Kerry Underwood

PRE-JACKSON CFA SUCCESS FEE ALWAYS RECOVERABLE – BUDANA CONSIDERED

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In Budana v The Leeds Teaching Hospitals NHS Trust and The Law Society (Intervener) [2017] EWHC Civ 1980

the Court of Appeal in a 42 page and long awaited judgment, has ruled that a success fee in a pre-Jackson Conditional Fee Agreement remains recoverable if the CFA is assigned or novated, whatever the circumstances.

The background to this decision is that the 13 year regime of recoverability of success fees and After-the-Event insurance premiums ended on 31 March 2013, as a result of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, itself implementing some of Lord Justice Jackson’s Reforms.

The transitional provisions meant that the success fee remained recoverable if the CFA was “entered into before [1 April 2013]” (Section 44 (6)) and that month saw lawyers do little else but sign Conditional Fee Agreements.

What was not clear, until this judgment, was the position when the pre-Jackson case continued, but there was a change of law firm on or after Jackson Day, that is 1 April 2013.

This could occur in a number of ways, including:

(i)         the client going to a new firm because the lawyer had moved there – the Jenkins scenario;

(ii)        the client changing firms, but not because the lawyer had moved;

(ii)        the original firm ceasing to do that type of work, either through choice or closing down;

(iv)      the structure of the firm changing, for example from a partnership to a limited liability   partnership, or limited company;

(v)       the nature of the firm changing, for example from a law firm to an Alternative Business Structure;

(vi)      the commercial purchase of claims and clients by one firm from another.

 

The only one of these situations in which the parties could be confident that there was a valid assignment was where the client had followed his or her solicitor to the new firm – the Jenkins scenario (i) above.

That followed the decision in

Jenkins v Young Bros Transport Ltd [2006] EWHC 151 (QB)

where the client had three consecutive law firms because the solicitor had moved from the original Firm 1 to Firm 2 and Firm 3.

In a controversial decision, often thought to be wrong, it was held in Jenkins that as assignment in such cases preserved the personal nature of the contract between solicitor and client, it formed an exception to the general rule that contracts for personal services could not be assigned.

The point in Jenkins was that by allowing assignment the court allowed the preservation of that personal relationship, which was what the rule against assignment was designed to protect.

The problem with the decision is that if there is a prohibition on assignment, then that is that and the fact that it would allow the client to instruct the same personal solicitor was irrelevant.

The traditional view has been that a contract for the provision of legal advice is a contract for personal services, although the Court of Appeal cast doubt on that here in the context of modern personal injury practice.

As we shall see later, the Court of Appeal, by a majority decision on that point, rejected the reasoning in Jenkins, while arriving at the same conclusion.

The minority judgement upheld the reasoning in Jenkins.

Novation

Lurking in the shadows of assignment has been the concept of novation , that is the creation of a new contract.

Assignment and novation have always been held to be mutually exclusive; if there was a new contract then the old one was not assigned, but was replaced by that new contract.

For what it is worth I have never begun to understand the case law on benefits and burdens,  which seems to me hopelessly mixed up, illogical and incomprehensible and reliant on circular arguments.

Although the Court of Appeal does not quite use those words in this judgment, that is the essence of it.

If there is a new party to a contract, that surely must a novation, whether or not the original contract is assigned as what can be more new than a new party?

The traditional view of the law is that one change of a semicolon in a contract amounts to a novation destroying the original contract, but a completely new party, or both parties, to the same contract was not a new contract at all, but simply an assignment.

It puts one in mind of the old joke, famously used by Trigger in Only Fools and Horses:

I have had this same broom for 20 years. It has had 18 new brushes and 16 new handles, but it is the same broom.”

 

Indeed the whole basis of the Jenkins exception was that in reality there was no new party, that is the solicitor and the client were the same, so in effect there was not really an assignment.

In a radical move the Court of Appeal has swept away, in the context of CFAs, the relevance of the distinction between assignment and novation.

 

The facts of this case are that the original firm decided to stop doing personal injury work on the ground that it would no longer be profitable following the Jackson Reform.

As the whole point of this case was that the original CFA had a recoverable success fee, one may doubt the legitimacy of that statement, something which may have influenced the original judge who held that the CFA had been terminated and thus was incapable of assignment.

This case came within scenario (vi) above, that is the commercial purchase of claims and clients by one firm from another, which is unquestionably the least attractive of all of the scenarios and something which very many people find distasteful.

The first instance judge held that if the retainer had not been terminated, then the CFA was capable of assignment, even though not within the Jenkins exception as maintaining a contract for personal skills.

 

There can be no doubt that as the Court of Appeal has allowed continuing recoverability in this least attractive of the scenarios, all lawful pre-Jackson CFAs, whether the subjects of transfer, assignment, novation, change of structure of the firm etc. have recoverability preserved.

 

The judgment contains a long, and to me frankly incomprehensible, debate about burdens and benefits, but the tone of this judgment is typified by the heading above paragraph 30

 

The economic environment in which personal injury litigation is conducted today

 

 and the opening line of paragraph 30:

 

 In my judgment, the issues which fall for determination in this case have to be approached with an appreciation of the economic environment in which personal injury litigation is conducted today.”

  

Paragraphs 30 to 36 set out, in less than flattering terms, the consequences of government policy in the personal injury field over the last 20 years.

 

Facts

 On the facts of the case the Court of Appeal held that the District Judge had erred in law in finding that the original contract had been terminated as it is trite law that a repudiatory breach by one party cannot terminate the contract.

Rather, the innocent party may elect between termination and affirmation of the contract, and unless and until the innocent party terminates the contract, it continues in existence.

Thus the Claimant’s appeal against the District Judge is finding on that point succeeded.

The importance of the decision is in the rejection of the Defendant’s cross appeal against that part of the District Judge’s decision holding that, in the absence of termination, a Conditional Fee Agreement could be assigned, even though outwith the Jenkins exception.

The court held that “there is no reason in principle why rights and benefits 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 …”

and that the question of assignability of rights and benefits is not limited to a situation where the client’s solicitor moves to a different firm – The Jenkins scenario – or where there are technical, effectively internal, assignments to a successor firm, as in

Plevin v Paragon Personal Finance Limited [2017] UKSC 23

It would include situations such as the present, where a third party firm buys an existing firm’s goodwill and work in progress.

The Court of Appeal also suggested that in the current personal injury environment a solicitor – client contract is not necessarily a personal contract:

“What the client wants is representation by a competent practitioner and not necessarily representation by a specific individual (whom he or she may probably never meet).”

(Paragraph 47)

The law

Nevertheless client consent is always needed (paragraph 48) and the Court of Appeal had to consider whether consent inevitably means novation.

The court then set out the facts and findings in Plevin, which involved an After-the-Event insurance premium and, while accepting that that decision was not binding authority to the effect that rights under a CFA were assignable, held that it supported three important propositions relevant to the determination of the present case:

(i)        that as a matter of law rights and benefits  under a CFA together with the benefits of any accompanying retainer are capable of assignment, notwithstanding the fact that a client may place trust and confidence in a solicitor;

(ii)        that an original CFA can remain in existence, as a contract valid as the date of creation, notwithstanding its transfer as between  successive firms of solicitors;

(ii)        that even if a client subsequently consents to such a transfer, as Mrs Plevin did, nonetheless     the client’s original CFA remains in existence as a contract valid as its original date.

 

The Court of Appeal then delivered, by a majority, a rejection of the logic of the Jenkins decision – see paragraphs 62 and 63.

The Court of Appeal held that the client here had entered into a new contract with the second set of solicitors on 10 April 2013, that is after Jackson Day.

It was a novation.

The Court of Appeal quoted to its own decision in

Essar Steel Limited v Argo Fund Limited [2006] EWCA Civ 241:

“In English law a distinguishing feature of novation from assignment is that the effect of novation is not to assign or transfer a right or liability but to extinguish the original contract and replace it with another.”

The Court of Appeal then said:

“70. However, in my judgment the fact that there was a new contract does not mean that, for the purposes of section 44(6) of LASPO, the success fee payable by the claimant to NH ,  [the new solicitors] as a result of the contractual arrangements, did not qualify as “a success fee payable by …. [the claimant] under a conditional fee agreement entered into before” 1 April 2013.”

Thus the Court of Appeal held that the transitional provisions in LASPO apply whether there is an assignment or novation to preserve recoverability provided always that the original CFA was entered into before 1 April 2013.

The court said that the modern approach to statutory interpretation takes into account the apparent policy of the legislation and that here was to preserve rights and expectations arising from the previous law.

That purpose would be defeated by “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 conduct of her claim case being transferred, for whatever reason, to a new firm of solicitors. Obviously, whether or not any relevant CFA under which the success fee was payable to a new firm could be characterised, as in the present case, as “payable under a conditional fee agreement entered into before” 1 April 2013, would depend on the precise terms of the relevant contractual arrangements entered into between the parties and whether the new firm was indeed intended to operate “under” the terms of the previous CFA. But where, as here, the parties expressly provide by their contractual arrangements that their vested rights and expectations, under the previous CFA entered into under the previous law, should be continued, I see no difficulty in construing section 44 to give effect to that intention. “  (Paragraph 74)

“As Mr Holland QC, on behalf of the Law Society, submitted, such a construction was necessary in order to achieve the intention expressed by Parliament: namely, a division between litigants who had instructed solicitors before LASPO came into force, whose rights and expectations would be preserved, and those who had done so post-LASPO, who would lose some of the advantages of the pre-LASPO regime but receive some mitigating benefits. The defendant’s argument would mean the worst of both worlds for the claimant: she would lose the pre-LASPO regime advantages but receive none of the mitigating benefits. This would place the claimant into a third category of litigant which Parliament had not intended to create. Indeed, whilst it is not necessary to decidethe point, the result suggested by the defendant may impede the constitutional right of access to the court for those in a similar position to the claimant”. (Paragraph 75).

Minority decision

Lord Justice Davis, concurred in the result, but for different reasons.

He held that the decision in Jenkins was correct and that there had been an assignment, and not a novation.

Nevertheless, had there been a novation, as the majority found, LJ Davis would have upheld recoverability for the reasons given by the majority, even though “any success fee”  would be payable  “under” that novated CFA which had been “entered into ” after 1 April 2013.

“Moreover, whilst that could give rise to harsh results – in this and other comparable cases – it could not necessarily be described as a wholly senseless interpretation: in that Parliament may, albeit with the risk of unintended casualties, have wanted the certainty of a bright line rule.”

LJ Davis then said that that would be too narrow an approach.

He also pointed out that any other result would deprive the Claimant of the pre-Jackson benefit of recoverability and also leave him or her without the post-Jackson benefits, presumably Qualified One-Way Costs Shifting, although the judge did not so specify.

 

Comment

A sensible, just, pragmatic, purposive decision that has adapted the common law to meet changing circumstances, which is the whole point and benefit of the common law.

As with the Supreme Court’s decision in Unison, the Court of Appeal has gone beyond what was necessary on the strict legal issues in the case to clarify what is now public policy.

It could have simply said that there was no termination and that there was a valid assignment.

It has gone much further and said that in this context it matters not what the technical legal position is – novation, assignment or something else.

The legitimate expectation of the client was that the success fee was recoverable.

It is as clear a warning as possible to insurance companies that morally bankrupt and meritless technical arguments will not be tolerated.

The government’s love-in with insurers is not shared by the courts.

Compare and contrast this decision with the fatuous and false statement this week by John Hayes MP, Minister of State, that

“Compensation claims continue to be paid quickly, fairly and easily in line with longstanding insurance practice.”

Nationalize the lot of them.

 

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Written by kerryunderwood

December 6, 2017 at 4:00 pm

Posted in Uncategorized

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