The Court of Appeal has upheld a firm of solicitors' claim against an insurer in respect of the insurer's conduct in settling personal injury claims (on an inclusive basis) directly with six of the solicitors' clients, thereby depriving the solicitors of their costs. The solicitors had concluded CFAs with the clients.
In his lead judgment allowing the appeal, Lord Justice Lloyd Jones concluded that Haven Insurance Company (Haven) entered into a compromise agreement with each of the claimants with notice of Gavin Edmondson Solicitors (Edmondsons) 's entitlement to costs and that the principle of equitable intervention required that Haven pay to Edmondson in each case the sums payable on settlement under the Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the Protocol).
The underlying claims all fell within the Protocol which applies where an RTA claim includes a claim for personal injury valued at less than £10,000. In each case, Haven contacted the claimants either by telephone or by letter with an offer of settlement. Typical of Haven's approach to a situation where one of the Claimants had already entered into a CFA with a firm of solicitors is the following transcript between one of their handlers and one of the Claimants: "As I say they'll probably when you speak to them they'll probably will tell you not to ya know or you shouldn't do that but for the to be honest with you if when they call you probably a bit less the reason we offer you a bit more is because of the fact that the solicitors get kept out of it so we don’t have to pay their fees that's basically it."
The decision at first instance
His Honour Judge Jarman QC acknowledged that on the basis of Khans Solicitors (a firm) v Chifuntwe  EWCA Civ 481 equity would intervene to protect a solicitor's claim on funds recovered or due to be recovered by a client or former client if the paying party is colluding with the client to cheat the solicitor of his fees or the paying party is on notice that that the other party's solicitor has a claim on the funds for outstanding fees. However, as regards collusion, whilst he found that Haven clearly intended to avoid Edmondsons' costs (which it would have had to have paid if the claims had proceeded through the Portal) he concluded that there was insufficient evidence from which to infer that any of the Claimants had any aim other than to achieve a speedy settlement. As far as notice was concerned, although Edmondsons argued that an insurer who contacted a claimant directly using information received through the Portal must know it might have to pay costs, Judge Jarman considered that this notice was insufficient to amount to the notice contemplated in Khans.
Edmondsons appealed on the issue of equitable intervention.
Lord Justice Lloyd Jones referred to the judgment of Sir Stephen Sidley in Khan in which the latter referred to the readiness of the court and the breadth of its powers to safeguard a solicitor's entitlement to recover his costs, and commented that it has always been accepted that an attorney has a lien for his own fees on money which comes into his hands on a client's account.
Edmondsons primary case on appeal was that the provisions of the Protocol and the Portal are, in themselves in the modern climate of litigation, ample and sufficient notice of a lien. In particular, paragraph 3.1 of the Protocol states that the aims of the Protocol include ensuring that the defendant pays damages and costs using the process set out in the Protocol and that the claimant's representative receives the fixed costs at the end of each stage of the Protocol. Furthermore, paragraph 7.37 provides that any offer to settle at any stage will automatically include and cannot exclude the Stage 2 fixed costs, an agreement in principle to pay disbursements and a success fee.
Lord Justice Lloyd Jones concluded that Haven's knowledge of and participation in the scheme established by the Protocol and the Portal meant that it was well aware of the interest of Edmondson in receiving fixed costs and other sums due under the Protocol scheme such that this amounted to express notice of the same. Furthermore, even in circumstances where Edmondsons had no right to recover fees directly from its clients, because they had an entitlement to recover fixed costs under the Protocol scheme they (Edmondsons) had an interest which equity could protect and which was deserving of protection.
The appeal was allowed and Haven were ordered to pay Edmondson in each case the sums payable on settlement under the Protocol scheme.
If insurers are minded to seek to compromise claims that fall within the Protocol scheme directly with claimants, their reasons for doing so should not include the possibility of avoiding paying fixed costs and other sums due under the Protocol scheme. The Protocol scheme is not mandatory, however, and it is open to insurers to enter into compromise agreements with claimants whose claims fall outside of the Protocol.