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31 May 2017

Can ‘forwarding’ an email really create an insolvency situation?


5 min

It certainly can—beware the potential repercussions of ‘FW:’!

In the insolvency world, we tend to see some pretty unusual situations that people get themselves or their businesses into.  One such scenario, which undoubtedly happens a copious amount each day from your very offices, is the on-forwarding of the humble email.

For some reason, over the past 12 months I have seen several people’s financial lives given a decent battering if not somewhat ruined simply because they have, as part of their daily routine, on-forwarded an email which in turn has led them or their businesses to be caught up in a right royal mess.

Let me explain through the following case studies...

The Engineering Firm

Imagine that you have a client completing a building project that requires specialised drawings and the manufacture of reinforced steel girders.  The measurements of the girders must be precise to a point where 25mm over or under in length (on a span of 35 metres) will stop the building project and cause substantial delays and costs until the work is either rectified or redone.

Let’s now assume that your client properly carried out their part of the works and on-forwarded their engineering drawings to the manufacturer who reviews them and forwards the drawings back for the builder before they start manufacturing.

During the manufacturing stage, the measurements on the drawing were “inadvertently” changed (although nobody actually knows by who at this point) leaving the girder to be manufactured 45mm too short.  The error isn’t found by the builder, the engineer, or the manufacturer until the development is being assembled onsite.

The project is halted and the developer incurs substantial costs until the issue is rectified, which in this instance results in a two-month delay and several hundreds of thousands of dollars in additional costs.

After some intense insurer investigations, it turns out that during the email “toing and froing” between the lawyers for the project developer and the builder and your client: your client simply on-forwarded an email they received from the manufacturer—containing incorrect measurements—thus rendering your client (at least in-part) liable for a loss and damages claim to the tune of several hundreds of thousands of dollars.

So, what did your client do wrong?  They simply on-forwarded an email without checking to see that the information contained was accurate.  More so, their email didn’t contain a visible disclaimer to advise recipients that the information contained had not been reviewed or verified for accuracy.

In this scenario, the engineering firm was (sadly) placed into liquidation, all because of one email.

The Business Consulting Firm

How often do you receive a call from your client asking for contact details of other professionals you can recommend?

In the case of the business consulting firm, this occurred so regularly that a suite of ‘standard email replies’ were put together which provided several finance broker names they were happy to endorse for various reasons.

Enter the bad client.  The kind who manages to rip off a lending institution (who shall not be named) for a few hundred thousand dollars by gambling the borrowings away and subsequently blaming all and sundry for their wicked ways.  After some intense legal banter and finger pointing, the business consulting firm was sued by the lending institution for introducing the bad client.  Yes, that’s correct, it was deemed (in no small part) their fault by the lending institution who has the financial capacity to fight the good fight, so much so that the business consulting firm was also placed into liquidation.

The Questions

Where were the professional indemnity insurers in both case studies?  Sadly, neither insurer was prepared to cover anywhere near the claim value made against the engineering firm or the business consulting firm leaving them exposed to dire financial stress and eventually being placed into liquidation.

What did the lawyers for both clients recommend?  Broadly speaking, the legal representatives in both scenarios suggested to settle the claim (if possible) as it would only continue to swallow up more money and time.  For all intents and purposes that’s a great idea if your client can afford it but if they can’t: it’s time to speak to a suitably qualified insolvency practitioner to outline their options.

The Lesson

If my experiences count for anything, I highly recommend you and your clients be wary of on-forwarding emails unless there is a visible and legit disclaimer—prepared by a suitably qualified lawyer—to ensure as much of the onus of responsibility is shifted from you or your clients to those actually at fault. Oh, and take 10 minutes out of your day and make a call to your professional indemnity insurer to see what they will actually cover if such a situation were ever to arise.

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