ASSIGNMENT OF CFAS: ROUND 2: ASSIGNMENT CAN TAKE PLACE

In the judgment today in Jones -v- Spire Healthcare Ltd His Honour Graham Wood QC had to determine the issue of whether a CFA can be assigned. The full judgment is an attachment to this post and is available here  Jones-v-Spire-Healthcare-Limited-Judgment-of-HH-Judge-Wood-QC.

The judge decided that a CFA had a sufficient degree of certainty so as to enable it to be assigned in law.

(I am grateful to Aaron Vodden of Hempsons , Jason Cox of Ropewalk Chambers  & PJ Kirby of Hardwicke who each sent me copies of this judgment).

THE CASE

  • In both cases a solicitors firm had become insolvent.
  • There was an assignment of CFAs that the firm had with their clients.
  • The District Judge had found that the CFA could not be assigned on the facts of this case.

THE ISSUES ON APPEAL

The judge summarised the issues:

“The main issue on these appeals is whether or not an insolvent firm of solicitors can validly assign its entitlement and responsibility under a conditional fee agreement (CFA) with a client to another firm of solicitors. If it cannot, and the CFA becomes a novation, it must follow that costs incurred by the insolvent firm and potentially recoverable together with any future costs incurred by the assignee in the event of the client’s success are lost forever if a statutory change leads to the unenforceability of the CFA, to the disadvantage of any creditor in the administration, and to the advantage of an opposing party who might escape a substantial liability for costs in the event of losing the case.”

THE JUDGMENT

The judge considered the arguments of both sides in considerable detail.  The arguments were far away from the law of personal injury, and the law of costs.  The argument (in broad terms) was whether a CFA had a sufficient degree of certainty to be a chose in action which could be assigned.

“Discussion

  1. I confess that I do not find this an easy matter to resolve. The judge at first instance clearly based his conclusion upon the qualifying facts of this case, and I am reluctant to do likewise, tempting as it is, in view of the nature of the submissions which were focused upon relevant principles for general application. In particular I am conscious of the fact that other cases which are based upon different factual matrices may well be affected by my decision (unless this matter is appealed).
  1. In their arguments, counsel have attempted to find parallels where the courts have been asked to define liabilities dependent upon future contingencies as present choses in action in somewhat different circumstances to those which prevail here. An insurance contract, in my judgment, is entirely different to a conditional fee agreement. The insurer and the insured enter into the arrangement in the expectation that the insured casualty as it has been described, will not occur, with the premium calculated to reflect the risk that it might. Accordingly, there is no expectation, as such, of the event arising. At the other end of the scale, where a product is created, or a work published, royalties are expected from any onward sale. The only issue is the extent of the profit (even thought the possibility remains of “nil” sales). As has been described, it is the tree which gives rise to the fruit.
  1. Perhaps lying somewhere between these two “expectations” is the situation of the lawsuit where an individual has brought proceedings to claim damages for a particular cause of action. Because of the uncertainty of litigation, there is no inherent guarantee of success or certainty of ultimate payment, and yet the courts have permitted the rights to compensation under pending lawsuits to be assigned. It has been argued, in my judgment with a degree of force, that the concluded lawsuit is the situation most akin to that which prevails here.
  1. It seems to me that it is important to have regard to the nature of litigation funding which was created by the introduction of conditional fee agreements in 1990. An arrangement which made the ultimate payment of fees for legal services provided dependent on a claim succeeding was not intended to introduce an unnecessarily speculative process into costs recovery. Solicitors (and indeed counsel) are not compelled to take cases which have little or no prospect of success. Indeed, the converse is true. Although the regime has now changed with new statutory provision and regulation relating to the recovery of a success fee, the principle of “no win no fee” has been preserved. It is a principle which incorporates an element of contingency in the sense that if a certain event occurs (the action does not succeed) then the obligation to pay a debt otherwise properly incurred (for the services rendered) is extinguished.
  1. It is axiomatic that legal service providers will only take on those cases which they expect to succeed. A risk will always remain of failure, and in the case of pre-LASPO CFAs this was a risk which was reflected in the cost of the insurance premium, and the level at which the success fee was set. Furthermore, the terms of the CFA, which is the legal retainer, will prescribe the basis on which the solicitor is to be remunerated, the hourly rates, etc and the debt is incurred as the work is undertaken. In other words it is entirely ascertainable at any given point in time, even though there cannot be certainty that ultimately the debtor will have to pay it. In my judgment it is properly described as a contingent debt arising out of a presently existing legal relationship in which everything is certain save for ultimate payment. As a proposition of law, it is not challenged that contingent debts which may not become payable are nevertheless debts.
  1. Whilst the case of Marren made it clear that a contingent right which might never be realised to receive an unascertainable amount of money at an unknown date was possessive of too much uncertainty to amount to a present chose in action, in my judgment a conditional fee agreement entitlement does not fall into the same category. As I say, the amount is ascertainable at any given point in time, the point at which it becomes payable is ascertainable (the final conclusion of the case) and the expectation of payment goes beyond a mere hope or possibility (as might exist in the case of an insured peril materialising).
  1. Setting aside the post LAPSO agreements, 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. (It is immaterial, in my judgment, that a new CFA agreement has been entered into, and thus this aspect does not depend upon the correctness of my decision in relation to the assignment of burden).
  1. In my judgment, the proposition that an assignment of the benefit of a CFA agreement could only be effective in equity at the time the contingency arose would have a chilling effect on the efficacy of business arrangements which for a whole host of reasons legal service providers may wish to enter into. If Mr Hogan is correct with his proposition, a solicitor who had a number of CFA agreements in progress but who wished to cease to practise, could not transfer or assign those agreements unless he or they continued to exist as a legal entity. They would have no value for assignment if the solicitor taking over the conduct of the case could not recover the benefit of the work undertaken.
  1. As far as the authorities are concerned, as I have indicated, the conditional fee agreement does not fit comfortably with any of these scenarios which establish the basis for distinguishing between a present chose in action and a future expectancy. Indeed, it is acknowledged in these cases, as well as by Marcus Smith QC in his leading textbook that the distinction is not an easy one to make. However, in my judgment it can be established that the uncertainty of entitlement does not render a contingent debt or right unenforceable. It is necessary to look at the broader circumstances including the terms of the agreement which gives rise to the entitlement, as well as the nature of the contingency. I am not assisted by analogies of trees and fruit, which in any event appear to have been developed as an aphoristic way of addressing more speculative situations than that which exists here. Although the uncertainty of any contingency arising on the facts in the case of Marren was sufficient to render the debt in that case no more than a future chose in action, as Lord Fraser said at page 990:
“….the meaning of the word debt depends very much on its context. It is capable including a contingent debt which may never become payable …”
  1. It seems to me that the situation most akin to that which exists in a conditional fee agreement is that of Glegg, where the benefit was dependent on a successful outcome of ongoing actions, although there is the obvious distinction that in the case of the CFA there is a direct correlation between the benefit and the work undertaken and of course the benefit is ascertainable at any point in time.
  1. Accordingly, in my judgment, the context here, the conditional fee agreement, was one which allowed the contingent debt, referable to an ascertained amount and an ascertained point at which it would be paid in the future, assuming success, to be classified as a present chose in action capable of assignment.
  1. If I am wrong about this, and as a matter of general principle the debt is too speculative or unascertainable so as to amount to a mere expectancy, on the peculiar facts of this case I am satisfied that there was sufficient certainty of payment at the time of the deed of assignment against the background of an admission of liability and the receipt of an interim payment so as to allow the benefit to be constructed as a present chose in action. In this respect I agree with District Judge Jenkinson and endorse his reasoning. The suggestion made by Mr. Hogan that admissions of liability could be withdrawn, or causation issues arise is, respectfully, a fanciful one on the facts of this case.
  1. It is unnecessary to address the alternative arguments, in particular the contractual point (see paragraph 111) pursued by Mr Marven. However, I should comment briefly on his submission, which was very much by way of a fall back position, that the obligation to pay disbursements would render the agreement as presently enforceable, and not as giving rise to a contingent debt. In this respect I agree with Mr Hogan that this is no more than an obligation to reimburse solicitors for specific expenses which they have incurred and could not be classified as a benefit under the agreement. I do not need to consider by way of mental gymnastics whether it becomes a burden, because it is sufficient for this argument that if the classification of the CFA benefit depended on construing the disbursements in this way, in my judgment it would not have turned a future chose in action into a present chose. However, for reasons already given it did not so depend.
Conclusion
  1. It must follow from the respective decisions above that I allow the Claimant’s appeal and dismiss the Defendant’s cross-appeal. Both the burden and the benefit of this conditional fee agreement were assigned by Barnetts to SGI Legal, and there was a valid retainer allowing recovery of both pre-and post-assignment costs. The indemnity principle is satisfied.
  1. I am conscious that my decision may not be the end of this matter, not least because there are outstanding issues of cost assessment to be resolved. In the first place I remit the matter to the Regional Costs Judge to give appropriate directions on paper. In relation to any ancillary orders on these appeals, I anticipate that these can be agreed, and I invite counsel to submit the terms of a final order, together with any typographical corrections prior to an agreed date for handing down of the judgment.

One comment

  1. john ibbotson · · Reply

    Shame some firms have gone bust in the interim period.

    Appeal sounds likely, so yet more delay and uncertainty. I bet some low ball costs offers will now be made and accepted on desperation/cash flow grounds.

    The whole J day transition was rushed and ill thought through. Woolf was seismic too, but was better implemented with fewer cracks in the pavement.

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