No Modern Authority

14 December 2022

A High Court Judge heard an appeal with the assistance of an expert assessor on a point which may arise in many cases upon which there is no modern authority which clearly answers the question: Menzies v Oakwood Solicitors Ltd [2022] EWHC 3199 (KB) Bourne J; Master Brown

The Appellant’s solicitor held monies received from the other party to a claim brought by the Appellant, calculated what sum was owed to him for his costs bill and then reimbursed the balance to the Appellant. The question was whether and when there was a payment within the meaning of section 70(4) of the Solicitors Act 1974. A costs judge had ruled that the Appellant’s application for detailed assessment of costs was time-barred because it was made more than one year after the relevant costs had been paid.

The Respondent was instructed to act for the Appellant who had suffered serious injuries in a road traffic accident, and they entered into a conditional fee agreement (CFA).  The CFA set the success fee as 25% of basic charges. It also referred to an attached document “What You Need to Know” which was said to form part of the agreement. It added, amongst other things “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.”

In due course the Appellant accepted an offer from the Defendant plus reasonable costs. The money initially remained in the Respondent’s client account. It seems from that retained sum was taken £25,000 which was transferred into the Respondent’s Office Account. It does not appear that the Appellant was told about the transfer.

The Respondent later wrote to the Appellant enclosing an “Interim Statute Bill”, negotiations took place between the parties over the final costs, and later a Final Statute Bill was sent to the Appellant.

The Appellant’s evidence was that he was confused about the basis for his repayment as he thought the agreement was that his solicitors would take 25% of his compensation. He trusted them to have worked out the sum correctly. He also experienced health problems and was then preoccupied by family matters and did not challenge the calculation at the time.

More than 21 months later and represented by new solicitors, the Appellant commenced proceedings against the Respondent seeking an assessment of the Final Statute Bill. A costs judge ruled that the claim was barred by section 70(4) because it had been brought more than 12 months after payment of the bill.

In the court’s judgment, on the facts of the case, the retention of monies by the Respondent did not amount to a payment by the Appellant for the purpose of section 70(4) because there was no sufficient settlement of account between them. His Lordship reached that conclusion with due deference to the experience and expertise of the costs judge who gave a careful and detailed judgment, but it seemed that the concept of “settlement of account” may not have been fully explored before him.

The problem was not that the retention pre-dated delivery of the Final Statute Bill. Applying Re Thompson [1894] 1 QB 462, payment could be followed by delivery of a bill to which it could be referred. Nor was retention prevented from amounting to payment by a failure to comply with the Solicitors Accounts Rules. A breach of those rules might have regulatory or other consequences, but it seemed that the failure to give the Appellant written notice of a transfer of money to Office Account was eventually remedied.

What was missing, in the court’s judgment, was a settlement of account rather than a mere statement of account. The account was stated by the Respondent in the Final Statute Bill and covering letter of 11 July 2019. Payment by retention of money from damages had been authorised in principle by the CFA. The Respondent now needed to obtain the Appellant’s agreement to payment of the actual shortfall in order to demonstrate that the account was settled. If the Appellant had objected to that sum, settlement of account could not have been said to have occurred.

The problem was with the terms in which the solicitor expressed the position. In his letter of 11 July 2019 he said: “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 Appellant had a choice between (1) declining to agree the deduction, in which case the Respondent might apply for its own bill to be assessed, and (2) agreeing to the deduction, in which case the Appellant could still apply for assessment of the bill if he wished.

On the contrary, the letter introduced the separate topic of the Respondent’s complaints procedure which at least implied that the Appellant could not challenge the deduction without resorting to that procedure which was contained in an external document not in the Appellant’s possession.

On the facts, the Respondent did not inform the Appellant with sufficient clarity that he could object to the deduction within a reasonable time. Accordingly, payment was not effected by a settlement of account and the appeal was allowed.