In Budana v Leeds Teaching Hospitals NHS Trust  EWCA Civ 1980, Ms Budana instructed a solicitors’ firm to pursue her personal injury claim against the Trust under a CFA with a 100% success fee. The firm stopped handling personal injury matters and, in March 2013, wrote to Ms Budana to say that her file would be transferred to another firm. In April 2013, she signed a deed purporting to transfer the rights and liabilities under the CFA to the new firm. Meanwhile, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) had come into force on 1 April 2013. Success fees under CFAs entered into after that date are no longer recoverable from the other side.
The Trust settled Ms Budana’s claim, and she obtained an order for costs. In detailed assessment proceedings, the Trust argued that the transfer of the CFA was ineffective, and therefore they were not liable for the success fee.
The court at first instance held that the March letter wrongfully terminated the CFA, with the result that there was no agreement to be transferred to the new firm. Ms Budana appealed.
The Court of Appeal held that the CFA was not terminated by the March letter. Termination by breach requires the innocent party to choose to terminate or affirm the contract, and Ms Budana had not elected to terminate.
The court therefore had to consider the effect of the April deed. The Trust argued that the deed was a novation, giving rise to a new CFA entered into after LASPO came into effect. If so, the success fee would not be recoverable.
The Court of Appeal was divided on this point, with Gloster LJ and Beatson LJ concluding that the deed was a novation and Davis LJ dissenting. However, the court unanimously held that regardless of that technical question, it was appropriate to adopt a purposive construction of LASPO. The underlying policy was that litigants who instructed solicitors after LASPO came into effect would lose some of its advantages, but receive mitigating benefits in return. If Ms Budana could not recover the success fee, she would lose the benefits of the previous regime without receiving the corresponding benefits under LASPO, which was not Parliament’s intention. Therefore, the success fee was recoverable from the Trust.
This decision indicates the courts are willing to interpret LASPO broadly in order to achieve the effect intended by Parliament. Defendants who face ongoing claims funded by CFA arrangements that originated pre-LASPO should review their litigation strategy in the light of this interpretation. The court referred to the Law Society's estimate that there may be thousands or even tens of thousands claimants in the same position as Ms Budana was in this case.
The majority judgments also contained suggestions that transfers of solicitors' retainers may in general be correctly viewed as novations rather than assignments, contrary to comments made in earlier cases. This may result in the Law Society issuing new guidance to solicitors on such transfers.