Defining clearly the solicitor's role

A reader of last month’s article has raised a very important point regarding the undertaking of activities which could be described as “novel”. In particular, the reader commented on the suggestion in the August article that solicitors might consider providing clients with advice on managing their legal risks. The reader’s comments refer equally to many other categories of work.

The reader’s point was that engagement letters issued to clients in these situations require to be very carefully framed. The need for precision recognises the potential for uncertainty about the scope of the work being undertaken and the attendant duties and responsibilities.

To illustrate the point, a solicitor who undertakes to review a client’s contract terms and conditions should make it clear in the engagement letter that there are certain implications of the client’s contracts on which advice is not being offered. Is the solicitor to be responsible for alerting the client to potentially adverse taxation implications, for instance? If not, it will clearly be in the solicitor’s best interests for the engagement letter to say so.

Similarly, when giving advice on contractual aspects of Year 2000 issues (an example referred to in last month’s article), the engagement letter should make it clear that technical systems advice on how to achieve Y2K compliance is beyond the scope of the solicitor’s instructions/ advice.

In each case, it may be appropriate to make a statement in both the client engagement letter and the advice letter to the effect that there may be taxation or other implications and that consideration ought to be given to seeking separate advice thereon from appropriate experts/advisers.

One of the indirect benefits of issuing a client engagement letter is that drafting the letter prompts consideration of the extent of the solicitor’s instructions, duties and responsibilities and giving clearer definition thereto and any limitations thereon. These matters may otherwise be left undefined but, while it may be obvious to the solicitor what his role includes and excludes, this may be far from clear to the client, who simply does not know what to expect.

Many thanks to the reader who raised this point.

Foreign bank drafts

A practical problem encountered by a solicitor recently is drawn to the attention of readers.

The solicitor was involved in the administration of an executry and one of the residuary beneficiaries lives in Australia. The solicitor had been requested by this beneficiary to send payments to him by way of (foreign) bank draft.

This method of payment had worked perfectly satisfactorily for the purposes of two earlier payments to account, however a third bank draft went astray. Whether this was because the letter with the bank draft went astray in the postal system or because it was sent, in error, by surface mail rather than airmail is not known. However, after some two to three weeks, the Australian beneficiary was still complaining that the letter and draft had not arrived. The sum involved was substantial and the beneficiary was therefore agitating for payment because he had plans for investment.

Because of the nature of the bank draft, the funds could only be re-issued, whether by replacement bank draft or some other form of payment, if the solicitor, as the purchaser of the missing bank draft, gave an indemnity to the issuing bank. This would have meant that the solicitor was at risk, albeit perhaps for a limited period, of a dishonest foreign beneficiary enchasing the original bank draft and also receiving and retaining payment of the follow up/repeat payment.

The approach which the solicitor in this case adopted was to instruct the issuing bank to cancel the original draft, give the bank the indemnity it sought but to place the replacement funds on interest-bearing account for the benefit of the foreign beneficiary. After an appropriate period, the funds were to be transferred directly to the beneficiary’s own bank account.

This situation of course raises various issues concerning the solicitor’s responsibilities, the beneficiary’s instructions, the role of the issuing bank etc. However, it is worth bearing in mind the peculiarities of issuing a bank draft by mail when such a draft is not capable of being “stopped” in the same way as a cheque.

The writer contacted the issuing bank and a comment was made to the effect that bank drafts ought not to be used unless they are being hand delivered or sent by some form of guaranteed post.

Year 2000

There are varying opinions as to the extent of a solicitor’s duty to advise clients on the implications of the Year 2000 date change. Clearly, solicitors should not be expected to, and should not, advise on the compliance status of systems or how to achieve compliance. By contrast, solicitors involved in certain areas of practice appear to be routinely alerting clients to the existence of Year 2000 compliance-related risks. The approach of these solicitors has been to notify the client of the position and advise the client to take advice from suitably qualified professionals.

A carefully framed engagement letter can address these issues satisfactorily and the points to be addressed include:

Make it clear that you accept no responsibility for advice about the adequacy of the Year 2000 compliance status of a business, property, investment or other asset being acquired sold or secured.

If a transaction or advice raises the prospect of Year 2000 compliance-related risks notify the client of the position and advise the client to take advice from suitably qualified professionals.

Advise clients that you are not offering advice on Year 2000 compliance as such.

Other Y2K planning points:
Agree the firm’s approach in relation to each area of work and ensure that all concerned are aware of the issues and the need for caution in relation to client work.

Hold team briefing sessions to identify circumstances where Year 2000 issues may arise for clients and circulate/draw attention to relevant articles in the Journal.

Review all styles and pro-formas for references to/warranties in relation to Y2K compliance; control the use of styles and pro-formas; prohibit use of non-approved styles and pro-formas.

Alistair Sim is Associate Director at Marsh UK Limited

The information/advice in this page is (a) advice on practical Risk Management and not on legal issues and (b) is necessarily of a generalised nature. It is not specific to any practice or to any individual, nor should it be relied on as stating the correct legal position.