Insurer Must Pay, Again

In an online dispute resolution platform for motor accident claims, how far will a solicitor’s equitable lien be stretched to protect his costs against insurers who settle with the solicitor’s client directly?

Introduction

Motor accidents are a fact of life. Victims feel aggrieved when they are injured or their precious vehicles damaged through no fault of theirs. However, justice has a price. To facilitate access to justice for bona fide claimants, solicitors offer services on credit. They take no money upfront from their client and are paid only when the claims succeed whereupon costs are recovered from the third-party insurer. But justice also takes time, and patience. The client may also be tempted by the prospect of getting more for himself if he could avoid paying legal costs. An unfaithful client could “cheat behind his solicitor’s back” and settle with the third-party insurer directly. The latter, delighted with the costs savings, pays damages directly to the client who takes and runs.

Deprived of his costs, who does the solicitor look to for a remedy? It makes little sense to sue the impecunious client for costs. In Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd¹(2018) UKSC 21. (Gavin), the facts in paragraph 1 faced the Supreme Court. The court enforced the solicitor’s equitable lien against the third-party insurer who went behind the solicitors’ backs to settle directly with their clients, without providing for legal costs. The supposed costs savings that the insurer had in mind were dashed when the insurer was ordered to pay again, this time to the solicitors for their costs.

This is the first Supreme Court decision where the limits of the solicitor’s equitable lien were tested in an online dispute resolution platform. This decision may be of interest to local practitioners specialising in motor accident claims. This is because very soon, an online dispute resolution platform for such claims will also be launched in Singapore.²The Honourable Chief Justice Sundaresh Menon, “Response by Chief Justice Sundaresh Menon Opening of the Legal Year 2019”, 7 January 2019 <https://www.supremecourt.gov.sg/docs/default-source/default-document-library/cj-oly-speech-2019-pdf.pdf> accessed 26 May 2019, (58).

Before examining the judgment, let us have an overview of the English online dispute resolution platform, and the types of solicitors’ lien.

The English Online Dispute Resolution Platform

The English platform is named the Claims Portal.³Claims Portal <https://www.rapidclaimsettlement.org.uk/> accessed 15 May 2019. It is a “bespoke online platform”⁴Supra (note 1 above) (5). established by road accident insurers⁵Supra (note 1 above) (24). to comply with the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the RTA Protocol⁶Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents from 31 July 2013 <https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-low-value-personal-injury-claims-in-road-traffic-accidents-31-july-2013> accessed 15 May 2019.). The Claims Portal is not to be mistaken for Singapore’s E-litigation platform:

1. Our E-litigation platform can accommodate general civil claims regardless of their quantum. The Claims Portal, in contrast, is designed only for low value personal injury claims⁷Supra (note 6 above) (1.2): for claims up till £25,000 for accidents that occurred on or after 31 July 2013. arising from road accidents;
2. Our E-litigation platform is used to commence court proceedings. The Claims Portal is used to initiate a claim (ie, its use is triggered at an earlier stage);
3. Our E-litigation platform allows the electronic exchange of documents, but not offers. The Claims Portal allows the electronic exchange of documents⁸Supra (note 6 above) (5.1). Documents will include the initial Claim Notification Form (CNF) (see, (6.1)); insurer’s electronic acknowledgment of the CNF (see, (6.10)); the insurer’s CNF response (see, (6.11)); a settlement pack from the claimant comprising, amongst others, medical reports, evidence of pecuniary losses and witness statements (see, (7.32)). and offers⁹Claims Portal: Stage 2 Settlement Pack Decisions < https://www.claimsportal.org.uk/claimant-representative/stage-2-settlement-packs/stage-2-settlement-pack-decisions/> accessed 17 May 2019. (emphasis added).

The process in the Claims Portal is analogous to the (offline) process in Singapore when we comply with our Pre-Action Protocol for Personal Injury Claims (including those arising from motor accidents).¹⁰State Courts Practice Directions, Appendix E: Pre-Action Protocol For Personal Injury Claims <https://www.statecourts.gov.sg/cws/Resources/Documents/Master%20PDs%20-%20effective%20PD%205%20of%202019.pdf> accessed 29 July 2019. In cases where liability is not admitted, the claim drops out of the Claims Portal and continues under the standard civil court process.¹¹Supra (note 6 above) (6.15(3)); Paul Fenn, “Evaluating the low value Road Traffic Accident Process” (2012) Ministry of Justice Research Series 13/12 <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/217387/evaluating-traffic-accident-process.pdf> accessed 29 July 2019, 1. If liability is admitted but quantum is not, the process in the Claims Portal continues and reaches court, under an alternative civil court process.¹²Robert Merkin, The Law of Motor Insurance (2^nd edn, Sweet and Maxwell 2015), 517 (6-17).

The Claims Portal is not designed to replace solicitors in low value (and presumably straightforward) motor accident claims. Rather, there appears to be an implicit assumption that the claimant will still need legal representation since the Claims Portal “is not particularly geared to the litigant in person”.¹³Supra (note 12 above) 499 fn 16. It is submitted that the Claims Portal is not revolutionary as it is merely an electronic medium for communication; it has no adjudicative features. In contrast, our upcoming online dispute resolution platform for motor accident claims packs more punch as it features, amongst others, an outcome simulator.¹⁴Supra (note 2 above) (58). It is hoped that the need for legal representation will, just like its English counterpart, be retained in our upcoming online platform.

Solicitors’ Liens

What a Lien Does

A lien gives security to solicitors for their unpaid costs by withholding client’s property till the client pays. A lien allows a solicitor to say to his client: “if you owe me x and I have property of yours in my possession equal to the value of x, then I should simply keep your property unless you make payment of x to me”.¹⁵Alastair Hudson, Equity and Trusts (9^th edn, Routledge 2017) 887 fn 204.

The above illustration requires a client’s property for the lien to attach itself on (or, over), in order for it to secure payment of a debt owed by the client. Thus, the proper way of expressing that you have a lien is:

1. I have a lien on the money recovered by my client, for my costs;¹⁶Adopted with modification from Lord Mansfield in Welsh v Hole (1779) 1 Dougl KB 238, 238.
2. I exercise a lien over my client’s documents for my unpaid costs;¹⁷Adopted with modification from Rule 26(7) Legal Profession (Professional Conduct) Rules 2015.
3. I have a lien for my fees on money which has come into my hands on a client’s account.¹⁸Adopted with modification from Sir Stephen Sedley in Khans Solicitors v Chifuntwe (2014) 1 WLR 1185, (13). 

(emphasis added).

In contrast, to say that “I have a lien on costs” is incorrect, because the costs are the debt, and not the client’s property that the lien attaches itself on (or, over) to secure payment of the debt (emphasis added).

What are the Liens?

In Singapore, a solicitor has two types of lien for his costs.¹⁹Tan Yock Lin, The Law of Advocates and Solicitors in Singapore and West Malaysia (2^nd edn, Butterworths 1998) 739. The table below lists their differences:

Their Names

Quite confusingly, the Type 1 and Type 2 liens are named differently in Singapore and in England and Wales. In Singapore, the Type 1 and Type 2 liens are named, respectively, a retaining lien and a common law lien.²⁶Supra (note 19 above) 740 – 741, 752 – 753. In England and Wales, they are named, respectively, a common law lien and an equitable lien.²⁷Supra (note 23 above) (44-016), (44-023). We will use the English naming system to refer to a Type 2 lien as an equitable lien, which was the focus in Gavin.

The equitable lien is apt in low value road accident claims because it enables solicitors to offer “litigation services on credit”²⁸Supra (note 1 above) (1). by attaching itself on the proceeds of any pending judgment or settlement agreement. To assuage claimants’ concerns about whether they need to pay any money upfront, solicitors even structure their retainers on a “no win no fee” basis (ie, a conditional fee agreement (CFA). The central issue in Gavin was whether this “no win no fee” nature of a CFA could be used to ground a solicitor’s equitable lien.

The Facts in Gavin

Six claimants retained solicitors (Gavin Edmonson) under a CFA to make injury claims arising from three motor accidents. The CFA incorporated a client care letter to provide that claimants need not pay legal costs if their claims succeeded:

“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.”²⁹Supra (note 1 above) (22). (emphasis added).

Gavin Edmonson then filed the claims in the Claims Portal. In the Claim Notification Form (CNF), Gavin Edmonson indicated that they were retained under a CFA. Subsequently, the tortfeasors’ motor insurer (Haven Insurance) contacted the claimants and settled their claims behind Gavin Edmondson’s backs. No costs were offered in the settlement sums.

Gavin Edmondson sued Haven Insurance for the fixed costs that they would have been entitled to under the RTA Protocol. They lost before the court of first instance, though they later triumphed at the Court of Appeal. Subsequently, Haven Insurance appealed to the Supreme Court on the main basis that the “no win no fee” nature of a CFA could not ground a solicitor’s equitable lien.

The Issues

The four issues for the Supreme Court to consider were:

1. whether the CFA created an obligation on the claimants to pay their solicitors costs. If there was, what the recovered costs would be (Issue 1);
2. whether a CFA that did not create an obligation on the claimants to pay costs could ground a solicitor’s equitable lien (Issue 2);
3. whether Haven Insurance had notice of Gavin Edmondson’s equitable lien for costs (Issue 3);
4. whether the settlement sums were brought about by Gavin Edmondson’s services (Issue 4).

Issue 1

What the Court of Appeal held

The Court held that:

1. the claimants were not obliged to pay costs to Gavin Edmondson.³⁰Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd (2015) EWCA Civ 1230, (30). The “no win no fee” agreement between parties was clear because the CFA was expressed to be “[f]or the avoidance of any doubt” that the solicitors would recover costs only from the opponent, and not from the claimants, if the claims succeeded;³¹Supra (note 30 above) (18). The judgments, whether by the Supreme Court or the Court of Appeal, did not state the fee arrangement if the claims failed. It is submitted that in such a scenario, in the context of low value personal injury claims where claimants are usually impecunious, no costs would also be payable.
2. Gavin Edmondson however, were still entitled to the fixed costs under the RTA Protocol scheme.³²Supra (note 6 above) (3.1(3)): the Protocol comprises three stages, where solicitors would receive their costs periodically, at the end of each stage. Haven Insurance had to pay costs pegged to the corresponding fixed costs scale in the RTA Protocol scheme.

To illustrate the quantum of costs ordered: a claim was compromised for £1,900.00 (damages), at a stage where the corresponding entitlement to fixed costs was £2,070.50. The ordered costs payable to Gavin Edmondson was £2,070.50.³³Supra (note 30 above) (38); see, also Supra (note 1 above) (66).

Did the Supreme Court agree?

The Court disagreed:

1. the claimants were still obliged to pay costs to Gavin Edmondson. The CFA preserved the basic liability of the claimants to pay costs;³⁴Supra (note 1 above) (40).
2. the “no win no fee” wording of the CFA, however, limited the ordered costs to the respective settlement sums, instead of the comparatively higher fixed costs under the RTA Protocol scheme.³⁵Supra (note 1 above) (40), (65).

Using the same example above to illustrate the quantum of costs ordered: a claim was compromised for £1,900.00 (damages), at a stage where the corresponding entitlement to fixed costs was £2,070.50. The ordered costs were capped at £1,900.00.³⁶Supra (note 1 above) (66).

Issue 2

What the Court of Appeal held

The Court held that Gavin Edmondson had:

1. an entitlement to the fixed costs under the RTA Protocol scheme once they had filed the claims in the Claims Portal; and
2. an entitlement, under the CFA, to commence court proceedings in the claimants’ names to recover the fixed costs (in the event of non-payment).

Thus, even though the CFA did not oblige the claimants to pay costs, the two entitlements above sufficed to ground Gavin Edmondson’s equitable lien for costs.³⁷Supra (note 30 above) (31). In this regard, the phrase “lien for costs” did not refer to “costs” owed by clients to solicitors, but referred to “costs” which, due to the unique nature of the online platform, Gavin Edmondson were entitled to once they had filed the claims in the Claims Portal.

Did the Supreme Court agree?

The Court disagreed. It held, obiter, that the equitable lien should not have been “modernised”³⁸John Hyde, “Claimant firm wins Supreme Court battle over third party capture” The Law Society Gazette 16 April 2018 issue <https://www.lawgazette.co.uk/law/claimant-firm-wins-supreme-court-battle-over-third-party-capture/5065712.article> accessed 20 May 2019. in the manner undertaken by the Court of Appeal:

1. it was still necessary that the claimants had to pay their solicitors costs.³⁹Supra (note 1 above) (57). It was insufficient to rely on the entitlement to the fixed costs under the RTA Protocol scheme as a substitute for a claimant’s debt for costs. This was because the Protocol was voluntary in nature, and in instances of a party’s non-response in the Claims Portal, may even result in the claim automatically leaving the scheme.⁴⁰Supra (note 1 above) (53). Thus, the fixed costs were not guaranteed and could not be used as security for costs against Haven Insurance; and
2. suing in the name of the claimants to recover the fixed costs (in the event of non-payment) was a form of subrogation, where the solicitors could not be in a better position than the claimants.⁴¹Supra (note 1 above) (55). If the claimants agreed to take no costs from Haven Insurance in the settlement sums, their solicitors could not thereafter stand in the claimants’ shoes and sue for the same.

Comment

It is submitted that the Supreme Court’s approach is preferred. Party-and-party costs belong to the client.⁴²The Law Society of Singapore v Howard Edmund Cashin (1987) SGDSC 6. The entitlement to the fixed costs under the RTA Protocol scheme was not the solicitors’ own. Rather, the entitlement was the client’s so that he could use the fixed costs to pay his solicitors. Even though the final destination of those costs was still the same (ie, the solicitors’ account), to treat costs as a debt owed to solicitors from a source other than clients would dilute the meaning of “costs”.

The Court of Appeal’s dispensation with a claimant’s obligation to pay his solicitors costs would also dilute the meaning of the “lien”. Recall the illustration of a lien at paragraph 8 herein:

“if you owe me x and I have property of yours in my possession equal to the value of x, then I should simply keep your property unless you make payment of x to me”. (emphasis added)

If a claimant’s obligation to pay costs is dispensed, there will be no debt of x owed to his solicitors. There is no right by the solicitors to detain any of the claimant’s property for a lien to attach itself on.

Issue 3

The Supreme Court agreed with the Court of Appeal that when Gavin Edmondson lodged the CNFs on the Claims Portal, the CNFs had indicated that they were retained under a CFA.⁴³Supra (note 1 above) (19), (48): which meant that Haven was not paid costs upfront, but rather, was expecting the fixed costs under the Protocol Scheme when the claims eventually succeeded. Haven Insurance thereafter posted an acknowledgment of the CNFs in the Claims Portal.⁴⁴Supra (note 30 above) (32). These facts were sufficient to impute express notice of a solicitor’s equitable lien on Haven Insurance.⁴⁵Supra (note 30 above) (29), which the Supreme Court agreed at (50) of its judgment. Despite such express notice, Haven Insurance proceeded to pay the claimants directly, which was thus unconscionable and interfered with the solicitors’ interest in the fruits of the cause.

Issue 4

The Supreme Court had to assess this rather uncomfortable issue of whether Gavin Edmondson had done enough work to claim costs for the settlement sums that were received by the claimants. This assessment of work done was not undertaken by the lower court. The apex court acknowledged that not much work had been done, but the mere sending of the CNFs in the Claims Portal would suffice to trigger Gavin Edmondson’s entitlement to costs under the CFA.⁴⁶Supra (note 1 above) (46).

Even in relation to a claimant whom Haven Insurance had contacted before Gavin Edmondson were retained (ie, private discussion for settlement had already begun), simply by sending a CNF in the Claims Portal, Gavin Edmondson was held to have made a “modest but still significant contribution” to the eventual settlement.⁴⁷Supra (note 1 above) (63).

Three Lessons from Gavin

First, this decision is a resounding victory to solicitors who face declining costs from road accident personal injury work. While an online dispute resolution platform had simplified the claims process and lowered costs, the Supreme Court was not prepared to let solicitors go out of work. But the court was careful to hint that its decision was not motivated by any “fondness for solicitors”.⁴⁸Supra (note 1 above) (1). Rather, it was because upholding the solicitors’ equitable lien would promote promotes access to justice by encouraging solicitors to offer litigation services on credit to impecunious clients.⁴⁹Supra (note 48 above).

Second, express notice of a solicitor’s lien has gone electronic. An acknowledgement by an insurer of a CNF (essentially a letter of demand) filed by a solicitor in an online dispute resolution platform will suffice as express notice. Before Gavin, solicitors needed to have their suspicions about an unfaithful client aroused so that they could give notice to the other party not to pay the costs to their client.⁵⁰See, Read v Dupper 101 ER 595 (1795) 6 Term Rep 361; White v Pearce (1849) 1 Hare 276; 68 E.R.113; Khans Solicitors (a firm) v Chifuntwe (2014) 1 WLR 1185. With Gavin, this relaxation of notice will protect solicitors who are unaware of unfaithful clients who “cheat behind their backs”, and are therefore unable to issue the traditional notice to the other party to desist from the hanky-panky.

Third, will Gavin apply in Singapore? Some may say no, because Gavin involved a CFA, which is banned in Singapore.⁵¹Section 107(1)(b) Legal Profession Act (Chapter 161). However, the Supreme Court’s endorsement of the principles in the ancient English cases (with their varied facts) up till the more recent Khans Solicitors (a firm) v Chifuntwe⁵²(2014) 1 WLR 1185: which does not involve a CFA. suggests that Gavin will outreach beyond its facts. For instance, say the facts were that the insurer had negotiated and settled a claim with the claimant’s solicitors throughout. But when it came to payment, the insurer, despite notice from the solicitors not to do so, paid the claimant directly who then disappeared with his solicitors’ costs. Based on the Supreme Court’s citation⁵³Supra (note 1 above) (31). of a passage from Read v Dupper,⁵⁴101 ER 595 (1795) 6 Term Rep 361: where our hypothetical scenario is derived from. it is likely that even in these varied facts, the insurer must pay, again.⁵⁵This second time to the solicitors, their costs.

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