Bank of Western Australia v McDonald [2012] NSWSC 717

A solicitor and his clients decided to become property developers and borrowed $8.9 million to develop a property at Blue Bay. Things went badly and the bank sought judgment on the guarantees they gave.

The clients cross-claimed against the solicitor’s professional indemnity insurance arguing he failed to advise that the partnership agreement between them should be documented and failed to advise that they should obtain independent legal advice.

The solicitor sought to strike out the claim as time barred and groundless.

Time barred

The question was whether the causes of action had accrued 6 years prior to the commencement of the claims. For negligence and the fiduciary duty claims, time runs from when the plaintiff first suffers measureable damage. The client became bound to the partnership and mortgaged his home before the 6 year mark however the court found that it was not until some time later that it became clear that the project would not yield a return and the precise timing was a matter for trial.

For contract, time runs when the breach occurs which was before the 6 year mark but the court found an arguable case for extension to be decided at trial because there was evidence that the solicitor may have concealed the causes of action against him.

Groundless claims

The court rejected the argument that a retainer to act in relation to the purchase of the property would not extend to advice as to the risks of the purchase/development even if that was simply that the purchaser should obtain independent legal advice. The court found that given the uncertainty as to the specific terms of the retainer, it was appropriate for this issue to be heard at trial. The court found it was arguable that the solicitor was under a duty to advise his clients that the partnership agreement should be documented and that they should obtain independent legal advice. The court noted that:

Whenever a solicitor, either personally or through his company, seeks to deal with his own client then the potential for conflict is so great that it will only be in rare cases that such a dealing could be acceptable.

The court refused to dismiss any of the claims (breach of contractual duty, fiduciary duty and unconscionable conduct) as futile.

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