Supreme Court upholds Edmondson v Haven Court of Appeal decision but is its significance about to be overtaken already?
The long-awaited appeal decision in Edmondson v Haven Insurance was handed down on the 18 April 2018. Here we look at the judgment and whether it might have any impact on insurer strategies going forward or whether it should be seen to be confined to past behaviours. The judgment comes as parliamentary scrutiny is about to be given to the wider issues affecting these claims with the Civil Liability Bill reaching a key milestone in the House of Lords later today.
A number of individuals were involved in road traffic accidents involving vehicles whose drivers were insured by Haven Insurance ("Haven"). Those individuals ("the RTA claimants") entered into pre-LASPO CFAs with Gavin Edmondson Solicitors ("Edmondson") who submitted the claims to the MoJ Portal. A short while after the claims were submitted Haven made settlement proposals directly to the RTA claimants on terms which did not include payment of the solicitors' costs. The RTA claimants accepted the offers and terminated their CFAs with Edmondson.
Edmondson brought proceedings to seek the fixed portal costs to which they would have been entitled if they had retained the case. The costs, which were the subject of the action, amounted to approximately £12,000 but the outcome of the action was seen as potentially having significant financial consequences for numerous previously settled claims. Lord Briggs noted in his judgment that this was sufficiently large scale for the determination of the dispute to involve financial consequences running to "many millions of pounds"
Edmondson alleged that Haven's conduct had been unlawful on a number of grounds, most of which were aimed at the insurers' conduct in contacting the RTA claimants direct. These grounds included the misuse of confidential information, breach of the Pre-Action Protocol for Low Value RTA Claims and breach of the Data Protection Act 1998. The judge at first instance dismissed the claim on all of the grounds.
The appeals to both the Court of Appeal and the Supreme Court subsequently focused on one technical ground only: whether Haven had prevented Edmondson from establishing a lien on the settlement monies for their costs, thereby justifying the court's equitable intervention by ordering Haven to pay those costs.
An equitable lien operates like a charge over recovered damages so that if the individual parties collude to cheat a claimant's solicitors out of their costs, or alternatively if the defendant is on notice that the solicitor has a claim on the funds, then the court can order the defendant to pay the costs on top.
In this case, for the lien to exist in the first place there needed to be a contractual liability for the RTA claimants to pay Edmondson's fees. The question of whether that contractual liability existed depended on the court's interpretation of the CFAs.
On the Court of Appeal's interpretation of the CFAs, the RTA claimants had no liability to pay Edmondson's fees and so there was no traditional equitable lien. However, the Court of Appeal was prepared to modernise and extend the lien to allow Edmondson to recover their fixed costs on the basis that "in the normal course of events Edmondson would have an entitlement to recover the fixed costs and other sums payable under the Protocol scheme." (Lloyd Jones LJ, para. 31)
Haven appealed to the Supreme Court. They did not dispute the Court of Appeal's finding that there was no traditional equitable lien but as one would expect they did dispute the extension of the lien.
Supreme Court findings
The Supreme Court unanimously dismissed Haven's appeal with Lord Briggs giving the lead judgment. They agreed that the Court of Appeal should not have modernised the lien but on their construction of the CFA the RTA claimants did have a contractual liability to pay Edmondson's fees. So in effect the lien did not need to be modernised.
The difference of opinion arose from the fact that the Edmondson retainer contained an uneasy combination of standard Law Society provisions reflected in the CFAs, and its own client care provisions in their letter of retainer. Both the Court of Appeal and the Supreme Court agreed there was a tension between two particular provisions:
The Law Society provision reflected in the CFA sent by Edmondson to the RTA Claimants read: "If you win your claim, you will pay our basic charges, our disbursements and a success fee. The amount of these is not based on or limited by the damages. You can claim from our opponent part or all of our basic charges, our disbursements, a success fee and insurance premium."
While the Edmondson provision in the client care letter said: "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."
The Court of Appeal determined that on the basis of the Edmondson provision, the RTA claimants would have no liability to pay Edmondson's fees. They also determined that the Edmondson provision should prevail over the two because it was expressed to be "for the avoidance of any doubt".
Whilst the Supreme Court agreed there was a tension between the provisions, it held that the Edmondson provision "did not destroy the basic liability of the client for Edmondson’s charges expressly declared in the CFA and Law Society’s standard terms."
Having found that the traditional equitable lien did exist, the Supreme Court then had to determine whether it was enforceable. The relevant questions were whether the settlements were to a significant extent brought about by Edmondson's services under the CFAs and, on the basis these claims did not involve collusion, whether Haven had notice of the lien.
Edmondson's submission of the claim to the portal through the CNF made a significant contribution: it supplied details of the claim to the insurer and demonstrated the claimant's intention to pursue the claim, confirming that it was backed by a CFA. Haven knew that Edmondson would be looking to "the fruits of the claim for recovery of its charges" and once this knowledge was in Haven's possession, it was "unconscionable" of them to interfere, said Lord Briggs (para. 50).
Although not strictly necessary in light of their decision about the traditional equitable lien, the Supreme Court reviewed the Court of Appeal's proposed extension of the lien. They considered it inappropriate to extend the lien as a security for payment of amounts arising under a purely voluntary protocol as it created no debt or other legal rights and provided no sanction for non-compliance other than the claim falling out of the portal.
The Court of Appeal's proposed extension would have given Haven their fixed costs in full but enforcement on the traditional basis meant that the recoverable costs would be capped at the amount of the agreed settlements and would therefore be slightly lower than the costs allowed by the Court of Appeal.
Impact of Decision on Insurers
As stated above, at the original hearing it was alleged that Haven's conduct had been unlawful on a number of grounds, most of which were aimed at the insurers' conduct in contacting the RTA claimants direct. However, like the Court of Appeal judgment, the Supreme Court focused on the equitable lien aspect only and did not look at causing loss by unlawful means, misuse of personal information and breach of the Data Protection Act (soon to be replaced by the GDPR).
As a result there is no further specific guidance on those interesting points. For those insurers who pursue an intervention strategy, the judgment does not seemingly affect them contacting represented claimants as long as the relevant solicitors' costs are paid. For unrepresented claimants, there is nothing in the judgment to prevent contact being made for direct capture purposes. Credit hire intervention similarly does not seem to be precluded in any way.
Indeed, Lord Briggs was "prepared to assume that an offer of a settlement payment, made direct by the insurer to the claimant, which makes no provision for payment of Stage 2 fixed costs, disbursements and a success fee to the solicitor, at a time when a case has entered and not yet left the scheme, is a breach of paragraph 7.37 of the RTA Protocol". This seems to be the main criticism of Haven's conduct – that their offers did not include provision for costs, rather than the Supreme Court having any criticism of making the offer to the claimants directly.
Claimant firms are now being encouraged to take action against insurers in respect of historical claims by the Law Society who intervened in the Supreme Court case. President Joe Egan stated to the Law Society Gazette "members may now wish to consider whether they have any claims against insurers who took action similar to Haven". Talk of data sweeps and letters before action abound on social media, however our understanding is that whilst pre-medical offers have been fairly common, making pre-medical offers to represented claimants without meeting solicitors' costs has never been widespread in the industry. We may be about to find out as the matter unfolds. As far as the future is concerned, the proposed ban on pre-medical offers in the Civil Liability Bill should make the arguments redundant and further news is awaited from the Bill's Second Reading in the House of Lords this afternoon which we will report on separately.
For more information please contact Nigel Teasdale
Partner, Head of Motor & Fraud M +44(0)7752709114 email@example.com
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.