Court of Appeal: conditional fee agreement with consumer unenforceable if notice of right to cancel not given

Out-Law News | 03 Feb 2015 | 10:39 am | 2 min. read

A conditional fee agreement (CFA) that was signed at a client's home, rather than at the lawyer's office, was unenforceable because the client had not been given notice of her right to cancel, the Court of Appeal has ruled.

Consumer protection legislation provides that when a contract between a "consumer" and a "trader" is finalised in the consumer's home or place of work the consumer must be given written notice of her right to cancel the contract. The Court of Appeal found that the CFA in this case was "made" for the purposes of the rules when it was signed in the home of the client, Susan Cox.

The full text of the judgment has not yet been published. However, the firm of lawyers that acted for Cox's former employer in the case said that the decision could affect a "significant number" of contracts made under the 2008 Cancellation of Contacts Made in a Consumer's Home or Place of Work etc. Regulations, before they were updated in 2014.

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind, said that the case demonstrated how important it was for lawyers to have a "clear understanding" of whether they were entering into a CFA with a consumer, or with a commercial client.

"If the client is a consumer, the lawyer must be careful to comply with the terms of the 2008 regulations, paying particular attention to where the CFA is signed. Ideally, this should be signed at the lawyer's offices," he said.

The 2008 regulations apply to most agreements for goods or services, including consumer credit agreements, which are made in a consumer's home or place of work during a visit by the trader. They require the trader to give the consumer a written notice of her right to cancel the contract within seven days, set out in a prescribed format. Although updated in 2014, the 2008 regulations continue to apply to agreements entered into between 1 October 2008 and 13 June 2014.

Cox had been injured at work and planned to claim against her employer, Woodlands Manor Care Home. According to a report of the case on Lawtel, she was visited at home by a lawyer as this was more convenient due to the nature of her injuries, and signed a CFA on that visit. The lawyer conceded that she had not been given notice of her right to cancel under the 2008 Regulations. Ultimately, the claim was settled for £100,000 and standard costs.

Lawyers for the care home argued that the CFA was unenforceable because Cox had not been notified of her right to cancel; meaning that she was not liable to pay her own lawyers and that therefore her employer did not need to reimburse her costs. At an earlier hearing, a costs judge held that the CFA had not been "made" for the purposes of the regulations when it was signed because whether the lawyers would ultimately act for Cox depended on whether a legal expenses insurer would cover the claim. However, the Court of Appeal said that this did not prevent the CFA from being legally effective when signed.

According to the Lawtel report on the case, the Court of Appeal judge found that Cox had "legally committed" herself when she had signed the contract, despite the CFA being conditional on funding from the insurer. This was "correct as a matter of law and also consistent with the policy" behind the 2008 Regulations, which were designed to protect consumers in their homes from pressure that operated at the moment of decision, according to Lawtel.

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