Solicitors found negligent for failing to inform developers of critical deadlines in a contract for sale

09 December 2021

Solicitors failed to inform a client of critical deadlines that would entitle a purchaser to rescind a contract for sale. The solicitors were found to have acted negligently and in breach of their retainer, however the client was held contributorily negligent for failing to instruct their solicitors in due time.

In issue

  • Whether solicitors breached their retainer and acted negligently in failing to advise a client of the dates by which extension of time notices would need to be served on purchasers to avoid those purchasers from becoming entitled to rescind contracts.

The background

The defendant solicitors were instructed to prepare a contract for the sale of the Developer’s lots. The plaintiff was the assignee of the developer. The contracts provided for a ‘Registration Date’ by which certain documents needed to be registered (for example, the Strata Plan). The contracts allowed for the Developer to extend this Registration Date by up to 6 months, so long as valid notice was given at least 1 month prior to the Registration Date. If registration of the appropriate documents had not occurred prior to the Registration Date, either party was granted an automatic right to rescind the contract. The purchaser was required to rescind within 7 days of the Registration Date, and in doing so, was entitled to have their deposit refunded.

On 6 August 2015, the developer (as vendor) entered into a contract for the sale of Lot 52 with Gregory and Georgina Forbes. A day later, the developer also entered into a contract for the sale of Lot 50 with Madeleine Forbes. In both contracts, the Registration Date was defined as 12 months from the Contract Date. There were delays in the construction of the development, and the developer sought to extend the Registration Dates for those due to expire. On 15 July 2016, one of the developer's agents instructed the defendant solicitors to issue extension of time notices for any contracts with Registration Dates in July or August 2016. On 18 July 2016, these notices were sent out. Gregory and Regina Forbes, and Madeleine Forbes, subsequently served notices of recission of the sale contracts on the basis that the extension of time notices were not served within the required time frame.

The plaintiff alleged that the defendant solicitors breached their retainer and acted negligently by failing to alert the developer to the dates by which the extension of time notices would need to be served on Lots 50 and 52 so as to avoid the purchasers becoming entitled to rescind. They argued that had the defendant solicitors alerted the Developer of the dates, they would have been able to validly extend the Registration Dates and the purchasers would not have been entitled to rescind.

The decision at trial

The court accepted that the Developer relied exclusively on the defendants for legal advice and held that the defendants were in breach of their retainer and acted negligently by not informing the Developer of the deadline for serving the notices. However, the court held that the developer's failure to instruct the defendant to issue the notices constituted a failure to take reasonable precautions against a risk of harm under s 5R of the Civil Liability Act 2002 (NSW). As a result, the court held the developer contributorily negligent and assessed the reduction for such at 30%.

Implications for you

This case is a timely reminder that, as lawyers, acting with reasonable care does not simply involve imparting information on the client. It also involves taking steps to ensure they have understood that information especially where the contract itself is not clear to non-lawyers and where the clients have demonstrated they did not understand it.

Updated 2 March 2023: On 22 February 2023, the NSW Court of Appeal allowed a cross appeal by the solicitors against the decision that they had breached their duty to advise and to exercise due care and skill. The Court of Appeal held that this finding was erroneous as the client had been repeatedly advised of the impending Registration Dates and the time limits within which the right to extend Registration Dates subsisted. The Court of Appeal affirmed previous English and Australian authority that a solicitor is not generally obliged to repeat advice previously given to a client, or to advise on what a client already knows.

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

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