Supreme Court of the ACT provides a useful reminder of the steps a solicitor should take when acting for a client in a conveyance

Feb 2019 |

Introduction

In the recent case of McLennan v Clapham & Ors1, the Supreme Court of the Australian Capital Territory considers a claim alleging solicitor’s negligence in the context of a residential conveyance, and the approach the court will take in assessing the damages.

Background

On 16 June 2009, the plaintiffs purchased a Crown lease for a property in the suburb of Griffith (Griffith property) for $1,375,000. The firm of solicitors who acted for the plaintiffs on the purchase (Solicitors) were the defendants to the proceeding.

The plaintiffs’ complaint against the solicitors centred around the fact that the Griffith property had been insulated with loose-fill asbestos material, which the ACT Government had purported to remove by the time the plaintiffs purchased the Griffith property. The plaintiffs alleged the Solicitors failed to properly advise them about the risks and consequences associated with buying such a property, and if they had received such advice, they would not have purchased it.

In May 2014, the plaintiffs confirmed the continued presence of loose-fill asbestos in the Griffith property by obtaining an environmental survey. In light of the asbestos contamination, the ACT Government repurchased the lease from the plaintiffs on 30 June 2015 for $1.876 million. The house was subsequently demolished, and the plaintiffs had the first right to repurchase the land. They did so on 15 November 2015 for the price of $1.21 million.

The plaintiffs then built a new house on the site of the Griffith property, living in rental accommodation throughout the period when the demolition of the existing house and the construction of a new one occurred. The plaintiffs spent approximately $1.386 million building the new house and as at August 2017, the new premises were valued at around $2.45 million.

Claim against the Solicitors

The plaintiffs brought a professional negligence claim against the Solicitors.  Relevantly, they alleged the Solicitors breached their duty of care to the plaintiffs by failing to advise them prior to the execution of the contract of sale:

  1. of the full terms of the contract of sale and the documents contained therein; and
  2. that asbestos had been present in the Griffith property in the form of loose-fill asbestos.

The plaintiffs collectively claimed approximately $1.83 million in damages, which they alleged were caused by the professional negligence of the Solicitors. Those damages included:

  1. a claim for the costs of relocating when the plaintiffs moved out in October 2014 as well as rental and holding costs;
  2. the costs of building a new house on the site of the Griffith property once it had been demolished;
  3. $150,000 for the disappointment and distress the plaintiffs allegedly suffered; and
  4. $800,000 in lost income for the first plaintiff, who alleges that she took time away from other employment to deal with the asbestos contamination and oversee the construction of the new house.

Basis for the plaintiffs’ claim

Plaintiffs’ meeting with the Solicitors

On 2 March 2009, the plaintiffs sent an unsigned contract of sale for the Griffith property to the Solicitors for advice. The period for expressions of interest in relation to the Griffith property closed on 11 March 2009. The plaintiffs’ offer was subsequently accepted.

The plaintiffs then signed an engagement letter with the Solicitors on 18 March 2009, and attended the Solicitors’ offices the same day to go through the contract. They saw only one person, a conveyancing clerk who was not a qualified solicitor.

The only discussion the plaintiffs had with the conveyancing clerk about asbestos arose from an asbestos advice fact sheet that was attached to the contract for sale. The conveyancing clerk pointed to it and asked the plaintiffs to read it. The conveyancing clerk then pointed to a removal certificate in the contract document which the plaintiffs skim read.

As a result of reading those documents, the plaintiffs knew that asbestos had been removed from the Griffith property. The plaintiffs gave evidence that they thought the asbestos was ‘standard asbestos’ and had no doubt about the safety of the house.

The conveyancing clerk also gave evidence. Although she did not recall acting for the plaintiffs in 2009, she gave evidence of her usual practice in relation to asbestos affected properties. She said she would draw to the buyers' attention the fact that there had been asbestos removal work done and recommend that the buyers contact the asbestos removalists to make further inquiries. There was no file note of that advice being given to the plaintiffs.

The contract of sale

There were a number of documents attached to the contract for sale which the Court considered were relevant to what advice should have been given to the plaintiffs.  These were:

  1. A Certificate of Completion of Asbestos Removal Work dated 25 August 1993. The Certificate included a warning that residual asbestos fibres may still be present in the building and stated that any work involving the alteration of internal walls would require approval.
  2. An 'Important Asbestos Advice' attached as part of a special condition. It was in general terms, and alerted the buyer to the fact that asbestos is hazardous.
  3. A building and pest inspection report dated 11 February 2009, which expressly excluded any consideration of asbestos and ‘strongly recommended’ that potential purchasers obtain other reports to make an informed decision.
  4. A copy of a scope of work for removing loose asbestos fibres from the ceiling, wall cavities and subfloor of the residence.

Decision

The Court found that the Solicitors breached their duty of care to the plaintiffs arising from their failure to provide adequate advice to the plaintiffs in relation to the contract of sale prior to their purchase of the Griffith property.  The Court was also satisfied that had appropriate advice been given, the plaintiffs would not have purchased the Griffith property.

In making the above finding, the Court provided a useful summary of the nature of the duty of care owed by a solicitor to a client purchaser in a property transaction.  The Court noted:

  1. A solicitor owes a general duty to explain legal documents to a client, or at least to ensure that the client understands the material parts. In particular, a solicitor should explain any unusual provisions or any provisions of particular relevance to the client’s proposed activities, or which might influence the client in deciding to enter the contract2.
  2. In the case of property transactions, a solicitor should explain the relevant risks arising from a purchase and the consequences of those risks3.
  3. A solicitor acting for the buyer of property is paid not only for what the solicitor does, but also for the responsibility they assume in trying to protect their clients from financial loss4.
  4. A solicitor has a duty to warn a client of a material risk inherent in a proposed purchase5.

The Court considered the above principles in light of expert evidence provided by the parties.  In summary, the experts considered that based on the content of the contract of sale, a competent solicitor ought to have advised the plaintiffs:

  1. of the risk of discovery of asbestos in cavity walls in the Griffith property;
  2. that preventative measures and additional cost would be involved in any alteration to the structure; and
  3. that although the ACT Government believed loose asbestos removal had been undertaken properly, there was no guarantee.

The Court found that the necessary advice that should have been given was not provided. The Court noted that no person with any qualification to give legal advice either met or corresponded with the plaintiffs. Although the conveyancing clerk was very experienced, not being a lawyer, she was not in a position to appreciate what legal advice should have been given, nor to provide it.

The Court did not accept that the conveyancing clerk recommended the plaintiffs contact the asbestos removalists and found that the conveyancing clerk did not provide any advice to the plaintiffs.  The Court preferred the plaintiffs’ evidence in that regard.

The Court considered that simply showing the plaintiffs the contract of sale and allowing them to skim read it did not amount to the provision of competent advice. The Solicitors were being paid to provide a professional legal opinion on the risks and consequences arising from the contents of the contract for sale. The asbestos information in the contract required the Solicitors to properly explain to the plaintiffs what the risks and consequences were, so as to allow them to make an informed decision about whether to make further enquiries and whether to purchase the property. 

Quantum

The Court accepted that the Solicitors’ negligence caused the plaintiffs to incur costs associated with confirming the presence of the asbestos, relocating from the Griffith property, holding costs of the Griffith property and rental expenses from the period 31 October 2014 (when the plaintiffs moved out of the Griffith property) until 30 June 2015 (when they surrendered it to the ACT Government).  The Court allowed $37,638.34 in relation to those heads of damage.

The plaintiffs were however unsuccessful in relation to the remaining heads of damage, including all costs incurred beyond 30 June 2015, repurchase and building costs, loss of income and disappointment and distress.  The Court considered the buy-back of the Griffith property by the ACT Government on 30 June 2015 to be a break in the chain of causation.  On that date, the ACT Government paid full current market value for the Griffith property, valued on the basis that it was uncontaminated by asbestos. The price received by the plaintiffs was significantly more than what they had paid for the Griffith property in 2009.

At that point, the Court held that the plaintiffs were fully restored to the position they were in before buying the Griffith property. The intervention of the ACT Government had the effect of entirely mitigating any ongoing or further loss the plaintiffs may have suffered in entering into the initial conveyance.

On the above basis, the Court rejected the plaintiffs’ claim for the costs of buying the site of the Griffith property and building a new house on it. Further, the Court was in any event not satisfied that the plaintiffs had suffered any loss in building the house, given valuation evidence indicated the value of the new house was almost the same as the cost of the build and repurchase.

Finally, the Court was not satisfied on the evidence that the plaintiffs had suffered any loss of income which was caused by the Solicitors’ conduct and the plaintiffs’ claim for disappointment and distress was not allowed given the plaintiffs did not allege they suffered a recognised psychiatric illness.6

In the circumstances, although the Court found in favour of the plaintiffs, it awarded them only $37,638.34 in damages out of an overall claim amount of around $1.83 million.

Summary

While the case ultimately turned on its own facts, it provides a useful reminder to solicitors and their insurers of the principles the courts will apply when considering whether a solicitor has discharged their duty of care to a client in a conveyance.  In particular:

  1. A solicitor owes a general duty to explain the contract of sale to a client and draw to their attention any unusual provisions or any provisions which might be of special significance to the client.
  2. A solicitor should also explain the relevant risks arising from the conveyance and the consequences of those risks.

Where a solicitor has been generally retained to act on a purchase, a superficial or limited explanation of the contract of sale will be very unlikely to discharge a solicitor’s duty.  Further, even if a solicitor seeks to limit their retainer to exclude the provision of legal advice and simply act in the conveyance, the solicitor still arguably owes the client a duty to draw to their attention the risks associated with limiting the retainer in that manner.

Finally, the case should also serve as a warning to parties to a litigation to carefully consider the damages that truly flow from an alleged breach of duty.  In this instance, the plaintiffs’ victory will likely be a pyrrhic one, with their legal costs sure to significantly exceed the damages award.  We also await with interest any judgment on costs, which will shed light on whether the Solicitors made an offer during the course of the litigation which exceeded the damages award.  Such a scenario could result in the plaintiffs being liable for the Solicitors’ costs and being significantly worse off financially, despite obtaining a judgment in their favour.

.....

1 [2019] ACTSC 1.
2 Fox v Everingham (1983) 76 FLR 170, 174.
3 Capebay Holdings Pty Ltd v Sands [2002] WASC 287.
4 Fox v Everingham (1983) 76 FLR 170, 175.
5 Rogers v Whitaker [1992] HCA 58.
6 Section 35 of the Civil Law (Wrongs) Act 2002 (ACT)  provides that damages must not be awarded for pure mental harm to a person resulting from negligence unless the harm consists of a recognised psychiatric illness.

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

Greg Stirling

Greg Stirling

Position
Special Counsel
Phone
+61 (0) 7 3000 8366
Email