Budana v Leeds Teaching Hospital NHS Trust and the Law Society (Intervener) [2017]EWHC Civ 1980

Background

Since the abolition of success fees in LASPO, there have been various arenas of debate regarding the application of the transitional provision at Section 44(6) of the Act. The transitional provision establishes that success fees continue to be recoverable in respect of “a conditional fee agreement entered into before [1 April 2013].”

Nowhere has the discussion been more heated, or carried such significant consequence, than regarding whether an assigned pre April 2013 CFA would be covered by the transitional provision.

As a result of industry wide changes, not least of all commercial pressures stemming from the introduction of fixed recoverable costs, there are a number of reasons why a CFA would be assigned from one firm to another. The Law Society estimate that there are thousands, perhaps tens of thousands of cases where a Claimant enters a pre April 2013 CFA with one firm, which then gets assigned to a second firm of solicitors.

The value of these success fees, if found to be recoverable, certainly runs into the millions of pounds. As such, both solicitors and insurers had a considerable interest in certainty over the application of the transitional provision in respect of assigned CFAs.

In Budana v Leeds Teaching Hospital, a long awaited judgement handed down earlier this week, the Court of Appeal confirmed that success fees were indeed recoverable when a CFA was transferred (to use a neutral term) from one firm to another as long as certain criteria are met.


The Case

As is often the case, the specific circumstances of the matter itself are not of particular interest for our purposes. In summary, the Claimant fell while attending hospital and successfully settled her damages in the sum of £4,150.00.

The factor which makes the case of interest is that, due to the changing legal environment, the Claimant’s original Solicitors (Baker Rees – hereafter BR) elected to stop undertaking personal injury work. As such on the 22nd March 2013 BR wrote to the Claimant proposing to transfer the Claimant’s claim to a second firm (Neil Hudgell Ltd – hereafter NH). Within the letter, BR explain:

“Neil Hudgell will continue to act for you on the same no win, no fee agreement that you had with us. Please note that to avoid any unnecessary delay and to protect your case, we will automatically transfer your file to Neil Hudgell Ltd on the 25th March unless you instruct us otherwise.”

The Claimant did not ‘instruct otherwise’ and as such the matter was transferred to NH. The Claimant then entered various agreements with NH regarding the nature of the transfer including a deed of assignment signed on the 10th April 2013.

First Instance Decision

The matter first went before District Judge Besford on 4th February 2016. After considering the issues the Judge held that BR’s letter of 22nd March amounted to a termination of the retainer with BR. As such the success fee based on BR’s retainer could not be recovered from the Defendant. Judge Besford went on to rule that if the CFA had not been terminated then it could have been assigned to NH. In those circumstances, the success fee would be recoverable.

The Claimant appealed regarding the ruling that the letter represented termination of the retainer. The Defendant cross-appealed on the ruling that if the retainer had not been terminated it was assignable and the success fee would therefore be recoverable.

Given the importance of the issues and the wide reaching consequence, the matter was leapfrogged straight to the Court of Appeal

The Decision

Lady Justice Gloster took what has been described variously as a modern and purposive approach when considering the issues presented. At paragraph 30 of her judgment she explains:

“The issues which fall for determination in this case have to be approached with an appreciation of the economic environment in which personal injury is conducted today.”

Did the Letter of 22nd March 2013 Terminate BR’s retainer?

LJ Gloster, without significant deliberation found that DJ Besford erred in law in concluding that the BR retainer had been terminated.

Without sifting through the considerable established case-law on the point, a repudiatory breach of a contract (in this case the contract for provision of legal services between the Solicitor and the Client) cannot unilaterally terminate the contract. The innocent party (in this case the Claimant) must choose whether to terminate the contact on the basis of the breach, or whether to affirm the contract’s continued existence, despite the breach. As summarised by LJ Gloster:

“Unless and until the innocent party terminates the contract, it subsists.”

The Claimant did not terminate the contract. To the contrary, via the various deeds and agreements relating to the transfer to NH she positively affirmed its continued existence. As such the BR retainer remained beyond the transfer to NH.

Does the Transfer Enable NH to Recover a Success Fee as per the BR retainer?

The terms ‘assignment’ and ‘novation’ carry an enormous amount of baggage. General rules, different interpretations and exceptions exist to each and as such analysis of the terms is complex and somewhat beyond the remit of this article. In lay terms, assignment involves the transfer of the existing terms of a contract from one party to another, whereas novation involves the replacement of an existing contract with another effectively new contract.

Prior to this case, it was widely understood that if a CFA was assigned the success fee could be recovered (in accordance with the somewhat controversial Jenkins v Young Bros Transport case). On the other hand if novation occurred, the new agreement would post date April 2013 and therefore it was considered the success fee could not be recovered.

LJ Gloster took a step back and in order to avoid becoming embroiled in the existing complexities and assumptions regarding assignment and novation summarised the issue as:

“Whether, for the purpose 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.”

The ruling begins with LJ Gloster’s judgment that:

“There is no reason in principle why rights and benefits under a firm of solicitors’ contracts with its clients, or its books of business, should not be capable of assignment in today’s business environment.”

However, LJ Gloster goes on to explain that as a result of the various transfer documents, assignments and deeds:

“there can be little doubt that, on 10 April 2013 the Claimant entered into a new contract with NH (and probably also BR)…”

As part of this new contract, the Claimant agreed to the transfer of the rights and obligations of BR under the BR CFA to NH.

Placing considerable weight on the intention of the parties, the judgement concludes that while a novation rather than an assignment took place, the fact that the parties entered a new contract post April 2013 does not mean the success fee did not qualify as one payable “under a conditional fee agreement entered into before April 2013”.

LJ Gloster reached this conclusion with reference to the policy of the legislation in question. As per Lord Sumption in Plevin v Paragon Personal Finance Limited:

“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.”

The purpose of the transitional provisions would be undone if an overly technical interpretation of the novation occurred, preventing the recovery of the success fee contrary to the expectations of the parties subject to the contract.

In summary then, LJ Gloster held that a novation took place when the claim was transferred from BR to NH but that a success fee was still recoverable in accordance with the transitional provision in LASPO.

Minority Decision

It is worth noting that there was a minority decision, wherein LJ Davis came to the same conclusion, namely that the success fee was recoverable however by different reasoning.

LJ Davis outlined that a decision for the Defendant would “appeal to no sense of merit” in that they would escape paying costs to which the Claimant was entitled on a technicality. LJ Davis concludes that if all of the parties intended the transfer to be an assignment, then it should be considered as such. Therefore in accordance with Jenkins, the application of the doctrine of conditional benefit and the clear intent of the parties that “the original BR CFA should continue to apply and have effect: and should do so by way of assignment”. As such the transfer does not represent a new contract superseding the original CFA, and the transitional provision contained in LASPO clearly applies.

 

Conclusion

The decision will come as an enormous relief to solicitors, especially in firms where for one reason or another, many cases were transferred from a different firm mid conduct.

The important features are (1) that the Claimant consented to the transfer and (2) that the clear intention of the parties is that the benefit of the original pre April 2013 retainer will transfer to the new firm. If these conditions are complied with, whether the transfer is ultimately considered assignment or novation will not matter for the purposes of the transitional provision in LASPO, and the success fee will be recoverable.

Interestingly, the case also reflects the increasing trend of the judiciary to interpret rules and case-law in a way which allows them to achieve the purpose or policy behind legislation. This can be contrary to what LJ Davis refers to as ‘black letter law’ i.e. a very strict interpretation of the rules, however it helps to ensure that the purpose of legislation is not undone via technicalities, and ensures public policy is properly reflected within the case-law.