SOLICITORS’ LIENS, RETAINERS, CFA LITE AND UNCONSCIONABLE CONDUCT – THE HAVEN INSURANCE COMPANY CASE

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In

Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2018] UKSC21

the Supreme Court upheld the Court of Appeal’s decision that an insurance company was liable to pay the solicitors’ fees where it had settled personal injury claims direct with the clients.

Although the Supreme Court upheld the decision, its reasoning was different from that of the Court of Appeal.

The Supreme Court held that the Client Care Letter had to be read, as far as possible, in accordance with the Conditional Fee Agreement and that both preserved and affirmed the clients’ basic contractual liability to pay the solicitors’ fees.

The solicitor was thus entitled to enforce the traditional equitable lien against the insurance company.

The Court of Appeal had held that the effect of the Client Care Letter was to override the general provisions of the Conditional Fee Agreement, with the result that the clients were not under any personal liability to pay the solicitors’ fees.

The Supreme Court also disagreed with the Court of Appeal’s purported extension of the equitable lien to cases where the paying party has implied notice that fees were outstanding.

The Supreme Court stated that there is no general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges, and that in order for the equitable lien to apply, the client must be responsible for the solicitors’ charges.

Thus it is important to notify the other side that there will be fees due to your firm out of any damages and/or costs due to the client and that all damages and costs must be sent to you.

Comment

The case is important for many reasons, apart from its basic conclusion.

As the Supreme Court states in the opening paragraph, the judge-made remedy of the solicitor’s equitable lien is not motivated by any fondness for solicitors as fellow lawyers or officers of the court, but because it promotes access to  justice.

Specifically it enables to offer litigation services on credit to clients who have good cases, but lack the money to pay costs upfront.

This was recognised as early as 1815 in

Exp Bryant [1815] 1 Madd 49:

“I do not wish to relax the doctrine as to lien, for it is to the advantage of clients, as well as solicitors; for business is often transacted by solicitors for needy clients, merely on the prospect of having their costs under the doctrine as to lien.”

The Supreme Court said that a lien is “better analysed as a form of equitable charge.”

The Supreme Court also specifically approved “CFA Lite” arrangements “designed to ensure that in no circumstances would the client have to put his hands in his own pocket for payment of the firm’s charges” (Paragraph 7).

The CFA Lite wording here was in the Client Care Letter, rather than the Conditional Fee Agreement, and read:

“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 Supreme Court held that this wording did not destroy the basic liability of the client to pay the solicitors’ fees. It merely limited the recourse from which the solicitors could satisfy that liability to the amount of its recovery from the defendant.

It both preserved and affirmed that basic contractual liability, to the full extent necessary to form the basis of a claim to an equitable charge as security.

The Supreme Court said that the insurance company – Haven – knew that the solicitors were looking to the fruits of the claim for recovery of its charges.

The claim of collusion between Haven andthe clients to cheat the solicitor failed “not because Haven backed the requisite intent, but because each of the claimants did.” (Paragraph 49).

“Once a defendant or his insurer is notified that a claimant in an RTA case has retained solicitors under a CFA, and that the solicitors are proceeding under the RTA Protocol, they have the requisite notice and knowledge to make a subsequent payment of settlement monies direct to the claimant unconscionable, as any interference with the solicitor’s interest in the fruits of the litigation. The very essence of a CFA is that the solicitor and client have agreed that the solicitor will be entitled to charges if the case is won. Recovery of those charges from the fruits of the litigation is a central feature of the RTA Protocol.” (Paragraph 50).

The Supreme Court held that before the insurance company could be liable for the solicitor’s costs there must be a retainer between the solicitor and client:

“54. For this purpose I am prepared to assume that an offer of a settlement payment, made direct by the insurer to the claimant, which makes no provision for payment of Stage 2 fixed costs, disbursements and a success fee to the solicitor, at a time when a case has entered and not yet left the scheme, is a breach of paragraph 7.37 of the RTA Protocol. But it creates no legal or equitable rights of any kind, if the client has no responsibility to the solicitor sufficient to support the solicitor’s lien. There is no legal entitlement of the solicitor direct against the insurer which the lien can support by way of security.”

This does not override the decision in

Butt v Nizami [2006] EWHC 159 (QB)

to the effect that the indemnity principle does not apply in fixed costs cases.

For the claimant, or her or his solicitors, to recover costs from the defendant, there must be a valid retainer, which is the point made here by the Supreme Court.

Butt v Nizami held that the terms of that retainer do not restrict the amount of the costs that can be recovered in fixed costs cases, provided that there is a retainer.

The court here appears not to have been referred to the case of Butt v Nizami, and it is notable that none of the most well-known costs lawyers were involved in this case.

Unconscionable is defined  by the Oxford English Dictionary as follows:

• showing no regard for conscience; not in accordance with what is right or reasonable.
• Having no conscience; not controlled by conscience; unscrupulous

 

Press Summary   

Here is the Supreme Court’s own Press Summary of the decision, which is the only time that the Supreme Court or House of Lords has considered the issue of a solicitor’s equitable lien.

Background to the Appeal

Six individuals were involved in road traffic accidents involving vehicles whose drivers were insured by the appellant insurance company, Haven Insurance Company Limited (“Haven”).

They all entered into conditional fee agreements (“CFAs”) with the respondent solicitors firm, Gavin Edmondson Solicitors Limited (“Edmondson”).

Edmondson notified the claims via the online Road Traffic Accident Portal (“the Portal”), in accordance with the Pre-action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (“the Protocol”).

Under this scheme, the solicitors lodge the details of the claim on the Portal, the insurers respond by admitting or denying liability, and then, if liability is admitted, the amount of the damages are negotiated, with recourse to a court hearing if the amount cannot be agreed.

Under the Protocol, the insurer is expected to pay the solicitor’s fixed costs and charges direct to the solicitors.

In this case, however, shortly after the claims were logged on the Portal, Haven made settlement offers direct to the claimants, on terms which did not include any amount for the solicitors’ costs.

Haven told the claimants that they could pay the claimants more, and more quickly, by that route, than by going through the Portal.

All the individuals eventually accepted these offers, and cancelled their CFAs with Edmondson. This practice by Haven has been repeated in many other cases, which are not before the court.

Edmondson claimed against Haven for the fixed costs which it should have been paid under the Protocol.

Specifically, Edmondson sought enforcement of the solicitor’s equitable lien.

This is a form of security for the payment of fees owed by the client for the successful conduct of litigation, paid out of the fruits of that litigation.

Edmondson’s claim was dismissed at first instance.

The Court of Appeal allowed their appeal, holding that, even though the claimants did not have a contractual liability for the firm’s 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.

Judgment

The Supreme Court unanimously dismisses the appeal.

Lord Briggs gives the lead judgment, with which the rest of the Court agrees.

Edmondson are entitled to the enforcement of the traditional equitable lien against Haven, as the client owed a contractual duty to pay the solicitors’ charges.

However, the equitable lien should not have been modernised in the manner undertaken by the Court of Appeal.

Reasons for the Judgment

The solicitor’s equitable lien: the existing law

As the early cases demonstrate, the solicitor’s equitable lien was developed to promote access to justice.

It enables solicitors to offer litigation services on credit to clients who, although they have a meritorious case, lack the financial resources to pay up front for its pursuit [1], [33-34].

The equitable lien depends upon:

• the client having a liability to the solicitor for his charges;

• there being something in the nature of a fund in which equity can recognise that the solicitor has a claim (usually a debt owed by the defendant to the solicitor’s client which owes its existence to the solicitor’s services to the client); and

• something sufficiently affecting the conscience of the payer at the time of payment, either in the form of collusion with the client to cheat the solicitor or notice or knowledge of the solicitor’s claim against or interest in the fund [35-37].

Construction of the CFA – does the client have any contractual liability to pay the solicitor’s charges?

The client care letter, which explained that the solicitor would be able to recover its costs from the losing side if the claimants won, so that the claimants would not need to put their hands in their own pockets, did not mean that the claimants were not contractually liable for the solicitors’ fees.

It merely limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant, and it both preserved and affirmed the client’s basic contractual liability.

This was a sufficient foundation for the lien to operate as a security for payment, on a limited recourse basis [40-44].

Did Haven have notice of Edmondson’s lien?

In all the cases before the court, the requirement that the settlement debts must owe their creation to Edmondson’s services provided to the claimants under the CFAs was satisfied on the facts.

Edmondson’s actions in logging the claim on the portal contributed to the settlement in two ways.

First, it supplied the details of the claim to the insurer, and second, it demonstrated the claimant’s serious intention to pursue the claim, and ability to do so with the benefit of a CFA [45-46], [59-63].

Once a defendant or his insurer is notified that a claimant in a road traffic accident case has retained solicitors under a CFA, and that the solicitors are proceeding under the Protocol, they have the requisite notice and knowledge to make a subsequent payment of settlement monies direct to the claimant unconscionable, as an interference with the solicitor’s interest in the fruits of the litigation.

In this case, Haven had notice of the lien because they knew that each of the claimants had retained Edmondson under a CFA, and also knew that Edmondson was looking to the fruits of the claim for recovery of its charges [48-50].

As such, the lien could be enforced against Haven by requiring it to pay the fee amounts in the CFAs direct to Edmondson, but only up to the amount of the agreed settlement payments [65].

To that limited extent the order made by the Court of Appeal needed to be varied.

The re-formulation of the equitable lien by the Court of Appeal

It is not strictly necessary to address this issue in view of the decision on the traditional principle above, but the correctness or otherwise of the Court of Appeal’s reformulation of the principle has been extensively argued, and the Law Society has intervened to support it [51-52].

There are insuperable obstacles to extending the principle to cases where, although there is no contractual liability for the charges, the Protocol is breached.

This includes the fact that the Protocol is purely voluntary and created no debt or other relevant legal rights at all.

Whilst equitable remedies are flexible, they still operate according to principle.

One of the principles of the equitable lien is that the client must have a responsibility for the solicitor’s charges.

There is no general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges [53-58].