Omissions cause most claims

This month Alistair Sim considers a series of case studies which illustrate a variety of risk management points. In most of the case studies, problems have been created by an omission which call for a particular risk management approach.

No right of access

J was the proud owner of a classic Triumph TR4. The car was his pride and joy and it was only ever taken out of the garage in perfect weather conditions.

As a result, when J purchased a flat in a recently converted house, it was the substantial garage at the rear of the house that had been the deciding factor. It was therefore a major problem when J received a stern letter pointing out that J had no right to drive along the track down the side of the house leading to the garage at the rear of the building.

The owner of the track is offering J the opportunity to acquire it at a price of £10,000. J is particularly aggrieved about the whole situation in view of the fact that the garage was the main reason for buying the flat.

How is this situation likely to have arisen? How could the situation have been avoided?

Most claims arise as a result of omissions. In this case, there may have been an omission to examine the title properly or an omission to provide for an express right of vehicular access to the garage or an omission to establish that an express right of access was required. A checklist approach might assist to prompt consideration of all the relevant issues in taking instructions from the client, in examining title and in drafting documentation.

Retention of clients’ documents

F & Co received a letter from a client P with whom there had been no contact for several years. P was asking for papers which he said F & Co had been holding for him in safekeeping.

One of the partners in F & Co was fairly sure the papers had been forwarded to P a long time ago. He was pretty sure about this because he remembered handing over the documents personally when P called at F & Co’s offices.

The file was retrieved from archival storage but it revealed no record of the meeting with P or the fact that the documents had been handed over. Nevertheless, the solicitor was sufficiently confident of his recollection that he wrote to P and said that the documents were already in P’s possession.

That prompted a threatening letter from P accusing F & Co of having lost the documents and intimating a claim for losses that P might suffer as a consequence.

F & Co were in a weak position because their records (and P’s) confirmed that the documentation had been in F & Co’s possession; there was nothing to verify that the documentation had been returned; there was certainly no receipt from the client confirming that he had received the documentation back from F & Co.

How would you avoid finding yourself in this position? When original documents are received and returned, ideally this should be recorded both on the file, perhaps also in a central register. While files may be destroyed after a retention period, if a central register is maintained longer term, that will provide a record of documents received and returned/delivered/destroyed. Best of all, get signed acknowledgments from clients.

Terms of engagement/Non-engagement

Firm X acted for A in a successful medical negligence claim. Some months after settlement of that matter, Firm X received a letter from another firm of solicitors alleging that Firm X had allowed a claim for discrimination to become time barred. On checking their file, Mr X of Firm X was reminded that the issue of a possible discrimination claim had arisen incidentally during the course of a discussion concerning the medical negligence claim. Mr X was quite clear that he had never undertaken to act for A in the discrimination matter.

How would you have avoided finding yourself in this situation? If Mr X was so clear in his own mind that he was not acting for A in any separate discrimination claim, why did he not communicate the position clearly to A? For the sake of clarity and his own protection, Mr X might have issued a non-engagement letter in relation to the discrimination matter.  

Partnership liabilities

Firm Z acted for C in connection with his departure from the partnership of ABC & Co. This was an extremely acrimonious bust up and there were protracted negotiations over every aspect of C’s disengagement from the business.

Eventually, a Minute of Dissolution was concluded and signed and C required to make a modest payment to his former partners in respect of his agreed balance reflecting the level of business borrowings at the date of C’s departure.

Some time later, the business failed and the bank called up securities and guarantees for the business borrowings. Because there was a shortfall, the bank looked to C in terms of a Personal Bond which he had signed and from which he had never been released.

How would you ensure that no client of yours found himself in this position? Firm Z might have drawn up a list of action points to be attended to in order to achieve C’s objective and these could have been diarised and copied to the client. All of this would have helped to minimise the risk of critical issues being overlooked and to avoid any misunderstanding between solicitor and client.

Lenders’ general instructions

Firm Y acted on behalf of purchasers of a house and for their lenders in the preparation, execution and recording of a Standard Security.  On the face of it the purchase and loan transactions proceeded normally.

The purchasers/borrowers defaulted and the property was repossessed by the lenders who incurred a loss. The lenders requested Firm Y’s file and intimated a claim on the basis that, inter alia, Firm Y had failed to comply with certain terms of the lenders’ General Instructions to Solicitors.

The letter received from the solicitors acting for the lenders alleged inter alia that, contrary to express terms of the General Instructions to Solicitors, Firm Y had failed to report to the lenders:

• that the whole purchase price was not passing through the hands of Firm Y as part of the price was apparently paid by the borrowers direct to the seller; and
• that the party from whom the borrower was purchasing had only acquired the property within the last month or two.

The letter intimated that, having repossessed and sold the property, the lenders had sustained a loss and were holding Firm Y liable.  While this claim may involve issues of causation and quantification which are less clear cut, if the lenders’ allegations are justified, then it appears, on the facts stated, that Firm Y has omitted to comply with express provisions of the lenders’ instructions which are express terms of the contract between the lenders and Firm Y.  Lenders’ general instructions are effectively a checklist of points to be addressed, documented and reported on as appropriate.      

Unimplemented undertakings

Firm Y acted for B in the purchase of a flat. Property Enquiry Certificates produced by the sellers’ solicitors disclosed the existence of an outstanding notice. After discussion, the sellers’ solicitors agreed that the letter of obligation would incorporate an undertaking on behalf of their clients to deliver a receipt and discharge.

Following settlement, the file was fee’d up and archived.  The sellers’ solicitors were never chased for delivery of the outstanding receipt and discharge.  When B came to sell the flat some years later, the notice was still outstanding, the previous owners hadn’t paid the local authority and were now untraceable and B was required to attend to this in order for the sale to proceed.

How do your ensure that your clients don’t find themselves in the same situation as B?  On the facts stated, it appears there may have been an omission on the part of Firm Y to diary the outstanding undertaking and, if necessary, to make B aware of the situation and B’s options in the event of the sellers’ failure to implement their undertaking.  Effective diarying is clearly a critical element of avoiding this sort of situation.

The information in this page is (a) intended to provide guidance on matters of practical risk management and not on issues of law and (b) is necessarily of a generalised nature.  It is not specific to any practice or to any individual and should not be relied on as stating the correct legal position. Alistair Sim is Associate Director in the Professional Liabilities Division at Marsh UK Limited