Equitable Intervention to Protect a Solicitor’s Lien: Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited [2018] UKSC 21

INTRODUCTION

Last week (here), we reported that judgment, in Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited [2018] UKSC 21, had been handed down from the Supreme Court. In this feature article, we provide an overview of the law on solicitor’s equitable lien. We go on to discuss the ratio of the latest Supreme Court ruling in Gavin Edmondson, which took a different approach from the Court of Appeal ruling, but ultimately reached the same conclusion, in preserving the right of claimant’s solicitors to recover Portal costs in Portal claims. This is the first occasion that the Supreme Court, or its predecessor, has considered the nature and effect of the solicitor’s lien.

What is a Solicitor’s Lien?

Solicitor’s lien is an equitable remedy which ensures the recovery of agreed charges for the successful conduct of litigation, ‘out of the fruits of that litigation’, in priority to the interest of the successful client, or anyone claiming through them. Snell's Equity (33rd edition), at paragraph 44-023, cites Re Born [1900] 2 Ch 433 and Re Meter Cabs Ltd [1911] 2 Ch 557 as the first cases to refer to the solicitor’s lien as a ‘common law lien’. Although the remedy is judge-made, this is NOT to be confused with the solicitor’s common law lien over client property in its possession, which it has the right to retain until payment is complete. As such, Snell’s Equity clarifies that the remedy is ‘more properly regarded as a right to apply to the court for a charge, or as an equitable lien, because it does not depend on the fund being in the possession of the solicitor’. Recognition and enforcement of the solicitor’s equitable lien serves as an extension of access to justice. As early as authorities, such as In re Moss (1866) LR 2 Eq 345, judges have spoken of ‘great importance to preserve the lien of solicitors’.

When is the Lien Relied Upon?

Over time, equity has evolved to provide an intervention in personam against anyone whose conscience is affected by having notice of solicitors, either by preventing inconsistent dealings, or by holding wrongdoers to account. Where a defendant (or his agent or insurer) pays a debt directly to a claimant, in circumstances where there has been collusion between parties to cheat the solicitor out of fees ordinarily due, or parties on notice of an equitable interest engage in inconsistent dealings regardless of said interest, ‘the court would require the payer to pay the solicitor’s charges again, direct to the solicitor, leaving the payer to such remedy as he might have against the claimant’.

Since the introduction of the Ministry of Justice Pre-Action Protocols, defendant insurers are notified by claimant’s solicitors of modest claims for personal injuries, using an online platform. In respect of RTA claims, claims pass through the RTA Portal. Where liability is admitted, for settlement to be negotiated, or quantum to be determined at court, the scheme allows for the incurrence of fractional costs and effort, when compared with ordinary County Court proceedings. Pursuant to CPR 45 and the Pre-Action Protocol, claimant solicitors are rewarded with fixed costs for work conducted at each stage of the Portal process.

‘EQUITABLE LIEN’ CASE LAW

Welsh v Hole (1779) 1 Dougl KB 238

This was the first case to recognise the existence of a solicitor’s equitable lien. The claimant obtained judgment for £20, which was compromised by a £10 direct payment via a defendant. In this instance, it was held that there was no collusion to defeat the solicitor’s right to the payment of its bill. However, in devising an alternative to collusion, as a means to entitle a lien, Lord Mansfield stated:

‘I am inclined to go still farther, and to hold that, if the attorney give notice to the defendant not to pay until his bill should be discharged, a payment by the defendant after such notice would be in his own wrong, and like paying a debt which has been assigned, after notice’.

Read v Dupper (1795) 6 term Rep 361

Extending the effect of notice on lien, in Read, the defendant’s solicitor, on notice of the claimant’s solicitor’s interest, paid the claimant direct. The court held 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’.

Ex parte Bryant (1815) 1 Madd 49

This case was one of the first to incentive access to justice as reasoning behind the lien:

‘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’.

Barker v St Quintin (1844) 12 M & W 441

In Barker, Baron Parke demonstrated that the equitable lien operates by way of security or charge.

‘The lien which an attorney is said to have on a judgment (which is, perhaps, an incorrect expression) is merely a claim to the equitable interference of the Court to have that judgment held as a security for his debt’ [followed in Mason v Mason and Cottrell [1933] P 199 In re Fuld dec’d (No 4) [1968] P 727, which identified the necessity of a ‘fund’ to operate the charge].

Khan Solicitors (a firm) v Chifuntwe [2014] 1 WLR 1185,

In this more recent case, a two-part test was derived, in respect of ‘equitable intervention’, reflecting historic case precedent on solicitor’s lien. At paragraph 33, Sir Stephen Sedley stated:

‘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 [following dicta in Ormerod v Tate (1801) 1 East 464], or (b) the paying party is on notice that the other party's solicitor has a claim on the funds for outstanding fees. The form of protection ought to be preventive but may in a proper case take the form of dual payment’.

GAVIN EDMONDSON SOLICITORS LTD V HAVEN INSURANCE COMPANY LTD

The Facts

Six claimants, involved in three motor accidents, entered into identically worded conditional fee agreements (‘CFA Lite’), which provided for a success fee, with the same firm of solicitors (Gavin Edmondson). The purpose of the CFA was to ensure that in no circumstances would the client pay the solicitor’s fees with their own funds. Under the terms of the CFA, successful claimants would pay its solicitor’s charges and reclaim them from the defendant insurer.

Subsequently, the insurer (Haven) responded to claims, which had since entered the RTA Portal, by offering the claimants a scheme of compensation, which could be paid into their bank accounts as soon as settlement figures were agreed. Terms of proposed settlement did not include solicitors’ fixed fees, despite the fact that claim notification forms, providing details of the retainers, were confirmed.

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When settlements, including damages for pain suffering and loss of amenity, were negotiated, the claimants were directed to tell its instructed solicitors that the claims could be closed and CFAs be cancelled.

Gavin Edmondson brought a claim against Haven for ‘wrongful inducement to the clients to breach their retainer contract, intentional causing of loss by unlawful means and, by amendment, seeking equitable enforcement of its solicitors’ lien’.

It was alleged that repetition of this practice on a large scale meant the determination of the dispute had financial consequences ‘running to many millions of pounds’.

The High Court Decision

HHJ Jarman QC originally dismissed the claim for costs recovery, brought by the claimant’s solicitors.

The Court of Appeal Decision

In the Court of Appeal case of Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2015] EWCA Civ 1230, previously discussed in edition 120 of BC Disease News (here), the defendant insurers argued that the retainer did not give rise to contractual liability upon which an equitable security could be founded.

The judge identified a conflict between the wording of the CFA, which followed the Law Society’s standard terms, and the wording of the prevailing Client Care Letter, which stated:

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’.

As such, it was the view of Lloyd Jones LJ that ‘Edmondson would not have a lien over assets received on its clients’ amount because there is no underlying liability of the clients to Edmondson for the lien to protect’.

However, the judge overruled the decision of the trial judge. Although Lloyd Jones LJ found that there was no such contractual liability upon true construction of the retainers, ‘equitable jurisdiction to intervene could be extended far enough to enable the court to recognise and then enforce an interest of Edmondson under the RTA Protocol in receiving its fixed costs and charges as therein provided or, alternatively, an interest under an express provision in the retainers to sue in its client’s names for recovery of those charges from Haven, and that Haven knew of those interests’.

As can be seen from the above quote, implied notice of the CFA through Portal-supplied information was sufficient for the principle of the equitable lien to apply.

Thus, in addition to the payment of settlements reached with the claimants, the defendant was ordered to pay the fixed costs prescribed by the RTA Protocol.

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This decision extended the principle enunciated in the Khans case.

The Intervention

In edition 217 of BC Disease News (here), we reported that, prior to the Haven appeal in February of 2018, the Law Society had urged the Supreme Court ‘to confirm that the equitable lien can be applied to protect solicitors’ rights to their costs in modern litigation; particularly in fixed costs regimes where the indemnity principle does not apply’. The public plea to the Supreme Court, which it obtained written permission to provide, strongly indicated that the claimant’s solicitors had ‘an interest which equity can protect and which is deserving of protection’, which was reflected in the Court of Appeal decision.

The Supreme Court Decision

On appeal, the defendant maintained its position, that the ‘CFA Lite’ retainers afforded no basis upon which an equitable lien could attach, while also arguing that the lower court had erred in extending the ‘equity of intervention’.

Lord Briggs gave the unanimous judgment. The remaining constitution of Lady Hale, Lord Kerr, Lord Wilson and Lord Sumption were all in agreement.

     1. Basis of a Claim to an Equitable Lien?

On the contractual issue, Lord Briggs disagreed with the Court of Appeal judge. On his analysis, the conflict caused by the Client Care Letter ‘was plainly intended to be read, so far as possible, in accordance with, rather than in opposition to, the CFA and Law Society’s terms’. The wording of the Client Care Letter, therefore, ‘merely limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant’. His Lordship affirmed that the CFAs made between Edmondson and its clients contained ‘a sufficient contractual entitlement to charges to support the equitable lien on traditional grounds’, as long as the charges did not exceed the settlement sums.

The Law Society supported the Court of Appeal’s reformulation of the solicitor’s equitable lien, namely that Gavin Edmondson could derive its entitlement to costs recovery under the RTA Protocol, or alternatively, that Gavin Edmondson had a right to sue for enforcement of costs using its clients’ names.

In spite of the intervention, Lord Briggs reasoned that the voluntary nature of the RTA Protocol, in addition to the fact that the Protocol creates no legal or equitable rights, meant that no security against the insurer could be supported. Further, suing in a client’s name is a form of contractual subrogation and the solicitor cannot be in a better position than the client, as against the insurer. As such, ‘Any attempt by Edmondson to stand in their shoes by way of subrogation would be met by an unanswerable defence’.

Counsel for the claimant ‘vigorously’ argued that the court should construe the solicitor’s equitable lien as a flexible remedy, in order to aptly ‘respond to any instance of unconscionable conduct by the insurer, including breach of the RTA Protocol’.

Even though Lord Briggs acknowledged that ‘equity operates with a flexibility ... and does adapt its remedies to changing times’, he warned, at paragraphs 57 and 58, that:

‘... equity nonetheless operates in accordance with principles. While most equitable remedies are discretionary, those principles provide a framework which makes equity part of a system of English law which is renowned for its predictability. I have sought to identify from the cases the settled principles upon which this equitable remedy works. One of them is that the client has a responsibility for the solicitor’s charges.

It is simply wrong in my view to seek to distil from those cases a general principle that equity will protect solicitors from any unconscionable interference with their expectations in relation to recovery of their charges. Furthermore the careful balance of competing interests enshrined in the RTA Protocol assumes that a solicitor’s expectation of recovery of his charges from the defendant’s insurer is underpinned by the equitable lien, based as it is upon a sufficient responsibility of the client for those charges. Were there no such responsibility, it is hard to see how the payment of charges to the solicitor, rather than to the client, would be justified. Furthermore, part of the balance struck by the RTA Protocol is its voluntary nature. Its voluntary use stems from a perception by all stakeholders that its use is better for them than having every modest case go to court. If the court were to step in to grant coercive remedies to those affected by its misuse by others, that balance would in all probability be undermined’.

     2. Notice of the Lien?

At paragraph 50, Lord Briggs followed the Court of Appeal reasoning and concluded, on the question of the defendant’s notice, that:

‘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 an 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’.

The full Supreme Court judgment in Gavin Edmondson can be accessed here.

REACTION TO THE HAVEN JUDGMENT

Following the Supreme Court ruling, Law Society President, Joe Egan, expressed that solicitors ‘may now wish to consider whether they have any claims against insurers who took action similar to Haven’. It is clear, therefore, that the Law Society is encouraging practitioners to take action against insurers who engage in so-called ‘third party capture’ and recover costs due under the equitable lien.  Mr Egan also praised the decision for providing ‘useful confirmation given the expected broader application of fixed recoverable costs regimes in the future’.

Claims Director at the Haven Insurance Company, Joe O’Connell, reacted to the judgment, as follows:

‘While we are naturally very disappointed by the decision, this case was not about whether insurers should settle directly with claimants. It was only about the claimants’ solicitors’ costs and it turned on a technical analysis of their retainers’.

These comments appear to neglect the Supreme Court ruling, which said that once an insurer knows that a claimant is represented by solicitors acting under the RTA protocol, ‘they have the requisite notice and knowledge to make a subsequent payment of settlement monies direct to the claimant unconscionable’.

In any event, Mr O’Connell went on to say:

‘We believe that it is in claimants’ interests to settle directly with us ... Claimants who deal directly with Haven will resolve their claims more quickly and are likely to receive more in compensation than they would if they involved solicitors, particularly as solicitors will deduct up to 25% from claimants’ damages to cover success fees and other legal costs. Haven strongly believes that every claimant has the right to decide how to deal with their own claim and that claimants should not be forced to use solicitors. We encourage any claimant to speak to us before committing themselves to instructing solicitors’.

RELEVANCE TO OCCUPATIONAL DISEASE CLAIMS?

At present, the Pre-Action Protocol for Low Value Personal Injury (Employers’ Liability and Public Liability) Claims encompasses disease claims, worth up to £25,000, where there is one defendant employer. Even though the Gavin Edmondson ruling involved an RTA claim, which had entered the Portal, it is foreseeable that the principles underpinning the equitable lien would also apply to EL/PL Portal, which rewards solicitors with fixed costs at Portal stages.

We previously reported (here and here) in BC Disease News, that Jackson LJ’s 2nd review on fixed costs suggested an extension of fixed costs to include claims valued between £25,000 and £100,000, falling within the new intermediate track, as well as a separate matrix of fixed costs for noise induced hearing loss (NIHL) claims. These ‘future’ fixed recoverable costs regimes, as Mr Egan eluded to in his post-trial statement, could allow solicitors, acting under CFAs, to rely on the equitable remedy when insurers attempt to settle directly with claimants.