Insurer must compensate solicitor after 'settling direct' with its clients

Out-Law News | 20 Apr 2018 | 4:21 pm | 3 min. read

An insurer which offered to settle directly with personal injury claimants who had filed notices of their claims on the Road Traffic Accidents Portal (RTA Portal) must compensate the claimants' solicitors, who would otherwise have been entitled to costs by virtue of a conditional fee agreement (CFA).

The UK Supreme Court, in a unanimous judgment, upheld the existence of what is known as the 'solicitors' equitable lien', which law firm Gavin Edmondson Solicitors was entitled to enforce against the insurer, Haven Insurance. It did, however, disagree with the way in which the Court of Appeal had attempted to "re-formulate" the lien to create a general principle protecting solicitors from any adverse interference with their expectation that they would be able to recover their costs.

"Once a defendant or his insurer is notified that a claimant in a road traffic accident case has retained solicitors under a conditional fee agreement, and that the solicitors are proceeding under the road traffic accident 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," said Lord Briggs, giving the judgment of the court.

"The very essence of a conditional fee agreement 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 road traffic accident protocol," he said.

The dispute arose over personal injury claims by six individuals who had been involved in road traffic accidents involving vehicles whose drivers were insured by Haven. Each individual entered into a CFA with Edmondson, designed to ensure that they would not have to pay the firm's costs directly from their own pockets. Edmondson notified the insurer of the claims via the RTA Portal, which was set up in 2010 to allow parties to manage low value personal injury claims online. Use of the RTA Portal is governed by the English civil courts' Pre-action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents.

Shortly after the claims were logged on the RTA Portal, Haven approached each of the claimants directly with a settlement offer, on terms which did not include any amount for solicitors' costs. The individuals all accepted these offers, and cancelled their CFAs with Edmondson. Edmondson claimed against Haven for the fixed costs which it would have been paid had the claims been settled through the portal in line with the protocol, specifically by way of the solicitors' equitable lien.

The lien is, traditionally, a form of security for the payment of the fees that the client owes to its solicitor for the conduct of litigation, paid out of the fruits of that litigation. It was developed by the courts as a way of promoting access to justice, by allowing solicitors to effectively offer their services on credit to clients with meritorious cases, but who were unable to pay legal fees up front.

The right can only be enforced where the client has a liability to the solicitor for the fees. For this reason, the High Court originally found in favour of the insurer, ruling that the nature of the CFA removed the client's contractual liability to pay the solicitor's fees. The Court of Appeal agreed that the client was not contractually liable to pay the fees, but found that court's "equitable jurisdiction to intervene" could be extended far enough to allow the court to enforce Edmondson's right to receive the fixed costs and charges provided for by the protocol against Haven.

The Supreme Court disagreed, instead finding that the client was contractually liable to pay the fees. The CFA, and associated client care letter, did not remove that liability, but merely "limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant".

"It both preserved and in my view affirmed that basic contractual liability, to the full extent necessary to form the basis of a claim to an equitable charge as security," Lord Briggs said in his judgment.

Haven had been notified of the existence of the lien, as the portal made it clear that each of the claimants had retained Edmondson under a CFA, the judge said. This meant that the lien could be enforced against Haven, but only up to the value of the fees to which Edmondson would have been entitled on the basis of the actual settlement amounts.