Supreme court gives masterclass on solicitor’s duties to “third parties.”

by DLA Piper
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The recent decision of Hall J in Polon v Dorian [2014] NSWSC 571, involves a claim against a solicitor. It reads something like a masterclass on solicitor’s duties to people the solicitor does not consider to be their client, but to whom they make statements and representations.  

In this instance, a firm of solicitors were acting for the operators of a bridging finance scheme (scheme). A relatively junior employed solicitor was found to have made representations to the plaintiff, one of the investors, in particular during a presentation to potential investors. Surprise surprise, the investors lost their money and the operators were liquidated or bankrupt. Therefore the solicitors were the plaintiff’s only possible means of redress. Hall J concluded that an implied retainer existed between the solicitor and the plaintiff, and that the plaintiff was owed a fiduciary duty.

The case threw up many issues. The solicitor argued that she was merely acting as a conduit and had not endorsed or adopted the representations made. However, for that defence to succeed it was necessary for the solicitor to have placed appropriate qualifications on the information provided, for instance that the information was unverified, qualified, or that further inquiries should be made. This the solicitor did not do. Her statements were found to be unqualified and expressed to be her knowledge and understanding, and as such, an endorsement.  

To make matters worse for the solicitor, once the statements were made in that manner, a relationship was established between the plaintiff and the solicitor, such that the solicitor then had an ongoing duty of care to the plaintiff. Therefore, when the solicitor became concerned about the scheme, she had a duty to inform the plaintiff. This circumstance does not put a solicitor into a position of conflict because of a solicitor’s general duty to clarify prior statements which are subsequently proven to be incorrect.

Liability against the solicitor was apportioned at 30%, significantly higher than in other proportionate liability decisions involving solicitors. Hall J considered the ‘degree of departure from the standard of care of the reasonable man, as regards the causative conduct’ of the solicitor and the ‘relative importance of the acts and omissions of (the solicitor) and other wrongdoers in causing the economic loss suffered by the plaintiff’.

The case discusses numerous other issues, read the decision at Polon

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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