Who would have thought that one piece of paper would cost so much to a firm of Solicitors?

For a long time people have assigned retainers, more specifically conditional fee agreements from one firm of Solicitors to another; however the recent case of Jones has created a storm amongst the already unclear issue of retainers.

The case of Jones was a straightforward Employers Liability claim which resulted following an accident on 27 August 2011. The Claimant initially instructed a firm of Solicitors which have no bearing on this matter as they were not claiming costs as a result of the substantive claim. The Claimant later entered into a conditional fee agreement with Barnetts Solicitors.

For reasons unbeknown to you and I, Barnetts Solicitors became insolvent, as such administrators were appointed; who in turn sold Barnetts’ Personal Injury work to another firm of Solicitors, ‘X’. A Deed of Assignment was executed between X and the administrators of Barnetts, this documents sought to assign the benefits and obligations of over 200 retainers between Barnetts and their respective clients (including the Claimant in the case of Jones) to the new firm of Solicitors, X. X then informed the Claimant in the case of Jones that her case had been transferred to them and that they were prepared to act for her on the basis of the conditional fee agreement she has already entered into with Barnetts; but that it was entirely a matter for the Claimant to decide whether or not she wanted to instruct them or to instruct another firm of Solicitors of her choice. The Claimant later executed a document entitled ‘Deed of Assignment’ whereby she sought to assign both the benefits and obligations of her retainer with Barnetts to X.

The matter of Jones then progressed and was eventually settled in favour of the Claimant by way of acceptance of a Part 36 Offer; which imputes an entitlement to costs; however the Defendant contended this and stated that the Claimant had no entitlement to costs. The reasoning behind the Defendant’s stance was as follows;

a) The purported assignment of the conditional fee agreement from Barnetts to X was not valid. Notwithstanding that the documents purporting to transfer the CFA to X are referred to as assignments, they in fact represent a novation. Effectively X has thereby entered a new agreement with the Claimant, based upon the terms of the original CFA between her and Barnetts.
b) Whilst the CFA with Barnetts was valid at the time it was entered, the effect of subsequent changes to the rules meant that the CFA, as re-entered by way of such novation with X, is unenforceable;
c) There are no costs payable to Barnetts under the terms of the CFA either because:-
i. Barnetts did not “win” the case within the meaning of the CFA (because X did);
ii. When the case was “won” Barnetts were in liquidation and therefore were not in existence to receive any costs under the original CFA that the paying party contends remained with them.

The Court correctly stated that the general principle is that a contract involving personal skill or qualifications is not capable of being assigned. The receiving party relied upon an exception to that general rule which it submitted applied following the decision in Jenkins v Young Brothers Transport Ltd (2006) 1 WLR 3189. In the case of Jenkins the Solicitor acting for the Claimant changed firm of Solicitors, as such the conditional fee agreement was assigned from the first firm to the second and then from the second firm to the third firm when the solicitor again moved. In the case of Jenkins the Judge there held that the conditional fee agreement could be assigned on the basis that the Claimant was loyally following an individual solicitor in which he had considerable trust or confidence from one firm to another. However in the case of Jones the Judge was not convinced that the Claimant was not motivated to transfer her file to X by trust or confidence in an individual; as such the principle within Jenkins could not apply and that ‘existing well established common law applies, and such an assignment is not possible.’ The reason behind the Judge’s decision, in our opinion, lies with the fact that the fee earner at Barnetts Solicitors who was dealing with the Claimant’s case also transferred to X, however the Claimant was not informed about this; thus the principle in Jenkins does not apply.

In contrast to the above comments the Judge in the case of Jones then went on to state that ‘It is, however, possible to assign the benefit as opposed to the burden of such a contract’ The Judge then cited paragraph 19-055 of the 31st Edition of Chitty on Contract ‘If the author has actually transferred the copyright of the work to the publisher, he can assign that as an item of property, and hat wages or salary due to the employee are normally assignable.’ As such this ruled that there was a right to be paid in the event of the claim being successful and that right had been validly assigned to X, thus the Claimant in Jones was allowed to recover costs which would have been otherwise been payable to Barnets as a result of the ‘win’.

The Judge agreed with the Defendant and found that there was a novation in the burden of the conditional fee agreement.

If X had entered into a new conditional fee agreement they would have been able to recover costs, however the conditional fee agreement which X sought to assign fell foul of the Conditional Fee Agreements Order 2013, this is summarised in Paragraph 21 of the Judgement:

The difficulty from the receiving party’s perspective is that a subsequent change in the rules means that whilst the terms of the conditional fee agreement were perfectly acceptable when it was originally entered with Barnetts, the same CFA entered at the date of the novation would fall foul of Section 58 (4B) (d) of the Courts and Legal Services Act 1990 (as amended) in that, contrary to the Conditional Fee Agreements Order 2013 the CFA does not spell out that (in the circumstances of this case) the success fee should not exceed 25% of damages for pain, suffering and loss of amenity and past pecuniary loss.

The conditional fee agreement which was entered into by Barnetts and the Claimant did not have the provision of a capped 25% success fee, this was because at the time when the conditional fee agreement was entered into DBA’s were not in place and the receiving party claimed a success fee from the paying party where applicable. As a consequence of this the new retainer which was formed between X and the Claimant was invalid and did not allow for the recovery of the costs incurred by X.

The Summary was provided at paragraph 25 of the Judgement, where the Judge stated:

1. In summary, therefore, I find as follows:-
a) The conditional fee agreement between Ms Jones and Barnetts has not been assigned to X. Accordingly, and on simple application of the indemnity principle, it is not possible to base a claim for costs incurred by X parasitic to the terms of that CFA, valid as it was when entered with Barnetts;
b) The benefit of the retainer between Barnetts and Ms Jones has been validly assigned to X, and the Claimant is accordingly entitled to claim the costs incurred by Barnetts;
c) The agreement between Ms Jones and X was a novation, based on the terms of the original CFA with Barnetts, but taking effect from 27 January 2014. However, at that stage the CFA fell foul of the regulations which had been amended since the date that the CFA was originally validly entered with Barnetts. It is accordingly rendered unenforceable by section 58 (1) of the 1990 Act, and there is therefore no enforceable retainer upon which a claim for the costs incurred by X can be based.

Probably the most interest part of the Judgement is where the Judge stated that the Claimant could only recovery costs incurred by Barnett plus ‘potentially, disbursements incurred by X’

This is certainly an interesting Judgement to say the least and is inconsistent at parts.

The case is in the process of being appealed and with the appeal due to be heard in December 2015.

If you feel like you have a case which is similar to this and you would like to discuss your options with us then please do not hesitate to contact us for further information and advice.