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Whether one puts in place “procedural compliance audits” or “peer reviews” or “quality assurance reviews”, each can usefully form part of a practice’s approach to risk management.

This article is concerned not with a qualitative review of advice or drafting, but rather with a procedural review of others’ files to establish whether those files have been well handled in terms of compliance with systems and procedures focused on risk management.

An issue of compliance

A great many claims against solicitors arise as a result of simple errors or omissions, many of them errors or omissions of a routine or procedural nature. Even apparently insignificant procedural errors or omissions are capable of resulting in critical issues being overlooked or in misunderstandings arising between solicitor and client.

In many cases, claims arising out of misunderstandings could have been readily avoided if only terms of engagement had made clearer the scope of the work which the solicitor considered he or she had agreed to undertake for the client. Many claims arising out of missed deadlines could have been avoided if only basic information had been obtained and verified at the outset, if only it had been made clear to the client what was required of him, if only the critical dates had been more effectively diarised.

Much of this is very readily achievable by having in place straightforward systems, procedures and disciplines, but in order for these systems, procedures and disciplines to be effective, there needs to be a commitment to complying with them and complying with them on a consistent basis.

What can go wrong

The role that independent file review can play in relation to the practice’s risk management systems, procedures and disciplines and securing effective implementation of and compliance with them may be illustrated by reference to a case study.

The partners of a medium sized practice had put a great deal of time and effort into improving the management of risk throughout the firm:

Client vetting, conflict checking and file opening procedures had been overhauled;

Money laundering training had been rolled out for everyone in the firm;

Terms of engagement letters had been reviewed and rationalised;

Diarising of critical dates had been tightened up and made more consistent;

Fee earners were now expected to undertake a physical review of their own files on a rolling basis;

Most of these systems, procedures and disciplines had been committed to writing in a manual.

That was three years ago. More recently, over the course of the last six months, there has been a series of claims apparently quite unrelated:

Client A: A problem has arisen in relation to a licensing application. At first sight, this appears to be down to a misunderstanding on the client’s part. The client, for whom the firm acted in taking a lease of licensed premises, reckons the firm ought to have reminded him to put in an application for renewal of the regular extension. However, that is something for which the firm never takes on responsibility. It is always made clear that the firm will have no responsibility for diarying the critical licensing dates and deadlines. It says so in the relevant terms of engagement and in a standard format of letter issued to clients at the conclusion of these transactions.

On investigation, it emerges that this file was handled by an assistant who had joined from another firm. The usual terms of engagement had not been issued and it had not been made clear that the firm would have no responsibility for diarising the critical licensing dates and deadlines. Indeed, it further emerges that, contrary to the approach adopted by everyone else in the firm, this particular assistant’s normal practice is to diarise critical dates and deadlines and issue reminders to the clients. But he had somehow overlooked the diarising of this particular deadline.

Client B: This claim relates to a conveyancing transaction, a house purchase which had concluded satisfactorily but, post-settlement, the assistant handling the file had omitted to ensure that the seller’s solicitors’ letter of obligation was followed up and implemented. As a consequence, it only emerged when the client was in the course of selling the house three years later that a security created by the client’s predecessors (now sequestrated) had never been discharged. This in spite of the firm having a checklist of points to be attended to post-settlement and a procedure requiring letters of obligation to be copied to a central file of letters of obligation to help ensure that letters of obligation are followed up timeously.

It seems the assistant in question had stopped using this checklist over a year ago because, so he says, the checklist was out of date and there are issues on the checklist that no longer apply and some that he reckons should be on the checklist that are not.

Client C: This problem is the most worrying of all. The firm has been handling C’s divorce and it turns out the partner handling the file had advised C a month ago that his divorce had been finalised. C had proceeded with arrangements for remarriage only to find out at the last minute that he was not divorced at all.

On investigation, it emerges that the responsible partner has been suffering health problems and has not been coping at all well with his workload. Under pressure from C and two other clients, C had been misinforming them about progress with their divorces and, under the intense pressure of repeated letters and phone calls from C, had written advising C, erroneously, that his divorce had been finalised and that C was free to remarry.

Benefits of independence

These cases reveal a number of risk management concerns – there appear to be supervision issues, possible lack of control over documentation, non-compliance with the firm’s systems and procedures, diarising failures and possible stress issues. An independent file review process could, at least potentially, have helped prevent the three claims by identifying the non-compliance or inconsistent compliance with the firm’s systems and procedures and prompting both corrective and preventive action.

In the case of client A, had the files handled by the assistant concerned been reviewed by reference to even a basic compliance checklist, it ought to have emerged that the assistant was not issuing terms of engagement and, more particularly, was not issuing the approved form of terms of engagement. That would have prompted either conformance with the approved procedure or consideration of the assistant’s reason for not conforming. In either event, the outcome ought to have been the same – a clear understanding between the firm and client A with regard to responsibility for diarising critical dates and deadlines. The client would have been clear that this was entirely his own responsibility and not the responsibility of the firm.

In the case of B, again even a relatively simple compliance checklist could have included a check that post-settlement matters were being attended to properly. The non-compliance ought to have been picked up and appropriate corrective and preventive action taken.

In the case of C, independent review of a random selection of the responsible partner’s files ought to have revealed a pattern of the partner not attending to clients’ instructions, not progressing files, not coping. That would have prompted the appropriate supportive response sooner rather than only when the situation began to generate client dissatisfaction and potential claims.

Never mind the quality

To be effective in addressing the sort of circumstances described in the three examples, the review/review checklist need not necessarily involve any qualitative review. What is envisaged is a simple checklist approach aimed at assessing compliance with various defined requirements.
For example, if the practice’s procedures require terms of engagement to be issued, to be issued in a particular form and to be issued within a particular timescale, those are matters which are capable of being simply documented and simply checked and compliance, or non-compliance, recorded on a file review checklist.

Just train someone

If the review process involves making a straightforward assessment of compliance, or non-compliance, with an office system or procedure and recording this simply, this form of review need not necessarily be conducted by a qualified fee earner. With the benefit of some training and guidance, support staff could play a part in this process. Sole practitioners who have no fee earning colleagues might involve support staff in this or, subject to addressing client confidentiality issues, might enter into reciprocal arrangements, for example with fellow sole practitioners.

Make the results count

Unless the results of independent file reviews are recorded and analysed, the benefits of undertaking the reviews will not be fully realised. A simple grid format will make it easier to view and analyse the results. If the results are logged by the fee earner, work type, department etc, that will enable the results to be sorted in a variety of different ways and to spot patterns which may highlight a need for:
Training to address a lack of appreciation of the object and importance of risk management systems, procedures and disciplines;
Amending documentation which is out of date;
Reviewing a procedure which is cumbersome or ineffective;
Identifying the need for a procedure where none currently exists.
The information that this form of file review and analysis provides will help identify the need for enhancements of the firm’s risk management arrangements and, combined with analysis of any claims, complaints and “near misses” on the practice’s record, will assist in establishing priorities.