The Court of Appeal’s landmark ruling in Budana – allowing the transfer of conditional fee agreements (CFAs) between law firms – does not apply when the new firm signs up the client to a new CFA, a circuit judge has ruled.
The decision in Roman v AXA Insurance could affect hundreds of cases, the successful party’s lawyer has claimed.
In Budana, which was seen to be about assignment, the appeal court ruled by majority that the transfer of a CFA from one law firm to another actually led to a novation but the new solicitor could still recover the success fee.
Roman was a road traffic accident in which the claimant was represented by Secure Law until, in late 2015, it decided to close the department. Unless clients objected, the claim was transferred to Lime, the personal injury (PI) arm of Shakespeare Martineau, on the same terms. The claimant agreed to the transfer and signed a new CFA. Soon after, the defendant made a part 36 offer of £22,500, which was accepted.
At first instance on costs, Deputy Master Campbell in the Senior Courts Costs Office ruled that the claimant had elected to treat the CFA with Secure Law as continuing by instructing Lime on the same terms. Therefore, when the claimant won, Secure Law became entitled to payment under its CFA.
His Honour Judge Wulwik in Central London County Court upheld AXA’s appeal, ruling that the letter from Secure Law to the claimant about the transfer was a “repudiatory breach” of the CFA, which was a whole contract.
“The letter from Secure Law sought to terminate the conditional fee agreement entered into by the claimant with Secure Law because Secure Law’s relevant department ceased to exist with the restructuring of their personal injury and clinical negligence teams. That was not a permitted circumstance for ending the CFA under the Law Society document ‘What You Need to Know About a CFA’ so as to entitle Secure Law to payment.”
He continued: “Neither letter [from Secure 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.”
The claimant then accepted the repudiatory breach by instructing Lime and entering into the new CFA, HHJ Wulwik added.
The judge 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.”
HHJ Wulwik rejected the claimant’s other submissions, such as that she accepted the partial performance by Secure Law and her liability to pay for such partial performance.
“It was an entire contract. There was no term in the CFA with Secure Law entitling them to payment for partial performance.”
Further, Budana did not find that there was an implied term in the CFA that it could be terminated for good reason, with the solicitors to be entitled to payment, he said.
Matthew Hoe, a director of Taylor Rose TTKW, which acted for AXA, said: “This decision shows that CFA claims cannot simply be transferred or – distastefully – bought and sold. There must be documentation involving the claimant that novates the CFA to a new firm.
“The judge observed during argument that the situation in Roman may be far more common than the situation in Budana, which was awash with paperwork. That must now be the fear for some solicitors. Hundreds of claims could yet be affected, even as we approach six years from the Jackson reforms.
“Both sides in an assessment should definitely check this hugely valuable point.”
Roger Mallalieu (instructed by Shakespeare Martineau LLP trading as Lime) for the claimant, with Nicholas Bacon QC (instructed by Taylor Rose TTKW) for the defendant.