High Court ruling a warning to firms offering clients fixed-fee retainers

High Court ruling: any work done under a fixed fee must be up to the standard of that in a case charged on an hourly basis

Solicitors dispensing legal advice on a fixed-fee retainer should take care to clarify the terms and ensure the service they provide is the same as if it were paid for by the hour, following a High Court ruling.

The judge addressed the question of the scope of duty owed under such a retainer, which has topical significance because of the growing use by law firms of fixed-fee products, in order to provide clients with predictability of costs, and also the government’s push for greater use of fixed fees.

In Inventors Friend Ltd v Leathes Prior (a firm) [2011] EWHC 711 (QB), the claimant wanted to distribute a DIY product on behalf of two inventors. He drew up a distribution agreement and a sub-agreement and contacted the defendant, the solicitors’ firm Leathes Prior, for advice.

The firm agreed only to “briefly review and comment on the terms of the agreements but not to draft or make detailed background enquiries” for £500 plus VAT, although this proved a “considerable underestimate” given the work involved, the court found. No formal retainer letter was sent.

The claimant was concerned to ensure he would be compensated if the distribution agreement was terminated after an initial seven-month period. After seven months the inventors terminated the agreement but it emerged the claimant was not entitled to the compensation he had anticipated. He launched professional negligence proceedings against the solicitors.

Giving judgment, Mr Justice Cranston, a former Solicitor General, identified that the firm had not followed the recommended practice of setting out the ambit of the retainer in a letter. The terms of the retainer had to be constructed from the circumstances of claimant’s dealings with the firm.

He found that the firm had acted reasonably save for one aspect of its advice. However, since no loss resulted from the firm’s breach of duty, the claim was dismissed.

Mr Justice Cranston observed that at one point in the case, the firm had “suggested that any drawbacks in the distribution agreement were because of the low budget the claimant set for the work”, although he noted the argument was rightly not put before him.

But in raising this issue, the judge underlined that any work done under a fixed fee must be up to the standard of that in a case charged on an hourly basis, with the cost of any fees miscalculations to be borne by the solicitor.

He said: “When solicitors undertake work at a specific fee, they are generally speaking obliged to complete it exercising the ordinary standard of care, even if it has become unremunerative.”

Helen Mitchell, a solicitor at City firm CMS Cameron McKenna, said the case illustrates the risks associated with fixed-fee retainers. Lawyers working on fixed fees should be careful to send a clear retainer letter, setting out the scope of the retainer and excluding liability for advice beyond the scope of the retainer.

She added that they should calculate fees only when full information has been provided – here the solicitors agreed the fee of £500 before seeing the agreements in question – and “ensure that advice that is of importance and readily apparent to a lawyer in that specialism is given, potentially even if it falls outside the scope of the retainer”.


    Readers Comments

  • filemot says:

    Did the judge expect a separate retainer letter for every fixed fee job when there was a pre-existing client relationship and overarching client care letter (or perhaps was not one of those). For a fee this low an e-mail setting out the price and terms of review should have been sufficient. It is important to note here that the claim was dismissed. In other words having your agreement reviewed doesn’t guarantee that the underlying deal will not disappoint. in some situations, the client might be better directed to an insurance broker

  • It’s so very clear clients want to find ways to do things on lower budgets, but firms need to keep the quality high. There is really only one way to solve this and that’s using document automation with detailed automated content to drive a quality first draft. Ideally back sourcing the initial instruction capture to the client using an online Q&A.

    A fantastic example why firms should be looking hard at technology to bridge this gap and not leave themselves exposed.

  • James Hunt says:

    So the solicitors “won” in that no damages were awarded! The case shows the challenge for a claimant in any litigation of proving his loss.

    Perhaps a claim will no be brought against the firm that represented the claimant in the legal proceedings :).

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