David Michael John Picton Manley (Plaintiff v The Law Society (First Defendant Marconi International Marine Company Ltd (Second Defendant)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE ORMROD,LORD JUSTICE O'CONNOR |
| Judgment Date | 16 December 1980 |
| Judgment citation (vLex) | [1980] EWCA Civ J1216-5 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 1979 M. No. 2230 |
| Date | 16 December 1980 |
[1980] EWCA Civ J1216-5
In The Supreme Court of Judicature
Court of Appeal
On Appeal from The High Court of Justice Queen's bench division (Mr. Justice Bristow)
The Master of The Rolls
(Lord Denning)
Lord Justice Ormrod and
Lord Justice O'Connor
MR. J. HAMES, Q. C. and MR. P. FLINT (instructed by Messrs. Kennedys) appeared on behalf of the Plaintiff (Respondent).
MR. D. MATHESOH (instructed by Messrs. Collyer-Bristow) appeared on behalf of the First Defendant (Appellant).
Some ten years ago David Hanley invented an "echo sounder" by which large ships could tell if they were getting into shallow water. He got the Marconi International Marine Company interested in it. They agreed to exploit it if it came up to their requirements. But it failed to come up to their requirements. So they refused to go on with it. He alleged that they were guilty of a breach of contract. He claimed damages - huge damages because of the loss of profit that he said he would have made. He also claimed to be reimbursed the money he had spent in developing his "echo sounder". It came to £30,000 or more. He borrowed it from the banks and had charged his house as security for it.
David Manley had no money of his own to bring an action. So he applied for legal aid and got it. His contribution to the costs was only £100 payable by eleven monthly instalments of £8.35. He started an action in 1972 against Marconis. The interlocutory stage took six years. Marconis paid £8,000 into court. I do not suppose for one moment that they considered themselves under any liability to David Manley: but they wanted to get rid of a case in which they would get no costs even if they won - because David Manley was legally-aided. David Manley refused to take out one £8,000. So the proceedings went on until the case was ready for trial. It was fixed to start on Tuesday, 3rd October, 1973, and was estimated to last for 30 days.
The action was, however, settled. Marconis were ready to pay £40,000 to get rid of it altogether - rather than incur that expense in fighting the case over 30 days against a legally-aided plaintiff. But here is the crux of the case. David Manley was not agreeable to settle for £40,000 - ifthat money was to he paid straight to his solicitors. David Manley was himself already insolvent. He had bankruptcy notices outstanding against him, but they were being held over pending the action. He owed at least £30,000 or more to his creditors. In addition, his own solicitors estimated their own costs on his behalf to be in the region of £25,000 - for which the legal aid fund would have a charge on the £40,000 if paid over to him or his solicitors. The legal aid fund would have to insist on their charge - and take it out of the £40,000, see Hanlon v. The Law Society (1980) 2 Weekly Law Reports at page 802. So there would be only £15,000 left for David Manley - and he would remain as he says in his affidavit "in a bankrupt situation".
THE PRESSURE BROUGHT BY DAVID MOTLEY
So David Manley (with the backing of his solicitors and counsel) said to himself: "I will only settle for £40,000 if that money is used first to pay off my creditors (of £30,000 or more), and then any balance (of £10,000 or less) can go to my solicitors - as a contribution to their costs - and they can get the rest of their costs from the legal aid fund". Marconis said: "We don't mind how you deal with the £40,000 as long as you accept that sum in settlement of the action".
David Manley brought this pressure to bear on all concerned. He said to them in effect: Unless things can be settled on these lines, I insist on the action going on for trial for the 30 - days - and that will put Marconis and the legal aid fund to enormous expense in costs.
Faced with this problem, David Manley's legal advisers put their thinking caps on and brought forward a solution which was eventually agreed between the counsel and solicitors for both sides.
TERMS SIMPLIFIED
1. Marconis to pay £40,000 into a joint account in the names of Kennedys (the solicitors for David Manley) and Coward Chance (the solicitors for Marconis). Then those two firms were to hold the £40,000 as agents for Marconis.
2. Kennedys (as agents for Marconis) were to negotiate with the creditors of David Manley and to pay them off - out of the £40,000 in the joint account belonging to Marconis. But in those negotiations Kennedys were not to disclose to the creditors that the money was coming from the account of Marconis. The creditors might then be induced to accept less than their full amount.
3. The payment off of the creditors should be made in the form of a purchase by Marconis of the debts which David Manley owed to the creditors. The creditors were to assign to Kennedys (as undisclosed agents for Marconis) the benefit of the debts. But Marconis undertook not to enforce the debts against David Manley.
4. After the payment off of the creditors, then if there was any balance left of the £40,000 it was to be paid to Kennedys (as David Manley's solicitors) as a contribution to his costs. On that being done, all claims of David Manley against Marconis were to be extinguished.
THE INFORMATION TO THE LAW SOCIETY
The legal advisers thought that those terms would deprive the legal aid fund of their charge. They thought that Kennedys would not have "recovered" the £40,000 for David Manley. They would only have "recovered" for David Manley the right to have the terms enforced. That was only a chose in action which was worth little or nothing in money. It only sufficed to keephim out of bankruptcy. The legal advisers thought that Kennedys could still recover their costs from the legal aid fund - despite having deprived it of the charge. Their justification for this advice was that, by settling on these terms, they would save the legal aid fund all the expense of a 30-day trial.
But the legal advisers felt that they ought to tell the law Society about the terms of settlement and get their opinion on it. I must say that it was a very rushed affair. The case was due to start on the morning of Tuesday, 3rd October, 1978. It was only the day before, at 9.30 a. m. on Monday, 2nd October, 1978, that Mr. Hames, Q. C., counsel for David Manley, telephoned the offices of the Area Secretary of the Law Society. He outlined the proposed terms of settlement and said he thought that the charge would not apply to the £40,000. The reply was that, in the opinion of the legal aid fund, the charge would apply. Later that day there were further discussions. In the result the legal aid fund felt itself unable to commit itself on such short notice to any firm view: and that Mr. Hames must exercise his own judgment on the right course to follow.
I must say that I think the Law Society acted with complete propriety. They could not possibly be expected - at such short notice - and on such meagre information - to look into this complicated matter and express any view upon it.
THE SETTLEMENT IS ANNOUNCED
On the morning of Tuesday, 3rd October, 1971 the case of Manley v. Marconi was in the list for hearing. As soon as it was called on Mr. Hames rose and made a short explanation. He asked for a consent order in the Tomlin form. The judge did not approve or disapprove. The terms were set out in a schedule to the order. It was all over in 19 minutes.
THE FOLLOW-UP
On the 17th October, 1978 Marconis paid the £40,000 into the joint account. David Manley's debts have been found to be - not £30,000 - but £48,000. So if the terms of settlement were implemented, the whole of the £40,000 would be used up in "purchasing" David Manley's debts. But the teres of settlement have been held up. The reason is because the legal aid fund are liable to pay Kennedys their costs of the action against Marconis, when taxed on a legal aid taxation. Kennedys put their costs at £25,000, but they have agreed to limit them to £17,000. The legal aid fund say that they have a charge on the £40,000 for that £17,000. Kennedys dispute it. They say that the legal aid fund have no such charge. These proceedings have been brought to resolve the issue. Pending the decision, the £17,000 has been retained in the joint account. The remaining £23,000 has been used - or will be used - to pay off some of David Manley's debts. In particular £20,000 of it has been used to pay a debt to a bank - and release some land which was given by David Manley to the bank as security.
THE ISSUE
Kennedys say that the £40,000 is not subject to the statutory charge. They say that the whole of the £40,000 should be used to clear off David Manley's debts - as far as possible - and that Kennedys themselves should be paid their own costs (fixed at £17,000) by the legal aid fund. The legal aid fund admit that they are liable to pay Kennedys the £17,000, but claim to recoup themselves out of the £40,000, because they have a statutory charge on it or alternatively they have an equitable claim to it.
THE STATUTORY PROVISIONS
The clause which gives Kennedys their right to have their costs paid is section 10(1) of the Legal Aid Act 1974, which says:
"A solicitor who has acted for a person receiving legal aid shall be paid for so acting out of the legal aid fund, and any fees paid to counsel for so acting shall be paid out of that fund".
The clause which gives the statutory charge is section 9(6) which says (omitting unnecessary words) that the net liability of the fund to the solicitor "shall be a first charge for the benefit of the legal aid fund on any property (wherever situate) which is recovered or preserved for him in the proceedings".
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