Legal Cost Specialists

Hurley v Makuni

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.

37 thoughts on “Hurley v Makuni”

  1. 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: 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…

  2. 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?

  3. 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.

  4. Timothy. Where was this tweeted? I am the representative from Bikers Legal Defence (credit hire company) who has conduct of this claim 🙂

  5. Thanks Timothy. I shall be in attendance at the Court of Appeal hearing, so I may post my views on how I thought it went, pending an expected reserved Judgment.

    Andrew Edis QC of Atlantic Chambers has been instructed for the hearing, and the services of Benjamin Williams of 4 New Square Chambers have also been employed in addition to counsel at first instance and first instance appeal, Azeem Ali of Clerksroom.

  6. Should be especially interesting in light of the fact that the Cancellation Regulations 2008 are due to be repealed when The Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 come into force, the result being that these will mirror previous incarnations of similar consumer credit legislation which specifically excluded vehicle hire contracts.

  7. Timothy, it was an interesting day, to say the least. In all honesty, I could not possibly say which way the Justices will go. I would say that our QC’s submissions seemed to attract the most questioning. I have been told that this is sometimes a good sign, as the argument is being tested. The QC for the insurers did admit in open Court that the Regulations 2008 were draconian, and did make a criminal of the hypothetical plumber who Lady Justice Rafferty referred to.

  8. The law is quite clear that if a notice of right to cancel is not included then the contract is unenforceable – that was clearly the intention of the law makers and I am unsure why so much time and effort is being spent trying to fight it when it is so easy to comply.

    Yes there law is draconinan and there no exemption for non doorstep seller types but the law is still black and quite.

  9. Jimmy, ‘So much time and effort is being spent trying to fight it’ because any domestic law has to be necessary and proportionate to the mischief at which it is aimed. We appreciate that vulnerable consumers need to be protected, but the Regulations have been drafted too widely, and yes, they may be black and white, but it is their effect which we are seeking to limit or quash. Having come into force on 1 October 2008, it was not until March 2010 that even the Law Society advised its members that these Regulations ‘may’ effect CFAs. They are secondary and non-discretionary in their effect and have caught small businesses out, and even solicitors’ firms. These Regulations are being repealed as part of the over-lapping and confusing legislation in existence. Even when our client was made of aware of his missing Notice of Right to Cancel in the Defendant’s Defence, he was still willing to waive his right to cancel and assist us in the litigation. He was shocked and confused that the guilty insurers could rely on this technical argument to avoid what would be a normally unimpeachable head of special damage. He wanted the servive, and was grateful of the service. He was not a victim of ‘pressurised doorstep selling’, which all the EC travaux preparatoires refer to, and even the preamble to the domestic legislation refer to. The Court of Appeal rejected the argument that, notwithstanding the unenforceability of the agreement, the Claimant/Appellant was still entitled to the cost of hire by way of general damages (See Bee v Jenson [2007] EWCA Civ 923). They did this because to do so would go against the House of Lords in Dimond v Lovell. Well, The Supreme Court are not so shackled.

  10. My understanding is that the new regualtions will still make contracts unenforceable but there are a few more exemptions brought about by combining these Regulations with the Distance Selling Regulations (and using the exemptions set at EU level) – which by conincidence to this debate inlcudes vehicle hire.

    The point of the regulations is that they accept that consuemrs MAY be pressured into contracts in their home – save for a few exemptions there is no difference whether its a ‘rogue trader’ or any other business – it is not just cold calling businesses that can pressure consumers into things even if the consumer has invited them into their home (you only have to see example on Watchdog – good exmaple is mobility aids). The Regulations could possibly be limited the main problem areas but as I say they are written on the basis that misselling can happen in any industry.

    As for unenforceablity – I can see a sucessful SC ruling saying that agreements can become enforceable on application to the court (like credit agreements) or if the consumer waives their right (to the court) but I doubt the blanket approach of unenforceability will go as it is often used to get rogue traders to back out of contracts/works.

  11. Jimmy, you are correct. The new Regulations specifically exempt vehicle hire contracts, which is exactly what the 2008 Regulation’s predecessor did.

    So we have a chronology that reads – Vehicle hire exempt – Vehicle hire not exempt – Vehicle hire exempt.

    The ‘consultation process’ referred to in all the Parliamentary literature does not once mention that the hire industry was consulted.

    It seems obvious to me why vehicle hire will be once more exempt and the 2008 Regulations repealed…..they are drafted in a draconian manner, and vehicle hire should have always been an exemption under them.

    What has astounded us with the judgment is Moore-Bick LJ says at paragraph 22;

    “In the present case Mr Salat did not become aware that the contract was unenforceable until the point was raised in the defence and nothing he did after that could possibly be regarded as amounting to an unequivocal statement that he was willing to be bound”.

    What?? He appears to not be taking into account that, having the ability to simply walk away from the litigation (because he became aware of the unenforceability of the contract at the point of receipt of the Defence), Mr Salat not only confirmed his willingness to continue assisting his solicitors by personally attending court in the case at first instance, but confirmed that continued assistance to the appeal at first instance, and also to the Court of Appeal?

    It could be argued that this comment by Moore-Bick LJ implies professional misconduct on the part of his solicitors – what possible basis did he have for supposing that they were not acting properly on Mr Salat’s instructions in stating that he had waived any unenforceability?

    Liability had been admitted by the Defendant, and Mr Salat had been indemnified by his insurers. The only issue outstanding was his hire charges. He came to court purely for that issue alone. How is this not an unequivocal indication of him waiving his rights?

  12. Regulation 27 (1) (h) states that this Part [Cancellation Notice] does not apply as regards the following— the provision of accommodation, transport of goods, vehicle rental services, catering or services related to leisure activities, if the contract provides for a specific date or period of performance.

  13. The Doorstep Regs 1987 did not cover solicitied visits. The 2008 did and covered car hire. Both of these Regs are based on an EU directive that does not exempt hire.

    The 2013 regs are based on the EU Consuemr Rights Directive and vehicle hire is specifically exempted – so its out of scope of the UK control anyway.

    You could argue there are lots of industries that deserve exemption – I am not sure why vehicle hire is any better than TV hire!

    I suppose the point is that you cannot waive your rights even if you want to – it could be used by rogues as a way of pressuring people in to paying when they have not given the paperwork.

    A concession might be to make waiving an option on application to court – which would weed out ‘legitimate’ claims but I am not sure whether that would be welcomed as it could ismply be use by everyone who forgot and there would have to be a high standard as to why a contract should be made enforceable. The Court didnt suggest this change though.

  14. The EC Directive which the 2008 Regulations were implemented under did not even include solicited visits, but it also said the Member States ‘could’ enact legislation even more favourable to the consumer than the minimal requirements under the Directive.

    The OFT v EasyCar case is an example of vehicle hire being exempt, but the OFT claiming a right to cancel should have been provided.

    Nothing in the 2008 Regulations prohibits a consumer from enforcing his/her rights under a faulty contract. It is only the business that cannot enforce. Ergo, nothing in the 2008 Regulations prohibits a consumer from taking the benefit of the contract, performing the contract, and then assisting in litigation to the effect that, irrespective of the lack of Notice of Right to Cancel, he/she does not to take this point and step away from the contract. It is not void or illegal.

    For some it is the moral thing to do – See Christopher Clarke J in Forde v Birmingham CC [2009] 1 WLR 2732 – pp 111-116.

  15. Thanks Dean

    In relation to notice of a right to cancel, I infer that the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 will apply to CFAs to the same extent that the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 currently apply.

  16. Timothy, it appears so. They do receive the exemption that vehicle hire contracts do.

    To bolster our argument before the Court of Appeal, we pointed out that the draconian scope of the Regulations captured those unfortunate cases in which a solicitor has visited a terminally ill client to sign the forms of authority and CFA, and that they equally could not have been intended by Parliament to have been captured by the Regulations.

    We also highlighted the everyday situation in which a gardener, plumber, hairdresser visits at house at the behest of a consumer and concludes the contract in the home address. The nature of the Regulations is that the consumer could watch the tradesman fix his boiler, or mend a tap, and then walk away from the agreement because a Notce of Right to Cancel was not provided. To add insult to injury, they would be criminals.

    The judgment washes over this point as contracts to which this present case is not concerned with? How very non-committal?

  17. Having reviewed Mark Friston’s book, I would expand on my previous comment as follows:

    In relation to notice of a right to cancel, I infer that the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 will apply to CFAs _and other solicitors’ retainers_ to the same extent that the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 currently apply.

  18. The 2008 regs were an increase in protection over the 1987 regulations – as you say they went over and above the EC Directive – the UK Government/Parliament clearly made a concious decision to do so and decided not to offer many exemptions.

    The Easycar case related to the Distance Selling Rgeualtions – it was not clear whether ‘transport’ included hire. However the exemption for transport/hire have been included in the EU consuemr rights Directive so the exemption will now apply to distance and doorstep contracts i nthe enw 2013 regulations.

    The unenforcebaility bit has obviously been put in to be a harsh reason to comply with the law – but it is there by design and for a reason.

    I don’t see what relevant the terminal exmaple has – the point is that once the law comes out you incorporate the requirements into your paperwork – it shouldn’t be a big deal (for a solicitor no less) but of course lots of businesses will not ocmply due to ignorance.

  19. In the OFT v EasyCar case the ECJ held that the OFT were incorrect.

    As for the ignorance point, that is exactly why we raised the Article 1 Protocol 1 ECHR points, as small businesses and tradesman do not expect to have their contractual rights or legitimate expectation of contractual rights expropriated by non-discretionary subordinate legislation.

    The Court of Appeal expressed their disquiet and the scope of the 2008 Regulations in Robertson v Swift [2012] EWCA Civ 1794, so we thought they would go one step further in Salat v Barutis.

  20. yes the ECJ held they were incorrect but I don’t think the OFT were wrong for taking the case – it is not obvious car hire is ‘transport’ per se. The EU has clarified this point in the EU Consumer rights directive by calling hire by its name rather than lumping it in with transport.

    Given the 2008 regs are being repealed soon I would have thought the Govt would take the opportunity to amend the 2013 regs the way you want them to be at this opportunity – so it will be interesting to see what they do – they havent indicated they will yet.

    BTW the 2008 do have lots of exemptions – car hire not one of them – so they are not totally ‘non discretionary’.

  21. We hope that ‘vehicle hire’ is clear and unambiguous enough to exempt credit hire from the need to provide a notice of right to cancel, but with all things credit hire, there is no doubt a firm of defendant solicitors itching to have a crack at it.

    As for the non-discretionary point, it was not that we submitted that they affected all and sundry, but rather the Court had no discretion whatsoever, (unlike the situation with the Consumer Credit Act 2006, which repealed the ‘irredeemably unenforceble’ provisions found within its predecessor), to forgive infractions.

  22. Well that is the law profession for you!

    It is a concession they could make – like the CCA to say a contract which is not compliant can be made compliant on order of the court.

    But don’t want a scenario where businesses risk giving out paperowrk with no notice of right to cancel in hope people don’t notice and then take the ones who do to ocurt for payment.

    I imagine any right to have the contract made enforceable woudl require a valid reason other than we forgot to comply with a law that has been out for 5 years.

  23. I think it would strike a fair balance, to permit Mr Salat to affirm the agreement.

    As for your last point, BLD did not ‘forget’ to comply with the law. We, along with many businesses (including the law profession and Mr Swift) were simply not aware of it, and even then, I remember attending a credit hire conference in early 2010 in which some lawyers did not think the 2008 Regulations would apply to credit hire.

  24. I have been seeking to clarify a clear ruling on the treatment of “unenforceable “under the 2008 regulations.I have “voluntarily” ie without coercion paid a £1000 deposit towards a £2400 bill for glazed windows.I accept that I am going to have to seek to recover through the small claims courts .But surely,this must be a case where the trader has forgone his right to recover the balance .No notice was given and after 11 weeks of a one sided correspondence ,I am still no closer(for various reasons) to establishing whether there is a product to install in spite of offering to go to arbitration to establish a reasonable price for the product on professional inspection but insisting on my own installer( having having since found a list of very dissatisfied customers in the same position as myself or worse My case seems prima facie to be the type of case the regs are there to protect

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