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Ethics: Negotiating lawyers’ duties

Every Issue

Cite as: (2005) 79(4) LIJ, p. 66

Lawyers owe duties beyond their clients, which may extend to the conduct of negotiations.

In discussing the professional responsibility of lawyers, focus is usually placed on the lawyer’s duty to the client and the duty to the court (or, more broadly, the administration of justice). With less frequency is there focus on lawyers’ duties to third parties and yet this is an area that, within the past 30 years or so, has been the subject of considerable upheaval.

We now know that a lawyer may be liable in tort to persons who would have taken under a will had the lawyer who drafted the will not been negligent,[1] and to an executor who has not been notified in due time of the testator’s death.[2] We also know that lawyers may be liable in tort to third parties for negligent misstatements. The concern as to the potential for liability to an indeterminate class of persons from recognising tort duties to non-clients may be overcome where the relationship in issue is sufficiently proximate. Thus liability in tort may even be attracted in respect of misstatements to the opposing lawyer or client.[3] As explained by Holland J in Belsham v Arthur:[4]

“When a solicitor in making a statement in the course of a transaction, in respect of which he is instructed, to another solicitor, or to some other person’s client, there is a sufficient proximity arising out of the relationship to require an obligation on behalf of the solicitor not negligently or wilfully to mislead ...As a matter of general policy it is clearly desirable that the word of solicitors in respect of matters on which they are professionally instructed should be able to be relied on by those persons with whom they are dealing”.

Moreover, the Fair Trading Act 1999 raises the prospect that a lawyer may be liable to a non-client for engaging in misleading and deceptive conduct.[5] Lawyers need not have directly engaged in the proscribed conduct to be liable, because under s159 liability extends to “any person involved in the contravention”. For example, a solicitor who makes or endorses a client’s statement in a prospectus knowing it to be false is liable as an accessory to misleading or deceptive conduct.[6]

It is thus unsurprising to find professional rules reflecting the above. Rule 18.1 of the Professional Conduct and Practice Rules 2003 prohibits a lawyer from knowingly making “a false statement to the opponent in relation to the case (including its compromise)”. Under r28.1 lawyers must not, on behalf of a client, represent to another person that anything is true that they know, or reasonable believe, is untrue; r28.2 prohibits lawyer statements to third parties that grossly exceed the legitimate assertion of their clients’ rights or entitlements.

Yet many lawyers view this duty as inapplicable when negotiating on a client’s behalf, maintaining that its application would undermine the “traditional secretiveness and obliquity of the bargaining process”.[7] This view has not passed without comment. The Australian Law Reform Commission has bemoaned the lack of guidance in professional rules on the conduct expected of lawyers involved in negotiation, an omission of particular significance “given that, to be most effective for the client, the approach to negotiation may require partisan tactics and behaviour”.[8] The point is addressed in the equivalent American rules, but instead accepting that “[u]nder generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact”.[9] Those rules identify estimates of price or value placed on the subject of a transaction, and a party’s intentions as to an acceptable settlement of a claim, as ordinarily within this category.

This raises the concerning prospect that negotiation may provide cover for unethical practices, provided these do not place the other party on notice. As these practices are not subject to the scrutiny of court procedures and safeguards, the lawyer who engages in them can be reasonably secure that they are unlikely to be discovered. Even if discovered, few if any truly effective sanctions exist.[10]

But just because an unscrupulous lawyer, under the pretext of pursuing a client’s interests, may not be disciplined or civilly sued for potentially misleading statements (including exaggerations and half-truths) in negotiations, does not make this behaviour ethical. Such conduct may not only generate for the lawyer an unfavourable reputation within the profession; it may more significantly undermine public confidence in the justice system, which rests heavily on lawyers’ trustworthiness.

It should be remembered in this regard that “[m]ore is required of a lawyer than the custom of the marketplace, than bargaining in a bazaar, or in playing poker”.[11]


GINO DAL PONT is a professor of law, University of Tasmania.

ethicslij@liv.asn.au


[1] Hill v Van Erp (1997) 188 CLR 159.

[2] Hawkins v Clayton (1988) 164 CLR 539.

[3] See, for example, Allied Finance and Investments Ltd v Haddow & Co [1983] NZLR 22.

[4] [1992] ANZ Conv R 85 at 88, 89.

[5] See Corones, “Solicitors’ liability for misleading conduct” (1998) 72 ALJ 775.

[6] See, for example, Menmel Pty Ltd v Great Australian Bite Pty Ltd (1997) ATPR 41-553.

[7] Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 at 26 per Burchett J

[8] Managing Justice: A review of the civil justice system, Report No 89, 2000, para [3.110].

[9] American Bar Association, Model Rules of Professional Conduct, r4.1(a), commentary [2].

[10] See Parke, “Lawyers as negotiators: time for a code of ethics?” (1993) 4 ADRJ 216 at 223. See further Longan, “Ethics in settlement negotiations: foreword” (2001) 52 Mercer L Rev 807; Taylor, “Negotiations and settlements – obligations, risks and practicalities” (2002) 22 Australian Bar Review 1.

[11] Thurman, “Chipping away at lawyer veracity: the ABA’s turn toward situation ethics in negotiations” (1990) 1 Journal of Dispute Resolution 103 at 115.

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