Pascali v Carr

1. [1]

   BATHURST CJ: I agree with the orders proposed by Macfarlan JA and with his Honour’s reasons.

2. [2]

   BELL P: I agree with Macfarlan JA.

3. [3]

   MACFARLAN JA: On 7 June 2012 the appellant, Mr Joseph Pascali, entered into a contract to sell his recently redeveloped waterfront home at Seaforth to the remaining respondent to the appeal, Mrs Marcelle Carr. Mrs Carr paid a deposit of five per cent of the purchase price of $8,550,000 on the exchange of contracts. A further five per cent was stipulated to be payable upon satisfaction of a special condition of the contract, Special Condition 16, concerned with the provision of evidence satisfactory to the purchaser of the existence of home warranty insurance (“HWI”) and of compliance with council requirements in relation to the building works.

4. [4]

   The sale was settled after Mr Pascali, through his agent Mr Jason Nowytarger, submitted evidence referable to Special Condition 16.

5. [5]

   In proceedings commenced by Mrs Carr in the Commercial List in 2014, Mrs Carr alleged inter alia that Mr Nowytarger had made fraudulent implied misrepresentations to her in relation to the fulfilment of Special Condition 16 and that Mr Pascali was vicariously responsible for Mr Nowytarger’s conduct. After an eight day hearing, McDougall J found for Mrs Carr and entered judgment in her favour ([2018] NSWSC 1424 and orders entered on 17 October 2018). Following the discontinuance of an appeal by other defendants in the Court below and of a cross appeal, Mr Pascali is the sole appellant and Mrs Carr is the sole respondent.

6. [6]

   The issues on appeal are confined to the following:

   1. (1)

      whether it is to be inferred from the documentary evidence that the alleged implied Insurance and Development Representations (see [31]-[34]) were made;

   2. (2)

      if they were made, whether it is to be inferred that Mr Nowytarger understood that he was making the Development Representation as found; and

   3. (3)

      whether it is to be inferred that Mrs Carr relied upon those Representations.

7. [7]

   For the reasons given below, I consider that Mr Pascali’s appeal should be dismissed with costs.

The Factual Circumstances

1. [8]

   Mr Gerald Kesby of Anglo Lawyers acted for Mr Pascali on the sale. Mr Brian Thomas of MacKenzie Thomas Lawyers, assisted by Ms Angela George, acted for Mrs Carr. Dealings on behalf of Mrs Carr in relation to the contract were largely undertaken by her husband, Mr Ian Carr.

2. [9]

   In the years prior to the sale, Mr Pascali had arranged with Mr Nowytarger, who was his son-in-law and had building experience, for Mr Nowytarger to have the Seaforth home redeveloped. Mr Nowytarger was to engage, supervise and pay the builders and tradesman who worked on the property. The work was financed by Mr Pascali, with the proceeds of sale, after reimbursement of Mr Pascali’s expenses, to be paid to his daughter, Ms Simone Pascali-Nowytarger.

3. [10]

   Special Condition 15 of the Contract provided for Mr Pascali to complete prior to settlement some 48 items of outstanding building work listed in an attached schedule.

4. [11]

   Special Condition 16 was in the following terms:

5. [12]

   Special Conditions 15 and 16 became part of the Contract on or about 14 June 2012 as a result of further negotiations between the parties during the “cooling off” period following the exchange of contracts on 7 June 2012.

6. [13]

   On about 15 August 2012 Mr Nowytarger provided to Mr and Mrs Carr a document entitled “Final Occupation Certificate 100273 (residential)” dated 15 August 2012, attaching a bundle of certificates from contractors. On 4 September 2012, he sent to Mrs Carr an email attaching an HWI Certificate of 28 March 2011 in the amount of $170,000. Mrs Carr did not examine the terms of the certificates.

7. [14]

   On 10 September 2012, Mr Carr sent to Ms George of MacKenzie Thomas an email attaching a copy of the Final Occupation Certificate dated 15 August 2012 and saying “[w]e are expecting the Home Owners Warranty Certificate tomorrow”. He asked whether it would be possible to settle on a specified day. He appears to have been unaware that Mrs Carr received an HWI Certificate on 4 September 2012.

8. [15]

   On 11 September 2012, Mr Kesby sent Mr Thomas an email in the following terms:

9. [16]

   The “Building Occupation” Certificate attached to the email was in fact a “Final Inspection” Certificate given by a private certifier. The Certificate of Insurance was, as with that provided to Mrs Carr on 4 September 2012, dated 28 March 2011 and for the amount $170,000. It related to “Structural Alterations/Additions” carried out for Mr Nowytarger by Mr Daniel Miller trading as “Dan Miller Construction”.

10. [17]

    Mr Thomas replied to Mr Kesby later on the same day as follows:

11. [18]

    On 17 September 2012 Mr Carr sent to Mr Thomas and Ms George two HWI Certificates that he and Mrs Carr had received from Mr Nowytarger. Mr Carr asked whether they were “ok” and whether settlement could occur that week. The certificates were dated 14 September 2012, related to work carried out by Mr Miller and were in the amounts of $170,000 and $450,000. On each certificate, the work was said to have been carried out “for” Mr Nowytarger.

12. [19]

    On the same day Mr Carr sent an email to Mr Nowytarger stating that Mr Thomas “says we really need the HWI certificates in Joe’s name as well as he is the owner of the property”.

13. [20]

    On 18 September 2012, Mr Thomas replied to Mr Kesby in the following terms:

14. [21]

    Mr Kesby replied on the same day in the following terms:

15. [22]

    Mr Kesby responded further on 18 September 2012 as follows:

16. [23]

    On 19 September 2012, Mr Kesby sent a Final Occupation Certificate dated 18 September 2012 to Mr Thomas. This certificate described the person having the benefit of the identified development consent as “Jason Nowytarger/Joseph Pascali”. The private certifier who issued it noted that there was a current development consent and construction certificate in respect of the property and stated that “[t]he building is suitable for occupation or use in accordance with its Classification under the Building Code of Australia”.

17. [24]

    Mr Thomas responded on the same day indicating that the certificate was satisfactory but stating that the issue concerning the two HWI Certificates that had been supplied was still unresolved as those certificates stated that Mr Nowytarger was “the only person named as owner” in them. He said that he would accept certificates which named both Mr Nowytarger and Mr Pascali as owners as he said that the Final Occupation Certificate did.

18. [25]

    As a result of communications by Mr Thomas with the home warranty insurer, and with the co-operation of Mr Pascali, the insurer issued a letter stating that the HWI Certificate dated 14 September 2012 would inure to the benefit of successors in title to the current owner, Mr Pascali.

19. [26]

    On 25 September 2012, Ms George wrote to Mr Kesby setting out a checklist of 9 items that Mr Kesby would have to provide at the settlement scheduled for the following day. These included as numbers six and seven the “Original Home Owners Warranty Certificates” and “Original Final Occupation Certificate”. Mr Kesby’s firm responded by saying that they were instructed that Mr Nowytarger had already provided these items to Mr Carr. Later that day, Mr Carr confirmed to Ms George that that had happened.

20. [27]

    Settlement of the sale took place on 26 September 2012, at which time the further five per cent of the deposit, as well as the balance of purchase monies, was paid to Mr Pascali.

The Further Amended Statement of Claim

1. [28]

   In the Commercial List proceedings, Mr Miller was the first defendant, Mr Nowytarger was the second, and Mr Pascali was the third. It is sufficient for the purposes of this appeal to focus on the allegations made in the deceit cases against Mr Pascali.

2. [29]

   By [20] of the Further Amended Statement of Claim (“FASOC”), Mrs Carr alleged that on or just prior to 19 September 2012 Mr Pascali, through his solicitor, provided to her two HWI Certificates (for $450,000 and $170,000) and a Final Occupation Certificate dated 18 September 2012.

3. [30]

   In [22] Mrs Carr alleged that, subsequent to the carrying out of the renovation work, Mr Miller and Mr Nowytarger signed and backdated two building contracts, and provided them to the home warranty insurer with a letter stating that Mr Miller had carried out all the work at the property. Mrs Carr alleged that this conduct was calculated to, and did mislead, the insurer into issuing the HWI Certificates naming Mr Miller as the builder. This was significant because Mr Miller was a licenced builder whereas the persons who in fact did the work were not.

4. [31]

   Mrs Carr alleged that Mr Pascali made two sets of representations to her. These were described in the FASOC as the Insurance and Development Representations.

5. [32]

   In [29], the Insurance Representations alleged by Mrs Carr are described as follows:

6. [33]

   In [30], Mrs Carr alleged that the Insurance Representations were false because the certificates did not cover all of the work that was done and Mr Miller had not undertaken all the work. (Presumably, certificates for greater amounts would have cost more to obtain).

7. [34]

   In [37], the Development Representations alleged by Mrs Carr were described as follows:

8. [35]

   In [39] and [40], Mrs Carr alleged that the work had not been done in accordance with the development application and the construction certificate issued by the local council, nor was the work substantially undertaken by a licenced builder. Mrs Carr further alleged that the Insurance and Development Representations were made with knowledge of their falsity and with the intent that they be relied upon. She further alleged that she did rely upon those representations in completing the purchase of the property.

The Judgment at First Instance

1. [36]

   The primary judge found that Mrs Carr’s deceit claims based both on the Insurance and Development Representations to have been established. His Honour noted that there was no suggestion that Mr Pascali was involved in, or had any knowledge of, the fraud perpetrated by Mr Nowytarger but that Mr Pascali was nevertheless vicariously responsible for Mr Nowytarger’s conduct.

2. [37]

   His Honour found that most of the development work was done by a Mr Taylor, and that Mr Miller was not therefore properly described as the builder in respect of the work. He also found that Mr Nowytarger and Mr Miller prepared backdated building contracts for submission to the home warranty insurer, and signed and submitted a letter to that insurer containing false statements about who had undertaken the building work. As a result, the HWI Certificates were procured by representations that Mr Nowytarger knew to be false.

3. [38]

   His Honour further found that Mr Nowytarger provided the first HWI Certificate (dated 4 September 2012) to Mr Kesby, as a result of which Mr Kesby sent it to Mr Thomas under cover of his letter of 11 September 2012. Subsequently two further HWI Certificates, dated 14 September 2012, were provided to Mrs Carr and, after a letter was obtained from the home warranty insurer, Mrs Carr, through her solicitor, accepted the certificates and agreed to settle her purchase.

4. [39]

   His Honour continued:

5. [40]

   As to Mrs Carr’s reliance, his Honour found:

6. [41]

   The primary judge noted the terms of the pleading of the Development Representations (see [34] above) but stated that he was only concerned with the second representation, that is, that the building renovation work had been constructed “in accordance with the development approval and the construction certificate” (at [167]).

7. [42]

   His Honour first noted that, consistent with the terms of ss 109C and 109H of the Environmental Planning and Assessment Act 1979 (NSW), the Final Occupation Certificate did not state that the building work had been completed in accordance with the requirements of the council.

8. [43]

   Nevertheless, his Honour noted that the building work was not in fact completed in accordance with the council’s requirements and found that Mr Nowytarger knew that to be the case. He also found that three certificates given by Mr Miller and attached to the Final Occupation Certificate (see [13] above) were false, to Mr Nowytarger’s knowledge.

9. [44]

   His Honour continued (at [181]-[182]):

Determination of the appeal

1. [45]

   Special Condition 16 contained both conditional and promissory elements as follows:

   1. (1)

      the parties’ obligations to complete the contract were subject to and conditional on, Mrs Carr being satisfied in the manner specified in Special Condition 16;

   2. (2)

      Mrs Carr’s satisfaction was to relate to evidence delivered to her by Mr Pascali;

   3. (3)

      to give efficacy to these provisions, promises must be implied that Mr Pascali would deliver “evidence” of the nature described to enable it to be considered by Mrs Carr, and that Mrs Carr, upon receipt of such evidence, would decide whether she was satisfied with it; and

   4. (4)

      Mr Pascali was, expressly, required to use his best endeavours to complete the building works and obtain the relevant home warranty insurance. He was required to do this “in a manner sufficient to comply with the conditions stated in the clause” (that is, that there be evidence of compliance with the council requirements and of home warranty insurance).

2. [46]

   There can be no doubt that in causing the Final Occupation and HWI Certificates to be submitted to Mrs Carr, or her solicitor, that Mr Nowtarger was intending to provide the “evidence” that Special Condition 16 required be considered by Mrs Carr. As the evidence and primary judge’s findings make clear, Mr Nowytarger was seeking to bring about the satisfaction of Special Condition 16 and thereby bring about completion of the sale.

3. [47]

   His conduct in submitting the certificates thus involved, as the primary judge held, an implied representation that the certificates were capable of satisfying Mrs Carr, as contemplated by Special Condition 16, on the assumption that she was acting reasonably. His conduct bore some analogy to that of a person depositing cheques with a bank for collection to the person’s account. In those circumstances, the person impliedly represents to the bank that he or she is “entitled to do so – in other words, his conduct implies that he [or she] either is the owner of the cheques or is acting with the authority of the owner” (National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 258; [1986] HCA 21 (Gibbs CJ)). Equally here, Mr Nowytarger’s conduct implied that he was acting consistently with Special Condition 16 and providing authentic evidence of the matters there described (as to representations implied from conduct, see generally K R Handley, Spencer Bower & Handley: Actionable Misrepresentation, (5th ed, 2014, LexisNexis Butterworths) at 3.05).

4. [48]

   The certificates were not in fact capable of satisfying Mrs Carr, acting reasonably, because they did not, as Special Condition 16 required, relate to “all building works undertaken” in the previous six years (see [153]). As well, the HWI Certificates had been procured by fraudulent misrepresentations made to the insurer (see [157]). Whilst the primary judge found that the words used to describe the representation (see [32] above) do not appear in the relevant paragraph of the FASOC, the substance of the representation he found was pleaded in paragraph (iv): “That by provision of the Home Warranty Certificates, Pascali had complied with special condition 16 of the Contract”. As I have noted above, one of Mr Pascali’s obligations under Special Condition 16 was to submit “evidence” on the specified subject matter for Mrs Carr’s consideration. His submission of the certificates to her implied that he was doing so in fulfilment of this obligation.

5. [49]

   Mr Pascali submitted on appeal that he was only obliged to use his best endeavours to obtain home warranty insurance and that Special Condition 16 did not contain any promise that he would provide evidence of insurance for all the building works. However, as I have indicated, Special Condition 16 did require him to submit such evidence of insurance and it is clear from the express words of the condition that this insurance had to relate to “all building works undertaken on the property in the 6 years preceding exchange of the contract”.

6. [50]

   Mr Pascali further submitted that his provision of the evidence did not carry with it any representation that the evidence was satisfactory. This is true, but the primary judge did not find that Mr Pascali represented that. Instead, his Honour found that the implied representation was that the HWI Certificates were “capable of satisfying Mrs Carr” (at [150]). This accords with the conclusions that I have expressed above as to the implied representation that he made.

7. [51]

   Mr Pascali further submitted that in this context the primary judge wrongly took into account Mr Nowytarger’s subjective purpose in providing the HWI Certificates. His Honour referred to Mr Nowytarger’s purpose in [152] of the judgment, but there is nothing in the judgment to indicate that his Honour did so impermissibly. It was open to his Honour to take into account Mr Nowytarger’s purpose in providing the certificates, objectively ascertained by reference to the communications between the parties, for the purpose of determining what representation was made. Further, his Honour was entitled to, and indeed bound to, consider Mr Nowytarger’s subjective purpose when determining whether Mr Nowytarger’s representations were made with fraudulent intent.

8. [52]

   Finally, Mr Pascali submitted that a representation that the HWI Certificates were capable of satisfying Mrs Carr could not have been made because there were a number of circumstances that would have made it clear to Mrs Carr that they could not do that. Mr Pascali submitted (i) that Mrs Carr knew that more than $620,000 worth of building had been done (that being the total of amounts shown in the two operative HWI Certificates), (ii) that the Final Occupation Certificate referred to other tradesman who the HWI Certificates were unlikely to cover, (iii) that Mr Miller was listed as the builder on the HWI Certificates when Mrs Carr had been told that Mr Nowytarger was the builder, (iv) that Mr Thomas was aware of another HWI Certificate that was issued in respect of the property, and (v) that the 2012 HWI Certificate superseded the 2011 Certificate with the result that any representation relating to the 2011 Certificate could not have remained operative.

9. [53]

   Mr Pascali did not however in fact establish that Mrs Carr knew that more than $620,000 worth of building work had been done. When asked about this topic in cross-examination, Mrs Carr said that she thought that HWI “had a cap on it” (meaning that, notwithstanding that the amounts stated in the certificates totally $620,000, the building work might have been for a greater value) and that she in any event relied upon her solicitor, Mr Thomas, to advise her whether the certificates were satisfactory. Moreover it is clear from Mr Thomas’ cross-examination that he had “no idea of the value of the building works”.

10. [54]

    In the absence of any finding of actual knowledge on Mrs Carr’s part that the HWI Certificates did not cover the whole of the building work, the most that could be said in favour of Mr Pascali’s submission is that there was information available to Mrs Carr and her advisers from which they might have been able to deduce that the certificates did not in fact cover all of that work. That is however an irrelevant circumstance because, as Mr Pascali conceded on appeal, contributory negligence is not a defence to a claim in deceit.

11. [55]

    In these circumstances, I conclude that there was no error in his Honour’s finding that the Insurance Representation to which he referred was made.

12. [56]

    Mr Pascali’s principal submission on this topic was that it was not established that Mrs Carr relied on the Insurance Representation as found by the primary judge, as distinct from simply relying on the certificates that Mr Nowytarger provided.

13. [57]

    Mrs Carr did not give any express evidence of reliance but in my view the primary judge did not err in finding that she relied upon the representation as found. The decision in Batty to which I have referred above again provides an analogy. In that case, Gibbs CJ found that it “was a fair inference of fact … that the Bank collected the proceeds of the cheques because it was induced to believe that Davis was entitled to deposit them. If it had known that Davis had no authority to deposit the cheques it is inconceivable that it would have collected the proceeds” (at 258). His Honour referred to R v Lambie [1982] AC 449 where the defendant used her credit card for purchases knowing that the transactions would result in her credit limit being exceeded. Lord Roskill, who delivered the principal judgment, said (at 460):

14. [58]

    Likewise, in the present case, if Mrs Carr, or her solicitor Mr Thomas, had been told that the HWI Certificates did not, as Special Condition 16 required, cover all of the building work or that the certificates had been obtained by fraudulent misrepresentations, it is clear that Mr Thomas would have advised Mrs Carr to object and not proceed to settlement without further evidence. Moreover, her evidence made it clear that she would have acted in accordance with such advice as Mr Thomas gave her. Contrary to Mr Pascali’s submission, the representation was therefore material and relied upon by Mrs Carr.

15. [59]

    Also, contrary to Mr Pascali’s submissions, Mrs Carr’s reliance on the judgment of her solicitor Mr Thomas does not preclude an inference of her reliance on the representation. Indeed, it is clear that Mr Thomas relied upon it and Mrs Carr is entitled to take advantage of that.

16. [60]

    Mr Pascali referred on this topic to Holmes v Jones (1907) 4 CLR 1692; [1907] HCA 35 in which the vendors of a pastoral property made false statements when offering it for sale. The purchaser however refused the offer and, having been informed of the inaccuracy of the statements, negotiated a sale upon a totally different basis, relying upon his own inquiries and not the false statements made by the vendors. It was in this context that Griffith CJ said (at 1702):

17. [61]

    The present case is different because neither Mrs Carr nor her solicitor became aware of the falsity of the Insurance Representations and their reliance on them did not, as it did in Holmes v Jones, cease at any relevant point of time. It was sufficient to conclude that there was reliance by Mrs Carr to establish that she relied upon her solicitor (Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561 at 575) and that the solicitor relied at least in part on the relevant representation (ibid at 570). It did not matter that the representation was not the only matter that Mr Thomas took into account.

18. [62]

    I reject Mr Pascali’s submission that Mrs Carr’s position is prejudiced by the fact that the 2012 HWI Certificates were not provided under cover of a letter, like the letter of 11 September 2012 submitting the 2011 Certificate, that expressly related the provision of the certificates to Special Condition 16. As the primary judge held, the circumstances of the later provision of the certificates made it plain that they were submitted for the same purpose as the 2011 Certificate was submitted.

19. [63]

    Finally, again contrary to Mr Pascali’s submissions, I do not consider that the primary judge gave insufficient reasons for his reliance finding. The fact that he reasoned along the lines that I have stated above is apparent when the whole of that part of his judgment concerned with the deceit claim based on the Insurance Representations is considered.

20. [64]

    Mr Pascali submitted that because the Final Occupation Certificate did not expressly state that the building works had been carried out in compliance with council requirements (and the statutory provisions did not require it to do so), no representation that the council’s requirements had been fulfilled was made. The Final Occupation Certificate was however referred to in Special Condition 16 simply as a method by which the matter stated in sub-condition (a) might be established. The reference to it does not mean that the remainder of the condition to which it related can be ignored. Relevantly, the condition was that evidence be provided of compliance with council requirements. It is arguable that provision of the Final Occupation Certificate carried with it an implied representation that those requirements had been complied with, even though the Final Occupation Certificate did not state that to be the case. I do not however consider that to be sufficiently clear to hold that that representation was implied for the purposes of an action in deceit, in which, given the seriousness of the allegation, liability must be established with considerable assurance (see s 140 Evidence Act 1995 (NSW) and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170 at 170-1). It is at least equally arguable that the provision of the certificates carried with it an implied representation only that the certificate was a genuine certificate of the description appearing in the special condition.

21. [65]

    Consistently with Mr Pascali’s submissions, I am also not persuaded that the evidence established that Mr Nowytarger intended to make the Development Representation. An inference open on the evidence is that Mr Nowytarger provided the Final Occupation Certificate because Special Condition 16 referred to its provision as a means of satisfying Special Condition 16(a). The inference that that was his state of mind is at least as persuasive as the alternative proposition that, although he recognised that Special Condition 16 referred specifically to the Final Occupation Certificate, he appreciated that its provision would (if the view I have expressed in the previous paragraph is incorrect) imply the broader proposition that council’s requirements had been met.

22. [66]

    As a finding that Mr Nowytarger knowingly made a false representation is an essential element of the deceit claim against him based the Development Representations, and as it has not be established, that claim should also be rejected for that reason.

23. [67]

    Similar reasoning leads to the conclusion that it was not established that Mrs Carr relied on the relevant Development Representation rather than the Final Occupation Certificate. To find otherwise, it would be necessary to conclude that she, or her solicitor, Mr Thomas, thought beyond the terms of the Final Occupation Certificate itself to the terms of Special Condition 16 and reasonably believed that provision by Mr Nowytarger of the Final Occupation Certificate was impliedly representing more than what was in the certificate and was representing that the council’s requirements had been satisfied. There was no express evidence to this effect and in my view the primary judge erred in implicitly finding that this occurred.

Conclusions

1. [68]

   I have accepted Mrs Carr’s case on the deceit claim based on the Insurance Representations but rejected her contentions concerning the deceit claim based on the Development Representation. As Mrs Carr’s success on only one of these two claims is sufficient to sustain the judgment and orders made in her favour at first instance, Mr Pascali’s appeal should be dismissed with costs.