Ethics - Client Care (5) Flashcards
What client care issues should a solicitor consider?
a) Making informed decisions
A solicitor must give clients information in a way they can understand and ensure that 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.
As part of this process, therefore, it may be appropriate for the solicitor, for example, to discuss whether the potential outcomes of the client’s matter are likely to justify the expense or risk involved, including any risk of having to pay someone else’s legal fees. A common complaint from clients is that they were unaware that it would cost so much to achieve so little.
b) Level of service
The service provided by a solicitor must be competent and delivered in a timely manner. A solicitor must maintain their competence to carry out their role and keep their professional knowledge and skills up to date.
In seeking to achieve a competent level of service, the solicitor must consider and take account of the client’s attributes, needs and circumstances. For example, in terms of the type and frequency of communications with a client during the matter, some clients may want to be updated in writing on a regular basis, whilst some may want to hear nothing from a solicitor until a certain stage of a transaction has been reached.
**c) Responsibilities **
Both the solicitor and client will have their own responsibilities during the conduct of the client’s matter, and so it is good practice to ensure that these responsibilities are explained and agreed with the client at the outset and prudent to have a written record of this. For example, one of the responsibilities of the solicitor could be to keep the client informed of progress and seek the client’s instructions where required.
The solicitor will also expect the client to keep the solicitor updated as the matter progresses and inform the solicitor of anything that occurs which may materially affect the matter or change the basis of the client’s instructions.
Where a client has been referred to the solicitor by a third party and/ or because of the way the client’s matter is funded, there may be conditions placed on how the solicitor may act for the client.
For example, a client may be referred to a solicitor by the client’s insurer.
Under the terms of acting, the solicitor may not be able to issue proceedings without the authority of the insurer (who will be funding any such action). Accordingly, it is important that the solicitor explains at the outset and throughout the matter any limitations or conditions on what the solicitor can do for the client for the avoidance of any misunderstanding or potential source of grievance on the part of the client.
d) Competence and supervision
In order to provide a proper level of service to clients, it is obvious that a solicitor should have a knowledge of the current law and the skills to enable the solicitor to carry out their role effectively.
Accordingly, the Code of Conduct for Solicitors provides that a solicitor must maintain their competence to carry out their role and keep their professional knowledge and skills up to date.
It is important not only that the particular solicitor provides a competent level of service to clients, but also that the solicitor ensures that those they supervise or manage do so too.
As a result, the Code of Conduct for Solicitors obliges a solicitor to ensure that the individuals they manage are competent to carry out their role and keep their professional knowledge and skills, as well as an understanding of their legal, ethical and regulatory obligations, up to date.
The Code also makes it clear that a solicitor, when supervising or managing others providing legal services, remains accountable for the work carried out through them and must effectively supervise work they do for clients,
e) Information on regulation
A solicitor must ensure that clients understand whether and how the services being provided are regulated.
This includes the solicitor explaining which activities will be carried out by the solicitor as an ‘authorised person’, which services being provided are regulated by an approved regulator, and ensuring that the solicitor does not represent any business or employer which is not authorised by the SRA as being regulated by the SRA.
There is also an obligation to ensure that clients understand the regulatory protections available to them; for example, entitlement to the protection of the SRA Compensation Fund and the firm’s indemnity insurance.
For solicitors, the regulator will be the SRA and, in some circumstances, the Financial Conduct Authority.
What should a client be informed about in terms of costs?
A solicitor is obliged to provide clients with the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of a matter and any costs incurred (the solicitor’s fees and disbursements).
Care must be taken in providing an accurate costs estimate. Aside from the professional conduct implications, it may be the case that the solicitor will be held to the estimate.
There is no specific guidance in the Code of Conduct for Solicitors as to what will constitute ‘the best possible information’ about costs, as, again, the intention is for a solicitor to exercise their own judgment in applying the standards, taking into account their areas of practice and the nature of their clients.
As a matter of good practice, however, the solicitor should clearly explain how fees are calculated and if and when they are likely to change.
For example, the client may be charged a fixed fee, or by reference to an hourly charge- out rate. Warning the client about any other payments for which the client may be responsible is also essential. For example, in a residential conveyancing matter, the solicitor will be obliged to pay for searches from the Land Registry and others; in a litigation matter there may be court fees and counsel’s fees to be paid.
It will often be impossible to provide an accurate estimate of the overall cost of a matter at the start.
However, just providing the client with details of the solicitor’s charge- out rate will rarely be sufficient. For example, if the only information the solicitor provides to a client is that the solicitor’s charge- out rate will be £200 per hour, the client will not know whether they will have to pay £200 for the matter to be finished (if the solicitor puts in one hour’s work) or £20,000 (if the solicitor puts in 100 hours’ work).
If a precise figure is not possible, it will often be prudent for the solicitor to explain why the precise figure cannot be given and agree either:
(a) a ceiling figure, above which the solicitor’s costs cannot go, without the client’s permission; or
(b) a review date when the parties will revisit the costs position.
The solicitor must not forget expressly to include VAT in any hourly rate or quote. For example, a solicitor may quote the hourly rate as £200 plus VAT. If the solicitor fails to quote with VAT, the price the client pays will be deemed to include VAT. Accordingly, if a solicitor were to say that their charge- out rate was £200 per hour that is all that the client would be liable to pay.
The solicitor would have to pay the VAT element to HM Revenue and Customs from this £200, and would therefore lose out.
In seeking to provide clients with a competent service, the solicitor should discuss how the client will pay for the legal services, including whether the client may be able to have some or all of the costs covered by someone else, such as a trade union, or by legal expenses insurance. Consideration should also be given, where appropriate, as to whether the client may be eligible for legal aid and, if so, how this would operate.
Costs issues in litigation:
Providing a competent level of service is likely to include the solicitor discussing with the client whether the potential outcomes of the matter are likely to justify the expense or risk involved. This would include discussing any risk of having to pay someone else’s legal fees.
For example, in litigation the client may be ordered to pay some of the costs of the winning party. The solicitor should consider whether these costs might be covered by legal expenses insurance.
Regardless of any costs order the court may make in favour of the client concerning litigation, it would be good practice for the client to be advised that they may still be liable to pay their own solicitor’s costs. For example, the amount that the losing party in litigation is ordered to pay to the winning party will be assessed by the court, and it is unlikely to cover the entirety of the winning client’s legal costs.
Where the solicitor wishes to charge the client for any such excess, the solicitor must have entered into a written agreement with the client to that effect.
The client will also remain liable to pay their solicitor’s costs where the losing party is unable to meet the costs order. Again, it would be good practice for this to be made clear to the client prior to starting any litigious proceedings.
What is a client care letter?
There is a good deal of client care information which will need to be communicated to the client at the start of the matter. Some of this information is prescribed by the Code of Conduct for Solicitors (eg information on costs and complaints), some by other rules and regulations (eg the Consumer Contract Regulations 2013) and some simply as a matter of good practice.
It is prudent for a solicitor to provide the necessary client care information to a client in writing, and traditionally this has been done in the form of a letter sent out to the client after the first interview, known as the ‘client care letter’.
Although not a specific requirement under the Code of Conduct for Solicitors, most solicitors continue to provide the client care information and the terms of the firm’s retainer in the form of a letter (or electronic equivalent) to the client for the avoidance of doubt, and to help show compliance generally with the Code and the Principles.
The solicitor must keep in mind the requirement to give clients information in a way they can understand. So even though the letter will in part be intended to impart technical information and demonstrate the solicitor’s compliance with various requirements, its primary purpose is to inform the client. The letter must therefore be written in a client friendly way.
What key contractual statute do solicitors need to adhere to?
Solicitors need to ensure that they comply with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/ 3134). These apply to a wide range of contracts made between solicitors and their clients and would include a contract to carry out legal work for a client.
The Regulations distinguish between ‘on- premises’ and ‘off- premises’ contracts. Whilst most contracts will be concluded between a solicitor and the client at the solicitor’s place of business (‘on- premises’), there may be situations which will result in the contract falling within the definition of an ‘off- premises’ contract, for example where a solicitor visits a client at home and the client offers to engage the solicitor to carry out legal work.
Even if the offer is accepted by the solicitor telephoning the client from the solicitor’s office the next day, this would be considered an ‘off- premises’ contract.
The Regulations specify that certain pieces of information must be provided to clients before they enter into the contract. Much of the information that solicitors are required to provide under the Regulations is likely to be included in their client care letter. However, the information required varies depending on the type of contract. For example, where a client has agreed to an ‘off- premises’ contract, the client must additionally be informed that they have the right to cancel it without giving any reason or incurring any liability during the cancellation period (which in most cases is 14 days beginning on the date after the contract is entered into). Failure to do so is an offence under the Regulations. For this reason, solicitors need to ensure that if they are likely to enter into contracts in different types of circumstances, their standard letters contain any additional information required under the Regulations. Legal aid contracts do not fall within the Regulations.
How are fees and costs limited?
The retainer between the solicitor and client is a contract, and so the fees and charges the solicitor will levy for acting for the client will be agreed between the parties at the start of the retainer. However, restrictions are placed upon the fees a solicitor may charge, and also upon how the solicitor will be remunerated by the SRA and the general law.
These restrictions vary depending upon what type of work the solicitor has agreed to carry out for the client. A distinction is made between ‘contentious’ business and ‘non- contentious’ business. This distinction is particularly relevant when considering whether, and how, a client can challenge the bill of a solicitor.
Contentious business
Contentious business is defined as ‘business done, whether as a solicitor or an advocate, in or for the purposes of proceedings begun before a court or an arbitrator, not being business which falls within the definition of non- contentious business or common form probate business’.
Non- contentious business
Non- contentious business is defined as ‘any business done as a solicitor which is not contentious business’. This includes obvious examples such as conveyancing or commercial drafting work. The definition also includes all proceedings before tribunals, except the Lands Tribunal and the Employment Appeals Tribunal.
What different options are there for solicitors’ fees?
A solicitor may agree to charge a client for work done on a number of different bases. Some of these options are considered below. Whichever method of charging the client and solicitor agree, the overall amount of the charge will be regulated by statute and so the client may be able to challenge the bill at a later date. A solicitor is required to ensure that clients receive the best possible information about how their matter will be priced.
a) Hourly rate
A common method of charging clients is by use of an hourly rate, that is, the client is charged for the time spent on the file.
b) Fixed fee
A solicitor may agree with the client to complete the work for a fixed fee, or a fixed fee plus VAT and disbursements. Fixed fees are often used for conveyancing transactions. If the solicitor agrees to act in return for a fixed fee, this fee cannot be altered at a later date (unless the client agrees) if the work turns out to be more expensive than the solicitor first expected.
c) Variable fees
A solicitor is permitted, in certain circumstances, to charge a fee which varies according to the outcome of the matter. One such example of a variable fee is a contingency fee.
However, a solicitor must bear in mind the obligation to take account of the client’s needs and circumstances when deciding to enter into fee agreements and to ensure that any such agreements are legal.
Agreements which are permitted by law are conditional fee agreements (CFAs) and damages based agreements (DBAs).
An example of a conditional fee agreement is the ‘no win, no fee’ basis of charging that is popular in areas of work such as personal injury. Under such an agreement, the solicitor may agree to charge nothing if the client loses, but will charge their fees plus an agreed ‘uplift’ (or ‘success fee’, for example an extra 20%) in the event of success.
For example, the agreement must be in writing, signed by both the solicitor and the client, and, where a success fee is to be paid, specify the percentage of the success fee.
The success fee cannot exceed a percentage specified by the Lord Chancellor (currently 100% uplift in the normal hourly charge rate, with the exception of personal injury cases where the cap is 25% of general damages recovered). The solicitor must carry out a proper risk assessment to calculate the amount of the success fee. A solicitor cannot enter into a CFA for any criminal work or family proceedings.
The CFA must also comply with the additional requirements specified by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.
If a client instructs a solicitor on a CFA, this does not mean that the client will not have to pay any legal costs if the client loses the case. Although the client may not be liable to pay their solicitor’s fees, they will usually have to pay disbursements such as court fees, barristers’ fees and VAT. The client may also have to pay the opponent’s costs.
A solicitor should explore whether the client can obtain insurance to cover these costs in the event of losing the case (known as after- the- event insurance). The solicitor should also ask whether the client has before- the- event insurance which will cover the costs.
A DBA provides that, if the client recovers damages, the solicitor’s fee is an agreed percentage of those damages.
The DBA must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client. Also, personal injury cases are subject to a cap of 25% of the general damages recovered.
The points made above in respect of combining a CFA with after- the- event insurance cover (or before- the- event insurance cover) apply equally to a DBA.
The SRA Transparency Rules also require that, in relation to specified services,
costs information required to be published includes the circumstances in which clients may have to make any payments themselves for the services provided by the solicitor (including from any damages) if CFAs or DBAs are used.
A solicitor may enter into a contingency fee arrangement in respect of non- contentious work, but to be enforceable this must be in the form of a non- contentious business agreement.
d) Other methods
A solicitor may agree to be remunerated by some other means. One such example would be a solicitor agreeing to accept shares in a new company in return for the work, rather than costs. However, in such circumstances the client should be advised to seek independent advice about such a costs agreement.
What is money on account?
It is common for a solicitor to require a client to pay a sum of money to the solicitor at the start of the transaction on account of the costs and disbursements that will be incurred.
In contentious business, a solicitor may require a client to pay a reasonable sum to the solicitor on account of costs. If the client does not pay this money within a reasonable time, the solicitor may terminate the retainer.
There is no such statutory right in non- contentious business. Accordingly, where the solicitor requires money on account before starting a matter, the solicitor should make this a requirement of the retainer.
How are solicitors bills charged to the client?
(a) The bill must contain enough information for the client to be satisfied that the bill is reasonable, and also provide details of the period to which the bill relates.
(b) The bill must be signed by the solicitor or on the solicitor’s behalf by an employee authorised to do so. Alternatively, the solicitor/ authorised employee may sign a covering letter which refers to the bill.
(c) The bill must be delivered by hand to the client, by post to the client’s home, business address or last known address, or by email if the client has agreed to this method and provided an appropriate email address.
Interim bills
A solicitor may wish to bill the client for work done on the client’s file before the matter has completed. This will particularly be the case where the client’s matter is likely to go on for some months, such as protracted litigation. A solicitor may wish to issue interim bills throughout the matter.
Can a solicitor charge interest on bills?
Non-contentious matter
A solicitor may charge interest on the whole or the outstanding part of an unpaid bill with effect from one month after delivery of the bill, provided that the client has been given notice of their right to challenge the bill. The rate of interest chargeable must not exceed that which is payable on judgment debts (8%).
Contentious matters
The Law Society’s guidance provides that a solicitor may charge interest on an unpaid bill where the solicitor expressly reserves this right in the retainer, or the client later agrees for a ‘contractual consideration’ to pay interest. Alternatively, where a solicitor sues the client for non- payment of fees, the court has the power to award the solicitor interest on the debt.
The rate of interest will be the rate payable for judgment debts unless the solicitor and client expressly agree a different rate.
How are debts for solicitor’s bills enforced?
Subject to certain exceptions, a solicitor may not commence any claim to recover any costs due to the solicitor (such as suing the client) until one month has passed since the solicitor delivered their bill. The bill must also be in the proper form.
However, the High Court has the power to allow the solicitor to commence such a claim against the client within this one- month period where the court is satisfied that the client is about to leave the country, be declared bankrupt (or enter into a composition with their creditors), or do anything else which would prevent or delay the solicitor obtaining their fees.
Can a client challenge a bill?
The client may challenge the amount of a solicitor’s bill, provided that the client complies with certain requirements.
These requirements depend upon how the client wishes to go about challenging the bill.
a) Assessment by the court
A client may apply to have the bill assessed by the court in both contentious and non- contentious proceedings. This is sometimes referred to as a bill being ‘taxed’.
The client must apply to have the bill assessed within one month from the date of delivery.
Where no application is made within this month, the client may still apply within 12 months of delivery, but will require the leave of the court for the bill to be assessed.
The costs will be assessed by a judge or district judge sitting as a ‘costs officer’. The costs officer has the power to assess the fees and disbursements of the solicitor.
The costs will (with certain exceptions) be assessed on an ‘indemnity basis’. The court will allow only costs that have been reasonably incurred by the solicitor and which are reasonable in amount.
Any doubt as to what is to be considered reasonable is resolved in favour of the solicitor. However, the client may be ordered to pay the costs of the solicitor arising from the assessment process.
Non-contentious proceedings
Where a court is asked to assess a solicitor’s bill in non- contentious proceedings, in deciding what is reasonable, the court must have regard to the following circumstances:
(a) the complexity of the matter, or the difficulty or novelty of the questions raised;
(b) the skill, labour, specialised knowledge and responsibility involved;
(c) the time spent on the business;
(d) the number and importance of the documents prepared or considered, without regard to length;
(e) the place where and the circumstances in which the business or any part thereof is transacted;
(f) the amount or value of any money or property involved;
(g) whether any land involved is registered;
(h) the importance of the matter to the client; and
(i) the approval (express or implied) of the entitled person, or the express approval of the testator, to:
(i) the solicitor undertaking all or any part of the work giving rise to the costs, or
(ii) the amount of the costs.
Contentious proceedings
The factors the court must take into account include (but are not limited to):
(a) the conduct of the parties;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to the parties;
(d) the particular complexity of the matter, or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f ) the time spent on the case; and
(g) the place where and the circumstances in which work, or any part of it, was done.
Subject to certain exceptions, a client cannot apply for an assessment of costs where the solicitor and client have entered into a contentious business agreement.
b) Using the firm’s complaints procedure
Solicitors must ensure that clients are informed in writing at the time of engagement about their right to complain about the service provided by them and their charges.
If the client is not satisfied with the firm’s response, the solicitor must inform the client in writing of any right the client has to complain to the Legal Ombudsman. The Legal Ombudsman may then limit the solicitor’s fees by, for example, directing the solicitor to refund all or part of any amount paid, or to remit all or part of the fees.
What is a non-contentious business agreement?
A solicitor and client may enter into a non- contentious business agreement in respect of the solicitor’s remuneration for any non- contentious work. Under this agreement the solicitor may be remunerated by a gross sum, commission, a percentage, a salary, or otherwise.
To be enforceable, the agreement must comply with the following:
(a) be in writing;
(b) be signed by the client;
(c) contain all the terms of the agreement (including whether disbursements and VAT are included in the agreed remuneration).
Where the relevant provisions have been complied with, the client will be unable to apply to have the bill assessed by the court.
However, the court may set the agreement aside if the amount charged by the solicitor is unfair or unreasonable.
What is a contentious business agreement?
A solicitor may enter into a contentious business agreement in respect of their remuneration for contentious work completed on behalf of the client.
The agreement may provide for the solicitor to be remunerated by reference to a gross sum, an hourly rate, a salary or otherwise. However, the solicitor may not be remunerated by a contingency fee.
In order to be enforceable, the agreement must comply with certain requirements, including:
(a) the agreement must state it is a contentious business agreement;
(b) the agreement must be in writing;
(c) the agreement must be signed by the client; and
(d) the agreement must contain all the terms.
Where the contentious business agreement is enforceable, the client will be unable to apply to court for an assessment of costs (except where the agreement provides that the solicitor is to be remunerated by reference to an hourly rate). However, the court may set aside the agreement if it is unfair or unreasonable.
What is the SRA stance on overcharging?
A solicitor must act in the best interests of the client (Principle 7) and act with integrity (Principle 5). Overcharging for work done would breach both these Principles. Where a costs officer (when assessing a solicitor’s bill in a non- contentious matter) reduces the amount of the costs by more than 50%, they must inform the SRA.
Can a solicitor charge commission?
The solicitor– client relationship is a fiduciary relationship, and so a solicitor must not make a secret profit whilst acting for the client.
A solicitor is obliged to properly account to a client for any financial benefit the solicitor receives as a result of the client’s instructions, except where they have agreed otherwise. The term ‘financial benefit’ includes any commission, discount or rebate.
For example, a client may require specialist tax advice, and so may be referred by the solicitor to a tax consultant. The tax consultant may pay the solicitor commission in return for this referral.
In showing that the solicitor has properly accounted to the client for the financial benefit received, the solicitor could:
(a) pay it to the client; or
(b) offset it against fees; or
(c) keep it where the client has agreed to this.
This is usually dealt with as part of the client care letter or the terms and conditions otherwise agreed upon in acting for the client.
