Terminating a retainer

There are several bases on which the relationship between a lawyer and a client is regulated and governed. One basis is the general provisions of contract law, which govern the contractual terms of engagement entered into between a lawyer and a client. Another basis is lawyer-specific legislation, such as the Legal Practitioners Ordinance in the Hong Kong Special Administrative Region and the Lawyers Law in mainland China. A third basis is provided by the rules of professional conduct that are issued by the bodies that regulate the legal profession. These include the Law Society of Hong Kong and, in mainland China, the All China Lawyers Association and local bar associations.

In common law jurisdictions, a fourth basis exists; namely, the principles of equity that govern the fiduciary duty that a lawyer owes to a client (for a discussion about fiduciary duties, see China Business Law Journalvolume 3 issue 1, page 90: Duty or obligation?; for a discussion about equity, see China Business Law Journal volume 3 issue 5, page 74: Law or equity?). This column considers the circumstances in which a lawyer can terminate the relationship (or retainer) with a client.

This issue is usually straightforward where the client terminates the retainer, as most jurisdictions recognise that a client may terminate a retainer and withdraw the lawyer’s instructions at any time and for any reason (although the client will continue to be liable for all reasonable legal fees for work that was properly undertaken by the lawyer prior to termination).

Interestingly, PRC law and the law in common law jurisdictions adopt a very similar approach to this issue, which is broadly representative of international practice.

The position in common law jurisdictions

The traditional position under the common law – i.e. judge-made law as distinct from legislation – is that a lawyer may terminate an “entire contract” retainer before the end of the retainer on reasonable notice, and if the lawyer has a “reasonable ground for refusing to act further for the client”: Lord Esher in Underwood Son & Piper v Lewis, 1894.

In addition, if the lawyer has a “reasonable ground” or “good reason” to terminate, the lawyer is entitled to recover legal fees for the work undertaken prior to termination.

The first point to note in relation to the position under common law is that the rule applies to an entire contract retainer. An entire contract retainer is a retainer where the lawyer is engaged to conduct litigation or “contentious business” on behalf of a client.

It is not difficult to understand why there are particular concerns in relation to litigation. If a lawyer ceased to act for a client in court proceedings, the interests of the client might be severely prejudiced. Accordingly, the common law rules state that a lawyer may only terminate a retainer in such circumstances if there is reasonable ground to do so and the lawyer has given the client reasonable notice.

The common law position is reflected in the Hong Kong Solicitors’ Guide to Professional Conduct:

5.22 Constraints on termination

Unless otherwise provided in a written retainer, a solicitor must not terminate his retainer with his client except for good reason and upon reasonable notice, or with the client’s consent.

Commentary

1. A written retainer may be terminated in accordance with the terms of the retainer.
2. Where the entire contract rule applies, the contract may be terminated by a solicitor for good reasons and by reasonable notice.
3. Examples of good reason include where a solicitor cannot continue to act without being in breach of the law or rules of professional conduct, where a solicitor is unable to obtain clear instructions from a client, where there is a serious breakdown in the confidence between them, or where a conflict of interest arises.
4. A solicitor has good reason to terminate a retainer if a client does not pay disbursements when required. If a client agreed at the inception of, or during, the retainer to pay on account of profit costs and anticipated disbursements (fees) and he fails to pay, then that also may justify termination by the solicitor if the terms of the agreement to pay support the solicitor’s action. If there is no such agreement the solicitor cannot justifiably terminate for failure to pay fees during the retainer (see Principle 4.08).

A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at law.asia.