When clients move from one firm to another the valuation of WIP, and the issue of costs recoverability, is never straightforward.
The core issues centre around whether a Conditional Fee Agreement (CFA) can be transferred; and, if so whether the first firm will still be entitled to payment; and whether the additional liabilities under a pre LASPO CFA will be recoverable when a new agreement has been entered into after 1 April 2013.
There has been considerable technical argument as to whether or not it is possible to transfer a CFA; most of the argument has concerned the distinction between novation and assignment. It was thought that a CFA must be assigned for a pre LASPO success fee to be recoverable post transfer and therefore parties sought to demonstrate that there had been an assignment.
The Court of Appeal’s landmark ruling in Budana v Leeds Teaching Hospitals NHS Trust (Law Society intervening) [2018] 1 WLR 1965 provided much needed clarification. This case held that CFAs could be transferred and that even where the CFA had not been assigned, a success fee could be recoverable where the CFA had been novated. The appeal court ruled, by majority, that the transfer of a CFA from one law firm to another led to a novation.
However, the recent decision in Roman v AXA Insurance PLC suggests there is still uncertainty for firms as to the value of WIP when clients transfer firms. The case illustrates that the transfer of a CFA claim does not automatically amount to a novation as the issue rests on the particular facts of a case and there must be evidence involving the claimant that novates the CFA to the new firm.
Mrs Roman, the claimant, was injured in a road traffic accident in May 2012. She entered into a CFA with, Secure Law, which provided for a success fee of 100%. The CFA was in the form of the Law Society model CFA to be read in conjunction with the Law Society’s document ‘What You Need to Know About a CFA’. Secure Law issued proceedings on her behalf and represented her until the firm closed its personal injury department in 2015.
Secure Law wrote to Mrs Roman stating that unless she objected, the claim would be transferred to Lime, the personal injury arm of Shakespeare Martineau, on the same basis as they were instructed. Lime wrote to the claimant stating that their agreement with the claimant would be “on the same terms that you had with Secure Law Limited”.
The claimant agreed to the transfer and signed a new CFA. A notice of change of solicitors was filed and served and soon after moving firms the defendant made a part 36 offer of £22,500, which Mrs Roman accepted.
In early 2016, proceedings for detailed assessment commenced and when the parties were unable to reach agreement as to costs, the claimant applied for provisional assessment of her bill. The bill was provisionally assessed by Deputy Master Campbell who rejected the defendant’s argument that, having chosen not to continue with the claim for the claimant, Secure Law were not entitled to be paid. The defendant then sought a reconsideration of this point at an oral hearing in late 2016, with judgment being handed down in February 2017.
The Deputy Master upheld his provisional assessment, finding that the claimant had elected to treat the CFA with Secure Law as continuing by instructing Lime on the same terms as the previous solicitor. This meant that when the claimant won the claim by agreeing damages with the defendant, Secure Law became entitled to payment under the CFA they had. The defendant appealed and it was put back until the Budana appeal was handed down.
The main point in the appeal was whether the Deputy Master was right in finding that the claimant, Mrs Roman, had elected to treat the CFA with Secure Law as continuing with the work to be done by Lime on the same terms as the original fee agreement with Secure Law.
His Honour Judge Wulwik allowed the defendant’s appeal finding that the Deputy Master had been wrong to find that Mrs Roman had elected to affirm the CFA with Secure Law. He found that neither the letter from Secure Law or Lime suggested that the CFA entered into by the claimant with Secure Law would continue if the claimant’s case was transferred to Lime. He said, “On the contrary, the letter from Lime to the claimant made it clear that she would have to enter into a new CFA with Lime before they could act for her.”
Distinguishing the case from Budana, HHJ Wulwik said that, unlike in Budana, the parties “did not take any steps” with a view to ensuring the first CFA continued to subsist. “As Gloster LJ said [in Budana], the terms of the documentation clearly showed that Ms Budana did not elect to terminate her contract with the first firm of solicitors but instead decided to preserve and transfer it. That is not the position in the present case.”
A CFA is an entire contract and the entitlement to payment arises when all obligations have been fulfilled. Secure Law did not include a term in the CFA entitling them to payment for partial performance and there is no authority to suggest that there is an implied term in the Law Society Model CFA that it could be terminated for good reason, with the solicitors being entitled to payment. HHJ Wulwik ruled that the letter from Secure Law to the claimant about the transfer was a “repudiatory breach”. The claimant then accepted the repudiatory breach by instructing Lime and entered into a new CFA, and thus there was no entitlement for Secure Law to be paid.
The practical implications and ramifications of this decision are far reaching; it is thought that the circumstances surrounding the transfer of the client in Roman may be far more common than the situation in Budana. It is likely there may still be many claims that will be affected and both sides in a costs assessment should check this point. The entitlement to be paid will rest on the evidence of the parties’ intention in each individual case.
David Bailey-Vella is a council member of the Association of Costs Lawyers and a Costs Lawyer at Weightmans
This article was first published in the New Law Journal on 17 April 2019.