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[2008] HCASL 355
High Court of Australia (Special Leave)
2008-06-12
Beazley JA, Hodgson JA, Basten JA, Palmer J
Original judgment source is linked above.
Appeal Outcome: Special leave application dismissed by the High Court - 12 June 2008 - [2008] HCASL 355
CITATION: Malcolm Douglas Carr trading as Forshaws Neill v. Swart & Ors.; Lawcover Pty. Limited v. Swart & Anor. [2007] NSWCA 337
JUDGMENT OF: Beazley JA at 1; Hodgson JA at 2; Basten JA at 57
DECISION: In proceedings CA 40818/06: 1. Mr. Carr's appeal dismissed. 2. Order that Mr. Carr pay Mr. Swart's costs of the appeal.; In proceedings CA40844/06: 1. Lawcover's appeal allowed. 2. Orders below set aside, and in lieu thereof proceedings dismissed with costs. 3. Mr. Swart to pay Lawcover's costs of the appeal and to have a certificate under the Suitors' Fund Act if otherwise entitled.
CATCHWORDS: CONTRACT - LEGAL PRACTITIONERS - INSURANCE - Joint venture agreement between solicitor and investors - Breach of that agreement by solicitor - Damages payable by solicitor to investor - Whether liability for such damages was incurred in connection with the solicitor's practice for the purposes of his professional indemnity policy - Whether the joint venture agreement was a contract to provide legal services.
Dooby v Watson (1888) 39 Ch D 178 Drayton v Martin (1996) 67 FCR 1 CASES CITED: Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 Schipp v Cameron [1998] NSWSC 997 Solicitors' Liability Committee v. Gray (1997) 77 FCR 1
Malcolm Douglas Carr trading as Forshaws Neill - appellant Daniel Frederick Victor Swart - respondent PARTIES: Janet Anne Swart - respondent Lawcover Pty. Limited - respondent/appellant Malcolm Douglas Carr - respondent
Mr. T.F. Robertson SC with Mr. J.E. Lazarus for Mr. Carr COUNSEL: Mr. D. Davies SC with Mr. D. Pritchard SC for Lawcover Mr. J. Glissan QC with Mr. S.G. Barnes for the Swarts
Forshaws Neill, Sutherland for Mr. Carr SOLICITORS: Ebsworth & Ebsworth, Sydney for Lawcover Bransgroves, Sydney for the Swarts
LOWER COURT JURISDICTION: Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S): ED 3022/03; ED1394/04
LOWER COURT DATE OF DECISION: 1 December 2006
LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 1302
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA40818/06 CA40844/06 SC3022/03 SC1395/04
BEAZLEY JA HODGSON JA BASTEN JA
Tuesday 27 November 2007 CARR V. SWART & ORS. LAWCOVER PTY. LIMITED V. SWART & ANOR. Judgment 1 BEAZLEY JA: I agree with Hodgson JA and with the additional reasons of Basten JA. 2 HODGSON JA: On 12 December 2006, pursuant to reasons given on 1 December 2006, Palmer J made orders in two proceedings he had heard together, in both of which Daniel Swart and his wife Janet Swart were plaintiffs. 3 In the first of those proceedings, Mr. and Mrs. Swart sued Malcolm Carr for US$500,000.00 which they lost in 1998. In the Statement of Claim they relied on many causes of action, but ultimately they pressed only one, for breach of contract. Mr. Carr put on a cross-claim, claiming a contribution (amounting now, it would seem, to a sum approaching $400,000.00) towards costs incurred by him in legal proceedings against a firm of solicitors in England, seeking damages in respect of the loss of a large sum of money including money contributed by Mr. and Mrs. Swart. 4 In those proceedings, the primary judge gave judgment for Mr. Swart against Mr. Carr in the sum of $1,145,460.30, judgment for Mr. Carr against Mrs. Swart, and judgment for Mr. and Mrs. Swart on Mr. Carr's cross-claim; and he made costs orders generally favourable to Mr. and Mrs. Swart. Mr. Carr appeals against those orders, joining Lawcover as an additional respondent. 5 In the second proceedings, Mr. and Mrs. Swart sought to recover from Lawcover the amount for which Mr. Carr may be found liable, on the ground that Mr. Carr's professional indemnity policy responded to their claim. 6 In those proceedings, the primary judge made declarations to the effect that Mr. Carr's professional indemnity policy did respond to Mr. Carr's liability to Mr. Swart, and made costs order generally in favour of Mr. Swart. Lawcover appeals from those orders, joining Mr. Carr as an additional respondent.
CIRCUMSTANCES 7 In 1980, Mr. Carr commenced to practice as a solicitor in New South Wales; and from 1993, he carried on sole practice as a solicitor under the name Forshaws Neill at Sutherland, a suburb of Sydney. 8 From about September 1997, Mr. Carr became interested in investing in what he understood to be highly lucrative international investment schemes being operated in London; and by early 1998, he had visited London to investigate these schemes, and had prepared a Joint Venture Funds Management Agreement with a view to regulating the relationship between investors who would join in investing in such a scheme. 9 Mr. and Mrs. Swart migrated to Australia from South Africa in early January 1998, with the intention of becoming permanent residents. The proceeds of sale of their assets in South Africa were deposited at the ANZ Grindley's Bank in Jersey. Mr. Swart wished to invest this money, and in late January 1998 he went to see a Mr. Williamson, who told him about various proposals. 10 The primary judge continued the narrative as follows: 17 On or about 12 February 1998, Mr Williamson gave Mr Swart a copy of a Joint Venture Funds Management Agreement which had been signed by Mr Carr. Neither Mr Swart nor Mrs Swart had ever previously met Mr Carr or had any dealings with him. Mr Swart inserted his name, but not the name of Mrs Swart, in the Agreement as an Investor, inserted the amount which he wished to invest and made some further amendments to the document. …
19 On 13 February 1998, Mr Swart instructed his bank in Jersey to transfer USD500,000 into an account of Mr Carr at the Yorkshire Bank in London. That account had been identified by Mr Carr for the purpose of receiving funds from investors pursuant to the Joint Venture Funds Management Agreement. The account was not a solicitor's trust account and Mr Carr was not entitled at any relevant time to practise as a solicitor in England. 20 A total of USD4 million was transferred from various investors into Mr Carr's account at the Yorkshire Bank. Most, if not all, of those investors had signed a Joint Venture Funds Management Agreement with Mr Carr. 21 Mr Carr caused to be prepared an amended version of the Joint Venture Funds Management Agreement in order to incorporate the amendments made by Mr Swart. The Agreement included the name of Mr Swart alone. Mr Swart was given that agreement and he signed it. It was dated 24 February 1998. Although Mr Carr did not sign that version of the Agreement, it is accepted that that version contains the terms of the agreement between Mr Carr and Mr Swart under which Mr Carr undertook to deal with Mr Swart's investment: T282.33-T283.20. Several other versions of the Joint Venture Funds Management Agreement later came into existence, but they all contain the same material terms upon which the parties now rely. For the sake of convenience, and following the course adopted by the parties in this case, I will take the Joint Venture Funds Management Agreement dated 24 February 1998 as containing the relevant contractual terms between Mr Carr and Mr Swart. I will refer to that Agreement as "the JVA". 11 The JVA has a coversheet showing it was prepared by Mr. Carr's firm Forshaws Neill. Its relevant terms were set out by the primary judge as follows: 33 The JVA commences by identifying the parties. Mr Carr appears first and is described thus: MALCOLM DOUGLAS CARR of 1/768 Princes Highway, Sutherland, New South Wales, 2233, Australia, Solicitor (hereinafter referred to as 'Managing Partner') The other parties, including Mr Swart, are referred to as "Investors". The agreement continues, in so far as is relevant, as follows: WHEREAS:- (A) The Managing Partner and the Investors (hereinafter collectively referred to as 'the Parties') have access to the facilitators of bank guaranteed high-yield investment programs
(B) The Parties have identified a Program (Transaction Code [ ]) (sic) which requires an investment of USD4 million (Four Million United States Dollars) (hereinafter referred to as 'the Program'). (C) The Parties have agreed to amalgamate their respective funds with a view to qualifying for the investment requirements and to proceed with entry to the Program upon the terms and conditions set down herein. NOW THE PARTIES HERETO AGREE AS FOLLOWS:- 1. RECITALS The Parties hereby accept the contents and accuracy of the Recitals hereto.
Net profits shall be disbursed to the Parties after deducting Trader's and/or Facilitation Fees, bank transfer fees and/or State, County or any other Governmental charges whatsoever, and provision for payment of the Solicitor's fees and disbursements in accordance with the provisions of Clause 8 herein. The timing sequence of payments of these funds to the investors shall be as follows: First and Second payments to Daniel Swart and Gerrol Adkins respectively and then the remaining investors in any timing sequence. …
This Limited Power of Attorney is Limited to Mr Michael D. Adkins and Mr Charles H. Weaver, to arrange and/or engage in commercial and financial transactions/contracts, to cause the purchase and resale of investment grade instruments, the signing of all necessary contracts and agreements that relate to the private placement of our fund: and to make any disbursement of the earnings contracted.
Michael D. Adkins and Mr Charles H. Weaver are NOT authorised to make any withdrawals of the principal funds, except for the purposes stated above.
This Limited Power of Attorney is an operable, irrevocable instrument and will remain in full force and effect unto the end of the first investment period of One (1) year and fifteen days from the commencement of the date signed below and is renewable as per contract. 14 The primary judge continued the narrative: 26 On 13 May, Mr Carr signed an agreement with Messrs Adkins and Weaver and Kelci Management whereunder Kelci Management was to make available to Mr Carr unspecified investment opportunities ("the Management Agreement"). The Management Agreement, which was also signed by Mr Simms, provided that Mr Carr was to transfer the investors' funds into Mr Simms' trust account to await investment. It further provided that Mr Simms could transfer the funds out of his trust account upon a direction given by Messrs Adkins and Weaver pursuant to the Limited Power of Attorney signed by Mr Carr. 15 The relevant terms of the Management Agreement were set out by the primary judge as follows: 39 The Management Agreement signed by Mr Carr on 13 May describes Mr Carr as "the Participant" , Messrs Adkins and Weaver and Kelci Management as "the Consultant" , and Mr Simms as "the Solicitor" . Clause 5 provides: Participant Decision Final: Best Efforts: Participant shall be the sole judge of the matters in which it has requested to invest and by transfer of the Fund into the Solicitor account acknowledges that the decision to invest is solely the Participant's and was acted upon without advice from Consultant or Solicitor, Participant agrees to transfer the Fund into the Solicitor's account. Consultant shall use its best efforts to provide adequate and full information in good faith in aid of Participant's decision, but the Consultant and Solicitor are not a guarantor of the private placement or investment opportunity or anyone's performance thereunder. This Agreement is one for the sharing of profits if and only if a particular investment succeeds, and no compensation is payable to anyone unless an investment opportunity is consummated and profits are generated. The private placement or investment opportunity contract and/or agreement and other related documents are separate from this Agreement and proprietary. The Fund will be protected and managed by the Solicitor as stated in paragraph thirteen (13) of this Agreement. Clause 13 provides: Authority and Duties of Solicitor: Solicitor undertakes the following responsibilities and shall provide the following services: (a) Solicitor shall protect the Fund and make no investment or other distribution of the fund, except to Participant, unless, incident to the private placement or investment, there is a guarantee at least equal in principal amount to the funds distributed or invested ('the Guarantee'). The Guarantee shall consist of one or more of the following: (1) medium term notes, debentures, money market debt instruments, letters of credit issued by banks and securities guaranteed by banks; (2) institutional obligations constituting senior indebtedness; (3) United States Treasury obligations; or (4) a custodial safekeeping receipt or bank warrant undertaking issued with respect to (1), (2) or (3) above. All Guarantees shall be rated 'A+' or better by Standard and Poor's or Moody's Investment Services and issued by banks or institutions organized in Western Europe or North America in acceptable format, non-callable prior to maturity. Guarantees shall be senior obligations of the issuing entity as to principal and, if applicable interest; or (b) the Solicitor, without liability, shall transfer Fund upon direction by the designated Limited Power of Attorney or Special Director(s), if such has been appointed by the Participant; and (c) Solicitor shall participate in an investment opportunity only upon advice and approval of the investment opportunity by Consultant. The Solicitor will act upon such with instructions from the Consultant only upon receipt of written instructions from the Consultant and conditional upon compliance with clause 13(a) or 13(b) hereof. 16 Further events were set out as follows by the primary judge: 27 On 14 May, Mr Carr transferred to Mr Simms' trust account the investors' funds of USD4 million from his Yorkshire Bank account. …
40 On 18 May, Mr Simms sent by facsimile the following letter to Mr Carr: This is to notify you that we have received the funds from Yorkshire Bank.
Messrs Adkins and Weave wish to exercise the Limited Power of Attorney to move the funds to an account at Natwest Bank in Jersey under their control. They would then be [illegible] responsible for providing the security to you in accordance with the terms of the power of attorney, but there would be no way I could monitor this or tell you that it has happened.
As your funds are in our client account in your name and not in the name of Kelci, I am not prepared to transfer the funds without any security unless you expressly so authorise me to do so by signing and returning a copy of this fax. Adkins and Weaver say that you are well aware that they are to have complete control of the funds under the power of attorney but I wish to expressly authorise a transfer out of my account where I will have no control and hold no security on your behalf.
I look forward to hearing from you. 17 Mr. Carr put his signature on this letter, and sent a facsimile copy of the letter with his signature on it back to Mr. Simms. The primary judge then set out Mr. Simms's response: 41 On 19 May, Mr Simms sent by facsimile a letter to Mr Carr in the following terms: I have received your fax and also my fax returned with your counter signature. I have also spoken to you and you have made it clear that you are happy that the funds that were sent to my account should be sent out on the instructions of Kelci and that you were fully aware that I would have no power or control or supervision of the funds once they left our account. Accordingly, I have now received instructions to transfer the funds to National Westminster Bank Plc, 16 Library Place, St Helier, Jersey to the account of DFM Consultants Limited and I am carrying those instructions into effect. 18 On 20 May 1998, Mr. Simms sent the following further letter to Mr. Carr: You have already given me instruction to transfer your funds, but I thought out of courtesy that I would let you know that the funds are now to go to Uni Bank in Copenhagen rather than National Westminster Bank PLC, Jersey. 19 The money was in fact transferred to an account in Copenhagen, controlled by a Mr. Pahl, and it was then lost.
LAWCOVER INSURANCE 20 The relevant terms of Mr. Carr's professional indemnity policy are the insuring clause, the definition of "the Practice" and certain exceptions. The insuring clause is as follows: On the terms and conditions herein contained the Insurer shall indemnify the Assured up to any amount not exceeding the Sum Insured against amounts payable by the Assured to Claimants [including claimant's costs] whensoever occurring arising from any claim or claims first made against the Assured during the Period of Insurance in respect of any description of civil liability whatsoever incurred in connection with the Practice other than loss arising out of any circumstance or occurrence which has been notified under any other insurance attaching prior to the inception of this Certificate of Insurance. 21 The term "the Practice" is defined as follows: (b) "the Practice" means the business of practising as a solicitor undertaken by the Assured or the Assured's predecessor business alone or with others:-
[i] Including acting as Trustee, Executor, Attorney-under Power, Tax Agent, Company Director (but only if Company Directors' Liability cover has been accepted by the Insurer as specified in the Schedule), Secretary, Public Office Public Notary, or any activity declared by the Council of the Law Society of New South Wales to be appropriate to be undertaken as part of a solicitor's practice, which declaration of the Council of the Law Society of New South Wales shall be binding on the Insurer, provided that any fees or other income which accrue from any activities described above inure to the benefit of the Firm or Incorporated Practice or Sole Practice of which the Assured is or was a member.
[ii] But not including practice by the Assured in the course of, or in connection with, or in relation to the Assured employment under a contract of service by an employer not being a solicitor in private practice, except where employer is a corporation and the Assured is required by the corporation to advise or act for another employee of corporation in matters relating to the private property or affairs of the employee. 22 The relevant exclusions are those in cl.5(b)(ii) and (viii): [b] This insurance shall not indemnify the Assured in respect of any liability:- … [ii] Arising from a contract other than a contract to provide services within the definition of "the Practice"; …
[viii] Incurred in connection with a practice conducted wholly outside the State of New South Wales or the Australian Capital Territory.
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.
MR. CARR'S APPEAL Submissions 28 Mr. Robertson SC for Mr. Carr submitted that cl.4 of the JVA only applies at the stage of transfer of money into "the Program", that is, into the contemplated investment. Mr. Carr was otherwise only obliged to exercise reasonable skill and care, and the circumstances of this case were in substance the same as if the money had been in a suitcase stolen by robbers. By giving Messrs. Adkins & Weaver the Limited Power of Attorney, and by entering into the Management Agreement, imposing obligations on Mr. Simms, Mr. Carr had taken appropriate steps to ensure that, when the time came to transfer the money into the Program, cl.4 would be complied with. 29 In written submissions, Mr. Carr submitted that, even if the transfer from the Yorkshire Bank was to the Program, it would have been compliant with cl.4 of the JVA, because a trust account receipt was similar to a bank safekeeping receipt. He further submitted that no other transfer of funds that actually occurred was authorised by him: the proposed transfer to the NatWest Bank was authorised, but did not occur; while the actual transfer to the Uni Bank was not authorised. 30 In relation to the cross-claim, Mr. Robertson submitted that Mr. Carr was acting reasonably and taking proceedings against Mr. Simms' firm of solicitors; and that in those circumstances, it did not matter that he had not obtained judicial advice. In his written submissions, Mr. Carr submitted that the primary judge erred in holding that the indemnity in cl.7 did not apply, and that it excluded the ordinary trustee's indemnity.
Decision 31 In my opinion, the obligation in cl.4 of the JVA to "ensure that the investment funds will be transferred into the Program only upon" specified conditions is not one that arises only at the stage when a Program has been identified and funds are actually being transferred into it. Once the funds are under the control of "the Solicitor" as contemplated by cl.3, the obligation in cl.4 applies; and in my opinion, it is only satisfied by performance of it. Plainly, the loss of the fund means that it was not performed. 32 In my opinion, the requirements of cl.4 were not satisfied by obtaining a trust account receipt, which is quite different from a bank safekeeping receipt or similar bank guarantee document. Further, what was actually done by Mr. Carr, in transferring the money to the solicitors, then giving the Limited Power of Attorney and entering into the Management Agreement, and giving instructions to the solicitors, was part of a process by which money was to be transferred into a "Program"; and Mr. Carr could not fulfil his obligations to ensure that the terms of cl.4 were satisfied by giving that task to others. Accordingly, even if the obligations under cl.4 did not arise until the funds were being transferred into a Program, that process was under way through the events in question; and patently Mr. Carr did not "ensure" that cl.4 was satisfied. 33 Accordingly, Mr. Carr's appeal against the judgment against him fails. 34 As regards the cross-claim, there is a fundamental reason why it cannot succeed. The need for any recovery action only arose because of Mr. Carr's own breach of contract. If Mr. Swart himself had been put to expense in making reasonable attempts to mitigate his own loss, he could have included that in his damages. In my opinion, clearly Mr. Carr cannot reduce the amount of damages payable for his own breach of contract by claiming a set off for money spent with a view to his being able to make up some or all of the loss to Mr. Swart. If he were entitled to an indemnity from Mr. Swart under cl.7 of the JVA, or pursuant to a trustee's ordinary right of indemnity, the amount of this indemnity could be added to Mr. Swart's damages. 35 But for this point, there could in my opinion be some merit in Mr. Carr's criticism of the primary judge's decision. However, it is not necessary to decide this.
LAWCOVER'S APPEAL Submissions 36 Mr. Davies SC for Lawcover submitted that the primary judge erred in four respects: (1) He considered whether the activity in question was part of the practice of solicitors generally, when he should have considered whether it was part of the practice as a solicitor of Mr. Carr. (2) The primary judge considered various indications to the contrary one by one, but never considered their cumulative effect. (3) The primary judge did not consider whether the loss from the particular breach was in connection with the solicitor's practice. (4) He did not consider the relevant exclusion, that is, whether the loss was from a contract other than to provide services within the definition of "the Practice". 37 Mr. Davies also submitted that the resultant finding of the primary judge was in error. 38 Mr. Davies submitted that various features of the contract indicated it was not a contract to provide legal services, in particular: the JVA could not be regarded as constituting the basis of a solicitor/client relationship; Mr. Carr's duties were those of a manager, the only part of whose function requiring legal expertise was under cl.2(B)(b); the obligation in cl.2(b)(a) to receive money into an account at the Yorkshire Bank was inconsistent with a solicitor's obligation to place funds in a solicitor's trust account or controlled money account; cl.7 provided that Mr. Carr was "acting only in a custodial and account providing capacity"; the indemnity in cl.7 against liability incurred by Mr. Carr as a result of his carrying out the terms of the agreement was inconsistent with a solicitor/client relationship; the charge of 1% of net distributed profits was also inconsistent with this relationship; the description of the agreement as a "private business transaction" and the provision that it was governed by the law of England and Wales, also pointed against such a relationship. 39 Mr. Davies further submitted that circumstances outside the JVA itself were strongly against a solicitor/client relationship, in particular: Mr. Carr had never acted as a solicitor in connection with such a transaction; Mr. Swart signed the agreement before he had met or spoken to Mr. Carr, and did not obtain any legal advice from Mr. Carr; and Mr. Carr did not follow his usual practice as a solicitor in opening a file, making a costs disclosure, corresponding with his client on letterhead, and putting money in his trust account. 40 Mr. Davies submitted that it was an error for the primary judge to say it was "of no consequence" that Mr. Carr did not regard himself as acting as a solicitor for Mr. Swart, or that he did not follow his usual practices as a solicitor, or that the transaction was to be carried out outside Australia; and it was an error not to have regard to the provision for a charge of 1% of profits. 41 Mr. Davies referred particularly to the cases of Solicitors' Liability Committee v. Gray (1997) 77 FCR 1 and Lewis v. Real Estate Institute of New Zealand Inc. [1995] 3 NZLR 385. 42 Mr. Glissan QC for Mr. Swart submitted that the matters raised by Lawcover had all been dealt with by the primary judge. The primary judge stated the correct principles and did not misapply them, and no error was shown in his reasons or conclusions.
Decision 43 I am not satisfied that any of the alleged particular errors has been made out, except possibly the one numbered (2). 44 As regards alleged error (1), the definition of "Practice" does not require consideration solely of what was the usual practice of the particular solicitor, and the exclusion of a transaction that was not within that usual practice. The fact that a particular transaction is one not usually undertaken by the particular solicitor may be one factor bearing on the question whether or not it is within "the business of practising as a solicitor undertaken by the Assured", but is no more than that. 45 As regards the alleged errors numbered (3) and (4), the primary judge addressed the question whether Mr. Carr was contracting to act as a solicitor in the JVA, holding that he "undertook duties designed to safeguard Mr. Swart's interests in a manner consistent with what a solicitor would advise a client to adopt". The primary judge held that some of the services required legal knowledge, and that all of the other services were within the scope of services customarily provided by solicitors who advised clients on investment generally and select and manage those investments. As a result, his Honour held that Mr. Carr was engaged to perform services in his capacity as a solicitor. 46 In my opinion, the primary judge thereby in substance found that the JVA was a contract for the provision of services within the definition of "the Practice", and that liability for loss caused by breach of that contract was "incurred in connection with the Practice". 47 As regards the alleged error numbered (2), there is some force in the submission that the primary judge did not address the cumulative effect of various features, and erred in dismissing some of them as "of no consequence" rather than taking them into account along with all the other circumstances. 48 I accept that Mr. Carr's view that he was not acting as a solicitor was not itself relevant; but the objective facts underlying that view do have relevance, in particular: (a) that there was no meeting between Mr. Carr and Mr. Swart prior to the signing of the agreement, so that if there was a solicitor/client relationship under that agreement, it was only through each party independently committing himself to the agreement; (b) the circumstance that there was no fee disclosure, something objectively required if legal services are being undertaken and known to be so at least by Mr. Carr; (c) the charge of 1% of profits, which is not regarded as a proper basis for the charging of fees for professional legal services; (d) the receipt of money into an account that was neither a solicitor's trust account nor a controlled money account; (e) the limitation of Mr. Carr's role to a "custodial and account providing capacity"; (f) the circumstance that persons who would, if there were a solicitor/client relationship, be clients were indemnifying the solicitor against liability incurred as a result of his carrying out the terms of the agreement; and (g) the choice of law clause stipulating that the contract, said to be for the provision of legal services in connection with a practice as a solicitor carried on in New South Wales, was to be governed by the law of England and Wales, a jurisdiction in which Mr. Carr was not qualified to practice. 49 In my opinion, these were all important matters to be taken into account, along with consideration of the other terms of the JVA and the characterisation of the nature of the services to be provided under it. 50 I agree with the primary judge that the fact that the JVA says that the services are to be provided "as solicitor" supports the view that they are legal services; and I agree with the primary judge that the services are generally within the scope of services sometimes provided by solicitors managing investment for clients. However, plainly these considerations are not conclusive. 51 Had the agreement for provision of these services been entered into in circumstances otherwise consistent with a solicitor/client relationship, the agreement as a whole could possibly be considered to be for the provision of services entered into pursuant to Mr. Carr's practice as a solicitor. However, the factors I have referred to in par.[48], together with the predominance of services not requiring legal expertise, strongly militate against that conclusion. 52 This Court should not intervene unless it comes to a positive conclusion that the primary judge has made an error or that his finding is wrong. I am inclined to the view that the primary judge did err in dismissing some factors as "of no consequence" and in not considering the cumulative effect of all the factors I have identified. Whether or not that is correct, I am satisfied that the primary judge was wrong in his conclusion. In my opinion, when considered in all the circumstances I have identified, the JVA was for provision of entrepreneurial and/or management services, to be provided by Mr. Carr otherwise than in his capacity of a solicitor. 53 Although the facts of this case can readily be distinguished from those of Solicitors' Liability Committee v. Gray (1997) 77 FCR 1, that case does support an approach whereby all circumstances are considered and a judgment made as to whether what is done by a solicitor is done as a solicitor or in some other capacity: see 77 FCR at 18, 49-50. The factors I have referred to strongly suggest that the JVA was entered into by Mr. Carr, not as part of or in the course of his practice as a solicitor, but as a distinct commercial venture in which he was playing an entrepreneurial and/or managerial role, and in which the exercise of his legal expertise was at most incidental and peripheral. 54 Accordingly, in my opinion, Mr. Carr's liability for breach of the JVA is not liability "incurred in connection with the Practice" within the Lawcover policy, and the JVA is not a contract to provide services within the definition of "the Practice", that is, Mr. Carr's business of practising as a solicitor. 55 For those reasons, in my opinion the appeal by Lawcover should succeed, and the judgment against it set aside.
ORDERS 56 In my opinion, this Court should order: In proceedings CA 40818/06: 1. Mr. Carr's appeal dismissed. 2. Order that Mr. Carr pay Mr. Swart's costs of the appeal.
In proceedings CA40844/06: 1. Lawcover's appeal allowed. 2. Orders below set aside, and in lieu thereof proceedings dismissed with costs. 3. Mr. Swart to pay Lawcover's costs of the appeal and to have a certificate under the Suitors' Fund Act if otherwise entitled. 57 BASTEN JA: I agree with Palmer J and Hodgson JA that there was a breach by Mr Carr of the investment agreement entered into with Mr Swart and that the losses Mr Swart sought to recover in the proceedings flowed from that breach. I also agree with the conclusion that the costs incurred by Mr Carr in seeking to recoup the losses and thus make good his breach of contract are not recoverable in whole or in part from Mr Swart. Mr Carr's cross-claim was correctly rejected by the trial judge: see Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302. Accordingly, Mr Carr's appeal must be dismissed. 58 In relation to the second matter, I agree with Hodgson JA that the appeal by LawCover Pty Ltd in relation to its responsibility for the losses should be upheld. I would add the following to his Honour's reasons for concluding that the trial judge erred in this respect. 59 Because the liability against which indemnity is sought arose from a breach of the investment agreement, the question is whether that liability was incurred "in connection with" "the business of practising as a solicitor". Each of these phrases requires consideration. 60 The phrase "in connection with" requires a nexus between the liability and the solicitor's practice which, broadly described, requires that the former arose from the latter: see generally Drayton v Martin (1996) 67 FCR 1 at 32 (Sackville J). The closeness and nature of the relationship required must be identified by reference to the context in which the insurance policy was taken out, which includes the statutory context. Although the parties entered into the investment agreement in early 1998, the claim was made pursuant to a 'claims made' insurance policy issued for the 2000-2001 financial year. The policy was issued pursuant to a statutory scheme which required the Law Society Council to refuse to issue a practising certificate to a solicitor not having a policy of indemnity insurance: see Legal Profession Act 1987 (NSW), s 41. Without a current practising certificate, it was an offence for a person to "act as" a solicitor (s 48B) or hold himself or herself out as "qualified to act" as a solicitor: s 48C(2). 61 Although parts of the legal prohibition on unqualified persons undertaking legal work were restricted to work done for a fee - see Legal Profession Act 1987, s 48E - legal practice did (and does) not necessarily require a commercial element. Work done on a 'no fee' or 'fee declined' basis would not for that reason cease to be carried out in the practice of law. To speak of "the business of practising as a solicitor" may suggest that the core activity has a commercial element, although it seems unlikely that the policy would not extend to unremunerated legal services: c.f. Einstein J in Schipp v Cameron [1998] NSWSC 997 at [907] discussing an earlier form of the policy. 62 The nature of the connection can be evaluated by reference to the specific obligation, breach of which gave rise to the liability of the solicitor, or by reference to the broader circumstances in which it arose, namely the investment agreement. On the other side, the connection may be assessed by reference to the practice of a solicitor, generically, or that carried on by Mr Carr. In principle, neither the language of the policy, nor contextual factors, require the adoption of a narrowly defined approach, although the fact that such insurance may be seen as protective of clients' interests, suggests that less weight should be placed on the particular circumstances of the individual solicitor's practice. 63 Whilst it may be accepted that things traditionally done by solicitors may constitute part of the practice of a solicitor, even though those things may also be done by a person who is not qualified to act as a solicitor, it is nevertheless necessary to take account of the statutory scheme for indemnity insurance, which adopted the same concept as did the prohibition on unqualified persons providing legal services. Use of the phrase "the business of" practising as a solicitor must itself be read in this context and not with any assumption as to the breadth of the concept of "business". 64 At its core, practising as a solicitor involves the provision of legal services, including advice and assistance. It will involve a relationship between a person qualified and entitled to practise as a lawyer, and a client. Communications will often be confidential, though the work product may not be. Confidential communications are protected by client privilege from compulsory disclosure: Evidence Act 1995 (NSW), Part 3.10, Div 1. 65 One relevant question is whether the business which Mr Carr agreed to carry out pursuant to the investment agreement imposed on him obligations which could not have been performed by a person who was not a qualified lawyer: c.f. Allen v Aldridge (1843) 49 ER 633; 5 Beav 401 (Lord Langdale MR) quoted by Palmer J at [76]. An affirmative answer to that question, in circumstances where the agreement did not provide for the manager to obtain legal advice as required and provide for the costs of such advice, might well suggest that at least one purpose of the agreement was to provide legal services. A second approach is to ask whether any legal work required to be done under the investment agreement by the solicitor might properly be described as "peripheral to" the focus of the agreement: see Solicitors' Liability Committee v Gray (1997) 77 FCR 1 at 18B (Lockhart J). In a similar vein, the joint judgment of Beaumont and Burchett JJ in Gray gave particular emphasis to a distinction between professional and entrepreneurial activities drawn by Brennan J, when a member of the Federal Court, in Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 (incorrectly referred to in Gray as 47 FCR) at 434-435, in the following terms: "The evidence in this case suggests that the [tax] scheme was promoted by members of the legal and accounting professions, who assumed the mantle of entrepreneurs. But it does not appear that any of the entrepreneurs in the present case assumed the functions of professional adviser to a client, nor does it appear that any professional adviser assumed the role of an entrepreneur. It has not been material to consider whether it is possible for the role of a professional adviser and the role of an entrepreneur properly to coincide or overlap, but the appearance of solicitors performing these respective roles in the present case leads to me invite attention to significant differences between the two functions. … They arise because the field of professional activity is co-extensive with a lawyer's professional duty. That duty is to give advice as to the meaning and operation of the law and to render proper professional assistance in furtherance of a client's interests within the terms of the client's retainer. It is a duty which is cast upon a lawyer, as a member of an independent profession, whether his services are sought with respect to the operation of taxing statutes, the provisions of a contract, charges under the criminal law or any other of the varied fields of professional concern. It is a duty which arises out of the relationship of lawyer and client.
But activities of an entrepreneur in the promotion of a scheme in which taxpayers will be encouraged to participate falls outside the field of professional activity; those activities are not pursued in discharge of some antecedent professional duty. Entrepreneurial activity does not attract the same privilege nor the same protection as professional activity; and promotion of a scheme in which particular clients may be advised to participate is pregnant with the possibility of conflict of entrepreneurial interest with professional duty." 66 Leary was concerned with the application of a tax minimisation scheme, not the liability of a solicitor arising in the practice of law. However, relevantly for present purposes, Brennan J sought to draw a distinction between professional and entrepreneurial activity. Whether or not the dividing line is bright or blurred, the distinction has value. But on one view, his Honour went further, at least suggesting that a lawyer might not properly undertake an entrepreneurial activity with or on behalf of a professional client, perhaps excluding circumstances where, pursuant to contingent fee agreements, the practice of law itself has an entrepreneurial flavour. If that position were accepted, and if the investment agreement were to fall into the category of entrepreneurial activity, it could not properly involve the delivery of legal services in a lawyer-client relationship. While no party took the latter point, the need to distinguish entrepreneurial activity from the practice of law was at the heart of LawCover's case. That distinction was adopted by Einstein J in Schipp v Cameron [1998] NSWSC 997 at [907]. 67 It may be accepted that the statements of Brennan J in Leary were not necessary for the disposal of the appeal before the Full Court and were not reflected in the judgments of Bowen CJ or Deane J. Nevertheless, the passage having been adopted by two members of the Full Court of the Federal Court in Gray, and a similar approach having been adopted by Lockhart J in that case, this Court should adopt a similar approach to the construction of an essentially similar policy of professional indemnity insurance, unless persuaded that the approach of the Full Court was clearly wrong or that the facts are distinguishable in a material respect. 68 I am not persuaded that the approach adopted by all members of the Full Court in Gray, of distinguishing between a claim arising from the practice of a solicitor, in the exercise of professional functions, and a claim arising from entrepreneurial activities of a person who happens to be a solicitor is other than a sound distinction in the context of the insurance policy. Further, in the present case, the activities of Mr Carr and his obligations under the investment agreement clearly fall within the category of entrepreneurial activities. 69 Having referred to early English cases and Gray, the trial judge sought to derive from them a number of propositions: at [85]. The first was that "the capacity in which a solicitor has been acting is always a question of fact depending upon the particular circumstances of the case". No doubt there were material facts to be considered in the present case, but they were few in number and not in contention. The key issue involved the construction of two commercial agreements, the investment agreement and the insurance policy, to see whether a breach of the former by Mr Carr was within the scope of the cover provided by the latter. The exercise to be undertaken was thus, at least in part, mischaracterised in the first proposition. 70 The second proposition was that one of the relevant circumstances in the exercise was "the antecedent relationship between the solicitor and the other party, if any, particularly if there is a history of an acknowledged solicitor/client relationship". That was undoubtedly a material matter against which to view the investment agreement. In this case there was no antecedent relationship, nor any acknowledgment of a pre-existing solicitor and client relationship. That fact should have weighed against the conclusion that the investment agreement involved the provision of legal services by Mr Carr to Mr Swart, but appears to have been largely left out of the balance. 71 Thirdly, having identified various indicia of an agreement which must constitute part of the business of practising as a solicitor, his Honour focused on three provisions in the investment agreement to the exclusion of countervailing considerations, one of particular significance being dismissed "as of no consequence". 72 The first provision in the investment agreement identified by the trial judge (correctly) as supporting the conclusion that the investment agreement was a contract for the provision of legal services was cl 2(A) which read as follows: "2 SOLICITOR (A) The Managing Partner shall act as Solicitor to the Parties and he shall act as paymaster within the auspices of this agreement (hereinafter referred to as 'the Solicitor')." 73 Three aspects of this provision should be noted. The first is that the agreement defined "the Parties" as including the managing partner (Mr Carr), who was therefore acting on his own behalf as well as those of "the Investors". Secondly, cl 2(A) was a general statement of intent: it identified no specific function of the solicitor, so that any relevant function must be found elsewhere in the agreement. Thirdly, a countervailing statement of general intention may be found in cl 7 which commenced: "7 LIMITATION OF LIABILITY OF SOLICITOR AND INDEMNITY The Parties hereby acknowledge and agree that the Solicitor is acting only in a custodial and account providing capacity. Apart from the responsibilities as set out herein, the Parties acknowledge that the Solicitor shall have no further obligations, either express or implied, to perform any function or initiate or conduct any action or legal proceedings, or to make any payment to any third party." 74 The second provision on which the trial judge placed emphasis was the group of functions identified in cl 2(B). However, most of these were adequately described as managerial or administrative. They included receiving investment funds into a bank account (par (a)); executing documentation and opening bank accounts (par (b)); receiving and distributing profits from the investment (par (c)); discounting bank guarantees or pay orders (pars (d) and (e)); keeping the parties informed of the documentation and progress of the investment program (par (g)), and consulting with a Mr White in respect of "the authenticity of the documentation … including the bank guarantee" and to that end obtaining from him "his certificate that in his opinion the program is covered by a bank guarantee, that the program appears to him to be genuine and sound and as to any other matter that he may consider relevant to the desirability of the transaction …": par (h). Paragraphs (i)-(l) were largely repetitive and in similar form. The only paragraph expressly relied upon by the trial judge as demonstrating the need for legal services was par (f) which read as follows: "(f) Implement at the cost of the Parties, pro-rata of their equity investment, any requirement to enforce the bank guarantee as to be received by way of security for the funds invested into the Program." 75 The scope and purpose of paragraph 2(B)(f) is somewhat obscure. If it were intended to include the provision of legal services, those services would have been anticipated as being required in the UK, where the investment was to take place, and would therefore not have been provided by Mr Carr, who had no entitlement to practice in the UK. Separate payment for such services was anticipated, again consistent with the expectation that they would not be covered by Mr Carr's fees provided for in cl 8 as a "charge of 1% of the net distributed profits", a provision which itself was more consistent with an entrepreneurial activity than the provision of legal services. 76 These elements of the investment agreement demonstrate that the centre or focus of the agreement was an entrepreneurial activity in which Mr Carr was, at least by way of the fee arrangement, if not through an undisclosed investment, a joint venturer. There is no express statement of any legal services to be provided by him in Australia. At best any legal services would be peripheral to the central purpose of the agreement. 77 The trial judge held that "the finding and implementation of investments is within the type of practice carried on by solicitors" at [99]. The authorities for that proposition appear to include statements of Kekewich J in Dooby v Watson (1888) 39 Ch D 178 at 182-3 (concerning investment on mortgages for a client) and the remarks of Lockhart J in Gray at 77 FCR 14F and following. However, in Gray, as already noted, Lockhart J, whilst anxious "not to take a narrow view of the role of a solicitor in modern times or the scope of a solicitor's practice" noted that there must be "some point reached where the solicitor ceases to engage in his practice as a solicitor and enter[s] other areas of activity, particularly business activity": at p 14G. The difficulty with the statement of the trial judge at [99] is that it is stated at a level of generality which is inadequate to assist in drawing the necessary line in the particular case. Despite the concerns of Brennan J in Leary, it may be accepted for present purposes that a solicitor can properly carry on entrepreneurial activities with or on behalf of a client of the legal practice: it does not follow that those activities form part of his or her "business of practicing as a solicitor". 78 His Honour was no doubt correct in saying that it was "of no consequence" whether Mr Carr correctly understood the scope of the investment agreement: at [102]. The proper construction of the agreement must be determined objectively. Nevertheless, it was going a step further, as his Honour did at [104], to state: "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." 79 It is no doubt correct to say that the benefits of professional indemnity insurance, available for the protection of the clients of lawyers, should not depend upon whether the lawyer is remiss in compliance with other statutory requirements imposed for the protection of clients. Nevertheless, some matters, such as the absence of any conference with Mr Swart constituted surrounding circumstances which could properly be taken into account in considering the proper characterisation of the contract. 80 Further, his Honour noted as "of no consequence" the fact that the investment transaction was to be carried out "outside Australia and with the assistance of English solicitors": at [105]. It is trite to say that solicitors in Australia "frequently advise on and effect transactions outside Australia with the assistance of foreign lawyers". However, that usually occurs in the context of legal advice and not in the context of entrepreneurial activities. The significance of the fact in the present case was that the one function which might have been thought to involve the provision of legal services was one which Mr Carr was unable to carry out, because the transaction itself was to occur outside Australia. In the circumstances, that fact had significance. 81 For these reasons, in addition to those given by Hodgson JA, there was error in the approach adopted by the trial judge and the proper conclusion was that the liability for breach of the investment agreement was not a liability incurred in connection with Mr Carr's business of practising as a solicitor, for the purpose of the professional indemnity insurance policy.
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Dooby
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