitors must get their clients’ express consent to the precise amount of the bill they seek to deduct before that deduction will amount to “payment” so as to start time running for an assessment application under section 70

SIR GEOFFREY VOS, MASTER OF THE ROLLS, LORD JUSTICE LEWISON, AND LADY JUSTICE SIMLER:

“This is another case, following the recent decisions of this court in Belsner v. Cam Legal Services Ltd [2022] EWCA Civ 1387, [2023] 1 WLR 1043 (Belsner) and Karatysz v. SGI Legal LLP [2022] EWCA Civ 1388, [2023] 1 WLR 1071 (Karatysz), which, in our view, highlights the inadequacy of the 1974 Act for the purposes of regulating the relationship between solicitors and clients in relation to the costs of modern personal injury disputes. The 1974 Act restricts the time during which clients can seek court assessments of their solicitors’ bills. There are, of course, regulatory requirements outside the 1974 Act, but this case highlights (as did Belsner and Karatysz) that it is for consideration whether there should be further and more up-to-date statutory safeguards to protect clients in relation to the charging and payment of solicitors’ fees.”

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. 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.