REUTERS | Denis Balibouse

Solicitor’s costs: cutting out the middle man

“Cutting out the middle man” is a well-known fact of life (making the expression gender neutral is more difficult). Whether it is selling your house privately to cut out the estate agent or disposing of your car through a private “ad” rather than via the local garage, opportunities abound to save costs by dealing direct with the other party. Even a luxury holiday can come into the frame: book that chalet in Verbier with the owner and you can save yourself the agency charges that would apply should it instead be reserved through a tour operator. So the upshot of the story is that the middle man loses out and the consequences are there to see: estate agents close down and household names go bust.

What of a solicitor acting as middle man? Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd has just completed a lengthy legal journey from the first instance judge, HHJ Jarman QC, through the Court of Appeal and now to the Supreme Court. On its way, the case has encompassed a number of well-known legal chestnuts which might not be considered obvious legal bedmates: they include conditional fee agreements (CFAs), the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (RTA Protocol), the indemnity principle, and a centuries-old remedy, the solicitor’s equitable lien!

How so? A long story. Back in 2012, claimants for whom Edmondson acted had been injured in minor road traffic accidents, and looked to the firm to recover compensation for the personal injuries they had suffered. To that end, in each case, Edmondson had notified the claims to Haven as the tortfeasors’ insurers, using the RTA Portal in the expectation that most, if not all, of them would be negotiated and settled without any legal proceedings, with the solicitor’s reward being the modest fixed costs for their work payable under the RTA Protocol.

Common to all claimants was their instruction of Edmondson under CFA “Lites”: these provided that, although they would be liable for Edmondson’s fees in order to satisfy the indemnity principle, the solicitors would accept for their costs, whatever Haven paid them. The claimants would never have to pay any costs out of their own pockets.

Haven had other ideas, with a view to avoid paying any fixed costs, in particular in claims which could be settled quickly before much work had been done. The ploy was to contact the claimants direct with an invitation to settle their claims straightaway, without involving Edmondson. For the claimants, that had the advantage (so they were told) that the damages were likely to be more generous than would have been the case if the matter went through the solicitors, because they would insist on payment of their fixed costs. Thus, it was “win-win” for Haven and the claimants, but “lose-lose” and lose again for the solicitors, who received no payment for their work under the RTA Protocol in the cases in which Haven’s offers were accepted.

Lord Briggs, who gave the leading judgment in the Supreme Court, described how a typical conversation between Haven’s employee and one of the claimants (a Mr. Grannell), had proceeded:

“As I say they’ll probably when you speak to them they’ll probably will tell you not to, ya know, or you shouldn’t do that, but for the to be honest with you if when they call you, probably a bit less, the reason we offer you a bit more is because of the fact the solicitors get kept out of it, so we don’t have to pay their fees, that’s basically it”. (sic, save punctuation added.)

A literal interpretation of what that meant might be the following: “If you contact the solicitors, they will tell you not to accept the offer, but doing it our way means you will get more because we will be cutting out the middle man by not having to pay Edmondson any fixed costs.” Whatever, the conversation impressed Mr. Grannell sufficiently to persuade him and other claimants, for whom Edmondson were acting, to settle their claims direct with Haven, so the solicitors went unpaid.

Unimpressed by Haven’s success at buying off their clients in this way, Edmondson issued proceedings. At paragraph 6 of his judgment, Lord Briggs summarised the ensuing litigation thus:

“The casus belli for this litigation was a decision by the appellant insurer to respond to the notification of claims on the RTA Portal by offering to settle direct with claimants, on terms which included no amount for their solicitors costs or disbursements (fixed or otherwise), with the twin inducements to claimants of a speedier and more generous payment than would be likely to be available from a settlement using the RTA Protocol and Portal. The motivation of the insurer was the opportunity to avoid having to add to the settlement amount for the injury, the fixed costs and disbursements payable under the terms of the RTA Protocol to the claimants’ solicitors”.

Thus the issue for the court was whether, as the cut-out middle man, Edmondson had any remedy against Haven in the many cases in which this tactic had been deployed.

At first instance, HHJ Jarman QC held that Edmondson had no remedy because the claimants had not colluded with Haven to cheat the solicitors out of their costs, and because Haven was not on notice of the terms of the retainers between the firm and their clients under the CFA “Lites”.

On appeal to the Court of Appeal, Edmondson did better and HHJ Jarman QC’s judgment was reversed, but Haven obtained permission to appeal to the Supreme Court, so it was far from being game, set, match to the solicitors.

The core of the legal argument took the justices through almost 250 years of jurisprudence about equitable liens, a journey that included a pithy explanation by Lord Kenyon in Read v Dupper about how it worked, decided in 1795!

“The principle by which this application is to be decided was settled long ago, namely 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 instances, at whose expense, those fruits are obtained.”

Two hundred years later, Sir Stephen Sedley in the Court of Appeal provided an updated summary in Khans Solicitors v Chifuntwe:

“In our judgment, the law is today (and, in our view, has been for fully two centuries) that the court will intervene to protect a solicitor’s claim on funds recovered or due to be recovered by a client or former client if (a) the paying party is colluding with the client to cheat the solicitor of his fees, or (b) the paying party is on notice that the other party’s solicitor has a claim on the funds for outstanding fees.”

It followed that the Supreme Court needed to decide whether Haven had had notice of Edmondson’s interest in the outcomes of the claims, it not being asserted that any of the claimants had colluded with Haven to deprive Edmondson of the fruits of their labours. In addition, it was necessary for the court to determine whether or not Edmondson had a contractual entitlement to its charges under the CFA “Lites”.

On both counts, the Supreme Court found in favour of Edmondson. In the first place, it disagreed with the Court of Appeal about whether a client care letter, which had (a) said that the solicitor had no recourse against the client for fees and (b) limited the fees to what could be recovered from the losing side, overrode the general provisions of the CFAs. It did not: on the contrary, the justices unanimously held that it had preserved and affirmed the basic contractual liability between solicitor and client, to the full extent necessary to form the basis of a claim to an equitable charge as security over the fruits of the litigation.

As to the second point, notice, that had been the issue upon which Edmondson’s claim had foundered at first instance. Both in the Court of Appeal and before the justices, that was found to be wrong. By the time that Haven had paid the settlement monies direct to the claimants, it had known that each of them had retained Edmondson under a CFA. That had been apparent from the claim notification form which the firm had placed on the Portal.

Haven had also known from the fact that Edmondson had chosen to initiate each claim by using the RTA Portal, that the firm was most unlikely to be paid its charges upfront, but instead had expected, if successful, to have obtained payment from money paid by Haven under the terms of the RTA protocol. Either way, Haven had known that Edmondson was looking to the fruits of the claim for recovery of its charges. Accordingly, the notice requirement had been met.

The result? Haven’s mission to cut out the middle man failed and the effect of the judgment was to permit Edmondson to enforce its lien against Haven by requiring it to pay the fee amounts in the CFAs direct to the firm, up to the amount of the agreed settlement payments in each case.

But there was a sting in the tail. If the client has no responsibility to the solicitor for costs 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. Absent such a responsibility, it was plain, in Lord Brigg’s view, that no general principle exists in equity which will protect solicitors from any unconscionable interference (for example, as here, by insurers) with their expectations in relation to recovery of their charges.

Given the divergence of judicial views over three courts, Edmondson might thus consider themselves a trifle fortunate at the outcome. Whilst right was unquestionably on the firm’s side from start to finish, the case is a good reminder of the wise words of Megarry J (as he then was) in John v Rees:

“As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not.”

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