ACT Supreme Court clarifies rule on solicitor’s power to bind clients to a commercial contract

Court distinguished between a client’s 'instruction' and the grant of 'authority' to their solicitor

ACT Supreme Court clarifies rule on solicitor’s power to bind clients to a commercial contract

The ACT Supreme Court has clarified the rule on the solicitor's power to bind their clients to an oral agreement concerning purely commercial transactions.

The case of Elly Property Wright Residential Pty Ltd v Elliott, [2023] ACTSC 138 concerns a dispute between a seller and buyer of residential property regarding whether their counsels have reached a binding and enforceable oral agreement. The plaintiff, Elly Property Wright Residential, argued that there was an agreement that the seller would pay the buyers $47,000 in exchange for the buyers providing written consent to the recission of the contract for the sale of land.

The ACT Supreme Court found that the solicitor from Adero Law did not have the authority to bind his client, the defendants, in the case. The court distinguished between instructions a client may give a solicitor and the authority a client may provide to a solicitor to bind the client to contractual obligations.

The court explained that a client may instruct a solicitor on what the client wants or wants the solicitor to do. When a client instructs a solicitor to negotiate a contract on the client's behalf, a client may instruct a solicitor what terms the client wants to negotiate for, what terms the client will not accept and like matters. However, the court emphasized that the solicitor's authority to bind the client to contractual obligations as a result of successful negotiations is a different conceptual matter from the instructions of the client as to the terms of the bargain.

The court said that the authority to enter into a binding and enforceable agreement to purchase land is a separate and distinct concept from the client's instruction to a solicitor to buy the land at the best price possible.

The court recognised that in the context of litigation, a solicitor has an implied and ostensible authority to bind a client to a settlement of proceedings. However, this rule does not apply in purely commercial transactions.

The court, citing case law, said, "A solicitor's ostensible authority to bind his or her client to an agreement, in the context of litigation conducted on the client's behalf, does not extend to agreements resulting from negotiations, which, if unsuccessful, may or may not end up in litigation."

The court noted that the case proceeded on the assumption that the plaintiff's solicitor had actual authority to bind the plaintiff. On the other hand, the defendants contended that there is no evidence that their solicitors, Adero Law, had any actual or implied authority to bind them to any agreement with the plaintiff.

The parties agreed that Adero had at least ostensible authority to negotiate the terms of any agreement with the plaintiff's legal representatives. Adero did so negotiate. However, the defendants questioned Adero's power to bind its clients to a contract. The clients should have shown evidence of what authority they gave Adero to bind them to any agreement.

The court ultimately ruled that there is no clear and compelling evidence in this case that Adero's solicitor had actual or implied authority to bind his clients to an agreement. Consequently, the solicitor could not bind his client to the oral agreement. Further, the court found that the parties did not intend for an immediately binding agreement to arise from their conversation.

Recent articles & video

W+K adopts gen-AI tool designed for Australian legal market

HSF, Maddocks confirm roles in $2.3bn PSC Insurance acquisition

Hunt & Hunt announces support for St Kilda Film Festival

G+T helps banks secure ACCC authorisation for mortgage aggregator assurance program

Data Zoo taps KWM for support on Ellerston Capital investment

Allens assists QIC on minerals fund's initial investments

Most Read Articles

High Court affirms right to reliance damages in landmark breach of contract case

KKR snaps up Perpetual businesses in $2bn deal with G+T's help

Clifford Chance recruits partners from Shearman & Sterling, White & Case as it expands US presence

ASX lister raises $121m with Lander & Rogers' help