Peter Farrar v Candey Limited

A solicitor conducting litigation cannot validly take an assignment of the client’s cause of action before judgment. The rule protects the administration of justice from the conflict between the solicitor’s fiduciary duties and a personal interest in the claim.

Statutory permission for conditional fee agreements and damages-based agreements extends only to arrangements satisfying the prescribed conditions. A champertous arrangement involving those conducting litigation remains contrary to public policy and unenforceable when it falls outside those statutory exceptions. Its economic similarity to a permitted damages-based agreement does not validate it.

A claimant retained CANDEY under a damages-based agreement to pursue claims against the defendant. When the claimant experienced financial difficulties, he assigned the claims absolutely to CANDEY. Recoveries were to fund insurance, remunerate CANDEY and provide any balance to the claimant. After the claimant died, CANDEY applied to be substituted as claimant.

Marcus Smith J dismissed the application in [2021] EWHC 1950 (Ch), holding that the assignment was champertous. CANDEY appealed, principally contending that statutory acceptance of damages-based agreements demonstrated a change in public policy sufficient to validate the assignment.

The central issue was whether solicitors acting under a damages-based agreement could validly take an assignment of their client’s cause of action before judgment.

1. Appeal dismissed. The Court of Appeal was bound by Pittman v Prudential Deposit Bank Ltd (1896) 13 TLR 110. A solicitor acting for a client in legal proceedings cannot validly take an assignment of the client’s cause of action before judgment. The rule is independent of whether the assignment is champertous. It addresses the conflict between the solicitor’s fiduciary obligations and the personal interest acquired through the assignment.

2. The court was also bound by Awwad v Geraghty & Co [2001] QB 570 and Rees v Gateley Wareing [2014] EWCA Civ 1351. Those decisions, reinforced by the obiter reasoning in R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932 and Sibthorpe v Southwark London Borough Council [2011] EWCA Civ 25, establish that a champertous agreement involving those conducting litigation remains contrary to public policy unless sanctioned by statute.

3. Sections 58(1) and 58AA(2) of the Courts and Legal Services Act 1990 expressly make non-compliant conditional fee agreements and damages-based agreements unenforceable. Parliament had relaxed the common law rules only to the extent provided by sections 58 and 58AA. The court could not create a further exception merely because an assignment resembled a lawful damages-based agreement or might promote access to justice.

4. It made no difference that the assignment was neither a conditional fee agreement nor a damages-based agreement. That circumstance placed it outside the statutory exceptions; it did not free it from the common law rules. Even if the court had been entitled to depart from precedent, it would not have done so because the reasoning of the governing authorities was convincing.

5. It was unnecessary to decide whether the assignment was independently offensive to justice on its particular facts. The court nevertheless observed that the first-instance judge’s concerns about control of the litigation, CANDEY’s improved position and the claimant’s loss of protections were far from obviously misplaced. Phillips LJ and Simler LJ agreed with Arnold LJ.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously in [2022] EWCA Civ 295. The court upheld the conclusion that the assignment was invalid and CANDEY could not be substituted as claimant.

2. High Court, Business and Property Courts: Marcus Smith J dismissed CANDEY’s substitution application in [2021] EWHC 1950 (Ch), holding that the assignment was champertous. It was consequently unnecessary to determine the defendant’s application under section 423 of the Insolvency Act 1986.