Liability on Flawed legal opinion

The Supreme Court  in Central Bureau of Investigation, Hyderabad vs. K. Narayana Rao (2012 (6) CTC 569)nailed down that a lawyer cannot be prosecuted for a criminal offence if he gave a legal opinion to a bank, which was found to be wrong, unless there was evidence to show that he was part of a conspiracy for causing a loss to the bank.

With due respect I should confess at the outset of being immensely skeptical of this judgment. Siphoning off law, etiquettes and legal  standards  creates the illusion that  lawyers  are  special and somehow different from everything else. I question why an anomalous immunity is not only preserved on Advocates but now actually enlarged by a binding precedent ,then auditors, accountants, journalists and authors  should also be immune from liability for negligent statements causing damage to individuals. With all respect to those of the contrary view, I view the  decision as fallible .

Legal opinions are merely informed judgments, usually in writing, given by lawyers on property title.. Although legal opinions sometimes are directed to clients, in a transactional setting legal opinions often are provided, at the request of clients, to or for the benefit of third parties  such as financiers ,bankers etc .Because the transactions requiring third-party legal opinions span the entire range of business and financial undertakings since litigation  directly affect  a  nations financial stability., Therefore such opinions have become far more prevalent than opinions directed to clients on court matters.

What duties should a lawyer have to the public in rendering the opinions? A lawyer is duty bound to perform professional services with the requisite standard of care. A lawyer implicitly contracts to represent the client with the standard of skill and knowledge commonly possessed and exercised by a reasonable care  and prudent .The lawyer also owes his client a fiduciary duty; a duty of trust, encompassing undivided loyalty, confidentiality and committed representation which are  the core moral requirement values traditionally associated with the legal practice.

Negligence' or 'legal malpractice' is the failure to carry out the above duty.A lawyer’s professional conduct can be actionable based upon various theories asserted by a client other than for malpractice, such as breach of fiduciary duty  . But what about a claim for negligent infliction of emotional distress ( this can be found in English case laws where a person who is at fault for putting a person in peril)  where the emotional distress is  suffered  by client on damage to property  by “negligently divulged  incorrect, information, Obviously severe carelessness” could be a misstatement made by the lawyer to the client causing emotional distress. Clients seek our opinion due to fear of  extended and costly litigation. As such Advocates are responsible to their clients for negligence or unskilfulness;

Hundreds of real estate scam find their way to courts. At the heart of most  scams are  due to lawyer’s failure to deliver something the client has requested or expected. Negligently scrutinizing  the title when instructed to do so is perhaps the easiest way to increase the risk of real estate deal. When a lawyer is asked to  scrutinize  the title doesn’t, he or she effectively becomes responsible for everything? The quality of being lackadaisical and neglectful attitude exceeds the normal standard of practice in the “opinion on title”.

Lawyers should justifiably be cautious in rendering legal opinion. All mistakes involve some degree of ignorance—otherwise, there would  be no gap between a mentally competent perception and reality. However, a opinion made in complete ignorance of external reality is not a  mistake: “One who is ignorant of a fact   can have no perception as to  that fact. Sheer ignorance of a fact, so that one cannot call it to mind, cannot  be the basis of even a passive perception. I think we can say that the public’s attitude to  legal opinion is greatly, probably dominantly, affected and influenced by what they read in newspapers, hear on radio, watch on television and, now of course, see on the internet.

" No doubt an Advocate is liable for an error of practice, if it is plain and obvious and lead to an deleterious result" Every Advocate  shall be liable for negligence  to the client on whose behalf he has been employed to the same extent as a physician, auditor etc.

A few  practical tips in the form of “do’s” and “don’ts”   when rendering an opinion given in connection with Banking,NBFC or  realty transaction.

· Do make a full disclosure of all known material facts. Do comply with the banks/firms requirements in the closing instructions and get approval  from the bank (in writing) for any changes required by the bank/firm .Whom do you represent and in what capacity. Do disclose this to all

· What is the effective date of your opinion .Do make sure it matches the loan Application and Encumbrance certificate . and certify  (“This opinion is rendered through the date hereof and I accepts no responsibility for acts thereafter )

· Who is allowed to rely on the opinion? The Bank, The realtor? Prospective buyers? Successors and assigns? Do add a limitation on parties entitled to rely upon your opinion.

· What is excluded from the opinion?  Do disclose exclusions, such as land use/zoning, subdivision, Acquisition ,local body approval, pendency of litigation etc  These types of opinions require  spade work in that area and expose you to liability.

· Don’t include any opinion on an unsettled area of law without adding a qualification that this is your “reasoned” opinion.

· Opinion  with reference  to  photo copy of documents– don’t  opine without having perused the original document incorporated into the opinion  (if you are certifying “drafts of documents viz  contracts. deeds, easements, mortgages, releases, lease  agreements, affidavits, wills, trusts, family settlement agreements, powers of attorney etc make sure you disclose that  an “assumption” that the contents will not change before being executed).

 There are many reports about Advocates who were lulled into a false sense of security when permitting a party “to take” the originals “to be signed” by an absentee party …(don’t be trapped by this)(if it can’t be avoided, disclose to, and obtain approval of, the bank ,party etc.

There is a real risk, if we are exposed to liability in negligence but the existence of that potential liability would influence the exercise of our independent judgment by making ourselves more mindful of the need to avoid any possibility of  loss of property to our client. As professionals with a corresponding duty towards  clients, we  are potentially  vulnerable to the subject of litigation. Therefore every lawyer  must obtain professional indemnity insurance policy  to cover liability falling on us as a result of errors and omissions committed by us whilst rendering professional service.

  Above all, Advocates need to keep in mind that they are not hired guns or amoral technicians. They are hired to provide independent and critical opinion  to their clients, helping them to become as successful as possible, while ensuring that their client stays on a legally safe zone; evenly Advocate  who shies away from the obligation of providing candid and independent judgment, or even ‘spins’ the law in favor of  his client’s desires, fails more than his own conscience, he fails to fulfill his  professional responsibility.  










on 06 October 2013
Published in Civil Law
Views : 3334
Other Articles by - sureshbabu
Report Abuse


  LAWyersclubindia Menu