Plaintiff v Defendants

4 The terms of the joint venture were vague. Mr Kambouris was to provide constructions services; Mr Kiatos was to provide legal and bookkeeping services; and Mr Floros was to provide finance. It is not necessary for the present purposes to further define the relationship, although it seemed probable that the parties assumed that any profits would be divided as to onethird each. Presumably, the parties intended that Mr Kambouris would be paid for his building services, that Mr Kiatos would be paid for bookkeeping and legal services, and that Mr Floros would charge interest on any advances.

5 The joint venture required funds, but the role of Mr Floros, as financier, seemed shortlived. He was a pensioner. The bank would not advance funds to him or rely upon his security to support advances to the business. It was in those circumstances that the plaintiff, who owned three properties, was induced to mortgage the properties to the bank as security for the borrowings by BTC. In June 2005, BTC obtained three lines of credit from the National Australia Bank Limited. There was an overdraft with a limit of $400,000, a bank guarantee facility with a limit of $260,000 and a mortgage facility of $234,000.

6 The agreement dated 4 July 2005 was made between the plaintiff, BTC and Mr Floros. It recorded the background and the obligation of Mr Floros to provide a mortgage of his property in East Bentleigh in favour of the plaintiff. The agreement concluded:

This agreement is to be a continuing agreement and shall remain in full force and effect until Jenny's properties are released by the bank and shall not be determined by the death of any party.

7 The plaintiff alleged that around the same time as the agreement with Mr Floros was made, Anna Papakostas, the wife of Mr Kiatos, had also agreed to indemnify her for any liability she may have to the bank, and had agreed to secure that obligation by a mortgage over her property in Loch Sport. A draft agreement had been prepared between the plaintiff, BTC and Ms Papakostas in substantially the same form as the agreement dated 4 July 2005, although never executed.

8 The position of Mr Kiatos, as solicitor for the plaintiff, was compromised by his relationship with Mr Floros and the plaintiff's husband as coventurers and as the husband of Ms Papakostas, who was to provide security to the plaintiff. Nevertheless, he prepared the agreement dated 4 July 2005 to which Mr Floros was party, although engaged the third defendant, Ms Gorenstein, as an 'independent' solicitor to advise the plaintiff in relation to that agreement. A mortgage was duly given by Mr Floros. Ms Gorenstein subsequently lodged caveats on title of the property mortgaged by Mr Floros and the Papakostas property at Loch Sport.

9 Mr Kiatos apparently instructed Ms Gorenstein to prepare and lodge the caveat on title of his wife's property. The caveat noted the interest claimed by the caveator as a 'deed of agreement dated 7 July 2005' between the plaintiff and Ms Papakostas. In an email dated 6 December 2005, responding to an enquiry from Ms Gorenstein, Mr Kiatos 'attached the proposed agreement that was sent to me whilst I was overseas'. He continued:

It was in accordance with this agreement that the caveat has been lodged against Anna's property.

I confirm that whilst I may have given the go ahead for the caveat to be lodged over that, Theo informed me that he was going through a bad time with his wife and that he had not been home for several days and that the caveat would help his marital situation.

Kindly note that Anna has not signed the agreement, nor is she aware that it even exists.

10 While the business of the joint venture had some early success, it soon turned sour. In 2006, BTC was in financial difficulties, and the joint venture parties decided that they should continue their business through a related entity, Betac Investments Pty Ltd. New banking arrangements were required under which Betac became borrower and BTC's obligations to the bank would be discharged. In October 2006, the BTC facilities were paid out and Betac became the borrower from the bank.

11 Not surprisingly, the bank did not discharge the plaintiff's mortgages. The plaintiff alleged that there was an agreement made at around that time with Mr Floros, in which he confirmed that the security given by him would continue to support her liability to the bank under the new arrangements between Betac and the bank. Mr Kiatos participated in those conversations and assured the plaintiff that her exposure was protected by the agreement and the mortgages, including security given by his wife.

12 When the trial commenced on 20 March 2013, the estate of Mr Floros and Mr Kiatos were both represented by counsel. The remaining claims were those brought by the plaintiff against Mr Floros, under the mortgage, and Mr Kiatos, for breach of retainer or duty of care as her solicitor. The trial did not proceed smoothly. After a day, the proceeding was adjourned partheard to 25 March 2013 when the Court was informed that the plaintiff and the first defendant had resolved their differences. On the previous day, counsel for Mr Kiatos had been unexpectedly hospitalised, and so the proceeding was further adjourned until 8 May 2013. Shortly prior to the resumption of the trial, Mr Kiatos filed a notice withdrawing his defence. He also applied, as solicitor on the record in his own cause, for leave to withdraw. On 8 May 2013, leave was granted. On that day, a solicitor representing Mr Kiatos' professional indemnity insurer sought leave to appear, having been advised of the steps that had been taken by Mr Kiatos to withdraw from the case. The trial was again stood over so that the plaintiff could consider what course to take; whether to seek leave to enter judgment in default of defence, or proceed with an undefended trial. Ultimately, the plaintiff elected to proceed with the trial and gave evidence.

13 By reference to the amended defence of Mr Kiatos, dated 4 March 2013 but subsequently withdrawn, he proposed to contend: (1) that he did not act as the plaintiff's solicitor, save for preparing 'solicitors certificates' in November 2006 and May 2007; and (2) that the plaintiff well knew that the agreement prepared for execution by Ms Papakostas had not been executed. He alleged that the plaintiff knew that he could not provide 'commercial advice as to the desirability of entering into the guarantee and indemnity'.

14 The breach of retainer and duty of care alleged by the plaintiff against Mr Kiatos may be summarised as follows: that on about 7 July 2005, Mr Kiatos, as her solicitor, instructed Ms Gorenstein to prepare and lodge a caveat over the property of Ms Papakostas at Loch Sport; that Mr Kiatos owed her a duty to ensure that the indemnity agreement prepared for signature by Ms Papakostas had in fact been signed, or to notify her if it had not; and that Mr Kiatos knew that his wife had not signed the agreement, and had not authorised the caveat, but failed to inform the plaintiff as his client. The plaintiff claimed to have suffered consequential loss and damage.

15 In my opinion, the evidence compels the conclusion that Mr Kiatos assumed the role of solicitor for the plaintiff in his role as a joint venture partner with her husband and Mr Floros. That was part of what Mr Kiatos brought to the joint venture. His sensitivity about his compromised position led him to engage Ms Gorenstein to undertake certain tasks, but that did not relieve him of his overall duty to the plaintiff when providing legal advice and assistance. Mr Kiatos knew that the agreement had not been executed, but failed to inform the plaintiff. I accept that the plaintiff gave her security to the bank in the belief that she was supported by an indemnity agreement and mortgage given by each of Mr Floros and Ms Papakostas.

16 In his withdrawn defence, Mr Kiatos alleged that the plaintiff knew that the indemnity agreement had not been signed by Ms Papakostas. Mr Kiatos did not give evidence. Ms Gorenstein in fact lodged a caveat dated 7 July 2005 over the land of Ms Papakostas claiming an interest under a deed of agreement dated 7 July 2005 between the plaintiff and Ms Papakostas. Ms Gorenstein did not give evidence. I accept the evidence of Mr Kambouris concerning the assurances that were given to him by Mr Kiatos in October 2006 and, in particular, that security provided by Mr Floros and Ms Papakostas would continue to secure the plaintiff's exposure to the bank under her mortgages. The plaintiff gave evidence of assurances that she was given by Mr Kiatos in around October 2006 during a telephone conversation, about which her husband also gave evidence. The telephone conversation was from the office of Mr Niktas. She said that Mr Kiatos assured her that she was protected by the two mortgages.

17 The plaintiff alleged that in around May 2007, Mr Kiatos was again retained by her to act as her solicitor in connection with further financial accommodates to Betac. She was required to provide a further guarantee. The plaintiff alleged that around the same time, Mr Kiatos was engaged to draw a deed of assignment between BTC and Betac, with a view to protecting her position. There was evidence of Mr Kiatos providing initial instructions to Mr Gerald Parncutt of counsel to 'draw a deed of assignment as between BTC Developments Pty Ltd and Betac Investments Pty Ltd, such deed to take into account the 5 May 2006 agreement entered into between the two companies'. Nothing was apparently produced by Mr Parncutt.

18 When her attention was directed to the solicitors certificate signed by Mr Kiatos on 22 May 2007, the plaintiff had no specific recollection of the circumstances in which that certificate was required, but said that she recalled the event and, as before, sought reassurance from Mr Kiatos that she was protected. She said that Mr Kiatos reassured her constantly, telling her that she was legally protected by having the mortgages in place.

19 The evidence given by the plaintiff and her husband conforms generally with the allegation in the plaintiff's statement of claim that in around October 2006 and May 2007, Mr Kiatos represented to her that both mortgages continued to secure her position in respect of the borrowings by Betac. I am satisfied that Mr Kiatos was acting as the plaintiff's solicitor at the time he gave each of the certificates, with the knowledge that his wife had not in fact executed an agreement or given a mortgage. He was, at the very least, obliged to inform the plaintiff of that fact and alert her to the risk that she only had recourse to the property of Mr Floros. By failing to so inform the plaintiff, Mr Kiatos breached his duty of care, if only to make full disclosure of facts known to him and the associated risk.

20 When the bank ultimately called in the security, the plaintiff was unable to call upon the security she believed had been provided by Ms Papakostas. In my opinion, the plaintiff has suffered loss and damage by reason of the breach by Mr Kiatos, in failing to advise her in October 2006 and May 2007, when she was called upon to provide additional security to the bank, that she was not protected by an indemnity agreement executed by Ms Papakostas that would support the caveat, and a mortgage granted by Ms Papakostas over the Loch Sport property.

21 Accordingly, the plaintiff is entitled to judgment against the second defendant, Con Kiatos, with damages to be assessed.