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Solicitors Negligence: The risks of agreeing a fixed fee.

May 27, 2012

Inventors Friend Ltd v Leathes Prior (a firm) [2011] EWHC 711,

The Solicitors Negligence claim arose out of advice given by the Defendant’s solicitors in 2003 which related to the terms of a distribution agreement by which the Claimant proposed to market and sell a newly invented device for applying adhesive. The Claimant alleged that the solicitor failed to advise him correctly as to last minute amendments made to the agreement in draft by the inventors company which made it impossible for his chance of claiming loss of profits if he lost the distributorship.

It was also alleged that the solicitors failed to notice that the terms of the draft distribution agreement excluded him from obtaining any loss of profits or damages found to be at large. Also as to the intellectual property rights issue it was alleged that the Defendant did not contemplate the possibility that those rights might be disposed of by licence, as opposed to sale and did not recognise that the principal part of the rights was not owned by the inventors company, but by one of the inventors.

The solicitors had refused to advise the Claimant for £250, however they did state the they would

  • “Briefly view and comment on the terms of the agreement but not to draft or make detailed back ground enquiries”

for a fee of £500 plus VAT. There was no retainer letter,the solicitor then provided input on the drafts and by way of email,key points to the Claimant. The Claimant said it had flagged up to the solicitor its biggest concern was to ensure that he was not going to be left without adequate compensation if the distribution agreement was terminated after its initial 7 month period had ended, he suggested that he should be entitled to a percentage of profits for any sale or use of the intellectual property rights in the product.

As there was no retainer letter the Judge, Mr Justice Cranston had to look at the Claimant’s dealings with the firm. The Judge found that the solicitors had agreed to review and comment on the terms of the agreement but not to draft or make detailed enquires for example into the ownership of intellectual property rights for the fee of £500.

However the Judge did find that the supplier had flagged up important protections to Mr Saunders into the draft, however the Claimant had specified his major area of concern was the loss of profits issue and that he would not receive anything after the initial period of 7 months. The Judge found the the solicitors should have advised on the issue as to the sale of the interests and personal property. The solicitors should have been aware and should have advised that the property could be transferred by other than sale, by way of hire and that the agreement should have allowed for that consequence. As a consequence there was a breach of the duty, the solicitor regardless of the narrow retainer advised the Claimant as to the limitations in the use of the word “sale”, should have amended the agreement to cover licensing.

The case shows the risks of agreeing  a fixed fee retainer. Whether low priced legal services should attract a lower standard of care may be undecided.  In the view of the judge in this case, where solicitors undertake work at a specific fee they are “generally speaking” obliged to complete the work, to the ordinary standard of care, even if it has become unremunerative.

It is important that the solicitor sends to the client a retainer letter which sets out what work the solicitor is to do and exclude work which he is not going to do and any liability for any work which is beyond the scope of the retainer. It is also important that fees are calculated after full sight of the agreement. In this case the solicitor agreed his fee before he had even seen the agreements involved.

For advice on Solicitors Negligence call Carruthers Law today.

Revised May 26th 2012