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A word of caution when a law firm suddenly introduces a new paying party

What should you do if one of your established law firm clients suddenly tells you it will no longer be responsible for your fees, but instead you should bill ABC Ltd for them? The purpose of your terms of engagement is to set up the contractual relationship between you and those who instruct you. By separating instruction from payment, one simply increases the complexity of the contractual arrangement, and increases the risk of payment problems arising down the line. For example, in the set up proposed by this lawyer, how much hassle would it be for the law firm if its payment arm went bankrupt (taking your fees with it)? Do you suppose that would be an easier prospect for these lawyers, should things get tight, than them taking the law firm itself into bankruptcy?

The sensible approach is to take the time on the first instance of the law firm using ABC to get a set of terms together that provides you with the protection necessary given the extra party in the proceedings. If the law firm is not simply trying to off-load its financial risk to a third party, presumably it will not object to having the terms adjusted to ensure your position isn’t disadvantaged by its decision to reorganise. How the firm responds to this approach may be revealing of its true motivation behind the introduction of ABC Ltd!

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