Konstandellos v Harplex Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CIVIL LIST

S CI 2014 06596

NIKOLAOS KONSTANDELLOS AND OTHERS (according to the attached schedule)	Plaintiffs
v
HARPLEX PTY LTD (ACN 188 350 074)	First Defendant
KELLY & CHAPMAN (a firm)	Second Defendant

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JUDGE:	Daly AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	2, 3 and 4 November 2016. Written submissions filed on behalf of the first defendant on 7 November 2016, and in reply by the plaintiff on 10 November 2016.
DATE OF JUDGMENT:	26 April 2017
CASE MAY BE CITED AS:	Konstandellos and ors v Harplex Pty Ltd and anor
MEDIUM NEUTRAL CITATION:	[2017] VSC 183

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CONTRACT – Question of enforceability of judgment debt by the first defendant against the plaintiffs – Nature of agreement – Whether agreement between the plaintiffs and the first defendant enforceable – Extent to which extrinsic evidence is admissible as to the terms of agreement – Whether or not payment discharged the plaintiffs’ debt in full – No release of the balance of the judgment debt was intended – Part payment not good consideration for release of full amount of judgment debt.

CONTRACT – Effect of settlement agreement reached between the first defendant and fourth plaintiff – Plaintiffs jointly and severally liable for judgment debt – No evidence about the terms of the settlement agreement – Release of a single debtor releases all other joint debtors – Settlement agreement found to constitute a release of all plaintiffs – Associated Retailers Ltd v Toys Unlimited Pty Ltd and ors [2011] VSC 297; Walker v Bowry (1924) 35 CLR 48; Pollack v National Australia Bank [2002] FCAFC 55 referred to and followed.

TRADE PRACTICES – Whether first defendant engaged in misleading and deceptive conduct – Terms and scope of retainer – Whether solicitor acted in trade or commerce – Section 18 Australian Consumer Law – Dual Homes Pty Ltd v Moores Legal Pty Ltd and anor (2016) 306 FLR 227 and LT King Pty Ltd and anor v Besser and anor (2002) 172 FLR 140 referred to and followed.

NEGLIGENCE – Terms of retainer between plaintiffs and their solicitors – Whether there was a breach of retainer and/or duty of care on the part of solicitors.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr L Warren, acting counsel	Russell Kennedy
For the First Defendant	Mr M T Lapirow	Trumble Szanto Lawyers
For the Second Defendant	Ms L Hannon	Obst Legal

TABLE OF CONTENTS

Background and Parties.................................................................................................................... 1

The recovery proceeding and the settlement agreement............................................................ 2

Further recovery action by Harplex.............................................................................................. 10

Chronology of the Proceeding....................................................................................................... 14

The issues in the proceeding......................................................................................................... 17

The pleadings................................................................................................................................... 18

The evidence..................................................................................................................................... 30

Commentary on the evidence........................................................................................................ 62

What were the terms of the agreement between the plaintiffs and Harplex?....................... 68

Is an agreement in the terms contended for by the plaintiffs enforceable?.......................... 76

Did Harplex engage in misleading and deceptive conduct?................................................... 80

Did the 2016 settlement agreement release the plaintiffs from their liability under the judgment debt?........................................................................................................................................................ 83

Claims against Kelly & Chapman................................................................................................. 92

Conclusions and the appropriate form of relief......................................................................... 97

HER HONOUR:

Background and Parties

The three current plaintiffs in this proceeding, Mr Nikolaos (‘Nick’) Konstandellos, Mr Alkiviadis (‘Alex’) Konstandellos, and Ms Lambrini Dounias (‘plaintiffs’), are siblings. The third plaintiff and the fourth plaintiff[1] (the son of the third plaintiff) are the registered proprietors of properties at 42 Arunta Crescent, Clarinda (‘Arunta Crescent’) and 32 Springs Road, Clarinda (‘Springs Road’) respectively.
[1]The fourth plaintiff filed a Notice of Discontinuance with respect to Harplex on 22 February 2016, and he was formally removed as a party to the proceedings on 2 November 2016.

Mr Nick Konstandellos is engaged in the business of property development, with the assistance of his brother Alex. Mr Nick Konstandellos gave evidence that from time to time, he has procured other family members to make available their properties to secure loans for the purpose of funding his business activities. It is common ground that all dealings between the plaintiffs and each of the defendants and the first defendant’s solicitors were conducted through Mr Nick Konstandellos.

The first defendant, Harplex Pty Ltd (‘Harplex’), is an investment vehicle for an unnamed person. A principal of the firm of solicitors acting for Harplex, Mr Peter Szanto of Trumble Szanto Lawyers (‘Trumble Szanto’) is a director of Harplex, although his evidence is that he owns no shares in Harplex.

Messrs Nick and Alex Konstandellos have had other business dealings with Harplex. In 2010, they guaranteed a loan made by Harplex to Gardenia Lakes Shopping Centre Pty Ltd (‘Gardenia Lakes’) in the sum of $4.8 million, and a further loan of $700,000 made in November 2010. Apparently, Gardenia Lakes defaulted on these loans, and sums remain outstanding.

The second defendant, Kelly & Chapman, are a firm of solicitors based in Bentleigh. Mr David Denby of Kelly & Chapman was engaged by Mr Konstandellos in June 2013 to represent the plaintiffs in their dealings with Harplex concerning two loans secured by Arunta Crescent and Springs Road (‘Clarinda loans’). Mr Denby died in early 2016.

The recovery proceeding and the settlement agreement

Turning to the chronology of events relevant to this proceeding, on 19 May 2011, the plaintiffs, including the fourth plaintiff, entered into Clarinda loans. There were two loans, one for $680,000, and one for $185,000, both secured by two mortgages over each of Arunta Crescent and Springs Road. The plaintiffs ceased servicing the Clarinda loans in late 2011.

On 11 September 2012, Harplex issued proceeding S CI 2012 05213 (‘recovery proceeding’) against the plaintiffs and the fourth plaintiff. On 21 December 2012, Harplex obtained judgment in default in the sum of $865,000 on account of the principal sum due, interest in the sum of $188,034.61, and costs of $4,200, totalling $1,057,234.60. The judgment also provided for Harplex to take possession of Arunta Crescent and Springs Road. A warrant for possession was issued on 9 January 2013 (‘first warrant’).

Following the issue of the first warrant, Mr Konstandellos commenced holding discussions with Trumble Szanto concerning the debt owed by the plaintiffs pursuant to the judgment obtained by Harplex on 21 December 2012 (“judgment debt”), initially with Mr Simon Tan, a solicitor under the supervision of Mr Szanto. On 27 March 2013, Trumble Szanto wrote to the plaintiffs as follows:

Dear Nick, Alex, Frank and Lambrini
re: Debt to Harplex Pty Ltd
Properties at 32 Springs Road and 42 Arunta Crescent

We refer to the above matter and recent communications. We confirm that on immediate payment of the sum of $20,000 in reduction of the above debt we will instruct the Sheriff of Victoria to hold the enforcement proceedings in abeyance for one month.
We further confirm that the mortgages on the two properties will be discharged on payment of the sum of $910,000, being $480,000 for Springs Road and $430,000 for Arunta Crescent. It is to be noted that these are not payout figures.

Following the receipt of this letter, three payments of $20,000 were credited to the plaintiffs’ loan account, on 4 April 2013, 10 May 2013, and 27 June 2013. In early June 2013, the plaintiffs engaged Kelly & Chapman to represent them in their dealings with Trumble Szanto concerning Arunta Crescent and Springs Road.[2] On 11 June 2013, Ms Georgia Diamantopoulos of Kelly & Chapman wrote to Mr Tan as follows:
[2]The exact nature and terms of the retainer is a significant issue in dispute in this proceeding.

Further to our earlier telephone conversation, I confirm that we should hopefully be in a position to effect settlement of the above matter by Monday next week. Kindly advise:-
1.A venue for settlement. A CBD settlement would be preferable; and
2.The amount required to discharge the Mortgage as at Monday next, 17 June, 2013.

Later that day, Mr Tan replied as follows:

Hi Georgia
Thank you for your email.
1.We would propose the venue for settlement at our offices, 10 Cecil Place, Prahran.
2.I will calculate the amount outstanding as at Monday June 27, 2013 and advise you accordingly in due course.

On 13 June 2013, Mr Tan sent an email to Ms Diamantopolous, as follows:

We provided a letter to your client in March which outlined the outstanding amount at that time as $910k.
Interest has been accruing on this amount and your client has also made a couple of payments in consideration for that interest.
As such, the $910k figure is a good estimate of the outstanding however there will be need [sic] added to that any further interest accrued and legal costs which you [sic] client it [sic] responsible for.
Once a date for settlement is finalised we will provide a ‘to the dollar’ figure your client owes taking into consideration the above.
Please also note and ensure your client is aware, that the amount requested is solely to discharge the mortgages in relation to the 2 properties and is not in settlement of the debts owed to my client by your clients, which are over and above the $910k.
Please advise as to a firm settlement date.

Notwithstanding the above, at this stage it appears that the parties were negotiating to discharge the mortgages over Arunta Crescent only. On 17 June 2013, Ms Diamantopoulos wrote to Mr Tan, as follows:

Further to our telephone conversation, I confirm as follows:-
1.Our client’s lender is now ready to settle insofar as the property situate and known as 42 Arunta Crescent, Clarinda is concerned. I understand that an amount in the vicinity of $430,000 is outstanding with respect to that property.
2.A separate loan is being obtained with respect to the property situate at and known [sic] 32 Springs Road, Clayton and I am instructed that that loan should be proceeding to settlement in approximately two weeks.

Kindly obtain your client’s instructions that it is in order to discharge the mortgage over the Arunta Crescent property and we shall then lock in settlement for, say, Thursday next, 20 June, 2013.
I await your further advice before arranging settlement with our client’s lender.

Later that day, Mr Tan replied as follows:

Thank you for the information.
Our client will agree to settle on Thursday, June 20, 2013 at 10.30am at our offices on the following basis. Taking into consideration that only one property (42 Arunta Crescent) is being settled, the accrued interest and the settlement date, our client requires;
a) $450,000
b) $1375 for legal costs.

In return we will provide the title for the property and a discharge of mortgage.
Please make all monies payable to Trumble Szanto Lawyers.

Also on 17 June 2013, Mr Tan wrote to Ms Diamantopoulos regarding Springs Road, as follows:

Further to my previous email and in reference to the other property (32 Springs Road). We have possession of the property and have been holding off on selling it to give your client opportunity to make the relevant payment and retake possession of the property.
We have not received an ‘interest’ payment from your client for an extension of time for the month of June to settle the property. As such, in absence of a further payment or a settlement date being set, we will be proceeding to sell the property.
Your client has also just now, contact [sic] me by telephone to discuss the details of my previous email, disputing the figure of $450,000. I have discussed with my client who is willing to accept $430,000 in that regard.

Ms Diamantopoulos replied as follows:

Just to be clear as to your instructions:-
1.we can proceed to settle Arunta Crescent this Thursday, on the basis of a settlement figure of $430,000, plus your costs of $1,375.00; and
2.you will be proceeding to a mortgagee sale of the Springs Road property if the June interest payment is nor [sic] received, or, alternatively a settlement date set for discharge of that property.

Please confirm.

Mr Tan replied confirming that Ms Diamantopoulos’ understanding of the proposed transaction was correct.

On the following day, 18 June 2013, Ms Diamantopoulos wrote to Mr Tan regarding the arrangements for settlement for the discharge of the mortgages over Arunta Crescent, as follows:

Further to yesterday’s communications, I have been instructed to advise as follows:-
1.Our client proposes effecting settlement of the Discharge of Mortgage over 42 Arunta Crescent to take place Monday afternoon, 24 June, 2013 at say 3.00 pm on the basis of payment to your office an amount of $430,000.00, plus your costs of $1,375.00. Kindly confirm this arrangement and we will arrange settlement accordingly with our client’s lender.
2.With respect to 32 Springs Road, our client is currently waiting on formal loan approval and then proposes settlement to take place immediately that loan is ready to settle.

We await your further advice with respect to this matter.

Mr Tan replied as follows:

I would prefer a morning settlement, however if that is not suitable 3pm is ok with us. Please confirm.
In relation to 32 Springs Road, without a payment or a settlement date our efforts to sell the property are continuing.

Later that day, Mr Tan wrote to Ms Diamantopoulos, as follows:

Hi Georgia,
I am sorry for the recent misunderstanding and have instructions in relation to settlement, as follows:
1)Our client will accept settlement no later than 2pm on Monday June 24, 2013. This is on the basis of the sum of $430,000 being paid with legal costs in the sum of $1705.
2)If settlement does not occur before this time on the specified date then we rescind all offers to accept payment and we will proceed with the seizure and sale of both properties.

Ms Diamantopoulos replied as follows:

Hi Simon
Settlement has been changed to 2pm on Monday, with your additional costs of $1705.00 being agreed upon.
I shall advise further when finance has been approved with respect to the Springs Road property.

However, settlement did not proceed on 24 June 2013. On that day, Trumble Szanto wrote to Kelly & Chapman, as follows:

re: Harplex Pty Ltd
42 Arunta Crescent and 32 Springs Road, Clarinda.

We refer to the above matter and to your telephone call this morning.
We acknowledge your advice that your client is not in a position to settle the mortgages on 42 Arunta Crescent this afternoon as had been agreed. Our position in relation to this was made clear in an email dated June 18, 2013.
As such, we write to confirm the following:
1. All previous agreements for settlement are withdrawn;
2.We will be proceeding with the seizure and sale of 42 Arunta Crescent, Clarinda and with the sale of 32 Springs Road, Clarinda; and
3.Any offers from your client in relation to the settlement of the four mortgages on the properties will only be considered on a global basis, that is to say an all in figure for discharge of the mortgages on both properties.

Notwithstanding the above, on 25 June 2013 Mr Tan replied to Ms Diamantopoulos’ email of 18 June 2013, confirming the time for the settlement of Arunta Crescent (which did not take place), as follows:[3]

Dear Georgia
Further to my conversation with Liz I provide the relevant cheque details for settlement tomorrow below;
1)check in the sum of $912,500.00 payable to Trumble Szanto Lawyers that is made up of $910,000 for the mortgage repayments and $2500 for legal costs.

[3]This communication does not gel with the evidence of other communications on this day.

On 25 and 26 June 2013, there were a number of telephone conversations between Mr Denby and Mr Szanto regarding the matter. By this time, Trumble Szanto had instructed the Sheriff’s office to resume execution of the warrant. What was said during these conversations is somewhat contentious. However, Mr Szanto’s evidence is that he told Mr Denby that if the plaintiffs could pay $40,000 by 3.30pm on the follow day, Harplex may consider that as ‘an indication of their bona fide intentions’, and accordingly, Harplex ‘may be induced to forebear further execution of the warrant for up to six weeks.’ Mr Szanto deposed that Mr Denby telephoned him later that day and agreed to this proposal. However, later that evening, Mr Denby sent an email to Mr Tan, as follows:

Following my conversations with Peter, I tried to call him at 6 p.m. As I don’t have his email address to hand I am sending this to you.
My client is understandably concerned about handing over $K40 tomorrow without any certainty as to the final payout figure. He has therefore instructed me to put the following proposition:
(1)He will pay $K20 [sic] tomorrow by 3 p.m. being the usual monthly instalment;
(2)Your client will agree to take no further action in relation to both properties until 10 July;
(3)On or before 10 July your client will accept $K910 plus legal costs in full and final settlement.
(4)If not settled in full by 10 July, my client will not resist any enforcement proceedings.

I would be grateful if you would discuss this with Peter and revert to us as early as possible in the morning. I won’t be in the office but you can communicate with Georgia, who can contact me if necessary.

On 26 June 2013, Mr Szanto provided his response to Mr Denby’s proposal. His responses are highlighted (in bold italics) below:

Following my conversations with Peter, I tried to call him at 6 p.m. As I don’t have his email address to hand I am sending this to you.
My client is understandably concerned about handing over $K40 tomorrow without any certainty as to the final payout figure. He has therefore instructed me to put the following proposition:
As is the usual practice, a final figure will be given when the arrangements for settlement are firmly fixed, not before.
He has therefore instructed me to put the following proposition:
(1)He will pay $K20 [sic] tomorrow by 3 p.m. being the usual monthly instalment;
(2)Your client will agree to take no further action in relation to both properties until 10 July;
(3)On or before 10 July your client will accept $K910 plus legal costs in full and final settlement.
(4)If not settled in full by 10 July, my client will not resist any enforcement proceedings.

I would be grateful if you would discuss this with Peter and revert to us as early as possible in the morning. I won’t be in the office but you can communicate with Georgia, who can contact me if necessary.

My client will not be bound by a figure agreed for discharge three months ago and it is unreasonable of the borrowers to demand otherwise. The proposal is rejected.
If the $40,000 is received by 3:30pm today, we will call off the sheriff, otherwise he will proceed to obtain possession tomorrow morning.

Later on 26 June 2013, Ms Diamantopoulos wrote to Mr Szanto and Mr Tan, as follows:

We have just received notification from our client’s banker that unconditional finance with respect to the property at 32 Springs Road, Clayton has now been approved. That means that finance for both the Arunta Crescent and Springs Road properties has been approved.
The bank anticipates being in a position to proceed to settle both properties on 10 July next.
On the basis of the above loan approvals our client is prepared to attend your office tomorrow morning to pay $20,000, being interest through to 10 July, 2013, being the date anticipated to settle on both properties with your client.
Kindly therefore:-
1.Advise that your client is agreeable to proceed to settlement of both properties on 10 July next and advise us settlement figures as at that date; and
2.Confirm that the sheriff will be called off, pending full settlement taking place on 10 July, 2013.

Thanking you in anticipation.

The copy of this email on Kelly & Chapman’s file contained the following handwritten notation:[4]
[4]While there was no evidence to the effect, the handwriting was almost certainly that of Ms Diamantopoulos.

4.05pm
T/A Simon Tan
- $20,000 cash by 6pm today
- settle $960,000 plus legals
T/A David – Agree – speak with Nick
T/A Nick – can’t get money to them b/4 10 tom.

The copy of this email on Trumble Szanto’s file has the following notation in Mr Szanto’s handwriting:

$20K ~~tomorrow~~ today
$960K on 10/7/13.

About forty minutes later, Ms Diamantopoulos wrote again:

Following Simon’s call earlier, I have spoken with our client who agrees to the following:-
1.He will have a bank cheque for $20,000 to your office by 10 am tomorrow. He cannot make it this afternoon.
2.He accepts settlement for 10 July, 2013 on the basis of a pay‑out figure of $960,000, plus your fees.

Please advise if the above is acceptable.

Mr Tan replied as follows:

Our client will agree to the below offer. Please ensure your client is here tomorrow to make the payment.

As it happened, settlement did not take place until 17 July 2013, but nothing seems to turn upon that. On 15 July 2013, Ms Diamantopoulos wrote to Mr Tan, as follows:

Good afternoon Simon.
Hope that you are well. Fingers crossed, but we should be in a position to settle this one on Wednesday, 17 July next – say 2pm at your office.
Kindly confirm the settlement fig.

Later that day, Mr Tan replied as follows:

Previous settlement figures apply with an increase to the legal costs of $300
So $960K for the principle (sic), $3,050 for the Legal Costs.
Please write to confirm the date for sure and I will have the relevant documentation prepared.

Finally, on 23 July 2013, Mr Tan wrote to Mr Denby’s assistant, as follows:

Hi Pam,
We can confirm that the warrants have been recalled. We are currently arranging for the keys to be provided to our office at which time we will notify you they are available for pick up.

Further recovery action by Harplex

On 14 August 2013, Trumble Szanto wrote to Kelly & Chapman as follows (omitting the attached spreadsheet):

re: Harplex Pty Ltd
42 Arunta Crescent and 32 Springs Road, Clarinda.

We refer to the above matter and to previous correspondence.
We confirm that settlement was effected on July 17, 2013.
As a result of settlement the first mortgage loan was paid out.
Subsequent to settlement, you have requested an update as to the second mortgage loan, we enclose a spreadsheet in relation to this and can confirm that the amount outstanding as on August 19 2013 will be $169,112.63.
Please advise, within the next seven days, as to your client’s position in relation to the payment of the outstanding amount, failing which our client intends to institute proceedings to recover such amount.
We can also confirm that we are currently holding one further key for 32 Springs Road, Clarinda which can be picked up by your clients by prior appointment.

Trumble Szanto received no reply to this letter. They wrote again on 4 December 2013, as follows:

re: Mortgage Loan – Harplex Pty Ltd to Nicolaos Konstandellos, Alkiviadis Konstandellos, Lambrini Dounias and Frank Dounias.

We refer to the above matter in which we have had previous dealings and confirm that we act on behalf of Harplex Pty Ltd.
Following the payment received on July 19, 2013, the mortgage loan dated May 19, 2011 for the initial amount of $680,000.00, has been fully satisfied. The mortgage loan dated May 19, 2011 for the initial amount of $185,000.00 remains in default and currently has an outstanding balance of $182,157.28 (in accordance with the attached statement).
We hereby demand from all abovementioned debtors the sum of $182,157.28 to be paid within the next 14 days, failing which we will proceed to enforce the Supreme Court Order dated December 21, 2012 in relation to this debt.
In relation to Nicolaos and Alkiviadis Konstandellos they are named guarantors on a further mortgage loan between our client and Gardenia Lakes Shopping Centre Pty Ltd, dated June 11, 2010. This loan is also in default and we hereby demand from those guarantors a further sum of $638,790.42 (in accordance with the statement attached) to be paid to us within 14 days, failing which court proceedings will be instituted to recover such debt.

On 10 December 2013, Kelly & Chapman replied to Trumble Szanto, stating as follows:

We acknowledge receipt of your fax of the 4^th inst. We have forwarded it on to our former clients, but at this stage hold no current instructions in respect of the matter.

On 20 January 2014, Harplex applied to the Court in the recovery proceeding for a warrant of seizure and sale (‘second warrant’). The application was supported by an affidavit sworn by Mr Tan. At paragraphs 17 and 18 of his affidavit, Mr Tan deposed, as follows:

O[n] July 17, 2013, the defendants paid the sum of $963,050.00 in settlement of the first, second, third and fourth mortgages, but not in settlement of the first and second agreement, held by the plaintiff on the security properties.
As a result of the payments received from the defendants, the amount owing under the first agreement has been satisfied in full. In relation to the second agreement, there remains a sum of $185,572.72 owing to the plaintiff. The attached schedules A and B in relation to the first and second agreements respectively show the relevant transactions over the period of each agreement.

The second warrant was issued on 6 February 2014. The amount said to be outstanding was $185,575.72, plus $1,200 costs. On 8 April 2014, the plaintiffs including the fourth plaintiff, the defendants in the recovery proceeding, issued an application to set aside the second warrant, or, alternatively, for an injunction restraining the Sheriff’s office from executing the second warrant. Mr Konstandellos swore an affidavit in support of the application, where he deposed as follows:

I say that on 7 July 2013 the Defendants paid to the Plaintiff the sum of $963,050.00 in full and final satisfaction of all liabilities to the Plaintiff thus extinguishing the judgment debt.
I refer to the affidavit of SIMON KIM TAN sworn 5 February 2014 and filed herein which claims that the said sum was paid in settlement of the mortgages held by the Plaintiff over various properties but not in satisfaction of all debts. I say that is not correct and that the moneys were paid and accepted in satisfaction of all moneys owing by the Defendants and any of them to the Plaintiff.
In the premises I say that the Warrant ought not to have been issued as there was no outstanding moneys under the judgment debt at the time of issue.

The summons was dismissed by Mukhtar AsJ on 5 May 2014. His Honour described the affidavit in support as ‘manifestly unsatisfactory’, and there was no evidence that Harplex had been served with the summons. The plaintiffs filed a further summons on 12 May 2014, accompanied by an affidavit sworn by Mr Konstandellos in the same terms as his affidavit sworn on 8 April 2014. The summons was returnable on 5 June 2014, but it is unclear from the court file as to what occurred on that day. In any event, on 25 June 2014, Harplex issued a summons seeking to amend the second warrant, on the basis that it contained an incorrect sum on account of interest. However, this summons was withdrawn, and on 9 July 2014 the Court issued a further warrant of seizure and sale (‘third warrant’), with the amount levied by the third warrant being $131,852.48 plus interest and costs.

On 15 July 2014, the plaintiffs issued a further summons seeking a stay of execution upon the third warrant, or alternatively, that the third warrant be set aside.

On 27 November 2014, Mukhtar AsJ ordered that execution of the third warrant be stayed subject to the plaintiffs issuing a proceeding by 11 December 2014, and paying the sum of $24,000 into Court. His Honour made the following relevant procedural orders:

For the procedural conduct of the proceeding to be commenced by the defendants:
(a)the trial of that proceeding shall be by affidavit, subject to the right to cross examine any deponent;
(b)there shall be no discovery of documents unless the Court otherwise orders on application of either party for discovery of specific documents;
(c)the defence shall be filed and served by 20 January 2015;
(d)the parties shall be entitled to rely upon the affidavits that were filed by them in this stay application, subject to any objections as to admissibility or on cross examination, at the trial of the defendant’s separate proceeding;
(e)any further affidavit upon which the defendants seek to rely shall be filed and served by 28 January 2015; and
(f)any further affidavit upon which the plaintiff seeks to rely be filed and served by 11 February 2015.

Further, his Honour made the following remarks in ‘other matters’:

The question is whether under that agreement, and despite the discharge of the mortgages, the defendants remain liable for a residual amount of the loan due, unsecured. That is whether the payment was only consideration for a discharge of the mortgages but not the greater liability under the loan agreements. The plaintiff issued a warrant of seizure and sale to enforce that residual part of the default judgment. The mortgagors sought a stay.
The Court has made procedural orders to try and minimise the cost and delay of separate proceedings to decide the question of the intended scope or effect of the agreement.

Unfortunately, the minimisation of cost and delay has proven to have been an unachievable aspiration. The period of the validity of the third warrant has been extended on two occasions, by Ierodiaconou AsJ on 7 July 2015, and by me on 25 August 2016. Attempts by Harplex to lift the stay of execution in the meantime have been unsuccessful.

Chronology of the Proceeding

The following section provides a summary of the rather protracted path this proceeding has followed since the stay of the third warrant on 27 November 2014:

(a) a writ and statement of claim was filed in this proceeding by the plaintiffs on 11 December 2014;

(b) an amended statement of claim was filed on 8 April 2015 pursuant to the orders of Mukhtar AsJ of 27 March 2015, which also joined Kelly & Chapman as a defendant to the proceeding;

(c) directions hearings were held before Mukhtar AsJ on 27 March 2015 and 4 June 2015;

(d) Harplex filed a summons on 28 July 2015, seeking that the proceeding be dismissed for non‑compliance with the orders made on 4 June 2015;

(e) on 4 August 2015 Derham AsJ made orders requiring the plaintiffs to file better particulars pursuant to orders of Mukhtar AsJ made on 4 June 2015, failing which the stay of the third warrant would be discharged. He also ordered the plaintiffs to file and serve an affidavit of documents with respect to certain classes of documents;

(f) the plaintiffs filed further and better particulars on 18 August 2015;

(g) on 26 August 2015, Mukhtar AsJ dismissed Harplex’s summons filed 28 July 2015 seeking summary dismissal of the proceeding, and referred the proceeding to me for pre‑trial directions;

(h) on 6 October 2015, I made orders that the proceeding be fixed for trial on 9 March 2016;

(i) a summons was filed by Harplex on 5 November 2015 seeking dismissal of the proceeding based on the plaintiffs’ non-compliance with orders, and seeking the discharge of the stay of the third warrant;

(j) on 19 November 2015, I made orders for the examination of the plaintiffs pursuant to s 57 of the Civil Procedure Act 2010 (Vic), and gave Harplex leave to issue a subpoena directed at Kelly & Chapman compelling production of their file, as the plaintiffs had not sought to obtain their file, there were no orders for general discovery, and Kelly & Chapman had not participated in the proceeding, save for the filing of a defence on 28 July 2015;

(k) the oral examinations of the first and second plaintiffs with respect to the adequacy of the plaintiffs’ discovery were held and concluded on 3 February 2016;

(l) on 25 February 2016, the current solicitors for Kelly & Chapman, Obst Legal, filed a Notice of Change of Solicitor on behalf of Kelly & Chapman;

(m)on 1 March 2016, Harplex filed a summons seeking, among other things, dismissal of the proceeding against Harplex, and that the stay of the third warrant be discharged on the basis of the plaintiffs’ failure to comply with orders;

(n) in his affidavit sworn in support of Harplex’s summons on 29 February 2016, Mr Szanto deposed, among other things, that Harplex had reached an agreement with the fourth plaintiff, Mr Frank Dounias (‘2016 settlement agreement’). On 1 March 2016, Mr Dounias swore an affidavit that he had become aware that Mr Darroll Nelson had entered an appearance on his behalf in the recovery proceeding. He deposed that he never instructed Mr Nelson to represent him in the recovery proceeding, nor Mr Hone (the plaintiffs’ then solicitor) to act for him in this proceeding. He deposed as follows:

The terms of the [2016 settlement agreement] were that Harplex Pty Ltd would agree to release me from any further enforcement of the judgment debt in the related proceeding

(o) on 3 March 2016, I made self‑executing orders regarding the filing of a notice of trial, the filing and service of ‘proper basis’ certificates by the plaintiffs,[5] and a court book. These orders were duly complied with;
[5]As required by s 42 of the Civil Procedure Act 2010 (Vic).

(p) on 8 March 2016, I made orders vacating the 9 March 2016 trial date, on the application of Kelly & Chapman, owing to the ill‑health of Mr Denby, and fixing the proceeding for trial on 9 May 2016;

(q) on 14 April 2016, I gave leave for Kelly & Chapman to file an amended defence, and referred the proceeding to judicial mediation. The mediation was held before Judicial Registrar Ware on 3 May 2016; and

(r) on 9 May 2016, the first day of the trial of the proceeding, the plaintiffs applied for an adjournment in order to replead their claim. This application was granted, and the plaintiffs were ordered to pay the costs thrown away by reason of the adjournment. I ordered that any application by the plaintiffs to amend their statement of claim, along with the question of the quantification of the costs thrown away by reason of the adjournment, be returnable on 23 May 2016.

After the adjournment of the trial on 9 May 2016, the following took place:

(a) on 18 May 2016, Russell Kennedy, the current solicitors for the plaintiff, filed a Notice of Change of Solicitor;

(b) on 25 May 2016, the scheduled return date of the plaintiffs’ foreshadowed application to amend their statement of claim, I fixed the costs payable to the defendants by reason of the vacation of the trial date, ordered that if they were not paid within sixty days, this proceeding be stayed, and the stay upon execution of the third warrant be lifted, and adjourned the plaintiffs’ application to amend their statement of claim to a date to be fixed (in the event that the costs were paid);

(c) the costs were duly paid, and on 23 August 2016, after receiving further written submissions concerning the plaintiffs’ proposed further amended statement of claim, I made orders allowing the plaintiffs to file and serve a further amended statement of claim, subject to certain conditions concerning the provision of further and better particulars;

(d) the first to third plaintiffs filed a further amended statement of claim on or about 7 September 2016;

(e) on the first day of trial, on 2 November 2016, I made orders giving leave for the first to third defendants to file a Second Further Amended Statement of Claim (‘SFASOC’) and removing the fourth plaintiff as a party to the proceeding; and

(f) the trial of the proceeding was concluded on 4 November 2016, with some further brief submissions filed by Harplex and the plaintiffs on 7 and 10 November 2016 respectively.

The issues in the proceeding

Prior to turning to the pleadings in some detail, the issues in this proceeding were neatly encapsulated by the solicitor for the plaintiffs in his opening address at trial, being:

(a) what was the nature of the agreement between the parties: that is, whether the payment made by the plaintiffs on 17 July 2013 discharged in full the debts owing by the plaintiffs to Harplex pursuant to the Clarinda loans, or was the payment merely consideration for the discharge of the mortgages held by Harplex over Arunta Crescent and Springs Road;

(b) if there was an agreement of the nature contended for by the plaintiffs, is it enforceable, or does it fail for lack of consideration;

(c) if the agreement contended for by the plaintiffs is enforceable, what is the appropriate remedy;

(d) if the agreement contended for by the plaintiffs is not enforceable, is Harplex liable for having engaged in misleading and deceptive conduct; and

(e) in relation to the position of Kelly & Chapman, if the plaintiffs are unsuccessful in their claims against Harplex:

(i) what was the scope of Kelly & Chapman’s retainer; and

(ii) if Kelly & Chapman breached their duties to the plaintiffs, does any loss flow from that?

A further issue in the proceeding is the impact of the 2016 settlement agreement upon the liability of the plaintiffs to Harplex, or the quantum of any such liability.

The pleadings

In the SFASOC, the plaintiffs, insofar as they make claims against Harplex, allege, in summary, the following:

(a) the plaintiffs deny that Harplex was entitled to judgment in the recovery proceeding, or entitled to possession of Arunta Crescent and Springs Road;[6]
[6]Paragraph 13 of the SFASOC. This issue was not pressed at trial.

(b) on or about 17 July 2013 the plaintiffs and Harplex agreed that Harplex would:

(iii) not enforce the judgment in the recovery proceeding;

(iv)discharge the mortgages over Arunta Crescent and Springs Road; and

(v) discharge the plaintiffs from any further liability under the Clarinda loans;[7]
[7]Paragraph 14 of the SFASOC.

(c) in the particulars to paragraph 14 of the SFASOC, the plaintiffs said that: ‘The agreement was partly in writing, partly oral, and partly to be implied’;

(d) insofar as the agreement was said to have been in writing, ‘it comprised, or is evidenced by’ sixteen itemised emails and letters sent between 27 March 2013 and 15 July 2013;

(e) insofar as the agreement was said to be oral, it was said to have been comprised by four telephone conversations between Mr Szanto and Mr Denby during the course of 25 and 26 June 2013;

(f) insofar as it was said to be implied, the implication arose from:

(1)the first defendant discharging the first, second, third and fourth mortgages upon the payment of the sum of $963,050;
(2)to give business effect to the agreement;
(3)by necessary implication; and/or
(4)from the course of dealings between the parties, including:
(a)the emails and conversations referred to above;
(b)the existence of an alleged guarantee given by the first and second plaintiff to the first defendant in respect of a first mortgage loan between the first defendant and Gardenia Lakes Shopping Centre Pty Ltd dated 11 June 2000 pursuant to which the first defendant continued to allege (and the first and second plaintiff denied) the first and second plaintiff owed the first defendant moneys

(g) the plaintiffs claim an entitlement to the following orders and/or declarations:

(a)a declaration that the obligations upon the plaintiffs to make payments to the first defendant pursuant to the first agreement and the second agreement alternatively pursuant to the judgment obtained by the first defendant against the plaintiffs in Supreme Court proceeding no SCI 2012 05213, were discharged by the entry of the plaintiffs into the settlement agreement and/or upon the payments made by the plaintiffs to the first defendant consequent upon the settlement agreement;
(b)an order that the first defendant cease taking any step to enforce any alleged debt by the plaintiffs to the first defendant under the first agreement and the second agreement, alternatively pursuant to the judgment obtained by the first defendant against the plaintiffs in Supreme Court proceeding no SCI 2012 05213;
(c)an order that the first defendant take all necessary steps to discharge any warrants of seizure and sale on the titles for the Arunta Crescent Property and the Springs Road Property.

(h) the legal effect of the 2016 settlement agreement, as set out in the Particulars at paragraphs 17D and 17E of the SFASOC, was to:

… discharge the first to third plaintiffs from any further obligations to the first defendant under the first agreement and the second agreement, alternatively to discharge the first to third plaintiffs from any further obligations to make payment pursuant to the judgment obtained by the first defendant against them in Supreme Court proceeding no SCI 2012 05213.
Alternatively to paragraph 17D, the payment by the fourth plaintiff to the first defendant has reduced the quantum of any outstanding liability from the first to third plaintiffs to the first defendant.

(i) the sending of the emails referred to in the particulars under paragraph 14 of the SFASOC, in particular the email from Trumble Szanto to Kelly & Chapman dated 26 June 2013, and the conversations between Mr Denby and Mr Szanto, amounted to representations which, if no settlement agreement was reached, were false. In particular:

… that when a final figure was given for the settlement sum Mr Szanto’s client would accept that sum plus legal costs ‘in full and final settlement’ of any indebtedness of the plaintiffs to the first defendant pursuant to the first agreement and the second agreement, and that in consequence thereof, the first defendant would cease any enforcement action against the plaintiffs.

(j) in reliance upon those representations, which were made when Harplex was acting in trade or commerce, the plaintiffs acted to their detriment, as follows:

Making payment of $963,500 to the First Defendant
The plaintiffs re-mortgaged the Arunta Crescent and the Springs Road properties, and in doing so, incurred refinancing charges in the order of $20,359.95, including:
1.        Keogh & Co legal fees of $1,677.76
2.        Keogh & Co legal fees of $1,615.16
3.        Kelly & Chapman legal fees of $2,750.00
4.        Interest of $1,522.24
5.        Interest of $4,854.79
6.        Withdrawal of Caveats of $440
7.        RMP Real Estate Valuation fee of $2,500
8.        J Chrapot – Solicitor Procuration fee of $1,000
9.        Balmain Finance fees of $4,000

The plaintiffs will provide further details of the balance of the refinancing charges.

(k) the plaintiffs have suffered loss and damage,[8] including:
[8]See the particulars to paragraph 22 of the SFASOC.

(i)Legal expenses incurred by the plaintiffs in attempting to have the judgment in proceeding SCI 2012 5213 set aside.
(ii)From mid 2014 the first and second plaintiffs have sought to re‑mortgage the Arunta Crescent property in order to pay debts they had incurred and to regularise their financial affairs. The first and second plaintiffs informed Mr Szanto of these attempts to mortgage the Arunta Crescent property during several conversations that they had with Mr Szanto during mid 2014 at Mr Szanto’s office. By reason of the first defendant seeking to enforce its judgment and in so doing wrongfully effecting the registration of warrants of seizure and sale on title they were unable to do so and have incurred further expense by reason thereof.
(iii)Refinancing charges referred to in the particulars subjoined to paragraph 19 hereof paid and/or incurred by the first plaintiff.
(iv)If the plaintiffs had sold the Arunta Crescent property and the Springs Road property (alternatively if they had acquiesced to their sale by the first defendant) in 2013, the proceeds of sale of the properties would have been sufficient to discharge the debts owed by the plaintiffs to the first defendant pursuant to the first agreement and the second agreement (or such lesser sum payable by the plaintiffs to the first defendant pursuant to any alternative settlement agreement reached by them). If the plaintiffs had sold the Arunta Crescent property and the Springs Road property (alternatively if they had acquiesced to their sale by the first defendant) in 2013:
(i)The re-financing charges in sub-paragraph (c) would not have been incurred.
(ii)The moneys owed by the plaintiffs to the first defendant under the first agreement and the second agreement (or such lesser sum payable by the plaintiffs to the first defendant pursuant to any alternative settlement agreement reached by them) would have been paid in full, and no further moneys would have been owed by the plaintiffs to the first defendant pursuant to the first agreement and the second agreement. In consequence thereof, the plaintiffs would not have incurred the first defendant’s enforcement costs, and the plaintiffs would not have been exposed to the first defendant’s claims against it under the first agreement and the second agreement for additional interest and costs. The first to third plaintiffs are not aware of the precise calculation by the first defendant of the moneys allegedly owed by them to the first defendant pursuant to the first agreement and the second agreement. By a ‘without prejudice’ letter dated 18 April 2016 from the first defendant to the plaintiffs and the second defendant, the first defendant alleged that the amounts payable by the plaintiffs to the first defendant pursuant to the judgment in proceeding S CI 2012 5213 was $128,441.54 as at that date (with interest continuing to accrue) plus costs which the first defendant estimated to be approximately $22,672.31. The calculation appears to be incorrect, because, amongst other matters, it does not make any credit for the payment made by the fourth plaintiff to the first defendant of $60,000 referred to in paragraph 17C hereof. Updated particulars will be provided prior to trial when revised calculations are received by the first to third plaintiffs from the first defendant.

(v)Any amount that the plaintiffs are liable to pay to the first defendant pursuant to the judgment in proceeding SCI 2012 5213. If the plaintiffs had sold the Arunta Crescent property and the Springs Road property (alternatively if they had acquiesced to their sale by the first defendant) in 2013, the net proceeds of sale of the properties would have been sufficient to discharge any liability pursuant to the judgment in proceeding S CI 2012 5213, and the plaintiffs would have paid that amount to the first defendant. As a consequence thereof, no further moneys would have been owed by the plaintiffs to the first defendant pursuant to the judgment, the plaintiffs would not have incurred the first defendant’s enforcement costs, and the plaintiffs would not have been exposed to the first defendant’s claims against it under the judgment for additional interest. The amount owing on or about 17 July 2013 was $98,562.59, comprising the judgment debt of $63,177.34 less payments of $61,849.36 less payments made by the plaintiffs from refinancing Arunta Crescent and Spring Road of $960,000. Interest has been accruing on the judgment debt of $98,562.59 pursuant to s 101 of the Supreme Court Act 1986. The first defendant has also claimed the costs relating to execution, precise details of which are not known by the first to third plaintiffs. The first defendant has not, but should allow the sum of $60,000 referred to in paragraph 17C hereof. Updated particulars will be provided prior to trial when revised calculations are received by the first to third plaintiffs from the first defendant.

Harplex defends the claims made against it on the following bases:

(a) in relation to the plaintiffs’ denial that Harplex was entitled to judgment in the recovery proceeding, it objects to the allegations

on the basis that the judgment remains extant and the plaintiffs herein, and each of them, are bound by the same. It says further proceedings to impeach the judgment of this Honourable Court are not justiciable.

(b) it denies the allegations concerning the nature of the agreement between it and the plaintiffs, and says:

… further that by a series of emails between its solicitors and the solicitor acting for the plaintiffs at the time, it agreed to accept the sum of $963,050.00, being $950,000.00[9] by way of partial payment of the debt due on the said judgment and $3,050.00 for the costs of and incidental to enforcement of the judgment and for the costs of discharge of its mortgages secured over the properties.
[9]The reference to ‘$950,000’ rather than ‘$960,000’ is clearly an error.

(c) in relation to the plaintiffs’ allegations that Harplex has asserted that further sums are owing to it pursuant to the terms of the loan agreements and/or mortgages:

a)a balance remains outstanding to it under the judgment after taking into account the payment of $963,050.00 (of which the sum of $960,000.00 was in partial satisfaction of the said judgment) on 17 July 2013;
b)i[t] has issued execution on the judgment for the balance due thereunder; and
c)it does not make any allegation that any sum is due to it under the terms of the first and second loan agreements and/or the first, second, third and fourth mortgages and says that its claims are under the judgment.

(d) in relation to the 2016 settlement agreement, it says as follows:

(i) it admits the 2016 settlement agreement;
(ii)it admits that there were terms of the settlement agreement that the fourth plaintiff agreed to pay Harplex the sum of $60,000, that the fourth plaintiff agreed to discontinue its claim against Harplex in this proceeding, that Harplex agreed not to enforce the judgment in the recovery proceeding against the fourth plaintiff, and that the fourth plaintiff and Harplex released each other from any further claims against each other;
(iii)it admits that the fourth plaintiff paid Harplex the sum of $60,000; and
(iv)it denies the conclusions asserted by the plaintiffs with respect to the legal effect of the 2016 settlement agreement;

(e) in relation to the alleged representations made by Harplex, it said as follows:

a) admits the email identified as CB29;[10]
[10]Being the email from Trumble Szanto to Kelly & Chapman dated 26 June 2013, reproduced at paragraph 22 of these reasons. The court book references in the pleadings and the affidavits refer to the plaintiff’s court book prepared prior to the abortive trial in May 2016, which has now been supplanted by a later version.
b)denies that the subject matter of the agreement was the debt owing under the first and second agreements as that debt had merged in the judgment obtained in proceeding S CI 2012 5213;
c)says that the monies to be paid were to discharge the extant mortgages over the said properties;
d)says that the monies paid were to obtain the release of the properties from the operation of a Warrant for Possession, which was then extant in the hands of the Sheriff of this Honourable Court for execution;
e)says that the monies paid were in reduction of the judgment debt owing under proceeding S CI 2012 5213; and
f)otherwise denies the allegations made therein.

(f) as to the allegation that Harplex’s negotiations with the plaintiffs was conduct by Harplex in ‘trade or commerce’, it denied those allegations, and stated:

a)that being a plaintiff in a proceeding before this Honourable Court is not conduct in trade or commerce; and
b)correspondence between solicitors acting on behalf of parties to any litigation before any Court is not conduct in trade or commerce on behalf of the solicitors or on behalf of the parties that they represent.

As for the claims by the plaintiffs against Kelly & Chapman, the plaintiffs make, in summary, the following allegations:

(a) at the time the plaintiffs and Harplex entered the settlement agreement in the terms contended for by the plaintiffs, the plaintiffs had retained Kelly & Chapman to act as their solicitor to negotiate with Harplex on behalf of the plaintiffs, and to document a binding settlement agreement between the plaintiffs and Harplex upon the terms asserted by the plaintiffs, or upon such other terms as Kelly & Chapman might be instructed by the plaintiffs from time to time to offer on their behalf to Harplex (‘the retainer’);

(b) the retainer, and the terms of the retainer, were said to be partly in writing, partly oral, and partly to be implied. To the extent they were said to have been in writing they are constituted or evidenced by twelve enumerated emails between Mr Nick Konstandellos and either Mr Denby or Mrs Diamantopoulos between 18 June 2013 and 16 July 2013;

(c) to the extent that they are oral, they are comprised of or evidenced by conversations between Mr Nick Konstandellos on behalf of the plaintiffs and Mr Denby and Ms Diamantopoulos on behalf of Kelly & Chapman, which took place in or about June 2013, the substance of the conversations being that the plaintiffs instructed Kelly & Chapman to attempt to effect the settlement agreement on the terms asserted by the plaintiffs, and to document a binding settlement agreement on the terms asserted by the plaintiffs, and Mr Denby agreed. In the particulars, the plaintiffs refer to sixteen itemised telephone conversations between 17 June 2013 and 16 July 2013 between either Mr Konstandellos and Ms Diamantopoulos, or Mr Konstandellos and Mr Denby.

(d) to the extent that they are implied, they are implied to give business efficacy to the retainer between the plaintiffs and Kelly & Chapman and/or by necessary implication and/or by the course of conduct between the plaintiffs and Kelly & Chapman in the period between March 2013 and July 2013 (both inclusive) and which was evidenced by the following:

(vi)a file opening record dated 26 March 2013 re sale of 32 Springs Road, Clayton;[11] and.
[11]However, notwithstanding the opening of this file, it appears that Kelly & Chapman were not directly involved in this matter until June 2013.

(vii) an email from Georgia Diamantopoulos of Kelly & Chapman Lawyers, to Marina Stavrou of the Commonwealth Bank dated 5 June 2013

and, among other things, various emails between Trumble Szanto and Kelly & Chapman, and file notes of conversations between solicitors from Kelly & Chapman and representatives of Trumble Szanto, representatives of and the Commonwealth Bank;

(e) shortly after 17 July 2013, Mr Denby informed Mr Konstandellos that the settlement agreement contended for on behalf of the plaintiffs had been entered;

(f) if the plaintiffs are found to remain liable to Harplex on the basis contended for either by Harplex or Kelly & Chapman in this proceeding, then Kelly & Chapman will have breached its retainer with the plaintiffs, and/or its duty of care to the plaintiff;

(g) the plaintiffs allege the following breaches of duty on the part of Kelly & Chapman:

(i) Kelly & Chapman was retained to attempt to agree to a settlement with the terms asserted by the plaintiffs;

(ii) Kelly & Chapman failed to make a clear offer on behalf of the plaintiffs to Harplex in the terms asserted by the plaintiffs

(iii) Kelly & Chapman failed to clarify with the plaintiffs about the basis upon which Harplex was prepared to settle with the plaintiffs, and whether or not they accorded with the terms asserted by the plaintiffs;

(iv)Kelly & Chapman failed to communicate to the plaintiffs that the basis upon which Harplex was prepared to settle with the plaintiffs differed from the terms asserted by the plaintiffs;

(v) Kelly & Chapman communicated to the plaintiffs that Harplex was prepared to settle upon the terms asserted by the plaintiffs;

(vi)Kelly & Chapman communicated to Harplex that the plaintiffs accepted Harplex’s settlement offer notwithstanding that Harplex’s settlement offer differed from the terms asserted by the plaintiffs;

(vii) Kelly & Chapman failed to ensure that the terms of settlement were recorded in a Deed or were otherwise drawn in a manner in which Harplex could not later argue that the settlement terms were unenforceable upon the basis that part payment of a judgment debt is insufficient consideration to discharge the judgment debt;

(viii) Kelly & Chapman failed to advise the plaintiffs that Harplex’s promises were unenforceable upon the basis that part payment of a judgment debt is insufficient consideration to discharge the judgment debt;

(ix) Kelly & Chapman failed to advise the plaintiffs that Harplex could continue to claim moneys from them under the first and second agreement notwithstanding any payment made by them to Harplex if they accepted the Harplex’s offer;

(x) Kelly & Chapman failed to inform the plaintiffs that Harplex was not willing to settle upon the terms asserted by the plaintiffs, and that they could therefore make a further offer to Harplex upon different terms, or that they could instead simply allow Harplex to exercise its rights as mortgagee to sell the two properties; and

(xi) Kelly & Chapman failed to document the terms of the settlement agreement in a manner in which the parties’ obligations thereunder were clear, certain and enforceable, so that Harplex and the plaintiffs properly understood their obligations thereunder. That failure has necessitated this proceeding; and

(h) the plaintiffs claim the following by way of loss and damage against Kelly & Chapman:

(i)The First to Third Plaintiffs refer to and repeat the particulars subjoined to paragraph 22 hereof.[12]
(ii)Any amounts payable by the First to Third Plaintiffs to the First Defendant for legal costs of this proceeding.
(iii)The Plaintiffs lost the chance to negotiate a settlement on different, but nonetheless favourable terms, (as to quantum and/or timing in relation to any repayments) with the first Defendant.

[12]Being the loss and damage claimed against Harplex, and reproduced at paragraph 38(k) of these reasons.

In its defence dated 12 September 2016, Kelly & Chapman responded, in summary, as follows:

(a) it denies that the plaintiffs had suffered loss and damage as a result of the conduct of Harplex, and says further that:

… if (which is denied) the Second Defendant had been instructed to obtain a final payout figure in respect of both agreements, the payout figure would have been the same as the amount paid together with the additional amount now claimed by the First Defendant (with appropriate adjustment for interest depending on the repayment date). Accordingly, the Plaintiff cannot demonstrate any loss.

(b) as for the alleged retainer, it said that to the extent that Kelly & Chapman was retained to act on behalf of any of the plaintiffs, its instructions were limited to facilitating the refinancing of the Arunta Crescent property and the Springs Road property on the best possible terms so as to avoid mortgagee sales of those properties, and did not require Kelly & Chapman to negotiate and/or document a binding settlement agreement upon the terms asserted by the plaintiffs, or otherwise negotiate and/or document a full and final discharge of amounts owing under the Clarinda loan agreements.

(c) further, if the plaintiffs and Harplex entered into a settlement agreement in the terms contended for by the plaintiffs:

(i)the terms of the ‘settlement agreement’ agreement did not constitute accord and satisfaction as between those parties, there having been no consideration or no sufficient consideration given by the First Defendant in exchange for the compromise of its rights pursuant to the judgment; and

(ii) in the premises, the judgment remains extant and enforceable.

(d) Kelly & Chapman admits that it owed the plaintiffs a duty to act with reasonable skill, care and diligence in the performance of its retainer, and says that it discharged that duty; and

(e) Kelly & Chapman says that if it breached the terms of its retainer or, alternatively, acted in breach of the duty owed by it, then it denies that the plaintiffs have suffered or will suffer any loss and damage as a consequence of the alleged breach.

The plaintiff did not file and serve any reply to the defences filed and served by the defendants.[13] Given some of the contentions advanced on behalf of the plaintiffs at trial, in particular, that consideration did pass from the plaintiffs for the alleged compromise with Harplex of the amount owing under the judgment debt, this omission is significant.
[13]The Court file contains an unstamped document dated 9 May 2016 signed by the then counsel for the plaintiffs, and headed ‘Reply of the first to third defendants’. However, no leave was granted to file this document, which was referrable to an earlier version of Harplex’s defence (being the defence dated 20 January 2015). The consequences of the plaintiffs’ failure to file and serve a reply are discussed in more detail later in these reasons.

The evidence

The trial proceeded by way of affidavit, with a number of the objections to the admissibility of some of the plaintiffs’ affidavit evidence having been dealt with at a separate hearing prior to the trial. The plaintiffs relied upon the following affidavits:

(a) affidavit of Mr Nick Konstandellos sworn in the recovery proceeding on 15 July 2014;

(b) the supplementary affidavit of Mr Nick Konstandellos sworn in this proceeding on 26 July 2016;

(c) the further supplementary affidavit of Mr Nick Konstandellos sworn on 29 September 2016;

(d) an affidavit sworn by Mr Denby in the recovery proceeding sworn 16 July 2014;

(e) an affidavit sworn by Mr Alex Konstandellos on 5 October 2016;

(f) an affidavit sworn by Ms Lambrini Dounias sworn on 5 October 2016; and

(g) an affidavit sworn by Mr Rodney Morley on 5 October 2016.

The plaintiffs also tendered into evidence a number of letters and file notes sent or made by Mr Szanto, and a number of documents from the file of Kelly & Chapman produced by them upon subpoena. The critical correspondence has been extracted at paragraphs 8 to 29 above.

In his affidavit sworn on 15 July 2014 in the recovery proceeding, Mr Nick Konstandellos deposed, in summary, as follows:

(a) he was authorised to swear this affidavit on behalf of all of the plaintiffs;

(b) he confirmed the evidence of Mr Simon Tan in the recovery proceeding concerning the Clarinda loans;

(c) he deposed that after judgment was entered against the plaintiffs, he wanted to ensure that Arunta Crescent and Springs Road would be retained by his family members to live there. His sister lived in one house, and two of his nephews lived in another house;

(d) he was advised by the sheriff’s office to contact Mr Tan, and he had a number of telephone conversations with Mr Tan in early 2013. In those conversations he sought a payout figure to finalise his dealings with Harplex. He initially sought to refinance Arunta Crescent alone, but he was told that Harplex required both properties to be refinanced;

(e) in June 2013, he arranged for Mr Denby to conduct negotiations for him and arrange for settlement;

(f) he deposed as follows:

the properties were refinanced and the sum of $963,050 was paid to [Harplex] in full settlement of its claim against the [plaintiff];

(g) it was to his ‘great surprise’ that in August 2013 he was told by Mr Denby that Harplex was seeking the sum of $169,112.63 in relation to the second mortgage loan; and

(h) he instructed Mr Denby to deny that he or any of the other plaintiffs owed any money to Harplex, and he sought orders that the execution of the third warrant should be stayed, or alternatively, the third warrant should be set aside.

In his supplementary affidavit sworn on 26 July 2016, Mr Nick Konstandellos deposed, in summary, as follows:

(a) he had prior dealings with Harplex: in particular, he and Mr Alex Konstandellos were guarantors for a loan to Gardenia Lakes. Gardenia Lakes defaulted on the repayment of the loans, and Harplex exercised its rights as first mortgagee to sell the shopping centre owned by Gardenia Lakes;

(b) he deposed as to the communications between him and Mr Alex Konstandellos and Trumble Szanto in relation to the dispute between them and Harplex concerning the Gardenia Lakes loans;

(c) he exhibited correspondence between Trumble Szanto and Kelly & Chapman in June and July of 2013, and correspondence between him and Kelly & Chapman in July 2013;

(d) during this period, he had a number of telephone conversations with Mr Denby and Ms Diamantopoulos of Kelly & Chapman;

(e) as to these conversations, he deposed as follows:

My instructions to Mr Denby and Ms Diamantopoulos at all times were that the Plaintiffs were seeking a full and final settlement with the First Defendant and they were to attempt to negotiate a full and final settlement on behalf of the Plaintiffs with the First Defendant, the precise quantum of which, and exact terms of which would be negotiated, but which would have the effect that the First Defendant could not enforce its judgments against the Plaintiffs, that the mortgages referred to in paragraphs 5 and 6 of the Statement of Claim (‘the Mortgages’) would be discharged with the Plaintiffs would be discharged from any further liability under the loan agreements referred to in paragraph 2 of the Statement of Claim (‘Loan Agreements’). I never informed any representative of the Second Defendant that it would [sic] sufficient for the Plaintiffs to merely obtain a discharge of the Mortgages which would leave the First Defendant to continue to seek the balance of the amount owed under the Loan agreements. I gave the instructions on behalf of the Plaintiffs to David Denby as to the parameters of any settlement, which were reflected in the email from him to Simon Tan on 25 June 2013 at 6.30pm (ACB 29), including that any deal had to be in full and final settlement.
I, on my own behalf, and on behalf of the Plaintiffs, relied upon the Second Defendant following my instructions to its representatives.
I refer to paragraph 3(d) of my Affidavit sworn 15 July 2014.[14] The understanding I refer to in that paragraph came from my conversations with Mr Denby and Georgina Diamantopoulos, and in particular conversations between me and Mr Denby on or about 25 and 26 June 2013, and with Georgina Diamantopoulos on or about 26 June 2013. The substance of the conversations were to the effect that I was informed that if the agreed payments were made, there would be full and final settlement, the mortgages would be released, and the First Defendant would not take possession of the two properties, and the Plaintiffs would not owe further moneys to the First Defendant under the loan agreements.
[14]Mr Konstandellos refers here to a statement in his affidavit (which was struck out) to the effect that the payment of $963,500 was in full and final settlement of Harplex’s claims with respect to the loans and the mortgages.

(f) Mr Konstandellos deposed as follows concerning his dealings with Kelly & Chapman:

None of the representatives of the second defendant informed me that if the First Defendant’s settlement offer was accepted then:
(a)the settlement reached with the First Defendant was not a binding settlement;
(b)that it was not a full and final settlement;
(c)that the settlement left the First Defendant free to enforce its judgments against the Plaintiffs;
(d)that under the settlement, the Plaintiffs were not discharged from any further liability under the Loan Agreements;
(e)that the first defendant’s promises were not or might not be enforceable upon the basis that part payment of a judgment debt is insufficient consideration to discharge the judgment debt;
(f)that the first defendant was not willing to settle upon the terms sought by the Plaintiffs;
(g)that the Plaintiffs could or should not make a further offer to the first defendant upon different terms (for example, as to quantum) which would or might achieve the result that the Plaintiffs were seeking;
(h)that following the communications between Trumble Szanto and the Second Defendant on 25 and 26 June 2013, an option available to the Plaintiffs, if the First Defendant was unwilling to settle on the terms sought by the Plaintiffs, was to simply allow the first defendant to exercise its rights as mortgagee to sell the two properties.

(g) Mr Konstandellos deposed that on or about 14 May 2013, the plaintiffs organised valuations of Arunta Crescent and Springs Road, which showed that the two properties had a combined value of $1.2 million. He exhibited copies of these valuations, which were in fact provided to Westpac. He deposed that one option was for him to allow Harplex to take possession of the properties pursuant to the third warrant, but instead he refinanced the properties, and incurred approximately $30,000 in refinancing charges; and

(h) he deposed as to his understanding as to the terms of the 2016 settlement agreement.

In his supplementary affidavit sworn on 29 September 2016, Mr Nick Konstandellos deposed, in summary, as follows:

(a) he exhibited further documents evidencing communications between him and Kelly & Chapman;

(b) he deposed as to the substance of the telephone conversations between him and Mr Denby and Ms Diamantopoulos of Kelly & Chapman during the course of June and July of 2013, being that:

the plaintiffs instructed [Kelly & Chapman] to attempt to effect the settlement agreement on the terms referred to in paragraph 14 of the Further Amended Statement of Claim and to document a binding settlement agreement on the terms referred to in paragraph 14 thereof, and Mr Denby agreed;

(c) he deposed that when he instructed Mr Denby to accept Harplex’s offer to accept payment of $20,000 on 27 June 2013, and for settlement to take place on 10 July 2013 with the payment of $960,000 plus legal fees, he relied upon the prior communications between the parties, as communicated to him by Kelly & Chapman, and the advice to him of Kelly & Chapman that the effect of the proposed settlement was as contended for by the plaintiffs; and

(d) he deposed as follows:

In relation to paragraph 27 thereof – I organised the refinance of the Two Properties to enable the settlement to take place after having relied on the representations made by the first defendant to the effect that when a final figure was given for the settlement sum, the first defendant would accept the sum plus legal costs ‘in full and final settlement’ of any indebtedness of the plaintiffs to the first defendant pursuant to the first agreement and the second agreement, and that in consequence thereof, the first defendant would cease an enforcement action against the plaintiffs.

At trial, Mr Konstandellos gave brief evidence-in-chief, concerning which family members lived in the house at Arunta Crescent and Springs Road. He gave evidence and tendered documents concerning the loans connected with the Gardenia Lakes Shopping Centre, and the negotiations between him and Mr Szanto concerning the Gardenia Lakes Shopping Centre. He gave evidence that he made three or four payments in respect of the loans which are the subject of this proceeding, sourced from family, friends, and other businesses operated by him.

Mr Konstandellos was cross‑examined by counsel for Harplex and counsel for Kelly & Chapman. Under cross‑examination by counsel for Harplex, Mr Konstandellos gave the evidence, in summary, as follows:

(a) he has been a property developer for twenty-plus years, and has often had family members assist him by providing security for his borrowings. His sister provided Arunta Crescent as security for the loans which are the subject of this proceeding. It was never intended that she be out of pocket. She has paid nothing towards these loans because she does not work. He said his nephew (the former fourth plaintiff) was lying when he denied that Mr Konstandellos and the plaintiffs’ former solicitors had authority to act for him;

(b) he believes he spoke to Mr Denby a couple of weeks after settlement. Mr Denby called him after Mr Szanto had claimed another $169,000. Mr Denby said ‘what is all this about?’, and Mr Konstandellos replied ‘listen, you have clear instructions’;

(c) Mr Konstandellos was taken to Mr Denby’s file note of 22 July 2013, which referred to a conversation with Mr Alex Konstandellos to the effect that ‘sheriff came again!’, and a file note of a conversation with Mr Szanto, to the effect that ‘he’ll see to it’. He recalls there was an issue with the sheriff still making demands, and him asking Alex to deal with it by calling Mr Denby. He could not comment upon the reference in the file note to ‘debt still owing though’, saying ‘but it’s something that’s got nothing to do with me’;

(d) he was aware that Mr Denby had put an ‘all-in’ offer on his behalf to Harplex on 24 June 2013, but he was not aware that it had been rejected;

(e) he gave evidence that when he received the Trumble Szanto letter of 14 August 2013 (see paragraph 27 of these reasons), which was emailed to him on 15 August 2013, he called Mr Denby and told him ‘David, this is bullshit’ and said he was no longer to act for him. When taken to a file note of Mr Denby’s dated 29 August 2013, which referred to a conversation between him and Mr Denby, he said the reference to ‘don’t do anything’ referred to what was said to him by Mr Denby, as was the reference to ‘understood $960 was full settlement’. He said that Mr Denby said ‘Yes, Nick, 960 is clear cut’;

(f) when taken to Mr Szanto’s file note of 27 March 2012,[15] he accepted that the reference to ‘arrears for Glenview’ had nothing to do with the loans secured by Arunta Crescent and Springs Road; and

(g) he does not recall having any discussions with Mr Szanto directly concerning these transactions between 1 June 2013 and 17 July 2013.

[15]Exhibit ‘F’.

Mr Konstandellos was subject to extensive cross‑examination by counsel for Kelly & Chapman. His evidence, in summary, is as follows:

(a) he was questioned about his experience with litigation, and agreed that he was no stranger to commercial negotiations;

(b) he approached Mr Denby, because he was upset with Mr Szanto, and also because Mr Szanto asked him to get a lawyer. He did not engage Mr Denby to represent him in disputes concerning the Gardenia Lakes Shopping Centre;

(c) when taken to the letter from Trumble Szanto to the plaintiffs dated 27 March 2013 (see paragraph 8 of these reasons), he at first did not recall seeing this letter, but then did recall the letter. He accepted that it stated: ‘These are not payout figures’;

(d) his main objective was not to avoid a mortgagee sale: rather, his aim was to pay the debt. The value of the properties would not be sufficient to cover the debt, perhaps not even $900,000;

(e) he agreed that he wanted his family members to be able to live at Arunta Crescent and Springs Road, and he told Mr Denby this. He knew at the time that Mr Szanto could sell the properties on behalf of Harplex, and he had already given him the keys;[16]
[16]This must be a reference to Springs Road alone.

(f) he gave evidence that Westpac valued the properties at $1.1-$1.19 million as at April 2013. However, if Mr Szanto sold the properties, the plaintiffs would incur extra costs;

(g) Mr Denby was acting for him to negotiate a settlement. He did not discuss selling the properties himself with Mr Denby: his main goal was to stop the sheriff ‘turfing’ his sister out of Arunta Crescent, and he wanted to do the right thing by Mr Szanto as well; and

(h) he said that Mr Denby told him that Harplex had changed its position, and would discharge the mortgages and forgive the loans. He referred to Trumble Szanto’s letter to Kelly & Chapman of 24 June 2013, where Trumble Szanto stated, among other things: ‘All previous agreements for settlement are withdrawn’, and ‘Any offers … will only be considered on a global basis, that is to say an all-in figure for discharge of the mortgages on both properties’.

Counsel for Kelly & Chapman took Mr Konstandellos to a number of documents in evidence. Mr Konstandellos gave evidence in summary, as follows:

(a) he agreed that he had been told about the email from Simon Tan to Georgia Diamantopoulos of 13 June 2013 (see paragraph 10 above), where Mr Tan stated that ‘the amount requested is solely to discharge the mortgages in relation to the 2 properties’, and agreed that this shows there had been no change in Harplex’s position from March 2013;

(b) he was taken to the exchange of emails on 17 and 18 June 2013 concerning the settlement of Arunta Crescent. He agreed that he called Simon Tan to dispute the requested figure of $450,000, because Trumble Szanto was ‘changing the goal posts’;

(c) he was taken to a file note of Mr Denby’s dated 18 June 2013, and agreed that he had instructed Kelly & Chapman to secure a discharge of the mortgage over Arunta Crescent while waiting for a loan to refinance Springs Road;

(d) he gave evidence that he could not settle on Arunta Crescent, because Mr Szanto said he had to settle on both properties, and the finance was not ready for Springs Road. However, when taken to Mr Denby’s affidavit, where Mr Denby said that settlement could not take place for Arunta Crescent, because the finance was not ready for that property either, he did not disagree that this is what torpedoed the deal concerning Arunta Crescent;

(e) he gave evidence that once he had received Trumble Szanto’s letter of 24 June 2013 stating that all previous arrangements had been withdrawn, he decided he had to get Mr Denby back involved;

(f) he recalled Trumble Szanto’s proposal that he pay $40,000 immediately. He instructed Mr Denby to settle upon Arunta Crescent for $430,000. He agreed that he did not have a lot of negotiating power, as his sister was a day away from being evicted from Arunta Crescent;

[53][2002] FCAFC 55.

[54]O’Donovan J, Modern Contract of Guarantee (Thomson Reuters, subscription service) at [8.300], viewed 25 February 2017).

[55]Ibid [8.300] (at 15 February 2017).

The authorities make it clear that the subjective intentions of the parties are irrelevant to the question of construction. In Pollack, the Court referred with approval to the following statement of the Full Court of the Supreme Court of South Australia in Murray-Oates v Jjadd Pty Ltd:[56]

The question of whether we are concerned with a release or covenant not to sue should be approached as being one of construction having regard to the words used. At the same time one has to bear in mind the possibility of an implied reservation of rights. The fact that the plaintiff might not have intended to release the defendant, or did not realise the legal consequence of a release to one joint debtor, is not of itself of any particular significance … [57]

[56](1999) 76 SASR 8.

[57]Ibid [88].

Accordingly, in the current case, the task facing me is to determine, on the limited information available to me, whether the effect of the 2016 settlement agreement was to release the plaintiffs, or whether it merely contained a covenant not to sue the fourth plaintiff.

Once again, it is necessary to return to the history of this proceeding and the pleadings of the parties. The 2016 settlement agreement first came to the attention of the Court on about 2 March 2016, when Harplex filed an affidavit sworn by the then fourth plaintiff, Mr Frank Dounias. While this affidavit is not formally in evidence at trial, it is necessary to refer to this affidavit to put into context how this issue arose in the proceeding. Mr Dounias deposed as follows:

On or about December 8, 2015, I instructed my solicitors, S Kourkoulis & Associates to reach an agreement with Harplex Pty Ltd in relation to the settlement of the related proceeding.[58]
The terms of the agreement were that Harplex Pty Ltd would agree to release me from any further enforcement of the judgment debt in related proceeding in consideration of receiving payment of a stipulated sum.

[58]Being the recovery proceeding.

On 17 March 2016, I made orders that any application by any party be filed and served by 7 April 2016, returnable on 14 April 2016. On 21 March 2016, the solicitors for Kelly & Chapman wrote to the Court foreshadowing the following application:

(a) Harplex produce for inspection of the parties pursuant to s 26(1) of the Civil Procedure Act 2010 (Vic) all documents evidencing the settlement of the proceeding as between the fourth plaintiff and Harplex; and

(b) Harplex provide particulars of the amount alleged to be owed by the plaintiffs to Harplex pursuant to the judgment debt including details as to how such sum is calculated.

A summons to this effect was issued by the solicitors for Kelly & Chapman on 24 March 2016. On 14 April 2016, I made orders that the solicitors for Harplex to provide, on a without prejudice basis for the purpose of the forthcoming mediation, a statement of what Harplex contended remained owing under the judgment debt, without prejudice to Kelly & Chapman’s rights to press for further discovery in the terms above after the mediation. However, ultimately this application was not pressed by Kelly & Chapman, and on 26 May 2016, I made orders dismissing the proceeding as between the fourth plaintiff and Kelly & Chapman.

On 23 May 2016, the solicitors for the plaintiffs filed and served a proposed Further Amended Statement of Claim. This proposed pleading contained, relevantly, the following allegations:

17AIn or about February 2016, the fourth plaintiff and the first defendant entered into a settlement agreement (‘the 2016 settlement agreement’).

PARTICULARS
17BThe First to Third Plaintiffs are unable to give further particulars prior to discovery being given by the first defendant.
(a)the Fourth Plaintiff agreed to pay the First Defendant the sum of $60,000;
(b)the Fourth Plaintiff agreed to discontinue its claim against the First Defendant in this proceeding;
(c)the First Defendant agreed not to enforce the judgment in Supreme Court proceeding no. S CI 2012 of 05213 against the Fourth Plaintiff;
(d)the Fourth Plaintiff released the First Defendant from any further claims against it; and
(e)the First Defendant released the Fourth Plaintiff from any further claims against him.

PARTICULARS
The First to Third Plaintiffs are unable to give further particulars prior to discovery being given by the first defendant.
17CIn performance of his obligations under the 2016 settlement agreement, the fourth plaintiff paid the first defendant the sum of $60,000.
17DThe legal effect of entry into the 2016 settlement agreement is to discharge the first to third plaintiffs from any further obligations to the first defendant under the first agreement and the second agreement.
17EAlternatively to paragraph 17D, the payment by the fourth plaintiff to the first defendant has reduced the quantum of any outstanding liability from the first to third plaintiffs to the first defendant.

The allegations in paragraph 17D above were amended in the SFASOC to add the words:

alternatively to discharge the first to third plaintiffs from any further obligations to make payment pursuant to the judgment obtained by the first defendant against them in Supreme Court proceeding no S CI 2012 05213.

Accordingly, while the plaintiffs’ allegations concerning the legal effect of the 2016 settlement agreement were put more precisely in the SFASOC, Harplex has been on notice of the contentions of the plaintiffs in that regard since, at the latest, 23 May 2016. Further, on 2 November 2016, when I granted the plaintiffs leave to file and serve the SFASOC, I directed that the defendants file and serve any defences to that pleading by the following day. Neither of Harplex or Kelly & Chapman elected to file a defence to the SFASOC.

On 24 May 2016, a solicitor from Russell Kennedy, the solicitors for the plaintiffs, Mr David Kazatsky, affirmed an affidavit in which he deposed, among other things, as follows:

I am also informed by the First Plaintiff, and believe, that the First Defendant has not given discovery of its dealings with the Fourth Plaintiff.

Notwithstanding the above, no application was made by or on behalf of the plaintiffs for further discovery by Harplex. Save for a permissive order I made on 29 August 2016 (that the parties file any supplementary affidavits of documents), I made no orders directing Harplex to discover documents concerning the 2016 settlement agreement.

On or about 31 October 2016, days before the scheduled commencement of the trial (noting the trial commenced the day after Melbourne Cup Day, so in effect the last business day before the commencement of the trial), the solicitors for the plaintiffs served a Notice to Produce upon the solicitors for Harplex, seeking, among other things:

The settlement agreement referred to at paragraph 17A (of the Further Amended Statement of Claim) entered into by the fourth plaintiff and the first defendant in or around February 2016.

At the commencement of the trial, counsel for Harplex applied to set aside the Notice to Produce, on the basis that, as had been stated on behalf of Harplex on previous occasions, the 2016 settlement agreement was not relevant to the issues in dispute in the proceeding, as Harplex had, in its defence dated 8 September 2016, admitted the relevant factual matters, as follows:

17A     It admits the allegations in paragraph 17A thereof.
17B     It admits the allegations in paragraph 17B thereof.
17C     It admits the allegations in paragraph 17C thereof.
17D     It denies the conclusion of law expressed in paragraph 17D thereof.
17E     it denies the conclusion of law expressed in paragraph 17E thereof.

On 2 November 2016, I stated that it was not necessary for the plaintiffs to expressly plead that the release of the fourth plaintiff by Harplex in the 2016 settlement agreement released the plaintiffs from liability under the judgment debt as the point was made sufficiently clear in paragraph 17D of the SFASOC,[59] and made orders deferring my determination of Harplex’s application to a time ‘not before the close of evidence at trial’. On the last day of the trial, I heard further argument on the matter, and, upon indicating that I was likely to order production of the 2016 settlement agreement pursuant to the Notice to Produce, counsel for Harplex stated words to the effect that there was no such agreement that had been put in writing, save for an exchange of correspondence between solicitors, thus rendering the Notice to Produce redundant.
[59]T16, 2-3, 14-18.

I have rehearsed the history above in some detail, because it highlights the following relevant matters:

(a) that Harplex has been on notice since May 2016 that the plaintiffs intended to rely upon the 2016 settlement agreement as affecting their liability to Harplex, in the event they failed on their primary contention that there was an agreement between them and Harplex in the terms contended for by the plaintiffs;

(b) while the plaintiffs did not plead until the first day of trial their contentions concerning the precise legal effect of the 2016 settlement agreement, Harplex had an opportunity to adduce evidence of the terms of the 2016 settlement agreement to support any contention by it that the 2016 settlement agreement did not release the fourth plaintiff, but merely contained a covenant not to sue the fourth plaintiff. It would have been a relatively straightforward matter, given that Mr Szanto was due to attend for cross‑examination at trial, for Harplex to seek leave to adduce additional evidence from Mr Szanto concerning the circumstances in which the 2016 settlement agreement was made, the terms of the 2016 settlement agreement, and to tender into evidence any documents in support of Harplex’s contention that the legal effect of the 2016 settlement agreement was not as contended for by the plaintiffs in the SFASOC; and

(c) the principle in Walker v Bowry, while criticised in later authorities, is settled law in Australia, and the principles of construction summarised by Kyrou J in Associated Retailers are also well established, such that counsel for Harplex could be presumed to be aware of the issues which might arise from the plaintiffs’ allegations concerning the effect of the 2016 settlement agreement upon the liability of the plaintiffs pursuant to the judgment debt.

Accordingly, in embarking upon the construction exercise referred to in Associated Retailers, Pollack, Dorgal Holdings, and James v Surf Road Nominees Pty Ltd[60] (also referred to in Associated Retailers), all I have before me are the plaintiffs’ allegations in the SFASOC, Harplex’s admissions concerning the existence and the terms of the 2016 settlement agreement, and Harplex’s submission to the effect that Walker v Bowry does not apply in the current case. I could form the view, based upon the fact that Harplex continued to vigorously defend this proceeding, including after mediation after the 2016 settlement agreement was entered into, that Harplex had no intention of releasing the plaintiffs from their liability under the judgment debt. However, Harplex’s subjective intention, even if there was direct evidence of its intention, is of limited, if any, relevance to my determination of this matter. However, in the absence of any evidence (or even submissions) to support a contention that the 2016 settlement agreement should be construed as including a covenant not to sue rather than a release, then in accordance with the well‑established authority, I must find for the plaintiffs on this question. The submissions of Harplex to the effect that the plaintiffs and the fourth plaintiff were jointly and severally liable for the judgment debt is of no particular assistance, particularly given the statement in Walker v Bowry that:

At common law the release of one of a number of co-debtors jointly or jointly and severally liable for the same debt released all.[61]
[60][2004] NSWCA 475.
[61](1924) 35 CLR 48, 58.

Claims against Kelly & Chapman

By reason of my findings in relation to the release of the agreement between the plaintiffs and Harplex, the plaintiffs’ claims against Kelly & Chapman largely, but not entirely, fall away. It could be argued that, given that I have found that the agreement between the parties was in the terms contended by Harplex, if in fact the retainer between the plaintiffs and Kelly & Chapman was in the terms contended for by the plaintiffs, and Kelly & Chapman had breached its retainer, that Kelly & Chapman might well be liable for the costs of this proceeding, and the recovery proceeding (at least, after 26 June 2013), insofar as they are not recoverable by the plaintiffs against Harplex.

The plaintiffs relied upon the evidence of Mr Konstandellos and Mr Denby, along with internal file opening documents and the correspondence between Mr Konstandellos and Kelly & Chapman to support their contention that Kelly & Chapman was retained to reach full and final settlement between the plaintiffs and Harplex. The solicitor for the plaintiffs noted in his submissions that Ms Diamantopoulos had not been called to give evidence to contradict the evidence in Mr Konstandellos’ affidavit of 26 July 2016.

Counsel for Kelly & Chapman submitted that I could not be satisfied, on the basis of the evidence, that the retainer between the plaintiffs and Kelly & Chapman was in the form contended for by the plaintiff. She submitted:[62]

the Court should find as a matter of fact that [Kelly & Chapman], through Mr Denby, was retained to achieve the best possible outcome for the plaintiffs, so as to ensure that the houses, Arunta Crescent and Springs Road, were not sold by the sheriff, and could be used as security in the proposed refinancing. Further to that, the duty of care owed by [Kelly & Chapman] to the plaintiffs was limited by that;

[62]T260, 7-15.

Counsel for Kelly & Chapman submitted that Mr Konstandellos’ evidence was consistent with the terms of the retainer asserted by Kelly & Chapman, in that Mr Konstandellos stated that his objective was to prevent Harplex from selling the properties, particularly Arunta Crescent. Further, even if the Court found that the retainer was in the terms contended for by the plaintiffs, it was not open to make a finding that Kelly & Chapman had breached its retainer. Mr Konstandellos retained Mr Denby when he and his family had little or no negotiating power: it was not a question of doing a better deal, but rather it was doing the best deal in all of the circumstances.

Counsel for Kelly & Chapman submitted that the various proposals put by Kelly & Chapman to Trumble Szanto all had a common theme, being to facilitate the refinancing of Arunta Crescent and Springs Road, which required Harplex’s mortgages to be discharged. Mr Denby, in his email of 25 June 2013, tried to secure a full and final settlement, but this was against the weight of the history of the negotiations, and was comprehensively rejected by Mr Szanto. It was evident from the documents on Kelly & Chapman’s file that Mr Konstandellos was copied in and kept fully informed of developments, and his principal goal, which was to avert a forced sale of the properties, was achieved. That is what Ms Diamantopoulos was referring to when she told Mr Konstandellos that he was ‘bloody lucky’.

Further, counsel for Kelly & Chapman submitted that in any event, regardless of the terms of the retainer and any breach of the retainer, the Court could not be satisfied that the plaintiffs had suffered any loss. At the time of the commencement of the retainer, the plaintiffs were liable for the full amount of the judgment debt. Mr Szanto’s unequivocal evidence was that Harplex was not prepared to compromise, and the Court could not be satisfied that the plaintiffs lost the opportunity to achieve a better outcome. Mr Konstandellos gave evidence that he was not planning to sell the properties himself, and there was no evidence that the plaintiffs would have been better off had there been a forced sale. As for the fact that the plaintiffs incurred refinancing charges: that was the only way the plaintiffs could have the capacity to pay Harplex. Finally, the plaintiffs’ costs of this proceeding are not a compensable head of loss and damage.

The critical issue as between the plaintiffs and Kelly & Chapman is the terms of the retainer between them. Kelly & Chapman admits that it owed a duty of care to the plaintiffs. Further, if I found in favour of the plaintiffs in relation to the terms of the retainer, a finding that Kelly & Chapman had breached its duty of care under that retainer might follow. Given my findings concerning the terms of the agreement between the plaintiffs and Harplex, Kelly & Chapman did not procure a binding and enforceable agreement in the terms contended for by the plaintiffs, and there is no evidence they gave any advice to the plaintiffs on that point.

However, given Mr Szanto’s evidence to the effect that Harplex would never have agreed to release the plaintiffs from liability for the full amount of the judgment debt, a real issue arises as to whether any breach by Kelly & Chapman of its retainer would have caused any loss, save perhaps the costs thrown away by reason of the plaintiffs’ refinancing of the mortgages over Arunta Crescent and Springs Road. Taking this point further, if on 25 or 26 June 2013 Mr Denby had put to Mr Szanto a clear and unequivocal proposal that Harplex release the plaintiffs from any liability pursuant to the judgment debt in exchange for a payment of $960,000, the evidence overwhelmingly leads to the conclusion that such a proposal would have been flatly rejected. There was no evidence that the plaintiffs could have paid the outstanding debt, and the evidence is equivocal at best as to whether the plaintiffs would have simply walked away and allowed Harplex to take possession of and sell the properties. That much was suggested by the plaintiffs in the SFASOC, and in the plaintiffs’ submissions, but Mr Konstandellos’ evidence was equivocal on that matter. He accepted that Harplex could take possession and sell the properties, but his evidence was that he wanted to prevent the houses being sold. Whether or not another agreement could have been reached on terms more favourable to the plaintiffs than the agreement actually reached on 26 June 2013 is a matter of speculation, not evidence.

The above discussion is, however, somewhat academic, as I am not satisfied, on the balance of probabilities, that the terms of the retainer were those contended for by the plaintiffs. The documents referred to in the particulars of the SFASOC and relied upon by the plaintiffs to support their contentions concerning the terms of the retainer establish nothing more than that Kelly & Chapman were engaged in negotiating with Trumble Szanto to buy time for the plaintiffs to obtain loans to refinance Arunta Crescent and Springs Road, which they did. The documents, other than the critical exchanges referred to at paragraphs 8 to 26 above, and the communications between Kelly & Chapman and Mr Konstandellos on 25 and 26 June 2013, largely concerned matters of machinery, with Ms Diamantopolous making arrangements with the plaintiffs’ lenders and Mr Tan to arrange the refinancing of the mortgages over Arunta Crescent and Springs Road and settlement.

The file opening records referred to in the plaintiffs’ written outline of submissions do not shed any particular light upon the question of the terms of the retainer between the plaintiffs and Kelly & Chapman, and provides little support for the plaintiffs’ contentions. The first, dated 28 March 2013, records the client as Mr Frank Dounias, for “Sale of 32 Springs Road, Clayton”, and the type of file as “Conveyancing”. The second, dated 17 June 2013, records the client (erroneously) as Mr Lambrini Dounias, c/- Mr Nick Konstandellos, for “Refinance-42 Arunta Crescent, Clarinda, Vic, 3169”, and the type of file as “Conveyancing”. The third, dated 27 June 2013, records the client as Mr Konstandellos, for “Harplex-loan”, and the type of file as “Common Law”.

Mr Denby’s affidavit does not descend to any detail concerning the terms of the retainer. He deposed:

In June 2013 my firm received instructions from the [plaintiffs] to resolve a claim brought by [Harplex] as a result of judgment being entered in that proceeding.
Together with Georgina Diamantopoulos, my firm’s senior conveyancer, we sought to arrange the settlement of loans from the Commonwealth Bank to pay out the indebtedness under the two agreements and to protect the two properties from the mortgagee’s sales which were threatened by [Harplex].

The above statement is the closest Mr Denby comes to describing his retainer in the terms contended for by the plaintiffs. I note that the evidence in this affidavit largely concerned the plaintiffs’ application to stay the third warrant, such that Mr Denby, at least at that time, may well not have turned his mind to the question of the precise nature of the retainer between his firm and the plaintiffs. Mr Konstandellos’ evidence provided little assistance: the evidence in his affidavit was formulaic, and did not descend to any particulars as to what he said to Mr Denby and what Mr Denby told him. At trial, his evidence was vague, and largely to the effect that he wanted Mr Denby to ‘fix things’ or ‘clean everything’. This evidence could be interpreted in a number of ways, but it is clear from the evidence that the immediate problem which needed to be ‘fixed’ was the imminent attendance by the sheriff at Arunta Crescent.

The contemporaneous documentary evidence supports the retainer being in the terms advanced by Kelly & Chapman in its defence being, that ‘its instructions were limited to facilitating the refinancing of the Arunta Crescent property and the Springs Road property on the best possible terms so as to avoid mortgagee sales of these properties’. Perhaps the best evidence of the retainer is Mr Denby’s letter to Mr Konstandellos of 27 June 2013 (the date the last file was opened), and the accompanying bill, which referred to

Attendances over three days on you and Trumble Szanto Lawyers to obtain extension of loan and postpone Sheriff taking possession of Arunta Cres property.

What was set out in the above narration was clearly achieved. This was confirmed by a letter from Mr Denby to Mr Konstandellos dated 22 July 2013, which stated as follows:

Dear Nick
Re: 32 Springs Road, Clayton and 42 Arunta Crescent, Clarinda
We are pleased to advise that the re-finance of the above properties has now been settled. Georgia Diamantopoulos will write to you separately regarding the conveyancing aspects of the matters.
We will now obtain confirmation from Trumble Szanto that the Warrants have been recalled.
We thank you for your further instructions in the matter and enclose our further account for your attention.

Accordingly, given that I am not satisfied that the terms of the retainer were those contended for by the plaintiff, there could have been no breach on the part of Kelly & Chapman. Further, I accept the submissions advanced by counsel for Kelly & Chapman to the effect that, even if the terms of the retainer were as contended for by the plaintiffs, there was no breach of retainer, as the evidence clearly establishes that the plaintiffs would have been unable to obtain a discharge of their liability pursuant to the judgment debt without making a payment in full to Harplex. For the same reason, the plaintiffs were unable to establish that any loss was caused by the conduct of Kelly & Chapman.

Conclusions and the appropriate form of relief

Accordingly, in summary, I make the following findings:

(a) the terms of the agreement between the plaintiffs and Harplex were in the terms contended for by Harplex: that is, the payment made by the plaintiffs on 17 July 2013 was in consideration for Harplex discharging the mortgages over Arunta Crescent and Springs Road, and did not release the plaintiffs from their liability for the balance of the judgment debt;

(b) while in negotiating with the plaintiffs and Kelly & Chapman concerning the proposed discharge of the mortgages over Arunta Crescent and Springs Road, Harplex and Trumble Szanto had engaged in conduct in trade and commerce, Harplex had not engaged in misleading and deceptive conduct within the meaning of s 18 of the Australian Consumer Law;

(c) the effect of the 2016 settlement agreement, given the admissions made by Harplex in its defence, and the absence of any evidence to enable me to find that the 2016 settlement agreement was merely a covenant not to sue, rather than a release, was to release the plaintiffs from any outstanding liabilities under the judgment debt from the time that Harplex entered into the 2016 settlement agreement; and

(d) the terms of the retainer between the plaintiffs and Kelly & Chapman are those contended for by Kelly & Chapman, and there has been no breach of retainer or duty of care on the part of Kelly & Chapman.

In the prayer for relief in their SFASOC, the plaintiffs seek the following relief against Harplex:

A.A declaration that they are not indebted to the first defendant pursuant to –
(a)the first agreement;
(b)the second agreement;
(c)the first mortgage;
(d)the second mortgage;
(e)the third mortgage;
(f)the fourth mortgage;
(g)the judgment obtained by the first defendant against the plaintiffs in Supreme Court proceeding No S CI 2012 05213
or at all.

B.Damages.
C.Interest pursuant to Statute.
D.Costs.
E.Such relief under Schedule 2 of the Competition and Consumer Act 2010 as the Court shall consider fit.
F.The orders and/or other relief sought in paragraph 17 hereof.

In paragraph 17 of the SFASOC, the plaintiffs claim the following relief:

The plaintiffs deny the first defendant’s allegations and maintain that they are not indebted to the first defendant in respect of the sums claimed or at all, and claim an entitlement to the following orders and/or declarations:
(a)a declaration that the obligations upon the plaintiffs to make payments to the first defendant pursuant to the first agreement and the second agreement alternatively pursuant to the judgment obtained by the first defendant against the plaintiffs in Supreme Court proceeding No S CI 2012 05213, were discharged by the entry of the plaintiffs into the settlement agreement and/or upon the payments made by the plaintiffs to the first defendant consequent upon the settlement agreement;
(b)an order that the first defendant cease taking any step to enforce any alleged debt by the plaintiffs to the first defendant under the first agreement and the second agreement, alternatively pursuant to the judgment obtained by the first defendant against the plaintiffs in Supreme Court proceeding No S CI 2012 05213;
(c)an order that the first defendant take all necessary steps to discharge any warrants of seizure and sale on the titles for the Arunta Crescent Property and the Springs Road Property.

Given my findings that the agreement was in the terms contended for by Harplex, but that the plaintiffs were released from their liability under the judgment debt in or about February 2016, the plaintiffs’ claims for damages cannot be made out, as their damages claim was premised on the basis that the terms of the agreement were as contended for by the plaintiffs, or, alternatively, that Harplex was liable to the plaintiffs for misleading and deceptive conduct. In any event, while the plaintiffs have established that they (or at least, Mr Konstandellos) incurred refinancing charges in the course of June and July of 2013, their contentions that they lost the opportunity to sell the properties themselves, or lost the opportunity to negotiate a different agreement with Harplex were speculative at best, and unsupported by the evidence. Accordingly, the only relief available to the plaintiffs is a declaration that the plaintiffs are not liable to Harplex under the judgment debt, and consequential orders in the recovery proceeding.

Accordingly, I will make the following orders in this proceeding:

1. There be judgment for the plaintiffs against the first defendant.

2. There be judgment for the second defendant against the plaintiffs.

3. The question of the parties’ costs of the proceeding be reserved. In all of the circumstances, given my findings and the ultimate outcome of this proceeding, subject to hearing from the parties, I am inclined to refer the question of costs to judicial mediation.

4. There be consequential orders staying or setting aside the third warrant in the recovery proceeding.

5. The orders in paragraphs 1 and 4 above will be stayed for thirty days, or further order.

SCHEDULE OF PARTIES

S CI 2014 06596

BETWEEN:

NIKOLAOS KONSTANDELLOS First Plaintiff

ALKIVIADIS KONSTANDELLOS Second Plaintiff

LAMBRINI DOUNIAS Third Plaintiff

~~FRANK DOUNIAS~~ ~~Fourth Plaintiff~~

- v -

HARPLEX PTY LTD (ACN 188 350 074) First Defendant

KELLY & CHAPMAN (a firm) Second Defendant

S CI 2014 06596
BETWEEN:
NIKOLAOS KONSTANDELLOS	First Plaintiff
ALKIVIADIS KONSTANDELLOS	Second Plaintiff
LAMBRINI DOUNIAS	Third Plaintiff
~~FRANK DOUNIAS~~	~~Fourth Plaintiff~~
- v -
HARPLEX PTY LTD (ACN 188 350 074)	First Defendant
KELLY & CHAPMAN (a firm)	Second Defendant

[2017] VSC 183

26 April 2017