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LPLC: Losing objectivity

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Cite as: October 2009 83(10) LIJ, p78

Solicitors engaged in damage control may fail to spot a conflict.

The Legal Practitioners' Liability Committee (LPLC) sees many claims where a practitioner misjudges the best route to rectify a mistake or compounds the damage by trying to litigate out of a problem.

The decision to step aside is especially difficult when dealing with a valued client, but staying on the record may mean losing objectivity about the case's merits or pressing on in the face of conflict.

The flawed rescission

In a recent claim, a firm attempted to litigate the client out of a rescission dispute which arose from the firm's own misconceived advice to rescind.

The client had been poised to settle on the purchase of a commercial property, when it discovered a planning permit issued 18 years earlier which restricted the site's potential for retail use.

The conveyancing lawyer advised the client that it was entitled to rescind because the permit had not been disclosed in the s32 statement.

Only a week after the rescission was set in train and when settlement was still one month away, the conveyancing lawyer received counsel's advice that contradicted his own advice.

Counsel indicated that the permit may have lapsed and it was arguable that the vendors could not reasonably be expected to have knowledge of the old permit. If so, there were no grounds to rescind. However, the practitioner blindly forged on.

The vendor refused to refund the deposit, the practitioner advised the purchaser to sue and passed the file over to a litigation partner. It was not clear whether he also passed on counsel's advice.

Through successive lawyers the case proceeded, until senior counsel's pre-trial involvement raised the serious flaws in the client's case.

Even at this juncture, the litigator did not stop preparing the case or deliver the bad news to the client. After a costly bout of litigation, the client was wholly unsuccessful and blamed the firm for its negligent advice.

Filtered information

Once he advised on the rescission strategy, the conveyancing lawyer appeared unwilling or unable to question his own advice, despite counsel outlining clear problems.

The solicitor's failure to address counsel's contrary advice may have been part misjudgment about the s32 issues and part loss of objectivity about his mistake.

The conveyancing lawyer appeared to be filtering out information that contradicted his strategy. As the case proceeded to litigation and the stakes were raised, the litigation lawyer's position also became compromised.

To halt the litigation would have involved acknowledging the mistake and telling the client that litigation could not fix things.

Both solicitors appeared to be beyond an objective assessment of the merits of the client's case.

This started with overconfident advice about a rescission that was not clear-cut. The failure to reassess that advice when confronted with contradictory advice added another layer of negligence to the claim.

The advice received from counsel before the property's settlement date should have prompted someone at the firm to review the rescission strategy and refer the client for independent advice.

Weak case for rectification

In another claim seen at LPLC, the problem stemmed from a flawed retail lease drawn by the landlord's solicitor to include an outdoor dining area.

The tenant leased the property to run as a café. Although a partner of the firm acting for the landlord was on notice that the outdoor area was the subject of a mere contractual licence with the body corporate, a junior solicitor mistakenly incorporated it into the lease as part of the demised premises.

After the lease was signed and the tenant discovered the problem, it issued proceedings seeking to terminate or set aside the lease. Although the tenant appeared to be commercially motivated to terminate for unrelated reasons, the firm was stuck with the mistake.

The partner opted to bat on, defending the claim and seeking to rectify the lease even though the case for rectification was weak. It was really in the solicitor's interests, not the client's, to proceed and argue for rectification.

Later, the landlord client complained that it had not been advised of the potential conflict between its interests and those of its legal advisers.

There were no file notes or letters of advice to back up the firm's assertion that it had discussed the potential conflict with the client.

The claim settled with little room to negotiate because the conflict of interest was seen to compound the firm's initial negligence.

Risk management lessons

There is a well-worn path between attempts to deal with a practitioner's own legal mistakes and conflicts of interest.

Once a mistake is identified, it is prudent to refer the client for independent advice. The problem with staying on the record and trying to control the damage is that often the solicitor loses objectivity.

One good reason to act cautiously in the face of a possible conflict is the deterrent excess under the LPLC policy that applies where the insured is found to have breached professional conduct rules.

We recommend contacting LPLC sooner rather than later to discuss how to manage an emerging conflict, including the potentially thorny cost consequences of staying on record.


This column is provided by the LEGAL PRACTITIONERS' LIABILITY COMMITTEE. For further information ph 9672 3800 or visit the website www.lplc.com.au.

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