BCS Corporate Acceptances Ltd & Ors v Terry

A freezing injunction operates in personam and does not create proprietary security or priority for the claimant. An interim third-party debt order is different: it creates a defeasible charge over the debt owed to the judgment debtor and may prevent payment of legal costs otherwise permitted by a freezing injunction. Money paid into a solicitor’s client account after service is not caught. Money held on account of future fees remains the client’s money, and is a debt due from the solicitor to the client, unless and until a bill is rendered and becomes payable. Whether a final order should be made is discretionary and may require consideration of competing creditors and equitable factors.

The defendant sought directions concerning funds held in his solicitors’ client account, together with discharge or variation of an interim third-party debt order. He contended that the funds were third-party litigation funding, that legal expenses were permitted by an existing freezing injunction, and that some or all of the money was not a debt due from the solicitors to him.

The claimants relied on the judgment debt, opposed payment out, and maintained that the issues concerning ownership and entitlement to the funds should be determined at the full inter partes hearing. The central questions concerned disclosure, abuse of process, set-off for billed and unbilled legal fees, and the effect of money held on account during an ongoing retainer.

1. The application was dismissed. The freezing injunction did not itself prevent payment of reasonable legal expenses. The claimants raised no objection under that injunction. The issue was instead the effect of the interim third-party debt order.
2. A freezing injunction operates in personam. It preserves assets but gives no proprietary security or preferred-creditor status. A third-party debt order is an enforcement mechanism against a particular debt. An interim order creates a defeasible charge over that debt and can therefore prevent payment of legal fees which would otherwise be permitted under the freezing injunction.
3. The two-stage procedure under Civil Procedure Rules 1998 Part 72 requires the court first to make an interim order and then to determine at an inter partes hearing whether a final order should be made, the interim order discharged, or disputed issues tried. The interim order attaches only to the debt existing at service. Later payments are not caught.
4. In the ordinary case, money in a solicitor’s client account is a debt owed by the solicitor to the client. Billed fees which had fallen due before service could, in principle, be set off. Unbilled work in progress could not. Money held on account of future fees also remained the client’s money. Until a bill was rendered and became payable under the applicable rules, the solicitor had no debt or lien capable of set-off against the client’s entitlement.
5. The court declined to determine on this application whether the funds were ultimately owned by the defendant or a third-party funder. Conflicting evidence and credibility issues meant that ownership and the identity of the creditor were matters for the full hearing. The interim order therefore remained in force over the disputed balance.
6. The application was not an abuse of process. Enforcement of an existing judgment was not rendered abusive merely because it might affect litigation funding. Any stifling argument could be addressed through a stay or alternative funding. The defendant had not shown that representation would otherwise be unavailable.

First-instance decision. The judgment records that permission to appeal from an earlier order had been granted by the Court of Appeal, but this application was concerned with the interim third-party debt order and related directions.