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?
[4]
The facts
The plaintiff produced a chronology (MFI 1) whose accuracy the defendant largely agreed with (or at least did not dispute). Much of this is sourced from the principal affidavit relied upon by Capitalink, being that of Andrew Kavanagh, one of the ultimate beneficiaries of the shares held on trust (by Lisa Maree Young). Mr Kavanagh's affidavit in chief was sworn on 2 September 2022.
Uncontroversial facts that emerged from that affidavit were as follows.
[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.
[6]
Capitalink's purchase of the property and efforts to complete construction through Investruction
Capitalink purchased the Property on 30 October 2014 for $3.125 million. At that point there was erected on the land a partially completed multi-unit dwelling; comprising six townhouses. It became registered proprietor on 1 July 2016.
On 30 April 2015, Capitalink entered into a Deed of Agreement with Investruction. The main features of the agreement were that Investruction would complete construction of the 6 townhouses within 16 weeks and Capitalink would pay Investruction the sum of $550,000 to complete the townhouses (which were partially built) and obtaining an approved strata subdivision from Council. The arrangement also provided for liquidated damages of $55 per townhouse per day if the works were not completed on time.
Mr Kavanagh deposed that when dealing with Investruction, he dealt not only with Mr Withnall, but also Mr Brent Stevens, the latter whom he understood was a senior development manager. Mr Stevens is a property developer. Between January 2010 and November 2016, he was employed as a development manager by SMSF Property Australia Pty Ltd (SMSF), in which role he said he worked with Mr Withnall. Mr Stevens explained that SMSF is a company that manages property development.
Between 30 April 2015 and 7 August 2015 Investruction performed the contract by continuing the construction of the townhouses. Mr Kavanagh annexed to his affidavit copies of four invoices issued by Investruction. Three of the invoices expressly referred to DDC (on letterhead). Capitalink made the arrangements for payments. They amounted to the sum of $301,157.01.
But Capitalink did not consider that Investruction had completed the construction works, in accordance with the deed of agreement it had entered into with Capitalink. On 13 December 2015, Mr Kavanagh, for Capitalink, sent emails regarding Investruction's delay.
[7]
Capitalink looks to DDC to complete construction of the Townhouses
Mr Kavanagh deposed to having a conversation with Mr Withnall in December 2015 in which the latter explained that the delay was attributable to Investruction's financial difficulties and prospective entry into external administration. In the same breath, as it were, Mr Withnall suggested that another company associated with him, called Development Delivery, could complete the construction works. In response to this suggestion, Mr Kavanagh indicated that whilst Capitalink might agree to a substitution of another entity to complete the works, Mr Withnall would need to provide a personal guarantee. According to Mr Kavanagh, Mr Withnall acknowledged and agreed to this.
Investruction eventually entered into external administration on 4 January 2016.
[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.
[10]
Tenants move in to the Townhouses
Mr Kavanagh deposed in his second affidavit (paragraph 19(b)) that tenants moved in in 2017. He understood that the townhouses were 'liveable.' But under cross-examination, Mr Kavanagh said he thought that tenants moved in in about the middle of 2016 or early in 2017. Then in re-examination, he said that he was going by the managing agent's records as the source for that recollection (or belief).
Mr Kavanagh also said that as far as he is aware, save for one townhouse, the others are tenanted.
Mr Kavanagh estimated that Capitalink's receipts from tenants (after deducting for agent's costs and miscellaneous expenses) averaged between $8-10,000 per month (in round terms). This did not account for all of the costs associated with the townhouses, however.
On 23 April 2018, Mr Stevens sent an email to Andrew Kavanagh setting out options. Stage one (given a costs estimate of between $41,000 to $53,000 plus 'defect work on townhouses'). This stage entailed engaging a certifier and completing townhouses and water connection. Stage 2 concerned registering the lots (and was given a costs estimate of between $300 - 350,000). Stage 3 was titled complete the development.
[11]
Attempts to obtain occupancy certificate
In August 2018, Mr Kavanagh sent emails to Mr Withnall, asking for copies of various certificates in relation to the townhouses to enable the certifier to sign off those items of work performed by DDC.
On 6 October 2018, Mr Stevens emailed Mr Kavanagh; providing the latter with a breakdown of what needed to be done and, in particular, the best prices to achieve the fire and water damp certificates. The attachment to the email indicated an estimate of $49,292 (incl GST).
Mr Kavanagh sent similar emails to Mr Withnall on 11 December 2018 and 5 January 2019 to those which were sent in August 2018.
On 11 December 2018, Mr Stevens emailed Mr Kavanagh a summary of outstanding certificates that were required to obtain the building final (sic) on the six townhouses.
On 8 March 2019, Andrew Kavanagh received a letter from Mr Grant Dutton, of Smart Capital. The letter indicated that the certifiers of the works (Noosa Building Certifiers) had issued a 'Non Compliance Notice'. Smart Capital had engaged SABI Construction to engage with issues. This included rectification of matters which the Certifiers had identified as being non-compliant. As at the date of the letter, there remained outstanding items to satisfy Building Approval.
Mr Kavanagh deposed to Capitalink's efforts to obtain certificates from DDC's contractors, but this was to no avail.
DDC was eventually deregistered on 12 September 2020.
[12]
Teak is engaged to quantify past and future costs
In about the middle of 2019, Teak Projects Pty Ltd ('Teak') was engaged to project manage completion of the townhouses. In December 2021, Teak was asked to calculate the costs incurred by Capitalink and estimated future costs.
Mr Whitting, the sole director and secretary of Teak, indicated that Teak had actually been engaged by a different entity, First State Pty Ltd. It was to this entity that Teak issued its bills.
Mr Kavanagh separately set out Capitalink's 'past costs,' prior to Teak providing its report, in paragraphs 78-170 (incl). A summary appeared at paragraph 171 of Mr Kavanagh's affidavit. The total costs (incl GST) was $359,938.66.
Mr Kavanagh then set out Capitalink's 'past costs,' from the Teak report, which Capitalink contends were incurred because of DDC's non-compliance with its obligations under the DDC Deed. These were set out in detail at paragraphs 173-182 (incl). A summary appeared at paragraph 183. The total costs (incl GST) WAS $6,654.00.
The Teak report estimated future costs to Capitalink of $91,300. In his affidavit, Mr Whitting affirmed (at paragraph 17) his calculations for future costs.
At paragraphs 184-186 (incl), Mr Kavanagh foreshadowed additional costs which, although not incurred as at the date of his first affidavit, were expected to be paid. This related to a charge notice received from Urban Utilities ($8,764 excl GST) and another infrastructure charges notice ($14,669.78, excl GST).
Mr Kavanagh indicated that Teak had been engaged in between 10 and 12 projects for Capitalink (also estimating that ten were on-going). Teak was paid $150 per hour.
[13]
Mr Whitting's evidence
Teak's report of December 2021 was admitted over Mr Withnall's objection (as part of Exhibit A to Mr Whitting's affidavit, which was read) after Mr Whitting gave evidence on a voir dire.
Mr Whitting affirmed an affidavit (2 September 2022), in which (by paragraph 15) he qualified his conclusions as to incurred costs (up to the date of the affidavit). A document (Exhibit B) proved that he had re-engaged in the task of quantifying costs, both past and future, but without differentiating between each category. However, the admissibility of the report was limited to Mr Whitting's credit and reliability and not for the truth of his opinions; given that the content of the document only surfaced for the first time on the voir dire.
In his affidavit, Mr Whitting set out in voluminous detail (at paragraphs 18 - 48) all of the invoices his company had issued to Capitalink relating to the townhouses the subject of the litigation. This covered the period 29 June 2019 to 1 August 2022.
He also set out (paragraphs 49-54), expenses associated with Teak's engagement of DRW Consulting, in the period from 20 October 2020 to 3 June 2022.
[14]
Exhibit to Mr Stevens' affidavit in chief
Mr Stevens prepared an affidavit (17 March 2023), which was not read by Mr Withnall, but Mr Withnall tendered the exhibit to Mr Stevens' affidavit (Exhibit 1).
In one of those documents it was indicated that there were two kinds of development approval granted by Brisbane City Council. The first, was from June 2009 for the reconfiguration of the lot (ROL) approval for subdivision of the land into two parcels: one the parcel of land on which what would eventually be Capitalink's townhouses were to be built; the other for another twenty-nine townhouses to be built; with a road in between. The second development approval which specifically permitted the construction works from 2015, was, Mr Stevens described a 'Material Change of Use (MCU)' approval to permit the construction of what came to be Capitalink's (six) townhouses.
As Mr Withnall's Counsel explained the matter in his closing address, in order to obtain the 'Linen Plan' for the six townhouses, certain requirements of the ROL approval needed to be satisfied.
In an email from Mr Stephens to Mr Kavanagh on 29 February 2016, the email message suggested that that claim be increased from $52,648.96 to $191,889.81, then deducted for the infrastructure charges ($130,000) leaving a balance of $61,889.81 to be paid (to DDC).
On 4 October 2016, Mr Stevens sent an email to Mr Kavanagh, in which he indicated that the invoice had not been sent pending performance of all obligations to register the lots.
[15]
Mr Kavanagh's affidavit in reply
Mr Kavanagh swore an affidavit (23 July 2023) in reply to Mr Steven's affidavit and, by extension, the annexures to it.
Mr Kavanagh indicated that Capitalink did not accept Mr Stevens' proposal in his 29 February 2016 email and he disputed having any conversation as the latter had recalled it. Capitalink determined, as it was entitled to do under cl 2(m) of the deed, to pay upfront half of the pump stations, dishwashers and air-conditioning directly to the suppliers with payments being credited against monies owing under the deed. A reason for this was to assist DDC to get the order moving because of the latter's problems with its cashflow.
Mr Kavanagh deposed that certificates referred to at paragraph 21 of Mr Stevens' affidavit were not complete in order to obtain a certificate of currency. DDC was required to provide a certificate of occupancy from a private certifier. Mr Kavanagh asserted that Mr Stevens' company (Smart Capital) indicated that DDC's private certifier (Noosa Building Certifiers) would not accept certain certificates obtained by Investruction.
Mr Kavanagh referred to Mr Stevens' email of 4 October 2016. Mr Kavanagh annexed his reply to that email (Exhibit C, p 241 of Ex AK-1 to his affidavit). The latter email requested a breakdown as to how the invoice in the former email had been calculated and asserted that no amounts were payable until obligations were completed.
[16]
DETERMINATION OF ISSUES
By the pleadings and, as indicated earlier in these reasons, there are two questions associated with the broad issue of the validity. Dealing with them in logical order, the first is whether there was uncertainty as to who was the guarantor. The second is whether Capitalink provided consideration for the guarantee.
[17]
The validity of the agreement: uncertainty as to the identification of the guarantor
[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).
[20]
Submissions
Capitalink accepted that it needed to prove consideration.
Mr Withnall's first main argument is that there was no evidence that Mr Withnall received any benefit from Capitalink.
A second argument is that there was no explicit statement of consideration for Mr Withnall to provide the guarantee.
A third argument, on the premise that it was sufficient that consideration be provided by Capitalink to DDC proceeded upon a realistic analysis of what actually occurred in the operation of the contract. He noted that by the potential operation of the contract, and specifically cl 2(a) and (g), there was always the inherent possibility that delay by DDC might be so significant that, when cl 2(g) was engaged it could lead to the situation that no payment was ever payment was made to DDC. If that possibility materialized (and there was evidence to indicate that DDC did not receive payment) then it could not be said that any benefit was conferred upon DDC and, if that were so, it could not be the case that Capitalink provided consideration for the guarantee.
Capitalink argued that the contract provided benefits, rights and entitlements upon DDC provided by Capitalink. The contract expressly stated the provision of an amount for consideration by Capitalink to DDC and even without such express statement, consideration could readily be inferred.
[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.
[22]
Whether the agreement was varied (the Second Issue)
[23]
Submissions
Mr Withnall invoked principles arising from Ankar Pty Ltd v Westminster Finance Australia (1987)162 CLR 549 ("Ankar"). Mr Withnall's Counsel stated in his written submission (paragraph 28, MFI 3):
"…. a suretyship contract is regarded as strictissimi juris, which means that alteration of the nature of the surety's obligation by the creditor's conduct, by variation or breach of the principal contract, without the surety's consent will be sufficient to discharge the surety, unless the alteration is insubstantial and not prejudicial to the surety. The mere possibility of detriment is enough to bring about the discharge of the surety."
Further, it was common ground that the parties had not negated these common law principles (expressly or by other conduct).
Mr Withnall submitted that the Court should find that in February 2016, the contract was varied between Capitalink and DDC, as Capitalink agreed to pay 50% of the costs of the pump station, dishwashers and air conditioning and 100% of the infrastructure charges.
In anticipation of Capitalink's reliance upon the provision, Mr Withnall submitted that even if Capitalink was entitled to make these alterations under cl 2(m), it remained the position that Mr Withnall was not consulted. That circumstance discharged Mr Withnall's obligations.
Capitalink duly submitted that cl 2(m) entitled it to pay suppliers and thereafter deduct the payments from the contract price. When it did so, it was exercising an existing right. It did not need DDC's permission to do so. There was no occasion therefore for it to consult Mr Withnall.
[24]
Consideration
I accept Mr Withnall's statement of the principles in Ankar as far as it goes. However, it is pertinent to note what Deane J said, when explaining the rationale for the principle, which was a concern that a surety would be liable in circumstances different to that which the surety agreed to be bound.
I accept Capitalink's submissions that those principles do not assist Mr Withnall. It was not disputed that cl 2(m) was a right subsisting in Capitalink from the contract's inception. Capitalink did not seek to secure DDC's approval, nor was it required to seek its approval, to pay suppliers to DDC directly and then effectively recoup the payment through a reduction in the contract price. In exercising its right under cl 2(m) it was exercising a right which Mr Withnall agreed to be bound by. I do not understand Ankar as requiring the creditor to consult the guarantor as to the manner in which it exercises an existing right.
Secondly, the parties had made provision that variations to the contract were to be in writing (cl 2(j)). There was no written assent by Capitalink to any variation proposed a DDC's behalf. Mr Kavanagh's email to Mr Stevens on 26 February 2016 indicated that any partial payment was to be credited against the consideration owing to DDC.
Thirdly, given that it is common ground that the agreement was governed by ordinary contract law (and not the law applicable to contracts by deed), Mr Withnall did not establish how any consideration for the amendment was given by DDC to Capitalink for the variation.
There was no variation to the contract that worked to actually or possibly prejudice Mr Withnall.
[25]
Whether the guarantee survived termination (the Third Issue)
[26]
Submissions
Mr Withnall submitted that by virtue of Capitalink terminating the contract with DDC, the discharge carried the automatic consequence that the contract of guarantee was discharged. This result, it was said, supported by the absence of an express provision in the contract that the guarantee clause (in cl 2(g)) survived termination. It was also supported by the circumstance that the contract could operate in a way that the consideration payable to DDC could be reduced to zero; which itself would bring the contract to an end.
Capitalink submitted that the guarantee could not be discharged in this way. On the proper construction of the contract (or, as I understand it to be submitted) by necessary implication, if DDC repudiated the contract, or its breach was so material as to entitle Capitalink to terminate it, the parties could not have intended that Capitalink would have no recourse to the guarantee.
[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).
[31]
The limitation on liability point
I am not persuaded by Mr Withnall's arguments on this point. It strikes me as an invitation to the Court to re-write a hard bargain between Capitalink and DDC.
Reasonable minds may differ as to how hard that bargain actually was. From DDC's perspective, it could be caught in an effective pincer movement in terms of the rapid diminution of its contract price by the simultaneous operation of cl 2(g) and by operation of cl 2(m). From Capitalink's perspective, DDC agreed to enter an arrangement to complete some other entity's work (which entity was related to DDC), it went in with its eyes wide open in terms of Capitalink's commercial need for timeliness to complete a development and took the risk, and its awareness (through Mr Withnall) of Investruction having previously been paid over $300,000 by Capitalink for works which were incomplete.
What is clear, however, is that the parties did not agree to place a cap on the recovery of damages. Contrary to Mr Withnall's argument, there is no justification, by text or by surrounding circumstances to indicate that DDC's liability arising after termination was capped by the amount of its contract price. An obvious consequence of that argument would be that even after the contract price had been paid (or extinguished by the individual or combined operation of provisions like cll 2(g) and (m)) the construction would deny to Capitalink potential recovery if the construction part of the works were defective and required repair; which could not have been intended.
[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.
[33]
Failure to mitigate
By its Defence (as amended and as particularised), Mr Withnall alleged that in circumstances where: (a) the contract contemplated work would be completed by 11 February 2016, (b) the work remains uncompleted, Capitalink 'unreasonably delayed'.
This is something like res ipsa loquitur reasoning. Much of the evidence (Exhibit D) shows endeavours on behalf of Capitalink, and over a substantial period of time, to rectify certain works, and to facilitate obtaining the necessary approvals to fulfil the requirements. Once explanation is given for an occurrence, either entirely or partly, that generally puts paid to res ipsa loquitur-style reasoning [15] .
I accept Capitalink's submission that Mr Withnall did not identify with precision the acts that Capitalink could reasonably have been expected to have undertaken and which it did not undertake after termination of the contract. Nor were such acts put to Mr Kavanagh's consideration when the latter was cross-examined. Mr Withnall did not adduce evidence to indicate any different course of action which Capitalink could and should have taken.
Mr Withnall's failure to mitigate defence fails.
On the subject of damages generally, it will be seen that had I reached a different conclusion to what is expressed in paragraph 157, above, subject to hearing further submissions, I would have been inclined to refer the quantification of damages (in accordance with these reasons) out to a referee.
[34]
Ultimate conclusion and costs
For the foregoing reasons, although the Court has rejected all of Mr Withnall's arguments on liability, it has accepted his argument that, in the way it pleaded and ran its case on damages, Capitalink did not establish a right to substantial damages. That being so, Capitalink is limited only to an award of nominal damages.
On the question of costs, the parties have not been heard. Nevertheless, although the question of costs is discretionary, and affected by all of the circumstances, there are established principles at play in the situation where, as here, a plaintiff establishes a breach of a contract but fails to prove an entitlement to substantial damages. In State of New South Wales v Stevens at [22], McColl JA (Ward JA and Sackville AJA agreeing) referred to authorities for the propositions that (i) in an action for breach of contract, if a plaintiff establishes liability, and obtains an order for payment of nominal damages, that plaintiff is usually not to be regarded as the successful party in the action, and (ii) costs should be awarded against a plaintiff who has obtained an order for nominal damages because that award was not the event at which the plaintiff was aiming [16] . Transposed to this context, an award of $100 against Mr Withnall was not the event at which Capitalink was aiming.
Although I propose to make a costs order reflecting these principles, if either party disagrees with it, it or they may do so.
[35]
Orders
The orders of the Court are:
1. Judgment for the plaintiff against the defendant for $100.
2. The plaintiff is to pay the defendant's costs; as agreed or as assessed.
3. In the event that a party seeks a different costs order to that in order 2, above, I direct:
1. the applicant for an alternative costs order is to file and serve written submissions within 5 days of the date of these orders, such submissions not to exceed three pages (excluding relevant evidence on the issue of costs),
2. the responding party is to file and serve within 5 days thereafter written submissions in response, not to exceed three pages excluding relevant evidence on the issue of costs; and
3. any such application will be determined on the papers.
[36]
Endnotes
The contract actually stated '$229,270,000', but it was common ground that this was erroneous and the Court could proceed on the figure stated above
Upper Hunter County District Council v Australian Chilling & Freezing Co (1968) 118 CLR 429 per Barwick CJ at 436-37
Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 at [22]
Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 at [31]
Herron v HarperCollins Publishers Australia Pty Ltd (2022) 292 FCR 336 at [483]-[486]
Eppinga v Kalil [2023] NSWCA 287 at [80]
As an illustration, see Pico Holdings Inc v Wave Vistas Pty Ltd (Formerly Turf Club Australia Pty Ltd) (2005) 79 ALJR 825 at [66]
Matouk v The Entrance Seabreeze Pty Ltd [2010] NSWSC 649 per Ward J (as her Honour then was) at [64], citing J O'Donovan and J Phillips, The Modern Contract of Guarantee (Thomson Reuters, now in its online version) ("O'Donovan and Phillips")
O'Donovan and Phillips at [2.1000]
Jin Resources (Aus) Pty Ltd & Ors v Steven Nicols & Anor[2022] QSC 158 at [69].
J.D Heydon, Heydon on Contract (2019, Thomas Reuters) at [5.100].
G Andrews & R Millett, Law of Guarantees (Sweet & Maxwell, sixth ed, 2011) p39.
Walker v Wimborne (1976) 137 CLR 1; also Industrial Equity Ltd v Blackburn (1977) 137 CLR 567
A recent reference to that distinction was drawn in Lang v R [2023] HCA 29 per Kiefel CJ and Gageler J (as his Honour then was) at [5]
Schellenberg v Tunnel Holdings (2000) 200 CLR 1 at [31]-[32]
The authority was cited again in Chandrasekeran v Western Sydney Local Health District [2023] NSWCA 288 at [286]
[37]
Amendments
07 December 2023 - Corrected punctuation.
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Decision last updated: 07 December 2023