An insurance company that settled personal injury claims directly with the clients of a law firm has to pay the solicitors the costs they would have earned, the Supreme Court ruled yesterday.
Lord Briggs said that the CFAs made between Cheshire firm Gavin Edmondson and its clients contained a sufficient contractual entitlement to charges to support the solicitors’ equitable lien on traditional grounds.
Though it upheld the outcome of the Court of Appeal hearing, the court disagreed with the route taken to get there because it had sought to reformulate the equitable lien.
Lord Briggs, giving the unanimous ruling of the Supreme Court, said “we were told that this practice by Haven had been repeated on a sufficiently large scale for the determination of the dispute to have financial consequences running to many millions of pounds”.
At first instance, His Honour Judge Jarman QC in Wrexham rejected Edmondson’ objections to the actions of Haven Insurance in settling six low-value road traffic claims so as to avoid paying legal fees.
However, the Court of Appeal ruled that while Edmondson had no right to recover fees from its clients under the terms of its client-care letter – which the court found trumped the conditional fee agreement (CFA) that said it could – it had an interest which equity could protect and which was “deserving of protection”.
This meant Haven had to pay the RTA protocol fees that would have been due.
Lord Briggs disagreed with the Court of Appeal’s finding on the enforceability of the client-care letter.
He said the letter “did not destroy the basic liability of the client for Edmondson’s charges expressly declared in the CFA and Law Society’s standard terms”; rather “it merely limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant”.
Further, the letter was “plainly intended” to be read in accordance with, “rather than in opposition to”, the CFA and Law Society’s terms.
“Those two documents are… shot through with clear assertions of the client’s responsibility for the firm’s charges in the event of a win in the litigation…
“The result of the above analysis is that there did exist, in each of the six cases, a sufficient contractual entitlement of Edmondson against its claimant clients to form the basis of a claim to an equitable lien over the agreed settlement debts payable by Haven on behalf of its insured drivers.”
The next questions to establish the lien were whether the settlement debts owed their creation, to a significant extent, to Edmondson’s services provided to the claimants under the CFAs – which it was agreed they did – and whether Haven had notice or knowledge of Edmondson’s interest in the settlement debts.
Lord Briggs said: “Once a defendant or his insurer is notified that a claimant in an RTA case has retained solicitors under a CFA, and that the solicitors are proceeding under the RTA Protocol, they have the requisite notice and knowledge to make a subsequent payment of settlement monies direct to the claimant unconscionable, as an interference with the solicitor’s interest in the fruits of the litigation.”
Though not strictly necessary, Lord Briggs went on to consider the Court of Appeal’s reformulation of the equitable lien, and found it wanting.
The Court of Appeal rested its conclusion on two alternative grounds, both of which assumed that Edmondson’s clients had no contractual responsibility of any kind for its charges.
The first was that Edmondson had its own entitlement to recover its charges from Haven under the RTA protocol. The second was that the clients had such an entitlement, and Edmondson had a right to sue Haven for its enforcement using the client’s name for that purpose.
“There are in my judgment insuperable obstacles in the way of each of those alternatives,” said Lord Briggs. “They stem mainly from the voluntary nature of the RTA protocol.”
Even assuming that Haven’s conduct breached paragraph 7.37 of the RTA protocol, “it creates no legal or equitable rights of any kind, if the client has no responsibility to the solicitor sufficient to support the solicitor’s lien. There is no legal entitlement of the solicitor direct against the insurer which the lien can support by way of security”.
It was, he said, “simply wrong” to find “a general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges”.
Lord Briggs continued: “Furthermore the careful balance of competing interests enshrined in the RTA protocol assumes that a solicitor’s expectation of recovery of his charges from the defendant’s insurer is underpinned by the equitable lien, based as it is upon a sufficient responsibility of the client for those charges.
“Were there no such responsibility, it is hard to see how the payment of charges to the solicitor, rather than to the client, would be justified.
“Furthermore, part of the balance struck by the RTA protocol is its voluntary nature. Its voluntary use stems from a perception by all stakeholders that its use is better for them than having every modest case go to court.
“If the court were to step in to grant coercive remedies to those affected by its misuse by others, that balance would in all probability be undermined.”
In a statement, Haven claims director Joe O’Connell said: “While we are naturally very disappointed by the decision, this case was not about whether insurers should settle directly with claimants. It was only about the claimants’ solicitors’ costs and it turned on a technical analysis of their retainers. The court did not criticise Haven in any way.”
Joe Egan, president of the Law Society, which intervened in the case before the Supreme Court, said the judgment was good news for solicitors and also consumers, as “it reduces any incentive for insurers to go directly to claimants, cutting solicitors out and therefore losing the protection a solicitor brings in representing the client in a claim.”
He added: “Members may now wish to consider whether they have any claims against insurers who took action similar to Haven.”
Lord Marks QC, Jamie Carpenter and James Wibberley (instructed by Flint Bishop) represented Haven, with Jonathan Crow QC, Lesley Anderson QC and Martin Budworth (instructed by Gavin Edmondson Solicitors) for the solicitors. David Holland QC represented the Law Society, which made written representations only.