Khans Solicitor (A Firm) v Chifuntwe & Anor

A court will protect a solicitor’s claim to funds recovered or due to be recovered by a client where the paying party either colludes with the client to defeat the solicitor’s fees or has notice that the solicitor claims outstanding fees from the fund. Collusion is not essential. Once clear notice has been given, direct payment to the client is made at the paying party’s risk and may not discharge the liability.

The protection should ordinarily be preventive, including payment into court pending allocation, but may require payment twice in an appropriate case. A compromise made before the paying party receives notice may remain binding, even though a later payment under it is ineffective against the solicitor’s notified claim.

A solicitor acted for a client in judicial review proceedings which the Home Secretary settled with an agreement to pay the client’s costs. The client dismissed his lawyers, accepted an offer of £6,000 and directed that payment be made to him. The solicitor then notified the Treasury Solicitor that most of the recoverable costs represented unpaid fees and requested that payment be withheld.

After the solicitor’s unsuccessful judicial review proceedings concerning the compromise had ended, the Home Secretary paid the client, who disappeared with the money. The solicitor sought a declaration that the compromise was invalid and a charge or lien over the costs. Master Campbell and Mackay J held that the Home Secretary had no further liability because collusion to cheat the solicitor had not been proved.

The central issue on the second appeal was whether notice of the solicitor’s claim, without collusion, made the subsequent direct payment ineffective as a discharge of the Home Secretary’s costs liability.

1. Appeal allowed in part. The court held unanimously that equitable protection of a solicitor’s claim to recovered funds is available by two alternative routes: collusion between the paying party and the client to cheat the solicitor of fees, or notice to the paying party that the solicitor claims outstanding fees from the fund. Collusion is not necessary where sufficient notice has been given.

2. A paying party who knows that the receiving party’s solicitor claims fees from some or all of the money due pays the receiving party directly at its own risk. The protection should ordinarily operate preventively. In a proper case, however, payment made in disregard of notice will not discharge the costs debt and the paying party may be required to pay again.

3. The court disapproved the reasoning in Brunsdon v Allard insofar as it treated notice as capable of operating only through an analogy with an equitable assignment. Notice and collusion are parallel grounds for equitable intervention because each interposes the unpaid solicitor’s entitlement between the paying and receiving parties. The reasoning of Ross v Buxton on that point was approved.

4. The preferable course after notice will often be for either the solicitor or the paying party to seek payment of the disputed fund into court pending determination of its allocation. That course avoids forcing the paying party to choose between the client and solicitor and preserves their competing interests.

5. The client’s £6,000 compromise was binding because he was acting in person and the Treasury Solicitor had not then received notice of the solicitor’s contrary claim. The later disbursement stood differently. By the time of payment, the Home Secretary had clear notice that all but £1,500 of the fund represented the solicitor’s unpaid fees. Applying White v Pearce, payment to the client was not a good discharge of that notified claim.

6. The compromise therefore remained effective, so the appeal was dismissed to that extent. The Home Secretary was ordered to pay the solicitor £4,500, representing the agreed £6,000 less the £1,500 which the client was entitled to recoup. Ryder J and Rix LJ agreed with Sir Stephen Sedley.

1. Court of Appeal (Civil Division): The appeal in [2013] EWCA Civ 481 was allowed in part. The £6,000 compromise remained binding, but the Home Secretary was required to pay £4,500 to the solicitor because payment to the client after notice did not discharge the notified claim.
2. High Court: Mackay J dismissed the solicitor’s appeal from Master Campbell, holding that the Home Secretary had no further liability in the absence of proof of collusion.
3. Costs judge: Master Campbell rejected the solicitor’s claim against the Home Secretary.