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Why it's important to gain understanding from the outset

Throughout my years of practice I have been frequently surprised at the misconceptions of a small, but significant, proportion of commercial clients.

It is very easy for a solicitor to assume knowledge on the part of a client.  This is a mistake, and early on in the retainer the extent of the client’s knowledge of relevant issues needs to be explored and defined.  All relevant circumstances need to be explored.

The most spectacular failure by a solicitor in this regard of which I am aware involved a firm who received instructions from a bank for whom it had not previously acted.  The bank wanted to lend a lot of money to a foreign government.  The transaction proceeded in the normal way, until the borrower defaulted.  It was then discovered that the bank did not have all the licences needed to lend money in this way.  The loan was therefore irrecoverable.  The solicitor’s insurers were not amused, a sentiment reflected in their PI insurance renewal premium.

More recently I received my first instructions from a commercial partnership that wanted to enter into a joint venture agreement with another business whose activities overlapped with those of my client.  When I asked if this had been authorised under the client’s partnership agreement, I was told it did not have one.

Under the Partnership Act 1890 (yes, it is still the governing law) if there is no partnership agreement providing otherwise, the death of a partner automatically dissolves the partnership and all the partnership bank accounts will be frozen.  Fortunately the partners lived to sign the document I immediately prepared.

Another thing to watch out for is terminology: many terms in specific industries are indecipherable or confusing and many do not feel comfortable in asking for clarification.  Serious misunderstandings can arise in these circumstances.  Beware also that America uses our words but gives them different meanings.  For example they are decent in vest and pants, but we are not.  As do the French they call the ground floor the first floor and so on.  I once had a client move into the wrong floor in an office building, but they at least had the decency to say it wasn’t my fault.

There are other instances where clients’ standard documents, such as terms of business, do not adequately cover particular circumstances or do not reflect changes in applicable law.

All businesses should check their documents at least annually to identify any such actual or potential problems.  Documents may well suit their business today, but if they take over another one, the takeover target’s terms should be vetted before completion as part of their due diligence.

Trade periodicals or other literature are often of great value, especially if there is a change in applicable law.  Another solution would be to request your solicitors to undertake a periodic document health check.

Over the years the law has become increasingly complicated, and long gone are the days when one legal mind knew all the law.  Ignorance of the law is no excuse, as hopefully our learned Prime Minister will find out.


These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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