This comes with a health warning! Ploughing through the Consumer Contract Regulations is definitely advisable only with the right combination of a good night’s sleep, hot towel over head and a strong cup of coffee. Even with the Law Society’s practice note on these Regulations, I found it difficult to figure out what we needed to do as a firm to address these Regulations, and what information to give to our clients verbally and in our engagement letter.
So here’s my attempt at cutting through to the “essentials”:
1.The Regulations apply to all of our work with individual clients – see Regulations 1 and 6 regarding their application to service contracts generally and exclusions, and the definition of “trader” and “consumer” under Regulation 4. It does not apply to our work with businesses, including sole traders where they are instructing us on matters relating to their business.
2. There’s an important distinction between “off-premises, “on-premises” and “distance selling” contracts. Most of our contracts are likely to be regarded as “distance-selling” or “off-premises” – more on this below.
3. For all contracts, there are requirements on what information we need to provide to our clients under the Regulations – these are covered in section 6 of the Law Society’s practice note. Most of these are likely to be in our client care letter and terms of business (TOB) anyway due to the SRA’s code of conduct requirements, but it’s worth checking.
4. For “off-premises” and “distance selling” contracts the Regulations give our individual clients a 14-day period (from the date when the contract is concluded) within which they can cancel their contract without obligation: Regulation 30(2). That means they are not required to pay for work completed, even if work is commenced within that period (subject to one exception covered at no. 8 below).
5. So when is the contract concluded? Many law firms commence work before TOB are returned and signed. Most firms have a clause in their terms of business which states that their TOB will apply from when work is commenced pursuant to a client’s request, even when the TOB are not signed and returned by the client.
6. So by my reckoning, the contract is concluded either when the TOB are signed by the client (easy to identify), or when work commences (could be more difficult).
7. Next, when is a contract not caught by this 14-day cancellation right? It would need to be an “on-premises” contract – that is when the contract is concluded while you and the client are present together at your business premises. This rarely happens because we like to give our clients time to think and review the engagement letter and TOB at their leisure at home. Where this happens, this is most likely either a “distance selling” or an “off-premises” contract. The definitions are complex (see Regulation 5), so my personal view is that unless you have very stringent procedures regarding how solicitors enter into contracts with new clients, it’s safest to assume all contracts are not concluded “on-premises”, and so will be subject to the 14 day cancellation right. Makes sense so far? I know, it doesn’t.
8. The exception to the rule at number 4 is where a client contacts the solicitor in writing to request that he/she commences work before the end of the 14 day “cooling off” period. The in-writing part is essential, due to Regulation 36 (1), however in legislation lingo this is referred to as a “durable medium”, i.e. no self destructing messages?
9. If a client does contact you in writing/durable medium to request you start work immediately, they do not lose their 14-day cancellation right. However if they do then cancel within the 14 day period, due to the effect of Regulation 36(4), the firm is entitled to a proportionate amount of payment for any work completed up until the cancellation date – that would need to be worked out objectively using the TOB, costs quote and time/expense recording as a reference.
How does all of this effect how we commence work with new clients?
First off, we need to be sure of the date when the contract has been concluded. The only way to be really confident of this is to make sure we either get written confirmation from the client requesting us to start work immediately, or get the signed TOB back from the client.
Can we start work without a request in writing to start immediately? In my view this is not a good idea – because even if the contract has been concluded, if the client then cancels within the 14 days, the firm is not entitled to payment. All that work for nothing…
So to be safe, we need to advise clients verbally (and confirm in the engagement letter) that:
(a) They have a cancellation right under the Regulations that allows them to cancel the contract within 14 days after the contract has been concluded without obligation, AND
(b) Due to the effect of the Regulations, we will not commence work until 14 days after we’ve received the signed terms of business UNLESS we receive written confirmation from the client that they want us to commence work immediately.
To sum up: Terms in your TOB/engagement letter relating to the Consumer Contract Regulations are needed, but this alone won’t be enough – you will also need to implement a procedure regarding how solicitors enter into all new instructions with individual clients, in particular:
(a) Ensure that the date that the contract is concluded is clear to both the solicitor and the client, and can be evidenced.
(b) Solicitors do not commence work until the 14 day cancellation period is over (unless they have written instructions from the client to commence work immediately).
Hopefully this will give you an introduction on how the Regulations apply to our work, but please don’t rely on my opinion without reference to the legislation and reviewing in full the Law Society Practice Note in this topic. In my view, it’s well worth taking time to get this right. Good luck!