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Assignment, CFAs and the Perils of Novation

One of the more predictable side-effects of the Jackson reforms, and the all-out assault those reforms launched on the representatives of the relatively impecunious, was the consolidation of the personal injury market.

In a great many cases the firms that have survived and (until now) thrived in that market place have been busily merging with, and acquiring, their less successful brethren. In the main, the vehicle employed for moving each case so acquired was by assignment of the Conditional Fee Agreement (CFA) to the new firm, from the old.

However, with the specifics of transferring said cases coming under increased scrutiny one might be forgiven for asking what difficulties lie ahead when recovering costs. Here, PIC’s Senior Costs Consultant Andy Moroz talks about some of the complications associated with assignment, CFAs and novation, and the potential next steps in delivering clarity for law firms across the country.

There has long been debate within the market place and amongst legal academics as to whether or not issues would arise when it came to the assignment of a Conditional Fee Agreement (CFA) from old firm to new; but, despite such concern, practitioners (and acquisitive firms) seemed to draw comfort from Jenkins –v- Young Brothers Transport, which appeared to supply an exception to the general rule that a contract involving personal skill or qualifications is incapable of assignment, with that exception being applied in that particular case to a CFA.

This is despite Rafferty J making it clear that her decision in Jenkins was fact specific and that, in a great many cases, assignments made following acquisitions of either a solicitors’ practice or its work in progress (WIP) are rarely on all fours with Jenkins (in Jenkins, for example, the client followed an individual solicitor in whose skills the client placed a particular trust through several changes in employment, with the CFA being assigned upon each change in employment).

However, even legal academics have been known to voice concern as to whether or not Jenkins itself was correctly decided – a debate reinforced by a fairly heavy hint from the Court of Appeal in Davies –v- Jones [2009] EWCA Civ 1164.

The fears of those who were concerned that not all CFA assignments fall within the Jenkins exception now appear (at first instance, at least) to have been realised by the decision in Denise Jones –v- Spire Healthcare Limited.

In the case of Jones, a well-known firm in the Liverpool area purchased the WIP of several large firms who had run into financial difficulties. In respect of at least some of the cases so transferred existing CFAs were assigned.

District Judge Jenkinson found that these assignments had not been motivated in any way by particular trust and confidence in a particular fee earner, and therefore the purported assignment fell outside the exception established in Jenkins, meaning that such assignment was not possible and that what had actually occurred was a novation.

Moreover, as that novation had occurred after 1 April 2013, and was contrary to the Conditional Fee Agreements Order 2013 for want of spelling out that the success fee would not exceed 25% of damages for pain, suffering, loss of amenity and past pecuniary loss, no costs were recoverable under the CFA from the date of novation.

Arguably, it could have been even worse for the receiving party. At least on this occasion costs up to the date of novation were found to be recoverable under the terms of the CFA. The argument that the original CFA was frustrated by the inability of the original solicitors to perform the contract by reason of their insolvency does not appear to have been explicitly advanced, so the potential effect of such an argument remains at large.

Jones does not alter the position in respect of those assignments that are on all fours with Jenkins, indeed, the Court in Jones would have been bound by Jenkins had it not been able to distinguish the case.

It is, however, believed that Jones is being appealed, possibly being leapfrogged straight to the Court of Appeal, and therefore a binding decision on the question of whether you can validly assign a CFA appears to be looming over those firms which have grown by way of acquisition or, possibly, those who have simply assigned CFAs from a traditional partnership to an LLP when changing the nature of their practice.

Practitioners with concerns in respect of assignment issues may wish to seek advice on the point given how keenly Defendant costs firms are likely to seek to pursue the biggest potential windfall for their clients since the revocation of the old CFA Regulations. If needed, our Client Services Manager Amber Holt can be contacted for further advice on 0161 413 3851.