Solicitors who received the £400 stage 1 fixed-costs payment due under the original version of the RTA protocol do not have to repay the money even though no action was then taken on their cases, the Court of Appeal has ruled.
Overturning the judgment of District Judge Phillips in Cardiff, the appeal judges said that there was nothing in the protocol or the CPR that made “any express provision for a right to repayment” in such circumstances, and there was nothing to imply the right either.
Indeed, said Lord Justice Briggs, giving the decision of the court, the rules appeared to point in the opposite direction.
Both the Law Society and Association of Personal Injury Lawyers intervened in favour of the claimant solicitors’ firm in JC & A Solicitors Ltd v Andeen Iqbal & Anor  EWCA Civ 355, upon which insurers said tens of millions of pounds of possible refunds from solicitors depended.
The rules were changed in 2013 so that the stage 1 payment is now only payable upon receipt of the stage 2 settlement pack.
The case was leapfrogged to the Court of Appeal, and Briggs LJ said there was “powerful reasons” behind its decision.
“First and foremost, the RTA protocol is a clear, detailed and precise code, negotiated between sophisticated stakeholder groups under the auspices of the Civil Justice Council, into which the court should be slow to imply terms, all the more so where, as here, the drafters have demonstrated an awareness of the concept of interim payments on account of entitlement to damages, and made no similar provision about interim payments on account of an entitlement to costs.
“Secondly, it is an express aim of the RTA protocol, reflected in paragraph 3.1(3), that the claimant’s legal representative should receive the relevant fixed costs at the end of each stage, i.e. regardless of what, if anything, happens at a later stage.”
The judge accepted the Law Society’s submission that the underlying objective was to ensure that those who provide legal assistance to RTA claimants receive payment for the work done during each stage, at the end of that stage, rather than at the end of the claim.
He said: “Furthermore a stage 1 costs entitlement will only arise once there has been an admission of liability on behalf of the defendant, so that something solid will have been achieved for the protocol claimant by the time when the stage 1 payment becomes due.”
Briggs LJ acknowledged that there were “a raft of reasons” why claims did not proceed after stage 1: “The claimant may recover more quickly than expected from a perceived injury. They may decide to devote their time and energies elsewhere than in the pursuit of a claim.
“They may conclude stage 1 (at least before 2013) and receive stage 1 costs before receiving a medical report which casts real doubt on their own perception of their injury. They may receive sufficient compensation from another source, such as their own insurers or from another person alleged also to be liable.”
He also dealt with “what has come to be called the ‘400 Club’ point” – the allegation that some unscrupulous solicitors commenced proceedings simply to obtain the £400, without any intention of advancing to stage 2.
Briggs LJ said the “perceived” risk of this may have led to the 2013 rule change. “But there is no evidence that any such practice did develop and it is not suggested that JC&A were guilty of any such practice in any of the cases under appeal.
“There is now no risk that such a practice might develop and it would be wrong to construe the plain words of the RTA protocol by reference to a purely theoretical risk of abuse.
“The fact that even this theoretical risk was (as appears to be common ground) satisfactorily addressed by postponing entitlement to stage 1 costs until the submission of a stage 2 settlement pack illustrates how difficult it is to define any term to be implied in the pre-2013 RTA protocol which would render the entitlement to stage 1 costs either interim or in some way conditional.”
Meanwhile, the defendant firm which acted for the insurer in this case, Horwich Farrelly, has announced that it is closing its claimant arm, Zest Legal. The 42 members of staff will be redeployed in other parts of the business.
The Manchester-based practice also unveiled a 15% increase in turnover, to £39m, for 2016/17.
Chairman John O’Roarke said: “Horwich Farrelly’s latest results demonstrate the firm’s increasingly prominent role in helping the insurance industry tackle fraud and drive down the cost of claims…
“Our claimant business has its origins in the very early history of the firm but is no longer consistent with our strategy nor with the aspirations of our key clients. This arm of our business will therefore be run down in an orderly manner and our colleagues who work in it will be redeployed into new roles in defendant and operational activities.”
He said the turnover rise reflected organic growth in work from existing clients, “several important new contract wins”, and diversification into non-motor sectors.