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CFA – assignment

The introduction of LASPO in April 2013 caused problems for clients who already had CFAs, but then wanted to move to another firm.

The danger was that any new CFA would be subject to LASPO. The way around this problem was thought to be a formal assignment, although it was subsequently argued that this may be a novation instead. In any event, there was much relief when the CA confirmed in Budana [2017] that an assignment was valid. But, the key point to note is that the transfer paperwork in that case was in apple-pie order (as a note in the Gazette points out, ‘the bush telegraph reported that it was said in court that it was almost too good’)! The paperwork included:

  • a letter to the client explaining everything, and asking for the client’s consent to instruct the successor firm;
  • a properly drafted transfer agreement under which the business of the first firm was transferred to the successor firm;
  • a master deed between both firms in which all PI claims (including the disputed ones) were assigned;
  • a deed of assignment between the client and the successor firm;
  • the successor firm going on the court record in April 2013.

But, the CA made it clear that everything would depend on the precise terms of the contractual arrangements between the parties. Thus, properly drafted transfers (with full supporting documents) will be valid. But, suppose the paperwork is not perfect? As a starting point, it is critical that the consent of the client is obtained. If it is not, or if the client is not consulted, or presented with a fait accompli, then there will almost certainly not be a valid transfer.

As the article in the Gazette points out, if corners have been cut, details omitted, or – most importantly – if the client has been left out of the deal, then the transfer to the new firm may not be valid. Then, as a double whammy, if the transfer is invalid then the original solicitor who tried to assign this CFA may instead have ended up unilaterally terminating it; that could be said to be a ‘repudiation’ in which case the firm will not be entitled to be paid, even if the claimant goes on to win!

The end result is that the earlier headlines about the CA having confirmed that CFA transfers are valid is an over-simplification; it will all depend on the quality of the paperwork, and clear evidence that the client was properly consulted. See excellent article in [2018] LSG 19 February 21.

 

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