Harle v Legal Practitioners Liability Committee [2003] VSCA 133

Harle v Legal Practitioners Liability Committee [2003] VSCA 133 - VSCA 2003 case summary — Zoe

[11]

As a result, the appellant mentioned the proposal to Osuzlu and his sister and a number of discussions regarding the proposal then took place between them during the latter part of May 1995 and the appellant kept McKay informed of these developments. During this period the appellant received from McKay various documents pertaining to the proposed investment, including a letter from his company, Enterprise Funding and Investment Pty. Ltd. ("Enterprise"), dated 11 May 1995, which essentially restated much of what McKay had earlier told the applicant about trading programme investments. More specifically, the letter said, amongst other things, that Enterprise had been offered an opportunity by Leveraged to participate in a "Leveraged Investment Programme sanctioned by the US Federal Reserve and operated through a leading Securities House in the US for the sole purpose of raising funds for refugee work in the Republic of Liberia". It further stated that one Esther Nysletta Tubman ("Tubman") "Counsellor at Law in Liberia ...is the Founder and Administrator of a registered US charitable organisation, namely International United Charities Foundation U.S.A. ("IUCF")" and that she had been introduced to a "Federal Reserve Trader who assisted in setting up this Programme with the Securities House". From other documents which McKay provided to the appellant at the same time, the clear inference was that the "Securities House" referred to in that letter was Smith Barney Inc, a reputable U.S. broking house. McKay's letter claimed that Enterprise had carried out a due diligence on the Programme and that it held copies of all relevant documentation to support Tubman's claim. The appellant was told that Enterprise was "pleased to offer you One (1) of the Five (5) contracts it holds with [Leveraged]". The letter concluded by effectively putting some pressure on the applicant to decide quickly whether to take up the offer. It said that the contracts had been issued to twenty potential investors and "will be received on first come first served basis until the five (5) contracts have been signed and completed. As time is of the essence with this offer your earliest reply would be appreciated as it is anticipated that all the contracts will be taken up by Friday 19th May 1995."

[18]

"Dear Sir, Re: Loan of US$2 million approved for I.U.C.F., USA/Ms. E. Nysietta Tubman I am the Founding Director and sole Administrator of the above Charity which is Registered as a Corporation in Delaware USA under the Registration Code 209/1 - Tax Exemption Number 126-212. I.U.C.F., USA was established in December 1990 with my own personal funds, the blessing of my country of Liberia, and has since received full support from the Church of Christ Harlem New York and the African American Institute, United Nations New York USA. I.U.C.F. USA is a non-profit organisation that raises funds exclusively for the refugees of Liberia. The funds that are raised by I.U.C.F. USA are used to purchase foodstuffs, clothing, medical services and to educate the numerous children in homes and orphanages in and out of Liberia. There are a number of education programs in existence at present as a result of funds raised by I.U.C.F. USA. In my capacity as a Counsellor at Law, I am also the authorised Trustee to sign on the accounts of I.U.C.F. USA both in the USA and Switzerland. Thank you for the loan which you have arranged for the foundation, Banking co-ordinates are enclosed. Your lender's funds are received into these Trust accounts that have been made available by the Banks and under instructions from the Lender and I.U.C.F. USA the Banks are not permitted to release the funds until a Bank Guarantee from a top 100 world Bank has been issued for the funds and they have authenticated same. I will personally oversee this procedure and will only sign the release for the funds when I can guarantee in my capacity as an Attorney that your Lenders capital has been secured without risk. Your Lenders' will receive interests and profits equal to their capital loan investment after the first four (4) weeks of trading and then each four (4) week period thereafter for a period of forty (40) weeks over a twelve (12) month period (this is allowing for Public Holidays and down time in Trading Dec/Jan each year). The initial capital loan investment is US$2 million and the return is 0.5% per week for forty (4) weeks. All payments are made direct to your Lender's every four (4) weeks in arrears by Bank Endorsed Payment Order from I.U.C.F. USA's Bank so your Lender will need to complete the enclosed Pay Order so that it can be lodged at the Bank for endorsement immediately funds are lodged with the Program Manager and trading commences. I trust that I have given you enough comfort for your Lenders to participate in the Program. Yours faithfully, E. NYSIETTA TUBMAN, Counsellor at Law, Notary Public R.L. Missionary Work in Liberia P.O. Box 1743 Manhattansville Station New York N.Y. 10027 U.S.A."

[20]

"Whereas:- A. IUCF is a Charitable Organisation registered both as a Sierra Leone (N.G.O.) Non Governmental Organisation and a Delaware USA Organisation under Registration Code 209/1. IUCF also operates in Joint Venture with Missionary Work in Liberia USA, Registered as the appeal Branch of the Church of Christ, Harlem, New York, P.O. Box 1743, Manhattansville Station, New York N.Y. 10027, U.S.A. Tax Exemption Number 126-212, for the purpose of mass National and Worldwide appeal for the benefit of the Liberian children in need. B. The Founding Director and Sole Administrator of IUCF is Counsellor at Law, Ms. Esther Nysletta Tubman (hereinafter collectively referred to as `IUFC') of 85, Riverdale Avenue, Yonkers, New York, N.Y. 10791, U.S.A., who is also authorised to contractually bind IUFC. Ms. Esther Nysletta Tubman is also personal representative of Minister Dr. R.C. Wells, of the Church of Christ, Harlem, New York. C. IUCF has as Patrons to the Charity a number of Security Traders and their Banks who are experienced in the management of the Secondary Security Market, trading Bank Instruments for profit. D. The Lender has subject to the terms of this Agreement, agreed to lend to IUCF the sum of US Two Million dollars (US$2 million) (hereinafter called the `Loan Principal'). E. IUCF has agreed to pay to the Lender the sum of US Five Hundred Thousand dollars (US$500,000) per week for Forty (40) weeks over a period of Twelve (12) months from the date of this Agreement by Four (4) weekly payments in arrears (hereinafter called the `Trading Profits'). F. IUCF has agreed to provide certain Bank Securities to the Lender in respect of the Loan Principal and the Trading Profits. Now it is Agreed 1. The Investor shall within Twenty Four (24) hours of execution of this agreement pay the Loan Principal to the Bank account of IUCF described in the Schedule, by Express Wire transfer. Such Express Wire transfer shall be generally in accordance with Annexure 'A' hereto and shall be expressly subject to the provision to the Transferor Bank on behalf of the lender of (a) an unconditional, irrevocable Guarantee from a Top One Hundred (100) World ranking Bank (hereinafter called a 'Prime Bank') in favour of the Lender , guaranteeing the repayment of the Loan Principal by IUCF on the expiration of One (1) year and Two (2) weeks from the date hereof. (b) a Pay Order generally in accordance with Annexure 'A' hereto to the Lender Bank account described in the Schedule from IUCF and endorsed by a Prime Bank. Upon provision of the Guarantee and Pay Order described in sub-paragraphs (a) and (b) the Loan Principal shall be released to or to the order of IUCF. IUCF shall provide such Guarantee and Pay Order within Two (2) days of payment by the Lender of the Loan Principal."

[25]

The appellant claimed in his evidence that when he went to the bank on the afternoon of 29 April 1995 he was satisfied that the trading programme was genuine, but became concerned when told by the bank that it was likely to be a scam. Consequently, he telephoned McKay from the bank premises and repeated to him what he had been told by the ANZ bank officer. McKay said that he would return his call. Approximately 10 minutes later, McKay rang back and told the appellant that he had related the bank's concerns to Tubman and Mayman and that they said that it was not surprising that the bank made such claims because it was jealous of "outsiders" being involved in trading programmes and did not want to lose control of Alianda's deposit. The appellant then telephoned Tubman who assured him that the trading programme was genuine, that the money would be protected at all times and that she would personally guarantee the return of the investment. The appellant also telephoned Mayman and was told much the same. Notwithstanding these assurances, which the appellant passed on to the bank and to his clients, the bank officers refused to take any action to transfer the funds. After they left the bank, the appellant repeated to Ozuslu and Ms Harle that that the bank's refusal to transfer the money was motivated by its jealousy and desire to retain their funds. He then telephoned McKay and told him what had occurred and McKay said that he would make the transfer arrangements through Citibank. Not surprisingly, Ozuslu and Ms Harle became concerned about the transaction given what they were told by the bank. In his cross-examination, the appellant said that he, too, was concerned about the matter even after he had spoken with McKay and Tubman; he said that upon leaving the bank he was not totally satisfied about the bona fides of the transaction and that is why he sought written assurances about it (from McKay). He said that he told Ozuslu and his sister that he would make further enquiries and that McKay was to do the same. The appellant claimed that he telephoned McKay and asked him for written confirmation about the procedures relating to the investment and the parties involved.

[61]

(a) On the face of the information that was given to the appellant, an experienced commercial solicitor, it was almost inconceivable that the proposed (unexplained) program, which was said to be concerned with refugee work in Liberia, could produce a return of 1,000 per cent in one year. The suggestion that a very large amount of money should be placed in such an investment would ordinarily give rise to an apprehension that it might be no more than a device to persuade investors to part with their money. At the very least, it screamed out for an explanation as to how the money would be used to earn such staggering profits, and yet no such explanation was given to (or sought by) the appellant. The requirement for a full explanation would have been heightened by the lack of a rational reason as to why the appellant could not sight - even on a confidential basis - the master agreement which was supposed to govern the transaction.

(b) A reputable major bank, with international presence, advised that the scheme was probably fraudulent.

(c) The nature and the terms of the documentation that was provided to the appellant by McKay and to which I have referred raised further queries as to the genuineness of the transaction.

(d) During the period leading to the investment, the position of Smith Barney as a participant in the money flow and as trustee of the funds and of the prime bank guarantee, became progressively and increasingly vague, and later its role in that regard was effectively terminated. Moreover, during the period when Smith Barney was to be the trustee, no confirmatory letter was forthcoming from it. Worse still, McKay sought to fob off his promise of such a letter by producing an unsigned copy of a letter, purportedly from Smith Barney, the terms of which were unacceptable to the appellant and when he sought to change those terms to overcome the perceived deficiency, Smith Barney was effectively "taken off the scene".

(e) No prime bank was ever nominated by the scheme promoters. Moreover, the bank guarantee, which was obviously a most critical document, was not provided to the appellant and his claim to his sister that the later produced pro forma guarantee referred to earlier was "just as good" as the promised guarantee, defied credulity.

At a glance

Court

Decision date

Before

Source

Judgment (97 paragraphs)

Parties