Solicitor negligence case: NSW Court of Appeal overturns Supreme Court decision

In brief - the NSW Court of Appeal in Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey & the persons listed in Schedule A to the Notice of Appeal trading as Sparke Helmore [2023] NSWCA 23 has overturned the earlier decision of the NSW Supreme Court and reiterated the established general rule that a solicitor is not negligent in failing to remind a client of advice already given or to advise the client of what the client already knows. 

Case Background

At the relevant time, the respondents were partners of the law firm Sparke Helmore. They were retained by a property developer, Shoal Bay Beach No.1 Pty Ltd (Developer) to provide legal services in relation to the construction and sale of units on land in Shoal Bay, owned by the Developer. Since this time, the Developer became insolvent, and its liquidator assigned to the appellant the Developer's interest in any claims available to it. 

The Developer was party to various contracts for sale for off-the-plan units. The appellant's claim relates to the rescission of two such contracts (with virtually identical terms) by purchasers of lots 50 and 52, executed on 7 and 6 August 2015 respectively. Both contracts provided either party with a right to rescind if conditions precedent to completion were not satisfied before the "Registration Date", which was 12 months from the date of each contract. However, under clause 43, the Developer retained the right to extend the Registration Date where it provided at least one month's prior notice and where the delay was due to events beyond the vendor's control, including inclement weather, via an Extension of Time Notice (ETN). For lots 50 and 52, notice was required by 7 and 6 July 2016. Under clause 42, purchasers could elect to rescind their contracts if the right to extend was not exercised within the notice period. 

On at least five occasions between December 2014 and June 2016, different Sparke Helmore employees informed the Developer's agents of the operation of clause 43 and its consequences on the relevant contracts. In March 2015, a representative of the Developer confirmed to Sparke Helmore that ETNs for lots 50 and 52 were not required, and that he understood the requirement to provide one month's notice for such extensions. This understanding was repeated in correspondence in February 2016. 

Due to a series of construction delays, the Developer was not in a position to complete by the Registration Date for lots 50 and 52. Adequate notice of proposed extensions to the Registration Dates was not given to the purchaser as required under clause 43. At no point prior to 6 and 7 July 2016 were Sparke Helmore requested to arrange an extension to the Registration Dates for lots 50 and 52. To the contrary, on multiple occasions in 2015 and 2016, the Developer's agents indicated that an extension was not required.

On 15 July 2016, Sparke Helmore advised the Developer to serve ETNs on purchasers with Registration Dates between July and September 2016 (which included the purchasers of lots 50 and 52). On the same day, the Developer requested that ETNs for lots 50 and 52 be issued. This was done on 16 July 2016, outside of the required notice period prescribed by clause 42. Consequently, the purchasers for those lots took objection to the proposed extensions and rescinded the contracts. The Developer issued proceedings in negligence against Sparke Helmore.

Trial Judge Decision

The issue for determination before the trial judge was whether the rescission of the contracts was due to Sparke Helmore's negligence, consisting of a failure to alert the Developer to the impending deadlines for the exercise of its clause 43 rights, or to seek instructions prior to the dates for giving ETNs. 

The primary judge found that Sparke Helmore had been negligent and breached an implied term in its retainer to exercise due care and skill in failing to alert the Developer to the imminent expiry of the notice period. In doing so it emphasised that the Developer had represented to the respondent that it did not fully appreciate the importance of clauses 42 and 43 on the contracts for sale. 

Appeal

The appellant's contentions concerned the trial judge's award of damages and costs in favour of the appellant. The respondents' cross-appeal related to the trial judge's finding of negligence on their part. 

The NSW Court of Appeal unanimously dismissed the appeal and allowed the cross-appeal, overturning the Supreme Court's decision. It held that the primary judge had erred in its conclusion that Sparke Helmore breached its duty to advise and exercise due care and skill, because the Developer had been repeatedly advised of the impending Registration Dates and the time limits around ETNs. The evidence did not support a finding that Sparke Helmore was obliged to go beyond the Developer's express instructions.

The Court found that in any case, the repeated provision of advice to the Developer, in circumstances where the Developer had confirmed its understanding of clause 43's operation, was inconsistent with the primary judge's conclusion that Sparke Helmore should have reiterated advice closer to the Registration Dates. The Court upheld the established principle that a solicitor is not negligent in failing to remind a client of advice already given or to advise the client of what the client already knows.