Schipp v Cameron, Harrison and ors [1998] NSWSC 997

Schipp v Cameron, Harrison and ors [1998] NSWSC 997 - NSWSC 1998 case summary — Zoe

[1254]

643 By late December 1988, Mrs Schipp had continued to regard Mr Harrison as a partner who was also a solicitor. She had watched him prepare documents relating to the Mary Street Joint Venture and was well aware that he had handled the `legals', which meant the Mary Street purchase and sale conveyancing transactions. She had been advised by him of the tax problems she would encounter on her capital gains from Mary Street, absent new arrangements. She believed that he was obliged to act in the interests of all the parties who were to participate in Kembla Street. She understood that he was to act for Pyogrove and for the Kembla Street participants in all matters relating to the purchase and procuring of finance and in all dealings requiring legal training and relating to the procuring of Council consents and similar. She relied upon him to act in the interests of Pyogrove and of all the participants in the Kembla Street Joint Venture and never turned her mind to his position of conflict of interest in acting in a matter in which his personal interests and those of the participants would or might be in conflict. In particular, Mrs Schipp relied upon Mr Harrison to inform her of the meaning and content of legal documents she was being asked to sign. She was not told by Mr Harrison that she could, or should, or that it was advisable for her to, obtain independent legal advice before signing documents. Both Mr Harrison and Mr Cameron were well aware that Mrs Schipp had once been well and truly dressed down for approaching Mr Baird and were well aware that Mrs Schipp believed, as I find she did, that to approach Mr Baird again would be regarded by Mr Cameron and by Mr Harrison as an act of disloyalty and as an indication that she could no longer be trusted as committed to the Kembla Street joint venture but might at any second determine not to participate in that joint venture. Mrs Schipp was in this way caught in the web of the Kembla Street joint venture without a real option to seek outside advice if she wished to remain in it. She had become entangled in this web by a number of operative factors including :

[1295]

21 The fact that by late December 1988 Mrs Schipp had continued to regard Mr Harrison as a partner who was also a solicitor. She had watched him prepare documents relating to the Mary Street Joint Venture and was well aware that he had handled the `legals' which meant the Mary Street purchase and sale conveyancing transactions. She had been advised by him of the tax problems she would encounter on her capital gains from Mary Street, absent new arrangements. She believed that he was obliged to act in the interests of all the parties who were to participate in Kembla Street. She understood that he was to act for Pyogrove and the Kembla Street participants in all matters relating to the purchase and procuring of finance and in all matters relating to the Joint Venture or the Development. She relied upon him to act in the interests of Pyogrove and all the participants in the Kembla Street Joint Venture and never turned her mind to his position of conflict of interest in acting in a matter where his personal interests and those of the participants would or might be in conflict. She relied upon Mr Harrison to inform her of the meaning and content of legal documents she was being asked to sign in relation to both Mary Street and Kembla Street. If required to compartmentalise the positions of Mr Harrison and Mr Baird, she regarded Mr Baird as a family solicitor whom she trusted as he had acted for her previously and who would act as instructed from time to time. But in relation to these projects, save for the period in late December when Mr Baird had been retained to follow up what was happening with the proceeds of sale of Mary Street, it was Mr Harrison only whom Mrs Schipp saw as relevantly "her solicitor" [Transcript page 621.21] or more particularly as "the solicitor that was dealing with all of the legal documents for the project" [Transcript page 792.45] and as the one who "was going to do all the legal documents and be the solicitor". [Transcript page 794.20].

[1323]

666 On and after Mr Harrison was first introduced to Mrs Schipp as a solicitor and spoke with her and Mr Cameron in relation to Mary Street, and through the whole of his dealings with Mrs Schipp and Mr Cameron, it would have been possible for him to leave his hat as solicitor in the cupboard. For present purposes, his professional discipline would then have been no more relevant than it would have been had he been a physician or lion tamer. But here, Mr Harrison allowed the fact that he was a solicitor to intrude into his dealings with Mrs Schipp from time to time in a fashion which engages and brings into play various obligations and duties which would not otherwise have attached to him. He offered to "do the legals" and drew up contracts which were to be entered into between himself and Mrs Schipp and others. He gave Mrs Schipp legal advice on some topics. He invited and encouraged her to deal with him and his wife in relation to Kembla Street. The fact that Mrs Schipp did not ask him to advise her about her personal position and, in that sense, did not regard him as she would a family solicitor [Transcript page 794.45] does not detract from the fact that, in giving legal advice, he exposed himself to an obligation to use care in so acting, and importantly gave Mrs Schipp reason for treating him, as she did, as acting as a solicitor in that matter. As a solicitor, he acted for her at the same time as acting for himself and other joint venture partners. As a solicitor, he completed the Mary Street conveyance, and then as a solicitor, he deposited the moneys owing to the vendors of Mary Street into a bank account. During the whole of the period that he was acting as a solicitor in relation to the sale of Mary Street, up to and including all periods when the settlement moneys were in his hands, or, at his direction, paid into the solicitor's settlement deposit bank account and not yet accounted to the persons entitled to the proceeds as vendors of Mary Street, he retained his hat as solicitor squarely on his head. It was not then appropriate for him to use the fact that he held these funds as a bargaining chip in his efforts to induce Mrs Schipp to enter into the Kembla Street Joint Venture Agreement. Thus, in one place, one has the combination of a solicitor's obligations to his clients who here include Mrs Schipp; a promoter's obligations on Brian v UDC principles (Cf Catt v Marac Australia Ltd (1987) 9 NSWLR 639), and a situation in which trust and confidence has been placed by Mrs Schipp in the solicitor, both as a Mary Street joint venture partner of hers engaged in the winding up of the joint venture [Chan v Zacharia (1984) 154 CLR 184], and as the solicitor handling the conveyancing aspects of the sale of Mary Street, and finally a situation in which Mrs Schipp is under a specially disadvantageous situation in the position she occupied in very late 1988, by which time Mr Cameron and Mr Harrison had so manipulated her that she was, in a real sense, a pawn in their hands.

[1331]

672 Another mode of examining Mrs Schipp's transactions with the Cameron Harrison Interests would be to focus on the temporal situation. A close examination of the time line points up several important facts. Mr Cameron occupied a position of conflict of interest in relation to his interest in the purchase - at a point in time when the vendor had retained Don Cameron Real Estate as selling agent. Then, on 25 February 1988, when Mr Cameron and Mr Harrison first produced the first Mary Street Joint Venture Agreement for Mrs Schipp's execution, questions of wrongdoing by both Mr Cameron and Mr Harrison arise. By this date a binding agreement already existed and all that remained was to have the terms restated in a form which would be fuller or more precise but not different in effect. Up to that moment, aside from Mr Cameron's conflict of interest to which I have already referred, I do not see that any duty which either Mr Cameron or Mr Harrison may have had as persons negotiating to enter the Mary Street Joint Venture had been breached. Up to that moment, I do not see that there was any unconscionable conduct or breach of fiduciary obligation or misleading or deceptive conduct or other act of wrongdoing by either Mr Cameron or Mr Harrison. But at the time the document was presented to Mrs Schipp for execution, it departed in material respects from the representations made to her and from the oral agreement which she had entered into. As Mrs Schipp was not informed of the departure of the document from those representations and that agreement, the first acts of wrongdoing occurred and the position changed. If one was to view the agreement which the document would propose to create, as a new Joint Venture differing from the oral agreement already reached [Masters v Cameron class 1 or 2], it would be appropriate to regard Mr Cameron as well as Mr Harrison as promoters of such new Joint Venture Agreement. In that circumstance Mr Cameron and Mr Harrison would owe fiduciary obligations of disclosure of the terms of the proposed new Joint Venture Agreement to Mrs Schipp. Alternatively, if one was to view the negotiations as a Masters v Cameron Class 3 situation, Mr Cameron and Mr Harrison were obliged to disclose the material terms of the document which would bind the parties to Mrs Schipp. On each of these approaches Mrs Schipp became entitled in any event to set aside the written agreement by reason of the unconscionable conduct of Mr Cameron and Mr Harrison. She had occupied a disadvantageous position of which Mr Cameron and Mr Harrison unconscientiously took advantage. Her special disability, even at this early stage, arose by reason of her being induced to rely upon Mr Harrison to draw up a document which would correctly record the oral agreement, and to properly explain the document to her. His position as a solicitor had been put forward as the justification for his preparation of the document. Mr Harrison acted for Mrs Schipp as well as for himself in drawing up the document. Approaching the matter from the viewpoint of Mr Harrison's fiduciary obligation as a solicitor owed to Mrs Schipp, he has to prove that the transaction was 'open and fair, and free from all objection', not merely 'fair'. Maguire and Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 465. He comes under 'a heavy duty to show the righteousness of the transaction'. Maguire at 465. But the transaction was open to objection, and on this basis also, the written agreement was one which Mrs Schipp was entitled to set aside.

[1333]

674 The time line then leads to the many acts of manipulation of Mrs Schipp from the Children's Meeting onwards. Now, one has a combination of breaches of the duties owed by the Mary Street joint venturers to one another; of breaches of the duties owed by those promoting the Kembla Street joint venture to those to whom the joint venture was being promoted; and of Mrs Schipp quite simply being tricked in a number of ways. I do not see that the fact that Mrs Schipp's actions were partly influenced by the taste of profit received from the Mary Street transaction, or by the confidence expressed by Mr Baird in the Kembla Street transaction, or by the confidence in Mr Cameron expressed by Mr French, or by Mr Zander's appearance on the scene, alter the underlying fact which was that Mrs Schipp's position through the last months of 1988 and January 1989 was an intolerable one. That she cannot now, and probably could not then, give a clear explanation of the extent to which her motivation in entering into Kembla Street stemmed from her belief that this was probably the only way in which she would be likely to retrieve her moneys from Mary Street, or alternatively, stemmed from that matter in part, and in part from her desire to make a profit out of a seemingly attractive new joint venture, does not appear to me to lead to her losing her rights to relief from the Cameron Harrison Interests in relation to her losses sustained qua the Kembla Street transaction. Not to be overlooked is the importance of Mrs Schipp in the face of positive representations in relation to Kembla Street, having no knowledge whatever as to Mr Harrison's and Mr Cameron's past endeavours, and lack of success, to procure finance for the project, or in seeking to obtain pre-leasing or pre-purchase commitments or expressions of interest. Likewise, I do not see that Mrs Schipp accepting the Second Joint Venture Agreement, albeit not understanding it, as a method, as she had been told, of avoiding her obligation to pay capital gains tax on her profits, results in her losing her rights to relief in respect of the Kembla Street transaction. This was only one of the tricks being played upon her. It was not possible to retrospectively remove her legal entitlement to profits on the Mary Street Development.

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