REUTERS | Yiannis Kourtoglou

Solicitor’s costs: cutting out the middle man (part 2)

In May’s blog, we featured the solicitor’s equitable lien following the Supreme Court’s judgment, given on 18 April 2018, in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd.

As an aide memoire, the case concerned the asserting of a lien by Edmondson over compensation which Haven had paid direct to the firm’s clients as a means to avoid paying the fixed costs due under CPR 45 in claims proceeding in the Portal for Low Value Personal Injury Claims in Road Traffic Accidents (the Portal). Having had notice of the solicitor’s interest via the Portal, the court held that Haven had to pay Edmondson the charges that their clients would have paid them, to the extent that they did not exceed the compensation agreed in each case. It followed that Haven’s attempt to cut out Edmondson as the middle man ended in failure.

The legal principle underpinning Edmondson’s success was explained succinctly by Lord Kenyon in Read v Dupper over two centuries ago!

“ … that the party should not run away with the fruits of the cause without satisfying the legal demands of his attorney, by whose industry, and in many cases, at whose expense, those fruits are obtained.”

However, at the end of his judgment in Haven, Lord Briggs gave this warning:

“… it is simply wrong in my view, to seek to distil from those cases [decisions referred to in the judgment], a general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to the recovery of their charges.”

By coincidence and without the benefit of that warning, since he gave his judgment a month earlier 16 March 2018, Mr Edward Murray QC had also dealt with a case on solicitors’ equitable liens (Bott & Co Solicitors Ltd v Ryanair DAC).

The facts bear striking similarities to those in Haven, albeit that the figures make somewhat startling reading!

As a carrier, Ryanair transported 119,977,801 million people in 2016-2017. They were flown by the airline’s 430 Boeing 737 aircraft, each of which has capacity to carry 189 passengers. Each day, over 2,000 flights take off to 215 destinations in 37 countries. With such a workload, little wonder things sometimes go wrong (and even Ryanair has been known to admit that!).

The problem at the heart of the litigation lay in the operation of Ryanair’s compensation policy for settling claims for delayed or cancelled flights. That is where Bott & Co come in. According to the judgment, the firm began handling delayed journey claims against Ryanair in February 2013. Since then, Bott & Co has acted in approximately 125,000 cases using an online tool adopting the firm’s business model. Under “no-win-no-fee” conditional fee agreements (CFAs), this has generated an average fee per flight delay compensation claim of £95 plus VAT: on that basis, the firm’s possible costs recovery from Ryanair in the event of success works out at a jaw dropping £11,875,000 plus VAT (125,000 x £95)! Plainly some cases failed, but that was the potential if all succeeded.

Until February 2016, Ryanair dealt directly with Bott & Co, at which stage the firm was handling about 1,100 compensation claims per month, worth a potential £104,500 each month. However, from mid-February 2016, Ryanair changed its tactics and communicated directly with Bott & Co’s clients in matters in which it had received a letter before action, settling claims and paying the compensation straight to them. That meant that the solicitors never had funds passing through the firm’s account from which it could take its fees. In addition, in some cases, proceedings would be issued in matters where Bott & Co found out later that Ryanair had already settled directly with its clients.

That meant double disaster for the firm. Not only in some cases would no fees at all be recovered even though a “win” had been achieved under the CFA, but in proceedings which had been issued, the firm would be out of pocket for the court fees. Since the individual sums were small, it was uneconomic to look to the clients for their charges in the 30% of cases in which no response had been received from them to a request for payment, so the firm had ended up writing off thousands in lost fees.

To make good its losses, Bott & Co looked to Ryanair as Edmondson had done against Haven for its professional costs. In the proceedings brought against the airline, Bott & Co contended that the court should intervene to protect the firm’s interest in the fees which were generated through its business in handling flight delay compensation claims on behalf of Ryanair passengers. That meant, in legalese, that in cases where the firm had achieved a win under the CFA and had become entitled to charge the client, Bott & Co’s interest in the compensation recovered would be protected by the solicitor’s equitable lien over the funds in question, and that Ryanair would be obliged to meet the firm’s fees in each case.

Unsurprisingly, that was disputed by Ryanair. Under a revised compensation scheme called “Always Getting Better”, the airline requested passengers, whose flights had been delayed for more than three hours or had been cancelled, to contact Ryanair before “considering other means to seek redress”. That involved the introduction of a new “user-friendly” website permitting passengers to claim flight disruption compensation using an online form. In a valid claim, passengers would receive compensation within 28 days of the date of submission of the form.

Where passengers had not used the online form, but instead had advanced their claims through solicitors such as Bott & Co or via unregulated claims handlers, Ryanair would respond directly to them, thereby cutting out third party solicitors or claims handlers altogether. Only if proceedings were issued and it was necessary to instruct its own solicitors would Ryanair refrain from contacting the passengers directly. In that way, numerous claims submitted after 16 February 2016 had been settled directly with the passengers, thereby (according to Ryanair) lessening the company’s administrative burden, taking away the adversarial element where there was no dispute on liability and removing reputational difficulties with its customers who might otherwise have wrongly assumed that a form of relationship existed between the airline and third party firms.

Unsurprisingly, that was not the way that Bott & Co saw it; its case before the deputy judge was that where Ryanair had had notice of a potential claim via a letter before action, it should be obliged to refrain from contacting the firm’s clients directly with a view to negotiating a settlement, and to preserve the firm’s lien over the compensation by paying any settlement funds into its client account.

Armed with the decision in Haven (Edmondson had failed at first instance but had succeeded on appeal), it might be thought that Bott & Co would romp home before Mr Murray QC. However, with uncanny anticipation about what Lord Briggs was going to say a month later (see above), the deputy judge found for Ryanair on all grounds, holding that the solicitors had no entitlement to an equitable lien over the compensation recovered for their own clients.

Bit of a surprise? Not really, based upon the direction of the authorities which the judge carefully analysed. From these he distilled that for the lien to be operative:

  • There must be “a fund in sight” (Mason v Mason (1933)).
  • That fund must have been obtained by the efforts or activity of the solicitor seeking to establish the lien, through litigation or arbitration (Read v Dupper).
  • That included a situation in which a compromise has been reached as a result of that litigation or arbitration (Meguerditchian v Lightbound (1917)).

In Bott & Co’s case, the feature which had distinguished it from Haven was the fact that the compensation had arisen only as a fruit of negotiation rather than as the fruits of litigation. To succeed, there would have needed to have been some form of proceedings by way of litigation or arbitration. Here, there had been none. On the contrary, there had been no formalised scheme sanctioned by the judiciary as had been the case in Haven where the Portal had been used.

In effect, Bott & Co had simply been a claims handler in relation to the vast majority of the flight compensation claims made. As such, the nature of the work undertaken by the firm was completely different from that done by Edmondson, which had participated in a formalised scheme that had given rise to an entitlement to fixed fees. In these circumstances, Ryanair was under no obligation to pay any compensation directly to Bott & Co, still less was it obliged to indemnify the firm in respect of fees where settlements had been made directly with their clients and Ryanair had been on notice of the claim. Action dismissed.

Where does this all leave solicitors in the middle, whose clients are targeted directly by prospective defendants, adopting the tactic deployed by Haven and Ryanair?

The answer is certainly not in limbo anymore, since the principles are now clear: there is nothing in law which will operate to bail out solicitors for the recovery of their fees where a remedy is within their own gift. In the Ryanair case, that was to take money on account from the clients and not to expect the airline to stump up when those clients let the firm down, having been paid out directly by the airline.

A useful lesson then: if as a solicitor, you take money up front before you do the work, there will be no need to put your hopes and reliance on the solicitors’ equitable lien in order to receive payment of your fees. If you do not do that, you are likely to take the consequences and, as happened to the unfortunate Bott & Co, as middleman, go unpaid.

Postscript: the judgment also addressed the validity of Ryanair’s terms and conditions of business vis-a-vis Regulation (EC) No 261/2004 of the European Parliament, but as that does not concern the equitable lien, the blog has not addressed it.

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