KUZIEL v XIAO - [2011] SADC 149

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
KUZIEL v XIAO
[2011] SADC 149
Judgment of His Honour Judge Barrett
21 September 2011
PROFESSIONS AND TRADES - LAWYERS - SOLICITOR AND CLIENT - RELATIONSHIP GENERALLY - WHEN FIDUCIARY RELATIONSHIP
The plaintiff lost money in an investment. She asserted that the defendant solicitor was acting for her and failed to prepare a document which would have protected her investment. The defendant claims he was acting for the man in whose company the plaintiff invested. He says he made that clear to the plaintiff and that she should get her own legal advice.
Held: the defendant owed no fiduciary duty to the plaintiff. He was not acting for her and he tried to make that clear to her.
Hill v van Erp (1997) 188 CLR 159, considered.

KUZIEL v XIAO
[2011] SADC 149

The plaintiff lost money in a business investment. She sues the defendant to cover her losses, alleging that, as a solicitor, he owed her a duty of care to protect her interests. She says that the accused purported to represent her. She consulted him with the man in whose company she invested $50,000. The accused failed to carry out her instructions to prepare an agreement which she claims would have protected her interests. He failed to warn her not to invest the money before the agreement was executed. The document was never drawn or executed.
The accused denies he ever represented, or purported to represent, the plaintiff. He acted all along for the man whose company the plaintiff invested in. He made it clear that he did not act for the plaintiff and he made it clear to her she should seek her own legal advice. There are several other aspects to the defence. The plaintiff plainly invested her money without any document being signed. It was not for a lawyer to advise her against making the investment. That was economic advice not legal advice.
The plaintiff was unrepresented. At the outset of the trial I asked her if she sought representation. She said that she could not afford it and, while she had obtained certain legal advice, she felt that she was the best person to present her case. I gave the plaintiff such help as I could in presenting her case.
Background
For both parties English is not their first language. However, each spoke English with ease. The plaintiff has some business experience although, I find, she has no experience in the legal aspects of running a business. Her family is Polish.
The defendant is a mature aged law graduate, having completed an engineering degree in China. He completed his law degree at Adelaide University and had been admitted to practice 10 years before his dealings with the plaintiff. Apart from working as an in-house solicitor for about 7 years he had been in private practice, starting a sole practice in 2006.
In 2006 the plaintiff was employed by one Vincent Loh. Mr Loh was a man in his early 20s who ran a business selling used cars. Although the plaintiff was unable to be precise about the legal structure of his company, it appears he had a company called Global Key Investment which bought a franchise from a Malaysian based company called Establishment of Automobiles. The business was run in Prospect. For reasons that the plaintiff was unable to explain, the business closed towards the end of 2006. The plaintiff had only worked for Mr Loh for a few months.
The plaintiff became very impressed with Mr Loh’s honesty and business acumen. She spoke to him about investing in his enterprise. It appears they contemplated that she would invest $50,000 and become a 50 per cent share holder with Mr Loh in his company. The plaintiff realised that the company was not making any profit. She expected to work without any salary or income until the company was making a profit. In the meantime she would maintain her daughter and herself on a pension or social service benefit she was receiving.
She sought advice from an elderly family friend. The friend did not discourage her from making the proposed investment, but he advised her to see a lawyer and get a written agreement first. The plaintiff said her only asset was the $50,000 she had from her matrimonial property settlement. She had no family in South Australia apart from her daughter. While she called her family friend from whom she sought advice “uncle” he was not a relative. He had a jewellery business.
The plaintiff asked Mr Loh if he knew a lawyer. He said he would find one for her. He got back to her and recommended the defendant. The plaintiff said that she went to see the defendant in his offices on 8 or 9 January 2007. She and Mr Loh went together. They spoke to the defendant together. The defendant purported to act for her. She says that she explained to the defendant that she wished to invest her only asset in Mr Loh’s company. She instructed the defendant to prepare a document which would protect her interests. The defendant agreed to do so. He never told her that he acted for Mr Loh, or that she should get advice of her own. She says she told the defendant that she would start investing the money on 15 January, about a week later. She said that she explained to the defendant that the $50,000 was her only asset and that she was now a single mother with a daughter to support. She said she understood that the defendant would set about preparing the document. She expected it would be ready to be executed before 15 January which was the date she expected to begin investing in the company. The plaintiff was not entirely clear what document or documents she expected the defendant to prepare. She simply expected that the defendant would prepare whatever agreement was necessary to protect her investment. She said she was in effect lending the company the money at a rate of 12 per cent. She realised she would received no return or salary until the company made a profit. She knew the company was not making any income at the time. Before the company could resume operations it required a licence from the Enfield Council. The plaintiff was not precise about what sort of licence was required. She, herself, was involved in seeking that licence and there had been delays in obtaining it.
The plaintiff says at the consultation on 8 or 9 January it was arranged that the documents would be ready for consideration by her at a further appointment on 11 January. She attended on that day with Mr Loh. She was disappointed to find that the defendant had not prepared the document she was expecting. He had prepared two documents. One was an employment agreement (Exhibit P1) pursuant to which she would be employed by Mr Loh. She said that she had never instructed the defendant to prepare such a document. She made that clear to him. The second was a share agreement (Exhibits P1 and P2). That agreement purported to be an agreement whereby Mr Loh would have a 51 per cent interest in the company and she would have 49 per cent interest. She explained to the defendant that that document was not right. She and Mr Loh were to be equal shareholders.
The defendant agreed that he would try to have the appropriate documentation ready for signing by 15 January. It is common ground between the parties that there was some discussion between them (and others) on the topic of the company trading with China in wine. The plaintiff placed a degree of emphasis on this topic, but I find it is a topic which has almost no relevance to the issues in the trial.
The plaintiff said there were further appointments on 15 and 21 January. The plaintiff was unclear about what precisely what was discussed on each occasion. She said there was ongoing discussion about the agreement but nothing was concluded. She says she told the defendant that she had in fact made her first investment on 15 January despite no agreement having been signed. I find that she had in fact made the first advance to the company on 15 January. In fact I find that in January and February she made advances to the company that possibly amount to $49,000 without any agreement being signed. In broad terms, that is not disputed by the defendant. It is common ground that in February/March 2007 the defendant fell ill and was absent from his practice. No document was ever prepared by the defendant.
In about April 2007 Mr Loh disappeared and has not been heard of since. The plaintiff has been unable to recover the money she invested. With some minor qualifications, these propositions are not disputed by the defendant.
The defendant’s case is that at all times he acted for Mr Loh. The defendant says that on several occasions he made it clear to the plaintiff that he was acting for Mr Loh and not acting for her. He advised her to get her own legal advice.
Issues for determination
I identify the issues for determination in the trial:
1.Did the defendant owe the plaintiff a fiduciary duty on the basis that;
a.     He was acting for her on a retainer, or
b.     He owed her a gratuitous duty?
2.If the defendant owed the plaintiff a fiduciary duty, did he breach that duty by?
a.     Not preparing a document to protect her investment, or
b.     Not advising her against making the investment at all, or at least until Mr Loh had executed a document protecting her interests?
3.If the defendant breached a fiduciary duty to the plaintiff, has the plaintiff suffered damages?
Fiduciary duty
I turn to determine the first question. Did the defendant owe the plaintiff a fiduciary duty? This question is answered largely by making findings of fact arising from the evidence of the plaintiff and the defendant. The plaintiff says that, from all her communications with the defendant, she understood that he was acting for her. If her account of the communications between them is correct, then the defendant certainly gave her every reason to think that he was acting for her. The defendant says, not only was he never acting for the plaintiff, but he made that very clear to her. I must make findings of credit in respect of those opposing claims.
There are two pieces of documentary evidence which tend to suggest that the defendant was acting for Mr Loh. The first is a Solicitor and Client agreement dated 30 October 2006 purporting to be executed by the defendant and Mr Loh (Exhibit D13). The defendant produced the document and said he and Mr Loh signed it on the date indicated. The plaintiff was not able to challenge the truthfulness of that evidence. Further, it is clear that Mr Loh introduced the plaintiff to the defendant. Mr Loh went with the plaintiff to the defendant’s premises on at least 11 January (I leave aside for the moment the question of whether they went together into the defendant’s office when they arrived at the premises. There is a dispute about that).
The second document is the draft employment agreement (Exhibit P1). The defendant presented this document to the plaintiff on 11 January. The plaintiff said she felt insulted by the document. It provided that she would be employed by Mr Loh. That was not what she had agreed with Mr Loh. It is common ground between the plaintiff and the defendant that when she was presented with the draft document, she said she wanted nothing to do with it. She said she had never instructed the defendant to prepare such a document. I accept the plaintiff’s evidence on that topic. That raises the question of how the defendant came to prepare the draft agreement. The defendant says that he prepared the employment agreement on instructions of Mr Loh. That evidence is a rational explanation for the agreement being produced. It is more difficult to reconcile the production of the agreement with the plaintiff’s evidence. Why would the defendant produce an employment agreement which the plaintiff never wanted if she alone was instructing him? Why would he produce such an agreement if he was acting for the plaintiff and had been instructed by her to prepare an agreement to protect her investment? In my view it is likely that the defendant produced the agreement on instructions given to him by Mr Loh in the absence of the plaintiff. That is what the defendant says happened. He says he was consulted by Mr Loh alone on 8 and 9 January and, as a result of those instructions, he prepared the draft employment agreement (Exhibit P1) and the draft share agreement (Exhibit P2 and P3).
The plaintiff disagreed with a material term in the latter agreement. She insisted that she was to be an equal shareholder with Mr Loh (50:50), not an unequal one with him having a 51 per cent interest and her having a 49 per cent interest. The defendant says that he advised Mr Loh to put in that disparity in the agreement and he, himself, crossed out Mr Loh’s note giving the plaintiff 50 per cent. He says he inserted 49 per cent. Again, I think it likely that that document was prepared on the basis of instructions from Mr Loh alone, not on the instructions of the plaintiff, or even on the instructions of both of them together.
There are two further documents which bear on this question. The first is Exhibit 18. The defendant says that that document is notes of instruction brought along to him by Mr Loh on 8 January. Two different handwritings appear on the document. The defendant says that most of the handwriting is in Mr Loh’s hand and some of it is in his own. He highlighted that which he claimed to be his own handwriting. That writing appears to be alterations or comments or questions about original instructions. The document does have the appearance, and the terms have the tenor, of being instructions that a client might take to a solicitor. The handwritten alterations look like the sort of alterations a solicitor might make.
The second documentary evidence is the diaries of the plaintiff and the defendant for 8, 9 and 11 January. The plaintiff’s diary entries, Exhibit D10, show that she met with Mr Loh on 8 and 9 January. On the eleventh she has a note suggesting an appointment with a lawyer. The defendant’s diary entry, Exhibit D16, suggests meetings with Mr Loh on 8, 10 and 11 January. A combination of those two diary entries would suggest, although not prove conclusively, that the defendant saw Mr Loh on his own on 8 and 10 January, as he says, and that the plaintiff saw the defendant for the first time on the eleventh.
In her address the plaintiff concedes that there might be some confusion in her mind about the appointments. She said this at T306:
The witness also states that there was a meeting. I’m stating there were meetings. And certain things have been discussed. Very hard to say whether it was me. He recalls it was Vincent. It has been a long period of time since we last said that. Yet Mr Jia denies any meeting at all with Mark, yet me and Mark do remember the meetings with Mr Jia. We do remember meeting with Nathan Powell at Mr Jia’s office on 15^th which then leads up to the fact that, yes, I could have mixed dates up. It has been a very long time and it has been a very trying time for me.
I pause to make an observation about the plaintiff's reference to two other parties, Mr Hii and Mr Powell. The plaintiff called Mr Hii to confirm that he had accompanied her to consultations with the defendant and had overheard conversations between them about the agreements. Mr Hii’s evidence in this respect was vague and unsupportive. He did say that he had gone to one meeting with the plaintiff, Mr Loh and the defendant. The defendant does not deny that. He agrees that Mr Hii was present at one meeting. However Mr Hii was quite unable to recollect anything that was said between the plaintiff and the defendant about the agreement. His evidence tended to support that of the defendant who says that Mr Hii was present at other discussions about other aspects of the business and was not present during discussions about the agreement.
A good deal of the plaintiff’s evidence was taken up with asserting that she had had discussions with the defendant about other business matters, principally the importing of wine into China. She said that a Mr Powell was present at such discussions. The defendant agrees that Mr Powell was present at his office and probably was involved in such discussions, but he was not present during any discussion between the plaintiff and the defendant about the agreement.
The plaintiff placed great reliance on the presence of Mr Hii and Mr Powell in support of her account of the meetings with the defendant, but in the event, there is no support from these sources.
I find that before 11 January the defendant was acting for Mr Loh, and on his instructions alone, he prepared the agreements Exhibits P1 and P2/P3.
That finding does not necessarily lead to the conclusion that on 11 January the defendant did not give the plaintiff the impression he was acting for her. However, if he did give her that impression, it would have been a blatant conflict of interest. In fact it would have amounted to a deception of the plaintiff.
I turn to a consideration of the evidence of the plaintiff and the defendant as it bears on the question of what was said by the two of them on 11 January.
The defendant gave his evidence in a straightforward manner referring to documents which support his version. The diary entries Exhibit D16, the written instructions Exhibit D18 and the draft agreements, Exhibit P1 and P2/3 support him in the respects to which I have already referred. He says that he saw Mr Loh alone first. He discussed the proposed agreement with Mr Loh on his own. The plaintiff then joined them and there were then discussions involving all three of them.
I bear in mind that the defendant might be expected to give evidence in a professional manner, given his education and experience. The plaintiff was at a disadvantage in this respect. I also bear in mind that she was unrepresented and therefore had no real assistance in focussing her attention on relevant matters beyond the very limited assistance I was able to give her.
Bearing these matters in mind, I find that the plaintiff was discursive, confused and contradictory about a number of matters. I refer to only a few of them.
The plaintiff was cross-examined about the draft share agreement, Exhibit P2/3. She was asked what she made of the clause in the agreement appointing her as general manager. She said at T125:
Like I said, to me general manager, I didn’t take any notice of it, I didn’t think its an important detail in the agreement.
She was asked about the provision in the draft agreement about her being paid commission. She was asked whether that was the commission she had been referring to. She said at T125:
I suppose so. There was lots of different things going on; import of wine, import of cars.
In my view these passages, along with others I had not referred to, indicate that, just as the plaintiff was unable to focus on relevant matters in her evidence, she was likely to be unable to focus on relevant matters at the appointment with the defendant.
The plaintiff said that when she saw the defendant she expected that as a lawyer he would suggest she pay the $50,000 she was going to invest in Mr Loh’s company into his, that is the defendant’s, trust account. She was asked about that expectation. She said at T135:
I assumed or maybe have been in passing through someone who might have had any dealings with it, being told that, that is why I had it in my head because someone has put it there.
That answer really smacks of a reconstruction of an expectation from something that the plaintiff has been told after the event.
The plaintiff was asked how she was going to pay for the legal advice she was getting from the defendant. She was asked whether she would draw a cheque on the company to pay the defendant. She said:
No, I don’t know whether it was a company or not. However, I can tell you I don’t know what I was thinking at that time. I’m sorry, but I was going to pay him. Whether I took it out of my HSBC account and got HSBC to give me a cheque or whether I took it out of the company – I mean I was putting my money into the company, anyway. It was my money, wasn’t it?

The defendant denied ever discussing the payment of his fees by the plaintiff. She says he did. She says that he agreed to do a trust deed for her and charge her at the same time for the trust deed and the documents being prepared to protect her interest. The defendant agrees that the plaintiff did at the last appointment ask him to prepare a trust agreement for her but he told her that he could not do that until the matter involving Mr Loh was concluded. In the plaintiff’s answer which I have just quoted, the plaintiff appears quite uncertain about how she was going to go about paying the defendant.
The plaintiff was cross-examined about what appeared to be changes in her case. She had originally instigated proceedings in the Magistrates Court. In those pleadings had pleaded that she and Mr Loh had jointly retained the defendant. In the present case her evidence was that she alone retained the defendant. She explained that she had received assistance from the former legal practitioner, Mr Roger Nunn, in preparing the Magistrates Court pleadings. She maintained that her present position was that she had retained the defendant herself.
I have already found that whatever was said between the plaintiff and the defendant at the consultation on 11 January, the defendant was in fact retained by Mr Loh and was at all time acting from him. I find as a fact that the defendant did not purport to be acting for the plaintiff at any stage. I reject the plaintiff’s evidence that at the meeting on 11 January, or at any other time, the defendant said anything to her indicating that he was acting for her. I find that after the loss of her investment, the plaintiff has erroneously reconstructed what the defendant said to her. Further, I think it likely that the defendant tried to make it clear to her that he was not acting for her.
There was only one meeting between the plaintiff and the defendant after 11 January. It occurred on 21 January. Both parties agree that there was such a meeting. Both agree that there was further discussion about the draft agreements. I think the plaintiff is mistaken when she says that there was an appointment on 15 January. There is no entry in her diary of such an appointment. There is reference to her seeing Mr Nathan Powell. Because she had a meeting with Mr Powell on one occasion in the offices of the defendant, I think that she has concluded that she had a conference with the defendant on that day. The defendant says there was no such meeting. There is an entry in his diary that he had an appointment with “Hickinbotham”. Both Mr Powell and Hickinbotham’s were associated with the discussions about trading in wine in China. I think it is possible that on that day the plaintiff did meet at the offices of the defendant to discuss that topic. He says that he facilitated such a meeting in one of his rooms, but he denies that on that day there was any discussion of the agreement. I accept his evidence on that point.
I do not overlook that on 15 January the plaintiff made the first of her advances of money to Mr Loh’s company. On that day I accept that she made an advance of $15,000. I also accept that she made further advances of $10,000 on each of 29 January and 6 February. It is common ground that each of these advances was made without any agreement being signed. The plaintiff says that she told the defendant in advance that she was going to make the first investment on 15 January and she told him after 15 that she had done so. The defendant denies that. I do not find it necessary to make a finding of fact about that.
I do accept that the plaintiff contacted the defendant by telephone asking him when the agreement would be ready. The defendant at this time was becoming ill. Eventually, he was unable to continue for a time working in his practice because of illness. He never completed drawing up any of the agreements. The defendant explains why he took the telephone calls from the plaintiff by saying that, although he was not acting for her, she was to be a party to the agreement and he was willing to speak to her on that topic.
There is one further topic which bears on the relationship between the plaintiff and the defendant. The plaintiff says that when it seemed to her that the agreement would not be able to be drawn up because of the defendant’s illness, she prevailed upon him to give her some advice over the telephone on how she should protect her investment. She says that he advised her to draw up a handwritten agreement and gave her some advice about the terms of such an agreement. The plaintiff produced a handwritten agreement (Exhibit P7) which she says she drew herself on the advice of the defendant. The agreement recites the payment by her of $50,000 for a 50 per cent interest in Mr Loh’s company. The agreement recites that Mr Loh will repay the $50,000 to the plaintiff in the form of a bank cheque by 5 April 2007. If the payment is not made in full by that date, interest would be charged at the rate of 10 percent daily on the full amount outstanding. The plaintiff says, and I accept her evidence, that she and Mr Loh signed that agreement on 29 March 2007.
I do not entirely reject the plaintiff’s evidence that the defendant suggested that she draw up and agreement with Mr Loh. I think it possible that, despite his denials, the defendant thought that because he was unable to complete the agreements due to his ill health, he should offer the plaintiff some assistance. I do not accept that he dictated or advised in any detail what should be the terms of such an agreement. If he did suggest to the plaintiff that she should draw up some agreement for signing by Mr Loh, then I would not see that as inconsistent with his acting for Mr Loh. After all, Mr Loh’s instructions were that his company would receive a payment of $50,000 from the plaintiff and in due course would repay it. I do not make a finding of fact about whether the defendant suggested to the plaintiff that she draw up an agreement and have Mr Loh sign it. I do reject the suggesting that he dictated the terms of any such agreement.
I find that the defendant was not acting for the plaintiff on a retainer or on any other basis. I find that he did nothing to indicate to the plaintiff that he was acting on her behalf. I find that he tried to make it clear to her that he was not acting in her interests.
In those circumstances I find that the defendant did not owe a fiduciary duty to the plaintiff. The plaintiff was not is client. Further I find that he breached no duty that might be owing to a non-client.
Duty to a non-client
In Hill v van Erp (1997) 188 CLR 159 AT 167, Brennan CJ referred to the duty of care owed to a non-party by solicitor. That case concerns the obligation that a solicitor might have to the beneficiary of a will in circumstances where he was acting on a retainer from the testator. His Honour said:
There is no reason to refrain from imposing on the solicitor who is contractually bound to the testator to perform with reasonable care the work for which he has been retained. A duty of care in tort to those who may foreseeably be damaged by carelessness in performing the work. The terms of the retainer determine the work to be done by the solicitor and the scope of the duty and tort as well as in contract. A breach of the retainer by failing to use reasonable care in carrying out the client’s instructions into effect is also a breach of the solicitor’s to an intended beneficiary who thereby suffers foreseeable loss.
That is really a situation where, as His Honour put it, the interests of intended beneficiary are “coincident” with the interests of the testator. His Honour was emphasising the primacy of the duty to the client notwithstanding a coincident responsibility to a third party. In my view there is nothing in the defendant’s behaviour that was in breach of any duty to the plaintiff with was coincident with that of Mr Loh.
I have made findings which determine the first issue in the trial, that is whether the defendant owed the plaintiff a fiduciary duty. That really disposes of the issues in the trial, but I make further observations.
Sundry further issues
It is clear that the plaintiff advanced money to Mr Loh in the full knowledge that she had not executed any document that might protect her interest. She invested in a company which she knew was making no income because it did not have a requisite licence to trade.
The plaintiff has not demonstrated that any formal agreement would have made any difference to what she did. On the contrary she made her investment without any document being signed. It would appear that there has been consideration for the plaintiff’s investment. Exhibit D8 is a memorandum from the Australian Securities and Investments Commission which indicates a change to the details of Mr Loh’s company, Global Key Investment Pty Ltd. The plaintiff is shown as a 50 per cent share holder. It would therefore appear that the plaintiff became a director and 50 per cent share holder in Mr Loh’s company after making her investment. The fact that the investment has been lost does not detract from that reality.
I should say that I have accepted, for present purposes, that the plaintiff made an investment of something approaching $50,000. The bank records would show that she transferred to the company three amounts of $15,000, $10,000 and $10,000. She gave evidence she made further payments for goods and services for the company amounting to a further $12,000. During the trial I put aside consideration of whether the plaintiff in fact made the investment she claimed to have made. It seemed plain enough that she had made cash advances and there was no reason to take up time during the trial investigating what further monies she may have paid. I would have further considered that topic if I found the defendant liable to pay for any loss suffered by the plaintiff.
I heard argument from Mr White for the defendant about the plaintiff’s contributory negligence in the event that I found the defendant owed the plaintiff a fiduciary duty. There is, in my view, no need to make any finding in that regard.
Conclusion
I find that the defendant did not owe any fiduciary duty to the plaintiff. He has not breached any fiduciary duty. The defendant is not liable to the plaintiff for any loss she had suffered.
I dismiss the plaintiff’s claim.