Common sense prevails in recent Court of Appeal decision

At the beginning of December, we received news that the transfer of a conditional fee agreement (CFA) from one law firm to another at the time of the Jackson reforms was valid and that a success fee can still be recovered from the defendant. 

In what has been described as the most important costs decision since the Jackson reforms were introduced, the long-awaited Court of Appeal decision in Budana v Leeds Teaching Hospital NHS Trust ruled in our favour.  

Through this site, we have led the way in transferring personal injury files from firms leaving the sector, and acted for the claimant in the test case that was leapfrogged to the Court of Appeal in the wake of several conflicting decisions in the lower courts. 

The case concerned a heavily pregnant Mrs Budana who was injured after she tripped on a defective pavement within the Leeds hospital premises. She instructed, Baker Rees, under a no win no fee (CFA) agreement, to pursue a claim for damages. However, they later advised her that they would not be continuing their personal injury practice, deeming such work to be no longer economically viable as a result of the then upcoming implementation of the Legal Aid Sentencing and Punishment of Offenders (LASPO) Bill. 

It was then that we agreed to continue Baker Rees’ cases and executed Deeds of Assignment with both the original law firm and with each of its clients, purporting to transfer both the benefits and the burdens of running those cases, including Mrs Budana’s claim through to conclusion. The deed with the client was signed after the implementation of LASPO but was retrospective, the master deed with the law firm having pre-dated the statutory changes brought in by LASPO.

Following transfer of the case, Mrs Budana’s claim was promptly settled for damages in December 2013 and court proceedings were commenced to recover costs. 

However, District Judge Besford held that the CFA was not validly assigned from Baker Rees to our firm, as the agreement had been terminated prior to the assignment when Baker Rees closed its personal injury practice. Thankfully, giving the lead judgment in the Court of Appeal, Lady Justice Gloster found that DJ Besford had erred in finding that the Baker Rees CFA had been terminated.

The key issue was whether the claimant was entitled to recover a success fee under a CFA entered into before 1 April 2013 – such recovery was banned for cases starting on or after that date.

Gloster LJ said: “There is no reason in principle why rights and benefits [her emphasis] 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.”

She ruled that, rather than an assignment, there had been a novation – a new contract – under which the client agreed to transfer the rights and obligations of Baker Rees to Hudgell and that the correct interpretation of section 44(6) of LASPO meant the original success fee payable under the Baker Rees CFA was still enforceable.

Gloster LJ said: “It is clear… that, objectively construed, the intention of the parties was that Hudgells should simply be substituted in Baker Rees’s place… under and subject to the same terms of the existing (and so far as the parties were concerned, at least) continuing retainer…

“[It would be] 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 the conduct of her claim being transferred, for whatever reason, to a new firm of solicitors.”

Lord Justice Beatson agreed, but Lord Justice Davis, though also allowing the appeal, found that there had been an assignment, rather than a novation. 

He said: “If the parties to an agreement expressly agree in it that one party may assign both the benefits and the obligations of performing the contract to another, then in my opinion there can be no legal objection to the efficacy of such an assignment.” 

He added: “An overall conclusion in favour of the defendant would appeal to no sense of the merits… It would mean that the defendant is absolved from paying those costs by virtue of adventitious technicality”.

The Law Society helpfully intervened in this appeal and told the court that possibly tens of thousands of claimants could be affected by the ruling and considered it perfectly lawful for a CFA to be assigned with the consent of the client. The court found that element of consent is crucial. 

The case will now return to the county court to consider the continuing dispute over the level of costs claimed by us. Watch this space.

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