Terminating Retainers – The Costs Consequences Firms Should Not Overlook
The SRA’s updated guidance on terminating retainers addresses a compliance question that carries a significant and often underestimated costs dimension. When litigation retainers collapse, particularly late in proceedings, the consequences for fee recoverability, WIP exposure, and detailed assessment outcomes can be substantial.
Steve Jones, Senior Costs Draftsman, examines what the guidance means in practice for litigation firms.
The SRA has recently issued new guidance, together with accompanying case studies, on terminating retainers.
Much of the underlying legal position will not come as a surprise to most litigation practitioners. Solicitors generally still require good reason to terminate a retainer and must avoid causing unnecessary prejudice to the client by doing so without reasonable notice.
What I found more interesting however was the practical reality sitting behind many of the examples used throughout the guidance.
What the SRA Guidance Actually Says
The SRA refers to situations such as:
- persistent non-payment of costs on account;
- clients failing to engage or provide instructions;
- breakdowns in trust and confidence;
- abusive or discriminatory behaviour towards staff; and
- wider concerns impacting the solicitor’s ability to continue acting appropriately.
The difficulty is obvious. Many of these are not merely conduct or regulatory concerns. They are also some of the clearest indicators that costs recovery problems may not be far behind.
How Retainer Deterioration Creates Costs Risk
In practice, retainers rarely collapse overnight
More commonly, there is a gradual deterioration in the solicitor/client relationship. Instructions become slower. Chasing correspondence increases. Advice has to be repeated multiple times. Previously settled issues start being reopened repeatedly. Fee earners begin spending more time managing the client relationship itself than progressing the litigation.
At some point, the file starts becoming materially less efficient to run.
From a costs perspective, that is where the guidance becomes particularly interesting.
The SRA is not saying firms can simply terminate retainers because a matter has become difficult or commercially unattractive. In fact, the guidance and case studies are fairly careful to avoid that impression. A client refusing to follow advice, by itself, will not necessarily justify termination. Clients are entitled to make decisions their solicitors disagree with, provided those instructions remain properly arguable and professionally appropriate.
The position obviously becomes very different where there is sustained non-engagement, refusal to provide instructions, failure to place firms in funds, or a breakdown in the relationship to the point where the litigation cannot realistically continue to be progressed properly.
From a practical perspective however, many firms will probably recognise that those situations also tend to coincide with the point at which costs exposure starts increasing significantly.
Once the solicitor/client relationship has deteriorated sufficiently, the litigation itself often becomes more expensive to progress.
Fee earners spend increasing amounts of time:
- chasing responses;
- repeating advice;
- dealing with complaints;
- revisiting strategy discussions;
- managing delays caused by non-engagement; and
- attempting to move matters forward where meaningful instructions are no longer forthcoming.
The longer that situation continues, the greater the risk that substantial additional work later becomes vulnerable on assessment, either inter partes or solicitor/client.
That is particularly true where the retainer eventually collapses late in proceedings and successor solicitors are instructed.
Most costs practitioners will immediately recognise the types of arguments which tend to follow:
- duplicated file review work;
- repeated conferences;
- fresh counsel input;
- duplicated attendance notes;
- additional settlement consideration; and
- delays caused by new representatives needing to become familiar with the matter.
In some cases, paying parties may also argue that the receiving party’s own management of the retainer contributed to the inefficiency itself.
That can create a difficult position at detailed assessment because the operational realities which caused the deterioration in the relationship are often not immediately visible from the face of the bill.
Late Termination: The Costs Consequences of Poor Timing
The SRA guidance repeatedly stresses the need to consider timing and prejudice carefully before terminating a retainer. Again, whilst framed primarily as a regulatory issue, there is an obvious costs angle to that.
A poorly timed termination shortly before trial, settlement discussions or a major hearing can generate very substantial additional costs remarkably quickly.
The same applies to transfer between firms more generally. One of the more interesting practical points within the guidance is the emphasis placed on minimising prejudice once termination is being considered:
- assisting with transfer to alternative solicitors;
- providing sufficient notice;
- warning clients regarding important deadlines; and
- taking reasonable steps to assist the transition process.
From a purely practical perspective, the smoother that transition is managed, the harder it may ultimately become for paying parties to argue that the resulting duplication and additional costs were avoidable.
Contentious vs Non-Contentious Work: Different Rules Apply
The guidance also contains an important distinction between contentious and non-contentious work.
In contentious business, the SRA refers to section 65 of the Solicitors Act 1974. Broadly speaking, failure to pay a reasonable amount requested on account within a reasonable time may amount to good reason to terminate the retainer.
That is commercially important for litigation firms carrying significant WIP and disbursement exposure throughout the life of a case.
The position appears less straightforward in non-contentious matters, where the contractual terms of the retainer itself are likely to become significantly more important.
Again, there is a fairly obvious practical point flowing from that. Many firms only properly examine the wording of their retainers once relationships have already started deteriorating.
By that stage, it is often too late.
The solicitor/client position is equally important.
Many firms carry substantial WIP on files long after concerns first arise regarding engagement or payment. In some cases, work simply continues in the hope that the relationship improves later.
The difficulty is that clients who become increasingly disengaged throughout the life of the litigation rarely become easier to deal with once a dispute regarding fees eventually arises.
Documentation, Communication and the Costs Record
That is where the SRA’s emphasis on communication and documentation becomes particularly important from a costs perspective.
Contemporaneous evidence of:
- requests for costs on account;
- warnings regarding non-engagement;
- explanations regarding litigation risk;
- advice provided to the client; and
- reasonable notice of potential termination
may later become extremely important if firms need to justify the work undertaken or defend the recoverability of their fees.
The guidance also briefly touches upon equality and diversity considerations. Again, that is likely to become particularly important where issues such as vulnerability, disability or protected characteristics may be relevant to the client’s behaviour or engagement.
Retainer Management as Costs Management: What Firms Should Do Now
For me, the guidance is therefore interesting not because it radically changes the legal position, but because it indirectly acknowledges a commercial reality many litigation firms already deal with.
Retainer management is not simply a compliance issue. It is also a costs management issue.
The real question is probably not whether firms can terminate retainers where relationships break down. In many cases, they plainly can.
The more interesting question is whether firms identify those warning signs early enough to avoid unnecessary operational, regulatory and costs consequences developing later in the life of the file.
In practice, many of the examples given by the SRA are situations where firms should probably already be asking themselves:
- whether the file remains commercially viable;
- whether ongoing work is likely to remain recoverable;
- whether proportionality concerns are beginning to arise; and
- whether the current approach to the retainer remains sustainable longer term.
That is particularly important in high WIP litigation where substantial time can continue accruing whilst progression of the matter itself slows considerably due to client disengagement.
The SRA guidance and accompanying case studies can be found here:
https://www.sra.org.uk/solicitors/guidance/terminating-retainer/
