Ginelle Finance Pty Limited v Diakakis & Ors

Ginelle Finance Pty Limited v Diakakis & Ors - [2007] NSWSC 60 - NSWSC 2007 case summary — Zoe

[16]

11 In relation to his evidence in these proceedings, I thought that he was being deliberately evasive during parts of his cross-examination. Having said that, a partial explanation for his inability to answer questions directly was his tendency to deal with matters in concrete terms, rather than conceptually. I am, however, satisfied that at the time of these transactions, i.e. 2000 - 2001, Mr Diakakis had a sufficient/knowledge of English to understand when mortgages and loan documents were explained to him, in particular, key concepts such as the amount of the mortgage, the length of time of the mortgage, the amount of monthly repayments and the consequences of a failure to repay monies under the mortgage as and when required. The comment which he said he made to Mr Grogan (affidavit, 4 August 2004, para 31) illustrates this: "If they do not pay the loan in one year do you take my home in Kingsford? Make sure if there is any trouble that they have to sell their house." 12 In January 2000 Mr Diakakis was approached by his son, Nikita, and his daughter-in-law, Jenny, who asked him for a loan of $55,000. Although he did not have that amount of money, he agreed to mortgage the property for that amount on condition that they service the loan and that the money was repaid within a year. In the course of undertaking that transaction, Mr Diakakis attended the office of Mr Cassimatis (he conducted his practice from home) and was accompanied by Nikita and Jenny. 13 I do not accept that the discussion with Mr Cassimatis took place wholly in the Greek language. I find that in accordance with my observation of Mr Diakakis and in accordance with the evidence of Mr and Mrs Cassimatis the conversation took place partly in English and partly in Greek. I also do not accept that the discussion took place mainly between Mr Cassimatis on the one hand and Jenny and Nikita on the other with Mr Diakakis being only peripherally involved. I find that the mortgage was explained to Mr Diakakis by Mr Cassimatis and that Mr Diakakis understood the effect of the transaction, ie that unless loan repayments were maintained and the loan was fully repaid, he would lose the property. I accept that Mr Diakakis signed the mortgage and other documents in the presence of Mr Cassimatis on this occasion.

[17]

14 The details of this mortgage transaction were as follows: The mortgage was dated 15 February 2000. The mortgagee was AAA Financial Services Pty Limited. The amount of the mortgage was $55,000. Mr Cassimatis acted on behalf of Mr Diakakis in the transaction. The monies advanced under the mortgage were applied as follows: "AAA Financial Services Pty Limited: Establishment fees (interest brokerage) $11,310. Office of State Revenue (stamp duty) $171. J Diakakis $43,519." 15 It was the evidence of Mr Diakakis (affidavit, 4 August 2004, para 30) that in March 2000 he was asked by Jenny and Nikita to accompany them to a solicitor's office. He said that he thought that the purpose of the visit related to the original mortgage and was surprised to find that he was being asked to enter into a new mortgage for an increased amount of $90,000. He said that he protested but eventually agreed to enter into the mortgage and sign the documents necessary to effect it. Mr Grogan acted on his behalf in this transaction and it was his office to which Mr Diakakis was taken. 16 Mr Grogan had no recollection of the specific matters referred to in para 31 of the affidavit of Mr Diakakis of 4 August 2004. He specifically denied that he ever winked at Jenny Diakakis. His recollection was that he spoke with Mr Diakakis in English, explained the mortgage documents, the nature of the transaction and his obligations under it and that Mr Diakakis appeared to understand the explanation. I accept the version of Mr Grogan. 17 I found Mr Grogan to be a most impressive witness. I formed the opinion that he was doing the best he could to accurately inform the Court about the various transactions with which he was concerned. If there were some kind of disagreement between Mr Diakakis on the one hand and Jenny and Nikita on the other about entering into a new mortgage, it did not occur in the presence of Mr Grogan. I find that nothing occurred in the presence of Mr Grogan to indicate that Mr Diakakis was unwilling to enter into the mortgage and that by the time he attended the offices of Mr Grogan he had agreed to do so. 18 From the point of view of Mr Grogan, in the light of later events, the circumstances leading up to this transaction are important.

[22]

24 In support of the plaintiff's case a number of documents were examined by Michelle Novotny, a handwriting expert. I found her analysis of the documents to be persuasive and convincing. She was not cross-examined to suggest that her conclusions were in any way incorrect. I accept her conclusions as to what documents were signed by Mr Diakakis and as to those which were not. 25 Her opinion presents a problem for Mr Diakakis in relation to this transaction. One of the documents which formed part of it was a statutory declaration, pursuant to s11 of the Consumer Credit Code, dated 21 August 2000, (document 2-031). Ms Novotny's conclusion in relation to the two apparent signatures of Mr Diakakis on that document was that it was possible that the top signature was his and that it was highly probable that the bottom signature was his. In my opinion, both signatures. are those of Mr Diakakis. In relation to the variation of mortgage, the comments of Ms Novotny were somewhat equivocal. 26 On the basis of that evidence, I am not persuaded that Mr Diakakis was tricked into signing the authority to pay directed to Jennifer Diakakis. I am satisfied that Mr Diakakis knew about this transaction. The fact that he signed the statutory declaration dated 21 August 2000, leads me to believe that he also signed the variation of mortgage. In my opinion, Mr Diakakis was aware of this transaction and consented to it. 27 I do not know whether Mr Diakakis actually attended Mr Cassimatis to enable him to witness the statutory declaration and the variation of mortgage. 28 It was the evidence of Mr Cassimatis that on this occasion Mr Diakakis attended his residence but that the documents were already signed when this occurred. In those circumstances all that he did was to have Mr Diakakis acknowledge his signatures on them. Mr Diakakis denied that he ever saw Mr Cassimatis again after their first meeting on 15 February 2000. For reasons which I will explain in due course, I accept the evidence of Mr Cassimatis and his wife that Mr Diakakis did attend at the home of Mr Cassimatis more than once, although I am not sure whether he did so on this occasion. Because of the findings which I have made in relation to later transactions, it is not necessary to reach any final conclusion on that issue for this transaction. 29 Another transaction took place in relation to the property on or about 12 October 2000. This comprised a non-registered second mortgage securing an amount of $50,000. The mortgagee was AAA Financial Services Pty Limited, which protected its interest in the property by the filing of a caveat. The monies from that transaction were applied as follows: AAA Financial Services Pty Limited (establishment fees, interest, brokerage) $9,150 Angus Begg (legal fees) $2,772.50 J Diakakis $37,925.

[30]

My son rang for me and he found out that the loan had now gone to $200,000. 16. After I received that letter Nikita and Jenny came down and saw me. They asked me to sign lots of other papers. They had a cheque from the St George Bank for $25,000. They said that they wanted the interest rate to drop down and that is the reason they want me to sign the papers. They tell me "no trouble". 17. These papers like the others were written in English. I signed them. I have no idea what I signed for that day. Both of them asked me for my driver's licence so that they could photocopy it. They took my licence with them and I Understand that they went and colour photocopy it in Kent Street in the city. The then brought my licence back to me." 39 Phillip Diakakis gave evidence in the proceedings. In his affidavit sworn 5 September 2006 he referred to this transaction as follows: "18. At a time I cannot recall my father told me that whilst he was at his friend's take-away shop, Nikita had asked him to come outside as they had papers for him to sign. I also recall that my father mentioned that they showed him a cheque for $25,000. I telephoned Mr Cassimatis, solicitor, at about that time at the request of my father. I said to him words to the following effect "My name is Phillip Diakakis, Michael Diakakis' son. I'm inquiring about the loan he's got." He said to me words to the following effect, "You are not my client and it is none of your business." I said, "Thankyou" and hung up." 40 In a statement made to the police on 9 November 2001 (exhibit D), Phillip Diakakis said in relation to this transaction: "4. About 20th February 2000, my father rang me up at about 4-4.30pm and he asked me to read him a letter he got in the mail. I went home and I read a letter from AAA Finance Services dated 18 February 2000. 5. I read the letter and I did not understand why this was sent to my father. This letter was a thank you for using their business to secure mortgage finance. I spoke with my father and he told me that he had only authorised a loan for Nikita and Jenny for $90,000 the year before. 6. I telephoned AAA Finance and spoke to Jason Pecotic. I asked him what this was all about. Mr Pecotic told me that my father owed $200,000 to the solicitor. I told him that my father only owed $90,000. Mr Pecotic stated that someone had taken out a loan to $200,000. He asked me who I was and I told him I was Michael Diakakis' son. He refused to tell me anymore. Although he did ask me if I was Jenny's husband." 41 In his evidence at trial, Phillip Diakakis said that the first time he had spoken to Mr Pecotic was in October 2001 (T.67.41) and that back in 2000 and 2001 he had not heard of AAA Finance (T.68.36). Under cross-examination the following evidence was given: "Q. And when you saw the amount of $200,000, that concerned you; is that correct? A. Yes. Q. Because as far as you knew there was only $90,000 that had been borrowed from AAA? A. Yes. Q. Did you ring Mr Jason Pecotic? A. Yes I did. Q. And you had a conversation with him? A. Yes I did. Q. Putting it in his words and your words, can you remember what you said to him? A. He just reassured me and said that everything was OK and if they borrowed again they would take the house. Q. He told you there was $200,000 owed to a solicitor? A. No. Q. He didn't tell you there was $200,000 owed by your father to anyone? A. He told me that they had taken out a loan for $200,000 but he didn't tell me who they owed it to.

[38]

46 I find that as of 3 November 2000, Mr Diakakis was aware of and had consented to all of the transactions affecting the property,: which had occurred between 15 February 2000 and 3 November 2000. He had signed all the necessary loan documents and had certainly attended the office of Mr Cassimatis on a number of occasions, although I am not sure whether he had done so on every occasion when Mr Cassimatis was acting for him. I am, however, satisfied that he did so attend on 1 November 2000 in relation to the mortgage for $200,000 in favour of Albert Ling. I am satisfied that up to and including 3 November 2000 when that mortgage was taken out, there was no conduct on the part of Mr Grogan or Mr Cassimatis which had caused damage to Mr Diakakis. 47 It is surprising that an experienced solicitor such as Mr Cassimatis witnessed documents produced to him which were already signed, rather than insisting that they be signed in front of him or signed again in front of him. Such conduct is at least partially explicable if the signatory to those documents attended and personally confirmed that he had signed them. If that be the case (as I have found), it further explains the subsequent conduct of Mr Cassimatis in purporting to witness documents which he believed had been signed by Mr Diakakis where Mr Diakakis did not attend to confirm that the signatures were his. One can speculate as to whether such a situation had been deliberately brought about by Jenny Diakakis in having the loan documents for these earlier transactions already signed on the occasions that Mr Diakakis attended upon Mr Cassimatis. 48 A further transaction affecting the property occurred on 5 January 2001. This comprised a variation of the mortgage in favour of Mr Ling by increasing the amount of the loan to $235,000. Mr Cassimatis apparently acted on behalf of Mr Diakakis and Mr Grogan acted on behalf of Mr Ling. The additional loan monies were applied as follows: Grogan & Webb (costs etc) $3,193.60 T Diakakis $31,806.40.

[50]

65 The refinancing transaction settled on 19 October 2001. It comprised a first mortgage in favour of Permanent Custodians Limited in the sum of $371,000 and a second mortgage in favour of Ginelle Finance Pty Limited in the sum of $26,500. In due course both mortgages were registered. Nikita Diakakis appeared on the documents as a co-borrower. The loan monies were applied as follows: "RL Kremnizer & Co (costs, stamp duty, brokerage) - $16,815 Mr Ling (repayment) - $259,214.11. Mr Chen (repayment) - $43,040.04 Grogan & Webb (costs and disbursements) - $4,116.65 J Diakakis - $74,341.20" 66 At no time during the refinancing transaction did Mr Grogan ever have personal contact with Mr Diakakis, either by phone or in conference. 67 A file note made by Mr Grogan's secretary and dated 16 October 2001 setting out a telephone conversation with Jenny Diakakis indicated that so far as Jenny was concerned there was considerable urgency associated with the refinancing transaction. The file note relevantly recorded: "20 minute call from Jenny Diakakis seeking urgent update. Needs funds very urgently. Being pressured from "another source". This is not her problem - she is "helping out a friend" - she expected to settle yesterday. Jason of AAA said it would settle today. Kremnizer has the money and is ready. Said - Kremnizer is returning some documents today which need more signatures and further completion. She said why couldn't he fax them? Explained that he would require the original. She will collect as soon as they arrive - said I would expect them in our offices by DX this morning. She wants us to fax as soon as she returns them, with the promise that they will be sent by DX tonight. Re: Accountant's certificate. This was faxed by Jason yesterday. They have got that. Said they will need the original. She asked what else is outstanding. Said I was faxing Kremnizer at the moment with an update and some of the balance of requirements (it was 11 am). She said she understood that Mr Grogan had said to Jason that everything would be sent by 10am this morning and that there would be no further outstanding requirements. Said I was working on it and was about to send it, but that there were still a couple of things to come - e.g. 149 certificate, which would be faxed to me on Thursday. I would see if they would settle on an undertaking - provided we could get a settlement date out of them. They said they need three days. She said that is not her understanding. They can give her a cheque as soon as they have the documents. She wants to pick up the cheque immediately. Explained that we would have to formally settle - we would not hand over the title documents without seeing the colour of their money. She understood that, but it must happen quickly - she will probably go to settlement to pick up cheque. We to ring her when documents arrive. She asked me for an indication of payout figure. Said I had not checked Mr Grogan's figures, but it appeared to be in the $70,000's... She horrified - was expecting over $90,000. Reminded her of 'the problems with payments to Mr Ling which now had to be paid at interest penalty rates." 68 Urgency on the part of Jenny Diakakis was reflected in a letter from Grogan & Webb to RL Kremnizer dated 17 October 2001 as follows: "We refer to the above matter and advise that the mortgagor has now completed the documents, and a copy is faxed herewith. The originals will be hand delivered to you by Mrs Diakakis within the next hour. We enclose Letter of Conduct. The original will be handed to you on settlement. Our clients wish to settle this matter tomorrow. Would you please confirm that this will be in order. Settlement will take place at the offices of our Law Stationer, Legalink, Level 8, 170 Phillip Street, Sydney. Would 2.30pm be convenient to you?

[76]

94 As previously indicated, I found Mr Grogan to be entirely honest. Where his evidence is in conflict with that of Mr Diakakis, I accept the evidence of Mr Grogan and reject the evidence of Mr Diakakis. 95 The case against Mr Grogan relied at least in part upon Graham v Hall & Anor [2006] NSWCA 208. That case does not impact directly upon the matters which I have to decide. Although there is some factual similarity between the situation of the solicitor in that case and Mr Grogan, the solicitor did not appeal and accordingly the Court of Appeal did not have occasion to examine his conduct. Moreover, what. appears to have been decisive in the decision of Williams DCJ at first instance in relation to the solicitor was the following: "21 Williams DCJ pointed out that in cross-examination Mr Gelin had conceded that, when acting for Mrs Hall in regard to the mortgage transaction, he heard "alarm bells". This was because he knew that Mr Hall had a propensity for bad management of his business and had had difficulty in the past in paying his debt. Moreover Mr Gelin had been told that Mrs Hall was dying of cancer but, nevertheless was about to enter into a refinancing of the mortgage as a consequence of Mr Hall's business debts. Another cause for concern was that, after payment of the existing mortgage and some business debts of $9,000 the rest of the money advanced was to paid to Mr Hall alone." (Graham v Hall [21].) 96 The legal basis for the claim against Mr Grogan is that he had accepted a general retainer from Jenny Diakakis to act on behalf of Mr Diakakis as mortgagor in the refinancing transaction. Because of that relationship Mr Grogan owed a duty to take reasonable care to protect the interests of Mr Diakakis. Included in that 'duty was an obligation to satisfy himself that Mr Diakakis understood and consented to the refinancing transaction. 97 Factually the case against Mr Grogan is that there were sufficient indicia to sound "alarm bells" even though Mr Grogan was not in fact sr6 alerted. In those circumstances it was submitted that he should have confirmed that he did have instructions from Dr Diakakis. The claim against Mr Grogan is pleaded in tort only.

[86]

101 In resolving the question of the liability of Mr Grogan, it is essential not to engage in hindsight reasoning. One has to, as best one can, place oneself in the position of Mr Grogan as it was in October 2001 with the knowledge that he then had available. One then has to assess his actions as best one can from that standpoint. (Vairy v Wyong Shire Council (2005) 80 ALJR 1 at [61] Gummow J, [126] Hayne J.) 102 The method of reasoning approved in Wyong Shire Council v Shirt (197980) 146 CLR 40 at 47 provides some assistance. Quite clearly it was reasonably foreseeable had Mr Grogan turned his mind to the question, that Mr Diakakis may have been unaware of the refinancing transaction. That risk could not be regarded as far fetched or fanciful. 103 What then has to be assessed, on the basis of the information available to Mr Grogan at the time, is what a reasonable solicitor would have done in response to the foreseeable risk. This involves a consideration of the magnitude of the risk and the degree of the probability of its occurrence along with the expense, difficulty and inconvenience of taking alleviating action. In this case it was generally accepted that there was little inconvenience or cost involved in taking appropriate alleviating action, i.e. in contacting Mr Diakakis directly. 104 Although the matter is finely balanced and certainly not without difficulty, I have concluded that in fulfilling his duty to Mr Diakakis, Mr Grogan should have made personal contact with him to satisfy himself that Mr Diakakis was aware of and consented to the refinancing transaction. It was not sufficient for him to rely upon the documents signed by Mr Cassimatis. In a straight forward mortgage transaction it might be sufficient for Mr Grogan to rely upon documents signed by another solicitor, but in this case there were special circumstances which required him to do more. There were unusual circumstances associated with this transaction. Taken on their own they may not have required Mr Grogan to personally satisfy himself that Mr Diakakis was aware and consented to the refinancing transaction. Taken in combination, however, they should have sounded "alarm bells" with Mr Grogan. 105 As the solicitor for Messrs Ling and Chen, Mr Grogan knew that there had been a default in excess of four months in interest payments in respect of a total loan of $250,000. He knew that the new loans .mounted to $397,500. He knew that Mr Diakakis as a pensioner could not himself meet the interest payments required under the new loans. Mr Diakakis would have to rely upon others, in particular Jenny and Terry Diakakis, to make those payments. Yet they were the very persons who had apparently let Mr Diakakis down in respect of the Ling and Chen transactions when interest payments were significantly less. There was nothing told to him to suggest that the financial position of Jenny and Terry Diakakis was any better in October 2001 than it had been in June 2001 when default on the earlier loans had taken place. Mr Grogan, had he turned his mind to it, must have realised that in entering the refinancing transaction, there was a strong likelihood of a default under the new mortgages in which case Mr Diakakis would almost certainly have to sell the property.

[87]

106 Mr Grogan was also aware from the four transactions with which he was involved, that the beneficiaries of the monies raised against the property were Jenny and Terry Diakakis, not Mr Diakakis. The urgency with which Jenny Diakakis sought to have the refinancing transactions finalised so that additional monies could be made available to her was an indicator not only that she and Terry were unlikely to be able to meet the interest payments, but that she had a significant personal interest in the refinancing transaction being finalised. This should have been a matter of concern when she was the sole conduit for all instructions. 107 Against that background the fact that he had not had any personal or direct contact with Mr Diakakis, but had only dealt with him through Jenny Diakakis, should have caused the "alarm bells" to ring had Mr Grogan turned his mind to those matters. Breach of duty has been established against Mr Grogan. 108 There was evidence before me on this question from Mr Tzannes, a.very experienced solicitor in conveyancing matters. His evidence was put forward as that of an expert in relation to the conduct of Mr Grogan. I have not referred to that evidence in my analysis of the breach of duty question insofar as Mr Grogan is concerned. I have formed the opinion that this was not a question which required expert opinion and I have relied upon my own normative assessment of what Mr Grogan's response should have been to the circumstances as he understood them. 109 In relation to the causation question, the proposition put forward on behalf of Mr Grogan is simply another version of the "but for" test. The proposition is undoubtedly correct. "But for" the conduct of Mr Cassimatis, the refinancing transaction of 19 October 2001 would not have proceeded. The "but for" test, however, is not the definitive test of causation (March v E and MH Stremare Pty Limited & Anor (1990 - 1991) 171 CLR 506. 110 The High Court made it clear in that case that causation is essentially a question of fact to be answered by reference to common sense and experience. Specifically the Court made it clear that one could have multiple causes for a loss and that in such a situation more than one party could be held legally responsible. That is the situation here. Both the conduct of Mr Grogan and the conduct of Mr Cassimatis made a material contribution to the loss which Mr Diakakis suffered as a result of the refinancing transaction of 19 October 2001 being completed.

[104]

"2. We agree to indemnify you against civil liability for a claim that: (a) arises from the private legal practice of the firm ..." 131 Clause 26 contains the following relevant definitions: (a) "claim" means: (i) a demand for, or an assertion of a right to, compensation or damages; … (I) "private legal practice" means the provision of such services as are provided in the normal course of carrying on the business of a solicitor in private practice." 132 If they were the only relevant provisions there would be no issue that Mr Cassimatis is entitled to be indemnified under the Certificate of Insurance in that the damages to which Mr Diakakis is entitled arose from the private legal practice of his firm. AMRE however relies upon the following exclusion: "19(a)(vii) We will not indemnify you under this Certificate of Insurance when: (a) the claim arises from: (vii) any dishonest ,or fraudulent acts or omission of a principal or corporate firm, whether directly or indirectly ..." 133 I have found that in relation to the variation of the Ling mortgage, the Chen mortgage and the two mortgages of 19 October 2001 Mr Cassimatis made a number of false assertions when allowing documents to be provided to Mr Grogan and the lenders' solicitors representing that he had witnessed Mr Diakakis signing the documents when he had not and when he allowed statutory declarations to be provided to those persons knowing the contents to be false, i.e. that he had provided legal advice to Mr Diakakis. 134 In relation to similar conduct on the part of a Justice of the Peace, 1pp JA made the following observations in Graham v Hall: "[88] In attesting the mortgage, Mr Graham made two representations. Firstly, he represented that the person who was Mrs Hall appended her signature to the mortgage did so in his presence. Secondly, he represented that Mrs Hall was personally known to him. [89] The first representation was untrue and was untrue to Mr Graham's knowledge. It was therefore dishonest. …

[105]

[107] Justices of the Peace who sign attestation clauses stating that the declarants have made and subscribed a declaration before them when that is not true commit an act that is the antithesis of their function. Such an act strikes at the heart of the system that they are charged to protect. It constitutes a dishonest misrepresentation and, in my view, is an act done "maliciously" within the meaning of that word in section 135(2) [Justices Act]." 135 Those comments made in respect of a Justice of the Peace apply with even more force to the actions of a solicitor who is an officer of the Supreme Court. 136 Against that background, it is clear that exclusion 19(a)(vii) in the Lawcover Certificate of Insurance has been made out and that AMRE is entitled to refuse' to indemnify Mr Cassimatis in respect of those matters in which Mr Diakakis has been successful against him. Quite clearly "the claim" of Mr Diakakis arises from "dishonest" acts or omissions of Mr Cassimatis. 137 That same exclusion was considered by Young CJ in Eq in Yaktini v Perpetual Trustees Victoria Limited [2004] NSWSC 1078. That case involved a solicitor falsely warranting that persons had signed some statutory declarations before him. Having reviewed the authorities, his Honour concluded that: "52 For purposes of a clause in insurance polices such as the one that I have set out earlier, a person may be dishonest even though he or she had no such intention." 138 On the facts before him his Honour said: "[58] Even though Mr Murphy may well have had no malicious intent, it is clear that his actions in and about sending the documents back to Heidtman & Co and a fortiori his involvement with the St George letter were conscious and misleading which were misleading representations and accordingly, were dishonest within the meaning of the exclusion. One must now turn to the wording of this particular policy which is different to that considered in the leading cases which I have just discussed. The exception is to apply where "the claim arises from any dishonest or fraudulent acts etc."

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