DECISION OF PRIMARY JUDGE
23 On the claim against Mr. Carr, the primary judge gave the following reasons:
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 (sic) 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.
24 On Mr. Carr's cross-claim, he gave the following reasons:
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.
25 On the claim against Lawcover, the primary judge identified the following issues:
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.
26 The primary judge discussed relevant cases, and concluded:
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.
27 The primary judge then continued:
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.