Contingent loss and limitation periods: High Court clarification in solicitors’ negligence claims

The recent High Court of Australia decision in R Lawyers v Mr Daily [2025] HCA 41 provides some useful clarification of when a loss crystallises for limitation purposes in solicitor negligence claims. It also reiterates the need for a plaintiff to lead evidence to discharge its onus of proof to establish the existence of an alleged loss.

Background

In 2005, prior to his marriage, Mr Daily (husband) entered into a binding financial agreement with his then prospective wife under the Family Law Act 1975 (Cth), which provided for how their property and finances were to be dealt with in the event of a breakdown of any marriage (BFA).

The marriage ended in 2018 and, in 2019, the wife applied to the Federal Circuit and Family Court to set aside the BFA on grounds that it was void for uncertainty due to a material change in circumstances relating to the care, welfare and development of the children of the marriage, and that it would occasion hardship if not set aside.

First instance decision

The Federal Circuit and Family Court upheld that application, as well as a concurrent claim pursued by the husband against his solicitor for a negligent failure to advise of the risks that the BFA might be found void for uncertainty and liable to be set aside. The Court awarded the husband damages against the solicitor for wasted costs incurred in defending the wife’s application but dismissed a claim for lost opportunity damages in not obtaining a better outcome in the division of the property.

The husband appealed the decision against the solicitor.

On appeal: claim in negligence not time-barred

The appellate court of the Federal Circuit and Family Court allowed the husband’s appeal of the dismissal of the claim for lost opportunity damages and remitted that to the first instance Court for determination.

The solicitor raised a defence that the claim in negligence against it was statute barred under the Limitation of Actions Act 1936 (SA). It was accepted that the solicitor’s alleged breach of retainer was time-barred as the cause of action in contract was complete when the alleged breach occurred in 2005, being more than six years prior to the commencement of the proceedings. However, in line with well-established principle, the cause of action in negligence was completed not when the breach of duty occurred, but when loss was first occasioned.

Whilst the solicitor contended that loss occurred at the time of the husband’s entry into the BFA, on the stated basis that he obtained at that time a bundle of rights that were defective, the Court found he did not incur any loss or damage until the time he separated from his wife in 2018.

The solicitor appealed.

High Court decision

The question of principle argued on appeal was is whether the husband’s claim against the solicitors for negligence was statute barred because loss or damage caused by the negligence as found occurred at the time the BFA was entered into, or at the time of his marriage, on the one hand, or when the husband and wife separated, on the other.

In upholding the appellate court’s decision, the High Court found loss first occurred when the husband and wife separated.

Critically, the High Court noted that the part of the BFA that dealt with how property and financial resources of the parties were to be dealt with at the breakdown of the marriage was of no force and effect until a separation declaration under the Family Law Act was made.

Additionally, the BFA was liable to be set aside on various grounds that related to unknown material changes in the parties’ circumstances relating to the care, welfare and development of children of a marriage. A comparison of the application of certain statutory entitlements to the acquisition of contractual rights in a commercial agreement was held to be not valid. Rather, the statutory context in which the BFA operated involved a limitless plurality of individual circumstances that could not be known or even anticipated at the time of entry into the BFA, including, but not restricted to: variations in the length of the relationship; the number and needs of children; and the financial health and other needs of the parties. The potential variations were said to be so numerous, that it was not possible to ascertain when the loss or damage had been sustained at the time of entry of that agreement.

Distinguished from earlier authorities

The High Court distinguished this facts in this case from other authorities, which accepted loss occurred at the time of entry into a contract, or the acquisition of a damaged asset, which had not been properly drafted, on the basis the BFA was a creature of statute with an ultimate function to define rights and obligations enforceable by an order made under the Family Law Act. It was critical that those parts of the BFA were not enforceable until after separation and did not operate or attach to any property of any party or have any relevant effect at the time of the marriage.

Failure to prove loss in counterfactual

The High Court held that the nature of the interest infringed needed to be firstly identified before going on to determine when the loss had occurred.

A client may suffer a loss of a particular outcome as a result of negligent drafting or advice or, alternatively, the loss of a chance or opportunity to obtain a different agreement or secure a more favourable resolution and recover damages by reference to the Court’s assessment of the prospects of success.

In either case, the husband had failed to adduce evidence sufficient to prove, on the balance of probabilities, causation of the loss of a different outcome or the loss of the chance that he and his wife would have agreed to a different agreement.

The High Court noted there was a lack of clarity as to whether the husband pursued a loss of a particular outcome or the loss of the chance. That was because, in the appellate court, the husband had not challenged the primary judge’s finding that he had adduced no evidence on what the terms of an alternative BFA would have been. At no point had the husband demonstrated that a different financial agreement would or might have been agreed with the wife; he did not prove the substance of the terms of that agreement; that such an agreement would not or might not have been set aside; or that it would or might have secured a better outcome. The only contention at the first hearing was that, unless the BFA had been prepared, there would have been no marriage and the wife would have had no children.

The High Court found that it was not until separation that the party unprotected by a BFA was exposed to orders under the Family Law Act. Moreover, factual circumstances could vary over time and an assessment of when the loss or damage was occasioned could not be undertaken until the separation. That remained true whether there was a loss of a different outcome or the loss of a chance.

Key takeaways

This decision is relevant to assessing limitation defences to professional negligence claims.

Potential exposure to contingent loss does not amount to compensable loss until the contingency occurs. Limitation periods for claims in negligence therefore run from the later date of the contingency and not the earlier date of entry into the agreement, being when the potential risk to the client first arose.

For negligence claims involving BFAs, separation must occur for the requisite element of loss to be satisfied. Loss will not be found to have been suffered at the time of execution of the defective BFA.

The decision is also a timely reminder that a claim will fail if a claimant fails to prove the counterfactual, even if negligence can be established. The claimant must prove:

• the terms of a properly drafted agreement
• that the parties would have entered that agreement on those terms; and
• the agreement would have remained enforceable and resulted in a better outcome for the claimant.