Provident Capital v Gould [2009] NSWSC 1458

In this case Provident Capital loaned $6.9 million for a development project. Before doing so it required “satisfactory evidence that all 6 lots had been pre-sold on unconditional contracts with a 10% deposit.” The developers hit upon a novel way to satisfy this condition. They paid the 10% deposits, which totalled $1,120,000, themselves using trade dollars from a barter scheme (monopoly money). They then transferred the trade dollars to the account of their solicitor, Mr Gould. The solicitor then wrote a letter to Provident stating “we confirm are holding in our holding account the following amounts in respect of the deposits for the sale of the following properties totalling $1,120,000”. This was followed by an irrevocable undertaking to Provident promising not to release deposits, being deposits “held in our Trust Account”. Based on these assurances Provident advanced the funds. When the development was complete none of the purported contracts settled and so Provident asked the solicitor to account for the $1,120,000.

At this point the solicitor advised Provident that the deposit he held were in trade dollars of no commercial value and could not be redeemed.  Provident then sued the solicitor aiming to recover the lost money from his professional indemnity insurer. The solicitor’s insurers refused to meet the claim on the grounds that the solicitor had been fraudulent and the conducts was therefore excluded from the policy. Provident did not accept this and brought this application to join the insurer to the proceedings pursuant to s.6 of the Law Reform (Miscellaneous Provisions) Act 1946. The insurer resisted on the grounds of the fraud but the judge found against the insurer noting:

The trial judge may find it difficult to believe that Mr Gould did not know that he was deceiving the reader of the letters (i.e. that what he was asserting was untrue) and did not have an intention to deceive, but such a finding of fact is for the trial judge.

Accordingly, the case against the solicitor will proceed and the insurer will have to pay if Provident wins on the grounds the solicitor was negligent. If Provident wins on the grounds the solicitor was fraudulent then the insurer will not have to pay and Provident will have to pay the insurer’s costs.

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