Watkins v De Varda
[2003] NSWCA 242
•12 September 2003
NEW SOUTH WALES COURT OF APPEAL
CITATION: Watkins & 6 Ors T/as Watkins Tapsell v De Varda [2003] NSWCA 242
FILE NUMBER(S):
40034/03
HEARING DATE(S): 05/08/03
JUDGMENT DATE: 12/09/2003
PARTIES:
Bert Watkins
Kieran Tapsell
David Francis
Matthew Coates
Greg Watkins
Peter Rusbourne
Andrew Hartcher
T/as Watkins Tapsell (Appellants)
Joseph de Varda (Respondent)
JUDGMENT OF: Sheller JA Ipp JA Foster AJA
LOWER COURT JURISDICTION: Supreme Court
LOWER COURT FILE NUMBER(S): SC 20246/99
LOWER COURT JUDICIAL OFFICER: Davies AJ
COUNSEL:
M Pembroke SC/L Menzies (Appellants)
In Person (Respondent)
SOLICITORS:
Ebsworth v Ebsworth (Appellants)
In Person (Respondent)
CATCHWORDS:
PROFESSIONAL NEGLIGENCE - Duty of care of solicitor in absence of retainer - Purported disclaimer of responsibility - Whether solicitor merely performing limited task of reproducing an earlier document - Reliance of respondent on solicitor - Conflict of interests - Failure to advise respondent that solicitor could not protect respondent's interests and to obtain independent legal advice - Misrepresentation constituting a breach of Fair Trading Act, s 42 - Whether respondent contributorily negligent by not obtaining independent legal advice. D
LEGISLATION CITED:
Fair Trading Act 1987, s 42
DECISION:
Appeal dismissed with costs.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40034/03
SC 20246/99SHELLER JA
IPP JA
FOSTER AJAFriday 12 September 2003
BERT WATKINS & 6 ORS T/AS WATKINS TAPSELL V JOSEPH de VARDA
FACTS
In 1997, the respondent agreed to acquire half of Mr Foch’s interest in a Cambodian property for US$195,000. The appellant, through Mr Coates, was Foch’s solicitor. Foch’s interest in the property was contained in an agreement between himself (described as the “Owner”) and two Cambodian residents, Mr and Mrs Sum (described as “the Agent”). The agreement did not provide for the sale of the Cambodian property, as only Cambodian residents can own land in Cambodia. The main purpose of the agreement was to provide that Mr and Mrs Sum would hold the property on Foch’s behalf as agents.
Foch informed the respondent that Coates had the title deeds in his office and could prepare the necessary legal documents to transfer the 50% interest in the Cambodian property. Foch sent the respondent a letter stating that Coates had informed him that it was unnecessary for the respondent to appoint another solicitor, as Coates could act for them both. The respondent, Coates and Foch met on 19 January 1998. According to Coates, he informed the respondent that he was acting for Foch, that he had no knowledge of Cambodian law and that he was merely reproducing documents as requested by Foch. According to the respondent, Coates informed him that he was acting for both Foch and the respondent.
Mr Coates drew up two so-called agreements on 19 January 1998. Foch signed one, and the respondent signed the other. The respondent then delivered to Foch the US$195,000 by way of gold bullion and cash. On 22 January 1998, the respondent agreed to acquire Foch’s remaining 50% interest in the Cambodian property. On 23 January 1998, Coates drew a further agreement, which the respondent (but not Foch) signed. The respondent delivered a further US$195,000 by way of gold bullion and cash to Foch.
None of the agreements drawn by Coates was effective. Foch was unable to repay any part of the $390,000 gold bullion and cash that the respondent had given him. The Cambodian owners of the property denied that the respondent or Foch had any rights to the property. The respondent sued the appellants claiming that an express retainer existed between the appellant and himself.
At trial, Davies AJ rejected this contention, but upheld the respondent’s alternative argument that the appellant owed the respondent a duty of care in the absence of a retainer, which it had breached. His Honour also held that Coates was guilty of misleading conduct pursuant to s 42 of the Fair Trading Act 1987. Judgment was awarded in favour of the respondent in the sum of $872,081. The appellants appeal his Honours findings. In the course of the appeal, the appellants sought to add two additional grounds of appeal.
HELD
Additional Grounds of Appeal
The appellant is permitted to add the first additional ground of appeal; that his Honour erred in holding that a genuine transfer of gold bullion and cash occurred. The respondent received ample notice of the appellant’s intention of making the amendment and would suffer no prejudice.
The appellant is not entitled to add the second additional ground of appeal; that there was no evidence or finding supporting the establishment of causation. The issue was not raised at trial and there existed evidence and findings based on the evidence that the appellant’s breaches of duty were causative of the respondent’s loss.
Duty of Care
The appellant owed the respondent a duty of care:
a. The mere absence of a retainer does not mean that the appellant could not owe the respondent a duty of care: Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1. The respondent had established and identified factors of significance, in addition to the foreseeability of harm, which gave rise to a duty of care in the absence of a retainer.
b. The contractual limitations that defined the legal relationship between the appellant and Foch did not exclude or restrict the scope of any duty that was owed by the appellant to the respondent.
c. The purported disclaimer of responsibility by Coates, that he was not an expert in Cambodian law and was unable to advise the respondent whether the prepared document would effectively transfer the rights in the property under Cambodian law, was not effective and did not exculpate Coates. One did not need to be an expert in Cambodian law to realise that the documents prepared by Coates did not and could not effectively transfer rights to the Cambodian property.
d. Coates was not merely performing a limited task, namely, reproducing an “earlier document”. His task was not simple or so limited. In any event, the documents prepared by Coates did not reproduce the original agreement.
e. The respondent’s reliance on Coates was reasonable and foreseeable.
Breach of duty of care
The appellant breached its duty of care. While the respondent was not contractually a client of the appellant, Coates knew that the respondent was relying on him to proceed in accordance with the respondent’s interests. Once that situation arose, Coates was in a position of conflict. He did nothing to alleviate that position. The remarks of Davies AJA in Alexander v Perpetual Trustees WA Limited [2001] NSWCA 240 are endorsed. Coates should have expressly said that he could not protect the respondent’s interests and the respondent should obtain independent legal advice: Waimond Pty limited v Byrne (1989) 18 NSWLR 642 at 643.
Breach of s 42 of the Fair Trading Act
His Honour did not err in finding that there was a misrepresentation by the appellant constituting a breach of s 42 of the Fair Trading Act.
Purported subsidiary errors
Dean v Allin and Watts [2001] 2 Lloyds Rep 249 at 257 does not apply, as Coates went further than the mere drafting and presentation of documents.
Yorke v Lucas (1985) 158 CLR 661 does not apply, as this is not a case where a person, Coates, simply passed on information, disclaiming any belief in its truth or falsity. Rather, Coates prepared the documents and passed them over as having a quality which they did not possess, namely as documents on the faith of which the respondent should pay the purchase price of the property he sought to purchase.
The trial judge did not err in his factual findings.
The trial judge did not err in holding that the documents signed on 19 and 23 January 1998 were of no legal effect whatsoever. Even were a constructive trust able to be proved after difficult and unpredictable litigation, this is not to the point as the documents were hopelessly drawn and of no practical assistance to the respondent.
His Honour’s statement that the conduct of Coates “bordered on the dishonest” was inappropriate and the evidence did not justify it. However, the error had no effect on his Honour’s conclusion.
Contributory Negligence
The respondent was not guilty of contributory negligence. The respondent was not negligent in not obtaining independent legal advice when the solicitor he trusted, Coates, did not advise him to do so. He was not negligent in acting on the faith of the documents prepared by Coates when the documents were prepared for that purpose.
The genuineness of the transaction
There was no design on the part of the respondent to defraud the appellant. His Honour was entitled to hold that a genuine transfer of gold bullion and cash took place.
ORDER
Appeal dismissed with costs.
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40034/03
SC 20246/99SHELLER JA
IPP JA
FOSTER AJAFriday 12 September 2003
BERT WATKINS & 6 ORS T/AS WATKINS TAPSELL v JOSEPH de VARDA
Judgment
SHELLER JA: I agree with Ipp JA.
IPP JA:
De Varda’s claim against Watkins Tapsell
This case turns substantially on the question whether the appellants, a firm of solicitors (Watkins Tapsell), owed a duty of care at common law to the respondent (De Varda).
De Varda claimed that an express retainer existed between Watkins Tapsell and himself, but the trial judge, Davies AJ, rejected this contention. His Honour, however, upheld De Varda’s alternative argument that Watkins Tapsell owed him a duty of care even in the absence of a retainer.
His Honour also held that a partner of Watkins Tapsell, Mr Matthew Coates, had been guilty of misleading conduct in terms of s 42 of the Fair Trading Act 1987.
Davies AJ awarded judgment against Watkins Tapsell in the sum of $872,081. This was made up of a sum of US$390,000 worth of gold bullion and cash which De Varda had handed over to Mr Charles Foch on 19 and 23 January 1998 in the erroneous belief that he was acquiring interests in certain property in Cambodia (the “Cambodian property”) from Foch, together with interest on that amount calculated in accordance with Schedule J to the Supreme Court Rules.
Watkins Tapsell appeal on several grounds relating to his Honour’s findings as to their liability to De Varda.
Foch, De Varda, Charnay and Verren
The case as I have described it is not particularly unusual, but there were certainly remarkable aspects about it. One is the character and background of Foch, De Varda and De Varda’s witnesses.
Mr Foch, who was of French descent, held himself out to be a descendant of Marshal Foch, of World War I fame. He had a history of dealings in arms and other unusual commodities in several countries and with organisations that could fairly be described as shady. He apparently had had transactions with Colonel Rambuka at the time of the first coup in Fiji, was said to have been involved in transactions with the OAS, a secret French military organisation, and with Sandline, a London-based supplier of mercenaries and arms to various entities.
De Varda had a long history of dealings with Foch, with whom he was personally friendly. These included dealings in foreign investments of an unconventional kind and in gold bullion and jewellery. As a result of these transactions Foch had been indebted to De Varda in large sums of money that had never been repaid. It appears that at the time of the transaction, the subject of the present litigation, Foch’s debts to De Varda had become time barred or had been forgiven. Despite this history, De Varda said that it was “very hard” for him not to trust Foch. Davies AJ observed that Foch seemed to have been a person of considerable charm and persuasiveness. His Honour remarked that both De Varda and Coates appeared to have allowed Foch “to encourage them into actions which on their part were foolish”.
De Varda described himself as a writer, an artist and a businessman. He has had many occupations. He grew up in Egypt and in 1962 undertook a course of study in biochemistry at Cairo University. He said that before the age of 20 he had invented a rocket which he had launched in Egypt and this had resulted in a lot of publicity in the local newspapers, which he offered to produce. He said that he had conducted research into cancer and Mrs Indira Ghandi had offered him land and funding to build a cancer hospital in India. Articles in Indian newspapers about this matter were put into evidence. He said that he had discovered a cure for baldness but had lost the formula. He appears for many years to have been a dealer in gold bullion and gemstones. He kept gold and gemstones in various safes over which he had control. He said that he was writing a literary work which was extremely confidential and which in some way was concerned with religious matters, the details of which he refused to disclose.
Two witnesses called by De Varda, Mr Patrice Charnay and Mr John Verren, appeared to be personalities as unusual as Foch and De Varda. They also had a history of unconventional occupations and dealings, but it is unnecessary to elaborate further in this regard.
Foch’s proposal
A second remarkable feature of the case was the background to the transaction, the subject of the litigation.
In 1997 Foch owned property and other assets in Cambodia but became concerned about his personal safety there. He decided to liquidate and remove all his assets that were located in that country.
By late 1997 or early 1998, Foch was in urgent need of money to pay some members of the OAS. He seems, at that stage, to have decided to attempt to defraud De Varda so as to obtain the money that he needed.
In about September 1997 Foch and De Varda had discussions about the establishment of a bamboo based paper mill at the borders of Cambodia, Vietnam and Laos. This was to involve the conversion of bamboo pulp into paper at a mill in the north of Cambodia. De Varda became interested in this venture and began spending a large amount of money in obtaining a feasibility study and blueprints for the proposed plant. The feasibility study showed that the mill would employ 4,000 Cambodians and could produce US$50,000,000 a year worth of paper.
Foch proposed a plan whereby De Varda would acquire a 51% interest in the whole enterprise and Foch 49%. By 19 January 1998 De Varda had invested $2,800,000 in the enterprise. This was the cost of blueprints and a feasibility study as well as reports from architects and other consultants. He appeared to have expended this money without having any firm rights to the project, but simply trusted Mr Foch.
In December 1997 Foch informed De Varda that he had decided to sell 50% of his interest in the Cambodian property for US$225,000. This was a four-storey office/residential building and land known as 16A Street 360 Phnom Penh, Cambodia. This building was to be the headquarters for the proposed paper mill venture. De Varda was interested in purchasing the Cambodian property and negotiations commenced.
De Varda agrees to acquire Foch’s interest in the Cambodian property
Eventually, Foch persuaded De Varda to acquire half of his interest in the Cambodian property for US$195,000. Watkins Tapsell, through Coates, had long been Foch’s solicitor. Davies AJ found that, at the time, Watkins Tapsell were also De Varda’s solicitors. At the suggestion of Foch, he and De Varda saw Coates about the proposed transaction and, on 19 January 1998, Coates drew up two so-called agreements, and, on that date, Foch signed one and De Varda signed the other. On the same day De Varda delivered to Foch the US$195,000 by way of gold bullion and cash.
On 22 January 1998, Foch told De Varda that he feared for his life in Cambodia and was compelled to sell his remaining half interest in the Cambodian property. De Varda agreed to acquire that half as well. On 23 January 1998, Coates drew a further agreement which De Varda (but not Foch) signed and De Varda handed over another US$195,000 by way of gold bullion and cash to Foch.
Neither one of the agreements drawn by Coates on 19 and 23 January was legally effective. Foch immediately disposed of the US$390,000 gold bullion and cash that De Varda had given him (he handed it over to two men who, it was said, were members of the OAS). It appears to have been accepted at trial that Foch was not able to repay any part of the US$390,000 to De Varda. The Cambodian owners of the Cambodian property denied that Foch or De Varda had any rights to that property. De Varda was left with having given Foch US$390,000 worth of gold bullion and cash and having received nothing in return.
Watkins Tapsell held liable; they appeal; the grounds of appeal
Davies AJ held that, in regard to the transaction involving the Cambodian property and the handing over of the US$390,000, Watkins Tapsell owed De Varda a tortious duty of care that they, through Coates, had breached in various respects. As mentioned, his Honour held that these breaches had caused De Varda to sustain damage, which led to an award of judgment against Watkins Tapsell in the sum of $872,081.
Watkins Tapsell appeal against his Honour’s decision on various grounds. I shall set out the grounds of appeal in summary form. They are as follows:
(1) The judge erred in holding that Watkins Tapsell owed and breached a duty of care to De Varda in circumstances where:
(a) There was no retainer between Watkins Tapsell and De Varda.
(b)There was an express disclaimer of responsibility by Watkins Tapsell to De Varda.
(c) De Varda was informed that Watkins Tapsell were acting for the other party in the transaction (Foch) and not for De Varda.
(d) Any reliance by De Varda on Watkins Tapsell, so as to give rise to a legal duty owed to De Varda, was neither reasonable in fact nor anticipated by Watkins Tapsell.
(2) The judge erred in holding that there was a misrepresentation constituting a breach of s 42 of the Fair Trading Act 1987 by Watkins Tapsell in circumstances where;
(a) De Varda was expressly informed that:
(i)Watkins Tapsell were merely reproducing a document and making appropriate consequential changes, as their client (Foch) had requested.
(ii)Watkins Tapsell had no knowledge of Cambodian law and no idea whether the document and the letters would achieve the result that De Varda wanted.
(iii)Watkins Tapsell were looking after Foch’s interests.
(b) De Varda was aware that the documents required the signature of the Cambodian title-holders (Mr and Mrs Sum) who were resident in Cambodia.
(3) The judge erred in law in holding that Coates should have informed De Varda, not only that he, Coates, was acting for Foch, but also that De Varda should obtain independent legal advice and that he, Coates, would not proceed in the transaction unless he did.
(4) The judge made several errors in drawing inferences from established facts that were neither supportable nor probable when compared with the known facts. I shall not at this stage set out all the errors asserted, but shall deal with each one later in these reasons.
(5) The judge erred in holding that De Varda was not guilty of contributory negligence.
Watkins Tapsell sought to add two further grounds of appeal. Firstly, they sought to argue that his Honour erred in holding that a genuine transaction occurred involving the transfer of gold bullion worth approximately US$390,000. Secondly, they sought to argue that the judge erred in ordering judgment against Watkins Tapsell in the absence of any finding or any evidence capable of supporting such a finding that the breaches of duty (as found by his Honour) were causative of De Varda’s loss.
During the course of argument the Court indicated to the parties that it would deal with the application to add the ground that his Honour erred in holding that a genuine transaction occurred when handing down its reasons for judgment. For my part, I would allow the amendment in respect of this ground. I do so as De Varda received ample notice of Watkins Tapsell’s intention to make the amendment in question and I do not think that he would be prejudiced if the amendment were to be allowed. I shall deal with the merits of this ground later.
As regards the ground relating to causation, the Court dismissed the application made by Watkins Tapsell to introduce this ground and stated that it would give reasons for its decision when delivering its reasons for judgment. I shall give my reasons for joining in that decision in the course of these reasons.
The judge’s views as to credibility
Davies AJ gained the impression that De Varda was genuine (and not a cunning person, as submitted on Watkins Tapsell’s behalf). His Honour said that De Varda was “a basically honest person”, and was not making an exaggerated or false claim.
Nevertheless, his Honour did not accept all of De Varda’s evidence. He observed:
“I consider that Mr De Varda’s recollection of detail was somewhat deficient and, in weighing up the probabilities of the case, I have taken into account the whole of the evidence”.
Davies AJ commented on two other witnesses called by De Varda, namely, Charnay and Verren. His Honour accepted that Charnay was telling the truth to the best of his ability and “the basic story which Mr Charnay told was truthful”. Verren gave his Honour the impression that he was not always speaking from honest recollection and was “inclined to improve a story”. The learned judge saw no sufficient reason however to reject certain critical evidence that Verren gave about the handing over of several bars of gold by De Varda to Foch. Davies AJ concluded that the basic evidence of Charnay and Verren, insofar as it related to De Varda, should be accepted.
His Honour noted that the evidence regarding the proposed paper mill in Cambodia “stretches the imagination”. Nevertheless, he said:
“Mr Foch, Mr De Varda and Mr Verren have led extraordinary lives. One may puzzle over their activities but there is no sufficient ground to reject the evidence that they engaged in the curious transactions, which were described”.
In an important passage his Honour commented on the evidence of Coates, who was the only witness called on Watkins Tapsell’s behalf. His Honour said:
“Mr Coates’ affidavit evidence was clear and so also was his oral evidence. I consider that, on matters of detail, his evidence is more reliable than that of Mr de Varda. However, aspects of his evidence have led me to conclude that Mr Coates has not faced up to the full truth of the matter and that he has slanted his evidence in his own best interests”.
His Honour gave three examples of aspects of Mr Coates’ evidence that troubled him, and Mr Pembroke SC, senior counsel for Watkins Tapsell, submitted that his Honour misunderstood these matters and erred in considering that they reflected adversely on Mr Coates.
The first aspect of Coates’ evidence that concerned Davies AJ was described by his Honour as follows:
“[D]uring his cross examination by Mr De Varda, Mr Coates said that he did not know that foreigners could not own property in Cambodia. Indeed, paragraph 150 of his affidavit said, ‘I deny that I had knowledge that foreigners are not allowed to own any property in Cambodia’. Yet, right at the start of the subject events, Mr Coates was informed by Mr Foch that only residents could be registered as owners of land in Cambodia. The evidence of Mr Coates to which I have referred was not truthful, at least in the sense of disclosing the whole truth”.
When Foch initially instructed Coates, he said (according to Coates):
“All I need you to do is to make changes to the existing agreement. I had it prepared by an expert in Cambodia when I bought it. It is prepared in this way because foreigners cannot own an interest in property in Cambodia directly. This is the way they structure their land ownership where foreigners are involved. It is held in the name of a local citizen on the foreigner’s behalf, and this is the accepted practice”.
Later in his affidavit, Coates said:
“I deny that I had knowledge that foreigners are not allowed to own property in Cambodia as alleged in paragraph 46 of de Varda’s first affidavit and paragraph 65 and 66 of de Varda’s second affidavit”.
De Varda asserted in his affidavits that in mid-1998 Foch told him that Coates knew, prior to the preparation of the agreements, that foreigners were not allowed to own property in Cambodia.
Mr Pembroke submitted that Davies AJ should not have characterised Coates as slanting the evidence in his own best interests when he had stated earlier in his affidavit that Foch had told him in October 1997 that foreigners could not own property in Cambodia.
Coates was cross-examined by De Varda about this issue as follows:
“Q. Isn’t it true that you knew there would be no title transfer because foreigners could not own property in Cambodia?
A. No that is not true”.
The following exchange occurred:
“Q. Did you know that foreigners cannot own property in Cambodia.
A. No I didn’t know that.
Q. And yet in your affidavit it states in black and white that Foch told you, and this is why you had written to the Department of Foreign Affairs, didn’t you?
A. No, the paragraph 17 in my affidavit says that I was informed by Foch that foreigners cannot own an interest in property in Cambodia directly the way they structure their own land where foreigners are involved it is held in the name of a local citizen on the foreigner’s behalf and this is the accepted practice. I assume that that was an appropriate and authorised manner for foreigners to hold investment in Cambodian property.
Q. On the 19th of January did you mention to me that foreigners cannot own properties in Cambodia.
Davies AJ then questioned Coates.
HIS HONOUR: Q. You were asked by Mr De Varda whether foreigners – you knew that foreigners could own property in Cambodia or could not own property in Cambodia. Why did you say ‘no’ you didn’t know that?
A. I thought I was saying that I felt that foreigners could own property in Cambodia using the mechanism that Mr Foch had used.
Q. You knew at least that they couldn’t own property directly?
A. Yes.
Q. They couldn’t be registered as the holder of real estate in Cambodia?
A. Yes.
Q. Well never mind – I don’t know that your answer was the truth the whole truth and nothing but the truth?
A. The way I interpreted the agreement”.
The cross-examination proceeded:
“Q. So you knew that foreigners could not own properties in – a property in Cambodia, didn’t you?
A. Directly, yes, that is correct.
Q. But you have not mentioned that to me on the 19th of January 1998 when I entered into the agreement?
A. That is correct.
Q. So you kept me in the dark regarding that information, didn’t you?
A. No I didn’t keep you in the dark. That implies that I deliberately refrained from telling you something. What I did was, was, I prepared a document as instructed and I understood that you and Mr Foch had had discussions in relation to the transfer of this property and that I was merely preparing a document to put into effect those agreements subject to the overriding disclaimer that I gave.
Q. Mr Coates, you said in your affidavit that you told me will that on that day that you mentioned to me – Joseph – those are your words, which I denied hearing them in my affidavit – you said Joseph I have know [sic – no] knowledge of Cambodian law”. So, why didn’t you mention to me as – or warning me or alerting me that foreigners cannot own properties and the title deed that you will be relying on will be this agreement, that you signed on the 19th of January, and yet, all the time when I was asking you regarding title deed you said to me. It is in storage, and, after the 19th of January, and after the 23rd of January, when I asked you to prepare a lease agreement and I asked you, have you registered the property under my name you said ‘yes’, didn’t you?
A. No I did not.
Q. And why did you continue and represented me to prepare a lease agreement?
A. Because you instructed me to, subject to the overriding disclaimers that I had given to you”.
The fact is that, to Coates’ knowledge, foreigners could not be the legal owners of property in Cambodia. Whether they could be equitable owners is not known; it is not even known whether the concept of equitable ownership exists under Cambodian law. Accordingly, Coates’ denial that he knew that foreigners could not own property in Cambodia was disingenuous. Moreover, his denial that he knew that there would be no title transfer was false. He knew that foreigners could not own property in Cambodia; therefore, he knew that there could be no title transfer to De Varda.
In my view, the statement by Davies AJ that Coates, in giving the evidence that he did, was not truthful in the sense that he did not always disclose the whole truth was justified.
The next aspect of Coates’ evidence that troubled Davies AJ was that Coates’ affidavit evidence (which constituted in effect his evidence in chief) did not include any statement by De Varda as to why he attended Coates’ office or as to the nature of the transaction which Coates was to document. Davies AJ said that Coates’ evidence on this point was “unduly simplistic” and “he put out of his mind matters which would favour Mr De Varda’s case”. In making these observations, Davies AJ had in mind, it seems to me, Coates’ evidence that on 19 January 1998 one or other of Foch or De Varda told him that, by the agreements that they wished him to draft, they were seeking to achieve “a transfer of a 50% interest in the property in Cambodia from Mr Foch to Mr De Varda”. Coates accepted instructions on that basis, subject to a warning by him that he had no knowledge of Cambodian law and, for that reason, did not know whether the agreements he drew would achieve that end.
In my respectful view, Davies AJ was right to have reservations about Coates’ omission to mention the full basis on which he was instructed. The part that was omitted was important indeed.
The third aspect of Coates’ evidence which Davies AJ regarded as unsatisfactory was that:
“Mr Coates has not clarified what occurred to the agreement which he has described as ‘the original title deed’. In a letter of 20 April 1998, he said that he had delivered it to … Mr Foch at his request. If Mr Coates regarded the document as a ‘title deed’, it is inexplicable that he did not hold it for Mr De Varda, who had purchased the property”.
Coates’ evidence regarding his references to the title deed was obscure and at times incomprehensible. I refer to these below. In my view, his Honour’s criticism of this part of Coates’ evidence was entirely justified.
I therefore reject the submission that his Honour was in error when referring to the aspects of Coates’ evidence that led him to an unfavourable view of Coates’ credibility.
His Honour concluded, in regard to credibility, as follows:
“In my opinion, Mr De Varda’s affidavit and oral evidence presents a plausible and probable story. Mr Coates’ affidavit and oral evidence do not satisfy me as to why Mr De Varda acted as he did or why Mr Coates acted as he did”.
In my view, these findings were open to the learned judge.
The events leading to the drafting of the 19 January 1998 documents
Another remarkable aspect of the case concerns the documents that Coates drafted pursuant to his instructions to enable Foch and De Varda to achieve “a transfer of a 50% interest in the property in Cambodia” from the one to the other. The relevant facts were hotly disputed and it will be necessary for me to set them out in detail. Unless otherwise indicated, the facts set out below were common ground, or are based on Coates’ evidence.
In September 1997 Foch and De Varda discussed setting up the paper mill in Cambodia. Thereafter, Foch showed De Varda a feasibility study concerning the mill and the two had discussions with Charnay who was also to be involved in the project (Charnay had been a friend of Foch’s for some time).
On 24 October 1997 Foch consulted Coates about the Cambodian property. He showed Coates an agreement that he had signed when buying the property on 10 November 1992 (the “1992 Agreement”). It is to be noted that the 1992 Agreement did not provide for the sale of the Cambodian property. The main purpose of the agreement was to provide that Mr and Mrs Sum would hold the property on Foch’s behalf. Foch instructed Coates to prepare a new agreement to transfer one-half of his interest in the property to a South African named Van der Bergh, basing the new agreement on the 1992 Agreement. Foch told Coates that Van der Bergh was buying 50% of the Cambodian property for $225,000.
In the course of this discussion Foch said to Coates:
“All I need you to do is to make changes to the existing agreement. I had it prepared by an expert in Cambodia when I bought it. It is prepared in this way because foreigners cannot own an interest in property in Cambodia directly. This is the way they structure their land ownership where foreigners are involved. It is held in the name of a local citizen on a foreigner’s behalf and this is the accepted practice”.
Coates replied:
“I can prepare the document but I have no knowledge of Cambodian law and have no idea whether this document achieves what you want”.
Foch said that he understood this but still asked Coates to prepare the document.
The 1992 Agreement was expressed to be between Mr Chan Sum and Mrs Chan Sum of Cambodia who were described as “the Agent” and Foch who is described as the “Owner”. The agreement was expressed to record the transactions between the Agent and the Owner “concerning the holding of the title of [the Cambodian property]” (described in the agreement as “the property”).
Clause 1 of the 1992 Agreement provided:
“1. INTERPRETATION
In this Agreement, the following words shall have the following meanings:
‘Property’means the land plot situated at No 16A Street 360 Phnom Penh Kingdom of Cambodia as represented by the title deeds and/or documents as officially or duly registered with the Government Authority, together with the building No G35 which is constructed thereon, including without limitation all the decoration, furniture, equipment affixed or placed therein, presently or in the future, and which title deeds or title documents are represented in the documents attached hereto and made a part hereof.
‘Title Document’ means the documents of ownership of the title representing the Property as herein defined.
‘Government
Authority’means any body or agency or entity of the government of Cambodia empowered to effect or grant the registration of the title to the Property and/or recognition of the holding of the Property as herein defined”.
Clause 2 provided that the 1992 Agreement “shall not be terminated or assigned to any other person without the approval of the Owner”. Clause 3 provided an acknowledgment that the Owner was the true owner of the property and that he had paid US$45,015 to acquire the property and was in the process of making alterations and additions to it at the estimated sum of US$20,881. By clause 4.1 the Agent undertook to deal with the transfer and disposal of the property and “any rights … appertaining thereto” in accordance with the Owner’s instructions. Clause 4.2 provided:
“The Agent shall … whenever requested by the Owner, sign, execute, and deliver any transfer documents or any other instruments or documents relating to the Property … as submitted to the Agent by the Owner”.
Clause 6.2 contained a warranty by the Agent that the execution of the 1992 Agreement “has been duly authorised by the Government Authority”. The parties thereto executed the 1992 Agreement and their thumb prints were affixed to it.
Davies AJ commented in regard to the 1992 Agreement:
“One can see that the agreement was drawn in a circumstance that only a resident could own land in Cambodia. It may be assumed that the subject property was registered in the names of Cambodian residents, presumably Mr and Mrs Sum. The agreement described the property as the land plot represented by ‘the title deeds and/or documents as officially or duly registered with a Government Authority’. The agreement itself was an agency agreement imposing personal obligations on Mr and Mrs Sum to hold the property on behalf of ‘the owner’, as Mr Foch was described.
Provided that the Cambodian legislation dealt with merely ownership of land and not with the holding of interests in land in Cambodia, there would be reason to think that the agreement could impose personal obligations upon Mr and Mrs Sum which could be enforced in the courts of Cambodia. Such concepts are familiar concepts in Australian law”.
On 12 November 1997 Coates sent a draft agreement to Foch under cover of a letter of that date. The letter stated:
“Your instructions were for us to use the existing agreement between yourself and Mr and Mrs Sum as the basis of a new agreement incorporating Nick van de [sic] Borgh [sic] as a half owner of the Property.
We have merely reproduced the documents, as you instructed, from the precedent you provided. We do not have any knowledge of Cambodian law. You should seek legal advice from a lawyer familiar with Cambodian law to confirm that the agreements are satisfactory and enforceable under Cambodian law”.
The transaction with Van der Bergh did not proceed and in early January 1998 Foch and De Varda discussed the purchase by De Varda of a 50% interest in the Cambodian property. De Varda agreed to purchase that interest for the equivalent of US$195,000. Foch informed De Varda that Coates had the title deeds in his office and could prepare the legal documents. According to De Varda, that was satisfactory to him as Watkins Tapsell acted for him in respect of a claim arising from a motor vehicle accident.
Davies AJ accepted that when De Varda first saw Coates he was a client of Watkins Tapsell. Mr Pembroke submitted that there was no evidentiary basis for this finding, and it was contrary to affidavit evidence given by Coates.
His Honour asked Coates, when he was giving oral evidence, whether De Varda had been a client of Watkins Tapsell. Coates replied, “He had been previously in relation to a motor vehicle accident claim”. His Honour then said:
“So he came – he who is a client, who was a client of your firm, came in with Mr Foch who was also a client?”
Coates replied:
“That’s correct”.
Coates’ reply is open to the construction that he agreed that, when De Varda came in to see Coates, he “also” – like Foch – was a client of Watkins Tapsell. Davies AJ, as the trial judge, was best placed to infer the correct meaning of the passage I have quoted. The finding that De Varda was a client of Watkins Tapsell at the relevant time was open to his Honour.
On 16 January 1998, during a telephone conversation, Foch gave instructions to Coates about amendments that he needed to make to the agreement Coates had prepared for use in the proposed transaction with Van der Bergh. The Van der Bergh agreement was to be used as a model for the new agreement involving Foch and De Varda. According to Coates, he said to Foch:
“I can draft the document but it would be on the same terms as the first agreement I prepared for you late last year and on the same basis as I explained to you that I have no knowledge of Cambodian law”.
On 18 January 1998, De Varda received a letter from Foch in the following terms:
“I came several times in the first two days to discuss the sale of my building in Phnom Penh but you are hard to get. Spoke to Matthew Coates. He said it is not necessary for you to appoint another solicitor, he can handle the whole matter and act for you too, it will be quicker this way. He has already prepared the document. I will ring him tomorrow to arrange a meeting”.
Davies AJ found that Coates said to Foch on 18 January 1998 that it was not necessary for De Varda to appoint another solicitor. In the circumstances, at that stage, as his Honour found, De Varda was content to leave the matter with Coates.
The conversation of 19 January 1998
On 19 January 1998 a meeting took place at Coates’ office between Foch and De Varda. In response to a question from his Honour, Coates said that when Foch and De Varda came to see him on that date one or other of them told him what they were seeking to achieve by the agreements that they wished him to draft. According to Coates, they were seeking to achieve “a transfer of a 50% interest in the property in Cambodia from Mr Foch to Mr De Varda”.
Coates’ affidavit evidence stated:
“When Foch and De Varda attended my office on 19 January 1998, I met with both of them together. Foch said words to the following effect:
‘We really need to have it all done today. It shouldn’t be too difficult to change the old document, should it?’
I then said words to the following effect:
“Why do you need it today?’
Foch replied in words to the following effect:
‘So we can go down and transfer over the gold which Joseph is paying, this afternoon’.
I then said words to the following effect:
‘I can make the amendments to the agreement now but I want to clear up my role. Joseph, you understand that I act for Charles and not you in this transaction. Do you understand that?”
De Varda then said words to the following effect:
‘Yes, but Charles has told me you would protect my interests’.
I said to De Varda words to the following effect:
‘Joseph, I have no knowledge of Cambodian law. All I am doing is reproducing this document as Charles has requested. I have no idea whether it will achieve the result you want and transfer ownership to you. I do not know if it is enforceable under Cambodian law. I am looking after Charles’ interests. Do you understand that?’
De Varda then said to me words to the following effect:
‘Yes, but it is very simple and we have agreed we don’t need another lawyer’.
I said words to the following effect:
‘I will go and get my secretary to type up the agreements and the letters you want straight away’.
I arranged for letters to be typed by my secretary to respectively Mr and Mrs Sum and the Australian Embassy, Cambodia. …
My secretary brought the two amended agreements into the room. Foch and De Varda then proceeded to execute them. I witnessed their execution. After the parties had executed the amended agreements, I handed those documents to Foch with the two letters [to the Sums and the Australian Embassy]. I wrote the words ‘Given to client 19/1/98’ on each of the copies of those letters on my file. Foch said to me words to the effect:
‘If you give me the originals I will send them off. I want this to happen straight away’.
De Varda said words to the following effect:
‘We are going down to the bank to transfer the gold over straight away. But I have nothing confirming I have handed it over. Can you prepare a receipt and give it to Charles so that when I hand over the gold I can take the receipt from Charles’.
I said words to the following effect:
‘Certainly. I’ll just need the particulars of what you want on it’.
I was then told the particulars and I had my secretary type out the receipt. I witnessed Foch’s signature and handed him the original. I did not retain a copy of that signed receipt. It is annexed to De Varda’s affidavit sworn 18 October 1999 and marked ‘D’”.
This evidence was disputed by De Varda. He gave a different version of the conversation that occurred on 19 January 1998 between him and Coates. De Varda asserted that Coates had said that he could act for both Foch and De Varda, and De Varda denied that Coates had said that he had no knowledge of Cambodian law and that all he was doing was reproducing the document as Foch had requested.
Davies AJ accepted that during the conversation on 19 January 1998 Coates said to De Varda that he was not familiar with Cambodian law and could not guarantee the result.
His Honour also said:
“I accept Mr Coates’ evidence that he stated that he acted for Mr Foch. The letters written by Mr Coates and the manner in which the account records were prepared confirm that Mr Coates intended to act only for Mr Foch and that he conveyed that point to Mr De Varda”.
But Davies AJ did not accept the entirety of Coates’ version of the conversation. He found that, on 19 January 1998, Coates either expressly agreed that it was not necessary for De Varda to appoint another solicitor or impliedly approved of De Varda’s statement to that effect. His Honour said the “course of events” supported this inference.
Davies AJ proceeded to say:
Mr Coates gave evidence that Mr De Varda elected not to have another lawyer:
‘Q.When Mr De Varda responded with the words which you have recorded in these terms, ‘Yes but it is very simple and we have agreed that we do not need another lawyer’, how did you understand that response?
A.I understood him to be saying that the document I had prepared and the role I was playing was simple, but I also understood him to be saying again without my prompting that he understood that there was a possible solution to a conflict position of obtaining the advice of a separate lawyer and that he had elected not to
Q.Did you form the view at all that he was the sort of person who I am sure you have come across in your practice who didn’t want to understand or didn’t want to accept your explanation?
A. I certainly did not’.
However, if Mr Coates had been a competent lawyer exercising reasonable care and skill he would have known that the task was not a simple one and that Mr De Varda did need an independent lawyer to act for him. In my opinion, Mr Coates did know, in relation to the purchase of an interest in land in Cambodia, that Mr De Varda needed independent legal advice and that the matter was not simple. He had earlier been informed that foreigners could not own land in Cambodia and he had before him the agreement or a copy of the agreement of 10 November 1992, which was an agency agreement between Mr Foch and Mr and Mrs Sum. That is not a context which a New South Wales lawyer would regard as simple”.
His Honour found that Coates understood that De Varda and Foch had come to see him in his capacity as a solicitor. He said:
“Mr Coates was aware that Mr De Varda had interests that needed to be protected. Mr Coates gave this evidence … A: In response to a question that I put to [Coates] which was, ‘Do you understand that I am acting for Charles and not you’, he said, ‘yes but Charles said that you would protect my interests’ and I interpreted from that response that he understood that his interests were at risk and need to be protected”.
Davies AJ concluded that, by continuing to deal with De Varda, Coates conveyed the impression that, while Foch was his client, he was nevertheless serving the respondent’s interests. The learned judge observed:
“Having been informed that Mr Coates was acting only for Mr Foch, Mr De Varda accepted that situation but only, on Mr Coates’ evidence, after saying ‘we don’t need another lawyer’. That statement was indicative that Mr De Varda relied upon Mr Coates as a solicitor do to the right thing, even if formally Mr Coates acted only for Mr Foch”.
Mr Pembroke submitted that these findings were inconsistent with the finding that Coates said to De Varda that he was acting for Foch alone. He submitted:
“There is a logical inconsistency in the judge’s reasoning: It cannot reasonably be inferred that Coates ‘conveyed to the respondent that he would act in his interests’ when at the same time he said he would act for Foch alone and that he was “looking after Charles’ interests”.
It is appropriate at this stage to deal with this submission. In some respects it is critical to the disposition of the appeal.
Coates did say that he would act for Foch and not De Varda “in this transaction”, but I have referred to the subsequent exchange between Coates and De Varda on which his Honour relied for concluding that, by continuing to deal with De Varda, Coates conveyed the impression that, while Foch was his client, he was nevertheless serving De Varda’s interests. In my view, that inference was open to his Honour.
The “course of events” on which Davies AJ relied were as follows:
(a)On 18 January 1998, Foch wrote to De Varda saying that Coates had said that it was not necessary for De Varda to “appoint another solicitor”. According to Foch, Coates had said “he can handle the whole matter and act for you too, it will be quicker this way”.
(b)On 19 January 1998, when De Varda and Foch attended on Coates, both were clients of Watkins Tapsell.
(c)On 19 January 1998, Foch and De Varda told Coates what they were seeking to achieve, namely, “a transfer of a 50% interest in the property in Cambodia from Mr Foch to Mr de Varda”; Coates accepted instructions in this knowledge.
(d)Coates understood that De Varda and Foch had come to see him in his capacity as a solicitor. The nature of the transaction was such that legal assistance was required.
(e)Coates was aware that De Varda had interests that needed to be protected (this being Coates’ own testimony).
(f)Coates told De Varda that he was acting for Foch and not De Varda.
(g)De Varda accepted that situation, but only (on Coates’ evidence) after saying that “we don’t need another lawyer” and that the transaction was “very simple”. (As Davies AJ pointed out, these remarks were indicative that De Varda relied upon Coates as a solicitor to do the right thing, even if, formally, Coates acted only for Foch).
(h)De Varda told Coates, in effect, that he was looking to him as a solicitor to protect his own interests; Coates did not demur.
(i)Coates did not assert that it was necessary for De Varda to appoint another solicitor. He did not advise De Varda to obtain independent advice; he did not send De Varda away, but continued to deal with him.
(j) De Varda was content to leave the matter with Coates.
On these facts, and those to which his Honour expressly referred (in his remarks that I have quoted above), I am not persuaded that his Honour was wrong in the inference that he drew. In my view, Davies AJ was entitled to find that Coates said that he would act for Foch and that he would look after Foch’s interests, on the one hand, and that Coates conveyed to De Varda that he would also “act in his interests”, on the other. By this conduct, Coates put himself into a position of conflict of interest, but that did not preclude his Honour from making the findings that he did.
I shall proceed further with the conversation of 19 January 1998. According to De Varda, while reading through the agreement that Coates had prepared, he said to Coates:
“You have mentioned here that the title deeds are attached to this agreement. I can’t see any annexures”.
Coates replied:
“We have the title deeds and documents in storage”.
De Varda said:
“What about the searches?”
Coates answered:
“Everything is in order”.
Davies AJ observed, in this regard:
However, there is no reason to doubt the conversation relating to title deeds. Mr Coates apparently considered that the agreement of 2 November 1997 was an original title deed. It seems that, at that stage, he had the agreement in his possession”.
Thus, his Honour found that Coates had said that the title deeds were in storage and that “everything was in order” (including the searches).
The agreements of 19 January 1998 and the delivery of gold and money
The two agreements drawn up by Coates and executed by Foch and De Varda, respectively, on 19 January 1998, were modelled on the Van der Bergh Agreement and were derived, originally, from the 1992 Agreement. Both of the 19 January 1998 agreements had the same clause 1 as was contained in the 1992 Agreement (see paragraph 53 above).
Clause 2 of the 19 January 1998 agreement, involving De Varda, provided that De Varda appointed the “Agent” (the Sums) to hold De Varda’s interest in the property on his behalf. Clause 3.3 provided that De Varda agreed to pay Foch, upon the execution of the agreement, the sum equivalent to US$195,000 in gold bullion to acquire a one-half interest in the Cambodian property. Otherwise, this agreement was in like terms as the 1992 Agreement.
The 19 January 1998 agreement involving Foch was in similar terms to that to which De Varda was a party, save that it recorded, in addition, that De Varda had paid US$195,000 to Foch “to acquire a one-half interest in the property”, and also acknowledged that De Varda and Foch “are the true owners of the property as tenants in common in equal shares”.
On 19 January 1998, Coates witnessed the execution of the two agreements by Foch and De Varda. At De Varda’s request he prepared a receipt for the transfer of the gold by De Varda to Foch. Coates witnessed Foch’s signature on the agreement and handed him the original receipt that he had drafted.
Coates drafted two letters which he signed. One was a letter to the Sums enclosing copies of the agreements between themselves and De Varda and themselves and Foch. The letter requested the Sums to contact the Australian Embassy to make an appointment to have the original agreements signed and witnessed. The second letter was to the Australian Embassy enclosing the two agreements and stating that Watkins Tapsell had arranged for Mr and Mrs Sum to contact the Embassy to arrange a time to have the agreement signed. Foch said that he would post the letters.
Davies AJ commented that at this stage of the transaction:
“The respective agreements drawn up by Mr Coates were signed by Mr Foch or Mr De Varda, their signatures being witnessed by Mr Coates. However, they were not at that stage signed by Mr and Mrs Sum. Mr Coates drew up no document which was an agreement between Mr Foch and Mr De Varda. He drew up no document which constituted a declaration of trust by Mr Foch in favour of Mr De Varda. And he drew up no document which was intended to be a transfer of land from Mr Foch to Mr De Varda. Mr Coates did not intend to create any such document and no document was submitted for stamping”.
Coates accepted that had he been De Varda’s solicitor at the time he would have told De Varda “to make sure that he was getting good title before he paid over the money”. He also accepted that had De Varda been his client he would have told De Varda that he “couldn’t possibly pay over the money just on that document”. In fact he said nothing of the sort.
On 19 January 1998, as found by Davies AJ, De Varda delivered 21 bars of gold bullion and cash in the amount of $1,260 to Foch at Foch’s home. This was equivalent to US$195,000.
Events leading to the 23 January Agreement
On 20 January 1998, De Varda telephoned the Department of Foreign Affairs and inquired about the formalities involved in the witnessing of signatures in Cambodia. He then telephoned Coates and told him that, according to the Department of Foreign Affairs, documents executed in Cambodia should have the thumb prints of the signatories imprinted on them.
On 21 January 1998. De Varda sent a fax to the Australian Embassy in Cambodia requesting that they arrange for the Sums to place their thumbprints on the agreements that had been sent to the Embassy when signing them. In this fax he said that Watkins Tapsell were representing his interests and asked the Embassy to return the original documents signed by Mr and Mrs Sum “to Watkins Tapsell as soon as possible”.
On 21 January 1998, Foch told De Varda that he (that is, Foch), would endanger his life if he returned to Cambodia and, for that reason, he had decided to sell his other 50% interest in the Cambodian property. De Varda was concerned that Foch would sell his 50% interest to some unknown person, and, after several further discussions, came to the realisation that he had no choice but to purchase it himself. On 22 January 1998 he agreed to do so. Foch said that he would take the price in gold bullion and would contact Coates to make the necessary arrangements.
On 22 January 1998, Foch telephoned Coates and told him that he intended to transfer the remaining 50% of the Cambodian property to De Varda at the same price. He asked Coates to “do the same document again”. Coates agreed.
The 23 January 1998 meeting
On 23 January 1998, a meeting took place between De Varda, Coates and Foch at Coates’ office. Coates’ evidence was to the following effect:
“At the meeting, as I reviewed the documents I realised that in fact there was no need for Foch to be a party. On that basis I said to De Varda and Foch when we had sat down to sign the document, words to the following effect:
‘I think that we don’t need Charles to be a party because it is an agency agreement between the Sums and Joseph only, and Charles no long has any interest in the property. I think I should redraft this to make it simpler, consistent with the original agreement. Is that alright?’
Neither de Varda nor Foch had any objection.
I prepared an agency agreement between Mr and Mrs Sum and De Varda in accordance with the instructions I had received from my client Foch. The document was in the form of an acknowledgment of ownership and not a form of transfer. Based on what Foch had instructed me, Foch was no longer holding any interest in the land. This is the format adopted from the original precedent”.
In his affidavit, De Varda testified, on the other hand:
“I said to Coates ‘as I don’t know the Cambodian agents personally, are they still willing to do the work for me, now that Charles is no longer involved with the property or do I have to find other agents?’ He said ‘they will still be the agents’. I said ‘if I’m not happy with them can I dismiss them?’ He said ‘Yes’. I then proceeded to commence reading through the agreement and after I had finished reading Clause 2.2 I said to Coates ‘you have here that no consideration shall be paid to the agent’. He said ‘you can pay them a minimal fee’. When I had finished reading I said to Coates ‘Don’t I have to sign a sale agreement with Charles?’ He hesitated and then looked at the documents and said ‘I’ll amend that now’. He left the conference room with the two sets of agreements. After a short while Coates returned with only one set of the agreements and handed it to me. The agreement was between Mr Chan Sum and Mrs Chan Sum and myself and Coates said to me ‘You’ll see I have included Charles’ name in your agreement. It is not necessary for Charles to have a separate agreement’”.
Davies AJ said of this evidence, which was not referred to in Coates’ affidavit, that it carried with it “a degree of inherent probability”. Thus, I proceed on the basis that Coates said to De Varda that the Sums would still be the agents, that De Varda could dismiss them if he wished, and it was not necessary for there to be a separate agreement between De Varda and Foch.
The agreement drafted by Coates on 23 January 1998 was in similar form to the agreements prepared by him on 19 January 1998. The recital provided that the agreement was to be between De Varda, Foch and the Sums. Coates, however, deliberately drew the document on the basis that, despite the recital, the only parties to the agreement would be De Varda and the Sums. The agreement provided that De Varda appointed the Sums to hold his interest in the Cambodian property on his behalf. Clause 3 provided:
“3. OWNERSHIP OF THE PROPERTY
3.1It is hereby acknowledge that the Agent holds De Varda’s interest in the Property on behalf of De Varda.
3.2It is hereby acknowledge that De Varda is the true owner of the Property.
3.3Foch paid an undisclosed sum to the seller of the Property, being the value at the time of such acquisition.
3.4De Varda paid Foch the sum equivalent to US $195,000.00 in Gold Bullion to acquire one half interest in the property on 19 January 1998.
3.5De Varda agreed to pay Foch, upon the execution of this agreement the sum equivalent to US $195,000.00 in Gold Bullion to acquire the remaining one half interest of Foch in the Property, being the value of a one half interest in the Property at the time of acquisition by De Varda.”
Notwithstanding these reservations there is nothing in the conflict of interest ground that persuades me that it gives rise to any basis on which his Honour’s reasons could be overturned. In my opinion, there was a conflict of interest and Coates did not send De Varda to another solicitor for independent advice. On this ground alone there was a breach of duty on the part of Coates.
The ground based on “subsidiary errors”
The fourth ground of appeal asserts very many “subsidiary errors” that, it is said, Davies AJ made. I have dealt with a number of these already. I set out below my comments on the remainder.
It was submitted on Watkins Tapsell’s behalf that:
“The drafting and presentation of documents by a solicitor to a non-client third party does not amount to a representation or advice to that party that the documents are legally effective”.
Reliance for this submission was placed on Dean v Allin and Watts [2001] 2 Lloyds Rep 249 at 257. It was said that Davies AJ placed too much reliance on the mere fact that Coates drafted the agreements in question.
Davies AJ (rightly, in my view) found that Coates went further than the mere drafting and presentation of documents; accordingly I would not uphold the submission.
Mr Pembroke sought to place some reliance on the principle that a person passing on information does not engage in misleading or deceptive conduct if the circumstances are such as to make it apparent that the party is not the source of the information and that the party “expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth”: Yorke v Lucas (1985) 158 CLR 661 at 666.
This, however, is not a Yorke v Lucas situation. Coates did not simply pass on information, disclaiming any belief in its truth or falsity. He did not merely pass on information for what it was worth. Davies AJ found that Coates prepared documents and passed them over as having a quality which they did not possess, namely as documents on the faith of which De Varda should pay the purchase price of the property he sought to purchase. His Honour pointed out that the documents achieved nothing and did not provide any basis for the payment of the purchase price. This is a situation far removed from that considered in Yorke v Lucas.
The next relevant asserted subsidiary error is that Davies AJ held that, in Coates’ letter dated 28 January 1998, he acknowledged and confirmed with De Varda that he was prepared to assist him. The letter speaks for itself. In my view his Honour’s finding is justified.
The next relevant asserted subsidiary error is that Davies AJ found that:
“The documents signed on 19 and 23 January 1998 were of no legal effect whatever”.
It is submitted that the documents would have been sufficient to prove a constructive trust of Foch’s interests. This is a matter that is open to argument. Whether a constructive trust could have been proved after a bout of difficult and unpredictable litigation is, however, not to the point. The documents were hopelessly drawn. They were of no practical assistance to De Varda.
The next relevant asserted subsidiary error is the statement by his Honour that the conduct of Coates “bordered on the dishonest”. I accept that this statement was inappropriate and the evidence did not justify it. This error, however, had no effect on his Honour’s conclusion.
The next relevant asserted subsidiary error is the finding of Davies AJ that Coates approved of the payment of the purchase price on 19 and 23 January 1998.
On 19 January 1998, after Foch and De Varda had executed the agreements to which each was a party, De Varda told Coates that he was going to transfer the gold “straight away” but he had nothing that would confirm the handover. He asked Coates to prepare a receipt and give it to Foch so that when he, De Varda, handed over the gold he could take the receipt from Foch. Coates agreed, drafted the receipt and witnessed Foch’s signature to it. He then handed the original receipt to Foch. Coates knew well that the gold was to be handed over on the strength of the agreements he had prepared. He knew that the parties had come to him for the purpose of achieving a transfer of a 50% interest in the Cambodian property from Foch to De Varda. In response to this, Coates had produced the two agreements that had been executed. In these circumstances, in my view, Davies AJ was entitled to hold, irrespective of whether Coates said expressly that it was appropriate for De Varda at that stage to pay over the purchase price (which De Varda, in the course of his evidence, asserted), that Coates had approved of the payment of the purchase price on 19 January 1998.
Similar events occurred on 23 January 1998. I would add that on that date, according to De Varda, Coates said to him that he had included Foch’s name in the agreement he was to sign and it was not necessary for Foch to have a separate agreement. As I have mentioned, Davies AJ said this evidence carried with it a degree of inherent probability. Again, on 23 January 1998 Coates prepared a receipt recording the receipt by Foch of de Varda’s payment for the remaining 50% interest. Coates knew that the balance of the purchase price was to be handed over by De Varda and he would receive the receipt as proof of payment. Again, in my view, Davies AJ was entitled to hold that Coates had approved of the payment of the purchase price on 23 January 1998.
The next relevant asserted subsidiary error is that Davies AJ held that De Varda would have understood that on payment of the purchase price there would be a transfer to him of Foch’s interest in the property.
It was submitted on Watkins Tapsell’s behalf that this finding was not justified as De Varda knew that he had to obtain the signature of the Sums. It was also submitted that Coates was not instructed to effect a transfer of the land. He did not know if the documents he prepared would have any legal effect and said so.
These submissions overlook the fact that Coates knew that De Varda and Foch had come to see him for the purposes of achieving a transfer of a 50% interest in the Cambodian property from Foch to De Varda. De Varda believed on 19 and 23 January 1998 that once he had signed the agreement Coates prepared, and had received the receipt for the gold and money, the transaction was complete.
There was substantial evidence to the effect that De Varda and Foch acted in the belief that the documents prepared by Coates effected a transfer of interests in the property. Davies AJ found that when De Varda left Coates’ office on 19 January 1998 and again on 23 January 1998, he was under the impression that documents or a document had been signed that constituted a transfer of title, documents on the faith of which he was justified in paying over the substantial purchase price. The effect of De Varda’s evidence in this respect was reinforced by Coates’ letter of 28 January 1998 in which he wrote, in relation to the document of 23 January 1998 that, “we understand that the transfer is now completed”.
Coates’ own evidence, given in an affidavit by him, was that, on 23 January 1998, when De Varda and Foch “had sat down to sign the document,” it was not necessary for Foch to be a party to the agreement “because it is an agency agreement between the Sums and Joseph only, and Charles no longer has any interest in the property”. He said further:
“I prepared an agency agreement between Mr and Mrs Sum and De Varda in accordance with the instructions I had received from my client Foch. The document was in the form of an acknowledgment of ownership and not a form of transfer. Based on what Foch had instructed me, Foch was no longer holding any interest in the land … “.
As Davies AJ noted, the significant point is that Coates expressly said to De Varda and Foch that Foch “no longer has any interest in the property”. His Honour observed:
“Mr De Varda would have understood that, on payment of the purchase price, there would be a transfer to him of Mr Foch’s interest in the property”.
And:
“No doubt Mr De Varda and Mr Foch should have realised that the documents which they received achieved nothing, for they were not signed by Mr and Mrs Sum. However they did not”.
In these circumstances, I consider that Davies AJ was entitled to hold that De Varda would have understood that, on payment of the purchase price, there would be a transfer to him of Foch’s interest in the property.
The last asserted subsidiary error is that:
“Coates undertook to act on, and ‘was instructed to achieve’, the transfer of an interest in land from Foch to [De Varda]”.
It was submitted that the finding that Coates “was instructed to achieve” the transfer of an interest in land from Foch to De Varda “is insupportable”. It is said that Coates was not instructed to achieve a transfer and made clear that he was not in a position to do so.
His Honour’s reference to Coates having been instructed to achieve a transfer of interest in the Cambodian property from Foch to De Varda was based on Coates’ concession that when Foch and De Varda came to see him on 19 January 1998 they told him that by the agreements they wished him to draft they were seeking to achieve a transfer of a 50% interest in the property in Cambodia from Foch to De Varda. In my view, Davies AJ was entitled to find that, subject to Coates’ disavowal concerning any knowledge on his part concerning Cambodian law, Coates was instructed to achieve that purpose. At the very least, he should have prepared documents to which Foch, De Varda and the Sums were parties, which provided for a transfer by Foch to De Varda of Foch’s interests in the property, and for the Sums’ agreement to that transfer.
Contributory negligence
It was submitted on Watkins Tapsell’s behalf that, given the acceptance of what Coates said to De Varda about his lack of knowledge of Cambodian law, his ignorance as to whether the documents would achieve the result intended, and that he was looking after Foch’s interests, “[De Varda’s] concession that he would not have entered into any agreements if those things had been said, indicates the highest possible level of contributory negligence”.
The concession to which reference is made was contained in the following exchange:
“Q. Did Mr Coates say to you ‘Joseph I have no knowledge of Cambodian law. All that I am doing is reintroducing this document as Charles has requested. I have no idea whether it will achieve the result that you want and transfer ownership to you. I don’t know if it is enforceable under Cambodia law I’m looking after Charles interests do you understand that?’
A. No, he did not tell me that. And if he would have told me that I would not have entered into any agreements whatsoever”.
I have already noted that Coates’ disclaimers are of little significance in this case.
I repeat that Davies AJ dealt with the issue as follows:
“In Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 Sir Donald Nicholls V-C pointed out, at 574:
‘In principle, carelessness in not making other inquiries provides no answer to a claim when the plaintiff has done that which the representor intended he should do’.
Mr De Varda was not negligent in not obtaining other legal advice when the solicitor he trusted did not advise him to do so. And he was not negligent in acting on the faith of the documents which Mr Coates and Watkins Tapsell prepared when the documents were prepared and produced for that purpose. No doubt Mr De Varda was careless in having any dealing with Mr Foch but he was not warned by Mr Coates not to do so. He was not warned of the difficulties of purchasing land in Cambodia. Rather, any fears he may have had were quelled by the fact that Mr Coates was acting in the transaction. Mr De Varda lost his money because the documents on the faith of which he paid over the purchase price had no legal effect a fact of which Mr Coates was or ought to have been aware but of which Mr De Varda was unaware.
In my opinion, Mr De Varda was not guilty of contributory negligence”.
In my opinion the reasoning of Davies AJ is unimpeachable.
The genuineness of the transaction
At the trial Watkins Tapsell contended that the whole set of transactions was designed to defraud Watkins Tapsell.
This contention failed when Davies AJ found that De Varda was a basically honest person, that Charnay was telling the truth to the best of his ability, that Verren was to be believed that he saw Foch hand over the bars of gold to two men (which gold Foch had obviously obtained from De Varda).
His Honour concluded that the contention of conspiracy on the part of De Varda, Foch and De Varda’s witnesses as being “as large a delusion as any of the delusions which were suggested by Mr Pembroke on behalf of the defendants during the course of the proceedings”. His Honour gave detailed reasons, in addition to those mentioned, why he considered this argument to be unsustainable. He said:
“It appears to me that the facts are much too complex to be the subject of a conspiracy by Mr Foch, Mr De Varda, Mr Verren and Mr Charnay to defraud Watkins Tapsell.”
He also observed:
“Amongst other factors, if Watkins Tapsell were to be defrauded, the fraud would only have worked if Mr Coates was negligent”.
In my view, this point is unanswerable.
In my opinion, Davies AJ was justified in coming to the conclusion that he did.
The causation ground
On the second day of the hearing of the appeal, Mr Pembroke sought leave to amend the notice of appeal by the insertion of a ground that challenged the finding that the breach of duty on the part of Watkins Tapsell caused De Varda loss.
The proposed amendment was in the following terms:
“The Judge erred in law in ordering judgment against the Appellants in the absence of any finding or any evidence capable of supporting such a finding, that the breaches of duty (as found by his Honour including at para [95] (Red 70 I-K), para [96] (Red 70M-U), para [117] (Red 76 O-Q), para [118] (Red 76 U-V)) were causative of the Respondent’s loss, including that:
(a)if Coates had expressly said to the Respondent that he should obtain other legal advice, the Respondent would have done so; or
(b)the Respondent would have followed the other legal advice in (a) above; or
(c)if Coates had refused to proceed in the transaction, the Respondent would not have proceeded in the transaction by other means; or
(d)if Coates had expressly informed the Respondent that the documents created on 19 and on 23 January 1998 were not legally effective until signed by Mr and Mrs Sum, the Respondent would not have handed over gold to Foch until the documents were signed by Mr and Mrs Sum; or
(e)if Coates had expressly said to the Respondent that he could not protect his interests, the Respondent would not have entered into the transaction; or
(f)if Coates had produced documents that were effective to achieve a transfer of an interest in land from Foch to the Respondent, then the Respondent would not have suffered loss, despite Mr and Mrs Sum’s denial of Foch’s interest in the property (Red 50 C-D)”.
As I have mentioned, the Court dismissed this application, saying that it would give reasons for its decision when delivering its reasons for judgment.
This proposed ground asserted, firstly, that there was no finding that Watkins Tapsell’s breaches of duty were causative of De Varda’s loss. I do not agree and shall give examples of statements made by his Honour that are, in effect, findings that causation was established.
His Honour stated:
“Mr De Varda’s loss arose entirely from his reliance on Mr Coates and Watkins Tapsell”.
His Honour found that on 19 and 23 January 1998 Coates prepared and handed over the documents in question to De Varda “on the basis that Mr De Varda would act on the faith of those documents and would pay the purchase price which Mr De Varda did”.
Later, his Honour stated:
“As I have said Mr Coates understood his instructions to be that an interest in the Cambodian property was to be transferred from Mr Foch to Mr De Varda. I am satisfied that Mr De Varda and Mr Foch acted in the belief that the documents prepared by Mr Coates effected a transfer”.
His Honour held that:
“[Coates] allowed both Mr De Varda and Mr Foch to leave his office under the mistaken impression that Mr Coates had given them a document or documents on the basis of which it was appropriate to pay the purchase price”.
His Honour said that:
“Mr Coates prepared documents and passed them over as having a quality which they did not possess, namely as documents on the faith of which Mr De Varda should pay the purchase price of the property he sought to purchase”.
His Honour observed:
“Mr De Varda’s loss arose entirely from his reliance on Mr Coates and Watkins Tapsell”.
And again, he said:
“Mr De Varda lost his money because the documents on the faith of which he paid over the purchase price had no legal effect a fact of which Mr Coates was or ought to have been aware but of which Mr De Varda was unaware”.
Next, according to the proposed amended ground of appeal, there was no evidence capable of supporting findings of causation. I have elsewhere in these reasons referred to the material on which his Honour was entitled to rely for his finding that De Varda relied on Coates to the extent and degree found. I did not think that this argument has any prospect of success.
Thirdly, and importantly, the question of causation was not raised at the trial. The trial was not fought on the basis that causation was an issue. Watkins Tapsell were represented by experienced senior counsel. They sought to raise the proposed ground at a very late stage towards the end of argument on appeal. In all the circumstances, I did not think it fair for this ground to be raised at the stage when it was.
I propose that the appeal be dismissed with costs.
FOSTER AJA: I agree with Ipp JA.
**********
LAST UPDATED: 12/09/2003
8