Peter Farrar v Candey Limited

The issue on this appeal is whether a firm of solicitors which has been acting for a claimant in litigation pursuant to a damages-based agreement can validly take an assignment of their client’s cause of action. Marcus Smith J held in a judgment dated 16 July 2021 [2021] EWHC 1950 (Ch) that the answer to that question was no, because the assignment was champertous. The firm of solicitors, CANDEY, now appeals with permission granted by the judge.

On 23 October 2013 the Claimant, Peter Farrar, entered into a damages-based agreement with CANDEY (“the DBA”) under which Mr Farrar agreed to pay CANDEY 50% of the proceeds from claims against the Defendant, David Miller, instead of paying CANDEY’s fees on an hourly rate basis. The DBA provided that CANDEY would pay all barristers’ fees, but Mr Farrar was responsible for paying all other disbursements. The DBA also provided that, in the event that Mr Miller agreed or was ordered to pay Mr Farrar’s costs, any sums recovered would reduce the extent of Mr Farrar’s liability to make payment out of the proceeds. Although the DBA referred to the possibility of Mr Farrar obtaining after the event (“ATE”) insurance to cover any costs he was ordered to pay Mr Miller if the claim failed, Mr Farrar did not obtain such insurance.

On 8 April 2014 Mr Farrar issued a claim form against Mr Miller claiming damages for breach of an alleged oral agreement concerning the development and sale of a piece of land in Norfolk known as “Long Stratton”. After the service of statements of case Mr Miller issued an application to strike out the claim alternatively for summary judgment dismissing it. On 26 January 2015 Chief Master Marsh acceded to that application. On 15 July 2016 His Honour Judge Barker QC, sitting as a judge of the High Court, dismissed Mr Farrar’s appeal, but granted him permission to amend his Particulars of Claim to allege that the proceeds of sale of Long Stratton were held on trust for him by Mr Miller alternatively that the facts gave rise to a proprietary estoppel. The judge refused to grant Mr Farrar permission to introduce a claim for breach of fiduciary duty, however. On 14 February 2018 the Court of Appeal dismissed Mr Miller’s appeal against that order, but allowed Mr Farrar’s appeal against the refusal of permission to introduce the claim for breach of fiduciary duty. On 31 July 2018 the Supreme Court refused Mr Miller’s application for permission to appeal. Since then no steps have been taken in the proceedings. CANDEY’s evidence is that the value of the claim, if successful, is in excess of £1.6 million.

On 7 December 2012 Leongreen Ltd, a company controlled by Mr Miller, brought a claim in the Central London County Court against Mr Farrar for possession of a property which I will refer to as “Artillery Mansions”. On 24 February 2014 HHJ Dight made an order for possession and ordered Mr Farrar to pay Leongreen’s costs assessed on the indemnity basis. On 29 August 2014 Leongreen and Galleondeal Ltd, another company controlled by Mr Miller, brought a claim in the High Court against Mr Farrar for lost rent, alternatively mesne profits, and for the costs of repairs to, and of replacement of fixtures and fittings in, Artillery Mansions. This claim was subsequently transferred to the County Court at Central London. On 15 January 2016 HHJ Walden-Smith gave judgment in favour of Galleondeal in the sum of £280,542.27 plus interest in the sum of £46,048.08 and in favour of Leongreen in the sum of £119,143.85 plus interest in the sum of £8,136.72, making a total of £453,870.92 (“the CCCL Judgment”), and ordered Mr Farrar to pay Galleondeal and Leongreen’s costs assessed partly on the standard basis and partly on the indemnity basis. On 21 April 2016 Mr Farrar filed an appellant’s notice seeking permission to appeal against the CCCL Judgment, but permission to appeal was refused by this Court.

The CCCL Judgment remains unsatisfied and interest on it continues to accrue. Mr Miller’s evidence is that the total amount due as at 24 February 2021 was £565,023.22 plus costs in respect of which an interim payment of £40,000 had been ordered, making a grand total of £605,023.21. On 5 February 2021 Galleondeal and Leongreen assigned the debts owed by Mr Farrar to Mr Miller.

At some point in 2015 Leongreen and Mr Miller petitioned for Mr Farrar to be made bankrupt. This did not result in Mr Farrar being made bankrupt, but by 12 September 2019 Mr Farrar was experiencing financial difficulties and anticipated that Galleondeal and Leongreen would present a further petition based on the CCCL Judgment.

On 12 September 2019 Mr Farrar and CANDEY entered into a fresh damages-based agreement which replaced the DBA. There is no evidence from CANDEY which explains why this was done, but the explanation may lie in the fact that the new agreement discharged a fixed charge over the proceeds of the litigation executed by Mr Farrar on 12 November 2013. Certainly CANDEY has not relied upon the charge for present purposes.

Also on 12 September 2019 Mr Farrar and CANDEY executed a deed of assignment of Mr Farrar’s claims against Mr Miller (“the Assignment”).

On 11 October 2019 Mr Farrar unexpectedly died.

On 7 May 2020 CANDEY issued an application to be substituted as claimant in place of Mr Farrar. On 25 May 2021 Mr Miller issued an application for an order under section 423 of the Insolvency Act 1986 avoiding the Assignment on the ground that it was a transaction defrauding creditors of Mr Farrar. Both applications came before Marcus Smith J, who dismissed CANDEY’s application by order dated 16 July 2021. That made it unnecessary for him to deal with Mr Miller’s application.

The Assignment contains a number of recitals. Recital A recites the proceedings brought by Mr Farrar against Mr Miller (defined as “the Proceedings”) and states that CANDEY’s costs to date in respect of the Proceedings are £135,000 (defined as “the Incurred Hourly Rate Costs”). Recital B recites the DBA and the replacement agreement (incorrectly referred to as a “Conditional Fee Agreement”) which is said to be terminated by consent with immediate effect. Recital C recites that CANDEY acted for Mr Farrar in the County Court and bankruptcy proceedings brought by Leongreen, Galleondeal and Mr Miller and states that CANDEY’s costs to date in respect of those proceedings are £100,000 (defined as “the Other Litigation Hourly Rate Costs”). Recital D recites the CCCL Judgment, and states that Mr Farrar is unable to pay it and anticipates that Galleondeal and Leongreen will present a petition for his bankruptcy.

The recitals then state:

As the judge noted, it is not obvious why Mr Farrar’s lack of funds should have prevented him from continuing the proceedings, as stated in recital E, given that the claim being was conducted pursuant to the DBA. CANDEY’s evidence is that the explanation for this is that Mr Farrar was unable to pay disbursements. CANDEY’s evidence does not explain why the Assignment was entered into rather than the DBA being amended to cover such disbursements. The judge found that an obvious reason for this course being adopted was to ensure that the claim would continue even if Mr Farrar was made bankrupt. There is no challenge by CANDEY to that finding.

Notwithstanding what is said in recital G, there is no evidence that Mr Farrar in fact obtained independent legal advice before entering into the Assignment.

Clause 1 contains the following definitions:

Clause 2 provides:

Clause 3.1 provides that the Recoveries are to be distributed by CANDEY in the following order of priority until the Recoveries are extinguished:

There is no dispute that clause 3.1(a) envisages that CANDEY will obtain ATE insurance.

There is a dispute as to the interpretation of clause 3.1(b). Clause 3.1 does not expressly state that the sum in (b) is retained by CANDEY, but it is common ground that this is implicit. The dispute is as to the calculation of the cap, and in particular as to the effect of the words “and the sum of £125,000”. The question is what happens to the sum of £125,000. CANDEY contends that it goes into the balance payable to Mr Farrar. Mr Miller contends that it remains in the hands of CANDEY. It is not necessary to resolve this dispute for the purpose of this appeal, however.

There is no evidence as to what the future costs of pursuing Mr Farrar’s claim to judgment were estimated to be at the time of the Assignment, nor as to the level of disbursements which were anticipated.

This case involves three common law rules which are all rooted in public policy, are closely related and are not always distinguished from each other.

The first rule is that a bare cause of action (i.e. not one ancillary to a property right or interest) can only be assigned where the assignee has a genuine commercial interest in enforcing the claim. At one time, it was thought that a bare cause of action could never be assigned because that amounted to trafficking in litigation, but that is no longer the law. In Trendtex Trading Corp v Credit Suisse [1982] AC 679, the House of Lords held that, as Lord Roskill put it at 703:

The second rule is that a solicitor who has the conduct of litigation may not take an assignment of their client’s cause of action prior to judgment. This rule is established by a consistent line of authority going back nearly 240 years. In Hall v Hallet (1784) 1 Cox 134, 29 ER 1096 an attorney called Scrase took an assignment from his client Hall of two debts of £620 and £50 in consideration of payment of the sum of £300. Lord Thurlow LC held that the assignment was void, saying at 140, 1099:

In Wood v Downes (1811) 18 Ves Jun 120, 34 ER 263 Downes was a solicitor who had the conduct of litigation on behalf of Wood concerning an estate. They entered into an agreement for the sale of Wood’s share of the estate in consideration of the payment of £100 and a promise to pay £1000. Lord Eldon LC held that the agreement was void, saying at 127, 265-266:

In Simpson v Lamb (1857) 7 EL & BL 84, 119 ER 179 an attorney called Scott was on the record for the plaintiffs, but an attorney called Shaen took over the conduct of the case shortly before trial. After the plaintiffs had obtained a verdict for £50 damages, but before judgment, Shaen purchased the plaintiffs’ interest in the verdict for the sum of £50. The Court of Queen’s Bench held that the transaction was void. Lord Campbell CJ delivering the judgment of the Court consisting of himself, Coleridge, Wightman and Erle JJ said at 93, 1182-1183:

In Pittman v Prudential Deposit Bank Ltd (1896) 13 TLR 110 the plaintiff was a solicitor who had acted for a client called Law in an action against a hotel. Law owed the plaintiff money for the costs incurred. While the proceedings were pending Law and the plaintiff agreed that Law would assign the judgment to the plaintiff. Law obtained judgment for £250, and immediately afterwards assigned it to the plaintiff. Willes J held that the assignment was invalid, and this Court dismissed the plaintiff’s appeal. Lord Esher MR, with whom Lopes and Rigby LJJ agreed, said at 111 that the law upon the point was clear:

This rule is recognised by section 59 of the Solicitors Act 1974 (as amended), which provides (so far as relevant, emphasis added):

The rule does not depend on whether the assignment is champertous. Counsel for Mr Miller submitted that it was clear from the authorities that the rationale for the rule was the conflict of interest which would arise between the client and the solicitor if the solicitor could negotiate for an assignment of the client’s claim, bearing in mind that the solicitor owed the client fiduciary duties. This analysis was not disputed by counsel for CANDEY, and I accept it.

The third rule is the rule against champerty. As Lord Phillips of Worth Matravers MR delivering the judgment of the Court of Appeal consisting of himself, Robert Walker and Clarke LJJ explained in R (Factortame Ltd) v. Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381 at [31]-[32], a person is guilty of maintenance if they support litigation in which they have no legitimate concern without just cause or excuse. Champerty occurs when a person supports litigation and stipulates for a share of the proceeds of the action or suit. Although champerty was formerly regarded as an aggravated form of maintenance, more recently it has been recognised that there can be champerty without maintenance: see Sibthorpe v Southwark London Borough Council [2011] EWCA Civ 25, [2011] 1 WLR 2111 at [55] (Lord Neuberger of Abbotsbury MR, with whom Lloyd and Gross LJJ agreed).

Maintenance and champerty used to be both crimes and torts, and thus a champertous agreement was void. Sections 13(1) and 14(1) of the Criminal Law Act 1967 abolished both the crimes and the torts of maintenance and champerty. Section 14(2) provided, however, that this “shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.” Thus champerty survives as a rule of public policy capable of rendering a contract unenforceable. As such, the observation of Danckwerts LJ in Hill v Archbold [1968] 1 QB 686 at 697 is equally applicable to champerty:

It is because of the rules against maintenance and champerty that, prior to 1990, it was consistently held that solicitors could not conduct litigation pursuant to agreements under which they only recovered their fees if their client was successful or under which they took a share of the proceeds.

Thus Buckley LJ said in Wallersteiner v Moir (No 2) [1975] QB 373 at 401-402:

Similarly, Oliver LJ said in Trendtex Trading Corp v Credit Suisse [1980] QB 629 at 663:

Likewise, in Giles v Thomson [1994] 1 AC 142 at 163 Lord Mustill said:

In Awwad v Geraghty & Co [2001] QB 570 this Court held that it was contrary to public policy for a solicitor to act for a client pursuant to a conditional fee agreement in circumstances which were not sanctioned by the Courts and Legal Services Act 1990 (as to which, see below), and therefore such an agreement would not be enforced. In concurring with Schiemann LJ, May LJ, with whom Lord Bingham of Cornhill CJ agreed, said at 600:

In Factortame Lord Phillips said at [60] that there was “good reason why the principles of maintenance and champerty should apply with particular rigour to those conducting litigation”, citing the passage from the judgment of Buckley LJ in Wallersteiner v Moir set out above. He went on at [61] to note that in Awwad v Gerachty the Court of Appeal had held that there was “no scope for the court to hold that the common law permitted conditional fee agreements that did not conform to the requirements imposed by section 58 [of the 1990 Act]”.

The law was thoroughly examined by Lord Neuberger in Sibthorpe v Southwark. After surveying the authorities, he concluded:

Finally, in Rees v Gateley Wareing [2014] EWCA Civ 1351, [2015] 1 WLR 2179 this Court held that a contingency fee agreement between the claimants and the defendant firm of solicitors in respect of work done in relation to the recovery of sums owing to the claimants as a result of the sale of property, including work on litigation conducted by another firm of solicitors, under which part of the defendant’s charges would be a percentage of the recoveries was unenforceable as being champertous since it did not fall within section 58 of the 1990 Act. As Lewison LJ, with whom Elias and McFarlane LJJ agreed, stated at [33]:

Statute has intervened to make conditional fee agreements and damages-based agreements enforceable where certain conditions are complied with.

First, section 58 of the Courts and Legal Services Act 1990 (as substituted by section 27(1) of the Access to Justice Act 1999 and amended by the Legal Aid, Sentencing and Punishment of Offenders Act 2012) provides:

By virtue of article 3 of the Conditional Fee Agreements Order 2013 (SI 2013/689), the percentage specified for the purpose of section 58(4)(c) is 100%. Thus the success fee charged by solicitors cannot exceed 100% of the base costs.

Secondly, section 58AA of the 1990 Act (as inserted by the Coroners and Justice Act 2009 and amended by the 2012 Act) provides:

By virtue of regulation 4(3) of the Damages-Based Agreement Regulations 2013 (SI 2013/609), a damages-based agreement must not provide for a payment above an amount which is equal to 50% of the sums ultimately recovered by the client.

In his judgment the judge noted that CANDEY did not contend that the Assignment was either a conditional fee agreement or a damages-based agreement within the 1990 Act as amended. He proceeded to analyse CANDEY’s argument before him as involving two alternative contentions, a broad contention and narrow contention. The broad contention was that the Assignment was not champertous because it was in the public interest since it was similar in effect to a damages-based agreement. The narrow contention was that the Assignment was not champertous because it was preceded by the DBA and did no more than enable Mr Farrar’s claim against Mr Miller to be continued in circumstances where Mr Farrar was impecunious.

The judge rejected CANDEY’s broad contention for the reason he expressed at [35] as follows:

The judge rejected CANDEY’s narrow contention for two reasons. First, he held at [58] that “the Assignment creates a very marginal benefit in terms of access to justice, against a number of very real issues in terms of undermining the purity of justice”. The benefit flowed from the fact that, under the DBA, Mr Farrar was responsible for disbursements other than counsel’s fees ([43]-[45]). The issues were as follows: (i) control of the litigation would pass from Mr Farrar to the lawyers conducting the litigation who had no legitimate interest in pursuing the claim apart from recovering their own fees; (ii) the Assignment improved CANDEY’s position with respect to the recovery of its fees compared to its position under the DBA, in particular because: (a) it covered the Other Litigation Hourly Rate costs which were not covered by the DBA; (b) Mr Farrar would lose his right to have CANDEY’s costs assessed by the court under section 70 of the 1974 Act; and (c) there was a risk that the Assignment would alter the priority of recoveries that would otherwise pertain under the DBA, in particular because it eliminated the risk that CANDEY would recover less than its entitlement under the DBA due to Mr Miller taking an assignment of the debts owed by Mr Farrar to Galleondeal and Leongreen and setting them off against any damages awarded to Mr Farrar ([54]).

Secondly, the judge held at [57] that, in any event, the reasoning of Lord Neuberger in Sibthorpe v Southwark and of Lewison LJ in Rees v Gateley Wareing applied with equal force to a transaction which, like the Assignment, replaced a 1990 Act-compliant damages-based agreement, but which was not itself so compliant.

CANDEY appeals on two grounds. The first is that the judge applied the wrong test to determine the validity of the Assignment, and that the test he should have applied was to ask whether CANDEY had a genuine commercial interest in taking the Assignment and enforcing the claim for its own benefit, that being the test applied to transactions with parties other than lawyers in Trendtex. The second is that, even if the judge applied the correct test in asking whether the Assignment was contrary to public policy, he was wrong to conclude that it was.

Counsel for CANDEY did not pursue the first ground in his oral submissions. He accepted that Trendtex was authority for the proposition stated in paragraph 22 above, and that it did not provide an answer to the problems that the Assignment was an assignment of a claim from a client to the solicitors who had been acting for the client and that on its face it was champertous.

As for the second ground of appeal, the gravamen of counsel for CANDEY’S argument was that the Court should recognise that, in the light of the statutory interventions in this area, it was no longer contrary to public policy for an assignment like the Assignment to be entered into. Common law rules based on public policy were susceptible of modification when modern conceptions of public policy changed, as illustrated by the decision of the House of Lords in Arthur J S Hall & Co v Simons [2002] 1 AC 615 abrogating advocates’ immunity from suit. Counsel emphasised that the distribution of recoveries under the Assignment was essentially the same as under the DBA, which was permitted by the 1990 Act. The 1990 Act showed that it was no longer contrary to public policy for solicitors to receive up to 50% of the proceeds of claims, because it was now recognised that such agreements promoted access to justice. The Assignment did not, counsel contended, enlarge the benefit to CANDEY from pursuing the claim compared to the DBA; on the contrary, Mr Farrar’s estate would be better off assuming that CANDEY’s construction of clause 3.1(b) was correct. Furthermore, in so far as the public policy against champerty had been based on concerns about solicitors potentially acting in a manner that was inconsistent with their position as officers of the court, this was no longer a real concern because the solicitors’ profession was now a tightly regulated one. In any event, such concerns had not prevented damages-based agreements being allowed by the 1990 Act. In so far as the public policy against solicitors taking assignments of their clients’ claims had been based on concerns about a conflict of interest between client and solicitor, again this was no longer a real concern due to the regulation of the profession. The potential for such a conflict of interest was present in a damages-based agreement, and yet such agreements were permitted under the 1990 Act. Furthermore, in this case Mr Farrar had been advised to take independent advice. As for the interests of creditors of Mr Farrar, such as Mr Miller, these were adequately protected by provisions of the 1986 Act, including section 423.

I do not accept this argument for two reasons, each of which can be shortly stated. The first is that this Court is bound by its previous decision in Pittman v Prudential that a solicitor acting for a client in legal proceedings may not validly take an assignment of the client’s cause of action prior to judgment. The second is that this Court is bound by its previous decisions in Awwad v Gerachty and Rees v Gately Wareing, reinforced by the powerful obiter dicta in Factortame and Sibthorpe v Southwark, that a champertous agreement not sanctioned by the 1990 Act remains contrary to public policy and is therefore unenforceable.

When confronted with the problem of precedent during the course of argument, counsel for CANDEY’s response was to argue that this Court was not bound by its own precedents in circumstances where statute demonstrated that the underlying public policy had changed. He was unable to cite any authority in support of this submission, however. In any event, Awwad v Gerachty and Rees v Gateley are recent decisions of this Court which establish that there has been no relevant change in public policy. Even if it was open to this Court to depart from the previous authorities, I would not do so. I consider the reasoning in those cases and in Factortame and Sibthorpe v Southwark to be entirely convincing. Section 58(1) of the 1990 Act is explicit that conditional fee agreements that do not comply with all the relevant conditions are unenforceable. The same is true of section 58AA(2) of the 1990 Act and damages-based agreements. It is no answer to this point that the Assignment is neither a conditional fee agreement nor a damages-based agreement: what section 58(1) and section 58AA(2) show is that Parliament, being well aware of the common law rules, decided to go so far towards relaxing them as sections 58 and 58AA provide and no further.

In those circumstances it is not necessary to decide whether the judge was correct to conclude on the facts of this case that the Assignment was offensive to justice. I would merely observe that it is far from obvious to me that his concerns were misplaced.

For the reasons given above I would dismiss this appeal.

I agree.

I also agree.