New South Wales Supreme Court CITATION : Eddy Simon David; Grace David v Fred David & Ors [2007] NSWSC 855 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 2, 3, 4, 5, 10, 11, 12, 13 May 2007 21 June 2007 JUDGMENT DATE : 9 August 2007 JUDGMENT OF : Patten AJ at 1 DECISION : See paragraph 172 Corporations Law LEGISLATION CITED : Trade Practices Act 1974 Fair Trading Act 1980 Beach Petroleum NL v Kennedy and others (1999) 48 NSWLR 1 Karl Suleman Enterprises Pty Ltd v Babanour 49 ACSR 612 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Ibrahim v Pham, [2005] NSWSC 246 CASES CITED : Hill v Van Erp (1997) CLR 159, Bryan v Maloney (1995) 182 CLR 609 Hawkins v Clayton (1987-1988) 164 CLR 539 Perre v Apard Pty Ltd (1999) 198 CLR 180 Graham v Hall (2006) NSWCA 208. Eddy Simon David - First Plaintiff Grace David - Second Plaintiff Fred David - First Defendant Suzie David - Second Defendant PARTIES : Paul Manuelpilla Dominic - Third Defendant Linda Joan Romano - Fourth Defendant Andy Isho - Fifth Defendant Direct Mortgage Solutions Pty Limited - Sixth Defendant Macquarie Bank Limited - Seventh Defendant FILE NUMBER(S) : SC 11832 of 2003 Mr D Baran - Plaintiffs COUNSEL : Mr R Darke SC with Mr M Dicker - First to Fourth Defendants Mr G Curtin - Fifth Defendant Barclay Benson Lawyers - Plaintiffs SOLICITORS : Middletons - First to Fourth Defendants Henry Davis York - Fifth Defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST Patten AJ 9 August 2007 No: 11832 of 2003 Eddy Simon David – First Plaintiff Grace David – Second Plaintiff v Fred David – First Defendant Suzie David – Second Defendant Paul Manuelpilla Dominic – Third Defendant Linda Joan Romano – Fourth Defendant Andy Isho – Fifth Defendant Direct Mortgage Solutions Pty Limited – Sixth Defendant Macquarie Bank Limited – Seventh Defendant JUDGMENT: INTRODUCTION: 1 The Plaintiffs, husband and wife, sue a number of defendants in respect of investments made during 2001 with a company Karl Suleman Enterprizes Pty Ltd (in liquidation), (Suleman Enterprizes). It appears that most of the sums invested will be irrecoverable following the collapse and liquidation towards the end of 2001 of Suleman Enterprizes, the principal of which was a Mr Karl Suleman. He is presently serving sentences of imprisonment for a variety of offences, including breaches of his obligations as a company director. 2 I was informed at the commencement of the hearing that the Plaintiffs have settled with the Sixth and Seventh Defendants and the proceedings before me concerned only the First to Fifth Defendants, all solicitors of this court. Of those defendants, the first four practised in partnership as Dominic David Stamfords (DDS) and the fifth practised under the firm name Isho and Associates. 3 As against the First to Fourth Defendants, the Plaintiffs alleged that they retained DDS to advise and act for them in relation to their proposed investment in Suleman Enterprizes and in relation to a secured loan to fund the investment. Causes of action were pleaded in breach of contract, negligence, breach of the Trade Practices Act, breaches of the Fair Trading Act and breaches of provisions of the Corporations Law. 4 In relation to the Fifth Defendant, the causes of action pleaded were in negligence, and also alleged breaches of the Trade Practices Act, the Fair Trading Act, and the Corporations Law. 5 The Plaintiffs' case principally comprised the affidavits and oral evidence of them both, coupled with the tender into evidence of a very large quantity of documentary material. In an attempt to avoid confusion, I will refer to the Plaintiffs individually as Mr and Mrs David and the First Defendant and the Second Defendant, simply by that title. 6 Mr David's affidavit sworn on 1 September 2003 stated that he was born in Iraq on 5 April 1956 and has primarily resided in Australia since 1970. He left school when he was about 14 but completed a plumber's trade certificate in 1970. He has worked in Australia as a plumber, being self-employed since about 1978. He married the Second Plaintiff in 1984. 7 His affidavit deposed to the circumstances relating to the subject investments as follows: "9. I first heard about a trolley business which was purportedly conducted by a Karl Suleman (KS), in or about early or mid 2000, from a Sam Lazar, who worked at the Ninevah Club which I attended, and Father Ashour Larzar, my local priest. 10. In or about late 2000, early 2001, I met a person whom I know now as David Varda, when I was doing his plumbing at his house in Abbotsbury. I had a conversation with Mr Varda to the following effect: David: "I'm Karl Suleman's right hand man. I issue the cheques. Trolley businesses are doing excellent and you should invest in it." Myself: "I don't have any money to invest." David: "I can organize that for you if you own your own house. I can refer you to some people who can arrange finance for you." Myself: "Who?" David: "I can introduce you to a friend of mine." 11. Shortly thereafter, Mr Varda accompanied me to the office of Quick Loan Services (QLS) in Fairfield in the State of New South Wales. At that office, I met a person whom I now know as Zia George. We all had a conversation to the following effect: Myself: "How can I go about investing in the trolley business with KS?" Zia: "If you own your own house, it's easy. I can get you the money." Myself: "How?" Zia: "Just leave it to me" Myself: "Well, I couldn't even get a $50,000 loan with my tax return through my bank, Westpac about a month ago for extension of my house." Zia: "Don't worry"" Zia George then questioned me about personal details. The conversation then continued to the following effect: Zia: "I need your rates, proof of identity, to raise 100 points and $1,000. It will cost you $2,500. This is to organise the loan for you." Myself: "I need to check up on this investment in trolley businesses with a solicitor to ensure that it is 100% right." Zia: "It's OK. Go and do it. If you change your mind, the money is refundable". I went to the bank and withdrew $1,000 and returned to Zia George's office and paid him being his fee to organise the loan. Zia said to me: "If you don't go ahead with the loan, I'll refund your money." I also took the documents requested by Zia George to him on that day. Zia George photocopied the documents and took the details of my account number and the names under which I want to invest my money in the trolley businesses. Zia George then said, "We will also arrange for the contract with KS. You should come and see me when you get your money." This meeting was conducted in the Assyrian language. 3. About two or three days late, I went to the offices of Dominic David Stamfords (DDS) solicitors in Fairfield in the State of New South Wales. Before this visit, I knew of Fred David and Suzy David, who are Defendants to the proceedings herein. I know them to be Assyrian. I know they are brother and sister. I knew they were solicitors who worked at DDS. I was also informed that DDS acted as legal advisors to the Bishop of the Assyrian Catholic Church in Sydney. As a result, I had confidence in them. I assumed that Fred and Suzy David would know about the trolley business because they were involved in the Assyrian community in Sydney. 3. On that day, at about 5.30 pm, I knocked on the door to the office of DDS at street level. It was locked. A person whom I knew as Fred David come (sic) to the door. I knew it to be Fred David because I had seen him previously at various Assyrian functions which we had both attended. Fred David said: "We're closed." I then said to him words to the effect of: "My names is Eddy David and my wife and I want to find out about the trolley business investments with KS". Mr David then invited me into the office. He took me to a room, which I assumed was his office. We had a conversation. During the course of that conversation words to the following effect were said: Myself: "I've heard about KS trolley businesses and I want to see how it works. What do you think of Karl Suleman Investments?" Fred: "It's a good investment. I can't act for you because I'm involved with Karl Suleman." Myself: "How is the return so high?" Fred: "Take a guess how much money a bank makes on your investment." Myself: "4 to 5%" Fred: "Higher." Myself: "10 to 12%." Fred: "Higher." Myself: "20%." Fred: "Higher." Myself: "What, it can't be more than 25%." Fred: "Try 70%. On short term investments that's how much they make on short term investments." Myself: "Wow." Fred: "That's how Khalid (referring to Karl Suleman) makes his money offshore because he has that kind of investment and he can afford to get such a high return. I have investments with him too. If I was you, I would invest with him. If you have the money go for it, that's my advice". Myself: "I don't have the money, but I'm thinking of refinancing my house" Fred: "If I was you I'd go ahead with it." While I was leaving the office of DDS I collected the business card of Fred David's from the reception area of DDS. Exhibited hereto and marked "ED1" is a true and correct copy of that business card. 3. This meeting took no more than 10 minutes. 8 According to Mr David's affidavit, the next day he went to the office of Quick Loan Services (QLS) and spoke to Mr Zia George. He asked him to process a loan application. About a month later, he returned to the office of QLS and signed a formal loan application. 9 About two weeks thereafter, at the office of QLS he was handed a bundle of documents by a Mr Jesse George who walked with him to the office of DDS and introduced him to Ms Sabrina Jajoo. Mr George told him that Ms Jajoo was a solicitor and would help with the loan documents. She was also the First Defendant's wife. 10 At the office of DDS, according to Mr David's affidavit, Mr George told Ms Jajoo that he was "getting a loan to invest with Karl, we need to do the paper work". Ms Jajoo asked that the documents be left with her, saying, "I'll chase it up". 11 Mr David deposed to the circumstances of his next meeting with Ms Jajoo at the office of DDS, as follows: "19. On 6 March 2001, my wife and myself attended upon the offices of DDS. We met with Sabrina Jajoo. I introduced my wife to Sabrina Jajoo. Sabrina took us to a room which was different to the room in which I had met Fred David. I assumed was her office. We had a conversation. During the course of that conversation words to the following effect were said; Myself: "How come your name is Jajoo and not David, because your are married to Fred?" Sabrina: "I like to keep my own surname and for business purposes. My clients know me as Jajoo." My wife and Sabrina then started making jokes about my wife's surname. The conversation then continued to the following effect: My wife: "What do you think about trolley businesses with Karl Suleman?" Sabrina: "Lets hope Karl lives forever, that way the investor would keep receiving their money." 3. During that conference Sabrina had some documents in front of her. She turned the pages of those documents. She appeared to be reading the documents. We then had a conversation to the following effect: Sabrina: "These are the loan documents. They are standard documents. Have you had a loan before?" Myself: "Yes." Sabrina: "So you know all about loan documents and mortgages?" Myself: "Yes." My wife: "Eddie reads everything." This is the only advice my wife and myself received about the loan and/or the related documents from Sabrina. After that conversation, she turned the documents towards us so that they were facing us on her desk. She said to my wife and myself words to the effect of: "Sign here". She said that on several occasions and on each occasion she pointed to a place on the document. My wife and myself signed the documents accordingly and on other places we put our initials. Before signing the document, I briefly looked at the document to ensure that the loan was for $250,000. 3. After my wife and myself had completed signing the documents, the conversation continued to the following effect: Sabrina: "How much do you want to invest with Karl?" Myself: "$150,000." Sabrina: "What do you want to do with the balance of monies?" Myself: "Deposit the balance of monies into my account" 3. That meeting took about 20 minutes. That meeting was conducted in the English language." 12 On 16 March 2001, Mr David by arrangement collected from the office of DDS a letter from the firm addressed to himself and his wife, which read as follows (omitting formal parts): "RE: YOUR REFINANCE FROM WESPAC BANKING CORPORATION TO MACQUARIE BANK Security: 39 ORCHARD RD, FAIRFIELD We refer to our telephone conversation on even date and confirm that the settlement of your refinance has been scheduled for Monday, 19th March 2001. Loan Advance: $250,000.00 Less:- Macquarie Settlement Fee: $50.00 Mortgage House Establishment Fee $950.00 Macquarie's Legal Fees $188.00 Stamp Duty: $941.00 Bank Cheque Fee: $10.00 ________ $2,139.00 AMOUNT AVAILABLE: $247,861.00 The above amount it to be drawn down as follows:- 1. $64,238.22 to: Westpac Banking Corporations; 2. $822.00 to: Dominic David Stamfords; 3. $150,000.00 to: Karl Suleman Enterprises Pty Ltd; 4. $32,800.00 to: E.S. & G. David $247,861.00 Please find attached hereto the following:- 3. Letter from Macquarie's solicitors dated 14 March 2001 regarding funds available; 3. Letter from Westpac Banking Corporations dated 15 March 2001 regarding the amount to be paid out; 3. Our memorandum of Costs and Disbursements. Please note that we have on even date discussed your matter with Mr Zia George of Quick Loan Services and have confirmed with him the nature of this settlement and our previous instructions from Mr Jesse George regarding costs and disbursements. Please further note that your cheques will be available for your collection from our office Tuesday morning." 13 On 20 March 2001, Mr David said that he attended the office of DDS and was handed 2 cheques by Ms Jajoo, one in favour of Suleman Enterprizes for $150,000 and the other for $33,000 in favour of his wife and himself. 14 As part of the transaction DDS deducted from monies which came into their hands $822 as their costs and disbursements, which included $450 "Acting for you on your finance" and $100 "Acting for you on discharge of mortgage". 15 Paragraphs 27 and 28 of Mr David's affidavit contained further assertions as to his dealings with DDS: "27. At no time during my dealings with DDS was I presented with or required to execute a document setting out the terms and conditions upon which DDS was to act for me or disclosing to me their fee so (sic) acting for me. At no time during my dealings with DDS did I ever give them express authority, in writing or verbally, to deduct their fees from our loan funds. 28. I deny that, at any time, was I advised by Sabrina Jajoo or anyone else from DDS, that I should get independent legal and/or financial advice in respect of the investment or before taking out the loan. I deny that, at any time, did I have a conversation with Sabrina Jajoo in reference to KS's business structure or its set up. I deny that at any time was I advised by Sabrina Jajoo or anyone else at DDS, that there was a risk involved in investing in the trolley business or that the business was illegal. I have several cousins who live in Australia. I do not keep in regular contact with them. I do not know if any of them are financial advisors. I did not know, at the time of the alleged conversation or during my dealings with DDS, as to whether any of them invested into the trolley business. I have since become aware that several of my cousins did invest in the trolley business." 16 On 19 March 2001, DDS, over the hand of Ms Jajoo, sent a letter to QLS (omitting formal parts): "RE: Eddy Simon David & Grace David Refinance Security: 39 Orchard Rd. Fairfield NSW. We refer to the above matter and confirm that settlement was effected on even date. We advise that the clients will be collecting the cheques form our office tomorrow. This matter is now finalised and we look forward to working with you again in near future." 17 After receiving the cheque in favour of Suleman Enterprizes from Ms Jajoo on 20 March, Mr David took it to the office of QLS and spoke to Mr Jesse George who told him to take it to the Fifth Defendant (Mr Isho), "where your contract will be ready". 18 Mr David thereupon went to the office of Mr Isho whom he had met previously. He told the receptionist that he had "some money to invest in the trolley business with Karl Suleman". Shortly afterwards, he had a conversation with Mr Isho as follows: "Mr David: "Jesse sent me. I'm here for the contract with Karl Suleman." Mr Isho: "Do you have the cheque." Mr David: "Yes. Here it is." 19 Mr David handed the cheque to Mr Isho and the conversation proceeded. Mr Isho: "I will prepare the contract for you." Mr David: "Do I get a receipt for this cheque?" Mr Isho: "You don't need one. Your cheque is good enough." Mr David: "I have to show my wife something." 20 According to Mr David, Mr Isho then photocopied the cheque and handed it to him. He also handed to Mr David a document and said, "You and your wife need to sign this, and return it to me. This is a standard contract. Initial every page and sign on the dotted lines." Mr David said that the meeting took 10 minutes at the most." 21 The document handed to Mr David by Mr Isho, which was a form of agreement, had a back sheet: AGREEMENT BETWEEN KARL SULEMAN ENTERPRIZES PTY LIMITED (A.C.N. 090 895 364) ("KSE") AND EDDY DAVID AND GRACE DAVID ("YOU") 20 March 2001 Karl Suleman Enterprizes Pty Limited Suite 8, 131-135 George Street Liverpool NSW 2170 22 The document recited: "(i) KSE carries on the business of trolley collection services (The Business) in Australia. 3. You have agreed to invest in the Business on the terms and conditions set out in this Agreement." 23 By clauses 2 and 3, coupled with references to the schedule, the agreement was to commence on 20 March 2001 and expire on 20 March 2011. 24 Clause 4 required the Plaintiffs to "invest" with Suleman Enterprizes $150,000 on the date of making of the agreement. 25 Cause 5 headed "KSE's Obligations" provided: "(a) In consideration of the investment KSE shall pay to you the sum referred to in item 5 of the Schedule. 3. KSE shall pay the sum referred to in clause 5(a) at the frequency and manner referred to in item 6 of the Schedule and commencing on the date referred to in item 7 of the Schedule. 3. IKSE shall guarantee the consideration referred to in clause 5 (a) until the termination date referred to in clause 3. 3. KSE shall endeavour to run the Business on a day to day basis, being responsible for all costs associated with the Business, including but not limited to wages insurances and all costs associated with the operation of the Business. 3. KSE shall endeavour to exercise all due care, skill and judgement in the performance of its obligations under this Agreement. 26 For the purpose of clause 5, item 5 in the schedule provided: "PAYMENT BY KSE For 20.50 (sic) months from the commencement date of this Agreement, the payment by KSE of $3,750 shall include an amount of $375.00 which is 10% interest income. After the 20.50 months referred to in this item the payment by KSE of $3,750.00 shall represent interest income." 27 Item 6 in the schedule contemplated fortnightly payments and item 7 stipulated a commencement date of 2 April 2001 28 The only other operative clause to which I need make reference is 7: "7. Your Acknowledgement: 3. You agree that apart from the consideration paid by KSE as referred to in clause 5(a), You will not be entitled to any further income derived by KSE from the business including but not limited to the profit of the business; 3. You will be liable to pay any tax which You will be liable to pay as a result of the payments received by you under this Agreement; 3. You acknowledge and agree that upon the expiration of this Agreement, all dealings between you and KSE in this Agreement shall terminate and KSE shall be under no obligations to pay to you the payments referred to in clause 5(a) nor any other monies derived from the business." 29 Attached to the draft agreement was a "Disclaimer" whereby the Plaintiffs acknowledged that, in effect, Suleman Enterprizes undertook no responsibilities in respect of the taxation implications of the transaction. Another attachment concerned the giving of legal advice. In the alternative, the Plaintiffs were called upon to state either that they had received legal advice and identify the provider or acknowledge: "KSE has strongly recommended that we obtain independent legal advice in respect of the said Agreement but we have decided not to obtain such advice." The box against this acknowledgment was ticked and the signature of both Plaintiffs appeared at the foot of the document. 30 A third attachment in somewhat similar terms dealt with the subject of financial advice. This document was also signed by both Plaintiffs. Although neither of the two alternative boxes was ticked, the document contained a clause: "We have signed this Agreement voluntarily after having received all advice we consider necessary." 31 Mr David took home the form of agreement given to him by Mr Isho where he showed it to his wife: "I read the document at home. My wife and I signed the document and my father witnessed our signature. I did not tick the box on the page headed "Statement by you about Legal Advice". I signed that page because there was a dotted line on it. I did obtain legal advice about the investment from DDS" 32 On the same day, Mr David returned the signed agreement to Mr Isho's secretary. Sometime afterwards, he received, at the office of QLS, a counterpart of the agreement signed on behalf of Suleman Enterprizes. It was dated 20 March 2001. 33 Thereafter, the Plaintiffs received the sum of $3,750 per fortnight until 12 November 2001. They were paid $63,750 in total by cheques drawn initially on an account of K V Suleman and after July 2001 by Suleman Enterprizes. 34 In August 2001, the Plaintiffs entered into a further transaction with Suleman Enterprizes which, according to the submission of Mr Baran, their counsel, forms part of their claim in these proceedings, although the basis for such submission is not entirely clear to me. What occurred is explained by Mr David in his affidavit: "40. In or about August 2001, I was at the home of John and Mary Daniel in Smithfield, performing plumbing work. I worked at that house for about l2 weeks. During that period, both John and Mary Daniel said to me words to the effect of: "We know Karl very well, and we can get you a 3 year contract which is not given to anybody." I then had a conversation with my brother, Mathew Simon David. On 20 August 2001, my said brother and myself, met John Daniel at his home. I had with me a cheque in the sum of $48,000.00. that cheque was drawn from $24,000 transferred into my cheque account by my said brother. The balance was derived from the proceeds of a sale of property that I had previously owned in Hassall Grove. I gave the cheque to John Daniel at his home. After I gave John the cheque he produced the document titled "Financial Investment Agreement". I did not read the document. My brother and myself signed the document where John Daniel indicated. After we had signed the document John Daniel took the document away. On the same day, John Daniel returned the document to myself at his home. The document when it was returned had purportedly been signed by KS. The name "Eddie and Matty Investment" is a business name registered own (sic) by my said brother and myself." 35 The agreement referred to in paragraph 40 of Mr David's affidavit, whilst bearing a passing similarity to the earlier agreement was, on closer inspection, in quite different terms. It recited that "the investor" had agreed to make "a loan" to "the business" carried on by Suleman Enterprizes. 36 In paragraph 43 of his affidavit, Mr David claimed: "If I had know that the funds I invested, as deposed to herein, were to be invested into an illegal scheme, I would not have borrowed or invested those funds. At the time of the events deposed to herein, I did not know the meaning of managed funds, Corporations Law, conflict of interest, and of the implications thereof, and pyramid scheme." 37 Apart from stating that he could now remember a telephone conversation with Ms Jajoo on 16 March 2001, Mr David added nothing in his evidence in chief to what he had said in his affidavit. 38 Mr Darke SC, who appeared with Mr Dicker for the First to Fourth Defendants, cross-examined Mr David as to previous property dealings, establishing, I think, that the Plaintiffs by early 2001 had considerable experience in borrowing and investing money and in dealing with solicitors. Mr Darke also cross-examined Mr David upon the subject of his income tax returns, which demonstrated that Mr David has earned substantial income not disclosed for income taxation purposes. This somewhat tarnished Mr David's credibility, in my opinion, as did evidence suggesting, despite Mr David's protestations of ignorance, that the loan of $250,000 obtained from Macquarie Bank was based upon grossly inflated statements of his income as to which he must have been aware. 39 Mr David agreed with Mr Darke that before he gave thought to investing with Suleman Enterprizes he had heard that good returns were being offered, including that for a $50,000 investment, $2,500 per month would be paid over a 10 year period. He agreed that he formed the view that he should borrow as much as possible against his house in order to invest with Suleman Enterprizes, despite the fact that all he knew about the business was that it involved supermarket trolley collections. 40 He said that initially his wife was against the investment but eventually he convinced her by telling her of various people in their Assyrian community who had already invested and were receiving high returns. When it was put to Mr David that he did not wish to see a solicitor before deciding to invest, he replied "Yes, I went ahead and spoke to a solicitor before I could go ahead with the investment", referring to his alleged meeting with the First Defendant. 41 Mr David agreed with Mr Darke that he put a lot of faith in Mr Suleman who was known to him by reputation but insisted that this was not to the extent of dispensing with a solicitor's advice. 42 There was then this exchange with Mr Darke: "Q. Are you saying by that answer, Mr David, that after you had your conversation that you say occurred with Mr David you didn't think there was any risk of Mr Suleman's Business failing, is that what you are saying? 3. That is exactly right, yes. Q. No risk at all? A. No risk. " 43 As to how he came to consult DDS in relation to the refinancing of his mortgage, his evidence to Mr Darke was that Mr Jesse George said to him, "we are going to see the solicitor down the road". He denied that he had some 5 days earlier telephoned Ms Jajoo and given her instructions. I interpolate that this was contrary to the evidence of Ms Jajoo, supported by a diary note of a telephone conversation on 9 February 2001, which read: "Refinancing – QLS should get unconditional , will call him as soon as we receive" followed by a telephone number. 44 It was, however, common ground that he first met Ms Jajoo in the company of Mr Jesse George on 14 February 2001. Cross-examined as to what occurred at that meeting Mr David denied there was any discussion about payment of Ms Jajoo's fees, or about the discharge of his existing mortgage. He could not recall Ms Jajoo asking him to bring her various documents such as rate notices. He denied that Ms Jajoo gave him a note listing the documents she required. He was certain however, that the purpose of the refinancing of his loan to enable him to invest with Karl Suleman was mentioned to Ms Jajoo. 45 Mr Darke also closely cross-examined Mr David about what was said at his second meeting with Ms Jajoo on 6 March 2001, when he attended her office with his wife. He maintained that the meeting in its entirety lasted for no more than about 20 minutes and that he told Ms Jajoo that he intended to invest $150,000 with Karl Suleman. Pressed by Mr Darke as to what else occurred, he remembered speaking to someone at Westpac regarding his current mortgage and Ms Jajoo continuing the conversation with the person to whom he had spoken. He agreed that thereafter, Ms Jajoo may have prepared a discharge of mortgage authority for him to take away for signature by his brother and sister-in-law. 46 He agreed that Ms Jajoo discussed with him the loan document pointing out the interest rate. He was uncertain whether a number of other aspects of the transaction were discussed, as suggested by Mr Darke, and he could not recall making a telephone call to Mr George during the meeting. 47 He denied, however, that Ms Jajoo discussed her fees and disbursements saying that they would amount to about $800 to be deducted from the advance. Mr David's contention was that Mr George had promised that all expenses would be met by QLS. 48 There was this further exchange with Mr Darke. "Q. I suggest to you Miss Jajoo spoke to you about what might happen if you defaulted in your obligations to the bank? 3. She did ask me if I've had loans before and I said: "Yes I have." Q. You say that is all she asked you? A. She asked me if I had loans before. I said: "Yes I have." She said: "This is a standard mortgage document." Q. I suggest to you she said: "If you default on your obligation then the bank has the right to call on the loan and the bank can repossess the property"? A. I am well aware of that, that if I don't pay my payments I will lose the property, yes. Q. You may have been well aware of it, but she said it to you at the meeting? A. No sir, I can't remember her saying it to me. Q. Were you paying attention to what she was saying? A. I can't remember if I was paying attention or if I was listening to things but I was there in the office. Q. Is it something of a formality as far as you are concerned signing loan and mortgage documents? A. Being at the solicitors office I thought: They know what they are doing and I just had to follow instructions. Q. She said to you that if there was a default, the bank could auction the property and sell it to recover what it was owed. Do you remember that? A. No sir. Q. Miss Jajoo also went through other documents including an information statement about the loan which contained common questions. Do you remember that? A. No sir. Q. Questions such as: "Can you terminate the contract"? A. No sir. Q. "Can you do an early repayment"? Do you remember Miss Jajoo talking to you about those questions? A. I can't remember all that sir. Q. Miss Jajoo said: "We have now gone through the credit contract. We still need to clarify the interest only issue." Do you remember her saying that? A. I can't remember everything like I said. Q. I suggest to you that you were quite interested in that interest only issue, Mr David, and you said: "We will not be proceeding if we have to make interest only repayments, especially if we can't make any additional repayments." Do you remember saying that? A. No, I can't remember that, no. Q. Miss Jajoo mentioned that she left a message for the person to return her phone call from the lender's solicitors. Do you remember that? A. No sir." 49 In effect, Mr David maintained that Ms Jajoo made no attempt to explain the loan and security documents to his wife and himself, but simply presented them for signature. Nonetheless, he agreed that he and his wife signed an acknowledgement of having received legal advice from Ms Jajoo "on the nature and effect of the loan contract and all securities to be granted by us". 50 Mr David said that he could not remember a telephone call from Ms Jajoo some days later concerning whether the loan was to be interest payments only or as Mr David requested interest and principal repayments. 51 He agreed that he had a telephone conversation with Ms Jajoo on 16 March 2001, during which details of the loan settlement were discussed, including the deduction of her fees and disbursements. He denied that in this conversation he mentioned for the first time that out of the loan, $150,000 was to be invested with Suleman Enterprizes. He also denied that Ms Jajoo said to him: "Have you obtained independent legal and financial advice on whatever contract it is you are planning to enter with Karl Suleman? Because we do not advise on matters involving Karl Suleman? We do not know the status of his current business venture and we are not in a position to approve or disapprove of any of his business deals?" 52 There was then this exchange with Mr Darke: "Q. She also spoke to you about the fact that Suzie David had referred Mr Suleman to another firm of lawyers? 3. No, sir. Q. She said: Apparently the way the structure is currently it does not look to be right and it could have problems with certain rules and regulations. She said that to you, didn't she? A. No, sir. Q. She said it may be that the present setup may be changed so that it does comply with the law, do you remember her saying that? A. No, sir. Q. At the moment we don't know the extent of any of the details of Mr Suleman's businesses, do you remember that? A. No, sir. Q. Then she said: If it is your intention to go into business with Mr Suleman you should wait for a while to see what should happen. Do you remember her saying that to you? A. No, sir. Q. You responded by saying to Miss Jajoo: Look, I know many people who are in business with Karl. You said that didn't you? A. No. Q. You spoke to her about some of your cousins who had invested money? A. That is not true. Q. You said that: We are in business and we do not care about taking risks? A. That is not true. Q. You said: We just want you to finalise the mortgage documents for us for the loan? A. No, sir." 53 Mr David agreed that once he commenced to receive $3,750 each fortnight under the agreement, the investment so far as he was concerned was highly satisfactory, as the returns "vastly exceeded" the interest he had to pay on the loan. 54 In relation to the second investment in August 2001, Mr David agreed with Mr Darke that he saw it as a "rare opportunity" and "not something available to anyone". He agreed that by then he had also met Mr Suleman "a couple of times" and believed that he was "a highly successful and reputable business man". He also agreed that the investment in August 2001 was made without the assistance of any professional advice. 55 Mr Darke retuned to the subject of Mr David's decision to invest a second time with Suleman Enterprizes, as the transcript records: "Q. I want to suggest to you that the true reason for you making the second investment was a combination of your satisfaction with the way the first investment was going, coupled with your continued faith in Mr Suleman as a man of honour, and a successful business man. Do you agree with that? 3. Yes sir. Q. And I suggest to you that your decision to invest this second time had nothing to do with anything that you say was said to you by either Fred David or Sabrina Jajoo many months earlier. That's right, isn't it? A. It had a lot to do with it, sir. Q. And I want to suggest further to you that both at the time of the first investment, and at the time of the second investment, you were not interested in finding out how Mr Suleman's business worked, were you? A. I asked the question directed to Mr Fred David. That's when he told me that Mr Suleman has got off shore investments so he can pay, that's how he can pay you such a high dividend. Q. Because you had the opportunity to ask people who were insiders in his business questions, and you didn't ask them, did you? A. No sir. Q. You agree with me that you didn't ask those questions? A. I didn't ask them. Q. It's the position, I suggest to you Mr David, that your evidence about Fred David and Sabrina Jajoo speaking about the –withdrawn. I put it to you, Mr David, that your evidence about Mr Fred David speaking about Mr Suleman's business is false? A. That's not true. Q. I suggest to you that you are making that evidence up because you believe it will assist your claim for compensation? A. That's not true sir. Q. I also suggest to you that the evidence that you have given about Sabrina Jajoo saying let's hope Karl Suleman lives forever is false? A. That's not true. Q. I suggest also you have given that evidence because you believe it will assist your claim for compensation? A. It's not true sir. " 56 Mr Curtin, counsel for Mr Isho, cross-examined Mr David upon his evidence as to his alleged meeting with the First Defendant and as to his belief when he made his first investment with Suleman Enterprizes. There was this rather illuminating exchange: "Q. Can I just ask you every single person had told you that this investment was in a trolley business, is that right? 3. Yes sir. Q. And so whatever it is that Karl Suleman Enterprise Pty Ltd did with your money, if you invested it would somehow go into the trolley collection business, make some profit and be returned to you? A. That's what I believed. Q. Up until you signed the first agreement, did anything happen which made you doubt whether your money wouldn't be put into the trolley collection business? A. No sir. Q. Can you just turn to paragraph 13 of your affidavit? By the way, you mentioned to his Honour that somebody had told you that for $50,000 investment you would get two and a half thousand per month? A. Yes. Q. Which is $30,000 per year? A. For $50,000. Q. Two and a half thousand per month is $30,000 per year? A. Yes. Q. Which is a return of 60 percent? A. I don't know about percentages but it is a good return. Q. I can tell you, I have done the maths, it is 60 percent return? A. Okay. Q. In this conversation you say you had with Fred David, he is asking you to guess how much money a bank makes on your investment? A. That's right, he did. Q. You suggest, firstly, 4 to 5 percent and then 10 to 12 and then 20 percent? A. Yes sir. Q. And then you say to him: "It can't be more than 25 percent"? A. That is correct. Q. Why did you say "it can't be more"? A. Because I thought that was a lot of return. Q. Why did you say "it can't be more"? A. I thought that's a lot of return. Q. You thought you couldn't possibly get better than 25 percent? A. No. Banks were only offering you one percent on your investment. Q. What you are saying to Mr David it couldn't possibly be more than 25 percent? A. That is correct. Q. And yet what somebody had told you, you get $30,000 per year on a $50,000 investment was 60 percent? A. I don't know about the percentage. Q. What Mr Fred David allegedly said to you was that Karl Suleman makes his money off shore? A. That is correct. Q. So, Karl Suleman's money is going outside of Australia and making, according to Fred David, 70 percent? A. That's what he said. Q. Didn't that cause you to think that your money would have to go off shore to make 70 percent in order to return 60 percent to you? A. No sir. I thought my investment was going into the trolley business. Q. Well, in this conversation the only way that Karl Suleman was making 70 percent was sending the money off shore? A. That's what Fred David said to me. Q. That is the only way he identified to you that Karl Suleman could make so much money? A. That is what he said to me, yes. Q. How did you think from this conversation that the trolley business would return 60 percent? A. I didn't think about percentages. I knew he was in the trolley business. You get so much back every fortnight. Q. How did you think from this conversation that Mr Suleman could make such a high return on the money you were about to invest? A. I didn't think of the percentage then sir. Q. How did you think Mr Suleman would make such a high return on your investment in the trolley collection business if Fred David is telling you he makes his money off shore? A. That didn't occur to me. I don't know. I just thought he returns good money. Q. Everyone has told you about the trolley collection business? A. Yes. Q. You go to Fred David and he says Karl Suleman makes his money off shore? A. He said he has that sort of investment, short term investment. Q. Didn't that strike you as odd? A. No sir. I don't know about investments. Q. You didn't go back to any of these people and say Karl Suleman makes his money off shore? A. No sir." 57 In the result, I formed an unfavourable opinion of the credibility of Mr David who was, as I have indicated, shown to be quite an experienced investor or property dealer and borrower, by January 2001. His version of his conversation with the First Defendant, as demonstrated in the extract from Mr Curtin's cross-examination quoted above, verged, I think, on the absurd. I have concluded that Mr David's evidence should not, where in issue, be relied upon without the exercise of considerable caution. 58 Mrs David, as I have indicated, also swore an affidavit and gave oral evidence. She said that she was born in Italy on 27 January 1960 and came to Australia in 1965. She was employed as a process worker from 1975 until 1984, the year in which she married. 59 In relation to the investment in Suleman Enterprizes, her affidavit deposed: 3. In or about late 2000, I first heard a business conducted by a Karl Suleman (KS) which was doing very well from my husband. Shortly thereafter, I had a conversation with John and Mary Daniel who said to me words to the effect of: "We invested money in trolley businesses with KS. We are happy with the returns. The returns are coming on time." 9. In or about 2000, early 2001, I recall having a conversation with my husband at home. My husband said to me words to the effect of; I went and saw Zia George from Quick Loan Services (QLS) in Fairfield and I paid him $1,000. I said: "I don't like the idea. We don't owe any money on the house, it's fully paid off. We are comfortable". My husband said: "don't worry, I have spoken to a lot of people who have invested with Karl Suleman. They are getting their money back and more". My husband also said: "Don't worry, I am going to see a solicitor to get advise about the investment, before we do anything". 10. Two or three days later I recall having another conversation with my husband at home who said to me, "I went and saw this solicitor called Fred David. I asked him about trolley investment with KS and he said to me: "if you have the money, go for it!". 60 Mrs David said that on or about 6 March 2001, she went with her husband to DDS and saw Ms Jajoo whom she met for the first time. After some personal conversation, she deposed: "I said: "Sabrina, what do you think abut trolley businesses with Karl Suleman? Sabrina: "Let's hope nothing happens to Karl and he lives forever that way the investors will keep receiving their money." After that comment, I felt comfortable in borrowing funds to invest in the business." 61 According to Mrs David, she then signed documents as indicated by Ms Jajoo: "I remember Sabrina questioning us and, in particular, my husband about whether he had ever borrowed money or entered into a mortgage before. Sabrina did not give my husband or myself any advice specific to the loan documents. I remember her saying to us that the loan documents were "standard documents". 62 According to Mrs David, at this, her first meeting with Ms Jajoo, her husband said that out of the loan he wanted $150,000 for the trolley business. She said that the meeting lasted about 20 minutes. 63 Later her husband presented her with a document, which he said was the contract for the trolley business. She signed it as he requested. 64 In cross-examination, Mrs David agreed with Mr Darke that over the years she had been content to leave financial decisions to her husband. She agreed that she had, with her husband, been involved in the buying and selling of property and with the borrowing of money secured by mortgage. 65 Asked by Mr Darke about her conversation with her husband after he said he had spoken to the First Defendant, she said, in effect, that he only became enthusiastic about the investment after he had spoken to the First Defendant and that before that he had said nothing to her about the returns investors were receiving. There was then this exchange with Mr Darke: "Q. Even though he had prior to that time expressed an interest in investing in the business himself? 3. Well prior to that time he didn't know himself, you know, the percentage. Until he saw Fred, he didn't know. Q. What do you mean 'know the percentage', what are you referring to there? A. I am sorry what was your question? Q. I am asking you what you were referring to when you said prior to that time he didn't know the percentage, what are you referring to there? A. The returns. Q. What did your husband say to you about the percentage returns on the investment? A. That was afterwards I learnt all that. Q. What did he say to you about the percentage returns on the investment? A. Fred had a conversation with him. He asked my husband to guess what the percentages are and so on and so forth and he mentioned 5, 20 whatever, something like that. He said they were high percentages. Q. None of this is in your affidavit, is it, Mrs David? A. No. Q. It's something that you have made up, isn't it? A. No. No, because since then I have learnt. Q. Since when? A. Since all this started. " 66 Mrs David maintained to Mr Darke that Ms Jajoo gave no advice or explanation about the documents which she and her husband signed at the meeting in her office. She agreed that the words attributed to Ms Jajoo "lets hope nothing happens to Karl and he lives forever", suggested that much depended on Mr Suleman, personally. 67 Pressed further by Mr Darke as to what occurred at the meeting with Ms Jajoo, Mrs David recalled conversation about the existing Westpac loans but could not remember Ms Jajoo having an authority typed up. She agreed that Ms Jajoo pointed out they were borrowing $250,000 from Macquarie Bank and that she told them of the applicable interest rate. 68 I do not regard Mrs David as a reliable witness. Her cross-examination revealed a very poor recollection of relevant events and conversations. As to the important matter of what her husband said to her about his alleged meeting with the First Defendant, she conceded that she did not mention in her affidavit what he claims he was told in respect of the off shore financial activities of Mr Suleman. She was also, in my opinion, rather over anxious to take, or invent, every possible opportunity to refer to her husband's meeting with the First Defendant in order to remind the court of her testimony that it was only after such meeting that he became enthused with the investment proposal. 69 As part of his case against Mr Isho, Mr Baran tendered Mr Isho's evidence at a public examination before Deputy Registrar Wearne of this court, in proceedings instituted by Australian Securities and Investment Commission in relation to Suleman Enterprizes. 70 Mr Isho said that he has been a solicitor of this court since 1995. His evidence, given to Mr J E Thompson, senior counsel for the liquidator of Suleman Enterprizes in relation to his involvement in investments with it was: "Q. Do you know Mr Karl Suleman? 3. Yes. Q. How long have you known him for? A. Approximately 20 years. Q. In what connection have you known him over the last 20 years? A. As a normal person in the community initially. The last couple of years, he was like a client. Q. When did he become a client of yours? A. Approximately November 2000. Q. What did he first retain you to do? A. He retained us to type agreements for him. Q. Give us some more detail of what agreements he asked you to type for him? A. Well, he gave us a copy of an agreement titled "investment agreement", and he asked us to type it for him for the people that wanted to invest money with him. Q. The document "Investment agreement" that he gave you, that had been drafted or prepared somewhere else, had it? A. I presume so, yes. Q. Did he tell you where he got that document from? A. No. Q. When you say he asked you to type agreements, that rather suggests he was using you as some kind of secretarial service? A. Yes. Q. Did he ask you to type the investment agreements with particular names or amounts in them? A. I'm sorry? Q. Did he ask you to type investment agreements with particular names or amounts in them? A. Well, he will provide us with the details of the people who were investing the money with him and the amount invested and we will type it for him and give it to him. Q. I see. First of all, did you conduct the initial conference or interview when he asked that that be done? A. Yes. Q. What did Mr Suleman tell you about what he wanted to achieve with the investment agreement on that occasion? A. I'm sorry, I don't understand what you mean by "achieve". Q. Well, he brought you an investment agreement? A. That's correct. Q. Did that have a name already filled out in it? A. No. Q. So it was in blank? A. Yes. Q. Tell us as best you can recall now what he said and what you said in that initial meeting? A. To the best of my recollection it was a conference over the telephone. It wasn't in person. He asked if he delivers an agreement to us, he will send one agreement, and if we will type the agreement for him, he would provide the names of the investors and the amounts and the returns and the investment dates or whatever, and we will type the agreement, and then he will arrange for someone to collect it or he will collect it himself from our office. Q. Was there discussion about the need to review the investment scheme represented by the agreement at that stage? A. No. Q. Anyway, so you agreed that you would type up the document for him, did you? A. That's correct. Mr Curtin: I think the accurate response was type in certain parts, not the whole part. Thomson: Let's clear that up. 3. What did you agree to do in the telephone discussion? A. Well, he was going to give us the agreement already prepared in blank. We will type it as it was and then he will give us the information that needed to be filled in the agreement and we will fill in the information in the agreement and provide it to him. Q. Did he subsequently furnish you with the form of agreement that he wanted you to complete? A. Yes. Q. Did he subsequently ask you to prepare agreements for particular investors? A. Yes he did – type agreement, I'm sorry. Q. To type up agreements, all right. When did you next speak to Mr Suleman in relation to the investment agreements? A. After the initial discussion? Q. Yes. A. I'm sorry, I can't recall. Q. Let me show you a copy of a letter. It is dated 14 November 2000? A. Yes, it is. Q. Were you the author of this letter? A. Yes. Q. In this letter you say: "We wish to confirm the terms and scope of our retainer as follows"-- By using the word "confirm" did you mean in effect to confirm the result of previous discussions? 3. Yes. Q. In item 1 you note: "You have provided us with a copy of agreement titled "Agreement you instructed us you retain copyright in this agreement." Had you had a discussion concerning copyright in the agreement on or prior to 14 November 2000? 3. Well, I must have if that is what I have put in the letter, but I can't recall, I'm sorry. Q. In item 2 you say a number of person have already entered into separate agreements with you. That was something Mr Suleman told you presumably? A. Yes. Q. Item 3 you say: "You have instructed us that you have previously obtained solicitors advice and counsels specialist advice in relation to the agreement together with the transaction to which it refers. You have expressly instructed us to that you have obtained legal advice that: 3. the agreement to which the transaction to which it refers is legal; (ii) you are not conducting a managed investment scheme." Firstly, does that in effect reflect what was told to you on a previous occasion? 3. It would be, yes. Q. Do you remember the occasion when you were informed by Mr Suleman that he had obtained the advice referred to? A. Do I remember the date? Q. No, not the date, the occasion. A. As I said, it was over the telephone when we discussed it, over the telephone, that he will deliver the agreement to us and we'll retype it. At the same time I had a lengthy discussion with him. Q. When did you have the lengthy discussions with him? A. Initially when he gave us the instructions to type the agreement - what is in this letter is the initial discussion with Mr Suleman when he first instructed us. It is contained in this letter. Sorry if I didn't clarify that previously. Q. I'm just trying to understand. So by this stage you had had only one discussion with Mr Suleman about this, had you? A. I'm sorry, I can't recall. It could have been one or two or three, I'm sorry. Q. Do you remember - did he tell you which solicitors he had used to obtain the advice referred to? A. No, not at that stage, no. Q. Did you subsequently find out? A. Yes. Q. Who was it? A. Mr Philip Pham and a barrister by the name of Ludmilla Robinson. Q. Then in item 4 you referred to Mr Suleman having obtained taxation advice and Corporations Law advice. Do you recall anything else that he told you on that topic? A. No. Q. You confirm that your firm is not retained to provide any advice as you note in item 5. Item 6: "We confirm your instruction that has amendments may be made to the structure of the agreement. We confirm you have agreed to our proposed amendments." What changes were proposed to the structure of the agreement? 3. Okay. The agreement, as I said before, we had to fill the blanks in the agreement and type it. Now, we only amended the part where the names were to be typed into the agreement. We created a schedule at the back just to make it easier. So the schedule was added at the back where the details of the names, the amount invested, the returns and the commencement date were to be added in. Q. Then you say, "Your name is to be noted on the cover of the agreement." That was confirming in effect that your firm's name was not going to appear on this document; is that right? A. That's right. Q. Was that his suggestion or your suggestion as to whose name was to be on the cover of the agreement? A. Really, I can't remember, I'm sorry, whose suggestion it was, but the agreement was to remain his agreement and his name was printed on the front of the agreement. Q. Then item 9 you note that you are not going to be responsible to ensure the agreement is correctly signed and Mr Suleman is to retain the signed copy. Then about the middle of the second paragraph: "We advise and confirm that you have instructed us that: 3. You do not require us to provide any advice or to brief counsel to provide any advise on any Corporations Law, Managed Investment Act or Taxation law impact of the agreement "— and: "(b) you have fully satisfied yourself in relation to the matters referred to in (a) above and have already obtained advice previously about those matters." That part of the letter, did that reflect some discussion you had with Mr Suleman? 3. Yes, it does. Q. Do you recall anything else about that discussion? A. Other than what is in there, no, but— Q. It is set out in fairly emphatic form. Did you have some concern as a result of that discussion that Mr Suleman might, notwithstanding what he told you, perhaps not have been correctly relaying to you what his legal position was? A. I didn't have any concerns at the time, no. Q. You didn't have any concerns at the time? A. No. Q. You say: "We confirm that we have recommended to you that counsels advice should now again be sought in respect of the impact of the above legislation." Why did you recommend that counsel's advice should now be sought? 3. Just to ensure everything was okay, I presume. Q. Did that reflect a concern of yours that everything may not be okay? A. No, it was not a concern, no. Q. Why did you recommend to him that counsel's advice be sought if you weren't concerned about that? A. I thought it was a prudent thing for me to recommend it to my client at the time to get counsel's advice. Q. It seemed apparent to you that it would appear to be caught by the managed investment provisions, did it not, this scheme that he was operating? A. No, it did not. Q. Then you note that for each agreement issued there will be a charge of $700 inclusive of GST? A. That's correct. Q. How was that figure arrived at? A. It was agreed between Mr Suleman and myself - $700 for every agreement we type. Q. And the typing of the investment agreement involved simply filling in the details which he provided in the schedule attaching it to the form of agreement; is that what was involved? A. I'm sorry? Q. In terms of your firm's work contemplated under this retainer in respect of each agreement, it would involve filling in the name and figures in the schedule to the agreement? A. That's right. Q. Those having been supplied to you by Mr Suleman? A. That's correct. Q. And attaching that schedule to presumably a print-out of the body of the agreement? A. That's correct. Q. $700 seems to be a lot of money for that amount of work. A. Mr Suleman agreed to it. Q. Whose idea was it ? Was there any negotiation about the amount? A. There was negotiation, yes. Initially it was $500 I quoted to Mr Suleman. He said, "No, I'll pay you $700 for each agreement." Q. So there was negotiation where he offered to pay you more than you sought to charge? A. I quoted $500. He agreed to $700. Q. So he wanted you to charge more than you wanted to charge for each agreement; is that right? A. As I said, I quoted $500 for each agreement and he offered $700, and I accepted that. Q. Did he give you any explanation as to why he would want to pay you more than you said you wanted to charge? A. No. Q. Did that strike you as odd? A. It was odd, yes." 71 In her affidavit sworn 1 March 2005, Ms Jajoo, a solicitor and wife of the First Defendant, said that in 1998 she commenced to work in the property section of the Fairfield office of DDS and by 2001 was responsible for all aspects of property matters handled by that office. 72 She deposed to her initial contact with Mr David and her first meeting with him in these terms: "5. On about 9 February I received a telephone call from the first plaintiff (Mr David) during the course of which we said words to the following effect: Mr David: "My name is Eddy David. My wife and I are refinancing with Quick Loan Services. Quick Loan Services have told you they will forward the unconditional loan approval to you because we have listed you as our solicitor." Me: Thank you for your instructions. But there is nothing much I can do at this stage until I receive the unconditional loan approval. I will call you as soon as I receive it. Mr David: "That would be good, my phone number is …. 3. Quick Loan Services (QLS) is a mortgage brokerage firm with whom the Fairfield office of the first to fourth defendants had regular dealings since about April/May 2000. 14 February meeting 3. On about 14 February 2001, I had a meeting with Mr David and Mr Jessie George (Mr George) at the offices of DDS. I understood Mr George worked for Quick Loan Services. An appointment had been arranged for me to meet with Mr David and Mr George. 3. About the start of the meeting, Mr David gave me a facsimile addressed to Mr David and the second plaintiff (Mrs David) from Direct Mortgage Solutions Pty Limited (DMS) dated 5 February 2001. 3. I read the facsimile. 3. We then had a conversation in words to the following effect: Mr David: "My wife and I are refinancing our existing loan and Jessie has organised the unconditional loan approval. But, I wish to know what the costs and expenses involved in the refinance are as Jessie has agreed to cover all those costs at this stage. Jessie is my mate and he'll pay the costs now and I'll sort if out with him late. I'd rather Jessie make the money as a broker since he's a friend." Me: "Well, I am not in a position to advise you on exactly what expenses will be incurred by you as you have not as yet provided to me the loan agreement, however from my experience, the usual costs involved with a Direct Mortgage Solution's loan include, $950.00 establishment fees, approximately $600.00 for Direct Mortgage Solutions' legal fees and $941.00 for stamp duty on the $250,000 loan. You're also looking at approximately $900.00 for our legal fees and disbursements. So a total of approximately $3,390.00." Mr George: "As I have agreed with Mr and Mrs David these costs will be covered by my office initially." Me: "That's something agreed between you and Mr George. On settlement all of Direct Mortgage Solutions' fees will be deducted from your loan amount and our fees must also be paid by you on the same day. You will be issued with a settlement statement and then it's between you and Mr George as to how you will be reimbursed by his office." Mr David: "That's fine." Me: "There's nothing much I can do at this stage until the mortgage documents have been issued by Direct Mortgage solutions, except organise the discharge of any existing loan you may have." Mr David: "Yes we have a loan with Westpac which needs to be discharged." Me: "I need you to bring to me copies of your latest council rate and water rate notices, building insurance policy, your driver's licences and/or passports, and Westpac's loan statement regarding the loan being discharged." Mr David: I will organise for these documents to be forwarded to you. But I have the details of my loan account. It's a Classic Plus Account and the account number is ………." 73 Annexed to the affidavit was Ms Jajoo's file note of the meeting on 14 February 2001. It indicated that it occupied from 11 am to 11.35 am 74 On 5 March 2001, Ms Jajoo received a letter from Galilee & Associates Solicitors acting for Macquarie Bank Ltd and Macquarie Mortgages Pty Ltd addressed to the Plaintiffs. The letter enclosed documentation regarding a proposed loan of $250,000 secured over the Plaintiffs' home at 39 Orchard Road, Fairfield. 75 She arranged a meeting with the Plaintiffs, which took place on 6 March 2001. Her version of what transpired at the meeting as deposed to in her affidavit (omitting references to documents) was: "13. During the course of the meeting I looked at documents brought in by Mr and Mrs David for this meeting, or prior to this meeting, being 2 Westpac bank account statements, a council rates notice, a water rates notice, their passports and Mr David's driver's licence. 3. I looked at the bank account statement. We then started a conversation during the course of which we said words in English to the following effect: Me: "This Westpac Classic Plus statement is in your names, however, the Premium Option Land Loan account statement has four names on it. Why?" Mr David: "We have a number of accounts with Westpac and they are all interconnected. The securities provided to Westpac at various times are also connected to the various loan accounts as well. We need Westpac to discharge the security over 39 Orchard Rd, Fairfield and any loans associated with that security." Me: "I think we should call Westpac and see what their requirements are to discharge the security." 3. I then, using the loudspeaker function of the phone, telephoned the Westpac account enquiry number disclosed on the bank statement and spoke to a person who identified herself as Evelyn Colin (Ms Colin). We had a conversation in words to the following effect: Me: "I'm calling on behalf of Mr and Mrs David and their account number is ………. I need to speak to someone regarding their loan." Ms Colin: "I cannot speak to you about their loan until I have their authority to do so, due to the privacy law." Me: "I have both of them here with me and Mr David will authorise you to speak to me as their legal representative." 3. Mr David then spoke with Ms Colin and then the conversation between Ms Colin and me continued in words to the following effect: Me: "Mr and Mrs David wish to arrange a discharge of the security held by Westpac over a property situated at 39 Orchard Rd, Fairfield. However, as their various loans are all interconnected, I'm not sure as to who is required to sign the discharge authority." Ms Colin: "There are four borrowers, Eddy David, Grace David, Rosa David and Matthew David and all four are required to sign the discharge authority for any partial discharge of the loan." Me: Thank you. I will attend to that." 3. I then continued my conversation with Mr and Mrs David in words to the following effect. Me: "Well, the discharge authority to Westpac must be signed by all four parties discharging the loan. You need to arrange for Matthew and Rosa to sign it as well." Mrs David: "That won't be a problem. We'll organise for them to sign the authority and we'll fax it to you". 3. I then prepared the Discharge Authority and gave it to Mr and Mrs David. I then continued my conversation with Mr and Mrs David in words to the following effect: Me: "Let's look at your credit contract and the general conditions" 3. I opened the document entitled "DMS Equity Plus Revolving Line of Credit" (Credit Contract). I then gave a copy of the Credit Contract to Mr and Mrs David. I then drew a line half way down and across the second page of my file note dividing the page into two parts and started to read the Credit Contract. The conversation continued in words to the following effect: Me : "You are borrowing $250,000 from Macquarie Bank at an interest rate of 7.74% per annum. The default rate that will apply to your loan is 9.74%, which is 2% higher than the standard interest rate at the time of default. This means that if you fall behind with your repayments or you don't comply with any other term of the loan, then the bank may apply the higher interest rate to your repayments. For example if you fall behind with your repayments by one week, for that week, from the due date, the interest rate applicable will be 9.74% should the standard variable rate at the time be 7.74%. The bank may also charge you other fees such as dishonour fee of $35.00 as noted on page 7 of the credit contract. The interest rate is an interest only range. The term of the loan is 30 years, that is, 360 monthly repayments, so if you only pay the minimum repayments required under the credit contract, then it will take you 30 years to pay out the loan. The credit contract shows that you have requested an interest only period of 10 years, and then 241 monthly repayments of interest and principal at a minimum repayment of $1,791.00 per month based on the current variable interest rate. So if the interest rate is different at that time, that interest rate would be applicable to your loan." Mr David: "No, we have not asked for any interest only period. We've asked for the standard repayments of interest and principal. We will not proceed with the loan if this is not changed. We've told our broker that we want a principal and interest loan. This is not right. I'll call Zia now." 3. Mr David then had a telephone conversation with a person whom I believe was Zia George of QLS. After the conversation finished, I continued my conversation with Mr and Mrs David in words to the following effect: Mr David: "I just spoke to Zia and he agreed that they've made a mistake. We need to talk to the bank." Me: "I'll call Galilee and Associates now and talk to them." 3. I then telephoned Melanie Coppin of Galille and I left a message for her to call me back. The conversation then continued in words to the following effect: Me: "Well, that's something we need to bring to the attention of the lender's solicitors once they call back. In the meantime let's continue and see if there are any other problems with the documents. The expenses that will be deducted on settlement will be: Direct Mortgage Solution's settlement fee of $50.00 Stamp duty of $941.00 Direct Mortgage Solution's solicitors fees of $188.00 Direct Mortgage Solution's application fee of $750.00 Direct Mortgage Solution's valuation fee of $200.00 That totals about $2,129.00. Our costs and disbursements will be approximately $800.00 made up of $450.00 for professional fees in explaining mortgage documents and $100.00 for professional fees in acting on the discharge of the Westpac loan, there'll be $55.00GST on those fees and approximately $200.00 in disbursements and attendances. I will write all these expenses down and give them to you now including our fees and disbursements so you have them for your record. And we'll issue the bill before settlement and advise you of the final total amount before settlement. The amount available to you on settlement, once all the fees and charges have been deducted will be approximately $247,000.00." Mrs David: "We'll need a statement of all the expenses before settlement because Jesse George has promised us that he will cover all the expenses at this stage." Me: "As I have already explained to Eddy, all the expenses will be deducted on settlement and I will issue to you a settlement statement itemising all the expenses incurred and the it's between you and Mr George as to what arrangements are made and how he will reimburse you with expenses. This is an unusual arrangement and it really has nothing to do with the loan. Continuing with your credit contract, there's a $120.00 account maintenance fee per year that will be charged to your account every six months at $60. The bank requires you to take out building insurance and the policy must be renewed every year before it expires, otherwise it would constitute a default. You are required to insure your house for a minimum amount of $240,000 and Macquarie Bank Limited must be noted on it as the first mortgagee. We need to forward a copy of the insurance policy to Direct Mortgage Solution's solicitor." Mrs David: "I'll change our existing policy and fax it to your office." Me: Should you fall behind with your repayments to the bank you will be in default. You'll also be in default if you don't comply with your other obligations under the loan and the undertakings you have given to the lender. For example timely payments of your repayments, if you've given false information to the bank, if you become a bankrupt, if you don't renew you building insurance, if you lease the property without the consent of the lender, if you damage the property. You'll also be considered to be in default if, god forbid, one of you dies. If you do default on any of your obligations to the bank, especially if you don't make your repayments on time, then the bank has the right to call on the loan and if you can't pay it out within the required time, then the bank can repossess the property, auction it and charge you for all the fees and expenses such as agent's fees, auctioneer's fees, legal fees etc. Should there be a shortfall from the sale, then the bank can sue you personally for the difference. So if for any reason you can't make your repayments on time you should contact the bank straight away and ask for special consideration and see if there is any special arrangement the bank will allow you to enter into. You should also note that you are both 'jointly and severally' liable for this loan, which means the bank can pursue any one of you individually for the total amount owing to the bank or of course both of you jointly. Pages 5 to 9 disclose all of the services provided by the lender and the costs of those various services, so if you use the services or if they apply to you then you will be charged with those fees, but otherwise they're listed for disclosure purposes. For example, there is a 'deferred establishment fee' which means that if you for any reason discharge your loan within the first three years from the date of settlement, for example, if you've sold your house or wish to refinance with another lender, then you will be charged a penalty of $1,000. Should you discharge the loan after the third year and during the fourth year, then you will be charged a penalty of $250.00. After the fourth year, there will be no deferred establishment fee applicable. However, whenever you do discharge a first mortgage, there will be a mortgage discharge fee of $650.00 applied. The purpose of your loan is to refinance the house that you're living in now." I then opened up the document entitled "Information Statement" and the conversation continued in words to the following effect: Me: "Going through the "Information Statement" referred to on page 12 of the loan contract, the statement goes through certain common questions asked by Borrowers and gives answers to those questions. For example, the first question is "How can I get details of my proposed credit contract?' and the answer is that the lender must give you a copy of the loan contract and this statement before you sign the contract, and they have given you copies which you are looking at now. Another question is 'can you terminate the contract' and the answer is 'yes', as long as you haven't obtained any monies under the contract and as long as you pay any fees or charges incurred by the lender before you terminate the contract'. Questions 4, 5 and 6 are regarding 'early repayment of your loan' and we have covered that already. Question 7 is 'can your contract be changed by your lender?' and the answer is 'yes, but only if your contract says so' and you should note that you will receive notice in writing of any changes to the contract in advance, unless it's a change to the interest rate which is usually published in a newspaper. Make sure you do read any letters sent to you by the lender in the future and you do keep them in your records. Question 9 says 'is there anything you can do if you think that your contact is unjust?' and it tells you that if you do think so then you should approach the lender first and discuss it with them and if you still have problems then you can apply to the Court or contact the Government Consumer Agency or see a lawyer about it. Questions 10 to 14 are in relation to mortgage insurance for which you have not been charged. However, you may obtain your own mortgage insurance if you wish so in order to have protection should you not be able to make your loan repayments in the future. You also shouldn't make any structural changes or alterations to the property without obtaining the bank's consent first. Questions 15 to 21 of the 'Information Statement' are in relation to the mortgage and the security you have provided to the bank. Questions 18 to 25 are all about 'if you find yourself in a situation that you cannot afford to make repayments' and it says that you must immediately contact the lender and see if you can come to some arrangements with them such as extending the term of the loan or simply defer payments for some time. We've now gone through the Credit Contract, we still need to clarify the interest only issue." Mr David: "Yes, because we will not be proceeding if we have to make interest only repayments of the first ten years especially if we can't make any additional repayments." 3. The conversation then continued in words to the following effect: Me: "I've left a message for Melanie Coppin and I will ask her as soon as she calls me back." Mrs David: "We will sign the mortgage documents now, but please hold on to them until you've spoken to the bank and let Eddy or I know." 3. Mr and Mrs David then signed the Credit Contract. The conversation then continued in words to the following effect: Me: "Page 13 of the Contract asks you if you have obtained legal advice regarding the mortgage documents of not. If you chose not to obtain such advice you would have to sign Box B, so we'll cross it out. Box A needs to be completed with my details and by signing it you are declaring to the bank that you've obtained legal advice on the nature and effect of the loan documents from me, that you understand the nature and effect of the documents and you don't need them to be translated, that you understand the obligations and risks involved in signing these documents and that you signed the documents freely, voluntarily and without pressure from any person." I then crossed out Box B on page 13 of the Contract and inserted my name and date. In accordance with my usual practice I would then have obtained Mr and Mrs David's signatures but I omitted to do so as, at this stage, Mr David's mobile phone rang. He commenced a conversation on the phone and I started perusing the balance of the documents. 3. When Mr David finished his telephone conversation, I then looked at the mortgage and summary of mortgage memorandum. The conversation then continued in words to the following effect: Me: "Lets go through the mortgage and the mortgage memorandum. The mortgage is the document that the lender registers on your certificate of title to protect itself until you pay out the loan at which time the mortgage will be removed from the certificate of title. You can have this copy of the two documents to look at while we go through them. The mortgage memorandum repeats the same terms and obligations as the credit contract and the general terms that we've already gone through. You are basically undertaking to comply with all your obligations to the bank and understand that if you default for any reason as discussed earlier then the bank can take possession of your property. You must continue to keep the property insured. You must make all repairs necessary to keep the property in good repair. You are not allowed to make any alterations to the property. You must continue to pay all your rates, including water rates and council rates on time as well as any other outgoings. You are not to change the use of the property without prior consent of the bank this includes renting the property. You shouldn't leave it vacant either." 3. Mr and Mrs David then signed the mortgage. I provided a copy of the mortgage and memorandum of mortgage to Mr and Mrs David. 3. I then looked at the document entitled "Warranty". The conversation then continued in words to the following effect: Me: "The next document that you need to sign is the warranty. By signing the warranty you are acknowledging that you have taken out a loan of $250,000 from the bank and have given a security to the bank over your property at 39 Orchard Road, Fairfield which is registered in your names. I'll read the warranty to you and if you don't agree with anything in it just stop me so you can explain it to me." Mr David: "That's fine." Me: "You warrant to the bank that there are no other mortgages against the property besides the one to Westpac, that there are no charges, restrictions, encumbrances or easements affecting the property. You are unaware of any buildings or other erections, including any swimming pool or extensions to the property that are illegal or without the approval of the Council. That there are no extensions done to the property in the past seven years. That there are no encroachments on your land by any building on the neighbouring lands or vice versa, for example any fencing issues. That you are not aware and have not received any notices from any governmental authorities regarding any affectations to your land for example any road works, road widening, mine subsidence, land slip, contamination etc. That you are not aware of any restrictions on your land because of any flooding. That you are not aware of any affectations that would affect the value of the property in a negative way. That you will occupy the property as your main place of residence and that you don't have to pay any land tax on it. That none of you has ever been bankrupted before. That all your rates are paid up to date. Mr David: "That's all true and OK." 76 Thereafter, according to Ms Jajoo's affidavit, the Plaintiffs signed the form of warranty. She then gave advice regarding their obligations to notify the mortgagee of receipt of notices affecting the mortgaged property before explaining to them the meaning and significance of the document called "Authority to Date and Pay Advance", which the Plaintiffs proceeded to sign. 77 Ms Jajoo's affidavit proceeded: "32. I then looked at the document entitled "Direction to Pay – DMS equity plus revolving line of credit". The conversation then continued in words to the following effect. Me: "And this next document is the Direction to Pay. It indicates that your loan is broken down into two sub-facilities. Facility 1 is for $210,000 and facility 2 is for $40,000. The bank is asking you to complete the direction to pay at this stage which you can't do as we don't know what the pay out figure to Westpac will be at this date. So I will complete it by advising the bank that you authorise them to accept the direction to pay which our office will forward to the bank before settlement following your instructions." I wrote on page 2 of the document. "To be advised by Dominic David Stamfords". Mr David: "Yes that will be OK." Me: "You can then let the bank know yourself as to which of the two sub-accounts you wish the fees debited to." Mr David: "I'll speak to them later." 78 Ms Jajoo, according to her affidavit, then turned her attention to the document headed "Direct Debit Request" and obtained instructions from Mr David as to the bank account from which he wished payments to be debited, and that he wished payments to be made fortnightly rather than monthly. The document was then completed by Ms Jajoo and signed by the Plaintiffs. 79 Ms Jajoo 's affidavit continued: "40. I then looked at 2 documents each entitled "Declaration by Borrower". The conversation continued in words to the following effect: Me: "Now, you each have a separate certificate to sign called a Declaration by Borrower. By signing it you each declare to the bank that you are the borrowers of this loan from Macquarie Bank, and that you are giving to the bank as security your house at 39 Orchard Rd, Fairfield. You are acknowledging that you have seen me as your solicitor and I have explained to you the legal effect of the mortgage of your house and the credit contract relating to the mortgage and the other documents. You are also declaring that after receiving that advice from me you are freely and voluntarily signing those documents. Now, do you each affirm the contents of this declaration I have just read to you to be the truth and nothing but the truth. Eddy? Mr David: "Yes". Me: "Grace?" Mrs David: "Yes, sure." Me: "You understand that you are signing this Declaration under the Oaths Act and if there are any false statements made by you, then you are committing perjury which is a crime." Mrs David: "Yes." Mr David: "Yes." Me: "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 by the bank is on page 11 of your credit contract. 80 Mr and Mrs David each then completed, before Ms Jajoo, a Statutory Declaration. Each was in identical terms, omitting formal parts as follows: "1. I am the borrower named in certain loan and security documents in favour of Macquarie Bank Limited (lender) relating to property located at 39 Orchard Rd, Fairfield. 3. I have received independent legal advice regarding the loan and security documents referred to in paragraph (Specify the documents produced for signature) 3. Loan Agreement (b) Mortgage I Ancillary documents" 81 Following this meeting Ms Jajoo acted in the matter, according to her instructions. Her diary note of the meeting indicates that it commenced at 12 noon and terminated at 1.30pm. 82 She deposed to a telephone conversation with Mr David on 16 March, as follows: "Me: Your settlement has been booked for Monday. The balance of the loan amount available on settlement is $247,861.00. That is after the lender's costs and expenses of $2,129.00 as I had told you in the conference have been deducted from your loan amount. There's also a $10.00 bank cheque fee to be deducted for each cheque additional to first three. The pay out figure to Westpac is in the sum of $64,238.22. Our bill has come up to $822.00, which includes $605.00 for our professional costs for acting for you on the mortgage and the discharge including GST, and Disbursements which included $16.00 for final search fees, $85.00 for attendances and $116.00 for Sundries. So you're left with $182,800.78 which I need to know how you want it paid." Mr David: "That's all fine. Out of that we want a cheque in the sum of $150,000.00 to be drawn in the name of Karl Suleman Enterprizes and the balance to both Grace and I." Me: "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 Karl Suleman. We don't know the status of Karl Suleman's current business structure and are not in a position to approve or disapprove (the words used in Assyrian were "le masyan makhshekhan" meaning 'I can not recommend/advise in favour of or not/approve or disapprove') of any of his business deals (the word used in Assyrian was 'Mumla' meaning 'commercial dealing'). Suzy David from our office has referred Karl Suleman 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." Mr David: Look, I know many people who are in business with Karl. Some of my cousins have invested with him more than once and they're all making a lot of money. We're in business and we don't care about taking risks. Anyway, my first cousin is one of the best financial advisors in Australia, so we just want you to finalise the mortgage documents for us for the loan. Also, I need to collect the breakdown of the expenses before settlement." Me: "That's fine. I'll have a letter ready for you collection at the reception together with a copy of the fax from Westpac stating that the E-G Plumbing's overdraft must be paid out on settlement, so you need to put some money in that account if you have direct debits attached to it, or you must cancel all the direct debitings with you suppliers." Mr David: "No worries. I'll take care of that." Me: "You can collect your cheques from our office on Tuesday." 83 The mortgage transaction was duly completed and on 20 March, Mr David collected, as he deposed, two cheques, one in favour of the Plaintiffs for $32,800.78 and the other in favour of Suleman Enterprizes for $150,000. 84 According to Ms Jajoo, the statement regarding legal advice, inadvertently, was not signed by the Plaintiffs in her office on 6 March, but was signed by them subsequently and delivered to her office by 18 March. 85 Ms Jajoo was cross-examined as to her knowledge of the involvement of the partners of DDS, professionally and commercially, with Mr Suleman and as to his business interests. She said that she was aware that the First and Second Defendants were involved with Mr Suleman towards the end of 2000 in a transaction involving the purchase and resale of some scooter wheels, which returned them a profit. She was also aware that Mr Suleman used the name Froggy in connection with his business interests and that early in 2001 a company was incorporated as Froggy Music Pty Ltd, the registered address of which was the office of DDS at Fairfield. She said that the First and Second Defendants were to take a financial interest in this company, which it was intended would operate music stores. 86 Ms Jajoo said that she first met Mr Suleman in September 2000. Some time later she became aware that he was conducting a trolley collection business. She was also aware that from about December 2000 he attended the offices of DDS from time to time as a client. She, however, did not do any professional work for him, herself. She did, however, act for a number of clients in the refinancing of their properties in order to invest part of the proceeds of the refinancing with Suleman Enterprizes and knew that questions as to the legality of the investment scheme had been referred by DDS to Messrs Mallesons, Stephen, Jacques (Mallesons) solicitors. The Second Defendant was primarily involved in this legal work and had told Ms Jajoo, about December 2000, that Mr Suleman's business "setup" was being restructured. She knew at the time, from conversations with members of the Assyrian community of which she was part, that people appeared to be making a lot of money by investing in Mr Suleman's business schemes but she said she did not know any details. 87 There was the following exchange with Mr Baran in cross-examination: "Q. Did it concern you, in respect of these two particular clients, that your firm was representing Karl Suleman and Karl Suleman Enterprises at the same time as you were representing people who were refinancing their property where part of that refinance was to be invested with your client? 3. In respect of the refinance? Q. Did it concern you, as a solicitor, that at that particular time when you had the conversation with Suzie – being the second conversation? A. Yes. Q. And there were concerns over the restructure, that you were representing people who nonetheless were still investing with Karl Suleman Enterprises, and using you in respect of legal advice for refinance, at the same time when your firm was representing Karl Suleman Enterprises and Karl Suleman? A. I was advising those clients in respect of their mortgage documents and their obligations to the bank, and I wasn't privy to what business they were doing with Karl Suleman Enterprises. Q. Did you tell them that your firm at that time was representing Karl Suleman, and Karl Suleman Enterprises? A. I don't recall exactly what I would have said in those files I have got to refer back to my notes. But generally, I'm sure I would have told them something. Q. What? A. Well, when I explained mortgage documents at that time, if clients were taking cheques, or if at settlement there was a direction to draw cheques to a third party, I would tell that at that time that if they were entering some business venture they need to see a solicitor and a financial advisor in relation to their business venture, as I was only advising them in relation to mortgage documents. And usually I would tell them to come back and see Suzie in those instances, I believe I would have told them to go and obtain independent legal advice, independent of our office, because Suzie was involved with Mallesons in respect of a restructure. Q. So do you say that as at the time of the second conversation, which you said was late January 2001, is that right? A. Some time around late January, early February. " 88 Asked by Mr Baran whether the Second Defendant had told her before 15 March 2001 that Suleman Enterprizes "was a Corporation that could be caught under the Managed Investment Scheme provisions of the Corporations Law", she replied, "I don't believe so, no". 89 Late in the cross examination, I asked Ms Jajoo a question which was followed up by Mr Baran: "HIS HONOUR 3. You have been asked a lot of questions about what Suzie David told you she was doing. Did you tell her what you were doing? A. I did tell her your Honour I think in February that I had seen a few clients in relation to their refinances whereby one of the cheque directions had included a cheque to Karl Suleman Enterprises. BARAN: 3. What did she say to you? A. Well, at that time I asked her what the update was and she said in answer to my question that she is still waiting for some information to come through possibly passed on to Mallesons and it hasn't gone any further." 90 Mr Baran put to Ms Jajoo that the Plaintiffs retained her, not only to give advice regarding the mortgage documents but also to provide legal advice regarding their proposed investment with Suleman Enterprizes. She replied: "A. I was only retained to give legal advice as far as the mortgage documents were concerned and their responsibilities to the bank on those mortgage documents. I have never advised, especially at that time, on any business contracts. " 91 Ms Jajoo told Mr Baran that by February 2001, QLS were in the habit of referring a good deal of work to DDS, a habit that had commenced in May 2000. She knew the principals of QLS, Mr Zia George and Mr Jesse George, but did not know of any association with Mr Suleman. She knew of QLS as a very successful mortgage broking business. 92 In relation to her practice of making file notes during the first half of 2001, Ms Jajoo gave this evidence to Mr Baran: "Q. It was not your practice in February and March of 2001, I suggest, to write the detailed file note in respect of each and every client that you had seen where there was an investment on a refinance to Karl Suleiman Enterprises in the identical form as that that appears at page 47 of Exhibit 1D5? 3. If I could explain it this way, it was my practice to make detailed file notes in relation to my conversations with clients. As of February 2001, if I was to see a client that was asking for a cheque to a third party person I would make detailed file notes in relation to my recommendation that they obtain legal and financial advice in relation to their business venture. In relation to the few clients that I had seen who had cheques drawn to Karl Suleiman Enterprises, I believe I would have made those file notes. Q. Well, do you believe it, or was it in fact your practice in respect of each and every client that you saw? A. Mr Baran – Q. To make a file note in respect of the advice you gave regarding the involvement of the client so far as an investment in Karl Suleiman Enterprises was concerned, identical to that at page 47 of Exhibit 1D5? A. It was my practice to make file notes of discussions that took place. I haven't looked at those two or three files beforehand or before this but I believe I would have made those file notes if the conversation did take place, and I believe the conversation would have taken place. That's as clearly as I can explain it." 93 I formed the opinion that Ms Jajoo was an honest and careful witness whose testimony generally should be regarded as reliable. In many important respects it was supported by apparently contemporaneous and carefully compiled file notes, commencing with the file note of 9 February 2001, which supports her evidence, otherwise inconsequential but denied by Mr David that he telephoned and gave her instructions before the meeting in her office on 14 February. 94 The evidence of Ms Jajoo throws up some important conflicts with the evidence of Mr and Mrs David, in respect of which my reasons for preferring the evidence of Ms Jajoo extend beyond my conclusion that she was simply a more impressive witness. As to when she was first told that the Plaintiffs intended to invest with Suleman Enterprizes, their case was that it was as early as the first meeting between Mr David and Ms Jajoo when Mr Jesse George was present and he said "Eddy is getting a loan to invest with Karl". Mr George was not called and, in the absence of explanation, I infer his evidence would not have assisted the Plaintiffs' case. 95 On the other hand, Ms Jajoo's testimony was that she was not told until her telephone conversation with Mr David on 16 March. The fact that Ms Jajoo's file notes, which are quite comprehensive do not mention the investment in Suleman Enterprizes until 16 March, (although she knew there was to be some investment) is, in my view, significant but more significant is the circumstance that in a file note dated 15 March, obviously a draft settlement statement, she has written "Balance $182,800.78 to ??" Her notes indicate to me that on 16 March she received instructions from Mr David that cheques to be drawn were $150,000 to Suleman Enterprizes and $32,800 to ES&G David. Although of themselves not entirely conclusive, the notes seem to me to confirm Ms Jajoo's evidence that before 16 March she did not know of the proposed investment with Suleman Enterprizes. 96 The Plaintiffs also rely on what they say Ms Jajoo said in relation to Mr Suleman's longevity. The statement is, of course, somewhat ambiguous in that, assuming she did not know of the Plaintiffs' intention, it may be construed as suggesting, with some prescience, that investors would only receive the promised returns if Mr Suleman did in fact live forever. On balance, I prefer Ms Jajoo's evidence that she did not make the remark but if I be wrong about that, in my view, no significance should be attached to it. It is noteworthy that neither Plaintiff actually asserts that Ms Jajoo agreed to or, did in fact, give evidence about the proposed investment or, indeed, examined the investment contract they signed. 97 The Plaintiffs' evidence as to the length of the meeting on 6 March also, in my view, undermines their reliability. They both claimed that it lasted only 20 minutes, but even on their own version of what occurred it is inconceivable to me that the meeting would not have occupied much longer than 20 minutes. I accept Ms Jajoo's evidence supported by her file note that it took an hour and a half. 98 Another conflict which arises out of Ms Jajoo's evidence is that on 16 March she gave Mr David advice in clear terms as to the desirability of seeking independent advice, a matter which he denies. Her quite extensive file note of this conversation was attacked by Mr Baran as a concoction, a very serious allegation to make of a solicitor. Undoubtedly, there were minor anomalies concerning the appearance of the note in the file, which initially concerned me. However, having carefully considered the evidence and Mr Baran's submissions upon it, I accept Ms Jajoo's explanations. I am satisfied that the note does represent a contemporaneous record of the conversation but not, of course, a verbatim account. I am reinforced in this conclusion by the fact that the note was not an isolated instance of Ms Jajoo's record keeping. To the contrary, the evidence reveals her as a careful and conscientious solicitor. 99 The matter of the deduction of Ms Jajoo's fees and disbursements also bears mention in connection with the reliability of the Plaintiffs. Ms Jajoo said that from the outset she made it clear that her fees and disbursements would be deducted from the loan and testified that in the conversation with Mr David on 16 March (which he now admits), she again confirmed this and told him the amount involved. This was all set out in her letter to Mr and Mrs David of the same date, which was collected by Mr David. Yet, in his affidavit, Mr David deposed "At no time during my dealings with DDS did I ever give them express authority in writing or verbally to deduct their fees from our loan funds". 100 I am satisfied, on the probabilities, that Ms Jajoo was not told of the proposed investment with Suleman Enterprizes until 16 March; that she did not on 6 March make any comment as alleged about Mr Suleman or his investment schemes; that she was not retained to, nor did she give any advice about such schemes; that she carefully explained the loan and security documents which were signed in her office on 6 March and that she told Mr David in clear terms on 16 March that he should take independent advice before investing with Suleman Enterprizes. 101 On the probabilities, however, I am satisfied that by March 2001, Ms Jajoo knew there was a question as to whether the investment scheme being conducted by Mr Suleman, through Suleman Enterprizes, was contrary to law, even if she was not aware of any details. I am also satisfied that by February 2001, Ms Jajoo knew that Mr Suleman had become a substantial client of DDS. 102 Two affidavits were sworn by the First Defendant. In the first sworn 1 March 2005, he simply denied meeting Mr David at the Fairfield office of DDS as alleged by him. He said that he had no recollection of ever meeting him. 103 In the second affidavit sworn 13 February 2006, he said that he was admitted as a solicitor in 1991 and became employed at DDS in 1998 during which year he became a salaried partner. The only equity partner in the practice of DDS at Fairfield was the Second Defendant. He said that the clientele of the firm was, like himself, predominantly of Assyrian background. 104 In or about October 2000, his sister, the Second Defendant, asked him for a reference to someone experienced in "managed investment law". He remembered a Mr Anthony Fleming who had lectured to him in the relevant area of law and found that he was with Mallesons. 105 After the Second Defendant told him that her enquiry related to the affairs of Karl Suleman, he telephoned Mr Fleming and made an appointment to see him, which, in company with the Second Defendant he did on 1 November 2000. 106 At the meeting with Mr Fleming, the Second Defendant spoke in general terms about Mr Suleman's investment business and Mr Fleming asked to be provided with more detail. 107 According to the First Defendant, that meeting was the only one he attended at Mallesons regarding the affairs of Mr Suleman. He denied that he attended a meeting on 15 March 2001. He did however, towards the end of 2000, participate with the Second Defendant, through Mr Suleman, in what he thought, and Mr Suleman claimed, was the purchase of some scooter wheels, subsequently sold at a profit. This transaction, on its face, returned to the First Defendant and the Second Defendant about $70,000 on their investment of $170,000 over a very short period. 108 About February 2001, according to the First Defendant, he and the Second Defendant discussed with Mr Suleman his proposal to involve them in a music shop retail business. Discussions about this proposal, by telephone, continued for some period during which Froggy Music Pty Ltd was incorporated. 109 Although, according to his affidavit, the First Defendant now believes that both the music store proposal and the alleged purchase and sale of the scooter wheels were part of a confidence trick by Mr Suleman, nothing relevant to this case seems to turn on whether or not that was so. Nor, in my view, did anything relevant to the case emerge from the cross-examination of the First Defendant by Mr Baran. It suffices to say that by March 2001 DDS, through the Second Defendant, was acting professionally for Mr Suleman, and the First Defendant and Second Defendant were engaged in discussions with him regarding a commercial transaction in which they had a personal interest. I have no doubt that they regarded Mr Suleman as a very important connection and client of the firm. 110 Although the First Defendant denied that by March 2001 he knew that the investment contracts employed by Mr Suleman may have constituted an unauthorised managed investment scheme contrary to the Corporations Law, I think the view is inescapable that he must have suspected some such thing. I doubt, however, whether anything turns on that in this case. 111 In relation to the meeting Mr David alleges that he had with the First Defendant, he said that in February 2001, his business hours were 8.30 am to 5 pm and that although he would often be in his office after 5 pm, he would not answer the door except to a client who had an after hours appointment. He vehemently maintained to Mr Baran that neither his alleged meeting with Mr David nor his alleged conversation with him ever happened. 112 He said that as at early 2001 he had no view about investments in Mr Suleman's company, adding that his only experience of Mr Suleman was the one transaction of buying and selling some scooter wheels. Moreover, he said that at the time he had no knowledge about the way returns were calculated on monies invested with Suleman Enterprizes, nor had he any knowledge of how banks earned money on short term investments. 113 The First Defendant, in my opinion, was also an impressive witness and I accept his evidence as truthful and reliable. I am satisfied on the probabilities that he did not meet Mr David as alleged in January or February 2001 and I am also satisfied that he did not have with Mr David the inherently unlikely and incongruous conversation to which Mr David deposed. Apart from anything else, Mr David was clearly mistaken as to the timing of that meeting. According to his affidavit, the sequence of events was the meeting with Mr George of QLS on an unspecified date, payment of $1,000 on the same date, the meeting with the First Defendant two or three days later and the signature by his wife and himself of a loan application at the office of QLS about one month later. In fact the documents disclose that he and his wife both signed an application for a loan on 23 January 2001 and paid $1,000 to QLS the following day, 24 January. 114 There are further reasons, in my opinion, to doubt Mr David's evidence as to his meeting with the First Defendant. They include that Mr David, who had some experience with business matters, would simply arrive at the First Defendant's office out of business hours, expecting to see him; the First Defendant's evidence that after 5 pm he would not answer the door himself, except to a client with an after hours appointment; evidence as to the location of his office which suggests that he would not hear someone knocking on the street door; and the fact that although he was a solicitor of some experience, according to his evidence which I accept, he had very little, if any, knowledge of banking operations. There is also the fact that in December 2001 he gave an interview about the matter to a television programme and in a context where I would have expected him to mention the meeting if it had occurred, he made no mention of it. 115 Mr Darke read two affidavits by the Second Defendant, respectively dated 13 February 2006 and 19 April 2006. 116 She said that she was admitted to practice as a solicitor of this court in 1985, became a partner of Dominic David in 1998 and a partner at the Fairfield office of DDS in 1998, where her practice was predominantly personal injury litigation. She also undertook immigration legal work and commercial litigation. She is an Australian Assyrian as was the predominant clientele of DDS at Fairfield. 117 In her earlier affidavit the Second Defendant deposed to her professional relationship with Mr Suleman as follows: "10. From about October 2000 the Fairfield office of DDS was engaged on many occasions by Mr Karl Suleman (Mr Suleman) and/or his associated companies including Karl Suleman Enterprizes Pty Limited (KSE). The matters in which DDS were engaged included property matters, commercial matters and litigation. 11. One of these matters was DDS file number 201247 opened on 2 May 2001. This related to work I had performed concerning aspects of Mr Suleman's business. My involvement in that matter commenced in October 2000 and, as it continued, I attended various meetings, including a meeting with Ms L Robinson of counsel (Ms Robinson) and other meetings with representatives of Mallesons Stephen Jacques, Solicitors (MSJ). 3. I did not initially open a file for this work because I did not regard it as a DDS matter but eventually decided to open a file for housekeeping reasons. My involvement with this matter ceased in May 2001. 13. I am aware that it is alleged, in effect, that as a result of my acquiring knowledge of certain advice given by Ms Robinson and by representatives of MSJ, I knew that Mr Suleman and/or KSE were operating a managed investment scheme which was not registered in accordance with the Corporations Law, and that the scheme was not being operated by a licensed responsible entity in accordance with the Corporations Law. As stated above, between October 2000 and May 2001, I performed some work in relation to aspects of Mr Suleman's business. This included liaising with other lawyers who I understood were retained to advise Mr Suleman and/or KSE about such matters, including Ms Robinson and representatives of MSJ. 3. It is correct that in the course of attending meetings with those lawyers and receiving certain information and advice from them about Mr Suleman's business activities, I became aware of opinions to the effect that the way in which Mr Suleman and/or KSE were obtaining investment funds in relation to trolley collection businesses may have constituted a managed investment scheme which was required to be registered and licensed. 3. In about early October 2000, Mr Suleman spoke to me about plans he had to open a number of shops selling Orange mobile telephones. A short time later he requested me to contact Ms Robinson. I did so, and ascertained that she was a barrister who had previously provided some advice to Mr Suleman. I requested a copy of the advice and I understand that Ms Robinson then made arrangements to enable a copy to be provided to me. 3. On 17 October 2000 I received from Ms Robinson an advice dated 27 February 2000 apparently given to Mr P. Pham, solicitor, acting on behalf of Mr Suleman. I recall I read this advice at about the time I received it. It was not clear to me what the advice had to do what I understood were Mr Suleman's current plans concerning Orange mobile phones. At the time, I had no experience or expertise in relation to managed investment schemes." 118 According to the affidavit the Second Defendant then, through her brother the First Defendant, put arrangements in train for the consultation with Mr Fleming, which, she said, occurred on 1 November 2000 and at which her brother was present. 119 Thereafter her affidavit relates: "22. On 22 November 2000, I attended a conference with Ms Robinson, Mr Suleman and Rabbi Pinchos. A copy of the notes that I took at the meeting are at page 21. During the course of the meeting, we had a conversation in words to the following effect. Me: "Lucy, thank you for seeing us. I have not sent you a brief because I do not know exactly what Karl wants. He has spoken to me about some Orange mobile phone shops he is setting up. He thinks you are a genius so he wanted to talk to you about that. However, the documents you faxed me before do not seem to be referring to any Orange related operation." Ms Robinson: "I have not been briefed about anything relating to Orange. However I did deal with Philip Pham regarding Karl's trolley set up. I gave Philip an advice and I spoke to him a few times after that. I believe he was getting Karl an exemption but I am not sure. All I know is that Philip was taking care of this matter. I have not followed it since. As a barrister I give my advice but I do not implement the work. That is up to the solicitor." Me: "Yes, of course. Pardon my ignorance but I do not know anything about this area of law." Ms Robinson: "Well this is a very new area of the law. I don't think even the authorities know much about it. So don't feel so ignorant." There was also a conversation to the following effect: Me: "So what is the consequence of a managed investment scheme?" Ms Robinson: "Well if it is a managed investment scheme, it may be possible to get an exemption. It may also be possible to get a ruling from ASIC to see if it is a managed investment scheme. If an exemption is not given then it must be registered." Me: "Is it hard to register?" Ms Robinson: "You would have to get that from ASIC. I understand Philip was doing that. Karl, if this is a managed investment scheme, you'll need to register it if you can't get an exemption." Me: "Yes, Karl if this is a managed investment scheme then that will need to be done. If you do not do things properly then legal repercussions such as fines and penalties may apply. You must do all that the law requires you to do." Mr Suleman: "Yes." Me: "So going back to Karl's talk about Orange, can they be incorporated into the same set up?" Ms Robinson: "Well that depends on how Philip; has done the present set-up. So until that is ascertained from Philip and until we have had an opportunity to meet again and discuss the details with Philip regarding Orange, I think the same type of contracts should not be issued to Orange." Me: "What would you need to advise?" Ms Robinson: "I would need to know exactly what the current structure of the business is and how Karl wants it to be structured, the number of contracts Karl wants to be issued. If Karl wants to set it up as an investment scheme I would need some character references, the company accounts, and the name of his accountant." Me: "Would you be able to do the paper work if it is an investment scheme? Ms Robinson: "Well I don't usually, because it is not something a barrister does. But let's get the information and we will then decide." Mr Suleman: [Looking to Ms Robinson] "You will sort it out." Ms Robinson: "Karl, I don't usually do that. I'm a barrister. I only give advice. But get your accountant to call me and I will see what I can do." Me: "Do you have an accountant you would recommend." Ms Robinson: "No Karl's own accountant can do that. Karl, ask your accountant to call me and I will speak to him." 3. At the end of the meeting with Ms Robinson, I had a conversation with Mr Suleman in the presence of Rabbi Pinchos in words to the following effect: Me: "Karl, I can't really understand what this is all about. There is a firm of lawyers that I know that are experts in this area. I do not practice in this area of law at all. I think you should have a talk to them." Suleman: "OK. Who are they?" Me: "Mallesons Stephen Jacques. They are a reputable firm. I have spoken to them briefly about this and I think you should see them. They will be able to help you and I think you will be in better hands. This is beyond the scope of my experience and expertise." Rabbi: "Karl, I think Suzy is right. You are now at a level that you need a big legal firm to handle your legal matters. I also think that you should try and also find yourself a large accounting firm to handle you matter." Me: "I agree, I can introduce you to Mallesons and they can take it from there." Suleman: "OK" 3. A meeting was arranged for later on 22 November 2000 at MSJ. Mr Suleman and I met with Mr Fleming and Ms Simone Marshall of MSJ. Mr Suleman provided background information in relation to some of his business activities including in relation to his trolley collection business. 3. A conversation to the following effect took place: Me: "Karl is also involved in the distribution of Orange mobile phones. My understanding is that Karl wants to expand and wishes to use the same concept he has been using for his Orange mobile business. Karl has lawyers who have advised him that the current set-up may constitute a managed investment scheme. I have recommended you because you are experts in the area. I suggested to Karl that he should speak to you and get your opinion. I do not know what the present structure is that his solicitor has set-up, or whether it complies with all the relevant laws and regulations or whether it is such that it can also incorporate Karl's proposal for his other business." Fleming: "Well at first instance one cannot say. I would like to see the contracts and have a bit more information. But it may be a managed investment scheme. If it is you will require a restructure and then registration. But let's get some more information first." Me: "Is that a complicated process?" Fleming: "No not at all." Me: "So what do you want from Karl." Fleming: "Send me something in writing. Let me have a couple of these trolley contracts and we can then meet and discuss the future." 120 The Second Defendant, according to her affidavit, proceeded to obtain from Mr Suleman samples of the investment agreements he had employed in connection with investments in his trolley collection business and she took a formal statement from him as to how the business was conducted. 121 On Christmas Day 2000, shortly before she left for overseas, she prepared and sent to Mallesons a letter which outlined Mr Suleman's basic activities, enclosed pro formas of the agreements he had hitherto employed, and sought advice: "In this regard we request that you provide us with your advice as to whether such activities are such that they must comply with the managed investment schemes provisions of the Corporations Law. If so, are they able to be arranged in such a manner that they would be exempted from such application. Moreover would Mr Suleman be required to amend his existing contracts to allow for such an exemption?" 122 She remained overseas from 27 December 2000 to 23 January 2001. Upon her return she had further contact with representatives of Mallesons and on 30 January 2001, with Mr Suleman, attended a conference with Mr Fleming during which he said: "These activities attract the managed investment provisions. The existing structure is not good. A new company ought to be set up and the existing investment contracts assigned to the new company. We will need to get you a dealer's licence, which may take 10 weeks to complete. We will then assign all the existing contract into the new structure. In the meantime Karl, it is better if you do not issue investment contracts." 123 Following the abovementioned meeting at Mallesons, Mr Suleman assured her that he had given an instruction to the effect that no more investment contracts be issued. 124 On 1 March 2001, according to her affidavit, the Second Defendant had a teleconference with Ms Simone Marshall and Mr Damien Richard of Mallesons. She deposed to part of the conversation as follows: "Ms Marshall: "Suzy we have been looking at the funding arrangements again." Mr Richard: "The contracts should not have been structured in this way. The way the contracts are drafted they may be a managed investment scheme. But they are not really because they are not related to the income of the business. So they should have been a debenture or straight out loan. Both these structures would be outside the MIS provisions." Ms Marshall: "We foresee problems to run it as an MIS. Anyway it is too complicated and expensive to set up as a managed investment scheme especially when it doesn't fit within the categories of a managed investment scheme. This is all unchartered. The other problem is that it has been operating without approval of ASIC and we have severe concerns how ASIC would react to an application for a managed investment scheme. We also don't know how the investors will react to the changes. The agreements are unfortunately drafted. KSE should have got proper legal advice before it set up the agreements. The way that they are now drafted means that they are either within the managed investment scheme or loan agreements. We will draft the correct form of contract that will need to be used. There are some other issues that we need to consider such as the dealer and investment advisor having the right education and experience. I don't know if Karl can be the applicant for the license. But that's OK someone else can be appointed with the right education and experience, someone who is licensed or a responsible entity. There are plenty of bodies that can be approached to act as trustees and as a responsible entity. That will not be a problem. I'm sure something can be worked out. In the meantime can you give me the name and telephone number of Karl's accountant?" 125 She agreed with Mr Baran, in cross-examination, that in the advice given by Ms Robinson, in February 2000 she had concluded that it was open to ASIC to deem that the investment scheme conducted by Mr Suleman was a Managed Investment Scheme within the Corporations Law. She also agreed that Ms Robinson had described the consequences of such a situation as potentially commercially disastrous for Suleman Enterprizes. 126 Cross-examined about her professional relationship with Ms Jajoo in early 2001, there were these exchanges: "Q. You were the supervising solicitor who supervised the conduct of Sabrina Jajoo, correct? 3. I didn't supervise her, she had sort of her own practice, more or less. Q. She was your sister-in-law? A. Correct. Q. She started working at the firm in 1998? A. Yes, that sounds right. Q. She was a relatively junior solicitor? A. She had worked in finance with GIO prior to that, yes, she was. Q. Was she a junior solicitor, to your understanding, in early 2001? A. Yeah, I suppose, four or five years' experience is pretty junior. Q. I want to suggest to you that you were her supervisor? A. I wasn't in what she was doing in the conveyancing side effect of it, no, but if a problem arose she would come to me, yes. Q. Well, you recall speaking to her on two occasions in early 2001 about the restructure of Karl Suleiman Enterprises? A. I had a discussion with her in about January, end of January, beginning of February 2001. Q. Yes; what was that discussion? A. That was she basically wanted to know how the Mallesons thing was going and I said, well, Mallesons have asked for quite a bit of information to put the restructure in order, there seems to be deficiencies that need to be fixed up, but they're waiting for a whole heap of information which Karl's got to give to Mallesons, then they'll proceed with the restructure in accordance with those provisions. …………………………………… 3. And on the second occasion, what was said between you and Ms Jajoo? A. I think she went to use one of the offices and there was somebody sitting there and she wanted to know who he was and what he was doing, and I told her that he was Karl's accountant and he was putting the information together or compiling the information to send off to Mallesons and that they were still proceeding with the restructure program." 127 Asked by Mr Baran whether she knew that by 16 March 2001 her firm was accepting instructions from clients who were seeking to refinance their properties with the whole or part of the proceeds being invested in Suleman Enterprizes, she said that at the time she knew of only one matter where a cheque was drawn in its favour. 128 Mr Baran then turned to the subject of conflict of interest as the transcript records: "Q. And you took no steps whatsoever, I suggest, to direct Sabrina Jajoo to ensure that in the event that a person sought to refinance and instruct your firm on that refinance, with an investment of the refinance to Karl Suleiman Enterprises Pty Ltd, to ensure that that person was told that your firm could not act? 3. Well, we did not act. Sabrina could not act, she did not do those sorts of matters. She'd have to refer them to me and I did not act. Q. You may have misunderstood my question. I'm putting to you that you took no steps whatsoever to tell Sabrina Jajoo in February and March of 2001 that in the event that there was a refinance to the investments to Karl Suleiman Enterprises that she had to tell the clients that the firm could not act at all? A. I didn't, I didn't know that Sabrina – I didn't know, first of all, that there were these cheques being drawn; secondly, I wasn't concerned by, Mr Suleiman was told in no uncertain terms by various parties, including his own undertaking that he would not be issuing those types of contracts. There was no advice whatsoever given to Mr Suleiman to put a standstill or a halt to every single other business so it was only in view of those types of contracts that he wasn't to issue and it was my understanding that he wasn't issuing them. Q. You knew, because you had two conversations with Sabrina Jajoo, that she was representing clients who were refinancing and out of that refinance were investing to Karl Suleiman Enterprises; that's true, isn't it? A. She told me there was one, it was in February 2001. Q. And after she told you that, you did not say to her, under no circumstances can you contract for a person refinancing and investing into Karl Suleiman Enterprises, because there is a conflict of interest? A. No, I did not, I did not assume that Mr Suleiman was going to go and have procedures, issuing contracts, because he undertook not to." 129 And a little later in the cross-examination: "Q. But you knew, certainly, after February of 2001, that many clients were coming to your firm seeking to refinance and invest in Karl Suleiman Enterprises? 3. No, I did not know that they were investing in Karl Suleiman Enterprises. Q. I suggest that there were some 95 clients who consulted your firm about these matters? A. In February? Q. No, no, no. I'm talking about, throughout 2001? A. Throughout 2001, there were about 95 refinances that involved cheques to Karl Suleiman Enterprises, yes. Q. And you say you knew that – I withdraw that. You knew that there was Karl Suleiman Enterprises cheques being paid on settlement and that that was in circumstances where Mr Suleiman had given an undertaking not to issue new contracts? A. In February 2001, yes. Q. Yes? A. Yes. Q. And after February 2001, your firm's seeing clients to invest in Karl Suleiman Enterprises? A. Mhm. Q. When you were aware of an undertaking given by Karl Suleiman that he would not issue more contracts? A. In relation to the investment contracts? Q. Yes? A. Yes. Q. What steps did you take to ensure that your firm did not act at all? A. I just don't get the connection, I'm sorry. Q. What steps did you take to ensure that Sabrina Jajoo declined to act completely, on the basis that the possible investment might well be in breach of the managed investment scheme provisions of the Corporations Act? A. I did not take any steps in relation to her side of the practice. I knew that if she got – I knew that we would not act for any clients who came for any Karl Suleiman contracts whatsoever. Q. Right, but you were more than happy, I suggest, to act for clients on the refinance and take those fees? A. I didn't know what those refinance – we did about a thousand refinances that year or thereabouts. I just don't know how many refinances involved this sort of, these sorts of investment contracts in that year. Q. You didn't say to Sabrina Jajoo, look, I've found out certain matters about these contracts, Mr Suleman's given me an undertaking not to issue any more, so if a person comes in seeking a refinance to invest in Karl Suleiman Enterprises, I can't disclose the legal advice that's been given, but you must not act for them; did you say that to her? A. No. Q. And you were expecting, I suggest, a great deal in legal fees as a result of continuing refinances that were coming through referrals such as Quick Loan Services, correct? A. No, that was not the reason. " 130 There was not, as I understand it, a significant challenge to the Second Defendant's evidence and I accept the general thrust of it. By the end of February 2001, she undoubtedly knew that there were grave questions as to whether Suleman Enterprizes was accepting investments for the purposes of its trolley collection business in a manner which contravened the Corporations Law. I am satisfied that the substance of the advice received by the Second Defendant from Mallesons was probably conveyed to Ms Jajoo and that it is probable that the Second Defendant knew or suspected that despite his undertaking to her, Mr Suleman was continuing to encourage investment in Suleman Enterprizes for the purposes of its trolley collection business. 131 In light of the above findings, I turn to consider the Plaintiffs' case as pleaded. As I have indicated, I am not persuaded that Mr David met and conversed with the First Defendant as he deposed. I prefer the evidence of the First Defendant that the meeting simply did not take place. It may be that Mr David was confused and his meeting was with someone else, as it appears that many members of the Assyrian community at the time were enthusiastic about investment in Mr Suleman's investment schemes. 132 Even if, contrary to my view, some such conversation occurred with the First Defendant, I doubt that any cause of action could arise from it. It is not claimed that there was a professional engagement of the First Defendant or even that he was giving gratuitous advice as a solicitor or in a professional capacity. It is hard to see how the First Defendant's opinion of Mr Suleman's business activities could be more actionable than that of the priest, Father Larzar, or any of the other people who told Mr David about the benefits of investing with Mr Suleman. (See e.g. MLC Ltd v Evatt [1970] 44 ALJR 478) 133 As I have earlier said, I am satisfied that Ms Jajoo's retainer did not go beyond acting for the Plaintiffs in the refinancing of their mortgage and, in particular, did not extend to advising the Plaintiffs as to the commercial, financial, or legal implications of their proposed investment with Mr Suleman's company. Apart from the evidence of Ms Jajoo on the subject there is not the slightest suggestion to the contrary in her diary notes or any other of the numerous document put into evidence, including, for instance, a memorandum of costs and expenses which makes charges for "acting for you on your finance" and "acting for you on Discharge of Mortgage". Perhaps most significantly neither Plaintiff asserted the express retainer of Ms Jajoo to act in connection with the proposed investment with Suleman Enterprizes and both signed documents acknowledging that no such advice was sought. Their only relevant evidence was that both the First Defendant and Ms Jajoo said they could not act. Furthermore no one at DDS, so far as the evidence relates was given an opportunity to see, let alone advise upon, the form of agreement which Mr Isho handed to Mr David. 134 It follows from my finding that the retainer of DDS was limited to the refinancing documents, that the action for breach of contract against the First to Fourth Defendants cannot succeed. Although it has been established that there was a contract or retainer agreement, it has not been established that there was a breach of its terms by the First to Fourth Defendants. No contract was pleaded against the Fifth Defendant. However, the First to Fifth Defendants were sued on other causes of action. 135 The Statement of Claim against the First to Fourth Defendants relevantly pleaded: " In breach of their retainer, fiduciary duty and/or duty of care the first to fourth defendants failed to advise the plaintiffs of the following matters, or which they were aware or ought reasonably to have been aware: 3. they were in a position of conflict of interest, in that they stood to benefit financially from the promotion of the scheme and the plaintiffs' entry into the scheme from KS and possessed the following relevant information in their capacity as solicitors retained from time to time by KSE, its officers and/or associates; 3. they were in truth acting in their own interests and those of KSE in advising and acting upon their retainer by the plaintiffs; 3. the investment or loan agreement was a sham, in that: 3. the money to be lent or invested was not intended by KSE and could not be used by KSE to produce the interest and principal repayments agreed upon; 3. the business, in which it was represented to the plaintiffs the money would be used, either did not exist or could not possibly fund the repayments agreed upon; 3. the money was in fact to be used by KSE to pay other 'investors' or lenders' interest and principal on similar agreements and to pay commissions to interested parties; 3. the scheme was not a legitimate business venture, but was illegal, constituting either or both an unlicensed managed investment scheme in breach of s 60 1ED of the Corporations Law and/ or a pyramid scheme in breach of s 61 of the Trades Practices Act 1974. 3. the capacity of KSE to make payments to the plaintiffs under the scheme depended upon the entry by other persons into the scheme and could not be sustained in the long term; 3. the scheme was highly speculative and likely to result in loss of some or all of the first plaintiff's money. 3. In the circumstances each of the first to fourth defendants' conduct was negligent in and about the performance of the plaintiffs' instructions and the rendering of advice to them concerning the scheme. Particulars of Negligence 3. Failure to advise the plaintiffs of the matters stated above. 3. Failure to make enquiries or seek and provide to the first plaintiff particulars of the scheme, the creditworthiness of KSE and its source of funds. 3. IFailure to scrutinise the loan agreement proffered by KSE to discern the fact or likelihood of the matters state above. 3. Failure to decline to act on behalf of the plaintiffs. 136 Paragraph (d) was not particularised in the Statement of Claim until Mr Baran raised it during his submission. The amendment which seems to me to cause no injustice to the Defendants should be allowed. 137 There is no doubt in my mind that as at February 2001, the First to Fourth Defendants were in a position of conflict of interest in relation to any transaction involving Mr Suleman or his companies. Not only was he a client of the firm, potentially, at least, a large one, but both the First Defendant and the Second Defendant were, or thought they were, involved in commercial transactions with him, one of which, on the face of it, had led to a significant profit. The Second Defendant, the only principal of the firm, also knew, as did both the First Defendant and Ms Jajoo, that probably Mr Suleman's investment schemes were being conducted contrary to the Corporations Law. 138 It is plain, in my opinion, that nobody in DDS could properly act for a client in relation to any transaction with Mr Suleman or his companies. It is apparent that otherwise an immediate conflict of interest would arise. The more difficult question is what should have been done by Ms Jajoo in the situation in which she found herself. Four particulars of negligence were provided as set out above. It is apparent that the first three asserted that, in effect, Ms Jajoo should have given advice to the Plaintiffs in clear breach of her duty to Mr Suleman. That proposition need only to be stated to be rejected. It is fundamental to the obligations of a solicitor that he or she keep the confidences of his or her client. I was initially attracted to the proposition that a solicitor in Ms Jajoo's position should have declined to act at all upon finding out that the client proposed to invest in a scheme, possibly conducted contrary to the Corporations Law. Upon reflection, I have decided that such a proposition should be rejected. In my opinion, the solicitor, by acting only in the refinancing of the Plaintiffs' mortgage, was not lending herself to an illegal act, which may have constituted a reason for her not having anything to do with the transaction once she found out the purpose or one of the purposes of the refinance. Nor was there any conflict of interest. 139 That Mr and Mrs David were not contemplating anything illegal was authoritatively determined by the Court of Appeal in Karl Suleman Enterprises Pty Ltd v Babanour 49 ACSR 612. That case also concerned an investment in Mr Suleman's trolley collection business. Windeyer J, on the application of a defendant, struck out the claim on the basis that the appellant (suing by its liquidator) was required to rely upon its own illegal and fraudulent conduct in order to establish its claim and, to the extent that the claim was equitable, it was tainted with unclean hands. 140 In the course of her judgment in Babanour, Beazley JA, with whom Spigelman CJ and Santow JJA agreed, said: "[48] In the present case, the illegality alleged arose out of the appellant's failure to register the scheme as required by ss 601EB and 601ED of the Corporations Act 2001. Section 601ED(5) provides: A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under s 601EB unless the scheme is so registered. [49] Section 1311 provides that a person who contravenes a provision of the Act is guilty of an offence: s 1311(1)I. Subsection 1A provides that subs (1)I only applies if, relevantly, a penalty, pecuniary or otherwise, is set out in Sch 3 for that provision. Schedule 3 specifies the penalties applicable to various offences under the Act. Item 163 of the Penalties List specifies a penalty for s 601ED(5) of 200 penalty units or imprisonment for 5 years or both. A penalty unit in a law of the Commonwealth means $110: see s 4AA Crimes Act 1914 (Cth). [50] In addition, pursuant to s 601EE, the court may wind up a scheme that is being operated in contravention of s 601ED(5). [51] The registration requirement for the operation of a managed investment scheme is for the protection of investors. The legislation does not expressly make an unregistered scheme unlawful. Rather it impugns the conduct of the entity responsible for registration by imposing a penal sanction for a contravention of the registration provisions. The members of an unregistered scheme are protected by the provisions whereby the scheme may be compulsorily wound up. There is nothing, therefore, in the scheme of the legislation whereby an implication of an illegality would arise, nor is there anything that points to a legislative intention that contracts entered into as part of an unregistered scheme are illegal 52] However, that still leaves the question which was considered in Yango as to whether the appellant ought to be able to bring proceedings when to do so it is necessary to rely upon its own wrongful conduct, namely, the operation of an unregistered managed investment scheme, which was conducted fraudulently. The legislative framework requiring registration and the penalty provisions imposed upon a person who fails to register a scheme as required by the Act all lead to a conclusion that the appellant ought not be precluded from bringing the claim. Indeed, to preclude the appellant would, at least potentially, lead to the unsatisfactory position whereby a party, regardless of its previous conduct, but now acting in good faith and from proper motives would be prevented from bringing proceedings for the purposes of recovering moneys in order to repay wronged investors. In my opinion, this case falls within the category of case discussed in Yango whereby the appellant ought not be precluded from bringing the proceedings. …………………………………………………………… [54] That leaves the question whether, to the extent the claims are brought in equity, they should be defeated by the doctrine of unclean hands. A number of observations about the application of this principle should be made. First, the doctrine of unclean hands is an equitable defence to an equitable claim. Second, where it applies the party suing may still assert such rights as are available at law. Third, the defence is distinct from the defence of illegality so where that defence is available, it is not necessary to rely on the equitable principle. Fourth, the conduct relied on must relate directly to the equity relied on. Finally, a party who offends the principle may "wash [her/his] hands" of the impropriety. [55] An application of this last principle is where the misconduct has ceased before suit: see R P Meagher, W M C Gummow and J R F Lehane's Equity: Doctrines and Remedies , Butterworths, at [3-135]. That example does not precisely fit the present case because, although the appellant's wrongful behaviour has ceased, that is only because it has gone into liquidation. That fact in itself may, however, provide a reason why the defence of unclean hands should not prevail. 141 After referring to the reasoning of Windeyer J, Her Honour proceeded: "[57] I do not agree with his Honour's reasoning. Although his Honour is correct when he says that a change in directorship does not alter the legal identity of a company, I consider that his approach fails to pay sufficient regard to the principle to which I have just referred. The liquidators cannot make legal or non-fraudulent that which was illegal or fraudulent. However, they can take steps to reimburse the investors of sums of moneys of which they have been defrauded. These proceedings are, we have been informed, an attempt to do that. It seems that that conduct is or is at least of a similar cleansing nature as has been held sufficient to defeat the defence of unclean hands. The question whether a court would impose any conditions on the grant of relief is not a matter in issue on the appeal." 142 Accordingly, it was not illegal for Mr and Mrs David to enter into the investment contracts and therefore the occasion did not arise for Ms Jajoo to contemplate whether or not she would, by completing the refinancing transaction, be lending herself to an illegal activity. 143 Also, of some relevance is the decision of the Court of Appeal in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398. Relevantly, that case concerned the obligation of a solicitor, Mr Eliades to give financial advice when acting for purchasers/mortgagors on a contract for sale and a mortgage of property. In the course of his judgment Sheller JA (with whom Meagher JA and Abadee AJA agreed said: "Mr Eliades was retained, as his memoranda of fees stated, to act on behalf of the O'Briens on the contract for sale and on the mortgage of the property. In addition he assisted the O'Briens in preparing the application to Citicorp for finance. As a matter of contract, such a retainer would not, by inference or implication, extend to require him to provide financial advice to the O'Briens. Nothing in the surrounding circumstances found by his Honour allowed such a term to be inferred or implied. Furthermore, applying the decision in Hedley Byrne to which Deane J referred, the existence of any duty not found in the express, inferred or implied terms of the retainer would depend upon the solicitor's assuming responsibility to the plaintiff and the plaintiff's relying upon the solicitor to perform diligently and skilfully the services for which the solicitor so assumed responsibility: Hawkins v Clayton (at 578); Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 180-181 and 205-206; White v Jones [1995] 2 AC 207 at 268-270. The O'Briens failed to establish that their retainer of Mr Eliades contained a term obliging him to furnish financial or investment advice or advice about the viability or desirability of the financial agreement with Citicorp or the mortgage. ………………………………………. In my opinion the difficulties faced by the O'Briens which his Honour considered were so great and, to professional persons, so obvious that a solicitor could not reasonably leave them unstated, did not impose the duty his Honour held Mr Eliades to be under. Stated bluntly, such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon. Moreover, in order to make such a case in negligence, the O'Briens were bound to prove that, if Mr Eliades had advised them for the reasons suggested not to go on with the contract for purchase or finance, they would have acted on that advice. They gave no such evidence and in my opinion it was not opento his Honour to infer in the absence of any such evidence that the O'Briens would have taken some course other than the course they did in fact take." 144 Of course, if Ms Jajoo be accepted as I believe she should, as to what she said to Mr David on 16 March 2001, she more than amply discharged any duty which she possibly could have had, in that she advised independent legal and financial advice. 145 I should also make reference to the decision of Levine J in Ibrahim v Pham, [2005] NSWSC 246 which, like this case, was an action by an investor in Mr Suleman's trolley collection business against solicitors, including member of DDS. 146 In Ibrahim v Pham, Levine J found a verdict for the defendants. Although the case, as it seems to me, turned largely on its facts, His Honour in the course of a lengthy judgment made extensive reference to legal authority. With respect I do not take issue with any of the principles of law expressed by His Honour, although I am aware that an appeal is awaiting judgment in the Court of Appeal. I am not privy to the matters debated in those proceedings. 147 It follows from what I have said that it has not been established that either Ms Jajoo or anyone else in the firm of DDS had any liability to the Plaintiffs in tort at Common Law for the reason that there was no relevant duty of care. 148 As to the Plaintiffs' claim against the First to Fourth Defendants based on alleged breach of fiduciary duty, undoubtedly, the relationship of solicitor and client gives rise to such duties. Whether that circumstance adds anything to the rights of the Plaintiffs in this case is, however, very problematical. 149 In considering whether there has been breach of fiduciary duty, again the scope of the retainer agreement is of critical importance. As the Court of Appeal (Spigelman CJ, Sheller JA and Stein JA) said in Beach Petroleum NL v Kennedy and others (1999) 48 NSWLR 1at para 188: "[188] Even in the case of a solicitor client relationship, long accepted as a status based fiduciary relationship, the duty is not derived from the status. As in all such cases, the duty is derived from what the solicitor undertakes, or is deemed to have undertaken, to do in the particular circumstances. Not every aspect of a solicitor client relationship is fiduciary. Conduct which may fall within the fiduciary component of the relationship of solicitor and client in one case, may not fall within the fiduciary component in another." 150 As in my opinion, Ms Jajoo was not retained to provide any services in respect of the Plaintiffs proposed investment with Suleman Enterprizes, DDS had no conflict of interest. They, accordingly, could not be said to be acting in their own interests if it be the case that the proposed investment was a sham because they had no conflicting interests and they had no obligation to give advice. Indeed, as I have said, to do so would be a clear breach of their obligations to Mr Suleman, as would be advice that his scheme was being conducted in breach of the Corporations Law. Nor were they entitled, let alone obliged, by fiduciary obligation, to proffer advice as to the wisdom of the proposed investment or as to the viability of the scheme upon which incidentally, so far as the evidence relates they had no knowledge. 151 In the result, the Plaintiffs' claim based upon an alleged breach of fiduciary duty by the First to Fourth Defendants fails. 152 There was also a claim against the First to Fourth Defendants for alleged deceptive and misleading conduct under section 52 of the Trade Practices Act, s 42 of the Fair Trading Act, s 995 and s 999 of the Corporations Law. The alleged deceptive and misleading conduct relied upon is to be gleaned from the Amended Statement of Claim. In light of the findings I have made above, especially my rejection of evidence as to statements allegedly made by the First Defendant and Ms Jajoo to the Plaintiffs and my conclusion that neither Ms Jajoo not DDS had any duty to give advice to the Plaintiffs, there is, I think, no basis for a cause of action under any of the statutes mentioned. It will suffice, I think, if I simply say that, in my opinion, no conduct which was deceptive or misleading was proved against either Ms Jajoo or any of the First to Fourth Defendants. 153 The case against Mr Isho was pleaded rather differently from the case against the other Defendants. It was not suggested that he had any retainer from the Plaintiffs nor that their contact with him was other than that he provided the form of investment agreement which they signed and that he accepted their cheque in favour of Suleman Enterprizes for $150,000. 154 Mr Isho did not give evidence but the Plaintiffs tendered in their case his evidence before Registrar Wearne, to which I have already made reference. 155 The substance of the allegations against Mr Isho I take from paragraphs 11, 12, 13 and 14 of the Amended Statement of Claim: "11. The fifth defendant acted as the solicitor for KSE in the year 2001, during the course of which: 3. he drafted by himself on the behalf of KSE the investment agreement, including the form proffered to the first plaintiff [hereafter referred to as 'the form of agreement']; and 3. he allowed his office to be used by KSE to promote the scheme and have investment agreements executed. 12. In executing instructions on the behalf of KSE, the fifth defendant owed a duty of care to persons, who might enter into the form of agreement with KSE, including the plaintiffs. 13. By his conduct the fifth defendant represented and/or participated in the representation by KSE to members of the public, including the plaintiffs, that: 3. the funds procured were being invested in a legitimate business(es); 3. the business(es) of KSE were generating or reasonably expected to generate funds sufficient to meet the obligations under each agreement; 3. Ientry into the agreements by KSE was lawful; 3. the scheme conducted by KSE under the agreements was lawful. 14. In drafting the form of agreement, advising KSE thereon and/or permitting his offices to be used by KSE, the fifth defendant was negligent, grossly negligent, reckless of persons entering the scheme by means of the form of agreement, including the plaintiffs." 156 Alternatively, it was alleged against Mr Isho that he participated in deceptive or misleading conduct actionable under s 52 of the Trade Practices Act, s 42 of the Fair Trading Act, s 995 and s 999 of the Corporations Law and unlawful and dishonest conduct under s 1000 of the Corporations Law. 157 As to the factual basis upon which the claim against Mr Isho should be considered, I see no reason to doubt the evidence he gave before Registrar Wearne that he played no part in the drafting of the investment agreement, except to the very limited extent stated. However, his office was clearly used for the dissemination of forms of investment agreement, for the collection of such documents when signed, and for the receipt of investment monies. I accept the evidence of Mr David as to his dealings with Mr Isho and his office. 158 Exhibit E contains a number of documents discovered by Mr Isho during the case. Those documents include receipts for legal fees paid by Suleman Enterprizes, a number of which acknowledged sums paid for "agreement" or " business agreement". In some cases the receipts specified a number and a unit cost of $700. 159 There were also produced on Discovery specimen copies of 2 draft agreements, one called "Investment Agreement" and the other simply "Agreement", each of which appeared to contemplate an investment in the trolley collection business of Suleman Enterprizes. There were what were obviously details of the Plaintiffs' agreement to be filled in and there was a copy of a letter dated 14 November 2000 in the following terms: The Directors Karl Suleman Enterprizes Pty Ltd 14 Pentecost Street Hinchinbrook NSW 2168 Attention: Karl Suleman Dear Sir, RE: Investment Agreement We refer to your instructions for our firm to act for you in respect of the above matter. We wish to confirm, the terms and scope of our retainer as follows:- 3. You have provided us with a copy of an agreement titled "Financial Investment Agreement". You have instructed us that you retain copyright in this agreement. 3. A number of person have already entered into separate agreements with you. 3. You have instructed us that you have previously obtained solicitors advice and Counsels specialist advice in relation the agreement together with the transaction to which it refers. You have expressly instructed us that you have obtained legal advice that:- 3. the agreement together with the transaction to which it refers is legal; 3. you are not conducting a managed investment scheme. 3. You have instructed us that you have obtained taxation advice and Corporations Law advice in respect of the Agreement and the transaction to which it refers. 3. We have not been retained to provide any advice of a taxation nature or on the Corporations Law or the Managed Investments Act (sic). 3. We confirm your instructions that amendments may be made to the structure of agreement. We confirm you have agreed to our proposed amendments. 3. Your name is to be noted on the cover of the agreement. 3. We are to prepare the agreement and you will collect same from our office. 3. We are not responsible to ensure the agreement is signed correctly and you will retain the signed copy of the agreement in your office. We advise and confirm that you have instructed us that: a You do not require us to provide any advice or to brief Counsel to provide any advice on any corporations Law, Managed Investments Act (sic) or Taxation law impact of the agreement, the transaction or the fact that there will be a number of agreements issue. 3. You have fully satisfied your self in relation to the matters referred to in(a) above and have already obtained advice previously about those matters. We confirm that we have recommended to you that Counsels advice should now again be sought in respect of the impact of the above legislation. We confirm that we do not undertake any responsibility in relation to the incidence of the above legislation on the agreement or the transaction it refers to. We confirm that you have agreed that the fee for each agreement issued will be $700.00 inclusive of GST. Tax invoices will be issued on a fortnightly basis. Yours faithfully, Isho & Associates" 160 That Mr Isho or his firm Isho & Associates had concerns about the investment scheme was well evidenced by internal memoranda and by an advice dated 28 February 2001, given by Mr G F Grinter of counsel, (albeit upon a document different in form to the one signed by the Plaintiffs) which concluded with these paragraphs: "The rate of interest being paid on the investments is understood somewhere in the vicinity/or equivalent to 65 per cent. It is common for interest to reflect the risk. It would appear that there is a high-risk in the loans to be made to KSE. The rate of interest is beyond a reasonable commercial rate. The scheme which falls within the definition of "managed investment scheme" must be registered with ASIC if it has more than 20 members, or was promoted by a person (or associate of the person) who was, when the scheme was promoted, in the business of promoting managed investment schemes or ASIC has determined in writing that the scheme is closely related to other managed investment schemes and the total number of members of those closely related schemes exceeds 20. The scheme must be operated by a "responsible entity" which is a public company holding dealers licence. The constitution of the scheme must comply with requirements of chapter 5 of the Corporations Law. The scheme must be operated in accordance with compliance plan and compliance must be audited by a compliance committee unless the board of responsible entity has majority of external directors. I am of the view that KSE should submit the loan agreement to ASIC for a ruling. Taxation Implications. I am instructed that my instructing solicitor has already approached the taxation office for a ruling in respect of the agreement particularly since there is concern about the rate of interest and the method of repayments within the first 24 months of the term. I recommend that the agreement should be submitted for an income ruling as there are taxation implication for the borrower and lender." 161 Accordingly, at the time when Mr David handed the cheque for $150,000 to Mr Isho and was given a form of agreement for signature by his wife and himself, Mr Isho was conducting, what seems to have been a lucrative business involving little more than typing up and arranging the signature of pro forma agreements as required by Mr Suleman. It also appears that despite previous assurances by Mr Suleman, Isho & Associates had significant doubts as to whether the Corporations Law was being complied with. 162 Mr Baran submitted that Mr Isho, as a solicitor acting for Mr Suleman and his interests, owed a duty to persons who might sign and act upon contracts which he knew were potentially illegal. Of course, as the Court of Appeal found in Babanour, the contracts were neither illegal nor unenforceable. However, it may be accepted that if the investment scheme was conducted contrary to the Corporations Law, investors may have been disadvantaged. 163 In support of his submission that Mr Isho owed a duty of care to the Plaintiffs, Mr Baran referred to Hill v Van Erp (1997) CLR 159, Bryan v Maloney (1995) 182 CLR 609; Hawkins v Clayton (1987-1988) 164 CLR 539; Perre v Apard Pty Ltd (1999) 198 CLR 180; and Graham v Hall (2006) NSWCA 208. 164 Hill v Van Erp was an action by a beneficiary named in a will against the solicitor who had prepared and arranged its execution but allowed it to be witnessed by the beneficiary's husband, thereby causing the bequest in her favour to become a nullity. At page 167, Brennan CJ said: "Gener ally speaking, however, a solicitor's duty is owed solely to the client subject to the rules and standards of the profession. That is because the solicitor's duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client's interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transaction are not coincident with the interests of the client. But the interests of a client who retains a solicitor to carry out the client's testamentary instructions and the interests of an intended beneficiary are coincident." 165 The only other case referred to by Mr Baran concerning a solicitor was Hawkins v Clayton, an action against solicitors who had prepared and retained a will. After the testator died the solicitors made no effort to locate the executor or principal beneficiary for a number of years during which a house, which was the estate's main asset, was allowed to fall into disrepair. A majority of the Court, Deane, Brennan and Gaudron JJ held that the solicitors were liable for the loss to the testator's estate. Deane J, in the course of his judgment said: "In drawing and supervising the execution of the testatrix's will and undertaking responsibility for its custody in the present case, the firm was acting professionally as the testatrix's solicitors. In accepting responsibility for custody of the testatrix's will after her death, the firm effectively assumed the custodianship of the testatrix's testamentary intentions. If the firm simply retained custody of the will without disclosing its existence to any one at all, those testamentary intentions would obviously be likely to be frustrated — by grant of probate of an earlier will, by grant of letters of administration on the basis that the testatrix had died intestate or by the estate remaining unadministered and the assets being neglected, misused or misappropriated. Those aspects of the relationship between the firm and the testatrix (and Mr Hawkins, in his capacity as executor) combined with the foreseeability of a risk of damage of the kind sustained to bring the case within a category in which the relationship of proximity was such as to give rise to a duty of care which might, depending upon the circumstances, extend to require some positive action to avoid such damage. It is neither necessary nor desirable to attempt to define, in the abstract, the precise content of the firm's duty of care or the precise extent to which the firm was required to take positive action. The relevant question is whether the failure of the firm to take any positive steps at all to locate Mr Hawkins during a period of more than six years after it became aware of the testatrix's death constituted, as a matter of fact, a breach of the duty of care which the firm, as a matter of law, owed Mr Hawkins as the testatrix's legal personal representative. 166 The other cases cited by Mr Baran discussed principles applicable to acts of negligence causing economic loss. However, as the cases seem to make clear, solicitors are in a special position because of the potential for conflicting interests. It is significant that in both Hill v Van Erp and Clayton v Hawkins, a duty was held to be owed to the Plaintiff, which was consistent with the contractual obligations owed to the solicitor's client. The majority in Hill v Van Erp agreed that mere foreseeability of loss was an insufficient basis for action but there was no unanimity as to the source of the duty. Brennan CJ sourced it from the corresponding duty owed by the solicitor, Dawson J and Toohey J from proximity and the special considerations involving testamentary dispositions, while Gaudron and Gummow JJ identified the solicitor's control over the interests of the beneficiary. 167 None of the special considerations adverted to apply here. There is no suggestion that Mr Isho did other than carry out his instructions to the letter and without negligence. There was neither a particular proximity between Mr Isho and the Plaintiffs, nor any reason for Mr Isho to think that the Plaintiffs placed any reliance upon him. 168 Nor, in my opinion, could the conduct of Mr Isho, in the circumstances of this case, constitute deceptive, misleading, unlawful or dishonest conduct for the purposes of the statutes I have referred to. He like the First to Fourth Defendants was bound by his duty to his client, Mr Suleman, not to disclose his confidences. 169 In the result, I hold that no actionable breach of duty of care was established against Mr Isho. 170 The action against the First to Fifth Defendants must fail for the reasons I have given. However, I observe that I have reached this conclusion having regard to my view that there is an absence of proof of breach of duty of care or statutory obligation. If such a breach or breaches had been established, I would have concluded that causation between such breach or breaches and any loss suffered by the Plaintiffs was not established. 171 In my opinion, Mr David, to whom, on her evidence, Mrs David left financial matters, was so enthused by what was said to him by various members of the Assyrian community and by his knowledge of the reputation of Mr Suleman that he would have invested in the trolley collection scheme no matter what advice he received. His own evidence, so far as reliance was concerned, really went no higher than the curious and largely irrelevant statement allegedly made to him by Mr David and the rather ambiguous statement allegedly made to him by Ms Jajoo. If he was serious about obtaining and relying upon advice, I would have expected him, at least, to have consulted someone about the form of agreement given to him by Mr Isho. It is also not, I think, without significance that when he invested again in August 2001, he did so without consulting anyone but in reliance upon his conversations with Mr and Mrs Daniel. 172 I make these orders: 1. The proceedings against the First to Fifth Defendants inclusive are dismissed and there will be verdicts and judgment in their favour. 2. Plaintiffs to pay the costs of the First to Fifth Defendants. 3. Exhibits may be returned. oOo 20/08/2007 - Correction to file number - Paragraph(s) Heading 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.