CFA unenforceable following “assignment” between firms

cfa assignment

CFA rendered unenforceable due to its failure to comply with the Conditional Fee Agreements Order 2013 following assignment

Denise Jones v Spire Healthcare Limited (Liverpool CC)

Full Judgment

Ms Jones instructed Barnetts Solicitors in relation to a personal injury claim following an accident at work. She entered into a Conditional Fee Agreement (CFA) with the firm in February 2012. The CFA recorded that the person primarily responsible for the claim would be John Killen, a partner in the firm, although it was envisaged that other fee earners may also be involved. In fact, the majority of work was undertaken at Barnetts by Christopher Eccles.

Barnetts became insolvent and on 21 January 2014 a document entitled “Deed of Assignment” was executed between their administrators and SGI Legal LLP which sought to assign (inter alia) the benefits and obligations of 228 retainers between Barnetts and various clients, including Ms Jones, to SGI Legal LLP.

On the same day SGI Legal LLP wrote to Ms Jones explaining that her claim had been transferred to them and that they were prepared to act for her on the basis of the CFA that she had already entered with Barnetts. However, it was entirely a matter for her as to whether or not she wished to instruct them. This letter was written by a fee earner at SGI Legal LLP, June Harrison, who therein invited Ms Jones, in the event of any queries, to contact either her, or a named Client Relationship Partner. No reference was made within the letter of the fact that fee earners from Barnetts, including Christopher Eccles, were transferring to SGI Legal LLP.

In a phone call to SGI Legal the following week Ms Jones expressed shock at the position, but went on to confirm that she would complete the appropriate documentation to allow SGI Legal LLP to proceed with her representation. The Court concluded that Ms Jones was “..probably unaware of Mr Eccles’ transfer, or at least was uninterested as to whether her claim was to be handled at SGI Legal LLP by him, or by another competent fee earner“.

On 27 January 2014 the Claimant executed another “Deed of Assignment” whereby she sought to assign both the benefit and obligations of her retainer with Barnetts, to SGI Legal LLP.

The substantive claim proceeded and was ultimately settled on 3 October 2014 by the acceptance of a Part 36 offer by the Claimant.

The Defendant contended that the Claimant was not entitled to any costs on the basis that:

a) The purported assignment of the CFA from Barnetts to SGI Legal LLP was not valid. Notwithstanding that the documents purporting to transfer the CFA to SGI Legal LLP were referred to as assignments, they in fact represented a novation. Effectively SGI Legal LLP had thereby entered a new agreement with Ms Jones, based upon the terms of the original CFA between her and Barnetts.

b) Whilst the CFA with Barnetts was valid at the time it was entered, the effect of subsequent changes to the rules meant that the CFA, as re-entered by way of such novation with SGI Legal LLP, was unenforceable;

c) There were no costs payable to Barnetts under the terms of the CFA either because:-

i. Barnetts did not “win” the case within the meaning of the CFA (because SGI Legal LLP did);

ii. When the case was “won” Barnetts were in liquidation and therefore were not in existence to receive any costs under the original CFA that the paying party contends remained with them.

The Claimant relied upon an exception to the general rule (that a contract involving personal skill or qualifications is incapable of assignment) which it said applies following the judgment of Rafferty J (as she then was) in the case of Jenkins v Young Bros Transport Limited (2006) 1 WLR 3189. In that case Rafferty J had found that the benefit (the right to be paid in a successful case) and the burden (the obligation upon the solicitor to ensure success of the claim to their best of their ability) of a CFA were inextricably linked and that “upon the facts of [that] case” both the benefit and the burden of the CFA could be assigned as an exception to the general rule. An important feature in Jenkins was the close relationship between solicitor and client and the trust and confidence that they enjoyed.

The Defendant submitted that the decision in Jenkins was wrong, pointing to the White Book 2015 Costs and Funding supplement…

“… the weight of that authority (Jenkins) is open to question, particularly since Rafferty J expressly stated that she was not laying down any issue of general principle, but was merely deciding the case on its particular facts, but also because it is open to argument whether the analysis of the principle of conditional benefit and burden was properly analysed in that case, particularly in light of the Court of Appeal’s comments in Davies v Jones (2009) EWCA Civ 1164 and as to whether all issues in relation to the law of assignment were fully raised or argued.”

District Judge Jenkinson did not consider that “Ms Jones’ decision to seek to assign the CFA to SGI Legal LLP was motivated in any way by particular trust and confidence in a particular fee earner”. On that basis he found the case distinguishable from Jenkins and concluded that “..the existing well established common law applies … assignment is not possible.”

He went on to conclude that:

“..notwithstanding the description of the relevant deeds as assignments, and indeed the intention of the parties so to proceed, the court must look at the reality of what those deeds have achieved regardless of how they were entitled (Street v Mountford [1985] UKHL) and the effect is that the result in a novation, i.e. a new contract between Ms Jones and SGI Legal LLP on the same terms as the former contract (the CFA) between Ms Jones and Barnetts.”

This gave rise to a difficulty resulting from a change in the rules in April 2013…

At para 21…

“..whilst the terms of the conditional fee agreement were perfectly acceptable when it was originally entered with Barnetts, the same CFA entered at the date of the novation would fall foul of Section 58 (4B) (d) of the Courts and Legal Services Act 1990 (as amended) in that, contrary to the Conditional Fee Agreements Order 2013 the CFA does not spell out that (in the circumstances of this case) the success fee should not exceed 25% of damages for pain, suffering and loss of amenity and past pecuniary loss.”

In fact the CFA set the success fee at 100%.

DJ Jenkinson rejected the Claimant’s submissions that:

a) The CFA needs to be read as a whole. In particular, the references in bold print therein to the Claimant’s solicitors “not taking a penny” would clearly prevail in the event that they sought to claim any success fee from Ms Jones, let alone one in excess of 25%;

b) In those circumstances, the court should effectively take the proverbial blue pencil to the CFA, and delete the reference to success fee, the effect of which would be to leave a valid retainer between Ms Jones and SGI Legal LLP, absent the right to recover a success fee.

On grounds that…

“..the … 1990 [AJA] Act, as supplemented by the 2013 Order, are clearly intended, in this regard, to facilitate the protection of the consumer, i.e. Ms Jones. Parliament envisaged that Ms Jones should have the benefit of an agreement which makes it clear on the face of it that any success fee is capped as provided for in the 2013 Order. The consumer should not be expected to finely construe the conditional fee agreement through the eyes of a lawyer, and to assume that ultimate and possibly judicial interpretation of apparently conflicting clauses within that agreement would be interpreted so as to limit the success fee to 25%. The uncertainty arises from the fact that the original solicitors, Barnetts, have apparently taken the Law Society model CFA as their starting point, and amended it so as to incorporate an intention not to take any of the Claimant’s damages. However they have not deleted clauses therein which clearly otherwise would give rise to scope for deduction. In summary, the Claimant consumer is faced with the CFA that is at best equivocal, but with scope for the solicitors to claim a deduction from her damages that may exceed the statutory 25% cap in place at the time of the novation (and hence the entering of that CFA) without the benefit of that agreement clearly spelling out the statutory limitation to her.”

The decision has gone to appeal.