Is your client a ticking bomb?

April 1st, 2015

By Ann Bertelsmann

Ms Viljoen (V) owned a boutique in a large shopping mall. She alleged that her landlord had wrongfully evicted her from the premises, causing her to lose her thriving business and her only source of income. She wished to claim several million rand for future loss of profits and emotional stress. She approached attorneys at Firm 1 to assist her. The landlord’s version differed from hers and Firm 1 managed to reach a commercial settlement for a nuisance payment of R 50 000.

V subsequently approached Firm 2, complaining that Firm 1 had substantially under-settled the claim, without her agreement. Firm 2, believing her version, brought an action on her behalf against Firm 1. When she was unsuccessful, she approached Firm 3 to bring an action against Firm 2. And so it went on … .

A happy, satisfied client will return and recommend you to others …

But an unhappy or dissatisfied client is a potential plaintiff in a civil claim for breach of mandate, a complaint to your law society or at the very least, a fee dispute!

Before taking on a potentially dissatisfied client, you need to be sure that this is a client that you will not later regret taking on. The firms in the case study above certainly did.

There is a lot of talk about Client Protection – which should of course be one of our profession’s major goals – but there is seldom any mention of Practice Protection (in relation to the client).

Looking at the claim statistics that we previously published in 2014 (May) DR 26 it is clear that practitioners need to consider how to avoid claims being made against them. One way is to avoid taking on a client, who may be more likely than others, to make a claim against them. There are some clients who will be dissatisfied however hard we try. I am sure that many of you have experienced a client like this.

How can you identify such a client?

In the first place, be wary if you are not the first firm that the prospective client has been to with this matter. It may be well worth your while to make further enquiries. This could be a very difficult client like V. Over the years, this has proved to be the case in many professional indemnity claims.

Gut feel? Your instincts and first impressions are usually correct. Perhaps the potential client shows signs, like running down a previous attorney, telling you what the law is on the subject and how you should run the matter or quibbling over your fee structure? Be alert for signs.

It is best to politely refuse to take the instruction, but if you decide to accept the mandate you will need to apply as many of the following precautions as possible:

Thirteen golden rules to protect your practice against a potentially dissatisfied client (once you have decided to act for him or her).

The protections discussed below should ideally be dealt with in your firm’s Minimum Operating Standards (MOS) or Standard Operating Procedures (SOP) document. See 2014 (July) DR 20

In the beginning …

1 It is essential to establish exactly who the prospective client is. This seems obvious, but failure to do so has led to many successful claims against practitioners. Your practice needs very firm rules on compliance with Financial Intelligence Centre Act 38 of 2001 (FICA) and sanctions for those who fail to comply. Know your client. (See Hirshowitz Flionis v Bartlett & Another [2006] 3 All SA 95 (SCA).)

2 You need to know whether your prospective client is acting individually, together with or on behalf of someone else or another entity. Does he or she have the authority to act? Obtain proof of this. Many claims have resulted from this simple failure.

– In one such claim, the attorney had been unaware (or had lost sight of the fact) that his client was, in fact, instructing him in his capacity as the sole director of a company. He instituted action in the name of the client and the claim had become prescribed before he could re-issue the summons in the name of the company.

– In another claim, a client signed a contract on behalf of a trust in the presence of his attorney. The attorney had neglected to ascertain whether or not the client was authorised to sign. The trust (and ultimately the court) declared the contract null and void.

Failure to do either one or two above could result in a fraud being perpetrated by your client. You are likely to be held liable.

3 Clients move, go overseas or back to rural villages without thinking of warning you. Insist on being given all possible contact details and even those of client’s next of kin, friends and employers – especially if you think that the client might prove uncontactable at any stage in the future. (See Mazibuko v Singer 1979 (3) SA 258 (W) and Mlenzana v Goodrick and Franklin Inc 2012 (2) SA 433 (FB)).

Have the client sign a power of attorney, in case you need it. Some practitioners also recommend including a domicilium citandi et executandi in the letter of engagement. You would need to carefully explain the implications of this to the client. (I am not sure what approach the courts would take to a defence along these lines.) It is a good idea to advise the client in advance, of the date when the claim will prescribe. If you have requested documents or information, explain by when you need this and why. (This can go into your engagement letter – see 9 below.) We have dealt with numerous claims where, at the eleventh hour, the client could not be contacted.

4 Conduct conflict of interest checks. In this regard, you will also need to obtain enough information regarding other potential parties to a matter.

5 Be wary of acting on behalf of friends, family or colleagues. They can be problem clients. We have many claims to prove this.

6 Ensure that you have the necessary expertise and capacity in your practice to take on the matter. In cases where the firm takes on any such matters because they need the work or feel sorry for the client because the claim is about to prescribe, a claim inevitably follows.

7 Beware of a client with unrealistic expectations.

Get all relevant facts and documents from your prospective client and make sure that you understand precisely what his or her expectations are – and manage these expectations from the beginning. Make sure that you put the client in touch with reality as far as achievable outcomes are concerned. Put details of this in your engagement letter (see 9 below).

It happens quite often, for example with Road Accident Fund (RAF) claims, that a client has been advised by someone else to see an attorney in order to lodge a claim with the RAF. That person either has received a large payout from the RAF or knows someone who has. The client then arrives with huge money signs in his or her eyes and needs to be brought firmly down to earth about the prospects of his or her claim.

It is a mistake to deliberately or inadvertently raise your client’s expectations about what the outcome of the matter will be.

Avoid promising a substantial payout or that the transfer will be registered within a certain time-frame. Instead, properly advise the client that difficulties might occur – such as possible problems in obtaining the title deeds or clearance certificate or a possible apportionment of blame. Then keep the client informed of any difficulties as they emerge, rather than waiting for the client to make the enquiry.

Beware, claiming an unrealistic quantum in a summons, could well raise your client’s expectations of the outcome of the matter.

8 Ensure that you take a realistic deposit and agree your billing rates and policies up front, so that you are never put in the position where you have to sue the client for fees. (A summons for fees inevitably leads to a counterclaim for breach of mandate.)

9 Make sure that you and your client have signed a comprehensive letter of engagement/retainer/mandate before or at least within a reasonable period after you proceed with the matter.

In this document, reflecting the contract between you and your client, you have the perfect opportunity to set out exactly what you and your client can expect from one another and the work to be covered (or not covered) by the mandate. You can deal with the proposed course of action to be taken and even the reasons for this. You can stipulate the method of communication to be used and the envisaged frequency of communications. (This should deter those clients who contact you incessantly, since they believe that they are your only client.) In fact any important aspects of the mandate and instructions can be confirmed.

And later …

10 Communicate with client regularly and effectively. The importance of this cannot be stressed enough. Many unpleasant interactions and claims could have been avoided if the practitioner concerned had only done so. Keep client informed in plain language. Taking regular instructions will make the client feel more involved in the process and less likely to question your actions or make unnecessary complaints.

11 Vary the terms of the letter of engagement. If there are changes in the proposed course of action or mandate, make sure that these are recorded in an amended (and signed) letter of engagement.

12 In the course of carrying out your mandate, avoid giving non-legal advice or advice in respect of any area of law in which you have little or no knowledge. This is asking for trouble.

13 Where there are any contractual or settlement negotiations, ensure that you give client detailed advice (in plain, understandable language) on all relevant issues – and then be sure to record this in writing to cover yourself should there be any dispute at a later date.

We deal with many claims where there is an alleged under-settlement of a claim or failure to give advice during contractual or other negotiations.

Look out for clients like V – there are more of them than you can imagine. For safety sake, treat all clients as if they could potentially behave like V.

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 2015 (April) DR 22.

De Rebus