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Conspicuous consumption

 

Article date:  18/08/2014

This article was first published in the July 2014 edition of PS, the magazine of the Law Society's Private Client Section.

New consumer contracts legislation introduced in June needs to be addressed in all solicitors firms' terms of business and client care letters. Ian Bond and Helen Clarke outline the implications for private client practitioner.

Traditionally, private client practitioners (especially those in rural areas) have been willing to take instructions from clients in places other than at the firm's offices, such as the client's home, place of work, hospital or care home. These meetings now bring greater risk to firms, following the introduction of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCR 2013), which came into force on 13 June 2014.

The CCR 2013 implement into law the EU's Consumer Rights Directive (2011/83/EU), and replace both the current law on distance sales, set out in the Consumer Protection (Distance Selling) Regulations 2000 (DSR 2000) and the current law on doorstep sales, set out in the Cancellation of Contracts made in a Consumer's Home or Place of Work etc. Regulations 2008 (the 2008 regulations). Contracts created before 13 June 2014 will remain subject to the

DSR 2000 and the 2008 regulations. The changes will affect all solicitors who have a relationship with individual clients (defined as 'consumers', namely individuals acting wholly or mainly outside their business). The CCR 2013 will not usually affect contracts with business clients. The CCR 2013 affect the relationship with individual clients, but in different ways, dependent on how the solicitor contracts with each client in each instance, either:

  • a) 'on-premises' (for instance, in the office);
  • b) 'at distance' (for instance, via the telephone, online or via prepacked legal services); or
  • c) 'off-premises' (for instance, at the client's home or any other place, such as hospitals and nursing homes).

Private client practitioners need to make themselves aware of the terms of the CCR 2013 to ensure compliance, as failure to comply is a criminal offence which could incur a fine of up to £5,000 (see regulation 19). There is also an immediate practical risk to the firm: the inability to enforce payment of any fees due for the matter concerned. This article outlines the effects of the regulations for private client practitioners.

1 CHANGES AFFECTING 'ON-PREMISES' CONTRACTS

Where solicitors enter into contracts with clients 'on-premises' (that is, in the firm's offices), there are new requirements for specific information to be provided to the client (see regulation 9 of and schedule 1 to the CCR 2013). These are similar to the information requirements currently required under the DSR 2000 in relation to distance contracts; indeed, much of the information required is already likely to be included in your client care letters and terms of business.

The information requirements include:

  • the main characteristics of the service;
  • the identity of the law firm;
  • details of the firm's complaints procedures; and
  • the total price of the services (including taxes), or, where the nature of service is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated.

Every contract to which the CCR 2013 apply will be treated as including a term that the 'trader' has complied with the regulations. Failure to provide the information will be regarded as a breach of contract (see regulation 18).

Many private client firms offer certain services, such as the preparation of wills or lasting powers of attorney, at a fixed or indicative price to the client. However, for other matters, such as estate administration, it may be difficult to provide the total price of the services at the outset. Where this is the case, your firm's charging mechanisms (for example, based on an hourly rate or a percentage of any value element) must clearly be explained to the client.

2 CHANGES AFFECTING 'DISTANCE' CONTRACTS

The key change is the increase to the statutory minimum 'cooling-off period' (referred to in the legislation as the 'cancellation period'), from seven working days to 14 calendar days for 'distance' and 'off-premises' contracts (see regulation 30). For supply of services, the period commences after the day on which the consumer enters the contract. This period can be extended to 12 months if there is a breach of the information requirements (see regulation 30). The CCR 2013 also provide for circumstances in which the provision of services can commence before expiry of the cooling-off period, subject to the express request of the consumer.

As with 'on-premises' contracts, there are new requirements for specific information to be provided to the client when the contract is entered into 'at distance' (see regulation 13 and schedule 2). This information must be provided to the client before the client is bound by the retainer. The prescribed information includes that mentioned above for 'on-premises' contracts, plus:

  • the existence of relevant codes of conduct that govern the law firm (that is, the SRA Code of Conduct);
  • the availability of an out-of-court complaint and redress mechanism (that is, the Legal Ombudsman); and
  • details of the client's right to cancel (in relation to which, the firm must also provide a cancellation form in the prescribed form - see below).

The solicitor must also provide the client, before commencement of any service supplied under the contract, with confirmation of the contract on a 'durable medium' (such as letter or email).

If you take instructions over the telephone, then you can provide some information by different means, such as letter or email. However, this does not apply in relation to information about: the characteristics of the services; your firm's identity; the price of the services; the right to cancel; and (where applicable) the duration of the contract, or how to cancel. All of this information must be given during the telephone conversation.

Practice points

Firms should introduce clearly defined procedures and training for all relevant staff, to ensure compliance with the CCR 2013 where contracts are entered into 'at distance'. These steps should help to demonstrate both that you have taken all reasonable precautions and exercised due diligence to prevent the commission of the offence (see regulation 20 of the CCR 2013), and that you are supervising your staff and monitoring and managing risks to ensure compliance with all the SRA Code of Conduct principles, rules and outcomes. Below are some specific steps firms can take.

  • Prepare and distribute to all staff that may take instructions on the telephone / remotely, a simple statement / 'script' setting out all the prescribed information on a laminated card.
  • Include an additional tick box on the instructions sheet / file pro forma to be completed, to confirm that the prescribed information was given.
  • Provide practical compulsory training on the requirements of the CCR 2013 for all relevant staff.
  • Make it clear that deviation from the text is not an option for anyone, as failure to supply the prescribed information is a breach of a contract and raises the possibility of a criminal prosecution.

3 CHANGES AFFECTING 'OFF-PREMISES' CONTRACTS

For most private client practitioners, 'off-premises' contracts will be commonplace, whether made at a client's home, care home or hospital. The changes being introduced by the CCR 2013 are broadly similar to those being introduced in relation to 'distance' contracts.

For 'off-premises' contracts (as with 'distance' contracts), the client has the right to cancel the contract within 14 days without giving any reason or incurring any liability during the cancellation period (see regulation 29). The solicitor must also: provide the client with the same prescribed information as for 'distance' contracts, before the client is bound by the contract (see regulation 10 and schedule 2); confirm the contract in a 'durable medium'; and provide some, but not all, information by different means. For more details on all of these, see point 2 above.

CASE STUDY 1: TELEPHONE INSTRUCTIONS FOR A WILL

You are contacted by telephone by a client enquiring about making a new will. During the course of the conversation, you take oral instructions to prepare a will for the client on the basis of a fixed fee. During the call, you must confirm to the client details of: your firm's identity; your contact details; the price of the will; the features of your firm's will service; the timescale for delivery of the draft will; and the client's right to cancel. The client confirms that they want you to complete the will straight away.

The day after the call, you prepare and send a draft of the will with explanation based on the oral instructions provided over the phone, together with the firm's client care letter and terms of business, which includes details of the CCR 2013. The client attends your office one week later to sign the will and return the signed client care letter and terms of business.

Under the CCR 2013, this is treated as a 'distance' contract, as the contract was made during the telephone conversation and before the visit to your office. You have provided the necessary information under the regulations during the telephone conversation, and the client confirmed that you were to commence work during the 14-day cooling-off period.

CASE STUDY 2: HOME VISIT FOR ESTATE ADMINISTRATION INSTRUCTIONS

At the request of a long-standing client of the firm, you visit the client's home after the death of their spouse. During this visit, instructions are provided to extract a grant of probate and to administer the estate on behalf of the client. At the meeting, you provide the client with the firm's client care letter and terms of business, which includes details of the CCR 2013. The client has asked this work to be done urgently, and provides you with a request in writing for work to commence before the 14-day cancellation period expires. You commence work, but receive a cancellation notice from the client 10 days after the agreement is reached, asking for the return of the papers.

Under the CCR 2013, this will be treated as an 'off-premises' contract, as the contract was made at the client's home. The client is entitled to cancel the contract, despite the written request. However, you are entitled to claim payment in accordance with the reasonable requirements of the contract for services that were supplied before the cancellation was received. You cannot charge the client for the time to return the papers to them. If the client had not provided you with the written request to start work before the cancellation period expired, then you would not be entitled to payment.

WHAT HAPPENS IF THE TERMS OF THE RETAINER NEED TO CHANGE?

What happens if you go to see a new client, with whom you have entered into a 'distance' contract, expecting instructions for a simple will, possibly at fixed rate as set out in your terms of business, but then realise it is a much more complex situation? For instance, there may be an estranged child, or unexpected tax issues, and the preparation of lasting powers of attorney may be appropriate. This means that a fixed rate, as set out in the information that you have brought and must provide, is not appropriate.

A possible solution is to have a standard letter setting out your terms and conditions, and then fill in the agreed rates / terms of the retainer during the meeting with the client. It may not look as neat and professional, but it would allow you to adapt the terms to reflect the actual circumstances. A duplicate signed and dated copy of the letter would be given to the client.

CONCLUSION

The circumstances surrounding this legislative change have provided only a short time for solicitors to prepare for the introduction of the CCR 2013.  However, a failure to comply with the CCR 2013 may result in a solicitor facing a criminal conviction and / or a fine of up to £5,000. Depending on the type of breach, the contract with the consumer may also be invalid. Add to this the obvious reputational damage to the firm and the inability to enforce payment, and it is clear that the consequences of non-compliance may be severe.

It is therefore vital that firms closely examine the way in which they conduct business to ensure that they are compliant with the changes being introduced by the CCR 2013. Once the firm ensures that it has the systems and processes in place to be compliant, then it is still a requirement to make sure that the new systems are in use by all fee earners - a message that does stand repetition.

Model cancellation form

The CCR 2013 include the following model cancellation form at part B of schedule 3.

To [here the trader's name, geographical address, and where available, fax number and email address are to be inserted by the trader]:

I/We [*] hereby give notice that I/We [*] cancel my/our [*] contract of sale of the following goods [*]/ for the supply of the following service [*],

Ordered on [*]/ received on [*],

Name of consumer(s),

Address of consumer(s),

Signature of consumer(s) (only if this form is notified on paper),      

Date

[*] Delete as appropriate.

Note: The CCR 2013 states that a trader must make available to the client a model cancellation form in prescribed form to enable the client to exercise their cancellation rights. Although the solicitor is obliged to provide the form, the client does not have to use the form and can communicate the decision to cancel in any other way - this doesn't even have to be in writing.

Model instructions for cancellation

Part A of schedule 3 to the CCR 2013 provides model instructions for providing information to your client about their right to cancel a contract. The following has been excerpted from the model, to relate to a contract for the provision of services.

Right to cancel

You have the right to cancel this contract within 14 days without giving any reason. The cancellation period will expire after 14 days from the day of the conclusion of the contract.

To exercise the right to cancel, you must inform [your firm's name, geographical address and, where available, your telephone number, fax number and email address] of your decisions to cancel this contract by a clear statement (eg a letter sent by post, fax or email). You may use the attached model cancellation firm, but it is not obligatory.

To meet the cancellation deadline, it is sufficient for you to send your communication concerning your exercise of your right to cancel before the cancellation period has expired.

Effects of cancellation

If you cancel this contract, we will reimburse to you all payments received from you.

We will make the reimbursement without undue delay, and not later than 14 days after the day on which we are informed about your decision to cancel this contract.

We will make the reimbursement using the same means of payment as you used

for the initial transaction, unless you have expressly agreed otherwise; in any event, you will not incur any fees as a result of the reimbursement*.

If you requested to begin the performance of services during the cancellation period, you shall pay us an amount which is in proportion to what has been performed until you have communicated to us your cancellation from this contract, in comparison with the full coverage of the contract.

*The exception is credit card transactions, where the reimbursement can only be made to the originating card.

Ian Bond is a partner at West Midlands based Higgs & Sons and is a member of the Law Society's wills and equity committee. Helen Clarke is a member of the Private Client Section executive committee and represents the Private Client Section on the Law Society Council.


This article was first published in the July 2014 edition of PS, the magazine of the Law Society's Private Client Section.

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