Some important considerations to be taken into account in verifying your mandate

June 1st, 2017

By Thomas Harban

When accepting instructions from a client it is important to verify all aspects of the mandate. In case of doubt, it is best to canvass this with the client, rather than assume that there is a meeting of minds between the client and yourself, this prudent approach will protect both you and the client’s interests. While some may consider this approach rather tedious, a proper explanation of the rationale behind the verification will assure the client that every aspect of the matter is being properly interrogated. A potential client who is not playing open cards with you and who is not being completely honest will soon realise that you will not be easily duped and desist from any dishonest scheme. Many of the professional indemnity (PI) claims notified to the Attorneys Insurance Indemnity Fund NPC (the AIIF) turn on the question that a crucial element of mandate was not properly verified. The aspects of the matter that need to be verified, include verifying the following in respect of the clients instructing you –

  • the identity of the client;
  • whether the client is instructing you in a personal or representative capacity; and
  • where the client is acting in a representative capacity, whether or not the client has the appropriate authority to instruct you.

At face value, the considerations listed above may appear trite but, as will be demonstrated below, the non-adherence to any of these considerations could lead to a PI claim against a practitioner.

The identity of the client

The importance of implementing a proper Finance Intelligence Centre Act 38 of 2001 (FICA) procedure in your firm cannot be over emphasised. The FICA verification procedure needs to be documented and communicated to all staff in the firm. The client identification procedure can also be included in the minimum operating standards (MOS) in your firm and adherence thereto must be strictly monitored. The identification of the client needs to be more than just a ‘tick box’ exercise, closely examine all documents submitted by the client purporting to be submitted in confirmation of identity. Under no circumstances whatsoever are documents to be certified as true copies of the originals when, in fact, the practitioner has not actually had sight of the original documents concerned, this is against the law and a breach of the professional duties of the attorney. It must also be noted that conduct of this nature is considered as dishonest in terms of the AIIF policy and clause 20 thereof provides that:

‘Where the Dishonest conduct includes:

a) the witnessing (or purported witnessing) of the signing or execution of a document without seeing the actual signing or execution; or

b) the making of a representation (including, but not limited to, a representation by way of a certificate, acknowledgement or other document) which was known at the time it was made to be false.’

The applicable excess in claims of this nature will be increased by an additional 20%.

In addressing practitioners in various forums, the AIIF has often remarked on the unfortunate practice by some conveyancers, in particular, where a member of the support staff meets with clients, gets the clients to sign the relevant documents including and required affidavits and that the signatures of the witnesses are appended later together with the certification of the affidavit by the practitioner. Such egregious conduct practice is unlawful and may have serious consequences for the practitioners concerned.

Most of the claims arising out of circumstances where attorneys fall victim to cyberscams (and other phishing scams) could have been avoided had the practitioners concerned properly verified the identity of the parties communicating with them. It is important that the bank account details of all parties to whom funds are to be paid are also verified.

The proper identification of clients should also be applied to the identification of the depositors of funds into the practitioner’s trust account. The Supreme Court of Appeal has found that a practitioner has a duty to act without negligence when dealing with money held in a trust account, even where the identity of the depositor or the purpose of the deposit is unclear (see Hirschowitz Flionis v Bartlett and Another 2006 (3) SA 575 (SCA) and Du Preez and Others v Zwiegers 2008 (4) SA 627 (SCA)). In the Du Preez case, the SCA stated (at para 19) that: ‘An attorney is under a legal duty to deal with trust account money in such a way that loss is not negligently caused, inter alia, to the depositor.’ As pointed out in the Hirschowitz Flionis case, a practitioner may be able to trace the origin of funds by starting an inquiry with his or her own bank. This could assist in identifying the depositor of the funds. Do not accept the word of a client (or other third party) in respect of a deposit without verifying this with your bank. It is also important that the instructions of the depositor are obtained and before payments of the funds are made.

Is the client instructing you in a personal or representative capacity?

Where the party instructing your firm purports to be acting on behalf of a juristic entity, always verify that the party concerned has the relevant authority to instruct you as such. The nature and extent of such an authority should also be clarified and confirmed. The entity on whose behalf the party consulting with you is purportedly acting may refuse to pay your fees and disbursements in circumstances where they dispute that person’s mandate to act on their behalf. That entity may also institute legal proceedings against you if they have suffered damages as a result of the actions you have taken on the basis of the disputed mandate.

The AIIF has had a claim arising out of the following circumstances:

A conveyancer was instructed to transfer a property from a company (represented by Mr A) to a close corporation. The conveyancer had been provided with what purported to be a resolution of the company authorising Mr A to act on its behalf. The resolution specifically stated that Mr A’s authority was to be limited to the signature of the deed of transfer and that the execution of any other documents should receive prior approval from the director of the company. Registration was subsequently effected and the nett proceeds were paid into a bank account nominated by Mr A. Thereafter, the conveyancer received a call from Ms D (of the company) inquiring where the proceeds of the sale were. The conveyancer had never before had contact with Ms D. He had taken all instructions from Mr A and had not been given the company’s banking details. Mr A could not be contacted thereafter.

In Road Accident Fund (RAF) related matters where a parent or guardian and a minor child/children have been injured, clarify at the initial stages whether your instructions are to pursue claims on behalf of all the injured parties. Do not assume that your instructions are only to pursue the claim on behalf of the parent or guardian and not on behalf on the minor(s). In many instances, the AIIF is notified of claims where the plaintiff, who was a minor at the time the cause of action arose, alleges that the practitioner concerned was instructed to pursue a claim on his or her behalf by a parent or guardian and that the claim was under-settled. The practitioners concerned often argue that they acted on the instructions of the parent or guardian in settling the claim. The duty of the practitioner extends to advising the client on the adequacy of the settlement offer. Remember that the client has instructed you as a professional and expert. Your duty in pursuing the claim extends to advising the client on all aspects of the matter, including the quantum of the claim and the appropriate amount of damages to be awarded. In appropriate circumstances, practitioners acting for parents or guardians, bringing claims on behalf of minors should request that a curator be appointed to guard the interests of the minor(s). Do not allow yourself to be pressurised into settlements, which are potentially prejudicial to the interests of the injured minor. The restitutio in integrum maxim has successfully been raised by the AIIF in many of the cases of this nature as the initial settlement of the matter was prejudicial to the plaintiff (who as a minor at the time the settlement was entered into). The considerations listed above do not only apply to RAF related claims but are applicable to all claims brought on behalf of a minor.

Where both of the minor’s parents are available, it is best practice that both be consulted in respect to a claim. There have been instances where a practitioner has taken instructions from one parent, only for the other parent to later claim to be the primary (or sole) provider of support to the minor child and that, in the circumstances, the parent who initially instructed the attorney did so by making untrue allegations and has since used the funds awarded to the minor for their personal needs rather than for those of the child. We have also had claims where it has later emerged, after an investigation, that the person alleging to be the parent or guardian of the minor child is, in fact, not the parent or guardian. In this regard, practitioners should, for example, seek original documents in order to verify the relationship, if any, between the plaintiff and the minor(s) on whose behalf they are purporting to claim.

Verifying the capacity in which the party instructing you is acting will also protect you against the actions of touts and intermediaries. In the Hirschowitz Flionis case, one of the protagonists was an intermediary. Had the respective parties in that case properly investigated the information given to them, the circumstances that ultimately gave rise to the claim would have been avoided. Touts will pursue their own interests in respect of the matter rather than those of the client.

It is hoped that practitioners will take the considerations highlighted above into account and that the appropriate risk mitigation measures will be implemented in their practices.

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

This article was first published in De Rebus in 2017 (June) DR 23.

De Rebus