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Dabbling: a cautionary tale

16 September 19

Following previous articles on taking on work outside a firm’s core competencies, Lockton provide a case study to highlight the dangers of “dabbling” in areas in which you have little or no expertise

by Gail Cook, Matthew Thomson

When a longstanding and valued client seeks assistance, it is tempting to accept instructions almost as a matter of course. But what do you do when the advice they need, and the transaction they are proposing, lie beyond your experience and expertise?

That was the case when Mr Fields, a farmer, sought advice from his solicitor, Mr Wise. The firm of Wise & Co had acted for Fields in a number of matters previously. First, the firm had acted in connection with the purchase of an additional grazing field from the farmer’s neighbour. They had also acted for the farmer in the purchase of a flat in the city, for the farmer’s son to stay in when he went off to university. A few years later the firm acted again for the farmer, this time in the sale of his late mother in law’s house. Over the years, the solicitor and client developed a warm relationship, and would stop for a chat if their paths crossed.

When Fields presented at Wise’s office, he was in something of a quandary. He had been approached by a representative of a well known property development firm, company A, about the possible purchase of part of his farm for a housing development. Many of his acquaintances had sold ground to property developers in the past – “houses are the best cash crop there is”, they had told him – but Fields had always believed that the area around his own farm was unlikely ever to achieve planning consent.

Fields explained that the man from company A had discussed matters with him and had said that the situation regarding planning consent might change. In any case, this man had said that, as far as his company was concerned, it was worth taking the chance. He wanted to secure his company’s right to develop the site if the planning climate ever changed. If not, the company would be out of pocket a bit, and Fields would have a little windfall, all the while continuing to farm the area of ground.

Like most sensible people, Fields was suspicious of a deal that seemed too good to be true. The council, he felt, would never agree to a housing estate on his farm. But this man from the property development company was offering to pay good money now, and plenty more in the future if and when planning was achieved and his company built the houses.

Wise had never dealt with anything like this before but he agreed with Fields that future planning consent was unlikely. Fields would have the benefit of the initial payment with more to come if planning consent was ever achieved, and a final bonanza when the builders actually developed the site. Win-win – happy days!

So far, so good

The deal was agreed in principle and Wise set about drafting the appropriate missives. From discussion with professional colleagues and some research, he was aware that the documentation needed to reflect the conditional nature of the arrangement: the first payment at the outset, the second tranche if and when planning permission was achieved, and the final balancing payment once the builder-purchasers completed the development. A formula was included in respect of the balancing payment, which would be dependent on the number of houses and the sale prices achieved. While unfamiliar, it seemed to Wise to be relatively straightforward.

The deal was completed, Fields received his initial payment and… absolutely nothing happened. No surprise there. It had always been Fields’ view that the developers were prepared to give him money for nothing. That’s what he’d been suspicious of at the outset. But so far, so good. The sheep safely grazed, though now on fields ostensibly owned by the developers, and everything else went on as normal.

Some years later, a change in housing policy and a redraft of the local green belt resulted in the award of outline planning permission for the site. Still nothing changed down on the farm. Fields, though, thought that his retirement pot was looking considerably healthier after payment of tranche two.

Sting in the tail

In due course, the development started. The fields were taken over by men in hard hats and hi-vis vests, and the quiet countryside rang with the noise of diggers and delivery lorries. Fields was content to put up with the disruption, since he knew that the payday would be worth it. He contacted Wise and asked him to check back with the developers’ lawyers to find out when he would be paid, and to go back to the formula to calculate what he would receive in terms of the final payment.

It was a chastened Wise who later met with his client. His enquiry of the developer had been met with a swift response that in fact no further payment was due to Fields. Immediately requesting clarification, he was told that the final payment was due on the completion of the site development by the purchaser, i.e. company A, and the subsequent sale of a prescribed number of houses. 

As it transpired, company A had sold the site on, immediately after obtaining planning permission. No further payment was or would ever be due to Fields, since company A would not be completing – or indeed starting – any work on the site.

The “relatively straightforward” contract prepared by Wise failed to provide any protection for his client in the event of an onward sale of the site. A solicitor more familiar with the world of property development and this type of contract would almost certainly have made provision for what is a relatively common eventuality in developments of this nature. 

A cautionary tale indeed. 

What could Wise have done differently?

Not acted in the transaction

Given that Wise had never dealt with this type of property development arrangement, he really should have simply declined the instruction. If a firm doesn’t have the relevant expertise in a particular matter, it is in their client’s best interests (as well as their own) to just say “no”. Dabbling in an effort to keep a client happy will often have the opposite effect. 

Directed Fields to a more specialist firm

Solicitors have to work incredibly hard to attract and retain clients and it might be a difficult decision to send a client to a potential competitor. However, if Wise had explained that this particular piece of work was outside his expertise and suggested the client contact a specialist firm, the openness, honesty and helpfulness of doing so would likely mean Fields would return to Wise for other matters. Fields is very unlikely to return now. 

Also, from a commercial perspective, it makes sense to refer the client on – solicitors simply cannot afford to take on work in areas of law they know little about. The potential cost in terms of unhappy clients, complaints, negligence claims and increased insurance premiums can far exceed any fees generated from a one-off piece of business. The solicitor may also find himself/herself in breach of practice rule B1.10 which provides that “You must only act in those matters where you are competent to do so”.

Relied on external specialist support or on counsel’s opinion etc

A word of caution here. Some solicitors think it’s acceptable to act in areas in which they have no expertise, provided they outsource the work to a specialist or they obtain an opinion from counsel. It’s worth remembering that, even if an error originates from an external specialist such as counsel, the client is likely to bring a claim against the solicitor with whom they have the direct relationship. The best advice is that if you don’t have the expertise to critically evaluate expert assistance such as counsel’s advice, then you should not take the matter on.

Diversified

Obviously there was no time for Wise to develop new competencies between receiving the instructions and carrying out the work. However, after declining this particular instruction, he might have decided that it was worth expanding the firm into new areas of practice in order to widen the service offering. Diversification may be a very wise commercial move, but it must be undertaken with great care to avoid the dangers of dabbling. The key to developing new competencies while minimising the risks of adverse impact for any practice is to develop new skills in accordance with a structured plan. We recommend you read our article at Journal, January 2019, 44 for our discussion on developing new competencies.

Stay focused

Acting in unfamiliar areas is a dangerous practice for law firms. Solicitors should be aware of their core competencies and be clear with their clients on what they will and will not advise them on. They should not be afraid to explain that there are certain things they cannot do. By steadfastly focusing on the fields they specialise in and avoiding dabbling, solicitors can focus on what they do best and increase their certainty and confidence. 

Gail Cook (e: gail.cook@uklockton.com) and Matthew Thomson (e: matthew.thomson@uklockton.com) are client executives in the Master Policy team at Lockton 

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