I fought the law

It has been cynically observed in the author’s presence, that insurance companies only care about fraud, and costs, and only about care about the latter because they regard costs as a species of fraud perpetrated by the legal profession.

One of the phenomenons of recent years has involved the practice of “third party capture” or “intervention” where insurance companies, despite knowing that a claimant has instructed solicitors will attempt to negotiate a settlement directly with the claimant, for the simple reason that by doing so, they hope to avoid paying a solicitor’s fees.

The practice has generated strong opinions on both sides of the litigation fence: solicitors regard it as unbecoming conduct, an attempt to defraud them of their fees.

Insurers regard it as a strategy that promotes efficiency and point out that no one compels the claimant to enter into a direct settlement.

It is also an interesting example of the ratchet effect in play: the introduction of the Ministry of Justice Portal and the various protocols which apply to low value personal injury claims, with a scheme of fixed fees limiting solicitors costs recovery represented a major victory for the insurance industry.

A few years later the implementation of LASPO 2012, has had the effect of reducing costs paid out to solicitors by many millions. The Civil Liability Bill next year, if implemented in full, could largely remove the involvement of solicitors from the conduct of whiplash claims. Costs have been on a downward trend for many years now.

But these reforms and this trend, was not enough, and hence practices such as intervention have also flourished.

In the recent case of Gavin Edmondson Solicitors v Haven Insurance Company Limited [2018] UKSC 21 the Supreme Court found decisively for a firm of solicitors representing claimants who had been “intervened”, by invoking the doctrines of equity to provide that a paying party in league  with a client could not escape paying costs due to a solicitor, because to do so would impair access to justice.

The substantive judgment was given by Lord Briggs.

1. This appeal tests the limits, in a modern context, of the long-established remedy known as the solicitor’s equitable lien. In its traditional form it is the means whereby equity provides a form of security for the recovery by solicitors of their agreed charges for the successful conduct of litigation, out of the fruits of that litigation. It is a judge-made remedy, motivated not by any fondness for solicitors as fellow lawyers or even as officers of the court, but rather because it promotes access to justice. Specifically it enables solicitors to offer litigation services on credit to clients who, although they have a meritorious case, lack the financial resources to pay up front for its pursuit. It is called a solicitor’s lien because solicitors used to have a virtual monopoly on the pursuit of litigation in the higher courts. Nothing in this judgment should be read as deciding whether the relaxation of that monopoly means that the lien is still limited only to solicitors.

The judgment thus begins by raising the intriguing possibility that barristers and other lawyers may have a similar protection afforded to their fees.

The remedy was described succinctly:

4. In the ordinary course of traditional litigation, with solicitors acting on both sides, the amount due under a judgment, award or settlement agreement would be paid by the defendant’s solicitor to the claimant’s solicitor. Or the claimant’s solicitor might recover the sum due to his client by processes of execution. In either case the equitable lien would entitle the solicitor not merely to hold on to the money received, but to deduct his charges from it before accounting to his client for the balance. But equity would also enforce the security where the defendant (or his agent or insurer) paid the debt direct to the claimant, if the payer had either colluded with the claimant to cheat the solicitor out of his charges, or dealt with the debt inconsistently with the solicitor’s equitable interest in it, after having notice of that interest. In an appropriate case the court would require the payer to pay the solicitor’s charges again, direct to the solicitor, leaving the payer to such remedy as he might have against the claimant. This form of remedy, or intervention as it is sometimes called, arose naturally from the application of equitable principles, in which equitable interests may be enforced in personam against anyone whose conscience is affected by having notice of them, either to prevent him dealing inconsistently with them, or by holding him to account if he does.

He explained the context in which the appeal came before the Supreme Court:

6. The casus belli for this litigation was a decision by the appellant insurer (“Haven”) to respond to the notification of claims on the RTA Portal by offering to settle direct with claimants, on terms which included no amount for their solicitors’ costs or disbursements (fixed or otherwise), with the twin inducements to claimants of a speedier and more generous payment than would be likely to be available from a settlement using the RTA Protocol and Portal. The motivation of the insurer was the opportunity to avoid having to add, to the settlement amount for the injury, the fixed costs and disbursements payable under the terms of the RTA Protocol to the claimants’ solicitors.

7. Settlements thereby achieved included claims by clients of the respondent solicitors (“Edmondson”) arising from three motor accidents, all of whom retained the respondent firm on a particular type of identically worded CFA retainer, known in the trade as a “CFA Lite”, designed to ensure that in no circumstances would the client have to put his hands in his own pocket for payment of the firm’s charges. Edmondson responded by a claim against Haven for wrongful inducement to the clients to breach their retainer contract, intentional causing of loss by unlawful means and, by amendment, seeking equitable enforcement of its solicitors’ lien. Although the sums involved are individually modest, 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.

He then went on to explain why Haven were liable to pay the solicitors charges:

47. The question of knowledge or notice is in dispute. Absence of notice was the main reason why the claims failed before the judge. In his view it was a fatal objection that Haven did not know the detailed terms of the CFAs. In the Court of Appeal it was held that Haven had both express notice, implied notice and the requisite knowledge in any event. The claim under the traditional principles of equitable lien failed, not because of absence of notice, but because there was no underlying responsibility of the clients to pay Edmondson’s charges.

48. It is common ground that, by the time that Haven paid the settlement sums direct to the claimants, it knew that each of them had retained Edmondson under a CFA, but not its detailed terms. This much was apparent from the CNFs which Edmondson placed on the Portal. Haven also knew, from the fact that Edmondson chose to initiate each claim by using the RTA Portal, that Edmondson was most unlikely to have been paid its charges up front, but rather that it expected, if successful, to obtain payment of its charges from monies paid by Haven under the terms of the RTA Protocol, if the case settled while in the Portal, or by way of a costs order if it went to court. Either way, Haven knew that Edmondson was looking to the fruits of the claim for recovery of its charges. Page 21

49. Haven’s knowledge that, if the claim could not be settled direct, it would have to fund Edmondson’s recoverable charges is also apparent from the recorded telephone conversations with Mr Tonkin and Mr Grannell set out above. The judge found that Haven had this knowledge, and intended by settling direct to avoid having to pay Edmondson’s charges. The claim of collusion failed, not because Haven lacked the requisite intent, but because each of the claimants did.

50. In my judgment the Court of Appeal’s approach to the question of notice is to be preferred to that of the judge. 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. The very essence of a CFA is that the solicitor and client have agreed that the solicitor will be entitled to charges if the case is won. Recovery of those charges from the fruits of the litigation is a central feature of the RTA Protocol.

The judgment as an endorsement of this centuries old principle is to be welcomed: it will have many ramifications going forward in many cases in different contexts.

But the application of the principle to the RTA sphere is likely to be time limited: if the Civil Liability Bill goes the distance (if the government does not fall, if Brexit proceeds, if, if if…) then within a year or two, circa 95% of these cases will be Small Claims not attracting any significant costs liability. Haven may have lost the battle, but the war has already been won.

That in turn invites consideration as to the fundamental question as to whether lawyers should be involved in advancing these claims: or whether the movement of small sums of money in a road traffic accident dispute, a thousand or two thousand pounds, between the opposing parties could be done far more efficiently without frictional costs by an app, an algorithm or some other means. But that intriguing question will have to wait for another post.

 

Junior counsel for the Appellant, Bobby Fuller explains what happened in the Supreme Court.

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