An overview from the Professional Practice team of the new terms of business guidance

 On 1 June 2016, new guidance in relation to rule B4 (client communication) came into effect:

This is the first substantive review of the guidance since March 2005, when it became mandatory for solicitors to issue terms of business letters to clients in all transactions (subject to exceptions referred to below).

The terms of business letter (also known as terms of engagement, letter of engagement or terms and conditions) constitutes the contract between the solicitor and the client and, accordingly, its terms are very important.

As “one size does not fit all,” it is necessary to tailor its provisions to the particular transaction. A well-drafted terms of business letter is a useful risk management tool, because time spent considering and crafting the letter at the outset may help to minimise the risk of a complaint at a future stage.

Compliance with rule B4 is mandatory. Solicitors are obliged to provide the undernoted information in writing to clients at the earliest practicable opportunity on receipt of instructions or when tendering for new business:

(1) an outline of the work to be done;
(2) an estimate of the total fee or the basis on which the fee will be charged, including VAT and outlays;
(3) details of any contribution towards legal advice and assistance or legal aid, and details of the effect of preservation or recovery of any property if relevant;
(4) who will do the work; and
(5) who the client should contact if they have any concerns or complaints.

Issued to whom?

Terms of business letters require to be issued to all clients, subject to three exceptions:

(1) Existing clients – the information does not need to be provided repeatedly to regular clients who instruct the same type of work, but it should be provided on at least the first occasion and will need to be updated if the information changes.

(2) Lack of opportunity – where there is no practical opportunity for the information to be provided before the work has been done, i.e. where the work is completed at a single meeting.

(3) Children under 12 – special considerations may require an alternative method of communication, other than correspondence. Exercising professional judgment is important in each particular case, to ensure that this information is provided in the most appropriate way. This exception does not diminish the solicitor’s obligation to communicate effectively with the client in terms of rule B1.9. If the client is the child’s parent or guardian (for example, in a personal injury case), the information will still need to be provided.

It is worth remembering that solicitors who undertake either civil or criminal legal aid work are not exempt from rule B4. Accordingly, terms of business letters must be issued to legal aid clients at the outset of new instructions. It will also be necessary to issue a revised letter where a case changes from being legally aided to privately funded, or vice versa.

Specific aspects

Enough information must be provided as to the work to be done that its scope and the significant elements can be clearly identified. It is wise for both solicitor and client to be clear about what work is being taken on and what the solicitor will not be responsible for. It is important to be clear about when the service will end: at completion of a transaction or some later date.

Solicitors are required to provide details of the fees and outlays to be charged. This can either be an estimate of the total fee or the basis on which the fee will be charged, e.g. the hourly rate, and the VAT amount and details of any foreseeable outlays.

The terms of business letter must specify that there is a person in the firm who deals with concerns and complaints, i.e. the client relations manager. In addition, the letter should signpost clients to the Scottish Legal Complaints Commission if they remain dissatisfied with how their complaint has been dealt with by the firm.

Further advice for solicitors

In addition to the information that solicitors must provide to clients in terms of rule B4, it is recommended that terms of business letters set out:

(1) how the solicitor will communicate with the client and in what form instructions should be given;
(2) an indication of how long it will take to carry out the work;
(3) what the client’s responsibilities are in the transaction, e.g. the need to give instructions timeously and to be available to sign documents.

The new guidance covers the impact of reg 19 of the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities & Information) Regulations 2015. The regulations require solicitors (as service providers) to give consumer clients (individuals not trading as commercial entities) details of a certified ADR provider, and indicate whether or not they intend to use them to try and settle the dispute. Firms are not obliged to use an ADR scheme, but are obliged to advise a consumer client about a certified ADR provider.

It is worth noting that a breach of rule B4 may result in a finding of professional misconduct or unsatisfactory professional conduct.

In addition, failure to issue a terms of business letter, or not including adequate provisions in such a letter, could also lead to a finding of inadequate professional service against a firm or an individual solicitor.

The Author
Alison Mackay is a solicitor in the Society’s Professional Practice Team
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