Covered by the terms?

Post-completion critical dates

Post-completion critical dates, for example serving break notices on behalf of a landlord or tenant, or issuing reminders prompting the client to take time-critical actions, can give rise to misunderstandings. If a critical date is missed, the firm could be blamed by the client and a claim made. Terms of engagement should, therefore, set out clearly the firm’s responsibilities for post-completion actions, in particular where critical dates are concerned, and should reflect the firm’s policy so that consistency is maintained within the firm.

Clients’ responsibilities

Clients have responsibilities in the transaction, and terms of engagement should set out what these are. As the Society’s recent guidance note (referred to in last month’s article) indicates, terms of engagement should confirm the following information:

“(a) the need to give instructions and information timeously when requested, (b) the manner in which instructions should be given, (c) the need for clients to be available to sign documents, (d) the need to remain in contact, particularly if critical dates are to be met, and (e) the need to keep the solicitor advised of any change of contact details, e.g. address, email address or telephone number”.

If instructions or information are required from the client in order that critical dates can be met, that should be specified, a date indicated by which the information or instructions need to be provided and the consequences for the client if these are not provided timeously.

Consider, also, making it clear in the terms of engagement whether information provided by the client will be relied on without further investigation. Otherwise the firm might be blamed if the information is incorrect.

Case study

Mr and Mrs A instructed their solicitor about making “simple” wills in which each would bequeath their whole estate to the other. They told their solicitor that their house was in their joint names with a destination over to the survivor. Their solicitor took no action to verify the position. On Mr A’s death, it transpired that the title was in the names of Mr A and his ex-wife. Mrs A made a claim against the solicitor, alleging that the solicitor should have checked.

Timescales

Allegations of delay by the solicitor in carrying out work are a common cause of claims and complaints. Some solicitors say nothing in their terms of engagement about timescales, arguing that it is hard or sometimes impossible to give clients an accurate timescale. However, such an approach misses the opportunity to manage the client’s expectations and reduce the scope for misunderstandings at the outset of the relationship, and thus to minimise the risk of claims and complaints.

The Society’s guidance note has this succinct advice: “Terms of business letters should provide an estimate of how long it will take to carry out the work. It may not be possible to put an exact timescale on a piece of work, but it is wise to give an indication of timescales and to err on the side of caution, as timescales may need to be extended to allow for matters which are beyond the solicitor’s control. If a solicitor can flag potential issues to the client in advance, it may prevent dissatisfaction in the future and avoid a complaint about unreasonable delay. Clients should be advised, in advance, if timescales cannot be met and a new timescale should be provided.”

If no indication of timescale is given in terms of engagement, there is the risk of an allegation of delay. While it is bad enough for a firm to be blamed for a delay it has caused, how much worse is it to be blamed for a delay that is not its fault, when that could have been avoided by mentioning timescales in the terms of engagement? Remember that clients may have a genuine but misconceived idea of how long it should take to carry out a piece of work.

Case study

A firm had acted for a client in commercial matters only. He then instructed the firm to handle his late mother’s executry. After six months he complained of “unacceptable delay” and threatened to take all of his business elsewhere. Moreover, clients may take action based on their perception of timescale. Tales of the beneficiary spending their entitlement under a will before they have received it are not uncommon. Sometimes clients will take action even where their solicitor has given an indication of timescale.

Case study

Relying on estimates of quantum mentioned by the solicitor handling his personal injuries claim, Mr B committed himself to investing his anticipated compensation in the purchase of a timeshare property in Florida. Mr B didn’t mention his plans to his solicitor before signing the contract and paying the deposit on the timeshare.

Some months later, negotiation of Mr B’s claim had stalled and court proceedings were looking inevitable. Without the anticipated compensation, Mr B found himself in financial difficulty. He blamed his solicitor for the fact that he was unable to pay the balance of the price of the timeshare and complete the purchase and had lost the deposit. Mr B insisted that his solicitor had mentioned in the course of an initial meeting that his claim could be concluded within a period of 3 months.

In order to minimise the risk of a claim being made against the firm, consider stating in the terms of engagement that clients should take no action (especially any action that might have financial consequences for them) based on an indication (or their perception) of timescale without reference to the firm.

No guaranteed outcome

Sometimes misunderstandings can arise about the outcome that is achievable for clients. Clients will usually have an idea about what they wish to achieve from a transaction or litigation. They may, but often will not, articulate their view to their solicitor. The outcome desired may or may not be achievable in some cases and may well be contrary to the firm’s perception of the position. Where appropriate, terms of engagement could state that the outcome is not guaranteed.

Audit and review

As with all risk management systems and procedures, terms of engagement should be kept under regular review. Some points which firms may wish to address in a review include:

Could the firm’s terms of engagement be better scoped?

• Do they include/exclude responsibility for
  • flagging post-completion deadlines?
  • advising on taxation/commercial issues?
• Does the firm advise clients on relevant timescales?
• Does the firm set out the methods of communication that will be used?
• Does the firm state who has authority to provide instructions?
• Is the firm confident that colleagues use only approved styles? How does the firm know?
• Does the firm comply with its own terms of engagement?
• Will the firm be able to evidence terms of engagement five, 10, 15, 20 years from now in order to defend a claim?

Why not complete the Marsh e-module on terms of engagement, available at www.marsh.co.uk/login/lawscot? All e-learning on the website is free and qualifies for CPD. Please contact nada.jardaneh@marsh.com if you require a reminder of your firm’s login details or are having any difficulty logging on.

Russell Lang and Marsh

Russell Lang is a former solicitor in private practice, who works in the FINPRO (financial and professional) Practice at Marsh, a leading global insurance broker and risk adviser.

Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.

The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

In the United Kingdom, Marsh Ltd is authorised and regulated by the Financial Conduct Authority.