Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd

Conditionex Design & Construct Pty Ltd trading as Conditionex Mechanical Services v Nationwide Builders Pty Ltd - [2022] NSWDC 166 - NSWDC 2022 case summary — Zoe

Factual background not in dispute

The plaintiff, Conditionex Design & Construct Pty Ltd ("Conditionex"), was subcontracted by the defendant, Nationwide Builders Pty Ltd ("Nationwide"), to provide air-conditioning works and related services to Nationwide between 2018 and 2020 at three premises under construction. These were variously located at 45 - 47 Peel Street Canley Heights, 888 Woodville Road Villawood, and 114 -116 Station Street Penrith.
The plaintiff raised three tranches of invoices for the defendant to make payments in respect of these works. The first was for $367,500, the second was for $490,000, and the third was for $150,000. After a dispute arose between the parties concerning the works at Canley Heights, the plaintiff made a request for an adjudication in respect of that subcontract as provided by the Building and Construction Industry Security of Payment Act 1999 (NSW).
On 6 April 2020, against that background, the parties entered into a written agreement that was intended to settle disputes that had arisen between them in respect of both past work and work anticipated to be completed by August 2020.
That agreement went beyond the subject matter of the request for adjudication concerning the Canley Heights subcontract and encompassed all three subcontracts between the parties. The agreement provided that Nationwide would pay Conditionex the sum of $45,000 immediately, followed by a series of payments of $20,000 to be made on the last Friday of each subsequent month between April 2020 and August 2020.
The settlement agreement provided that if Nationwide failed to pay any of the payment instalments due pursuant to that agreement, the entire monies the subject of dispute would become payable immediately, together with interest.
The single page agreement signed by the parties to the above effect was not an eloquent example of the art of drafting. The following operative statement appeared at the top of the page of the agreement expressed in rudimentary terms: "An agreement between Conditionex Mecahnical [sic] Services and Nationwide. Represented by directors Hazem afyouni [sic] and Ahmad Howchar [sic] to settle the aged invoices to be paid as per the breakdown below. One main condition [that] lays upon this agreement is that if one payment is not made by the due date (either be [sic] cheque or bank transfer), then all the other payments and [sic] will be due for immediate payment"
Mr Hazem Afyouni, a director of Conditionex, explained that the reference to Ahmad Howchar in the above agreement was plainly a mistaken reference to Mr Ahmad Diab, the sole director and shareholder of Nationwide. The mistake erroneously drew upon part of the name of Mr Afyouni's brother, Khaled Howchar. Nothing turns on that error. Mr Afyouni signed the agreement on behalf of Conditionex.
The agreement was prepared and executed in the following sequence. First, Mr Salman Ali, an employee of Conditionex, drafted the agreement. Mr Afyouni then signed the document with the intention that it be presented to Mr Ahmad Diab for his signature on behalf of Nationwide. Mr Ali later presented it to Mr Diab for signature.
Mr Diab then signed the document in the presence of Mr Ali. When he did so, he crossed out a reference to the last item in the payment plan for payment of $12,692.20 which was listed to be paid on the last Friday in August 2020. At that time Mr Diab added by hand the words "Defects Canley Heights. Ahmad Diab" adjacent to the crossed out sum.
There is a dispute between the parties about the legal effect of that alteration. There is also a dispute as to the proper construction of the agreement. Nationwide claims the preamble cited at paragraph [7] above is merely a recital to a payment schedule. Conditionex claims it consists of a binding condition of the agreement.
By way of initial compliance with the 6 April 2020 agreement between the parties, Nationwide made an initial payment of $45,000. However, contrary to the terms of that agreement, on 26 April 2020, Nationwide made a further payment in the reduced amount of $10,000.
There is a dispute as to whether, on 4 May 2020, as claimed by Nationwide, but disputed by Conditionex, a further cash payment was made in the sum of $23,185. As a result of these events and in circumstances, Conditionex claims that Nationwide remains indebted to it pursuant to the terms of the agreement between the parties.

[5]

Procedural matters

On 1 September 2021, a procedural timetable was set by the Judicial Registrar. That timetable later required amendment due to changed circumstances that affected the parties. Accordingly, on 24 January 2022, the Judicial Registrar made case management orders as follows.
The plaintiff/cross-defendant was ordered to file a defence to the amended cross-claim by 17 September 2021 and serve all evidence, including expert evidence, by 25 October 2021. The defendant/cross-claimant was ordered to serve all evidence, including expert evidence, by 6 December 2021. Those orders also provided for the plaintiff to serve evidence in reply, including expert evidence, by 31 January 2022. Further, provision was also made for the cross-claimant to serve evidence in reply, including expert evidence, by 28 February 2022.
The adjusted timetable as outlined above was the subject of non-compliance in that the cross-claimant filed affidavit evidence outside the terms of that timetable. This caused procedural and practical prejudice to the plaintiff/cross-defendant in obtaining timely evidence in reply to the late served evidence.
On 13 May 2022, the parties appeared before the List Judge, Gibson DCJ. At that time, the plaintiff sought to vacate the hearing date on the ground that counsel then appearing for the plaintiff had become indisposed due to COVID. That application was opposed by the defendant. That application was refused, and the date which had already been set for the hearing to commence on 18 May 2022, was confirmed.
These circumstances necessitated that the plaintiff retain alternate counsel, Mr Philips, at short notice. Beforehand, on 13 May 2022, the procedural defaults concerning non-compliance with the earlier case management timetable were not drawn to the attention of the List Judge. Had such non-compliance been ventilated by the parties or by an affected party at that time, different orders might have been made.
On 18 May 2022, understandably, the plaintiff/cross-defendant was not ready to meet the late served affidavit evidence relied upon by the defendant/cross-claimant in breach of previous case management orders.
In order to meet these circumstances, I considered the preferred course to be that the hearing of the cross-claim should be severed pursuant to r 28.2 Uniform Civil Procedure Rules 2005 (NSW). That order had the effect of preserving the cross-claimant's right to pursue its claim concerning alleged defects. It allowed for that claim to be heard and determined separately on a future occasion in circumstances that did not prejudice the plaintiff.
At the end of the first day of the hearing, on 18 May 2022, after receiving the Court Book, after hearing counsel's outlines and objections to parts of the affidavit evidence, and after hearing submissions, (T 1 - T 20), a misunderstanding arose whereby it was assumed that the parties had opted for the Court to proceed on the affidavit evidence as read and to make orders concerning the plaintiff's claim on the basis of severance of the cross-claim.
On 19 May 2022, in conformity with that understanding, a short judgment was delivered on the plaintiff's claim without consideration of the cross-claim. After hearing further from the parties the misunderstanding was identified. After discussion, in the interests of achieving justice between the parties, that judgment was withdrawn: s 90 Civil Procedure Act 2005 (NSW). It was marked MFI 2.
With the consent of the parties, the case then proceeded on the basis of the affidavit evidence as already read, but supplemented by oral evidence comprising cross-examination.

[10]

Consideration and determination

Mr Hua's affidavit concerned matters of bookkeeping. It was largely non-contributory to the issues to be decided. The primary affidavit of Mr Diab sought to contentiously argue that he thought the agreement dated 6 April 2022 was simply a payment plan. I do not accept that contention. The document is in plain terms that are clearly aimed at settling the dispute which was current at that time, albeit that it included a payment plan to cover some future items.
I find that the evidence restricted to the primary claim overwhelmingly supports the plaintiff's case. The background dispute that subsisted between the parties prior to 6 April 2020 resulted in an agreement reached on that date and reduced to writing: Court Book, p. 63. The agreement recited a history of aged invoices identified in the body of the document, which also set out a timetable for payment as was outlined at paragraph [6] above.
That agreement, on its face, without ambiguity, served to compromise the dispute that subsisted between the parties. The agreement must be interpreted so as to give it business efficacy. It deals with matters that are separate to the matters sought to be raised in the cross-claim.
As was raised with the parties during argument, given that the amount sought in the cross-claim is for a potentially larger amount than the plaintiff's claim, I consider the appropriate order to be that the judgment sum of $119,224.78 be stayed pending the determination of the cross-claim.
As the cross-claim seeks to contend that building defects exist in the plaintiff's work, and the plaintiff/cross-defendant is not yet in a position to meet the substance of the cross-claim due to Nationwide's late served evidence, and where a Scott Schedule is required, I consider the appropriate order to be that a Referee be appointed pursuant to r 20.14 Uniform Civil Procedure Rules 2005 (NSW) to determine the separate questions of the validity and quantification of the alleged defects based on the evidence presented as at today's date by the defendant/cross-claimant.
I consider that in the circumstances the defendant/cross-claimant should not be allowed the indulgence of gathering further evidence given its earlier procedural non-compliance: s 58(2) of the Civil Procedure Act 2005 (NSW) and Aon Insurance Ltd v Australia National University (2009) 239 CLR 175. However, the plaintiff/cross-defendant must have the opportunity of replying to Nationwide's late served evidence on the cross-claim.
In final addresses Nationwide sought to expand the nature of the relief sought to include a claim for rectification of the agreement. I consider that expanded claim for relief should not be permitted at this belated stage of the proceedings especially where Nationwide had not complied with earlier case management orders in a timely manner: s 58(2) of the Civil Procedure Act 2005 (NSW).
In due course, the parties should bring in draft short minutes reflecting these reasons, appointing a suitable Referee, identifying the questions for determination by the Referee, and identifying a timetable for the Referee to provide a report. I consider that for present purposes the cost of the referral and the Referee should be borne by the parties equally pending the resolution of the cross-claim. If the cross-claim is successful then those costs should be costs in the cause. If the parties are unable to agree upon the appointment of a suitable Referee they are to each provide a list of two suitable names and the Court will nominate a Referee from that list.
I propose to grant liberty to apply for that purpose, and for any necessary ancillary orders. In due course, I will make separate remedial case management orders.
I now turn to consider the issues calling for decision as identified at paragraph [38] above.

[15]

Issue 4 - The proper construction of the agreement

The background context of the 6 April 2020 agreement was that the parties found themselves to be in dispute about monies payable under the Canley Heights contract. Furthermore, they were seeking to avoid similar payment disputes arising out of the Penrith and Villawood contracts.
The only relevant ambiguity within the agreement was the mistaken reference to Ahmad Howchar which was intended to be a reference to Mr Ahmad Diab. That ambiguity was clarified in the evidence: T 87. In the absence of any other relevant ambiguity in the document, the need to import or imply additional terms is unnecessary. The document has obvious commercial efficacy and the objective intention of the parties was clear from the document itself.
The circumstances were that the parties were facing a formal statutory adjudication process in respect of the Canley Heights contract as was initiated by Conditonex. Plainly, they were seeking to avoid the cost, inconvenience and delay associated with the formal processes involved with the dispute resolution steps and procedures that occur when the Building and Construction Industry Security of Payment Act 1999 (NSW) is invoked, where ironically, a purpose of that legislation was to simplify and streamline building disputes to secure due payments with greater certainty.
In essence the effect of Nationwide's submission is that the claimed operative part of the agreement cited at paragraph [7] above is just a recital, and the remainder of the document, as altered by Mr Diab, is just an aspirational payment plan such that, without implied terms, the "agreement" is incomplete.
I do not accept that submission because to do so would impose a gloss that would render the agreement absurd and would create inconvenience that lacked commercial sense and business efficacy.
The payment schedule in the agreement is clear enough. It envisages a series of future payments. Those payments are distinct from the species of progress payments contemplated by the Building and Construction Industry Security of Payment Act 1999 (NSW).
The fact that the agreement casts a positive obligation on the defendant to make the payments as listed does not introduce a vitiating element that requires the inclusion of implied terms of the kind contemplated in Churchward v The Queen (1865) LR 1 QB 173 at 195 as was submitted on behalf of Nationwide.
The agreement as it stands is objectively coherent as to the intention of the parties and does not require the introduction of the implied term submitted on behalf of Nationwide.
The parties plainly intended to roll up and settle their financial obligations, commitments and expectations into a defined payment plan that encompassed completed work and work that was yet to be completed so as to create commercial certainty.
The additional term sought to be implied by Nationwide is superfluous. The agreement is sufficiently clear as to its intent and effect to cover all aspects of the works and financial consequences. The intention of the parties was to realign their respective rights and liabilities across all three of their projects.
I therefore decline to construe the agreement in the manner sought by Nationwide. It is sufficiently clear and enforceable as it stands.

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Judgment (19 paragraphs)

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Cases Cited (11)

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