By Ann Bertelsmann

Leading on from the article in this column in 2014 (May) DR 23 ‘Is your firm at risk for claims by clients or third parties?’– this discussion seeks to give practical examples of things that can and do go wrong and some of the causes of professional indemnity (PI) claims.

Some danger signals

The following are danger signals to look out for:

• a busy department employing a number of candidate/junior attorneys or paralegals who do most of the work (for example Road Accident Fund, collections or conveyancing);
• no enforcement of rules relating to ­delegation and supervision;
• no central diary system or back-up to the diary system within the practice;
• no system recording details of all matters taken on by the firm and to whom they are allocated;
• no reliable filing system;
• desks and offices cluttered with files;
• no minimum operating standards (MOS) or procedures manual;
• no formal professional and support staff training (on the firm’s own procedures and the law);
• no uniform use of engagement letters;
• no policy on making file notes or confirming all instructions/discussions in writing;
• no use of checklists and working plans;
• no checks and balances like file audits and checking of mail;
• no policy on client care;
• taking over a matter from another attorney (within the practice or from outside);
• taking on a matter that is about to prescribe;
• taking instructions from friends or family of any director or employee of the practice;
• no adequate compliance with the Financial Intelligence Centre Act 38 of 2001; and
• no stringent checks and balances in place when paying out trust money.

When can your client or a third party bring a claim against your practice?

The judgment of Mlenzana v Goodrick & Franklin Inc 2012 (2) SA 433 (FB) dealt in some detail with the duties of and the standard of care to be expected of an attorney. In this regard the court referred, inter alia, to Slomowitz v Kok 1983 (1) SA 130 (AD) and Mazibuko v Singer 1979 (3) SA 258 (W).

If your client/a third party has suffered any loss as a result of your failure to conduct the client’s legal mandate with the necessary skill, knowledge and diligence expected of an average attorney, a claim may be brought against your practice.

In Margalit v Standard Bank of South Africa Ltd and Another 2013 (2) SA 466 (SCA), the SCA held that:

‘Like any other professional, a conveyancer may make mistakes. But not every mistake is to be equated with negligence, and in a claim against a conveyancer based on negligence it must be shown that the conveyancer’s mistake resulted from a failure to exercise that degree of skill and care that would have been exercised by a reasonable conveyancer in the same position’ (my emphasis).

In the Mlenzana matter, the widow sued her erstwhile attorneys for allowing her dependant’s claim against the RAF to become prescribed.

The facts and history of Mlenzana gives some instructive insight into how not to run your matters. Certainly in this case a PI claim was waiting to happen. The facts of the Mlenzana case are not as unusual as one might imagine. The judgment also sheds light on the various courts’ pronouncements on what an attorney’s duties are. It is well worth reading.

Some of the problem areas that can be identified from a reading of the lengthy judgment were:

Ineffective delegation together with lack of supervision and training

The widow’s claim was dealt with by a newly qualified professional assistant, S, who had little experience or expertise in handling RAF matters. In fact, it turns out that she was left to run both the RAF and conveyancing departments of the firm on her own, with little or no supervision or guidance. This was a recipe for disaster.

Taking on a matter without having the necessary expertise

A practice should not take on work in which it is not competent to act. Stick to areas you know or at the very least do the necessary research and get guidance from a mentor with more experience in the field.

No minimum operating standards (MOS)

Judging by the way in which S approached the widow’s claim, MOS were either not in place in the practice or they were not enforced (see 2014 (May) DR 23).

Flawed or no working plan/strategy/practice checklist

There should have been a comprehensive RAF practice checklist in place for the RAF department. This would have ensured that all requirements for lodgement of the claim were met. These requirements should have also been discussed with the widow at the first consultation. Had a proper checklist been kept, S would have noted that she already had some of the necessary information and documents with which to lodge the claim.

Ineffective communication

Much of this judgment deals with the importance of communication with one’s client. It is not enough to have written a few letters to your client at the address that you have on file. An attorney needs to ensure that such communications in fact reach the client. The method and frequency of communications should be agreed up front and details of this should be included in the letter of engagement/mandate. It is advisable to ensure that you have more than one method of contacting your clients, particularly if they live in an informal settlement or rural area. If necessary, a tracing agent should be employed in order to locate clients (see also the Mazibuko case).

Failure to investigate and obtain important facts and documents: Ineffective investigation

In this regard, S failed dismally. The court criticised her for expecting the client to travel to far-off places to obtain the required documents and remarked that

‘[t]here comes a time when a diligent attorney has to leave the comfort of his or her air-conditioned office and venture out to do some fieldwork in order to safeguard the interests of a client’.

The court further suggested that, even though the widow had been unable to provide S with the deceased’s employer’s contact details, she could have obtained these by various methods, including employing the services of a tracing agent, sending a messenger to look for the employer, or contacting one of the deceased’s co-workers.

Another criticism was that there had also been no investigation of the merits of the collision. S’s inactivity was referred to as a ‘chronicle of procrastination’.

Failure to make file notes

The court was critical of the fact that S had made no proper file notes of discussions and consultations with the widow and alleged telephone discussions with the deceased’s employer.

The importance of making file notes should not be underestimated (and should be stipulated in the firm’s MOS). These should form a comprehensive record of all interactions. Their importance lies in the following:

• They provide a record in conducting the matter.
• They can be retained as evidence in the event of a dispute.
• They are essential for proper billing and drawing up of bills of cost.
• If anyone needs to take the file over or answer a query in your absence, they will know what has happened previously.

Failure to keep the file in order

S kept asking the widow for information and documents that were already in her possession. From this, one can infer that her file was not kept in any logical order, with documents in a separate section. There should be a uniform rule on file order within any practice. If, for any reason a colleague needs to take over the file in your absence, all necessary information and documents should be easy to locate.

Presumed failure of diary system

From the facts of the case, it is unclear whether or not S was aware of the prescription date or had diarised the file accordingly. It is also unclear whether or not S registered the matter with Prescription Alert. Regular reminders from Prescription Alert would have provided back-up in case of the failure of S’s diary system.

Problems with engagement management

S should have set out the terms of the agreement with the client in a letter of engagement. This could have covered the issues of the method and frequency of communication, what S expected from the client and vice versa. It could have stipulated any outstanding documents to be obtained from the client and consequences of her failure to provide them. When no information/documentation was forthcoming, a letter of non-engagement or disengagement could have been sent to the client with the necessary advice on prescription (provided that the client received them).

No checks and balances

Had there been regular file audits or other checks in place, someone in the firm may have picked up the problem before prescription and advised S to lodge the claim with the information she had at hand. Discussions of problem files in regular professional staff meetings might also have resolved the problem. Had a senior director checked incoming and outgoing mail, if, for example, any letters to the widow had been returned to sender, the problems in this matter may have come to the firm’s attention.

Bearing in mind all of the above, start today by measuring up the effectiveness of your risk management and doing something about the gaps.

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 (July) DR 20.