Bott & Co v Ryanair: The Impact on Direct Compensation Payments in High Volume Low Fee Claims
On 16 March 2022 in Bott & Co Solicitors Ltd v Ryanair DAC [2022] UKSC 8, the UK Supreme Court set out a simplified test to enable solicitors to assert an equitable lien for their costs from compensation payments. As set out in more detail below, the Supreme Court confirmed that it is sufficient for a lien to arise when a solicitor is making a client’s legal claim; court proceedings are not required, and it is not necessary for there to be a dispute between the parties.
The decision will be of particular interest to large institutions who may face mass-scale compensation claims and may consider direct compensation schemes for customers.
This article sets out in further detail key aspects of the Supreme Court's judgment and provides insight into its potential future implications, especially in the management of high volume- low cost litigation by SRA regulated claimant law firms and claims management companies.
Background
Air passengers whose flights are delayed or cancelled are entitled to compensation under Regulation 261/2004 (Regulation) (which is retained law in the UK post Brexit) (DLA has provided commentary on the Regulation). Aviation delay related complaints and claims are frequently handled by SRA-regulated claimant litigation firms, using on-line technology tools on a mass-scale, high volume/ low value basis and will offer their services as a "no win no fee" arrangement.
Bott & Co began handling aviation delay compensation claims under the Regulation in 2013. The firm would submit claims on behalf of their clients directly to Ryanair, who would process the claim and pay any compensation directly to Bott & Co. This would enable the firm to deduct its fees from the compensation payment, prior to transferring the remaining proceeds to its clients.
The Dispute
From 2016, instead of paying compensation sums to Bott & Co, Ryanair chose to direct the compensation payments to the clients. Consequently, Bott & Co then had to recoup its fees from its clients separately. The Supreme Court heard that approximately 70% of Bott & Co’s clients would pay those fees on demand, and given the low value of recoverable fees (around GBP95 per case), it was not financially viable or commercial for Bott & Co to commence debt recovery proceedings from non-paying clients.
Bott & Co commenced proceedings seeking an equitable lien over the compensation paid by Ryanair to Bott & Co clients. The firm also sought an injunction to restrain Ryanair from paying compensation sums directly to customers where Ryanair is on notice that Bott & Co are instructed. Bott & Co also claimed an indemnity for the fees it had been unable to recover from clients since Ryanair started paying clients directly in 2016.
The Supreme Court approved Bott's appeal by a 3-2 majority and clarified the previous test set out in Gavin Edmondson v Haven Insurance Company Limited [2018] UKSC 21 (Gavin Edmondson) for establishing the circumstances in which an equitable lien will arise over solicitors' fees.
The test: when does the equitable lien arise?
Lord Burrows stated that the test established in Gavin Edmondson supports a "clear, principled and easy-to-apply test that does not turn on whether there was a dispute". The test for whether an equitable lien arises is simply:
- Has the solicitor, within the scope of the retainer with its client, provided a service in relation to the making of a client’s claim (with or without legal proceedings) which
- Significantly contributes to the successful recovery of a fund by the client.
Important points to note from the above test:
- no proceedings need to have been issued;
- there need not be a "dispute";
- "significant contribution" has a low threshold; – it can be as minor as simply entering a claim via an online portal; and
- the respondent must have notice that the solicitor has a claim for fees on part or all of the sum due.
Access to Justice
The majority in the Supreme Court were clearly influenced by a desire to promote access to justice by "enabling solicitors to conduct litigation on credit for clients who lack the financial resources to pay their solicitor's costs up front". It was noted that the disproportionate cost of engaging solicitors for small claims is the "biggest single impediment to access to civil justice". Firms need to be able to rely on certain conditions for a lien when deciding whether to act for a client on credit.
The judgment further explains that the ‘test’ to establish an equitable lien, which does not require there to be formal litigation proceedings between parties, reflects the modern approach to litigation and the requirements of pre-action protocols which encourage early alternative dispute resolution.
In this particular case, Ryanair had set up a claims management system by which affected customers could submit a claim for compensation for aviation delays. Many other respondents who are similarly faced with mass-scale complaints e.g. financial mis-selling complaints and disputes, have also created similar ‘portals’ which enable its customers to submit claims directly. Whilst the availability of these claims management systems offer an effective solution for affected customers, the Supreme Court considered that their existence alone should not negate a customer’s choice to instruct a claimant solicitors firm to act on their behalf. However, as highlighted by the Supreme Court, any reputable solicitor should first advise a prospective client that they could utilise an online claims procedure without incurring any legal costs.
Application and impact of the test
It should be noted that whilst the Supreme Court found in favour of solicitors' firms such as Bott & Co, whose business models are contingent on a solicitors' "entitlement to the fruits of their litigation", the principles of an equitable lien are still only available to solicitors, and not to claims management companies.
In future, the payers of compensation should be aware that if they are on notice that solicitors are instructed, and the firm has made a claim, an equitable lien is likely to have arisen and they are at risk of double liability if they pay compensation directly to the solicitors’ clients, and subsequently have to reimburse solicitors’ costs by reason of the lien.
However, the requirement that a respondent has to be on ‘notice’ that legal fees will be deducted from compensation, will require solicitors’ firms to explain their entitlement to fees, such as whether they are funded by conditional fee arrangement or damages based agreements. In addition, given that the legal services must be within the scope of the solicitors’ retainer, this may lead to requests from the paying party to be provided either with letters of authority and/or further information about the scope of the retainer to evidence an entitlement to deduct costs from any compensation payable.
Notably, it was stressed by the Supreme Court that the equitable lien will only apply in scenarios in which a claim has not been admitted by a prospective defendant. Accordingly, in the context of claims for liquidated sums, if the paying party has already publicly decided to comply with its legal obligation to pay the sum owed to a customer before any solicitor intervention, it is unlikely that a solicitor’s role will have been ‘significant’ enough to be able to satisfy the test for an equitable lien. This is an important and helpful narrowing of the test.
Conclusion
The judgment will no doubt be welcomed by claimant firms whose business models depend on the ability to deduct fees from compensation payments. However, the decision should not prevent those who wish to set up direct compensation schemes from doing so, or from promoting such schemes to affected customers. Claimant law firms should take heed of the point expressed in the judgment, that a reputable solicitor should first advise a prospective claimant that they could utilise a claims procedure without incurring legal costs.
