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Business benefits

15 October 12

The risk management article shines some light on a few things that lawyers can learn from others in business about how to reduce the risk of exposure to liabilities

by John Clarke

Once I got over my initial surprise about being asked to write this article, I succumbed over the bribe of a cup of coffee and eventually sat down to think through some “words of wisdom”. Here is the result...

Stating some very obvious points, these are challenging times. There is less business around; prices are very “sensitive”; we have new businesses muscling in on our patch; and the blame culture (“I’ve made a mistake; someone must pay”) is more widespread every day. Putting those all together, it is a fairly bleak landscape.

How do we limit our risk?

As is the case for most things that we do, I think many of the best lessons for us are to be found not (only) in the fairly insular world of legal practice, but from good practice elsewhere. So:

1. By and large, our clients don’t attempt to do things that their business is not set up for. They subcontract those bits (and yes, when those contracts go wrong, there is often some nice work there for their lawyers), but they don’t start by expecting to do everything in-house. So why do we? Surely we have to focus on what we know and are good at, and outsource the rest to a colleague who is equally skilled in that whole area. In passing, that probably highlights a skill that we tend not to have – which is managing the process.

2. Our clients come to us often to provide expert advice or carry through transactions where – generally speaking – they leave everything to us. Looking at this from a risk management perspective, how do we make them “informed purchasers” of our services? Here I’m not really talking about the formal client take on procedures, but rather, how do we make them know what they are going to sign and the implications of signing, when we present something to them for signing?

The best example of informed consent that I have had was some years ago, when I was in hospital. The evening before an operation, the surgeon did his rounds, sat on my bed and started to explain what was going to happen the following day. He then stopped and said: “No – you tell me what is going to happen.” I told him what I thought was going to happen and after a while he said: “That’s fine – please sign the consent form.” That sort of example isn’t appropriate in every (or perhaps many) cases for solicitors, but it is worth thinking about. The critical point is, when a transaction is done and your clients are about to be committed to that transaction, do they know what is involved (and can you prove that)?

3. To extend the hospital analogy, had the surgeon said something along the lines of: “It’s been a long day and I’m bushed – but I can operate on you now if you like,” the answer would have been a very swift “No”. Capturing that thought, but moving on to the legal market, why do we let our clients make us do work that is critical for them when we are tired? That is bad (and risky) for us; but equally it is bad for the client.

4. Does your contract with your clients say what you intend it to say? I don’t really mean, “Does it comply with what the Law Society wants”, but does it set out clearly:

  • what you are, and are not, going to do?
  • what you are to be paid and when?
  • what your obligations and liabilities to your client are (and, in particular, if they are to be limited, how they are to be limited)?

Part of this is back onto the “informed purchaser” message again, but part is looking at things from a “can you prove it?” front.

5. Increasingly, we don’t work alone for clients under what I might call “simple contracts”. We work together with other professionals:

  • outsourcing work to other specialist Scots lawyers;
  • working with non-Scots lawyers; and
  • working with other professionals.

If one of these “complex contracts” goes wrong, is it clear where liability lies? If you are the point of contact for the clients and if something goes wrong, will you be left holding the baby without any right of recourse against your colleagues (which must be the worst possible outcome)?

6. Taking points 4 and 5 together, I think that lawyers have to be realistic about what modern clients expect of their suppliers (and to be fair, this probably applies more to the business than the personal world). As a business, we have been working on a complex contract for one of our clients, a large part of which involves the “How do we define when it has gone wrong?”, and “What happens then?” sort of questions. Business clients, at least, know that things go wrong, which is why they ask us to draft their terms of business in the way we do. So, don’t be afraid of discussing these issues – particularly in the case of complex contracts.

7. Please don’t accept the responsibility to continually monitor a contract after it has been signed, especially if you are not being paid to do that! When asked to quote for a job, typically we will scope out the transaction and come up with a price (which, we hope, will be acceptable). Our clients would try to avoid doing lots of extra work for no reward, so why shouldn’t we? Many contracts that we are involved with have critical dates of one sort or another – but why should we monitor and be at risk for these, particularly without pay? Some, such as prescriptive dates, may be harder to hand off, but even there a clear message saying: “You must take proceedings to preserve your rights by [date]” must assist. In other cases – for example, where stage payments are being made – I would argue for a post-contractual wrap-up, where the clients are told what is to happen when, and that it is their responsibility to follow up the time-critical events. And, of course, you should build in a cost to do that wrap-up when quoting.

And in conclusion…

Good luck. This whole area is going to get more, not less, complex. So, if you can (and I would urge you to), take some time to review your procedures – and don’t be afraid to get some input from Marsh. They are on our side, you know!

John Clarke is a partner and head of the corporate and business strategies team at CCW LLP 

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