Client care, costs, and adjustments - Costs, funding, scope,...

Learning Outcomes

This article explains the core principles of client care, costs, funding and retainers for solicitors acting in contentious and non-contentious matters, including:

• Core client care duties when giving clear, accurate and ongoing costs and funding information in compliance with professional and regulatory requirements
• The range of private, public and alternative funding arrangements, such as CFAs, DBAs, and legal expenses insurance, and their advantages, risks and limitations
• Different fee structures, including hourly, fixed and contingent fees, how success fees and damages-based percentages are calculated, and relevant statutory caps
• The nature and effect of a solicitor’s retainer, defining scope of work, authority, client responsibilities, and the circumstances and consequences of termination
• Drafting clear, accessible client care and engagement letters that set out scope and limitations, likely costs and budgets, complaints procedures, and key regulatory information
• Managing developments during a matter by updating costs estimates, adjusting funding arrangements (including legal aid certificates), varying retainers, and recording all changes in writing
• Advising clients on litigation costs risks, including adverse costs exposure, cost management and budgeting, Part 36 and fixed recoverable costs, and the role of insurance

SQE2 Syllabus

For SQE2, you are required to understand the core client care requirements for solicitors, with a focus on the following syllabus points:

• the duty to provide clear information on costs and funding methods
• advising on scope of work and limitations set by the retainer
• the process and importance of sending client care and engagement letters
• the nature of public and private funding, and relevant eligibility criteria
• the implications of conditional and damages-based agreements
• the responsibilities relating to changes or adjustments in funding or instructions

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What information about costs must be given to a client before starting substantive work?
2. Name the most common sources of funding for legal services in England and Wales.
3. What is the legal effect of a solicitor’s retainer and what are two mandatory elements that must be included?
4. True or false? A solicitor may impose a blanket success fee of 100% under a conditional fee agreement in all cases.
5. Why must clients be informed about the risks of public funding being withdrawn or limited?

Introduction

When acting for a client, you are responsible for ensuring that they are fully informed about the likely costs, available sources of funding, and the scope of your work. Providing clear and accurate client care is a professional requirement and central to ethical practice. This article focuses on what must be discussed at the outset, explains funding and costs, and outlines the need for an appropriate retainer agreement.

Client care does not begin and end with price: it includes building trust, listening actively, and checking that the client’s objectives and constraints are understood. Be prepared to clarify technical terms in plain English, confirm timescales, and outline next steps. Establishing a professional relationship—through clear communication, careful note-taking, and prompt written follow-up—underpins competent advice and reduces risk.

The Duty to Provide Costs Information

Solicitors must explain to clients how fees will be charged: whether by hourly rate, fixed fee, or as part of a conditional or damages-based agreement. Clients must understand their financial exposure—including the risk of paying the other party’s costs in litigation. Accurate and prompt information allows clients to make informed decisions.

Under the SRA Code of Conduct for Solicitors, you must give the best possible information about likely overall cost at the outset and as the matter progresses. This includes:

• the charging basis (hourly rates, fixed fee, CFA, DBA), any success fee or percentage, and whether VAT applies
• an initial estimate and any cost budget if applicable, plus assumptions and exclusions
• likely disbursements (court fees, expert fees, counsel’s fees), whether they are subject to VAT, and when they will be incurred
• billing arrangements (frequency, interim bills, payments on account), interest on late payment, and any transfer of client money in line with the SRA Accounts Rules
• whether costs may be recoverable from or payable to another party, including the effect of fixed recoverable costs, Part 36 offers, and track allocation
• whether adverse costs insurance (ATE) is in place or recommended, and the consequences if it is not.

Update the client in writing when material changes arise—scope changes, new steps, expanded evidence, or revised prospects. Use specific figures or ranges rather than vague phrases (e.g., “£4,000–£6,000 excluding VAT and disbursements” rather than “substantial costs”).

Key Term: costs information
Details given to a client explaining how legal fees will be charged and estimated, including rates, likely total, and other possible liabilities.

Funding Options: Private, Public, and Alternative Methods

The main ways clients may fund their case are by private funding (paying their own fees), public funding (legal aid), or alternative agreements such as conditional fee agreements (CFAs) or damages-based agreements (DBAs). Third-party funding, insurance, and pro bono services may also be relevant.

Private funding suits many transactional or advisory matters and most civil disputes. Where clients pay privately, explain:

• how time is recorded and billed, what is included/excluded, and how you will report progress
• whether counsel will be instructed and how their fees are handled
• any retainer deposit held in client account and your interest policy.

Legal aid is available subject to scope, merits and means tests. It commonly covers criminal defence and certain civil areas (e.g., domestic abuse work, homelessness, public law, limited housing disrepair). Clients should be warned about contributions, the statutory charge (which may require repaying costs from damages or property preserved), cost limitations on certificates, and the risk of withdrawal if eligibility changes. You must avoid undertaking out-of-scope work on a legal aid certificate; seek amendments promptly if the case evolves.

CFAs and DBAs displace or modify standard charging:

• CFAs link the client’s obligation to pay base costs and a success fee to case outcome. Post-LASPO, success fees are generally not recoverable from opponents, and clients pay them from damages (with a statutory cap of up to 25% of specified damages in personal injury; success fees also cannot exceed 100% of base costs).
• DBAs entitle the firm to a percentage of damages recovered. Maximum percentages are prescribed (broadly 25% for personal injury, 35% for employment, and 50% for other civil claims). DBAs are regulated and must be drafted with care to be enforceable.

Other options include:

• Before-the-event (BTE) legal expenses insurance often embedded in home, motor or business policies; check policy notice/terms, panel firm restrictions, and “freedom of choice” under insurance law and practice
• After-the-event (ATE) insurance to cover adverse costs and, sometimes, disbursements; premiums are generally not recoverable except in limited categories (e.g., certain clinical negligence expert reports), so clients should understand the net effect on damages
• Trade union or membership support schemes
• Pro bono assistance; note that while s.194 of the Legal Services Act permits “pro bono costs orders” payable to the Access to Justice, pro bono does not pass costs risk to the firm, and adverse costs risk may still fall on the client.

Key Term: private funding
Payment of a solicitor’s fees by the client, typically by hourly or fixed rates, without contribution from legal aid or third parties.

Key Term: public funding
Where legal aid covers all or part of a client’s legal costs, subject to a merits and means test by the Legal Aid Agency.

Key Term: conditional fee agreement (CFA)
An agreement where payment of the solicitor’s fee depends on the outcome, often including a success fee if the case is won.

Key Term: damages-based agreement (DBA)
An arrangement where the solicitor’s fee is a percentage of the damages recovered if the case succeeds, but nothing is paid if it does not.

The Retainer: Outlining Scope and Authority

A retainer defines the legal work you are instructed to carry out and is the basis of your contractual relationship with the client. Clear limits must be set at the outset so both parties understand which services are included and which are excluded. A retainer must also detail the circumstances in which it can be terminated, and the effect of such termination on costs.

Clarify:

• scope and objectives (e.g., initial advice only; pre-action negotiation; full representation through trial; or limited-scope assistance such as document review)
• who will do the work, supervision arrangements, and how to contact the team
• timescales and key steps (with indicative deadlines and dependencies)
• data protection and confidentiality, including how information will be shared with counsel or experts and, in joint retainers, between multiple clients
• conflicts and independence: how you will address any conflict of interest that arises, and your right or obligation to cease acting
• AML and identity checks where applicable (e.g., Money Laundering Regulations 2017 and POCA duties), including the possibility of mandatory disclosures and constraints on “tipping off”
• termination provisions: how either party may end the retainer, notice requirements, and payment for work done to date
• client responsibilities (e.g., providing timely, accurate instructions, documents, and payment on account where agreed).

A limited-scope retainer must be drafted with particular clarity so the client does not assume you are handling tasks outside the agreed scope. Record all advice and agreed limitations in writing.

Key Term: retainer
The contract between solicitor and client setting out what legal work will be done and on what terms, forming the basis for all rights and obligations between solicitor and client.

Worked Example 1.1

A client seeks initial advice about a potential employment claim. You discuss your hourly rate, give an estimate of total costs, and mention they may be eligible for legal aid. After assessing their income, you determine they do not qualify. What must you do before starting substantive work?

Answer:
You must provide written costs information, detail alternative funding options (such as CFAs or insurance), clarify whether your advice is preliminary only or covers full representation, and agree the scope of your retainer—recording it all in a client care letter.

Meeting Client Care Requirements

Professional rules require that clients receive a written statement at the start of every matter. This client care letter should confirm: what work will be done, who will do it, the basis for charging, cost estimates, payment arrangements, and complaint procedures. Clients must also be told about their rights to challenge or complain about their bill, and how to contact the Legal Ombudsman.

Include:

• clear explanation of cost basis, estimates, likely disbursements, and VAT
• arrangements for funds on account, billing frequency, and interest on overdue sums
• whether a cost budget will be prepared and the implications of exceeding it
• whether fixed recoverable costs or track allocation may limit cost recovery in litigation
• the complaint process (internal contact details, investigation steps, and escalation to the Legal Ombudsman) and applicable time limits (currently, within one year of the act or omission or the client’s knowledge, and within six months of your final response)
• accessibility and reasonable adjustments under the Equality Act (e.g., large print, interpreters, suitable meeting arrangements)
• data protection notice (how personal data is used, shared, and retained).

The SRA Transparency Rules also require certain firms to publish price and service information for specified work types. Even if your matter is outside those categories, the discipline of clear, accessible costs information applies to all retainers.

Key Term: client care letter
The written document provided at the start of an engagement, confirming essential details about costs, funding, scope, and client rights.

Explaining Risks and Adjustments

Clients should be warned about the possibility that legal costs may change if the work develops beyond what was anticipated, or if their funding status changes. Solicitors must update clients on any significant developments, including increased costs, withdrawal of public funding, or changes to the scope of the retainer.

In litigation, explain:

• the “loser pays” principle, qualifications by track allocation (small claims costs are limited; fixed recoverable costs apply to most fast and intermediate track cases), and the potential for adverse costs orders
• the effect of Part 36 offers on costs and interest, and why timely settlement proposals can curb risk
• the role of costs management and budgets, including the risk that exceeding a budget may limit recoverability even if your client succeeds
• recent changes, such as updates to QOCS in personal injury, which alter set-off and enforcement mechanics; advise on how ATE insurance may mitigate adverse costs risk.

Record all material changes and adjusted estimates in writing, inviting the client to confirm instructions before taking new steps.

Worked Example 1.2

You act for Amir under a legal aid certificate, but mid-way through the case, his financial circumstances improve and he becomes ineligible. What is your duty?

Answer:
You must inform Amir promptly that public funding will be withdrawn, explain the impact on his case and costs (including any liability for work already completed), and record this in writing.

Conditional Fee Agreements and Risk

CFAs and DBAs are increasingly common in civil litigation. It is essential that clients are told about success fees, the risk of losing and owing the opponent’s costs, the existence (or not) of insurance for adverse costs, and the limitations applicable to any funding agreement.

CFAs:

• Explain the success fee as a percentage uplift on base costs (0–100%), how you have risk-assessed it, and any statutory cap (e.g., up to 25% of specified damages in personal injury, inclusive of VAT)
• Clarify what “no win, no fee” covers (base costs and success fee) and what it does not (disbursements, opponent’s costs absent ATE or alternative cover)
• Note that recoverability of success fees from opponents is generally barred; any uplift is payable from damages where the claim succeeds.

DBAs:

• Confirm the applicable percentage cap, how the percentage is calculated, and whether counsel’s fees are included
• Emphasise that DBAs must comply with regulations to be enforceable; set out what happens if the agreement is found non-compliant
• Explain that if no damages are recovered, the client generally pays nothing under the DBA, but disbursements may remain payable if the agreement so provides.

Third-party funding:

• If using litigation funders, outline their terms, control, and potential sharing in damages (note recent case law has scrutinised such agreements); ensure clients understand enforceability risks and how funder consent may affect settlement.

Worked Example 1.3

Sarah is considering a CFA for a personal injury claim. You estimate your success fee at 50%. Sarah asks if she will pay anything if she loses.

Answer:
You must explain that, unless separately insured, Sarah might still be liable for some expenses and possibly the opponent’s costs, but will not pay the success fee or base costs if the CFA covers both on a “no win, no fee” basis. All these details must be set out in the funding agreement and client care letter.

Worked Example 1.4

A commercial client proposes a DBA for a breach of contract claim seeking £500,000. They ask whether you can take 50% of all recoveries and whether the percentage applies to settlement sums as well.

Answer:
Explain that DBA percentages are capped by regulations and differ by claim type. For most non-PI civil claims, the maximum is 50% of damages recovered. Confirm that the percentage applies to “damages” within the regulations and must be drafted to address settlement outcomes explicitly. Warn that the DBA must comply with regulatory requirements to be enforceable and that disbursements and counsel’s fees need careful treatment.

Worked Example 1.5

You agree to provide “limited advice only” on a litigant-in-person’s draft witness statement for a fixed fee. Later, the client assumes you are handling all court paperwork and blames you for missing a deadline.

Answer:
This risk is reduced by a clearly drafted limited-scope retainer and client care letter that states what you will and will not do, any deadlines the client must meet, and the consequences if they do not. Confirm the limitation in writing, signpost further services and costs if full representation is required, and remind the client to take responsibility for filing and service unless separately instructed.

Exam Warning

For SQE2, you must be able to identify and advise on the best funding option for a client’s situation, considering their eligibility, the risks of each method, and compliance with all professional requirements. Failing to warn a client about liability for costs, or over-promising on eligibility for legal aid, can lead to negligent advice. Be specific about estimates and success fee caps, document assumptions, and record all adjustments promptly. Avoid jargon and explain the implications of track allocation, Part 36 offers, costs budgets, and insurance.

Complaints and Regulatory Requirements

Regulations require you to inform clients about their right to complain if dissatisfied with your service or bill. The letter must explain how complaints are handled and the time limits for escalating complaints to the Legal Ombudsman. Current time limits are:

• within one year of the act/omission or of the client’s knowledge
• within six months of your final written response to the complaint.

Explain that the Legal Ombudsman deals with service complaints; the SRA handles allegations of misconduct. Clarify how clients can request a review of a bill (assessment under the Solicitors Act), and any internal billing dispute process. Include contact details for your complaint handler and the Legal Ombudsman.

Revision Tip

When drafting a client care letter, use a checklist: fees/rates, estimated costs, funding options explained, who has conduct of the matter, scope of work, terms of termination, complaint procedure, and confirmation from the client. Keep the language plain, give specific figures or ranges, and state assumptions. Revisit the letter whenever scope or costs change; send a short addendum confirming the update.

Key Point Checklist

This article has covered the following key knowledge points:

• Clients must receive clear, written information on costs and funding at the start of the case.
• The solicitor must explain and agree the scope of the retainer, and put this in writing.
• Funding may be by private funding, public funding, CFA, DBA or other means, each with specific risks.
• Clients must be informed of all risks, including liability for costs, funding eligibility, and procedural steps.
• Client care letters must detail the complaints procedure, costs, and retainer scope.
• Any changes in costs, funding, or instructions must be promptly communicated to the client in writing.
• Success fees must be risk-led and capped appropriately; DBA percentages must comply with regulations.
• Legal aid has scope, merits and means limitations; warn about contributions, the statutory charge, and certificate cost caps.
• Costs management, track allocation and fixed recoverable costs can limit recoverability; advise on Part 36 and ATE.
• Limited-scope retainers require careful drafting to avoid misunderstandings; confirm exclusions and client responsibilities.

Key Terms and Concepts

• costs information
• private funding
• public funding
• conditional fee agreement (CFA)
• damages-based agreement (DBA)
• retainer
• client care letter