England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/06/2010

MRS JUSTICE MACUR DBE

This judgment is being handed down in private on 18 June 2010. It consists of 8 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported.

Mrs Justice Macur DBE:

1. On 16 October 2008 DJ Segal gave judgement in the ancillary relief proceedings instituted by Mrs S ("the wife") following the breakdown of her marriage to Dr S ("the husband"). The relevant effect of his judgement was to order the equal division of assets on the basis that the wife would retain a French property, Isola Victoria, the husband would retain liquid and illiquid assets in his own name, and the former matrimonial home in England – Newlands - would be sold and the proceeds of sale divided so as to achieve parity overall.
2. A further hearing was directed on 4 December 2008 to consider the question of costs and consequential issues arising from the judgement. The date at which the assets were to be quantified for the purpose of effecting division was determined as 4 December 2008. The Order was not perfected until 19 June 2009, and sealed on 1 September 2009.
3. Newlands was sold on or about 5 November 2009. The 'parity' payment due to the wife was £47,140.65. Against this sum the husband seeks to set off orders for costs made on 13 October 2007, subsequently assessed at £4,000 on 27 February 2009, £18750, £7,500, £4,000 and £5,000 summarily assessed on 24 March 2009 , 19 June 2009, 27 October 2009 and 2 December 2009 respectively and interest.
4. The right of 'set off' is conceded on the part of wife's former solicitors, Lloyd Platt & Company (LP) but for what they assert is their prior and preferential claim arising from a Deed of Assignment (a so called Sears-Tooth agreement) into which they entered with the wife in respect of outstanding costs on 18 September 2008, and notified to the husband's solicitors on 14 November 2008. LP ceased to act for the wife on or about 5 March 2009.
5. The hearing before me concerns the competing claims of LP and the husband. The wife, who was refused leave to appeal DJ Segal's order out of time, has appeared in person in these proceedings. She disputes the date of the agreement saying it was not signed until March 2009 and contends that the written deed was qualified orally by Vanessa Lloyd Platt, Principal of LP, restricting the recovery of costs to £20,000 and who, in any event, failed to advise her to seek independent legal advice. Since the validity of the agreement is central to LP's arguments of enforcement I have heard evidence on this point from Vanessa Lloyd Platt and the wife.
6. I can deal with the factual dispute between solicitor and former client in short order.
7. I am sure that the Deed of Assignment was signed on 18 September 2008. This is the date recorded in manuscript on the face of the document. It accords with an attendance note recording the same of the same date. Undoubtedly the document was served upon the husband's solicitors under cover of letter dated 14 November 2008. It cannot have been signed in March 2009. I reject the wife's recollection on this point as faulty.
8. I am sure that Vanessa Lloyd Platt estimated the outstanding costs at £20,000 in accordance with her oral evidence. I am satisfied on the balance of probabilities that the wife believed these to include the prospective costs of the final ancillary relief hearing fixed for 4 days in October 2008. I am satisfied on the balance of probabilities that Vanessa Lloyd Platt did not restrict the charge which would arise from the Deed of Assignment to £20,000. There is no express provision to this effect within the deed. I regard it as entirely unlikely that a solicitor of 38 years experience, specialising in non legal aid family law since at least 1992 would do so. The vagaries of ancillary relief litigation are well known to practitioners. I find the wife has conflated a conversation as to outstanding costs and the means of provision for future costs together.
9. I am more than satisfied on the balance of probabilities that Vanessa Lloyd Platt advised the wife to seek independent legal advice. This accords with a comprehensive attendance note prepared by Vanessa Lloyd Platt on 18 September 2008 and the shorter attendance note of Joanne Abrahams of the same date. The record of the wife's response to this advice within those notes is entirely credible.
10. The Deed of Assignment is described by Mr Gill, on behalf of LP, as "unremarkable in execution and form". It provides, inter alia that

"[The wife] has agreed to assign her right, interest, benefit and advantage in the said financial provision and orders in the action to Vanessa Lloyd Platt..."

"Financial provision means any property or money recovered or payable to Mrs S as a result of the action including property adjustment orders and lump sum orders."

"In consideration of legal services provided and to be provided…[the wife] as beneficial owner assigns unto [LP] that part of her right, interest, benefit and advantage in the financial provision and costs orders and interest thereon as will settle any lawful claim for payment of invoices rendered together with interest thereon that [LP] may make against her"

"In any event [the wife] covenants and agrees that she will settle in full in cleared funds any lawful claim for payment of invoices rendered together with interest thereon that [LP] may make against her on or before the elapse of six months of the date of this Deed or the sale of …Newlands…. whichever is the earlier."

11. There is no issue taken as to its validity or enforceability on behalf of the husband subject to the husband's right of set off and my findings of fact as to the nature of its execution.
12. I am satisfied that the executed deed was a "valid contract for valuable consideration to assign a future chose in action." See SEARS TOOTH (A FIRM) V PAYNE HICKS BEACH (A FIRM) AND OTHERS [1997] 2 FLR 117 @ 123F - 125G.
13. With all due deference to the comprehensive written and oral arguments of Mr Gill on behalf of LP and Mr Hyde QC on behalf of the husband, the competing legal arguments may be summarised as follows:

LP contends that (i) the husband's right to set off his costs did not arise until after notice of the Deed of Assignment was served upon him and therefore cannot take precedence; (ii) the orders for costs which post date the notice of deed of assignment do not arise directly out of, nor are closely connected with, the same contract or transaction as the subject matter of the assignment and therefore cannot take precedence; (iii) LP have an inalienable right to enforce their charge against any part of the "financial provision" regardless of the availability of other property which is not otherwise available for the purpose of 'set off' by the husband.

The husband contends that (i) the "fruits" of the claim, against which the deed of assignment is now sought to attach, arise from the sale of Newlands in November 2009 by which time the majority of orders for costs had been made and his right of 'set off' arose; alternatively, (ii) if the relevant date is the date of notification of the deed of assignment and in relation to 'debts' created by the costs orders which had not accrued by November 2009 they arise directly from the subject matter of the deed of assignment or else are so closely connected to it to take priority as an equity; alternatively, (iii) LP are not entitled to thwart the fundamental right of set off by preferential election of the only part of the financial provision available to the husband against which he may set off his debts.

14. An initial indication that the husband would argue that LP are estopped from attaching the monies made available from house sale by their apparent acquiescence to his notified deduction of costs from the sum due to the wife pursuant to the order of DJ Segal is now effectively abandoned. This is realistic. The husband cannot show detriment arising from apparent acquiescence of his implicit claim to set off in correspondence passing between the solicitors.
15. At the outset it is pertinent to remind oneself of the nature of the Deed of Assignment when executed in these circumstances as a contract to assign a future chose in action, defined in Halsbury's Laws and cited with approval by Wilson J, as he then was, in giving judgement in SEARS TOOTH ( A FIRM) V PAYNE HICKS BEACH (A FIRM) AND OTHERS as: ' A contract for valuable consideration to assign a future chose in action if and when it comes into existence and comes into the hands of the assignor……It will bind the conscience of the assignor, and bind the subject matter of the contract when it comes into existence, provided that the subject matter is of such a nature and so described as to be capable of being identified….The property is bound in equity directly it is acquired by the assignor, automatically and without any further act on his part…"
16. In the ancillary relief proceedings which spawned SEARS TOOTH ( A FIRM) V PAYNE HICKS BEACH (A FIRM) AND OTHERS , Wilson J had ordered, inter alia, payment of a specified lump sum; in these circumstances he determined that the assignment attached first on 13 October 1995 – the date of his order, second on 27 October 1995 when the husband was ordered to pay the wife a specified sum in costs awarded against him in June 1994, and third upon the agreement of a figure payable by the husband for the costs over all. That is, the assignment attached upon quantification of the "fruits" of the litigation and were deemed to have 'come into the hands of the assignor' at that point albeit that the order for a lump sum was not payable forthwith.
17. I adopt this approach in considering the date/s when the assignment attached in this case.
18. The 'financial provision' which was subject of the agreement between the wife and LP became identifiable property by the judgement and pronounced order of DJ Segal on 16 October 2008, but incapable of precise quantification. That is, the French property was identified but the 'differential' payment that the husband had to make to the wife – if any- could not be exactly quantified prior to the sale of Newlands, which occurred on 5 November 2009. The judgement of DJ Segal had provided the mechanics to seek to achieve equal division but not specified the quantum to do so. He made a 'conditional' order in that it was dependent upon the sale price achieved for Newlands.
19. By analogy to the facts in SEARS TOOTH ( A FIRM) V PAYNE HICKS BEACH (A FIRM) AND OTHERS , the assignment would attach first in relation to the French property on 16 October 2008 and second on sale of Newlands and quantification of the parity payment' on 5 November 2009. Therefore I consider that ' the subject matter' against which LP now pragmatically seeks to enforce the deed of assignment could not be attached until 5 November 2009, by which time, for what it is worth, the majority of the costs orders had been made.
20. Mr Hyde's argument as to when the particular "fruits" of the agreement arise against which LP seek to move is therefore apparently made out.
21. Therefore, at the date of the relevant 'financial provision' coming into existence against which LP seeks to attach the assignment, namely 5 November 2009, orders for costs and interest totalling £35,630.32 had been made and comprised the wife's debt to the husband. The husband's right to set off existed and was asserted implicitly in correspondence between his solicitors and LP in letters and enclosures dated 16 July and 5 November 2009.
22. However, Mr Gill argues that the date of notice of the deed of assignment is the date which determines the rights of the parties not the assignment itself. This appears clearly established in the extract upon which he relies from Snell's Equity (31st Ed) paragraph 3-22. I accept his argument on this particular point.
23. Mr Hyde's attempt to construe DJ Segal's comments in the judgement of 16 October 2008 as a preview to orders for costs that would immediately comprise unliquidated debts prior to service of notice of the deed of assignment must fail conspicuously on the facts. DJ Segal expressed disapproval and made mention of the possibility of adverse costs orders against the wife. He did not formulate them. On 14 November 2008 there were no quantified debts and the only costs order in existence was later assessed at £4,000. On the approach taken by Wilson J this would not 'crystallise' for the purpose of set off until the date of assessment on 27 February 2009.
24. Nevertheless, at the date of notification of the deed of assignment the rights of the parties incorporate the principle that the assignee can be in no better position than the assignor. This principle survives the context of matrimonial litigation despite the implicit suggestion of Mr Gill that solicitors should be protected from the risk of clients, past or present, who may embark upon 'frolics of their own' beyond the control of their erstwhile professional advisor and, as in this case, embark upon behaviour which is subsequently defined as litigation misconduct attracting adverse cost orders.. The solicitor cannot take the gain of the arrangement without the associated risk. It is illogical to suggest that they fall into an exceptional category of assignees, immune from long established equitable doctrine.
25. Reviewing the authorities on assignments "subject to equities", Templeman J in BUSINESS COMPUTERS LTD V ANGLO-AFRICAN LEASING LTD [1977] 2 ALL ER 741 concluded that "a debt which accrues due before notice of an assignment is received, whether or not it is payable before that date, or a debt which arises out of the same contract as that which gave rise to the assigned debt, or is closely connected with that contract, may be set off against the assignee..".

26 I consider it unarguable but that the husband's debts are closely connected with the contract which gives rise to the debt assigned to LP. His debts arise by virtue of the orders for costs made in the proceedings to secure the wife's financial provision. Mr Gill's valiant attempts to distinguish the principle as applicable only to "commercial" transactions on the basis of the public interest in maintaining the viability of a Sears Tooth agreement in matrimonial proceedings is inherently flawed as I indicate above. He has been unable to point to any modification of the "equities" rule by statute or contract between the husband and the wife.

26. I do not regard the drafting of the Order at paragraph 3(vii) or its omission to deduct the husband's costs from the proceeds of sale to be capable of prioritising LP's claim or precluding the husband's right of set off or else modifying the "equities" rule. The Court Order does not comprise a contract between husband and wife, assignor and assignee, or between debtor and assignee. The provision in brackets at 3(vii) is questionable to say the least unless inserted with the specific consent of the wife in the absence of LP's locus within the ancillary relief proceedings, and the more so in this case since LP had ceased to act for the wife at the time of drafting the order. The prospect for dispute between client and solicitor was in fact real – as evidence given before me indicates. The order could not possibly determine such a dispute in advance. In any event it. must implicitly be read as subject to outstanding 'equities'.
27. For good measure, in the very edition and chapter of Snell's Equity upon which Mr Gill relies , at paragraph 3-24, the husband finds support for his case that as 'debtor' he has the same right of set off against the assignee as against the wife as 'original creditor'. The case of Re KNAPMAN (1881) 18 ChD 300, mentioned there appears directly on the point arising here. Legatees bringing an action in the Probate Division against an executor who thereafter assigned their rights under the will or intestacy pending action did not shield the assignee from the executor's right to set off costs subsequently ordered against the legacies they had assigned.
28. In these circumstances I conclude that the husband's orders for costs which may be "set off" against the debt he owes to his wife comprise an equity which is good against the assignee whenever notice of the assignment was given.
29. This outcome is 'equitable' in every sense of the word. The proceedings commenced prior to the execution of the deed. The assignee obviously knew of the proceedings, their long running nature, the parameters of likely award and previous 'difficulties' created by their client's litigation conduct which had already resulted in an order for costs to be assessed against her, and was able to assess the risks of entering into the agreement with their client.
30. I find the right of 'set off'' in this case is established against assignor and assignee. The only fund against which the husband may "set off" the debts his wife owes to him is the money otherwise payable to her/LP following the sale of Newlands. In the circumstances of this case it becomes unnecessary to consider whether LP has right of election against particular parts of the 'financial provision' to attach since the husband's set off extinguishes the capital payment otherwise due. LP is left to charge the French property or otherwise seek to enforce their agreement by other means.
31. Whilst obiter, but for the sake of completeness since I set the hare running, if I had been persuaded that the husband's costs did not arise directly from or were not closely connected with the fund in purview, then since I find them to arise after notification of the deed of assignment, I would consider LP to have an unrestricted right of election as against which part of the 'financial provision' secured to make it's attachment regardless that this may preclude the husband's claim. This would accord with the usual principle that the parties rights are determined at the time of notification and reflect the terms of the deed of assignment – unrestricted as they are.
32. I dismiss LP's application for payment of the lump sum otherwise due to the wife and give effect to the "set off" claimed by the husband.
33. Order accordingly