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The Solicitor’s Equitable Lien: still at work, sometimes!

The old adage about the London Omnibus is in our thoughts as we publish a new set of Online cases: you wait in line for ages for one to board, then three come along at once. It is, however, applicable only by analogy as we write this Bulletin, as our notional buses are just two in number but both have come along together and concern an ancient and relatively rare principle known as “the solicitor’s equitable lien”.

The first case was actually published the month before last at [2018] 2 Costs LR 347: Gavin Edmondson Solicitors v Haven Insurance Company Ltd. Going online today is the second, Bott & Co Solicitors Ltd v Ryanair DAC [2018] 3 Costs LO 275. In both (for reasons explained below), the solicitors (as the claimants), were compelled to look to equity in the form of the solicitor’s equitable lien in order, they hoped, to secure payment of their professional fees: these were to be from, respectively, Haven, an insurance company, and from Ryanair, the airline with the reputation for cancelling flights at the last minute leaving its passengers stranded. (Apologies, a bit of editorial sour grapes there emanating from a trip to Lisbon which never happened!)

What is this mysterious lien? As often is the case, the best and most pithy explanation can be found in judgments of yore when judges could encapsulate difficult legal concepts into short sentences. This is Lord Mansfield in Welsh v Hole [1779) 1 Dougl KB 238:

“An Attorney has a lien on the money recovered by his client, for his bill of costs: if the money comes into his hands, he may retain to the amount of his bill. He may stop it in transit if he can lay hold of it. If he apply to the court, they will prevent its being paid over till his demand is satisfied. I am inclined to go still farther and to hold that, if the attorney give notice to the defendant not to pay till 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. But I think we cannot go beyond those limits.”

A decade and a half later, this was Lord Kenyon in Read v Dupper [1795] 6 Term Rep 361:

“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.”

So the principle was clear: the court would intervene to protect a solicitor’s claim on funds recovered or due to be recovered by a client or former client if the paying party was on notice of the solicitor’s interest in those funds. That meant that if the paying party distributed the funds directly to the solicitor’s client (or former client) having ignored that notice, he could be ordered to pay the sum again to the solicitor (see Khans v Chifuntwe [2013] 6 Costs LR 564).

Of course, if there was collusion between the paying party and the client or former client to cheat the solicitor out of the fruits of the cause, the case for the equitable lien was just as strong, if not stronger. In Omerod v Tate [1801] 1 East 464, that was demonstrated where, in relation to a debt arising from an arbitration award, the arrangement to pay the plaintiff client (as the claimant then was) direct was:

“no other than a mere shuffle between the plaintiff to cheat the attorney of his lien.”

It followed, in those circumstances, that the law would intervene to protect the solicitor’s interest in the money through the operation of the equitable lien over it.

Back to the twenty-first century. How is the equitable lien operating, if at all, under modern conditions? First the facts in our two cases.

In Haven, back in 2012, Edmondson had acted for multiple claimants injured in minor road traffic accidents and the firm had entered their claims onto the Road Traffic Act Portal (“the Portal”). That exists to resolve modest claims for personal injuries at a fraction of the cost that would be incurred were the injured parties to proceed instead through the county court, with the solicitors to be paid their Portal costs at each stage of the process direct by the tortfeasors’ insurers at a level fixed by CPR 45.

Unfortunately for the solicitors in Haven, in order to avoid paying the fixed costs, the insurance company had adopted a tactic of contacting the firm’s clients direct with an inducement: if they settled the case without involving Edmondson, their compensation would be higher, because there would be no need for Haven to pay any of the fixed costs. Since the claimants were using conditional fee agreements “lite”, meaning that the costs they were liable to pay Edmondson were limited to the fixed costs recovered from Haven, a significant number settled direct with the insurance company, so Edmondson went unpaid for their work. In doing so, there was no suggestion whatsoever that there had been any collusion by the clients to cheat Edmondson out of their costs as had happened in Ormerod all those years ago.

Next, Ryanair. According to its website, in the years 2016–2017 the airline carried almost 120m passengers to 215 destinations in 37 countries. What the website does not say is that that figure would have been higher but for the enormous number of flight cancellations Ryanair made last summer (including that of your irascible co-editor) due to its ongoing dispute with its pilots over pay and conditions, which it euphemistically described as a “‘mess up’ in the planning of pilot holidays”.

What happens when your Ryanair flight is delayed or cancelled? That is where Bott & Co come in, as a firm of solicitors handling multiple claims on behalf of numerous disgruntled passengers seeking compensation. According to the judgment of Mr Edward Murray QC, sitting as a deputy judge of the High Court, the firm began handling delayed journey claims against Ryanair in February 2013, since when it has acted in approximately 125,000 cases using an online tool adopting the firm’s business model. Under “no-win-no-fee” CFAs, this has generated an average fee per flight delay compensation claim of £95 plus VAT: multiplying £95 by 125,000, that means that the potential fee income would have been £11,875,000 plus VAT if all had succeeded!

By February 2016, Bott & Co was handling about 1,100 compensation claims per month, worth a potential £104,500. However, from mid-February 2016, Ryanair had taken a leaf out of the Haven book (Haven had won at first instance before Judge Milwyn Jarman QC) by communicating direct 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. Concurrently, the airline had introduced a scheme of its own called “Always Getting Better”, under which passengers whose flights had been delayed for more than three hours, or had been cancelled, were asked 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.

The result of these revised arrangements? Funds no longer passed through Bott & Co’s bank account from which it could take its fees: in addition, in some cases, proceedings would be issued in matters in which the firm found out later that Ryanair had already settled direct with its clients. It followed that in those eventualities, the solicitors either received no costs where the clients had simply made off with the compensation, or the firm was out of pocket for the court fees that needlessly (as it turned out) had been incurred.

Dissatisfied, both Edmondson and Bott & Co looked to the court for a remedy, advancing the solicitor’s equitable lien as a reason why both Haven and Ryanair should make good to them the fees they had lost as a result of the deliberate policy both had adopted in communicating direct with their clients.

As already mentioned, at first instance Haven had won, but the decision of HHJ Jarman was reversed by the Court of Appeal on 2 December 2015. However, Haven obtained permission to appeal with the hearing of that appeal by the Supreme Court taking place on 5 and 6 February 2018 with judgment reserved until 18 April 2018. Meanwhile, in Ryanair, the action had been heard on 15–17 November 2017 with judgment reserved to March 2018. Legal Eagles interested in the cases were thus on tenterhooks about whether Edmondson would hang onto its judgment and whether Mr Murray QC would follow it in reaching his Ryanair decision.

First, Haven. Decision of the Court of Appeal upheld. When Haven had paid the settlement monies directly 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 RTA Portal. It had also known that Edmondson, having chosen to initiate each claim by using the Portal, was most unlikely to be paid its charges upfront, but instead had expected, if successful, to be paid out from compensation due from Haven under the terms of the RTA Portal. Either way, Haven had been aware that Edmondson was looking to the fruits of the claim for recovery of its charges. Accordingly, the notice requirement had been met, and the solicitors could enforce its lien against Haven by requiring it to pay the fee amounts in the CFAs direct to the firm up to the level of the agreed settlement payments in each case.

Second, Ryanair. Same result to be expected, armed with the Court of Appeal’s decision, albeit that the Supreme Court’s decision in Haven had been reserved?

Au contraire: the luck of the Irish ruled the day and Ryanair romped home leaving Bott & Co unpaid. Having undertaken a careful analysis of the authorities, Mr Murray concluded that for the lien to operate in Bott & Co’s favour:

  • there must be “a fund in sight” as Scarman J had found in Re Fuld;
  • that fund must have been obtained by the efforts of the solicitors seeking to establish the lien, through litigation or arbitration (Read v Dupper: compensation that had arisen as a fruit of negotiation rather than as a fruit of litigation was not enough);
  • that would include a case in which a settlement had been reached as a result of litigation or arbitration (Meguerditchian v Lightbound (1917) per Swiffen Eady LJ); and
  • the solicitor was deserving of protection!

For the hapless Bott & Co, the judge found that unfortunately the firm was not. It had in effect simply been a claims handling agent. As such:

“The nature of the work undertaken by Bott for its clients … is quite different from the work undertaken by Edmondson for its clients … The key difference … is that in this case, Bott is not engaging with a formalised scheme, sanctioned by the judiciary, for the resolution of claims that give rise to an entitlement to fixed costs under the CPR. I can see no principled basis for extending to this case the protective principle exemplified in the Khans and Gavin Edmondson cases.”

It followed that Ryanair was under no obligation to pay any compensation to Bott & Co, nor was it required to indemnify the firm in respect of fees where settlements had been made direct with their clients and Ryanair had been on notice of the claim. In any case, Bott & Co could have safeguarded its fees by taking money on account from its clients. Action dismissed.

Rotten luck? For those who paid for their flights to Lisbon, had them cancelled at 24 hours’ notice, and then used the Ryanair “Always getting Better” compensation scheme, only not to be paid out within 28 days but only after haggling, threatening, cajoling and being persistent in order to obtain their “fund in sight”, absolutely. Next time (actually there will not be a next time as Ryanair is “off” this co-editor’s list of approved airlines), for best results, use Bott & Co and do not settle with Ryanair direct.

One chink of light at the end of the tunnel: Bott & Co has served a notice of appeal and the firm’s application for permission is currently on the desk of a Lord or Lady Justice awaiting a decision on the papers!

Further details about the Costs Law Reports Conference to be held on 27 September 2018 are set out below. A significant part of the Conference will be devoted to the electronic bill and how the court will carry out a paperless detailed assessment, using the electronic bill which will be displayed on the screens which are now firm fixtures at the SCCO and, it is believed, in the District Registries. We hope that as many subscribers as possible will join us on September 27 for a demonstration of Law in Action, namely a fully argued electronic assessment.

The headnotes and full texts of the cases below are available to online subscribers at Follow Costs Law Reports on Twitter to be notified of new cases as soon as they are published.

New cases this month

Bott & Co Solicitors Ltd v Ryanair DAC [2018] 3 Costs LO 275: Solicitor’s equitable liens: circumstances in which the lien can attach to funds recovered on behalf of claimants using conditional fee agreements where the compensation has been paid direct to them.

Broom and Another v Archer and Others [2018] 3 Costs LO 317: Costs budgeting: principles applying on applications under CPR PD 3E.7.6 to vary the budget following arithmetical errors and on a “significant development” arising after amendments to the pleadings.

Wright v Satellite Information Services Ltd [2018] 3 Costs LO 323: Personal injury claim in which judgment given in claimant’s favour, for 75% of the costs: defendant contending unsuccessfully that the claim should have been dismissed on the basis that the claimant had been fundamentally dishonest.

Wall v Munday [2018] 3 Costs LO 335: Correct award of costs in matrimonial proceedings: identification of the successful party: costs to follow the event with a discount of 40% to represent those issues on which the winner failed.

Harrap v Brighton & Sussex University Hospitals NHS Trust [2018] 3 Costs LO 343: Appropriate order for costs following notice of discontinuance under CPR 38.6: whether a change of circumstances, namely the emergence of new evidence during cross-examination at trial, justified departure from default rule that discontinuing party pays the costs.

ZN (Afghanistan) and Another v Secretary of State for the Home Department [2018] 3 Costs LO 357: Withdrawal of certification of human rights claims: the extent to which, on making costs orders, it would be relevant to take into consideration that a party was in receipt of public funds.

Ashany and Another v Eco-Bat Technologies Ltd [2018] 3 Costs LO 387: Costs orders following discontinuance under CPR 38.6: principles to apply where a paying party seeks a variation of the default rule that the party discontinuing pays the costs.

Travelers Insurance Company Ltd v XYZ [2018] 3 Costs LO 401: Non-party costs orders: principles applying where a costs order had been made under s 51 of the Senior Courts Act 1981 against insurers in group litigation.

Other recent cases

Angel Group Ltd and Others v Davey [2018] 2 Costs LR 199: Indemnity basis costs: principles to apply where a party had sold trust property without informing the claimants, involving lack of honesty and failure to disclose information.

Iraqi Civilians v Ministry of Defence [2018] 2 Costs LR 213: Proportion-based costs orders following partial success at trial: appropriate orders where the damages awarded had been considerably less than the amount claimed but no offer of settlement by the defendants had been made under CPR Part 36.

Marcura Equities FZE and Another v Nisomar Ventures Ltd and Another [2018] 2 Costs LR 227: Settlements: appropriate costs order to make consequential thereupon where everything else has been settled.

Siddiqui v The Chancellor, Masters and Scholars of the University of Oxford [2018] 2 Costs LR 247: Qualified one-way costs shifting; applicability of CPR 44.16(2)(b) to disapplying QOCS protection where only part of the claim related to psychiatric injury.

Herbert v HH Law Ltd [2018] 2 Costs LR 261: Solicitors Act s 70 assessments; level of success fee as between solicitor and client under a conditional fee agreements where “informed approval” had not been given: whether payment of an ATE insurance premium was a solicitor’s disbursement, to be excluded from the cash account.

JMX (a Child by His Mother and Litigation Friend, FMX) v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] 2 Costs LR 285: Benefits of CPR 36.17(4)(d); whether the rule was engaged and an additional amount was payable where the case had not been “decided” according to CPR 36.3(e); namely where not all of the issues had been determined.

Leibson Corporation and Others v TOC Investments Corporation and Others [2018] 2 Costs LR 293: Funding arrangements in insolvency proceedings: whether an agreement, an order of the court and rule 4.30(3) of the Insolvency Rules 1986 imposed an obligation on a company to repay monies advanced by a third party to fund the costs of the provisional liquidators.

Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] 2 Costs LR 333: Appropriate level of interim payment to allow under CPR 44.2(8) in an action subject to costs budgeting, and the factors applying to determine a reasonable sum in respect of incurred costs.

Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2018] 2 Costs LR 347: The solicitors’ equitable lien in cases funded under conditional fee agreements to which the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Cases applies: whether solicitors can exercise an equitable lien over debts arising from settlement agreements where the defendant or his insurer has notice of the CFA but has paid the settlement monies direct to the claimants.

Ali and Another v Channel 5 Broadcast Ltd [2018] 2 Costs LR 373: Part 36; costs consequences of failure to beat defendant’s Part 36 offer; effect of defendant’s failure to file costs budget.

Williams v The Secretary of State for Business, Energy & Industrial Strategy [2018] 2 Costs LR 391: Costs consequences where a claimant fails to follow a pre-action protocol allowing for the recovery of fixed costs and disbursements in a claim which settles before the commencement of proceedings.

R v MA [2018] 2 Costs LR 419: Pages of prosecution evidence: principles to apply on an application for an order for service by the Crown Prosecution Service of “phone material”, not as unused material, but as part of the served prosecution case with numbered PPE for the purposes of the Litigators’ and Advocates’ Graduated Fee Schemes.

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