This case concerns a business venture involving the purchase and development of certain land in Albert Street, Werrington. The venture, which ultimately proved to be profitable, was undertaken by the plaintiff, Mass Holdings Pty Ltd ("Mass"), Naames Pty Ltd ("Naames"), Semcorp (Aust) Pty Ltd ("Semcorp") and Mr Elie Kaltoum, who is a real estate agent. The venture has on occasions been referred to as a partnership. However, as the case was conducted, nothing turns upon whether the venture was indeed a partnership or a joint venture.
Mass, for whom Mr D J Fagan of Senior Counsel and Mr P Bolster of Counsel appeared, is a company associated with Mr Charles Massih. Mr Massih is an accountant. Naames is a company associated with Mr Emade Semaan. Emade Semaan is a builder and property developer. Semcorp is a company associated with Mr Karim Semaan. Karim Semaan is a real estate agent. Emade and Karim Semaan are brothers.
Emade Semaan is also associated with the first defendant, EPS Constructions Pty Ltd ("EPS"). EPS eventually carried out the construction of units on the Albert Street land. Mr Katekar of Counsel appeared for EPS, Naames and Emade Semaan. He also appeared for another company associated with Emade Semaan, Sarahton Pty Ltd.
The land was purchased in two stages. Contracts were exchanged in November 2006 in relation to the land at 34-36 Albert Street. Contracts were exchanged in relation to the land at 38 Albert Street in February 2009. The total consideration was $1,580,000. Title was taken in the proportions one third to Mass, one third to Naames, one sixth to Semcorp and one sixth to Mr Kaltoum.
In about April 2009, the venturers submitted a tender to Housing NSW for the sale and development of the land. The submitted tender, after undergoing revision in certain respects, ultimately found favour with Housing NSW.
On 2 October 2009, the venturers entered into a contract with Housing NSW for the sale of the land for $1,744,792 (including GST). The sale included a term to the effect that following the obtaining of a satisfactory development consent and the approval by Housing NSW of plans and specifications, the vendor or a party procured by the vendor and acceptable to Housing NSW would enter into a building contract with Housing NSW for the construction of 46 units on the land.
Mass seeks final relief against EPS alone. Mass alleges that prior to entry into the contract for sale, an oral agreement had been reached between EPS and the venturers to the effect that EPS would be retained by the venturers to carry out the required building work and would account to the venturers on the basis that it would charge the venturers the fixed sum of $8,096,000 (including GST) for the carrying out of the building work.
On 6 May 2010 the contract for the sale of land was completed, and EPS entered into the building contract with Housing NSW to construct the 46 units on the land for a price of $11,928,728.90 (including GST).
During the course of the development, EPS made certain payments to the venturers out of the progress payments it received from Housing NSW. However, Mass claims that, based upon the agreement said to have been reached between EPS and the venturers, EPS is liable to pay it a further amount of $677,434.67.
EPS denies that an agreement was reached as alleged by Mass. EPS alleges that there was instead an agreement whereby it would receive, out of the progress payments made by Housing NSW, all of its reasonable construction and associated costs, with any surplus to be distributed to the venturers once the final construction costs were known. On that basis, it is put that after taking into account certain payments made to the venturers, the venturers have been significantly overpaid and are liable to repay the overpayment.
EPS contends in the alternative that there may have been no agreement at all between it and the venturers. EPS says that, if that is so, the amounts it paid to the venturers were made by mistake and they should accordingly repay the amounts so received.
The central question in the case is what agreements (if any) were reached between EPS and the venturers concerning the payment of EPS for work done, and the calculation of the venturers' profit. The resolution of that question ultimately depends upon an assessment of the various versions of the events and discussions that took place in the period leading up to entry into the contract for the sale of the land to Housing NSW. However, before dealing with the evidence given by the venturers about such events and discussions, I set out below a narrative of the key events in relation to the development of the land, essentially derived from the documents which were adduced in evidence.
[2]
The development of the land
The first parcel of land purchased (34-36 Albert Street) had the benefit of a development approval (DA 02-2893). In March 2007, EPS contacted the Penrith City Council and stated that it had been commissioned by the developers of the site to undertake preparation for the project and prepare construction certificate documentation. A meeting with Council officers occurred on 26 April 2007. It appears from a note of the meeting that there was some discussion about lodgment of a new development application.
On 8 May 2007 the Council recommended that consideration be given to amalgamating the site with the adjacent land at 38 Albert Street. Shortly thereafter, EPS contacted the Protective Commissioner (who was managing the affairs of the owner of No. 38) to express interest in purchasing No. 38. However, it seems that no offer to purchase was actually made until about mid-2008.
On 14 November 2007, EPS lodged a development application (DA 07-1492) in respect of the site at Nos 34-36. On 17 December 2007, the Council advised that it had identified a number of "non-compliances" with the development application and requested that it be withdrawn and re-submitted once those matters had been addressed. The development application was withdrawn in March 2008 and a further development application was lodged later that year (DA 08-0952). On 8 October 2008 the Council advised that in many respects there had been no change to the proposal and as a result there were numerous "non-compliances" in relation to this development application as well. The Council further indicated that as matters currently stood, it was unlikely that the proposal would be recommended for approval.
Further negotiations then occurred in relation to the purchase of No. 38 and, as noted earlier, contracts were exchanged in February 2009. The contract contained a special condition to the effect that the purchaser would lodge a development application in relation to the property within twenty one days. Subsequently, a development application (DA 09-0178) was lodged by EPS in respect of the land at 34-38 Albert Street.
By February 2009, Housing NSW was seeking expressions of interest from developers and builders to tender for the provision of "land and housing packages". The possibility of the Albert Street land being the subject of such a project was discussed by at least Emade Semaan and Mr Massih, and was evidently regarded as a prospect worth pursuing.
In early April 2009, Emade Semaan and Mr Massih co-operated in the task of preparing the documents required to participate in the tender process. These documents include what are described as "Returnable Schedules".
A set of completed tender documents was submitted by Emade Semaan to Housing NSW on 9 April 2009. The tendering parties were identified as Mass, Naames, Semcorp and Mr Kaltoum. Emade Semaan was nominated as the authorised representative of the tenderer for the purpose of communciations concerning the tender. Emade Semaan signed the document as Builder, and thereby attested that the information provided was true and correct.
Returnable Schedule 3 (Summary of Project) disclosed a Total Tender Price of $12,524,000 (excluding GST), made up of $1,610,000 for the price of the land, $150,000 for allowances, and $10,764,000 for the building contract price.
Returnable Schedule 7 (Building Contract) named EPS as the builder, and included information concerning comparable work completed by the builder in the past two years.
Returnable Schedule 9 (Building Partially Complete) indicated that the development approval should be available by about June or July 2009, and that construction was anticipated to commence in January 2010 and conclude in February 2011.
Returnable Schedule 10 (Pricing) is divided into sections including "Section B - Land with development approval", "Section E - Allowances", "Section F - Building contract", and "Section G - Total price proposed".
In Section B, the tender price for the land was stated to be $1,610,000 (excluding GST); in Section E, allowances (such as architecturals and consultants) totalling $150,000 were shown; and in Section F, the tender price (excluding GST) to construct the proposed development was stated to be $7,360,000. GST on that figure was shown as $736,000.
The figures in Section F were reflected in the Building Price Summary on the following page of the Schedule which showed a Total Construction Price (including all builder's preliminaries, overheads and profits) of $8,096,000.
However, in Section G, the tender price for building (excluding GST), which is clearly meant to reflect the price shown in Section F, was shown as $10,764,000 rather than $7,360,000. The total price for the land, allowances and building, once GST of $1,196,000 was included, was shown as $13,720,000.
The initial evaluation of the tender submission had been completed by 2 June 2009. By letter dated that day, Housing NSW sought some further information, including proof of the owners' consent to the sale, and invited Emade Semaan to attend a meeting on 5 June 2009.
On 3 June 2009 EPS sent a document to Housing NSW, signed by each of the venturers, confirming their consent to the sale of the property under the terms of the conditions specified in the tender document lodged.
On 22 June 2009 Housing NSW sent an email to Emade Semaan in which it was stated that a discrepancy had become apparent between the building contract price in Section F and the tender pricing of the building in Section G. A revised Returnable Schedule 10 was requested.
On 25 June 2009 Emade Semaan submitted an amended Returnable Schedule 10 to deal with the matters raised by Housing NSW. In particular, the tender price (excluding GST) to construct the proposed development, as shown in Section F, was now stated to be $9,812,273. That figure was then included in Section G as the tender price for building (excluding GST). The Total Construction Price including all builder's preliminaries, overheads and profits (as shown in the Building Price Summary) was changed to $10,810,000.
The amended schedule also made a change to the tender price for the land. The price was increased from $1,610,000 to $2,760,000.
Housing NSW considered the revised schedule. It noted that there had been a significant increase in the land price component. In an email sent to Emade Semaan on 30 June 2009, it was stated:
"We are in receipt of your revised Returnable Schedule 10, submitted 25 June 2009.
The revised figures reveal a significant increase to Land Price component from $1,610,000 to $2,760,000.
From your telephone discussion with Natbuild Project Office 25 June 2009, we are aware that the increase in land price attempts to capture the developer's margin, which you have indicated was originally included in the building component (Section G, Item 3).
We advise that it is not acceptable to increase the tendered Land Price. […]"
A further amended schedule was submitted by Emade Semaan on 1 July 2009. As required, the tender price for the land was returned to $1,610,000. Further, the tender price (excluding GST) to construct the proposed development, as shown in Section F, was now stated to be $10,859,091; and that figure was inserted in Section G as the tender price for building (excluding GST). Once GST was added to that price (and to the $150,000 for allowances), the total price for the land, allowances and building was $13,720,000.
I note in passing that at a price of $1,610,000, there was little or no profit to the venture on the sale of the land once transaction and holding costs were taken into account.
In July 2009, Emade Semaan was involved in further discussion with Housing NSW concerning the wherewithal of EPS and the provision of further security, including by way of personal guarantee. A meeting with Housing NSW was held to discuss those issues on 22 July 2009. It appears that the meeting was attended by both Emade Semaan and Mr Massih.
On about 28 July 2009, Emade Semaan sent an email to Housing NSW containing additional information about EPS, and proffering certain security which would be provided by the venturers. By the end of August 2009, Housing NSW was apparently satisfied that all significant issues had been resolved.
On 7 September 2009 the Council gave its consent to development application DA 09-0178. By about that time, the respective solicitors acting for Housing NSW and the venturers had begun negotiating the terms of the contract for the sale of the land. As noted earlier, Mass claims that prior to the entry into that contract on 2 October 2009 EPS had agreed with the venturers that it would charge the venturers $8,096,000 to carry out the construction work for the proposed development. The agreement is said to have been evidenced by EPS' use of a standard form BC4 building contract into which Emade Semaan inserted $8,096,000 as the price, before signing it. It is claimed that the other venturers signed the BC4 contract as well. EPS does not dispute that Emade Semaan wrote $8,096,000 on such a contract and then signed it. The document was subsequently lost. Neither the original nor any copy was in evidence.
On 12 October 2009, EPS submitted to the four venturers an invoice in the sum of $180,020.76 (including GST) for "costs for development application". Emade Semaan ultimately conceded in cross-examination that in about late October 2009 he agreed, albeit under pressure from at least Mr Massih, to reduce the amount claimed to $150,000.
In about late November 2009, Mr Kaltoum agreed to advance $225,936.12 to the venture to assist in the obtaining of a construction certificate for the development. That amount plus interest (and another amount he contributed towards Council rates) was agreed by the venturers to be repaid out of the money to be received on settlement of the land sale contract.
On 7 April 2010, EPS made arrangements for the provision of a bank guarantee in favour of Housing NSW in the sum of $596,436.
On 23 April 2010, Housing NSW sent a Letter of Acceptance to EPS, confirming that, subject to various conditions, it intended to accept the tender to construct 46 units and 60 undercover car spaces for a total lump sum of $11,928,726.90 (including GST) with no adjustment for rise and fall. That sum was made up of "the original tender sum" of $11,840,400 and a "one off agreed increase" of $88,328.90. The construction contract was signed on 6 May 2010.
The land sale contract was also completed on 6 May 2010. On the following day, the venturers gave signed written instructions to their solicitors for the disbursement of the proceeds of sale. In accordance with those instructions, disbursements were made to the venturers on 10 May 2010 in the following amounts:
Naames: $792,637.95
Mass: $357,576.28
Mr Kaltoum: $429,441.04
An amount of $161,344.73 (being the GST component of the price) was to remain in the solicitors' trust account.
It appears that the calculation of the amounts disbursed was based upon the figures contained in a document headed "Werington Partnership Disbursement of Settlement Funds". According to that document, the calculations took into account:- the obligations of the venturers to repay the loan and contribution towards rates made by Mr Kaltoum; the $150,000 allowance given by Housing NSW for "architectural fees" and various contributions made by the venturers towards such fees; and construction certificate costs of $188,829.69. The "Werington Partnership Disbursement of Settlement Funds" document had been prepared by Mr Massih, and was the subject of discussion between the venturers at a meeting held on about 6 May 2010.
The amount paid to Naames included $189,619.30 that would have been distributed to Semcorp but for the fact that Semcorp directed that its share be paid to Emade Semaan's company, Naames. Further disbursements totalling $7,051.02 were also made to the venturers on 10 May 2010. That amount consisted of an additional $5,000 plus interest that was returned to the venturers by Housing NSW.
On 5 August 2010, EPS made its first claim against Housing NSW for a progress payment under the contract. It claimed $1,237,514.50 ($1,375,016.11 less a 10% retention sum). The claimed amount was received by EPS into its own account on 19 August 2010. According to Emade Semaan, EPS received total payments from Housing NSW of $12,286,277.12 (including GST) throughout the course of the project, which was eventually completed in December 2011. That total includes a figure for net variations of $357,548.22.
Disputes emerged between the venturers shortly after EPS received the first progress payment. It is sufficient to note here that EPS did not distribute to the venturers any portion of the initial progress payments it received, and at least Mr Massih commenced agitating for distributions to occur in accordance with what he understood had been agreed. Various negotiations then took place between the parties. These negotiations continued on and off throughout the duration of the project.
In early November 2010, Mr Massih proffered a draft Deed of Agreement which provided, inter alia, for EPS to pay the venturers 36% of progress payments from the third progress payment onwards. The payments to be made by EPS were to be payable up to a limit of $3,484,299, an amount stated by Mr Massih to be the partnership profit margin adjusted for GST.
On about 5 November 2010, Mr Massih requested EPS to pay $263,327.07 (being 36% of the third progress payment of $731,464.07) into the partnership bank account. On 8 November 2010, EPS instead paid $236,995 (approximately 90% of the amount requested) into that account. The money was immediately distributed amongst the four venturers.
On about 12 November 2010, EPS proferred an Offer document which provided, inter alia, that "any further drawdowns will only be 21% with retention held of 10% each drawdown" or, as an alternative, "an upfront lump sum payment discount 30%". It appears, from a clarifying document signed by Emade Semaan shortly thereafter, that the 30% discount was to be applied in relation to a total amount of $3,484,299 (i.e. $1,161,433 to each of Mass and Naames; $580,716.50 to each of Semcorp and Mr Kaltoum), the amount Mr Massih had earlier described as the partnership profit margin adjusted for GST.
Later negotiations centred upon the discount figure, but no agreement was reached.
In addition to the payment made on 8 November 2010, EPS made the following further payments into either the partnership bank account or to a trust account held by Mr Massih:
$90,000 on 4 February 2011
$250,000 on 2 March 2011
$250,000 on 25 March 2011
$250,000 on 7 July 2011
The three payments of $250,000 were deposited into Mr Massih's trust account. On each occasion he caused $125,000 to be paid to Mass, and $62,500 to be paid to each of Semcorp and Mr Kaltoum.
[3]
Summary of evidence concerning agreement alleged by Mass
[4]
Evidence given by Charles Massih
Mr Massih swore two affidavits (on 8 November 2011 and 27 June 2014). Mr Massih deposed in his first affidavit that when it seemed likely that Housing NSW would accept the tender and that contracts would be exchanged on the land, he considered that the partners should formalise in writing how much EPS was going to charge the partnership for the construction of the development. He says that he asked Emade Semaan on a number of occasions for a building contract to quantify the construction costs to the partnership, and that on one occasion Emade Semaan told him not to worry, "I'm not going to rip you off".
Mr Massih says that eventually Emade Semaan asked him to collect a contract from EPS' office. The contract he says he collected was in a standard form (BC4) and incomplete. Mr Massih says that he took the contract to Emade Semaan who was working at a building site on Windsor Road, and that there was a conversation to the following effect:
"CM: The contract is incomplete, we need to finalise it.
ES: What's there to finalise?
CM: Well there is no construction cost and no reference to how variations are to be treated.
ES: You guys know what the construction costs are going to be, its been in the tender documents for ages and you're all aware of it.
[…]
CM: So is this going to be a fixed priced arrangement like with Housing NSW? There's not going to be any adjustments in the price or variations?
ES: Correct. I won't be charging any variations or anything extra. That is the fixed price.
CM: Well then can you please mark that on the contract in the variations section?
ES: Okay."
Mr Massih then deposed that either he or Emade Semaan crossed out the section of the contract dealing with variations and wrote "nil", and also wrote $8,096,000 as the fixed price contract sum. Mr Massih says that Emade Semaan then signed the contract, and Mr Massih agreed to take it away for the others to sign.
Mr Massih deposed that he took the contract to a hotel in Parramatta where he met Karim Semaan, who also signed the contract. Mr Massih says that he and Karim Semaan then met Mr Kaltoum at a café in Merrylands where there was a discussion about the costs of construction being a fixed sum, and a conversation to the following effect:
"EK: Yeah look, I'm okay with the price. I just want my brother in law Sid to have a look over the detail here. I'll sign it and drop it off to you.
CM: Okay."
Mr Massih further deposed in his first affidavit that on about 2 October 2009, Karim Semaan, Mr Kaltoum and he were at the office of the solicitor acting for the venturers, Mr Chris Maley. He says that there was discussion about the need to exchange contracts with Housing NSW, followed by a conversation in which Mr Kaltoum said words to the following effect:
"If I sign this now, what is in place to ensure my interests are protected?"
Mr Massih says that Karim Semaan forcefully responded, telling Mr Kaltoum to sign the contract and "we'll deal with the other matter later".
Mr Massih deposed that he did not know what it was that Mr Kaltoum was concerned about on that occasion. He says that, in any event, the contract for sale was then signed by Karim Semaan, Mr Kaltoum and himself, and that he took the contract to Emade Semaan, who also signed it on that day.
Mr Massih also deposed in his first affidavit that after the exchange of contracts, but before completion, the four partners met at a café in Merrylands and discussed how the Housing NSW progress payments would be distributed between EPS and the partnership. He says that there was agreement that the payments would be provided according to "the ratio between the overall price on the tender with Housing NSW and the construction cost". He says that he also stated that the money should go into the partnership bank account, and that EPS' share would be paid from that account.
In his second affidavit, Mr Massih provided further detail in relation to the events and discussions in 2009. He deposed to conversations with Emade Semaan which took place when they were filling out the documents for the submission of the tender in April 2009, including the following:
"CM: Have you considered what EPS will be charging the partnership for the construction? We need to put that figure in at Section F?
ES: I have had discussions with my friend Benno and other people submitting tenders, and I've been told that Housing NSW will not pay more than $300,000 per unit for the finished product. We therefore have to keep the total tender price below $13,800,000 for the 46 units.
CM: Ok, so what are you going to charge the partnership for the construction of the 46 units?
ES: I am doing the development at Windsor Road for Mary, and I am going to shit it in for around the $140,000 mark. But I think that we should increase that price in this schedule if we are going to be asking for around $300,000 for the end price. We don't want it to look like the partnership is making a killing.
CM: Ok, so what do you think we should put in this section?
ES: I think $160,000 for each unit.
[…]
CM: That amounts to $7,360,000. Is that inclusive of GST?
ES: No, put that as $160,000 plus GST.
CM: So that's $176,000 per unit including GST?
ES: Charles, this is only to justify our asking price. I will build the development at a lower rate for the partnership.
CM: That's fine I'm just clarifying it all."
Mr Massih deposed that on about 6 August 2009 he told Emade Semaan that he had been speaking to Elie and Karim "and we all think that we are at the stage where we should start putting a construction contract together between the partnership and EPS", and Emade Semaan said that he would "get the contract sorted shortly". Mr Massih says that he subsequently chased the contract up on a number of occasions before the day when he collected the incomplete contract from EPS' office and took it to the building site on Windsor Road. Mr Massih deposed that on that day the conversation with Emade Semaan also included words to the following effect:
"CM: When we put that tender together, you suggested $8,096,000 to justify the end sale price. If you recall, you said that these units here were costing you about $140,000 and that you would shit it in for that price. You also said that you would be contracting with the partnership for a lesser amount.
ES: The price has been set at $8,096,000. It is in black and white in the tender.
CM: So, is this $8,096,000 in the Housing NSW tender going to be the fixed price to the partnership?
ES: Correct. I won't be charging the partnership any variations or anything extra. That is the fixed price.
CM: Well then can you mark that in the variations section?
ES: Okay."
Mr Massih says that Emade's wife, Mary, who was also present, then provided the pen that was used to make the additions to the contract.
Mr Massih also deposed that when the contract was taken to the café in Merrylands for the meeting with Mr Kaltoum, there was a conversation to the following effect:
"CM: I had a meeting with Emade earlier today, and he has given me this signed contract. I need you to approve it and also sign it. Karim has also signed.
EK: How much is he asking for?
CM: $8,096,000 including GST.
[…]
KS: Look guys, the price is a little high, but other builders may quote it lower but then hit you with variations and we will probably end up at about the same price.
EK: What if Emade also charges us variations on top of the already high price?
CM: He says that price is fixed. There will be no variations. He has crossed out the variations section in the contract. The price is high but there is still plenty of profit in the deal. Maybe we should just get on with it.
KS: If he knows he is making a decent profit on the building, it might motivate him to stay off the drink and finish this thing quickly.
EK: Look, I think it's too much, but if you are both happy with it, then I'm okay with it. I just want my brother in law Sid who's a solicitor, to have a look over the detail. I'll sign it and drop it off to you Charles.
CM: Okay."
In relation to the meeting at Mr Maley's office prior to the exchange of contracts, Mr Massih deposes in his second affidavit that the conversation also included Mr Kaltoum saying:
"How will I be getting my share of the profit?"
Mr Massih further deposed that Mr Kaltoum raised that question again in about late October 2009 during a meeting of the four partners at the café in Merrylands, and that there followed a discussion to the following effect:
"EK: How are we going to get our share of the profits?
CM: Well, EPS' contract with us is for $8,096,000 including GST. The overall price from HNSW is $11,840,400. The difference is the profit for the partnership. That profit expressed as a percentage should be the amount the partnership retains from the drawdowns."
Mr Massih says that he then showed the others some figures and said that as $8,096,000 was about 68% of $11,840,400, the partnership would be entitled to 32% from each drawdown. He also says that Emade Semaan agreed to instruct Housing NSW that the drawdowns be placed into the partnership bank account.
In cross-examination, Mr Massih denied that the amount of $8,096,000 (which equates to $176,000 per unit), which was placed in the initial tender documents, had been put forward by Emade Semaan as his estimate of EPS' construction costs. He stated that Emade Semaan said he could build the units for less than that but the figure should be put in to justify the end asking price. Mr Massih also stated that Emade Semaan said that the $8,096,000 figure was "not what I'm going to charge the partnership". Mr Massih maintains that Emade Semaan said that he would build the development at a lower rate for the partnership. Mr Massih frankly conceded that, at that time, he did not have an agreement with Emade Semaan as to what EPS would charge the partnership.
However, Mr Massih maintained that when he took the incomplete BC4 contract to Emade Semaan at Windsor Road, the price of $8,096,000 was inserted and said by Emade Semaan to be a fixed price, and the variations section was then crossed out before both men signed the document. Mr Massih again denied that the $8,096,000 was put in as Emade Semaan's estimate of what it would cost him.
Mr Massih also maintained that in October 2009 Emade Semaan agreed that the drawdowns from Housing NSW would be placed in the partnership bank account, and that the partnership would keep 32% of every drawdown.
[5]
Evidence given by Emade Semaan
Emade Semaan swore four affidavits (4 April 2012, 3 September 2012, 27 February 2014 and 26 September 2014). In his first affidavit, Emade Semaan deposed that after Housing NSW rejected the proposed increase in the land price component of the tender, he had a discussion with Mr Massih in which he told him that the developers' profit would have to come out of the building contract, which had an estimated profit margin of about $1.5 million built in. He says that Mr Massih responded by saying that he wanted something in writing between EPS and the other venturers "confirming estimated construction costs". Emade Semaan says that he explained that it was not possible to know in advance what the actual costs would be, but he would not "rip him off". He says that he also told Mr Massih that the building contract with Housing NSW was not in every respect a fixed price contract and that variations were possible. He says that he further explained that EPS had costs apart from construction costs, such as for design, architectural fees and project management.
Emade Semaan deposed that Mr Massih persisted in demanding that he be given some comfort in writing about what the likely construction costs would be, and in about mid-September 2009, around the time of the deadline for the signing of the contract for sale, he says that Mr Massih told him that he wouldn't sign the contract for sale unless he received such comfort. Emade Semaan says that he obtained a standard BC4 contract from his files "and wrote in the amount of $8,096,000 as the price", otherwise leaving the document blank. He accepts that he also signed the document, but he says that he did not regard it as anything other than a draft contract. He denies that he crossed out the section dealing with variations. The affidavit is silent as to whether he provided the document to Mr Massih, although he deposed that the whole point of the document was to give Mr Massih comfort that EPS would not, at the end of the project, exaggerate actual construction costs (which might include variations not permitted under the Housing NSW contract).
In his affidavit of 27 February 2014, Emade Semaan deposed that the figure of $8,096,000 which was included in Section F of the initial tender document was "based on a build cost estimate for the development", and did not include any margin for builders' profit, overheads, ancillary costs, or GST.
In cross-examination Emade Semaan said that the $8,096,000 figure included in the initial tender document was an estimate (not including any profit margin), given at a time prior to the grant of development approval. He initially denied that he told Mr Massih that he could build the units for $160,000 plus GST each, but then seemed to concede that he told him that the $8,096,000 was the price which EPS could do the job for the partners.
Emade Semaan also conceded that when the initial tender document was prepared Mr Massih asked him what he as the builder would charge the partnership for doing the building work. Emade Semaan denied that he told Mr Massih that, on the other project, he was going to "shit it in" for around the $140,000 per unit mark. He agreed, however, that by that time he had experience of building multiple units for around $140,000 to $150,000 per unit.
In relation to the BC4 contract, Emade Semaan ultimately accepted that the price of $8,096,000 which he inserted was based on 46 units each priced at $160,000 plus GST. His cross-examination continued (at T138):
"Q: The reason it went in the BC4 contract is because that was the amount that you were promising to Mr Massih and to the other partners would be the amount that you, as the builder, would charge to them?
A: I would be charging that amount but not taking into account variations and other costs that would fall beyond the building contract: roadworks, civil works, local authority works which aren't stipulated obviously in the figure.
Q: Well, you say, do you, that you did agree with the other three partners that this 8.096 would be your charge to them subject only to variations? Is that right?
A: Yes."
Later in his cross-examination, Emade Semaan said that he gave the BC4 contract to Mr Kaltoum, not to Mr Massih. He said that they came to his office and threatened not to sign the contract for sale "until I sign a contract for $8,096,000". Emade Semaan eventually agreed that the document he handed over was not merely to confirm expected construction costs, but "was to indicate a committed price at which he would do this work for the four partners".
However, Emade Semaan did maintain his denial (contained in his affidavit of 26 September 2014) that he did not agree that he would cause the Housing NSW payments to be placed into the partnership bank account.
[6]
Evidence given by Elie Kaltoum
Mr Kaltoum was called to give evidence by Mass. He swore an affidavit on 2 May 2012. It is a difficult affidavit to follow, and very imprecise concerning dates.
Mr Kaltoum deposed that at about the time No. 38 was acquired, he had a conversation with Emad Semaan in the following terms:
"EK: We should obtain three quotes in relation to the construction of the project.
ES: That will not be necessary. This is my development to build and you are not going to take the cream out of the project by introducing any other builder. It will cost approximately $160,000 per unit to build.
EK: On the basis that you are prepared to the building cost risk [sic] then I will agree with you."
Mr Kaltoum further says that, at some stage, Emade Semaan told him that the building progress payments would be paid into a joint account and that profits would be distributed on each drawdown.
Mr Kaltoum also gave evidence concerning a meeting he attended with Mr Massih and Emade and Karim Semaan where a conversation to the following effect occurred:
"EK: I insist on a fixed price building contract be prepared. Here is a standard printed building contract.
ES: Give it to me and I will insert the numbers. It will equate to a building cost of $176,000 per unit inclusive of GST."
Mr Kaltoum says that he recalls Emade Semaan "completing the numbers" in the document, and further that "we all signed this document". However, Mr Kaltoum deposed that he took the document away to speak about it with his brother in law (who is a lawyer). He said his brother in law recommended that the variations section be deleted. He also deposed that the document was subsequently misplaced.
In evidence in chief in the witness box, Mr Kaltoum confirmed that Emade Semaan had written the figure $8,096,000 as the price in the contract document. He also stated that the $8,096,000 was spoken about (and agreed) by all four present at the meeting, and that there had been earlier discussions about it.
In cross-examination, Mr Kaltoum maintained that he signed the BC4 contract. He conceded, however, that he did not look to see whether the variations section had been crossed out. He disputed that he took the document away before he was willing to agree to it. He stated that "we definitely agreed", and again referred to earlier discussions. Mr Kaltoum said that before he agreed to the sale of the land, he knew exactly how much profit he would be getting. He accepted that he was concerned about entering into the contract for sale, but said in effect that his concern was that Mr Maley had not yet prepared an agreement which would deal with how the drawdowns were to be dealt with.
[7]
Evidence given by Karim Semaan
Karim Semaan was called to give evidence by EPS. He swore an affidavit on 25 September 2014. He deposed that he was not involved in the tender to Housing NSW, and he had no recollection of any conversation with Mr Massih or Emade Semaan about EPS constructing the development for a fixed or specific price for the owners of the land. He denies that he signed any contract for the development of the land, and he denies the conversation Mr Massih says took place at the café in Merrylands when Mr Kaltoum was asked to sign the contract.
Karim Semaan recalls a meeting of the partners in October 2009 at the café in Merrylands, but does not recall either Mr Massih or Mr Kaltoum saying that the partners would receive 32% of each drawdown.
In cross-examination, Karim Semaan recalled that in about August 2009 Mr Kaltoum had on a number of occasions raised with him the need for Emade Semaan to commit to a figure for which the building work would be done on the land. He said he had no recollection of any contract being produced. He did recall a figure of $8,096,000. He said it was mentioned around the time the tender was submitted. He did not recall any conversation about what part that figure would play.
He denied that, at about the time the contract for sale was signed, he agreed that $8,096,000 was an acceptable figure for EPS to do the construction work. Karim Semaan accepted that he really left it up to the other partners to sort out the terms of the relationship between the partners and his brother. He said that he had no recollection of figures of $8,096,000, 32% and a partnership profit of over $3.7 million being discussed in October 2009.
[8]
Evidence given by Mary Semaan
Mary Semaan is married to Emade Semaan and works as an office manager for EPS. She swore four affidavits (24 May 2012, 22 June 2012, 27 February 2014 and 30 September 2014). These were largely directed to EPS' claim based on its actual construction costs.
In any event, she denies Mr Massih's account of the meeting at the building site on Windsor Road. She says that Mr Massih never attended the site when she was there, and no such meeting took place in her presence anywhere else. She deposed that she recalls her husband handing over a BC4 contract to Mr Massih at EPS' office in about September 2009. She further says that she did not know what, if anything, was written in the contract.
In cross-examination, Mary Semaan agreed that in mid to late September 2009, she had seen her husband carrying "some BC4 contract", and she recalled that Mr Massih collected the contract from EPS' office. She maintained her denial that she was at the Windsor Road site when there was any discussion between her husband and Mr Massih about the contract.
Mary Semaan agreed that she was aware that the figure $8,096,000 had been inserted into the contract as a fixed price, but she noted that the contract "was not completed apparently". She said it was "mostly blank" when Mr Massih collected it. She also said that she was then aware that the figure had been put in "as a tender price".
[9]
Mr Massih
Mr Massih gave his evidence clearly, and in a generally consistent manner. He seemed to accept that there were shortcomings with his recollection of the relevant events, particularly as to dates, and he conceded that he had reviewed the contemporaneous documents and had used them to reconstruct those events. On some matters, his recollection was shown by documents to be inaccurate, and Mr Massih readily accepted that he was wrong.
He was attacked in closing submissions for giving prevaricating answers when he thought that the truth would not assist him. Three examples were given, but I do not regard any of them as instances of prevarication.
His credit was also attacked, principally in relation to his dealing with a sum of money that was earmarked for payment to the Australian Taxation Office for GST on the sale of the land. It is clear that Mr Massih used that money for his own purposes, before he eventually replenished the fund. It also appears that he gave inaccurate or incomplete instructions to his solicitors about the money. These matters, which Mr Massih conceded quite readily in cross-examination, do not reflect well upon him. I have taken them into account when considering his testimony.
Overall, however, I gained a generally favourable impression of Mr Massih as a witness. Allowing that Mr Massih has to a significant degree attempted to reconstruct the relevant events, he appeared to me to be doing his best to answer questions honestly and to the best of his recollection.
[10]
Emade Semaan
I did not form a favourable impression of Emade Semaan. He ultimately made important concessions in cross-examination about the significance of the $8,096,000 figure that was written on the BC4 contract. I found his evidence in re-examination concerning some of those concessions to be unconvincing. Moreover, his earlier testimony to the effect that the $8,096,000 was merely an estimate of expected construction costs rather than a fixed price did not ring true. Neither did his testimony that the figure did not include various items such as builder's profit or GST, or his testimony that it was subject to variations. It appeared to me that Emade Semaan was giving that evidence (which concerned the central issue in the case) because he believed that it would assist EPS' position in the litigation. I have accordingly come to the conclusion that it is necessary to treat Emade Semaan's evidence with caution. Generally, where his evidence conflicts with that of Mr Massih, I prefer Mr Massih's evidence.
[11]
Mr Kaltoum
Mr Kaltoum was in the witness box for a relatively brief period. Some of his answers were lengthy and strayed beyond the point of the question asked. In general, however, Mr Kaltoum appeared to make a fair attempt to grapple with the questions and recall the events of 2009. The evidence he gave about knowing what his profit would be, before agreeing to the sale of the land, was in my view given in a convincing manner.
[12]
Karim Semaan
Karim Semaan was also in the witness box for a relatively brief period. It quickly became apparent, however, that he had very little recollection of events. Despite that, on more than one occasion Karim Semaan seemed eager to put forward what he understood had been agreed by his brother. His lack of recollection might be due to the fact that he was only peripherally involved in the discussions, he being (as he said) content to leave it to the others to sort out the arrangements with his brother. In any event, I think that little weight can be placed on his evidence, as far as it goes.
[13]
Mary Semaan
Mary Semaan was also in the witness box only briefly. In that time she gave her evidence clearly and directly. She was asked very few questions in relation to the events of 2009. There is no particular reason why her evidence concerning those events should not be accepted.
[14]
Determination
I accept the evidence of Mr Massih that in April 2009, when the initial tender document was being prepared, he had a discussion with Emade Semaan about the price EPS would charge the venturers to do the construction work if the tender was successful. I further accept that, in the course of that discussion, Emade Semaan said that he would build the units for the venturers for less than $160,000 plus GST (or $176,000 including GST) each. Emade Semaan conceded in cross-examination that he told Mr Massih that he could do the building work for a price of $8,096,000.
Moreover, a discussion to that effect is consistent with the insertion of a tender price of $7,360,000 plus GST of $736,000 in Section F of Returnable Schedule 10, and the insertion of a Total Construction Price including all builder's preliminaries, overheads and profits of $8,096,000 in the Building Price Summary of that schedule. It is also consistent with the fact, ultimately accepted by Emade Semaan, that by that time he had experience of building multiple units for around $140,000 to $150,000 per unit.
I reject Emade Semaan's evidence to the effect that the amount of $8,096,000 included in Section F (that is, the total of the two figures shown there) was "based on a build cost estimate for the development" and did not include any margin for builder's profit, overheads, ancillary costs, or GST. The total in Section F plainly includes GST. Further, the amount of $8,096,000 was inserted into the Building Price Summary which, in its terms, clearly includes GST and all builder's preliminaries, overheads and profits.
There seems little doubt that after Housing NSW had expressed its satisfaction with the tender, and as the time for the exchange of contracts for the sale of land loomed, both Mr Massih and Mr Kaltoum were keen to obtain the agreement of Emade Semaan to a price EPS would charge the venturers for the construction work. One matter Karim Semaan did recall was that in about August 2009 Mr Kaltoum raised with him a number of times the need to get his brother to commit to a figure for which the building work would be done. As Emade Semaan said in cross-examination:
"[…] come September and the deadline coming through, obviously the joint venturers started to hesitate and wanted to discuss an arrangement."
As far as Mr Massih is concerned, he was aware that there would be no profit to the venture on the sale of the land to Housing NSW. It must have been appreciated by him that if the venture was to obtain any profit it would have to come out of the other money Housing NSW would be paying, namely, the payments under its construction contract. The amount of profit to the venture would depend upon how much of that money was kept by the builder.
I accept Mr Massih's evidence that he told Emade Semaan that a construction contract between the partnership and EPS should be put together. I also accept that Mr Massih asked Emade Semaan on a number of occasions for a building contract to quantify the construction costs to the partnership. It seems that Emade Semaan sought to deflect these requests by giving assurances about not "ripping off" the partnership. I do not accept Emade Semaan's evidence that Mr Massih was merely seeking some comfort in writing about likely construction costs.
It is clear that prior to the execution of the contract for sale, a building contract in the standard BC4 form was obtained and used in connection with discussion about the price EPS would charge the venturers. The evidence is in a most confused state concerning the details of the circumstances in which the BC4 contract was obtained and used, although there is no doubt that at some point Emade Semaan, as he himself deposed, "wrote in the amount of $8,096,000 as the price" and signed the contract.
Both Mr Massih and Mary Semaan gave evidence that the BC4 contract was collected by Mr Massih from EPS' office. I think that is likely to be correct. I also accept that Mr Massih took the contract with him to the building site in Windsor Road and discussed the matter there with Emade Semaan. Mr Massih is probably mistaken in his recollection that Mary Semaan was present on that occasion. I am prepared to accept her evidence on that point. I do, however, accept Mr Massih's evidence concerning the conversation he had with Emade Semaan at the Windsor Road site. In particular, I accept that Emade Semaan said that he would charge the venturers a fixed price of $8,096,000 without variations. That he did so is consistent with his preparedness to use that figure in April 2009 in relation to the tender documents. Of course, by September 2009 Emade Semaan had the additional certainty of a development approval.
I also think it likely that, on that occasion, Emade Semaan wrote $8,096,000 in as the price on the document, and signed it. The evident purpose of Mr Massih, in collecting the contract and taking it to the building site, was to obtain some written evidence of an agreement as to price. In circumstances where Emade Semaan was apparently prepared, when pushed, to commit to a price of $8,096,000, there is little reason to think that he would not have been willing to place the figure in the contract and sign it then and there. It is also likely that Mr Massih signed the contract on that occasion. I accept the evidence given to that effect by Mr Massih in cross-examination. Having regard to Mr Kaltoum's evidence that his brother-in-law recommended that the variations section be deleted, I am not prepared to find that Emade Semaan crossed the section out on this occasion as maintained by Mr Massih. However, I do not think that anything turns on that in circumstances where Emade Semaan stated that the price of $8,096,000 was a fixed price without variations.
I do accept Mr Massih's evidence in relation to the taking away of the contract and discussing with both Karim Semaan and Mr Kaltoum. I find that Mr Massih informed both Karim Semaan and Mr Kaltoum that Emade Semaan had agreed upon $8,096,000 as a fixed price with no variations. He also explained that it was a price per unit of $160,000 plus GST. I also find that Karim Semaan signed the contract on that day. I prefer Mr Massih's evidence on that point to that of Karim Semaan. It is likely that Karim Semaan would have been content to go along with what had been negotiated with his brother. I further find that on this occasion Mr Kaltoum expressed his agreement with the price of $8,096,000, but stopped short of signing the contract.
Mr Kaltoum gave evidence that he signed the contract at a meeting attended by Emade Semaan as well as Karim Semaan and Mr Massih. He says that he took the contract away with him afterwards, to speak to his brother in law about it. I accept Mr Kaltoum's evidence to the effect that there was such a meeting, and that the price of $8,096,000 (or $176,000 per unit including GST) was discussed and agreed upon by all present. It is likely that this meeting took place in about late September 2009. Whilst I do not think that anything turns upon it, I am prepared to accept that Mr Kaltoum signed the contract on that occasion, before taking it away. I note that in cross-examination Emade Semaan referred to an occasion when "they came to my office" and threatened at the last minute that they would not sign the contract for sale "until I sign a contract for $8,096,000". Emade Semaan further said that on that occasion he gave the BC4 Contract to Mr Kaltoum and that Mr Kaltoum took the contract away with him. Emade Semaan conceded that what he handed over was to indicate a committed price at which he would do the work for the four partners.
That concession was immediately followed by a similar concession to the effect that there would be no occasion to use the BC4 contract except to confirm a committed price. Those concessions significantly undermined the credibility of Emade Semaan's earlier assertions about the significance of the $8,096,000 figure. His attempt in re-examination to explain the concessions as being brought about by a misunderstanding of the question was unconvincing to say the least.
I have concluded, based on an objective assessment of the conduct of the parties, that by 2 October 2009 a binding agreement had been reached between EPS and each of the venturers to the effect that EPS would charge the venturers a fixed price of $8,096,000 to carry out the construction work for the proposed development. Reasonable persons in the position of EPS and each of the venturers would conclude that such an agreement had been made. It was implicit in the agreement so made that EPS would only be entitled to $8,096,000 out of the lump sum price under the construction contract between it and Housing NSW. In other words, EPS would be obliged to pay each of the venturers their share of the difference between that price and $8,096,000.
By about August 2009, Mr Massih and Mr Kaltoum, knowing that it was proposed that the land would be sold to Housing NSW at a price that yielded no profit, were particularly keen to obtain clarity about how much EPS would charge the venture for its construction work. When pressed on the issue, Emade Semaan made it known that EPS was prepared to charge a fixed price without variations of $8,096,000 (or $176,000 per unit) including GST. Emade Semaan told Mr Massih that it was the fixed price, wrote the figure on the BC4 contract, and then signed it. Mr Massih, apparently content with the offered price, also signed. Mr Massih then conveyed EPS' position to Karim Semaan and Mr Kaltoum. Karim Semaan accepted the price, and signed the BC4 contract. Mr Kaltoum, whilst expressing the view that the price was too high, indicated that it was acceptable to him. The issue was further discussed at a meeting, which likely occurred in late September 2009, attended by all four venturers. There was there consensus that the price would be $8,096,000 (or $176,000 per unit including GST) and Mr Kaltoum signed the BC4 contract. The mutual assent of all parties to what EPS was offering, namely a fixed price of $8,096,000, was clear.
It is true that Mr Kaltoum took the BC4 contract away with him so that he could speak to his brother in law about it. However, I do not think that this leads to the conclusion that no binding agreement had yet been reached. Mr Kaltoum evidently wanted a written agreement that would deal with how he would get his share of the profit. Such an agreement had not been prepared when he and the others signed the contract for the sale of the land. Nevertheless, I accept Mr Kaltoum's evidence to the effect that, by that time, the venturers had worked out and agreed how the profit would be calculated, and on that basis he was prepared to agree to the sale proceeding, albeit that he expected that a written agreement would later be prepared dealing with how the agreed profit would be distributed. I accept Mr Massih's evidence that the question of how the profit would be distributed was discussed by the venturers in about October 2009, and that such discussion included the suggestion that the distribution occur by the payment of a percentage of each drawdown received from Housing NSW. It is not necessary to resolve the differences between the witnesses as to whether any agreement to that effect was ever reached. In closing submissions, Mr Fagan indicated that any breach of such agreement was of no significance.
I base my conclusion, that a binding agreement was reached by 2 October 2009, upon the conduct of the parties up to that date. However, I note that the conclusion appears consistent with aspects of the conduct of the parties thereafter.
The negotiations that followed Mr Massih's complaints about EPS not paying the venturers any part of the first three progress payments, featured a number of documents that indicated that the partners would receive a total profit of $3,484,299. That figure is derived by subtracting $8,096,000 from the price under the construction contract between EPS and Housing NSW of $11,928,728.90, to give $3,832,928.90, from which GST of $348,429.90 is removed.
One such document was the draft Deed of Agreement proffered in early November 2009 to EPS which provided for 36% of progress payments to be paid, up to a maximum of $3,484,299. Mr Massih deposed that he had a conversation with Emade Semaan on 3 November 2009 in which Emade Semaan expressed general agreement with the draft agreement. I accept that evidence. On 4 November 2009, and again on 5 November 2009, Mr Massih sent facsimile transmissions to Emade Semaan requesting that 36% of the most recent progress payment be placed into the partnership bank account. Emade Semaan responded on 8 November 2010 by paying 90% of the requested amount into that account. This suggests at least some acceptance of the notion that the venturers were entitled to portion of progress payments as they were received.
Another such document is the Offer, later made by EPS, to make an upfront payment discounted by 30%. That Offer, as clarified by the document signed by Emade Semaan, was itself based on the assumption that the partners were entitled to a total profit of $3,484,299.
On the basis of the agreement I have found, Mass ought to have received $1,161,433 from EPS out of the payments made by Housing NSW. EPS has paid it only $483,998.33, leaving a balance outstanding of $677,434.67. Mass is entitled to recover that sum from EPS.
It follows from my conclusion that there was an agreement as alleged by Mass, that EPS' alternative cases that there was an agreement that it would receive out of the progress payments all of its reasonable construction and associated costs, or else no agreement at all, must be rejected. Mr Katekar's closing submissions accepted that position.
I do accept EPS' contention that there was an agreement that EPS be paid for its pre-construction work in procuring development approvals and obtaining a construction certificate. However, as noted earlier, in about late October 2009 Emade Semaan agreed to accept $150,000 for the "costs for development application". This amount seems to have been brought to account when the distributions were made in May 2010 on the instructions of the venturers in accordance with the figures contained in the Werrington Partnership Disbursement of Settlement Funds document. According to that document, $150,000 had been received from Housing NSW as an allowance for "architectural fees" and a total amount of $104,080.32 was paid by the venturers towards such fees. After the partners were given credit for their respective shares of that amount, the balance of $45,919.68 was added to the distribution paid to Naames. Similarly, the $188,829.69 for construction certificate costs seems to have been brought to account by adding it to the distribution made to Naames. Ultimately, Mr Katekar did not submit that any particular adjustment needed to be made in relation to these items.
The remaining aspect of EPS' cross-claim, concerning an alleged breach of trust by Mr Massih in dealing with the money earmarked for GST, was effectively abandoned in final submissions. The cross-claim should be dismissed.
I direct the parties to bring in Short Minutes within 14 days to give effect to these reasons.
[15]
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: 13 March 2015