Hussain v Haynoum Developments Pty Ltd

Court of Appeal (NSW)|2015-12-11|Before: Beazley P, Leeming JA, McDougall J

Solicitors: City Legal Solicitors (Appellants) George Khoury & Co (Respondents) File Number(s): 2015/77651 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Division Citation: 2012/299804 Date of Decision: 25 February 2015 Before: Sorby DCJ File Number(s): 2012/299804

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Brief background

The appellants wanted to develop land that they owned at Telopea, by constructing seven townhouses on it. They engaged Mr Haykal to provide structural engineering services. Those services included undertaking the structural design, inspecting the work at various stages to ensure that it accorded with the structural design, and (at the completion of the works) providing a certificate of compliance.
The first appellant (Haynoum Developments) advanced sums totalling $309,000.00 to the appellants to assist them in carrying out the development. The appellants borrowed the remainder of the money needed, $1.6 million, from Arab Bank Australia Ltd.
The appellants appointed Mr Joe El Masri as principal certifying authority (PCA) for the purposes of s 109E of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act). One of Mr El Masri's functions was to issue a final occupation certificate, in accordance with s 109H of the EPA Act. He could not, or would not, do this without Mr Haykal's certificate.
The appellants entered into contracts for sale of some of the townhouses "off the plan". It is common ground that the appellants could not require the purchasers to complete those sales until, among other things, Mr El Masri had issued the final occupation certificate.
As the development neared completion, Mr Haykal pressed the appellants to pay his fees, and to repay the money advanced by Haynoum Developments (a company with which he was associated) together with interest. The appellants resisted. Mr Haykal said that he would not provide his certificate, that the structural works he inspected accorded with his design, unless the appellants gave him and Haynoum Developments some assurance of payment. Accordingly, after numerous discussions and after drafts had been exchanged between the parties and their respective legal advisers, the deed in question was signed.
By that deed, the appellants agreed to pay, and the respondents agreed to accept between them, a total of $431,000.00 in satisfaction of all claims that the latter had against the former arising out of the development. Although the appellants sought to argue otherwise, this amounted to a compromise of the respondents' total claims.
The fees claimed by Mr Haykal exceeded $97,000.00. Because he had submitted a payment claim for those fees pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) and the appellants had not provided a payment schedule, s 14(4) of the Act operates. It has the effect that the appellants are indebted to Mr Haykal for the full amount of the claimed fees. When one adds, as well, interest on the sum of $309,000.00 for 12 months at the rate claimed by Haynoum Developments (15% per annum), it is obvious that the total of the respondents' claim would exceed the amount that they agreed to accept.

The conduct complained of

The conduct that the appellants say was unlawful was Mr Haykal's conduct in refusing to issue his certificate until the appellants executed the deed. The appellants say that this conduct was unlawful for two reasons.
First, they say, it was a term of the contract between them and Mr Haykal that Mr Haykal should deliver the certificate promptly, so as to enable Mr El Masri as PCA to issue the final occupation certificate. That term, the appellants say, was implied. They say that in the circumstances I have described, Mr Haykal breached that term.
Second and alternatively, the appellants say, the conduct was unlawful by reason of cls 162A to 162C of the Environmental Planning and Assessment Regulation 2000 (NSW) (the EPA Regulation).
The first of those arguments was raised, although perhaps not with the precision with which it was advanced in this Court, before the primary judge. The second was not.

First argument: term of the contract?

The retainer of Mr Haykal was oral, not written. The uncontentious evidence goes no further than saying that the appellants asked him to undertake the services that I have described, and he agreed to do so. There is a dispute as to whether his fee was to be a total of $11,000.00, inclusive of GST, for all those services. Nothing of present moment turns on that (in part because it is not relevant to the question of implication of a term, and in part because, as between the appellants and Mr Haykal, the amount of his claim has been established in the manner that I have described).
The first appellant (Mr Hussain) said that Mr Haykal agreed to be paid at the end of the project. Mr Haykal, I think, disputed this. If that evidence were accepted (and the primary judge made no finding), then, depending on what is meant by "the end of the project", it might provide some support for the proposition that, on the proper construction of the contract, Mr Haykal was required to perform all the services, before being paid, and was not entitled to withhold the certificate until he was paid. However, that is not the way the appellants' case was put on appeal.
When one turns to the implication of a term, there is no basis shown why the term should be implied. If one turns to the classic statement of Lord Simon of Glaisdale, speaking for the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283, five things must be shown before a term can be implied into a contract: 1. it must reasonable and equitable; 2. it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; 3. it must be so obvious that "it goes without saying"; 4. it must be capable of clear expression; and 5. it must not contradict any express term of the contract.
As His Lordship recognised, those conditions may overlap.
In the present case, minds may differ as to the application of the first of those conditions. It is not necessary to express a concluded view. That is because, in my view, the second and third conditions are not satisfied. The implied term for which the appellants contend was not necessary to give business efficacy to contract. Nor was it so obvious that it "goes without saying".
As to the second condition: the contract between the appellants and Mr Haykal could work perfectly well without the implied term. There was the express retainer to provide the services. There was an obligation to provide those services as and when necessary. The contract would work perfectly well if Mr Haykal invoiced the appellants for the services as he provided them, and they paid him. Equally, the contract would work perfectly well if, at the conclusion of performance and when Mr Haykal was in a position to provide the certificate, he invoiced the appellants and they paid him.
In this case, the argument as to "business efficacy" really means "business efficacy from the perspective of the appellants". The appellants in truth are not asking the Court to imply a term to make their contract with Mr Haykal work. They are asking the Court to supply a term for which they could have negotiated, but did not; a term to make the contract work in their favour in the events that have occurred.
As to the third condition, why is the suggested implied term so obvious that "it goes without saying"? Again, that could only be so from the perspective of the appellants. From Mr Haykal's perspective, it might be thought to be equally obvious that he should retain a lien over the fruits of his labours until he was given some assurance of payment. The appellants are seeking to have the Court renegotiate the contract, to have effect as they now wish it had been made.
It is not necessary to deal with the fourth and fifth conditions, other than to say that they would have been satisfied.
In my view, the "implied term" argument goes nowhere.

Second argument: the EPA Regulation

Clause 162A of the EPA Regulation deals with the occasions on which building work must be inspected (called "critical stage inspections"), and by whom those inspections must be carried out. I set out the first three subclauses: 162A Critical stage inspections required by section 109E (3) (d) (1) For the purposes of section 109E (3) (d) of the Act, the occasions on which building work must be inspected are as set out in this clause. Note : These inspections are the "critical stage inspections" . (2) Except as provided by subclause (3), the critical stage inspections may be carried out by the principal certifying authority or, if the principal certifying authority agrees, by another certifying authority. (3) The last critical stage inspection required to be carried out for the class of building concerned must be carried out by the principal certifying authority.
Regulation 162B requires a record of inspections to be kept. Again, I set out the first three subclauses: 162B Record of inspections conducted under section 109E (3) of the Act and clauses 162A and 162AB (1) A certifying authority (whether or not a principal certifying authority) must make a record of each of the following inspections carried out by the certifying authority: (a) each critical stage inspection under clause 162A or 162AB, and (b) each inspection carried out because it was required by the principal certifying authority under section 109E (3) (d) of the Act or clause 162AB. (2) Any certifying authority who is required to make such a record but is not the principal certifying authority for the work concerned must, within 2 days after the record is made, provide a copy of the record to the principal certifying authority for the work. Note : Copies of these records must be kept for at least 15 years (see the regulations made under the Building Professionals Act 2005 ). (3) Each record of an inspection required by this clause must be made as soon as practicable after the inspection is carried out.
Clause 162C applies where a required inspection has been "unavoidably missed". It is not necessary to set out its terms.
Clauses 162A and 162B refer back to s 109E of the EPA Act. That section requires a person having the benefit of a development consent or complying development certificate to appoint a PCA. I set out subss (1), (1A) and (3): 109E Principal certifying authorities (1) The person having the benefit of a development consent or complying development certificate for development: (a) is to appoint a principal certifying authority in respect of building work involved in the development and a principal certifying authority in respect of subdivision work involved in the development, and (b) may appoint only the consent authority, the council or an accredited certifier as the principal certifying authority for the building work or subdivision work, and (c) may appoint the same principal certifying authority for both types of work or different certifying authorities. … (1A) Despite subsection (1), such an appointment may not be made by any contractor or other person who will carry out the building work or subdivision work unless the contractor or other person is the owner of the land on which the work is to be carried out. … (3) A principal certifying authority for building work or subdivision work to be carried out on a site is required to be satisfied: (a) that a construction certificate or complying development certificate has been issued for such of the building work or subdivision work as requires development consent and over which the principal certifying authority has control, before the work commences on the site, and (b) that the principal contractor for the work is the holder of the appropriate licence and is covered by the appropriate insurance, in each case if required by the Home Building Act 1989, before any residential building work over which the principal certifying authority has control commences on the site, unless the work is to be carried out by an owner-builder, and (c) that the owner-builder is the holder of any owner-builder permit required under the Home Building Act 1989, before an owner-builder commences on the site any residential building work over which the principal certifying authority has control, and (d) that building work or subdivision work on the site has been inspected by the principal certifying authority or another certifying authority on such occasions (if any) as are prescribed by the regulations and on such other occasions as may be required by the principal certifying authority, before the principal certifying authority issues an occupation certificate or subdivision certificate for the building or work, and (e) that any preconditions required by a development consent or complying development certificate to be met for the work before the issue of an occupation certificate or subdivision certificate have been met, before the principal certifying authority issues the occupation certificate or subdivision certificate.
Section 109E appears in a context that provides for certification of work, and for who may provide that certification: sections 109C, 109D. I set out s 109C(1),(2) and s 109D(1): 109C Part 4A certificates (1) The following certificates (known collectively as "Part 4A certificates" ) may be issued for the purposes of this Part: (a) a "compliance certificate" , being a certificate to the effect that: (i) specified building work or subdivision work has been completed as specified in the certificate and complies with specified plans and specifications or standards, or (ii) a condition with respect to specified building work or subdivision work (being a condition attached to a development consent or complying development certificate) has been duly complied with, or (iii) a specified building or proposed building has a specified classification identified in accordance with the Building Code of Australia , or (iv) any specified aspect of development complies with the requirements of any other provisions prescribed by the regulations, or (v) any specified aspect of development (including design of development) complies with standards or requirements specified in the certificate with respect to the development, (b) a "construction certificate" , being a certificate to the effect that work completed in accordance with specified plans and specifications will comply with the requirements of the regulations referred to in section 81A (5), (c) an "occupation certificate" , being a certificate that authorises: (i) the occupation and use of a new building, or (ii) a change of building use for an existing building, (d) a "subdivision certificate" , being a certificate that authorises the registration of a plan of subdivision under Division 3 of Part 23 of the Conveyancing Act 1919 . (1A) A single compliance certificate may deal with any number of matters, whether of the same or of a different kind. (2) An occupation certificate: (a) may be an interim certificate or a final certificate, and (b) may be issued for the whole or any part of a building. 109D Certifying authorities (1) Subject to subsections (2) and (3), the following kinds of Part 4A certificate may be issued by the following kinds of persons: (a) a compliance certificate may be issued by: (i) a consent authority, the council or an accredited certifier, or (ii) a person of a class prescribed by the regulations as being authorised to issue a compliance certificate in relation to the matters to be certified, (b) a construction certificate may be issued by a consent authority, the council or an accredited certifier, (c) an occupation certificate may be issued by a consent authority, the council or an accredited certifier, (d) a subdivision certificate may be issued: (i) in the case of subdivision the subject of development consent, by the consent authority or the council, (ii) in the case of subdivision that is not the subject of development consent, by the council, (iii) in the case of subdivision carried out by or on behalf of the Crown or a prescribed person, by the Crown or prescribed person or by any person acting on behalf of the Crown or prescribed person, (iv) in the case of subdivision of a kind identified by an environmental planning instrument as one in respect of which an accredited certifier may be a certifying authority, by an accredited certifier. (1A) For the purposes of subsection (1) (d) (iv), an environmental planning instrument that identifies subdivision in respect of which a subdivision certificate may be issued by an accredited certifier may place restrictions on the issue of such certificates by accredited certifiers.
The expressions "accredited certifier", "certifying authority", and "principal certifying authority" are all defined in s 4(1) of the EPA Act. I set out those definitions: "accredited certifier" , in relation to matters of a particular kind, means the holder of a certificate of accreditation as an accredited certifier under the Building Professionals Act 2005 in relation to those matters. … "certifying authority" means a person who: (a) is authorised by or under section 85A to issue complying development certificates, or (b) is authorised by or under section 109D to issue Part 4A certificates. ... "principal certifying authority" means a principal certifying authority appointed under section 109E.
Section 109H provides for restrictions on the issue of occupation certificates. Subsections (1) and (5) are relevant. I set out those subsections: (1) There are two kinds of occupation certificates, as follows: (a) an "interim occupation certificate" that authorises a person to commence occupation or use of a partially completed new building, or to commence a new use of part of a building resulting from a change of building use for an existing building, (b) a "final occupation certificate" that authorises a person to commence occupation or use of a new building, or to commence a new use of a building resulting from a change of building use for an existing building. It is not necessary for an interim occupation certificate to be issued before a final occupation certificate is issued with respect to the same building. … (5) A final occupation certificate must not be issued to authorise a person to commence occupation or use of a new building unless: (a) a development consent or complying development certificate is in force with respect to the building, and (b) in the case of a building erected pursuant to a development consent but not a complying development certificate, a construction certificate has been issued with respect to the plans and specifications for the building, and (c) the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia , and (d) such other matters as are required by the regulations to be complied with before such a certificate may be issued have been complied with.
Finally, for present purposes, s 109M prohibits occupation or use of a new building unless an occupation certificate has been issued. Subsection (2) provides for some exceptions to the general prohibition, but it has not been suggested that any of them were, or might have been, engaged.
The short answer to this argument is that Mr Haykal was not appointed to act as a certifying authority, and did not so act.
Clause 162A of the EPA Regulation provides, with the irrelevant exception noted in subcl (3), that "critical stage inspections may be carried out by the principal certifying authority or, if the principal certifying authority agrees, by another certifying authority". It follows that Mr Haykal could only have been acting as a certifying authority (assuming that he was qualified to be a certifying authority), if Mr El Masri had requested him so to act. Mr McGrath did not point to any evidence of such a request. Perhaps, if the point had been properly raised in the appellants' pleadings, some attention might have been paid to proving what was required. But since the point was not pleaded, it appears to have gone unnoticed.
Some confusion in this respect was introduced by the respondents' defence to the amended cross-claim. In para 21B, the respondents pleaded that they, and Mr Haykal in particular, "at all times acted in accordance with" Mr Haykal's obligations under s 109E of the EPA Act and cls 162A to 162C of the EPA Regulation. However, the pleading did not describe what (if anything) those obligations may have been, or why it was that, in the circumstances of this case, they had been imposed on Mr Haykal.
In my view, the argument based on the EPA Regulation fails.

Unconscionability

Although Mr McGrath appeared to accept that the conclusions that I have just reached would be fatal to his clients' appeal, I should mention briefly their case based on unconscionability. The pleaded case did not invoke unconscionability under the general law. It relied on s 51AC of the Trade Practices Act 1976 (Cth) and s 43 of the Fair Trading Act 1987 (NSW) (both of which were in force at the relevant time). The pleaded case of unconscionability relies on the matters with which I have dealt. Although the pleadings seem to go further, invoking concepts such as "superior bargaining position" and "want of good faith", on analysis in each case they are traced back to the matters with which I have dealt.
In any event, it is clear from the evidence as a whole that the negotiations that led up to the making of the deed were drawn out over a month or more, and that each side had the benefit of legal advice. No doubt, the appellants were under some pressure to come to terms with the respondents. Until that happened, the respondents could exploit the superior bargaining position which they enjoyed because Mr El Masri needed Mr Haykal's certificate. But once it is seen that the exploitation of that superior position involves no unlawful conduct, what remains is an everyday negotiation, in which the party in the stronger position is usually able to get at least most of what it wants.
There was an issue raised before the primary judge as to whether the appellants were substantially impecunious by 17 November 2010, and needed to complete the sales to restore their financial health. The primary judge rejected this aspect of their evidence. He gave reasons which, although brief, showed why he did so. In short, the primary judge concluded that the appellants had failed to produce documentary evidence to support the bald and conclusory assertions of impecuniosity in their affidavits.
In my view, to the extent that the question of impecuniosity is relevant, no error has been shown in this aspect of the reasoning of the primary judge.

Notice of contention

The respondents sought to rely on a notice of contention that had been provided (to use a neutral word) well out of time. They needed, but had not been given, leave to file that notice. For my part, I would not grant the respondents the leave that they need. There are two reasons. The first is that, on the conclusions I have reached, the respondents do not need to rely on the notice of contention. The second is that one of the grounds at least raises an unpleaded issue (as to the appellants' asserted acquiescence and unclean hands) that could and should have been pleaded in the defence to the amended cross-claim. Since it is by no means clear that the appellants could not have adduced evidence to deal with this ground, it is now too late for the respondents to seek to rely on it.

Other issues

I agree with the observations of Leeming JA at [3] to [7] and [9], [10].

Conclusion

In my view, the appeal should be dismissed with costs.

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: 22 December 2015

Building and Construction Industry Security of Payments Act 1999(NSW)

Environmental Planning and Assessment Regulation 2000(NSW)

Trade Practices Act 1976(Cth)

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