EPS Constructions Pty Ltd v Mass Holdings Pty Ltd

Judgment Sum 677,434.67

1. The primary Judge rejected EPS' cross-claim for repayment of the moneys it had paid to Mass Holdings. Once his Honour found that there was a binding agreement as alleged by Mass Holdings, EPS accepted that the cross-claim had to be dismissed.

The Grounds of Appeal

1. As will be explained, EPS is one of the four appellants. The appellants advance two arguments. First, they say that the primary Judge erred in finding that the partners and EPS reached a binding agreement. The appellants contend that his Honour did not grapple with evidence showing that no consensus was ever reached between the parties and that therefore an objective observer could not conclude that the partners had reached final agreement. The second argument, which was not developed in any detail in oral submissions, is that if a consensus was reached, it did not extend to all essential elements of a binding agreement.

The Parties

1. The land on which EPS constructed units is located in Werrington, near Penrith (the Site). The Site was purchased by the four partners.
2. The four partners are as follows:

• Mass Holdings, a company controlled by Mr Charles Massih;
• Naames Pty Ltd (Naames), a company controlled by Mr Emade Semaan;
• Semcorp (Aust) Pty Ltd (Semcorp), a company controlled by Mr Karim Semaan; and
• Mr Elie Kaltoum (Mr Kaltoum). (Mass Holdings, Naames and Semcorp were each the trustee of a family trust, but this is not a matter of significance for present purposes.)

1. Emade Semaan is a builder and property developer. He controlled EPS (as well as Naames).
2. Emade Semaan and Karim Semaan are brothers. Emade Semaan and Mr Massih, at the time of the relevant transactions, were close friends. Mr Massih was Emad Semaan's accountant. Karim Semaan was a real estate agent, as was Mr Kaltoum.
3. Mass Holdings was the plaintiff in the Equity Division proceedings. It sought relief against EPS. None of the other partners (Naames, Semcorp and Mr Kaltoum) was a co-plaintiff, but all were joined as defendants. Emade Semaan was also joined as a defendant, as was Sarahton Pty Ltd (Sarahton), another company controlled by Emad Semaan.
4. No relief was sought against Semcorp or Mr Kaltoum, but their joinder was presumably thought necessary since they were partners of Mass Holdings. Injunctive relief was originally sought against Emade Semaan and Sarahton, but these claims are no longer on foot.
5. The appellants in this Court are EPS, Naames, Emade Semaan and Sarahton. Mr Walker SC and Mr Katekar appeared on their behalf.
6. The respondents to the appeal are Mass Holdings, Mr Massih, Semcorp and Mr Kaltoum. Mr Dick SC and Mr Bolster appeared on behalf of Mass Holdings and Mr Massih. Semcorp and Mr Kaltoum were served with the notice of appeal but played no active part in the appeal.

Factual Background

1. The partners acquired the Site in two stages. They purchased a portion of the Site in November 2006 and the remainder in February 2009. They paid a total $1,580,000 for the Site. Title was taken by the partners in the following proportions: Mass Holdings - one third Naames - one third Semcorp - one sixth Mr Kaltoum - one sixth
2. The partners purchased the balance of the Site in 2009 because their repeated attempts to gain development approval for a large development on a portion of the Site had been rejected by Penrith City Council. They considered that acquiring the second part of the Site would improve the chances of securing development approval.
3. In the early part of 2009, Housing NSW was seeking expressions of interest from developers and builders to provide land and housing packages for low-cost housing. In early April 2009, Emade Semaan and Mr Massih jointly prepared the required documents for a tender to be submitted to Housing NSW. The tender contemplated the construction of 46 units on the Site.
4. Emade Semaan duly submitted a set of completed tender documents to Housing NSW on 9 April 2009. The documentation identified the partners as the tenderers. Emade Semaan signed the tender documentation as the builder.
5. The tender documentation contained an internal inconsistency. The Pricing Schedule showed the "Total Building Price", inclusive of GST, to be $8,096,000. However another section of the Pricing Schedule recorded the tender price for the building contract, exclusive of GST, as $10,764,000. The "Total price proposed" for the project was said to be $13,720,000, comprising $1,610,000 for the Site, $150,000 for fees and allowances, $10,764,000 for the building and $1,196,000 for GST.
6. On 22 June 2009, Housing NSW sent an email to Emade Semaan, who was the person designated to represent the partnership, pointing out the discrepancy in the tender documentation. Several days later Emade Semaan submitted an amended Pricing Schedule which showed a price for the building of $9,812,273 exclusive of GST, or $10,810,000 inclusive of GST. The tender price for the acquisition of the Site was increased to $2,760,000. Despite these alterations, the total tender price, inclusive of GST, remained unchanged at $13,720,000.
7. Housing NSW, after considering the revised Pricing Schedule, advised Emade Semaan that the increase in the price of the land component of the tender was not acceptable.
8. Emade Semaan prepared a further amended Pricing Schedule. As required, the tender price for the acquisition of the Site reverted to $1,610,000. The tender price for the building was now shown as $10,859,091, exclusive of GST. Once provision was made for allowances of $150,000 and for GST, the total price for the land, allowances and building remained at $13,720,000. As the primary Judge observed, [4] the allocation of $1,610,000 to the land component of the tender gave the partners little or no profit on the sale of the Site if considered as a separate transaction.
9. Further discussions took place between Emade Semaan and Housing NSW in July 2009. By the end of August 2009, Housing NSW was apparently satisfied that all significant issues had been addressed. On 7 September 2009, the Council gave development consent to the project. The solicitors acting for the partners and for Housing NSW proceeded to negotiate the terms of the contract for the sale of the Site.
10. The contract of sale was signed by the respective representatives of the partners on 2 October 2009 (Contract of Sale) and exchange of contracts took place on that day. The price stated in the Contract of Sale was $1,774,792, largely because the tender price of $1,610,000 was adjusted to include GST. Special Condition 22 of the Contract of Sale provided that following approval of plans by Housing NSW, the partners or another party procured by them would enter into a building contract to construct 46 units on the Site. The building contract was to be in the form appended to the Contract of Sale. Housing NSW was not obliged to complete the Contract of Sale until the building contract was executed.
11. On 23 April 2010, Housing NSW sent a Letter of Acceptance to EPS confirming that, subject to certain conditions, it intended to accept the tender to construct 46 units for a total lump sum of $11,928,728.90 inclusive of GST, with no adjustment for rise and fall. The total lump sum comprised what was said to be the original tender price of $11,840,400 plus a "one off agreed increase" of $88,328.90.
12. The Contract of Sale was completed on 6 May 2010. The proceeds from the sale were distributed to the partners in a manner that took account of various advances and contributions that they had made to the project.
13. Contemporaneously with the completion of the Contract of Sale, Housing NSW and EPS executed a contract pursuant to which EPS undertook to perform "the Works" for a "firm lump sum" of $11,928,728.90 (Building Contract).
14. On 19 August 2010, Housing NSW paid EPS the first progress payment of $1,237,514.50 under the Building Contract. At about this time, disputes arose between the partners. Mr Massih began agitating for distributions to be made to the partners out of the progress payment, but EPS declined to do so.
15. Mr Massih pressed for EPS to pay 36 per cent of progress payments from the third progress payment amount, up to a maximum of $3,484,299. This figure represented Mr Massih's calculation of the partnership's share of the price to be paid by Housing NSW to EPS under the Building Contract. As has been seen, the primary Judge accepted this figure as correct. [5]
16. On 5 November 2010, Mr Massih asked EPS to pay $263,327.07, being 36 per cent of the third progress payment of $731,464.07, into the partnership bank account. EPS instead paid $236,995 (about 90 per cent of the requested amount), which was immediately distributed among the four partners.
17. Shortly thereafter, EPS proposed an arrangement for payment of further amounts involving an "upfront lump sum payment discount [of] 30%". Further negotiations took place but no agreement was reached.
18. Between 4 February 2011 and 7 July 2011, EPS paid a total of $840,000 into either the partnership bank account or a trust account held by Mr Massih. Mr Massih received a total of $750,000 in this way, of which he paid $375,000 to Mass Holdings and $187,500 to each of Semcorp and Mr Kaltoum.

Primary Judgment

1. The primary Judge identified the issues as follows: [6] "[7] Mass [Holdings] seeks final relief against EPS alone. Mass [Holdings] alleges that prior to entry into the contract for sale, an oral agreement had been reached between EPS and the venturers to the effect that EPS would be retained by the venturers to carry out the required building work and would account to the venturers on the basis that it would charge the venturers the fixed sum of $8,096,000 (including GST) for the carrying out of the building work. … [10] EPS denies that an agreement was reached as alleged by Mass [Holdings]. EPS alleges that there was instead an agreement whereby it would receive, out of the progress payments made by Housing NSW, all of its reasonable construction and associated costs, with any surplus to be distributed to the venturers once the final construction costs were known. On that basis, it is put that after taking into account certain payments made to the venturers, the venturers have been significantly overpaid and are liable to repay the overpayment. [11] EPS contends in the alternative that there may have been no agreement at all between it and the venturers. EPS says that, if that is so, the amounts it paid to the venturers were made by mistake and they should accordingly repay the amounts so received. [12] The central question in the case is what agreements (if any) were reached between EPS and the venturers concerning the payment of EPS for work done, and the calculation of the venturers' profit. The resolution of that question ultimately depends upon an assessment of the various versions of the events and discussions that took place in the period leading up to entry into the contract for the sale of the land to Housing NSW."
2. Later in the Primary Judgment, his Honour noted that Mass Holdings' case was that the oral agreement between the partners was evidenced by a standard BC4 building contract form (BC4 Form). [7] Mass Holdings maintained that Emade Semaan had inserted the sum of $8,096,000 as the price in an otherwise blank BC4 Form and that the partners (or their agents) signed the BC4 Form to signify their assent to the agreement. It was common ground that Emade Semaan had inserted the figure in the BC4 Form and that the original document had been lost. No copy of the signed BC4 Form was in evidence.
3. His Honour recounted in detail the evidence given by Mr Massih, Emade Semaan, Mr Koultan, Karim Semaan and Mary Semaan (Emad Semaan's wife). He assessed the reliability of the principal witnesses as follows:

• Mr Massih made a generally favourable impression as a witness. Allowing for the fact that he had attempted to a significant degree to reconstruct events that had taken place five years before the hearing, Mr Massih appeared to be doing his best to answer questions honestly. [8]
• Emade Semaan did not make a favourable impression and his evidence had to be treated with caution. When his evidence conflicted with Mr Massih, the primary Judge generally preferred Mr Massih's account. [9]
• Karim Semaan had little recollection of events and little weight could be placed on his evidence. [10]
• Mr Kaltoum was in the witness box only for a brief time. He made a fair attempt to grapple with the questions and his evidence that he knew precisely what the "profit" would be, before he agreed to the execution of the Contract of Sale, was given in a convincing manner. [11]
• Mary Semaan's oral evidence was brief and there was no reason not to accept it. [12]

1. The primary Judge accepted Mr Massih's evidence that in April 2009, when the initial tender document was being prepared, he and Emade Semaan discussed the price EPS would charge the partners for the construction work if the tender was successful. [13] Emade Semaan said that he would build the units for the partners for less than $160,000 plus GST per unit (that is, for less than $8,096,000 for 46 units inclusive of GST). His Honour noted that this finding was consistent with the initial Pricing Schedule, which had recorded the figure of $8,096,000 as the contract price. [14]
2. Once Housing NSW had expressed its satisfaction with the tender, Mr Massih and Mr Kaltoum were keen to obtain Emade Semaan's agreement to a price that EPS would charge the partners for the construction work. [15] Mr Massih appreciated that there would be no profit to the partnership on the sale of the Site to Housing NSW. The partners would make a profit only if they received a proportion of the moneys payable by Housing NSW to EPS under the Building Contract.
3. The primary Judge accepted Mr Massih's evidence that he told Emade Semaan that a construction contract between the partnership and EPS should be put together and that he also asked Emade Semaan for a building contract to quantify the construction costs to the partnership. Emade Semaan deflected these requests. [16]
4. The primary Judge then addressed the circumstances in which the BC4 Form contract came to have the figure of $8,096,000 inserted: [17] "[109] It is clear that prior to the execution of the contract for sale [of the Site], a building contract in the standard BC4 form was obtained and used in connection with discussion about the price EPS would charge the venturers. The evidence is in a most confused state concerning the details of the circumstances in which the BC4 contract was obtained and used, although there is no doubt that at some point Emade Semaan, as he himself deposed, 'wrote in the amount of $8,096,000 as the price' and signed the contract. [110] Both Mr Massih and Mary Semaan gave evidence that the BC4 contract was collected by Mr Massih from EPS' office. I think that is likely to be correct. I also accept that Mr Massih took the contract with him to the building site in Windsor Road and discussed the matter there with Emade Semaan … I accept that Emade Semaan said that he would charge the venturers a fixed price of $8,096,000 without variations. That he did so is consistent with his preparedness to use that figure in April 2009 in relation to the tender documents … [111] I also think it likely that, on that occasion, Emade Semaan wrote $8,096,000 in as the price on the document, and signed it. The evident purpose of Mr Massih, in collecting the contract and taking it to the building site, was to obtain some written evidence of an agreement as to price. In circumstances where Emade Semaan was apparently prepared, when pushed, to commit to a price of $8,096,000, there is little reason to think that he would not have been willing to place the figure in the contract and sign it then and there. It is also likely that Mr Massih signed the contract on that occasion. I accept the evidence given to that effect by Mr Massih in cross-examination. Having regard to Mr Kaltoum's evidence that his brother-in-law [a solicitor] recommended that the variations section [of the BC4 Form] be deleted, I am not prepared to find that Emade Semaan crossed the section out on this occasion as maintained by Mr Massih. However, I do not think that anything turns on that in circumstances where Emade Semaan stated that the price of $8,096,000 was a fixed price without variations."

Appellants' Submissions

1. Mr Walker did not understate the difficulties confronting the appellants. He did not challenge the primary Judge's assessment of the reliability of the witnesses, including his Honour's unfavourable view of the evidence given by Emade Semaan and Karim Semaan. Nor did Mr Walker shy away from acknowledging that the appellants had the difficult task of persuading this Court to overturn credibility based findings of fact.
2. Mr Walker accepted that the four partners had attempted to reach consensus as to the sharing of the moneys paid by Housing NSW under the Building Contract and that there was a "commercial imperative" for them to reach an understanding prior to executing the Contract of Sale. He even accepted that EPS' position was not entirely meritorious. But, so he argued, the evidence was insufficient to establish that the parties had reached a consensus as to the terms of the asserted agreement. It followed that his Honour erred in concluding that the parties had entered into a binding agreement concerning the distribution of the proceeds derived from the Building Contract.
3. Mr Walker submitted that this was a case where the primary Judge had failed to use to the full his advantage in observing the witnesses. In particular, his Honour failed to grapple with critical evidence that contradicted the finding that the partners and EPS had reached consensus as to the partnership's share of the price that Housing NSW was to pay EPS under the Building Contract.
4. Mr Walker submitted that the key finding made by his Honour was that all four partners attended a meeting in late September 2009, at which each evinced assent to the offer made by EPS, namely that the partnership's share of the proceeds from the Building Contract should be determined by the "fixed price" of $8,096,000. [21] Unless consensus was reached at a four way meeting, there could have been no binding agreement. The primary Judge's finding was erroneous because none of the witnesses said that there had been a three way meeting followed by a four way meeting prior to the execution of the Contract of Sale on 2 October 2009 (as the primary Judge found).
5. Mr Massih gave evidence only of a three way meeting at which no consensus among all the partners was or could have been reached. Mr Massih had every opportunity to give evidence of such a meeting had it occurred, but did not do so. Moreover, Mr Massih's evidence was inconsistent with the partners having reached consensus prior to the execution of the Contract of Sale on 2 October 2009.
6. Mr Kaltoum's affidavit evidence was inconsistent with a four way meeting having taken place before the execution of the Contract of Sale. The affidavit referred to a four way meeting, but Mr Kaltoum clearly thought that the meeting had taken place after 2 October 2009. Mr Kaltoum first suggested that the meeting took place before 2 October 2009 when he was in the witness box, after Mr Massih had been cross-examined. Mr Kaltoum's revelation in the witness box was against the weight of evidence, including his own affidavit.
7. The appellants' written submissions contended that even if the parties reached consensus as to the amounts to be distributed, the agreement was incomplete because they had not reached agreement as to the timing of any payments. This was said to be an essential element of any binding agreement. The written submissions also contended that the agreement was incomplete because the question of variations had not been resolved.

The Evidence

1. The appellants' challenge to the findings made by the primary Judge centres on what are said to be inconsistencies in the evidence of Mr Massih and Mr Kaltoum, both of whom his Honour accepted as generally reliable witnesses. To assess the challenge it is necessary to summarise their evidence.

Mr Massih's Evidence

1. Mr Massih said that he asked Emade Semaan on a number of occasions to quantify the construction costs to the partnership of the development. Eventually Emade Semaan told Mr Massih he could pick up a contract from EPS' office. Mr Massih did so, but saw that the contract (presumably the BC4 Form) was "incomplete" in that no price was stated and the variations section was left blank.
2. Mr Massih took the BC4 Form to Emade Semaan and told him that it needed to be finalised. Emade Semaan replied that the other partners knew the construction cost since "it's been in the tender documents for ages". Mr Massih understood this comment to refer to the sum of $8,096,000, which had been mistakenly incorporated in the tender documents submitted to Housing NSW. As Mr Massih appreciated, this figure represented $160,000 per unit (plus GST) for a development of 46 units. Mr Massih and Emade Semaan then had a conversation to the following effect: "CM: So is this going to be a fixed priced arrangement like with Housing NSW? There's not going to be any adjustments in the price or variations? ES: Correct. I won't be charging any variations or anything extra. That is the fixed price. CM: Well then can you please mark that on the contract in the variations section? ES: Okay."
3. According to Mr Massih, either he or Emade Semaan wrote the amount of $8,096,000 on the BC4 Form as the contract sum. The same person then crossed out the variations section of the BC4 Form and inserted the word "NIL". Emade Semaan signed the BC4 Form and Mr Massih said that he would take the signed document "to the boys" for their signatures.
4. In his second affidavit, Mr Massih said that the conversation with Emade Semaan took place about mid to late September 2009. He added that he took the signed BC4 Form to the Sebel Hotel in Parramatta, where he met Karim Semaan. At that meeting Karim Semaan added his signature to the BC4 Form.
5. According to Mr Massih, he and Karim Semaan then met Mr Kaltoum at the Café D'Lite at Merrylands. Mr Massih said that the three had a conversation to the following effect: "CM: I had a meeting with Emade earlier today, and he has given me this signed contract. I need you to approve it and also sign it. Karim has already signed. EK: How much is he asking for? CM: $8,096,000 including GST. EK: So how much is that per unit? CM: It's $160,000 plus GST or $176,000. EK: That's too much, isn't it? CM: Well, he has previously promised to the [sic] do it cheaper, but he is now denying that. EK: We should get two or three quotes before we sign this. This is too high. I know that John Sahyoun is building units for $120,000 to $130,000. You should know that Charles. He's your client. CM: Yes, I know, Elie. I think it's a bit excessive also, but Emade is saying that we have known about this price. It is set out in the tender. EK: I haven't had anything to do with the tender. CM: Yes, I know Elie, but that's Emade's position. EK: I'm going to call some builders I know and ask them for a quote. KS: Look guys, the price is a little high, but other builders may quote it lower but then hit you with variations and we will probably end up at about the same price. EK: What if Emade also charges us variations on top of the already high price? CM: He says that price is fixed. There will be no variations. He has crossed out the variations section in the contract. The price is high but there is still plenty of profit in the deal. Maybe we should just get on with it. KS: If he knows he is making a decent profit on the building, it might motivate him to stay off the drink and finish this thing quickly. EK: Look, I think it's too much, but if you are both happy with it, then I'm okay with it. I just want my brother-in-law Sid, who's a solicitor, to have a look over the detail. I'll sign it and drop if off to you Charles. CM: Okay."
6. Mr Massih said that he followed up the conversation on numerous occasions with Mr Kaltoum. However, Mr Kaltoum's response was always that his brother-in-law, Sid, was very busy. In his cross-examination, Mr Massih said that after Mr Kaltoum took the BC4 Form away, (Mr Massih) never saw the document again.
7. On 1 October 2009, Emade Semaan informed Mr Massih that Housing NSW wanted to exchange contracts for the purchase of the Site the following day. On the next day, a meeting took place at the office of Mr Maley, the solicitor representing the partnership. Mr Kaltoum asked at this meeting how his interest would be protected if he signed the Contract of Sale. Karim Semaan said emphatically that everyone should just sign the Contract of Sale and deal with the other matter later.
8. According to Mr Massih, he did not understand what Mr Kaltoum was concerned about as he (Mr Massih) believed that the Building Contract with Housing NSW would include a clause protecting the interest of the partnership in the tender. In any event, the outcome of the meeting was that all partners signed the Contract of Sale and the exchange of contracts with Housing NSW duly took place.
9. Mr Massih's affidavits did not refer to any meeting prior to the exchange of contracts at which all four partners discussed the arrangement with EPS. His first affidavit referred to a meeting of the four partners at the Café D'Lite, but placed the meeting some time after the Contracts of Sale of 2 October 2009. Mr Massih said that at this meeting the partners, including Emade Semaan, discussed the distribution of progress payments received by EPS from Housing NSW.

Mr Kaltoum's Evidence

1. The primary Judge observed that Mr Kaltoum's affidavit was difficult to follow and imprecise as to dates.
2. Mr Kaltoum said that at some stage Emade Semaan, in Karim Semaan's presence, told him that the building progress payments would be paid into a joint account for all the partners. Emade Semaan also said that profits from the Building Contract would be distributed on each drawdown.
3. Mr Kaltoum subsequently expressed his concern to Mr Maley that the partners were being asked to sign the Contract of Sale for the Site "with no contractual right to receive building contract distributions". Mr Maley replied that he was negotiating a contract with Housing NSW and drafting "a back to back contract between EPS and each of you". Mr Kaltoum said that he signed the Contract of Sale in reliance on Mr Maley's assurances, but that he had never received a back to back contract.
4. Mr Kaltoum's affidavit referred to one or possibly two meetings of the four partners in the following terms: "Charles Massih met with me, Karim and Emade and said: Elie [Kaltoum]: I insist on a fixed price building contract be prepared. Here is a standard printed building contract. Emade [Semaan]: Give it to me and I will insert the numbers. It will equate to a building cost of $176,000 per unit inclusive of GST. I recall at a meeting held between Emade, Karim, Charles and me Emade completed the numbers in that document. It was agreed to insert $176,000 inclusive of GST per unit. Charles [Massih]: Do you agree that the profit will be in the order of $3,000,000 given the Department is paying $11.8 million for the completed project? Emade [Semaan]: Yes that seems about it." Mr Kaltoum did not attribute a date to this meeting (or these meetings) and did not specify whether the conversations took place before or after the partners executed the Contract of Sale on 2 October 2009.
5. In his affidavit, Mr Kaltoum said that after the figure had been inserted in what he described in cross-examination as the "blue contract" (the BC4 Form), all four partners signed the document. He took the document away in order to speak to his brother in law, who advised him to delete any variation section. Mr Kaltoum could not remember whether he returned the BC4 Form to Emade Semaan or Karim Semaan but that, in any event, the document had been misplaced.
6. In his examination in chief, Mr Kaltoum confirmed that all four partners had attended the meeting at which the figure of $176,000 was written on the BC4 Form. He said that there had been previous discussions and that "this was like the final sitting" and that "all four people who were present" spoke about the sum of $8,096,000.
7. The cross-examination of Mr Kaltoum was brief and the question of the timing of these conversations was not explored. As Mr Walker accepted in this Court, the cross-examiner proceeded on the basis that a meeting of all four partners had taken place at which the BC4 Form was discussed. The cross-examination included the following passage: "Q. Can I just draw your attention, please, to paragraph 26 of your affidavit. So you took it [the BC4 Form] to him [the brother-in-law] and he told you … that you [should] delete any variation section. Do you agree with that? A. I think this conversation may lead to previous conversations that I had with him, like, when we were saying - when I was saying to him that this is what I'm doing, and he advised me that this that this is what needs to be done, so he recommended prior to this one here. The conversation was not on that day. Prior to this conversation, he recommended that I delete any variation section. Q. When you met with Emade, Karim and Charles, the document that you took away did not have the variation section crossed out. A. I didn't look into the section. We signed it, I took it and I showed it to my brother - he said, yeah, standard contract. Q. You didn't sign it, did you? A. I did. I signed it, yes. Q. You took it away to give to Sid. A. Yes. Q. Before you were willing to agree to it. A. No, we agreed. The agreement was already made, and I signed it and -- Q. you took it away-- A. Took it away, just-- Q. --to give to Sid. A. --to have a look at it, and see what we signed. Q. To see what he would say about it. A. Yes. Q. You didn't agree to it-- A. We definitely agreed. Q. --because you wanted to take it away to Sid first. A. Agreeing on this contract has many prior discussion, about the price and all this, and this is - was, like, an agreement. We made an agreement prior to this reaching signing. This discussion was made prior."
8. Later in the cross-examination, the following exchange occurred: "Q. Can I turn you back to paragraph 19 of your affidavit. You relate there a meeting that you had with Chris Maley? A. Yes. Q. And you said you were concerned about asking to sign the sale contract with no contractual rights to receive any building contract distributions? A. Yes. Q. This conversation occurred at the time you were signing the contract to sell the land to Housing New South Wales? A. Yes. I was asked to go to Chris Maley's office to sign and I refused. I said - we had discussions prior to this one here where we did not understand, once we signed the sale of contract, what's going to happen. Chris Maley was supposedly preparing the contract with us, our name on it, because our name is not on this EPS and Housing where we protect our distributions. Q. Mr Maley told you that he was drafting a back to back contract between EPS and you? A. Absolutely and I left the office. I didn't sign it. Q. You've said in paragraph 20, "Relying on the assurances of Chris Maley, I signed the sale of land contract." A. That's following up because what happened, I didn't sign it the first time and then this is where Emade came and he said, "Stop interfering. If you don't sign you're not going to be happy. I'll bring you down", and then we had a second visit to him. Q. Just pausing there. Emade did not tell you to stop interfering with the finalisation of the project contracts or "I'll bring you down"? A. Absolutely he did. He did. He came into my office and he said - I can see why he's insisting because he's making a profit out of this project. Q. And you were going to make a profit too? A. Absolutely, we are, but not a - what's the words - a secured profit with 100% know the figures and everything and if we sit down and we work it out, final sale, final construction exactly to the dollar. My prospect in the future is a future. We don't know exactly how much we're going to make. We're going to sell it on the market. I'm going to be involved in the sale. That would be a different sale, different profits, different. I entered this one here knowing exactly how much I'm losing, to check exactly how much I'm winning. Exactly, to the dollar. Charles worked it out and he would say the settlement amount. On a few occasions he explained, 'This is how much it's going to cost. This is how much we're going to sell it. This is how much that's going to be our profit.' To the cent. We sat down on many occasion, to the cent, so what he entered was the Department of Housing-- Q. Mr Kaltoum. I'm sorry, I don't mean to interrupt you. Mr Kaltoum, the only conversation that you had with Emade about the building cost before you signed the sale of land contract to Housing New South Wales was the conversation you referred to in paragraph 24. A. That's it, $12 million we've gone into like a contract. Only one conversation I had with him? Q. That's the only conversation you had with Emade before you signed the contract to sell the land to Housing New South Wales? A. We had over 20 or 30 conversations. We always sat down. This is like a final here now. One word, no. It doesn't summarise what we agreed on."

The Difficulties Facing the Primary Judge

1. The primary Judge was faced with a difficult task. It is of course not unusual for a trial court to be presented with starkly conflicting accounts of circumstances. Unfortunately, it is also not particularly unusual for the witnesses to be dealing with conversations that occurred, as in this case, five years or more before the trial without the benefit of a contemporaneous record of the conversations. This case had the added difficulty that, as his Honour observed, the evidence of the discussions leading to the signing of the BC4 Form (an event not in dispute) was in "a most confused state". As the summary of the evidence given by Mr Massih and Mr Kaltoum indicates, it is not easy to gain a clear impression at to when conversations occurred and how they related to the events or transactions that undoubtedly did take place. The now unchallenged finding that the evidence of Emade Semaan and Karim Semaan was unreliable or helpful does not eliminate all the confusion.
2. The confusion in the evidence is not confined to temporal questions. The discussions among the partners make it clear that they did not have a clear understanding of the nature of their existing or contemplated legal relationship. This comment is not made as a criticism. Business people and investors do not necessarily think in the terms lawyers might apply to dealings and they should not be expected to do so. But the lack of a clear understanding of these matters explains much of the apparently confusing language used in their dealings.
3. The arrangement the partners were discussing, as Mr Walker correctly pointed out, was quite simple from a legal perspective. EPS was to enter into a Building Contract with Housing NSW. The partners were not parties to the Building Contract (although Emade Semaan's company, EPS, was). The partners were attempting to agree among themselves and with EPS to share in the moneys EPS was to receive from Housing NSW under the Building Contract. The discussion centred on the amount EPS would pay the partners out of the moneys it received under the Building Contract. Any contractual arrangement would be between EPS and the partners, with the apportionment among the partners determined by their respective shares in the partnership.
4. It is clear enough that the partners saw the proposed arrangement as somehow involving EPS performing building work on behalf of the partnership, perhaps as a kind of joint venture. For example, Mr Massih in his second affidavit recounted a conversation with Emade Semaan in about April 2009, as follows: "CM: Have you considered what EPS will be charging the partnership for the construction? We need to put that figure in a Section F? ES: … I've been told that Housing NSW will not pay more than $300,000 per unit for the finished product. We therefore have to keep the total tender price below $13,800,000 for the 46 units. CM: Ok, so what are you going to charge the partnership for the construction of the 46 units? ES: I am doing the development at Windsor Road for Mary, and I am going to shit it in for around the $140,000 mark. But I think that we should increase that price in this schedule if we are going to be asking for around $300,000 for the end price. We don't want it to look like the partnership is making a killing. CM: Ok, so what do you think we should put in this section? ES: I think $160,000 for each unit. […] CM: That amounts to $7,360,000. Is that inclusive of GST? ES: No, put that as $160,000 plus GST. CM: So that's $176,000 per unit including GST? ES: Charles, this is only to justify our asking price. I will build the development at a lower rate for the partnership. CM: That's fine I'm just clarifying it all."
5. The parties' understanding of the arrangements also seems to explain why it was thought appropriate to record the fixed "price" of $8,096,000 on the BC4 Form. As Mr Walker also correctly observed, if the object was to record an agreement as to the basis for calculating the amount to be paid to the partners, the figure could have been written on any piece of paper. The significance of these matters for present purposes is that an assessment of the appellants' challenge to the primary Judge's findings has to take into account the parties' understanding of what they were doing.

The Findings as to a Consensus

1. Mr Walker's submissions focussed on attacking the finding that all four partners met in late September 2009 and reached a consensus as to the terms of the agreement. However, I do not accept the submission that the finding as to a four way meeting in late September 2009 was pivotal to his Honour's conclusion that the parties entered into a binding agreement as to the distribution of the proceeds of the Building Contract.
2. Mass Holdings' statement of claim pleaded that "during the period of approximately 10 April 2009 and 1 October 2009, the Partnership entered into an agreement with EPS." It was alleged that the agreement contained a number of express terms, which were pleaded as follows: "a. the Partnership would retain EPS to construct the development at [the Site]; b. EPS would charge the Partnership, and the Partnership would pay EPS, a fixed rate of $8,096,000 for the construction of the development at [the Site]; c. if the construction costs for the development of the [Site] were in actual fact less than $8,096,000, EPS was entitled to retain the difference as profit; and d. if the construction costs for the development of the [Site] were in actual fact more than $8,096,000, EPS was not entitled to be paid the difference by the Partnership."
3. As Mr Walker accepted, the statement of claim alleged that the partners (including Emade Semaan as the representative of EPS) had entered into an oral agreement relating to the distribution of the proceeds of the Building Contract. The pleading did not allege that the partners reached consensus at a four way meeting in late September 2009 or on any other specific date or that they had reduced the agreement to writing.
4. The issue before the primary Judge was whether the words and conduct used by the parties to the alleged agreement would have led a reasonable person to conclude that the parties had reached consensus. [22] This required his Honour to determine whether, in all the circumstances, mutual assent had been manifested such that an agreement can be inferred. [23] It was not necessary for Mass Holdings to allege or prove that EPS made an express offer which was accepted by the partners at a particular meeting. [24] Mr Walker did not submit otherwise.
5. Contrary to the appellants' submissions, the primary Judge did not find that the agreement was concluded at the four way meeting at which Mr Kaltoum signed the BC4 Form. Recognising the confused state of the evidence, his Honour found that:

• Emade Semaan told Mr Massih at a meeting at the Windsor Road site that he would charge the partnership $8,096,000 without variations. [25] Both Emade Semaan and Mr Massih signed the BC4 form with that figure endorsed on it. The variation section was crossed out, but nothing turned on that because Emade Semaan had agreed to the "fixed price". [26]
• Mr Massih informed both Karim Semaan and Mr Kaltoum of Emade Semaan's agreement to a fixed price and they both agreed with the price, although Mr Kaltoum did not sign the BC4 Form on this occasion. [27]
• Mr Kaltoum signed the BC4 Form at a four way meeting in late September 2009, but took it away to speak with his brother-in-law. [28]
• Based on an objective assessment of the parties' conduct, a binding agreement had been reached by 2 October 2009. [29]
• The issue was further discussed at the four way meeting in late September 2009. There was consensus that the price would be $8,096,000 and Mr Kaltoum signed the BC4 Form at that point. [30]
• While Mr Kaltoum took the BC4 Form away with him to show to his brother-in-law, that did not detract from the conclusion that consensus had been reached prior to that time. [31]

1. In making these findings, the primary Judge was attempting to determine the most likely course of events, having regard to the confused state of the evidence and the apparent differences in the recollection of the two witnesses he regarded as endeavouring to give accurate accounts, namely Mr Massih and Mr Kaltoum. The finding reflected the evidence of both Mr Massih and Mr Kaltoum that all four partners had expressed agreement before 2 October 2009 to the proposal that EPS should pay the difference between the price in the Building Contract and the fixed sum of $8,096,000.
2. His Honour took into account Mr Kaltoum's evidence that he would not have been prepared to sign the Contract of Sale, unless the partners had agreed on the precise "profit" that they would receive and that he had calculated the exact amount. That evidence, as his Honour in effect found, was not only unchallenged but accorded with the objective probabilities.
3. Mr Walker criticised the primary Judge's finding about the four way meeting on several grounds. He said that Mr Kaltoum's affidavit evidence was that any such meeting took place after 2 October 2009 and thus could not have resulted in an agreement having contractual force. Mr Kaltoum's affidavit did not clearly identify the date on which that conversation occurred, but it is capable of being read as referring to a date before 2 October 2009. Further, it was not put to Mr Kaltoum that the discussion occurred after the Contract of Sale of the Site was signed. On the contrary, the cross-examiner questioned Mr Kaltoum on the basis that the discussion had occurred before he signed the Contract of Sale. (This should not be taken as a criticism of the cross-examiner; it is to be recalled that EPS itself contended at trial, although not on appeal, that an agreement had been reached, although on different terms from that found by the primary Judge.)
4. A second criticism made by Mr Walker was directed to the primary Judge's observation that he did not think anything turned on whether Mr Kaltoum actually signed the BC4 Form at the four way meeting held in late September 2009. [32] The reason that his Honour did not think the question was crucial was that he found that by the time the meeting took place Mr Kaltoum had already expressed his agreement to the suggested "price" of $8,096,000. That finding was consistent with Mr Kaltoum's evidence that the partners had held many discussions about the arrangement and had reached agreement well before any four way meeting in mid to late September 2009.
5. A third criticism was that Mr Massih not only did not claim that a four way meeting took place, but gave evidence that was inconsistent with an agreement having been reached among the partners before 2 October 2009. This criticism was principally based on a four page summary to the background of the dispute prepared by Mr Massih, Mr Kaltoum and Karim Semaan in about January 2011. Mr Walker submitted that several paragraphs of the summary could not be reconciled with the primary Judge's findings.
6. The summary referred to the partners, particularly Mr Kaltoum, insisting on signing an agreement with EPS to protect "our interest in the transaction". Mr Massih's second affidavit recounted that Mr Kaltoum asked the solicitor, Mr Maley, what was in place to protect his interests if he signed the Contract of Sale. Mr Kaltoum in his affidavit said that he insisted on a fixed price building contract being prepared, which he identified as the "standard printed building contract". On his account, it was that insistence that led Emade Semaan to write the figure of $8,096,000 on the BC4 Form.

Absence of Essential Terms?

1. Mr Walker did not elaborate in any detail on the appellants' written submissions on the question of whether the agreement was complete. The complaint appears to be that the primary Judge considered it unnecessary to resolve any conflicts in the evidence as to the timing of any payments to be made to the partners. His Honour accepted Mr Massih's evidence that the issue was discussed in October 2009 but the witnesses disagreed as to whether agreement was reached. [36]
2. The absence of any finding on this issue is not surprising. The appellants did not contend at the trial that no concluded agreement was reached because the parties did not agree on the timing of payments to the partners; the appellants' case was that agreement had never been reached as to the amount to be distributed to the partners. Furthermore, EPS mounted an affirmative case (not now pressed) that there was an agreement, but that its terms were different from those alleged by Mass Holdings. On EPS' alternative case, it argued for an agreement which included a term that EPS would only be obliged to pay when the Building Contract had been completed.
3. In their written submissions in reply in this Court, the appellants acknowledged that this issue had not been argued before the primary Judge. Indeed it is fair to say that both parties conducted the case on the basis that if there was an enforceable agreement, EPS' obligation to account for moneys received from Housing NSW occurred no later than completion of the works under the Building Contract. Had the appellants raised the timing issue at the trial, the point might well have been met by evidence as to what discussions took place before 2 October 2009 as to when moneys would be distributed. The point cannot be raised for the first time on the appeal.
4. In any event, no cogent reason has been advanced as to why any question concerning the timing of payments under the agreement found by the primary Judge would not be determined as a matter of construction of the agreement having regard to the surrounding circumstances. If the fact was that the parties did not specifically address the timing issue, it is likely that the agreement would be construed to require EPS to pay the agreed amount once it had received or was entitled to receive the price specified in the Building Contract from Housing NSW. Since proceedings were instituted after completion of the Building Contract, the primary Judge did not have to address the issue.
5. The appellants' submissions that the parties did not resolve the question of variations overlooks the findings made by the primary Judge. As I have explained, there was some confusion among the partners as to the relationship between them, on the one hand, and EPS and Housing NSW on the other. The primary Judge resolved the question of "variations" by finding that the agreement required EPS to pay to the partners the difference between the price under the Building contract and the sum of $8,096,000. Variations under the Building Contract were therefore matters between EPS and Housing NSW. No further agreement was required between the partners and EPS on the amount to be paid to the partners.

Orders

1. The appeal should be dismissed. The appellants must pay the costs of Mass Holdings and Mr Massih.

Endnotes

1. Mass Holdings Pty Ltd v EPS Constructions Pty Ltd [2015] NSWSC 217 (Primary Judgment).
2. The Primary Judgment and the parties referred to Housing NSW as the relevant governmental agency. In fact the building contract was between EPS and the New South Wales Land and Housing Corporation (Corporation). The Corporation was also the purchaser of the land from the partners. Since the Corporation is not a party to the proceedings (and does not need to be), I retain the terminology used by the parties.
3. Primary Judgment at [119]-[122].
4. Primary Judgment at [35].
5. See at [7] above.
6. Primary Judgment at [7], [10]-[12]. His Honour referred to the partners as "venturers".
7. Primary Judgment at [37].
8. Primary Judgment at [98].
9. Primary Judgment at [99].
10. Primary Judgment at [101].
11. Primary Judgment at [100].
12. Primary Judgment at [102].
13. Primary Judgment at [103].
14. Primary Judgment at [104].
15. Primary Judgment at [106].
16. Primary Judgment at [108].
17. Primary Judgment at [109]-[111].
18. Primary Judgment at [112]-[113], [115]-[118].
19. Primary Judgment at [122]. See above at [7].
20. Primary Judgment at [123].
21. Primary Judgment at [116].
22. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40] per curiam.
23. Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [81] (Heydon JA).
24. Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68]-[75] (Beazley JA, Santow and Ipp JJA agreeing) and cases cited there.
25. Primary Judgment at [110].
26. Primary Judgment at [111].
27. Primary Judgment at [112].
28. Primary Judgment at [113].
29. Primary Judgment at [115].
30. Primary Judgment at [116].
31. Primary Judgment at [117].
32. Primary Judgment at [113].
33. See the extract from the cross-examination at [69] above.
34. Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73 at [53] (Leeming JA, Basten JA and Simpson J agreeing).
35. See Fox v Percy [2003] HCA 22; 214 CLR 118 at [28]-[29] (Gleeson CJ, Gummow and Kirby JJ); at [66] (McHugh J).
36. Primary Judgment at [117]. 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: 15 October 2015