Conflict of duties and the limited retainer

This is a post about David v David [2009] NSWCA 8 (the decision at first instance is at [2007] NSWSC 855). Karl Suleman has been good to professional negligence lawyers.  He procured other Assyrians to invest in excellent sounding supermarket trolley schemes.  ‘Give me $50,000’, he said to one investor, ‘and shopping trolleys will pay you $1,350 a fortnight for 10 years’.  That is a return of 600%.  Something must not have worked out the way it was supposed to, because the punters lost their dough and Karl went to jail. The punters sued their lawyers, and any other lawyers on the horizon. See, in addition to the case noted below, Manso v David [2003] NSWSC 905, Ibraham v Pham [2007] NSWCA 215, Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 (in which the investor client succeeded against the solicitors), Vukmirica v Betyounan [2008] NSWCA 16, and Kowalczuk v Accom Finance [2008] NSWCA 343. It would be a fascinating exercise for someone with more time than me to do a comparative note of all of the cases.  Through a liquidator, Suleman’s lawyers got sued too: Karl Suleman Enterprizes Pty Limited (In Liquidation) v David [2007] NSWSC 401.  But as we will see, Suleman and investors in his trolley schemes sometimes had the same lawyers, at the same time.

David v David is a case brought by a plumber, Mr David, and his wife, against Dominic David Stamford, solicitors. Two of its partners were Fred and Suzie David.  Fred’s wife Sabrina was the relevant file handler, an employee solicitor, but maintained her maiden name, Jajoo, for professional life.

The plumber invested almost $200,000 borrowed against his matrimonial home with Suleman.  That was in March and August 2001.  By December, it was all over; ASIC had wound up Suleman’s scheme.
Back in February, the plumber had telephoned Ms Jajoo and told her he and his wife were refinancing their Westpac loan with Quick Loan Services, and that they would forward the unconditional loan approval to her because her firm would be their solicitors.  At this time, the plumber had all the relevant borrowing documentation completed, and had already decided to invest with Suleman. Her job involved arranging a discharge of the Westpac loan and advising the plumber about the new loan and mortgage documents.  This she did competently.  She said to him:

‘You understand that I am not giving you any advice regarding the financial effects of the loan such as your affordability of the loan and that the bank and I strongly recommend you to go and see an accountant or a financial advisor for that.  This recommendation is on page 11 of your credit contract.’

On the eve of the settlement of the refinancing, Ms Jajoo learnt that the funds were to be paid to a Suleman company.  She said:

‘Have you obtained independent legal and financial advice on whatever contract it is that you’re planning to enter with Karl Suleman? Because we don’t advise on matters involving [him].  We don’t know the status of Karl Suleman’s current business structure and are not in a position to approve or disapprove of any of his business dealings.  Suzy David from our office has referred [him] to another firm of lawyers, who are trying to work out how to restructure the whole thing.  Apparently the way that the structure is currently it doesn’t look to be right and it could have problems with certain laws and regulation.  So it may be that the present set up must be changed so it does comply with the law.  At the moment we don’t know the extent nor as a matter of fact any of the details of Karl Suleman, you should wait for a while to see what will happen.’

The plumber told her he was continuing and that his cousin was one of the best financial advisers in Australia.

The problem to which Ms Jajoo referred was that Suleman was running an unregistered managed investment scheme.  But that problem was not proven to have afflicted all of Suleman’s schemes, and Ms Jajoo did not know which of Suleman’s businesses the plumber was investing in.

At the relevant time, Ms Jajoo knew that:

  • Her husband and his sister had themselves invested in Suleman schemes, apparently very successfully;
  • They were to take financial interests in a new Suleman business the registered office of which was the firm;
  • Other members of the Assyrian community seemed to be making a lot of money by investing in Suleman schemes;
  • Suleman was a client of the firm, and an important client;
  • There was a question, which had been referred by her husband’s sister to Mallesons, as to the legality of one of Suleman’s investment schemes;
  • There were grave concerns that the Suleman company to which the plumber’s refinanced funds were to be directed was accepting investments for the purposes of its trolley collection business in contravention of the Corporations Law.

The Court of Appeal reiterated that ‘the notion that a solicitor may owe a client a “penumbral” duty that extends beyond the scope of the retainer is doubtful,’ and continued on at [76]:

‘If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party.’

Ultimately, the Court concluded:

‘Here the retainer undertaken by Ms Jajoo and [her firm], which was almost complete in its execution, was not apparently contradictory to any personal interest held by members of the firm or employees in relation to Mr Suleman’s business, nor was it contradictory to any duty to Mr Suleman.  The advice and actions required of the firm were in relation to a financing transaction.  When the retainer was undertaken and through the majority of the time of its execution, there was no knowledge whatsoever of any relationship of the proposed use of the funds in connection with Mr Suleman.  When this matter was adverted to by [the plumber], it did not create any inability to continue the retainer.  There was no possible conflict between the duty to the [plumber] and any interests of [the firm]. There was no conflict with any duty owed to Mr  Suleman  in completing the retainer. The funds were being made available by the refinancing. However, the completion of the retainer did not mean that the investment with Mr  Suleman  must necessarily take place. The cheques were to be made available to be picked up after the refinancing. There was an opportunity for the advice that Ms Jajoo urged in clear terms upon the [plumber] (on 6 [and 16] March) … to be taken. Ms Jajoo made it clear that she could not advise the [plumber] about Mr Suleman’s business, in respect of which a conflict of duties would arise and perhaps also a conflict between the duty to the [plumber] and the interests of [the firm] with such an important client. The plumber was, however, content with the retainer being completed on that basis: cf Clark Boyce v Mouat  [1994] 1 AC 428 at 435.

79 Therefore, I agree with the learned primary judge that there was no obligation to cease to act.’

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