A BUMPY FLIGHT?
LEGALLY REPRESENTED CLAIMS: THE PERILS OF PAYING DIRECT

Hill Dickinson LLP

Iain Campbell explains the unwelcome implications of a recent decision in the UK supreme court.

INTRODUCTION
A firm receives a claim from its customer, represented by solicitors. The claim seems justified. The firm decides to pay it. The solicitors tell the firm to send them the compensation. The firm sends the compensation directly to the customer. What happens next?

This question was considered by the Supreme Court in the judgment delivered in March 2022 in Bott & Co Solicitors Limited -v- Ryanair DAC. It concerned passenger compensation claims against airlines, due to flight delays, but applies equally to claims brought on credit or hire agreements.

THE FACTS
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 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.

EQUITABLE LIEN
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 them an interest in receiving claim proceeds, where the party making payment knows of their involvement in a claim.

THE ISSUE
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 customers could receive 100% compensation by using its own online tool, so it was unfair to make Ryanair pick up Bott’s fees where the customers had been paid directly in full but kept all the money.

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 theclaims.

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 was 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. Work by the solicitors did not need 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 FIRMS
Several solicitors use online tools to attract consumers’ claims against firms and require compensation be paid to them rather than directly to the customer. Where a firm, in the same circumstances, pays the customer direct, any legal fees the customer agreed to pay the solicitors may be claimed directly from the firm, where 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 firm 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 a case of claims notified by Claims Management Companies, the court noted that the equitable lien cannot operate.

CONCLUSION
Firms 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 the customer.