Gavin Edmonson Solicitors Ltd v Haven Insurance Co Ltd
In this case, a firm of solicitors (claimant) had entered into conditional fee agreements (CFAs) with six clients in order to represent them in respect of their road traffic accident (RTA) claims against the insurer (defendant). The claimant submitted the claims through the online portal in accordance with the pre-action protocol for RTA claims, which allows for solicitors to receive direct payments of their fixed costs at each stage of the process in cases where liability is admitted.
The defendant received notification of the claims through the RTA portal but made the decision to offer to settle directly with the claimant’s clients, on terms which included no amount for the claimant’s costs or disbursements. There were incentives for a speedier and more generous offer to be made than what would likely be available from a settlement if the claim proceeded in the RTA portal.
The defendant saw an opportunity to avoid paying the claimant their fixed costs and disbursements for dealing with the claims in accordance with the RTA protocol.
The claimant pursued the defendant for their costs and disbursements arguing that their clients should not have been approached directly and the defendant should be liable to pay their fixed costs, which they would otherwise have been entitled, in accordance with the RTA protocol.
At first instance, the case had been decided in the defendant’s favour but the decision was reversed by the Court of Appeal on the basis that it had the equitable jurisdiction to recognise and enforce the claimant’s interest under the RTA protocol in receiving fixed costs and charges for each stage of the process.
Alternatively, the Court of Appeal found that the claimant had an interest under an express provision in the retainer to sue in their client’s names for recovery of the charges and the defendant was aware of this. As a result, it was held that the solicitors were entitled to an equitable lien over the debt arising from the settlement reached between their clients and the defendant.
Supreme Court decision
The Supreme Court unanimously dismissed the defendant’s appeal.
It was held that the claimant was entitled to enforce a traditional equitable lien against the defendant in respect of their charges and costs because their clients had a contractual liability to pay these costs in accordance with the CFAs and Law Society’s standard terms.
The Supreme Court made clear that because this contractual entitlement was in existence between the claimant and their clients, this formed the basis of a claim to an equitable lien over the agreed settlement debt that was payable by the defendant. It was stated that the client care letters had not destroyed this basic liability for the claimant’s clients to pay their costs but did limit the recourse from which the claimant could satisfy its recoveries from the defendant.
It was held that an equitable lien could operate in these circumstances as long as the debt had arisen in part from the claimant’s activities. It was also held that there was no reason in principle for formal proceedings to be issued but for equity to intervene, there had to be something that sufficiently affected the conscience of the defendant, such as collusion to cheat the solicitor, or knowledge of the solicitor’s claim, or interest in the fund.
The fact that the claimant’s clients had a contractual liability to pay the claimant’s charges meant that it was not strictly necessary to determine whether the Court of Appeal had been correct to extend the principle of the traditional equitable lien.
However, the Supreme Court stated that there were insurmountable obstacles to overcome in respect of extending the principle. In particular, the RTA protocol was voluntary rather than contractual in nature and any breach of the protocol did not create any legal or equitable rights of any kind.
Also, one of the settled principles upon which an equitable lien worked was that the client had a responsibility for their solicitor’s costs. The Supreme Court stated that if no such responsibility existed, it would be difficult to see how the payment of charges to the solicitor, rather than to the client would be justified.
The Supreme Court made clear that there was no general principle that equity would protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges.
What this means for you
As a result of this judgment, insurers will be liable for solicitor’s costs in respect of claims that have been submitted in the portal even when they seek to settle the claim directly in order to try and avoid paying these costs. However, this judgment does not explicitly prevent insurers from contacting or approaching claimants directly.
In this case, there was a contractual entitlement between the claimant and their clients, which formed the basis of a claim for an equitable lien over the agreed settlement debt. The Supreme Court stated that there were insurmountable obstacles to overcome in respect of extending the principle and the traditional principles continued to apply and had not been modernised as a result of the Court of Appeal decision.
Also, it can be seen that the claimant’s clients owed a contractual duty to pay the claimant’s costs which enabled an equitable lien to exist. If there was no such contractual duty no such equitable lien against the defendant would have existed.
A recent BLM blog providing further insight in respect of this judgment can be accessed here.