Iain Campbell explains the unwelcome implications for businesses of a recent decision in the UK Supreme Court.
A business receives a claim from its customer, represented by solicitors. The claim seems justified. The business decides to pay it. The solicitors tell it to send them the compensation. The business sends the compensation directly to the customer. What happens next?
This question was considered by the Supreme Court in the judgment delivered in March this year, Bott & Co Solicitors Limited -v- Ryanair DAC.
It concerned passengers’ compensation claims against airlines, due to flight delays, but the outcome applies equally to any business, especially those dealing with high volumes of consumer claims.
The solicitors used an online tool to promote flight delay claims, offering to limit their fees to a percentage of any compensation won. The tool was successful, with up to 1,000 claims a month being registered. The solicitors passed the claims to Ryanair and told Ryanair to send them the compensation. They intended to take their fees out of the compensation, then pay the balance to the customers.
Ryanair paid the compensation directly to the customers, preventing Bott from deducting their fees. Nearly one third of the customers kept all the compensation, leaving Bott out of pocket.
In proceedings against Ryanair, Bott asked the court to order it to stop paying customers directly, whenever Ryanair knew Bott were acting, and to make good the missing fees which had been kept back by some customers. The legal basis for this was the ‘equitable lien’. Designed to protect solicitors’ rights this gives law firms an interest in receiving claim proceeds, where the business making payment knows of their involvement in bringing the claim.
Ryanair argued it had introduced its own online claims tool, so there was no need for customers to use Bott to notify claims. Ryanair pointed out that by using its own online tool customers could receive 100% of the offered compensation, so it was unfair to make Ryanair pick up Bott’s fees where the customers had been paid directly in full, but then hung onto the payment in full.
The equitable lien is not new, but the court wrestled with whether it could be used where:
- There was no real dispute (the passengers were clearly entitled to compensation).
- The solicitors had only used an automated system to notify the claims.
The Supreme Court held it was fair to make Ryanair reimburse the fees, rather than to force Bott to claim them directly from their clients. Equitable lien is a way of protecting solicitors’ claims to their fees, enabling them to take on work they might not otherwise risk, and so it promoted customers’ access to justice.
This principle applies where the party paying compensation was aware of the involvement of the solicitors, in connection with a claim, even if the claim was undisputed. Involvement of the solicitors did not need their work to employ much skill. Their steps could be largely automated. This lien even applies to very early stages of work to prepare a claim, such as sending a letter of claim (even where the intended defendant pays in full in reply to a letter before claim).
Implications for Businesses
Several solicitor firms use online tools to attract customers’ claims against businesses, and they require compensation be paid to them rather than directly to the customer. Where a business, in the same circumstances, pays the customer direct, any legal fees the customer agreed to pay the solicitors may be recovered directly from the business, if the customer did not reimburse the solicitors.
Is There Any Good News?
There are a couple of rays of light. The court noted that where a business had decided to pay a claim, before the solicitors became involved and notified their involvement, the lien might not apply, as the solicitors had made no significant contribution to the recovery. In the case of claims notified by Claims Management Companies, the court noted that the equitable lien cannot operate.
Businesses need to be aware of the possible application of the equitable lien and check their systems to ensure that, where a claim is received or compensation agreed after learning a solicitor is acting, the compensation goes to the solicitor, not to the customer.
For further information, please contact:
Iain Campbell, Hill Dickinson