When can you safely terminate a retainer?

The Court of Appeal's ruling in Cawdrey Kaye Fireman & Taylor v Minkin [2012] EWCA Civ 546 (see solicitorsjournal.com, 2 May 2012) reversed a decision by Cranston J ([2011] 3 Costs LR 465) which had caused concern in the solicitors' profession for the way in which the judge approached termination of retainer.

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.

Mr Minkin had 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 had 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 with you but 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: '[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.'

Good 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 section 65(2) of the 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'.

The 'entire contract' doctrine

The problem here is that, generally, solicitors' retainers to conduct litigation are viewed by the courts as 'entire contracts' meaning that the solicitor is not entitled to payment until and unless the litigation is concluded (Underwood, Son & Piper v Lewis [1894] 2 QB 306 per Lord Escher MR).

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. 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

For instance, a common provision in retainers is an agreement that the solicitor may render interim statute bills. Although the court did not deal with this, it is thought that such a provision would mean that the retainer was not an entire contract.

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. In practice, however, it may be a difficult judgment call for the solicitor to make when deciding whether to refuse to work further for a client. It may also be a difficult decision for the court to make as to whether such a refusal constitutes a suspension of work pending payment or a termination of the retainer. In the present case there was a clear contractual right to suspend work pending payment which was exercised by the solicitors. It may be preferable to give reasonable notice of termination of the retainer on the grounds of the client's non-payment of an interim statute bill or requested payment on account. A court is likely to view such non-payment as a breach of contract justifying termination of the retainer on reasonable notice (what notice period is reasonable will of course depend on the circumstances).

Unfortunately, while the 'entire contract' doctrine continues to apply, this remains a potentially tricky area to navigate.

Bernard Livesey QC and Joshua Munro are barristers at Hailsham Chambers (www.hailshamchambers.com)