Supreme Court overturns Court of Appeal on when time starts running for assessment
Payment of a solicitor’s bill by deduction from the client’s damages only sets the clock running to apply for detailed assessment if the client has agreed the precise amount, the Supreme Court ruled yesterday.
It overturned the decision of the Court of Appeal last year that the time started running on deduction and that the client did not need to have agreed to a deduction quantified in pounds and pence.
Lord Hamblen, giving the unanimous ruling of the court, said: “Client protection is diminished if payment occurs before there is any opportunity to consider the bill of costs and whether and, if so, to what extent, it should be paid.”
The substantive case in Oakwood Solicitors Ltd v Menzies [2024] UKSC 34 was a personal injury claim that settled for £275,000. The conditional fee agreement expressly authorised the solicitors to recoup their 25% success fee out of the client’s compensation, the amount capped at 25% of the damages.
After costs were negotiated, this amounted to £35,711, the firm having recovered £38,000 from the defendants. The firm sent a final statute bill on the same day as it deducted its fees.
The client only challenged the deduction two years later. Under section 70(4) of the 1974 Solicitors Act, the power to order assessment is not exercisable more than 12 months after “payment” of the bill. The question was what constituted payment.
At first instance, Costs Judge Rowley held that the application for an assessment was barred by section 70(4). He said the communications between the client and solicitors at the time of settlement provided the client’s agreement to the deduction and so the deduction was the point at which payment was made.
On first appeal, Mr Justice Bourne disagreed, saying there had to be a ‘settlement of account’ between the parties, “rather than a mere statement of account”.
Overturning this, the Court of Appeal – led by the Master of the Rolls, Sir Geoffrey Vos – said that what the client needed to consent to, in order for payment to take place, was the transfer of money, not necessarily the precise amount to be transferred.
Oakwood’s case before the Supreme Court was that the requirement for payment was satisfied where the retainer allowed the solicitor to take their fees by way of a deduction from sums held on client account and the amount of that deduction was communicated to the client in a compliant bill of costs – this could happen simultaneously.
Lord Hamblen said: “The right to seek assessment, and any assessment carried out by the court, involves a dispute as to the amount of costs claimed and is directed at the specifics of the bill of costs. That being so, it would be surprising if payment was to occur without there being any opportunity for the client to consider the detail of the bill of costs and to decide whether and to what extent it should be paid.”
Further, the emphasis on delivery of the bill “highlights that the detail of the bill delivered, and the opportunity for the client to consider that detail, is of central importance”.
Section 70, he went on, “envisages payment after delivery of the bill of costs and therefore not by virtue of the delivery of the bill”.
The authorities provided “further strong support” for the client’s position, he went on. They showed “a long established understanding” that there needed to be a settlement of account.
“This requires an agreement to the sum taken or to be taken by way of payment of the bill of costs… The authorities therefore provide strong support for the client’s case of the need for an agreement as to the amount to be paid in respect of the bill of costs and that mere delivery of the bill does not suffice.”
Lord Hamblen referenced the Court of Appeal’s comment that the phrase ‘settlement of account’ was not in section 70(4) and should no longer be used in this context.
He said: “It nevertheless informs what is meant by ‘payment’ in this context. It may equally be said that section 70(4) does not refer to knowledge of the bill of costs and consent to the transfer of money, which is what the Court of Appeal held ‘payment’ to mean.”
The law firm’s counsel, Erica Bedford, argued that requiring consent to the precise amount “would have serious practical repercussions for solicitors’ practice management”, and allow “a recalcitrant client” to frustrate and delay paying their bill.
She submitted that it was “no answer to say that solicitors are entitled to seek assessment of their own bills since assessment is a protracted and expensive business and disproportionate for smaller bills”.
Lord Hamblen said these concerns were persuasively put but were “overstated and in any event cannot dictate the proper interpretation of ‘payment’ in this context”. He itemised six counter-arguments.
First, there was “no reason why there cannot be prospective agreement as to some or all of the costs to be charged” through a fixed fee or by fixing costs through a mathematical formula.
“In the present case, there was a mathematical formula but only as a cap on costs as opposed to their quantification.”
Second, there was no evidence that the requirement for a settlement of account has caused “real practical difficulty or led to calls for the legislation to be changed”.
Third, given the ease of communication with clients nowadays, “it should be easier to secure such agreement or acceptance as may be required”.
Fourth, it was open to solicitors to agree terms with their client “that will assist in establishing acceptance of and agreement to the bill”.
Fifthly, although assessment “may be protracted and expensive, the client has a right to insist on assessment in all cases during the first month after delivery of the bill and in many cases thereafter. A solicitor may therefore be faced with the need for an assessment in any event”.
Finally, if there was an assessment, the solicitor would be able to claim their costs if successful – “if the client does not engage, the assessment is likely to be an abbreviated process which will confirm the quantum of the bill and prevent any subsequent challenge by the client”.
Lord Hamblen allowed the appeal and restored Bourne J’s order.
James Green, managing director of JG Solicitors, which represents Mr Menzies, said: “This judgment provides the vital clarity we have been seeking for both clients and solicitors on this issue. This is a victory for consumer rights, and I’m delighted to see my client get justice in the Supreme Court.”
ACL chair Jack Ridgway commented: “Whatever your opinion on the outcome, it is good that the Supreme Court has provided clarity… Many law firms will now need to revise their retainers to ensure they still receive prompt payment while complying with the ruling. I’m sure they will quickly adapt.
“It is, however, disappointing that the Supreme Court did not join the Court of Appeal’s call for the Solicitors Act 1974 to be updated – there is unanimous agreement across the costs world that the costs provisions are not fit for purpose in the modern era.”
Roger Mallalieu KC and Gemma McGungle (instructed by JG Solicitors) for the appellant. Craig Ralph and Erica Bedford (instructed by Oakwood Solicitors) for the respondent.