How Do Third Party Debt Orders Affect Solicitors’ Client Accounts?

January 24, 2019

Third party debt orders can be a powerful means of enforcing judgments, but how do they affect funds held in solicitors’ client accounts? The High Court considered that issues in a guideline case concerning an alleged financial fraud.

What happened?

Two companies and an individual launched proceedings against a businessman. They alleged fraud in connection with financial guarantee, bonds and a credit facility. The claimants obtained a default judgment against him in the region of £2 million and a worldwide freezing order over his assets. In addition an interim third party debt order was granted against both him and his conditions, effectively freezing funds that were held under his name in the law firm’s client account.

In applying to set aside the interim order, the businessman argued that the money in the client account belonged to his employers, who had been funding his defence to the litigation. Alternatively, the funds were owed to the solicitors in discharge of their reasonable fees. The money was not for payment of a debt due to the solicitors to any other person and the order was therefore mad incorrectly amounting to an abuse of process.

In dismissing the application, the Court observed that money held in a solicitor’s client account is generally viewed as money owed by the Solicitor to the client. The fact that the relevant sums were held in a client account did not, without more detail, indicate that those sums would be used to discharge the client’s legal expenses of litigation.

The Court did not accept that, without access to the funds in questions, the businessman would be unable to obtain legal representation or that his participation in the on-going litigation would be stifled. The order had not been obtained on the basis of non-disclosure of information, or for an illegitimate collateral purpose, and was not an abuse of process.

The Outcome

The Court noted that the matter would be reviewed if the businessman was able to present good evidence that he had no interest in the funds in the client account, or that the solicitors had rendered invoices that ha fallen due by the date on which the order was served.

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BCS Corporate Acceptance Limited & Ors v Terry. Case Number: HQ12X05102