The Facts
By way of recital from our first article in this series on CFA assignment, the reader will recall that Budana v The Leeds Teaching Hospitals NHS Trust concerns, in brief, the following facts –
Firm 1 ceased handling personal injury work and put in place a process of unilateral file transfer to Firm 2. The files in question were subject to pre-LASPO CFAs and all clients were notified of the transfer of their files by way of an “unambiguous” letter. Firm 2 claimed that the CFAs had been assigned to it from Firm 1. Firm 2 succeeded on behalf of their client and sought to recover a success fee from the paying party.
The court held that the unilateral transfer (i.e. without the consent of the client) of the client’s file amounted to a termination of the retainer by Firm 1. As such, it was not possible to assign a terminated agreement and thus neither firm were entitled to be paid under the pre-LAPSO CFA. Fortunately, Firm 2 had entered into a “fall-back” post-LASPO CFA and so could recover all costs from the paying party save for a success fee. Firm 1, having breached the CFA, was entitled to recover nothing.
The claimant (Firm 2) appealed and the matter was transferred directly to the Court of Appeal under the “leapfrog” procedure as provided by what is now CPR r. 52.23.
The claimant contended for a success fee on the basis of assignment from Firm 1; the defendant sought to resist this by reference to the fact that the CFA had been terminated or, in the alternative, the claimant’s consent to a purported assignment actually created a novation which, thus non-compliant with CLSA 1990, s. 58, meant that the CFA in question was unenforceable.
The Relevant Issue on Appeal
Gloster LJ summarised the relevant issues on appeal as follows –
Was the CFA terminated?
The court dealt succinctly with the issue of termination. Finding that the CFA had not been terminated, the court stated –
“It is trite law that a repudiatory breach by one party cannot unilaterally terminate the contract. Instead, the innocent party may elect between termination and affirmation of the contract. [O]n the instant facts, which are not in dispute, the terms of the documentation clearly show that the claimant did not elect to terminate her contract with [Firm 1], but instead decided to preserve and, to use a neutral word, transfer it.”
Payment of Success Fees
Issues two and three were considered in conjunction by the court and articulated together as “whether the true effect of the contractual arrangements between the parties means that the claimant had to pay a success fee under a conditional fee agreement entered into before 1 April 2013.”
The respondent’s principal contention was that no success fee was payable to Firm 2 under the retainer because, since the solicitor-client retainer was personal in nature, it was incapable of assignment. Thus Firm 1 could assign neither its rights nor benefits under the CFA. But that in any event, a burden under a contract could not be transferred without the consent of the third party (i.e. the client) thereby creating a novation and, ultimately, an unenforceable CFA.
The court rejected this analysis and held that “there is no reason why rights and benefits under a firm of solicitors’ contracts with its clients […] should not be capable of assignment in today’s business environment.”
Gloster LJ went on to describe what she considered to be the correct analysis in the case, namely, that there had been a novation, post-LASPO, of the CFA. But crucially, the Learned Judge also determined that –
“The fact that there was a new contract does not mean that, for the purposes of section 44(6) of LASPO, the success fee payable by the claimant to [Firm 2], as a result of the contractual arrangements, did not qualify as “a success fee payable by … [the claimant] under a conditional fee agreement entered into before” 1 April 2013.”
The Success Fee remains recoverable.
Thus notwithstanding the fact that the new contract was created post-LASPO, the court (essentially by reference to the intention of the parties and, it would seem, heavily under the influence of public policy) determined that the success fee remained recoverable on the basis that the original CFA was entered into pre-LASPO – regardless of the date of novation.
In our previous article, ‘Azim v Tradewise Limited [2016] EWHC B20 (Costs): Another Twist in the Yellow Brick Road’, we concluded by asking the question as to whether a client’s consent to the assignment of a CFA would retrospectively create a novation. It would appear that the answer is “yes”. But it would also now appear that any such novation would not defeat recoverability of a pre-LASPO success fee.
The End of the Road?
Curiously, this may not be the end of the road on the thorny issue of CFA assignment. The majority of the Court of Appeal based their decision on the doctrine of novation and concluded that Jenkins had, in fact, been wrongly decided; whether the individual point on CFA assignment is taken any further remains to be seen. But what we can say is that Budana is a decision which imbues the courts at first with both the confidence and latitude to determine such issues in favour of receiving party claimants.
Footnote:
Much has been written on the issue of whether or not a Conditional Fee Agreement (CFA) may be the subject of a valid assignment. For a detailed insight into how the courts have dealt with the issue of assignment the reader is referred to the following articles by the author –
Wednesday 13th December 2017
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