Pine v Law Society

The court refused to make a declaration permitting set-off against a pre-existing substantial liability where the appellant remained primarily liable for that debt.

Solicitors operating under a conditional fee agreement do not obtain a lien against a third party before costs have been assessed and paid.

The court noted that bankruptcy set-off under Insolvency Act 1996 s.323 will operate if bankruptcy proceedings proceed.

The appellant succeeded on appeal against an order for assessment of costs payable by the Law Society in respect of solicitors acting for him in intervening proceedings.

The only outstanding issue was whether the court should make a declaration permitting the Law Society to set off its liability for the appeal costs against a substantial unpaid liability owed to it by the appellant arising from earlier unsuccessful disciplinary appeals.

The judge below was His Honour Judge Maddocks sitting as a High Court judge. The Court of Appeal dismissed the Law Society's contention that exceptional features (a conditional fee agreement and a pending bankruptcy petition) required a different exercise of discretion.

1. Overall disposition: The Court of Appeal dismissed the appeal against the order allowing assessment of the appellant's appeal costs and refused to make a declaration permitting set-off against the appellant's existing indebtedness to the Law Society.
2. Primary reasoning:
   1. The court would not, in justice, allow a defendant who is owed a substantial unpaid sum by a claimant to require the claimant, effectively, to defer payment of that debt and to force the defendant to pay the claimant's solicitors before assessment or payment had occurred.
   2. Solicitors who act under a conditional fee agreement bear the commercial risk of that arrangement. The court was not satisfied that such solicitors obtain a lien enforceable against a third party before costs are assessed and paid.
   3. The existence of a pending bankruptcy petition did not justify a different exercise of the discretion. If bankruptcy ensued, statutory set-off between mutual dealings would operate under Insolvency Act 1996 s.323, so a judicial declaration was unnecessary to protect the Law Society's position.
3. Practical guidance:
   1. Where a claimant owes a substantial sum to a respondent, the court will be reluctant to make a declaration allowing the respondent to set off newly awarded costs in a manner that imposes a pre-assessment benefit on the claimant's lawyers.
   2. The commercial allocation of risk under a conditional fee agreement is for the lawyers and their agreement. That allocation does not, without more, justify altering the ordinary exercise of the court's discretion on set-off.
4. Orders: Appeal dismissed. A minute to be lodged with the court concerning consequential steps and costs for detailed assessment.

• Court of Appeal (Civil Division): Appeal from an order of His Honour Judge Maddocks (sitting as a High Court judge). The Court of Appeal dismissed the appeal and refused to make a declaration permitting set-off.
• High Court: Order of His Honour Judge Maddocks allowing assessment of appellant's appeal costs (origin of the present appeal).