CFA – COURT RULES ASSIGNMENT POSSIBLE
A much anticipated decision has been received in the matter of Jones v Spire Healthcare Ltd, being a decision of His Honour Judge Wood QC in the County Court at Liverpool, on the question of the validity of the assignment of entitlements and responsibilities under CFA’s.
The situation at hand was that a firm of Solicitors, Barnetts, went into administration and a deal was struck between the administrators and another firm, SGI, for the transfer of various personal injury cases proceeding under CFA’s. One particular difficulty was that the regulations on the nature and format of CFA’s had changed between the time they were originally created and at the point of the purported assignment.
During the course of the detailed assessment before District Judge Jenkinson (the Regional Costs Judge), the Defendant (paying party) challenged the validity of the retainer on the basis that it was a contract for personal services not capable of assignment because it was not within the exception of “trust and confidence” to the general rule prohibiting such assignment. The District Judge found that the benefit flowing under the CFA was validly assigned, which meant that the costs of Barnetts were recoverable; but found that the burden could not be assigned. In those circumstances, the agreement with SGI was a novation and that therefore in order to be valid, the CFA would have to comply with the regulations in force at the time of the novation. The CFA was valid pursuant to the regulations in force when it was originally made, but with the change in 2013 prohibiting the recovery of success fees between the parties and the 25% cap imposed, the CFA did not comply with the new regulations. Therefore, there was no valid retainer for SGI and their costs were not recoverable. Much reliance was placed upon the case of Jenkins v Young Brothers Transport Ltd  EWHC 151, in which a CFA had been held to be validly assigned. The District Judge had found that Jenkins was a case decided specifically on its own facts (where the CFA had been assigned to firms at which the same fee earner subsequently moved) and that unless the present case fell within the ambit of that decision, the more general rule should apply.
Both parties appealed the decision, the Claimant on the basis that the costs following the assignment should be recoverable and the Defendant on the basis that the costs incurred prior to the assignment should not be recoverable.
His Honour Judge Wood reviewed the complex case law in this area at considerable length in his Judgment and found that Jenkins was binding upon him, had not been overruled and that the ratio should not be confined simply to cases where personal trust and confidence (as would apply where the matter was simply following the same fee earner) could be established. He therefore found that the benefit and the burden under CFA were inextricably linked and that assignment of both was valid.
Of some interest is that he found that the Claimant’s fallback arguments, which were on the basis that even if there was a novation there was still a valid retainer, were of no merit.
The Defendant had argued that at the time of the assignment, the definition of “win” within the CFA had not been established and therefore there was no more than a contingent right to be paid by Barnetts and that a contingent right could not be assigned. The Judge found against them on that argument, again after a detailed analysis of the lengthy history of case law.
In relation to the Claimant’s appeal, the following extracts from paragraphs 75 to 77 of the Judgment are informative
“In the circumstances, I believe that the learned district judge was wrong to regard Jenkins as not providing a ratio decidendi which was binding upon him, and unequivocal, and proceeding on the basis that it was necessary for a court to establish the same context of trust and confidence which had prevailed in that case. In my judgment there is a sufficiently clear ratio, even if the present facts are distinguishable
Whilst the reference in paragraph 28 of the judgment in Jenkins to the intention behind the course adopted relates to the wish of Mr Jenkins to follow his solicitor from one firm to another, in my judgment it is similarly impossible to ignore what was intended by the arrangement entered into in this case. Rules restricting burden assignment were clearly devised to protect the non-participating counterparty. This is clear from the Tolhurst case. In circumstances where there is tripartite involvement to the extent that not only do the assignee and the assignor agree to the shifting of the burden, but so too does the recipient of the benefit (here the Claimant) and a separate deed of assignment is entered into in relation to her own conditional fee agreement, it would be an unduly restrictive and overly legalistic approach to deny the parties the effect of what they intended
Of course the courts should be vigilant to ensure that arrangements have not been entered into to bypass rule changes to avoid financial disadvantage and enhance profit, but the fact remains that when her former solicitors went into receivership the Claimant was faced with a choice. She was not obliged to transfer her instruction to SGI Legal, which would have involved entering into a new LASPO compliant CFA agreement with potential deduction from her damages of up to 25%. Whilst a Simmonds v Castle uplift, together with QOCS and thus the elimination or the need for an insurance premium might have provided some parity, it should be assumed that she was advised of her best interests when she entered her own deed of assignment. Therefore this court can proceed in confidence that no party affected by the arrangement had been unwitting or unwilling. The loss of a potential windfall to an ultimate paying party who might challenge the assignment at a later point, or face paying costs under a more expensive old-style CFA is of course wholly irrelevant”
In relation to the Defendant’s appeal, paragraph 122 sums up the approach:
“Accordingly, in my judgment, the context here, the conditional fee agreement, was one which allowed the contingent debt, referable to an ascertained amount and an ascertained point at which it would be paid in the future, assuming success, to be classified as a present chose in action capable of assignment”.
Of some further interest is that the Judge noted that this was but one of hundreds of cases where a similar point would be raised and that it was likely that this was a matter which would go to a higher appellate court. It may well be therefore that we have not seen the end of these arguments, nor a final determination of where matters stand. During the course of the Judgment, the Judge noted that if he had found to the contrary, it would have led to a windfall for losing Defendants and a significant financial loss to SGI who had paid money to purchase the files in the first place and then of course spent considerable time in pursuing them to settlement. As noted in the extract above, he was apparently anxious to give validity to the clearly expressed intention of the relevant parties and to avoid the matter falling into the trap caused by the change in the regulations. It is easy to see therefore why this decision will be greeted with some relief by Claimants’ solicitors in similar circumstances, but whether that relief will endure is a matter for further speculation.