In a County Court judgment handed down on 11 May 2016 regarding District Judge Jenkinson’s decision on CFA assignment in Jones v Spire Healthcare, His Honour Judge Graham Wood QC has allowed the Claimant’s appeal – thereby rendering assignment of CFAs between separate firms of solicitors valid and enforceable and allowing recovery of both pre- and post-assignment costs.
Firstly, it is important to understand what is meant by the term ‘assignment’. When talking about assignment it is often said, even by lawyers, that ‘the contract was assigned’, however this is not strictly true. In fact, what is assigned are some or all of the rights under a contract. This principle is an old one, dating back as far as Young v Kitchin  3EX.D.127. This distinction has given rise to the concept of ‘benefit and burden’, which, by the time the position was summarised by Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd  UKHL 4, was considered trite law.
The burden of a contract is the obligation to perform its terms, for example, in a simple contract for supply of goods, the ‘burden’ of the contract on the seller is to provide the goods, and the ‘burden’ on the buyer is to pay over a sum of money. By contrast, the ‘benefit’ to the seller is to receive money from the buyer, and the ‘benefit’ to the buyer is to receive the goods.
Assignment is a unilateral agreement, which is to say that the parties to the original contract do not have to agree to the assignment. Historically, it has only, save in limited circumstances (see, for example, section 140A (3) of the Consumer Credit Act 1974), been possible to assign the benefit of a contract. The rationale for this was, in very simple terms, that as there is privity of contract between the original parties it was impossible for one party to unilaterally pass on their obligations to another without the agreement of the original contractor.
In the sphere of legal services, an exception to this rule was set out in Jenkins -v- Young Bros Transport Limited  EWHC 90008 (Costs). In that case, the Claimant entered into a CFA with a firm of solicitors, and the case was handled by a particular solicitor. That solicitor subsequently moved to a new firm, and the CFA was assigned to the new firm, in order that the solicitor could continue to act for the Claimant. Thereafter, the solicitor again moved firms and the CFA was again assigned in the same way. Giving judgment, Master Campbell identified an exception to the general rule that the burden of a contract may be assigned where the benefit and burden are so linked as to be incapable of being separated; in other words, where the benefit cannot be obtained without performing the burden of the contract.
In Jones v Spire Healthcare (11 September 2015) DJ Jenkinson held that a CFA is a personal contract and that, as a general principle, the burden imposed by the contract (the solicitor’s obligation to perform under its terms) cannot be assigned. This follows the general law as set out above. DJ Jenkinson ruled that the exception to this general principle further set out in the decision of Rafferty J in the case of Jenkins v Young Brothers Transport Ltd  EWHC 151 (QB) did not apply, since that case concerned a Claimant who was loyally following an individual solicitor, in whom he had considerable trust and confidence, from one firm to another. By contrast in Jones, the transfer of instructions to SGI Legal LLP (the Assignee) arose from the insolvency of Barnetts (the Assignor), and moreover the original fee earner did not retain conduct of the matter following the change of firms. In the circumstances, DJ Jenkinson ruled that the purported assignment of the CFA was in fact a novation (the substitution of a new contract in place of an old one). In addition, DJ Jenkinson ruled that as the CFA in Jones spanned pre and post April 2013 periods and was being assigned post April 2013, the new contract (which was effectively on identical terms to the CFA originally entered into) did not comply with the requirement of section 44(2) of the Legal Aid Sentencing and Punishment of Offenders Act 2012, in that it did not specify that the success fee would not exceed 25% of damages, and was therefore, unenforceable. As a result, and by reason of the operation of the indemnity principle, neither the Assignee’s base profit costs, nor the success fee were recoverable.
The Claimant’s appeal was based on the argument that both the benefit and burden of the original CFA were inextricably linked and thus capable of being assigned, attracting both pre- and post-assignment costs. The Defendant argued that it was only the benefit under a CFA until its dissolution which could be subject to assignment, with pre-assignment costs recovered accordingly.
Appeal Decision -Key Findings
- DJ Jenkinson was wrong to qualify the “Jenkins exception” to the general rule against assignment of the burden of a personal contract so narrowly as to only apply it to circumstances where a client insists upon the continuity of an individual fee earner, in whom particular trust and confidence is placed. Given that most modern day case handling is conducted at a distance, such circumstances would often be too difficult to prove, resulting in potential costs satellite litigation “with the court being required to investigate in every case the nature of the relationship between the client and the solicitor”.
- In circumstances where there is tripartite involvement, and the assignee and the assignor agree by way of a separate deed of assignment to the shifting of the burden, together with the recipient of the benefit, HHJ Wood ruled that it would be “unduly restrictive and overly legalistic to deny the parties the effect of what they intended. Rules restricting burden assignment were clearly devised to protect the non-participating counterparty” which should evidently not be a factor in the above scenario.
- HHJ Wood dismissed the Defendant’s appeal, commenting that the CFA resulted in a “contingent debt” arising out of a “presently existing legal relationship in which everything was certain save for ultimate payment”, thereby providing sufficient certainty for the burden to be validly assigned in law.
- The Claimant’s appeal was allowed, meaning that both the burden and the benefit of the CFA were assigned by the Assignor to the Assignee, and there was a valid retainer in place, allowing recovery of both pre- and post- assignment costs, with no breach of the indemnity principle.
- The matter will now be referred to a regional costs judge in order to determine quantum of the Claimant’s costs. There is also a strong likelihood that HHJ Wood’s decision will eventually reach the Court of Appeal given its wide ranging ramifications. We will be keeping a close eye as the matter progresses- stay tuned!
Hannah Riordan is a Costs Draftsman in the Costs and Litigation Funding department at Clarion Solicitors. You can contact her at firstname.lastname@example.org, or the Clarion Costs Team on 0113 2460622.