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Assignments of CFAs

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So the big debate is whether you can assign a CFA and, if so, in what circumstances. In this article I will consider the issues and reflect on the main decisions so far.

What is an assignment?

An assignment is effectively the replacing of one party to an agreement. It transfers the existing rights under a contract from one party to another.

When does this occur?

This commonly occurs when a law firm wishes to take over the conduct of a case from another law firm, but wishes to continue acting under the existing CFA. An individual case may be transferred from one firm to another or an entire firm subject to a merger or acquisition.

Why assign?

Most commonly the new firm wishes to assign so that the Claimant can recover the success fee under a pre April 2013 CFA. Otherwise the Claimant is left in a position where the benefits under the old CFA regime would be lost and they would not have any of the benefits of the new regime.

Jenkins v Young Brothers Transport Limited [2006] 1 WLR 3189

In this case a fee earner moved from one firm to another and the client followed. The paying party submitted that an assignment could not take place because the contract was a personal contract and could not validly be assigned- see Griffith v Tower Publishing [1897] 1 Ch 21. The Court held that an assignment had taken place and that it was possible to assign a personal contract where the assignee takes both the benefit and the burden of that contract. Despite the general principle that a personal contract involving skill or competence cannot be assigned, there is an exception if the client is following his solicitor and preserving the trust and confidence in that person.

Criticisms of Jenkins

There was some criticism of the decision in Jenkins and some debate as to whether the assignment was in fact a novation. At that time it made little difference but now that difference is perhaps very significant. Save in certain types of litigation, paying parties are not liable for a success fee where the CFA has been entered into after 1 April 2013. Assigning a pre-April 2013 CFA would entitle the new firm to continue charging a success fee but a new CFA or novation after April 2013 would not attract a success fee. In fact, a failed attempt to assign may jeopardise all of the solicitor's costs and not just the success fee. If the assignment was in fact a novation and the new terms post April 2013 were not in compliance with the new regulations, then the CFA would be unenforceable.

Jones v Spire Healthcare Ltd

In this case the original firm became insolvent and the firm’s PI work was sold to another firm. A deed of assignment was executed between the administrators of the insolvent firm and the firm purchasing the PI work. The original fee earner also moved from the insolvent firm to the new firm. The Court found that the decision to transfer to the new firm was not motivated by the Claimant loyally following her solicitor, but rather by the convenience of an equally competent firm who already had the files and were prepared to act on the same basis. It appeared that the client did not know about the solicitor moving firms before the assignment took place. So the assignment was in fact treated as novation. The problem being that the CFA entered into pre April 2013 was unenforceable following the novation as it did not impose a damages-based cap. The costs of the first firm were therefore recoverable but those of the second firm were not.

Court of Appeal

Jones is being appealed and we eagerly await the outcome. If the Court of Appeal endorses the decision in Jones and goes further to rule that CFAs are not in fact capable of assignment, then this will cause some sleepless nights for firms who have assigned without any fall-back position.

Can you assign after the CFA has been terminated?

In Budana v The Leeds Teaching Hospitals NHS Trust District Judge Besford considered this issue. Firstly he confirmed that a CFA can be assigned and that Jenkins was binding. The Judge went on to say that it was possible to assign contracts involving personal skill, even where there was previously no personal relationship between the Claimant and the new firm. Whilst the personal connection was an important factor, it was not a necessary condition and such a finding would introduce an element of subjectivity as to the degree of trust and confidence required to validate the assignment. In any event, the Judge found that the CFA had been terminated by the first firm before the assignment took place and without good reason. Therefore there was no CFA to assign. Accordingly under the existing CFA, neither the old or new firm were entitled to be paid. The second firm did enter into a new CFA which was only effective in the event that the assignment did not have the effect of allowing the firm to recover their costs and that was enforceable. So the second firm were entitled to their costs under the new CFA.