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The Actuary The magazine of the Institute & Faculty of Actuaries

Avoiding a claim

As anyone involved in a professional negligence
claim will tell, much litigation in the busi-
ness sphere revolves around documents.
Eminent Queen’s Counsel will take the judge through the minutest wording of a letter or an attendance note which, on the day it was written, may have been dashed off in a matter of seconds.
The documents are likely to be the most significant evidence if a claim arises. It is therefore important that proper records are kept and any significant conversations noted in writing. At the time that advice is given or an important discussion occurs it is helpful to have a full and accurate note, preferably typed, dated, and signed. Matters of particular importance may need confirming by letter.

Paper trails
Human memory being what it is, it is unlikely that anyone will be able to state with confidence what was or was not said at a particular meeting many years later without a contemporary note. In the absence of a contemporary note, witnesses called to testify will each give self-serving accounts of what happened. If it suits someone to blame the actuary, they will do so. Therefore, if an actuary is advising on a pensions schedule to a sale agreement and is liaising with the solicitor, for example, it is important to keep notes of what advice is given, so that in the event of a difference of opinion, or the client suing, reference can be made to the contemporary note.
The aim is to establish a ‘paper trail’ showing that the actuary gave proper advice.

New documents
Once a claim or a potential claim has arisen, great care has to be taken over creating new documents. This is because there is a procedural stage in civil litigation called disclosure, where each side has to list all documents which are relevant to the case. These lists are exchanged and each side has the right to examine or photocopy the other side’s documents. This applies even to documents that are damaging to your own case the rules say you still have to disclose them.
The word ‘document’ is defined very widely to include accounts, diaries, data stored on computer, handwritten notes (however scrappy), and even emails. Emails in particular are often a problem: matters are often admitted to in an email which would never be put in a letter or memo.
The one exception to all this is correspondence with one’s own lawyers these are protected under the principle of legal professional privilege. Unfortunately, only lawyers can claim legal professional privilege. It does not cover, for example, actuaries giving legal advice.
For this reason, it is important that potential claims are notified to your company’s legal department as soon as possible, not only because of the various potential litigation pitfalls, but also so they can consider whether to notify your insurers. In addition, they can advise you further about creating new documents, eg ensuring that an internal memorandum setting out the merits of a client’s claim does not end up having to be disclosed.

Preservation of documents
If you have gone to the trouble of keeping notes and putting advice in writing, it is obvious that care should be taken to preserve your records in case of future claims. Different limitation periods apply to different types of claim; claims can arise a long time after the advice was given, therefore files should be kept for a long time. The recent Preston cases on part-timers’ claims may go as far back as 1976!
In addition, it is worth making sure that your files are in good order before you archive them as there is no point in making the effort to keep good notes if they cannot be found on the file.
The disclosure requirements in litigation require you to disclose those documents which you still have, plus those which you used to have. If your files have been destroyed, you will have to disclose this fact and no matter how genuine the reason the claimant may draw the conclusion that you have deliberately destroyed your files.

Who is the client?
The risk of claims can sometimes be avoided or reduced if the initial written instructions clearly identify the client. In addition, it is wise to be sure of the identity of the people from whom you can take instructions on the client’s behalf, to make sure that those with whom you are in daily contact have authority.
The process of recording instructions can also help to avoid conflicts of interest. Conflicts are inherent in a pension scheme and may arise between your clients, eg if you act for both the employer and trustees, or if you have clients who may wear different professional hats. A trustee can also be a member and a director of the employer, and therefore the identity of the recipient of the advice and the potential for conflict should be identified at an early stage. For example, if the scheme actuary is also advising the employer, he or she should consider before each assignment whether there is a conflict or potential conflict between the interests of the scheme and those of the employer. A conflict is more likely to be picked up if formal written confirmation is given. The courts have become very strict about conflicts and advisers acting for two parties whose interests conflict or might conflict.

Who is doing what?
Claims often arise in the professional negligence field in relation to the scope of the retainer. The adviser thinks that he or she is only advising on a specific point; the client thinks that general advice is being given. It is wise to make clear in writing at the beginning of an assignment what one’s exact role is and what the advice will cover and not cover. For example, if a pensions lawyer is routinely copying successive drafts of the pensions schedule to an actuary in a business sale and purchase agreement, to what extent is the actuary assuming responsibility? If the conclusion in an actuary’s report depends on the accuracy of third-party data, has that been made clear? Caveats are often useful in these kinds of reports.
In a recent case a solicitor was held liable to the client for the cost of adverse tax consequences resulting from a conveyancing transaction. The solicitor claimed that no tax advice had been given because the client had stated in an initial conversation that he would be obtaining tax advice elsewhere, but there was no written evidence of the scope of the retainer.
A similar point arises where the client’s instructions are unclear. If at all if possible, clarify the issue in writing to avoid misunderstanding. Contracts also need to be kept updated. Remember that you are trying to create a paper trail of what you were asked to do, and what you did and did not do over the entire course of acting for that client.

Is this your field?
Another danger is the temptation to advise on areas in which you are not specialised. For example, actuaries often interpret the meaning of pension deeds and rules, and it is easy to end up giving what is really legal rather than actuarial advice. The temptation is particularly strong where you are very experienced or the client is a longstanding one and looks to you to handle everything. The professional negligence law reports are littered with cases of solicitors who strayed out of their areas of specialisation. Similarly, if you are relatively inexperienced, heed the warning bells if you think you are out of your depth.
Note that Opra recently confirmed that any person (and this includes actuaries) who gives trustees legal advice must be appointed by a formal letter of appointment in accordance with s47 of the Pension Schemes Act 1995. Incorporating model rules and the application of legislation to a scheme were two examples given of what constitutes legal advice. Opra can impose fines on trustees who take legal advice from advisers they have not properly appointed.

Should you apologise?
Where possible, you should try and avoid admissions. If you have already accepted liability, by the time they get instructed your professional indemnity lawyers will be wringing their hands over your admissions, eg that a transfer value was miscalculated. Try to avoid doing this, since you may be advised later that in fact what you did was correct, or new evidence may come to light that alters the case.
That is the theory. In practice, if a well-placed apology might save the client relationship, you may wish to consider offering such an apology, but do consider taking legal advice first on the potential consequences for you and your indemnity insurance.

Without prejudice
If you are involved in a potential claim and wish to try and settle it, the concept of ‘without prejudice communications’ may be useful.
‘Without prejudice’ is the description applied to communications between parties to a dispute with a view to reaching settlement. The advantage is that such communications are protected from disclosure to the court or pensions ombudsman. This allows parties to negotiate freely without the fear of something they say during settlement discussions later being used against them. So if you wish to make an admission, you should try to do it in without prejudice communications.