SOLICITOR CANNOT TAKE OVER CLIENT’S CAUSE OF ACTION: COURT OF APPEAL CONSIDERS ISSUES RELATING TO CHAMPERTY
In Farrar & Anor v Miller [2022] EWCA Civ 295 the Court of Appeal upheld a decision that a firm of solicitors could not continue an action that had been assigned to them by their client.
“a champertous agreement not sanctioned by the 1990 Act remains contrary to public policy and is therefore unenforceable.”
THE CASE
A Mr Farrar had brought an action using CANDEY solicitors as his solicitors. In September 2019 a deed of assignment was executed assigning the claim to CANDEY. CANDEY then applied to to substituted in the action in place of Mr Farrar. The judge at first instance found that the action was champertous and void.
CANDEY’S UNSUCCESSFUL APPEAL TO THE COURT OF APPEAL
The solicitor’s appeal to the Court of Appeal was unsuccessful. After a detailed consideration of the law relating to champerty it was held that the judge had applied the correct test. The agreement was void and the solicitors were not allowed to proceed with the action.
THE JUDGMENT ON THIS ISSUE
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
Conclusion