Engagement Letters and Risk Management for Law Firms
In this blog we outline some tips on engagement letters for compliance officers for legal practice (COLP’s) and Managing Partners to consider.
Are your clients always crystal clear in their instructions? We thought not.
These tips are based in part on SRA visits we have advised on and on documents which have survived the scrutiny of a LeO Complaint or a costs case before the courts.
What should you consider with a new instruction?
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.
It must cover:
- Who is the client? (Individual, partnership or company or multiple parties);
- What you are going to do for them;
- Explain what is excluded;
- How you will take things forward;
- What the timescale and costs are estimated to be (and what may impact on these).
In law firms, we develop clients relationships 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 our 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 minutes to complete on each file and should act an aide-memoire to you in every case. 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.
As each matter needs to give the same basic information to the client the “general retainer” is a risk and does not really exist. You can have a helpline, but you need to specify what is included and excluded and identity trigger points.
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 any change in writing (email is fine).
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 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.
In Belsner v Cam Legal Services Ltd  EWHC 2755 (QB) the High Court ruled for costs recovery the client must give informed consent in the context of the funding mechanism of a personal injury claimant law firm. The case has been widely reported and may be appealed. For now though personal injury law firms need to be ensuring they hit the informed consent threshold, and it is likely other litigation areas are held to the same standard as personal injury law is not distinct from the rest of litigation.
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.
Past SRA visits with client firms and case law merely confirm what we all already knew: you need to have an appropriate engagement letter completed on each file and it must be specific to the purpose of the retainer from a client protection basis.
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 law firms, adapting a previous firm’s letter is how we started our firms. It is not the best option in many cases as the base document may be poor or out of date. It is worth ensuring you update the engagement letter at least annually.
As always, specialist law firms such as ours are available to guide principals and partners if they prefer to outsource to ensure an expert does it for them. We would encourage firms to take expert advice, the retainer documents are key to the success of your firm so why would you as a non-specialist advise your own firm?
Get in touch for a free health check of your current engagement letter: firstname.lastname@example.org