Megantic Services Ltd v Dorsey & Whitney

An interim payment may be ordered where the court is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial sum. The court must take account of any relevant set-off or counterclaim and must limit the payment to a reasonable proportion of the likely final judgment. An appellate court should interfere with such a case-management decision only for clear error. A solicitor’s statutory billing requirement may be directory rather than mandatory, so an alleged defect in the signature of a bill does not necessarily prevent an interim payment where the claimant’s likely recovery remains substantial.

Dorsey & Whitney claimed unpaid legal fees from Megantic Services Ltd arising from extensive representation in VAT proceedings. Megantic defended the claim, counterclaimed for assessment and repayment of allegedly excessive fees, and argued that its financial position made payment impossible.

A Master ordered Megantic to make an interim payment of £175,000 under CPR 25.7. Applications to vary that order were refused. Megantic appealed the orders, arguing that the claim was disputed, that the counterclaim might reduce the recovery, that the payment would stifle the action, and that the bills did not comply with section 69 of the Solicitors Act 1974.

1. Appeals dismissed. The Master was entitled to order an interim payment of £175,000 and to refuse the subsequent applications to vary or discharge that order.
2. Under CPR 25.7, the relevant questions were whether, if the claim went to trial, Dorsey would obtain judgment for a substantial amount other than costs; whether any contributory negligence, set-off or counterclaim was likely to reduce the recovery; and whether £175,000 was no more than a reasonable proportion of the likely final judgment.
3. The Defence and Counterclaim contained general allegations of excessive fees and negligence but had not been developed with sufficient detail or force before the Master. The Master was entitled to conclude that the alleged counterclaims were not shown likely to reduce the recovery below £175,000. The alleged failure to recover costs in judicial review proceedings appeared unlikely to produce substantial damages.
4. The Master’s decision was a case-management decision. Full reasons were not required in an interim payment application. The High Court should interfere only where there was a clear mistake. The opportunities given to Megantic to provide detailed evidence and seek variation were material.
5. Megantic’s evidence that HMRC had exonerated it from involvement in VAT fraud was unsupported and materially overstated. The Master was entitled to regard that as affecting the credibility of the evidence relied on in support of the applications.
6. The argument concerning the signature of the bills under section 69 of the Solicitors Act 1974 did not alter the result. The statutory requirements were directory rather than mandatory. The court was attracted by a liberal interpretation of the expression “partner”, supported by Zuliani & Others v Vernon S Veira [1994] 1 WLR 1149, although that point was not finally decided.
7. In any event, the signature issue did not undermine the conclusion that the likely recovery was substantially greater than the interim payment.

1. High Court (Queen’s Bench Division): Appeals against the Master’s orders of 29 January, 7 February and 18 February 2008 dismissed.
2. Master: Ordered an interim payment of £175,000 under CPR 25.7 and subsequently refused applications to vary or discharge that order.