A time for resolution

February

Last February’s article addressed the professional indemnity and risk management issues to be considered in the event of a demerger of a firm into two or more separate practice units, or if a partnership dispute results in its breakup. 2005 is likely to see just as many practice changes as 2004, probably an increasing number of incorporations and conversions to LLP – so it is appropriate to refer back to last February’s article and to the July 2003 article on mergers and acquisitions as well as encouraging early contact with the Master Policy team at Marsh.

March

March considered risk management issues which arise in corporate and commercial transactions and focused on the key elements of engagement and managing the transaction itself. Managing clients’ expectations is a key component in avoiding claims and complaints and should begin, prior to the outset of the transaction, with the engagement process addressing a number of questions: Do we take on the transaction at all? What work is to be included/excluded? Do we “know the client” and understand their commercial objectives for entering into the transaction? Are we and the client clear about the basis of our charges?

A risk survey was undertaken by Marsh in March 2004 and the majority (78%) of participating firms reported that they issue terms of engagement in all or most instructions. However, not all of those practices take the opportunity in their terms of engagement to further manage the client’s expectations by scoping the engagement, giving an indication of the timescale for completion of the work, advising the client of the billing arrangements, and explaining the client’s responsibilities in terms of providing timeous instructions, documentation and signatures. 

April

April’s article looked at some of the case studies and discussion topics and the relative risk management points addressed by the 2003 Risk Management Roadshow sessions.

The 2004 Roadshow series took place during April, May and June and training materials based on the case studies/discussion topics have been issued to all delegates. These include a set of materials for risk awareness training of support staff. The Roadshow training materials are available from Marsh on request.

May

In May, Russell Lang discussed the challenge of compiling a risk management manual and suggested focusing first on three key areas: the engagement process (including client vetting), diary systems, and learning from mistakes – three areas that are considered likely to a have a substantial beneficial impact on a practice’s risk profile.

On the last of these, in the risk survey carried out by Marsh in March, practices were asked to comment on whether complaints and claims were the subject of risk management analysis, and 42% of respondents advised that they do not analyse complaints and claims on a regular basis. Of those that advised they do, almost all aim to establish the underlying cause of the claim or complaint; the procedures/systems which failed or were absent; and whether any particular pressures on the individual concerned may have contributed to the error or omission.

June

June considered the part that independent file reviews can play in managing the risk of claims and client dissatisfaction. The subject of the article was not qualitative reviews of advice or drafting but rather procedural reviews to establish whether files have been well handled in terms of compliance with systems and procedures focused on risk management. The process is capable of prompting both corrective and preventive action and, in combination with analysis of any claims, complaints or “near misses”, the process assists in identifying risk management priorities.

July

This article considered the challenge of ensuring clients are properly informed before they execute documents, give instructions or otherwise commit themselves to particular courses of action. The article considered various challenging situations presented by “the stressed client”, clients making “snap decisions”, “difficult clients”, “wilfully blind clients” and clients who may be subject to undue influence.

August

August addressed common themes in a random sample of matters intimated to the Master Policy insurers.  The sample confirmed that few claims are down to a lack of technical knowledge or errors as to the law. Most continue to arise through oversights and omissions which could be prevented by simple systems, procedures and disciplines. Allegations of delay continue to be a feature of the profession’s record of both claims and complaints. In many cases, the allegations are entirely without foundation and part of the answer must be managing clients’ expectations by agreeing realistic timescales, response times and the arrangements for reporting to the client.

September

In the run up to the annual Master Policy renewal, the September article addressed the subject of what requires to be notified to insurers as claims and “circumstances”.

The article also discussed the usefulness of various means of assessing and benchmarking the effectiveness of the practice’s risk management performance. A year on year comparison of the practice’s loss ratio or of the number of intimations on the practice’s rolling five year record are two ways of assessing performance and whether this is improving. Early in 2005, each practice will be receiving an individual risk management benchmarking review.

October

Charles Sandison looked at risk management procedures relating to outgoing correspondence, in particular the risks involved in managing email correspondence.

November

We considered how practices can benefit from a strategic risk review. Such a review is not about examining the day to day, “operational” risks facing the practice but rather refers to high level risks representing potential threats to the wellbeing of the business such as denial of access to its premises, loss of data, departure of key personnel etc.

December

In the concluding issue of 2004, Russell Lang discussed the importance of business continuity planning and suggested how addressing even just a few key areas has the potential to make a worthwhile difference to a practice’s prospects of successfully surviving an adverse event.

Topical risk issues 2004/2005

2004 has seen very significant changes in a number of aspects of property law in particular. The Abolition of Feudal Tenure etc (Scotland) Act 2000 abolishes all the remaining aspects of the feudal system as at 28 November 2004. The Tenements (Scotland) Act 2004 came into force in the same month. As with any changes in the law, these present challenges and potential risks for solicitors, as illustrated by one or two specific examples: 

Community land

It has been stated that all property lawyers need to know about the provisions of the Land Reform (Scotland) Act 2003 unless they deal exclusively with city centre property. If you have not already done so, you will therefore want to take time to consider the risk and risk management issues for the practice. Targeted risk management measures arguably ought to include:

Training sessions – to raise the level of awareness of the legislation and its implications; colleagues should be encouraged to raise queries; the answers to questions raised ought to be shared with all colleagues. A workshop discussion may be a practical and effective way of identifying risks and devising effective risk controls.

Documentation – relevant style and proforma missive documentation needs to be reviewed to ensure that missives will properly reflect the implications of the legislation and that the position of clients, whether purchasers, sellers or lenders, will be properly protected. You need to be satisfied that there is no colleague in the firm continuing to use outdated style/proforma documentation which omits whatever references may be appropriate to the legislation and its implications and to the RCIL.

Checklists – need to be reviewed to ensure that they prompt consideration of the applicability/provisions of the legislation and address the potential for oversight/blind spots.

Stamp duty land tax

SDLT has been with us for just over a year now and it appears that the process of obtaining SDLT certificates from the Revenue continues to present practical challenges and to create risks for the profession. Have the Revenue’s average response times improved over the course of the first year of SDLT? Anecdotal evidence suggests that turnaround times are somewhat unpredictable and that presents a particular challenge as well as risk for solicitors.

Solicitors will want to know if applications are approaching the critical 21 day time limit so that they are prompted to pursue whatever courses of action may be available. In practical terms, that may mean making enquiries of the Revenue as to the anticipated date of despatch of the certificate and pressing the Revenue to expedite matters.

Maintaining a log of deeds for registration provides a practical means of tracking deeds through the process of applying for SDLT certificates and the process of registration itself. As well as providing a measure of control over the risks (for example, missed time limits; deeds lost/misdirected; deeds returned by the Keeper and not re-submitted) associated with these stages of transactions, such a log has the potential to generate factual management information about the Revenue’s response times which could be invaluable to the Society in its discussions with the Revenue on the profession’s behalf.

Court of Session rules for personal injury claims

Although the rules in question were introduced in 2003, as recently as December 2004 the Inner House issued its opinion on a point concerning the Court of Session rules for personal injury claims. The relevant rules require that, in a personal injury action, the pursuer must lodge the summons for calling within three months and a day after the date of signeting of the summons or else the instance will fall. It was held by the Inner House in Brogan v O’Rourke that the court has no power to relieve the pursuer from the consequences of his failure to comply with that provision.

From a risk management point of view, diarying (and backup) procedures for critical dates should be reviewed to make sure that the relevant lodging date is entered with appropriate countdowns and warnings to ensure that the relevant critical date is not missed.

Hopefully, 2005 will be a year to build further on the risk management work you have already done and to make this year the most successful, profitable and risk-free year for your practice.

Alistair Sim is a Director in the FinPro (Financial and Professional Risks) Practice at Marsh, the world's leading risk and reinsurance firm.
email: alistair.j.sim@marsh.com .

The information contained in this article provides only a general overvieww of subjeects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurers and legal advisors regarding specific coverage issues.

Marsh Ltd is a member of thee General Insurance Standards Council (GISC).