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Conditional Fee Agreements are Assignable (unless the Court of Appeal says otherwise).
We previously blogged on the matter of Denise Jones v Spire Health Care Limited.
Judgment at First Instance
You may recall that judgment at first instance was handed down by District Judge Jenkinson on 9 September 2015 wherein it was held that –
The Claimant appealed and the Defendant cross-appealed.
The Claimant appealed the District Judge’s finding that there had been a novation on the premise that the original pre-LASPO CFA could not be assigned and thereby sought to overturn the decision that no costs were recoverable on behalf of Firm 2.
The Defendant cross-appealed the District Judge’s finding that the benefit under the CFA had been transferred and thereby sought to overturn the decision that costs were recoverable on behalf of Firm 1.
His Honour Judge Wood QC heard the appeal and Judgment was handed down on 11 May 2016.
In relation to the Claimant’s appeal, HHJ Wood QC found in favour of the Claimant and allowed the appeal thereby permitting the recovery of costs on behalf of Firm 2. Both parties relied heavily upon the decision in Jenkins in support of their own appeal and HHJ Wood QC considered the case in detail. It was accepted by both parties that a solicitor’s retainer was indeed a contract for personal services. As such, the general rule that a burden under a contract for personal services could not be assigned save for in exceptional circumstances applied to the facts of the case.
It was previously thought by many – if not almost all – that Jenkins was authority for stating that a CFA, being a contract for personal services, could only be assigned as an exception to the general rule if it could be shown that there existed between the particular fee earner and client a relationship of personal trust and confidence. Somewhat surprisingly, HHJ Wood QC interpreted the decision in Jenkins so as to ‘distinguish […] between the species of personal contract which require a more restrictive approach generally on the question of assignment, and the concept of “personal trust and confidence” […] which made the decision [in Jenkins] singular on the facts’.
In other words, HHJ Wood QC found that the Court in Jenkins did not state that the relationship of trust and confidence between fee earner and client was a necessary element where the contract was personal in nature and, without which, the assignment would not be valid; the ratio of the decision in Jenkins ‘was not so qualified’ and, as such, the District Judge at first instance was incorrect to find that Jenkins was not binding upon him. Thus in accordance with the decision in Jenkins, and on the premise that ‘the benefit of being paid was conditional upon and inextricably linked to the burden of performance under the [CFA] so as to enable an assignment to take place’, both the benefit and burden of the CFA was assigned from Firm 1 to Firm 2 and the Claimant was thereby entitled to recover costs on behalf of both Firm 1 and Firm 2.
Defendant's Cross Appeal
In respect of the Defendant’s cross-appeal, HHJ Wood QC again found in favour of the Claimant and dismissed the cross-appeal thereby maintaining the Claimant’s recovery of costs on behalf of Firm 1.
It was submitted on behalf of the Defendant that the right to be paid under a CFA fell into that category of ‘rights which do not exist at all (but may do so in the future)’ (i.e. upon achieving a “win” at which point the right to be paid crystallises together with the applicable success fee). Such “rights” are, in fact, not rights at all and, as a matter of law, cannot therefore be the subject of a valid assignment. Thus it was not possible to transfer the benefit (i.e. the right to be paid) under the CFA.
Right to be Paid
Contrariwise, it was argued on behalf of the Claimant that the right to be paid under a CFA fall into the category of ‘rights presently existing but enforceable only in the future’. Such rights are present choses in action and can be the subject of a valid assignment.
Essentially, the distinction between i) future choses (as averred by the Defendant) and ii) rights enforceable in the future (as averred by the Claimant) turns on existence and not enforceability.
The Claimant, whilst accepting that payment under a CFA is conditional upon success, argued that there remains a present right or entitlement which is based upon the terms of a CFA – even if payment ultimately falls to be zero. Thus the entitlement, or right, is presently identifiable, even if nothing may be received in the future.
HHJ Wood QC agreed with the Claimant and found that ‘the conditional fee agreement was one which allowed the contingent debt, referable to an ascertained amount and an ascertained point at which it would be paid in the future, assuming success, to be classified as a present chose in action capable of assignment.’
Thus the decision at first instance on the issue of whether a benefit under a CFA could be the subject of a valid assignment was upheld and Firm 1’s costs remained recoverable in principle.
Essentially, providing that the requirements for a valid assignment are met, it would now appear to be the case that a relationship of personal trust and confidence between fee earner and client is no longer the determinative requirement on the issue of whether a CFA can be validly assigned. Jenkins has now been found to establish the principle that both the benefit and the burden under a CFA can be validly assigned upon the ‘conditional benefit principle’; and that, notwithstanding the fact that Jenkins was decided upon facts involving a relationship of trust and confidence, the principle that a CFA can be assigned should not be restricted to only those cases where trust and confidence have been reposed. Said HHJ Wood QC: ‘In my judgment and on careful reading of those paragraphs, Rafferty J was not seeking to qualify the exception to the general rule against the assignment of the burden of a contract to specific situations where personal trust and confidence could be established so much as to set a context in which it applied to the facts of the case.’