In Check Issue 83 | June 2019

27 June, 2019
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The engagement habit

Our risk management focus for the 2019/20 financial year is engagement management. Badly managing the client engagement was the second most costly and numerous underlying cause of claims in the last ten years.  The root causes of these claims included:

  • not clarifying who is the client
  • acting in a conflict
  • not clarifying the scope of the retainer with the client
  • not managing the client’s expectations throughout the matter
  • not terminating the retainer when should have
  • not articulating in writing when the retainer was finished.

To help practitioners focus on the crucial aspects of managing  the engagement right from the start we have created an engagement decision tool. A poster version of the tool was sent to every firm with their renewal information this year. It is also available on our website . If you would like us to send you a handy poster version that folds down to A4, please email us with your request and preferred postal address to lawyersrisk@lplc.com.au.

The decision tool asks practitioners to stop and think before taking on any new matter. Is this the right client, the right matter and the right time for the firm to take on this new matter? If each of these issues are addressed at the start of a matter many claims will be avoided and clients and lawyers will both be happy at the end of the matter.

Your feedback on the tool and questions you may have about it are most welcome.  

Engagement basics – non-engagement letters

Part of managing your engagement with your client is to be clear about who you are acting for and who you are not acting for. Practitioners who get sued by people they didn’t consider to be their clients are often surprised, but it is not uncommon for unrepresented people to think that the lawyer involved in the matter is acting for them or looking after their interests.

The most common scenario involves a joint venture arrangement where a practitioner thinks they are acting for one of the joint venturers, who is often a long-standing client of the firm. The other joint venturer thinks the practitioner is also acting for them, as the practitioner is preparing the documents and speaking to them about the deal. Later, when it transpires the deal was more beneficial for the practitioner’s client than the other joint venturer, that joint venturer seeks to sue the practitioner for a breach of duty.

Whenever there is an unrepresented party involved in a transaction, firms should confirm in writing that they are not acting for the party. Non-engagement letters are a key tool in managing the expectations of non-clients and can be critical documentary evidence in the event of a dispute about whether the practitioner owed a duty of care to a party.

Below is a list of what the letter should cover when a matter involves an unrepresented party, especially when the parties are related or business partners. The letter should:

  • confirm who the firm is acting for
  • clearly state the firm is not acting for the non-client and recommend they obtain their own legal advice
  • clarify if the rights of an unrepresented party will be significantly affected by the transaction and ask for an acknowledgment of receipt of the non-engagement letter.

The written acknowledgement should be kept on the file.

For more on this topic see Blurred lines an LPLC article written for the June 2015 issue of the Law Institute Journal.

Also note the Land Use Victoria additional verification of identity requirements for an unrepresented party.

Retrospective changes to ‘off the plan’ sunset clauses now law

As foreshadowed in our blog of 30 May 2019 the Sale of Land Amendment Act 2019 (Vic) is now in operation having received royal assent on 4 June 2019 — meaning the retrospective changes to off the plan sunset clauses retrospectively came into operation from 23 August 2018.

The new requirements prevent a vendor rescinding residential off the plan contracts based on a sunset clause without:

  • at least 28 days’ written notice to a purchaser before the proposed rescission
  • a purchaser’s consent.

A sunset clause is a provision in a residential off-the-plan contract,that provides for the contract to be rescinded if the relevant plan of subdivision has not been registered, or occupancy permit has not been issued by the nominated sunset date.

Sunset clauses in existing contracts purporting to provide for automatic rescission will be taken to be substituted by the new requirements.

Section 10E is now in force allowing a vendor to apply to the Supreme Court for an order permitting rescission of a residential off the plan contract under a sunset clause if it is just and equitable in the circumstances. Section 10E lists matters the court must take into account when determining whether it is just and equitable to order rescission of the contract.

Section 10F requiring a specific statement in residential off the plan contract has not yet come into force. It will commence when the section is proclaimed or on 1 March 2020, whichever occurs first. At this stage the proclamation date is unknown. The proclamation will be published in the Victorian Government Gazette.

Section 10F sets out clearly what needs to be included in the off-the-plan contracts and you should use it as your guide when amending your contracts. To avoid any concern about when this section is to operate, you could insert the relevant wording in a clause in your precedent contract now that says the clause is to operate once section 10F of the Sale of Land Act 1962 (Vic) comes into operation. For more detailed information about these changes see our March 2019 bulletin Retrospective changes proposed for residential ‘off the plan’ sunset clauses back in parliament.

What’s your cyber recovery plan?

We all know that prevention is better than cure. The way to prevent the risk of being tricked into paying money to the wrong account is to follow LPLC’s five step process and verify account details in all cases. However, if funds are transmitted to the wrong account what do you do? Who do you call and what can you do to prevent or limit the loss?

Every firm needs a clear recovery plan to immediately implement when something goes wrong with a funds transfer. The critical thing is to act as soon as you are aware of the problem. Where practitioners have acted quickly funds have been recovered even after they have been paid into the wrong account.

Your plan should specify:

  • who has authority to instigate action
  • who to contact and their contact details. 

The immediate priority is to freeze the funds while they remain in the banking system. To do this:

  • immediately telephone the relevant ELNO (PEXA or Simpli) if the transfer occurred through their system
  • follow the money trail and notify all banks in the chain of funds transfer about the problem. You should direct them not to release the funds or allow further transfer of the funds. This should be done by telephone and confirmed in writing. A list of major bank contact details is available here.
  • contact the client and tell them what has happened and what you are doing to recover the money
  • notify us either by telephone or email to Jodie.Potts@lplc.com.au .

Like any plan you should test its effectiveness with some test scenarios to make sure it works when the pressure is on.

To assist you to develop a plan see:

Good planning and prompt and effective action gives you a strong chance to save the clients funds, your funds and avert a potential loss.

Cyber insurance is part of planning for the worst

LPLC’s professional indemnity insurance covers some cyber risks but it does not cover the firm for its own business losses arising from a cyber incident, such as legal and regulatory costs associated with a data breach, remediation of the firm’s own systems, or loss of firm profits due business interruption.

Increasingly, firms are looking to obtain some protection from these losses through the purchase of cyber insurance.

Marsh (insurance brokers) and Chubb Insurance Company of Australia have launched a new cyber insurance policy for LPLC member firms.

LPLC has worked with Marsh and Chubb on the development of this product. Go to the Marsh website for more information on the insurance policy and our website for FAQs.        

Common GST questions

Have a question about GST? Our website has plenty of information about GST including GST FAQs.  Check this information when you have a GST issue before you use our GST hotline enquiry service, as the answers to many of the enquiries can be found in the FAQs. You could also use our handy GST checklist to assist you in analysing your question. The following are some  common questions and answers.

GST on forfeited deposits

Q: We note that there has been some case law to state that if a contract is rescinded by a vendor due to the purchaser’s default, the vendor is liable to pay GST on the deposit.  However, our client’s contract applies the margin scheme, so is the GST component payable on the deposit calculated on the margin? or if the GST will be 10% of the deposit paid and therefore additional to the deposit amount.

A: When a deposit is forfeited, it is treated as consideration for the entry by the vendor into an obligation (to sell a property). If GST would have been payable under the sale contract, the vendor as recipient of the forfeited deposit will be obliged to remit an amount for GST equal to one-eleventh of the deposit.  Since the supply is no longer the supply of land but the entry into an obligation, the margin scheme has no application.

Residential investment property

Q: Our client is selling an existing residential premises which is used by the Vendor as an investment property. Is GST payable and will withholding be required?A: If the property sold consists of residential premises that are not new residential premises, that is, they have been sold since construction or any subsequent substantial renovations, then supply would not be taxable even if the vendor’s sole enterprise was buying and selling houses – the supply of existing residential premises is never a taxable supply. The use of a residential premises as an investment property does not make it a commercial residential property. Commercial residential premises are typically characterised as hotels, motels, inns or hostels. For a further description of commercial residential premises see Goods and Services Tax Ruling GSTR 2000/20, paragraphs 51 to 55.

If a supply is not taxable, there can be no withholding obligation, although the notification obligation remains. See LPLC bulletin Some purchasers required to withhold GST from 1 July 2018.

New residential supply by family trust

Q. We act for clients who are about to acquired new residential property via a distribution from a family trust who was the developer. Is GST payable on the trust distribution of the property to the clients?

A. The supply by way of distribution to the clients, even though not for consideration, was a supply between ‘associates’ and so will be deemed a supply for market value. It is a taxable supply and GST should be remitted (s.72-5, GST Act).

About to go on holiday?

If you are one of the many practitioners looking forward to a well-earned mid-year break, now is the time to plan your file handovers. We have had several claims attributable to mistakes that occurred when the usual operator or person responsible for the file was away on holiday. Examples of these mistakes include failing to:

  • take instructions and issue proceedings in time
  • read or appreciate the significance of correspondence such as offers of settlement or notices from government authorities
  • complete tasks that were put off until after the holiday.

Here are some tips to help avoid a claim due to inadequate file handovers.

Be thorough

Give your handovers enough time and attention and don’t let them become a mere afterthought done at the last minute.

Consider whether each of your matters will require simple ‘babysitting’ or more active involvement.

Think about who is the right person to look after the file and what supervision is appropriate. This can differ from file to file.

Briefing notes are essential but also talk to the people who will be responsible for your files to ensure they are clear about:

  • the facts and the client’s expectations
  • what needs to be done in your absence
  • likely developments and issues to look out for
  • critical dates.

Have policies requiring emails to be copied to the normal file operator and critical dates to be diarised immediately, rather than on the operator’s return. Foster a culture where people temporarily looking after files give them the attention that is needed, and not just as something to work on when their own files allow.

Inform clients who will be looking after their matters in your absence, so they are not surprised and communications don’t go astray.

Before you go

Be conscious of heightened risks when you are rushing to get things done before going on holiday. Use your checklists and take a minute or two to step back and think of what you may have missed. Diarise any critical tasks that you intend to leave until you return from holiday. 

Take the time to plan now and you can rest easy while you are away knowing you have done all to can to ensure everything is in safe hands.

RMI On the Road round-up

Earlier this month we completed our Risk Management Intensive (RMI) ‘On the Road’ 2019 series of half-day seminars for regional practitioners. This year our risk management team visited 11 locations and had over 550 registrations. These seminars are an important feature of LPLC’s annual training calendar, providing opportunities for us to meet regional practitioners and discuss the risks they see in day-to-day legal practice.    

This year’s program included sessions on:

  • planning for success and a safer, claims-free practice
  • solicitors’ certificates
  • conveyancing tax issues.

If you missed these, you can catch up in our full-day RMI Melbourne CBD program in July and August, or in our half-day RMI Metro seminars later in the year.  

What’s new on LPLC’s website

Key risk checklists

Develop the engagement habit

Blogs

Electronic conveyancing obligations – be prepared for a compliance examination and subscriber review

Retrospective changes to ‘off the plan’ sunset clauses now law

Retrospective changes to ‘off the plan’ sunset clauses passed in parliament

Multi-factor authentication: a security must-have

When the stake is at stake

Independent valuations essential for lenders

Tax on super and TPD claims: remember to warn your clients

Bulletins

Retrospective changes proposed for residential ‘off the plan’ sunset clauses

Law Institute Journal articles

Law Institute Journal Conveyancing Special Edition 2019

Time to rethink conveyancing

Section 32 statements: the basics

E-conveyancing can be e-fficient

Off-the-plan: managing the risks

The value of conveyancing

Taxing times in conveyancing

The perils of pre-contract advice

How to avoid the traps

When the stake is at stake

Are you being heard?

Risk video bites

Adequate Security for loans

Attention to detail in wills and estates

Systems save claims

Risk management seminars

LPLC’s 2019 Calendar of events is published on our website to help you plan your CPD year.

2018 Risk Management Intensive

This year it will be back at Zinc at Federation Square, Corner of Flinders and Swanston Street, Melbourne VIC 3000.

The six CPD unit full-day seminar covers dilemmas, pitfalls and hazards practitioners encounter and how to avoid them. Register and view the full program here.

The same program is run over three days, Friday 26 July, Wednesday 31 July and Tuesday 6 August.

Full day $298.00 including GST or Half day $149.00 including GST

Choose either full day, half day AM or PM session, or split attendance over two different dates.

Conveyancing series

Our next Conveyancing series session, Building a better section 32 statement on Thursday 18 July, is sold out.

We have two more sessions in the CBD at the Adina Apartment Hotel on:

  • Tuesday 17 September: Contract of sale tune-up
  • Monday 14 October: Building a better section 32 statement

We will also be running a regional Conveyancing series. These seminars will combine both the ‘Building a better section 32 statement’ session, as well as the ‘Contract of sale tune-up session’ in one day! Seminars will be held in Warragul, Geelong, Melton and Bendigo in August. The dates and registration information will be available on our website from next week.

Changing your email address?

If you change your email address don’t forget to tell us so you will continue to receive our newsletters, emergency bulletins, seminar launches and blogs.