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Malcolm Douglas Carr trading as Forshaws Neill v. Swart & Ors.; Lawcover... [2007] NSWCA 337 | Case summary | Zoe

NSWNSWCA

Malcolm Douglas Carr trading as Forshaws Neill v. Swart & Ors.; Lawcover Pty. Limited v. Swart & Anor. [2007] NSWCA 337 (27 November 2007)

[2007] NSWCA 337

Court of Appeal (NSW)|2007-11-27|Before: Beazley JA, Hodgson JA, Basten JA, Palmer J

View on NSW Caselaw

At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2007-11-27

Before

Beazley JA, Hodgson JA, Basten JA, Palmer J

Catchwords

CONTRACT

Source

Original judgment source is linked above.

Catchwords

CONTRACT

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Appeal Outcome: Special leave application dismissed by the High Court - 12 June 2008 - [2008] HCASL 355

New South Wales

Court of Appeal

CITATION: Malcolm Douglas Carr trading as Forshaws Neill v. Swart & Ors.; Lawcover Pty. Limited v. Swart & Anor. [2007] NSWCA 337

HEARING DATE(S): 22 October 2007

JUDGMENT DATE:

27 November 2007

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.

CASES CITED: Dooby v Watson (1888) 39 Ch D 178

Drayton v Martin (1996) 67 FCR 1

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

PARTIES: Malcolm Douglas Carr trading as Forshaws Neill - appellant

Daniel Frederick Victor Swart - respondent

Janet Anne Swart - respondent

Lawcover Pty. Limited - respondent/appellant

Malcolm Douglas Carr - respondent

FILE NUMBER(S): CA 40818/06; 40844/06

COUNSEL: Mr. T.F. Robertson SC with Mr. J.E. Lazarus for Mr. Carr

Mr. D. Davies SC with Mr. D. Pritchard SC for Lawcover

BEAZLEY JA: I agree with Hodgson JA and with the additional reasons of Basten JA.
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.
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.
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.
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.
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
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.
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.
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.
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. …

The primary judge continued the narrative: 23 In April 1998, Mr Carr returned to London where he was introduced to Mr David Adkins and Mr Charles Weaver, who controlled a company called Kelci Management Consultants Ltd. Messrs Adkins and Weaver were fraudsters. Mr Carr was also introduced to a Mr Paul Simms, senior partner of a firm of solicitors in London called Bower Cotton. Mr Simms was probably an accomplice of the fraudsters. He was later struck off the Roll of Solicitors after a finding by the Solicitors’ Disciplinary Tribunal that he had been actively involved in making, promoting or facilitating bogus transactions which lacked any honest commercial purpose. 24 Messrs Adkins and Weaver proposed an investment scheme which guaranteed extremely high profits in a short time, with no risk. Mr Carr did not understand what the scheme was but he believed them. 25 On 8 May Mr Carr executed a Limited Power of Attorney in favour of Kelci Management and Messrs Adkins and Weaver, authorising them to deal with the investors’ funds in the Yorkshire Bank account in Mr Carr’s name, upon certain terms.
The relevant terms of the Limited Power of Attorney were set out by the primary judge as follows: 38 The Limited Power of Attorney which Mr Carr signed in favour of Messrs Adkins and Weaver and Kelci Management on 8 May relevantly provides: To Whom It May Concern. I the undersigned, Malcolm D. Carr, …, hereby confirm and declare with full responsibility, that I agree to give this Limited Power of Attorney …to manage and administer the placement of the funds and the placement contract to Kelci Management Consultants, Limited, Michael David Adkins … and Charles H. Weaver … fully authorising and empowering them, individually or together, by or on behalf of the undersigned to: 1) Assign and invest my funds for placement into a secured investment, provided that the said funds accepted into that placement are secured by a Guarantee or Safekeeping Receipt for one (1) year and a day, issued by a top Western European Bank rated A+ or better by Standards and Poor and/or Moodys, for One Hundred percent (100%) of the principal amount of the investment. …

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.
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.

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.
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.
The money was in fact transferred to an account in Copenhagen, controlled by a Mr. Pahl, and it was then lost. LAWCOVER INSURANCE
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.
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.

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.
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.
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.
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).

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.
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.
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
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.
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.
Accordingly, Mr. Carr’s appeal against the judgment against him fails.
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.
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
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”.
Mr. Davies also submitted that the resultant finding of the primary judge was in error.
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.
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.
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.
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.
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
I am not satisfied that any of the alleged particular errors has been made out, except possibly the one numbered (2).
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.
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.
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”.
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.
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.
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.
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.
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.
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.
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.
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.
For those reasons, in my opinion the appeal by Lawcover should succeed, and the judgment against it set aside. ORDERS
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.

Lawcover’s appeal allowed.
Orders below set aside, and in lieu thereof proceedings dismissed with costs.
Mr. Swart to pay Lawcover’s costs of the appeal and to have a certificate under the Suitors’ Fund Act if otherwise entitled.
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.
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.
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.
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).
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.
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.
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”.
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.
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.

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].
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.
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.
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.
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.
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”.
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’).”
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.”
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.”
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.
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.
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”.
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.”
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.
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.
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. **********