Time for a retainer review?
Let’s go back to the basics of consumer regulation compliance, as we look at a SCCO decision that saw the Claimant’s costs of nearly £1.4 million disallowed due to problems with the cancellation notice.
The Applicable Regulations
The Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc. Regulations 2008 were in force between 1 October 2008 and 12 June 2014 and they applied to a contract, including a consumer credit agreement, between a consumer and a trader which is for the supply of goods or services to the consumer by a trader and which is made—
(a) during a visit by the trader to the consumer’s home or place of work, or to the home of another individual;
(b) during an excursion organised by the trader away from his business premises; or
(c) after an offer made by the consumer during such a visit or excursion.
What was in issue?
Whilst these Regulations have since been revoked they governed the retainer position in IXG (by his wife and Litigation Friend, Mrs JXG) v Dr Barnes & Ors [2023] EWHC 1688 (SCCO). There the Defendant argued that the Claimant’s solicitor’s CFA was in breach of the Regulations because the Right to Cancel notice was defective, whilst the Claimant contended that was not the case, or if there was any departure from the wording it was de minimis or immaterial.
What is the background?
Travelling back in time, the Claimant was a protected party who made a clinical negligence claim (via his wife and litigation friend) for serious personal injury and the litigation friend entered into a CFA with the solicitors, at home, on 26 September 2012. It was unchallenged evidence that the litigation friend was given a generic notice of the right to cancel at that meeting, with the CFA. That sounds so far so good?
However, the provisions of the applicable EC Directive that resulted in the making of the Regulations, at Article 4, were that “traders shall be required to give written notice of their right of cancellation within the period laid down in Article 5, together with the name and address of a person against whom that right may be exercised. Such notice shall be dated and shall state particulars enabling the contract to be identified.” The notice should be provided no later than the time the contract is concluded. Parliament determined how to enact the Directive, and the Regulations made went further in that they included a requirement at Regulation. 7(1) that the consumer has the right to cancel the contract within the cancellation period. Then “cancellation period” is defined in Regulation 2 (1) as “the period of 7 days starting with the date of receipt by the consumer of a notice of the right to cancel”.
The arguments
Notice of Right to Cancel issue: The paying party referred to Allpropertyclaims Ltd v Tang [2015] EWHC 2198 (QB), another case with cancellation notice issues and where the contract was held unenforceable and a strict compliance approach was taken. There the Claimant’s representative had accidentally taken with them the hard copy of the contract, including the notice, albeit the Defendant client was aware of his right to cancel.
CFA dating issue: There was a secondary argument concerning the date of the CFA, as whilst it was entered into on 26 September 2012 it was dated 18 September 2012, the date the Claimant’s solicitor had open their file and had taken initial instructions. The judgment notes “To rely on a date in a different document and for that date to be wrong is a recipe for confusion which does not promote the aims of the Directive and the Regulations”.
Alternative arguments: The Claimant advanced a fall back position that, even with an unenforceable CFA, the solicitor could seek their base costs by operation of quantum meruit and furthermore/at the very least, disbursements should be payable by the Defendants. In response the Defendant referred to W v Veolia Environmental Services (UK) Plc [2011] EWHC 2020 (QB) and argued that affirmation was not possible for an unenforceable contract, and quantum meruit does not apply where it would undermine the policy of the statute which renders the contract unenforceable. To prevent the Regulations from being toothless it was contended that “To award a quantum meruit in the face of a breach of the Regulations would plainly undermine the policy behind the Regulations.”
Disbursements: With reference to Hollins v Russell [2003] EWCA Civ 718 the paying party argued that where the CFA was unenforceable disbursements would only be recoverable where they were:
- paid directly by the client;
- paid out of proceeds of a loan for which C is liable; or
- client has a direct contractual liability for them which does not depend on the CFA.
Accordingly, any disbursements paid by the solicitor directly would not be payable by the Defendants if the CFA agreement was found to be unenforceable.
The decision
The Defendant was successful on all points. When the notice was read in conjunction with the CFA agreement there were material defects meaning the retainer was unenforceable. The dating of the CFA was a problem, as it meant that the 7 days for cancellation of the CFA expired by the time the agreement was signed, and in addition there was no date at all in the notice to cancel, when there should have been. The dating issue was considered an innocent mistake by the court, but that did not alter its effect. Other failures and issues with the documentation were identified and reviewed in the judgment, and material omissions were identified, alongside some more minor issues that alone would not have resulted in the Claimant not recovering costs.
It was adjudged that the affirmation could not cure a failure to comply with the Regulations as a matter of principle. Based on the case facts the alternative arguments were dismissed given that if the affirmation of the CFA was to be valid then the litigation friend would have had to know the contract was unenforceable in the first place, but there was no evidence that she knew this, nor the effect of signing the affirmation in terms of the extra costs the Claimant would be liable for. It was highlighted that was “a very clear conflict of interest involving a Protected Party” and no evidence that the litigation from had any independent legal advice upon her statement and the affirmation. As to the quantum meruit argument the Claimant’s argument that it would not undermine the unenforceability sanction was not accepted, and the Defendant’s argument that to do so would neutralise the effect of the Regulations was accepted.
Disbursements were limited to the ATE premium and any disbursements that the Claimant paid personally, however there was no evidence that any other disbursements were paid by the Claimant and all invoices and fee notes were addressed to the solicitors, not the Claimant. Costs Judge James commented that “It is harsh, but it is not irrational.”
What does this all mean?
If you have any historic cases then it is best to go back and take a look at the retainer documents, to be sure that there is compliance with the applicable Regulations. Naturally, such matters are likely to be the high value cases and catastrophic personal injury claims, given the period since these Regulations applied.
If the Regulations here apply to your case then consider the cancellation notice given; was it given when the contract was made, does it include the identity of the parties, what period is stated therein, and has the trader dealt with the pre complete parts of the notice? Has there been compliance with Regulation 7(3), and in the Parts and Schedules referred to therein, providing that the contract notice must;
(a) be dated;
(b) indicate the right of the consumer to cancel the contract within the cancellation period;
(c) be easily legible;
(d) contain—
(i) the information set out in Part I of Schedule 4; and
(ii) a cancellation form in the form set out in Part II of that Schedule provided as a detachable slip and completed by or on behalf of the trader in accordance with the notes; and
(e) indicate if applicable—
(i) that the consumer may be required to pay for the goods or services supplied if the performance of the contract has begun with his written agreement before the end of the cancellation period;
(ii) that a related credit agreement will be automatically cancelled if the contract for goods or services is cancelled.
You can find the further requirements at Schedule 4 of Part I, regarding the information to be contained in the Notice of the Right to Cancel, along with the cancellation form at Part II, here.
The Regulations in question here have a limited effect, albeit important if they apply to a retainer you have for an historic case, as they only applied in certain circumstances and for a set period, although there was also The Consumer Protection (Distance Selling) Regulations 2000 in force from 31 October 2000 until 12 June 2014 applying to Contracts for goods or services to be supplied to a consumer where the contract is made exclusively by means of distance communication – before both sets of Regulations were replaced by The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 for contracts entered into from 13 June 2014 to date.
If you are concerned about compliance with any Regulations, or have any questions relating there to then please get in contact with us for a chat and for further information.
Caroline Engledow, Costs Lawyer
05.10.2023