Safeguarding the perception on the legal profession – explicit and implicit expectations of clients

May 1st, 2024
x
Bookmark

Legal services fall within the professional services industry. A professional services industry ‘refers to any business, department, or individual whose core output is a service or expertise rather than a manufactured product’ (Wrike ‘A Guide to Project Management for Professional Services’ (www.wrike.com, accessed 8-3-2024)). When providing legal services, the legal practitioner employs expertise in the subject matter to solve their client’s issues for which legal services were sought in the first place. In some instances, the legal practitioner does not possess the required expertise and hires the services of an expert in that field as employee of the legal practice and continues to provide the service as part of service offering of the legal practice. There are basic expectations that clients have of a professional services provider like a legal practice and/or legal practitioner. These expectations can either be explicit or implicit.

Whether the legal practitioner in a legal practice personally provides the services or provides the services through an expert employee hired by the legal practice, the client expectations of the legal practice remain. Besides, engagement agreements are concluded between the client and the legal practice. Where the legal services required by the client of a legal practice are offered by an expert employee, the legal practitioner has a duty to oversee and monitor the performance of that employee, and to take control of financial aspects of the legal practice. While the legal practice may have legal remedies against employees who misappropriate trust funds, the legal practitioner remains accountable. In order to address the risk of misappropriation of trust funds, legal practices should have in place a set of internal controls that minimise this risk. Readers are encouraged to read with this article at least two of my previous articles titled ‘Managing reputational risk’ 2017 (Nov) DR 12; and ‘Adequate and effective internal controls’ 2019 (March) DR 8.

Explicit expectations

Explicit expectations are specifically agreed between the client and the service provider, usually captured in an engagement agreement. For instance, if a client appoints a legal practice that operates in the conveyancing space, the explicit expectation is that the conveyancer will assist the client to successfully sell the property in question. This is the end goal of the required legal service. The conveyancer is conferred the responsibility for collection and payment of amounts due for the transfer of the property from the seller to the purchaser.

Implicit expectations

Implicit expectations are not necessarily specifically agreed between the client and the service provider, but nevertheless, exist and are embedded in the professional relationship between the legal practice and the client. The client, on appointing the conveyancer, expects to be treated with dignity and respect, and that the conveyancer will be honest and transparent, but most of all, that the conveyancer will not misappropriate the trust funds of the client. The client will appoint the conveyancer for purposes of ensuring that the process of selling the property at hand is smooth, with no unknown third-party claims arising from the transaction. These expectations are generally not documented, but hold the greatest value in the relationship between the client and the legal practice; and also in future relationships with the client and other potential clients. These expectations are based on, among others, the trust that the client has on the capabilities of the legal practice and the legal profession.

Considering the explicit and implicit client expectations as per the foregoing, while explicit expectations are focused on the end goal, implicit expectations focus on how you get to the end goal. For purposes of reflecting on the explicit and implicit client expectations, let us consider three scenarios where a property is sold, and a conveyancer is appointed using a South African perspective.

Scenario 1

On 16 August 2022, Mr Bronze entered into a sale agreement with Ms Silver through Pumpkin Estate Agent whereby he agreed to sell his property and Ms Silver agreed to purchase the property located in Bramley, Johannesburg, for R 2 516 530. Pumpkin Estate Agent appointed SKM and Associates (the legal practice), a legal practice that operated in Rosebank, as conveyancer in the transaction. In terms of the sale agreement, Ms Silver was required to pay 10% of the sale price, being R 251 653, as deposit into the trust bank account of the legal practice within 14 days from date of sale agreement, to be held in a savings account; and to provide a guarantee by a financial institution for the balance of the price, being R 2 264 877. Ms Silver fulfilled both requirements in terms of the agreement on 29 August 2022, and the deposit amount was invested in terms of s 86(4) of the Legal Practice Act 28 of 2014.

Mr Bronze on the other hand was expected to pay into the trust bank account the rates and taxes owing to the municipality, the transfer duty, and the transfer fees. There were no bond cancellation costs as the property was not bonded. The commission for the estate agent was payable on registration of the transfer in the name of the purchaser from the proceeds of the sale.

In terms of the sale agreement concluded, the agency fee was determined to be 5% of the sale price, which was R 125 826,50. On the conveyancer obtaining the statement on rates and taxes from the municipality, Mr Bronze was required to pay to the municipality an amount of R 36 278,92 in order to get a clearance certificate. Due to the price of the property on sale being more than R 1 000 000, the sale attracted transfer duty due to the South African Revenue Services (Sars). In terms of the tax tables applicable to the 2022/2023 tax period, the property attracted transfer duty at a rate of R 88 250 + 11% of the value above R 2 475 000, computed to be R 92 818,30, that Mr Bronze had to pay. On 29 September 2022, Mr Bronze paid R 129 097,22 into the trust bank account of the legal practice for rates and taxes and the transfer duty.

The property was subsequently transferred and registered in the name of Ms Silver on 2 November 2022 triggering withdrawal of the s 86(4) investment and calling on the guarantee by the financial institution. All expected funds were received into the trust bank account of the legal practice. On receipt of all amounts, the legal practice paid Pumpkin Estate Agent commission of R 125 826,50, took fees for R 88 078,55, and paid R 2 302 624,95 to Mr Bronze. The legal practice issued a final account to Mr Bronze, reflecting in the accounting statement the amount of R 2 302 624,95 due to him after transparently disclosing all funds received and payments made. The transaction was finalised, and file closed.

As we can see in this scenario, both the explicit and implicit client expectations were fulfilled by the legal practice.

Scenario 2

In this scenario, the facts are similar to those of scenario 1, except that Mr Bronze did not have funds available for the transfer duty and required funding for R 92 818,30. Mr Bronze, through the advice of the conveyancer, applied for and obtained bridging finance for R 92 818,30 repayable with interest on registration of the transfer. On registration of the transfer, R 98 450,26 was paid to the bridging financier, resulting in the amount due to Mr Bronze reduced by R 5 631,96 (R 98 450,26 – R 92 818,30). The amount due and paid to Mr Bronze was, therefore, R 2 292 253,24. The transaction was finalised, and file closed. The legal practice prepared a final account for Mr Bronze.

Again, as seen in this scenario, both the explicit and implicit client expectations were fulfilled by the legal practice.

Scenario 3

In this scenario, the facts are similar to those of scenario 1, except that the legal practice sourced an additional amount of R 92 818,30 from a bridging financier, purportedly for transfer duty due by Mr Bronze to Sars, without his knowledge or consent. Entering into agreements by the legal practice on behalf of its clients and the bridging financier was general practice of the legal practice where the legal practice made warranties and representations to the bridging financier on behalf of the client requiring funding. The bridging financier relied on these warranties and representations, and advanced the required funding and paid it into the trust bank account of the legal practice.

The property on sale continued to be transferred and registered in the name of Ms Silver, and Mr Bronze received his proceeds from the sale of R 2 302 624,95. However, the legal practice failed to account to Mr Bronze truthfully, as they purposefully omitted to disclose the additional amount that was sourced from the bridging financier in his name. It turned out that from the
R 129 097,22 that Mr Bronze paid to the legal practice on 29 September 2022, the legal practice took R 92 818,30 and paid three other clients of the legal practice whose monies were previously used by the legal practice without their consent and knowledge. The legal practice was, therefore, involved in the scheme of rolling trust funds and defrauded its clients.

During December 2022, Mr Bronze received a call from the bridging financier asking about the repayment of the advanced funding, to which Mr Bronze responded advising that he never required such funding, and as such never applied or requested the legal practice to apply on his behalf as he paid for everything from his pocket. The bridging financier sent a confirmatory e-mail of the telecommunication to Mr Bronze, which Mr Bronze confirmed. Needless to say, the bridging financier opened a criminal case against the legal practice, and the news spread fast like veld fires.

Now, as seen in this scenario, only the explicit client expectation was fulfilled by the legal practice while the implicit expectation was never fulfilled. The legal practice used the credentials of their client to mislead the bridging financier into advancing funding and paying it into their trust bank account. While the legal practice achieved the end goal of transferring the property into the name of Ms Silver, as expected, how they went about it was unethical.

As time went, the bridging financier opened more criminal cases against the legal practice on the same grounds, as it turned out that more and more clients of the legal practice were misrepresented with the bridging financier. The bridging financier stopped advancing funding to clients of the legal practice, and as a result some of the later conveyancing clients of the legal practice did not get their transactions concluded by the legal practice, while their funds were missing from the trust bank account of the legal practice. Several complaints against the legal practice were laid with the regulator resulting in the legal practitioner of the legal practice being suspended and ultimately struck from the roll of practising legal practitioners.

Conclusion

The actions of the legal practice in scenario 3 were unethical. Legal practices and legal practitioners have a duty to service their clients by not only ensuring that the end goal is achieved, but by also ensuring that it is achieved ethically. The actions of the legal practice portrayed in scenario 3 do not only affect the legal practice, but negatively impact the perception that the public may hold on to the legal profession. All legal practices and legal practitioners have a duty to safeguard the profession and bring back the dignity of the legal profession. Acting with integrity at all times, whether under watch or in private, has long term benefits for the legal practices, practitioners, and the profession. The best service is provided by the legal practice and legal practitioner when both the explicit and implicit client expectations are consistently met or exceeded, without fail, thus safeguarding the perception on the legal profession.

Simthandile Kholelwa Myemane BCom Dip Advanced Business Management (UJ) Cert Forensic and Investigative Auditing (Unisa) Certified Control Self Assessor (Institute of Internal Auditors) Cert in Management and Investigation of Cyber and Electronic Crimes Cert in Fraud Risk Management Cert in Law for Commercial Forensic Practitioners Cert in Investigation of Financial Crimes Cert in Investigation and Detection of Money Laundering Cert in Economic Crime Schemes (Enterprises University of Pretoria) Post Graduate Diploma in Risk Management (MANCOSA) is the Practitioner Support Manager at the Legal Practitioners’ Fidelity Fund in Centurion.

This article was first published in De Rebus in 2024 (May) DR 16.

X