Supreme Court sets out test for solicitor’s equitable lien
24 March 2022 24 March 2022
In 2018, the Supreme Court handed down judgment in Gavin Edmondson Solicitors Limited v Haven Insurance Co Ltd, establishing that a solicitor can ask a court to grant an equitable lien in order to protect their entitlement to fees from their client.
The Supreme Court in Bott & Co v Ryanair DAC has now laid down the test for establishing that equitable lien. By a majority of 3:2, the Court ruled in favour of a firm of claimant solicitors, finding their actions in respect of flight compensation claims justified the imposition of the equitable lien.
Lord Burrows held the appropriate test is “whether a solicitor provides services (within the scope of the retainer with its client) which significantly contribute to the successful recovery of a fund by the client.”
The decision will no doubt bring a sense of relief to claimant solicitors. However, Lord Burrows emphasised that the circumstances sat at “the outer limits” of the equitable lien. There may be circumstances in which an equitable lien is not appropriately founded. Circumstances in which a claimant could have utilised an online claims procedure without incurring any legal costs were identified as a situation where a solicitor may not be coming to equity with clean hands, if they had knowledge of that procedure.
Furthermore, it was restated the lien does not allow the solicitor to “obtain more than the amount to which the solicitor is contractually entitled” in line with the terms of their retainer.
An air passenger whose flight is delayed or cancelled has the right to claim compensation further to Regulation (EC) 261/2004. Regulation 261 is applicable where the passenger is departing from an EU Member State or is travelling to an EU Member State with an EU airline. There is provision for an airline to avoid payment of compensation where there were ‘extraordinary circumstances’ such as bad weather and political instability. Regulation 261 was retained as part of UK law following the withdrawal of the UK from the European Union.
Compensation payable under Regulation 261 is fixed at €250, €400 or €600 depending on the flight distance. Bott & Co (“the Appellant”) is a firm of solicitors which began processing flight compensation claims in 2013, using an online tool to establish likely eligibility for compensation.
The Appellant would obtain approval from client to pursue the claim on a ‘no-win, no-fee’ basis, then issuing a pre-action letter. If the claim settled, the Appellant would receive the compensation sum, deduct their agreed percentage, forwarding the remaining settlement to the Claimant. If the claim was not settled promptly, proceedings would be considered. Ryanair (“the Respondent”) was the subject of a large number of claims made via the Appellant.
Despite the introduction in 2014 of an online form of their own, the Respondent noted an increase in claims submitted by legal representatives in 2015 and 2016. They elected to contact those claimants directly, settling significant numbers of claims and paying the money directly. The Appellant was unable to deduct their fees from those payments, and thus left having to pursue their clients for the sum.
The Appellant claimed an equitable lien over the sums payable by the Respondent to their clients. The lien would allow the Appellant to seek repayment from the Respondent of those fees unpaid by clients who received compensation directly.
Both the High Court and Court of Appeal rejected the Appellant’s submissions. The matter proceeded to the Supreme Court.
As noted above, the Supreme Court found in favour of the Appellant by a 3:2 majority.
Handing down the lead majority judgment, Lord Burrows stated that the Appellant was entitled to a equitable lien on the facts of the case. He held that any test arising from Gavin Edmondson “did turn on whether there was a dispute”. It was noted that in Gavin Edmondson, proceedings had not been issued, there was no indication of a ‘dispute’ in terms of liability or quantum, and the solicitors work had been limited to the entry of the claim into an online portal.
Interpreting this outcome, and applying it to these case facts, he was satisfied that an equitable lien did arise in respect of the Appellant’s work. The appropriate test was whether the solicitor had provided services (per the retainer) in relation to the making of a claim (whether pre-action or in litigation) which contributed to the successful recovery by the claimant.
However, as noted above, Lord Burrows did acknowledge that the facts of this case approached the boundaries of that test.
Lady Arden, for the majority, noted the purpose of the equitable lien “always included helping ensure that people who have claims… can pursue their claims,” irrespective of their limited means. Therefore, effective access of justice was a foremost animating principle of the equitable lien. Claimants are not bound to submit their claim to an independent tribunal or court. She identified that a test requiring an existing or anticipated dispute would exclude claims where claimants do not know if the claim is disputed. This would “act as an incentive to issue proceedings… when some equally effective but less expensive course is open to the client.”
Finally, Lord Briggs for the majority, stated a test requiring an actual or expected dispute would create uncertainty. The test as articulated by Lord Burrows, whilst not perfect, offered clarity to both solicitors and defendants.
In their dissenting judgments, Lord Leggatt and Lady Rose stated their view that the work done by the Appellant when compensation was paid by Ryanair without dispute in response to their letter of claim was not covered by the solicitor’s equitable lien. In this instance, their view was that there was no real prospect of a dispute as the liability to pay compensation for flight delay was almost entirely automatic.
What can we learn?
- The dissenting judgments acknowledged that it is was not relevant whether the work attracting the equitable lien was difficult or not, or even carried out by humans. The use by solicitors of technology to resolve disputes without human intervention would be “no less entitled to the protection of an equitable lien than a firm in which all the steps are performed by human agents.”
- Lady Arden identified the work of Bott & Co as entrepreneurial and clearly providing a benefit, despite Ryanair making efforts to make the claim of compensation easier. Despite being asked to pay a fee from their own relatively modest damages, there are simply those who would prefer to use a solicitor. Such behaviour is not inconsistent with the continued widespread use of legal representatives to pursue low value road traffic personal injury claims via the Official Injury Claims Portal (OIC)
- Per the last release of OIC Portal operational data released in December 2021, since the Portal went live in May 2021, approximately 90% of claims still came from people who instructed a solicitor. The continued assumption seems to be that the process of running a claim is too complicated and should be left to legal representatives with the correct expertise. This is notwithstanding the fact that a percentage will be deducted from the damages’ payment.