Access to justice means insurers must play by the rules

Royal Courts of Justice_2014 (B&W)
Traditionally, lawyers are not paid ‘upfront’ for their services and it has always been a concern that fees may not be forthcoming once the work has been undertaken. To address this issue, the courts in England have, over the years, developed a legal concept that is archaically called a ‘lien’. This gives the solicitor the right to retain the client’s papers and other property (including money) in their possession until the client pays. This concept has been taken further by equity which has developed an ‘equitable lien’ to allow the solicitor to retain the fruits of litigation, as well as other client property, until its fees are paid.

The equitable lien extends to the debt arising from a judgment, award or settlement. Therefore, if the defendant colludes with the solicitor’s client and pays the debt direct to them, so as to cheat the solicitors out of their fees, the solicitors can enforce their equitable lien by making the defendant pay the amount of the fees again this time to them. Even where there is no collusion, the solicitors can enforce the equitable lien if the defendant has notice of the solicitor’s equitable interest in the debt but nevertheless pays it direct to the claimant.

The case of Gavin Edmondson v Haven Insurance involved compensation claims by six individuals arising from road traffic accidents involving vehicles whose drivers were insured by Haven Insurance. The individuals entered into conditional fee agreements with Gavin Edmondson Solicitors. Edmondson then notified the claims via the online RTA portal in accordance with the pre-action protocol for RTA claims.

Under the scheme, solicitors lodge the details of the claim on the portal, the insurers respond by admitting or denying liability, and then, if liability is admitted, the amount of damages are negotiated, with recourse to a court hearing if the amount cannot be agreed. Under the RTA protocol the insurer is expected to pay direct to the solicitors the modest costs and charges allowable under the CPR rules at each stage in the process. This enables thousands of claims to be dealt with at a fraction of the cost and effort of ordinary proceedings.

However, in this case, shortly after the claims were lodged on the portal Haven offered to settle directly with the claimants saying that they could make quicker and more generous payments by settling directly than going through the portal and paying the solicitors’ fees as well. The direct settlements deprived the lawyers of around £12,500 in fixed costs. Although the sums involved were individually modest, the accumulation of cases meant that the outcome of the dispute had financial consequences running to many millions of pounds.

At first instance, the trial judge dismissed Edmondson’s claim on the basis that there was no collusion between Haven and the claimants to cheat the solicitors, and because Haven was not on notice of the terms of the solicitors’ retainers.

The Court of Appeal agreed that the claimants were under no contractual liability for Edmondson’s fees but decided that the equitable lien could be modernised for use as security for solicitors to recover from the insurers the fixed costs they should have been paid under the terms of the protocol.

The Supreme Court held that the Court of Appeal had been wrong to extend the equitable lien as it did but nevertheless dismissed Haven’s appeal and found that Edmondson were entitled to enforce the traditional equitable lien against Haven, as their clients were contractually liable to pay their charges.

The Supreme Court found that the fact the Edmondson’s client care letter provided that they would recover their fees directly from the insurers and the claimants would not have to put their hands in their own pockets did not mean that the claimants were not contractually liable. The terms of the CFA were a sufficient foundation for the lien to operate as a security for payment on a limited recourse basis.

The solicitors’ logging of the claim on the portal had made a significant contribution towards the settlement of the claim. Haven had notice of the lien because they knew from the details of each claim logged on the portal that Edmondson were acting on a CFA. The Supreme Court therefore held that the lien could be enforced against Haven but for differing reasons from those of the Court of Appeal.

The decision is certainly a victory for claimant solicitors and a warning to insurers approaching claimants directly. It also demonstrates that the solicitor’s equitable lien is a remedy with real teeth.

However, in delivering the judgment, Lord Briggs made it clear that the main purpose for the development of the solicitors’ equitable lien was to promote access to justice since it enabled solicitors to offer litigation services on credit to clients as they could rely on obtaining their fees from the fruits of the litigation. By disagreeing with the Court of Appeal’s reformulation of the lien, the Supreme Court made it clear that there is no general principle that equity will protect solicitors from any unconscionable interference with their expectations of recovering their charges and, for the equitable lien to apply, the client must be liable for the solicitors’ charges.

Christopher Crane