On 19 April 2018, the Supreme Court handed down the much-anticipated judgment in Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited, concerning the recoverability of costs where the claimant reaches a direct settlement with an insurer.
Although the case concerned a series of low value RTA claims, the Supreme Court’s judgment engages an issue of fundamental importance to the entire legal industry; the extent to which the court will protect a solicitor’s claim for costs.
The proceedings stem from six low value personal injury claims intimated by Edmondson in accordance with the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (“the Protocol”).
In five of the cases, following receipt of the Claim Notification Form (“CNF”) Haven wrote to the individual claimants direct offering them sums in the region of £2,000 as compensation for their injuries. In the sixth case, Haven had been provided with the claimant’s details by its own insured, had written to the claimant before Edmondson was instructed, and had made an offer of compensation over the telephone following a phone call from the claimant to discuss the provision of a hire car whilst his vehicle was being repaired. In all six cases, Haven offered, and the individual claimants accepted, a full a final settlement that did not provide for the payment of Edmondson’s costs.
Aggrieved by Haven’s actions, Edmondson brought a claim in its own name to recover the costs that it said it would have been paid had the cases settled under the Protocol. Having initially brought claims in inducing a breach of contract and unlawful interference, Edmondson amended its pleadings shortly before trial to include a claim for equitable interference on the principles set out by the Court of Appeal in Khans Solicitors (a firm) v Chifuntwe  EWCA Civ 481;  4 All ER 367. In short, that where a defendant was either on notice of a solicitor’s claim on fees recovered or colluded with the individual claimant to defeat his solicitor’s lien, the court has an equitable jurisdiction to intervene to order a (re)payment of costs.
Edmondson lost at first instance, with HHJ Jarman QC holding that Edmondson did not have an enforceable claim for costs against the individual claimants. This finding was made on the basis that Edmondson’s client care letter rendered its standard form CFA a CFA-lite (i.e. a CFA under which costs are only payable to the extent recovered) and as the individual claimants had not recovered costs (n.b. the settlements did not include costs) liability to make payment under the CFAs was not triggered. There was therefore no term of the contract that Haven could have induced the claimants to breach, and no interest that equity could protect.
Edmondson appealed. The Court of Appeal upheld HHJ Jarman QC’s interpretation of the client care letter, but nonetheless allowed the appeal, holding that equity could intervene to protect the solicitor’s expectation of payment even absent an enforceable right to payment. Haven then appealed, and were granted permission on the papers.
Shortly before the case was heard by the Supreme Court, the Law Society were granted permission to intervene in the appeal due to the significance of the issues in play.
The Supreme Court
Most of the argument before the Supreme Court focussed on the breadth of equity’s jurisdiction to intervene to protect the solicitor’s expectation of receiving payment. Despite “vigorous” submissions from both Edmondson and the Law Society inviting a broad and flexible approach to equitable intervention, the Supreme Court accepted Haven’s argument that the court only has jurisdiction to intervene in circumstances where a solicitor had an enforceable claim for costs against his client, and where the usual method of enforcement of that claim (i.e. a solicitor’s lien) was defeated by a direct payment. The Supreme Court also rejected the Law Society’s arguments that within the context of modern litigation, pre-action protocols and fixed costs regimes should give solicitors a direct and enforceable right to payment from the opposing litigant.
However, the Supreme Court went on to overturn the concurrent findings of HHJ Jarman QC and the Court of Appeal that Edmondson did not have an enforceable claim for costs against the individual claimants. Although the Supreme Court accepted that the Edmondson’s retainer rendered its CFA a CFA-lite, it held that the effect of a CFA-lite was not to remove the liability for costs, but simply to limit the circumstances in which that liability could be enforced. Edmondson’s theoretical but otherwise unenforceable claim for payment was therefore a sufficient right for equity to protect.
Perhaps most controversially, the Supreme Court also upheld Edmondson’s claim in respect of the claimant where Haven had obtained the accident details from its insured and had made contact before Edmondson was instructed. The Supreme Court held that despite the existing contact, sending a CNF had been sufficiently instrumental in securing a settlement to give Edmondson an entitlement to payment.
The decision will no doubt come as a source of comfort for those on the claimant side of the industry who are concerned about interventions and direct settlements by insurers or opposing litigants. In truth though, the Supreme Court’s judgment is more nuanced than it might first appear and, due to the restatement of the limitations on the scope of equitable intervention, the protection afforded to solicitors will only go so far. If a client is free to terminate their retainer with little or no payment to their solicitor, then there may be little the solicitor can do to protect themselves from a direct settlement. The case also turns on its head the established understanding of the way in which CFA-lites operate, possibly increasing the scope for future challenges.
Helpfully though, the Supreme Court has given real clarity on the status and effect of pre-action protocols that now govern most low value personal injury work. Although such protocols will be sufficient to give notice of a solicitor’s entitlement to payment if a claim is won, they do not supplant the indemnity principle or give solicitors a direct enforceable right to payment. They are not mandatory and do not give rise to any contractual rights if they are breached or not followed. The traditional position remains.
James Wibberley of Guildhall Chambers was instructed on behalf of Haven by Flint Bishop LLP. He was led by Lord Marks of Henley on Thames. He will be speaking about the issues raised by the Edmondson v Haven case at the South West Costs Seminar on 1 May 2018.