Ibrahim v Pham - [2007] NSWCA 215

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: Ibrahim v Pham [2007] NSWCA 215

HEARING DATE(S): 5, 6, & 7 June 2007

JUDGMENT DATE:
21 August 2007

JUDGMENT OF: Hodgson JA at 1; Santow JA at 2; Campbell JA at 3

DECISION: Appeal dismissed with costs.

CATCHWORDS: LEGAL PROFESSION – negligence – where solicitor retained to advise on mortgage and loan contract – where solicitor not retained to provide advice on proposed investment – whether solicitor had knowledge of unique risks posed by investment – where investment subsequently failed – whether solicitor liable for failure to advise on investment - EQUITY – fiduciary obligations – solicitor-client relationship – conflict of interest – whether conflict between solicitor’s duty and interest – where solicitor had prior business dealings with other party to investment contract – whether solicitor dissuaded client from seeking independent legal advice – whether solicitor ought to have refused to act for client - EQUITY – fiduciary obligations – solicitor-client relationship – conflict of interest – reference for independent legal advice – whether reference for independent legal advice adequate – whether independent legal adviser independent - TORTS – negligence – duty of care – scope of duty of care – solicitor-client relationship – whether retainer limited or general - TORTS – negligence – essentials of action for negligence – causation – where solicitor failed to advise on investment – where investment subsequently failed – whether solicitor’s failure to advise caused loss – whether client relied on solicitor’s advice – where investor so highly keen to invest that investment was inevitable - CORPORATIONS – managed investment schemes – requirement for registration – where scheme not registered – whether investment contracts in unregistered scheme illegal – consequences of operating unregistered scheme – exemptions from registration requirements – Corporations Law, Ch 5C - EVIDENCE – admissibility and relevance – tendency evidence – where trial Judge rejected tendency evidence – whether trial Judge erred in rejecting evidence – whether evidence was “tendency evidence” – whether evidence provided evidence of “any relevant or material tendency” – whether evidence had “significant probative value” – whether admission of evidence would result in “undue waste of time” – notice of intention to adduce tendency evidence – Evidence Act 1995, ss 97, 99, 135 - EVIDENCE – witnesses – expert witness – solicitor expert witness – where expert witness’s report based on erroneous assumptions – failure of trial judge to accept expert witness’s evidence – whether trial judge erred in failing to accept expert witness’s evidence - EVIDENCE – witnesses – failure to call witness – whether witness one expected to be called by one party rather than the other – adverse inferences – Jones v Dunkel (1959) 101 CLR 298 - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – interference with Judge’s findings of facts – credit findings – whether findings “glaringly improbable” or “contrary to compelling inferences” – Fox v Percy (2003) 214 CLR 118 - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – insufficiency of reasons – whether trial Judge’s reasons insufficient – whether appellant denied procedural fairness - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – admission of fresh evidence – whether fresh evidence should be admitted on appeal - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – points and objections not taken below – where appellant failed to put point below – whether point able to be put on appeal - PROCEDURE – courts and judges generally – delay in delivery of judgment – whether delay in delivery of judgment occasioned a miscarriage of justice – where delay between hearing and delivery of judgment less than eight months – whether error in judgment manifest - TRADE AND COMMERCE – definitions and general – solicitors – whether solicitor engaged in “trade or commerce” – Fair Trading Act 1987, Trade Practices Act 1975 (Cth) - TRADE PRACTICES – consumer protection – misleading and deceptive conduct – solicitor-client relationship – representation by silence – where solicitor not under duty to advise on investment contract – whether solicitor’s silence on investment amounted to representation about investment - GUARANTEE AND INDEMNITY – contract of guarantee – guarantee for investment – where same solicitor acted for guarantor and borrower – where solicitor advised both guarantor and borrower in same room

LEGISLATION CITED: Companies Act 1936 (NSW)
Companies Act 1961 (NSW)
Companies Act 1981 (Cth)
Corporations Act 2001 (Cth)
Corporations Law
Evidence Act 1995
Evidence Regulation 2000
Fair Trading Act 1987
Managed Investments Act 1998 (Cth)

CASES CITED: ASIC v Vines [2003] NSWSC 1237
Australian Competition and Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 200 ALR 491
Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) [2003] NSWSC 400; (2003) 45 ACSR 401
Australian Softwood Forests Pty Ltd v Attorney General for the State of NSW (1982) 148 CLR 121
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398
Cousins v Cousins (Court of Appeal, 18 December 1990, unreported)
De Winter v De Winter (1979) 23 ALR 211
Fox v Percy (2003) 214 CLR 118
Hawkins v Clayton (1988) 164 CLR 539
Ibrahim & Ors v Pham & Ors [2004] NSWSC 650
Ibrahim v Pham [2005] NSWSC 246
Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51
Jones v Dunkel (1959) 101 CLR 298
Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612
Kinnell v Connelly [2007] NSWCA 17
Manly Council v Byrne [2004] NSWCA 123
Mier v FN Management Pty Ltd [2005] QCA 408; [2006] 1 QdR 339
Monie v Commonwealth of Australia (2005) 63 NSWLR 729
Payne v Parker [1976] 1 NSWLR 191
Perre v Apand Pty Ltd (1999) 198 CLR 180
Pilmer v Duke Group Limited (in liquidation) (2001) 207 CLR 165
Regina v Ellis [2003] NSWCCA 319; (2003) 58 NSWLR 700
Trylow v Commissioner of Taxation [2004] FCA 446; (2004) 55 ATR 408
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410

PARTIES: Rima Ibrahim - First Appellant
Sargon Najorian Badal - Second Appellant
Badal Investments Pty Limited - Third Appellant
Philip Pham - First Respondent
Pham Atic Pty Limited - Second Respondent
Fred David - Third Respondent
Suzy David - Fourth Respondent
Paul Manuelpillai Dominic - Fifth Respondent
Linda Joan Gloria Romano - Sixth Respondent

FILE NUMBER(S): CA 40305/05

COUNSEL: DE Baran - Appellants
DR Pritchard - First and Second Respondents
R Darke SC; M Dicker - Third to Sixth Respondents

SOLICITORS: Barclay Benson Solicitors - Appellants
Ebsworth & Ebsworth Lawyers - First and Second Respondents
Middletons Lawyers - Third to Sixth Respondents

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): 20483/02

LOWER COURT JUDICIAL OFFICER: Levine J

LOWER COURT DATE OF DECISION: 30 March 2005

LOWER COURT MEDIUM NEUTRAL CITATION: Ibrahim v Pham [2005] NSWSC 246

HEADNOTE

FACTS

The first and second appellants were members of the tight-knit Assyrian community in Western Sydney. After hearing a radio advertisement in mid-2000, they became interested in investing in Karl Suleman Enterprizes (“KSE”), which was operated by another member of the Assyrian community. The first and second appellants made enquiries about investing in KSE, and were informed by a representative of KSE that they would receive a fortnightly return of $1,350 for ten years on a $50,000 investment in a trolley collection business.

The first and second appellants decided that, if they could raise the finance, they would invest $50,000 in KSE. Accompanied by the KSE representative, the first and second appellants consulted the first respondent, who was a solicitor and mortgage broker, for assistance in raising finance to invest in KSE. The first respondent informed the first and second appellants that, because he acted for Karl Suleman, he would not be able to provide advice on the mortgage or the investment, but that he could assist the first and second appellants with their loan application. The first respondent advised the first and second appellants to seek independent legal advice in relation to the mortgage and investment before they entered into any agreements.

The first respondent assisted the first and second appellants with their loan application and referred them to Mr Nguyen, who was also a solicitor, to obtain independent legal advice about the mortgage and investment. The first and second appellants were successful in raising $70,000 finance, with the loan being issued in the second appellant’s name and secured against a home unit owned by the first appellant.

The first and second appellants consulted Mr Nguyen for independent legal advice. Mr Nguyen provided advice about the loan and mortgage documentation, but did not advise on the proposed investment in KSE. Mr Nguyen advised the first and second appellants that they risked losing the home unit if the business failed and they were not able to meet their loan repayment obligations. The first and second appellants, being willing to accept this risk, subsequently invested $50,000 of their borrowings, through the third appellant company, in the KSE trolley collection business in September 2000.

Between September 2000 and May 2001, the first and second appellants found their investment with KSE most satisfactory, and received the promised fortnightly payments of $1,350 on time. In late May 2001, they discussed making a further investment in KSE and made an appointment with Quick Loan Services to arrange refinancing the existing loan to make an additional investment in KSE. The first and second appellants made an application for finance to Quick Loan Services, and were successful in raising $120,000, which was to be borrowed from Perpetual Trustees Australia Limited. Quick Loan Services directed the first and second appellants to Dominic David Stamford (“DDS”), a law firm in which the third to sixth respondents practised, for DDS to act for the first and second appellants in connection with the second borrowing.

The first appellant contacted DDS, and spoke with Ms Jajoo, an employee of the firm. The first and second appellants retained DDS to act for them as borrowers and mortgagor in respect of the loan and mortgage transaction with Perpetual Trustees. DDS did not expressly accept a retainer to act or advise in relation to the proposed investment, nor did it assume any such responsibility.

Ms Jajoo acted for the first and second appellants in relation to the refinancing and arranged for the discharge of the existing mortgage. At a meeting in early July 2001, she explained the mortgage document to the first and second appellants, informing them that the mortgagee had a power to sell the property if they fell behind even once in making a payment, and that they would be personally liable if there were a shortfall on the mortgagee’s sale. Ms Jajoo also explained that the first and second appellants were being charged for mortgage insurance, but that that insurance was for the lender’s benefit, rather than for their own benefit. She advised the first and second appellants to take out mortgage insurance that would cover them.

Ms Jajoo also explained to the first and second appellants that she was providing advice only in relation to the legal effects of the mortgage and loan, and that she was not giving any financial advice. Towards the end of the meeting, Ms Jajoo became aware that the first and second appellants intended to use the money borrowed to invest in KSE. Ms Jajoo informed the first and second appellants that DDS had referred Mr Suleman to another firm of lawyers to arrange a complete restructure of his business interests, but that DDS had not heard whether that restructure had been finalised. Ms Jajoo then advised the first and second appellants to see an independent lawyer and financial adviser for advice about the investment. The first appellant responded by saying that she and the second appellant had done business with Mr Suleman before, and that she did not care if she was gambling, because she knew Mr Suleman well.

By mid-July 2001, DDS staff had completed the mechanics of settling the mortgage transaction. The first and second appellants subsequently invested a further $45,555.39 with KSE.

In December 2001, KSE went into liquidation. It seems likely that a large part of the money invested has been lost.

The appellants commenced negligence proceedings against the six respondents; Fair Trading Act 1987 claims against the first, third, fourth, fifth and sixth respondents; a Trade Practices Act 1975 (Cth) claim against the second respondent (which was a solicitor corporation through which the first respondent later came to conduct his practice); and proceedings for breach of fiduciary duty against the six respondents.

The appellants claimed, inter alia, that the first respondent failed to provide proper legal advice as to the nature and effect of the investment; that the first respondent had a conflict between the duty he owed the appellants and the interest he had as Mr Suleman’s solicitor; that the first respondent failed to disclose his conflict of interest and ensure that the appellants seek independent legal advice; and that the first respondent, in trade or commerce, made representations by silence as to the proposed investment being a good investment, upon which the appellants relied.

Further, the appellants claimed, inter alia, that the third to sixth defendants failed to provide proper advice about the investment contract; negligently failed to disclose a conflict of interest; misrepresented that the investment was a good investment; and failed to ensure that the first appellant, as guarantor, seek independent legal advice.

One element of the claims in negligence was that the respondents failed to provide proper legal advice as to the nature and effect of the proposed investments. The appellants contend the proposed investment was one to which Chapter 5C of the Corporations Law applied because the proposed investment was an investment in a managed investment scheme (“MIS”). Section 601ED(1) of the Corporations Law required a MIS to be registered if it satisfied one or more of a number of criteria, including that the MIS had more than 20 members; an unregistered MIS that was required to be registered was liable to be wound up under section 601EE of the Corporations Law upon the application of the Australian Securities and Investments Commission (“ASIC”), a person operating the scheme, or a member of the scheme. The scheme in which the appellants invested was not registered.

The appellants claimed that the first respondent knew that the proposed investment was one that fell within Chapter 5C of the Corporations Law, and that the scheme was not registered. They claimed that the first respondent failed to advise them on the risk of the scheme being wound up, and that this constituted a breach of the first respondent’s duty of care and fiduciary duty. Mr Suleman, however, had informed the first respondent, incorrectly, on a number of occasions, that the registration had been taken care of by another firm of solicitors, and that the first respondent need not concern himself with the registration. The trial judge found that, at the time of the first respondent’s dealings with the appellants, the first respondent had an honest and reasonable belief that any scheme was registered. Accordingly, the trial judge held that the first respondent did not breach the duties he owed the appellants in this regard.

The trial judge found that none of the defendants had breached their tortious or fiduciary duties, and that the claims under the Fair Trading Act 1987 and the Trade Practices Act 1975 (Cth) also failed. The appellants appealed against the trial judge’s decision on a number of grounds, including that:

1. the trial judge erred in holding that the investor contracts did not contravene the Corporations Law;

2. the trial judge made determinations of the credit of the first and second appellant that were contrary to independent, incontrovertible and incontestable facts such that the determinations were glaringly improbable;

3. the trial judge erred in drawing an adverse inference against the appellants because of the appellant’s failure to call the KSE representative who introduced them to the first respondent to give evidence;

4. the trial judge erred in dismissing the negligence claim and the claim for breach of fiduciary duty against the first respondent because the trial judge erred:

i. in finding that Mr Nguyen was independent;

ii. in finding that the first respondent had an honest and reasonable belief that the scheme was registered;

iii. in finding that the first respondent was retained under a limited retainer that did not involve the provision of advice on the proposed investment;

iv. in rejecting evidence given by an expert witness as to the practice of solicitors in situations of the general type with which this litigation is concerned;

v. in failing to hold that there was a breach of duty occasioned by the conflict between the first respondent’s self interest and his duty to the appellants; and

vi. in determining causation adverse to the appellants;
5. the trial judge erred in rejecting the claim under the Fair Trading Act 1987 by:

i. failing to hold that the first respondent made a representation by silence that the investment was a good investment; and

ii. holding that the first respondent’s conduct was not in “trade or commerce”; and

iii. holding that the appellants did not rely on any representation made by the first respondent;

6. the trial judge erred in dismissing the negligence claim and the claim for breach of fiduciary duty against the third to sixth respondents because the trial judge erred:

i. in determining that no conflict existed between the duties DDS owed to the appellants and the duties DDS owed to Mr Suleman; and

ii. in determining causation adverse to the appellants;

7. the trial judge erred in rejecting certain tendency evidence that the appellants sought to adduce; and

8. the inordinate and unacceptable delay between the hearing and the delivery of judgment resulted in a denial of procedural fairness and a miscarriage of justice.

HELD (per Campbell JA; Hodgson and Santow JJA agreeing):
1. As to the legal effect of an unregistered managed investment scheme (where registration of that managed investment scheme was required):

a. Contracts for investment in an unregistered managed investment scheme are not invalid or illegal; they are voidable at the option of the investor or operator. Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612, applied.

b. Whether the contract is lawful is a different question to whether the operator has committed a criminal offence under section 601ED(5) of the Corporations Law by operating a managed investment scheme that the section requires to be registered.

c. The investment contracts in issue here were not illegal contracts.

2. As to the trial judge’s finding concerning the appellants’ credit:

a. An appellate court can overturn a factual finding of a trial judge that is influenced by the trial judge having had the advantage of seeing the witnesses only in circumstances where the judge has “ failed to use or palpably misused his advantage ”, or where “ incontrovertible facts or uncontested testimony ” demonstrate the findings to be erroneous, or where they are “ glaringly improbable ” and “ contrary to compelling inferences ”. Fox v Percy (2003) 214 CLR 118, followed.

b. The trial judge was not mistaken in the view that he took concerning the credit of the appellants.

3. As to the Jones v Dunkel ruling the trial judge made against the appellants:

a. Before Jones v Dunkel (1959) 101 CLR 298 can be used as the basis for drawing an inference unfavourable to a party in litigation, the missing witness must be one who would be expected to be called by one party rather than the other. Payne v Parker [1976] 1 NSWLR 191; Manly Council v Byrne [2004] NSWCA 123, applied.

b. The missing witness in this case was not one who would be expected to be called by one party rather than the other.

c. Even if the trial judge were in error in drawing a Jones v Dunkel inference, no error was thereby produced, because there was sufficient other evidence on which the trial judge based his finding as to the unsatisfactoriness of the appellants’ evidence. De Winter v De Winter (1979) 23 ALR 211, followed. Kinnell v Connelly [2007] NSWCA 17, applied.

a. The first respondent’s retainer was a limited one that did not involve advising on the investment contract, but rather involved acting (in his capacity as a mortgage broker) as a procurer of finance, and (as a solicitor) in the comparatively mechanical tasks involved in settling the mortgage transaction.

b. The trial judge was not in error in drawing the conclusion that the first respondent, at the time of his dealings with the appellants, had a reasonable and honest belief that the managed investment scheme was registered.

c. The trial judge was not in error in finding that the first respondent took adequate steps to refer the appellants for independent legal advice, and that the solicitor to whom the first respondent had referred the appellants was independent of Mr Suleman and the first respondent.

d. The trial judge was not in error in rejecting the evidence of an expert witness who gave evidence of the practice of solicitors in situations of the general type with this litigation is concerned, because the expert evidence was based on incorrect assumptions.

e. The first respondent’s prior business dealings with Mr Suleman did not create a conflict between the first’s respondent’s duty to the appellants and his own self interest.

f. In these circumstances, the first respondent was neither negligent nor in breach of his fiduciary duties.

g. The trial judge’s findings (based on the hypothetical that the first respondent had breached a duty owed to the appellants) that there was no causative link between the first respondent’s conduct and the appellants loss was not erroneous, because of the appellants’ enthusiasm to invest and willingness to accept the risk of losing property.

Fair Trading Act 1987

a. The first respondent, having excluded from the retainer any duty to advise about the investment and having a reasonable and honest belief that the managed investment scheme was registered and that Karl Suleman Enterprizes was in a solid financial state (and, hence, having no reason to suspect that the investment was not good), was under no duty to speak about the investment.

b. Accordingly, the first respondent did not make a representation (by silence) that the investment was a good investment.

c. Additionally, the first respondent did not, by any other means, make a representation that the investment was a good investment.

Fair Trading Act 1987

a. DDS was retained only to provide advice on the loan and mortgage; it did not undertake to advise on the investment contract.

b. Ms Jajoo advised the appellants to seek independent legal advice on the investment contract; however, Ms Jajoo’s advice was emphatically rejected by the appellants.

Pilmer v Duke Group Limited (in liquidation)

d. DDS’s past dealings with Mr Suleman were not enough to constitute a conflict between the fiduciary duties it owed the appellants and its own self interest (of expecting further work from Mr Suleman).

e. In these circumstances, the third to sixth respondents were neither negligent nor in breach of their fiduciary duties.

f. The trial judge’s findings that even if the third to sixth respondents had have been in breach of their duties, there was no causative link between the breach and the loss was not erroneous, because the appellants’ were so willing to make the second investment that the investment was inevitable.

Evidence Act 1995

relevant or material tendency

significant probative value

Evidence Act 1995

Monie v Commonwealth of Australia

b. No error in the trial judge’s judgment has been established.

Appeal dismissed with costs

**********

PART A – FACTUAL BACKGROUND

Para No

Introduction 4

Facts as Found by the Trial Judge Concerning the Borrowings 12

Background to the Borrowings 13

Making of the First Borrowing and Investment 19

Findings Concerning Causation of Damage – Mr Pham 44

Making of the Second Borrowing and Investment 48

PART B – MANAGED INVESTMENT SCHEMES

Background 69

The Need for Registration 76

Consequences of Operating a MIS Without Registration 83

Other Requirements Relating to MISs 88

Exemptions 89

Application to the Contracts in this Case

PART C – GROUNDS OF APPEAL

Grounds of Appeal Generally 93

The Trial Judge’s Finding Concerning the Appellants’ Credit 95

Jones v Dunkel and Mr Varda 101

Grounds of Appeal Re: Mr Pham

Scope of Mr Pham’s Retainer 108

Mr Pham’s Belief About Compliance of the Investment 111

Adequacy of Mr Pham’s Reference for Independent Advice 145

Mr Pham’s Representation by Silence? 147

Prior Commercial Dealings of Mrs Ibrahim and Mr Badal 156

Independence of Mr Nguyen 158

Mr Cornelius’s Evidence 162

Wrong Finding Concerning Illegality of the Investment Contracts and Scheme 173

“In Trade or Commerce” 177

Reliance and Causation Concerning Mr Pham 179

Grounds Of Appeal Re: DDS

Failure of Ms Jajoo to Refer for Independent Advice 184

DDS Alleged Preference of Interest Over Duty 210

Insufficiency of Reasons/Denial of Procedural Fairness 223

PART D – ADDITIONAL GENERAL GROUNDS OF APPEAL

Tendency Evidence 229

The Legislation 230

The Tendency Notice Against Mr Pham 235

The “Tendency” Evidence Against Mr Pham 237

The Tendency Notice Against DDS 244

The “Tendency” Evidence Against DDS 248

Respondents’ Voir Dire Evidence 256

The Trial Judge’s Decision 258

Did the Trial Judge Err? 261

Fresh Evidence 268

Delay in Delivery of Judgment 269

Order

CA 40305/05
SC 20483/02

HODGSON JA
SANTOW JA
CAMPBELL JA

21 August 2007

RIMA IBRAHIM & ORS v PHILIP PHAM & ORS

Judgment

1 HODGSON JA: I agree with Campbell JA.

2 SANTOW JA: I agree with Campbell JA.

3 CAMPBELL JA:

PART A – FACTUAL BACKGROUND

Introduction

4 The First Appellant, Mrs Rima Ibrahim, and the Second Appellant, Mr Sargon Badal, borrowed money on two separate occasions, in 2000 and 2001. The first borrowing was of $70,000. Most of it was used to fund an investment that came to be in the name of the Third Appellant, Badal Investments Pty Limited (“Badal Investments”), in Karl Suleman Enterprizes Pty Ltd (“KSE”). The second borrowing was of $120,000. Most of it was used to pay out the first borrowing, and to fund the making of a further investment of $50,000 by Mr Badal in KSE. Both borrowings were secured by a mortgage over a home unit that Mrs Ibrahim owned in Fairfield.

5 The First Respondent, Mr Philip Pham, is a solicitor who carried on his practice in Fairfield. He acted for Mrs Ibrahim and Mr Badal in connection with the first borrowing. As well as being a solicitor, he operated a mortgage broking business. He had an agreement with a financier under which his tasks were to complete the loan application for the applicant, collate the required paperwork, and send the completed application to the bank from which the loan was being sought. He received brokerage fees from financiers and mortgage managers for performing this work.

6 After all dealings between Mrs Ibrahim, Mr Badal and Mr Pham had concluded, Mr Pham entered partnership with another solicitor. The Second Respondent is a corporation, and also a solicitor corporation, through which Mr Pham and that partner then came to conduct their practice. Counsel for the Appellants accepts that the Second Respondent has no legal liability to any of the Appellants.

7 The Third to Sixth Respondents are solicitors who conducted practice in Fairfield under the name of Dominic David Stamfords (“DDS”). Their employee, Ms Sabrina Jajoo, acted for Mrs Ibrahim and Mr Badal in connection with the second borrowing. While Ms Jajoo was not a defendant in the litigation, she is married to Mr Fred David, one of the DDS Respondents.

8 At the times that Badal Investments and Mr Badal made their investments in KSE, KSE was also receiving money for investment from other people. KSE was placed in liquidation on 7 December 2001. An order was made in the Equity Division of the Supreme Court on 10 December 2001 that the fund resulting from investments made in KSE and various associated entities should be wound up. The final outcome of those windings up is not yet known. However, it seems likely that a large part of the money that Badal Investments and Mr Badal invested in KSE has been lost, and Badal Investments and Mr Badal have not received the returns on their investments that Mrs Ibrahim and Mr Badal expected.

9 Badal Investments was never a client of Mr Pham, nor an entity that he had any reason to believe might be affected by the way he acted for Mrs Ibrahim and Mr Badal. The case on damages was presented, both to the trial judge and to this Court, on the basis that Badal Investments was a mere conduit, and that all the loss arising from both investments had been suffered by Mrs Ibrahim and Mr Badal personally. Thus, while Badal Investments is an Appellant, it claims no order in its favour. In those circumstances, I shall henceforth refer to Mrs Ibrahim and Mr Badal as “the Appellants”, and shall refer to Badal Investments by name.

10 The Appellants allege that each of the Respondents breached duties owed to the Appellants. Those duties are, in summary, a common law duty of care, an obligation under the Fair Trading Act 1987 not to engage in misleading and deceptive conduct, and a fiduciary duty.

11 The trial judge rejected all those claims: Ibrahim v Pham [2005] NSWSC 246. The Appellants appeal against the trial judge’s order dismissing their claim.

Facts as Found by the Trial Judge Concerning the Borrowings

12 In this section of the judgment I will set out a summary of some of the facts as found by the trial judge.

Background to the Borrowings

13 At the time of the events in question, Mrs Ibrahim and Mr Badal had lived together for ten or eleven years, in Mrs Ibrahim’s home unit. They were members of the Assyrian community who believed in, and were proud of, Mr Suleman. The Assyrian community in Australia is largely in New South Wales, and predominantly around the Fairfield area of Sydney. The community has its own churches and radio and newspaper in the Assyrian language. The community is tight-knit, loyal and supportive of one another. The Assyrian community is proud of any member of the community who succeeds in the wider Australian community. Most of Mrs Ibrahim’s friends and acquaintances are within the Assyrian community.

14 Before seeing any of the Respondents, the Appellants had “a degree” of relevant prior commercial dealings and experience. Mrs Ibrahim had executed a loan document with Esanda in April 2000, and used the proceeds to purchase a vehicle that was registered in her name. She had made applications, in May 2000, to the Community First Credit Union, and to St George Bank, for loans. In 1997 she had applied for and obtained finance from Bing Lee Finance and AGC Credit.

15 She had received some money from litigation in 1986, 1988, and 1992. She was represented by solicitors in those proceedings. She had purchased her home unit in 1988, and had engaged a solicitor for that task.

16 Mr Badal had been employed by Plastyne Projects. There, he had been a union representative, and had negotiated on behalf of union members with the management in relation to salary and working conditions. He had been involved in formulating how the conditions of enterprise bargaining agreements should be improved.

17 Mrs Ibrahim first became aware of Mr Suleman in around 2000. She understood that he was a member of the Assyrian community, who was doing some sort of business. As she understood it, everyone in the Assyrian community was speaking very highly of Mr Suleman, and the “whole of the Assyrian community” had invested with him. She had heard that some people had invested $500,000 or $1,000,000. As she understood it, numerous members of the community had invested significant sums of money with Mr Suleman, and many people who were investing with Mr Suleman borrowed money to do so.

18 Mr Badal had also heard of Mr Suleman before he first saw Mr Pham. He had heard about Mr Suleman at work, at the shopping centre, and on the radio. He had heard that a lot of people had invested with Mr Suleman, and were succeeding in their lives.

Making of the First Borrowing and Investment

19 The immediate trigger for Mrs Ibrahim and Mr Badal taking steps towards an investment in KSE was that Mrs Ibrahim heard a radio advertisement. The next day, she rang a telephone number that she had obtained from the advertisement. She spoke to Mr David Varda. Mr Varda told her that the amount of return on an investment depended on how much was invested, and that on a $50,000 investment the return would be $1,350 every two weeks for 10 years.

20 At this time, Mrs Ibrahim was in receipt of a pension. She did not want to receive income from any investment, because it would affect her pension. Mr Badal did not have $50,000 to invest, so if such an investment were to be made, there would have to be a borrowing of $50,000, and it would be necessary for Mrs Ibrahim to put her unit up to support the borrowing.

21 Mrs Ibrahim told Mr Badal about her telephone call with Mr Varda. Mr Badal had heard about other people investing amounts from $50,000 to $1,000,000 with Mr Suleman. He had spoken to four or five people about the investment. He told Mrs Ibrahim that he wished he had some money to invest with Mr Suleman, and she offered to help him get the $50,000. She said to him, “we go see and talk first, see if we can get some loan and see what we can do and I will help you” to borrow some money.

22 Next, Mr Badal and Mrs Ibrahim went to see Mr Varda. Mr Badal said to Mr Varda, “I want to invest with Karl Suleman but I don’t have any money but Rima has a house. We need to obtain finance, I am just here to make enquiries.” Mr Badal said to Mrs Ibrahim, “I want you to be a guarantor for me so I can get the $50,000 loan and to put up your house”. Mr Varda told Mrs Ibrahim that she could be a guarantor both on the telephone, and when she went to see him.

23 Mr Varda told Mrs Ibrahim that she should invest, that it was a very good business, that she would not be sorry, and that she would get a good amount of income from it. Mrs Ibrahim believed Mr Varda.

24 Mr Varda went with Mrs Ibrahim and Mr Badal to Mr Pham’s office. They spoke further outside Mr Pham’s office.

25 When Mrs Ibrahim went into Mr Pham’s office she believed, because of what Mr Varda had told her outside, that there would be a return of $1,350 per fortnight. She believed, from what she had heard in the Assyrian community, from what she had heard on the radio, and from what she had heard from Mr Varda, that it was a good investment to invest with Mr Suleman. She had decided that if a loan could be obtained, then she would go ahead with the investment. Before seeing Mr Pham, Mrs Ibrahim and Mr Badal had already decided to invest $50,000 with Mr Suleman, and had decided that Mrs Ibrahim would put up her unit to obtain the necessary loan to invest.

26 The trial judge found, at [75], that Mrs Ibrahim and Mr Badal “only ever went to see Pham for his assistance in raising finance for the investment which they had already decided to make.”

27 Mrs Ibrahim and Mr Badal met Mr Pham on three separate occasions. The first was in late July or early August 2000. The second was on 9 August 2000. The third was on 30 August 2000.

28 At the first meeting between Mrs Ibrahim, Mr Badal, Mr Varda and Mr Pham, Mr Pham was told that the Appellants wanted his assistance in raising finance. Mr Pham understood that they both wanted to invest with Mr Suleman. The trial judge, at [138], accepted Mr Pham’s evidence as follows:

“Mr Varda said: “Philip can [you] help these people obtain finance to invest with KSE?

I said : “ I will try. I’ll talk to them and find out whether they qualify. How much do you want to borrow?”

Badal said : “$70,000.”

I said : “Do you have a house?”

Ibrahim said : “No, I have a unit which I have paid off.”

I said : “You probably can borrow money from the bank using your unit as security.”
Pham asked Ibrahim and Badal about their financial position, whether they were working, what other assets or liabilities they had and other details of the loan they wanted.

Badal said : “I also have a car loan that Rima is going to help me out with because the interest repayments are very high. We want to borrow money to invest with Karl Suleman and also pay off my car loan.”

I said : “I can assist you in obtaining finance, but I can’t act for you in terms of providing independent legal advice about your mortgage or your investment with Karl. I am acting for Karl. I strongly advise you to seek independent legal advice in relation to the mortgage and your investment before you enter into any agreements. If you agree that I can help you on that basis, we can proceed.”

Either one of them said: “Yes, that’s fine. ”

Ibrahim said : “How much will it cost to arrange the loan?”

I said : “ To arrange your loan I will charge nothing because the bank pays me a commission of about $350 but you have to pay the bank application fee plus disbursements on top of that. I will charge you for the time I spent settling the loan and this involves liaising with the bank, signing the mortgage documents, attending on settlement and all of that sort of thing. This will be around $500 plus disbursements.”

Ibrahim said : “All right.”

I Said : “Well, if you want to proceed then this is what you have to bring in.”

At this time, Pham provided a list of the documents they needed to provide for the loan application such as the certificate of title, council rate notices, 100 points of identification, employment details and details of Badal’s loan with Esanda. Pham also provided them with a blank loan application form.

I said

and I will help you complete it.

29 The Appellants gathered together the information needed to make the loan application, and took it to Mr Pham’s office on 9 August 2000. They completed the loan application, and on the same day Mr Pham made the application for finance on their behalf.

30 At some time between the first and last times the Appellants saw Mr Pham, they went to see an accountant, Mr El-Gamal. A card with Mr El-Gamal’s details had been given to them by Mr Varda. They discussed the proposed investment with Mr El-Gamal, and talked about acquiring a company. Mr Varda had told Mrs Ibrahim that the money she would get would cost her a lot in tax, and she would need to go to an accountant in order to set up a company to minimise the tax. At Mr El-Gamal’s office, she decided on the company name “Rima Investments Pty Ltd”.

31 The plaintiffs received the loan documents at their home on 29 August 2000 from the solicitors for the lender, the Adelaide Bank. They attended Mr Pham’s office on 30 August 2000.

32 At the meeting on 30 August 2000, the Appellants brought in the loan documentation that they had obtained from the solicitors for the lender. They executed some of it, including the mortgage, in front of Mr Pham. A conversation occurred:

PHAM: “I believe it is to the best of your interest that you go and obtain independent legal advice about the loan and your investment with Karl.”

IBRAHIM: “I have spoken to a lot of people in the community and we believe in Karl. I don’t need to talk to anyone else. Beside that, I don’t want to spend any more money unnecessarily.”

PHAM: “You will find that the money is well spent if you go and seek independent legal advice. Please go and seek advice.”

BADAL: “All right, we will go. Do you have a solicitor who you can introduce?”

PHAM: “Yes, I will check to see who is available.”

33 Mr Pham then telephoned Mr Thuan Nguyen, a solicitor from the Fairfield office of Teakle Ormsby George. He told Mr Nguyen he had two clients who needed independent legal advice, and arranged an appointment for them. That was the only occasion that Mr Nguyen could recall when Mr Pham had referred clients to him for independent advice.

34 Mrs Ibrahim and Mr Badal saw Mr Nguyen on 31 August 2000. The meeting lasted forty-five minutes to an hour. The trial judge found, at para [103], that:

everything

35 Mr Nguyen made a handwritten file note the same day, as follows:

“

Terms: 25 years

Repayments: $523 p.c.m.

I’ve gone thu the [contract] (loan), and explained to her why it is required for her to obtain independent legal advice and there are risk factors involved.

She may lose the [property] if the business fails, could not be able to make loan payment to [bank] – Client said Ok.”

36 The trial judge found that there was a conversation materially identical to that recorded in the file note. The only advice he gave related to the loan and mortgage documentation. In other words, he gave no advice about the proposed investment in KSE.

37 One of the documents signed by Mrs Ibrahim at Mr Nguyen’s office was an acknowledgment relating to the legal advice she had received from Mr Nguyen. Part of it was acknowledging that he had advised her that:

“ [he] … does not profess any qualification to give financial (as distinct from legal) advice; and

38 On 7 September 2000, Mr Pham sent to the lender’s solicitors an authority to pay. It directed that payment of the advance be made as follows:

1. Esanda	$15,125.19
2. Karl Suleman	$50,000.00
3. Pham & Associates	$838.00
4. S. Badal	$ 2,723.86
$68,687.05

39 The difference between the total directed to be paid and $70,000 arose from fees and expenses associated with the lender.

40 On 11 September 2000, Mr Pham forwarded cheques in favour of Esanda and Mr Badal to Mrs Ibrahim and Mr Badal by post. The cheque for the investment in KSE was provided to KSE by someone in Mr Pham’s office.

41 Mr Pham sent a tax invoice on 11 September 2000 relating to his fees and disbursements. It totalled $838 being $400 fees and the balance for disbursements, which were primarily stamp duty.

42 A contract dated 11 September 2000 exists between Badal Investments and KSE. However, at that date, no company called “Badal Investments Pty Ltd” existed. On 19 September 2000 a company with a different name resolved to change its name to Badal Investments Pty Ltd. The “start date” of that change of name was 2 October 2000. Mr Badal was appointed its director and secretary on 10 October 2000. On or about 11 September 2000 a contract of some sort had been signed, but Mr Varda later provided a replacement contract, which was executed by Badal Investments (on a date that is uncertain), and backdated to 11 September 2000. It is that replacement contract which is the document now in existence.

43 The contract dated 11 September 2000 contains no reference to Mr Pham. The space at the foot of its coversheet, where the name of a solicitor who has drafted a contract frequently appears, contains the name and address of KSE. I consider the terms of the contract at para [90] below.

Findings Concerning Causation of Damage – Mr Pham

44 Even though the trial judge found that Mr Pham had engaged in no breach of duty, he went on to consider, on a hypothetical basis, causation of damage.

45 The only specific evidence of causation of damage presented by the Appellants was evidence from Mrs Ibrahim that if she was aware of the slightest risk, she would not have put the unit up to enable the investment with KSE to take place. That evidence provides an insufficient basis for a finding of causation of damage, given that the trial judge records, at [9], that he “quickly formed the view that neither Ibrahim nor Badal was a reliable or credible witness”. As well, Mrs Ibrahim was told both by Mr Nguyen, and later by Ms Jajoo, of the risk that she could lose her home unit in certain circumstances, yet she proceeded with both loans, and both mortgages. The advice that Mr Nguyen gave dealt with risk connected with KSE in only the most general terms, that “she may lose the property if the business fails”, without purporting to give any advice about what might be the chances of the business failing, or circumstances in which the business might fail. The advice that Ms Jajoo gave was directed to areas of risk other than that the investment in KSE might be risky. Even so, Mrs Ibrahim’s extravagant statement of total aversion to any risk of losing her home unit is falsified by those facts.

46 One type of breach of duty that the Appellants had argued for at the trial consisted not of a failure to advise, but of a failure to cease acting once the solicitor in question knew that the investment that was proposed was in KSE. The appellant’s case was presented on the basis that, if a solicitor declines to act because confidential information that the solicitor had received from another client made it impossible for the solicitor to embark on or continue with the retainer, it was not necessary for the solicitor to provide reasons – all the solicitor need say was “I cannot act for you”. One submission that the Appellants made was that, because of various dealings that Mr Pham had, and continued to have, with Mr Suleman and companies associated with Mr Suleman, Mr Pham should not have acted for them at all. The trial judge considered what was likely to happen if Mr Pham declined to act, without providing any reason for declining:

217 “… the plaintiffs would have been none the wiser in relation to the status of any scheme. On the basis of the evidence set out in detail above, presumably, they still would have been very keen to invest.

218 The Pham defendants postulate four scenarios. First, they could have done nothing and forgot about the whole thing. This is most unlikely having regard to their keenness and the enthusiasm within the Assyrian community. Secondly, they could have proceeded with the investment without the intervention of any solicitors. From mid 2000, investment contracts were being issued directly by Mr Suleman. Presumably, if this had occurred, they still would not have learnt about the status of any scheme.

219 Thirdly, they could have gone to another solicitor who did not advise on the status of the scheme. After all, that is exactly what happened with Mr Nguyen and Ms Jajoo.

220 Fourthly, they could have gone to another solicitor who could have ascertained the status of the scheme (just how it would have been ascertained is not articulated by the plaintiffs) and who was able to advise on the status of the scheme. What would the advice have been? Would the plaintiffs have still invested? The plaintiffs need to establish (if I were to find that this is the most likely scenario) that they would not have proceeded in any event. The starting point to this analysis is, of course, that, if Ibrahim had been told that there was a risk of her losing her unit, that of itself and alone would not have caused the plaintiffs not to proceed.

221 As to the fourth scenario, what first must be identified is what would the advice have been. Mr Cornelius [an expert witness] was not asked to express any views about what advice a solicitor in common practice (that is, a solicitor without any prior dealings with Karl Suleman and/or the scheme) would have given in those circumstances. For the sake of this analysis only the advice may well be …:

“You are considering investing in an unregistered management investment scheme. It appears to have been operating for a short period. It appears to be profitable and has significant community support. An investment contract with Karl Suleman would still be a binding legal contract. The scheme itself is not illegal but those promoting it are liable for an offence under the Corporations Act. If the scheme is not registered, a number of people could apply to the Court to have the scheme wound up. It is not possible to tell, if the scheme is wound up, whether you will have all or any part of your initial investment return and although you may be able to retain the benefit of moneys received by you prior to it being wound up. The returns are high, you may well be able to recover your initial investment and more before the scheme is wound up. The scheme may still be able to be registered but it may not. If it is not, you have an election to void the investment contract before any winding up occurs. What do you want to do?”

222 On the evidence before me, I simply cannot be satisfied that the plaintiffs (even if the fourth scenario applied) would not have proceeded with the investment in any event, either before or after attempting to negotiate different terms with KSE. The whole Assyrian community believed in Karl Suleman. A large number of people in that tight knit community had made significant investments and achieved significant returns. Badal knew that there was a risk of Ibrahim losing her property because of the transaction with the Bank and he knew that at September of 2000. He knew that a business failing was the possibility of Karl Suleman’s business failing …. Badal believed that, if he was still working, he would be able to make the repayments if Mr Suleman’s business collapsed ….

223 Further, as to the $50,000 investment, Ibrahim thought Mr Suleman would use it how he thought best in any business provided she got and Mr Sargon got $1,350 every 2 weeks … . Ibrahim wouldn’t have minded what was going to happen with the money provided she got her $1,350 every 2 weeks … . Badal did not mind how Mr Suleman used the money invested for his business purposes … .

224 Finally, Ibrahim was anxious to assist Badal in the investment … She could not participate in the investment because of her pension but I infer she would be pleased to enjoy the fruits of the investment.

Gore v Montague Mining Pty Limited

March v Stramare (E & MH) Pty Limited

Wardley Australia Limited v Western Australia

Henville v Walker

47 His Honour concluded that at best he could only speculate, and hence that the plaintiffs had not discharged the onus upon them to prove causation of damage so far as Mr Pham was concerned.

Making of the Second Borrowing and Investment

48 The trial judge found:

“235 By late May 2001 the experience of investing with KSE had proved to be most satisfactory, in that the fortnightly payments of $1,350.00 received in full and on time greatly exceeded the amount necessary to make the monthly payments to the Adelaide Bank. The plaintiffs were aware of other investors who were similarly well pleased with their investments with Mr Suleman who enjoyed a very good reputation in the community, including that of a highly successful businessman … . The opportunity to invest a further amount with KSE was received by both Badal and Ibrahim with some enthusiasm ... . Neither Badal nor Ibrahim obtained further information concerning Mr Suleman or KSE, or even to speak to their accountant Mr El Gamal ... . It seems that Badal spoke only with Mr Varda before discussing the matter with Ibrahim ... .

236 I am satisfied that Ibrahim was happy to assist in the making of the further investment by way of using her property to support the loan … and that she understood that her property was to be used as a security and that if the loan could not be repaid the property may be lost to the lender.”

49 In late May 2001 – which was within about two days of their discussion of the proposal – Mrs Ibrahim and Mr Badal went to the office of Quick Loan Services, and met with Mr Jesse George. This happened because Mrs Ibrahim had made an appointment.

50 They obtained overnight the documents that were necessary for a loan application, and went back to Quick Loan Services the following morning. On that occasion they met Mr Zia George, and completed an application for finance. That application was approved unconditionally on the same day. This time the lender was Perpetual Trustees Australia Limited, and the proposed manager of the loan on the lender’s behalf was Royal Guardian Mortgage Corporation. Mr Zia George told Mrs Ibrahim and Mr Badal to contact DDS, and told them that documents would be sent by Quick Loan Services to DDS.

51 Mrs Ibrahim telephoned the office of DDS late in the afternoon of 1 June 2001 and spoke with Ms Jajoo. Mrs Ibrahim explained that she was refinancing her existing loan, and enquired whether DDS had received any paperwork.

52 The trial judge found, at [240], that Mrs Ibrahim and Mr Badal retained DDS to act for them as borrowers and mortgagor in respect of a loan and mortgage transaction proposed to be entered into with Perpetual Trustees. DDS did not expressly accept a retainer to act or advise concerning any proposed investment, nor did it assume any responsibility to so act or advise.

53 The approval of the loan to Mrs Ibrahim and Mr Badal was not forwarded to DDS until the afternoon of 4 June 2001. On 5 June 2001 Ms Jajoo telephoned Mrs Ibrahim and informed her that DDS had received the unconditional loan approval letter. She also requested that Mrs Ibrahim bring in a current loan statement so that the discharge of the existing mortgage could be organised.

54 On 19 June 2001, Mrs Ibrahim telephoned Ms Jajoo, and said that the loan papers had still not been received and that she had been telephoning Quick Loan Services about them. Ms Jajoo reminded Mrs Ibrahim to bring in a loan statement so that the discharge of the existing mortgage could be organised.

55 There were various contacts between Mrs Ibrahim, Mr Badal, and various staff members of DDS concerning advancing the refinance. One of them was on 25 June 2001, when Mrs Ibrahim telephoned Ms Vivian Joseph and enquired about the whereabouts of the mortgage documents. On that occasion the matter was left on the basis that telephone contact would be made by DDS once the documents had arrived there. On 27 June 2001, Mrs Ibrahim telephoned DDS again, and spoke to Ms Lena Moward. Mrs Ibrahim was told that the lender’s solicitors were sending the documents in the next few days.

56 At that time, an appointment was made for the only meeting that occurred with Ms Jajoo. That meeting occurred on 2 July 2001. The trial judge accepted Ms Jajoo’s account of that meeting, which was based upon a contemporaneous file note that she made.

57 This meeting was the first time Mrs Ibrahim had met Ms Jajoo in Ms Jajoo’s adult life. The discussion took place in the Assyrian language. In the course of the discussion about refinancing it, emerged that Mrs Ibrahim wanted loan repayments to be debited to the credit union account of Badal Investments, and that Mr El-Gamal was their accountant. Ms Jajoo telephoned Mr El-Gamal in the course of the conference with the Appellants, and discussed with him the mechanics of debiting that credit union account.

58 Ms Jajoo explained the loan contract to Mrs Ibrahim and Mr Badal, and the declaration, attached to that contract, whereby they acknowledge that a solicitor had explained the terms to them. At that stage, Mrs Ibrahim said:

“They really make you sign in blood, don’t they? But don’t worry, this is not the first time we’ve taken out a loan, all the banks are the same. They all have the same requirements in one form or another.”

59 Ms Jajoo went on to explain the mortgage document, in the course of which Mrs Ibrahim said:

“We’ve always borrowed against this property. We’ve been together for a long time. That’s not a problem. This is not our first time. All of this has been explained to me before.”

60 Part of Ms Jajoo’s explanation of the mortgage included the power of the bank to make the whole balance outstanding, and sell the property, if they fell behind even once in making a payment. She explained the extra fees and charges that the bank could charge if it needed to exercise its power of sale, and that if there was a shortfall from sale, the bank could sue them personally for the difference and even bankrupt them.

61 Ms Jajoo explained that they were being charged for mortgage insurance, because they had borrowed more than eighty percent of the value of the property, but that that insurance was to protect the bank, not to protect them. Ms Jajoo explained that if they did not make their repayments, the bank could recover its losses from the insurer, but the insurance company would then sue them. She advised them about the availability of mortgage insurance that they could take out for themselves so that if “you can’t work for a while then you have insurance to protect you”.

62 In the course of explaining another of the documents connected with the borrowing, Ms Jajoo said:

“Also you understand that my only obligations to you are in relation to explaining the legal effects of the mortgage and the loan contract relating to the mortgage and all these other documents sent by the bank’s solicitors and that I have explained them to you and you understand them all. You do understand that I am not giving you any financial advice and for that you obviously need to see a financial advisor or your accountant.”

63 Towards the end of this conference was the first time Ms Jajoo became aware that they were proposing to invest the proceeds of the loan with KSE. The conversation concerning that topic was:

“IBRAHIM: “… Our balance to Adelaide Bank is about $70,000.00, so we’ll be left with about $60,000.00, I want that cheque drawn to Karl Suleman Enterprizes.”

JAJOO: “Rima, I don’t know much about Karl’s business structure so I don’t advise and I am not in a position to approve or disapprove (the Assyrian phrase I used was ‘le masyan makhshekhan’ the literal meaning of which is ‘I can not recommend/advise in favour of or not/approve or disapprove of’) of his business transactions (the Assyrian word I used was ‘mumla’ the literal meaning of which is ‘commercial dealing/investment’). Suzy had referred him to a firm of lawyers in the city who were looking at a complete restructure of all his businesses as they believed that the structure was not set up properly, but Karl then went back to his own lawyer a couple of months ago and we don’t know if he’s finalised anything and in what way.”

IBRAHIM: “Yes, we know his lawyer, it’s Phillip Pham. He’s been our lawyer as well. We know it’s a big risk.”

JAJOO: “Well, then you should see an independent lawyer and financial advisor to advise you on your investment and explain properly such risks to you.”

IBRAHIM: “Sabrina, you don’t know Karl as well as I do. God give him anything he desires. We love him. We’re very close to him. I’ve even asked him for extra money before and he’s given it to me without any questions. Don’t worry about us and Karl – we’ve been in business with Karl before. This is not our first time investing with him. We’ve made a lot of money and if it wasn’t for all the fun we’ve been having because of this silly man’s influence [Ms Ebrahim then pointed to Mr Najarian-Badal], we would have lots of money now.

Sabrina, even if we’re gambling we don’t care.”

JAJOO: “Well, I’m only advising you on the loan documentation and your obligations under the terms and conditions of the loan.”

64 Even though the conversation was in the Assyrian language, Ms Jajoo’s file note, made as the conference proceeded, was in English. The portion relating to the conversation just set out is:

“we don’t approve – don’t believe its done properly – big risk

should see o/lawyers/finan. adviser

♡

even if gamble don’t care !!!”.

65 The trial judge, at [57] and [259] of his judgment, expressly considered and accepted the evidence I have set out at paras [58], [59] and [63] above, as well as stating in general terms that he accepted Ms Jajoo’s account of the meeting.

66 There was no evidence that Ms Jajoo ever saw an investment contract involving KSE, let alone one proposed to be entered into by any of the Appellants.

67 After 2 July 2001, unidentified people at DDS carried through the mechanics of settling the mortgage transaction. That included giving instructions to the lender’s solicitor concerning the manner in which the net amount available from the borrowing was to be applied. Part of those instructions was that there should be a cheque for $45,555.39 in favour of KSE. On or about 11 July 2001, Mrs Ibrahim attended the office of DDS, and collected the cheque in favour of KSE. An investment contract dated 9 July 2001 was entered by Mr Badal and KSE, without any further involvement by DDS. I consider the terms of that contract at para [92] below.

Findings Concerning Causation of Damage - DDS

68 Even though the trial judge found no breach of duty on the part of DDS, he considered causation of damage on a hypothetical basis. His findings concerning causation of damage in the DDS claim are as follows:

“no rush”

“a slight risk in investing”

293 Upon the obtaining of the unconditional loan approval from Royal Guardian Mortgage Corporation, the second investment with KSE was inevitable. Neither Badal nor Ibrahim saw any need to obtain further information concerning Mr Suleman or KSE, or even to speak to their accountant Mr El Gamal … . They went to DDS so that the legal formalities involved in the refinancing transaction would be dealt with. Their attitude is clearly illustrated by the fact that, having received a recommendation from Ms Jajoo to obtain independent legal advice and financial advice concerning the proposed investment, neither of those steps was taken. Instead, the cheque made out in favour of KSE was immediately taken to Mr Suleman’s office where arrangements were made for a further investment contract to be entered into. There was no evidence adduced by the plaintiffs that, had they been given any advice about an unregistered managed investment scheme, they would have changed course. The plaintiffs’ submission that it was up to the defendants to put such matters to the plaintiffs in cross-examination is incorrect and amounts to an attempt to reverse the onus of proof.

294 There is no evidence that, had DDS declined to act in relation to the refinancing transaction, that the outcome would have been any different. No evidence was adduced to the effect that had Ibrahim and Badal gone to another solicitor they would have obtained advice of a different character which would have caused them to decide not to proceed after all.”

PART B – MANAGED INVESTMENT SCHEMES

Background

69 To follow some of the allegations of breach of duty that the Appellants make, it is necessary to understand the legislative provisions that governed managed investment schemes (“MISs”) at the time of the events with which this judgment is concerned.

70 Provisions for the regulation of MISs were first introduced to the Corporations Law by the Managed Investments Act 1998 (Cth), which commenced on 1 July 1998. The form of the legislation that is relevant to these proceedings is the form that the legislation had from the beginning of 2000 until 11 July 2001. The Corporations Act 2001 (Cth) commenced operation on 15 July 2001, too late to be relevant to the facts of this case.

71 The provisions regulating MISs replaced the provisions regulating the offering of “interests” or “prescribed interests” that had evolved from section 173A ff Companies Act 1936 (NSW) through section 76 Companies Act 1961 (NSW), and section 164 ff Companies Act 1981 (Cth).

72 The following provisions of the Corporations Law are relevant:

Managed investment scheme

(a) a scheme that has the following features:

interests

members

(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

(b) a time-sharing scheme”.

73 The definition went on to provide certain exceptions from the definition, but none of them is relevant for present purposes.

74 There was no definition in the Corporations Law of what counted as a “scheme”. However, section 76(1) Companies Act 1961 had defined “interest” by words that included “any right to participate … in any … scheme …”. In Australian Softwood Forests Pty Ltd v Attorney General for the State of NSW (1982) 148 CLR 121, Mason J (with whom Gibbs CJ and Stephen J agreed in this respect) said, at 129:

“… all that the word “scheme” requires is that there should be “some programme, or plan of action” … . It is not material that the person who offers the “interests” to the public does not himself carry on the undertaking or scheme. Nor does it matter that by subscribing for an interest a member of the public will constitute himself as one who is engaged in carrying on the enterprise.

Nor again does it matter that the subscriber by accepting the offer constitutes himself as one who executes some elements of the scheme and derives from so doing a financial advantage which is not earned by other participants whose activities relate to other elements in the scheme. It is not an objection to an enterprise qualifying as an undertaking or scheme that it consists of a number of parts or elements, the participation of individual parties being limited to one of these parts or elements, their profit or remuneration being derived from the particular activities in which they engage. There is nothing in the notion of an undertaking or scheme that requires or implies that there is joint participation in everything comprised in the plan or that there must be a share or pooling of profits or receipts.”

75 Most of the substantive provisions relating to MISs were contained in Chapter 5C of the Corporations Law, which ran from section 601EA to 601QB.

The Need for Registration

76 Section 601EB Corporations Law obliged the Australian Securities and Investments Commission (“ASIC”) to register a scheme, unless it appeared to ASIC that certain identified provisions of Chapter 5C were not complied with.

77 Section 601ED Corporations Law provided:

“(1) Subject to subsection (2), a managed investment scheme must be registered under section 601EB if:

(a) it has more than 20 members; or

(b) it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or

(c) a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20.

(2) A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made did not need disclosure to investors under Part 6D.2 (see sections 706 and 708) when they were made.”

78 Section 701 Corporations Law made the provisions of Chapter 6D (sections 700-741) applicable to offers of interests in managed investment schemes. Generally, Chapter 6D imposed restrictions on fundraising through the offering of the securities to which it applies. Section 706 provided that an offer of securities for issue needs disclosure to investors under Part 6D.2 unless section 708 said otherwise.

79 Section 708 Corporations Law identified various categories of offers that did not need disclosure. One such exception related to personal offers of a body’s securities as a result of which not more than twenty investors have securities issued to them in any twelve month period, and not more than $2m is raised by issuing securities in any twelve month period.

80 Another category of exception under section 708(8) Corporations Law concerned an offer made to a sophisticated investor. Section 708(8) provided three different ways in which a person might be a sophisticated investor:

(a) the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or

(b) the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body’s securities of the same class are held by the person add up to at least $500,000; or

(c) it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made:

(i) has net assets of at least $2.5 million; or

(ii) has a gross income for each of the last 2 financial years of at least $250,000 a year.”

81 Another category of exemption arose under section 708(11) Corporations Law concerning various people or bodies that are classified as professional investors. There were some additional exceptions as well that are not necessary to detail.

82 It follows from section 601ED(2) Corporations Law that a MIS did not need to be registered if exceptions in section 708 applied to all the interests in that scheme.

Consequences of Operating a MIS Without Registration

83 Section 601ED(5) Corporations Law said that a person must not operate a MIS that is required to be registered unless the scheme is registered. Section 1311 had the effect that anyone who contravened section 601ED(5) committed a criminal offence.

84 Under section 601EE Corporations Law, if a person operated a MIS in contravention of section 601ED(5), ASIC, or a person operating the scheme, or a member of the scheme, could apply to the Court to have the scheme wound up. There was a discretion for the Court to exercise in deciding whether the scheme ought be wound up if such an application was made to it. Section 601EE(2) empowered the Court to make any orders it considered appropriate for the winding up of the scheme.

85 Pursuant to section 601MB(1)(a) Corporations Law, if a MIS was being operated in contravention of section 601ED(5) and a person (the offeror) offered an interest in the scheme for subscription, or issued an invitation to subscribe for an interest in the scheme, a contract entered into by a person (other than the offeror) to subscribe for the interest was voidable at the option of that person. The same consequence applied under section 601MB(1) if a MIS was registered, but a person offered an interest in the scheme for subscription in circumstances that contravened the fundraising provisions of Chapter 6D.

86 As Beazley JA (with whom Spigelman CJ and Santow JA agreed) said in Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612 (at [51], 621):

“The legislation does not expressly make an unregistered scheme unlawful. Rather it impugns the conduct of the entity responsible for registration by imposing a penal sanction for a contravention of the registration provisions. The members of an unregistered scheme are protected by the provisions whereby the scheme may be compulsorily wound up.”

Mier v FN Management Pty Ltd

87 The provision in section 601MB(1) Corporations Law whereby an investment contract in a MIS was voidable at the option of the investor of itself shows that it was not the legislative intention that such contract be invalid or illegal in the circumstance with which section 601MB(1) was concerned. If on analysis a particular contract whereby someone invested in a scheme was found not to be within the ambit of section 601MB (as, for example, Barrett J advised the liquidator of KSE was the case in Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) [2003] NSWSC 400; (2003) 45 ACSR 401 (at [12], 405-406)), the application of the principles in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 may well lead to the conclusion that that particular contract was not impliedly treated by the legislature as unlawful (cf Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (at [14]-[15], 406); Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612 (at [41]-[51], 619-621)).

Other Requirements Relating to MISs

88 Chapter 5C Corporations Law imposed various other requirements on a MIS. The entity that operated it had to be a public company, and had to hold a dealer’s licence that authorised it to operate a MIS (section 601FA). There were various standards of behaviour imposed on those who operated the scheme. Its constitution had to contain certain provisions, and had to be legally enforceable. There were numerous other provisions dealing with the practical operation of the scheme.

Exemptions

89 Section 601QA Corporations Law entitled ASIC to exempt a person from a provision of Chapter 5C, or declare that Chapter 5C applied to a person as if specific provisions were omitted, modified or varied as specified in the declaration. While that power related to all of the provisions in Chapter 5C, of particular relevance for present purposes is that it conferred on ASIC a power to exempt from the requirement that a MIS be registered at all.

Application to the Contracts in this Case

90 The investment contract dated 11 September 2000 was between KSE (called the “Manager”) and Badal Investments (called the “Investor”). It recited that the Manager was carrying on the business of trolley collection services (“Business”) in Australia, that the Investor had agreed to invest in the Business, and that the Investor would pay the Manager $50,000. The Investor acknowledged that the Manager would continue to run the business on a day-to-day basis. The agreement was to commence on 11 September 2000 and expire on 11 September 2010. There was a covenant for the Manager to pay to the Investor “from the business income, every fortnight a guaranteed net amount” of $1,350. That amount was “guaranteed” until 11 September 2010. Apart from that amount of $1,350 per fortnight, the Investor would not be entitled to any further incomes.

“His Honour was not concerned with what the directors of Beach would have done if Abbot Tout had declined to act or had given particular advice. Rather, his honour concluded that loss would have occurred irrespective of anything Abbot Tout did. This is not speculating on what the directors would have done if Abbot Tout had performed their alleged duty. It is a finding that loss would have occurred whether or not any such duty as alleged had been performed.”

228 When the causation finding of the trial judge was open to him, and is of this character, causation provides a reason, independent of lack of breach of duty, why the claim against DDS must fail.

PART D – ADDITIONAL GENERAL GROUNDS OF APPEAL

Tendency Evidence

229 The Appellants assert that the trial judge erred in rejecting certain evidence that they had sought to have admitted on the basis that it was tendency evidence. The trial judge’s reasons for rejecting that evidence are contained in an interlocutory judgment that he gave on 29 July 2004: Ibrahim & Ors v Pham & Ors [2004] NSWSC 650.

The Legislation

230 Section 97 Evidence Act 1995 provides:

“(1) Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person’s character or otherwise) to act in a particular way, or to have a particular state of mind, if:

(a) the party adducing the evidence has not given reasonable notice in writing to each other party of the party’s intention to adduce the evidence, or

(b) the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.

(2) Subsection (1) (a) does not apply if:

(a) the evidence is adduced in accordance with any directions made by the court under section 100, or

(b) the evidence is adduced to explain or contradict tendency evidence adduced by another party.

Note.

231 The Dictionary to the Evidence Act contains a definition:

tendency evidence

232 The only role that that definition has to play in construing section 97 Evidence Act is in construing section 97(2)(b), because section 97(2)(b) is the only place in section 97 where the expression “tendency evidence” occurs. The definition also applies where the expression “tendency evidence” occurs in section 100 and section 101.

233 Section 99 Evidence Act requires notices given under section 97 to be given in accordance with any regulations or rules of court that are made for the purposes of section 99.

234 Such a regulation has been made. The regulation that was current at the time of the decision was regulation 6 of the Evidence Regulation 2000. So far as relevant, it states:

“(1) This clause is made for the purpose of section 99 of the Act.

(2) A notice given under section 97 (1) (a) of the Act (relating to the tendency rule) must state:

(a) the substance of the evidence of the kind referred to in that subsection that the party giving the notice intends to adduce, and

(b) if that evidence consists of, or includes, evidence of the conduct of a person, particulars of:

(i) the date, time, place and circumstances at or in which the conduct occurred, and

(ii) the name of each person who saw, heard or otherwise perceived the conduct, and

(iii) in a civil proceeding—the address of each person so named, so far as they are known to the notifying party.”

The Tendency Notice Against Mr Pham

235 The notice relied upon so far as admitting evidence under section 97 Evidence Act against Mr Pham is a letter from the solicitors for the Appellants, Barclay Benson, that said:

Evidence Act

(a) The Defendants in the abovementioned proceedings were of a particular character and/or conducted themselves in such a manner when approached by investors to act on their behalf for refinance, to raise funds to invest in a ‘trolley collection business’ operated by Karl Suleman Enterprizes Pty Limited, this defendants either encourages [sic] these investors or remained silent about their involvement with Karl Suleman, Karl Suleman Enterprizes Pty Limited and its related entities, the advised [sic] they had received from Counsel, Dr Ludmilla Robinson, and the advise from Mallesons Stephen Jacques Solicitors.

enclose

1. Joseph Nakad & Tamara Nakad; proceeding number 20486 of 2002

2. Elie Kondrojian, Anahid Kondrojian & Arousik A. Manookian; proceeding number 20484 of 2002

3. Emile Khalil & Theresa Khalil; proceeding number 20491 of 2002

4. Helen Betrayhani & Nikola Betrayhani; proceeding number 20485 of 2002

5. Albert Oram; proceeding number 20482 of 2002

6. Fudor Mansour & Joseph Benjamin; proceeding number 20487 of 2002

We also rely upon the Affidavits, already served upon you, deposed to by the following persons:-

1. Maria Syamando & Olga Grimes; proceeding number 13443 of 2002

The particulars, for the purpose of regulation 6 of the Regulations to the Act, are contained within the contents of each of the Affidavits referred to above.

In respect of the contents of this Notice, we advise as follows:-

1. Each of the Affidavits served hereunder are also served in respect of each of the matters to which same specifically relate.

2. In respect of all matters which have become generally known as “the KSE matters”, we will seek to adduce the same evidence as to which this Notice relates.”

236 The significance of the last paragraph of that letter is that Barclay Benson was acting as solicitors for the plaintiffs in a total of twelve actions apart from the present one, brought against Mr Pham, and relating to investments made by the various plaintiffs in KSE.

The “Tendency” Evidence Against Mr Pham

237 Notwithstanding the terms of that notice, the affidavits that were identified as items 3 to 6 inclusive in the list of affidavits were not relied upon against Mr Pham. As well, the affidavit of Arousik Manookian, referred to in item 2 of the list, was not relied on, nor were the affidavits of Maria Symando or Olga Grimes.

238 Elie Kondrojian and Anahid Kondrojian are husband and wife. Each of them swore an affidavit on 19 August 2003.

239 Joseph Nakad and Tamara Nakad are also husband and wife. They each swore an affidavit on 25 August 2003.

240 The affidavits of Mr and Mrs Kondrojian give an account, in virtually identical words, of a meeting in April 2001 attended by themselves, Mr and Mrs Nakad, a Mr Shimon Barkho and Mr Pham. It related to a transaction in which Mr Pham was acting as a finance broker to arrange the borrowing of money that ultimately came to be invested in KSE. One borrowing and investment was made by Mr and Mrs Kondrojian; another was made by Mr and Mrs Nakad. Concerning each of the investments, DDS acted for the solicitors for the borrowers.

241 The affidavits of Mr and Mrs Kondrojian and Mr and Mrs Nakad each attribute to Mr Pham, at that meeting, representations to the effect of that Mr Barkho was going to be a very rich man as a result of his investment with KSE. Mr and Mrs Nakad (but not Mr and Mrs Kondrojian), also attribute to Mr Pham, as they were leaving the conference, a statement that Mr Suleman’s business was doing very well.

242 All four affidavits give an account of Mr Pham not giving them any fee disclosure document, but deducting fees from the borrowed amount without authority.

243 If one compares the account given in this “tendency” evidence with the allegations made against Mr Pham in the Fourth Further Amended Statement of Claim, the only similarity is an allegation of a representation on his part that the investment was good.

The Tendency Notice Against DDS

244 The notice under section 97 Evidence Act that was relied on in relation to the DDS Respondents was undated. It said that at the trial the plaintiffs “will rely upon tendency and coincidence evidence as set out below”, and then identified particular paragraphs of the affidavits of Mr and Mrs Kondrojian, Mr and Mrs Nakad, and of two other people whose affidavits were not, as events turned out, ultimately relied on.

245 In response to a request for particulars, the solicitors for the Appellants identified the tendency relied upon as being:

“… for the defendants and their employees and agents named in the paragraphs to deal with members of the public as clients or otherwise for the purpose of arranging loans for investments of funds in projects of Karl Suleman which projects were legal [sic] and prejudicial to the members of the public. The defendants and their respective employees had the tendency to do such acts knowing or suspecting the loans were risky and/or may well not be repaid and they encouraged the borrowers to invest and failed to advise them of the risk and nature of the investments. And further the defendants had a financial interest in and received a benefit from the loan.”

246 The persons alleged to have had the tendency were identified as being “All persons named in the paragraphs other than the respective borrowers”.

247 Though that notice stated that the affidavit paragraphs were proposed to be relied upon as coincidence evidence, as well as tendency evidence, they were ultimately not sought to be relied upon as coincidence evidence.

The “Tendency” Evidence Against DDS

248 The material that was relied upon as tendency evidence against DDS was affidavit evidence relating to five separate meetings. Those present at the meetings were as follows:

Meeting No.	Date of meeting	Deponents present	DDS person present
1	Early April 2001	AK, EK, JN, TN	Sabrina Jajoo
2	20 April 2001	AK, EK	Sabrina Jajoo
3	Early May 2001	AK, EK	Sabrina Jajoo
4	Late May 2001	JN, TN	Vivian Joseph
5	18 June 2001	JN, TN	receptionist

249 Concerning meeting 1, Mr and Mrs Kondrojian’s evidence was that Ms Jajoo was asked whether it was a good business, and replied that the share market was up and down, but that Mr Suleman’s business provided a straight and steady flow of returns. She is alleged to have represented that Mr Suleman’s business was flying, and to have talked of a possibility of the deponents investing in apartments that Mr Suleman was building at Darling Harbour. She is said to have said that “we” have hundreds of KSE contracts to change over, because the law had changed, and all the contracts had to be changed over to the new law, but that the contracts of the deponents would be the old contract, and would be changed over at a later date.

250 The evidence of Mr and Mrs Kondrojian concerning meeting 1 was given in identical words.

251 The evidence of Mr and Mrs Nakad concerning meeting number 1 contained the element that when Ms Jajoo was asked whether this was a good business, she said it was not like the share market, up and down, but rather provided regular payment. Another common element was that there was mention of other Assyrian investors purchasing units in Darling Harbour that were built by Mr Suleman. However, Mr Nakad’s account of meeting 1 contained some differences from that of Mr and Mrs Kondrojian. Mr Nakad had the meeting taking place in first one room, then another, whereas Mr and Mrs Kondrojian made no mention of a change of location. Mr Nakad deposed to Ms Jajoo telephoning Mr Barkho in the middle of the conference, an event that Mr and Mrs Kondrojian did not mention.

252 Meeting 2 has as its salient features Ms Jajoo saying that her family were going to invest with KSE; that Mr Suleman was doing very well; and that “we must hope and pray that everything will be OK”.

253 Meeting 3 involved a handing over of documents, without any conversation deposed to.

254 Meeting 4 involved documents being read, explained and executed, but beyond that nothing materially similar to anything that the Appellants alleged happened at any meeting with Ms Jajoo occurred.

255 Meeting 5 involved a handing over of documents, without any conversation being deposed to.

Respondents’ Voir Dire Evidence

256 The trial judge received evidence from the Respondents on the voir dire. The solicitor for Mr Pham deposed to the existence of the twelve other sets of proceedings in which the Appellants were acting for the respective plaintiffs. There was an affidavit from Mr Pham that gave his account of meeting number 1, and that denied significant parts of the account given in the affidavits proposed to be tendered as tendency evidence. There was also evidence on the voir dire from Mr Pham’s sister, who had worked in the office, about certain aspects of the office practice and procedure.

257 The DDS defendants tendered, on the voir dire, affidavits of Ms Jajoo that gave her versions of the conversations alleged to be “tendency” evidence, and that disputed material portions of the “tendency” evidence. As well, there were eight affidavits that could be described as “counter-tendency” evidence, from investors in KSE who had Ms Jajoo acting for them in 2001, who deposed to her making no recommendation about investing in KSE, and, in at least some cases, making the positive statement that she could not advise them on any investment matters, and that they should get independent advice concerning that.

The Trial Judge’s Decision

258 The decision of the trial judge referred to the tests for application of section 97 applied in Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51 (at [61], 66, [72]-[74], 68-69); ASIC v Vines [2003] NSWSC 1237 at [33]; Australian Competition and Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 200 ALR 491 (at [49]-[50], 502-503); Trylow v Commissioner of Taxation [2004] FCA 446; (2004) 55 ATR 408 (at [114]-[115], 428); and Regina v Ellis [2003] NSWCCA 319; (2003) 58 NSWLR 700.

259 The Appellants do not assert that the trial judge has applied any wrong principle. Rather, they submit that he has misapplied the correct principle. Thus, in this judgment, I shall proceed by assuming, without deciding, that the account of section 97 given in the authorities referred to by the trial judge is correct.

260 The trial judge rejected the application to admit the “tendency” evidence on three separate bases: (1) that it did not provide any evidence of “any relevant or material tendency” at all; (2) that, if contrary to his view it was tendency evidence, it did not have the “significant probative value” that the section requires; and (3) even if he were wrong on both of the previous grounds, he would reject it under section 135 Evidence Act, on the basis of wasting undue time. Concerning that last ground, he noted that the action involved approximately $170,000, and that admitting the “tendency” evidence would extend the proceedings by approximately two weeks.

Did the Trial Judge Err?

261 It is not necessary to express any view concerning the first ground upon which the trial judge relied. In my view, he is not shown to be in error, in a way that is capable of correction on appeal, in either his second or his third grounds for rejecting the evidence.

262 Concerning the second ground, it is to be observed that the test the section imposes relates to what “the court thinks”. The opinion that the court is required to form is one on the basis of the materials available to the judge at the time of forming his or her view. That opinion must be formed at a time when the evidence in the case is incomplete.

263 An appellate court would be able to set aside a judge’s admission or rejection of evidence under section 97 Evidence Act if the opinion that the judge formed about whether the evidence would have significant probative value is one that, on the materials, a reasonable judge properly instructed could not have formed. However, I am not persuaded that this is such a case.

264 The "tendencies" that were alleged, as identified in each of the tendency notices, were of a very general kind. Even assuming, without deciding, that they counted as "tendencies" for the purpose of section 97, their generality provides a handicap to their having "significant probative value".

265 So far as Mr Pham was concerned, the "tendency" that was alleged was exhibited on one occasion only. Meeting number 1, occurring as it did in April 2001, was of the order of eight months after Mr Pham’s involvement with the Appellants. It involved Mr Pham acting in the capacity of a mortgage broker alone, not in the dual capacity he had with the Appellants of being both a mortgage broker and the person who carried out mechanical or administrative tasks relating to the granting of the mortgage. While the evidence concerning meeting number 1 showed Mr Pham saying nothing about any advice received from Dr Robinson or Mallesons, it was common ground in the case that he had said nothing to the Appellants about advice he had received from Dr Robinson. By the time the trial judge came to make his decision on the admission of the "tendency" evidence, Mr Pham's affidavit had been filed, and, from reading it, it would have been apparent to the trial judge that Mr Pham was not proposing to give evidence that he had said anything to the Appellants about advice received from Dr Robinson. By the time Mr Pham saw the Appellants, he had received no advice from Mallesons. Indeed, the evidence does not establish that he received advice from Mallesons at any time. Thus his failure to disclose "the advise [sic] from Mallesons…" was of no relevance to the case. It is incorrect that the "tendency" evidence shows that Mr Pham, even at meeting number 1, remained silent about his involvement with Mr Suleman – rather, it attributes to Mr Pham a statement that he could not invest with Mr Suleman because he was Mr Suleman’s solicitor. The "tendency" evidence showed Mr Pham, on that occasion, saying nothing about his involvement with Mr Suleman beyond being his solicitor. However, at the time of making his decision, the trial judge would have known that Mr Pham was not asserting he had made any more extensive disclosure of his involvement with Mr Suleman to the Appellants then that he was Mr Suleman’s solicitor. Taking all these matters into account, it was (to put it at its lowest) a view that was open to the trial judge to decide that the "tendency" evidence did not have "significant probative value" against Mr Pham.

266 So far as the four meetings relied upon as "tendency" evidence against DDS are concerned, meetings 2, 3 and 4 all occurred while DDS still retained some role relating to the restructure of Mr Suleman's investment contracts, while Ms Jajoo’s meeting with the Appellants occurred after DDS had ceased to be involved in that restructuring. Concerning meeting 2, there is a similarity to the evidence of the Appellants about the meeting with Ms Jajoo only in that the Appellants attribute to Ms Jajoo favourable remarks about investment with Mr Suleman. Meetings 3, 4 and 5 did not involve any representation of substance. To the extent that they were relied upon as evidence of a failure to disclose or advise in any respect, the affidavit evidence of Ms Jajoo had already been filed, and was available to be read by the trial judge. From it, he would have seen that she was not planning to give evidence of any advice concerning the risk and nature of the investment. Again, in my view it was (to put it at its lowest) a view that was open to the trial judge to decide that the "tendency" evidence did not have "significant probative value" against the DDS defendants.

267 Further, the view that the judge took concerning the application of section 135 Evidence Act to the evidence, is one that was open to him. The Appellants’ attack on the rejection of the “tendency” evidence fails.

Fresh Evidence

268 At the hearing of the appeal, the Appellants sought to tender some evidence of events that had occurred since the trial that bore upon their claim for damages. A question of whether that evidence should be admitted was left to be resolved in the judgment. In circumstances where the case on liability fails, it is not necessary to address that question.

Delay in Delivery of Judgment

269 As their fiftieth ground of appeal, the Appellants submit that there was an inordinate and excessive delay in handing down the judgment in this case, such that there should be a new trial.

270 Notwithstanding the sums of money that the litigation involved, the hearing lasted approximately sixteen days with six days of oral submissions. Extensive written submissions were also made available. The appeal books fill twenty-two volumes.

271 The trial concluded on 11 August 2004. Judgment was delivered on 30 March 2005. Thus, something less than eight months elapsed between judgment being reserved and judgment being delivered. That period included the Court vacation of six weeks.

272 The judgment, when delivered, was 106 pages long, and contained an extensive examination of the evidence and discussion of the law.

273 Delay in delivery of a judgment, while never to be encouraged, provokes appellate intervention only in accordance with the principles stated by Hunt AJA in Monie v Commonwealth of Australia (2005) 63 NSWLR 729 at 741-744. Particularly important is his Honour’s statement at 743-744, [44]:

“… delay between taking evidence and the delivery of judgment does not, in itself, justify upholding an appeal against the judgment given. Error must still be established on the part of the trial judge warranting either a reversal of the judgment or the grant of a new trial. Delay may assist an appellant in establishing such error because … the inference will be more readily drawn that a trial judge’s failure to deal in a significantly delayed judgment with particular matters on which the appellant relied in contradiction of the findings made in that judgment resulted from those matters being overlooked by the judge.”

274 As earlier parts of this judgment show, I am not persuaded that any error on the part of the trial judge that affects the outcome of the case has been established.

Order

275 The order I propose is that the appeal be dismissed with costs.

**********

Citations

Ibrahim v Pham [2007] NSWCA 215

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CITATION:	Ibrahim v Pham [2007] NSWCA 215
HEARING DATE(S):	5, 6, & 7 June 2007
JUDGMENT DATE:	21 August 2007
JUDGMENT OF:	Hodgson JA at 1; Santow JA at 2; Campbell JA at 3
DECISION:	Appeal dismissed with costs.
CATCHWORDS:	LEGAL PROFESSION – negligence – where solicitor retained to advise on mortgage and loan contract – where solicitor not retained to provide advice on proposed investment – whether solicitor had knowledge of unique risks posed by investment – where investment subsequently failed – whether solicitor liable for failure to advise on investment - EQUITY – fiduciary obligations – solicitor-client relationship – conflict of interest – whether conflict between solicitor’s duty and interest – where solicitor had prior business dealings with other party to investment contract – whether solicitor dissuaded client from seeking independent legal advice – whether solicitor ought to have refused to act for client - EQUITY – fiduciary obligations – solicitor-client relationship – conflict of interest – reference for independent legal advice – whether reference for independent legal advice adequate – whether independent legal adviser independent - TORTS – negligence – duty of care – scope of duty of care – solicitor-client relationship – whether retainer limited or general - TORTS – negligence – essentials of action for negligence – causation – where solicitor failed to advise on investment – where investment subsequently failed – whether solicitor’s failure to advise caused loss – whether client relied on solicitor’s advice – where investor so highly keen to invest that investment was inevitable - CORPORATIONS – managed investment schemes – requirement for registration – where scheme not registered – whether investment contracts in unregistered scheme illegal – consequences of operating unregistered scheme – exemptions from registration requirements – Corporations Law, Ch 5C - EVIDENCE – admissibility and relevance – tendency evidence – where trial Judge rejected tendency evidence – whether trial Judge erred in rejecting evidence – whether evidence was “tendency evidence” – whether evidence provided evidence of “any relevant or material tendency” – whether evidence had “significant probative value” – whether admission of evidence would result in “undue waste of time” – notice of intention to adduce tendency evidence – Evidence Act 1995, ss 97, 99, 135 - EVIDENCE – witnesses – expert witness – solicitor expert witness – where expert witness’s report based on erroneous assumptions – failure of trial judge to accept expert witness’s evidence – whether trial judge erred in failing to accept expert witness’s evidence - EVIDENCE – witnesses – failure to call witness – whether witness one expected to be called by one party rather than the other – adverse inferences – Jones v Dunkel (1959) 101 CLR 298 - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – interference with Judge’s findings of facts – credit findings – whether findings “glaringly improbable” or “contrary to compelling inferences” – Fox v Percy (2003) 214 CLR 118 - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – insufficiency of reasons – whether trial Judge’s reasons insufficient – whether appellant denied procedural fairness - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – admission of fresh evidence – whether fresh evidence should be admitted on appeal - APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – points and objections not taken below – where appellant failed to put point below – whether point able to be put on appeal - PROCEDURE – courts and judges generally – delay in delivery of judgment – whether delay in delivery of judgment occasioned a miscarriage of justice – where delay between hearing and delivery of judgment less than eight months – whether error in judgment manifest - TRADE AND COMMERCE – definitions and general – solicitors – whether solicitor engaged in “trade or commerce” – Fair Trading Act 1987, Trade Practices Act 1975 (Cth) - TRADE PRACTICES – consumer protection – misleading and deceptive conduct – solicitor-client relationship – representation by silence – where solicitor not under duty to advise on investment contract – whether solicitor’s silence on investment amounted to representation about investment - GUARANTEE AND INDEMNITY – contract of guarantee – guarantee for investment – where same solicitor acted for guarantor and borrower – where solicitor advised both guarantor and borrower in same room
LEGISLATION CITED:	Companies Act 1936 (NSW) Companies Act 1961 (NSW) Companies Act 1981 (Cth) Corporations Act 2001 (Cth) Corporations Law Evidence Act 1995 Evidence Regulation 2000 Fair Trading Act 1987 Managed Investments Act 1998 (Cth)
CASES CITED:	ASIC v Vines [2003] NSWSC 1237 Australian Competition and Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 200 ALR 491 Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) [2003] NSWSC 400; (2003) 45 ACSR 401 Australian Softwood Forests Pty Ltd v Attorney General for the State of NSW (1982) 148 CLR 121 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 Cousins v Cousins (Court of Appeal, 18 December 1990, unreported) De Winter v De Winter (1979) 23 ALR 211 Fox v Percy (2003) 214 CLR 118 Hawkins v Clayton (1988) 164 CLR 539 Ibrahim & Ors v Pham & Ors [2004] NSWSC 650 Ibrahim v Pham [2005] NSWSC 246 Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51 Jones v Dunkel (1959) 101 CLR 298 Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612 Kinnell v Connelly [2007] NSWCA 17 Manly Council v Byrne [2004] NSWCA 123 Mier v FN Management Pty Ltd [2005] QCA 408; [2006] 1 QdR 339 Monie v Commonwealth of Australia (2005) 63 NSWLR 729 Payne v Parker [1976] 1 NSWLR 191 Perre v Apand Pty Ltd (1999) 198 CLR 180 Pilmer v Duke Group Limited (in liquidation) (2001) 207 CLR 165 Regina v Ellis [2003] NSWCCA 319; (2003) 58 NSWLR 700 Trylow v Commissioner of Taxation [2004] FCA 446; (2004) 55 ATR 408 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410
PARTIES:	Rima Ibrahim - First Appellant Sargon Najorian Badal - Second Appellant Badal Investments Pty Limited - Third Appellant Philip Pham - First Respondent Pham Atic Pty Limited - Second Respondent Fred David - Third Respondent Suzy David - Fourth Respondent Paul Manuelpillai Dominic - Fifth Respondent Linda Joan Gloria Romano - Sixth Respondent
FILE NUMBER(S):	CA 40305/05
COUNSEL:	DE Baran - Appellants DR Pritchard - First and Second Respondents R Darke SC; M Dicker - Third to Sixth Respondents
SOLICITORS:	Barclay Benson Solicitors - Appellants Ebsworth & Ebsworth Lawyers - First and Second Respondents Middletons Lawyers - Third to Sixth Respondents
LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	20483/02
LOWER COURT JUDICIAL OFFICER:	Levine J
LOWER COURT DATE OF DECISION:	30 March 2005
LOWER COURT MEDIUM NEUTRAL CITATION:	Ibrahim v Pham [2005] NSWSC 246