The Law Society (Acting Through the Solicitors Regulation Authority) v Blavo

The Court of Appeal allowed the Law Society's appeal against an order setting aside two statutory demands served on Mr Blavo. The central legal question was whether costs recoverable under paragraph 13, Part II, Schedule 1 to the Solicitors Act 1974 are "for a liquidated sum" within the meaning of section 267(2)(b) of the Insolvency Act 1986. The court held that paragraph 13 creates a pre-ascertained statutory debt recoverable as a liquidated sum and that the existence of a right to a detailed assessment under section 71 of the 1974 Act does not alter the character of that debt. The court also concluded that, on the facts, Mr Blavo was practising as a solicitor through the recognised body (Blavo & Co) and that his practice was co-extensive with the company's business such that the intervention costs were properly recoverable from him. Finally, the court rejected arguments that the statutory intervention and challenge procedures unlawfully denied effective remedies under the ECHR.

Background and parties: The Law Society, acting through the Solicitors Regulation Authority (SRA), served two statutory demands on Mr John Blavo for costs said to have been incurred in interventions into Blavo & Co Solicitors Ltd and into Mr Blavo's practice at the company. The statutory demands relied on paragraph 13, Part II, Schedule 1 to the Solicitors Act 1974. The company subsequently went into liquidation and Mr Blavo applied to set aside the demands. HHJ Klein set the demands aside on the ground that the sums were not debts for a liquidated sum. The Law Society appealed.

Nature of relief sought: Enforcement by statutory demand of intervention costs; the respondent sought to set aside those statutory demands.

Procedural posture: Appeal to the Court of Appeal from His Honour Judge Klein (reported as Blavo v Law Society [2017] 1 WLR 4514).

Issues framed:

• Whether sums recoverable under paragraph 13 are "for a liquidated sum" within s.267(2)(b) Insolvency Act 1986 (the Liquidated Sum issue).
• Whether Mr Blavo had a practice distinct from the company's business or, alternatively, whether his practice was co-extensive with the company's business and therefore liable for the intervention costs (the Co-Extensiveness issue).
• Whether the statutory scheme and its limited time-limits for challenging an intervention denied effective remedies under the European Convention on Human Rights (the Exclusive Remedy / ECHR issue).

Court's reasoning: On the Liquidated Sum issue the court applied the test from McGuinness and concluded that paragraph 13 creates a pre-ascertained statutory liability: the statutory provision that "any costs incurred by the Society for the purposes of this Schedule ... shall be paid by the solicitor" supplies the machinery for ascertaining a sum which is a debt for a liquidated sum. The availability of a right to a detailed assessment under s.71 of the Solicitors Act 1974 does not change the character of the debt and can subsist alongside a statutory, liquidated obligation.

On the Co-Extensiveness issue the court construed the SRA rules and statutory framework. It concluded that Mr Blavo, as sole manager (director) and sole shareholder of the recognised body, was practising as a solicitor in that capacity and that his practice was co-extensive with the company's business. The words "practice" and "firm" in Schedule 1 should be read consistently with the SRA rules and glossary so as to capture authorised bodies; accordingly money and documents held by the company were "in connection with" his practice.

On the Exclusive Remedy / ECHR issue the court followed prior authorities (Holder and Sheikh) in holding that the statutory scheme, including the short time for challenging an intervention, strikes a proportionate balance in the public interest and does not breach the ECHR. The court therefore allowed the appeal and dismissed the respondent's notice.

Appeal allowed. The Court of Appeal held that costs recoverable under paragraph 13, Schedule 1 to the Solicitors Act 1974 constitute a debt for a liquidated sum within section 267(2)(b) of the Insolvency Act 1986; the existence of a right to detailed assessment under section 71 does not alter that character. On the facts, Mr Blavo was practising as a solicitor through the recognised body and his practice was co-extensive with the company’s business so that the intervention costs were recoverable from him. The court rejected ECHR and procedural challenges to the statutory scheme as unfounded.

Appeal from the High Court (Bankruptcy), His Honour Judge Klein, reported as Blavo v Law Society [2017] EWHC 561 (Ch) / [2017] 1 WLR 4514, to the Court of Appeal ([2018] EWCA Civ 2250). The Court of Appeal allowed the Law Society's appeal and dismissed the respondent's notice.