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What is my retainer? Engagement letters and risk management for small firms
Are your clients always crystal clear in their instructions? Paul Bennett outlines some tips on engagement letters for compliance officers for legal practice to consider
Are your clients always crystal clear in their instructions? I thought not. At the recent Small Firm Division conference in both Chancery Lane and Leeds, I outlined some tips on engagement letters for compliance officers for legal practice (COLPs) to consider based on some recent SRA visits I had advised on.
A standard retainer letter with core clauses that are personalised should take no more than 10 minutes to complete on each file. It will be invaluable in dealing quickly with complaints and claims against you and the rest of the time is a good client expectation management tool
In sole practices and smaller firms, we develop clients over time and tend to focus on a core of loyal clients; we like them and vice versa. Ours is a highly personal service. However, a significant number of my law firm clients have had issues with so called general retainers with clients. Here are some quick tips to alert you to the dangers.
There is no such thing as a general retainer
Each time a client asks you/your firm to do something, you must identify the work to be done, any limitations on the work and guide the client on fees.
A standard retainer letter with core clauses that are personalised should take no more than 10 minutes to complete on each file. It will be invaluable in dealing quickly with complaints and claims against you and the rest of the time is a good client expectation management tool.
The SRA’s Code of Conduct 2011 Chapter 1 includes mandatory Outcome 1.10 which requires you to notify clients of their right to complain at the outset of the retainer. You should read this as each retainer.
Recently, a number of firms have been criticised by the SRA during visits and investigations for failing to signpost clients as required by the Code of Conduct (2011) regarding complaints and for failing to set out the parameters of the Legal Ombudsman scheme. Common problems have been referring to an abolished Ombudsman scheme, providing the wrong contact details for the Legal Ombudsman (as they moved) and failing to update the time limits for complaints which changed in 2013. The SRA is not sympathetic to such basic points being missed by solicitors. Interestingly, large and small firms fail to update in equal measure.
Consider also Outcome 1.12 which states: ‘clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them’. This requires advice from you on the scope of the retainer and any limitations.
A general retainer fails these basic requirements (sorry).
How to avoid misunderstandings
The engagement letter should set out clearly the work to be undertaken, the fees to be charged and what you are not going to do. If the work changes, you must confirm the change in writing.
In contract related work, the negotiation process can lead to significant changes and risks for your client (often including those you had sought to exclude). You should therefore ensure that, by email or letter, you have advised on any changes. A file note is not enough as clients may have misunderstood you on a key point.
We all know our clients change their mind, that the scope of the work can increase or new aspects come to light. Each of these significant events should be confirmed in writing to the client. A recent case involving a large law firm - Wellesley Partners LLP v Withers LLP  EWHC 556 (Ch) , during which the High Court ruled Withers failed to advise their client on the effect of a contract clause being removed - confirms this point. Withers defended the claim based on receiving instructions to remove the key clause but the High Court found against them as it was significant advice which had not been confirmed in writing. The Court awarded £1.6 million to the clients.
Excluding areas of advice
If your retainer does not cover something, you should set this out in writing within the engagement letter.
The provision of tax advice is, for example, often excluded by employment solicitors in relation to termination of employment advice to individuals. You should ensure you direct the client to the appropriate source of advice such as a chartered accountant, chartered tax adviser, independent financial adviser, etc. This does not mean introducing or recommending them but certainly raising with the client that they may wish to seek further specialist advice outside of this current retainer.
The case law guidance on this point - Hurlington Estates v Wilde & Partners  1 Lloyds Rep 525 - is relatively old but the guidance remains good. If you do not advise on something due to the fee limitation, or limitations on the scope of your expertise, you should identify the additional advice that may be needed to the client. The client’s decision is then an informed one and your firm is protected.
Recent SRA visits and case law merely confirm what we all already knew: we need to have an appropriate engagement letter completed on each file.
Your engagement letter needs to consider the risks; if in doubt, redraft it to make it crystal clear and ensure it protects your client relationship, your reputation and your professional indemnity insurance.
For many small firm division members, adapting a previous firm’s letter is how we started our firms. It’s not the best option in many cases as the base document may be poor or out of date. It’s worth ensuring you update the engagement letter at least annually. A number of free resources are available to help, including the Law Society’s practice note on client care letters and, as always, specialist law firms are available to guide principals and partners if they prefer to outsource to ensure an expert does it for them.