Reported Decision : (2005) 13 ANZ Insurance Cases 61-637 New South Wales Supreme Court CITATION : Yaktine v Perpetual Trustees Victoria Ltd [2004] NSWSC 1078 HEARING DATE(S) : 18 & 19 October 2004 JUDGMENT DATE : 16 November 2004 JURISDICTION: Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Verdicts against Mr Yatne and Mr Murphy for full amount of loss. CATCHWORDS : INSURANCE [113]- Professional indemnity insurance- Exception for liability arising out of dishonesty- Scope. PROFESSIONS [70]- Lawyers- Liability for false certificate. TRADE & COMMERCE [93]- Trade practices- Solicitor transmitting false certificate to another firm of solicitors- Whether liable to other solicitor's client for false and misleading conduct. WORDS & PHRASES- "Dishonest". Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Bebonis v Angelos (2003) 56 NSWLR 127 Comino v Manettas (1993) 7 ANZ Insurance Cases 61-162 Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Fraser v Council of the Law Society of NSW (C/A, 7.8.1992) Gould v Vaggelas (1985) 157 CLR 215 Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 CASES CITED : Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545 Harle v Legal Practitioners Liability Committee [2003] VSCA 133 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 89 Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1996) 71 FCR 172 McCann v Switzerland Insurance Ltd (2000) 203 CLR 579 Peter Isaacson Publications Pty Ltd v Victorian WorkCover Authority [1996] 1 VR 49 Peters v R (1998) 192 CLR 493 Promosso Holdings Ltd v Alpers [2004] 3 NZLR 521 Underwriters at Lloyds v Ellis (C/A, 25.2.1998) Kasem Yaktine (1st Plaintiff) Racha Yaktine (2nd Plaintiff) PARTIES : Perpetual Trustees Victoria Limited (Defendant; 1st and 2nd Cross-Claimants) Colin Murphy (3rd and 4th Cross-Claimant) American Re-Insurance Company (2nd Cross-Defendant to 4th Cross-Claim) FILE NUMBER(S) : SC 1765/02 C R C Newlinds SC and P T Newton (for Perpetual Trustees Victoria Ltd) COUNSEL : D H Murr SC and J C Thompson (for Colin Murphy) D Davies SC (for American Re-Insurance Company) Heidtman & Co (for Perpetual Trustees Victoria Ltd) SOLICITORS : Murphy & Co (for Colin Murphy) Mallesons Stephen Jaques (for American Re-Insurance Company) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tuesday 16 November 2004 1765/02 – YAKTINE v PERPETUAL TRUSTEES VICTORIA LIMITED JUDGMENT 1 HIS HONOUR: The case as set down for trial involved the following issues: (1) A claim by the plaintiffs, Mr and Mrs Yaktine, that their son Mohammed Aly Yatne had forged their signatures to a power of attorney and then used that forged power of attorney to raise a mortgage from the defendant and obtain a loan of $238,000 which the son misappropriated. (2) A cross claim by the defendant against a solicitor, Mr Colin Murphy. (3) A cross claim by Mr Murphy against his insurer. (4) Cross claims by various people against Mr Yatne. (5) Various other cross claims. 2 It was announced at the commencement of the hearing on 18 October 2004 that claim (1) had been settled, and by consent I made orders. The cross claims described in (5) above have been discontinued. Thus I have to try the issues noted in (2), (3) and (4). 3 The settlement between the plaintiffs and the defendant left the defendant out-of-pocket by $87,473. It claims this amount plus interest and the loss suffered by having to submit to orders for costs against it against other parties. The defendant seeks to recover these amounts from Mr Murphy and Mr Yatne. 4 Mr Murphy purported to act for the plaintiffs on the loan transaction. He was instructed to do so by Mr Yatne who produced the forged power of attorney. The defendant, by its amended second cross claim says: · Mr Murphy represented and warranted that both Mr and Mrs Yaktine had signed some statutory declarations before him. · He did not in fact witness such signatures. · He sent the impugned declarations to the defendant. · The defendant acted in reliance on Mr Murphy's conduct and such conduct amounted to breach of warranty of authority and misrepresentation. · Mr Murphy's conduct also qua the defendant constituted misleading and deceptive conduct under the Trade Practices Act and the Fair Trading Act. · Mr Murphy's statements were, qua the defendant, negligent misstatements. 5 Mr Murphy's defence was at all times he acted properly and in reasonable reliance on Mr Yatne's purported authority. 6 By the fourth cross claim Mr Murphy sues his professional negligence insurer. The insurer notified Mr Murphy on 16 October 2002 that it denied liability on the basis of clause 19(a)(vii) of the relevant policy. That provision reads: "We will not indemnify you … when:- (a) the claim arises from … (vii) any dishonest or fraudulent acts or omissions of a principal … directly or indirectly – however we will indemnify you if you are a principal or employee who is not knowingly connected with the dishonesty or fraud." 7 Mr Yatne, although served, did not appear. The evidence is abundantly clear that he did forge his parents' signature to the relevant power of attorney and that he consistently represented that the power of attorney was genuine and uttered it and associated unauthorised documents which conduct caused the loss. 8 Accordingly, in due course orders should be made against Mr Yatne on the various cross claims. However, it is far more likely than not that Mr Yatne will not be able to meet any judgment so that I need to examine whether Mr Murphy is liable to the defendant, and whether Mr Murphy is entitled to be indemnified by his insurer. 9 The hearing commenced before me on 18 October 2004 and finished the next day. Mr C R C Newlinds SC and Mr P T Newton appeared for the defendant, Mr D H Murr SC and Mr J C Thompson appeared for Mr Murphy and Mr D Davies SC appeared for the insurer. 10 The basal facts were that the relevant loan had been arranged by Mr Yatne through O & J Creative Business Consulting. The defendant is a trustee for investors in mortgages. As was its practice, it instructed Heidtman & Co, Solicitors, to act for it. Heidtman & Co acted for the defendant in many matters and their practice was to employ two paralegals, one of whom was Ms Kylie Turner whose job it was to check the details of applications for mortgage and to prepare a draft certificate which a partner in the firm would in due course examine and sign and tender to the mortgagee. The mortgagee would then advance the funds on the basis of the certificate. 11 In accordance with this practice, Ms Turner wrote ostensibly to the plaintiffs on 22 September 2001 enclosing a series of draft documents including a loan agreement, a terms and conditions booklet, a draft mortgage, a memorandum of terms of sale, settlement disbursement advice, direct debit request and forms of borrowers' statutory declaration. 12 Mr Yatne got possession of these documents and took them into Mr Murphy about 24 September 2001. 13 On 25 September 2001, Mr Murphy witnessed a series of documents. One was a mortgage. Mr Yatne signed for each mortgagor noting "Signed by Mohammed Aly Yatne as attorney Book 4321 No 95l8". However, amongst the documents which Mr Murphy returned to Ms Turner, was a settlement disbursement advice which, on the face of it, appeared to have the signatures of the plaintiffs, but these were either forged, or alternatively, were the signatures of Mr Yatne. One document was a form of statutory declaration of purposes for which credit is provided. In its printed part that declaration states that it was signed by Kasem and Racha Yaktine and witnessed by Mr Murphy, but both signatures were in fact made by Mr Yatne. There were also two further forms of statutory declaration by each of Kasem and Racha Yaktine. These were completed in a way by which they purported to be made and subscribed at Campsie before Mr Murphy and signed by Mr Yatne, but the signatures are not those of the plaintiffs but rather that of Mr Yatne. 14 These documents were sent into Ms Turner. She was not a qualified lawyer. Her practice, sanctioned by the firm, was to have a check list and to check to see that the documents which the firm had sent out to be completed by the borrowers had been duly completed. She would have seen a red light if the documents had been materially altered from the form in which they had been sent out. She did not in fact notice that the signatures on all the documents were clearly made by the one person. She prepared a draft certificate, a solicitor of the firm completed and signed off on it and the money was paid by the defendant to Mr Yatne as per the documentation sent by Mr Murphy. 15 Mr Yatne was in fact buying a home unit for himself. Mr Murphy was acting for him on the conveyance and it is clear that Mr Murphy knew that the proceeds of the loan were being used in great part for the purchase of Mr Yatne's home unit. 16 On 9 October 2001, the home loan company sent to the plaintiffs a letter which commenced "Congratulations on the recent settlement of your Southern Star home loan." The plaintiffs immediately protested that they had never sought a home loan and as a result of their protests and their instructions to Messrs Chahoud Kalouche & Associates, Solicitors, some of the money paid out by the defendant was frozen and has been recovered. 17 Mr Murphy was asked by Chahoud Kalouche in their letter of 18 October 2001 for an explanation. 18 Before dealing with that, I should mention one further very significant matter. Mr Yatne had tried to obtain the Certificate of Title from the St George Bank who were holding it for safe custody. Although he produced his power of attorney, the Bank was reluctant to release the document for some reason which is undisclosed, and the officer at the local branch suggested that Mr Yatne needed a solicitor's letter. A letter was produced on Murphy & Co's letterhead, the text of which read as follows: "We act for Kasem Yaktine and Racha Yaktine. We need the title deed urgently for the settlement and enclose authority from the clients. We Kasem Yaktine and Racha Yaktine authorise St George Bank to release the title deeds and send them to Roselands Branch." There was then space for the signature of Kasem Yaktine and Racha Yaktine. These signatures were forged by Mr Yatne. The letter then continued: "Yours faithfully MURPHY & Co per Colin Murphy" with Mr Murphy's signature. 19 Ms Frossa Miltiadis, a senior officer at the Roselands Branch, then sent that letter to Head Office, Securities, and the Certificate of Title was sent to the Roselands Branch and picked up by Mr Yatne. If Mr Yatne had not been able to get hold of the Certificate of Title, it is inconceivable that the money would have been lent. 20 There was some argument before me as to whether the title deed was released because of the power of attorney or because of the solicitor's letter. Ms Miltiadis was cross-examined, and it seemed to me quite clear that as a result of the documentation and her slender recollection, Ms Miltiadis sent only the solicitor's letter to Head Office Securities. She, however, noted that she had sighted the power of attorney. It is clear to me that the receipt of the solicitor's letter by the St George Bank was at least part of the reason why the Bank surrendered the certificate of title to Mr Yatne. 21 The insurer asked Mr Murphy for his detailed description of what had occurred. He said (Bundle p 212): "Mr Yatne came to my office and produced an already registered power of attorney from his parents and a driver's licence and told me his parents were overseas and wanted him to organise a loan. He signed the documents in front of me. I made sure he wrote the words 'Signed by Mohammed Aly Yatne as attorney Book 4321 No 958 on the mortgage but because all the documents were together I did not reproduce these words on all the documents. The Bank should have been able to see the signature on the mortgage was the same as the signature on all the documents. Now they said I represented that the parents signed the documents personally." 22 I have previously referred to Kalouche's letter of 18 October. In that letter they had asked Mr Murphy particularly with respect to the letter given to St George (which I will call "the St George letter"). Mr Murphy replied that that document was prepared in accordance with instructions from Mr Yatne and signed by Mr Yatne in his presence, though not witnessed by him. Mr Yatne purported to sign on behalf of Mr and Mrs Yaktine by his power of attorney. 23 Mr Murphy gave evidence that on about 23 September 2001, Mr Yatne came back to the office with the loan documents. He signed the mortgage document and wrote on it the words that I have already set out. Mr Murphy continued, "He then signed a number of other documents that had been sent to him and I witnessed his signature on the documents where a witness was called for. I did not insist that he write on each of the documents that he was signing as his parents' attorney because that fact had been stated on the two most important documents – the mortgage and the loan agreement – and I intended to send to the finance company's solicitor a copy of the power of attorney with all the loan documentation after it had been signed. … When these documents had been signed I sent them to the solicitors for the finance company … On 26 September Mr Yatne came to my office and said 'I can't get the certificate of title from the Bank, can you get it for me?'" Mr Murphy replied "No, but you should be able to get it just by using your power of attorney. Just show it to the Bank and they will give you the certificate of title. Otherwise I could ring your parents overseas and see if there is some way that they can contact the Bank direct. What country are they in?" Mr Yatne replied, "They can't be contacted where they are". Mr Murphy said, "Well just show the Bank your power of attorney". 24 Later the same day Mr Yatne returned and said "The Bank want a letter requesting the title deed. It has to say we Kasem Yaktine and Racha Yaktine authorise St George Bank to release the title deeds and send to the Roselands Branch." Mr Murphy said he would prepare the letter, he prepared the St George letter and gave it to Mr Yatne saying "You will have to sign and write on this 'Signed by Mohammed Aly Yatne as attorney for Racha Yaktine and Kasem Yaktine." Yatne said, "Yes but can you sign it first?" He then took the letter and promised to write the words on the document. 25 Paragraph 13 of Mr Murphy's affidavit read as follows: "As a result of the discussions that I had had with Mr Yatne and because I knew that he lived with his parents, I assumed that there had been some reconciliation between them and that they had made some agreement which would compromise a resolve in the loss which the parents had suffered as a result of Mr Yatne having borrowed money with the forged power of attorney." This paragraph was duly read as part of Mr Murphy's case. However, in cross-examination he admitted that in fact he did not discuss the matter with Mr Yatne. Counsel, Mr Davies SC, asked: "So that's just untrue is it that paragraph? A. It is just a typographical error. Q. It is not a typographical error is it? A. Okay well it is not correct. No it is a mistake. Q. Do you have any basis for your assumption in that paragraph? A. The basis for my assumption was that threatened legal action didn't seem to be going ahead." (T41). 26 In the witness box Mr Murphy said that as far as he knew, there was no problem at all about a person making a statutory declaration as the attorney under power of the declarant. I believe him when he said this, even though the opinion is so horribly wrong that one would not have expected it from any person who has been admitted as a solicitor. 27 Mr Newlinds submitted that Mr Murphy was liable to the defendant: (1) because of the representations and warranties made by him to the defendant by sending the documents with at least an implied representation and warranty that they had been duly signed by the clients; (2) a breach of his warranty of authority to act for the plaintiffs; and (3) under the Trade Practices Act or Fair Trading Act. 28 However, during argument Mr Newlinds made it clear that if he could not succeed under the statutes then he would not be able to succeed under the other counts. Accordingly, I do not have to consider how far a solicitor is liable to a person other than his or her client with respect to statements made which might be construed as a warranty; cf Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 and Bebonis v Angelos (2003) 56 NSWLR 127, 134-5 and Promosso Holdings Ltd v Alpers [2004] 3 NZLR 521. 29 So far as the Trade Practices Act/Fair Trading Act is concerned, one normally looks to see whether the conduct was in trade and commerce. It is often difficult to find that a solicitor in a transaction involving domestic conveyancing is so involved, though it is possible. Mr Newlinds says that it is of no moment going into this territory because Mr Murphy used the mails with respect to his false and misleading statements and in any event, the Fair Trading Act would catch whatever the Trade Practices Act did not. This seems to be a fair enough approach. 30 Mr Newlinds says that there are two aspects of Mr Murphy's conduct which fall foul of the relevant provisions of the legislation. First, Mr Murphy's conduct in putting forward to Heidtman & Co that the documents which he was sending them had been signed by the plaintiffs in his presence, conduct which induced the defendant to lend money which Mr Yatne misappropriated, and secondly, by representing in and about his conduct with the St George letter that he acted for the plaintiffs and so obtaining the certificate of title. 31 Mr Newlinds pointed out that he did not need to establish that the conduct of Mr Murphy was the sole cause of the loss; see Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545, 555-6 [45] and Gould v Vaggelas (1985) 157 CLR 215, 236. 32 The question of the intent of the person accused of misrepresentation is irrelevant in these sort of matters; see eg Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 89, 92. 33 There have been cases where it has been held that a solicitor proffering a form of documentation may have been guilty of false and misleading conduct such as the situation where a town planning certificate is only partially enclosed in a contract so that the contract gives a misleading impression as to the proper zoning: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, 133. 34 The question as to whether a representation was false or misleading within s 52 of the Trade Practices Act is a question of fact to be viewed in all the circumstances. 35 As to the proffering of the mortgage documents, I must confess I have more than once weighed the relevant factors in my mind to see whether I could be satisfied that Mr Murphy had (even innocently) been guilty of making a false and misleading representation. 36 The most relevant factors seem to me to be first, that the documents were sent out by Heidtman & Co in such a way that there was no obvious way of completing them where they were to be signed by an attorney under power. However, Heidtman & Co expected that the documents would be executed without alteration, and indeed, Ms Turner's check list had been prepared to ensure that this was so. 37 Secondly, Mr Murphy knew that he was returning documents to a solicitor. He might well have considered that a person with some legal expertise would consider them. Thirdly, as he said in evidence, Mr Murphy made it plain by the signature on the mortgage document itself, that Mr Yatne was signing as attorney for the mortgagors and he or she who runs may read and would see quite clearly the similarity of the signatures on all the documents. 38 As against that, the documents literally contained false statements. The most serious of these were the statutory declarations in the names of each of the plaintiffs, which on the face of them, were declared before Mr Murphy in his role of a Commissioner for Affidavits or the equivalent, and there was nothing on the document to show that the person who made and subscribed the document was not the person named in the statutory declaration, but rather the attorney. Even if (as I do), I accept that Mr Murphy was innocently ignorant as to the law on making statutory declarations, the document in itself was a misrepresentation. 39 Furthermore, the documents which had been sent to Mr Murphy were for a personal borrowing by the Yaktines. The documents as returned by Mr Murphy appeared to comply with the documents which were sent to him, but had they been read by anyone experienced in the law or indeed in the world of finance, it could have been divined that what was really taking place was a third party mortgage in which Mr Yatne was getting money on the mortgage of his parents' property and the parents were getting no benefit whatsoever. This would have sent red lights flashing had any qualified person actually examined the documents on behalf of the mortgagee. I do not press this matter too highly because it is not completely clear to me whether it is within the charges made in the final version of the relevant cross claim. 40 Looking at the matter as a whole, it seems to me that the factors pointing to a misrepresentation outweigh the other factors. 41 There is no doubt in my mind that there was reliance on the representation in Heidtman & Co on behalf of the mortgagee and that the representations partially induced the lending. 42 However, whatever one may say about the proffered documents, the case is completely clear with respect to the St George letter. 43 It is really difficult indeed to know how any solicitor could have put himself in a position in which he issued that letter. He tells the Court that he was genuinely of the belief that the Yaktines were overseas and could not be contacted at the time when the St George letter was drawn. He asked the Court to accept that when he had the letter typed with a space for Mr Yaktine and Mrs Yaktine to sign, he genuinely considered that Mr Yatne would write in the words "signed under power of attorney by M A Yatne". This is hard to accept for three reasons: (a) the small amount of space left in the letter for the signatures; (b) the fact that Mr Murphy already knew that the Bank would not release the documents to the attorney; and (c) that it is extremely hard to understand why the words executed under power of attorney were not typed on the document and why Mr Murphy would think that they had to be handwritten by Mr Yatne. As Mr Murphy believed that the parents were overseas it could not be that he expected the parents to sign the letter themselves. 44 The St George letter also, of course, contained the assertion that Mr Murphy acted for the plaintiffs, which he may have thought he did, but we now know was false in that he had been tricked by Mr Yatne. Mr Murphy knew that the letter would have the effect of having the certificate of title released which, if it were not released, would mean that the loan could not go through. 45 I must confess I was not at all impressed with Mr Murphy's evidence, in particular, his statement in para 13 of his affidavit was just wrong, and he knew it was wrong. His wishful thinking and assumptions were just baseless, yet he proffered and had his counsel read, para 13 of his affidavit which he knew was in error. 46 Accordingly, I find that the St George letter was also a misrepresentation which was false and misleading and which induced the loan. 47 Accordingly, there must be a verdict for the defendant against Mr Murphy. 48 Because of the finding I have just made, it is necessary to consider whether Mr Murphy's insurer should indemnify him. 49 I have already set out the relevant provisions of the policy. 50 Mr Davies SC for the insurer, points to a series of cases in which solicitors who have behaved recklessly have been held to act dishonestly within the meaning of the sort of provision that is under review in the instant case. 51 As I have said, I have seen Mr Murphy in the witness box and the impression I gained was of a man of limited understanding of the law and ethics involved in the present sort of transaction, and a person who would not knowingly do what he considered to be dishonest, but yet a person who made statements, particularly in connection with the St George letter, which a reasonable person in his position would have considered were misleading. 52 Indeed, it may go further than this in that I was concerned that after the bubble burst, so to speak, Mr Murphy attempted to negotiate a return of the deposit on Mr Yatne's proposed new purchase without any reference as to what were acceptable outcomes to the Yaktines or their solicitor, and indeed, on the basis that he would be reimbursed his $700 fee which was still owing because Mr Yatne's cheque in payment of that fee had bounced. This does not quite marry up with a naïve person who is acting honestly but does have a taint of subjective dishonesty. However, it is not necessary to make a determination because the cases clearly show that for purposes of a clause in insurance policies such as the one that I have set out earlier, a person may be dishonest even though he or she had no such intention. I should briefly refer to some of these authorities. 53 In Comino v Manettas (1993) 7 ANZ Insurance Cases 61-162, a solicitor made a claim against Law Cover. There was a general exclusion in the policy in respect of any liability brought about by the dishonest or fraudulent act or omission of the assured. The solicitor had signed a false certificate that he had explained the terms of the relevant loan agreement to the borrower. He had not done so but his view was the borrower already understood the terms of the agreement. Mahoney JA, with whom Sheller and Cripps JJA agreed, said at p 77,869 that the solicitor's representation in that case to the GIO of things which he knew to be untrue fell within the term "dishonest". He added, however, "In so far as an intention to deceive is involved in 'dishonest' it was his purpose and intention to deceive the GIO in this regard." However, the solicitor was able to succeed because the Court considered that the liability was not "brought about" by that dishonest act. 54 Fraser v Council of the Law Society of NSW is a decision of the Court of Appeal, Kirby P, Handley JA and Cripps JA handed down on 7 August 1992. That was again a case of a solicitor issuing a false certificate to his knowledge. The case involved disciplinary proceedings and the solicitor's problem was exacerbated by the fact that he had failed candidly to acknowledge the certificate's falsity to a mortgagee's solicitor who had twice enquired about it. The Court held that the conduct of the solicitor was fraudulent but extended mercy in setting aside the order of the disciplinary tribunal removing him from the Rolls and substituting a fine. 55 Underwriters at Lloyds v Ellis was a decision of the Court of Appeal consisting of Meagher, Handley and Powell JJA handed down on 25 February 1998. It was again an insurance case where a solicitor had been refused indemnity because it was alleged by the insurer that the matter fell within the exception "any liability … brought about by the dishonest or fraudulent act or omission of the assured". Powell JA, who gave the leading judgment, said at p 31 of BC 9800334 that he followed the decision in Comino v Manettas that the conduct, although not fraudulent, was to be regarded as having been dishonest. Again, the solicitor succeeded because of the phrase "brought about by" did not cover the facts. 56 Finally, in Victoria in Harle v Legal Practitioners Liability Committee [2003] VSCA 133, the Victorian Court of Appeal consisting of Callaway, Buchanan and Chernov JJA dealt with a false certificate. The leading judgment was given by Chernov JA, with whom the others agreed. At [29] Chernov JA said: "Whether particular conduct amounts to dishonesty involves the consideration of the mental state – the knowledge, belief or intention – of the person whose conduct is impugned." He cited McCann v Switzerland Insurance Ltd (2000) 203 CLR 579 at 596 per Gaudron J. He then noted at [31] that as had been made clear in Peters v R (1998) 192 CLR 493, this does not involve consideration whether, subjectively, the person realised that his or her conduct was dishonest by the standards of ordinary decent people. The Court then reviewed the evidence and held the trial judge was justified in finding that the solicitor was dishonest by the standards of ordinary decent people and thus dishonest for the purposes of the policy. 57 McCann's case was again one involving a policy of insurance against liability of a solicitor. Again, the policy contained an exclusion of liability brought about by the dishonest or fraudulent act or omission of the assured. The loss happened as a result of the fraud of a partner in a large firm of solicitors. Kirby J reviewed some of the cases including Comino v Manettas at p 601. However, he and three other Justices found in favour of the insurer. Kirby J said at 608: "To construe the exclusion clause so as to omit application to cases of partner dishonesty and fraud such as occurred in this case simply because Mr Powles did not intend to lose the funds or because a further step was taken by fraudulent third parties, would seriously constrict the operation of the exclusion clause." Callinan J dissented in the result. However, at 637 he also adopted the view that the cases had correctly settled the meaning of dishonesty as including conduct which was conscious and deliberate. He, however, took a different view of "brought about by". 58 Even though Mr Murphy may well have had no malicious intent, it is clear that his actions in and about sending the documents back to Heidtman & Co and a fortiori his involvement with the St George letter were conscious and deliberate acts which were misleading representations and accordingly, were dishonest within the meaning of the exclusion. One must now turn to the wording of this particular policy which is different to that considered in the leading cases which I have just discussed. The exception is to apply where "the claim arises from any dishonest or fraudulent acts etc". 59 Mr Davies SC submits that the words "arises from" are wider than the former standard words "brought about by". He supported this argument with reference to authority. 60 In Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500, the High Court had to consider whether injuries arose out of the use of a motor vehicle. Five Justices of the High Court at p 505 said: "The test posited by the words 'arising out of' is wider than that posited by the words 'caused by' and the former, although it involves some casual or consequential relationship between the use of the vehicle and injuries, does not require the direct or proximate relationship which would be necessary to conclude that the injuries were caused by the use of the vehicle." 61 The question in Peter Isaacson Publications Pty Ltd v Victorian WorkCover Authority [1996] 1 VR 49, concerned the jurisdiction of the Victorian Accident Compensation Tribunal. That tribunal had authority to hear and determine any question or matter arising out of any decision of the Accident Compensation Commission. The Court consisted of Brooking, Smith and Ashley JJ. Smith J gave the leading judgment and at 62 he held that the phrase "arising out of any decision" extends to, but not beyond, matters ancillary to any decision of the Commission. Again, the words were given a very wide operation. 62 In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, the arbitration clause referred to "any dispute or difference arising out of this Agreement". At p 165 Gleeson CJ, with whom Meagher and Sheller JJA agreed, said that the words "arising out of" were not to be construed narrowly. Tamberlin J followed this authority in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1996) 71 FCR 172, 179-181 with the phrase "any dispute arising from this charter". 63 I can see no answer to the submission that the words in the current policy are to be construed more widely in favour of the insurer than the words in the former policy. The loss in the instant case had a sufficient causal connection with Mr Murphy's dishonesty to make the exclusion come into play. 64 Mr Murr for Mr Murphy said to take this view is to take a very unreal consideration of what happened. He says the whole point of a power of attorney is that people deal with the donee and do not consult the donor. People must expect to be able to treat donees of powers of attorney as prima facie having authority to do what they have to do. 65 Of course, sub limine this is true. However, especially for solicitors, red lights should flash when certain factors exhibit themselves, one red light flashes when one can see that the donor of the power of attorney is to receive no benefit at all from a transaction yet the donee is to receive a considerable benefit. One can rationalise that this is because it is a family dealing, but a prudent solicitor when he or she sees the red light, makes enquiries. Furthermore, a prudent solicitor is extremely careful about documents to which he or she puts his or her signature and professional reputation and takes precautions against misleading anyone else. Unfortunately, Mr Murphy, whilst probably not dishonest in the criminal sense, fell short of the standard here and is liable to indemnify the mortgagee for its loss without recourse to his insurer. 66 MI230 shows that on the first cross-claim $87,473 plus interest plus an indemnity as to the costs properly paid in favour of the plaintiffs constitute the damages suffered by the first cross-claimant. 67 The first cross-claimant is entitled to such damages against Mr Yatne. 68 On the second cross-claim, the cross-claimant is entitled to the same relief against Mr Murphy. 69 On the third cross-claim, Mr Murphy is entitled to a verdict for the amount including costs he has been ordered to pay Perpetual Trustees Victoria Ltd. 70 Verdict for the cross-defendant American Re-Insurance Company on the fourth cross-claim. Mr Murphy to pay the costs of the fourth cross-claim. 71 These results should be put in short minutes. I will fix Thursday 25 November 2004 at 9.30 am for this purpose on the basis that should counsel wish to amend this date by consent and contact my Associate by 4 pm on 23 November, that change can be made. ******************* Last Modified: 11/18/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.