Bernard Livesey QC and Joshua Munro win in long-awaited decision on solicitors' retainers

May 2012 - The decision of the Court of Appeal in Cawdrey Kaye Fireman & Taylor v Minkin was handed down on 1 May 2012.

Cranston J's decision, [2011] 3 Costs LR 465, which the Court of Appeal has reversed, was widely reported and caused concern in the solicitors' profession.

The appeal originally arose from a decision of a costs Judge, Master O'Hare. He had ruled that, due to unlawful termination of a retainer by solicitors, the solicitors were not entitled to any costs in respect of work done in litigation for a client who refused to pay his bill.

In summary, the facts were that Mr Minkin instructed CKFT solicitors to advise and represent him in matrimonial litigation. The solicitors gave the client an estimate of costs. Due to unexpected events in the litigation, the estimate was exceeded. The client was not warned of this before it happened, as was his contractual right under the retainer. Nevertheless, as was made clear in the retainer, the estimate was not a binding quote.

As was their right under the retainer, after a month's work, the solicitors rendered a bill to the client, which exceeded the estimate. The client complained that this bill was unexpectedly and unreasonably high, that the solicitors were not obtaining tangible results and that anyway they should recover their costs from the other side in the litigation. He did however expect the solicitors to do further work both on the existing retainer and on a further issue which arisen. The solicitors asked for a payment on account of the further work and warned the client that it was his responsibility to pay his existing bill, otherwise they would suspend work pending payment. The client would not pay his existing bill and the retainer was terminated after a number of emails in which the solicitors refused to do further work unless their bill was paid, and the client stated that he had lost faith in the solicitors. In one particular email the client stated "I would have liked to continue to work with you but I feel we have got nowhere since the hearing."

Master O'Hare seized upon the presumption that a solicitors' retainer to conduct litigation is an entire contract. He ruled that the solicitors, and not the client, had terminated the retainer, by refusing to work further. Therefore, because the solicitors had terminated the retainer before completing the entire litigation, the solicitors were not entitled to any payment whatsoever, and their bills were assessed at nil.

Unsurprisingly, the solicitors appealed. The solicitors argued that the client had terminated the retainer by unlawfully refusing to pay his bill, refusing to make a payment on account, and stating to the solicitors that he had lost trust and confidence in their work. Cranston J refused to interfere with Master O'Hare's decision, citing the following passage from. Todd v Adam [2002] EWCA Civ 509, [2002] 2 All ER (Comm) 1. "[S]o far as the appeal raises issues of judgment on unchallenged primary findings and inferences, this court ought not to interfere unless it is satisfied that the judge's conclusion lay outside the bounds within which reasonable disagreement is possible."

Cranston J indeed went further and ruled "So long as the basis for withholding payment [by the client of his bill] is not frivolous, trivial or made in bad faith, it may not be reasonable for the firm to terminate for that reason."

The Court of Appeal considered the statutory framework in which retainers may be terminated. It reminded itself that solicitors should only terminate retainers with good reason and on reasonable notice, but clients may terminate retainers at any stage and for any reason (the Court considered the Solicitors' Code of Conduct 2007, but the position is the same under the SRA Code of Conduct 2011). It considered s65(2) Solicitors Act 1974, which deems non-payment of a reasonable request for a payment on account within a reasonable time as "a good cause whereby the solicitor may, upon giving reasonable notice to the client, withdraw from the retainer."

The Court of Appeal found that the solicitors were entitled to suspend work pending payment of their bill, pursuant to their terms of business. The court unanimously ruled that the client had then terminated the retainer by expressing a lack of confidence in the solicitors and writing an email the effect of which was "Were he [the client] Lord Sugar, dealing with his Apprentices, he would be pointing his finger and saying, "You're fired"."

Cranston J's statement that "So long as the basis for withholding payment [by the client] is not frivolous, trivial or made in bad faith, it may not be reasonable for the firm to terminate for that reason" was held to be wrong.

On analysis, the decision therefore essentially turned on its own facts. However, there was a potentially useful indication from Elias LJ that the court should not "compel a solicitor to carry on working for a client even though there may be little realistic prospect of payment."

There are still interesting questions of whether the "entire contract" doctrine, in relation to solicitors' retainers at least, is fit for purpose in the 21st century. We suggest that the doctrine may now be outmoded. We suggest that solicitors may avoid the application of the doctrine by suitable provisions in their retainers unequivocally providing contractual rights to payment before the conclusion of the litigation that the solicitor is retained to prosecute.   

The case highlights the need for solicitors to ensure that their terms of business clearly provide them with adequate rights to stop work for a client who refuses to pay, and for clients to tread very carefully when considering refusing to pay interim bills but requiring solicitors to carry on acting. Whilst the "entire contract" doctrine continues to apply, this remains a potentially tricky area to navigate.

To find out more about Bernard and Joshua's practices, please visit www.hailshamchambers.com or contact the Clerking Team E. clerks@hailshamchambers.com or T. 020 7643 5000.