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

Claim by plaintiff

1. The plaintiff claims the sum of $109,387 plus interest for the period between 7 April 2020 and 26 May 2022. Such interest is calculated in the amount of $9,837.78. The total amount claimed is $119,224.78.

Defence and cross-claim by defendant

1. Nationwide's defence filed on 4 May 2021 admitted the existence of the 6 April 2020 agreement which the plaintiff sues upon. However, it claims that the document did not constitute the complete agreement between the parties and claimed the existence of implied terms which, it was argued, suggested that the agreement was simply a payment schedule: Defence, paragraph 18.
2. On 16 August 2021, Nationwide filed an amended cross-claim raising allegations of defective building works carried out by Conditionex at the respective work sites. The cross-claim by Nationwide, as initially framed, was for an offset amount of $225,201.68. The cross-claimant's schedule of damages later revised this offset amount down to $193.392.11, including interest.
3. The cross-claim is not the subject of expert evidence. Unusually for this type of case, the parties did not provide a Scott Schedule setting out an itemisation or an analysis of the basis for that cross-claim, thereby increasing the litigation cost and burden for all concerned.

Procedural matters

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

Evidence relevant to plaintiff's claim

1. In the plaintiff's case, oral evidence was given by Mr Hazem Afyouni, a director of Conditionex. In the defendant's case, oral evidence was given by Mr Ahmad Diab, the sole director and shareholder of Nationwide. Both witnesses were cross-examined. No other witness was called to give oral evidence.
2. The parties co-operated and produced a three volume common court book containing some 1218 pages filed behind 12 tabs: Exhibit A. Some of the material in the Court Book included related to the cross-claim. In these reasons, I have restricted my evidence review to the evidence that relate to the plaintiff's claim, and not to the severed cross-claim.
3. In considering the plaintiff' claim, I have read the affidavit of Mr Hazem Afyouni sworn to November 2021 together with the exhibited material annexed thereto subject to the objections which were determined in the course of argument: Court Book, pp 45 - 61 and related exhibits.
4. I have also read the affidavits relied upon by the defendant in respect of that primary claim. These consisted of the affidavits of Mr Ahmad Diab affirmed on 14 January 2022 and 5 May 2022, but not including evidence that related to the severed cross-claim. I have also considered the affidavit of Mr Christopher Lam-Chiu Hua, the defendant's bookkeeper, affirmed on 14 January 2022.
5. The remainder of the affidavits in the Court Book relate to the cross-claim, and do not require consideration in this context given that the cross-claim has been severed.

Impressions of the witnesses who gave oral evidence

1. I considered Mr Afyouni to be a reliable and satisfactory witness. He gave his evidence in a straightforward, thoughtful, and matter of fact manner. He made fair concessions where concessions were due. Contrary to the submissions made on behalf of Nationwide, I found his evidence was credible and capable of acceptance.
2. In my view, Mr Diab was a less satisfactory witness. As the sole director and shareholder of a large building company with an extensive staff and a full-time accountant, he claimed he had naively signed the agreement dated 6 April 2020, not knowing the effect of its terms. I found that evidence incredible. It does not serve to avoid the effect of the agreement he signed.
3. Mr Diab showed reluctance in answering questions aimed at clarifying his evidence. At times he sought to give obfuscatory and argumentative answers: T 77.34 - T 77.38; T 78.20 - T 78.34; T 79.1 - T 79.2; T 80.5 - T 80.24; T 85.27 - T 85.40; T 86.45 - T 87.4. I found that approach to be unsatisfactory.
4. Therefore, on factual matters of conflict in the evidence, I concluded that Mr Afyouni was the more satisfactory witness. I considered his evidence should be preferred where it conflicted with the evidence of Mr Diab.
5. A matter of curiosity emerged in the evidence concerning a payment practice adopted by Nationwide and accepted by Conditionex with regard to large amounts due for payment. This included one undisputed cash payment of $44,000. There was a disputed cash payment in the alleged amount for $23,185 where no receipt existed. Payment in large cash amounts seemed to be an unusual method of settling significant commercial amounts due for payment. That said, nothing turns on such evidence with regard to the issues in this case.

Issues for determination

1. My review of the pleadings, the evidence and the submissions indicates the following issues arise for determination in these proceedings: 1. The significance of the fact that Conditionex did not call any evidence from Mr Salman Ali, its employee; 2. Whether Conditionex is bound by Mr Diab's unilateral action in purporting to delete the amount of $12,692.20 from the payment plan within the agreement; 3. Whether Nationwide made a cash payment to Conditionex on or about 4 May 2020 in the amount of $23,185; 4. The proper construction of the agreement between the parties dated 6 April 2020 and its terms; 5. Whether Nationwide was in breach of the agreement as claimed by Conditionex; 6. Quantum of damages.

Applicable principles

1. In construing the meaning of a commercial contract it is important to ensure that it is given business efficacy. In cases where there is no relevant ambiguity, the task need not be complex.
2. The meaning of the words used in a contract are to be determined by what a reasonable business person in the position of the contracting parties would have understood the agreement to mean in the context of the circumstances and having regard to the objective purpose of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462; [2004] HCA 35; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350; [1982] HCA 24; Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co (The Diana Prosperity) [1976] 3 All ER 570 at 574; [1976] 1 WLR 989 at 995 - 996.
3. In undertaking a business-like interpretation of a commercial contract it is necessary to consider the language the parties used in expressing the terms of their relationship, their objectives in entering into the contract in the factual context which the transaction arose: International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160; [2008] HCA 3.
4. In construing a commercial contract to discern the objective intention of the contracting parties, a beneficial approach is required in order to avoid creating a "commercial nonsense" or a "commercial inconvenience": Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640 at 656 - 657; [2014] HCA 7.

Consideration and determination

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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).
8. 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.
9. 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.
10. I now turn to consider the issues calling for decision as identified at paragraph [38] above.

Issue 1 - Absence of evidence from Mr Salman Ali

1. Mr Salman Ali, the person who drafted the agreement signed by the parties, was not called to give evidence in Conditionex's case. Consequently, Nationwide submits that as Mr Ali was not called, it may be assumed that his evidence would not have assisted the plaintiff's case: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.
2. In my view, that submission must be seen to be misplaced and it should not be accepted because although Mr Ali drafted the agreement in question, there is no evidence to suggest he was authorised to vary its terms or accept Mr Diab's unilateral alterations after Mr Afyouni had already signed on behalf of Conditionex. The fact that Mr Afyouni was the signatory on behalf of Conditionex compels the conclusion that only he had the authority to authorise alterations.
3. The defendant seeks to draw benefit from some passages in the evidence (T 48.1 - T 48.50; T 49.1 - T 49.8; T 52 - T 53) to suggest Mr Afyouni's evidence should not be seen to be reliable. I do not accept that interpretation of the evidence.
4. In my opinion, that evidence as cited by Nationwide, and the evidence generally, is insufficient to satisfactorily establish that Mr Ali was authorised to accept Mr Diab's purported unilateral alterations to the agreement. There is nothing in the evidence to reasonably suggest that Mr Ali could have reasonably contributed to an objective understanding of the respective contractual intentions of the parties to the agreement.
5. Accordingly, I therefore decline to draw the submitted Jones v Dunkel inference as sought by Nationwide concerning an argued failure to call evidence from Mr Ali.

Issue 2 - Effect of Mr Diab's purported unilateral alteration of the agreement

1. There is no evidence to suggest or establish that Mr Diab had negotiated with Mr Afyouni to reach a consensus for the deletion of the reference to a payment of $12,692.20 due in August 2020. Accordingly, Mr Diab's purported unilateral alteration, made apparently without the authority of Conditionex, but apparently accepted by Mr Ali, as a fait accompli, cannot have the effect of binding Conditionex.
2. In my assessment of the evidence, the fact that Mr Afyouni appeared sanguine about that alteration and made no fuss about it at the time, should be seen as being a sense of resignation that no alteration occurred rather than being an unconditional acceptance of its effect. The true tenor of his evidence was he just wanted to get paid what Conditionex was owed, and expected this would ultimately occur.
3. I am reinforced in that view because Mr Diab's unilateral deletion of the reference to the August 2020 payment of $12,692.20 made no difference to the amount identified as remaining payable on the payment schedule for the Canley Heights project, namely $92,692.20, as the following tabulation demonstrates: Remaining after $45,000 payment $92,692.20 Last Friday of April 2020 $20,000 Last Friday of May 2020 $20,000 Last Friday of June 2020 $20,000 Last Friday of July 2020 $20,000 Last Friday of August 2020 $12,692.20

1. After the crossing out of the amount of $12,692.20, the total of the payment schedule still remains $92,692.20. The ambiguous unilateral alteration by Mr Diab was ineffective. Therefore, the sum of $12,692.20 remains included in the amount for the assessment of damages in the plaintiff's claim against Nationwide.

Issue 3 - Alleged cash payment in May 2020

1. Nationwide claims it made an offset cash payment to Conditionex on or about 4 May 2020 in the amount of $23,185. That assertion is disputed by Conditionex.
2. The fact that in the past, Nationwide had made a cash payment of $44,000 to Conditonex may represent proof that there was an existing practice between the parties providing for payments in cash, but this is not necessarily constitute proof that the claimed cash payment of $23,185 was in fact made as claimed by Nationwide. Mr Diab did not claim to have personally made or witnessed such a payment. There was no receipt.
3. As purported proof of its proposition, Nationwide relies upon its internal document entitled remittance advice: Court Book pp. 1125 and 1126. In my view, that document is self-serving and non-contributory. Without a receipt for the sum of $23,185, I do not accept Mr Diab's evidence that the payment was made as alleged.
4. Mr Hua's evidence is non-contributory on this point. In any event, it is noteworthy to observe that if a cash payment had been made as alleged, it would have been contrary to the specific terms of the agreement which required that the scheduled payments had to be in the form of either a bank transfer, or by a cheque.
5. I therefore find that Nationwide is indebted to Conditionex the amount of $23,185, along with the other amounts claimed to be owing by Nationwide.

Issue 4 - The proper construction of the agreement

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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).
7. 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.
8. 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.
9. 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.
10. 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.
11. I therefore decline to construe the agreement in the manner sought by Nationwide. It is sufficiently clear and enforceable as it stands.

Issue 5 - Whether the defendant is in breach of the agreement

1. The undisputed evidence is that Nationwide failed to make the first $20,000 payment that was due to be paid to Conditionex in April 2020. That failure then necessarily triggered a breach of contract. That breach then continued and was compounded each month between April and July 2020 when Nationwide continued to fail to make its scheduled $20,000 payments, culminating in the failure to pay $12,692.20 in August 2020. These failures constitute a breach of the agreement by Nationwide. Conditionex must therefore succeed in its claim against Nationwide and Nationwide must pay the costs incurred by Conditionex in respect of this claim.

Issue 6 - Quantum of damages

1. On the evidence, I find that the disputed sums of $6,710 and $23,185 which Nationwide claims were paid to Conditionex, were not paid as claimed. I find the absence of any receipts evidencing payment of such significant amounts compels the conclusion these amounts were not paid.
2. As explained earlier in these reasons, I find that Mr Diab's purported unilateral attempt to delete the sum of $12,692.20 from the payment schedule in the contract should have no effect on account of its unilateral nature.
3. I accept the submission by Conditionex that on the evidence, it is entitled to be paid the amounts it claims pursuant to the contract dated 6 April 2020, namely $109,387 plus $9,837.78 in interest to date. The total of these amounts is $119.224.78.

Orders

1. I make the following orders: 1. Pursuant to r 28.2 Uniform Civil Procedure Rules 2005 (NSW), the plaintiff's claim and the defendant's cross-claim are to be heard and determined separately; 2. Verdict and judgment in favour of the plaintiff in the sum of $119,224.78, including interest calculated until today's date; 3. The defendant is to pay the plaintiff's costs of the primary claim on the ordinary basis unless a party can show an entitlement to some other costs order; 4. The judgment in the sum of $119,224.78 including interest and the order for costs are stayed pending the resolution of the cross-claim and the further order of the Court; 5. Pursuant to r 20.14 Uniform Civil Procedure Rules 2005 (NSW), the parties are required to appoint a Referee to determine the identified separate questions arising on the cross-claim based on the evidence presented by the parties to date, subject to the right of the plaintiff to produce evidence in reply to the defendant's later served evidence on the cross-claim; 6. This matter is listed for mention on Monday 30 May 2022 for the purpose of making of facilitative orders. On that date, the parties are required to bring in draft short minutes of order 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; 7. Liberty to apply on 3 days' notice if further or other orders are required.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2022