Ethics Presentation


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Ethics Presentation

  1. 1. Laina Chan, Barrister, Nine Wentworth Chambers
  2. 2.  Solicitor-client relationship created by retainer  Nature of solicitor-client relationship:  Contractual  Concurrent duty of care in tort  Agency  Fiduciary  Solicitors owe legal and professional duties to their clients
  3. 3.  Professional responsibility of solicitors stem from three sources:  General Law  contract law, tort, equity, fiduciary law  Statute  Legal Profession Act 2004 (NSW) and Legal Profession Regulation 2005 (NSW).  Professional Rules  Revised Professional Conduct and Practice Rules 1995 (NSW) (‘Advocacy Rules’ set out in rule 23) (‘Practice Rules’) and NSW: Barristers’ Rules
  4. 4. Five current ethical and professional responsibility issues relevant to property lawyers arising from their relationship with their clients: 1. Scope of Solicitors’ Authority in Property Transactions 2. Solicitors’ Duty to Clients in Tort: Scope of Duty – a Penumbral Duty of Care? 3. Fiduciary Duties – Duty-Interest and Duty-Duty Conflict 4. Duty to third parties and non-clients 5. Duty of Confidentiality – Acting Against Former Clients
  5. 5.  The solicitor’s authority arising out of the agency relationship determines the extent to which the solicitor can represent the client’s interests in a way capable of affecting the client’s legal position.  Authority takes two forms: 1. Actual authority (express or implied) - The express terms of the retainer determine the scope of the solicitor’s actual authority. The retainer also carries with it the implied authority to do all things incidental to the object of the representation. 2. Ostensible authority
  6. 6. Actual (implied) Authority  Solicitors have an implied authority to incur costs and disbursements: Schiliro&Gadens Ridgeway (1995) 19 Fam LR 196 at 207 (FC).  Solicitors have an implied authority to receive money on a client’s behalf: Williams v Gibbons [1994] 1 NZLR 273.  Solicitors have no general implied authority to institute proceedings: Hawkins Hill Gold Mining Co v Briscoe (1887) 8 LR (NSW) (Eq) 123 at 129-30 per Stephen J.  Solicitors have no implied authority to agree to a variation of a client’s contract: Nowrani Pty Ltd v Brown [1989] 2 Qd R 582 at 588 per McPherson J.
  7. 7. Actual (implied) Authority  Most relevantly in a property context, solicitors have no general implied authority to contract on behalf of the client.  To have authority to contract on behalf of a client to buy or sell land, the solicitor must have been given such authority either expressly or by necessary implication.  The conferring of authority need not be written, and may include a telephone conversation: Zaccardi v Caunt [2008] NSWCA 202 at [25].
  8. 8. Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146  Issue: - Whether a solicitor had authority to enter into a contract on behalf of the owners such that a binding agreement for sale had been reached.  HCA Decision: - The solicitor was retained to settle written terms of sale which he could advise his clients to accept and sign. The solicitor could negotiate and agree with the purchaser’s solicitors the terms which the purchasers could be expected to be accept. However, this does not confer on the solicitor the authority to contract to sell the land on the client’s behalf.  Principle: - Absent evidence of authority given expressly or by necessary implication, solicitors do not have authority to contract on behalf of their clients.
  9. 9. Nguyen v Taylor (1992) 27 NSWLR 48  Issue: - Determining the scope of the implied authority of a solicitor concerning whether the solicitor had the authority to execute anotice of exercise of an option to purchase land such as to bring about a valid contract of sale. Relevant Facts  The appellant paid $2000 for an option to purchase land.  A notice exercising the option was sent to the Grantor. Immediately before the service of the notice, the client had ‘instructed his solicitor to take whatever steps were necessary to complete the purchase of the land in question’ and the solicitor had signed the notice of exercise.
  10. 10. Nguyen v Taylor (1992) 27 NSWLR 48 NSW Court of Appeal Decision  The Court of Appeal concluded that there was a binding contract as the solicitor had by inference, authority to perform the mechanical steps of executing and delivering a notice of exercise of option.  In Meagher JA’s view, one such necessary step to complete the purchase was the execution and delivery of the notice of exercise of the option, and the proper inference drawn from this is that the solicitor had actual authority to sign and deliver the notice: at 59.
  11. 11. Hearse v Staunton [2011] NSWCA 139 Relevant Facts  Aconveyancing transaction was not completed and the vendors thereupon terminated the contract and sued both the purchaser and the purchaser’s wife for the breach of contract and deficiency on resale.  The purchaser had become a worthless defendant by virtue of his bankruptcy, and a judgment obtained against the wife was set aside on the ground that she had not been a party to the contract.  The vendors therefore, commenced proceedings against the purchasers’ solicitor, alleging against them breach of warranty of authority to act for the purchaser’s wife.
  12. 12. Hearse v Staunton [2011] NSWCA 139  The Contract for Sale of Land initially listed the purchaser’s wife as the purchaser. However, this was later deleted prior to exchange and the purchaser’s name added as sole purchaser.  There are two relevant letters written by the purchaser’s solicitors to the vendor’s solicitors.  The first letter stated that the purchaser’s wife ‘will probably be added as a joint purchaser pursuant to s 18(3) of the Duties Act prior to completion.’  The second letter enclosed a transfer instrument for execution by the vendors and stated that they ‘have added [the purchaser’s wife] as a joint purchaser pursuant to s 18(3) of the Duties Act, 1997’ and advised the vendor’s solicitors to ‘amend the counterpart Contract accordingly’.
  13. 13. Hearse v Staunton [2011] NSWCA 139  The relevant issue here was whether the purchaser’s solicitors represented that they had the wife’s authority to contract on her behalf, such that the wife had thereby become a party to the contract and also liable for the breach. NSW Court of Appeal Decision  The NSW Court of Appeal affirmed the decision of the primary judge to hold that as a matter of construction of the second letter, the purchasers’ solicitors had not made express or implied representations that they had authority to contract on behalf of the wife so as to bind her to the contract for sale of property.
  14. 14. Ostensible Authority  Boundaries of the ostensible authority of an agent are determined by:  what the principal represents, implicitly or explicitly, about the authority of the agent and  the extent these representations have been relied upon by the third party.  This representation, whether general or related specifically to the particular transaction must come from the principal: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [36] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ.  The main issue in determining ostensible authority is whether the solicitor was held out as a medium of communication in respect of the negotiations concerning the property transaction, and whether the other party has relied on this representation.
  15. 15. IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205  Issue: - Whether the buyer’s solicitor had authority to accept the revocation of an offer on behalf of the buyer. Relevant Facts  In the draft contract of sale of land here, the purchaser had named a firm of solicitors as the ‘buyer’s solicitor’ and provided a reference to a lawyer employed by that firm.  The purchaser’s solicitor was advising the purchaser on taxation issues and in relation to the structure of the proposed joint venture agreement with a joint venturer with regards to the land.
  16. 16. IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205  Changes made to the draft contract were communicated to the purchaser’s solicitors by the vendor’s solicitors.  There was no other direct contact between the solicitors of the parties while negotiations were conducted between the parties, up until the vendor’s solicitors communicated to the purchaser’s solicitors and the purchaser’s estate agent via email to purportedly withdraw the offer.  In the meantime, the purchaser had accepted the vendors’ offer via fax and notified the vendor that the firm of solicitors were not acting for the purchaser in relation to the contract. The purchaser only became aware of the purported withdrawal of offer after faxing their acceptance.
  17. 17. IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205  At first instance, the primary judge held that there was a valid contract binding on the vendor to sell the land to the purchaser.  The vendor appealed.  The issue here was whether the purchaser’s solicitors had authority to accept the revocation of the offer on behalf of the purchaser such as to make the withdrawal effective. Queensland Court of Appeal Decision  The Court of Appeal dismissed the vendor’s appeal, holding that the purchaser’s solicitors had no authority to receive the revocation of offer, such that there was a valid contract binding on the vendor to sell the land to the purchaser.
  18. 18. Zhang v Vp302 Spv and Ors [2009] NSWSC 73  In this case, solicitors held out by the purchaser as acting for them in effecting an exchange of contracts were held to have ostensible authority to exchange the contract despite the terms being amended without actual authority from the purchasers. Relevant Facts  The purchasers had exchanged a contract for sale of a building off-the- plan through their solicitors but did not complete.  The vendors therefore terminated the contract for the purchasers’ failure to complete, and the deposit was released to the vendor by the real estate agent engaged by the vendor. The purchasers then commenced the present proceedings, making a claim for the deposit.
  19. 19. Zhang v Vp302 Spv and Ors [2009] NSWSC 73  Changes were made to certain special conditions in the draft contract. These were agreed upon by the purchasers.  However, while the vendor’s solicitors’ expressed agreement to the proposed changes, the replacement clauses which the vendor’s solicitors communicated to the purchasers’ solicitors effectively modified that agreement.  The contracts exchanged included those amendments and contained identical terms. The vendor and the vendor’s solicitors were unaware the purchasers had not agreed to those amended clauses.
  20. 20. Zhang v Vp302 Spv and Ors [2009] NSWSC 73  The relevant issue here was whether the purchasers’ solicitor had ostensible authority to exchange the amended contract such that a binding contract came into existence between the parties. NSW Supreme Court Decision  White J held that the purchasers’ solicitors had ostensible authority to exchange the amended contract, although there was no actual authority, express or implied, to bind the purchasers to a contract which included the new terms.  Ostensible authority must be conveyed by the principal, but the representation of authority may be implied from a course of dealing, including by permitting the agent to conduct the principal’s business with other persons: at [33]-[34].
  21. 21.  Among other legal duties, a solicitor owes a client a duty to be competent: Practice Rules r 1.1.  In the solicitor-client relationship, there is a concurrent duty in contract and tort: Astley v Austrust(1999) 197 CLR 1 at 20.  There is both an implied term of the contract that the solicitor will exercise reasonable care and skill and a duty of care under the common law owed by the solicitor to the client to exercise reasonable care and skill.  A client may also choose the most advantageous cause of action, depending on remoteness of damage, causation and limitation periods: Astley v Austrust(limitation periods).
  22. 22. Hawkins v Clayton (1988) 164 CLR 539 Relevant Facts  Here, the solicitors in custody of a will for their client (the testatrix) had failed to locate and inform the executor of his appointment as the sole executor and having the balance of the estate which included a house, until six years after the death of the testatrix. High Court of Australia Decision  The solicitors here were held to be under a relevant duty to take the positive step of locating and informing the executor of the will, despite the solicitors not having a contractual relationship with the executor.
  23. 23. WaimondPty Ltd v Byrne (1989) 18 NSWLR 6429 Relevant Facts  The solicitor’s clerk was involved in the conveyancingof land in Oatley, which was the first joint venture between the appellant’s and their business associates. A Syndicate Agreement was also entered into between the appellants and their business associates. Shortly after, the solicitor’s clerk moved to a new firm under the present solicitor in question.  The solicitor left the handling of that transaction exclusively to the clerk, and the clerk certainly had knowledge of the syndicate agreement which is attributed to the solicitor.
  24. 24. WaimondPty Ltd v Byrne (1989) 18 NSWLR 6429  The appellant’s associates later needed money for their other land deals, and without telling the appellant, they mortgaged the Oatley land to another company.  The solicitor in question here was instructed by the business associates to act as their solicitor in the loan arrangements, as well as to act for that company.  The client of the appellant had suffered economic loss because of the fraudulent conduct by the appellant’s business associates and the lack of vigilance on the part of the solicitor’s clerk, who knew that the appellant’s interest in the land was still in existence at the time of the mortgage.
  25. 25. WaimondPty Ltd v Byrne (1989) 18 NSWLR 6429 NSW Court of Appeal Decision  At 652, Kirby P held that in the circumstances, the solicitor was required to take ‘positive steps’ to protect the client’s interests so as to competently discharge his duty of care to the client.  The circumstances of a particular case may require the taking of positive steps beyond the specifically agreed task or function where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client.
  26. 26. Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398  In this case however, the solicitor was found to have no ‘penumbral’ duty of care i.e. scope of duty of care did not include an obligation to take any positive step beyond the retainer. Relevant Facts  A solicitor was retained to act on behalf of the purchasers on the contract for sale and on the mortgage of the property and assisted the purchasers in preparing an application to the mortgagee for finance.  The solicitor also acted for the vendor and the mortgagee.  The solicitor had shown the purchasers the provisional loan approval by the mortgagee with a repayment schedule and the purchasers signed without questions.
  27. 27. Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398  Elementary financial planning would have demonstrated that it was unlikely the couple’s income would increase during the first four years of the mortgage, at a rate sufficient for them to pay the mortgage instalments and have enough money to live on.  At first instance, the trial judge held the solicitor liable in negligence for the purchaser’s economic loss in entering the unjust finance agreement which they could not repayand that the documents were not adequately explained.  The NSW Court of Appeal reversed the trial judge’s decision and upheld the solicitor’s appeal. The terms of the solicitor’s retainer or the general principles in Hawkins v Clayton did not require the solicitor to consider the purchaser’s capacity to obtain finance and to obtain it on a realistic basis which they could expect to meet.
  28. 28. Curnuckv Nitschke[2001] NSWCA 176  The solicitors were held to have an obligation to warn their clients that their cause of action would be lost if proceedings were not instituted before the end of the limitation period. Relevant Facts  The solicitors had been retained to advise, institute and maintain proceedings against the vendor of a defective truck.  Counsel retained had prepared a draft Statement of Claim for the clients which was complete except for some additional particulars.  The clients later experienced financial difficulties and entered into a Deed of Arrangement with a trustee appointed and the cause of action was assigned to the trustee.
  29. 29. Curnuck v Nitschke[2001] NSWCA 176  The cause of action was later reassigned to the clients again as the trustee was not minded to fund the action and in a letter the trustee advised that the solicitors’ role in the matter ‘has now been completed’: at [45].  Neither the clients nor the solicitors took any further steps before the limitation period expired more than 2 years later.  The solicitors had failed to commence proceedings on behalf of the clients and also failed to advise the clients on the consequences of failing to institute proceedings before the limitation period expired.  The clients sued the solicitors for breach of contract and negligence and their action was dismissed at first instance.
  30. 30. David v David [2009] NSWCA 8  This case concerned the scope of duty of care of a solicitor retained to give advice on a refinancing transaction. There was no ‘penumbral’ duty of care here. Relevant Facts  The clients here, a husband and wife, had retained the solicitors to advise on refinancing of their existing borrowings to raise funds for an investment.  The solicitors had not been retained to provide financial advice in relation to the investment, and only became aware of the proposed destinations of the funds part way through completing the retainer.
  31. 31. David v David [2009] NSWCA 8  The solicitors were also acting for the companies into which the funds (raised by the refinancing transactions) were to be invested in, in an investment scheme.  Solicitors at the firm had also undertaken transactions with the relevant companies.  The companies with the funds invested went into administration later and the clients lost all of their investment money, save an initial small return.  The clients therefore sued their solicitors for breach of retainer and breach of fiduciary obligation.  At first instance, the claims against the solicitors failed.
  32. 32. David v David [2009] NSWCA 8  The relevant questions were:  whether the solicitor had a duty under tort law to go beyond its retainer of advising on the refinancing to cease to act for the clients when they became aware of the proposed use of the funds raised under the refinancing agreement for which they had been retained to provide advice; and  if the solicitors did not have a duty to cease to act, whether the need to get independent advice in relation to the investment of the funds was adequately expressed to the clients.
  33. 33. David v David [2009] NSWCA 8 NSW Court of Appeal Decision  The Court of Appeal dismissed the appeal and held that the solicitors, who were only retained to give advice on a refinancing transaction to obtain funds, had no duty to cease to act when they learned of the proposed destination of the funds.  There was no conflict of interest for the solicitors to also act for the companies receiving the investment funds if the firm was only retained to give advice on the refinancing transaction to raise funds.
  34. 34. Dominic v Riz [2009] NSWCA 216  This case concerned the liability of a solicitor in advising clients on the loan and mortgage documents, and it was held that there was no duty beyond the retainer here under common law. Relevant Facts  The solicitors here had been retained to advise on loan and mortgage documents.  The loaned funds were used to finance a high risk business investment and security was taken over the family home of the clients. Importantly, the solicitors had not been retained to advise in relation to the underlying investment transaction.
  35. 35. Dominic v Riz [2009] NSWCA 216  The solicitors had known that the clients were aware that the investment was high risk and had advised the clients to seek independent legal and financial advice.  The investment scheme subsequently failed and the clients lost most of their money. The clients sued their solicitor for professional negligence and breach of fiduciary duty.  At first instance, the trial judge had held that the solicitors had breached their duty of care to the clients by not advising them to seek independent legal and financial advice about the proposed investment in adequately firm terms, and that the solicitors were not reasonably entitled to be satisfied that the clients would follow up the advice or that they understood the importance of it.
  36. 36. Dominic v Riz [2009] NSWCA 216  On appeal, the main issue was whether the advice of the solicitors that the clients should seek independent advice was adequate in the circumstances to discharge their duty.  NSW Court of Appeal Decision  Allsop P, with Hodgson and McColl JJA agreeing, held that the solicitors were not liable in negligence.  Allsop P At [91], his Honour specifically referred to his statement in David v David at [76], holding that the passage had not been meant to be an operative legal principle.
  37. 37. Dominic v Riz [2009] NSWCA 216  It had been 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.’  Allsop P applied that test in this case and found the solicitor to have executed the retainer and discharged the duty of care without negligence because:  The solicitor had not been retained to advise on the underlying investment transaction and had not known the details of the investment.  While the solicitor had thought that the investment involved large risks, the solicitor had also known that the clients themselves thought that the investment was risky.
  38. 38.  The basic fiduciary principle applicable to the solicitor-client relationship is that a solicitor owes a duty of loyalty and trust to their clients, which goes beyond their personal interest.  There are two potential situations where a solicitor may breach its fiduciary duties to their client:  when there is a conflict of interest and duty, namely where the solicitor’s own interests are not coincident with those of the client; and  when there is a concurrent conflict of duties to two or more clients of the same solicitor.
  39. 39. (I) Solicitor-Client Conflict: Duty-Interest Conflict  NSW Practice Rules: rr 10.1.1 and 10.2  The lawyer’s personal interest in the dealing or transaction will often not coincide with the interests of the client in that dealing or transaction, and this puts it out of the solicitors’ power to give disinterested advice which is expected of them.  The scope of this proscription extends to avoiding the appearance of conflict.  The proscription also extends beyond the individual solicitor to include ‘associates’ of the conflicted solicitor.
  40. 40. (I) Solicitor-Client Conflict: Duty-Interest Conflict Law Society of New South Wales v Harvey [1976] 2 NSWLR 154  Leading Australian case on lawyer-client dealings which demonstrated the dangers of a solicitor borrowing from clients. Relevant Facts  The clients here had lent moneys to three companies whereby the solicitor was a director and shareholder.  The solicitor had utilised his position to channel the clients’ money for his own ventures which involved substantial speculation in land.
  41. 41. (I) Solicitor-Client Conflict: Duty-Interest Conflict Law Society of New South Wales v Harvey [1976] 2 NSWLR 154  The solicitor had also recklessly disregarded the need to protect his clients’ property in failing to provide adequate securities.  The solicitor had withheld details of these speculations from the clients, who were mostly inexperienced in investment and business matters, and trusted the solicitor to make investments on their behalf.  The Law Society initiated proceedings for an order to strike off the solicitor off the roll of solicitors.
  42. 42. (I) Solicitor-Client Conflict: Duty-Interest Conflict Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 NSW Court of Appeal Decision  The Court of Appeal held that the solicitor’s name should be removed from the roll because he had mixed his clients' affairs with his own.  He had failed to make proper, and in some cases any, disclosure to his clients of his interest, or the risks involved in the proposed investment.  He had failed to give his clients proper advice concerning such investment, or that they should have sought independent legal advice, and that, in some cases, he had invested clients' money in unauthorized investments.  His actions were not inadvertent but deliberate and dishonest.
  43. 43. (I) Solicitor-Client Conflict: Duty-Interest Conflict  However, informed client consent may cure a conflict of interest situation.  In Maguire v Makaronis (1997) 188 CLR 449, Brennan CJ, Gaudron, McHugh and Gummow JJ said at 466 that: What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party.  For the consent to be fully informed, the client must be fully informed of his or her rights and of the material facts and circumstances of the case: Commonwealth Bank v Smith (1993) 42 FCR 390 at 393.
  44. 44. (I) Solicitor-Client Conflict: Duty-Interest Conflict Short v Crawley (No 30) [2007] NSWSC 1322  This was a case where independent advice was held to be necessary in the circumstances for the client’s consent to be fully informed. Relevant Facts  In this case the solicitor had been in a position of conflict between his interest and his duty, both as a director of a company and as solicitor to that company.  The solicitor had effected the agreement that the company of which he is a director, was to borrow moneys from him and pay interest of 17.5%. The other two directors, Short and Davis, had known about the borrowing and the interest rate.
  45. 45. (I) Solicitor-Client Conflict: Duty-Interest Conflict Short v Crawley (No 30) [2007] NSWSC 1322  The company later sought to commence proceedings to recover interest paid on advances made by the solicitor on the basis of a breach of the solicitor’s fiduciary duty. Supreme Court Decision  White J held that the client company’s fully informed consent was not obtained here as the solicitor had not advised the client company to seek independent advice here, for the consent to be fully informed.
  46. 46. (I) Solicitor-Client Conflict: Duty-Interest Conflict Short v Crawley (No 30) [2007] NSWSC 1322  At [567], White J was of the opinion that it would have been insufficient even if the solicitor had procured the consent of a quorum of directors, or the agreement of all directors that the company was to borrow money from the solicitor/director of the company.  For the client company to have given its informed consent, the informed consent of the other two directors were required.  It was insufficient that the other directors had known about the borrowing, the terms of the mortgage and the rate of interest charged.  The solicitor also had not advised what other terms might be available from other lenders.
  47. 47. (I) Solicitor-Client Conflict: Duty-Interest Conflict Short v Crawley (No 30) [2007] NSWSC 1322  There had been no board resolution approving the entry into the transaction, and that there had been no formal declaration of the solicitor’s interest in the loan as required by Article 81 of the client company’s Articles of Association.  There had been no formal meeting of the directors; no formal disclosure of interest; and no minute of disclosure had been made as required by the company’s Articles of Association.  Therefore, the solicitor had failed to prove that the company had given its fully informed consent in the circumstances.
  48. 48. (II) Concurrent Duty Conflict: Duty-Duty Conflict  For a solicitor to represent two or more clients with conflicting interests impinges on client loyalty as well.  There is no outright legal or professional prohibition on concurrent representation: see Practices Rules rr 9.1 and 9.2.  What the professional rules do is to impose a duty of disclosure on solicitors acting for multiple clients in a matter: see Practice Rules r 9.2.  What this means is that unless informed client consent cures the concurrent conflict of interest, it usually requires the solicitor to withdraw from representing each client (r 9.3), which adds costs and inconvenience.
  49. 49. (II) Concurrent Duty Conflict: Duty-Duty Conflict  A potentially conflicting situation most relevant to property lawyers is when a solicitor acts for both the vendor and purchaser in a conveyancing transaction. In such a situation, conflicts may arise if:  one of the parties is unable to complete the transaction,  one or both of the parties expect the lawyer to negotiate on their behalf,  the solicitor knows of a flaw in the title of property, or  the solicitor has close family and commercial ties with one party represented but not others.
  50. 50. (II) Concurrent Duty Conflict: Duty-Duty Conflict Layton (t/as B M Salmon Layton & Co) v Stewart [1994] ANZ ConvR283  This was a case where a solicitor acted for both vendor and purchaser.  Relevant Facts  The purchaser had difficulties in securing finance and failed to complete the conveyance in question.  Despite being aware of the conflict of interest that had arisen, and despite having informed the purchaser that he could no longer act for him, the solicitor had continued to act for the purchaser in relation to the transaction pending a new solicitor taking over the file.
  51. 51. (II) Concurrent Duty Conflict: Duty-Duty Conflict Layton (t/as B M Salmon Layton & Co) v Stewart [1994] ANZ ConvR283  During this period, the solicitor had received information as to the extent and state of the purchaser’s precarious financial position. The solicitor failed to pass this information to the vendor, and he also failed to inform the vendor that he no longer acted for the purchaser.  The vendor later chose to accede to the purchaser’s request for vendor finance, and proceeded to sign without adequate explanation, a loan agreement to the purchaser secured by second mortgages over two of the purchaser’s properties.  However, the purchaser went bankrupt shortly thereafter and the unpaid balance under the second mortgage to the vendor was approximately $173,000.
  52. 52. (II) Concurrent Duty Conflict: Duty-Duty Conflict Layton (t/as B M Salmon Layton & Co) v Stewart [1994] ANZ ConvR283  At first instance the solicitor was held in breach of fiduciary duty to the vendor. The solicitor appealed. Full Federal Court Decision  The trial judge’s decision was upheld on appeal.  At 117, Foster J at first instance reasoned that the solicitor had been in breach of his fiduciary obligation to the vendor in failing to disclose to her his information as to the purchaser’s particular and general financial problems at a point of time sufficiently early to enable the parties to have had an informed discussion as to the steps taken in the event that the purchaser could not settle.
  53. 53.  Solicitors do not only owe duties to their clients, the court and other legal practitioners.  They are required to conduct their dealings with third parties according to the same principles of honesty and fairness which are required in relations with the courts and other lawyers and in a manner that is consistent with the public interest.  This means that a solicitor may assume legal duties (capable of generating personal civil liability for the solicitor) to third parties – in tort, contract, equity or under statute – as well as professional duties (sanctioned chiefly via the disciplinary process) to non-clients.
  54. 54. Legal Duties to Third Parties in Tort  As a general rule, a solicitor acting on behalf of a client owes no duty of care in tort to non-clients: Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566 at [170] per Finkelstein J.  However, there have been circumstances in which courts have held lawyers liable in tort to third parties.  Most importantly, the courts have invariably stressed that the ambit of the duty of care is to be determined on a case-by-case basis: Seale v Perry [1982] VR 193 at 237 per McGarvie J; New Zealand Social Credit Political League Inc v O’Brien [1984] 1 NZLR 84 at 88 per Cooke J and at 97 per Casey J.
  55. 55. Legal Duties to Third Parties in Tort  The additional element that has variously led courts to hold that the solicitors are liable in tort for the loss suffered by the third parties are:  an assumption of responsibility by the solicitor to a third party;  the third party’s reliance on the solicitor: see Brownie Wills v Shrimpton [1998] 2 NZLR 320 at 324-325 per Blanchard and Gault JJ; and/or  the control a solicitor has over the third party’s interests: see Hill v Van Erp (1997) 188 CLR 159 at 198-199 per Gaudron J.
  56. 56. Watkins t/as Watkins Tapsell v De Varda[2003] NSWCA 242  This case decided that a solicitor owed a duty of care at common law to a third party due to the solicitor’s assumption of responsibility to the third party. Relevant Facts  A solicitor had been retained by a client to prepare contracts intended to transfer the client’s interests in property in Cambodia to the third party (purchaser).  The client’s interest in the property had derived from an agreement between the client and two Cambodian residents who were held to be holding the property as agent for the client under the agreement. The solicitor had drawn up two contracts for the transfer of the client’s interest to the third party.
  57. 57. Watkins t/as Watkins Tapsell v De Varda[2003] NSWCA 242  In the second agreement where the client had purported to transfer the whole of his beneficial interest in the property to the third party, the solicitor had drawn up the contract such that only the third party and the Cambodian agents were the parties to the agreement.  However, only the third party had signed the agreement and the Cambodian agents never signed it.  The two contracts which the solicitor had drawn up proved legally ineffective under Cambodian law and the third party was unable to recover money from the client.  At first instance, the trial judge held the solicitor liable in negligence to the third party.
  58. 58. Watkins t/as Watkins Tapsell v De Varda[2003] NSWCA 242 NSW Court of Appeal Decision  The Court upheld the trial judge’s finding that the solicitor owed the third party a tortious duty of care.  In agreeing to act in a transaction where the solicitor had knowledge that the third party was relying upon the solicitor’s skill and expertise, the solicitor had a duty to the third party to ensure that he exercised such skill and care.  The trial judge found that there was a relationship of proximity, reasonable reliance and assumption of responsibility: at [126] (note that proximity is no longer the test to establish a duty of care).
  59. 59. Watkins t/as Watkins Tapsell v De Varda[2003] NSWCA 242  While the solicitor had warned about his unfamiliarity with Cambodian law and could not guarantee the result, the solicitor did not indicate that he would not perform the work to the best of his skill and ability.  Therefore, in the present circumstances, the solicitor had a tortious duty of care which extended beyond the terms of the contractual duty he owed to the client to cover the third party.  The Court agreed with the trial judge’s findings that the third party had reasonably relied on the solicitor because according to the evidence, the solicitor had given the third party the impression that he was also serving the third party’s interests, making it reasonable for the third party to rely on the solicitor rather than retain his own solicitor.
  60. 60. Stringer v Flehr& Walker (2003) Aust Torts Reports 81-718  In this case, a solicitor was also held to have owed a tortious duty of care to a third party, the plaintiff. Relevant Facts  The plaintiff had wished to transfer property to her son and had taken no security on the property in respect of the transfer.  The solicitor in question was acting for the son in carrying out the conveyance.  The son had secured a loan by mortgaging the property, under which he defaulted, and left no moneys from the proceeds of sale once the mortgage was paid off.
  61. 61. Stringer v Flehr& Walker (2003) Aust Torts Reports 81-718  The plaintiff then made a claim in tort against the solicitor for failing to advise her to take security. Queensland Supreme Court Decision  The plaintiff’s claim was rejected by Philippides J, ruling that the solicitors had expressly or impliedly assumed no responsibility to advise the plaintiff as to the terms and desirability of the contract.  Philippides J accepted that in every case, the content of the duty is determined by whether it was reasonably apparent that the plaintiff reasonably relied on the solicitor to discharge it, whether that was reasonably apparent to the solicitor and whether the solicitor assumed responsibility to her: at [91].
  62. 62. Stringer v Flehr& Walker (2003) Aust Torts Reports 81-718  On the facts of the present case, no duty of care arose in relation to the plaintiff.  There had been no assumption of responsibility by the solicitors towards the plaintiff in respect of advising as to the terms and desirability of the contract; nor had there been any requisite reliance by the plaintiff in that regard.  At a July 1992 meeting, his Honour accepted the solicitor’s evidence that the plaintiff had indicated to him that she had other solicitors acting for her in respect of the contract and had already obtained advice from them as to the draft contract: at [60].
  63. 63. Hawkins v Clayton (1988) 164 CLR 539  It was the solicitor’s assumption of responsibility and the executor’s reliance which created a real risk of economic loss and attracted liability in tort: per Deane J at 578-9.  In drawing and supervising the execution of the testatrix’s will and undertaking responsibility for its custody, the firm of solicitors had been acting professionally as the testatrix’s solicitors.  By accepting responsibility for custody of the will after the testatrix’s death, the firm of solicitors had effectively assumed the custodianship of the testatrix’s testamentary intentions.
  64. 64. Hawkins v Clayton (1988) 164 CLR 539  A failure to disclose the existence of the will would have likely frustrated those testamentary intentions and the estate might have remained unadministered and the assets neglected, misused or misappropriated.  It is these aspects of the solicitor-testatrix (client) relationship, which also included the executor, combined with the foreseeability of a risk of damage of the kind sustained to bring the case within a category such as to give rise to a duty of care which might, depending upon the circumstances have required some positive action to avoid such damage.
  65. 65. Hill v Van Erp (1997) 188 CLR 159  This case involved the tortious duty of the solicitors to beneficiaries. Relevant Facts  In this case, the solicitor had drafted the client’s will, and had had it witnessed by a person known to be the husband of the beneficiary.  This rendered the gift to that beneficiary invalid under statute. HCA’s decision  The majority held that the solicitor owed a duty of care to the beneficiary and was liable for the loss suffered by the beneficiary resulting from a failure to take reasonable care in performing the client’s instructions.
  66. 66.  The fifth professional responsibility issue relevant to property lawyers is former client conflict issues which may arise from their duty of confidentiality to former clients, and their duty to current clients.  The focus is whether and in what circumstances a court may disqualify a solicitor from acting against former clients.  The relevant issue is the threshold for judicial intervention in a case alleging former client conflict.  The main inquiry focuses on the need to preserve the confidentiality of information communicated in the course of a retainer.
  67. 67. Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112  The test of when a solicitor may be restrained from acting for a former client was stated by Drummond J in this case at 118: ‘a solicitor is liable to be restrained from acting for a new client against a former client if a reasonable observer, aware of the relevant facts, would think that there was a real, as opposed to a theoretical possibility that confidential information given to the solicitor by the former client might be used by the solicitor to advance the interests of a new client to the detriment of the old client.’ Relevant Facts  In this case, the solicitor whom the injunction was sought against had previously acted as the solicitor for Company C, and had been involved in the marketing of a housing estate developed and offered for sale by Company C, including the drafting of contracts.
  68. 68. Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112  A couple had been one of the purchasers of the lots in the housing estate, and they later commenced proceedings against Company C seeking damages pursuant to the Trade Practices Act 1974.  The solicitor was retained by the couple for the trade practices proceeding. Company C then commenced proceedings seeking an injunction to prevent the solicitors from acting for the couple on the basis that the solicitor had in his possession confidential information of Company C  Applying the test cited above, Drummond J granted the injunction, disqualifying the solicitors from acting for the couple in the trade practices proceeding.
  69. 69. Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112  It is a basic requirement that before material will be recognised as having the character of confidential information, the information in question must be identified with precision and not merely in global terms: at 120.  There were two classes of information alleged to be confidential in this case. Drummond J found that the pricing and marketing information given to the solicitor was not conveyed as confidential information.  In any case, it had long since been made public through real estate agents, the press and the records of the Valuer-General.
  70. 70. Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112  However, the information which the solicitor had been given about the size and quality of the land and housing sold was discussed with the solicitor in the context of the solicitor giving legal advice and performing legal work in drafting contracts of sale.  A knowledgeable reasonable observer aware of the relevant facts would have considered that there was a real possibility that this confidential information may, consciously or unconsciously, be used by the solicitor in the proceedings against Company C (former client) to the former client’s detriment.  It was for this reason that the injunction was granted.
  71. 71. L and L [2003] FamCA 777  A single judge family law decision which demonstrated that a former client seeking to restrain their former solicitors from acting for new clients due to confidentiality reasons only have a low threshold to meet to succeed in being granted an injunction. Relevant Facts  A former client (the husband) sought to restrain his wife from retaining a firm of solicitors which had previously acted for him in property settlement proceedings some 15 years previously.  The husband (former client) had submitted that the firm of solicitors would have knowledge of the husband and his financial position and the husband had written to the solicitors, informing them of his objection to them continuing to represent the wife.
  72. 72. L and L [2003] FamCA 777 Family Court Decision  Kay J granted the injunction in this case disqualifying the solicitors to represent the wife and act against the husband, the former client.  The issue here was the threshold with which the former client had to reach to discharge the onus to prove that the confidential material in question, if disclosed, would be prejudicial to the former client.  His Honour applied the test espoused by the Full Court in McMillan and McMillan[2000] FLC 93-048 here in deciding whether the solicitors should be disqualified from acting for the new clients.
  73. 73. Manner v Manner [2012] FAMCAFC 6  This was a case with similar facts to L and L, and application of the test in McMillan led to the same result. Relevant Facts  Here, an injunction had been sought by a husband seeking to restrain the wife from instructing solicitors in the present property proceedings between them in the Federal Magistrates Court, which is essentially a family law proceeding.  The solicitors had previously acted for the husband in various matters, including financial and business disputes, conveyancing, a will and estate planning requirements.