Oakwood v Menzies: Cause for (not too much) Concern

The decision of the Supreme Court in Oakwood v Menzies will have a direct and immediate impact on what solicitors should now do when billing clients for the purpose of the Solicitors Act 1974.

At the point a statute bill – being one which complies with the 1974 Act as opposed a mere invoice/request for payment – is raised then certain consequences under the Act are triggered. After one month has passed from delivery of the bill to the client, the consequences imposed upon the client by the Act turn on whether the statute bill has, in fact, been paid by the client. The stricter consequences apply to clients who have paid a statute bill such that a court seized with application for assessment by the client made –

• After one month but before 12 months of delivery of the bill: will only make an order for assessment if ‘special circumstances’ are established; and
• After 12 months of delivery of the bill: has no power to order an assessment

Whether a statute bill has been paid for the purposes of the Act is therefore a matter of fundamental import insofar as limitation periods and the discretion of the court is concerned.

Background

In Menzies the client had retained the services of the solicitor under a typical CFA which provided for a success fee set at 25% of basic charges – and moreover, a cap on the client’s overall liability for all costs set at 25% of the damages received (net of costs recovered inter partes). There is nothing in the judgment to suggest that the CFA was in any way unenforceable.

Under the terms of the CFA and further to the settlement of the client’s claim for damages in the sum of £275,000 gross of CRU, Oakwood Solicitors retained the sum of £58,632.70 from those damages in their client account and thereafter transferred £25,000 to their office account.

The solicitor’s total fees (net of court fee due to a fee remission) were stated to be £73,711.20 and costs between the parties were settled for £38,000. The solicitors paid out to the client the sum of £22,629.09, which was said to be the difference between the sum retained (£58,632.79) and the sum now stated to be the shortfall, i.e. £73,711.20 minus £38,000, being £35,711.20.

A final statute bill dated 11 July 2019 was delivered to the client confirming the total fees and stating that: ‘unless otherwise stated in the covering letter, the total charge has been deducted from the damages, as agreed’. It was a term of the CFA that damages recovered could be applied to costs.

On 1 April 2021, Mr Menzies sought an order for assessment of the solicitor’s costs on the basis that he had not yet paid the bill for the purposes of the Act. Oakwood Solicitors resisted the making of an Order on the premise that the court had no discretion; Mr Menzies was effectively statute-barred under the Act as he had, over 12 months ago, paid the statute bill at the point of delivery of the bill (the monies have already been deducted by the time the same was delivered).

Oakwood Solicitors prevailed at first instance, lost on appeal to the High Court and succeeded in the Court of Appeal essentially on the basis that a prior contractual agreement to deduct and apply damages to costs was sufficient to meet the requirements of payment under the Act.

Judgment

A five-panel Supreme Court unanimously held that there had been no payment under the Act. Thus Mr Menzies was entitled to an order for assessment (providing he could demonstrate ‘special circumstances’).

In ruling against Oakwood Solicitors on the issue of how, and when, payment takes place, Lord Hamblen held –

A prior agreement between solicitor and client that the client will pay monies generally on account of costs, or that the client agrees in principle to the solicitor deducting monies to pay costs from monies held on behalf of the client, and then the use by the solicitor of such monies to pay a particular bill without seeking the client’s agreement to the amount to be paid in respect of that bill, is not payment of the bill for the purposes of section 70.

Section 70 was designed to afford clients a degree of protection by giving them the opportunity to consider a bill before making payment against it. The approach taken by Oakwood Solicitors was thus contrary to s. 70 in that the client was not afforded that opportunity. Such reasoning was in keeping with the provision that a solicitor is unable to bring a claim for costs against a client until a bill has first been delivered; even post-delivery there exists for one month an unconditional right for a client to seek an assessment of costs.

The Supreme Court also directed their attention to a number of Victoria-era cases which emphasised that there must be a ‘settlement of account’ for there to be payment for the purposes of the Act, i.e. an agreement to the sum to be taken by way of payment for the delivered bill. Said the Court –

In summary, the authorities show a long-established understanding as to what payment by deduction or retention requires in this context both generally and with specific reference to section 70 and its statutory predecessors. The need for a settlement of account has been consistently stated in cases from In re Bignold in 1845 to Harrison v Tew in 1987. This requires an agreement to the sum taken or to be taken by way of payment of the bill of costs. [T]he 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.

Mr Menzies was not therefore barred from seeking an Order for assessment.

Implications

It is important that solicitors do not lose sight of what was determined by the Supreme Court, which was basically a point on limitation. Simply because a client is able to exercise a statutory right in respect of a statute bill which a solicitor had thought had been put to bed a good long while ago does not i. mean that the court will exercise its discretion for reason that ‘special circumstances’ will still need to be shown if more than 12 months have passed since delivery; and ii. even if an order for assessment is made, costs are assessed on the indemnity basis with adverse costs almost invariably to follow if the former client does not overcome the 20% rule.

The greater focus should be made on best practice moving forward. In order to avail themselves of the protections afforded under s. 70 of the Act, solicitors must now obtain the client’s agreement as to the amount taken, or to be taken, by way of payment towards the statute bill. The absence of such an agreement now means that, ordinarily, a solicitor will need to request an order for an assessment of his costs as soon as one calendar month from delivery of the bill has passed.

Please contact Christopher McClure to discuss any query relating to this article. Christopher is based at our Manchester office and can be contacted on 0161 835 4087.