Dovaenda Pty Ltd v Pagliari[2007] QSC 216

SUPREME COURT OF QUEENSLAND

1. FRYBERG J:  The events which gave rise to these proceedings were relatively simple, even commonplace.  It is convenient to begin by describing them without reference to the complexities of the pleadings.

2. The plaintiff, Dovaenda, is a development company. It is the creature of Mr Fathi and the trustee of a Fathi family trust. Mr Fathi and his wife are its directors. They are also the directors of a building company, Datafield Constructions Pty Ltd.  Mr Fathi was born in Iran in 1943.  During the 1960s he spent more than nine years in Europe and subsequently he spent 4½ years in the United States.  He migrated to Australia in 1983, the year when Dovaenda was incorporated.  He was a builder by trade and became registered in Queensland as a builder upon his arrival.  From then until 2000 he was in charge of construction for the Sunland Group, building townhouses, units, and luxury homes.  Since then he has been occupied in construction and development using his own companies.

3. In about 2000 Dovaenda acquired, perhaps in an un-subdivided state, what now comprises a number of parcels of land in Lisk Street and Herron Road at Pullenvale.^[1]  There were four lots in particular each of which contained about 1.2 ha in a roughly rectangular configuration 220 m long and only 44 m wide, more or less.  These blocks were oriented approximately north-south.  Toward their northern end they were traversed by a ridge from which there were, in real estate agent parlance, “expansive north-east views to the city skyline”.^[2]  Over several years, Datafield built luxury homes for Dovaenda on these blocks at their highest points, on the ridge, thereby ensuring an arc of suburban medium density visual amenity which would be of comfort to agrophobes.  The easternmost lot is not material to this case.  Dovaenda sold the lot second from the east, 107 Herron Road, to Mr and Mrs Ghikas and Datafield completed construction of their home on it in June 2000.  Then Mr and Mrs Fathi built and moved into a home on the most western lot, at 17 Lisk Street.  This case is about the last property of the four, 15 Lisk Street.

4. Datafield completed (or practically completed) a home at that address in March 2003. It was a large home, with five bedrooms and ensuites and a variety of purpose-built areas including a home theatre, a bar with its own cold room and a library. Expensive imported materials featured in its construction. On the balcony at the head of the twin curved grand staircases was a shield for the owner's coat of arms. A brochure subsequently boasted that the house was designed by “the same developers that produced the famed Palazzo Versace” at the Gold Coast. It was, in short, both opulent and ostentatious.

5. In June 2003 Dovaenda listed the property for sale with the third party (“Dixon Partners”). That company specialised in the sale of “prestige property”. Its directors at the material time were Mr Patrick Dixon and Mr John Johnston. Dixon Partners had been the agent for the sale of other properties on behalf of Dovaenda and Mr Dixon and Mr Johnston were known to Mr Fathi. Between July and November 2003 it conducted an extensive advertising and marketing campaign to sell the property. Sixth of December was set as the date for an auction.

6. The male defendant, Mr Marco Pagliari, was at the material time a co-owner of a crane hire firm, Seca Cranes. He was a self-made man^[3] of evident wealth, although he proved remarkably reticent in revealing his net worth.  English was not his first language.  He and his wife had known Mr Johnston and his wife for some 15 years.  Having seen an advertisement for the property (including, I infer, the date of the auction), he contacted Mr Johnston to arrange an inspection.  On 3 November 2003 Mr and Mrs Pagliari met Mr Johnston at 15 Lisk Street and spent about an hour inspecting the property.  Mr Pagliari took 76 photographs with his digital camera.  In the course of the inspection Mr Pagliari said he noticed some construction work occurring next door, on the Ghikas’ property.  It appeared to be a concrete slab with vertical reinforcing starter bars protruding upwards.^[4]  He said that he asked Mr Johnston about it.  That conversation is controversial and I shall return to it below. For present purposes it is enough to record Mr Pagliari’s evidence:

“To me there was some work that was carrying on next door, only I didn’t know what it was.  I saw some starter bar.  Anybody can see that.  There is some people there, so we was on the balcony upstairs and I ask John Johnston, ‘What are they doing?’  He say, ‘A little bit of landscaping’.”

Mr Johnston denied saying any such thing.  He recorded that Mr Pagliari asked him to discuss a figure around $3 million with the vendor.  He did so and Mr Fathi rejected that or any like figure.  Mr Johnston conveyed that rejection to Mr Pagliari on the same day.

7. In fact the neighbours, Mr and Mrs Ghikas, had embarked upon the construction of a substantial building containing an eating area, sink, toilet and shower. It was about 1.5 m from the boundary and was approximately 4.5 m high and 16 m long. It can be seen in exhibits 23, 42, 49 and 50. It had been the subject of a building application to the Brisbane City Council in early 2003 in which it was misleadingly described as a gazebo.

8. Mr Johnston again showed the Pagliaris the property on 14 November. On that occasion they were accompanied by Mr David Chant, at the time their bank manager at the Commonwealth Bank. Mr Pagliari said that he heard no conversation of significance between Mr Johnston and Mr Chant on that occasion. Mr Chant could remember no conversation of significance. Mr Pagliari thought the view was fantastic, even from the downstairs master bedroom. That was the bedroom which he thought would be good for him and his wife; the other bedrooms were upstairs and were difficult for Mrs Pagliari because she was blind.

9. At the end of that inspection Mr Pagliari discussed the property with Mr Chant. He needed $3 million by way of finance to buy the property. Mr Chant said in effect that there would be no problem with finance. He decided to buy and asked Mr Johnston to prepare a contract. He also said that Mr Chant advised him to have a finance clause included in the contract and acting on that advice he asked Mr Johnston to include such a clause. Mr Johnston acted promptly. He prepared the contract and the Pagliaris signed it on the same day. Mr Fathi signed it on behalf of Dovaenda.

10. The contract was dated 14 November 2003. It was in the standard REIQ form. A statutory warning was attached informing the Pagliaris of the statutory five day cooling off period, although Mr Pagliari was already aware of that right and of the 0.25% penalty payable on its exercise. The price of the property was $4,325,000. Settlement was to take place four calendar months from the date of the contract. The contract was conditional on the Pagliaris obtaining approval of the loan for an amount “sufficient to complete purchase” from the Commonwealth Bank. The clause provided, “The buyer must take all reasonable steps to obtain approval”. Two of the special conditions are relevant:

“1.Despite anything else in this contract, the buyer acknowledges that the pool does not comply with relevant pool fencing laws and requirements, and the buyer agrees that it is not entitled to make any objection, requisition or claim for compensation or cause to settle or delay settlement in relation to any such non-compliance.  The buyer at its cost must, after settlement, comply with relevant pool fencing laws and requirements.

2. The deposit of $430,000.00 shall be paid by the buyer to the stakeholder as to the sum of $5,000.00 forthwith on the signing of the contract, as to the sum of $185,000.00 on or before the 18^th day of November, 2003, as to the balance of $240,000 on or before the 14^th day of December, 2003.”

The Pagliaris paid the initial deposit of $5,000.

11. Mr and Mrs Pagliari discussed the purchase over the course of the next five days. They came to the conclusion that they would be able to buy the house cheaper at the auction. Mr Pagliari asked Mr Chant to write a letter refusing finance and Mr Chant did so. On 19 November Mr Pagliari sent the letter to Mr Johnston, falsely informing him, “We advise that we have been unable to obtain approval of finance within which to complete this transaction” and the contract was cancelled.

12. Not surprisingly Mr Chant's evidence about these events was vague and defensive. Indeed it must be said that I found his evidence as a whole less than fully frank. His professed lack of memory was particularly unhelpful. As noted below, the absence of the full bank file, which might have helped to refresh Mr Chant's memory, was not properly explained.^[5]  It would be unsafe to conclude that something did not happen simply because Mr Chant had no memory of it.

13. In acting this way not only were the Pagliaris in breach of contract but also Mr Pagliari at least was guilty of fraud. Not surprisingly Mr Pagliari in particular was cross-examined about the matter. He saw absolutely nothing wrong with his conduct; people did this sort of thing all the time. He never considered using his cooling off rights; he knew that if he did so he would have to pay a penalty exceeding $10,000. He became indignant at any hint that he had acted improperly. I do not think his indignation was feigned. It accurately reflected his standard of commercial morality.

14. On 26 November Mr Pagliari asked Mr Johnson to show him two other properties and, as an apparent afterthought, asked if he could also see 15 Lisk Street. That happened the following afternoon, 27 November. Mr Pagliari testified that no further work had been done at the construction site next door, but that seems unlikely. Mr Johnston recorded that the Pagliaris told him they were still quite keen to purchase 15 Lisk Street but they wanted to think the matter over. It was agreed that Mr Johnston would meet the Pagliaris at their home the next day.

15. On 27 November, before that meeting took place, the Pagliaris had another visitor: Mr Chant. He called by appointment. The Pagliaris told him they were looking to enter into a contract to purchase the property for $4.35 million. They intended to sign a contract with a four month settlement period to allow time for them to sell their existing dwelling at Carnegie Street, Westlake, another property at 235 Westlake Drive, Westlake, and a property at Maroochydore. They anticipated that these three sales would provide a net cash amount of $1.4 million, $600,000 and $500,000 respectively, a total of $2.5 million, leaving a residual debt of about $1.85 million at the time of settlement. They asked, however, that in the event that these sales did not proceed the bank provide the full purchase price for the Lisk Street property. Mr Chant made a diary note of the attendance but did not have authority to grant approval.

16. On 28 November, after some delay the meeting with Mr Johnston took place. Mr Pagliari negotiated for some time and eventually signed a contract to buy the property for $4,325,000, the same price as was in the first contract, with a deposit of only $215,000, of which $5,000 was payable on the signing of the contract and the balance on 4 December.  The contract contained a similar finance clause and the same special condition 1 as that in the first contract.  Finance was to be obtained by 4 December, two days before the planned auction of the property.  Mr Fathi signed the contract on the same day as the Pagliaris.

17. On 4 December the Pagliaris’ solicitors notified those for Dovaenda that satisfactory finance had been approved. Dovaenda thereupon cancelled the auction of 15 Lisk Street planned for 6 December. The terms upon which finance was approved were not proved. For reasons which will become apparent, that is a matter of some importance. Mr Andrews SC for the Pagliaris did not raise it with either of his clients; no letter of approval was tendered; and no explanation for these omissions was advanced. Mr Andrews told me during his opening that the bank file had been subpoenaed and was in court, and there seems no doubt that a subpoena of some sort was issued, directed to the bank. However no witness was called in response to the subpoena and no documents were delivered to the registry in accordance with r 420 of the Uniform Civil Procedure Rules.  At the end of the third day of the trial, the following occurred:

“MR ANDREWS:  I should announce in response to a subpoena to the Commonwealth Bank for bank records, what happened was a courier delivered to my instructing solicitors records.  The good part of that unorthodox result was that my instructing solicitor has photocopied all but the valuation in the file, paginated the copies and can give one to each party, but I should hand to your Honour's associate that document-----

HIS HONOUR:  The subpoenaed documents.

MR ANDREWS:  The subpoenaed documents.

HIS HONOUR:  All right.  My associate will take custody of the subpoenaed documents.”

How or why this occurred was not explained.  During Mr Chant's evidence it became clear that what had been provided to the court was not the whole of the bank's file in relation to the Pagliaris.  In particular it contained neither Mr Chant's credit submission to his superiors nor a copy of any approval of finance.  No evidence of any further attempts to obtain these documents was given and despite my suggestion that it be done, the terms of the subpoena were not proved.

18. On 9 December Mr Julian Aboud, a valuer employed by the firm Taylor Byrne, inspected 15 Lisk Street on behalf of the bank. He valued the property at $4 million, $325,000 less than Mr Pagliari had agreed to pay for it. Mr Pagliari was not asked if anyone told him of this valuation around that time. I expressed puzzlement that this occurred after the Pagliaris’ solicitors had notified approval of finance and enquired whether the notification was correct. Mr Andrews suggested that the approval might have been subject to valuation, but no such limitation was suggested in the notification and no attempt to prove the existence of any such limitation was made.

19. Two days later the Pagliaris’ solicitors had sent transfer documents to Dovaenda’s solicitors for execution and return in accordance with the usual practice.

20. Mr Pagliari must have moved promptly to sell the Carnegie Street property, for an auction was scheduled for Saturday 13 December.^[6]  However by 6 December, when Mr Johnston visited the Pagliaris for a celebratory glass of champagne, they had become concerned that things did not appear as positive as they would have liked for the auction; at the same time they asserted they could comfortably settle the Lisk Street purchase.  The concern was justified: the house failed to sell at auction and the Pagliaris remained living in it. 

21. Mr Pagliari telephoned Mr Johnston on the Monday following the auction. He requested a further inspection of the Lisk Street property. Mr Johnston subsequently recorded, “The seller agreed to the inspection even though it was unusual not being a ‘final inspection’ and some three months prior to settlement”. There was some conflict in the evidence as to the reason given by Mr Pagliari for wanting this inspection, but it was common ground that his reasons at least included that he might want to buy some of the furniture in the house. An inspection was scheduled for Thursday 18 December.

22. Mr and Mrs Pagliari arrived a little before Mr Johnston and were admitted by Ms Jain, an employee of Dixon Partners. Mr Pagliari and Mr Johnston gave different versions of what occurred at that inspection. Mr Pagliari claimed that he went to the downstairs master bedroom and saw for the first time the size of the construction next door:

“I go in the bedroom in number - what do you call - bedroom number 1 in the floor and what I see this big wall with this column to go up anyway the construction and it was blocking all the view what I want to the city, because even from the back you can stand there you can see the city, you know what I mean?  All the view that side, it was blocked.

Is that a view to the north-east?--  Yes.  So I was - shit, I was furious, really furious.  The time I look here and there, anyway, the time I go off John Johnson-----

What do you mean the time you go off?--  The time I go off of the room, you know, I go off the room, John Johnson arrive.  I start to scream at him, you know, because I mean - what?

Yes?--  What I want to scream?

What did you scream at him?--  I say, "You bloody bastard, you conn me.  You conn me.  Look what they did, anyway, next door. I see you told me there was landscaping but it is a house." He said to me, "No, it is a gazebo."  I said, "What are you talking about, a gazebo, it is a house, you know?  Gazebo is four pillar or four, five pillar some time with a little roof."  But, shit, it was huge, you know what I mean, and I was really angry.  I said, "Don't buy the property anymore, forget."  He said, "No, you need to buy."  I say, "All right, we see you in Court.  I don't buy it", you know what I mean? Like, I buy like it was.  Like it was I buy.  Next door, he say, "This is his work, next door, he can build what he want." I say, "No way, if I was owner of the house, he never do what I want because I oppose City Council."  You know what I mean? So that house is, like I said, it was a conn job because everybody know what was going on, nobody tell me anything because they as soon as the contract was unconditional.  As soon as contract was unconditional they start building again because already it was locked in, you know what I mean?

Mrs Pagliari corroborated the essentials of that version.  In cross-examination Mr Pagliari explained that he concluded there had been a conspiracy between the vendor, Mr Johnston and the neighbours to stop work on the structure until his contract became unconditional.  Even as he gave his evidence he still believed there had been such a conspiracy. 

23. Mr Pagliari testified that the following day he asked his solicitor to check the construction of the building next door in the records of the Brisbane City Council. In his evidence in chief he said that Mr Johnston tried to ring him three or five times on that day, but that he did not return the calls. In cross-examination he seemed to concede that he had spoken to Mr Johnston, but his evidence suffered from a lack of coherence. At different times he conceded and denied Mr Johnston's version of the conversation. It was unclear whether he really understood the question.

24. Mr Johnston's version of the events of 18 and 19 December was somewhat different. It was recorded in a document which he began to create on 18 December after his meeting with Mr Pagliari as a chronology of his dealings with the Pagliaris. For the two dates in question, Mr Johnston recorded:

“Thursday December 18 @ 2pm.  The fourth inspection of the property went ahead with myself and Neha Jain in attendance.  I arrived at the property shortly after Neha Jain allowed Mr & Mrs Pagliari into the property.  Mrs Pagliari informed me that Mr Pagliari was unhappy with the activity next door.  I found Mr Pagliari upstairs.  We discussed the furniture briefly at my introduction and then Mr Pagliari told me that he was not happy by what was happening next door.  I went downstairs and outside with him and saw for the first time the block wall that the neighbours had erected over the past week or so.  Marco asked me if I had known that they were going to build so high and I told him that I had not.  Once Marco said that if he had about it prior he might still have bought the property but he was annoyed that he hadn’t been told.  He also said that were he to have bought it knowing that it was there, he might not have had to pay so much.  Mr & Mrs Pagliari continued to view the home for a further hour or so.  He parted by telling me that he was going to consider his options.

Friday December 19.  I call Mr Pagliari to see if he wanted me to forward over the sellers price list for the furniture.  Mr Pagliari said to me that he felt that he had been cheated and was not going ahead with the sale.  He said that he didn’t care if he lost his deposit.  ‘I only put down 5% anyway’ were his words.  He also said that he didn’t care if it cost him $50,000 in legal fees, he would get out of the contract.  His words were ‘I don’t care about the money – if I don’t want, I don’t buy’.  He then again accused me of colluding with the seller in not telling him about the structure next door.  He said that he had found out from his solicitor the extent of the approved structure and that the seller must have known about it and should have disclosed it.  He told me that I must have known about it also because I know the neighbours.  (Neither accusation of which are true)  He then said that he had spoken with his bank manager and his bank manager remembers talking with me about this part of the neighbour’s property.  He said that I should have mentioned the pergola construction in that discussion.  I told Marco very clearly that I didn’t mention it because I didn’t know about it.  I said also that the spot where the pergola is being constructed had never been discussed with anyone.  I stated that I did not know such a structure was even intended for construction.  Marco then said, ‘my bank manager, He say he ask you what they doing and you say, just landscaping’.  I again refuted this.  Marco then called me a liar and said that he wouldn’t be settling if the seller still wanted his $4.35million.  He said that you (I) don’t care as long as you get your commission.  He said ‘We been tricked’.  He restated that he had only ever wanted to pay $3.8million for the property.  He said that to him ‘it’s now not worth it’ (the $4.35M)  He said ‘I think I pay too much anyway, who knows’ (His exact words)  I did not take Mr Pagliari up on the invitation to renegotiate at this point (given a duly executed contract was in existence) but I did relate the events to the seller.  The seller instructed me not to have any discussions with the buyer along those lines and to wait until his solicitor received some advices from the buyer/buyers solicitor of their intentions.

He confirmed this version in his oral evidence.

25. The other person present at the meeting of 18 December, Ms Jain, did not hear the conversation between Mr Johnston and Mr Pagliari. She supported the Pagliaris’ version that it took place in the downstairs bedroom. However she said that she did not hear any yelling. Since she was standing in the foyer and the door to the bedroom was open, I think she would have heard the yelling described by Mr Pagliari if it occurred, notwithstanding that the rooms were some distance apart. Indeed, Mr Andrews put it to her that yelling could be heard from where she was, evoking a comment from Mrs Pagliari. Her description of Mr Pagliari’s demeanour immediately before Mr Johnston arrived (“unhappy”, “complaining tone”) is consistent with Mr Johnston’s evidence and inconsistent with Mr Pagliari’s account of being “really furious”. Her description of Mr Pagliari when she and Mrs Pagliari joined him and Mr Johnston in the bedroom also supports Mr Johnston's version: she recalled the men were talking but recalled no arguing. Mr Pagliari seemed “unhappy”. Her description of a somewhat abrupt and uncivil parting of ways at the end of the inspection accords more with the version of the Pagliaris’ than that of Mr Johnston, but her memory of the inspection lasting for at least 20 minutes after the discussion tends to support the version of Mr Johnston, as does her memory of the inspection ending upstairs.

26. I infer that Mr Pagliari then went looking for evidence. On 22 December he downloaded a brochure about the property from the Internet. That brochure became Exhibit 29. I shall refer to it further below.

27. At the time of these events, Mr Patrick Dixon was Mr Johnston's co-director and shareholder in Dixon Partners. By the time of trial he had sold his interest to Mr Johnston. Mr Dixon knew Mr Pagliari well as a previous client but, while he was aware of the present transaction, he had not been involved in it up to this point. Just before Christmas 2003 Mr Pagliari rang Mr Dixon. He said he was upset because he had just discovered that there were some foundations being built on the neighbouring property for what he believed would be a two-storey summer house. This would impair the view. It had happened since he had paid the deposit and the sale had become unconditional. He complained that Mr Johnston was a friend of the Fathis and of the neighbours, the Ghikases and that there was a conspiracy under way to hide what was being built until after the contract became unconditional. Mr Dixon responded that he was sure Mr Johnston would have told Mr Pagliari about the building had he known of it. Mr Pagliari said that Mr Johnston had told him in front of his bank manager that it was only landscaping, they were only finishing off their landscaping. This conversation had occurred in the bedroom on the northeast corner of the house. Mr Pagliari told Mr Dixon he would not be settling the sale under any circumstances, but that he was still happy to deal with either Mr Dixon or Josephine Rowell. He wanted them to continue to try to sell his home at Carnegie Street, Westlake.

28. As a principal of the firm, Mr Dixon was concerned about the situation, as both the vendor and the purchasers were good clients. In particular he realised that if Mr Pagliari had a person of substance, a bank manager, to corroborate the conversation it would not look good for Mr Johnston. He contacted both Mr Johnston and Mr Fathi. Mr Johnston told him in no uncertain terms that Mr Pagliari’s story was rubbish.

29. Mr Dixon returned from the Christmas break in mid-January. By that time one of the agents in his office had procured an offer for the Pagliaris’ Carnegie Street home. The offer was for $1.1 million but the buyer was prepared to go to $1.3 million or something like that figure. This was the property which had failed to sell at auction in mid-December. It was listed for sale at $1.5 million. Mr Pagliari not only refused the offer but suggested that he would increase the list price to $1.7 million. He reiterated that Mr Johnston must have known that the summer house was going to be built through his friendship with the seller and the neighbours and that he would not settle the Lisk Street transaction.

30. Mr Pagliari agreed in cross-examination that he had made the pre-Christmas phone call. He denied thinking that Mr Johnston was a friend of Mr Fathi at that time but did not deny the substance of the conversation reported by Mr Dixon. In relation to the bank manager, the following exchange occurred:

“I suggest that you said - now listen carefully to this:  I suggest that you said to Mr Dixon that you recalled that your bank manager was with you when you asked Mr Johnston what was happening on the adjoining property and Mr Johnston informed you that they were finishing off the landscaping?--  Maybe I said it, yeah, because the bank manager he was up in the balcony, too, for sure.  I don't know because I don't spoke with him since that day, so I don't know anyway, not for sure. He saw what it was.

Mr Pagliari?--  Yes.

You have told us despite the fact that your pleading says it happened on the second inspection, you've changed the story and said it was on the first inspection.  You have told us-----?--  What do you mean I change my story?

You told us that Chant wasn't there and you told me Chant was not there on the verandah and now you are saying maybe Chant was there?--  He was all with us the second inspection.  He was all with us all around but I change the story?  Which story?

Mr Johnston - Mr Pagliari you have got no recollection at all?--  No.

Of this, have you?--  John Johnston just behind you.

You are just making up details as it suits your case, aren't you?--  No, that is what you read there.  What John Johnston tell you to read.”

Mr Pagliari could not remember the detail of the second conversation but accepted that it could have happened as Mr Dixon reported.

31. The Pagliaris evidently instructed litigation solicitors during January 2004. On 30 January Philips Fox wrote to the solicitors for Dovaenda, with a copy to Dixon Partners, as follows:

“We are instructed that:

1In mid-November 2003, our clients, who were then interested in purchasing the property, inspected it with your client’s agent, John Johnston of Dixon Partners Quality Property Pty Ltd (Dixon Partners).  At this time, our clients were particularly taken with the extensive views offered by the property, particularly the views to the Brisbane city skyline and to the north-east.  As you may be aware, Dovaenda placed particular emphasis on these views in the extensive marketing literature published in respect of the property.

2During their inspection of the property, our clients noticed what appeared to be ground works taking place on the adjoining property, near the boundary with the property (ground works).  The ground works were in the line-of-sight between the house on the property, and the views to the city skyline and north-east.

3Our clients asked Mr Johnston what was the nature of works taking place on the adjoining property.  Mr Johnston advised our clients that the ground works were merely landscaping works.

4Several weeks later on 18 December 2003, after our clients had executed the contract, they inspected the property for insurance purposes.  Mr Johnston and Ms Nela Jain (also of Dixon Partners) were present on this occasion.  During this inspection, our clients were shocked and upset to notice that a structure was by that stage being erected on the ground works.  Our clients asked Mr Johnston what type of structure was being built.  In response, Mr Johnston informed our clients that a gazebo was being constructed.  Our clients conveyed their anger to Mr Johnston at his failure to disclose the true facts before they executed the contract.  Mr Johnston’s response was that the owners of the adjoining property were entitled to build whatever they wished on their land.

5Our clients have since ascertained that the gazebo is to be a large, fully-enclosed structure approximately 4.5 metres high and 8 metres long.

In the circumstances, the construction of the gazebo will severely compromise, if not completely obscure, the extensive views from the property through to the city skyline and the north-east.

The views offered by the property, and in particular, the views to the city and the north-east, were the primary factor behind our clients’ decision to purchase it.  Mr Johnston’s comments to our clients during their pre-contractual inspection of the property and discussions with him, that the ground works were simply landscaping works (and would not compromise the views offered by the property) were a key inducement to our clients to proceed to enter the contract.”

By the letter they purported to terminate the contract.

32. The brochure which Mr Pagliari downloaded from the Internet on 22 December asserted that the home was “designed to optimise expansive north-east views to the city skyline”. It asserted that the “downstairs master bedroom also takes in the sweeping city views”. Mr Pagliari did not claim to have been misled by the statements – he had not downloaded the brochure until long after the contract became unconditional. On the contrary he supported what the brochure said. In fact it is arguable that the two statements quoted were misleading. Certainly they must be read very carefully. The home did have expansive north-east views, and if one were not too particular about points of the compass, it could be said that the city skyline lay approximately to the northeast.^[7]  Whether the home had been designed to maximise these views was not the subject of evidence, but no doubt it could be said that the orientation and fenestration of the building displayed them to advantage.  However it was not true that the downstairs master bedroom had sweeping city views.  Nowhere in the home had such views.  It was arguably correct to say that the views at one point extended to the city skyline, but they certainly were not views of that skyline.  That is apparent from the photographs tendered in evidence, not least those taken by Mr Pagliari himself during the first inspection.  Mr Dixon described the position accurately in re-examination:

“MR BOND:  Mr Dixon, you were asked a question whether you agreed that the gazebo that was eventually constructed would be a material consideration of the purchaser and I think you said "no".  Could you explain why you said that?--  Well, the property that they were buying was an acreage property with about a 60 metre frontage and they had a lovely rural view over the areas of Brookfield and you know, across lovely green suburbia and you look to the right, you could see the CBD. But if I took someone there, who didn't know Brisbane, and I said, "Look, you can see the city.", they'd have to say, you know, "Where?", because it wasn't like you were buying a Vernon Terrace or Southbank where the City is right in your face and it's a spectacular view.  You're 12 or 13 kilometres out of town and the CBD is just a speck in the distance which really I don't think was part of the ambience of the home.  Like, whether the CBD was there or not, the CBD's view wasn't a selling feature of that property.  It was just too far away.

…

HIS HONOUR: Would you say that - describing it as having City views would be a hyperbole?-- Look, I think if you said that, people would be angry when they came out and looked at what the actual view was.

Not the sort of thing you'd recommend a real estate agent to put on to a website marketing it?--  No, no, definitely not.

MR BOND:  Thanks for that, your Honour.

MR DOUGLAS:  Come in spinner.”

33. There is a certain coincidence between the wording of the brochure and that of the Philips Fox letter. I infer that Mr Pagliari gave the brochure to the solicitors during January 2004. Of course the brochure did not show the location of the building on the neighbouring property. The instructions that the ground works seen by Mr Pagliari were in the line of sight between the house and the views to the city skyline and north-east must have come from Mr Pagliari. Those instructions were substantially incorrect. Only if the viewpoint is at the northeast corner of the house close to the wall dividing the property from its neighbour, in the ensuite to the downstairs bedroom or at some points in that bedroom were the works in the line of sight to the northeast; and even from those points the line of sight was already substantially blocked by the dividing wall and the gazebo on the property itself.

34. Dovaenda did not accept the termination and demanded settlement take place on the due date. Proceedings for specific performance were commenced on 27 February but settlement did not take place. Dovaenda continued to press for specific performance until July when it elected to accept the Pagliaris’ conduct as repudiation of the contract, terminated it and resold the property at auction for $3.6 million. In the meantime it had incurred various expenses in relation to the property. After the resale the action was converted to one for damages. In due course Dixon Partners became a party to it.

Credit

35. Central to the resolution of this case is a determination of the truthfulness and reliability of the evidence given by Mr and Mrs Pagliari and Mr Johnston. The Pagliaris attacked Mr Johnston's credit and Dovaenda and Dixon Partners attacked the Pagliaris’ credit. I turn to those questions.

36. Mr Andrews SC criticised the reliability of Mr Johnston's memory for a number of reasons:

• he did not remember talking to any one on the neighbouring property on the occasion of the first inspection when in fact he had done so
• he did not notice the foundations of the neighbouring structure on that occasion
• he did not remember Mr Pagliari having a camera at the first inspection when he had in fact had one there and as a result, initially drew the incorrect conclusion that Mr Pagliari’s photographs were fabricated (at least in relation to the date)
• he incorrectly believed at first that Mr Chant had attended the first inspection not the second
• he had no real interest in the works next door.

The reliability of Mr Johnston's notes was criticised on the basis that they were not made in some cases until mid-December 2003, more than six weeks after the first inspection and in others until early February 2004; and were made after Mr Johnston knew his own conduct might be criticised.

37. Mr Johnston did not claim to have a perfect memory of the events of 3 November. It would have been surprising were it otherwise. The most that can be said of that evidence is that if Mr Johnston did say what the Pagliaris alleged, it is possible that in the context he might have forgotten doing so.

38. Mr Johnston's recollection of his alleged conversation with Mr Chant was more severely criticised. It was submitted that the conversation was qualified and speculative small talk about a bare patch of ground which human experience suggests would be less likely to be remembered than a question about a building site with workmen standing nearby. It was recorded almost three months after the event, in early February 2004. It was submitted that it was at best a belated reconstruction and unreliable, and at worst a self-serving invention.

39. I reject that submission. It is most unlikely that Mr Johnston would remember at the time that he created the note in response to the letter from the Pagliaris’ solicitors that there happened to be a bare patch of ground about which a landscaping remark might be made. That only became apparent when Mr Pagliari’s photographs were closely examined, which must have happened much later. Moreover it would be the rankest an act of stupidity to invent a self-serving conversation with an independent third party, the bank manager, who might easily rebut it. Dovaenda's solicitors retailed a version of Mr Johnston's conversation with Mr Chant in a letter to Phillips Fox dated 11 February 2004. At that time Mr Chant was still the Pagliaris’ bank manager, and the matter could easily have been checked with him. Perhaps it was: it was not suggested to Mr Johnston that the conversation was invented.

40. Finally it was suggested that the case for Dixon Partners suffered from the failure to call Ms Rowell (Mr Johnston's wife), to take a statement from Mr Ghikas and to call Mrs Ghikas. However Mr Ghikas was seriously ill and I doubt if the other two could have given relevant evidence. There was also criticism of Dixon Partners’ failure to call Ms Jain, but in the end she gave evidence when called by the court. That must displace any influence the failure to call her might otherwise have had. I would add that I accept her evidence as far as it went.

41. I thought Mr Johnston was an honest witness attempting to do his best, and that it was a reasonably accurate best. His answers were generally responsive and on occasions he was willing to concede error on his own part. It is true that until 18 December his notes were not contemporaneous and they must be read in that light. Nonetheless his evidence was internally consistent and at no time did he appear intent on misleading the court.

42. It was otherwise with Mr Pagliari and to a lesser extent Mrs Pagliari. Mr Pagliari set out from the outset to mislead the court. The extent of Mr Pagliari's experience in real estate transactions was relevant at least to the issue of reliance. Early in his evidence in chief he had the following exchange with his counsel:

“About the time of November 2003 how many residential houses had you purchased for business purposes?--  In the time, maybe 6, 7 maybe more.  I don't have the paper with me, you know. At least seven house or maybe more than that.”

Mr Bond SC had that evidence confirmed at the outset of his cross-examination:

“MR BOND:  Mr Pagliari, you would agree that you are now and you were in November 2003 very experienced in the buying and selling of residential real estate, particularly in Brisbane?--  I was experienced, yes.

Very experienced?--  Not very experienced, but was doing - now a little more, of course, but experienced, yes.

But you disagree with my adding the word "very" in front of experienced?--  Yeah, experienced.  Experienced yes.

All right.  And I suppose you do that because you say to his Honour that you had only engaged in six or seven previous transactions, about that range?--  Yes.

And that's true evidence?  Are you sure about that?--  Yeah, always I have sold property.

You understand, don't you, that you are in the witness-box?-- Yes.

You have sworn to tell the truth?--  Yes.

Supreme Court Judge there?--  Yes.

And you are telling him that's true?--  Yes.

Very experienced is a wrong description, and six or seven about the range is correct about the range?--  Yeah.

Well, would you then be surprised if I suggested to you - and would you disagree with this proposition - that between about 6 October '87 and 11 November 2003 you and your wife had engaged in about 55 sales or purchases of real property in Queensland?--  I do.”

43. Counsel then produced the results of searches of transactions in which Mr Pagliari had been involved.^[8]  The documents were placed before Mr Pagliari and he was given the opportunity to read them:

“Now, we're almost approaching lunch and if you want to take the luncheon break to read through all of those to check it?--  No, I don't need - I know very well what I have and what I sold.  If I see here I don't need to-----

Okay.  Have you had a chance to look through the covering schedule?--  Yeah.  …

…

But I am asking a question that's a bit more limited.  You say - do you accept the accuracy of the schedule ‘properties purchased – Brisbane’ and ‘properties sold – Brisbane’?-- Yes.”

The documents showed that Mr Pagliari had been engaged in 54 transactions, not six or seven.  Mr Pagliari was asked about this:

“MR BOND:  Now, I suggest that somebody who has traded 55 times in 15 years is very experienced and you disagree.  Is that my understanding?--  I disagree very experienced.

I see?--  All right, because I don't even write English, just I try to - I mean to keep going, like everybody, you know.  I am experienced, yes.

I also put to you whether you were sure that before November 2003 the number of transactions, six or seven or in that range and you said you were sure?--  Yes.

Then I put to you - and these were the words:  would you accept that between about 6 October '87 and 11 November 2003, you and your wife had engaged in about 55 sales or purchases of real property in Queensland, mostly just as the two of you but sometimes with some others, for example the Tomasels, and you disagreed with that?--  Yes, because he is my partner.

You disagreed with me?--  No.

You did?--  I don't disagree.  What I have is here anyway.  I can't disagree what I've got.  I told you before I've got plenty.  I didn't even know how much and you put the paper in front of me and I say okay.

Right?--  I don't remember all the house I sell and buy. Sometimes they last one week in my hand.  If I make 200,000 in one week you say what?  I sell.

See, Mr Pagliari, what I want to suggest is that your first evidence in the first answers to my question and your answer to my learned friend Mr Andrews when you said six or seven, in that range, you were conscious of wanting to portray yourself as not that sophisticated, and the truth is completely the reverse.  That's what I suggest?--  No.  I was talking about in 2003.

I see?--  I don't talk about - I mean - I didn't know you was talking about all my history.  I never said it.  I say in the time I have six or seven house, is what I tell you now again.”^[9]

44. One may disregard the question of whether Mr Pagliari was experienced or very experienced on the basis that it resembles the question how long is a piece of string. One may not disregard the very precise question italicised above.^[10]  I am satisfied that Mr Pagliari’s answer to that question was deliberately false.  His answers to the preceding questions were deliberately misleading.  When shown exhibit 30 he realised he was in difficulty.  At first he attempted to explain his answers on the basis that he had not remembered all the transactions.  I do not believe him.  Then he tried to suggest that he was talking about transactions in 2003 only.  That might be how he understood Mr Andrews’ question, but I do not believe that is how he understood Mr Bond's questions.

45. This was not the only example of Mr Pagliari's willingness to say anything to suit the moment, regardless of its truth. In his answer quoted earlier regarding his allegation to Mr Dixon that Mr Chant heard the alleged misrepresentation^[11] he said, “Maybe I said it, yeah, because the bank manager he was up in the balcony, too, for sure.”  That was a careless but revealing answer, inconsistent with his evidence that the alleged misrepresentation was made during the first inspection, when Mr Chant was not present.

46. I have already referred to Mr Pagliari's commercial morality.^[12]  Coming out on top in a deal mattered a lot to him:

“MR BOND:  Contract's a multimillion dollar deal?--  Yes.

You're experienced in business, negotiations?--  Yeah.

Real estate?--  Of course, like most of the people they got money.

No, not like most of the people, Mr Pagliari.  You've gotten way more experience than most people?--  No, I'm no special. I try - I try because most is my job, I try to make couple of bob, a living, so I buy and sell.  Sometime I buy – make little bit of profit, and maybe sometime I make a little bit more, like everybody.

HIS HONOUR:  Do you think you have - do you have fun when you're negotiating-----?--  Yes.

-----to buy and sell?--  Yes, I have fun because, I mean, is fun - little bit is a deal.

Little bit of excitement?--  Yes, because I go for auction, I bid, I do this, I do that, you know what I mean.  If I struck a good deal, geez, it's a good deal.

And what if you strike a bad deal?--  Normally I never struck a bad deal because if you may recall, you see the paper here. I make plenty money.”

The reference to “a couple of bob” was merely a moment of meiosis.  Money mattered to Mr Pagliari.  I am satisfied that by 18 December 2003 Mr Pagliari was convinced that he had paid too much for the Lisk Street property.  The evidence suggests that on that point, he was correct.

47. I shall comment on Mrs Pagliari's evidence in the next section.

The alleged “landscaping” misrepresentation

The version given by the Pagliaris in evidence

48. I have quoted Mr Pagliari’s evidence regarding the alleged misrepresentation above.^[13] 

49. Mrs Pagliari’s first language was French. She was however quite fluent in English. She had been blind since 1985 and was totally dependent upon her husband. The close bond between them was evident as they sat in court throughout the trial. Not surprisingly she left the main decision making on money decisions and negotiations to her husband. She was not, however, the ingenue that some of her answers seemed to portray.

50. In relation to the alleged misrepresentation her evidence was:

“And is there anything - do you recall any particular part of the conversation about the views?--  Yes, yes, I think - at the moment, of course, my husband was looking a little bit here, a little bit there and he asked Mr Johnston, show something, "What is that?", and the answer was, "landscaping."

You weren't able to see what your husband was asking about?--  Oh, no, no.

Do you know where your husband and Mr Johnston were standing in relation to you?  Were they close, were they far?--  I was very, very close to them.”

51. In assessing this evidence and that of Mr Pagliari I have found it helpful to compare the version given in it with earlier versions of the same incident. Much of the following comparison is drawn from the helpful submissions of Mr Bond. However before embarking upon that comparison, it is convenient to set out an incident which occurred early on the third day of the trial. To explain that incident I must set out a little of the history of the proceedings between the Pagliaris and Dixon Partners.

The withdrawal of an admission

52. The Pagliaris brought their cross-claim against Dixon Partners in December 2006, some two years and nine months after the action began. Dixon Partners’ defence was dated 2 March 2007. Like several of the pleadings in this case it pleaded not simply the material facts, but also some of the evidence. (I do not say that critically. The pleadings in this case were generally well drawn and if they departed from the strict requirements of the rules, it was a justified departure by expert pleaders.) In para 19 of the defence, Dixon Partners pleaded the telephone conversation between Mr Pagliari and Mr Johnston on 19 December 2003 and alleged:

“(d)Mr Pagliari accused Mr Johnston of also being aware of the structure’s existence for some time and when making this assertion Mr Pagliari said words to the effect ‘My banker tell me that you discussed this with him before’.”

The Pagliaris did not deliver a reply to the defence until Friday 15 June, the last working day before the trial began.  In that reply they pleaded:

“As to paragraph 19 of the defence of the defendants:

12.1admit the substance of the conversation;

12.2…”.

53. Just before Dovaenda closed its case, Mr Andrews applied on behalf of the Pagliaris for leave to withdraw so much of that admission as admitted the use of the quoted words. The application was supported by an affidavit from his instructing solicitor which showed that instructions for the reply had been taken on 13 June; that the instructions were that the quoted words were not used by Mr Pagliari; and that the admission of them was a mistake on the part of the lawyers. Leave to withdraw the admission was granted. As noted above,^[14] Mr Pagliari's evidence on the point was in the event unclear; but I take it to constitute a denial of the content of the conversation.

54. The point of this history is to demonstrate the course which counsel and solicitors may be expected to take when something is included in a pleading which is not in accordance with their client’s instructions. That course is not restricted to occasions where it is necessary to withdraw an improperly made admission or to correct a pleading. It would be expected on any and every occasion where an error by lawyers might result in an adverse finding against their client. In particular, it would be expected whenever it might be suggested that a document prepared by lawyers purporting to express their client’s instructions does not truly do so. There may, of course, occasionally be circumstances in which it is not practical for a lawyer to give such evidence, but no such circumstances are apparent in the present case.

The Pagliaris’ earlier versions

55. The first version of events relating to the alleged landscaping representation was that given by Mr Pagliari to Mr Johnston on 19 December 2003. As already noted, there was disagreement about whether this version was ever given. I accept Mr Johnston's evidence about that telephone conversation. He made a note only seven weeks later when the landscaping allegation was first raised, and it was not suggested to him that the note was fabricated. There was abundant opportunity for Mr Chant to have told Mr Pagliari of his conversation with Mr Johnston: Mr Pagliari provided Mr Chant's transportation to and (relevantly) from the second inspection, where the conversation would have occurred. Mr Pagliari also admitted that he spoke to Mr Chant within a day or two of the fourth inspection on 18 December, at which time the neighbouring structure was in the forefront of his mind. He said he did not know whether he had been reminded of a conversation between Mr Chant and Mr Johnston in which landscaping was mentioned before he spoke to Mr Johnston on 19 December.

56. The essence of that version was that Mr Chant had told Mr Pagliari that he had had a conversation with Mr Johnston in which Mr Johnston said that what they were doing next door was just landscaping. There was no suggestion that either Mr or Mrs Pagliari had heard this conversation or even been in the vicinity at the time it took place.

57. The second version was that given by Mr Pagliari to Mr Dixon.^[15]  According to that version Mr Johnston had told him that the work next door was only landscaping, they were only finishing off their landscaping, and had said this in front of Mr Chant.  Again there was no suggestion that Mrs Pagliari was present or had heard anything relevant.

58. I note the third version without ascribing weight to it because Mr Pagliari was not cross-examined about it. It was given in the letter from Phillips Fox of 30 January 2004. It was there asserted:

“Mr Johnston's comments to our clients during their pre-contractual inspection of the property and discussions with him, that the ground works were simply landscaping works (and would not compromise the views offered by the property) were a key inducement to our clients to proceed to enter the contract.”

Nowhere else was it suggested that Mr Johnston had said that the works would not compromise the views offered by the property.

59. The fourth version was contained in the defence originally filed on 29 March 2004.^[16]  That defence, which was settled by senior counsel, provided:

“5During the second inspection Marco Pagliari asked Mr Johnston what was being built on the adjoining property.

Particulars

He used words to the effect ‘what are they building next door?’

6Mr Johnston replied to Marco Pagliari ‘they are doing some landscaping’ by words to that effect.

…

12Marco Pagliari informed Marie Therese Pagliari that Mr Johnston said the building work on the said adjoining property was landscaping.

Particulars

Marco Pagliari did so after Mr Johnston's reply and on the occasion of the second inspection.”

Mr Pagliari agreed in cross-examination that he had had a number of conferences with his solicitors during which he had provided his side of the story.

60. The features of this version were that the conversation occurred during the second inspection; it did not involve Mr Chant, but was between Mr Johnston and Mr Pagliari himself; and that Mr Pagliari subsequently informed Mrs Pagliari of what Mr Johnston said. That was by implication inconsistent with the notion that Mrs Pagliari was present during the conversation and overheard it.

61. The fifth version appeared for the first time in a further amended defence and counterclaim delivered on 5 June 2007, less than a fortnight before the trial began. The relevant amendment was to para 12 and was settled by senior counsel:

“12Marco Pagliari informed Marie Therese Pagliari that Mr Johnston said the building work on the said adjoining property was landscaping and Marie-Therese Pagliari herself heard Mr Johnston's reply.”

The particulars remained unchanged.

62. This was the first time that Mrs Pagliari was alleged to have heard Mr Johnston's response. The added words made a nonsense of the words originally pleaded in para 12. The conversation was still alleged to have happened during the second inspection.

63. The sixth version was that given by senior counsel in opening the Pagliaris’ case:

“Mr Johnson on the occasion of the second inspection was upstairs with Mr Pagliari and Mrs Pagliari.  Now, this was an inspection at which Mr Chant is alleged to have been present. Mrs Pagliari recalls that the conversation was beginning to bore her and she walked from whatever room she was in upstairs on to the upstairs balcony, but she seldom travels far from Mr Pagliari because her method of locomotion when walking is to hang on to Mr Pagliari's belt or coat tails.  She was standing on the balcony while he was in the bedroom talking to Mr Johnson.  During that conversation each of Mr and Mrs Pagliari will say Mr Pagliari asked what was happening next door and Mr Johnson's reply was words to the effect:  "It is landscaping."  They were unqualified by any of the types of words that Mr Johnson attributes to himself when speaking to Mr Chant.”

64. That version was similar to the fifth but with the added detail that Mr Pagliari and Mr Johnston were in the upstairs bedroom and Mrs Pagliari on the balcony outside that bedroom when the conversation took place.

65. The seventh version was given by Mr Pagliari in his evidence in chief. It is set out above.^[17]  Mr Pagliari claimed that this was the version which he had given to his solicitors.  It differed from the opening in that it asserted that the conversation occurred at the time of the first inspection, when Mr Chant was not present, and that Mr Pagliari and Mr Johnston were on the balcony at the time of the conversation.  Mr Pagliari claimed that this had always been the version which he had given to his solicitors.  He said that Mrs Pagliari was also on the balcony, very close to him, and that the conversation was in French:

“What language were you speaking?--  Maybe French when we was there, because John Johnston speak French, too.

Maybe French, definitely French, or you are not sure?--  What?

The conversation?--  I think it was French.  Nobody ever speak in English between us, never.”

There was one departure from this version during Mr Pagliari's evidence, when Mr Pagliari suggested that Mr Chant was also on the balcony at the time,^[18] but as I have already found, that was an example of Mr Pagliari's willingness to say anything to suit the moment, regardless of its truth.^[19]

66. Mrs Pagliari had also attended the solicitors and had told them her version of what had occurred. She too asserted that the version which she gave in evidence was the one given to her solicitors. That version is set out above. She conceded the possibility that she might have told them that the conversation occurred on the second inspection:

“---have you ever told your solicitors that it was the second inspection?--  I could swear I said it was at the first but maybe everyone can make mistake but I don't know what I would have said at the second but maybe I am wrong.  I am not perfect.  Nobody is, your Honour.”

That concession was, however, very limited:

“Do you say to his Honour that you have always remembered, that is right from the beginning, that you were present and overheard that conversation?--  I did and I repeat, yes.

And do you say to his Honour that you always told - we have mentioned before - and I think you have agreed but you correct me if it is not fair - that you have had meetings before today with the solicitors and you told them what happened?--  Yes.

And do you say to his Honour that you always told the solicitors that what happened was that you had overheard this conversation?--  Yes.

I suggest to you that's not correct?--  I am terribly sorry.

You disagree with me?--  I disagree totally.”

67. Apart from the withdrawal of the admission referred to above, counsel for the Pagliaris sought no further amendment to the pleadings. No evidence was given by the solicitors as to the circumstances in which instructions were taken; there was no attempt to tender statements taken from the Pagliaris to rebut the inference of recent fabrication; and apart from the obvious language difficulties, nothing in the evidence explains the foregoing discrepancies. In my judgment those difficulties are insufficient to account for the discrepancies. I have no doubt that had there been an explanation for the Pagliaris’ change of story, evidence of it would have been led. It is highly improbable that the solicitors would twice make the identical mistakes when taking instructions from each of the Pagliaris for the pleadings. It is more than highly improbable that counsel would twice make the same mistakes in respect of instructions given only the week before trial. Assertions such as that Mr Pagliari informed Mrs Pagliari of the alleged representation do not spring out of thin air.

68. Did the Pagliaris have another reason for not proceeding with the purchase of a home to which Mr Pagliari was obviously attracted? Three possibilities are exposed by the evidence. First, Mr Pagliari believed (and still believes) that he was tricked into buying the property by a conspiracy between Mr Johnston, Mr Fathi and Mr and Mrs Ghikas. It is no exaggeration to describe that belief as paranoid. It is contrary to all the evidence and the Pagliaris’ lawyers wisely did not support it. Nonetheless in my judgment it furnished the primary reason for Mr Pagliari’s decision to withdraw from the contract. Second, Mr Pagliari suspected that he had paid too much for the property and the valuation evidence supports his suspicion. During the fortnight or so prior to signing the second contract Mr Pagliari’s mind fluctuated between a desire to allow the property to go to auction and take a chance on getting it for less than Dovaenda was asking and the desire to secure the property for a fixed price and avoid the risk of having to pay more at the auction. That can be inferred from a number of the things he said to Mr Johnston and the whole episode with the first contract. Third, the ability to do a good deal was an important aspect of Mr Pagliari’s self-image and money mattered a great deal to him. In his own eyes the transaction made him look a fool over a money matter. His ego was bruised. In my judgment all three factors played a part in Mr Pagliari’s decision to withdraw from the contract.

69. There is a fourth possible reason, although on the evidence I do not feel able to make a finding about it. I have described the circumstances regarding Mr Pagliari's application for finance above.^[20]  It may well be that the terms on which Mr Chant's superiors were prepared to grant finance contained conditions, particularly in relation to the sale of other properties, with which Mr Pagliari was not prepared to comply.  It is likely that the bank would have required Mr Pagliari to sell a number of his other properties, probably those referred to in Mr Chant's diary note, so as to reduce his total indebtedness to the bank.  There is no reason why Mr Pagliari could not have done this, but there is some reason to believe that he might not have been able to sell those properties for prices acceptable to him.  The failure of the auction of the most valuable of those properties (Carnegie Street), Mr Pagliari’s subsequent rejection of an offer for that property and his decision to increase the list price of it point in that direction.  The property at 235 Westlake Drive was said to have been under unconditional contract as at 27 November 2003, with settlement due on 6 December 2003.^[21]  There is no evidence that settlement of that contract ever took place.  Property at Wendouree Crescent, Westlake was sold on 31 January for $1.25 million and settlement took place on 25 February, but that was not one of the properties referred to in the diary note.  It is true that by letter dated 4 December 2003, the Pagliaris’ solicitors advised Dovaenda's solicitors that the Pagliaris had obtained satisfactory approval of finance.  However it would be unusual for a bank to grant such approval without first inspecting the property for which the finance was to be provided and which was to form part of the security for the loan.  As noted above, the bank’s valuer did not inspect the property until 9 December.  If the Pagliaris had not advised the satisfactory approval of finance by 4 December, Dovaenda could and probably would have terminated the contract and allowed the auction to proceed on 6 December.  Mr Pagliari had entered into the second contract to avoid having to bid at the auction, so this would have been an unattractive possibility in his mind.

70. As I have said, it is unnecessary to make a finding about these matters.

71. I infer that the Pagliaris concocted the version which they gave in evidence. I do not believe it. I am not satisfied that Mr Johnston made the representation which they allege he made. The Pagliaris’ ground of defence is not proved. It follows that they are liable to Dovaenda for breach of contract.

Damages

72. By the time the trial concluded Dovaenda's claim comprised the following:

73. Damages were claimed on two alternative bases: pursuant to cl 9 of the contract and at common law for breach of contract. Dovaenda did not elect between these two bases, contending that the same amount was recoverable under each. However the second basis was relied upon “only if there is some technical problem in relation to [the claim under cl 9]”.

74. Cl 9 of the contract provided as follows:

“9.Buyer’s Default

9.1Seller May Affirm or Terminate

If the Buyer fails to comply with any provision of this contract, the Seller may affirm or terminate this contract.

9.2If Seller Affirms

If the Seller affirms this contract under clause 9.1, it may sue the Buyer for:

(1)damages;

(2)specific performance; or

(3)damages and specific performance.

9.3If Seller Terminates

If the Seller terminates this contract under clause 9.1, it may do all or any of the following:

(1)resume possession of the Property;

(2)forfeit the Deposit and interest earned on its investment;

(3)sue the Buyer for damages

(4)resell the Property.

9.4Resale

(1)The Seller may recover from the Buyer as liquidated damages:

(a)any deficiency in price on a resale; and

(b)its expenses connected with this contract, any repossession, any failed attempt to resell, and               the resale; provided the resale settles within 2               years of termination of this contract.

(2)Any profit on a resale belongs to the Seller.

9.5Seller’s Damages

The Seller may claim damages for any loss it suffers as a result of the Buyer’s default, including its legal costs on a solicitor and own client basis and the cost of any Work or Expenditure under clause 7.6(2).

9.6Interest on Late Payments

(1)Without affecting the Seller’s other rights, if any money payable by the Buyer under this contract is not paid when due, the Buyer must pay the Seller at settlement interest on that money calculated at the Default Interest Rate from the due date for payment until payment is made.

(2)The Seller may recover that interest from the Buyer as liquidated damages.

(3)Any judgment for money payable under this contract will bear interest from the date of judgement to the date of payment and the provisions of this clause 9.6 apply to calculation of that interest.”

75. The Pagliaris conceded that, if Dovaenda were successful on liability, items B to D were recoverable under cl 9 and the declaration of forfeiture of the deposit should be made. As to the remaining items, they did not challenge the evidence that Dovaenda had incurred the expenditure, nor did they suggest that Dovaenda should have rented or otherwise dealt with the property so as to mitigate its damage incurred in respect of the period from 29 March 2004 (when settlement of the Pagliaris’ contract should have taken place) to 22 October 2004 (when the resale was settled). Apart from interest, the challenged items represented expenses incurred during that period. They submitted that for a variety of reasons some or all of the relevant amount did not fall within the terms of cl 9. It is therefore necessary to deal with these items seriatim.

Pool fencing

76. Construction of the house was completed at some time between March and June 2003. The swimming pool was filled in May or June of that year. In apparent breach of the Building Act 1975, which was then in force, Dovaenda did not ensure that a fence was built between the house and the pool.  Mr Fathi could not explain why that was not done; it may have been because such a barrier was perceived as an impediment to sale.  The missing fence was dealt with in special condition 1 of the contract,^[22] which made it a responsibility of the Pagliaris.  The pool remained unfenced across the house section until May 2004.  Mr Fathi then had a glass fence installed by Euroglass Australia Pty Ltd for $20,500, plus $176 consultant's fees.  Despite that, when the property was resold the following month, the clause about the pool fencing was included in the contract.

77. In my judgment that expenditure cannot be described as an expense connected with the resale within the meaning of cl 9.4, nor as loss that Dovaenda suffered as a result of the Pagliaris’ default within the meaning of cl 9.5. It was part of the cost of construction. There is simply no evidence that the decision to build the fence was caused by the Pagliaris default. For the same reason this amount is not recoverable at common law.

78. Had I been of a different view I would not have disallowed this item or any part of it on the ground that it was excessive or unreasonable. In the circumstances of this dwelling, an expensive fence was appropriate.

Rates, land tax and electricity

79. Dovaenda was required to pay rates and land tax and for electricity from April to October 2004. It would not have been required to pay those items had the Pagliaris not defaulted. In my judgment they are recoverable under cl 9.5 of the contract. The Pagliaris relied on the decision of Blackburn J in Rossco Developments Pty Ltd v O'Halloran,^[23] where a claim for rates was disallowed.  However the question in that case was whether the rates were an expense “of an incidental to” the resale.  That is not the issue under cl 9.5.

Insurance

80. With effect from 31 July 2003 Datafield obtained a policy from GIO General Ltd, an insurer, insuring a “display home awaiting sale” and maintained that policy until the resale. However Dovaenda was not an insured under that policy and was not proved to have any interest in it. I have also been unable to find evidence that it paid the premiums. But for these matters I would have allowed this claim, notwithstanding that the property was at the buyer’s risk from 24 July 2004.

Security and cleaning

81. The Pagliaris challenge so much of the outgoings for security as related to the period during which the property was at the buyer’s risk under the resale contract. In my judgment it was reasonable for Dovaenda to maintain security over the premises until the contract settled. Its outlays for security and cleaning are recoverable under cl 9.5.

Maintenance and gardening

82. After the Pagliaris defaulted, Mr Fathi was advised by his landscape architect to obscure the construction next door by planting mature trees. He accepted that advice in order to minimise the impact of the structure on any resale. Implementing the advice involved constructing a garden, buying the trees and having them planted. To do that it was necessary to lay protective material over the expensive white imported sandstone driveway and even with that protection, some stones were marked and damaged, requiring cleaning and repair. Mr Johnston expressed the view that the property was better without those trees, but in my judgment it was reasonable for Dovaenda to have them planted. The outlays constituted expenses connected with the resale under cl 9.4, as well as being damages suffered as a result of the Pagliaris’ default under cl 9.5.

83. Prior to the resale Mr Fathi decided that the floors needed to be re-sanded as a result of people walking through the house and of a water stain. All floors in the house were re-sanded. The evidence in relation to this item was vague and I am not satisfied that the need arose as a result of the Pagliaris’ default or that the cost was connected with the resale. The cost was $9,900.

84. In June 2004 Dovaenda had the lights in the swimming pool replaced. The lights installed by Datafield had begun to leak, apparently through a manufacturing defect. Mr Fathi did not want to be bothered making a claim on the manufacturer. In my judgment proper lights should have been installed in the first place. A buyer would have been entitled to the benefit of a manufacturer's warranty. Mr Fathi's decision to incur the expense was not a result of the Pagliaris’ default nor was it an expense connected with the resale. The amount of the expenditure was $2,182.40.

85. The Pagliaris did not challenge any other items under this heading.

Interest

86. Dovaenda claimed interest pursuant to cl 9.6 of the contract or alternatively pursuant to s 47 of the Supreme Court Act 1995.  The Pagliaris submitted that cl 9.6 has no application to the situation.  They first submitted that the amounts here in question were not “money payable by the Buyer under this contract” within the meaning of the clause.  Those words are simply not apposite.  They submitted that the correctness of this view was demonstrated by the fact that the clause is triggered by non-payment “when due”, a concept quite inapplicable in the circumstances.  They submitted that the clause contemplates payment of interest “at settlement”, thereby showing its application to amounts payable by the buyer prior to that date.  The deposit is one amount which obviously would be covered.

87. In my judgment the Pagliaris’ submission is correct.

88. Dovaenda submitted that should I reach that conclusion, I should award interest under s 47 at the same rate as would have applied under the clause, 11%. I think the analogy is far from perfect. A much closer analogy is with the statutory rate of 10% which has, I was told by counsel, applied to judgments at all times since March 2004. I shall award interest under the section at that rate.

89. Apart from interest Dovaenda should recover the following:

90. The parties asked that in the event that judgment was given for Dovaenda they be given the opportunity to calculate interest on the amount awarded, taking into account any accretions to the deposit. I am content to allow time for that to occur.

91. Were I assessing damages at common law the result would be the same. The items disallowed would still be disallowed as not constituting consequential loss. The measure of damages would be the difference between the contract price and the market value of the property. Notwithstanding the reluctance of some of the valuers to apply strict valuation theory in respect of the resale auction, I am satisfied that the best evidence of market value is the price obtained at that auction. Even if the market value were more than the price so obtained, the difference between that amount and the market value would be recoverable as consequential loss.

Cross-proceedings

92. The foregoing findings substantially determine the cross-proceedings. In the absence of finding that the representation alleged by the Pagliaris was made, their counterclaim against Dovaenda and their claim against Dixon Partners must be dismissed.

93. Dovaenda's claim against Dixon Partners was in terms contingent upon the success of the Pagliaris’ defence. It made no claim for the deposit or even for a declaration that it was entitled to the deposit. As appears from cl 2.4 of the contract of sale,^[24] it became entitled to the deposit (and any interest on it) when it terminated the contract at the time of the resale.  Had it made such a claim, Dixon Partners could have set off its claim for commission and pleaded it under r 949 of the Uniform Civil Procedure Rules in respect of the balance.  The point has now been reached where a declaration regarding entitlement to the deposit is to be made as between Dovaenda and the Pagliaris.  The question arises whether a similar declaration or perhaps an order for payment should be made as between Dovaenda and Dixon Partners, notwithstanding Dovaenda's failure to claim it.  I will hear the parties on this question and on the form of any order which should be made.

94. Dixon Partners counterclaim against Dovaenda for commission was based on cl 2.1 of the agency contract. That clause provided:

“The Client agrees to pay the Agent commission as specified in the Appointment if a Contract of Sale of the Property is entered into with a buyer, whether within the Term or after the Term, where the Relevant Person is the effective cause of the sale within the Term, provided that

…

(3)the Contract of Sale is not completed and the whole or part of the deposit paid is liable to be forfeited.”

95. By its answer to that counterclaim Dovaenda admitted that if the Pagliaris’ allegations were not made out and they were thereby found to be in breach of contract, and the deposit was found “legally and justifiably forfeited”, Dixon Partners was entitled to be paid commission in accordance with the agency agreement. It pleaded that Dixon Partners had not demanded such commission and that at no time had it denied Dixon Partners entitlement in the event that the deposit was in fact forfeited.

96. Dovaenda submitted that Dixon Partners’ counterclaim was “a waste of that component of the litigation” and that as stakeholder, Dixon Partners was presumably entitled to deduct its commission from the deposit. It did not submit that the entitlement to commission depended upon the making of the demand.

97. I am unsure what the first submission means. If it means that the counterclaim was premature or was made in respect of an admitted liability, it is not correct. Dixon Partners was entitled to commission at least from the time Dovaenda terminated the contract. Proviso (3) conditions that entitlement upon the liability of the deposit to be forfeited, not upon its forfeiture. Its entitlement did not depend on a finding that the deposit was legally and justifiably forfeited, as Dovaenda pleaded. Dixon Partners would not have been entitled to judgment on the pleadings; Dovaenda had not admitted its claim.

98. As to the second submission, the contract of sale, which was signed by Dixon Partners as deposit holder, provided:

“2.2Deposit

(1)The Buyer must pay the Deposit to the Deposit Holder at the times shown in the Reference Schedule.  The Deposit Holder will hold the Deposit until a party becomes entitled to it.

(2)The Buyer will be in default if it:

(a)does not pay the Deposit when required;

(b)pays the Deposit by post-dated cheque; or

(c)pays the Deposit by cheque which is dishonoured on presentation.

2.3Investment of Deposit

If:

(1)the Deposit Holder is instructed by either the Seller or the Buyer; and

(2)it is lawful to do so;

the Deposit Holder must:

(3)invest as much of the Deposit as has been paid with any Financial Institution in an interest-bearing account in the names of the parties; and

(4)provide the parties’ tax file numbers to the Financial Institution (if they have been supplied).

2.4Entitlement to Deposit and Interest

(1)The party entitled to receive the Deposit is:

(a)if this contract settles, the Seller;

(b)if this contract is terminated without default by the Buyer, the Buyer; and

(c)if this contract is terminated owing to the Buyer’s default, the Seller.

(2)The interest on the Deposit must be paid to the person who is entitled to the Deposit.

(3)If this contract is terminated, the Buyer has no further claim once it receives the Deposit and interest, unless the termination is due to the Seller’s default or breach of warranty.

(4)The Deposit is invested at the risk of the party who is ultimately entitled to it.”

99. It may be that upon a proper analysis of those clauses and their relationship to the terms of the agency contract, Dovaenda would have been entitled in its answer to the counterclaim to set off its claim to the deposit. Since the deposit exceeded the commission this would if successful have defeated the counterclaim. However Dovaenda did not plead such a set off. The set off which it did plead did not comprehend its claim to the deposit. In these circumstances I am not, except by consent, prepared to accede to the second submission without an amendment to the answer.

100. The question as to the form of order which should be made is related to the question as to the form of order which should be made on Dovaenda's claim against Dixon Partners. I will hear the parties on both orders.

Costs

101. The Pagliaris admitted in their defence that under cl 9.5 of the contract Dovaenda would be entitled to its legal costs on a solicitor and own client basis if the court at trial did not find they rescinded the contract on 30 January as they alleged. The clause is drawn widely enough to include not only costs incurred as against the Pagliaris but also costs incurred as against Dixon Partners. The court should therefore order that the Pagliaris pay Dovaenda's costs incidental to the proceedings, including its costs of the proceedings against Dixon Partners, to be assessed on the indemnity basis.

102. Dixon Partners has succeeded on its defence to the Pagliaris’ claim against it. There is no reason why costs should not follow the event in the ordinary way. Moreover the need for Dovaenda's claim against Dixon Partners and for Dixon Partners’ counterclaim arose entirely from the stance taken by the Pagliaris. They should therefore pay the costs incurred by Dixon Partners in the proceedings between it and Dovaenda.

103. Whether there should be any orders as to costs as between Dovaenda and Dixon Partners depends in part upon the orders made as between those parties. Whether in the event that any such orders as to costs are made, the Pagliaris should be required to indemnify the paying party in respect of them need not be determined unless any such order is made. I shall hear the parties on these questions.