New South Wales Supreme Court CITATION : Sotos v Soulos [2008] NSWSC 708 HEARING DATE(S) : 9 July 2008 JUDGMENT DATE : 22 July 2008 JURISDICTION : Common Law JUDGMENT OF : Harrison AsJ (1) The notice of motion filed 5 June 2008 is dismissed. DECISION : (2) The cross defendant is to pay the plaintiff's costs as agreed or assessed. (3) The matter is to be listed for a status conference on 31 July 2008 before the Registrar at 9.00 am. CATCHWORDS : DISMISS - Strike out cross claim LEGISLATION CITED : Uniform Civil Procedure Rules CATEGORY : Procedural and other rulings CASES CITED : Commonwealth of Australia v Griffiths & Anor [2007] NSWCA 370 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Helen Sotos (Plaintiff/Cross Claimant) PARTIES : Michael Soulos (First Defendant) Marilyn Soulos (Second Defendant) Con Kristallis (Cross Defendant) FILE NUMBER(S) : SC 13346/2006 COUNSEL : M P Cleary (Plaintiff/Cross Claimant) I G Roberts (Cross Defendant) SOLICITORS : Giles Payne & Co (Plaintiff/Cross Claimant) Kennedys (Cross Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST ASSOCIATE JUSTICE HARRISON TUESDAY, 22 JULY 2008 13346/2006 - HELEN SOTOS v MICHAEL SOULOS & MARILYN SOULOS JUDGMENT (Dismiss: strike out cross claim) 1 HER HONOUR: By notice of motion filed 5 June 2008, the cross defendant seeks that the statement of cross-claim filed 2 March 2007 be dismissed pursuant to UCPR Rule 13.4, or in the alternative, that the statement of cross-claim be struck out pursuant to UCPR Rule 14.28. The cross defendant is Con Kristallis (Mr Kristallis). The plaintiff/cross claimant is Helen Sotos (Ms Sotos). The first defendant Michael Soulos (Mr Soulos). The second defendant is Marilyn Soulos (Mrs Soulos and also known as Mia or Maria by the family). Ms Sotos is the Aunt of the Michael Soulos. Mr Kristallis relied on the affidavit of Jennifer Gai Bicknell (his solicitor) filed 5 June 2008. Mr Kristallis has not put on any evidence. Ms Sotos relied on her own affidavits filed 3 January 2008 and 29 April 2008. Background 2 This case centres around relationships within the Soulos family. Helen Sotos, the plaintiff, is the maternal aunt of Michael Soulos. She is 86 years old. Michael Soulos, the first defendant, is the husband of Marilyn Soulos, the second defendant. Michael Soulos is a solicitor. I have read all the affidavits including those of Sandra Soulos and Annette Schlegel. They are Michael's sisters and nieces of Ms Sotos. The terms and circumstances upon which Ms Sotos firstly lent money to Mr Soulos and secondly, as to how a purported waiver document came into existence and the effect it was intended to have, all turn on conflicting evidence of conversations. In cases of this sort the proper place to ascertain the facts and circumstances is at trial. The judge is in a position to assess the witnesses giving evidence and being cross examined. Evidence has been ordered to be by way of affidavit evidence. In cases such as this, relying purely on affidavit evidence will not allow conflicting factual information to be resolved nor can all the necessary details be contained in those affidavits. 3 The substantive proceedings arise in relation to the recovery of money lent by Ms Sotos to Mr and Mrs Soulos. The amount claimed in the statement of claim is $3,122,608.22, or in the alternative, $1,474,050.60. This amount represents principle amounts and interest for loans purportedly given by Ms Sotos to Mr and Mrs Soulos over a period dating back to around March 1987. 4 While it is unusual for the plaintiff to bring a cross claim rather than join Mr Kristallis as a defendant, nothing turns on this procedural irregularity. The cross claim brought by Ms Sotos against Mr Kristallis is a claim brought in negligence and for breach of fiduciary duty. Mr Kristallis is a chartered accountant and was Ms Sotos's accountant and/or financial adviser for many years prior to and subsequent to 8 December 1996. The foundation of the cross claim is that Mr Kristallis knew that Ms Sotos had lent money to Mr and Mrs Soulos over a period of years. As at 8 December 1996, Mr Kristallis knew that the various loans to Mr Soulos and Mrs Soulos had amounted to a principle sum of $370,000 plus accrued interest. In the alternative, Mr Kristallis knew that Mr Soulos and Mrs Soulos were indebted to Ms Sotos for an amount of $370,000 plus accrued interest. 5 Mr and Mrs Soulos in their defence rely on a document said to constitute a release of the debt. That document was prepared by Mr Kristallis, he says, on Ms Sotos's instructions. Although the document does not on its face appear to be supported by consideration and is not a deed, Mr and Mrs Soulos assert that it was in exchange for a promise not to make a claim on the estate of Helen Soulos after her death and is therefore enforceable. This promise in turn relies on the Soulos's account of oral conversations between them and Ms Sotos. 6 The purported waiver document dated 8 December 1996 reads: " TO MICHAEL SOULOS & MARIA SOULOS I, HELEN SOTOS hereby forever and fully release you from all and any debts or money owed to me and irrevocably waive any claim I might have against you in relation to money given to you. 7 This document was signed by Ms Sotos and also signed by a witness. 8 After the existence of the document came to light Ms Sotos cross claimed against Mr Kristallis alleging that in preparing and sending the document to Mr and Mrs Soulos he breached common law and fiduciary duties. Ms Sotos has also filed a reply that sets out the allegations of fact relating to the preparation of the document. 9 The negligence claim brought by Ms Sotos comes in relation to Mr Kristallis having prepared this document and having Ms Sotos sign it. Ms Sotos's cross claim contends that Mr Kristallis owed Ms Sotos a duty of care and/or fiduciary duty in relation to the waiver document. The claim contends there was a breach of that duty by Mr Kristallis by failing to properly explain the nature and effect of the document to Ms Sotos. Further, the claim contends there was a breach of the duty owed to Ms Sotos as a result of Mr Kristallis acting under the direction of Mr Soulos and Mrs Soulos in relation to the waiver document. As a result of these breaches Ms Sotos's cross claim contends that she suffered loss and damage. Summary judgment and strike out pleading 10 Rule 13.1(1) of the Uniform Civil Procedure Rules provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 11 Rule 13.4(1) of the Uniform Civil Procedure Rules provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious; or, if no reasonable cause of action is disclosed; or, if the proceedings are an abuse of the process of the Court. Mr Kristallis says that the allegations raised in the cross claim are internally inconsistent and embarrassing and should be struck out. 12 Rule 14.28(1) of the Uniform Civil Procedure Rules provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 13 Rule 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 14 In Commonwealth of Australia v Griffiths & Anor [2007] NSWCA 370 Beazley JA with whom Mason P agreed said: "11 The general principles relating to the summary disposal of proceedings are well-known: see General Steel Industries Inc v Commissioner for Railways (NSW) & Ors [1964] HCA 69; (1964) 112 CLR 125 at 129. If it is demonstrated that there is a real question to be tried, the matter is inappropriate for the entry of summary judgment: Dey v Victorian Railway Commissioners [1949] HCA 1; (1949) 78 CLR 62. The tests stated in the authorities as to whether it is appropriate that a case be disposed of by the entry of summary judgment include statements such as that the matter is "so obviously untenable that it cannot possibly succeed"; "manifestly groundless" or "would involve useless expense": see General Steel Industries at 129. 12 The summary disposal of proceedings or part thereof deprives a party of the right to a contested hearing. For that reason it is said that the requirement for establishing that there is no triable issue is demanding: Air Services Australia v Zarb (Court of Appeal, 26 August 1998, unreported). In Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598, Mason CJ, Deane and Dawson JJ said at 602: "… the issue before the learned Master on the application for summary judgment was not whether [the plaintiffs] would probably succeed in their action against [the defendant]. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried." (Citations omitted) 15 The duties alleged to exist toward Ms Solos are set out in par [6] of the statement of cross claim. They are: (a) A duty to exercise reasonable care: (i) as accountant or financial advisor; and (ii) in relation to the purported waiver document. (b) A number of fiduciary duties as follows: (i) not to act for or at the direction of the defendants in relation to the purported waiver document unless: (A) the cross defendant first ensured the plaintiff received: (1) independent legal advice; and (2) independent financial advice; about the legal, financial and practical effect of the purposed waiver document. (B) the cross defendant first received the plaintiff's informed consent for him to act for the defendants in that regard. (ii) to inform the plaintiff of any conflict arising from the purported waiver; (iii) to cease acting for the defendants in relation to the purported waiver; (iv) to ensure the plaintiff read and understood the: (A) contents of the document; and (B) the legal, financial and practical effect of the document; (v) to advise the plaintiff that signing the document was disadvantageous to her. 16 Ms Sotos deals with the breaches of the duties in par [7] of the statement of cross claim. The fiduciary duties fall into two broad categories. Firstly, the duties arising out of Mr Kristallis acting for Mr and Mrs Soulos as well as Ms Sotos [6(b), (c) and (d)]; and secondly, duties relating to Ms Sotos's knowledge and understanding of the document [6(e), (f) and (g)]. 17 Mr Kristallis's counsel conceded that these circumstances are probably sufficient to give rise to a duty of care in carrying out work as an accountant by Mr Kristallis but the allegation of a fiduciary duty requires closer scrutiny. 18 An accountant/client relationship is not one of the traditionally accepted fiduciary relationships. It is necessary to consider the nature of the relationship to determine whether the relationship is something more than that of accountant/client and is a fiduciary one. 19 In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J (as he then was) said at 96-97: "The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Phipps v Boardman [1967] 2 AC 46 at 127), viz trustee and beneficary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal." 20 There is something more, Mr Kristallis was Ms Soto's confidant for over 25 years. On 30 October 2003, Mr Kristallis wrote to Ms Sotos's then solicitors and relevantly stated: "As to my recollections of dealings between Helen Sotos and Michael Soulos they are as follows: · Sometime in the late 1980's Helen Sotos advanced Australian Toy Retailers Pty Limited, a company of which Michael and Maria Soulos were shareholders and directors, the sum of $70.000. I do not know how that advance was documented. · Sometime later Helen Sotos advanced in either one or two instalments an amount totalling $300,000 to Australian Toy Retailers Pty Limited. Michael and Maria Soulos acknowledged this debt in writing although I do not have a copy of the document. I am aware that at or about the same time Helen Sotos signed a release. I have no knowledge as to the whereabouts of these documents. · Australian Toy Retailers Pty Limited went into Administration in early 1994 and was subsequently placed into liquidation and wound up. Helen Sotos was an unsecured creditor and though I cannot recall the exact amounts paid to her by the liquidator, to the best of my recollection, the amount returned sometime during 1995 was in the vicinity of $200,000. · The money received from Australian Toy Retailers Pty Limited (in liquidation) was then advanced by Helen Sotos to Michael and Maria Soulos as an unsecured loan repayable on demand. Michael and Maria Soulos signed an acknowledgement for the full amount of $370,000 of which I hold a photocopy. I believe the original copy of this document was kept by Helen Sotos. I attached a copy for your reference. · In the year following the advance I was approached by Helen Sotos and was asked to draw up a debt waiver, which I did. Helen Sotos asked me to hold onto this documents. I have kept the document since it was signed as asked. I have no other knowledge of any other loan or advances between Helen Sotos and Michael Soulos or Maria Soulos. I am aware from discussions with Helen Sotos in 1996 of the reason why the loan waiver was prepared and signed and I assume you have been instructed in that regard. It is unfortunate that relationship in Helen's immediate family appear to have reached a stage where people cannot talk to each other. I have been Helen Sotos' confidant for over 25 years. I have been an accountant for 40 years." 21 The contents of this letter reveal that Mr Kristallis has knowledge of both Ms Sotos and the Soulos's financial dealings. Aside from Mr Kristallis preparing her tax returns for 1996-1997 and from time to time she would drop in at Mr and Mr Kristallis's house on Sunday. She recalls a conversation between them as follows: Mr Kristallis: "If Michael ever leaves this area he will never come back. What are you going to do?" I said: "I guess I would have to write the debt off." 22 Mr Kristallis was also aware of the dispute between Ms Sotos and the Soulos' and at least what both sides were planning to do. It is alleged that Mr Kristallis acted as an accountant for both the plaintiff and defendants and he was Ms Sotos's confidant for 25 years. So far as the purported waiver is concerned, Mr Soulos says that in about May 1997 Ms Sotos told him "I have given Con [Con Kristallis] a paper. You have got your inheritance while I am alive out of love…" Mr Soulos also deposes that a short time after that conversation in his kitchen with Ms Sotos he rang Con Kristallis and said to him words to the effect "Has Aunty Helen given you a document forgiving the debt" to which he replied "I will have to speak to Aunty Helen before I answer that question." At sometime after that telephone conversation he received a call from Con Kristallis in which he said words to the effect "Aunty Helen said I should give you a copy of the waiver." A short time after that conversation Mr Soulos received a copy of the waiver documents. 23 So far as the waiver document is concerned Ms Sotos says she has never had any discussion with Mr Kristallis about any waiver document. The first time that she heard about the waiver document was sometime in 2005. She does not recall signing the waiver document but she admits that her signature appears on it. She says that she did not receive any advice from Mr Kristallis about the waiver document either in writing or orally. She was never asked by Mr Kristallis to sign any waiver document. She does not know how the waiver document came into existence. She never gave any instructions to Mr Kristallis to send any waiver document to Mr and Mrs Soulos. She would never have given those instructions because they have been inconsistent with her intentions at the time. She always intended that if she were to forgive the debt Mr and Mrs Soulos owed to her then she would only do so in her will and he would get the benefit of that after she died. However, as it turned out by the time she created her will in 2003, she could not afford to forgive Mr Soulos's debt and so she decided not to forgive the debt. She says she never had any agreement with Mr and Mrs Soulos to forgive the debt. 24 There is also evidence (Aff, Sandra Soulos) that Mr Kristallis advised Ms Sotos to take out a mortgage on her unit and that if she forced Mr Soulos to repay the debt then he would have to sell his house. 25 There is a difficulty with Ms Sotos's allegation in the cross claim. She says that she cannot recall signing the purported waiver but admits it is her signature and she alleges that she did not receive any advice from Mr Kristallis either orally or in writing. This internal inconsistence, counsel for Mr Kristallis says, is embarrassing and for that reason the cross claim should be struck out or dismissed. 26 It is my view that at it is at least arguable that a fiduciary duty arose. Mr Kristallis, as an accountant, acted for both Ms Sotos and Mr and Mrs Soulos. He had some knowledge of their financial affairs. He was also Ms Sotos's confidant for over 25 years. He knew that if Ms Sotos did not forgive the Soulos's debt they would have to sell their property. Ms Sotos is 86 years of age and Mr Kristallis is in his seventies. It is arguable that he acted on behalf of both the plaintiff and defendant as an accountant and in the exercise of his discretion Mr Kristallis affected the interests of Ms Sotos in a legal sense, and that Mr Kristallis had a special opportunity to exercise this discretion to Ms Sotos' detriment. Accordingly she is vulnerable to abuse by Mr Kristallis of his position. The cross defendant has conceded that Ms Sotos has an arguable case that Mr Kristallis owed her a duty of care in negligence. 27 So far as the internal contradiction in the cross claim is concerned, Ms Sotos acknowledges that it is her signature on the document but cannot recall signing it. She seems to have concluded that she was not given advice because it was contrary to her intentions at that time. There is a witness to Ms Sotos's signature. That person may be able to give independent evidence as to what occurred. At trial Ms Sotos will no doubt be cross examined as to how it is that if she cannot recall signing the document she has a positive recollection that she was not given any advice. As I stated earlier in this judgment, most of what occurred involves oral conversations. Usually these types of cases are not amenable to summary judgment. In my view, in all these circumstances, the cross claim should be permitted to proceed to trial. The outcome very much turns upon the evidence given at trial. 28 It is understood that Mr Kristallis is overseas until September 2008. Due to the age of the plaintiff, this matter should be afforded some measure of expedition. At the next status conference it is expected that the cross defendant's solicitor will be able to inform the Court the date upon which Mr Kristallis will be able to serve his affidavits. 29 The notice of motion filed 5 June 2008 is dismissed. The matter is to be listed for a status conference on 31 July 2008 before the Registrar at 9.00 am. 30 Costs are discretionary. Costs normally follow the event. The cross defendant is to pay the plaintiff's costs as agreed or assessed. The Court orders (1) The notice of motion filed 5 June 2008 is dismissed. (2) The cross defendant is to pay the plaintiff's costs as agreed or assessed. (3) The matter is to be listed for a status conference on 31 July 2008 before the Registrar at 9.00 am. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.