A conditional fee agreement (CFA) can be validly transferred from one law firm to another, the Court of Appeal ruled today in what has been described as the most important costs decision since the Jackson reforms were introduced.
Specialist personal injury law firm Hudgell acted for the claimant in Budana v Leeds Teaching Hospital NHS Trust, a test case that was leapfrogged to the appeal court in the wake of several conflicting decisions in the lower courts.
In Budana, District Judge Besford held that the CFA was not validly assigned from Baker Rees to Hudgell, as the agreement had been terminated prior to the assignment when Baker Rees closed its personal injury practice. The purported assignment occurred just days before the Jackson reforms came into force on 1 April 2013, but the client did not confirm her consent to it until afterwards.
The Law Society, which intervened in the appeal, estimated that there could be tens of thousands of clients affected by this issue given the similar impact of the Jackson reforms on smaller law firms. Hudgell has led the way in transferring personal injury files from firms leaving the sector through its innovative Webuyanyfiles.com website.
Giving the lead judgment in the Court of Appeal, Lady Justice Gloster found that DJ Besford had erred in finding that the Baker Rees CFA had been terminated.
The key issue was whether the claimant was entitled to recover a success fee under a CFA entered into before 1 April 2013 – such recovery was banned for cases starting on or after that date.
Gloster LJ said: “There is no reason in principle why rights and benefits [her emphasis] under a firm of solicitors’ contracts with its clients, or its books of business, should not be capable of assignment in today’s business environment.”
She ruled that, rather than an assignment, there had been a novation – a new contract – under which the client agreed to transfer the rights and obligations of Baker Rees to Hudgell and that the correct interpretation of section 44(6) of LASPO meant the original success fee payable under the Baker Rees CFA was still enforceable.
Gloster LJ said: “It is clear… that, objectively construed, the intention of the parties was that Hudgell should simply be substituted in Baker Rees’s place… under and subject to the same terms of the existing (and so far as the parties were concerned, at least) continuing retainer…
“[It would be] an over-technical application of the doctrine of novation so as to prevent any litigant, who had begun a claim under a CFA prior to 1 April 2013, from recovering costs in respect of a success fee, simply because a novation had occurred as a result of a change in the constitution of the firm of solicitors acting for her, or as a result of the conduct of her claim being transferred, for whatever reason, to a new firm of solicitors.”
Lord Justice Beatson agreed, but Lord Justice Davis, though also allowing the appeal, found that there had been an assignment, rather than a novation.
He said: “If the parties to an agreement expressly agree in it that one party may assign both the benefits and the obligations of performing the contract to another, then in my opinion there can be no legal objection to the efficacy of such an assignment.”
He added: “An overall conclusion in favour of the defendant would appeal to no sense of the merits… It would mean that the defendant is absolved from paying those costs by virtue of adventitious technicality”.
The case will now return to the county court to consider the continuing dispute over the level of costs claimed by Hudgell.
Neil Hudgell, Managing Director of Hudgell, said: “The Court of Appeal has delivered an eminently sensible decision that brings certainty to law firms up and down the country which have come to the aid of clients who needed solicitors to take over their cases.
“It is regrettable, to say the least, that defendants are returning to the bad old days of the ‘costs war’ and taking technical points in a bid to escape their liability for costs. The Court of Appeal has sent a strong message today that it does not like that approach.”
Law Society President Joe Egan said: “I am delighted the Law Society was able to throw its weight behind this important case. Today’s ruling will affect many thousands of people who, following the removal of legal aid for the bulk of personal injury claims, needed to rely on ‘no win no fee’ agreements to pursue their cases.
“Our contribution to the case has been to emphasise the pernicious impact of a loophole in the law which hit many vulnerable litigants.”
Nicholas Bacon QC of 4 New Square, who led the claimant’s appeal in the Court of Appeal, described the decision as “probably the most significant costs case post Jackson.
He said: “It brings to an end years of uncertainty over the assignment of solicitors’ retainers and legitimatises the transfer arrangements which were deployed in the case and thousands of others.
“It is a tremendous victory for the solicitors’ profession and indeed for those members of the Bar whose fees were caught up in the assignment arguments up and down the country.”
You can view the decision on the England and Wales Court of Appeal Decisions web site.