Despot v Registrar General of New South Wales and Ors Sky v Despot
[2011] NSWSC 273
•31 March 2011
Supreme Court
New South Wales
Medium Neutral Citation: Despot v Registrar General of New South Wales & Ors Sky v Despot [2011] NSWSC 273 Hearing dates: 8, 12 March, 30 April, 13, 30, 31 August, 1, 2, 3 September, 20-24 September, 18 October, 7 December 2010, 3 February 2011. Decision date: 31 March 2011 Jurisdiction: Equity Division - Technology and Construction List Before: Associate Justice Macready Decision: I direct the parties to bring in short minutes to reflect my decision and argue any outstanding matters and costs.
Catchwords: CONTRACT - relief - damages - rectification - specific performance - declarations sought that that the purported sale of plaintiff's property pursuant to a power of attorney and a deed of security and indemnity were fraudulent and should be set aside - allegations of breach of fiduciary duty - allegations of breach of s 12 of the Powers of Attorney Act 2003 - allegations of negligence and misleading and deceptive conduct - allegations of breach of s 74O of the Real Property Act 1900
CONTRACT - building - defendant builder sold property to recover amount owing under purported building contract - identification of contract terms - performance - oral terms - evidence - breaches of the provisions of the Home Building Act 1989 - claim for a quantum meruit for building work performedLegislation Cited: Fair Trading Act 1987 s 42
Conveyancing Act 1919
Home Building Act 1989 ss 5, 4, 10, 92, 94, 99, 102, 103BA
Home Building Regulation 2004 r 66
Interpretation Act 1987 s 8
Powers of Attorney Act s 3, 8, 9, 12, 13, 15, 16, 48
Real Property Act 1900 s 47OCases Cited: ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665
Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221 at 263
Broulee Developments Pty Limited v Mackay [2008] NSWSC 32
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005
Cypjayne Pty Ltd v Sverre Rodskog [2009] NSWSC 301
Daniels v Pynbland Pty Ltd (Nos 1 & 2) (1985) 4 BPR 9716
Eddy Lau Constructions Pty Limited v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273
Griffin v Clark (1940) 40 SR (NSW) 409
Hawkins v Clayton & Ors [1988] HCA 15
Madden v Kevereski (1982) 2 BPR 9645
Montgomery and Rennie v Continental Bags (NZ) Limited [1972] NZLR 884
Orr v Slender [2005] NSWSC 1175
Otter v Lord Vaux (1856) 6 De GM & G 638; (1856) 43 ER 1381; Bankes v Small (1887) 36 Ch D 716
Quest Rose Hill Pty Ltd v White [2010] NSWSC 939
Renard v Constructions (ME) Pty Ltd v The Minister (1992) 26 NSWLR 234 at 276
Repington, In re; Wodehouse v Scobell [1904] 1 Ch 811
Smart v Sandars (1848) 5 CB 895
Sopov v Kane Constructions Pty Ltd (No2) [2009] VSCA 141
Spina v Conran Associates Pty Limited; Spina v M&V Endurance Pty Limited [2008] NSWSC 326
Tobin v Broadbent (1947) 75 CLR 378
Tingley v Muller [1917] 2 Ch 144
Urban Traders P/L v Proceris P/L [2005] NSWSC 1192
Walsh v Whitcomb (1797) 2 Esp 565
West v Read (1913) 13 SR (NSW) 575; (1913) 30 WN (NSW) 204
Wollondilly Shire Council v Picton Power Lines Pty Limited (1994) 33 NSWLR 551Texts Cited: D Cremean, M Whitten, B Shnookal, Brooking on Building Contracts, 4th ed (2004)
S Furst and V Ramsay, Keating on Construction Contracts, 8th ed (2006)
Rawlinsons Construction Cost Guide 2008Category: Principal judgment Parties: Ranko Despot (Plaintiff)
Sky Constructions Pty Limited (Plaintiff)
Registrar General of New South Wales (1st defendant), Roy Maalouf (2nd Defendant), Stelli Pty Limited (3rd defendant), St George Bank Limited (4th defendant), Dominic Carbone (5th defendant), Jay Tyler (6th defendant), Joyce Azzi (7th defendant),Sky Constructions Pty Limited (8th defendant)
Ranko Despot (Defendant)Representation: Counsel:
Mr G Laughton SC for Despot
Mr R Gracie for Sky Constructions and Maalouf
Mr P Dowdy with Mr Harris for the St George Bank
Mr J Kelly SC for Mr Carbone
Mr B Gross QC Mr Williams for Stelli and Azzi
Solicitors:
Johnston Vaughan for Despot
Spinks Eagle Lawyers for Sky Constructions and Maalouf
Henry Davis York for St George Bank, the 4th defendant
Colin Biggers & Paisley for Mr Carbone, the 5th defendant
Kheir Lawyers for the 3rd and 7th defendants
File Number(s): 2009/298869 2009/298832
JUDGMENT
HIS HONOUR : This is the hearing of two proceedings with the evidence in one hearing being evidence in the other. A judge of this Court has referred the proceedings to me.
Ranko Despot ('Mr Despot') brings the first proceedings in which he sues his builder, Sky Constructions Pty Limited ('Sky Constructions'). Mr Despot is the owner of a unit on New South Head Road, Double Bay, New South Wales ('the property'). Sky Constructions entered into an arrangement with Mr Despot to undertake extensive renovation work on the property, which Mr Despot had purchased in 2005 for $1.19 million.
Mr Despot seeks orders and declarations that the purported sale of his property by the principal of Sky Constructions, Mr Maalouf, to Stelli Pty Ltd ('Stelli') pursuant to a power of attorney and a deed of security and indemnity, dated 5 September 2007, given by Mr Despot to Mr Maalouf and Sky Constructions were fraudulent and should be set aside.
Mr Maalouf sold the property to Stelli (the third defendant) to recover amounts said to be owing to Sky Constructions by Mr Despot. The property was sold for $1.6 million.
Although completion of the sale of the property took place on 3 July 2008, Mr Despot obtained interlocutory orders to prevent the registration of the transfer and Stelli's mortgage to St George Bank. Mr Despot remains the registered proprietor of the property.
The second proceedings were commenced by Sky Constructions against Mr Despot to recover $1.485 million allegedly owing under a home building contract for the extensive renovations to the property. Mr Maalouf claims there was a written contract for this sum between Sky Constructions and Mr Despot, executed on 16 July 2007. According to Mr Despot, there was an oral agreement between himself and Mr Maalouf, on behalf of Sky Constructions, that the building work would be done for $250,000.
The parties accept that Sky Constructions was not the holder of a builder's licence at the time the contract might have been signed and the claim is now (subject to the court's approval) for a quantum meruit for the building work Sky Constructions performed.
The parties' different contentions pose irreconcilable differences and there are improbabilities that make their acceptance impossible at different levels.
In order to understand the many factual matters that will need to be debated, it is useful to provide a short chronology of events that have occurred or have allegedly occurred.
CHRONOLOGY
In 2004, Mr Despot purchased a unit on the southern side of New South Head Road, Double Bay. The unit was on the fifth floor of a seven story building and enjoyed views over the harbour. Mr Despot's partner, or former partner and their child, occupied the unit after its purchase.
In 2005, an application was made to Woollahra Council in respect of renovations to the unit and on 9 August 2005, development consent was issued for the renovation works. Mr Despot says his partner obtained quotations that ranged from the high $300,000's to over $1 million. Nothing further was done at this stage.
In May and June 2007, Mr Despot placed the Double Bay unit on the market but it did not sell. The highest offer was $1.29 million. Mr Despot decided to renovate the unit.
In July 2007, Mr Despot met Mr Maalouf who offered to undertake the renovation work to the unit. Mr Despot and Mr Maalouf inspected the unit.
There is an executed building contract in evidence, which was dated 16 July 2007. Mr Maalouf suggested that Mr Despot signed the contract that day at the offices of Jonathan Clarke, an interior designer. The contract was in the usual coloured form provided by the Office of Fair Trading and showed a price of $1.485 million for the cost of the renovations.
Following expert evidence in the proceedings, Mr Depot concedes that it is his signature on the building contract and it is his signature on other documents that I will refer to later, these being the power of attorney and deed of indemnity and security, but Mr Despot suggests that his signature was obtained fraudulently and at a much later date.
On 30 July 2007, Mr Maalouf and Mr Despot attended the office of an architect who Mr Despot had previously engaged to obtain the DA and plans for the unit, which the Council had approved in 2005.
In early August 2007, Mr Despot says he reached an oral agreement with Mr Maalouf that he would complete the renovation works for the sum of $250,000. Apparently the keys to the unit were handed to Mr Maalouf at that stage.
Mr Despot claims that in late August 2007, when Mr Despot and Mr Maalouf attended the unit, he was surprised to see that it had been stripped out before revised plans were completed and before quotes from sub-contractors were obtained.
On 3 September 2007, Mr Despot gave Mr Maalouf a cash cheque for $15,000. Mr Despot says Mr Maalouf provided him with a document to sign and he was told it was an authority for Mr Maalouf to deal with the Council. Mr Despot says he signed the document.
A deed of security and indemnity and a power of attorney, dated 5 September 2007, are in evidence, which were prepared by Mr Dominic Carbone, Mr Maalouf's solicitor. Mr Carbone is now the fifth defendant to the proceedings and he is the subject of a number of different cross claims. The power of attorney appointed Mr Maalouf as Mr Despot's attorney. The deed of indemnity and security was with Sky Constructions and it was to secure amounts owing on the construction contract.
Mr Maalouf alleges that at approximately 5pm on 5 September 2007, he and Mr Despot met at a Double Bay restaurant, during the meeting Mr Despot signed the deed of security and indemnity and the power of attorney. Mr Maalouf says that Mr Tyler and Mr Michael Larry, who have given evidence in the hearing, attended the meeting and they observed Mr Despot signing the documents.
Mr Despot denies he signed any documents on that day. He called a number of witnesses who gave evidence of his movements on that particular day.
On 6 September 2007, Mr Despot was picked up from a Double Bay restaurant at approximately 1.30pm and driven to the airport. Mr Despot departed for Croatia on 6 September about 3.30pm.
In August 2007, Sky Constructions commenced work on the unit in breach of the DA and the consent issued by the Council. The breaches included a failure to obtain an acoustic report, commencing work without a construction certificate and numerous other matters. In addition, Sky Constructions did not have a building licence. Council issued a construction certificate on 4 December 2007. A building licence was finally obtained on 12 March 2008. No insurance was taken out as is required by the Home Building Act 1989 ('the Act') and by the conclusion of the initial hearing; it still was not in place.
Mr Despot returned to Australia on 26 November 2007.
In December 2007 and January 2008, Mr Despot made a number of payments to Mr Maalouf for building works, which were often in cash. In these proceedings Mr Despot alleged he paid a sum of $324,00 by cash or cash cheques and purchased appliances for the unit worth $44,139. This makes a total of $368,139.
Mr Maalouf for Sky Constructions acknowledges the receipt of payments amounting to $207,725.95.
In February 2008, Mr Maalouf travelled to Lebanon and in late March early April 2008, he returned to Sydney.
Building work on the unit continued in the first half of 2008.
On 8 May 2008, Mr Despot attended the offices of Jonathan Clarke, an interior designer and signed numerous documents including a schedule of finishes for the unit.
In April and May 2008, Mr Maalouf arranged the sale of the property to Stelli Pty Ltd a company owned by Michael and Joyce Azzi. Mr Maalouf had met Mr and Mrs Azzi at their caf known as Alcatrass. Mr Maalouf instructed his solicitor, Mr Carbone, to prepare a contract of sale. Stelli and Mr Carbone executed a deed of settlement on 12 May 2007, which was allegedly to cover any possible shortfall in funds that were to be left outstanding by way of vendor finance. The Azzi's were selling a business to provide them with the money necessary to complete after they had borrowed a large amount from St George bank. Contracts for the sale of the property were exchanged on 16 May 2008.
Strangely, the deed of settlement was in a common form of a discretionary trust with the general beneficiaries being Mr Maalouf and his family. Mr Maalouf was also the appointor and in this role he could remove the trustee Stelli. This effectively gave him apparent control over the property after its sale.
In May 2008, Mr Despot discovered that Mr Maalouf or Sky Constructions had placed a caveat over the property and he telephoned Mr Maalouf demanding he remove the caveat. A lapsing notice was served and the caveat lapsed. Mr Maalouf hid the fact that he had arranged for a sale of the unit from Mr Despot.
On 2 June 2008, Mr Despot left for overseas. While he was overseas he says he received a telephone call from his bank manager informing him that Mr Maalouf had come in to the bank to obtain his bank statements, whilst claiming to be Mr Despot's son-in-law.
On 3 July 2008, while Mr Despot was still overseas, settlement of the sale of the property to Stelli took place, pursuant to the alleged power of attorney between Mr Despot and Mr Maalouf.
On 18 July 2008, Mr Despot returned to Sydney from Croatia.
Mr Despot discovered on 21 July 2008 that the unit had been sold and it was possible he did not own it.
The vendor was paid $1,028,914 on settlement, of which $502,540 went to discharge Mr Despot's mortgage to St George Bank. $464,932 went to Sky Constructions and the balance paid outstanding rates. $480,000 was left owing as vendor finance. There was a failure to pay the balance of $91,086 of the purchase price.
On 21 July 2008 Mr Despot attended the Department of Lands and revoked the power of attorney that had been registered on 6 May 2008. On the same day he made a report of fraud to the Surry Hills Police Station and the following day he obtained an injunction in the Supreme Court restraining the registration of any dealings over all his properties. This effectively prevented the registration of the transfer to Stelli and the registration of the mortgage to the St George Bank, which had financed the purchase.
CLAIMS
Shortly after the commencement of the hearings, the claims against St George Bank were settled on terms that depend upon orders the Court might finally make in the proceedings. St George Bank then took no further part in the proceedings. The claims between Mr Carbone, Stelli and Mr and Mrs Azzi were also settled. Mr Despot raised claims in the hearing that can be summarised as follows:
(1) Fraudulent conduct by Mr Maalouf, Stelli, Mr and Mrs Azzi, Mr Tyler and Sky Constructions;
(2) Breaches of the provisions of the Home Building Act 1989 by Mr Maalouf and Sky Constructions
(3) Breach of fiduciary duty by Mr Maalouf, Mr and Ms Azzi and Stelli;
(4) Breach of s 12 of the Powers of Attorney Act 2003 by Mr Maalouf;
(5) Negligence and misleading and deceptive conduct by Mr Carbone;
(6) Breach of s 74O of the Real Property Act 1900 in respect the lodgement of a further caveat
There are now two cross claims remaining in the principal proceedings that are as follows:
(1) A third further amended second cross claim brought by Stelli and Mrs Azzi against Mr Despot, Mr Maalouf and Sky Constructions. The claim seeks declarations as to their entitlement to be registered as owners of the property and it seeks damages, compensation and contribution in respect of any loss they may suffer.
(2) A third cross claim brought by Mr Maalouf against Mr Despot and Mr Carbone. It claims damages for various causes of action that depend on the outcome of the principal claims by the plaintiff.
In the proceedings by Sky Constructions there is a first cross claim by the defendant, Mr Despot, against Mr Maalouf and Sky Constructions. It seeks to set aside the power of attorney and the deed of security and claims monies paid, the sale proceeds and damages.
ISSUES
As pointed out in the parties' submissions, there are number of threshold questions that arise for consideration and there are some consequential issues. Depending upon how these are answered, questions might then arise under the various cross claims (to the extent that they are still extant in the proceedings).
The threshold questions would seem to be the following:
(1) What was the arrangement between the parties for the construction work performed and were the: building contract dated 16 July 2007; deed of security and indemnity; power of attorney, both dated 5 September 2007; and contract for sale of land, dated 16 May 2008, vitiated by fraud?
(2) Are the building contract, the deed or the power of attorney or the contract for sale, or combination any of them, unenforceable by operation of sections 4, 5, 10, 92 or 94 of the Home Building Act 1989?
(3) Is Stelli entitled to an order for specific performance of the contract for sale?
The consequential issues are:
(1) Whether Sky is entitled to a quantum meruit under section 94(1A) of the Act and the amount of that quantum meruit.
(2) The amount Sky has been paid in respect of the work.
(3) The amount, if any, to which Maalouf or Sky or both are liable to account to Stelli or Despot or both for moneys had and received.
I turn to each of these questions.
THE THRESHOLD QUESTIONS
1. What was the arrangement between the parties for the construction work performed and were the: building contract dated 16 July 2007; deed of security and indemnity; power of attorney, both dated 5 September 2007; and contract for sale of land, dated 16 May 2008, vitiated by fraud?
Introductory considerations
The case put forward by Mr Despot was that he was the subject of a fraudulent scheme on the part of Mr Maalouf and later with the connivance of Mr and Mrs Azzi. Submissions were put in general terms:
"2. There is sufficient evidence to support a finding by the Court that the Building Contract was a sham, at the hands of Mr Maalouf. His company, Sky, was an unlicensed builder. The purpose of the Building Contract was to take advantage of the then recent sale by Mr Despot, to the knowledge of Mr Maalouf, of properties which Mr Despot owned in Victoria Street, Darlinghurst, for which Mr Despot received significant sums, by inserting into the Building Contract a value for the work which far exceeded the actual of value of the work performed, and then using improperly signed documents, the Power of Attorney and the Deed, to acquire the title to the unit or improperly obtaining benefits under the Power of Attorney.
3. It could not be said that the work which was actually performed was complex, or onerous.
4. The work involved relatively simple renovations, constrained by the fact that the building was a unit and that supporting walls could not be removed in any event.
5. The amount of the fraud, based upon the difference between the work as quantified by Mr Beencke and Mr Heymann is in excess of $1Million.
6. The Court would find that Mr Despot has been the victim of a significant fraud perpetrated by Mr Maalouf and aided and abetted by Mr and Mrs Azzi.
7. The sham Building Contract is central to the case of Mr Despot. The Deed purports to enforce an entitlement to a sum under the Building Contract, a sum due by Mr Despot to Sky under the Building Contract, and the Power of Attorney has been used to confer a benefit on Sky and, indirectly, Mr Maalouf.
8. Mr and Mrs Azzi and Stelli particularly, were on notice that Mr Maalouf was to receive a benefit from the exercise of his power; improperly obtained a bargain for Stelli, and were involved in the fraud by Mr Maalouf.
9. In those circumstances, Stelli was not a bone fide purchaser for value without notice; is not entitled to specific performance of the Contract for Sale and is not entitled to take priority over the registered proprietor, Mr Despot."
The evidence Mr Despot put forward as to the arrangements for the work was quite simple. It is contained in his first affidavit in these terms
"21. A few days later Maalouf met me at the "B @ the Bay" and he said to me words to the effect of:
'I can do this job for about $250,000 and very quickly, I should be able to finish the whole job by Christmas. To do it for this price however we will have to agree to change the plans. The bathroom and kitchen will stay where they are and the laundry will have to moved to save the plumbing costs. My father is a very fine cabinet maker and he can make all the cabinets fairly cheap.'
We went to Maalouf's car and he got out the architect's file and plans he had obtained from my architect and indicating to the plans he discussed with me what he intended to do.
I said words to the effect of:
'Ok let's see what you are going to come up with. Shall I use my architect to make the changes to the plans?'
He said:
'No, I'll use mine.'
I said:
'OK'
Maalouf then went away.
22. About mid August 2007, Maalouf telephoned me and said words to the effect of:
"Ranko I want you to meet me at the unit and have a look at what I have done"
23. I went to the unit with a friend of mine, Bradislav Ciric. I don't have a drivers licence and Ciric usually drives me around when needed.
24. When I went into the DB unit, the whole apartment had been stripped, there were no doors and cabinets, everything had been stripped down and removed. The carpets and the items belonging to my partner Penny, such as the washing machine, dryer and fridge were stored in the garage.
I was shocked, I said:
"How come"
Maalouf said words to the effect of:
Don't worry I'm Catholic, trust me I'll finish this job for $250,000.
25. I then had a talk with Ciric and said words to the effect of:
'Well even if it costs me about another 20% its OK.'
Ciric said to me:
'Even $250,000 is to much'.
26. I said to Maalouf words to the effect of:
'You don't have the new plans or anything'.
He said words to the effect of:
'Don't worry, I'm catholic. Everything is on the way. I'll have everything in a day or two.'
When saying the above Maalouf showed me the gold crucifix he was wearing. I didn't say anything further. I was shocked. I had not even given him the go ahead and he had stripped the apartment. I left without saying anything else."
Mr Maalouf denied this and suggested that in early discussions before 16 July 2007, he quoted estimates of $1,000,000 to $1,500,000.
Mr Maalouf claims that the building contract was signed on 16 July 2007. What is clear is that after his initial denials, Mr Despot now accepts that he signed all the relevant documents including the contract. The handwriting experts report was dated 16 July 2009. His evidence as to his signature is contained in his second paragraph 121 of his affidavit of 20 November 2009 in these terms:
"121. In relation to the Office of Fair Trading contract, the Deed of Indemnity and Security and the Power of Attorney to Maalouf, I have no recollection of signing these documents if however the signatures on these documents are deemed to be mine, I stress that I would never knowingly, and would have never knowingly signed such documents and have never or have no recollection of seeing these documents prior to the commencement of these proceedings. The only time I may have unknowingly signed off on the documents was on the 8 May 2008, when I signed off on a bundle of documents at the office of Jonathan Clarke which Maalouf informed me were required to be signed in order to obtain the Occupation Certificate."
Given the purchase price of the unit ($1.19m) and the sum at which it was passed in at auction in May and June 2007 ($1.29m), the concept of Mr Despot agreeing to pay any such figure as that suggested in the contract is highly improbable. That is, unless Mr Despot intended to deceive Mr Maalouf from the start because he had no intention of paying him for the quality finish that Mr Despot conceded he required for the refurbishment works.
It is clear in this case that Mr Despot and Mr Maalouf both have serious credibility issues. The defendants made the following submissions as reasons for not accepting Mr Despot's evidence:
(a) Mr Despot originally claimed that he did not sign documents such as the deed but then when confronted with the handwriting expert report changed his mind.
(b) Mr Despot painted the unbelievable position that he was somehow tricked into signing these documents because he thought they were an application for an occupation certificate.
(c) Mr Despot altered his position regarding the text message.
(d) Mr Despot made self-serving statements in an attempt to distance himself from the works.
(e) Mr Despot withheld from the Court the fact that he had obtained quotations for renovations works from a company other than Sky in excess of $1,000,000.00 and then he tacitly admitted knowledge of the higher quotes.
(f) Mr Despot made the unbelievable claim that he turned up to his unit and found it stripped and yet did nothing to stop the works. Mr Ciric, who is Mr Despot's driver, says that Mr Despot was not surprised when he went with him to the renovation.
(g) Mr Despot tried to claim that he did not know what works were being carried out, claiming, " I used to go to the unit a couple of times a week but most of the time no one was there". On the other hand Mr Ciric, claimed that otherwise "we speak every day about his renovation".
(h) Mr Despot claimed that he was not at the restaurant on 5 September 2007, yet Mr Ciric said Mr Despot came down the restaurant at about lunchtime till about 4.00 - 5.00 pm.
(i) Mr Despot changed his evidence from saying that he signed papers on the 8 May to the 5 May because he knew that the documents were registered on 6 May 2008.
(j) At a directions hearing before Hammerschlag J, lawyers for Mr Despot sought to have a power of attorney uplifted and inspected by a handwriting expert before Mr Despot put on further evidence. Hammerschlag J rejected that request and refused Mr Despot access to the original power of attorney until he had put on his evidence.
(k) The facts surrounding the power of attorney are further evidence of Mr Despot's unreliability as a witness. As noted by Counsel for Mr Carbone, the power of attorney came into existence on 5 September 2007 and the signed power of attorney was returned to Mr Carbone on 6 September 2007. Mr Despot gave no explanation how it came to be that he signed that document prior to 6 September 2007 and he admits in his amended statement of claim that he did sign the document see Para's 17, 42,42a particular (a) and Para 39(a).
Leaving aside the contested matters of fact such as (g) and (h), Mr Despot is plainly prepared to say whatever will help his case. He has not been truthful in putting his case to the court and given his lack of explanation of what really happened about signatures on the documents, I find it difficult to accept his evidence unless it is corroborated.
All other parties in the proceedings attacked Mr Maalouf's credibility. To pick up on a number of the matters referred to in Mr Carbone's submission by way of example:
(a) Mr Maalouf's evidence about the checklist for owners in the Building Contract shows that he was prepared to and did deliberately falsify the document with the intention of deceiving its readers.
(b) Significantly, the false answer given by Mr Maalouf to the question "Does the contractor have a current contractor licence?" and "Does the licence cover the type of work included in the contract?" contradicts Maalouf's evidence that he told Despot he did not have a licence and would write in the licence number when a licence was obtained.
(c) In answer to the question "why is it you were so willing to falsify the answers appearing on this check list? Mr Maalouf said "Firstly, to start the job". That answer proves his preparedness to falsify a document in order to advance his commercial aims.
(d) In the same answer Mr Maalouf went on to say, "Secondly, after getting instructions from Mr Carbone that there shouldn't be a problem getting the licence later". Mr Carbone says he gave no such advice. Indeed, the answer says nothing about all of the other falsifications in the checklist for which Maalouf was responsible, including his knowingly false answers to the questions concerning insurance, such as whether a copy of the certificate of insurance had been handed to the owner. That answer suggests that Maalouf is prepared to give false evidence to lay off responsibility for his own actions to other people.
(e) "Thirdly", Mr Maalouf said, "Mr Despot knew from the beginning or from day one that I was not a licensed builder and he was happy for me to start, knowing I would put the licence in there later". If everyone knew Sky did not have a licence, there was no need for Maalouf to falsely record the contrary in the checklist.
What was astounding about the way he gave all this evidence was the apparent calm manner in which he gave the evidence. He was not discomforted when admitting the untruths. Clearly he was a practiced liar.
Mr Maalouf was prepared to and did deliberately bring into existence a set of falsified invoices and statements which incorporated the builder's licence number dated at a time when no licence was in fact held. His excuse that Carbone advised him to bring into existence false documents was rejected by Carbone as a lie and having heard his cross examination, I agree.
Mr Maalouf's diaries, Exhibits C5 and C6, are not authentic documents. Normally a diary would bear some signs of use but these diaries are pristine. The diaries do not record a number of major events, as you would expect of a genuine document; for example, they do not record the sale of the property for $1.6 million or any other events relating to Mr & Mrs Azzi. They do not record information on other jobs. I am satisfied that Mr Maalouf concocted them for the purpose of supporting his case.
Mr Maalouf conceded that he deliberately kept secret from Mr Despot the fact that he had found a purchaser for the property at $1.6m and had proceeded to exchange contracts on 16 May 2008. This is not the behaviour of an honest man - even if he did hold a valid power of attorney and he was entitled to sell the property in order to pay Sky for the work that had been done.
There were also Mr Maalouf's extraordinary denials of documents when he was taken to the circumstances surrounding his knowledge of the sale of Mr Despot's properties, for which Mr Despot stood to receive a purchase price in excess of $5,000,000. One example of such documents is solicitors' costings of uncontroversial conveyancing transactions. These were very unlikely to have been fabricated, as Mr Maalouf claimed. Mr Maalouf just wanted to distance himself from the knowledge.
I will not accept Mr Maalouf as a credible or truthful witness on any contested factual matter.
The building contract
I return to the question of the 16 July 2007 building contract.
Mr Maalouf called another witness, Mr Jonathon Clarke, who was present on 16 July 2007. Mr Clarke gave evidence that there were a number of meetings that Mr Despot attended. The first meeting was said to be on 28 June 2007, when there were discussions on the standard of finishes for the unit. He said there was another meeting on 14 July 2007, when a display of finishes was shown to Mr Despot. Mr Clarke said the meeting on 16 July 2007 was their third meeting.
Mr Clarke gave affidavit evidence in these terms:
"11. A further meeting (the second meeting) took place between RM and Ranko Despot at my office on 14 July 2007 at 12.00 pm. At that meeting I gave a comprehensive display of the finishes that would be used in the renovation of the property. Ranko said words to the effects "I am very happy with your proposal I am looking forward to when this apartment will be finished" . At this meeting RM said,
'I want you to provide me with a room by room description of finishes for the apartment'.
I said,
'Ok I can have that prepared by midday Monday so we can meet at my office at 6.00pm Monday". I recall RM saying to Ranko Despot words to the effect that "Now that you have finalised the finishes we can finalise the contract'.
12. There was a further meeting (the Third meeting) at my offices on Monday 16 July 2007 at 6.00pm. At that meeting Ranko Despot was present as was RM.
13. At the Third meeting RM, myself and Ranko Despot sat down at my meeting table. I placed on the table my schedule of finishes and I explained to Ranko Despot each finish on a room by room basis. When I had finished the explanation I said,
' Are you happy with that'
He said
' Yes very happy I am looking forward to the project start and finish'.
I then got up from the table took the schedule to the photocopier to make a copy for RM and Ranko Despot. Annexed hereto and marked "A" is a copy of the schedule of finishes prepared by me.
14 . The photocopier is less than one metre from the meeting table where Ranko Despot and RM were sitting. As I was photocopying the schedule I looked at RM and Ranko Despot sitting at the meeting table. They had a document on the table and they were looking at it. RM was talking to Ranko Despot he said words to the effect that,
'This is standard Department of Fair Trading contract that you will need to sign '.
I recall Ranko Despot saying,
'Yes that fine '.
15 . When I competed the photocopying I sat back at the table and RM and Ranko were looking at a document and discussing its contents. I saw Mr Ranko Despot sign the document that was on the table. That document was a generic Department of Fair Trading Home Building Contract. The cover of the contract was partly orange. I have seen many of these contracts."
There are also problems with Mr Clarke's evidence, to which I will return, not the least of these is that on 28 June 2007, Mr Despot, according to his passport, was overseas in Indonesia.
One of the more critical documents in the case, which helps to solve this problem, is a typed memo created 17 August 2007. According to Mr Carbone's evidence, Mr Carbone received a memo that was from Mr Maalouf on 21 August 2007. The memo addressed to Mr Jay Tyler, the contact manager for Sky Constructions and it was in these terms:
"Attention Jay Tyler
The following are the details for my Double Bay site:
1. Ranko Despot 1/300 Victoria Street Darlinghurst NSW 2010 (client)
2. Sky Constructions Pty Ltd 7 Ruby Street Guildford NSW 2161 (my company)
3. Strata conditions are working hours Monday to Friday from 8am to 5:30pm and Saturday 8am to 1pm no work Sunday.
4. Development address unit 7/539 New South Head Road Double Bay 2028
5. Special conditions are as follows... once contract signed by both parties within 7 days the sum of $40,000 due to be payed, and the balance divided over the following 3 months. The balance to be paid end of every month from date of starting work. If work starts and deposit not paid a further 7 days will be given to pay the deposit if required, if this attempt fails the full amount will be due of $275000 plus gst within 30 days. If these payments are not paid sky constructions can put caveats or writs on any property Ranko Despot owns. These include any costs taken by the company or persons involved with the company to have money paid. A 4% default rate monthly will take into affect as well, with failure to pay the money due until full amount is due including legal costs and any other costs. This default rate will continue until full amount paid no matter how long time takes in recovery of money.
Roy Maalouf"
The note refers to the prospect of a contract yet to be signed and it refers to a deposit of $40,000 yet to be paid.
There are handwritten notes on the document that are important in establishing a number of matters.
Mr Maalouf was the only director of Sky Constructions, although the only shareholder was his wife. It will be noted that the word caveats is spelt "caviets". This is Mr Maalouf's unique spelling of the word. He used the same spelling when he reconstructed his diary. It was apparent from cross-examination that he did not know the correct spelling of the word "caveat".
The handwriting on the document shows the words "dated August 27 bldg Agt" which is Mr Carbone's handwriting. According to Mr Carbone, he wrote those words on the document when Mr Maalouf told him that Sky Constructions had entered into a building contract with Ranko Despot, dated 27 August 2007. This date is in the deed of security and indemnity (it is dated 5 September 2007) as the contract date in respect of which that document operates. Importantly, there is no reference to $1.485 million in the memo to Mr Tyler dated 17 August 2007.
There are a number of entries in the building contract that militate against it having been signed on 16 July 2007. The first of these is that it contains the contractor's licence number under "Owner and Contractor details". This number that could not have been included in the contract on that date. Mr Maalouf only applied for the licence at the end of January 2008 and the licence was issued on 11 March 2008.
Mr Maalouf denied that he prepared the memo and he denied it was prepared in order to inform Mr Tyler what the contract was going to contain. There are a number of reasons for preferring Mr Carbone's evidence to Mr Maalouf's. The note itself is in existence and has been produced to the Court. There is no rational reason to suppose that Mr Carbone would make up any of the facts about which he gave evidence in relation to the memo. If in fact a building contract had been brought into existence on 16 July 2007, there would be no need for the note, instead a copy of the contract could have been given to Mr Carbone when he prepared the security and indemnity deed in August 2007.
Another matter about the home building contract is that a three page document prepared by Urban Interior Design and described as specification, dated 17 July 2007, that was referred to in the contract, was not in existence as at 16 July 2007. There was a scope of works document that was signed and dated 16 July 2007. This is a one page document signed by Mr Despot and Mr Maalouf. It was most likely to have been signed on that day.
There is also documentary evidence from Brendan Randall, Mr Despot's previous architect, which records that his file with the plan that had been used for the earlier quotations was collected on 30 July 2007. This is some two weeks after the home building contract was allegedly signed. How the works could be estimated without any plans is hard to understand. The other matter, which only occurred on 16 July 2007, was an agreement about the nature of the fixtures. This would also make it impossible to estimate the costs of the works on the same day.
It could be that Mr Clarke was mistaken in precisely what he observed and it may even have been possible that on 16 July 2007, when Mr Despot and Mr Maalouf sat down to discuss documents, that Mr Maalouf had the Office of Fair Trading Home building contract with him. Mr Clarke may just have a problem with his recollection. For example, he could not remember Mr Despot's name when he was giving evidence before me. However, it is plain that the contract was not entered into on that day. Mr Maalouf has constructed the contract at some later date. This is more likely to have been after some of Mr Despot's signatures were obtained on the document probably without the price having been inserted at that stage.
Unfortunately, after Mr Despot's signatures were proved to be genuine, further evidence from him about what he might have signed and when was not forthcoming.
I am satisfied that the home building contract, dated 16 July 2007, was not signed on that day. It is clear it has been signed at some later stage, although the time and circumstances in which that occurred cannot be determined.
The signing of the deed and the power of attorney
Before turning to the nature of what agreement did exist for the construction work, I will first deal with the events of 5 September 2007. Mr Maalouf and his witnesses, Mr Tyler and Mr Larry have sworn there was a meeting that happened at 5.30pm on 5 September 2007 at Mr Despot's restaurant, The Bay. Mr Despot and his friends, Mr Ciric and Mr Juric, say there was no meeting at the restaurant, let alone one in which the deed and the power of attorney were signed.
It seems clear that the documents were prepared in the morning of 5 September 2007 by Mr Carbone. No person has suggested that Mr Maalouf did not hand the documents back to Mr Carbone. Mr Carbone deposed that he received the executed documents that were witnessed by Mr Tyler on 6 September 2007. There cannot be any suggestion that Mr Despot was tricked into signing them on some other occasion, perhaps in May 2008.
Due to the fact that the deed and power and attorney were prepared on 5 September 2007 and returned signed on 6 September 2007, the possibility of the execution of the documents by Mr Despot is overwhelmingly likely. He does not deny that it is his signature on the documents.
There are a number of other events that indicate the likelihood that the deed and power of attorney were signed on 5 September 2007. These events would not have occurred if the documents had been signed some time in May 2008, as Mr Despot suggested. The first of these events is a conversation that Mr Carbone had with someone on the telephone after he asked Mr Maalouf to phone Mr Despot to enable him, Mr Carbone, to confirm the signature on the power of attorney. It would be highly unlikely that Mr Maalouf would be that prescient to appreciate that Mr Carbone might make such a request and line up someone in advance to pretend to be Despot at the end of the telephone. The telephone call to Mr Despot's number was short and occupied one minute 37 seconds. It was made just before Mr Despot left for the airport. Notwithstanding Mr Carbone's recollection about the length of the call, what needed to be said and responded to in that conversation, could have been accommodated in the call. I am satisfied it occurred with Mr Despot in the terms recounted by Mr Carbone.
Although Mr Despot has denied having the conversation, I am satisfied that the conversation did occur.
Another matter is that Mr Clarke gave evidence that at a site meeting on 28 November 2007 Mr Despot said:
"Roy is my power of attorney and you will be paid by him."
Mr Clarke was not cross-examined on that conversation. However, it is more than likely that he recalled it because at that time he had not been paid and he felt Mr Despot was dismissing him.
There is unchallenged expert evidence concerning text messages that were sent from Mr Despot's mobile telephone on 17 December 2007 to Mr Maalouf's mobile telephone. The message was:
"Keep working. I promise to give you $750,000 by the end of the week."
There were also two SMS messages from the same phone, dated 29 January 2008, which were as follows:
"Roy please continue work. You are my power of attorney. If I don't pay your money do what you want our contract is $1,485,000. It is not that much money."
The next SMS message immediately thereafter was as follows:
"You know I won't rip you off. Please keep working."
Thereafter Mr Maalouf handed this particular mobile phone to Mr Carbone to keep it as evidence. This is somewhat unlikely since a mobile phone is a builder's lifeline.
According to Mr Despot, Mr Maalouf must have sent the later text messages in January 2008, when he was in a restaurant toilet. Mr Despot says he had left his own mobile phone on the table where Mr Maalouf was sitting. There is an inherent improbability in assertion that the last two SMS messages were sent by Mr Despot.
Mr Despot's says he never knowingly signed such a contract and I have found that in fact that he did not sign the contract as alleged by Mr Maalouf on 16 July 2007. Mr Despot denied that any contract documents were signed in September 2007, but the evidence does not give any other occasion, other than May 2008, when such a document could have been executed. There is absolutely no reason why Mr Despot would possibly concede to Mr Maalouf that they had a contract for $1,485,000. In my view Mr Maalouf sent the text messages using Mr Despot's phone. The text messages do not assist on this aspect.
The text message of 17 December 2007 might have been genuine if Mr Despot was in a situation where he was endeavouring to keep Mr Maalouf working on the renovation and pay him as little as possible in the hope of winning the final battle. However, it does not contemplate or refer to the power of attorney.
Mr Ciric's evidence was that on 5 September 2007, he was with Mr Despot at Darlinghurst. He was Mr Despot's driver and a long time friend. According to him between 4pm and 5pm, he drove Mr Despot to Park Street in the City. He then he drove him from Park Street to Darlinghurst at about 6pm. Mr Ciric also gave evidence that he took Mr Despot to the airport the following day. Mr Ciric's evidence revealed a hesitation under cross-examination when answering questions about these matters and he appeared to have little recollection of other events of that day. He also suggested in his evidence that he and Mr Despot might have left Darlinghurst at 4.30pm, rather than 4pm, to look for luggage in the city.
Mr Juric gave evidence that he managed the restaurant for Mr Despot at the relevant times. He normally opened the restaurant six or seven days a week and he worked until about 5pm. He says he recalls the events of 5 September 2007 because he knew Mr Despot was going overseas the following day. He gave evidence that on the day he was supposed to finish at 5pm but Mr Despot had not returned to the restaurant so he kept telephoning him to see when he would back. Mr Juric was obliged to meet some of his sports clients after 5pm and he was anxious to leave. Ultimately, he says Mr Despot prevailed upon him and he agreed to stay until 10.30pm when Despot returned. In cross-examination, Mr Juric did remember that there had been a conversation about buying luggage but he was not sure whether it had occurred that day or the next.
Mr Tyler's evidence was straightforward. He stated that he attended a meeting at the restaurant with Mr Despot and Mr Maalouf for an hour and eventually he witnessed the signing of the deed of indemnity and the power of attorney. Mr Tyler had difficulty in recalling the precise date of this meeting and he may have been told of the date to insert in his affidavit. This is not critical given the only opportunity on the evidence for this event to have occurred was 5 September 2007.
Mr Larry's evidence was that some time in September 2007, he sat down with his friend Mr Maalouf, with Mr Tyler and with Mr Despot at the restaurant. He recalled the questions about securing the money and the need for security and he also recalled Mr Despot saying something like, "This is not the first power of attorney I have given". He said he could not identify the documents because he was merely there at the time and he was not paying attention to them. However, Mr Larry said he did see documents being signed.
There was nothing extraordinary about his cross-examination and his testimony was not questioned.
Given the limited time frame and Mr Despot's admission that he signed the documents, in my view they were signed on 5 September 2007, notwithstanding the evidence of Mr Ciric and Mr Juric.
What was the arrangement between the parties for the construction work performed?
I return to the question of what the parties' had mutually arranged for the building work. I have set out the conversations that Mr Maalouf alleged occurred. The first conversation does not lead to any agreement, firstly because Mr Despot did not accept the offer and secondly, the work that actually had to be done had not been determined at that stage - further plans were to be obtained.
There are no other conversations that would go to any final contractual arrangement between the parties. The work went ahead and Mr Despot was expecting to receive quotes from various sub-contractors. The proposed work was no doubt defined by the plans obtained and approved by Woollahra Council.
As will become apparent, the contract was intended to be for cash payments or for payments made by cash cheques.
Mr Carbone's submissions suggest to the Court a scenario in which two experienced participants in the cash economy were proceeding on a do and charge basis, with the intention, when push came to shove, of trying to get away with as much as possible. It is not possible to determine the parties' relationship with more detail or precision because the relevant parties are not able or not willing to put the true situation before the Court. For example, the evidence is bereft when it comes to discussions between Mr Maalouf and Mr Despot about quotations for particular aspects of the work, the latter of whom, seems to have gone overseas leaving Mr Maalouf to proceed at times without sufficient funds to pay sub-contractors.
Mr Despot was experienced in buying and selling properties, a number of which he had renovated and resold. His arrangements were always oral. He had never executed a contract in respect of the renovations of these properties. It is clear that Mr Despot was quite capable of looking after his own interests and he was probably familiar with the process he embarked upon with Mr Maalouf.
I am satisfied that there was no concluded contract at an agreed price of $250,000. There was an agreement for the work to proceed on a do and charge basis, with some representations having been made about the estimated future cost. However, misrepresentation is not the subject of any claim in the proceedings.
The contract for sale and the deed of settlement
It is useful to address the question as to whether or not the contract for sale of the property that Mr Maalouf and Steli ultimately entered into was a sham, thus giving credence to the plaintiff's theory of a fraudulent enterprise by Mr Maalouf. Mr Despot pleaded in his first amended statement of claim was that "the entire transaction between Maalouf and/or Stelli and/or Azzi and/or Sky Constructions as the sole director of Stelli was a sham designed to defraud Despot and the St George Bank".
The evidence shows that in respect of the purchase of the property, the vendor provided finance of some $480,000 in favour of the purchaser to enable Stelli to complete the purchase. According to the evidence, this vendor finance was anticipated at the time the contract was being discussed and then entered into. This may explain why the deed of settlement was dated four days before the dated of the contract of sale, which is 16 May 2008.
If the deed of settlement was executed to secure the vendor finance, this proposal raises some surprising considerations. Firstly, it would seem more appropriate and more common for the financier to take an unregistered second mortgage supported by a caveat. There is no apparent explanation as to why a deed of settlement in a common form of discretionary trust was used. There is also no reference in the deed of settlement that its purpose was to support a loan by way of vendor finance.
Mr Maalouf was the appointor under the deed of settlement. Clause 19 provides:
"The appointor may at any time and from time to time by Deed or by notice in writing deliver to the trustee, remove any trustee hereof in its absolute and unfettered discretion and the right to remove any trustee hereof, and to appoint new or additional trustees hereof by Deed or notice in writing, is hereby vested in the appointor provided that the settler shall not be eligible to be appointed trustee. Such removal of appointment shall take effect from the date of such notice..."
The powers of the trustee under clause 21 gives power to pay to pay the whole of the trust fund at the direction of the appointor to a beneficiary.
Clause 4.1 provides:
"The Trustee stands possessed that part of the capital of the trust fund that represents the amount of capital paid on a unit by a registered holder, plus an amount up to but not exceeding the indexed amount in trust for the registered holders in accordance with the rights attached to and in proportion to the number of units held by them and that part of the balance of the trust fund in trust for those of the general and remainder beneficiaries and/or for those charitable purposes for those interests and in those proportions and for one to the exclusion of the other as the trustee may, in its absolute discretion, appoint on or before the vesting day irrevocable at any time earlier than the vesting day, unless expressed to be otherwise."
The general beneficiaries under the trust are Roy Maalouf and his wife and their children.
It is worth noting Cypjayne Pty Ltd v Sverre Rodskog [2009] NSWSC 301 at [40]-[41] per Brereton J in relation to the nature of the interest of a beneficiary under this type of trust :
"[40] First, in principle, a member of a class of persons in whose favour a trustee may exercise a discretion to appoint trust property is not strictly speaking a beneficiary, and even though it is common drafting practice to describe such persons as "beneficiaries" in the trust deed, this cannot change their true character as objects of a trust power into beneficiaries properly so-called. A "discretionary trust" such as those in question here is a trust coupled with a special power of appointment: the beneficiaries are not determined at the moment of creation of the trust - either as to identity or quantum of interest - and the choice of beneficiary, or determination of the extent of his or her interest, or both, is left to the trustee to decide [ Jacob's Law of Trusts in Australia , 5th ed, 736 [2916]]. In Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 ; (1998) 151 ALR 1 ; [1998] HCA 4, the High Court explained (at [8]) that the meaning of the term "discretionary trust" was a matter of usage rather than of doctrine, and the usage was descriptive rather than normative; a "discretionary trust" is not a component of the doctrinal divisions by which there is determined the formal and essential validity of trusts. This reflected what had been written by Gummow J in the Federal Court in FCT v Vegners (1989) 90 ALR 547, where his Honour wrote (at 551-2):
'There was some discussion by counsel of the term "discretionary trust" and related terms. A fixed trust is used to describe a species of express trust where all the beneficiaries are ascertainable and their beneficial interest are fixed, there being no discretion in the trustee or any other person to vary the group of beneficiaries or the quantum of their interests. The expression "discretionary trust" is used to identify another species of express trust, one where the entitlement of beneficiaries to income, or to corpus, or both, is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time. The power of selection is a special or hybrid power; a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups.
...
It will be apparent that, unlike the division of trusts between purpose trusts and non-purpose trusts, and between express trusts, implied or resulting trusts and constructive trusts, and the classification of powers between general, special and hybrid powers, and between trust and bare powers, the usage of the term "discretionary trust" is essentially descriptive rather than normative. The meaning of the term is primarily a matter of usage, not doctrine.'
[41] Thus a discretionary trust does not have beneficiaries in the traditional sense, whose interests together aggregate the beneficial ownership of the trust property. Instead, there is a class of persons, usually described in wide terms, who are the objects of a trust power to appoint either income or corpus or both to selected members of the class. The members of the class are objects of a trust power, rather than beneficiaries in the strict sense. They do not have a proprietary legal or equitable interest in the trust fund, though they have a right to due administration of the trust [ Re Smith [1928] Ch 915; Gartside v IRC [1968] AC 553; Jacob's Law of Trusts in Australia , 5th ed, 649 [2315]]. They have no beneficial interest in the trust property; they are not persons for whose benefit the trust property is held by the trustee; at the highest they are members of a class of persons for the benefit of some one or more of whom the trustee may in due course hold property if it so determines. At best, they are potential beneficiaries, not beneficiaries."
As I have said earlier, on the face of the trust deed, Mr Maalouf, as the appointor, has the power to achieve his way by removing the trustee if the trustee does not comply with his directions. However, if the circumstances were that the deed of settlement was in an ill suited form, adopted to create a security interest over the property to support the vendor finance, then it is clear that any such course of action by Mr Maalouf could be opposed by Stelli and those controlling that company.
The cross-examination of Mrs Azzi needs to be considered in relation to the fraud alleged in the pleading. The cross-examination was usefully described in Mr Carbone's submissions:
"38. At t652.28-653.10 it was positively put to Mrs Azzi that the purchase of the property was an investment for herself and her husband and they thought it was a good buy at $1.6 million. That is inconsistent with any suggestion that the whole transaction was a fraud. The evidence was as follows:
Q. By May 2008 the global financial crisis had arrived unfortunately?
A. Yes. I can't remember, probably.
Q. But nevertheless there was a situation so far as you were concerned that the bank valuation was the price that you were prepared to pay?
A. Yes.
Q. Mr Maalouf, for instance, didn't suggest it was worth more than that?
A. He said about $2 million at the start. He said, "It's worth roughly about $2 million."
Q. And on the basis of what it was worth at the start you thought 1.6 was pretty--
A. Yes.
Q. And it was an investment property for you and your husband ?
A. Yes, we never intended to live in it.
Q. So at 1.6 -
A. We thought it was a good buy and then we looked up - thought the rental was pretty good, thought we'd keep it for a couple of years and sell it.
Q. At a profit?
A. At a profit, of course.
Q. And that's what you were intending to do, make a capital gain?
A. Capital gain, yes.
Q. And that was dependent on paying a reasonable cost at the start?
A. Yes.
Q. So you were prepared to pay the 1.6 which you thought was a good price?
A. After seeing the unit, yes.
39. At t655 evidence was elicited from Mrs Azzi to the effect that buying the property in the name of a company was suggested by Mr Carbone. Despot has now said there is no allegation that he was fraudulent or a party to any fraud: Despot's Submissions [187]. That evidence together with that concession logically eclipses any suggestion that there was a fraud afoot which involved the use of Stelli as the purchaser. The evidence is:
Q. And is it the case that you then, for the purpose of buying this property, agree to set up a company?
A. Yes.
Q. And was that at the suggestion of anybody?
A. Mr Carbone, and my husband agreed on it.
Q. Was Mr Maalouf involved in doing that -
A. No.
Q. - that you know of?
A. No.
Q. And so far as setting up the company is concerned--
A. Yes.
Q. - that was left by you to Mr Carbone?
A. Yes.
40. The fact that the Deed of Settlement was signed a few days before the Contract for Sale came into existence is precisely what you would expect if the intention of a purchaser was to buy the subject property in the name of a company as trustee of a trust. It would be interesting if the sequence of events were the other way around but no sinister inference is available from the bare fact that the trust was constituted before contracts were exchanged.
41. At t668.5 it was positively put to Mrs Azzi that "Up to the week before settlement, you were always of the belief that settlement would occur using funds from the bank and funds coming from resources available to you and your husband?" and she said, "Yes". That is not consistent with any grand scheme of fraud being afoot. It is consistent with Mr & Mrs Azzi buying the property for their own benefit.
42. At t668.15 there are two questions and answers as follows:
Q. I suggest to you that the purpose of buying this property in the name of Stelli Pty Ltd and the purpose of signing a deed was so that Stelli Pty Ltd would buy the property as trustee for Mr Maalouf?
A. What do you mean exactly?
Q. I suggest to you that the purpose of this whole transaction was to get the property back into the name - or back into the benefit of Mr Maalouf?
A. No.
43. Those questions are not sufficient to call into question the veracity of the evidence that was given by Mrs Azzi concerning the purchase of the property as an investment for her husband and herself, or the intention to pay for it themselves, or to lay the foundation for a submission that Stelli was a party to a grand fraud to enable Maalouf to take the property. Similarly, there was no challenge to the bottom line answer "No" to the proposition that the purpose was to get the property back into the name of or to benefit Maalouf. If allegations as serious as those which are now sought to be made against Mrs Azzi are to be made, her evidence should have been squarely challenged. A formal suggestion without any real attempt to challenge the veracity of the evidence of a witness who is to be accused of fraud is not good enough."
The cross examination of Mr Azzi was put this way:
"45. At t688.36-40 it was positively put to Mr Azzi that the reason 'he' bought the property was that it was a good deal - not that it was all part of a grand scheme to allow Maalouf to take the property. The relevant passage is:
Q. And the reason you bought it was because it was a good deal?
A. That is correct.
Q. When I say a good deal, the price was a very good one?
A. Obviously.
46. At t690 it was positively put to Mr Azzi that he was intending to use his own funds to make the purchase until shortly before the settlement. The evidence is:
Q. Shortly before 3 July 2008 you were in a position where you thought you were going to be able to fund the whole of this acquisition, weren't you?
A. That is right.
Q. Until about a week before 3 July 2008 you were firmly of the belief you were going to be able to use your own funds and the funds at the St George bank to complete the purchase?
A. That is correct.
47. It was not put to Mr Azzi, even formally, that he was a party to a scheme to defraud Despot, even though he was the person who freely conceded that he reached a "private" agreement with Maalouf about not cashing the deposit cheque and obtaining short term 'vendor finance'. "
As the case developed at trial, nothing was proved that either Mr or Mrs Azzi, as the principals behind Stelli, were party to a sham transaction designed to defraud Mr Despot and the St George Bank. It appears they innocently thought they were onto a good deal, being an inside chance to buy a property.
It was probably for this reason that in final submissions it was merely suggested that the proximity resulting from Mr Maalouf's accommodation of Stelli, combined with the power to appoint would suggest that there was a fraud.
In my view this is not sufficient and I accept, notwithstanding some of the strange aspects of the transaction, that the deed of security was intended to secure the outstanding vendor finance.
Were the arrangements between the parties vitiated by fraud?
I return to the question of the general claim that Mr Despot was the subject of a fraudulent scheme by Mr Maalouf. I have no doubt that Mr Maalouf saw an opportunity to deal with Mr Despot, whom he had reason to believe would have substantial funds available to him to renovate the unit in question. Mr Maalouf was prepared to do whatever was necessary to secure a favourable outcome for himself in respect of the renovation work and he did this by getting Mr Despot sign documents such as the building contract. It is clear that Mr Despot signed the power of attorney and the deed of indemnity on 5 September 2007, notwithstanding his protestations to the contrary.
It is also apparent from what I have said about the contract for sale and the deed of settlement, that those circumstances would not give rise to fraud perpetrated on Mr Despot. There may well be breaches of duty by Mr Maalouf, but that of itself does not prove an over-arching fraud in order to deceive Mr Despot. In my view, what happened is the result of the arrangements that I have already described, which was that the work would be carried out on a do and charge basis.
2. Are the building contract, the deed of security and/or the power of attorney and/or the contract for sale, or any of them, unenforceable by operation of sections 4, 5, 10, 92 and 94 of the Home Building Act 1989?
Mr Despot makes this inelegantly expressed alternative claim, however, I think the case has been conducted on the basis that by reason of the contraventions of the Home Building Act , the deed of security and the power of attorney are void and in consequence the contract of sale is void. It is to be noted that the pleadings refer to sections 4, 5, 10 or 92 of the Act.
Section 94 deals with uninsured work. This issue was only raised during the trial when it became apparent during cross-examination that no home warranty insurance had been issued. The parties were happy to continue the hearing on the basis that the lack of insurance was one of the allegations. By the conclusion of submissions and the reservation of my judgment this was still the position. Accordingly, I give leave to amend to include an allegation of breach of section 94 of the Home Building Act .
There was an application to reopen the case on 7 December 2010, after I had reserved my judgment. I gave leave to reopen and evidence was given that the insurance was issued on 12 November 2010.
It is common ground that Sky Constructions did not have a builder's licence when work commenced. Sky Constructions made an application for a licence in January 2008 and the licence was eventually issued on 11 March 2008.
Section 4 of the Home Building Act says "A person must not contract to do (a) any residential building work, or (b) any specialist work, except as or on behalf of an individual, partnership or corporation that is the holder of a contractor licence authorising its holder to contract to do that work."
Section 5 legislates against seeking work by or for unlicensed person, partnership or corporation in relation to any residential building work or any specialist work if the individual, partnership or corporation in question does not hold a contractor licence authorising its holder to contract to do that work.
Section 10 says:
"(1) A person who contracts to do any residential building work, or any specialist work, and who so contracts:
(a) In contravention of section 4 (Unlicensed Contracting), or
(b) Under a contract to which the requirement of section 7 apply, that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entity to in circumstances described in section 6(2)), or
(c) In contravention of any other provisions of this Act or the regulations that is prescribed for the purposes of this paragraph,
is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person."
Section 92(1) says:
"A person must not do residential building work under a contract unless:
(a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and
(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.
and section 92(2),
"A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless:
(a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and
(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract."
Section 94(1) says:
"If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the "uninsured work"), the contractor who did the work:
(a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and
(b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit)."
and 94(1A),
"Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis."
The effect of section 10 of the Home Building Act on Sky Constructions' unlicensed building work is that Sky cannot enforce the contract and it is not entitled to damages or to any other remedy in respect of a breach of the contract committed by any other party to the contract. The prohibited "contracting" in this case covers the building works that were done before 11 March 2008 and probably most of the subsequent works.
The effect of sections 92 and 94, in the absence of insurance, is that Sky is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to the work or even a quantum meruit without first obtaining a favourable exercise of discretion by the Court under section 94(1A).
Mr Carbone's submissions at paragraphs 42 and 43 detail the result that flows:
"42 So far as the Power of Attorney is concerned, it is unenforceable by Maalouf in respect of any entitlement to be paid money for the subject building work because the words "enforce any other remedy in respect of a breach of the contract" in sections 10 and 94 of the Act are wide enough to catch non-curial remedies. In Elkateb v Lawindi (1997) 42 NSWLR 396 at 406 Giles CJ Comm D as his Honour then was said the distinction between a procedure for establishing rights and the rights "or their enforcement" was now more fully recognised than it was at the time of the decision in Edwards v J E Bignell Pty Limited (1985) 2 NSWLR 392, which in turn preceded Pavey & Matthews (1987) 162 CLR 221. The exercise of a power of attorney for the purpose of selling a property in order to effect payment of moneys due under an unenforceable contract is the enforcement of another "remedy" within the meaning of section 10 is equivalent to the exercise of a power of sale by a mortgagee in possession. The Power of Attorney was granted in aid of enforcement of the Deed. The Deed was made in aid of enforcement of any right to be paid for the building work. There is no call to read down the wide words of sections 10 and 94 in order to enable an unlicensed builder to obtain payment for unlicensed building work by an indirect means when the plain intention of the Legislature is to prohibit the recovery of that payment.
43 Once it is established that the Power of Attorney is not enforceable in respect of any right to payment Sky may otherwise have had but for the fact it was unlicensed and/or uninsured, it follows that, as against Despot, the Contract for Sale cannot be maintained by Maalouf. Moreover (subject to one exception), the Contract for Sale cannot be maintained by Stelli in accordance with its terms because it was, on its face, entered into by an agent for Despot who had no actual authority to sell."
The one exception referred to in paragraph 43 is whether there was an ostensible authority to sell. That has now been pleaded by amendment to Stelli's cross claim.
Before the application to reopen the proceedings was made last December, Mr Despot accepted the effect of the provisions of the Act on the contract for sale. Sky conceded that the building contract was unenforceable. It simply relies on its quantum meruit claim and seeks leave under s 94(1)(A). Stelli and the Azzis conceded in their submissions that the Act would prohibit enforcing a remedy by implementing a power of sale under the charge. However, they maintained that the effect of the Act did not impede their claim that Mr Maalouf had an apparent authority to sell the property.
My decision on 10 December 2010 allowed the case to be reopened, which meant that evidence of home warranty insurance, which was issued on 12 November 2010, some 18 months after the cessation of work on the premises, was available. This raises squarely the effect of s 94 (3) of the Home Building Act , which is in these terms.
"(3) Residential building work that is uninsured work at the time the work is done ceases to be uninsured work for the purposes of this section if the required contract of insurance for the work is subsequently obtained."
The subsection has a retrospective operation so far as the application of the prohibition in s 94(1). To avoid this effect, submissions were made which concentrated on the words "the required contract of insurance" in subsection (3).
The contract of insurance that is required by sections 92 of the Act is a contract of insurance that is specified by section 99 and by the Home Building Regulation 2004. Section 99 of the Home Building Act relevantly provides:
"99 Requirements for insurance for residential building work
(1) A contract of insurance in relation to residential building work required by section 92 must insure:
(a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and
(b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor:
(i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or
(ii) to have the contractor rectify any such breach."
Regulation 66 provides that
"66 Certificates evidencing insurance
(1) For the purposes of section 92 of the Act, the prescribed form of the certificate of insurance is the form set out in Form 1.
(2) (Repealed)
(3) For the purposes of section 95 of the Act, the prescribed form of the certificate of insurance is the form set out in Form 3.
(4) For the purposes of section 96 of the Act, the prescribed form of the certificate of insurance is the form set out in Form 1.
(5) For the purposes of section 96A of the Act, the prescribed form of the certificate of insurance is the form set out in Form 1."
Form 1 may be found in Schedule 1 to the Regulations.
It was submitted that the certificate was not sufficient to invoke section 94(3) of the Act for three reasons:
(a) The contract of insurance contained in the policy and the schedule does not fulfil the requirement of section 99(1)(a) that it insures "a person on whose behalf the work is being done (namely, Mr Despot) against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor .
(b) The contract of insurance does not fulfil the requirement of section 99(1)(b)(i) that it insures "a person on whose behalf the work is being done and the person's successors in against the risk of being unable, because of the insolvency, death or disappearance of the contractor to recover the relevant remedy.
(c) The certificate does not conform to the requirements of Regulation 66.
A fourth submission, that the policy was liable to be avoided by fraudulent non-disclosure, was properly abandoned having regard to clause 5.1(a) of the policy and the fact that the Insurance Contracts Act 1984 (Cth) does not apply to this insurer.
The submissions on the first point were as follows:
"11 The reason the contract of insurance does not fulfil the requirement that it insures Mr Despot against the risk of loss resulting from non-completion of the work is:
(a) Clause 2.1 of the policy provides insurance in respect of loss or damage arising from non-completion of the work "for a period of 12 months after ... cessation of the work";
(b) The work ceased before the issue of the Final Occupation Certificate issued on 14 August 2008;
(c) Twelve months from that date elapsed no later than 14 August 2009;
(d) That being so, the policy does not provide any insurance to Mr Despot in relation to non-completion of the work because the relevant period of the insurance had elapsed before the insurance was provided;
(e) As a matter of construction, the words "must insure" in section 99 of the Act mean must provide actual, real, effective insurance for the subject risk; they are not met and satisfied by a document which in truth provides no insurance at all for that risk by containing a promise in terms which had already expired and leave the person who is required to be insured with no cover at all for the risk.
12 The provisions of Part 6 of the Act are remedial and should be construed in a manner which serves the purpose of protecting persons who contract for the performance of residential building work, not builders who flout their obligation to obtain insurance. Moreover, the operative words of section 94(3), namely, 'if the required insurance is subsequently obtained' predicate that insurance is in fact obtained, not an empty promise to insure or a promise which has already expired.
13 In that way, section 94(3) is to be read subject to section 99, not vice versa.
14 In the present case (although it is not necessary to determine the point) there is a significant item of incomplete work. The air-conditioning unit has not been installed and commissioned. Mr Maalouf thought he would put it in the roof but the Body Corporate would not permit that course. The unit has a northerly aspect. It faces a noisy main road, New South Head Road, Double Bay. Heavy glazing has been built into the balcony to block out the noise. In summer, such a unit becomes extremely hot. Without air-conditioning, the amenity of the property is severely diminished. The policy does not provide cover for Mr Despot for the loss he has suffered by reason of the air-conditioning not having been completed.
The evidence supports the factual matters referred to in the submissions.
How to correctly construe these sections is in issue. The countervailing argument was that although the policy may not answer a particular claim, this does not mean that the required insurance policy was not taken out. In other words there is no requirement to take out a policy that will ensure payment in every eventuality regardless of time frame or other events. This submission was supported by reference to the generic provisions of section 102 of the Home Building Act . It was suggested that the contrary proposition would make nonsense of the retrospectivity provisions of s 94 (3).
The quotation shows that the work was priced on the basis that it included the cost of cherry picker and crane hire for the removal and installation of the windows and sliding doors. There was no allowance for scaffolding. Mr Beencke's allowance provided for a cherry picker.
The extraordinary difference in the costs of the work illustrates the problem that may be endemic in the way the matter has been conducted by Sky Constructions. There is no evidence that Sky Constructions obtained several quotes for each of the different trades. There seems to be only one supplier and no other quotations. Here the allowance is so extraordinarily removed from what is the standard allowance for non-contentious matters that it is hard to adopt it.
Accordingly, I prefer Mr Beencke's evidence and I will allow his amount.
Balustrades
Mr Heymann's allowance is $8,500 and Mr Beencke's allowance is nil. Mr Heymann has simply taken and used the price provided by Proline Aluminium for the balustrades. Mr Beencke made no allowance on the basis that he was uncertain that the work had been done. He was not able to inspect the balustrade properly so he was unable to determine whether the work had been undertaken. Accordingly, the state of the evidence is such that it has been charged for and I will allow $8,500 for the balustrades.
Masonry work
I have dealt with this earlier and it seems that there is no appropriate claim for replacing the internal walls with new masonry walls. I have earlier indicated the plans did require some demolition and additional walls for a small additional area.
I will allow $4,195 for the 1,200 bricks.
Plasterboard
Mr Beencke's allowance is $38,660. Mr Heymann's allowance of $122,403 was based upon documents from the two sub-contractors employed on the site. Dansa Services purported to charge $30,143 in respect of which they have not been fully paid and they left the site. Instyle Plastering charged $95,000 plus GST. Mr Heymann has not measured the area to check the invoices. I do note that the invoice from Instyle Plastering states 13 mm impact plasterboard to all walls and ceilings. Mr Beencke did not allow for this type of plasterboard and an additional allowance for this upgrade should be made.
I will allow an additional $10,000.
Shower Screens and Mirrors
Mr Heymann's allowance is $12,750 and Mr Beencke's allowance is $3,200 for these items.
Mr Heymann's allowance is based on an invoice from Proline Aluminium and includes $9,450 for installation of kitchen splashbacks with a special safety glass. Mr Beencke has not allowed for this as he did not know about this particular glass. Mr Beencke has allowed the allowance adopted by Mr Heymann in other areas. In my view given that there may be some special glass involved I will allow an additional $6,250 for shower screen and mirrors.
Carpentry and Joinery
Mr Heymann's allowance is $164,400 and Mr Beencke's allowance is $45,320.
There are three items in Mr Heymann's allowance. One is $16,420 for installation of internal bevelled edge mirrors and toughened safety glass to the wardrobes. Mr Beencke does not seem to have considered this and the amount should be allowed. The second item is $142,000 (excluding GST) for the kitchen and the third item is $5,980 for the supply of glass handles for kitchen joinery. The $5,980 appears to be charged twice and the main dispute concerns the kitchen installation.
The problem with the quotation from Highlife Kitchens is that Pierre Maalouf of Highlife Kitchens is the father of Roy Maalouf and they both operate their businesses from the same premises. In these circumstances there is a real possibility that the invoice may not be an arm's length transaction. In these circumstances it is prudent to use Mr Beencke's allowance together with the additional amount I have indicated above.
I will allow an additional $16,420.
Timber Floor
Mr Heymann's allowance is $32,650 and Mr Beencke's allowance is $5,060. Mr Heymann's allowance was based on a contract price, which was no more than a quotation by Stanton Flooring. The timber flooring amounts to an area of 15 square metres plus a narrow border to carpeted areas totalling 74 lineal metres. Mr Beencke took issue with the Regupol sound proofing to the entire floor of the apartment and the common area corridor on level 3. Sound proofing for the common area corridor would not be part of the apartment and it seems clear that it was not needed for carpeted floor and wet area floors. The quote therefore is inappropriate. However, it was conceded in cross-examination that there may have been an requirement by the body corporate for the Regupol sound proofing to be installed elsewhere under carpets and accordingly I think there should be some increase to allow for sound proofing under the carpets and stone flooring.
In these circumstances I allow another $10,000.
Carpet
Mr Heymann's allowance is $7,289 and Mr Bencke's allowance is $10,920. Mr Bencke's allowance is more than Mr Heymann's. The question of who paid for the carpet is discussed later in this judgment in relation to payments on account of the contract.
Tiling
Mr Heymann's allowance is $41,300 and Mr Beencke's allowance is $23,560. Mr Heymann and Mr Beencke measured and priced the tiling works. The only criticism of Mr Heymann's allowance was of $3,000, which appeared to be excessive. Given the absence of other evidence, I will increase this allowance.
I will allow an additional $14,740.
Cement Ren d er and Painting
Mr Heymann's allowance is $48,500 and Mr Beencke's allowance is $5,355. Mr Heymanns' allowance is based on an invoice by Wizards Painters and Decorations, which included common areas of the building. Apparently the strata management required these areas to be repaired. This does not seem to be an appropriate charge. It should be noted the suggestion from the painter that there was a lot of preparation work needed is unlikely given that the works to be painted were new and should have been in good condition.
I will accept Mr Beencke's allowance of $5,355.
Bathroom Kitchen and Laundry Fixtures
Mr Heymann's allowance is $9,657 is lower than Mr Beencke's allowance of $15,644. Their allowances for appliances are similar.
I will adopt Mr Beencke's allowance.
Electrical Installation
Mr Heymann's allowance is $102,096 and Mr Beencke's allowance is $15,300. Mr Heymann has based his allowance on two amounts. The first is a document from Electropro Electrical for $94,000. The other is an amount said to be paid to SNM Services of $8,095.36 (excluding GST). There is no documentation to confirm what these works were or whether they had been undertaken. Some items in the quotation were not there. Only four of the eight Bose surround sound speakers were sighted, there were only two automated window blinds, there was no TV antenna on the rooftop, no home automation and the alarm system did not appear to be connected.
One item that was included was the replacement of the main switchboard. Mr Beencke has not allowed for this item. Given the age of the building, it is likely that the switchboard would have been replaced. For this reason there should be some increase.
I increase Mr Beeneck's allowance by $20,000 to cover the switchboard.
Hydraulic Installation
Mr Heymann's allowance is $32,200 and Mr Beencke's allowance is $20,150. Mr Beencke's only comment is that Mr Heymann's allowance appears excessive. He has allowance for the installation of an electric hot water unit was also included in the electrical works included above by Electropro Electrical. The amount cannot be determined.
As I have not allowed the whole of Electropro Electrical I will increase Mr Beencke's allowance by $1,500.
Mechanical Installation
Mr Heymann's allowance is $68,674 and Mr Beencke's allowance is $20,150. The mechanical installation included work to the bathrooms and the kitchen but the main item is for air conditioning system. The allowance by Mr Heymann is based on a quotation from Pro-Vent and no invoices have been produced in respect of the payments. Pro-Vent has only been paid $9,642.73, so far as documentation is concerned. Once again the evidence did not address why the quote should be so high compared with an estimate from Mr Beencke.
In the circumstances I will not allow any additional amount.
Scaffolding
Mr Heymann's allowance is $71,404 and Mr Beencke's allowance is nil. Mr Heymann's allowance is based on an invoice for scaffold erection. Mr Beencke allowed nothing on the basis that he thought that there was no scaffolding. It seems clear that there was scaffolding erected and accordingly I will accept Mr Heymann's allowance.
I will allow an additional $71,404.
Others
Mr Heymann's allowance is $12,645 and Mr Beencke's allowance is nil. I agree with Mr Beencke that payment of strata levies would not be a cost. The payments to the engineer of $3,500 and to the architect of $1,681.82 are appropriate and should be allowed.
I will allow an additional $5,181.82.
Site Supervision, Preliminaries & Margin
Mr Heymann's allowance is $224,802 and Mr Beencke's allowance is $76,057. Mr Heymann's allowance equates to approximately 21.5 per cent of his trade costs. Mr Beencke's is 25 per cent of his trade costs. Accordingly, I will allow Mr Beencke's rate on the total trade costs.
The additional amounts I have allowed total $170,820.82 and this figure should be added to Mr Beencke's estimated net trade cost of $304,225. This results in an amount of $475,045.82. From this figure, concessions of $2,600 and $3,563 should be deducted giving a figure of $468,882.82.
The builder's margin of 25 per cent is $117,220.70.
The estimated building cost excluding GST is $586,103.52and including GST is $644,713.87.
2. The amount Sky has been paid in respect of the work
Mr Despot alleges that he paid the sum of $324,000 in cash or by cash cheques and by the purchase of appliances that were to be supplied by Sky Constructions for $44,139 a total of $368,139. Sky Constructions acknowledges the receipt of payments amounting to $207,725.95.
I find little assistance in the documents being the invoices and statements prepared by Sky Constructions in determining this aspect. They were concocted by Mr Maalouf and re-created once his builder licence number became available. They do not record the extra $10,000, which according to the evidence of Mr Tyler, was received on 28 February 2008. There were two documents that recorded totals to date and receipts given. One was the receipt of 28 February 2008, which included a statement obviously written on the document separately to when the document was originally prepared stating, "Total sum received up to date $255,000".
According to Mr Tyler, these and some other words were not written on the document when he signed it.
The next document is a receipt dated 14 March 2008 and it records, "Total up to date $270,000". Mr Ranko Despot and Mr Richard Maalouf, the brother of Mr Maalouf, signed it. Although the total up to that date was written in different coloured ink there was no suggestion in cross-examination of Mr Despot that the document was falsified. Additionally, Mr Richard Maalouf was not called to disprove his signature or his receipt of the monies and certification of the amount. I am satisfied that by 14 March 2009, Mr Despot had paid $270,000.
The payments Mr Despot and Mr Maalouf claimed they made after 14 March 2008 and the supporting documentation are referred to in the following table.
Schedule of payments
Date
Source
Mr Maalouf
Mr Despot
14-Mar-2008
Cash
$10,000.00
$10,000.00
28-Mar-2008
Cash
$15,000.00
4-Apr-2008
Cash cheque 001528
$15,000.00
$10,000.00
8-Apr-2008
Cash cheque 001 531
$3,000.00
8-Apr-2008
Cash cheque 001 532
$3,000.00
29-Apr-2008
Cash cheque 001 536
$3,000.00
7-May-2008
Vodafone by AMEX
$2,700.00
$2,700.00
7-May-2008
Direct payment to Miele Australia
$22,989.00
$20,289.00
8-May-2008
Deposit for Carpets
$5,800.00
13-May-2008
Direct payment to Miele Aus by AMEX
$300.00
15-May-2008
Paid to cleaners (by Ray Maalouf)
$500.00
$5,000.00
17-May-2008
Carpets finish
$8,000.00
$2,000.00
19-May-2008
$380.00
19-May-2008
$156.95
2-Jun-2008
Cheque 001 543 for keys
$100.00
12-Jun-2008
Cheque 001564 for Occupational Certificate
$3,450.00
8-Aug-2008
Cheque and cash for alarm and video cameras
$4,500.00
$59,725.95
$88,139.00
Cash cheques support the items on 4, 8 and 29 April 2008. I accept that Mr Despot has paid those additional amounts after 14 March 2008. I am not satisfied as to the payment of $15,000 on 28 March 2008. Mr Despot and Mr Maalouf agree on the $2,700 paid on 7 May 2008, accordingly that is an additional amount. I accept the payment to Miele by Mr Despot to be added of $20,289. It is also apparent that another $7,800 has to be added for carpet finishing. The remaining amounts of $100, $3,450 and $4,500 are supported by cheques and should be allowed and added to the amount outstanding at 14 May 2008.
Taking these figures into account the amount that has been paid by Mr Despot to Sky Constructions is $327,839. The amount, which remains due in respect of any allowance for a quantum meruit, is $316,874.87.
Accounting
On the sale of the property Mr Despot's mortgage to the St George Bank was paid out and outstanding rates were also paid. The proceeds of the sale received by Mr Maalouf, which he applied in payment to Sky Constructions, was the sum of $464,932. Mr Maalouf also received the extra payment of $480,000, making a total of $944,932.
Given my determination on the quantum meruit, Sky Constructions was only entitled to be paid $316,874.87. Accordingly, Mr Maalouf has to account to Mr Despot for the sum of $628,057.13 and Mr Despot is entitled to judgment accordingly against Mr Maalouf. Mr Despot should have the benefit of a direct payment from Stelli of $91,086, being the outstanding part of the purchase price.
Claim by Mr Despot against Mr Carbone.
This claim was initially predicated on the assumption that Mr Despot was Mr Carbone's true client by reason of him being the principal under the power of attorney to Mr Maalouf. Alternatively, it was put that Mr Despot and Mr Carbone were in an indirect relationship of such proximity that there was a duty of care owed by Mr Carbone to Mr Despot. There is also a claim for breach of s 42 of the Fair Trading Act 1987.
As I have already held that the power of attorney was coupled with an interest and that it was irrevocable, it is clear that there are no fiduciary duties owed to the grantor and the donee "may act independently of and contrary to the directions and wishes of the donor". The power of attorney secures the interests of the donee against the donor.
In the circumstances of this case, when acting on the sale pursuant to the power of attorney, the true client was the donee of the power of attorney.
In the alternative claim for a duty of care, Mr Despot made reference to well-known authorities in these terms:
"If the Court is not minded to find that Mr Despot was Mr Carbone's direct client, then it would find that Mr Carbone owed Mr Despot a duty of care: In Hawkins v Clayton & Ors (1988) 164 CLR 539, Deane J held
'the relationship of solicitor and client is a relationship of proximity which would involve the combination of those elements with respect to foreseeable loss which may be caused to the client by the performance of professional work. It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor/client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case.'
Further in Beach Petroleum ML v Abbott Tout Russell Kennedy & Ors [1999] NSWCA 408, it was held by the Court that a duty of care of solicitor in the absence of a retainer (at 359-360) "in order to show that advice or the failure to give advice or warn amounted to a breach of duty of care owed by ATRK to it, for reasons which the High Court restated in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR, Beach had to establish that a relationship of proximity between the parties existed, that is to say had to identify a factor or factors of special significance in addition to the foreseeability of harm, when ATRK acted or failed to act in the manner alleged. Goreseeability of harm alone was not enough to give rise to the necessary assumption of responsibility by ATRK."
The facts said to give rise to the duty of care were said to be the following:
"492. It was easily foreseeable so far as Mr Carbone was concerned, that the unit could be sold by Mr Maalouf in circumstances where there was, at the very least, a dispute as to:
Whether there was any money due to Sky by Mr Despot; or
The amount due by Mr Despot to Sky.
493. Mr Carbone was squarely on notice that there was a dispute. The conversation which Mr Maalouf had with the finance broker, Jamal, demonstrated that Mr Despot contended that Mr Maalouf had been paid in full and was not intending to pay Sky any more money. At that point Mr Carbone concluded that there were ongoing issues. Further Mr Carbone accepted:
The purpose of the Deed was to secure a debt which was due by Mr Despot to Sky or may have become due as the building work continued and the money secured was defined in the Deed, included money due under the building contract between the owner and the builder dated 27 August 2007.
The date 27 August 2007 was an important date for the document it being the date upon which the building contract which gave rise to the present or future indebtedness came into existence.
The existence of the building contract dated 27 August 2007 underpinned the whole document.
Pivotal to the operation of the deed was the existence of a debt due under the Contract dated 27 August 2007.
494. Accordingly, as at the date upon which Mr Carbone drafted the Contract for Sale, albeit on the instructions of Mr Maalouf, he was on notice that:
There were 'issues' to use Mr Carbone's words, about the existence of a debt or at the very least, the amount of the debt;
There was no power of sale given to Sky under the Deed of Security and;
The Power of Attorney was not expressed to be contiguous with the Deed of Security nor vice versa;
The entitlement of Sky to sell the unit depended upon the existence of a building contract dated 27 August 2007, which he had never seen.
In the circumstances, it was foreseeable that the property could well have been sold without there being in existence:
A debt or alternatively that there was a significant dispute about the amount of the debt; or
A Building Contract dated 27 August 2007."
Where a solicitor acts for the donee of a power in the circumstances of a power of attorney coupled with an interest there is no room for the imposition of a duty of care to the donor. The solicitor is not acting for the donor. To impose a duty when he is not so acting, especially in circumstances where the donee is not bound to act on the donor's directions or in accordance with his wishes is to create a position of actual or potential conflict that does not otherwise exist. For this reason no duty of care arises.
The Fair Trading Act claim by Mr Despot against Mr Carbone fails as there is no suggestion that Mr Despot thought for one minute that Mr Carbone was acting for him, as distinct from Mr Maalouf and Sky Constructions. There is no basis to conclude that Mr Despot relied upon Mr Carbone to give any advice or take any step in connection with the exercise of the power of attorney and no reason to think that Mr Carbone, as agent for Mr Maalouf and Sky Constructions, occasioned any loss to Mr Despot by reason of any conduct.
3. The first cross-claim in the proceedings by Sky Constructions. The amount, if any, to which Maalouf or Sky or both are liable to account to Stelli or Despot or both for moneys had and received.
This is a claim by Mr Despot against Mr Maalouf and Sky Constructions.
Given my decision above this only concerns the proper accounting for the proceeds of the sale.
The amended third cross-claim by Mr Maalouf against Mr Despot and Mr Carbone
The claim against Mr Despot is a claim under s 42 of the Fair Trading Act. Following my rulings, the only claim remaining is a claim that Mr Despot should pay Sky Constructions the sum payable under the building contract, despite the building contract being unenforceable by reason of Sky Constructions lack of a contractor's licence or otherwise.
Apart from not accepting Mr Maalouf's evidence at paras 8 and 9 of his 19 January 2010 affidavit, Sky Constructions has been paid its entitlement notwithstanding it is not insured. There is no need to deal with this claim.
Mr Maalouf's claim against Mr Carbone is that Mr Carbone advised Mr Maalouf that Sky Constructions was not lawfully required to be the holder of a builder's contractor licence at the time Sky Constructions contracted with Mr Despot to undertake the building works. This depended on the following evidence from Mr Maalouf.
"33. About one week prior to entering into the building contract I attending on the offices of DC seeking general advice in relation to the building contract and the works the subject of the contract: During this meeting a conversation to the following effect took place:
Me: I think I have secured this job at Double Bay, it is a big job for me, what do I need to organise before I start this job. Here is the DA
DC: Has a constructions Certificate issued
Me: The client says it has:
DC: OK well that is OK
Me: As you know, I only have a shop fitters licence, I am going to get Sky to apply for a building licence, should I get that before I start work:
DC: I don't see it a problem starting the job and getting the licence later so long as you get it before the job is finished, but make sure you only use licensed subbies, and also the client provides its consent".
Mr Carbone denies he gave Mr Maalouf any advice about builder's licences.
Mr Carbone's submissions on this aspect were as follows:
"76. There is no truth in Maalouf's claim that Carbone advised him "Sky was not lawfully required to be the holder of a Builders contractor licence at the time Sky contracted with Despot to undertake the Building works at the property", as alleged in paragraph 6(c) of the Amended Third Cross Claim at 13A CB 68, or any of the other breaches alleged in that paragraph. In that regard, the evidence of Carbone should be preferred to that of Maalouf. Carbone's retainer did not include advising Sky on any aspect of statutory compliance. Sky was an experienced builder. Absent instructions to advise in relation to statutory compliance, Carbone had no duty to advise in relation to the need for a licence or the effect of Sky carrying out unlicensed and uninsured building work, including the effect of any non-compliance on the enforceability of the Deed, the Power of Attorney and the Contract for Sale.
77. Moreover, the evidence of Carbone that Maalouf instructed him that the building agreement was dated 27 August 2007, as distinct from 16 July 2007, strongly points to the fact that the Maalouf's falsification of the Building Contract was yet to happen as at 5 September 2007 and negatives the probability that any occasion had arisen, prior to that date, when anything was said and done as between Maalouf and Carbone about licensing requirements. By then, of course, the work had commenced: Despot attended the property on 3 September 2007 and saw that demolition work had started. All relevant breaches of the law by Sky had therefore taken place before Carbone was asked to do anything.
78. In any event, the difference between Maalouf and Carbone on the question of licensing is causally irrelevant. There is no suggestion that Carbone was asked to advise Sky in relation to insurance. The effect of section 94(1) when it comes to prohibition of recovery for uninsured work is co-extensive with the effect of section 10 when it comes to unlicensed work. The thing which makes the difference is section 94(1A), which limits any entitlement to a quantum meruit to a court created right, as distinct from the general law.
Although some aspects of Mr Carbone's procedures in this matter (such as using a pro forma discretionary trust as security for vendor's finance) are somewhat strange, I am prepared to accept his evidence in preference to Mr Maalouf evidence. This ends the claim, however the matter mentioned at paragraph 77 of Mr Carbone's submissions above would also be relevant.
The additional further amended second cross-claim
This cross-claim was brought by Stelli and Mrs Azzi against Mr Despot, Mr Maalouf and Sky Constructions. Upon payment by Stelli of the outstanding $91,086, Stelli will be entitled to a declaration in terms of paragraphs one and two of its claim for relief, with consequential orders to effectuate registration of the transfer. It should be a condition of relief that the sum of $91, 086 be paid direct to Mr Despot by Stelli.
There are also consequential claims for contribution and indemnity. On my findings they do not arise except perhaps the claim for an indemnity against Mr Carbone for costs. This matter can be dealt with on the costs' argument.
I direct the parties to bring in short minutes to reflect my decision and argue any outstanding matters and costs.
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Decision last updated: 08 April 2011
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