Civil litigation

Can I make a Sears Tooth agreement with a client having trouble paying their bill?

My client is having difficulty paying my bills, but their prospects of an ample divorce settlement are strong. Can I use a Sears Tooth agreement in which I am assigned a charge over part of their eventual settlement? What other options are there?

A Sears Tooth agreement, named after Sears Tooth (a firm) v Payne Hicks Beach (a firm) [1998] 1 FCR 231, provides for security for a credit arrangement concerning disbursements or professional fees.

Under rule 6.2 of the SRA Financial Services (Scope) Rules 2018, solicitors, RELs or RFLs practising from Solicitor Regulation Authority (SRA)-authorised firms must not:

  • enter into a regulated credit agreement as lender, or
  • exercise, or have the right to exercise, the lender's rights and duties under a regulated credit agreement

which is secured on land by a legal or equitable mortgage.

The definition of a regulated credit agreement is set out in article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544, as amended). This brings it within the scope of the Consumer Credit Act 1974 and secondary legislation.

Provided the security is not on land by way of a legal or equitable mortgage, the Scope Rules allow a firm to enter into a regulated credit agreement as lender where the regulated credit agreement relates to the payment of disbursements or professional fees.

According to Wilson J in Sears Tooth, solicitors must advise the client to seek independent legal advice before entering into the agreement. Once the agreement is agreed and signed, it’s disclosed to the court.

Sears Tooth agreement precedents

Our library can supply a precedent via Lawdocs, our document supply service, for a standard fee. Email library@lawsociety.org.uk or call 0207 320 5946.

For more information, see the SRA’s guidance on consumer credit and Q&A on regulation of consumer credit activities.

Alternatives to Sears Tooth agreements

A Sears Tooth agreement places a heavy burden on the firm, particularly when a case moves slowly through the courts.

No payment will be made against a Sears Tooth agreement until a settlement is reached, by which time a new firm or litigant in person may be in control of the case, although the agreement will still bind over the settlement proceeds.

If there are no surplus proceeds (over and above property/pensions) then the client will have no funds from which to pay.

Litigation loans

There are now less risky alternatives to the Sears Tooth agreement, which did not exist when the case was decided and are more favourable to the firm.

Many specialist lenders will make litigation loans to those going through a divorce. Information about them is published in Litigation Funding magazine.

Such lenders offer good terms for divorcing parties with little or no risk to the firm. The client enters into the agreement and the solicitor draws down funds as and when they are needed. The client pays interest on those funds drawn down.

Section 22ZA application

A third option is to contemplate making an application under section 22ZA of the Matrimonial Causes Act 1973 for the other party to pay the legal fees if they are the higher income earner.

This needs to be assessed properly before an application is made, as costs orders could be made if the application is unsuccessful.

Disclaimer

While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

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