OF THE LAW SOCIETY OF SCOTLAND - The Journal Online

protracted negotiations over every
aspect of C’s disengagement from
the business.
Eventually, a Minute of Dissolution
was concluded and signed and C
required to make a modest
payment to his former partners in
respect of his agreed balance
reflecting the level of business
borrowings at the date of C’s
departure.
Some time later, the business failed
and the bank called up securities
and guarantees for the business
borrowings. Because there was a
shortfall, the bank looked to C in
terms of a Personal Bond which he
had signed and from which he had
never been released.
How would you ensure that no
client of yours found himself in this
position? Firm Z might have drawn
up a list of action points to be
attended to in order to achieve C’s
objective and these could have
been diarised and copied to the
client. All of this would have helped
to minimise the risk of critical issues
being overlooked and to avoid any
misunderstanding between solicitor
and client.
Lenders’ general instructions
Firm Y acted on behalf of
purchasers of a house and for their
lenders in the preparation,
execution and recording of a
Standard Security. On the face of it
the purchase and loan transactions
proceeded normally.
The purchasers/borrowers
defaulted and the property was
repossessed by the lenders who
incurred a loss. The lenders
requested Firm Y’s file and intimated
a claim on the basis that, inter alia,
Firm Y had failed to comply with
certain terms of the lenders’
General Instructions to Solicitors.
The letter received from the
solicitors acting for the lenders
alleged inter alia that, contrary to
express terms of the General
Instructions to Solicitors, Firm Y had
failed to report to the lenders:
■ that the whole purchase price was
not passing through the hands of
Firm Y as part of the price was
apparently paid by the borrowers
direct to the seller; and
■ that the party from whom the
borrower was purchasing had
only acquired the property
within the last month or two.
The letter intimated that, having
repossessed and sold the property,
the lenders had sustained a loss and
were holding Firm Y liable. While
this claim may involve issues of
causation and quantification which
are less clear cut, if the lenders’
allegations are justified, then it
appears, on the facts stated, that
Firm Y has omitted to comply with
express provisions of the lenders’
instructions which are express
terms of the contract between the
lenders and Firm Y. Lenders’ general
instructions are effectively a
checklist of points to be addressed,
documented and reported on as
appropriate.
Unimplemented undertakings
Firm Y acted for B in the purchase
of a flat. Property Enquiry
Certificates produced by the sellers’
solicitors disclosed the existence of
an outstanding notice. After
discussion, the sellers’ solicitors
agreed that the letter of obligation
would incorporate an undertaking
on behalf of their clients to deliver a
receipt and discharge.
Following settlement, the file was
fee’d up and archived. The sellers’
solicitors were never chased for
delivery of the outstanding receipt
and discharge. When B came to sell
the flat some years later, the notice
was still outstanding, the previous
owners hadn’t paid the local
authority and were now untraceable
and B was required to attend to this
in order for the sale to proceed.
How do your ensure that your
clients don’t find themselves in the
same situation as B? On the facts
stated, it appears there may have
been an omission on the part of
Firm Y to diary the outstanding
undertaking and, if necessary, to
make B aware of the situation and
B’s options in the event of the
sellers’ failure to implement their
undertaking. Effective diarying is
clearly a critical element of avoiding
this sort of situation.
Journal
Risk Management
The information in this page is
(a) intended to provide guidance on
matters of practical risk
management and not on issues of
law and (b) is necessarily of a
generalised nature. It is not specific
to any practice or to any individual
and should not be relied on as
stating the correct legal position.
Alistair Sim is Associate Director in
the Professional Liabilities Division at
Marsh UK Limited Alistair.J.Sim@marsh.com
e:
45 May 2002 Volume 47 No 5