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A Good Result in Difficult Times – Novation of a CFA can be done

In Budana –v- The Leeds Teaching Hospitals NHS Trust & Anor [2017] EWCA CIV 1980 the Court of Appeal held that in circumstances where a Conditional Fee Agreement (CFA) was entered into with Solicitors who subsequently cease undertaking Personal Injury work, that initial CFA can be novated to a second firm.

 

The Claimant was visiting the Defendant’s hospital on the 6th November 2011, when she tripped over defective pavement and fell. She was pregnant at the time and suffered a ligamentous injury. She entered into a CFA with Barker Rees pre LASPO. Subsequently Barker Rees ceased undertaking Personal Injury work and the retainer was transferred from Barker Rees to Neil Hudgell. It was the Defendant’s argument that the retainer was ‘terminated’ when the first solicitor wrote to the Claimant to advise that they were no longer undertaking personal injury work and would no longer continue to act.

The Court of Appeal has now confirmed that the original/old CFA was not terminated when they wrote to the Claimant advising of the closure of the firm as the Claimant chose to continue with the new solicitors. Also, that the CFA was novated and the new CFA had the same terms despite being entered into post-LASPO and the success fee remains recoverable as long as the CFA was novated.

The decision made by Lord Justice Davis, Lord Justice Gloster and Lord Justice Beatson was reached on a 2-1 majority with the main arguments surrounding whether an assignment or novation had taken place.

Many Claimant solicitors would see this as a fair result in light of the impact that the Jackson reforms have had on the personal injury sector and welcome the decision made by the Court of Appeal.

To better understand the decision explanation of the difference between novation and assignment is needed. Novation in law meaning the substitution or replacement of one contract/party to another for example in this case the named party on the CFA “Barker Rees” was replaced by “Neil Hudgell”. This, creating a new contract altogether with the benefits and burdens of the original contract.

Whereas, assignment, transfers the existing contract to the new party under the same terms but only the benefits not the burdens. Many costs practitioners have previously believed that the benefits and burdens of a CFA could be assigned pursuant to Jenkins -v-Young Brothers Transport Ltd (2006) EWHC 151. However, the decision made by the Court of Appeal shows that this is not the case and that actually novation takes place.

The difference between assignment and novation is a very complex area of law with conflicting arguments and one would advise to obtain specialist advice if this is to be undertaken. The key element from the Court of Appeal case is that if the terms of the CFA are the same as Pre-LASPO, the success fee can be recovered by the Claimant as this is the intention of the parties.

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