Benefit and burden of CFA can be assigned between firms, Circuit Judge rules

cfa assignment

A motivation of personal trust and confidence between client and fee earner is not necessary to validate an assignment, HHJ Graham Wood QC decides– but admits his judgment may require appellate court review

Denise Jones v Spire Healthcare Ltd, Liverpool County Court (11 May 2016)

Key Points

  • The validity of assigning a CFA between law firms did not require a motivation of personal trust and confidence between the client and their legal advisor.
  • When a CFA transfer is deemed to be novation rather than an assignment, the key date for assessing its post-LASPO validity is the date of the novation agreement itself, and not the date the CFA was originally entered into.
  • Severing non LASPO-compliant CFA clauses, in an attempt to make them compliant, should not occur.
  • A CFA may be regarded as a present chose in action, capable of assignment.

Full Judgment

This costs dispute arose out of a personal injury claim in which the claimant ultimately accepted the defendant’s Part 36 offer. When bringing her claim, the claimant entered into a conditional fee agreement (CFA), which provided for a success fee and also included a provision that any damages received would paid in full without any deductions (paragraph 8).

During the course of the dispute, the claimant’s law firm, Barnetts Solicitors of Southport, fell into administration. With the claimant’s written approval, her file was transferred to another firm, SGI Legal LLP, who handled the matter to its conclusion. Although the fee earner principally advising the claimant at Barnetts Solicitors subsequently moved to SGI Legal as a result of Barnetts’ administration, he did not then play a significant role in the claimant’s case while working for the latter firm (paragraphs 6 – 7)

During the course of the claimant’s original personal injury dispute, the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) was passed, and new rules governing CFAs and success fees were introduced. Significantly, the claimant originally signed her CFA in February 2012, more than a year before the key LASPO rule change date of 1 April 2013. However, she then signed the agreement to transfer her file from Barnetts Solicitors to SGI Legal on 29 January 2014, several months after the LASPO-related changes took effect (paragraphs 8 – 9).

The above facts prompted a dispute at detailed assessment between the parties regarding the claimant’s eligibility for costs. Consequently, DJ Jenkinson gave an order on 15 September 2015, denying the claimant the right to claim costs for the work latterly undertaken by SGI Legal, but also upholding the claimant’s right to claim those costs previously incurred by Barnetts Solicitors (paragraph 2).

The rationale for the judge’s decision, and additional background details of the order, can be found in our earlier case law summary. Briefly, DJ Jenkinson had concluded that the benefit of the retainer inherent in the claimant’s CFA had been transferred, but the burden had not – which meant SGI had been instructed by the claimant without the benefit of a valid retainer. Therefore, their own costs could not be recovered. Furthermore, DJ Jenkinson deemed the transfer – despite its wording – to be a novation rather than an assignment. Consequently, the CFA which underpinned SGI Legal’s apparent retainer has been rendered invalid, because the novation had been entered into during the post-LASPO costs regime. This CFA invalidity provided an additional reason why SGI could not recover their costs associated with the substantive dispute (paragraph 2).

In this latest costs dispute arising out of her original claim, the claimant appealed DJ Jenkinson’s order regarding the non-recoverability of SGI Legal’s costs. Meanwhile, the defendant appealed the ability of the claimant to recover those costs previously incurred by Barnetts Solicitors (paragraph 3).This latest appeal was heard by HHJ Graham wood QC, sitting in Liverpool County Court, in December 2015 and April 2016.

On appeal, the claimant’s counsel made several arguments in support of their asserted right to costs.

Most importantly, it was argued that both the benefits and burdens of the claimant’s original CFA were inextricably linked, and thus were capable of being assigned. On that basis, the post-assignment costs accrued by SGI Legal should be recoverable (paragraph 23). Here, the claimant’s counsel relied heavily on the judgment of the (then) Rafferty J in Jenkins v Young Brothers Transport Ltd [2006] EWHC 151. Rafferty J’s obiter in Jenkins had indicated one possible exception to the general rule that the benefit, but not the burden, of a contract could be validly assigned. And, relevantly for this appeal, in Jenkins, it had ultimately been decided that the validity of the assignment of a CFA could be upheld, because the “the relationship between client and the solicitor involves trust and confidence”.

Problematically, in this current dispute, DJ Jenkinson had previously distinguished the facts in Jenkins from the facts before him. In Jenkins, a client had loyally followed the same solicitor as they moved firms twice during the course of the client’s instructions. By contrast, in the case that DJ Jenkinson was now being asked to rule on, the claimant’s decision to transfer her case from Barnetts Solicitors to SGI Legal did not appear to be motivated in any way by a particular trust and confidence in any fee earner (paragraphs 12 – 17). In this latest appeal, the claimant’s counsel therefore argued that the ratio in Jenkins was, in fact, “based on an interpretation of the law which cannot be restricted only to those cases where personal trust and confidence was reposed” (paragraph 46). Effectively, it was argued, DJ Jenkinson should not have drawn into making such a distinction when reaching his conclusions (paragraph 50).

Alternatively, and arguing a new point on appeal, the claimant’s counsel asserted that, even if the CFA had become a novation, the important date for the CFA regulatory regime was the date the “arrangement” was entered into, rather than the date of the novated, or deemed, agreement (paragraph 24). Consequently, any person who took out a CFA prior to 1 April 2013 should have full benefit of the previous provisions (paragraph 53).

Making several additional “fallback” arguments, the claimant’s counsel firstly argued that, even if the agreement was covered by the post 1 April 2013 regime, the agreement was sufficiently clear to be enforceable (paragraph 25), and did not actually breach the new regime’s conditions (paragraph 54). However, if any breaches were present in the CFA, the claimant’s counsel additionally argued that they could either be ignored (paragraph 56) or severed by adopting the “blue pencil” test (paragraph 57).

In relation to their own appeal, the defendant argued that the claimant should not be allowed to recover their pre-assignment costs on the basis that, when the assignment was actually made, no such right to payment existed. At that point in time, the claimant only had a contingent expectation that such an entitlement might arise in due course – and such a contingent interest was incapable of assignment (paragraphs 26, 93 – 96). The assignment was executed in January 2014, but a Part 36 offer was not made until September that year (paragraph 87).

Delivering the latest costs ruling in this long-running case, HHJ Wood QC noted that this appeal involved a “complex and evolving area of law” (paragraph 45). He also noted that the case was “of some significance”, because it was one of several hundred that had been pursued under CFAs by the now-defunct Barnnetts Solicitors. He therefore noted that “it appears that a higher appellate court may become engaged on this grounds that this is a matter of public importance and wider ramification” (paragraph 4).

In relation to the claimant’s first substantive ground for appeal, HHJ Wood QC decided that DJ Jenkinson was wrong, as a matter of law, to conclude that the assignment of the burden of the CFA was not possible (paragraph 79). Instead, HHJ Wood QC decided that both the burden and the benefit of the claimant’s CFA had successfully been assigned by Barnetts to SGI Legal and that, consequently, SG Legal did benefit from a valid retainer for their work assisting the claimant. Having reached this decision, HHJ Wood QC decided that SGI Legal were entitled to recover both pre and post assignment costs (paragraph 125).

In reaching this conclusion, HHJ Wood QC acknowledged that existing rules which restricted burden-assignment were clearly designed to protect non-participating counterparties (paragraph 76). However, in this case, he noted that the claimant had entered into a separate deed of assignment with SGI Legal to permit such a transfer. As a result:

“it would be an unduly restrictive and overly legalistic approach to deny the parties the effect of what they intended

And, addressing the Jenkins ratio specifically, HHJ Wood QC also expressed disquiet about the possibility of satellite litigation “if the efficacy of the assignment depended on a qualitative assessment of the degree of trust and confidence [between the client and the specific lawyers instructed following a case’s transfer]”

He therefore decided that evidence of such a relationship should not be a prerequisite for this particular exception to the general rule regarding burdens and benefits (paragraph 78).

Having reached this conclusion, HHJ Wood QC acknowledged that it might be considered unnecessary to review the other arguments put forward by the claimant’s counsel. He did so regardless, in light of the possibility of an appeal and the effort already expended in debating the issues. Notably, he then dismissed every one of the claimant’s alternative remaining arguments. The suggested purposive interpretation of the “date of agreement” was, he said, “a strained one”. And, in relation to the claim that a novated CFA would not have breached the new provisions, he said this argument was “without merit”. Finally, he also rejected any possibility of severing any offending clauses from the CFA, in order to make its remaining provisions enforceable (paragraphs 80 – 83).

HHJ Wood QC then turned to the defendant’s appeal, which sought to overturn DJ Jenkinson’s decision that the claimant was entitled to recover costs associated with the work undertaken by Barnetts, because the benefit of the claimant’s CFA has been validly assigned to SGI Legal. After a lengthy summation of the defendant’s and claimant’s arguments (paragraphs 85 – 111), HHJ Wood QC admitted that he did not find the issue easy to resolve (paragraph 112). This was, in part, because CFAs did not fit comfortably within any of the scenarios described in existing authorities, which established a factual basis for distinguishing between a present chose in action and a future expectancy. Ultimately, however, he concluded that a CFA should be regarded as a present chose in action, which was therefore capable of being assigned (paragraph 122). Accordingly, the defendant’s cross-appeal was dismissed (paragraph 125).

No tags for this post.