Confirm agent’s instructions with your client

18 August, 2017

Recently LPLC has received numerous claims where there was ineffective communication between the practitioner and their client after the practitioner had dealt primarily with the client’s agent on the matter.

In one claim, the practitioner acted for a lender on instructions from a broker regarding a loan. The practitioner was instructed to register an interest on the Personal Property Securities Register (PPSR) over a boat owned by the guarantor, a director of the borrower company.

The practitioner registered an interest on the PPSR that was defective as the registration referred to an incorrect serial number for the boat and was lodged in favour of the broker rather than the lender. The guarantor subsequently sold the boat without needing to discharge the registered security.

The practitioner said the broker had orally instructed him to make the security over the motor vessel in favour of the broker rather than the lender. This was done to secure the guarantor’s obligations to pay the broker an ongoing ‘management fee’ in the event of default in repayment of the loan. However, the lender was not aware of the instruction and was not advised by the practitioner that part of the proposed security would not be available for the loan.

When receiving instructions from a client’s agent, practitioners need to be alert to potential conflicts of interest between the client and their agent. In this case, the broker’s instructions to register security given by the guarantor in the broker’s favour were potentially adverse to the lender’s interests and should have been confirmed directly with the client.