PURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, HANDLEY JA and GILES AJA 2 and 3 December 1996, 13 February 1997 Solicitor conducted mortgage practice — conduct handed over to accountants — administered by same person — funds lent unsecured and lost — claims against solicitor and accountants. 1. As to funds of a particular client, was the administrator authorised to instruct the accountants to lend unsecured? On facts held not. 2. As to funds of other clients provided to the accountants after the handover, was the solicitor liable as well as the accountants? Held yes, because owed a duty of care to put in place a structure protective of the clients' funds on the handover or inform the clients of the changed position which might imperil their funds. Hawkins v Clayton (1988) 164 CLR 539 referred to. 3. As to all the funds, was the solicitor liable to indemnify the accountants? Held no, because owed no duty of care or fiduciary duty to advise them as to their responsibilities flowing from the handover. Allison v Clayhills (1907) 97 LT 709 and McMaster v Byrne (1952) 1 All ER 1362 distinguished. Gleeson CJ I have had the benefit of reading, in draft form, the reasons for judgment of Giles AJA. I agree with his Honour's conclusion as to the resolution of the issues in this appeal, and with his reasons for that conclusion. Handley JA I agree with Giles AJA. Giles AJA Mr Denis Hannigan practised as a solicitor at Long Jetty and Wyong, from 1975 in partnership, and from 1983 as a sole practitioner under the firm name Hannigans. From a time well before 1983 the practice at the Wyong office included what was referred to as a mortgage practice. Funds were received from investors, usually clients of the firm, and lent out on mortgage security, usually contributory mortgages. The mortgage practice was administered by Mr David Burke, who was not a solicitor but did legal work connected with the mortgage practice. Investors' funds were deposited to the credit of Hannigans' trust account, but the lending out was on mortgages taken in the name of Tungrove Pty Ltd (Tungrove), a company controlled by Mr Hannigan. The Wyong office of Hannigans was in a building also occupied by D P Purkiss and Co, a firm of chartered accountants. The initial sole proprietor of D P Purkiss and Co was Mr David Purkiss, and Mr Richard Collins became a partner in 1984. DP Purkiss and Co carried out the statutory audits of Hannigans' books, Mr Hannigan did legal work for D P Purkiss and Co and its partners, and the two firms had some clients in common. In 1985 Mr Hannigan decided to sell his practice. A sale which included the mortgage practice was arranged, but it fell through. A sale which excluded the mortgage practice was agreed in June 1986 and completed in August 1986. The purchaser was Aubrey Brown and Partners, and Mr Hannigan became an employed solicitor with that firm. Aubrey Brown and Partners did not want the mortgage practice. What became of it? 2 UNREPORTED JUDGMENTS Mr Purkiss and Mr Burke initiated and were involved in arranging the sale. Mr Hannigan told Mr Burke that it was in order to hand over the administration of the mortgage practice to a firm of accountants and "we can arrange for DP Purkiss to take over the administration of the mortgage practice". According to Mr Burke, he told Mr Purkiss that Mr Hannigan was "winding down his practice", that Aubrey Brown and Co "don't want to take over the mortgages", that he had discussed the matter with Mr Hannigan, and - "What is proposed is that I'll continue to look after and manage the investments for these people as I have done in the past with Denis. Your firm will take physical custody of the documents. I know you have the No 2 Trust Account. It seems to me to be sensible to use that account for the purpose of investment of these people 's funds in Tungrove. Denis and Slade are resigning as shareholders and directors of Tungrove. I am becoming one of the shareholders and directors. What about Richard [Collins] being the other shareholder and director?" Mr Purkiss replied, "I don't see any problem with that". According to Mr Purkiss, Mr Burke said that with the sale of the practice a new bank account would be needed and "It would be more convenient f D P Purkiss and Co opened up a clearing account through which investment moneys can be transacted". Windeyer J found that Mr Purkiss knew that he had been asked to open a trust account, something more than a clearing account. Shortly thereafter Mr Burke told Mr Hannigan that he had spoken to Mr Collins about the mortgage practice, that Mr Collins would become a director of Tungrove, and "he has agreed to keep all the files, deeds, packets and other documents". Mr Hannigan did not himself speak to Mr Purkiss or Mr Collins about the handover of the mortgage practice. At the end of June 1986 Mr Hannigan and Mr Slade, the then directors of Tungrove, resigned as directors, and Mr Collins and Mr Burke were appointed in their places. Mr Hannigan knew of Mr Burke's appointment as well as that of Mr Collins. In mid-July 1986 the security documents were moved from Hannigans' safe custody facilities to those of D P Purkiss and Co and signed for by Mr Collins, and the investor files and company records were bundled up for Mr Collins and placed by him in the custody of Mr Burke. Loan cards already in the custody of Mr Burke were retained by him. A "D P Purkiss and Co Trust Account No 2 ", the signatories to which were Mr Purkiss, Mr Collins and another partner of DP Purkiss and Co, was reactivated to receive investors' funds. In practice, Mr Burke continued to administer the former mortgage practice. Almost immediately Mr Burke began to lend investors' funds unsecured to Golden Ponds Corporation Pty Ltd (formerly Ashway Pty Ltd and now in liquidation) (Golden Ponds), a development company in which Mr Burke had a significant interest through Shelldale Corporation Pty Ltd (Shelldale). Fresh funds from investors were dealt with in this way, either immediately upon receipt or after loan to others (also unsecured), and as mortgages (contributory or otherwise) were discharged the funds were not repaid to investors but for the most part were lent to Golden Ponds. The development was unsuccessful, Golden Ponds went into liquidation, and a great deal of investors' money was lost. Investors sued to recover their losses from (amongst others) Mr Hannigan and Messrs Purkiss and Collins. They included Mr William and Mrs Gina Keepan. Mr Francis and Mrs Dorothy Smiles, and Breteeso Pty Ltd (Breteeso), a company of Mr Joseph and Mrs Gertrude Jenkinson. Each of Mr and Mrs Keegan Mr and Mrs Smiles and Breteeso had been clients of Mr Hannigan and investors through URSURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN (Giles AJA) 3 Hannigans prior to the handover of the mortgage practice. The claim of Mr and Mrs Keegan was in respect of funds invested at and after handover, namely $135,000 on 1 July 1986, $45,000 on 1 October 1986, $35,000 on 31 March 1987, and $220,000 on 6 May 1988. The claim of Mr and Mrs Smiles was in part in respect of funds invested prior to the handover, but also in respect of funds invested after that time, namely $50,000 on 10 February 1988. The claim of Breteeso was also in part in respect of funds invested prior to the handover, but also in respect of funds invested after that time, namely $10,000 on each of 24 September 1986, 14 May 1987, 19 August 1987, and 21 June 1988. On this appeal attention can be concentrated on the amounts just mentioned. Windeyer J held that both Mr Hannigan and Messrs Purkiss and Collins were liable to Mr and Mrs Keegan for the $135,000, and that Messrs Purkiss and Collins were liable to them for the remaining $300,000 but Mr Hannigan was not. He held that Messrs Purkiss and Collins were liable to Mr and Mrs Smiles for the $50.000 and to Breteeso for the $40,000, but Mr Hannigan was not. He held that Mr Hannigan was not directly liable to Messrs Purkiss and Collins to indemnify them for their liabilities to the investors. The only appeal was by Messrs Purkiss and Collins. They contended - a) that they should not have been held liable to Mr and Mrs Keegan for the $135,000 or the remaining $300,000; (b) that Mr Hannigan should have been held liable to Mr and Mrs Smiles for the $50,000, to Breteeso for the $40,000, and if they were liable to Mr and Mrs Keegan for the $300,000, for that sum also, whereby they were entitled to contribution from Mr Hannigan; and (c) that Mr Hannigan should have been held in breach of a duty of care owed to Messrs Purkiss and Collins and so directly liable to indemnify them for their liabilities to the investors. LIABILITY TO MR AND MRS KEEGAN Mr and Mrs Keegan's money was paid into the D P Purkiss and Co Trust Account No 2. It was found that Messrs Purkiss and Collins knew that Tungrove was a trustee for contributory mortgages, that the account was the bank account for Tungrove, that investors' funds of the previous and continuing mortgage practice would go through the account, and that investors intended that money lent out be on mortgage security. It was found also that they signed cheques drawn on the account at Mr Burke's request, without reasonable enquiry and without any attempt to check the security and when it ought to have been clear that there was unlikely to be security; further, they knew of Mr Burke's interest in the recipient of the money, Golden Ponds. It was held that unless Messrs Purkiss and Collins were authorised to act on instructions from Mr Burke as to disposition of investors' funds, they breached their duties as trustees, and in relation to Mr Burke's authority Windeyer J said - "Tt is not suggested that Purkiss and Collins were told by the Keegans that Burke was their agent for the purpose of investment of the trust moneys. Nevertheless if he were their agent and acted dishonestly they could not complain. But even if the oral evidence - as opposed to the Tunwind documents on which such emphasis was placed - indicated that the funds were to be dealt with as directed by Burke that was to be dealt with by means of authorised investments and there was never any wider authority. The simple position is that the accountants held the plaintiffs' money in their trust account to be lent on first mortgage. Whatever authority Burke had it was not to invest otherwise. The accountants never suggested that he had any such authority. They allowed the 4 UNREPORTED JUDGMENTS funds lo be placed unsecured in circumstances in which they were clearly negligent in so doing and this brought about the loss of the funds." On appeal it was submitted that it should have been found, and should be found, that Mr Burke was the agent of Mr and Mrs Keegan for the purpose of investing their funds, with authority to give instructions to Messrs Purkiss and Collins concerning disposition of money in the trust account; that Messrs Purkiss and Collins held the money in the trust account to be paid in accordance with the directions of Mr and Mrs Keegan or their agent Mr Burke; that they paid it in accordance with the directions of Mr Burke; and that even if Mr Burke was acting outside the scope of his actual authority from Mr and Mrs Keegan in lending the funds without security, there was no breach of duty as trustee by Messrs Purkiss and Collins. The first amount of $135,000 was made available by Mr and Mrs Keegan by a cheque in favour of D P Purkiss and Co, for which a receipt was issued with the narration "investment - mortgage". The cheque was given to Mr Burke, who told Mr and Mrs Keegan that Mr Hannigan was selling his practice, that the instructions to Tunwind Pty Ltd (Tunwind) which he had them sign were to a broker who would look after their investment, that he would arrange for the investment of their money in registered mortgages and issue the appropriate instructions and obtain the securities, that the money would be held in D P Purkiss and Co's trust account, that Tunwind would issue instructions as to how to' deal with it. and that the mortgages would be physically held by D P Purkiss and Co on their behalf. The instruction to Tunwind referred to the $135,000 and was in the terms - "We confirm our instructions to arrange investment of the above sum on our behalf on registered mortgage or mortgages and for you to issue instructions for and obtain all appropriate securities on our behalf and to be held by Messrs DP Purkiss and Co until instructions from us to the contrary." At the same time Mr Burke had Mr and Mrs Keegan sign an authority addressed to D P Purkiss and Co reading - "Herewith bank cheque $135,000.00. Kindly deposit in your Trust account subject to general instructions on our behalf from Mr David Burke of Tunwind Pty Ltd, Finance Broker." Tunwind was a company controlled by Mr Burke, through which he engaged in land development. At the time he had in mind that Tunwind might play a part in the continuation of the mortgage practice. It did not do so: in particular. it never acted as a finance broker, and no instructions from Tunwind were ever given to Messrs Purkiss and Collins. The written instruction and authority were not provided or communicated to D P Purkiss and Co. It was nonetheless submitted that the combination of what was said between Mr and Mrs Keegan and Mr Burke, the instruction, and the authority enticed Messrs Purkiss and Collins to act on the instructions of Mr Burke in relation to lending out the $135,000 even though the loan was unsecured. The submission was supported by reference to evidence of Mr and Mrs Keegan to the effect that they were relying on Mr Burke to manage the investment of their funds. For the moment considering only the $135,000, I am unable to accept the submission. It was acknowledged that Mr Burke's authority was limited to investment of the funds on mortgage. The limitation in Mr Burke's authority is undoubted, and it is clear that whatever authority Mr Burke had, whether personally or if he had acted in the name of Tunwind, did not extend to lending out without security. The context in which the written instruction and authority URMSURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN (Giles AJA) 5 were given was one of investment on mortgage security, expressly so from the reference to investment in registered mortgages in the conversation, and the instruction to Tunwind was to arrange investment on registered mortgages. So the submission required either that Mr Burke had authority to instruct D P Purkiss and Co to lend out unsecured, even though he had no authority to lend out unsecured, or that regardless of Mr Burke's authority the terms on which D P Purkiss and Co held the $135,000 were to deal with it in whatever manner Mr Burke might instruct - even by payment to himself - rather than by lending out on mortgage. As to the first alternative, the authority can not be looked at alone to demonstrate authority to Mr Burke to instruct D P Purkiss and Co to lend out unsecured - the "general instructions" were instructions in relation to investment on mortgage. The evidence of Mr and Mrs Keegan was of reliance on Mr Burke to manage the investment of their funds by lending out on mortgage, and does not support the submission. As to the second alternative, Windeyer J found that D P Purkiss and Co knew that the funds passing through the trust account were for investment on mortgage, and the receipt shows that the $135,000 was received for that purpose. No authority was given, nor could or did Messrs Purkiss and Collins understand that any authority had been given, whereby Mr Burke could give and Messrs Purkiss and Collins could act on instructions that Mr and Mrs Keegan's funds be dealt with otherwise than by investment on mortgage. Nothing happened to change this position before the investment of $45,000 on 1 October 1986. In November 1986 Mr Hannigan had Mr and Mrs Keegan sign the letter and authorities considered in more detail later in these reasons, documents which it was accepted were inadequate to explain what had occurred but which it was said were consistent with a general authority conferred upon Mr Burke. The documents were not communicated to D P Purkiss and Co. I doubt that they are consistent with a general authority conferred upon Mr Burke, but they certainly do not confer it; in any event, I do not think that they translate the teens on which D P Purkiss and Co held funds paid into the trust account for investment into dealing with the funds on whatever manner Mr Burke might instruct, including without mortgage security. I do not think that Messrs Purkiss and Collins really argued that. if their submission was not accepted in relation to the $135,000, it should nonetheless be accepted in relation to the $45,000, the $35,000, and the $220,000. To the extent that it was argued, again I am unable to accept the submission. It follows that in my opinion the appeal against Messrs Purkiss and Collins' liability to Mr and Mrs Keegan should not succeed. CONTRIBUTION FROM MR HANNIGAN Windeyer J considered that Mr Hannigan was not a trustee of the $50,000, the $40,000, or the $300,000 because the funds were not received into Hannigan's trust account, he had no continuing duty to investors after August 1986, and accordingly he was not liable in respect of these later investments. He did accept, however, as part of the basis for Mr Hannigan's liability in respect of Mr and Mrs Keegan's $135,000, 'that Mr Hannigan 'failed to ensure that there was any proper controls set up for the investment system recommended by his agent [Mr Burke]": in more detail - "Tt is easy to be wise in hindsight; and it is to be remembered that Hannigan had no reason not to trust Burke. But on the other hand he did know that Burke and for that matter Tunwind were involved in land development activities and he obviously realised that it would not be satisfactory for Burke to hold the securities and the moneys yet he arranged through Burke for those tasks to be 6 UNREPORTED JUDGMENTS performed by persons untrained in the tasks required and who really provided no additional safeguards as they did as Burke requested without any check at all. It must be remembered that these clients were not going to be involved in the control of their investments; just as before they were handing their moneys over to another for investment. They were acting on the advice of Hannigan through his agent Burke. It was suggested Burke was acting as agent for Tunwind in this but as far as the Keegans were concerned that was not so. It was incumbent therefore upon Hannigan to take care of his clients' interests; in suggesting they act as they did without any proper checks he breached their duty as he was advising them on the investment of the $135,000." On appeal it was submitted that Mr Hannigan owed a duty to Mr and Mrs Smiles, Breteeso and Mr and Mrs Keegan, each being an existing investor, extending to investment by them after August 1986. When Mr Hannigan decided to sell his practice, he did not tell investors that the mortgage practice was at an end and that fresh funds for investment would not be received, and arrange for existing investments to be repaid or otherwise dealt with on the investors' instructions as they matured. Rather, he participated in the continuation of the mortgage practice, still administered by Mr Burke but with D P Purkiss and Co ostensibly occupying a position akin to that of Hannigans. According to the submission, Mr Hannigan was under a duty to arrange the handover in a way which effectively safeguarded the interests of investors, not only as to existing investments but also in relation to future investments which they might make in the belief that their position was not materially affected by the changes in the way the mortgage practice was conducted, or to fully inform them of material changes in the way in which he permitted the mortgage practice to continue. Prior to November 1986 nothing was said to Mr and Mrs Smiles or Mr and Mrs Jenkinson about the handover. In November 1986 Mr Burke telephoned Mr Jenkinson, told him that Mr Hannigan had sold his practice and had "handed over all the mortgage investment matters to DP Purkiss and Co" and that a letter was coming to explain matters, and asked for confirmation "that it is all right for DP Purkiss and Co to continue to administer and supervise your investments". Mr Burke had the conversation with Mr and Mrs Keegan at the tune the $135,000 was invested, and at about the end of August 1986 Mr Hannigan told them that he was "going to " sell his practice, but nothing more was said. The investors other than Breteeso then received the November documents earlier mentioned, documents which Windeyer J considered were not brought into existence in order to explain the situation to investors (whose funds and documents had already been handed over to DP Purkiss and Co) but rather to deflect an impending Law Society inspection. It seems that despite what was said in the telephone call to Mr Jenkinson, no documents were sent to Breteeso. The documents were taken to the investors by Mr Hannigan, Mr Burke, or both, or the investors came to Hannigans' office. The primary document was a letter which told the investor that Mr Hannigan had sold his practice, and that it had been necessary to take savings accounts out of Mr Hannigan's name as trustee and for Mr Hannigan to resign as director of Tungrove and transfer his share in that company. The letter continued - "T have arranged for your accountants, Messrs D P Purkiss and Co to make available a partner, Mr Richard Collins to hold the Trust Monies referred to above and to accept the position in the Company referred to above and to hold the share. URSURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN (Giles AJA) 7 Messrs D P Purkiss and Co also have safe custody facilities to hold security documents and the like and the company has authorised that firm to hold the security documents. Mr David Burke, who is well known to you, has accepted appointment as the second Director of the Company, and he continues as its Secretary. He will continue to communicate with you in relation to Your investments. This will enable continuity of your investments under the same guidelines as have applied to date. Naturally, I am available to continue to give advice to you with respect to the legal aspects or [sic] your investments. Please confirm your instructions as to the above procedures by signing the authority and direction at the foot hereof. Yours faithfully, Denis V Hannigan I/we hereby confirm our instructions for the procedures set out above to be put into effect, and in addition, authorise and direct you to hand to Mr Richard Collins on behalf of Messrs DP Purkiss and Co Chartered Accountants, any Deeds, Documents and papers held by you on my/our behalf. The receipt of Mr Collins shall be a sufficient discharge." The accompanying documents were an authority addressed to Mr Hannigan to hand to D P Purkiss and Co "all deeds documents papers and files which you hold on our behalf" an authority to D P Purkiss and Co "to accept from Mr D V Hannigan any funds which he has been holding in trust on my/our behalf and to hold any such funds in trust on my/or behalf in his stead subject to our instructions from time to time... ", and a letter to Tungrove acknowledging that funds were invested by Tungrove in mortgages some details of which were given. None of the November documents was seen by Mr Purkiss or Mr Collins. They were signed by investors, as Windeyer J found, without explanation from Mr Hannigan going beyond what was in the documents, and Windeyer J found that the explanation was inadequate. The investors were not left with copies. In fact, Mr and Mrs Keegan were not clients of D P Purkiss and Co, and Mr Smiles was not a client of D P Purkiss and Co until an isolated transaction in 1988. As Windeyer J found, and this was not disputed, what the investors were not told was - (a) that Messrs Purkiss and Collins were not experienced in running a contributory mortgage account; (b) that Mr Burke was not a solicitor (the investors generally thought he was); (c) that they would no longer have the protection of the Solicitors Fidelity Fund in case of default; (d) that there was no solicitor who was a director of Tungrove; (e) that the loans were not being supervised by any person to ensure that no funds were lent out unless a mortgage was in place to secure those funds; (f) that Messrs Purkiss and Collins were not fully informed of their responsibilities; (g) that the transfer of authority had already taken place; (h) that Mr Burke had already (although unknown to Mr Hannigan) begun to place money of other investors unsecured with Golden Ponds; and (i) that it might be wise to obtain separate advice. In my view, in the circumstances of this case Mr Hannigan was under a duty to inform the investors of matters such as these. In brief, there was a relationship of proximity with respect to foreseeable loss of the kind sustained by Mr and Mrs 8 UNREPORTED JUDGMENTS Smiles, Breteeso, and Mr and Mrs Keegan, which gave rise to a duty owed to the investors: see especially Hawkins v Clayton (1988) 164 CLR 539 at 544-5, 576-9. The existing mortgage practice provided an established structure for the making of investments, a structure which carried with it control and supervision by a solicitor, and a solicitor experienced in the conduct of the mortgage practice. That Mr Burke administered the mortgage practice, and carried out some legal work although not a solicitor, gave particular point to ensuring that there was qualified, knowledgeable and attentive supervision in the continuation of the mortgage practice, and the point would not have been lessened by Mr Hannigan's knowledge that Mr Burke had a separate business involving consulting in commercial matters and property development and was himself (by a company or companies) engaged in land development. The November letter recognised the investors' interest in a proper structure for the continued mortgage practice by its reference to continuity of investments under the same guidelines as had applied to that time, and conveyed to them that there were no material changes in the conduct of the mortgage practice. Apart from the letter, investors were left to believe that their investments would still be received and dealt with, and would have the same protection as before. They were told little more than that Mr Collins was taking Mr Hannigan's place, and were not told of the material changes which, even excluding the appreciation that comes with hindsight, had clear potential to imperil funds received in the future for investment. That funds were likely to be received in the future was obvious, and the letter invited it. Mr Hannigan was a trustee of funds received from these investors prior to the handover; they were also his clients in a general sense, There was an existing professional relationship, at the least in relation to management of the investments, which called for care and skill not only in the mechanics of lending the funds out but also in ensuring appropriate procedures to safeguard the investors' funds from just what happened to them. Undoubtedly the investors relied on Mr Hannigan to exercise that care and skill, and he knew that they did, and in my view that carried with it an assumption of responsibility (to take up the concept in Hawkins v Clayton) to endeavour to put in place a similarly protective structure for the continued mortgage practice or inform investors of the changes which might imperil funds invested in the future in the belief that there were no such changes. Mr Hannigan took no steps to satisfy himself that Messrs Purkiss and Collins, or anyone else in D P Purkiss and Co, had a proper appreciation of the conduct of the continued mortgage practice, and as events showed they did not: yet to Mr Hannigan's knowledge Mr Burke was given a position of increased significance with decreased controls over his administration of the mortgage practice. This made it incumbent on Mr Hannigan to inform the investors more fully of the position, so that they could decide whether to continue existing investments and to provide fresh funds for investment. Mr Hannigan failed in his duty! Had he either established a proper structure for the continued mortgage practice or fully informed investors, on the probabilities the investments presently in question would not have been made. Both Mr Purkiss and Mr Collins gave evidence to the effect that explanation of the responsibilities D P Purkiss and Co undertook on the handover of the mortgage practice would have caused them to act otherwise than they did, by withdrawing the participation of D P Purkiss and Co or by more attentive discharge of their responsibilities, and that is likely. Mr Jenkinson gave evidence that he would URSURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN (Giles AJA) 9 probably not have left his money in the contributory mortgage scheme if he had known that Mr Burke was not a solicitor and would have effective control of it, and that also is likely and would be likely in the case of the other investors. Mr and Mrs Keegan gave evidence to the same effect. I do not think causation was really in issue on the appeal. Breteeso paid $10,000 for investment, and Mr and Mrs Keegan paid $45,000 for investment, prior to the November documents. Those amounts can not be in a better position than the amounts paid over after the November documents, since the investors were relevantly left just as uninformed at the time the earlier amounts were provided. Equally, Mr Hannigan can not be in a better position in relation to Breteeso when the only explanation given was the sketchy report by Mr Burke in the telephone conversation with Mr Jenkinson, with no November documents sent to Breteeso. my opinion, Mr Hannigan was liable to Mr and Mrs Smiles in respect of the $50,000, to Breteeso in respect of the $40,000, and to Mr and Mrs Keegan in respect of the $300,000. It was common ground that, if that were so, Messrs Purkiss and Collins were entitled to contribution from Mr Hannigan. It was faintly suggested that the contribution should be other than one half of the formers' liability. I see no reason to distinguish between the two wrongdoers in the extent of their responsibility for the loss of the investors' money or the causation of that loss, and in my opinion the contribution should be such that they bear the investors' losses equally. INDEMNITY FROM MR HANNIGAN Messrs Purkiss and Collins submitted that Mr Hannigan owed to them a fiduciary duty "as a person who he knew would be trusted", alternatively a duty of care, to provide a proper explanation of the role they were taking on with the handover of the mortgage practice, including of the terms of the trust and their potential liability, disclosure of all relevant matters within his own knowledge, and a recommendation that they obtain independent advice. They relied particularly upon Allison v Clayhills (1907) 97 LT 709. In Allison v Clayhills Parker J declined to set aside a lease between a solicitor and a former client. At the commencement of his reasons, his Lordship said - "Tt appears to me to be clear that a solicitor is not wholly incapacitated from purchasing property or taking a lease from his client, but, where the relationship of solicitor and client exists, the onus of upholding the validity of such a transaction will rest upon the solicitor. It is, I think equally clear that, although the relationship of solicitor and client in its strict sense has been discontinued, the same principle applies as long as the confidence naturally arising from such a relationship is proved or may be presumed to continue. There are cases in which it is laid down that this principle only applies when the solicitor is the solicitor of his client in the particular transaction the validity of which is in dispute; hut, in my opinion, that only means that when the relationship is of such a nature that it does not impose on the solicitor any duty towards his client in the particular transaction, then the principle has no application. It does not mean, in my opinion, that the principle has no application in any case in which the solicitor is not in the particular transaction actually retained by or actually acting for his client under such circumstances that if he neglected his professional duty he would be liable to an action at law for negligence.... In considering whether in any particular transaction any duty exists such as to bring the ordinary rule into operation, all the circumstances of the individual case must be weighed and examined. Thus, a solicitor may by virtue of his employment acquire a personal ascendancy over a client and this ascendancy 10 UNREPORTED JUDGMENTS may last long after the employment has ceased, and the duty towards the client which arises out of any such ascendancy will last as long as the ascendancy itself can operate. Again, a solicitor may by virtue of his employment acquire special knowledge, and the knowledge so obtained may impose upon him the duty of giving advice or making a full and proper disclosure in any transaction between himself and his client, though such transaction may take place long after the relationship of solicitor and client in its stricter sense has ceased to exist. And there may be other circumstances which may impose a duty on a solicitor, which duty may continue to exist after the relationship of a solicitor and client in the strict sense has ceased." It was held that in the particular circumstances the solicitor was not in a position to acquire, and did not acquire, any personal influence or ascendancy over the client, that the solicitor was not in a position to acquire, and did not acquire, any special information with regard to the leased property which he was bound to disclose to the client, and that the occasions on which the solicitor had acted for the client did not result in the transaction attracting the principle relevant to an existing solicitor/client relationship. That the duty of a solicitor may continue after the relationship of solicitor and client in its stricter sense has been discontinued was affirmed by the Privy Council, with reference to the first part of the passage set out above from Allison v Clayhills, in McMaster v Byrne (1952) 1 All ER 1362 at 1368. But I do not think that the circumstances of this case called for Mr Hannigan to inform Messrs Purkiss and Collins fully of all matters material to the transaction and ensure that they understood it, or otherwise gave rise to a duty of care to that effect. Mr Hannigan's firm had undertaken legal work for DP Purkiss and Co from about 1977 until early August 1986, being the preparation of partnership agreements and related agreements for the purchase of interests in the latter firm, establishment of a service trust company, acting on the lease of its premises, providing advice in relation to life insurance, acting on the recovery of debts, and otherwise giving oral advice from time to time. His firm had acted for Mr Purkiss, his family, and a family trust, in conveyancing transactions, the preparation of wills, and the establishment of the trust. His firm had acted for Mr Collins and his family since about 1983. In the course of this, and no doubt apart from it because of the sharing of clients and premises, mutual trust had arisen between Mr Hannigan and Mr Purkiss. No retainer was current at the time of the handover and its surrounding events, but Messrs Purkiss and Collins did not seek advice in relation to the handover of the mortgage practice, or in relation to the undertaking by D P Purkiss and Co of the responsibilities flowing from the handover. Nor did Mr Hannigan directly or by Mr Burke undertake the task of explaining to them what was involved in the handover: all that was said was said by Mr Burke, and did not involve any kind of advice. Why Messrs Purkiss and Collins agreed to the proposal made by Mr Burke was not explored in evidence, and must be inferred: the most likely explanation is that a continuation of personal association with Mr Burke, a kind of loyalty to their own clients who were investors, and the prospect of accounting work in connection with the conduct of the mortgage practice, all arising in a relatively small community, caused them to do so. But they agreed without concern for formality warranting legal assistance, and did not, as they had when they wanted legal assistance in the past, seek advice. In my view the handover was outside any relationship of solicitor and client between Mr Hannigan and D P Purkiss and Co, did not involve any influence or ascendancy of Mr Hannigan over Messrs Purkiss and Collins or any special knowledge which URSURKISS v HANNIGAN; PURKISS v HANNIGAN; PURKISS v KEEGAN (Giles AJA) 11 Mr Hannigan was obliged to disclose or deal with by advice, and did not otherwise involve a continuation of a previous duty as solicitor or the undertaking of responsibility to advise. Mr Hannigan was under no obligation vis-a-vis D P Purkiss and Co to intrude into whether or not they should accede to the proposal made by Mr Burke or what was involved in doing so. It follows that in my opinion the appeal against rejection of any liability in Mr Hannigan to Messrs Purkiss and Collins should not succeed. THE RESULT The judgment in favour of Mr and Mrs Keegan stands, but Mr Hannigan should make additional contribution to Messrs Purkiss and Collins of one half of the latters' liabilities to Mr and Mrs Keegan for $300,000, Mr and Mrs Smiles for $50,000, and Breteeso for $40,000. Messrs Purkiss and Collins provided a form of orders said to be appropriate if this were the result. Neither Mr and Mrs Keegan nor Mr Hannigan suggested that the orders were not appropriate, but on examination I am not sure that they are. The parties should further consider the appropriate orders and bring in short minutes to dispose of the appeal in accordance with these reasons. The only order at present is that the proceedings be listed at 9.30 am on 17 February 1997 before Giles AJA for that purpose. Judgment stands in favour of Mr and Mrs Keegan, but Mr Hannigan to make additional contribution to Messrs Purkiss and Collins of one half of the latters' liabilities to Mr and Mrs Keegan for $300,000, Mr and Mrs Smiles for $50,000, and Breteeso for $40,000. Counsel for the appellant: J C Campbell QC/ J T Svehla (Purkiss and Collins) Solicitors for the appellant: Minter Ellison (Purkiss and Collins) Counsel for the respondent: C J Stevens QC/ G A Laughton (Keegans) P M Jacobson QC (Hannigan) Solicitors for the respondent: Ferry's Law Firm, Gosford (Keegans) Phillips Fox (Hannigan)