Court of Appeal upholds assignments of pre-LASPO CFAs
Today the Court of Appeal gave it’s eagerly awaited judgment in Budana v The Leeds Teaching Hospitals NHS Trust  EWCA Civ 1980. Overturning the decision of DJ Besford in the County Court at Kingston-Upon-Hull, the court ruled that a pre-LASPO CFA could validly be transferred from one firm of solicitors to another, even after 1 April 2013, in such a way as to preserve the right to recover success fees and ATE premiums, provided all three parties (client and both firms) expressly so agreed.
The appeal concerned a pre-LASPO CFA entered into between the claimant and firm A. Firm A ceased to act for the claimant on 22 March 2013, and it assigned its retainer and CFA to firm B on 25 March 2013. The claimant affirmed this arrangement by a deed of assignment dated 31 March 2013 (although signed on 10 April 2013). The claimant settled her claim against the defendant, with costs. At first instance it was held that the claimant could not recover from the defendant any fees and disbursements incurred by firm A, and could recover only base fees and disbursements (without success fee) incurred by firm B. The issues on appeal were
- Was firm A’s CFA terminated when it ceased to act for the claimant on 22 March 2013?
- If the CFA was not terminated, was it effective as an assignment (as opposed to a novation)?
- If the CFA amounted to a novation after 1 April 2013, should the novated CFA nevertheless be treated as a CFA entered into before 1 April 2013 for the purposes of LASPO?
- If the CFA was terminated, was the claimant nevertheless liable to pay for the work done by firm A (and so recover such fees and disbursements from the defendant)?
The claimant sustained a personal injury at the defendant’s hospital. She instructed Baker Rees (BR) to act for her. They entered into a CFA with a 100 per cent success fee in December 2012.
On 22 March 2013 BR wrote to the claimant to inform her that they had decided to stop handling personal injury litigation, and that they would automatically transfer her file to Neil Hudgell Limited (NH) on 25 March 2013, which they duly did. On that latter date BR assigned by deed the claimant’s case and associated CFA agreement to NH. The deed, among other things, purported to assign all BR’s rights as between themselves and the claimant, and all BR’s obligations owed to the claimant.
By a deed dated 31 March 2013 the claimant affirmed the assignment of the benefits and burdens of her original retainer of BR. Clause 3 of that deed provided that all fees and disbursements incurred “as at the date of that deed” and thereafter became payable by the claimant to NH. NH went on to the record for her on 1 April 2013, although in fact the claimant signed letters of instruction and executed the deed dated 31 March 2013 only on 10 April 2013. Meanwhile, of course, LASPO had come into force on 1 April 2013, abolishing the recovery of CFA success fees.
To cover the possibility that BR’s CFA might be held to be ineffective, NH entered into a LASPO-compliant second CFA with the claimant on 17 May 2013.
Liability was in due course admitted and the claim was settled for £4,150 plus costs. During the detailed assessment of costs the issue arose whether the purported assignment of the CFA from BR to NH was effective in law.
The district judge’s decision
It was agreed that in principle the benefit of a contract may be assigned but generally, and subject to limited exceptions, the burden cannot. However, the district judge held that he was bound by the exception to that rule contained in the ratio of Jenkins v Young Bros Transport Ltd  EWHC 151 (QB) – generally referred to as the “conditional benefit principle” – namely that because
“the benefit of being paid was conditional upon and inextricably linked to the meeting by [firm B] of its burden of ensuring to the best of its ability that [the claimant] succeeded … upon the facts in this case the benefit and burden of the CFA could be assigned was within an exception to the general rule.”
The district judge went on to make two further findings.
First, that BR’s notification to the claimant on 22 March 2013 that they had decided to stop handling personal injury cases amounted to a termination of BR’s retainer there and then. Accordingly, though assignable in principle, on the facts there was no CFA extant capable of assignment as at 25 March 2013, three days later.
Second (obiter), if there had been a CFA extant capable of assignment as at 25 March 2013, it was, properly understood, not a contract for personal skills capable only of being novated. Such a contract, on the authority of Jenkins, was capable of being merely assigned. However, the district judge saw “much force” in the defendant’s argument that although the transfer of the claimant’s case and CFA from BR to NH was described as an assignment, it was in fact a novation, a “practical substitution of the original party for a new party … [which] severs the existing contract”.
The district judge therefore held that the CFA was properly capable of being assigned, but that because of the termination of BR’s retainer before the assignment, there was no existing retainer or CFA to assign as at the date of the assignment. The practical result was that none of BR’s fees were recoverable – BR had only part performed an entire contract – and NH’s fees attracted no uplift.
The claimant appealed against the decision that BR’s fees were irrecoverable on the ground of termination of the retainer at a time when it had been only part performed.
The defendant cross-appealed against the rejection of its arguments, on either basis, that the assignment was ineffective. The defendant did not invite the court to overrule Jenkins, but merely to recognise that Jenkins was a decision on its own particular facts. The defendant thus invited the court to approach the matter from first principle, unaffected also by the decision of the Supreme Court in Plevin v Paragon Personal Finance Ltd  UKSC 23,  1 WLR 1249, a case in which the validity of two successive assignments of a CFA was challenged (unsuccessfully) despite the starting-point before that court that “it was common ground that the CFA was in principle assignable”. The defendant therefore argued both (i) that there was nothing to assign as at 25 March 2013, and (ii) that if there was anything to assign as 25 March 2013, it was in principle non-assignable but took effect as a novation on 10 April 2013, turning the CFA into a post-LASPO CFA with attendant irrecoverable success fee.
The decision of the Court of Appeal
Issue 1: termination. The court held unanimously that BR did not terminate their retainer by the claimant by their letter dated 22 March 2013. They could not do so unilaterally. The claimant had the right to choose between termination and affirmation of the retainer, and by entering into the arrangements described above with NH she elected not to terminate her retainer but to transfer it to NH.
Issue 2: assignment or novation? The majority (Gloster and Beatson L.JJ.) considered that the BR CFA had been novated. The correct analysis was that all three parties (the claimant, BR and NH) had agreed that BR would be discharged from its obligations, that NH would assume such obligations, and that the claimant expressly consented to NH’s assuming such obligations. On the authorities, especially pithily put by Bingham L.J. in Southway Ltd v Wolff (1991) 57 BLR 33 (at 52-3), such arrangements amounted to a novation: “If A wishes to assign the burden of the contract to C he must obtain the consent of B, upon which he contract is novated by the substitution of C for A as the contracting party.” The reasoning of Rafferty J. in Jenkins was doubted for two principal reasons: first, that she had not sufficiently considered the principle explained by Bingham L.J. in Southway; second, that if the conditional benefit principle simply meant that the benefit and burden of a contract was assignable because the right to payment (benefit) was conditional on performance of the work (burden), then all contracts for services should surely fall within the exception.
Issue 3: the application of LASPO to the novated contract. The court was unanimous that, whether the BR CFA had been novated or (per Davis L.J.) assigned, the parties’ agreement and stated intentions were that NH would act as the claimant’s solicitor on terms governed by the provisions of the BR CFA. On that basis, applying a purposive interpretation to section 44 of LASPO (abolition of CFA success fees after 1 April 2013) and mindful of the words of Lord Sumption in Plevin (at ) –
“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 court held that it would be an over-technical application of the law of novation to prevent the claimant from recovering costs in respect of a success fee simply because her claim had been transferred to a new firm of solicitors.
In the result, issue 4 did not arise. The claimant was entitled to recover all her costs and disbursements under the BR CFA.
This decision lays to rest the assignment / novation debate that has been raging for some time among costs practitioners and gives clear reassurance to claimants that properly-drafted transfers of pre-LASPO retainers and CFAs, even if occurring after 1 April 2013, are most likely to be treated as subsisting on pre-LASPO terms.
Written by Paul Parker.
Please click here for a copy of the Judgment.
Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.