Matthew Purcell provides analysis on the case of Manjit Gill v Heer Manak Solicitors – a reminder that solicitors must terminate retainers ‘reasonably’ to recover post-termination profit costs
Partner and Head of Dispute Resolution, Matthew Purcell, has provided his analysis on the case of Manjit Gill v Heer Manak Solicitors - first published by Lexis(R)PSL [paywall] on 1 November 2018. A PDF of this commentary can be found here.
Dispute Resolution analysis: This High Court decision is a must-read for practitioners, providing a concise overview of the law concerning solicitors' retainers, terminating these on short notice and the effect on a solicitor's ability to recover costs in such circumstances. In this case, notwithstanding that the law firm in question had closed down abruptly, due to a failure to obtain professional indemnity insurance, Mr Justice Walker found the firm had behaved unreasonably in terminating the retainer at very short notice, leaving a client in the lurch, with a trial four months away. Consequently, the firm was unable to recover its unpaid costs. Written by Matthew Purcell, partner, and head of dispute resolution, at Saunders Law.
What are the practical implications of this case?
Solicitors must exercise real caution when the decision has been taken to terminate a retainer with a client on little or no notice. The decision to do so must be a reasonable one and, if on an objective view, the client is being 'left in the lurch' a court will likely be slow to conclude that this termination was reasonable.
The court helpfully reminds practitioners of two important points:
- a retainer between a client and a solicitor is an 'entire contract' and a solicitor cannot pursue a client for costs until this contract has been entirely fulfilled, unless a provision in the retainer provides otherwise
- a client must be given reasonable notice of termination on reasonable grounds
If either of the above are absent, a solicitor will be unable to pursue a client for costs on termination unless the solicitor fulfils the retainer in full.
If a solicitor is called upon to defend such a termination, the court will likely require compelling evidence to justify its decision.
What was the background?
Mr Gill instructed a law firm called Heer Manak (the Firm) to advise him in dealing with a freezing order obtained by HMRC against his assets.
On 20 December 2013, after a case management hearing, directions were set out from that date until trial at the end of April 2014. Mr Gill, at this stage, had been given no indication that the Firm was in difficulty
Just seven days after the case management hearing, and just four months prior to trial, the Firm notified Mr Gill that it was closing down after failing to obtain professional indemnity insurance at a premium it could afford and was unable to continue representing him.
The retainer set out that the Firm could stop acting for Mr Gill only for good reason and with that, reasonable notice must be given. Additionally, it outlined that if either party decides that the Firm are not to continue acting, then Mr Gill would pay their charges on an hourly basis and expenses.
The Law Society Gazette published an article, on 17 January 2014, outlining 136 firms which had closed for the same reason as the Firm and outlined that these firms had been given 'Extended Policy Periods' of 90 days on 1 October 2013 and had, therefore, known of their potential closures since (at least before) that date.
Mr Gill had paid monies on account which were used by the Firm to settle Mr Gill's legal fees and had been exhausted. More than three years after the retainer was terminated, the Firm sought to recover historic fees from Mr Gill.
At first instance, Master Brown of the Senior Costs Office held that the firm was entitled to terminate its retainer with Mr Gill 'as a result of the closure of the solicitors practice on 27 December 2013'""this was a 'good reason'. It was this finding that Mr Gill appealed to the High Court.
What did the court decide?
There was only one issue for the court to decide""was the Firm acting reasonably in terminating the retainer with no notice to Mr Gill?
Mr Justice Walker paid very close attention to the evidence which spoke as to the reasonableness"" or otherwise""of the Firm's decision to terminate the retainer with no notice.
Surprisingly, in the court below, no 'relevant factual evidence was filed' by the Firm""the only evidence coming from Mr Gill. The Firm seemingly had asked the court below to make a number of inferences relating to the commercial sensitivity of disclosing to clients early their predicament, rather than adducing proper evidence that they were unable to provide adequate notice of their decision to terminate the retainer.
With that in mind, Mr Justice Walker considered that the court below had not properly considered the reasonableness test from Mr Gill's perspective and had therefore erred in law.
Against the backdrop of Mr Gill being engaged in substantial litigation, with a considerable amount of his money at stake, requiring specialist legal advice, Mr Justice Walker found the Firm's conduct disorderly. He noted that other firms in similar predicaments, as reported by the Law Society Gazette, had behaved in an orderly manner and there was no evidence to suggest the Firm couldn't have done the same.
In view of this "and finally noting that the Firm ended the retainer during the holiday season" Mr Justice Walker found that any reasonable law firm would have appreciated the risk to Mr Gill of withdrawing legal representation without notice. He held that the Firm was therefore not able to reasonably terminate the retainer with Mr Gill and as a consequence, had no good claim for outstanding fees that it sought at first instance.
- Court: High Court, Queens Bench Division
- Judge: Mr Justice Walker (sitting with assessor, Master Haworth)
- Date of judgment: 30 October 2018
This article was first published by Lexis(R)PSL on 1 November 2018