Avoid Commercial Litigation

Avoid Commercial Litigation

Avoid Commercial Litigation

Always get legal advice before signing a document if it involves a large sum of money.  Even simple documents can have unintended consequences and result in litigation.
I have set out below the details of a case in which we were recently involved.

Harry had done well in life and wanted to retire early.  He went looking for the best place to invest.  His accountant offered an investment that appeared to suit Harry’s needs.
Harry was given a document to sign,  it was only a few pages long and it looked simple enough. The document even sounded simple.  It was headed “Application”.  Harry understood in a vague sense what the transaction was about. The document was explained to Harry by his accountant and Harry read the application but, he did not get legal advice, even though the document related to an investment worth more than half a million dollars.
Harry would borrow a large sum of money and invest in an asset. The borrowings would suit Harry’s requirements for an instant tax deduction and the asset would grow in value.
The concept looked ok but, there was a serious problem with the application document!  It included a Power of Attorney. 
You may not know that many documents include Powers of Attorney and these should always be looked at carefully by a lawyer.  The purpose of this power is often to allow one of the parties to sign further documents for the other. 
Having signed the application Harry did not sign, nor see, any other document. The other party (who we will call Fraud Corp) signed everything for Harry and for itself. Fraud Corp signed a document lending money from itself to Harry.  Harry did not get to see the loan document, nor did any money pass through his hands.  Fraud Corp signed the documents relating to the asset and Harry did not get to see that either.  Harry was not even provided with copies.  These were complicated documents, which I feel Harry might not have accepted. However, there was no opportunity to get legal advice,  nor to object, as Harry was not shown the documents before they were signed.
What happened next was that Fraud Corp became insolvent.  The liquidator took the assets of Fraud Corp and sold these, including Harry’s asset. The documents did not protected Harry. 
In normal circumstances one might think that Fraud Corp could not possibly ask for the loan to be repaid, given that they had lost Harry’s assets.  You would probably be right about that but, Fraud Corp did not want to be repaid the loan as it was insolvent.  Instead the liquidator for Fraud Corp sold the loan to a bank. This was really a sale of the right to sue Harry for repayment of the loan.
The end result which is certainly not one that Harry had expected when he signed the “application” is that Harry has lost his asset worth more than half a million and is now being pursued by a bank that he has never dealt with.
The moral of this true story, ,,,,,  do not sign anything unless you get legal advice first!  A good lawyer will help you avoid litigation.
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