Mitchell v Pacific Dawn P/L [2003] QCA 526

[2] The precise form or characterisation of the contract counts for little in the narrative of events that follows, although it may have influenced the attitudes of the parties as the building neared completion. Completion was originally due by 25 April 2000, but a number of unexpected difficulties appeared soon after work began in October 1999. Among them were the discovery of subsurface rock and of a sewerage pipeline crossing the site. An adjoining building had to be shored up because of excavation on the site. For these or other reasons the defendant decided to alter the proposal by substituting a level of residential for commercial accommodation, which entailed new plans and a further building approval from the Council. By 20 November 2000 the defendant was predicting completion by 25 November, but the need for additional work required a revision of that estimate.

[3] By the beginning of November 2000 a total of 10 progress claims had been certified and paid to the plaintiff without, it would appear, any substantial dispute. The defendant had an architect Mr Tan acting for it, but at an early stage in the work the National Australia Bank, which was providing the defendant with finance for the project, appointed quantity surveyors Currie & Brown who in effect took over the function of certification under the contract. On 2 November 2000 progress certificate no 11 was issued in favour of the plaintiff for an amount of $253,599.28 together with $25,359.23 for GST (which had been introduced in the course of the construction work) making a total of $278,959.21. Under the terms of the contract a progress certificate was payable by the proprietor in a period of five days from date of issue, which meant that certificate no 11 was due for payment on 7 or perhaps it was 8 November 2000.

[4] On 6 November, which was the day before certificate no 11 was due for payment, a meeting was convened, which was attended on one side by Mr Fan (who was the principal of the defendant proprietor) and Mr Tan the architect, and on the other side by the plaintiff and his foreman Mr Tones. At the meeting, the defendant agreed to pay certificate no 11 forthwith and also to arrange for release of retention money of $140,403, in return for payment to the plaintiff of a further sum of $183,653.66 to be paid on completion of the works, which was then expected to take place on 15 November 2000. For reasons apparently related to further work that had to be done, the plaintiff later advised that the project would be completed on 25 December 2000. What was more, certificate no 11 was not paid in full at once as promised. Instead an amount of $140,000 was paid on 10 November; a further amount of $60,000 on 1 December; and a third amount of $100,000 on 21 December, taking the total paid to $300,000, which was a little more than the sum of $278,959.21 including GST due under certificate no 11.

[5] As a result of the defendant's failure to pay certificate no 11 on time as promised, the plaintiff treated the variation agreement of 6 November as no longer binding, and reverted to the terms of the contract as it had been before that date. In the meantime, however, the plaintiff was being threatened by unpaid subcontractors one of whom was threatening to enter the site and remove materials which he had placed there. On 22 December a further meeting was arranged between the parties represented as before, at which the compromise agreement was reached that is now the principal subject of this appeal. The agreement, as found by his Honour, was that the plaintiff agreed at that meeting to accept, in full settlement of all his claims under the contract, payment by the defendant of:

(a) $160,000.00 inclusive of GST on 22 December 2000;

(b) $46,799.00 plus GST on or before 22 June 2003; and

(c) $66,250.00 from retention funds then being held to cover costs of rectifying defects.

[6] Despite the compromise agreement reached on that occasion, proceedings were instituted by the plaintiff in the Supreme Court. A claim and a statement of claim was filed on 1 May 2001 claiming from the defendant a sum of $341,638.49 alleged to be due by it under the construction contract, which was alleged to have been varied by an earlier agreement made between the parties on 30 January 2000 or subsequently by conduct rendering it a "costs plus" contract instead of a lump sum agreement. The defendant responded by alleging in its defence that, among other matters, the plaintiff had by the agreement of 22 December 2000 effectively compromised any claims it might have had to receive any further payment from the defendant. That issue now before us on appeal was raised in paragraph 14 of the plaintiff's reply, which (a) denied that any legally binding agreement to compromise the plaintiff's claims had been entered into on 22 December; and (b) alternatively, that, if an agreement had been entered into, it was arrived at on that occasion by the application of such improper duress by the defendant on the plaintiff as to render it unenforceable.

[7] Following delivery of those pleadings the parties agreed that those two questions should be determined as issues to be decided separately from other matters in the proceedings. An order was made by consent enabling this to take place, and a hearing followed at which evidence was presented both by affidavit and orally, with witnesses or deponents being cross-examined on either side. The hearing occupied three days in late August 2002 and a further day in late September 2002. Judgment, which was reserved, was not delivered until 4 April 2003, and was followed by argument about costs, which was the subject of a further order on 26 June 2003. Notice of appeal, including an appeal against the order for costs, was lodged by the defendant on 1 July 2003.

[8] Of the two questions for determination, which corresponded to the issues raised in paragraph 14(a) and 14(b) of the plaintiff's reply, the learned judge determined the first question in favour of the defendant and the second in favour of the plaintiff; that is to say, his Honour decided: (a) that the compromise agreement reached by the parties on 22 December 2000 was in form legally binding on the plaintiff; but (b) that it had been entered into as a consequence of unconscionable conduct and economic duress brought to bear by the defendant on the plaintiff, with the result that it was, as the plaintiff alleged, not enforceable by the defendant. The defendant's appeal is directed only against the determination in (b) and against the judge's decision as to costs, with respect to which leave to appeal was obtained. It follows, of course, that the answer or determination given by his Honour with respect to question (a) is not before this Court on appeal, and that determination will stand irrespective of the result of the appeal on question (b).

[9] The substance of his Honour's conclusion with respect to question (b) was that the plaintiff had been forced under pressure to forego or abandon a large part of a bona fide claim which he had against the defendant, and that he had done so in return for immediate payment of only a little of what was then owing to him. This was, his Honour found, the outcome of a deliberate strategy adopted by the defendant to starve the plaintiff of funds at a time shortly before the Christmas building break, when Fan and Tan were in fact well aware that the plaintiff was receiving demands and threats from subcontractors whom he was unable to pay unless he received payment from the defendant. Knowing the plaintiff was in that position, the defendant took advantage of it to force him to agree to the compromise of 22 December 2000 as the only way in which he could hope to receive anything at that critical time. His Honour did not, he said, consider it necessary to determine the precise amount owing to or claimed by the plaintiff, and said that he had in fact had some difficulty in doing so; but that it nevertheless "greatly exceeded the amount he agreed to accept to compromise it" (Reasons s76). Earlier in his reasons (s15) his Honour had appeared to accept that it was a sum of approximately $300,000.

[10] The defendant does not accept that figure as correct, and on appeal set out to demonstrate that the sum in fact remaining unpaid was very much less and amounted to something in the order of only about $30,000. To this Mr Bell QC for the plaintiff on appeal responded with references to various documents and evidence in the record, which it was submitted showed that an amount of $300,000 or $400,000 was due to his client. It might perhaps be possible to arrive at some partial resolution of this difference by reference to material in the four volume record on appeal, but we are strongly of the view that an appropriate analysis and finding should have been made by the trial judge himself as the first step in deciding whether, as a matter of fact, the plaintiff had been compelled by duress or economic coercion imposed by the defendant to sacrifice a valuable claim for the immediate satisfaction of receiving only a fraction of what was really due to him.

[11] The real issue is, however, not simply one of quantum. Question (b) for determination raised issues of credibility with respect to each of the parties or their witnesses. As to that, his Honour's findings were unequivocal. He found (Reasons s70) the plaintiff to be "an honest and reliable witness", whereas he was "unpersuaded" that Mr Fan was a reliable witness and, on the contrary, positively found him to be unreliable. With respect to the architect Mr Tan, his Honour considered him as motivated more to support the defendant in its dispute with the plaintiff, as, in the nature of things, he may have been. In addition to this general finding of credibility against the defendant or its witnesses, the learned judge made a number of other findings about specific matters in which he expressly rejected the evidence of Mr Fan (ss51 and 61).

[12] It is, of course, a principal function of a trial judge to make findings on matters of credibility including assessments of the reliability or creditworthiness of witnesses. Some recent decisions in New South Wales have treated failure to give reasons for preferring one witness over another as fatal to the integrity of a judgment under appeal. See, for example, Hadid v Redpath [2001] NSWCA 416, at s53 (Heydon JA). It is, however, not necessary in this case to decide whether that line of authority ought now to be followed in Queensland. The difficulty here is of a more fundamental nature. It is that his Honour's reasons for judgment disclose an error about a matter that was both critical to both his ultimate finding of fact and his decision in favour of the plaintiff, and to the findings of credibility that led on to it.

[13] It will be recalled that on 2 November 2000 progress certificate no 11 had issued for the sum of $278,959.21 including GST, and that under the contract it was payable within five days of that date. In s58 of his reasons, his Honour said that about a week before the date of the compromise agreement of 22 December 2000 "nearly $280,000.00 was admittedly owing by the defendant to the plaintiff under Certificate 11", and that a further sum of approximately $400,000 was claimed as due upon the handing over of the completed project pursuant to claim no 12 that was still to be certified, thus amounting in all to a total of some $680,000. In making findings about credibility, his Honour in s65 of his reasons said:

"I accept the evidence of the plaintiff that on 22 December 2000 he was owed a sum of nearly $280,000.00 and had a bona fide claim for nearly $400,000.00."

In the following paragraph s66 of his reasons, the judge went on to say that he also accepted the plaintiff's evidence that Fan and Tan had made it clear to him at the meeting on 22 December that the defendant did not intend to pay him the monies he claimed, part of which his Honour said "had already been certified as being presently owing to him." As a result, his Honour went on, the plaintiff had no option but to accept what was being offered on the terms and conditions presented to him, or to take the defendant to court.

[14] The foregoing statements in ss58 and 65 of the reasons that the plaintiff was owed $280,000 and that he had a further claim for $400,000 are not easy to harmonise with his Honour's earlier finding in s15 that the amount due to and abandoned by the plaintiff under the compromise agreement of 22 December was approximately $300,000. Plainly something is wrong with one or both of those sets of figures. Mr Bell QC for the plaintiff on the appeal sought to reconcile them; but even if, as he submitted, there must have been some mistake in the recording of his Honour's reasons, it was plainly wrong for his Honour to say, as he did, that on 22 December 2000 the plaintiff was owed a sum of nearly $280,000 under certificate 11. By that date, when the compromise agreement was arrived at, the sum due under certificate 11 had already been paid in instalments of $140,000 on 10 November, $60,000 on 1 December, and a further $100,000 on 21 December, making a total paid of $300,000, or slightly more than the $278,959.21 owed under certificate 11 issued to plaintiff. On 22 December there was no longer any sum owing or due and payable to the plaintiff by the defendant under that or any other certificate.

[15] In saying that there was, his Honour was plainly wrong. It is also clear that this error must have operated to affect his Honour's finding in s66 of his reasons, where he accepted that the defendant had made it clear at the meeting on 22 December that the defendant did not intend to pay him the moneys he claimed "part of which indeed had already been certified as presently owing to him," and that the plaintiff had the option of accepting the defendant's offer or of going to law. It necessarily also infected his Honour's assessment of other aspects of the defendant's conduct, and of his general assessment in s70 of the relative reliability or unreliability of the witnesses for the parties, as well as his final conclusion in s71 that the plaintiff had agreed to compromise his claim against the defendant on 22 December "by reason of unconscionable conduct and economic duress it exerted upon him on and prior to that date."

[16] In deciding whether or not the compromise agreement had been induced by economic coercion or duress, issues of credibility were obviously critical, and for this reason it is not possible to allow his Honour's determination of question (b) to stand. Mr Fraser QC for the defendant submitted that it was nevertheless possible to demonstrate that the plaintiff's claim could not be supported by reference to what he claimed were incontrovertible facts and documents in the appeal record. Mr Bell's submission to the opposite effect has already been referred to. The simple fact is, however, that the question at issue has not been properly tried or determined, and adequate findings about credibility and the essential facts of the dispute have yet to be made. It is most unfortunate that it should be so; but, because it is now impossible with any degree of confidence to correct the matter on appeal without seeing and hearing the witnesses themselves, the Court is left with no alternative but to allow the appeal and set aside the answer to question 3(b), as it was designated in the order of court below. So far as the remark appearing in the final paragraph s79 of his Honour's reasons was intended to constitute a further finding consequent upon his determination of questions 3 (a) and 3 (b), it too cannot stand. There must be a retrial of the issue described in the order of the trial court as questions 3 (b).

[17] As to costs, a great deal has been expended on the litigation, not all of which will be thrown away if a further hearing and determination proceeds to a conclusion. It was not, however, the fault of the parties that this has not already occurred, but a failing in the system for which they, their legal advisers or counsel are in no way responsible. Failure by the judge to give adequate reasons was held on appeal in Pettitt v Dunkley [1971] 1 NSWLR 376 to constitute an error in law. When, as happened in the present case, that failure was attributable not to the parties but the judge, and the appeal succeeds on that ground, it is an appropriate case under s15(1) of the Appeal Costs Fund Act 1973 (Qld) in which to grant an indemnity certificate having the effects and incidents set out in s 16 of that Act.

[18] Under s 16, such a certificate will entitle the unsuccessful respondent to the appeal, who is the plaintiff in the proceedings, to be paid from the Fund an amount equal to: (a) the appellant's costs of the appeal and of the new trial of the issue raised in question 3 (b); and: (b) the respondent's own costs of the appeal. In the present case, a separate appeal (CA 5854 of 2003) has been instituted against the order for costs. That appeal against costs has, however, now ceased to be relevant because the order setting aside the determination of or answer to question 3(b) necessarily carries with it the order for costs made against the defendant below. The Act does not provide for the costs already incurred at the abortive hearing, but caters for them under s 16(a)(ii) and s 16(b)(ii) by furnishing the respondent with an indemnity in respect of the costs of the new trial or determination yet to be had of question 3(b). In these circumstances, the Act appears to contemplate that, on setting aside the order or determination in favour of the plaintiff, the costs of the primary hearing are intended to lie where they fall. At all events, there is no power in the Court to provide for them under the Act; and, since neither party will now have succeeded in obtaining the costs at first instance, it follows that there is no basis on which the Court can in the circumstances properly order them to be paid by either party to the proceedings.

[19] In the result, the following orders will be made:

1. Order that the appeal numbered CA 3844 of 2003 be allowed and that the respondent pay the appellant's costs of and incidental to that appeal.

2. Order that the determination or answers to the question designated 3 (b) in the order of the Supreme Court made on 4 April 2003 be set aside and that the question be determined by another judge of the Supreme Court.

3. Order that the respondent be granted an indemnity certificate under s 15 of the Appeal Costs Fund Act 1973 in respect of that appeal.

4. Order that the appeal numbered CA 5854 of 2003 be dismissed.

It also follows that, since the costs order made against the defendant has now been set aside, the separate appeal (CA 5854 of 2003) against it must be dismissed. Because the power under s 15 of the Act to grant an indemnity certificate arises only when the appeal succeeds, there can be no question of a grant of such a certificate in respect of that appeal.

The parties may have leave to deliver written submissions with respect to these orders (including costs and any indemnity certificates) within 10 days of the delivery of this judgment.

[20] MACKENZIE J: I agree with the orders proposed by McPherson JA for the reasons given by him.

[21] WILSON J: I agree with the reasons for judgment of McPherson JA.