Why do solicitors estimate costs ?

This post is not about sympathy, although I do hope it may help someone considering instructing a solicitor to understand the “other side of the coin”. The starting point – the legal market is competitive and most lawyers understand that there is a reality whereby clients view things differently and seek perceived proportionality on costs.

Home » David Swede » Why do solicitors estimate costs ?

This post is not about sympathy, although I do hope it may help someone considering instructing a solicitor to understand the “other side of the coin”.

The starting point – the legal market is competitive and most lawyers understand that there is a reality whereby clients view things differently and seek perceived proportionality on costs. Knowing this and being able to achieve what a client wants can present difficulties.

I was reviewing recent and important new case law this morning and came across an interesting professional negligence court decision involving solicitors. In the case in question, the client successfully sued her lawyers claiming some £15 million for negligent advice on a shareholders agreement. The issue in that case was whether the duty is less on the law firm where the client has a good degree of pre-existing knowledge of business and possibly legal issues. It’s worth a read, but the case in turn reminded me (as the case was cited) of a case from 2011 which is the subject of this post.

If a client sets a limited budget for advice, what happens if the advice is limited by the budget ?

My department are approached very regularly by prospective clients who explain that they have an agreement and simply want an overview of it on a limited budget. If course we understand fully where the client is coming from – they want the assurance of a trained eye but without spending fortunes. Completely understandable.

However, most contracts are not entirely straightforward – no off the shelf contract is likely to cover the same situation as the client has, clients often don’t understand the implications of clauses in a contract and items may need to be negotiated. What starts out as as a simple review rarely ends up like that, and whilst it’s tempting to blame the lawyers, that’s rarely the real reason.

The case of Inventors Friend Ltd v Leathes Prior (a firm) from 2011 is a very good example of the above and definitely worth a read in full – in summary, here’s what happened and the outcome :-

  • the client was an inventor and his business had intellectual property which it wanted to leverage
  • the client approached the law firm and asked them to “look over” agreements associated with licensing and distributing the invention
  • the law firm advised that it would be impossible to do any worthwhile work whatsoever for £150.00 plus VAT and they would need a budget of at least £500.00 plus VAT just to offer some comments on the draft documents
  • due to the very limited budget, representing only a few hours of the experienced lawyer’s time, no formal retainer agreement was sent, presumably because even to draft this in a meaningful way, to make clear what may or may not be included in the retainer, would have taken some time
  • The agreement between the client and 3rd party went backwards and forwards several times (this aspect did not involve the lawyers as it was agreed that the client would deal with this aspect)
  • the agreement ended up not including sufficient protections for the client
  • the client sued the lawyers

The most important part iof the judgment, dealing with the extent of the retainer between the solicitors and client, says this (Mr Chadd is the lawyer and Mr Saunders the client) :-

” was boxed in by the budget of £500 agreed by Mr Saunders. He was also on the back foot since Leathes Prior was not involved in negotiating with the other side; Mr Saunders kept that aspect firmly to himself. Unfortunately Mr Chadd set the budget for the review of the two agreements without seeing them. Mr Saunders’ original figure of £150 was fantasy, but Mr Chadd then agreed to a considerable underestimate. The amount of work the firm needed to undertake was patently in excess of the budget … a leading commentary on this area of law concludes that, despite suggestions that low priced legal services should attract a lower standard of care, the point remains undecided: M Simpson (ed), Professional Negligence and Liability, London, Informa, para. 9.1.24. In my view where solicitors undertake work at a specific fee they are “generally speaking” obliged to complete the work, to the ordinary standard of care, even if it has become unremunerative. “

David Swede - head of commercial law department
David Swede – head of commercial law department

The above perfectly encapsulates the problem – if a solicitor, with the experience of knowing that few contracts end up as a simple issue of “looking it over” quotes definitively, he or she will usually quote a high fee which will put the client off. If the solicitor estimates fees, reserving the right to increase the fee, the client, for understandable reasons, doesn’t like this. If the solicitor takes the case on for a low fee, even where the evidence suggests the retainer is limited, the solicitor will be expected to do what it takes to do the work properly, even if this means a huge loss, or he or she will be negligent. In this latter category, with due respect to the law of negligence and Judges, it appears that the law is out of touch with reality.

Clients may come away from reading the above thinking that it’s a good idea to nail the solicitor down to the lowest fee, because the solicitor will still be negligent even if unable to do the work properly on a budget. However, as a client, do you really ant all the hassle, stress and risk of suing your solicitor later on ? In reality, it is the old truism that you get what you pay for that’s worth remembering.

 

 

 

David Swede

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