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City Desk
7 November, 2007  
Solicitors caught in Karl Suleman litigation tangle

Litigation spawned by collapse of shopping trolley fraudster Karl Suleman finds solicitors tripped in negligence suit. Justice Paul Brereton makes some fine distinctions

imageA finding of negligence against solicitors for a Sydney husband and wife is the upshot of one of the many ongoing eruptions sparked by the scams of Karl Suleman (pic).

Failure to advise the clients of the extraordinary risk they were running by sinking their money into Karl Suleman Enterprises was at the heart of the strife.

The plaintiffs, Lebanese immigrants Omar and Amal Riz from western Sydney, took out a $275,000 loan and mortgage from Perpetual Trustee Australia Ltd based on the $10,000 per fortnight returns promised by Karl Suleman’s shopping trolley investment “opportunity”.

They had limited English and even more limited understanding of Suleman’s business and, although initially reluctant, were subjected to high-pressure persuasion.

The Riz’s sued Perpetual, Direct Mortgage Solutions, and three partners of the law shop Dominic David Stafford.

They said the contract was unjust under the Contracts Review Act, unconscionable at common law and that there had been a breach of fiduciary duty and/or negligence.

The court knocked back the claim against Perpetual because it was satisfied, based on false information, that the loan was serviceable.

In arriving at that finding Justice Paul Brereton distinguished the Court of Appeal’s decision last year in Khoshaba, a case which also involved investors stung by the KSE shopping trolley investment caper.

In Khoshaba, Chief Justice Spigelman, with Handley and Basten agreeing, found against Perpetual, saying it had made no inquiry about the purpose of the loan.

Brereton said the “indifference” to prudent lending practice which Perpetual displayed in Khoshaba was not present in the Riz case.

Although some of the the financial information provided to Perpetual was false, Justice Brereton thought lenders should not be expected to check into the details, or to have “a high index of suspicion” that they are being deceived.

Brereton was less forgiving of the solicitors.

He found that Dominic David Stafford had undertaken a considerable amount of work for Karl Suleman and for clients in the Assyrian community. Two partners in DDS, also members of the Assyrian community, Fred and Suzy David, had invested in Suleman’s businesses.

Sabrina Jajoo, a 31-year-old solicitor, who acted for the Rizes, was Fred David’s wife and Suzy David’s sister-in-law.

The Rizes were told they they “should go and obtain the advice of somebody who could tell you if there is any risks or not [sic]”.

Even so, Brereton found:

“It ought to have been apparent to Ms Jajoo that she had not done enough to bring home the importance to Mr and Mrs Riz obtaining independent advice.”

Brereton concluded:

“In my view reasonable care required that she bring home to her clients forcefully the improvidence of their proposed course. That might have been achieved by forceful oral advice, or preferably by insisting on written instructions to proceed notwithstanding.

“If, because of a conflicting duty to Mr Suleman, Ms Jajoo could not give that advice, then she ought to have declined to act further; I do not accept that a solicitor acting as she was on a loan transaction can avoid the consequences of what would otherwise involve a conflict of duties by disavowing responsibility to give advice which she was otherwise bound to give.”

Again, Brereton’s finding runs counter to the outcomes of two other KSE decisions this year, which exonerated Sabrina Jajoo in similar circumstances.

Ibrahim v Pham and David v David were distinguished by Brereton on the facts. Jajoo apparently was not informed by the borrowers in those cases of the unreasonably high returns they were expecting.

Brereton “with the greatest respect” also disagreed with Acting Justice Patten in David v David that negligence could not be established if the required advice would have involved a breach of duty of confidence owed to another client – Karl Suleman.

For breach of duty of care, Brereton awarded damages against DDS of $155,310 in relation to the Perpetual loan plus interest charges.

Suleman had collected $130 million from over two thousand investors, lived the high life and entertained Bill Clinton before the pyramid style scheme collapsed.

In 2004 he was sentenced to a 21-month jail sentence for fraud, of which he served 12 months.

In January 2007, Suleman was sentenced by District Court Judge Nield to seven years and four months jail with a non-parole period of five years and six months after he pleaded guilty to 26 charges relating to KSE.

In a separate flurry of excitement, solicitors Fred and Suzy David have commenced defamation proceedings against seven defendants who complained about their professional conduct.

According to a recent capacity judgment of NSW defamation list judge Henric Nicholas the defendants had petitioned the authorities to investigate whether the solicitors acted for members of the Assyrian community who invested in Karl Suleman Enterprises’ “Ponzi” scheme in circumstances where they were also close associates of Suleman and led their clients “to believe that the operation of the scheme was legal”.

Nicholas let six imputations go to a jury and struck out another two.

On it rolls.