The Court of Appeal has finally handed down judgment in the case of Budana v Leeds Teaching Hospital NHS Trust. The issue of the assignment of Conditional Fee Agreements (CFAs) has been rumbling on for a considerable period of time and practitioners were hoping that the Budana judgment would bring some much-needed clarity.
So, what is the all the fuss about? It concerns historic cases where CFAs were entered into before the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) on 1 April 2013. LASPO abolished the recoverability of CFA success fees and After the Event insurance premiums from the opposing party. If a case funded by a pre-LASPO CFA was transferred to a new firm of solicitors, there was inevitably a big attraction in assigning the CFA so the new firm could benefit from recovering the success fee. If they simply signed a new agreement, then they would not be able to charge the opposing party a success fee.
The issue has been made more crucial by the number of mergers, takeovers, and closures of firms operating in the PI market. In practice when a firm has closed their personal injury department, there was a massive task of assigning all over the CFA funded cases to the new firm. There is no doubt that the firms would have accounted for the recovery of success fees in the viability of purchasing the new work. Therefore, while the determination of this issue will only affect a finite number of cases, it will have an enormous financial impact on businesses conducting the personal injury claims.
Budana was initially heard in February 2016 by District Judge Besford at Kingston-Upon-Hull County Court. It concerns the assignment of a pre-LASPO CFA from a solicitors firm called Baker Rees who were closing their personal injury to department to another firm called Neil Hudgell. DJ Besford held that there was no valid assignment of the CFA between the firms, as Baker Rees had terminated the CFA when it wrote to the client telling them that they were closing down their personal injury department. The CFA was terminated at that point and there was nothing to assign.
DJ Besford went on to consider whether it was actually possible to assign a CFA in these circumstances. He found that he was bound by the High Court’s judgment in Jenkins v Young Bros Transport 2006, which held that it was possible to assign a CFA between firms. However, the facts of that case were quite different. In Jenkins, the client had followed the same fee earner as he moved around firms. It did not concern the mass sale of cases from one firm to another.
Both parties were granted permission to appeal and cross-appeal. Permission was given to leapfrog to the Court of Appeal. The appeal was heard in July 2017 and there has been significant uncertainty for practitioners awaiting the decision. That uncertainty has ended with the Court of Appeal released a detailed (42-page) judgment.The Court of Appeal held the following:-
- That the letter from Baker Rees to the client did not terminate the CFA. The letter or the actual transfer could not amount to an act of termination unless the Claimant treated the contract as terminated. Baker Rees could not in the circumstances of the case terminate the CFA unilaterally.
- That it is possible to assign the benefits and rights under a CFA to another firm. This possibility is not just limited to the circumstances in the Jenkins case where the client’s solicitor moves to a different firm. It includes situations where a third-party firm buys an existing firm’s goodwill and work in progress.
- That whilst the Claimant entered into a new contract with the Claimant and that was technically a novation, that the transitional provisions of LASPO did not prevent the recoverability of a success fee as this was the clear expectation of the parties (although Lord Justice Davis disagreed on this point saying he felt the contract was validly assigned).
The Claimant’s appeal was allowed in full and the Defendant’s cross-appeal was dismissed.
The judgment is well reasoned. It provides clarity and certainty for practitioners in this area. The nod to Supreme Court decision in Plevin v Paragon Personal Finance Limited 2017 will hopefully deter the Defendant from pursuing any further appeal.