Third Parties - Summary Professional responsibility and legal ethics PDF

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Summary for one of the chapters of the book....

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RELATIONS WITH THE PROFESSION AND THIRD PARTIES    

In professional dealings with other lawyers and other persons other than clients, lawyer’s conduct must be characterised with the same principles of good faith, honesty, and fairness. Therefore, in addition, duties to the client and court, there is a potential for lawyers to be attributed responsibility to third parties These are technically not professional obligations but obligations created by law of tort, equity, contract or under statute They are legal duties and generate civil liability (not professional duties = generate disciplinary process).

LEGAL DUTIES TO THIRD PARTIES IN TORT 

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General rule and its rationale  The general proposition is that there is no liability to third parties (non-clients)  The rationale for this is two-fold o The difficulty in determining the class of persons to whom a duty may be owed o The potential for conflict between the duty to client and any responsibilities to third parties  The risk of indeterminate liability is the weightiest concern. What informs the extension of tortious liability beyond the client?  Before courts will impose a duty of care, the cases have shown that they will require a proximity of relationship between the defendant’s and plaintiff.  Successful claims for pure economic loss require more than reasonable foreseeability.  This usually requires some positive action on the part of the defendant (lawyer to establish proximity such as o Assumption of responsibility by a lawyer to a third party o Third party’s reliance on the lawyer’s (or control) a lawyer has over third party’s interests. Lawyer who has assumed responsibility to a third party  A finding that the lawyer assumed responsibility may ordinarily be avoided by advising the third party that the lawyer does not undertake to give advice to third party, and advising them to seek independent advice  Watkins v De Varda: Solicitor (c) was asked by a client (f) to prepare contracts intended to transfer (f) interests in property in Cambodia to the respondent (third party). The contract proved legally ineffective, and the respondent was unable to recover the money he had paid to F. The mere absence of retainer with the respondent did not according to the New South Wales Court of Appeal, dictate that C owed the respondent no duty of care. The evidence revealed that C had given the respondent the impression that he was also serving the respondent’s interests, making it reasonable for the respondent to rely on C rather than retain his own solicitor. As a result, C owed the respondent a duty of care even though C was in a position of conflict. C should have advised him to seek independent legal advice.  Similar issues arise where is a possibility of a retainer being held to exist by implications; where third parties appears to rely on you to protect their interests, caution must be exercised.

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 Where a third parties are not represented, particular caution is required; reasonable reliance will more readily be inferred. Lawyer’s who makes negligent misstatements to a third party  A lawyer who gives advice to a person whom he or she knows, or should know will rely thereon assumes a duty to use proper care.  If the advice is given negligently and loss results, the lawyer will be liable for damages in tort (or under statute) for engaging misleading or deceptive conduct.  Dean v Allin & Watts: the claimant made a serious of loans borrowers, secured by a charge on a leasehold flat. The solicitors, acting only for the borrower’s, incorrectly advised the parties that a mere deposit of deeds was sufficient and effective security for the purpose. The solicitors knew that the claimant was not legally represented in the dealings. When the borrowers defaulted, the claimant sued the solicitors in respect of the misstatements. The court held that the solicitor’s owed the claimant a duty of care not misstate the efficacy of the security and to ensure he obtained effective security, meaning that it was ‘fair and reasonable’ that such a duty should be imposed in view of the foreseeability of damage and the necessary relationship of proximity.  Liability for negligent misstatements may be avoided through a clear disclaimer of responsibility, which will undermine reasonableness to a third party’s reliance. Lawyers who gives an opposing party an assurance or undertaking  However, a lawyer’s assurance or undertaking to a third parties, including opposing client’s may give rise to a personal responsibility in contract where the elements of a contract are present.  But as far as tortious liability is concerned, lawyer does not owe duty to the client of another lawyer  The forgoing does not mean that a lawyer’s tortious duty of care can never arise out of an undertaking or assurance to an opposing client.  Al-Kandari J R Brown & Co (a firm): lawyer held liable to the client’s wife for breach of an undertaking not to release their client’s passport to him.  Lt King v Besser: A debtor’s solicitors wrote to the creditor’s solicitor stating they held sufficient funds to cover the amount owed to the creditor, leading the creditor to pay out funds. The debtor’s solicitors in fact held only a cheque, awaiting instructions as when it might clear. Lawyers who fail to notify an executor of a will or its contents  Hawkins v Clayton: high court found solicitors who had retained custody of a will liable in tort to the executor for loss suffered by reason of their failure to locate and inform him of the will or its contents until six years after the testatrix’s death. In the intervening period, the main asset of the estate, a house, was permitted to fall into despair and lie vacant. What attracted liability was the solicitor’s assumption of loss. Brennan J “saw and foreseeable consequences” of the failure to inform the executor promptly as that loss of “the benefit of possession of the estate which he would have had as executor if the solicitor had informed him of the will.” His honour observed that, as a testator entrusts custody of a will to a solicitor in the expectation that it will be made effectual on her or his death ‘unless some duty of disclosure be imposed on the custodian…the purpose for which the custodian accepted custody would go unfulfilled. o Brennan J: Where the custodian has reason to believe that disclosure by him to executor of the existence, contents and custody of the will is needed in 2

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order that will may be made effectual, the custodian is under a duty to promptly to take reasonable steps to find, and to disclose the material facts, to the executor.  The duty was not owed to the solicitor’s (client) but was a duty to protect the executor and, derivatively, the beneficiaries (indeed, the executor was the principal beneficiary). The executor was held entitled to recover from the solicitor’s compensation for the loss “generated by events occurring when the executor was ignorant of his title to the estate before he had elected whether or not to renounce the office of the executor. “  The loss included the deterioration of the house, the removal & destruction of furniture that was untended in the house, the loss of rent that should have been paid during its unauthorised occupancy, and the penalty for late lodgement of a death duty return. Lawyer’s duty to a disappointed beneficiaries  Hill v Van Erp: held a lawyer retained to draft a client’s will owed a duty of care to the beneficiaries the client intends to benefit, and will be liable for the loss suffered by a beneficiary stemming from a failure to take reasonable care in performing the client’s instructions. There the appellant solicitor drafted a client’s will, and it had it witnessed by a person known to be the husband of the beneficiary rendering the gift to that beneficiary invalid under statute. The court held that the solicitor in negligently preparing the will, had breached the duty of care owed to the beneficiary.  Successful actions of this kind require proof by the disappointed beneficiary that the testator intended her or him to take under the will to the extend her or she alleges. Where, as in Hill v Van Erp, a will exists but its effect is denied because of the lawyer’s negligence, the disappointed beneficiary ordinarily has little difficulty in meeting that onus. Rationale for the duty  Justifications for imposing on lawyer’s tortious duty to disappointed beneficiaries  Unless the duty is recognised those with a valid claim suffer no loss (the testator& estate) but those who suffer loss have no claim (disappointed beneficiary/ies).  The duty promotes professional competence in dealing with wills. Hill v Van Erp. Basis of relief  In the high court of Australia in Hill v Van Erp, although the majority agreed that a plaintiff must establish more than just foreseeability of loss, and that it was foreseeable that a beneficiary would suffer loss if a lawyer negligently performed her or his duty to the testator in drafting the will.  Dawson, Toohey, Mchugh and Gummow JJ considered it a vain hope that the notion of proximity of itself could clearly specify a common element underlying each category of case attracting a duty of care, preferring instead to rely upon policy considerations to mark the outer boundaries of the tort. Yet Dawson and Toohey JJ found in such cases an assumption of responsibility suggesting a relationship of proximity. Dawson explained the point: Whilst there will usually be no specific reliance by an intended beneficiary upon a solicitor retained to attend to the will, the intended beneficiary’s interests are totally and avoidably dependent upon the proper performance of a function within the sole province of the solicitor. And, it might be added, in that situation the solicitor knows of the beneficiary’s dependence and in

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that respect may be regarded as having assumed responsibility towards the intended beneficiary.  Brennan CJ, Gaudron, McHugh and Gummow JJ rejected a plaintiff’s right to recover based on an assumption of responsibility by the lawyer or upon reliance by the plaintiff. Brennan CJ reasoned that the lack of anterior relationship between the lawyer and beneficiary precludes any finding of an assumption of responsibility. The chief justice found the relevant duty in the fact that the duty of care owed by a lawyer to an intended but disappointed beneficiary is in the performance of the work in which the lawyer owes corresponding duty, albeit contractually, to the testator. Gaudron and Gummow JJ held that, in the absence of assumption of responsibility, what attracted the duty of care was the lawyer’s position of control over the interests of the beneficiary.  Yet the consistency in the ultimate outcome reflected a belief that the considerations that ordinarily cause concern over making lawyers liable for loss to third parties are absent in this type of disappointed beneficiary case. First, it did not raise the prospect of indeterminate liability, as an intended beneficiary under a will is a specific, identifiable individual rather than a member of ascertained class, and nor is the liability to such a person at large. Second, the recognition of a duty of care in these circumstances would not supplant remedies available in other areas nor disturb any general body of rules constituting a coherent body of law. Third, the interests of the client and the beneficiary are coincident means the court does not create conflicting duties of care.  Majority in Hill v Van Erp was at pains to emphasis that its decision should not been seen as opening a wide door to the availability of claim to third parties. “It is by no means to espouse any general proposition to the effect that if A promises B which B intended and A knows, will confer a benefit on C if performed, A owes C a duty in tort to perform the service with reasonable skill and care. The question whether this or any variant of a proposition in such broad terms should be accepted must be left for another day. The present case lies in a narrower compass. Quantum of damages (pg. 794) Liability does not extend to beneficiaries of former wills excluded from current will.  As a general principle, lawyers retained to draft a new will owe not duty of care to beneficiaries of previous will.  To allow such action could give rise to conflicts between the duties to beneficiaries of different wills. (Graham Bonnycastle)

LEGAL DUTIES TO THIRD PARTIES IN CONTRACT pg. 797 

Lawyers act as agents for their clients in various respects and may contract on the client’s behalf.  A prudent lawyer will ensure that any transaction of this kind is entered into as agent, with a clear stipulation that the lawyer is not undertaking personal liability.  But maybe due to lack of clarity in terms, the lawyer can be construed can be construed as assuming personal liability (jointly with the client) duties in the contract are attracted.  A lawyer’s potential liability to third parties under contract most often arises in regard to the payment of third party fees (eg medical or other professional reports obtained on a client’s behalf.

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 SCR 35.1 contemplates that a solicitor instructing a third party will accept personal liability for payment of the third party’s fees, unless the solicitor advises the third party in advance that the solicitor is acting only as agent for the client in respect of that contact.  Legal duties arising out of breach of warranty of authority pg. 797 LEGAL DUTIES TO THIRD PARTIES IN EQUITY (p.g. 799) LEGAL DUTIES TO THIRD PARTIES UNDER STATUTE (Pg. 801)  

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A lawyer may also be liable under the Consumer Law for misleading and deceptive conduct. Sending notices to debtors falsely stating that the notices were court documents, that judgement could be obtained without court order and that garnishee orders or warrants could be used to enforce judgement: ACC v Sampson and to accessorial ‘liability’ as a party involved in the contravention  For instance, knowingly endorsing a false statement in prospectus, or failing to correct a false statement by a client. Yorke v Lucus: a lawyer who merely passes on instructions or information from a client, and makes it clear that he or she is doing so, with no knowledge of that statement is false, does not become liable for misleading and deceptive conduct.

PROFESSIONAL DUTIES OWED TO OTHER LAWYERS    

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Professionalism, honesty and courtesy In dealing with other lawyers, lawyers should act honestly, and with fairness and courtesy and civility, and adhere to their undertakings SCR 4.1.2 provides a solicitor must be honest and courteous in all dealings in the course of legal practise. Adherence to these rules promote the efficient administration of justice and respect for the profession. Offensive or disparaging comments to and about other lawyers  The concept of professionalism includes basic standards of civility and courtesy.  Disparaging or offensive language whether to other lawyers or not, and whether in or outside the court his is unprofessional. And accordingly attract disciplinary sanction.  Legal services Commissioner v Winning: where the respondent was found to have engaged in unprofessional conduct arising out of expressing himself in a ‘crude, vulgar, undisciplined way,’ to others in the legal profession, and publicly reprimanded as a consequence.’  David Anthony Perkin: Found Perkins, a barrister, guilty of professional misconduct for using offensive language to a Victorian civil and administrative tribunal: accused a tribunal member of being bigoted, unprofessional and cowardly. Also, described the arbitrator as dishonest, craven in his conduct and behaving in a disgraceful way. Tribunal held his conduct was intemperate and vituperative, and as such, was discreditable to the barrister, prejudicial to the administration of justice, and likely to bring the profession into disrepute. Reprimanded and suspended for practise for 3 months.  As may the making of unsupported accusations against or derogatory remarks about other lawyers in their professional calling. See (22.35) 5

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Animosity between clients not to be reflected in professional relations  Lawyers must not permit any acrimony or dishonesty that may exist between the parties to seep through into their professional relations with one another. Honesty and accuracy in representations (including negotiations)  A lawyer’s inaccurate statements or representations to other lawyer’s negatively impact on the efficient administration of justice which necessitates that lawyers be able to rely on their colleagues representations and assurances.  May end up liable in tort, contract or under statute  Barrister rules 49 & 22.1: a solicitor must not knowingly make a false statement to the opponent in relation to the case (including compromise) and must take all necessary steps  Rules envisage (‘compromise’) that lawyers should avoid false statements in negotiations on a client’s behalf.  But the rules do not explicitly address the conduct expected in negotiations has led some to see the duty not to mislead an opponent as inapplicable (or not applicable to negotiations).  Yet it cannot be assumed that misleading conduct by lawyers in the course of negotiations has no ramifications.  There is certainly no shield from disciplinary sanction  Legal service commissioner v Mullins: Barrister reprimanded and ordered to pay $20,000 fine for failing to disclose to insurer in settlement negotiations that his client had been diagnosed with cancer and his life expectancy significantly reduced.  Virzi v Grand Truck Warehouse and cold storage (American cas): A settlement was set aside on the defendant’s application, where the plaintiff’s lawyer had failed to disclose the plaintiff’s death some weeks before settlement. Avoiding discrimination, harassment and bullying  SCR 42. 1 Professional rules proscribe a lawyer from engaging in conduct that constitutes discrimination and sexual harassment, defined by reference to applicable anti- discrimination or human right statutes.  SCR 42.1 the rules also proscribe workplace bullying includes behaviour that could be expected intimidate, offend, degrade or humiliate. Confidential communication  Lawyer’s should not disclose or seek to adduce communications that are expressed “without prejudice.”  Or that come within the veil of confidentiality or legal professional privilege (Chapter 19). This dictates lawyers who receive a document whether by post, fax or electronically sent by opposing lawyers by mistake – should avoid reading the document and immediately return it to the sender. This privilege is not waived. Court can disqualify a lawyer who has read a document sent by mistake. Recording conversations  It is unprofessional and invasion of privacy for a lawyer to audio or video record a conversation with another lawyer without the latter’s consent.  Secret recording is dishonest. Second opinions and referrals  A lawyer must confer with or given a second opinion to the client of another lawyer. It is professional courtesy to notify the first lawyer beforehand. Threats to seek personal costs order

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 A lawyer may, by order of the court, be made personally liable for the costs of a matter where, in the circumstances, the costs have been incurred because a lawyer’s breach of duty in the court.  This raises the prospect of lawyer A threatening to seek a personal costs order against lawyer B as a trial tactic designed to discourage lawyer B from proceeding with the matter.  An indemnity costs order is likely to be made against a person who, in this context, makes an allegations that prove to be unfounded.  No reasonable prospects of successes relating to threats to seek cost orders? 2014 uniform application act Complaining in professional manner  A lawyer concerned about the behaviour of another lawyer and bel...