Jinhong Design & Constructions Pty Limited v Xu and Anor

Jinhong Design & Constructions Pty Limited v Xu and Anor - [2010] NSWSC 523 - NSWSC 2010 case summary — Zoe

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Evidence in the Proceedings 5 The Plaintiff called Mr Jin Hong Huang, a director and principal of the Plaintiff, in its case. In addition, the Plaintiff called Mr Gary Storey, document examiner, to give expert handwriting evidence concerning the handwriting on certain documents in evidence in the case. 6 Mr Xu and Mr Zhu gave evidence in the defence case. An affidavit of Mr Ling Lin was read by the Defendants, but Mr Lin was not required for cross-examination. 7 Mr Huang and Mr Xu gave evidence with the assistance of a Mandarin/Cantonese interpreter. Mr Zhu gave evidence without the need for an interpreter. 8 There are substantial factual disputes in the proceedings involving diametrically opposed versions of conversations on critical issues. In addition, the contemporaneous documentation has many unsatisfactory aspects. Despite the fact that the Plaintiff and Ausino were entering into a building contract for the Sylvania Waters project in the sum of about $2.35 million, it does not appear that lawyers played any part in the contractual arrangements, with the individuals who came to give evidence being responsible for the preparation and execution of contractual documentation. 9 Other contemporaneous documentation tendered in evidence in the case was accompanied by deficiencies. As a result, the resolution of factual issues in dispute in the proceedings is not straightforward. It depends upon an assessment of the oral evidence of witnesses, whose credit is under strong attack, and an assessment of that evidence in conjunction with the contemporaneous documentary evidence, such as it is. 10 The fact that key witnesses gave evidence through an interpreter limits the ability of a tribunal of fact to assess demeanour as an aid to fact finding. Further, great care must be exercised in making demeanour findings where witnesses are from a different cultural and ethnic background to that with which the Judge is familiar: Goodrich Aerospace Pty Limited v Arsic [2006] NSWCA 187; 66 NSWLR 186 at 190 [21]-[22]. It is necessary to weigh impressions as to demeanour carefully against the probabilities and to examine whether the disputed evidence is consistent with incontrovertible facts, facts that are not in dispute and other relevant evidence in the case: Goodrich Aerospace Pty Limited v Arsic at 191 [27].

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Factual Background 11 Mr Huang was born in China but has lived and worked in Australia for many years. He holds a Masters Degree in structural engineering from the University of Sydney. He is a qualified professional builder and has worked in the building industry for more than 20 years. He gave evidence in the proceedings through a Cantonese interpreter (T116). 12 Mr Xu was born in Shanghai in 1949 and has lived in Australia since 1987. He speaks some English but is fluent in Mandarin and gave evidence in these proceedings through a Mandarin interpreter. He is employed by a Chinese community newspaper in Sydney as a marketing manager (T302-303). Mr Xu was appointed a director of Ausino in September 2004 and ceased to be a director of that company in June 2006. 13 Mr Zhu was born in Beijing in 1978 and has lived in Australia since 1998. He is a computer analyst by occupation. He was appointed a director of Ausino in May 2004 (Exhibit 2). 14 What follows constitutes findings of fact made for the purposes of the proceedings. Many factual matters are not disputed. However, as already observed, there are significant factual disputes in a number of important areas. In the course of finding facts in chronological order, I will explain my reasoning in areas of dispute. 15 Between December 2002 and 23 October 2004, Ms Xue Yuan Li was a director and secretary of Ausino (Exhibit 2). In about February 2004, Ms Li contacted Mr Huang in relation to the Sylvania Waters project. Ms Li informed Mr Huang that the project was underway, but that the previous builder had left. Mr Huang had met Ms Li in about 2000 when he provided her with a quotation for the design and building of a number of townhouses, together with the preparation of initial plans. 16 In April 2004, Ms Li met with Mr Huang at his office at Campsie. Ms Li brought with her a copy of the plans relating to the Sylvania Waters project. At the conclusion of their meeting, Mr Huang said that he would prepare a quotation with respect to building works to complete the Sylvania Waters project. 17 At all relevant times between 2004 and 2006, Ausino was the registered proprietor of the land at 3 Richmond Avenue, Sylvania Waters. 18 On 9 October 2004, Mr Huang provided to Ms Li a quotation dated 9 October 2004 estimating the cost of carrying out specified works for the Sylvania Waters project. The estimate included 26 specified elements and noted that no allowance was made in the quotation for 11 further items. The quotation estimated the cost as $2,385,000.00 (part Exhibit K). The quotation came to form part of the building contract for the Sylvania Waters project.

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The Meeting on 9 October 2004 19 On Saturday, 9 October 2004, Mr Huang met Mr Xu, Ms Li and Mr Ping Gao at the Plaintiff's office at Campsie. Mr Huang gave Ms Li a copy of his quotation. He provided to Mr Xu a copy of the "NSW Residential Building Contract for New Dwellings", Edn 4, February 2004, a standard-form contract published by the Housing Industry Association. Attached to the copy of the contract handed to Mr Xu were three pages comprising the two-page quotation dated 9 October 2004 and an additional page headed "Building Contract" in an unsigned form (Exhibit K). 20 The oral evidence of Mr Huang and Mr Xu touched upon what was said and done at the meeting on 9 October 2004. Ms Li and Mr Gao did not give evidence in these proceedings. No submission was made by either side that any inference should be drawn from the failure to call these witnesses. The factual issues fall to be determined by reference to the evidence adduced at the hearing. 21 For the purpose of finding facts, I bear in mind that both Mr Huang and Mr Xu have an interest in the outcome of the proceedings and that these interests may bear upon the accuracy and truthfulness of their accounts given in affidavits and evidence between 2008 and 2010 with respect to events which occurred in October 2004. As the tribunal of fact, it is open to the Court to accept some, but not all, of the evidence of a witness. To find a verdict in favour of the Plaintiff, of course, it is not necessary that I accept the accuracy and truthfulness of everything said in the evidence of Mr Huang. I make this observation at this point because there are legitimate criticisms which can be made of aspects of the evidence of Mr Huang, as well as the evidence of Mr Xu and Mr Zhu. The task for the Court, as the tribunal of fact, is to have regard to the totality of the evidence, including documentary evidence and uncontroverted evidence, for the purpose of reaching conclusions, on the balance of the probabilities, in critical respects. 22 Mr Huang attended the 9 October 2004 meeting prepared to sign the building contract on that day. I am satisfied, on the balance of probabilities, that Mr Huang made clear on this occasion (and probably earlier as well) that he expected personal guarantees to be given as part of the contractual arrangement. In my assessment, Mr Huang is an astute businessman. Ausino was a small company with its sole asset being the property at 3 Richmond Avenue, Sylvania Waters. I accept that Mr Huang made clear his expectation that personal guarantees were to be given by Mr Xu and Ms Li. Likewise, I accept that Mr Xu made clear at this meeting that he wished to have an opportunity to read the contract and associated documents before executing the contract. Mr Xu also struck me as being an astute businessman who would be expected to take this approach before signing a contract of this magnitude. 23 It is not at all clear whether any parts of the building contract had been written on or signed by the end of the meeting on 9 October 2004. The evidence of Mr Huang was somewhat confusing in this respect. What is clear, however, is that Mr Xu left the meeting with the intention of closely examining the draft documents. I am satisfied that Mr Xu read the documents closely in the period between 9 and 12 October 2004 so that he had a clear understanding of their content. I accept that this understanding extended to that part of the document which contained a Deed of Guarantee and Indemnity (page 17, Exhibit A and Exhibit 1). 24 To the extent that it is presently relevant, I am satisfied that Ms Li read and fully understood the terms of the contract between 9 and 12 October 2004. Mr Smallbone, counsel for the Defendants, accepted before me that Mr Xu had no relevant difficulty in reading English documents despite his difficulty in speaking English. The appropriate conclusion is that by 12 October 2004, Mr Xu understood the totality of the proposed contract (T495).

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Personal Guarantee of the First Building Contract 26 The evidence of Mr Xu involves a denial that he signed the Deed of Guarantee and Indemnity on page 27 of Exhibit A with a fallback position that, if he did, he did so inadvertently. 27 The Plaintiff called expert handwriting evidence from Mr Storey who expressed the opinion that Mr Xu's signature appeared at the relevant point on page 27 of Exhibit A. Although a number of issues arose concerning Mr Storey's evidence, largely as a result of the unsatisfactory manner in which he had been retained and provided with documents in the first place, I am satisfied that his opinion with respect to the questioned signature ought be accepted. Although the Defendants had an opportunity to obtain handwriting expert opinion evidence following the vacating of an earlier hearing date for this matter in June 2009, the Defendants did not serve such expert evidence or seek to rely upon the evidence of a handwriting expert at the hearing before me. 28 The only expert handwriting evidence adduced at the hearing was that of Mr Storey called by the Plaintiff. The handwriting expert evidence forms one part of the body of evidence, both oral and documentary, upon which I must base my findings of fact. It would be erroneous to treat the expert evidence as being, in some way, decisive on its own in a case such as this: Gawne v Gawne (1979) 2 NSWLR 449 at 453, 455-456. As the tribunal of fact, I am entitled to make a comparison between handwriting that is disputed and admitted, although I should pay particular attention and regard to expert testimony on the issue: R v Doney [2001] NSWCCA 463; 126 A Crim R 271 at 280 [61]; Jeans v Cleary [2006] NSWSC 647 at [155]-[157]. 29 My examination of the disputed signature and other admitted signatures of Mr Xu supports a conclusion that it is his signature which appears at page 27 of Exhibit A. This conclusion is reinforced by an examination of the surrounding evidence, which includes the fact that Mr Xu had an opportunity to examine the contract documents between 9 and 12 October 2004 and that he did so, thereby acquiring a clear understanding of the contents of the documents. In these circumstances, it is difficult to accept Mr Xu's fallback position that, if he did sign the guarantee, he did so inadvertently. 30 I am satisfied, on the balance of probabilities, that Mr Xu signed the guarantee on 12 October 2004, well understanding its content and intending to provide his personal guarantee to the contractual arrangements created by the contract between the Plaintiff and Ausino. As I have said, I am satisfied that Ms Li intended to provide her personal guarantee as well under the contractual arrangements. 31 Mr Garnsey QC, for the Plaintiff, has pointed to the fact that the Defence to the Statement of Claim dated 12 July 2007 included an express assertion that Mr Xu's signature had been forged, but that the Defence to the Amended Statement of Claim filed 22 January 2010 adopted a more muted stance, excluding an express defence of forgery. The variation in the pleadings adopted by Mr Xu reflects the position ultimately taken by him at the hearing. There is no doubt that his primary position was that the signature was not his and that someone else had written it. I do not accept the evidence of Mr Xu in this respect and I reject the alternative scenario that he had somehow signed the guarantee inadvertently. 32 I am satisfied, on the balance of probabilities, that the requirement for a personal guarantee from Mr Xu and Ms Li was a requirement of the Plaintiff, expressed through Mr Huang, in circumstances where a substantial contract was being entered into between the Plaintiff and Ausino, a small company with a single asset in the form of the property at 3 Richmond Avenue, Sylvania Waters. 33 The contract entered into between the Plaintiff and Ausino, with personal guarantees provided by Mr Xu and Ms Li on 12 October 2004, incorporated the document entitled "Building Contract" and the two-page quotation dated 9 October 2004 (Exhibit K). Thus the contract reflected a price and a description of items included in the contract price and those not allowed for in that price. I observe that the contract of 12 October 2004 made no provision for liquidated damages to be paid by the Plaintiff (as builder) to Ausino (as owner) if the building works did not reach practical completion by the end of the contract period (pages 3, 21, Exhibit A). I do not accept the evidence of Mr Xu that, at the meeting on 12 October 2004, Mr Huang requested that a personal guarantee be provided by Mr Xu, but that he (Mr Xu) made clear that he would not give a guarantee. This account is inconsistent with other oral and documentary evidence, including the content of the contract (Exhibit A) itself. If Mr Xu had refused to give a personal guarantee, it might be expected that page 27 of the document would have been struck out or some other notation made to clearly and simply identify that a personal guarantee was not being given as part of the contractual arrangement. This was not done. Rather, the personal guarantee page was executed by both Mr Xu and Ms Li in a manner which was entirely consistent with a contemporaneous intention by each of them to give a personal guarantee as part of the contractual arrangement.

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Events Following 12 October 2004 34 On or after 12 October 2004, the Plaintiff was paid the sum of $100,000.00 by cheque as a deposit for the Sylvania Waters project. Mr Huang was cross-examined concerning a document suggesting that the deposit of $100,000.00 had been paid on 10 October 2004 (T132). I am satisfied that Ausino, Mr Xu and Ms Li would not pay a deposit to Mr Huang until the contract was executed and that this did not occur until 12 October 2004. Accordingly, any suggestion that a deposit was paid prior to then is, in my view, mistaken. 35 On about 24 October 2004, Mr Xu contacted Mr Huang by telephone to inform him that Ms Li had been removed as a director of Ausino. There was some suggestion that Ms Li may have acted improperly with respect to Ausino's funds. In any event, Ms Li had left the country. The company search with respect to Ausino states that Ms Li ceased to be a director and secretary of Ausino on 23 October 2004 (Exhibit 2). 36 It is common ground in the proceedings that Mr Huang and Mr Xu agreed that a further contract should be entered into for the purpose of the Sylvania Waters project following Ms Li's departure. Both parties asserted that it was the other who sought a new agreement, though nothing material appears to turn on this issue. There is no sign in the evidence that any of the protagonists in this litigation sought legal advice at that time. On the face of it, a further contract was probably not necessary insofar as the contract of 12 October 2004 bound the Plaintiff, Ausino and Mr Xu. The fact that Ms Li had ceased to be a director of the company would not seem, as a matter of law, to affect the validity of the first contract. Of course, the departure of Ms Li from Ausino and Australia may well have practical consequences insofar as the personal guarantee given by her under the first contract. 37 For the purpose of entering into a second contract, someone obtained proforma contracts in the form of the "NSW Plain Language Building Contract for New Home Construction", Edn 3, March 2001, issued by the Housing Industry Association (Exhibit B, Exhibit 9). This was the predecessor to the form of contract used for the first contract on 12 October 2004 (Exhibit A; Exhibit 1). The printed content of the standard form of the March 2001 contract differed in a number of respects from that used for the first contract. 38 There is a further conflict in evidence between Mr Huang and Mr Xu with respect to the conversation that took place between them concerning a replacement contract. Mr Huang maintains that he emphasised to Mr Xu the need for personal guarantees to form part of any replacement contract. Mr Xu asserts that Mr Huang did not raise the topic of personal guarantees with him again following the meeting of 12 October 2004 when, according to Mr Xu, he had firmly rejected the giving of a personal guarantee. 39 I do not accept the evidence of Mr Xu on this issue. I have already made findings that Mr Huang insisted on personal guarantees being given by Mr Xu and Ms Li as part of the 12 October 2004 contract and that each of those persons did, in fact, knowingly give a personal guarantee as part of the contractual arrangement. No good reason is suggested by the evidence as to why Mr Huang would alter his position, to his detriment, with respect to personal guarantees. The commercial context surrounding the arrangement was one which emphasised the commercial desirability of personal guarantees to be given with respect to Ausino's contractual liability. The fact that Ms Li departed the scene, in my view, would reinforce Mr Huang's wish for personal guarantees with respect to Ausino's liability. Mr Huang had known Ms Li for some time, but had only recently met Mr Xu. All of this, in my view, supports a conclusion that Mr Huang insisted on personal guarantees being given as part of the replacement contract as well. 40 In broad terms, the second contract replicated the first, making due allowance for the different forms being utilised. There is one significant exception to this. The second contract provided for liquidated damages to be paid by the builder to the owner in specified circumstances, at the rate of $200.00 per working day (Exhibit B, page 3). This variation from the earlier contract operated adversely to the Plaintiff and Mr Huang. It was Mr Huang's evidence that he resisted this change, but that Mr Xu insisted upon it. I am satisfied that what happened at this point was that, following Ms Li's departure, Ausino and its directors took the opportunity to improve their position under the second contract with respect to liquidated damages, and that Mr Huang accepted this change under protest. In my view, this change serves to reinforce Mr Huang's desire for personal guarantees under the contract. The Plaintiff had the benefit of personal guarantees under the first contract and would be most unlikely to forego that significant commercial advantage in the second contract, at the same time giving ground in another respect concerning liquidated damages. 41 I am satisfied, on the balance of probabilities, that Mr Xu told Mr Huang on or about 24 October 2004 that he and Mr Zhu, another Ausino director, would give personal guarantees under the replacement contract. I do not accept the submission of the Defendants that Mr Huang was, in some way, desperate to retain the job so that he agreed to the liquidated damages provision under the second contract. The fact is that work was underway and a deposit had been paid to the Plaintiff. No doubt, the Plaintiff wished to maintain the contract (which it already had under the 12 October 2004 agreement), but at the same time Ausino, its directors and investors wished the project to continue. Both sides had an interest in the Plaintiff remaining as builder. Ausino obtained the benefit of a liquidated damages clause being inserted in the second contract and the Plaintiff retained the benefit of personal guarantees being part of the second contractual arrangement. That, at least, was what Mr Huang was led to believe by statements made to him by Mr Xu on or about 24 October 2004.

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Personal Guarantee of the Second Building Contract 42 The absence of lawyers from this substantial commercial transaction in October-November 2004 may well be rued by the parties now immersed in expensive and protracted litigation. The contemporaneous documentation does not suggest that those involved were much concerned to dot all the "i's" and to cross all the "t's" in the contractual documentation. I have already made findings with respect to the first contract of 12 October 2004. I turn now to consider what findings ought be made with respect to the second contract entered into in November 2004. 43 I am satisfied that, in about mid-November 2004, the second building contract came to be signed by Mr Huang, Mr Xu and Mr Zhu. The second building contract incorporated the document headed "Building Contract" and the quotation of 9 October 2004 (Exhibit K). Mr Xu and Mr Zhu signed on behalf of Ausino and Mr Huang on behalf of the Plaintiff (Exhibit B, page 8). Mr Xu, Mr Zhu and Mr Lin, another Ausino director, initialled each page of the second contract, as did Mr Huang for the Plaintiff. Mr Xu, Mr Zhu, Mr Lin and Mr Huang all initialled the guarantee page of the second contract (Exhibit B, page 26). However, neither Mr Xu or Mr Zhu signed as guarantors on the second contract. This is a point of difference between the first and second contract. 44 I am satisfied, on the balance of probabilities, that Mr Xu and Mr Zhu stated to Mr Huang that personal guarantees would be given by each of them with respect to Ausino's liability under the contract to the Plaintiff at the time when the second contract was signed and initialled by each of them. I have already found, on the balance of probabilities, that Mr Huang at all times insisted upon personal guarantees as part of the contractual arrangement. The fact that Mr Xu had given a personal guarantee under the first agreement is an important factor in determining what was agreed in the context of the second contract in November 2004. 45 The second contract was prepared with all pages being initialled by Mr Xu, Mr Zhu and others. The guarantee page was not struck out. To the contrary, it was left in with Mr Xu and Mr Zhu initialling the bottom of the page. This conduct is not consistent with an unwillingness to give personal guarantees. It is the fact that neither Mr Xu nor Mr Zhu signed at the relevant position on the guarantee page of the second contract. The Plaintiff submits that this indicates a willingness on their part to say one thing, but do another from that early point. It is not crystal clear, in my view, that Mr Xu and Mr Zhu had embarked upon a course of conduct from that time to intentionally mislead Mr Huang concerning the personal guarantee issue. It is clear, however, that Mr Xu and Mr Zhu were motivated wholly by self interest, a pattern which became more apparent at a later point in the dealings between the parties. 46 I am satisfied, on the balance of probabilities, that Mr Xu and Mr Zhu consistently maintained to Mr Huang that personal guarantees formed part of the second contractual arrangement. I accept that Mr Huang did not assiduously demand prompt signature and presentation of signed guarantees. However, he was told that that was part of the arrangement and the documentation was not inconsistent with that view. Importantly, the guarantee part of the second contract had not been struck out and had been initialled by Mr Xu and Mr Zhu. I am satisfied that in and after November 2004, Mr Huang proceeded upon the basis that Mr Xu and Mr Zhu had agreed to provide personal guarantees with respect to Ausino's liability to the Plaintiff under the second contract. 47 I find that at least parts of the second contract (Exhibit B) were executed on 23 November 2004. I do not consider that anything turns on differences between the writing on Exhibit B and Exhibit 9. It is Exhibit B which bears the signature and initials of Mr Xu and Mr Zhu at different points. Nor do I consider that anything turns upon the fact that a guarantee page of Exhibit B (page 26) has Ausino's particulars contained in the guarantors' statement and not the particulars of Mr Xu and Mr Zhu. As already noted, the initials of Mr Xu and Mr Zhu appear at the foot of page 26 and that is a significant feature of the evidence, as is the fact that page 26 has not been struck out. If the account of Mr Xu and Mr Zhu was to be accepted, then the circumstances prevailing in November 2004 ought to have seen neither of them initial that page which, on Mr Xu's account, had been rejected once and for all on 12 October 2004.

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Events After November 2004 48 I accept Mr Huang's evidence that the Plaintiff continued work on the Sylvania Waters project in and after November 2004 in view of the assurances by Mr Xu and Mr Zhu that personal guarantees were part of the second contractual arrangement. Mr Huang received a copy of the second contract and stated that he did not look at it closely until some time later, when he again raised the personal guarantee issue with the Defendants. I bear in mind the context of events in early 2005 with the project being underway and progress payments being made by Ausino. Ausino had borrowed from Hastings Capital Limited and Hastings Mezzanine Limited to fund the Sylvania Waters project. 49 Each of Mr Huang, Mr Xu and Mr Zhu gave evidence concerning practical aspects surrounding the progress of the Sylvania Waters project through 2005. To the extent that it has been necessary to make findings with respect to those issues, I have been assisted by certain contemporaneous documentation. The Plaintiff sought progress payments regularly in this period. Documents containing requests for progress payments form part of the evidence. 50 As part of the process of assessing requests for progress payments, Ausino and Hastings Capital Limited arranged for Newton Fisher & Associates Pty Limited ("Newton Fisher"), Quantity Surveyors and Building Costs Consultants, to advise whether payments ought be made. Regular reports were provided by Newton Fisher concerning progress payment requests and these documents were tendered in the Defendants' case. I observe that neither side in the litigation called an independent building expert to give evidence with respect to work carried out for the Sylvania Waters project. Mr Huang is a qualified engineer and builder and was able to give certain opinion evidence in this respect, but he was not independent. The Newton Fisher reports are in evidence as business records and are unaccompanied by oral evidence. Nevertheless, the contents of these reports prepared at the time of relevant events in 2005 and 2006 assist the process of fact finding for the purpose of determination of these proceedings. 51 On 12 January 2005, the first progress payment in the sum of $325,227.00 was paid to the Plaintiff. 52 On 17 February 2005, the second progress payment in the sum of $297,955.00 was paid to the Plaintiff. 53 According to a Newton Fisher report dated 1 April 2005, a representative visited the site on 9 February 2005 and examined work in progress for the purpose of assessing the third progress payment claim. The Newton Fisher report stated with respect to the quality of the work executed to that time that it appeared "to have been carried out in accordance with the drawings and approvals using good quality materials and workmanship" with no defects being apparent. Ninety-nine percent of the substructure was complete, as was 29% of the superstructure. Payment in the sum of $260,090.00 was recommended (Zhu affidavit, 10 October 2008, pages 70-71). 54 On 9 March 2005, Sutherland Shire Council wrote to Ausino raising the need for certain issues to be addressed with respect to the development application. On 24 March 2005, Mr Huang provided Sutherland Shire Council with amended plans in accordance with the requirements of Council (Exhibit L, page 13). On 11 April 2005, the Council approved the amended plans (Exhibit L, page 17ff). 55 On 19 April 2005, the sum of $238,500.00 was paid to the Plaintiff as the third progress payment (Huang affidavit, 14 January 2008, page 90). 56 On 4 May 2005, an extra claim in the sum of $21,590.00 was paid to the Plaintiff as progress payment 3A (Huang affidavit, 14 January 2008, page 93). 57 On 3 June 2005, the fourth progress payment in the sum of $350,068.00 was paid to the Plaintiff (Huang affidavit, 14 January 2008, page 97). 58 On 11 July 2005, the fifth progress claim in the sum of $192,342.00 was paid to the Plaintiff (Huang affidavit, 14 January 2008, page 101). On 5 August 2005, the sixth progress payment claim in the sum of $170,228.00 was paid to the Plaintiff. 59 On 29 August 2005, the seventh progress claim in the sum of $62,681.00 was paid to the Plaintiff (Huang affidavit, 14 January 2008, page 108). For the purpose of that claim, Newton Fisher had undertaken a site visit on 16 August 2005 leading to a report dated that day containing no criticisms of the quality of work, and indicating progress of the substructure being 99% complete, superstructure being 100% complete, finishes being 100% complete, fittings being 60% complete, with services and external works being 0% complete (Zhu affidavit, 10 October 2008, pages 68-69). 60 On 19 September 2005, the eighth progress payment claim in the sum of $99,454.00 was paid to the Plaintiff (Huang affidavit, 14 January 2008, page 114). Newton Fisher conducted a site visit on 2 September 2005 and provided a report that day with respect to this claim, expressing no criticism of the quality of work and providing the project status with respect to completion in the same terms as the report of 16 August 2005 (Zhu affidavit, 10 October 2008, pages 66-67). 61 On 21 October 2005, the ninth progress payment was made to the Plaintiff in the sum of $67,821.00 (Huang affidavit, 14 January 2008, page 118). Prior to that payment being made, Newton Fisher conducted a site visit on 22 September 2005 and reported that day with no criticisms expressed of the quality of work. The project status was said to be 100% complete for substructure, superstructure, finishes and fittings, 26% complete as to services and 0% complete as to external work (Zhu affidavit, 10 October 2008, pages 64-65). 62 On 16 November 2005, the 10th progress payment was made to the Plaintiff in the sum of $142,453.00. Prior to this payment being made, Newton Fisher conducted a site visit on 27 October 2005 and reported the next day with respect to the project. No criticism was expressed with respect to the quality of the work and the project status was said to be 100% complete as to substructure, superstructure, finishes and fittings, 75% as to services and 0% complete as to external work (Zhu affidavit, 10 October 2008, pages 62-63). 63 On 20 December 2005, the 11th progress payment was made to the Plaintiff in the sum of $160,136.00 (Huang affidavit, 14 January 2008, page 128). This was the last payment made on behalf of the Plaintiff to Ausino. On the same day, the 12th progress payment claim was made in the sum of $391,817.28. This sum was not paid. 64 Further site visits were undertaken by Newton Fisher, the results of which are relied upon by the Plaintiff in these proceedings. On 4 January 2006, a site visit was undertaken with a report issued on 18 January 2006 as a result. The report stated that the work executed appeared to have been carried out in accordance with the drawings and approvals using good quality materials and workmanship and that no defects were apparent. The project status was said to be 100% completed as to substructure, superstructure, finishes and fittings, 96% complete as to services and 57% complete as to external work (Zhu affidavit, 10 October 2008, pages 59-60). 65 On 24 March 2006, Newton Fisher undertook a further inspection of the site leading to a report dated 31 March 2006. The report had no criticisms of the quality of the work and noted that the project was now complete (Zhu affidavit, 10 October 2008, pages 57-58). 66 During 2005, there were occasions when work ceased on the Sylvania Waters project because of delays in the making of payments by or on behalf of Ausino. In the context of discussions concerning delay in progress payments, I am satisfied that Mr Huang once again raised the topic of personal guarantees being given by Mr Xu and Mr Zhu. In circumstances where payments were being made fairly regularly before then, the context was such that concerns with respect to payment were not at the forefront of Mr Huang's thinking. However, I am satisfied that the topic once again became relevant and was raised by Mr Huang with Mr Xu and Mr Zhu later in 2005. I am satisfied, on the balance of probabilities, that Mr Xu and Mr Zhu both assured Mr Huang that personal guarantees formed part of the second contractual arrangement. These statements were made in the context of assurances given by the Defendants to Mr Huang that the Plaintiff would be paid for work carried out with respect to the Sylvania Waters project. 67 On 22 February 2006, a final inspection of the Sylvania Waters project was undertaken by Sutherland Shire Council. Following that inspection, a completion report was issued by the Council on 20 March 2006 certifying that the building works had been completed in accordance with the development consent and an occupation certificate was issued by the Council the same day (Exhibit L, page 198ff). 68 On 22 February 2006 Mr Huang, on behalf of the Plaintiff, handed the keys to the 18 units which formed part of the Sylvania Waters project to Mr Xu and thereafter left the property. At that time, I am satisfied that a sum in excess of $391,000.00 remained outstanding from Ausino to the Plaintiff under the second building contract. 69 In April 2006, Mr Huang was pressing Mr Xu for payment of the outstanding sum and foreshadowed that a caveat may be lodged with respect to the Sylvania Waters project if the sum was not paid. On about 6 April 2006, the Plaintiff received the amount of $10,386.00 from Hastings Capital Limited (Huang affidavit, 14 January 2008, paragraph 76). I accept that Mr Huang continued to press Mr Xu for payment of the balance owed by Ausino to the Plaintiff. Making allowance for the payment made on 6 April 2006, the Plaintiff had an outstanding claim against Ausino in the sum of $391,255.15. 70 In April 2006, Ausino sought a report from Tyrrells Property Inspection ("Tyrrells") with respect to the Sylvania Waters project. A report was issued following an inspection carried out on 19-20 April 2006. That report is Annexure A to the affidavit of Mr Xu affirmed 27 January 2010. The Tyrells report was not admitted as evidence of the truth of the facts contained in the report (T97-100). I accept that the fact that Mr Xu obtained the Tyrrells report in April 2006 indicates that there was controversy as between Ausino and the Plaintiff at that time with respect to the Sylvania Waters project. Consistent with the limited basis upon which the report was received into evidence, involving a limiting order under s.136 Evidence Act 1995, I have no regard to the content of the report as evidence of the truth of the facts asserted therein. 71 The Defendants concede that an oral variation was agreed to by Ausino with respect to certain work to be undertaken under the second building contract. The Defendants submitted that substantial completion had not occurred. It was submitted that it was not necessary for the Court to precisely quantify the value of the works or the value of any deficiency in performance in this category. Rather, the Defendants submitted that the Court need only find that there was insufficient evidence to demonstrate that the Plaintiff had substantially completed the contracted works having regard to certain evidence. I will return to this aspect later in the judgment. 72 I am satisfied that, by April-May 2006, the directors and investors involved with Ausino were under financial pressure. Mr Xu and Mr Zhu had given personal guarantees in May 2006 with respect to indebtedness to Hastings Capital Limited (Exhibit N). The evidence demonstrates that directors and investors associated with Ausino, or associates of those persons, entered into contracts to purchase from Ausino units and shops which were located within the Sylvania Waters project. A number of contracts were entered into in April and May 2006 in this respect (Exhibit M). 73 Mr Xu acknowledged that this process of purchasing units and shops within the Sylvania Waters project was undertaken to provide funds to permit the sums outstanding to Hastings Capital Limited and Hastings Mezzanine Limited to be repaid. He acknowledged that this involved the sale of what was effectively the only asset of Ausino, with those sales being made to persons who were associated with Ausino. Mr Xu also acknowledged that Mr Huang was not informed that this approach was being taken, nor was the Plaintiff offered an opportunity to purchase any of the properties within the Sylvania Waters project (T309-310, T320-328, T330-331). Mr Zhu acknowledged similar matters in his evidence (T391-401). Both Mr Xu and Mr Zhu acknowledged that the effect of this process was to discharge Ausino's indebtedness to its creditors, for which they had provided personal guarantees, utilising Ausino's sole asset for this purpose, with the result that Ausino was left to be put into liquidation. This occurred in September 2006. 74 On 22 March 2007, the Plaintiff commenced the present proceedings by filing a Statement of Claim seeking relief against the Defendants.

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Summary of Findings of Fact 75 Before turning to consider the various causes of action of the Plaintiff, I pause to summarise my findings of fact. 76 In approaching the substantial areas of factual dispute in this case, I have kept in mind the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319, where his Honour emphasised that where an allegation of misleading or deceptive conduct involves the speaking of words in the course of a conversation, the words spoken must be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances. His Honour observed that, in the absence of some reliable contemporaneous record or other satisfactory corroboration, a party relying upon spoken words as the foundation of a cause of action based on misleading or deceptive conduct is faced with serious difficulties of proof. 77 However, this is not a case where factual conflicts fall to be determined by reference to the fine detail and shades of meaning of words allegedly used during conversations. Rather, there is a fundamental conflict between the account of Mr Huang and the accounts of Mr Xu and Mr Zhu. Mr Huang maintains that a personal guarantee was given by Mr Xu and Ms Li as part of the first contract on 12 October 2004 and that thereafter, he insisted upon personal guarantees from Mr Xu and Mr Zhu and both said, on several occasions, that personal guarantees from each of them constituted part of the second contractual arrangement. Mr Xu asserts that he did not sign the personal guarantee on the 12 October 2004 contract but, even if he did, he did not intend to give a personal guarantee and never did so, nor did he say that he would do so. Mr Zhu maintains that he never promised to give a personal guarantee to the Plaintiff and rejects entirely Mr Huang's account to the contrary. Accordingly, the primary area of dispute in this case involves an assessment of the totality of the oral and documentary evidence, viewed in the commercial context in which relevant events occurred, for the purpose of determining what is established on the balance of probabilities. That is the course which I have taken in determining factual issues in this case. 78 My findings of fact may be summarised in the following way:

[49]

Breach of Contract 81 The Plaintiff submits that a contract is established between the Plaintiff and the Defendants whereby each Defendant agreed to provide a personal guarantee for their liability under the second building contract of Ausino. The Plaintiff submits that this contract has been breached by the failure or refusal of each Defendant to give the benefit of such personal guarantees to the Plaintiff, having regard to the shortfall in monies owed by Ausino to the Plaintiff under the second building contract. The Plaintiff submits that it has established an entitlement to damages for breach of contract by way of the loss of the benefit of the guarantees to be given by each Defendant to pay the outstanding balance under the second building contract. The Plaintiff submits that it is entitled to damages in the sum of $391,255.15 for breach of contract (T468.9). 82 The ruling principle with respect to damages at common law for breach of contract is that where a party sustains loss by reason of a breach of contract, that party is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed: Tabcorp Holdings Limited v Bowen Investments Pty Limited [2009] HCA 8; 236 CLR 272 at 286 [13]. This is subject to the rule in Hadley v Baxendale (1854) 9 Exch 341 which is concerned with the question of remoteness, and marks out the limits of the heads of damage for which a plaintiff is entitled to receive compensation: European Bank Limited v Evans [2010] HCA 6; 84 ALJR 239 at [11]-[13]. 83 The Defendants submit that the Plaintiff has not established its claim for breach of contract. Submissions were made that factual findings ought not be made, on the balance of probabilities, that contractual promises were made by the Defendants. It was submitted, in any event, that the Plaintiff's case did not rise any higher than the third category in Masters v Cameron [1954] HCA 72; 91 CLR 353 at 360-362 whereby any agreement was "subject to contract" or "subject to the preparation of a formal contract". 84 The Plaintiff submitted that the evidence does not suggest that the oral agreement to replace the first building contract and guarantee and indemnity relied on by the Plaintiff was "subject to contract" and non-binding. It was submitted that this legal analysis did not follow merely because the agreement between the Plaintiff and the Defendants was not implemented, or to be implemented, by signing more documents. 85 I have made findings of fact with respect to relevant events in and after October 2004. I am satisfied that the Plaintiff has established the elements of the cause of action for breach of contract, starting with the finding that each Defendant made promises to Mr Huang in October-November 2004 that personal guarantees would be given by each of them to secure Ausino's liability to the Plaintiff under the second building contract. The promises made by the Defendants were supported by consideration and there was intention to enter into legal relations. The Plaintiff, through Mr Huang, relied upon the promises of the Defendants in entering into the second building contract which he would not have done if personal guarantees had not been promised by each Defendant. Each Defendant breached his promise by refusing or failing to give a personal guarantee, or denying that a personal guarantee had been promised. 86 I accept the Plaintiff's submission that this case does not lie within the third category of Masters v Cameron. 87 The oral and affidavit evidence of Mr Huang provides a proper foundation for assessment of damages for breach of contract in the sum claimed, namely $391,255.15. 88 I will return later in this judgment to the various bases upon which the Defendants contend that any damages otherwise payable to the Plaintiff ought be reduced. 89 The Plaintiff has made good its claim for breach of contract. I will proceed, nevertheless, to consider each of the alternative claims made by the Plaintiff, in the event that it is later held that I have fallen into error in any respect.

[54]

(d) by failing to inform the Plaintiff of the absence of an intention to be bound as claimed by the Plaintiff. 91 The Plaintiff submits that once factual findings are made in accordance with its case, the conduct of the Defendants is misleading and deceptive, from a combination of untrue representations, acts, conduct and omissions: Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 32, 41; Fraser v NRMA Holdings Limited (1995) 55 FCR 452. The Plaintiff submits that each of Mr Xu and Mr Zhu are liable as accessories under s.62 Fair Trading Act 1987 (NSW) for the contravention by one another of s.42 of that Act. 92 The Defendants submit that the Court should not find that relevant misrepresentations were made by them and additional submissions were made with respect to accessorial liability. 93 I have made findings of fact adverse to the Defendants with respect to the making of representations which are relevant to the claim for relief under the Fair Trading Act 1987 (NSW). In substance, I have found that each Defendant made representations to Mr Huang in October and November 2004 to the effect that each would give a personal guarantee as part of the second contractual arrangement. The making of these representations induced Mr Huang, on behalf of the Plaintiff, to enter into the second contractual agreement. Thereafter, each Defendant made statements to Mr Huang reassuring him that personal guarantees from each of them formed part of the second contractual arrangement. 94 On the totality of the evidence, I have found that each of Mr Xu and Mr Zhu did not take appropriate action to complete relevant documentation to give these personal guarantees. Parts of documents were completed in a manner which lent support to the oral representations being made to Mr Huang by Mr Xu and Mr Zhu. The conduct of Mr Xu and Mr Zhu in 2006 and, indeed, in the conduct of these proceedings, points strongly to a conclusion that neither of them ever intended to provide a personal guarantee, although they were prepared to say that they did. 95 At the least, I am satisfied that each of Mr Xu and Mr Zhu made representations in this respect to Mr Huang without caring whether they were true or not at the time. I am satisfied that this is a sufficient foundation for orders to be made in favour of the Plaintiff under the statutory claim as a result of the misleading and deceptive conduct of each of the Defendants. 96 Although different considerations may affect the assessment of damages with respect to a claim under the Fair Trading Act 1987 (NSW), I accept the Plaintiff's submission that the appropriate calculation of damages with respect to that cause of action leads to an award in the sum of $391,255.15 (T468). Once again, I put to one side, for the moment, the submissions of the Defendants concerning reduction in damages because of different aspects agitated by the Defendants.

[59]

25 The measure of damages in deceit will be based on the actual damage directly flowing from the fraudulent inducement: Clark v Urquhart (1930) AC 28 at 67-68. In an action for deceit, a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentation made by the Defendant: Toteff v Antonas (1952) 87 CLR 647 at 650; Gould v Vaggelas at 220; Jeans v Cleary [2006] NSWCA 9 at paragraphs 32-34." 98 The Plaintiff submits that each of the representations relied upon was untrue at the time it was made, and that each of Mr Xu and Mr Zhu knew it to be untrue, or that the representation had been made without belief in its truth and with reckless indifference as to its truth or falsity, and with the intention that the Plaintiff should act and to induce the Plaintiff to rely upon it. 99 The Defendants submitted that the factual foundation had not been established for the Plaintiff's claim in deceit. Given the nature of the claim in fraud or deceit, the Defendants submitted that the Court should bear in mind the principles in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 in determining whether the Plaintiff had established this claim to the civil standard. It was submitted that the Plaintiff had failed in this respect. 100 The Plaintiff bears the onus of proof, on the balance of probabilities, in civil proceedings: s.140(1) Evidence Act 1995. The nature of the cause of action in deceit is to be taken into account in deciding whether the Court is satisfied that the Plaintiff has proved its case: s.140(2) Evidence Act 1995. Accordingly, the standard of proof to be applied is the civil standard, proof on the balance of probabilities, being qualified having regard to the gravity of the questions to be determined. The test has been said to be whether the issue has been proved to the reasonable satisfaction of a Court, such satisfaction not being produced by inexact proofs, indefinite testimony or indirect inferences: Briginshaw v Briginshaw at 362; Helton v Allen [1940] HCA 20; 63 CLR 691 at 701; Rejfek v McElroy [1965] HCA 46; 112 CLR 517 at 521. The Court should be comfortably satisfied, on the balance of probabilities, before such a finding is made: Bannister v Walton (1993) 30 NSWLR 699 at 711-712. 101 I have made findings of fact with respect to statements made by Mr Xu and Mr Zhu to Mr Huang in and after October 2004 concerning their preparedness to furnish personal guarantees as part of the second contractual arrangement. I am satisfied that each of Mr Xu and Mr Zhu made representations of fact which were conveyed to Mr Huang by their respective words and conduct. I am satisfied that, at the time when Mr Xu and Mr Zhu made these statements, each was, at the least, reckless as to whether the statement was true or false. In effect, I am satisfied that each of Mr Xu and Mr Zhu was prepared to state that they would give a personal guarantee as part of the second contractual arrangement, but each of them hoped that he may be able to get by without giving effect to these representations. I am satisfied that each of Mr Xu and Mr Zhu intended that Mr Huang should act upon their representations. I am satisfied that Mr Huang was induced to act upon the basis of these representations to enter into the second contractual agreement. I am likewise satisfied that the Plaintiff suffered damage as a result of the reliance upon the representations of Mr Xu and Mr Zhu. 102 I have made these findings after considering the totality of the evidence, and bearing in mind the principles at [100] above. 103 Accordingly, I am satisfied that the Plaintiff has established its claim for deceit against each of Mr Xu and Mr Zhu. The measure of damages in deceit will be based on the actual damage directly flowing from the fraudulent inducement. The Plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage it has suffered in consequence of altering its position under the inducement of the fraudulent representation made by the Defendants. In this case, I accept the Plaintiff's submission that compensatory damages arising from the claim in deceit should be in the sum of $391,255.15 (T468-469). I will return to consider the claim for exemplary damages which the Plaintiff makes arising from the claim against the Defendants for the tort of deceit.

[60]

Equitable Estoppel 104 Mr Garnsey QC submits that the Defendants are estopped by their representations and conduct from denying agreement to enter into and sign and execute a personal guarantee, and that they are bound to pay compensation accordingly. He submits that the factual findings contended by the Plaintiff ought lead to the conclusion that the requirements for estoppel are made out. The Plaintiff submits that the elements of equitable estoppel are established in this case in accordance with the principles in Walton Stores (Interstate) Limited v Maher [1988] HCA 7; 164 CLR 387 at 428-429. The Plaintiff submits that the Defendants are not entitled to dispute the quantum or amount of damages claimed by the Plaintiff by reason of matters which could have been raised by Ausino by way of set-off or cross-claim under the second building agreement. This submission is based on a number of grounds, including the submission that the Defendants cannot raise these matters as they do not come to Court with clean hands in view of their conduct as pleaded in the Amended Statement of Claim. The Plaintiff submits that it would be unconscionable to permit the Defendants to raise that which could have been raised by Ausino by way of set-off or cross-claim under the second building agreement. 105 Mr Smallbone submits that the Plaintiff's reliance upon estoppel cannot succeed for both factual and legal reasons. Firstly, the Defendants submit that the Plaintiff's claim in this respect should fail on the particular facts of the case. In any event, the Defendants submit that, at its highest, the Plaintiff cannot establish a binding agreement, with reliance being placed upon the third category in Masters v Cameron (see [83] above). It was submitted that the present case is distinguishable from Walton Stores (Interstate) Limited v Maher in that, in the present case, a contract did come into existence, but not one containing all of the parties and terms that were required. Other submissions were advanced by the Defendants contending that the principles of estoppel do not assist the Plaintiff in this case. 106 The findings of fact which I have made provide a foundation for the Plaintiff to rely upon estoppel principles in this case. In circumstances where I have found other common law or statutory causes of action established, it may not be necessary to determine to finality this part of the Plaintiff's claim. As will be seen, in the circumstances of the case, I allowed the Defendants to advance at the hearing, argument of the kind which Ausino could have advanced by way of set-off or cross-claim if it was a party to the litigation. 107 In these circumstances, I do not propose to consider further this aspect of the Plaintiff's claim. I am satisfied that the causes of action which I have found establish a sufficient and satisfactory framework for relief to be granted to the Plaintiff.

[61]

Bases Upon Which the Defendants Contend They Can Otherwise Deny Liability or Reduce Damages 108 By their Amended Defence to the Amended Statement of Claim filed 23 February 2010, the Defendants sought to resist the Plaintiff's claim for relief upon a number of bases. The Plaintiff objected to the Defendants seeking to raise these matters on procedural and other grounds during the hearing. I allowed the arguments to be advanced, and relevant evidence adduced, with the view to determining these aspects of the case in my judgment. I turn to consider these submissions. 109 The Defendants submitted that they were entitled to have liability proved against them in the same way as against the principal debtor, Ausino. Reliance is placed upon Begley v Attorney General of NSW [1910] HCA 69; 11 CLR 432 at 440, 448-449, 454-456. The Plaintiff submitted that it is suing the Defendants, and not Ausino which is in liquidation. The Plaintiff submits that it is a different cause of action to that which would apply to a claim against Ausino under the contract. In any event, the Plaintiff submits that it has established that Ausino owed the Plaintiff the sum of $391,255.15 under the second building contract and that the Plaintiff is entitled to recover this sum from the Defendants in these proceedings. 110 I am satisfied that the Plaintiff ought establish by evidence the level of indebtedness of Ausino to the Plaintiff, with that sum being recoverable against the Defendants via the causes of action relied upon by the Plaintiff. I am satisfied, on the balance of probabilities, that the Plaintiff has demonstrated that entitlement in these proceedings. The documentary and oral evidence well supports a finding that the sum of $391,255.15 remained owing under the second building contract by Ausino to the Plaintiff by the time Ausino went into liquidation. Accordingly, I am satisfied that the Plaintiff has demonstrated what is necessary, in accordance with relevant principles, to recover this sum from the Defendants. 111 To the extent that the Plaintiff's submission may be taken to be one that the liability of the principal debtor is entirely unchallengeable by the Defendants in a claim against them as guarantors, I do not accept this submission. Such a conclusion would express an absolute position which I do not think is consistent with authority. As a starting point, with the exception of the argument concerning the Home Building Act 1989 (NSW) (see [120] below), I do not consider the causes of action the Defendants submit would have been available to Ausino by way of set-off or cross-claim to be separate and distinct from the cause of action which the Plaintiff has established for the money it was owed under the second building contract: Westco Motors (Distributors) Pty Limited v Palmer [1979] 2 NSWLR 93 at 98. 112 The Defendants submitted that joinder of the principal debtor, Ausino, is not required before the Defendants, as guarantors, are able to advance a form of set-off or cross-claim in reduction of the price. The Defendants relied upon Langford Concrete Pty Limited v Finlay [1978] 1 NSWLR 14 at 18-19 in support of this proposition. The Plaintiff submitted that it was not open to the Defendants to seek to rely upon set-offs or cross-claims in this case. Mr Garnsey QC submitted that, before this could occur, it would be necessary for the guarantors to seek permission of the Court to proceed without the principal debtor being a party, or that the terms of the guarantee must permit guarantors to raise set-offs or cross-claims or, if the terms of the guarantee did preclude raising a set-off or cross-claim, then an equitable cross-claim would be necessary. The Plaintiff referred to Langford Concrete Pty Limited v Finlay at 17-19, Westco Motors (Distributors) Pty Limited v Palmer at 98-99 and Elkhoury v Farrow Mortgage Services Pty Limited (1993) 114 ALR 541 at 548-549. 113 With respect to the contention that it is necessary for the principal debtor to be a party to proceedings before the guarantors can advance a form of set-off or cross-claim, I do not consider that the authorities relied upon by the Plaintiff constitute such a barrier to the Defendants. The Plaintiff appeared to place significant reliance on the Full Federal Court's decision in Elkhoury v Farrow Mortgage Services Pty Limited, where Lockhart, Gummow and Lee JJ said at 543: "There is a substantial body of Australian authority that, in the absence of the principal debtor as a party to the proceeding, the guarantor cannot assert in answer to an action on the guarantee an equitable set-off which the debtor might have in an action on the principal obligation: Cellulose Products Pty Ltd v Truda (1970) 92 WN(NSW) 561 at 588; Covino v Bandag Manufacturing Pty Ltd [1893] 1 NSWLR 237 at 240-1; Indrisie v General Credits Ltd [1985] VR 251 at 253." 114 However, it is clear that the principal debtor need not be joined to proceedings for this purpose in circumstances where it is unnecessary, such as where the principal debtor is insolvent: Re Kleiss & Anor ex parte Kliess & Anor v Capt'n Snooze Pty Limited (1996) 61 FCR 436 at 440 ("Re Kliess"); Langford Concrete Pty Limited v Finlay at 19; see also Commonwealth Development Bank of Australia Limited v Windermere Pastoral Co Pty Ltd [1999] NSWSC 518 at [35]-[51]. While these authorities might seem incongruous with the Full Federal Court's unqualified position in Elkhoury v Farrow Mortgage Services Pty Limited, I observe that (unlike the present case) those proceedings involved circumstances in which the creditor had become insolvent, not the principal debtor. Here the principal debtor, Ausino, is a company in liquidation. To have it joined to the proceedings would require the permission of this Court and, like the Court of Appeal in Langford Concrete Pty Limited v Finlay (at 19), I consider it impossible to imagine Ausino's liquidator electing to accept the Plaintiff's claim in full and then independently invoking the right of cross-action. 115 This issue therefore turns upon whether the wording of the guarantee provided by the Defendants is such as to permit them to answer the Plaintiff's claim by way of any set-off or cross-claim that would have been available to Ausino: Re Kleiss. Given my finding that the Defendants provided guarantees under the second building contract signed on about 23 November 2004 (effectively replacing the first contract and guarantees), it is only necessary to consider the guarantee provision of that contract. The relevant portion is set out at page 26 of exhibit B as follows: "In consideration of the owner and the builder entering into this contract , the guarantor:

[63]

118 With respect to the Defendants' submission that the starting point is the liability of Ausino, I accept that it is appropriate to consider the terms of the contractual obligation as between the Plaintiff and Ausino as contained in the second building contract (Exhibit B and Exhibit K). I accept that it is also appropriate to consider performance of the consideration for the alleged debt and the terms of any set-off or cross-demand said to be in reduction of the price. 119 The Defendants submit that to succeed against them, it is necessary for the Plaintiff to demonstrate that there has been appropriate compliance with the provisions of the Home Building Act 1989 (NSW), in particular ss.6, 7, 10 and 11 of that Act. Mr Smallbone submits that provisions of that Act were not complied with so that an impediment would exist if the Plaintiff sought to recover against Ausino in this case. Mr Garnsey QC submits that the terms of the Home Building Act 1989 (NSW) do not stand in the way of the Plaintiff recovering against the Defendants. He submits that s.7 of that Act does not require variations under a contract which already complies with s.7. Further, he submits that s.10 of the Act only prevents enforcement of a non-complying contract by a party to the contract against another party to the contract, in this case Ausino. He submits that it does not prevent enforcement of a guarantee against the guarantors. Thirdly, the Plaintiff submits that, although cl.17 of the second building agreement (Exhibit B) required all variations under the second building agreement to be in writing, the Plaintiff, Ausino (through Mr Xu and Mr Zhu) and Mr Xu and Mr Zhu themselves agreed orally upon the variations otherwise within the terms of the second building agreement. He submitted that no clause of the agreement prevented this and thus the orally agreed variations became variations within the meaning of the second building agreement, and also for the purposes of the Home Building Act 1989 (NSW). The Plaintiff submitted further that the Defendants, as guarantors, consented to all variations of the principal obligation. Where the guarantor is a party knowing of the variations and acquiesces, as the Defendants did here, the Plaintiff submitted that the guarantee is novated or varied in respect of the additional variations by conduct: McMahon v National Foods Milk Limited [2009] VSCA 153; 259 ALR 20 at 48-55 [70]-[98]. Finally, Mr Garnsey QC submitted that the Defendants were estopped, by their conduct in requesting the variations for Ausino, from denying that the guarantee and agreement to guarantee, as pleaded, enabled the Plaintiff to recover the price of the variations from them under the guarantee. He submits, as well, that it would be unconscionable to allow the Defendants as guarantors to limit their liability by excluding variations to which they consented and agreed, or in which they acquiesced. 120 As mentioned earlier (at [111]), I do not accept the Plaintiff's absolute submission that the Defendants cannot seek to resist the claim against them upon bases that may have been available to Ausino if a claim was brought against it by the Plaintiff as the principal debtor. In my view, however, that does not mean that each and every possible argument that could have been advanced by Ausino can be advanced by the Defendants in these proceedings. Whether particular arguments are available depends upon the nature of the argument itself. I accept the Plaintiff's submission that an argument based upon the Home Building Act 1989 (NSW) does not avail the Defendants as guarantors. This is not a claim against Ausino. It is a claim by way of different causes of action against the Defendants. 121 Further, the factual circumstances of this case establish that Mr Xu and Mr Zhu were relevantly the minds and hands of Ausino in its dealings with the Plaintiff. Mr Huang's quotation of 9 October 2004 (Exhibit K) laid down the parameters of the contract - what was included in the quoted price and what was not included in that price. I accept that variations occurred thereafter as a result of discussions and agreements between Mr Huang for the Plaintiff and Mr Xu and Mr Zhu for Ausino, and (as I have found) for themselves as guarantors. I am satisfied that the process of variation undertaken was consistent with the terms of the second building contract but that, even if it was inconsistent in some respects, the Defendants ought be estopped in this specific respect from attempting to avoid their obligations to the Plaintiff. In addition, it cannot be said that there had been some variation to the second building contract, and consequently to the obligations of the Defendants as guarantors, without their knowledge or consent so as to potentially discharge their liability under the guarantee: Hancock v Williams (1942) 42 SR (NSW) 252. 122 Part A of the Scott Schedule sets out particulars of variations. I record my acceptance of the Plaintiff's submissions with respect to items contained in this part of the Scott Schedule. The evidentiary foundation for my conclusion is based upon an acceptance of the evidence of Mr Huang insofar as it touches upon the issues relevant to this part of the Scott Schedule. I do not consider that the Defendants adduced any satisfactory evidence which advanced their case in this respect. 123 Part B of the Scott Schedule relates to particular work said to be involved in performance issues. Once again, I record my acceptance of the Plaintiff's submissions with respect to the items touched upon in this part of the Scott Schedule. The evidence of Mr Huang, which I accept, touches upon these matters. I bear in mind Mr Huang's expertise as a builder and engineer, as well as his direct knowledge of the Sylvania Waters project. I keep in mind, of course, the fact that he is a party to this litigation with a vested interest in its outcome. Nevertheless, in circumstances where there is no other expert evidence to the contrary, I am satisfied that the Plaintiff's submissions on this issue ought be accepted. I do not consider that any part of the Newton Fisher report is inconsistent with this finding. Beyond that, I do not consider any evidence of Mr Xu or Mr Zhu to be persuasive on this part of the case. Having regard to findings which I have made concerning the credibility and reliability of Mr Xu and Mr Zhu, I would require independent corroboration of any evidence they gave before making a finding in their favour on any disputed issue. 124 Part C of the Scott Schedule relates to the question of delay and the Defendants' claim by way of set-off or cross-claim for liquidated damages at $200.00 per day for 165 working days between 20 July 2005 and 31 March 2006. The second building contract provided for a contract works' period of 34 weeks from 23 November 2004 (Exhibit B). Accordingly, the Defendants contend that the sum of $33,000.00 should be brought into account in their favour in the proceedings. 125 I allowed the Defendants to press this claim in the proceedings over the strong objection of the Plaintiff (T519-521). I reached this position with some reluctance given the way in which this issue had developed during the hearing. 126 The issue falls to be determined by reference to such evidence as is before the Court relevant to the question. There is a generalised claim advanced by the Defendants on this point based upon the passage of time and a calculation undertaken at $200.00 per day. Mr Huang gave evidence of delays in the project and reasons for them. I do not consider that the Defendants' argument on this aspect is advanced by the absence of written notices with respect to delays in accordance with the second building contract. This is a claim by the Plaintiff against the Defendants as guarantors. I accept the evidence of Mr Huang with respect to delays and the reasons for them. In the circumstances of the case, a type of global claim by the Defendants made late in the proceedings is met by the evidence of Mr Huang and extrapolations which are available by reference to his evidence (pages 19-21, Scott Schedule, MFI6). I accept the Plaintiff's submissions on this aspect of the Defendants' claim. I do not consider that any set-off in the form of liquidated damages in the sum of $33,000.00 (or at all) ought be brought into account to reduce the damages to which the Plaintiff is otherwise entitled. 127 In the result, I am not persuaded that any basis has been demonstrated by the Defendants by way of set-off or cross-claim based upon variations, suggested poor performance under the contract or delay in its performance. 128 I am satisfied that compensatory damages in the sum of $391,255.15 ought be awarded in favour of the Plaintiff by reference to the contractual agreement between the Plaintiff and Ausino, which the Defendants promised to personally guarantee, by way of work under the second building agreement (Exhibit B and Exhibit K) with such extra work as performed by the Plaintiff at the request of Ausino and the Defendants during the currency of the Sylvania Waters project.

[65]

Submissions 130 Mr Garnsey QC submits that each of the Defendants deceived Mr Huang and the Plaintiff over a period of time and placed their interests ahead of the interests of the Plaintiff. He submitted that the actions of the Defendants in April and May 2006 whereby they purchased units and shops within the Sylvania Waters project and used the proceeds to payout Ausino's creditors in the form of Hastings Capital Limited and Hastings Mezzanine Limited, in circumstances where the Defendants had themselves provided personal guarantees to secure the debts, demonstrated contumelious disregard for the rights of the Plaintiff as an unsecured creditor of Ausino. The Plaintiff emphasised that the Defendants had acted in this way without informing Ausino or Mr Huang that the assets of Ausino were being sold to pay its secured creditors. It was submitted that this left the Plaintiff as an unsecured creditor in a severely disadvantaged position. 131 Mr Garnsey QC submits that the Defendants' approach to the litigation and the conduct of the hearing fortified a conclusion that exemplary damages ought be awarded against them. He submits that the Defendants had engaged in conscious wrongdoing in contumelious disregard of the Plaintiff's rights so that exemplary damages should result. He submitted that exemplary damages in the sum of $100,000.00 would be warranted in this case. 132 Mr Smallbone submits that, if the Defendants were otherwise found liable to the Plaintiff, no foundation existed for an award of exemplary damages. He submits that the actions of the Defendants (and others associated with Ausino), in purchasing units and shops within the Sylvania Waters project in 2006, was not conduct which ought attract the Court's disapproval. He submits that, at that time, Ausino was in financial difficulty to its secured creditors and that the actions of the Defendants and others permitted the secured creditors to be paid out. The fact that this left Ausino with no assets so that it was necessary for it to be placed into liquidation was an unavoidable consequence, which itself was not blameworthy. He submits that the directors of Ausino had no choice but to place the company into liquidation in the circumstances which existed in September 2006. It was submitted that the fact that the Defendants and others associated with Ausino obtained the benefit of purchasing units and shops within the Sylvania Waters project did not alter the appropriate characterisation of these events. The fact that these acts operated to the disadvantage of the Plaintiff as an unsecured creditor was not a factor, taken in conjunction with the other events, which founded any entitlement to exemplary damages (T536-538). 133 With respect to the Plaintiff's submissions by reference to the conduct of the litigation, Mr Smallbone submits that the litigation was strongly contested, at times with some heat, but that this did not provide a foundation for an award of exemplary damages, whether taken separately or in conjunction with the Plaintiff's argument by reference to the events of April and May 2006 and such findings as may be made with respect to the tort of deceit against the Defendants.

[66]

Decision 134 I have made findings and, in some respects, strong findings in favour of the Plaintiff and against the Defendants in this judgment. Those findings give rise to a foundation for an award of compensatory damages to the Plaintiff. Exemplary damages are awarded rarely - they recognise and punish fault, but not every finding of fault warrants their reward; something more must be found: Gray v Motor Accident Commission [1998] HCA 70; 196 CLR 1 at 6 [12]. 135 It is apparent that findings of fault have been made against the Defendants. They have involved a rejection of their evidence in a number of significant respects. Findings have also been made that the Defendants misrepresented the position to the Plaintiff over a period of time to their benefit and to the detriment of the Plaintiff. I do not consider that their actions in April and May 2006, in disposing of the sole asset of Ausino to themselves and other associated with Ausino, presents them in a favourable light. All of this leads to a judgment and verdict being given to the Plaintiff with an award of compensatory damages. 136 Do the findings of fault place this case in the rare category where an award of exemplary damages is warranted? It may be said that the Defendants were entitled to sell the units at the Sylvania Waters project so as to discharge debts to other creditors of Ausino. However, this was done in such a way that persons associated with Ausino obtained a benefit by becoming owners of these properties and Ausino's other creditors obtained a benefit through the discharge of relevant loans. Further, the Defendants obtained the clear benefit from the discharge of loans from Hastings Capital Limited for which they had given personal guarantees in May 2006 (see [72] above). All of this happened without any notice to the Plaintiff or Mr Huang in circumstances where the Defendants were well aware of the Plaintiff's concerns about securing payment. The Plaintiff remained an unsecured creditor of Ausino, then in liquidation. The Plaintiff and Mr Huang have been left to pursue the Defendants, as guarantors, in fiercely contested litigation in this Court. 137 The accumulation of these features ought lead, in my view, to a finding that the Defendants acted in contumelious disregard to the Plaintiff's rights. I propose to award exemplary damages to the Plaintiff in the sum of $25,000.00.

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