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Undisputed claims for airline compensation not litigation

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The handling by solicitors on behalf of passengers of flight delay compensation claims that were not disputed by the airline did not amount to litigation services and therefore did not entitle the solicitors to an equitable lien over the payment by the airline to the passengers.

The Court of Appeal so held, inter alia, in dismissing the appeal of the claimant, Bott & Co Solicitors Ltd, from the decision of Mr Edward Murray, sitting as a deputy judge of the Chancery Division, which rejected the solicitors’ claim to an equitable lien in proceedings brought under Part 8 of the Civil Procedure Rules against the defendant, Ryanair DAC ([2018] EWHC 534 (Ch)).

Mr George Bompas, QC, and Ms Anna Markham for the claimant solicitors; Mr Brian Kennelly, QC, and Mr Tom Coates for the defendant airline. Lord Justice Lewison said that under European Union law airline passengers were entitled to be compensated by airlines if a booked flight was cancelled at short notice or delayed for a substantial period. Regulation (EC) No 261/2004 did not expressly provide for compensation for delay, but the Court of Justice of the European Union had decided that the Regulation had to be interpreted as if it did. The solicitors specialised in handling such claims for compensation on behalf of passengers. Since 2013 it had acted on approximately 125,000 claims. Its process was largely automated unless the airline disputed the claim. In relation to claims against the defendant airline, the solicitors were handling approximately 1.100 flight delay compensation claims a month, with total claims then outstanding for approximately 6,500 clients.

The average recovery per claim handled by the solicitors was €327 and the solicitors’ average fee per claim was £95. So the solicitors’ fee income from claims against the airline was more than £100 000 a month. The airline initiallly dealt directly with the solicitors in respect of passenger claims, but began to communicate directly with the solicitors’

clients and pay compensation directly to them.

Where the airline decided to make a direct payment to a customer who had instructed the solicitors, the solicitors claimed to be entitled to an equitable lien over the payment, which would require the airline to hold back part of the compensation to cover the solicitors’ entitlement to fees, or to make payment of the whole of the compensation direct to the solicitors.

The judge rejected the solicitors’ claim to an equitable lien, holding that he was bound by earlier authority 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.

Since the hearing before the judge, the Supreme Court had given judgment in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd (The Times April 25, 2018; [2018] 1 WLR 2052). The solicitors argued that the decision of the Supreme Court had answered the question of equitable lien in its favour.

It was necessary at the outset to distinguish between a lien at common law and the equitable right at issue on the appeal. The equitable right at issue was a right to ask the court to exercise a discretionary power to protect the solicitor’s entitlement to fees as against his client. That right had historically been peculiar to solicitors.

The main issue concerned the limits of that right. It was clear that the bright line distinction between a case where no proceedings had been issued and a case in which they had, could not survive the Supreme Court’s decision in Gavin Edmondson. The boundary had been shifted, but how far?

In seeing where the boundary might lie, it was necessary to examine why equity would examine a solicitor’s right to be paid. Access to justice lay behind the development of the principle. That was the key to fixing the boundary.

Although it was no longer necessary for formal proceedings to have been issued, the services that the solicitor provided had to be recognisable as litigation services, which promoted access to justice. It had to be borne in mind that other professionals who might well be very important in securing compensation would not be entitled to an equitable right of their own. Equally, professionals from other disciplines representing parties in arbitrations or before tribunals would not be entitled to that equitable right either.

Accordingly, the services that would attract the protection of equity were services of the kind that a solicitor would perform in conducting litigation or contemplated litigation.

The making of a claim under the Regulation was largely mechanical and formulaic. lt required little more than the flight distance and the length of the delay, in addition to the details of the ticket purchase.

The amount of compensation that a delayed passenger was entitled to receive was fixed by the Regulation.

Thus, the services provided by the solicitors in processing the vast majority of the claims that did not require the issue of court proceedings could not be said either to be litigation services; or to be required in order to promote access to justice, unless and until the airline disputed a claim.

To recognise the existence of an equitable right would place a solicitor ma far more privileged position than a claims handler performing the same services. There was no justification for that.

Therefore, where the solicitors simply wrote a letter of claim or assisted a client to complete an online form, and the claim was paid in response to the letter or the form, the solicitors were not entitled to an interest in the compensation that equity would protect.

Accordingly, the decision of the judge was upheld. Lord Justice Simon and Lord Justice Lindblom agreed.

The following article appeared on The Times

Alessio Pellegrini

Alessio, with the Marketing team, strives to help colleagues excel with client care, while also keeping the firm ‘on the pulse’ regarding the most critical...

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