UK: Solicitors' PI: Scope Of A Fixed Fee Retainer

Last Updated: 10 May 2011
Article by Helen Mitchell and Peter Mansfield

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:

  1. 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.
  2. Calculate fees only when full information has been provided (the solicitors agreed the fee of £500 before seeing the agreements in question).
  3. 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.
  4. 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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Full Article

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:

  1. A clause whereby the inventors' company agreed to compensate Mr S for any sale of the IP rights in the products.
  2. 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:

  1. 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.
  2. Calculate fees only when full information has been provided (the solicitors agreed the fee of £500 before seeing the agreements in question).
  3. 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.
  4. 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.

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