IBRAHIM & Ors v PHAM & Ors [2005] NSWSC 246 | Case summary

IBRAHIM & Ors v PHAM & Ors [2005] NSWSC 246 | Case summary | Zoe

[6]

ASIC v Atlantic 3 Financial (Aust) Pty Limited (2003) 47 ACSR 52 ASIC v Chase Capital Management Pty Limited (2001) 36 ACSR 778 ASIC v Commercial Nominees of Australia Limited (2002) 42 ACSR 240 ASIC v Hutchings (2001) 38 ACSR 387 ASIC v IP Product Management Group Pty Limited (2002) 42 ACSR 343 ASIC v Koala Quality Produce Limited (2002) 41 ACSR 628 ASIC v Pegasus Leveraged Options Group Pty Limited (2002) 41 ACSR 561 ASIC v Vines [2003] NSWSC 1095 ASC v Woods and Johnson Developments Pty Limited (1991) 6 ACSR 191 Astley v Austrust Ltd (1999) 197 CLR 1 Australian Softwood Forests Pty Limited v A-G (NSW); Ex rel CAC (1981) 148 CLR 121 Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Bonn Corporation Pty Limited v Thiess Contractors Pty Limited (1987) 14 FCR 215 Breen v Williams (1996) 186 CLR 71 Brickenden v London & Loan Savings Co [1934] 3 DLR 465 Bristol and West Building Society v Mothew [1998] Ch 1 Brophy v NIAA Corporation Limited (in liq) (1995) ATPR 41-399 Capital Brake Service Pty Ltd v Meagher [2003] NSWCA 225 Churchill v Connolly [2004] NSWCA 212 Citicorp Australia Limited v O'Brien (1996) 40 NSWLR 398 Clark Boyce v Mouat [1994] 1 AC 428 Collier v Morlend Finance Corporation (Victoria) Pty Limited (1989) 6 BPR 13,337 Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 Cvetanoski v Filaria Pty Limited (2002) 171 FLR 194 Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 Dovuro Pty Limited v Wilkins (2003) 77 ALJR 1706 DPC Estates Pty Limited v Grey and Consul Development Pty Limited [1974] 1 NSWLR 443 Duchess of Argyll v Beuselinck [1972] Lloyd's Rep 172 Grey v Australian Motorists & General Insurance Limited [1976] 1 NSWLR 669 Goldcorp Exchange Limited, Re [1995] 1 AC 74 CASES CITED : Gore v Montague Mining Pty Limited [2000] FCA 1214 Haira v Burbery Mortgage Finance & Savings Limited; sub nom Koya v Kaira [1995] 3 NZLR 396 Hawkins v Clayton (1988) 164 CLR 539 Henville v Walker (2001) 206 CLR 459 Heydon v NRMA Ltd (2000) 51 NSWLR 1 Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 Jennings v Zihali-Kiss (1972) 2 SASR 493 Karl Suleman Enterprises Pty Limited (in liq) v Babanour [2004] NSWCA 214 Life Association of Scotland v Siddal (1861) 45 ER 800 Maguire v Makaronis (1997) 188 CLR 449 March v Stramare (E & MH) Pty Limited (1991) 171 CLR 506 Metcash Trading Pty Limited v Hourigan's IGA Umina Pty Limited [2003] NSWSC 683 Moage Limited (in liq), Re; Moage Limited (in liq) v Jagelman (1998) 153 ALR 711 NZ Netherlands Society "Oranje" Inc v Kuys [1973] 2 All ER 1222 O'Brien v Gillespie (1996) 41 NSWLR 549 O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Oceanic Life Ltd v HIH Casualty & General Insurance Ltd [1999] NSWSC 292 Our Lady's Mount Pty Limited (as trustee) v Magnificat Meal Movement International Inc (1999) 33 ACSR 163 Pauling's Settlement Trusts, Re [1961] 3 All ER 713 Parker v McKenna (1874) LR 10 Ch App 96 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 Semrani v Manoun [2001] NSWCA 337 Spellson v George (1992) 26 NSWLR 666 Sunpost Pty Limited v Alsons Pty Limited (unreported, NSW SC, 8 September 1994) Tracy v Mandalay Pty Limited (1953) 88 CLR 215 Trust Co of Australia v Perpetual Trustees WA Limited (1997) 42 NSWLR 237 Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 17 WAR 98 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 Youyang Pty Limited v Minter Ellison (2003) 77 ALJR 895

[26]

JUDGMENT ( Professional negligence - solicitors - Froggy.com - limited retainer - fiduciary duty - managed investment schemes) 1 The causes of action by the three plaintiffs, Rima Ibrahim (Ibrahim), Sargon Badal (Badal) and Badal Investments Pty Ltd (Badal Investments) are pleaded in the Fourth Amended Statement of Claim filed in Court on 4 August 2004. The defence of the first and second defendants is that filed on 2 August 2004, and that of the remaining defendants is that filed on 27 July 2004. 2 The first defendant, Philip Pham (Pham), is a solicitor of this Court. The second defendant Pham Atic Pty Ltd (Pham Atic) is a company registered on 13 June 2001 and a solicitor corporation pursuant to the provisions of the Legal Profession Act 1987 (NSW) - collectively the Pham defendants. The third to sixth defendants are collectively a firm of solicitors known as Dominic David Stamfords (DDS). 3 The claim by the plaintiffs against the Pham defendants arises out of a $70,000 loan from the Bank of Adelaide, which led to a $50,000 investment agreement between Badal Investments and Karl Suleman Enterprises Pty Ltd (KSE) dated 11 September 2000. 4 As against the Pham defendants, the plaintiffs claim in negligence (paragraphs 3 - 31 of the pleadings); a Fair Trading Act 1987 claim against Pham (paragraph 32 of the Statement of Claim), a Trade Practices Act 1974 (Cth) claim against Pham Atic (paragraph 33 - 36 of the pleadings) and breach of fiduciary duty against the Pham defendants (paragraphs 48 - 54 of the Statement of Claim). 5 The plaintiffs' claim against the third to sixth defendants DDS is in negligence, breach of fiduciary duty and contravention of the Fair Trading Act. The allegations in respect of negligence are set out in paragraphs 37 - 46 of the Fourth Further Amended Statement of Claim; the allegations in respect of breach of fiduciary duty are set out in paragraphs 55 - 59 of that pleading, and the allegations in respect of the Fair Trading Act are contained in paragraphs 47 and 47A. 6 The claim against DDS arises out of the discharge of the loan from the Bank of Adelaide, and a refinancing with Perpetual involving a further $50,000 investment with KSE. 7 The sums of money are relatively small compared to the resources devoted to the litigation of the claims. The hearing lasted approximately 16 days with four days of submissions. The evidence in the usual fashion for this kind of case was constituted by many affidavits with substantial annexures and exhibits, by way of evidence-in-chief and lengthy cross-examination. 8 From the point of view of the plaintiffs, the strategic approach is identified as first being two factual bases upon which the plaintiffs must succeed: first, the evidence for the plaintiffs is correct and express representations were made to them by Pham, the solicitor in connection with the first transaction and Ms Jajoo, the solicitor in respect of the second. Secondly, it is contended, that on the defendants' own "scenario" and evidence, the defendants are nonetheless liable. 9 At the outset I should state that the strategic approach for the plaintiffs is flawed by my having quickly formed the view that neither Ibrahim nor Badal was a reliable or credible witness. 10 The nub of the case advanced by Ibrahim is set out in paragraph 15 of her affidavit sworn 17 August 2003. She swears that at the end of the first meeting between her, Badal, Pham and a Mr Varda, Badal asked Pham, "is this investment good?" to which Pham replied, "yes, I am a solicitor. I am involved in the investment. This is a good investment. Read the contract and there is a guarantee." 11 In his affidavit sworn 18 August 2003, Badal says, paragraph 13: "Before we departed the office, I said to Pham words to the effect of: 'Pham, is this a good investment?' Pham responded with words to the effect of: 'Yes. There are solicitors involved in this investment. Read the contract and there is a guarantee.'" 12 As observed in the plaintiffs' summary of evidentiary material, there is no reference in Pham's affidavit to Mr Varda. 13 Mr Varda should have been called by the plaintiffs. That is the Jones v Dunkel ruling I make. He, more probably than not - indeed the evidence is almost overwhelming - was the person who made any representation in the interests of Mr Suleman, whose agent for the gathering together of members of the Assyrian community to invest, he appears to have been. 14 By way of the briefest of examples, Ibrahim was not aided in seeking to have her testimony as a whole accepted as reliable and honest by the elevation of a representation said to have been made by Pham to her in terms that "you will be a millionaire, rich" (T75.25). 15 Even making an allowance for the use of a translator, the emotional overlay associated with these proceedings and the financial self interest, Ibrahim was a poor and obviously unreliable witness. Ibrahim refused to answer direct questions (even through the translator), was unresponsive, forced evidence and made increasingly extravagant claims as exemplified above throughout the course of her cross examination. 16 Initially, Ibrahim said that before the events involving Pham she had not borrowed any money with Badal (with whom she had been residing since widowhood), that she did not provide any assistance to Badal in respect of the loan from the bank (Esanda Finance) for the purchase of the motor vehicle; that she did not sign any loan contract in respect of the motor vehicle in her own name as a borrower. When confronted with the loan document (exhibit 1), Ibrahim agreed that she was described as a borrower in that document, but she could not remember what happened when she signed the April 1999 loan document with Esanda because "It's a long time ago, 99". Notwithstanding that it was only 16 months prior to the events concerning Pham, Ibrahim said in respect of the Esanda loan (exhibit 3) that she could not remember properly. Ibrahim understood that she was signing the loan document with Esanda because she was actually sharing the motor vehicle with Badal; yet said that she did not know what the word "borrower" means now, notwithstanding that in these proceedings the words were being translated to her in her own language (T23.33-.40). 17 Further, before seeing Pham in August 2000, and with the exception of the Esanda loan document, she had made no applications for finance in her own name. Despite initially agreeing that she had made an application on 29 May 2000 to Community First Credit Union for a loan, Ibrahim then said that she had not placed an application. She said that she thought that she was being asked about the loan the subject of these proceedings. Ultimately, she agreed that she did make an application in May 2000 and on 25 May 2000 and also made an application to St George Bank (T26.30-.55) (exhibit 24). 18 There are extraordinary similarities in the precise words used in the affidavits of Ibrahim and Badal (T45.5-52.1). I am satisfied that Badal and Ibrahim could not have had materially identical recollections (that is, the exact same words, punctuation and the like) in relation to a series of conversations which occurred some 3 years prior to the swearing of their affidavits. The identical and incorrect use of the words "(pointing at Badal)" at paragraph 15 of Badal's affidavit and paragraph 20 of Ibrahim's affidavit make it a nonsense to suggest otherwise. I have no confidence in the reliability of the affidavit evidence of the plaintiffs. Inconsistencies in recollections (of the type which have occurred in affidavits in relation to peripheral aspects of the defendants' cases) are to be expected and is a hallmark of honest evidence giving. It is not to be expected that affidavits containing materially identical conversations (precise words, punctuation and the like) by different but financially interdependent witnesses be put before the Court. 19 Ibrahim was uncertain as to the duration of the first meeting with Pham; she gave various time estimates. Notwithstanding there was no reference in her affidavit, she said that Pham said that the whole loans had to be put into one so then he could actually get another loan for her. Notwithstanding being asked direct questions, through a translator, Ibrahim refused to agree that there was nothing in her affidavits concerning the allegation that Pham insisted on a consolidation of the loan. 20 Ibrahim appeared to refuse to be able to agree that in her affidavit, there was no reference to any translation by Mr Varda occurring during the meeting with Pham. The only explanation that Ibrahim could give as to why that matter does not appear in her affidavit was that she did actually say she had a problem in remembering things, but the more "I am asking her the more things are becoming real" (T64.20). After the question was re-read on 2 occasions, Ibrahim did acknowledge that she had said that she had a problem in remembering things (T65.49/64.17). She had a problem remembering things because of an operation she had "on a haemorrhage" in May 1993 which, as she understands it, affects her recollection. Sometimes, that is a reason for her forgetting things. 21 Ibrahim said that Pham did not give her an investment contract at the first meeting, acknowledged that Pham did not say "read the contract" at the first meeting, but immediately changed her evidence when her attention was drawn to paragraph 15 of her affidavit. Ibrahim alleged Pham in effect corroborated Mr Varda's pronouncements as to the investment being good. I did not believe her. 22 Quite unprompted, Ibrahim said that Pham said "You'll be a millionaire, rich", "I will give you my guarantee that this investment will go for 10 years, even more", "This will make you into a millionaire", "I've also done for other people apart from you and they're all very happy", "They're all happy with the amount of income that they're getting in, we'll all be millionaires." (T71.25-.45). Her only explanation as to why these extravagant remarks by Pham do not appear in her affidavit was because she was now being asked. Again I was unpersuaded by her efforts to extricate herself. 23 She said that a lot of people in the Assyrian community were saying "If you want more information, you go to Philip Pham" and they were also "giving him a very good reputation". Then, she said that people were only saying that after the transaction had gone ahead. She then said that people who had already done it said that it was a very good business and that you will succeed in it and Philip Pham is a very good solicitor. Ibrahim alleged that she said these things to Pham, namely, that other people had told her that they had gone with Philip Pham and that he was good and the people which he had done work for were happy. 24 Ibrahim at first did not recall Pham making a phone call in her presence at the meeting on 30 August 2000 (T88.2). She then said the phone call was actually made in a different language, so that is why she did not know if it was in relation to her and Badal or not. She said that he did not make a phone call in front of "us" but he did say "if you just hang on for a minute" and then he went out and came back and said he had made a call. 25 As to the meeting with Mr Nguyen, she said he did not say "Are you guys investing in the trolley businesses?" (T91.54). When shown paragraph 20 of her affidavit, Ibrahim then did say that that bit he was saying and then Sargon said yes then the other bit was if I was a guarantor and I said yes and that's it. These were the words which were being spoken. Ibrahim denied that Mr Nguyen asked her to produce her Medicare card to identify herself (T95.20). However, Mr Nguyen provided a photocopy of it from his file (exhibit 11). 26 Ibrahim alleges that she told Ms Jajoo in July 2001 that "we have done it once before with another solicitor who Jesse George had actually sent us and Jesse George is now sending us to you." (T98.50). 27 The evidence of Ibrahim was materially contradicted by the evidence of each of Pham, Nguyen and Ms Jajoo. Aspects of the evidence of Ibrahim were contradicted by the evidence of Badal.

[28]

31 He said that he now remembered things as they were being said and that is why he was telling the Court: because they have come to mind. He said that his recollection has come back to him since swearing the affidavit. 32 Badal was intending to have a "good time" with $1,350 every 2 weeks. Badal seriously said that he did not want to share that "good time" with Ibrahim (T226.55). Badal, I find, had no credibility in his series of answers when he denied he wanted to share the benefit of his money with Ibrahim, notwithstanding she had put up her house and they had lived together for 10-11 years. Badal asserted that Pham was a representative of the Government so he took his word for it (T232.45). Badal ultimately agreed that he did believe that it was important to his case to win his case that he alleged that 2 solicitors told him on separate occasions that to invest with Karl Suleman would be a good or very good investment. 33 Badal swore that, before being cross-examined on 15 July 2004 (on day 4 of the case), no one had ever told him that he had borrowed $70,000 and not $67,000. That is notwithstanding he was in Court throughout Ibrahim's cross-examination, and that Ibrahim did not dispute that they were actually telling her for every document which she was signing that that is for the $70,000 loan and the investment with Karl Suleman. She knew at the time she granted the mortgage that the loan was for $70,000 (T97.42). Badal seriously could only say "maybe" in answer to the question as to whether he had any real doubt that he received the money to pay out the Esanda loan from Pham (T271.6). 34 Badal insisted that no one had ever explained in his presence to Ibrahim the mortgage on the property notwithstanding they went to two sets of solicitors, that is, Mr Nguyen and Ms Jajoo, and notwithstanding that Badal, on both occasions, acknowledged that he knew what it meant to provide security over the property (T255.25). Badal gives his explanation as to the similarity in the precise words in the affidavits of Ibrahim and Badal as either he was not sure why or that it was because he and Ibrahim had spoken about the matters. The evidence of Badal was materially contradicted by the evidence of each of Pham, Nguyen and Ms Jajoo.

[33]

44 The following matters were the subject of particular and close attention during cross-examination. The letter dated 29 March 2000 to Wilkinson Throsby & Edwards in which it was stated, "On the advice we have received, the transaction is not a prescribed transaction pursuant to Chapter 5 of the Corporations Act" (T518.10). The transaction was for $1 million. Accordingly, on any view, it was not a prescribed transaction for the purposes of the managed investment provisions (see the Appendix to these reasons). Pham said he knew that and that is why he wrote in those terms in the letter of 29 March 2000. This displayed an appreciation and adequate knowledge by Pham of the relevant management investment provisions. 45 I turn to the response to the Isho & Associates letter dated 15 June 2000 (exhibit D). The letter stated "On our instructions the company is not a Management Investment Scheme". Pham's evidence was that he did not believe that the particular transaction was caught under the managed investment scheme provisions at the time because of his belief that there were, at the time, less than 20 investors in the scheme. The factual basis of that belief was not challenged. It is true that, in mid 2000, it now appears that Mr Suleman started to distribute investment contracts from his own office, and it may have been difficult to ascertain precisely the number of members from time to time. However, Pham's belief is consistent with the evidence that, by 11 December 2000, only approximately 30 investment contracts had been entered into. It was not shown that the letter was signed by Pham (although to his credit he "took responsibility" for it: T524.10) or was actually sent. In any event, the explanation that Pham would not have looked at the letter carefully after it was typed up by Ms Locke (T525.27) and the possible/probable mistyping by Ms Locke of what had been told to her by Pham (T525.5) was credible. Pham had some familiarity with the MIS provisions. There is no such thing as a "management investment scheme". Further, a company cannot, of itself, be a managed investment scheme. A "scheme" is, by definition, not a company. His evidence is corroborated by Ms Locke (para 11-12 of Locke 2) and is consistent with Pham's answer given in the liquidator's examination that "I assume I must have" given instructions to Ms Locke about the letter (T526.52). This is especially so in circumstances where the first time after 20 July 2000 when Pham saw the letter was when he was shown it in the witness box during the liquidator's examination (T622.145) (exhibit AG or AH).

[90]

109 Further, in early April 2000 (that is a couple of weeks after 22 March 2000), Pham and Mr Suleman had a conversation. Pham said "How did you go with getting a licence?" Mr Suleman said "Don't worry about the licence". Pham said "But you need to get a licence if you want to operate the scheme because it falls within the MIS provisions of the Corporations Law". Mr Suleman said "Everything's taken care of. Rabbi Pinchus referred me to some big boys in town to care of it. It's not your concern anymore. You suburban lawyers would not know what to do. Just do what I have instructed you to do. Just prepare contracts" (emphasis added) (para 73 of Pham's affidavit). Pham could not recall but agreed that Mr Suleman probably said words to the effect "I want to make sure that everything is according to the law and above board and that people putting money in are protected" (T508). 110 Pham provided one contract in March 2000 (the $100,000 investment involving Wilkinson Throsby & Edwards which did not require registration: see Appendix hereto) and provided some contracts from May onwards on the instructions of Mr Suleman that he had attended to obtaining the licence (T511.20). Those instructions were received first in early April 2000 (para 73 of Pham's affidavit). Pham confirmed that up to mid 2000 he estimated he prepared 15 to 20 purchase (that is, not investment) contracts for Mr Suleman (T438.55). 111 In April/May 2000, Mr Suleman gave Pham plausible explanations as to the circumstances surrounding the obtaining of the licence/registration (using a large firm in town) and Mr Suleman's continuing desire to use the services of Pham to prepare contracts notwithstanding another firm had obtained the registration/licensing (para 76 of Pham's affidavit). 112 In May 2000, Ms Locke heard Mr Suleman tell Pham that the licence "is all taken care of" and Pham requested a copy of the licence for the file (para 16 of Locke's affidavit, 18 June 2004). 113 In July 2000, he obtained advice from counsel that he could not "go behind" those instructions (para 99 of Pham's affidavit). This was confirmed by Ms Locke in her evidence (paras 24 and 27 of Locke's affidavit). Dr Robinson confirmed that it sounded right that in about July 2000, Pham told her "Karl told me he doesn't require me to take care of getting his licence. He says he has got a boy in town to get everything set up. My instructions are not to worry about the licence, but to prepare the agreements but everything else will be taken care of. What do you think?" and Dr Robinson said "If that's your client's instructions, you can't go behind them." (T666.30, also T606.20/604.4). 114 Pham was told by his client on a number of occasions that the licence/registration had been obtained (T473.55, paras 73, 100, 101 and 107-109 of Pham's affidavit). 115 After May 2000, Pham asked Ms Locke to ask Mr Suleman for a copy of the licence (T618.20; para 17 of Locke's affidavit). Ms Locke told Pham that Karl Suleman had said everything was okay, that he did have a licence and that he would provide a copy (T618.25; paras 18-19 of Locke's affidavit).

[99]

124 I have no reason to believe that as at August/September 2000 Pham did not have an honest and reasonable belief as to the solid financial circumstances of Karl Suleman Enterprises. 125 Mr Suleman was highly regarded by the Assyrian community. He was a charismatic figure (T685.21). Pham had an honest and reasonable belief that any scheme was registered (see above) and believed that the source of Mr Suleman's money was from his business and the money people were investing with his business (T592.5). 126 Pham accepted that Mr Suleman could provide the returns that he promised (T443.52) and there is nothing to suggest that there was ever any default by Mr Suleman with any payments to anyone prior to November 2001 (the payments subsequently made to the plaintiffs of $62,325 were regular). Pham saw a bank statement of Mr Suleman's with a balance of millions of dollars in it (T446.25) in the early part of 2000 (T447.42) and believed that the reason Mr Suleman had a bank balance of millions of dollars was because people were placing funds with him on the contracts he was drawing up and income from the trolley businesses (T445.50-447.5). Mr Suleman had told Pham that he had been doing the trolley businesses for many years (T447.10). The evidence is that he had started the trolley business as a sole operator in about 1991 (page 22 of exhibit 15). Pham was also shown Mr Suleman's personal tax return which showed an income of about $250,000 per year (T448.5). 127 When Mr Suleman instructed Pham to act on a particular sale, the trolley business, the subject of the sale was on a list given by Mr Suleman to Pham (e.g. page 7 of exhibit 8 to Pham's affidavit) (T450). Pham denied that the returns on the list given to him by Mr Suleman were significantly less than the amounts which Mr Suleman was promising to various purchasers per fortnight (T452.17). 128 Pham was cross-examined about the Woolworths Ballina agreement dated 27 March 2000 (T464.50). Pham said that there was an amount of payment that was promised to an investor (purchaser); and the particular store was allocated to the particular investor because the income from the particular store would cover the payment to the investor (T464.27). Pham said that the sole purpose of allocating a store, according to his instructions, was that the particular investor has an allocation to a store where there would be sufficient payment to be made to the investor (T465.5). I do not consider Mr Pham's conduct undue, negligent or the document itself misleading. 129 Pham's dealings with Karl Suleman were regular (T550.15), as was demonstrated by the list of files handed over by Pham to DDS (exhibit F). 130 Pham's move into his own office was not very much influenced by the amount of work that Mr Suleman was providing him (T553.40). He acknowledged that one of the reasons that he had moved was his belief that he would get Froggy work to support his office but denied that, without that work, he would not have had enough income to maintain his office (T553.45). Pham was not reliant upon Mr Suleman to continue to provide work to him (T553.55). The work that he did for Mr Suleman was something extra. During the year 2000, Pham opened about 300 files and during 2001 600 files, and was not relying on Mr Suleman's work at all (T554.5). Pham candidly said that he did want to keep Mr Suleman's work (T554.7). Pham said that whatever work Mr Suleman could provide, Pham could provide a service (T554.7). However, Pham did not mind one way or another whether Mr Suleman kept providing him with work because Pham was having a new focus in his practice. He had a new practice partner (Mr Atic) and they wanted to go into litigation and did very well with that (T554.15). In 2000 after Pham moved into the new office, Mr Suleman was not providing the bulk of the work (T554.17). Pham was not reliant in the months up to September/October 2000 upon Mr Suleman to keep his practice going (T555.25). Putting aside the $75,000 (or $100,000) he received in respect of Froggy, in the calendar year 2000, Mr Suleman and his companies only accounted for 10% to 15% of Pham's income in his practice (T555.53). Pham reserved 35% of the shares in Froggy Holdings for no consideration but for setting up and assisting Mr Suleman run the business (T553.25). In September or October 2000, Pham ceased to be involved in the active management of the companies in the Froggy Group (T554.40).

[167]

193 I have concluded that there was no duty to speak because any information would have been confidential to Karl Suleman: Brophy v NIAA Corporation (supra). There was no reasonable expectation that another will speak in circumstances where the plaintiffs were of some relevant prior commercial experience having retained solicitors and made finance applications previously; where Pham did not know of their personal circumstances other than as investors (T568.25); where Pham was not a member of the Assyrian community (a factor relied upon heavily by the plaintiffs in the case against DDS (T1039.38); where the plaintiffs had already decided to invest when they saw Pham; where the plaintiffs had already decided to borrow money to invest when they saw Pham; where the plaintiffs had already decided to put up Ibrahim's unit as security for the loan whey they saw Pham; and where the plaintiffs already had the existing Esanda loan which they wished to repay when they saw Pham. 194 Further, the plaintiffs had already relied on representations made to them by, inter alia, Mr Varda (and not Pham) as to the $1,350 every two weeks; Mr Varda had explained the KSE investment contract to the plaintiffs (T70.20-.30), not Pham; the investment agreement had a cover page which was entitled with KSE's address, Pham's address (exhibit 3; RI7 of exhibit A); the plaintiffs only went to see Pham to obtain finance; and the obtaining of finance and attending to settlement was all that was discussed at any of the 3 meetings as being what Pham would do. 195 Pham had expressly stated that he was Suleman's lawyer (para 132 of Pham's first affidavit) and the plaintiffs assumed that he also acted for Mr Suleman's companies (T108.10/215.55-216.1) and would be paid by Mr Suleman for so acting (T108-10-.17/272.25); Pham expressly stated that he could not act for the plaintiffs in terms of providing independent legal advice about the mortgage or investment (para 132 of Pham's affidavit); he strongly advised the plaintiffs to see independent legal advice about the mortgage and investment (para 132 of Pham's affidavit); and said that he was only prepared to assist on that basis (para 132 of Pham's affidavit). 196 Pham obtained the plaintiffs' agreement to proceed on that basis (para 132 of Pham's first affidavit), made disclosure of relatively modest fees (para 132 of Pham's affidavit), and to Pham's knowledge, the plaintiffs did actually obtain independent legal advice before investing (that is, Mr Nguyen on 31 August 2000) and the plaintiffs did actually obtain accounting advice before investing (that is, Mr Nguyen on 31 August 2000). 197 Pham honestly and reasonably believed that the scheme was registered. The plaintiffs had ample time (about 6 weeks) to consider their position between first meeting with Pham in late July/early August 2000 and investing on 11 September 2000, and they made no statement to Pham to indicate that they were relying on him for anything else than arranging finance and gave no evidence that they were actually/did rely on him. 198 For the above reasons, this component of the plaintiffs' case fails.

[184]

"You are considering investing in an unregistered management investment scheme. It appears to have been operating for a short period. It appears to be profitable and has significant community support. An investment contract with Karl Suleman would still be a binding legal contract. The scheme itself is not illegal but those promoting it are liable for an offence under the Corporations Act. If the scheme is not registered, a number of people could apply to the Court to have the scheme wound up. It is not possible to tell, if the scheme is wound up, whether you will have all or any part of your initial investment return and although you may be able to retain the benefit of moneys received by you prior to it being wound up. The returns are high, you may well be able to recover your initial investment and more before the scheme is wound up. The scheme may still be able to be registered but it may not. If it is not, you have an election to void the investment contract before any winding up occurs. What do you want to do?" 222 On the evidence before me, I simply cannot be satisfied that the plaintiffs (even if the fourth scenario applied) would not have proceeded with the investment in any event, either before or after attempting to negotiate different terms with KSE. The whole Assyrian community believed in Karl Suleman. A large number of people in that tight knit community had made significant investments and achieved significant returns. Badal knew that there was a risk of Ibrahim losing her property because of the transaction with the Bank and he knew that at September of 2000. He knew that a business failing was the possibility of Karl Suleman's business failing (T248.20). Badal believed that, if he was still working, he would be able to make the repayments if Mr Suleman's business collapsed (T250.35). 223 Further, as to the $50,000 investment, Ibrahim thought Mr Suleman would use it how he thought best in any business provided she got and Mr Sargon got $1,350 every 2 weeks (T75.50). Ibrahim wouldn't have minded what was going to happen with the money provided she got her $1,350 every 2 weeks (T76.5). Badal did not mind how Mr Suleman used the money invested for his business purposes (T272.2). 224 Finally, Ibrahim was anxious to assist Badal in the investment (see paras 65-67, 69, 72, 73 and 82 above). She could not participate in the investment because of her pension but I infer she would be pleased to enjoy the fruits of the investment.

[188]

The Plaintiffs' Action against the Third to Sixth Defendants (DDS) 228 The first observation I make is that when it came to the plaintiffs dealing with DDS, on their own admissions, if not as a matter of boasting, they had had experience in investing with Mr Suleman. The second observation I make is, conformably with the view I formed of the plaintiffs vis-à-vis the first and second defendants, that that same view applies as between the plaintiffs DDS and any conflict in testimony will be resolved in favour of what I can now generally state to have been a range of far more impressive witnesses called for these defendants. 229 Many of the matters set out in the submissions prepared for the plaintiffs as against DDS, if not all, have been dealt with by me hitherto. 230 It is to be noted that Suzie David had acted for Ibrahim's husband and on behalf of Mrs Ibrahim in personal injury proceedings. In addition to those matters, I am of the view that there is a generality of coincidence between the matters of fact asserted in terms of the Assyrian community's awareness of Karl Suleman and the allegations at least as to state of knowledge in the two plaintiffs at the time that they first dealt with the first and second defendants. 231 DDS's submissions are as follows: I will adapt and adopt them as I consider appropriate. 232 As DDS rightly submits, the determination of each of the claims depends in large measure on the conclusions drawn as to the events of the meeting which took place on 2 July 2001 between the first and second plaintiffs and Ms Jajoo, an employed solicitor of DDS. It is submitted that Ms Jajoo's version of events ought be accepted and preferred to that of both the first and second plaintiffs wherever there is conflict. I have indicated my approach in this regard already. The plaintiffs' claims in negligence and under the Fair Trading Act will therefore fail. Similarly, it is submitted the breach of fiduciary duty case ought fail in circumstances where DDS's retainer did not extend beyond the loan and mortgage transaction to a retainer to act on the proposed investment transaction. It is submitted that the plaintiffs have in any event failed to establish that they have suffered any loss as a consequence of any alleged breach of duty or misleading or deceptive conduct on the part of DDS.

[189]

233 As I have remarked, at the end of May 2001 the plaintiffs had previous experience of borrowing money together and had relatively recent experience of borrowing money from the Adelaide Bank, secured against Ibrahim's property, to fund an investment with Karl Suleman Enterprises Pty Limited ("KSE"). In addition, each of them had previous experience of making applications for finance (T136.8, 229.40 and Exhibits 24, 25 and 27). 234 As has been discussed above, in August 2000, Ibrahim appreciated that it was necessary, in order to obtain the loan from the Adelaide Bank, for her to make the property available. She knew that people who borrow money are obliged to pay it back. The circumstances of Ibrahim's involvement with the valuation of her unit in August 2000 I accept suggested an appreciation of the role her unit would play in that transaction. When Ibrahim and Badal met Mr Nguyen in August 2000 they obtained an explanation of the Adelaide Bank loan and mortgage documents and were told that if the payments to the bank were not able to be made the property may be lost (see affidavit of Mr Nguyen, paragraph 12 and T642.52). 235 By late May 2001 the experience of investing with KSE had proved to be most satisfactory, in that the fortnightly payments of $1,350.00 received in full and on time greatly exceeded the amount necessary to make the monthly payments to the Adelaide Bank. The plaintiffs were aware of other investors who were similarly well pleased with their investments with Mr Suleman who enjoyed a very good reputation in the community, including that of a highly successful businessman (T132.10, 133.35, 134.46, 286.40, 293.55). The opportunity to invest a further amount with KSE was received by both Badal and Ibrahim with some enthusiasm (T138.38-138.47). Neither Badal nor Ibrahim obtained further information concerning Mr Suleman or KSE, or even to speak to their accountant Mr El Gamal (T134.25, 135.40-135.54, 294.24). It seems that Badal spoke only with Mr Varda before discussing the matter with Ibrahim (T293.48). 236 I am satisfied that Ibrahim was happy to assist in the making of the further investment by way of using her property to support the loan (T135.56-136.2), and that she understood that her property was to be used as a security and that if the loan could not be repaid the property may be lost to the lender. 237 The enthusiasm with which the plaintiffs approached the possibility of a further investment is revealed by the fact that within about two days of their discussion of the proposal they had attended upon Quick Loan Services and met with Mr Jesse George (T136.41, 294.48). Ibrahim made the appointment (T294.51). After obtaining necessary documents overnight, they attended the office again the following morning (T139.17, 145.49). On that occasion (1 June 2001) they met with Mr Zia George, and an application for finance was completed (Exhibit 2). Ibrahim told Zia George that she owned the unit and that it had been put up for a previous loan (T141.14). It seems that such application was approved unconditionally on the same day (see Exhibit 14, page 5). 238 I accept that, contrary to the evidence of both the plaintiffs, no appointment was made for them by Mr George to attend upon Ms Jajoo (see affidavit of Ms Jajoo paragraphs 65 and 70 and T756.41). Rather, Zia George told them to contact DDS (T145.43, 296.20) and told them that documents would be sent by Quick Loan Services to DDS (T145.56, 296.24). Ibrahim accordingly telephoned the office of DDS late in the afternoon of 1 June 2001 and spoke with Ms Jajoo (see affidavit of Ms Jajoo paragraph 6 and Exhibit 14, page 3; compare T147.18-147.53).

[193]

245 The evidence given by Ms Jajoo on the one hand, and by Ibrahim and Badal on the other, differs markedly both in relation to the conference on 2 July 2001 and also in relation to other contacts between the first and second plaintiffs and DDS. 246 For the reasons which follow, I accept Ms Jajoo as a credible and reliable witness, I generally accept her version of events, and prefer her evidence to that of both Ibrahim and Badal wherever there is conflict, as I have said. The evidence given by both Ibrahim and Badal was unreliable in numerous respects and important aspects of their evidence lacked credibility. 247 Ibrahim's evidence is undermined by her admitted memory difficulties (T64.19 and 65.50), the claimed recollection in the witness box of significant matters not contained in her affidavit (eg T154.44-155.16), numerous inconsistencies in her evidence (eg as to whether she signed the investment agreement in 2000 and as to the number of meetings and conversations she had with Ms Jajoo) and substantial differences between her affidavit version of events of the 2 July 2001 conference and the concessions she made in cross examination as to what was said at that conference. On a number of occasions she appeared to have the capacity to comprehend English, even when relatively complex matters were put to her (eg T22.50, 32.33-32.54, 80.34 and 115.47). 248 As far as Badal is concerned, his reliability is affected by the circumstance that whilst he claimed not to be able to read English (T182.27 and 199.04) it seems that his affidavit was not translated and read to him in the Assyrian language. Further, in the early stage of his cross examination he gave the appearance of having very little ability to speak English, but following the morning tea adjournment (T199) he appeared to dramatically improve in that regard. 249 As has already been observed, it is also noteworthy that significant parts of the affidavits of the plaintiffs are in identical terms yet both of them claimed not to have discussed with each other the details of the events in question (T112.15, 274.15). I have not accepted these claims. Indeed, it is inherently unlikely that following the collapse of KSE they would not have extensively discussed the problems they thereby faced. 250 I consider the plaintiffs' versions of the events of the conference of 2 July 2001 as inherently unlikely. The suggestion that Ms Jajoo merely placed the numerous documents in front of them and obtained their signatures, without offering any explanation at all, may be regarded as extravagant. This is particularly so in circumstances where Ibrahim in particular eventually made numerous concessions in cross examination to the effect that Ms Jajoo was providing an explanation of the various documents which were signed. I accept Ms Jajoo's assertion that her affidavit version of events was correct (T153.23-154.23). 251 Ms Jajoo, in giving her evidence, I found to be a careful, thorough and reliable witness with a good recollection of the relevant events. In substance, her evidence was only challenged in two significant respects, namely, that the 2 July 2001 meeting was short and involved no explanation of the documents, and that positive recommendations were given by her as to investing with Karl Suleman. In all the circumstances I accept her denials. 252 As far as the circumstances of the 2 July 2001 conference are concerned, the contents of Ms Jajoo's file note (Exhibit 14 pages 40-43) coupled with the numerous concessions made in cross examination by Ibrahim strongly point in favour of acceptance of Ms Jajoo. A useful table was provided with submissions which aided coming to this view. 253 As to the allegation of the making of positive recommendations is concerned, Ms Jajoo's evidence that she said she did not advise and was not in a position to approve or disapprove of any investment, I accept (see affidavit of Ms Jajoo paragraph 48, page 22; and see T748.17, 749.12, 773.23 and 781.08). The making of such a statement is consistent with the limited knowledge possessed by Ms Jajoo as to the details of Mr Suleman's business activities generally and the details of any investment proposed to be made by the first and second plaintiffs (see T744.50 - it is noteworthy that there is no evidence that Ms Jajoo ever saw an investment contract involving KSE, let alone one proposed to be entered into by any of the plaintiffs). Further, the making of such a statement was consistent with Ms Jajoo's practice not to advise refinancing clients as to any investments they may be contemplating making using the proceeds of the finance (see T749.57-750.08, 770.50-771.04). It was not suggested to Ms Jajoo that she did not have such a practice. In short, Ms Jajoo stated that she did not advise as to the proposed investment, neither approved nor disapproved of it, and recommended that independent legal advice and financial advice be obtained about it: this I accept on the probabilities.

[194]

254 The first contact between the plaintiffs and DDS occurred late on the afternoon of 1 June 2001 when Ibrahim had a telephone conversation with Ms Jajoo (see affidavit of Ms Jajoo paragraph 6, Exhibit 14 page 3). Ibrahim's denials of this conversation (T147.16-147.53, compare 151.41) I do not accept. During that conversation Ibrahim informed Ms Jajoo that she was refinancing her existing loan, and she inquired as to whether DDS had received any paperwork (Zia George of Quick Loan Services had informed Ibrahim and Badal that papers would be forwarded to DDS (T145.56, 296.24 - I infer that he was referring to the Royal Guardian Mortgage Corporation loan approval). The approval, which was apparently given on 1 June 2001 (Exhibit 14 page 5), was not forwarded to DDS until the afternoon of 4 June 2001 (Exhibit 14 pages 4 and 5).). On 5 June 2001 Ms Jajoo telephoned Ibrahim to inform her that DDS had received the unconditional loan approval letter. She also requested that Ibrahim bring in a current loan statement so that the discharge of the existing mortgage could be organised (affidavit of Ms Jajoo paragraph 10; Exhibit 14 page 6; T148.02, 148.18). It appears that Ibrahim then had a telephone conversation with Vivian Joseph of DDS on 19 June 2001 concerning the loan documents, the discharge of the existing mortgage and title to the property (affidavit of Ms Jajoo paragraph 11, Exhibit 14 page 7; T149.19-150.06). About half an hour later Ibrahim telephoned Ms Jajoo (affidavit of Ms Jajoo paragraph 12, Exhibit 14 page 8; T148.29-149.17). In this conversation, Ibrahim said that the loan papers had still not been received and that she had been telephoning Quick Loan Services about them. Ms Jajoo reminded Ibrahim to bring in a loan statement so that the discharge of the existing mortgage could be organized. Ibrahim agreed to bring the loan statement in to Vivian Joseph. 255 Shortly thereafter the plaintiffs attended the offices of DDS and signed a Discharge Authority (Exhibit 14 page 10 and Exhibit A-RI11 page 332; T150.28-150.58, 297.11-297.57). Ibrahim and Badal did not meet with Ms Jajoo on this occasion. I accept Ms Jajoo's evidence that there was only one meeting with them (T757.12-757.50). The likelihood is that they dealt with Vivian Joseph or perhaps Lena Moward in relation to the Discharge Authority. On 19 June 2001 DDS wrote to Home Loans Centre Management Pty Ltd enclosing the executed Discharge Authority (Exhibit 14 page 11). 256 I note that Ibrahim conceded in cross examination (T147.10) that she was probably mistaken about her claim contained in paragraph 33 of her affidavit, that about two days after meeting with Zia George on 1 June 2001 she attended the office of DDS without Badal, met with Sabrina Jajoo, and had a conversation with her concerning investing with Karl Suleman. 257 On 22 June 2001 DDS wrote to Ibrahim thanking her for her instructions to act on this refinance (Exhibit 14 page 19 and Exhibit A-RI11 page 324). On 25 June 2001 Ibrahim telephoned Vivian Joseph to ask her about the letter and to inquire about the whereabouts of the mortgage documents (Exhibit 14 page 24; Ibrahim's denials at T151.51-152.23 I reject). The matter was left upon the basis that telephone contact would be made once the documents arrived. 258 On 27 June 2001 Ibrahim had a telephone conversation with Lena Moward of DDS (Exhibit 14 page 31). Ibrahim was told that Heidtman's (the lender's solicitor) were sending documents in the next few days (T152.31). It was at this point that an appointment was made to see Ms Jajoo on Monday 2 July 2001 at 2.00pm (T152.39). During this conversation Ms Moward requested Ibrahim to bring various documents to that appointment (see T152.41-153.21). This conversation must have taken place in the English language (T785.29). It appears that later on 27 June 2001 the loan and mortgage documents were received by DDS from Heidtman & Co (Exhibit 14 pages 26-30). At some stage during that day Ibrahim telephoned the office of DDS to speak with Ms Moward but was not able to do so (Exhibit 14 page 25). 259 On 2 July 2001 the conference between Ms Jajoo, Ibrahim and Badal took place. I accept Ms Jajoo's account of the meeting: the number of documents which were executed at the conference, the detailed information included in Ms Jajoo's file notes (Exhibit 14 pages 40-43) and the fact that Ms Jajoo made three telephone calls during the course of the conference, reveals that the evidence given by Ibrahim and Badal to the effect that the meeting only took 15 minutes is entirely implausible. Ms Jajoo's version of events is corroborated by the terms of her file note. The note was prepared during the conference (T747.58). It provides support for her evidence to the effect that she did not provide any advice concerning the proposed investment, but rather recommended that Ibrahim and Badal obtain independent legal advice and financial advice concerning such investment. The terms of the file note also corroborate her evidence to the effect that Ibrahim and Badal were well aware that the proposed investment was risky but were nonetheless prepared to run those risks due to their faith in Mr Suleman and the high returns which such investments promised. 260 After the 2 July 2001 conference DDS wrote to Heidtman & Co enclosing the executed documents (Exhibit 14 pages 72-73). Only routine conveyancing tasks remained to be performed. These tasks were carried out over the next few days in preparation for settlement which was anticipated to take place on 9 July 2001 (see affidavit of Ms Jajoo paragraphs 53-59). Settlement in fact took place on 10 July 2001 (Exhibit 14 page 85). The next day, Ibrahim and Badal went to the office of DDS to collect various documents including the cheque drawn in favour of KSE (affidavit of Ms Jajoo paragraphs 61 and 62, Exhibit 14 pages 87-92; affidavit of Ibrahim paragraph 37 and T173.57, affidavit of Badal paragraph 28 and T316.20). After receiving the cheque they went together to meet with Jesse George (see affidavit of Ibrahim paragraph 41, affidavit of Badal paragraph 32 and T316.48-317.21).

[195]

261 Accepting as I do the evidence of Ms Jajoo, the retainer, I find, was plainly limited to acting and advising on the loan and mortgage transaction. Ms Jajoo I find properly discharged the loan and mortgage retainer. She gave a thorough explanation of the principal obligations to be assumed under the loan and mortgage documents, and did so in a language in which both the first and second plaintiffs were fluent. When they left the conference they must have been in no doubt as to their obligations and their potential liabilities to their new lender. That they at least appreciated that they were borrowers is confirmed by their conduct on 1 August 2001 when they both attended the office of Royal Guardian and signed a payment variation request (see Exhibit 4 and T318.15-319.30). 262 The DDS defendants see the plaintiffs' case appearing to proceed upon the assumption that the scope of the responsibilities assumed by DDS included advising on the proposed investment in KSE (see paragraphs 39 and 40). In the end I hold this not to be so. I do think, however, as with the Pham defendants, the plaintiffs nonetheless contend that, notwithstanding the limited retainer which existed, DDS was under a common law duty to advise in relation to the proposed investment in KSE, and that such a duty included an obligation to disclose to the plaintiffs information which DDS obtained in the course of assisting Mr Suleman and/or KSE to obtain advice concerning compliance with Corporations Law requirements. 263 In this regard it is important to note that such information as DDS acquired in relation to such matters was confidential to Mr Suleman and/or KSE. This is the case whether DDS was acting as the solicitors in the matter or were acting as agents in the conveying of information and advice as between Mallesons Stephen Jaques and its clients. DDS was not in a position to disclose the details of such information or advice to other persons. Although restrictions created by obligations of confidence may be able to be overcome through the obtaining of appropriate consents from a client, there is no obligation upon the solicitor or the firm to do so. 264 I do not see, myself, that the information which DDS possessed concerning KSE's business operations would, in July 2001, have been material for clients being advised about a proposed investment in KSE to know. Such information as was possessed lacked clarity and was somewhat out of date. Whilst it was known that the way in which investment funds had been obtained in relation to trolley collection businesses may have constituted a managed investment scheme which was required to be registered, DDS and in particular Ms David did not know whether that was the current position. She knew that various proposals were under consideration by Mallesons Stephen Jaques in the period up to the termination of DDS's instructions in late May 2001. She did not know what had occurred since that time, including what structure and what type of contracts Mr Suleman and/or KSE was now employing (It seems that by August 2001 KSE was entering into loan contracts with investors. See Plaintiffs' tender bundle Volume 5 page 1805; T498.12-498.39.). There is no suggestion that she knew that any business or investment scheme conducted by Mr Suleman or KSE might be, or be likely to become, insolvent. 265 In any event, the evidence of Mr Cornelius was to the effect that if the solicitor or the firm possessed knowledge which would be material for the clients to know in being advised about a matter, but the solicitor or firm was unable or unwilling to impart that knowledge to the clients, then it would not have been appropriate for the solicitor or the firm to proceed to advise about that matter (T391.33). In those circumstances, the appropriate course for the solicitor to take would be to suggest that the clients obtain advice about the investment elsewhere (T391.35, 397.55). This is what Ms Jajoo did (see affidavit of Ms Jajoo paragraph 48, page 22 and T747.50, 770.05-770.13, 774.01). 266 Even if the knowledge possessed by the solicitor or the firm is not regarded as material for the clients to know in being advised about a matter, but the solicitor or the firm was otherwise unable to advise about a matter because to do so would involve a breach of fiduciary duty, the appropriate course would be to proceed as outlined above. (It would be the same position if the solicitor or the firm, although not precluded by fiduciary duties or obligations of confidence from advising as to the matter, chose not to do so because, for example, the solicitor or the firm did not consider themselves appropriately qualified.) The assumption referred to in paragraph 262 above has not been made out. 267 The particulars of negligence the plaintiffs' rely upon are cognate to those alleged as they arise in relation to the Pham defendants. The responses are the same and I do not propose to elaborate. None is made out. 268 In relation, however, to the particular of negligence contained in paragraph 46(p) of the FFASC, which was added by way of amendment on 3 August 2004, the essence of the allegation is that DDS, through Ms Jajoo, ought to have ascertained from the plaintiffs at the outset the purpose or purposes of the refinance and that if the purpose or any purpose included payment of funds to KSE, DDS should not have accepted any retainer from the plaintiffs. 269 The allegation appears to be in terms of a common law duty of care, although it ought be regarded as an allegation of breach of fiduciary duty. (The plaintiffs appear to recognise this by also including the allegation in paragraph 55 of the FFASC.) No evidence was adduced by the plaintiffs to suggest that it was a common practice amongst solicitors proposing to act on a loan and mortgage transaction, to make any such inquiries. The onus rested upon the plaintiffs in this regard. Indeed, the evidence of Ms Cornelius relevantly proceeds upon the assumption that a solicitor acting on a refinance transaction might not become aware of the purpose or purposes of such refinance until a late stage in the conduct of that retainer (see the report of Mr Cornelius paragraphs 39 and 42(a), and T392.53-394.07, 395.48 and 397.05). Neither was it suggested to Mr Bluth that any such practice existed. Further, it was not put to Ms Jajoo that her practice of asking clients towards the end of the retainer about the destination of funds (T729.35) was in any way inappropriate. 270 I conclude that Ms Jajoo's practice in this regard was not negligent. Again, as Mr Cornelius accepted, a solicitor acting on a refinance who possesses knowledge or has a relationship with a third party can nonetheless properly carry out that retainer at least before becoming aware that one of the purposes of the refinance is to invest with the third party. Indeed, even at that point there would be no reason why the solicitor could not continue with the retainer if only routine conveyancing tasks remained to be performed (see T395.43-396.29).

[196]

271 The submissions for DDS on fiduciary duties conform generally with those made for the Pham defendants; nonetheless I shall refer to them. 272 The relationship of solicitor and client is recognised as one in which fiduciary obligations are owed by the solicitor to the client (see Maguire v Makaronis, supra, at 463). Accordingly, the solicitor is under a duty to avoid acting in circumstances where there is any real or substantial possibility of conflict between its duty to serve the interests of the client and its personal interest, or any actual conflict between its duty to serve the interests of the client and duties owed to another client (see, for example, Oceanic Life Ltd v HIH Casualty & General Insurance Ltd [1999] NSWSC 292 at paragraph 40; Pilmer v The Duke Group Ltd (in liq), supra, at paragraph 78). The solicitor is under an overriding duty to ensure that his or her loyalty to the client remains undivided (see Maguire v Makaronis, supra, at 465; Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at paragraphs 196-197). In this context, the focus is upon the solicitor who actually does the work for the client as opposed to the firm (see Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 17 WAR 98 at 109). 273 Again, the scope of the retainer is of paramount importance: see Hospital Products Limited at 97 per Mason J. I refer also to the evidence of Mr Cornelius at T357.03 and 399.25 in this regard. 274 It was made clear by the joint majority judgment in Pilmer at paragraph 83 that allegations of breach of fiduciary duty must not be too general. The conflicting duty or interests must be identified. Further, there is a distinction between a case in which a fiduciary acts for separate clients in the one matter and a case in which a fiduciary has, on an earlier occasion, acquired information which is relevant to another matter in which the solicitor acts for a different client (see Beach Petroleum NL at paragraph 204). In Beach the Court of Appeal seemed to accept that the former situation involves a breach of fiduciary duty, it not being possible for the fiduciary to simultaneously act for or against the same client, whereas the second situation does not involve any breach of fiduciary duty but rather falls to be considered under the law of negligence, breach of contract, confidential information, etc. As the Court of Appeal stated at paragraph 206, a breach by a solicitor of an obligation to make information available to its client is not a breach of a fiduciary obligation but is rather a breach of a duty of care. That view accords with the prevailing orthodoxy in Australia that fiduciary obligations are proscriptive rather than prescriptive in nature: see Breen at 113 and 137-8; Pilmer at paragraph 74. 275 With respect to DDS, as far as fiduciary obligations are concerned, two main factual issues arise. First, whether at the time DDS was acting for the first and second plaintiffs it was also acting for another client in circumstances where a conflict existed between its duty to the first and second plaintiffs and its duty to the other client; and secondly, whether at the time DDS was acting for the first and second plaintiffs there was a real or substantial possibility of conflict between the solicitors' own interests and their duty to serve the interests of the first and second plaintiffs. 276 The first and second plaintiffs retained DDS during the period 1 June 2001 to 11 July 2001. During that period, DDS did not act for KSE. Its role in relation to the obtaining by KSE of advice from Mallesons ceased in late May. During the relevant period the firm did, however, have Mr Suleman and some of his related companies as clients pursuant to various retainers (see affidavit of Suzy David 26 July 2004, paragraphs 7-25). None of those retainers concerned KSE or any trolley collection business. As far as any personal interests are concerned, these are essentially confined to the indirect shareholding interests held by Suzy David and Fred David (his interest appears to have been shared with that of his wife, Ms Jajoo) in Froggy Music Pty Ltd. Those interests came about as a consequence of the reinvestment of the proceeds of an earlier investment made with Mr Suleman. There is no evidence that any member or employee of DDS held an interest (whether direct or indirect), in KSE or in any trolley collection business. I agree with this analysis. 277 Further, I see no reason why DDS or Ms Jajoo could not carry out the refinancing retainer with undivided loyalty. No conflict existed between the duties owed to the first and second plaintiffs in carrying out that retainer and any duties owed under any retainer by Karl Suleman or companies associated with him. The duties owed in relation to existing retainers did not conflict in any way with those owed to the first and second plaintiffs under the refinancing retainer. The plaintiffs have failed to establish such conflict. It was not put to any of the DDS witnesses that any conflict of this character existed. Moreover, such personal interests as existed were not such as to give rise to a real or substantial possibility of conflict between those interests and the firm's duties to the first and second plaintiffs under the refinancing retainer: see Pilmer at paragraphs 78 and 79. 278 Accordingly, I hold that there was no breach of fiduciary duty by DDS in accepting and carrying out the refinancing retainer. Indeed, as was recognised by Mr Cornelius, no question of conflict even arose until Ms Jajoo became aware that one of the purposes of the refinance was to make a further investment in KSE (see T393-4, 395.48, 396.1-396.11). This did not occur until the end of the 2 July 2001 conference, by which time all of the advice had been given concerning the documents and the documents had been signed. 279 No breach of fiduciary duty was involved in DDS continuing from that point to carry out the routine conveyancing tasks which remained (see the evidence of Mr Cornelius at T396.13-396.29; and Pilmer at paragraph 131). To suggest otherwise would be to defy commonsense (see Mr Cornelius at T398.25). Ms Jajoo cannot be criticised for carrying out the remaining routine tasks. Her judgment in that regard was entirely appropriate, particularly in circumstances where she recommended independent legal and financial advice be obtained elsewhere as to the proposed investment. Mr Cornelius was clear in his view that the appropriate course was taken, namely, to inform the clients that the firm was not in a position to advise about the proposed investment, and to recommend to the clients that advice be obtained from another solicitor and financial advisor (see T391.35, 397.55). 280 The Fair Trading Act claims are contained in paragraphs 47 and 47A of the Fourth Further Amended Statement of Claim. The claims are expressed to be in the alternative. In relation to paragraph 47, the relevant conduct complained of is described in paragraphs 47(b) and 47(c). Paragraph 47(b) appears to rely upon the contents of paragraph 33 of Ibrahim's affidavit. There is no evidence to support the claim contained in paragraph 33 of her affidavit and, indeed, she conceded in cross examination that she was probably mistaken (see T147.10). 281 Paragraph 47(c) appears to relate to the claims made by both Ibrahim and Badal that at the 2 July 2001 conference, Ms Jajoo made positive recommendations about investing with Karl Suleman. Those claims are not accepted. 282 The conduct alleged in paragraph 47, I find, did not occur and that aspect of the claim made under the Fair Trading Act fails. 283 The allegation in paragraph 47A focuses entirely upon a failure to disclose particular matters. The definition of conduct in section 4(2) of the Act includes a refusal to act; that concept includes refraining from doing an act only where such is other than inadvertent. Accordingly, it is necessary to establish that there was actual advertence to the question of whether the act should be done or not, and the formation of an intention that it not be done (see Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 at paragraph 58 per Hodgson JA). These matters were not established so this claim also fails. 284 Notwithstanding the above, it is to be observed that in determining whether conduct contravenes section 42 of the Fair Trading Act, it is necessary to view the relevant conduct in the light of all relevant surrounding circumstances. Silence, or a failure to disclose information, is to be assessed as a circumstance like any other (see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32). It is not necessary to establish the existence of a general law duty to disclose such information. However, the existence of a general law duty to disclose information is a relevant factor, as is the existence of circumstances giving rise to an expectation that disclosure of particular information will be made (see, for example, Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 at 404-405). 285 Thus it is said a question therefore arises as to what information the first and second plaintiffs could reasonably expect to be furnished by DDS as their solicitors acting on the loan and mortgage transaction. Certainly they could reasonably expect DDS to disclose all information which would be material for them to know in being advised as to the loan and mortgage transaction. However, unless DDS was acting for them on the proposed investment with KSE, the first and second plaintiffs could not reasonably expect DDS to disclose all information which would be material for them to know in being advised on the proposed investment. This would particularly be the case where any such information was confidential (see Brophy v NIAA Corporation Ltd (in liq) (1995) ATPR 41-399 at 40,411). Clients of a firm of solicitors do not reasonably expect to be furnished with information from the solicitor which is confidential to other parties. In fact, clients of the solicitor expect the solicitor to respect confidences. Thus, had DDS accepted a retainer to act on the proposed investment, the first and second plaintiffs could reasonably have expected either that DDS would disclose all information which would be material for them to know in being advised on the proposed investment or, if DDS was not willing or able to do so, to decline to act for them on the proposed investment (see the evidence of Mr Cornelius at T391.35 and 397.55). 286 However, as I have held, DDS did not accept any such retainer. Rather, Ms Jajoo informed her clients that the firm would not be acting or advising on the proposed investment, and recommended that the clients obtain independent legal and financial advice elsewhere. In those circumstances, the first and second plaintiffs could not reasonably expect disclosure of information which would be material for them to know had such a retainer been accepted, the more so where such information is confidential. 287 Accordingly, there was no failure to disclose any information which the first and second plaintiffs could reasonably have expected to be disclosed to them in the circumstances. Moreover, the statements made by Ms Jajoo in relation to the proposed investment were not misleading because she clearly stated: that the firm could not advise in relation to the proposed investment; that the firm had previously been involved with Karl Suleman in relation to obtaining legal advice concerning the structure of his businesses which may not have been set up properly; and that the clients should obtain independent legal and financial advice about the proposed investment so that its risks are explained. 288 Overall, viewed in the context of what Ms Jajoo was doing (i.e. declining to act on the proposed investment and recommending independent legal and financial advice about it), no misrepresentation or erroneous impression was created. Certainly, the statements made by Ms Jajoo cannot be regarded as providing reassurance concerning the proposed investment. She expressly stated that she was not in a position to either approve or disapprove of the investment and recommended that advice be obtained concerning the risks of such investment. For these reasons, this aspect of the claim made under the Fair Trading Act can also be dismissed.

[197]

289 DDS in their submissions deal also with causation to the same purport as those for the Pham defendants. 290 Three different remedies are involved: common law damages for breach of contract, equitable compensation for breach of fiduciary duty, and statutory damages pursuant to the Fair Trading Act. However, in respect of each remedy, the proper approach is to adopt a common sense view of causation in determining whether the losses claimed by the plaintiffs were caused by the relevant wrongful conduct: March v Stramare (1991) 171 CLR 506; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-3; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525; and Henville v Walker (2001) 206 CLR 459 at paragraphs 61 and 95. The plaintiffs bear the onus of proof of causation: see, for example, Gore v Montague Mining Pty Ltd [2000] FCA 1214. 291 As I have earlier said, by the time contact was made with DDS on 1 June 2001, Ibrahim and Badal had already decided upon a course of conduct, namely, the borrowing of further funds secured over Ibrahim's property so as to enable a further investment to be made with KSE. Moreover, they were approaching the proposed further investment with enthusiasm. Ibrahim in particular exhibited keenness for the matter to proceed quickly, and in fact showed signs of impatience as opposed to there being "no rush" (T175.10). 292 Even if, contrary to my findings, the position was that Ms Jajoo made positive recommendations concerning investing with Karl Suleman, the plaintiffs have not established that had such statements not been made, they would not have proceeded with the investment. Neither Ibrahim nor Badal gave any evidence to that effect. The only evidence of such character is contained in paragraph 59 of Ibrahim's affidavit where she deposes that she would not have borrowed the funds if she knew that she risked losing the property. That evidence was supplemented in cross examination by evidence to the effect that she would not have proceeded with the transaction if she had known there was even "a slight risk in investing" (T116.45). That evidence, together with her evidence generally to the effect that she was unaware of any risk to her property in the event that the loan could not be repaid, totally lacked credibility. 293 Upon the obtaining of the unconditional loan approval from Royal Guardian Mortgage Corporation, the second investment with KSE was inevitable. Neither Badal nor Ibrahim saw any need to obtain further information concerning Mr Suleman or KSE, or even to speak to their accountant Mr El Gamal (T134.25, 135.40-135.54, 294.24). They went to DDS so that the legal formalities involved in the refinancing transaction would be dealt with. Their attitude is clearly illustrated by the fact that, having received a recommendation from Ms Jajoo to obtain independent legal advice and financial advice concerning the proposed investment, neither of those steps was taken. Instead, the cheque made out in favour of KSE was immediately taken to Mr Suleman's office where arrangements were made for a further investment contract to be entered into. There was no evidence adduced by the plaintiffs that, had they been given any advice about an unregistered managed investment scheme, they would have changed course. The plaintiffs' submission that it was up to the defendants to put such matters to the plaintiffs in cross-examination is incorrect and amounts to an attempt to reverse the onus of proof. 294 There is no evidence that, had DDS declined to act in relation to the refinancing transaction, that the outcome would have been any different. No evidence was adduced to the effect that had Ibrahim and Badal gone to another solicitor they would have obtained advice of a different character which would have caused them to decide not to proceed after all. Indeed, the evidence of Mr Cornelius is relied upon by DDS in support of the contention that DDS, in carrying out the refinancing transaction, acted appropriately, particularly at the point in time when knowledge was acquired that one of the purposes of the refinance was to make a further investment with KSE. 295 In paragraph 227 above I have referred to the plaintiffs' approach to equitable damages. For DDS it is submitted that if it was held that DDS was in breach of fiduciary duty by continuing to act, it would be necessary to consider what would have happened had DDS instead ceased to act. The stricter view of causation, as exemplified in Brickenden v London Loan & Savings Company [1934] 3 DLR 465 does not seem to apply to a case such as the present. Brickenden concerned a transaction between solicitor and client in which the solicitor preferred his own interests over that of the client (see Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 at para 42). The Brickenden principle seems to be confined to cases in which the beneficiary is seeking recovery from the fiduciary of an undisclosed benefit, as opposed to cases in which the beneficiary seeks equitable compensation for loss (see Beach Petroleum NL v Kennedy supra, at paragraphs 434-448, especially 444; White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 at paras 137-139 and 142-146). With this analysis I am also predisposed to agree, though not conclusively to pronounce upon. 296 The making of the second investment was dictated by a combination of the perceived success of the first investment, and the faith reposed in Mr Suleman as a successful businessman and a community leader of high standing. There is no evidence which would justify any conclusions as to the precise reasons why KSE failed. It may have been caused by poor management, commercial misfortune, or even inappropriate or dishonest business practices on the part of Mr Suleman and his agents. It may have been caused by a combination of such factors. That all remains in the realm of speculation. Nonetheless, it seems clear that, upon a common sense basis, the cause of any losses suffered by the plaintiffs was their misplaced faith in Mr Suleman. As referred to earlier in these reasons, it was not part of the role assumed by DDS to discover whether such faith was misplaced or not, or to give any advice accordingly.

IBRAHIM & Ors v PHAM & Ors

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (257 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (40)

Cited By (8)