Supreme Court: Long-established principle
Solicitors cannot deduct their costs from a client’s damages without their agreement to the precise amount, the Supreme Court ruled today.
It overturned the Court of Appeal’s decision that, where the client had agreed to their solicitor deducting costs, the time to challenge them runs from the time the deduction was made, without the client having to agree the exact amount.
Lord Hamblen, giving the unanimous ruling of the court, rejected the argument that his interpretation of the Solicitors Act 1974 would cause law firms practical difficulties.
Oakwood Solicitors Ltd v Menzies [2024] UKSC 34 concerned when time began running for the purposes of seeking an assessment of costs.
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.”
In the case, 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 damages, the amount capped at 25% of the compensation.
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 – represented by Leeds firm JG Solicitors – only challenged the deduction two years later. Under section 70(4) of the 1974 Act, the power to order assessment is not exercisable more than 12 months after “the payment of the bill”.
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 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.
Lord Hamblen stressed that delivery to the client of a bill complying with the statutory requirements was integral to the statutory scheme.
“This emphasis on delivery highlights that the detail of the bill delivered, and the opportunity for the client to consider that detail, is of central importance.”
Client protection would otherwise be “diminished”, he went on.
This was backed by a review of the authorities, which 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.”
The law firm’s counsel, Erica Bedford, argued that such a requirement “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 “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”.
James Green, managing director of JG Solicitors, 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.”
Jack Ridgway, chair of the Association of Costs Lawyers, said: “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.”
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