ASSIGNMENT OF CONDITIONAL FEE AGREEMENTS: A DECISION NOT TO BE RELIED UPON
In Jones v Spire Healthcare Ltd, Liverpool County Court, 11 May 2016 – case no. A13YJ811
a Circuit Judge, allowing an appeal from a District Judge, held that an insolvent firm of solicitors can validly assign its entitlement and responsibility under a Conditional Fee Agreement with a client to another firm of solicitors.
If it could not do so then the agreement would be a novation, that is a new agreement, and the costs of the insolvent firm would be unrecoverable.
If no new compliant agreement was entered into following a statutory change in relation to technical requirements, as happened in April 2013 in relation to conditional fee agreements, then the agreement would not be enforceable by the new firm and so no costs at all could be recovered from the losing party.
This would be to the disadvantage of any creditor in the administration and would represent a windfall to a losing defendant.
The Circuit Judge analyses the law in relation to Conditional Fee Agreements and in relation to assignment in considerable detail.
The benefit of a contract, other than one which involves personal skill and confidence dependent upon a particular individual discharging obligations under it, can be assigned, whereas the burden cannot, subject to certain exceptions.
One of those exceptions is where the benefits and burdens are inextricably linked, for example where entitlement to the right or benefit is dependent upon, or conditional upon, the discharge of certain responsibilities.
Here the court analysed at some length the decision of the High Court in
Jenkins v Young Brothers Transport Ltd  EWHC 151
and followed it.
Here the court held that, as in Jenkins, the benefits and burdens were inextricably linked, thus allowing the burden to be assigned.
The court said:-
“Rules restricting burden assignment were clearly devised to protect the non-participating counterparty. This is clear from the Tolhurst case [Tolhurst v Associated Portland Cement Manufactures  2 KB 660]. 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.”
I must admit to an almost complete failure to understand the law on assignment and the logic of the law. Surely every contract involves a benefit and a burden, as otherwise there is no consideration and therefore no contract. Surely also one party’s burden is another party’s benefit. The benefit to the client is getting the work done and the burden is paying the fee. The benefit to the solicitor is earning the fee and the burden is doing the work. Surely also the benefit and burden must always be inextricably linked.
Leaving that aside in my view practitioners should be very wary of relying on this judgment in the sense of assuming that Conditional Fee Agreements can be validly assigned.
First of all a contract for the provision of legal services is one which involves personal skill and confidence dependent upon a particular individual discharging obligations under it and therefore the starting point is that such a contract can never be assigned.
The judge here worked on the basis that that was no longer the case in personal injury work –
“It is axiomatic that case handling these days is conducted at a distance, and that it would be very difficult to identify those cases where a particular client had been insistent on the continuity of a specific fee earner.”
Axiomatic means: “self-evident, indisputably true”. (Shorter Oxford Dictionary.
That statement by the judge is just plain wrong and is itself sufficient grounds to overturn the decision as it is central to his reasoning. It is putting the cart before the horse – just because firms like Barnetts conduct themselves in this way- and go bust- does not mean that all firms do.
The fact that work which is clearly personal in nature is being done in an impersonal, and generally poor quality way, by some solicitors does not alter the law of assignment.
What the judge is in effect saying is that there is a law against assignment of work which should be undertaken personally but if you don’t undertake it personally then you can avoid the law against assignment of such contracts.
That does not make sense.
The Judge may also have cared to look at why Barnetts went bust – they were the paradigm of a pile it high sell it cheap firm who did indeed do work at a distance. Does the Judge wish to encourage that?
Many commentators, including me, think that the decision in Jenkins is wrong. If there is a law preventing assignment of contracts involving personal skill and confidence then the fact that assignment may achieve that objective, as in the Jenkins case, does not mean that the contract is in fact capable of assignment.
It can be argued that the law against assignment is a common law principle and that the whole point of common law is that it evolves and that therefore the public policy reasons for not allowing assignment in contracts of a personal nature were precisely the public policy reasons which allowed the Jenkins exception.
Even if all of that is true that does not justify the decision in this case.
In any event another court could distinguish this case on the ground that the original firm of solicitors was insolvent and therefore could not continue to do the work. The contract was frustrated.
A different court may take a very different view in relation to a firm which is solvent but simply chooses to abandon its responsibilities to its personal injury clients by selling them on.
Neither did the court here consider the issue of referral fees. Such fees are illegal in personal injury work and invalidate the retainer.
I do not know the arrangements in this case but if a firm of solicitors buys out the personal injury work from another firm, that is the new firm obtains personal injury cases by paying a fee to the old firm, then on the face of it that is an illegal referral fee, which whilst attracting no criminal sanction, invalidates the retainer.
A High Court or Court of Appeal decision on the assignment of Conditional Fee Agreements would be welcome.
We may get that relatively soon as the case of Budana v Leeds Teaching Hospitals NHS Trust has been leapfrogged to the Court of Appeal but no date has yet been set for the hearing.
In the meantime I probably need to read a book on the subject, or perhaps write one.