The Court of Appeal has made a major strike against the practice of third-party capture by ordering an insurance company that settled personal injury claims directly with the clients of a law firm to pay the solicitors the costs they would have earned.
The court said Cheshire firm Gavin Edmondson Solicitors had an interest which equity could protect and which was “deserving of protection”. This meant Haven Insurance had to pay the RTA protocol fees that would have been due.
In doing so, it overturned the decision of HHJ Jarman QC in Wrexham, who had rejected the firm’s objections to the actions of Haven in settling six low-value road traffic claims so as to avoid paying legal fees.
In each case, the firm had signed up the client to a conditional fee agreement (CFA) based on the Law Society model and entered the matter on the RTA electronic portal. In four of the cases, Haven then wrote to the client with a settlement offer within seven days of the CFA being signed; in the other two, the offer was made a little later than seven days.
Giving the lead judgment, Lord Justice Lloyd Jones said that while Edmondsons had no right to recover fees from its clients under the terms of its client-care letter – which the court found trumped the CFA that said it could – “I consider 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.
“This is either an entitlement in Edmondson itself or, alternatively, in the light of the contractual arrangement between Edmondson and its clients [the CFA said the firm could recover its fees from the client in the event the defendant did not pay] an entitlement to bring proceedings in the name of the clients to recover these sums.
“In either case, Edmondson has an interest which equity can protect and which is deserving of protection. It is an interest of which Haven was aware by virtue of its knowledge of and participation in the protocol scheme.”
There was also argument around the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008, which meant the claimants had the right to cancel his contract with the firm within seven days
The CFA included a waiver of this right if the client wanted the firm to start work immediately, which each signed. This appeared to be in breach of the regulations and though not argued, the judge proceeded on the assumption that the waiver was ineffective.
Lloyd Jones LJ said: “I consider that the fact that an offer may have been made at a time when a retainer was still cancellable or otherwise terminable cannot relieve Haven of liability. In each case, Haven, with knowledge of the existence of a CFA and that the claim was proceeding within the Protocol scheme, made an offer of settlement with no express limitation as to the period within which it could be accepted.”
Giving insurance companies a possible way out in future, he continued: “It would have been open to Haven to make the offer conditional on cancellation of Edmondson’s retainer within the permitted period but it did not do so.
“In each case Haven assumed the risk that its offer might be accepted after the expiry of the cancellation period. In the event, in none of the underlying cases was the retainer cancelled or otherwise terminated.”
Lords Justice Laws and Elias agreed.