A question regularly asked by solicitors is to what extent do they owe any duty to third parties. The High Court’s recent decision in Badenach v Calvert  HCA 18 (Badenach) provides some important clarification on the nature and scope of a solicitor’s duty to exercise reasonable care and skill, particularly in respect of third parties.
Rather than revolutionize this area of the law, the decision in Badenach reinforces existing well-known principles.
The two take away points from the High Court’s decision are:
- the duty of care owed by a solicitor to a client may extend to a third party in circumstances where the interests of the third party ‘coincide’ with the interests of the client; and
- the client’s instructions will be ‘crucial’ in determining the scope and content of any duty owed by the solicitor to his or her client and by the solicitor to any third party.
A solicitor’s duty of care
It is well established that a solicitor owes a duty of care to his or her client to exercise professional knowledge and skill in the protection and advancement of the client’s interest in the transaction in which the solicitor is retained. The duty owed by the solicitor to the client may exist in contract or tort, but in the case of the latter it is limited by the scope of the solicitor’s retainer.
Since the High Court’s decision in Hill v Van Erp (1997) 188 CLR 159, it is also clear that a solicitor’s tortious duty of care may extend to third parties. In that case, the High Court held that a solicitor (who was instructed by her client to prepare a will) was liable to a third party beneficiary where the will had not been properly executed due to the solicitor’s negligent acts.
Issue before the Court
The issue before the High Court in Badenach was whether a solicitor owed a duty of care to a third party beneficiary (Mr Calvert) in circumstances where he was instructed by his client to prepare a will under which the entirety of his estate passed to Mr Calvert. The problem for the solicitor arose because he failed to advise his client of:
- certain claims under statute that could be made against the client’s estate by other family members; and
- the options available to the client to prevent such claims being made.
Duty of care in Badenach
The High Court held that the solicitor’s duty of care did not extend to a third party beneficiary in Mr Calvert. Their Honours reached this conclusion in slightly different ways, resulting in three separate judgments.
All members of the Court accepted that any duty of care owed by the solicitor to Mr Calvert was sourced from the solicitor’s obligations arising from the retainer between the solicitor and the client. Accordingly, the scope of the duty of care owed to Mr Calvert was limited to the exercise of care and skill in the performance of the work retained (i.e. the preparation of the client’s will).
In determining the scope of the solicitor’s retainer, the joint judgment of French CJ, Kiefel and Keane JJ drew a distinction between advice about the possibility of a claim being made against the estate and advice about how to avoid such a claim. In their Honours’ view, the solicitor could not have been expected to “volunteer” advice of the latter kind as there was no way of knowing what view the client might take about whether a claim may be made by other family members against his estate.
Whilst it was in Mr Calvert’s interest to ensure that the deceased client took active steps to protect his interest in the estate, it was not certain that the client would have wished to do so.
On this point, the observations of Gageler J (in a separate judgment) are a useful synthesis of the law:
The testator’s instructors are critical. The existence of those instructions compels the solicitor to act for the benefit of the intended beneficiary. The instructions expose the intended beneficiary to carelessness on the part of the solicitor in giving effect to those instructions against which the intended beneficiary cannot protect. The instructions thereby give rise to a position of vulnerability on the part of the intended beneficiary of a kind which has been ordinarily necessary to justify the imposition of tortious liability. Confined to taking reasonable care to benefit the intended beneficiary in the manner and to the extent identified in the testator’s instructions, the solicitor’s tortious duty to the intended beneficiary is coherent with solicitor’s contractual and tortious duty to the client, thereby allowing the two duties to co-exist.
Accordingly, the Court held that the client’s initial instructions regarding the preparation of his will were not sufficient to convey to the solicitor that the client would ‘wish to take any lawful step to the defeat any claim against his estate’. Consequently, the interests of the client and the interests of Mr Calvert did not ‘coincide’ so as to justify tortious liability on the part of the solicitor.
The majority also found that (even if it was accepted that the solicitor came under a duty to advise the client in the terms alleged) Mr Calvert had failed to establish a causal connection between the solicitor’s failure to advise and his loss. That is, it could not be said that, “but for” the solicitor’s failure to advise the client, Mr Calvert would have received the entirety (or at least a greater proportion) of the client’s estate.
Indeed, there was no way of knowing what course of action the deceased client may have taken upon learning about the risks of claims being made against his estate. Whilst there was a chance that the deceased client may have taken active steps to ensure that Mr Calvert received his estate (i.e. by making an inter vivos gift or by converting his interest and Mr Calvert’s interest in the property of the estate to joint tenants) it was not “more probable than not” that this would have occurred.