Transferring files between firms is complex as there are various aspects that need to be considered, such as: unpaid fees, work in progress, the impact on all parties and compliance with the SRA Code of Conduct.
The transfer becomes even more complicated where there is a pre-April 2013 CFA with an ATE insurance.
Under the Conditional Fee Agreements Order 2013 and s. 44 and 46 of LASPO 2012, from 1 April 2013, the success fee and ATE premium are not recoverable from the losing party, however, this does not apply to CFAs entered into before April 2013.
Accordingly, when transferring pre-LASPO CFAs two contractual principles need to be considered:
Novation - It occurs when two parties of an original contract agree with a new party that the original agreement comes to an end and a completely new contract is created. It is a three-party agreement whether the client is involved. Novation transfers the benefit and burden under a contract as seen in Southway Group Ltd v Wolff and Wolff .
Assignment - It does not create new rights but transfers existing rights under a contract from one party to another. It is between two parties where the client is not involved but may accept or reject the transfer. The agreement is in writing by a deed.
Accordingly, if a pre-LASPO CFA is novated after April 2013, it becomes a new contact and the right to recover the ATE and success fee from the opponent is lost. Given the potentially severe financial implications, when transferring a pre-LASPO CFA, the priority is to assign it.
Nevertheless, the problem with CFAs is that they are contracts for personal service which, as seen in Nokes v Doncaster Amalgamated Collieries Ltd , are not capable of assignment.
Despite the same, there have been several cases where the Court has found that a CFA can be assigned, such as Jenkins v Young Brothers Transport Limited  as well as in the appeal of Jones v Spire Healthcare Ltd . However, these two cases were decided on their own facts and have not provided a clear guide to assignment of CFAs.
As there are many reasons as to why firms may want to transfer CFAs, there continued to be uncertainty and an ongoing debate between costs practitioners as to whether a CFA could actually be assigned.
The position has been further clarified in the case of Budana v The Leeds Teaching Hospitals NHS Trust EWCA Civ 1980 where the Court of Appeal held that a pre-LASPO CFA can be transferred from one firm to another without losing the right to recover the additional liabilities from the Defendant. Whilst the majority held that the CFA was novated and not assigned, it was accepted that a new contract was created in precisely the same terms as the previous CFA and that the contract continued.
It must be stressed, however, that the recovery of a success fee will be dependent upon the actual terms of the agreement between the parties, in particular, whether the new firm was intending to operate under the same terms of the previous CFA.
Accordingly, practitioners should avoid the temptation of including new, “improved” terms and ensure that upon transfer, the CFAs remains the same.
Although the Budana case has provided some clarifications and certainty with regards to the transfer of pre-LASPO CFAs, this still remains a complex area of low. It is recommended that appropriate advice is taken given that if one element of the transfer is not executed correctly, the consequences can be catastrophic.