Letters of engagement – documenting the ambit of the instruction given to the attorney

October 24th, 2016

By Thomas Harban

In previous articles that have been published by the Attorneys Insurance Indemnity Fund NPC (the AIIF) in the Risk Alert Bulletin and elsewhere, we have set out the importance of practitioners using letters of engagement to document the terms of their relationships with their clients. Many of our previous articles have focussed on setting up the engagement. This article will address the importance of recording where the practitioner’s mandate ends, namely, what services does the client expect the attorney to render and at what stage will the mandate in respect of a particular matter or instruction be fulfilled?

It is important that practitioners document the scope and extent of the mandate as an unclear or open-ended mandate could attract many potential risks for the practitioner. Even where the practitioner acts for the particular client in a number of different matters, it is important that the extent of the mandate in respect of each matter be documented. In fact, the proper recordal of the extent of the mandate in instances where you act for a client in more than one matter may be more important. Do not assume that an instruction given to you in respect of one matter will necessarily apply across all matters you are dealing with for a particular client.

To some, the documentation of the mandate may seem rather trite, but the reality is that many potential risks can be avoided if the extent of the mandate is properly documented in each matter. Do not rely on what, in your understanding, is the implied boundary of the mandate or assume (without clarifying with the client) that there is a meeting of your respective minds on where the mandate will end. Also, in the unfortunate event of a professional indemnity claim against your firm, the allegation may be that you failed to properly carry out your mandate and the letter of engagement will assist in assessing whether or not there is any liability on the part of your firm. A properly documented mandate will thus assist the AIIF (and your top-up insurer, where applicable) in successfully pursuing your defence. This documentation of the instruction may also assist you in the event that the client were to lodge a complaint against you with the law society for an alleged failure to properly carry out your mandate. A properly defined and documented agreement will assist in proving what the mandate was exactly.

A properly defined mandate will also assist you in managing your client’s expectations. This will, furthermore, assist in clarifying to your client and agreeing with the latter if certain of their expectations fall outside of your specific area of practice. There may be some aspects of the matter that fall outside of the conduct of an attorney’s profession (or in respect of which, you may need to refer to another attorney) and it is important that these are brought to the client’s attention as early as possible. The instruction may, for example, have an element that needs some or other specialist element where you may not necessarily have the expertise or resources (such as conveyancing, notarial work, taxation or even an intellectual property). Be careful not to hold yourself out as (or give the client the expectation that you are) a one stop shop for all the issues (legal or otherwise) that your client needs addressed. It is also important to remember that, in the unfortunate event of a professional indemnity claim being brought against your firm, the AIIF policy will only respond in respect of claims arising out of the provision of legal services (see clause XX and clause 1 of the AIIF policy), subject to the application of the exclusions set out in clause 16 – a copy of the current and previous AIIF policies can be accessed on our website www.aiif.co.za. In the event that your firm has top-up cover, please have regard to the wording of your specific policy in order to ascertain in which circumstances that policy will respond and speak to your broker or the top-up insurer should you require any clarification in this regard.

Disputes regarding the extent of the mandate can arise from almost any area of practice. A common example of a situation – where a claim against an attorney arises out of a failure to clearly set out the extent of the mandate – is where a practitioner is instructed to pursue a claim on behalf of a client arising out of a motor vehicle accident. The practitioner may understand that the mandate is only to pursue a claim against the Road Accident Fund (RAF) in respect of the personal injuries suffered by the client. The client, on the other hand, may be under the impression that the practitioner will pursue claims for all the damages suffered, including a claim against the third party for the damages to the vehicle involved in the collision. Very often, by the time the RAF claim is finalised, the claim in respect of the damages to the vehicle has prescribed. The client then institutes a professional indemnity claim against the practitioner in respect of the claim arising out of the damages to the motor vehicle and in defending that claim, the issues to be decided may turn on what the agreement between the parties was and where the mandate ended. If your client is facing criminal charges (or is expected to attend an inquest) arising from the collision, is the common understanding that you will/will not conduct the defence in the criminal trial (or represent the client at the inquest) as well? We have been notified of claims arising out of circumstances where members of a family are injured in the same collision and the attorney consults with one member of the family and pursues a claim for that person only. An action is later instituted against the attorney on the basis that the instruction (as the client alleges) was for the attorney to pursue the RAF claims of all the members of the family injured in the accident. The other claims may have prescribed at that stage and the allegation is that they prescribed in the hands of the attorney.

In context of divorce proceedings the practitioner may, for example, act for one of the parties up to the stage where a divorce decree is granted. The client’s expectation or understanding may be that the practitioner will attend to all the related/ancillary matters involved in the dissolution of the estate, including pursuing a claim for part of the pension fund (if applicable), maintenance, the transfer of ownership or some other real right in immovable property or even shares in a company that may form part of the order or settlement. In the event that the practitioner’s understanding is that the mandate was only to act for the client until the divorce decree was granted, whereas the client’s understanding was different, there is a risk of a dispute arising later should the client suffer a loss.

The extent of the mandate must be agreed with the client and properly documented in the letter of engagement. Ensure that you communicate this to the client in a clear manner that the client will understand and, where necessary, the services of an interpreter should be used. Once you have explained the terms of the mandate and your relationship as set out in the letter of engagement to the client, get the latter to sign in acknowledgement of their agreement with the terms set out in the letter. Always remember to give the client a copy of the document. If or when necessary, the letter of engagement can be updated or amended as the parties may vary their initial agreement or where circumstances dictate that the mandate be amended – each and every change should, likewise, be properly documented and agreed between the parties. The documentation will also make it easier for a colleague in your firm to easily glean from the file what is expected of your firm, should the matter need to be dealt with in your absence. The person in the firm who initially consults with the client and takes the instruction may not be the person who deals with the matter until finalisation and a proper record of the instruction will be important in this context. Where your firm is acting on the basis of a contingency agreement with the client, the terms of the contingency agreement can also be included in the letter of engagement.

With the full implementation of the Legal Practice Act 28 of 2014 (LPA) – set to come into effect soon – practitioners should note the provisions of s 35 in relation to the documentation of the financial aspect of a mandate and the discussions that must be held with the client in respect of the fees for services to be rendered. The LPA prescribes that the cost estimate notice must be in writing and must include an outline of the work to be done in respect of each stage of the litigation, where applicable (s 35(7)).  Non-compliance with the provisions of s 35 will constitute misconduct (s 35(10)).

For more information, please consult the Risk Management tips published on the website of the AIIF (www.aiif.co.za), which contain a comprehensive section on letters of engagement and what practitioners should consider including in such documents. Copies of past editions of the Risk Alert Bulletin can also be accessed on our website.

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

Practice management additional note:

Please see the clarification, which pertains to the practice management article ‘Applying for a Fidelity Fund Certificate’ 2016 (Sept) DR 15:

Clarity is hereby provided that in terms of s 42(3)(a), the Attorneys Fidelity Fund does not issue the Fidelity Fund Certificates but the provincial law societies do. The Attorneys Fidelity Fund provided an automated system to the provincial law societies in order to carry out their mandate more efficiently.

This article was first published in De Rebus in 2016 (Nov) DR 26.