Capitalink Pty Ltd v Withnall [2023] NSWDC 547 | Case summary

Capitalink Pty Ltd v Withnall [2023] NSWDC 547 | Case summary | Zoe

Introduction

The proceeding commenced on 16 December 2021. The plaintiff (Capitalink) seeks a monetary judgment in a sum of approximately $480,000, plus pre-judgment interest under s 100 of the Civil Procedure Act 2005 (NSW). According to its statement of claim, Capitalink is a trustee of an investment trust (the Manly Investment Trust) which owns real property in Manly West, Queensland, on which development had been approved by Brisbane City Council in 2013 to construct six townhouses. Capitalink intended to let the townhouses.
In December 2015, a third party to this proceeding, Development Delivery Construction Pty Ltd (DDC), agreed with Capitalink, by a Deed, to construct works suitable for residential occupation as townhouses. Part of the background to this, Capitalink says, is that earlier in 2015, a related third party (Investruction) had agreed to complete works for the tiling and occupation of the townhouses, but it says that that this entity did not complete the works and went into administration (in January 2016) and ultimately became deregistered. At any rate, the works were partially constructed by Investruction.
Capitalink contends that Mr Withnall was a party to its agreement with DDC and was a guarantor of DDC's obligations. Capitalink alleges that DDC did not complete works in accordance with its obligations; and particularly to complete the works within the agreed (8 week) period. This, it claims, forced Capitalink to incur expenditure to complete the works. DDC went into external administration in March 2017 and was deregistered in September 2020.
By its suit, Capitalink sues Mr Withnall on the guarantee to recover damages for the costs it incurred in completing the works. This, it estimated, was $388,635.08 to the date it commenced the suit and it estimated it would incur further expense ($91,300). These costs were quantified in a schedule prepared by Teak Projects Pty Ltd in December 2021.
By his Defence (filed on 1 March 2022) Mr Withnall disputed that what purported to be an agreement by deed was effective as a deed. Mr Withnall says that if he owed any obligations at all, it was under contract. Capitalink ultimately accepted those particular contentions. On that footing, Mr Withnall contends that he received no consideration for what Capitalink contended was his guarantee. Thus, he says, the guarantee he purportedly gave was void for failure of consideration. He also says that it was uncertain for failing to identify who was the guarantor.
Mr Withnall also says that in February 2016, there were variations in the agreement as between Capitalink and DDC, by which: Capitalink assumed responsibility for (a) paying half of the pump station, dishwashers and air conditioning and (b) all of infrastructure chargers. He contends that these variations discharged any obligations he had as guarantor.
Mr Withnall also argues that when Capitalink terminated the agreement his obligations were discharged.
He also raises, in the alternative, various bases for arguing that his liability is more limited than Capitalink alleged. First, there was a sum $229,270 which he says was payable by Centrelink to DDC but which was not paid. Secondly, the daily amount ($55 for each townhouse) for what might be characterised as delay damages should be offset by the rent Capitalink received; and thirdly, Capitalink failed to mitigate its loss.
Capitalink filed a Reply (on 12 July 2023) expressly disputing some of Mr Withnall's specific contentions as to why he owed no liability. It says that it did, in fact, provide consideration to DDC (if that was necessary) by paying Investruction's invoices (which amounted to partial payment of the contract sum owed to DDC) and releasing Investruction from its obligations. Capitalink disputed that there were any variations in February 2016. There was no consideration given by DDC for them and such payments that Capitalink were made were pursuant to its pre-existing entitlements. As to Mr Withnall's last point about the effect of termination of the deed (for DDC's breach or repudiation), properly construed, the guarantee was intended to survive termination.
At the hearing, Mr Withnall conceded that DDC was in breach of its obligations under the agreement.
The parties supplied the Court with written outlines of opening submissions (MFI 2 and MFI 3). In his closing address, Counsel for Mr Withnall said nothing further on liability issues.
The issues emerging from those documents were: 1. Whether the agreement for guarantee was invalid for: 1. want of consideration; or 2. uncertainty 1. Whether the agreement for guarantee was varied and, if so, whether such variation leads to its discharge. 2. Whether the guarantee survived termination of the agreement by Capitalink. 3. What is the operation of the liquidated damages clause in the agreement? 4. What is the quantum of damages?

[5]

Early dealings between Mr Kavanagh and Mr Withnall

Mr Kavanagh met Mr Withnall in 1992, when the latter was working with a real estate agency. From about the second half of the 1990s, Mr Kavanagh and Mr Withnall jointly owned and developed several townhouses and residential projects, usually in north western Sydney. But in early 2000, Mr Withnall moved to the Sunshine Coast. Notwithstanding the separation, they remained in contact and invested in each other's residential projects on negotiated terms.
In 2006, Mr Withnall became banned for life from the construction industry by the Queensland Building Services Authority as a 'permanently excluded individual'.
In 2012, Mr Withnall informed Mr Kavanagh that an associated company of the former Manly Road Residences Development Pty Ltd (MRRD) had acquired a property at Manly West (Queensland) (the Property).
In 2013, Brisbane City Council approved a development application for the construction of six townhouses over part of the Property. The applicant for the DA was Investruction. The grant of approval was in the nature of a change of material use for 6 townhouses.
One of the conditions for the grant of approval was that prior to commencement for use of the 6 dwellings, all work associated with the Council's previous approval (from June 2009) for what was called 'Reconfiguration of Lot' (ROL) was completed with a survey plan endorsed. By that earlier ROL approval one lot was subdivided into two lots. The first was the lot upon which 6 townhouses was to be constructed. This is the lot of most material relevance to the issues in this proceeding. The other lot was to feature 29 townhouses.
In the middle of 2014, Mr Withnall indicated to Mr Kavanagh that his company was in dispute with the builder and the townhouses were incomplete. Mr Withnall sounded out Mr Kavanagh whether one of his associated companies may be interested in acquiring the Property. Mr Kavanagh indicated that he would think about it. Later in the year, Mr Kavanagh indicated that he was not interested in taking over the construction works. To this, Mr Withnall indicated that his company, Investruction could continue to do the construction works.

[8]

The DDC Deed and the guarantee

The Deed of Agreement that Capitalink entered into with DDC on 23 December 2015 was not drafted by lawyers for any party.
The parties to the document were identified as:

Capitalink Pty Ltd
Development Delivery Construction Pty Ltd
"Marc Douglas Withnall on behalf of himself and all of his related entities ('MW')"

Recital B to the document indicated that works in relation to the townhouse dwellings had been "partially constructed." Capitalink and DDC had hitherto been engaged in negotiations "to complete" necessary works "required for the separate strata titling and residential occupation" of those townhouses.
Clause 1 indicated, in paraphrase, DDC's obligation to complete the works and all things necessary. This included, in summary: (a) fully completing the works so that they were able to be rented to residential tenants and (b) obtaining the approved strata subdivision linen plan from the Local Council in registrable form (the 'Linen Plan') and provide the Linen Plan and other associated documents to Capitalink immediately upon their release.
Clause 2(a) identified Capitalink's obligation to pay to DDC a fixed sum of $229,270 [1] (incl GST) "as consideration".
Clause 2(b) featured, a warranty, that DDC would complete the works required for the Townhouses by no later than 8 weeks from the date of the agreement.
Clause 2(c) imposed obligations upon DDC "for preparing, lodging and obtaining final signatures from the Local Council in relation to the strata subdivision linen plan for the Townhouses, along with obtaining all necessary statutory approvals in connection with the construction and separate strata titling of the completed Townhouses. DDC was obliged to provide, inter alia, all certificates including ALL structural, plumbing, electrical, waterproofing, glazing acoustics in relation to the property."
By clause 2(g), a sum of $55 per townhouse per day would be deducted from 'the Consideration' for each day, as and from the date of the DDC Deed, that DDC was unable to provide a certificate issued by the approving Council and forwarded to Capitalink, allowing for the Townhouses to be "legally occupied for rental purposes."
By clause 2(h), "MW" agreed to "personally guarantee to Capitalink all of the obligations of DDC under" the agreement.
By clause 2(j), it was provided that the agreement could "only be amended in writing signed by all of the parties and not in any other manner".
By clause 2(k), it was provided that "No inference or Rule of Law shall operate to the disadvantage, or otherwise, of the party who has prepared the Deed".
Clause 2(m) was handwritten. There is no dispute that this provision formed part of the contract. It provided "Monies may be paid directly to suppliers and removed from the contract sum at the option of Capitalink."
The document was attested and executed by Capitalink and DDC in compliance with s 127 of the Corporations Act 2001 (Cth). No point was taken about the efficacy of the execution of the agreement by those entities.
Underneath, there was the following statement: "This Deed is signed sealed and delivered by Marc Withnall for an on behalf of himself and his related entities, in acceptance of the above arrangements."
It is not disputed that underneath that typed statement, Mr Withnall applied his signature.

[9]

Performance of the DDC Deed

On 25 February 2016, Brent Stevens (a property development manager) emailed Mr Kavanagh. This attached a progress claim for DDC (Exhibit C, pp 194 - 208 of EX A to Mr Kavanagh's affidavit).The gist of the email was to ask Capitalink whether it could pay, in advance, for air conditioning and a pump station.
The next day, Mr Kavanagh sent an email in response. It appears at Exhibit C (p 209 of Ex AK-1 to Mr Kavanagh's affidavit). Mr Kavanagh described the effect of this was that progress payments were not agreed: the agreement did not permit progress payments but rather required completion of the works in order for the company to be paid the "$229K remaining". Nevertheless, Capitalink would be willing to pay some of the costs that DDC needed to pay in advance, but this would be credited against the amount owing under the DDC Deed. This, Mr Kavanagh states, was to assist DDC with its cashflow issues.
On 1, 2 & 4 March 2016, Mr Kavanagh and Mr Stevens exchanged emails. The upshot was that Capitalink would pay 50% of the invoices in relation to the pump station, dishwashers and air-conditioning and Capitalink's payments would be credited against the monies that Capitalink owed to DDC. Separately (on 2 March), Mr Kavanagh indicated that according to Capitalink's calculations, liquidated damages totalled $25,000. Capitalink indicated that the rest of the money owing to DDC would be paid once the construction works were finished and the linen plan was out. Between 3 and 22 March 2016, Capitalink paid the pump station invoice.
Mr Kavanagh deposed that on 21 March 2016, he had a conversation with Mr Stevens in which the latter indicated that DDC required Capitalink to pay the balance of the price owing on the pump station. He explained that DDC had no money. Mr Kavanagh intimated that this would be all right but DDC would pay the amount to the supplier directly and credit the sum against what was owed to DDC under the Deed. The pumps were paid the next day.
On 27 March 2016, Mr Kavanagh sent an email to various people (including Mr Withnall and Mr Stevens) seeking an update in relation to the final inspections and obtaining the linen plan.
On 2 June 2016 the firm Abacus Quantity Surveying Pty Ltd sent correspondence to Capitalink. This appeared to be at the behest of Investruction Pty Ltd. The correspondence annexed a certificate of works carried out and purported to enclose a 'final claim number 6.
On 6 June 2016, Andrew Kavanagh and Mr Withnall had a text message exchange in which, amongst other things, the former alluded to existing tenants in the townhouses.
On 7 December 2016, Mr Kavanagh sent another request for an update in relation to the linen plan. From 12 to 15 December 2016, there were further texts from Mr Kavanagh to Mr Withnall following up on the linen plan.

[18]

Submissions

Mr Withnall submitted that individuals can only give guarantees in their own personal capacity and not as a representative of other entities. He did not suggest that the reference to "other entities" could be understood as a reference to persons. But there was doubt whether the inclusion of 'other entities' meant that there were other companies who were guarantors. They had not been identified. Given that the document was drafted by Capitalink, it had the opportunity to avoid the uncertainty by specifying who those companies were. In this regard, Mr Withnall submitted that just as the provisions of a contract could be construed contra profenterem, so too could the parties be identified with reference to that same rule of construction. (I note that Mr Withnall accepted that the surrounding circumstances could be relied upon to assist with the task of identification.)
Mr Withnall did not dispute that the other entity could not be DDC. It was, after all, the 'debtor.' He did not suggest that it could be Investruction. But he did suggest that one possible related entity was SMSF, who employed both Mr Withnall and Mr Stevens, a witness for Mr Withnall.
Capitalink submitted that the agreement should not be avoided for uncertainty as to who the guarantor was. The reference to 'related entities' in the description of the parties (and in the attestation clause) was mere surplusage. Capitalink contended that the Court should strive to uphold the bargain [2] and that this general principle was unaffected by the contract being, by nature, one of suretyship. Clause 2(h) provided a firm textual indication that the guarantor was to be an individual.
Capitalink also argued that for the purpose of identifying the parties, it would be open for the Court to 'sever' reference to the expression 'and his related entities.'
As to this last submission, in reply, Mr Withnall said that it would be impermissible to construe the agreement between Capitalink and DDC in a way that severed the expression. This, it was argued, could impinge upon Mr Withnall's potential rights of indemnity or contribution from any co-sureties.

[19]

Consideration

In identifying who is a party to the contract, a Court will ask itself who, objectively considered, was intended to be a party (or parties) to a contract [3] . Post-contract conduct can assist in the identification of the identity of parties [4] .
Making allowances for the circumstance that it was drafted by business people, to say, as the contract described it on the cover page in a document constituting a purported guarantee, that a party acts in a personal capacity and on behalf of related entities presents difficulty.
In my opinion, Mr Withnall's submission should be rejected.
First, clause 2(h), the relevant operative provision, itself confirms that only Mr Withnall, in his personal capacity, is the guarantor. It is hard to see how, if 'MW' were to be treated as an aggregation of multiple persons or entities the provision would have emphasised that word.
Secondly, there is no textual indication as to any other related entity might be for whom Mr Withnall could be an agent.
As a related matter, there is no other corporate entity that has purported to execute the agreement as a guarantor in conformity with s 127 of the Corporations Act 2001 (Cth).
Thirdly, the surrounding circumstances known to the parties, it is most improbable that there could be any other (corporate) co-surety. As I have indicated, it could not be DDC. It would be an absurdity if it were Investruction: the genesis or point of the transaction was to substitute a new builder for Investruction, who had only partially completed the works and for whom there were indications, it had run into financial difficulties. (As indicated, Investruction entered into external administration in early January 2016). Further, in relation to this point, it is not without significance that the expression used in the description of the parties and the attestation clause at the end was "his related parties." That connotes, to my mind, a business person's understanding of entities over which Mr Withnall had some control. There was evidence, and in particular, Mr Kavanagh's evidence of his conversation with Mr Withnall to indicate the latter's capacity to control or influence DDC and Investruction. There was also an opinion about Mr Withnall's managerial role in Investruction: see Exhibit F, paragraphs 8.2.9 - 8.2.10. That opinion is, in my view, admissible as to the truth of what is asserted by the opinion [5] . There is, on the other hand, nothing to indicate that Mr Withnall had any authority, as agent, or capacity to commit SMSF as a guarantor to DDC's obligations. Mr Withnall could have given evidence on this issue but did not. His failure to give evidence was unexplained and in my view a Jones v Dunkel inference can be drawn against Mr Withall (bearing an evidential onus that there might have been other co-sureties [6] ) so that I am fortified in my view that it is most unlikely that SMSF was a co-surety.
Fourthly, I doubt that Mr Withall's recourse to the contra proferentum rule of construction applies, having regard to clause 2(k) of the agreement. Counsel for Mr Withall did not contend that such a clause would be void for being country to public policy. It struck me as fairly obviously being directed to expressly negate the rule of construction.
I do not regard as persuasive Mr Withnall's response in relation to Capitalink's alternative point that for the Court to effect a severance of the words 'and his related entitles' would prejudice Mr Withnall's potential rights of indemnity and contribution against co-sureties. Not only did he not nominate who such co-sureties were (by giving evidence). He also failed to avail himself of the opportunity, in this proceeding, to bring a cross-claim seeking indemnity or contribution against 'other related entities' (or even notify those entities of an intention on his part to bring such claim) in order to reduce or extinguish any liability he had to Capitalink.
The guarantor to the agreement was Mr Withnall. The contract of guarantee is not void for uncertainty for failure to identify the surety (or sureties).

[21]

Consideration

Mr Withnall's arguments on this issue are rejected. Although consideration must move from the promisee (Capitalink) it need not move to the promisor (Mr Withnall) [7] . It is customary in the contract of guarantee that the consideration provided by a creditor for an enforceable guarantee is the creditor's action in entering into the guarantee [8] . It is unnecessary for a guarantor to obtain direct advantage or consideration for their guarantee [9] . Consideration need not be expressly adverted to [10] . Further, consideration is adequate where it provides some value [11] .
It is unnecessary, in my view, for the Court to engage in an economic analysis of how much, if any benefit DDC ultimately obtained from the operation of the contract prior to its termination. Contracts generally comprise bundles of rights and obligations. Consideration for a promise is most often a counter-promise. Here there was a promise by Capitalink to pay an amount to DDC which was stated to be fixed, although also plainly subject to the application of the provisions made for delay damages and payment to DDC's suppliers. That the consideration moving from the promisee (Capitalink) for the guarantor's promise may in circumstances that occur in the performance of the contract, become disadvantageous to DDC does not derogate from a conclusion that consideration has been given.
Consideration is not to be assessed retrospectively in the way Mr Withnall suggests. Courts presume that parties enter into bargains in anticipation of receiving benefit. The value of the consideration is assessed at the point of entry. At that point, DDC had a contract by which it had a prospective entitlement, conditioned on its own performance of the contract, to receive a stipulated sum of money. To adopt the words of the learned authors of Law of Guarantees, upon entry into the contract with Capitalink, DDC obtained the benefit of the accrual of a cause of action if Capitalink did not perform its obligations [12] .
The contract of guarantee here was valid and enforceable.

[27]

Consideration

In McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Dixon J famously observed at 476-7: "When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, as far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined as far as it is executory only and the party in default is liable for damages for its breach."
By its act of terminating the contract with DDC (whose lawfulness has not been questioned), Capitalink's rights that it had acquired up to the point of termination were not divested or discharged. DDC was liable to pay damages not only in respect to obligations which fell for performance prior to termination but also in respect of obligations which would have fallen due for performance after termination. This obligation was fundamentally to complete the 'works' on the property. Put another way, if DDC's (primary) obligation to complete the works was discharged, termination did not discharge DDC's (secondary) obligation to pay damages for its breach. Mr Withnall was in no different position.
Alternatively, if it were necessary to decide, there would be much to be said for the view that as a matter of construction, the guarantee did survive termination. To hold otherwise would be negate the benefit to Capitalink of obtaining the guarantee given that in practice, its engagement would arise from repudiation or breach enlivening the right in Capitalink to terminate the contract with DDC and to sue for damages.

[28]

Submissions

Mr Withnall argued four points under the rubric of damages-related issues.
First, Capitalink did not prove the casual link between the breach (or breaches) by DDC against the losses it claimed. There were various strands to this argument.
One of them arose from Capitalink's omission to identify the breach. There was contemporaneous evidence to support Mr Kavanagh's recollection, when the latter gave evidence, that tenants had moved in in June 2016. At or about that time, there was also evidence that all works had been performed and, indeed certified. This suggested that the breach by DDC was not its failure to complete works, but rather the associated steps to obtain ROL approval.
Another strand is that Capitalink did not rely upon the right expert(s). It could have chosen a qualified building expert to opine on what works were incomplete (or defective) and it could have chosen a quantity surveyor to opine on the reasonableness of costs (for the past or future). Mr Whitting was not such a person. The invoices that Mr Kavanagh and Mr Whitting tallied up did not assist: on their face, it was not apparent from the descriptions of the invoices what they related to. They needed exposition.
Further, on Mr Withnall's own review of the past costs, it was patently the case that a large preponderance of the invoices were not ultimately paid by Capitalink at all: an exception was an aggregated amount ($20,011.48) which was only indirectly paid by Capitalink, through deductions by the managing agent of the property to the former's rental ledger. Many were paid by First State or LBT, but there was no evidence to indicate any liability in Capitalink to those entities to reimburse either or both for payments those entities made: whether the evidence be documentary (such as financial statements or loan agreements) or testimonial (such as calling officers of those entities) to prove such liabilities. As to the future costs, there was insufficient information in Mr Whitting's evidence on that subject.
Secondly, properly construed, the combined operation of cll 2(a), 2(m) and (h) was such that once delay damages (cl 2(h)) had reached the point as to extinguish DDC's contract price (cl 2(a)) and/or payments made directly by (or on behalf of Capitalink) to third party supplies (cl 2(m)), this marked the limit of any additional right in Capitalink to recover damages against it. In short, there was a cap on Capitalink for its losses and that cap represented the contract price payable to DDC. In the way that the contract operated, after a period of time (696 days) following the (maximum) 8 week period for completion of works, DDC's contract price was reduced to zero ie it was forfeited. Mr Withnall argued that once that circumstance occurred, DDC was not liable for any further loss. It would be commercially absurd for Capitalink to insist upon its rights under cl 2(h), reduce liability to pay DDC's contract price and then seek to go behind the clause to claim further damages against him.
Later, in making a submission in reply to Capitalink's submissions, Counsel for Mr Withnall argued that cl 2(g) was different to the type of clause found, for example, in construction contracts, where a limit could be placed upon recovery for liquidated damages. Here there was none.
Thirdly, Mr Withnall invoked what it described as the compensatory principle to damages awards. Reference was made to an observation by Deane J in Commonwealth v Amann Aviation (1992) 174 CLR 64 regarding the basal principle about compensation (as being "fair and adequate"). An aide-memoire was supplied to the Court (MFI 5) indicating the harsh combined operation of cll 2(a), (h) and (m) combined.
In particular, tenants had already moved into the townhouses (even if illegally). It would go beyond the limits of fair compensation for Capitalink, and the purpose of cl 2(h) for it to continue to reduce DDC's purchase price when it was in receipt of rent.
Fourthly, Mr Withnall argued that in the period leading up to occupation, Capitalink, in fulfilment of its duty to mitigate its loss, was required to engage an alternative contractor to complete the works. What those works were related to the need to satisfy ROL approval before Capitalink could obtain the linen plan. Mr Withnall complains that Capitalink failed to articulate what steps it needed to take after June 2016 when tenants moved in but, whatever they were, Capitalink had also failed to take them over many years.
Capitalink supplied an aide-memoire (MFI 6) indicating its revised position on the calculation of past costs. This indicated past costs up to the date of Mr Whitting's report in December 2021 ($344,841.72). To this would be added a discrete sum of $6,654 (relating to invoices received from 2 January to 1 August 2022).
Capitalink responded to Mr Withnall's points as follows:
On causation, Mr Whitting indicated in his preamble what, in essence, he was tasked to do. He was a project manager from 2019 and, with his expertise (a combination of planning, quantity surveying and property management), was qualified to opine on what had to be done (after DDC had been wound up in March 2017). Up to December 2021, he was reliant upon what Mr Kavanagh had told him and the invoices identified that Mr Kavanagh had provided to him. Where in his report he referred to incomplete works, he was effectively interpreting the invoices he had been given as affected by the oral information Mr Kavanagh had supplied. He was not merely tallying up the invoices.
In reply to this, Mr Withnall argued that it was not established that Mr Whitting was aware of, much less relied upon the actual terms of the agreement as between Capitalink and DDC, without which he was not in a position to opine on the works that needed to be completed.
As to future costs, Mr Whitting had quantified those in December 2021. That estimate was not altered in September 2022 when he put on his affidavit. In relation to one aspect of his calculations, in respect to future rectification costs, an estimate ($50,000) was made and when he gave evidence, Mr Whitting had indicated that about $37,000 had been spent, so that particular estimate did not appear far-fetched.
Other than an attack on his lack of impartiality, Counsel did not seriously challenge Mr Whitting's evidence. Mr Withnall did not adduce any evidence himself as to what needed to be completed after DDC had ceased performing works.
As to the point about payments being made by entities other than Capitalink, Mr Kavanagh had given some unchallenged evidence in his affidavit (paragraphs 10-11) indicating the close connections of each of Capitalink, LBT and Smart Life; to such degree that they might be regarded as part of a family group of companies. It would not be expected that LBT and Smart Life were effectively bestowing gifts: the Court would infer that LBT and Smart Life could call on liabilities Capitalink owed to it or them on demand.
In reply to Capitalink's submissions, Counsel for Mr Withnall said that the family nature of associations made it more, not less, likely that a gift was intended but, in any event, there was no evidence of liability in Capitalink.
As to Mr Withnall's construction point, Counsel for Capitalink emphasised the surrounding context. Capitalink had been let down ('dudded') by Investruction (a company 'associated' with Mr Withnall: see Exhibit F, paragraphs 8.2.9 - 8.2.70). It was unsurprising that Capitalink might seek onerous terms for the completion of the works and sought incentives for the incoming builder (DDC) to complete what Investruction had left behind. Mr Withnall's submissions, in relation to cl 2(h) effectively air-brushed the word 'legally' from the temporal requirement to have tenants in occupation. The obligation required DDC to obtain an occupation certificate. An occupation certificate had still not been obtained; leaving Capitalink at risk. The point of a clause like cl 2(g) was to forestall arguments about the quantification of a loss of monies by allowing for a readily quantifiable amount for delay. Further, cl 2(g) (the consequence of delay) and 2(m) (the consequence of Capitalink directly paying DDC's suppliers) had their own spheres of independent operation and discrete purposes, even if in circumstances, they may jointly contribute to a reduction in DDC's contract price. There was no limitation of liability clause expressly provided for in the contract.
Capitalink disputed that rent received by its putting in tenants was irrelevant to the calculation of damages under cl 2(h).
As to Mr Withnall's point about a failure to mitigate, Mr Withnall not only bore the onus of proof but it needed to specify what steps Capitalink should have taken but did not take and why it was unreasonable for Capitalink not to have to have taken them. There was evidence (Exhibit D) to generally indicate activities by Capitalink to complete works associated with the contract, even throughout 2018 and early 2019.

[29]

Whether Capitalink suffered losses or was likely to suffer losses that it claimed damages for

Capitalink did not dispute that in order to prove an entitlement to substantial damages against DDC, and therefore Mr Withnall, it needed to establish (a) that it suffered loss or damage; and (b) such loss or damage was caused by the breach relied upon.
It tried to establish this by asserting and proving that it, ie Capitalink, incurred, and expected to continue to incur into the future, expenses to get other parties to 'complete' works left unperformed by DDC.
It is apparent that none of the invoices Capitalink relied upon to establish its claim for past incurred losses were actually paid by Capitalink; even though many invoices were addressed to it. In numerical terms (rather than in value terms), most were paid by LBT. Some were paid by Ray White Tingalpa, the managing agent.
It is also apparent (Exhibit 1, being p 61 of Ex BLSI) that rent from the occupation of the properties appears to have been paid to LBT and it was from LBT's account out of which the managing agent, Ray White Tingalpa, deducted its fees; even though the managing agent identified the client as Capitalink.
I infer that LBT is a shorthand reference to LBT Corp Pty Ltd. Andrew Kavanagh's brother, David, is the sole director and secretary of that company. LBT has a mortgage over the Property. It may be further inferred that LBT had provided the loan finance for Capitalink to purchase the Property.
As to the part of its claim that concerns expenses incurred to the date of the hearing, it was LBT who paid the expenses directly, or indirectly, through the managing agent deducting from an account in LBT's name. It appears that Capitalink was, essentially a passive owner of the Property.
In my opinion, Capitalink's difficulty cannot be sidestepped by pointing, in vague terms (ie Andrew Kavanagh's subjective understanding) about the closeness of the connection between LBT and Capitalink. For one thing, there was an absence of admissible proof as to what those connections or arrangements actually were. There were not, for example, any ASIC searches to disclose information about membership of the companies which might, conceivably, have proven that they one of more were subsidiaries of a holding company within a corporate group. Further, given that LBT was a mortgagee, Capitalink might (barely) have adduced evidence about the existence of secured loan arrangements, but that only facilitated proof of Capitalink's obligation to make loan repayments to LBT. It did not adduce evidence of obligations with LBT viz a viza rental receipts and expenses associated with the Property itself. So Capitalink's first problem is evidentiary in nature.
More fundamentally, however, to assimilate LBT's position to Capitalink's position would be to deny their separate status as companies, a fundamental tenet of company law (Saloman v Saloman & Co Ltd [1897] AC 22). Counsel for Capitalink submitted that LBT was a family company that has an interest (T 136.48, 139.33) and invited the Court to infer that that Capitalink would bear liability for the expenses. Even if, for the sake of argument, LBT and Capitalink were proven to be companies within a family group of companies, Australian law, solidly entrenched since 1976, is that entities within corporate groups are separate entities, with the consequences that assets of companies within the group cannot be pooled to pay for debts incurred by each company within the group and debts incurred by each company belong to the particular company and not the group collectively [13] . It is not enough that they are acting in a general way to benefit each other.
I agree with Mr Withnall's submission that it would be necessary for Capitalink to show that Capitalink is legally obliged to reimburse LBT for payments the latter entity made to the contractors and other suppliers engaged to complete the 'works' left unperformed by DDC. This it did not do, either by documents or admissible testimonial evidence.
Counsel for Capitalink argued that the circumstance that LBT received rent whilst paying expenses to improve the Property facilitated the Court's inference of Capitalink being ultimately liable to LBT and invited the Court to presume that it had liability to LBT. I am unable to accept that argument. It is not surprising that an arrangement would be made that LBT would receive rent as a quid pro quo for paying out expenses. As a mortgagee it had its own interest in the improvement of the condition of the Property. Capitalink also had its interest in the improvement of the Property for potential resale purposes. These circumstances are not compelling in identifying how Capitalink itself bore liabilities by reason of LBT's payments of the expenses in connection with complete of the property. There is no basis for any such presumption.
The same position pertains to First State Pty Ltd, the entity that had engaged (and apparently paid) Mr Whitting for Teak's services. Similarly, it was said about that this company that there is a family connection between First State's manager (Lorraine Young) and Andrew Kavanagh.
Further, to reason that LBT was paying expenses for the benefit of Capitalink does not advance Capitalink's position. Capitalink's Counsel disclaimed any submission that LBT (or First State) could be regarded as acting as Capitalink's agent in its dealings with the third parties for the purposes of works on this development project (T 138.40).
Without proof that it has suffered loss or losses, Capitalink cannot prove that any losses caused by DDC can be sheeted home to DDC and, therefore Mr Withnall.
The same problem, in principle, afflicts Capitalink's case in respect to future losses. There was no evidence that, consistently with past practice or experience, that Capitalink undertook to become liable to other entities (LBT or First State) in the event that it or those other entities incurred losses.
In the result, I am unable to find that the losses claimed by Capitalink were losses, actual or prospective, that it has, or is likely to suffer. Accordingly its claim for substantial damages against Mr Withnall must fail.
If however, I am wrong on this point, then I will briefly consider other points raised in relation to damages.

[30]

Causation

Capitalink's damages claim, at least as to the past, largely centred upon a large range of invoices. Mr Whitting gave some evidence about that which seemed to me to be substantially in the nature of expert evidence, but not expert opinion evidence [14] . Although he did not call evidence in response, Mr Whitting plainly contested the evidence. Be that as it may, as I indicated to the parties during argument, I did not see it as the Court's role, consonant with its obligation under s 56 of the Civil Procedure Act, to adjudicate upon whether each and every item of loss arising from unpaid invoices was made out. I hold to that view even more strongly given my conclusion that the case can be disposed of on another ground. If necessary, the task could be referred out.
But a somewhat cursory review of the invoices that appear in the exhibit to Mr Kavanagh's affidavit (Exhibit C), it is apparent that a preponderance of the invoices were those that were issued to DDC, Capitalink, First State or Ray White Tingalpa by third parties, such as contractors and suppliers of services, for materials and services that were necessary to complete the works. This substantially undercut Mr Withnall's argument on damages which was predicated upon the construction of works being completed by June 2016. That argument neglected the circumstance that bills associated with construction still needed to be paid (and DDC was not itself able to pay some of them) and that the contract itself was not confined to erection of works. It also ignored the evidence that, as was recorded in the letter to Mr Kavangh dated 8 March 2019, the words had been assessed by the certifier (Noosa Builder Certifier) as being "non compliant".
Some of these invoices manifested tangible indications that they were referable to the project the subject of contract between Capitalink and DDC. For example, there were express references to the address of the project where the works were performed. These, as I have already noted, appeared to be paid, directly or indirectly, by LBT.
I reject, therefore, Mr Withnall's general argument that Capitalink had not proven a nexus between the payment of the invoices and the breach by DDC. The Court can fairly infer that the invoices were connected with the works. DDC's obligations, couched as they were in general terms, were very extensive: going beyond the builder's task of completing construction of works to arranging for certifications and other documents to be put to Brisbane Council. It was unnecessary for Capitalink to descend to allege and prove which particular responsibility of DDC that gave rise to the issue of each individual invoice. I note, further, that it was open to Mr Withnall's Counsel to challenge Mr Kavanagh, who was involved in the project at all relevant times up to DDC's cessation of the works, or Mr Whitting, who became involved in about the middle of 2019, to the effect that in any particular invoice, it was not referable to the works that DDC was contracted to perform. He scarcely did so. It was also open to Mr Withnall, if he sought, to adduce evidence to indicate that the expenses that were paid, as summarised in section 2 of his report, were unreasonable or unnecessary. He did not do so.
It is nevertheless curious that whilst some of these invoices were paid during the period that works were performed, a very large number of them were paid even after DDC had become deregistered (in March 2017). In my opinion, there is, as Counsel for Mr Withnall argued, a risk of double recovery in the sense that Capitalink may partly be claiming, as losses, the payment of expenses that Capitalink had already utilised through cl 2(m) to reduce DDC's contract price.
Subject to that qualification, I would have been inclined to consider that, in principle (on the stated contingent premise identified in paragraph 158, above) that Capitalink would have been entitled to recoup as past losses additional paid expenses relating to completion of the works after the operation of cl 2(m) had been spent ie after the contract price for DDC was reduced to zero.
A further complication that arises in quantification is that DDC's contract price was subject to reduction for a different reason, being its delay. That is to say, if the contract price was reduced by reason only of delay, or at any rate, was not attributable to the operation of cl 2(m), then the payment to DDC's suppliers (to use a general description of the payees) could be recoverable.
This leaves the Court in the invidious position of not being persuaded that my suggested qualification, with the identified complication, has been adequately taken into account. The parties advanced positions which were fluid in computing past costs. As I have intimated, if it became necessary, I would be inclined to have the quantification of past costs referred out. (Later in these reasons, there is another matter - the rent that was received after the tenants' occupation - which would also need to be considered on a referral).
What I have said, so far, on the issue of causation, has been primarily directed to past costs claimed.
The evidence for future estimated costs essentially came from Mr Whitting. I reject Mr Withnall's submission that Mr Whitting lacked expertise as a development project manager or was effectively disqualified from expressing opinion because of a want of impartiality. As to the latter point, which was emphasised by Mr Withnall's Counsel on multiple occasions, in my view, it is not enough for a party to simply level the charge of an absence of impartiality against an expert simply on the basis of financial interest in receiving fees from the party. The position is analogous, in my view, to charges of actual or apprehended bias against decision-makers. For the charge to have any force, there needs to be demonstrated a connection between the want of impartiality and the feared departure from Mr Whitting's use of his expertise to arrive at the opinions expressed. No attempt was made by Mr Withnall's Counsel to establish such connection. I note, in this regard, that Mr Whitting had deployed some discipline to the task that belied the charge of a lack of impartiality: he excluded certain costs as not being relevant (paragraph 10 of his affidavit) and he was upfront about qualifying his calculations as to past losses (paragraph 15 of his affidavit). The charge of lack of impartiality against Mr Whitting has no merit.
As to the substance of Mr Whitting's estimate for future costs, in my view, as an experience development project manager, who I infer was experienced in dealing with Councils, town planners and professional service suppliers in connection with developments of the present kind, he was well qualified to opine both on the necessary tasks to complete a development as well as giving broad brush estimates as to costs.
As one reads the specific items for future costs in section 3 of his report, read alongside the evidence of his direct involvement going back to 2019, it is evident that Mr Whitting was across the requirements to complete the work. Again, it was open to Mr Withnall to prepare competing evidence and to challenge Mr Whitting as to his views, be that at the level of quantification of estimates or at the level of the reasonableness or necessity for the expenses likely being needed in the future. Again, it was not suggested that any of the projected expenses listed in section 3 of the report were not likely to be required.
I would be inclined to accept Mr Whitting's evidence on this issue, supplemented as it was by some additional future costs identified by Mr Kavanagh (at paragraphs 185-186 of the latter's affidavit).

[32]

Whether defendant should be credited with rent received from occupants

Mr Withnall effectively submitted that to the extent that Capitalink was entitled to be compensated for delay through DDC's breach of cl 2(g), then it should account for the rent that it received from tenants as they moved into occupation of the townhouses from 6 June 2006.
Putting this submission in a legal framework, I understand the argument to be that Capitalink benefitted collaterally from other sources.
The basic principle about whether collateral benefits paid to a plaintiff may be taken into account in a defendant's favour was stated in National Insurance Co of NZ Ltd v Espagne (1961) 105 CLR 569 at 597.
Whilst I accept that cl 2(g) envisages the legal occupation of tenants for rental purposes, the legality relates to certification of the condition of the structure, not the status of the particular tenants. Conceivably, Capitalink may incur further expenses down the line if the legal risks of uncertified construction materialised. The Court has not been informed about what they are although common knowledge might suggest fines or penalties or even the partial or entire removal of a structure. But these potential detriments do not derogate from the facts that rent is, and continues to be, received and there is nothing to indicate any obligation on the part of Capitalink to repay the tenants depending on what compensation it receives in this proceeding.
In my opinion, Capitalink should not be put in the position where it is better off financially than if it had not suffered harm. The compensatory principle of contract - to place the innocent party, as far as money can, as if the contract had been performed - indicates that the award of damages for a breach by DDC of cl 2(g), at least beyond the point that it may reduce or even extinguish its contract price, is to put Capitalink in the position that the townhouses were fully - and legally - occupied. Other things being equal (such as an assumption about the rent being the same for an illegal structure as it would be for a legal structure), Capitalink would be better off financially if it was able to retain the rent it has received whilst also claiming damages representing the rent it would receive if the tenants were occupying legally certified townhouses; especially in circumstances where it has not suggested that is has an obligation to repay the past or current tenants. It could hardly be said that Capitalink is receiving the monies from tenants benevolently.
Accordingly, I would have accepted Mr Withnall's submission that damages for breach by DDC of cl 2(g), beyond the point where DDC's contract price has been reduced to zero, would have to take into account the rent that Capitalink has received from occupation of the townhouses since June 2016.

Capitalink Pty Ltd v Withnall

At a glance

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Decision date

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Judgment (37 paragraphs)

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Legislation Cited (2)

Cases Cited (16)

Cited By (2)