Plaintiffs v NUTRITIONAL POWDER TECHNOLOGIES PTY LTD [2025] VSC 466 | Case summary

Plaintiffs v NUTRITIONAL POWDER TECHNOLOGIES PTY LTD [2025] VSC 466 | Case summary | Zoe

[6]

On 23 January 2019, CBDG and NPT entered into an Engineering, Procurement and Construction Management contract ('EPCM contract' or 'contract') for NPT to provide engineering and project management services in relation to the construction of a large infant formula drying plant in North Geelong ('plant'). The EPCM contract comprises a document-styled 'Formal Instrument of Agreement', general and special conditions, as well as schedules and annexures. In broad terms, under the EPCM contract, NPT as the 'Engineer' was to be paid the 'Contract Sum' of $4.45 million (excl GST) and other amounts, subject to CBDG's receipt of 'Payment Statements' (cl 9.1). NPT was entitled to raise monthly payment claims (SC 6.1), with CBDG to make payment within five business days of receiving a certificate from the 'Superintendent'[2] (a representative of CBDG) or 20 business days of the Superintendent receiving NPT's claim (SC 6.5).
As Engineer under the EPCM contract, NPT was required to 'design all things necessary for the procurement, installation, construction, [and] commissioning' of the plant (cl 14.1). Further, the Engineer granted to the 'Principal' (i.e. CBDG) a perpetual, royalty-free, irrevocable, non-exclusive licence to exercise all rights of the Engineer as owner in relation to the intellectual property and 'Design Deliverables' (being design documentation, including drawings, project plans, specifications, programs, schedules and data) produced by the Engineer under: the 'Services'; the EPCM contract; and the construction and engineering works relating to the project ('intellectual property licence') (cl 5.2). I will refer to the mechanics of the EPCM contract in greater detail later in these reasons.
It is common ground that NPT was also the nominated superintendent in various contracts between CBDG and other contractors and suppliers engaged in the project, requiring it to assess progress claims submitted by those parties and make recommendations to CBDG about the payment of those claims.
NPT commenced providing services under the EPCM contract in or around February 2019 and CBDG issued a purchase order to NPT for design work on 28 February 2019.

[11]

NPT continued making progress payment claims to CBDG, including one dated 29 May 2020 which fell due on 30 June 2020 and remained unpaid by August 2020. On 19 August 2020, NPT served on CBDG a Notice of Intention to Exercise Lien pursuant to s 12A of the Building and Construction Industry Security of Payment Act 2002 (Vic) in respect of the unpaid May progress claim and over unfixed plant and materials (including intellectual property, such as designs and drawings) relating to the project ('notice of lien' or 'lien').
Two days later, on 21 August 2020, CBDG went into voluntary administration and Messrs Colbran and David Mark Mutton were appointed as its administrators.
On 25 August 2020, NPT purported to register security interests pursuant to the lien on the Personal Property Security Register ('PPSR'). Correspondence then ensued between NPT, the administrators of CBDG, and their respective lawyers in relation to the lien. In particular, on 27 August 2020, NPT sent a letter to the administrators about the lien asserting NPT's status as a secured creditor. The administrators responded by letter on 1 September 2020 requesting documentation to support NPT's alleged security interest over CBDG's property. On 15 September 2020, NPT's lawyers, Ward & Co, sent a letter to the administrators and alleged NPT's security interests registered on the PPSR were supported by the EPCM contract and notice of lien.
The issue of the lien then became contentious. Between mid-October 2020 and 23 December 2020, extensive correspondence passed between K&L Gates, on behalf of the voluntary administrators (and later liquidators) of CBDG, and Ward & Co, on behalf of NPT, concerning whether the lien had a proper basis. The correspondence is referred to in greater detail later in these reasons.
On 15 December 2020, CBDG and its voluntary administrators entered into an agreement with Maeil Australia Pty Ltd ('Maeil') for the sale of the company's assets for $13.5 million ('Maeil sale agreement'). The assets agreed to be sold included the company's: premises; plant and equipment; intellectual property; and assets over which NPT claimed an interest in the notice of lien.
In the administration of CBDG, NPT lodged a formal proof of debt dated 16 December 2020 for the sum of approximately $2.05 million in respect of unpaid invoices. NPT submitted the proof of debt on the basis it was a secured creditor pursuant to the lien.
On 17 December 2020, during a second meeting of creditors held in accordance with s 439A of the Act ('second meeting of creditors'), CBDG's creditors resolved to wind up the company and appoint Messrs Colbran and Mutton as its liquidators ('liquidators'). (I note Mr Mutton eventually retired as liquidator of CBDG on 16 August 2021.) A report provided to creditors dated 9 December 2020 for the purpose of the second meeting of the company's creditors (held on 17 December 2020) ('9 December 2020 report to creditors') estimated the quantum of unfair preference claims that may be brought by the liquidators on behalf of the company was approximately $3.8 million ($3.707 million of which related to payments to 'five key suppliers' and the balance to the Australian Taxation Office ('ATO')). The $3.8 million figure was referred to during the second meeting of creditors.
While the liquidators sought to progress the sale of assets under the Maeil sale agreement, it became apparent that the lien then claimed by NPT threatened to obstruct the sale. As a consequence, by originating process dated 19 January 2021, the liquidators commenced a proceeding in this Court[3] seeking declarations that a registered security interest held by Wattle over CBDG's property had priority over the interest claimed by NPT in its lien and that the liquidators were entitled to dispose of CBDG's assets free of the interest claimed by NPT ('earlier proceeding'). The originating process was supported by an affidavit of Mr Mutton dated 15 January 2021 (together, 'earlier proceeding Court documents').
Following an exchange of correspondence between the parties' lawyers, the earlier proceeding was resolved in accordance with the settlement deed executed on 19 February 2021. The terms of the settlement deed and the contents of the correspondence preceding it are considered in greater detail later in these reasons.
On or around 12 March 2021, the liquidators issued a statutory report to creditors ('12 March 2021 report to creditors') which, again, referred to potential unfair preference claims that may be pursued by the liquidators on behalf of CBDG with the same approximate values as set out in the 9 December 2020 report to creditors.
On 27 May 2021, the liquidators wrote a comprehensive letter to NPT contending that the April payments constituted unfair preferences and demanding payment of $555,640.70 in settlement of anticipated preference claims ('liquidators' letter of demand'). This was met with a letter dated 11 June 2021 from Ward & Co on behalf of NPT denying the April payments were unfair preferences and raising a number of potential defences but making no mention of the settlement deed.
On 12 September 2022, K&L Gates wrote to Ward & Co making a 'without prejudice' offer to settle the liquidators' preference claims. Ward & Co replied on 16 December 2022, rejecting the offer and asserting - for the first time and some 18 months after the liquidators' letter of demand - that, by operation of the settlement deed, the liquidators had released NPT from all claims incidental to the EPCM contract, including the unfair preference claims the subject of this proceeding.

[12]

The plaintiffs filed their originating process on 13 April 2023 seeking, among other things, declarations that the April payments are: unfair preferences within the meaning of s 588FA of the Act; insolvent transactions within the meaning of s 588FC of the Act; and voidable transactions within the meaning of s 588FE of the Act.
On 26 April 2023, the Court made timetabling orders by consent, including for the filing of pleadings, discovery, and referral to judicial mediation.
On 5 October 2023, I granted the plaintiffs leave to file and serve an amended originating process and amended statement of claim to seek, among other things, declaratory relief that the settlement deed did not release NPT from the unfair preference claims or, if it did, that the settlement deed ought to be rectified.
On 10 October 2023, NPT filed a summons for the hearing of separate questions under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), specifically whether: the plaintiffs released and discharged the defendant from the claims made in this proceeding pursuant to the settlement deed; the plaintiffs are barred from bringing this proceeding; and the settlement deed contains a mutual mistake which should be rectified. The summons was made returnable on 10 November 2023. After hearing argument on that day, I ultimately dismissed NPT's summons. I did not consider there was a clear case for the exercise of the Court's discretion to order the separate trial of questions in the proceeding, having regard to the considerations identified in Vale v Daumeke & Ors.[4] Nor did I consider that a separate trial would serve the overarching purpose contained in s 7 of the Civil Procedure Act 2010 (Vic) or be consistent with the overarching obligation in s 24 of that legislation, which requires parties to ensure that legal costs incurred in connection with the proceeding are reasonable and proportionate to the complexity of the matter, importance of the issues, and the amount in dispute.[5]
The matter proceeded to trial commencing on 6 November 2024. Although initially fixed to be heard over three days, the trial was heard over four, with parties giving opening submissions and evidence on 6, 7 and 8 November 2024, and closing submissions on 13 December 2024.
In its amended defence dated 20 October 2023, NPT did not admit CBDG was insolvent from 1 April 2020 and at the time of each of the April payments. It further pleaded that at all material times until approximately 15 May 2020, or alternatively July 2020, CBDG had in place a funding arrangement with its shareholder and joint venture partner, Wattle, to fund the development, construction, and commission of the plant. In other words, NPT put the plaintiffs to proof on the question of insolvency (which is an element of the unfair preference claims by virtue of s 588FC of the Act). However, at the commencement of the trial, the Court was informed that NPT no longer wished to press the issue of solvency. According to the plaintiffs' written opening submissions, on 21 October 2024, the plaintiffs served NPT with a notice to admit that CBDG was insolvent at the time of the April payments and, by email dated 25 October 2024, Ward & Co confirmed NPT did not intend to serve a notice of dispute in respect of the notice to admit or cross-examine Mr Bruce Gleeson (the plaintiffs' expert witness) at trial.

[27]

In the first place, the objective approach to contractual interpretation requires reference to the 'text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose'.

It follows that the meaning of a word or clause cannot be determined by reference to its own text alone. As such, resort to the 'ordinary meaning' of the word or clause can be no more than a starting point in a process which in every case requires the reader of the contract to look further to context and purpose. Nor is it necessary that there be ambiguity, however understood, before undertaking that further process.

Context (as defined above) and purpose are always relevant, no matter how clear the 'ordinary meaning' is said to be.

Secondly, the objective approach calls for the relevant provision to be interpreted as a reasonable businessperson would have understood it, which is revealed by considering the language used in the contract, the circumstances the contract addresses and the commercial purpose or objects to be secured by it, each of which is ordinarily able to be identified by reference to the contract alone. Again, the notion of 'ordinary meaning', while plainly a relevant aspect of this inquiry, cannot serve to foreclose consideration of these other elements. It is always possible that, despite the 'ordinary meaning', reference to context, the circumstances the contract addresses and its commercial purpose or objects will show that a reasonable businessperson would have understood a different meaning to apply. It is inherent in the test of the reasonable businessperson that he or she must be taken to be aware of more than just the text of the provision being construed.

Construction in the present case should therefore be approached on the basis that the 'ordinary meaning' of the relevant provisions is only one aspect of the wider inquiry, and that there is no need to establish any ambiguity arising from the text before undertaking that inquiry. It may be that no reason emerges to depart from the ordinary meaning of the words used. But the whole inquiry must be undertaken, whether or not the ordinary meaning can be described as unambiguous when read in isolation. Establishing ambiguity is not a threshold to be met before completing the inquiry.

[31]

Particular considerations arise when construing settlement agreements and deeds of release. In the High Court case of Grant v John Grant & Sons Pty Ltd ('John Grant'),[22] the plaintiff sued for debt on a series of common money counts. The defendant relied on a general release clause in a deed that had been created to settle an unrelated dispute between two branches of the same extended family.
The plurality (Dixon CJ, Fullagar, Kitto and Taylor JJ) applied three principles in determining whether the release barred the plaintiff's action. The first two principles reflect ordinary common law construction principles that are applicable to contracts generally. The third rule is an equitable principle specific to releases which looks to the true purpose of the transaction and the subjective intentions of the parties, and which precludes a strict and unconscientious construction of the release.[23]
The first principle is that 'prima facie the release should be read as confined to the matters forming the subject of the disputes which the deed recites'.[24] Put differently, 'the general words of a release should be restrained by the particular occasion';[25] that is, 'by the particular recital'.[26]
The second principle is that the general words of a release should be restricted to what was in the contemplation of the parties at the time the release was given,[27] including disputes existing between the parties at the time.[28] This is 'objectively ascertained... [from] mutually known circumstances that are extrinsic to the words of the contract'.[29] On the facts in John Grant, the application of the principle depended 'upon the simple allegation that there never at any material time was any dispute between the plaintiff and the defendant concerning the moneys claimed in or the subject matter of the suit'.[30]
The third principle prevents unconscientious reliance upon the general words of a release by restricting the release 'to that thing or those things which were specially in the contemplation of the parties at the time when the release was given'.[31] The High Court explained the principle as operating in this way:[32]

[71]

In his affidavit, Mr Mutton gives evidence in his former capacities as administrator and then liquidator of CBDG and explains he had primary carriage of the external administration of the company from the time he was appointed as administrator on 21 August 2020 until he retired as one of its liquidators on 16 August 2021. In those capacities, he gave instructions on the drafting of the settlement deed. He says that at no stage during discussions regarding the settlement of the earlier proceeding was it ever suggested by NPT or Ward & Co that the settlement would, or should, extend to preference claims. After extensively setting out the earlier proceeding negotiations, Mr Mutton states that he did not understand the offer made in Ward & Co's 29 January 2021 correspondence to constitute an offer to settle anything other than the dispute concerning the lien and the earlier proceeding. He says at the time the settlement deed was executed, it was his intention and belief that the release contained in cl 4.2 was limited to the dispute about the lien and the earlier proceeding. Mr Mutton further states 'it would make no commercial sense' to settle the dispute over the lien and the earlier proceeding, as well as release NPT from preference claims (which total more than $550,000), on terms that involve paying $200,000 to NPT.
Under cross-examination, Mr Mutton said that at the time of preparing the 9 December 2020 report to creditors, the voluntary administrators had identified, 'at a preliminary level', payments that had flowed to NPT which may constitute unfair preferences. He also accepted that at the time of the 12 March 2021 report to creditors, the liquidators had identified potential unfair preference claims against NPT in the amount of approximately $550,000. However, when providing instructions in respect of the drafting of the settlement deed, Mr Mutton said he did not believe he turned his mind to the unfair preference claims. When asked whether it would have been prudent to mention to NPT that he had formed a high level view that NPT may have received preferential payments, Mr Mutton said the negotiations were about ensuring the plaintiffs could fulfil their obligations under the Maeil sale agreement and, at that early stage of the liquidation, the liquidators had only conducted preliminary investigations about preference claims and that further investigations were required. Mr Mutton considered it would have been premature to have raised the possibility of a preference claim with NPT at the time of the negotiations and stated he was not aware that NPT was seeking a release from any such claim.
Mr Colbran gave similar evidence under cross-examination. He confirmed that, in the voluntary administration of CBDG, he and Mr Mutton had reviewed the company's records and identified, at a 'high level', potential preferential payments to the total value of $3.707 million against five key suppliers during the relation-back period. While he could not recall specifically whether NPT had been identified as one of those suppliers, he conceded that the analysis would typically have identified the names of the relevant suppliers. Mr Colbran accepted the same information was contained in the 12 March 2021 report to creditors. He did not believe NPT had been informed of the preference claims prior to the liquidators' letter of demand of 27 May 2021.
Lastly, the plaintiffs relied on the evidence of Mr Alevras, an employee of the liquidators' firm, who deposes in his affidavit to attending the meetings of the company's committee of inspection and reviewing the minutes of those meetings. According to Mr Alevras, he does not recall the topic of potential preferential claims being raised at any of the meetings. The minutes of meetings held on 11 September 2020 and 8 October 2020 confirm the issue was not discussed.

[76]

While the plaintiffs argue that if NPT's construction were correct, cl 4.1 of the settlement deed would have the effect of releasing NPT's claims for which it has submitted a proof of debt, NPT says this ignores the express 'carve out' provided in cl 2.2(a)(iv).
In addressing the Court on the particular nature of voidable transaction claims under Pt 5.7 of the Act and whether such claims could readily be described as being 'in connection with' the EPCM contract or the 'Disputed Assets' so as to fall within the definition of 'Matters in Dispute', counsel for NPT maintained the subject matter of the preference claims was 'in connection with' the EPCM contract because the obligation to make the relevant payments fell under that contract. Similarly, a claim pursuant to the Act for the return of payments made for 'Disputed Assets' under the EPCM contract would be a claim 'in connection with' the EPCM contract and the 'Disputed Assets'.
Further, NPT contends that, properly considered, the true rule in Codelfa imposes an ambiguity threshold. In other words, the process of contractual construction will ordinarily occur by reference to the contractual text and it is only if that process produces an ambiguity that extrinsic evidence is admissible to resolve the ambiguity. NPT points to High Court authority which it says is equivocal on whether such a requirement exists[44] and which has apparently resulted in some uncertainty at an intermediate appellate level about the practical application of the true rule.[45] In its written closing submissions, NPT initially submitted that a Victorian court at first instance was obliged to follow the Court of Appeal in Apple and Pear Australia Ltd v Pink Lady America LLC ('Apple and Pear')[46] and make an anterior finding of ambiguity before it may have recourse to any extrinsic evidence. However, that submission was only faintly pressed in closing oral submissions.
NPT says that in applying the true rule, the Court should not have regard to any of the correspondence passing between the parties' solicitors prior to the execution of the settlement deed because no threshold ambiguity has been established.
NPT says that any inquiry into commercial purpose must be 'at a high level and deal with objective background matters' and not go into 'individual correspondence negotiating the terms of the subsequent agreement [given that] negotiations merge in the subsequent agreement on an orthodox analysis'.[47] In closing remarks, NPT also submitted that having regard to the decisions of the High Court and our Court of Appeal,[48] this Court is not in a position where 'the door is wide open' to receiving extrinsic material, regardless of threshold ambiguity. Counsel for NPT cited Lord Wilberforce in the House of Lords decision, Prenn v Simmonds,[49] for the proposition that evidence of negotiations or of the parties' intentions ought not to be received and evidence should be restricted to evidence of the factual background known to the parties at or before the date of contract, including evidence of the genesis and objectives of the transaction.[50]
NPT submits the objective context of the transaction known to both parties was that:

[80]

Accordingly, if the language of a release is clear and broader than indicated by a recital, then it should not be read down.[52] NPT submits the recitals to the settlement deed are ambiguous because they refer to a narrower dispute than the one contemplated in the operative part. It says this tension is resolved by giving primacy to the operative part which is otherwise clear and must prevail. NPT contends that recitals are simply an aid to construction in the event of ambiguity but are not operative parts themselves[53] and, further, that recitals are subservient to clear words in the operative parts of a deed[54] and will not control the interpretation of the operative provisions when those provisions are clear and unambiguous.[55]
NPT argues the scope of the settlement deed went well beyond the limited dispute described in the recitals and the mere abandonment of the lien; instead it sought to bring all of NPT's deliverables to a state of partial completion to allow the Maeil sale agreement to proceed. The intention expressed in the settlement deed was that NPT would abandon any claims it might have had to any of its work product under the EPCM contract, in exchange for the payment of $200,000. NPT submits a sensible construction of the settlement deed would give the mutual releases in cl 4 their full literal meaning so as to effect a 'clean break' from any liabilities NPT might have had in respect of, among other things, the EPCM contract and the 'Disputed Assets'.
As with the first rule, NPT submits the second rule in John Grant - i.e. a general release is restricted to the matters then in the contemplation of the parties - is informed by the application of ordinary common law principles of construction,[56] including the true rule in Codelfa. However, if the Court were to have regard to 'the background, the context and the market in which the parties are operating', there is no reason to override the clear wording of the settlement deed.[57] In particular, the parties were respectively aware from the second meeting of creditors that NPT was potentially liable in a preference action. It is said that the facts are far removed from those in John Grant in which the parties were not aware of the subject claim at the time of entering the deed.
In relation to the equitable third rule in John Grant - i.e. the general wording of a release cannot be used to avoid obligations falling outside the true purpose of the transaction - NPT submits the rule is often described more widely than is justified.[58] It is not authority for the proposition that a release can only ever apply to matters then known to the parties.[59] Relevantly, the definition of 'Claim' included 'unascertained' or 'future' claims and the term 'Liability' included 'contingent' or 'prospective' liabilities. Accordingly, NPT says the settlement deed was sufficiently clear to release the preference claims, irrespective of the parties' knowledge of them. NPT contends there is nothing unconscientious about the construction of the deed on which it relies.
NPT submits the factors that enlivened the third rule in John Grant were that the plaintiff in that case:

[82]

While NPT accepts that evidence of the parties' subjective intentions may be admitted for the purpose of the third rule in John Grant,[60] it contends the preference claims were not unknown and, therefore, the third rule is not enlivened. In particular, the plaintiffs were aware, at least at a high level, that NPT was a potential target for a preference claim. The 9 December 2020 report to creditors cites the potential quantum of preference claims against five key suppliers, the approximate sum of which was also mentioned at the second meeting of creditors. While NPT accepts it was not specifically identified by name, it submits the plaintiffs were at least aware of the identities of the potential targets of unfair preference claims by at least 17 December 2020 when the second meeting of creditors was held.
NPT also refers to evidence given by Mr Mutton and Mr Colbran under cross-examination to the effect that at the time of preparing the 9 December 2020 report to creditors, the voluntary administrators had identified, at a preliminary or high level, payments to the total value of $3.707 million that had flowed to five key suppliers, including NPT, which might constitute unfair preferences. Accordingly, contrary to the facts in John Grant, NPT submits this is not a case in which the releasor did not know of the defendant's liability at the time.
Lastly, NPT submits the Court should, as a matter of discretion, decline to apply the third rule as a 'remedy' in equity. It submits there is nothing unconscientious in seeking to take advantage of the 'proper meaning of the wide releases' in the broader context of the settlement deed. NPT accepts the genesis of the settlement deed was the resolution of NPT's claim over a limited body of assets (referring to the notice of lien itself and the earlier proceeding Court documents) and that the settlement discussions up to 29 January 2021 were geared towards the resolution of the dispute over the lien. From that point on, however, NPT contends the nature of the transaction expanded to include a release from the preference claims the subject of this proceeding.
Under the in-principle agreement reached on 2 February 2021, in addition to abandoning its claimed lien, NPT agreed to an 'extra obligation', being 'the sale, assignment, release and/or transfer of the NPT assets (including the intellectual property assets) to CBDG or Maeil Australia'. This entailed NPT's deliverables being brought to a state of partial completion to allow the Maeil sale agreement to proceed which NPT says imposed obligations beyond the provision of (among other things) 'detailed design deliverables sufficient for inclusion in supply and/or construction contract documents' under the EPCM contract. The in-principle agreement thereby added an obligation on NPT to deliver up all assets created, such as background analysis, calculations and intellectual property assets.
The parties then negotiated the drafting of the settlement deed between 8 and 19 February 2021. NPT referred to Mr Verde's evidence that the scope of the releases 'sort of crystalised as it went along'. Reliance was also placed on the evidence of Mrs Verde who said that during the settlement negotiations, she discussed with Mr Verde the importance of obtaining protection against claims being made for design issues and also the risk of preferential payments.
NPT submits that if it was to cede all rights to its historical work product under the expanded definition of 'Disputed Assets', it was only fair that it be released from further obligations in respect of payment for that work. NPT submits the liquidators are, therefore, seeking to impose a 'perverse' construction of the settlement deed that would oblige NPT to deliver up and abandon all intellectual property in all assets it created prior to 24 June 2020, including those assets it had already received payment for, while at the same time preserving the liquidators' right to claw back those previous payments as preferences. Accordingly, NPT submits there is nothing unconscientious about its position.

[85]

To underscore the point, the plaintiffs also rely on Mount Bruce and the plurality's exposition of the principles of construing commercial contracts (referred to earlier in these reasons) which their Honours confirmed were not intended to depart from the law as set out in Codelfa.[62] Similarly, Kiefel and Keane JJ in Mount Bruce made clear that it is evident from Codelfa that regard may be had not only to the 'the mutual knowledge of the parties' but also the 'circumstances surrounding a commercial contract' in construing its terms.[63]
The plaintiffs accept that evidence of prior oral negotiations which reveal the parties' intentions and expectations are not admissible to construe the settlement deed. However, given the parties' negotiations were wholly in writing, the plaintiffs submit those negotiations form part of the objective background facts known to both parties and reveal the subject matter of the contract and, to that extent, are admissible for the purpose of construction. Here, documents going to the 'objective background facts' and 'subject matter of the contract' (Codelfa), and the 'events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction' (Mount Bruce), can be found in: the earlier proceeding Court documents; the lien correspondence; the earlier proceeding negotiations and the draft settlement deed correspondence. On that basis, the plaintiffs contend those documents are admissible and may be used in construing the settlement deed.
Accordingly, the commercial purpose and circumstances of the settlement deed are that it was made against the background of, and for the purpose of settling, the earlier proceeding in relation to NPT's claimed lien. At no stage was there any mention in any of the above correspondence to potential preference claims, let alone any suggestion they should be settled.
Applying ordinary construction principles, the plaintiffs say a reasonable businessperson - considering the language used in the settlement deed, the circumstances it addressed, and the commercial purpose it sought to secure - would not interpret it as having released the preference claims. As the recitals demonstrate, the deed was made to settle the earlier proceeding in the context of the 'Dispute', both of which were concerned solely with NPT's claimed lien. The words of the release in cl 4.2 are restrained by the recitals to the deed. Moreover, there is nothing in the text of the deed to support NPT's broader reading of the release in cl 4.2. The same language is used in cl 4.1 by which NPT released the company and the liquidators. Were NPT's alleged construction of 'Matters in Dispute' applied to both cll 4.1(a) and 4.1(b), NPT would have released CBDG from all claims 'arising from or in connection with' the EPCM contract, including claims for which it submitted a proof of debt. The recognition in cl 2.2(a)(iv) of NPT's right to prove in the liquidation is an indicator that the release in cl 4.2 given by the plaintiffs can be no wider than the corresponding release given by NPT in cl 4.1.
The plaintiffs argue that to treat unfair preference claims as being 'in connection with' the 'Contract' because the impugned transactions happen to have been payments made under the EPCM contract stretches the words used in the settlement deed to 'breaking point'. At trial, the plaintiffs seized on an exchange between the defendant's counsel and the bench concerning the nature of statutory unfair preference claims and whether they can be readily described as being 'in connection with' the EPCM contract. The plaintiffs rely on the decision of Barrett J (as his Honour then was) in Hall v Ledge Finance Ltd ('Hall v Ledge')[64] (the relevant passage of which is extracted later in these reasons) as to the distinct nature of the statutory regime in Pt 5.7B of the Act under which unfair preference claims are brought. Counsel submitted that the provisions are not conditioned on contracts or the source of contractual obligations but confer remedies to achieve the purposes of the liquidator's appointment. Counsel further submitted that the goal of the unfair preference regime is to achieve equality between creditors as amongst themselves. To read the settlement deed as including statutory claims by a liquidator for relief in respect of payments made by an insolvent company is a 'bridge too far'.
At any rate, whether unfair preference claims, which are actionable only by a liquidator under the voidable transactions statutory regime, are claims that are 'in connection with' the EPCM contract presents a 'constructional choice' and thus an ambiguity in the deed which would justify the examination of extrinsic material, if it is not already considered as part of the objective background facts in ascertaining the commercial purpose of the transaction.
According to the plaintiffs, a substantive difficulty with NPT's construction is that it fails to properly consider the surrounding circumstances and the commercial purpose or objects that were to be secured by the settlement deed.
The plaintiffs submit the recitals to the settlement deed are clear and, applying the principle in Ex parte Dawes referred to by NPT, contend it is the 'clear' part that drives the construction process. But at any rate, they submit the general principles in Ex parte Dawes cannot be used to circumvent the principles of construing deeds of release as set down by the High Court in John Grant.
As regards the first principle in John Grant, the plaintiffs contend NPT cannot claim the release in cl 4.2 is 'targeted and precise' whilst, at the same time, advancing a construction that depends on the breadth of the defined terms in the settlement deed. The words of the release in cl 4.2 are restrained by the recitals to the deed, which refer only to the 'Dispute' and the 'Proceeding'.
As regards the second rule in John Grant, the plaintiffs say the general words of cl 4.2 must be restricted or read down by reference to the disputes existing between the parties at the time they were given. At that time, the plaintiffs submit there was no dispute about the preference claims, which were not made until 27 May 2021 in the liquidators' letter of demand. The prospect of preference claims against NPT formed no part of the 'prior negotiations' between the parties and, without exception, the parties' correspondence in the lead up to the execution of the settlement deed referred exclusively to the settlement of the dispute over NPT's claimed lien. At no stage was there any mention of potential preference claims, let alone any suggestion they should be settled. Therefore, the plaintiffs submit it is difficult to see how the preference claims can be said to part of the 'objective background facts, which were known to both parties, and the subject matter of the contract'.
The plaintiffs then submit that the evidence given by the parties' witnesses at trial reinforce the application of the third principle in John Grant. The liquidators themselves each gave evidence under cross-examination that they did not mention the prospect of a preference action to NPT because the claims were still under investigation and it would have been premature to do so at the time. Mr Verde gave evidence in cross-examination that NPT and its solicitors never communicated to the liquidators or their solicitors an intention to be released from any preference claims. Accordingly, the plaintiffs submit it is established on the facts that at the time of the execution of the settlement deed:

[90]

In my view, having regard to the text of the release contained in cl 4.2 of the settlement deed, its context (being the entire text of the deed, as well as any contract, document or statutory provision referred to in the text of the contract) and its purpose (being its commercial purpose or the objects secured by it),[66] a reasonable business person would not have understood the settlement deed to have extended to the preference claims the subject of this proceeding. I have arrived at that view for the reasons which follow.
First, the ordinary meaning of the words in cl 4.2 do not encompass the claims now brought. The present proceeding is not a 'Claim' or a 'Liability' 'arising from or in connection' with the 'Matters in Dispute', which are enumerated in the settlement deed. In particular, it is not a claim or liability arising from, or in connection with, the 'Dispute' as identified in recital E to the deed because it is not in relation to the priority of NPT's interest in the 'Disputed Assets', as that term is defined in the deed. It is not a claim or liability arising from, or in connection with, the notice of lien or the earlier proceeding.
Critically, I do not accept NPT's contention that the claim made in this proceeding is a claim arising from or in connection with the 'Contract', being the EPCM contract. The fact the April payments happen to have been made under the EPCM contract, or perhaps via ad hoc work variations to the contract (a matter to which I will return), does not, as a matter of ordinary language, mean the claims in the present proceeding arise from, or are in connection with, the EPCM contract. The plaintiffs' claims merely rely on the fact of the payments and their status as transactions between CBDG and NPT, which is a necessary element of s 588FA of the Act. Aside from declaratory relief, the relevant relief sought by the plaintiffs is an order under s 588FF(1)(a) directing NPT to pay to CBDG an amount equal to some or all of the money that CBGD paid under the relevant transactions, being the April payments. The plaintiffs do not bring a claim alleging breach of the EPCM contract or in relation to the products delivered or services provided under that contract, which would more readily arise from, or be in connection with, the EPCM contract. Any link between the extant preference claims and the EPCM contract is tenuous and incidental.
Further, given the distinct nature and purpose of a statutory unfair preference claim brought under ss 588FA and 588FF (the provisions are referred to more extensively later in these reasons), such claims do not readily meet the description of a claim arising from, or in connection with, the EPCM contract. The policy objectives underpinning unfair preference claims in Pt 5.7B of the Act include the protection of the general body of creditors against a diminution of assets available to them from transactions which confer an advantage to certain creditors[67] and the need to secure equality of distribution as between creditors of the same class,[68] thereby deterring a 'race to the courthouse'.[69] Importantly, unfair preference claims do not vindicate or enforce private rights under a contract or, strictly speaking, recover money paid under a contract. The true nature of unfair preference claims was explained by Barrett J in Hall v Ledge:[70]

[92]

It follows that the statutory cause of action available to the liquidators under ss 588FA and 588FF does not concern the EPCM contract in any real sense. This is notwithstanding the definition of 'Claim' in the settlement deed which contemplates a claim based in statute. Whether unfair preference claims brought under ss 588FA and 588FF are in existence at the commencement of a company's liquidation is beside the point. I accept the plaintiffs' submission that to characterise the liquidator's statutory claim as a claim arising from, or in connection with, the EPCM contract is a bridge too far.
For the same or similar reasons, I do not accept the present claim arises from, or is in connection with, the 'Disputed Assets', including those assets set out in Annexure 1 of the settlement deed. The extant litigation does not concern the disputed assets, even if some of the April payments were made in respect of those assets. No relief is sought in relation to the disputed assets. Any association between this litigation and the disputed assets is tangential at best.
Given the above conclusions, it is immaterial whether the preference claims may be 'future' or 'unascertained' claims (in accordance with the definition of 'Claim'), or 'contingent' or 'prospective' liabilities (in accordance with the definition of 'Liability'). They are not arising from, or in connection with, the EPCM contract or the disputed assets so as to fall within the purview of the release in cl 4.2.
Secondly, a consideration of cl 4.2 in the context of the entire text of the settlement deed does not support NPT's construction of the release. The recitals to the deed clearly state it was made to settle the earlier proceeding, in the context of the lien and the dispute over the priority of NPT's interest in the disputed assets. The recitals do not mention any claim by the liquidators against NPT in respect of alleged preferential payments. The words of the release should be read in that context.
It is also apparent that the corresponding releases in cll 4.1 and 4.2 adopt the same language and phraseology. I accept the plaintiffs' submission that if NPT's expansive reading of 'Matters in Dispute' applied to both cll 4.1(a) and 4.1(b), NPT would have released CBDG from all claims arising from, or in connection with, the EPCM contract and the disputed assets, including claims for which it submitted its proof of debt on 16 December 2021. As earlier noted, cl 2.2(a)(iv) of the settlement deed states that NPT will be entitled to prove for the 'Balance Amount' (the amount claimed in its proof of debt less the settlement sum of $200,000 received under the deed) in the liquidation of the company as an ordinary unsecured creditor. Contrary to NPT's characterisation, I do not read cl 2.2(a)(iv) as being a 'carve out' from the release given by NPT in cl 4.1. It is not expressed as being an exception to the releases given by NPT in cll 4.1 or 2.2(a)(i) of the settlement deed. Clause 2.2(a)(iv) is also located within a clause dealing with the respective rights and obligations of the parties in relation to the disputed assets. Given NPT relinquished its lien and any claim or interest it had over the disputed assets in accordance with cl 2.2(a)(i) and, by extension, its claimed status as a secured creditor, it makes sense that the parties would seek to recognise NPT's right to prove as an unsecured creditor, less a deduction of the $200,000 settlement sum it received, in accordance with the usual procedures in Div 6 of Pt 5.6 of the Act and Pt 5.6 of the Corporations Regulations 2001 (Cth). Critically, the inclusion of cl 2.2(a)(iv) only serves a function if NPT's claims in its proof of debt have not otherwise been released by a broad application of the words 'arising from or in connection with' the 'Matters in Dispute' as listed in the settlement deed.
Thirdly, I consider that the following extrinsic material:

[96]

I do not accept NPT's argument that I am bound to follow the Court of Appeal's decision in Apple and Pear and find a threshold ambiguity before having recourse to any extrinsic material. The argument is misconceived. The relevant issue in Apple and Pear was whether evidence of surrounding circumstances was admissible to raise an ambiguity. Applying Mount Bruce, Tate JA held that evidence of surrounding circumstances, external to the contract, were not admissible for the purpose of raising (as distinct from resolving) an ambiguity.[73] Again, applying Mount Bruce, her Honour considered 'it would be wrong to conclude that the High Court has endorsed an approach to the construction of commercial contracts whereby the surrounding circumstances, relevantly including pre-contractual negotiations, can invariably be relied upon to assist construction.'[74] Her Honour observed that questions of the extent to which surrounding circumstances can be relied upon in the construction of commercial contracts were ultimately matters for the High Court.[75] Justice Ferguson and Justice of Appeal McLeish ultimately did not consider it necessary to determine the question of whether evidence of matters external to a contract may be relied upon to establish ambiguity in a contract because the external material relied upon in that case did not give rise to any relevant ambiguity.[76]
In any event, I do not consider the plaintiffs are seeking to either raise or resolve an ambiguity on the basis of extraneous material. Instead, they rely on the identified extrinsic material for the permissible purpose of identifying the subject matter, or the commercial purpose or objects, of the settlement deed. An examination of the text, context and purpose of the settlement deed means, in interpreting the meaning of the words used, it is appropriate to have regard to the whole of the settlement deed and the broader context of the surrounding circumstances in which the deed was entered into, facilitated by an understanding of the genesis of the transaction. As was made clear by the Court of Appeal in Eureka, Lopes v Taranto and, more recently, VS Property, context and purpose are always relevant, regardless of how clear the ordinary meaning of the text of the contract is said to be because it is inherent in the test of the reasonable businessperson that he or she must be taken to be aware of more than just the text of the provision being construed.[77] Further, the Court should have regard to objective evidence of facts known to both parties as to commercial purpose in every case, whether or not there is ambiguity in the language of the contract.[78] Consistent with these Court of Appeal authorities, it is not necessary to find ambiguity before the context and purpose of the settlement deed is considered as part of its objective construction. Such an approach is unexceptional and coheres with the true rule propounded in Codelfa. Justice Mason in Codelfa made clear that prior negotiations which tend to establish background facts, known to both parties, and the subject matter of the contract would be admissible.[79] Moreover, the above principles apply regardless of the existence of an 'entire agreement provision', like the one contained in cl 10.3(a) of the settlement deed.
To be clear, I only intend to consider the surrounding circumstances and objective facts that were known to both parties when the settlement deed was executed. At this point, it is not appropriate to ascertain the parties' subjective intentions in entering into the settlement deed (although the parties' subjective intentions will become relevant when I consider the application of the third rule in John Grant further below).
Fourthly, if I am wrong in my interpretation of the ordinary meaning of the release in cl 4.2 of the settlement deed, having regard to the text of the entire instrument, threshold ambiguity would nevertheless be established on the terms of the deed alone. In particular, the text of the clause is ambiguous as to whether the liquidators' statutory unfair preference claims under Pt 5.7B of the Act are 'claim[s] arising from or in connection with' the 'Contract' or the 'Disputed Assets' (as those terms are defined in the deed). The ambiguity is also evident given the clarity with which the recitals to the settlement deed are expressed in stating that the deed was specifically made to settle the earlier proceeding, in the context of the lien and the dispute in relation to the priority of NPT's interest in the disputed assets. The relative meaning of the words 'claim arising from or in connection with', as they relate to the 'Contract' or the 'Disputed Assets', is the constructional choice that gives rise to the ambiguity. Accordingly, the identified extrinsic material can also be received on this alternative basis.
Lastly, the identified extrinsic material establishes that at the time of preparation of the settlement deed, the parties were in dispute about NPT's claimed lien over unfixed plant and materials (including intellectual property, such as designs and drawings) relating to the project. The administrators and then liquidators of the company disputed the basis of NPT's notice of lien in light of certain provisions of the EPCM contract. Around this time, the administrators had entered into the Maeil sale agreement which included assets the subject of the lien. Plainly, the existence of the lien was a barrier to the completion of the Maeil sale agreement. As a consequence, the liquidators brought the earlier proceeding seeking declarations that Wattle's registered security interests over CBDG's property had priority over the interest claimed by NPT in its lien and that the liquidators were free to dispose of CBDG's assets in the sale to Maeil. At the same time, to give effect to the Maeil sale agreement, the plaintiffs required NPT to assign and/or transfer to CBDG or Maeil all assets created or supplied by NPT to CBDG pursuant to the EPCM contract, including intellectual property in the form of designs and drawings relating to the project. These disputed assets included, but were necessarily broader than, the class of assets the subject of the lien. Further, NPT was concerned that the disputed assets listed in Annexure 1 of a draft of the settlement deed included incomplete design documents and should be limited to those assets created as at 24 June 2020, being the last day NPT apparently performed work under the EPCM contract. Those are the objective background facts to the settlement deed known to all the parties.
The commercial purpose or objects secured by the deed was the resolution of the dispute over the lien and the earlier proceeding which would, in turn, facilitate the completion of the Maeil sale agreement. For these things, the plaintiffs agreed to pay NPT the settlement sum of $200,000, which would be deducted from its proof of debt. No reference was made by the parties in the identified extrinsic material to any potential preference claims against NPT, let alone any suggestion they should be settled. There is nothing to indicate the release of unfair preference claims was part of the commercial purpose or objects of the settlement deed.
Given the above contextual background, a reasonable businessperson would not have understood the language of the settlement deed, and in particular cl 4.2, to contemplate the plaintiffs releasing NPT from the preference claims the subject of this proceeding. Such an interpretation makes both commercial sense and secures the purpose or objects the settlement deed was directed to.
I turn now to the application of the principles articulated in John Grant.
Pursuant to the first rule in John Grant, the release in cl 4.2 of the settlement deed should be read as confined to the matters forming the subject of the disputes which the deed recites. Those are: the lien; the 'Dispute' in relation to the priority of NPT's interest in the 'Disputed Assets'; and the earlier proceeding. The recitals, which are clear, drive the construction process in circumstances where the operative clause (cl 4.2) is contentious.[80] In my view, the general words of the release in cl 4.2 of the settlement deed attract the operation of the first rule in John Grant so as to exclude the unfair preference claims the subject of this proceeding from the scope of the release. For the sake of completeness, I reject NPT's submission that the first two principles in John Grant can be displaced if some threshold ambiguity is not identified. But even if that were the case, the tension between the recitals and the operative part of the settlement deed would satisfy any such requirement.
Relatedly, in accordance with the second rule in John Grant, the general words of the release in cl 4.2 should be restricted to what was in the contemplation of the parties at the time the release was given, including the disputes existing between them. As the recitals to the settlement deed and the identified extrinsic material make clear, at no material time was there any dispute between the parties about the unfair preference claims now before the Court. The preference claims do not form part of the objective background facts known to the parties or the subject matter of the settlement deed. The only disputes between the parties at the relevant time were the disputes over the lien, the priority of NPT's interest in the disputed assets, and the earlier proceeding.
Even if the parties were broadly aware that NPT was potentially a target for unfair preference claims at the time of the second meeting of creditors on 17 December 2020, given the 9 December 2020 report to creditors made general reference to potential preferential payments worth $3.707 million against five key (unnamed) suppliers, this was at a very early stage of the external administration of the company (literally, the first day of its liquidation). As such, any investigations into potential preference claims were necessarily preliminary at that stage and cannot be said to have been the subject of any real dispute. By the time the liquidators undertook further investigations and issued the 12 March 2021 report to creditors, the settlement deed had already been executed. Further, given no party raised the prospect of preference claims being brought against NPT in the earlier proceeding negotiations or the draft settlement deed correspondence, it is difficult to see how such claims could be said to be in the contemplation of the parties.
It is then necessary to consider the equitable third principle in John Grant. As previously explained, the principle prevents unconscientious reliance upon the general words of a release by restricting the release to the things that were specifically in the contemplation of the parties when they signed the settlement deed. As is clear from the authorities that have considered the rule, there exists a category of case where parties may intend the operation of the general words of a release to cover all conceivable further disputes, whether disclosed or not, and whether within the knowledge of one or both parties.[81] But that is not this case.
I am unpersuaded by NPT's argument that it is entitled to rely on the general words of the release contained in the settlement deed because the definition of 'Claim' included 'unascertained' or 'future' claims and the term 'Liability' included 'contingent' or 'prospective' liabilities, thereby making the deed sufficiently clear to release the preference claims, irrespective of the parties' knowledge of them. Those textual indicators are not determinative in assessing the parties' subjective intentions.
Nor do I accept NPT's contention that the third rule does not apply because the liquidators knew of NPT's potential liability they now seek to enforce. That overstates the evidence. Mr Mutton confirmed under cross-examination that when preparing the 9 December 2020 report to creditors, the voluntary administrators had identified, at a preliminary level, there were payments to NPT that might constitute unfair preferences. However, he also stated that further investigations were necessary, including in relation to the availability of any defences. Mr Colbran also conceded the voluntary administrators had identified at a high level potential payments to five suppliers, one of which may have been NPT, although he could not recall specifically. I consider that investigations into potential unfair preference claims against suppliers were inchoate at the time of the execution of the settlement deed, which was approximately two months after the appointment of the then liquidators and more than two months prior to the liquidators' letter of demand on 27 May 2021.
There is also clear and unimpeached evidence from Mr Mutton, who had primary carriage of the external administration of CBDG at the time, that it was his intention and belief that the release contained in cl 4.2 was limited to the dispute about the lien and the earlier proceeding. Under cross-examination, he said he did not believe he turned his mind to the unfair preference claims when providing instructions on the drafting of the settlement deed. He also elaborated that the settlement negotiations were also aimed at fulfilling the liquidators' obligations under the Maeil sale agreement. I accept Mr Mutton's evidence that 'it would make no commercial sense' to settle the dispute over the lien and the earlier proceeding, as well as release NPT from preference claims (which total more than $550,000), on terms that involve paying $200,000 to NPT. Nor would such an outcome have likely been in the interests of CBDG's creditors.
Further, there is no cogent evidence before the Court that NPT itself intended to achieve the release of any potential (and not yet articulated) unfair preference claims at the time of entry into the settlement deed. The evidence given by Mr Verde and Mrs Verde concerning the timing of apparent instructions given on 29 January 2021 to Mr Ward about seeking the release of preference claims was inconsistent and unsatisfactory. Mr Verde also accepted he was mistaken in his recollection that the topic of preference claims had been discussed at the committee of inspection meetings held on 11 September 2020 and 8 October 2020. The topic was ostensibly referred to for the first time in the 9 December 2020 report to creditors.
Importantly, there is no evidence that the liquidators knew of any intention on the part of NPT that the unfair preference claims should be released. Mr Mutton gave unequivocal and unchallenged evidence that at no stage during discussions regarding the settlement of the earlier proceeding, was it ever suggested by NPT, the plaintiffs, nor their legal representatives that the settlement would, or should, extend to preference claims. Mr Verde accepted under cross-examination that NPT and its solicitors never communicated to the liquidators or their solicitors an intention that it be released from any preference claims. In fact, the first time NPT ever asserted the settlement deed released preference claims was on 16 December 2022, being some 18 months after the liquidators' letter of demand on 27 May 2021. Even assuming NPT intended to obtain the release of any future preference claims, the fact it did not communicate that intention to the plaintiffs and their lawyers at any material time means it is unconscientious for NPT to now rely on the broadly worded release in the settlement deed as extending to the preference claims the subject of this proceeding.
I am unconvinced by NPT's argument that because of the expanded definition of 'Disputed Assets' in the settlement deed, which obliged NPT to deliver up and abandon all intellectual property in all assets it created prior to 24 June 2020, and which included assets the subject of some of the April payments, it was only fair that NPT was released from any further obligations in respect of the historic payment for those assets. That does not follow having regard to the nature of the transaction. The negotiations over the settlement of the lien and the earlier proceeding were at all times predicated on the basis that the liquidators required the relevant assets to effect the Maeil sale agreement. The consideration for the delivery up of those assets was the settlement sum of $200,000. Further, NPT fails to account for the intellectual property licence contained in cl 5.2 of the EPCM contract, by which NPT had already granted CBDG a perpetual, royalty-free, irrevocable, non-exclusive licence to use intellectual property and 'Design Deliverables' produced by NPT under the contract.
In the above circumstances, the general words of the release in cl 4.2 of the settlement deed must be restricted to those things in the contemplation of the parties at the time the release was given, which were: the lien; the dispute in relation to the priority of NPT's interest in the disputed assets; the earlier proceeding; and the provision of the disputed assets by NPT to facilitate the completion of the Maeil sale agreement. The evidence shows the unfair preference claims were simply not in the contemplation of the parties at the time of execution of the settlement deed. Further, the true purpose(s) of the transaction did not include the settlement of unfair preference claims. It follows that the plaintiffs have an equity to restrain NPT's unconscientious reliance on the general words of the release in its pleaded defence.

[126]

(a) under cl 1.1, 'Engineer' and 'Principal' are defined to be NPT and CBDG, respectively. Likewise, 'Project Superintendent'[100] is defined as 'the person nominated in the Contract Particulars' who I understand to have been listed as Mr Johnson and Mr O'Malley of CBDG from time to time;

(b) clause 2.3 of the EPCM contract defines the Engineer's responsibilities. Pursuant to cl 2.3(a), the Engineer is required to execute and complete the 'Services', which are defined in cl 1.1 as 'all things or tasks which the Engineer is, or may be, required to do including as agent for the Principal to comply with its Contract obligations and which by [the] Contract is to be handed over to the Principal in accordance with the Scope of Services [including] the Design Deliverables,[101] Variations and remedial work'. Clause 2.3(b) confirms the contract is 'an engineering, procurement and construction management (EPCM) contract to undertake the Scope of Services, which includes 'pre-commissioning and commissioning' and that the Engineer is 'required to design and specify every element or component required to be constructed to achieve the performance levels of the Process Performance Guarantees'.[102] Clause 2.3(c) also provides that notwithstanding any of a variety of specified circumstances (including any difficulties the Engineer might have in satisfying the requirements of the contract or carrying out the Services), the Engineer remains 'fully responsible for carrying out the Services in accordance with the requirements of the Contract';

(c) 'Scope of Services' is defined to mean 'the activities to be undertaken by the Engineer in fulfilment of the Engineer's obligations under the Contract, as stated in Annexure 2 ... and including anything not included therein that may be incidental to fulfilling those obligations and all other things that are typically necessary for the provision of EPCM services, as would be known by [an] Engineer or Engineer experienced in the provision of EPCM services'. Clause 2.1 of Annexure 2 of the contract further provides that 'the scope of services comprises the overall process detailing, equipment specification, procurement management, construction management and commissioning & testing management' for the project, matters which are further detailed in the balance of the annexure. Clause 3.4 of Annexure 2 contemplates the provision by NPT of 'detailed design deliverables sufficient for inclusion in supply and/or construction contract documents';

(d) under cl 9.1 of the EPCM contract, CBDG agrees to pay NPT a fixed 'Contract Sum' - defined in Annexure 3 of the contract as $4.45 million (excl. GST) - and 'any other amounts', subject to receiving valid 'Payment Statements';

(e) under cl 14.1, the Engineer is required to 'design all things necessary for the procurement, installation, construction, [and] commissioning in accordance with the Commissioning and Handover Plans [and Guidelines], to allow the Principal to operate the Facility';

(f) clause 19 deals with the process for varying the Services under the contract, including the Contract Sum. The chapeau to cl 19 states that the Engineer shall not vary the Services without a prior written direction from the Project Superintendent. The clause itself then deals with the provision of such direction described as a 'Variation Order'. In particular, cl 19.1(a) provides that if a 'Variation' (defined in cl 1.1 as 'any change to the Services including any addition, increase, decrease, omission, deletion or removal') is sought by the Principal, the Project Superintendent must first issue a notice to the Engineer. The Engineer must then reply within seven business days setting out (among other things) the adjustment (if any) to the Contract Sum to carry out the proposed Variation (cl 19.1(c)). The Project Superintendent can then reply to the Engineer by issuing a 'Variation Order', allowing or rejecting the Variation (cl 19.2(a)). Under cl 19.3(a), the Contract Sum will be increased or decreased for all Variations which have been the subject of a direction under cl 19.2(a) by the Project Superintendent as may have been agreed between the parties or in accordance with the rates or prices, in the schedules in Annexure 3 or otherwise which the Project Superintendent determines to be reasonable. However, the Engineer is also empowered under cl 19.4 to request the Project Superintendent to direct a Variation 'for its convenience';

(g) clause 20 makes provision for notices of claims by the Engineer against the Principal arising out of the contract, including notices for extensions of time; and

(h) special condition 6 deals with the process of making a payment claim under the EPCM contract. The Engineer is required to render one payment claim in writing to the Principal and the Superintendent on a monthly basis (SC 6.1). Within ten business days of receiving such claim, the Superintendent must issue to the Principal and Engineer a 'Progress Certificate', 'evidencing the Superintendent's opinion' of the moneys due from the Principal to the Engineer (SC 6.3), with the amount owing payable within five business days after receiving the Progress Certificate or 20 business days after the Superintendent received the claim (SC 6.5).

[129]

The initial iteration of the Court book prepared by the parties included some, but not all, of the purchase orders for the ad hoc work referred to by NPT. In particular, it did not include emails underlying the purchase orders (i.e. those from NPT, seeking the purchase orders to be raised by CBDG). During the course of the trial, NPT produced a suite of documents for each purchase order. The documents reveal the process by which the purchase orders were raised and also confirm that NPT often undertook work under a set of terms and conditions that were different from, and did not refer to, the terms of the EPCM contract. By way of example, NPT referred to purchase order 32 - described in tendered exhibit 'MFI3' as 'Detailed Electrical Engineering Design - Building[,] earthing, more power and lighting' - which was raised on 28 February 2019. Mr Verde's email to Mr Johnson, proposing that NPT undertake the relevant work, was sent on 31 January 2019, prior to the purchase order. In the email, Mr Verde explained how the work would be performed (over a four month period), stated that NPT proposed to invoice for work completed on a monthly basis, and attached NPT's standard terms and conditions or 'terms of business'. (The same or similar standard terms and conditions were included in respect of other purchase orders, including for purchase order 157).
When asked in cross-examination about NPT's standard terms and conditions, Mr Verde confirmed they were not the same as those in the EPCM contract and that they governed the work to be done under purchase order 32. However, in re-examination, Mr Verde was equivocal about whether NPT sent standard terms and conditions with every request for a purchase order, stating: '[i]t's hard to say. Only sometimes is my memory'.[103]
In her affidavit, Mrs Verde explains the usual procedures followed by NPT and CBDG under the EPCM contract. They involved: NPT performing works under the contract, including but not limited to purchase orders issued by CBDG; NPT issuing progress claims, including in relation to works performed under CBDG's purchase orders, for assessment and approval by the Superintendent; and following the approval of a progress claim, NPT issuing an invoice on the basis of the Superintendent's assessment. Mrs Verde then sets out examples of the invoices issued between NPT and CBDG in accordance with this procedure, including invoices referrable to the April payments. She reconciled the April payments to the invoices and purchase orders to which they relate.[104]
When asked in cross-examination about NPT's standard terms and conditions, Mrs Verde stated NPT did not have any policy about when an email requesting the raising of a purchase order would attach NPT's standard terms and conditions. The following exchange took place between senior counsel for the plaintiffs and Mrs Verde in relation to the circumstances surrounding purchase order 32:

[139]

In its closing written submissions, NPT contends the EPCM contract contained a detailed regimen under cl 19 for the Project Superintendent to direct variations. However, that procedure was not followed and no directions were issued under cl 19.1, nor variation orders under cl 19.2. Instead, each ad hoc variation consisted of a separately negotiated standalone agreement, initiated by a purchase order from CBDG after negotiation and agreement on price. The ad hoc variations were not uppercase Variations within the meaning of cl 19 but constituted work agreed to be performed 'outside of the contract'[106] or 'in the shadow of the broader contract'.[107] In closing oral submissions, NPT's counsel said what differentiated a lower case variation from work undertaken as part of the broader contract was that NPT could always refuse to perform the work.[108] Counsel also said that whether the variations were lower case variations or standalone contracts was ultimately unimportant - in either case, they both fell outside the mechanisms of the EPCM contract and, therefore, there was still a continuing business relationship with a running account between the parties.
NPT says it has analysed the April payments and, of the $555,640.70 in total alleged preferential payments, only $107,011.30 is referrable to a contractual progress payment, which formed part of the payment made on 9 April 2020 and correlated to a progress payment claim submitted in March 2020. Therefore, 'nearly all' the payments were made in respect of ad hoc variations outside the strict terms of the EPCM contract, which distinguishes the present facts from Walsh v Salzer. Although the payments had the effect of discharging past indebtedness, NPT says that was not the sole purpose of the payments and the decision by NPT to continue supplying goods and services on an ad hoc basis was induced by CBDG's payments.
NPT submits that, over the period from 26 February 2020 to 29 May 2020,[109] the account between NPT and CBDG grew by $706,312.14 in total, or by $262,602.82 if contractual progress payment claims are excluded.
As a result of the above reconciliations, NPT argues there should either be no payment due as a preference or, alternatively, only part of the 9 April 2020 payment relating to the contractual progress payment claim made in March 2020 would be caught by the decision in Walsh v Salzer and claimable for the amount of $107,011.30.

[140]

The plaintiffs resist NPT's characterisation of the April payments as forming part of a running account because, according to the principles in Walsh v Salzer, there can be no running account for payments made under a building contract. In particular, the plaintiffs dispute that CBDG's payments to NPT were made 'on a mutual assumption' that NPT would be available to carry out further ad hoc work as required by CBDG. Rather, NPT was contractually obliged to be available to carry out work on the project. In this regard, the plaintiffs point to certain provisions of the EPCM contract (e.g. cll 2.3(a), 2.3(b) and 2.3(c)) which impose broad obligations on NPT in respect of the project and the Services. Given these contractual obligations, the plaintiffs submit it is therefore doubtful that NPT's work was in fact ad hoc in nature.
Further, the plaintiffs say it is difficult to see why any ad hoc work cannot be uppercase Variations under the EPCM contract given all the purchase orders were approved by Mr Johnson as Project Superintendent under the contract. In closing oral argument, senior counsel for the plaintiffs also submitted the purchase orders could amount to uppercase Variations under the EPCM contract because the parties, by their conduct, agreed to use the purchase order mechanism in lieu of the variation procedure in cl 19 as the 'most efficient way to move construction forward' (borrowing the language used by Mr Verde in his first affidavit).
The plaintiffs resist the notion that there exists a single running account between NPT and CBDG which includes all the progress claims under the EPCM contract and the ad hoc claims. They say this would be inconsistent with the principles in Walsh v Salzer.
In the alternative, the plaintiffs say there can be no running account because the payments made as part of the alleged running account were a series of isolated or discrete transactions. The relevant purchase orders were subject to terms and conditions different to the EPCM contract terms, which undermines the defendant's apparent and later suggestion that the payments were not in respect of separate contracts; they appear to be a series of isolated or discrete transactions the subject of a separate purchase order, preceded by a separate recommendation, and often on different payment terms. In closing oral argument, senior counsel for the plaintiffs relied on an aide memoir summarising CBDG's purchase orders (as set out in tendered exhibit 'MFI-3') to illustrate the point. He maintained the arrangements appeared to be separately negotiated and approved agreements.
The plaintiffs argue the notion of ad hoc variations or claims put forward by NPT is inconsistent with an 'integral part of a continuing business relationship' as contemplated by s 588FA(3) of the Act and the relevant authorities. Moreover, the evidence does not suggest the payments for ad hoc works contemplated further debits and credits or induced further supply, nor (as NPT opened its case) that they were 'tied to the readiness' of NPT to carry out further works. The plaintiffs say that not only did the defendant's witnesses not give any evidence to that effect, the objective documentary evidence (as set out above) also suggests otherwise.

[143]

Having regard to the above obligations, even if any additional work performed by NPT in connection with the project was ad hoc in nature, it was in fact contemplated by the parties pursuant to the EPCM contract. It was work done in connection with, or incidental to the performance of, the EPCM contract. This was confirmed by Mrs Verde who said in her evidence that the work performed by NPT under the EPCM contract included purchase orders issued by CBDG. The transactions were not connected with future supply because NPT was contractually obliged to perform additional work on the project in any event.
Further, I consider that such additional work was capable of falling within the variation regime in cl 19 of the EPCM contract. In particular, under cl 19.4, NPT as the Engineer could 'for its convenience' request the Project Superintendent to direct a Variation. Mr Verde's affidavit evidence is telling in this regard. He deposes that during the course of undertaking the works under the EPCM contract, the monthly assessment process often changed to ad hoc claims, invoicing and payment to accommodate the most efficient way to 'move construction forward'. In addition, he says CBDG regularly increased and decreased the scope of works under the EPCM contract by issuing purchase orders for variations, including for the supply of equipment and material. The streamlined process described by Mr Verde was less formal than the variation procedure contemplated by cll 19.1 to 19.3 but was nevertheless documented in: the various emails sent by NPT requesting the raising of purchase orders for additional work and quoting for such work; the purchase orders which were then raised by Mr Johnson of CBDG at the request of NPT; and the resulting invoices issued by NPT. I consider this process falls within the purview of cl 19.4 of the EPCM contract as it was 'for [the] convenience' of NPT as Engineer and because the purchase orders raised by Mr Johnson constitute directions by the Project Superintendent to vary the Services as envisaged under the EPCM contract.
Alternatively, I accept the plaintiffs' submission that the parties, by their conduct, agreed to use the purchase order mechanism described by Mr Verde as a substitute for the more prescriptive variation procedure in cll 19.1 to 19.3 as the 'most efficient way to move construction forward' (to adopt Mr Verde's explanation). NPT's argument that the ad hoc works were not variations because NPT could have refused to carry it out is fallacious. That is because, in many instances (for example, purchase order 32), the documentary evidence shows, and Mr Verde confirmed under cross-examination, that it was in fact NPT who identified the need for the additional work and sought permission from CBDG to perform it through the raising of a purchase order.
Accordingly, the additional works performed amounted to uppercase Variations under the EPCM contract. I therefore reject NPT's characterisation of the works as constituting some form of nebulous lowercase variations against the backdrop of the broader EPCM contract. It does not matter whether only $107,011.30 of the $555,640.70 in total alleged preferential payments are referrable to a contractual progress payment. The 'business character' of each of the payments was that they were made in connection with the EPCM contract.
In the event I am wrong in my conclusion that the additional works undertaken by NPT were uppercase Variations or transactions which were otherwise contemplated by the parties under the EPCM contract, I consider the objective facts do not give rise to a running account. There is no evidence of any mutual assumption between the parties to create an arrangement contemplating the recording of further debits and credits between them. Nor were any of the transactions within the period identified by NPT (26 February 2020 to 29 May 2020 - which include the April payments) made to induce NPT to provide further goods and services or, to borrow NPT's language, 'tied to the readiness' of NPT to carry out further works. Critically, NPT's witnesses gave no evidence to this effect. And in at least one instance (in the case of purchase order 54 issued on 1 July 2019), the work had already been completed when the purchase order was raised. There are a number of examples of purchase orders being raised and ad hoc payments being made to simply reimburse NPT for work undertaken by other contractors (in the case of purchase orders 41, 44, 45 and 60). Further, NPT undertook work under purchase orders 157 and 158 after works on the project were suspended on or around on 19 May 2020. I consider each of the April payments were made to reduce past indebtedness rather than to secure future supply.
Moreover, the evidence suggests the transactions between CBDG and NPT throughout 26 February 2020 to 29 May 2020 (including nearly all of the April payments)[111] were a series of isolated, sporadic or discrete transactions. Each of the transactions were the subject of a distinct purchase order from CBDG, preceded by a separate recommendation from NPT (with an accompanying quote for the work), and often governed by different terms and conditions, including as to the timing of payment. Consequently, the transactions did not form part of a continuing business relationship as if they constituted a single transaction for the purpose of s 588FA(3) of the Act. Again, to adopt the language used by Mr Verde, they were ad hoc claims 'to accommodate the most efficient way to move construction forward.' It is unnecessary to determine whether each of the transactions represented standalone contracts. The fact they were disconnected from each other, and from future work, undermines the existence of a continuing business relationship or a running account.
It follows that the plaintiffs have successfully negatived the existence of a running account as an essential element of the unfair preference claims. Given I have found a running account does not objectively exist, it is unnecessary for me to consider the practical effect of any running account on the April payments the subject of this proceeding.

[171]

The next day, on 1 April 2020, Stainless Designs issued CBDG a show cause notice in relation to CBDG's non-payment of $879,443.62, a copy of which was emailed to Mr Verde, Mr Nigel Holden and Mr Sam Holden ('Stainless Designs show cause notice'). Mr Verde forwarded the show cause notice to Mr Johnson later that day.
On 2 April 2020, Mr Verde was copied into an email from Mr Fletcher to Mr Raymond Rawlings of Fresco, explaining that Wattle had not yet provided the necessary funds to CBDG to pay Fresco in full and that a part payment of $161,694.10 had been made to Fresco that day, with the balance to be paid the following day.
Later that day, Mrs Verde again emailed Mr Johnson, copying in Mr Nigel Holden, Ms Gorman and others. She noted the 'quantity and quantum of outstanding invoices' owed by CBDG to NPT had increased and, once again, requested 'prompt payment'. The total sum of the outstanding invoices rendered by NPT had by then increased from $143,535.86 (as at 30 March 2020) to $244,125.91 (incl GST).
On 3 April 2020, Mr Fletcher emailed Mr Verde and others advising that approximately $8.5 million in funds had been released by Wattle (although not yet cleared by the banks) to CBDG to pay certain contractors but not all of its outstanding trade debts, the balance of which would be 'cleared [the] next week' ('3 April CBDG email'). However, a few days later, in the evening of 7 April 2020, Tasweld issued a show cause notice on CBDG, copying in Mr Nigel Holden and requiring immediate payment of its outstanding invoices ('Tasweld show cause notice'), failing which it would reduce its services on site and pursue legal options for monies owing.
On 6 April 2020, Mr Verde received an email from TPE regarding three unpaid invoices where the total amount owing was described by the creditor as 'quite considerable'. TPE's representative asked when payment would be received.
On 8 April 2020, Mr Fletcher emailed Tasweld, copying in Mr Nigel Holden and others, about the Tasweld show cause notice and apologised for the delay in payment. He advised that payment of the outstanding amount would be made that day. Mr Fletcher explained that CBDG's funder, Wattle, had been undertaking a capital raise since late January 2020 to acquire a business called 'Blend & Pack' ('B&P') but that the advent of the COVID-19 pandemic had impacted the ability to raise funds from overseas investors. He also stated that, on 7 April 2020, Wattle had announced it entered into a term sheet with Shepparton Partners Collective ('SPC') for a loan of up to $20 million to complete the construction of the plant and attached the relevant Australian Securities Exchange ('ASX') announcement.
The same day, Mr Verde emailed Mr Johnson, copying Mr Nigel Holden and Mr Sam Holden, giving formal notice under cl 20 of the EPCM contract of events that may result in an extension of time and relevantly stating:[141]
1. [CBDG's] delay in issuing purchase orders requested by [NPT] is an issue that will cause a delay to the project. Currently, purchase orders have not been issued for the instruments, crane equipment, chemical valves and steam equipment. The delay in supply of these items may delay the overall project.
2. Contractors have been contacting us to complain about [CBDG's] late payments of approved and certified payment claims. Some have even issued Show Cause Notices regarding this matter. Their attention to non-payment has impacted delivery of equipment to site and site installation productivity which may cause a delay to the project.

[173]

In his first affidavit, Mr Verde states he has never known clients to render all payments to contractors on time. This occurs as a result of a number of factors, including contractors providing incorrect supporting documentation or not submitting invoices by the prescribed date. He provides a number of examples of this occurring in relation to the project, including an instance in May 2019 when TPE did not supply sufficient supporting evidence to demonstrate the progress of works before payment of its invoices could occur. In relation to Fresco's request for payment of outstanding invoices, he says that he sent an email on 12 March 2020 to Fresco explaining the payment of its invoices were subject to the provision of further documentation to substantiate the works that had been claimed.
Mr Verde deposes that in or around March 2020, Mr Fletcher informed him that an increase in the number of invoices received by CBDG was putting pressure on the company's ability to pay contractors from funds released to it by Wattle. Mr Verde understood this to mean that there was no issue as to a lack of funds but that the flow of funds between CBDG and Wattle was causing difficulty in the ability of the company to pay all invoices to contractors in a timely manner. He considers the COVID-19 restrictions at the time may have also contributed to a disruption in CBDG's administration. In relation to the 7 April Tasweld show cause notice, Mr Verde refers to Mr Fletcher's responsive email of 8 April 2020 in which Mr Fletcher explained that the company was awaiting funds from the financier, Wattle. Mr Verde also suggests that Mr Fletcher explained in this email that: CBDG had not received the invoice(s) from Tasweld through a previously agreed process; NPT had not approved the invoices with CBDG; and, therefore, the invoices were not yet payable.
Mr Verde says that on or around 29 March 2020, he spoke to Mr Johnson to discuss various issues with the project, including necessary contractor payments. During this conversation, he says that Mr Johnson told him that Wattle had secured approximately $8.5 million in funds and CBDG was waiting for the funds to be cleared before existing invoices could be paid. Mr Verde notes receiving the 3 April CBDG email concerning the funds from Wattle and the part payment of existing invoices. Mr Verde says it was his understanding, and he was informed by CBDG's representatives, that the project was fully funded.
In her affidavit, Mrs Verde deposes that throughout the project, and in discussions she had with CBDG's representatives, she was informed the project was fully funded and that there were no issues with paying invoices. She says that the press releases issued by Wattle on the ASX suggested there was adequate funding to pay for and complete the project. She understood that any delays in payment were a result of administrative issues including: the transfer of money from Wattle to the company; internal resourcing of administrative staff to process the volume of payments; and the need to reconcile the works performed with the necessary payment.
As a shareholder in Wattle, Mrs Verde subscribed to announcements made by Wattle on the ASX. NPT relies on a number of ASX announcements to underscore its good faith defence and, in particular, its contention that at no material time prior to May 2020 did it believe, or have any reasonable grounds to suspect, that Wattle would stop funding the construction of the plant; and/or did not have funds to continue funding the construction of the plant. In total, NPT relies on 14 ASX announcements[143] made between the period 10 April 2018 and 22 May 2020, eight of which were made in 2020 (collectively, 'Wattle ASX announcements'). Particular reliance was placed on the following Wattle ASX announcements in NPT's defence and affidavit evidence:

[174]

(a) announcements throughout 2018 concerning the fully funded nature of the joint venture with CBDG's shareholders;

(b) an announcement on 9 May 2019 regarding an agreement reached with Mason Group Holdings Limited ('Mason Holdings')[144] for Wattle to acquire 75% of B&P ('B&P acquisition');

(c) an announcement on 31 January 2020 regarding the appointment of Dr McKenna, a dairy industry expert of 30-years' experience, as 'Group CEO and Managing Director' of Wattle and forecasting that the project was within budget and the plant was on track for completion by June 2020. The announcement also made reference to two prior ASX announcements made on: 13 January 2020, when Wattle announced a reduction in its minimum capital raise necessary to complete the B&P acquisition and on 23 January 2020, when Wattle announced a rights-issue offer to fund the B&P acquisition. Further, a quarterly report was also appended as 'Appendix 4C' indicating Wattle's net cash flow had reduced from approximately $19.4 million in the previous quarter to approximately $7.3 million. Notably, the two prior ASX announcements on 13 and 23 January 2020 and the quarterly report were not referred to in NPT's defence or affidavit material;

(d) an announcement on 3 April 2020 that construction of the project was continuing and that the plant was scheduled to commence operations in July 2020;

(e) an announcement on 7 April 2020 that Wattle had entered into a conditional term sheet with SPC in relation to finance of up to $20 million to complete construction of the plant and which would replace a loan facility with Prospere Advisor Limited that was due to expire on 18 May 2020 ('Prospere loan'). The announcement also made reference to the completion of an Institutional and Sophisticated Investor Placement to raise $4.86 million for the project; and

(f) a funds status report on 20 April 2020 which, among other things:

(i) reported its capital raise to acquire B&P had been unsuccessful;

(ii) made reference to a 'strategic partnership' with SPC whereby SPC had arranged a facility of up to $20 million for the completion of the project, with the initial draw down date to occur in the first week of May 2020; and

(iii) outlined the challenges it had experienced since mid-January 2020 in raising funds and stating that without the 'good will' of key contractors and suppliers, construction of the plant would cease.

[177]

Under cross-examination, Mrs Verde gave evidence that she read every Wattle ASX announcement as they were made. She said the announcements that are referred to in her affidavit were decided in conjunction with NPT's lawyers. She recalled the announcements about Wattle's difficulties in raising capital, in particular that it had tried in 2019 and again in 2020 to raise capital for the B&P acquisition, but that its attempts were under-subscribed. Although Mrs Verde said she read the relevant announcements at the time, she said it did not occur to her to consider why Wattle was experiencing these difficulties. She also stated that, even as a shareholder of Wattle, it did not concern her that there appeared to be little market appetite for Wattle's rights issue because she had understood the B&P acquisition as being a transaction that was separate from the project, which she maintained was 'fully funded'. However, she was unable to explain why, if the project was fully funded, NPT and other contractors experienced significant delays in receiving payment.[145]
Mrs Verde accepted that Wattle had not drawn on the Prospere loan to pay CBDG's creditors because it was trying to find a 'cheaper loan'. Once secured, she said Wattle would then keep funding the project, the money would come through from Wattle and then the creditors would be paid.
When cross-examined, Mr Verde could not recall if he had read each of the Wattle ASX announcements but qualified his answer by suggesting 'it depended on what was going on with the project and how critical the announcements were to the funding of the project.' He then conceded he could not tell whether an announcement was critical to the project without having read it first and agreed that if an announcement was made in 2020, he would have read it. He said the announcements included in his affidavit were selected 'on the basis of relevance' and that he did not consider the Wattle ASX announcements made on 13 and 23 January 2020 (mentioned earlier) to be relevant. Mr Verde stated he did not turn his mind to why Wattle was making a rights issue because he was 'not a financier.' He said he understood the project was 'fully funded' by Wattle and not reliant on the cash flow of Wattle or CBDG.[146] Further, he said he did not see the need to look at cash flow figures for a company (i.e. Wattle) that NPT was not contracted to.[147]
However, Mr Verde was unable to reconcile his position that the project was 'fully funded' with the reality that contractors were not being paid on time for their work on the project:[148]

[182]

At trial, NPT's counsel said NPT relied on the contents of the safe harbour report to the extent it 'shows what the directors were saying [at the time], which feeds into the general tenor of [NPT's] good faith argument, that [it was] being told that the company was fine and was going to continue operating.' It was suggested the safe harbour report corroborated information being conveyed to NPT to the effect that CBDG (or rather Wattle) was simply in the process of changing financiers. Therefore, a reasonable person in NPT's position would not have had reasonable grounds to suspect insolvency at the relevant time.
An issue arose at trial as to whether NPT had called the necessary witnesses to prosecute its good faith defence. NPT argues against the application of the principle in Jones v Dunkel in this proceeding, namely that an unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence may lead to an inference that the uncalled evidence or missing material would not have assisted that party's case. In particular, NPT resists the plaintiffs' submission that an inference should be drawn from NPT's failure to call Mr Nigel Holden, Mr Sam Holden and Ms Gorman given their respective roles and dealings in the project. Citing commentary from the text, Cross on Evidence,[149] NPT submits the principle only applies where a party is required to explain or contradict something but does not operate to require a party to give merely cumulative evidence. It was further submitted that a Jones v Dunkel inference cannot be drawn from the failure to call a witness (such as a non-party witness) unless it would be 'natural' or 'reasonably expected' that the witness be called.[150]
The plaintiffs submit NPT's good faith defence fails on two grounds. First, the plaintiffs submit the failure to call Mr Nigel Holden, Mr Sam Holden and Ms Gorman as witnesses is 'fatal'. Here, the plaintiffs are not relying on the principle in Jones v Dunkel.[151] The real issue, which also arose in Cook's Construction, is whether NPT, which bears the onus of establishing the good faith defence in s 588FG(2), without valid reason, failed to call relevant witnesses at its disposal and whether the Court may take this failure into account when assessing the evidence as a whole. This is distinct from the Jones v Dunkel principle. The plaintiffs submit Mr Nigel Holden, Mr Sam Holden and Ms Gorman were not called by NPT despite their availability[152] and clear involvement in dealing with CBDG in connection with NPT's own invoices and/or those of CBDG's contractors.
In addition, the plaintiffs submit NPT knew CBDG was not paying contractors, which was jeopardising the project. For example, NPT knew that as a consequence of the delays in payment, contractors were withholding the despatch or fabrication of equipment and others had directed important equipment away from the site (e.g. the Scanima mixer) until they were paid. The plaintiffs observe that NPT was responsible for dealing with contractors and, as evidenced by the 31 March Verde email, had been 'inundated' with calls from them. The situation was sufficiently serious for Mr Verde to arrange a telephone call with Mr Johnson on a Sunday (29 March 2020) about the issue. Further, NPT repeatedly warned CBDG about the effects of non-payment of contractors on the viability of the project.
The plaintiffs also challenge the reliability of NPT's evidence on the good faith defence, particularly in relation to reliance on the Wattle ASX announcements by Mr Verde and Mrs Verde, respectively. The plaintiffs submit there is no contemporaneous evidence to show that either of them placed any reliance on the Wattle ASX announcements at the times they were actually made, to ground their expectation that CBDG was 'fully funded' and solvent. Even if they did, the plaintiffs submit such evidence is incongruous because Mr and Mrs Verde said they did not question why Wattle was experiencing difficulty in capital raising or how that might have impacted the project. Mr and Mrs Verde were also unable to explain why creditors were experiencing significant delays in payment, despite maintaining the project was 'fully funded'. Further, the plaintiffs contend that NPT mostly places reliance on Wattle ASX announcements made in 2018 and 2019 and overlooks other announcements that painted a 'bleak picture' of Wattle's financial position in 2020, when the April payments were made.
In summary, the plaintiffs argue that NPT cannot make out the good faith defence in s 588FG(2) of the Act because it has failed to prove the necessary negatives that: (a) it had no reasonable grounds for suspecting CBDG was insolvent; and (b) that a reasonable person in NPT's circumstances would have had no such grounds.

[183]

Having regard to the available evidence, I consider NPT has failed to discharge its burden of establishing the elements of its good faith defence in s 588FG(2) of the Act. I have arrived at that conclusion for the following reasons.
First, NPT only called two witnesses to lead evidence relevant to the defence, being Mr Verde, who is a director, and Mrs Verde, who is not. Without valid reason, NPT failed to call key personnel directly involved in the project. As a company established for the specific purpose of undertaking work on the project itself, the evidence of only one of its two directors and its office manager/senior electrical engineer is, in my view, insufficient to reveal NPT's corporate state of mind at the time of the April payments. Neither Mr Nigel Holden, Mr Sam Holden nor Ms Gorman were called by NPT despite their clear involvement in dealing with CBDG and the project more generally. The failure to call those witnesses is a relevant consideration when assessing the evidence on good faith as a whole.
Mr Nigel Holden was a relevant witness given he is also a director of NPT and therefore one of its 'controlling minds'. He was privy to communications with contractors who were pressing for payment, including Tasweld in early February 2020 and late March 2020 and 4Site Engineers in late March 2020. According to Mr Sam Holden's email to Mr Johnson on 30 March 2020, Mr Nigel Holden also had a pivotal conversation with Mr Fletcher on 27 March 2020 when he was informed that 'the funds were not available and could not say when they would be'. But because neither Mr Nigel Holden nor Mr Sam Holden were called, there is no evidence about: (a) the content of Mr Nigel Holden's conversation with Mr Fletcher; (b) what Mr Nigel Holden thought following the conversation; or (c) what he in fact told Mr Sam Holden about it. Further, Mr Nigel Holden was specifically sent a copy of the Stainless Designs show cause notice on 1 April 2020. As a director, Mr Nigel Holden was copied into the emails from Mrs Verde sent to Mr Johnson on 30 March 2020 and 2 April 2020 which sought the prompt payment of NPT's own outstanding invoices. On 9 April 2020, he produced an updated spreadsheet and sent it by email to Mr Johnson and Mr Verde, copying in Mr Sam Holden, which he said confirmed that CBDG had been delinquent in making payments to Tasweld since the start of 2020.
Despite the obvious relevance of this evidence in determining whether there were no reasonable grounds to suspect insolvency, NPT elected not to call Mr Nigel Holden. There is no explanation for why NPT did not call him or any reason to believe he was unavailable. In fact, he attended each day of the trial. I infer his evidence would not have assisted NPT in making out the good faith defence.
Mr Sam Holden also interacted with creditors seeking payment from CBDG and undertook 'to chase CBDG on payment' (in the case of TPE on 20 March 2020) and to 'seek a definitive answer from CBDG' (in the case of Stainless Designs in late March 2020). He made repeated inquiries of Mr Johnson in relation to the payment of outstanding invoices owed to Stainless Designs on 19 and 24 March 2020. He was then contacted by Stainless Designs on 31 March 2020 and told that it had advised another supplier to divert delivery of the Scanima mixer until payment issues between CBDG and Stainless Designs had been resolved. He was also sent a copy of the Stainless Designs show cause notice. Again, Mr Sam Holden was a material witness on the topic of NPT's good faith defence and the failure to call him is unexplained. Mr Verde confirmed under cross-examination that if it were necessary to contact Mr Sam Holden, he could do so. I infer that Mr Sam Holden's evidence would not have assisted NPT in making out the good faith defence.
As regards Ms Gorman, there is evidence that she sent NPT's invoices to CBDG, including on: 4 September 2019; 31 January 2020; 6 February 2020; 13 February 2020; 13 March 2020; and 17 April 2020, and, in some instances, invited CBDG to contact herself or Mr Sam Holden with any queries. As an in-house accountant, it is reasonable to infer she had responsibilities for undertaking accounts payable work at NPT and monitoring CBDG's levels of indebtedness. The fact that she was copied into Mrs Verde's emails to Mr Johnson on 30 March 2020 and 2 April 2020 seeking payment of outstanding invoices supports this inference. There is no explanation for why NPT did not call Ms Gorman about these matters. Further, Mr Verde said under cross-examination that if it were necessary to contact Ms Gorman to ask about her work on the project or about the case, he could do so. I infer Ms Gorman's evidence would not have helped NPT in establishing its good faith defence.
Secondly, in seeking to establish there were no reasonable grounds for suspecting CBDG's insolvency at the time of the April payments, NPT led limited evidence that was both incongruous and unpersuasive. For example, NPT relied on certain Wattle ASX announcements to suggest CBDG was solvent because of funding from Wattle, but Mr Verde said he only read announcements that were critical to the project and did not look at cash flow figures for a company that NPT was not contracted to (i.e. Wattle). Whilst Mr and Mrs Verde steadfastly insisted the project was fully funded by Wattle, they were unable to reconcile this position with their awareness that contractors were not being paid on time by CBDG and that the project was being imperilled as a consequence. Similarly, Mrs Verde was unable to properly explain the basis of her belief that the Prospere loan could be utilised by Wattle to fund the project, in circumstances where the loan was not being drawn down upon and would soon expire.
Further, despite apparently reading the relevant Wattle ASX announcements at the time, neither Mr Verde nor Mrs Verde appeared to turn their mind to the significance of Wattle's frustrated attempts at capital raising and the resulting impact on funding for the project. Accordingly, I consider NPT was highly selective in its reliance on particular Wattle ASX announcements, or parts of them (most of which were early in the life of the project in 2018 and 2019), notably omitting reference to:

[185]

Each of these further announcements painted a far murkier picture about the future of the project and the viability of its funding by Wattle than is suggested by Mr and Mrs Verde.
In relation to the selected Wattle ASX announcements that NPT does rely upon, it is important to observe that there is no contemporaneous evidence that Mr and Mrs Verde, or anyone else at NPT, placed any reliance on them at the time they were actually made so as to give rise to an expectation that CBDG was fully funded and solvent at the time of the April payments.
I do not accept Mr Verde's assertion that Mr Fletcher's email of 8 April 2020 to Tasweld (in response to the 7 April Tasweld show cause notice) stated that Tasweld's invoices were 'not payable'. While Mr Fletcher did observe in the email that Tasweld had not adhered to a previously agreed process of providing him and NPT with copies of invoices, he specifically did not suggest the invoices were not yet payable. Instead, he undertook to make payment the same day. The tone of his email was also decidedly apologetic.
Further, I am unpersuaded by evidence variously given by Mr and Mrs Verde that CBDG's difficulties in making payments to contractors arose from administrative issues, an influx of creditor invoices, or COVID-19 restrictions. The cause of the delay in payments was an endemic problem with funding and cash flow.
I reject NPT's apparent suggestion that the safe harbour report somehow supports a finding that s 588FG(2)(a) of the Act might operate as a partial defence to the unfair preference claims on a date between 7 April 2020 and 24 April 2020 (noting the authors of the report state that a creditor who received payment from CBDG prior to 14 April 2020 would not have had reasonable grounds to suspect CBDG's insolvency). Nor do I accept the contents of the safe harbour report reflect what CBDG's directors were saying to NPT about the funding position of the project. The report post-dates the April payments (it is dated 4 May 2020). Further, there is simply no evidence the report was circulated beyond the directors of CBDG, let alone any evidence that its contents were conveyed to contractors, including NPT. Any suggestion that this had occurred is a matter of pure speculation. The report has no corroborative evidentiary value.
Mr Verde's evidence about the alleged representation by Mr Johnson and Mr O'Malley at the meeting held by the Project Control Group on 21 April 2020 is also unconvincing. He apparently took no steps to verify their claim that CBDG's invoices were all paid up to date, including by ascertaining from information that was available to him at the time that there was a debt then outstanding to NPT in the sum of $331,000. It is difficult to see how any reliance on such a statement was reasonable in the circumstances. At any rate, the representation was made after four of the five April payments had already been made. Only the payment on 24 April 2020 remained to be paid at that time.
Thirdly, there is other evidence which strongly militates against any conclusion there were no reasonable grounds for suspecting CBDG's insolvency at the relevant time. In particular:

[186]

(a) NPT was not only the appointed Engineer under the EPCM contract, which required it to 'design all things necessary for the procurement, installation, construction [and] commissioning' of the plant (cl 14.1), it was also the nominated superintendent in various contracts between CBDG and other contractors and suppliers engaged in the project, whereby NPT was required to assess progress claims submitted by those parties and make recommendations to CBDG about payment of those claims. It also dealt with complaints from those parties when CBDG delayed making payments of their invoices. NPT was not only a creditor of CBDG in its own right but it was in the unique position of being aware of the position of other creditors being owed money in connection with the project;

(b) the evidence clearly shows that at least from early March 2020, NPT's directors and senior employees were acutely aware that CBDG was not paying contractors on time, which was placing the project in jeopardy. For example, NPT knew that as a consequence of the delays in payment, contractors were withholding equipment and others had diverted equipment away from the site until they were paid (e.g. Stainless Designs in the case of the Scanima mixer). The repeated communications from contractors regarding non-payment of invoices resulted in Mr Verde, Mr Nigel Holden and Mr Sam Holden each bringing those communications to the attention of CBDG to follow up on payments. The position was so serious that Mr Verde organised a telephone call with Mr Johnson on 29 March 2020, which fell on a Sunday, to discuss the issue. According to his email sent the next day to Mr Nigel Holden, Mr Verde informed Mr Johnson that if certain contractors were not paid by early April, it would jeopardise equipment delivery and site works. The 31 March Verde email, in which Mr Verde informed Mr Johnson that NPT had been 'inundated' with calls from contractors demanding payment for outstanding invoices, is especially telling and leaves little doubt that NPT, or a reasonable person in NPT's position, would have had suspicions as to the solvency of CBDG by that stage. NPT's receipt of the Stainless Designs show cause notice on 1 April 2020 further reinforces that view;

(c) despite Mr Fletcher's advice in the 3 April CBDG email that funds had been released by Wattle (but not yet cleared) to pay certain creditors, it was only a few days later, on 6 April 2020, that Mr Verde was contacted by TPE concerning unpaid invoices for an amount characterised as 'quite considerable'. Then, the following day on 7 April 2020, NPT received a copy of the Tasweld show cause notice;

(d) minutes for the Project Control Group meeting held on 7 April 2020 record that NPT stated it was 'greatly concerned' by delays in payment to contractors which was causing contractors to issue show cause notices and was 'injurious to project progress'. The writing was well and truly on the wall by this time;

(e) aside from the Tasweld show cause notice, and perhaps also the Project Control Group meeting held on 7 April 2020 (depending on the precise timing of events on that day), all of the above events and communications occurred before the first of the April payments was made to NPT on 7 April 2020. At any rate, the first of the April payments was received by NPT the very same day that NPT recorded it was 'greatly concerned' by the late payment of contractors at the Project Control Group meeting;

(f) at the same time, NPT was actively pursuing CBDG for payment of its own outstanding debts. On 30 March 2020, Mrs Verde emailed Mr Johnson, attaching copies of eight outstanding invoices from NPT (dated between 31 January 2020 and 11 March 2020) which totalled $143,535.86 and requesting 'prompt payment'. On 2 April 2020, Mrs Verde again emailed Mr Johnson, copying in Mr Nigel Holden and others and noting that the 'quantity and quantum of outstanding invoices' owed by CBDG to NPT had increased. Mrs Verde, once more, requested 'prompt payment' of NPT's outstanding invoices;

(g) on 8 April 2020, the day after the first of the April payments was made and the day prior to the second of those payments, NPT issued its clause 20 extension of time notice;

(h) the following day, Mr Nigel Holden provided his updated spreadsheet to CBDG which apparently confirmed that CBDG had, in the case of Tasweld, been making late payments since the start of 2020. This reconciliation was undertaken by NPT the same day it received the largest of the April payments in the amount of $190,124.25;

(i) Mr Verde gave evidence under cross-examination to the effect that NPT had questioned why contractors were not being paid if the project was fully funded by Wattle (although it is unclear on the evidence whether questions were asked of CBDG or internally to NPT). Critically, Mr Verde also agreed that the delays in payments to contractors had led to 'suspicions' as to whether the project was in fact fully funded; and

(j) Mr Verde admitted under cross-examination that despite being told by Mr Johnson and Mr O'Malley at the Project Control Group meeting on 21 April 2020 that payments of invoices received by CBDG were 'up to date', he did not seek to confirm that was the case, despite having access to NPT's own accounts which showed CBDG was indebted to NPT in the sum of $331,000 at the time of the meeting, or shortly thereafter.

Plaintiffs v NUTRITIONAL POWDER TECHNOLOGIES PTY LTD

At a glance

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Judgment (305 paragraphs)

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Legislation Cited (3)

Cases Cited (45)