Lawcovernotes October 2013

The importance of established office procedures In a recent Lawcover claim, the importance of established office procedures in dealing with enquiries from non-clients was highlighted. The solicitor, a sole practitioner, acted for a property developer on the purchase of a property. The developer was short of funds and arranged for a friend to lend the balance on the basis of a loan agreement secured by a caveat. The developer instructed the solicitor to prepare the agreement and in due course, to register the caveat. The terms and security provided for the loanwere all negotiated and agreed between the developer and the friend. The solicitor had no involvement in the process other than to reduce the terms of the agreement to writing, prepare the caveat, mail it to the address provided by the developer and register it once signed. The letter fromthe solicitor to the developer’s friend enclosing the loan agreement advised that she should seek her own legal advice in relation to the loan arrangements. Sometime later the developer contracted to sell the property. However, before settlement could occur the developer became bankrupt. It transpired there were no funds available in the bankrupt’s estate with which to repay creditors; as a result the friend lost both the principal and interest owing on the loan amount. The lender asserted that the solicitor acted on her behalf and that he had failed to warn her of the high degree of incumbency on the property compared to its value, the priority of a mortgage over her loan, and of the general inadequacy of a caveat in protecting her principal in the circumstances. She asserted that she had attended the solicitor’s office on a number of occasions to drop off documents and had met and been ‘advised’ by his staff in relation to the loan agreement and caveat. At an early mediation of the matter the lender maintained she had consulted the solicitor and had relied on his advice, including vicariously through his office staff. However, after questioning it became apparent that the lender’s recollection of her interactions with the solicitor’s staff was at odds with established procedures within the office and with the identity of personnel. The solicitor was able to show that the lender must have been mistaken as to who she had spoken to and been advised by; certainly it was not the solicitor himself. Establishing and adhering to an office protocol and procedures for dealing with both clients and non-clients is essential in ensuring that incorrect or inappropriate advice is not provided by staff members who, even though willing to assist, are not qualified and may not appreciate the consequences of their responses. All customer attendances, including those of non-clients should be recorded in writing. Peter Driessen General Counsel