The NSW Court of Appeal Confirms the Scope of a Solicitor’s Duty to Advise Clients

Mar 2023 | Insurance

Case In Focus: Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey & the persons listed in Schedule A to the Notice of Appeal trading as Sparke Helmore [2023] NSWCA 23

The New South Wales Court of Appeal recently considered the scope of a solicitor’s duty to advise a client, confirming the general rule that a solicitor does not have a duty to remind a client of advice provided previously or advise a client about matters which are already known to them.

Background

The respondent solicitors (the solicitors) were retained by a property developer, Shoal Bay Beach No.1 Pty Ltd, (the Developer), to provide legal services in connection with the construction and sale of units on land owned by the Developer in Shoal Bay. The proceedings were commenced by the Developer’s liquidators (the appellants), following the Developer being wound up in insolvency.

The Developer entered into numerous contracts for the sale of units off the plan. The claim arose from the rescission of two of those contracts by the relevant purchasers. Each of those contracts provided the purchasers and the Developer with a right of rescission if conditions precedent to completion had not been satisfied before the “Registration Date”. The Registration Date for each of the contracts was 12 months from the Contract Date, being 6 and 7 August 2016 respectively.

The contracts included a clause affording the Developer the right to extend the Registration Date in certain circumstances, provided that notice was provided to the purchasers at least one month prior to the Registration Date.

The solicitors advised the Developer of the matters outlined above, including the operation of the contractual clause which provided the right to extend the Registration Date with one month’s notice. The solicitors also provided schedules outlining the relevant dates to the Developer.

In accordance with the Developer’s instructions, the solicitors sent letters to purchasers of units whose Registration Dates fell in June or July 2016 advising that they were instructed that the Developer would not achieve completion of the project by the Registration Date, and while the Developer was able to request an extension of time, it preferred to vary the Registration Date.

The solicitors did not prepare similar correspondence to the purchasers whose contracts were relevant to these proceedings, or otherwise request an extension of the Registration Dates within the prescribed one-month period. The Developer did not provide instructions to do so (in circumstances where the Registration Dates fell in August 2016), and the solicitors did not seek those instructions.

Notices seeking an extension were sent, in accordance with the Developer’s instructions, approximately three weeks before the expiration of the Registration Dates. The purchasers took objection to those notices on the basis they were not served within the prescribed period and rescinded the contracts.

The decision at first instance¹

The appellants commenced Supreme Court proceedings against the solicitors, alleging that the solicitors failed to advise the Developer that its right to extend the Registration Date was only exercisable a minimum of one month prior to the Registration Date, and that the purchasers could elect to rescind their contracts if the right was not exercised within that period.

The appellants alleged that as a consequence they suffered loss and damage referrable to the difference between the sale price in the contracts which were rescinded and the amount the two lots were ultimately sold for, as well as other costs and interest.

The primary judge upheld that claim, finding that the solicitors ought to have sought instructions from the Developer prior to 6 July 2016 (being when the notice to seek an extension was due) about its intentions with respect to the contracts to ascertain whether they should send extension of time notices to the purchasers’ solicitors

That conclusion was based on the primary judge’s findings that, “It was not a question of a solicitor being required to remind a client of something which had already been imparted. The terms of the contract were not straightforward to non-lawyers; those associated with the [D]eveloper had already demonstrated that they did not understand how [the relevant clauses] worked.”

The primary judge reduced the damages awarded by 30%, on the basis that the Developer was contributorily negligent.

The Court of Appeal’s decision

The Court of Appeal overturned the decision at first instance, holding that:

The solicitors discharged their duty of care to the Developer by repeatedly advising it of the impending Registration Dates and the time limits within which the right to extend Registration Dates subsisted.
While the solicitors had been expressly instructed to negotiate and advise on the extension of some of the contracts in the development, the evidence did not support a finding that the solicitors were obliged to go beyond the Developer’s express instructions, so as to negotiate and advise on all pending contracts.
The solicitors had no duty to seek instructions regarding providing notice in respect of the contracts which were ultimately rescinded, notwithstanding the impending Registration Dates.

In making that finding, the Court of Appeal concluded that, consistent with the general rule that a solicitor is not negligent in failing to remind a client of advice already given or of what the client already knows,² there was no duty on the solicitors to provide further advice regarding those matters as:

At that time, the Developer could have been in no doubt that a notice of extension would have to be given at least one month prior to the Registration Date. This finding was supported by the Developer’s involvement in requesting extensions to the earlier contracts, as well as the Court of Appeal’s findings that the individuals acting on behalf of the Developer were “experienced in the property industry” and “presumably not unintelligent.”
It was reasonable for the solicitors to proceed on the basis that if the Developer wanted it to negotiate extensions, or to serve a notice of extension, they would be instructed to do so. Their retainer did not extend to proffering that advice or seeking those instructions.

Finally, the Court of Appeal held that on the assumption that the solicitors were liable in negligence, the primary judge erred in assessing the Developer’s contributory negligence at 30%. Instead, the Court of Appeal found that the proper assessment of contributory negligence on the evidence before the Court was 80%.

Conclusion

Against the background of the unfavourable finding at first instance, this case provides helpful guidance about the scope of a solicitor’s duty to provide advice, and is consistent with previous cases in which it has been held that:

The level of expertise and experience of the client allegedly owed the advice is relevant to both the scope of the solicitor’s duty and causation. It is unnecessary for a solicitor to advise experienced businesspeople and property developers of certain matters.³
A solicitor does not have a duty to remind a client of advice provided to them previously. In Yager v Fishman [1944] 1 All ER 552, the authority for that rule, the Court of Appeal stated that a solicitor is not bound to supply deficiencies in their client’s memory unless clearly requested to do so, noting that a client is unlikely to welcome an invoice including charges for unwelcome reminders.

The rationale underlying those rules is that a solicitor does not have a duty to advise a client about matters where the client already knows the content of such advice.

It is therefore important for solicitors to make enquiries of their clients to ascertain their experience regarding and understanding of matters that are relevant to discharging their retainer. It is that understanding and experience which informs the solicitor’s duty to provide particular advice.

1. Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times Sparke Helmore (No 5) [2021] NSWSC 1499.

2. See Yager v Fishman & Co and Teff & Teff [1944] 1 All ER 552 at 558; Scottsdale Homes Pty Ltd v Gemkip Pty Ltd [2008] QSC 326 at [93]-[101]; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628 at [175]; Capebay Holdings Pty Ltd v Sands [2002] WASC 287 at [7], [97]-[98]; Nigam v Harm (No 2) [2011] WASCA 221 at [139]-[142].

3. See for example, Forbuoys v Gadhavi [1993] NPS 133 (regarding advice to an experienced businessman purchasing a property about the date of the rent review), or Carradine Properties Pty Ltd v D J Freeman & Co (a firm) (1989) 5 Const LJ 267 (regarding advising an experienced business developer regarding obtaining liability insurance).

This article may provide CPD/CLE/CIP points through your relevant industry organisation.

The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.