Torok v Petersen; Gauci v Petersen

The Credibility of Witnesses

1. I have no reason whatsoever to doubt Torok's reliability and honesty. Cross examination of him by Petersen did not undermine in any respect the evidence Torok gave in his two Affidavits. He appeared to me to answer the questions asked of him forthrightly and without any evasiveness.
2. In respect of Gauci, who I also accept as an honest witness, there was some uncertainty about the date that she and Petersen signed the contract, but she gave evidence that she had seen Petersen delete the reference to GST in the contract and her evidence was that he told her she did not need to pay GST at the time of paying the deposit and that on 2 November 2016 she signed the agreement: see paragraphs 18-19 of her Affidavit. The deletion of the reference to GST on the photograph copy she took is not initialled by either herself or Petersen, and on the copy which became Exhibit 1 it is not excised. One explanation is that Exhibit 1, although bearing a date of 9 November 2016, has amendments made in August 2017 which clearly do defer GST payments, so it is not necessarily the original document dated 2 or 9 November 2016. The other contemporaneous documents in November 2016 (see CB 480, 486 and 489) strongly support Gauci's contention that Petersen had agreed that GST was not payable at the time of the deposit, and cross examination of Petersen only strengthened that view: see T127 - T129.
3. Mr Walker, who did the work on the PFH to enable it to be towed, was cross examined briefly by Petersen. I have no reason to doubt Mr Walker's honesty and reliability. Mr Luke Dalton (whose evidence was very limited), although available, was not cross examined, and neither was Ms Curchod, the solicitor for Torok and Gauci.
4. The experts who gave evidence on behalf of Torok were not cross examined. There are, however, issues arising out of their unchallenged evidence, to which I shall return.

Petersen's Credibility

1. I accept Ms Beange's submission that Petersen should not be accepted as an honest or reliable witness and for the following reasons: 1. He asserted that he had not seen Mr Dalton's Affidavit at any time before the hearing on 19 March, but there is evidence from Ms Curchod that she sent the Affidavit to him, both to his business address and by email: see Ms Curchod's Affidavit of 9 March 2020. 2. In his Affidavit, Petersen did not assert that he had paid mooring fees that Torok had said he (Torok) had paid. Petersen agreed with Ms Beange's suggestion that Torok had paid mooring fees other than at the first stages of construction (see T81.30-44), and he had not in his Affidavit challenged Torok's evidence (at paragraph 53) about this, but later, in answer to a question of mine, Petersen asserted that he had paid mooring fees that were invoiced to Torok (and which Torok had said he paid): see T83 - T84. Petersen said that he had paid those amounts from his normal bank account: see T84.35-38. Petersen had become aware by this stage that his claim that he did not need to hand over the PFH because Torok still owed him (on his case) $2,000 would be compromised if Torok had paid the mooring fees. When Petersen realised that his bank statements were in evidence he asserted that he had paid the bills with his visa card: T84.45-47. When he was taken to his visa statement he could not point to any such payment. I gave him the opportunity overnight to examine all of the statements in evidence and any others that he had and at T139 he stated that he had brought none. Other than the invoices for which payments were recorded at CB 340, which Torok accepts were paid by Petersen, there is no evidence that Petersen paid for the moorings. 3. Petersen on a number of occasions in the witness box gave evidence of matters that were not referred to in his Affidavit: see e.g. T83.28-32, T93.30 - T94.4, T129 - T130 and T131. 4. On one of the matters referred to in (3) above, Petersen sought to blame his solicitor for its omission from his Affidavit: see T94.11. At T112 Petersen blamed the absence of an invoice on his lawyers because, he said, they told him that he did not need the invoice, and also because his computer "blew up": see also T2.5 - T3.16. 5. Petersen could not convincingly explain why he had said nothing about the GST not being paid when Gauci wrote to him advising him that she had paid $99,000 and he had replied to that: see CB 480 and T127 - T129. Neither in that email nor an earlier email had he said anything about Gauci's inability to come up with the GST and, hence, his supposed doubt as to how she could pay for the balance: see the conversation which he sets out in paragraph 42 of his Affidavit, a conversation which Gauci denies at paragraph 9 of her second Affidavit, CB 115. 6. In his Affidavit Petersen asserted that he had told Torok that sliding doors should not have been used by Uncle Bob's Carpentry (see paragraph 21), and that his design called for "toughened glass panels fixed in place" not sliding doors. His design for Torok's PFH (see CB 254-255) did in fact provide for sliding doors and he could offer no sensible explanation as to why he would have said that his design did not call for sliding doors: see T101. 7. Petersen asserted in his Affidavit that he had sold PFHs to others: see paragraph 57. No documents were annexed to his Affidavit in support of that contention. The Plaintiffs' solicitors issued a notice to produce to Petersen, which was called on on the first day of the hearing, seeking, inter alia, production of invoices. Petersen claimed that he did not have any, firstly saying that it would take time to get them back because he had lost his computer six months ago, then he said that the computer's hard drive had blown up, "burned down" and he had thrown it out: T2.15 - T3.16. At T144.34-36 he was cross examined as to his failure to produce documents relating to sales and he said: "I haven't because I don't think that's got anything to do with this case here." 8. Another matter related to an invoice which he claimed to have issued when the work was done: see 26 below. 9. Another example of his assertions being unsupported by evidence relates to his assertion that text messages supporting his assertions were missing: T106.35 - T107.26 and see T147.1-20.
2. Petersen did not complete the PFH within the period specified in writing. Even as of 29 August 2019 it was not (and is still not) complete. Having regard to Ms Beange's submissions and Petersen's responses, it seems that the following issues arise: 1. Has Torok paid $159,500 to Petersen under the contract and, if so, by when had he done so? 2. Was the contract subject to a term that Torok would be liable to pay more than $159,500 should the cost to Petersen of building and completing the PFH increase, and was the PFH required to be built within the period specified in the written contract? 3. Was there a variation of the contract whereby Torok agreed to pay an additional $85,000 for repair of the PFH following the tow to Brooklyn? 4. If it is established that Petersen breached the contract by failing to deliver the PFH within the time specified in the contract, what damage flows from that breach? Included in this is the question of what flows from Torok's failure to rescind for breach. 5. Did Torok loan $35,000 in mid-2016 to PMA (as Petersen asserts) or to Petersen (as Torok asserts). There appears to be no dispute that the amount of $54,590 (i.e. the loan and interest repaid by Torok, as of 30 August 2018: CB 422) is owing by Petersen (on Torok's case) or PMA (on Petersen's case).
3. I will deal with each of these issues in the same order.
4. Torok has paid to Petersen the $159,500, which the contract signed on 12 December 2015 required him to pay. As I have noted, he has actually paid monies that Petersen was required to pay, and almost the whole amount due was paid by May 2016 and the full amount (which was only payable on completion) was paid by September 2016.
5. The contract contained a fixed sum for the PFH, namely $159,500 (inclusive of GST). There is nothing in the contract which provides for an adjustment should Petersen's costs of construction increase. Petersen spoke of an "understanding" that he and Torok had, being that the costs might increase because this was the first PFH to be built. There is no evidence of any conversation prior to, or at the time of, the contract of 12 December 2015 in which there was any qualification as to price. Nor was there any discussion that qualified the period for construction. Indeed, Petersen had provided Torok with a brochure (see CB 226-250) in which the construction period was described as six weeks (CB 233), and Petersen had told Torok that he had already had a prototype built: see paragraph 6 of Torok's first Affidavit.
6. In relation to the alleged variation, Petersen gives evidence of a conversation with Torok on 17 October 2017 in which he told Torok that the cost of rebuilding the bedroom would be about $85,000 plus GST, to which he says Torok agreed: see CB 111D.
7. On 25 September 2017, Torok received an SMS from Petersen (CB 103) in which Petersen said: "hey mate, we're meeting with Luke (the builder) at ur house tomorrow morning to assess the damage and new work needed to be done, let u know how it went, will sed you a list so you're up to date with it." Further, Torok gives evidence that on 23 September 2017 he had a conversation with Petersen in the following terms (CB 104): "Ed: 'It was a scary trip (showed us a few photos). Glen did an awesome job. We got flooded and one of the sliding doors fell out. All the water pumped out of the hull now and sliding door is back in place.' Me: 'Unbelievable! So lucky the house made it here! And lucky I had the top taken off hey?' Ed: 'Yep, it probably would've tipped over or sank for sure. The floor was under 6 inches of water as it was.'"
8. On 14 August 2017, Petersen sent an SMS to Torok (CB 123-124) saying: "Ed: 'Though I wasn't happy with the octagonal idea at first, but I think it's nice. It may cost a bit more to finish though.' Me: 'I had a chat to another builder while you were away and he said it will be much cheaper and easier to construct with the octagonal design. Rounded doors alone cost over $10k. He also said it will look much nicer as the white thing on top looked like an awful giant water tank.' Ed: 'That's his stupid opinion.' Me: 'Anyway, I had no choice but to go ahead while you were in jail. Cammeray Marina was threatening me to take the house away. Maritime wanted it out of the harbour and I had no idea when you were coming out of jail.' Ed: 'F*** Maritime and Cammeray Marina!' Me: 'Regardless, I had to try to have it taken out of there and nobody would do it with the heavy tank on top. It would have tipped over for sure on the open water.' Ed: 'Maybe. Now that the house is on the jetty, we can finish it quickly in a matter of weeks.' Me: 'Excellent! I can't wait! I would like to rent it out before Christmas.' Ed: 'Shouldn't be a problem. I am trying to finish it ASAP.'"
9. Torok says that there was no discussion about him paying any amount for the repair work, and no subsequent request, until after he had his solicitors issue a letter of demand to Petersen in March 2018.
10. I accept Torok's evidence. It is not just that I have no reason to doubt Torok's evidence and no confidence in Petersen's reliability (for the reasons expressed earlier), but also because there are some objective matters which support Torok's version: 1. There is not one single document from Petersen confirming what he says had been agreed with Torok. 2. He did not send any invoice for the work until after these proceedings were foreshadowed. He claims that he did send an invoice before that, but the document which he produced bears invoice number "08" (CB 748) and is dated 23 August 2018, which is sequentially after invoice number "07" (CB 362) dated 6 May 2016, making it entirely unlikely that he issued any additional invoice at any time prior to CB 748, i.e. prior to August 2018. He sought to avoid this in a most unconvincing way, including asserting that his then solicitors had issued an invoice: see T109. In fact, his solicitors sent a letter of demand (see CB 733), not an invoice, and it does not help him establish that he had sent Torok an invoice when he completed the octagonal structure, as he asserts. 3. It is highly unlikely that Torok would agree to pay for work that arose because the vessel could not be towed to Brooklyn in the condition it was in, considering that it was Petersen's contractual obligation to ensure that the PFH was fit for towing. 4. It seems unlikely that Torok would agree to an amount of $85,000 plus GST in October 2017 without any itemisation of cost when in July 2016 he had required an itemised bill of the proposed work before he would lend $35,000 to Petersen. Petersen has not given any detail of how he arrived at the $85,000 figure and he has not established what in fact the cost of the further work was - he has produced invoices from Contemporary Builders (CB 689-691) that contain no details and in a context where those invoices included the cost of other work which Petersen had to complete, such as stairs and a kitchen, and which would have been within the original work required: see T114.31-45.
11. It follows that Petersen has failed to establish that Torok agreed to vary the contract as to price. It also follows that Torok has established that Petersen has failed to deliver the completed PFH within the specified contractual period. It is clear that although he may have been entitled to do so, Torok has not rescinded the contract on account of Petersen's continuous breach. Indeed, he does not seek to do so now. Contrary to Petersen's implicit assertion that because Torok has not terminated the contract for breach he is not entitled to damages, the position is that absence of termination, whilst it might preclude rescission, does not preclude the innocent party from his right to claim damages for all breaches of contract, and Torok is entitled to claim damages arising from Petersen's failure to deliver the PFH on or before 3 February 2016: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286 at 300 per Latham CJ, and see J. L. R. Davis (ed), Contract: General Principles: The Laws of Australia (Thomson Lawbook Co, 2006) at [7.6.130] and J. W. Carter, Carter on Contracts (LexisNexis Butterworths, 6th ed, 2011) at [31.05].
12. Torok claims that he is entitled to damages for the following components: 1. Lost rental from the PFH from the date it should have been delivered, i.e. February 2016, until the date of judgment. 2. Money he paid for mooring of the PFH, namely $6,651.79 (CB 425, 426, 427, 428, 429, 430, 431, 433, 434, 435, 436, 437 and 438). 3. Insurance Torok paid in respect of the PFH - $5,442.43 (CB 307, 518, 727). 4. RMS registration fee paid in 2016 less the refund, i.e. an amount of $140 (CB 309). 5. $23,079.50 paid on behalf of Torok by Gauci to Uncle Bob's Carpentry and Stegbar, which Torok accepts he must repay to Gauci, and $5,790.80 (CB 522-523) paid to Cammeray Shipwrights, i.e. a total of $28,870.30.
13. In relation to various heads of damage, the most significant claim is in respect of lost rent. The purpose of an award of damages is to put the non-defaulting party in the position he would have been in had the contract been performed in accordance with its terms: see Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, citing Robinson v Harman (1848) 1 Ex 850; 154 ER 363. The extent to which a Plaintiff can recover is governed by the rule in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 at 151 per Alderson B, precluding damages that are too remote, expressed as follows: "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."
14. Torok has established that the prospect that he would rent out the PFH was clearly in the contemplation of himself and Petersen by his evidence of a conversation that he had with Petersen in December 2015 in which Petersen told him (see paragraph 7 of Torok's first Affidavit, CB 88): "You will get your investment money and purchase cost back in 3 years from rental income. You could get $50,000 annual rental income." Also, Petersen gave Torok a brochure which included a document which described the PFH as a "Highly rentable investment" (CB 226).
15. In support of the claim for lost rental are two reports - one from Mr Andrew Blake, a real estate agent in the Northern Beaches area (CB 150-151) and one from Mr Beau Bowen of Quadrant Real Estate Valuations Pty Ltd, neither of whom Petersen sought to cross examine.
16. Mr Blake estimates that in 2017 short term rental receipts would have been between $80-200 per night and long term rental between $300-320 per week. His 2018 and 2019 figures are similar for long term rental but his figures for short term rental in 2018 and 2019 are expressed to be per week rather than per night, which appears to be a typographical error. He does not provide an estimate for 2016. Mr Bowen estimates long term rates (three month, six month and 12 month leases) at $15,600 plus GST for 2016 and short term rental as $63,000 plus GST for 2016. He arrives at the $63,000 figure by assuming a rental of $600 per night, based on his examination of comparable accommodation, and an occupancy rate of 30 per cent.
17. On Mr Blake's figures for 2017, the maximum that could be obtained is $200 per night. Assuming 30 per cent occupancy, that would equate to $21,900. If one uses a midpoint between $80 and $200, i.e. $140, the figure would be $15,330 a year from short term rental.
18. There is a large discrepancy between Mr Blake's figures and Mr Bowen's figures, particularly in regards to short term rental, i.e. $80 - $200 per night and $600 per night respectively. I am inclined to accept Mr Blake's range as more realistic, particularly if regard is had to Mr Bowen's table of comparable accommodation at CB 172, since the other accommodation that has figures as high as $600 per night are mainly 4-12 berth or 3 cabins, and Mr Blake has factored into his figures the access issues. There is also a very significant difference even between Mr Bowen's short term and long term rental figures.
19. Given the problems with the evidence presented, I propose to rely principally on the higher end of Mr Blake's range of figures, but coupled with Mr Bowen's evidence of occupancy rates for short term rental (as Mr Blake did not comment on occupancy), leading to a figure of $20,000 for each of the four years from 2016-2020, making for a total of $80,000. I have not made any allowance for small annual increases in rental income because I have adopted a figure at the higher end of Mr Blake's range and I have not otherwise subtracted any amount for the costs which Torok would have incurred to earn this income, as to which there was no evidence (other than mooring and insurance costs, which Torok has paid). The annual figure which I have arrived at is well below Petersen's prediction of $50,000 a year.
20. The figure for rent is predicated on what Torok would have earnt had he received delivery of the PFH. To obtain that income he would have had expenses, including mooring and insurance. He cannot recover those expenses in addition to lost rent.
21. The possibility of rent is predicated on the PFH being moored in a bay rather than at the marina, and Petersen's evidence was that to be moored off the marina registration was required, and that registration could not be obtained if the PFH did not have a motor. Petersen's evidence that a small but appropriate outboard motor could be purchased for $1,500 (T158.15), to enable the PFH to be registered with RMS, was not challenged, so that amount should be added as a cost to be paid by Petersen to ensure the PFH is completed.
22. Petersen did not dispute that a commercial survey would be required before the PFH could be used for rental accommodation, which on the evidence will cost $26,900.
23. Torok has expended $28,870.30 on work on the PFH which should have been done by Petersen. Petersen did not offer any answer to that claim or to the $140 balance claimed for the wasted first registration of the PFH, making for a total of $29,010.30.
24. On the issue of the loan, Torok's evidence supports the claim that the loan was to Petersen. The conversation to which Torok deposes clearly envisages a loan to Petersen. That is hardly surprising since it was Petersen who had contracted to build the PFH. Petersen did not challenge Torok's evidence on this in his Affidavit. All that Petersen said in his submissions was that he had put the loan monies into PMA's account. Even if that were established, it does not alter the fact that Petersen asked Torok for a loan and did not say that he was asking for a loan on behalf of PMA. I find that Petersen is liable to repay the amount of $54,590, i.e. the amount of $35,000 (plus interest) paid to Citibank: see CB 375 and 379.

Conclusion

1. I conclude, therefore, that Petersen is liable for: 1. $80,000 for lost rental from March 2016 to March 2020. 2. Cost of commercial survey - $26,900. 3. $54,590 (Citibank loan). 4. An amount of $29,010.30 spent by Torok (some of it via a loan from Gauci) for work on the PFH, and which amount includes the initial registration balance of $140. 5. Cost of an outboard motor for the PFH - $1,500. A total of $192,000.30 in damages consequent upon Petersen's breach of the contract. In addition, I think that there should be a declaration that Torok is the owner of the PFH and is entitled to exclusive possession and control of it. Counsel for the Plaintiffs should provide the precise form of wording of a declaration to reflect this.
2. Torok claims interest on amounts incurred or lost pursuant to s 100 of the Civil Procedure Act 2005 (NSW). I will make an order requiring the Plaintiffs to provide a calculation of interest claimed on (1), (3) and (4) above. I note that Torok seeks an order that Petersen pay Torok's costs on an indemnity basis (as does Gauci) and I will make orders to deal with those applications as well:
3. I, therefore, make the following orders: 1. The Plaintiffs to provide to the Defendants and the Court by Tuesday 14 April 2020: 1. A proposed form of wording for a declaration, to be made by the Court, reflecting Torok's ownership of the PFH. 2. A calculation of interest in accordance with s 100 of the Civil Procedure Act on the amounts referred to at 41,(3) and (4) of these reasons of 7 April 2020. 1. The Defendants to indicate whether they dispute the Plaintiffs' form of wording for the declaration and/or the Plaintiffs' interest calculation and, if so, to provide by Friday 17 April 2020 their alternative form of wording and/or interest calculation. 2. The Plaintiffs are to serve any written submissions in relation to their application in favour of the special costs order sought within two weeks of today's date. Reference can be made to the argument recorded in the transcript of 20 March 2020. 3. The Defendants are to serve submissions in reply within two weeks of receiving the Plaintiffs' submissions. 4. Any submissions in reply to the Defendants' submissions are to be provided within one week of receiving the Defendants' submissions. 5. The Plaintiffs are to provide copies of all submissions on costs to my Associate in six weeks' time, and to indicate whether or not any submissions have been received from the Defendants.

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