United Fisheries Limited v Papasavas & Co
[2001] VSC 86
•10 April 2001
| SUPREME COURT OF VICTORIA | |
| AT MELBOURNE | Not Restricted |
| COMMERCIAL AND EQUITY DIVISION |
No. 7459 of 1992
| UNITED FISHERIES LIMITED and ORS | Plaintiffs |
| v | |
| PAPASAVAS & CO and ORS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 13, 14, 15 and 19 March 2001 | |
DATE OF JUDGMENT: | 10 April 2001 | |
CASE MAY BE CITED AS: | United Fisheries Ltd v Papasavas & Co | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 86 | |
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Legal practitioner – retainer – whether retained by plaintiffs – breach of duty – loss.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr J.D. Loewenstein | S. Wolski & Co |
| For the Defendants | Mr K.C. Oliver | Hunt & Hunt |
HIS HONOUR:
The plaintiffs, United Fisheries Ltd (“UFL”), Blenheim Fisheries Ltd (“Blenheim”) and Kypros Kotzikas, sue a firm of solicitors which, by reason of changes in its constitution has been called successively, Papasavas & Co, Papasavas Pandeli Vadarlis and Papasavas Vadarlis. I shall refer to these firms collectively as “the Solicitors”. The claims of the plaintiffs are for damages for breach of retainer and negligence in work done by the Solicitors to implement a joint venture agreement made in early 1986 and in acting for two of the joint venturers in evicting the plaintiffs from the joint venture premises in early 1990.
Fundamental to these claims is the existence of a retainer between the plaintiffs and the Solicitors. In paragraph 6 of the statement of claim it is alleged that, in January 1986, UFL and Blenheim, by their servant or agent Mr Kotzikas, together with Peter Kritharelis and Jim Diamantaris retained the Solicitors to act as their solicitors with respect to aspects of a proposed joint venture arrangement. The Solicitors admit that, at that time, they were retained by Mr Diamantaris and Mr Kritharelis and by PK Flinders Island Pty Ltd (“PKFI”) in relation to the joint venture. They put in issue their retainer by any of the plaintiffs and it is to that issue that I first turn.
For a decade or so prior to 1986 Mr Kritharelis and his wife Angeliki and Mr Diamantaris and his wife Maria were directors of PKFI, a fish processing and wholesaling company. This company owned and leased premises used as a fish processing factory at Lady Barron on Flinders Island and owned and hired vehicles, plant and machinery used in the business. PKFI held these assets and conducted the business as trustee of the PK Unit Trust, the units of which were held by companies controlled by the two families. As part of its business, PKFI sold processed fish to PK Oyster Supply Pty Ltd (“PK Oyster”), a company whose operators and sole directors were Mr and Mrs Kritharelis.
Savas or Sam Papasavas had for some years acted as solicitor for the Diamantaris and the Kritharelis families. At all relevant times, until 1984, he carried on practice under the name Papasavas & Co, the firstnamed defendant. In 1984 Eric Vadarlis became a partner and the firm’s name changed to Papasavas Pandeli Vadarlis, the secondnamed defendant. In 1989 the firm changed its name again to Papasavas Vadarlis, the thirdnamed defendant. In July 1991 Mr Vadarlis retired from the partnership. Although Mr Papasavas was a member of each of the firms and a solicitor, he did not actually undertake any legal work. It would seem that this was undertaken by the other solicitors within the firm.
Mr and Mrs Diamantaris and Mr and Mrs Kritharelis and their corporate entities also had a firm of accountants acting for them at all relevant times. Colin Rowland Tuckwell said that he was a partner from July 1986 to November 1992 and then a manager of this firm which at the relevant times was known successively as Boyd Turner, Boyd Tuckwell Lush and then Bourne Griffith Boyd.
In 1985 PKFI was in financial difficulty and in June or July of that year Mr Diamantaris made an approach to the thirdnamed plaintiff, Mr Kotzikas, who was also in the fishing industry in New Zealand. Mr Diamantaris asked Mr Kotzikas whether he was interested in coming into the PKFI business. By November 1985 Mr Kotzikas was sufficiently interested to propose that he would introduce working capital on the basis that he took over the management and operation of the business. He told Mr Diamantaris that he would need to consider the structure of the venture and to seek professional advice. Mr Kotzikas, at that time, enjoyed the professional assistance of John Fox of White Fox & Jones, a firm of solicitors in Christchurch, New Zealand and of Ian Fox of Goldsmith Fox & Co, a firm of accountants in the same city. Mr John Fox died in September 1991. I take it that it was their advice to which Mr Kotzikas referred.
In late January 1986 the venturers came to the office of Mr Papasavas. I find that the first meeting occurred on 29 January. Present were Mr Kotzikas, Mr Diamantaris and Mr Papasavas and, later, Mr Kritharelis and Mrs Diamantaris. Mr Vadarlis said, too, that he was at this meeting as was a Mr Turner of Boyd Turner. It was at this meeting that Mr Kotzikas and Mr Diamantaris said that Mr Papasavas agreed to act as solicitor for the plaintiffs. Of the persons said to be present Mr Kotzikas, Mr Diamantaris, Mrs Diamantaris and Mr Vadarlis gave evidence. Both Mr Papasavas and Mr Kritharelis have died, Mr Papasavas on 26 September 1993. An affidavit, however, of Mr Papasavas sworn 7 October 1992 is in evidence. Mr Turner was not called as a witness.
The retainer was not confirmed in writing so the evidence of it lies in the recollections of the witnesses of the conversation or conversations in which the matter was discussed. Only Mr Vadarlis had a contemporaneous note. It is clear that the parties present told Mr Papasavas that Mr Kotzikas was to take a one third share in the business of PKFI and that a new company was to be formed as a vehicle for the venture. Mr Papasavas was asked and agreed to do the paperwork for this. In his witness statement Mr Kotzikas said, at this meeting, “we agreed and Mr Papasavas accepted that he would be appointed as the company solicitor for the new company”. Mr Diamantaris said in his witness statement that he gave instructions to Mr Papasavas to go ahead on “our behalf” and that Mr Kotzikas asked Mr Papasavas if he would act for him and that Mr Papasavas agreed. Mrs Diamantaris said nothing of these matters. Mr Vadarlis said he knew that Mr Kotzikas had a solicitor in New Zealand and maintained that he did not act for or provide advice to him or to the other plaintiffs. Mr Papasavas in his affidavit of 7 October 1992 also denied that he was retained by Mr Kotzikas or his companies. He said his clients were Mr Diamantaris, Mr Kritharelis and PKFI.
I approach the recollections of the witnesses with considerable caution, if only because of the lapse of time since 1986. Nearer in time is the affidavit of Mr Papasavas of 7 October 1992 to which I have referred but even this is speaking of events six and a half years in the past. The affidavit is, moreover, contradicted by the affidavit of Mr Diamantaris sworn 22 October 1992 and that of Mr Tuckwell sworn 27 October 1992 although these contradictions are expressed in unsatisfactory and perhaps inadmissible form.
To my mind, a surer basis to assess this conflict is to examine what the parties, and in particular Mr Papasavas and Mr Vadarlis, did pursuant to the retainer. First, on 28 January 1986, an employee of the Solicitors prepared a file card for the file which was opened and given the identification number, B21486. The client is shown on the card as Mr Kotzikas with his New Zealand address. The nature of the retainer is there described as “Re: Purchase of Interest PK Flinders P/L”. Mr Vadarlis said that this document was prepared when file B21486 was opened. This was done by one of the receptionists whom he identified as Irene. She would have done this, he said, from a note or conference note which I presume was provided by the solicitor responsible for the file. In this case it would have been either Mr Papasavas or Mr Vadarlis himself. Once the file was so identified, the activity of the solicitors in carrying out searches, drawing cheques, recording transactions and fees and the like, commonly and not surprisingly, continued to bear the Kotzikas name with or without the names of the two co-venturers.
On the other hand, it is clear that the Solicitors treated Mr Kotzikas as having his own solicitors in New Zealand. In his letter to White Fox & Jones of 4 February 1986 Mr Papasavas speaks of “our respective clients” when he sent for perusal and advice drafts of documents for the joint venture. Similar terminology is found in all of his correspondence in March and April of 1986. Most significant, in my view, is the Solicitors’ bill of costs for the work done. This is dated 26 June 1986 and is addressed to “Mr JD Diamantaris, Mr P Kritharelis and Flinders Seafoods Pty Ltd”. Flinders Seafoods was the company incorporated by the Solicitors on 4 June 1986 as the vehicle for the joint venture. When the bill was not paid, the Solicitors, in July 1987, sued for their fees, naming as defendant Flinders Seafoods, and not Mr Kotzikas who, it may be supposed, would have had the funds to meet any judgment.
For reasons which will appear I did not find Mr Kotzikas nor Mr Diamantaris totally reliable witnesses. I prefer to act on the contemporaneous documents to conclude that the Solicitors were retained to act in the joint venture and that their clients were Mr Diamantaris and Mr Kritharelis, and also their wives and corporate entities to the extent that they were involved in the transaction, and also for Flinders Seafoods when it came into existence on 4 June. I find that none of the plaintiffs retained the Solicitors to act for them.
This is sufficient to dispose of the claim as pleaded in contract. There is also an allegation that the Solicitors owed to the plaintiffs a tortious duty of care but I did not understand this to exist if there be no contract between them. I will, however, in deference to the submissions put on behalf of the plaintiffs, venture my views on certain other aspects of the case.
Assuming the retainer existed, I would accept the various terms, conditions and duties alleged in paragraphs 7 and 8 of the statement of claim. They are to exercise reasonable care and professional skill, to act in good faith and in the best interests of the clients, to act only in accordance with instructions and in the interests of the clients without preferring the interests of one over those of any other. The first and fundamental complaint of the plaintiffs was that the Solicitors failed to inform them of a liability of $140,000 owed by PKFI to the National Australia Bank in respect of what was called a red clause letter of credit. John David Riddiford, the National Australia Bank manager handling the PKFI account at the Errol Street, North Melbourne branch described this letter of credit as follows:
“A red clause letter of credit results from an arrangement between a buyer and seller that the buyer will assist the seller in obtaining pre-shipment finance to enable goods covered by the red clause letter of credit to be purchased and shipment made. The buyer arranges the issue of a red clause letter of credit by his bank. The red clause letter of credit is an irrevocable credit between two banks which contains a special clause authorising the advising bank (in this case the National Australia Bank) to make an advance to a beneficiary (in this case PKFI) of an amount of credit. The advising bank effectively grants a loan to the beneficiary which is guaranteed by the issuing bank.”
It is clear that the existence of this liability was not known to Mr Kotzikas nor to the New Zealand solicitors prior to the execution of the joint venture documents on 10 June 1986. The case of the plaintiffs was that they, or UFL, put into the venture sums in excess of $1M which were lost when the venture failed. This investment was made at times when they, too, were ignorant of the liability or at a time when they were already committed to the venture.
Assuming, as I do for present purposes, that the retainer existed, this first claim must nonetheless fail because I do not accept that it was part of the retainer of the Solicitors that they discover this liability. I reject the evidence of Mr Kotzikas that Mr Papasavas specifically undertook this responsibility. What is suggested is that the Solicitors undertook the responsibility to perform a type of due diligence. This is not the usual role of a solicitor but this does not mean that a given solicitor might not agree to perform it. The documents in evidence show that on 3 March 1986 Mr John Fox, the New Zealand solicitor “acting on behalf of Kotzikas” spoke to Mr Vadarlis seeking confirmation of a number of matters including that the liabilities of the business were as shown in the balance sheet. Mr Vadarlis, on 13 March, wrote to his two clients Mr Diamantaris and Mr Kritharelis bringing these matters to their attention. On 19 March 1986 Mr Vadarlis telephoned Mr John Fox confirming that the liabilities were as shown on the balance sheet. These communications were entirely inconsistent with the allegation that the Solicitors themselves assumed to Mr Kotzikas some obligation to verify the accuracy of the accounts.
It is said in paragraph 12 of the statement of claim that the Solicitors were in breach of their duties in that they “failed to exercise due care and skill in that [they] failed to ascertain or alternatively advise UFL, Blenheim and Kotzikas that there existed a red clause letter of credit of $140,000 to NAB which rendered PKFI and/or Flinders Seafoods liable to NAB”.
There seems little doubt that the existence of the red clause letter of credit became known to Mr Kotzikas by Friday 20 June 1986 for on that day he and Mr Tuckwell had discussions about it at the bank. So much appears from Mr Tuckwell’s telex of 25 June 1986. Mr Tuckwell said that this was roughly when the liability came to light. Mr Kotzikas’ evidence also was that it came to his attention some time between the date on which the sale agreement was executed, 10 June 1986, and the date of the 25 June telex. I accept that this is so.
A puzzling feature of the case is the nature of this liability and why it did not appear in the PKFI accounts or in the National Australia Bank letter to PKFI of 30 January 1986. The accounts were prepared as at 28 January 1986 by Boyd Turner who, it will be recalled, acted as accountants for the corporate entities of Mr Diamantaris and Mr Kritharelis. The current liabilities in these accounts are shown as $475,753 including the following liabilities to the bank:
Bank Overdraft $113,280 Secured Loan $120,000 Secured Credit Facility $125,000 In the bank letter of 30 January 1986 Mr Riddiford sets out the position of PKFI’s accounts as follows:
Overdraft $113,937 Trade Finance Facility $125,000 Commercial Bill Acceptance Discount Facility $125,000 Bank Guarantee to DPI $5,000 The letter also notes that there was “no present liability” in respect of a $4,500 travel credit facility nor in respect of the company’s $5,000 letter of credit facility with Westpac Whitemark Flinders Island. Mr Riddiford was called as a witness but was not asked about the omission of the liability from his letter or the reason for it.
It seems that the red clause letter of credit was a letter of credit known as CB512221 granted by National Australia Bank to PK Oyster to fund a sale of abalone to Wing Tai Hong Marine Products Ltd in Hong Kong in late 1985. Although there was no evidence of this, it is probable that PKFI became liable for the amount advanced under some cross-collateral arrangement. Accordingly, as a matter of commercial reality, if not as a matter of law, PKFI assumed the liability when PK Oyster failed to pay. It may be that it was not included in the PKFI accounts because its liability was as a surety or perhaps it was a contingent liability. Under cl. 2 of the sale agreement of 10 June 1986 the liabilities of PKFI, including contingent liabilities, were assumed by Flinders Seafoods so that this company became liable to pay the sum to the bank. Under cl. 9 of the sale agreement Mr Kotzikas agreed without qualification to lend to Flinders Seafoods such funds as may be required to carry on its business. Accordingly, he arranged for the amounts due under the letter of credit including interest to be paid by his company, UFL.
Insofar as it is alleged that the Solicitors failed to exercise due care and skill to ascertain the existence of the liability, there is no evidence as to how they might have discovered this. A more serious allegation, however, was one which did not find its way into the pleadings. Mr Diamantaris, in his witness statement, said that he and Mr Kritharelis knew of the liability under the red clause letter of credit at the time they were dealing with Mr Kotzikas and that they specifically instructed Mr Papasavas and Mr Vadarlis not to tell Mr Kotzikas about it for fear it would dissuade him from assisting their ailing business. Mr Vadarlis denied that he was so instructed or that he was aware of the liability. My approach to this allegation is even more cautious than to the other facts of this case which have no basis other than a witness’s recollection. Mr Diamantaris’ allegation against Mr Papasavas was made against a man who has been dead for eight years. It is a serious allegation which first saw the light of day 15 years after the event. In October 1992 Mr Papasavas was obliged to swear an affidavit in support of an application to set aside a default judgment in this proceeding in which affidavit he denied knowledge of the liability at the relevant time. Mr Diamantaris in his affidavit opposing the application and responding to Mr Papasavas’ denials, made no mention of the matter he now puts forward. His explanation in cross-examination for this failure was frankly unconvincing. Although there may be little significance in this, Mr Kotzikas said that he first heard of this concealment allegation a week before the trial began when he saw Mr Diamantaris’ witness statement. I reject Mr Diamantaris’ evidence as to this matter. Indeed, I was very unimpressed generally with his evidence and that of Mr Kotzikas.
It is, in the circumstances, hardly necessary that I consider the suggested consequence of the alleged breach of duty of the Solicitors. I will, however, say that I am not at all persuaded that Mr Kotzikas would not have come into the venture if he had known of the red clause letter of credit. I am not persuaded as a matter of fact or law that the sums of money advanced by UFL to Flinders Seafoods and lost following its collapse are losses properly recoverable by it or by the other plaintiffs for the breach alleged.
I turn finally to the second claim against the Solicitors made in paragraph 14 of the statement of claim. It is in these terms:
“Further, in breach of their engagement or alternatively in breach of their duty of care or alternatively negligently the firstnamed defendant-firm and/or alternatively the secondnamed defendant-firm and/or the thirdnamed defendant-firm –
(a)failed to transfer the legal, as well as the beneficial ownership, of the plant from PKFI to Flinders Seafoods;
(b)on January 30, 1990 gave notice, on behalf of PKFI, that PKFI, as licensee and lessee of the plant intended to re-enter and take possession of the plant.
Under cl. 7 of the sale agreement PKFI agreed to do all things reasonably required to vest the assets sold in Flinders Seafoods. There is no evidence that it failed to transfer the legal title in the plant. In any event, equitable title would have passed. The allegation made in part (b) is in terms correct. The Solicitors, on 30 January 1990, wrote to Mr Kotzikas, care of UFL, asserting that they acted for PKFI as licensee and lessee of land and processing plant at Lady Barron. They allege breach of the agreement of sale and continue “in the meantime, our client pursuant to its legal title, will re-enter the land and plant at Lady Barron and resume use and occupation thereof this day”.
This conduct is said to be in breach of the Solicitors’ obligation not to prefer the interests of Mr Kritharelis and Mr Diamantaris over those of UFL. UFL had no interest in the conduct complained of or in the property referred to, except possibly as a loan creditor of Flinders Seafoods. The events of 1990 which give rise to these allegations occurred long after any retainer regarding the establishment of the joint venture had been completed. Moreover, no loss has been shown to have been suffered by any plaintiff as a consequence of the Solicitors’ conduct. Mr Diamantaris and Mr Kritharelis re-entered the premises occupied by Flinders Seafoods in early February 1990. They, or their companies, held the majority of the shares in that company and the majority of the units in the Flinders Seafoods Unit Trust. Assuming that what they did was unlawful, no allegation has been pleaded or proved against the Solicitors with respect to it. Their giving of the notice achieved nothing at all. Assuming, however, that the Solicitors committed some breach of some duty, the loss claimed is, again, the whole of the investment of UFL or Mr Kotzikas in the venture, most of which was made prior to the date of repossession. This claim is a fanciful one. I reject it.
It would seem, therefore, that there should be judgment for the defendants with costs including reserved costs.
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CERTIFICATE
I certify that this and the 10 preceding pages are a true copy of the reasons for judgment of Byrne J of the Supreme Court of Victoria delivered on 10 April 2001.
DATED this 10th day of April 2001.
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Natalie Scattini
Associate to Justice Byrne
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