The end of the road

The judgment of the Court of Appeal in the case of Budana v The Leeds Teaching Hospitals NHS Trust [2017] EWCA Civ 1980 was handed down on Tuesday of this week and may represent the last pronouncement by the courts on the principles applicable to the transfer of instructions by a client from one firm of solicitors to another. That does not however mean the end of the assignment arguments in costs proceedings.

Although the decision of the Court of Appeal settles a number of points of principle, they will have to be applied in numerous different factual contexts where solicitors will have drafted all sorts of documents in the last few years, in an attempt to transfer retainers to a new firm, and with unforeseen and unfortunate consequences, which will be thrashed out in satellite litigation to come.

The judgment itself is not the easiest to read and has I think already been misunderstood, it being suggested that it is now possible to assign a CFA. For reasons I will explore below that is not the case.

Although the judgment of Davis LJ suggests that it is possible to assign a CFA and that the case of Jenkins v Young Brothers [2006] 1 WLR 3189 remains good law, his judgment is a minority dissenting judgment and the position of the majority of the Court of Appeal (Gloster and Beatson LJJ) is that it is not possible to assign a contract when a new party is substituted to it: this is the doctrine of novation.

Gloster LJ explained in clear terms why the Jenkins case was wrongly decided.  It is possible to assign rights and benefits under a CFA including the entitlement to be paid, but that has always been the case in the majority of contracts save for narrow categories of personal contracts or where a contract expressly forbids assignment.

At the most basic level it remains the case, that a client is not a commodity to be bought and sold: the client’s consent to a change of solicitor requiring a change of retainer is required, and the addition of this element of consent, is one reason that removes the possibility of an assignment

The Court of Appeal also contemplated the possibility that a solicitor’s retainer is not a personal contract, or may not be a personal contract, particularly if it is a bulk or impersonal contract such as  a low value personal injury case. That suggestion is surprising: a CFA will contain mutual obligations on both the client and the solicitor which might render it a personal contract.

For instance, I wonder how many solicitors would regard with equanimity the prospect of a client purportedly assigning the contract to his friend Joe Bloggs, with the intriguing prospect of Joe Bloggs giving evidence in the client’s place in court or turning up to be medically examined in the client’s place.

These are peripheral points however.

The real significance of the judgment can be found in the decisions of the majority on (i) how unfortunately worded correspondence by a solicitor pulling out of the personal injury market will in many instances not serve to terminate a CFA (ii) how despite a novation rather than an assignment taking place accrued contractual rights to payment in respect of an earlier CFA will not necessarily be discharged and (iii) also how the transitional provisions flowing from LASPO 2012 fall to be interpreted.

Dealing with the first point the judgment of Gloster LJ records her decision on what the legal effect is of a letter which might be read as evincing a determination by a solicitor not to perform his retainer:

37. I can deal with this issue shortly since in my judgment it is clear that the BR CFA was not terminated by BR’s conduct, and that the judge erred in law in reaching the contrary conclusion.

38. As the claimant submitted, neither the 22 March letter nor any (purported or actual) transfer of the BR CFA could amount to a termination of the contract without the claimant having elected to treat the contract as terminated. It is trite law that a repudiatory breach by one party cannot unilaterally terminate the contract. Instead, the innocent party may elect between termination and affirmation of the contract. Unless and until the innocent party terminates the contract, it subsists. This basic proposition of contract law has been recently reaffirmed in Société Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 AC 523.

39. Accordingly, in my judgment, the BR CFA undoubtedly subsisted after the 22 March 2013 letter, the Master Deed and the second deed – even assuming (without deciding) that these individually or collectively amounted to a repudiatory breach of contract. Even if BR had indeed wished to end the contract, or their obligations thereunder, they could not, in the particular circumstances of the case, do so unilaterally.

40. Moreover, in my judgment the claimant did not terminate the contract but instead affirmed it by the second deed and her conduct more generally. On the instant facts, which are not in dispute, the terms of the documentation clearly show that the claimant did not elect to terminate her contract with BR, but instead decided to preserve and, to use a neutral word, transfer it. Of course, that per se is not determinative of whether that transfer must be characterised as a novation, which would involve a discharge of the original contract. But, on these facts, it is sufficient to determine that the claimant did not terminate the contract in response to such repudiatory breach, if any, as there might have been by BR.

41. The BR CFA therefore survived and BR remained entitled to payment, if it fulfilled its entire obligations under the contract. The defendant (rightly) did not submit that, even if the contract was affirmed and was fully performed, the breach would itself amount to a failure to fulfil BR’s entire obligations under the contract.

She went on to deal with (ii) how the substitution of a party will create a new contract and what happens to the rights of a solicitor to be paid under his CFA when he is no longer acting on behalf of the client.

65. In my judgment, there can be little doubt that, on 10 April 2013 the claimant entered into a new contract with NH (and probably also BR) pursuant to the terms of the second deed and the letter of instruction. (I assume, without deciding, that prior to that date the claimant was not contractually committed to being represented by NH and that, accordingly, no contract as between the claimant and NH came into existence before the critical date of 1 April 2013). Under the terms of the second deed, by which she ratified the Master Deed, the claimant agreed to the transfer of the rights and obligations of BR under the BR CFA to NH, on the express terms inter alia that:

i) the BR CFA remained “binding and enforceable” as between the claimant and NH;

ii) the only effect of the second deed was that all the rights and liabilities, benefits and burdens created by the BR CFA were assigned to NH, so that:

a) all benefits including all accrued rights to cost debts contingent “upon the happening of some future event”, previously held by BR, were transferred to NH;

b) likewise, all obligations previously borne by BR under the BR CFA were transferred to NH, on the basis that BR was discharged from all obligations thereunder as if the obligations had always been borne by NH;

c) NH would continue with the conduct of the claimant’s claim and supply legal services pursuant to the BR CFA, on the basis that the claimant would continue to provide instructions as required by the BR CFA; and

iii) the transfer would take effect retrospectively from 22 March 2013.

66. That contract was, in accordance with the authorities on novation to which I have referred above and by which this court is bound, a new contract as between all three parties, involving, as it did, the discharge of BR from all obligations under the BR CFA and the consent of the claimant to NH assuming such obligations. As was accepted by both counsel for the Law Society and for the appellant, there could have been no transfer of the retainer without the express consent of the claimant; and, on the authorities by which this court is bound, that gives rise to a new contract.

Earlier in the judgment she considered the effect of the recent decision of the Supreme Court in Plevin Paragon Personal Finance Limited [2017] UKSC 23, [2017] 1 WLR 1249:

51. Although neither party suggested that Plevin was a binding authority to the effect that rights under a CFA were assignable, the decision in my view at least supports 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 her solicitor;

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

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

Thus except in insolvency situations, or where a solicitor has ceased to exist, any accrued rights to be paid will endure: the question as to whether they remain with the original solicitor or whether they are permissibly assigned as “rights and benefits” to the second solicitor, perhaps does not matter as far as the paying party’s liability is concerned.

The third issue involved consideration of whether the transitional provisions of LASPO 2012 had to be interpreted purposively, in order to read that if the claimant entered into any CFA, before 1st April 2013 rather than the particular CFA in respect of which she sought costs, this had the effect of ensuring that the costs claim remained subject to the “old law” as far as recoverability was concerned, and in terms of the formality requirements for a conditional fee agreement to be enforceable. The Court of Appeal had no difficulty in deciding that it did.

71. It is clear, from the expressly stated terms in the Master Deed and the second deed, that, objectively construed, the intention of the parties was that NH should simply be substituted in BR’s place, as solicitors acting in connection with the claimant’s claim, under and subject to the same terms of the existing (and so far as the parties were concerned, at least) continuing retainer – i.e. the BR CFA. That CFA was intended to remain in force as an operative contractual instrument as between NH and the claimant, and pursuant to which, if the case was won or settled, it was intended that NH should be able to enforce the previously accrued, and accruing, rights to conditional fees, which had indeed been assigned to it by BR. An analogy could be drawn with the effects of a novation in the type of syndicated loan situation exemplified in Essar Steel, where one participating syndicate member transfers its obligations to a third party. Whatever the technicalities of novation as a concept, the original syndicated loan agreement remains as a continuing operating contractual instrument between the borrower and all parties.

72. In those circumstances, the fact that, technically, there may have been a novation of the BR CFA after 1 April 2013 does not predicate that the success fee payable by the claimant to NH could not qualify as “a success fee payable by …. [the claimant] under a conditional fee agreement entered into before” 1 April 2013. The clear expectation of both parties, as evidenced by their agreement and stated intentions, as set out in the second deed and the surrounding correspondence, was that, in relation to the claimant’s claim, their contractual relations would, as previously in relation to BR, be governed by the continuing terms of the BR CFA.

73. Accordingly I accept the claimant’s submissions in relation to the construction of section 44 of LASPO. It is clear that the modern approach to statutory interpretation takes account of the apparent policy of that legislation: Regina (Quintavalle) v Secretary Of State [2003] AC 687 at [7]; and Barclays Mercantile v Mawson [2005] 1 AC 684 at [28]. Moreover, the policy of LASPO is also clear. In Plevin Lord Sumption, giving judgment for the majority, stated at [21] that:

“The purpose of the transitional provisions of LASPO, in relation to both success fees and ATE premiums, is to preserve vested rights and expectations arising from the previous law. That purpose would be defeated by a rigid distinction between different stages of the same litigation.”

74. Similarly, in my judgment, 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.

75. 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 decide the 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.

I do not anticipate that this decision will be appealed: the Defendant effectively won on the assignment point, but lost on the transitional provision point, and given the tenor of the Plevin judgment where the Supreme Court considered the transitional provisions in very similar terms to those adopted by the majority of the Court of Appeal in this case, the prospects of the Supreme Court both reversing themselves and the Court of Appeal must be remote.

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