One of the cases due to be heard in the Court of Appeal next year, which is worth keeping an eye on is the appeal from the decision in Bott & Co v Ryanair DAC  EWHC 534 (Ch). In this case a restrictive approach was taken to the solicitor’s equitable lien, which rests uneasily with the decision of the Supreme Court in the case of Gavin Edmondson Solicitors v Haven Insurance Company Limited  UKSC 21. The decision of the Court of Appeal will doubtless assist in clarifying the application of the principle. The wider issue thrown up by both of these cases, is to what extent the court will protect the interests of solicitors when a paying party who might otherwise be liable to pay costs attempts to cut out “the middleman” by dealing directly with the solicitor’s client.
Of course, it is not just solicitors who present and pursue claims for compensation on the part of clients these days. For myself I have little doubt, that the solicitor’s equitable lien would easily be extended by way of analogy, to cover the situation where a client is represented by a barrister under the Direct Access rules, though doubtless the case would have to go at least to the level of the Court of Appeal for a resolution. Similarly the principle might be extended to costs lawyers, or others who are regulated, insured, owe an overriding duty to the court and operate with the scope of the Legal Services Act 2007.
The position is not so clear cut when one considers the position of claims management companies, who operate on a large scale in various fields, promoting low value claims of various types. It can readily be anticipated that one of the effects of the Civil Liability Bill if it becomes law, will be to displace large volumes of low value personal injury claims from regulated lawyers, to the claims management sector.
How then will a claims management company deal with the situation that may well arise, when a compensating party decides to cut out “the middleman” and just pay their client directly, when they have no equitable lien to assert? The answer may lie in the tort of inducing breach of contract: an argument that was made (and lost) in the first instance decision in Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited  EWHC 3062 (QB) and not further raised in the two appeals. The shortcomings of the position in the Gavin Edmondson case can be addressed by careful drafting.
The principles to establish to prove the tort of inducing a breach of contract (paraphrased from paragraph 28 of the judgment) are as follows:
(i) Inducing a breach of contract is an accessory liability in tort. It can only be committed as an accessory, where there is an actionable breach of contract by the clients;
(ii) There must be an actual breach by the client of his or her contract with the solicitors,
(iii) The compensating organisation must have notice of the contract and its terms, although that can arise by wilfully ignoring the obvious.
(iv) The compensating organisation must have induced the breach of contract by the client.
(v) The compensating organisation must have known it was inducing the breach of contract.
It is possible through careful drafting to draft a retainer agreement between the claims management company and the client to place contractual restrictions in the terms and conditions, upon the client’s ability to deal directly with the insurance company or other compensating party. I emphasise careful drafting, as one would not wish to create terms that infringe the Unfair Terms in Consumer Contracts Regulations 1999 which might have adverse consequences, both in terms of the efficacy of the retainer, but also in terms of possible regulatory consequences. The clients interests are given primacy, but that does not mean that the claims management company’s interests need to be jettisoned.
The compensating party can then be given notice of these terms. If despite knowledge of the term, the compensating organisation still makes payment to the client, it is difficult to see how they can argue that they did not knowingly induce the client to breach the contract by eg: receipt directly of the money contained in a settlement cheque.
It will also be observed that the tort of inducing a contract, doesn’t just have relevance for the claims management sector. It can for solicitors and other lawyers form a useful argument to supplement any arguments that exist about limitations on the application of the equitable lien.