Same old story

If practitioners harboured any doubts at all that the law and practice of conveyancing has become ever more complex and challenging over the past few years, attendance at the Annual Conference (“Property Matters”) of the Law Society of Scotland held in Edinburgh on 22 April would surely have dispelled such doubts.

From a risk management perspective, emerging risks from some of the topics discussed at the conference, such as the impact of “the three new Acts”, and future developments, such as Automated Registration of Title to Land (ARTL) and legislation in the pipeline, may still require to be evaluated. Yet, perhaps paradoxically, it is by and large not the complicated and difficult aspects of transactions which tend to result in Master Policy claims. One noticeable feature of property and conveyancing claims dealt with under the Master Policy over many years is that it is the simpler things that go wrong, time and time again. The sample claims discussed in this article have one thing in common: in each of them something which had to be done by the solicitor was overlooked.

Simple oversights can occur at any stage of a transaction, as the following case studies show.

Case studies: doing the work

A) A firm acted on behalf of Mrs A in the purchase of heritable property. Owing to an oversight, the existence of an outstanding inhibition against the seller was not noticed. The inhibitor raised an action for reduction of the disposition in Mrs A’s favour and a standard security in favour of her lender.

B) A firm acted on behalf of builders B & Co in the acquisition of a plot of ground within larger subjects, on which plot they intended to erect a house. While the firm secured a valid and effective right of access, by oversight they failed to secure the necessary servitudes for the supply of services such as gas, electricity, water and sewerage. This was only discovered once the house had been substantially built.

C) A firm acted on behalf of Mr C, the seller of a large country house and significant grounds. Despite Mr C giving clear instructions, the whole of his property was conveyed to the purchaser whereas a certain area was to have been retained by the seller for development purposes. A breakdown in communication between the client, the partner and the assistant who dealt with the transaction post-missives meant that the client’s instructions were overlooked.

Some people do not like checklists. They argue that there is a danger that checklists will be used as a substitute for thought. However, with more complications and potential traps to contend with than ever before, there is, consequently, much more to remember. Checklists, properly used, can be of considerable assistance as an aide-memoire of critical issues that might otherwise be overlooked.

Solicitors who overlook the existence of an inhibition or a security are often at a loss to explain how this occurred. It is one thing to overlook something because the relevant document is not read. A checklist will help with this. It is another thing to overlook something which is in a report which has been read. This type of error seems to be a case of looking and reading but not seeing and understanding. To address errors of this type, an additional control might be necessary, perhaps in the form of a practice of initialing each entry in a report and/or initialing each page to demonstrate that each entry has been read and considered.

Oversights can occur if there are poor handover procedures between partner and assistant, or where another fee earner takes over a transaction from a departing fee earner. A properly detailed file note indicating the salient points of the transaction should be prepared and its contents discussed with the incoming fee earner after that fee earner has had the opportunity of reading the file.

Case studies: critical dates

D) A firm took instructions from Mr and Mrs D to make an offer for a property by the closing date. Through an oversight, this was not done. The clients now allege that their offer would have been successful and they have made a claim against the firm.

E)    A firm acted for clients E Ltd in the acquisition of a site for development. The missives allowed E Ltd an option to buy adjacent land at a fixed price. They instructed the firm to exercise the option but, owing to an oversight, the critical date was missed.

Diary systems

Everyone ought to know how to diary a critical date effectively. Yet despite this, claims arising from missed critical dates continue to proliferate – and that is not confined to the perhaps more obvious time bar of personal injury claims. How might the claims in case studies D and E have been avoided? The Master Policy claims experience shows that the reasons why critical dates are missed include the following:

• the relevant critical date is not put in the diary at the outset;
• there is inadequate supervision of fee earners;
• there is no file audit/review system or any such system is inadequate;
• the diary or critical dates list is not checked regularly.

In other words the diary systems fail and/or there is ineffective backup to prevent critical dates being missed. No matter how good you think your practice’s systems are for ensuring that critical dates are not missed, the Master Policy experience proves that it is worthwhile reviewing systems on a regular basis with a view to detecting gaps and weaknesses and having them addressed. Key risk management points are:

• Make sure that the relevant critical date is verified and entered in the diary at the outset. Consider having, in addition, a central diary for critical dates. Adequate backup systems need to be put in place to make sure that any critical dates not entered into the system are quickly identified. These might include the requirement for an appropriate entry to be made on a checklist or on the front of the file. Confirmation that all critical dates have been diaried should form part of the practice’s file audit/review procedure.
• Adequate countdowns and warnings are key features of a good diary system to make sure that the appropriate action can be taken in good time.
• How would your practice cope with the sudden illness or absence of a fee earner? Hopefully your practice has planned for such a contingency and there is a procedure in place for that fee earner’s work to be covered. Suppose the substitute fee earner comes across the following entry in the absent fee earner’s diary: “Submit offer – last date”. Such an entry is bad enough if a computer diary system is used – but the entry might be an undecipherable scrawl in a paper diary. Remember that the absent fee earner may be uncontactable and his or her secretary may be unable to shed any light on the matter. As a result a great deal of fee earner time might be wasted in identifying the relevant transaction and in finding the file. A standardised format of diary entries (which should contain the name of the client and the file reference) might help avoid this situation.
• Do you issue reminders to the client about post-completion critical dates? Or do you make it clear from the outset that you will not issue reminders? You might be surprised to find that while your own invariable practice is not to issue such reminders, one or more of your colleagues does the exact opposite. It may be that the same client will get a reminder in one transaction and not in another! It is important that mixed messages are not sent to the client in this way. If the firm’s policy is that reminders are not issued, make that clear from the outset (terms of engagement issue?) and remind the client at completion of the transaction. Conversely, if reminders are to be issued, make that clear from the outset and make sure that the reminder is issued sufficiently in advance of the critical date that the client can take any necessary action prior to giving you instructions. Also make sure that the client is aware that instructions need to be given to you in good time if, for example, an option is to be exercised, so that you have sufficient time to carry out the work.

Finally, it is always a good idea to double-check the file or, if you prefer, your aide-memoire of critical issues. If you introduce as an additional risk control, a procedure of reviewing the whole file at an appropriate time prior to settlement (try to approach it as if you were reading the file for the first time), you will increase the chance of spotting omissions like those in the case studies and taking any necessary remedial action before it is too late.

Russell Lang is a solicitor formerly in private practice who works in the FinPro (Financial and Professional Risks) Practice at Marsh, the world’s leading risk and insurance services firm.

e: russell.x.lang@marsh.com.

The information contained in this article provides only a general overview of subjects 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 insurance and legal advisers regarding specific coverage issues.

Marsh Ltd is authorised and regulated by the Financial Services Authority.