Your firm’s client care pack and terms of business may not seem like matters for your urgent attention, given all the other demands on your time. But the consequences if they are out-of-date could be very serious. Jaunita Gobby explains how to avoid the pitfalls.

The best place for solicitors to start reviewing compliance within their firms is with the client care letter and terms of business. By compliance, I mean not only the SRA Code of Conduct 2011, but also, for example, the Equality Act 2010 and the E-Commerce Directive.

From the reviews that Legal Eye Ltd have completed within law firms, we find that the main challenges around client care letters and terms of business are:

• implementing one standard template across the firm that can be updated to suit each department, but where the outline remains intact, giving the firm the security of knowing the important information required for compliance is included;
• ensuring that the correct versions of the templates are being used (fee-earners often use old versions, or versions amended to suit their own tastes, making updating, when changes are required, a real challenge, and sometimes impossible); and
• keeping up to date with the changes in the regulations (for instance, one small amendment, like the address of the Legal Ombudsman, can cause a lot of additional work to update master precedents).

SRA Code of Conduct compliance

Chapter 1 of the code covers client care, and the first outcome in this chapter (O(1.1)) requires solicitors to treat their clients fairly. This outcome should always be kept in mind when considering the information being provided to the client, both at the start of, and throughout, a retainer. Solicitors need to consider their clients’ needs and circumstances when they decide what information to provide and the manner in which it is provided. Information in writing is helpful, but it is important that clients understand it clearly, so it is best to highlight and explain significant information to them in person.

Outcomes 1.9 and 1.10, and indicative behaviour (IB) 1.3 under chapter 1 also place specific requirements on firms about what they need to include in their initial client care pack (in writing). The wording of these is as follows:

• O(1.9): “clients are informed in writing at the outset of their matter of their right to complain and how complaints can be made”;
• O(1.10): ” clients are informed in writing, both at the time of engagement and at the conclusion of your complaints procedure, of their right to complain to the Legal Ombudsman, the time frame for doing so and full details of how to contact the Legal Ombudsman”; and
• IB(1.3): “ensuring that the client is told, in writing, the name and status of the person(s) dealing with the matter and the name and status of the person responsible for its overall supervision”.

To ensure they achieve these outcomes, firms could use something like the following form of words:

“[Name of firm] is committed to high quality legal advice and client care. If you are unhappy about any aspect of the service you have received or about the bill, please contact [name] on [phone number and email] or by post to our [place] office. We have a procedure in place which details how we handle complaints, which is available at [details of how to obtain it]. We have eight weeks to consider your complaint. If we have not resolved it within this time, you may complain to the Legal Ombudsman.

“If you are not satisfied with our handling of your complaint, you can ask the Legal Ombudsman at PO Box 6806, Wolverhampton, WV1 9WJ (telephone: 0300 555 0333; email: [email protected]) to consider the complaint. Normally, you will need to bring a complaint to the Legal Ombudsman within six months of receiving a final written response from us about your complaint, or within a year of the act or omission about which you are complaining occurring (or you becoming aware of it).”

Other common issues

Other areas where errors often occur are as follows:

• incorrectly referring to telegraphic transfer fees as disbursements only, where only a portion of the amount is a payment to their bank;
• charging clients a fee for a contribution to the firm’s professional indemnity insurance;
• charging clients an additional fee, which amounts to office overheads (such as postage and telephone calls) – this amount should be included in the legal fee;
• where disbursements are included which contain elements of VAT (such as environmental searches), not showing the amount as including VAT;
• not having up-to-date complaints information in paragraphs about complaints and / or Financial Services Authority or insurance mediation clauses (for instance, referring to the Legal Complaints Service instead of the Legal Ombudsman, or including an incorrect address details for the Legal Ombudsman);
• not informing clients of their right to complain about their bill, or giving them the wrong information about how to do so;
• not including (where required) a paragraph about clients’ rights under the Distance Selling Regulations; and
• not including information about the Financial Services Compensation Scheme, or not keeping it up to date (for instance, about the amount the scheme covers).

A clause to cover the last of these could look like this:

“In the event of a banking failure, it is unlikely that the firm would be held liable for any losses of client account money. If a corporate body client is not considered a small company by the Financial Services Compensation Scheme (FSCS), then they will not be eligible for compensation.

“We currently hold our client account funds in [name of bank]. The £85,000 FSCS limit will apply to each individual client. This means that if you hold other personal monies yourself in the same bank as our client account, the limit remains £85,000 in total, so it may be advisable to check with your own bank, as some banks now trade under different trading names. In the event of a bank failure, you agree to us disclosing details to the FSCS.”

Firms should also consider including information on:

• the data protection legislation in their client care pack;
• equality and diversity within their terms of business; and
• confidentiality and the firm’s position on conflicts of interest, and what would happen if a conflict did arise.

Responsibilities

The client care pack should also outline the responsibilities of both the firm and the client. The firm’s responsibilities could include the following.

• “We will review your matter regularly.”
• “We will advise you of any changes in the law.”
• “We will advise you of any circumstances and risks of which we are aware or consider to be reasonably foreseeable that could affect the outcome of your matter.”

The client’s responsibilities could include the following.

• “You will provide us with clear, timely and accurate instructions.”
• “You will provide all documentation required to complete the transaction in a timely manner.”
• “You will safeguard any documents that are likely to be required for discovery.”

Professional indemnity insurance

Firms should also consider how to provide details of its professional indemnity insurance to the client. Details may be included on the firm’s website or displayed in the firm’s offices. The other option is to include it within the Terms of Business.

Whichever option the firm chooses, it is important to provide the client with the policy number(s) and name and address of the insurer. The wording of this could look like the following:

“We have a legal duty to tell you about our professional indemnity insurance. We have an obligation to carry such insurance and our qualifying insurer is [name of insurer], whose address is [address]. Our insurance policy number is [number]. The insurance covers our practice carried on from our offices in England and Wales and will extend to acts or omissions wherever in the world they occur.”

Lexcel compliance

Firms that have achieved the Lexcel quality mark or which are working towards the standard, need to ensure that additional information is included in their client care pack.

The standard requires firms to “establish in what timescale the matter will be dealt with”. This means the client care letter needs to include a timing clause giving the client an indication of how long the case will take to complete. An example of how this could be included is as follows:

“Assuming the matter proceeds smoothly we expect to complete the matter within [time]. This is only an estimate based on the current situation, and the timescale will ultimately depend on how efficiently the other side deals with our enquiries and requests.”

The standard also requires firms to “agree with the client the next steps to be taken”. This requirement starts within the client care pack, so solicitors need to ensure they conclude their client care letter with clarification of what the client needs to do to proceed with their case. An example of how this could be included is as follows:

“May I finally confirm the steps which I need you to take, or the documentation which I will require, to process matters on your behalf:

1. Sign a copy of this client care letter (as provided) and return to our offices. This will confirm your instructions to us. If the copy is not returned signed by you and you continue to give me instructions in connection with your matter, it will be deemed that you have accepted the terms of this letter and terms of business.
2. Provide the anti-money laundering documents as confirmed in the terms of business attached.

It is normal practice to ask clients to make payments on account of anticipated costs and disbursements. At this stage, could you please let me have £200.00 on account.”

Regular review

Ensuring the client care letters and terms of business remain up to date and that the correct versions are being used across the firm is a crucial element of a firm’s compliance plan.

Fee-earners often make amendments to client care letters without realising the potential consequences, which could be serious enough as to cause the documents to no longer be compliant or meet the standard of the firm’s quality accreditations, such as the Lexcel practice management standard.

A regular and structured file review process will identify whether any incorrect versions are being used and enable the firm to take corrective action to ensure this does not become a problem across the firm, and that the firm’s client care packs remain compliant and up to date.

Jaunita Gobby is director of Legal Eye Ltd, a legal consultancy specialising in compliance and performance.