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Retainers – Don't Get Short Changed!

Following the conclusion of a contentious and often lengthy legal action, the last thing that any successful Party's Solicitor will want to hear is that they are not entitled to recover their legal costs.

When considering the recovery of legal costs, one of the biggest pitfalls can arguably be linked to the retainer. Failure to ensure that your retainer is in order (or in place!) can result in a failure to recover your legal costs!1

The underlying axiom in costs is undoubtedly the indemnity principle; the fundamental rule that a Solicitor cannot recover more from the Paying Party than that which can be charged by the Solicitor to their Client2. Thus, if the Solicitor has no agreement to charge their Client for the work done then they will not be able to recover anything3.

A Solicitor's retainer is effectively the contract between the Solicitor and Client which provides the basis upon which work will be done and charges raised. Contracts for provision of services can be made orally or in writing, however, it is important to note that if the retainer purports to be a Conditional Fee Agreement then it must be made in writing 4. Furthermore, in the writer's experience, if you are seeking to rely on a private oral retainer, make sure to record everything in writing if you want the Courts to uphold its existence. Evidence will need to be provided to the Court that the Client's liability to costs was fully explained and agreed to and will need to include facts such as the hourly rates discussed. Without this evidence, any costs claimed in accordance with an oral retainer are at risk of failing to be recovered.

Here are some important considerations to bear in mind throughout a case to ensure that you are not left without an adequate retainer covering the work done: -

  • Does your retainer cover you from the date you first received instructions? Many retainers are entered some time after instructions have been received. If you do not have a retrospective clause within your terms, the costs incurred prior to the date the retainer was entered are at risk (unless you have an alternative method of funding covering that period). Inserting a clause which provides for the agreement to apply “from the date instructions were first received” ought to allow the retainer to have retrospective effect. Retrospective retainers have been approved by the Courts5, that said, recovering the success fee element of a CFA from the Paying Party is not always successful 6.
  • Check your standard termination clauses and be mindful of key events. Many Conditional Fee Agreements contain a clause which causes them to terminate in the event of the Client being made bankrupt. If you are acting for impecunious Clients, then it is essential that you are aware of the possibility of them being made bankrupt. If your Conditional Fee Agreement does terminate on the Client's bankruptcy, then you will need to enter into an alternative retainer to ensure that you can recover any costs incurred following the making of the Bankruptcy Order.
  • In the unfortunate event of your Client passing away during the course of an action, you will need to enter into an alternative funding arrangement with the Client's personal representative/executor if you are to continue to carry out work. It will invariably be an upsetting time for the personal representative/executor and to ensure that all your costs are covered, it is worth agreeing that the retainer be specifically retrospective to an appropriate date. However, it would appear that entering into a retrospective Conditional Fee Agreement following settlement of the claim and/or seeking to effect a Deed of Variation following settlement is contrary to public policy7, so do it before settlement to be sure!
  • Where the Client is a minor, the retainer is usually entered with a suitable Litigation Friend due to the minor's lack of capacity. Consideration has to be given to when the Client reaches the age of majority and whether a new retainer ought to be entered. Where a new retainer is entered, making the agreement effective from the Client's 18th Birthday should ensure that a claim can be made for all the costs incurred.
  • It is always worth watching out for insanity! The insanity of either the Client or Solicitor can terminate the retainer making it necessary to enter into an alternative funding agreement with someone capable of giving and/or taking instructions.
  • Where your Client has not been terribly helpful or responsive, care should be given to the closure and reopening of your file. For instance, your Client may have been referred from a claims management company meaning you have had very little contact with them and getting information feels akin to extracting blood from a stone. If you do decide to write to them informing that the file is being closed, it is possible that this will be deemed to be a termination of the retainer. Consequently, if your Client later becomes much more amenable, and you re-open the file, it is certainly worth ensuring that the retainer did not terminate and if it did deem to terminate on closure of the file, enter a further agreement to make sure that there is a mechanism in operation for you to be paid on the (hopefully) successful conclusion of the claim!
  • If your retainer specifies that work on the case will be carried out by a qualified individual e.g. a Solicitor, make sure you don't get caught out by utilising a fee earner who doesn't fit the description in the retainer8. Checking that your fee earner descriptions within your retainer matches the actual qualifications and experience of your fee earners is a sensible step to aide recovery of your costs. Additionally, where a fee earner justifies an increased rate under the retainer, for example, due to an increase in experience, it is prudent to write to any Clients to inform them of this change and allow for the higher charge out rate to be claimed.
  • If your firm's legal status has changed, e.g. from a Partnership to an LLP, do you have an effective assignment of the retainer from the Partnership to the LLP9?. Strictly speaking, a Partnership is a separate legal entity to an LLP or a Company. Therefore, if the retainer hasn't been effectively assigned then, technically, there would be no retainer for the work carried out by the 'new' legal entity.

The above represents just some of the potential pitfalls that Receiving Party's can encounter and it is worth noting that where there appear to be discrepancies in a retainer, the Paying Party is likely to seize upon these discrepancies and utilise them as a platform to launch an attack on the validity of the retainer.

1 This article does not go into the derogation of the indemnity principle caused by factors such as the fixed costs regime under CPR Rule 45

2 Harold v. Smith (1860) 5 H & N 381 provides the first record of the indemnity principle.

3 Gundry v. Sainsbury [1910] 1 KB 645 is a case which also illustrates the importance of a Client understanding the retainer!

4 Section 58(3)(a) of the Courts and Legal Services Act 1990.

5 See Birmingham City Council v. Forde [2009] EWHC 12 (QB)

6 Being deemed contrary to public policy, for example, see the Judgment of Senior Costs Judge Hurst in King v. Telegraph Group Limited [2005] EWHC 90015 (Costs) at para. 90

7 Oysten v. The Royal Bank of Scotland Plc [2006] EWHC 90053 – interestingly it was also held that providing for a 'bonus' of £50,000.00 following recovery of damages in excess of £1,000,000.00 within the CFA equated to a success fee greater than 100% which invalidated the whole agreement.

8 Pilbrow v. Pearless De Rougemont & Co (a firm) [1999] 3 All ER 355, CA and Adrian Allen Ltd v. Fuglers SCCO Case No 13 of 2003 provide cautionary examples of costs being disallowed where the retainer provided that a 'Solicitor' carry out the work and the work was ultimately carried out by individuals who did not fit the description.

9 It was held in Jenkins v. Young Brothers Transport Limited [2006] EWHC 151 (QB) that a CFA is capable of being assigned.