Client expectations and the professional duties of a legal practitioner

August 1st, 2019
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It is trite that legal practice is a service industry. The clients to whom legal services are provided are important stakeholders for the legal practice. In engaging the services of the legal practice, the client will have certain expectations, which if not properly managed, will create a risk for the law firm and may also affect the quality and duration of the relationship between the parties.

Legal practitioners must be aware of the risks associated with clients’ expectations and appropriately manage them, preferably at the commencement of the relationship with the client. You should never compromise yourself and/or your practice by breaching your professional duties in order to meet a client’s expectations if those expectations go against the ethics, values and standard of professional conduct expected of a legal practitioner.

For present purposes, we will address this topic with reference to three examples of which we have become aware, being the –

  • minimum investment requirements, which some banks have reportedly introduced for firms serving on their panels;
  • relationship between some estate agents and conveyancers; and
  • relationship between personal injury legal practitioners and their clients.

In considering this topic, readers should also have regard to the previously published articles, namely –

The Code of Conduct for all legal practitioners, candidate legal practitioners and juristic entities (the Code), was published on 29 March 2019 (see GenN198 GG42364/29-3-2019) and can be accessed at: www.lssa.org.za.

Banks’ minimum investment requirements

A number of legal practitioners have, informally, raised concerns regarding the ‘minimum investment requirements’ imposed by some banks for the law firms serving on their panels. At the outset, we must point out that the reports have not referred to all banks and, what is stated in this article, is drawn from the investment requirements as raised by the practitioners concerned. The comments in this article thus do not apply to banks in general. Legal practitioners have reported that, in some instances, the banks in question have imposed a requirement that firms on the respective panels place investments of a minimum of R 100 million in certain investment products with the particular bank. Banks are, in many instances, a key (or even the major) client of the firm and any threatened loss of the bank as a client or a ‘downgrading’ of the firm (whether for failing to meet the minimum investment requirements or any other reason) could have a significant impact on the sustainability of the firm. We are informed that the firms concerned are threatened with losing their ranking on the panel of the banks if they do not meet the minimum investment requirements. These minimum investment requirements, according to the reports, are also part of the criteria used by the banks in assessing the performance of the firms on their panels. There are a number of risk factors that legal practitioners must consider in seeking to meet the reported minimum investment requirements.

It must always be remembered that all funds held in trust do not belong to the firm. Trust money is to be kept separately from other money (rs 54.6, 54.7 and 54.8 of the final rules as per s 95(1), 95(3) and 109(2) of the Legal Practice Act 28 of 2014 (the LPA) and
s 86 of the LPA). Money held in trust must be invested and managed as prescribed in the LPA and the Rules. Payments of any amounts due to clients must, unless otherwise instructed, be made within a reasonable time and the firm must take steps to verify the banking details prior to making any such payment (r 54.13). Delaying payments to clients in order to ‘bulk up’ investment amounts may also be considered as a breach of the Rules.

The reports are that the minimum investment thresholds required by the banking institutions concerned relate to the consolidated balance of investments placed by firms. Legal practitioners must not, for example, pool the trust investments of various clients together in order to meet the minimum investment requirements, as this would amount to a breach of rs 55.9 and 55.10, which provide that:

Pooling of investments

55.9 No firm may mix deposits in a pooled account or make other money market investments in any manner otherwise than by accepting funds as agent for each participating client and placing such funds with a bank in a savings account or on the money market on behalf of the client. The firm shall obtain from the bank an acknowledgement of receipt of each deposit or money market investment and such written receipts shall be retained by the firm as part of its accounting records.

55.10 All monies received by a firm for investment with a bank shall be paid to such bank as soon as reasonably possible after receipt by the firm, having regard to matters such as whether a payment by cheque has been cleared with the issuing bank.’

Pooling the investment of funds held in trust on behalf of clients in order to meet the requirements imposed by banks may thus breach the Rules and expose a firm to possible action by the regulator (the Legal Practice Council (LPC)) and/or professional indemnity (PI) claims. It must be remembered that all investment instructions from the clients must be in writing, detailing the manner and form of the investment (r 56) and that only approved trust investment products and accounts should be utilised.

The premature payment of commission to estate agents

Some conveyancers receive a substantial amount of their instructions from estate agents. In forming close working relationships with the estate agents, conveyancers must, however, ensure that the relationship with the estate agents is at arm’s length and that they (the conveyancers) do not, in effect, become an extension of the business of the estate agent. We have been informed that there are some conveyancing practices, which also provide services as estate agents. Such practices and their clients run the risk that, in the event of a loss being suffered, the end-to-end (or ‘one stop shop’) services they provide will not fall within the definition of legal services and thus not fall within the ambit of the indemnity provided under the Master Policy issued annually by the Legal Practitioners’ Indemnity Insurance Fund NPC (the LPIIF).

Some estate agents insist that the commission is paid to them by the conveyancer prematurely, namely, before the transfer of property is registered in the Deeds Office. An estate agent may place this as a requirement for instructing a particular conveyancer and threaten not to direct any instructions to a conveyancer who is unwilling to pay the commission prematurely. An assessment of the bridging finance related claims against conveyancers reported to the LPIIF shows that in a number of instances the bridging finance was sought in order for the conveyancer to make payment of the estate agent’s commission prematurely.

Some estate agents may even demand a share of the conveyancer’s fee or request that part of the commission be disguised as the fee. The Code prohibits the sharing of fees with a person who is not an attorney. The code at para 12.1 provides:

12. Sharing of fees

12.1 An attorney or firm shall not, directly or indirectly, enter into any express or tacit agreement, arrangement or scheme of operation or a partnership (express, tacit or implied), the result or potential result wherefore is to secure for him or her or it the benefit of professional work, solicited by a person who is not an attorney, for reward, whether in money or in kind; but this prohibition shall not in any way limit bona fide and proper marketing activities.’

The sharing of offices by an attorney with an estate agent or any person who is not an attorney or an employee of an attorney is prohibited, unless the LPC has granted its written consent in this regard (para 13 of the Code). In investigating bridging finance claims, which had been brought against a particular conveyancer, the LPIIF team found that the conveyancer concerned had offices adjacent to an estate agent and that the latter had free and unrestricted access to the former’s premises and systems. It was also found that bridging finance transactions were applied for by the estate agent using the conveyancer’s computers and other systems. The conveyancer simply signed the undertakings in each of the bridging finance transactions without interrogating or applying his mind meaningfully to the transactions. The conveyancer concerned was held liable for the repayment of the amounts advanced in terms of the transactions. Bridging finance related claims are now excluded from the LPIIF Master Policy, unless the bridging finance has been provided for either –

  • the payment of transfer duty and costs;
  • municipal or other rates and taxes; or
  • levies payable to the applicable body corporate or homeowners’ association relating to the immovable property, which is to be transferred.

A copy of the Master Policy can be accessed at https://lpiif.co.za.

The code also prohibits the premature payment of commission.

14. Payment of commission

An attorney or firm may not effect payment, directly or indirectly, of agent’s commission in advance of the date upon which such commission is due and payable, except out of funds provided by the person liable for such commission and on the express authority of such person.

The risks associated with premature payment of agent’s commission even where para 14 of the code has been complied, include –

  • the transaction may, for a number of reasons, not proceed to completion;
  • there may not be sufficient available funds to pay the creditors;
  • disputes may arise with regards to whether or not the agent’s fee is in fact due; or
  • more than one agent may claim to be entitled to the commission.

Conveyancers must advise clients of the risks associated with the premature payment of agent’s commission and must insist on written authority and an indemnity from the parties (the seller and the estate agent) in the transaction before paying out the commission in advance of the date on which it is due.

The expectations of personal injury clients

In the past five years, claims arising from prescribed or under-settled Road Accident Fund (RAF) matters make up the highest number and value of claims paid by the LPIIF. It is important that practitioners practising in this area of the law properly manage the expectations of their clients when the initial instruction is taken and also throughout the claim and litigation process. Part of the management of the client’s expectations entails properly (and in detail) explaining the process, as well as the length of time such claims take to finalise. If necessary, an interpreter should be used. All the consultations and discussions with the client must be recorded in detailed contemporaneous file notes and correspondence must be sent to the client confirming the content of the discussions.

While the underlying reasons for the prescription or under settlement of the personal injury claims (not just RAF claims) vary, there are a number of points to be noted by legal practitioners in handling such claims in order to properly manage the expectations of the client.

These include –

  • explaining to the client that the quantum (the amount of compensation) is dependent on the injuries or other damages that can be proven (including the sequelae);
  • not every claim will result in a multi-million Rand pay-out;
  • experts may have to be engaged at a cost to investigate the merits and the quantum of the claim;
  • these claims may take a number of years to be finalised;
  • the terms of the contingency fee agreement in the event that the practitioner is acting on a contingency basis;
  • the risks of adverse costs orders against the client in the course of or at the conclusion of the matter;
  • the prescription date and the implications of a claim prescribing;
  • the practitioner’s lien over the file of papers in the event that the mandate is terminated;
  • the need for the client to be available for consultations and to provide the required instructions on an ongoing basis;
  • that the experts acting for the defendant may wish to cross-examine the plaintiff; and
  • that instructions will be taken from the client in respect of any offer (even if the recommendation of the legal practitioner is that the offer be rejected). Beware of a power of attorney worded in such a manner that it gives the legal practitioner wide powers, including the power to accept an offer in the sole and absolute discretion of the legal practitioner without taking an instruction thereon from the client or the client even being aware of the offer.

In some instances, the clients terminate the mandate of the legal practitioner, either due to unhappiness with the service received or even influence of other parties, including, touts and legal practitioners competing in this area of practice. The client may also have an unrealistic expectation of the amount of compensation and this must also be managed. Regular communication with clients is an important part of the engagement.

Conclusion

Assessing and managing the expectations of your client is an essential part of your proactive risk management of your firm.

Thomas Harban BA LLB (Wits) is the General Manager of the Legal Practitioners’ Indemnity Insurance Fund NPC in Centurion.

This article was first published in De Rebus in 2019 (Aug) DR 10.