INSURERS, THIRD PARTY CAPTURE AND MUCH MORE: GAVIN EDMONDSON CONSIDERED
INSURERS, THIRD PARTY CAPTURE AND MUCH MORE: GAVIN EDMONDSON CONSIDERED
the Court of Appeal in allowing the solicitors’ appeal, held that when an insurer is notified of a claim under the Portal and subsequently resolves the matter directly with the claimant the insurer remained liable to pay the claimant’s solicitors costs under the Portal scheme.
The insurers had done this with six of Gavin Edmondson’s clients. In each case they offered to pay the client more if they did not use solicitors. The insurers had adopted this as a deliberate tactic.
The solicitors had entered into Conditional Fee Agreements with the clients and used the Law Society model agreement and issued client care letters. The claims were all entered onto the road traffic Portal, that is the Protocol for Low Value Personal Injury Claims in Road Traffic Accidents.
The Court of Appeal held that equity would intervene in accordance with the case of
which established that equity will intervene to protect a solicitor’s claim for fees where the paying party has notice that the receiving party’s solicitor has a claim for fees.
The Court of Appeal here held that that doctrine applied when the paying party had implied notice of the outstanding fees. The immorality of the paying party’s conduct was similar in each case. The court accepted that this involved an extension of the principle set out in the Khans case.
Although the solicitors’ client care letter overrode the Conditional Fee Agreement and any lien which may have arisen under it, the solicitors were nevertheless entitled to recover the fixed costs and the sums payable under the Portal scheme.
The solicitors therefore had an interest which equity would protect.
The client care letter indicated that the solicitors would recover their costs from the defendant if the claim succeeded and would not charge the client anything.
The case highlights the potential problems in having terms and conditions in both a client care letter and a Conditional Fee Agreement.
The reason why here the client care letter overrode the Conditional Fee Agreement was that the client care letter contained the following paragraph:
“For the avoidance of any doubt if you win your case I will be able to recover our disbursements, basic costs and the success fee from your opponent. You are responsible for our fees and expenses only to the extent that these are recovered from the losing side. This means that if you win, you pay nothing.”
The Court of Appeal accepted that there was a tension between that statement and the statement in the Conditional Fee Agreement:
“If you win your claim, you will pay our basic charges, our disbursements and success fee. The amount of fees is not based on or limited by the damages. You can claim from our opponent part or all of our basic charges, our disbursements, a success fee and insurance premium.”
The Court of Appeal also proceeded on the basis that the client’s waiver of entitlement to cancel the Conditional Fee Agreement within the cooling-off period was ineffective, although it is not clear as to why they formed that view, but nevertheless said that that did not relieve the insurers of their liability to pay.
The Court of Appeal said that in each case Haven, with full knowledge of the existence of Conditional Fee Agreements between the claimants and the solicitors, and full knowledge that the matters were proceeding in the Portal, made offers of settlement with no express limitation as to the period in which the offers could be accepted.
“It would have been open to Haven to make the offer conditional on cancellation of Edmondson’s retainer within the permitted period, but it did not do so. In each case Haven assumed the risk that its offer might be accepted after the expiry of the cancellation period. In the event, in none of the underlying cases was the retainer cancelled or otherwise terminated.”
The Court of Appeal said that the solicitors had no right to recover fees from its clients, but nevertheless in the normal course of events it did have the right to recover fixed costs under the Portal scheme.
This is one of those rare cases which deals with a number of different and important points of law. Most cases deal with only one.
Firstly it confirms the legal principle dating back to at least 1779, namely that if a paying party, knowing that a solicitor is due fees from his or her client, pays damages direct to that solicitor’s client then the paying party itself must pay the opposing lawyers’ fees.
This is a very important principle which few claimant personal injury lawyers understand. So often I hear complaints by claimants’ lawyers that defendants are paying damages cheques direct to the claimant. That simply is not a problem as the defendants also have to pay the claimant’s lawyer’s fee. Thus for example if the lawyer is deducting 25% off damages of £10,000.00 the defendant pays £10,000.00 to the claimant then the defendant must also pay the lawyer’s fee of £2,500.00, plus ordinary recoverable costs, as long as the defendant was on notice.
Secondly the case confirms that the indemnity principle does not apply in Portal cases, just as it does not apply in fixed recoverable costs cases – see Butt v Nizami  EWHC 159 where the court said:
“It seems to me clear that the intention underlying CPR 45.7-14 was to provide an agreed scheme of recovery which was certain and easily calculated. This was done by providing fixed levels of remuneration which might over-reward in some cases and under-reward in others, but which were regarded as fair when taken as a whole.”
Thus a statement that the client will be charged nothing in any event, and a failure to make the client primarily liable for costs, which are then recoverable from the other side, does not cause a problem in Portal or fixed recoverable costs cases.
Thirdly, but related to the second point, the fact that the client was under no obligation to pay the solicitor if the Cancellation of Contracts etc Regulations had not been complied with, did not mean that the solicitor could not recover costs. This is logical. If the indemnity principle does not apply in Portal and fixed recoverable costs cases then the fact that due to a breach of the Cancellation of Contracts etc Regulations the solicitor had no right to costs from the client is irrelevant.
Thus the case of Allpropertyclaims Ltd v Mr Tang Pang and ITC Compliance Ltd  EWHC 2198 (QB) where the court held that a breach did result in the solicitor being unable to recover costs from the other side is distinguished as in that case, not being a Portal or fixed recoverable costs case, the indemnity principle did apply.
Fourthly the court said that had the insurance company made their offers conditional on the client cancelling the contract within the period then they could have avoided paying the solicitors’ costs.
I do not understand this. If the indemnity principle applies then, as per Allpropertyclaims Ltd v Mr Tang Pang and ITC Compliance Ltd  EWHC 2198 (QB), a breach of the regulations will result in the solicitor being unable to claim costs from his or her client and therefore being unable to recover from the other side. However if the indemnity principle does not apply then the fact that the client is not liable for the costs makes no difference. In fact these cases did not involve breaches of the regulations but rather the work was done within the potential cancellation period and the client did not cancel until afterwards. The solicitors had done the work and were entitled to be paid.
Surely the same is true even if the client withdrew instructions during the cancellation period. The client had instructed the solicitors and entered into a formal Conditional Fee Agreement and received a client care letter etc. The work had been done. The fee had been earned. What the regulations do is to prevent the solicitor charging the client and normally, due to the indemnity principle, that is fatal in terms of recovering costs from the other side.
However in a Portal or fixed fee case it makes no difference – see Butt v Nizami.
Therefore the court’s suggestion, and the comments made by many others, that all Haven need to do is change the terms of the offer to make it conditional upon the client cancelling within the cancellation period, seems to me to be wrong.
This raises a further point. Notice of cancellation does not have to be given in relation to a contract made in the solicitor’s office, but most solicitors are now always giving the right to cancel within 14 days, even if the client does not have that right under the regulations. One of the reasons for this is that it is not always clear where a contract has been made. For example a client telephones and asks a solicitor if they deal with personal injury work on a No Win No Fee basis and the solicitor says yes, but we will have to see you to find out if the case is a good one.
The client then comes in and sees the solicitor who agrees to take the case. On slightly different facts, but the principle is identical, the court in Cox v Woodlands Manor Care Home  EWCA Civ 415 held that a contract had been made in the original conversation and it was subject to a condition precedent, namely that the solicitor thought the case had merit.
It would be a great shame if solicitors seeing clients in their office and giving them additional protection, that is the right to cancel within 14 days, were laying themselves open to an entirely opportunistic tactic by an insurance company to avoid paying solicitors for work done. All that will do is to encourage solicitors not to offer that additional protection.
This is a very welcome and a very important decision which needs to be read and understood by all claimant lawyers.
Its key point is that the court will not look favourably on insurance companies who seek to avoid paying the properly incurred legal costs of claimants. The tone of the decision suggests that the Court of Appeal is rather more aware of the reality of this country’s insurance companies than is the government.