By Ann Bertelsmann

Looking at many claims reported to the Attorneys Insurance Indemnity Fund (AIIF) my answer would be ‘no’ to both the above questions. In fact, most practitioners could also answer the question ‘Can you trust your own memory?’ in the negative.

What are the possible consequences of these memory failures?

They can and often do give rise to disputes, usually about –

• fees and disbursements;
• the nature and scope of the mandate;
• the client’s instructions to/requests for information from the practitioner;
• the practitioner’s requests to the client for information/documentation/co-operation;
• whether or not communications have taken place or have been received; and
• agreements to settle matters.

What can be done to minimise or resolve such disputes?

Here are at least three ways that these disputes can be minimised or resolved before they turn into professional indemnity (PI) claims:

1. Sign comprehensive letters of engagement during the initial engagement process.
2. Make proper file notes.
3. Write follow-up confirmation letters.

Letters of engagement

Letters of engagement are professional mandates, signed by both parties, which give certainty to both attorney and client and govern most of their interactions. That way, a client accepts what he or she can and cannot expect from an attorney and also what an attorney can expect from a client.

Why is a letter of engagement necessary?

Very importantly, it provides documentary proof in the event of a dispute. It goes without saying that this contract will protect an attorney from clients who keep shifting the goalposts. By the same token, it protects the client, for example, where an attorney fails to carry out the mandate as agreed, fails to keep the client advised of developments or overcharges the client.

In a paper for the American Bar Association conference in 1998, Phil J Shuey wrote: ‘All fee agreements should be in writing and every matter should have a fee agreement or letter of engagement. … Avoid future misunderstandings or conflicting recollections by assuring that both client and firm understand what financial arrangements exist in the matter.’ Shuey also makes the point that ‘[f]ee disputes are one of the leading causes of malpractice actions’. (PJ Shuey ‘Financial Arrangements’ (1998) (www.americanbar.org, accessed 31-7-2014)).

Janice Purvis notes that the most common client complaints in New South Wales relate to disputes about legal costs.

She adds that ‘where solicitors bring proceedings to recover unpaid costs and disbursements, all too frequently they are met with a cross claim alleging professional negligence arising from the conduct of the matter’ (J Purvis ‘Pursue, don’t sue, to recover unpaid costs’ (2009) Law Society Journal 48 (www.lawcover.com.au, accessed 31-7-2014)).

The South African experience is the same as those in America and New South Wales.

What needs to go into the engagement letter?

Some of the essentials are:

• Who are the parties?
• An explanation of the scope of legal work to be undertaken.
• An explanation of what aspects/potential aspects are not undertaken (for example tax advice on a commercial transaction).
• What the practitioner can expect from the client and vice versa.
• Who in the practice will deal with the matter.
• Preferred method and frequency of communication (this can be very helpful, in particular to avoid the situation where your client telephones your offices for updates or with additional information on a daily basis).
• An explanation of fees and disbursements to be charged and billing practices.
• Deposit required.
• Payment terms.
• Holding and investing the client’s money.

It is important to amend the engagement letter as circumstances change. Of course any amendments must be agreed to and signed by both parties.

Every practice will have its own ideas about what should be included in the document and the style/format used. It is recommend that a firm adopts a standard form that is adaptable to the individual situation. A firm may wish to have a shortened version for new matters taken on for existing clients.

For more information on letters of engagement and some examples, see ‘Risk Management Tips’ on the AIIF’s website www.aiif.co.za and also Thomas Harban’s article ‘Letters of Engagement and the CPA’ Risk Alert Bulletin 5/2011.

Non-engagement letters

If an attorney decides not to take on a matter, it is recommended that a letter of non-engagement is sent to the client. This should be written in plain language, clearly and concisely informing the client that the firm is not accepting the mandate. Where applicable, ensure that the letter contains a warning about any applicable prescriptive period. (See example letter below.) It is essential to ensure that the letter is received by the addressee.

Closing the engagement

It is a good idea to advise the client in writing, that the mandate has been completed – perhaps together with the final account. This could protect a firm against possible allegations that they were supposed to take related matters further. Also, remind the client of any further steps that need to be taken. For example, where a claim against the Road Accident Fund (RAF) has been finalised, enclose the undertaking and confirm that the client will be responsible for claiming from the RAF in future for any medical expenses incurred. Again, ensure that this letter is received by the client.

Proper file notes

All advice to and discussions with a client and other parties should be recorded in writing, clearly and unambiguously. These notes should form a comprehensive record of all interactions. First prize is a contemporaneous file note and confirmation of the discussions in a letter or e-mail, but either of these is better than neither.

Do you make file notes of:

• All consultations and meetings with the client and other parties?
• All telephone discussions with the client and other parties?
• Discussions with counsel? (An insured attorney whose client alleged that he allowed her RAF claim to prescribe said that counsel advised him that the claim would not succeed. He had no file notes and therefore nothing to support his version.)

Do your notes include –

• date, type, length of the communication;
• identity of the parties involved;
• information received;
• questions asked and answers received; and
• advice given?

Are your file notes –

• succinct, but covering all important issues;
• easily understandable; and
• as contemporaneous as possible?

What are the advantages of recording everything in writing?

IM Hoffman offers good advice on keeping a record of instructions. Ms Hoffman states: ‘Even where you obtain express instructions from your client, the client may deny giving you those instructions. … If you do not receive written instructions, keep a file note of the oral instructions and write to the client to confirm the oral instructions. … The desirability of written instructions in a settlement situation is common sense. All of us have second thoughts about bargains we strike.’ (IM Hoffman Lewis & Kyrou’s Handy Hints on Legal Practice 2ed (Durban: LexisNexis 2014) 24).

Purvis has this to say: ‘When a professional negligence claim is made against a solicitor, the first and most obvious starting point of the investigation is the solicitor’s file. A properly-managed file should clearly and unambiguously tell the story of the matter and its conduct, and form a useable trail in the provision of answers to the allegations. … A properly-managed file will ensure good client service, enable you to properly bill the matter and minimise the mistakes that can cause conduct and professional negligence claims against solicitors’ (J Purvis ‘Does your file tell the story?’ (2008) Law Society Journal 40) (www.lawcover.com.au, accessed 31-7-2014)).

The importance of making file notes must not be underestimated. Both professional and support staff should be expected to make comprehensive notes of all interactions with clients and other parties. The firm’s minimum operating standards document should provide for this practice and your firm should have checks, balances and sanctions, to ensure compliance.

Of course, it is acknowledged that times are changing. Because of increased reliance on mobile telephones, most telephone discussions take place away from the attorney’s desk and when attorneys are on the move – making strictly contemporaneous file notes almost impossible. Clever practitioners will have to find innovative ways of dealing with this. Any additional time spent making notes is well worth it in the long run. The alternative could well be hours spent out of the office defending your firm against PI claims. Remember also that you may lose out on fees for the work done if your client’s claim against you succeeds.

Follow-up confirmation letters

It is good practice to follow up any discussions with a letter or e-mail confirming clearly and unambiguously what was said and decided. This is similar to minutes of a board meeting. If no contrary response is received, this tends to confirm the correctness of what you have written and you can accept that you and the recipient are ‘on the same page’. You must, however, be as sure as possible that the letter has been received.

Having a signed engagement letter and written records of interactions (preferably confirmed in a letter to the client) are good ways of ensuring that any ‘lapses’ in your or your client’s memory present no threat to your practice.

Ann Bertelsmann BA (FA) HED (Unisa) LLB (Wits) is the legal risk manager for the Attorneys Insurance Indemnity Fund in Johannesburg.

This article was first published in De Rebus in 2014 (Sept) DR 24.