Artistic Builders v Nash [2010] NSWSC 1442

The lawyers acted for the vendor on the sale of a property.

Half the purchase price was paid on settlement of the sale of the property with the balance to be paid in the following thirty months. The balance was secured by a second mortgage and third and fourth mortgages over other properties.

The purchaser did not pay the balance and the security provided turned out to be useless. The vendor sought to recover from his lawyers claiming:

  1. His lawyers should have advised them that the security provided was valueless;
  2. His lawyers should have undertaken proper enquiries into those securities;
  3. His lawyers failed to ensure the vendor obtained the correct priority on registration of the mortgages.

The vendor claimed that if it was aware there was not sufficient security for the balance then it would not have sold the property to the purchaser. There was an alternative sale available and it would have entered into that instead.

The Court found that it was within the scope of the lawyers’ retainer to advise on the risks of the transactions. They breached their duty by failing to explain the steps required to assess the security and to take those steps (or require the vendor to undertake them).

As to causation Justice Hall stated that:

I consider that it is likely on the probabilities, that, given proper advice from a prudent solicitor on the question of security, the vendor would not, as a rational businessman, have elected to take what would have been the unacceptable risk of proceeding with the transaction without confirmation of the security offered and simply rely upon the otherwise doubtful bona fides and capacity of the purchaser.

However, the Court held that because the damage occurred in 1999 the proceedings were statute barred. The vendor therefore could not recover the damages from his initial lawyers. However, the vendor also claimed against the litigation lawyers that initially advised on the claim and did not advise him about the limitation period.

The litigation lawyers were therefore ordered to pay the damages that the vendor would have recovered from the lawyers had proceedings been commenced within the limitation period.

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