50 The primary judge then set out at [103]-[107] some of the debate between the cross-examiner and Mr Fisher, which because of the way the primary judge approached the matter it is helpful to set out:
"[103] In cross-examination, Mr Fisher accepted that where a solicitor was not retained to advise in respect of a particular transaction and does not assume an obligation to advise on it, the solicitor is not obliged to give advice on that transaction; but he did not accept that a solicitor retained in respect of a loan and mortgage transaction was not obliged to give 'financial advice' about it in any circumstances:
Well, no. If there was, let's say, an extraordinary interest rate or some other condition of the loan which was out of the ordinary, I would feel it is the responsibility of the solicitor to bring that clearly to his client's attention.
[104] However, he accepted that unless the solicitor assumes the responsibility of giving financial advice, the solicitor was under no duty to do so. But while he generally accepted that the scope of the solicitor's responsibility was defined by the retainer, he insisted that this was not always so:
But I keep saying there are other factors. If it becomes apparent that what a client is doing is imprudent or unreasonable at some point that solicitor, I believe, has a duty to that client. So that would extend the assumed, the assumed retainer.
[105] Elsewhere he said:
Q. You would say that in the ordinary mortgage lending situation, where a solicitor acts for the mortgagor and borrower, do you say that the solicitor would be under a duty to advise the client about transactions other than the loan transaction itself?
A. No, not to advise the client but to take care for the client. And if it is made known to the solicitor that the client was, say, to engage in an illegal transaction or if the solicitor became, in his judgment, aware that the client was, had diminished responsibility, say, or was doing something extreme it is incumbent on the solicitor to look into that further.
[106] In the course of cross-examination about the information which Ms Jajoo had as to the proposed investment and anticipated return, he was asked what he had assumed about the scope of her retainer and answered:
I don't know that I had assumed the retainer was extended. But the use of those words to any ordinary reasonable competent solicitor would have the effect of ringing some alarm bells.
[107] This was a reference to the anticipated return of $10,000 per fortnight. However, Mr Fisher had some difficulty in formulating what was standard practice for a solicitor confronted by a relatively unsophisticated client in a borrowing transaction when it was intended to apply the proceeds to an investment in respect of which the client harboured what appeared to be totally unrealistic expectations. He said that it would be standard practice 'to send that client off for financial advice'. When it was suggested that the client might be told 'that sounds an impossibly high return, too good to be true, and I would not recommend you go into any such investment', he said 'that may be appropriate, but if the client is unsophisticated they may not hear that statement'. When asked why they would hear it any better form a financial planner than from a solicitor, he suggested that the different qualifications may be significant, but then added that in this case, a solicitor would be confident that a 200% return was ridiculous and would advise the client not to proceed."
51 It is important to understand the primary judge's reasoning process. First, he accepted that the appellants' retainer was to advise on the loan and mortgage transaction and that they were not retained to advise on the proposed investment in KSE: see [108]. His Honour then referred to the judgment of Sheller JA (with whom Meagher JA and Abadee AJA agreed) in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418 E-F where Sheller JA said:
"In my opinion the difficulties faced by the O'Briens which his Honour considered were so great and, to professional persons, so obvious that a solicitor could not reasonably leave them unstated, did not impose the duty his Honour held Mr Eliades to be under. Stated bluntly, such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon."
52 At [109] the primary judge said that while the scope of the retainer was of considerable significance in identifying the extent of the solicitor's duty of care, the scope of the solicitor's duty of care to a client was not confined to the contract of retainer but may extend in the circumstances of a particular case to require the taking of positive steps beyond the specifically agreed task or function where such steps are necessary to avoid a real and foreseeable risk of economic loss being caused to the client: Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. (I note at this point, as I did in David v David [2009] NSWCA 8 at [76], that in Kowalczuk v Accom Finance [2008] NSWCA 343 at [267]-[294] Campbell JA undertook a detailed analysis of the precedential status of Waimond. I will return to this topic and my comments in David at [76] in due course.)
53 At [111] the primary judge said that Waimond had not been expressly overruled or disapproved in Citicorp. His Honour noted that since Citicorp critical views have been expressed as to the authority of Waimond in Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1, though his Honour noted that Davies AJA (with whom Meagher JA concurred) in Curnuck v Nitschke [2001] NSWCA 176 had said that Waimond remained good law.
54 The primary judge then expressed what he saw as the prevailing position at [113] of his reasons as follows:
"[113] Accordingly, the prevailing position is that the scope of a solicitor's duty of care is not limited to the terms of the retainer but, depending upon the circumstances of the particular case, may require the taking of positive steps beyond the specifically agreed professional task or function, where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client."
55 His Honour then turned to the question of solicitors giving advice in relation to financing and mortgage transactions raising money as the appellants were here. His Honour then examined solicitors providing so-called "independent advice" and stated the following at [115] after referring to Citicorp:
"[115] … solicitors providing 'independent advice' are expected to warn clients against improvident transactions, and while they are not required to provide the type of financial analysis that might be expected of accountants or stockbrokers or financial planners, they are expected to form a view as to the fairness of a transaction and whether it is reasonable for the client to enter into it, and if it is beyond their capacity to do so, to obtain appropriate specialist assistance."
(emphasis added)
56 His Honour then discussed the role of independent advice under the Contracts Review Act and in the context of undue influence and unconscionable bargains, referring to the extent to which independent legal advice will act "as an antidote to the invalidating presumptions which otherwise arose in those contexts": [116] of his Honour's reasons. His Honour then looked at the necessity for a solicitor giving such advice (that is, for there to be an antidote) to ensure that the client comprehends the contents, nature and effect of the relevant documentation and as to the advice as to the propriety of the transaction (by which term the primary judge was referring to the underlying transaction). His Honour referred to Permanent Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501 at 507-508, Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 at 35, Stivactas v Michaletos (No 2) [1994] ANZ Conv R 252; Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144, Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449: see generally [116]-[126] of the primary judge's reasons.
57 His Honour said, at [127], that none of these authorities were cited in Citicorp (which was correct) and were not overruled.
58 His Honour then, at [128], expressed the effect of the so called independent advice cases, saying the following:
"[128] In my respectful view, the position was correctly stated by Danckwerts LJ (with whom Sachs LJ concurred) in the Court of Appeal in Neuschul v Mellish & Harkavy (1967) 111 SJ 399, that although the duty normally owed by a solicitor to a client only extends to legal advice, it is often difficult in a given situation to disentangle legal and business or practical advice, and a solicitor who is carrying out a transaction for a client is not justified in expressing no opinion when it is plain that the client is rushing into an unwise, not to say disastrous, adventure. The cases that state that it is not the function of a lawyer to give financial advice mean that a lawyer is not expected to bring to his or her task the knowledge and expertise of a stockbroker, an accountant or a financial planner. But a lawyer giving independent advice is required to address the fairness or reasonableness of a proposed transaction, so that the client can appreciate its disadvantages; if this involves matters beyond the lawyer's expertise, then the lawyer should seek specialist assistance. That is not to say that the solicitor is to be expected to give financial advice - of the type that a stockbroker might - about the proposed investment. But where it is evident that the borrower is relying on the investment to generate the income to service the loan which is secured over the family home, and where at first sight the expectation appears utterly unrealistic, a solicitor acting reasonably would, as Mr Fisher explained, take steps for the protection of the client's interest."
59 Returning to the facts of this case, at [129], his Honour expressed his criticism of Ms Jajoo and his conclusion of negligence of the appellants in the following terms:
"[129] In this case, it was or ought to have been plain to Ms Jajoo that Mr and Mrs Riz were putting their home at risk for the purpose of raising funds for an investment in respect of which they had expectations that objectively were absurd, such that (as Ms Jajoo conceded) it appeared to involve a very high risk. In my view, it was insufficient to tell Mr and Mrs Riz that she was not advising on the proposed investment (or anything else to do with Mr Suleman) and that they should seek and obtain legal and financial advice elsewhere, yet continue to act on and facilitate the loan transaction, all the more so where, as I have concluded, it ought to have been evident that they did not appreciate the importance of obtaining such advice and did not intend to do so. What was required was advice that firmly brought home the apparent improvidence of the proposed investment. I would not go so far as to hold that Ms Jajoo was on that account alone bound to cease to act, but in my view reasonable care required that she bring home to her clients forcefully the improvidence of their proposed course. That might have been achieved by forceful oral advice, or preferably by insisting on written instructions to proceed notwithstanding. If because of a conflicting duty to Mr Suleman Ms Jajoo could not give that advice, then she ought to have declined to act further; I do not accept that a solicitor acting as she was on a loan transaction can avoid the consequences of what would otherwise involve a conflict of duties by disavowing responsibility to give advice which she was otherwise bound to give, on the topic which would otherwise give rise to the conflict - here, the apparent improvidence of the proposed investment. In any event, more than mere advice to obtain independent advice was required. In my opinion the minimum requirement was forceful advice to bring home the improvidence of the transaction, and that did not occur. It follows that Ms Jajoo was in breach of her duty of care."