The modern day CFA

The appeal judgment can be expected early in 2016 in Denise Jones v Spire Healthcare (Liverpool County Court, decided originally on 11 September 2015). 

Now that the dust has settled a little, can it really be said the judge was right to have decided that ?a conditional fee agreement (CFA) cannot be assigned, a decision which has caused a degree ?of consternation among recent bulk purchasers ?of personal injury businesses up and down the country?

In the original decision, the judge in Liverpool decided that: 

• A pre-Legal Aid, Sentencing and Punishment ?of Offenders Act 2012 (LASPO) CFA is a personal contract and cannot be assigned; 

• There was not in fact an assignment at all ?but a novation; and 

• The consequence is that the retainer is unenforceable because it failed to comply with post-LASPO consumer protection requirements.

The original decision was surely wrong, but the judgment on the appeal is by no means guaranteed to help claimant firms. 

It is conceded, as the district judge found, that the requirements of section 58 of the Courts and Legal Services Act post-LASPO require critical information to be given when a new CFA is made, and that without that information a CFA (new or novated) ?is unenforceable. 

As a matter of principle, however, there is nothing wrong with an assignment of a CFA and there are sound arguments which demonstrate that an assignment is perfectly valid in the contemporary world. A different case may be needed to argue ?the point. 

The problem

A declaration that an entire retainer is unenforceable means that the costs of an action are entirely irrecoverable. Moreover, if a large parcel of CFAs cannot be assigned, it means that purchasing firms must now consider the prospect of having to enter retrospectively into entirely new retainers with all the individual claimants.

Because of the effect of the changes brought about by LASPO (and secondary legislation), new retrospective agreements have the consequence that the uplift of up to 100 per cent on base fees will not be recoverable from defendants. If a pre-LASPO CFA cannot be assigned, the uplift is lost, and some bad bargains may be found to have been struck by buyers.

In addition, as the common law is currently understood, those cases in which a final costs order has been made cannot be saved at all and the costs will be entirely lost.

Context in the 21st century 

In Denise Jones, a firm handling mass CFA personal injury claims became insolvent. Three days later, the administrators concluded a sale with another solicitor’s firm and 228 clients were able to move seamlessly to the new practice along with a Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) transfer of staff. 

The obvious and inevitable vehicle for the sale was a single deed of assignment (the normal instrument for transactions of this nature over ?the last couple of years during the recent round ?of consolidation).

The administrators (and indeed all concerned) had the consequent advantage that they did not have to involve the regulators during a lengthy period of transition. For the administrators, and also for the buying firm, the use of a deed would have made it easier to fix a price. For the clients and for the new firm, they could continue the cases without the diversion of having to make 228 new retainers. The caseload in such cases is normally handled by the same lawyers as before by reason of a TUPE arrangement.

There is every reason as a matter of policy why ?the courts should support these deeds. The only conceivable disadvantage would be to paying parties, but this is not because they will suffer or will have suffered some new disadvantage. Rather, they will have lost the opportunity (if the deeds are valid) of not having to pay costs for which provision will already have been made.

At this point we must depart from Denise Jones because some of the facts are slightly difficult to follow, as indeed is some of the reasoning. The judgment does at least discuss the practical issues of law which are commonly discussed in such cases, and it is the wider consideration of these by ?the blogosphere which really needs addressing.

Unassignable CFAs? 

First, then, and perhaps of most interest, is the notion that a retainer at the commencement of the 21st century should be considered a contract of a truly personal nature between a solicitor and their client. The consequence is perceived to be (as indeed the judge appears to have decided) that an assignment of such a retainer ‘is not possible’.

Overall, it was depressing in the Liverpool case to see that the receiving party presented evidence to the court seeking to suggest that she really did want to make sure her case followed the employee of her former solicitor.

The witness statement was presumably drafted ?in this manner for the purpose of following the only reported case which deals with the assignment ?of a pre-LASPO CFA, namely Jenkins v Young Bros Transport Limited [2006] 1 WLR 3189 (CA). 

Jenkins considered a personal injury claim of some obvious difficulty and value; the client had indeed followed her individual case handler from firm A through to her subsequent employment at firm B and then to firm C. The Court of Appeal decided this was an exception to the rule that a personal contract cannot be assigned. Perhaps it was therefore inevitable that Jones’s team should have thought that in this direction lay the true yellow brick road.

Unfortunately for the claimants’ team, Jones was, as the judge found, ‘probably unaware of [her case handler’s] transfer’. She was indeed, as the judge held, simply ‘uninterested as to whether her claim was to be handled at [the new practice] by him, or ?by another competent fee earner’.

The fact that the client was ‘uninterested’ in who would be handling the claim is the critical finding that undermines any suggestion that a retainer cannot be assigned because it is of personal nature. If a client was indifferent to which of the team might have been handling their claim, then there is nothing ‘personal’ in the arrangement and there is nothing which prohibits an assignment. Given the structure of personal injury practices, necessary for the purpose of recovering costs and making a profit, we are a long way from the 19th-century notion ?of trust and confidence in the faithful adviser. ?Lady Mason’s trusty Mr Furnival in Anthony Trollope’s Orley Farm has been replaced by the internet and by other time-saving devices.

Benefit and burden

One of the obvious positive aspects of Denise ?Jones is that the court was not caused to become obsessed by the question of whether the burden of a contract was capable of being assigned, a feature of Jenkins in the Court of Appeal and at first instance. 

Indeed, Denise Jones adopted the position in Jenkins: ‘The benefit of being paid was inextricably linked to the meeting by [the client’s solicitor] of its burden of ensuring to the best of its ability that the claimant succeeded’. Where this nexus of benefit and burden exists, then the burden of a contract can be the subject of the same assignment as its benefit.

In the unrelated case of Davies v Jones [2009] EWCA Civ 1164; [2010] 1 P & CR 22, an observation was made by His Honour Judge Jarman QC that so far as Jenkins is concerned there must be ‘some doubt whether the relevant benefit and burden were correctly described’ (see paragraph 25). 

On the facts of future cases, questions should be asked about the extent to which it is relevant that the client has trust and confidence in a particular solicitor, since it is not at all clear that the creditor solicitor who is assigning the benefit of the right to payment is troubled by the characteristics, personal or otherwise, of their debtor client.  

Novation

The second issue that was a part of Denise Jones is the question of novation. The judge’s reasons are a little sparse, and we do not learn much about the correspondence written by the new firm to the client following the assignment. It appears to have stated at worst that it was a matter for the client whether or not she wished to instruct them. Whether this does in fact constitute a novation is ?by no means clear, but it can, at best, perhaps be said here that there is sufficient leeway within the authorities to make such a letter no more than confirmation of an appointment necessary from ?the regulatory point of view, or alternatively nothing more than the written notice of the debt required ?by section 136 of the Law of Property Act 1925.

Where are we now?

Assuming that the objection based on burden/benefit has died a death when assessing the assignment of a retainer, then receiving parties should be on much better ground than the ?original decision from Liverpool suggests. 

It cannot seriously be said today that a book ?of chiefly fast-track personal injury cases is of such ?a ‘personal’ quality that it cannot be the subject ?of an assignment. 

Claimant solicitors should advance head-on ?the evidence they have about the benefits of an assignment. Such evidence is capable, at least in ?a new case, of being deployed by the judiciary (should it so wish) to uphold the validity of a deed of assignment. Claimants will have to see what comfort the appeal judgment may bring.

Gordon Wignall is a barrister practising from 6 Pump Court @6PumpCourt www.6pumpcourt.co.uk 

---

Copyright & permissions