Swart v Carr; Swart v LawCover Pty Ltd

[2006] NSWSC 1302

CITATION:	Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302
HEARING DATE(S):	17 to 24 July 2006
JUDGMENT DATE :	1 December 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	In 3022 of 2003: Judgment for the First Plaintiff; Cross Claim dismissed.; In 1395 of 2004: Declaration as sought by Plaintiffs.
CATCHWORDS:	SOLICITORS – CONTRACT – PROFESSIONAL INDEMNITY – Whether solicitor investing money of an investor is acting in his or her capacity as solicitor – when is a solicitor not a solicitor – principles discussed – what is carrying on the business of a solicitor – whether solicitor’s indemnity policy responds to claim.
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) – s.100(1) Statute of Merton 1235
CASES CITED:	- Allen v Aldridge (1843-44) 5 Beav 401 [49 ER 633] - Baker, Lees & Co, In re [1903] 1 KB 189 - Cornall v Nagle [1995] 2 VR 188 - Dooby v Watson (1888) 39 Ch D 178 - Haines v Bendall (1991) 172 CLR 60 - Hughes v Mayre (1789) 3 TR 275 [100 ER 572] - MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 - Oliver, In re (1867) 36 L.J.(Ch) 261 - Osborne, In re (1858) 25 Beav 353 [53 ER 671] - Piper Double Glazing Ltd v DC Contracts (1992) Ltd [1994] 1 All ER 177 - Rawes v Rawes (1836) 7 Sim 624 [5 LJ(NS)] - Solicitors’ Liability Committee v Gray & Winter (1997) 77 FCR 1 - Sudlow and Kingdom, In re (1849) 11 Beav 400 [50 ER 871] “A History of English Law”, Holdsworth Vol VI pp 448-457 “The Legal Profession and the Common Law”, J.H. Baker (1986) p 125ff. “Principles of the Law of Trusts”, Ford & Lee, para 14030, p 14,2053 “A Short History of Solicitors”, E.B.V. Christian (1896) pp 70-110
PARTIES:	Daniel Frederick Victor Swart – First Plaintiff/1st Cross Defendant Janet Anne Swart – Second Plaintiff/2nd Cross Defendant Malcolm Douglass Carr – Defendant/Cross Claimant (3022/03) LawCover Pty Ltd – Second Defendant (1395/04)
FILE NUMBER(S):	SC 3022/03; 1395/04
COUNSEL:	J.L. Glissan QC, S.G. Barnes – Plaintiffs/Cross Defendants In person – Defendant/Cross Claimant (3022/03) D.R. Pritchard – Second Defendant (1395/04)
SOLICITORS:	White & McDonald – Plaintiffs/Cross Defendants In person – Defendant/Cross Claimant (3022/03) Ebsworth & Ebsworth – Second Defendant (1395/04)

3022/03 Swart & Anor v Carr
1395/04 Swart & Anor v LawCover Pty Ltd

JUDGMENT
1 December, 2006

Introduction

1    Mr Malcolm Carr carries on a modest sole practice as a suburban solicitor. In 1997 he came to believe that he could become rich very quickly by investing in highly lucrative international investment schemes which he had heard were being promoted in London. He knew nothing about international investment schemes.

2    In early 1998, Mr Carr went to London to look for opportunities to invest. He soon fell into the hands of swindlers. Within a matter of days, all his money was lost. Unfortunately, so also was USD4 million of the money which other people had entrusted to him to go into these investment schemes under his management.

3    Mr and Mrs Swart lost USD500,000, which they now seek to recover from Mr Carr and his professional indemnity insurer, LawCover Pty Ltd (“LawCover”). They have commenced two proceedings, one in which Mr Carr alone is defendant, and one in which LawCover is the defendant. The allegations against Mr Carr are the same in both proceedings, and both proceedings have been heard together, evidence in one being evidence in the other.

4    By the second proceedings (“the LawCover proceedings”) Mr and Mrs Swart seek to recover from LawCover the amount for which Mr Carr may be found liable, on the ground that in undertaking his duties in managing their investment, Mr Carr was acting in his capacity as their solicitor, so that his professional indemnity policy responds to their claim.

5    By their Amended Statement of Claim, Mr and Mrs Swart raise several causes of action against Mr Carr, in contract, tort, trust and breach of fiduciary duty. However, in his final submissions, Mr Glissan QC, who appears with Mr S. Barnes of Counsel for Mr and Mrs Swart, commendably and with the proper courage of true advocacy, relied upon only one cause of action – a claim in contract. As Mr Glissan recognised, if Mr and Mrs Swart succeeded on that cause of action, they would recover the full measure of their damages; if they failed on that cause of action, they would fail on all.

6    The claim which Mr and Mrs Swart now press is that, in breach of the contract under which Mr Carr undertook to manage their investment, he disposed of their money without taking the security which the contract required.

7    By his Defence, Mr Carr denies liability to Mr and Mrs Swart. He says that:


– in dealing with their funds as he did, he did not breach the terms of the contract pursuant to which he held the funds;

– the loss suffered by Mr and Mrs Swart was the result of dishonesty on the part of others, for which he is not responsible;

– Mr and Mrs Swart failed to take reasonable steps to mitigate their loss.


8    By a Cross Claim, Mr Carr claims a contribution from Mr and Mrs Swart to his legal costs in proceedings against a firm of solicitors in England to recover damages for misappropriation of the investment funds, which were deposited for a time in the trust account of those solicitors.

9    Mr Carr’s Cross Claim is founded upon an indemnity clause in a Joint Venture Funds Management Agreement to which Mr Swart alone is a party. Alternatively, Mr Carr says that a “contract of indemnity” is implied from the relationship between himself as trustee and Mr and Mrs Swart as beneficiaries, whereby Mr and Mrs Swart are obliged to indemnify him for the costs of endeavouring to recover the trust assets.

10    Mr and Mrs Swart deny liability for indemnity, alleging that:


– Mr Carr was not acting on their behalf in bringing the proceedings against the English solicitors;

– they were not party to a Joint Venture Funds Management Agreement containing the indemnity clause;

– if they were party to such an agreement, the action brought by Mr Carr was not within the terms of the indemnity clause;

– there is no “implied contract of indemnity” arising out of the trust relationship between Mr Carr and themselves.

11    By its Defence in the LawCover proceedings, LawCover:


– does not admit that Mr Carr committed any breach of contract;

– denies that Mr Carr, in acting as he did in relation to the investment of money by Mr and Mrs Swart, was acting in connection with the business of practising as a solicitor;

– says that if Mr Carr is liable to Mr and Mrs Swart for any wrongdoing, that liability is not within the insuring clauses of the Certificate of Insurance issued by LawCover in respect of Mr Carr.


The issues

12    The issues are:


– what did Mr Carr undertake to do on behalf of Mr and Mrs Swart;

– in dealing with their money as he did, did Mr Carr breach his contractual duty to Mr and Mrs Swart;

– if Mr Carr breached his duty, for what loss is he liable;

– if Mr Carr is liable to Mr and Mrs Swart, did he incur that liability “in connection with the business of practising as a solicitor” , so that his professional indemnity policy responds to the claim;

– can Mr Carr recover contribution from Mr and Mrs Swart for the legal costs incurred by him in unsuccessfully attempting to recover the lost funds from third parties;

– does the refusal of Mr and Mrs Swart to contribute to the legal costs incurred by Mr Carr in attempting to recover the lost funds constitute a failure to mitigate their loss.


The critical facts

13    Much of the evidence in this case is undisputed and appears from documents. A great deal of evidence given in the affidavits and in the witness box was irrelevant. The facts upon which this case must be decided are relatively few and may be stated shortly.

14    At all material times Mr Carr carried on a sole practice as a solicitor under the name “Forshaws Neill” at Sutherland, a southern suburb of Sydney.

15    Mr and Mrs Swart and their family migrated to Australia from South Africa in early January 1998 with the intention of becoming permanent residents. Mr and Mrs Swart had carried on a number of businesses in South Africa, which they had sold prior to migrating. The proceeds of sale were deposited at the ANZ Grindleys Bank in Jersey.

16    Mr Swart wished to invest the money from the sale of the South African businesses. In late January 1998, he went to see a Mr Greg Williamson, who told him about certain investment proposals which he was investigating.

17    On or about 12 February 1998, Mr Williamson gave Mr Swart a copy of a Joint Venture Funds Management Agreement which had been signed by Mr Carr. Neither Mr Swart nor Mrs Swart had ever previously met Mr Carr or had any dealings with him. Mr Swart inserted his name, but not the name of Mrs Swart, in the Agreement as an Investor, inserted the amount which he wished to invest and made some further amendments to the document.

18    Why Mr Swart, shown in evidence to be an exceptionally shrewd and calculating person in money matters, was willing to invest a large amount of money in a scheme about which he knew nothing, involving people with whom he had had no previous dealings, and with such haste, is difficult to understand but need not be investigated further because of the sole ground upon which Mr Glissan now rests his case against Mr Carr.

19    On 13 February 1998, Mr Swart instructed his bank in Jersey to transfer USD500,000 into an account of Mr Carr at the Yorkshire Bank in London. That account had been identified by Mr Carr for the purpose of receiving funds from investors pursuant to the Joint Venture Funds Management Agreement. The account was not a solicitor’s trust account and Mr Carr was not entitled at any relevant time to practise as a solicitor in England.

20    A total of USD4 million was transferred from various investors into Mr Carr’s account at the Yorkshire Bank. Most, if not all, of those investors had signed a Joint Venture Funds Management Agreement with Mr Carr.

21    Mr Carr caused to be prepared an amended version of the Joint Venture Funds Management Agreement in order to incorporate the amendments made by Mr Swart. The Agreement included the name of Mr Swart alone. Mr Swart was given that agreement and he signed it. It was dated 24 February 1998. Although Mr Carr did not sign that version of the Agreement, it is accepted that that version contains the terms of the agreement between Mr Carr and Mr Swart under which Mr Carr undertook to deal with Mr Swart’s investment: T282.33-T283.20. Several other versions of the Joint Venture Funds Management Agreement later came into existence, but they all contain the same material terms upon which the parties now rely. For the sake of convenience, and following the course adopted by the parties in this case, I will take the Joint Venture Funds Management Agreement dated 24 February 1998 as containing the relevant contractual terms between Mr Carr and Mr Swart. I will refer to that Agreement as “the JVA”.

22    The JVA provides for a number of investors to pool their funds for investment in a certain type of investment programme or scheme. The investment which had, apparently, been proposed in February 1998 did not proceed and in March Mr Carr began to look for other investment proposals.

23    In April 1998, Mr Carr returned to London where he was introduced to Mr David Adkins and Mr Charles Weaver, who controlled a company called Kelci Management Consultants Ltd. Messrs Adkins and Weaver were fraudsters. Mr Carr was also introduced to a Mr Paul Simms, senior partner of a firm of solicitors in London called Bower Cotton. Mr Simms was probably an accomplice of the fraudsters. He was later struck off the Roll of Solicitors after a finding by the Solicitors’ Disciplinary Tribunal that he had been actively involved in making, promoting or facilitating bogus transactions which lacked any honest commercial purpose.

24    Messrs Adkins and Weaver proposed an investment scheme which guaranteed extremely high profits in a short time, with no risk. Mr Carr did not understand what the scheme was but he believed them.

25    On 8 May Mr Carr executed a Limited Power of Attorney in favour of Kelci Management and Messrs Adkins and Weaver, authorising them to deal with the investors’ funds in the Yorkshire Bank account in Mr Carr’s name, upon certain terms.

26    On 13 May, Mr Carr signed an agreement with Messrs Adkins and Weaver and Kelci Management whereunder Kelci Management was to make available to Mr Carr unspecified investment opportunities (“the Management Agreement”). The Management Agreement, which was also signed by Mr Simms, provided that Mr Carr was to transfer the investors’ funds into Mr Simms’ trust account to await investment. It further provided that Mr Simms could transfer the funds out of his trust account upon a direction given by Messrs Adkins and Weaver pursuant to the Limited Power of Attorney signed by Mr Carr.

27    On 14 May, Mr Carr transferred to Mr Simms’ trust account the investors’ funds of USD4 million from his Yorkshire Bank account.

28    On 18 May, Mr Simms sent by facsimile a letter to Mr Carr advising that Messrs Adkins and Weaver intended to exercise their authority under the Limited Power of Attorney to instruct him to transfer the investors’ funds from his trust account into an account designated by them. Mr Simms requested written confirmation from Mr Carr that he could act on this direction of Messrs Adkins and Weaver.

29    On 19 May, Mr Carr confirmed his instructions to Mr Simms. Mr Simms transferred the investors’ funds of USD4 million out of his trust account and all of the money immediately disappeared, never to be recovered.

The JVA

30    The JVA has a cover sheet showing that it was prepared by Mr Carr’s firm, Forshaws Neill. It was suggested by Mr D. Pritchard of Counsel, for LawCover, in his very able and forceful argument, that the document had been put together by Mr Carr from a precedent obtained from some other investment scheme in which Mr Carr had not been a party, so that its terms ought not always to be taken literally and at face value.

31    As Mr Carr’s evidence shows, the JVA in its original form was indeed provided to him as a precedent. However, he himself spent considerable time drafting amendments and additions. While the drafting is sometimes clumsy and inconsistent, as will appear, I cannot conclude that the document in its final form did not contain the terms upon which Mr Carr intended to contract with investors. Certainly, when the document was provided to Mr Swart as the contract into which Mr Carr was prepared to enter with him, nothing was said to him by Mr Carr or by anyone on his behalf that it was not to be taken as meaning exactly what it said.

32    As Mr Glissan has so concisely put it: this is a case which, despite a great deal of peripheral evidence, turns really upon the construction and effect of the JVA.

33    The JVA commences by identifying the parties. Mr Carr appears first and is described thus:
“ MALCOLM DOUGLAS CARR of 1/768 Princes Highway, Sutherland, New South Wales, 2233, Australia, Solicitor (hereinafter referred to as ‘Managing Partner’)”

The other parties, including Mr Swart, are referred to as “Investors” . The agreement continues, in so far as is relevant, as follows:

“WHEREAS:–

(A) The Managing Partner and the Investors (hereinafter collectively referred to as ‘the Parties’) have access to the facilitators of bank guaranteed high-yield investment programs

(B) The Parties have identified a Program (Transaction Code [ ]) (sic) which requires an investment of USD4 million (Four Million United States Dollars) (hereinafter referred to as ‘the Program’).

(C) The Parties have agreed to amalgamate their respective funds with a view to qualifying for the investment requirements and to proceed with entry to the Program upon the terms and conditions set down herein.


NOW THE PARTIES HERETO AGREE AS FOLLOWS:–

1. RECITALS
The Parties hereby accept the contents and accuracy of the Recitals hereto.

2. SOLICITOR
(A) The Managing Partner shall act as Solicitor to the Parties and he shall act as paymaster within the auspices of this agreement (hereinafter referred to as ‘the Solicitor’).

(B) The function of the Managing Partner as such Solicitor shall be to:–

(a) Receive the investment funds from the Parties into the Malcolm Carr Bank Account, Yorkshire Bank, Cheapside, London United Kingdom Account No.: 44251871-500.

(b) Execute or oversee the execution of all documentation and open or oversee the opening of all bank accounts as may be necessary or expedient to enter into the Program.

(c) Receive any profits emanating from the Program and distribute same to the Parties in accordance with the terms hereof.

(d) Act upon the unanimous instructions of the Parties to discount any bank guarantees or pay orders emanating from the Program.

(e) Distribute the proceeds of any discounted profits or pay orders in the proportions in accordance with the terms herein.

(f) Implement at the cost of the Parties, pro-rata of their equity investment, any requirement to enforce the bank guarantee as to be received by way of security for the funds invested into the Program.

(g) Keep the Parties hereto thoroughly informed on a timely basis, of the documentation and progress of the Program and of the above steps.

(h) Consult with Peter Basil White in respect of the authenticity of the documentation of the trading arrangements including the bank guarantee and to that end obtain from him his certificate that in his opinion the program is covered by a bank guarantee, that the program appears to him to be genuine and sound and as to any other matter that he may consider relevant to the desirability of the transaction; and to such end the Managing Partner shall if practicable and possible procure that Peter Basil White shall accompany him into the trade.

(i) Generally the Managing Partner shall be responsible for the overall management of the investment funds, including contracting with the Program trader, and establishment of the necessary banking arrangements and accounts as may be necessary to conclude the transaction envisaged by this Agreement.

(j) The Managing Partner shall similarly be responsible to ensure payment of profits to the Investors, in accordance with the provisions of this Agreement and in accordance with the Transaction Code.

(k) The Managing Partner hereby covenants and agrees that he has no mandate to, and that he will not directly or indirectly invest or arrange to invest the investments funds into any program other than the Program and/or that he will not use the investment funds or any part thereof for any purpose whatsoever other than investment into the Program. Any consideration to invest the funds into a subsequent or alternative program shall be the subject of a separate agreement between the Parties.

(l) the Managing Partner undertakes to keep the Investors thoroughly informed at all times, or forthwith upon any request made by the Investors of any matter to do with the investment funds or the interest accrued or accruing thereon, or of any matter to do with investment in the Program.

3. INVESTMENT FUNDS
(A) The investment shall be USD4,000,000 (Four Million United States Dollars). The Investors shall invest in the following proportions: (The proportions are set out. Mr Carr does not appear as making any contribution to the fund of USD4M.)

(B) The Parties shall ensure that the investment funds are transferred to the Solicitor’s designated bank account per the instructions given by the Solicitor (but in any event, by SWIFT telegraphic transfer value dated as of the date of such transfer) within twenty-four hours of the execution of this Agreement.

4. SECURITY
The Solicitor shall ensure that the Investment funds will be transferred into the Program only upon receipt and verification of a bank safe-keeping receipt or similar bank guaranteed instrument to the value of no less than 100% (one hundred percent) of the investment funds. The Solicitor shall also be responsible to ensure that the Program profits are bank guaranteed and not payable on a ‘best efforts’ only basis.

5. PROFIT SHARE
The profits received from the Program shall have deducted from them the traders’ and/or facilitators’ fees and shall be divided between the Parties in the following proportions:
(The proportions are set out. Mr Carr is not shown as entitled to any profit share)

Net profits shall be disbursed to the Parties after deducting Trader’s and/or Facilitation Fees, bank transfer fees and/or State, County or any other Governmental charges whatsoever, and provision for payment of the Solicitor’s fees and disbursements in accordance with the provisions of Clause 8 herein. The timing sequence of payments of these funds to the investors shall be as follows: First and Second payments to Daniel Swart and Gerrol Adkins respectively and then the remaining investors in any timing sequence.

…

7. LIMITATION OF LIABILITY OF SOLICITOR AND INDEMNITY
The Parties hereby acknowledge and agree that the Solicitor is acting only in a custodial and account providing capacity. Apart from the responsibilities as set out herein, the Parties acknowledge that the Solicitor shall have no further obligations, either expressed or implied, to perform any function or initiate or conduct any action or legal proceedings, or to make any payment to any third party. Furthermore, the Parties hereby undertake pro-rata to fully indemnify, and maintain the Solicitor fully indemnified, against any action taken by any Party or any third party against the Solicitor in connection with a Program entered into under the auspices of this Agreement, or against any other cost, expense, disbursement or liability incurred by the Solicitor as a result of his carrying out the terms of this Agreement. Save only that this indemnity shall not extend to cover any misappropriation or fraudulent misconduct on behalf of the Solicitor.

8. WITHDRAWAL OF FUNDS
No Party may withdraw the whole or any part of the investment funds until the Program has been entered into and the investment funds have been exchanged for the 106% bank guarantee and in addition that the total profits have been duly disbursed as per all agreements or, in the absence of entering into any Program, until the expiration of a period of thirty days after the application documents have been duly completed and forwarded to the transacting and/or trading bank. Any Party seeking to implement a withdrawal shall give to the Solicitor, 3 clear international banking days’ notice of such intention. The Solicitor shall be entitled to deduct from such investment funds, on a pro-rata basis before transmission, a charge of 1% of the net distributed profits, representing his reasonable time charges to date incurred in the process of implementing his obligations as envisaged under the auspices of this Agreement.

…

11. PRIVATE TRANSACTION
The Parties acknowledge that this Agreement does not constitute an offer but is a private business transaction between the Managing Partner and the Investors.

…

20. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of England and Wales. The Parties hereby submit to the jurisdiction of the courts of England and Wales.”

What did Mr Carr undertake to do

34    As I have mentioned, in his final submissions, Mr Glissan QC relied upon only one duty of care undertaken by Mr Carr in the disposition of Mr Swart’s funds: that contained in Clause 4 of the JVA and pleaded in paragraph 8 of the Amended Statement of Claim.

35    Clause 4 requires Mr Carr to ensure that the funds of the investors transferred into “the Program” upon certain conditions. There was no “Program” identified in the JVA, either when Mr Swart first signed the document on 12 February 1998 or when he signed an amended version dated 24 February, after he had already deposited his money in Mr Carr’s Yorkshire Bank account. Does the failure to specify a particular “Program” mean that the terms of the JVA were not applicable to Mr Swart’s deposit of money with Mr Carr? I do not think so.

36    Mr Swart signed a version of the JVA which referred to, but did not specify, a “Program”; he nevertheless then transferred his money into Mr Carr’s account. After receiving that money, Mr Carr sent another version of the JVA for Mr Swart to sign; that version also referred to but did not specify a “Program”. Mr Swart signed that document. Clearly, Mr Swart’s money already having been received to the knowledge of Mr Carr by the time that the second document was sent and signed, it must have been the common intention of both parties that the terms of that document would govern the investment of the money which had already been sent by Mr Swart to Mr Carr, despite the fact that no particular “Program” had been specified in either of the JVAs which the parties took to represent the terms of their agreement. In those circumstances, “Program”, where referred to in the JVA, simply means “the investment into which funds deposited under this agreement are to be placed by Mr Carr”.

37    Accordingly, in authorising the disposition of Mr and Mrs Swart’s funds as he did, Mr Carr was contractually obliged to adhere to the terms of Clause 4 as to the security upon which the funds could be transferred out of his direct control for investment.

Did Mr Carr breach his duty

38    The Limited Power of Attorney which Mr Carr signed in favour of Messrs Adkins and Weaver and Kelci Management on 8 May relevantly provides:

“ To Whom It May Concern.

I the undersigned, Malcolm D. Carr, …, hereby confirm and declare with full responsibility, that I agree to give this Limited Power of Attorney …to manage and administer the placement of the funds and the placement contract to Kelci Management Consultants, Limited, Michael David Adkins … and Charles H. Weaver … fully authorising and empowering them, individually or together, by or on behalf of the undersigned to:

1) Assign and invest my funds for placement into a secured investment, provided that the said funds accepted into that placement are secured by a Guarantee or Safekeeping Receipt for one (1) year and a day, issued by a top Western European Bank rated A+ or better by Standards and Poor and/or Moodys, for One Hundred percent (100%) of the principal amount of the investment.

…

This Limited Power of Attorney is Limited to Mr Michael D. Adkins and Mr Charles H. Weaver, to arrange and/or engage in commercial and financial transactions/contracts, to cause the purchase and resale of investment grade instruments, the signing of all necessary contracts and agreements that relate to the private placement of our fund: and to make any disbursement of the earnings contracted.

Michael D. Adkins and Mr Charles H. Weaver are NOT authorised to make any withdrawals of the principal funds, except for the purposes stated above.

This Limited Power of Attorney is an operable, irrevocable instrument and will remain in full force and effect unto the end of the first investment period of One (1) year and fifteen days from the commencement of the date signed below and is renewable as per contract.”
39    The Management Agreement signed by Mr Carr on 13 May describes Mr Carr as “the Participant” , Messrs Adkins and Weaver and Kelci Management as “the Consultant” , and Mr Simms as “the Solicitor” . Clause 5 provides:
“ Participant Decision Final: Best Efforts: Participant shall be the sole judge of the matters in which it has requested to invest and by transfer of the Fund into the Solicitor account acknowledges that the decision to invest is solely the Participant’s and was acted upon without advice from Consultant or Solicitor, Participant agrees to transfer the Fund into the Solicitor’s account. Consultant shall use its best efforts to provide adequate and full information in good faith in aid of Participant’s decision, but the Consultant and Solicitor are not a guarantor of the private placement or investment opportunity or anyone’s performance thereunder. This Agreement is one for the sharing of profits if and only if a particular investment succeeds, and no compensation is payable to anyone unless an investment opportunity is consummated and profits are generated. The private placement or investment opportunity contract and/or agreement and other related documents are separate from this Agreement and proprietary. The Fund will be protected and managed by the Solicitor as stated in paragraph thirteen (13) of this Agreement.”

Clause 13 provides:

“ Authority and Duties of Solicitor: Solicitor undertakes the following responsibilities and shall provide the following services:

(a) Solicitor shall protect the Fund and make no investment or other distribution of the fund, except to Participant, unless, incident to the private placement or investment, there is a guarantee at least equal in principal amount to the funds distributed or invested (‘the Guarantee’). The Guarantee shall consist of one or more of the following: (1) medium term notes, debentures, money market debt instruments, letters of credit issued by banks and securities guaranteed by banks; (2) institutional obligations constituting senior indebtedness; (3) United States Treasury obligations; or (4) a custodial safekeeping receipt or bank warrant undertaking issued with respect to (1), (2) or (3) above. All Guarantees shall be rated ‘A+’ or better by Standard and Poor’s or Moody’s Investment Services and issued by banks or institutions organized in Western Europe or North America in acceptable format, non-callable prior to maturity. Guarantees shall be senior obligations of the issuing entity as to principal and, if applicable interest; or

(b) the Solicitor, without liability, shall transfer Fund upon direction by the designated Limited Power of Attorney or Special Director(s), if such has been appointed by the Participant; and

(c) Solicitor shall participate in an investment opportunity only upon advice and approval of the investment opportunity by Consultant. The Solicitor will act upon such with instructions from the Consultant only upon receipt of written instructions from the Consultant and conditional upon compliance with clause 13(a) or 13(b) hereof.”
40    On 18 May, Mr Simms sent by facsimile the following letter to Mr Carr:

“This is to notify you that we have received the funds from Yorkshire Bank.

Messrs Adkins and Weave wish to exercise the Limited Power of Attorney to move the funds to an account at Natwest Bank in Jersey under their control. They would then be [illegible] responsible for providing the security to you in accordance with the terms of the power of attorney, but there would be no way I could monitor this or tell you that it has happened.

As your funds are in our client account in your name and not in the name of Kelci, I am not prepared to transfer the funds without any security unless you expressly so authorise me to do so by signing and returning a copy of this fax. Adkins and Weaver say that you are well aware that they are to have complete control of the funds under the power of attorney but I wish to expressly authorise a transfer out of my account where I will have no control and hold no security on your behalf.

I look forward to hearing from you.”
41    On 19 May, Mr Simms sent by facsimile a letter to Mr Carr in the following terms:
“I have received your fax and also my fax returned with your counter signature. I have also spoken to you and you have made it clear that you are happy that the funds that were sent to my account should be sent out on the instructions of Kelci and that you were fully aware that I would have no power or control or supervision of the funds once they left our account. Accordingly, I have now received instructions to transfer the funds to National Westminster Bank Plc, 16 Library Place, St Helier, Jersey to the account of DFM Consultants Limited and I am carrying those instructions into effect.”

42    Mr Carr, who has appeared in person, says that in transferring the investors’ funds into Mr Simms’ trust account and in authorising their transfer out of the account he acted in accordance with the authority conferred upon him by the JVA. He says that he did not breach the requirements of Clause 4 of that Agreement and that the funds were lost through no fault of his own.

43    Mr Carr’s submissions, both written and oral, are difficult to follow. As I understand them, they are in essence that:


– Clause 4 of the JVA does not apply to the transfer of the investors’ funds to Mr Simms’ account and then to the account nominated by Kelci as the transaction did not constitute or implement “the Program” referred to in Clause 4;

– the Limited Power of Attorney and the 13 May Agreement required that the funds transferred into the control of Messrs Adkins and Weaver and Kelci still had to be placed into a bank account in Mr Carr’s name;

– it was the obligation of Mr Simms’ firm, Bower Cotton, under the 13 May Agreement to protect the investors’ funds;

– the terms of the Limited Power of Attorney and the 13 May Agreement did not permit Bower Cotton to transfer the funds into a bank account not in the name of Mr Carr;

– Mr Simms breached his fiduciary duty to Mr Carr in failing to warn him that the funds were being transferred in accordance with the type of investment scheme then widely known in London to be fraudulent;

– the investors’ funds have been lost through the dishonesty of others, for which Mr Carr cannot be held liable.


44    I am unable to accept any of Mr Carr’s submissions.

45    First, for the reasons I have given in paragraphs 35-37 above, the requirements of Clause 4 of the JVA apply to any disposition of the investors’ funds pursuant to the JVA whenever the funds are going out of Mr Carr’s Yorkshire Bank account into some form of investment.

46    Second, the Limited Power of Attorney does not expressly require that the investors’ funds be transferred into the control of Kelci in an account in the name of Mr Carr. Mr Carr places heavy emphasis on the words “by and on behalf of the undersigned to … assign and invest …” . He says that Kelci could only assign “by” Mr Carr if the funds were retained in Mr Carr’s name.

47    I do not understand this submission but, in any event, it is not to the point. Whatever the investment into which the investors’ funds were to be placed and by whatever means they were to be transferred, whether directly by Mr Carr or through his agents, it was nevertheless Mr Carr’s obligation under Clause 4 of the JVA to “ensure” that the funds left his control to go into an investment only in exchange for a verified “bank safekeeping receipt or similar bank guarantee instrument” . Whatever else may be included within these words, they must include a document issued by a bank, duly verified, acknowledging receipt of the funds by the bank and the terms upon which the funds are received.

48    The letters sent by Mr Simms to Mr Carr on 18 and 19 May should have made it clear to Mr Carr that the investors’ funds were going to be transferred out of Mr Simms’ trust account although Mr Simms would not receive in exchange on Mr Carr’s behalf any document of the type required by Clause 4 of the JVA. The letter of 18 May made it clear that the funds would be transferred, at the direction of Messrs Adkins and Weaver, to a Natwest Bank account in Jersey “under their control” . The letter of 19 May made it clear that the account was not in Mr Carr’s name or even in the name of Kelci.

49    As to Mr Carr’s remaining submissions, there can be no doubt that the investors’ funds were lost by reason of the fraud of Messrs Adkins and Weaver, possibly with the connivance of Mr Simms. However, Mr Carr cannot absolve himself from liability for the loss of the funds when his failure to comply with the requirements of Clause 4 permitted rogues to succeed in carrying out the very type of fraud that Clause 4 was intended to prevent.

50    I hold that in transferring and permitting the transfer of Mr Swart’s funds as he did on 14, 18 and 19 May 1998, Mr Carr breached his obligations under Clause 4 of the JVA.

For what loss is Mr Carr liable

51    The Plaintiffs in these proceedings are both Mr and Mrs Swart but, as I have pointed out, the JVA of 24 February 1998 names as a party only Mr Swart for the full amount of USD500,000 and the document is signed by Mr Swart alone. The evidence suggests that the funds invested pursuant to the JVA may well have been joint funds of Mr and Mrs Swart. However, the contractual obligation owed by Mr Carr under the JVA is owed to Mr Swart alone. There is no evidence that either at the time that Mr Carr received the money or up to the time he “invested” it in May 1998 Mr Carr entered into any contract with Mrs Swart relating to the money.

52    As I have noted, the whole of the sum of USD500,000 invested by Mr Swart under the JVA has been lost. Mr Carr is liable in damages for breach of contract in that sum and he liable to Mr Swart alone. How the proceeds of a judgment against Mr Carr are to be dealt with by Mr Swart as between himself and Mrs Swart is a matter for them.

53    As Mr Swart’s funds were placed under the management of Mr Carr for investment, it is right that the judgment amount for which Mr Carr is liable should include interest under Civil Procedure Act 2005 (NSW) s.100(1) from the date of their loss, i.e. 19 May 1998, until the date of judgment: see e.g. MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657, at 663; Haines v Bendall (1991) 172 CLR 60, at 66.

Mitigation

54    Mr Carr says that Mr Swart has failed to mitigate his loss in that he has failed to contribute to the legal costs expended by Mr Carr in attempting to recover the lost funds by way of damages claims against Bower Cotton in England.

55    Litigation is notoriously risky. Mr Carr’s claims against Bower Cotton have failed, despite an appeal to the Court of Appeal. In my view, it is not reasonable to require Mr Swart, in an attempt to mitigate his losses, to risk throwing good money after bad by undertaking the considerable expense of litigation against third parties in a foreign jurisdiction. In my view, Mr Swart was justified in confining his litigation solely to a claim against the person directly responsible for causing his loss: Mr Carr.

56    Mr Carr’s defence of mitigation fails.

Claim for contribution

57    Clause 7 of the JVA provides:
“ LIMITATION OF LIABILITY OF SOLICITOR AND INDEMNITY
The Parties hereby acknowledge and agree that the Solicitor is acting only in a custodial and account providing capacity. Apart from the responsibilities as set out herein, the Parties acknowledge that the Solicitor shall have no further obligations, either expressed or implied, to perform any function or initiate or conduct any action or legal proceedings, or to make any payment to any third party. Furthermore, the Parties hereby undertake pro-rata to fully indemnify, and maintain the Solicitor fully indemnified, against any action taken by any Party or any third party against the Solicitor in connection with a Program entered into under the auspices of this Agreement, or against any other cost, expense, disbursement or liability incurred by the Solicitor as a result of his carrying out the terms of this Agreement. Save only that this indemnity shall not extend to cover any misappropriation or fraudulent misconduct on behalf of the Solicitor.”

58    Mr Carr claims from Mr Swart pro rata contribution to the costs and expenses incurred by him in unsuccessfully prosecuting claims against Bower Cotton in the Courts of England. However, under Clause 7 of the JVA, Mr Carr had no obligation “to conduct any action or legal proceeding” except as provided in Clause 2. Nothing in Clause 2 obliged Mr Carr to prosecute legal proceedings against third parties for the recovery of damages resulting from loss of the invested funds. In prosecuting the English proceedings, therefore, Mr Carr did not incur costs and expenses “as a result of his carrying out the terms of the Agreement” for the purposes of Clause 7 of the JVA so that Mr Swart has no obligation under that clause to contribute to such costs.

59    Additionally, Mr Carr says that, as a trustee for Mr Swart’s investment, he is entitled to indemnity from Mr Swart for the costs of litigating to recover the trust fund. I am not able to accept this submission.

60    It may be accepted that Mr Carr was a trustee for Mr Swart of Mr Swart’s funds. As a matter of trust law, a trustee is entitled to indemnity, whether out of the trust fund or, in certain circumstances, against the settlor or a beneficiary of the trust, in respect of liabilities incurred in the administration of the trust: Ford & Lee Principles of the Law of Trusts , para 14030, p 14,2053. However, that indemnity is subject to the provisions of the trust instrument. Here, the trust instrument, namely the JVA, is inconsistent with the indemnity claimed by Mr Carr as trustee under general trust law. It provides that Mr Carr, in whatever capacity, is entitled to indemnity only in certain circumstances, none of which are applicable to Mr Swart.

61    For these reasons, Mr Carr’s claim to indemnity as a trustee fails.

Did Mr Carr incur liability “as a solicitor”

62    Under the Certificate of Insurance current in respect of Mr Carr at the relevant time (“the Policy”), LawCover is required to indemnify Mr Carr against amounts payable by him to claimants (including costs) arising from a claim in respect of any description of civil liability incurred in connection with “the Practice”. “The Practice” is defined to mean :
“… the business of practising as a solicitor undertaken by [Mr Carr] …
[i] Including acting as Trustee, Executor, Attorney-under Power, Tax Agent, Company Director (but only if Company Directors’ Liability cover has been accepted by the Insurer as specified in the Schedule), Secretary, Public Officer, Public Notary, or any activity declared by the Council of the Law Society of New South Wales to be appropriate to be undertaken as part of a solicitor’s practice, which declaration of the Council of the Law Society of New South Wales shall be binding on the Insurer, provided that any fees or other income which accrue from any activities described above inure to the benefit of the Firm or Incorporated Practice or Sole Practice of which [Mr Carr] is or was a member.”

Clause 5[b][ii] of the Policy excludes liability “arising from a contract other than a contract to provide services within the definition of ‘the Practice’” . Clause 5(b)(vii) excludes liability in connection with a practice conducted wholly outside New South Wales or the Australian Capital Territory.

63    LawCover submits that the Policy does not respond to any liability which Mr Carr may have to Mr Swart because:


– such liability does not arise in connection with the business of practising as a solicitor undertaken by Mr Carr;

– such liability arises from a contract other than a contract to provide services within the definition of “the Practice” ;

– such liability arises in connection with a practice conducted wholly outside New South Wales or the Australian Capital Territory.

64    In amplification of these submissions, Mr Pritchard says:


– Mr Carr’s actions, considered as a whole, were carried out as a businessman rather than as a solicitor, and as an entrepreneur rather than as a legal professional;

– because the investment under the JVA was a “one-off transaction” it was not part of Mr Carr’s continuous stream of activities as a solicitor and therefore cannot be part of the “business of practising as a solicitor” undertaken by Mr Carr.

65    Mr Pritchard points to the following circumstances as indicating that there was no client/relationship between Mr Carr and Mr Swart:


– Mr Carr says that he never regarded himself as acting as the solicitor for Mr and Mrs Swart;

– at all times since a claim against him was foreshadowed, Mr Carr has denied that he was acting as solicitor for Mr and Mrs Swart;

– Mr Carr was involved in promoting the investment scheme set out in the JVA and in seeking out investments for that scheme;

– there was no indication that profits derived by Mr Carr from his participation in the scheme as an investor of $200,000 of his own money were intended to form part of the income of his solicitor’s practice;

– prior to signing the JVA, Mr Williamson described Mr Carr as “his associate” and told Mr Swart that Mr Carr would be making an undisclosed profit;

– Mr Carr did not have a practising certificate entitling him to practise as a solicitor in England;

– Mr Carr had never previously been involved in any similar type of transaction, either professionally or personally;

– Mr Carr’s practice as a solicitor was a small-scale suburban practice, focusing mainly upon criminal and personal injury work;

– Mr Carr did not issue a disclosure and fee agreement to Mr and Mrs Swart;

– Mr Carr did not create a controlled money account to receive the investors’ funds, as would have been required by the Legal Profession Regulations 1994 (NSW);

– Mr Carr did not open a client file for Mr and Mrs Swart nor did he make any records of time or disbursements;

– Mr Carr kept no file notes of his dealings with Mr and Mrs Swart and issued no memorandum of fees as a solicitor prior to the loss of the investors’ funds;

– the Yorkshire Bank account in Mr Carr’s name was not designated as a solicitor’s trust account and the other signatories on that account were not solicitors;

– Mr Carr did not have meetings with Mr and Mrs Swart in their office, but attended meetings with other investors at a city hotel;

– Mr Carr retained English lawyers to act in respect of the transaction with Messrs Adkins and Weaver and Kelci Management;

– the transaction with the investors’ funds was carried out outside Australia and the funds of Mr Swart which were used were transferred from his account in Jersey to Mr Carr’s account in London;

– the JVA did not provide for Mr Carr to do any legal work for Mr Swart;

– Mr Carr did not provide any legal advice to Mr Swart;

– the description of Mr Carr as “solicitor” in the JVA is only a definition referring to Mr Carr;

– Clause 8 of the JVA indicates that Mr Carr is not to do the work of a solicitor;

– Clause 11 of the JVA indicates that the relationship between Mr Swart and Mr Carr is a private business relationship and not the relationship of solicitor and client;

– Clause 20 indicates that whatever services were to be performed by Mr Carr under the JVA were not to be performed in New South Wales or the Australian Capital Territory.


When is a solicitor not a solicitor

66    The dividing line between a solicitor acting in his or her capacity as a solicitor and a solicitor dealing in some other capacity is sometimes difficult to discern, as many decisions of the Courts attest. The difficulty almost never arises when the solicitor is engaged in contentious business before Courts or Tribunals because that is work immediately recognised as within the exclusive province of lawyers. The difficulty arises in non-contentious work, particularly work of a type which does not necessarily require legal training to perform.

67    With or without justification, lawyers have long been regarded as people not only knowledgeable in the ways of the law but wise also in the ways of the world. Their advice and engagement have been sought in all manner of activities in which worldly wisdom is seen as an advantage. Chaucer’s “Sergeant of the Law” is, by specialisation, a “purchasour” , i.e. a conveyancer, but the words first used to describe him generally are “wys” and “discreet” , and only later is his “science” , i.e. technical knowledge, referred to.

68    Solicitors as such are a comparatively recent breed of lawyer. Attorneys were allowed to represent litigants in courts of law by the Statute of Merton in 1235. But “solicitors” first appeared in the 15th Century in business arising in and supervised by the Equity Courts and even then their function was more in the nature of business agents than lawyers. Because of their experience in non-litigious business they were widely employed in business in which a knowledge and experience of the law might be useful: see generally E.B.V. Christian “A Short History of Solicitors” (1896) pp 70-110; Holdsworth “A History of English Law” Vol VI, pp 448-457; J.H. Baker “The Legal Profession and the Common Law” (1986) p 125ff.

69    So, for example, solicitors have been engaged as stewards of manors: see e.g. Rawes v Rawes (1836) 7 Sim 624 [5 LJ(NS)]; Hughes v Mayre (1789) 3 TR 275 [100 ER 572]; Allen v Aldridge (1843-44) 5 Beav 401 [49 ER 633]. No doubt this was because of their familiarity with matters pertaining to leases and other contracts as well as with matters of financial management generally.

70    So, also, solicitors were frequently engaged as “parliamentary agents” – “lobbyists” in today’s parlance – to promote a Bill through Parliament: see e.g. In re Sudlow and Kingdom (1849) 11 Beav 400 [50 ER 871]; In re Baker, Lees & Co [1903] 1 KB 189. Likewise, they were retained as “election agents” , i.e., to organise the election campaigns of candidates for Parliament, to canvass for votes and conduct voters to polling booths: see e.g. In re Osborne (1858) 25 Beav 353 [53 ER 671]; In re Oliver (1867) 36 L.J.(Ch) 261.

71    More pertinently, solicitors have for a long time advised clients on investments generally, as well as transacting the legal business for placing clients’ money into investments chosen by the clients. In Dooby v Watson (1888) 39 Ch D 178, at 182-3, Kekewich J gave a useful description of the scope of work done by solicitors in relation to investment:
“I apprehend, then, that the cases in which a solicitor acts in his proper character may be divided into three classes, all of common occurrence. In the first case a solicitor receives a certain sum of money in order to invest it in a particular mortgage. His client, either on his own selection, or on the advice of the solicitor, has determined to invest a particular sum on a particular mortgage, and all the solicitor does is the legal business, receiving the money and seeing, when the proper time arrives, that the deeds are executed and the money handed over to the mortgagor. His duty in that case is simple but important, and large sums very often pass in that way. In the second case the solicitor receives money in order that he may himself find mortgages to be approved by the client. He retains the money in the meantime. He from time to time reports to his client what mortgages he has found. I use the word ‘mortgages’ only, but of course it is applicable to other investments. He does whatever business is necessary - advises his client as to the precautions to be taken, and ultimately sees the money handed over either as a whole or in parts to the mortgagee or mortgagees. Beyond that there is a third case, equally common but distinct from the others, where the solicitor does far more than he does even in the second class - that is to say where the client, for some reason, takes little part, perhaps no part at all, in the investment. He may be abroad, as one of the cases cited here shews, the solicitor acting under a power of attorney. All the client then requires is to know that the money has been invested, and that the interest will be payable and be paid. In that case the solicitor has an onerous duty to perform, because, beyond providing the mortgages, beyond doing the mere legal business, he really undertakes the responsibility to his client of seeing that they are good mortgages, on which the money may be safely invested. That is within the ordinary duty of solicitors according to the practice of the profession, and is a more onerous duty, and one which some solicitors, I believe, decline to take.”
72    So wide was the range of affairs upon which solicitors were consulted that, by 1896, it could be said:
“The first duty [of a solicitor] is to advise his clients upon all questions of law or business on which he may be consulted, instilling some worldly wisdom into the simple, and stimulating the lethargic consciences of the children of the world; to prepare some classes of commercial contracts; and generally to keep his clients out of trouble, so far as he can, and get them out of it as cheaply as possible when they incur the consequence of disregarding his counsels.” :
“A Short History of Solicitors” E.B.V. Christian (1896).

What was true as a general observation in 1896 was equally true as a general observation in 1997: see the remarks of Lockhart J in Solicitors’ Liability Committee v Gray & Winter (1997) 77 FCR 1, at 14F ff.


73    There have been very many cases which have considered the question whether a person is “acting as a solicitor”. Those which are concerned with whether an unqualified person has acted as a solicitor contrary to a statutory prohibition are of no real assistance in the present case as the question usually posed in such cases is whether the person has done something that only a solicitor having a current practising certificate can do, or usually does: see e.g. Piper Double Glazing Ltd v DC Contracts (1992) Ltd [1994] 1 All ER 177; cf. Cornall v Nagle [1995] 2 VR 188.

74    Of much greater assistance for present purposes are the solicitors’ taxation of costs cases, i.e., those cases in which a qualified solicitor has been retained to provide services and the question is: has the solicitor been retained in his capacity as solicitor, so that his fees are to be taxed as a solicitor’s bill of costs, or has he been retained in some other capacity so that his remuneration is not subject to taxation.

75    A useful starting point is Allen v Aldridge (supra). One William Ward was employed as the steward of the manor of Cookham. He was also a practising solicitor. He rendered a bill for his fees as a steward. The parties to the proceedings claimed that the fees were excessive and petitioned the Chancery Court that his bill of fees might be taxed under the statute regulating solicitors’ fees.

76    Lord Langdale MR said, at pp 405-406:

“The question is, whether the charges of the steward of a manor who happens to be a solicitor, but was not employed as such , and who acted only as steward of the manor on the occasion in question, are taxable under the statute, and I am of opinion, that they are not.

The statute does not authorise the taxation of every pecuniary demand or bill which may be made or delivered by a person who is a solicitor, for every species of employment in which he may happen to be engaged.

The business contained in a taxable bill may be business of which no part was transacted in any Court of law or Equity; but I am of opinion that it must be business connected with the profession of an attorney or solicitor – business in which the attorney or solicitor was employed, because he was an attorney or solicitor, or in which he would not have been employed, if he had not been an attorney or solicitor, or if the relation of attorney or solicitor and client had not subsisted between him and his employer .

It may perhaps, on some occasions, be questionable, whether the business contained in a solicitor’s bill be or be not such as to make the bill taxable under the Act; but in the present case I do not see any reason to doubt. The relation of solicitor and client did not subsist between Mr. Ward and the Petitioners, or any of them, or between Mr. Ward and any other person in relation to this matter. He was not employed by the Petitioners because he was a solicitor, but because he was steward of the manor, and he might have been steward of the manor, without being a solicitor . His bill is not as to any part of it a solicitor’s bill; it is the bill of charges claimed to be payable to the steward of a manor, and nothing else; and I am of opinion that the statute gives me no jurisdiction over it.” (Emphasis added)

77    An instructive contrasting case is In re Osborne (supra). There, three candidates for election to Parliament wrote to a firm of solicitors and engaged them as electioneering agents. The solicitors accepted the retainer and thereafter performed it by attending at the committee rooms for meetings as well as canvassing for votes, acting as booth agents, and bringing in voters to vote. They rendered a memorandum of fees for their services which the candidates then sought to have taxed as a solicitor’s bill. The solicitors said that their services had been retained, not as solicitors, but as electioneering agents so that the bill was not taxable.

78    Sir John Romilly MR, holding that the bill was taxable as a solicitor’s bill, referred with approval to Allen v Aldridge and said at p.359:
“A solicitor may have a legal claim against another person, but it by no means follows that it is in respect to his character of solicitor; there must be established between them, in respect to the business done, the relation of solicitor and client. In the present case there is no question that Messrs. King, Blakemore and Hanbury did employ Edwards & Osborne to act for them in the matter of the county election, in respect of which these two bills were sent in. Therefore, the employment is established. The question is, in what character were they employed? Mr Giffard argued that they were to be considered as acting as mere electioneering agents, in the ordinary way, and not in the character of solicitors. I cannot so treat it. It is not clear that any other person than a solicitor could have performed the duties which the candidates to represent the county required to be performed . These duties required the attendance of these gentlemen at the committee rooms, to see, amongst other things, that nothing should be done contrary to law, or which would infringe any of the provisions in the numerous statues relative to elections; to secure that everything should be done in a legal and proper manner, and to detect the defects of the opposite party. It was therefore necessary for Messrs. Edwards & Osborne to exercise their legal knowledge in the best manner they could for the gentlemen by whom they were employed. I do not, therefore, consider that this was an employment in the same manner as ordinary unprofessional agents, but I think that they were bound to give legal advice and assistance, and which I have no doubt they did. … I cannot consider this otherwise than as an employment in the character of solicitors, and the fact that they acted as agents in other matters does not make their claim less a claim in their character of solicitors .” (Emphasis added)

79    It will be seen that In re Osborne there was an express contract made between the parties. It was made by a letter addressed to the firm of solicitors and the work to be performed included, but was by no means limited to, work which required legal knowledge. Because the contract was with the firm and required legal knowledge, it was held that the work was carried out by the solicitors in their capacity as solicitors, even though much of the work could have been done by a non-lawyer.

80    On the other hand, in Allen v Aldridge , as Lord Langdale said, the steward happened to be a solicitor “but was not employed as such” and as far as the work done was concerned “he might have been a steward of the manor without being a solicitor” , i.e., all of the work done could have been done by a non-lawyer. To the same effect is the reasoning of the Court of Appeal in Re Baker, Lees & Co (supra).

81    The factual distinction between Allen v Aldridge and In re Osborne , as I have explained it, was the foundation of the decision in In re Oliver (supra). Mr Oliver, a solicitor, was employed by the solicitors of a candidate for election to act as electioneering sub-agent. He sent in a bill claiming to have acted in his capacity as a solicitor and charging a higher rate of remuneration than could have been allowed had he been acting merely as an electioneering agent. Lord Romilly MR held that Mr Oliver had not been acting in his capacity as a solicitor. At p 261 his Lordship said:

“The difference between this case and the case of In re Osborne is considerable. In the first place, in the case of In re Osborne , no other person seems to have been employed as solicitor or attorney than Osborne and his partner, and they were expressly retained for the purpose . In the second place, a letter was written to request the solicitor’s firm to accept a retainer for their professional services, which does not exist here, and expressly stating that it was to be for their professional services. In the third place, the duties which were done in the present case do not appear to me to have required any professional knowledge of an attorney or the like, but could be performed perfectly by persons who are called lay persons , and accordingly an auctioneer was one of the persons employed.”
(Emphasis added)

82    I come now to a case much relied upon by both parties, Solicitors’ Liability Committee v Gray (supra). There, the question was whether the activities of certain solicitors in carrying on a business of syndicating purchases of commercial property in order to achieve tax advantages for the participants to the scheme fell within the scope of “the private practice of a solicitor” within the firm’s professional indemnity policy.

83    The following are, in my view, the critical facts of Gray :


– the claimants against the solicitors entered into a contract with the solicitors under which the claimants acquired from the solicitors the right to purchase certain real property for a lump sum;

– the claimants did not enter into any contract with the solicitors whereby the solicitors were to provide any services at all, let alone services which could only be performed by a legally qualified person or which were customarily performed by solicitors;

– the solicitors gave no tax, or any other technical or legal, advice to the claimants;

– different solicitors advised the claimants on the conveyances involved and did the conveyancing work;

– the claimants claimed against the solicitors for misrepresentation inducing them to purchase the real property and for failing to disclose matters material to their decision to purchase the property;

– the misrepresentations and failure to disclose concerned only the commercial viability of the scheme.


84    Having regard to these facts, it is not at all surprising that the Court found that the solicitors were engaged in entrepreneurial activity having no real nexus with the practice of a solicitor, as defined in the policy, so that the policy did not respond: see e.g. pp 48D-49D.

85    From a consideration of these cases, I deduce the following propositions:


i) the capacity in which a solicitor has been acting is always a question of fact depending upon the particular circumstances of the case;

ii) one of the relevant circumstances is the antecedent relationship between the solicitor and the other party, if any, particularly if there is a history of an acknowledged solicitor/client relationship;

iii) a critical circumstance indicating that a solicitor has been acting in his or her capacity as a solicitor is that:

– the solicitor has been acting pursuant to a contract, express or implied, under which the solicitor is to provide services; and

– the services to be provided under the contract include at least some services which require legal knowledge to perform;

iv) a material circumstance reinforcing (iii) is that there is an acknowledgement, express or implied, between the parties that the contract of engagement has been entered into wholly or partly because the provider of the services is a solicitor;

v) if a contract which qualifies under (iii) also requires services to be performed by the solicitor for which legal knowledge is not necessary but which are customarily performed by solicitors, those services too will be performed in the capacity of solicitor.

vi) if a contract with a solicitor for services requires the performance of duties which:

– require no legal knowledge to perform; and

– are not within the range of services customarily provided by solicitors,

it would be unlikely that the solicitor has been engaged in his or capacity as a solicitor.


Capacity in which Mr Carr was retained

86    The JVA is, clearly, a contract whereunder Mr Carr agrees to perform services for Mr Swart: Clauses 2 (A) , 2 (B) , 4.

87    Some of the services to be provided by Mr Carr require legal knowledge:


– acting “as Solicitor to the Parties” : Clause 2 (A) ;

– implementing the enforcement of a bank guarantee: Clause 2 (B) (f).


88    All of the other services to be provided by Mr Carr under the JVA are within the scope of services customarily provided by solicitors who advise clients on investments generally and select and manage those investments for the clients: Dooby v Watson (supra); Clauses 2 (B) , 4.

89    In the JVA Mr Carr expressly proffers his services “as solicitor” and thereby, at the very least, acknowledges that his professional capacity is material to his engagement: see the references to “Solicitor” in Clauses 2 (A) , 2 (B) , 4, 7 and 8.

90    All of the above factors point strongly to the conclusion that Mr Carr was engaged to perform the services required of him under the JVA in his capacity as a solicitor.

91    I now turn to Mr Pritchard’s submissions that I should hold that Mr Carr did not act as a solicitor for the purposes of the Policy.

92    Mr Pritchard says that Mr Carr’s actions, considered as a whole, were those of a entrepreneur not a solicitor: what Mr Carr did in organising investors to contribute pooled funds, in finding an investment, and in transferring funds into that investment could have been done by someone who was not a lawyer.

93    The point, however, is that Mr Carr contracted with Mr Swart that in doing what he was required to do under the JVA he would act “as Solicitor” for Mr Swart. Mr Pritchard says that “Solicitor” is merely a definition which refers to Mr Carr. That construction could work in some clauses but not in the critical clauses. Substituting “Mr Carr” for “Solicitor” in Clause 2(A) makes no sense: how can Mr Carr promise to act “as Mr Carr to the parties” . Similarly, how can one sensibly read Clause 2 (B) as meaning “the function of [Mr Carr] as such Mr Carr shall be to …” ? In truth, the only definition in the JVA which refers to, and is interchangeable with, Mr Carr is “Managing Partner” , as Mr Carr is described at the very commencement of the JVA. Making the necessary substitution, it makes perfect sense to read Clause 2 (A) as “Mr Carr shall act as solicitor to the parties …” and to read Clause 2 (B) as “the function of Mr Carr as such solicitor shall be …” .

94    Further, in promising in Clause 2 (B) that he would act “as such Solicitor” , Mr Carr undertook duties such as are designed to safeguard Mr Swart’s interests in a manner consistent with the prudence which a solicitor would advise a client to adopt. Mr Carr did not simply organise the investment and leave it to Mr Swart to get his own legal advice as to how the investment could be prudently administered and supervised, as an entrepreneur might have done.

95    The statement in Clause 7 of the JVA that “the Solicitor” is acting only in a “custodial and account providing capacity” cannot stand alone and out of context. The very next sentence in the clause refers to Mr Carr’s “responsibilities as set out herein” and the responsibilities specified in Clause 2 go far beyond mere custodial duties.

96    Mr Pritchard says that the JVA was a “one-off transaction” and, therefore, not part of Mr Carr’s continuous stream of activity, so that it could not be part of “the business of practising as a solicitor” .

97    I do not think that this circumstance, if true, is to the point. One might just as well say that the first conveyance undertaken by a neophyte solicitor is not within the cover of the Policy because the solicitor has not already established his or her business as a conveyancer.

98    “The Practice” is defined in the Policy not as “the insured’s practice as a solicitor” so that one identifies the scope of cover by examining the types of professional matters actually conducted by the assured in the course of his or her practice at any particular time. The definition is generic. The words “the business of practising as a solicitor” mean “the type of practice carried on by a solicitor as a business”, so that indemnity is given in respect of a claim incurred in connection with a practice carried on as a business by an assured which is a practice of the type carried on by a solicitor.

99    As I have held, the finding and implementing of investments is within the type of practice carried on by solicitors. Mr Carr carried on his practice as a solicitor as a business. It does not matter whether, in the course of Mr Carr’s particular practice he had previously, on behalf of clients, selected and implemented investments generally or this type of investment in particular.

100    If Mr Carr incurred his liability to Mr Swart in connection with his practice as a solicitor, the exclusion provided in Clause 5(b)(vii) of the Policy cannot apply since it is clear that Mr Carr conducted his practice as a solicitor at Sutherland in Sydney.

101    I will now deal with the points made by Mr Pritchard and set out in paragraph 65 to the extent that those points have not already been discussed.

102    It is of no consequence whether Mr Carr correctly understood the implications of the JVA which he had drafted or regarded himself as acting as solicitor for Mr Swart, if indeed he gave any thought to that matter until a claim against him had been made. The point is that the capacity in which Mr Carr dealt with Mr Swart was spelt out in the contract between them.

103    Mr Pritchard lays heavy emphasis on the fact that Mr Carr was himself an investor in the scheme. He says that this fact indicates that Mr Carr was acting in the capacity of entrepreneur. However, the JVA does not refer to Mr Carr as an investor at all and Mr Swart says that he was not aware at the time that he entered into the JVA that Mr Carr was himself going to be an investor. In any event, whether or not Mr Carr was also an investor does not detract from the terms upon which he engaged to provide services for Mr Swart in the JVA.

104    It is of no consequence that Mr Carr did not issue a fee disclosure and fee agreement to Mr Swart, or open a controlled money account as required under the Legal Profession Regulation , or open a client file or keep file notes or have conferences with Mr Swart in his office, or issue a memorandum of fees at any particular time. If Mr Carr contracted to provide services as a solicitor it was a matter for him as to how he provided those services. It was a matter for him as to whether, in providing those services, he complied with the requirements of the Legal Profession Regulation and with good solicitors’ practice. If he did neither, he could be guilty of professional misconduct and of professional negligence, but that circumstance would not mean that the capacity in which he had engaged was changed from a professional capacity to a non-professional capacity.

105    It is of no consequence that the transaction of the investment under the JVA was to be carried out outside Australia and with the assistance of English solicitors. Solicitors in Australia frequently advise on and effect transactions outside Australia with the assistance of foreign lawyers.

106    Clause 8 of the JVA does not indicate that Mr Carr is not to do the work of a solicitor. All that it says is that Mr Carr is entitled to deduct from funds under his control an agreed fee “representing his reasonable time charges to date” in performing his duties under the JVA. If anything, that provision supports the conclusion that Mr Carr was being remunerated for services as a solicitor under the JVA and for his time and efforts as such rather than being given a share of profits as an entrepreneur or investor.

107    Clause 11 does not exclude the relationship of solicitor and client between Mr Carr and Mr Swart. Clearly, the clause is intended to remove the investment scheme from classification as an offer to the public for the purpose of the prospectus requirements of whichever regime regulating corporations might be applicable. Further, the words “a private business transaction” are not inapt to describe the relationship between a solicitor and a client, particularly when the solicitor is investing the client’s money on the client’s behalf.

108    Clause 20, which provides that the proper law of the JVA is that of England and Wales, governs only the construction and enforcement of the JVA. It does not specify where the contract is to be performed: it does not prevent Mr Carr from performing the services required of him under the JVA in New South Wales in his capacity as a solicitor carrying on practice here.

109    For these reasons, I conclude that:


– in performing services for Mr Swart under the JVA, Mr Carr was acting in his capacity as a solicitor;

– Mr Carr’s liability to Mr Swart for breach of Clause 4 of the JVA is a liability incurred in connection with the business of practising as a solicitor which Mr Carr was undertaking;

– the Policy responds to the claim by Mr Swart against Mr Carr.


Orders

110    The orders which I propose to make are as follows.

111    In proceedings 3022 of 2003:


(1) judgment for the First Plaintiff against the Defendant in the sum of USD500,000 together with interest on that sum under s.100(1) Civil Procedure Act from 19 May 1998 until the date of judgment;

(2) judgment for the Cross Defendants on the Cross Claim.

112    In proceedings 1395 of 2004:

(1) declaration that LawCover is liable to indemnify Mr Carr in respect of the order in paragraph (1) of the orders to be made in proceedings 3022 of 2003 and in respect of any costs order made against him in those proceedings.


113    The parties will need to calculate the amount of the judgment debt to be entered against Mr Carr. Some further consideration of the orders to be made may be necessary.

114    I will stand the proceedings over to enable Short Minutes of Order to be prepared and brought in. I will then hear argument as to costs.

– oOo –