Little v Bloomsbury Law Solicitors

A solicitor holding sale proceeds may reasonably delay payment where genuine doubts exist about the client’s entitlement. Once investigation has continued for an appropriate period, the solicitor must either release the funds or seek the court’s directions. Costs incurred after a final costs order are not ordinarily costs “of or incidental to” the concluded proceedings. Interest on client money must be fair and reasonable in all the circumstances. Here, interest was awarded at base rate with annual rests, while further costs incurred after the winding-up order were disallowed.

The claimant sold a property through the defendant solicitors. The defendant retained the balance of the proceeds because it suspected that the claimant might not be the true owner and had no right to sell the property. The claimant later presented a winding-up petition against the defendant, which was dismissed with costs on an indemnity basis.

After the petition had been dismissed, the defendant continued investigating the claimant’s identity and deducted assessed costs, interest and further costs from the proceeds before making a partial payment. The claimant challenged the deductions and sought additional interest. The central issues were whether the further costs were recoverable, when interest on the costs stopped running, and what interest was payable on the retained client money.

1. Retention of funds. The defendant had reasonable grounds for suspicion in the months after completion and was entitled to withhold the proceeds during that period. By the end of November 2018, however, continued investigation was no longer appropriate. The defendant should either have paid the balance or applied to the court for directions. It should also have sought permission to deduct its assessed costs and accrued interest.
2. Interest on the costs order. Interest on costs ran from the date of the order containing the costs obligation, applying the incipitur principle confirmed in [2012] EWCA Civ 137. The claimant’s offer of 30 November 2018 was effective to stop interest running from 1 December 2018.
3. Further costs. Section 51(1) of the Senior Courts Act 1981 did not permit the defendant to recover costs incurred after the winding-up petition had been finally dismissed as costs “of or incidental to” that petition. The further work related to a new and continuing dispute. The defendant was not entitled to profit or remuneration as a trustee, and much of the expenditure would have been avoided had it sought the court’s protection.
4. Interest on client money. The defendant had not misused the money for its own benefit, so an award under the inherent or equitable jurisdiction was inappropriate. Under rule 2.3 of the SRA Accounts Rules 2011, the fair and reasonable amount was interest at base rate, compounded annually, from 12 June 2015 to 1 April 2019, giving credit for interest already paid.
5. The defendant was entitled to interest on the assessed costs only up to 1 December 2018, was not entitled to deduct the further £15,382.50, and was required to pay the prescribed interest on the retained balance. Costs of the claim were reserved.