Solicitors’ costs: cutting out the middle man (part 3)

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In claims by disappointed passengers against airline carrier Ryanair, consider these scenarios.

Scenario one

“Good morning, Mr Bloggs. Thank you for coming to my firm of solicitors office to discuss your complaint against Ryanair arising from the cancellation of your flight from London to Timbuktu on 15 March 2019. I have read the papers you sent me and looked up the applicable law. My advice is that as the flight was cancelled due to pilot unavailability, this was not an ‘extraordinary circumstance’ and you have a right to compensation under Regulation EC 261/2004.

As your departure would have been from an EU member state, in addition to a refund of the airfare, you are also entitled to fixed compensation of EUR €400. My firm charges £25 plus VAT and if you recover any compensation, 25% of that sum. That will cover all correspondence with Ryanair and court proceedings. Any costs recovered will be for us to keep, although you will have a primary liability to pay them. As you wish to proceed, please sign our terms and conditions and let me have your cheque for £25 plus VAT on account of our costs.”

Scenario two

Mrs Bloggs (wife of Mr Bloggs), instead of meeting the solicitor face-to-face, has chosen to use the firm’s online compensation scheme under which she needs to enter just her flight details. The online tool checks the length of the delay, the weather report, the distance, whether the flight involved an EU airport and the amount of any compensation under EC Regulation 261/2004: if appropriate, the tool will also ask for Mrs Bloggs’ boarding pass, booking confirmation and any correspondence with the airline.

On acceptance of the claim, she is sent a “no-win-no-fee agreement” under which Mrs Bloggs pays the firm an administration fee of £25 plus VAT and agrees for that sum plus 25% of her damages to deducted by the solicitor from her compensation. Completion of the documentation, including the giving by Mrs Bloggs of her agreement for court proceedings to be started if Ryanair disputes the claim, is all undertaken electronically. There is no human contact, either by telephone or face-to-face.

Analysis

Is there a striking difference in the two scenarios which might affect the ability of the solicitors to recover their costs in the event that compensation is paid? The answer to that is “almost certainly”, if the airline pays up without disputing the claim but sends the compensation direct to the client instead of the solicitor, who pockets it without paying anything over to the firm. In such an eventuality, the law will not assist the solicitor in scenario two by granting an equitable lien over the payment, which would require Ryanair to hold back a sufficient sum to cover the firm’s fees.

That, at least, is what the Court of Appeal decided in Bott & Co Solicitors Ltd v Ryanair DAC, in which Lewison LJ (with whom Simon and Lindblom LJJ agreed) held that where there have been no proceedings and all work undertaken on behalf of the client has been done online, the solicitor (there Bott & Co) has not provided “litigation services” as defined in section 119 of the Courts and Legal Services Act 1990, namely:

“Any services which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right to conduct litigation in relation to any proceedings, or any contemplated proceedings, to provide”.

The reason for that, said Lewison LJ at paragraph 58, is that:

“The making of a claim under Regulation 261 is largely mechanical and formulaic. It requires little more than the flight distance and the length of the delay, in addition to details of the ticket purchase. The amount of compensation that a delayed passenger is entitled to receive is fixed by the Regulation. It is not a case in which the quantum of damages has to be evaluated.”

That being so, the court would not uphold Bott & Co’s claim to be entitled to an equitable lien which would safeguard a sufficient sum to cover their costs out of the compensation, in the event that the firm was unable to recover them because the money had been paid by Ryanair direct to the client who kept it all.

Before considering whether the result would have been the same had it been scenario one with which the court was seised, more needs to be said about the equitable lien. The legal principle underpinning the claim to the lien lies in the succinct definition given two centuries ago in Read v Tupper by Lord Kenyon:

“… 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”.

In the Ryanair action where Bott & Co had recovered compensation in thousands of cases, the firm argued that it should not be deprived of the fruits of the cause on account of a decision taken by the airline in February 2016 to deal with the firm’s clients direct. Up to that point, Bott & Co had been handling about 1,100 compensation claims per month worth a potential £104,500 in costs which the solicitors would deduct from the compensation passing through the firm’s account before distribution to their clients. However, when Ryanair stopped communicating with Bott & Co on outstanding claims, the firm would issue proceedings only to discover that Ryanair had settled the claim or, with the compensation going directly to the client, the firm thereby had lost the opportunity to deduct its fees from the sums recovered. By cutting out the middle man in this way, the viability of Bott & Co’s business model came under threat to the extent that it took proceedings against Ryanair claiming an entitlement over the compensation by way of equitable lien.

In the court below, Mr Edward Murray QC held that he was bound by Meguerditchian v Lightbound, that mere negotiation by a solicitor resulting in a recovery for the client does not give rise to a lien: there needs to be some form of proceedings, either by way of litigation or arbitration for that to happen. He also considered that an extension of the principle in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd (in which the Supreme Court had held that the lien could be asserted to cover cases under the Pre-Action Protocol for Low Value Personal Injury Claims), did not justify a further extension to cases such as Bott & Co’s airline claims, which were not regulated by a formalised scheme sanctioned by the judiciary.

Lewison LJ on appeal agreed. At paragraph 53 he said:

“In my judgment, although it is no longer necessary for the formal proceedings to have been issued, the services that the solicitor provides must be recognisable as litigation services, promoting access to justice…. The services which will attract the protection of equity are services of the kind that a solicitor would perform in conducting litigation or contemplated litigation“. [Emphasis added.]

Accordingly, unless or until Ryanair refused the claim, there was no dispute; to recognise the existence of an equitable right would be to place a solicitor in a far more privileged position than a claims handler performing the same tasks. In the result, therefore, at paragraph 59:

“… Where Bott simply writes a letter of claim or assists a client to complete the online form and the claim is paid in response to the letter or the form, it is not entitled to an interest in the compensation that equity will protect”.

It followed that the appeal failed. However, the decision has already been the subject of extensive criticism, with attention being paid to what would the outcome have been had the facts before the court been those in scenario one.

If Mr Bloggs’ claim had been the subject of the appeal, it is inconceivable, so the argument goes, that the court would have found that “litigation services” were not being provided, so the result would have gone the other way. After all, why on earth would Mr Bloggs have gone to the time, effort, trouble and expense of seeing a solicitor had he not had a reasonable belief that Ryanair would refuse to pay up? On making the appointment, contemplated litigation [emphasis added] would have been at the forefront of his mind with the instruction of the firm being the evidence of his wish to pay for litigation services. With 125,000 compensation claims already under their belt, access to justice will be imperilled, it is said, if firms such as Bott and Co, which offer a highly efficient online model capable of achieving a prompt and just settlement at modest cost, are driven from the market. This leaves only slower, traditional and more expensive firms to undertake the work.

It is likely that the case will go to the Supreme Court, assuming that permission to do so is given. That will enable the justices to decide whether it was permissible with impunity for Ryanair to cut out the middle man by settling with Bott & Co’s clients direct, secure in the knowledge that in doing so, such action was threatening the firm’s business model for making valid claims against the airline. Given, however, that the Court of Appeal’s decision in Haven was criticised by the Supreme Court (see paragraphs 51-58), if permission to appeal is given in Bott, it will be smart money which subsequently is wagered successfully on the outcome.

Postcript: the judgment also addressed the validity of clause 15.2 of Ryanair’s standard contract of carriage requiring passengers to raise compensation claims first with the airline, but it has not been addressed in this blog as success on that issue would not have brought any benefit to Bott & Co, given the ruling of the court on the equitable lien; see judgment paragraph 60.

See also:

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