By Louise Cantrill, Partner, Tamara James, Associate and Isabella Gerardi, Lawyer
The recent High Court judgment of an appeal from a decision in respect of a negligence claim brought by Mr Daily (a pseudonym) against his solicitors, R Lawyers has provided firm guidance on crystallisation of loss and proving the counterfactual in solicitors’ negligence claims.
In 2005, R Lawyers advised Mr Daily and his partner, Ms Daily, on a binding financial agreement (BFA) under the Family Law Act 1975 (Cth) (FLA). In 2019 Mr Daily and Ms Daily had separated and Ms Daily successfully brought an action seeking the BFA be set aside on hardship grounds under the FLA. Mr Daily joined R Lawyers to the proceedings and sought damages for negligence relating to advice and drafting of the BFA. Mr Daily claimed that R Lawyers failed to draft the BFA to sufficiently protect his interests and failed to advise him that the BFA may be set aside or unenforceable if marital circumstances changed.
R Lawyers argued that Mr Daily’s action was statute-bared under the Limitation of Actions Act 1936 (SA), which requires tort claims to be commenced no later than six years after the cause of action accrued. R Lawyers claimed that any loss caused by their negligence occurred at the time the BFA was entered into in 2005 and was statute-barred. Mr Daily argued that the loss was suffered at the point that he and Ms Daily separated.
To determine the time at which the damage was sustained in respect of Mr Daily’s claim, Gageler CJ, Jacot and Beech-Jones JJ adopted the following approach:
Gordon and Edelman J applied an additional step and examined whether loss had actually been suffered by Mr Daily.
The Interest Infringed
Having regard to the purpose of the BFA, the Court determined that Mr Daily’s infringed interest was securing a financial agreement not liable to be set aside under the FLA so that it was enforceable on and after separation.
Contingent or Actual Loss
The Court identified two categories of loss (actual or contingent) which could be suffered in respect of an agreement.
Under the FLA, the factors which determine whether a BFA should be set aside are dependent on the individual circumstances of the spousal parties, including for example, their financial circumstances.
As the parties’ rights under the BFA could not crystallise until Mr and Ms Daily had separated, any loss Mr Daily suffered was contingent on their separation and could not arise before that point.
Immediate Damages Inference
R Lawyers sought to rely on Davys Burton v Thom [2009] 1 NZLR 437, to say it could be inferred that the plaintiff suffered some immediate damage on the onset of the contract as a result of their negligence.
The Court held that it was not appropriate to draw an inference that any damage suffered by Mr Daily was immediate on the conception of the contract. Instead, the Court confirmed that the correct approach to determining the limitation period for actions founded on the tort of negligence causing economic loss was to identify the interest that is said to be infringed and examine the point in time that interest was infringed.
Causation
The Court also considered whether Mr Daily had proved that any loss he suffered had been caused by the negligence of R Lawyers. In doing so, Gordon and Edelman JJ discussed the heads of loss or damage for negligence by a solicitor, raising three categories of loss:
A loss of a particular outcome is loss of an identified benefit or interest that would have been obtained but for the negligence. Loss is made out by comparing a past hypothetical set of events (the counterfactual) to the events which actually occurred. The plaintiff needs to prove that they would have obtained the identified benefit but for the solicitor’s negligence.
The loss of an opportunity is where the plaintiff loses the chance or opportunity to enter a different agreement which would have allowed them to secure a more favourable outcome. The plaintiff is required to prove that there was a “significant chance” or “substantial prospect” that the lost opportunity would have been obtained. Additionally, the plaintiff needs to prove that the lost opportunity was valuable.
Loss may also be proved by reference to actual past events. For example, the funds a plaintiff expended in litigation against a third party with respect to the loss or damage suffered due to the solicitor’s negligence. The plaintiff must prove that the solicitor’s negligence caused the actual past loss.
The Court determined that Mr Daily’s claim was a claim for loss of a particular outcome, the outcome being a BFA that would not have been set aside under the FLA.
Standard of Proof
To succeed in his negligence claim against R Lawyers, Mr Daily needed to prove that the negligence of R Lawyers caused his loss of a more favourable outcome. The Court determined that although the standard of proof “does not require certainty or precision”, the onus is not discharged by simply proving the loss of a possible chance of a better outcome. It must be shown that there was a “substantial prospect of a beneficial outcome”.
Mr Daily presented two counterfactual arguments. Firstly, that had he been advised that the BFA would not be enforceable if he and Ms Daily had children, he would not have proceeded with the marriage. Secondly, and in the alternative, had Mr Daily been advised the BFA may be set aside if martial circumstances changed, he would have reached an agreement with Ms Daily that made sufficient provision for any child so that the agreement would have survived an eventual challenge under the FLA.
Mr Daily did not adduce any evidence as to a form of BFA which a lawyer exercising reasonable care and skill might have drafted to avoid the BFA being set aside upon separation had there been a change in Mr and Ms Dailys’ circumstances.
The Court determined that to succeed in his argument, Mr Daily needed to identify at least the scope, nature and monetary amount or range of monetary amounts that any provision for children would have entailed. In the absence of such detail, the Court could not undertake an assessment of whether Ms Daily would have agreed to such a BFA, whether it would have survived a challenge under the FLA, and if so, whether it would have secured a better outcome for Mr Daily compared to the orders the primary Court made under the FLA.
R Lawyers v Mr Daily has confirmed that determining the time of loss in a negligence claim brought in respect of damage suffered under an agreement cannot be ascertained from the application of an inference or indiscriminate application of principles. Rather, it requires a factual examination of both of the nature of the interests infringed under the agreement, and the type of loss suffered.
The case also confirms that the onus of proving any counterfactual in solicitors’ negligence rests with the plaintiff and that a counterfactual must be detailed enough to allow a court to assess the likelihood that loss would have or would not have been suffered under the counterfactual.
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