The Supreme Court, approving the ruling of the Court of Appeal, allowed Gavin Edmondson Solicitors (GES) to recover its costs despite Haven Insurance settling the underlying claims directly with the clients of GES.

The agreed settlements did not include provision for recovery of GES’ costs.

Background

Several claimants instructed GES to road traffic accident claims on their behalf per the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents ("the Protocol"). The claimants entered into Conditional Fee Agreements ("CFA") with GES and their claims were entered on the Portal.

As the insurer of the respective defendants, Haven was aware that the claims had been notified under the Portal. Nonetheless, it contacted the claimants directly and offered to settle for sums greater than if they used GES' services. These settlements did not include any agreement to pay the costs of GES, and the claimants subsequently cancelled their CFAs with GES.

GES brought a claim against Haven for their costs, but this was dismissed by HHJ Jarman at first instance. On appeal, the Court of Appeal overturned the decision of HHJ Jarman, finding that GES had an interest which equity would protect and which was "deserving of protection".

The Court of Appeal found that even though the claimants did not have a contractual liability for GES' charges, which meant that the traditional equitable lien claim failed, the remedy could be modernised to allow the solicitors to recover from the insurers their fixed costs that should have been paid under the Protocol.

This meant that Haven had to pay the RTA protocol fees that would have been due had they settled the claims with GES.

Haven appealed to the Supreme Court.

Supreme Court decision

The Supreme Court unanimously dismissed the appeal.

The Court held that the obligation to pay the costs owed to the creation of the CFAs, and that as the claims were proceeding under the Protocol via the Portal, Haven were considered to have notice of the equitable lien making any subsequent settlement direct with the claimant unacceptable.

In a departure from the reasoning of the Court of Appeal, the equitable lien should not have been modernised in the manner undertaken by the Court of Appeal.

What can we learn?

  • This is the first time the Supreme Court has considered the "solicitors’ equitable lien" in any real detail.The decision provides useful guidance on the operation of claimant solicitors' retainers with their clients for future reference.
  • GES were deemed to have made "a modest but still significant contribution to the obtaining of the settlement which ensued, and that was sufficient to trigger the lien".
  • The intervention of the Law Society as an interested party in the case, served to highlight the importance of the appeal to claimant's solicitors, who will find their profit costs increasingly squeezed with the advent of the proposed changes to the small claims track limits and whiplash reforms.
  • In response, Haven themselves stated that claimants receive more when directly settling rather than through solicitors, noting that the judgment was in no way critical of their conduct. Their position was that the decision was not about the ethics of settling claims directly with claimants who do not have a legal representative, but was a technical question concerning the operation and validity of GED's retainers with their clients.