The work done by pioneering law firm Bott & Co in bringing uncontested flight delay claims does not amount to litigation services and so it cannot claim an equitable lien over the damages for its costs, the Court of Appeal has ruled.
However, this will not be the case if the claim is disputed, Lord Justice Lewison said.
The claim by the Cheshire law firm against Ryanair came after the budget airline stopped dealing with the solicitors in 2016 and instead corresponded with, and paid compensation to, their passenger clients directly.
Bott argued that it was entitled to an equitable lien over direct payments, which would require Ryanair to hold back part of the compensation in order to cover the firm’s fees, or to pay all the compensation to the solicitors, as it used to do.
Bott charges 25% of the compensation plus VAT and an administration fee of £25 per passenger. Depending on the length of the flight, passengers can be awarded €250, €400 or €600 under EU Regulation 261.
The firm has led the market in developing a flight delay practice. The process is largely automated unless the airline disputes the claim.
The court said the firm has acted on approximately 125,000 flight delay claims since February 2013 – although the figure will now be higher, as fresh witness statements were not supplied for the appeal because it was a part 8 claim.
In 2016, at the time Ryanair changed its approach, Bott was handling approximately 1,100 flight delay compensation claims against the airline per month, with total claims then outstanding for approximately 6,500 clients. The average recovery per claim was €327 and Bott’s average fee per claim was £95.
So, the court said, Bott’s fee income from claims against Ryanair was over £100,000 per month.
At the time, Ryanair did not tell Bott when it contacted clients, and so in some cases it would issue proceedings on behalf of a client without knowing the case had settled.
This has since changed and the firm is now copied in on correspondence.
Further, by paying clients directly, Bott lost the opportunity to deduct its fees from the compensation before it paid over the damages.
The court said: “Bott, therefore, must pursue the client directly for payment. Its experience has been that only about 70% of clients pay in response to a direct request. That is said to threaten the viability of its business model.”
Last year, Mr Edward Murray, sitting as a judge of the Chancery Division, rejected Bott’s claim to an equitable lien.
He said he was bound by a 1917 authority (Meguerditchian v Lightbound) to hold that mere negotiation by a solicitor resulting in a recovery for the client could not give rise to a lien, and that there had to be some form of proceedings either by way of litigation or arbitration.
The judge added that, in the vast majority of flight delay cases, there was not even a negotiation – either the client was entitled to compensation in the amount fixed by the EU regulation or they were not.
The judge was not persuaded to find differently despite the then Court of Appeal’s ruling in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd, concerning an insurance company that settled personal injury claims directly with a law firm’s clients.
That ruling was superseded by the Supreme Court, which last year upheld the ultimate decision that the insurer had to pay the solicitors the costs they would have earned, but got there in a different way.
Lord Briggs said: “Provided that the debt has arisen in part from the activities of the solicitor there is no reason in principle… why formal proceedings must first have been issued.”
Bott argued that the Supreme Court had answered the question of equitable lien in its favour.
However, giving the Court of Appeal’s unanimous ruling, Lewison LJ focused on what constituted formal proceedings for the lien to exist.
“The bright line distinction between a case where no proceedings have been issued and a case in which they have, cannot survive Gavin Edmondson SC. The boundary, therefore, has been shifted. But how far?”
He cited Lord Briggs’s comment that access to justice lay behind the development of the principle.
Lewison LJ continued: “This, to my mind, is the key to fixing the boundary. In my judgment, although it is no longer necessary for formal proceedings to have been issued, the services that the solicitor provides must still be recognisable as litigation services, promoting access to justice.”
Given that other professionals involved in litigation and arbitration were not entitled to the equitable right, “it seems to me that the services that will attract the protection of equity are services of the kind that a solicitor would perform in conducting litigation or contemplated litigation”.
He continued: “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.
“Bott’s evidence is that the ‘vast majority’ of claims do not require the issue of court proceedings; and it claims a 99% success rate.
“I do not consider that the services provided by Bott in processing that vast majority can be said either to be ‘litigation services’ of the kind that Lord Briggs must have had in mind; or to be required in order to promote access to justice, unless and until Ryanair disputes a claim.”
He added that recognising the existence of an equitable right would place a solicitor in a “far more privileged position” than a claims handler performing the same services and there was no justification for this.
“In my judgment, therefore, where Bott simply writes a letter of claim or assists a client to complete the on-line 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.”
Mr Murray had also rejected Bott’s challenge to a change to Ryanair’s standard terms and conditions, which required passengers with claims initially to deal directly with the airline.
He ruled that it did not put a material obstacle in the way of making such a claim or result in the passenger recovering less than they were entitled to.
Lewison LJ agreed. “If a passenger needs help in filling in the on-line form there is nothing to prevent that. On the contrary, clause 15.2.7 permits it.
“All that the passenger has to do is to press the send or submit button. And even that could be done by a third party, provided that the claim is made in the name of the passenger.
“At most the delay in processing a claim is 30 days, which is no longer than the response time that Bott itself requests. After that, a passenger is free to process a claim in any way he chooses, with or without the assistance of third parties.”
Bott & Co senior partner David Bott told Litigation Futures that he was disappointed by the decision, as he and counsel felt the firm’s situation fell squarely within the parameters of the Supreme Court’s Edmonson ruling.
He had also hoped the court would recognise “the way the law was going” in terms of firms becoming more efficient using technology to process matters – far removed from practice in 1917 – and said it had taken a lot of investment for claims to be handled in a “mechanical and formulaic” way.
“If I’d had 100 10-year-qualified solicitors with pens and paper instead, it would not have been a problem,” he observed.
Mr Bott added that, with 54% of its flight delay claims now being litigated, “this may well be low value [work], but it is not necessarily low complexity or low in argument”.
He stressed that the firm’s business model was not under threat. “It will be a nudge on the tiller,” he said, and the firm will amend its processes to make clearer to clients what is expected of them when they receive their compensation.
But Mr Bott said the ruling on Ryanair’s terms and conditions was helpful.
“We argued that the passenger should have total freedom of choice as to how they could lodge their claim and who could help them. We welcome the Court of Appeal’s decision that passengers are free to use third parties, so long as the claim is made in their name.”