Dougal Langusch – Director
Rosemary Workman – Lawcover
- The NSW Court of Appeal has recently confirmed that solicitors do not owe a ‘penumbral duty’ to give advice beyond the retainer.
- As the retainer is paramount, clearly define the work to be undertaken at the outset of a matter and, if appropriate, review the retainer during the course of the matter.
- The legal principle of a solicitor’s so-called penumbral duty has been considered in New South Wales in a series of cases in recent years. Fittingly, one of the dictionary definitions of ‘penumbra’ is ‘an area of obscurity or uncertainty’. In February 2021, the NSW Court of Appeal directly addressed that uncertainty in the matter of Australian Executor Trustees (SA) Limited v Kerr  NSWCA 5 (‘AET’).
Penumbral duty refers to the contention that in certain circumstances, a solicitor has a duty of care, outside the ambit of the solicitor’s retainer, to take some further action for the protection of the client’s interests beyond the function specified in the retainer. In AET, Gleeson JA (with whom Leeming JA and Emmett AJA agreed) held that no such duty existed.
Cases in which penumbral duty has been argued have tended to fall into two categories: those involving vulnerable clients and those involving sophisticated clients. AET was an example of the latter. An experienced commercial trustee retained solicitors to provide legal sign-off on a proposed transaction, on a limited basis and subject to numerous assumptions and qualifications. It was alleged the solicitors breached their penumbral duty to provide advice (beyond their limited retainer) and warn the trustee of a risk which could arise if a party to the transaction became insolvent, notwithstanding that one of the assumptions which the solicitors were instructed to make was that the entities involved would remain solvent.
This article is intended to provide a general summary only and does not purport to be comprehensive. It is not, and not intended to be, legal advice.
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