Statutory charge: Protection for work done

The Master of the Rolls Lord Donaldson gave this definition of the legal aid statutory charge in Watkinson v Legal Aid Board [1991] 1 WLR 419: ‘as every successful legally aided litigant soon learns, [the charge] is the statutory provision which transforms an out-and-out grant into a mere loan repayable out of any property recovered or preserved in the proceedings.’

The situation may arise less frequently now legal aid is so reduced, but it still may apply where property or money is received by a legally aided client in court proceedings. But the case of P v A Local Authority [2016] EWHC (Fam) is a reminder that the legal aid statutory charge can still bite on the proceeds of litigation. This article considers the operation of the charge and, briefly, its parallel private charge under section 73 of the Solicitors Act 1974.

In legally aided wardship proceedings P was granted a declaration that his adoptive parents – who had opposed his gender change – should receive no information about him. He was refused legal aid to seek damages from the local authority under section 7(1) of the Human Rights Act 1998. He pursued that application, and when he recovered £4,000 in damages, the Legal Aid Agency sought a declaration – which Mr Justice Keehan refused – that the charge attached in respect of the earlier wardship proceedings.

Origin of the charge

The charge derives from the solicitor’s lien on property recovered in court proceedings with their help. It was made statutory under a series of Solicitor Acts. The same concept has been part of the legal aid scheme since its inception in 1949. It is now defined by section 25(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012:

‘(1) Where civil legal services are made available to an individual under this part, the amounts described in subsection (2) are to constitute a first charge on – (a) any property recovered or preserved by the individual in proceedings, or in any compromise or settlement of a dispute, in connection with which the services were provided (whether the property is recovered or preserved for the individual or another person)...’

Where a party has a legal aid certificate for proceedings, and property or money is in issue – such as property adjustment order cases after domestic violence proceedings, lump sum proceedings by children, or damages claims – section 25(1) raises the following questions:

• What property was recovered or preserved?

• Was property in issue between the parties?

• What were the proceedings in which the property was recovered or preserved? and

• If so, was that property in issue in the proceedings?

These questions were considered fully by the House of Lords in Hanlon v The Law Society [1981] AC 124 (at that time the Law Society administered the legal aid scheme).

Imposition of the charge

The Hanlon case concerned a woman who had a legal aid certificate for matrimonial proceedings, including a defended divorce, domestic abuse, children proceedings, and to apply for property adjustment.

In the Court of Appeal – in a case which itself was well known at the time, Hanlon v Hanlon [1978] 1 WLR 592 CA – she secured an outright transfer of her house, subject to its outstanding mortgage, in exchange for her being willing to forego periodical payments for herself and the children. The Law Society said the charge operated on the whole property. Its full net value of £7,500 (£10,000 less statutory disregard of £2,500) was less than the cost of all proceedings covered by legal aid (£8,025).

Mr Justice Reeve held that the charge applied. The Court of Appeal agreed, though its members differed on points of detail. They gave Mrs Hanlon leave to appeal. In 1981 the charge was defined by the Legal Aid Act 1974, in section 9(6) and (7), and contained the same operative components as section 25(1).

What property was recovered or preserved?

Lord Simon explained that the term ‘property recovered or preserved’ was ‘taken from a succession of Solicitors Acts’ whose aim was to promote ‘the interest of a solicitor whose activity has resulted in a proprietary benefit to his client’. So, said Lord Simon (in words applied by the then Mr Justice Neuberger in Morgan v Legal Aid Board [2000] 1 WLR 1657), ‘recovered or preserved’ means:

‘In other words, property has been recovered or preserved if it has been in issue in the proceedings – recovered by the claimant if it has been the subject of a successful claim, preserved to the respondent if the claim fails. In either case it is a question of fact, not of theoretical “risk.” >>>> In property adjustment proceedings, in my view, it is only property the ownership or transfer of which has been in issue which has been “recovered or preserved” so as to be the subject of a legal aid charge...’

These words, and much of what follows, appear not to have been drawn to Keehan J’s attention in P v A Local Authority.

Property ‘in issue’ in the proceedings?

Only property in issue in proceedings can be ‘recovered’. Lord Simon continued that what is ‘in issue’ is a matter of fact to be ‘collected… from the pleadings’. Lord Scarman defined this: ‘A person recovers or preserves in legal proceedings only what is in issue between the parties: and one discovers what was in issue by looking to the pleadings and the evidence.’

In Curling v The Law Society [1985] 1 WLR 470 the parties were at issue over who should look after the children and, subject to that, who should live in their former matrimonial home. The case was settled by the wife retaining the children and accepting £15,000 for her share in the house.

Lord Justice Oliver explained that even though title to property may not have been in issue, property may be ‘recovered’ where ‘even though the title to property may not be in issue, the proceedings are necessary in order to reduce it into or restore it to the possession of its owner’ then ‘quite literally the property has been recovered’. The charge therefore applied to the money recovered by Mrs Curling.

Scope of the legal aid certificate

The ‘proceedings’ are those defined by the certificate. This may seem obvious, and seems to have been so to the judges considering the cases discussed here. The scope of a certificate defines the terms of the retainer of a legally aided lawyer. In Hanlon Lord Scarman explained this:

‘The charge is imposed on property recovered or preserved in proceedings in respect of which a contribution (it may be a nil contribution) by the assisted person to the legal aid fund has been assessed. The proceedings to which the contribution relates are specified in a legal aid certificate, the grant of which constitutes the person’s entitlement to legal aid… In the present case, therefore, the charge covers the divorce proceedings, and is not limited to the proceedings under section 24 for the property adjustment order. In most cases a reference to the legal aid certificate will determine the extent of the charge.’

In Watkinson the legally aided wife had a series of certificates, a later one of which was amended to cover variation of periodical payments proceedings. The variation proceedings were settled by payment of a lump sum. The charge applied to that sum, for the entirety of the amended certificate, though not to the proceedings covered by earlier discharged certificates.

Property in issue in the proceedings

In Hanlon the proceedings were the whole of the proceedings covered by the certificate. The property in issue was the whole property: Mrs Hanlon had recovered her former husband’s half and had preserved her own share from the application made by Mr Hanlon. The whole property had been in issue in the proceedings and therefore enough of the property was charged to the Law Society to protect the outlay by the legal aid fund.

1974 charge

The charge under section 73 of the Solicitors Act 1974 is a statutory definition of the solicitor’s lien in the following terms:

‘(1) Subject to subsection (2), any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceedings may at any time –

(a) declare the solicitor entitled to a charge on any property recovered or preserved through his instrumentality for his assessed costs in relation to that suit, matter or proceeding…’

It is further provided that any conveyance or act ‘done to defeat… the charge’ shall be void as against the solicitor. Thus in Khans Solicitors (a Firm) v Chifuntwe [2014] 1 WLR 1185, where C paid costs agreed with him direct to a solicitors’ client, the Court of Appeal said C, who had notice of the outstanding claim for costs, was still liable to the solicitors. Where solicitors and their legally aided client seek to evade operation of the charge, anti-evasion principles apply to any such scheme and the lawyers will not be paid (Manley v Law Society [1981] 1 WLR 335 CA).

A critical difference between the two statutory charges is that the legal aid charge arises as a matter of law from the operation of section 25(1) and the circumstances of the case, whereas the solicitor’s charge will only bite where the court makes a separate declaration for the solicitor (section 73(1)(a)). Where they apply, both charges protect cash for the benefit of those – taxpayer or practising lawyer – who have worked on the case, but not, as in P’s case, where the work was done on separate proceedings.

David Burrows is a solicitor advocate, trainer, writer, and a founder contributor to Family Court Practice. His most recent book is Evidence in family proceedings. He is a member of Resolution

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