The Assignment of Conditional Fee Agreements, a Need for Authority

Issues regarding the validity of the assignment of conditional fee agreements (CFAs) have become more prevalent in the post-Jackson landscape because agreements need to comply with regulations as part of the changes made by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Under these regulations a novation created on the pre-Jackson model would result in the purchasing firm being unable to recover success fees agreed under the original contract. Given the wide ranging consequences of the validity of such assignments there has been a desperate for guidance from the Court  

These issues arose in the case of Jones v. Spire Healthcare Limited (2016) Liverpool County Court (Jones) where, at first instance, District Judge Jenkinson followed the usual position that personal contracts could not be validly assigned, and distinguished the case of Jenkins v Young Brothers Transport Ltd [2006] EWHC 151 (Jenkins) in which it had been ruled that both the benefit and the burden of a conditional fee agreement could be assigned as an exception to the general rule. Jenkins, he decided, had been made on a specific set of facts (a long standing relationship of trust between the case handler who had moved firms and the client) which were absent in the case before him. District Judge Jenkinson therefore determined that a novation had taken place on the terms of the original CFA, which was not enforceable as it did not fulfil the requirements under LASPO and the linked regulations. District Judge Jenkinson did however allow the costs prior to the assignment on the basis that these had been assigned as a benefit under the previous agreement.  This decision was the subject of an appeal challenging that there was no valid assignment of the CFA, and a cross-appeal challenging the finding of the previous costs being assigned as a benefit. Judgment upon the appeals was handed down on 11th May 2016 by His Honour Judge Wood QC.

On appeal the issues were:

1)       Whether the District Judge was wrong to distinguish Jenkins as it was of general applicability;

2)       Whether the benefits and burdens of the CFA were inextricably linked and therefore whether both could be assigned; and

3)       Whether the benefit of the CFA existed at the time of the assignment (cross-appeal).

HHJ Wood QC ruled that the Jenkins case was of general application and not limited as the District Judge had found at first instance; an assignment of a CFA could take place in the absence of the ‘personal trust and confidence’ factors, the only requirement was the inextricable link between the benefit and the burden. At paragraph 73 he assessed the judgment of Rafferty J, as she then was, in Jenkins:

The judge made it plain that the benefit of being paid was conditional upon and inextricably linked to the burden of performance under the conditional fee agreement so as to enable an assignment to take place ... It was open to the judge to conclude that the personal trust and confidence was a necessary element where the contract was a personal one, as opposed to a compelling context, and without it the assignment would not be valid. She did not go so far as to say that, and in my judgment the ratio of her decision was not so qualified.

HHJ Wood QC  therefore allowed the appeal; the benefit and burden were inextricably linked as one was conditional on the other and there was no need for a preliminary finding of personal trust and confidence.

HHJ Wood QC  then went on to consider the cross-appeal and again did so based upon what he saw as general legal principles and not by qualifying his judgment with the facts of the case. He did this as he was aware his decision would likely be used as guidance in County Courts and further the prospects of subsequent appeals (paragraph 112 of the Judgment in Jones).

The conflicting arguments concerned whether the benefit under the CFA, at the time of assignment, was a present “chose in action” or a “future expectancy”. The Defendant contended that the benefit only came into existence once the case had been won and therefore, at the time of the assignment, there was no enforceable right to assign. The Claimant submitted that the CFA contained existing rights which only became enforceable upon condition.  

HHJ Wood QC accepted that a CFA did not fit perfectly within either of the extremes but at paragraph 118 of his judgment stated:

... it seems to me that there would be an attributable value to any existing CFA agreement which was capable of being assigned from one solicitor to another. There will be cases where ultimate recovery amounts to a near certainty (claims for injuries to passengers for example, subject of course to issues of medical causation etc) and other cases where liability is less certain. These are matters which are likely to be reflected in the consideration paid for any assignment of a conditional fee agreement.

He therefore ruled that a CFA was a contingent debt, as the amount to be paid and when it had to be paid were already determined at the time of the assignment and as such it was a “chose in action” capable of such a transfer. Accordingly he dismissed the cross-appeal.

This judgment is unlikely to be the last airing of this issue due to its potential wide ranging impact within the insurance industry. Furthermore, as a decision of the County Court it does not create a binding precedent.

Interestingly, between the above appeal being heard and judgment being handed down, another case, Budana v Leeds Teaching Hospitals NHS Trust, was heard at  the County Court at Kingston Upon Hull where the CFA was deemed not to have been validly assigned, as the agreement had been terminated prior to the assignment when the original firm closed their personal injury practice. It has been reported that permission to appeal and cross-appeal was granted with the possibility of the leap-frog procedure being activated. A binding authority would be welcome in this area to give definitive guidance to firms who wish to purchase agreements, or have already done so, given the potential consequences of invalid assignment.

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