The Statutory Charge

May 2006

60.24 Recovery of costs of the proceedings

Where services have been funded by the Commission as part of the CLS, the cost of those services should be regarded as a loan to the funded individual. Where the individual can afford to do so they will be required to make contributions from capital and/or monthly contributions from disposable income. In cases where there is money or property in dispute, and funding is granted for services to obtain or retain that money or property, the statutory charge will apply if the proceedings are successful [note 1].

60.25 The statutory charge

The statutory charge is governed by the Community Legal Service (Financial) Regulations 2000 and applies where property is recovered or preserved. This may follow settlement of the matter between parties prior to the matter coming to court and is not contingent on there having been proceedings in court.

Any sums expended by the Commission in the provision of funded services under the CLS constitutes a first charge on any property recovered or preserved in the proceedings to which the services relates [note 1]. The amount of the charge is calculated to compensate the Commission for the net cost of funding the services provided (after assessment), which is the total cost of the funded services less any costs awarded against the other side (which are payable to the Commission) and any contribution already made by the funded individual.

Even if title to a property is not in issue but possession of it is, the charge will arise [note 2] . All property is caught by the charge, unless exempt by regulation [note 3]. Exempt property is currently limited to;

  • periodical payments of maintenance,

  • interim payments in Inheritance Act proceedings,

  • the first £3000 of any property in family proceedings,

  • the first 50% of a redundancy award,

  • any award made by the Employment Appeal Tribunal, and

  • state benefits and pensions, and any other property subject to a statutory prohibition on assignment.

60.26 Statutory charge to apply where funding withdrawn

Where a certificate has been revoked or discharged, the statutory charge for the costs incurred up to the date of discharge or revocation shall still apply to any money or property recovered as a result of the person or his/her trustee in bankruptcy or the official receiver continuing to take or defend the relevant pursuit or proceedings [note 4]. See also paragraph 60. 25.

60.27 Payment of monies award to someone other than the funded individual

Where proceedings result in the payment of monies or transfer of property to someone other than the funded individual (e.g. payment direct to a creditor) the charge will still arise [note 5].

60.28 Monies recovered to be paid to solicitor

All monies won, whether costs or damages, should be paid to the funded individuals solicitor, and not to the individual directly. [note 6] The only exceptions are where the payment is a periodical maintenance payment or is money thathas been paid into court to be invested for the client's benefit. In the case of money paid into court, the statutory charge will attach only to the amount that is sufficient, in the opinion of the Commission, to safeguard the interests of the Commission, and the Commission will notify the court in writing of that amount [note 7].

Once the monies are received, the solicitor may make a judgment as to whether it is exempt property (see paragraph 60.25) that may be paid to the funded individual. If it is not exempt property, it must be paid to the Commission. In cases where there is any doubt, the solicitor will most likely pay the monies to the Commission, who will refund them to the funded individual if they are judged to be exempt property.

Where the monies won are payable by a third party, including a trustee or liquidator, then the solicitor must give notice to the third party that the funded services have been funded by the Commission [note 8].

Where the official receiver as liquidator or trustee receives such a notice from a solicitor, he/she should pay any monies (which is most likely to be in the form of a dividend) to the solicitor, and not to the funded individual directly [note 9]. The solicitor will then deal with the receipted monies and account to the Commission appropriately.

60.29 Deferment of the statutory charge

The Commission has no power to waive the statutory charge except where the case was recognised from the start as being in the public interest and the Commission was prepared to fund this case as a test case but no others [note 10].

In certain cases the charge can be deferred [note 11]:

  1. If the property in question is the funded individual's (or his/her dependant's) family home, or in addition in family cases, if monies won above £3000 are to be used to purchase a family home for the funded individual or his/her dependants.

  2. The Commission is satisfied that the property in question will provide sufficient security for the charge, and

  3. The charge may be registered with the Land Registry against the property.

When the property is sold at a future date, the charge will be satisfied from the sale proceeds. Interest will accrue from the date of the registration of the charge at a specified rate on the lower of the value of the charge or the value of the property [note 12].

60.30 Official receiver to make enquiry of Land Charges Section

The official receiver must make enquiries of the Land Charges Section of the Land Registry to ascertain whether any charges are registered against property owned by a bankrupt. Where the official receiver discovers that there is an outstanding debt to the Commission registered as a statutory charge against property owned by a bankrupt, he/she must be aware that the Commission is entitled to settlement of the outstanding debt as a priority from the proceeds of the sale of the property [note 13] in accordance with the priority of charges.


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