The Queensland Court of Appeal has upheld a decision finding a
solicitor liable for failing to advise on the risks of a
transaction that took place prior to his engagement.
In the case Robert Bax & Associates v Cavenham Pty
Ltd [2012] QCA 177, the plaintiff was a trustee of a family
trust who made various loans to three borrowers for the purchase of
properties.
The plaintiff made the first loan on the understanding that the
borrower would arrange a first registered mortgage over the
property that was being purchased, but this did not occur. National
Australia Bank obtained a first registered mortgage over the
property. The plaintiff held no security for the loan.
The plaintiff's bank manager arranged for a solicitor to act
for the plaintiff after the first loan transaction was complete.
The bank made two further loans to the plaintiff on the condition
that the plaintiff would take first registered mortgages over the
properties in relation to all three loans. The solicitor prepared
the loan agreements and registered mortgages in relation to the
second and third loans.
The solicitor also prepared a mortgage in relation to the first
loan, but there was some difficulty registering that mortgage. The
plaintiff said not to worry about it, under the mistaken belief
that the mortgages in relation to the second and third loans would
provide sufficient security.
When the first loan period expired, the plaintiff had received
no repayments of the principal loan amount from the borrower; only
interest payments had been made. At the plaintiff's request the
solicitor prepared an agreement providing a three year extension
for repayment of the principal.
The plaintiff later sued the solicitor for his losses when the
borrowers defaulted on the loans.
The plaintiff alleged that the retainer obliged the solicitor to
protect the plaintiff's commercial interests as a money lender.
The solicitor argued that his retainer was limited to preparing
loan agreements and arranging first registered mortgages for loans
two and three, and arranging a second registered mortgage for loan
one.
The trial judge found that the retainer extended to a duty to
act generally in the plaintiff's interests, and awarded the
plaintiff almost $1.5 million plus costs.
This decision has recently been upheld on appeal. Justice Muir
concluded that the solicitor's duty could not be exercised
without 'ascertaining the extent of the risk his client wished
to assume in the transactions, evaluating the extent of the risks
involved in the transactions and advising in that regard'.
The proper discharge of the defendant's retainer did not
depend on the plaintiff actively seeking advice. Of significance
was the plaintiff's lack of experience in these sorts of
transactions, giving rise to the need for proactive explanations by
the solicitor.
Justice Muir ultimately found the solicitor in breach of the
retainer through his failure to question why the first loan had not
been secured by a first mortgage and his failure to recommend
securing each loan by mortgage.
This case demonstrates the extent to which solicitors might be
held liable for failing to advise clients on matters that may
appear to fall outside the scope of a specific engagement.
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guide to the subject matter. Specialist advice should be sought
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