By Louise Cantrill, Partner, Tamara James, Associate and Isabella Gerardi, Lawyer

In a recent decision, Cooper J of the Supreme Court of Queensland delivered judgment in the matter of Surman v Gateway Lawyers (A Firm) [2025] QSC 287. The case concerned a claim brought by Mr Surman in his capacity as trustee of the KJM Family Trust against Gateway Lawyers, who had provided advice to the former trustee, Ms Marks, regarding the purchase of a residential unit.

Facts

Ms Marks was the sole director and shareholder of Ashala Model Agency Pty Ltd and held her shares for the benefit of her partner, Mr Featherstone. In 2007, Mr Featherstone purchased a unit in the name of Ms Marks in her capacity as trustee of the KJM Trust. The purchase of the unit was funded by Ashala. Gateway Lawyers provided advice to Ms Marks in her capacity as trustee of the KJM Trust in relation to the purchase of the unit.

In 2009 the ATO commenced an audit into the tax affairs of Ms Marks and Mr Featherstone. Gateway also provided advice regarding the audit.  After the audit, liquidators were appointed to Ashala. The liquidators brought proceedings against Mr Featherstone and successfully challenged the purchase of the unit as an uncommercial transaction. Consequently, ownership of the unit was transferred to Ashala.

The plaintiff alleged Gateway was negligent in advising on the purchase of the unit and failing to lodge Ashala’s tax returns. The plaintiff claimed losses of the legal costs incurred in the proceedings with the liquidators and the value of the unit. Cooper J determined that the claim was time barred and notwithstanding this, Mr Surman had failed to establish a breach of duty or causation.

The “Penumbral Duty”

Gateway was retained by Mr Featherstone and Ms Marks to provide advice in relation to the establishment of the KJM Trust and the purchase of the unit. The plaintiff alleged that Gateway breached their duty of care by failing to provide advice about the tax risks associated with using Ashala’s funds to purchase the unit and failing to lodge Ashala’s tax returns. Cooper J examined the duty and standard of care imposed on solicitors, confirming that:

• solicitors owe a duty of care to their clients to have and to exercise a degree of skill and care that is to be expected of persons professing and practicing in their area of expertise; and
• the standard of care is the standard appropriate to a member of the profession with the relevant specialist skills.

Cooper J then turned to an examination of the limits on a solicitor’s duty to advise, including the ‘penumbral duty’. The penumbral duty refers to the supposed duty of a solicitor to advise their client in relation to matters which are not directly within the scope of their retainer. Although courts have challenged the existence of a “penumbral duty”, the law does recognise the possibility that the proper performance of a solicitor’s retainer may require the solicitor to provide advice about risks which have come to their attention during their performance of the retainer which may have the effect of altering the scope of that retainer.

Citing Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FCAFC 62, [442], Cooper J stated that what reasonable care requires a solicitor to do in performing his or her retainer must be determined by reference to the facts of the particular case.

Determination as to Scope of Duty

Cooper J began by considering what circumstances Gateway needed to be aware of in order to have been required to advise Mr Featherstone in respect of matters which were beyond the scope of their retainer.

Cooper J determined that in order to owe the duty alleged by the plaintiff, Gateway would have needed to be informed of a number of facts at the time Mr Featherstone sought advice regarding the ATO audit, including the fact that:

1. the trustee of the KJM Trust had used Ashala’s funds to purchase the unit; and
2. as a consequence of using Ashala’s funds to purchase the unit, Ashala was unable to pay its outstanding tax obligations and became (or at the least was at risk of becoming) insolvent.

Cooper J then turned to determining whether Gateway had been instructed on, or had knowledge of, these necessary facts.

The plaintiff and defendant provided conflicting evidence as to the verbal instructions that were provided to Gateway. The plaintiff claimed that Mr Featherstone had specifically instructed Gateway to advise on adverse issues that could arise from the proposed acquisition of the unit by using Ashala’s funds, while Gateway said that they were not aware that the purchase of the unit had been funded by Ashala or that Ashala was made insolvent as a consequence of funding the purchase. Secondly, the plaintiff alleged that Gateway had agreed to prepare and lodge Ashala’s tax returns, while Gateway denied that these instructions had been given.

Cooper J applied Watson v Foxman (1995) 49 NSWLR 315 and noted that each element of the cause of action must be proved to the reasonable satisfaction of the court, with the court feeling an actual persuasion of its occurrence or existence. Ultimately, Cooper J was not satisfied with the plaintiff’s evidence.

In the absence of a finding that Gateway had been informed or would have otherwise known the necessary facts, Cooper J determined that it was not within the scope of Gateway’s duty to provide specific tax advice on purchase of the unit or to lodge Ashala’s tax returns.

Take Away

Overall we consider the use of the term ‘penumbral duty’ to be a misnomer. Surman v Gateway Lawyers is better seen as a further example that the scope of a solicitors’ duty is determined by the individual facts of the case and can be broadened in limited circumstances including where a solicitor is provided with clear instructions or has knowledge of relevant facts that give rise to a duty to advise on a risk beyond the scope of the initial retainer.

Ultimately, the judgment highlights the importance of documenting any extensions on the scope of a retainer or the provision of further instructions in writing.