By Ashley Macknay, Litigation Counsel, Williams & Hughes and Sharan Gill, General Counsel, Law Mutual
Solicitors are often faced with difficult questions when they become aware that, due to their potential error, they could become liable to their client. Those questions include:
- What should you tell the client about the matter?
- Will you breach your professional indemnity insurance policy (PI Policy) if you tell your client what has happened?
- Should you attempt to correct any error or mitigate any potential loss?
- What should you do if the client insists you continue to act?
These issues can be complex, fact specific and affected by the terms of your PI Policy. However, there are some general principles that can provide guidance.
First, subject to limited exceptions, a solicitor owes a duty to disclose to the client all relevant knowledge within their possession that is germane to the subject matter of the representation. Therefore, the client needs to be informed of the relevant facts, despite any personal embarrassment or other consequences for the solicitor.
Second, the duty of candour to the client operates regardless of whether the disclosure of the facts will breach the solicitor’s PI Policy. Bearing that duty in mind, the relevant term of the Law Mutual PI Policy relevantly specifies that an “insured must not … admit liability for … a claim, without Law Mutual’s prior written consent”.
Although the law on the subject is not entirely clear, simply informing the client of the relevant facts (for example, that a limitation period has expired and a writ has not been issued) should not usually amount to an admission of liability. Further, even if an admission of liability is made by the solicitor, coverage under the PI Policy is not affected; the insurer’s remedy is damages for the breach.
Third, the critical issue for the solicitor in deciding if they should try to correct any error or mitigate any potential loss is whether there is a conflict between the duty to serve the best interests of the client and the interests of the solicitor, or an associate of the solicitor. If such a conflict exists, rule 12.1 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (WA) is engaged. The Law Council of Australia’s Commentary provides additional guidance on the rule.
Rule 12.1 states that a solicitor must not act for a client where there is a conflict between the duty to serve the best interests of the client and the interests of the solicitor or an associate of the solicitor, except as permitted by that rule. None of the permitted exceptions are relevant here.
While the express terms of rule 12.1 might suggest there is an absolute prohibition in acting in such a conflict, that is not necessarily the case. In Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201 [104]-[108], Gleeson JA (Basten and McCallum JJA concurring) concluded that rule 12.1 should be read as not intending to change the general law that informed consent is a defence to a breach of fiduciary duty under the conflict rule. The majority judgment in Farrugia v The King [2026] HCA 28 at [44] adds some weight to that conclusion. However, the majority also concluded that some conflicts are so pronounced that the lawyer must cease to act irrespective of whether the client’s consent has been obtained (see Farrugia v The King (above) at [43], a case concerning a barrister, but there appears no reason why it would not also apply to solicitors).
Professor Dal Pont explains informed consent in Lawyers’ Professional Responsibility (7th Ed) at [6.25]:
Essential to informed client consent or authority is “full candour and appropriately complete disclosure to the client” by the lawyer. Disclosure is directed at placing the client in a position to determine whether or not to (continue to) retain the lawyer in the matter. Lacking knowledge of the existence, scope or the implications of the conflict, a client cannot be said to give informed consent or authority to the (continuing) representation. A leading statement in this regard is that of Street CJ in Law Society of NSW v Harvey:
[The disclosure] must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor to merely disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position to better protect the client’s interest.
Professor Dal Pont also cautions at [17.60] that where a lawyer may have a criminal or civil exposure in a matter in which they represent a client, the need for independence requires the lawyer to withdraw.
Therefore, if you have potentially made an error, such that there might now be a conflict between your interests and your duty to serve the best interests of the client, it is recommended that the following approach be taken when considering your continued representation of the client:
- In most instances, you should cease to act.
- If you believe that the circumstances are so exceptional that you should continue to act – for example, because the client’s interests would be significantly prejudiced if you withdrew – you should first discuss the matter with a senior colleague. The Law Society’s Ethical Guidance Panel is a good place to start. Discussions are free.
- Issues such as the extent of the client’s sophistication, the nature of the instructions, the gravity of your potential error, the implications of the error for the client, the extent and nature of your exposure to civil consequences and the availability of alternative representation are just some of the factors to be considered. If you believe that there might be disciplinary consequences if you continue to act, you should not do so.
- If, after conferral with a senior colleague, you believe that you should continue to act if possible, you should provide the full candour and appropriately complete disclosure to the client referred to above. This should be done in writing, to ensure you can later prove the disclosure was full and complete if necessary.
- That disclosure should be coupled with a strong, written recommendation that the client obtain independent legal advice in writing. If, for whatever reason, the client does not obtain that advice, it would be unwise to continue acting. A conflict under rule 12 is generally a proper basis for the solicitor to terminate the retainer with the client, regardless of the client’s wishes.
Please note that the information provided in this article is general guidance only. It is not legal advice. You should consider seeking independent legal advice specific to your particular situation or concern.
