TORTS — Negligence — Professional Negligence — Solicitor and Client — No formal retainer TORTS — Negligence — Professional Negligence — Solicitor and Client — No formal retainer — the plaintiff solicitor alleged that the defendant solicitor failed to advise the plaintiff about personal mortgages in various loan agreements — the plaintiff has not established negligence claims against the defendant  – solicitors are not ordinarily required to advise on the financial or business value of a transaction — a solicitor’s duty to advise may in some circumstances extend to the financial or business value of a transaction

Amil Dlakic by his tutor Liliane Dlakic v Michael John Vaughan [2018] NSWSC 1455

  1. In Lauvan Pty Limited & Anor v Bega & Ors [2018] NSWSC 154 (Lauvan) Gleeson JA set out the legal principles relevant to a solicitor’s duty to advise at [421]-[426]:

Legal principles – solicitor’s duty to advise

[421] A solicitor’s duty to his or her client arises in both contract and tort. The terms of the retainer will usually set out the scope of the duty with respect to the latter: Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 at [16] (French CJ, Kiefel and Keane JJ), citing Hawkins v Clayton (1988) 164 CLR 539 at 544-545; [1988] HCA 15.

[422] It is uncontroversial that a solicitor must ensure that the client understands the documents he or she is to execute and the consequences of executing them, especially in relation to unusual provisions: Fox v Everingham (1983) 50 ALR 337 at 341-2; Henderson v Amadio (No 1) (1995) 140 ALR 391 at 518-9.

[423] That a matter might fall beyond the ambit of the retainer does not necessarily militate against the existence of a duty owed by a solicitor to act in respect of it, though whether any such responsibility is enlivened will always depend upon the circumstances of the case: Provident Capital Ltd v Papa at [2] (Allsop P); Dominic v Riz [2009] NSWCA 216 at [89] and [91] (Allsop P). It is therefore unwise to be in any way dogmatic in general terms about what needs to be done in fulfilment of the retainer: Provident Capital Ltd v Papa at [2].

[424] Solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act: Provident Capital at [75] (Macfarlan JA), citing Polkinghorne v Holland (1934) 51 CLR 143 at 158; [1934] HCA 28, and Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 at 418. However, depending on the circumstances known to the solicitor, the performance of the retainer may require more than an explanation of the legal effect of documents, but also the obvious practical implications of the client’s entry into the transaction the subject of advice: Provident Capital Ltd v Papa at [75], [80] (Macfarlan JA).

[425] Thus, it is necessary to consider what material facts were known to the solicitor when the impugned conduct occurred in order to determine precisely the extent of the obligations attracted by his or her discharge of the retainer: Provident Capital Ltd v Papa at [68] and [78] (Macfarlan JA).

[426] With respect to a retainer in relation to a mortgage transaction (whether certified or not), the provision of independent legal advice is not a mere formality and should involve proper and adequate advice about the consequences of entering into the contract. If, during the execution of a retainer, the solicitor is put on notice that the client’s interests are endangered unless further steps are carried out, a duty may arise to bring attention to that aspect of concern. The amount of emphasis that ought to be placed on any apparent risk will depend upon the circumstances (e.g. loyalty of blood or love), and may need to be expressed “with clarity and force” or “in strong terms”: Provident Capital Ltd v Papa at [2] (Allsop P) and [80] (Macfarlan JA); David v David [2009] NSWCA 8; (2009) Aust Torts Rep 91-993 at [76] (Allsop P)

 

  1. In Provident Capital v Papa [2013] NSWCA 36 (Provident Capital) Macfarlan JA, with Allsop P and Sackville AJA agreeing, made statements to the effect that, although solicitors are not ordinarily required to give advice about the financial or business value of a transaction, the “proper execution of a retainer to give independent legal advice concerning a loan and mortgage transaction may, depending upon the circumstances known to the solicitor, require more than an explanation of the legal effect of the documents to be executed” (at [75]). His Honour elaborated at [80] by stating that a solicitor’s obligation is “not simply to explain the legal effect of documents but to advise his or her client of the obvious practical implications of the client’s entry into a transaction the subject of advice”. His Honour said the following at [75]-[77]:

[75] It is well established that solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act (Polkinghorne v Holland [1934] HCA 28; 51 CLR 143 at 158; Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 at 418). Further, the correctness of the view expressed in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 that a solicitor may have a duty of care extending beyond the ambit of the solicitor’s retainer (a so-called penumbral duty) remains a matter of debate (Kowalczuk v Accom Finance [2008] NSWCA 343; 77 NSWLR 205 at [267] – [294]; Dominic v Riz [2009] NSWCA 216 at [89] – [90]; Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254 at [86] – [104]). However proper execution of a retainer to give independent legal advice concerning a loan and mortgage transaction may, depending upon the circumstances known to the solicitor, require more than an explanation of the legal effect of the documents to be executed. As Allsop P (with whom Hodgson JA and Handley AJA agreed) said in David v David [2009] NSWCA 8 at [76], after referring to the existence of a “penumbral” duty being doubtful:

“If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party”.

[76] In Dominic v Riz at [90] – [91] his Honour (with the concurrence of Hodgson and McColl JJA) referred to that statement as follows:

“[The statement] was intended to do no more than posit the possibility that the performance of the retainer, and what is learnt during it, may affect how the retainer is properly discharged”.

[77] Allsop P’s statements were endorsed by Beazley JA (with the concurrence of Barrett JA and Sackville AJA) in Keddie v Stacks/Goudkamp at [104].

  1. Kenny J in Carey v Freehills [2013] FCA 954, (2013) 303 ALR 445 (Carey) said the following about the circumstances in which a solicitor may owe a duty of care to a person even though the solicitor has not formally accepted a retainer from the client:

[310] Generally speaking, solicitors do not owe a duty of care to persons who are not their clients: see, for example, Hill v van Erp (1997) 188 CLR 159 (‘Hill v van Erp’) at 167 (Brennan CJ). A solicitor owes a duty of care to a client who has retained that solicitor. Freehills owed a duty of care to WPC and WPM, who had retained Mr Shearwood; but neither company is a cross-claimant. In Hill v van Erp at 167, Brennan CJ said:

Generally speaking … a solicitor’s duty is owed solely to the client subject to the rules and standards of the profession. That is because the solicitor’s duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client’s interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transactions are not coincident with the interests of the client.

[311] Where a solicitor’s conduct demonstrates an assumption of responsibility, with known reliance by the plaintiff, a duty of care may arise by reason of an implied professional retainer agreement: see, for example, IGA Distribution Pty Ltd v King and Taylor Pty Ltd [2002] VSC 440 at [231] (Nettle J); Pegrum v Fatharly (1996) 14 WAR 92 (‘Pegrum v Fatharly’) at 95 (Ipp J), 101-102 (Anderson J, Kennedy J agreeing); and Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54 at 62 (Charles JA, Callaway and Batt JJA agreeing).

[312] There are, however, circumstances in which a duty of care on the part of a solicitor may arise independently of a retainer. Thus, a duty of care has been said to arise in the context of negligent misstatement causing loss: see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, at 252 (Brennan CJ). A duty of care has also been recognised as being owed by a solicitor to a beneficiary of a client’s will, in the absence of reliance by the third party beneficiaries: see Hill v van Erp at 166-168 (Brennan CJ), 172-173 (Dawson J), 234 (Gummow J). Significantly, however, there the High Court emphasised the coincidence of interest between the client and the beneficiaries. In Blackwell v Barroille Pty Ltd (1994) 51 FCR 347 (‘Blackwell v Barroille’) a Full Court of this Court held that a solicitor owed a duty of care to the client’s trustee in bankruptcy as a result of the reliance by the trustee on the solicitor. See further, Beach Petroleum NL v Kennedy and Others (1999) 48 NSWLR 1 at 45-48 [188]-[205] and Hawkins v Clayton (1988) 164 CLR 539 at 578 (although Deane J’s analysis there depended on treating proximity as a determinative factor, an approach that has since been rejected: see below).

[313] Where a duty of care is claimed to have a risen in a new circumstance or with respect to a new category of relationships, Australian law now requires a multi-factorial approach in assessing whether a duty of care has indeed arisen. As the New South Wales Court of Appeal noted in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649 (‘Caltex v Stavar’) 675 [101], the High Court has rejected the doctrine of proximity as a determinative factor in deciding whether a duty of care existed, as well as “the two stage approach in Anns v Merton London Borough Council [1978] AC 728 based on reasonabl[e] foreseeability, the expanded three stage approach in Caparo Industries Plc v Dickman [1990] 2 AC 605 [(‘Caparo v Dickman’)] and any reformulation of the latter two”. See, for example, Hill v van Erp at 210 (McHugh J), 237-239 (Gummow J), Perre v Apand Pty Ltd (1999) 198 CLR 180 at 193-194 [9]-[10] (Gleeson CJ), 197-198 [25]-[27] (Gaudron J), 208-213 [70]-[83], 216 [93] (McHugh J), 268 [245]-[247], 273 [255], 285 [280]-[287] (Kirby J), 303 [330]-[335] (Hayne J), 319 [389], 324 [398]-[400], 326 [406] (Callinan J); Sullivan v Moody (2001) 207 CLR 562 at 577-580 [43]-[53] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ); Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 at 583 [99] (McHugh J), 625 [234]-[236] (Kirby J); and Stuart v Kirkland-Veenstra (2009) 237 CLR 215 at 260 [132] (Crennan and Kiefel JJ).

  1. For the purposes of the present case, the significant lessons to be taken from these cases include that the duty on a solicitor does not usually extend to advising upon the wisdom of the transaction (Lauren at [424] and Provident Capital at [75]), but it may do so “depending on the circumstances known to the solicitor” (Lauren at [424]). Whether such a duty has arisen will require a consideration of what material facts were known to the solicitor when the conduct complained of occurred (Lauren at [425]), and whether the solicitor has learned of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out (Provident Capital at [75]). Even where there is not a formal retainer, by reason of an assumption of responsibility by the solicitor, with known reliance by the plaintiff, a duty of care may arise by reason of an implied professional retainer agreement (Carey at [311]). A duty of care may also arise independently of an express or implied retainer, but that will depend upon the application of the tort principles relevant to the facts of the particular case (Carey at [312]).
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