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Case Study: Always Be On Your Toes

Chuckie, a partner at Messrs Finster and Associates (“IP”) acted for Tommy, the purchaser in a sale and purchase of a property. The property was charged to Bank ABC as a security for the loan extended to Angelica, the vendor in the transaction.

Bank ABC issued a redemption statement to Chuckie which clearly stated that the redemption sum should be forwarded to the bank directly. Chuckie was also handling other conveyancing matters for different clients at that time and only realised that the deadline to forward the redemption sum to the bank was about to expire in three days, and this too only after Tommy reminded him about it.

Due to time shortage, Chuckie decided to deposit the cheque for the redemption sum from Tommy’s financier bank directly to Angelica’s loan account with Bank ABC. Unbeknown to Chuckie, Angelica’s loan account with Bank ABC had a unique feature which allowed her to withdraw money from the loan account. Angelica made several withdrawals from the account after the cheque was cleared and as a result, the redemption sum was not enough to redeem the property from Bank ABC.

Chuckie only discovered the fact after he was notified by Bank ABC that the property was up for auction due to the non-payment of redemption sum. Devastated with the news, Tommy decided to sue for losses due to Chuckie’s negligence.

In reviewing the IP’s risk management processes to determine if their original Base Excess should be reinstated, the Insurer found the following:
 
  • Although the IP used checklists for all conveyancing files, the checklists were not fully utilised. The checklists only had the “date done” section and did not have the “due date” section. There was also no evidence from the checklists that the IP monitored crucial due dates and deadlines.
  • The checklist and the redemption statement specifically provided that the redemption sum should be forwarded directly to the bank. Despite this requirement, the IP forwarded the cheque for the redemption sum directly to the vendor.