By Greg Couston and Natalie Polorotoff -
Snapshot
- Where they are negligent, practitioners can occasion liability to clients
- Lawyers can also incur liability where they have not been negligent and to persons who are not their clients
- Practitioners must exercise particular care and attention in all communication
Finance transactions continue to be problematic for the profession. In May, Justice Rothman in the NSW Supreme Court delivered judgment in litigation arising out of a commercial mortgage transaction. (Permanent Custodians Limited v Geagea [2014] NSWSC 562.) There were two unusual features in this case: the lawyers were liable, not to their client, but the other party in the transaction; and the lawyers were liable despite the fact they acted in good faith and (probably) without negligence.
Background
- The financial transaction involved three brothers who were borrowers/mortgagors;
- The lawyer’s point of contact was with one of the brothers; however the lawyer did interview two brothers at the time transaction documents were signed. They confirmed that the third brother had agreed to the transaction and provided documents (purportedly) signed by the third brother together with a certificate (as required by the lender) to the effect that the third brother acknowledged he did not want legal advice. In fact, the third brother was in prison in Lebanon and unaware of the transaction;
- The lawyer sent the signed loan/mortgage documents to the lender;
- Immediately prior to settlement, the lawyer provided to the lender (as is ordinarily the case) a direction as to payment, specifying how the cheques for loan monies should be drawn. The finance transaction settled;
- The loan went into default and the lender sued the borrowers. The third brother defended the proceedings on the basis that his signature had been forged and he was unaware of the transaction. The two other brothers also raised various issues in defence of the lender’s claim. The lender suffered a shortfall/loss.
- The lender sued the lawyer to recover its loss. The lender pleaded causes of action in negligence, breach of warranty of authority and misleading conduct.
The court determined that the direction as to payment of the loan amount, issued by the solicitor, contained an implied representation that the solicitor was authorised to give such direction, on behalf of all three borrowers.
The judgment proceeded on the basis that the solicitor had not been negligent. Ultimately, it was not necessary for the judge to make a finding on this issue; nevertheless the court determined that the solicitor was liable for the lender’s loss because of a breach of warranty of authority and misleading conduct.
