Conveyancers play a pivotal role in property transactions, tasked not only with navigating legal formalities but also, as recent cases have made clear, a responsibility to advise clients on a range of potential risks associated with their property dealings. Courts have increasingly held that conveyancers have obligations to warn their clients of risks, even if these fall beyond the strict scope of their retainer. Several cases involving solicitors, retained in relation to conveyancing matters, emphasise some of the broader responsibilities of professionals such as conveyancers and the consequences of their failure to adequately address potential risks for their clients.
The takeaway for conveyancers is to ensure that, in the course of assisting a client through the conveyancing process – it is important to give proper consideration to factors which may impact the client outside of the “four walls” of the conveyance itself. For example, should there be the possibility that a client will be treated as a “foreign purchaser”, proper consideration must be given to that issue by the conveyancer, who should ensure that the client is made aware that Surcharge Purchasers Duty might apply to the purchase should an exemption not be obtained.
Relevant Case Law
One fundamental aspect consistent across a number of legal decisions in this area is that conveyancers ought not assume that their provision of services will be limited solely to the legal framework. Instead, the Courts have indicated that advice provided in the course of a conveyance can also be held to extend to advising with respect to the practical implications of their clients’ intended actions.
In Kumar v Sydney Western Realty Pty Ltd & Anor (No.2) [2021], a buyer purchased a property thinking that it contained two habitable residences (one being a granny flat) which could be rented out. The agent promoting the property advertised the property as suiting an investor looking to obtain dual streams of income from one property. However, the contract for sale included a notice from Blacktown City Council confirming that the “granny flat” was in fact a garage which was not approved for habitable use, on the basis that the slab floor level had insufficient protection against flooding. Despite being aware that the client intended to rent out the granny flat, the conveyancing lawyer failed to communicate the implications of the Council notice to the client.
The District Court’s decision underscored that a conveyancer’s duty extends beyond a written retainer; it encompassed a thorough understanding of a client’s circumstances and objectives in a transaction. Ultimately, damages in the amount of $101,631 were awarded to the buyer – with 75% being apportioned to the conveyancing lawyer (and 25% to the agent). The Court concluded that the conveyancing lawyer failed to give appropriate consideration to the buyer’s circumstances and the likely impact of the Council notice.
The sentiment of the Court in Kumar was mirrored in large part in the case of David v David [2009] NSWCA 8, where the Court relevantly commented that ITALICS “The] obligation is not simply to explain the legal effect of documents but to advise his or her client of the obvious practical implications of the client’s entry into a transaction the subject of advice.”
The Courts have consistently held where professionals hold themselves out to have a specialised set of skills and expertise, this will play a significant role in forming the Court’s views on the standard of care owed. Conveyancers are no exception in this regard. Although ultimately successfully appealed before the High Court, the comments of the Full Federal Court in Yates Property Corporation (In Liq) v Boland (1997) remain relevant:
“When a client retains a firm that is or professes to be specially experienced in a discrete branch of the law, that client is entitled to expect that the standard of care with which his retainer will be performed is consistent with the expertise that the firm has or professes to have.”
Clients seeking advice in specialised areas, including conveyancing, anticipate a higher quality of advice and a greater foresight related to issues within that specialised domain. The Courts will, as a result, generally expect conveyancers to give due consideration to factors which (due to their specialisation) they ought to appreciate might impact upon their client, even if not strictly within the strict terms of their retainer.
In McLennan v Clapham 2019 ACTSC 1, the Court affirmed that a solicitor versed in interpreting legal documents in property transactions owes a general duty to explain both the relevant risks attending the purchase of the property and the consequences of that risk to the client. In that case, buyers purchased a property in 2009 and, beforehand, sought pre-purchase advice from the conveyancing clerk in a solicitor’s office. The property had been subject to asbestos removal work, and documents to that effect were annexed to the contract, however the conveyancing clerk did not raise the fact that the property had previously contained asbestos with the purchasers.
Notwithstanding that the Court held that the purchasers could have made themselves aware that the property had previously had asbestos on site had they reviewed the contractual documents, the Court nonetheless held that:
“A solicitor acting for the buyer of property is paid not only for what the solicitor, in fact, does, but also for the responsibility he or she assumes in trying to protect clients from financial loss if things go wrong”.
As such, conveyancers must keep in mind that in accepting instructions from clients, they are affirming that they hold the specialised skills and expertise expected of a conveyancer or solicitor. The Courts will hold conveyancers to a commensurate standard of care in property transactions. To the extent that a conveyancer identifies potential risk matters which might be relevant to a client’s decision on whether or not to purchase a property, conveyancers ought to pay particular attention to ensuring that any such issues are raised with their client so that they can make an informed decision.
This will particularly be the case in circumstances where a client is clearly unfamiliar with the process (for example a first home buyer), where language barriers cause an additional difficulty, or where a client is a clearly unsophisticated purchaser. The Courts, in determining potential liability of a conveyancer, will take into account a client’s vulnerability, including the client’s capacity to take steps to protect itself by reason of ignorance, access to information, social or economic constraints. As the Court put it in Carradine Properties Ltd v D J Freeman & Co a professional’s duty of care must “adjust” based on the client’s vulnerability and knowledge. In Hawkins v Clayton and Ors, the Court went further and concluded that, depending upon the circumstances, a solicitor may come under a duty to do more than simply perform the task defined by his instructions. For example, a duty to warn may arise where (notwithstanding it is outside of the strict scope of a solicitor’s instructions) circumstances give rise to a real and foreseeable risk of economic loss by the client. Particularly for less experienced or unknowledgeable clients, conveyancers should adopt a broader view of their responsibilities, giving consideration to an overarching duty to protect clients from potential ramifications they might not comprehend.
Similarly, in relation to the duties of solicitors, the High Court has held that “in certain circumstances, the tortious duty owed to a client might extend beyond the parameters of the retainer and require a solicitor to take positive steps to avoid a client sustaining any real and foreseeable economic loss”1. This has been referred to as the “penumbral duty of care”.
In recent years, the penumbral duty has been the subject of much debate before the Courts. Whilst the Courts have held that such a penumbral duty will generally not to exist where a client is sophisticated and knowledgeable2, in circumstances where a client is unsophisticated or vulnerable, the penumbral duty of care has still been held to apply3.
Conclusions
As skilled professionals, conveyancers play an essential role not only in legal procedures associated with a conveyance but also in advising clients on the practical implications and potential risks associated with a property transaction. In most cases, this involves no more than the conveyancer taking time to consider whether there are any factors which they have become aware of over the course of the conveyancing process which ought to be brought to the client’s attention, to allow them to make a fully informed decision. For example, considering:
- whether there are restrictions recorded on the land title such as restrictive covenants or easements which may impact on the purchaser’s plans for the property;
- whether the terms of a lease, or options for further terms and rental reviews or other unusual clauses such as provision for rent-free periods might be of particular relevance to a potential purchaser, in view of their intentions for the property;
- whether there are any particular zoning or planning scheme regulations that might affect the client’s intended use of the property;
- whether there any aspects of the mortgage/financing arrangements in place which might not be appropriate when taking into account the client’s intentions for the property;
- whether there is anything contained in pest and/or building inspections reports produced which ought to be brought to the client’s attention;
- whether the clients might have an exposure to Surcharge Purchaser Duty (SPD) based on their particular circumstances and ensuring that they are made aware of such a potential exposure. For example, taking reasonable steps to determine whether the residency status of a client might leave them exposed to SPD and, if so, ensuring that the clients are made aware of that prospect.
The scope of a conveyancer’s duties to their client are not necessarily strictly limited to the contents of its retainer. The Courts and tribunals will consider a conveyancer’s actions (and impose duties) with reference to what a reasonable conveyancer in the same circumstances ought to have done.
Whilst disclaimers in retainers or service agreements can be useful in limiting exposure to claims, no matter how well drafted they might be they are not failsafe. A disclaimer, or tightly worded retainer agreement, will not prevent a claim being made, or proceedings being commenced, albeit it may be relevant to the outcome. By then, time will already have been taken up and costs will already have been incurred.
The most effective way to ensure a satisfied client, and to limit the possibility of claims arising, is to ensure that (as far as possible) the conveyancer turns their mind to any factors which might be relevant to their client’s decision to purchase, or sell, a property and ensure that their client is fully informed about any such factors.
1 Hawkes v Clayton (1988) 164 CLR 539
2 Australian Executor Trustees (SA) Limited v Kerr [2021] NSWCA 5
3 Provident Capital Ltd v Papa [2013] NSWCA 36: BC201300843 [79]
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