On appeal by the Claimant, the Court of Appeal has found that a claim involving a pre-1 April 2013 CFA agreement could be validly transferred to a new firm after 1 April 2013 and the success fee would remain recoverable.
The Claimant brought a claim for damages when a defective pavement caused her to trip over and sustain injury to her ligaments, whilst she was attending the Defendant hospital. The Claimant instructed Baker Rees Solicitors ("Baker Rees") to bring a claim on her behalf and she entered into a Conditional Fee Agreement, which provided for a success fee, with Baker Rees on 2 December 2011.
Some time in early 2013, Baker Rees decided that it was no-longer financially viable to continue their personal injury practice and so they wrote to the Claimant on 22 March 2013 advising that they were transferring her case to Neil Hudgell Solicitors. The Claimant was told that unless she advised otherwise, her case would be automatically transferred on 25 March 2013. The case was effectively sold-on, along with numerous others, via a Deed of Assignment.
On 31 March 2013, Neil Hudgell Solicitors contacted the Claimant to advise that they were now dealing with her claim and that they would act for her on the same terms as the CFA she had entered into with Baker Rees. On 17 May 2013, the Claimant signed a 'new' CFA Agreement dated 25 March 2013 ("the NH CFA") with Neil Hudgell in the event that the 'old' Baker Rees CFA Agreement ("the BR CFA") had failed to be validly assigned.
The NH CFA Agreement took the form of a CFA compliant with the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), which provided for zero success fee.
Shortly after, in late 2013 and prior to the claim litigating, the Claimant settled her claim for £4,150 in damages plus costs. The parties were unable to reach an agreement on the issue of costs and so Detailed Assessment Proceedings were commenced, with the matter going before DJ Besford.
Issues between the Parties
One of the main areas of dispute between the Parties related to the recoverability of the success fee under the BR CFA Agreement. During the period in which the Claimant's case was transferred, LASPO came into force. Of critical importance was s.44 of the Act which abolished the recoverability of success fees. However, there are transitional provisions under s.44(6) which allow for success fees to be recoverable if a CFA Agreement was entered into before 1 April 2013.
It was the Defendant's position that no costs at all were recoverable under the BR CFA and only the base/profit costs of Neil Hudgell could be recovered under the NH CFA. The Defendant was of the view that the BR CFA was terminated on 22 March 2013 or, in the alternative, the BR CFA could not have been assigned and was instead novated. A novated contract effectively created a new agreement and so the only costs the Claimant was entitled to recover was those from the date of the NH CFA.
The Claimant's position was that all the costs were recoverable because the BR CFA had been validly assigned. Furthermore, as the BR CFA was dated and signed after 1 April 2013, the transitional provisions of s44(6) applied, and therefore, the success fee was also properly recoverable.
Costs assessment (First Instance Judgment)
The key points of District Judge Besford's finding were as follows;
- The BR CFA had been terminated on 22 March 2013 'without good reason,' and so they were not entitled to payment under this contract. As a result of the contract being terminated, it could not have been transferred to Neil Hudgell Solicitors whether by assignment or novation and, therefore neither Firm were entitled to be paid; no costs were payable.
- If wrong, and the BR CFA was not terminated, then the Judge conceded it would have been validly assigned to Neil Hudgell, per the binding decision in Jenkins v. Young Bros Transport  EWHC 151 (QB). However, the Judge also concluded that by ratifying the NH CFA the Claimant had actually novated the contract and this resulted in a new contract being entered into, which in turn meant that no costs relating to Baker Rees were recoverable.
The Claimant appealed the decision that the BR CFA had been terminated. The Defendant cross-appealed the Judge's determination that the BR CFA had been validly assigned (had it not been terminated). Due to the wider context of the issues appealed, the Law Society also acted as an Intervenor regarding issues 2 and 3 below.
There were four issues on Appeal;
- Was the BR CFA terminated on 22 March 2013 when they sent the letter to Claimant?;
- If the BR CFA was not terminated, was it validly assigned (as opposed to novated?);
- If the BR CFA was not terminated and rather than being validly assigned the transfer took effect as a novation, did s.44 of LASPO take effect so as to include a CFA entered into before 1 April 2013 and novated after 1 April 2013; and
- If, in the alternative, the BR CFA was terminated, was the Claimant liable to pay Neil Hudgell Solicitors for the work done by Baker Rees under the NH CFA?
All three Lord Justices agreed that the BR CFA was not terminated. The Court considered that there could not be a unilateral termination of a CFA (as it was an entire agreement). The Judges concluded that the Claimants consent was necessary to effect a termination and as this had not happened, and indeed the Claimant had affirmed the contract, the BR CFA survived and remained in existence.
The Justices had differing views on whether the CFA was assigned or novated. Both Gloster LJ (giving the Leading Judgment) and Beatson LJ were of the firm view that the BR CFA had been novated and a new contract had been incepted. However, Davis LJ took a differing view and concluded that the BR CFA had been validly assigned. Regardless of the technicalities of the transfer, all three concluded that the success fee was still recoverable because the Claimant, Baker Rees and Neil Hudgell intended this to be the case.
Whether the CFA was assigned or novated, all were in agreement that the success fee under the BR CFA was recoverable and that the transitional provisions of LASPO took effect so as to include a CFA entered into before 1 April 2013 and novated after.
All three Justices allowed the Claimant's Appeal and dismissed the Defendant's Cross-Appeal.
What can we learn?
- The Court worked exceptionally hard to ensure the BR CFA was enforceable whether by assignment or a novation; dismissing the principles of 'black letter' law, instead giving consideration to the facts and context of the circumstances.
- The Court accepted that this resulted in a broad interpretation of s.44(6) but that a broad interpretation was necessary in today's business environment;
- Policy was clearly at the forefront of the decision with reference to the intervention of the Law Society which noted the wider impact that a decision in favour of the Defendant would have had. The Court was unimpressed with the 'sobeit' approach that the Defendant's case sought to project;
- The Court clearly gave consideration to the number of cases that fell into this category of litigation and were not comfortable in creating what was described as a third category of litigant who would lose the benefits of a pre-LASPO retainer and receive none of the post-LASPO advantages, had the Court found in favour of the Defendant.
The Court of Appeal appear to have squeezed a round peg into a square hole with this decision, but the economic factors and potential negative impact upon practitioners appears to have been an overwhelming factor. Many small and medium-sized firms would have been at significant risk having bought the personal injury work of other Practices.
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