Khans Solicitors (A Firm) v Chifuntwe and another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeSir Stephen Sedley,Mr. Justice Ryder,Lord Justice Rix
Judgment Date08 May 2013
Neutral Citation[2013] EWCA Civ 481
Docket NumberCase No: A2/12/2408, CC1106668

[2013] EWCA Civ 481

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM The Hon Mr Justice McKay

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Rix

Mr Justice Ryder

and

Sir Stephen Sedley

Case No: A2/12/2408, CC1106668

Between:
Khans Solicitor (A Firm)
Appellant
and
(1) Chama Chifuntwe
(2) Secretary of State for the Home Department
Respondents

Mr Michael Biggs (instructed by Khans) for the Applicant

Mr Oliver Radley-Gardner (instructed by Treasury Solicitor) for the Second Respondent

The First Respondent did not appear and was not represented

Hearing dates: 6 March 2013

Approved Judgment

Sir Stephen Sedley

The story so far

1

Mr Chifuntwe, the first respondent to this appeal, had a dispute with the Home Secretary, who is the second respondent. He instructed Khans Solicitors and paid them £1500 on account of their fees. Khans instructed counsel and brought judicial review proceedings on his behalf. The Home Secretary settled the claim and agreed to pay Mr Chifuntwe's costs. Khans submitted a bill for just under £9,500; in July 2011 the Home Office offered £6,000 in settlement of it.

2

At this point Mr Chifuntwe wrote a letter to the Treasury Solicitor's costs draftsmen, dated 2 August 2011, with copies to his lawyers. The letter withdrew his instructions to solicitor and counsel with immediate effect, accepted the Treasury Solicitor's offer of £6,000 in settlement of his costs and required the money to be paid directly to him. The letter continued:

"… it is my understanding that since I have already paid my solicitors money they have shown little interest particularly in helping me to get my full recoverable costs back."

It went on to express concern that

"… my recoverable money is at risk of being reduced or even not paid back at all…"

3

Two comments should be made on this letter. First, it fails to say that not more than £1,500 of the recoverable costs were owed to Mr Chifuntwe; the rest was Khans'. Secondly, this court has no reason to think that Khans were in fact mishandling Mr Chifuntwe's case in any material respect.

4

Khans responded two days later with a letter warning Mr Chifuntwe not to interfere with the recovery of their costs. Then on 8 August they wrote to the Treasury Solicitor:

"We refer to our telephone conversation earlier today and write to confirm that Mr Chifuntwe is attempting to avoid paying costs properly due to us which would appear to be well in excess of £9,000. That is why we believe there is no other reason for him to contact you directly and accept £6,000 being the sum offered by the Treasury Solicitors Department, without the benefit of independent legal advice.

We are consulting counsel on the matter as to the claim that should be issued against Mr Chifuntwe and whether or not the Treasury Solicitor should also be included as a party, e.g. not to part with any costs in this matter (presently) that we understand have been agreed between you and Mr Chifuntwe directly (since his withdrawal of retainer with us).

We appreciate what you say, i.e. that you are of the opinion that strictly legally speaking, you can release £6,000 costs agreed with Mr Chifuntwe directly to him. However, we are of the opinion that since you are on notice of our very substantial claim (because of which we believe Mr Chifuntwe has withdrawn his retainer and accepted a much lower sum, i.e. to avoid payment of our costs) it will be imprudent to do so in the circumstances… There may be ethical/professional issues which we will also be looking into.

…………"

The letter concluded by asking the Treasury Solicitor to wait for five working days while counsel's advice was obtained.

5

On 17 August the Treasury Solicitor's costs draftsmen made an improved offer in the sum of £7,125, apparently forgetting that Mr Chifuntwe had already accepted their offer of £6,000. On 19 August, realising this, they withdrew it.

6

Khans followed their letter of 8 August 2011 with judicial review proceedings. These did not seek to prevent the Home Office paying their former client direct, but sought to avoid the £6,000 compromise which Mr Chifuntwe had entered into. The proceedings were issued on 21 September, but were struck out by Thirlwall J on 19 October because they related to a private law claim. We are not asked to decide whether this was a correct course for the court to take (cf. 54 CPR 20), but we are told that Khans did not learn of the strike-out until 4 November.

7

On 9 November 2011, by when Khans had taken no further step to protect their interests, the Treasury Solicitor paid the agreed sum of £6,000 to Mr Chifuntwe, who – as Khans had warned them might happen – has vanished with it.

8

Khans then issued these proceedings under CPR part 8, claiming a declaration that the £6,000 compromise was not valid, and either a charge or a lien upon the ( ex hypothesi) unpaid and as yet unassessed costs. The first defendant to the claim, Mr Chifuntwe, has been perceptible in the proceedings only by his absence. The second defendant, the Home Secretary, has contended successfully, first before Master Campbell, the costs judge, and then on appeal before Mackay J, that in the absence of any proof that she had colluded with Mr Chifuntwe to cheat Khans, she bears no further liability for costs.

9

The question for this court, following the grant of permission for a second appeal by Jackson LJ, is whether the master and the judge were right.

The decided cases

10

Mr Biggs, for Khans, and Mr Radley-Gardner, for the Home Secretary, have helpfully put before us a compendious body of authority from which the development of the law can be deduced. Because we do not propose to cite them all in detail, we will first list the cases and then describe as shortly as we can what we derive from them.

12

Scarman J in Re Fuld (No.4) stressed the readiness of the court, and the breadth of its powers, to safeguard a solicitor's entitlement to recover his costs. It has been accepted in the present case, accordingly, that if payment was improperly or irregularly made to Mr Chifuntwe, the Home Office must make the payment again to Khans – though in what sum is a question to which we shall also come.

13

It has always been accepted that an attorney has a lien for his own fees on money which comes into his hands on a client's account. The difficulties begin to arise where the money has been paid to the client, so that no possessory or effectual lien has yet come into existence. The line of authority which begins with Lord Mansfield's judgment in Welsh v Hole is consistent in holding that where the paying party has colluded with the opposing party to keep fees out of the hands of that party's lawyers – in other words, to cheat them — payment to the opposing party is not a good discharge of the costs debt. Ormerod v Tate was such a case – "a mere shuffle between the plaintiff and defendant," said Lord Kenyon, "to cheat the attorney of his lien." Judgment for the attorney, he considered, corresponded with "convenience, good sense and justice".

14

The evidential material in the present case does not implicate the Home Office or the Treasury Solicitor in any such collusion. The correspondence shows them to have taken notice both of the correspondence and of the abortive proceedings, and to have waited till the latter were disposed of before making payment to Mr Chifuntwe. It also shows Mr Chifuntwe to have constituted himself, by the date of payment, the sole receiving party. Mr Biggs has therefore fallen back on the proposition that the Treasury Solicitor's knowledge of Khans' unsatisfied interest in the recoverable costs was sufficient to impress the fund with a trust in their favour, or otherwise to render payment to Mr Chifuntwe ineffective to discharge the Home Secretary's liability for costs.

15

Is such notice a sufficient alternative to collusion? Lord Mansfield in Welsh v Hole was prepared to say it was:

"I am inclined to go still farther, and to hold that, if the attorney gives notice to the defendant not to pay till his bill should be discharged, a payment by the defendant after such notice would be in his own wrong, and like paying a debt which has been assigned, after notice."

It is also noteworthy that, although the claim in Welsh v Hole failed in the absence of either collusion or notice, Lord Mansfield was clear that the court, if alerted, had power to intervene in order to preserve the costs from dissipation.

16

More than one of the decided cases have come close to making law of Lord Mansfield's obiter dictum. One is White v Pearce, where a bona fide compromise of foreclosure claim was held not to relieve the paying party and his lawyer of their obligation to the receiving party's lawyer. Another appears to be Lord Kenyon's decision in Read v Dupper. Here notice had been given by the successful plaintiff's attorney not to pay the award of damages and costs direct to his client because the client had not yet paid his bill. Lord Kenyon made absolute a rule nisi requiring payment to be made afresh....

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