England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF
JUSTICE, CHANCERY DIVISION
(The Hon Mr Justice Blackburne)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 December 2002

Lady Justice Arden :

1. This is an extraordinary tale of one man, the appellant, Mr Carr, who, driven by the hope of fabulous profits, was duped into parting with a very large sum of money, and of another, Mr Simms, a solicitor in the respondent firm, who was prepared to allow himself and the facilities of his firm to be used in what turned out to be a huge financial swindle. The fraud appears to have been carried out by a company called Kelci Management Consultants Ltd ("Kelci") and its associates. Mr Simms was not, of course, aware of their fraudulent intentions.
2. The bare outlines of the story will sound familiar. Mr Carr heard of the possibility of investing money through Kelci so as to obtain fabulous rates of profit. He had access to a large sum of money for investment, namely $4m. He signed an investment agreement and power of attorney in favour of Kelci or its associates. The agreement provided for the appointment of "a Solicitor" with what appeared to be a cohesive set of responsibilities designed to ensure that Mr Carr's money would be invested in the chosen form of financial instrument on secure terms. Kelci induced Mr Carr to authorise the Solicitor to transfer the money to an account under its control. Mr Carr gave that authority. The Solicitor made a transfer to an account over which neither Mr Carr nor Mr Simms had any control. The money was misappropriated and lost. Two directors and shareholders of Kelci, namely Mr Adkins and Mr Weaver, and an American attorney, Mr Pahl, have since pleaded guilty in Florida to a wire fraud involving (among other monies) the money that Mr Carr had been duped into investing.
3. Having failed to recover the money, Mr Carr contends in this action that the transfer which Mr Simms actually made was not the transfer which he, Mr Carr, had authorised. The trial of this action came before Blackburne J who in his judgment, handed down on 19 December 2001, rejected this contention as well as a number of others with which this appeal is not concerned.
4. I will need to set out the facts in more detail. No-one has suggested that Mr Simms was a knowing party to the dishonesty. However, having considered the facts with some care I find it extraordinary that a solicitor from, as the judge found, "a very long-established and highly respected firm" should have participated in these events at all. With one exception, Mr Simms failed to make any notes of any of the meetings or telephone calls which he had about this transaction. In consequence, in the words of the judge, there was "a measure of underlying vagueness in his evidence". Mr Simms did not draft the documentation that was used in this transaction. Yet, despite the fact that he accepted responsibilities under it, he gave the documentation, which was clearly defective on its face, no detailed scrutiny. He made no comment on the drafting of the investment agreement in the form initially shown to him on the basis that he assumed it was to be the subject of negotiation. Notwithstanding this, Mr Simms later agreed that it should be signed on his firm's behalf. Moreover, it did not concern him how the investment was going to work even though he entertained considerable doubt about the level of profit which was represented. He agreed to accept remuneration in the form of 1% of the gross profit made by Kelci. Mr Simms' evidence was that this remuneration was in addition to remuneration by way of fees.
5. Members of the public start from the basis that solicitors will not be involved in a transaction unless they have satisfied themselves that the transaction is appropriately documented and structured. Even if the respondents are successful on this appeal I do not think that they can claim that they are covered in glory. For that reason I regard the respondents' characterisation of the appellant's case as "opportunistic" as somewhat one-sided. I hope, in the interests of the good name of the legal profession, that solicitors, especially those from well-established firms with a high reputation, will resist becoming involved in the same manner in future.
6. Of course, Mr Carr's conduct was also very foolish. Despite the fact that he is also a practising solicitor with nearly twenty years' experience, he did not apply his critical faculties to the investment opportunities he was being offered. It was not clear precisely how the investment was to be made. It was said that the scheme involved borrowing money from a bank and purchasing bank instruments at a discount. One estimate of the likely yield was 220 to 250% per month, of which Mr Carr would receive half. Mr Carr was prepared to sign ill drafted documentation without advice, without suggesting any amendments and without studying the documents with care in advance. He was also prepared to transfer funds without proper security. Moreover, he was not a satisfactory witness at the trial. The judge said that he found his account of events, where uncorroborated, to be unreliable to quite a significant degree. Mr Carr's lax approach might have been understandable were the monies he invested his own, but it appears that they were the property of a group of investors who had formed a syndicate to invest their funds collectively and who had trusted Mr Carr to act as the person who would make the investments.
7. Mr Carr was at all material times living in New South Wales. In the course of investigating investment opportunities in 1998 he met in London a Mr Sandstrom and a Mr Robert Anderson and through them Mr Adkins and Mr Weaver. Mr Weaver and Mr Adkins, who were US citizens, were two of the directors and shareholders of Kelci. Mr Adkins and Mr Weaver were said to be dealers in securities. Mr Anderson told Mr Carr that he knew Mr Simms of Bower Cotton. Mr Carr was told that Bower Cotton was a long established firm of high repute and that Mr Simms was a securities lawyer who would look after him and manage and protect his funds. Arrangements were made for Bower Cotton to undertake the role of "Solicitor" under the investment agreement which I describe below.
8. On 7 May 1998, Mr Carr also executed a limited power of attorney in favour of Kelci (alternatively Messrs Adkins and Weaver) and the power was countersigned by Mr Adkins and Mr Weaver on behalf of Kelci. The investment agreement was signed on about 12 May 1998 at a meeting in Bower Cotton's boardroom. It defined Kelci as "Consultant" and recited that Consultant had access to certain financial investment opportunities and agreements that it intended to make available to Mr Carr (referred to as "Participant") and that Mr Carr had funds of $4m. that could be used for private placement or high yield investment opportunities. Clause 3 provided that all net profit received by the Solicitor out of any transaction or activity covered by the agreement was to be shared between Consultant and Participant in the ratio 50:50. Clause 5 provided:

"5. Participant Decision Final: Best Efforts:

Participant shall be the sole judge of the matters in which it has requested to invest and by transfer of the Fund into the Solicitor account acknowledges that the decision to invest is solely the Participant's and was acted upon without advice from Consultant or Solicitor, Participant agrees to transfer the Fund into the Solicitor's account. Consultant shall use it's [sic] best efforts to provide adequate and full information in good faith in aid of Participant's decision, but the Consultant and the Solicitor are not a guarantor of the private placement or investment opportunity or anyone's performance thereunder. This Agreement is one for the sharing of profits if and only if a particular investment succeeds, and no compensation is payable to anyone unless an investment opportunity is consummated and profits are generated. The private placement or investment opportunity contract and/or agreement and other related documents are separate from this Agreement and proprietary. The Fund will be protected and managed by the Solicitor as stated in paragraph thirteen (13) of this Agreement."

9. As foreshadowed in the final sentence of clause 5, clause 13 of the investment agreement set out the authority and duties of Solicitor:

"13. Authority and Duties of Solicitor: Solicitor undertakes the following responsibilities and shall provide the following services:

(a) Solicitor shall protect the Fund and make no investment or other distribution of the fund, except to Participant, unless, incident to the private placement or investment, there is a guarantee at least equal in principal amount to the funds distributed or invested (the "Guarantee"). The Guarantee shall consist of one or more of the following: (1) medium term notes, debentures, money market debt instruments, letters of credit issued by banks and securities guaranteed by banks; (2) institutional obligations constituting senior indebtedness; (3) United States Treasury obligations; or (4) a custodial safekeeping receipt or bank warrant undertaking issued with respect to (1), (2) or (3) above. All Guarantees shall be rated "A+" or better by Standard and Poor's or Moody's Investment Services and issued by banks or institutions organised in Western Europe or North America in acceptable format, non-callable prior to maturity. Guarantees shall be senior obligations of the issuing entity as to principal and, if applicable interest; or

(b) The Solicitor, without liability, shall transfer Fund upon direction by the designated Limited Power of Attorney or Special Directors (s), if such has been appointed by the Participant; and

(c) Solicitor shall participate in an investment opportunity only upon advice and approval of the investment opportunity by Consultant. The Solicitor will act upon such with instructions from the Consultant only upon receipt of written instructions from the Consultant and conditional upon compliance with clause 13(a) or 13(b) hereof.

(d) Solicitor shall ensure that Participant receives proper account statements and reports are provided to Participant.

(e) Additional:

1. The Solicitor will acknowledge the receipt of the fund deposited by the Participant into the Solicitor account by written confirmation.

2. The Fund may be included with other funds, upon notification, for the purpose of participating in a private placement or high yield investment and held until such funds necessary to participate within the investment has been accumulated.

3. The Fund deposited in the Solicitor account may be transferred to a separate Solicitor bank transaction account for the purpose of closing the investment opportunity. However, the fund shall not be released from Solicitor's control unless the solicitor has met the conditions of paragraph 13."

10. In principle, any transfer under clause 13(a) made by the Solicitor was therefore to be secured in the manner provided in that sub-clause. The judge found that Mr Simms appreciated that the Solicitor's role was to take security. However, the investment agreement was silent on the question in whose name any investment would be held. If it was held in Kelci's name, the Solicitor's role would be limited to the initial transfer to Kelci. Likewise, the elaborate provisions for safeguarding the investment contained in clause 13(a) could also apparently be sidestepped by an appropriate instruction from the attorneys under clause 13(b).
11. Clause 14 provided for the Solicitor's protection:-

"14. Solicitor's Protection:

a. In consideration of Solicitor having agreed to enter into this Agreement and to hold the Fund upon and subject to the terms hereof, Consultant and Participant hereby undertake declare and acknowledge as follows:

(i) Solicitor has not advised Participant upon the terms of this Agreement or the subject matter hereof and Participant has taken separate independent legal advice in respect of it;

(ii) Solicitor acts in relation to the Fund only as specifically provided in this Agreement;

(iii) the duties of Solicitor are only as specifically provided in this Agreement and are administrative in nature and Solicitor shall not incur any liability whatsoever or howsoever arising to either Consultant or Participant for or in respect of any act or omission by it save for its fraud wilful misconduct breach of express duty under this Agreement or gross negligence and Consultant and Participant each release and discharge Solicitor from any such liability there may be;

(iv) Consultant and Participant shall indemnify and hold harmless Solicitor and its estates and effects from and against all and any costs, claims, demands, suits, judgments, fees, expenses and liability which may be incurred by Solicitor in connection with the implementation or otherwise of this Agreement and the actions or omissions taken or suffered by Solicitor save its fraud, wilful misconduct, breach of express duty under this Agreement or gross negligence and shall pay and discharge any legal and other costs incurred by Solicitor in connection with any such claims demands suits and judgments that are made or alleged against Solicitor.

b. The obligations and liabilities of Consultant and Participant to Solicitor under this clause are joint and several."

12. It is obscure whether the power of attorney was in favour of Kelci or Mr Adkins and Mr Weaver or all of them. The material part of the power of attorney was in these terms:-

"I, [Mr Carr], … give this Limited Power of Attorney to manage and administer the placement of the funds and the placement contract to [Kelci, Mr Adkins and Mr Weaver] fully authorising and empowering them, individually or together, by or on behalf of the undersigned to:

1) Assign and invest my funds for placement into a secured investment, provided that the said funds accepted into that placement are secured by a Guarantee or Safekeeping Receipt for one (1) year and a day, issued by a top Western European Bank rated A+ or better by Standards and Poor and/or Moodys, for One Hundred percent (100%) of the principal amount of the investment.

2) Contract with licensed security trading entities, banks and other financial or business institutions which arrange or purchase and resell quality bank instruments, including, but not limited to guarantees, promissory notes, standby letters of credit, certificates of deposit and United States Treasury instruments.

3) Exercise all rights and make all arrangements necessary or incidental, as contractually agreed, with business entities, licensed security trading entities, banks and other financial institutions buying and/or selling investment grade instruments, providing that there will remain on deposit at all times, the amount of the initial contracted funds or sufficient guarantees equivalent to One Hundred percent (100%) of the face amount of the funds.

This Limited Power of Attorney is Limited to Mr Michael D Adkins and Mr Charles H Weaver, to arrange and/or engage in commercial and financial transactions/contracts, to cause the purchase and resale of investment grade instruments, the signing of all necessary contracts and agreements that relate to the private placement of our fund: and to make any disbursement of the earnings contracted.

Michael D Adkins and Mrs Charles H Weaver are NOT authorised to make any withdrawals of the principal funds, except for the purposes stated above."

13. On 14 May 1998 Mr Carr arranged for the transfer of $4 m. to Bower Cotton. The money was placed in a client account of Kelci because (apparently) there was no client account for Mr Carr. Until a late stage Mr Simms was not aware of this, and the judge held that, in Mr Simms' mind, the funds were held to the order of Mr Carr. Also on 14 May Mr Anderson gave Mr Simms a copy of the limited power of attorney. On 18 May 1998, Mr Adkins and (subsequently) Mr Anderson asked Mr Simms to release the sum and he refused to do so without express authority from Mr Carr. He realised that what was proposed marked a significant departure from the arrangements previously agreed. The same evening, Mr Carr sent him the following instruction, dated 18 May 1998, and referred to below as "the instruction":-

"Dear Mr Simms,

The funds transferred by me, by International funds transfer, routing particulars attached, to your Client account from my account at Yorkshire Bank are to be applied in accordance with the Agreement between myself and Kelci Management Consultants and the Limited Power of Attorney I gave to Charles Weaver and Michael Adkins.

I instruct you to transfer the funds to the Kelci Management account in order that the limited Power of Attorney applies."

14. As I have said, Mr Simms was surprised that no security was being given as originally contemplated. Accordingly on 18 May 1998 he sent the following letter to Mr Carr in Australia (this letter is referred to below as "the overnight letter"):-

"Dear Mr Carr,

Kelci

This is to notify you that we have received the funds from the Yorkshire Bank.

Messrs Adkins and Weaver wish to exercise the Limited Power of Attorney to move the funds to an account at Natwest Bank in Jersey under their control. They would then become responsible for providing the security to you in accordance with the terms of the power of attorney, but there would be no way that I could monitor this or tell you that it has happened.

As your funds are in our client account in your name and not in the name of Kelci, I am not prepared to transfer the funds without any security unless you expressly so [sic] authorise me to do so by signing and returning a copy of this fax. Adkins and Weaver say that you are well aware that they are to have complete control of the funds under the power of attorney but I wish you to expressly authorise a transfer out of my account where I will have no control and hold no security on your behalf."

15. This letter crossed with the instruction, which Mr Simms did not see until 19 May. The judge found that Mr Simms took it to be an instruction to transfer the monies from Mr Carr's client account to Kelci's client account. On the morning of that day, Mr Simms and Mr Carr spoke on the telephone. (I refer to this conversation below as "the conversation"). Mr Simms' account of this conversation was not challenged. Mr Simms explained to Mr Carr that the reason that he had sent the overnight letter was to make it absolutely clear to him that he was being asked to transfer funds under the power of attorney to another account which was not connected with Bower Cotton and over which Bower Cotton had no control. Mr Simms' evidence was that in the course of the conversation he gave Mr Carr "the name of DFM Consultants Limited, which appeared to mean nothing to Mr Carr who showed no interest in it". The judge considered that this point was arguably not consistent with the contemporary documentation, and as he concluded that this point was not material he did not reach a final view on it. In the course of the conversation, Mr Simms told Mr Carr that he required the letter back countersigned before he could effect any transfer. Mr Carr told Mr Simms that the overnight letter was unnecessary in view of the instruction but he agreed to return the letter overnight countersigned by him.
16. On 19 May, Mr Adkins presented Mr Simms with a written request signed by Mr Weaver and himself on Kelci's notepaper to transfer Mr Carr's funds to Kelci, and another requesting him to transfer the funds to the account of DFM Consultants Ltd at National Westminster Bank Limited in Jersey. Mr Simms then wrote to Mr Carr acknowledging receipt of the overnight letter as countersigned, stating that Mr Carr had made it clear that the $4m. should be sent out on the instructions of Kelci and giving details of the proposed transfer which he had been given. Later on the same day, Mr Weaver telephoned Mr Simms and said that there had been some problems with National Westminster Bank in Jersey and that they might request Mr Carr's funds to be sent through their Unibank account, but that he would confirm this.
17. On 20 May 1998, Mr Simms received a letter from Kelci to explain that it had moved its investment account from National Westminster to Barclays and that they had decided to transfer funds through "our Unibank account". Even, on that basis, it was clear, in the judge's judgment that Mr Carr was authorising a transfer from Mr Carr's control to Kelci's control. Kelci asked Mr Simms to accept the fax as instructions to make the transfer of funds to Unibank. The holder of the account to which the funds were to be transferred was "Kelly Pahl & Associates".
18. Mr Simms carried out these instructions. He said in evidence that he was happy for the new payee details to be substituted since, so far as he was concerned, he had been authorised by Mr Carr to send the fund at Mr Adkins' or Mr Weaver's instructions and therefore the precise destination of the transfer was not a concern of his. However, on 20 May 1998, he wrote to Mr Carr informing him "out of courtesy" that the funds were to go to Unibank rather than to National Westminster Bank in Jersey. It was from that account that the monies were subsequently misappropriated. Mr Carr saw these letters either in London on 20 May or in Australia on 23 May. Mr Carr did not immediately raise an objection with Mr Simms. He spoke to Mr Anderson who told him that the money had already been transferred to Unibank. He asked Mr Anderson what Mr Simms had had to say about the transfer but Mr Anderson was not able to give any convincing reply. On 2 June and again on 15 June, Mr Carr wrote to Mr Simms, but he did not protest about the transfer to Unibank, rather than National Westminster in Jersey. He did not mention any concern in other correspondence about the investment at the time.
19. There were a great number of issues in the action with which this appeal is not concerned. The only question that arises on this appeal is the extent of the authority which Mr Carr gave to Mr Simms to transfer funds to Kelci.
20. I turn to the judge's conclusions. The judge accepted, as was common ground, that the investment agreement and power of attorney were part and parcel of the same transaction and that the power of attorney was directed specifically to the Solicitor concerned in the operation of the investment scheme because it was only in that context that the reference in it to withdrawing funds made any sense. However, the judge did not form the view that the position of the Solicitor receiving instructions from the attorneys under the limited power of attorney was any different from that of other third parties with whom they might deal. As to the interpretation of the limited power of attorney, the judge rejected the argument that, as the power of attorney only conferred power on the attorney to "assign and invest" the fund "for placement into a secured investment", the power of attorney only authorised funds to be transferred directly into an investment. He also rejected the argument that a transfer of funds under clause 13(b) could only be directly into an investment. He further rejected the argument that, before releasing funds under clause 13(b), Bower Cotton had to ascertain the purpose of the release and obtain confirmation that the intended transferee was a licensed institution or body within clause l(2) of the power of attorney and that the transfer was for the purpose of making investments of the type identified in clause 1(1) of that power. The judge held that once the attorneys gave Bower Cotton an instruction to transfer the fund Bower Cotton were entitled, and indeed obliged, in the absence of knowledge on their part that the agent was intending to misapply monies or otherwise act contrary to the terms of the power of attorney, to act on that instruction. In other words, it was not their obligation, either under clause 13(b) of the investment agreement or under the power of attorney, to take steps to ensure that those claiming to act on the authority of the power of attorney would apply the fund as the power of attorney required. In reaching this conclusion, the judge relied on the general principle of the law of agency, that in the absence of notice to the contrary the third party acting in good faith is entitled to assume that an agent is exercising the power conferred on it by the principal for a proper purpose and he cited Rolled Steel Ltd v British Steel Corporation [1986] Ch. 246 at 292 and Chitty on Contracts, vol. 2, para. 32-067.
21. The judge then turned to the question whether Bower Cotton had notice of a misapplication of the fund. The judge rejected the argument that the faxed letter from Mr Weaver on behalf of Kelci to Bower Cotton on 20 May stating that the transfer was to be through an account at Unibank constituted express notice to Bower Cotton, alternatively put them on enquiry, that the fund was not being transferred for any purpose permitted by the power of attorney. He rejected the argument that Mr Simms must have known that Mr Adkins and Mr Weaver were intending to act dishonestly because the funds were to go into an account in their names. The judge accepted that Mr Simms believed that the money was to go into this account so that it could be invested later (though the judge did not explicitly examine the reasonableness of that belief). The judge held that the reason given for switching destination of the funds was a credible one. The judge was satisfied that Mr Carr contemplated that monies might be held in an account under the control of Messrs Adkins and Weaver in advance of actual investment.
22. The judge then considered Bower Cotton's actual authority. The judge rejected the argument that the only effect of the overnight letter of 19 May was to empower Mr Simms to act in accordance with the terms of the power of attorney, meaning that Mr Simms could only lawfully transfer the money if he was satisfied that it would pass directly into a secured investment or into an investment trading account. The judge held that it was immaterial which bank held the account and that Mr Carr was clearly authorising a transfer as a result of which Messrs Adkins and Weaver would have complete control over the funds. The judge found that when Mr Carr was told that the transfer was to Unibank he was unconcerned about the transfer and accepted it.
23. The judge accepted Bower Cotton's submission that the instruction required Bower Cotton to hold the money to the order of Kelci. Accordingly, Bower Cotton were entitled and bound without further enquiry to pay the money over to Kelci unless they were on notice that Kelci was intending to apply the fund in an unauthorised manner. He accepted that BC's authority and instruction so to act were confirmed by Mr Carr's countersignature on the overnight letter and by conversation.
24. I now turn to counsel's submissions on this appeal.
25. The thrust of the appellant's case, as advanced by Mr Anthony Mann QC, is that on the documentation Mr Simms had no authority. He submits that the documents have to be construed in the light of their factual matrix. He identifies the following elements of the factual matrix. The Solicitor had a key role and Mr Simms appreciated that it was his duty to take security. It was also a relevant background fact that Mr Carr needed to be protected from the attorneys. Bower Cotton were a long-established firm with a good reputation. A considerable sum of money was involved. Mr Mann further submits that the scheme of protection intended to be provided by the investment agreement is set at nought by the judge's construction of the documents: Mr Carr could just as well have drawn a cheque to Kelci direct. As "the Solicitor", Mr Simms was not in the position of a usual third party relying on a power of attorney.
26. Mr Mann submits that under the power of attorney there was a duty to enquire because it was a limited power of attorney and under its terms investments could only be for the purposes specifically mentioned in it. Moreover, investment could only be made in Mr Carr's name: this was said to follow from the words "by or on behalf of the undersigned": clause 13(b) of the investment agreement could only authorise a transfer into Mr Carr's name, which the transfer to Unibank was not. Mr Mann's primary case was that any transfer had to be into an investment, but he reluctantly accepted that a transfer of funds could be into an intermediate account, provided that intermediate account was also in Mr Carr's name.
27. Mr Mann submits that the fax from Mr Adkins saying that the transfer would be to Unibank put Bower Cotton on express notice since that account would not be within paragraph 1 of the power of attorney. This was not an account in Mr Carr's name nor was any form of "investment trading account", as he termed it.
28. As respects the instruction, Mr Mann submits that it was clear from its terms that this was given simply in order that the power of attorney should apply. Mr Simms did not treat it as entitling him to treat the money as in Kelci's account.
29. Mr Mann submits that the overnight letter made it clear that the power of attorney applied and the only difference was the absence of security.
30. As respects the conversation, the judge did not place much reliance on it although he found that discussion was in relation to a transfer under the power of attorney. Accordingly, Mr Mann submits that the conversation was only relevant as background. Mr Carr was not at any stage told about the proposal to transfer funds to Unibank before the transfer was made.
31. As respects the alleged requirement for any transfer of funds to be directly into an investment, Mr Steinfeld relies on the unqualified terms of clause 13(b) of the investment agreement and the fact that any transfer was stated to be without liability on the part of the Solicitor. In addition, the appellant's construction would mean that the Solicitor had some special duty on the initial transfer which he could not have subsequently because the funds would then no longer be under his control. Mr Steinfeld also relies on clause 14(a)(iii) which, in his submission, shows that the Solicitor's duties were only to be as specifically provided in the agreement and to be administrative in nature. In response to this, Mr Mann submits that the word "administrative" in paragraph 14 of the investment agreement could not detract from the proper characterisation of the Solicitor's responsibilities under the investment agreement.
32. Mr Steinfeld submits that Mr Simms could only be liable as a constructive trustee who gave assistance in the trustee's breach of trust. For this purpose it would have to be shown that he was dishonest (see Royal Brunei Airlines v Tan [1995] 2 AC 378).
33. Mr Steinfeld relies also on the overnight letter. This made it clear that once the transfer had taken place there would be no security. Mr Carr was unconcerned about the transfer after he was told that it was to Unibank. The countersigned letter clearly told Mr Carr that the fund would following transfer be under the complete control of Messrs Adkins and Weaver. The precise destination was irrelevant.
34. Mr Steinfeld submits that as Mr Simms was dealing with Mr Carr's agents he is not liable for any act done by those agents in excess of their authority unless he was on notice that they were exceeding their authority. He relies on Bowstead and Reynolds on Agency 16^th edition, para.8-054. Mr Simms was not on notice in this case.

Conclusions

35. The starting point is, as Mr Mann submits, the documentation. I do not accept Mr Mann's submission that the investments had to be placed in Mr Carr's name or that if money was transferred to an intermediary account that account too had to be in Mr Carr's name. There is nothing in the documentation which states this expressly and the words "by or on behalf of the undersigned" used in the power of attorney are equivocal. However, I accept his submission that the investment agreement and the power of attorney have to be read together in the light of each other and the rest of the factual matrix. Accordingly, despite its wide wording, clause 13(b) of the investment agreement does not authorise a transfer to anyone whom the attorneys chose, but only a transfer in accordance with the power of attorney. What steps did Mr Simms have to take to satisfy himself that the attorneys were acting within the terms of the power of attorney? In the judge's judgment, Mr Simms' only responsibility in law was to give effect to the attorneys' instructions unless he was on notice that they were proposing to transfer funds in breach of trust. Mr Mann criticises that conclusion, in my view with some force, on the basis that in reaching it the judge treated Mr Simms as in the position of any third party, vis à vis the attorneys, and without regard to the special responsibilities imposed on the Solicitor under the investment agreement.
36. However, it is not necessary to resolve these or any of the other difficult points of construction which arise on this badly drafted documentation. Mr Simms took a cautious view of the agreements and sought specific authority. He was not content to act on the basis that clause 13(b) appeared to authorise a transfer "without liability" on his part. Mr Simms realised that security was not being taken and therefore correctly, in my view, regarded the proposed transfer as outside the terms of the investment agreement.
37. Accordingly, it becomes necessary to examine the authority which Mr Simms obtained outside the agreement. That authority was constituted by three events, all of which occurred on 19 May 1998 and which were in chronological order:- the communication of the instruction, the conversation and the countersignature and return of the overnight letter.
38. I take those episodes in turn. So far as the faxed letter is concerned, I accept Mr Mann's submission that Mr Simms did not rely on this document as such. However, the authority which Mr Simms obtained did not have to be any single document nor yet in writing at all. Moreover, since the episodes occurred in quick succession it is in my judgment appropriate to consider the position arrived at at the conclusion of those events as the culmination of what went before and thus to look at each of the episodes in combination with the other. Thus, the faxed instruction and the conversation form part of the factual matrix against which the overnight letter, which is countersigned by Mr Carr subsequently to those events, is to be interpreted.
39. The instruction was, read literally, a nonsense. Mr Carr had written that Mr Simms was "to transfer the funds to [Kelci] in order that the limited power of attorney applies". However, if the funds were transferred to Kelci, the limited power of attorney would be irrelevant. The power of attorney was only relevant so long as the funds remained invested in Mr Carr's name. But it would be a mistake to conclude that the instruction had no significance. It throws light on what Mr Carr was intending to achieve and had in mind: namely, that the funds should be placed under Kelci's control.
40. I turn next to the conversation. There are a number of points to note about the judge's findings on this. First, the judge accepted Mr Simms' version of this conversation. It would in my judgment have been of some significance if he had found that the name of DFM Consultants was mentioned and that (as Mr Simms deposed) Mr Carr did not know who they were but expressed no concern. Second and more important, however, is the point that Mr Carr thought that the countersignature of the overnight letter was unnecessary. This could only be on the basis that he had already authorised a transfer to Kelci and that would enable Kelci to direct how the funds were to be dealt with. He was not concerned to have security or to see that the investments were placed in his own name. Accordingly, the transfer of the funds to an account in Jersey under Kelci's control, but not necessarily in Kelci's name, would only be achieving by one step that which Mr Carr had contemplated could be achieved by two on the basis of the instruction. Thus the impression which Mr Carr must have created in the conversation to any reasonable bystander was that Kelci was to have control of the funds.
41. Mr Carr then countersigned the overnight letter and returned it. While the second paragraph refers to the proposal by Messrs Adkins and Weaver to move the funds to an account at National Westminster in Jersey, the final sentence is in rather wider terms. The question arises whether at the point in time Mr Carr countersigned the letter he was intending to give authority only in relation to the specific proposal mentioned in the second paragraph or whether he was giving authority more generally for a transfer of the funds to the control of Kelci without security.
42. In my judgment, while the letter on its own would not necessarily have that meaning, once the conversation had occurred, any reasonable person, hearing what Mr Carr said and having the background knowledge which Mr Simms had, would have treated the authority as in more general terms. Mr Carr had made it clear through the instruction that he wanted the funds to be placed under Kelci's control and that he did not require any safeguard. Mr Simms' letter confirming the conversation, written on the same day, is consistent with this interpretation since he said of the conversation "I have also spoken to you and you have made it clear that you are happy that the funds that were sent to my account should be sent out on the instructions of Kelci and that you are fully aware that I would have no power or control or supervision of the funds once they left our account." Mr Carr's conduct was also consistent with this interpretation since he took no step to challenge the transfer to Unibank before he discovered that the funds had gone astray. His subsequent acts cannot, of course, be used to construe the terms of the authority which he had already given (see L.Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235) but this rule does not prevent such acts from throwing light on what it is that Mr Carr communicated by his words and conduct at that time the authority was given.
43. The judge's analysis was somewhat different. He relied more on the terms of the instruction and the overnight letter rather than the three events which I have identified in combination. He placed little emphasis on the conversation although Mr Simms had described it in evidence as "pivotal" to what happened thereafter. In my judgment, the conversation was very significant because it confirmed to Mr Simms that Mr Carr was prepared to authorise the transfer of the funds and moreover that Mr Carr's overriding instruction was that the funds should be placed under Kelci's control and not that they should be transferred to any specific account.
44. In the circumstances, I would dismiss this appeal.

Lord Justice Chadwick :

45. I, too, would dismiss this appeal.
46. On 15 May 1998 the sum of US$4 million was transferred from the appellant's account with Yorkshire Bank plc to the client account of the respondent firm with its bankers in London. On 20 May 1998 those funds were transferred by the respondent firm from its client account to an account in the name of "Kelly Pahl & Associates" with UniBank, Copenhagen. The only question on this appeal is whether the respondent firm had authority from the appellant to make that transfer.
47. I agree with Lady Justice Arden that the answer to that question is not readily to be found in the formal documentation, comprising (as it does) the limited power of attorney signed by Mr Carr on 7 May 1998 and the investment agreement signed by him and others on 13 May 1998. The provisions in sub-paragraphs (a) and (b) of clause 13 of the investment agreement are not easy to reconcile. Sub-paragraph (a) requires that "the Solicitor" (meaning the respondent firm) was to protect the funds transferred by Mr Carr ("the Fund") and make no investment or other distribution of the Fund, "except to Participant [meaning Mr Carr]" unless there were some security in place in respect of the investment. Sub-paragraph (b) requires and authorises the Solicitor "without liability, . . . [to] . . . transfer Fund upon direction by the designated Limited Power of Attorney". Two issues could have arisen on those provisions. First, whether the effect of the words "except to Participant" in sub-paragraph (a) was that the respondent firm could invest, distribute or transfer the Fund to Mr Carr or at his direction, without the need either for any security or for the assent of Kelci Management Consultants Limited as the other party to the agreement. Second, whether the respondent firm was required and authorised by sub-paragraph (b) to transfer the funds to or at the direction of Kelci (or at the direction of Kelci's directors, Mr Adkins and Mr Weaver) and without the need for the assent of Mr Carr other than for the purpose of an investment secured by a guarantee within the contemplation of sub-paragraph (a). In the events which happened, however, it is unnecessary to address either of those issues. The respondent firm made the transfer out of its client account on 20 May 1998 on the basis that it had been directed to do so by Kelci, by Mr Adkins and Mr Weaver (in so far as they had any role independent of Kelci) and by Mr Carr. The authority on which the respondent firm relied is to be found outside the formal documentation. The relevant question is whether the transfer which was made was within the scope of the direction actually given by Mr Carr.
48. The answer to that question turns on the effect of the letter sent by Mr Simms, the relevant partner in the respondent firm, to the appellant, Mr Carr, overnight on 18/19 May 1998 when countersigned by him on 19 May 1998. Lady Justice Arden has set out the text of that letter in her judgment. Put shortly, the issue is whether Mr Simms was entitled to take Mr Carr's countersignature to the overnight letter as the authority which he had sought in the final sentence of that letter – "I wish you to expressly authorise a transfer out of my account [to an account under the control of Adkins and Weaver] where I will have no control and hold no security on your behalf" – or whether the authority was limited to the transfer described in the first sentence of the second paragraph – "to move the funds to an account at Natwest Bank in Jersey under their control".
49. The overnight letter must be read in the factual context in which it was countersigned by Mr Carr. In particular, it must be read in conjunction with Mr Carr's own instruction to Mr Simms, dated 18 May 1998 but first seen by Mr Simms on 19 May 1998, and the telephone conversation between Mr Carr and Mr Simms on the morning of 19 May 1998. I agree that, when the overnight letter is read in that context, there is really no doubt that Mr Simms was entitled to understand that he was being given the authority which he had sought in the final sentence of the letter. He was entitled to act thereafter on the basis that, notwithstanding the absence of security, Mr Carr wished him to transfer the funds out of his client account and into an account under the control of Mr Adkins and Mr Weaver over which he (Mr Simms) would have no control. In particular, he was entitled to act on the basis that the name in which, or the bank at which, the account into which the funds were to be transferred was held were matters of no concern to Mr Carr.
50. The effect of the overnight letter must, of course, be ascertained by construing its terms objectively in the light of the circumstances known to Mr Simms and Mr Carr at the time when that letter was countersigned by Mr Carr. But where those circumstances include a conversation between Mr Simms and Mr Carr (both solicitors) as to the need for, and purpose of, Mr Carr's countersignature on the letter - which immediately preceded the act of countersignature - it is, I think, pertinent to note that both acted thereafter on the basis that Mr Simms had been given the more general authority which he had sought in the final sentence of the letter and was not constrained by the description, in the second paragraph of the letter, of a particular transaction then in contemplation.
51. I share Lady Justice Arden's concern as to the circumstances in which Mr Simms and the respondent firm became involved in the holding of "client monies" under the terms of the investment agreement; but it may fairly be said that, whatever shortcomings Mr Simms may have exhibited in relation to this transaction, he did, at the least, appreciate that what he was being asked to do on the morning of 19 May 1998 was wholly inconsistent with the protection which he thought that Mr Carr had been intended to have under the arrangements which had been put in place under the investment agreement. In those circumstances he may be seen, in the context of the telephone conversation on the morning of 19 May 1998, as a competent solicitor seeking instructions on a point the importance of which he had identified. It has not been suggested that he had any interest in interpreting the instructions in one sense rather than in the other. The judge made no criticism of his integrity. His understanding of the instructions which he had received is evidenced by what he did on receipt of the countersigned letter.
52. A solicitor's understanding of instructions which he has received cannot, of course, be determinative. If the instructions are contained in a document, the court's task is to construe the document. But, where the document has been signed by the client immediately following a discussion between client and solicitor as to the need for it, the solicitor's contemporary understanding as to the instructions which he has been given in that document is, to my mind, a powerful indication of the meaning which they both intended the words used in that document to bear. And that indication is the more powerful where the client is himself a solicitor and acts in a way which is consistent (and only consistent) with that meaning.

Lord Justice Ward :

53. For my part I might have been open to persuasion that the terms of the investment agreement and the limited power of attorney, badly drawn as they were, nonetheless allowed Mr Simms to proceed as he did. It is, however, not necessary for me to come to any firm conclusion about that because the matter is put beyond doubt by the subsequent correspondence and conversations. I have no doubt that Mr Carr decided, for whatever reason, and it is not easy to see a good reason, that the $4m. entrusted to him could be placed at Kelci's disposal for investment by Messrs Weaver & Adkins as they thought fit. He wished Kelci to invest the money so that he could begin to enjoy the promised fantastical profit. He was indifferent whether the money was being transferred to Kelci, to DFM Consultants at National Westminster Bank, Jersey, or to Kelly Pahl & Associates at Unibank, Copenhagen. Mr Simms, whose initial participation in the arrangement was disturbingly lax, at least now tried in vain to warn Mr Carr that the fund was passing out of his control with no security apparently in place. Mr Simms did what Mr Carr wanted him to do and there is no justification now for his claim that Mr Simms did so without authority. In the result I agree with Arden and Chadwick L.JJ that this appeal should be dismissed for the reasons they give.