McMillan Williams v Range
Court of Appeal 17 March 2004

McMillan Williams was a three partner firm of solicitors covering the Surrey and South London areas through five offices. They recruited Sarah Range, a qualified solicitor, to the post of assistant solicitor in May 1997. The contract provided for her payment by commission, and wrote to her as follows:

“Your initial advance salary will be £22,000 per annum based on our two year rolling contract system.  However you will be paid on a commission only contract and will be paid one-third of all your paid bills.

We recognise that when fee earners start with us it takes time to generate a flow of paid bills and for that reason in the first two years the expectation is that the billing will be at least three times what has been paid as a “salary”.  At the end of the two years there is a balancing exercise.  Any billing in excess of three times what has been paid is paid by way of six monthly bonus.”

The contract of employment stated at clause 9:

(a)   you will be paid commission of 33% of all profit costs paid on bills delivered by you or on which a proportion of the profit costs is allocated to you.  In anticipation of the commission you will receive you will be paid a monthly advance on your commission equivalent to £22,000 per annum.  The amount of the monthly advance may be varied by mutual agreement.

(b)  the first calculation of commission payable to you will be after you have been employed two years (unless your employment is terminated earlier in which case the provisions set out at (d) below apply).  The difference between the commission payable to you and the total advance paid will be calculated (“the calculation”) and any excess of commission payable over the total advance paid will be paid to you as bonus.  Any shortfall is payable by you.  After the first two year period the calculation will be carried out at the end of each six month period.  At the discretion of the partners any shortfall may be carried over to the following six month period.

(c)   any excess or shortfall arising from the calculation is interest free until it exceeds £10,000.  Thereafter the whole sum will attract interest at 5% over Bank of Ireland base rate and will be paid either by you or to you at the end of each month that the excess or shortfall exceeds £10,000.

(d)     on the termination of your employment, howsoever occasioned, a final calculation will be carried out.  No payment will be made for unbilled work in progress or profit costs that are unpaid.  Any excess or shortfall on the final calculation will be paid by you or to you within twenty-eight days and you will accept that as full and final payment under this contract.”

Unfortunately, the work she obtained for the firm was largely legally aided, and so poorly paid. She thus earned considerably less than the £22,000 salary which she was being paid, and so resigned in November 2000. The firm then pursued her for £18,333.19, being the overpayment and interest as provided for under clause 9.
Her defence was to allege that the firm had negligently misrepresented the volume and quality of work, which she would have been able to obtain. She also argued that the effect of the contract was to make advances to her against future commissions and thus was an agreement regulated by the Consumer Credit Act 1974, and unenforceable, in that it was not documented correctly.
This last point was taken as a preliminary issue at Brighton County Court, where the firm’s claim was dismissed. They appealed, and the firm argued that the payments in advance were not credit, because she was receiving the money in the process of earning it. Her contractual duty was to perform her service, not incurring an obligation to repay the advances in money, which was the hallmark of credit.
The court agreed, by reference to an earlier case, Nejad v City Index Ltd. (2001), which was about a credit account set up to allow for betting on the movement of various financial indexes. In that case, the judgment stated:

“Where it is completely uncertain whether the arrangements between the parties will give rise to a debt at all, there is no “credit” merely because those arrangements postpone any obligation to pay until such time as the future possible indebtedness has crystallised.”

There can be no credit agreement unless the parties intended to set up such an agreement at the time when they contracted. Here, the contract was one for payments to be made in advance of the services to be supplied. There was no certainty that Ms Range would be in debt, since it depended on her earnings. Therefore there was no provision of credit.

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