In a recent case the Court has considered the scope of duty owed
by a solicitor retained on a fixed fee retainer.
For an agreed fee of £500, a firm of solicitors was
instructed to "look over" intellectual property
agreements and to discuss "certain key issues". The
Court found the solicitors were not required to make enquiries
about the ownership of the IP rights: this was not within the scope
of the retainer. However, the solicitors were negligent in
failing to ensure that the relevant clause dealing with the sale of
IP rights extended to licensing in addition to sale. The
Court said that this was not a matter on which the solicitors
required instructions; the antennae of any commercial lawyer,
especially one claiming expertise in IP law, should have been alert
to the issue, almost without thought. The Court also said
that where solicitors undertook work for a specific fee, they are
generally speaking obliged to complete the work to the ordinary
standard of care, even if it becomes unremunerative to do so.
The case illustrates the risks associated with fixed fee
retainers. It shows that if a fixed fee retainer is agreed
then a solicitor should be careful to:
- Send the client a clear retainer letter, setting out the scope of the retainer and excluding liability for advice beyond the scope of the retainer.
- Calculate fees only when full information has been provided (the solicitors agreed the fee of £500 before seeing the agreements in question).
- Ensure that the advice given for the fixed fee is the same advice that would have been given had the work been undertaken on an hourly basis.
- Ensure that advice that is of importance and readily apparent to a lawyer in that specialism is given, potentially even if it falls outside the scope of the retainer.
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In a recent case the Court has considered the scope of duty owed
by a solicitor retained on a fixed fee retainer.
Mr S wanted to market a new tool through his company, Inventors
Friend Limited. The tool distributed cement and adhesive.
A distribution agreement and a sub-agreement were drawn up between
Mr S and the inventors. Mr S then contacted the Defendant law firm,
Leathes Prior, and asked if they could comment on the terms of the
agreements for £150. The solicitors said that £150 was
not feasible but they agreed to "briefly review and
comment on the terms of the agreements but not to draft or make
detailed background enquiries" for a fee of £500
plus VAT. No formal retainer letter was sent.
Subsequently, the solicitors provided input on the drafts and
emailed "key points" to Mr S. Mr S told the solicitors
that his "biggest area of concern" was to ensure that he
was not left without adequate compensation if the distribution
agreement was terminated after its initial 7 month period. He said
that he thought he should be entitled to a percentage of profits
for any sale or use of the IP rights in the product.
The agreements were finalised and signed. The clauses that are
relevant to this case are:
- A clause whereby the inventors' company agreed to compensate Mr S for any sale of the IP rights in the products.
- Two clauses determining Mr S's entitlement to lost profits in the event that the inventors' company terminated the agreement.
After the 7 month period, the inventors terminated the distribution agreement. Under the distribution agreement, Mr S was not entitled to the compensation that he anticipated. He therefore brought proceedings for professional negligence against the solicitors.
Decision
In the absence of a retainer letter, the Court assessed the
solicitors' retainer by reference to the circumstances of Mr
S's dealings with the firm. The Court found that the solicitors
had agreed to "look over" the agreements and to discuss
"certain key issues", including the concerns highlighted
by Mr S.
Next, the Court considered whether the solicitors had acted in
breach of duty. It found that the solicitors:
- Had acted reasonably in providing advice to Mr S on his entitlement to lost profits.
- Was not required to undertake enquiries to determine the ownership of IP rights in the product because this was not within the scope of their retainer.
- Had not advised Mr S adequately on the clause relating to the sale of IP rights. The Court said "this is not a matter on which [the solicitors] needed instructions: the antennae of any commercial lawyer, especially one claiming expertise in the area of intellectual property law, should have been alert to the issue, almost without thought". In essence, the term "sale" was too narrow because, for example, it did not encompass licensing. Additionally, the time period imposed for the sale was too restrictive. The solicitors should have given this advice to Mr S.
Discussion
This case illustrates the risks associated with fixed fee retainers. It shows that if a fixed fee retainer is agreed then a solicitor should be careful to:
- Send the client a clear retainer letter, setting out the scope of the retainer and excluding liability for advice beyond the scope of the retainer.
- Calculate fees only when full information has been provided (the solicitors agreed the fee of £500 before seeing the agreements in question).
- Ensure that the advice given for the fixed fee is the same advice that would have been given had the work been undertaken on an hourly basis.
- Ensure that advice that is of importance and readily apparent to a lawyer in that specialism is given, potential even if it falls outside the scope of the retainer.
Further reading: Inventors Friend Ltd v Leathes Prior [2011] EWHC 711
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 06/05/2011.