NSW Supreme Court on when a legal practitioner has authority to bind a client

lawyers authority

The question of a lawyer’s authority to bind a client is examined in a recent decision of the NSW Supreme Court which involved a solicitor who allegedly entered into a proposed deed of settlement on behalf of his clients, the defendants, despite the deed not being executed: Universal Music Australia Pty Limited v Pavlovic [2015] NSWSC 791 (19 June 2015), per Sackar J.

Background

The defendants’ solicitor, after seeking instructions, informed the plaintiff’s solicitor that Mr Pavlovic (the principal defendant) “will sign” the proposed deed, however the deed was never signed by Mr Pavlovic or any of the other defendants.

Mr Pavlovic subsequently stated to the plaintiffs that he had signed the proposed deed, and took steps which reasonably indicated that he was performing it.

When the defendants later sought to resile from the deed, the plaintiff alleged that in the particular circumstances, the defendants’ solicitor’s statement that Mr Pavlovic “will sign” the proposed deed was sufficient to conclude a legally binding agreement with all of the defendants, notwithstanding that it was not executed by them.

The proposed deed of settlement arose in a litigious or potentially litigious context, after the plaintiff threatened to take legal action against the principal defendant, Mr Pavlovic.

So when does a legal practitioner have authority to bind a client?

The answer differs, depending on whether the context is litigious or non-litigious.

In a non-litigious context, as a general proposition, a solicitor does not have ostensible authority to bind his or her client to a contract.  This is so because it is not easily inferred by a third party dealing with a solicitor in a non-litigious context that the solicitor’s authority extends to binding his or her client to a contract.

However in a litigious context:

1.   a legal practitioner (solicitor and counsel) ordinarily has both implied and ostensible authority to bind his or her client to a compromise of a proceeding;

2.   any instruction from a client which restricts the legal practitioner’s authority to compromise a proceeding will only affect the other party who is on notice of that restriction;

3.   in the absence of notice by the other party of such a restriction, a legal practitioner has ostensible authority to bind his or her client to a contract which actually and genuinely relates to and, in particular compromises litigation.

4.   however such authority does not extend to terms which are collateral to the action. An opposing litigant should therefore ask, when testing the ostensible authority of the solicitor or counsel, whether the compromise contains matters “collateral to the suit”;

5.   in some cases a legal practitioner may have no implied actual authority to compromise litigation without express instructions; in such a case the attitude and circumstances of the client known to the legal practitioner may be such that an implied term that the legal practitioner has actual authority to do so may not “go without saying”;

6.   a legal practitioner has no actual authority to compromise litigation contrary to the client’s instructions and if s/he does so will be liable to the client for any damage suffered by reason of the unauthorised compromise.

In the present case his Honour found (at [159]) that the defendants’ solicitor had actual authority to bind Mr Pavlovic to the proposed deed and, given the litigious context, ostensible authority to bind him and the other defendants to the terms of that deed.

Comment

Litigators should be alive to the above matters when involved in compromising litigation, or potential litigation.  In particular, in the absence of clear express instructions to settle (preferably in writing) great care should be taken to avoid any conduct that could be construed by the other party as indicating your client’s agreement to a proposed settlement.

Postscript

The result in this case was overturned on appeal – see Pavlovic v Universal Music Australia Pty Limited [2015] NSWCA 313.  In the course of its reasons the Court of Appeal noted that a solicitor only has ostensible authority to bind a client to a contract in a litigious context, rather than a potentially litigious context – see [21], [153]-[154], [162]. In this case the Court of Appeal held that the context was not potentially litigious, so ostensible authority did not arise as an issue.