A Proprietary Interest is Golden

15 April 2021

In Issue

  • This case considers the scope of a legal practitioners duty of care when providing advice to its clients. The case also considers the scope and application of advocates’ immunity.

The background

In 2005 the plaintiff was a construction company. It entered into a construction contract with Marina Cove Pty Ltd (Marina Cove), which was a developer, for the construction of 69 townhouses at Safety Beach on the Mornington Peninsula.

In mid-2008 the plaintiff had suspended construction at the development, on the basis that it was owed almost $22M for work completed to date. The parties agreed to settle the plaintiff’s claim on the basis that:

  1. Marina Cove would sell the plaintiff 33 lots from the development for a discounted price of $15M (the lots were estimated to have a market value of approximately $30M);
  2. in consideration for the discounted purchase price, the plaintiff agreed to complete construction of a number of partially constructed lots; and
  3. Marina Cove agreed to pay certain outstanding invoices (the Agreement).

The parties fell into dispute regarding a number of issues in relation to the performance of the Agreement, including whether the plaintiff was required to pay a deposit on the purchase of the individual lots and whether the plaintiff could set-off further debts against the purchase price.

In May 2009 Marina Cove purported to terminate the Agreement on the grounds of repudiation, citing the plaintiff’s attempts to claim a set-off for money owed with respect to certain additional work done after the Agreement had been reached. The plaintiff sought advice from its solicitor (Hoeys Lawyers) and senior counsel as to whether it should in fact terminate the Agreement itself, on the basis that Marina Cove had repudiated the Agreement by failing to pay the outstanding debts.

Although counsel had previously urged the plaintiff to try to preserve the Agreement, so as to protect its proprietary interest in the 33 lots, in a short email senior counsel recommended terminating both the construction contract and the Agreement. The email did not contain any analysis for the reasons why that course of action was preferrable, nor did it contain an explanation as to the likely consequences of termination. It was a significant change to the previous strategy discussed and agreed with the plaintiff.

The plaintiff accepted senior counsel’s advice, and sent letters settled by senior counsel to Marina Cove terminating the agreement. In August 2009 Marina Cove was put into liquidation. As a result the plaintiff had no recourse for the millions of dollars it was owed.

The plaintiff sued its former solicitors and senior counsel, alleging that the advice to terminate the Agreement was negligent because it failed to consider that losing its proprietary interest in the 33 lots was not in the plaintiff’s best interest (given that it was known that Marina Cove was likely on the verge of being put into liquidation).

As against junior counsel it was alleged that he failed to warn the plaintiff that that advice was negligent. The allegations against junior counsel were different because he did not give any advice, nor was he asked to express an opinion on the proposed termination, however he was copied into various emails relating to the termination. The plaintiff asserted that this gave rise to a duty to warn the plaintiff of the potential consequences.

The decision at trial

Justice Blue found that senior counsel did not have sufficient information available to him when he advised to terminate the Agreement, such that he could not have given adequate consideration to taking such a significant step in the dispute. Senior counsel was found negligent on the basis that he failed to:

  1. request the information he needed to provide a considered advice;
  2. give due consideration to the significant and complex issues which were the subject of the dispute; and
  3. detail in his advice the relative advantages and disadvantages of taking the action he recommended, such that the plaintiff was not advised of the consequences of termination.

Justice Blue found Hoeys Lawyers were negligent for failing to question senior counsel’s advice, including by requesting or requiring that senior counsel give a detailed explanation of the considerations he relied on in reaching his conclusion. Hoeys were also found to have breached their duty of care to the plaintiff, by failing to ensure that the plaintiff was adequately warned of the consequence of the termination of the Heads of Agreement and in particular that it would result in a loss of any proprietary interest in the 33 lots.

Junior counsel was found not to have acted negligently. The Court found that in circumstances where junior counsel was not asked to express an opinion, it was reasonable for him to assume that senior counsel and the solicitors involved were taking adequate steps to advise the client. Merely seeing the email correspondence therefore did not give rise to a duty to warn.

As a tactic during the dispute with Marina Cove, the plaintiff had issued a proceeding against Marina Cove seeking specific performance of the Agreement. Senior counsel and Hoeys argued that the advice was therefore related to litigation and as such, attracted advocates’ immunity. The Court found that senior counsel and Hoeys were unable to rely on advocates’ immunity because, although there was litigation on foot between Marina Cove and the plaintiff, the Court concluded that advice about whether to affirm or terminate an agreement was not litigious in nature and therefore could not attract advocates’ immunity.

Implications for you

This case underscores that lawyers must give due and detailed consideration to the matters which are presented to them when advice is sought, and clearly set out or explain the relative advantages or disadvantages to their clients.

An important take away for solicitors is that they cannot blindly rely on advice given by counsel to discharge their duty of care. Solicitors must independently turn their mind to the issues being considered and in turn ensure that when the advice is passed on to the client, it is done so appropriately such that their client is able to understand the recommendation being made.

ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd and Ors [2021] VSC 79

Ask us how we can help

Receive our latest news, insights and events
Barry Nilsson acknowledges the traditional owners of the land on which we conduct our business, and pays respect to their Elders past, present and emerging.
Liability limited by a scheme approved under Professional Standards Legislation