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Cfas – To Assign Or Not To Assign? That Is The Question!

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Background

The claimant had entered a CFA with Baker Rees (BR) after having a tripping accident whilst attending the defendant’s hospital. BR subsequently decided that PI litigation was not economically viable in light of the Jackson reforms and arranged to transfer their PI caseload to Neil Hudgell Limited (NH).

The transfer was undertaken by way of a Transfer Agreement and a Deed of Assignment. Letters were also sent out to the claimant advising of the change. The claimant did not object to this transfer and indeed signed and returned a letter of instruction from NH following the transfer.

At the assessment, the defendant raised the issue with the validity of the transfer of the CFA from BR to NH. HHJ Robinson found for the defendant, holding that the CFA was terminated when it was transferred to NH. The claimant appealed and due to the important nature of the issues, the appeal was leap-frogged to the Court of Appeal and the Law Society intervened.

The Parties’ Positions

The argument of the defendant was that a CFA was a personal contract and could not be assigned. Therefore, the contract had been terminated by the letters on transfer to NH and the new agreement was a novation. A novation means that the rights were not transferred and so the agreement with NH would be a new CFA. As that CFA had been entered after April 2013 and therefore post-LASPO, the claimant would not be entitled to recover any success fee on their costs in accordance with s44 LASPO. 

The claimant argued, however, that the contract had been assigned, meaning that the benefits and burdens of the contract had been transferred from BR to NH and therefore the CFA simply continued without break and they could recover the success fee. 

The questions that the court considered were therefore whether there had been a termination of the CFA, whether there had been an assignment or a novation and the position of s44 of LASPO. 

Termination?

Gloster, LJ noted that neither any letter nor any transfer of the CFA could amount to a termination of the contract without the claimant choosing to treat the contract as terminated. If there is a repudiatory breach of the contract, that does not terminate the contract, rather the contract subsists until or unless the other party decides whether to terminate or affirm the contract. 

In this matter, because the claimant signed the letter of instruction with NH and continued instructing them, the court held that she had affirmed and not terminated the contract. 

Assignment or novation and s44 LASPO 

Gloster, LJ believed that the question in relation to these issues should be phrased as: 

‘whether, for the purposes of the transitional provisions of section 44(6) of LASPO, the fee payable by the claimant to NH, under the “transfer” arrangements between BR, NH, and the claimant, was “a success fee payable by… [the claimant] under a conditional fee agreement entered into before” 1 April 2013’ 

Gloster, LJ held that a CFA was a personal contract and that the language used in the contract documents envisaged the discharge of BR’s obligations and therefore what had occurred was a novation, rather than an assignment.

The answer to the issue was, as Gloster LJ saw it was ‘much more finely nuanced, but ultimately simpler, than either party contended’. 

Firstly, she felt that in the modern business environment there was no reason why the benefit and burden of an agreement, or even the solicitor’s entire ‘book’ could not be transferred to a new firm because, in her view, what a client wants is ‘representation by a competent practitioner and not necessarily representation by a specific individual’

However, the element of consent was found to be crucial to this as the client must consent to the transfer. 

Gloster, LJ criticised the decision in Jenkins (which has long been relied on) as being wrongly decided (paras 57-63) but that in any event, it did not give any assistance in this particular case. In this matter, she considered that the claimant entered into a new contract as of 10 April 2013; there had been an assignment, rather than a novation. 

Although the CFA with NH was therefore a new contract made post-LASPO, Gloster, LJ did not consider that this also meant that the success fee was not recoverable. In fact, the terms of the transfer documentation made it clear that NH would simply be substituted into BR’s place as the solicitor acting for the claimant on the same conditions as the existing retainer (the CFA). Those documents intended that NH would be able to enforce the success fee that had accrued both on BR’s costs and their own. 

Thus, she considered that ‘[i]t is clear that the modern approach to statutory interpretation takes account of the apparent policy of that legislation as set out in Plevin v Paragon Personal Finance Limited ([2017] UKSC 23): 

‘The purpose of the transitional provisions of LASPO, in relation to both success fees and ATE premiums, is to preserve vested rights and expectations arising from the previous law. That purpose would be defeated by a rigid distinction between different stages of the same litigation’ 

Gloster, LJ further considered that an overtechnical application of the doctrine of novation would defeat that intended purpose. She did add, however, that it would depend on the ‘precise terms of the relevant contractual arrangements’ that the parties entered and whether the ‘new firm was indeed intended to operate “under” the terms of the previous CFA’. 

Beatson, LJ agreed entirely with this interpretation, however, although Davis, LJ also agreed with the overall conclusion, he reached it by a different route, considering that there had, in fact, been an assignment as opposed to a novation. 

Conclusion 

The court appears to have ensured that whether there is an assignment or a novation, any success fee may be recoverable. 

However, there is an important caveat to that which may still leave avenues for arguments to defendants; namely that the recovery of the success fee is very much dependent on the particular wording of the contractual documentation that gives effect to the change of solicitor. Whilst some of these are, like the documentation between BR and NH worded effectively, there are others which are not and where this is the case, challenges can still be made. 

Thus, even though the case stitches up the question of whether there is an assignment or a novation, the door has been left open for other challenges depending on the circumstances of the case.

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