Supreme Court Ruling in Menzies v Oakwood Solicitors Ltd: Some Clarity with Questions Still Remaining **Edited**

The Supreme Court’s decision in Menzies v Oakwood Solicitors Ltd [2024] UKSC 34 provides some clarity on solicitor-client cost disputes, especially regarding what constitutes “payment” under section 70(4) of the Solicitors Act 1974. However, it is critical to understand that the ruling does not state that costs cannot be deducted from damages without agreement. Instead, it clarifies the conditions under which a deduction qualifies as “payment” for the purposes of triggering the 12-month time bar. You can read the full judgment here.

In essence, the Court found that for “payment” to be established under the Act, there must be an agreement—either express or inferred—as to the amount to be paid. This agreement is required for the 12-month time limit to start running, and without it, the clock does not begin. This is not a prohibition on deducting fees from damages; rather, it is a reminder to solicitors to take care in managing client agreements to ensure compliance with the Act’s requirements.

Practicalities for Solicitors

The ruling offers a degree of clarity on timescales for assessment challenges but leaves open questions about how exactly solicitors should handle deductions from client damages in practice. While the judgment reinforces the need for client consent, it does not outline specific procedures for documenting this consent. This ambiguity leaves firms navigating some uncertainty about how to protect themselves against future challenges.

To comply with the ruling and manage this risk, firms should focus on several key areas:

1. Retainer Terms: Solicitors will need to review and adjust retainer agreements, especially for cases where fees are deducted from damages. The ruling underscores that a clear agreement on the specific amounts to be deducted, ideally secured at key stages, may be necessary to meet the statutory requirements.
2. Communication Practices: The Court highlighted the importance of allowing clients to review their bill before deductions. Effective, documented communication will be vital, ensuring clients are informed and agree to the exact sums involved. Securing written consent, or otherwise documenting the client’s acceptance, will help establish “payment” and start the time bar.
3. Clarification of Timescales: While this decision clarifies that the time bar does not start without an agreement on the amount deducted, it also opens up the potential for more challenges. Firms should consider proactively discussing costs with clients, both early in the claim and at its conclusion, to manage expectations and prevent disputes. For smaller disputes, the Legal Ombudsman scheme may still offer a more efficient route, as noted in Karatysz v SGI Legal LLP. Access the judgment here.
4. Prospective Agreements: The ruling leaves room for solicitors to establish prospective agreements with clients regarding deductions. Firms should look into integrating such agreements as a way to secure client approval in advance and reduce the risk of open-ended timeframes for assessment.
5. Risk Management: For firms relying on deductions from damages, this ruling raises the stakes. The judgment signals that solicitors should be prepared to substantiate any deductions by demonstrating the client’s explicit or inferred agreement, whether through robust communication records, consent forms, or detailed engagement letters.

Conclusion

While this decision strengthens client protection, it doesn’t preclude deductions from damages. Instead, it clarifies that for a deduction to count as “payment” under the Solicitors Act, solicitors must ensure there is a clear agreement on the specific amount, which then activates the 12-month time limit for assessment challenges. Firms will need to adjust their practices accordingly, but with some ambiguity remaining, the full implications will likely continue to evolve. The Menzies decision guides but also presents practical challenges for solicitors as they navigate these nuances in cost disputes.

*The above article was edited slightly following further review of the decision, discussions with practitioners and other commentary provided elsewhere*