Handbooks Index

Part 7: Clawback and expenses


Chapter 2

Property recovered or preserved

2.1 Board's right to recoupment
2.2 Background
2.3 Net liability of the Fund
2.4 Recovery and preservation of property
2.5 What is property for the purposes of section 17(2B)?
2.6 The proceedings
2.7 What triggers the recovery or preservation?
2.8 Recovery or preservation of property in matrimonial proceedings
2.9 How does clawback interact with the Family Law (Scotland) Act 1985?
2.10 Substitution of property
2.11 Orders for transfer of property
2.12 Opposition to overstated claims for transfer of property
2.13 Pension sharing upon divorce
2.14 Date of valuation of property recovered or preserved
2.15 Treatment of unsecured debts
2.16 Treatment of continuing payments after relevant date
2.17 Can credit be given for the value of a claim which has been dropped?
2.18 Exemptions from clawback
2.19 Concluding the case
2.20 Payment and enforcement of the net liability

 

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Unless otherwise stated, "the Act" or "the 1986 Act" means the Legal Aid (Scotland) Act 1986, and “the regulations” means the Civil Legal Aid (Scotland) Regulations 2002.

2.1 Board's right to recoupment

 

Section 4(3)(c) of the Act requires us to pay into the Fund “any sum which is to be paid in accordance with section 17 of this Act out of property recovered or preserved for any party to any proceedings who is in receipt of civil legal aid”.

Section 17(2B) provides that “except insofar as regulations made under this section otherwise provide, where, in any proceedings, there is a net liability of the Fund on the account of any party, the amount of that liability shall be paid to the Board by that party, in priority to any other debts, out of any property (wherever situate) which is recovered or preserved for him –

(a) in the proceedings; or

(b) under any settlement to avoid them or to bring them to an end.”

 This is commonly known as “clawback”.

In addition, regulation 33 of the Civil Legal Aid (Scotland) Regulations 2002 gives a list of exemptions from clawback, and regulation 40 gives us enforcement powers.

You should also follow this guidance when assessing whether property has been recovered or preserved in advice and assistance.

If you think that a client may have to pay towards their case from property recovered or preserved, you should always

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2.2 Background

The current UK legal aid provisions on clawback are derived from the precursors to the Solicitors Acts and Solicitors (Scotland) Act. Similar provisions are in section 62(1) of the Solicitors (Scotland) Act 1980. These provisions allow a solicitor acting for a privately paying client to get a charging order to secure their fees and outlays from property recovered or preserved by the private client.

The principle underlying the right of a solicitor to get payment from property recovered or preserved was explained by Lord Ormidale in O’Keefe -v- Grieves Trustees 1917 SLT 305. He explained that it was a most reasonable principle, which ensures the law agent is paid where the client’s claim has been vindicated as a result of his agent’s intervention in the litigation.

The present UK-wide legal aid provisions therefore ensure that privately paying and legally aided clients are treated in the same way.

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2.3 Net liability of the Fund

Section 17(2B) does not provide a definition of “net liability”. However, section 4 of the Act explains what has to be paid into the Fund and what is paid out of the Fund.

Section 4(2)(a) requires us to pay solicitors and counsel for civil legal aid in accordance with the Act and regulations. To offset those payments, section 4(3) requires certain payments to be made into the Fund. Those payments are

The net liability is the loss to the Fund when payments to the solicitor and counsel exceed any contribution and expenses paid into the Fund. If there is such a loss, section 17(2B) explains that the assisted person must pay that loss (the net liability) to us from property recovered or preserved. Thus, the higher your account and fees claimed by counsel, the higher the likely net liability. If you ask for an increase in fees, this may mean your client has to pay more from any property recovered or preserved, unless the opponent pays sufficient expenses to offset your additional fee.

You can minimise the net liability by trying to ensure that, where appropriate, you seek expenses from the opponent and they actually pay these. You should refer to our guidance on expenses, in chapter 19.

The net liability only applies to amounts we pay for civil legal aid. It does not include any payments we make for any related grant of advice and assistance. You should refer to Part VII, paragraphs 1.1 to 1.12, about the payment of advice and assistance.

In a simple example, the net liability is calculated as follows:

 

 

Fees and outlays paid to solicitor

£2,000

less:

 

 

 

Contribution paid by applicant

£500

 

Expenses recovered from opponent

£1,000

 

 

£1,500

 

 

 

 

Net liability

£500

 

 

 


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2.4 Recovery and preservation of property

We recommend that you familiarise yourself with the decision of the House of Lords in Hanlon -v- The Law Society [1981] AC 124, which has guided the UK legal aid authorities in their approach to clawback.

Hanlon was a judgement of the House of Lords relating to an English assisted person who was subject to clawback under the Legal Aid Act 1974. Mrs Hanlon had pursued a divorce action in which she sought transfer to her of the matrimonial home, the title to which was held by her husband. He sought an order for transfer of any interest which she might have in the house.

Ultimately, Mr Hanlon was ordered to transfer the house to Mrs Hanlon. The court held that she recovered the husband’s interests in the house, and preserved her own interest. The court analysed the meaning of recovery and preservation of property, and dealt with several other issues covered in this section.

In particular, regard should be had to the speech by Lord Simon of Glaisdale at page 180, who explained that

“…Property has been recovered or preserved if it has been at 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. What has been in issue is to be collected as a matter of fact from pleadings, evidence, judgement and/or order. I can see no reason for extending the words to items of property, the ownership or possession of which has never been questioned”.

In other words, recovering property means someone has gained property as a result of the action. Preservation means that someone has kept property which has been put at issue because of a claim by the opponent.

We therefore have to look objectively at what the assisted person got or kept in the proceedings, or under a settlement either to avoid proceedings, or to bring them to an end.

Examples of cases where property is likely to be recovered are:

Situations in which property may be preserved include:

The decision in Hanlon remains the leading UK authority on the recovery or preservation of property in relation to legal aid. The Hanlon case was referred to with approval by Lord McCluskey in Cunniff -v- Cunniff 1999 SLT 992. His Lordship observed at page 998 that “there was ample material before the court to warrant the conclusion that, if the house had to be sold, the Scottish Legal Aid Board would be entitled to make a claim against the proceeds of the sale in respect of the net liability of the Fund on the account of either legally aided party… It appears to me to follow from Hanlon -v- The Law Society that the Legal Aid Board would be entitled to exercise this right.”

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2.5 What is property for the purposes of section 17(2B)?

The 1986 Act does not give a specific definition of property. The Compact Oxford English Dictionary definition is “the right to the possession, use, or disposal of something; ownership”. It therefore covers property of any type, whether heritable or moveable, corporeal or incorporeal. It extends to anything which can be owned and has material value.

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2.6 The proceedings

For section 17(2B), recovery or preservation takes place in the proceedings for which civil legal aid has been granted. In Hanlon -v- The Law Society, the court considered the proceedings were the totality of the proceedings in which the applicant had been involved. The proceedings would therefore cover any appeal, and any step taken under the grant of civil legal aid to physically secure the property (for example, a step in diligence).

Even if the property is physically secured through some means other than directly through the proceedings for which legal aid was granted (for example, a claim in a sequestration, or decree in an action of furthcoming), this will still count as property recovered or preserved.

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2.7 What triggers the recovery or preservation?

Section 17(2B) explains that the recovery or preservation takes place either in the proceedings or under any settlement arrived at to prevent them or bring them to an end. Property could be recovered or preserved could be made in the following situations:

In the last example, you should remember that you cannot provide advice and assistance in parallel to civil legal aid once civil legal aid has been granted. Section 7(2) of the Act prohibits giving advice and assistance in relation to proceedings for which legal aid has been made available.

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2.8 Recovery or preservation of property in matrimonial proceedings

2.9 How does clawback interact with the Family Law (Scotland) Act 1985?

There are no special rules for assessing recovery or preservation of property in matrimonial proceedings.

The principles in the Family Law (Scotland) Act 1985 concerning cases where the property recovered or preserved is less than one-half of the pool of matrimonial property, do not apply in legal aid cases.

It is irrelevant whether the property got, or kept, is greater or lesser than one-half of the pool of matrimonial assets. Provisions in other legislation cannot be read across into section 17(2B) or section 12(3) in respect of advice and assistance. We must look objectively at what a party actually got or kept under a settlement or order of court.

In other words, we must consider whether a party got, or kept, something which they would not have succeeded in getting, or keeping, were it not for the proceedings in which they had the benefit of legal aid.

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2.10 Substitution of property

In some settlements (mostly, but not exclusively, matrimonial cases), other property may be substituted for that which was originally at issue. In Morgan -v- Legal Aid Board [2000] 3All ER 974, the court held that property which is either directly or indirectly substituted, in whole or in part, under a settlement, for property which was at issue in the proceedings is property recovered or preserved in those proceedings.

It is irrelevant, when we are assessing whether an assisted person recovered or preserved property, that the assets were substituted within an overall fair sharing of matrimonial property . Substituting assets in a settlement is a separate issue from the assisted person dropping, or not pursuing, a particular claim. That issue is discussed in paragraph 2.17.
The following examples may be helpful:

 

Example 1

 

An assisted person wants the defender to pay her £200,000, but settles the action by agreeing that the defender should transfer a house to her. Although the house was not itself at issue in the proceedings, it represents, or replaces, the property which was at issue. Thus, the assisted person has recovered property.

 

Example 2

 

An assisted person seeks a share of the defender’s business. The defender has several policies in his own name which the assisted person is not claiming. On settlement, the pursuer agrees to drop her claim against the business in exchange for the defender transferring his policies to her. The pursuer has recovered the policies.

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2.11 Orders for transfer of property

These usually involve a claim for the transfer of the other spouse’s half share of the heritable title to the matrimonial home, although occasionally the opponent holds sole title to the house. In either case, questions of recovery or preservation of property will arise:

In Hanlon -v- The Law Society, the wife got an order transferring title in the matrimonial home from the husband, who was the sole owner of the house. The court was satisfied that the house was at issue in the proceedings and she had recovered property.

If a claim for transfer of property is successfully defended, the property is preserved, whether that claim is made by a pursuer or a defender (as a counterclaim in the defences). While the matrimonial home will form part of the pool of matrimonial assets, the heritable title is in issue in the proceedings.

In the same way, if someone agrees to give up their interest in the matrimonial home in return for some other property or money, they will have preserved property to the value of that other property or money.

An assisted person who both makes and resists a claim for transfer of property may not only recover, but also preserve, property within the same process.

The following examples illustrate recovery and preservation:

 

Example 1

 

The pursuer, an assisted person, owns a one-half pro indiviso share of the matrimonial home. There is no outstanding mortgage. She gets an order for transfer of the opponent’s share, worth £60,000 – this means she has recovered property to that value.

 

Example 2

 

A defender opposes the pursuer’s claim for transfer of property. Ultimately, he agrees to transfer his right, title and interest in the matrimonial home in exchange for £3,000. He has preserved his interest to the extent of £3,000.

Example 3

A pursuer is claiming a capital sum to the value of one-half of the matrimonial property. Her opponent is resisting this, and also claiming a share of her pension rights. If the pursuer succeeds in her capital sum claim and defeats the opponent's claim for a pension share, she will have recovered property in respect of her capital sum claim and preserved property by defeating the attack on her pension.

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2.12 Opposition to overstated claims for transfer of property

In some cases an assisted person may be resisting an overstated or spurious claim by their opponent, or one which apparently has no prospect of success. This fact is, however, irrelevant when assessing whether property has been recovered or preserved. Making a claim for transfer of property places heritable property at issue in the proceedings.

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2.13 Pension sharing upon divorce

A pursuer who gets an order for pension sharing in divorce proceedings recovers property, while a defender who successfully resists a claim will preserve property.

You must tell an assisted person about their obligation to pay this money to the Board, even though it may be many years before the pension matures. Your client may find it easier to settle the debt over the period between the order being made and the pension maturing. We need to know:

Staff in our Treasury Department will be happy to discuss the options with your client.

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2.14 Date of valuation of property recovered or preserved

The relevant date, as defined for family law, is not the date used for valuing property recovered or preserved. Property recovered or preserved is valued at the date of transfer or decree, whichever is earlier.

We therefore need to know:

We must see:

Where we have granted sanction for valuations of the property, you should send us the reports with your account. We may sanction further reports in particular circumstances, but you must ensure the applicant is aware that any further work will add to any amount they have to pay from property recovered or preserved. If you do not have a valuation, we will accept information about the selling price of similar property, at the date of transfer or decree, obtained from your conveyancing department or a Solicitors’ Property Centre.

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2.15 Treatment of unsecured debts

In some settlements, one party agrees to pay any outstanding matrimonial debt, in exchange for transferring property to the opponent.

Where it is clear that one party has taken on liability for unsecured debts directly in exchange for the transfer of other property, we will deduct the value of the unsecured debts (with any outstanding secured debts) from the market value of the property recovered or preserved in the proceedings.

You should clearly demonstrate in the joint minute, minute of agreement or supporting correspondence that any acquisition of debt is clearly and unambiguously directly related to the transfer of property to the opponent.

Where it is clear that one party has taken on liability for unsecured debts directly in exchange for the transfer of other property, we will deduct the value of the unsecured debts. However, we cannot take into account the full balance of any joint debts as each party will have had responsibility for their own half share to begin with. Nor can we take into account the balance of any debts in the sole name of one party as, again, they clearly have sole responsibility for these.

 

Example 4

 

The assisted person keeps the matrimonial home and, in turn, agrees to pay joint matrimonial debts in full. In assessing the value of the home, we will deduct the value of the debts as this is, in effect, a payment the applicant is making in turn for getting the home."

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2.16 Treatment of continuing payments after relevant date

An assisted person may continue to pay, for example, mortgage or insurance premiums after they have separated from a spouse but before the date of decree. We cannot deduct these sums from the value of the property recovered or preserved – we can only take into account any payments that relate directly to the transfer of property.

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2.17 Can credit be given for the value of a claim which has been dropped?

An assisted person may originally claim an asset from their opponent, but decide to drop the claim. This decision does not affect the value of the assets they have got or kept. Unlike the situation where we would deduct the value of debts directly taken on as part of a settlement, we cannot offset the value of a dropped claim against the property recovered or preserved.

In Hanlon -v- The Law Society, Lord Lowry explained that Mrs Hanlon could not offset the value of alimentary claims against the total value of the property recovered and preserved by her. The payments she had sought were never her property to give away or have taken from her, but merely claims. The same principle applies to decisions by applicants not to pursue or insist upon claims to particular items of matrimonial property owned by the opponent, such as a claim for payment from the opponent’s pension. Whilst these items may fall within the pool of matrimonial assets, the applicant only has a claim in respect of that property, not a right of ownership.

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2.18 Exemptions from clawback

You should refer to regulation 33, which contains a list of full and partial exemptions from clawback. This list does not exactly mirror the list of exemptions from property recovered or preserved for advice and assistance. If the particular property recovered or preserved is not described in regulation 33, it is not exempt from clawback.

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2.19 Concluding the case

To help us assess whether, and to what extent, property has been recovered or preserved in a particular case, you should send us full information with your account, including:

Use this guidance to help you answer the question on the account synopsis form about whether property has been recovered or preserved.

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2.20 Payment and enforcement of the net liability

Where liquid funds are available at the conclusion of the case, we will expect the net liability to be settled immediately. However, we only have to receive sufficient funds to meet the net liability. In calculating the net liability, we have to include

Where steps in diligence are needed to enforce the decree:

The cost of diligence will form part of the applicant’s net liability.

Sometimes, we may need to enforce payment of the net liability ourselves. Regulation 40(2) allows us to take such proceedings, or do diligence, in our own name or in the name of the assisted person, to give effect to a decree or settlement.

Where we take steps under regulation 40, our priority is simply to ensure the net liability is paid. It is not our duty to enforce a decree for an assisted person, and if we exercise powers under regulation 40, this is not a substitute for the assisted person taking their own enforcement steps.

We are not acting as agent for the assisted person, although if we recover any surplus funds we will hold these and make them over to them. If we have to decide whether property can be recovered, we will consult with the assisted person on the steps we have taken. However, section 34 of the Act prohibits us from disclosing any information about the debtor which has led us to make our decision.

Where the property recovered or preserved consists of or includes an interest in land, regulation 40(3)(b)(iv) allows us to require the assisted person to grant a standard security over that interest in our favour. If they fail to grant a standard security when required to do so, they will be in breach of their obligations under that regulation.

Interest accrues on the standard security at the current judicial rate of 8% a year. At a time of low interest rates, clients may find it more economical to get loans from commercial lenders to clear the net liability. We have no discretion to substitute a lower interest rate. The assisted person will be responsible for the costs of placing the standard security, although advice and assistance can be provided if the client is financially eligible.

Take care to ensure that neither the assisted person nor you deal with property without our consent. The assisted person is under a duty to meet the net liability from property they recover or preserve. If a solicitor deals in any way with, disposes or parts with funds to our prejudice, regulation 40(3)(b)(ii) allows us to deduct equivalent sums from any future payments due out of the Fund to the solicitor.

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