Beware of the risks involved in unbundled legal services

Beware of the risks involved in unbundled legal services

Affordability of legal advice is a key issue for many clients. We are in challenging economic times and Individuals and businesses will find the concept of "unbundled legal services" attractive in the coming months. Your firm might already be seeing an increase in clients requesting "just a bit of advice".

The SRA published a report on unbundled legal services in June 2023 following a pilot related to family law services involving 114 law firms. A copy of their report is available here. They have indicated that they intend to undertake more work on this issue to increase awareness and availability of unbundled services, albeit they acknowledge the challenges from a risk perspective.

Law firms should put this issue on the management agenda for discussion. PII proposal forms ask whether your firm undertakes unbundled legal services. There is a good reason for this. Insurers have seen the fallout in terms of claims activity when an unbundled legal service goes wrong. The level of risk associated with providing advice and services on a fragmented basis should not be under-estimated.

It is useful to review some of the cases in this area as they provide practical examples of just how tricky it can be to get the delivery of unbundled legal services right.

A good starting point is Padden v Bevan Ashford [2011] EWCA Civ 1616. In this case a newly qualified solicitor met with Mrs Padden for the purpose of providing independent legal advice regarding borrowings that were to be secured over the family home and assets, to repay monies misappropriated by Mr Padden in his business activities. The interview was short and certainly less than the half hour allocated. Mrs Padden was advised not to sign the documents, but she made it clear that she intended to do so, as she believed that repayment of the money was the only way to avoid her husband going to prison. She returned some days later to sign the documents, when a partner witnessed her signature and certified that the consequences had been explained and that she understood them, although it appears that no advice was given on that occasion. 

The Court of Appeal determined that merely advising the claimant not to enter into the transaction fell short and she should have been advised that, whatever she did, a prosecution was almost inevitable. The Court accepted Mrs Padden’s evidence that had she been advised of this inevitability she would not have signed. This case illustrates the importance of advising a client properly even when advising on a limited basis.

The decision of Minkin v Lesley Landsberg [2015] EWCA Civ 1152 then provided some comfort on the issue of risk, albeit the circumstances were somewhat different. In this case problems arose regarding a consent order the solicitor had been instructed to draft covering financial arrangements between the client and her former husband. The client claimed that she had not been properly advised on the order. The trial judge and the appeal court found that the solicitor had only been instructed to draft the order – not to advise on its merits and no broader duty beyond the retainer was owed in the circumstances. We would caution taking too much comfort from this decision as there was some additional background that was important – namely the claimant was an intelligent business woman, who had practised as a chartered accountant. She had also been advised at an earlier stage, by another firm, that the agreement she had reached with her husband might not be fair. These points were clearly important in relation to the view that was taken by the court.

To the extent that any comfort was nonetheless taken from the above decision, it was short-lived. Concerns returned just a few months later with the decision of Sequence Properties Limited v Kunal Balwantbhal Patel [2016] EWHC 1434 (Ch). In this case a litigant in person was refused leave to appeal a costs order for the late filing of an appeal bundle. The judge noted that a solicitor had been involved on a limited retainer to assist with the preparation of the bundle and must have been aware of the requirements regarding service.

There was widespread concern that the judgment supported the proposition that a solicitor may be under a duty to advise the client of procedural requirements falling beyond the actual assistance they had been retained to provide. Against that backdrop the provision of unbundled legal services continues to be viewed by many as being deeply unattractive from a risk perspective.

The SRA and Law Society are familiar with the risks involved. The most recent Law Society Practice Note on this issue is available here. It focuses heavily on the PII and regulatory risks of providing unbundled legal services and should be reviewed by all fee earners.

As a broker we are likewise familiar with claims arising from unbundled legal services. Drawing on that experience, we highlight some points you might want to check on as you review this issue within your firm.

The service:

Unbundled legal services are “discrete acts of legal assistance under a limited retainer, rather than a traditional full retainer where a solicitor typically deals with all matters anticipated from initial instructions until the case is concluded”.¹ There is a significant variation in the unbundled services that can be provided. For example, it could be a one-off meeting to provide legal advice on a particular issue, drafting or reviewing documents or correspondence, or providing advocacy services at a court hearing.  The Law Society Practice Note details a list of practice areas and activities where unbundling might be appropriate (clause 2.1), but it is not exhaustive and the scope is broad.

A key aspect of unbundled legal services is that the matter should remain client led, so solicitors do not go on the court record, accept service of documents or send correspondence on their firm letterhead. The greater the level of involvement a solicitor has in a matter, the more risk there is that a full retainer could be implied.

Clearly there are some unbundled services that will involve less risk than others. Assisting to draft a divorce petition when there is agreement between the parties will involve less risk than providing advice in relation to an ancillary relief issue. As a firm you need to decide what your tolerance is for the risk involved in unbundled legal services. This should then inform which, if any, unbundled services you want to provide. It is important that the firm’s decision on this issue is communicated to all fee earners so that the boundaries are clearly defined.

The retainer:

Getting the retainer right is key to managing the risk involved in unbundled legal services. To avoid any misunderstandings there needs to be complete clarity about what is and isn’t covered. The client must understand what they will need to do for themselves. If a client is seeking assistance for various steps in a process, it is important to ensure that the service you provide for each step is a discrete event and subject to a separate retainer. There should be complete clarity as to when each step begins and ends.

Great care needs to be taken to avoid “retainer-creep” where the advice or assistance goes beyond the limits of the retainer. If this occurs, then once again there is a risk of implying that a full retainer is in effect.

Clarity regarding fees is also important, including when the fees are to be paid. Requiring payment at the end of the appointment can be useful in demonstrating that the engagement was a discrete and isolated event. Fees could be based on an hourly rate, fixed fee or the matter could be pro bono.

Client selection:

Client selection is just as important when providing unbundled legal services as it is when acting under a full retainer. It is useful to remind ourselves of the overriding duty to “act in the best interests of each client”² and the need to consider and take “account of your client's attributes, needs and circumstances.”³ This means that you must consider whether it is appropriate to provide an unbundled service to the client. If you consider that the client will not have the support, skills or ability to deal with other aspects of the matter, then it is appropriate that you decline to act on an unbundled basis.

Even if you are satisfied that the client will be able to deal with other aspects of the matter, caution is still required. Some clients are seeking a limited service as they cannot afford to pay. Others simply do not want to incur the cost. With those in the latter category you are more likely to find that they will push the boundaries of the retainer and they will be quick to complain and/or claim if they do not achieve the desired outcome.

Fee earners:

Firms should also review the level at which this work is undertaken and the supervision that is in place. There can be a tendency for unbundled legal services to be allocated to the more junior fee earner. Given the risks and complexities involved, firms need to think carefully about this. Having the person with the lowest charge-out rate engaged in providing free, half-hour advice sessions might not turn out to be quite so cost-effective if the engagement leads to a claim that impacts your PII premium and underwriters’ appetite for providing cover to your firm.

Where the unbundled work is straight-forward, such as preparing an application for divorce, then using a more junior fee earner might be appropriate, but supervision remains key. You also need to be satisfied that the individual concerned will be able to ensure that the limits of the retainer remain clear when faced with the client who is using the service because they do not want to pay and pushes the boundaries as described above. An inexperienced fee earner could unwittingly create a full retainer in their desire to be helpful.

The advice:

Those providing unbundled legal services need to take great care to ensure that they have sufficient information to provide the advice or service requested. The relevant background and facts should be discussed and checked with the client and always resist making assumptions to save time. If the client is unable to provide the information needed, then it is not appropriate for the advice to be given. Likewise, if the background and related legal issues are complex, then consideration should be given to whether it is appropriate for the matter to be dealt with on an “unbundled” basis at all.

As demonstrated by the case of Sequence Properties Limited v Kunal Balwantbhal Patel referred to above, it is also important to ensure that clients are advised on all relevant matters such as key dates for filing documents and the potential risks of non-compliance.

Documentation:

As already discussed, there must be clarity regarding the scope of the retainer. A clear engagement letter that spells out the parameters of the retainer (both what is included and excluded) goes a long way towards addressing the issue of risk. Getting the basics right is important.  A sample engagement letter is provided with the Law Society Practice Note. We recommend that firms engaging in unbundled legal services have bespoke precedents that relate to the specific services they provide. The templates should be easy for fee earners to complete and produce quickly.

Information or advice sheets can also ensure that appropriate guidance is given to clients that can be evidenced in the event that it is later alleged that the client was not properly or appropriately advised.

File notes and record keeping

In addition to documentation referred to above, making file notes and correctly recording information reviewed and advice given is a fundamental part of managing risk. Fee earners need to ensure that they do not cut corners with this in an effort to bring the work in on budget. You must factor in the time required for making file notes and recording the advice given. Providing a client with a lean and cost effective service should not be done at the expense of ensuring that there is a proper record. For example, a contemporaneous note confirming telephone advice to a client about their responsibility to personally file and serve (within the required time-frame) a bundle of documents you have prepared pursuant to a limited retainer, could make all the difference if their failure to file in time results in a costs order against them and they then turn to recover that loss from you.

Free or fixed-fee half-hour advice appointments are an area where we have seen the absence of adequate file notes being a particular problem when responding to a subsequent complaint or PII claim. What systems and checks do you have in place for recording and retaining advice given in these appointments? You do not want to be the firm that finds themselves on the end of a PII claim regarding advice given in a free, half-hour appointment, with a name in the appointment diary being the only record you have of the meeting.

To discuss anything covered in this article or to speak to one of our team about your professional indemnity insurance renewal, please get in touch.