The paramount importance of a retainer letter

The Court of Appeal recently handed down a decision emphasising the need for a succinct, clear and concise client engagement letter, which in turn highlights the importance it can have in determining professional liability.

Background

Mr Lyons was injured as a result of a motorcycle accident in Russia, and suffered permanent and life-changing injuries. He sought to claim under accidental death and dismemberment (AD&D) and long-term disability (LTD) insurance policies, which had been taken out by his employer. He sought to claim under those policies and instructed Fox Williams LLP (the defendant) to represent him.

Mr Lyons alleged that his solicitor's advice regarding his AD&D policy claim had been negligent. That claim was settled, but the claimant also alleged that the solicitor's handling of his LTD policy claim had also been negligent. Mr Lyons alleged that the firm had failed to advise or warn him of risks in relation to LTD. Fox Williams’ defence was that this was never within the scope of the retainer, which the High Court agreed with. Mr Lyons appealed.

Decision

The High Court’s decision was upheld. The engagement letter clearly identified the scope of Fox William’s retainer and, as the Court of Appeal highlighted:

It specifically included advice on AD&D and misrepresentation issues, but did not refer to the LTD claims.

The Court of Appeal unanimously dismissed Mr Lyons’ appeal. It held that there had been no retainer, either express or implied, under which Fox Williams owed a duty to advise Mr Lyons on LTD. They also held that there was no duty to warn him of risks arising out of the LTD policy, particularly when they fell outside the scope of the retainer.

Comment

The main lesson to be learnt from this decision is the importance of a retainer letter and ensuring that it clearly outlines the scope of work for which the professional is engaged. So often we see professional negligence cases where the professional in question does not have a clear retainer, or worst still, no written retainer at all.

When engaged to perform a professional service, a professional should always ensure that the scope of the retainer is clear. Professionals should avoid broad scopes of work as this may create additional duties to advise the client on further issues, or at the very least, a duty to warn. Firms should therefore draft the scope as precisely as possible to reflect the intention of the parties, regularly revisiting and reviewing the engagement letter as and when instructions develop. In tandem, the terms of the retainer and the basis of instruction, including any assumptions on which the advice or service is made, should be kept under review.

Interestingly, the judgment focused on the character and experience of the claimant, who the Court of Appeal said was a sophisticated client, an astute businessman who was accustomed to dealing with lawyers and was comfortable with the financial aspects of insurance. Therefore, an interesting question is whether the court would have reached a different outcome in other circumstances. Professionals would be prudent, therefore, to consider who their client is and whether particular care and detail is required when acting for less sophisticated clients.

Related item: No benefit of hindsight in professional negligence claims