Court allows firm to take £386k in fees from frozen client account

Ward Hadaway: Contractual right of set-off

A law firm can be paid from monies held in its client account despite them being subject to both a freezing order and a third-party debt order, the High Court has ruled.

Master Bowles, sitting in retirement, said Newcastle-based Ward Hadaway had a contractual right of set-off to £386,400 held in a client account against unpaid legal fees of over £450,000.

The High Court heard that two companies, Next Generation Holdings and Ambon Brokers last year obtained judgments against Alec and Robert Andrew Finch for a total of £8.3m, including interest. Ward Hadaway acted for the Finches.

Next and Ambon were first granted a freezing order against the Finches and then an interim third-party debt order against Ward Hadaway in respect of £495,000 held by the firm in Alec Finch’s client account – ie, a debt owed by Ward Hadaway to Alec.

The money came from the proceeds of the sale of a property in Italy, £47,000 of which was paid before the freezing order was made.

Alec had previously discussed with Ward Hadaway about using some of the proceeds to cover his unpaid fees of £450,700. The hearing concerned whether the firm could claim a lien or set-off against the client monies.

The law firm conceded that either could only apply to what it billed before the debt order was made, which reduced its claim to £386,400.

The freezing order allowed the Finches to spend a “reasonable sum” on legal fees but Master Bowles held that this only applied to future fees, not those already incurred.

He said the freezing order did not displace Ward Hadaway’s lien over the £47,000, which it received at a time when there was no constraint on its use, but that “no further lien has arisen over the balance of the proceeds of the Italian property in that account”.

When it came to set-off, however, the judge said: “It seems to me that the retainer letter and terms of business establish a clear contractual right of set-off, in favour of Ward Hadaway; a clear right to deduct its fees from such monies as were held in favour of Alec in its client account, or to apply those monies towards its unpaid fees, as from the date of presentation of each relevant invoice; with the result that, as from the service of, or presentation, of the last such relevant invoice (28 September 2023), Ward Hadaway had an accrued right of set-off to the extent of £386,417.36.”

In any case, he went on, Ward Hadaway had the benefit of a common law set-off in respect of its unpaid fees.

“Where such a set-off exists, then, to the extent of that set-off, monies otherwise owing by the solicitor to his client and held in client account do not, by reason of that set-off, constitute a debt owing by the solicitor to his client… and cannot, therefore, fall within the ambit of an interim, or final, third-party debt order.”

Contrary to the position in respect of lien, the judge said he did “not think that the existence of the freezing order, as from 26 September 2023, affects, or precludes, Ward Hadaway’s entitlement to rely on set-off to the extent” of £386,400. This included the deposit monies.

Master Bowles added that Next and Ambon were entitled to have the interim third-party debt order made final for the other £109,500 in the client account, which Ward Hadaway did not dispute.

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