Clarity and Communication
The lessons to be learned from Minkin v Cawdery Kaye Fireman & Taylor
Please note that this item was written prior to the introduction of the SRA Handbook on 6 October 2011. Some of the references are to regulations and rules which no longer apply.
To the already harassed solicitor, it can often seem that the decks are well and truly stacked against them in terms of getting paid for the work they do. Increasingly, clients are objecting to some aspect of the charges, often for what appear to be the most spurious of reasons. What is more worrying for many is that, rather than not getting away with it, those clients are having their objections upheld by regulators, complaints services, Ombudsmen and Courts.
To come to the defence of the client for a moment, one has to bear in mind that for them the whole process of the law can seem obscure and confusing. Nowhere is this more likely to be the case than in relation to a lawyers terms, conditions and charges.
In a world where builders, plumbers, dentists and garages appear to be able to give a fixed price for work to be done, it can often seem bizarre to clients that their solicitor, who should have undertaken work of that nature for many years if he is claiming an expertise, cannot give them a fixed price and instead relies on what to many seems an exorbitantly high hourly rate.
It is in an effort to protect clients from charging by ambush that Rule 2.03 of the Solicitors Code of Conduct 2007 exists and firms who do not abide by its requirements are likely to find that not only are they potentially in breach of the rules (and thus face the possibility of disciplinary action) but also that the courts will refuse to support them when they attempt to recover that which they believe they are owed.
If therefore solicitors want to stay on the right side of the regulations and, ultimately, be paid for the work that they do, then they need to ensure that they comply with the regulations that exist, that it is clear to the client what is expected both of the solicitor and the client in this relationship and, above all, that the firm communicates with the client at all relevant stages.
The “Minkin” case
Nowhere is this need for clarity and communication more clearly evidenced than in the recent case of Minkin v Cawdery Kaye Fireman & Taylor  EWHC 177 (QB) and it should act as a salutary lesson to all solicitors as to the importance not only of exercising great care when terminating retainers but also of ensuring that the retainers themselves are clearly worded, in compliance with Rule 2, observed by the firm and understood by the client.
In this case, Cawdery Kaye Fireman & Taylor (CKFT) were instructed by a Mr Minkin in relation to an occupation and non-molestation order obtained by his wife. CFKT initially quoted ?3,000 + VAT and, when a retainer letter was sent, estimated costs to be in the region ?3,500 + VAT – although they stated that they would try and keep the costs down as much as possible. Mr Minkin paid ?2,000 on account of those costs. The firm’s retainer letter was headed “Non Molestation and Occupation Order”, but it contained no other indication of what CKFT was undertaking to do.
Their letter stated:
“Any such overall step by step estimates are not intended to be fixed or binding and other factors may mean that the estimate will be varied from time to time. We will update you on any such estimates in writing at your request and will in any event inform you in writing if it appears that any previous estimates may be exceeded. Our invoice will also keep you informed of the level of charges being incurred on a monthly basis with a statement as to the actual level of charges incurred as against the relevant estimate. In any event we will communicate with you by telephone or in writing (including by email) when our charges have reached ?3,500 and at increments of ?1,000 thereafter”.
In addition, Clause 6 of their terms and conditions provided:
‘If an account is overdue for payment, without reasonable justification, we may suspend or terminate our services to you’
whilst Clause 13 provided
“We may only decide to stop acting for you on reasonable grounds and on giving you reasonable prior written notice.”
The actual sequence of events in terms of the steps taken by CFKT and the subsequent responses from Mr Minkin are slightly complicated but, in essence the facts were that following the first hearing, CFKT sent their client a bill for ?5,462.50 which Mr Minkin declined to pay on the basis that it exceeded the estimate. Mr Minkin challenged the costs. In response CFKT refused to undertake further work until they were paid. The client responded by informing them that he no longer wished them to act for him as he had lost confidence in them. CFKT responded by sending Mr Minkin another bill for ?950 for work done.
Mr Minkin applied under the terms of section 70 of the Solicitor’s Act 1974 for a detailed assessment of the two bills alleging that CFKT had refused to follow instructions and then refused to act for him, thus breaching the retainer and rendering no further costs payable.
The Master at the Senior Court Costs Office decided that the firm was not entitled to any costs because they had breached the retainer by terminating it without giving reasonable notice. Subsequently at a later hearing the Master reaffirmed his earlier decision but revised the reason, stating that the firm was in breach of contract for stating that they would not continue to act without further payment. The basis for this was that, although Mr Minkin was contractually obliged to pay the CFKT bills upon receipt, and although CFKT were entitled (under clause 6 of their terms and conditions) to suspend work “‘If an account is overdue for payment, without reasonable justification”, that nevertheless Mr Minkin had reasonable justification for delaying payment because the first bill exceeded the estimate and he had not been advised that the estimate would be exceeded and because CFKT had not given reasonable notice under Clause 13.
In the Master’s judgment the termination of the retainer by CFKT amounted to a repudiatory breach of contract because Mr Minkin had a reasonable justification in not paying. The firm was therefore not entitled to any costs and in addition was required to refund all the amounts paid, less counsel’s fees.
CFKT appealed. During the appeal various issues were considered including a review as to the extent to which solicitors can refuse to undertake further work until outstanding fees are paid – especially where the amount in question exceeds a previous estimate.
In dismissing the appeal, Cranston J stated:
“It is clear that solicitors can terminate a retainer for good reason and on reasonable notice. That is the position at common law and under the Solicitors’ Code of Conduct. At common law it is not good reason that a client has not paid part of the profit costs as an ordinary claim or statutory appeal proceeds. If solicitors wrongly terminate on that basis they cannot sue for outstanding fees, having not performed the obligations undertaken. By the terms of their retainer, however, they may require payment on an interim basis. If pursuant to that they tender an interim statutory bill they can sue on it in the event of non-payment; if they request a reasonable amount on account, they can terminate the contract under section 65(2) of the Solicitors Act 1974 if the client does not pay within a reasonable time. Termination under section 65(2) applies only in the case of contentious business and must be on reasonable notice.”
Cranston J further held that the Master was entitled to reach the conclusion that Mr Minkin was justified (as provided in clause 6 of CFKT’s own terms and conditions) in withholding payment on the balance of the original invoice.
” The estimate was important to Mr Minkin because he had limited funds, a fact [CFKT] knew. Although in the retainer letter the firm undertook to give written notice of an estimate being exceeded, no advanced warning had been given to Mr Minkin when the estimate was exceeded. The first time he knew that this had occurred was when he received the invoice. ”
In the circumstances, therefore, the firm did not have the contractual right to terminate its retainer on the ground of non-payment under clause 6 and as a consequence was in breach of contract when it refused to continue to act.
Cranston J concluded by stating:
“The outcome may seem harsh on the firm. But the fact is that it should have been clearer in its retainer letter as to the nature of the engagement. …… It should also have complied with the terms in its retainer letter and those in its standard terms of business. Under these it should inform a client in writing when it appears that any previous estimate may be exceeded. It must then consider whether, in the circumstances, the client has reasonable justification for not paying and whether it would be reasonable to terminate the contract for non-payment. And it can only do that with reasonable notification.”
What are the lessons to be learned?
There are several salutary lessons for all firms which arise from the Minkin case, and firms who fail to heed those lessons are likely to find the courts equally unsympathetic. Solicitors are, quite rightly, regarded as the experts on issues relating to law and regulation. What is more, if they fail to abide by the letter of the law, and in cases such as this do not even follow procedures laid down in their own terms and conditions, then they can expect little in the way of support from the courts who see the client as very much the underdog in this arrangements.
So what are those lessons?
- Keep the client informed – both as to progress of the case and as to the level of costs being incurred.
This may seem like common sense but it is often overlooked, despite the requirement to “keep the client informed of progress, unless otherwise agreed” contained in of Rule 2.02 (1)(d) of the Solicitors Code of Conduct 2007 (the Code).
In particular you must make sure that the client receives adequate costs information. Rule 2.03 (1) of the Code states ” You must give your client the best information possible about the likely overall cost of a matter both at the outset and, when appropriate, as the matter progresses.” If you provide a client with an estimate as to costs, and if you anticipate that those estimated costs are going to be exceeded, let the client know as soon as is practical so that instructions can be modified, if necessary.
It follows from this that you should have a system in place which allows you to monitor costs and which is capable of alerting you to when an estimate is likely to be exceeded. The client needs to be told before the limit is reached so that, if necessary, instructions can be modified – not after it has been reached and the only option is either to cease acting or incur further costs.
Although Mastercigars Direct Ltd v Withers LLP  EWHC;  1 WLR 881 does give firms some leeway in terms of the ability to exceed an estimate it is not a good practice to rely upon this. In Mastercigars it was stated that it did not follow in every case that a solicitor was limited to recovering the sum in the estimate. However, an estimate is a factor in assessing the reasonableness of any charge – that is to say what, in all the circumstances, it is reasonable for clients to be expected to pay and the extent to which they have relied on any estimate given. The position where a private client with limited resources is facing a bill which exceeds an estimate is likely to be viewed very differently.
- Be clear as to what the retainer is intended to cover.
Legal work is complex and clients rarely understand that which is involved. It is essential, therefore, that you are clear and precise as to what the retainer is intended to cover. If there is a limitation upon the scope of a solicitor’s retainer, or if the retainer is only intended to take a matter up to an agreed point in proceedings, then the retainer should make that clear.
The 2007 case of Phelps v Stewarts  WTLR 1267 is an example of this very point. The case, which centred around a failure to give relevant advice on the tax consequences of setting up of a discretionary trust, involved a specialist trusts lawyer, Rosemary Phelps, who failed to give relevant advice resulting in her client losing ?181,000. In claiming a contribution from the firm instructing her, Phelps claimed she had not been asked to advise on discretionary trusts generally, but simply on a specific aspect of the trust. Clearly a point which should have been dealt with in detail in the original retainer.
The presumption in a case where a retainer is unclear is usually going to be in favour of a client – especially an unsophisticated client. As the judge in Phelps stated the obligation is upon the solicitor to ensure that steps are taken to ensure that the client understands the position.
- Ensure that as a firm you know what is in your own terms and conditions and that you abide by them.
In the Minkin case the firm’s own conditions stated that the retainer could be terminated only “on giving you reasonable prior written notice”. This notice was not given and so the firm was held to be in breach of the retainer.
Importantly, it is essential that everyone undertaking client work knows what is in any standard retainer letters and the firms terms and conditions. It is not enough that they are drafted carefully – they must also be explained fully.
- Be circumspect as to the means by which you end a retainer
Rule 2.01(2) of the Code states “You must not cease acting for a client except for good reason and on reasonable notice.” Thus you are not entitled to stop acting without good reason and it is vital that the client be given adequate notice – if only so that they have the opportunity to put in place alternative representation arrangements.
The Code goes on to state at notes 8 & 9:
“(8) ……Examples of good reasons include where there is a breakdown in confidence between you and the client, and where you are unable to obtain proper instructions.
(9) If there is good reason to cease acting, you must give reasonable notice to the client. What amounts to reasonable notice will depend on the circumstances. For example, it would normally be unreasonable to stop acting for a client immediately before a court hearing where it is impossible for the client to find alternative representation.”
It is good practice to set out in the retainer the grounds upon you may cease acting for the client. It is also good practice to take steps to ensure that the client understand these.
More to the point from a practical perspective, if your firm does want to stop acting for a client, then you must write to them stating why, if there are steps the client could take to prevent this from happening, what those steps are and the deadline for taking those steps – for example the payment of outstanding costs. As we saw in Minkin, failure to do this may result in a breach of contract by the firm and loss of entitlement to be paid anything.
So far as contentious work is concerned, section 65(2) of the Solicitors Act 1974 provides that in respect of contentious business solicitors may request a client to pay a reasonable sum on account and failure to do so is good cause for them to withdraw from the retainer. However, note that the Act specifically that reasonable notice must be given to the client.
- Manage the clients expectations – don’t assume that simply because you view something as expedient that the client will necessarily agree with you or that because a particular outcome has been achieved that the client will view that outcome as a reasonable one.
Many problems that arise with clients do so simply because the firm has failed to manage the clients expectations. The Code states at Rule 2.02(1) that you should:
“(a) identify clearly the client’s objectives in relation to the work to be done for the client;
(b) give the client a clear explanation of the issues involved and the options available to the client;”
If the client does not know what to expect – either as an outcome at the end of the matter or as to what needs to be done during the continuance of the retainer, then they are going to be less likely to be satisfied with that outcome or with the work that has been undertaken to achieve.
- Handle complaints effectively
If and when things do go wrong, the difference between a disappointed client and one who refuses to pay or takes the matter to court can be as simple as how their complaint is handled. Indeed sometimes a client who is dissatisfied can be turned into a satisfied client.
Firms should, therefore, take care over the complaint handling procedures and ensure that where a procedure exists that clients are aware of it and that the firm follows it. First tier complaint handling – i.e. complaint handling by the firm as opposed to complaint handling by the Legal Ombudsman or the courts – is a fundamental plank in the plans of the Legal Services Board to improve client care and the whole client experience. Don’t underestimate its importance to your firm in preventing minor client problems from escalating into major ones.
Many of the problems that arise between clients and solicitors can be laid at the door of poor communication and in adequate understanding on the part of the solicitor of the clients own lack of understanding. In a 2009 article in the Law Society Gazette, Deborah Evans, Chief Executive of the now defunct Legal Complaints Service stated:
” Problems usually arise when there is a breakdown in communication between client and solicitor, but with good client care practices these complaints can actually be the easiest to avoid. In an economic climate where looking after existing clients has never been more important, it is an oversight which few can afford to ignore.”
Many of the problems which arose in Minkin could have been avoided by the simple expedient of adequate communications.