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20 Apr 2022

What does the recent Bott v Ryanair Supreme Court judgment mean for claims management companies handling Regulation 261 compensation claims?

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The principal issue in this case was whether the appellant firm of solicitors Bott & Co Solicitors Ltd ("Bott") could claim an equitable lien over the compensation paid by Ryanair DAC ("Ryanair") direct to its airline passengers for flight cancellations and delays under Regulation (EC) No 261/2004 ("Regulation 261"). The Supreme Court handed down its judgment on 16 March 2022.

In the context of Regulation 261, claims management companies ("CMCs") solicit for business from and act on behalf of passengers whose flights have been delayed or cancelled in bringing claims to obtain compensation from the airlines. If compensation is payable by the relevant airline, CMCs usually receive the compensation payment directly from the airline, then deduct any amounts owed to them (often a percentage of the compensation payable and an additional administration fee) before remitting the balance to the passenger. CMCs, some of which are firms of solicitors like Bott, some not, have been subject to regulatory oversight by the Financial Conduct Authority since 2019 and whilst there are minimum conditions that all CMCs must meet to be authorised1, they do not have to be solicitors.

In this case, up until early 2016 Ryanair had paid Regulation 261 compensation directly to Bott, who handled passenger claims as a CMC and would deduct the amount of their costs from the compensation before remitting the balance to the passenger. However in March 2014, Ryanair introduced a new process on its website enabling customers to claim flight compensation direct from the airline using an online form. This was a cost-free way for the passenger to obtain the compensation in full, which the Supreme Court noted did not appear to involve any greater effort or complexity for the passenger than instructing a CMC. From early 2016, Ryanair chose to pay the Regulation 261 compensation directly to passengers. Bott objected to this approach, as it was then required to pursue the its clients for its fees.

Bott initiated proceedings against Ryanair in October 2016, seeking an injunction to restrain Ryanair from paying compensation direct to passengers when they were on notice that Bott had been retained as solicitors by those passengers and arguing that it had an equitable lien over the compensation payable by Ryanair to its clients.  Bott also claimed an indemnity for the legal costs it had incurred which it had not been able to recover from its clients. Ryanair denied the claim in its entirety.    

Judgments of the Courts

The judge at first instance, Mr Justice Murray, ruled in Ryanair's favour and held that Bott did not have an equitable lien because Ryanair was not obliged to pay compensation directly to Bott and was entitled to communicate directly with the passengers in respect of their claims. The Court of Appeal upheld this decision, with Lord Justice Lewison finding that Ryanair's practices did not present any obstacle to passengers obtaining Regulation 261 compensation and Bott did not have a claim to an equitable lien.

However, on appeal to the Supreme Court, the majority (Lord Burrows, Lady Arden and Lord Briggs, who all gave different judgments) held that Bott did have an equitable lien, whilst Lord Leggatt and Lady Rose dissented.

The majority, following the decision in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21 (the lead judgment of which was given by Lord Briggs), laid out the test for a solicitor's equitable lien as being whether a solicitor provides services within the scope of its retainer to the making of a client's claim, with or without legal proceedings, which "significantly contribute" to the successful recovery of funds by the client.

This was important because the Regulation 261 compensation claims were rarely disputed by Ryanair and it was agreed by the judges that the work undertaken by Bott in the making of its clients' claims did not involve any factual or legal complexity. The minority dissenting judgments considered that the test for a solicitor's equitable lien should turn on the question of whether there is an actual, reasonably anticipated, or real prospect of a dispute.

Whilst claims management companies seeking recovery of compensation under Regulation 261 come in all shapes and sizes, most operate on a no win, no fee basis, handling high volumes of low value claims. An online portal gives the passenger an indication as to whether their claim for compensation meets the basic eligibility criteria and checks if the airline is likely to pay the claim or is instead likely to seek to rely on an "extraordinary circumstance" under Regulation 261 to avoid liability to pay compensation. Often little if any assessment of the claim is undertaken and the handling of claims is heavily reliant on utilising automated systems with cases usually taken on where the issue of compensation being payable is rarely in dispute.

The recent Department for Transport Consultation on UK Aviation Consumer Policy Reform, in the "Compensation for Delays to UK domestic flights (Regulation 261/2004): Impact assessment" makes an assumption that it takes just 30 minutes for a consumer to raise a compensation claim and 15 minutes for an airline to process compensation claims.2 This gives an indication as to the level of work and complexity in respect of the vast majority of Regulation 261 claims.

All the Supreme Court judges agreed that whether an equitable lien arises does not depend on the lack of complexity of the work undertaken by a solicitor, but  the majority judgment different from the dissenting judgment differed on the point of whether the equitable lien should extend to circumstances where there is no actual or reasonably anticipated dispute between the parties. Whilst the minority foresaw difficulties in extending the equitable lien to circumstances where there is no actual or reasonably anticipated dispute between the parties. Whilst the minority foresaw difficulties in extending the equitable lien to circumstances where there is no actual or anticipated dispute, the majority held that "a solicitor's equitable lien should not turn on a test that imports considerable practical uncertainty by requiring a solicitor to speculate as to whether it is unlikely that there will be any dispute about the relevant claim." The full judgment shows how close a call the final decision was with Lord Briggs admitting to changing his mind multiple times.

The decision in essence recognises the wider modern concept of dispute resolution rather than strictly limiting the use of equitable liens to cases where arbitration or litigation proceedings have commenced. Significant weight was given to the principle that access to justice is the "animating principle underlying the solicitors' equitable lien", with Lord Briggs noting that the principle "will be served by as clear as possible a definition of the work which constitutes "litigation" for the purposes of attracting the lien."

Conclusions

Airlines paying out compensation must now be wary if they are on notice that a claimant passenger has instructed a CMC that is a firm of solicitors to ensure payment is always made direct to such firms as an equitable lien is likely to have been established.  However, other CMCs who are not firms of solicitors may still have to pursue their clients to recover their costs if payment is made directly to those clients by the airline, in spite of the fact that those CMCs are doing essentially the same work as a firm of solicitors acting as a CMC, in terms of resolving a dispute. 

The "key to fixing the boundary between the kind of work that can be covered by the lien" was a driving consideration in both the Bott v Ryanair and the Gavin Edmondson cases and had at its core the underlying principle of the lien to promote access to justice. It will be interesting to see if there is an appetite to broaden the test for an equitable lien and extend it to CMCs who are not solicitors, given that they provide the same services to passengers in relation to Regulation 261 compensation claims. Equitable liens can arise in other circumstances where there are not solicitors involved, for example, between vendor and purchaser in the context of property transactions.

 


1 The minimum conditions that CMCs must meet to be authorised concern the location of the CMC's offices and are set out in paragraph 2B of schedule 6 of the Financial Services and Markets Act 2000.

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