Causation, counterfactuals and proof: High Court reaffirms the importance of establishing compensable loss in solicitors negligence claims

On 5 November 2025, the High Court of Australia (High Court) delivered its judgment in R Lawyers v Mr Daily [2025] HCA 41. Barry Nilsson acted for the solicitors, R Lawyers.

In issue

• The judgment focuses on issues of causation and loss, and the accrual of a cause of action in negligence.

The background

Between 2002 and July 2005, R Lawyers provided advice to Mr Daily and prepared a draft financial agreement in contemplation of his marriage to Ms Daily.

On or around 21 July 2005, Mr Daily and Ms Daily signed a deed detailing their intention to enter into a binding financial agreement (BFA) before marriage pursuant to s 90B within Part VIIA of the Family Law Act 1975 (Cth) (FLA). They married later that year, and had two children together before separating in 2018.

In December 2019, Ms Daily commenced proceedings against Mr Daily in the Federal Circuit and Family Court of Australia (Division 1) (Division 1 Court), seeking a declaration that the BFA was not binding under s 90G of the FLA, an order that the BFA be set aside under s 90K of the FLA, and an order under s 79 of the FLA for the alteration and settlement of their property without regard to the BFA.

The proceedings were split with an initial hearing to determine whether the financial agreement was binding, and if so, whether it should be set aside.

The Division 1 Court rejected Ms Daily’s claim under s 90G of the FLA and found that the financial agreement was binding on the parties, but ordered that the financial agreement be set aside pursuant to s 90K(1)(d) of the FLA on hardship grounds.¹ Mr Daily appealed.

The Appellate Court allowed Mr Daily’s appeal and remitted the matter to the primary judge. In its judgment, the Appellate Court expressed reservations about whether the financial agreement was certain.

In 2021, Mr Daily joined R Lawyers to the proceeding against the risk that the BFA might be set aside or unenforceable. Mr Daily relevantly alleged that:

1. R Lawyers had not discharged their duty of care because, prior to him entering the BFA, they had not advised him in relation to the risk that the BFA would be held void for uncertainty or set aside on grounds of hardship;
2. he would not have entered any BFA, married Ms Daily, or had children with her, if he was not assured the BFA would be effective; alternatively he would have entered into an alternative BFA that reflected his instructions and sufficiently provided for any child of the marriage in the event of a marriage breakdown so that it was not vulnerable to being set aside on hardship grounds; and
3. if the BFA was unenforceable for uncertainty, he had suffered or would suffer loss and damage due to R Lawyers’ negligence, because he would be liable to pay Ms Daily more by way of a property settlement under s 79 of the FLA than the amount payable under the BFA (and would incur legal costs that he otherwise would not have incurred).

R Lawyers denied the claim and denied that Mr Daily had suffered loss or damage. In the event the BFA was not enforceable (which was not admitted), R Lawyers pleaded that it was not causative of any loss to Mr Daily as the BFA was liable to be and would be set aside under s 90K(1)(d) of the FLA on the grounds of hardship, if enforced.

Division 1 Court

In judgments delivered in March 2023² and February 2024³ respectively, the Division 1 Court relevantly found that:

1. the BFA was void for uncertainty;
2. R Lawyers had breached their duty of care by not providing adequate advice to Mr Daily regarding the risk that the BFA would be held void for uncertainty, and in failing to provide advice as to what would happen on the birth of a child - and whether that might represent a material change in circumstances;⁴
3. Mr Daily’s claim against R Lawyers in negligence was brought within time and not statute barred, because the loss and damage claimed was not sustained until at least the date of separation;⁵ and
4. as to causation and damages:⁶
   1. Mr Daily understood prior to entering the BFA that absolute certainty of outcome could not be guaranteed by entering the BFA;
   2. Mr Daily’s evidence did not permit a finding that he required absolute certainty of outcome to enter the marriage;
   3. Mr Daily had not demonstrated the type of clauses that could have been drafted by R Lawyers in 2005 to reasonably attempt to avoid an application by Ms Daily on hardship grounds;
   4. had the BFA been binding, it would have been set aside in any event under s 90K(1)(d) because Ms Daily would otherwise suffer hardship as a result of a material change in circumstances relating to the care, welfare and development of the children⁷
   5. the finding of hardship was not informed by the terms of the BFA, but rather the circumstances of the parties 15 years after it was executed;
   6. Mr Daily could not establish on the balance of probabilities that his preparedness to enter the marriage was conditional on not just entering a financial agreement that would be binding, but also that Ms Daily would have no redress to bring an application to set the BFA aside on hardship grounds;
   7. in the circumstances (and noting the hardship finding), Mr Daily had not suffered any compensable loss as a result of the BFA being set aside for uncertainty, beyond his legal costs of litigating the uncertainty point; and
   8. damages against R Lawyers were assessed at $38,000 for wasted legal costs.

The Division 1 Court subsequently made final property settlement orders between Mr Daily and Ms Daily.

Appellate Court

Mr Daily appealed the primary judge’s finding that he had not suffered compensable loss beyond certain legal costs. R Lawyers pursued a cross-appeal of the finding that Mr Daily’s negligence claim was not statute barred, which was unsuccessful.

The Appellate Court overturned the primary judge’s finding that Mr Daily had not suffered compensable loss.⁸ The Appellate Court characterised Mr Daily’s claim as including a claim for damages for a loss of a chance to negotiate a BFA which made provision for the birth of a child or children, and survive a challenge on grounds of hardship, which it said required evaluation by the primary judge.

The Appellate Court found it was unnecessary for the primary judge to have determined the hardship claim to assess damages against R Lawyers, and that by doing so the primary judge appeared to have lost focus on the distinction between causation and damages.

The Appellate Court made orders setting aside the damages award and remitted the assessment of damages (including damages referable to his legal costs in litigating the hardship issue against Ms Daily) back to the Division 1 Court - to a judge other than the primary judge.

The High Court decision

On appeal by R Lawyers,⁹ the High Court considered whether:

1. Mr Daily had failed to prove any loss or damage (other than his legal costs) was caused by the solicitors’ negligence; and
2. Mr Daily’s claim against R Lawyers was statute barred.

Loss

The High Court allowed R Lawyers’ appeal with respect to Mr Daily’s loss, for the following reasons:

• Once the Division 1 Court concluded it was not satisfied that Mr Daily would not have entered into the marriage unless absolutely certain the BFA would be upheld in the event of a challenge, the only possible remaining basis for establishing loss was that Mr Daily and Ms Daily would have entered into a different BFA that was not vulnerable to being set aside on hardship grounds.
• It was fatal to that latter case that the Division 1 Court had found that Mr Daily had not instructed R Lawyers that he wanted a BFA that was effectively ‘bullet proof’ against a hardship challenge, and that there was an absence of any evidence from Mr Daily as to the terms of a BFA that in 2005 would have amounted to a reasonable attempt to avoid a hardship challenge.
• While Mr Daily was not necessarily required to identify the precise terms of the counterfactual financial agreement, he would have had to identify at least the scope, nature and likely monetary amount (or range of monetary amounts) that any provision for children in an alternative BFA would have entailed. Without that, there could not be any assessment of whether Ms Daily would (or may) have agreed to the alternative arrangement, whether that arrangement would (or may) have survived a hardship challenge - and if so, whether Mr Daily would have been better off compared to the final property orders which were made.
• As Mr Daily had failed to prove that he and Ms Daily would have entered into an alternative agreement that would (or may) not have been set aside on hardship grounds, he was not entitled to damages referable to his legal costs in litigating the hardship issue, and the primary judge was correct in limiting his damages to the legal costs related to the uncertainty claim only.

Limitations

As to the limitations issue, the High Court considered R Lawyers’ argument that – analogous with the case in Davys Burton v Thom¹⁰ (Davys Burton) – Mr Daily ‘did not get what he should have got' from the performance of the solicitors’ duty, and he therefore suffered loss when the BFA was executed, or no later than when he married Ms Daily with an inadequate financial agreement in place. That is, R Lawyers’ argument was that Mr Daily had acquired a ‘damaged asset’ and suffered actual loss upon execution of the BFA or upon marriage.

However, the High Court observed that:

1. identifying the interest that is said to be infringed is critical to an application of the limitation periods to claims in negligence giving rise to economic loss;
2. financial agreements under the FLA are creatures of statute and are not simple contracts. Insofar as a financial agreement deals with how property or financial resources of the parties to a marriage are to be dealt with if the marriage breaks down, the financial agreement’s ultimate function is to define rights and obligations enforceable by an order made under s 90KA of the FLA, and avoid orders re-distributing the property of the relationship under s 79 of the FLA. Those parts of a financial agreement are not enforceable until after separation, and have no consequence or other relevant effect at the time of marriage;
3. the ‘interest’ of Mr Daily that was infringed was his interest in securing a financial agreement not liable to be set aside under the FLA, so that it was enforceable on and after separation;¹¹
4. the potential variations in personal circumstances that may occur from the time of a marriage until it ends are so innumerable that it is not possible to ascertain whether loss or damage has been sustained by reason of a person’s entrance into (or failure to enter into) a binding and effective financial agreement at the time of entry or marriage;
5. in this statutory and factual context, it could not be inferred that Mr Daily had suffered some immediate damage upon entry into an ineffective agreement; and
6. Mr Daily’s cause of action in negligence against R Lawyers did not accrue until at least the time of his separation from Ms Daily, and was therefore not statute barred.

It warrants mention that R Lawyers submitted that the fact that Mr Daily could have recovered legal costs of remedying defects in the BFA on or after its execution in 2005 demonstrated that the loss or damage was suffered in 2005. The High Court found at [70]:

Implications for you

The identification of the interest that is said to be infringed is critical to the application of limitation periods to negligence claims causing economic loss.

For financial agreements under the FLA, the decision in R Lawyers v Mr Daily [2025] HCA 41 clarifies that where a financial agreement is unenforceable due to a solicitor’s negligence, the interest infringed is the interest in securing a financial agreement not liable to be set aside under the FLA, so that it was enforceable on and after separation.

Given the many imponderables and endless permutations of individual circumstances and events over the course of a marriage and to the point of separation, it will usually not be possible to ascertain whether loss or damage has been sustained by reason of entry, or otherwise, into a binding financial agreement.

In the statutory and factual context of this matter, no inference that Mr Daily suffered some immediate damage from ‘not getting what he should have got’, namely entry into a binding and enforceable financial agreement, could be drawn.

The judgment restates well-established principles of the measure of damages in torts, and the assessment of those damages against the case actually advanced by a party. The decision also affirms that counterfactuals (which in this case, was that but for the solicitor’s negligence, the plaintiff would have achieved a particular outcome, or alternatively lost the chance of obtaining a different agreement), must be pleaded carefully and established on the balance of probabilities by evidence. Failure to do so will likely prove fatal.

Parties seeking to recover loss or damage on the basis they would have entered an alternative (and more favourable) agreement, or obtained a particular outcome, must provide sufficient evidence of what that alternative agreement would have looked like. In the absence of evidence that the party would have been better off (and in what way and to what extent), a court will be left to conclude that there has been no loss.

R Lawyers v Mr Daily [2025] HCA 41

¹ Family Law Act 1975 (Cth) s 90K(1)(d) – A court may make an order setting aside a financial agreement if the court is satisfied that since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child a party to the agreement will suffer hardship if the court does not set the agreement aside.
² Daily & Daily [2023] FedCFamC1F 222 (2023 Judgment)
³ Daily & Daily (No 3) [2024] FedCFamC1F 47 (2024 Judgment)
⁴ 2023 Judgment
⁵ Ibid
⁶ 2024 Judgment
⁷ 2023 Judgment
⁸ Daily & Daily (No 4) [2025] FedCFamC1A 185
⁹ R Lawyers was granted special leave to appeal the finding that Mr Daily’s negligence claim was not statute barred. At the hearing before the High Court, an issue arose in the course of argument as to the characterisation of Mr Daily’s loss as a loss of chance by the Appellate Court. Mr Daily was granted leave to file a notice of contention. The notice of contention contended that the Appellate Court erred in recording that Mr Daily’s compensatory damages claim included a claim for damages for the lost opportunity to negotiate a different financial agreement. R Lawyers applied to amend its notice of appeal to include an additional ground of appeal that the Appellate Court erred in remitting the assessment of damages in light of the primary judge’s unchallenged finding that Mr Daily adduced no evidence of what the terms of a financial agreement prepared with reasonable skill and diligence would or might have been.
¹⁰ Davys Burton v Thom [2009] 1 NZLR 437.
¹¹ In the joint judgment of Gageler CJ, Jagot J and Beech Jones J, their Honours likened the interest infringed as of a kind conferred by statute and not of a kind similar to a party’s interests in a bundle of rights under a commercial contract.