Plaintiffs v Defendants

Supreme Court of Victoria|2008-08-28|Before: HARGRAVE J

CONTRACT - Whether concluded contract for sale of businesses - Whether dealings between parties, objectively considered, demonstrate a concluded bargain - Partnership dispute between vendors - One Partner signed acceptance of offer to purchase - Second partner refused to sign acceptance of offer until he obtained legal advice - Second partner did not sign acceptance of offer at any time - Whether acceptance of offer by second partner should be inferred - No concluded contract established.

EQUITABLE ESTOPPEL - Whether plaintiff assumed binding contract of sale in existence - Assumption not established on the evidence - Whether, if assumption established, it was induced by a reasonable understanding of statements and conduct by the vendors - Assumption, if established, not the result of reasonable understanding by proposed purchaser of vendors' conduct - Defendants not estopped from denying existence of contract.

For the First, Third, Fourth, Fifth, Sixth and Seventh Defendants

1 By a partnership agreement made on 1 October 2003, Roger Lakkis and his three nephews, Joseph Zouki, Bassam (Sam) Zouki and Faddy Zouki agreed to conduct business as partners through corporate entities representing their respective interests. The two partners were Cartley Nominees Pty Ltd, which represented the interests of Mr Lakkis, and Zouki Catering Pty Ltd, which represented the interests of the three Zouki brothers. Under the partnership agreement, Cartley Nominees and Zouki Catering were equal partners, each entitled to share in one half of the profits and to contribute to one half of the losses of the partnership businesses.

2 A third company, Basjo Catering Pty Ltd was appointed under the partnership agreement as "a bare trustee and manager for the partnership". Basjo Catering is a company owned and controlled by the three Zouki brothers.

3 The purpose of the partnership was to conduct café, catering, conference and associated businesses at a number of hospitals in the Melbourne metropolitan area. The principal business with which this proceeding is concerned is the business known as "Alf's Café", which is located at the Alfred Hospital in Commercial Road, Prahran.

4 In 2005 Mr Lakkis and his nephews had a falling out. They agreed to go their separate ways. As a result, they engaged Mr Zied Dabab of Klemms Business Brokers Pty Ltd to sell Alf's Café and two smaller businesses conducted by the partnership at the Alfred Hospital, "Formation Hairdressing & Beauty Salon" and "Alfred Blooms Florist". A separate sale authority was signed for each of the three businesses on 5 July 2005. Each sale authority was signed by Mr Lakkis on behalf of Cartley Nominees and Joseph Zouki on behalf of Zouki Catering.

5 The defendants in the proceeding are Mr Lakkis, the Zouki brothers, Cartley Nominees, Zouki Catering, Basjo Catering and another company, Gunderi Pty Ltd. It appears that Gunderi was formed to own the florist business. However, Basjo Catering conducted the florist business at all relevant times, probably on behalf of the partnership, and nothing turns upon the arrangements involving Gunderi.

6 The first plaintiff, Len Di Pietro, and associated entities conduct substantial café businesses in Melbourne. Mr Di Pietro had previously purchased the "Baci Café", located in the Crown Casino complex, through Mr Dabab. At the time, Mr Di Pietro told Mr Dabab that he was interested in purchasing other café businesses. The second plaintiff, Lenrock Nominees Pty Ltd, is a company representing the interests of Mr Di Pietro. It has been joined as a party because Mr Di Pietro has purported to nominate it as the purchaser under the sale agreement for which he contends. It is otherwise unnecessary to refer to the role of Lenrock.

7 Following the appointment of Klemms to sell Alf's Café, Mr Dabab telephoned Mr Di Pietro and told him that Alf's Café was on the market. Mr Di Pietro was immediately interested and, in his own words, stated to Mr Dabab: "Consider it sold". This expression of enthusiasm from a potential purchaser to the vendors' agent is a significant fact in the overall disposition of the proceeding. The reasons for this will become apparent.

8 Mr Dabab introduced Mr Di Pietro to Mr Lakkis and the Zouki brothers. There were discussions between them. During the initial discussion between Mr Lakkis and Mr Di Pietro, Mr Lakkis told Mr Di Pietro that he was in dispute with his nephews, that the dispute was not good for his health and that the existence of the dispute was the reason for the proposed sale of Alf's Café.

9 Following the discussions, Mr Di Pietro signed a document titled "PRE-CONTRACT AGREEMENT BETWEEN VENDOR AND PURCHASER". Mr Di Pietro signed and dated the document 18 July 2005. By that document, Mr Di Pietro offered to purchase Alf's Café, together with the hairdressing and florist businesses, for a total sum of $5.75m, upon certain terms. Later, on 25 July 2005, Joseph Zouki signed the document adjacent to the words: "This offer is accepted by the Vendor". However, Mr Lakkis refused to sign the document until he obtained legal advice. Mr Di Pietro knew that Mr Lakkis had refused to sign the document, and that he would not do so until he spoke with his solicitor. Mr Lakkis did not sign the document at any time. For convenience, although there is a dispute as to whether it constitutes a concluded agreement, I will refer to the document as "the pre-contract agreement".

10 The principal issue in the proceeding is whether an agreement to sell Alf's Café was concluded between the parties. Mr Di Pietro contends that a binding agreement for the sale of Alf's Café was concluded when Joseph Zouki signed the pre-contract agreement accepting his offer, or was concluded shortly thereafter when certain steps were taken by the parties. Mr Di Pietro contends that these steps either constituted acceptance of his offer by conduct, or constituted subsequent conduct from which the Court should infer that an agreement had been concluded at an earlier time. Mr Di Pietro seeks orders directed at securing specific performance of a contract to sell Alf's Café to him. Alternatively, Mr Di Pietro contends that Mr Lakkis and the Zouki brothers, and their respective corporate entities, are estopped from denying that they agreed to sell Alf's Café to him.

11 Mr Lakkis, his nephews and their related entities contend that no agreement by them to sell Alf's Café to Mr Di Pietro was ever concluded. In the alternative, they contend that any agreement which was reached was incomplete, uncertain, or was abandoned following the acquisition by Mr Lakkis from his nephews of full ownership and control of Alf's Café. They deny that Mr Di Pietro has made out the elements necessary to establish the estoppel for which he contends.

12 Mr Di Pietro, Mr Lakkis, the Zouki brothers, Mr Dabab and Mr Lakkis' solicitor, Mr Phillips, all gave evidence by witness statement and orally. Substantial parts of their evidence concerned conversations which took place in 2005. There are few contemporaneous documents recording or evidencing the content of these conversations. There are substantial differences in the recollections of the witnesses about some aspects of these conversations.

13 Viewing the evidence as a whole, it is apparent that aspects of the evidence of the witnesses, with the exception of Mr Phillips, is infected with reconstruction. In particular, the evidence of Mr Di Pietro and Mr Dabab, which in most instances was identical, gave me the overall impression of reconstruction. In this regard, I note that Mr Dabab, who was the agent engaged by the partnership to sell the three businesses, gave evidence for Mr Di Pietro. In his witness statement, Mr Dabab adopted the witness statement of Mr Di Pietro as "true and correct in every particular".

14 Although I am not satisfied that any witness told deliberate untruths, the evidence of Mr Dabab of his recollection of conversations in 2005 was definite to an improbable degree. In circumstances where he stands to obtain a considerable commission if Mr Di Pietro is successful in the proceeding, and where the evidence as a whole indicates that he pressured the Zouki brothers and Mr Lakkis to proceed with the proposed sale, for example by insisting that they sign the pre-contract agreement, I have assessed Mr Dabab's evidence with some caution. I do not accept the submission made on behalf of Mr Di Pietro that Mr Dabab's evidence should be preferred to the evidence of the Zouki brothers and Mr Lakkis because it was given in a confident and definite manner, and was consistent with that of Mr Di Pietro.

15 I have also treated the evidence of Mr Di Pietro with some caution, having regard to the general impression of reconstruction to which I have referred, the complete consistency of his evidence with that of Mr Dabab in many respects and his high degree of enthusiasm to purchase Alf's Café. However, I note that Mr Di Pietro was prepared to make concessions against his interests in many circumstances. The same cannot be said of Mr Dabab.

16 There are many disputes about the content of conversations which it is unnecessary to resolve. Where it is necessary to resolve the dispute, I have done so by reference to the probabilities arising from objectively established facts, commonsense, and the caution with which I have approached the evidence of Mr Dabab and Mr Di Pietro.

17 As appears above, Mr Lakkis and his nephews were in dispute by mid 2005 and wished to separate their business interests.

18 In summary, the evidence establishes the following management structure of the partnership businesses. Joseph Zouki was the person principally responsible for the operations of the Alf's Café business. Sam Zouki was principally responsible for the operation of the café and associated businesses at St Vincent's Hospital. Faddy Zouki (a qualified solicitor who no longer practises) was involved in general management, administration, marketing and business development of the partnership businesses. Roger Lakkis, who had established the businesses, had ceased any operational involvement in the businesses and had a general role overseeing their operation and was involved in significant management decisions. It is apparent that Mr Lakkis had brought his nephews into businesses which had already been established by him, allowed them to work in those businesses and then provided them with equity in the businesses for no financial contribution.

19 Against this background, Mr Lakkis became concerned about the management of the businesses by his nephews. Mr Lakkis was concerned that his nephews were taking cash out of the businesses, in particular Alf's Café, and not accounting to him for that cash. The evidence does not enable any conclusions to be drawn as to whether Mr Lakkis' concerns in this regard were justified, and it is unnecessary for the purposes of this case to reach any conclusions in that regard. However, I am satisfied that Mr Lakkis' concerns in this regard were genuinely held and that this caused him to be, in his own words, "very upset, stressed and depressed". As a result, Mr Lakkis wanted to separate his business interests from those of his nephews.

20 Although the evidence does not enable any conclusions to be drawn as to whether cash receipts of one or more of the businesses of the partnership were not accounted for to the Australian Taxation Office, the evidence points in that direction. In particular, the sales figures contained in the profit and loss statements and other accounting records of Alf's Café show sales of significantly less than those represented to Mr Di Pietro. This discrepancy was noted by the valuer retained by Mr Di Pietro to value the Alf's Café business, Martyn Boyle, in his valuation report dated 25 August 2005. However, for the purposes of his valuation, the valuer adopted the represented sales figures as being a more reliable guide to the true trading history of the Alf's Café business, and put to one side the sales figures recorded in the books and records of Alf's Café. In these circumstances, I informed the parties that I would refer the matter to the appropriate authorities for investigation and the taking of any necessary action. This will be done.

21 David Phillips acted as the solicitor for Mr Lakkis at relevant times and in the conduct of this proceeding. Until certain evidence was given by Mr Di Pietro, which was not contained in his witness statement, Mr Phillips was not considered to be a relevant witness. The relevant evidence concerns a conversation between Mr Phillips and Mr Di Pietro at a meeting in late October 2005, which is referred to below.

22 Mr Phillips was called to give evidence. In cross-examination, Mr Phillips said that he was aware of the dispute between Mr Lakkis and his nephews by July 2005 and, in that connection, gave Mr Lakkis general advice that he should not sign any documents in connection with the dispute without first showing the document to him. Mr Phillips has a clear recollection of advising Mr Lakkis in words to the effect: "Roger, don't sign anything unless you show it to me, please". Mr Phillips said that he gave this advice to Mr Lakkis because of a concern which he had about Mr Lakkis having previously signed the partnership agreement without any legal advice or assistance. The evidence discloses that Mr Lakkis accepted this advice in some respects, but not in others.

(2) Appointment of Klemms to sell the businesses

23 The accounts for Basjo Catering show that it carried on the three businesses at the Alfred Hospital, Alf's Café, Formation Hairdressing & Beauty and Alfred Blooms Florist (collectively "the three businesses"). All of the income from the three businesses was received by Basjo Catering and it paid the rent for the premises from which the three businesses were conducted. The premises from which the principal business, Alf's Café, was conducted were sub-leased by Cartley Nominees. Cartley Nominees was also the licensee of an outdoor area used in connection with the Alf's Café business. Basjo Catering sub-leased the premises from which Formation Hairdressing & Beauty was conducted. Gunderi sub-leased the premises from which the florist business was conducted.

24 On 5 July 2005 Mr Lakkis and Joseph Zouki signed three written authorities appointing Klemms as exclusive agent to sell the three businesses.

25 The sale authority authorising Klemms to sell the Alf's Café business for $6.2m records the two partners, Zouki Catering and Cartley Nominees, as the vendors. The sale authority provides that Klemms will be paid a commission, including GST, of $477,400 if Alf's Café was sold within the authority period for $6.2m or such lesser price as the vendors agree to accept by signing a contract of sale to sell the business for that price.[1] The size of this commission is relevant when considering the conduct and evidence of Mr Dabab in connection with the transaction.

26 The sale authority for Formation Hairdressing & Beauty records Basjo Catering as the vendor and provides for a sale price of $90,000 and a commission of $7,700.

27 The sale authority for Alfred Blooms Florist records Gunderi as the vendor and provides for a sale price of $90,000 and a commission of $7,700.

28 The partners had a concern about confidentiality in relation to the proposed sale of the three businesses. Accordingly, each of the sale authorities includes a handwritten annotation to the effect that the authority is subject to Klemms obtaining a "confidentiality agreement" from each potential purchaser. There is no evidence that any confidentiality agreement was sought or obtained from Mr Di Pietro.

(3) Circumstances in which the pre-contract agreement was signed by

29 Following the appointment of Klemms as exclusive agent to sell the three businesses, Mr Dabab contacted a number of potential purchasers. One of them was Mr Di Pietro. When Mr Dabab telephoned Mr Di Pietro to inform him that Alf's Café was on the market, Mr Di Pietro was on holidays in Broome. Mr Di Pietro did not need any encouragement from Mr Dabab to show an interest. In his witness statement, Mr Di Pietro recounted the telephone conversation with Mr Dabab and his level of interest in purchasing Alf's Café in the following manner:

Zied Dabab told me that he was acting for the vendors of Alf's Café at the Alfred Hospital. He asked me whether I was interested in buying Alf's Café. I replied, 'Consider it sold.' I was and am familiar with the café market in Melbourne and was and am familiar with Alf's Café. I regarded and still regard Alf's Café as one of the best cafés in Melbourne because of its location in one of the busiest hospitals and because of the absence of other cafés or catering establishments in the vicinity. The combination of an enormous institution with many potential casual and permanent customers - medical, nursing and administrative staff, patients and visitors - and the relative isolation of the hospital from alternative establishments is unique in Melbourne.[2]

30 Upon his return to Melbourne, Mr Di Pietro took prompt steps to pursue his interest in purchasing Alf's Café. On 14 July, Mr Di Pietro met with Mr Dabab and Mr Lakkis. During this meeting, Mr Lakkis told Mr Di Pietro that Alf's Café was owned by him and his nephews in partnership, that they were in dispute, that the dispute was having an adverse effect upon his health and that this was the reason for the proposed sale. At the conclusion of the meeting, Mr Lakkis proposed that Mr Di Pietro meet that evening with "his partners", a reference to his nephews.

31 In the evening of 14 July 2005, there was a meeting at the Alf's Café premises between Mr Di Pietro, Mr Lakkis, Joseph Zouki, Sam Zouki and Mr Dabab. Faddy Zouki was not present. Mr Di Pietro was told that the Alf's Café business was owned by Mr Lakkis and his nephews. Mr Di Pietro offered to buy the Alf's Café business for $5.5m. The recollections of those in attendance at this meeting are not identical, but it does not matter. No sale price was agreed. A further meeting was arranged for the afternoon of Saturday 16 July 2005, at which time Faddy Zouki would be in attendance.

32 In the meantime, it was suggested that the other two businesses, Formation Hairdressing & Beauty and Alfred Blooms Florist be included in the proposed sale and purchase. As a result, Mr Di Pietro told Mr Dabab that he would purchase the three businesses for a total price of $5.75m and would pay a deposit of $200,000. As a result of this conversation, on 15 July 2005 Mr Dabab prepared an initial form of the pre-contract agreement and presented it to Mr Di Pietro for signature by him. The initial form of pre-contract agreement was signed and dated by Mr Di Pietro on 15 July 2005. I will refer to it as the "15 July offer".

33 Also on 15 July 2005, Mr Di Pietro drew a cheque on the account of Lenrock Nominees for $200,000 payable to Klemms in respect of the proposed deposit. However, at this time, there were insufficient funds in that account to meet the cheque. At some stage, Mr Di Pietro provided the cheque to Mr Dabab, with instructions not to bank it until he had arranged for sufficient funds to be placed into the account to enable the cheque to be paid on presentation.

34 On the afternoon of Saturday 16 July 2005, Mr Di Pietro met with Mr Dabab, Mr Lakkis and the Zouki brothers at Alf's Café. Faddy Zouki said that he was not present at this meeting. However, in cross-examination, his position was that he could not recollect being present and "my memory could have failed me on this". Having regard to the evidence of both Mr Di Pietro and Mr Dabab that Faddy Zouki was present, and the suggestion in the witness statement of Sam Zouki that Faddy Zouki was present, I find that it is more likely than not that Faddy Zouki was present. However, nothing turns upon this.

35 At this meeting, there was discussion about the 15 July offer. The discussions included the following matters.

36 First, the 15 July offer did not include any reference to stock of the three businesses. The parties discussed and agreed that the purchase price would be $5.75m plus stock at valuation.

37 Second, a suggested term by Mr Di Pietro in the 15 July offer, that he be given a "first right of refusal for any new or existing businesses within the St Vincent's compounds owned by the said Vendors", was discussed and rejected by the partners. However, there was discussion concerning the inclusion in the sale of a proposed business "within the hospital compounds" of the Alfred Hospital. This was a reference to a business to be conducted in a building under construction for the Alfred Hospital on the corner of Commercial Road and Punt Road, from which it was proposed to operate a day procedure centre. The building was not due to be completed until later in 2006. Mr Lakkis said that he believed that the head lessor of the Alf's Café premises had been promised a lease of some space to conduct a café within the proposed building, and that the partnership would likely obtain a sub-lease for the purposes of conducting a café business at those premises. It was agreed that, if the partnership obtained this proposed lease, it would be included within the sale price of $5.75m.

38 Third, there was discussion concerning the proposal by Mr Di Pietro in the 15 July offer that there be "a two week trial period at $120,000 per week after a price increase across the board". It was agreed that any price increase would be deferred until after the trial period, and that the amount of $120,000 would accordingly be reduced to $110,000 per week.

39 Fourth, there was discussion concerning proposed renovations to the front counter at the café, involving the replacement of items such as fridges, bain-maries and the counter. Some or all of these items were already on order and were to be replaced at a time suitable to the hospital. The approximate price for these proposed renovations was between $120,000 and $150,000. It was agreed that the partnership would proceed with the proposed renovations prior to the completion of the proposed sale, at no extra cost to Mr Di Pietro.

40 Mr Di Pietro had also included in the 15 July offer a term that it was subject to "an assistance period to be agreed upon with the Vendors". There was no evidence concerning discussion about this proposed term at the meeting. Accordingly, this proposed term was either discussed and rejected by the partners or was removed from the final form of the pre-contract agreement in error. It is more likely that this proposed term was removed in error when Mr Dabab prepared the final form of the pre-contract agreement. I take this view because there is no evidence of any discussion concerning the proposed assistance period, an assistance period is commonplace in sale of business agreements and the proposed term was included in the same sentence as the term concerning a proposed "price increase across the board", which was discussed and deferred until after the trial period. The full term which was proposed by Mr Di Pietro was in the following form:

Subject to a two week trial period at $120,000 per week after a price increase across the board and an assistance period to be agreed with the Vendors.

41 Further, a proposed assistance period was discussed at the 6 August meeting which is considered below.

42 Following this meeting, Mr Dabab prepared an amended version of the 15 July offer, to reflect the discussions on Saturday 16 July between the parties. There were some other amendments which were either discussed but not the subject of evidence, or were the subject of further instructions received by Mr Dabab from the partners. This amended version was produced at a meeting on Monday 18 July 2005 at the Baci Café. This meeting was attended by Mr Di Pietro, Mr Lakkis and Faddy Zouki. There is a factual dispute as to whether Mr Dabab was also present and, if so, whether he produced the amended version or whether the document was produced by Mr Lakkis or Faddy Zouki. There is no dispute that someone produced three or four copies of the document at the meeting. There is no suggestion that it was Mr Di Pietro who produced the document.

43 I find that Mr Dabab was not at the meeting. He is positive that he was not. Mr Di Pietro was positive that he was not. Faddy Zouki agreed in cross-examination with the proposition that the only persons present at the meeting were Mr Lakkis, Mr Di Pietro and himself. Further, in his witness statement, Faddy Zouki said that: "At this meeting, Roger and I gave [Mr Di Pietro] a draft offer document for the purchase of the business that Zied had given us". I find that the amended version of the pre-contract agreement was produced at the meeting by either Faddy Zouki or Mr Lakkis.

44 At the meeting, Mr Di Pietro noticed an error in the document. For some unexplained reason, Mr Dabab had not included the hairdressing business in the description of the businesses being sold. A handwritten amendment was made to record this omission. The handwritten amendment was made in Special Condition 1, rather than in the description of the businesses on the front page of the document. Mr Di Pietro initialled this handwritten amendment. There are other initials adjacent to this handwritten amendment. There is a dispute as to whether they are those of Faddy or Joseph Zouki. It is not necessary to resolve this dispute.

45 Another handwritten amendment has been made to the document. The name of the solicitors who were to act for the vendor, KPA Lawyers, has been crossed out, and the firm of Lewenberg & Lewenberg was inserted in their place. This amendment has not been initialled. Mr Di Pietro said that this amendment was made during the course of the meeting by Faddy Zouki and is in his handwriting. Faddy Zouki denied that he made the amendment, or that it is in his handwriting. I accept Faddy Zouki's evidence in this respect. The person who has written in the name, description and address of Lewenberg & Lewenberg, is most unlikely to have been Faddy Zouki a qualified lawyer who previously worked as a solicitor. This is because the word "SOLICITORS" has been misspelt as "SOLICITERS" by the person who made the handwritten amendment, albeit with an apparent attempt to later correct the spelling error. It is unnecessary to decide when this handwritten amendment was made or in what circumstances. However, as appears below, it appears that it may not have been until 6 August 2005, when the first dissolution of partnership agreement was signed, that the proposal to use KPA Lawyers as independent solicitors for both parties was abandoned, and replaced by an agreement that the proposed sale of Alf's Café would "be conducted by David Phillips on behalf of Cartley Nominees P/L and Lewenberg & Lewenberg on behalf of Zouki Catering P/L and Basjo Catering P/L".[3]

46 After the handwritten amendments were made, Mr Di Pietro signed and dated the document during the course of the meeting. By doing so, he made another offer to purchase the three businesses from the two partners. Neither Mr Lakkis nor Faddy Zouki signed the pre-contract agreement. There is no evidence that Mr Di Pietro asked them to sign during this meeting. Mr Lakkis said that Mr Dabab asked him to sign and that he refused to do so, saying "I will take it to my lawyer first". On the basis that Mr Dabab was not present at this meeting, I do not accept this evidence. Further, Mr Lakkis said that he did not take any copies of the pre-contract agreement away from this meeting and the "copies stayed with Mr Dabab". For the same reason, I reject this evidence also. However, as appears below, it is clear that Mr Lakkis adopted the consistent position that he would not sign until he first spoke with his solicitor about it, and that he did not sign the pre-contract agreement at any time.

47 After Mr Di Pietro signed a number of copies of the pre-contract agreement, he shook hands with Roger Lakkis and Faddy Zouki. The signed copies were taken away from the meeting by Mr Lakkis or Faddy Zouki.

(4) Circumstances in which the pre-contract agreement was signed by Joseph Zouki

48 After the pre-contract agreement was signed by Mr Di Pietro on 18 July 2005, Mr Dabab was obviously informed of this. He then set about trying to persuade his principals to accept Mr Di Pietro's offer by signing the pre-contract agreement. The evidence establishes that Mr Dabab knew of the dispute between Mr Lakkis and his nephews and accordingly considered it necessary to obtain a signature on behalf of the Zouki brothers and the signature of Mr Lakkis.

49 Mr Lakkis said that Mr Dabab asked him to sign the pre-contract agreement on a number of occasions between 18 and 25 July 2005, and that his consistent response was that he first wanted to sort out his dispute with his nephews, including as to the distribution of the sale proceeds, and that he would then take the pre-contract agreement to his lawyer, Mr Phillips. I accept this evidence.

50 On 25 July 2005, Mr Dabab telephoned Joseph Zouki and sought to arrange an appointment to meet with him and Roger Lakkis to sign the pre-contract agreement. Later that day, Mr Dabab attended Alf's Café and Joseph Zouki signed the pre-contract agreement in his presence. There is a dispute as to whether Mr Lakkis was also present at this time. Mr Dabab was definite in his evidence that Mr Lakkis was present, and gave evidence of Joseph Zouki being seated at a table and Mr Lakkis standing. Mr Lakkis and Joseph Zouki are equally definite that Mr Lakkis was not present. However, they both said that Joseph Zouki telephoned Mr Lakkis and that Mr Lakkis then spoke with both Joseph Zouki and Mr Dabab prior to Joseph Zouki signing the pre-contract agreement. It is unnecessary to resolve the dispute as to whether Mr Lakkis was present or not. This is because it is clear that, either face to face or by a combination of face to face and telephone conversations, there was discussion between Mr Dabab, Joseph Zouki and Mr Lakkis to the following effect.

51 First, Mr Dabab was "insistent" that his principals, a representative of the Zouki brothers on the one hand and Mr Lakkis on the other, sign the pre-contract agreement. Mr Dabab stated the reason for his insistence as "I had to give a copy of this document to Len, who was obviously eager to receive it". Mr Dabab's "insistence" was obviously directed at securing a sale and thus Klemms' commission.

52 Second, Joseph Zouki was reluctant to sign the pre-contract agreement unless his uncle also signed. However, at this time, the Zouki brothers were keen for the sale to proceed because they considered it to be in their financial interests for this to occur. Joseph said in cross-examination that he would have been "100 per cent ... happy" for the sale to have proceeded on the terms of the pre-contract agreement.

53 Third, Mr Dabab pressed Joseph Zouki to sign. Mr Dabab said that, in the course of doing so, he told Joseph Zouki that the pre-contract agreement was "an agreement to enter into a later agreement". Joseph Zouki and Mr Lakkis recalled that, in pressing for the document to be signed, Mr Dabab went beyond stating that the document was "an agreement to enter into a later agreement", and that Mr Dabab made statements to the effect that signing the pre-contract agreement would not give rise to a binding agreement. Taking the evidence as a whole, I find that Mr Dabab made statements to Joseph Zouki and Mr Lakkis to the effect that, if they signed the pre-contract agreement, they would not be bound to sell the three businesses to Mr Di Pietro until formal contracts were prepared and signed. In making this finding, I have taken into account the context of the 25 July discussions: Mr Di Pietro had signed the pre-contract agreement a week earlier; Mr Di Pietro was obviously keen to obtain a formal response to his offer; Mr Dabab had made a number of approaches to Mr Lakkis to sign and had been deflected by Mr Lakkis each time; Mr Dabab attended at Alf's Café on 25 July hoping to meet both Joseph Zouki and Mr Lakkis and to persuade them to sign the pre-contract agreement; Mr Dabab acknowledged that he was "insistent" that the pre-contract agreement be signed; and Klemms, and thus Mr Dabab, stood to gain a very large commission from a concluded sale.

54 Fourth, Mr Lakkis and Joseph Zouki discussed whether Joseph Zouki should sign the pre-contract agreement. There is a dispute between them as to what was said. Mr Lakkis said that he told Joseph Zouki that "it's up to you". Joseph Zouki said that, after speaking with Mr Dabab, Mr Lakkis told him "Don't worry about it. This is nothing. It is not even legally binding. Just sign it". Each version is consistent with Mr Dabab giving Mr Lakkis and Joseph Zouki the impression that the pre-contract agreement was not a legally binding document. In these circumstances, and having regard to my finding that Mr Dabab made statements to this effect, it is unnecessary to decide whether Mr Lakkis or Joseph Zouki's version should be preferred. There is no dispute that Joseph Zouki then signed the pre-contract agreement. In cross-examination, Joseph Zouki said that "several copies" of the pre-contract agreement were produced for his signature, and he signed all copies that were produced to him.

55 In his evidence, Mr Dabab gave another version of the conversation between Mr Lakkis and Joseph Zouki as to whether Joseph Zouki should sign the pre-contract agreement. According to Mr Dabab, the following conversation took place:

Joseph Zouki was sitting down at the table. Roger was standing up. He looked at Roger Lakkis and said, 'What should I do, Uncle?' Roger said, 'Just sign. It is a done deal, and I'll sign it in front of my solicitor, and everybody will have a copy of a fully signed and exchanged document.'

56 I do not accept the evidence of Mr Dabab in this regard. It is inconsistent with my finding above that Mr Dabab made statements to Joseph Zouki and Mr Lakkis to the effect that, if they signed the pre-contract agreement, they would not be bound to sell the three businesses to Mr Di Pietro until formal contracts were prepared and signed. Further, the evidence and the way it was given did not have a ring of truth to it. Having observed Mr Lakkis give evidence, I cannot accept that he would have spoken in such terms. Such statements would have been wholly inconsistent with his consistent position that he did not wish to sign the pre-contract agreement until he had resolved his dispute with his nephews and then consulted his solicitor as to whether he should sign.

57 Fifth, as appears above, it is clear that Mr Lakkis was not prepared to sign the pre-contract agreement at this time. He gave Mr Dabab consistent reasons for this position.

58 Mr Dabab agreed in cross-examination that obtaining the signature of Mr Lakkis was an important matter. After Joseph Zouki had signed the document, Mr Dabab gave a signed copy to Mr Di Pietro and, according to Mr Di Pietro's witness statement, with which Mr Dabab agreed, the following conversation occurred:

On Monday, 25 July 2005, Zied Dabab gave me a copy of the offer document signed by me on 18 July 2005 (CB396). Zied Dabab told me that the offer document had been signed by Joseph Zouki. He told me that it had been signed by Joseph Zouki in the presence of Roger Lakkis. He told me that Joseph Zouki had said to Roger Lakkis, 'What should I do, Uncle?' and that Roger Lakkis had replied to Joseph Zouki, 'Just sign it. It's a done deal.' He told me that Joseph Zouki had then signed the document. He told me that Roger Lakkis said that he would sign it after he had spoken to his solicitor, David Phillips.

59 This conversation is important for three reasons. First, it demonstrates that both Mr Di Pietro and Mr Dabab viewed the obtaining of Mr Lakkis' signature as a necessary and important matter. Second, it demonstrates that Mr Di Pietro was provided with a copy of the pre-contract agreement signed by Joseph Zouki. Third, in cross-examination, Mr Di Pietro accepted that he understood the statement by Mr Dabab to him, to the effect that Mr Lakkis had told Mr Dabab "that he would sign it after he had spoken to his solicitor" meant that Mr Lakkis had refused to sign the pre-contract agreement until he had first obtained legal advice. Mr Di Pietro's understanding in this regard is made clear by the following exchange:

And you were told by Zied [Dabab] that Roger [Lakkis] declined to sign it because he wanted to see his solicitor first; isn't that correct?---I definitely remember that, Yes.

So in the days that followed, your understanding was that Roger would be seeing his solicitor about whether he should sign this document or not?---Yes, that's correct.[4]

60 Mr Di Pietro's understanding of the statement which Mr Dabab attributed to Mr Lakkis accords with commonsense. Mr Dabab's evidence that he understood Mr Lakkis to have said that he would (definitely) sign the pre-contract agreement, but that he wanted to do so in the presence of his solicitor, does not accord with commonsense and I reject it. I find that Mr Lakkis made it clear to Mr Dabab, who in turn made it clear to Mr Di Pietro, that Mr Lakkis would not sign the pre-contract agreement until he had received legal advice from Mr Phillips that it was appropriate to do so. Although Mr Lakkis did not seek that advice, and may be criticised for this, the fact remains that Mr Lakkis did not sign the pre-contract agreement at any stage and that this was well known to Mr Di Pietro and Mr Dabab.

61 As appears above, I do not accept the evidence of Mr Dabab that Mr Lakkis said to Joseph Zouki, at the time Mr Dabab asked Joseph Zouki to sign the pre-contract agreement, words to the effect: "Just sign it. It's a done deal". Accordingly, I do not accept that Mr Dabab told Mr Di Pietro about such a conversation. However, even if he did, and thus misled Mr Di Pietro, the fact would remain that Mr Di Pietro understood from what Mr Dabab told him that Mr Lakkis had refused to sign the pre-contract agreement because he wished to obtain legal advice "about whether he should sign".

62 Mr Di Pietro gave evidence that, once he knew that Joseph Zouki's had signed the pre-contract agreement, he believed that an agreement had been reached for him to purchase the three businesses on the terms set out in the pre-contract agreement. I do not accept this evidence. Mr Di Pietro well knew that the businesses were owned by Mr Lakkis and his nephews in partnership, that they were in dispute, that the signature of Mr Lakkis was necessary to bind him (Cartley Nominees) to the pre-contract agreement and that Mr Lakkis had refused to sign the pre-contract agreement until he obtained legal advice "about whether he should sign". In these circumstances, it would have been unreasonable for Mr Di Pietro, an experienced businessman who had purchased other businesses, to believe that an agreement with Mr Lakkis came into existence when Joseph Zouki signed the pre-contract agreement. I find that Mr Di Pietro had no such belief. Further, the subsequent conduct of Mr Di Pietro and his solicitor, which is referred to below, is inconsistent with Mr Di Pietro having such a belief at any relevant time.

63 The pre-contract agreement is in the following form:

PRE-CONTRACT AGREEMENT BETWEEN VENDOR AND PURCHASER

THE VENDOR: CARTLEY NOMINEES PTY LTD (ACN 088 343 973) AND ZOUKI CATERING PTY LTD (ACN 104 265 125)

SITUATED AT: ALFRED PLAZA RETAIL AREA, COMMERCIAL ROAD, PRAHRAN

THE EQUIPMENT: The Vendor owns all the equipment on the inventory list enclosed herein with exception to the coffee grinders, coffee machines and coke fridges.

SETTLEMENT DATE: 60/90 DAYS OR EARLIER BY AGREEMENT

SUBJECT TO: 1. THE VENDOR WILL PROVIDE A COPY OF THE

The Purchaser shall execute a further prescribed and standard Contract of Sale required by the Vendor to set out all the conditions of this sale.

The offer is made by the Purchaser on 18th day of July 2005

Signature(s) of the Purchaser (Len Di Pietro & OR NOMINEE)

This offer is accepted by the Vendor on 25th day of July 2005

Telephone:... Fax: ... Attention to: MR RAY PURCELL

Telephone: ... Fax: ... Attention to: MR ANTHONY MAHON

(1) The said purchase is to include the florist within the Alfred Retail Plaza and the proposed site within the hospital compounds. & FORMATION HAIRDRESSING & BEAUTY SALON[6]

(2) Subject to the first right of refusal for any new or existing businesses within the Alfred Hospital compounds owned by the said Vendors.

(3) Subject to a two week trial period at $110,000 per week.

(4) Subject to the Vendors allowing the Purchaser a valuation on the said business at the Purchasers expense.

(5) Subject to completion of all proposed renovations. (Proposal of renovations to be enclosed).

(6) Subject to the Vendors allowing the Purchaser a full due diligence prior to settlement.

64 Mr Di Pietro gave evidence of a conversation with Mr Lakkis in late July or early August 2005 concerning a proposed trip to Italy. Mr Di Pietro said that he suggested to Mr Lakkis that he might delay the two week trial period until after his trip to Italy. He said that Mr Lakkis encouraged him not to do this, but to focus upon making a presentation to the landlords so as to gain their consent to an assignment of the lease. Mr Di Pietro said that, on this basis, he did not go to Italy. Mr Lakkis had a different recollection of this conversation. To the best of his recollection, he said to Mr Di Pietro that "We should get all the contract paperwork properly in order" before he travelled to Italy. It is unnecessary to decide this conflict on the evidence. Each version of the conversation is consistent with the existence of continuing negotiations. Further, as appears below, the timing of the trial period and the ultimate settlement date were viewed by the parties as dependent upon obtaining the prior approval of the landlords.

65 Following the refusal of Mr Lakkis to sign the pre-contract agreement, it appears that Mr Dabab abandoned attempts to have him sign it. Instead, Mr Dabab made arrangements for the parties to meet and discuss the implementation of the proposed sale. Mr Dabab prepared an agenda, and arranged a meeting for 6 August 2005 to discuss outstanding issues which needed to be agreed, and information which needed to be provided to Mr Di Pietro, in order for the proposed sale to proceed. In cross-examination, Mr Dabab agreed with the proposition that he "forgot about getting Roger's signature and looked forward ... to the parties signing the formal draft contracts [which he] prepared".

66 The 6 August meeting was attended by Mr Di Pietro, Mr Lakkis, the Zouki brothers and Mr Dabab. There was discussion concerning the items on the agenda prepared by Mr Dabab for the meeting. Further, there was discussion concerning the fact that the deposit stated in the pre-contract agreement was only $200,000, which was much less than the standard 10% of the purchase price. I will deal with the evidence concerning this issue below.

67 The following matters were discussed at the meeting by reference to Mr Dabab's agenda:

(1) There was discussion concerning an assistance period following settlement. As I have said, this indicates that the reference to an assistance period in the 15 July offer was deleted by Mr Dabab in error when he prepared the pre-contract agreement, as a result of him deleting the reference to a price increase before the trial period. In any event, Mr Dabab has placed a tick beside this item, on his agenda, indicating that the parties agreed, or at least discussed, an assistance period of between four and six weeks after settlement.

(2) There was discussion concerning the proposed settlement date for the sale. The pre-contract agreement states the settlement date as "60/90 days or earlier by agreement". If the pre-contract agreement was concluded on 25 July 2005, as Mr Di Pietro contends, this would indicate a settlement between 23 September and 23 October 2005. Mr Dabab's agenda proposed 15 November 2005 as the settlement date. Mr Di Pietro said that the parties agreed to "aim for" 2 December as the settlement date, and this was not challenged in cross-examination. Mr Dabab's handwritten annotations on the agenda, made during the course of the meeting, indicate that it was "proposed" that the settlement date would be 2 December 2005. Another handwritten annotation made by Mr Dabab indicates that the proposed settlement date was 2 December "or upon approval". There is a handwritten line which appears to link these words to this item on the agenda. I infer that the reference to "approval" is a reference to the approval of the lessors to assignments of the necessary leases.

(3) There was discussion concerning the dates for the proposed trial period. Mr Dabab has annotated this entry in the agenda "TBA". Further, it appears likely the handwritten note "or upon approval" applies to this item in the agenda, also, with no trial period to take place unless and until the landlords had approved the necessary assignments of the leases. In find that this handwritten annotation on the agenda relates to both items, with no trial period to take place until approval of the lease assignments and, obviously enough, no settlement to take place until the lessors' approvals had been obtained.

(4) There was discussion concerning the financial information and other documents to be provided to Mr Di Pietro, in order for him to conduct a due diligence and to obtain a valuation of the three businesses. According to Mr Dabab's agenda, the discussion included the provision of copies of all lease documents, profit and loss statements, three months of "purchasing invoices to go to valuer", a list of plant and equipment (against which Mr Dabab has written "with Len") and other matters.

(5) There was discussion concerning price increases, and whether they should take place before settlement.

(6) There was discussion concerning the likely requirements of the hospital and of the landlords, in order to approve the purchase by Mr Di Pietro. Mr Dabab has recorded in handwriting that these requirements included a business plan by Mr Di Pietro, a statement of Mr Di Pietro's assets and liabilities and the provision of business and personal references by Mr Di Pietro.

(7) There was discussion concerning the proposed renovations.

(8) There was discussion concerning the staff employed in the three businesses.

68 Viewed as a whole, the evidence concerning these discussions is that the parties proposed 2 December 2005 as a possible settlement date, agreed that the trial period would not take place until all of the necessary approvals had been obtained from the lessors, agreed upon a post-settlement assistance period of "4-6 weeks", agreed that certain information and documentation would be provided to Mr Di Pietro for the purposes of his due diligence and in order to enable him to obtain a valuation, and agreed to further discuss other matters including when price increases would take place and what arrangements would be made for the existing staff of the three businesses.

69 As I have said, there was also discussion concerning the deposit of $200,000 referred to in the pre-contract agreement. Mr Di Pietro had previously discussed with Mr Dabab the fact that he was not offering to provide a full 10% deposit. He had not previously discussed this with the vendors. Accordingly, during the course of the 6 August meeting, Mr Di Pietro raised the matter with Faddy Zouki, who raised no objection to the amount of the deposit. Mr Di Pietro said that he raised the amount of the deposit, because he wanted to ensure that there was no issue about this. I infer that Mr Di Pietro wanted to ensure that there was no issue concerning the amount of the deposit, before proceeding to ensure that there was sufficient funds in the Lenrock Nominees bank account to enable the deposit cheque to be met on presentation.

70 Following the discussion with Faddy Zouki concerning the deposit, Mr Di Pietro made arrangements for the Lenrock Nominees account to be placed in funds, and informed Mr Dabab that he could present the deposit cheque. The deposit cheque was presented on 12 August 2005 and Mr Dabab provided Mr Di Pietro with a receipt for the deposit, to be held on trust.

71 In final submissions, counsel for Mr Lakkis submitted that there was no evidence that Mr Dabab informed his clients that Mr Di Pietro had paid a deposit of $200,000. Counsel for the Zouki brothers made the careful submission that there was "no evidence that the parties ever told their solicitors about [the payment of the deposit] or evidence that the solicitors were aware that the deposit had been paid".

72 I accept that the evidence does not establish that the solicitors knew a deposit had been paid. The draft contracts of sale referred to the deposit as being "Due and payable to Klemms Business Brokers Trust Account on the signing hereof". However, there is evidence that the Zouki brothers knew that a deposit had been paid. On 28 October 2005, during the course of the meeting at Alf's Café following the Flagstaff meeting, Mr Dabab arranged, at the request of the Zouki brothers, for a document to be faxed from his office to Alf's Café. The document records, amongst other things:

The Purchaser has paid a $200,000 deposit pending Contracts which have been drafted. The Purchaser's Solicitor has requested signed leases prior to signing the said Contracts which are yet to be delivered. The Purchaser is distressed that it has been four (4) weeks since such a request has been made.[7]

(8) The first dissolution of partnership agreement

73 After the meeting on 6 August between the parties, Mr Lakkis and the Zouki brothers met and signed a dissolution of partnership agreement dated 6 August 2005. This was an agreement negotiated and documented between Mr Lakkis and his nephews without any involvement from their lawyers. The dissolution of partnership agreement provides, amongst other things:

Alf's Café at the Alfred Hospital was listed for sale with Klemms Business Brokers with the consent of all Partners, the sale of the said business to be conducted on behalf of all Partners by KPA Lawyers of Portman Street Oakleigh[8] by David Phillips on behalf of Cartley Nominees P/L and Lewenberg & Lewenberg on behalf of Zouki Catering P/L and Basjo Catering P/L.[9]
The proceeds of the sale of Alf's Café at the Alfred Hospital shall be disbursed in the following order:

(ii) all creditors of the Partnership to be paid in full.

(iii) all taxes and statutory, rental and staff obligations to be paid in full.

(iv) Joseph Zouki's outstanding sum as loaned to the business to be repaid in full ($100,000.00).

(v) all monies contributed by the Directors of Zouki Catering Pty Ltd or their entities be paid in full.

(vi) all outstanding entitlements owed to Zouki Catering Pty Ltd and Basjo Catering Pty Ltd by way of profit share, dividends, drawings or any other income as already paid to Cartley Nominees Pty Ltd to be paid in full.

(vii) all Cartley Nominees loans to be repaid in full ..., then

(viii) the balance of the proceeds of the sale shall be divided in equal share between the Partners (50% to Cartley Nominees Pty Ltd, 50% to Zouki Catering Pty Ltd).

74 On an evening, at a time after Alf's Café had closed, an inventory of the plant and equipment of the three businesses was prepared by Mr Dabab in the presence of Mr Di Pietro and Joseph Zouki. Mr Dabab and Mr Di Pietro contend that Mr Lakkis was present when the inventory was prepared. Mr Lakkis denies this. I accept Mr Lakkis' denial. The preparation of the inventory of plant and equipment was an administrative task which did not require decision making. It is likely to have been conducted by Joseph Zouki, who managed Alf's Café, and Mr Di Pietro as purchaser. Mr Dabab was present because the task of actually preparing the inventory was performed by him and incorporated into the draft contracts of sale which he prepared.

75 In his witness statement, Mr Di Pietro said that the inventory of plant and equipment was prepared "one night during the week after the meeting on 6 August 2005, at a time when Alf's Café was closed". This evidence was not challenged. However, having regard to Mr Dabab's handwritten note on his agenda for the 6 August meeting, to the effect that the list of plant and equipment was "with Len", it may be that Mr Di Pietro is mistaken about this date. For the reasons stated below, it is unnecessary to resolve this.

(10) Negotiations towards agreeing contracts of sale

76 On 17 August 2005, Mr Di Pietro engaged Anthony Mahon of Mahons, solicitors, to act for him in the transaction. At some stage prior to 25 August 2005, Lewenberg & Lewenberg, in conjunction with Mr Phillips, were instructed to act on behalf of the partnership in connection with the transaction.

77 At some stage prior to 25 August 2005, Mr Dabab prepared draft contracts of sale for each of the three businesses. Each of the three drafts is in accordance with Form 3 prescribed by the Estate Agents Act 1980 (Vic), and is accordingly consistent with the provision in the pre-contract agreement for Mr Di Pietro to "execute a further prescribed and standard contract of sale required by the vendor". From the subsequent correspondence, I infer that Mr Dabab provided copies of the draft contracts to the partners and to Mr Di Pietro. In turn, the parties provided the draft contracts to their solicitors and instructed them to act. From this time, the negotiations were undertaken by the solicitors, with some involvement of Mr Dabab, who, although acting as the vendors' agent, communicated some requests from Mr Di Pietro for additional terms.

78 I find that Mr Dabab prepared the draft contracts, or at least all parts of them except for the schedules of plant and equipment, prior to the 6 August meeting and the execution of the first dissolution of partnership agreement later that day. This finding is based upon the probabilities arising from the form of the draft contracts. First, each of the draft contracts names KPA Lawyers as the vendors' solicitors. This was the intended position until the handwritten changes were made to the draft dissolution of partnership agreement on 6 August. Second, the settlement date is stated on the drafts as 15 November 2005. This was the proposed settlement date in Mr Dabab's agenda for the 6 August meeting and was the subject of a proposal at that meeting that the parties would "aim for" settlement on 2 December 2005.

79 The contracts include the schedules of plant and equipment, which Mr Di Pietro said were prepared in the week after the 6 August meeting. Further, as appears above, Mr Dabab's handwritten annotation on the agenda for the 6 August meeting states that the list of plant and equipment is "with Len". In these circumstances, the draft contracts were either prepared in full prior to the 6 August meeting or were not altered by Mr Dabab after that meeting, so as to accord with the discussions at that meeting, and the schedules of plant and equipment were added later. It is unnecessary to resolve which of these two possibilities is correct.

80 It is important to note that none of the solicitors were provided with a copy of the pre-contract agreement, either by their respective clients or by Mr Dabab. In particular, Mr Di Pietro, who relies upon the pre-contract agreement as a contract binding the parties to a sale and purchase of the three businesses, did not provide his solicitor with a copy of the pre-contract agreement.

81 Accordingly, during the course of the negotiations between solicitors, there was no reference made to the terms of the pre-contract agreement or its existence. In these circumstances, the solicitors for both parties made, and persisted with, demands for the inclusion of terms and warranties which were not contained in the pre-contract agreement. This process commenced with the draft agreements prepared by Mr Dabab, which contained the following terms which were not contained in the pre-contract agreement.

82 First, and of most significance, there is no restraint of trade provision in the pre-contract agreement. The draft contracts include the General Conditions contained in Form 3 prescribed by the Estate Agents Act [10] and specify restraint periods and distances for each of the three businesses. The evidence does not disclose who, if anyone, gave Mr Dabab instructions to include the proposed restraint of trade provisions. Mr Dabab acknowledged that he may have proposed them without instructions, but could not recall.

83 Second, the draft contracts provide for an "assistance period" of 30 days after settlement of the proposed sales. As appears above, although there is no provision in the pre-contract agreement for post-settlement assistance by the vendors, I infer that the parties intended there would be an assistance period. This was referred to in the 15 July offer and the parties discussed and agreed an assistance period of "4-6 weeks" during the 6 August meeting.

84 Third, although the trial period is stated in both the pre-contract agreement and the draft contracts as being two weeks, the draft contracts provide for the vendors to provide assistance during a period of 30 trading days during the trial period.

85 Fourth, the draft contracts include a special condition exempting Klemms from any liability in connection with the transaction.

86 Following receipt of the draft contracts prepared by Mr Dabab, the solicitors initially directed their comments to Klemms.

87 On 25 August 2005, Lewenberg & Lewenberg advised Klemms that they "together with Mr David Phillips, solicitor, act for the vendors, with Mr Phillips acting for Cartley Nominees Pty Ltd and our firm acting for Zouki Catering Pty Ltd and Basjo Catering Pty Ltd".

88 In their 25 August letter, Lewenberg & Lewenberg advised Mr Dabab that "it appears appropriate" that further special conditions be included in the draft contracts, in particular terms seeking to impose an obligation upon the parties to "make best endeavours" to ensure that the relevant leases were assigned prior to the appointed settlement date or, if that could not be obtained, deferring the settlement date until 15 March 2006 or such earlier date that the assignments of leases were completed. Lewenberg & Lewenberg concluded their letter by referring to the fact that they were seeking further instructions from the vendors and would then contact Mr Di Pietro's solicitors.

89 Lewenberg & Lewenberg provided Mr Phillips with a copy of the draft contracts of sale and their initial letter to Klemms commenting upon them.

90 On 30 August 2005, Klemms wrote to Mahons, solicitors for Mr Di Pietro, and enclosed a copy of the 25 August letter from Lewenberg & Lewenberg. Further, Klemms advised Mahons that:

In addition, the following condition has been requested by Len to be included in the Special Conditions of the Contracts of Sale for Alf's Café:

'The Vendors will make an endeavour to do all that is necessary to assist in securing the proposed café site within the medical centre located on the corner of Punt Road and Commercial Road which will form part of the Alfred Hospital.'

I look forward to your advise [sic] in regard to the above mentioned.

91 The first formal correspondence from Mahons concerning the contracts of sale was also sent to Klemms, and not to Lewenberg & Lewenberg. On 2 September 2005, Mahons wrote three letters to Mr Dabab, one in respect of the draft contract for the purchase of each of the three businesses. Each of the letters annexed a document comprising a number of pages of "Additional Special Conditions" sought by Mr Di Pietro. Some of these special conditions are capable of being related to the conditions stated in the pre-contract agreement. Many are not. Mr Di Pietro acknowledged in cross-examination that he gave instructions to Mahons for these additional special conditions to be sought, and that they had not been the subject of discussions with Mr Lakkis or any of the Zouki brothers. The additional special conditions were not mere suggestions. In the letter relating to the draft contract for the sale of Alf's Café, Mahons stated that: "We require the following amendments to the special conditions contained in the contract of sale".

92 Lewenberg & Lewenberg sent copies of the three letters to Mr Phillips, inviting his comments on behalf of Mr Lakkis. Mr Phillips made no comments. As appears hereafter, this was because Mr Lakkis instructed him not to respond.

93 There followed a chain of correspondence between solicitors, debating the terms of proposed contracts of sale. Lewenberg & Lewenberg kept Mr Phillips informed of the negotiations. However, for most of September 2005, Mr Phillips was overseas and, in any event, was instructed by Mr Lakkis not to correspond with Lewenberg & Lewenberg in relation to the issues arising from the correspondence.

94 The correspondence between Lewenberg & Lewenberg and Mahons discloses that, at the time the final negotiating letter was sent by Mahons to Lewenberg & Lewenberg on 10 October 2005, there were still matters outstanding between the parties. For example, Mahons were insisting upon certain warranties being included in the proposed contracts of sale. Lewenberg & Lewenberg had previously refused to agree to these warranties being included in the contracts of sale.

95 Further, as I have said, the correspondence is silent as to the existence of the pre-contract agreement. In particular, there is no evidence that any proposed term, condition or warranty was rejected on the basis that it was not contained in or contemplated by the pre-contract agreement.

96 The correspondence between solicitors also discloses that Mahons, on behalf of Mr Di Pietro, were seeking production of a number of important documents, including documents which required the signature of Mr Lakkis. These documents were not provided by or on behalf of Mr Lakkis because he made a deliberate decision that he would not provide these documents, and thus facilitate completion of that aspect of the negotiations for the contracts of sale. In this regard, Mr Lakkis instructed Mr Phillips that he was not to respond to any correspondence from Lewenberg & Lewenberg or Mahons seeking to obtain information or documents, or to further the negotiation of the contracts of sale. Mr Lakkis adopted this attitude because he was reconsidering the terms upon which he wished to dissolve his partnership with his nephews, as recorded in the first dissolution of partnership agreement signed on 6 August 2005. At some stage, I infer soon after Mr Phillips returned from overseas in late September 2005, Mr Lakkis instructed him to advise as to whether he could sue his nephews in respect of their conduct in relation to the partnership businesses and, in that regard, to brief senior and junior counsel.

97 On 22 October 2005 Mr Di Pietro met Mr Lakkis and his wife at the "A1 Bakery" in Brunswick. Mr Di Pietro said to Mr Lakkis that he "would try to do everything that [he] could to reach a deal" to purchase Alf's Café. Mr Lakkis responded with words to the effect that he first needed to resolve the dispute with his nephews.

98 In his witness statement, Mr Lakkis described the arrangements for this meeting, and its content, in the following terms:

On Saturday 22 October, 2005, I was with my Wife at Al Bakery in Sydney Road, Brunswick having coffee. My Wife and I had a practice of going to A1 Bakery on Saturday afternoons to have a coffee and then do some shopping. On this particular day I had received a telephone call from Len Di Pietro requesting an opportunity to meet with him and I had told him that my Wife and I would be at the Bakery. At around 2:00 pm, Len Di Pietro arrived, he was alone, Len informed me and my Wife that he was still interested in Alf's Café and would try to do everything that he could to reach a deal. I explained to him that because of my dispute with my nephews, that I was not in a position to agree to a sale. Never at any time during our discussion did Len make any comment about any of the efforts he had made to obtain financing with respect to his intention to buy Alf's Café. I informed Len that the dispute with my nephews had to be resolved before I could make a decision and that I was not even certain as to the level of takings that Alf's Café was making. Len appeared to me to accept this proposition and small talk was then made before we all left.

99 In his evidence-in-chief, Mr Di Pietro did not deny this conversation, or qualify it in any way. In cross-examination, the substance of the conversation as recounted by Mr Lakkis in his witness statement was put to Mr Di Pietro. Mr Di Pietro said that he could not recall whether the issue of the level of the takings at Alf's Café was discussed. Mr Di Pietro otherwise accepted that the substance of the conversation was to the effect stated by Mr Lakkis.

100 By 27 October 2005, the negotiations between solicitors for completion of the contracts of sale had stalled. On that day, three letters were sent. First, Mahons wrote to Mr Di Pietro and informed him that they were "still awaiting documents and cannot proceed further with the matter until the provision of those documents" from the vendors. Mahons concluded their letter to Mr Di Pietro with the request: "Please also advise whether a new proposed settlement date has been agreed upon between yourself and the vendors of the business".

101 Second, on 27 October 2005 Lewenberg & Lewenberg wrote to Faddy and Sam Zouki seeking instructions, in the following terms:

We refer to several pervious [sic] telephone discussions and confirm that to date we have not had a response from Mr. David Phillips or Mr. Roger Lakkis.

Accordingly kindly provide your instructions to us in writing that we may now proceed to advise Mr. Lakkis that as he does not wish to proceed with the sale that you will now terminate the Partnership.

102 Third, on 27 October 2005, Mr Phillips wrote to Lewenberg & Lewenberg. In his letter, Mr Phillips explained that he had not responded to earlier correspondence from Lewenberg & Lewenberg, requesting information, documents and assistance in relation to the proposed contracts of sale with Mr Di Pietro, because of investigations made on behalf of Mr Lakkis which had revealed a "major concern" about the takings of the Alf's Café business. Mr Phillips expressed his concerns in the following manner:

... in light of the draft Contracts you had provided, my client was of the view that it was necessary for him to carry out certain investigations before providing you with a formal response. Obtaining those instructions has proved time consuming but have revealed a major concern, namely that the turnover rent payable to Granard Pty. Ltd. Has not been properly paid.

My client had been assured by Joe Zouki that in presenting the business to the proposed purchaser, Mr. Di Pietro, that all matters would be in order. The transaction contemplates a sale price of $5.5m. You can imagine my client's grave concern upon being presented with a copy of a tax invoice from the Managing Agents of The Alfred premises showing that a sum of $95,218.42 was outstanding to 31 October 2005. A closer examination of that tax invoice reflects a charge for 'percentage rent - periodic charge' of $4,905 for the month of October 2005. This suggests that Granard Pty. Ltd. understands that the turnover of Alf's Café is in the $60,000 per week turnover range. Yet the draft Contracts provided by you make provision for the trial period turnover to be in excess of $200,000 for the two week trial period. Obviously, either the true current turnover is far greater than that which has been communicated to Granard Pty. Ltd. (with my client being concerned that the Lease may have been breached) or the turnover is being misrepresented to Mr. Di Pietro ...

In these circumstances, my client feels most unsafe in progressing further discussions with Mr. Di Pietro and his lawyers until these 2 fundamental matters are satisfactorily explained and resolved let alone anything else that requires attention.

103 Mr Phillips then addressed some issues concerning the leases of the florist business, and continued:

My client is most dissatisfied with the current state of events, however in order to protect the business, I am instructed that my client offers to pay the sum of $2.8m for your clients' interest in Alf's Café and associated tenancies subject to approval from Granard Pty. Ltd. and the Head Lessor (naturally the issue of proper payment of the turnover rent would need to be resolved). The funds representing the proposed purchase price would be placed into trust (a joint trust account opened up in the names of our respective firms) pending disbursement on a proper taking of accounts and dissolution of the partnership.

104 A meeting was arranged between the parties for 28 October 2005. Mr Di Pietro said that he organised the meeting because of concerns about the delay in finalising the contracts of sale, particularly as a result of the failure of Mr Lakkis to provide information and documents requested of him. Mr Di Pietro said that the catalyst for the meeting was his concern "because of the paperwork that was not forthcoming" and to "just thrash out a few issues". I accept this evidence.

105 A meeting was arranged for the morning of 28 October 2005 at the "Crown Observatory Café". It was proposed that Mr Di Pietro, the Zouki brothers, Mr Lakkis and Mr Dabab would attend. However, Mr Lakkis did not attend as arranged.

106 Each of the Zouki brothers gave evidence that, at the first meeting on 28 October 2005, they showed Mr Di Pietro those parts of the 27 October letter from Mr Phillips which contained an offer by Mr Lakkis to buy the Zouki brothers share in Alf's Café. Mr Di Pietro denies this, and says that he did not find out about this offer until he met with Mr Phillips and Mr Lakkis later that day. The position on this conflict is not all one way. I find that, during this meeting, the Zouki brothers informed Mr Di Pietro that Mr Lakkis wanted to buy them out of their interests in Alf's Café. However, they did not show Mr Di Pietro a copy of the 27 October letter from Mr Phillips, or tell him about it. As a result of being informed that Mr Lakkis wanted to buy Alf's Café from the Zouki brothers, Mr Di Pietro became angry and said that he intended to speak with Mr Lakkis and find out from him what his intentions were. These findings are supported by a file note taken by Alex Lewenberg of Lewenberg & Lewenberg that day. In that file note, Mr Lewenberg recorded conferring with the Zouki brothers about the meeting that morning, which Mr Lakkis had failed to attend. In this regard, Mr Lewenberg wrote in his file note:

However, nothing happened, instead we received the letter from David Phillips which is totally contrary to what was discussed. It appears that Roger wants to buy the business himself. The purchaser was furious although the boys did not tell him about the letter from Phillips.[11]

107 Following this meeting, Mr Di Pietro and Mr Dabab met with Mr Phillips and Mr Lakkis at a motel owned by Mr Lakkis in West Melbourne, the "Flagstaff Motel". This is an important meeting, and I will refer to it as "the Flagstaff meeting".

108 The Flagstaff meeting was attended by Mr Di Pietro, Mr Dabab, Mr Lakkis, his wife and Mr Phillips. Mr Lakkis took Mr Di Pietro into his confidence and told him some of the details of his dispute with his nephews. He confirmed that he had made an offer to purchase their interests in Alf's Café. Mr Lakkis spoke about his nephews with a degree of bitterness, and Mr Di Pietro sympathised with him.

109 Mr Lakkis made a number of statements to Mr Di Pietro to the effect that, if he acquired his nephews' interests in Alf's Café and decided to sell Alf's Café, he would give Mr Di Pietro the first option to buy Alf's Café from him. Mr Di Pietro agreed, on a number of occasions, that this was the position adopted by Mr Lakkis throughout the course of the meeting. In Mr Di Pietro's own words, Mr Lakkis told him that, if he decided to sell Alf's Café at any time, he would "give me first crack at it". Mr Phillips had a clear recollection of Mr Lakkis saying to Mr Di Pietro that he would give him the "first option" to purchase Alf's Café if he decided to sell it:

Roger said, 'if the Zouki matter is resolved and I get Alf's Café, then I will give you first option, I promise you, I will give you first option'.

110 Although Mr Di Pietro agreed that Mr Lakkis said to him words to this effect, he said that he did not accept Mr Lakkis' position, and gave the following evidence:

I agree ... that Roger told me that he would sell it to me or give me first crack at it. But I necessarily didn't agree that I was happy with what he said, because as far as I was concerned at that particular time - and I made it clear to them - I wasn't happy that he was looking at buying the Zoukis' interest out. At that time I believed that I had a contract and I let Phillips know outside.

111 The reference to "I let Phillips know outside" was a reference to evidence given by Mr Di Pietro in examination-in-chief, which was not contained in his witness statement, about a conversation that he had with Mr Phillips outside the Flagstaff Motel:

Did anything else happen while you were at the motel?---Well we were sort of discussing in terms of how - how Roger wasn't happy with the performance of the Zoukis and what was going on there, and then there was a particular time where I - where David Phillips went outside and he called me out. He lit up a smoke. This is on Dudley Street. And he said - he said to me in his own words something to the effect about, 'Let Roger - let Roger resolve the dispute with the - with the Zoukis and then Roger will sell the business to you.'

What was your reply?---I said to - I said to David - I said, 'David, why would I want to buy the business off Roger when I've already got a binding contract with him currently and the Zoukis now.'

112 Mr Di Pietro made no reference to Mr Dabab being a party to this conversation. However, Mr Dabab gave evidence in examination-in-chief, which was also not contained in his witness statement, concerning a conversation outside the Flagstaff Motel with Mr Phillips:

Also when we stepped outside or I stepped outside and subsequently Roger's solicitor was outside as well, we were having a cigarette, and we had a small conversation where he said that - basically the same as what Roger Lakkis had said, that they would sell the business to Len Di Pietro the following year as soon as he settled in, and my reply to him was, 'Let's not kid ourselves. I know and you know that that's not going to happen.' So it was basically a short conversation.

113 I do not accept the evidence of either Mr Di Pietro of Mr Dabab in this regard. Mr Phillips denied both conversations, and I have no reason to doubt his evidence.

114 In his witness statement, Mr Phillips recounted his conversation with Mr Di Pietro outside the Flagstaff Motel, in the following terms:

I said I was going outside for a smoke. I went outside and Len followed me. We exchanged a few pleasantries. We had dealt with one another some 15 or 20 years ago.

I said words to the effect that Len could see that Roger was under pressure from his nephews, and that once that was resolved, Roger would deal with him if he elected to sell the business. We both agreed that Roger was a decent man.

The whole conversation lasted three or four minutes. We then went back inside. We all said our goodbyes and Len and Mr Dabab left.

I was present in Court on 28 April 2008 when Len Di Pietro gave evidence about the conversation I refer to above. I recall him giving evidence to the following effect: 'Why would I want to buy it from Roger when I have a binding contract with the Zoukis to buy it now?' I deny that Len said those words or any words like them to me.[12]

115 Mr Phillips denied that he had any conversation with Mr Dabab outside the Flagstaff Motel, either to the effect deposed to by Mr Dabab or at all.

116 I accept the evidence of Mr Phillips. His evidence accords with the probabilities. The evidence of Mr Di Pietro and Mr Dabab does not.

117 As appears above, Mr Di Pietro accepts that Mr Lakkis told him only that he would give him "first crack" if he acquired Alf's Café from his nephews and later decided to sell it. If it was Mr Di Pietro's position that he believed he had a binding agreement with the Zoukis and Mr Lakkis for the sale of the three businesses to him, it is probable that Mr Di Pietro would have made that position clear to Mr Lakkis, and not waited until he met with Mr Phillips outside. Further, on Mr Di Pietro's account, Mr Phillips stated the intention of Mr Lakkis in definite terms ("Roger will sell the business to you") and not in the conditional terms which Mr Di Pietro accepts were put forward by Mr Lakkis ("if the Zouki matter is resolved and I get Alf's Café, then I will give you first option").

118 Further, Mr Di Pietro's subsequent conduct following the Flagstaff meeting is not consistent with his account of his conversation with Mr Phillips. Nor is it consistent with his evidence that he believed an agreement had already been concluded. There is no evidence that, at this time, Mr Di Pietro instructed his solicitor to assert to the solicitors acting for the partners that he had a binding agreement to purchase the three businesses. In this regard, reliance was placed on behalf of Mr Di Pietro upon a file note made by his solicitor on 2 November 2005, in the following terms:

He advises that he has had a meeting with Roger Lakkis and David Zouki and also informed me that there is some major dispute going on between Lakkis and Zouki.

Evidently Lakkis has agreed to buy off Zouki so that it cuts through the issues of problems regarding the lease and the trusts, but Zouki will not agree to that.

He told me that David Phillips has all of the information and is able to provide that to us and wants to probably sit down with us and have a meeting regarding it.

He asked me if I could ring David Phillips ... to discuss with him.

119 This file note does not record Mr Di Pietro instructing his solicitor that he believed an agreement was already in existence, or to so contend in correspondence or other dealings with the solicitors for the partners. Notwithstanding a number of attempts, Mr Mahon was unable to speak with Mr Phillips. On 18 November 2005, Mr Mahon told Mr Di Pietro that he had been unable to speak with Mr Phillips. Mr Mahon said that he would not take any further action until such time as he heard from Mr Di Pietro.

120 The next involvement of Mr Di Pietro's solicitors was by letter dated 17 January 2006 to Lewenberg & Lewenberg. The letter is in the following terms:

We refer to previous correspondence in relation to the above matter.

We note that we have not received from you any satisfactory resolution to the matters raised in our earlier correspondence regarding our client's acquisition of the businesses, the subject of this matter.

Our client has advised that it appears either your client or Mr Phillips' client has taken over the operation of the relevant businesses, which were the subject of negotiations for sale to our client.

We would be pleased if you would confirm whether any arrangements have been made between the parties which have changed the proposed terms of the sale and whether the difficulties that we have earlier advised you in relation to the documentation, have now been overcome.[13]

121 There is no suggestion in this letter that a binding agreement existed between the parties. To the contrary, the letter refers only to unconcluded "negotiations for sale to our client".

122 As to Mr Dabab's account of his conversation with Mr Phillips outside the Flagstaff Motel, it suffers from a number of difficulties. First, it was not contained in his witness statement. Second, Mr Di Pietro has no recollection of Mr Dabab being present and there is no suggestion that there were two occasions on which Mr Phillips went outside for a cigarette. Third, Mr Dabab's recollection of what had been said inside the Flagstaff Motel does not accord with the evidence of the other three persons present. Mr Di Pietro, Mr Lakkis and Mr Phillips all agreed that Mr Lakkis said only that he would sell Alf's Café to Mr Di Pietro if he acquired it from his nephews and decided that he wanted to sell it. According to Mr Dabab, Mr Lakkis had said inside the motel that he "would sell the business to Len Di Pietro the following year as soon as he settled in". Fourth, I take into account the comments I have made above concerning the credibility of Mr Dabab's evidence as a whole. As I have said, his evidence is obviously coloured by the fact that Klemms, and thus him, may gain a substantial commission if Mr Di Pietro is successful in this proceeding.

123 There is a factual issue as to whether it was during the Flagstaff meeting that Mr Di Pietro and Mr Dabab were shown, by Mr Phillips, a copy of his 27 October letter containing Mr Lakkis' offer to purchase the Zoukis' interests in the Alf's Café business. It is unnecessary to determine this factual issue. However, Mr Phillips says that he did not take a copy of that letter with him to the Flagstaff meeting, and I see no reason to disbelieve him. Mr Di Pietro said that a copy of part of the letter, containing the offer by Mr Lakkis to purchase his nephews' interest in Alf's Café, was shown to him by the Zoukis during the course of a later meeting on 28 October 2005. I accept this evidence.

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Judgment (290 paragraphs)

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