Some red flag risk areas to keep a look out for in clients

May 1st, 2018

By Thomas Harban

A lot of focus is, correctly, placed on the internal processes that law firms can implement in order to avoid or mitigate risks. The legal services rendered are aimed at carrying out mandates given by clients to the firm. The focus of this article will be on the areas legal practitioners should consider when deciding whether to accept an instruction from a client.

It is prudent to carefully consider each new instruction received from a client. The considerations to be taken into account will depend on the unique circumstances of each firm, client and instruction. This process will also mitigate the risk of a breakdown in the relationship at a later stage and the consequences of such a breakdown in the relationship, which may include dissatisfaction from the client, a resultant professional indemnity (PI) claim or even a complaint to the provincial law society.

Some of the considerations practitioners may consider applying are:

  • Has the client previously instructed any other legal practitioner in respect of the same matter? Where the client has instructed and terminated (or seeks to terminate) the mandate of more than one legal practitioner in respect of the same matter that should be a red flag. Any inquiry should be made into the reasons for the termination of the mandate of the previous legal practitioner. The reality is that there are some clients who are perpetually unhappy with the service they receive. The breakdown in the relationship with the previous legal practitioner may be as a result of something to do with the client. Ask yourself whether the client had reasonable grounds for terminating the relationship with the previous legal practitioner. A perpetually unhappy client may be reluctant to pay your fee at the end of the day.
  • Does the client have reasonable expectations? Establish what the client’s expectations are at an early stage. The client’s expectations should be managed both in terms of the outcome of the mandate and also in terms of the length of time it will take for the mandate to be carried out. In litigious matters, the fact that the court process can take several years to be finalised in some matters, must be explained at an early stage. Issues with regard to fee payment terms must also be discussed upfront take note of the provisions of subss 35(7) to (12) of the Legal Practice Act 28 of 2014. Some clients may expect that the legal practitioner can perform miracles. Where, as part of the mandate, the legal practitioner is expected to sign undertakings, consideration must be given to whether or not the performance of the undertaking is within the control of the legal practitioner. It is important to establish whether what the client requires the legal practitioner to do, falls within the conduct of the profession. Legal practitioners should, as far as possible, avoid taking new instructions where prescription or a court date are looming.
  • In what capacity is the client instructing the legal practitioner? Establish whether the client is acting in a personal or representative capacity. Where the client acts in a representative capacity, seek written proof of the authority and the ambit of such authority. Do not assume that the authority is wide and open ended. If necessary, try to verify the mandate with another party within the entity.
  • Does the legal practitioner have the capacity and appetite to carry out this instruction? Where, due to work pressure or other reasons, the legal practitioner will not be in a position to attend to the instruction immediately or within a reasonable time, it may be best to refuse the instruction or to direct the client to another practitioner within the firm. You may feel that the instruction will be lucrative financially, but if you cannot give the matter the required attention it may turn out to have negative consequences for you in the long run and cost you money and time in the event of a claim against your firm or having to attend an inquiry at the provincial law society. The client may lose confidence in you when you are unable to and this will be the beginning of a breakdown in the relationship. You also may not have the appetite to deal with the matter. It is best to turn the instruction down upfront rather than have to come up with excuses later when there is little or no progress being made in the matter. The instruction may involve areas of law outside of your interests or expertise.
  • Conflict of interest? Gather as much information as possible on the matter at an early stage. Identify all the other parties involved in the matter and assess whether or not there is or could be a potential conflict of interest. Under no circumstances should practitioners compromise themselves and act in matters where there is a conflict of interest. All staff in the firm (professional and administrative) must be educated on the ethical rules applicable to legal practitioners and the professional standards that must be met. Some of the larger law firms have a documented conflict of interest policy and committees to assess and deal with conflicts.
  • Financial Intelligence Centre Act 38 of 2001 (FICA) – always ensure that proper FICA verification is carried out on each new client. A FICA checklist can be compiled and used by all parties in the firm. Be cautious of clients who are unwilling or reluctant to undergo a FICA verification process or who promise to submit the relevant documents at a later stage, but never do so.
  • Can we agree on the terms of engagement? It is important that the terms of the engagement between the practitioner and the client are agreed upfront. These can be recorded in a letter of engagement. Some of the areas that can be covered in the letter of engagement, which includes payment terms, the scope of the mandate and the expectations and obligations of the parties (the legal practitioner and the client). All the parties must sign the letter of engagement and the client should be supplied with a copy for their own records. This document will assist either party later in the event of a dispute. Where the parties have difficulty reaching agreement on the terms of engagement, the practitioner would be well advised to consider refusing the instruction. Ask yourself whether the relationship as a legal practitioner and client will work out when you and the client cannot agree on the terms on which your relationship is to be based. Also, if you are unable to find mutual grounds of trust at an early stage, it would probably be best that the relationship not start in the first place.
  • Failure to give all instructions – another red flag will be a client who is not available to give instructions in respect of the matter. At the end of the day, a legal practitioner can only act on the instructions of the client. Where the latter is not forthcoming with instructions, it may be best to consider withdrawing from a matter. In the event that the legal practitioner withdraws from the matter, it is important that the client and all other parties in the matter are timeously informed. The following passage from S v Ndima 1977 (3) SA 1095 (N) (at p 1097) is instructive:

‘It is quite plain that an attorney must, if he is going to withdraw from a case, withdraw from it timeously and inform his client that he is withdrawing so that the client can make other arrangements or, if there are none which he can make and if he wishes to do so, so that he may appear in person to argue his appeal. If an attorney wishes to carry on hoping that at the last minute he will be given funds and does not wish to withdraw at an earlier stage of the case because he will jeopardise his chance of being paid, then he must be willing to take the risk that he will find himself financing the appeal and go on with it. In other words, he either withdraws at an appropriate stage or he takes the risk and carries on and does the work. Prima facie, and I emphasise those words because I do not have the attorneys’ explanation before me … the attorneys in this case are guilty of gross discourtesy and a neglect of their duty as officers of the Court.’

Similar sentiments were expressed by the court in Kara NO and Others v Department of Land Affairs 2005 (6) SA 563 (LCC). The Land Claims Court in Kloof Gold Mining Limited t/a Leeudoorn Gold Mine v Mnengele and Another (LCC) (unreported case no LCC 62/01, 10-2-2003) (Gildenhuys J) labelled the last minute withdrawal of the respondents’ legal practitioners objectionable.

Legal practitioners must thus guard against conduct, which will expose them to sanction by the courts. Some courts may even refer the conduct of the legal practitioner to the provincial law society for investigation.

It is hoped that the red flag areas listed above will be borne in mind by legal practitioners when approached by clients with new instructions.

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 2018 (May) DR 19.