Ibrahim v Pham
[2005] NSWSC 246
•30 March 2005
CITATION: IBRAHIM & Ors v PHAM & Ors [2005] NSWSC 246
This decision has been amended. Please see the end of the judgment for a list of the amendments.HEARING DATE(S): 12-16 July; 19-23 July; 26-29 July; 2-6 August; 9-11 August 2004
JUDGMENT DATE :
30 March 2005JUDGMENT OF: Levine J
DECISION: 1 I find verdicts for the defendants and enter judgment accordingly; 2 The plaintiffs are to pay the costs of the defendants including all reserved costs; 3 I order the return of the exhibits and MFI 21
CATCHWORDS: Professional negligence - solicitors - Froggy.com - limited retainer - fiduciary duty - managed investment schemes
LEGISLATION CITED: Civil Liability Act 2002
Corporations Act 2001 (Cth)
Corporations (Repeals, Consequentials and Transitionals) Act 2001 (Cth)
Fair Trading Act 1987
Financial Services Reform Act 2001 (Cth)
Legal Profession Act 1987
Managed Investments Act 1998 (Cth)
Trade Practices Act 1974 (Cth)
Treasury Legislation Amendment (Application of Criminal Code) Act (No 3) 2001 (Cth)CASES CITED: ASIC v Atlantic 3 Financial (Aust) Pty Limited (2003) 47 ACSR 52
ASIC v Chase Capital Management Pty Limited (2001) 36 ACSR 778
ASIC v Commercial Nominees of Australia Limited (2002) 42 ACSR 240
ASIC v Hutchings (2001) 38 ACSR 387
ASIC v IP Product Management Group Pty Limited (2002) 42 ACSR 343
ASIC v Koala Quality Produce Limited (2002) 41 ACSR 628
ASIC v Pegasus Leveraged Options Group Pty Limited (2002) 41 ACSR 561
ASIC v Vines [2003] NSWSC 1095
ASC v Woods and Johnson Developments Pty Limited (1991) 6 ACSR 191
Astley v Austrust Ltd (1999) 197 CLR 1
Australian Softwood Forests Pty Limited v A-G (NSW); Ex rel CAC (1981) 148 CLR 121
Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Bonn Corporation Pty Limited v Thiess Contractors Pty Limited (1987) 14 FCR 215
Breen v Williams (1996) 186 CLR 71
Brickenden v London & Loan Savings Co [1934] 3 DLR 465
Bristol and West Building Society v Mothew [1998] Ch 1
Brophy v NIAA Corporation Limited (in liq) (1995) ATPR 41-399
Capital Brake Service Pty Ltd v Meagher [2003] NSWCA 225
Churchill v Connolly [2004] NSWCA 212
Citicorp Australia Limited v O'Brien (1996) 40 NSWLR 398
Clark Boyce v Mouat [1994] 1 AC 428
Collier v Morlend Finance Corporation (Victoria) Pty Limited (1989) 6 BPR 13,337
Commonwealth Bank of Australia v Smith (1991) 42 FCR 390
Cvetanoski v Filaria Pty Limited (2002) 171 FLR 194
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31
Dovuro Pty Limited v Wilkins (2003) 77 ALJR 1706
DPC Estates Pty Limited v Grey and Consul Development Pty Limited [1974] 1 NSWLR 443
Duchess of Argyll v Beuselinck [1972] Lloyd's Rep 172
Grey v Australian Motorists & General Insurance Limited [1976] 1 NSWLR 669
Goldcorp Exchange Limited, Re [1995] 1 AC 74
Gore v Montague Mining Pty Limited [2000] FCA 1214
Haira v Burbery Mortgage Finance & Savings Limited; sub nom Koya v Kaira [1995] 3 NZLR 396
Hawkins v Clayton (1988) 164 CLR 539
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Jennings v Zihali-Kiss (1972) 2 SASR 493
Karl Suleman Enterprises Pty Limited (in liq) v Babanour [2004] NSWCA 214
Life Association of Scotland v Siddal (1861) 45 ER 800
Maguire v Makaronis (1997) 188 CLR 449
March v Stramare (E & MH) Pty Limited (1991) 171 CLR 506
Metcash Trading Pty Limited v Hourigan's IGA Umina Pty Limited [2003] NSWSC 683
Moage Limited (in liq), Re; Moage Limited (in liq) v Jagelman (1998) 153 ALR 711
NZ Netherlands Society "Oranje" Inc v Kuys [1973] 2 All ER 1222
O'Brien v Gillespie (1996) 41 NSWLR 549
O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Oceanic Life Ltd v HIH Casualty & General Insurance Ltd [1999] NSWSC 292
Our Lady's Mount Pty Limited (as trustee) v Magnificat Meal Movement International Inc (1999) 33 ACSR 163
Pauling's Settlement Trusts, Re [1961] 3 All ER 713
Parker v McKenna (1874) LR 10 Ch App 96
Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211
Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165
Semrani v Manoun [2001] NSWCA 337
Spellson v George (1992) 26 NSWLR 666
Sunpost Pty Limited v Alsons Pty Limited (unreported, NSW SC, 8 September 1994)
Tracy v Mandalay Pty Limited (1953) 88 CLR 215
Trust Co of Australia v Perpetual Trustees WA Limited (1997) 42 NSWLR 237
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 17 WAR 98
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Warner v Elders Rural Finance Ltd (1993) 41 FCR 399
White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164
Youyang Pty Limited v Minter Ellison (2003) 77 ALJR 895PARTIES: RIMA IBRAHIM
(First Plaintiff)SARGON NAJORIAN BADAL
(Second Plaintiff)BADAL INVESTMENTS PTY LIMITED
(Third Plaintiff)v
PHILIP PHAM
(First Defendant)PHAM ATIC PTY LIMITED
(Second Defendant)FRED DAVID
(Third Defendant)SUZIE DAVID
(Fourth Defendant)PAUL MANUELPILLA DOMINIC
(Fifth Defendant)LINDA JOAN GLORIA ROMANO
(Sixth Defendant)FILE NUMBER(S): SC 20483 OF 2002
COUNSEL: BHK Donovan QC / D Baran
(Plaintiffs)D Pritchard
(First and Second Defendants)R Darke SC / M Dicker
(Third, Fourth, Fifth and Sixth Defendants)SOLICITORS: Barclay Benson
(Plaintiffs)Ebsworth & Ebsworth
(First and Second Defendants)Acuiti Legal
(Third, Fourth, Fifth and Sixth Defendants)
LOWER COURT JURISDICTION:
[2005] NSWSC 246
IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
PROFESSIONAL NEGLIGENCE LISTJUSTICE DAVID LEVINE
20483 OF 2002WEDNESDAY 30 MARCH 2005
RIMA IBRAHIM
(First Plaintiff)SARGON NAJORIAN BADAL
(Second Plaintiff)BADAL INVESTMENTS PTY LIMITED
(Third Plaintiff)v
PHILIP PHAM
(First Defendant)PHAM ATIC PTY LIMITED
(Second Defendant)FRED DAVID
(Third Defendant)SUZIE DAVID
(Fourth Defendant)LINDA JOAN GLORIA ROMANOPAUL MANUELPILLA DOMINIC
(Fifth Defendant)
(Sixth Defendant)
JUDGMENT ( Professional negligence - solicitors - Froggy.com - limited retainer - fiduciary duty - managed investment schemes)
1 The causes of action by the three plaintiffs, Rima Ibrahim (Ibrahim), Sargon Badal (Badal) and Badal Investments Pty Ltd (Badal Investments) are pleaded in the Fourth Amended Statement of Claim filed in Court on 4 August 2004. The defence of the first and second defendants is that filed on 2 August 2004, and that of the remaining defendants is that filed on 27 July 2004.
2 The first defendant, Philip Pham (Pham), is a solicitor of this Court. The second defendant Pham Atic Pty Ltd (Pham Atic) is a company registered on 13 June 2001 and a solicitor corporation pursuant to the provisions of the Legal Profession Act 1987 (NSW) – collectively the Pham defendants. The third to sixth defendants are collectively a firm of solicitors known as Dominic David Stamfords (DDS).
3 The claim by the plaintiffs against the Pham defendants arises out of a $70,000 loan from the Bank of Adelaide, which led to a $50,000 investment agreement between Badal Investments and Karl Suleman Enterprises Pty Ltd (KSE) dated 11 September 2000.
4 As against the Pham defendants, the plaintiffs claim in negligence (paragraphs 3 – 31 of the pleadings); a Fair Trading Act 1987 claim against Pham (paragraph 32 of the Statement of Claim), a Trade Practices Act 1974 (Cth) claim against Pham Atic (paragraph 33 – 36 of the pleadings) and breach of fiduciary duty against the Pham defendants (paragraphs 48 – 54 of the Statement of Claim).
5 The plaintiffs’ claim against the third to sixth defendants DDS is in negligence, breach of fiduciary duty and contravention of the Fair Trading Act. The allegations in respect of negligence are set out in paragraphs 37 – 46 of the Fourth Further Amended Statement of Claim; the allegations in respect of breach of fiduciary duty are set out in paragraphs 55 – 59 of that pleading, and the allegations in respect of the Fair Trading Act are contained in paragraphs 47 and 47A.
6 The claim against DDS arises out of the discharge of the loan from the Bank of Adelaide, and a refinancing with Perpetual involving a further $50,000 investment with KSE.
7 The sums of money are relatively small compared to the resources devoted to the litigation of the claims. The hearing lasted approximately 16 days with four days of submissions. The evidence in the usual fashion for this kind of case was constituted by many affidavits with substantial annexures and exhibits, by way of evidence-in-chief and lengthy cross-examination.
8 From the point of view of the plaintiffs, the strategic approach is identified as first being two factual bases upon which the plaintiffs must succeed: first, the evidence for the plaintiffs is correct and express representations were made to them by Pham, the solicitor in connection with the first transaction and Ms Jajoo, the solicitor in respect of the second. Secondly, it is contended, that on the defendants’ own “scenario” and evidence, the defendants are nonetheless liable.
9 At the outset I should state that the strategic approach for the plaintiffs is flawed by my having quickly formed the view that neither Ibrahim nor Badal was a reliable or credible witness.
10 The nub of the case advanced by Ibrahim is set out in paragraph 15 of her affidavit sworn 17 August 2003. She swears that at the end of the first meeting between her, Badal, Pham and a Mr Varda, Badal asked Pham, “is this investment good?” to which Pham replied, “yes, I am a solicitor. I am involved in the investment. This is a good investment. Read the contract and there is a guarantee.”
11 In his affidavit sworn 18 August 2003, Badal says, paragraph 13:
- “Before we departed the office, I said to Pham words to the effect of: ‘Pham, is this a good investment?’ Pham responded with words to the effect of: ‘Yes. There are solicitors involved in this investment. Read the contract and there is a guarantee.’”
12 As observed in the plaintiffs’ summary of evidentiary material, there is no reference in Pham’s affidavit to Mr Varda.
13 Mr Varda should have been called by the plaintiffs. That is the Jones v Dunkel ruling I make. He, more probably than not – indeed the evidence is almost overwhelming – was the person who made any representation in the interests of Mr Suleman, whose agent for the gathering together of members of the Assyrian community to invest, he appears to have been.
14 By way of the briefest of examples, Ibrahim was not aided in seeking to have her testimony as a whole accepted as reliable and honest by the elevation of a representation said to have been made by Pham to her in terms that “you will be a millionaire, rich” (T75.25).
15 Even making an allowance for the use of a translator, the emotional overlay associated with these proceedings and the financial self interest, Ibrahim was a poor and obviously unreliable witness. Ibrahim refused to answer direct questions (even through the translator), was unresponsive, forced evidence and made increasingly extravagant claims as exemplified above throughout the course of her cross examination.
16 Initially, Ibrahim said that before the events involving Pham she had not borrowed any money with Badal (with whom she had been residing since widowhood), that she did not provide any assistance to Badal in respect of the loan from the bank (Esanda Finance) for the purchase of the motor vehicle; that she did not sign any loan contract in respect of the motor vehicle in her own name as a borrower. When confronted with the loan document (exhibit 1), Ibrahim agreed that she was described as a borrower in that document, but she could not remember what happened when she signed the April 1999 loan document with Esanda because “It’s a long time ago, 99”. Notwithstanding that it was only 16 months prior to the events concerning Pham, Ibrahim said in respect of the Esanda loan (exhibit 3) that she could not remember properly. Ibrahim understood that she was signing the loan document with Esanda because she was actually sharing the motor vehicle with Badal; yet said that she did not know what the word “borrower” means now, notwithstanding that in these proceedings the words were being translated to her in her own language (T23.33-.40).
17 Further, before seeing Pham in August 2000, and with the exception of the Esanda loan document, she had made no applications for finance in her own name. Despite initially agreeing that she had made an application on 29 May 2000 to Community First Credit Union for a loan, Ibrahim then said that she had not placed an application. She said that she thought that she was being asked about the loan the subject of these proceedings. Ultimately, she agreed that she did make an application in May 2000 and on 25 May 2000 and also made an application to St George Bank (T26.30-.55) (exhibit 24).
18 There are extraordinary similarities in the precise words used in the affidavits of Ibrahim and Badal (T45.5-52.1). I am satisfied that Badal and Ibrahim could not have had materially identical recollections (that is, the exact same words, punctuation and the like) in relation to a series of conversations which occurred some 3 years prior to the swearing of their affidavits. The identical and incorrect use of the words “(pointing at Badal)” at paragraph 15 of Badal’s affidavit and paragraph 20 of Ibrahim’s affidavit make it a nonsense to suggest otherwise. I have no confidence in the reliability of the affidavit evidence of the plaintiffs. Inconsistencies in recollections (of the type which have occurred in affidavits in relation to peripheral aspects of the defendants’ cases) are to be expected and is a hallmark of honest evidence giving. It is not to be expected that affidavits containing materially identical conversations (precise words, punctuation and the like) by different but financially interdependent witnesses be put before the Court.
19 Ibrahim was uncertain as to the duration of the first meeting with Pham; she gave various time estimates. Notwithstanding there was no reference in her affidavit, she said that Pham said that the whole loans had to be put into one so then he could actually get another loan for her. Notwithstanding being asked direct questions, through a translator, Ibrahim refused to agree that there was nothing in her affidavits concerning the allegation that Pham insisted on a consolidation of the loan.
20 Ibrahim appeared to refuse to be able to agree that in her affidavit, there was no reference to any translation by Mr Varda occurring during the meeting with Pham. The only explanation that Ibrahim could give as to why that matter does not appear in her affidavit was that she did actually say she had a problem in remembering things, but the more “I am asking her the more things are becoming real” (T64.20). After the question was re-read on 2 occasions, Ibrahim did acknowledge that she had said that she had a problem in remembering things (T65.49/64.17). She had a problem remembering things because of an operation she had “on a haemorrhage” in May 1993 which, as she understands it, affects her recollection. Sometimes, that is a reason for her forgetting things.
21 Ibrahim said that Pham did not give her an investment contract at the first meeting, acknowledged that Pham did not say “read the contract” at the first meeting, but immediately changed her evidence when her attention was drawn to paragraph 15 of her affidavit. Ibrahim alleged Pham in effect corroborated Mr Varda’s pronouncements as to the investment being good. I did not believe her.
22 Quite unprompted, Ibrahim said that Pham said “You’ll be a millionaire, rich”, “I will give you my guarantee that this investment will go for 10 years, even more”, “This will make you into a millionaire”, “I’ve also done for other people apart from you and they’re all very happy”, “They’re all happy with the amount of income that they’re getting in, we’ll all be millionaires.” (T71.25-.45). Her only explanation as to why these extravagant remarks by Pham do not appear in her affidavit was because she was now being asked. Again I was unpersuaded by her efforts to extricate herself.
23 She said that a lot of people in the Assyrian community were saying “If you want more information, you go to Philip Pham” and they were also “giving him a very good reputation”. Then, she said that people were only saying that after the transaction had gone ahead. She then said that people who had already done it said that it was a very good business and that you will succeed in it and Philip Pham is a very good solicitor. Ibrahim alleged that she said these things to Pham, namely, that other people had told her that they had gone with Philip Pham and that he was good and the people which he had done work for were happy.
24 Ibrahim at first did not recall Pham making a phone call in her presence at the meeting on 30 August 2000 (T88.2). She then said the phone call was actually made in a different language, so that is why she did not know if it was in relation to her and Badal or not. She said that he did not make a phone call in front of “us” but he did say “if you just hang on for a minute” and then he went out and came back and said he had made a call.
25 As to the meeting with Mr Nguyen, she said he did not say “Are you guys investing in the trolley businesses?” (T91.54). When shown paragraph 20 of her affidavit, Ibrahim then did say that that bit he was saying and then Sargon said yes then the other bit was if I was a guarantor and I said yes and that’s it. These were the words which were being spoken. Ibrahim denied that Mr Nguyen asked her to produce her Medicare card to identify herself (T95.20). However, Mr Nguyen provided a photocopy of it from his file (exhibit 11).
26 Ibrahim alleges that she told Ms Jajoo in July 2001 that “we have done it once before with another solicitor who Jesse George had actually sent us and Jesse George is now sending us to you.” (T98.50).
27 The evidence of Ibrahim was materially contradicted by the evidence of each of Pham, Nguyen and Ms Jajoo. Aspects of the evidence of Ibrahim were contradicted by the evidence of Badal.
28 Badal presented somewhat better than Ibrahim. However, I cannot accept his alleged recollection of relevant events as satisfactory or reliable. He was present in Court during the entirety of the evidence given by Ibrahim including her cross-examination. He seemed incapable of answering, even through an interpreter, a simple question of how often or frequently he heard about Mr Suleman after the first time he heard about Mr Suleman.
29 Oddly, he did not require an interpreter regularly after the short adjournment on the first day of his cross-examination. Badal seriously said that, before seeing Mr Varda, he did not understand that the higher the amount of interest usually meant the better return for the person lending the money (T203.10). Badal would not agree that everyone could do with a bit of extra income (T205.52). Badal could not remember when he alleged that Pham told him that he would get $1,350 every 2 weeks (T211.20).
30 He forced evidence and alleged that at the first meeting Pham said (at T216.15):
- “I am Karl’s solicitor and I can do these things and that I have done this business for other people that I have done contracts for other people and be rest assured that I will help do it for you as well and then when your loan does get approved, I will notify you so you can come here so we can start the actual contract.”
31 He said that he now remembered things as they were being said and that is why he was telling the Court: because they have come to mind. He said that his recollection has come back to him since swearing the affidavit.
32 Badal was intending to have a “good time” with $1,350 every 2 weeks. Badal seriously said that he did not want to share that “good time” with Ibrahim (T226.55). Badal, I find, had no credibility in his series of answers when he denied he wanted to share the benefit of his money with Ibrahim, notwithstanding she had put up her house and they had lived together for 10-11 years. Badal asserted that Pham was a representative of the Government so he took his word for it (T232.45). Badal ultimately agreed that he did believe that it was important to his case to win his case that he alleged that 2 solicitors told him on separate occasions that to invest with Karl Suleman would be a good or very good investment.
33 Badal swore that, before being cross-examined on 15 July 2004 (on day 4 of the case), no one had ever told him that he had borrowed $70,000 and not $67,000. That is notwithstanding he was in Court throughout Ibrahim’s cross-examination, and that Ibrahim did not dispute that they were actually telling her for every document which she was signing that that is for the $70,000 loan and the investment with Karl Suleman. She knew at the time she granted the mortgage that the loan was for $70,000 (T97.42). Badal seriously could only say “maybe” in answer to the question as to whether he had any real doubt that he received the money to pay out the Esanda loan from Pham (T271.6).
34 Badal insisted that no one had ever explained in his presence to Ibrahim the mortgage on the property notwithstanding they went to two sets of solicitors, that is, Mr Nguyen and Ms Jajoo, and notwithstanding that Badal, on both occasions, acknowledged that he knew what it meant to provide security over the property (T255.25). Badal gives his explanation as to the similarity in the precise words in the affidavits of Ibrahim and Badal as either he was not sure why or that it was because he and Ibrahim had spoken about the matters. The evidence of Badal was materially contradicted by the evidence of each of Pham, Nguyen and Ms Jajoo.
35 Mr Cornelius, solicitor, was called as an expert and expressed opinions which he obviously genuinely held. It was somewhat regrettable that he had completely forgotten the factual bases for the views that he had expressed in his report, notwithstanding the report had only been prepared some 6 weeks previously. Mr Cornelius said it would be “very dangerous” for him to try to remember the detail of his evidence when asked to list the commercial relationships referred to in paragraph 17(a) of his Report (T358.30).
36 It is submitted that I could not escape the conclusion that, no matter how genuinely held Mr Cornelius’ opinions were, they really only reflected his views as to what he would have done in precisely the same circumstances as the circumstances he believed confronted Pham (c.f. O’Brien v Gillespie (1996) 41 NSWLR 549).
37 This conclusion about Mr Cornelius’ opinions is substantially reinforced by the total absence of cross examination of Pham’s expert, Mr Bluth, on anything other than acting pursuant to a limited retainer and a solicitor knowing of an unlawful purpose or only suspecting an unlawful purpose. It is to be noted that Mr Bluth (para 6 of his report) expressly had regard to the same paragraphs of Pham’s affidavit which Mr Cornelius stated, in the witness box for the first time (T358.30), he had regard to in forming the view that Pham was too close to Mr Suleman to have acted, even on a limited retainer, for the plaintiffs.
38 Philip Pham impressed me as a witness during the course of his intense cross-examination. He responded directly and gave considered answers to the questions asked.
39 He was prepared to make admissions against possible perceived self interest. He acknowledged (albeit over objection from his counsel: c.f. Grey v Australian Motorists & General Insurance Limited [1976] 1 NSWLR 669 at 676 per Glass JA, also see Dovuro Pty Limited v Wilkins (2003) 77 ALJR 1706 at [25], [40] and [71]) that, with the benefit of hindsight, he should have independently checked the licence; he took full responsibility for the Isho & Associates letter (exhibit D – see below); he acknowledged that the letter dated 21 March 2001 to Mr Suleman (page 84 of exhibit 8), confirming in writing that Mr Suleman had previously advised him that a licence had been obtained, was to protect himself; and he acknowledged that, of course, he wanted to keep Mr Suleman’s work.
40 Mr Pham was accused of deliberately lying to the Court. He was accused of giving an explanation that was just a fabrication on his part (T530.35). He was asked whether he was making up his evidence. The Court was told it was going to be put to Pham that in September 2001 in respect of PAL (an investment/mortgage entity), he was a party to drawing up loan agreements that were “deliberately a fiction to avoid the managed [investments] provision” and “that he deliberately was involved in this sort of activity” (T476.50-.60).
41 Notwithstanding that the “deliberate fiction” allegation had to be resiled from by the plaintiffs, the cross-examination persisted. The cross examination was allowed on credit only (T478.50) and on the basis of reliability.
42 Neither Mr Pham’s credit nor reliability was adversely affected by the range of matters concerning PAL, its purpose, the management fee, and the like.
43 Each of Dr Robinson, Mr Nguyen and Ms Locke materially corroborated Pham’s evidence.
44 The following matters were the subject of particular and close attention during cross-examination. The letter dated 29 March 2000 to Wilkinson Throsby & Edwards in which it was stated, “On the advice we have received, the transaction is not a prescribed transaction pursuant to Chapter 5 of the Corporations Act” (T518.10). The transaction was for $1 million. Accordingly, on any view, it was not a prescribed transaction for the purposes of the managed investment provisions (see the Appendix to these reasons). Pham said he knew that and that is why he wrote in those terms in the letter of 29 March 2000. This displayed an appreciation and adequate knowledge by Pham of the relevant management investment provisions.
45 I turn to the response to the Isho & Associates letter dated 15 June 2000 (exhibit D). The letter stated “On our instructions the company is not a Management Investment Scheme”. Pham’s evidence was that he did not believe that the particular transaction was caught under the managed investment scheme provisions at the time because of his belief that there were, at the time, less than 20 investors in the scheme. The factual basis of that belief was not challenged. It is true that, in mid 2000, it now appears that Mr Suleman started to distribute investment contracts from his own office, and it may have been difficult to ascertain precisely the number of members from time to time. However, Pham’s belief is consistent with the evidence that, by 11 December 2000, only approximately 30 investment contracts had been entered into. It was not shown that the letter was signed by Pham (although to his credit he “took responsibility” for it: T524.10) or was actually sent. In any event, the explanation that Pham would not have looked at the letter carefully after it was typed up by Ms Locke (T525.27) and the possible/probable mistyping by Ms Locke of what had been told to her by Pham (T525.5) was credible. Pham had some familiarity with the MIS provisions. There is no such thing as a “management investment scheme”. Further, a company cannot, of itself, be a managed investment scheme. A “scheme” is, by definition, not a company. His evidence is corroborated by Ms Locke (para 11-12 of Locke 2) and is consistent with Pham’s answer given in the liquidator’s examination that “I assume I must have” given instructions to Ms Locke about the letter (T526.52). This is especially so in circumstances where the first time after 20 July 2000 when Pham saw the letter was when he was shown it in the witness box during the liquidator’s examination (T622.145) (exhibit AG or AH).
46 Mr Nguyen, to whom the plaintiffs were sent by Pham, presented as a knowledgeable and pragmatic practitioner. Despite Ibrahim’s denial, he took proper identification from the plaintiffs. His firm, Teakle Ormsly George, had its own “Acknowledgment” which he completed and had Ibrahim sign. He obviously appreciated the importance of his task. He quickly acknowledged that his recollection about insurance, in the context of a home unit, was incorrect and would not have been said by him. He responded candidly to the lengthy questions concerning the quantification of the disbursements of $77 in his memorandum of fees dated 31 August 2000 to the plaintiffs and the $1 a page photocopy rate (T648.15).
47 His version of events is inherently credible and, significantly, is corroborated by his contemporaneous file note dated 31 August 2000 (page 1 of exhibit 10) which states, inter alia:
“She owns the above unit, now obtaining $70,000 loan through Adelaide Bank with Sargon Badal to do business.
I’ve gone through 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 okay.”Terms: 25 years.
Repayments: $523 p.c.m
48 Mr Nguyen swears (paragraph 12 of his affidavit) that a materially identical conversation to that effect took place. It was never put in cross-examination to Mr Nguyen that the materially identical conversation (paragraph 12) did not take place. More importantly, it was never put to Mr Nguyen that the file note was not, in fact, created on 31 August 2000 or that the file note was not accurate in its contents as to what was said at the meeting. This is notwithstanding other aspects of the file note were read out to Mr Nguyen during cross-examination (T633) (page 1 of exhibit 10).
49 The late evidence from Mr Isaac (Day 16: T989 to 992) as to his alleged telephone conversation with Mr Nguyen, about which Mr Nguyen could not recall (T645.48), is of no significance and I ignore it.
50 While there are some immaterial inconsistencies between the evidence of Pham and Dr Robinson and (irrelevant to the case against the Pham defendants) inconsistencies between the evidence of Dr Robinson and Ms David, Dr Robinson presented well. The substance of her material evidence, which is corroborative of the evidence of Pham, should be accepted by the Court.
51 Ms Locke is not a party to the proceedings. She presented as an honest witness giving evidence of her recollection as best she could. She had no involvement with the plaintiffs; her evidence materially corroborates the evidence of Pham. Pham’s office was not Mr Suleman’s office. She asked Mr Suleman for a copy of the licence. She was told by Mr Suleman on a number of occasions that it had been obtained (including her file note of 7 February 2001: page 1 of exhibit 13) (paras 15 to 23 of Locke 1). Pham was told by Dr Robinson that “You can’t go behind your client’s instructions. You cannot prove he doesn’t have a licence. You have to take their instructions on good faith” and first became aware that there was no licence on or around 7 November 2001. Ms Locke was present on 15 or more occasions when Pham said to investors “I cannot give you advice concerning this investment as I am Karl’s solicitor. You should go and get your own legal or accounting advice concerning this investment”.
52 Pham told her on a number of occasions “Debbie, because we act for Karl, we can never comment on Karl’s business to these investors. If they ask you about the investment, you must tell them that we cannot comment. You should tell them to get their own legal and accounting advice in relation to the investment”.
53 Other subjects dealt with in the evidence of Ms Locke were: the setting up of PAL; the operation of PAL; the retention of the 1.5% to 2% PAL management fee and, after PAL ceased operating, the distribution of the management fees which had been earned and retained by PAL (paras 2 to 10 of Ms Locke’s second affidavit sworn 27 July 2004); and the possible/probable mistyping by Ms Locke of what had been told to her by Pham in relation to a response to the Isho & Associates letter dated 15 June 2000 (exhibit D) (paras 11 to 12 of Ms Locke’s second affidavit). Ms Locke was an impressive witness.
54 Mr Bluth, solicitor, was an obviously qualified expert. He was both thoughtful and to the point.
55 As submitted above, it is unfortunate that there was no proper cross examination of Mr Bluth in relation to the factual bases upon which both he and Mr Cornelius expressed their differing views: para 6 of Bluth and T358.30 for Cornelius (other than the limited issue about which he was cross examined, namely, knowledge or suspicion of an unregistered investment scheme). In the circumstances, I accept the substance of his evidence where it conflicts with that of Mr Cornelius and find that the plaintiffs have failed to discharge their onus on the issue of the fact of any relevant common practice.
56 Ms Jajoo of DDS was also an impressive witness; while she is married to a defendant, she is a solicitor of this Court and is not a party to the proceedings. Her evidence (aided by contemporaneous notes) further damaged the general credibility and reliability of each of the plaintiffs, the content of her evidence as to the statements made to Ibrahim at the meeting in 2 July 2001 (particularly paragraphs 35, 37 and 48 of her affidavit) is material to the case against the Pham defendants.
57 In her affidavit sworn 7 November 2003, Ms Jajoo swears as follows in relation to the meeting she had with the plaintiffs on 2 July 2001. After she explained the loan contract documentation including the need to see a solicitor and that you’re signing freely and voluntarily, Ibrahim says: “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”; that Ibrahim said: “My sweetheart, there is no his or mine. 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. Just tell me, what is the name of our lender now?” (para 48). Ibrahim further said: “We know it’s a big risk” and, after being told to see an independent lawyer and financial adviser, says: “Sabrina, you don’t know Karl as well as I do. God give him everything he desires [which was acknowledged by Badal to be a saying or expression used in the Assyrian community (T256.5)]. We love him. We are very close to him. I have 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 [Ibrahim then pointed to Badal], we would have lots of money now. Sabrina, even if we’re gambling, we don’t care.” This testimony rang true.
Overview and Conclusions as to Plaintiffs and First and Second Defendants
58 The plaintiffs had a degree of relevant prior commercial dealings and experience. Before seeing Pham in August 2000, Ibrahim had executed the Esanda loan document as a borrower (exhibit 1) (T25.50) and had the vehicle registered in her name (T124.50). Despite initially agreeing that she had made an application on 29 May 2000 to Community First Credit Union for a loan (T25.55), Ibrahim then said that she had not placed an application. She said that she thought that she was being asked about the loan the subject of these proceedings (T26.10-.20). Ultimately, she agreed that she did make an application in May 2000 and on 25 May 2000 also made an application to St George Bank (T26.30-.55). Ibrahim also made applications for and obtained finance from Bing Lee Finance and AGC Credit in 1997 (T27.15-.30) (also exhibit 24). On 3 September 2000, a week before the investment contract was entered into on 11 September 2000, Ibrahim entered into a personal guarantee in favour of St George (exhibit 27). Badal agreed that, apart from this loan and the Esanda loan, he had applied for loans with AGC, Bing Lee and Community First Credit Union (T229.50).
59 In respect of the 1986 workers compensation proceedings against Micos Aluminium, Ibrahim was represented by solicitors and received $22,000 or $25,000. She was represented by Suzy David (T27.45-58.57). In respect of 1991 District Court proceedings, Ibrahim was represented by Stephen Burke of Phillip Goldman & Co and obtained $40,000 (being in addition to the $100,000 she had received in 1988) (T29.12-.55). Ibrahim had a solicitor for the purchase of her home unit in 1988, a Mr Lily (T30.17).
60 While employed with Plastune Projects, Badal was a AMWU union representative and, in his own words, used to have meetings with the workers and the management and used to defend their rights with the management (T183.2). Badal negotiated for and on behalf of union members with the management in relation to salary and working conditions. He was a member of the consolidated committee in respect of enterprise bargaining agreements and was involved, perhaps with others, in formulating how the conditions should be improved. At least with management, all this was done in the English language over a number of years. Badal attended Industrial Relations Commission proceedings involving his employer and the union and did so as a union delegate (T183). In mid 2000, Badal told Ibrahim that his company was closing down and that he was worried about ending up unemployed (T251.15). One of the reasons he entered into the loan was to keep an income coming in (T251.25). Badal’s understanding and command of English, I find, was better than he would have the Court believe.
61 The plaintiffs were members of the Assyrian community who believed in and were proud of Karl Suleman. Assyrians are people of Christian faith originally from Iraq but also Iran, Syria and Turkey. The community has come to Australia since the 1970s. The community is largely in New South Wales and predominantly around the Fairfield area of the city 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 achieves in the wider Australian community (T30.25-31.10). Most of Ibrahim’s friends and acquaintances are within the Assyrian community (T30.54).
62 Ibrahim first became aware of Karl Suleman in around 2000, understood that he was a member of the Assyrian community (T31.20), and heard that he was doing some sort of business, some sort of investment (T32.1). The Assyrians were actually talking very highly about Mr Suleman; not just Ibrahim’s circle of friends and acquaintances but the whole Assyrian community said that he is “pretty good” and that he was “to go with the business very well” (T32.15).
63 Ibrahim’s view was that the whole of the Assyrian community had actually invested (T32.25; 33.50). She believed that everyone in the Assyrian community was speaking very highly of Karl Suleman at this time (T98.10). Some people she had spoken with herself had themselves invested with Karl Suleman (T112.45). Before her first investment in 2000, Ibrahim heard that some people had invested $500,000, $1 million (T113.35). Numerous members of the community had invested significant sums of money with Suleman and that many people who were investing with Karl Suleman borrowed money to do so (T113.45).
64 Badal could not be more precise as to when he first heard about Karl Suleman other than it was “in or about 2000” (T194.55). He had heard that Mr Suleman was doing well (T155.42) and also heard people at the shopping centre speaking about Mr Suleman (T197.17). He had heard that a lot of people had invested with Mr Suleman and were succeeding in their lives (T197.25). Before Badal saw Pham, he heard about Mr Suleman at work, at the shopping centre and on the radio (T199.1).
65 I am satisfied that before seeing Pham, Badal and Ibrahim had already decided to invest $50,000 with Karl Suleman, believed that they would be receiving a return of $1,350 every two weeks and had decided that Ibrahim would put up her unit to obtain the necessary loan to invest. She had been told people were investing figures like $100,000 and $250,000 (T32.35). This was all before she went to see Pham (T32.40). She had also been told that investors were getting from Mr Suleman $1,000, $10,000 over a month (T32.47). She heard radio advertisements in the Assyrian language (T34.20) advertising loan applications with a contact number and the person who should be approached and an address.
66 Ibrahim first heard Mr Suleman on the radio before she saw Pham in August 2000 (T34.45). The radio advertisement spoke of how much to invest, both loan and investment (T34.55). She rang the telephone number she heard on the radio the next day. She spoke to one lady and then to David Varda during the same telephone call (T35.5-.25). When she rang Mr Varda she says that she was not interested in a loan or investment for herself but she “just wanted to be a guarantor for Sargon” (T36.25). She volunteered that she did not want to borrow the money herself because, first, she didn’t have enough money and, second, she was on a pension (T36.28). One of the reasons she did not want to borrow the money was that she was on the pension “because I couldn’t have received an income.” Notwithstanding that she tried to deny that she did not even think about it (37.10), these were her own words (T36.47). While she denied it to be so, I find that this is why Ibrahim only wanted to be a borrower and not an investor, that is to protect her pension.
67 During the telephone conversation between Ibrahim and Mr Varda, Mr Varda said that the amount of return actually depends on how much was invested and that “we have done it for so many people that’s why I know about everything”. He gave examples of investments: if you invest $50,000 how much return you get; if you invest $100,000, how much return you get. Mr Varda said “On a $50,000, the return would be $1,350 every 2 weeks” (T40.50). Ibrahim believed that it was a good investment (T70.35). She said that she did not know what she understood by the expression a “good return” but that people were saying it is actually a very good income (T86.20). This was quite disingenuous in my view. She was aware that the return on investments actually depended on how much was invested (T118.42) and knew that people who borrow money are obliged to pay it back (T120.50).
68 Badal clearly did not have $50,000 to invest and in order for such an investment to be made, there would have to be a borrowing of $50,000 and it would be necessary for Ibrahim to put up her unit to support the borrowing (T115.50). She knew it was a necessity (T115.55). She said that she did know or understand at the time the people were mortgaging their houses in order to borrow money to invest with Karl Suleman (T140.42), a proposition I found difficult to believe.
69 Badal had heard the Assyrian language advertisement for the Karl Suleman investment on the radio (T199.34) and said Ibrahim telephoned the telephone number (T199.45). She told Badal after the telephone call that David Varda had explained everything (T200.1). When Badal went to see Varda, it was his idea to invest $50,000 (T200.16/.35). Badal had heard about other people investing $50,000, $100,000, $150,000, $200,000, $250,000, $300,000, $400,000, $450,000, $500,000, $1 million (T201.10) with Karl Suleman (T201.40). He had spoken to 4 or 5 people about the investment (T201.46), and had in his mind that he would get around $1,000 a week or something like that (T204.36). He had said to Ibrahim “I heard from my work that there’s a person under the name Karl Suleman is doing such investments and I wish I had some money to invest with him.” Ibrahim said “I will help you get the $50,000”. She said “We’ll see, we’ll find out, we will make enquiry, see if we can get some money, $50,000 we can invest” (T204.30). Before seeing Mr Varda, Badal had said to Ibrahim “If I want to invest I need that money. I need someone to help me to have a house to help me to get that loan.” (T207.10). Badal said that Ibrahim had said “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 (T203.9).
70 Badal was the one who raised with Mr Varda the fact that he didn’t have any money but that Rima had a house. He 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” (T206.40). Badal said to Ibrahim “I want you to be a guarantor for me so I can get the $50,000 loan and to put up your house” (T208.25). He knew it was best to have someone as a guarantor who owns a house because if you cannot repay the money the bank can take the house (T207.26). He also knew that if something happened to him or the investment and he could not pay, the guarantor would have to pay; that, he knew, was the whole idea of a guarantor (T209.10). When Badal went to see Mr Varda, he believed it was necessary for Ibrahim to be a guarantor and to put up her house if she was going to invest (T209.50). Other members of the Assyrian community had put up their house to borrow money on (T210.15).
71 Before attending Pham’s office, Mr Varda had already told Ibrahim that it was a good investment (T71.17). Mr Varda told her 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 (T35.35). Ibrahim believed Mr Varda (T35.40). When Ibrahim went into Pham’s office she believed, because of what Mr Varda had told her outside, there would be a return of $1,350 per fortnight (T44.45).
72 Wherever Ibrahim had borrowed to share with Badal, she thought it proper to sign the document together (T22.20). She thought she was getting the benefit of something together and thought it proper that both Badal and herself sign the borrowing document (T22.25).
73 Ibrahim knew, I find, that she was to be a guarantor (T37.42). Mr Varda had told her that she could be a guarantor both on the phone and when she went to see him (T38.10). Outside Pham’s office, Mr Varda told Ibrahim about the business, how good it was and how people were making this kind of investment and this kind of return (T42.20). At the meeting outside Pham’s office, Mr Varda told Ibrahim that in certain circumstances what had happened was that people come forward where they did not have equity but could actually have a guarantor: this, she said, was the first time she learnt about the word “guarantor” (T43.40). Ibrahim said she knew that if you had house, you could actually proceed (T43.50).
74 I find that before attending Pham’s office for the first time, Ibrahim believed from what she had heard in the Assyrian community, from what she had heard on the radio, from what she had heard from David Varda and the telephone call (with David Varda) that it was a good investment to invest with Karl Suleman (T70.47).
75 The plaintiffs, I am satisfied, only ever went to see Pham for his assistance in raising finance for the investment which they had already decided to make. As Ibrahim understood it, that was the reason Badal and she went to Pham (T52.55), and Pham was told this. Pham said he would try to get Ibrahim the finance, saying he would need to talk to her to find out whether she would qualify for finance (T58.15). Ibrahim said that Pham said that “I can assist you in obtaining finance” (T60.45). She admitted that she told Pham that she had a unit that she had paid off and that Pham said that she could probably borrow money from the bank using the unit as security (T58.40). Notwithstanding that there was nothing in her affidavit about the subject, Ibrahim said that Pham spoke to her of what amounted to consolidation of loans (T59.40) – that is for the car and the unit.
76 She acknowledged that Pham told her that he was acting for Karl Suleman (T60.45). When it was initially put to her that Pham said to her that he could not act for her in providing independent advice about the mortgage or your investment with Karl, Ibrahim answered “yes, no” (T60.52). While there is an ambiguity, she appeared initially to agree that Pham said that he could not act in providing independent advice about the mortgage and her investment with Karl (T61.10). She contended for the first time during the course of her evidence that David Varda was actually telling them by translating what Pham was saying (T62.30). She did say that Mr Varda was translating everything Pham was saying in essence (T64.40), and that Badal did not need an interpreter, his English being a bit better than her own; but it is not that good with things like this (T65.1).
77 Ibrahim said that she told Mr Varda to ask Pham how much the cost would be (T66.35). She asked Varda to ask about the cost to arrange the loan, for the whole cost of him working for them (T66.50). She agreed that Pham said to her “To arrange the loan I will charge nothing because the bank pays me a commission of about $350.” He actually said that (T66.55). She acknowledged that Pham said that in addition to the bank commission, she will have to pay the bank application fee plus disbursements (T67.15). She acknowledged that Pham said “I will charge you for the time I spend setting up the loan and this involves liaising with the bank, signing the mortgage documents, attending on settlement and all that sort of thing.” (T67.30). She acknowledged that Pham said something like “This will be around $500 plus disbursements” and that she said “Alright” (T67.37).
78 She further acknowledged that Pham gave her a list of documents to bring in (T67.45), but denied that she was given a blank loan application form (T67.55). She said that Pham did not give her an investment contract at the first meeting, acknowledged that Pham didn’t say “read the contract” at the first meeting but immediately changed her evidence when her attention was drawn to paragraph 15 (set out above) of her affidavit (T70.15).
79 At the first meeting, Ibrahim said she did not know what type of documents she was being asked to sign, but Varda did tell her to sign these documents which meant that she was actually giving Pham the authority to proceed with the loan (T80.55).
80 Ibrahim said that Pham said to David Varda, “have you notified them, they need to go to an accountant?” (T82.15). She ultimately agreed that Pham said nothing to her, nor did Pham say anything to her to the effect 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 her tax. She said that it was David Varda who told them that, but then said that when they went in, Pham told David “have you notified them about the accountant?” He reminded David “tell them they need to have an accountant.” (T82.20-.37). Finally, Ibrahim acknowledged that the conversation did happen between herself, David and Pham but that Pham did not know that David had already told them (T83.30-.45). Ibrahim agreed that if Pham had told her, in effect, to spend money to obtain independent legal advice, she would have done so (T87.32).
81 Ibrahim acknowledged that she was told that she would have to put her house up in order to obtain the loan (T95.35) and that she was told that she would have to hand over her title deeds (T95.50). She said that Pham told her he needed the title deed to actually prove that she did have a unit and the unit is in her name (T95.55); this is implausible and obviously incorrect.
82 After first denying that she did not know that the unit was valuable at the time, she did acknowledge that if she had wanted to sell it, she would “receive money”. As at September 2000, she believed that her property was worth more than $93,000 (T96.25). She said that because Sargon’s income was too low, he would not be able to obtain a loan and thus she would have to put her house up as a guarantor (T96.30). She knew that her help was by providing her property (T96.40). Having decided on the course (of helping with the investment by putting up her unit as security), Ibrahim went with Badal to the office (Pham’s), which he understood to be that of Karl Suleman (but was not) (T119.20). At this stage, she had decided that if the loan could be obtained, then she would go ahead with the investment (T115.25).
83 Ibrahim agreed that she listened closely to the conversation involving Varda, Pham and Badal because it was a matter of some importance to her (T121.42). She listened to what was said in English (T122.5). Badal agreed that Ibrahim did more talking at the meeting than he. She spoke in Assyrian and David Varda explained things to Pham (T220.50). She agreed that she asked Mr Varda to explain to her what valuation meant (T125.5), however, denied that she knew the bank was interested in the unit because it was to be taken as security for the bank (T126.17). Ibrahim, in my view disingenuously, said that she did not know why the bank was so interested in her unit that it would send someone out to measure up every room (T126.22). Badal acknowledged that he understood that someone was coming out to value the unit (T230.20) and said that the bank may be interested in the unit cost because if he didn’t pay the loan they might take the unit (T231.1). Badal, importantly, said that Ibrahim said to him “The bank’s come to value the unit”. (T231.25).
84 Badal said that Mr Varda said “Philip can you help these people to obtain finance to invest with Karl Suleman?” (T213.15), because that was the reason for seeing Pham (T213.25). Badal did not think that Pham was going to lend him the money himself (T213.32), and acknowledged that Pham said that he acted for Karl Suleman as his solicitor and Badal assumed that meant for Karl’s businesses as well as for Mr Suleman personally (T215.55-216.1). Badal agreed that Pham told him that he should speak to an accountant (T217.16).
85 Badal regarded the sum of $1,350 every 2 weeks as a good return on $50,000 investment (T226.40). He said that at the first meeting and not the last meeting (as per para 16 of his affidavit), Pham said “This is a very good business which you will be entering into” and “it’s a very good investment” and “you’ll be very happy with it” (T230.15). Badal was obliged to acknowledge that it was Mr Varda who said to him it was a good investment (in the Assyrian language) (T236.24). Badal believes Pham said these words because Mr Varda translated them into the Assyrian language (T236.30). Ibrahim said that David Varda explained the investment contract to them and said “You were going to get a guarantee for 10 years.” (T70.20). Pham said that to the best of his recollection, there was no translation (T566.31). There could not have been any translation in his presence (T566.35).
86 I myself have no doubt that Mr Varda was the source of the promotional material.
87 While Pham did not have any file notes, he did have the benefit of the documents in relation to the loan application of Ibrahim and Badal (T567.40). Credibly, Pham said that there would not have been any conversation about Ibrahim being a guarantor because that was not how the finance application works (T568.10). At the time of the transaction, Pham did not know about the experience of the plaintiffs in borrowing money (apart from the Esanda loan) and did not learn about their experience until the hearing of these proceedings (T598.30). Pham was adamant that it was never said that Sargon wanted to invest in the trolley business but he didn’t have any money, that Rima has owned a house but she will help in getting the money to invest (T557.10). Pham’s recollection was that both of them wanted to invest with Karl and they came in as a couple, they were introduced to him as a couple. There was no mention that the investor was just Badal (T557.40).
88 While it is true that Pham has no file note of the meeting with Badal and Ibrahim in late July/early August 2000, I am mindful of the statement by Bryson J in Sunpost Pty Limited v Alsons Pty Limited (unreported, NSW SC, 8 September 1994 at page 3). When dealing with professional negligence proceedings against a legal practitioner, a Mr Paul, his Honour said:
I adopt and apply his Honour’s remarks here.
“There were some notes and records in Mr Paul’s file which establish, very briefly, the dates and some circumstances of relevant events, but he did not have file notes which recorded the relevant conversations, instructions and advice. He was much criticised for this in counsel’s submissions, but I do not regard it as adverse to his credit; obviously there would have been advantages if he had made such notes, and if he had they would have been admissible as business records of the firm, but the fact that he did not make any does not seem to me to tend against his credit. There is no suggestion that he suppressed any notes or deliberately invented anything. The probabilities also appear to me to support Mr Paul’s evidence at points where he and Mr Patterson [the client] are in conflict.”
89 When asked how much of the conversation with Pham on the first occasion was translated by Mr Varda from English into Assyrian, Ibrahim said from the time that she, Sargon and Mr Varda “came out of Philip Pham’s office, during that whole time once we were leaving, David was explaining these things to us.” (T55.17). She thought Mr Suleman would use the money how he thought best in any business provided she and Mr Sargon got $1,350 every 2 weeks (T75.50). She would not have minded what was going to happen with the money provided she got her $1,350 every 2 weeks (T76.5).
90 Ibrahim acknowledged that there were a few documents which actually came to her home address but what type of documents they were, she did not know (T79.45). She went to see an accountant (T62.42). She acknowledged that Pham did not give her the details of Mr El Gamal, the accountant. The card was given by David Varda (T81.45). Between the first and last times she saw Pham, Ibrahim went to see Mr El Gamal. When she met with Mr El Gamal she decided on the company name “Rima Investments Pty Limited” (T104.32). Badal and Ibrahim had a discussion with Mr El Gamal about the proposed investment when they first saw him at his office (T290.10).
91 After gathering together the information needed to make a loan application, the plaintiffs returned to Pham and completed the application dated 9 August 2000 (pages 93 to 95 of exhibit 8 and paras 135-136 of Pham’s first affidavit, 12 November 2003). At this second meeting on 9 August 2000, Ibrahim wanted to proceed with the loan (T73.5). Pham’s explanation as to why he did not say, at the second meeting, that the loan had been approved was because he had not even filed the application for finance at that stage (page 93 of exhibit 8, loan application form): a compelling reason (T577.45). On 9 August 2000, Pham made the application for finance on behalf of the plaintiffs (page 96 of exhibit 8).
92 After the plaintiffs received the loan documents from Phillips Fox at their home on 29 August 2000 (page 103 of exhibit 8), they attended on Pham on 30 August 2000. Ibrahim agreed that at the third visit to Pham, she said words to the effect “I have spoken to a lot of people in the community and we believe in Karl” (T86.10). Ibrahim alleges that all Pham said to her was “Here are all the legal documents. Take these to Mr Nguyen and just sign them in front of him” and that “He has to sign them all as well” (T62.12). She denied that Pham said that “You’ll find that this is money well spent if you go and seek independent legal advice. Please go seek advice.” (T87.31). Ibrahim denied Pham said “I found a solicitor, Mr Nguyen who is prepared to provide you with independent advice”. (T89.15). Badal knew what legal advice meant: “It mean I see another solicitor to give me advice and explain the documents” (T340.30; see also Pham’s affidavit of 12 November 2003, paras 139 – 141).
93 What Pham in fact witnessed was Ibrahim’s execution of the mortgage before they attended upon Mr Nguyen (page 107 of exhibit 8), and this was something noted in Mr Nguyen’s file note (page 1.8 of exhibit 10). However, Mr Cornelius agreed that, in relation to the execution of the mortgage, the issue is advising not so much as mere physical signing (T383.20).
94 Ibrahim then went with the documents to Mr Nguyen on 31 August 2000 in the belief that Mr Nguyen would explain them to her (T61.48). Badal ultimately agreed that it “could be” that the documents being taken to Mr Nguyen were to get the loan from the bank (T241.40). He knew it was the investment contract with Karl (T241.55). Ibrahim alleged that the meeting with Mr Nguyen took about 10 minutes (T89.50); she ultimately agreed, however, that the conversation with Mr Nguyen occurred in the English language (T90.30). Badal agreed with this (T292.35). Ibrahim alleged that she said to Mr Nguyen “papers for you to have a look at and to actually sign them”. (T90.42). That is all she can recall about the conversation with Mr Nguyen apart from when he actually spoke to Philip Pham about money (T90.50). Ibrahim said that Mr Nguyen was turning the pages (of the documentation) having a look at them, signing them and asking for us to take them back (T93.15). Ibrahim denied that Mr Nguyen asked her to produce her Medicare card to identify herself (T95.20). However, Mr Nguyen produced a photocopy of it from his file (exhibit 11).
95 Ibrahim said that she did not tell Mr Nguyen that she wanted to get a $70,000 loan. Mr Nguyen did not ask her whether she was going to invest in the trolley business (T92.15). She said that no one in the entire meeting said anything about $70,000 (T91.50). When shown paragraph 20 of her affidavit, Ibrahim then said that that he did ask her about the trolley business and that “Sargon said yes then the other bit was if I was a guarantor and I said yes and that’s it”. These were the words which were being spoken (T92.25). This equivocation did assist Mrs Ibrahim.
96 Ibrahim denied that she later got a bill for $250 from Mr Nguyen (T92.55). When shown Mr Nguyen’s invoice (page 246 of exhibit 29) Ibrahim acknowledged that paperwork did arrive but she did not know which paperwork (T100.40). Badal also acknowledged its receipt (page 246) on or shortly after 31 August 2000 (T258.5).
97 Badal agreed that he knew at the time he saw Mr Nguyen that you may lose your property if the business failed and you are not able to make the repayments to the Bank (T247.50). Badal agreed it would not have been a surprise if those words had been said (T248.10). Badal knew that there was a risk of Ibrahim losing her property the subject of the transaction with the Bank; he knew that at September of 2000. He knew that the business failing was a possibility: that is of Karl Suleman’s business failing (T248.20). Badal believed that if he was still working he would be able to make the repayments if Mr Suleman’s business collapsed (T250.35).
98 I am satisfied that there was no meeting between Pham and the plaintiffs after 30 August 2000. Ibrahim insisted that she met with Pham on the last occasion (T101.20), that is, after 30 August 2000. Pham said he definitely did not have a conversation with the plaintiffs after the meeting on 30 August 2000 (T589.43). In fact, Badal confirms that there were only 3 meetings with Pham (T211.27;212.15). As set out above, those 3 meetings were late July/early August 2000 (inter alia, give list of documents to get together), 9 August 2000 (when loan finance application was signed and dated) and 30 August 2000 (when the plaintiffs were sent to Mr Nguyen).
99 Ibrahim was asked to explain how the investment agreement dated 11 September 2000 had the name of a company that did not come into existence until 2 weeks later (T105.15). She said there was a document signed on or about 11 September which was subsequently destroyed and replaced by a document also dated 11 September with Badal Investments as the investor (T101.55). She said that Mr Varda had said that the investment agreement was a replacement contract (T106.17). Badal gives his explanation for the fact that it wasn’t until 19 September 2000 that there was a resolution in the records of Almet Roofing Pty Limited to change its name to Badal Investments Pty Limited (T265.15) Badal doesn’t remember the date he signed the agreement (the original of which is Exhibit 3) (T268.37).
100 Ibrahim said that she didn’t care what Badal did with the money (T45.2). In fact she denied that she had “fun, a good time” with the income received from Karl Suleman (T77.30). She acknowledged that she had told Mrs Jajoo that it was their second time investing with Karl Suleman but denied saying “we’ve made lots of money”. She did not dispute that after 11 September 2000 she was aware that Badal and subsequently Badal Investments were receiving $1,350 every two weeks (T107.5). She said that they did not speak about the monies (T77.45). I disbelieve her.
101 At the meeting in late July/early August 2000, I am quite satisfied that Pham made it a condition of his assisting the plaintiffs in obtaining finance that he could not act for them in terms of providing independent legal advice about the mortgage or investment with Karl. He strongly recommended that they seek independent legal advice in relation to the mortgage and the investment before entering into any agreements (para 132 of his affidavit referred to above).
102 On 30 August 2000, Pham arranged for independent legal advice from Mr Nguyen. There is no suggestion that Mr Nguyen was not independent. In Collier v Morlend Finance Corporation (Victoria) Pty Limited (1989) 6 BPR 13,337, Meagher JA said (at 13,341):
“There is no principle in law which debars a solicitor from being independent simply because he was chosen by the stronger party to the transactions in question. Nor can it be suggested that if a solicitor is nominated by one party to a transaction to give independent advice to the other party he will have regard to his nominator’s interest at the expense of his nominee’s interest.”
103 The plaintiffs had all the loan and mortgage documentation. Even on their case (para 15 of Ibrahim/para 13 of Badal), they had a copy of the investment contract. It had been given to them and explained to them by Mr Varda (T70.20-.30). Pham, I find, told the plaintiffs to seek advice about the loan and investment with Karl, that is, “everything” (T586.55). The plaintiffs were to talk about whatever they wished with their independent legal adviser. Pham believed that Mr Nguyen could give advice about the investment to the plaintiffs; he expected Mr Nguyen to do his job and that he could ask the plaintiffs about the investment (T588.10). To the best of Pham’s recollection, he had sent clients to Mr Nguyen once, before the plaintiffs, for independent advice. However, that does not necessarily mean that Mr Nguyen knew of or recalled that matter (T620.15).
104 As at August/September 2000, Pham was a competent solicitor and had an honest and reasonable belief that any Suleman scheme was relevantly registered. In this respect I have regard to the following matters. He had been working for Mr Suleman since late August/early September 1998 (para 19 of Pham’s affidavit of 12 November 2003). He had prepared various forms of commercial documentation relevant to these proceedings based on Law Society precedents (T433.50).
105 Further, he had recognised the need to seek the advice of appropriately competent counsel and had consulted Dr Robinson in February 2000 because Mr Suleman told him of his intention that “I have a lot of people who want to give me money who want to invest in the business and I want you to advise me how to best structure my business.” Pham was not sure how he could do it so he told Mr Suleman that he needed counsel’s advice and retained Dr Robinson (T499.50). Pham conferred with her (para 53 of Pham’s affidavit), and he sought and obtained on 27 February 2000 her written advice (page 128 of exhibit 8).
106 Before 15 March 2000, he provided the written advice to his client, Mr Suleman, and went through it with him (para 59 of Pham’s affidavit). He had also, prior to 15 March 2000, arranged for and attended a conference with counsel and Mr Suleman (para 60 of Pham’s affidavit). He retained counsel to advise upon and settle relevant contract documentation (page 21 of exhibit 8), and had engrossed contract documentation in accordance with the version settled by counsel (para 64 of Pham’s affidavit).
107 He approached ASIC on 21 March 2000 (para 67 of Pham’s affidavit) and was informed they did not provide advisory opinions, but was told “Your client’s scheme does not seem to be within the definition of a prescribed transaction….” (emphasis added) (page 41 of exhibit 8). Again he conferred with counsel (page 42 of exhibit 8 and para 71 of Pham’s affidavit) and sought his client’s instructions.
108 In late March 2000, Pham told Mr Suleman about the ASIC contract and Dr Robinson’s further advices (para 72 of Pham’s affidavit). Mr Suleman said “I’ll get a licence.” Pham said “How?” Mr Suleman said “Don’t worry. I’ll get my boys in town to take care of this. Rabbi Pinchus knows a retired solicitor who used to work for Kerry Packer and he will get a licence for us.” Pham said “Fine, but you better hurry up and get on top of the matter”.
109 Further, in early April 2000 (that is a couple of weeks after 22 March 2000), Pham and Mr Suleman had a conversation. Pham said “How did you go with getting a licence?” Mr Suleman said “Don’t worry about the licence”. Pham said “But you need to get a licence if you want to operate the scheme because it falls within the MIS provisions of the Corporations Law”. Mr Suleman said “Everything’s taken care of. Rabbi Pinchus referred me to some big boys in town to care of it. It’s not your concern anymore. You suburban lawyers would not know what to do. Just do what I have instructed you to do. Just prepare contracts” (emphasis added) (para 73 of Pham’s affidavit). Pham could not recall but agreed that Mr Suleman probably said words to the effect “I want to make sure that everything is according to the law and above board and that people putting money in are protected” (T508).
110 Pham provided one contract in March 2000 (the $100,000 investment involving Wilkinson Throsby & Edwards which did not require registration: see Appendix hereto) and provided some contracts from May onwards on the instructions of Mr Suleman that he had attended to obtaining the licence (T511.20). Those instructions were received first in early April 2000 (para 73 of Pham’s affidavit). Pham confirmed that up to mid 2000 he estimated he prepared 15 to 20 purchase (that is, not investment) contracts for Mr Suleman (T438.55).
111 In April/May 2000, Mr Suleman gave Pham plausible explanations as to the circumstances surrounding the obtaining of the licence/registration (using a large firm in town) and Mr Suleman’s continuing desire to use the services of Pham to prepare contracts notwithstanding another firm had obtained the registration/licensing (para 76 of Pham’s affidavit).
112 In May 2000, Ms Locke heard Mr Suleman tell Pham that the licence “is all taken care of” and Pham requested a copy of the licence for the file (para 16 of Locke’s affidavit, 18 June 2004).
113 In July 2000, he obtained advice from counsel that he could not “go behind” those instructions (para 99 of Pham’s affidavit). This was confirmed by Ms Locke in her evidence (paras 24 and 27 of Locke’s affidavit). Dr Robinson confirmed that it sounded right that in about July 2000, Pham told her “Karl told me he doesn’t require me to take care of getting his licence. He says he has got a boy in town to get everything set up. My instructions are not to worry about the licence, but to prepare the agreements but everything else will be taken care of. What do you think?” and Dr Robinson said “If that’s your client’s instructions, you can’t go behind them.” (T666.30, also T606.20/604.4).
114 Pham was told by his client on a number of occasions that the licence/registration had been obtained (T473.55, paras 73, 100, 101 and 107-109 of Pham’s affidavit).
115 After May 2000, Pham asked Ms Locke to ask Mr Suleman for a copy of the licence (T618.20; para 17 of Locke’s affidavit). Ms Locke told Pham that Karl Suleman had said everything was okay, that he did have a licence and that he would provide a copy (T618.25; paras 18-19 of Locke’s affidavit).
116 After conferring with Dr Robinson, Pham had an appreciation of some of the important relevant exclusionary provisions concerning management investment schemes (for example, a minimum of 20 investors, sophisticated investors and the like) (para 65 of Pham’s affidavit).
117 Dr Robinson confirmed that when she spoke to Pham about Mr Suleman going to Mallesons after her November 2000 conference with Mr Suleman and Ms David, Pham might have said something like “Well, I thought it was registered already” or “He told me had had got it registered already.” (T669.27).
118 There is no suggestion that Pham was ever told (by anyone) about the letter dated 8 November 2000 from ASIC to Mr Suleman, nor that Pham was ever told (by anyone) about Malleson’s advices.
119 Pham confirmed, in writing, his client’s instructions that licensing and registration had been obtained. The letter dated 1 March 2001 (page 84 of exhibit 8) was, inter alia, in the following terms:
This office subsequently discussed the matter with Mr Graeme Platts of ASIC from Canberra. He advised that ASIC did not provide legal advice or rulings although in his opinion your scheme did not seem to be within the definition of “prescribed transaction” as defined in the Corporation Act. We confirm that we communicated same to you and received no further instructions to proceed with the matter, instead we were advised by you that you had taken care of everything and had the investment licence .” (emphasis added)“You then instructed us to obtain expert advice from Dr Ludmilla K. Robinson, barrister. In her advice, she shared the concern and advised you to obtain a licence from ASIC.
120 He did not learn that a prospectus had to be provided until about mid 2001 (T511.32). Dr Robinson could only presume that Pham knew about a prospectus because he had looked at the website (T666.50), but couldn’t recall whether Pham indicated that he was aware of those requirements (T666.57). Pham said he did tell Dr Robinson that Karl had told him he had a license (T598.40). Pham couldn’t recall that Dr Robinson mentioned a website (T601.45). He had an appreciation of the need to tell investors that he was Mr Suleman’s solicitor (para 132 of Pham’s affidavit; para 35 of Locke’s affidavit). In cross-examination, the plaintiffs did not dispute that he told them that. He had an appreciation of the need to tell investors to retain independent legal advice about the mortgage and investment before entering into any agreements and to limit his retainer in that way with the agreement of, in this case, the plaintiffs (para 132 of Pham’s affidavit, T557.55; 561.25); and his practice in that regard was corroborated by Ms Locke (para 32-33 of Locke’s affidavit).
121 The fact that Pham did (despite the denial of the plaintiffs) actually recommend independent legal advice to the plaintiffs is demonstrated by the very fact that the plaintiffs did obtain legal advice from Mr Nguyen and accounting advice from Mr El-Gamal.
122 If Pham had any belief or even concern that the scheme was not registered, why would he have a practice of recommending independent legal advice or, as is the case here, virtually insist on the independent legal advice?
123 I am satisfied he appreciated the need to avoid providing or purporting to provide any investors with any investment advice or encouragement to invest. His practice in that regard was corroborated by Ms Locke (para 34 of Locke’s affidavit). Additionally, he was not aware of any problem concerning moneys received being part of the managed investment scheme until after November 2001 (T472.35). Pham became aware that no application was made to ASIC for an exemption in November 2001 because Mr Suleman was claiming to have a licence (T505.5); and Pham did not recall Dr Robinson saying in September 2001 that he should steer clear of Karl but did not deny that, at that time, he probably said words to Dr Robinson to the effect that Karl was alright; he was a good man and was trying to do his best (T595.50).
124 I have no reason to believe that as at August/September 2000 Pham did not have an honest and reasonable belief as to the solid financial circumstances of Karl Suleman Enterprises.
125 Mr Suleman was highly regarded by the Assyrian community. He was a charismatic figure (T685.21). Pham had an honest and reasonable belief that any scheme was registered (see above) and believed that the source of Mr Suleman’s money was from his business and the money people were investing with his business (T592.5).
126 Pham accepted that Mr Suleman could provide the returns that he promised (T443.52) and there is nothing to suggest that there was ever any default by Mr Suleman with any payments to anyone prior to November 2001 (the payments subsequently made to the plaintiffs of $62,325 were regular). Pham saw a bank statement of Mr Suleman’s with a balance of millions of dollars in it (T446.25) in the early part of 2000 (T447.42) and believed that the reason Mr Suleman had a bank balance of millions of dollars was because people were placing funds with him on the contracts he was drawing up and income from the trolley businesses (T445.50-447.5). Mr Suleman had told Pham that he had been doing the trolley businesses for many years (T447.10). The evidence is that he had started the trolley business as a sole operator in about 1991 (page 22 of exhibit 15). Pham was also shown Mr Suleman’s personal tax return which showed an income of about $250,000 per year (T448.5).
127 When Mr Suleman instructed Pham to act on a particular sale, the trolley business, the subject of the sale was on a list given by Mr Suleman to Pham (e.g. page 7 of exhibit 8 to Pham’s affidavit) (T450). Pham denied that the returns on the list given to him by Mr Suleman were significantly less than the amounts which Mr Suleman was promising to various purchasers per fortnight (T452.17).
128 Pham was cross-examined about the Woolworths Ballina agreement dated 27 March 2000 (T464.50). Pham said that there was an amount of payment that was promised to an investor (purchaser); and the particular store was allocated to the particular investor because the income from the particular store would cover the payment to the investor (T464.27). Pham said that the sole purpose of allocating a store, according to his instructions, was that the particular investor has an allocation to a store where there would be sufficient payment to be made to the investor (T465.5). I do not consider Mr Pham’s conduct undue, negligent or the document itself misleading.
129 Pham’s dealings with Karl Suleman were regular (T550.15), as was demonstrated by the list of files handed over by Pham to DDS (exhibit F).
130 Pham’s move into his own office was not very much influenced by the amount of work that Mr Suleman was providing him (T553.40). He acknowledged that one of the reasons that he had moved was his belief that he would get Froggy work to support his office but denied that, without that work, he would not have had enough income to maintain his office (T553.45). Pham was not reliant upon Mr Suleman to continue to provide work to him (T553.55). The work that he did for Mr Suleman was something extra. During the year 2000, Pham opened about 300 files and during 2001 600 files, and was not relying on Mr Suleman’s work at all (T554.5). Pham candidly said that he did want to keep Mr Suleman’s work (T554.7). Pham said that whatever work Mr Suleman could provide, Pham could provide a service (T554.7). However, Pham did not mind one way or another whether Mr Suleman kept providing him with work because Pham was having a new focus in his practice. He had a new practice partner (Mr Atic) and they wanted to go into litigation and did very well with that (T554.15). In 2000 after Pham moved into the new office, Mr Suleman was not providing the bulk of the work (T554.17). Pham was not reliant in the months up to September/October 2000 upon Mr Suleman to keep his practice going (T555.25). Putting aside the $75,000 (or $100,000) he received in respect of Froggy, in the calendar year 2000, Mr Suleman and his companies only accounted for 10% to 15% of Pham’s income in his practice (T555.53). Pham reserved 35% of the shares in Froggy Holdings for no consideration but for setting up and assisting Mr Suleman run the business (T553.25). In September or October 2000, Pham ceased to be involved in the active management of the companies in the Froggy Group (T554.40).
131 The plaintiffs have failed to satisfy me that Pham would have made and did make the “good investment” representation as alleged. That he should do so is inherently improbable. His evidence I prefer to that of the plaintiffs. Further the plaintiffs, from the Assyrian community generally, believed that investing with Karl would be a good investment before they even spoke to Mr Varda. I have found that Mr Varda told them that it would be a good investment.
286 However, as I have held, DDS did not accept any such retainer. Rather, Ms Jajoo informed her clients that the firm would not be acting or advising on the proposed investment, and recommended that the clients obtain independent legal and financial advice elsewhere. In those circumstances, the first and second plaintiffs could not reasonably expect disclosure of information which would be material for them to know had such a retainer been accepted, the more so where such information is confidential.
287 Accordingly, there was no failure to disclose any information which the first and second plaintiffs could reasonably have expected to be disclosed to them in the circumstances. Moreover, the statements made by Ms Jajoo in relation to the proposed investment were not misleading because she clearly stated: that the firm could not advise in relation to the proposed investment; that the firm had previously been involved with Karl Suleman in relation to obtaining legal advice concerning the structure of his businesses which may not have been set up properly; and that the clients should obtain independent legal and financial advice about the proposed investment so that its risks are explained.
288 Overall, viewed in the context of what Ms Jajoo was doing (i.e. declining to act on the proposed investment and recommending independent legal and financial advice about it), no misrepresentation or erroneous impression was created. Certainly, the statements made by Ms Jajoo cannot be regarded as providing reassurance concerning the proposed investment. She expressly stated that she was not in a position to either approve or disapprove of the investment and recommended that advice be obtained concerning the risks of such investment. For these reasons, this aspect of the claim made under the Fair Trading Act can also be dismissed.
289 DDS in their submissions deal also with causation to the same purport as those for the Pham defendants.
290 Three different remedies are involved: common law damages for breach of contract, equitable compensation for breach of fiduciary duty, and statutory damages pursuant to the Fair Trading Act. However, in respect of each remedy, the proper approach is to adopt a common sense view of causation in determining whether the losses claimed by the plaintiffs were caused by the relevant wrongful conduct: March v Stramare (1991) 171 CLR 506; O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-3; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525; and Henville v Walker (2001) 206 CLR 459 at paragraphs 61 and 95. The plaintiffs bear the onus of proof of causation: see, for example, Gore v Montague Mining Pty Ltd [2000] FCA 1214.
291 As I have earlier said, by the time contact was made with DDS on 1 June 2001, Ibrahim and Badal had already decided upon a course of conduct, namely, the borrowing of further funds secured over Ibrahim’s property so as to enable a further investment to be made with KSE. Moreover, they were approaching the proposed further investment with enthusiasm. Ibrahim in particular exhibited keenness for the matter to proceed quickly, and in fact showed signs of impatience as opposed to there being “no rush” (T175.10).
292 Even if, contrary to my findings, the position was that Ms Jajoo made positive recommendations concerning investing with Karl Suleman, the plaintiffs have not established that had such statements not been made, they would not have proceeded with the investment. Neither Ibrahim nor Badal gave any evidence to that effect. The only evidence of such character is contained in paragraph 59 of Ibrahim’s affidavit where she deposes that she would not have borrowed the funds if she knew that she risked losing the property. That evidence was supplemented in cross examination by evidence to the effect that she would not have proceeded with the transaction if she had known there was even “a slight risk in investing” (T116.45). That evidence, together with her evidence generally to the effect that she was unaware of any risk to her property in the event that the loan could not be repaid, totally lacked credibility.
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 (T134.25, 135.40-135.54, 294.24). 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. Indeed, the evidence of Mr Cornelius is relied upon by DDS in support of the contention that DDS, in carrying out the refinancing transaction, acted appropriately, particularly at the point in time when knowledge was acquired that one of the purposes of the refinance was to make a further investment with KSE.
295 In paragraph 227 above I have referred to the plaintiffs’ approach to equitable damages. For DDS it is submitted that if it was held that DDS was in breach of fiduciary duty by continuing to act, it would be necessary to consider what would have happened had DDS instead ceased to act. The stricter view of causation, as exemplified in Brickenden v London Loan & Savings Company [1934] 3 DLR 465 does not seem to apply to a case such as the present. Brickenden concerned a transaction between solicitor and client in which the solicitor preferred his own interests over that of the client (see Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 at para 42). The Brickenden principle seems to be confined to cases in which the beneficiary is seeking recovery from the fiduciary of an undisclosed benefit, as opposed to cases in which the beneficiary seeks equitable compensation for loss (see Beach Petroleum NL v Kennedy supra, at paragraphs 434-448, especially 444; White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 at paras 137-139 and 142-146). With this analysis I am also predisposed to agree, though not conclusively to pronounce upon.
296 The making of the second investment was dictated by a combination of the perceived success of the first investment, and the faith reposed in Mr Suleman as a successful businessman and a community leader of high standing. There is no evidence which would justify any conclusions as to the precise reasons why KSE failed. It may have been caused by poor management, commercial misfortune, or even inappropriate or dishonest business practices on the part of Mr Suleman and his agents. It may have been caused by a combination of such factors. That all remains in the realm of speculation. Nonetheless, it seems clear that, upon a common sense basis, the cause of any losses suffered by the plaintiffs was their misplaced faith in Mr Suleman. As referred to earlier in these reasons, it was not part of the role assumed by DDS to discover whether such faith was misplaced or not, or to give any advice accordingly.
Conclusion
297 It will thus be seen that the plaintiffs have failed against each set of defendants on each of the causes of action.
298 I have not taken time to refer to the evidence in relation to the quantification of any damages, whether nominal or substantive, given certain curiosities in the evidence relating to the computation of the latter, and upon which no further remark need be made.
299 Nor have I considered what in the end is an irrelevant defence, described as the “Professional Standards Act” defence. The events giving rise to this particular action are notorious in the sense that there is a general knowledge in the community at large of the collapse of the Karl Suleman empire and Froggy.com. That there are multiple actions arising from that financial collapse was made known to me in the course of these proceedings; and that the defendants presently sued are being sued by other complainants is also known.
300 I have sought to restrict myself to the real issues in this litigation which involved, as litigation of this kind always involves, people, and the joinder of issue between them within the context of what their respective legal advisers have informed them to be the structure of the action.
301 The formal orders are:
1. I find a verdict for the defendants and enter judgment accordingly.
2. The plaintiffs are to pay the costs of the defendants including all reserved costs.
3. I order the return of the exhibits and MFI 21.
APPENDIX
GenerallyMANAGED INVESTMENT SCHEMES
302 The provisions for regulation of managed investment schemes were originally inserted in the Corporations Law (as it then was known) (primarily in Ch 5C) by the Managed Investments Act 1998 (Cth) which commenced on 1 July 1998.
303 The primary facts relevant to the Pham defendants occurred in August/September 2000.
304 As at 2000, the managed investment scheme component of the Corporations Law was quite recent (T683.30). There were no authorities on the new sections (para 71 of Pham’s first affidavit). Effective on 11 March 2002, there were a number of changes to the managed investment scheme provisions pursuant to the Financial Services Reform Act 2001 (Cth) (No 122 of 2001). Effective on 15 December 2001, there were also changes to the managed investment scheme provisions pursuant to the Treasury Legislation Amendment (Application of Criminal Code) Act(No 3) 2001 (Cth) (No 117 of 2001). Finally, effective on 15 July 2001, there were changes to the managed investment scheme provisions pursuant to Corporations (Repeals, Consequentials and Transitionals) Act 2001 (Cth) (No 55 of 2001).
305 “Managed investment scheme” means (section 9(a) – (b)):
“(a) a scheme that has the following features
(b) a time sharing scheme…” (emphases added)
(i) people contribute money or money’s worth as consideration to acquire rights (“interests”) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(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(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits , or benefits consisting of rights or interests in property, for the people (the “members”) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
306 Certain types of arrangements which might otherwise fall within the definition of “managed investment scheme” are expressly excluded (section 9(c) – (n)).
307 Central to the meaning of “managed investment scheme” for the purposes of the Corporations Act 2001 (as it is now known) is the notion of a “scheme”. The comments of Mason J in the High Court decision in Australian Softwood Forests Pty Limited v A-G (NSW); Ex rel CAC (1981) 148 CLR 121 at 129, that “all the word ‘scheme’ requires is that there should be some program, or plan of action” have traditionally been applied to the use of the term “scheme” in the Corporations Act under the present definition of managed investments scheme and its predecessor provisions: ASIC v Pegasus Leveraged Options Group Pty Limited (2002) 41 ACSR 561 at [26] – [27]; Cvetanoski v Filaria Pty Limited (2002) 171 FLR 194 at [22]; ASIC v Chase Capital Management Pty Limited (2001) 36 ACSR 778 at [57].
308 In Australian Softwood Forests Pty Limited, Mason J said at 133:
“The argument is that in order to constitute a “common enterprise” there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on a footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts or profits. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants, and, accordingly, a common enterprise.”
309 A scheme which produces financial benefits to some but not all members will not come within the definition of a managed investment scheme: Re Lawloan Mortgages Pty Limited [2003] 2 Qd R 200 at 216-7.
310 In ASIC v Chase Capital Management Pty Limited at 791, the Court rejected an argument that the existence of a committee of members to monitor the investments would constitute “day to day control” by members, for purposes of the definition of “managed investment scheme”.
311 The definition of “managed investment scheme” contained in section 9 of the Corporations Act states that the definition does not include the following:
(c) a partnership covered by an application order made for the purposes of section 115. The note at the end of the definition of managed investment scheme in relation to paragraph (c) states that a partnership with less than 20 members will usually not require registration because paragraph 601ED(1)(a) and under section 115 a partnership with more than 20 members can only operate if covered by an application order;
(d) a body corporate (other than a body corporate that operates as a time sharing scheme);
(e) a scheme in which all of the members are bodies corporate that are related to each other and to the body corporate that promotes the scheme;
(f) a franchise. “ Franchise ” is defined (section 9) to mean an arrangement under which a person earns profits or income by exploiting a right, conferred by the owner of the right, to use a trademark or design or other intellectual property or the goodwill attached to it in connection with the supply of goods or services. An arrangement is not a franchise if the person engages the owner of the right, or an associate of the owner to exploit the right of the person’s behalf;
(g) a statutory fund maintained under the Life Insurance Act , 1995;
(h) a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme, within the meaning of the Superannuation Industry (Supervision) Act , 1993;
(i) a scheme operated by an Australian ADI in the ordinary course of its banking business;
(j) the issue of debentures or convertible notes by a body corporate;
(l) a retirement village scheme operating within or outside Australia:(k) a barter scheme under which each participant may obtain goods or services from another participant for consideration that is wholly or substantially in kind rather that in cash;
(i) under which the participants, or a majority of them, are provided, or are to be provided, with residential accommodation within a retirement village (whether or not the entitlement of a participant to be provided with accommodation derives from a proprietary interest held by the participant in the premises where the accommodation is, or is to be, provided); and
(ii) which is not a time sharing scheme.
(n) a scheme of a kind declared by the regulations not to be a managed investment scheme.
(m) a scheme that is operated by a co-operative company registered under Part IV of the Companies (Co-operative) Act, 1943 of Western Australia or under a previous law of Western Australia that corresponds with that Part; and
312 Section 601ED(5) prohibits a person from operating a managed investment scheme that section 601ED requires to be registered under section 601EB unless the scheme is so registered. “Operating” a managed investment scheme does not refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme: ASIC v Pegasus Leveraged Options Group Pty Limited at 574.
313 Section 601ED(2) provides that 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. Sections 706 and 708 speak of the offer of “securities”. Sections 9 and 92(c) define “securities” to mean, inter alia, interests in a managed investment scheme. Accordingly, a managed investment scheme does not have to be registered if all the issues of interests were in respect of one or more of:
(a) small scale offerings (20 issues or sales in 12 months to a $2 million ceiling) (section 708(1) – (7));
(b) sophisticated investors (at least, a $500,000 offer of investment) (section 708(8));
(d) offers to people associated with the body/certain offers to present holders (section 708(12), (13)).(c) professional investors (section 708(11)); or
314 Any other managed investment scheme must be registered if (section 601ED(1)):
(a) it has more than 20 members;
(c) ASIC has determined under section 601ED(3) that a number of managed investment schemes are closely related and that each of them has to be registered at any time when the total number of members of all the schemes exceeds 20.(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
315 There is room for debate about the circumstances in which a particular structure will be regarded as constituting a single scheme rather than separate schemes. The fact of being constituted under a single document may not be sufficient to result in otherwise separate schemes being treated as a single scheme. If the document creates separate asset pools to which investors may have exposure in different proportions, it may require close analysis to determine whether each is in substance separate or whether there is a degree of interdependence which binds them into a single scheme. In ASIC v IP Product Management Group Pty Limited (2002) 42 ACSR 343 at 349, Byrne J noted that it was possible to analyse the 26 schemes as one conglomerate scheme or as a series of independent schemes. It appeared that either conclusion was equally open, although his Honour preferred that the schemes be viewed as separate. In ASIC v Pegasus Leveraged Options Group Pty Limited at 571, Davies AJ deemed there to be a single scheme on the basis that from the point of view of the operator, there was only one scheme, which was to persuade investors to pay money into the promoter’s bank account.
316 Even if a scheme has 20 or fewer members, it will require registration if it is promoted by a person, or an associate of a person, who is in the business of promoting managed investment schemes. “Promoter” is not a defined term, the previous definition having been repealed with effect on 13 March 2000. The previous definition would not have been satisfactory in this context in any case, because it related specifically to preparation of prospectuses. The question of who is a “promoter” was considered in Tracy v Mandalay Pty Limited (1953) 88 CLR 215. In effect, promoters are persons who engage in exertion for the purpose of getting up and starting a company (or a scheme), and those who assist them: ASC v Woods and Johnson Developments Pty Limited (1991) 6 ACSR 191.
317 Pursuant to its powers under section 601QA(1)(a), ASIC has granted exemptions from the prohibition in section 601ED(5) against operating unregistered managed investment schemes in various circumstances where registration would otherwise be required and in several cases from Ch 5C altogether: ASIC CO (Compliance Order) 02/226, 02/319, 02/1514, 02/171, 02/211, 02/238, 02/303, 02/1598, 02/184, 02/294, 02/295, 02/182, 02/183, 02/273, 02/264, 02/210 and 02/236.
New schemes
318 ASIC must within 14 days register the scheme or reject the application: section 601EB(1)(b). ASIC must register the scheme, unless it appears to ASIC that (section 601EB(1)):
(a) the application does not comply with section 601EA;
(b) the proposed responsible entity does not meet the requirements of section 601FA;
(c) the scheme’s constitution does not meet the requirements of sections 601GA and 601 GB;
(d) the scheme’s compliance plan does not meet the requirements of section 601HA;
(e) the copy of the compliance plan lodged with the application is not signed as required by section 601HC; and
Consequences of failure to register(f) arrangements are not in place that will satisfy the requirements of section 601HG in relation to audit of compliance with the plan.
319 ASIC, any scheme member or the scheme operator can apply to the Court to wind up any unregistered managed investment scheme which operates contrary to the prohibition in section 601ED(5): section 601EE. Orders under section 601EE to wind up schemes were made on ASIC’s application in ASIC v Chase Capital Management Pty Limited (2001) 36 ACSR 778; ASIC v Hutchings (2001) 38 ACSR 387; ASIC v Pegasus Leveraged Options Group Pty Limited (2002) 41 ACSR 561. In Chase Capital Management Pty Limited supra, at [74] – [75], Owen J accepted that the exercise of the Court’s discretion to wind up a scheme should be guided by the same considerations as are relevant to the discretion to wind up companies on the just and equitable grounds under section 461(1)(k). It was decided that the scheme should be wound up in the public interest notwithstanding that some investors were opposed. Davies AJ adopted Byrne J’s reasoning in ordering the scheme to be wound up in the case of Pegasus Leveraged Options Group Pty Limited supra, at [91] – [92].
320 In ASIC v Atlantic 3 Financial (Aust) Pty Limited (2003) 47 ACSR 52, Mullins J stated at [20] that:
“There can be a tension in the winding up process of an unregistered scheme between what is required for protection of investors, as a matter of public interest, and what is perceived to be in the interests of each of the investors, as a matter of private interest. Ultimately, it is a matter of balancing all the factors relevant to the winding up of a particular scheme, in determining who should be the party given the responsibility for winding up the scheme and on what terms.”
321 Barrett J noted in ASIC v Koala Quality Produce Limited (2002) 41 ACSR 628 at [5] – [9] and again ASIC v Commercial Nominees of Australia Limited (2002) 42 ACSR 240 at [127] that section 601EE should be interpreted broadly. The section does not attempt to prescribe any general framework according to which winding up under the section is to occur. The gap may be filled by an order by reference to the scheme constitution, but to the extent that the constitution is inadequate, the Court may supply other necessary provisions.
322 The operator of an unregistered scheme that requires registration also commits an offence under section 601ED(5) which involves a fine not exceeding 200 penalty units or imprisonment for five years or both or for bodies corporate, a fine not exceeding 1000 penalty units: Sch 3, section 1312 of the Act and section 5 of the ASIC Act.
323 Under section 1325(1), the Court can make such orders against a person engaged in conduct in breach of Ch 5C as it considers will compensate any party to the proceeding who has suffered, or is likely to suffer, loss or damage because of that conduct.
324 The failure to comply with the registration requirements for the operation of a managed investment scheme does not mean that either the scheme itself or, more importantly, the contracts entered into as a part of an unregistered scheme (that is, investment contracts) are illegal or unlawful. In Karl Suleman Enterprises Pty Limited (in liq) v Babanour [2004] NSWCA 214 (28 June 2004), Beazley JA, with whom Spigelman CJ and Santow JA agreed, said at [51]:
“The registration requirement for the operation of a managed investment scheme is for the protection of investors. 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. There is nothing, therefore, in the scheme of the legislation whereby an implication of an illegality would arise, nor is there anything that points to a legislative intention that the contracts entered into as part of an unregistered scheme are illegal.”
325 There are two circumstances in which a contract to subscribe for an interest in a managed investment scheme (that is, an investment contract) may be made void at the option of the investor.
326 The first circumstance is a subscription in an unregistered managed investment scheme which is required to be registered under section 601ED(5). The second circumstance is where the offer of the interest, or the invitation to subscribe for the interest, is made in contravention of Chapter 6D: section 601MB(1). Where either of those circumstances exist, the subscriber may give notice of intention to treat the contract for subscription as void. The contract will be void at the end of 21 days after the notice is given or when any litigation including any appeals has been finally determined or otherwise disposed of (although presumably not if the subscriber loses): section 601MB(3). Within 21 days after the notice is given (or such extended period as the Court may grant), the offeror may apply to the Court for an order declaring the notice to have no effect: section 601MB(4) and (5). The Court may declare the notice to have no effect “if it is satisfied that, in all the circumstances, it is just and equitable to make the declaration”: section 601MB(6).
ASIC’s powers
327 ASIC is given specific powers with respect to the Ch 5C provisions of the Corporations Act dealing with managed investment schemes. The powers are extensive. ASIC may exempt a person from a provision of the Chapter or declare that it applies to a person as if specified provisions were omitted, modified or varied as specified in ASIC’s declarations: section 601QA(1).
328 To make this abundantly clear, the exemption or declaration may apply to all or specified provisions of Ch 5C, to everyone, or specified persons or a specified class of persons, to all securities, specified securities or a specified class of securities or to any other matter generally or as specified: section 601QA(2).
329 Without limiting the comprehensiveness of ASIC’s power, section 601QA(1) gives ASIC the specific power to declare that the Chapter applies so that scheme property must be held by a person other than the responsible entity (custodian) as the responsible entity’s agent: section 601QA(1). ASIC may grant an exemption unconditionally or subject to specified conditions. Where conditions are specified, the person to whom the condition applies has a statutory obligation to comply with the condition: section 601QA(3). A condition of that kind is only enforceable by a Court on ASIC’s application. The Court may order the person to comply with the condition in a specified way: section 601QA(3).
Observations (and submissions as to matters to which regard should be had in relation to Pham defendants)
330 During the period relevant to the case against the Pham defendants in these proceedings, that is, August/September 2000, it is apparent that the managed investment scheme provisions of the Corporations Law (as it was then known) were of:
(a) relative novelty;
(b) some complexity and uncertainty in terms;
(c) some factual complexity and uncertainty in the application of the various elements required to constitute a scheme (primarily section 9(a));
(e) some factual uncertainty as to whether or not and, if so, when any scheme had more than 20 members or was promoted by a person in the business of promoting managed investment schemes.(d) factual complexity and uncertainty as to whether or not and, if so, when any scheme had to be registered by reason of no longer involved small scale offerings, sophisticated investors, professional investors or offers to persons associated with the body/certain offers to present holders; and
331 In these proceedings, the plaintiffs have failed to establish that:
(a) as at August/September 2000, there was in operation a “ scheme ” which should have been, but which was not, registered (that is, they have not established the various factual elements referred to in section 9(a) and/or established the non application of the other limiting/exclusionary provisions);
(c) any loss suffered by the plaintiffs would not otherwise have been and/or was not suffered by reason of, for example, ordinary commercial trading issues associated with the proper operations of KSE.(b) if there was an unregistered management investment scheme in operation, that that had any causal link to any loss suffered by the plaintiffs; and
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