Costs reduced to Nil following failure to comply with Contract Regulations

Whilst all eyes are on the case of Coventry v Lawrence another significant development has taken place in the case of Cox v Woodlands Manor Care Home Ltd.

The full judgment is awaited but it is likely to have a great impact on all costs claims going forward. The case found that the failure to comply with the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulation 2008 (“the 2008 Regulations”) would render a CFA unenforceable and resultantly no costs would be recoverable inter parties.

The Case

The case was an employers’ liability claim where the Claimant recovered £100,000.00 in damage, plus an entitlement to costs to be assessed on the standard basis.

Detailed assessment proceedings were commenced and upon review of the Claimant’s CFA, the Defendant raised the argument that the Claimant had failed to attach a notice of cancellation as required by the 2008 regulations (see section ‘the Regulations’ for more information). The Defendant therefore argued that the failure to comply with the 2008 regulations meant that the CFA was unenforceable between the Claimant and the solicitor. This meant costs were not recoverable between the Claimant and the solicitor and by virtue of the indemnity principle no costs were recoverable from the Defendant.

At the first detailed assessment, the claimant and the solicitor submitted witness evidence stating that their intention was for the CFA only to come into effect once the legal expenses insurance enquiries had been completed. District Judge Britten accepted this. HHJ Denyer QC granted an appeal, holding that the district judge had erred to find that the CFA came into effect at any date other than the date that it had been signed. This ruling was upheld in the Court of Appeal, meaning that the contract between the claimant and her solicitor was found to be unenforceable. As such, the bill of costs was assessed at nil and the Defendant was awarded their detailed assessment costs, including those relating to the two appeals.

The Regulations

The regulations themselves only apply to Conditional Fee Agreements entered into after 1 October 2008. Even the regulations only apply in very specific circumstances:

  • During a visit by the trader to the consumer’s home or place of work, or to the home or another individual;
  • During an excursion organised by the trader away from his business premises;
  • After an offer made by the consumer during such a visit or excursion.

The judgment confirmed that solicitors satisfy the description of “trader” and their client’s would be classed as “consumers”, under the terms of the 2008 Regulations.

In most cases it is very rare that a CFA is signed at the same time by the client and solicitor and resultantly it is common for the 2008 regulations to apply.

Where the 2008 Regulations apply, the following requirements must be satisfied:

A: The solicitor must give the client a written notice of his right to cancel the retainer;

that notice must be given at the time the retainer is made, or if the contract is made after the visit or excursion, at the time the offer is made;

B: That notice must

Be dated;

  • Indicate the right of the consumer to cancel the contract within the cancellation period;
  • Be easily legible;
  • Contain the following information: the identity of the solicitor including trading name if any; the solicitor’s reference, code or other details to enable the contract or offer to be identified;
  • Contain a cancellation form in the form set out in Part II of Schedule 4 of the 2008 Regulations provided as a detachable slip and completed by or on behalf of the trader in accordance with the notes;
  • Contain the name and address, (including any electronic mail address as well as the postal address), of the person to whom a cancellation notice may be given;
  • Contain a statement that the consumer has a right to cancel the contract if he wishes and that this right can be exercised by delivering, or sending (including by electronic mail) a cancellation notice to the person mentioned above at any time within the period of 7 days starting with the day of receipt of a notice in writing of the right to cancel the contract;
  • Contain a statement that notice of cancellation is deemed to be served as soon as it is posted or sent to a trader or in the case of an electronic communication from the day it is sent to the trader;
  • Contain a statement that the consumer can use the cancellation form provided if he wishes;
  • Indicate, if applicable, that the consumer may be required to pay for the services supplied if services are provided with his written agreement before the end of the cancellation period; and
  • Indicate if applicable that a related credit agreement (such as a disbursement funding loan) will be automatically cancelled if the retainer is cancelled.

It is evident that ensuring compliance with these regulations isn’t entirely straight forward given the long list of areas which must be complied with. The case highlights the significance of ensuring compliance as failure to do so can result in costs been disallowed.

Even more significantly failure to comply with the regulations is a criminal offence so if you find yourself in this position or have any concerns it is vital to obtain specialist advice at the earliest opportunity.

What next?

This Court of Appeal decision held that costs are irrecoverable where a CFA does not comply with the 2008 Regulations. As reported by the Association of Costs Lawyers, within the judgment, the Court of Appeal confirmed that the 2008 Regulations apply to cases funded by CFAs between solicitors and their clients. As such, the decision applies to all CFAs entered into between solicitors and their client’s between 1 October 2008 and 13 June 2014.

The case is likely to give rise to even more requests for the disclosure of CFAs in any applicable cases and understandably so given the massive reductions which could be achieved.

My advice would be to disclose the CFA where ever it is practically possible to do so. Refusal to disclose your CFA only leads to doubts been raised over the validity of the same and would likely lead to criticism from the Court particularly if retainer documentation is only provided in the Court’s bundle (at the Detailed Assessment). If there is nothing to hide then there is no reason not to be open. Being open will likely assist in settlement negotiations, lead to a higher recovery rate and even to a swifter settlement.

For parties reviewing old cases who have failed to comply with the Contract Regulations then I can only urge you to obtain specialist advice as soon as possible because the repercussions can be catastrophic.

Do you think the application of the Contract Regulations is a harsh interpretation or is it right that the failure to comply leads to a nil costs recovery?

You can view the full 2008 Regulations online here http://www.legislation.gov.uk/uksi/2008/1816/pdfs/uksi_20081816_en.pdf

If you have any questions or queries in relation to this blog please contact Sean Linley (sean.linley@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

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