Third party debt orders and client accounts

Posted: 21st September 2018

SolicitorsThird 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 issue in a guideline case concerning an alleged financial fraud.

Two companies and an individual had launched proceedings against a businessman alleging fraud in connection with financial guarantee bonds and a credit facility. The claimants obtained a default judgment against him for about £2 million and an order freezing his assets worldwide. An interim third party debt order was also granted against him and his solicitors, 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 a debt due from the solicitors to any other person and the order had thus been granted on an erroneous basis and amounted to an abuse of process.

In dismissing the application, however, 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, 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 the client account, the businessman would be unable to obtain legal representation or that his participation in the ongoing 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 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 had fallen due by the date on which the order was served.