Menzies v Oakwood: requirement for specific agreement to transform retention of client monies into the payment of solicitors’ bills

In Menzies v Oakwood Solicitors [2024] UKSC 34, the Supreme Court considered the meaning of payment for the purposes of section 70(4) of the Solicitors Act 1974 (SA 1974). That question has considerable importance because of the limitation periods within SA 1974:

• Where a client has paid their solicitors’ bill before an application for an assessment is made, they must demonstrate the existence of special circumstances for an assessment to be ordered.
• Where the bill was paid more than 12 months before the application is made, the court has no jurisdiction to conduct an assessment under the SA 1974.

Menzies concerned whether the practice of payment by deduction constituted payment at all for the purposes of SA 1974. Payment by deduction occurs when solicitors send their client a bill and state that they will transfer money held by them in payment of their bill. The money held by them could be damages paid by the other side in litigation or sums that have been paid on account by the client during the course of the retainer.

The Court of Appeal held that payment by deduction was sufficient for the purposes of SA 1974 in light of the client’s agreement in principle to this by agreeing to instruct the solicitors under a retainer, the terms of which gave them authority to retain sums in satisfaction of their bills. The Court of Appeal held that payment under SA 1974 was “a transfer of money (or its equivalent) in satisfaction of a bill with the knowledge and consent of the payer” and that:

“The delivery of a compliant bill will give the client the necessary knowledge. The requirement of consent does not, in our view, require that consent be given after the delivery of the bill, if the client has already validly authorised the solicitor to recoup his fees by deduction from funds in his hands. What the client needs to consent to, in order for payment to take place, is ‘the transfer of money’, not necessarily the precise amount to be transferred.” (Menzies v Oakwood Solicitors [2023] EWCA Civ 844, at paragraph 42)

The Supreme Court disagreed and allowed the client’s appeal. The court was concerned that on the solicitors’ case payment could occur simultaneously with the delivery of the bill (as was the case on the Court of Appeal’s finding in Menzies itself) and that therefore payment would occur before the client could consider or seek advice on the sums contained within the bill. Given the importance of payment to the limitation periods in SA 1974, that could be a considerable detriment to the client. Lord Hamblen, giving the judgment of the court, expressly referenced the diminution in client protection under SA 1974 if payment could occur in this way.

The Supreme Court agreed with Bourne J (who had determined the first appeal and whose decision was subsequently reversed by the Court of Appeal) that a settlement of account was necessary part of payment under SA 1974. The Court of Appeal had been wrong to conclude that this was not a necessary element of payment on the basis that it was not a phrase used in SA 1974. It was a concept that connoted the agreement to the sum of the deduction and not just to the fact of a deduction.

The solicitors presented the Supreme Court with a number of concerns about the practical repercussions of a requirement that clients agree to the amount of a payment by deduction, noting that it would give a recalcitrant client the opportunity to delay the payment of a bill. However, the court considered that these concerns were overstated, they noted that there was no evidence that the longstanding requirement of a settlement of account had caused the difficulties suggested. In any event, the court suggested that there were a number of factors that would mitigate against these concerns.

Significant amongst these were two suggestions as to practices that solicitors could use to avoid these concerns being realised:

• The use of fixed fees or fees being fixed by reference to a mathematical formula such that the client would have agreed the sum to be paid.
• Agreeing terms that “will assist in establishing acceptance of and agreement to the bill”.

The attractiveness and practicality of the first of these suggestions will depend on the type of work being carried out and the predictability of the fees that are likely to be incurred. The suggestion that solicitors’ terms of business could assist with establishing an agreement, is likely to be of broader application. Solicitors would be well advised to review their terms of business to include a provision that includes a process whereby agreement to the sum will be deemed to have occurred unless the client engages to the contrary. Such terms will need to balance the need for client protection (particularly where the client is a consumer) and the solicitors’ desire for certainty.

Much of the commentary since the judgment was handed down has focused on the implications for personal injury solicitors where the payment of solicitors’ bills by the retention of sums from their client’s damages is common. However, it is important to emphasise that this decision would also apply to any payment made by way of a transfer from payments on account.

Finally, it should be noted that whilst the decision will permit some assessments to take place where they might otherwise be barred by the statute, it will be unlikely to open the floodgates to clients seeking an assessment of their solicitors’ bills. This is because SA 1974 also requires special circumstances to be demonstrated by a client applying for an assessment of a bill more than 12 months after it had been delivered. The decision will permit clients to obtain an assessment where special circumstances exist, but the court would otherwise not have jurisdiction to assess because the transfer of funds took place more than 12 months before the application (as was the case in Menzies itself). However, it does not mean that all clients whose solicitors had retained sums in this way now have an automatic right to assessment.

Article by Martyn Griffiths – first published by Thomson Reuters