Given the sensitivities involved (and the risk of a potentially expensive fall-out), Professional Indemnity insurers are always interested in how a law firm terminates its client relationships. The client can end the relationship for any reason at any time, however, it is not so straightforward when it is the solicitor wanting to withdraw from the retainer.
Jonathan Lawrence, Legal Director, and Niya Phiri, Partner at Clyde & Co have shared some very helpful Insights in their article attached including the following practical issues to consider when terminating:
- Timing. This is key. In a sizeable instruction, it will not be easy for new solicitors, even once identified, simply to pick up the baton. They will need time to get up to speed. Circumstances sufficiently serious to cause a breakdown in a professional relationship rarely develop overnight and so a solicitor should think ahead. Putting impending deadlines or hearings at risk should be avoided if at all possible.
- Delivery up of papers or electronic files. A solicitor will likely be asked to transfer the client file to new solicitors. If the original solicitor has not filed documents which belong to the client (originals or work product generated during the retainer) separately from the solicitor’s own working or internal papers, or there is a risk that there has been accidental inclusion of material from other cases in the client file, the solicitor may wish to review the papers before they are transferred. Where firms hold large electronic repositories of emails and data, despite best efforts there is always a risk of misfiling. In substantial instructions, the time which may be required to undertake a review exercise will need to be balanced against the need of the client to obtain replacement solicitors as soon as possible, particularly where imminent deadlines or hearings are approaching. A solicitor should check with their own firm’s risk team whether there are any relevant policies in relation to the transfer of mass data to a newly instructed firm.
- Lien. If the solicitor has unpaid bills, they will need to consider whether to exercise a lien, allowing the solicitor to hold onto the client’s papers and documents until their fees have been paid. Whilst commercially the preference would be for bills to be paid before papers are released, given the timing and notice requirements referenced above, it may not always be achievable and the firm may need to reach agreement with the new firm as to the conditional release of papers subject to the discharge of unpaid fees within a specified period.
- Third parties. Where the client does not immediately nominate alternative solicitors, it is important to supply the client with full details of relevant counterparties, their advisers, the Court/Tribunal, any forthcoming deadlines and to ensure relevant third parties are notified as to where future communications should be addressed. If a current or past contractual agreement nominates the law firm as service agent, this will need to be raised with the client who should be asked to notify a change of the nominated party. Third parties instructed by the solicitor, such as Counsel, experts and database providers will need to be informed. Counsel should take their own independent view as to whether to continue to act and will be subject to their own regulatory obligations. If the solicitor is exercising a lien over papers, then Counsel should return any instruction papers to the original solicitor. Any unpaid fees relating to Counsel need to be considered as part of any financial arrangements reached with the client.
- Client funds. Any client funds in excess of those being held on account of costs should be transferred back to the client in accordance with the Accounts Rules, financial sanctions and AML regimes.
- Coming off the record. The fact that the retainer has been terminated does not automatically result in solicitors coming off the record for the purpose of any proceedings. If new solicitors are instructed, they will usually file a notice of change of legal representative, giving a new address for service. If the client does not voluntarily sign a notice of change promptly, however, the original solicitor will likely need to apply pursuant to CPR42.3 for an order declaring that he/she has ceased acting.
It is inevitable that over time the profile of a client or clients with which a firm wishes to do business will change due a variety of internal and external factors. However, it is important for a firm to apply the same level of care and attention when ending a professional relationship as it does to winning business at the outset and to be able to demonstrate, if challenged, that it has sought to do the right thing and in the right way. For all the reasons above – it really does matter how it ends.