Back to the future
Date: 21 May 2009
Issue: Vol 159, Issue 7370
Categories: Features, Procedure & practice, Public
Many personal injury practitioners will be aware that paying parties are now arguing that certain consumer regulations apply to contracts of retainer. Contravention of those regulations can result in contracts to which they apply being unenforceable (and, in some circumstances, can also amount to a criminal offence). What seems not to have been fully appreciated is the fact that the regulations are not limited to those which have come into force only recently, but also include regulations which have already been in force for over 20 years.
Put bluntly, the profession seems to have overlooked those regulations, and there is a real risk that this means that many contracts of retainer are unenforceable. Solicitors with contracts of retainer that are at risk ought to consider whether they need to enter into retrospective agreements to avoid difficulties arising out of the indemnity principle.
This article makes no attempt to describe the regulations in detail or to explain how the regulations ought to be complied with; instead, it merely provides an overview of the problems that the regulations might cause and the things that can be done to deal with those problems. If a firm believes that it may be affected by one or more of the regulations, then they should thoroughly research their position (in respect of both contracts of retainer which are already in place and those which are yet to be made) and take specialist advice where appropriate.
Are solicitors traders?
The regulations apply to traders or suppliers; the writers' view is that this includes solicitors. That said, the writers have not been able to find any evidence that Parliament considered the possibility that they would apply to solicitor and client. Indeed, the recital to the directive (Council Directive 85/577/EEC) that resulted in the first of the regulations implies that it was aimed at double glazing firms, door-to-door salesmen and the like. It is, perhaps, therefore unsurprising that the regulations do not sit easily with the practical realities of a solicitor's practice. That said, the Citizens Advice Bureau did include evidence of problems related to the selling of “no win no fee” compensation claims services in a report in 2002 (Door to Door) for the purposes of a Super Complaint to the Office of Fair Trading.
There are three sets of regulations to consider; they are:
● The Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987 (as amended) (SI 1987/2117);
● The Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334); and
● The Cancellation of Contracts made in a Consumer's Home or Place of Work etc Regulations 2008 (SI 2008/1816).
These will be referred to as the 1987 Regulations, the 2000 Regulations, and the 2008 Regulations respectively. On 1 October 2008 the 1987 Regulations were revoked and replaced by the 2008 Regulations, but the 2000 Regulations are still in force. Each of the regulations is now dealt with in turn.
The 1987 Regulations
The 1987 Regulations came into force on 1 July 1988. They were made under s 2(2) of the European Communities Act 1972 to implement the directive already mentioned. They continue to have effect in relation to a contract to which they applied before revocation. Accordingly, they apply to certain contracts of retainer made between 1 July 1988 and 1 October 2008.
With some exceptions, the 1987 Regulations apply to any contract for the supply of services by a trader where that contract has been made in circumstances such as unsolicited visits to the client's home. A full analysis of those circumstances is beyond the scope of this article, but from the costs point of view, the following are likely to be the most important:
● unsolicited visits to the client's home;
● unsolicited visits to the home of another person;
● unsolicited visits to the client's place of work; and
● during an excursion organised by the solicitor away from his offices.
The 1987 Regulations will apply if the contract of retainer is made during such episodes and, in some circumstances, after such episodes.
At first blush it would seem unlikely that the 1987 Regulations would ever apply because solicitors almost never make unsolicited visits. That would probably be the wrong attitude to take. This is because an unsolicited visit includes a visit which has taken place after the solicitor has telephoned the client (otherwise than at his express request) to indicate that he is willing to visit the consumer. As such, the 1987 Regulations would arguably apply where, for example, a solicitor offers to visit an injured or ill client at his home to discuss the terms of the retainer.
Certain things have to be done where the 1987 Regulations apply to the contract of retainer; it is unlikely that those things will have been unless the solicitor has specifically turned his mind to the matter. In particular, the client should be given a statement that he has the right to cancel the contract if he wishes and that this right can be exercised by sending or taking a written notice of cancellation to the solicitor within seven days. Some standard terms and conditions do contain the requisite provisions, but (in the writers' experience) this tends to be the case with firms that do commercial work rather than personal injury work. There is, however, also a need to provide a cancellation form, and very few contracts of retainer provide for this.
The effect of not complying with the 1987 Regulations is that the contract of retainer is not enforceable. It appears that the court has no discretion in this regard.
The writers' view (which is no more than that) is that if it is not possible to circumvent the problems caused by the 1987 Regulations by, for example, entering into a new contract of retainer, the best way of seeking to preserve the contract is to argue that the Regulations do not apply because the contract was not made “during…a visit” or “after an offer was made…during…a visit”. This may require an in depth analysis of when the actual offer was made; it may well be that it would be possible to persuade the court that whilst an interaction between the solicitor and the client might at first sight appear to be an offer, it is, in law, an invitation to treat.
The 2000 Regulations
The 2000 Regulations came into force on 31 October 2000 and apply to “distance contracts”; the definition of a distance contract contains subtleties, but in the costs setting it could include a contract of retainer where the solicitor habitually enters into retainers over the telephone. Our experience is that this is commonplace in low-value personal injury work.
Where they apply, the 2000 Regulations require that the client is given a right to cancel, and that notice of that right to cancel is also given; the cancellation period is seven days. As with the other regulations, it is unlikely that a retainer would comply with the 2000 Regulations unless the solicitor had specifically turned his mind to the matter.
An odd quirk of the 2000 Regulations (no doubt because they were not designed for contracts of retainer) is that they require complete performance of the contract within 30 days; if this is to be exceeded, the parties have to agree an extension. On a strict interpretation of the 2000 Regulations a solicitor who does not agree an extension will find that his retainer ceases to be (ab initio) after 30 days.
Generally speaking, failure to comply with the 2000 Regulations does not render the contract unenforceable, it merely extends the cancellation period up to a period of just over three months. This means that the client could terminate the contract after a great deal of work had been done. As such, they are the least perilous of this group of regulations, but they ought not to be ignored.
The 2008 Regulations
These are very similar in substance and effect to the 1987 Regulations (which they revoked and replaced), save that the things that have to be done to meet the requirements of those regulations are more specific than under the 1987 Regulations.
We know that at least one costs counsel has expressed the opinion that the 2008 Regulations are unlikely to cause any significant problems because compliance is easy. We disagree. There are significant grey areas in respect of which arguments could easily arise. An example is the requirement that a particular notice should “be afforded no less prominence than that given to any other information in the document apart from the heading to the document and the names of the parties”. It was jokingly said of the Conditional Fee Agreements Regulations 2000 that the court will next be asked to rule on whether font size 10 is sufficient for the purposes of complying the need to provide certain information in writing: what was said in jest under these regulations may actually come true under the 2008 Regulations.
Dealing with the regulations (claimants)
There can be no doubt that many personal injury solicitors will have been caught out by these regulations. In particular, firms who have relied on home visits (conducted either by themselves or by agents) are very much at risk. Perversely, firms who have taken the trouble to arrange home visits (either by themselves or through an agent) could be at greater risk than firms who never have face-to-face contact with their clients.
The action affected firms should take will be entirely dependent on their own particular circumstances, and it would be unwise to rely on “magic fixes”.
The extent to which the court will require paying parties to make out a “genuine issue” as to compliance with these regulations is difficult to predict. The things that the writers are presently advising their claimant-based clients to do include the following:
● obtaining detailed evidence as to what exactly was discussed during home visits and/or initial telephone calls;
● obtaining detailed evidence as to what exactly was said during follow-up telephone calls;
● taking a view as to whether it can be said with reasonable certainty that no offers (as opposed to invitations to treat) were made during those visits and/or telephone calls;
● entering into bespoke retrospective retainers, but only where appropriate;
● recasting the retainers to be used in future, but only where appropriate;
● considering changing the way in which retainers are made, and considering terminating the use of agents;
● considering how best to discharge the obligations under CPD Art 10.1;
● considering a strategy in relation to “genuine issues”, certificates, disclosure and election pursuant to CPD Art 40.14;
● considering whether publicity material (such as websites) needs to be altered;
● considering ADR in appropriate cases; and
● carrying out a risk assessment in relation to costs awaiting payment.
Recast and new retainers may be conditional fee agreements, including CFAs Lite. This is not always the case, however; formal contentious business agreements and other non-conditional retainers may be appropriate. Moreover, where a client is asked to enter into a new retainer, care needs to be taken to ensure that the paying party is not given the opportunity to argue that the new retainer is, in reality, merely a continuation of the original contract.
The most difficult aspect of these cases is certification of bills; it is possible that it would be professionally improper for a solicitor to certify a bill of costs if he knew that the contract was made in breach of either the 1987 or the 2008 Regulations. It is difficult to know what to do in cases such as that (especially given the fact that it is not yet known whether the court will apply these regulations strictly).
Dealing with the regulations (defendants)
The things that we are presently advising defendants (who are usually paying parties) to do are similar, but with a particular emphasis on indentifying “genuine issues”, encouraging election, carrying out risk assessments and costs/ benefit analyses, and (where appropriate) considering ADR.
We believe that collection of evidence is important for proving 'genuine issues', and this can include putting Part 18 Requests to receiving parties, and collecting publicity material from websites (including from web archives such as The Wayback Machine).
It is, at present, simply not known the extent to which these regulations are going to cause problems for receiving parties. It could be that the true law is that a high standard of proof is required to prove a genuine issue, or that a test akin to the test of materiality will apply. It is also possible that the court will find that most discussions about the proposed retainer are merely invitations to treat, and that the offer to enter into the retainer is not made until the last moment, when the solicitor picks up his pen (in his offices) to sign the contract. We take the view that there are myriad ways in which the court could find a way of not finding contracts enforceable, if that it is what it wants to do. Each case will turn on its own facts, however, both sides ought to make sure that they are prepared for what might be just around the corner.
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