Misunderstanding client instructions

A recent High Court decision (Wellesley Partners LLP v Withers LLP [2014] EWHC 556 (Ch)) has sparked discussions among solicitors who fear the consequences of misunderstanding a client’s instructions and are uncertain of their duties to obtain clarification.

In 2008, Withers, a firm of solicitors, acted for Wellesley, an executive search consultancy firm,
in connection with the admission of a number of partners, including a Bahraini bank called Addax. Addax agreed to make a £2.5m capital contribution to Wellesley in order to acquire a
25 per cent interest in the partnership.

Withers drafted a new LLP partnership agreement and it was agreed that Addax would have an option to withdraw 50 per cent of its capital contribution at a later stage. Only a year after the finance injection, Addax exercised
its option to withdraw. This came as a complete surprise to Wellesley, who believed that
the option could only be exercised within a
30-day window after three and a half years and not before.

It was then discovered that, contrary to commercial sense, the option was drafted so as to be exercisable at any time within the first three and a half years. Addax removed its capital causing significant difficulties for Wellesley.

Proceedings were brought against Withers
by the client who categorically denied instructing the change. The lawyer responsible could not remember making the change and could not say for certain that his client had instructed it, however he thought it was the only logical explanation, supported by the fact that the
client did not complain about the change after
it was made.

Without a surviving attendance note recording the instruction, Nugee J found that Withers had been negligent in drafting the agreement and had altered the option clause without any instruction to do so. He found that the clause must have been discussed in a call and the lawyer had either misunderstood or wrongly noted down his instructions. He ruled that where instructions were unclear, there was a duty to obtain clarification.

The drafting error cost Withers £1.6m (although they have now lodged an appeal).

Avoiding misunderstandings

There are a number of ways a solicitor can avoid entering into difficulties with a client, including the following.

1. Deciding whether to accept the instructions.

It almost goes without saying that you must be equipped to do the job, including possessing “the resources, skills and procedures to carry out your client’s instructions” (SRA Code of Conduct Outcome 1.4).

2. Confirming the retainer.

It is always best to define the scope of the instruction in a retainer letter, clearly setting
out the assumptions and limitations. The retainer letter also gives an opportunity to set out the expected service standards, both your own and those of the client. The client should be reminded of the duties to provide clear, timely and accurate instructions and all documentation necessary
to complete the transaction or provide the required advice.

While there is no general duty to confirm a client’s instructions or to put them into writing, if you want to limit the scope of your retainer (to carve out tax advice for example) then that must be put in writing (Hurlington Estates v Wilde & Partners [1997] 1 Lloyds Rep 525).

3. Giving advice.

The SRA’s Code of Conduct Outcome 1.5 states that the requisite standard of advice is evidenced when it is “competent, delivered in a timely manner and takes account of your clients’ needs and circumstances”.

In assessing a client’s circumstances, Lord Scott said in Pickersgill v Riley [2004] UKPC 14 that:
“A youthful client, unversed in business affairs, might need explanation and advice from his solicitor before entering into a commercial transaction that it would be pointless, or even sometimes an impertinence, for the solicitor to offer to an obviously experienced businessman.”

It is in the solicitor’s interests to record instructions and advice in writing, especially where advice has been ignored or different instructions provided. In Middleton v Steeds Hudson [1998] FLR 738, the court stated: “One might have expected that in circumstances where the lay client was determined to disregard the advice of the solicitor, the attendance note would, as a matter of protection for the solicitor if nothing more, contain a specific reference to the firm instructions that had been given in disregard of the advice. Furthermore, one might have expected there to be a letter to the client, recording the advice and the instructions given.”

If there are language barriers then there is a duty to put the advice in writing (Siasati v Bottoms & Webb [1997] EGCS 22) explaining the obligations the client is undertaking (and this may extend to having the documents translated). If there are other communication challenges such as hearing difficulties, disability, learning or cross-cultural issues you will need to take steps to overcome these (Law Society Good Practice).

4. Taking and clarifying instructions.

A solicitor owes a duty to the client to take adequate instructions and to satisfy himself
that the client understands the legal effect of
the advice. A solicitor also owes a duty to properly execute the client’s instructions and, where necessary, clarify them.

In Gray v Buss Murton [1999] PNLR 882, the court held that it was just and equitable to impose this duty to clarify given the legal advantages the solicitor holds over a lay client and the risk of the client being under a misapprehension as to the exact meaning of the words used when seeking advice. This is equally important when the client uses imprecise lay terms.

You will also need to satisfy yourself that the client has the ability to give clear instructions (such as assessing testamentary capacity for making a will). Special care will need to be taken
if instructions come from a third party or where you act jointly for more than one client (such as lenders and borrowers; insured and insurers;
joint owners). The SRA Code of Conduct at IB1.25 states that in these situations you must be “satisfied that the person providing the instructions has the authority to do so”. You should also be alive to situations where the client might be affected by duress or undue influence (SRA IB 1.28).

While it may be a defence to say that you are acting on express instructions from the client, it is not a defence when those instructions stem from inadequate advice (Lee v Dixon (1863) 3 FF 744). When you do ask clients for instructions, keep the request as concise and unambiguous as possible, ideally in writing, and keep a record of instructions received.

5. Following instructions.

Once you have clarified the instructions and
are satisfied the client understands the consequences, you must follow a client’s instructions. It is the client’s prerogative to pursue litigation with little to no prospects of success or to enter a commercially disastrous deal, if that is what he or she wants to do. A solicitor’s duty extends only to ensuring that the advice was understood by the client and they cannot force the client to take it (Duffield v Gilbert H Stephens and Sons [1988] 18 Fam Law 473).

Mitigating loss

In the Wellesley v Withers case, the solicitor faced significant scrutiny for not explaining that there had been a drafting error, failing to advise on what steps to take to correct it and failing to advise the client to take independent advice.
The judge ruled that Withers was not negligent
in this regard, but Wellesley has said that it
was considering appealing that aspect of
the judgment.

Should you discover any act or omission which may give rise to a claim, the client should be notified and given the opportunity to take independent legal advice. The firm’s complaint-handling procedures should also be activated. You should report the matter to your professional indemnity insurers immediately and preserve all original documents.

The matter will be noted on your PI insurance claims history and at renewal there is likely to be increased premiums and increased per claim or aggregate excesses. The amount of management time necessary to deal with claims should not
be underestimated.

Adopting best practice in your dealings
with clients, seeking to understand exactly
what it is that they are trying to achieve and confirming your instructions and advice in
writing will help to minimise the opportunities
for misunderstandings.

This will also avoid any philosophical arguments at a later date over what came first, the unclear instructions or the confusing advice. SJ

Ross Baker is a partner in ?the professional risks team at ?Bond Dickinson ?www.bonddickinson.com

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