In the recent case of Fussell v Hanrahan t/as Dignan & Hanrahan Solicitors1 the New South Wales Supreme Court dismissed a professional negligence claim brought against two solicitors. While the plaintiffs succeeded in establishing breach, the case ultimately turned on their inability to establish causation.
Background
On 10 May 2012, the first plaintiff (Mr Fussell) entered a contract with a vendor to purchase a large industrial site (the Property), with a delayed settlement of five years (the Contract). Concurrently, a commercial lease was entered into between Mr Fussell’s company (the Company) and the vendor, pursuant to which the Company was to have a six-year lease of the Property. As the plaintiffs would later come to realise, there were several issues with the manner in which the Contract was drafted, namely with respect to the clauses regarding a life estate and death and insolvency.
(a) The life estate clause
The elderly vendor lived in a house on part of the Property, leading the parties to enter an arrangement whereby the vendor would have a life estate over the house with the remainder to be given to Mr Fussell on the vendor’s death. However, as the proposed life estate was with respect to only part of the Property and that part was not shown on a current plan or proposed plan of subdivision, registration of the transaction could be refused pursuant to section 23F(2) of the Conveyancing Act 1919 (NSW) (the Act).
Further, the life estate was provided for in clause 49 of the Contract which annexed a deed and form of transfer. The effect of that form of transfer was that the whole of the Property was transferred to the vendor for life with the remainder to Mr Fussell on the vendor’s death. That was inconsistent with the arrangement between the parties, the terms of the Contract and the deed, and resulted in the bank refusing to lend money to Mr Fussell to assist in purchasing the Property.
(b) The death and insolvency clause
Another issue with the Contract was in relation to clause 33.2 which relevantly entitled either party, in the event the other party died prior to completion, to rescind the Contract by notice in writing forwarded to the solicitor for the other party.
The Contract failed to settle on 10 May 2017, and two days later the vendor died. Shortly thereafter, the vendor’s solicitor and executor of his estate (Ms D) sent a notice purportedly rescinding the Contract pursuant to clause 33.2. Mr Fussell commenced proceedings against Ms D seeking specific performance of the Contract on the basis clause 33.2 only entitled the other party (i.e. the living party) to rescind the Contract. That argument was upheld at first instance,2 although dismissed on appeal.3
In the meantime, the plaintiffs commenced these proceedings seeking damages against the solicitor who acted for them in relation to the various agreements with the vendor between around March 2012 to April 2016 (the first defendant) and subsequently joined the solicitor they retained in lieu of the first defendant and who acted for them in the specific performance proceedings (the third defendant). The second defendant was another solicitor employed by the same firm as the first defendant, but his conduct was not considered by the Court in its judgment.
The claim
It was alleged the first defendant breached his duty of care by failing to advise Mr Fussell, adequately or at all, regarding:
(a) The presence and effect of clause 33.2; and
(b) The vendor’s inability to grant a life tenancy over only part of the Property due to section 23F of the Act.
Mr Fussell alleged that breach resulted in him losing the opportunity to amend the Contract to remove the subject issues.
As against the third defendant, it was alleged he breached his duty of care by failing to:
(a) Advise Mr Fussell of the presence and effect of clause 33.2 until after the vendor’s death; and
(b) Arrange settlement of the Contract prior to the vendor’s death.
Mr Fussell contended that breach caused him to lose the opportunity to achieve an early settlement before the vendor’s death.
Regarding the Company’s claims against the defendants, it was alleged the solicitors’ respective breaches caused the Company to lose the right to remain as the lessee beyond the six-year period. Accordingly, it claimed damages for wasted expenditure or reliance damages.
The decision
(a) Liability of the first defendant
The Court accepted there was an implied retainer between the first defendant and the Company. However, there was nothing to suggest the first defendant knew or ought to have known the Company was spending money on the Property on the expectation a new lease would be entered after the six-year period. Consequently, the scope of the first defendant’s duty to the Company was limited to providing advice on the lease and ensuring it was entered into as intended by both plaintiffs. That duty was found to have been discharged.
In respect of Mr Fussell, it was held the first defendant owed him a duty to not only advise of the presence and effect of clause 33.2 (which he did) but also of the fact the clause should be modified or deleted. The latter duty was said to arise as a result of the unusual circumstances, namely the fact the Contract had a five-year settlement period and the first defendant was aware of the vendor’s poor health. Consequently, the first defendant was found to have breached his duty of care by failing to advise Mr Fussell to instruct him to renegotiate clause 33.2.
The first defendant was also found to have departed from common professional practice by failing to advise Mr Fussell of the discrepancy with the form of transfer for the life estate and renegotiate a transfer that reflected the parties’ agreement.
Nonetheless, the Court observed that even if it were accepted that but for the first defendant’s breach, Mr Fussell would have instructed the first defendant to negotiate to alter or delete clause 33.2 and rectify the life estate issue, the evidence given by Ms D as to her conversations with the vendor and what she would have advised in those circumstances, coupled with an examination of the history of the vendor’s prior attempts to sell the Property, demonstrated that any such negotiations would likely have been futile and those issues were unable to be remedied irrespective of any breach.
In any event, evidence was adduced which indicated the first plaintiff was unable to settle the Contract before the vendor’s death and also unwilling to do so on the amended terms proposed by the vendor (see below).
In light of the above, the Court concluded the first defendant’s breach was not the cause of any loss suffered by the plaintiffs.
(b) Liability of the third defendant
The Court observed that given clause 33.2 was already a provision within the Contract at the time the third defendant was retained, he could only have breached his duty of care to Mr Fussell if he failed to take sufficient steps to endeavour to bring about settlement before the vendor died.
Evidence was adduced which indicated the third defendant advised Mr Fussell his only options were to either obtain an early settlement by paying substantially more than the Contract price (which Mr Fussell was not prepared to do) or wait until settlement. Accordingly, early settlement was not a possibility.
It was also established that Mr Fussell did not have sufficient funds to complete the purchase, as part of the funds he was relying on were being borrowed from the bank, which was not prepared to lend that money while the transfer of the life estate remained in the form it had been executed.
Consequently, the Court concluded the third defendant had discharged his duty of care in circumstances where Mr Fussell would not have been in a position to settle prior to the vendor’s death in any event.
Summary
This decision serves as a reminder that it is insufficient to merely establish a breach of duty in a professional negligence claim, and it is therefore crucial for a plaintiff to establish a direct link between the breach and the harm allegedly suffered. It also highlights the complexities involved in demonstrating causation and the high threshold required to succeed in such actions.
For the defence of legal practitioners, this case underscores the importance of carefully considering causation evidence and formulating a clear, persuasive argument demonstrating why the alleged breach did not cause tangible damage, which is often a reliable way to defend cases of this kind.
1 [2024] NSWSC 1388
2 Fussell v Deigan [2018] NSWSC 1419.
3 Carolyn Deigan (as executrix for the estate of the late James Boyd Lockrey) v Barnard (sic) James Fussell [2019] NSWCA 299.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
