Intentions of the Parties Made Clear in the Assignment of a CFA, Rendering an Appeal Decision that the Transfer of the Retainer was Valid and Enforceable
In one of the most significant costs cases to be heard since the recent reforms the Court of Appeal has now released the judgment in the case of Budana –v- Leeds Teaching Hospitals NHS Foundation Trust (2017, EWCA Civ 1980), which provides a key decision in relation to the assignment of a CFA.
At the original assessment in February 2016 was heard in Kingston upon Hull County Court by DJ Besford who held that a pre-Jackson retainer transferred from Baker Rees to Neil Hudgell had been ‘terminated’ when Baker Rees wrote to the client saying that they would no longer perform personal injury work.
This meant that there was no ‘valid’ retainer to be assigned. However, DJ Besford arguments that the CFA could not have been assigned in any event, considering himself bound by the reasoning adopted in the earlier High Court decision of Jenkins v Young Bros Transport (2006) 1 WLR 3189.
Despite noting that ‘the facts in Jenkins are far removed from the commercial wholesale disposal of clients as in this case’, DJ Besford said that the higher authority ‘clearly permits the transfer of a CFA between firms’, and must be followed.
The appeal on this case was the first time that the question of whether CFAs can be assigned from one firm to another has been dealt with by the Court of Appeal, which were not to be bound by the High Court’s reasoning in Jenkins.
Key facts of the original claim:
The Claimant fell and sustained injury at the Defendant hospital. She entered into a CFA with Baker Rees on 2nd December 2011 which agreed to pay a 100% success fee in the event that she won the case, albeit her obligation to pay the success fee was capped by reference to the amount she recovered from the Defendants in the action.
During the course of the retainer Baker Rees (BR) wrote to the Claimant on 22nd March 2013 explaining that they would no longer be undertaking personal injury work as it was no longer economically viable for them in view of the LASPO reforms. They proposed to transfer the case to Neil Hudgell Solicitors (NH) and sent a letter to this effect which outlined that NH would continue to act for her on the same no win, no fee agreement that the Claimant had with them. The file was to be automatically transferred to NH on 25th March 2013.
On 23rd March 2013 BR and NH entered into a ‘Transfer Agreement’ for the sale and purchase of BR’s personal injury cases. The parties entered into a Master Deed of Assignment for the transfer by BR to NH of cases listed in a schedule, with the Claimant’s case included.
The terms of the assessment purposed to assign a number of retainers and associated CFAs to NH.
The Claimant signed a letter of instruction acknowledging NH’s client care letter and terms of business along with a deed of assignment between the Claimant and NH.
On 17th May 2013 the Claimant signed an alternative CFA with NH which took the form of a post-LASPO CFA and provided for a 0% success fee. The CFA was expressed to only be effective in the event that the Deed of Assignment sent previously did not have the effect of allowing recovery of NH costs.
The claim was ultimately settled for £4,150.00 plus payment of legal costs.
The parties’ positions
– The Claimant – that she was entitled to recover her costs under the BR CFA, including the success fee, from the Defendant. This was because she had assigned the CR CFA to NH as subsequent solicitors, who continued to supply legal services to the Claimant under the contract. As the BR CFA was entered into pre-LASPO the Claimant was seeking to recover costs in respect of a pre-LASPO CFA.
– The Defendant – that the Claimant could recover only her base costs under the NH CFA, and no costs or success fee under the BR CFA. The BR CFA was terminated following the letter of 22nd March 2013. In the alternative, the Defendant submitted that the BR CFA could only have been novated after 1st April 2013, therefore a new contract was entered into post-LASPO.
The original decision
At the original assessment the decision held by District Judge Besford was two-fold:
- The BR CFA was terminated ‘without good reason’ by letter of 22nd March 2013 and on that basis the Claimant was not entitled to any payment for services rendered to that date. It followed that neither BR nor NH were entitled to be paid for the work undertaken under the BR CFA.
- If, contrary to his first conclusion, the BR CFA survived after 22nd March 2013, there would have been an effective assignment of that CFA to NH – in this situation he was bound to accept it was possible to transfer a CFA through assignment. However, DJ Besford went on to hold that the first deed was a novation of the existing retainer, with the result that NH were substituted for BR, so there was no BR CFA from 1st April 2013.
The Appeal
This appeal was brought by both the Claimant and the Defendant – the Claimant seeking to appeal the termination decision, the Defendant appealing the determination that the BR CFA had been validly assigned.
The Law Society (as intervenor) submitted support to the Claimant’s contention that it was possible for solicitors firms to lawfully assign a CFA, such that it takes the benefit of payment in the event of success but as a condition of obtaining that benefit, the solicitor is obliged to perform the obligations under such a retainer.
Within the judgment an analysis and commentary was provided as to the economic environment in which personal injury litigation is conducted today, with recognition of the variety of circumstances in which the legitimate need to assign a CFA may arise.
Appeal Decisions
Issue 1 – Termination of the CFA
It was held that the BR CFA undoubtedly subsisted after 22nd March 2013.
It was held that the Claimant did not terminate the contract but instead affirmed it by the second deed and her conduct generally – unless and until the innocent party terminates the contract, it subsists. The CFA therefore survived and BR remained entitled to payment.
Issue 2 & 3 – Assignment or Novation
Lady Justice Gloster noted that the issue here was really to determine 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 under the CFA entered into before 1st April 2013.
It was decided here that there was little doubt that on 10th April 2013 the Claimant entered into a new contract pursuant to the terms of the second deed and letter of instruction. The Claimant agreed to the transfer of the rights and obligations of BR under the BR CFA to NH, with conditions including that the BR CFA remained ‘binding and enforceable’ as between the Claimant and NH.
– Lady Justice Gloster also noted that it was clearly the intention of the parties that NH would simply be substituted in BR’s place, under the same terms of the existing continuing retainer – i.e. the BR CFA. Substantial consideration was made by the Judge to the issue and authorities relating to novation when coming to this conclusion.
– Ultimately the Judge on appeal agreed with the Claimant’s position in relation to the construction of section 44 of LASPO and held that the parties expressly provided contractual arrangements in assigning the CFA to NH and that the success fee payable to NH was to be payable under a CFA entered into before 1st April 2013.
– Significant weight was applied here to the intentions of the parties (BR, NH and the Claimant) within the contractual assignment.
This is an extremely important judgment which highlights the importance of making clear the intention of the parties when seeking to transfer a retainer. Not all cases will involve the issue of the recovery of a pre-LASPO success fee however regardless of this it is imperative to ensure the contractual assignment is clearly binding through both the deeds prepared and actions of the parties involved.
This decision also provides important guidance about ensuring that the Claimant is a party to any change made to a funding arrangement – this decision suggests that the Claimant should now be party to the decision to assign a contract between firms as a novation, not as a new agreement but as an extension of the previous arrangement in place (in this case with recovery success fees/additional liabilities).