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The Court of Appeal has preserved the right of Solicitors to recover “portal costs” in 6 cases where the Insurer attempted to sideline them by doing a deal direct with the Claimants, even though the cases had entered the Portal. In a Judgment of 2 December 2015 in the matter of Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2015] EWCA Civ 1230, Lloyd Jones LJ found for the Solicitors by way of equitable intervention, enabling them to recover the fixed costs to which they would otherwise have been entitled.

However, the details of the cases provide a salutary warning to Solicitors about the need to ensure that their retainer documentation is in order. In these blogs, we have, on numerous occasions, highlighted the need for Solicitors to carefully consider and then review their standard retainer documentation. There have been so many cases where Solicitors have been caught out due, most probably, to the use of standard pro forma documentation. In these cases, there was found to be a tension between the contents of the client care letter and the CFA and, in effect enforcing the contra proferentum rule, the less advantageous provisions of the client care letter were found to trump the provisions of the CFA. Further, it was found that the signed disclaimers from the Claimant’s waiving the cooling off period were contrary to the requirements of the Cancellation of Contracts made in a Consumers Home or Place of Work Regulations 2008.

Each of the 6 cases related to low value personal injury claims arising from road traffic accidents where the Solicitors entered into CFA’s with the proposed Claimants and then entered the claims on the Portal. Shortly thereafter, there was contact between the Insurer and the Claimant’s direct. This was either initiated by the Claimants or from information derived from the accident report form from the Insurer’s policyholder. Deals were struck and transcripts of the telephone conversations were available to the Court, from which it was clear that it was the Insurer’s intention to settle the matter without then being liable for the Solicitors’ costs. The Solicitors brought the action against the Insurer on the basis that in equity, the insurer should pay the costs. Further grounds were advanced that the Insurer had induced a breach of contract and were liable in tort for intentionally causing the Solicitors loss.

At first instance, HHJ Jarman QC found in favour of the Insurer. Relying on the principles in Khan Solicitors (a firm) v Chifuntwe [2013] EWCA Civ 481, he found that equitable intervention would be appropriate if it were established that there had been collusion between the Insurer and the Claimant to deprive the Solicitors of their fees, or if the Insurer was on notice that the Solicitors had a claim on the funds for outstanding fees. He found that there was insufficient evidence that the claimants had any aim other than a speedy settlement and therefore there was no collusion and that knowledge of the Solicitors involvement from the Portal was insufficient notice as to any claim on funds, because the Insurers did not have knowledge of the contractual terms other than some comment as to when the cooling off period expired. He found that the settlement had occurred during a period when the CFA’s were cancellable; there was no evidence to support the allegation that the claimants had been induced to breach the terms of the CFA and that with the use of the Portal not being mandatory, failure to use that process was not unlawful.

Permission was granted to appeal on the basis of the decision on the equitable intervention point and at the hearing, leave was sought to appeal in relation to the other matters. However, as it turned out, the Court of Appeal found in favour of the Solicitors on the equitable intervention point and therefore did not need to address the other issues.

At the Appeal, the Court considered the retainer documentation. As is normal, it was found that the Law Society’s “what you need to know” document had been incorporated into the CFA and that it contained a provision that if the case was won, then the client would be responsible to pay the Solicitors’ costs. However, there was also a client care letter, which made it clear that even if the case was won, the client would not be charged more than the Solicitors were able to recover in costs from the Insurer. On the basis that the client care letter was expressed in terms “for the avoidance of doubt” the Court found that the terms of the client care letter trumped the CFA. In circumstances where there had been no recovery from the Insurer in relation to costs, the effect of such a provision would be that there was no liability on the client to pay any further sum to the Solicitor.

In relation to the Consumer Contracts Regulations, it was found that a right to cancel within 7 days had been afforded to the clients with the appropriate Notice to Cancel. However, the agreement also contained a term that if the client wanted the Solicitors to begin work immediately, then they should sign a disclaimer waiving the cooling off period. The Court found that paragraph 15 of the Regulations stated that a term would be void if it was inconsistent with protection for the consumer and that this disclaimer was contrary to that provision. On that basis, it was found that the disclaimer was ineffective and the CFA’s would remain cancellable during the seven-day cooling off period.

When considering the applications of the principles in the Khan case, the Court focused on the 2nd limb justifying equitable intervention, namely whether the Insurer was on notice that the Solicitor had a claim on the funds for outstanding fees. It found that implied notice was sufficient, but that in any event there had been expressed notice here because the Insurer was a voluntary participant in the Protocol and Portal process and therefore was well aware of the claim for costs.

In relation to the tension between the client care letter and the CFA, the Court found that the Solicitors were entitled to costs either as a right vested in the Solicitors themselves or due to a clause in the CFA which meant that they were entitled to bring proceedings in the clients name to recover damages and costs if they were not paid. It was therefore found that the Solicitors had an interest which equity could protect and which was deserving of such protection.

As to the Protocol and Portal not being mandatory, the Court accepted that parties were free to settle outside the process, but noted that the process had been commenced in these cases and there had been no formal exit either by election of either party or due to one of the automatic provisions being triggered. Settlement occurred within the period within which the Insurer was entitled to respond to the claim.

The Court found that the CFA’s were cancellable within the seven-day cooling off period and if they had been validly cancelled within that time, then the Solicitors would have no entitlement to any costs. However, in these cases, no offer had been accepted within the cooling off period. The Insurer could have made an offer subject to the clients cancelling the CFA with the Solicitors, but they did not do so.

Overall therefore, to an impartial observer, it does seem that justice has been done in these cases. The Solicitors had entered into retainers with their clients and properly complied with the Portal process. The attempt then to avoid paying the costs which flow from that process does seem inequitable. However, notice must surely be taken of the comments of the Court that if the CFA’s had been cancelled within the cooling off period, then the Solicitors position would have been very different.

Practitioners will no doubt appreciate the many and various lessons to be learned from this case to include, as we set out above, the need to carefully (and regularly) check retainer documentation and in particular that the terms expressed in various documents are not inconsistent. Further, Solicitors will have to be mindful of the right of their client to cancel within the cooling off period and that this may well leave them without any ability to recover costs even where they have undertaken work.

Update – 4 December 2015

We have been contacted by the Claim Manager of Haven Insurance, Joseph O’Connell, who having read our blog asked us to add his comment below which. of course, we are happy to do:

“The Company is aware of the decision of the Court of Appeal in this case, but cannot comment further. Haven will be seeking permission to appeal to the Supreme Court, as knowing the facts of this case, it does not accept the decision made is the correct one.”

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