197 CLR 1
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185[2014] HCA 36
Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649[2009] NSWCA 258
Gould v Vaggelas [1984] HCA 68157 CLR 215
Henville v Walker [2001] HCA 52206 CLR 459
Ku-ring-gai Council v Chan [2017] NSWCA 226
Perre v Apand Pty Ltd (1999) 198 CLR 180[1999] HCA 36
Pollard v Baulderstone Hornibrook Engineering Pty Ltd [2008] NSWCA 99(2008) Aust Torts Reports 81-949
Potts v Miller [1940] HCA 4364 CLR 282
Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502
131 ACSR 236
Sullivan v Moody (2001) 207 CLR 562
[2001] HCA 59
Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 3) [2024] NSWSC 888
Wallace v Kam [2013] HCA 19
250 CLR 375
Waverley Council v Ferreira [2005] NSWCA 418
(2005) Aust Torts Reports 81-818
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Judgment (24 paragraphs)
[1]
JUDGMENT
The plaintiffs seek damages for losses they have sustained following the purchase by the first plaintiff ("the Company") of the Cohuna Hotel Motel in Cohuna, Victoria. The second plaintiff, Paul Gomes, is the director of the company. It is this company through which he purchased the Hotel/Motel in 2015, albeit he was nominated as the purchaser at the time of exchange.
There are two defendants being:
1. Mohan Sundar trading as Sun Legal (first defendant), his former solicitor, who he alleges acted for him in the purchase of the real property and an associated business in 2015; and
2. Gannawarra Shire Council (second defendant).
It is not necessary to distinguish between the plaintiffs for most parts of this judgment. I will refer to the second plaintiff as Mr Gomes. If it is necessary to refer specifically to the Company, I will do so.
Mr Gomes claims that:
1. he retained the first defendant to act for him (and the Company as his nominee on the purchase) in respect of the purchase of the Cohuna Hotel Motel in 2015; and
2. the first defendant failed to provide proper and appropriate advice to him in a number of respects including that:
1. he failed to advise him prior to exchange of contracts that he should obtain building and pest reports on the property;
2. he failed to advise him on the essential terms of the agreements for sale both in respect of the real property and the business; and
3. he failed to inform him that, contrary to his instructions, there was nothing in the agreements which provided for allocation or sale of stock to him to the value of $350,000.00.
Mr Gomes says if had been given this advice by the first defendant he would not have bought the Hotel/Motel.
As it turned out, he bought a property which was in a very poor condition and which, within a few years, was not safe and suitable to be used as a Hotel/Motel. Further unbeknownst to him, at the time of completion of the purchase, there was no stock left in the Hotel/Motel.
Having bought the Hotel/Motel, he has suffered significant losses as he did not receive that which he thought he was purchasing, being a building in a good condition and a business which included a transfer of $350,000 in stock.
As against the second defendant, Mr Gomes says that the Council knew or ought to have known of the very poor condition of the building such that it owed him a duty of care to warn him or take steps to ensure the that the building was repaired prior to his purchase.
It did seem from the way that the case was conducted that Mr Gomes was also pursuing a case against the first defendant in respect of further alleged failures after exchange of contracts but counsel for the first defendant pointed out during submissions (correctly) that no such case was pleaded.
The case proceeded over 7 days. Mr Gomes appeared without legal representation although I understand that solicitors and perhaps counsel had represented him formerly. I am unaware of the reasons they ceased to act.
Amelia Avery-Williams appeared for the first defendant and Ivan Griscti appeared for the second defendant.
At the outset it must be said that the presentation of the case was fraught with difficulties. Mr Gomes was ill-equipped to represent himself. Evidence which would have been available to him was not presented. English is his second language and there were plainly language difficulties both when he gave evidence and when he was making submissions or objections from the bar table. Having said that, he had some supporters in court, a number of whom became involved at various times.
Indeed, one of his supporters sitting a couple of rows back, took to making objections on his behalf and even rose to his feet to protest about the defendants objecting to some of the expert evidence.
Mr Gomes was also assisted in court by a person who sat at the bar table with him and his daughter from whom he also sought regular assistance. As I said during the course of the hearing on more than one occasion, it may be that the proper administration of justice allows some flexibility in respect of the way in which a case is conducted, particularly for persons who are not familiar with the processes and may struggle with understanding precisely what is happening.
I raised my concern with Mr Gomes about the language difficulties at the outset of the hearing. I suggested that he should consider obtaining the assistance of an interpreter whilst giving evidence. However, after a conference with his supporters including his daughter (who was raised in Australia), he rejected that suggestion and thus the case proceeded.
Further, the taking of Mr Gomes's evidence was challenging because, whether through language difficulties or a general determination of Mr Gomes to get his point across, Mr Gomes often insisted on giving answers that were not responsive or were confusing. Yet, I understood the gist of what Mr Gomes was saying and on occasions confirmed that my understanding of his statements was the same as that of the cross examiner.
The point is that there were difficulties with the hearing but those difficulties did not prevent the hearing taking place or there being a proper examination, understanding and analysis of the evidence that was adduced.
To a certain extent that only occurred because of the assistance and cooperation of the legal representatives, particularly counsel for the defendants. They are to be commended for the way in which they conducted the case.
Having said that, Mr Gomes was cross examined robustly and directly. In assisting Mr Gomes during the hearing, counsel did not in any way disadvantage their clients or fail to take any point or adduce any evidence. They maintained a robust and strong defence.
[2]
Issues
The outcome of the case really depends on a consideration of a number of central issues being:
1. What was the scope of the first defendant's retainer?
2. Did the first defendant provide the advice (that Mr Gomes maintains he should have, and the first defendant says that he did)?
3. If not, what would Mr Gomes have done if the advice had been provided? That is would he have obtained building and pest reports? What would they have revealed? Would he have entered into the contracts in any event? What would he have done about the stock?
4. Did the Council owe a duty of care to Mr Gomes?
5. What should the Council have done about the property prior to the plaintiffs' purchase?
6. What is the proper assessment of damages, having regard to the case pursued by the plaintiffs?
I will come back to these issues.
[3]
Evidence
The defendants provided what they described as a two volume joint court book. The first defendant also relied on a cross examination bundle. Mr Gomes initially handed up eight volumes of unpaginated, unorganised material. After some further discussions during the hearing, he limited his tender to four volumes. He then made limited reference to the material contained therein during the hearing.
The real relevance of Mr Gomes's bundle of material is that it purported to include a complete copy of the first defendant's file. It was not (ultimately) suggested by the first defendant that there were other documents not included in that file.
The parties relied on lay affidavits and substantial expert evidence. Not all the deponents or experts were required for cross examination.
[4]
Background
Many of the background facts are not in dispute. To the extent that there is a dispute, I will refer to it. Otherwise, the following summary is largely uncontroversial and is based on the evidence.
Mr Gomes is currently 60 years of age. He immigrated from Bangladesh some years ago, although it is not clear when. He is married with two children. Prior to the transaction the subject of these proceedings, he worked as a chef.
English is his second language.
He lives in Cohuna in rural Victoria, having purchased the Cohuna Hotel Motel in 2015. The Cohuna Hotel Motel is situated on approximately 3800 m² in central Cohuna. Melbourne CBD is approximately 275 km to the south-east. The building comprises a hotel and pub/restaurant premises facility with an upper level for residential studio rooms/accommodation with communal facilities.
The building was built many years ago, parts of it perhaps even more than 100 years ago. The gross building area is 2033 m². The building includes a drive-through bottle shop. The building includes 16 motel rooms on the upper floor. There is also an associated 12 room residence.
For many years prior to the plaintiffs' purchase, the land, building, and business was owned by a person who was known either as Claire Exton or Claire Keefe. Ms Keefe had previously leased the building to persons who occupied the Hotel/Motel business.
As far as I can determine, around 2012 Ms Keefe resumed occupation and control of the business. She subsequently listed it for sale, although, again, the details and circumstances of that listing are unclear. It is known that in January 2015, Mr Gomes became aware that the business for sale. As he explained on several occasions during the hearing, he had the idea of running his own hospitality business and putting what he believed was his considerable skill as a chef to good use.
He had perhaps the rather romantic and unfortunately naïve idea that he could purchase a Hotel/Motel in the country, move his family into the residence and make a real success of the business not just for him but for future generations of his family. He included in the court book blown up photos of his grandchildren so that I would understand that the business was ultimately meant for them.
After making some enquiries, he received an email from the vendor on 17 January 2015, extolling the virtues of the Hotel/Motel including "the property is in excellent order, the turnover is $1.4 million with great potential with more active management". As it turned out, whatever the potential, the property was not in excellent order. It was in very poor condition.
[5]
Events post settlement
Mr Gomes started trading on 27 November 2015. Unfortunately for Mr Gomes, things started to go wrong fairly quickly after settlement. There was no stock on hand. He was inexperienced and there were issues accounting for all of the cash. He had difficulty hiring staff.
He did not take steps to fix the significant problems with the building. For example, he did not have the termite damage fixed. That may be because, at least on the evidence in these proceedings, that would never have been possible. It may also have been because he plainly had a view, based on what he was told by the first defendant at the time of settlement, that in some way litigation would be commenced against the vendor in respect of the defects in the property.
Yet, at least according to his instructions to his forensic accountant, the business did start to trade at a profit, albeit because of the state of the Hotel/Motel rooms they were not able to be occupied.
Again, based only on the material contained in the forensic accountant's report, it seems that Mr Gomes and his family have continued to operate the business since 2015. However, due to the condition of the property, on 1 April 2021 the Council issued an order requiring that all of the business operations cease. That order was subsequently varied so that from 1 April 2021, Mr Gomes could operate the bottle shop only.
Again, the evidence on all this was limited but it has not been suggested by either defendant that this narrative of post settlement events is not correct.
Mr Gomes has not affected the substantial repairs required on the building. He has undertaken some work, although the nature and extent of that work is not clear.
Having regard to the analysis undertaken by Mr Gomes's forensic accountant (which is itself based on a summary of tax returns) during the period 2015 to 2022 Mr Gomes operated the Hotel/Motel generating business income of between $1,059,000 and $1,429,000 (subject to Covid fluctuations). Having regard to cost of sales and other expenses set out in the tax returns, the business only generated a profit in three years being 2019-2020, 2020-2021 and 2021-2022. Subsequent to the closure of the business other than the bottle shop, the turnover of the business decreased substantially (by 40 to 50%). The business did not make a profit in 2022-2023 or 2023-2024.
[6]
Mr Gomes's evidence
Mr Gomes relied on his own affidavit dated 11 October 2023. He was cross examined extensively on behalf of the first defendant and on a more limited basis on behalf of the second defendant. At the end of his cross examination, I asked some questions of him in order to clarify some matters that had been raised and on the basis that there were some matters about which he might have given evidence if properly represented.
It is 9 years since Mr Gomes bought the Hotel/Motel. He presented as extremely frustrated with the long delay and the attitude of the defendants towards his case. As I have said, he was somewhat unresponsive to a number of questions but at least to a large extent that may be excused by an apparent lack of understanding of what he was being asked. He did respond to direct questioning, particularly propositions put to him about the role of the first defendant and advice allegedly given.
He denied receiving much advice at all from the first defendant and particularly denied receiving the critical aspects of the advice which the first defendant says he gave him orally. He certainly denied getting any advice about obtaining building and pest reports prior to exchange and denied being made aware that there was no provision in the contract for him to receive $350,000.00 in stock.
He became exasperated and argumentative in cross examination but despite all of that remained steadfast in his evidence as to what he told the first defendant and what the first defendant did or told him.
Mr Gomes said that:
1. He engaged the first defendant through Mr Matta to act for him on the purchase of the Hotel/Motel and associated business.
2. He agreed to pay him the fixed price that the first defendant wanted.
3. He engaged him prior to exchange to act as his solicitor on the transaction.
4. He had already agreed to pay the price of $880,000 which he told the first defendant.
5. He had a meeting with the first defendant and Mr Matta during which he told the first defendant that his purchase would include $350,000 in stock. He also said he wanted 6 weeks training as part of the deal. This was in April and prior to exchange.
6. The first defendant told him to take photos of the stock so as to ensure that it was there at completion (which he did).
7. The first defendant never mentioned anything about getting a building or pest report at any time, including before exchange.
8. He did not know that he should be getting a building or pest report prior to exchange.
9. He did not know of the defects in the building prior to exchange.
10. He gradually became aware of the defects closer to settlement when he was shown some of the problems by some staff. He was told by someone that he should be getting building and pest reports.
11. He became increasingly concerned about going ahead with the purchase and did not want to settle. He walked out of the first settlement meeting and went to the police but was told it was a civil matter. He only handed over the settlement money when he was told by the first defendant that he might lose his deposit if he did not settle and that he could litigate (believing the first defendant would do that).
12. He was never provided with the contracts by the first defendant. He did not know there were two contracts prior to exchange. He did not receive any advice about the terms of the contracts. He did not know prior to settlement that the stock price was specified as nil.
13. The first defendant provided little by way of advice to him. He never received any written advice or communication confirming his instructions.
14. He rejected most of the direct propositions put to him in cross examination (that is those encapsulating the first defendant's case).
[7]
Ananna Gomes's evidence
Mr Gomes's daughter, Ananna Gomes, gave evidence. She prepared an affidavit dated 11 October 2023. She has resided at the hotel premises with her family since settlement on 12 November 2015.
She said that in November 2015 she and her husband travelled with Mr Gomes to Cohuna for the purposes of the 7 days training to be provided by the vendor prior to settlement. As she said, she and her family were given short shrift. They were not allowed to stay at the hotel. The vendor's staff would not speak to them, and the vendor seemingly made plain they were not to assist them. According to Ms Gomes, she was subsequently informed that the staff had been told that if they spoke to Mr Gomes or his family their employment would be terminated.
She said that they had received some information from the hotel maintenance man and a house maid about some of the problems with the hotel including a leaking water pipe. She said the house maid showed them the white ants in unit 6. The only rooms the vendor showed them were units 1 and 2 which appeared to be in good condition.
On 12 November 2015, she was with her father most of the day. She was aware that her father had walked out of the first settlement time and gone to the police but they were informed by the police that it was a civil matter and they should get advice from a lawyer.
She said that during the course of the day Mr Gomes had tried to call the first defendant on a number of occasions but ultimately asked Mr Matta to do so. She sent a detailed email to the first defendant that day setting out all of the concerns regarding the condition of the property and the refusal of the vendor to comply with what they understood was their entitlement for them to be having some training prior to settlement.
She gave evidence both orally and in her affidavit of a conversation that she and her father had with the first defendant. She said she explained the issues to him and he seemed to listen but his ultimate response was a swear word. She was told 'to follow the email'. This was something that was also said to her father by the solicitor to the vendor.
It is difficult to understand what that meant. The first defendant did not send any email to Mr Gomes or Ms Gomes that day. The only email sent that day was an email from Mr Embleton the solicitor for the vendor, the effect of which was to threaten and remind Mr Gomes as to what would happen if he did not settle. The first defendant must have been telling Mr Gomes that he should read the email from the solicitor for the vendor.
[8]
Navjeet Matta's evidence
Mr Matta's evidence was generally consistent with that of Mr Gomes, particularly as it related to conversations with the first defendant. The relationship between Mr Matta and the first defendant appears to have been close, at least in a business sense. They shared office space and appear to have dealt with each other on a regular basis. Mr Matta became involved even before the first defendant and it may be that it was only because of Mr Matta's request that the first defendant agreed to act for Mr Gomes. Mr Matta also became involved at the end of the transaction when Mr Gomes again sought his assistance, not obtaining much from the first defendant.
As I have already indicated in my background summary, Mr Matta corroborated much of Mr Gomes' statements as to conversations with the first defendant. In particular he agreed that Mr Gomes had told the first defendant about the stock and that Mr Gomes had then done what the first defendant told him to do, that is take photos to verify the stock. Whilst he was challenged on behalf of the first defendant, there was nothing about his presentation or evidence generally which gave me any concern as to his reliability or credibility.
[9]
The first defendant's evidence
The first defendant relied on an affidavit dated 8 November 2024. He also gave oral evidence.
In his affidavit, the first defendant states that he is an experienced solicitor and particularly experienced in commercial conveyancing matters. He had previously acted for Mr Gomes in two or three conveyancing transactions involving residential property in Sydney. He was unable to locate his files in respect of those transactions due to the passage of time.
However, he still had his file in respect of the work he performed in respect of the transaction the subject of these proceedings. He provided copies to his own solicitors and Mr Gomes's solicitors, such that it is known what is contained in the file and what is not.
He says that it was his usual practice to provide written advice to clients and to advise on a range of matters associated with the transaction (as might be expected of a competent solicitor). He accepts he did not provide any advice in writing in respect of the purchase of the Hotel/Motel.
Despite this, he says he has a recollection, which he confirmed when giving oral evidence, of giving detailed advice to Mr Gomes about a number of matters as follows:
1. the contract for the sale of the business was to include a special condition to the effect that the sale included stock on hand;
2. the purchase price for the property was to be $730,000;
3. settlement would take place subject to Mr Gomes obtaining a transfer of the various licences into his name, or his nominee, in order to conduct the various business functions and services;
4. both contracts were to be interdependent and to settle simultaneously;
5. settlement would take place subject to Mr Gomes having 7 days training by the vendor;
6. Mr Gomes could conduct his final inspection of the property 3 days prior to settlement; and
7. the vendor was required to run the business otherwise there would be GST implications because the property was being sold as a going concern.
He said that he also told him to:
1. organise a pest inspection on the property to determine whether there were any issues with termites and other pests;
2. organise an inspection by a builder to assess the condition of the property and prepare a report;
3. undertake his own inspection of the property as Mr Gomes told him that his family had been living at the property at the time;
4. attend the local council to determine if there were any outstanding notices on the property and to ensure the property was approved for the use of the business; and
5. review the taxation, income and other records of the business to satisfy himself that the business was viable and that the purchase price was justified, and that he informed Mr Gomes he could not provide financial advice on the business and its records.
[10]
The scope of the retainer
According to the first defendant, he was only retained by Mr Gomes, not the company, and only to act in completing the transaction. He says this because when he was retained the terms of the agreement had already been reached between the vendor's solicitor and Mr Gomes directly.
The first defendant did say in oral evidence that he was retained to complete the transaction. However, there is no evidence from which any inference might be drawn that he was only retained on that limited basis. Nothing said by Mr Gomes or Mr Matta would support that inference and there is no correspondence from the first defendant to that effect. His correspondence with the vendor rather detracts from that proposition.
I mean by this that prior to exchange he engaged in correspondence to the solicitors for the vendor on behalf of Mr Gomes. Further, it is clear from the evidence of all of Mr Gomes, the first defendant and Mr Matta, that Mr Gomes retained him prior to exchange and there were at least some discussions between Mr Gomes and the first defendant prior to exchange.
All that is really agreed between Mr Gomes and the first defendant as to the scope of his retainer is that he agreed to accept a fixed fee of $2500 in acting for Mr Gomes on the transaction. From Mr Gomes's perspective that meant that the first defendant agreed to act as his solicitor in the purchase of the land and business which Mr Gomes agreed to buy. That is the Cohuna Hotel Motel.
The proposition that the scope of the retainer was somehow limited is also negated by the first defendant's evidence. The first defendant said he gave oral advice to Mr Gomes prior to exchange on a number of important issues, including obtaining building and pest reports.
Whether I accept that is another matter but it is difficult to accept that on the one hand he was providing this advice and at the same time he really believed that his role was only to assist in completion of the transaction, rather than providing the usual advice a solicitor might give to a client prior to exchange.
I accept, as the first defendant submits, that he was not retained to advise Mr Gomes as to how to run a Hotel/Motel or even advise what he should be doing in terms of compliance with laws and regulations once he commenced to run the business. However, he was retained to act as Mr Gomes's solicitor on the purchase of the land and business known as the Cohuna Hotel Motel. He was retained by Mr Gomes prior to exchange. He was retained to perform the work that a solicitor might customarily perform in acting for a client/purchaser in respect of such a transaction.
[11]
Duties of a solicitor
The first defendant owed a duty of care to the plaintiffs. The duty arises both in contract and tort (Astley v AusTrust Ltd [1999] HCA 6; 197 CLR 1 at [44]). All duties may be discharged by the exercise of reasonable care. See the summary of the relevant principles in Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 3) [2024] NSWSC 888 at [59].
What reasonable care requires must depend on the particular circumstances of the relationship between the client and the solicitor and the scope of the retainer. A solicitor is not obliged to protect the client from his own foolishness or guarantee a successful result from a transaction. Clients may foolishly enter into transactions without sufficient information or might determine to embark upon a course of action contrary to advice. It is not the solicitor's job to prevent them from doing so.
Yet, some transactions are so common and regular that the nature of the advice that a solicitor might be required to give a client could not be in dispute. This is one such transaction. Neither party relied on expert evidence to assist in the determination of whether the first defendant was negligent. That is probably because the first defendant could hardly dispute he was required to advise on the matters alleged prior to exchange. His answer was to say that he did so. Specifically, he says that:
1. he advised Mr Gomes as to the terms of the contracts;
2. he gave Mr Gomes copies of the contracts himself and he could read them himself;
3. he advised Mr Gomes prior to exchange that he should obtain building and pest reports;
4. he advised Mr Gomes prior to exchange about the meaning of a walk in walk out contract;
5. he advised Mr Gomes that there was a term of the sale of the business that the stock he would be receiving would be receiving was nil; and
6. he advised Mr Gomes that he should make his own enquiries with the local council.
I accept that, in all the circumstances of this case, the first defendant was obliged to advise Mr Gomes of these matters.
The outcome of this case depends not on whether the exercise of reasonable care on the part of the first defendant required him to provide such advice but whether he did in fact provide such advice.
[12]
Did the first defendant provide the advice?
I do not accept that the first defendant provided proper and competent advice to Mr Gomes prior to exchange.
Specifically, I do not accept that:
1. the first defendant told Mr Gomes to obtain building and pest reports and Mr Gomes declined to do so; nor
2. that the first defendant advised Mr Gomes as to the terms of the contracts, including both the contract for sale of land and contract for sale of business, and specifically advised Mr Gomes that the value of stock on completion would be nil.
Even allowing for the language difficulties, it is difficult to accept significant aspects of the first defendant's evidence. I accept that persons may suffer stress in the witness box, particularly in circumstances in which they are accused of professional negligence. However, some of the evidence given by the first defendant was perplexing. Examples include that:
1. He did not issue any correspondence, emails or retainer letter to Mr Gomes because Mr Gomes was always in the office and he considered him to be the most difficult client he had ever had.
2. He agreed to act "to complete the transaction", albeit it is clear from his own file that he was retained to act prior to exchange.
3. Although his usual practice was always to keep file notes of conversations and advise and send letters or emails, he did not do that at all in this matter.
4. When asked by Mr Gomes to explain how he would normally handle complaints from the clients, he said that he had never had a complaint from a client before. Thus, he could not answer. When Mr Gomes followed up using the word "issue" rather than complaint, he gave a similar answer meaning that in all of his years of practice he had never even had an issue with a client before Mr Gomes.
5. He took to answering questions saying "I don't recall" perhaps when his understanding of the question was not certain but also, at least on some occasions, when the content of the question was directed about a matter of which he had given direct evidence about in his affidavit.
6. Although he did not have any file notes of conversations or advice or any correspondence setting out what his advice might have been, he professed to have a precise recollection of the advice he gave orally, as was set out in his affidavit. Again, he was given an opportunity to state that his recollection was really "to the effect of" but he maintained that he had used the precise words set out in the affidavit, not just in respect of one short piece of advice, but in respect of seven separate items of advice he professed to give. It is again difficult to accept that his recollection, unaided by any contemporary records, would be as accurate and precise as he maintains.
7. In respect of the advice he stated he gave prior to exchange about obtaining a building and pest report, he agreed that he did not send an email or letter confirming the advice and confirming the circumstances in which according to him Mr Gomes had specifically responded to his advice by telling him he did not want to get building and pest reports.
8. He suggested that he did not believe it was necessary to make enquiries of Council because he understood from Mr Gomes that Mr Gomes had spoken to the Mayor who wanted him to buy the building. I am not sure how speaking to the Mayor would obviate the need for proper enquiries about the building.
[13]
Breach of duty
In my view, a solicitor in the position of the first defendant acting competently and professionally was required to advise Mr Gomes of those matters. As Mr Gomes did not, he was in breach of the duty of care he owed to Mr Gomes. Further, as the contracts specifically referred to the purchaser as Mr Gomes or his nominee, I accept that the duty of care was owed not just to Mr Gomes but to the entity which became the purchaser between exchange and completion (being the Company).
[14]
The condition of the building at the time of purchase
Mr Gomes relied upon a number of experts who gave evidence as to the condition of the building at the time of the purchase, the condition of the building thereafter, and the potential cost of repairs and/or rebuild.
In addition, Mr Gomes relied on evidence from lay witnesses as to the condition of the building, including statements from Brian Gibbs dated 7 April 2022, Shayne Pearce dated 7 April 2022, and Kim Murray dated 14 July 2022.
The defendant relied on a report from a building consultant, Patrick Turl, dated 18 November 2024.
All of the plaintiffs' and the defendants' building experts gave oral evidence. In addition, there was evidence from Mr Gomes and Ms Gomes as to their observations as to the condition of the building prior to settlement.
Mr Gomes relied on the evidence as to the condition of the building at various times for three purposes:
1. to establish what would have been discovered had building and pest reports been obtained prior to exchange;
2. to establish that the condition of the property was such that an inspection by the Council in, for example, the four years prior to exchange would have put the Council on notice of the very poor condition of the property; and
3. in support of his claim for the cost of rectification of the repairs and rectification of the building.
Harry Harmor provided a building condition report, dated 5 November 2020. He identified the following problems:
1. all sections of roofing showed significant deterioration including rust, missing lifting, fittings and seams and water damage;
2. all the gutters were rusted and severely deteriorated;
3. the internal stairs were found to be in very poor and the dangerous condition;
4. the fire escape stairs were in a poor and dangerous condition and were non-compliant;
5. the balconies showed dangerous deterioration to balustrading and the balcony floor was in a poor condition;
6. asbestos had been found in some balcony areas;
7. substantial termite infestation was observed throughout the building timber work, colonies were found in all parts of the building typically the ground floor;
8. in all the brickwork numerous areas of cracking was visible, footings were likely to be questionable;
9. in the motel wing there was water damage to various locations from its leaking roof and has considerable structural damage;
10. all plumbing lines are aged and deteriorated;
11. electrical wiring and switchboards were typically found in poor condition; and
12. the emergency and fire safety services systems appeared to require testing and upgrade.
[15]
Causation
In order to obtain damages, the plaintiffs must establish not only that the first defendant failed to exercise reasonable care, but also that such failures caused the plaintiffs' loss. As this is an action which arises out of a failure to take care, the Civil Liability Act 2002 (NSW) ("CLA") applies. As set out in s 5D CLA, the plaintiffs must establish both factual causation and scope of liability causation. No issue is raised by the first defendant as to scope of liability causation.
However, the first defendant maintains that the plaintiffs bear the onus of establishing causation (s 5E CLA) and that they have failed to discharge that onus.
The first defendant says that the plaintiffs have failed to discharge that onus as:
1. in circumstances in which it was only Mr Gomes that retained the first defendant prior to exchange, any losses sustained by the company would not be caused by any conduct on the part of the first defendant;
2. even if the first defendant had advised Mr Gomes to obtain building and pest reports, he would not have done so;
3. even if he had obtained building and pest reports, he still would have gone ahead with the purchase of the land and business such was his enthusiasm for the project and his belief that he could make millions of dollars from running the Hotel/Motel; and
4. even if he had been advised that the purchase price did not include $350,000 in stock, he still would have gone ahead with the transaction, again because he understood that the purchase price was non-negotiable and he believed he could make a substantial profit from running the business.
The plaintiffs must establish that but for the failures of the first defendant, they would not have suffered the losses claimed. In this case that means that, but for the failures of the first defendant to properly advise Mr Gomes prior to exchange, they would not have entered into the transaction.
Of course it was Mr Gomes who entered into the transaction as he signed the contracts prior to exchange. However, both the contract for the sale of land and the contract for the sale of business specify the purchaser as Mr Gomes and/or nominee. It was thus in contemplation that the identity of the purchaser might change in the sense that Mr Gomes might ultimately purchase the business and land through a corporate structure. This must be what occurred. There was a notice of acquisition of interest in land completed by the first defendant on 11 November 2015 specifying the transferee as the company.
[16]
The case against the Gannawarra Shire Council
The case against the Council is pleaded in paragraphs 26 to 32 of the amended statement of claim as follows:
"26. The second defendant conducts the business of a local municipal council.
27. The second defendant had a duty of care to ensure that the Plaintiffs' hotel property was frequently inspected and that it complied with all acceptable standards in relation to the safety of the buildings and improvements including accommodation areas upon the land and health and safety regulations affecting the use of the kitchen, restaurant and function areas for the supply of food and the bar for the supply of alcohol at the Vendor's property for the whole of the period of the Vendor's ownership of the property prior to the exchange of the two contracts namely 5th May 2025.
28. In or about 2011 and 2012, the second defendant issued some notices and/or orders to the Vendor names in the two contracts prior to the date of exchange of the two contracts. Such notices required remedial or rectification work to the structure and facilities of the vendor's buildings and property.
29. Prior to the exchange of the two contracts, the Vendor had failed to comply with outstanding notices.
30. During the period between 1st January 2011 and approximately mid 2021, the second defendant had not carried out regulatory inspections to audit whether there had been compliance with the outstanding notices or order.
31. As a result of this, the property remains in a poor condition as to its structure and compliance with health and fire and accommodation regulations as well as the regulations pertaining to the supply of food and alcohol to the extent that it is dangerous to members of the public and for all persons who frequent and use the building on a daily basis.
32. As a result of this, the second plaintiff has sustained further loss and damage by reason of the ongoing deterioration in the health condition of the buildings and their dilapidated and deteriorating structural state due to the infestation with white ants and termites and other structural defects such that the second defendant has had to close part of the building involved in the supply of food and accommodation."
As pleaded, the case against the second defendant is thus that:
1. the Council owed a duty of care to the plaintiffs to carry out inspections of the building to ensure that it complied with all standards and requirements in respect of the proper use of the building;
2. between 2011 and 2012 the Council issued notices to the vendor but it did not take steps to ensure that the notices were complied with; and
3. as a result of the failures of the Council to ensure that the building was kept in a proper condition, the Company has suffered loss arising from the ongoing deterioration of the building, including the need to close part of the building used for the supply of food and accommodation.
[17]
Contributory negligence
In its defence, the first defendant pleads contributory negligence on a number of bases including:
"(a) the Second Plaintiff is, and at all material times was, an experienced purchaser of real property and at all material times had an understanding of a purchaser's rights in relation to the conveyance of real property;
(b) the Plaintiffs failed to conduct an inspection of the whole of the Property prior to the exchange of contracts and prior to settlement;
(c) the Plaintiffs failed to conduct their own investigations of the whole Property and satisfy themselves with respect to all matters relating to or arising out of those investigation and enquiries in respect of the Property;
(d) the Plaintiffs failed to heed the First Defendant's advice to arrange for professional inspections to identify any structural defects or damage caused by pests at the Property prior to the exchange of contracts and settlement;
(e) the Plaintiffs failed to carry out any due diligence or conduct comprehensive inquiries with respect to any outstanding orders or notices from the Second Defendant prior to the exchange of contracts and settlement;
(f) the Plaintiffs failed to heed the First Defendant's advice that the Vendor was under no obligation to provide any stock as part of the sale of the Property prior to the exchange of contracts and settlement; and
(g) the Plaintiffs settled on the purchase of the Property knowing that they had not inspected the whole of the Property, had not undertaken the 7 days of training, aware of an apparent gas leak in the property, aware of water damage in the property, aware that the Property needed to be cleaned, aware 8 of an apparently obvious white ant infestation in unit 6, aware that further investigation was required to determine the extent of the white ant infestation, and aware that stock may have been sold by the vendor."
Pursuant to s 5R of the CLA, the same principles which are applied to determine whether the first defendant was negligent apply in determining whether Mr Gomes has been guilty of contributory negligence.
The standard of care in determining contributory negligence is that of a reasonable person in the position of Mr Gomes (s 5R(2)(a) CLA). In other words, 'a reasonable person in the position of that person' are equivalent to the words 'a reasonable person in the plaintiff's position' (Pollard v Baulderstone Hornibrook Engineering Pty Ltd [2008] NSWCA 99; (2008) Aust Torts Reports 81-949 per McColl JA at [14]; Waverley Council v Ferreira [2005] NSWCA 418; (2005) Aust Torts Reports 81-818 at [87]).
[18]
Assessment of Loss
The plaintiffs are entitled to be put back in the position that they would have been but for the negligence of the first defendant.
On the plaintiffs' case, they would not have entered into the transaction at all if made aware of the defects in the building and that they were not receiving the $350,000 in stock.
It is thus a no transaction case. The loss is to be assessed as if the plaintiffs would not have entered into the transaction at all (Potts v Miller [1940] HCA 43; 64 CLR 282; Gould v Vaggelas [1984] HCA 68; 157 CLR 215 at 220 per Gibbs CJ).
The general rule is that loss would be measured as the difference between the amount paid and the value of that purchased. Of course, that may not always be the measure of loss. It must depend on the particular facts and circumstances of the transaction and that which occurred after the transaction.
In Gould v Vaggelas, Gibbs CJ observed at 221:
"This rule, is, with all respect, not quite as inflexible as Potts v. Miller might suggest. There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business."
In my view, the usual basis for assessing damages in a case such as this would be the diminution in value between what Mr Gomes paid and what he actually received. Loss would be determined with reference to the valuation evidence. There may be some additional amount allowable such as interest expenses, costs associated with the purchase and interest expenses, but the scope for additional losses would be limited.
[19]
The valuation evidence
Mr Gomes relied on a report of a valuer, Adrian Staltari, dated 27 November 2018. The defendants' relied on a report of another valuer, Malcolm Gunning, dated 22 November 2024. Both experts gave oral evidence and were cross-examined.
Both experts say that they assumed that the property was suffering from some damage, having regard to the termite damage and other defects. There is an issue as to the extent to which particularly the defendants' expert might have had full regard to the extent of the damage.
The approach of Mr Staltari was to have regard to what he considered to be comparable sales of other hotels and licensed premises and restaurants, albeit not in Cohuna. He agreed in cross-examination that some of these properties were hundreds of kilometres away. However, he maintained that they were still comparable as they were somewhat similar premises in country towns.
Mr Staltari said that it was necessary to determine the market value which is defined as being the estimated amount which an asset should exchange on the date of valuation between a willing buyer and willing seller in an arm's length transaction, after proper marketing where each party had acted knowledgeably, prudently and without compulsion.
He used what he described as the direct comparison methodology.
His retrospective valuation of the property (as at 6 May 2015 and without the substantial defects) was $750,000, His opinion as to the value of the property on the same date with the damage would be $125,000.
The value of the premises without the termite damage as at the date of inspection of 5 November 2018 would be $850,000 and his assessment for that date with termite damage would be $150,000.
Mr Staltari did not consider that Mr Gunning's approach to valuation of the property was appropriate, particularly as a number of the comparable properties relied upon by Mr Gunning were not sold on the open market or through the use of a real estate agent.
Mr Staltari was challenged as to his approach, particularly his use of so called comparable properties not in Cohuna. However, Mr Staltari considered that use of similar type properties provided appropriate comparators even in towns some distance away from Cohuna (there being no comparable type of property in Cohuna).
[20]
Mr Gomes's claim for personal injury
Mr Gomes claims that he has suffered psychological and physical injury consequent upon the negligence of the defendants. These injuries are said to include anxiety and depression arising from financial stress, disrupted sleep, cervical pain, restriction of movement, loss of self-esteem, onset of high blood pressure, gout, and changes in personality.
In support of his claim Mr Gomes relies upon a report from Dr Ayodele Olatunji dated 30 August 2024. Dr Olatunji also gave oral evidence.
There was no real challenge to the substance of the doctor's report. It is to the effect that Mr Gomes suffers some features of major depressive disorder.
He first presented to Dr Olatunji on 23 February 2023 with symptoms of depression. Dr Olatunji relates the symptoms to the difficulty he was experiencing in operating the hotel. According to Dr Olatunji the symptoms have significantly impacted on his overall executive functioning. He feels frustrated and worries about the future. His prognosis is guarded.
I accept that Mr Gomes has developed psychological symptoms in the nature of depression and associated conditions which are generally referable to the operation of the Cohuna Hotel Motel. In that sense, his psychological condition is referable to the negligence of the first defendant. However, I do not accept that Mr Gomes is entitled to damages for personal injury for the following reason:
1. Firstly, as the first defendant submits, there is no standalone claim for psychological injury alleged to have been caused by the negligence of the first defendant. On one view that may be a particularly technical approach to the pleadings but I accept that the case was conducted by Ms Avery-Williams on the basis that there could be no claim for psychological injury against the first defendant (as aggravated and exemplary damages are excluded by the CLA).
2. Secondly, Mr Gomes would not be entitled to damages for personal injury against the first defendant in any event. Mr Gomes bears the onus of establishing the causal nexus between the negligence of the first defendant and the psychological injury suffered by him.
3. Certainly, Dr Olatunji attributes the cause of Mr Gomes's depression to a number of factors, all of which seem to relate to the running of the business and Mr Gomes's presence in Cohuna. However, at best for Mr Gomes, the depression only commenced in 2017 and seems to have been exacerbated following the closure of parts of the Hotel/Motel in 2021.
4. During the period between 2015 to 2021, Mr Gomes operated the Hotel/Motel, achieving a turnover of something in the range of the vendor's suggested turnover in the two years prior to purchase. He did not always make a profit, but he made some profit. He made no attempt to affect the repairs which would have been necessary to operate the Hotel/Motel at full capacity. No doubt there were financial reasons for this. It is not sufficient to generally identify a relationship between the running of the Hotel/Motel and his depression. The causal link seems tenuous.
5. Further, as set out in s 5D CLA, causation involves both factual and scope of liability causation. Mr Gomes bears the onus of establishing that it is appropriate for the scope of the first defendant's liability to extend to the harm so caused.
6. Having regard to s 5D(4), for the purposes of determining scope of liability, the Court is to consider, amongst other relevant things, whether or not and why responsibility for the harm should be imposed on the negligent part.
7. In considering the normative question which arises in considering scope of liability causation (s 5D(1)(b) CLA), the Court must consider and explain whether or not, and if so, why responsibility for the harm should be imposed upon the negligent party (Wallace v Kam [2013] HCA 19; 250 CLR 375 per French CJ, Crennan, Kiefel, Gageler and Keane JJ at [23]).
[21]
Calculation of damages
Based on Mr Staltari's valuation, the difference between what the company paid and the real value was $755,000.
Stamp duty was $39,500. As the plaintiffs would not have entered into the transaction, he would not have paid the stamp duty. The plaintiffs have not established any other losses.
Damages are assessed in the sum of $794,500.
[22]
Limitation of liability
As set out in paragraph 38 of the amended defence, the first defendant relies on s 28 of the Professional Standards Act 1999 (NSW) and the Law Society of New South Wales (NSW) Professional Standards Act 1984 (NSW) to limit his liability to the sum of $1.5 million.
As the first defendant did not send any letter or email to Mr Gomes at the time of his retainer or indeed at any time other than passing on a copy of an email he had sent to the vendor's solicitor, the first defendant did not provide proper notification of his reliance on the professional standards scheme so as to limit his liability. There was one reference to the limitation of liability at the bottom of an email chain which Mr Gomes received closer to settlement than exchange or retention of the first defendant.
The first defendant says that he is not required to give notice (see Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502; 131 ACSR 236).
There is something somewhat counterintuitive about the proposition that a defendant may rely on a legislative limitation of liability without giving notice to his client about that, but it is not necessary that I further consider the issue as Mr Gomes has not recovered more than $1.5 million.
[23]
Conclusion
Mr Gomes has succeeded only against the first defendant.
I have assessed damages in the sum of $794,500, on a diminution in market value basis ($755,000 diminution in market value and $39,500 stamp duty).
Mr Gomes paid a deposit of $44,000 on 6 May 2015. He is entitled to interest on that sum between the date of exchange and the date of completion being 12 November 2015. Interest has been calculated in accordance with s 100 of the Civil Procedure Act 2005 (NSW) and the practice note thereto (SC Gen16).
Interest on $44,000 from 6 May 2015 to 12 November 2015 amounts to $1,415.23.
Interest on the total sum of $794,500 from 13 November 2015 to 7 February 2025 calculated on the same basis amounts to $420,699.94.
Damages is thus assessed as follows:
1. Diminution in value: $755,000.00.
2. Stamp duty: $39,500.00.
3. Interest from 6 May 2015 to 12 November 2015: $1,415.23.
4. Interest from 30 November 2015 to 7 February 2025: $420,699.94.
5. Total: $1,216,615.17.
Although Mr Gomes entered into the contracts on 6 May 2015, the Company became the purchaser by the time of completion on 30 November 2015. As such it is the Company which has paid for the property and suffered the loss of diminution in value. It is the Company which paid the stamp duty.
In the circumstances, the Company is entitled to a judgment against the first defendant.
Mr Gomes (the second plaintiff) has not succeeded in his claim for personal injury.
In terms of costs, the Company succeeded against the first defendant although Mr Gomes has not. Other than a legal submission about the difference between the entities there was really no distinction made between the two plaintiffs during the hearing of the case. The first defendant should pay the costs of both plaintiffs as they would be identical in any event (to the extent that there are any as Mr Gomes appeared without representation.
The plaintiffs have not succeeded against the Council and must pay the Council's costs.
The orders I thus make are as follows:
1. Judgment for the first plaintiff against the first defendant in the sum of $1,216,615.17.
2. Judgment for the first defendant against the second plaintiff.
3. Judgment for the second defendant against the plaintiffs.
4. The first defendant is to pay the plaintiffs' costs as agreed or assessed.
5. The plaintiffs are to pay the second defendant's costs as agreed or assessed.
6. I grant liberty to the parties to apply on three days' notice should any variation of those costs orders be sought.
[24]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 07 February 2025
Mr Gomes then travelled to Cohuna where he met with the vendor. He was shown around, although it is apparent that he was not shown all the motel rooms. He was put in touch with the vendor's solicitor, Bruce Embleton.
He says that Mr Embleton spoke to him about the business and suggested that it would be a great investment for someone like him. Mr Embleton told him (Mr Gomes says) that the current owner would only take her personal things and leave everything for the new owner. He called it a walk-in walk out type of sale. He asked about the price and Mr Embleton said he would get back to him.
He returned to see Ms Keefe before leaving Cohuna. He asked her how much stock was on the premises. She said that the alcohol alone would have a value of $350,000 in stock.
On 14 April 2015 he received an email from Mr Embleton specifying the price of $880,000, walk in walk out for the freehold and business including stock, equipment, and plant.
He asked if the price was negotiable but was told not even one cent less. He believed that and agreed to pay that amount.
He then approached a person already known to him, Navjeet Matta, a finance consultant/broker. On 15 April 2015, he rang Mr Matta and then visited his office showing Mr Matta the email from Mr Embleton. At this stage Mr Gomes had already accepted the vendor's offer and agreed to pay $880,000 for the Hotel/Motel. Mr Gomes then asked Mr Matta to start the process of finance.
At the time Mr Matta and the first defendant shared the same office space. It seems that Mr Gomes was a regular visitor to their premises. I am not sure why. The first defendant had previously acted for Mr Gomes on the purchase/sale of two or three residential properties in the south western suburbs of Sydney.
At the request of Mr Gomes, Mr Matta approached the first defendant and asked whether he would be interested in acting for Mr Gomes. At the same time, he forwarded an email to the vendor's solicitor requesting more time to organise finance.
The first defendant did not immediately agree to act for Mr Gomes, (he may have even declined initially) but on the next day (16 April 2015), he said he would at a fixed price of $2,500. There is some dispute as to what the first defendant agreed to do for Mr Gomes but, according to both Mr Gomes and Mr Matta, the first defendant agreed to act for him on the transaction, that is the purchase of the Hotel/Motel.
At least in one part of his evidence, the first defendant said he agreed to assist in the completion of the transaction, but it must be that the first defendant had agreed to do more than that because he forwarded a letter to the solicitors for the vendor about some matters arising prior to the exchange of contracts.
Unfortunately, the first defendant did not send any email or letter to Mr Gomes confirming his instructions or the nature and scope of his retainer.
On the first defendant's case, he had several discussions with Mr Gomes and provided extensive advice to Mr Gomes during the course of the transaction, albeit all orally and never confirmed in writing. Mr Gomes denies that the first defendant provided any such advice.
It is clear that Mr Gomes agreed to purchase the Cohuna Hotel Motel based only on his limited inspection of the premises in January 2015 and on the basis that the vendor would not negotiate at all. The initial communications with the vendor's solicitor were direct and then through Mr Matta. There was even some reluctance on the part of the vendor to provide financial information but, as Mr Gomes needed the financial documents to obtain the loan, the vendor then provided financial material for the two years prior thereto.
The documents were never checked or verified with reference to original material or filed tax returns. A more canny investor may have looked at the financial documents with a degree of cynicism as it seems that the turnover of the business had multiplied by three in the two years before it was sold. Alas, it had not actually resulted in any profit upon which tax might have been payable because of matters such as the substantial increase in rent paid by the vendor to a corporate entity (controlled by her).
Having said that, Mr Gomes must have looked at the available financial statements because two of the reasons he was convinced that he could make a profit from the business in the future were that:
1. he would not have the same high wage figures as his family would be working in the business, and he would be the chef; and
2. he recognised that there had been a substantial increase in rent such that the business still ran at a loss.
He believed that with the turnover as specified and having regard to the nature of the expenses, he could make a substantial profit from the operation of the business. He plainly wanted to buy the business. This was something put to him in cross examination. He agreed.
According to both Mr Gomes and Mr Matta, Mr Gomes, the first defendant and Mr Matta met on 17 April 2015 to discuss the purchase of the business. Mr Gomes says that at that time he informed the first defendant that the purchase would include the $350,000 of stock. Mr Gomes understood that the walk in walk out basis would include the stock to that value because the vendor had told him that that was the value of the stock. Mr Matta corroborates Mr Gomes's recollection about the stock value.
Mr Gomes says that the first defendant then advised him to go back to Cohuna and take photos of the stock so that he could ensure that at settlement there would be no reduction in the agreed stock. According to Mr Matta, the first defendant also agreed that he would speak about the stock value with the vendor's solicitors.
Mr Gomes then agreed that he would go to Cohuna on 20 April 2015 to take the pictures and bring them back. Again, Mr Matta says the first defendant told him they should keep the pictures in case they were needed at the time of settlement.
The first defendant denies ever giving this advice or knowing anything about the $350,000 worth of stock.
According to Mr Matta, after Mr Gomes returned with the photos, there was a further meeting with the first defendant during which there was some discussion about some of the conditions which Mr Gomes wanted. One of the few documents on the first defendant's file which came into existence prior to exchange was a letter from the first defendant to the vendor's solicitors dated 30 April 2015. This tends to indicate that there was a meeting or discussion with Mr Gomes at some time. The first defendant's correspondence refers only to the contract for the sale of business. There is no requisition or even reference to the contact for sale of land.
There followed some further discussions with Mr Gomes about the corporate structure which would be used to purchase the Hotel/Motel. Mr Matta liaised with Mr Gomes's accountant Ben Rao about this.
At the same time, Mr Matta continued to review Mr Gomes's capacity to borrow. He spoke to Mr Rao (Mr Gomes's accountant) about the financial returns and was informed of the very high rent and wages paid as disclosed in the financial statements. He also took account of Mr Gomes's suggestion that the vendor was an elderly lady and that he believed that he could run the business much more efficiently.
After Mr Gomes received some advice from his finance broker and the accountant, finance was arranged, and Mr Gomes agreed to go ahead with the purchase. Mr Matta said that he borrowed $1 million, although no finance documents were tendered by Mr Gomes.
Mr Gomes agrees that he signed what might be termed as the execution pages of both the contract for the sale of land and the sale of business contract ("the contracts"), but he says that he never actually saw the contracts prior to completion and did not obtain copies until 2016. The first defendant disagrees.
Mr Matta also says that he never saw the actual contracts. In fact, Mr Gomes says that he was unaware that there were two contracts, one for the sale of the land and the other for the sale of the business.
In the written documents, the purchase price for the sale of land was specified as $730,000. The purchase price for the business (in a separate contract) was specified as $150,000.
On 22 April 2015, the vendor's solicitor wrote to the first defendant (after being informed that he was acting for Mr Gomes) purporting to provide the first defendant with the contracts, albeit that it is not apparent that the contract for sale of land was enclosed as there is no copy of that contract on the first defendant's file. Further, the first time that the first defendant wrote to the vendor's solicitor was on 30 April 2015 and that letter relates only to the contract for the sale of the business.
The contract for the sale of the business included a condition in the following terms: "plus the value of the stock up to the maximum stock value of nil".
Mr Gomes says that he was unaware of that term. He says that he told the first defendant that he was getting $350,000 in stock as part of the purchase price. The assistance period was noted as 7 days before settlement. The date of settlement was 17 June 2015. Exchange took place on 5 May 2015.
According to the first defendant, Mr Gomes attended his office on 5 May 2015 to sign the contracts. He says he recalls that prior to Mr Gomes signing the contracts he showed a full copy of each of the contracts and gave him a copy of each on that day.
Mr Gomes says that he did not receive the contracts and never saw them. He says he never received any advice about the terms of the contracts. He says he was asked to sign 6 pages which he did.
Mr Gomes says that, after that, he went to find out about all the courses which were required for him to become the proprietor of a Hotel/Motel.
It is not clear why the settlement did not proceed on the due date in June. There are few of the conventional type documents on the first defendant's file. Mr Gomes has not mentioned it in his affidavit.
Mr Matta says he first became aware that settlement was due when he received a copy of a default notice. The first defendant's file contains no correspondence between exchange and the date of settlement, although it does include the default notice. The first defendant says he only received the default notice on 10 July 2015, despite it being dated in June 2015.
Plainly the vendor did not act on that default notice. Indeed, the vendor did not act on a later default notice.
It is not clear what happened in the period between May and October 2015 when Mr Gomes, the first defendant and Mr Matta again became involved in trying to effect completion. It seems likely that Mr Gomes was having trouble getting organised. He was not receiving much assistance from the first defendant.
For some period prior to October and November 2015, Mr Gomes took steps to undertake courses and familiarise himself with the core requirements of running a Hotel/Motel. He says he had a lot of trouble getting the TAB licence changed over. He says the first defendant did nothing to assist him.
These difficulties, which in part arose from the lack of cooperation on the part of the vendor, continued until the end of October 2015. It is not necessary that I comment further on the reasons for the delay in settlement or the difficulties Mr Gomes was experiencing except to say that the reasons for the problems were multifactorial. A problem then arose with Mr Gomes gaining access to the premises and indeed receiving the agreed 7 days training prior to completion.
Importantly, Mr Gomes became aware of significant problems with the property. This all culminated in Mr Gomes and his daughter, Ananna Gomes, raising issues with the first defendant or the first defendant's employed solicitor, Harshita Singh, about their concerns.
Mr Gomes also raised the issue with Mr Matta.
On 9 November 2015, Mr Matta wrote to the first defendant about Mr Gomes's concerns. He received no response.
On 11 November 2015, Ananna Gomes forwarded an email to the first defendant again regarding her concerns and observations about the condition of the property. She also complained that no training had been provided. She mentioned a gas leak and white ant infestation. She mentioned that the stock was being sold to IGA and some was being given away and nothing was being replenished.
The first defendant passed on these complaints to the vendor's solicitor. On 11 November 2015, Mr Embleton responded essentially rejecting all the complaints. The first defendant did nothing but pass on the vendor's solicitor's response. He appears not to have considered the substance of his client's complaints and how the issues raised might impact on the obligation to complete the transactions.
In the meantime, Mr Gomes was in Cohuna trying to obtain training and finalise everything that needed to be finalised for the completion of the purchase. Mr Gomes had agreed to effect settlement himself. I am not sure why the first defendant was not doing it.
Mr Gomes became anxious about the settlement once he found out more about the condition of the property. He says he did not want to settle, having found out a lot more about the property and in view of all the difficulties which were emerging.
He says that he raised the issues with the first defendant. One of the few written communications between Mr Gomes and the first defendant includes an exchange of text messages on the day of settlement wherein the first defendant makes reference to litigation. There is a difference of view between the first defendant and Mr Gomes as to what this means and the context in which the text was sent. Mr Gomes says that he understood he could sue in respect of the problems. The first defendant suggests a different meaning.
However, both the first defendant and Mr Gomes agree that the first defendant did advise Mr Gomes that, if he did not settle, he was at risk of losing his deposit. This was based on a warning from the solicitor for the vendor to that effect.
Mr Gomes says that he felt forced to settle having regard to that risk but understood from the first defendant that they would be able to litigate (presumably against the vendor) if everything that was supposed to be there and was supposed to happen did not happen.
Although there was some time spent on the events which happened at the time of settlement, such that it might have been thought that Mr Gomes was pursuing allegations against the first defendant in respect of his failures at the time of the settlement, there is nothing in the pleadings which suggest that Mr Gomes was pursuing such a case. It is not necessary to delve into precisely what happened in October and November 2015.
It is only necessary to say that:
1. Mr Gomes became aware through various means that there were significant defects in the building;
2. Mr Gomes did not receive the cooperation of the vendor in moving towards completion;
3. the vendor was actively restricting persons speaking to Mr Gomes and access to the hotel; and
4. Mr Gomes obtained no assistance from the first defendant other than passing on his complaints to the vendor's solicitor. The warning that Mr Gomes might lose the deposit was appropriate, but the first defendant appears not to have considered whether there might have been a proper basis for the first defendant not completing at that time; whether he should seek a further extension or whether there might be something in what his client was telling him which required some legal advice. Unfortunately, the first defendant seems to have merely passed on the response of the vendor's solicitor as if that should be accepted without question.
By the time of settlement, Mr Gomes had become increasingly concerned about his proposed purchase. During his visits to the hotel in the months before the settlement, he had found out further things about the property and had been warned by locals that he should be getting a building or pest report on the property.
He spoke to a local builder, Owen McLoughlan, but Mr McLoughlan declined to assist. Ms Gomes's email to the first defendant dated 11 November 2015 summarises the position.
Further, when Mr Gomes attended in Cohuna for the purposes of settlement and found out that the stock which he thought he was buying was no longer present on the property he raised this with Mr Embleton, the vendor's solicitor.
He walked out of the first scheduled settlement meeting. He did not want to settle having regard to the further information that he had ascertained about the property. He was communicating with the first defendant about the issues. The first defendant advised him that there was a risk that if he did not settle, he would lose his deposit. He then went ahead with the settlement. However, he was left with no stock and the transfer of licences had not yet been completed. He plainly knew when he settled that there were a number of issues with the property including a pest infestation, a gas leak, and a leaky roof.
I accept that he went ahead with the settlement because he believed he would lose his deposit and further that he thought based on the text sent from the first defendant that he would be suing the vendor in some way because of the condition of the property.
Mr Gomes consulted different solicitors and instructed a barrister. In the meantime, the business remained open. During the period 2017 to 2021, there were a number of inspections on behalf of Council officers relating to the condition of the property. Emergency orders were issued in 2022 in respect of veranda and balcony repairs. Although there was some compliance with the orders, the Hotel/Motel is now in such a poor state that it cannot be operated and cannot be used. Mr Gomes is limited to operating the bottle shop.
For the past nearly 10 years Mr Gomes has been engaged in the process of both:
1. attempting to operate the business he bought; and
2. seeking redress in respect of the position he finds himself in.
He has sought to join the solicitors and barristers who formerly acted for him and seemed confused as to whether they were defendants in these proceedings. They are not.
Ms Gomes says that only after settlement did they obtain full access to the property. It was only then they realised all the significant problems with the property. They did not obtain the proper documentation and at one stage the police attended suggesting they were not complying with relevant legislation, but they did not have the relevant documents.
There were many issues with this building and the way the business was operated. According to Ms Gomes, it was only after Mr Gomes took over that steps were taken by the authorities to enforce regulatory compliance. Ms Gomes says they were never able to obtain a copy of the contracts from the first defendant.
They ultimately obtained them from the solicitor for the vendor in 2016. It was only then that they came to realise that stock was recorded as nil in the contract. According to Ms Gomes, it was only after they settled that they came to fully realise the extent of the problems with the property. For example, they were told by the local maintenance man that the termites had been in the building for 20-25 years and the balcony had been sagging for a number of years.
Ms Gomes had started baking and selling baked products to members of the community. In that context she came across the local council health inspector Michael Kangas. Mr Kangas told her he would be coming to town to inspect all of the businesses. He inspected the hotel in around 21 March 2021. At that time Mr Kangas told her that the problems which were visible and which led to the licence to being revoked, had been present before 2015. He said he was surprised no one had shut down the hotel prior to their purchase of the hotel and it should have been shut down 10 years prior by the Council.
Further, he said that when discussing the need to get building and pest reports with Mr Gomes, Mr Gomes simply told him he did not want to get one because he had inspected the building himself. He says that he thus recalls giving advice to obtain such reports and that Mr Gomes expressly rejected such advice.
The general effect of the first defendant's affidavit was that he attended to the matter promptly and appropriately, albeit he did not confirm any of his advice in writing. He maintained that he provided a copy of the contracts to Mr Gomes and explained to Mr Gomes that there were two contracts, one for the sale of the land and the other for the business. Again, he accepted that there was no record on the file of him doing so.
He said that he went through the contractual terms and in particular, he advised Mr Gomes about the meaning of walk in walk out and that it was a term of the contract that the stock on hand at the time of completion would be nil.
In advising Mr Gomes as to the meaning of walk in walk out, he did a Google search and printed out an extract from something on the Internet. He says that he provided to Mr Gomes the Google search which explained the meaning of walk in walk out.
It is a little surprising that the only piece of paper or electronic communication which the first defendant professes to have given to Mr Gomes was a Google search on a piece of paper not on letterhead which purported to be his advice as to the meaning of walk in walk out.
As for the events which happened prior to completion, the first defendant maintained that when he received the correspondence from Ms Gomes (notifying him about Mr Gomes's concerns and the vendor not complying with the terms of the arrangement), he passed that correspondence on to the solicitor for the vendor who responded. He says he then forwarded that response back to Mr Gomes.
However, he appears not to have given any advice or considered Mr Gomes's position other than informing Mr Gomes that there was a risk that if he did not settle, he would lose his deposit.
The first defendant's oral evidence did not start well. When he first entered the witness box he said that he might have file notes somewhere other than his file. This was plainly wrong and accepted by him to be so the next day. He offered as an explanation his shock and offence at being accused of swearing when that is against his religion. It is difficult to accept that his offence would have led him to give completely incorrect and self-serving evidence.
The first defendant was cross-examined extensively by Mr Gomes. Unfortunately, there were significant language difficulties with the first defendant not understanding some of the questions. I endeavoured to assist by paraphrasing and seeking confirmation from Mr Gomes as to the intent of his question.
I found the evidence of the first defendant unconvincing and unsatisfactory. Whilst it may be that he was offended by the suggestion that he had used a swear word during a telephone conversation with Ms Gomes (as it was contrary to his religious beliefs), I do not accept that he was so offended and stressed by this suggestion that it caused him to give incorrect evidence when he first entered into the witness box.
His initial suggestion that he may have had file notes of conversations with Mr Gomes was plainly incorrect. He produced his file to Mr Gomes's former solicitors and provided a copy to his current solicitors. There are no file notes evidencing the discussions he said he had with Mr Gomes.
He says that Mr Gomes was his most difficult client such that he recalls his allegedly extensive conversations with him. He even says that Mr Gomes expressly rejected his advice and they had a discussion about that. Despite it being his usual practice to make file notes and send written confirmation of his advice, he did neither in this matter.
It defies belief that, if he had the conversations, he would not have made some record of them. He admits that it was his usual practice to do so. Yet he chose not to do so with the person he describes as his most difficult client.
There are also some other indications that the first defendant's evidence that he received copies of both contracts and then provided copies to Mr Gomes and advised him as to those contracts may not be correct. For example:
1. No copies of the contracts are contained on the first defendant's file (which he says he provided to the former solicitors for Mr Gomes and his own solicitors). It again would be very surprising if a competent solicitor would not keep a copy of the contracts in his own file even if he might provide copies to his client.
2. Mr Gomes says that he was simply asked to sign a number of pages (the execution pages). I do not accept that Mr Gomes was so devious so as to pretend not to have received the contracts and made up a story about only receiving them in 2016 albeit admitting to signing the execution pages.
3. Curiously, there is a document signed by the first defendant and presumably completed by him around the time of settlement of the transaction in which he specifies the sale of the land as $880,000. Further, he calculated stamp duty on that basis. The contract for sale of land specified the purchase price as $730,000. Completion of a formal transfer document by the first defendant specifying the value as $880,000 indicates at the very least an error on his part, and at the worst (for the purpose of this case) ignorance of the actual terms of the contracts (because he did not have them and had never considered them).
The first defendant is a solicitor of many years experience. Yet in dealing with his most difficult client he decided not to follow his usual practice and not to confirm advice he had given which he says Mr Gomes expressly declined to accept. This makes no sense.
He suggested that he had been unwilling to act for Mr Gomes. That may be so and that might explain what transpired but that does not justify what appears to have been his complete lack of concern or action for and on behalf of Mr Gomes.
The first defendant agreed to act for Mr Gomes on the transaction involving the purchase of the Cohuna Hotel Motel for a fixed fee of $2500. Again why he did that is not known but he did not send any letter of retainer confirming this. The only document evidencing any work done by him prior to exchange is a pro forma type letter requesting particulars.
There is no document in which he purports to give advice as to the terms of the contract prior to exchange. There is no file note recording anything Mr Gomes might have asked the first defendant. Perhaps viewing the first defendant's conduct charitably, he thought that it might be appropriate to do what might be described as the minimum amount of work for a fixed fee without worrying about the formalities or niceties of the usual arrangements between a solicitor and client.
On a less charitable view, he thought that as he really did not want to act for Mr Gomes and was perhaps only doing it as a favour to Mr Matta, he would just do it on a fixed fee basis and only do the minimum.
Alas at least on a review of the documents contained in his file, the minimum appears to have been very little at all.
His thinking is apparent from the email he sent to Mr Gomes some time after the transaction (email dated 8 February 2017 about his fees). Mr Gomes was plainly asking why he had not been given a tax invoice. The first defendant responded saying this was because he did not charge. This is only half true. He did not send the tax invoice, but it was not that he did not expect to be paid. It is just Mr Gomes never paid him.
That is hardly an excuse for his failures prior to exchange and completion of the transaction.
In the end I prefer the evidence of Mr Gomes. Although he was hardly an impressive witness, he was quite direct in denying the propositions put to him to the effect the first defendant provided the advice. He was adamant that no such advice had been provided. Further, the evidence from Mr Matta and surrounding evidence tends to suggest that Mr Gomes's evidence on at least the stock issue is more likely to be true. That is:
1. Mr Matta's evidence tends to corroborate Mr Gomes's statements about informing the first defendant of the $350,000 in stock.
2. Mr Gomes did go back to Cohuna to take photos of the stock and says the first defendant had advised him to do so.
3. The assertion that the only advice in writing provided to Mr Gomes was a copy of a Google print out explaining the meaning of a walk in walk out contract is difficult to accept. Further, the provision of that document to Mr Gomes would not obviate the first defendant's obligation to properly advise Mr Gomes as to the terms of the contracts.
4. Further, Mr Gomes's conduct at the time of the deal tends to support his suggestion that he thought he was getting $350,000 of stock. He was complaining to the first defendant that the stock was being removed. He went to the police. He did not want to go ahead with the settlement. He had taken no steps to purchase stock before completion, even though (on the first defendant's case) he had told him that the value of the stock in the premises at the time would be nil. This makes no sense.
Whatever the difficulties which arose because of the way in which Mr Gomes gave evidence, I accept his evidence that he did not receive advice from the first defendant:
1. to obtain building and pest reports;
2. as to the terms of the contracts, specifically that the value of the stock was nil; and
3. to make his own enquiries of the Council.
Mr Hamour was unable to determine the cost of re-refurbishment, having regard to the extent of work which would be required. He estimated $6-7 million. He thought the cost of demolishing the building and rebuilding would be in the order of $5-6 million.
Mohammad Huda, a forensic engineer, offered a similar opinion. He considered that the buildings had suffered from a lack of maintenance for many years. The property had needed renovation for decades. It had become a public health issue. He felt that it should be rebuilt. He said in oral evidence that the level of termite infestation in the building would constitute a 'Guinness world record'. That aptly describes the level of termite infestation.
The first defendant retained Patrick Turl, a building consultant, who carried out an inspection on 7 November 2024 and prepared a report dated 18 November 2024. Whilst he was challenged by Mr Gomes in cross-examination as to whether he had properly inspected the whole building, he in fact came to similar conclusions as to the other experts.
For example, he concluded that the first-floor roof was in poor condition in 2015. There were structural defects in the building. A number of the units showed water damage. The veranda roof would have been in poor to fair condition. The sheet metal roofing had reached the end of its serviceable lifespan. He prepared a scope of works for the repair of the building. He included many of the issues raised by the plaintiffs' experts.
He observed significant termite infestation and fire safety issues. He estimated the cost of repair in the vicinity of $1.7 million. Mr Gomes challenged this estimate on the basis that it did not cover all issues required for repair.
The first defendant sought to challenge Mr Gomes's description of the level of termite infestation in 2015 but I am satisfied that termites have been present in the building for decades. I am satisfied that there were termites throughout the timber structure. There seems to have been very little maintenance to this building for many years prior to the vendor selling the property to Mr Gomes. Mr Gomes was not granted access to all of the property prior to making a decision to buy it. Some of the damage had been painted over but it is also clear that a trained expert would have seen through this.
The defects in the building as at 2015 were substantial. Competent building and pest inspectors would have detected and reported on the defects, including the very substantial level of termite infestation and the other structural defects that would have required costly repair.
One of the difficulties in this matter is the absence of documents caused in part by the fact that Mr Gomes was representing himself and in part because of the complete absence of the usual documents which might be found on the first defendant's file. As the first defendant completed the form to be lodged with the relevant authority reflecting the transfer from the vendor to the company then it must be that at some time the identity of the purchaser was changed from Mr Gomes to his company.
It is known that the purchase was subject to finance as Mr Gomes requested an extension of the completion date to arrange finance and because Mr Matta said that Mr Gomes borrowed $1 million. To his detriment, Mr Gomes did not tender the documents evidencing the existence of the finance and the interest which had been paid. Nor did he establish the basis of the loan, but it must be that the loan was secured by way of a mortgage. If the purchaser was the company, it must also be that Mr Gomes would have been a guarantor.
In my view, the first defendant's attempt to distinguish between Mr Gomes and his company for the purposes of causation should be rejected. Once it is accepted that but for the failure to give the advice, Mr Gomes would not have entered into the transaction, then the loss would be caused by the failure to give the advice.
I do not accept that Mr Gomes would not have obtained a building and/or pest report even if he had been advised to do so prior to exchange.
When he became aware that it might be a good idea to do so (after exchange), he attempted to do so. He experienced some difficulties in doing so and events overtook him. As time progressed, particularly in October and November 2015, he became increasingly aware of the significant problems with the building. It is for this reason that he attempted to delay and then avoid settlement.
It was not until he was advised by the first defendant there was a risk he would lose his deposit that he went ahead with the settlement.
I do not accept that his conduct after exchange and before settlement indicates that he would most likely not have followed any advice to get a building and pest report. The circumstances were different and he was being pressed to settle. Whilst the vendor's solicitors did indicate the vendor would not negotiate on price, there is no evidence of any other potential purchaser in the wings, or that if properly advised Mr Gomes would not have had time to obtain a building and pest report.
Similarly, there is no evidence that Mr Gomes did not follow the first defendant's advice on earlier occasions when he was involved in real estate transactions. The first defendant refers to advising Mr Gomes to obtain a building and pest report in respect of the purchase of his Dharruk, NSW property, and then comments that he does not know whether Mr Gomes followed that advice.
Leaving aside my doubts about the first defendant remembering the precise advice he gave in a standard conveyancing transaction in 2013, his suggestion is speculative. All that can be really said about that evidence is that there is no evidence that Mr Gomes did not follow the advice the first defendant gave him on earlier transactions.
Nor do I accept that because of Mr Gomes' enthusiasm for the project he would have bought the property irrespective of any condition revealed in a building and/or pest reports. As I have already indicated the condition of this property was extremely poor. A building and/or pest report would have revealed that it needed substantial work to make it safe and serviceable. The idea that any person when confronted with a pest report suggestive of large-scale termite infestation would have simply gone ahead with the purchase of such a structure, despite that warning, would seem absurd.
Even with Mr Gomes's enthusiasm for the project, I am not satisfied he would have gone ahead.
Further, this is not a matter in which it might be suggested that Mr Gomes might have negotiated a reduced price. On the face of the statement by the vendor's solicitor, the vendor was not prepared to negotiate. With hindsight that might be difficult to accept but that is what Mr Gomes was told by the vendor's solicitor. No inference could be drawn to the contrary.
Mr Gomes did not know that the building suffered so many defects. He might have been naïve in believing the vendor's solicitor and not carrying out a proper inspection of the property himself but I do not accept that he would have been so foolish so as to simply ignore building and pest reports which would have shown just how defective the building was and how much repair was necessary.
Further, I have already accepted that Mr Gomes believed that he was receiving $350,000 in stock as part of the purchase price. I do not accept that if he had been told that in fact he was receiving no stock, meaning there would be no stock on the premises when he took over the operation of the hotel, that he would have simply gone ahead anyway. Again, the price was said to be nonnegotiable. Mr Gomes thought he was getting all the stock for the total price. I do not accept that if he had been informed that he was in fact getting no stock he would have gone ahead anyway.
In the circumstances, causation has been established.
The Council adduced evidence from its Chief Executive Officer, Geoff Rollinson. He has been employed by the Council since January 1995 and has been CEO since December 2022. As he says in his affidavit, under the Building Act 1993 (Vic), the Council has responsibilities in connection with buildings within its municipality, which include:
1. reviewing and responding to reports and consent applications;
2. providing building information certificates;
3. enforcing compliance with the regulations;
4. investigating suspected non-compliance with the Building Act; and
5. utilising emergency powers to protect public safety.
In this regard, the Council has since 1995 employed a municipal building surveyor to oversee and discharge the Council's statutory functions. Through that surveyor the Council makes building orders or emergency orders on property owners. Further, in accordance with the Building Act, if the municipal building surveyor is not satisfied with the response, he may issue a building order that will require the property owner to undertake the work specified in the order within a stated time.
On 20 May 2011, the Country Fire Authority (CFA) released a safety report on the Cohuna Hotel Motel which identified issues relating to smoke alarms, emergency procedures, and a lack of fire extinguishers. The report was sent to the municipal building surveyor. On 25 May 2011, the municipal building surveyor issued a notice following his own inspection of the property that occurred on 25 May 2011. The 2011 notice identified certain matters for attention, including those matters referred to in the CFA report.
The CFA safety report is exhibited to Mr Rollinson's affidavit. The report identifies deficiencies with exit doors, smoke alarms, emergency procedures and fire extinguishers. It does not otherwise identify defects in the property. The building notice referred to a number of noncomplying items in the Hotel/Motel but generally just referred to the safety defects identified by the CFA.
The then owner of the property responded to the building notice seeking more time, which was granted by the Council on 3 August 2011. A further extension of time was granted in 2012.
According to Mr Rollinson, the Council now holds no documents relating to the condition of the Cohuna Hotel Motel between 2012 and 2017. This may be surprising but is perhaps explained on the basis of some flooding of the Council's premises at some time.
The next fire safety audit conducted on the premises was conducted on 18 July 2017. At that time a number of substantial defects were observed with the property. The Council sent a letter to the company on 24 May 2017 identifying a number of these defects at least in so far as they related to fire health and safety issues. Mr Gomes responded to the letter by organising Mr Bowman, an engineer and builder, to carry out an inspection and prepare a report in respect of the property.
Mr Bowman was called as an expert in these proceedings and prepared subsequent reports. Suffice to say that his report of 16 June 2017 identifies some of the substantial defects about which I have already spoken.
On 16 April 2021 the Council issued an emergency order relating to the floor framing of the sagging section of the veranda. The Council followed up on 17 May 2021. Further orders were issued on 21 January 2022 and 1 February 2022. On 15 August 2022, the municipal building surveyor received a letter from Mr Bowman indicating an inspection of the balconies revealed that they were compliant with the 2022 second emergency order.
It is perhaps surprising that the Council did not carry out any inspections of the property for the 5 years between 2012 and 2017. However, it is important to note that the inspection by the municipal building surveyor which was carried out in 2011 after the inspection by the CFA appears to have been limited to addressing matters of health and safety. The building order was limited to those matters dealing with fire safety. There is nothing on the Council file which indicates that the Council was aware of or had general concerns about the overall condition of the property at least until its inspection in 2017. This is not a case in which the Council had direct knowledge of the very poor condition of the commercial premises. This is a case in which the Council had become aware of some failure to comply with relevant regulations 4 years prior to the plaintiffs' purchase but had not ensured that those defects were remedied.
These matters were not such as to impose on the Council a duty to an incoming purchaser such as the plaintiffs to exercise reasonable care to prevent economic loss. Whatever obligations the Council might have had in respect of ensuring compliance with health and safety and fire regulations in buildings within its municipality, the plaintiffs are not entitled to succeed against the Council because the Council did not owe them a duty of care to do the things the plaintiffs allege.
The plaintiffs' claim is limited to claims for economic loss, albeit that Mr Gomes pursues a derivative psychological injury claim.
The plaintiffs have not identified any statutory obligation imposed on the Council to carry out regular inspections of the property.
Section 106 of the Building Act (Vic) authorises the Council to carry out inspections and make orders but do not compel the Council to do so.
As identified in Ku-ring-gai Council v Chan [2017] NSWCA 226, per Meagher JA at [68], a claim by a subsequent owner to recover the cost of repairing structural defects in a building is one for pure economic loss (Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 ("Woolcock") at [20] (Gleeson CJ, Gummow, Hayne and Heydon JJ); Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 ("Brookfield") at [47] (Hayne and Kiefel JJ).
Further, damages for pure economic loss are not recoverable if the plaintiffs merely establish that the loss suffered was reasonably foreseeable (Woolcock at [21]). As the Court observed, it is necessary to focus on the presence or absence of other features or factors which may suggest that a duty should be imposed (Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59 at [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ); Brookfield at [24]-[25] (French CJ); Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]-[103] (Allsop P)).
In particular, vulnerability is a relevant factor (see Ku-ring-gai Council v Chan at [69] and Woolcock at [23]). In Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [10], Gleeson CJ observed that:
"knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care".
Mr Gomes would not fall within a class of persons who would be considered vulnerable for the purposes of determining whether a duty of care should be imposed upon the Council. Mr Gomes was a person who was able to and did take his own steps to seek advice as to what he should be doing to protect himself in respect of the purchase of the property. As it turns out he did not obtain proper advice, but it does not seem to me that Mr Gomes, as a purchaser of commercial property, should be considered vulnerable and reliant upon the Council to have carried out regular inspections of the property to ensure it was in good condition.
In the circumstances, the plaintiffs' claim against the Council must fail.
The claim would also fail because, to the extent that the claim is based on the Council's failure to properly follow-up on its own building orders in 2011 and 2012, it is notable that those orders related only to some fire safety issues. There is no evidence the Council was aware of the generally poor condition of the property in 2011, or any time prior to 2015.
Even if the plaintiffs had established that the Council owed a duty of care to them to ensure to follow-up on their own building orders, all that would have happened is that further fire safety measures would have been taken.
The plaintiffs bear the onus of proof on causation. I would not accept that, but for the failure of the Council to ensure that the fire safety measures were taken in 2011 and 2012 or any time thereafter prior to 2015, the plaintiffs would not have gone ahead with the transaction. Those were measures which could have been fixed with relatively little expense that pale into insignificance in comparison to the generally poor condition of the building that I have otherwise identified.
The plaintiffs fail against the Council because:
1. they have not established the existence of any duty of care;
2. they have not established any of the alleged failures on the part of the Council; and
3. they have not established that any such failures caused the plaintiffs any loss, in the sense that but for the failures of the Council, the plaintiffs would not have entered into the transaction.
In 2015, Mr Gomes's position was that:
1. he was a person who spoke English as his second language;
2. he had no experience in negotiating commercial transactions;
3. whilst he had purchased residential real estate previously, he had not purchased commercial real estate;
4. he was obviously trusting of what he was told;
5. he appointed both a finance broker and a solicitor to advise him and assist him on the transaction; and
6. further, contrary to the submission of the first defendant, there is no evidence that the first defendant had advised Mr Gomes in respect of his previous residential transactions that he should be obtaining building and pest reports. Mr Gomes denied any knowledge of this and because I have generally not accepted the first defendant's evidence, this is not something which has been established by the first defendant. I do not know what type of properties Mr Gomes had previously purchased. They may have been houses or they may have been units. The first defendant had not produced any correspondence warning Mr Gomes that he should obtain building and pest reports prior to the purchase of those properties.
I thus do not approach the question of contributory negligence on the basis that Mr Gomes knew or should have known that it would have been a good idea to obtain building and pest reports on the Cohuna Hotel Motel.
Having regard to my findings, some of the particulars of negligence fall away (particulars d and f). I do not accept the factual premise set out in particular a. That is, I do not accept that Mr Gomes had an understanding of purchaser's rights in relation to the conveyance of real property.
I accept that Mr Gomes had not inspected the whole of the property prior to purchase because he had not been permitted to do so by the vendor. I accept that he had not carried out independent enquiries or investigations into the condition of the property prior to exchange.
However, this is the very essence of Mr Gomes's claim against the first defendant. The first defendant has failed to establish that Mr Gomes knew or ought to have known that he should have been carrying out his own independent enquiries into the condition of the building prior to entering into the transaction. In the circumstances, the allegations of contributory negligence relating to Mr Gomes' failure to do so must also fall away.
Mr Gomes relied on the first defendant to provide him advice as to what he should be doing prior to exchange. That does not mean that the first defendant was required to advise Mr Gomes how to run a Hotel/Motel or even provide advice about the financial information given by the vendors but Mr Gomes was entitled to and did rely on the first defendant to provide advice about essential matters well within the responsibility of a solicitor to advise on, being the two central matters the subject of these proceedings (that is the obtaining of building and pest reports and advice as to the terms of the contracts).
Although there is some dispute between Mr Gomes and the first defendant as to what advice was given about the need to carry out enquiries with Council or who might have been responsible for carrying out those enquiries, having regard to my findings, whether or not Mr Gomes carried out independent enquiries with Council would not alter the outcome.
If enquiries had been made, Mr Gomes might have ascertained that there was an outstanding fire safety order but Mr Gomes would have ascertained nothing further about the state of the premises.
In any event, absent evidence that the first defendant advised Mr Gomes to attend at the Council premises and carry out his own enquiries, I do not accept that Mr Gomes is guilty of contributory negligence in failing to do so.
That only leaves the particular of contributory negligence relating to the conduct of Mr Gomes at the time of settlement. True it is that Mr Gomes was more aware of the condition of the property prior to settlement and was also aware that the vendor had removed the stock. That is why he was attempting to obtain assistance from the first defendant as to what he could do about that.
He was given some advice by the first defendant about litigation (the content of that advice is in dispute). He was also told that if he did not settle, he might lose his deposit. He attempted to pull out of the transaction by not settling on the first occasion. He went to the police and was told that it was a civil matter.
These matters tend to suggest a desire of Mr Gomes not to go ahead with the transaction. His actions in then settling after being told that he might lose his deposit and that he could litigate are not suggestive of a failure to take care on his part.
In my view, the first defendant has not established contributory negligence on the part of Mr Gomes. Mr Gomes did not fail to take reasonable care to prevent harm or loss to him.
In this matter, Mr Gomes claims not only those matters, but also:
1. the cost of repairing and/or reinstating the building; and
2. past and future loss of profits.
The claim amounts to many millions. Indeed, if I was satisfied that the building could not be economically repaired and needed to be replaced, his claim just for reinstatement would probably exceed $10 million. Further, he would be entitled to additional sums for loss of profit.
However, in my view, the plaintiffs are not entitled to both the diminution in value and cost of repair or reinstatement of the building. Whilst I have some reservations as to who would ever want to buy the property, I must not put myself in the position of an expert. There is expert evidence as to value on which the parties rely. I must proceed on the basis that, if Mr Gomes chose to, he could sell the property and indeed could have sold the property at any time after purchase.
On one view, a different type of case might have been run, being one in which Mr Gomes sought to establish that he could not sell the property and that he would have to repair it and maintain it. This may have been a case which if properly pleaded, particularised, run and supported with appropriate evidence, Mr Gomes might have been able to recover damages on a different basis but that is not the case that has been run.
However, whilst Mr Gomes might say that he has adduced evidence of loss of profit and cost of repair, he has also adduced evidence of diminution in market value and run a case on the basis that he would not have entered into the transaction at all, but for the failure of the first defendant to provide the appropriate advice to him.
As the Court observed in Henville v Walker [2001] HCA 52; 206 CLR 459 per Gleeson CJ at [24], the problems of separating post-acquisition losses is a primary reason which supports the application of the usual rule.
The usual approach should be applied in this matter. That is not to say that the plaintiffs' losses should be limited to only the diminution in value. Certainly, costs of purchase and ongoing interest would be recoverable.
In these circumstances, it is not necessary that I make any finding about the difference between the cost of repair and the cost of replacement. In my view, Mr Gomes is not entitled to either amount. I should say that both estimates were somewhat lacking in detail, but it is not necessary that I comment further on those opinions.
Similarly, Mr Gomes is not entitled to any allowance for loss of profit. Mr Gomes relied on an independent forensic accounting report from Anna Petrasek dated 19 September 2024. As emerged in cross examination, Ms Petrasek made a number of assumptions favourable to Mr Gomes in offering her opinion as to past and future losses.
Included in the analysis of expenses are interest charges. When asked about these charges, Mr Gomes said they were not referable to the particular property. As submitted by the first defendant, it follows that Mr Gomes would not be entitled to those amounts as representing interest on finance paid for the purchase of the property.
Unfortunately for Mr Gomes this is another example of where the presentation of the case was inadequate and some of the evidence which should have been adduced was not adduced. I can only decide the case based on the evidence and the way the case was pursued.
Mr Gomes is not entitled to losses incurred in running the business as, on his own case, he would not have purchased the property at all if he had been given proper advice by the first defendant. I need not consider the expert accounting report further.
Mr Gunning adopted a different approach to the valuation exercise. He considered other commercial premises in the town of Cohuna. In particular, he had regard to tenanted retail premises, that is shops situated in Cohuna. He then considered their sale value and determined a price per square metre of land.
He said that the comparable properties he used ranged from 255m² to 1773 m². He applied a rate of 185 m² to the full value of the Cohuna hotel motel (3805m²) and concluded that the value of the property in 2015 was $705,000. He then undertook the same exercise for a current valuation applying an increased rate of $265 per square metres. He considers that the current value is $1 million. In other words, the value of the property had gone up nearly $300,000, despite the fact that Mr Gomes is precluded from operating the hotel business because of the condition of the property and on the defendant's case, the cost of repairs would amount to $1.677 million.
Mr Gomes cross-examined Mr Gunning about his assumptions and, in particular, about the extent to which he had regard to the significant damage to the property and indeed the Council orders which prevented him from operating his business. Mr Gunning suggested that he had regard to these matters but he also had regard to enquiries he had made in the town, particularly of a local real estate who had told him that there are a number of people interested in buying the Hotel/Motel and that Mr Gomes had received offers of $900,000 to $1 million.
There is no evidence of such offers ever being made or the basis of those offers. There is no evidence from the local real estate agent as to his theory of value. It is difficult to accept that Mr Gomes has received such offers.
I raised with Ms Avery-Williams whether the report should be admitted. Whilst I ultimately admitted the report, I have some considerable reservations about the basis of Mr Gunning's valuation. This is because:
1. Firstly, his comparable premises are small retail shops in the town. I do not accept that that would represent a comparable market for the purposes of assessing comparable sales. True it is that there has been no comparable sale of such a property in Cohuna for many years but market value is not determined with reference to comparable sales of buildings that are completely dissimilar and serve a different purpose, but which happen to be in the same town.
2. Secondly, whilst Mr Gunning did adopt a low square metre rate to account for some of the problems with the building, I am unable to be satisfied that even that square metreage rate pays proper regard to the condition of the buildings, at least in its current state or at any time in its termite infested and otherwise structurally unsound state.
3. Lastly, the property has been in such poor condition that it cannot be used except as a bottle shop. The financial information provided to the plaintiff prior to his purchase suggests that the business had not made a profit for a number of years. On the defendant's case the cost of repairs would be almost $1.7 million.
I am faced with competing valuations based on different approaches. One of the difficulties is understanding how there could really be any market for a building in such a state, either now or at the time of purchase. There is no evidence that there would be any market for selling approximately 3800 m² of vacant land in Cohuna. Any assessment of the value must have regard to the building on it and the nature of the building and the business operating from the building. The idea that anyone would pay $1 million for a building of that age, which is ridden with termites and structurally unsound and at least on one view is a complete knockdown is absurd.
The methodology adopted by Mr Gunning may be a sound methodology in some circumstances, but I do not accept it as an appropriate methodology in the circumstances of this case. I prefer the approach of Mr Staltari.
I accept his opinion as to the difference in value based on the assumed undamaged state and the actual state of the building at the time of purchase.
I do not consider that it is appropriate for a legal practitioner who fails to advise on the terms of a contract for the purchase of land and a business to be liable for a psychological injury which first developed some years after the negligence of the legal practitioner and which is said, on first diagnosis 8 years after the conduct of the solicitor, to be caused by a number of different factors.
In all of these circumstances Mr Gomes's claim for damages for personal injury fails.