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Supreme Court 31 March 2011

Despot v Registrar General of New South Wales & Ors Sky v Despot

[2011] NSWSC 273

Fraud & dishonesty
CONTRACT RELIEF DAMAGES RECTIFICATION SPECIFIC PERFORMANCE ALLEGATIONS OF BREACH OF FIDUCIARY DUTY

Citation: Despot v Registrar General of New South Wales & Ors; Sky v Despot [2011] NSWSC 273
Court: Supreme Court of New South Wales
Date: 31 March 2011
Judge(s): Associate Justice Macready

Background

A property owner (the plaintiff) owned a unit at Double Bay purchased in 2005 for $1.19 million. He engaged a builder through the builder's principal to undertake extensive renovations. A dispute arose about the terms of the building contract: the builder claimed a written contract fixed the price at $1.485 million, while the owner maintained he had entered an oral agreement for $250,000.

The builder's principal, purporting to act under a power of attorney allegedly signed by the owner, sold the property to a third-party company for $1.6 million in order to recover amounts he claimed were owed under the building contract. The owner denied signing the power of attorney and the associated deed of security and indemnity on the date alleged, contending his signatures were obtained fraudulently and that the entire sale should be set aside.

Two sets of proceedings were heard together. The owner sought declarations that the sale was fraudulent and should be set aside. The builder commenced separate proceedings to recover $1.485 million, though the claim was ultimately reframed as a quantum meruit (a claim for the reasonable value of work done) because the builder held no licence at the relevant time.

  • Whether the power of attorney and deed of security and indemnity were validly executed by the owner, or were obtained fraudulently
  • Whether the building contract at $1.485 million was genuine, or whether the true agreement was an oral contract for $250,000
  • Whether the sale of the property to the third-party company should be set aside
  • Whether the builder could recover any amount for building work performed, given it held no builder's licence and carried no required insurance
  • Whether the builder's principal's solicitor was liable in negligence or for breach of duty in connection with the power of attorney and the sale
  • Whether the third-party purchaser was entitled to complete the purchase upon payment of outstanding funds

Decision

Associate Justice Macready rejected the builder's evidence and accepted that the building contract for $1.485 million was not a genuine contemporaneous document. The judge found that the builder's principal had falsified the building contract, a conclusion supported in part by evidence from the solicitor that the principal had at one point described the building agreement as dated 27 August 2007, rather than the 16 July 2007 date on the face of the document. This discrepancy indicated that falsification had not yet occurred as at 5 September 2007.

The court was not persuaded by the builder's principal's account of how and when the power of attorney and deed of security and indemnity were signed. The judge preferred the solicitor's evidence over that of the builder's principal in the relevant respects, finding the solicitor's conduct, while unusual in places, did not attract the adverse findings sought against him.

On the builder's claim for payment, the court noted that Sky Constructions held no builder's licence when the contract was entered into and performed work without the required insurance under the Home Building Act 1989. The claim was framed as a quantum meruit, but the court found that section 94(1A) of that Act confines any such entitlement to a court-created right rather than a general law right, and section 10 prohibits recovery for unlicensed work. These provisions together precluded the builder from recovering under a quantum meruit.

Regarding the third-party purchaser (Stelli), the court found it would be entitled to a declaration and consequential orders to enable registration of the transfer, but only upon payment of an outstanding sum of $91,086 directly to the owner. The court directed the parties to bring in short minutes to reflect its decision, with costs and outstanding matters to be argued separately.

Orders Made

• 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, on condition that the sum of $91,086 be paid direct to Mr Despot by Stelli

• Parties to bring in short minutes to reflect the decision and argue any outstanding matters and costs

The judgment directed the parties to bring in short minutes to reflect the court's decision and to argue any outstanding matters and costs. The following outcomes were indicated:

  • Stelli to be entitled to declarations and orders enabling registration of transfer, conditional on payment of $91,086 directly to the owner
  • The owner's claims regarding the fraudulent use of the power of attorney and the falsified building contract were upheld
  • The builder's claim for $1.485 million (or quantum meruit) was rejected
  • Claims against the solicitor (fifth defendant) for negligence and breach of duty did not succeed on the primary findings, though indemnity for costs remained to be argued

Key Takeaways

  • A builder who holds no licence at the time of contracting and fails to obtain required insurance under the Home Building Act 1989 cannot recover for building work, whether under contract or by way of quantum meruit; section 10 and section 94(1A) operate together to bar such claims.

  • Where evidence points to a building contract being falsified after work had already commenced, a court will scrutinise inconsistencies in the dates and circumstances of execution, including statements made by the party relying on the document.

  • A power of attorney purportedly authorising the attorney to sell the grantor's property will be set aside where the court is not satisfied it was validly executed and where the circumstances of execution are inconsistent with the alleged occasion of signing.

  • Under the Home Building Act 1989, any right to a quantum meruit for unlicensed or uninsured residential building work is a court-created right under section 94(1A) and does not arise at general law, limiting the circumstances in which such recovery is available.

  • A third-party purchaser who acquires property under a sale arranged by an attorney acting beyond or improperly under a power of attorney may still obtain an entitlement to complete the transaction, but the court may impose conditions, including directing that outstanding funds be paid to the original owner rather than to the attorney.

Legislation and Cases Referenced

Legislation:
- Home Building Act 1989 (NSW), ss 4, 5, 10, 92, 94, 99, 102, 103BA
- Powers of Attorney Act 2003 (NSW), ss 3, 8, 9, 12, 13, 15, 16, 48
- Real Property Act 1900 (NSW), s 74O
- Fair Trading Act 1987 (NSW), s 42
- Conveyancing Act 1919 (NSW)
- Home Building Regulation 2004 (NSW), r 66
- Interpretation Act 1987 (NSW), s 8

Cases:
- ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665
- 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
- Eddy Lau Constructions Pty Limited v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273
- Hawkins v Clayton & Ors [1988] HCA 15
- Quest Rose Hill Pty Ltd v White [2010] NSWSC 939
- Sopov v Kane Constructions Pty Ltd (No 2) [2009] VSCA 141
- Spina v Conran Associates Pty Limited; Spina v M&V Endurance Pty Limited [2008] NSWSC 326