Supreme Court vetoes insurers' bid to bypass protocol legal costs

Motor insurers who were notified of accident claims against their insured drivers by the claimants’ solicitors under a pre-action protocol, could not avoid liability for those solicitors’ charges by making settlement offers direct to the claimants on terms which did not include anything for solicitors’ costs, the UK Supreme Court ruled this week.

Five judges unanimously dismissed an appeal by Haven Insurance Co against a decision of the Court of Appeal in England, which held that Gavin Edmondson Solicitors Ltd were entitled to their fixed costs that should have been paid under the protocol.

Edmondson had acted for six individuals who were each involved in road accidents involving vehicles whose drivers were insured by Haven. They all entered into conditional fee agreements (CFAs) with Edmondson, who notified the claims via the online road traffic accident portal, in accordance with the applicable pre-action protocol for low value personal injury claims. Under the protocol, the insurer is expected to pay the solicitors' fixed costs and charges direct to the solicitors. However, shortly after the claims were logged, Haven made settlement offers direct to the claimants, telling them that they could receive more, and more quickly, by that route than by going through the portal. All the individuals eventually accepted these offers, and cancelled their conditional fee agreements. This practice by Haven had been repeated in many other cases.

Edmondson claimed against Haven for the fixed costs that should have been paid under the protocol, specifically by enforcement of the solicitor’s equitable lien. The claim was dismissed at first instance but the Court of Appeal allowed Edmondson's 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.

Lord Briggs, with whom Lady Hale, Lord Kerr, Lord Wilson and Lord Sumption agreed, held that Edmondson were 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 lien should not have been modernised in the manner undertaken by the Court of Appeal.

He explained that the solicitor’s equitable lien had been developed to promote access to justice. It enabled solicitors to offer litigation services on credit to clients who, although they had a meritorious case, lacked the financial resources to pay up front for pursuing it. Among other things it depended on the client having a liability to the solicitor for the solicitor's charges. Edmondson's 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.

In all the cases before the court, the requirement that the settlement debts owed 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 supplied the details of the claim to the insurer, and demonstrated the claimant’s serious intention to pursue the claim, and ability to do so with the benefit of a CFA. Once a defendant or their insurer was notified that a claimant in a road traffic case had retained solicitors under a CFA, and that the solicitors were proceeding under the protocol, they had 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.

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.

Lord Briggs observed that although the Law Society of England & Wales had intervened to support the Court of Appeal’s reformulation of the equitable lien, there were "insuperable obstacles" to extending the principle to cases where, although there was no contractual liability for the charges, the protocol was breached – including the fact that the protocol was purely voluntary and created no debt or other relevant legal rights at all. There was no general principle that equity would protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges.

Click here to access the judgment.