Budana: Court of Appeal rules that CFAs can be assigned

Out-Law Legal Update | 19 Dec 2017 | 10:37 am | 3 min. read

LEGAL UPDATE: The Court of Appeal has ruled that a CFA can be assigned to another firm of solicitors. The case between Alina Budana and The Leeds Teaching Hospital Trust is the latest in a series of cases considering the assignability of CFAs which became significant following the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) on 1 April 2013. This restricts the ability to recover success fees under CFA's entered into after this date. The Court of Appeal ruled that the CFA in question fell within the transitional provisions of LASPO, as a "conditional fee agreement entered into before" LASPO came into force, notwithstanding its subsequent transfer.

Alina Budana tripped and fell on the hospital pavement whilst attending an appointment. She instructed Baker Rees to act for her in 2011 in a personal injury claim against The Leeds Teaching Hospital Trust. Budana and Baker Rees had entered into a conditional fee agreement (CFA) with a 100% success fee.

In March 2013 Baker Rees left the personal injury market and assigned a number of its cases, including any associated CFAs, to Neil Hudgell Limited. Budana entered into a second CFA with Neil Hudgell which, under LASPO, had no success fee and was expressed to be effective only in the event that the original CFA failed. The hospital settled with Budana then tried to claim that the original CFA had not been validly assigned to Neil Hudgell, meaning the success fee was not recoverable.

At the first hearing, the court ruled that the original CFA had been terminated before it was assigned to Neil Hudgell. Baker Rees had written to Budana three days before it had assigned her case to Neil Hudgell stating that it had 'decided to stop handling personal injury litigation'. The judge ruled that this evidenced that Baker Rees had terminated its retainer with Budana, and on this basis there was no CFA to transfer to Neil Hudgell.

However, the judge also said that if there had been a CFA to transfer he would have been bound to follow the decision in Jenkins v Young Brothers Transport Ltd [2006] EWHC 151 as authority for the proposition that a contract involving personal skills is assignable, despite there being no previous personal relationship between Budana and Neil Hudgell.

The question of whether or not a CFA can be validly assigned has been a moot point since Jenkins was decided in 2006 following a number of conflicting first instance decisions. In the lower courts some judges have distinguished the Jenkins decision, however in the most recent cases decided on this issue including Jones v Spire Healthcare Limited [2016] 3 Costs L.O. 487 and Griffith v Paragon Personal Finance Limited (unreported) the lowers courts have felt bound to follow Jenkins and arguably attempted to expand its scope.

The issue has now been determined by the Court of Appeal which unanimously allowed the appeal; Lady Justice Gloster commented 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...I do not consider that the question of assignability of rights and benefits is limited to a situation where the client's solicitor moves to a different firm (as in Jenkins), or one where there are a series of technical assignments to successor firms (as in Plevin [v Paragon Personal Finance Limited])…It would include situations such as the present where a third party firm buys an existing firm's goodwill and work in progress."

On the facts of this case, the judges differed in their views as to whether the original CFA had been assigned, or if a new contract had been entered into by way of novation; but they agreed that in either case the original pre LASPO success fee was recoverable. The court found that the parties had clear expectations and intended that the original CFA would continue and this should not be defeated by legal technicality.

The Court of Appeal further noted that a CFA could not be assigned without the consent of the individual clients.

In pre-pack transactions, it is not possible to obtain client consent contemporaneous with the assignment of the CFA as the viability of the transaction and the value of the asset being assigned needs to be protected. However, the nuance of a pre-pack sale was not expressly considered by the Court.  It is hoped, in keeping with the judgment in this case, that assignment of a CFA is possible in order to protect the intention of the parties when they entered into the CFA and the failure to obtain advance consent will not prejudice that.   It should also be noted that the Solicitors Regulation Authority accept that client consent to the transfer of their file generally, in advance of a pre-pack, is not feasible, yet require written notice to be issued to all affected clients promptly after completion.

This ruling will provide welcome clarity to the personal injury market. The 'no win no fee' market has dramatically changed in recent years, and a number of firms have consolidated. Those which acquired bulk PI portfolios will be relieved that the assignment of pre-LASPO CFAs to them is valid. Those advising any firms struggling financially in this sector will be pleased that the effect of the judgment will be to preserve value in the firm's work in progress.