Communication breakdown - a major risk issue

Solicitors do not only have to get the technical aspects of legal work for clients right. They also need to deliver the service that clients want and expect, and that largely depends on getting communication right.

Many complaints and claims across all practice areas arise from allegations of failure to inform, report, advise or warn – and frequently the cause can be traced to ineffective communication.

Client engagement – managing expectations

Do you have clients who bombard you with emails on a daily basis and who complain if they do not get an instant response? Or clients who complain they haven’t heard from you since the letter you sent them the previous week?

Many clients have preconceived ideas of how often they expect to hear from their solicitor. In some cases, the client’s expectations may be unrealistic. You can manage clients’ expectations from the outset if you make it clear how and how often you will communicate with them and then reinforce that with appropriate wording in your terms of engagement. Thereafter, it is important that you do in fact communicate with them in accordance with what has been agreed – in other words, do what you said you were going to do.

Assumed knowledge

Effective communication is not simply about the process and frequency of client updates. It is all too easy to make assumptions regarding the knowledge and expectations of the client regarding the legal process and timescales. Allegations of delay are more commonly the subject of complaints rather than claims. Sometimes, the delay complained of is not a delay at all, but is simply part and parcel of the process:

The practice had acted for several years for a particularly demanding client who produced regular work for the firm’s commercial team. He instructed the firm’s trust and executry partner to wind up his late mother’s estate. Months later, the client relations partner received an email from the client complaining that “If it takes the firm six months to wind up a simple estate, I have to question the firm’s ability to handle my other business properly.”

Problems like this can be avoided if the client is given at the outset (in writing) an indication of the likely timescale and the factors that may influence that timescale. This can be updated as necessary to take account of changing circumstances.

It is hard to bear a complaint about a delay which is not a delay at all. A complaint about a delay which is nothing to do with you and not your fault is equally hard to bear:

A solicitor was furious at the content of a letter he had received from his executor client blaming him for the “several months’ delay” in obtaining the funds from the bank account of the client’s late father. In fact, it had not been the solicitor’s fault at all. He had been pressing the bank at very regular intervals to have the funds released.

The issue was that he had not told the client about the “problem” with the bank nor, in consequence, about his regular attempts to resolve the matter.

As this example shows, it can be only too easy for clients to assume, if they do not hear from you, that nothing is happening in their transaction/case because you are doing nothing. Clients need to be kept regularly informed of the progress of their transaction/case, even if that means reporting and explaining lack of progress.

Failure to report

A failure to report some matter which should have been reported can be used by clients to allege that “if only I had known X, I would (or wouldn’t) have done Y”. This may be particularly true in periods of challenging economic conditions, where the temptation to find someone to blame for an unfortunate decision is heightened.

Reporting certain facts to clients is often a requirement which lies at the heart of the solicitor’s role. In residential property purchase/loan transactions, solicitors will have obligations to report to purchaser clients and lender clients on facts material to their respective interests:

Solicitors were instructed by a client, Cherie, in the purchase of a flat which Cherie was buying from her uncle. The solicitors were also acting for Cherie’s lender. In the course of the transaction, they flagged to Cherie:

• an outstanding statutory notice
• a possible concern regarding ground contamination mentioned in the survey
• that the qualified acceptance stated that no guarantee was being given that the white goods (included in the sale for an additional £1,000) were in working order.

Cherie explained that she already knew about the statutory notice, and that her uncle would “see her right” about any costs. She had also spoken to a surveyor friend, and had been assured that this was just another case of surveyors covering their own backs, and so Cherie instructed her solicitor to go ahead with the purchase, with the inclusion of the additional white goods.

The solicitors appear to have fulfilled their obligations to report to their purchaser client, Cherie, but which of these facts should they be reporting to their lender clients? (Answer this question, along with other questions relating to this article with our online quiz, worth 0.5 units of CPD – see details in the panel above.)

Claims by lenders who have incurred losses following borrower default have involved allegations of failure to comply with the reporting requirements of the CML Handbook, in particular the reporting requirements relating to:

• deposits passing directly between the parties
• “back to back” transactions incentives given by developers to the borrower/purchaser.
• In order to minimise the risk of claims from lenders, risk management controls need to ensure that:
• relevant fee earners in the firm are aware of the terms of the lender’s instructions, including the reporting requirements in the CML Handbook; and
• these reporting requirements are built into working practices – whether by way of workflow or case management software or incorporated into a checklist or aide mémoire.

Failure to advise

Solicitors acting for clients in the purchase of a house entered into missives on their behalf. Later the clients wanted to withdraw from the transaction but were told they could not do so without incurring a liability in damages. They then intimated a claim against the solicitors, alleging that they had not been advised about the binding effect of missives.

One impact of the recession is that clients faced with changed financial circumstances, or a transaction that hasn’t turned out as hoped, may seek to find fault with advice given to them by their solicitors and allege that the terms of the settlement/contract they entered into failed to protect them in some way.

In many cases, solicitors will argue that the client’s allegations are unfounded and maintain that, far from failing to advise the client on a particular matter, they did so during a meeting or a telephone call. Often, however, it is the solicitor’s word against the client’s because the advice was not recorded in writing either in a file note or a letter/email.

Solicitors acted for the wife in connection with the preparation of an agreement dealing with the sharing of the parties’ matrimonial property on separation. The client subsequently alleged that her solicitors had failed to advise her in relation to her spouse’s pensions and, in particular, that if she settled on the basis set out in the agreement she would be giving up her rights to make a claim on the spouse’s pension rights.

The defence of allegations of failure to advise is assisted by making sure that all significant advice is recorded in writing and, in appropriate cases (perhaps particularly where the client wishes to proceed against your advice), acknowledged in writing by the client.

Key risk management points to consider

• Agree how and how often you will communicate with or report to clients, and confirm that agreement in your terms of engagement/service standards
• Keep your client informed/updated on a regular basis even where there is no progress to report
• Record significant advice in writing
• Record instructions given by your client in writing
• Make contemporaneous file notes of meetings and telephone calls.

RUSSELL LANG AND MARSH

Russell Lang is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world’s leading risk and insurance services practice. To contact Russell, email: 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.

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