Paes and his men's doubles partner Jeremy Chardy of France lost 4-6, 4-6 in an hour and eight minutes to Brazilian-Canadian third seeds Marcelo Melo and Daniel Nestor on Court No.3 of the NSW Tennis Centre.
Paes will start as the defending champion at Australian Open next week alongwith Swiss Martina Hingis in the mixed doubles category and this defeat will be dampner for his preparation for the prestious event.
Among other Indians in fray, Sania Mirza and Rohan Bopanna will play their respective matches tomorrow.