Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Despot v Registrar-General of NSW [2013] NSWCA 313
• Hearing dates: 19 and 20 March 2013; Written submissions 28 March 2013
• Decision date: 20 September 2013
• Before: Meagher JA at [1]; Ward JA at [115]; Bergin CJ in Eq at [116]

Decision

(1) The application of the first respondent (Mr Maalouf) for leave to file a cross-appeal dismissed.

(2) Appeal allowed in part.

(3) Set aside order 2 of the Court below made on 15 April 2011, but only to the extent that it applies to the eighth defendant (Sky Constructions).

(4) Judgment for the appellant against Sky Constructions in the sum of $788,375.35, including pre-judgment interest, that judgment to take effect on 15 April 2011.

(5) Judgment for the appellant against Stelli for the sum of $91,086 plus pre-judgment interest of $21,746, that judgment to take effect on 15 April 2011.

(6) Appeal otherwise dismissed.

(7) The second and seventh respondents pay one-third of the costs of the appellant of the appeal in so far as they relate to them.

(8) The appellant pay the costs of the third, fifth and sixth respondents of the appeal.

(9) The appellant pay the costs of the fourth respondent (St George) of the appeal including its costs of his application to amend the Notice of Appeal to seek relief against it.

(10) Grant leave to the parties to lodge written submissions with respect to the calculation of interest in Order 5 in the event that either party challenges the correctness of that calculation. Such submissions to be lodged within seven days of the date of these orders.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: PRINCIPAL AND AGENT - power of attorney - power executed by home owner in favour of principal of building company undertaking renovation work - separate security granted to builder to secure moneys owed for renovations - whether power of attorney irrevocable because provided for purpose of securing repayment of moneys due to builder - whether donee of power owed fiduciary duties to donor; APPEAL AND NEW TRIAL - appeal - claims and arguments not pleaded or made below - trial judge ordered contract for sale of property be specifically performed subject to condition purchaser pay amount of unpaid purchase price - on appeal vendor sought to maintain order for specific performance but vary condition on basis that amount of unpaid purchase price exceeded that found by trial judge - argument not able to be made on appeal because inconsistent with basis upon which trial judge found purchaser ready, willing and able to perform - argument also not available on appeal because could have been subject of evidence at trial; APPEAL AND NEW TRIAL - appeal - claims and arguments not pleaded or made below -donor of power of attorney and vendor sought to argue on appeal that solicitor knowingly participated in breach of fiduciary duties by donee in acting on sale on instructions from donee, breached duty of care by failing to advise donee of limitations upon his authority and engaged in misleading or deceptive conduct in relation to purchaser - arguments not available on appeal because could have been subject of evidence at trial; CONTRACTS - building contract - remuneration - quantum meruit - whether trial judge erred in allowing builder's claim for scaffolding - no question of principle
• Legislation Cited: Fair Trading Act 1987, s 42; Home Building Act 1989, ss 4, 10, 92, 94; Powers of Attorney Act 2003, ss 7, 8, 9, 11, 12, 13, 15, 16
• Cases Cited: ACQ v Cook (No 2) [2008] NSWCA 306; Adams v Bank of New South Wales [1984] 1 NSWLR 285; Barclays Bank Ltd v Bird [1954] Ch 274; Breen v Williams [1996] HCA 57; 186 CLR 71; Chan v Zacharia [1984] HCA 36; 154 CLR 178; Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; 132 CLR 373; Coulton v Holcombe [1986] HCA 33; 162 CLR 1; Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176; Despot v Registrar-General of New South Wales (Supreme Court of NSW, Macready AsJ, 29 April 2011, unreported); Despot v Registrar-General of New South Wales; Sky Constructions v Despot [2011] NSWSC 273; East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159; Elkateb v Lawindi (1997) 42 NSWLR 396; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89; Frith v Frith [1906] AC 254; Gaussen v Morton (1830) 10 B&C 731; 109 ER 622; Gould v Vaggelas [1984] HCA 68; 157 CLR 215; Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; 73 NSWLR 653; Lee v Sankey (1873) LR 15 Eq 204; Mead v Watson as Liquidator for Hypec Electronics Pty Ltd (In Liq) [2005] NSWCA 133; O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310; Re M (a debtor); ex parte Dalgety & Co Ltd (1909) 10 SR (NSW) 175; Re The Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622; Reliance Finance Corporation Pty Ltd v Heid [1982] 1 NSWLR 466; Sanderson v Blyth Theatre Co [1903] 2 KB 533; Siahos v J P Morgan Trust Australia Ltd [2009] NSWCA 20; Slatter v Railway Commissioners for New South Wales [1931] HCA 13; 45 CLR 68; Smart v Sandars (1848) 5 CB 895; 133 ER 1132; Spina v Permanent Custodians Ltd [2008] NSWSC 561; Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179; 20 NSWCCR 417; Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418; Tobin v Broadbent [1947] HCA 46; 75 CLR 378; Walsh v Whitcomb (1797) 2 Esp 565; 170 ER 456; Watson v King (1815) 4 Camp. 272; 171 ER 87; Wossidlo v Catt [1934] HCA 52; 52 CLR 301
• Texts Cited: Watts and Reynolds, Bowstead and Reynolds on Agency, 19th ed (2010) Sweet & Maxwell
• Category: Principal judgment
• Parties: Ranko Despot (Appellant); Registrar-General of NSW (First Respondent); Roy Maalouf (Second Respondent); Stelli Pty Ltd (Third Respondent); Westpac Banking Corporation (Fourth Respondent); Dominic Carbone (Fifth Respondent); Joyce Azzi (Sixth Respondent); Sky Constructions Pty Ltd (Seventh Respondent)
• Representation: Counsel: J C Hewitt, J E Curtin (Appellant); Submitting appearance (First Respondent); K D Ginges (Second and Seventh Respondents); B J Gross QC, D J Williams (Third and Sixth Respondents); S Ipp (Fourth Respondent); J C Kelly SC (Fifth Respondent); Solicitors: Pamela J Enright Solicitor (Appellant); GR Bartier, Solicitor for the Registrar-General (First Respondent); Self-represented (Second and Seventh Respondents); Kheir Lawyers (Third and Sixth Respondents); Henry Davis York (Fourth Respondent); Colin Biggers & Paisley (Fifth Respondent)
• File Number(s): CA 2012/56421

Decision under appeal

• Jurisdiction: 9111
• Citation: Despot v Registrar-General of New South Wales; Sky Constructions v Despot [2011] NSWSC 273
• Before: Macready AsJ
• File Number(s): 2009/298869; 2009/298832

Judgment

1 MEAGHER JA: The appellant (Mr Despot) executed a general power of attorney in favour of the second respondent (Mr Maalouf) which was used by him to sell a home unit owned by Mr Despot and to apply a major part of the proceeds in satisfaction of a debt said to be owed by Mr Despot to the seventh respondent (Sky Constructions), a company controlled by Mr Maalouf. One question in the appeal is whether that power was granted as security for the repayment of that debt. A more critical question is whether the arguments sought to be made by Mr Despot on appeal were pleaded and made in the proceedings below or are able to be advanced for the first time on appeal.

2 The latter question makes it necessary to consider in some detail the way in which Mr Despot's claims were pleaded and maintained in the proceedings before the primary judge (Macready AsJ), as well as how they were dealt with by him: Despot v Registrar-General of New South Wales; Sky Constructions v Despot [2011] NSWSC 273. That consideration requires an understanding of the relevant facts.

The relevant facts

3 Mr Despot was the owner of a home unit in Double Bay. In 2007 he engaged Sky Constructions to undertake extensive renovation work on the home unit. Mr Maalouf was a director, and the controller, of Sky Constructions. A building contract, bearing the date 16 July 2007, was signed by Mr Despot. It was in fact not signed on that date and at the time it was signed it did not contain an agreed price for the works to be undertaken. In September 2007 Mr Despot signed a Deed of Security and Indemnity (the Security Deed) in favour of Sky Constructions and a power of attorney (the Power of Attorney) in favour of Mr Maalouf. Each bears the date 5 September 2007 and was prepared by the fifth respondent (Mr Carbone), a solicitor retained by Mr Maalouf.

4 The building work commenced in August 2007 and continued through to May 2008. Mr Despot was overseas for substantial parts of that period. At the time the work commenced, Sky Constructions did not have a builder's licence under the Home Building Act 1989. It did not obtain that licence until March 2008. There was also no contract of insurance in relation to the building work as required by s 92 of that Act. That fact emerged late in the hearing before the primary judge.

5 In April and May 2008, unbeknownst to Mr Despot, Mr Maalouf, acting as his attorney, arranged for the sale of the home unit to the third respondent (Stelli). The sixth respondent (Mrs Azzi) was the sole director of Stelli. The decision that Stelli should purchase the property was made by Mr Azzi. On 12 May 2008 Mr Maalouf executed a Deed of Settlement creating a discretionary trust, the trustee of which was Stelli and the objects of which were Mr Maalouf and members of his family. That deed was prepared by Mr Carbone. It permitted Mr Maalouf as appointor to remove the trustee at any time. The primary judge found that the purpose of this deed was to secure an amount to be advanced by way of vendor finance to enable Stelli to complete the purchase: [116]. That finding is not challenged on appeal.

6 Contracts for sale were exchanged on 16 May 2008. The price was $1.6m. The contract was prepared by Mr Carbone on the instructions of Mr Maalouf. Although it provided for payment of a deposit of $160,000 it was agreed between Mr Maalouf and Mr Azzi that no deposit would be paid before completion. That did not, however, prevent Mr Carbone advising Mr Despot's existing mortgagee, St George Bank Ltd (St George) that the deposit had been paid.

7 The sale was completed on 3 July 2008. By that time Kheir & Associates, solicitors, were acting for Stelli as well as Mrs Azzi, who guaranteed the performance of Stelli's obligations under the contract. At an earlier point in time (before 21 May 2008) Mr Carbone had acted for Stelli and Mrs Azzi in relation to their application to St George for finance and the exchange of the contracts for sale. On 23 June 2008 Mr Carbone provided Kheir & Associates with a copy of the Power of Attorney.

8 Initially Stelli proposed to finance the purchase by borrowing $1,120,000 from St George and funding the balance from the sale of businesses owned, directly or indirectly, by Mr Azzi. It became apparent that those funds would not be available by the time proposed for settlement. Mr Azzi and Mr Maalouf then agreed that Mr Despot would provide vendor finance, eventually $480,000, which was to be repaid to Sky Constructions. In mid-July 2008 Stelli and Mr Maalouf, acting for Mr Despot, executed a mortgage which secured an advance of $480,000 from Mr Despot to Stelli. It provided for the loan to be repaid by instalments, the first instalment due on 3 August 2008. The primary judge did not make any specific finding about this mortgage. He did, however, find that "the vendor provided finance of some $480,000 in favour of the purchaser to enable Stelli to complete the purchase": [104]. That finding also is not challenged on appeal.

9 When $480,000 was calculated as the amount needed for Stelli to complete the purchase, no allowance was made for the costs and outgoings of St George which were to be deducted from the amount being borrowed. They totalled $15,319. Nor was account taken of the stamp duty for which Stelli was liable ($73,490) or the costs due to Kheir & Associates (eventually $2,186). On settlement each of those amounts also was paid out of the amount borrowed from St George. The result was that there remained a shortfall of $91,086 in the amount available to be paid to Mr Despot on settlement.

10 Using rounded numbers, the amount due on settlement, excluding the unpaid deposit, was $1,441,400. The net amount received from St George was $1,104,681. Of that amount $502,540 was paid to St George to discharge Mr Despot's registered mortgage, $464,932 was paid to Sky Constructions, and $22,541 was paid to Carbone Lawyers in respect of the vendor's legal fees. The amounts due to Kheir & Associates and the Office of State Revenue for stamp duty were also paid from that advance. The payments made to Sky Constructions and Carbone Lawyers were made pursuant to directions given by Mr Carbone.

11 All of this happened without the knowledge of Mr Despot, who was overseas in June and the early part of July 2008. On 2 July 2008 his lawyers, Johnston Vaughan, wrote to Mr Carbone concerning two caveats lodged with the first respondent (the Registrar-General) in relation to the property. The first had been lodged by Sky Constructions on 7 May 2008. The second was lodged by Mr Maalouf on 27 June 2008. It claimed an interest in the property under a "Home Building Contract" dated 16 July 2007 between Mr Despot and Mr Maalouf. The letter requested that the second caveat be withdrawn, noting that "[o]ur client claims he has paid your client in full for an amount over $300,000 in cash". The letter also advised that Mr Despot was in the process of refinancing the property.

12 Acting on the instructions of Mr Maalouf, Mr Carbone did not respond to this letter. It was obvious from its terms that Mr Despot was not aware that the property had been sold or that settlement was to take place on the following day. It was also obvious that Mr Despot maintained he had paid Sky Constructions all that it was entitled to. Mr Despot first became aware that the home unit had been sold on 21 July 2008: [37]. On that day a revocation of the Power of Attorney was signed and registered. Johnston Vaughan also wrote to Carbone Lawyers requesting the return of the original Power of Attorney and details of dealings by Mr Maalouf with the property. They also wrote to Kheir & Associates alleging that Mr Maalouf had "fraudulently" sold the property, having obtained the Power of Attorney "fraudulently as our client did not consent" to it.

13 On 22 July 2008 Mr Despot commenced proceedings against the Registrar-General, Mr Maalouf, Stelli and St George to restrain the Registrar-General from registering any dealings and to restrain Mr Maalouf from acting pursuant to the Power of Attorney. Interim orders to that effect were made on that day. Between 6 August and 16 October 2008 Stelli made five payments totalling $480,000 directly to Sky Constructions. Those payments were made under the vendor finance arrangement.

14 The injunction restraining the registration of dealings remained in place until it was dissolved by order of the primary judge on 15 April 2011. The operation of that order was stayed until 27 May 2011. On 30 May 2011 Stelli became registered proprietor of the property. At the same time the discharge of Mr Despot's mortgage was registered, as was Stelli's mortgage.

15 On 15 April 2011 the primary judge also made an order for the specific performance of the contract between Mr Despot and Stelli. That order was expressed to be conditional upon Stelli paying $91,086 to Mr Despot. That payment has never been made.

The proceedings

16 The claims which are the subject of Mr Despot's appeal were made in the proceedings commenced on 22 July 2008. In March 2009 Sky Constructions commenced proceedings against Mr Despot (proceedings 55020 of 2009; 298837 of 2009). The two proceedings were heard in late 2010.

Mr Despot's proceedings

17 By the time of the hearing, the claims made and relief sought by Mr Despot were contained in his First Amended Statement of Claim. They were as follows:

(1) Against Mr Maalouf, Stelli, Mrs Azzi, Sky Constructions and a contractor of Sky Constructions (a Mr Tyler), as made by paragraphs 39a to 43 and 44 of that pleading: That Mr Maalouf sought to defraud Mr Despot by depriving him of the property and that the others named were participants in that fraudulent scheme. Mr Despot denied knowingly signing the Power of Attorney, the Security Deed and the building contract. Alternatively, the execution of those documents was procured by Mr Maalouf's fraud, misrepresentation or misleading or deceptive conduct. Mr Despot sought orders and declarations that the various transactions, and the transfer and discharge of mortgage which occurred as a result of the sale, were void. The relief sought included "damages". That claim was made on the basis that those transactions were void or liable to be set aside. It was not made on the basis that the contract for sale would be completed.

(2) Against Mr Maalouf and Sky Constructions, as made by paragraphs 43a and 44 of that pleading: That by reason of the contravention by Sky Constructions of the licensing provisions in s 4 of the Home Building Act, the building contract was "void" and that "as a consequence" the Security Deed and Power of Attorney were also "void". A declaration to that effect was sought.

(3) Against Mr Maalouf, Stelli and Mrs Azzi, as made by paragraphs 45 to 48 of that pleading: That in the event the Power of Attorney was knowingly signed by Mr Despot, Mr Maalouf breached fiduciary duties owed to Mr Despot by entering into the contract for sale, agreeing to vendor finance, not ensuring that Mr Despot received any of the proceeds of sale and being a beneficiary under the discretionary trust. Mr Despot also alleged that Stelli and Mrs Azzi knowingly participated in the last breach "by appointing Maalouf as the beneficiary of the trust". In consequence it was claimed that the contract for sale and transfer were "voidable" and liable to be set aside. Orders and declarations to that effect were sought. There was also a claim (by paragraph 48) that as a consequence of the breach of fiduciary duties Mr Despot had "suffered loss and damage". By this claim it was argued that Mr Maalouf was liable to account for any gain received as a result of such breaches: [40], [45].

(4) Against Mr Maalouf, as made by paragraphs 48a to 48g of that pleading: That the sale of the property by Mr Maalouf as attorney was not authorised and was in breach of fiduciary duty because he derived benefits as a beneficiary of the trust and as a principal of Sky Constructions. It was also alleged that Stelli and Mrs Azzi entered into the contract for sale and transfer with knowledge of that breach because Stelli became trustee of the discretionary trust, purchased from Mr Maalouf and entered into a "sham vendor finance" arrangement. The relief sought was a declaration that the contract for sale and transfer were void and that the Power of Attorney did not authorise the entry into that contract or execution of that transfer. No separate claim for damages or for equitable compensation was made against Mr Maalouf, Stelli or Mrs Azzi by reason of these alleged breaches of fiduciary duty.

(5) Against St George, as made by paragraphs 49 to 52 of that pleading: That it breached a duty of care owed to Mr Despot as customer causing loss and damage. This claim was eventually settled.

(6) Against Mr Carbone, as made by paragraphs 53 to 68 of that pleading: That in accepting instructions from Mr Maalouf pursuant to the Power of Attorney, Mr Carbone owed a duty of care to Mr Despot. Mr Carbone breached that duty of care by not informing Mr Despot that the Power of Attorney had been registered and that he was proceeding to act on a sale of the property to Stelli in its capacity as trustee of a discretionary trust, the objects of which were Mr Maalouf and members of his family. It was also alleged (by paragraph 67) that there were particular breaches of duty by Mr Carbone in acting on instructions from Mr Maalouf as Mr Despot's attorney. The allegations made are set out later in these reasons when addressing Mr Despot's appeal as it relates to Mr Carbone. Those alleged "failures" of Mr Carbone (which I take also to be a reference to the particulars in paragraph 67) were also said to constitute "misleading and deceptive conduct" in contravention of s 42 of the Fair Trading Act.

18 There were also cross-claims made. Before referring to them, the following matters should also be noted as they are relevant to the consideration of Mr Despot's arguments on appeal.

19 First, the background facts alleged as part of Mr Despot's case and against which his claims were made included the following:

"29. The sale price on the Contract for Sale of Land was $1,600,000 including a vendor finance agreement for one month in the sum of $480,000.

...

38. Stelli has allegedly paid pursuant to the vendor finance facility agreement between 6 August 2008 and 16 October 2008 and after these proceedings were commenced the sum of $480,000 to Sky Constructions. An amount of $91,086 remains outstanding pursuant to the Contract for Sale of Land."

20 Secondly, no claim was made against Stelli for payment of moneys due under the contract for sale or against Mrs Azzi for payment of moneys due as guarantor. Thirdly, no claim was made against Stelli or Mrs Azzi for knowing participation in any breach of fiduciary duty by Mr Maalouf in directing that on settlement $464,932 be paid to Sky Constructions or in making the vendor finance agreement and directing that the moneys due under it be repaid to Sky Constructions. Finally, there was no claim made against Mr Carbone for knowing participation in any breach of fiduciary duty by Mr Maalouf.

21 Cross-claims were made by St George, Stelli and Mrs Azzi, Mr Maalouf and Sky Constructions and Mr Carbone. By their Further Amended Second Cross-Claim Stelli and Mrs Azzi sought an order for specific performance of the contract for sale. In defence to that claim Mr Despot admitted that the "sale and purchase of the property was completed on 3 July 2008" and that the "purchase price was paid in accordance with the written directions" of Mr Carbone. He denied that the sale was authorised by him. Stelli and Mrs Azzi also claimed damages from Mr Maalouf and Mr Carbone. The claim against Mr Maalouf is not presently relevant. By the claim against Mr Carbone it was alleged that until 20 June 2008 he had acted for Stelli and Mrs Azzi in relation to the purchase and application for finance; had breached his duty of care by failing to advise of Mr Maalouf's lack of authority in circumstances where his action would result in a benefit being conferred on Sky Constructions or himself; and had breached his fiduciary duty by failing to advise them of Johnston Vaughan's letter of 2 July 2008 and by "subsequently giving directions under the contract purporting to be on behalf of" Mr Despot. Those claims were made in the alternative to the claim for specific performance and on the basis that, having completed the purchase, they would suffer loss and damage if it was set aside.

22 By their Amended Third Cross-Claim, Mr Maalouf and Sky Constructions alleged that to the extent they were liable to Mr Despot, Mr Carbone breached his duty as their solicitor in advising that under the Power of Attorney Mr Maalouf was able to sell the property and use the proceeds to pay moneys owed to Sky Constructions; in advising that when acting under the Power of Attorney and executing the contract for sale he was not breaching any fiduciary duty owed to Mr Despot; and in advising that Sky Constructions was not required by law to hold a builder's licence to undertake the works. Mr Carbone denied that he had given advice in these terms to Mr Maalouf.

23 As the primary judge records at [40], shortly after the commencement of the hearing Mr Despot's claim against St George, and St George's cross-claim, were settled. The cross-claims between Mr Carbone, Stelli and Mrs Azzi were settled during closing submissions. There remained to be determined the cross-claim by Stelli and Mrs Azzi against Mr Despot for specific performance and Mr Maalouf for damages and the cross-claim by Mr Maalouf and Sky Constructions against Mr Despot and Mr Carbone for damages.

Sky Constructions' proceedings

24 Sky Constructions claimed $1,485,000 as owing by Mr Despot for work done under the building contract. It was conceded the contract was unenforceable by reason of s 10 of the Home Building Act. A slightly lesser amount was claimed on a quantum meruit basis. In the course of Mr Maalouf's cross-examination it became apparent that Sky Constructions also did not have builder's warranty insurance and accordingly had undertaken building work and received payments in breach of ss 92(1) and (2) of that Act: [120]. The absence of that insurance was relied upon by Mr Despot in defence to Sky Constructions' quantum meruit claim. In response Sky Constructions sought relief under s 94(1A) which provides that if the Court considers it "just and equitable", the contractor is entitled, notwithstanding the absence of the required insurance, to recover money in respect of the uninsured work on a quantum meruit basis. By his cross-claim Mr Despot claimed repayment of the moneys received by Sky Constructions as paid under a contract which was unenforceable.

The conduct of the proceedings

25 Reference to the written and oral submissions shows that there was no departure by Mr Despot from his pleaded case. The issues identified in his statement of issues prepared at the commencement of the hearing included:

"4. In the event, the Court finds Despot knowingly entered into the agreements ... and the transaction is not fraudulent:

(d) ... can the transaction stand and is Stelli Pty Ltd entitled to registration of the transfer of sale of land?

5. In the event the Court finds the transaction was not a fraud, did Maalouf breach the fiduciary duties owed to Despot and was Stelli Pty Ltd and Joyce Azzi a party to the breaches?

...

7. Did Carbone owe Despot a duty of care and was the duty breached and/or was the conduct of Carbone misleading and deceptive?"

26 Mr Despot's closing written submissions separately addressed the cases against Stelli and Mr Carbone.

27 In relation to Stelli, they included: that $91,000 was not paid on settlement; that the purchase price was made up of funds borrowed from St George and "the mortgage back"; that an order for specific performance should not be made because Stelli was never ready, willing and able to complete as there remained a shortfall of $91,000 at settlement and Mr Despot would suffer hardship including because the amount of $480,000 had not been paid either to him or into Court. No submission was made that Stelli and Mrs Azzi were liable for equitable compensation for participation in any breach of fiduciary duty by Mr Maalouf.

28 The submissions made in relation to Mr Carbone included: that he had breached a duty of care owed to Mr Despot as his client in failing to meet with him, in taking instructions from an intermediary who had a "vested" and conflicting interest and in not ensuring that Mr Maalouf had authority to give instructions for the sale of the property. No submissions were addressed to the claim of misleading or deceptive conduct or to any claim of knowing participation in a breach of fiduciary duty by Mr Maalouf.

29 One further aspect of the course of the hearing should be mentioned. It is relied upon by Mr Despot as providing an explanation for why particular claims were not made against Mr Carbone at the trial.

30 The taking of evidence concluded on 24 September 2010. The parties then exchanged written submissions. Oral submissions were made on 18 October 2010. Mr Carbone argued against the making of an order for specific performance. In support of his argument that Stelli was not, and had never been, ready, willing and able to perform the contract, Mr Carbone said that Stelli had not paid the deposit of $160,000 and, with knowledge of Mr Despot's claims, had repaid the $480,000 to Sky Constructions in accordance with "its private arrangement" with Mr Maalouf. These submissions are summarised by the primary judge at [178]. They were also adopted by Mr Despot in his written submissions in reply.

31 Mr Carbone's written submissions addressed whether the Power of Attorney authorised Mr Maalouf to enter into the contract and whether Stelli was ready, willing and able to perform.

32 Mr Carbone's submissions as to the first of these matters are extracted by the primary judge at [130]. The essence of the argument was that the Power of Attorney did not confer actual authority upon Mr Maalouf to act unlawfully and contrary to s 94 of the Home Building Act, which provided that in the absence of insurance Sky Constructions was not entitled to enforce any remedy for breach of the building contract, including any non-curial remedy. Reference was made to the decision of Giles J in Elkateb v Lawindi (1997) 42 NSWLR 396 at 406.

33 In response to that argument Stelli and Mrs Azzi said that Mr Maalouf had apparent authority to sell the property. Leave to amend to permit that argument to be put was granted on 18 October 2010: [131], [132], [171], [173]. To enable a further argument to be advanced in answer to Mr Carbone's reliance upon s 94, on 7 December 2010 Stelli and Mrs Azzi sought to reopen their case to lead evidence that Sky Constructions had, in November 2010, obtained home warranty insurance. They argued, relying upon s 94(3) of the Act, that as the required insurance had now been obtained the building work had ceased to be "uninsured work". The primary judge allowed that application to reopen. However, in his final judgment he rejected the argument: [149].

The decisions of the primary judge

34 In his judgment delivered on 31 March 2011 the primary judge dealt with the claims made in both proceedings. In a further judgment delivered on 29 April 2011 he dealt with the costs of the proceedings.

The orders and decision in Mr Despot's proceedings

35 On 15 April 2011 the following orders and declarations (relevant to the relief sought by Mr Despot on appeal) were made:

(1) Judgment for Mr Despot against Mr Maalouf in the sum of $628,057.13 plus pre-judgment interest of $160,318.22 (orders 1, 10 and 11).

(2) Judgment for Stelli, Mr Carbone, Mrs Azzi and Sky Constructions on Mr Despot's claim (order 2).

(3) Declaration that the contract for sale was valid and binding and ought to be specifically performed and carried into effect (order 7).

(4) Upon the payment by Stelli to Mr Despot of $91,086, order that the contract for sale be specifically performed and carried into effect by Mr Despot and Stelli, so far as it remained to be performed (order 8).

36 In relation to Mr Despot's claims, the primary judge's principal conclusions, addressing those claims by reference to the numbering adopted in [17] above, were:

(1) There was no fraudulent scheme of Mr Maalouf in which Stelli, Mrs Azzi and Sky Constructions participated to deceive Mr Despot and deprive him of the property: [118].

(2) The absence of compliance by Sky Constructions with the licensing and insurance provisions of the Home Building Act meant that it was not entitled to enforce any remedy for breach of the building contract or recover on a quantum meruit without obtaining a favourable exercise of the Court's discretion under s 94(1A): [129]. That did not prevent Stelli from relying upon Mr Maalouf having had apparent authority to sell the property: [171], [173].

(3) Mr Maalouf did not owe fiduciary duties to Mr Despot in exercising the Power of Attorney because it was given for the purpose of enforcing the security interest of Sky Constructions granted by the Security Deed: [164]. For that reason the Power of Attorney was irrevocable (at least until that purpose was achieved) and did not impose fiduciary obligations upon Mr Maalouf: [156], [297]. It followed that there were no breaches of fiduciary duty by Mr Maalouf and no participation by Stelli and Mrs Azzi in any such breaches which might have rendered the contract for sale voidable.

(4) Because the purpose of the power of attorney was to secure debts owing to Sky Constructions, it authorised Mr Maalouf to sell the property so as to recover moneys owing to Sky Constructions: [163], [164]. To the extent that the moneys paid to Sky Constructions exceeded its entitlement on its quantum meruit claim, there was a benefit conferred on Sky Constructions and on Mr Maalouf as the person who controlled it: [169]. The Power of Attorney did not authorise the conferral of those benefits. The amount paid to Sky Constructions which was in excess of the amount Mr Maalouf was authorised to pay was $628,057 (being $464,932 plus $480,000 less $316,875). Mr Despot was entitled to recover that amount from Mr Maalouf: [294]-[295].

(5) As noted above, the claim against St George was settled: [40].

(6) Mr Carbone's client was Mr Maalouf. Because the Power of Attorney was given to secure payment for the building work, Mr Maalouf did not owe fiduciary duties to Mr Despot and was entitled to act in his own interests within the scope of the authority. In the circumstances there was no duty of care owed to Mr Despot: [297], [298], [301]. There was no reliance by Mr Despot on any advice or conduct of Mr Carbone which could found a claim for misleading or deceptive conduct: [302].

37 In relation to Stelli's cross-claim for specific performance, the primary judge concluded that, as between Stelli and Mr Despot, Mr Maalouf had apparent authority to enter into the contract for sale and to execute the transfer on behalf of Mr Despot: [131], [173]. The agreement for repayment of the vendor finance was satisfied by the payments made to Sky Constructions: [183]. Stelli, as purchaser, was ready, willing and able to complete by paying the shortfall due of $91,086: [180], [186], [197]. After taking into account the hardship which a grant or refusal of relief might have on the relevant parties, the discretion to order specific performance should be exercised: [208].

38 Finally, in relation to Mr Maalouf's cross-claim against Mr Carbone for damages for negligent advice, the primary judge accepted Mr Carbone's evidence that he did not give any advice as to whether Sky Constructions was required to hold a contractor licence before undertaking the works: [307], [308], [310]. The primary judge did not deal with the remaining pleaded claims of Mr Maalouf. No complaint is made about that on appeal.

The decision in Sky Constructions' proceedings

39 The primary judge held that Sky Constructions was entitled to recover $644,713.87, including GST, on a quantum meruit basis. That amount included an allowance for scaffolding of $71,404, plus GST: [279], [280]. After deducting $327,839 which had been paid by Mr Despot to Sky Constructions, the balance unpaid was $316,875: [293]. The primary judge deducted that amount from the $944,932 received by Sky Constructions and ordered that the balance, $628,057.13, be paid to Mr Despot by Mr Maalouf: [295]. It is not apparent why judgment was not entered against Sky Constructions for that amount as moneys paid under a mistake or without authority and for no consideration.

The costs decision

40 In Mr Despot's proceedings, the primary judge ordered that Mr Despot, Mr Maalouf and Sky Constructions bear their own costs of his proceedings; that Mr Despot pay the costs of Stelli, Mrs Azzi and Mr Carbone of his proceedings and the costs of Stelli and Mrs Azzi of their cross-claim; that Mr Maalouf pay the costs of Mr Carbone of Mr Maalouf's cross-claim assessed as 5 per cent of Mr Carbone's costs of the whole proceedings; and that Mr Maalouf also pay Mr Despot's costs of that cross-claim.

41 In the Sky Constructions' proceedings, the primary judge ordered, that each party bear its or his own costs of the claim and that Mr Maalouf and Sky Constructions pay Mr Despot's costs of the cross-claim.

Mr Despot's arguments on appeal

42 Mr Despot does not seek to set aside on appeal the order that Mr Maalouf is liable to account to him for the sum of $628,057.13 plus pre-judgment interest. He seeks an order that Mr Maalouf also account for the sum of $316,875. If that order is made he concedes that any judgment against Sky Constructions would have to be adjusted to take account of its entitlement to the quantum meruit amount of $316,875.

43 Secondly, Mr Despot does not seek to set aside on appeal the order that the contract of sale be specifically performed. He argues, however, that this order should be varied and an order made requiring payment by Stelli and Mrs Azzi of "the full amount of the unpaid purchase price", which is said to have been $1,097,460, and not $91,086. The former amount is the purchase price ($1,600,000) less the amount paid on settlement to discharge Mr Despot's mortgage to St George ($502,540). Its calculation does not take account of moneys paid on settlement to discharge the vendor's legal costs and outstanding land tax, water rates and other outgoings.

44 Thirdly, Mr Despot claims equitable compensation from Stelli, Mrs Azzi and Mr Carbone in the amount $944,932 on the basis that each knowingly participated in the payment by Mr Maalouf, in breach of his fiduciary duty, of moneys to Sky Constructions. He also claims compensation from Mr Carbone on the additional basis that he breached a duty of care owed to Mr Despot and engaged in misleading or deceptive conduct when directing that those moneys be paid to Sky Constructions.

45 The arguments sought to be made in support of these claims and the issues which arise are conveniently identified and addressed by reference to the parties to whom they relate.

Disposition of the appeal: Mr Maalouf

46 Mr Despot contends that the primary judge erred in concluding that the Power of Attorney was irrevocable and that its exercise by Mr Maalouf was not subject to fiduciary obligations (grounds 1, 2 and 3). It is argued that in directing that payments be made to Sky Constructions knowing that there was a dispute as to whether they were due and that Mr Despot was not aware that the property was being sold and payments being made, Mr Maalouf breached his fiduciary obligations. Mr Despot submits that he was entitled to recover $944,932 by way of equitable compensation from Mr Maalouf and that the primary judge erred in reducing that amount by $316,874 (ground 4).

47 The conclusion that Mr Maalouf as attorney owed no fiduciary duties to Mr Despot was based on the primary judge's holding that the Power of Attorney was provided as part of the security granted by Mr Despot for repayment of moneys owing to Sky Constructions. The other part was the Security Deed. The primary judge described the power as one "coupled with an interest": [164].

48 A power of attorney is a formal instrument by which authority or power to represent the donor is conferred on the donee. Whether the authority or power is revocable at the will of the donor and the extent to which, if any, the relationship between donor and donee is subject to fiduciary duties, depend upon the terms of the instrument creating the authority and any agreement as to the purpose for which it has been granted.

49 The common law assumes that a grant of authority is, of its nature, revocable. It may be irrevocable, however, where the authority is used not for the purpose of the principal but for a different purpose, namely to confer a security or other interest on the agent with the intent that the agent use the authority not for the benefit of the principal but for the agent's benefit so as to achieve the objects of the arrangement: Watt and Reynolds, Bowstead and Reynolds on Agency 19th ed (2010) Sweet & Maxwell at 10-007. In Walsh v Whitcomb (1797) 2 Esp 565 at 566; 170 ER 456 at 457, Lord Kenyon said:

"There is a difference in cases of powers of attorney: in general they are revocable from their nature; but there are these exceptions. Where a power of attorney is part of a security for money, there it is not revocable: where a power of attorney was made to levy fine, as part of a security, it was held not to be revocable; the principle is applicable to every case where a power of attorney is necessary to effectuate any security; such is not revocable."

50 Referring to this statement of Lord Kenyon in Smart v Sandars (1848) 5 CB 895; 133 ER 1132, Wilde CJ explained what is meant in this context by an "authority coupled with an interest" (at 97; 1140-1141):

"... where an agreement is entered into on a sufficient consideration, whereby an authority is given for the purposes of securing some benefit to the donee of the authority, such an authority is irrevocable. This is what is usually meant by an authority coupled with an interest, and which is commonly said to be irrevocable.

But we think this doctrine applies only to cases where the authority is given for the purpose of being a security, or, as Lord Kenyon expresses it, as part of the security; not to cases where the authority is given independently, and the interest of the donee of the authority arises afterwards, and incidentally only."

51 The manager in Frith v Frith [1906] AC 254 sought to rely upon this doctrine. He claimed that the power of attorney, which authorised him to enter into possession of and manage an estate in the Turks and Caicos Islands, and to receive rents and profits and pay debts due by the owners, was irrevocable because he had separately undertaken at their request to guarantee the payment of a debt secured by mortgage over the estate. He argued that if he was called upon as surety, the power would enable him to recover any amount paid. That argument was rejected because the authority when conferred was not "expressed or intended to be used for the purpose of subserving [the manager's] interest as guarantor and had no connection with it" (at 260). Lord Atkinson, delivering the judgment of the Privy Council, summarised the relevant principle (at 260):

"... the essential distinction between this case and those cited is this, that in each of the latter power and authority were given to a particular individual to do a particular thing, the doing of which conferred a benefit upon him, the authority ceasing when the benefit was reaped, while in this case, as already pointed out, nothing of that kind was ever provided for or contemplated."

52 The Powers of Attorney Act 2003 does not affect the application of these common law principles. Section 7(1) provides that the Act does not do so "except to the extent that [it] either expressly or by necessary intention, provides otherwise". Section 15 provides one way in which an irrevocable power of attorney may be created. It does not in terms or by necessary implication exclude the creation of an irrevocable power by the application of these principles. Section 16, which has effect except to the extent that the instrument creating the power provides otherwise, states that an irrevocable power created in accordance with s 15 is not determined or revoked by events including the death of the principal. Under the common law the death of the donor "necessarily revoked" a power coupled with an interest: per Lord Ellenborough in Watson v King (1815) 4 Camp. 272; 171 ER 87.

53 The primary judge did not find, and it was not argued on appeal, that the question whether the Power of Attorney was given for the purpose of securing some benefit to Mr Maalouf, or as part of a security, was to be resolved other than by reference to the terms of the Power of Attorney and the Security Deed, construed in the circumstances in which they were executed. Those circumstances included that Sky Constructions was undertaking building work for Mr Despot, that Mr Maalouf was the controller of that company, that Mr Maalouf and Sky Constructions required security for moneys payable for the building work and that both instruments were signed on about 5 September 2007. They did not include that it had been orally agreed between Mr Maalouf and Mr Despot that the power was granted so that it could be exercised by Mr Maalouf to sell the property and apply the proceeds in satisfaction of moneys owed for the building work. Nor was it argued that such an agreement was to be inferred from these circumstances: cf Re M (a debtor); ex parte Dalgety & Co Ltd (1909) 10 SR (NSW) 175 at 179.

54 The Power of Attorney is not expressed to be irrevocable. It describes Mr Maalouf as "my builder" and provides:

"1. ... My attorney may exercise the authority conferred on my attorney by Part 2 of the Powers of Attorney Act 2003 to do on my behalf anything I may lawfully authorise an attorney to do. My attorney's authority is subject to any additional details specified in Part 2 of this document."

The word "NIL" appears in Part 2 of the power.

55 Accordingly, the instrument created a "prescribed power of attorney" for the purposes of the Act: s 8. As such it conferred on Mr Maalouf "the authority to do on behalf of the principal anything that the principal may lawfully authorise an attorney to do": s 9(1). It did not by its terms authorise Mr Maalouf to make gifts or to confer benefits either on himself or on third parties: ss 11, 12 and 13; cf the power considered in Spina v Permanent Custodians Ltd [2008] NSWSC 561 at [123]. Those sections restate the position under the common law that specific and unambiguous words are required before the power will be construed as authorising the attorney to deal with property of the principal for the attorney's own benefit or for the benefit of others: Tobin v Broadbent [1947] HCA 46; 75 CLR 378 at 401. The power was not expressed to be irrevocable. For that reason, it was not an "irrevocable power of attorney" within Part 3 of the Act. The primary judge was wrong to conclude otherwise: [164].

56 Significantly, the power makes no reference to the Security Deed and does not by its terms provide for its exercise to enforce any right given under that Deed or to obtain the repayment of moneys owing to Sky Constructions and secured by that Deed: cf Barclays Bank Ltd v Bird [1954] Ch 274 where the equitable charge contained a clause giving the mortgagee an irrevocable power of attorney to execute a legal mortgage; and Gaussen v Morton (1830) 10 B&C 731; 109 ER 622 where the debtor executed a power of attorney authorising his creditor to sell lands belonging to him for the purpose of applying the proceeds in discharge of the debt. The only indication in the Power of Attorney of any connection between it and the Security Deed is the description of Mr Maalouf as "my builder".

57 The Security Deed describes Sky Constructions as "builder" and Mr Despot as "Owner". By cl 2.6 Mr Despot charged "by way of a fixed charge all present and future estates and interests in real and leasehold property" held by him to secure the payment of the "Moneys Secured". Those moneys are defined as including the Debt (which in turn is defined as "all moneys payable by the Owner to the Builder under Building Agreement") as well as "all money now or hereafter owing or payable" to Sky Constructions whether directly or indirectly or contingently under any "Security or on any other account whatsoever".

58 The "Security" was defined to mean:

"... each and every document, agreement or other security provided or entered into from time to time which secures the payment of the Money Secured or the performance of obligations of the Security Provider in favour of the Builder which may be executed or provided by the Security Provider or any other person (including this Deed)."

59 Clause 2.7 contained a covenant by Mr Despot not to deal, or enter into any contract to deal, with real or leasehold property which was the subject of the fixed charge "without the prior written consent of the builder". Clause 4 provided that the Security Deed was a "continuing security" and that it would not be discharged so long as Mr Despot was indebted or liable to pay moneys to Sky Constructions.

60 Finally, cl 10 provided:

"The owner shall, within three (3) months after the completion of the works specified in the building agreement by the builder, sell the property known as XXX Double Bay. Upon settlement of the sale of the property, the builder shall be entitled to the payment of commission equivalent to the rate of 3.8% of the gross sale price."

61 Although the performance of this covenant is not expressed to be conditional upon there being moneys owing to Sky Constructions, Mr Despot would not have to perform it if there were no moneys outstanding and he was entitled to a discharge of the Deed. If a sale occurred whilst the Deed was operative, the equitable charge would attach to the proceeds of that sale. However, the Security Deed does not provide for or require the exercise of the Power of Attorney to secure the repayment of moneys to Sky Constructions or to enable the enforcement of the equitable charge which it creates. That charge remained able to be enforced by the appointment of a receiver to sell the charged assets.

62 In summary, the terms of the Power of Attorney and the Security Deed do not say that the power was granted to enable Mr Maalouf to do any particular thing under or in relation to the Security Deed or that it might otherwise be used to obtain repayment of any moneys due to Sky Constructions. As was also the position in Frith v Frith, it does not provide for or contemplate that it will be used by the donee to do something which confers a benefit upon him or a third party. It stands in contrast to the power contained in the lease of licensed premises considered in Slatter v Railway Commissioners for New South Wales [1931] HCA 13; 45 CLR 68. There the authority was granted for the purpose of transferring a liquor licence or licences held in connection with the relevant premises. As such it was an "irrevocable authority for the advantage of the persons authorised" (at 78).

63 It was argued before the primary judge, and seemingly accepted by him (see especially [161]-[164]), that the Power of Attorney and Security Deed were to be read as a single instrument. That argument took as its starting point that the Power of Attorney was a document within the definition of "Security". It was then argued that cl 21 of the Security Deed, which provided that "the security shall be read and construed and be enforceable as if the covenants, conditions and provisions of this Deed, with necessary changes, are read into and form part of the Security" had that consequence. By its terms the Power of Attorney does not secure "the payment of the Money Secured or the performance of obligations of the Security Provider in favour of the Builder". In this context, the reference to "obligations of the Security Provider" was to obligations of Mr Despot. Nor did the evidence establish that it must have been granted for that purpose. That evidence was that Mr Despot was likely to be overseas for periods of time. The power could have been granted to enable the builder to do what may have been necessary to be done on behalf of the owner to ensure that the works were lawfully commenced and completed.

64 In my view the primary judge erred in holding on the evidence before him that the Power of Attorney was given to Mr Maalouf for the purpose of securing the repayment of moneys owing to Sky Constructions.

65 It is not contested by Mr Maalouf that absent a holding that the power was given for that purpose, it was revocable and that the agency relationship created by it gave rise to fiduciary obligations as between him and Mr Despot: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 at 68, 96, 141. Those fiduciary obligations required that Mr Maalouf not obtain any unauthorised benefit or gain by the use of his fiduciary position and that he not be in a position where there was an actual or potential conflict between his personal interest and his duty to his principal: Chan v Zacharia [1984] HCA 36; 154 CLR 178 at 198-199; Breen v Williams [1996] HCA 57; 186 CLR 71 at 113.

66 Mr Despot says that the primary judge should have held that Mr Maalouf was in breach of these duties by directing that moneys be paid to Sky Constructions in circumstances where Mr Despot maintained that he had paid Sky Constructions "in full" for the building work and was known not to be aware that the property was being sold. He says that Mr Maalouf was aware of each of these matters following Mr Carbone's receipt of Johnston Vaughan's letter of 2 July 2008, which made Mr Despot's position clear. In my view, this submission should be accepted. Mr Carbone's evidence was that he advised Mr Maalouf of the receipt of that letter and its terms. By 2 July 2008 there was a plain conflict between the interests of Sky Constructions, and Mr Maalouf as its principal, and those of Mr Despot. Mr Despot asserted that there was no money owing. Sky Constructions and Mr Maalouf claimed otherwise. In the face of that dispute, particularly in circumstances where Mr Despot did not know that the property had been sold, Mr Maalouf was in a position of conflict and preferred his interests to those of his principal so as to secure a benefit to Sky Constructions.

67 The consequence of payments being made in accordance with Mr Maalouf's instructions was that Sky Constructions received $944,932. Because those payments were not made to Mr Maalouf, Mr Despot was entitled, as against Mr Maalouf, to equitable compensation: Breen v Williams at 136. Although it was alleged that Mr Despot had suffered damage by reason of Mr Maalouf's breaches of fiduciary duty, no specific claim for equitable compensation appears to have been made against Mr Maalouf. The claim made was that he account for the benefit of the moneys paid to Sky Constructions. It is not necessary to resolve whether Mr Maalouf could be prejudiced by this claim being formulated for the first time on appeal as one for equitable compensation. That is because the compensation to which Mr Despot would be entitled would be the amount paid less the amount due to Sky Constructions, namely $628,057.13 together with interest. As the primary judge entered judgment against Mr Maalouf for that amount, there is no further or other order which would need to be made, assuming Mr Despot's entitlement to relief on the basis now argued.

68 It is necessary also to address in this context Mr Maalouf's application, made following oral argument of the appeal, for leave to file a cross-appeal challenging the primary judge's conclusion that he should be ordered to account for that amount when he had not been found to have breached any fiduciary duty. Because I have concluded that there was a breach of fiduciary duty, the only argument made in support of that proposed cross-appeal is not available. For that reason that application should be dismissed.

Disposition of the appeal: Sky Constructions

69 Mr Despot submits that Sky Constructions should have been held liable to account for the moneys it received in breach of Mr Maalouf's fiduciary duty. Specifically, it received the payments of $464,932 and $480,000 knowing that they were paid at the direction of Mr Maalouf at a time when there was a dispute as to whether any moneys remained due and Mr Despot was not aware that the property was being sold. In those circumstances Mr Maalouf was preferring the interests of Sky Constructions and disregarding the interests of Mr Despot (ground 4A). Mr Despot also submits that the primary judge erred in allowing the scaffolding claim of $71,404 (grounds 13 and 14).

70 It is convenient to deal with the scaffolding claim first. The primary judge made the following finding in relation to that claim:

"[279] 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 there was no scaffolding. It seems clear that there was scaffolding erected and accordingly I will accept Mr Heymann's allowance."

71 Mr Heymann was the expert called in Mr Maalouf's case and Mr Beencke the expert called in Mr Despot's case. Mr Heymann's evidence was based upon an invoice of Scaffmesh Industries Pty Ltd dated 14 June 2008 for the supply, erection and dismantling of scaffolding "on 2 separate occasions". The copy of the invoice attached to Mr Heymann's report also recorded that it had been paid on 11 July 2008. Mr Heymann's evidence was that he had been provided with copies of relevant invoices, which included that invoice, by Mr Maalouf. He also said that on 20 April 2010, a Mr McGee of Scaffmesh had confirmed to him by telephone "the correctness" of that invoice.

72 Mr Beencke also made enquiries about the scaffolding claim. He wrote to Scaffmesh requesting their confirmation that the invoice had been paid. He also asked for details of the works undertaken. He gave evidence that in a telephone conversation on 18 June 2010 he was advised by "Mat" of Scaffmesh that scaffolding had been installed on two separate occasions for periods of one week and two weeks and that these works had been undertaken in August and October 2007. Mr Beencke also examined documents produced on subpoena by Woollahra Council and made inquiries of the managers of the apartment block. He noted in his supplementary report that the documents produced by the Council did not include any application for approval to erect scaffolding on the site and that he had been advised by the strata manager that its committee had no knowledge of any painting work undertaken to various levels of the strata building. He concluded, without any elaboration, that no allowance should be made for the scaffolding claim.

73 This being the evidence before the primary judge, Mr Despot argues that his Honour erred in three respects. First, it is said that the Scaffmesh invoice upon which Mr Heymann's evidence was based was not admitted into evidence. This submission should be rejected. Mr Heymann's principal report was admitted as Ex M4. As contained in the appeal books it includes Appendix C which lists and attaches copies of the invoices and quotations provided to him by Mr Maalouf. Those invoices include as "Ref 26.1" the Scaffmesh invoice. There is support for the correctness of what appears in the appeal books. Mr Maalouf's closing written submissions assert that these invoices "were tendered unchallenged" and that submission is not contradicted in Mr Despot's written or oral submissions in response.

74 Secondly, it is said that the only basis for Mr Heymann's conclusion that scaffolding work was undertaken was information provided by Mr Maalouf. That is not correct. The evidence of both Mr Heymann and Mr Beencke was that enquiries of Scaffmesh confirmed that scaffolding was erected on two separate occasions, which was in accordance with what was recorded in the invoice. Finally, it is said that the matters raised by Mr Beencke, namely the absence of Council records of any application to erect scaffolding and the absence of strata management knowledge of painting work, made it unlikely that the scaffolding works had taken place. This submission does not explain why the absence of those records and that knowledge necessarily establish that there was not, and could not have been, any scaffolding erected as claimed. That being the position, it is not shown that the primary judge was not justified, on the basis of hearsay evidence which was not objected to and which corroborated what was stated on the face of the invoice, in concluding that scaffolding work had been undertaken and that it had been paid for as recorded in that invoice.

75 Turning to the other grounds referred to above, Mr Despot submits that the primary judge erred in failing to order Sky Constructions to account for the moneys received by it. That argument is not seriously contested on behalf of Sky Constructions, which by its written submissions accepts that it "may be liable" in the amount of $628,057.13. In my view, the primary judge erred in not ordering that Sky Constructions pay to Mr Despot the amount received by it in excess of the amount to which it was entitled. That amount was recoverable either as moneys paid for no consideration or pursuant to an equitable obligation to account for the knowing receipt of moneys paid in breach of fiduciary duty.

Disposition of the appeal: Stelli and Mrs Azzi

76 Mr Despot submits that the primary judge erred in failing to hold that Stelli and Mrs Azzi knowingly assisted Mr Maalouf in breaches of fiduciary duty (ground 5). The relevant breaches are said to have been his directing that the payment of $464,932 be made to Sky Constructions on settlement and that the moneys due under the vendor finance arrangement be repaid to Sky Constructions.

77 It is also submitted that the primary judge erred in failing to make, as a term of the order for specific performance, an order that Stelli pay $1,097,460 as the amount remaining due under the contract for sale (grounds 7 to 11). The order which Mr Despot seeks to have made would require that Stelli and Mrs Azzi, as guarantor of Stelli's obligations, pay that amount. As will become apparent, acceptance of this argument would require the making of findings which are inconsistent with the findings on which the order for specific performance, which is not challenged, was based. Those findings were that Stelli was ready, willing and able to perform a contract which only required that it make a further payment of $91,086.

78 Again, it is convenient to start with this second submission. The argument that $1,097,460 was the amount of the purchase price which remained outstanding proceeds as follows. Under the contract for sale, Stelli was to pay the purchase price to Mr Despot. The Power of Attorney did not authorise Mr Maalouf to confer a benefit on himself or on a third party. By directing that $464,932 be paid to Sky Constructions and that the vendor finance be repaid to Sky Constructions, Mr Maalouf sought to confer benefits on himself and Sky Constructions. He did not have actual authority to direct that those payments be made. Stelli could not rely upon his having had apparent authority to do so because on their face the payments involved the conferring of benefits. Accordingly, the payments did not discharge Stelli's obligation to pay Mr Despot. The same argument is put in relation to the other payments made on settlement on the basis that any payment made to a third party necessarily conferred a benefit on that party.

79 Stelli and Mrs Azzi submit, and I agree, that this argument cannot be made by Mr Despot on appeal, particularly in circumstances where, notwithstanding that the grounds of appeal relied upon suggest otherwise, he does not seek to set aside the order for specific performance made by the primary judge. Indeed, his argument depends on that order being maintained because the only justification for the order sought on appeal is as a condition of the order for specific performance.

80 Mr Despot made no freestanding claim against Stelli or Mrs Azzi for payment of the balance of the purchase price in the event that his claims that the contract should be set aside were rejected. In relation to Stelli's cross-claim for specific performance, the only condition Mr Despot sought was that the amount of $91,086 be paid. He did not seek an order that Mrs Azzi pay that amount.

81 The claim which Mr Despot now seeks to make as to the amount of unpaid purchase moneys is inconsistent with his case as pleaded and conducted. That case was that $91,086 remained unpaid under the contract for sale and that $480,000 was advanced to Stelli by way of vendor finance. The result was that the amount notionally advanced was "paid" in partial satisfaction of the purchase price. That amount became due under a loan agreement and, for that reason, could not have been the subject of an unpaid vendor's lien: Wossidlo v Catt [1934] HCA 52; 52 CLR 301 at 308, 310-311; Reliance Finance Corporation Pty Ltd v Heid [1982] 1 NSWLR 466 at 478. The primary judge made findings that vendor finance had been provided to enable Stelli to complete the purchase: [104], [116]. Those findings are not challenged on appeal. When making them, the primary judge did not refer to the mortgage executed in July 2008 by Stelli and Mr Maalouf, on behalf of Mr Despot, for the purpose of securing the repayment of that loan. The existence of that mortgage further confirms the correctness of the finding made.

82 The primary judge's conclusion that Stelli was ready, willing and able to perform was based upon his finding that it was prepared to pay the shortfall of $91,086, the balance of the purchase price having been paid by the vendor finance arrangement: [180], [183], [197]. To permit Mr Despot to maintain that order and, at the same time, to argue that the primary judge erred in the condition imposed when making it, would allow an argument to be made on appeal which could not have been made at the trial without also considering its consequences for Stelli's being ready, willing and able to complete. If Mr Despot's argument on appeal had been put and accepted at trial, the relevant question would have been whether Stelli was ready, willing and able to pay a further $924,932 to secure an order for specific performance, when it had already paid in excess of $1.5m and had questionable prospects of recovering the moneys paid to Sky Constructions. It is most unlikely that Stelli would have contended that it was ready, willing and able to complete on that basis. It would plainly suffer prejudice if Mr Despot was permitted to make this argument for the first time on appeal.

83 There is another reason why these arguments cannot be made for the first time on appeal. The relevant principles are not controversial. Where a point is not taken or argument not made at first instance and evidence could have been given which might have prevented the point or argument from succeeding, it cannot be taken on appeal: Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418 at 438; Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 7-8.

84 Mr Despot's argument that payments made to Sky Constructions did not satisfy Stelli's obligations under the contract depends on whether Mr Maalouf had actual or apparent authority to direct that those payments be made. The answer to that question turns in part upon whether those payments were apparently for the benefit of Mr Despot. If they were not, because they were known to be for the payee's benefit or only could have been for the agent's or payee's benefit, Stelli could not have relied on Mr Maalouf as having apparent authority to direct those payments: Siahos v J P Morgan Trust Australia Ltd [2009] NSWCA 20 at [27]-[29]. Mr Despot submits that the mere fact that the payments were made to Sky Constructions was sufficient to establish that they could not have been made for Mr Despot's benefit. That submission does not take account of the possibility, as would appear to have been the understanding of Stelli and Mrs Azzi, that the payments were being made to discharge liabilities of Mr Despot. Their understanding, and the circumstances on which it was based, could have been the subject of evidence.

85 Mr Despot's first submission, to which ground 5 relates, is that the primary judge erred in failing to hold that Stelli and Mrs Azzi knowingly assisted Mr Maalouf in breaches of fiduciary duty with respect to the making of payments to Sky Constructions. That argument also is not able to be made on appeal. Such a claim was neither pleaded nor argued before the primary judge. The only allegation of knowing participation made against Stelli and Mrs Azzi was in relation to Stelli's acceptance of appointment as trustee of the discretionary trust created on 12 May 2008. The primary judge found that there was no dishonesty or impropriety on the part of Stelli in accepting that appointment: [114], [116]. That finding is not challenged on appeal. As is emphasised in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 at [170], a serious allegation, such as dishonest assistance or participation in a breach of fiduciary duty, must be pleaded and particularised. If it had been made that allegation also could have been the subject of evidence from Mr and Mrs Azzi.

86 Except in one respect, Mr Despot's appeal, in so far as it concerns Stelli and Mrs Azzi, should be dismissed. That respect concerns whether an order should be made that Stelli pay $91,086 to Mr Despot. The primary judge did not make an order in those terms. He appears to have assumed, wrongly, that if that amount was not paid, the registration of the dealings necessary to give effect to the contract could not proceed. Mr Despot seeks to set aside the condition as to payment and to obtain an order for payment of the unpaid purchase price. In my view Mr Despot is entitled to an order that Stelli pay $91,086 to him. The making of that order is consistent with the relief he sought in the Court below. I do not think that order should extend to Mrs Azzi because no claim was made against her as guarantor of Stelli's obligations under the contract for sale.

Disposition of the appeal: Mr Carbone

87 Mr Despot seeks to make three arguments on appeal. None of those arguments was pleaded or made in the Court below. Whether they can be made must be considered in the following context.

88 Mr Carbone's case was that he had been instructed to act on behalf of Mr Maalouf in enforcing a security right to sell the property using the Power of Attorney. Mr Carbone submitted that in relation to settlement of that sale, his retainer required that he pay, or direct the payment of, any moneys received or to be received in accordance with his client Mr Maalouf's instructions. In relation to his dealing with such moneys, Mr Carbone's position was similar to that of a solicitor acting for a trustee selling trust property or for a mortgagee exercising a power of sale. He would be liable to a person such as Mr Despot, who claimed an entitlement to the moneys received or to be received by the solicitor as agent, if he was on notice of a dishonest or fraudulent design on the part of his client which was directed to defeating that interest: Lee v Sankey (1873) LR 15 Eq 204; Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; 132 CLR 373 at 409-410; Adams v Bank of New South Wales [1984] 1 NSWLR 285; Farah Constructions at [160]-[163]. Such a case was not made against Mr Carbone and it was expressly conceded by Mr Despot in his final submissions that it was not contended that Mr Carbone was "fraudulent himself or a party to the fraud" (Black 2/1050V). With respect to his receipt of the letter of 2 July 2008, Mr Carbone's evidence was that he communicated its contents to Mr Maalouf who instructed him that Sky Constructions was owed the money which was to be paid to it. A case was not put to Mr Carbone in cross-examination that in proceeding to settlement in the face of that letter, and in giving the direction for payment of moneys to Sky Constructions, he knew or suspected that the moneys were not due and owing such that his client was not entitled to pay them away.

89 The first argument sought to be made on appeal is that the primary judge erred in failing to hold that Mr Carbone knowingly participated in Mr Maalouf's breach of fiduciary duty in making payments of $464,932 and $480,000 to Sky Constructions (ground 6). That argument may be dealt with shortly. Mr Despot neither pleaded nor made a claim against Mr Carbone for knowing participation in any breach of fiduciary duty on the part of Mr Maalouf. Such a claim was required to be pleaded. Contrary to Mr Despot's contention, it was not sufficient to plead various facts in relation to other causes of action which, when taken in combination, might have supported such an allegation if it had been made. If such a claim had been pleaded it could have been met by evidence. It cannot be made and argued for the first time on appeal.

90 Secondly, Mr Despot argues that the primary judge erred in failing to find that Mr Carbone breached a duty of care owed to him by failing to advise Mr Maalouf that the Power of Attorney did not authorise the payment of any moneys to Sky Constructions (grounds 15 and 15A). It is said that the power did not authorise those payments because the making of any payments other than to Mr Despot necessarily involved the conferring of a benefit and the Power of Attorney did not authorise Mr Maalouf to confer benefits, either on himself or on any third party. Thirdly, he argues that the primary judge erred in failing to find that Mr Carbone engaged in misleading or deceptive conduct in relation to Stelli by giving a direction that such payments be made (ground 16). It is said that in giving that direction Mr Carbone impliedly represented to Stelli that Mr Maalouf was acting within the scope of his authority, and that Stelli acted in reliance upon that representation by making payments to Sky Constructions.

91 Mr Carbone submits that these two remaining arguments also could have been the subject of evidence at the trial, either from Mr Carbone or by cross-examination of Mr and Mrs Azzi and Mr Maalouf. Mr Despot does not seriously contest that proposition. He submits, nevertheless, that he should be permitted to make these arguments on appeal.

92 Notwithstanding his concession that the specific breach of duty now contended for was not pleaded, Mr Despot argues that it is within one or more of the general particulars of breach contained in paragraph 67 of the First Amended Statement of Claim. Those particulars were:

"d. failed to act in accordance with peer professional practice.

e. failed to take reasonable skill and care in accepting instructions pursuant to the Power of Attorney.

f. failed to advise the attorney of the conflicts of interest and failed to advise the attorney he was not acting in the best interests of the principal.

g. failed to cease to act when a conflict of interest arose.

h. assisted the attorney breach the duties he owed to the principal by drafting and arranging for the execution of the Trust Deed.

...

j. not checking with the principal the extent of the attorney's powers.

...

l. failed to cease to act knowing or ought to have know a breach of s 12 of the Power of Attorney Act 2003 was to take place."

93 These particulars have to be understood in the context of the case pleaded and made by Mr Despot. That case was that he was Mr Carbone's "true client" because he was the principal under the Power of Attorney and Mr Maalouf was acting as his agent. Alternatively, in the same circumstances, it was said that Mr Carbone owed him a duty of care as his client Mr Maalouf's principal. On either basis it was said that Mr Carbone owed to Mr Despot the same duty of care that a solicitor ordinarily owes a client and that he had breached that duty, including in the respects particularised above. The claim now sought to be made is different. It directs attention to the terms of the retainer between Mr Carbone and Mr Maalouf and the duties which were owed by Mr Carbone to Mr Maalouf. It accepts that Mr Carbone was retained to act for Mr Maalouf and contends that the duty of care owed to Mr Despot in that context was to ensure that Mr Despot "was not harmed by Mr Carbone not properly performing his duties" to Mr Maalouf.

94 The argument which Mr Despot now seeks to make has two parts. The first is that the proper performance of Mr Carbone's duty to Mr Maalouf required that he advise that Mr Maalouf's authority did not permit him to pay moneys to Sky Constructions in purported discharge of debts because doing so involved conferring a benefit. The second is that the proper performance of his duty to Mr Despot required that he give such advice because otherwise Mr Despot would be harmed by the payment away of moneys without his authority. Whether Mr Carbone had a duty to give advice to Mr Maalouf in those terms depends on the instructions which he received from Mr Maalouf concerning the basis upon which the authority had been conferred. The primary judge's findings as to that subject are not extensive. They assume that Mr Carbone was retained to act for Mr Maalouf as the holder of an irrevocable power conferred by way of security: [297], [298], [301]. The correctness of those findings as to the scope of Mr Carbone's retainer does not necessarily depend upon whether, as between Mr Maalouf and Mr Despot, the Power of Attorney was irrevocable. It depends upon the terms upon which Mr Carbone was retained and the instructions which he received. Those matters could have been the subject of evidence directed to the particular issues raised by the claim now sought to be made.

95 Mr Despot says that similar issues were raised by Mr Maalouf's existing Amended Third Cross-Claim against Mr Carbone. That claim included an allegation that Mr Carbone had advised Mr Maalouf that the Power of Attorney authorised the sale of the property and use of the proceeds to pay Sky Constructions. Mr Carbone denied that allegation. It raised as an issue whether such advice had been given at a time before the contract for sale was made. The primary judge did not address that issue, and it does not appear to have been the subject of final submissions made on behalf of Mr Maalouf. The allegation which Mr Despot now seeks to make raises a more specific issue as to the terms upon which Mr Carbone was retained and the instructions which he received from Mr Maalouf, particularly at the time of settlement and in the context of the receipt of the Johnston Vaughan letter of 2 July 2008. Whilst some evidence was directed to these matters, the subject was only raised in the cross-examination of Mr Carbone. It was not considered in a context where there was an issue as to whether Mr Carbone had advised or should have advised Mr Maalouf that moneys could not be paid to Sky Constructions. Each of these matters could have been the subject of further evidence from Mr Carbone and cross-examination of Mr Maalouf. The facts concerning these matters were not "either admitted or proved beyond controversy": cf O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310 at 319 per Mason J.

96 Mr Despot also submits that these two remaining claims only assumed significance as a result of the argument raised at the very end of the hearing by Stelli and Mrs Azzi that Mr Maalouf had apparent authority to enter into the contract for sale with Stelli. It is said that because that argument was raised late, Mr Despot did not have the opportunity to consider and properly run at trial a case which addressed the circumstance that he might be held liable under the contract for sale on that basis. That submission does not fully accord with what appears to have happened at the trial. When the amendment application was made on 18 October 2010 counsel for Stelli said that it would make the pleading "accord with the case that has always been there" (Black 2/885W). Reference to the pleading suggests that this was a correct statement of the position. Mr Despot's pleaded claim included that he was not bound by the contract because Mr Maalouf did not have authority to make a contract which conferred a benefit on him or Sky Constructions. In their defence, Stelli and Mrs Azzi alleged that by signing the power Mr Despot "clothed" Mr Maalouf with authority to execute the contract and transfer the property. That was sufficient to raise reliance on Mr Maalouf's having had apparent authority to enter into the contract.

97 The suggestion that Stelli only appeared to rely on actual authority in support of its claim for specific performance was first made by Mr Carbone in his closing written submissions dated 8 October 2010 (Black 2/1253M). Stelli's written submissions in response foreshadowed the amendment application to "ensure" that apparent authority as well as actual authority was pleaded (Black 2/1202F). When the amendment application was made, counsel for Mr Despot was given an opportunity to take instructions as to whether his client opposed the amendment. He did so and the amendment was not opposed (Black 2/900B). In the light of this sequence of events, Mr Despot's submission that any question of apparent authority was only raised late in the proceeding must be rejected. Furthermore, even if these arguments assumed significance for the first time in October 2010, that would not justify their being made on appeal where the facts upon which they are based are controversial and could have been the subject of evidence.

98 Finally, Mr Despot's allegation that there was misleading or deceptive conduct by Mr Carbone, which was relied upon by Mr and Mrs Azzi, also could have been the subject of evidence. It raises issues as to the understanding of Mr and Mrs Azzi and as to whether they relied upon a representation in the terms alleged. These questions were not raised by any pleading as between Mr Despot and Mr Carbone or Mr Despot and Mr and Mrs Azzi. The pleading of the misleading or deceptive conduct did not suggest that loss or damage was claimed by reason of reliance on the relevant conduct by Stelli and Mrs Azzi rather than Mr Despot. It was assumed to involve an allegation of direct as distinct from indirect causation: as to which see the discussion of Giles JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; 73 NSWLR 653 at [3]-[21]. That was the basis on which the primary judge addressed the misleading conduct claim. He rejected it, in part because there was "no basis to conclude that Mr Despot relied upon Mr Carbone to give any advice or take any step": [302].

99 For these reasons, Mr Despot's arguments against Mr Carbone fail at the outset. They were not pleaded or made in the Court below and cannot be advanced on appeal. This conclusion makes it unnecessary to consider whether in the circumstances of this case a solicitor in the position of Mr Carbone, who was receiving instructions from an attorney acting under a general power, owed any duty of care to the donor of that power, and if so, what the scope of that duty was.

Disposition of the costs appeal

100 Mr Despot contends that the primary judge erred in not ordering that Mr Maalouf and Sky Constructions pay Mr Despot's costs of his proceedings and of Sky Constructions' proceedings (grounds 17a and 18). He also submits that the primary judge erred in not ordering that Mr Maalouf, rather than he, pay the costs of Stelli, Mrs Azzi and Mr Carbone of the proceedings brought by him (ground 17b).

101 The primary judge made no order as to costs as between Mr Despot and Mr Maalouf and Sky Constructions in respect of Mr Despot's proceedings and the Sky Constructions' proceedings: Despot v Registrar-General of New South Wales (Supreme Court of NSW, Macready AsJ, 29 April 2011, unreported) at [10]. In doing so he rejected Mr Despot's submission that Mr Maalouf should pay his costs of those proceedings. The primary judge concluded that each of the parties had some success in prosecuting or defending different aspects of these claims with the result that there should be no order as to costs. That conclusion involved an assessment which broadly identified the separate issues in both proceedings and the way in which they were resolved, and which took account of the time and resources involved in their determination: [8]-[9].

102 Mr Despot submits that he enjoyed substantial success in the proceedings which he brought and in the proceedings commenced by Sky Constructions. On that basis he argues that the primary judge erred in not making orders for costs in his favour. This argument challenges the correctness of the primary judge's assessment of the relative successes of the parties in each proceeding. With respect to Mr Despot's proceedings, the primary judge observed that "by far the greatest time was taken in the claim in respect of which Mr Despot was unsuccessful": [9]. That claim was the overarching fraud claim made against Mr Maalouf, Stelli and Mrs Azzi. Having regard to the issues as formulated in the pleadings and in the final written and oral addresses of the parties, the primary judge was justified in that assessment and, for that reason, in concluding that it was appropriate that there be no order as to costs. Mr Despot has not, in his written or oral submissions, identified any other error of principle or mistaken assessment which shows the primary judge's exercise of discretion to have miscarried. The position is the same in relation to the proceedings brought by Sky Constructions. Mr Despot's argument that Sky Constructions was not entitled to any quantum meruit under s 94(1A) was rejected. He was successful in reducing the amount of that claim from in excess of $1.3m to $644,713.87. However that amount exceeded the amount of approximately $420,000 for which Mr Despot contended. Thus Sky Constructions succeeded in its claim but for an amount which was significantly less than the amount sought. That being the position, the primary judge's assessment that each party should bear its or his own costs is not shown to have involved error.

103 The primary judge also ordered that Mr Despot pay the costs of Stelli, Mrs Azzi and Mr Carbone of his claims and of the cross-claim of Stelli and Mrs Azzi. His Honour did not make any separate order in relation to the costs of Mr Carbone's cross-claim. In making these orders the primary judge rejected Mr Despot's submission that Mr Maalouf should pay the costs of those parties to the proceedings, invoking the principle in Sanderson v Blyth Theatre Co [1903] 2 KB 533. The principles which provide that the burden of a successful party's costs order is borne directly or indirectly by a party other than the one against which the costs were incurred require that there be "some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant": Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [14] (Beazley, Hodgson, McColl JJA). Several of the relevant authorities are collected by Campbell JA in ACQ v Cook (No 2) [2008] NSWCA 306 at [32]-[43]. They include the statement of Gibbs CJ in Gould v Vaggelas [1984] HCA 68; 157 CLR 215 at 229 that "if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff's error or overcaution".

104 As between the plaintiff and an unsuccessful defendant, ordinarily reasonableness in joining that defendant is demonstrated by some conduct of the unsuccessful defendant in relation to the litigation which justified the successful defendant be joined or made it proper that the unsuccessful defendant should bear the costs of the successful defendant: Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179; 20 NSWCCR 417 at [136]; Mead v Watson as Liquidator for Hypec Electronics Pty Ltd (In Liq) [2005] NSWCA 133 at [9]. Mr Despot argued before the primary judge and argues in this Court that Mr Maalouf's "dishonest acts" led him reasonably to bring proceedings against Stelli, Mrs Azzi and Mr Carbone. The primary judge rejected that argument. He considered that whilst Mr Despot acted reasonably in seeking to restrain the sale, and that this necessitated the joinder of Stelli and Mrs Azzi in the proceedings, his subsequent allegations of fraudulent conduct against them, and his conduct in defending their cross-claims, were not reasonably justified by reference to conduct of Mr Maalouf in connection with the litigation. In my view his Honour did not err in so concluding. The claim brought against Stelli and Mrs Azzi was of knowing participation in a fraudulent scheme of Mr Maalouf. Mr Maalouf denied the existence of any such scheme and did not encourage the making of that claim. As against Mr Carbone, Mr Despot's claim was that his acts or omissions, and in particular his omission to confirm Mr Maalouf's authority to act under the Power of Attorney, allowed that fraudulent scheme to occur. The making of that claim was not encouraged by conduct of Mr Maalouf in connection with the litigation.

St George's costs

105 Notwithstanding that St George (now Westpac Banking Corporation) was joined as fourth respondent to the appeal, none of the orders sought were against it or affected its interests, other than those as to costs. Before the hearing of the appeal there was much correspondence between the solicitors representing Mr Despot and St George as to the latter's continuing involvement in the appeal. St George sought to be removed as a party on condition that Mr Despot did not seek to reverse any registered dealings which affected its interests. Mr Despot was not prepared to consent to St George being removed on those terms. On 6 March 2013, at a directions hearing before the Registrar, St George sought an order that it be removed as a party on that basis. Mr Despot opposed that order and foreshadowed the filing of a Further Amended Notice of Appeal which would seek relief against St George. Directions were made for the serving of a draft of that pleading and for written submissions.

106 On 7 March 2013 Mr Despot served a draft Further Amended Notice of Appeal which sought a declaration that he was entitled to an unpaid vendor's lien over the home unit property securing an amount of $1,097,460 with priority to St George's registered mortgage. On 9 March 2013 (one day after the time directed for that to occur) Mr Despot served submissions in support of that claim to relief. On 15 March 2013, St George indicated by letter that it opposed the application to amend the Notice of Appeal and would seek to have the hearing of the amended claim for relief against it heard after the determination of the other matters in the appeal. It otherwise reserved its rights "including to seek that the costs of any application to amend and the costs of the appeal be paid on an indemnity basis". That letter did not suggest that such an order would be sought because the proposed amendment was "hopeless". On 18 March 2013, in the evening of the day before the hearing of the appeal was to commence, St George served its written submissions in response. Those submissions had been directed to be served by 12 March 2013.

107 On the first day of the appeal, counsel for Mr Despot first pressed and then elected to withdraw the application to amend the Amended Notice of Appeal to claim relief against St George. That relief, as foreshadowed, included a declaration that Mr Despot had an unpaid vendor's lien over the property securing an amount of $1,097,460 which had priority over St George's registered mortgage.

108 In these circumstances, St George seeks an order that Mr Despot pay its costs of the abandoned application on an indemnity basis. In response, Mr Despot argues that the appropriate order is that there be no order as to those costs because in substance the application to amend had been "resolved" rather than abandoned, and without a contested hearing. Each party relies upon statements of McHugh J in Re The Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625.

109 I do not agree that the present case is one in which the relevant application was settled or its further prosecution became futile through no fault of the parties. Mr Despot made an application to amend his notice of appeal and subsequently decided not to proceed with that application. That did not occur as a result of any fault or conduct of St George, which remained ready to proceed. That being the position, the appropriate order is that Mr Despot pay St George's costs of the application. The remaining question is whether those costs should be ordered to be paid on an indemnity basis. Such an order may be made if it appears that the application was commenced or continued in circumstances where a party "should have known that there were no real prospects of success": East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159 at [17].

110 Mr Despot's prospects of succeeding in his application for leave to amend were poor at best. The question sought to be raised had not been argued before the primary judge and there were difficulties in arguing that the unpaid purchase moneys exceeded $91,086. Those difficulties are referred to above. Nevertheless, those prospects had to be assessed in a case of some complexity. Mr Despot filed his submissions in support of his application on 9 March. St George did not respond until the day before the commencement of the hearing. It only put Mr Despot on notice that it might seek costs on an indemnity basis on 15 March. In the circumstances, Mr Despot did not act unreasonably in maintaining the application until the first day of the appeal. On that day, no doubt taking account of St George's submissions and exchanges with the Court, the application was withdrawn. In my view, Mr Despot's conduct does not justify an order that he pay St George's costs of the application to amend other than on the ordinary basis. He must also pay any costs of St George of the appeal on that basis.

Conclusion

111 Except in one minor respect, Mr Despot's appeals against the orders made in relation to Mr Maalouf, Stelli and Mrs Azzi and Mr Carbone fail. That respect is the order that Stelli pay the balance of the unpaid purchase price. Mr Despot has succeeded in obtaining judgment against Sky Constructions. That claim depended for its success on the acceptance of Mr Despot's argument that he was owed fiduciary obligations by Mr Maalouf. That issue arose as between him and Mr Maalouf and Sky Constructions. Its resolution in favour of Mr Despot has not, however, resulted in any different judgment as between him and Mr Maalouf. In addition, Mr Despot has failed in his appeal against the allowance of the scaffolding claim as part of the amount to which Sky Constructions was entitled by way of quantum meruit.

112 Having regard to these matters, my view is that Mr Despot should pay the costs of Stelli and Mrs Azzi and Mr Carbone of the appeal. With respect to Mr Maalouf and Sky Constructions he has succeeded in relation to his claim against Sky Constructions and in relation to an aspect of his claim against Mr Maalouf. As those issues occupied significantly more time than the issue arising in relation to the scaffolding claim, the appropriate order is that Mr Maalouf and Sky Constructions pay one-third of Mr Despot's costs of the appeal as against them.

113 Although I have concluded that Mr Despot was entitled to judgment against Sky Constructions on bases which include that it knowingly received moneys paid in breach of fiduciary duty, I do not consider that conclusion to justify a departure from the position taken by the primary judge that there should be no order as to costs between the three parties. Notwithstanding the fact that Mr Despot was entitled to judgment against Sky Constructions, the position remains that he failed in his primary claim of fraud, which was the significant issue in the proceedings below.

114 The following orders should be made:

(1) The application of the first respondent (Mr Maalouf) for leave to file a cross-appeal dismissed.

(2) Appeal allowed in part.

(3) Set aside order 2 of the Court below made on 15 April 2011, but only to the extent that it applies to the eighth defendant (Sky Constructions).

(4) Judgment for the appellant against Sky Constructions in the sum of $788,375.35, including pre-judgment interest, that judgment to take effect on 15 April 2011.

(5) Judgment for the appellant against Stelli for the sum of $91,086 plus pre-judgment interest of $21,746, that judgment to take effect on 15 April 2011.

(6) Appeal otherwise dismissed.

(7) The second and seventh respondents pay one-third of the costs of the appellant of the appeal in so far as they relate to them.

(8) The appellant pay the costs of the third, fifth and sixth respondents of the appeal.

(9) The appellant pay the costs of the fourth respondent (St George) of the appeal including its costs of his application to amend the Notice of Appeal to seek relief against it.

(10) Grant leave to the parties to lodge written submissions with respect to the calculation of interest in Order 5 in the event that either party challenges the correctness of that calculation. Such submissions to be lodged within seven days of the date of these orders.

115 WARD JA: I agree with Meagher JA.

116 BERGIN CJ in Eq: I agree with Meagher JA.

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Decision last updated: 20 September 2013