CA upholds ban on solicitor taking assignment of client’s action

Arnold: Court bound by precedents

The public policy behind the ban on a solicitor taking an assignment of their client’s cause of action prior to judgment holds good in the era of damages-based agreements (DBAs), the Court of Appeal has ruled.

Lord Justice Arnold also backed previous findings that a champertous agreement not sanctioned by statute remains contrary to public policy and is therefore unenforceable.

The court was hearing an appeal from London firm CANDEY against Mr Justice Marcus Smith’s decision last year that it could not validly take on an assignment of client Peter Farrar’s £1.6m cause of action because it was champertous.

Having originally entered into a DBA in 2013 – under which CANDEY would receive 50% of any proceeds – they agreed a fresh one in 2019.

Arnold LJ said: “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.”

On the same day they executed the deed of assignment. The following month Mr Farrar unexpectedly died and in May 2020 CANDEY applied to be substituted as claimant.

The DBA cited Mr Farrar’s lack of funds as the reason for the assignment, but the court questioned why this was an issue given the very nature of a DBA.

“CANDEY’s evidence 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 [which was a prospect at the time]. There is no challenge by CANDEY to that finding.”

CANDEY did not contend that the assignment was either a conditional fee agreement (CFA) or a DBA within the meaning of the Courts and Legal Services Act 1990 (as amended).

Marcus Smith J rejected the firm’s contention that the assignment was not champertous because it was in the public interest since it was similar in effect to a DBA.

He found the case law clear that there was now a “very hard distinction” between potentially champertous transactions between non-lawyers and those involving a lawyer. The latter were either sanctioned by statute or not, “and if they are not, the common law does not ride to the rescue”.

CANDEY argued too that the assignment was not champertous because it was preceded by the DBA and did no more than enable Mr Farrar’s claim to be continued, given his impecuniosity.

Marcus Smith J held that the assignment created “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”, and that in any case the assignment was not compliant with the 1990 Act and so could not be upheld.

On appeal, Arnold LJ said the court was bound by its previous decisions, rejecting CANDEY’s submission that it was not where statutory interventions in the area demonstrated that the underlying public policy had changed.

There was no authority to support this, he noted, and in any event two of the precedents, 2001’s Awwad v Gerachty and Rees v Gateley from 2014, were “recent decisions of this court which establish that there has been no relevant change in public policy”.

Arnold LJ continued that, even if it was open to the court to depart from the previous authorities, “I would not do so” as their reasoning was “entirely convincing”.

Parliament was “well aware of the common law rules” and decided to relax the rules on DBAs and CFAs as it had “and no further”.

He concluded: “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.”

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