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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Blavo v The Law Society (Acting Through the Solicitors Regulation Authority) [2017] EWHC 561 (Ch) (29 March 2017)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2017/561.html
Cite as: [2017] WLR(D) 254, [2017] WLR 4514, [2017] EWHC 561 (Ch), [2017] 1 WLR 4514
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IN BANKRUPTCY
RE: JOHN BLAVO
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Rolls Building, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL. |
||
B e f o r e :
Sitting as a Judge of the High Court
____________________
| JOHN BLAVO |
Applicant |
|
| - and - |
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| THE LAW SOCIETY (acting through the Solicitors Regulation Authority) |
Respondent |
____________________
Chloe Carpenter (instructed by Monro Wright & Wasbrough LLP) for the Respondent
Hearing dates: 16 December 2016, 20-21 February 2017
____________________
Crown Copyright ©
- In November 2015 the Law Society served a statutory demand on Mr Blavo claiming that he owed it £151,816.27. In February 2016 the Law Society served a second statutory demand on Mr Blavo claiming that he owed it a further £643,489.20. On 14 December 2015 Mr Blavo applied to set aside the first statutory demand. On 11 March 2016 Mr Blavo applied to set aside the second statutory demand. He made both applications to the County Court at St. Albans. On 21 June 2016 the District Judge transferred both applications to the High Court and, on 5 July 2016, the Registrar ordered that the applications be heard by a judge of the High Court. This is the judgment following the hearing of both applications.
- Mr Blavo is a solicitor and was a director (and, by October 2015, the sole director) of and the sole shareholder in Blavo & Co. Solicitors Ltd. ("the company") through which vehicle legal services were provided. The company was regulated by the Solicitors Regulation Authority ("the SRA"). For regulatory purposes Mr Blavo was a "manager" of the company. By mid 2015 the company was operating from 18 offices throughout the country. It employed 200 staff and had contracts with 150 consultants. Mr Blavo explains in a witness statement, that he believes the company was one of the largest providers of Legal Aid services in the country. It held contracts with the Legal Aid Agency ("the LAA") for the provision of work including in relation to mental health tribunals. Following an investigation by it, the LAA terminated the company's Legal Aid contracts with effect from 1 October 2015. On 13 October 2015 the Panel of Adjudicators Sub-committee of the SRA resolved to intervene into the company. The grounds for the intervention were expressed to be that there was reason to suspect dishonesty on the part of a manager or employee of the company and to protect the interests of clients (or former or potential clients) of the company or the beneficiaries of any trusts of which the company was a trustee. On the same day the Panel of Adjudicators Subcommittee resolved to intervene into Mr Blavo's "practice at Blavo & Co. Solicitors Limited". The ground for that intervention was expressed to be because "there is reason to suspect dishonesty on your part in connection with your practice". Unsurprisingly, following the withdrawal of the LAA contracts and after the intervention into it, the company went into liquidation. It is the costs of the intervention, from 15 October 2015 to 20 January 2016, into the company and Mr Blavo's practice which are the underlying subject matter of the statutory demands.
- The statutory regime for the regulation of solicitors, by means of intervention into their practices, has been modified in recent years to address the increasing flexibility in the way in which solicitors can practise. For present purposes I need only consider certain provisions of the Solicitors Act 1974 ("the 1974 Act") and the Administration of Justice Act 1985 ("the 1985 Act").
- Section 35 of the 1974 Act is headed "Intervention in solicitor's practice" and provides:
- Schedule 1; Part I, paragraph 1 of the 1974 Act provided, at the time of the interventions:
- In this case, it was on the basis that the circumstances identified in Schedule 1; Part I, paragraph 1(a)(i) of the 1974 Act existed that it was resolved to intervene and there was an intervention into Mr Blavo's practice.
- Schedule 1; Part II, paragraphs 6, 9 of the 1974 Act provide:
- In the case of the intervention into Mr Blavo's practice, the Panel of Adjudicators Subcommittee passed a resolution for the purposes of Schedule 1, Part II, paragraph 6 of the 1974 Act and notified Mr Blavo of the same by its letter dated 13 October 2015. By the same letter it gave Mr Blavo notice in accordance with paragraph 9 of the same schedule. The effect of the notice for the purpose of paragraph 6 was that (subject always to the intervention being effective (as to which, see further below)) Mr Blavo had a limited time to make an application to court for the notice to be withdrawn and for consequential remedies. Under paragraph 9 Mr Blavo had a similarly limited time to make an application to court in relation to documents but, in that case, the period of time was measured from a different date (that is, from the date when a further notice, that possession of documents had been taken, was served). In this judgment I shall describe each application as "an 8 Day Application". As a matter of fact, it appears that the paragraph 6 and paragraph 9 powers were the ones on which, in this case, it was intended to rely in the conduct of the intervention into Mr Blavo's practice.
- Schedule 1; Part II, paragraph 13 of the 1974 Act provides:
- Schedule 2; paragraphs 32, 35 of the 1985 Act provide: …
- This is a convenient point to refer to two further provisions of the 1974 Act, namely sections 70 and 71, which are relevant to the issues I need to decide and which relate to the assessment of a solicitor's bill. Those sections provide:
- Section 267 of the Insolvency Act 1986 ("the 1986 Act") is the principal provision which sets out the requirements for a creditor's bankruptcy petition and provides:
- Rule 6.5(4) of the Insolvency Rules 1986 ("the 1986 Rules") sets out the circumstances when the court may set aside a statutory demand (served to establish that the requirement of section 267(2)(c) of the 1986 Act is met) as follows:
- In this case the parties agree that, for the purpose of rule 6.5(4)(b) of the 1986 Rules, a debt is disputed on substantial grounds if the court determines that there is a genuinely triable issue, and that there is a genuinely triable issue if the debtor's case has a real prospect of success.
- At the adjourned hearing of these applications on 20 February 2017 I set out for the parties, in my own words, what I understood broadly to be their competing contentions. Mr Francis, who appeared for Mr Blavo, accepted that what I set out did not depart from the substance of his submissions and Miss Carpenter, who appeared for the Law Society, did not demur from the proposition that, broadly, I had accurately represented the parties' contentions. In this judgment, I intend to address the parties' competing contentions as I set them out at the adjourned hearing largely in the order I did so then.
- Mr Francis referred me, during the hearing, to Cale v. Assiudoman KPS (Harrow) Ltd. [1996] BPIR 245 in which Evans-Lombe J acknowledged, at page 248, that, on certain applications to set aside a statutory demand, the legal issues may be sufficiently complicated and of sufficient public importance that these factors, of themselves, justify setting aside the statutory demand. This case is not one of those cases. I heard submissions from counsel for 3 days and have formed a clear view of the outcome of the disputes between them. It may be said therefore that, in the event, the legal issues were not sufficiently complicated as to justify, of themselves, the setting aside of the statutory demands.
- Mr Francis contended that the effect of the 1985 Act is that, where a solicitor (such as Mr Blavo) is a manager of a recognised body (such as the company), all powers of intervention against the solicitor personally (derived, for present purposes, from the 1974 Act) have been lost, and, to that extent, the 1974 Act repealed. In consequence, he contended, the purported intervention into any practice Mr Blavo had was of no effect and he could not be indebted, on any basis, to the Law Society so that, in this case, rule 6.5(4)(b) of the 1986 Rules is engaged.
- As Miss Carpenter pointed out, the language of Schedule 2; paragraph 32 of the 1985 Act is not obviously repealing language. Indeed, by legislating that "the powers conferred by Part II of Schedule 1 of the 1974 Act shall be exercisable in relation to the recognised body and its business in like manner as they are exercisable in relation to a solicitor and his practice" (emphasis added), Parliament's intention, on a fair reading of the words, was to extend intervention powers to recognised bodies not to remove the power of intervention into solicitors' practices. Indeed, it would be odd, if Parliament's intention at the time of the passing of the 1985 Act was as Mr Francis contended, that Parliament later amended Schedule 1; Part 1, paragraph 1 of the 1974 Act by the insertion of sub-paragraph (aa) which permits an intervention into a solicitor's practice if there is reason to suspect that the solicitor has been dishonest in connection with "the business…of any body of which [the solicitor] is or was a manager". That it would have been odder still if Parliament's intention was as Mr Francis contended, is shown by the language of the 1985 Act itself. Schedule 2; paragraph 32(1)(d)(iv) of the 1985 Act provides, in effect, that there can be an intervention into a recognised body if there is reason to suspect dishonesty on the part of a manager or employee of that body in connection with "the practice…of the manager". That provision clearly contemplates that a manager of a recognised body can, nevertheless, have a practice. (Indeed, there is some support for this from Miller v. Law Society [2004] All ER 312, a case to which I was referred in relation to the next of Mr Francis' contentions which I consider. In that case, Mr Miller conducted a sole practice and also separately practised in partnership.) It would be startling if, in these circumstances, Parliament intended, by the 1985 Act, to permit an intervention into a recognised body because of a solicitor's suspected dishonesty but not to allow an intervention into the very same solicitor's practice. It is no answer to this to point out that, in this case, there is no evidence that any practice Mr Blavo had was carried on otherwise than under the umbrella of the company. For Mr Francis' contention to be a good one, it would have to extend to the scenario in which a solicitor was a manager of a recognised body as well as having a separate, quite unconnected, solicitor's practice.
- I have therefore concluded that Mr Francis' contention is wrong and is not a ground for setting aside the statutory demands in this case.
- My conclusion is consistent with what Cordery on Legal Services says, at paragraph A[24], about regulatory changes which were implemented by the Legal Services Act 2007:
- Mr Francis contended that, if there continues to be a power to intervene into Mr Blavo's practice, the intervention, in this case, was illegitimate because:
- The court has frequently made clear that intervention powers, now exercised by the SRA, are, in effect, public law powers and that the 8 Day Application process is the sole basis on which the decision to intervene (and its legitimacy) may be challenged. In Gadd v. Law Society [2012] EWHC 2843 (QB), Mr Gadd brought a claim for damages against the Law Society in relation to its intervention in his practice. During the proceedings he sought to amend his claim to rely on what he contended was the illegitimacy of the intervention (see paragraph 33 of the judgment). Sharp J dismissed that application (and gave summary judgment on the claim to the Law Society) and said, at [38]-[39]:
- Mr Francis says that he is not faced with an insuperable obstacle and that Mr Blavo can call into question, on these applications, which relate to the costs of the intervention into his practice, the legitimacy of the intervention, because of the Court of Appeal's decision in Clark v. University of Lincolnshire and Humberside [2000] 1 WLR 1988. The headnote in the report reads, so far as is relevant:
- At [16]-[17] Sedley LJ said:
- As Miss Carpenter pointed out, correctly in my view, the fundamental and insuperable difficulty which Mr Francis faces is that he has not identified a defence to a debt claim, whether in the list of complaints I have set out above or at all so that, even if Mr Blavo might be entitled to raise a defence to the debt claim which is the basis for the statutory demands, he has not done so.
- In any event, even if any of the matters in the list of complaints could amount to a defence to a debt claim, I, like Sharp J in Gadd, take the view that, because those matters go to the legitimacy of the intervention in this case, it would be an abuse of process to allow such a defence to be advanced. To allow such a defence to be advanced would amount to a non-permissible collateral challenge on the intervention process.
- In the circumstances, this ground advanced by Mr Francis is not a ground for setting aside the statutory demands.
- Mr Francis contended that, because Mr Blavo has asserted, in paragraph 32 of his witness statement made on 14 December 2015: "The SRA's solicitors also assert in their letter dated 19th December 2015 that I had an individual practice within the company's practice. That is incorrect. I did not in fact have the conduct of any client files and I cannot be said to have personally had any client practice in the company", it follows that there can have been no costs which are attributable to any legitimate intervention into Mr Blavo's practice, so that rule 6.5(4)(b) of the 1986 Rules is engaged.
- I have concluded that this argument fails.
- Once it is recognised, as it must be, as I have explained above, that a manager of a recognised body is capable of having his/her own practice, and bearing in mind too that, on applications to set aside statutory demands, the legitimacy of an intervention cannot be challenged because any challenge is limited to the 8 Day Application procedure, it is unreal to suppose that no intervention costs will have been incurred just because, on investigation, the SRA and its intervening agent discover that the solicitor in question has no documents or money under his control and, in fact, does not carry on a practice.
- Even if this conclusion is wrong, as Miss Carpenter pointed out, all Mr Blavo asserts is that he had no client practice. Mr Francis' contention must fail, in my view, because Mr Blavo does not assert that he had no solicitor's practice, because the springboard for Mr Francis' contention that no intervention costs can have been incurred would have required Mr Blavo to assert that he had no solicitor's practice.
- Even if this second conclusion is wrong, to my mind there is a third reason why this argument must fail.
- It is reasonable to infer, because of the limited nature of Mr Blavo's assertion that he had no client practice, that he recognises that a solicitor's practice is wider than merely a client practice. For example, as Miss Carpenter pointed out, Mr Blavo had responsibility, as a director of the company, to ensure the company's compliance with the SRA Accounts Rules 2011. This is merely one example of how a solicitor's practice may be wider than a client practice. To my mind it is unreal to suppose that, even if Mr Blavo had no client practice, there existed no documents at all which, on an intervention into his practice, were required to be delivered up.
- Mr Francis contended that the sums claimed by the statutory demands are not liquidated sums within the meaning of section 267(2)(b) of the 1986 Act, so that a bankruptcy petition cannot be presented in this case and the statutory demands must therefore be set aside under, I understand him to contend, rule 6.5(4)(d) of the 1986 Rules.
- Miss Carpenter contended that, because Schedule 1; Part II, paragraph 13 of the 1974 Act provides that intervention costs are recoverable from the solicitor as a (statutory) debt, the labelling of the solicitor's liability as such is enough to satisfy the requirements of section 267(2)(b) of the 1986 Act. In support of this contention she relies principally on the decision of Blackburne J in Pyke v. Law Society [2006] EWHC 3489 (Ch); in particular, paragraph 10 of the judgment.
- I propose to consider the parties' competing contentions, first, without reference to Pyke. I shall then consider that decision in a little more detail.
- The language of section 267(2)(b) of the 1986 Act makes clear that not every debt is a petitionable debt. If every debt was a petitionable debt, the paragraph would be otiose. One of the pre-conditions for a debt to be petitionable is that it is for a liquidated sum. The focus of the court's consideration, in this case, should not be on whether any liability is in debt but on whether that liability is for a liquidated sum.
- That there is no magic in the description of a solicitor's liability for intervention costs as being in "debt" was made clear by Sir Andrew Morritt VC in Pine v. Law Society [2002] 1 WLR 2189 at [31]:
- That passage is relevant in a further respect. What the Vice-Chancellor seems to suggest in this passage, as I read it in context, namely that claimed intervention costs are liable to be reduced, needs to be borne in mind when the question whether the sums claimed by the statutory demands in this case are liquidated is considered further.
- What then is "a liquidated sum"?
- In McGuiness v. Norwich & Peterborough Building Society [2012] BPIR 145, Patten LJ said:
- At least in the case where the intervening agent is a solicitor, it is difficult to see how, generally and in principle, the costs liable to be paid under Schedule 1; Part II, paragraph 13 of the 1974 Act could be a pre-ascertained liability. The Law Society, as client, would, generally, have the right to a detailed assessment of the intervening agent's costs and, as Miss Carpenter accepted, properly in my view, a solicitor the subject of an intervention has the right, under section 71 of the 1974 Act, to a detailed assessment of the costs of a solicitor intervening agent. That such a right exists is inconsistent with the proposition that, as a generality, the liability under paragraph 13 is a pre-ascertained one.
- There is authority in support of (or consistent, at least, with) this view.
- In Turner & Co. (a firm) v. O. Palomo SA [2000] 1 WLR 37 – a case about whether a client could challenge the reasonableness of his solicitor's costs in an "ordinary" claim when the client had lost the right to a taxation – the Court of Appeal said, at pages 51D-52E:
- It is right that Turner was a decision about the right of a client to challenge his solicitor's claim for payment and not about whether any liability under Schedule 1; Part II, paragraph 13 of the 1974 Act is for a liquidated sum. Nevertheless, it would be odd if the underlying basis for the statutory debt was generally an unliquidated sum, even after the right to a detailed assessment has been lost, but the statutory debt itself was not. It would be particularly odd if, as s/he does, the solicitor the subject of the intervention has certain rights to obtain a detailed assessment of the costs of the solicitor intervening agent. After all, in Pine the Vice-Chancellor referred, at [27], to the liability of someone entitled to apply for a detailed assessment under section 71 of the 1974 Act as a "secondary liability for those costs" (that is, the costs of the solicitor intervening agent).
- In Truex (which, it is to be noted, was cited, without disapproval, by Patten LJ in McGuiness), the Claimant, a solicitor, had served a statutory demand on his client, the Defendant, for unpaid fees. The Defendant did not then pay. Nor did she apply to have the statutory demand set aside. The Claimant presented a bankruptcy petition and, on an appeal from the Registrar, one of the issues Proudman J had to decide was whether the debt the subject of the petition was for a liquidated sum. The Judge said, at [24]-[36] (where, it is to be noted, she referred to Turner):
- Taking into account all these points (and putting to one side for the moment, as I have done, Pyke) I have concluded that, generally, the liability of a solicitor for the statutory debt under Schedule 1; Part II, paragraph 13 of the 1974 Act, is not a liability for a liquidated sum, at least where the liability is for costs incurred, as in this case, by a solicitor intervening agent.
- There is further support for this conclusion (that the liability in question is not, generally, for a liquidated sum), I believe, from the passage of the Vice-Chancellor's judgment in Pine to which I have already referred (see paragraphs 38-39 above).
- Is there any circumstance in this case which has turned any liability of Mr Blavo into a liability for a liquidated sum?
- None of the circumstances which I have identified above, and in which a liability for what is generally an unliquidated sum becomes a liability for a liquidated sum, exist in this case in my view, on the evidence before me.
- There is nothing, on the admissible evidence, to suggest that, as between the Law Society, on the one hand, and Mr Blavo, on the other hand, there was any agreement, prior to any intervention costs being incurred, which fixed Mr Blavo's liability. Indeed, there is no evidence of any express agreement, at any time, to this effect.
- I know two relevant facts (on the admissible evidence); namely, that it has been possible for Mr Blavo to have a detailed assessment in this case of the solicitor intervening agent's costs and that, which was not disputed, he has not sought a detailed assessment. I think it is also reasonable to infer that Mr Blavo was aware, during the time he was able to do so, that he was able to have a detailed assessment. This evidence though is insufficient, in my view, to give rise to any binding implied agreement or estoppel. To my mind, the facts are insufficient to establish that Mr Blavo accepted the costs claimed and, in event, I do not see how, from these facts, it is possible to conclude that any consideration flowed from the Law Society or that it detrimentally relied on any representation by Mr Blavo that he accepted the costs.
- As it happens, there is no admissible evidence that, as between the Law Society, on the one hand, and its solicitor intervening agents, on the other hand, there was any agreement, prior to any intervention costs being incurred, which fixed the amount recoverable as between them. Nor is there any admissible evidence before me that the Law Society has become bound to accept the sum for costs claimed by its agent throughout the whole of the period covered by both statutory demands.
- Subject to the point I now consider, on the evidence before me the debts the subject of the statutory demands in this case are not for liquidated sums and the correct course would be to set aside the statutory demands under rule 6.5(4)(d) of the 1986 Rules.
- I now have to consider whether, in the light of Blackburne J's decision in Pyke, I am bound to or ought otherwise to reach a different conclusion.
- In Pyke Blackburne J was required to determine an appeal from the District Judge who had dismissed Mr Pyke's application to set aside the Law Society's statutory demand for intervention costs. On the appeal Mr Pyke appeared in person. In the course of an apparently extempore judgment, Blackburne J, having referred to Schedule 1; Part II, paragraph 13 of the 1974 Act said, at [10]:
- It is to be noted, however, that, neither at first instance nor on appeal, did Mr Pyke contend that costs sought to be recovered by the statutory demand might not be a liquidated sum and it does not appear that the Judge heard argument on the point; although it is right to note that the Judge was taken to Pine and his attention was drawn to the possibility of intervention costs being the subject of detailed assessment.
- Blackburne J continued, at [15]:
- Whilst the decision in Pyke is not binding on me, it being a decision of a court of co- ordinate jurisdiction, judicial comity does require me to depart from it only after careful reflection; even more so in this case because of Blackburne J's experience in insolvency-related and intervention-related matters. Nevertheless, to the extent that Pyke is authority for the proposition that, in every case, a liability, under Schedule 1, Part II, paragraph 13 of the 1974 Act, for costs of a solicitor intervening agent is a liability for a liquidated sum, I do not follow the decision, because:
- It follows from all I have said that I have concluded that the statutory demands in this case should be set aside because the debts in question are not for liquidated sums.
- Mr Francis contended that, because (which, he says, is not disputed) Mr Blavo did not have a client practice and because, he says, the Law Society has refused, despite a request, to provide costs details, I should conclude, to the extent necessary by inference, that, in fact, any debt in this case falls below the bankruptcy level and, on that basis, the statutory demands should be set aside under, I understand him to contend, rule 6.5(4)(d) of the 1986 Rules.
- Whether or not it is a proper exercise, by the court, of its discretion to set aside a statutory demand, where there exists an unpaid debt the amount of which it is arguable, with a real prospect of success, is below the bankruptcy level, in this case there are further vexed issues such as whether, on the admissible evidence, (i) it is proper to make an adverse inference against the Law Society or (ii) it is proper, as Miss Carpenter contends, to make an inference adverse to Mr Blavo who could have but has apparently chosen not to have a detailed assessment of the intervention costs which are the subject of the statutory demands.
- Bearing in mind the conclusions I have already reached, I do not need to finally resolve this ground advanced by Mr Francis for the setting aside of the statutory demands.
- At one point during his submissions (in December 2016), Mr Francis appeared to also contend that, if Mr Blavo was otherwise unsuccessful in setting aside the statutory demands, nevertheless the statutory demands ought to be set aside under rule 6.5(4)(d) because it is clear that the costs of intervening into Mr Blavo's practice will have been only a fraction of the costs which are the subject of the statutory demands, even if those costs exceed the bankruptcy level. At the adjourned hearing I understood Mr Francis, in the light of authority, not to be pursuing this point. In any event, in the light of the conclusions I have already reached, I do not need to consider it any further.
- In the light of the conclusions I have reached, the statutory demands are set aside.
His Honour Judge Klein:
The statutory regime relating to interventions
"The powers conferred by Part II of Schedule 1 shall be exercised in the circumstances specified in Part I of that Schedule."
Although the 1974 Act talks of an "intervention" in a practice and, indeed, that is what is said to happen when the Schedule 1 powers are exercised, in fact the schedule contains a number of separate powers not all of which are required to be, or are, exercised on every intervention. Each resolution for intervention specifies which of the powers applies in the case of the intervention in question.
"(1) Subject to sub-paragraph (2), the powers conferred by Part II of this Schedule shall be exercisable where-
(a) the Society has reason to suspect dishonesty on the part of-
(i) a solicitor, or
(ii) an employee of a solicitor, or
(iii) the personal representatives of a deceased solicitor,
in connection with that solicitor's practice or former practice or in connection with any trust of which that solicitor is or formerly was a trustee or that employee is or was a trustee in his capacity as such an employee;
(aa) the Society has reason to suspect dishonesty on the part of a solicitor ("S") in connection with-
(i) the business of any person of whom S is or was an employee, or of any body of which S is or was a manager, or
(ii) any business which is or was carried on by S as a sole trader;…
(m) the Society is satisfied that it is necessary to exercise the powers conferred by Part 2 of this Schedule (or any of them) in relation to a solicitor to protect-
(i) the interests of clients (or former or potential clients) of the solicitor or his firm, or
(ii) the interests of the beneficiaries of any trust of which the solicitor is or was a trustee."
"6(1) Without prejudice to paragraph 5, if the Society passes a resolution to the effect that any sums of money to which this paragraph applies, and the right to recover or receive them, shall vest in the Society, all such sums shall vest accordingly (whether they were received by the person holding them before or after the Society's resolution) and shall be held by the Society on trust to exercise in relation to them the powers conferred by this Part of this Schedule and subject thereto and to rules under paragraph 6B upon trust for the persons beneficially entitled to them.
(2) This paragraph applies-
(a) where the powers conferred by this paragraph are exercisable by virtue of paragraph 1, to all sums of money held by or on behalf of the solicitor or his firm in connection with
(i) his practice or former practice,
(ii) any trust of which he is or formerly was a trustee, or
(iii) any trust of which a person who is or was an employee of the solicitor is or was a trustee in the person's capacity as such an employee;…
(3) The Society shall serve on the solicitor…a certified copy of the…resolution and a notice prohibiting the payment out of any such sums of money.
(4) Within 8 days of the service of a notice under sub- paragraph (3), the person on whom it was served, on giving not less than 48 hours' notice in writing to the Society and (if the notice gives the name of the solicitor instructed by the Society) to that solicitor, may apply to the High Court for an order directing the Society to withdraw the notice.
(5) If the court makes such an order, it shall have power also to make such other order with respect to the matter as it may think fit…
9(1) The Society may give notice to the solicitor or his firm requiring the production or delivery to any person appointed by the Society at a time and place to be fixed by the Society-
(a) where the powers conferred by this Part of this Schedule are exercisable by virtue of paragraph 1, of all documents in the possession or under the control of the solicitor or his firm in connection with his practice or former practice or with any trust of which the solicitor is or was a trustee;…
(2) The person appointed by the Society may take possession of any such documents on behalf of the Society…
(7) The Society, on taking possession of any documents or other property under this paragraph, shall serve upon the solicitor or personal representatives and upon any other person from whom they were received on the Society's behalf or from whose premises they were taken a notice that possession has been taken on the date specified in the notice.
(8) Subject to sub-paragraph (9) a person upon whom a notice under sub-paragraph (7) is served, on giving not less than 48 hours' notice to the Society and (if the notice gives the name of the solicitor instructed by the Society) to that solicitor, may apply to the High Court for an order directing the Society to deliver the documents or other property to such person as the applicant may require.
(9) A notice under sub-paragraph (8) shall be given within 8 days of the service of the Society's notice under sub-paragraph (7)…
(11) On an application under sub-paragraph (8) or (10), the Court may make such order as it thinks fit…"
"Subject to any order for the payment of costs that may be made on an application to the court under this Schedule, any costs incurred by the Society for the purposes of this Schedule, including, without prejudice to the generality of this paragraph, the costs of any person exercising powers under this Part of this Schedule on behalf of the Society, shall be paid by the Solicitor or his personal representatives and shall be recoverable from him or them as a debt owing to the Society."
It is in reliance on this provision that the statutory demands were served in this case.
"32(1) Subject to sub-paragraph (2), where-
(d) the Society has reason to suspect dishonesty on the part of any manager or employee of a recognised body in connection with-
(i) that body's business,
(ii) any trust of which that body is or was a trustee,
(iii) any trust of which the manager or employee is or was a trustee in his capacity as such a manager or employee, or
(iv) the business of another body in which the manager or employee is or was a manager or employee or the practice (or former practice) of the manager or employee;…
(e) the Society is satisfied that it is necessary to exercise the powers conferred by Part 2 of Schedule 1 to the 1974 Act (or any of them) in relation to a recognised body to protect–
(i) the interests of clients (or former or potential clients) of the recognised body,
(ii) the interests of the beneficiaries of any trust of which the recognised body is or was a trustee, or
(iii) the interests of the beneficiaries of any trust of which a person who is or was a manager or employee of the recognised body is or was a trustee in that person's capacity as such a manager or employee;
the powers conferred by Part II of Schedule 1 to the 1974 Act shall be exercisable in relation to the recognised body and its business in like manner as they are exercisable in relation to a solicitor and his practice…
35 In connection with the application of Part II of Schedule 1 to the 1974 Act for the purposes of this Schedule, in that Part of that Schedule-
(a) any reference to the solicitor or to his practice shall be construed as including a reference to the body in relation to which the powers conferred by that Part of that Schedule are exercisable by virtue of paragraph 32…of this Schedule or to its business (or former business) as a recognised body;
(b) any reference to paragraph 1 of that Schedule shall be construed as including a reference to paragraph 32…of this Schedule;…
(d) paragraph 6(2)(a) of that Schedule is to be construed as including a reference to sums of money held by or on behalf of the recognised body in connection with any trust of which a person who is or was a manager of the recognised body is or was a trustee in his capacity as such a manager;
(e) paragraph 9 of that Schedule is to be construed-
(i) as if sub-paragraph (1) included a reference to documents in the possession or under the control of the recognised body in connection with any trust of which a person who is or was a manager or employee of the recognised body is or was a trustee in his capacity as such a manager or employee, and
(ii) as applying to such a manager or employee and documents and property in his possession or under his control in connection with such a trust as it applies to a solicitor and documents and property in the possession or under the control of the solicitor;…"
It was principally under these provisions that there was an intervention into the company.
"70(1) Where before the expiration of one month from the delivery of a solicitor's bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed.
(2) Where no such application is made before the expiration of the period mentioned in subsection (1), then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the assessment), order-
(a) that the bill be assessed; and
(b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.
(3) Where an application under subsection (2) is made by the party chargeable with the bill-
(a) after the expiration of 12 months from the delivery of the bill, or
(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or
(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,
no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.
(4) The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill…
71(1) Where a person other than the party chargeable with the bill for the purposes of section 70 has paid, or is or was liable to pay, a bill either to the solicitor or to the party chargeable with the bill, that person, or his executors, administrators or assignees may apply to the High Court for an order for the assessment of the bill as if he were the party chargeable with it, and the court may make the same order (if any) as it might have made if the application had been made by the party chargeable with the bill…"
The jurisdictional framework for the present applications
"(1) A creditor's petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed.
(2) Subject to the next three sections, a creditor's petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented-
(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level,
(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured,
(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and
(d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts…
(4) "The bankruptcy level" is £5,000;…"
"The court may grant the application if-
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or
(b) the debt is disputed on grounds which appear to the court to be substantial; or
(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either Rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
(d) the court is satisfied, on other grounds, that the demand ought to be set aside."
Further background matters
Statutory construction
"Clementi proposed that, as a consequence of permitting alternative business structures (ABSs), regulation of legal services would have to shift towards entities:
"It will be evident that the proposals in this Chapter [i.e. the Chapter of the Clementi Report dealing with Alternative Business Structures] shift the balance of regulation significantly towards regulation of the economic unit, beyond regulation of the individual practitioner. The proposed regulatory system focuses principally on who runs the practice and how. This is not intended to lessen the responsibility of each individual lawyer to meet the high standards to be expected of his profession. But it recognises the business reality that, in a practice of any size, the Regulator would be particularly interested in the competence of the senior Managers who ran the firm and the management systems they employed…. It follows that the prime focus of each recognised body, authorised to act as the front-line regulator of LDPs, would be upon the practice itself; and that it would be best if each lawyer Manager, irrespective of the branch of the legal profession he came from, were subject to the same recognised body as his lead Regulator…"
"Under the LSA 2007, the entity will become the unit for regulation, in the sense that the entity itself must be authorised and (as a result of s.52 of the LSA 2007) the entity regulator's rules, including conduct rules for managers and employees, will predominate in any case where there is inconsistency with the rules of any other approved regulator from whom those individuals hold a practising certificate.
"Note, however, that Clementi says "beyond" regulation of the individual, not "instead of", and that is significant. The LSA 2007 introduces entity regulation in parallel with, and not as a replacement for, regulation of individual lawyers. Once you permit lawyers who hold their practising certificates from different regulators to come together to work within a given entity, and all the more so once you permit them to join forces with non-lawyers, it is necessary (a) to regulate the entity and (b) to have a means of resolving any regulatory clashes between the regime applicable to the entity and other applicable regulatory regimes (including those of external regulators, such as the accountancy profession, whose members might become involved in such arrangements). Otherwise, the likelihood of unintended regulatory gaps or conflicts, and the lack of clarity as to who was responsible for regulating what, would create significant risks to the public and be a huge obstacle to realising Clementi's vision of liberalising the structures through which legal services can be delivered…"
It would be odd if, despite the focus on ensuring that there are no regulatory gaps, the regulatory gap, which would be the consequence if Mr Francis' submissions were correct, existed.
Illegitimate intervention
i) There was no basis for concluding that Mr Blavo had any role other than as a manager of the company so that there was no basis for concluding that the intervention (as against him) was necessary;
ii) There was no basis for concluding that Mr Blavo held any money or documents so that there was no basis for concluding that the exercise of any intervention powers was justified;
iii) Mr Blavo was not given the opportunity, before the intervention, to explain why no intervention, even into the company, was necessary because Mr Blavo was taking steps to wind up the company's business in an orderly way;
iv) The purpose of the intervention into Mr Blavo's practice was to cause his practising certificate to be suspended and/or to expose him to a liability for costs which purposes are not legitimate reasons for intervening;
v) No independent thought was given to the decision to intervene. Instead all the participants in the decision-making process were merely doing the LAA's bidding.
In consequence, Mr Francis argues, none of the intervention costs were legitimately or otherwise properly incurred and Mr Blavo has no liability for any costs to the Law Society, so that rule 6.5(4)(b), principally, of the 1986 Rules is engaged.
"All the other matters of which complaint is made are matters which could and should have been dealt with by a challenge to the intervention via the statutory procedure and within the time limit laid down by Parliament (and in the course of which disclosure would have been provided of the documents Mr Gadd has since been given or asked for). I do not accept there is anything to be found in the judgment of Staughton LJ in Holder v. The Law Society which casts doubt on the proposition that the statutory scheme is compatible with the ECHR. As I have already indicated, this is sufficient to dispose of the argument made by Mr Gadd on this aspect of his claim.
"It is submitted and, in my view with justification, that what is being attempted here is a collateral challenge to the intervention process by other means and to circumvent the statutory limitation on the right of challenge. It is simply not open to the Claimant to do this. His attempts to do so amount, in the circumstances, to an abuse of the process."
(In this context, see also, Gadd at [52] and, for example, Miller at [36]-[39]).
"Between 1992 and 1995 C was a student at the defendant higher education corporation, which had been established under the Education Reform Act 1988 and had the full status of a university although it had no charter and no provision for the supervisory jurisdiction of a visitor. For her final examination C submitted a paper which the board of examiners failed for plagiarism. The finding of plagiarism was subsequently abandoned but the paper was then given a mark of zero and C failed to overturn that decision on appeal. In 1998 C brought proceedings against the university for breach of contract, claiming that it had misconstrued the meaning of plagiarism and had awarded a mark beyond the limits of academic convention. On the university's application, the judge struck out the claim on the ground that alleged breaches of contract by a university towards a student were not justiciable by the courts. On appeal, C was allowed to amend her pleadings to claim breaches of contractual rules under the university's student regulations. The university contended that, in any event, C should have brought proceedings for judicial review and it was an abuse of process for her to bring an action for breach of contract long after the three-month limitation period for bringing judicial review proceedings had expired.
On C's appeal-
Held, allowing the appeal,…(2) That a claim against a public body for breach of contract should not be struck out merely because an application for judicial review might have been more appropriate; that the CPR 1998 enabled the court to prevent the unfair exploitation of the longer limitation period for civil suits than for judicial review; that the court could strike out an action, notwithstanding the currency of the limitation period, if the entirety of circumstances, including the availability of judicial review, demonstrated that the court's processes were being misused or if it was clear that because of the lapse of time or other circumstances no worthwhile relief could be expected; but that, in the circumstances, it would not be right to strike out C's action on that ground; and that, accordingly, the action would be restored…"
"…the ground has shifted considerably since 1982 when O'Reilly v. Mackman was decided. The critical decision for present purposes was in fact not O'Reilly v. Mackman, where the issues were purely public law ones and the problem therefore entirely procedural, but the companion case of Cocks v. Thanet District Council [1983] 2 AC 286 which decided that where private law rights depended on prior public law decisions they too must ordinarily be litigated by judicial review. That this could not, however, be a universal rule was established not long afterwards by their Lordships' decision in Wandsworth London Borough Council v. Winder [1985] AC 461 in relation to public law defences to private law actions, notwithstanding the availability of collateral challenge. And in Roy v. Kensington and Chelsea and Westminster Family Practitioner Committee [1992] 1 AC 624 their Lordships made it clear that it was not necessarily an abuse of process to elect to sue in contract for statutory payments where the public law element was not dominant. The present class of case is if anything stronger from this point of view than Roy's case, for where in Roy's case a statutory relationship happened to include a contractual element, here it is a contractual relationship which happens to possess a public law dimension. Both are a long way from the situation in Cocks v. Thanet District Council [1983] 2 AC 286.
"There is a useful discussion of the present situation in the current edition of de Smith, Woolf & Jowell's Judicial Review of Administrative Action, 5th ed. (1995), pp.199-201, paragraphs 3-078 to 3-083. Since it was published the CPR 1998 have given substance to its suggestion that the mode of commencement of proceedings should not matter, and that what should matter is whether the choice of procedure (which will now be represented by the identification of the issues) is critical to the outcome. This focuses attention on what in my view is the single important difference between judicial review and civil suit, the differing time limits. To permit what is in substance a public law challenge to be brought as of right up to six years later if the relationship happens also to be contractual will in many cases circumvent the valuable provision of RSC, Ord.53, r.4(1) – which, though currently due to be replaced by a new Civil Procedure Rule, is unlikely to be significantly modified – that applications for leave must be made promptly and in any event within three months of when the grounds arose, unless time is enlarged by agreement or by the court. Until the introduction of the CPR this was a dilemma which could be solved only by forbidding the use of the contractual route – a solution which, as Roy [1992] 1 AC 624 demonstrated, could not justly be made universal. But, as Lord Woolf MR explains in his judgment, the CPR now enable the court to prevent the unfair exploitation of the longer limitation period for civil suits without resorting to a rigid exclusionary rule capable of doing equal and opposite injustice. Just as on a judicial review application the court may enlarge time if justice so requires, in a civil suit it may now intervene, notwithstanding the currency of the limitation period, if the entirety of circumstance – including of course the availability of judicial review – demonstrates that the court's processes are being misused, or if it is clear that because of the lapse of time or other circumstances no worthwhile relief can be expected."
No costs attributable to the intervention into Mr Blavo's practice
Liquidated Sum
"…there is the reference to the costs being recoverable "as a debt owing to the society". This specifies the legal process for recovery and may be contrasted with other statutory formulae of "recoverable as damages" or "recoverable as a penalty". But the fact that money is recoverable as a debt is not inconsistent with a reduction in the amount of the claim. Thus a claim for remuneration for services rendered or goods supplied at the defendant's request is a claim in debt notwithstanding that the defendant is entitled to defend it on the ground that the sum claimed is excessive…"
"23 A "liquidated sum" has never been defined in any [relevant] legislation and appears to be the codification in the 1869 Act of earlier decisions of the courts as to what constituted a good petitioning creditor's debt…"
Having reviewed a number of authorities, Patten LJ continued:
"35 Finally in this context I should mention Truex v Toll [2009] EWHC 396 (Ch) which concerned an attempt by a solicitor to bankrupt a client who had not paid the solicitor's fees. Although the client had made a belated attempt to have the bills taxed, the registrar held that the sum due must on any view exceed the statutory minimum and that the client had in any event accepted the bills as payable. The debtor's appeal was allowed on the basis that a claim for solicitor's fees not judicially assessed was not a claim for a liquidated sum under s.267 of the 1986 Act and that there had been no binding admission of the debt. Proudman J at paragraphs 36-7 said that:
"36 In my judgment whether a sum is liquidated and whether there is a defence to the claim are separate issues and the first must be determined before the second is addressed. Accordingly any admission, acknowledgment or agreement converting the amount claimed from an unliquidated to a liquidated sum must be one from which the client has bound himself not to resile. A mere acknowledgment would be insufficient to bind him to forego judicial assessment or determination.
"37 On this basis it was not possible to say that any part of the work done by Mr Truex had been quantified, or was quantifiable by the bankruptcy court as a mere matter of arithmetic. It seems to me that the Chief Registrar conflated the issue of whether there was a genuine dispute about a liquidated debt with that of whether the sum claimed was liquidated in the first place. The bill as a whole was capable of challenge as to quantum, was thus for an unliquidated sum and did not fulfil the requirement of s.267. The same point applies to the Chief Registrar's alternative finding that there could not be a genuine dispute as to at least £750 of the costs."
"36 These authorities indicate and I think establish that a debt for a liquidated sum must be a pre-ascertained liability under the agreement which gives rise to it. This can include a contractual liability where the amount due is to be ascertained in accordance with a contractual formula or contractual machinery which, when operated, will produce a figure. Ex parte Ward is the obvious example of that. Claims in tort are invariably unliquidated because they require the assistance of a judicial process to ascertain the amount due by way of damages. In some cases the calculation of the award will be straightforward and obvious but the unliquidated nature of the claim excludes it from being a good petitioning creditor's debt which satisfies the requirements of s.267.
"37 The most obvious use of the term "liquidated" has been in relation to liquidated damages. "Liquidated" has been defined judicially as meaning the sum which the parties have by their contract assessed as the damages to be paid for its breach: see Wallis v Smith (1882) 21 Ch D 243 at 267 per Cotton LJ. If a genuine pre-estimate of loss the provision is enforceable according to its terms. I would therefore regard a claim for liquidated damages as one for a liquidated sum within the meaning of s.267 unless a claim in damages is excluded by the use of the word "debt".
"38 Another familiar context in which the word "liquidated" appeared was RSC O.13 which governed when a plaintiff could enter final judgment against a defendant who failed to give notice of intention to defend. Final judgment could only be entered when the writ was endorsed with a claim for a liquidated demand: see RSC O.13; r.1. Claims in debt or for liquidated damages fell within this rule but it did not include claims in tort where the damages were necessarily unliquidated or those for contractual damages where the measure of liability was not specified in the contract itself.
"39 The authorities in the field of bankruptcy as to what constitutes a liquidated sum are consistent with this approach. In Re Broadhurst the measure of liability under the contract was readily calculable but that did not make it a liquidated claim. As Maule J put it in his judgment, there was no specific sum engaged to be paid to the creditor…
"42 The issue therefore in relation to guarantees is whether the liability of the guarantor can be treated as one which is reduced to a specified and agreed sum by the guarantee itself. Where the guarantee on its proper construction contains a promise by the guarantor to pay the principal sum due and interest in the event of the debtor failing to pay no difficulty arises. The claim is one in debt and as such is necessarily in a pre-agreed amount. But guarantees containing a see to it liability give rise on Lord Diplock's analysis in Moschi v. Lep Air Services Ltd. to a claim for unliquidated damages. Although the measure of the guarantor's liability is the amount of the debt, that is not the same as an obligation to pay a sum of money under the contract whether as a debt or agreed damages.
"43 Therefore, as a matter of general principle and ordinary language, Mr Arden is, I think, right in his submission that the liability under a guarantee of the see to it type would not constitute a debt for a liquidated sum…" (emphasis added).
"…The Act of 1843 introduced a taxation procedure, because it was regarded as more convenient and advantageous for the client, and perhaps for both parties, than the existing procedures were. Nothing in the Act, or its successors, takes away the need for the solicitor to prove that his fees are reasonable, if they are challenged, absent any express agreement as to what they should be. The Court of Appeal has held, three times, that the common law or "ordinary jurisdiction" of the court is not excluded, and these judgments are not in any way inconsistent, in our view, with the decision of the House of Lords in Harrison v. Tew [1990] 2 AC 523. Nor do we consider that the solicitor is disadvantaged by the possibility that the client is entitled to have the reasonableness of the charges assessed by the court after the statutory periods for taxation have expired. He can himself claim an order for taxation under section 70(2), without any time limit, and obtain a form of summary judgment when the taxation certificate is issued: section 72(4). The present issue arises only when that is not done.
"(3) Nature of claim
Mr Downes takes what is essentially a pleading point. He submits that the solicitor's right to claim a reasonable sum for his services is governed by special requirements relating to his status as a solicitor, and secondly, that it is always subject to the terms of the express agreement made in the particular case. The term he relies upon in the present case is the agreement made in October 1996 that Mr Spencer's services would be charged at £180 per hour. It follows from this, he submits, that the client agreed to pay that amount for every hour which Mr Spencer devoted to the matter in question, regardless of how many hours he might spend. He accepts that a solicitor who proceeded more slowly than a competent solicitor could be deprived of his charges for the excess period which, on that hypothesis, would be due to his own failure to act as a reasonably competent solicitor would. But that, he submits, is a matter for counterclaim, alleging negligence, and no counterclaim is made here.
"Mr Morgan submits that the legal basis for the solicitor's claim is found in section 15 of the Supply of Goods and Services Act 1982 in any case where a contract exists between the solicitor and client. The contract contains a statutory implied term "that the party contracting with the supplier will pay a reasonable charge," and what is a reasonable charge is a question of fact. This has to be read, in the case of a solicitor, subject to the terms of the retainer in the particular case and subject also to the statutory provisions which give the solicitor, as well as the client, certain additional rights. But we do not see any difficulty in holding that the solicitor's claim is for a reasonable sum, whether by statute or at common law, and not for a liquidated sum. Again in accordance with general principles, the burden of proving that the sum is reasonable rests upon him. This is supported, if authority is needed, by the judgments in In re Park, 41 ChD 326 and Jones & Son v. Whitehouse [1918] 2 KB 61 which I have quoted above.
"The submission that a counterclaim is necessary, where an hourly rate is agreed, seems to us to be contrary to the basic rule that the solicitor is entitled to claim no more than a reasonable remuneration for the work that he was retained to do. As Mr Morgan put it, the solicitor would normally be required to prove the reasonableness both of the number of hours spent and of the hourly rate which he has charged. When the hourly rate is agreed, he is left to prove the former but not the latter. There could, of course, be a case where the client agreed to pay for as many hours as the solicitor in fact worked, notwithstanding that he would or might devote more time to the matter than a reasonably competent solicitor would. However, that is not the present case, and in our judgment the deputy High Court judge was entitled to hold that a triable issue as to the reasonableness of the charges was raised by the defence evidence in the circumstances of this case" (emphasis added).
"None of the Thomas Watts & Co., the Turner & Co. or the Joseph cases concerned a bankruptcy petition. However it would seem to follow as a matter of principle that a claim for solicitors' fees not as yet judicially assessed or determined is not a claim for a liquidated sum which can be the subject of a bankruptcy petition under section 267 of the Insolvency Act 1986, even if the period for challenge under the 1974 Act has expired. Commentators (e.g. Muir Hunter on Personal Insolvency) therefore express the view that the earlier decisions to the contrary are inconsistent with the decisions of the higher courts and have been overtaken by them.
"It is indisputable that the sum claimed becomes a liquidated sum once the fees have been assessed by the costs judge or determined in an action. The issue in the present case is as to what else can convert a solicitor's unassessed bill into a debt capable of founding a bankruptcy petition.
"In what circumstances is the sum claimed in a solicitor's bill converted from unliquidated to liquidated?
Mr Macpherson, counsel for the debtor, submitted that it was insufficient to find a bare admission, agreement or acknowledgement that Mr Truex's invoices were correct. Where a debt is of an unliquidated sum because it has not been judicially assessed or determined that sum can only become liquidated if the client is bound by the admission, agreement or acknowledgment relied upon. Thus Mr Macpherson said that one must look for a waiver of the right to assessment or determination. In order to constitute such a waiver, the client's conduct must be supported by consideration or give rise to an estoppel.
"Doubtless a bare admission coupled with failure over a long period to challenge the bill would be strong evidence that the bill was reasonable. However, submitted Mr Macpherson, such conduct would not be enough to convert the amount of the bill from an unliquidated to a liquidated sum. In In re Park; Cole v. Park 41 ChD 326, Stirling J said of similar conduct that it did not preclude investigation of the bill, despite the fact that without further explanation the circumstances "would probably be held to be conclusive against" the client. In re Park was a strong case in which the late client had taken delivery of the bill more than 12 months before he died, had made no objection to it and had paid a large proportion of it on account. Even so, his executors were held to be entitled to dispute it.
"I tested Mr Macpherson's proposition by asking Mr Preston in what circumstances a client could change his mind about paying a bill, in other words, what in the absence of consideration or estoppel would constitute waiver of the right to assessment or determination? He responded that the client could change his mind, but only on reasoned grounds and where the dispute as to the bill was a genuine one.
If that were right, the sum claimed would start life as unliquidated and then, because the client admitted it, it would become liquidated and then the next day, month or year (if the client changed his mind on reflection or advice) it would revert to being unliquidated. To my mind Mr Preston's answer conflates the prerequisite that the debt founding the petition must be for a liquidated sum with the separate issue whether, on the hearing of that petition, there is a genuine dispute about the debt.
"It seems to me that there is logic in Mr Macpherson's submission that an agreement converting an unliquidated debt into a liquidated one must be a binding agreement. That would mean an agreement for consideration, that is to say an agreement as to a fixed amount, or an agreement as to hourly rates and time spent in consideration of future services, or a compromise agreement, or conduct giving rise to an estoppel according to established principles…
"Despite Mr Preston's submission to the contrary, it seems to me that the kind of agreement that the Court of Appeal had in mind [in Turner] was a prospective agreement. I derive this from the example considered on the following page (p.367) of the report, namely where the hourly rate has been agreed and where the client expressly agreed to pay for as many hours as the solicitor in fact worked. Where an agreement of that kind, or an agreement to pay a fixed sum, is made at the outset, or where further work is only undertaken on condition that the client agrees to pay outstanding invoices, there is consideration for the agreement and the client cannot resile from it…
"In my judgment whether a sum is liquidated and whether there is a defence to the claim are separate issues and the first must be determined before the second is addressed. Accordingly any admission, acknowledgment or agreement converting the amount claimed from an unliquidated to a liquidated sum must be one from which the client has bound himself not to resile. A mere acknowledgment would be insufficient to bind him to forego judicial assessment or determination" (emphasis added).
"[The] costs [falling within the paragraph in this case] plainly include the intervention costs, which, as I say, the Society has discharged to its intervention agent's firm. It follows, therefore, that the [sum claimed for intervention costs] is a statutory debt due by Mr Pyke to the Law Society. As such it is liquidated in amount and is presently payable" (emphasis added).
"But there may – and I say no more than may – be some residual power in the court to allow a challenge to be mounted see Turner v. Palomo [2000] 1 WLR at p.37. I have not heard argument on that, and I say no more than that it might be possible. But in the absence of any application to have the bills taxed, and in the absence of any grounds indicating that there are special circumstances why even now, after the lapse of so many months, a court should order a taxation, the court is entitled to proceed, and in my judgment the District Judge was entitled, at any rate as to the vast bulk of the bills, to proceed, on the footing that the intervention costs constitute a debt fully due and owing."
i) Blackburne J's judgment was apparently an extempore one;
ii) That the sums claimed by the statutory demand in that case might not be liquidated was not expressly argued on Mr Pyke's behalf. Nor was Blackburne J asked to consider the subsidiary question about when a solicitor's bill might be challenged outside the 1974 Act procedure;
iii) It was handed down before Patten LJ's restatement of the law in McGuiness to which I have referred;
iv) It was handed down before Truex was decided. In the latter case, when solicitors' costs might be liquidated sums was expressly considered at some length by Proudman J after argument;
v) In both paragraphs 10 and 15 of his judgment, Blackburne J effectively drew attention, on the facts of that case, to Mr Pyke's difficulty in then obtaining a taxation of the costs in question. It is not entirely clear to me the extent to which that question of fact influenced the Judge's conclusions.
The bankruptcy level
Disposal