Marking out the pitch

Following a recent Risk Management event, the author was asked by some delegates to provide a suggested terms of engagement wording. Styles of wording already exist and, as examples, reference is made to those in the Society’s Better Client Care & Practice Management manual (the “Client Care manual”). The terms and conditions included in terms of engagement will necessarily vary from firm to firm and from client to client and the nature of the work and other circumstances will determine the specific issues that need to be addressed. The most effective terms of engagement are those tailored to the specifics of the particular instruction.

Consideration is given here to just some of the issues that may be addressed in setting out the firm’s terms of engagement in a way that assists in managing risk.

Work to be carried out

What will and what will not be the solicitor’s responsibility

Scoping the work is probably one of the most critical aspects of risk management. It is vital that both the solicitor and his client are clear precisely what work the solicitor is and is not responsible for.

As well as describing clearly the work for which the solicitor has agreed to take on responsibility, the terms of engagement might usefully state what the solicitor will have no responsibility for and about which there is the potential for uncertainty. It might be stated, for instance, that the solicitor will have no responsibility for advising on any tax implications of the transaction.

If there are other professional advisers involved (e.g. accountants, financial advisers, architects), it is particularly important for the division of responsibilities to be spelt out so as to minimise the risk of the firm being held responsible for something that other professionals are, or ought to be, attending to.

If the nature of the instruction changes at any stage, the terms of engagement ought to be reviewed and amended or fresh terms of engagement issued. Otherwise, the benefit of issuing terms of engagement may be lost in whole or in part.

How instructions to be given

Method by which instructions should be given and received

It has been suggested that terms of engagement might address the form in which the clients’ critical instructions require to be communicated. For example, it might be stated that instructions in relation to a client’s house purchase/sale must be communicated to the firm either in writing or otherwise directly to the person handling their transaction.

The following form of words features in specimen wording in the Client Care manual.

“Instructions: Instructions may be given to us in writing or verbally. We may well ask you to confirm in writing the terms of verbal instructions given to us. If there is any change in your instructions you must notify us immediately. If you wish anyone other than yourself to give us instructions or information, we will require confirmation of this in writing.”

Such a clause might be extended to cover who, if anyone, has authority to give instructions on behalf of the client, e.g. who is the authorised person if the client is a company or a partnership, husband/wife or other multiple clients.

Fees and outgoings

The fees and outgoings to be charged or the basis on which they are to be charged (including VAT) and the circumstances in which those charges may vary

If clients have no reason to anticipate that the total bill will exceed the amount estimated at the outset, there is a real risk of dissatisfaction and the possibility of having difficulty in securing payment – even, from experience, of provoking allegations of negligence.

The following form of words is suggested in a specimen wording contained in the Client Care manual:

“Estimates: Any estimate that may be given will be a probable fee based on our experience of the work you have asked us to do. If the work turns out to be more complicated or takes longer than we anticipated then we may require to increase our estimate to take account of this. We will inform you as soon as possible about this. Sometimes we will need confirmation of your ability to fund a transaction, and a deposit may be requested.”

It may be appropriate to be clear with the client how they will be kept appraised of the level of charges. Again, this is covered in specimen wordings in the Client Care manual.

Client’s responsibilities

Clients need to understand that they too have a number of responsibilities

The client needs to provide instructions, signatures, documentation and information when required, otherwise it will be difficult to keep to timescales or, worse, the client’s position may be prejudiced. As an example, the following form of words is adapted from one of the specimen wordings in the Client Care manual:

“Your responsibilities:

You must:

• Give us instructions that allow us to do our work properly
• Not ask us to work in an improper or unreasonable way
• Not deliberately mislead us
• Co-operate with us when asked
• Go to any medical or expert examination or court hearing when asked
• Provide any documentation or information to us promptly when requested
• Advise us of any change in your instructions or in your contact details
• Pay our fees (including interim fees) when requested to do so”

This provides only a broad indication of the client’s responsibilities. As matters progress, it will be possible to be more precise about what is required from the client and by when.

Timescale

It is helpful to provide the client with an indication of the time the transaction is likely to take

The client may have little idea of what is involved in a particular matter and one of the objectives of setting out the terms of engagement is to manage the client’s expectations in relation to timescales. It may be useful to indicate the sort of circumstances in which the timescale may become extended, through no fault on the part of the solicitor. Flagging this up with the client may prevent the client subsequently becoming dissatisfied, unjustifiably, with the solicitor’s service.

The following form of words is adapted from one of the specimen wordings in the Client Care manual:

“The nature of legal work, particularly court work, often makes it difficult to estimate precisely how long something will take to complete. When we discuss your requirements at the outset we will also discuss timescales. We do attempt to meet these – even to beat them – and always to deal with everything as quickly and efficiently as possible. Please remember that quite often the speed at which work can be completed is affected by the co-operation (or lack of it) we receive from other people outwith our control. For instance, in property matters there may be delays on the part of lenders or local authorities. In court proceedings there can be delays due to lack of court time.”

How monies are to be remitted

Be clear about how you will remit monies due to the client

This may prevent potential complications at a later stage in the transaction etc. Consider, for example, the potential risks associated with a client insisting that sale proceeds be remitted to a third party along the lines of the following case study from the 2003 Risk Management Roadshow:

At the conclusion of a commercial property sale, a cheque for the £350,000 sale price less the fees and outlays was issued to the clients, ABC plc along with a statement explaining everything. A day or two later, the Finance Manager from the company telephoned the senior assistant in the firm who had handled the transaction and arranged for the cheque to be cancelled and replaced with a cheque made out to ABC (Guernsey) Ltd. A week after the replacement cheque was uplifted from the solicitors, the Finance Director of ABC plc contacted the senior assistant sounding extremely irritated that the sale proceeds hadn’t been received and asking for an explanation. Although the Finance Director had been led to believe that his subordinate was currently on holiday, he had in fact disappeared having deposited the replacement cheque offshore.

At the very least, terms of engagement could specify that the firm will not accept verbal instructions to change or amend cheque payments. Considering the issue of who has authority in a limited company, it might be appropriate to specify pre-agreed parties authorised to instruct/vary cheque payments/instructions. For all the foregoing reasons, it may be appropriate simply to state categorically that cheques/transfers will be issued in the client company name and in that name alone.

Contractual limitation of liability

Some firms seek to limit their liability to clients by way of a contractual agreement between the firm and the client. This might be incorporated in setting out the firm’s terms of engagement.

Consideration needs to be given to whether such a limitation will be enforceable; and how such a limitation will protect the firm from a claim by a third party who is not a party to the agreement. Will the client agree to indemnify the firm against any such claims? How will that be documented?

Some solicitors seek to bind their client to pursue any claim against the firm itself and not to pursue any claim against an individual within the firm, personally.

Conclusion

A short time spent at the beginning of a matter setting out the scope of the work and the terms on which the solicitor/client relationship is to proceed can help to avoid complaints and claims arising from misapprehensions as to what was agreed, the respective responsibilities of solicitor and client and how the work is to be handled.