The Legal Ombudsman: more than a paper tiger

3 January 2014 by

LH Ltd v The Legal Ombudsman [2013] EWHC 4137 (QB) – Read judgment

Adam Wagner represented the Legal Ombudsman in this case. He is not the writer of this post

Does the Legal Ombudsman have teeth? That was, in effect, the question before the High Court in this judicial review brought by a former solicitor against a decision by the Ombudsman to reduce his fees following a complaint by one of his clients. The Court’s answer was a very clear yes. Where the Ombudsman has made her decision properly, taking relevant factors into account, it is likely to withstand judicial review challenge.

In this case, the solicitor in question had been convicted of a count of fraud following an investigation into his involvement in money laundering and had been imprisoned and struck off the roll of solicitors. His prison sentence served, he was now pursuing his former clients through the courts for unpaid invoices. He appeared on behalf of his firm with the court’s permission, arguing that the Ombudsman’s decision to reduce his fees from £5,000 including VAT to £1,500 plus VAT (in a case which had nothing to do with the money laundering allegations) was in excess of jurisdiction and was irrational.

The manner in which he argued his case gives this judgment wider application, as the Court rejected his arguments in turn. He argued (1) that the Ombudsman lacked jurisdiction to entertain a complaint in relation to the quantum of fees contractually due, (2) that the complaint was out of time (on the basis that the complainant had waited following the Ombudsman’s predecessor’s advice for him to issue an invoice for £5,000 rather than formally making her complaint at the time of the alleged poor service), and (3) that the Ombudsman’s decision was irrational.

The facts

The facts of the case were relatively straightforward. The complainant, Ms Lane, had instructed the solicitor to act for her on Conditional Fee Agreements (CFAs) in two sets of proceedings arising from building works carried out at her home. The builder was then declared bankrupt. The CFA did not specify whether discontinuance would constitute a win or a loss, and the covering letters accompanying the CFA were even less clear on the matter.

Following the bankruptcy, the solicitor wrote to Ms Lane “no point in continuing” and then “not sure if you want to… [formally enter judgment] and incur the costs or just discontinue – please confirm”. Ms Lane responded “just discontinue if it means that I don’t have to pay”. There was a subsequent conversation between him and Ms Lane in the course of which, the Court found, Ms Lane accepted that she was liable to pay him £5,000 in respect of his costs. He e-mailed her on 14 December 2009 stating that he had charged £5,000, but was then given a 17-month prison sentence for fraud. He did not then invoice her until 10 January 2011.

In the meantime, Ms Lane had complained to the Legal Complaints Service (the Ombudsman’s predecessor) that he had delayed in billing her, and that he was attempting to charge her under a CFA notwithstanding that the claim had been discontinued. The initial recommendation report written by the Ombudsman’s investigator said that the discontinuance had been a loss rather than a win, so that he was not entitled to any fees and should be required to waive his bill in its entirety. It also said that the time taken to render an invoice amounted to poor service. He responded that it was not for the Ombudsman to determine entitlement to a fee as a matter of contract, that the delay could not justify the decision to waive his entire fee, and that the complaint was time barred.

The Ombudsman’s provisional decision, issued on 1 September 2012, did not follow the recommendation report. It directed instead that his fees should be reduced to £1,500 plus VAT “in recognition of the way that [he] dealt with the costs of the claim”. The Ombudsman found that Ms Lane had accepted that his fee was due under the CFA, but noted that her role was “to decide what is fair and reasonable and that includes considering the circumstances in which this liability arose”, in particular that there was no evidence that he had fully advised Ms Lane of the financial implications of ending the CFA. he then had a further opportunity to comment, but chose not to do so and the provisional decision was made final on 27 September 2012.

Grounds of challenge

The solicitor argued that the Ombudsman, whose jurisdiction derives from the Legal Services Act 2007 (particularly, s.113), was not entitled to consider the complaint because the dispute related purely to the CFA contract between the parties and Ms Lane’s subsequent agreement to pay him £5,000. According to him, this fell outside the scope of “complaints which relate to services provided”.

The Court rejected this argument out of hand, saying that there is “no reason to read into… [the Legal Ombudsman Scheme Rules] an exclusion of complaints relating to the amount charged for services… it would be an artificial and unworkable distinction if the Ombudsman could consider the quality and levels of services but not issues of wrongful charging or overcharging”. Furthermore, as the Ombudsman’s final decision was based on a consideration of the level of service which he had provided in advising Ms Lane on what the CFA meant, there was no basis for saying that the complaint fell outside the Ombudsman’s jurisdiction.

He went on to argue, in the alternative, that the complaint was time barred under the Ombudsman’s own rules. The Court also found that this ground was without merit, saying that

where a client complains about the manner in which a solicitor has dealt with him in relation to charging, the conduct in question must be part of a continuing course of conduct, continuing until (and only crystallising as and when) the solicitor submits a fee note relating to the fees in question… prior to that, there is merely a potential cause for complaint, which may never materialise if the solicitor thinks better of the matter.

In any event, as the Court pointed out, the Ombudsman has the power to extend the time limits for bringing a complaint.

Finally, he argued that the Ombudsman’s decision was irrational because it failed to recognise that he was owed £5,000 under a contract. While the Court also rejected this for the same reasons as above, namely that the Ombudsman was entitled to reduce the fee because of the lack of advice given to Ms Lane about what the CFA meant in practice, it also noted that this complaint would have had some force if the Ombudsman had adopted the original recommendation report’s reasoning that discontinuance had represented a loss such that no fee was contractually due.

The court emphasised the wide discretion given to the Ombudsman under the LSA 2007, which provides (at s.137(1)) that:

A complaint is to be determined under the ombudsman scheme by reference to what is, in the opinion of the ombudsman making the determination, fair and reasonable in all the circumstances of the case.

The Judge’s conclusion on irrationality was that the decision fell squarely within that discretion:

… it was entirely open to the Ombudsman, exercising her wide discretion as to what is fair and reasonable in all the circumstances… to take into account the fact that there appeared to have been little or no explanation or advice provided to Ms Lane in relation to such matters in November 2009. The fact that the Claimant procured that Ms Lane entered a settlement agreement with the Claimant at the same time as discontinuing her claim against Mr Marshall does not remove (and possibly increases) the concerns that she was not properly advised as to her right and liabilities by the Claimant. In that context it is impossible to say that the Ombudsman’s view of what was fair and reasonable in all the circumstances, including the amount by which the Claimant’s fees should be reduced, was wrong let alone irrational.

Lessons to be learnt

This is not a case which will rewrite the rulebook, but it is of importance because it is the first Judicial Review ruling in relation to the Legal Ombudsman Scheme, having been set up relatively recently under the Legal Services Act 2007 (nb. a case did reach Strasbourg in relation to the similar but not identical Financial Ombudsman scheme – see Heather Moor). Perhaps the key point is that the court emphasised the very wide discretion of the Ombudsman , resting as it does on a subjective statutory test: “what is, in the opinion of the ombudsman making the determination, fair and reasonable in all the circumstances of the case“. 

Of course, although they cannot be appealed, poor Ombudsman decisions will still be vulnerable to Judicial Review challenges. But, those challenges will only succeed if the decision was so poor as to be irrational. This will, in practice, be a very hard test to meet and it was nowhere near met in this case; the judge said it was “impossible” to say that the decision was “wrong, let alone irrational”.

For solicitors, there are lessons from this case too. First (and perhaps obviously), when acting under a CFA, draft it properly, explain it clearly, and make sure your client understands what they are and aren’t liable to pay and when. Second, if the Ombudsman sends you a provisional decision, engage with it immediately rather than assuming you can bring a JR instead. Third, if you are thinking of judicially reviewing an Ombudsman decision, only do so if the decision is so poor that the High Court could realistically find that it is irrational.

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