13 November, 2012
Hurley v Makuni
Filed UnderLegal Costs
An issue that has long being bubbling under the surface is the extent to which the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 apply to solicitors’ conditional fee agreements and whether a failure to contain notice of the claimant’s rights to cancel a CFA renders the agreement unenforceable. Despite lengthy commentary been devoted to this issue at various stages there appears to have been very little in the way of judicial decision on the issue.
However, this appears to have now shot back up the agenda in light of a recent decision by Regional Costs Judge Moss in Hurley v Makuni (Manchester County Court, unreported) (click link for judgment). It was ruled that a failure to include such a notice rendered the agreement unenforceable notwithstanding the fact that the CFA was a "CFA Lite”. Expect this issue to run to the Court of Appeal.
Thanks to Paul Wainwright at Berrymans Lace Mawer for providing details on this case.
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6 Responses to “Hurley v Makuni”
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This issue has indeed been simmering away for some time. It’s notable that in this case, the solicitors accepted that the 2008 Regs applied in princple, and simply argued that because this was a CFA lite either they fell within the small transaction exception, because less than £35 was payable, or that CFA lites are generally exempt from consumer protection legislation.
The second point is obviously hopeless – if this was right you could have a CFAL with a 500 per cent success fee. The first point is ambitious, because it is misconceived to say that nothing is payable by the client under a CFAL: if he wins, he is liable to pay costs, albeit that liability is capped to a sum indemnified by a third party. That liability will exceed £35. Nevertheless, given the Court of Appeal’s hostility to technical points of this kind, it might just about scrape home if it really is as simple as this. But what the judgment does not mention is whether this CFAL contained the usual clauses allowing the solicitor to charge uncapped fees if the client failed to co-operate, rejected reasonable settlement advice, died, etc. If it did, then this point too seems dead in the water.
In some of the “credit hire” cases, it has been argued that the 2008 Regs are so draconian in their treatment of minor infractions that they unlawfully offend rights to property protected by the HRA 1998 (through its incorporation of art 1 of the 1st protocol of the European Convention). No first instance court has been brave enough to accept this, but the CA has given PTA on the point in at least one case, saying that it is plainly arguable. However, this case settled.
It’s a shame that the solicitor in this case wasn’t more au fait with the “Through the Looking Glass” world of credit hire litigation. What he needed to do was this. Draw his bill. Make the client an interest free loan equal to the bill under an enforceable credit agreement (having first ensured that the client understood what was happening and received independent advice). Procured the payment of the bill by the client via the loan. Pursue the defendant for the costs, arguing that, the bill having been paid, all issues as to enforceability were ousted, and the indemnity principle had manifestly been satisfied by the payment.
If this sounds crazy, see W v Veolia Environmental Services [2011] EWHC 2020 (QB), [2012] 1 All ER (Comm) 667: http://tinyurl.com/b9rd25a. This is a case which costs practitioners are not generally aware of, but it shows there may be ingenious ways of defeating indemnity principle challenges – as whilst this was a damages case, the “compensatory principle” of damages is just the “indemnity principle” of costs by another name. In this case, the claimant was persuaded to pay charges due under a hire agreement unenforceable (the court held) by virtue of the 2008 Regs. He did so by claiming on an insurance policy set up by the hire company itself. The court held that, the charges having been paid, the question of whether the contract had been enforceable ceased to be relevant. The claimant did not behave unreasonably by paying, as he could not be criticised for declining to raise a technical point against the hire company for the benefit of his opponent. He therefore recovered hire charges of over £100,000.
This approach, artificial as it is, also appears to be in line with the costs decision in Forde v Birmingham CC, where the claimant entered into a 2nd CFA to defeat an enforceability challenge to the 1st, and Clarke J held that he could not be criticised for assisting his solicitor in defeating an unattractive technical challenge to the CFA by the defendant.
So the motto is: if you can afford a clever lawyer, never say die…
Never say die if you can afford a clever lawyer – or one who reads the comments on this blog!
Which case is Hurley v Maruki?
The judgment in Hurley v Makuni is a very interesting read though.
Thank you James.
How would the firm that has given the client the interest free loan go about getting back or reimbursing their client the difference between the size of the loan and the size of the costs recovered if the client was not liable to pay their solicitor anything more than the costs the have recovered (because they acted on a CFA Lite) or are you saying that it doesn’t matter because the money never actually changes hands from the solicitor to the client back to the solicitor? What about the FSA requirements for having to hold a Consumer Credit Licence in order to be able to offer the credit as the loan would surely fall to be a regulated agreement wouldn’t it or are you saying that it doesn’t matter that the loan is not enforceable because the money has already been paid to the solicitor (even though it never actually left the solicitors account)by the client? what about the smart client who thinks, thanks for the loan but as th e agreement wasn’t enforceable, I can get my money back. how do you head that off? by way of a side letter that says “we will lend you the money on this unenforceable loan on the understanding that you don’t take us to court to get the unenforceable agreement overturned? Wouldn’t that be an abuse of your position as a solicitor because you are fettering your client’s rights?
The Claimant/Appellant has sought PTA to the Court of Appeal in the credit hire case of Salat v. Barutis, arguing that the 2008 Regulations are a disproportionate interference with property rights protected by the Art 1 of the 1st protocol of the European Convention on Human Rights.
The Court of Appeal previously granted an appeal in the case of Blatchley v. Royal Mail Ltd, but having succeeded at first instance and first appeal, the Defendant/ Respondent then settled the Claimant’s/Appellant’s credit hire charges.