Court clarifies solicitors' pre-litigation duty to clientsSep 2019 | Insurance
A recent decision of the New South Wales District Court in the matter of Bird v Stonham t/as John Stonham & Co Lawyers1 has provided a useful reminder of a number of principles applicable to the consideration of negligence claims against solicitors arising from failed litigation.
Expulsion and bankruptcy proceedings
The plaintiff was the mother of a boy who was expelled from school in 2007. She commenced a suit in the Supreme Court of New South Wales to overturn the expulsion, and lost (expulsion proceedings).
When the plaintiff’s solicitor (Mr Ford) issued a bill in the amount of $100,000 she decided only to pay around $36,000 of it. Mr Ford proceeded to have his costs assessed and recovered a judgment certificate against the plaintiff for the sum of $58,940.22.
On 7 June 2010, Mr Ford issued the plaintiff a bankruptcy notice. The plaintiff engaged a new solicitor (the defendant to these proceedings) to act in relation to the notice. On 25 June 2010 an application to set aside a bankruptcy notice and a supporting affidavit from the plaintiff were filed. The supporting affidavit attached a draft statement of claim for filing in the Supreme Court of New South Wales against Mr Ford in relation to his alleged negligent handling of the expulsion proceedings.
The Supreme Court proceedings
On 13 July 2010, the plaintiff commenced a professional negligence suit against Mr Ford in the Supreme Court of New South Wales (Supreme Court Proceedings). On 30 August 2010, orders were made to set aside the bankruptcy notice, with an order that Mr Ford pay the plaintiff’s costs. In the reasons for the orders, the Magistrate indicated, among other things, that he found the professional negligence proceedings against Mr Ford had reasonable prospects of success.
The defendant acted for the plaintiff in the Supreme Court Proceedings. By July 2014, the plaintiff’s claim against Mr Ford in the Supreme Court Proceedings had failed at first instance and on appeal.
District Court proceedings
The present litigation comprises a further professional negligence suit in the District Court of New South Wales against the defendant (the plaintiff’s solicitor in the Supreme Court Proceedings) (District Court Proceedings). In the District Court Proceedings, the plaintiff complained that the defendant acted negligently by failing to advise her:
- Of the risks of the Supreme Court Proceedings, namely:
- That the trial judge might prefer Mr Ford’s evidence to her own;
- The consequences for the success of her claim if the defendant did not prepare her case competently in advance.
- That if she lost the Supreme Court Proceedings, she might be exposed to a significant cost liability to Mr Ford which was disproportionate to the (relatively) modest debt she owed him.
The plaintiff also alleged that the defendant misrepresented the extent of his expertise and experience in professional negligence and bankruptcy litigation to provide appropriate advice. This misrepresentation was said to be in contravention of the prohibition against misleading or deceptive conduct under section 18 of the Australian Consumer Law.
As regards the misleading or deceptive conduct claim, the judge allowed evidence of the defendant’s conduct after the Supreme Court Proceedings had commenced because he determined it would be relevant to the truth or falsity of the alleged representation as to the defendant’s expertise and experience to consider the defendant’s conduct in the prosecution of the professional negligence claim.
The plaintiff sought to prove that the defendant engaged in misleading or deceptive conduct by seeking to establish the defendant had:
- Negligently prepared her affidavit material for the Supreme Court Proceedings;
- Inadequately represented her interests such that the Court would not allow her to rely on an affidavit at the hearing, when that affidavit annexed documents that could advance her case;
- Not ascertained or made any or any adequate enquiry as to the whereabouts of a typed transcript of a conversation between the plaintiff and Mr Ford.
The defendant denied being negligent or having engaged in misleading or deceptive conduct. In his defence he also alleged:
- There was no causation because:
- The plaintiff elected to continue prosecuting the Supreme Court Proceedings despite receiving advice prior to, and after commencing that the Supreme Court Proceedings had poor prospects of success or should not be continued; and
- The plaintiff had rejected reasonable settlement offers which, had they been accepted, would have put her in a more favourable position.
- Advocates’ immunity applied to the defendant’s conduct.
The Court confirmed that the rationale for the immunity attaching to the advocate’s conduct was the quelling of controversies by the exercise of judicial power. The test requires that the advocate’s work bears upon the Court’s determination of the case.2
As regards the negligence claim, the Court found that the alleged pre-litigation failures to warn about the risks, and cost consequences of commencing the Supreme Court Proceedings were not caught by advocates immunity as they merely had an historical connection with the proceedings and did not impact on the quelling of controversies by the exercise of judicial power.
The plaintiff submitted that her misrepresentation claim was distinct from her negligence claim and that the advocates’ immunity defence was not applicable to that claim. The court confirmed that was not the case and that advocates’ immunity may, in principle, apply to actions for damages for statutory misleading or deceptive conduct.
The court held that a representation by a lawyer to a client prior to the commencement of a suit, as to the lawyer’s expertise, experience or competence does not move the litigation towards any determination by a court even if it could influence a client to decide to commence litigation. As such, the representations would not be caught by the immunity per se.
However, as outlined above, in order to establish that the representations were misleading or deceptive, the plaintiff relied upon events that post-dated the representations and events which occurred after the Supreme Court Proceeding commenced. The Court considered that by trying to establish the falsity of the representations, the plaintiff was necessarily trying to prove acts or omissions by the defendant which did bear upon the Court’s determination of the dispute.
The Court found that:
- The preparation of affidavit evidence, and the plaintiff’s evidence generally, is work that is performed out of court which bears upon the Court’s determination of the case;
- The argument that there was other evidence that was available but which, because of the defendant’s conduct, was not put before the Court amounts to a collateral challenge to the findings of the Court, which would undermine the principle of finality that lies at the heart of the immunity;
- As such, the matters that the plaintiff needed to establish in order to prove her misleading or deceptive conduct action were such that they would bear upon the Court’s determination of a dispute and would amount to a collateral challenge to the Court’s findings.
In the circumstances, the Court held that the defendant had made out his defence of advocates’ immunity in connection with the misleading or deceptive conduct claim.
The Court considered whether the defendant was negligent for failing to warn the plaintiff about the risks and cost consequences of commencing the Supreme Court Proceedings. The defendant did not dispute he did not advise the plaintiff that:
- If he did not conduct the case competently, she may lose;
- Mr Ford’s account of events may be preferred to her own;
- If she lost, she could be exposed to a substantial cost liability to Mr Ford, which would exceed the modest sum of fees she owed Mr Ford.
The defendant said he advised the plaintiff of generic uncertainties of litigation, in the following terms:
'Litigation is difficult because you can win on every point except one and then still lose the case. Even if you establish that the other side did the wrong thing, if you can’t prove that that caused you loss, then you still won’t win. Or you could lose on one factual issue, which may be the undoing of the whole case.'
The Court acknowledged that the sophistication and expertise of a client is a critical factor when assessing the content of a solicitor’s duty to advise. The Court considered that at the time of the Supreme Court Proceedings, the plaintiff was an intelligent person with a professional occupation who had already been involved in the expulsion proceedings and the bankruptcy hearing and consequently:
- Had been the subject of an adverse costs order; and
- Had seen witnesses being cross-examined and submissions being made on behalf of the parties about witnesses’ evidence.
However, the Court was of the view that it is part of a solicitor’s duty of care, which arises from the filing of a statement of claim to ensure a client is advised of certain material features of litigation, prior to commencing a suit on the client’s behalf.
The Court found that such advice was not provided and it was unreasonable for the defendant to have assumed the plaintiff was aware of the above matters because of her previous involvement in litigation or because her previous solicitors or barristers may have brought those matters to her attention.
Particularly, the Court found that reasonable pre-litigation advice should have included:
- Warning the plaintiff that if the Supreme Court Proceedings were contested to trial, they were likely to involve a factual contest; for which credibility findings might be influential, if not decisive.
- Drawing to the plaintiff’s attention that she could be exposed to a very significant costs liability to the other side.
The Court rejected the plaintiff’s complaint that the defendant had a duty to warn her that if he did not perform his duties as a solicitor competently, she might lose. The Court did not consider it was to be expected that a prospective professional service-provider needed to warn a client of adverse consequences should the professional service-provider not act in a competent fashion.
Despite the finding of negligence, the Court found that there was no causative link between the alleged failure to advise and the plaintiff’s alleged loss because it was not persuaded that reasonable advice would have caused the plaintiff to refrain from commencing the Supreme Court Proceedings.
In reaching this conclusion, the Court found:
- The plaintiff was keen to avoid bankruptcy because she wanted to preserve her status as a registered building professional. The plaintiff’s only option to avoid bankruptcy was to apply to set aside the bankruptcy notice and she needed to commence the Supreme Court Proceedings to establish the offsetting claim required to set aside the notice;
- The plaintiff appreciated there was a risk of a contest of evidence at trial and significant adverse costs consequences would likely flow from an adverse finding;
- The plaintiff’s bullish approach towards settlement negotiations and determination to continue the Supreme Court Proceeding despite being advised she had poor prospects of success indicated that any advice regarding the Court preferring the evidence of Mr Ford, or the likelihood that she would bear a substantial costs liability if she lost would not have deterred her from commencing the Supreme Court Proceedings.
Finally, although it was not strictly necessary for the Court to consider damages, the Court characterised the case as a ‘wasted expenditure’ case. The plaintiff’s wasted expenditure included the fees she paid to her solicitors and barristers and the costs awarded to Mr Ford in the Supreme Court Proceedings. In considering the merits of the wasted expenditure claim, the Court considered two intervening acts that occurred during the course of the Supreme Court Proceedings.
Firstly, in March 2012, the plaintiff was advised that her prospects of success were poor and that she should settle. On 10 August 2012, the plaintiff received an offer of compromise, through which she could have settled the litigation with no obligation to pay Mr Ford’s costs.
Secondly, on 30 November 2012, the plaintiff received an offer, which would have allowed her to avoid any liability to pay Mr Ford’s costs and would have given her an amount which would have partially been able to pay some of her legal representatives’ fees. The offer was rejected against the advice of the defendant and the plaintiff’s barrister.
The Court found that the above conduct was so unreasonable that it severed any causal connection between the defendant’s failure to advise and the loss and damage that arose when the risks materialized. The Court found that had the plaintiff succeeded in her case on liability, her damages would have been restricted to her legal representatives’ fees from the commencement of the Supreme Court Proceedings until 10 August 2012 or 30 November 2012 (the dates the above offers were unreasonably rejected).
Although the decision turned on its own facts, it provides a useful reminder to solicitors to ensure their clients are fully informed of material risks of litigation before commencing proceedings and not to assume a client is sufficiently sophisticated or informed to render such advice unnecessary. Ideally, that advice should be provided (or confirmed) in writing as failing to do so can leave a solicitor at a forensic disadvantage if the content of that advice is disputed.
Solicitors and their insurers can take some comfort in the findings on causation and damages. The decision makes it clear that if a client is fully informed or aware of the material risks of litigation and continues to litigate unreasonably against advice, that conduct:
- Exposes the client to the argument that they would have acted in the same manner if such advice had been provided earlier; and
- Could sever any causal connection between the solicitor’s conduct and costs or damages incurred after the advice was given (provided there is a reasonable way for the client to extricate itself from a situation when such advice is given).
Finally, the decision provides a helpful perspective on advocates’ immunity on the basis misleading and deceptive conduct in this instance required a collateral challenge to the Court’s findings in the Supreme Court Proceedings.
1  NSWDC 419.
2 Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1 and Kendirjian v Lepore  HCA 13.
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