Aust Tech Engineering & Supplies Pty Ltd v AGM Construction Pty Ltd

Background

1. Mr Bashir was a skilled migrant from Iraq who came to this country in 2008. He had various business interests in that country, including work as a construction project manager. Since his arrival in Australia in 2008, he had been a project manager on many projects and, in particular, he formed a business association with Mr Anoih from about 2009.
2. Prior to the events of this proceeding, they had a good business association. This was illustrated, for example, in October 2011, when Mr Anoih wrote a favourable reference for the plaintiff describing the works that the plaintiff had performed. The reference concluded with the words "I can attest to all the above work is being completed on time and with the highest level of professionalism from Ragdhan Bashir and recommend him for the execution of any project and/or works". References of this kind were important to project managers, such as the plaintiff, to provide for prospective new clients. Relations between them were still very positive when, in early 2014, Mr Anoih sent a letter to each of the defendant's project managers/site supervisors which, amongst other things, foreshadowed that they would receive training from Mr Bashir in January "on how to run a successful project" and expressing "hope that you could value this chance to share his experience on how to deliver a quality project in very tight timeframe".
3. In May 2013 the defendant submitted a tender to Muswellbrook Council for the construction project in the sum of $7,153,000 (incl GST).
4. In about the middle of May 2013, Mr Bashir said that he was approached by Mr Anoih inviting the plaintiff to indicate its interest in managing the project should the defendant be awarded it. Mr Bashir said that he told Mr Anoih that he would need to look at the tender and study it. This was, Mr Bashir explained when giving evidence, so that he could prove to the defendant that he could successfully run this particular project. He said he created an 80 page PowerPoint presentation, amongst other things, showing the potential to reduce costs.
5. Mr Bashir said that after he had received the defendant's tender documents, which included a project quote for the sum of $7,150,000 (incl GST), he provided a verbal quote to Mr Anoih on the amount of the plaintiff's services as project manager for the sum of $300,000, plus GST. The plaintiff and defendant eventually negotiated for a figure of $300,000 (incl of GST).

The letter of offer (18 May 2013)

1. On 28 May 2013 the defendant issued a letter of offer for project management services to the plaintiff. Mr Bashir gave evidence that the letter of offer was substantially the same as that which was ultimately signed by the parties (on 28 September 2013, but backdated to 19 August 2013). But there was one significant difference. In the letter of offer that was signed on 28 September 2013, the terms of the offer indicated that payment of the plaintiffs fees would be shown as per annexure A to the letter. As will be seen, that annexure contained some important information. There was no annexure 'A' (or any other attachment) to the letter of offer on 28 May 2013.
2. The salient parts of the letter of offer of 28 May 2013 to the plaintiff to provide the services of a project manager for the proposed construction works were: 1. the plaintiff would be paid fees on a fortnightly basis for the cost of $300,000 (incl GST), during the period of the project (48-52 weeks). The plaintiff would be entitled to claim the whole of the sum even if the project was completed before this time; 2. the plaintiff would also be entitled to a net profit share of the project in the proportions of 45% to the plaintiff and 55% to the defendant; 3. the expenses were addressed in two ways: first, there was a "10% overhead" incurred by the defendant for the total amount claimed; secondly, there was the payment of all expenses to subcontractors, materials, establishment, management which were a direct cost to the job; 4. in terms of how it would perform its services, the letter of offer indicated that the plaintiff would be "driving" the job using the defendant's management system, resources and other resources from the plaintiff "have to be approved by AGM". 5. The defendant set out an expectation that the plaintiff would be visiting the site on a weekly basis to ensure that work was going according to plan and within budget.
3. In his primary affidavit, Mr Bashir refers to the "10% overhead" item in the letter of offer. He said that this was included because of a specific request by Mr Anoih. He recalled Mr Anoih saying "AGM will get the first 10% of profits on the job. After that they will be shared as we have agreed. That 10% will be described as an overhead". In cross-examination, it was put to Mr Bashir that Mr Anoih had made it clear to him that the defendant expected to recover the overhead; and that another way of describing this was the 'builder's margin'. Mr Bashir responded, not entirely clearly, that this was what they "aimed" to achieve. Mr Bashir was not otherwise cross-examined on this part of his affidavit evidence.
4. The plaintiff and defendant met with the Council in June 2013 to discuss the project. Mr Bashir recalled a Council representative saying that the current tender had to be reduced because it was in excess of the allowed project budget.
5. Thereafter, Mr Anoih and Mr Bashir discussed ways to reduce the price, by excluding some improvements included in the original tender quote. Mr Bashir says that every alteration made to the original tender was calculated and approved by Mr Anoih. Mr Anoih did not disagree with this. The discussions culminated in a reduction by the defendant of its tender price to $6,645,300 (incl of GST).
6. On 19 August 2013 the defendant was awarded the project and, from that moment, the plaintiff commenced preliminary work. This included preparing the necessary documents for the commencement of the project, such as site safety specific plan, environmental plan, project management plan and quality control plan.
7. On 5 September 2013, work on the site commenced.

Terms of the Contract (19 August 2013)

1. On 28 September 2013 Mr Bashir met with Mr Anoih to execute the contract. The contract was backdated to 19 August 2013 to reflect the position that the plaintiff had started to provide project management services from that particular date. Mr Bashir said he asked Mr Anoih to backdate the contract so that he could raise invoices for the work he had done and invoice the defendant from the date that it was awarded the contract by the Department of Public Works. Mr Bashir accepted that the plaintiff had not required the defendant to make any payment for work performed before 19 August 2013.
2. I referred earlier to the terms of the offer as at 28th of May 2013. As I have said, the main part of the written contract that was entered into in late September 2013 (but backdated to August 2013) contained an annexure A. This annexure is particularly important in view of the defences and cross-claim raised by the defendant/cross-claimant. It was titled "Method of Payment to Austech Engineering", but as will appear, the subject matter of this annexure travelled beyond that particular topic.
3. Annexure A indicated the following: 1. it confirmed project management fees of $300,000, paid on a fortnightly basis, in accordance with a particular method; 2. it identified when the 45% net profit share would be paid to the plaintiff. This was to be (a) at practical completion (90% of Austech's share); (b) after the defects liability period (5% of Austech's share); and (c) after a six year period (5% of Austech's share).
4. These matters concerned the method of payment. But Annexure A went on to include other topics. Because of its significance to the defendant, (in particular) I set it out verbatim: "Austech to ensure the following: Undertake progress paying on the end of the month Undertake payment to all trades and stubbies as stated on the contract CG21 AGM have 10% of the total Project claim and Austech have 300K fees in 48-52 weeks as cover of fees to both companies AGM have 55% from Net profit share, Austech have 45% of Net Profit share All direct fees are considered as expenses to the project Timing of completion should be as per the contract with Public work - No extra fees will be paid to Austech."
5. Mr Bashir and Mr Anoih both signed Annexure A. They (back)dated it 19 August 2013.
6. That was not all, however. Attached to the covering letter of offer was a five-page document titled "Work Order" with the defendant's branding. Attachment 1 to that work order stated defendant requirements concerning quality assurance, WHS, the environment and the operation of the plant. The defendant relies upon this to some extent.
7. More materially, the defendant relied upon the content of the Work Order itself. Under the section heading "Work to be done" there was, in effect, a recitation as to when the plaintiff was to be paid. After this the document, was in the following terms: "Suppose to implement the following AGM business system Implement the safety of Public Works and AGM safety site rules Be 100% committed to the job - spend more time at the beginning on-site - I need reports that all looks good and the job progressing I do not need to panic - no involvement from my side I want to hear every week the good news of job is progressing very well."
8. When cross-examined, Mr Bashir acknowledged that the plaintiff was familiar with the defendants business system, its public works and site safety rules.
9. Further underneath, there appeared the following on the Work Order: "the contractor undertakes to meet all AGM's requirements including those in the attachments AGM may cancel or any part of the work if the Contractor is unable to deliver the work on schedule or to the required standards or fails to comply with WHS standards or fails to follow any reasonable direction by AGM's Project Manager or his representative AGM reserves the right to withhold payments for any incomplete or defective work AGM reserves the right to inspect work in progress at any stage".
10. From September 2013 until 4 July 2014, the plaintiff had issued invoices to the defendants and each of them had been paid. By 4 July 2014 the defendant had paid the plaintiff the sum of $252,599.94.
11. Mr Bashir was cross-examined on the process whereby the plaintiff issued invoices. This was twofold. First an invoice would be created. Secondly an 'Approval to Pay' was issued. The latter document was part of the defendant's management system.
12. On 5 November 2013, Mr Anoih sent an email to all of the defendant's project managers across a range of sites. As to the Muswellbrook site the subject of this proceeding, Mr Anoih described the project as "very well underway". But he requested all of the project managers to complete a monthly 'Status report', to enable a comparison "between the expected and the actual". I take that to be a reference to the project's costings.
13. On 3 January 2014, Mr Anoih sent Mr Bashir an email enclosing a job description, setting out certain responsibilities. The job description included (amongst a range of responsibilities) the following responsibilities: setting out and managing project(s) assigned and ensuring the projects were delivered to the requirement of their budget, quality, OHS, environmental and scheduled objectives; procurement, budgeting and planning for the project costing with suppliers and subcontractors and the management and quality control of the subcontractors; control project costing within budget and being accountable for financial performance of the project.
14. One issue which, as noted below, Counsel for the plaintiff emphasised in his Opening, was the ultimate exercise of control by Mr Anoih as to what was spent on the project. On 26 March 2014, Mr Anoih sent an email to Mr Bashir indicating that he had decided to engage the firm 'Always Ready' to do the job at a cost of $100,000. Mr Anoih explained that "John" (of 'Always Ready') had been an employee of the defendant for 12 years and was, at that time, out of work. Later that same day, Mr Bashir protested; and indicated that the person he had earmarked (Zaya) for this job had got the order and bought the paint. He added that there was not enough money to pay more than what had been agreed; the budget was "so tide(sic)" ('tight') and he was trying "to keep the 10% for AGM". The following day, Mr Anoih reminded Mr Bashir that any agreement with the subcontractors should "go through me" and he said that he had asked him (Mr Bashir) to bring all signed documents with contractors to the office which had not been done. He warned Mr Bashir that "No payment will take place your company until you bring all contracts agreements signed by me". He expressed dissatisfaction with the way that, acting as the project manager, he was not showing all the agreements. This, he said was against the defendant's procedures.
15. This exchange was, to be sure, fairly sharp and appeared to be the first dispute between Mr Bashir and Mr Anoih in respect to this particular project. Mr Anoih had made it clear to Mr Bashir, in no uncertain terms, who was responsible for ultimate decision-making. Mr Bashir was cross-examined on this exchange. It was put to him that by late March 2014, Mr Bashir was conscious that the costs of the project were likely to exceed those that were budgeted. Mr Bashir denied this. He accepted however that by this point he believed that it was hard to keep AGM's 10% contribution. He was asked whether this was the first time he had mentioned this concern to Mr Anoih. Mr Bashir accepted this was the first time he had conveyed this in writing but later, in re-examination, said that he had mentioned this in other discussions with Mr Anoih.
16. On 4 April 2014, Mr Anoih sent an email to Mr Bashir, in which he declared that he was not going to do a "progress pay". The email asked Mr Bashir to ensure that all contract agreements were signed and approved by him. He said that there were some discrepancies which he (Mr Anoih) let Mr Bashir know about when he saw him. He said that if Mr Bashir had other contract agreements, they should be sent to him. Counsel for the defendant put to Mr Bashir that he understood that the defendant's position was that it would not pay the plaintiff. Mr Bashir responded that he understood that Mr Anoih was pushing him to do something else. I did not understand this evidence.
17. On 28 May 2014 in response to his request, Mr Bashir emailed Mr Anoih an updated cost budget control. The document (which appeared on page 133 of the defendant's tender bundle) set out a range of calculations for costs. It was created by Mr Bashir. These ranged from the estimations in the tender quote to the client for a series of items, the costs that were revised (as a result of variations), the 'committed' costs (which the defendant was obliged to pay), the costs estimated to completion, the 'anticipated' quantum of final costs and, finally, a forecast for whether there would be a saving or deficit on each item.
18. One of these specific items of cost was the plaintiff's own fees as project manager. For this item, as at 28 May 2014, the tender estimate of costs was $300,000, and this estimate remained unaltered in the document. That is say, it remained the case that the defendant was 'committed' to paying that sum, that this would be the 'anticipated' final cost and there was to be no saving, or deficit in the forecasted final outcome.
19. On 18 June 2014 Mr Anoih sent an email to Mr Bashir wanting to know how much was the outstanding work not paid for major trades. The email indicated that until that point, Mr Anoih had said that he did not have the full picture of the cost breakdown. He said he needed only the outstanding items such as electrical, hydraulic, rope pavement gutters, concrete in total, painting, roofer, landscape, rails and screens. He said he needed this information as soon as possible to compare forecast spending with what had been spent so far.
20. On 23 June 2014, Mr Bashir emailed two documents to Mr Anoih, following the latter's request (made on 18 June) for an update of all outstanding payments (the defendant) needed to meet. One of those documents was a 'summary of costs' which was a document in the same format as the updated budget control that was created on 28 March 2014. In specific reference to the item of the project manager's fees, the position was no different than it had been on 28 March 2014.
21. On the same day, and following the earlier email that day, Mr Anoih made a supplementary request for Mr Bashir to add "the management" to be paid, the plaintiff's cost and AGM cost to the expenses and what would be the final figure. This was so that they could see the "whole picture."
22. On 4 July 2014 the plaintiff issued an invoice (number 21) and received payment for it (on 14 July). As at that date, the gross profit was projected to be $1,331,353.73; although Mr Bashir said, in cross-examination, that this reflected the position from June.
23. In his affidavit, Mr Anoih said that at this time, July 2014, he had noticed the project had further declined and gave an account of a conversation as follows: "I said: Raghdan, what's happening? I can see that the project profits are suddenly declining. It looks like we cannot even cover our company overheads for the project. He said: yes Albert, it looks like we're going over the budget now. I said: Raghdan, I have given you $252,500 already, and you get no more. If you remember our agreement, your payment was conditional on ensuring that the 10% company overheads are accounted for. He said: ok Albert, I will stop the invoices."
24. In his affidavit in reply Mr Bashir denied having this conversation with Mr Anoih. He says he never agreed that his payment was conditional upon his achieving 10% overheads for the defendant, nor did he agree to stop the invoices. He says that when he submitted his next paid invoice to Mr Anoih, they had a conversation to the following effect: "Mr Anoih said: just hold off on this invoice as the company is having cash flow issues I said: when will I be paid then? He said: when we receive the remainder of money for the project"
25. It was put to Mr Bashir that by the time it was clear that the cost of the project would reduce the 10% overhead for the defendant. Mr Bashir proposition was denied. It was also put that accordingly the plaintiff agreed not to submit any further invoices. This was also denied.
26. Mr Bashir not only disagreed with this but said that a further invoice (18 July 2014, number 22, for the sum of $9,500) had been issued. Mr Bashir said that Mr Anoih had told him that the defendant did not have enough money and would pay the invoice later. Mr Bashir said, in response "Okay, no problem. Pay later". This last invoice had not appeared in Mr Bashir's affidavit evidence. It was produced in response to a notice to produce served by the defendant. The version of the document tendered (Ex PX1) was a recent printout from the plaintiffs system. Mr Bashir said, when challenged about the invoice in cross-examination, that he gave it to Mr Anoih. I accept that, as he said in the affidavit, he showed it to Mr Anoih but the latter handed it back to him. Although he gave an erroneous reference to the date in his affidavit evidence, I did not see anything sinister about it not being annexed to his affidavit.
27. I do not accept Mr Anoih's account of a conversation he says he had with Mr Bashir in July 2014. For one thing, Mr Bashir had rendered an invoice only a matter of days later, which is inconsistent with the agreement attributed to him (not to mention his pursuit of the unpaid fee throughout January 2016). Secondly, the content of the conversation in the terms recalled by Mr Anoih appears unrealistic, given the context in which the conversation was held: it is suggestive that Mr Bashir simply 'rolled over' on account of an unexpected appearance of a budget blowout. There was no prior, or contemporaneous indication that he would do this. Further, the last part of it is also suggestive that Mr Anoih considered that he was entitled simply to unilaterally pay the plaintiff sum of approximately $250,000 - and no more. For Mr Bashir to assent to that result would have been contrary to the strong position he took in negotiating his fees prior to entering into the contract. Further, the timing for such conversation appears awry. Although Mr Anoih thought that the conversation had occurred by the middle of July 2014, the project report from 26 August 2014 showed that the project was on track for a not insubstantial profit. Finally, it is not apparent what commercial benefit would accrue to the plaintiff from agreeing that it would not issue any further invoices. Why would Mr Bashir agree to this? The only explanation that counsel for the defendant could suggest was Mr Bashir's "hope" to have continuing good relations to the defendant. Mr Bashir, did not however, impress me as someone who would be willing to appease the defendant at any cost.
28. I prefer Mr Bashir's account of the conversation that occurred soon after he presented invoice number 22 to Mr Anoih. The context suggests that Mr Anoih was genuinely surprised to receive the invoice. His past communications indicate his belief that all fees had been paid once invoice 21 had been paid. For him to say that the plaintiff did not, at that point, have enough money to pay the invoice was not an unnatural thing to say upon receipt and may, at any rate, have accorded with the true position at that time. Further, it is not surprising, in view of the defendant's good record to that point in paying invoices (not to mention the long and positive association at the plaintiff had had with the defendant), up to that time, that Mr Bashir may have been willing to extend some indulgence to the defendant.
29. On 17 July 2014, Mr Bashir sent an email to Mr Anoih. It attached two project status reports (in the defendant's template).
30. It was put to Mr Bashir that as at 20 July 2014 his understanding was that the defendant would not pay any further invoice. Mr Bashir disputed this. It was also put that the plaintiff proceeded with the job in the understanding that it had, by then, received its last payment. Mr Bashir denied this and said that he did not know that the defendant was not going to pay any further invoice. He added that the matter of the defendant's cash flow was a matter for the defendant. He explained that he continued to work because he thought it was the right thing to do. When it was suggested that the plaintiff was, in effect, continuing to work as an of grace in order to preserve a good relationship, Mr Bashir agreed that he wanted to preserve good relations until this trial. I was impressed by these responses by Mr Bashir to an important issue.
31. A project status report bearing the defendant's logo, of 14 August 2014, indicated that the project was 98% complete; that expenditure to date was $5,535,695, with costs for the next 2 weeks projected to be $500,000. The note cited the original budgeted spend of $6,645,300; with certain approved variations and certain variations pending.
32. On 26 August 2014, a project cost report, generated by the defendant's accounting system, showed total income was $5,810,633.76; total direct costs were $5,251,450.49 and gross profit was $559,183.27. By now, it would have been apparent to Mr Anoih that it was touch and go whether any profit could be made on the project overall.
33. Mr Anoih says in his affidavit that on 26 August 2014, he had a further conversation with Mr Bashir. This was said to be in the following terms: "I said: Raghdan, I have just looked at the latest project cost report. It shows that the project has dropped to $21,000 loss from the last report being positive $750K net profit on 3 July 2014. The project budget has been overrun and the budget has already blown out. What is going on? He said: I don't know Albert, the project looked bad now".
34. In his affidavit in reply Mr Bashir denied this conversation. He said that by that stage, they were in the final stages of the project work and only civil works were left, such as roads, carparks and earthworks which were expenses paid on a daily rate basis. The cost could not be exactly estimated.
35. Mr Anoih says that shortly after this conversation, he commenced his own investigations into the costs on the project. He says he compared the budget control spreadsheets that were supplied by Mr Bashir with his own records. He took the view that Mr Bashir had provided incorrect financial information, which led him to the belief that the project was progressing financially positive and stable at the time that the reports were submitted to him. He says he relied upon the financial information provided to him by Mr Bashir to assess project costings. He further says that he lost the ability to reassess costs to reduce them. He says that had he known of their in accuracy and that the budget had had been declining, he would have actioned matters very early to help salvage the situation. This was very vague evidence. No specificity was supplied as to what Mr Anoih would, or could have, done to reduce costs.
36. I consider that it was more likely that from about late August 2014, not July 2014, that the looming reality was dawning upon Mr Anoih that the project may not produce the profit that he had hoped for and, for whatever reason, he took the view that the plaintiff should share some of the loss; irrespective of whether or not the plaintiff had rendered its services in accordance with the contract.
37. Practical completion of the construction works was achieved by 15 September 2014.
38. On 2 October 2014 Mr Bashir emailed Mr Anoih the latest budget control sheet. This was materially different from the budget updates provided earlier in March and June insofar as provision was made for the costs of the project manager's services. This time, Mr Bashir's sheet indicated that only $252,500 was a 'committed' expense, and that the anticipated final costs were $252,500. This yielded a 'forecast result', being a saving of $47,500. When cross-examined, Mr Bashir said that the sum of $252,500 was only what had been paid and denied that he understood that nothing more was to be paid. It was further put to him that his denials were in contradiction to the way he explained the spreadsheets with reference to the March and June 2014 updates. Mr Bashir disagreed. I found those denials were unconvincing and agree that his evidence about the 2 October 2014 spreadsheet appeared to contradict what he had said about the earlier spreadsheets.
39. An interim occupation certificate was issued on 15 October 2014.
40. On 8 April 2015 the defendant signed a statutory declaration which declared, amongst other things, that all payments to contractors had been made.
41. By 6 May 2015, the defendant had received payment from the client the sum of $6,635,500; representing a shortfall of $10,000 from the contract price budgeted for. This is explicable through the defendant's delegation of its obligation for three months landscaping maintenance back to the Council.
42. On 21 September 2015, nearly one year after the interim occupation certificate had been issued, Mr Matthew Lysaught, a Manager of Muswellbrook Council, sent an email to Mr Ben Sharp, a Project Manager of NSW Public Works, reporting that the fire alarm for the student accommodation was not connected to the TAFE system, as designed. This prompted Mr Sharp to send an email the same day seeking rectification of the issue. Mr Sharp indicated that he (or others) would like to witness the light testing once the issue had been rectified so as to have confidence that the system worked, as designed. From this, Mr Anoih asserts that Mr Bashir had failed to make sure that the sub-contractor had connected the fire indicator panel to the Fire Brigade at the end of the project.
43. On 23 January 2016, Mr Bashir sent an email to Mr Anoih. The email attached the final invoice for the plaintiff's project manager fees for $47,500, being the invoice the subject of this claim. The email explained that the plaintiff had not invoiced the work since June 2014 as the plaintiff had been waiting until the project had been handed over and the post completion handover had finished. Mr Bashir asked for payment of the invoice without delay.
44. From January 2016 until 17 June 2016 a number of emails were exchanged between Mr Bashir and Mr Anoih regarding payment of the plaintiff's last invoice. Mr Anoih raised several explanations for the non-payment in this particular period: that there needed to be completion of the final inspection and release of the bank guarantee; and a promise (on 9 June) that, having just finished an exam, Mr Anoih would "deal with" the issue the beginning of next week. On 17 June 2016, Mr Bashir's patience had become exhausted. He sent a final reminder. On the same day, Mr Anoih sent another email saying he would "get back to you" next week. In this period, it is fair to say that Mr Bashir's correspondence was in polite and temperate terms. On the other hand, Mr Anoih's responses were plainly evasive.
45. Under cross-examination, and for the first time, Mr Anoih said that he had a meeting with Mr Bashir in February 2016, in response to one of Mr Bashir's email messages in this recent period. He said that he indicated that he wished to 'reconcile' matters before attending to payment. This was not evidence referred to in his (voluminous) affidavit. If such conversation occurred at all, it was incongruous, in the light of his other (evasive) emails of the same period. I agree with the plaintiff's submission that it amounted to recent invention. That the evidence was given was to Mr Anoih's discredit.
46. On 22 June 2016 the defendant expressly denied the plaintiff's entitlement to payment for the last of the invoices, amounting to $47,500. Mr Anoih indicated in cross-examination that the content of the email was written by a lawyer for the defendant (upon Mr Anoih's instructions). In the email, Mr Anoih referred to "a number of aspects resulting from this project … resulted in a different scenario as originally envisaged". These aspects, he identified, were: "1. A budget that you are required to meet 2. A KPI that was not satisfied; 3. Expectation of profit not met 4. Rework due to defects during defects liability period".
47. These 'aspects', Mr Anoih contended, meant that "it is only logical and proper, upon the proper construction of the agreement, that you (the plaintiff) would also be bearing the loss incurred."
48. I note that there is no assertion in this email that on the basis of either or both of: 1. a conversation between Mr Anoih and Mr Bashir in July 2014; or 2. what was contained in Mr Bashir's spreadsheet sent to him in October 2014 the plaintiff had agreed to abandon, or 'waive' its entitlement to the sum of $47,500.
49. Nor was there any rebuttal of the account given by Mr Bashir in the latter's letter of 23 January 2016 explaining the circumstances of the non-payment since July 2014.
50. In September 2016, the plaintiff filed a proceeding in the Local Court of New South Wales for liquidated damages for the above amount (plus interest). A defence was filed on 13 October 2016 and the next day the defendant filed a cross-claim for liquidated damages in the sum of $671,274.67 plus interest and costs against the plaintiff and Mr Bashir.
51. An internal project report of the defendant dated 12 October 2016, generated by its accounting system, for the purpose of monitoring the income and expenditure of the project, had indicated that by 29 October 2014, total income received by the defendant was $6,032,272.73; total direct costs were $6,100,320.13, leaving a loss of $68,047.40.
52. Given the nature of the defence and the cross-claim, it was unsurprising that on 7 November 2016 the cross-claimant applied to transfer the local Court proceedings to the District Court. That application was scheduled to be heard on 30 January 2017.
53. However before that transfer application was heard, the defendant/cross-claimant sought and obtained an order for default judgement on 23 November 2016. Less than one week later, it issued examination notices on the cross-defendants. This litigious activity prompted the cross-defendants to apply to set aside the default judgement and that order was obtained.
54. On 14 May 2018 the cross-claimant filed an amended cross-claim which reduced the amount of its claim for liquidated damages to $216,274.76 plus interest.
55. On the first day of the trial, the cross-claimant consented to judgment in favour of Mr Bashir. That left the cross-claim on foot against Aus-Tech.

ISSUES FOR DETERMINATION

1. The affidavits prepared by the parties were voluminous, in exhibiting documentation. There were many conversations deposed to. Counsel agreed amongst themselves that no Browne v Dunn point would be taken where they made no direct challenge to the accounts of conversations of Messrs Bashir and Anoih.
2. At the beginning of the trial, counsel for the plaintiff handed up a schedule of issues intended to indicate the ultimate issues for determination. Counsel for the defendant adopted the correctness of this statement of the issues.
3. On the plaintiff's debt claim the identified issues were: 1. what were the relevant terms and conditions of the contract for the provision of project management services; 2. was the plaintiff entitled to the unpaid invoice (plus interest), or put another way, was there conduct (referred to in the Defence) which disentitled the plaintiff to receipt of its invoice;
4. On the cross-claim, the following issues were identified and they also constitute defences to the debt claim: 1. Was the Cross-defendant (plaintiff) in breach of the contract? 2. Whether any duty of care was owed by the Cross-defendant to the cross-claimant and if so, what was the scope of such duty? 3. Whether any duty of care was breached? 4. Whether any such breach was causative of any loss to the cross-claimant; 5. What is the amount of the cross-claim?
5. In his final submissions, Counsel for the defendant further narrowed, or refined, these issues. First, he submitted that the negligence claim did not add anything to the cross-claimant's breach of contract claim. Secondly, he accepted that the cross-claimant could not establish that the quantum of the cross-claim was approximately $216,000 (which itself was a revision of the $671,274.67 originally claimed). Instead, he said it was now in the order of $75,000.
6. Ultimately, there was no dispute that the plaintiff performed the services and that the unpaid invoice that it sues upon reflected the sum that it was entitled to receive for those services under the contract. This means that the onus falls upon the defendant to establish why the debt should be discharged (Cheshire & Fifoot Law of Contract (11th Australian ed), [26.9], p 1308).
7. Essentially, subject to any issue of quantum on the cross-claim, the real issues in dispute identified by Counsel for the defendant in his final submissions were: 1. Whether the defendant was entitled to withhold payment of the contested invoice by reason of its breach of contract in that: 1. the project was not completed by the date stipulated in the contract (August 2014), but was completed by January 2016; 2. the plaintiff did not provide the defendant with the information needed to assess the mounting expenditure; 3. the plaintiff did not comply with the requirement to abide by the defendant's 'Business Systems'. 4. the plaintiff failed to ensure that the total project cost was not greater than the cost budgeted; 1. whether Mr Bashir, as principal of the plaintiff, agreed with Mr Anoih, in July 2014 that he would not issue any invoices; 2. whether in about October 2014, by his conduct in sending a budget control sheet, the plaintiff 'abandoned', or 'waived' any claim for further money than that which he had received.

Delay in completing the project

1. Initially, Counsel for the defendant relied upon the issue that surfaced in about September 2015 about the fire alarm. But later, counsel for the defendant acknowledged that this particular issue arose in a context where the works had been handed over to the Council about a year before. Counsel for the defendant accepted that the works had practically been completed in October 2014. I could not identify any complaint by the defendant about any delay in the completion of the project.
2. This particular of the breach of contract falls away.

Withholding information

1. In relation to the second argument, as a first point, in my view this particular was not properly pleaded, in the Defence or the Cross-Claim. There being no assent by the Plaintiff to the Defendant relying upon it at trial, procedurally, I do not consider that it is fair for the defendant (cross-claimant) to advance the point.
2. But if I am wrong, then taking the point on its merits, a further difficulty for the defendant is its failure to identify, with any specificity, what information was withheld, when it was withheld, the contractual requirement for its disclosure to the defendant and (relevant to the quantum of the cross-claim) what the defendant would have done with it had it been received.
3. The high point of the defendant's case in this respect was the dispute that occurred in March 2014 about the choice of contractor for the painting job on the roof. On 27 March 2014, Mr Anoih complained to Mr Bashir that the latter had not been providing signed documents to the sub-contractors to the office.
4. To some extent the complaint was reprised on 4 April 2014, when Mr Anoih complained about 'unforeseen' costs 'not listed by you (Mr Bashir)' and wanted all contract agreements to be signed and approved by him.
5. The defendant also relied upon Mr Anoih's request, on 28 May 2014, for an update on prices. But there was little associated context which indicates the circumstances in which this request was made. The Court was simply invited to find that until Mr Anoih started to receive the contractor agreements and budgets, he was 'left in the dark' about financial circumstances of the project to that point.
6. I do not accept that these complaints make out the alleged breach. In relation to the dispute about the paint job, the evidence is contrary to the point that the defendant makes. Read in context, the dispute over the two days in March 2014 showed Mr Anoih's disposition to do what he pleased in connection with the engagement of a sub-contractor, contrary to Mr Bashir's recommendation or advice. In the particular instance, the correspondence revealed that Mr Anoih was prepared to pay a former employee a considerable amount more than the sub-contractor Mr Bashir had lined up, to do the job, because of a desire to help the former employee. In this respect, I do not accept Mr Anoih's evidence that the reason for the preference was that he was concerned about any lack of licence or registration of the sub-contractor chosen by Mr Bashir: that does not appear in the email exchange.
7. As to Mr Anoih's complaint on 4 April 2014, I do not interpret the message as any serious or substantial indication that Mr Bashir had been withholding information about future costs of the project. I agree with the submission for the plaintiff that the defendant had a range of sources for information and had been content to receive and pay its costs as they were put to the defendant. The system that was chosen - the rendering of invoices, coupled with Approvals to Pay, and meetings twice a week between the principals - meant that the defendant, at all material times, had potential access or visibility of the works. The defendant's accountant generated cash flow reports.
8. Further, when, belatedly, the defendant (through an undisclosed lawyer) did justify its refusal to pay the invoice in June 2016, no mention was made to information about project costs being held. To the contrary, the documented evidence suggests that every time Mr Anoih asked for information, Mr Bashir supplied it a short time later.
9. Finally, to the extent that much weight can be ascribed to accounts of conversations, there was no conversation deposed to by Mr Anoih in which he complained to Mr Bashir about an absence, or withholding of information. That was important in a context where there was no apparent reason why Mr Bashir would seek to withhold information from Mr Anoih. He had a long-standing professional association with Mr Anoih, which he would undoubtedly wish to preserve. It would probably have been futile for him to try to withhold information as it is very likely that he would eventually have been found out.
10. I reject this argument, or particular, of breach of contract.

Failing to abide by the defendant's business systems

1. This complaint was faintly pressed. Counsel for the defendant acknowledged it was not articulated in the cross-claim. It is too vague to be regarded as a complaint with any substance.

Failing to ensure no budget overruns

1. That leaves, finally, the argument that the plaintiff breached its contract by failing to ensure that the total project cost was not greater than the projected budgeted costs. It is common ground that the actual costs were greater than those projected by the budget.
2. The defendant's argument turns upon the proper construction of the contract. It is not altogether easy to identify the parts of the contract that the defendant relies upon to support the existence of the posited obligation. There are several possibilities.
3. First, in the covering letter of 19 August 2013, there is a statement "I understand that you will be visiting the site on a weekly basis to ensure that work is going according to plan and within the budget." That, however, is merely a statement of one contracting party's understanding.
4. Secondly, in Annexure 'A', there is a reference to the basis, and method, for payment of the plaintiff. After that there is a statement that Austech was to "ensure" certain things, which I have set out in paragraph 22 above. For the sake of convenience, I repeat them here. Austech was to "ensure" the following: Undertake progress pay on the end of the month Undertake payments to all trades and subbies as stated on the contract GC21 AGM have 10% of the total project claim and Austech have 300K fees in 48-52 weeks as cover of fees to both companies AGM have 55% from their profit share, Austech have 45% of net profit share all direct fees are considered as expenses the project timing of completion should be as per the contract with public work - no extra fees will be paid to Austech.
5. In my opinion, whatever standard is denoted by the obligation 'to ensure', there is nothing in any of the requirements in Annexure 'A' which expressly imposed an obligation that the actual project cost not exceed the budgeted cost. Further, I do not see how any implication can arise. There was scope for, and there was real debate, as to whether (as the defendant says) the defendant's 'overhead' costs were absorbed in the direct costs, or (as the plaintiff says) simply the 'first tier' amount to be taken out of the profits, but that controversy does not establish a requirement in the plaintiff.
6. Then there is the document which followed Annexure A. This certainly spoke of various undertakings about compliance with the defendant's requirements, but the subject matter of those requirements consisted of a range of generic subject matters, such as Quality Assurance, WHS, Environment and Plant. There was no complaint that these requirements were not met by the plaintiff.
7. Accordingly, I do not accept that the defendant has identified the source of any obligation upon the plaintiff to ensure that actual costs did not exceed the budgeted costs.
8. If, however, I am wrong, and it is possible to identify the posited obligation, then it becomes necessary to deal with the disputed issue of construction as to the standard for the performance of the obligation "to ensure" there were no cost overruns.
9. The basic principles for construction were recently restated by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (approved in Victoria v Tatts Group Ltd (2016) 90 ALJR 392; HCA 5 at [51]) as follows: "The rights and liabilities of the parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well is any contract, document or statutory provision referred to in the text of the contract) and purpose. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to me. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract …."
10. I acknowledge the correctness of the proposition, as a starting point, that the Court must give effect to unambiguous words, notwithstanding that the result appears unreasonable and notwithstanding that it may be suspected that the parties meant something different (Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 110). On this view, I would construe the word 'ensure' literally, as in its ordinary or plain meaning, being 'to make certain'. I do not see that there is much scope for finding ambiguity in this word.
11. It is also the case that although the Court strives to construe a contract, or a provision, in a commercial and businesslike way, its ability to do so is constrained by the language used by the parties: Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [91]; McGrath v Sturesteps (2011) 81 NSWLR 690 at [17].
12. However the undoubted primacy given to the text of a contact or contractual provision may give way when the language of the contract would give the contract an absurd operation (Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17,521). Counsel for the defendant conceded, correctly in my view, that I should not construe the contract in a way that would lead to absurd results. I acknowledge that the test of absurdity is not easily satisfied Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18].
13. Nevertheless, in my opinion, to construe this contract as imposing an obligation upon the plaintiff to make certain that actual costs would not exceed budgeted costs would give the contract an absurd operation. For one thing, the plaintiff was not responsible for what those budgeted costs were. It was the defendant which bore that responsibility. Indeed, the plaintiff was approached by the defendant for the only work after the latter had submitted its tender. That tender featured calculations of costs, including, but not limited by the defendant's profit margin (or 'overhead'). Although it is true that the plaintiff assisted the defendant to reduce costs after the Council initially (in June 2013) baulked at the amount tendered, its role was plainly subsidiary to the defendant. Generally, by the terms of the contract, the defendant arrogated to itself the right of control of costs; ie the unilateral right to determine that costs could be incurred irrespective of the plaintiff's advice or recommendation. This right exercised, as was illustrated with the dispute over the painting of the roof in March 2014. More generally, one of the plaintiff's responses to the defendant's complaint about the costs overrun is that the defendant, unilaterally, incurred expenses not referable to the project in question. It is not necessary to determine that complaint but the fact that there was controversy about it at all establishes that the costs incurred on the project were ultimately the defendant's responsibility. The plaintiff complained about instances in which the defendant unilaterally spent monies on matters of dubious connection to the project (see paragraph [111] below). The effect of the defendant's construction would be to place the plaintiff in a straightjacket: required to generate an outcome which it was not responsible for shaping and in respect to which it had no effective power or control.
14. The corollary of the tenet of construction that one construes a provision to avoid absurdity is that words may be supplied, omitted, or corrected in order to avoid absurdity (Fitzgerald v Masters (1956) 95 CLR 420 at 426-7). It is unnecessary to establish ambiguity in order to do so: WBC v Tanzone at [21].
15. In my opinion, the absurdity of a literal construction can, and should be corrected by construing the standard of performance of the plaintiff's obligation as one to ensure certain results, to the extent it was reasonably practicable for it to do so. This construction is consistent with the customary objective intentions of parties when contracts are entered into for the provision of professional services requiring the exercise of skill and judgment. The contract between the parties here was one such contract. It required the plaintiff to exercise skill and judgement. That would include, to take one example, bargaining with a range of subcontractors to obtain competitive quotes and providing recommendations and advices about them to the defendant. But the project manager's responsibilities stopped here. Whether they were implemented or not, they were decisions for the defendant and accordingly it was the defendant who was responsible for the consequences of such decisions. These matters were known to the parties at the outset - they formed part of the surrounding circumstances known to the parties. As Hutley JA said in Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 at 531, it is of the very nature of contracts for the supply of professional services that they are not contracts to achieve a result. This contract was not drawn by lawyers, and I have little doubt that had lawyers been involved in the drafting, the standard of performance of the obligation, in the relevant context, would have been in the terms I have suggested.
16. Further, I am satisfied that by supplying these additional words to arrest an absurd construction of a provision is consistent with the objective intentions of the parties, supported by the purposes of the contract, and the surrounding circumstances known to the parties.
17. In construing any putative obligation in this way, it would have been necessary for the defendants, carrying the onus of proof, to show that it was reasonably practicable for the plaintiff to ensure that the actual costs did not exceed the budgeted costs; but that it did not do so. This, of course, is not something the defendant/cross-claimant ever sought to do.
18. Had it sought to establish the point, the defendant would have faced at least two difficulties relating to the question whether cost overruns may have been caused by the defendant's own conduct; in a number of ways. First, inquiry would have been needed to establish whether it was ever possible for the budgeted costs to be achieved; having regard to the defendant's primary responsibility for the budget. If not, then the short conclusion would be that at no stage was it ever reasonably practicable to expect the cross-defendant to ensure there were no cost overruns. Secondly, there were several expenses incurred, affecting the result of which Mr Bashir may have been unaware. This included as the defendant's purchase of a unit trust, Mr Anoih's drawing (which was not disclosed to Mr Bashir) of a monthly wage of between $2,000 to $2,400, monies paid to WorkCover (which may have been repaid) and the liability incurred in relation to the defendant's provision of a bank guarantee.
19. Generally, I would have had to reached an assessment whether, overall, the plaintiff was responsible for cost overruns overall. This would be a difficult task generally; particularly having regard to some uncontradicted evidence that Mr Bashir had, on occasions, generated some substantial savings in quotes, such as those for a slab, bio filters, demolition work and flooring work. Those costs savings would have had to have been, in effect, set off against any demonstrable cost overruns.
20. For the reasons above, however, I do not need to embark upon factual inquiries of this nature.

Did the plaintiff agree in July 2014 that it would not issue any more invoices?

1. There are two initial obstacles to this defence. Both arise from the circumstance that, in substance, the defence must be that the plaintiff agreed to vary the contract, by which it was entitled to receive $300,000. The first is procedural: there was no such defence pleaded by the Defendant; and no application to amend was made.
2. The second is that it amounts, in substance, to the contention that the contract was varied; but there is no statement made as to what was the consideration for such variation: Agricultural and Rural Finance Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [96]; Cheshire & Fifoot, Law of Contract 11th Australian edition [22.3]. The last of, if not both of these considerations, are fatal to the defence.
3. Thirdly, as I have recorded at paragraph [41]-[54] above, I do not accept Mr Anoih's account of the conversation which he says occurred on or about 14 July 2014. So the factual substratum, upon which the point depends, is not made out either.

Mr Bashir's budget control sheet of 2 October 2014

1. As I have noted, on 2 October 2014, Mr Bashir sent an email to Mr Anoih, which attached a Budget Control sheet of that date. This was one of several budget sheets that Mr Bashir sent to Mr Anoih, in the same form, and that the way that Mr Bashir generally interpreted them, when giving evidence shifted. In comparison to his evidence about earlier sheets, in which he indicated that the total under the 'committed' column represented what he asserted was the cost, and where those earlier budget sheets revealed project manager costs of $300,000, the budget sheet of 2 October 2014 identified the sum of $252,500 as the 'committed sum'.
2. This sheet appeared in Mr Anoih's affidavit. It was not referred to by Mr Bashir in his affidavit in reply. But Mr Bashir was cross-examined upon it. The cross-examination was designed to, and did elicit, an inconsistency in approach to how Mr Bashir interpreted this column, when comparing the earlier budget sheets and the budget sheet of 2 October 2014; on the question of the project manager's costs. In this regard, I did not find Mr Bashir's evidence to be convincing. Further, the submissions advanced by the plaintiff as to the explanation for what was done on 2 October 2014 fluctuated and were themselves inconsistent: it was variously said that Mr Bashir made a mistake; or that he was lulled into inserting the figure on the basis of a deception by Mr Anoih; and that having done so, he subsequently changed his mind.
3. The defendant relies upon this evidence in two separate, but related ways. First, it says, it provides corroboration for Mr Anoih's evidence of his conversation with Mr Bashir in July 2014 by which, it is said, the plaintiff agreed to a variation of the contract so that he would not render any further invoice or claim any further money. Secondly, in the alternative, by his conduct in sending Mr Anoih that budget sheet, Mr Bashir, on the plaintiff's behalf, 'abandoned' any entitlement under the contract to receive any further payment.

Variation?

1. On the first point, as I have indicated, the point fails, at the threshold, because, as I have already found there was no agreed consideration for the variation, nor any practical benefit for the plaintiff, in July 2014, or at any later date.
2. Further, although it is a matter which weighs in the defendant's favour, it does not, on balance, outweigh the other matters I have referred to that go against the defendant's position. Part of the difficulty in weighing the evidence was Mr Bashir's lack of explanation for the content of the spreadsheet. But a large part of that was caused, in my view, by the defendant/cross-claimant's failure in its pleadings to raise the defence of variation in a way that would have fairly put the plaintiff on notice. 'Abandonment' or 'waiver'?
3. This leaves the defendant's second point. The nomenclature in this area of the law may be confusing, as the High Court noted in Gardiner at [50]-[51]. It may be that what the defendant contends is that Mr Bashir, for the plaintiff, elected between inconsistent competing rights; it may be forbearance from exercising a contractual right; it may be a contention that Mr Bashir was abandoned or renounced the right.
4. There are difficulties that lie in the defendant's path in respect to each of these possibilities.
5. First, as a matter of procedures, as with the notion of variation, the defendant did not plead any of them or seek leave to amend or include any of them. That is reason alone to reject the defences. This is no mere pleading point. As I have indicated, the circumstances in which Mr Bashir sent the budget control sheet only surfaced, for the first time, when Mr Anoih's affidavit was served. Although it is true that Mr Bashir had the opportunity to, but did not, respond to this affidavit, the document itself was buried in a voluminous (500 page) exhibit to his affidavit. Had this defence been pleaded and particularised, as a defence to non-payment of the invoice, Mr Bashir would have had proper opportunity to consider and respond to the point.
6. Second, if the defence is to be properly considered on the merits, there are objections. In what follows, I mention only a few in light of the procedural objection to the defence. On the question of 'election', that doctrine usually posits a choice between two beneficial, and inconsistent outcomes for the party making the election (as the election between damages and an account of profits): Gardiner at [56]-[58]. Here, the defendant does not contend that there were two alternative and inconsistent beneficial outcomes for the plaintiff requiring it to elect between them. Here the defendant is contending that the plaintiff simply relinquished its entitlement to further money, with no corresponding benefit to it at all.
7. As to the notion of 'forbearance', as the High Court noted in Gardiner, this doctrine is predicated upon the other party to a contract acting on the basis that the particular right was not being enforced (at [70]). This, the plurality said in Gardiner, made the doctrine substantially the same as estoppel. Aside from its failure to plead the point, the defendant did not seek to demonstrate how it acted to its detriment upon the footing that the plaintiff would not press for further payment in accordance with its contractual right. Undoubtedly, if it did act to its detriment, it would have been expected that the defendant would have drawn it to the plaintiff's attention when the latter pursued its debt claim in January 2016. It did no such thing.
8. As to the notion of 'abandonment' or renunciation, this is, as the plurality also noted in Gardiner at [90]) a statement of a conclusion. The evidence of the circumstances in which the budget control sheet was sent on 2 October 2014, without proof of any antecedent agreement, is too vague, incomplete or uncertain to admit of a conclusion that the plaintiff was willing to drop its claimed entitlement to the sum of $47,500.
9. In my opinion, as a matter of procedural fairness and (if I am wrong about this), alternatively, the merits, this defence would not have been made out.

ORDERS

1. It follows that the defendant has not made out any basis in its Defence, or its cross-claim to establish why the plaintiff's debt should be wholly or partly discharged.
2. The plaintiff is entitled to judgment on its unpaid invoice, with interest. In relation to interest, at the trial, a schedule of interest was handed up by the plaintiff's counsel, calculating interest from 25 January 2016 to the date that the trial concluded. The sum calculated was $7,676.48. There was no opposition by the defendant to this calculation, as to its mode of calculation or as to its amount.
3. I order: 1. Judgment for the plaintiff for the sum of $55,176.48. 2. The defendant is to pay the plaintiff's costs. 3. The Second Amended Cross-Claim is dismissed and the cross-claimant is to pay the first cross-claimant's costs of the cross-claim. 4. Liberty to apply is granted for any contrary order, (including any variation to the above orders), within 10 days of the date of the publication of these reasons. Should the parties make such application, they should do by sending to my Associate short submissions (not exceeding 3 pages), with supporting documentation.

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: 14 May 2019