The High Court has handed down its decision in Badenach v Calvert [2016] HCA 18.
The Central Proposition
Lawyers are not the only professionals to provide advice touching upon taxation, financial and estate planning, corporatisation and structuring/restructuring – all of which have the capacity to affect not only the client but those around them. Badenach v Calvert gives primacy to the client’s instructions in establishing the duty owed by the professional to those who may be affected by his or her advice. The case concerned a lawyer, Mr Badenach, who was sued by the beneficiary under a will which Mr Badenach had drawn. The beneficiary alleged Mr Badenach had been negligent because there was no advice given (because it was not sought) about the prospect of a daughter – who was left out of the will – making a testator’s family maintenance (TFM) claim.
That TFM claim eventuated and was successful. The beneficiary then brought a claim in the Supreme Court of Tasmania against the lawyer. It was alleged that Mr Badenach ought to have enquired about the testator’s daughter and then volunteered advice which would have seen the beneficiary receive his inheritance other than by will (for example, advice to effect an inter vivos transfer or, given the estate comprised land, to transfer the land into a joint tenancy to take advantage of the rule of survivorship).
The Court held at first instance that it could not make a finding about what would have been done had the lawyer offered TFM advice to the testator, and as a consequence did not decide whether a duty of care was owed to Mr Calvert as a disappointed beneficiary.
The Court of Appeal found that Mr Badenach both owed that duty and had breached it, and re-framed the issue about what the testator would have done as being a question going to the measure of damages rather than an evidential shortcoming.
An application for leave was successfully made to the High Court on 26 October 2015, and the appeal heard when the High Court sat in Tasmania in March of this year.
The High Court held unanimously that the contested duty of care, which the Court of Appeal had held to exist, was not owed by Mr Badenach to Mr Calvert. That duty was above, and probably inconsistent with, the duty owed by Mr Badenach to the testator which was limited to the scope of the retainer. A number of other issues also tended against a result for the disappointed beneficiary – including the lack of evidence concerning what the testator would have done had he been presented with ‘volunteered’ advice about the prospect of a TFM claim.
A simple message delivered by the High Court is to be explicit in setting boundaries to a retainer, or for that matter any other contract. Mr Badenach’s retainer set the boundaries of that relationship, and could be easily identified by the High Court to then establish the perimeter of his duty of care. As was pithily put by The Honourable Justice Gageler:
“[Mr Calvert’s failure] stems from the absence of a fact necessary to establish a duty of care of the requisite scope and to give rise to the existence of damage: an expansion in the scope of the Testator’s instructions – a new or enlarged retainer”.
Maintaining Prudence While Not Delivering Beyond Retainer Scope
The High Court’s decision is not, however, an invitation to close enquiries when taking instructions (on any matter – not just a will – and for any professional, not just a lawyer). The joint judgment of Justices French, Kiefel and Keane refers to Mr Badenach making enquiries about the testator’s family as a ‘prudent’ measure (it would no doubt have, in turn, disclosed the prospect of TFM action – to then, one would expect, result in some general advice about how a TFM claim could see provision made from the estate if successful). A similar observation was made in the first instance decision of The Honourable Chief Justice Blow, who held that the lawyer owed the testator a duty to take his instructions about his daughter and a possible TFM claim by her.
But it seems that having made that prudent enquiry, and providing limited advice about the general nature and effect of any prospective TFM application, it is a separate issue – and an extension to the retainer – to then provide advice about the prospects of success of any TFM application, or how its affect could be avoided through methods other than a will.
To the extent that critics voiced concerns – particularly after the decision of the Court of Appeal – about the prospect of professionals having to run extensive and time-consuming enquiries to implement even the simplest of instructions, the High Court’s decision should silence those concerns without inviting practitioners to turn a blind eye to potential issues which routine enquiries ought reveal.
The dividing line drawn by the High Court seems to be for the professional to undertake sensible enquiries and identify any problematic issue should it present itself, and to then clarify whether advising upon the merits and consequences of that issue is inside, or beyond, the retainer. Mr Badench did not need to present his client with that option to escape liability on the facts before the High Court, but had he identified the potential for future challenge to the estate, and delimited his instructions, it is more likely that the claim against him would never have been brought.
Retainer Practices
Lawyers are one of the few professions for whom it is mandatory (in certain cases) to enter into a written client retainer. However it is sensible practice for any professional to retain a written record of both the retainer and of any important instructions.
Estate planning matters in particular have the potential for dissatisfaction to lie dormant for many years, until a will is read or a future transaction is effected. Memories usually fade, staff may leave, and documents sent to others may not survive. Maintaining a bank of material which demonstrates the limitations to a professional’s retainer remains – even more so given the High Court’s decision in Badenach v Calvert – the best protection against future claims.
