4. Lawyers\' Duty to the Client in Tort PDF

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Lecture Notes Introduction & Element of Negligence ● The tort of negligence is comprised of: • Duty of care • Breach of duty of care (the standard) • Damage as a result of the breach Negligence - Civil or Disciplinary? ● A civil suit involves suing the practitioner for damages due to the breach of duty of care. ● A disciplinary matter is the allegation that the breach of duty is so egregious that there has been a breach of professional standards of conduct (ethics) ● OLSC Fact Sheet 9 ● In the matter of Alan James Gallagher, and the Legal Profession Act of 1987 Standard of Care ● “the ordinary skilled person exercising and professing to have that skill”: Rogers v Whitaker (1992) 175 CLR 479 Higher Standards? Extraordinary Foresight? ● Heyden v NRMA (2000) 51 NSWLR 1 Non-Client Liability ● “The clients and beneficiaries' interests were coincident. And a duty of care owed to the beneficiary corresponded to the contractual duty owed by the solicitor to her client”: Riley discussing Hill v van Erp (1997) 142 ALR 687 Advocate’s Immunity ● Turner v Phillips (1792) Peake 166 ● Hedley Byrne & Co Limited v Heller & Partners Ltd [1964] AC 465 ● Giannarelli v Wraith (1988) 165 CLR 543 ● Arthur JS Hall & Co (a firm) v Simons [2002] 1 AC 615 ● D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 ● Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1 ● Kendirjian v Lepore (2017) 259 CLR 275 Civil Liability Act 2002 (NSW) ● S 5O Civil Liability Act 2002 (NSW) ● Edward Wong Finance Company Ltd v Johnson Stokes and Master (a firm) [1984] AC 296 Professional Indemnity Insurance & Risk ● Lawcover ● Law Institute of Victoria ● ‘Traps for Young Lawyers’ Textbook Notes CHAPTER 5 - Lawyers’ Duty to Clients in Tort Introduction Relationship Between Contractual and Tortious Liability ● Historically, the lawyers duties of skill and care was seen to deprive entirely from the contract of retainer, ordinarily via an implied term. But the explosion of the belief that a cause of action in negligence was unavailable for pure economic loss has meant that negligent lawyers are now concurrently liable in tort and contract, and may also be liable in tort independently of an action in contract. It has been judicially remarked, to this end, but the trend of modern authority endorses a tortious duty of care that “prima facie transcends that contained in the express or implied terms of the retainer” (Hawkins v Clayton (1988)). ● Yet the law of tort has not gone so far as to entirely supersede the law of contract in this context. The High Court in Astley v Austrust Ltd (1999) rejected the view that a tortious duty to take reasonable care ousts the need to imply a term to that effect into the retainer. Liability in Tort ● Today, lawyers who fail to attain the standard of competence expected by law are almost invariably sued (and liable) in tort. This is because the lawyer is assumed to owe a client a duty of care in tort. Liability Under Statute for Misleading or Deceptive Conduct ● Lawyers may be liable for breach of the statutory proscription against misleading or deceptive conduct, although this has in the past been seen as more likely in the context of liability to third parties, not just

because causes of action in contract or tort may not accrue vis-à-vis non-clients, but also as a proscription is premised on the impugned conduct being “in trade or commerce.” ● There were various judicial remarks to the effect that a lawyer-client relationship could not, in the usual case, be described as in “trade or commerce”. To this end, making statements during the course of litigation, and giving professional advice or opinion, we are seen as unlikely to be in “trade or commerce”. ● Yet as under the Australian Consumer Law, the phrase “trade or commerce” is expressed to include “any business or professional activity”, lawyers’ exposure to statutory liability is arguably not so constrained. Rather, that a person engages in professional activity as a lawyer is by itself no reason why the statutory prescription should not apply. In Kowalczuk v Accom Finance Pty Ltd (2008), the NSW Court of Appeal gave the following examples of how our lawyer might engage in misleading or deceptive conduct in the course of professional activities: • in giving advice on the prospects of success of proposed litigation, or about how the courts are ultimately likely to decide a presently undecided legal question; • in making a specific representation of fact, including an implied representation; for instance, by undertaking a transaction that requires legal skills a lawyer represents that he or she has knowledge and skills suited to carrying out the task, and its completion may carry the implied representation at the task was performed in line with the degree of care and skill of a competent lawyer; • in expressing an opinion about the advantages and drawbacks of proposed courses of action Identifying the Client’s Interests ● The lawyer’s duty of care is directed at lawyers acting in the client’s best interest. Accordingly, it is necessary at a preliminary stage to consider who determines the client’s interests and what these may be. A former iteration of the South Australian professional rules required lawyers to “use all reasonably available legal means that are consistent with the agreement pursuant to which they are retained to advance clients interests as the clients perceive them.” The lawyer ordinarily must, subject to the paramount duty to the administration of justice, follow the client's instructions, having informed the client of the risks and drawbacks of the proposed course of conduct. Scope of the Duty of Care Modifying the Scope of the Duty via the Retainer ● The scope of the lawyer’s duty of care in tort is, in the main, prescribed by the scope of the retainer. It follows that the scope of the duty can be confined by the retainer, operating as a de facto disclaimer of duty or responsibility for advising outside it’s scope. ● A lawyer who wishes to restrict the scope of the retainer should, especially where the client could be justified in expecting the lawyer to advise on a broader basis, make a full and clear disclosure of the limits of the duty the lawyer is undertaking, and counsel the client to secure advice from another person outside those limits. Can Liability in Tort Arise Outside the Scope of the Retainer? ● The case law suggests that the retainer may not in every case chart the parameters of the tortious duty of care. To the extent that defining the scope of lawyers duties by reference only to the client’s express instructions would be artificial, this makes sense. It stands to reason that “matters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within the scope of the retainer.” But judicial remarks go further, the most cited being that of Deane J in Hawkins v Clayton (1988), who opined that the tortious duty of care may require a lawyer to take positive steps “beyond the specifically agreed professional task or function” when necessary to “avoid a real and foreseeable risk of economic loss being sustained by the client”. ● According to his Honour, what gave rise both to a relationship of proximity, and a sufficient foreseeability of loss as to oblige the solicitors to warn the clients that the cause of action would be lose unless proceedings were instituted, was the combination of the following findings: • the solicitors were aware that the cause of action had been reassigned to the clients; • the papers relating to the action remained with them as the solicitors who had handled the matter; and • the cause of action would become valueless with the passing of the limitation period. Impact of the Circumstances in Which Advice is Given or Sought ● Advice given or sought in urgent or pressing circumstances: • The urgency or time pressure surrounding the occasion in which the lawyer’s advice is sought can influence the scope of the duty of care. Its impact relates mainly to qualifying the advice supplied, and properly apprising the client of the risks attached to the intended course of action. In May v Mijatovic (2002), for example, the defendant solicitor was instructed by the plaintiff client to apply for an injunction at short notice. The injunction was subsequently dissolved, and the client held liable on his undertaking as to damages,

when the evidence proved insufficient to support the injunction. • The above derives from the fact that a lawyer is ordnaily retained to advise a client, not to decide for a client. It follows that a lawyer who, having accurately explained the risks of a course action, is nevertheless instructed to proceed is not liable in law for loss the client suffers by reason of that course of action. ● Preliminary advice supplied on a single occasion: • As the retainer is the principal determinant of whether or not a tortious duty of care applies, it is important to identify the moment at which the lawyer is retained. A client may, in choosing whom he or she wishes to retain, interview several lawyers (colloquially known as a “beauty contest”), in the process disclosing information to each pertaining to the prospective retainer. In these circumstances, the issue is that most likely to surface is not liability for negligence, but the client’s ability to disqualify, on grounds of potential misuse of confidential information, a non-selected lawyer from acting against the client in the same or related manner. • But where a prospective client seeks preliminary advice form a lawyer on a single occasion, and retains no other lawyer in the matter, it is legitimate to inquire whether the lawyer has, by giving that advice, assumed a dirty of care to the client. It is possible, in these circumstances, for a duty of care to be assumed without a formal retainer, even an implied one, although most instances should see contract and tort share the same ground. Impact of the Nature of the Transaction or Dealing ● Transaction or dealing with unusual terms or characteristics: • A lawyer retained to effect a transaction must not only follow the client’s instructions, but bring to the client’s attention any aspect or term that is unusual, or that could generate unexpected liabilities or obligations. The scope of the duty here rests on the client’s experience, the nature of the lawyer-client relationship, and the risks to which the client may be exposed. That the client is an experienced commercial operator is not by itself a reason to skimp on explanations of unusual terms, or even the salient feature of the transaction. ● Failure to warn of absence of standard clause: • A lawyer may be liable in negligence for failing to advise of the absence of a standard clause in a document, and its implications, as occurred in Amadio Pty Ltd v Henderson (1998). There the solicitors did not advise their client of the absence of a “ratchet” clause in a lease over property the client was to purchase, which would usually appear in a lease of that kind. ● Where a transaction or dealing is improvident: • Lawyers retained to effect a transaction that is improvident from the client’s point of view should consider whether the client should be warned against pursuing the transaction, or at least advised of its risks. As a general principle, if the client is fully informed of the risks attendant on a transaction, and does not lack capacity, the lawyer has fulfilled her or his duty, and may act in the transaction. Improvidence on the fact of a transaction may nonetheless lead a prudent lawyer to query whether a client is exercising a free and independent will in respect of, and truly understands, the transaction, especially if the person who benefits from the transaction is apparently its driver. Disclosure of Information Relevant to the Representation ● Scope of the duty of disclosure and prospects for liability: • A lawyer’s failure to disclose a conflict of interest prescribed by fiduciary law may trigger civil liability. Failure to consult with a client on a meter outside the lawyer’s actual authority raises the prospect of breaching the retainer. Tort-wise, the duty of care requires a lawyer to reveal to the client all material information within her or his possession relating to the client’s affairs. • That a client is entitled to the full benefit of the lawyer’s exertions requires the lawyer to “put at his client’s disposal not only his skill but also his knowledge, so far as is relevant”. ● Is the duty of disclosure imputed to the firm?: • The cases generally phrase the duty of disclosure of relevant information in terms of the individual lawyer. It appears, therefore, that no equivalent obligation rests on partners and staff of a law firm who have no involvement with the matter. To require otherwise would be to necessitate the familiarity, at least on a superficial level, of every partner and employee with the subject matter of every retainer assumed by the firm - an unworkable task even in a law firm of few partners, let alone a mega-firm. ● Client consent to non-disclosure?: • A client may conceivably consent to non-disclosure, although it may be queried why an informed client will proceed with legal representation without the assurance of being assured of the lawyer’s duty to disclose relevant information. The challenge is perhaps most acute where the lawyer acts for two or more parties to a transaction, in which event the terms of the retainer must carefully be constructed to determine whether the duty of disclosure to one or any of the parties is restricted.

Can the Duty of Care Include Giving Financial Advice? ● General principle - no duty to provide financial advice: • Courts will not assume that a lawyer-client retainer attracts a duty to supply financial advice. The general rule is that a lawyer whose retainer does not impose a duty to give commercial advice or advise as to the financial prudence of a transaction, will not be negligent in failing to do so. ● Financial advice and professional indemnity insurance cover: • Financial advice falls outside the terms of lawyers’ professional indemnity insurance cover, and so negligent financial advice may generate personal liability in the lawyer for resultant loss. ● Giving of financial advice where contemplated by the retainer: • The type of advice a lawyer is professionally required to give depends on the nature and extent of the retainer. The lawyer may be retained only to carry out, by the necessary legal procedures, a business arrangement between the client and third parties. In other cases, the retainer may require advice in relation to the form of a transaction. Neither scenario requires the lawyer to furnish financial or commercial advice, as there is no express requirement to this effect; the court will ordinarily presume against any such requirement except where it is clear. ● Financial advice required due to nature of the client: • When a client in full command of her or his faculties, and apparently aware of what he or she is doing, seeks a lawyer’s assistance in carrying out a particular transaction, the lawyer is arguable under no legal duty to go beyond those instructions by proffering unsought advice on its wisdom. But where the client suffers a disadvantage that prevents a full appreciation of the financial drawbacks of the transaction, the lawyer may need to advise as to its viability, even if not specially requested to do so. Can the Giving of Other Non-Legal Advice Come Within the Retainer? ● Aside from giving legal advice, and financial or business advice when it comes within the terms of the retainer, lawyers owe no legal duty to furnish any other advice to their clients. It follows that a lawyer cannot be found liable in contract or tort for failing to provide non-legal and non-financial advice, unless he or she has committed a negligent misstatement at general law, breached the statutory proscription against misleading or deceptive conduct, or failed to advise as to the client’s moral obligations where those may translate to legal obligations. Standard of Care Relevant Standard ● Standard at general law and under statute: • At general law, the relevant standard of care is “that of the ordinary skilled person exercising and professing to have that special skill” (Rogers v Whitaker (1992)). Translated to the lawyer-client context, it is one of a qualified, competent and careful lawyer in the practice of her or his profession (Bannerman Brydone Folster & Co v Murray [1972]). As a lawyer is only liable for the use of “ordinary” care and skill, the standard of care provides no guarantee against every mistake or omission. So a lawyer is not negligent merely for committing an error of judgment, unless that error is gross. • The advent of civil liability legislation has, in most jurisdictions, impacted on the relevant standard of care for professionals, including lawyers. The legislation essentially espouses the Bolam test (Bolam v Friern Hospital Management Committee [1957]), which focuses on action within the parameters of accepted professional opinion - “A person practising a profession (a professional) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a matter that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice”. ● Knowledge of the law and procedure: • Whether at general law or under statute, the standard of care dictates that a lawyer is expected to possess the knowledge of the reasonably competent lawyer of well-settled principles of law, and the relevant procedure and rules of court, applicable to the client’s needs. ● Standard not informed by extraordinary foresight: • A lawyer “is not bound … to exercise extraordinary foresight, learning or vigilance” (Jennings v Zilahi-Kiss, Zilahi-Kiss & MK Tremaine & Co Pty Ltd (1972)). Generally speaking, therefore, a lawyer need not advise as to how the law might develop in an area, or as to the steps clients could take to address future developments. ● Standard not informed by hindsight: • The court does not allow hindsight to insinuate itself into its reasoning in cases of alleged negligence; hindsight, it is said, should generally be “avoided when determining liability” (Hall v Foong (1995)). Megarry J

made the point when he observed that: “... there are a few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence. The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect” (Duchess of Argyll v Beuselinck [1972]). Raising the Standard of Care? ● As with most professions, the practice of law has become increasingly specialised, reflecting the growing complexity of society and commerce. It is unsurprising, therefore, that lawyers will specialise. Specialisation has a price, as a lawyer who is held out as an expert in a field of practice is subjected to a stricter standard of care regarding work within that field. ● Lawyers who possess specialist accreditation, or otherwise advertise an area of special expertise, may come within the higher standard. Lowering the Standard of Care? ● Although the standard of care is expected of a lawyer can be raised in certain circumstances, it is against public policy that it be lowered below the ordinary tortious professional standard. So the fact that the lawyer conducts a general practice, is inexperienced in legal practice or in a particular area of law in the jurisdiction, does not lower the standard. Nore is the standard reduced because the lawyer acts without a fee, for a reduced fee, in a legal aid matter, otherwise acts for a client or limited means, or runs a practice in a country rather than a metropolitan area. ● Impact of urgency: • The foregoing does not mean that the law applies the standard of care independent of inquiry into the circumstances in which the advice was requested. In May v Mijatovic (2002), Hasluck J suggested that the standard of care can depend on the urgency of the situatio...