2012 saw the introduction of legislation requiring certain professionals to hold professional indemnity insurance. Insurers may wish to consider amending existing policies or writing new policies in anticipation of the amendments.

PROPERTY, STOCK AND BUSINESS AGENTS AMENDMENT (PROFESSIONAL INDEMNITY INSURANCE) REGULATION 2012 (NSW)

Anthony Roberts, the New South Wales (NSW) Minister for Fair Trading, released an exposure draft for the Property, Stock and Business Agents Amendment (Professional Indemnity Insurance) Regulation 2012 (NSW). The proposed Regulation seeks to introduce a requirement for persons licensed under the Property, Stock and Business Agents Act 2002 (NSW) to have and maintain a policy of professional indemnity insurance as a condition of the licence. The policy must provide cover for civil liability arising from specified situations, with a minimum cover of AU$1 million for any one claim and AU$3 million aggregate for all claims made during the policy period.

The amendments will affect real estate agents, stock and station agents, business agents, strata managing agents, community managing agents and on-site residential property managers. The closing date for submissions was 5 October 2012. There has been no subsequent update as to when the Regulation will commence.

CONVEYANCERS LICENSING AMENDMENT (APPROVED PROFESSIONAL INDEMNITY INSURANCE POLICY) ORDER 2012 (NSW)

On 24 May 2012, Anthony Roberts MP approved the policy of professional indemnity insurance (Number LPS011195725) of Vero Insurance Limited and Allianz Australia Limited from 1 July 2012 until 30 June 2013. Conveyancers must be insured under a policy of professional indemnity insurance (cl 6(1) Conveyancers Licensing Regulation 2006 (NSW)). The above policy will now be available to those conveyancers wishing to enter into new policies.

ARCHITECTS REGULATION 2012 (NSW)

On 1 September 2012, clause 13 of the Architects Regulation 2012 (NSW) introduced the NSW Architects Code of Professional Conduct. Clause 16 of the Code requires architects to hold and maintain a policy for professional indemnity insurance.

A failure to comply with this requirement constitutes unsatisfactory professional conduct for the purposes of the Architects Act 2003 (NSW) and may be grounds for disciplinary action under Part 4 of that Act.

CASE LAW

2012 saw the courts dealing with a variety of legal principles in the context of professional indemnity claims, including advocates' immunity, loss of chance and causation. As expected, proportionate liability continues to be in focus. On 3 April 2013, the High Court allowed the appeal in Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd & Ors [2013] HCA 10. The New South Wales Court of Appeal had held that the loss suffered by Mitchell Morgan due to Hunt & Hunt's negligence was different from the loss suffered due to the fraudster's conduct. The High Court rejected that reasoning, finding that the loss suffered by Mitchell Morgan was its inability to recover the lent money, which was caused by both Hunt & Hunt's negligence and the fraudster's inducement to enter into the transaction.

Further guidance on when proportionate liability applies

In The Owners Strata Plan 69312 v Allianz Australia Insurance Limited [2012] NSWSC 1477, the NSW Supreme Court found that a claim for indemnity under a policy of insurance is not an apportionable claim to which proportionate liability applies. In doing so, the court held that the insurer's failure to indemnify did not involve a failure to take reasonable care within the meaning of section 34(1)(a).

In Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242, the Commonwealth Bank of Australia (CBA) commenced proceedings against a solicitor for breach of a warranty of authority. The court held that the proportionate liability regime does not apply, as the claim being made by the CBA was not a claim for damages arising from a failure to exercise reasonable care. Moreover, the solicitor's fraudulent conduct caused the damage, and so s 34A(1)(b) applied to exclude the proportionate liability provisions. The case is also noteworthy as the court, while determining contributory negligence could not be used as a defence given the type of action pleaded, nonetheless went on to assess that CBA was 35% contributory negligent due to various weaknesses in its practices and procedures.

In the decision of Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449 (see page 63), the Supreme Court of Western Australia found that the proportionate liability regime does not apply to commercial arbitrations. Accordingly, practitioners and insurers need to keep in mind the forum in which they agree to hear a dispute.

Advocates' immunity

The long standing defence of advocates' immunity was upheld by the Supreme Court of Victoria in Goddard Elliot (a firm) v Fritsch [2012] VSC 87. The plaintiff sued his solicitor, barristers and accountant for, amongst other things, negligence and breach of contract. In their defence, the solicitor relied on "advocates' immunity", which protects advocates from suit in relation to in-court work and certain out-of-court work, which leads to a decision affecting the conduct of the case in court. The court apportioned liability 75% to the solicitor and 25% jointly to the two barristers (the barristers and accountant settled with the plaintiff prior to the hearing). However, consistent with High Court authority, the court further held that advocates' immunity applied and that the solicitor had a complete defence to the claim. Costs were awarded in favour of the solicitor.

Likewise, in a strong judgment on 18 December 2012 (Donnellan v Woodland [2012] NSWCA 433), the NSW Court of Appeal confirmed that advocates' immunity applies to "wasted costs" cases. It also gave strong indication that it applied in settled cases.

Loss of chance – causation and standards of proof

The NSW Court of Appeal provided further guidance as to the standards of proof applicable to loss of chance cases in Pritchard v DJZ Constructions Pty Ltd & Ors; Gillies & Anor v DJZ Constructions Pty Ltd & Ors [2012] NSWCA 196.The trial judge had awarded 100% damages against a solicitor for providing negligent advice. Damages were reduced by 30% on appeal. The decision is useful in deriving the following standards of proof:

  • In determining whether a solicitor's negligent advice caused loss or damage to a plaintiff, the court will consider past hypothetical questions, including the impact of receiving non-negligent advice. Those questions will be assessed on the balance of probabilities (ie over 50%).
  • To determine how damages for loss of chance might be calculated where a solicitor has given negligent advice, the court will take degrees of probabilities/possibilities into account (ie could be less than 50%).

Gung ho clients and causation

In Simply Irresistible Pty Ltd v Couper [2012] VSCA 128, the Victoria Court of Appeal found in favour of a solicitor in an action for a failure to advise on the exercise of an option to repurchase property. The trial judge, with whom the Court of Appeal agreed, found that the solicitor had failed to properly advise the plaintiff on the option. However, it was held that the breach did not cause any loss suffered. In making its finding, the Court of Appeal held the plaintiff would have proceeded with its course of action regardless of what advice was given. The court stated that the question of causation could not be resolved by applying an objective test as to what a prudent client would have done if properly advised. Rather, it is the subjective state of mind of the particular client that is relevant. In this instance, the court relied on the factors listed by the trial judge in concluding that the plaintiff did not establish its loss was caused by the breach of retainer or breach of duty, and therefore was only entitled to nominal damages for breach of contract.

Contributory negligence and the Fair Trading Act revisited

In last year's decision of Perpetual v Milanex (in Liquidation) [2011] NSWCA 36 (Milanex), the Court of Appeal held a defence of contributory negligence is not available for a claim for damages arising as a result of a breach (or contravention) of section 42 of the Fair Trading Act 1987 (NSW) (misleading and deceptive conduct).

This year, the Court of Appeal arguably brought into question the correctness of Milanex in Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd [2012] NSWCA 94. While the court did not ultimately need to decide the issue, it referred to Milanex and then noted common law position that contributory negligence is a defence to a cause of action even if it is based on breach of statutory duty. Interestingly, the issue was also raised in the previously mentioned case of Commonwealth Bank of Australia v Hamilton, although the court there similarly did not have to decide the issue.

Given the remarks in both cases, we expect the issue will gain further attention in the future.

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