Solicitor's Duty of Care

But then who will we have Left to Sue?

It is trite law that a lawyer will owe a duty of care to their retained client to perform legal services with the skill, care and diligence as is reasonable to expect from a person professing to have the expertise, skills and qualifications of the lawyer.

It also well accepted that, generally speaking, lawyers do not owe a duty of care to persons who are not their clients – or at least… it was!

There are now a number of recognised circumstances in which a duty of care on the part of a lawyer may arise independently of a retainer to persons who may not be a client in the traditional sense.

By way of example, a duty of care has been recognised as being owed by a lawyer to a:

• non-client in the context of a negligent misstatement made by a lawyer causing loss;
• a beneficiary of a client’s will, in the absence of reliance by the third party beneficiaries; and
• a client’s trustee in bankruptcy as a result of the reliance by the trustee on the lawyer.

There are other novel scenarios in which a duty of care on the part of a lawyer may arise independently of a retainer which have not yet been considered by the Courts – many of which have arisen from the law’s innovative nature.

Take the following example arising from developments in the area of Family Law – more particularly, the use of cohabitation agreements prior to marriage.

Imagine you are a successful entrepreneur and you have a de facto partner who is about to inherit a small family fortune.  You each have children from previous relationships and you both want to ensure your respective children get what you intend to leave them.  More pressingly, though, you want to protect your assets from each other in the event your de facto relationship ends in separation.

Accordingly, you engage a lawyer to assist you in documenting an agreement with your de facto partner pursuant to which your respective assets will be kept separate in the event of a separation.  Your de facto partner engages her own lawyer for the same purpose.

Your de facto partner’s lawyer suggests that a cohabitation agreement would be appropriate and you and your de facto partner take his advice and instruct him to prepare a draft.  After some negotiation between your lawyer and your de facto partner’s lawyer as to the precise terms, a final cohabitation agreement is prepared by your de facto partner’s lawyer and executed by you both.

Unfortunately, some years later, your relationship ends in separation.  So what about your assets? No need to worry, they are protected by the cohabitation agreement right?  Wrong.

Your now ex-de facto partner commences Court proceedings against you seeking a declaration from the Court that the cohabitation agreement is invalid and unenforceable upon the basis that she was not provided with legal advice on the cohabitation agreement by her lawyer prior to signing it as required by the Family Law Act 1975 (Cth).

Clearly, your ex-de facto partner’s lawyer owed a duty of care to her to perform the legal services with skill, care and diligence and, in failing to properly advise your ex-de facto partner prior to the signing of the agreement, he may have failed in that duty.  But, that is nothing to do with you.  You didn’t know that and could not have done anything to prevent that situation from occurring.  Surely you are entitled to rely upon the terms of the cohabitation agreement?

Unbelievably, the Court does not agree and finds that, in the absence of your ex-de facto partner having been properly advised on the terms and effect of the cohabitation agreement, it should be set aside on just and equitable grounds (being, that you stand to be placed in a far more financially beneficial position if the cohabitation agreement is enforceable).  You end up paying your ex-de facto partner a significant sum of money and transferring some of your favourite assets.

How do you recover your loss?  Arguably, your ex-de facto partner has done nothing wrong (other than potentially exploiting a legal loophole).  Your lawyer has also done nothing wrong – as it was never his role to advise your ex-de facto partner.  He, like you, expected her lawyer to do his job.  Are you left bearing your losses?

Well, as a result of developments to the laws of negligence in cases such as Perre v Apand Pty Ltd,^[1] Caltex Refineries (Qld) Pty Ltd v Stavar,^[2] Carey v Freehills,^[3] Hedley Byrne & Co Ltd v Heller & Partners Ltd^[4] and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords,^[5] it is arguable that your ex-de facto partner’s lawyer owed you a duty of care, the breach of which means he is liable to pay you damages for the loss you suffered as a result of the cohabitation agreement being invalid and unenforceable.

The rationale for extending that duty of care to you can be explained as follows.

The creation of the cohabitation agreement was not a scenario in which the parties were in dispute, or in which the parties’ interests were (whilst similar) distinct (such as a lease agreement).  Rather, in seeking to create the cohabitation agreement, the parties’ respective interests were aligned – and both the parties’ lawyers were working together to achieve the same outcome.

Both parties were readily identifiable (and, in fact, known to each lawyer).  The use of separate representation was, in fact, merely a necessary imposition to ensure that both parties obtained independent legal advice on the terms and effect of the cohabitation agreement (thereby, significantly diminishing the ability of either party to later argue that they didn’t know what they were signing).  However, in not properly advising your ex-de facto partner, her lawyer placed you in a position where:

• you became vulnerable to the consequences of his acts and/or omissions concerning the provision of legal services to your ex-de facto partner;
• you were likely to suffer loss by reason of his failure to provide legal services with the skill, care and diligence as is reasonable to expect from a person professing to have the expertise, skills, and qualifications that he did; and
• you were unable to protect yourself against the consequences of a failure by him to perform the legal services with the skill, care and diligence as is reasonable to expect from a person professing to have the expertise, skills, and qualifications that he did.

As a result of the developments to the law of negligence, it is not just lawyers who are becoming more exposed to claims by non-clients.  Rather, all professionals must now accept that a risk exists that non-clients who are vulnerable to that professional’s acts or omissions (in the sense of being at risk of suffering loss in circumstances where they cannot take steps to protect themselves from the consequences of a professional’s negligence), may also be entitled to bring a claim for professional negligence against them.