Insurer which settled directly with accident victims must pay solicitors' costs (Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd)
Nigel Teasdale, a partner at DWF LLP, examines the Supreme Court's decision that the respondent firm of solicitors was entitled to enforce the traditional solicitor's lien against the appellant after the latter had settled directly with the six individuals who had been injured on terms which did not include payment of the respondent's costs or disbursements. The respondent firm of solicitors had entered into conditional fee agreements (CFAs) with the six individuals who had been injured in road traffic accidents (RTAs) involving drivers insured by the appellant insurer.
What are the practical implications of the judgment?
The Law Society, which intervened in the Supreme Court case, is now encouraging claimant law firms to take action against insurers in respect of historical claims. Talk of data sweeps and letters before action abound on social media, however, our understanding is that whilst pre-medical offers are fairly common, making pre-medical offers to represented claimants without meeting solicitors' costs has never been particularly widespread in the industry.
There is the obvious need for claimant firms to reflect on the content of their retainer letters and CFAs but, as that was flagged at the first round of this contest, it would be surprising if that has not already been done.
As far as the future is concerned, the proposed ban on pre-medical offers in the Civil Liability Bill should make the arguments redundant.
At the original hearing, it was alleged that the appellant's conduct had been unlawful on a number of grounds, most of which were aimed at its conduct in contacting the RTA claimants directly. However, like the Court of Appeal judgment, the Supreme Court focused on the equitable lien aspect only and did not look at causing loss by unlawful means, misuse of personal information and breach of the Data Protection Act 1998 (DPA 1998), which is soon to be replaced by the General Data Protection Regulation 2016/679. As a result, there is no further specific guidance on those interesting points and so, the judgment does not seemingly affect contacting represented claimants as long as the relevant solicitors' costs are paid.
Indeed, Lord Briggs was 'prepared to assume that an offer of a settlement payment, made direct by the insurer to the claimant, which makes no provision for payment of Stage 2 fixed costs, disbursements and a success fee to the solicitor, at a time when a case has entered and not yet left the scheme, is a breach of paragraph 7.37 of the RTA Protocol'. This seems to be the main criticism of the appellant's conduct—that the offer did not include provision for costs, rather than any criticism of making the offer to the claimant directly.
What was the background?
A number of individuals were involved in RTAs involving vehicles whose drivers were insured by the appellant. These RTA claimants entered into CFAs (before the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012) with the respondent, which submitted the claims to the Ministry of Justice's (MoJ) RTA portal. A short while after the claims were submitted, the appellant made settlement proposals directly to the RTA claimants on terms which did not include consideration of solicitors' costs. The RTA claimants accepted the offers and terminated their CFAs with the respondent.
The respondent brought proceedings to seek the fixed portal costs to which they would have been entitled if they had retained the case. The costs which were the subject of the action amounted to approximately £12,000 but the outcome of the action would have significant financial consequences for numerous previously settled claims. Lord Briggs noted in his judgment that this was sufficiently large scale for the determination of the dispute to have financial consequences running to 'many millions of pounds' and the Law Society was also allowed to intervene in the Supreme Court.
The respondent alleged that the appellant's conduct had been unlawful on a number of grounds, most of which were aimed at its conduct in contacting the RTA claimants directly. These grounds included the misuse of confidential information, breach of the MoJ Protocol and breach of the DPA 1998. The judge at first instance dismissed the claim on all of the grounds.
The appeals to both the Court of Appeal and Supreme Court subsequently focused on one technical ground only—whether the appellant had prevented the respondent from establishing a lien on the settlement monies for their costs, thereby justifying the court's equitable intervention by ordering the appellant to pay those costs.
An equitable lien operates like a charge over recovered damages so that if the individual parties collude to cheat a claimant's solicitors out of their costs, or alternatively if the defendant is on notice that the solicitor has a claim on the funds, then the court can order the defendant to pay the costs on top.
In this case, for the lien to exist in the first place, there needed to be a contractual liability for the RTA claimants to pay the respondent's fees. The question of whether that contractual liability existed depended on the court's interpretation of the CFAs.
On the Court of Appeal's interpretation of the CFA, the RTA claimants had no liability to pay the respondent's fees and so there was no traditional equitable lien. However, the Court of Appeal was prepared to modernise the lien to allow the respondent to recover its fixed costs on the basis that 'in the normal course of events [the respondent] would have an entitlement to recover the fixed costs and other sums payable under the protocol scheme'.
The appellant appealed to the Supreme Court. It did not dispute the Court of Appeal's finding that there was no traditional equitable lien but it did dispute the extension of the lien.
What did the Supreme Court decide?
The Supreme Court unanimously dismissed the appeal, with Lord Briggs giving the lead judgment. It agreed that the Court of Appeal should not have modernised the lien, but found on its construction of the CFA that the RTA claimants did have a contractual liability to pay the respondent's fees. So, in effect, the lien did not need to be modernised.
The courts' difference of opinion arose from the fact that the respondent's retainer contained a combination of standard Law Society provisions reflected in the CFAs, and its own client care provisions in its letter of retainer. Both the Court of Appeal and the Supreme Court agreed there was a tension between two particular provisions.
The Law Society provision reflected in the CFA sent by the respondent to the RTA claimants had stated: 'If you win your claim, you will pay our basic charges, our disbursements and a success fee. The amount of these is not based on or limited by the damages. You can claim from our opponent part or all of our basic charges, our disbursements, a success fee and insurance premium.'
However, the respondent's provision in the client care letter stated: 'For the avoidance of any doubt if you win your case I will be able to recover our disbursements, basic costs and the success fee from your opponent. You are responsible for our fees and expenses only to the extent that these are recovered from the losing side. This means that if you win, you pay nothing.'
The Court of Appeal determined that on the basis of the respondent's provision, the RTA claimants would have no liability to pay its fees. The court also determined that the respondent's provision should prevail because it was expressed to be 'for the avoidance of any doubt'.
Whilst the Supreme Court agreed there was a tension between the provisions, it held that the respondent's provision 'did not destroy the basic liability of the client for [the respondent's] charges expressly declared in the CFA and Law Society’s standard terms.'
Having found that the traditional equitable lien did exist, the Supreme Court then had to determine whether it was enforceable. The relevant questions were whether the settlements were to a significant extent brought about by the respondent's services under the CFAs and, on the basis these claims did not involve collusion, whether the appellant had notice of the lien.
The respondent's lodgment of the claim notification form on the portal made a significant contribution: it supplied details of the claim to the insurer and demonstrated the claimant's intention to pursue the claim, confirming that it was backed by a CFA. The appellant knew that the respondent would be looking to 'the fruits of the claim for recovery of its charges' and once this knowledge was in the appellant's possession, it was 'unconscionable' of it to interfere, said Lord Briggs.
Although not strictly necessary in light of their decision about the traditional equitable lien, the Supreme Court reviewed the Court of Appeal's proposed extension of the lien. It considered it inappropriate to extend the lien as a security for payments of amounts arising under a purely voluntary protocol as it created no debt or other legal rights and provided no sanction for non-compliance other than the claim falling out of the portal.
The Court of Appeal's proposed extension would have given the respondent its fixed costs in full but enforcement on the traditional basis meant that the recoverable costs would be capped at the amount of the agreed settlements and would therefore be slightly lower than the costs allowed by the Court of Appeal.
Nigel Teasdale is head of DWF's motor and fraud team and sits on the national executive committee of the Forum of Insurance Lawyers and is its former president.
Interviewed by Robert Matthews.
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