Truex v Toll

For a bankruptcy petition based on solicitor’s fees, the petitioning creditor must establish a debt for a liquidated sum under the Insolvency Act 1986. An unassessed bill for reasonable remuneration remains unliquidated, even after expiry of the statutory period for seeking assessment. It becomes liquidated only through judicial assessment or determination, or through a binding agreement supported by consideration or an estoppel. A mere admission, acknowledgement or failure to challenge the bill is insufficient. The liquidated nature of the debt is separate from whether the debtor has a genuine dispute. A statutory demand may establish inability to pay, but cannot cure the absence of a liquidated debt.

The defendant appealed against a bankruptcy order made by Chief Registrar Baister on 14 July 2008 on the claimant solicitor’s petition for unpaid fees. The fees arose from matrimonial proceedings and were claimed in two invoices which had not been judicially assessed. The defendant had served notice stating that there was a substantial dispute and that the bill should be reviewed under the assessment procedure, and later issued out-of-time assessment proceedings under section 70 of the Solicitors Act 1974.

The Chief Registrar concluded that the defendant had admitted the invoices and that there was no bona fide dispute, or alternatively that at least £750 was due. The central issues were whether the invoices represented a liquidated debt for the purposes of section 267 of the Insolvency Act 1986, whether any admission was binding, whether an estoppel arose, and whether the notice amounted to an informal application for assessment.

1. Appeal allowed. Mrs Justice Proudman held that the bankruptcy petition could not be founded on the invoices because the debt was not a liquidated sum within section 267 of the Insolvency Act 1986.
2. A solicitor’s unassessed bill is ordinarily a claim for reasonable remuneration. It remains unliquidated until judicially assessed, determined in an action, or otherwise converted by a binding legal mechanism. Expiry of the period for the client to seek assessment under section 70 of the Solicitors Act 1974 did not change that character. The approach in Thomas Watts & Co v Smith [1998] 2 Costs LR 59, Turner & C v O Palomo SA [2000] 1 WLR 37 and R (on the application of Joseph) v Manches & Co [2002] EWCA Civ 188 supported that conclusion.
3. Conversion could occur through a binding agreement supported by consideration, such as an agreement for a fixed amount, agreed rates and time, or a compromise, or through estoppel. Exceptional cases might permit quantification by an objective arithmetical standard. A mere acknowledgement was insufficient. The questions whether a debt was liquidated and whether it was genuinely disputed were separate, and the bankruptcy court could not value the bill to find that at least £750 was undisputed.
4. There was no sufficient estoppel. The claimant’s expenditure in pursuing the statutory demand and petition was not the necessary alteration of position, since otherwise an estoppel would arise in virtually every case.
5. Alternatively, there was no clear and unequivocal admission of liability. The defendant’s statements that she was willing to pay were qualified by her request for an explanation and discussion of the work and charges. An application for assessment could be made informally, but the notice relied on did not amount to such an application.

• High Court (Chancery Division): appeal against the Bankruptcy Order made by Chief Registrar Baister on 14 July 2008 allowed.