By Sean Linley, Senior Costs Draftsman 
 
There has been significant interest in the Supreme Court's decision in Oakwood Solicitors v Menzies [2024] UKSC 34 and more specifically what it means for practitioners. It is undoubtedly a complex and technical decision, this article seeks to address what the issues were and the prospective impact. 
 
Speed Read 
 
The Supreme Court has overturned the Court of Appeal, finding that agreement (or a 'settlement of account') to a deduction by solicitor must be obtained to enable 'payment' as defined by Section 70 of the Solicitors Act 1974. This has implications around the statutory time limits and rights of clients when seeking to raise challenges in relation to a solicitors charges. A general agreement permitting deductions is not sufficient. 
 
Payment (as defined within the Act) can only occur after a compliant bill has been delivered. This affords the client with an opportunity to query the same, should they wish to do so. 
 
The upshot in the case at hand is that the client will now be able to seek a solicitor own client assessment. 
 
The decision will carry a number of practical implications for solicitors and consideration should be given to retainer terms and billing practices to ensure the same are consistent with the conclusions of the Supreme Court. 
 
 
What is the case about? 
 
The substantive proceedings relating to an RTA claim which was funded by way of a CFA. The agreement permitted Oakwood Solicitors to deduct a payment for their basic charges, disbursements and a success fee set at 25% of basic charges. It was agreed that the total amount of those sums would be capped at 25%. It is not an unusual term in personal injury claims. 
 
The CFA provided that from the damages received the Claimant agrees "to let us [Oakwood Solicitors] take the balance of the basic charges; success fee; insurance premium; our remaining disbursements; and VAT. You take the rest." 
 
Upon settlement of the case the solicitors retained what equated to around 25% from the damages. The Claimant was provided with what was described as an interim statute bill and "an "Opponent Bill of Costs" showing the amounts potentially recoverable from the defendant and a "Claimant Bill" showing non-recoverable costs of £2,797.20". It was explained the recoverable costs from the Defendant would be negotiated between the parties. 
 
An agreement was reached with the Defendant on costs and the shortfall was recalculated. The difference between the sums originally retained and the shortfall were paid to the client. On the same date a final statute invoice was sent to the client reflecting the purportedly final figures. It was stated in the bill that: "unless otherwise stated in the covering letter, the total charge has been deducted from your damages, as agreed". 
 
The client wished to have a Solicitor Own Client assessment of the fees of Oakwood Solicitors. This set the stage for the litigation that followed. What is important to note is that the final invoice was dated 11 July 2019 with the application for a Solicitor Own Client mistake not made until 1 April 2021. 
 
 
The Legal Background 
 
Where a client wishes to dispute the fees of a solicitor they have a right to apply to the court for assessment of their solicitor's fees. This process is governed by the Solicitors Act 1974. 
 
The scheme allows a client a period of one month from the bill delivery to request assessment. Crucially where an assessment is requested no action can be commenced on the bill until after the assessment. After the one month period, a client has until 12 months from delivery of the bill to apply for assessment which the court may order subject to any terms it wishes. After 12 months have passed a solicitor own client assessment can only be made if there are "special circumstances" 
 
A question often asked is what constitutes special circumstances? In Falmouth House Freehold Co Ltd v Morgan Walker LLP [2010] EWHC 3092 (ch) the court sought to answer this: 
 
“Whether special circumstances exist is essentially a value judgment. It depends on comparing the particular case with the run of the mill case, in order to decide whether a detailed assessment in the particular case is justified despite the restrictions contained in s 70(3)” 
 
Returning back to to the central point, the assessment regime differs where there has already been payment of a bill. In this scenario if an assessment after the initial one month period but before expiry of the 12 month period there will be no order for assessment unless there are special circumstances whilst after 12 months have expired from payment no assessment can be made. 
 
So to tie it all together the question was whether the retention of damages and purported payment taken by Oakwood Solicitors constituted a payment as it would directly impact what rights the client would have to challenge those fees. 
 
The judgment concisely summed up the contrasting views of the parties: 
 
"The appellant contends that, as Bourne J held, it requires that the client should have been informed of and have provided agreement to the specific amount in respect of which payment is to be made pursuant to the bill. 
 
The respondent contends that, as the Court of Appeal held, all that is required is an agreement with the client that fees may be deducted from monies held to the client's account and delivery to the client of a bill setting out the amount of those fees. No further agreement is required." 
 
 
The Supreme Court's Considerations 
 
The Supreme Court considered the respective arguments and specifically the meaning of 'payment' in the context of the Solicitors Act 1974. 
 
It was stated that: 
 
"Payment carried out by delivery of a bill of costs rather than a transfer of money does not accord with the natural meaning of payment." 
 
Further it was said that: 
 
"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." 
 
The Supreme Court went further making clear that as a client cannot bring any action until the bill had been delivered, the actual delivery of the bill was an important step. Further they said that section 70 of the 1974 Act was based on the premise that payment of a bill would be made after delivery and not by virtue of delivery of the bill. 
 
The Court took the view that the requirement of the delivery of a bill, the need for the bill to comply with the statutory conditions and the right to have them assessed were all for the protection of the client or consumer and these protections were diminished if payment occurs before a solicitor's charges can be considered. 
 
In its judgment the Supreme Court stated that: 
 
"[...] Given the growing prevalence of retainer agreements, if delivery of the bill could itself constitute payment there would, however, be increasingly few cases where these rights would be available. In very many cases the stricter regime which applies where there has been payment would govern. 
 
As to the specific purpose of section 70(4), the obvious reason for the stricter regime that applies where the bill has been paid is that payment by a client of a particular bill is taken to represent acceptance and agreement by the client to the sums claimed in that particular bill. Where there is such acceptance and agreement it is understandable that the client's right to an assessment should be restricted. On the Solicitors' case, however, payment may occur without there being any opportunity to consider the bill of costs, let alone to accept and agree to it." 
 
The judgment delves into something of a history lesson looking in some detail with consideration of authorities dating as far back as the 19th century. Thankfully the Supreme Court provide a summary: 
 
"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. Such an agreement may in an appropriate case be inferred from the parties' conduct and in particular from the client's acceptance of the balance claimed in the delivered bill. 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." 
 
 
Practical Considerations 
 
Oakwood Solicitors sought to raise concerns over the practical implications of finding in favour of the client. 
 
They expressed concerns that "any requirement that there be agreement as to the amount of the retention or deduction to be made in respect of a delivered bill would have serious practical repercussions for solicitors' practice management in modern conditions." 
 
Erica Bedford, acting on behalf of Oakwood Solicitors, pointed to the fact "that solicitors are required to be upfront about the likely costs to be incurred and that it is good and usual practice to agree in advance the structure of fees to be charged and the mechanism by which those fees will be billed and paid. Such a prospective agreement accords with the professional obligations placed upon a solicitor and should be sufficient to justify payment by way of deduction from retained funds. 
 
If further agreement is required, then a recalcitrant client could frustrate and delay the payment of bills. It is 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." 
 
It was further contended that whilst the rights under the Solicitors Act 1974 were there to provide clients with protections they also existed to give solicitors finality. 
 
The Supreme Court ultimately held that these concerns were overstated. 
 
 
The Supreme Court's Decision 
 
The Supreme Court ultimately found in favour of the client over the solicitor meaning that Oakwood Solicitors charges will now have to be assessed, absent agreement. 
 
The view was reached on the basis of a multitude of reasons but in short: 
 
1. There was no reason why there could not be prospective agreement to some or all of the costs to be charged. It was suggested this could be done by agreeing a fixed fee or fixing costs through a formulae. In the case at hand there was a cap rather than quantification. 
 
2. The authorities reflect a need for an agreement and there was no evidence this would cause difficulty. 
 
3. Technology means it ought to be quicker and easier to get agreement. 
 
4. Solicitors may agree terms with a client that will assist in establishing acceptance of and agreement to a bill. 
 
5. Whilst assessments can be protracted and expensive, a client has this right so may face this anyway. 
 
6. The solicitor is entitled to its costs of a Solicitor Own Client Assessment if it is successful. 
 
7. If a client is non-cooperative or doesn't engage then the assessment would be "an abbreviated process" to confirm quantum of the bill and prevent subsequent challenge by the client with the court able to order costs of the process on the basis of a client's unreasonable refusal to engage or respond. 
 
It's clear that the conclusions of the Supreme Court will be consequential. 
 
How does this impact me? 
 
It is clear from the decision that practitioners will need to provide some form of settlement of account (such as a bill) and obtain agreement by return from the client to it. It is not enough to simply retain a right to an unspecified deduction within the retainer. 
 
That agreement is vital in triggering the statutory time limits within the Solicitors Act 1974 given payment cannot be said to have taken place without the client's agreement. If there is no agreement then any payment taken will not be treated as a payment at all under the Act which means a client may retain a right (if special circumstances can be demonstrated) to seek assessment of any fees. If a payment is made then that right is lost after 12 months after delivery of the bill. The distinction therefore is significant. 
 
It would be recommended to ensure that any bill sent to a client is firstly a proper statutory bill which gives details of both the recovery made from the paying party and the disbursements (including any ATE) which were paid for. This should sit alongside an explanation that the client needs to approve the bill so that the retention of damages can constitute payment. This would then be a "settlement of account - ie an agreement to the sum to be taken by way of payment for the delivered bill." Any explanation ought to detail the client's rights (including time limits for challenge under the Act) and the fact that the charges can be discussed should there be any issues. 
 
Where a proper explanation is given it will make it more difficult for special circumstances to be shown by a client in the context of a Solicitors Act 1974 S70 assessment. 
 
What is also clear from the Supreme Court judgment is that it is open to firms to agree a fixed fee for a deduction or a formulae for fixing costs, though clearly full considerations would have to be given so as to ensure the veracity of any CFA. There may also be practical difficulties with such an approach.  
 
In the immediacy practitioner's should consider their existing retainers and the terms around retention of funds and billing processes to ensure they are not inconsistent with the Supreme Court's decision.  
 
It is also sensible to set out any prospective deductions when advising upon any settlement offers received or to be made. A client who fully understands the implications of an offer are less likely to challenge deductions at conclusion or any prospective issues can be addressed at an early stage. At Carter Burnett we offer an Advanced Costs pre-order bill service which can assist in early quantification of charges particularly where a claim may be close to settlement. 
 
It's also worth restating that solicitor own client assessments are on an indemnity basis and this makes it more difficult for clients where they do raise challenges with any benefit of doubt resolved in favour of the receiving party i.e. the solicitor. 
 
If you face a non-responsive or non-cooperative client then the correct approach is to seek an abbreviated assessment, the costs of this process ought to be recoverable where there is an unreasonable refusal to engage. 
 
Undoubtedly the Legal Ombudsman may also have a role to play. Belsner made clear that the LeO may be a cheaper and more effective method for modest bills. Where an LeO decision is agreed then it may be binding upon the parties (see Olukoya v Riverbrooke Solicitors Ltd [2023] EWHC 2771 (SCCO)). 
 
Whether the decision gives rise to an increase in solicitor own client challenges remains to be seen. It's important to reflect that any increased challenges whether by the Legal Ombudsman or through a Solicitor Own Client Assessment does not necessarily equate to more successful challenges.. 
 
There remain questions around whether the Solicitors Act 1974 is fit for purpose and many voices are clamouring for reform. Whilst the Civil Justice Council is to report on the Act, the scope of the review is limited. There are no signs of any meaningful reforms in the near future so addressing the points raised by the Supreme Court is of the utmost importance.. 
 
If you have any concerns arising from the Supreme Court's decision then we are always happy to have a chat about what it might mean for you and the practical implications. You can give us a call on 01482 534567 or email info@carterburnett.co.uk for a friendly discussion with our experienced team. 
 
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