2 May 2012

Court of Appeal ruling highlights need for retainers to deal with clients who won’t pay their bills

Law firms’ terms of business need to clearly provide them with adequate rights to stop work for a client who refuses to pay, solicitors have been warned following an important Court of Appeal ruling yesterday.

The court also indicated that solicitors should not have to continue working for a client when there is little realistic prospect of payment.

The appeal judges overturned the ruling of the Senior Courts Costs Office, which had been upheld by Mr Justice Cranston in the High Court, in Cawdrey Kaye Fireman & Taylor v Minkin.

Lord Justice Ward summarised the kind of problem that arose in this case as one that every solicitor, in one way or another, will encounter: “The solicitor is instructed to conduct certain litigation on the client’s behalf. He gives his best estimate of the cost of doing so. He asks for a payment on account. The litigation becomes more complicated than had been envisaged. The estimate is exceeded. More money is requested on account.

“The client is by now dissatisfied with the service he has been receiving and believes that the costs are excessive and that the solicitor is achieving nothing. The fractious relationship is terminated and the solicitor’s bill is assessed.

“Then – and this may be the unexpected turn of events, at least from the solicitor’s perspective – the costs judge conducting the assessment concludes that it was the solicitor who wrongfully terminated the retainer and did so before the litigation had come to its end. Not having performed an entire contract, the solicitor is entitled to no further fees: indeed he must repay the fees he has already received on account.”

The Court of Appeal said CKFT was entitled to suspend work pending payment of its bill, pursuant to its terms of business. It found the client had then terminated the retainer by expressing a lack of confidence in the solicitors and writing an e-mail about which Lord Justice Ward said: “Were he [the client] Lord Sugar, dealing with his Apprentices, he would be pointing his finger and saying, ‘You’re fired’.”

The court also said Cranston J had been wrong to say that so long as the basis for the client withholding payment is not frivolous, trivial or made in bad faith, it may not be reasonable for the firm to terminate for that reason.

A briefing on the case by Bernard Livesey QC and Joshua Munro of Hailsham Chambers, who acted for CKFT, said that while the case turned on its own facts, Lord Justice Elias’s statement that the court should not “compel a solicitor to carry on working for a client even though there may be little realistic prospect of payment” could be of use in future cases.

They said questions remained over whether the ‘entire contract’ doctrine, in relation to solicitors’ retainers at least, is fit for purpose in the 21st century. “We suggest that the doctrine may now be outmoded. We suggest that solicitors may avoid the application of the doctrine by suitable provisions in their retainers unequivocally providing contractual rights to payment before the conclusion of the litigation that the solicitor is retained to prosecute.”

They added: “The case highlights the need for solicitors to ensure that their terms of business clearly provide them with adequate rights to stop work for a client who refuses to pay, and for clients to tread very carefully when considering refusing to pay interim bills but requiring solicitors to carry on acting.

“Whilst the ‘entire contract’ doctrine continues to apply, this remains a potentially tricky area to navigate.”

 

By Legal Futures

Tags: retainer