Jenkins v Young Brothers Transport Ltd

The issue to be addressed in this reserved judgment is the extent to which (if at all) a conditional fee agreement ("CFA") made between the Claimant ("Mr Jenkins") and Girlings (his then solicitors) on 7 August 2000 was assigned to T.G. Baynes & Co Solicitors on 13 August 2002 and thereafter to Thomson Snell & Passmore Solicitors ("TSP") on 1 April 2003.

By way of background Mr Jenkins is receiving costs from the Defendant under the terms of an order of Master Foster dated 14 October 2003.2002. It is common ground that, subject to quantum, the claim for Girlings’ costs in Mr Jenkins’ bill for fees incurred under the CFA is valid.

The same is not true so far as the costs of T.G. Baynes and TSP are concerned. If the court finds that the CFA cannot be assigned then it is agreed that the Defendant’s liability for the costs of T.G. Baynes and TSP is nil by operation of the indemnity principle. This provides that the liability of a paying party in costs cannot exceed the sum which the receiving party is liable to pay his own solicitors (see Gundry v Sainsbury [1910] 1 KB 645). It follows that if the assignments are invalid, the CFA would be unenforceable as between Mr Jenkins and T.G. Baynes & Co and Mr Jenkins and TSP. In these circumstances there would be no costs for the Defendant to indemnify and those parts of the bill containing the costs of T.G. Baynes and TSP (parts 3 and 4 respectively) will be disallowed.

The chronology is important and needs to be set out in detail.

On 21 August 1999 Mr Jenkins sustained personal injuries as a result of an accident at work. On 25 October 1999 he consulted Girlings and entered into a contingency fee agreement which was expressed to endure only until the issue of legal proceedings.

On 7 August 2000 Mr Jenkins and Girlings signed the CFA under which no fee would be payable unless the claim succeeded or Mr Jenkins ended it before the case was won or lost. On the same date Mr Jenkins took out after the event insurance ("ATE") with Accident Line Direct. On 28 September 2000 Girlings gave Notice of Funding of Mr Jenkins’ case by means of the CFA and ATE cover.

On 8 April 2002 Ms Frances Pierce, who was the solicitor with responsibility for Mr Jenkins’ case at Girlings, moved to T.G. Baynes. Mr Jenkins agreed to his file accompanying her to the new firm which would now act for him in place of Girlings.

On 5 May 2002 T.G. Baynes served a further Notice of Funding which said this (inter alia):

On 13 August 2002 Girlings and T.G. Baynes signed a Deed of Agreement which purported to assign the benefit and interest of Girlings in the CFA to T.G. Baynes with effect from 8 April 2002.

On 22 May 2002 Mr Jenkins agreed to the benefit of the CFA being assigned by Girlings to TG Baynes by endorsing his consent thereto onto a letter written to him by Girlings on 20 May 2002.

On 16 August 2002 Mr Jenkins issued proceedings in the Canterbury County Court (proceedings which were subsequently transferred to the Queen’s Bench Division). On 30 September 2002 the Defendant returned an acknowledgment of service indicating that the proceedings would be defended. On 13 December 2002 judgment on liability was entered in Mr Jenkins’ favour for damages to be assessed and costs.

On 1 April 2003 Ms Pierce changed jobs and moved to TSP. Mr Jenkins again agreed to his file accompanying her to the new firm, which would now act for him in place of TG Baynes. Also on that date, T.G. Baynes and TSP signed a Deed of New Agreement which purported to transfer the benefit and burden of the CFA from T.G. Baynes to TSP.

On 22 April 2003 TSP wrote a client care letter to Mr Jenkins in conventional form to comply with Practice Rule 15, a copy of which he signed the following day agreeing to its terms.

On 14 October 2003 the case was settled on terms that Mr Jenkins would receive agreed damages of £445,000 plus his costs to be assessed on the standard basis if not agreed.

On 1 July 2004 Mr Jenkins served a Notice of Commencement. On 2 February 2005 his bill was referred to the Supreme Court Costs Office and balloted to me. The bill claims £112,014.93 (of which £16,211.15 is VAT). Of that figure, the sums of £5,006.24, £45,595.28 and £43,076.18 relate to the post CFA costs of, respectively, Girlings, T.G. Baynes and TSP (VAT excluded). Subject to quantum, there is no issue over Girlings costs but £88,604.18 plus VAT of £15,027.88 turns on whether the CFA was validly assigned to their successors.

Paragraph 10 of the CFA sets out the following circumstances in which the agreement could be terminated:

The Deed of Agreement dated 13 August 2002 between Girlings and T.G. Baynes defined the CFA as "the Agreement".

Paragraph 2.2 of the recitals provided as follows:

Paragraph 3 then said this:

Paragraph 5 dealt with "costs and remuneration" and said this:

The Deed of New Agreement dated 1 April 2003 was in similar terms. Paragraphs 2 and 3 provided as follows:

Paragraph 5 dealt with costs and remuneration and is in similar terms to paragraph 5 in the agreement of 13 August 2002 save that in paragraph 5.1.1, TSP is referred to in place of T.G. Baynes and in paragraph 5.2 the costs payable are to be apportioned between all three firms.

The reference to the "client’s consent to transfer" in the Agreement dated 13 August 2002 was to T.G. Baynes’ letter of 20 May 2002 countersigned by Mr Jenkins on 22 May 2002. The letter said this:

The reference to "the client’s consent to transfer" in the Agreement dated 1 April 2003 was to the letter written by TSP to Mr Jenkins dated 22 April 2003. The letter provided as follows:

In his opening, Mr Williams for the Defendant admitted very frankly that he was advancing an unabashedly and unashamedly technical objection to the costs of T.G. Baynes and TSP. In doing so, full account had been taken of the criticism expressed by the Court of Appeal in cases where paying parties had put forward misconceived technical objections in an attempt to evade payment under costs orders made against them (see for example Hollins v Russell (2003) EWCA Civ 718 paragraphs 224-226). To address any such criticism in the present case, Mr Williams took me through Hollins with care and drew my attention to the speech of Lord Hoffman in Dimond v Lovell [2002] 1 AC 386 which involved the taking of technical points under the Consumer Credit Act 1974.

In view of these submissions it is apt for me to say at the outset that I do not consider the arguments advanced by Mr Williams to be in the nature of satellite litigation which has received judicial criticism in such cases as Hollins. On the contrary, the point before the court identifies a difficulty which may face many a client, who, having funded his litigation through a CFA with ATE insurance, then finds his solicitor moves to a different firm. What is such a client to do? The issue raised by Mr Williams on instructions has obliged the court to confront this problem.

The main point in issue is a relatively narrow one. Did the Deeds of Agreement validly assign the CFA from Girlings to T.G. Baynes and thence from T.G. Baynes to TSP (as Mr Hutton argues), or did a novation arise (as Mr Williams contends) whereby the original CFA ended upon the instruction of T.G. Baynes, to be replaced by fresh agreements, the first between Mr Jenkins and T.G. Baynes and the second between Mr Jenkins and TSP?

Treitel (The Law of Contract 11^th Edition) defines "assignment" as the process under which the benefit of a contract may be transferred to a third party without the consent of the party liable under the contract (here Mr Jenkins) (see pages 701 to 702). For an assignment to be valid the following requirements must be satisfied (see Treitel pages 678-682):

"Novation", on the other hand, takes place "where two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all the parties shall be obtained." (see Chitty on Contracts, 29^th Edition, paragraph 19-085). It follows that the effect of a novation is not to assign or transfer rights or liabilities, but rather to extinguish the original contract and put a new one in its place.

In the present case, the fact that Mr Jenkins’ consent was obtained to the release of Girlings and their replacement by T.G. Baynes is cited by Mr Williams as being supportive of there having been a novation. Mr Hutton, on the other hand, puts his case on the basis that just because Mr Jenkins provided his consent, that did not mean there was a novation. On the contrary, the giving of such consent as a matter of law cannot disqualify an assignment from being an assignment, still less can such consent, of itself, create a novation.

It is now necessary to examine these competing arguments in more detail.

Mr Williams submitted that simply labelling a document "assignment" does not necessarily create an assignment. The label which parties may choose to give to a transaction is not determinative of its legal effect. Thus it did not follow that because Girlings and T.G. Baynes may have thought they had entered into a deed of assignment, they necessarily did so. Likewise T.G. Baynes and TSP. So much was common ground.

There was no such consensus about consent. In Mr Williams’ submission, under an assignment, benefits but not burdens are transferred (see Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660 CA at 668 and his skeleton paragraphs 6-7) and this is usually effected without the consent of the other original contracting party (here Mr Jenkins). However in the present case, the two original contracting parties (Mr Jenkins and Girlings) had agreed with a third party (T.G. Baynes) that T.G. Baynes would stand in relation to Girlings, in Girlings’ place. This was different to an assignment because the original contact was extinguished. Girlings was discharged from its obligations under the CFA which was replaced by a fresh contract between T.G. Baynes and Mr Jenkins under which he retained the new firm to act for him instead of Girlings. When Ms Pierce moved again the process was repeated with the contract between Mr Jenkins and T.G. Baynes ending and a third contract coming into existence between Mr Jenkins and TSP, the new firm being retained to act for him in the litigation in place of T G Baynes. In law, these arrangements were not assignments but novations.

Mr Williams submitted that in a conventional contractual situation, novations such as these would not pose a problem. In a CFA context the position was different because formalities needed to be complied with - a CFA must be in writing (Section 58 Courts and Legal Services Act 1990 (as amended)) and must comply with the CFA Regulations 2000. Here doubtless T G Baynes and TSP had intended to act on similar terms as Girlings (no win no fee) but both had failed to put those instructions on a formal footing by executing a new CFA and by first complying with the CFA Regulations. Only the Girlings’ CFA had been reduced to writing and neither T.G. Baynes nor TSP had discharged their obligations to Mr Jenkins by providing him with the information prescribed by Regulation 4. Nor were such breaches immaterial – there had been a complete failure to comply with a mandatory legislative requirement. Accordingly only the CFA between Mr Jenkins and Girlings was enforceable and by operation of the indemnity principle there was nothing else for the Defendant to indemnify. Thus his client was absolved from any liability for payment of any of the costs of T.G. Baynes and TSP.

Mr Hutton agreed that for a novation to arise, the consent of both parties to the contract was required. That said, the fact that in the present case both original parties had consented did not disqualify the arrangements from being an assignment. Mr Hutton accepted that it was necessary to procure Mr Jenkins’ agreement to the work ceasing to be undertaken by one firm and being transferred to another firm. However Mr Williams was wrong to contend that it was possible to assign only the benefit but not the burden of a CFA. Provided that with the benefit of the contract, in this case the right to payment, there was annexed to it the burden or obligation to continue to conduct the case, there was no bar to both the benefit and the burden of the contract being assigned (see Tito v Waddell (No.2) [1977] Ch 106 at 290, 306).

Mr Hutton accepted that the position would be different if the right to be paid was transferred without the burden of having to continue to run the case, but that was not the situation here. So long as the benefit was conditional upon performing the obligation (as was the case before me) then there could be a valid assignment of the CFA from Girlings to T.G. Baynes and from T.G. Baynes to TSP, sufficient to comply with the indemnity principle. In these circumstances the CFA was valid and enforceable as between Mr Jenkins and the three firms of solicitors and the Defendant was obliged to indemnify Mr Jenkins for his costs reasonably incurred.

Mr Hutton joined issue with Mr Williams’ submissions about compliance. His primary position was that there was no new contract because the original CFA had been validly assigned. If he was wrong about that, and there was a new contract, then he relied on the letters of 20 May 2002 (T G Baynes to Mr Jenkins) and 22 April 2003 (TSP to Mr Jenkins) both of which Mr Jenkins countersigned, agreeing to contract with the new firms on the same terms as the CFA with Girlings. As to Regulation 4, Mr Hutton agreed that the prescribed information had been given only once, by Girlings, but he submitted that any omission by T G Baynes or TSP to repeat it, was immaterial and did not matter.

Mr Hutton also advanced an argument that Mr William’s submissions were unattractive from a policy point of view. If CFAs were unassignable this would have serious consequences for a client whose solicitor moved firms. Such a client would face difficult choices.

The issue to be addressed requires decisions on three points: assignment, materiality of any breach and policy.

I agree with Mr Hutton that the requirements for each assignment to be valid were all met in this case. Each deed had been signed by respectively, Girlings and T.G. Baynes and T G Baynes and TSP; the parties had intended that there should be an assignment; the fact of the assignment had been communicated by the assignor to the assignee in each case (first by Girlings to T.G. Baynes and second by T.G Baynes to TSP); notice had been given to Mr Jenkins who had acknowledged receipt on 22 May 2002 and 23 April 2003 respectively.

At the cornerstone of Mr William’s case lies his submission that only rights but not obligations can be assigned (see his skeleton argument paragraph 6). Here, the person to whom the benefit of the contract was purportedly assigned (first T. G .Baynes and thereafter TSP) made no promise to perform the obligations of the assignor (first Girlings and subsequently T.G. Baynes). In other words, the assignee never took on the assignor’s burdens under the contract. Girlings’ liability to continue to act for Mr Jenkins was terminated when he instructed T.G. Baynes; at that point the CFA ended and Mr Jenkins and T.G. Baynes entered into a fresh retainer to do the work. The process was repeated when Mr Jenkins instructed TSP in place of T. G. Baynes and accordingly no valid assignment of the CFA had taken place on either occasion.

Mr Williams’ submission reflects what according to Treitel is the "general rule", namely that the assignee of a benefit of a contract makes no promise to perform the obligation’s of the assignor and in such a case, the assignee does not become liable under the contract. (See Young v Kitchin [1878] 3EX.D.127).

However, Treitel sets out exceptions to this general rule (see Treitel page 702). An example is where the obligation to perform a contract in place of the assignor is annexed to the assignment of the benefit of the contract. Where this is the case, the assignee must perform the burden of the contract or forego the benefit if he fails to do so. Treitel describes this as the "conditional benefit principle", which arises where the right assigned is conditional or qualified, the condition being that certain restrictions should be observed or certain burdens assumed (see Tito v Waddell (No.2) 290 et seq).

In Tito Megarry V-C distinguished the conditional benefit principle from what he called the "pure principle of benefit and burden". According to Treitel its scope is restricted by two factors; the first is that the condition, which gives rise to the burden, must be relevant to the exercise of the right (see speech of Lord Templeman in Rhone v Stephens [1994] 2 AC 310 at 322); the second is the intention of the parties to the assignment. An intention to subject the assignee of contractual rights to liabilities arising under the contract will not normally be inferred and will be displaced in the following instances:

In my judgment, the arrangements which the three firms of solicitors made in this case and to which Mr Jenkins consented, all fall within the exceptions to the general rule that the assignee of a contract makes no promise to perform the obligations of the assignor. It is clear from the terms of the Deeds of Agreement and New Agreement set out in paragraphs 17 to 22 of this judgment that the taking of the benefit of the contract (the right to be paid costs) is subject to the burden of the contract (continuing to act for Mr Jenkins). In my view that burden is also directly relevant to the right to be paid and the test in Rhone v Stephens is met. It is also plain from the terms of each Deed that it was intended to subject each assignee (first T. G. Baynes, and subsequently TSP) to the liability under the contract, namely, as I have said, the obligation to continue to represent Mr Jenkins in the litigation. In these circumstances, none of the three factors identified by Treitel are capable of displacing the intention of the parties here to burden the assignee of the CFA with the obligation to act for Mr Jenkins. It follows that I find that the CFA was validly assigned and that Mr Jenkins was liable to pay costs to the three firms he instructed sufficient to comply with the indemnity principle. Subject to any arguments about quantum, the Defendant must pay the standard costs claimed by each firm.

If I am wrong and Mr Williams is correct in his submission that there was no assignment of the CFA but rather two new contracts purportedly on the same "no win no fee" terms, then it is still necessary for him to prove that defects he relies on were material and mattered.

In so far as formalising any contract between T G Baynes and Mr Jenkins, and TSP and Mr Jenkins is concerned, I do not accept there was a failure to reduce the retainers to writing. In fairness to Mr Williams, the two letters upon which Mr Hutton relied were only handed to him during the course of the hearing, but the Defendant elected not to file any additional argument in reply, notwithstanding the Court’s leave to do so. In these circumstances I am satisfied that the Defendant has accepted (as I have) that the letters in question were written evidence of retainer sufficient to satisfy s58.

So far as CFA Regulation 4 is concerned, it is common ground that Ms Pierce did not go through the prescribed information with Mr Jenkins again when she moved to T G Baynes and later to TSP.

That said, for Mr Williams to succeed it is still necessary for him to establish that these breaches were material under the test in Hollins. At paragraph 107 of Hollins, Brooke LJ set out this test:

Mr Hutton submitted that any failure to go through the Regulation 4 requirements a second or even a third time with Mr Jenkins was wholly immaterial, given it was common ground that the regulations had been fully complied with when he signed the original CFA and accordingly he was fully protected and knew where he stood. As to the administration of justice, Mr Hutton contended that there had been no materially adverse affect; on the contrary, justice would be ill served if Mr Jenkins was compelled to purchase a second and possibly a third ATE policy at greater expense.

Mr Williams advanced a contrary case. He submitted that the Regulation 4 requirements had not been satisfied and the non compliance was fundamental. In these circumstances it could not be said that the breaches were minor still less that the materiality test in Hollins had been met. Mr Williams drew my attention to the speech of Lord Hailsham in London Clydeside Estates Ltd v Aberdeen District Council (1980) 1 WLR 182, (referred to with approval by Lord Woolf MR in R v Sec of State for the Home Department ex parte Jeyeanthan [2000] 1 WLR 355) when he said this at page 188 – 190:

In my judgment, Mr Hutton is correct and it would have been unnecessarily heavy handed had Ms Pierce trawled through CFA Regulation 4 not just once, but twice or three times. Where, as here, the client has been given the Regulation 4 information at the outset, I consider he has received the protection to which he is entitled and it is not a material breach if the same Solicitor omits to go through the same regulations a second time, solely on account of his having changed firms in circumstances where the client has consented in writing to a new retainer on identical terms as the old. On the contrary, in a detailed assessment context one would anticipate that a paying party would argue that it was wholly unreasonable for the cost of such an exercise to be claimed against him more than once.

As regards the administration of justice, I agree with Mr Hutton. In his interim report on "Access to Justice", Lord Woolf stated that:

Lord Woolf continued in Chapter 7 of his final report that:

The decision made by Mr Jenkins to follow Ms Pierce saved costs. In these circumstances I do not understand how his sensible choice could be said to have had an adverse affect on the administration of Justice. In reality, it obviated the need for another solicitor to read into the papers and eliminated the possible expense of his having to buy further ATE policy of insurance. It also avoided Girlings and TG Baynes having to make the difficult decision whether to enforce the termination clause in the CFA and call upon Mr Jenkins to pay their basic charges straightaway.

Mr Williams submitted that if an argument was advanced which was technical and unattractive as a matter of policy, it did not follow that such an argument was bad in law. Accordingly if the CFA was incapable of being assigned validly (as he submitted was the case here) the fact that Mr Jenkins had made the best of a bad job by staying with Ms Pierce, could not make his decision a good one in law. I agree with that submission. Persuasive though Mr Hutton’s arguments are in this respect, in particular his drawing attention to the problems a client may face through no fault of his own if his solicitor moves firms, they cannot make an unassignable CFA assignable. However, for the reasons given in paragraphs 40 to 45 of this judgment, "policy" matters have no bearing on the outcome of the preliminary issue.

The CFA was validly assigned without any infringement of the indemnity principle and Mr Jenkins can recover the costs of the three firms he instructed. The fact that Ms Pierce did not go through the regulation 4 procedures when she started at T.G. Baynes and later at TSP did not have a materially adverse affect on the protection afforded to Mr Jenkins or upon the administration of Justice. The letters which Mr Jenkins signed upon completion of each of Ms Pierce’s moves were sufficient written evidence of each new retainer.

Subject to any arguments Counsel wish to raise, I propose that the Defendant pays Mr Jenkins his costs of the preliminary issue on the standard basis to be assessed at the conclusion of the detailed assessment if not agreed beforehand. I do not consider for the reasons given in paragraph 26 of this Judgment, that an indemnity basis costs order would be appropriate even though this is satellite litigation. If Mr Williams is instructed to apply for permission to appeal, he should do so when this Judgment is handed down, otherwise no further attendance is necessary.