Unilaterally terminating client relationships
13 April 2022 13 April 2022
In light of recent events, many firms have been reviewing their client lists and considering whether certain relationships should come to an end. The decision to end a professional relationship with a client can be a difficult one for a solicitor. There are risks, even when the firm is certain that it is the right thing to do.
Both the recent judgment of the BVI Court which refused a law firm permission to withdraw from representing a sanctioned bank, noting that “even pariahs have rights”, and the recent comments of Stephanie Boyce, President of the Law Society (which were referred to by the BVI Court) that “it’s the job of solicitors to represent their clients, whoever they may be, so that the courts act fairly" are reminders that the decision should not be taken lightly. Accordingly, firms need to consider the legal position, their regulatory obligations and the practical issues with great care. Failing to do so could result in difficulty in recovering payment for work done, lead to a civil claim against the firm and/or a regulatory complaint to the SRA.
The legal position
While a client can end the relationship for any reason at any time, the position is not so simple where it is the solicitor wanting to withdraw from the retainer.
As long ago as the 19th century, the Court, in Underwood, Son & Piper v Lewis  2 QB 306, noted that “a solicitor cannot throw his client over at the last moment, which might be ruin to the client…he must give him reasonable notice of his intentions to do so” and held that even with reasonable notice a solicitor cannot “without rhyme or reason” put an end to the continuing retainer but should have good reason for refusing to act further.
What is considered “reasonable notice” is not prescribed. However, it is important to bear in mind that terminating a retainer in situations which place the client at a substantial disadvantage in obtaining replacement legal services, for example very close to a trial or arbitration or just before closing a transaction, may require a greater degree of justification as to the reasonableness of the notice and closer scrutiny of the communications and conduct of the firm leading up to point when notice is given. That said, there may be mitigation arguments which can be advanced where unforeseen situations have arisen or where the continuance of the retainer would cause the solicitor or law firm to breach regulatory or legal obligations.
What is considered a “good reason” will also be fact-specific. However, good reasons have included where a solicitor cannot act without breaching his/her professional obligations as an Officer of the Court, is unable to obtain clear instructions or there has been a breakdown in confidence between the solicitor and client. Failure to pay bills is also a good reason as is, in the context of contentious business, failure within a reasonable period of time to pay a reasonably requested sum on account of costs (s.65(2) Solicitors Act 1974).
In considering the legal position, it is important to remember that the retainer is a contractual relationship and the firm’s Letter of Engagement should be closely considered for any relevant terms (although it will not override the solicitor’s legal and regulatory obligations). However, it may be that if the (legal) landscape in which the contract was formed has shifted sufficiently, for example by reason of sanctions or embargoes, then force majeure clauses may be relied upon. Alternatively, the common law doctrine of frustration or supervening illegality may be applicable.
Firms should also consider specific requirements under the financial sanctions and AML regimes (which are outside the scope of this note).
The regulatory position
“This is highly unlikely to be a regulatory matter. The general position is that firms can choose who they act for, and can choose not to act for any reason (unless unlawful, for example under equalities legislation). The question of terminating a current retainer is one for the common law…”.
That said, professional obligations are highly relevant, not least because if continuing to act would breach them then (as above) that can be a “good reason” to terminate.
Indeed, previous versions of solicitors’ professional codes have expressly reflected the common law requirement for a good reason and reasonable notice to cease acting, for example Rule 2.01(2) of the Solicitors Code of Conduct 2007. While such express references are not found in the SRA’s current Standards and Regulations, solicitors must still consider their regulatory obligations. Withdrawing without good reason or reasonable notice might well impact on the Principles that we are all expected to uphold, including the requirement to act in a way that upholds the constitutional principle of the rule of law, and the proper administration of Justice (Principle 1), that upholds public trust and confidence in the solicitors’ profession (Principle 2), that encourages equality, diversity and inclusion (Principle 6), and to act in the best interests of each client (Principle 7).
Given these obligations, it is prudent to consider each client individually rather than take a blanket approach to all clients who may share superficial characteristics.
Practical issues to consider when terminating
- Timing. This is key. In a sizeable instruction, it will not be easy for new solicitors, even once identified, simply to pick up the baton. They will need time to get up to speed. Circumstances sufficiently serious to cause a breakdown in a professional relationship rarely develop overnight and so a solicitor should think ahead. Putting impending deadlines or hearings at risk should be avoided if at all possible.
- Delivery up of papers or electronic files. A solicitor will likely be asked to transfer the client file to new solicitors. If the original solicitor has not filed documents which belong to the client (originals or work product generated during the retainer) separately from the solicitor’s own working or internal papers, or there is a risk that there has been accidental inclusion of material from other cases in the client file, the solicitor may wish to review the papers before they are transferred. Where firms hold large electronic repositories of emails and data, despite best efforts there is always a risk of misfiling. In substantial instructions, the time which may be required to undertake a review exercise will need to be balanced against the need of the client to obtain replacement solicitors as soon as possible, particularly where imminent deadlines or hearings are approaching. A solicitor should check with their own firm’s risk team whether there are any relevant policies in relation to the transfer of mass data to a newly instructed firm.
- Lien. If the solicitor has unpaid bills, they will need to consider whether to exercise a lien, allowing the solicitor to hold onto the client’s papers and documents until their fees have been paid. Whilst commercially the preference would be for bills to be paid before papers are released, given the timing and notice requirements referenced above, it may not always be achievable and the firm may need to reach agreement with the new firm as to the conditional release of papers subject to the discharge of unpaid fees within a specified period.
- Third parties. Where the client does not immediately nominate alternative solicitors, it is important to supply the client with full details of relevant counterparties, their advisers, the Court/Tribunal, any forthcoming deadlines and to ensure relevant third parties are notified as to where future communications should be addressed. If a current or past contractual agreement nominates the law firm as service agent, this will need to be raised with the client who should be asked to notify a change of the nominated party. Third parties instructed by the solicitor, such as Counsel, experts and database providers will need to be informed. Counsel should take their own independent view as to whether to continue to act and will be subject to their own regulatory obligations. If the solicitor is exercising a lien over papers, then Counsel should return any instruction papers to the original solicitor. Any unpaid fees relating to Counsel need to be considered as part of any financial arrangements reached with the client.
- Client funds. Any client funds in excess of those being held on account of costs should be transferred back to the client in accordance with the Accounts Rules, financial sanctions and AML regimes.
- Coming off the record. The fact that the retainer has been terminated does not automatically result in solicitors coming off the record for the purpose of any proceedings. If new solicitors are instructed, they will usually file a notice of change of legal representative, giving a new address for service. If the client does not voluntarily sign a notice of change promptly, however, the original solicitor will likely need to apply pursuant to CPR42.3 for an order declaring that he/she has ceased acting.
Mitigating the fallout
In the news release referred to above, the SRA also stated that “from a regulatory point of view, our concern is to ensure that the firm has carefully considered the legal position and also understood and mitigated any risks to the client.” On every level it is sensible to mitigate the risks to the client: if a client considers the solicitor has ceased acting in a prejudicial manner, they might withhold outstanding fees, make a regulatory complaint or even be prompted to bring a civil claim regarding another aspect of the instruction (or a counterclaim in response to a request for payment of unpaid fees).
To minimise disruption for the client, it is advisable to discuss with them options for new representation, though a solicitor has no obligation to find them alternative representation. If new solicitors are instructed, the original solicitor should cooperate to assist them get up to speed.
Some press about a termination may be unavoidable, but a solicitor does not want the story to be about how it was mishandled, and will need to remember continuing professional obligations will prevent them disclosing details of the withdrawal.
It is inevitable that over time the profile of a client or clients with which a firm wishes to do business will change due a variety of internal and external factors. However, it is important for a firm to apply the same level of care and attention when ending a professional relationship as it does to winning business at the outset and to be able to demonstrate, if challenged, that it has sought to do the right thing and in the right way. For all the reasons above – it really does matter how it ends.
 BVIHC (COM) 2014/0062, paragraph 16
 The Law Society Gazette, “City firms prepare to drop Russian clients after Ukraine invasion”, 1 March 2022
 “Rule 2.01(2): You must not cease acting for a client except for good reason and on reasonable notice”