Consumer Contracts Regulations 2013 | Non-Compliance Does Not Void CFA

 4VVV Ltd & Ors v Spence & Ors involved a multi-party litigation comprising over 430 claimants against a group of defendants, including Nicholas Spence and Derek Kewley. While the substantive proceedings concerned claims arising out of failed investments and allegations of misconduct, the matter before Mr Justice Foxton focused exclusively on legal costs following the substantive trial.

After handing down judgment in the substantive trial on 27 September 2024, the court turned to consider consequential matters, including costs. The principal issue was the claimants’ entitlement to a costs order and an interim payment on account of costs as against certain defendants. The costs issues arose due to challenges raised by the defendants concerning the indemnity principle, which governs recoverability of costs by requiring that a party incurring recoverable costs must be under a legal obligation to pay those costs to their own solicitor.

The defendants, represented by Mr Collings KC, argued that the indemnity principle disentitled the claimants from obtaining a cost recovery order. This contention relied upon an alleged failure to comply with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (“the 2013 Regulations”), which govern consumer rights in distance contracts, including those for legal services. The defendants asserted that the claimants were not subject to an enforceable liability to pay their solicitors due to a purported non-compliance with Regulation 13 of the 2013 Regulations. A specific submission was made that the retainer agreements between the individual claimants and their solicitors were void or unenforceable on this basis.

In response, the claimants, represented by Mr Hext KC, maintained that (i) any arguable non-compliance with Regulation 13 did not render the solicitor-client retainer unenforceable; and (ii) certain corporate claimants within the group, who were undeniably exempt from the 2013 Regulations, shared joint and several liability for the overall legal costs. This argument aimed to overcome any potential limitation posed by the indemnity principle for the natural-person claimants. A further argument was advanced that significant payments of approximately £5.5 million had already been made by the claimants to their solicitors, further undermining any challenge to the indemnity principle.

Additionally, ancillary arguments emerged concerning the terms of the costs-sharing arrangement introduced by an order of Mr Justice Calver on 15 June 2022 (“the Costs Sharing Order”). The claimants argued that the order did not affect their joint and several liability to their solicitors under the client care terms. Conversely, the defendants submitted that the Costs Sharing Order precluded the claimants from relying on joint liability arguments to recover costs from the defendants.

Complicating the matter further was the contractual framework governing the claimants’ liability to their solicitors for costs. The framework involved multiple interrelated documents, including client care letters, a group constitution document, and a Discounted Conditional Fee Agreement (“DCFA”). The interpretation of these documents—particularly a clause in the DCFA addressing joint liability—was at the heart of the dispute over whether the corporate claimants were jointly liable for the entire group’s legal costs.

The court was required to address issues of statutory interpretation (pertaining to the 2013 Regulations), contract construction (regarding the claimant-solicitor agreements), and the procedural implications of the Costs Sharing Order.

 Chronology of Relevant Events

• 6 July 2020: The group constitution document governing the claimants’ joint participation in litigation was established.
• 15 June 2022: Mr Justice Calver issued a Costs Sharing Order that addressed the allocation of costs liability among the claimants.
• 27 September 2024: The court handed down judgment in the substantive proceedings ([2024] EWHC 2314 (Comm)).
• 19–20 November 2024: The court heard consequential matters, including costs.
• 27 November 2024: Judgment on costs, including analysis of the indemnity principle, was handed down ([2024] EWHC 3035 (Comm)).

Issues to Be Decided

The principal costs-related issues were as follows:

1. Whether the indemnity principle precluded the claimants from recovering their legal costs: Specifically, the court considered whether alleged non-compliance with Regulation 13 of the 2013 Regulations rendered the solicitor-client retainer agreements unenforceable.
2. Whether the corporate claimants had joint and several liability for the solicitor’s costs: The question arose as to whether joint and several liability could enable costs recovery for the entire group, regardless of unenforceability against individual claimants.
3. Whether the Costs Sharing Order precluded joint liability arguments: The court examined whether procedural amendments imposed by the Costs Sharing Order affected the claimants’ ability to recover costs from defendants based on joint liability.

Claimants’ Position

• The claimants, via Mr Hext KC, argued that any breach of Regulation 13 of the 2013 Regulations did not render the solicitor-client retainers unenforceable. They contended that non-compliance merely addressed timing obligations and did not affect the validity of contracts under the regulations.
• It was asserted that the 2013 Regulations had no applicability to the corporate claimants, who were categorically exempt as non-consumer entities. The corporate claimants were said to have joint and several liability for solicitor costs under the contractual framework, paving the way for costs recovery on behalf of all claimants.
• Significant payments already made by the claimants to their solicitors were cited as further evidence of compliance with the indemnity principle.
• The claimants contended that the Costs Sharing Order did not affect the liability arrangements under the solicitor-client contracts and permitted costs recovery on a joint liability basis.

Defendants’ Position

• The defendants, represented by Mr Collings KC, advanced that Regulation 13 of the 2013 Regulations invalidated the solicitor-client retainers due to non-compliance, thereby undermining all claims for costs recovery under the indemnity principle.
• They disputed the joint and several liability of the corporate claimants, suggesting that contractual provisions within the Discounted Conditional Fee Agreement limited liability to individual claimants only.
• The Costs Sharing Order was argued to impose limitations precluding recovery of costs from defendants on the basis of joint liability among claimants. This, they asserted, supported their objection to the claimants’ recovery framework.

Decisions

The judge found that the Claimants were entitled to recover costs despite a failure to comply with Regulation 13 of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. He concluded that non-compliance with Regulation 13 did not render the Claimants’ legal retainers with their Solicitors unenforceable. Instead, the 2013 Regulations addressed non-compliance by providing limited remedies such as cost exemptions for the consumer, rather than nullifying the contract entirely.

“Reviewing the 2013 Regulations as a whole, I am wholly satisfied that the latter construction is correct.  First, that construction fits best with Regulation 13. Regulation 13(5) contemplates that the effect of non-compliance with particular parts of Regulation 13 will be that the consumer is not liable for particular costs arising under the contract. That provision would be superfluous (and its limited scope positively misleading) if the effect of non-compliance with Regulation 13(1) was that there was no binding contract at all. Regulation 10, which is similarly structured in relation to ‘off-premises’ contracts, uses the same introductory paragraph (‘Before the consumer is bound …’), and a specific and narrow provision identifying when non-compliance overrides a particular and identified contractual obligation (Regulation 10(4)). On Mr Collings KC’s construction of the words ‘before the consumer is bound,’ the same difficulty would arise.”

 The Corporate Claimants were found to have joint and several liability for costs incurred with the Solicitors. The judge determined that the terms of the Discounted Conditional Fee Agreement (DCFA) established joint and several liability for all members of the litigation group, including the Corporate Claimants, for the costs owed to the Solicitors. He rejected the argument that the word “individual” in the DCFA excluded corporate entities from liability.

“I am satisfied that the joint and several obligation created by clause 4.2 of the DCFA applies to all the individual members of the Group, including Corporate Claimants. The contrary construction would have the wholly improbable consequence that non-corporate claimants would have joint and several liability for all the Solicitors’ costs and the success fee, including those referrable to the Corporate Claimants, but the Corporate Claimants would have no similar liability for costs, and logically no liability for costs or the success fee at all.”

The judge found that the Costs Sharing Order by Calver J created limitations on the Claimants’ ability to recover cost. While the Corporate Claimants had joint and several liability to pay the Solicitors under the underlying retainer agreements, the judge found that the Costs Sharing Order explicitly limited the manner in which a Claimant could seek recovery of costs from the Defendants. He noted that the Costs Sharing Order provided that costs liabilities and recoveries among Claimants would be several, not joint.

“The words ‘each party’s entitlement to recover costs’ seem perfectly clear to me, and it may well be that the quid pro quo for the absence of joint liability for inwards orders is the inability to claim costs on a joint liability basis from a counterparty … The effect of this provision is, in my view, to prevent the Corporate Claimants recovering costs on the basis of a joint liability on their part.”

The judge declined to modify the Costs Sharing Order. He refused to depart from the Costs Sharing Order structure put in place during earlier procedural hearings, emphasising the need to uphold predictable frameworks established at the case’s outset. He found no compelling basis to create a retrospective variance to allow for joint cost recovery.

“The words ‘save as otherwise ordered’ would permit me to make an order on a different basis now. However, I would not lightly depart from the structure put in place at the first CMC so that all parties would know where they stood at an early stage in the case, and I am not persuaded that an attempt to get round what has been assumed to be non-compliance with the 2013 Regulations is a sufficient reason for doing so.”

 The indemnity principle was satisfied based on the structure of the agreements. The judge rejected the Defendants’ argument that the indemnity principle precluded cost recovery because of alleged non-compliance with the 2013 Regulations. He found that joint and several liability under the terms of the DCFA extended sufficient enforceability to costs payment obligations.

“I do not accept that Calver J’s order can vary the contractual rights of the Solicitors under their contracts with the Claimants … As a result, Mr Collings KC’s argument on the indemnity principle does not work.”