Conditional Fee Agreements:
- is there a cancellation notice attached?
- what if there is legal expenses insurance in the background?
On 27th January 2015, the Court of Appeal handed down judgment in the case of Cox v Woodlands Manor Care Home Ltd (unreported – approved judgment is awaited) bringing home the importance of CFAs being compliant with the Cancellation of Contracts etc. Regulations 2008 and dealing with the situation where there might be legal expenses insurance cover in the background and how this might affect any CFA entered into.
- Cancellation Notice
The first point of immense practical importance to all those dealing with CFAs can be expressed in short as follows:
A CFA is unenforceable if it falls within the ambit of the Cancellation of Contracts made in a Consumer’s Home or Place of Work Regulations 2008 and has no cancellation notice attached to it.
A short while back (in October 2014 to be precise) I did a blog on the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which came into force on 13th June 2014 and revoked the Cancellation Regulations 2008 but in the context of credit hire and credit repair agreements. The scope of the Regulations however is not limited to such agreements and can apply to CFAs too.
The 2013 Regulations are not retrospective though so any CFAs entered into after 1st October 2008 (when the 2008 Regulations came into force) but before the 13th June 2014 are still governed by the 2008 Regulations. The above case of Cox concerned itself with the 2008 regulations.
Still, the principle is the same and all those CFAs entered into after 13th June 2014 will need to comply with the 2013 Regulations which carry similar obligations in terms of requirements for the inclusion of a cancellation notice and provision of information therein.
This is important because if the CFA is deemed unenforceable as between solicitor and client (usually claimant but this can affect defendants too), anything claimed under it is likely to be deemed irrecoverable (under the indemnity principle) against the other party to the proceedings when it comes to costs. This was the final outcome in Cox.
See below for discussion of facts of the case as to why the 2008 Regulations applied in that scenario.
- Legal Expenses Insurance
The presence of such insurance in this case and its interplay with the existence of the CFA was the main point on appeal and the arguments raised therein are likely to be reflected in the judgment once it comes out. It is of less practical significance perhaps but nevertheless a useful point to note:
Even if there is legal expenses insurance in the background which has been engaged by the client, the fact that a CFA is signed by that client at the same time does not make the CFA non-binding.
Background to the case:
C claimed damages for personal injuries arising out of an accident at work. She was introduced to a firm of solicitors and wanted them to act for her but also had legal expenses cover as part of her household insurance. She was advised that her insurers were likely to want her to use panel solicitors up to the issue of proceedings and not the solicitors she had already instructed. Still, she signed a CFA with the firm she had instructed (who were not on the panel) but also made a claim on her insurance. The firm she signed the CFA with came to her home in order for her to do that. This was easier because of her injuries. Those same solicitors then sent a pre-action protocol letter and attended on a witness, clearly doing work under that CFA. Just after that the insurers confirmed that C would have to use different solicitors who were on their panel.
The claim was settled for damages of £100,000 and costs on standard basis.
The question then arose before the costs judge on assessment of the principle of costs as to whether or not the CFA was binding as between the solicitors and C. If it was binding, and the defendant had to pay costs under that CFA then there needed to be compliance with the 2008 Cancellation Regulations before the CFA could be said to be enforceable. (It was signed at home, which made the 2008 Regulations bite) If it was not enforceable, then the defendant was not liable to pay the costs claimed under that CFA.
At first instance, it was found by the costs judge that the CFA was not in fact ‘made’ when it was signed because there was no intention to create legal relations until the position with the legal expenses insurer had been confirmed. So there was no need to consider the 2008 Regulations and the enforceability point.
This decision was appealed and the Judge hearing the appeal found that just because the CFA might have ceased to operate – in the event that the insurer agreed that the solicitors that C had actually instructed herself could continue to act – this did not prevent it from being legally effective when signed. So this meant that the 2008 Regulations were applicable and the CFA unenforceable.
Ultimately, this meant that C could not recover costs under the CFA so she appealed to the Court of Appeal who dismissed her appeal and held that:
- The CFA had been ‘made’ for the purposes of the 2008 Regulations when it was signed. There was clearly an intention to create legal relations at that point.
- The likelihood of the situation was that the CFA would terminate if the insurers gave consent for the already instructed solicitors to continue acting even under the insurance cover. In the absence of that, the CFA continued to take effect.
- C was clearly legally committed; the CFA was binding, which meant that it was also unenforceable because it did not comply with the 2008 Regulations.
- C was not entitled to recover costs from the defendant.