E&W Solicitors - Top 10 Most Common Causes of Claims

7/28/2019 E&W Solicitors - Top 10 Most Common Causes of Claims

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Professionalpractices update

QBE European Operations

Top 10 most common causes o claimsagainst law firms



QBE Pro essional practices update - Top 10 most common causes o claims against law frms/Jan 2013 1

Across the various legal

areas in which lawyerspractice there are anumber o commonmistakes that lead toclaims against a frm. Inthis checklist we explore

what, in our experience,are the top ten mostcommon causes o claims against solicitors,including someexamples o where

such claims might ariseand risk managementsuggestions.

It should be noted that most i not all o the mistakes belowwill also comprise breaches o the SRA Code o Conduct,although this brie ing ocuses on the possibility onegligence claims.

1. Failure to identi y the client• I a solicitor does not properly identi y the individual or

individuals to whom duties are owed then it ollows that theduties to those individuals are vulnerable to being breached,as the solicitor will not have even had them

• in contemplation

• Example situations where this question may arise include:whether the solicitor is acting or an individual, his company,or the shareholders o the company; or a husband and/ora wi e; or a lender and/or a borrower or or pension undtrustees or the employer company

• Problems can also arise, or example i the solicitor does notveri y that the individual rom whom instruc tions are beingtaken has authority to give them, and so might be in breacho warranty o authority.

Risk management• Ensure that the identity o the client is set out clearly in the

retainer letter. It may also be prudent to set out who is notthe client, eg to state “we will be advising company X Ltd owhich you are a director, we will not be advising you in yourcapacity as shareholder”.

2. Inadvertently advising third parties• There is a well established line o authority supporting the

proposition that a solicitor can take on a duty to a thirdparty who is not his client

• The Court will consider three tests: whether the solicitorhas assumed a duty to that third party; that it would be air,

just and reasonable to impose a duty; or that impositiono a duty o care would be analogous to or incremental toprevious developments in the law

• In these cases the usual di iculty or the court will bedeciding whether to impose liability on a solicitor to the third

party when he was not retained by the third party and wasprobably acting or someone else. The principal issue islikely to be whether the solicitor assumed responsibility andin particular whether it was reasonable or the claimant torely on the de endant and whether expressly or by conductthe solicitor led the third party to believe he could do so

Top 10 most common causes o claimsagainst law frms



QBE Pro essional practices update - Top 10 most common causes o claims agains t law frms/Jan 2013 2QBE Pro essional practices update - Top 10 most common causes o claims against law frms/Jan 2013

• This is likely to occur where a solicitor steps outside o hisrole, e.g. i there are direct discussions or communicationsbetween the solicitor and third party. However, directcommunications are not necessary to ound a duty

• Relevant actors in deciding whether the solicitor owes aduty o care to a third party are likely to include: whetherthe solicitor knows about the third party and how much heknows, whether the interests o the third party coincide withthe client’s interests and the relationship between them, thenature and purpose o the advice given by the solicitor andthe use made o it by the third party, whether the third partyhad his own solicitor, and any disclaimer in respect o liability

• Possible situations where a claim might arise may includewhere a solicitor has provided a due diligence report to abuyer on an acquisition and the buyer provides a copy tothe lender with the solicitor’s knowledge. In Dean v Allin &

Watts (2001) a solicitor instructed by a borrower to ensurethat there was security or a loan was also held to owe aduty to the lender to ensure that the security was efective.(Although in that case the lender was an unsophisticatedindividual who was unrepresented).

Risk management• Fee earners should be made aware o the risks o

inadvertently assuming duties to third parties and thecircumstances in which this might occur

• It may be prudent to include in your retainer letter or termso business, or perhaps in some cases in a particular pieceo advice itsel (such as a due diligence report) a disclaimerindicating that advice may not be relied upon by thirdparties and/or to indicate that a let ter o advice may not beshown to third parties

• Despite the above, in the economic downturn we have seenexamples o clients requiring solicitors to assume greater

risks or less reward and so to agree that advice can bepassed on to third parties such as lenders.

3. Failure to defne scope o retainer• Failing to issue an engagement letter means that the scope

o the solicitor’s duties in contract and tort may be unclear(or at least it gives greater scope or a claimant to argue thatthey are unclear). It also means that an opportunity to limitliability may be missed

• As well as the express terms set out in the retainerdocument, the solicitor may also owe implied duties to theclient, and will also owe duties in tort. The ollowing pointsare worth bearing in mind:

• I the client is inexperienced the solicitor may be required togive more detailed advice ( Carradine v DJ Freeman (1999))

– The solicitor owes a duty to point out and explain termsor provisions that the client cannot be expected tounderstand ( Pickersgill v Riley (2004))

– The solicitor will also be under a duty to pass onin ormation he learns during the course o the retainerwhich may be relevant to the client ( Credit Lyonnais SA v Russell Jones & Walker (2002))

– The solicitor does not, however, owe an implied dutyto give commercial advice ( Football League Ltd v EdgeEllison (2006))

– Di iculties might come where it is not clear exactly where

matters all and whether something is commercial orlegal advice can be very act sensitive ( Stone HeritageDevelopments Ltd v Davis Blank Furniss (2007))

2




Risk management• It is very important to send out a retainer letter and in view

o the SRA Code o Conduct requirements (particularlythose in Chapter 1) no doubt all irms have in place systemsand policies to ensure ee earners do send out such lettersat the start o the engagement

• Systematic ile reviews can help pick up ee earners who arenot sending out engagement letters

• Once again, it can be just as important in the letter not justto set out what work the solicitor will be carrying out, butanything he will not be advising on Hurlingham Estates Ltd v Wilde & Partners (1997). In some circumstances, it can alsobe use ul to send out a letter at the end o the instruction,making it clear that the particular retainer is at an end sothat there is no room or con usion

• A common issue that arises is that although an initialretainer letter is sent out, as the retainer continues, urtherwork is carried out which is not covered by the retainer.It is important that ee earners avoid the dangers o suchmission creep. Such work may not be covered by thelimitations set out in the initial retainer (such as a limitationo liability) and lead to scope or the client and the solicitorto disagree about, or example, the scope o theadditional instructions.

4. Failure to distinguish role rom that oother pro essionals

• It is common or other pro essionals to be involved in thesame transaction as the solicitor, or example accountantsmay also be involved in a corporate transaction, orsurveyors may also be instructed in relation to a propertytransaction

• A common ield in which roles can become blurred is thato pensions advice, as o ten the client can be advised bylawyers, pensions consultants and actuaries. It can be easy

or each pro essional to think that the other is responsibleor a particular area such as implementing changes to

pensions deeds and scheme rules

• Another area where we have seen mistakes arise is inrelation to tax advice. Where solicitors and accountants are

each involved in a matter, the solicitors may assume thati the client has accountants that the accountants will beadvising on the tax aspects o the transaction

• Each pro essional must understand what the other is doingso that the responsibility or advice or a particular areadoes not all between the gaps

• There is a signi icant risk that a judge will ind that thesolicitor was playing the lead role amongst the pro essionals,as it is the solicitor who is responsible or communicationwith the other side, and there ore the solicitor may be morelikely to be ound in breach o duty

• Solicitors are however, entitled to rely on specialist counsel

properly instructed, but must exercise independent judgment and reject the advice i he or she thinks that theadvice is glaringly wrong. The more specialised the advicethe more reasonable it will be or a solicitor to accept it.(Ridehalgh v Horsefield (1994)). However, i the solicitor is

a specialist him or hersel then this expertise must in ormthe judgment as to whether counsel is glaringly wrong(Langsam v Beachcro t LLP (2011)).

Risk management• As above, the key is setting out in writing the extent o the

solicitor’s role and which areas advice will and will not beprovided on. It may be worth making this clear not just tothe client but also in writing to the other pro essionals,i appropriate.

5. Failure to record instructions and advicein attendance notes or correspondence

• Clear oral advice to the client may be su icient (dependanton the circumstances) and it is not necessary to give advice

in writing ( Harwood v Taylor Vintners (2003))• Obviously in some areas o practice, attendance notes are

much more common than in others. Attendance notesare usually made as a matter o course in litigation, but intransactional matters dra ts o documents on the ile maybe relied upon as evidencing what the client asked or ratherthan the ee earner making a separate attendance note oinstructions (particularly i the lawyer is under time pressure)

• This may lead to evidential di iculties, as the client maywell have a much better recollection o the matter thanthe solicitor, particularly i a claim is brought just withinthe limitation period (ie almost six years a ter the advicewas given or in some cases even longer). In the examplegiven above, it may well be that i the client disputes thatinstructions were given to make a particular dra tingamendment, by the time o the claim the solicitor can nolonger do much more than say they would not have madethe amendment i the client had not asked or it

• Lack o attendance notes might also make it more di icultor another ee earner to pick up a ile whilst the main ee

earner is out o the o ice, leading to a greater chance oa mistake.

Risk management• Time recording systems might assist with the problem to

some degree i ull records are made o conversations in timesheets and can be utilised in any claim (although obviouslythis doesn’t do away with the need or attendance notes)

• Whilst it might be di icult to change the culture inparticular areas, the importance o attendance notesshould be emphasised. A regular ile review process mightdemonstrate the extent to which lawyers are complyingwith a policy to keep attendance notes.

6. Advising outside solicitor’s area oexpertise

•

I a irm or solicitor is held out as possessing specialistexpertise in an area then he/she will be judged by thestandard o a reasonably competent solicitor with experiencein those ields. ( Matrix Securities v Theodore Goddard (1998). Further, i the irm holds itsel out as having specialist




expertise, then it will not matter that the particular individualdealing with the case is not specialised in that area

• Claims can arise in any ield. However some commonareas include di icult areas o law such as tax, areas wheretechnical requirements are complex such as collectiveen ranchisement applications by tenants which contain aweb o iling deadlines, or areas where deadlines are simplydiferent to what the solicitor is used to, or example alitigator with no experience o de amation might miss theone-year limitation period

• Claims in this area may become more common ollowingthe recession where the demand or certain types o workmight have dipped perhaps leading to individuals taking onwork in areas in which they are less experienced.

Risk management•

It is important to turn down work where the irm really doesnot have the ability to resource it. A resulting claim is likely tocost the irm more than the lost ee income

• Although some partners can be tempted to hoard work,to meet their targets or to keep to themselves a clientrelationship, it is important that partners pass work on to theappropriate department where it would be better carriedout elsewhere. It is important to ensure that a irm has theright culture and reward systems to ensure this takes place.

7. Missing time limits/ ailure o diary system• Simply missing something is a much more common source

o claims against solicitors than getting something wrong• There are numerous examples o potential claims in

this area such as a litigator missing a date or iling courtdocuments leading to limitation problems or strike out othe case, a property lawyer missing a date or the exerciseo a break option in a lease, a late payment o tax incurring apenalty, or a ailure to register a legal charge within the timelimit meaning another charge takes priority

• Reasons or the ailure can be myriad such as a ailure tonote the deadline, problems with the irm’s diary systems,un amiliarity with the area o law, or time pressure

• Technology can be a problem, or example it is relatively

easy to enter a deadline into a calendar system on thewrong day

• Such problems might also arise where a ee earner is awayrom the o ice, or a new ee earner takes over a ile

• A simple ailure to take appropriate steps by a deadline islikely to be a straight orward breach o the duty to exercisereasonable skill and care, unless there is any argument orexample that taking the step was outside the scope o thesolicitor’s retainer. However, in that case there might still be aduty to advise or remind the clients to take a step themselvesby the relevant date ( Littlewood v Rad ord (2009)).

Risk management• It is important that the irm has and en orces appropriate

diary systems or recording deadlines on a ile (and systemsand controls or managing risk are required by the Code oConduct). A double-diary system may be appropriate ( orexample the ee earner records key deadlines not just in

their own calendar but in a central team calendar). A systemwhereby important deadlines must be recorded at the ronto the ile might also be appropriate.

8. Lack o Supervision• A solicitor may delegate tasks where appropriate (unless the

client has speci ied otherwise) ( Arbiter Group v Gill Jennings& Every (1999))

• The standard o care expected o a junior or non-legallyquali ied member o staf will depend on actors such as thenature o the task, the level o skill required and whether itis necessary or a solicitor to per orm it. However, it is likelythat there will be a breach o duty o care i the task is notadequately supervised. One practical example involvedallegations that solicitors had been negligent in preparationo an appeal by not arranging a consultation with counseluntil it was too late in the day. Although the de ence othe case was success ul, the Judge did comment that theproblem had arisen as a young and inexperienced lawyerhad elt overwhelmed by the assignment and the clients,and had required greater levels o supervision

• During the recession, i the irm is acing pressure on eesrom clients, then it might be tempting to give the work to

more junior staf, and certain types o work can becomecommoditised. In addition there is increasing pressure orclients to provide additional services, such as ree hotlines,which might be resourced by junior staf.

Risk management• The Code o Conduct (Outcome 7.8) requires that irms

have a system or supervising client matters. It goes withoutsaying but where work is highly commoditised and use ismade by very junior staf, such as trainees, o precedentdocuments, that those precedent documents must be verycare ully dra ted and reviewed. Otherwise, an error in onedocument may lead to a large number o claims

• The correct level o supervision is key, and equallyimportant are appropriate arrangements to cover where theusual supervisor is absent. It is not uncommon to see claimswhere the partner in charge o the matter was on holidayat the key time and a junior lawyer has made the wrong

decision on a case in their absence.

9. Time pressure• The court may take into account time pressures in deciding

whether advice has allen below the standard o care o areasonable practitioner. For example it may be that advicegiven on settlement at the door o the court , where theurgency is not o the solicitor’s own making, will not be heldto the same standard as advice given in less pressurisedcircumstances ( Moy v Pettman Smith (2005)). Although i asolicitor is asked to carry out work on an inadequate timescalethen there may be a duty to warn the client o the risks

• However, there can be other sorts o time pressures whichthe court is unlikely to take into account. For example,technology can put pressure on solicitors to respondquickly to clients. The expectation that an email will beanswered straight away at any time rom a blackberry can




lead to human error. I ee earners are too busy because theirm is under-resourced that is also something that would

not be taken into account

• Another common issue we have seen is where a ile ishanded over when a ee earner leaves or goes on holiday,and the urgency o something has been lost in translation.

Risk management• It is important that ee earners are not overloaded with

work, and that appropriate supervision to identi y i work isnot being done on time is in place.

10. Failure to identi y and properly deal withcon icts o interest

• A solicitor owes a duty o con identiality to a client anda duty not to act where the interests o diferent clientscon lict or where there is a con lict between the interestso the solicitor and a client, which arise rom the solicitor’s

iduciary obligations towards the client

• Con lict issues can be di icult to deal with when they arise,assuming that they are identi ied in the irst place. Theycan occur where the solicitor does not consider whetherall clients have the same interest in the matter e.g. whereadvising directors or partners in relation to restructuring othe business

• There can also be problems where a irm acts or twoclients initially with a common interest (such as a lender and

a borrower) and con licts later emerge between the clients,or example i con idential in ormation about one client islearned which is material to the other (such as where thesolicitor receives in ormation rom the borrower that mightafect the decision to lend)

• It is clear that solicitors need to be constantly reviewingwhether the in ormation they know places them in asituation o con lict ( Hilton v Barker Booth & Eastwood (2005)). A court will not have sympathy i a irm placesitsel in a position o con lict, and a solicitor cannot rely onthe de ence o a potential breach o duty to one client as ade ence to per ormance o an obligation to another.

Risk management• The importance o appropriate con licts checking

procedures goes without saying and they are a requiremento Chapter 3 o the Code o Conduct. Firms will also need tohave thought through issues such as whether an escalationprocedure is needed allowing con licts issues and disputesbetween partners in a irm to be escalated, perhaps toa Committee or an independent decision. A irm mustalso consider whether multi-jurisdictional work throws upany issues where con licts rules are diferent and how thediferences will be handled

• It is also important that those in charge o risk at the irmensure that junior ee earners have adequate training toallow them to identi y when a con lict between two clientsthey are working or arises on an ongoing matter; con lictscan arise at any time during the course o the retainer, not

just at the beginning.



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E&W Solicitors - Top 10 Most Common Causes of Claims

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