Taycon Pty Ltd v Williams [2023] QSC 297

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL

RELATIONS - where the defendant contends that the parties entered into a binding oral agreement whereby the balance owing to the plaintiff would, instead of being repaid, be

invested into a project being undertaken by the defendant - where the plaintiff contends that there was no concluded agreement because the agreement was too uncertain and the parties had not formed the necessary intention to create legal relations - whether a binding agreement was concluded

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND

LIQUIDATED DAMAGES - where the parties entered into a written agreement requiring the payment of interest in the event the principal was not paid - where the rate of interest was 20 per cent per annum, compounding daily - whether the requirement to pay interest was void as a penalty

Arab Bank Australia Ltd v Sayde Developments Pty Ltd

[2016] NSWCA 328; (2016) 93 NSWLR 231, cited

Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251, cited

Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5, cited

Coote v Kelly [2013] NSWCA 357, cited

County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193, cited

Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599, cited

[2021] NSWCA 85, cited

GoConnect Ltd v Sino Strategic International Ltd (in liq)

[2016] VSCA 315, cited

Guirguis Pty Ltd v Michels Patisserie System Pty Ltd [2018] 1 Qd R 132; [2017] QCA 83, cited

Hadley v Baxendale (1854) 9 Exch 341 [156 ER 145], cited

King v Adams [2016] NSWSC 1798, cited Lawrence v Ciantar [2020] NSWCA 89, cited Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, cited

Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; [2016] HCA 28, cited

PSAL Ltd v Kellas-Sharpe & Ors [2012] QSC 31, cited Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39, cited

Re Golden Robot Records International Pty Ltd & Ors [2021] NSWSC 1146, cited

Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547, cited

Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, cited

Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") (1924) 20 Lloyds L Rep 140, cited

Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315, cited

Everingham Lawyers for the plaintiff Mills Oakley for the defendant

• [1] Mr Taylor has operated his building business through the plaintiff company ("Taycon") since 1990.

• [2] In around 2005 Taycon was engaged by the defendant, Mr Williams, and Mr Williams' then wife, Kerry, to construct a home located on the Brisbane Corso at Fairfield. Mr Taylor and Mr Williams became acquainted as a result.

• [3] In early 2011, The Corso home suffered significant damage from flooding and required substantial repairs. Mr Williams and his wife made a claim on their insurer and Taycon was engaged by the insurer to undertake the repair works.

• [4] Mr Williams and his wife also decided to engage Taycon to make improvements to their home. One or other of them would orally request Mr Taylor to perform additional works. The improvements were undertaken during 2011 and were completed in late 2011. Taycon invoiced Mr Williams and his wife for those works.

• [5] By 14 February 2012 they owed Taycon $324,819.02, which included a deferred payment fee of $50,000. Mr Taylor began requesting payment from Mr Williams.

• [6] In response, Mr Williams told Mr Taylor that he would prepare a deed acknowledging the debt, but he never did. As a result, Mr Taylor engaged a solicitor, Mr Garvey, who drafted a document. Clause 4 provided for an interest rate of 20 per cent per annum if the principal was not paid by the due date, which the draft nominated as 31 March 2012.

• [7] The deed was presented to Mr Williams in April 2012 at The Corso home. Some handwritten amendments were made to it by him. One such amendment extended the due date for payment to 30 May 2012. Mr Taylor and Mr Williams then signed the deed.

• [8] During this period, the amount that was owed to Taycon was causing it and Mr Taylor significant financial distress. Mr and Mrs Taylor were forced to sell shares, draw on superannuation, and negotiate with the Commonwealth Bank a temporary increase in Taycon's overdraft limit to $80,000. The overdraft attracted an interest rate of more than 15 per cent for balances over $50,000.

• [9] By May 2012 the bank was pressuring Mr Taylor to repay Taycon's outstanding facilities.

• [10] The first significant factual dispute in this proceeding relates to the terms of an oral agreement made in May 2012 between Mr Taylor on behalf of Taycon and Mr Williams. It arose out of a conversation relating to the cost of flights to Italy. Mr

Taylor and his wife had wanted to attend a furniture exhibition in Milan that was held only every four years, but they had not been able to attend the April event because they did not have the money to pay for airfares. Mr Williams initiated a discussion about the cost of business class fares for Mr Taylor's family to fly to Europe. Some details of the conversation are contentious but the end result was that the cost of airfares were estimated to be around $25,000, and the parties agreed that they would be reflected in the amount due being increased from $324,819.12 to $350,000.

(a) as Taycon contends, the parties agreed that the price of airfares to Italy (approximately $25,000) would be added to the amount which Mr Williams was to repay to Taycon, with interest not payable on this additional amount of

$25,000; or

(b) as Mr Williams contends, the parties agreed that the price of the airfares would be added to the amount which Mr Williams was to repay Taycon to bring the balance payable to a fixed sum of $350,000, with interest not being payable on any part of the $350,000.

• [12] The parties could not place a date on their meeting. However, it seems likely that it was in mid or late May 2012. This is because on Wednesday, 30 May 2012, Mr Williams wrote to Mr Taylor and advised:

"My settlement takes place on Friday. Funds will be available on Monday. Thanks for your cooperation.

When you have made the bookings for your flights, let me know and I'll pay them."

• [13] This was the response to an inquiry by email from Mr Taylor on 29 May 2012, which inquired whether the outstanding moneys were going to be paid by electronic funds transfer or by cheque.

• [14] During this period, Mr Williams presented himself to Mr Taylor as on the brink of obtaining a large amount of money which would enable him to pay Taycon what he owed it. For example, on 5 June 2012, Mr Williams told Mr Taylor that the settlement of a significant transaction had taken place the previous Friday, but that as a condition precedent was not met the funds were being held until the condition was met. This was expected to be on 20 June 2012. Mr Williams wrote "Getting close - Wingate [his company] gets a net of $3M". He promised to keep Mr Taylor informed and thanked him "very much for your understanding - it is appreciated".

• [15] Mr Taylor and Taycon remained in a difficult financial situation. In response to Mr Williams' advice of 5 June 2012 about the delay in payment that was now expected on 20 June 2012, Mr Taylor advised Mr Williams of his cashflow problems and the commitments that he needed to meet. Mr Taylor advised that his first priority was the bank who Mr Taylor reported was getting impatient to see some resolution. Mr Taylor asked whether it would be possible for Mr Williams to deposit $50,000 into Taycon's account as soon as possible. His email stated:

"This would help enormously as I was expecting this payment back in March and had not planned being delayed for this amount of time.

Can you advise me if you are in a position to do this?"

• [16] The next day, 6 June 2012, Mr Williams promised to deposit $50,000, but this did not happen.

• [17] By early July, Mr Taylor was inquiring whether Mr Williams' settlement had gone through and wanted to catch up with him. On 3 July 2012, Mr Williams promised to have the money to Mr Taylor that Friday. The documents indicate that they met on Friday, 6 July 2012, and Mr Taylor received two cheques. The first was for $100,000 which he told his bank he planned to deposit on Monday with a request for rapid clearance. The second cheque for $250,000 was to be banked on the Wednesday. Mr Taylor thanked the bank for their assistance in awaiting payment.

• [18] The $100,000 amount was banked and received by Taycon on 9 July 2012.

• [19] The next day Mr Williams asked Mr Taylor to delay banking the cheque for $250,000, until the following Monday due to "just a bit of a delay on some of my funds". Even then there was a further delay. On 19 July, Mr Taylor let Mr Williams know that he planned to deposit the second cheque later that day, and Mr Williams asked him to hold off until Monday.

• [20] On Monday, 23 July 2012, Mr Williams asked Mr Taylor if it was possible to make the remaining payments at $50,000 per week over five weeks. In response, Mr Taylor asked Mr Williams whether he was in a position for a payment schedule as follows: 24 July $100,000; 7 August $50,000; 14 August $50,000; and 21 August $50,000. On the next day Mr Williams told Mr Taylor that he would leave a cheque in a letterbox, and this seems to have occurred because $50,000 was paid on 25 July 2012, thereby reducing the original debt of $350,000 to $200,000.

• [21] Mr Williams then stalled in making further payments. On 16 August, Mr Taylor followed up about the payments saying that he would appreciate some funds.

• [22] The emails indicate that Mr Taylor had great difficulty in pinning down Mr Williams at the time, let alone receiving overdue payments. Mr Taylor's focus was on getting paid the $200,000 that remained owing out of the original $350,000, and he did not raise any issue about interest. Mr Williams made excuses for not responding to Mr Taylor's requests for payment. He explained that he was busy.

• [23] Mr Taylor's email of 22 August 2012 is an example of his patience in awaiting payment and his increasing frustration:

"Hello Stephen,

I am not feeling any love → I have contacted you on a couple of occasions by phone and email about the finalisation of the payments to Taycon P/L and have not heard back from you. I am keen to get this cleared as it has gone on for longer than I would have preferred. I remind you that we got your home back to normal and completed to the best of our ability. I am asking you to put my business back to normal as I have had liabilities associated with the money owed. Example GST & Quarterly Payments to the ATO as well as the costs associated with the works relating to this account.

Keep well

Regards Tom."

• [24] A few days later, Mr Williams apologised for not responding, advised that he had just arrived back that morning from "a hectic time in Japan", promised to look at his cashflow over the weekend, and to be in touch on Monday. He failed to do so, prompting Mr Taylor to ask in an email "Where are we with regards settlement?".

• [25] Mr Taylor continued to follow up about getting the account settled.

• [26] On 29 August 2012, Mr Taylor referred to Mr Williams in an email as "the Phantom" and asked him to leave signed cheques in the mailbox at The Corso for Mr Taylor to pick up. At some stage, Mr Taylor received two cheques drawn on Wingate Properties, each for $100,000. They were post-dated. The first was dated 3 September 2012 and the second was dated 10 September 2012.

• [27] On 3 September 2012, Mr Williams advised Mr Taylor that Sekisui House Australia Pty Ltd would not be paying Wingate's fee until 13 September, and asked him to hold the cheques until then. Mr Williams said he would do so and remarked about the "rollercoaster ride".

• [28] Throughout this time Mr Taylor was explaining to his banker the problems that he was having and advised on 6 September 2012 that he would not grant Mr Williams any further extensions. Mr Taylor described it as "the most unbelievable saga".

• [29] The cheques were presented, but they were dishonoured, or "bounced" to use Mr Taylor's expression.

• [30] On 18 September 2012, Mr Taylor wrote to Mr Williams: "Stephen,

I am not sure how the Japanese work but I know how I work and I can't keep supporting the debt. It has been months and still no settlement. I will deposit the cheques on Thursday. This will give you a couple of days to adjust your finances accordingly.

It is not my intention to cause you grief but I have made arrangements that are being impacted by the non payment of the outstanding monies. Regards

Tom."

• [31] On 20 September 2012, and presumably knowing that the two cheques totalling

$200,000 that he had given to Mr Taylor would be dishonoured if Mr Taylor deposited them that day, Mr Williams waved what one might liken to a large, juicy carrot before Mr Taylor's eyes.

• [32] Mr Williams is a property developer. In late 2012, he became aware of the sale, by receivers, of land in the Townsville suburb of Rasmussen. The Rasmussen land had a potential for development and, if development approval was obtained, its value would increase.

• [33] Having received Mr Taylor's email of 18 September 2012 that told him about Mr Taylor's intention to deposit the two cheques, on 20 September 2012 Mr Williams

attracted Mr Taylor's attention with an offer to make much more than $200,000. His email introduced Mr Taylor to the Rasmussen site and attached various documents and images about it. The email read:

"Tom,

This relates to a 250ha site in Townsville that is going to be rezoned to Residential from Rural Living.

We are buying it at Rural Living value for $4.5m and post rezoning it will be worth more than $20m.

Are you interested in investing the $200000 in this venture? Assuming a value increase of $15m then a 5% interest gives a return of $750000. I would be happy to personally guarantee a return of $200000 within 12 months.

Give it some thought and let me know. Keep well.

Stephen." (emphasis added).

• [34] Mr Williams and Mr Taylor subsequently met at a café at Southbank on Tuesday, 16 October 2012. It will be necessary to recount their recollections of what was discussed at the meeting. The following is a summary.

• [35] Mr Williams told Mr Taylor something about the Rasmussen land. According to Mr Williams, he asked Mr Taylor whether he would be interested in investing in the project using the sum of $200,000, which was then owing to Taycon. Mr Taylor denies any binding agreement was reached about the proposed investment, including how, from which entity, to which entity and when the "5% interest" would be paid. He says that over time different suggestions were made to him, but he was not prepared to enter into any agreement until he received legal and accounting advice and the agreement was properly documented.

• [36] The issue for determination is whether the parties entered into a binding agreement at the initial meeting in October 2012, whereby Taycon agreed that the sum of

$200,0000 would, instead of being repaid in accordance with the parties' earlier agreements, be invested into a project which Mr Williams (through a company he controlled) and his associates were undertaking for the development of the Rasmussen land.

• [37] Mr Williams says that he gave a guarantee that, irrespective of the amount that one of Mr Taylor's entities made from the investment, Mr Williams was prepared to personally guarantee the repayment of the outstanding $200,000 within a year.

• [39] According to Mr Williams, there was a second important meeting about the Rasmussen project. His pleadings alleged that it occurred in or about mid-2013. In part of his evidence he thought it was in late 2013. In any event, he says that the original Rasmussen agreement was varied as a result of this discussion by an offer to increase Mr Taylor's share from five per cent to ten per cent, to which Mr Taylor agreed.
• [40] Mr Williams' case is that there was no agreement in the "Original Rasmussen Agreement" (in October 2012) or in the "Varied Rasmussen Agreement" (in 2013) that he would pay interest on the guaranteed return of $200,000 to Taycon. Mr Williams' evidence-in-chief about what was said and agreed at the Southbank meeting in late 2012 about the Rasmussen project was not detailed or convincing. It fell short of proving a concluded bargain and amounted to little more than Mr Taylor saying that the profit share proposal "sounds like a great opportunity".

• [41] There is, however, no doubt that Mr Taylor was interested in pursuing the Rasmussen opportunity. An email that he sent to his accountant on 31 October 2012 indicated that he had met with Mr Williams the previous Friday, and that Mr Williams had indicated "there will be a unit trust established as the entity to develop the project and he has offered me 10 per cent of the units". Mr Williams' evidence is that he never referred to a unit trust and, indeed, never offered Mr Taylor the opportunity for a corporate entity to acquire a share in the development project or units in a unit trust.

• [42] Mr Taylor's position about the alleged Rasmussen Agreement is that he agreed in principle to invest, but needed a detailed offer in writing about the parties to the agreement and its terms, so he could get legal and accounting advice. I found the following evidence he gave convincing:

"I needed to get an offer from Stephen Williams in writing so I could then go and have it assessed by someone smarter than me in the legal field and the accounting field to know how to move it forward and then to form - you know, and formalise an agreement."

• [43] For reasons which I will later develop, Mr Williams has not proven that there was a legally binding agreement reached in late 2012, whereby Mr Taylor, on behalf of Taycon, agreed that the sum then owing would not be repaid in accordance with the parties' earlier agreements, but instead, would be invested in the Rasmussen project, upon certain agreed terms.

• [44] The evidence establishes that there was an informal agreement by Mr Taylor to invest in the Rasmussen project, the essemtial terms of which were not agreed on that occasion. The discussion at Southbank did not agree essential terms about the form of investment, the entity that would invest and obtain a right to a profit share, how its share would be calculated, which costs or contributions by the venturers would be taken into account to arrive at the profit in which Mr Taylor's investment vehicle would share, and when or how it would obtain a return on its investment.

• [45] Unlike the first main issue in the case about what was said between Mr Williams and Mr Taylor in May 2012, the issue concerning the alleged Rasmussen agreement does not depend upon a word-on-word contest about what was said between them in a meeting. This is because, even accepting Mr Williams' evidence-in-chief about what was said at the initial meeting in about October 2012, there was no binding, concluded agreement. Mr Williams promoted an opportunity and Mr Taylor was keen to pursue it. His enthusiasm to pursue a way to derive more than he was owed at the time cannot be equated with a concluded agreement being made at a lunch meeting about all the essential terms that would govern an ill-defined investment opportunity.

• [46] Mr Williams waved the carrot of a $750,000/five per cent share in the Rasmussen project, and then a $1,500,000/10 per cent share as a means of buying time. The

carrot distracted Mr Taylor and delayed him taking action to recover the amount which Mr Williams undoubtedly owed Taycon by September 2012.

• [47] Mr Taylor pursued Mr Williams over the following months about documenting the Rasmussen agreement. Mr Williams said he would get his lawyer to draft something, but no written agreement was ever produced for the consideration of Mr Taylor, his lawyers and his accountants.

• [48] According to Mr Williams, Mr Taylor was never promised a share in the entity that was to own or control the Rasmussen project, secure development approval, and thereby obtain a large profit. On Mr Williams' version, Mr Taylor (or more precisely, a corporate entity to be nominated by him) would have no interest in the project. Its so-called "5% interest" was simply what it was going to be paid out of Mr Williams' share of the profit. In other words, it simply was an obligation to pay money.

• [49] The amount to be paid was a percentage of an ill-defined profit that Mr Williams or some unidentified corporate vehicle associated with him hoped to derive after the payment of unspecified costs.

• [50] As matters transpired, the Rasmussen project did not yield the profit which Mr Williams had predicted in September and October 2012. There were delays and complications in obtaining development approval. There were significant expenses associated with obtaining approval, including an amount of about $6 million to be paid to the Department of Main Roads.

• [51] Mr Williams' joint venture partner and he could not make a success of the project. Mr Williams' company, Wingate Properties Pty Ltd, withdrew in June 2018. The land was sold in May 2019.

• [52] Mr Williams subsequently offered Mr Taylor an opportunity to be involved in a new deal at Melrose Park.

• [53] The lengthy course of correspondence and dealings after October 2012 to which I will return do not support the conclusion that there was a binding agreement made at the meeting. Moreover, the nature of the investment and its complexities in terms of legal and financial issues were such that any agreement reached in October 2012 between Mr Williams and Mr Taylor was no more than an informal agreement. The parties did not agree to be immediately bound. They (and any objective bystander) would reasonably have expected the terms of their agreement, the investment vehicle, the nature of the investment, the terms upon which the Taylor entity would be paid, and other matters to be negotiated, documented by lawyers, settled, and signed before an agreement was legally binding.

• [54] Viewed objectively, the parties did not intend to conclude a legally binding agreement until they formally executed a document.

• [55] The third main issue between the parties is whether clause 4 of the written loan agreement entered into by the parties in April 2012, that requires Mr Williams to pay Taycon interest at the rate of 20 per cent per annum compounding daily in the event that the principal is not repaid, is void as a penalty.

• [56] Subsidiary issues in relation to that question are whether the applicable rate of interest was:

(a) reasonably necessary to protect Taycon's interests; and

(b) extravagant, exorbitant or unconscionable.

• [57] There is no dispute that over the years Mr Williams has made payments to Taycon totalling $350,000. The following payments were made:

• [58] The parties have undertaken interest calculations, assuming that the interest obligation is not penal, in order to arrive at a figure for the balance that is presently owing to Taycon. However, the parties agreed that these or other calculations should await my findings on the three principal issues.

• [59] Three main issues arise for determination:
  1. What were the terms of the oral agreement in May 2012?
  2. Was a binding agreement concluded at a lunch in October 2012 over the Rasmussen development project?
  3. Is the clause in the written agreement providing for an interest rate of 20 per cent in the event the principal is not paid void as a penalty?

• [60] The first two issues turn on the content of conversations that were not the subject of contemporaneous, let alone confirmatory, notes, emails, text messages or letters.

• [61] The first conversation probably occurred in May 2012 and was prompted by a discussion about airfares that arose in the context of Mr Taylor/Taycon's cashflow problems arising from the non-payment of moneys due to be paid by Mr Williams.

• [62] The second conversation occurred in October 2012 and the emails in evidence suggest the meeting occurred on or about 16 October 2012.

• [63] In resolving the issues, particularly in respect of the May 2012 conversation, limited reliance should be placed upon the demeanour of the two witnesses or the confidence with which they gave their evidence about what was said at an informal meeting more than 11 years ago.

• [64] Mr Taylor frankly conceded the fallibility of his recollection of the conversation and that he has given varying accounts of it over the years, most recently an account that was reflected in pleadings that were amended in August 2023.

• [65] By contrast, Mr Williams exuded confidence in his initial evidence-in-chief about his recollection of what was said. I place little weight upon his confidence or the reliability of his evidence in general.

• [66] This is a typical case about the fallibility of memory which "increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said".1
• [67] As McLelland CJ in Equity remarked:2

"All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed."

Similar observations about the fallibility of memory can be found in many authorities.3

• [68] Rather than rely on fallible recollections, the preferred course is to have regard to contemporaneous material (or the absence of contemporaneous records where one might reasonably expect a document to record or reflect an agreement), and the inherent probability or improbability that a certain agreement was reached in the circumstances. A century ago, Atkin LJ (as Lord Atkin then was) remarked that "an ounce of intrinsic merit or demerit in the evidence" is worth "pounds of demeanour".4

1 Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315 at 319.

1. See, for example, Coote v Kelly [2013] NSWCA 357 at [51] and Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7].
2. Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") (1924) 20 Lloyds L Rep 140 at 152.

This wisdom has been adopted by courts of high authority in this country and elsewhere.5

• [69] The first issue does not concern the terms of a written agreement and the difficult issue of what extrinsic evidence, if any, may be admitted to construe its terms. The first issue concerns the terms of an oral agreement, or more precisely, what was said at an informal meeting in May 2012 about the terms of repayment of a sum that was about to fall due for payment soon afterwards on 30 May 2012.

• [70] Consideration of surrounding circumstances and post-contractual conduct is permissible in deciding the existence or terms of an oral agreement.6

• [71] The debt that was reflected in the invoices that were issued by Taycon in late 2011 and reissued in February 2012, with the addition of a $50,000 late payment fee, were for works done and materials supplied by Taycon in 2011. The work was progressively carried out during 2011. There was a lengthy period between undertaking the work and invoicing for it. As a result, by early 2012 when the invoices were reissued, Taycon had been "out of pocket" for subcontractors and suppliers it had paid some months earlier.

• [72] There was a degree of informality about the contractual arrangements because Mr Taylor trusted Mr Williams, and the two had developed a friendship. Mr Taylor did not require Mr Williams and his wife to sign a written contract and they trusted him to charge a reasonable price for his services. If there had not been this relationship of trust, Mr Taylor would have insisted on a more formal arrangement.

• [73] When Taycon's invoices were issued to Mr Williams and his wife in late 2011 or early 2012, there was no dispute that the work had been done, about its quality, or the price being charged. According to Mr Williams, the total price came as something of a surprise. During the works, Mr Williams and his wife had never given Mr Taylor to understand that they did not have the financial resources to pay Taycon for its work, or that there would be a delay in payment once the invoices were finally issued.

• [74] Mr Williams presented to Mr Taylor as a sophisticated businessman, and a man of wealth who lived in a luxury home on the river.

• [75] Taycon was a small-scale builder. It had only one or two employees. Taycon only did one building project at a time. It was dependent on cashflow and being paid for the work which it had done, in order to pay subcontractors and other debts. It had a relatively small overdraft of $30,000 with the Commonwealth Bank. Rather than incur a larger debt with the bank (assuming the it would have been prepared to extend

5 See, for example, Guirguis Pty Ltd v Michels Patisserie System Pty Ltd [2017] QCA 83; [2018] 1 Qd R 132 at 151 [50]

- 152 [51]; [2017] QCA 83 [50]-[51]; Gautam v Health Care Complaints Commission (NSW) [2021]

NSWCA 85 at [25]; Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 at 603 [15]

("Effem Foods"); Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; (2022) 406 ALR 678 at 682 [15]; [2022]

1. County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7], [20]; King v Adams [2016] NSWSC 1798 at [66]- [67]; Lawrence v Ciantar [2020] NSWCA 89 at [114].

its overdraft limit for a short time), Taycon depended on being paid for its last job before it could commit to the next one and be in a position to pay subcontractors and suppliers on the new job.

• [76] Like other small-scale builders, Taycon's cashflow depended on being promptly paid what was owed to it. Given the vicissitudes of the building industry, the interest rates that were charged on its overdraft facility substantially exceeded loan rates that banks were offering. Taycon's overdraft rate in early 2012 was 12.33 per cent up to an amount of $50,000 and 15.09 per cent once the overdraft exceeded $50,000. In late 2011 and early 2012, the official cash rate target set by the Reserve Bank of Australia varied between 4.25 and 4.75 per cent, with major Australian banks offering loans at rates that were no more than 4 per cent higher than the RBA rate. The RBA rate in early 2012 was 4.25 per cent and so bank loans would have been in the vicinity of

7.25 or 7.5 per cent. The overdraft rate of 15 per cent was double this ordinary loan rate.

• [77] Mr Williams and his wife apparently were not in a position to pay the bills that Taycon presented in late 2011 and reissued in 2012. After a part payment of $50,000 had been accounted for, the invoices for the additional work undertaken by Taycon at The Corso home totalled $274,819.02.

• [78] The evidence given by Mr Taylor, and the contents of the many emails that form part of Exhibit 1 indicate that Mr Taylor was trusting and patient. He did not employ threats or harassment. He accepted, at least for a substantial time, Mr Williams' explanations and excuses about his own cashflow. Mr Taylor was given to understand that Mr Williams had some big projects coming to fruition.

• [79] To use a metaphor that I ventured during submissions, Mr Williams' boat was about to come in. He said he was confident about being paid substantial amounts that were owed to him from development projects upon which he was working. He impressed upon Mr Taylor his confidence about being paid.

• [80] On 5 February 2012, Mr Williams offered to increase the payment due to Taycon by

$50,000 "if payment in full is delayed until 31 March". Mr Williams explained that he had a transaction "that is very profitable and is enhanced if I invest a further

$400,000 immediately". Mr Taylor recalls Mr Williams saying that he just had "a windfall of $400,000" and was prepared to pay an extra $50,000 on the condition that the time for payment was extended until 31 March 2012. Mr Taylor accepted that arrangement.

• [81] The moneys, however, were not paid by 31 March 2012, as promised.

• [82] In the early months of 2012, the Commonwealth Bank was pressing Taycon about his cashflow and the state of his overdraft account.

• [83] In February 2012, Mr Taylor had engaged a lawyer to prepare a deed recording that Mr Williams and his wife would pay Taycon $324,819.02 in cleared funds by bank cheque or electronic funds transfer on or before 31 March 2012. Mr and Mrs Williams each were to personally guarantee to punctually pay the debt. The deed was to be supported by security in the form of a signed mortgage over the property on The Corso. The draft deed was dated 18 February 2012. Clause 4 provided that without prejudice or limitation to Taycon's other rights and remedies, including damages for

breach of the deed or the mortgage, "from and including 1 April 2012 interest on the debt accrues at 20 per cent per annum calculated on a compounding basis, daily".

• [84] As matters transpired, it took Mr Taylor a few months after he obtained the draft deed to pin down Mr Williams for the purpose of getting him to sign it. By then the time for payment, namely 31 March 2012, had passed. Before turning to the meeting at which the draft deed was amended and signed, it is worth noting the value that the parties placed on delays in payment.

• [85] In February 2012, Mr Williams, in effect, bought a month or two delay in payment by promising to pay an additional $50,000. This amount was offered in early February in exchange for an extension in the time to pay until 31 March 2012. It bought a period of six or seven weeks' grace or forbearance. The late payment fee of

$50,000 compensated Taycon for the loss of the use of money. Expressed as a proportion of the amount that was due and owing, namely $274,819.02, the $50,000 amount was a percentage of 18 per cent. It might be characterised as compensation for a six or seven week delay in payment until 31 March 2012. Alternatively, it might be seen as a form of compensation for work that had been done over a number of months and invoiced in January 2012 and which, save for the payment of $50,000, remained unpaid.

• [86] The late payment fee of $50,000 reflected the cost to Taycon of being kept out of money which was owed to it in early 2012, and also the value to Mr Williams of retaining that money for his commercial purposes.

• [87] The late payment fee of $50,000 was promised by a sophisticated businessman who dealt each day in matters of finance. It was worth Mr Williams' while to offer to pay an additional $50,000, rather than pay on time. The compensation he offered Mr Taylor's company for its forbearance also demonstrated an appreciation of Taycon's need for cashflow to service its overdraft, to pay its creditors and the prejudice of not having sufficient cashflow to take on another significant project.

The meeting at which the deed was amended and agreed

• [88] By reference to emails by which Mr Taylor set up a Saturday morning meeting for Mr Williams to meet and sign "that paperwork", it appears that the Deed Acknowledging Debt that Mr Taylor's solicitor had prepared in mid-February 2012, was not signed until Saturday, 21 April 2012 at a meeting at Mr Williams' home on The Corso.

• [89] Mr Williams requested a number of amendments and Mr Taylor agreed to them. The first was to remove Mrs Williams as a party to the deed, so that she did not guarantee the due and punctual payment of the debt. Another was to substitute a different property to the property at The Corso that would provide security by way of a mortgage. Mr Williams handwrote the address of a property at Maribyrnong, Victoria. As it turned out, neither Mr Williams nor his wife owned that property. A corporate entity did, but Mr Taylor was not told this, and there is no evidence that the entity (which was trustee of a self-managed superannuation fund) ever gave the promised security.

• [90] Most importantly for present purposes, the date for payment was amended by Mr Williams from 31 March 2012 (a date which had already passed) to 30 May 2012.

He also amended clause 4, so that interest at the agreed rate of 20 per cent accrued from 1 June 2012, rather than 1 April 2012.

• [91] Mr Taylor's decision to give Mr Williams more time to pay was contrary to advice that he had received. Mr Taylor's accountant had advised him to start "playing hardball", but at that point Mr Taylor still considered Mr Williams to be a trusted friend. Mr Taylor's evidence was that he "wasn't about to wish him any harm". Mr Taylor was prepared to allow Mr Williams until 30 May 2012 to pay the agreed amount, so that Mr Williams could get his cashflow in order and pay by that date.

The discussion about airfares and increasing the sum owing to $350,000

• [92] Mr Taylor was expecting Taycon to be paid $324,819.02 on or before 30 May 2012. At some stage, probably in late May 2012, Mr Taylor and Mr Williams met. Mr Taylor lamented that due to his cashflow problems, he and his wife had missed the opportunity to attend in April 2012 a furniture expo in Milan that is held every four years. Taycon had purchased equipment that was suited to manufacturing furniture, other high-end cabinetmaking, and interior design features. Mr Taylor and his wife were enthusiastic about the opportunity to see the latest trends in furniture methods and manufacturing.

• [93] After Mr Taylor lamented about his cashflow problems and the lost opportunity, Mr Williams asked him about how much flights to Italy would cost. There is some contention about what was then said. I accept Mr Taylor's evidence that Mr Williams said something like "Well, you wouldn't fly economy. You would fly business class". By some or other words, Mr Williams offered to pay for the cost of Mr Taylor, his wife and possibly another family member to fly to Italy by business class.

• [94] Mr Williams' recollection is that after Mr Taylor lamented that he was unable to go to Italy in April, Mr Taylor spoke of a plan to go with his wife and children to Italy, which prompted Mr Williams to ask how much that was going to cost. Mr Williams said he would pay for the airfares for Mr Taylor and his family. According to Mr Williams, Mr Taylor estimated that the cost would be in the order of $25,000, to which Mr Williams replied, "Fine, I'm happy to meet the cost of the airfares up to that amount".

• [95] Mr Taylor's recollection is a little different. Mr Williams' offer to pay for airfares perplexed him. As Mr Taylor explained, Mr Williams already had a debt of almost

$325,000, which he had been unable to pay. He now was offering to pay even more.

• [96] On 29 May 2012, Mr Taylor emailed Mr Williams telling him he was following him up on the outstanding moneys and asked whether the payment was going to be by electronic funds transfer or by cheque. On the morning of Wednesday, 30 May 2012, (the date due for payment under the deed), Mr Williams responded:

"My settlement takes place on Friday. Funds will be available on Monday.

Thanks for your cooperation. When you have made the bookings for your flights, let me know and I will pay them."

• [97] Mr Taylor did not book any airfares because he did not have the money to pay for them.
• [98] Mr Taylor's evidence was that at the meeting where flights to Italy were discussed there was no agreement about the total amount owing increasing to $350,000. Mr Taylor only had a general idea about what business class tickets would cost. In any event, at some point and by some process the parties arrived at an estimate of $25,000, possibly being a reasonable estimate of what it would cost Mr Taylor to take himself and some members of his family to Italy after Taycon was paid.

• [99] That figure of approximately $25,000 was added to the existing figure of $324,819.02 to arrive at a total figure of $350,000 that emerges from later dealings between the parties. For example, after a payment of $100,000 on 9 July 2012 and a payment of

$50,000 on 25 July 2012, the parties proceeded on the basis that $200,000 remained owing and, eventually, Mr Williams drew two cheques on his company, Wingate Properties Pty Ltd for $100,000 each, dated 3 and 10 September 2012.

• [100] The increase in the amount that was due to Taycon by a little over $25,000 begs the question of what Mr Williams was getting in return for his promise to pay another

• [101] An obvious answer, given the commercial context and the parties' subsequent conduct, is more time to pay.

• [102] I will return to Mr Williams' and Mr Taylor's evidence and their recollections of what was said on the day in question. Neither Mr Taylor nor Mr William gave satisfactory evidence in that regard. Mr Taylor does not have a clear recollection of what was said. It is, however, improbable that he agreed, in effect, that:

(a) Mr Williams could take as long as he liked or needed to pay the $350,000; and

(b) there never would be an obligation to pay interest on the $324,819.02 component of the debt.

• [103] It simply is improbable, given the commercial circumstances in which Mr Taylor found himself, that he would agree that Mr Williams could take as long as he thought he needed to pay the $350,000, and that no matter how long Mr Williams took to pay, there would be no interest at any stage on any outstanding amount.

• [104] Mr Taylor, his family and his building company simply were not in a position to make such an uncommercial agreement, and it is inherently improbable that he agreed to such a thing at the meeting in May 2012. Although Mr Taylor's recollection of points of detail about the airfares was imperfect, I accept his evidence that he did not agree with Mr Williams that the debt would not attract interest.

• [105] Whatever hope Mr Taylor may have had based on assurances from Mr Williams that Taycon would be paid soon or within a reasonable time because Mr Williams was expecting a large settlement, Mr Taylor would not have agreed to forego interest forever an. To do so would be reckless and uncommercial for someone in his position, operating a licensed building company that could not afford to give money away, and which was under pressure from its bank. I also accept Mr Taylor's evidence that he did not reach an agreement with Mr Williams that there would be no interest, because Mr Williams' evidence on that topic was unsatisfactory and unconvincing.
• [106] In the commercial context in which Mr Taylor and Mr Williams found themselves in late May 2012, the likelihood is that Mr Williams offered to pay an additional amount in order to buy more time, not an unlimited amount of time.

• [107] Mr Williams had previously bought time by increasing the debt by $50,000. The discussion about airfares that led on to an inquiry or estimate about the cost of business class airfares to Italy, which in turn yielded a figure of $25,000, was of the same character. Whether the figure of $25,000 was arrived at on the day in question, or soon thereafter, it was an inducement that Mr Williams offered Mr Taylor so that he would not pursue Mr Williams for the amount of almost $325,000 that was due for payment on 30 May 2012.

• [108] Mr Williams needed more time and was prepared to offer an amount in that order to buy that time. The discussion was informal and, as always, Mr Williams assured Mr Taylor that Mr Williams was about to receive a large payment that would enable him to pay Taycon.

• [109] Given the nature of the relationship between Mr Taylor and Mr Williams and the informal nature of the discussion, there was no agreement as to the precise additional period of time that would be given in return for the promise to pay an additional sum that was soon agreed to be $25,000. In the circumstances, the implicit understanding was that the additional amount would entitle Mr Williams to a reasonable amount of time beyond the due date of 30 May 2012.

• [110] Given the time value of money reflected in the earlier increase of $50,000 on the amount then due and owing, the estimated cost of business class airfares to Italy in an amount of $25,000 would buy a period of weeks or a few months. It would not buy an interest holiday that went on forever.

• [111] This is how the parties subsequently conducted themselves, with Mr Williams proffering post-dated cheques dated 3 and 10 September 2012. This conduct is reflective of an understanding by the parties that the additional $25,000 bought a reasonable extension, which, in the circumstances, would be in the order of three months from the end of May to the end of August.

• [112] During this period, Mr Williams would not be required to pay what he owed. If he did not pay what he owed, along with the additional $25,000, within a reasonable period, then once that period expired, interest would begin to accrue on the underlying debt of $324,819.02.

• [113] The inherent probability is that the parties agreed that the additional $25,000 being offered by Mr Williams bought him a reasonable period beyond 30 May 2012 to pay the $324,819.02 that he then owed.

• [114] Mr Williams' evidence does not displace the inherent probability of such an agreement being reached in the commercial circumstances in which the parties found themselves in May 2012.

• [115] Mr Williams' evidence about the "flight conversation" inevitably involved a significant degree of reconstruction, rather than genuine recollection.

• [116] In his initial evidence-in-chief he spoke more about his motivation to eliminate any obligation to have to pay 20 per cent interest on any outstanding debt, than what was actually said. He asserted that he "very openly and frankly" discussed with Mr Taylor his desire to eliminate any obligation to have a 20 per cent interest on outstanding debts, and that Mr Taylor "agreed to it". However, when I asked him to explain what was said or the effect of what was said that amounted to such an agreement, Mr Williams could not do so and answered by referring to his focus on eliminating the provision for interest. Mr Williams asserted that there would be no interest at any stage if he did not repay. He went on to explain that he said to Mr Taylor that he would pay $25,000 on top of the existing debt and "would pay it as soon as possible". Importantly, Mr Williams disclosed that, like the original acknowledgement of debt, he saw the matter as a "short-term arrangement" because he was "still very confident" that he would be able to pay back the $350,000 in a short time. He said that he told Mr Williams how confident he was.

• [117] Mr Williams could not recall saying anything like "If I can't pay you back, it's interest-free". All Mr Williams could recall was that Mr Taylor trusted him and that there was no doubt in Mr Williams' mind that he was focusing on eliminating the 20 per cent interest amount, and focused on repaying the $350,000 as soon as he possibly could.

• [118] When asked whether he gave Mr Taylor to understand that if it was not possible for him to repay the $350,000 for another year, then Mr Taylor could not expect any interest, Mr Williams frankly answered in the negative, acknowledging that they never discussed that.

The oral evidence and the inherently probable agreement

• [119] Upon analysis, one has Mr Taylor's denial of having agreed to give Mr Williams an unlimited amount of time to pay the amount that was about to become payable on 30 May 2012 and his denial of having agreed that interest would never be payable on any part of the debt. By "an unlimited amount of time to pay" I refer to the suggestion that Mr Williams and Mr Taylor agreed that Mr Williams would pay when he was able to do so. Such a term potentially would give Mr Williams an unlimited time to pay.7
• [120] Mr Williams' evidence was that he said words to the effect that he would pay $25,000 (or at least the price of airfares to Italy that came to be estimated in that amount) "on top of the existing debt", that he would pay it as soon as possible, and that there would be "no interest on that". If those words were said, then a reasonable person in Mr Taylor's position (or a hypothetical bystander who was familiar with their circumstances) probably would understand them to mean that there would be no

1. Counsel for Mr Williams notes that a term requiring an amount to be paid as and when the borrower is able to do so is likely to be void for uncertainty: Re Golden Records International Pty Ltd & Ors [2021] NSWSC 1146 at [46]- [52]. The present issue is not the enforceability of such a term, but the likelihood that Mt Taylor would have agreed to such a term in the circumstances.

interest on the $25,000 component, not that Mr Taylor was being asked to permanently forego the entitlement to interest that Taycon had under the Deed.

• [121] It is inherently improbable that Mr Taylor, despite his past friendship with Mr Williams, would agree to such an uncommercial arrangement. He was under pressure from his bank. He and his wife had to sell shares to provide Taycon with needed funds. He and Taycon were not in a financial position to give Mr Williams a permanent holiday from having to pay interest.

• [122] An objective analysis of their discussion that day, in the commercial circumstances that surrounded the parties, leads to the conclusion that the sum being offered in addition to the existing debt was to buy Mr Williams a reasonable period of forbearance on having to pay the $324,819.02, which was soon due for payment. Viewed objectively, it was, in effect, an offer to pay a sum in the order of $25,000 to have a reasonable time beyond 30 May 2012 to pay what was about to fall due for payment and to be relieved from an obligation to pay interest at the 20 per cent rate during that reasonable period. This is an inherently probable view of the agreement that was reached in the circumstances.

• [123] The agreement contended for by Mr Williams is inherently improbable and not supported by acceptable evidence from him about the words that were actually spoken or their effect.

• [124] An agreement that allowed Mr Williams a reasonable period to pay an amount that would then total $350,000 is consistent with the subsequent conduct of the parties. It is consistent with Mr Taylor requesting and Mr Williams providing "payment" of the

$200,000 that remained outstanding in August 2012. By "payment" I mean the two cheques totalling $200,000 that were dishonoured upon their presentation in September. It also is consistent with emails the parties exchanged for a payment schedule on dates in July and August 2012. The scheduled dates anticipated that the total sum of $350,000 would be repaid by 1 September 2012. Such a timeframe is consistent with an agreement that Mr Williams would have a reasonable period, such as three months, after 30 May 2012 to pay a debt of $350,000.

• [125] The previous discussion indirectly addresses submissions made by Mr Williams. It places primary emphasis on the objective, factual, surrounding material and the inherent commercial probabilities.8 It also deals with the acceptance or rejection of the evidence of the two witnesses in the case. I shall address Mr Williams' remaining submissions.

• [126] Mr Williams' submissions note that the documents that were created a short time after the "Flights Discussion" consistently refer to the amount owing as being the difference between the $350,000 and the part payments which had, by that time, been made. They are said to be consistent with no interest being payable under the parties' agreement.

• [127] They are, however, also consistent with the agreement that I have identified. Once

$50,000 had been paid, Mr Williams asked whether it was possible to make the remaining payments at $50,000 per week over five weeks. A few hours later on 23 July 2012, Mr Taylor proposed a different payment schedule for the remaining

$250,000 to be paid over the following four weeks. Such a payment schedule is consistent with the agreement I have indicated, whereby interest on the $325,000 did not accrue during the reasonable period that Mr Williams was given to pay a sum that totalled $350,000.

Mr Taylor was trusting and would make an uncommercial agreement

• [128] Counsel for Mr Williams contended that Mr Taylor trusted Mr Williams, did not wish to damage their friendship, was confident that Taycon would be paid soon, and was prepared to make what, on an objective analysis, might seem to be a commercially imprudent agreement that allowed Mr Williams to take as long as he needed to repay and that abandoned any future entitlement to interest on outstanding amounts.

• [129] I accept that Mr Taylor had a trusting disposition. The assurance that he obtained at the "Flights Discussion", that Mr Williams expected to be paid soon, explains why he was prepared to allow Mr Williams a reasonable time to pay in exchange for an additional $25,000, and to delay interest being charged from 1 June 2012 on the debt of approximately $325,000 during that reasonable period. It does not explain an uncommercial agreement being made by a party that needed money for its business, that needed a healthy set of accounts to maintain the required building licence, that was in overdraft, and that needed to placate its bank. It is improbable that in the circumstances Mr Taylor would agree to the uncommercial terms that are suggested and have to explain that decision to his bank or, for that matter, his wife. Any trust or friendship that remained from Mr Taylor's point of view (as distinct from a lack of malice towards Mr Williams) is insufficient to conclude that Mr Taylor was prepared to make an uncommercial agreement.

• [130] Mr Williams is said by his counsel to have craved certainty about the amount which he owed Taycon and to have been motivated by an obligation to rid himself of an obligation to pay interest pursuant to clause 4 of the Deed, which he had signed a few weeks earlier. Mr Williams' evidence was that the issue of interest was his "key driver" and that the interest amount "was an Achilles' heel for me". He said his objective was to eliminate any obligation to have a 20 per cent interest rate apply to any outstanding debt.

• [131] The earlier submission that Mr Taylor trusted Mr Williams' assurances that the money Mr Williams owed would soon become available to him undercuts this submission.

• [132] If Mr Williams' evidence is to be believed, and if what he told Mr Taylor at the time was true, he expected to be paid a large amount. As he said in his evidence:

"I was still very confident that I would be able to pay back the

$350,000 in short dur - in short time."

• [133] He went on to say that he was absolutely confident that he told Mr Taylor this. If that is so, he did not expect the 20 per cent interest obligation (which was to be delayed for a reasonable period until the $350,000 became payable) to affect him. Interest would not have been the large concern at the time that his present evidence suggests it was.

• [134] In any event, and assuming that an understanding was reached that the additional

$25,000 would allow Mr Williams a reasonable period of, say, three months to repay the total amount of $350,000, failing which interest would begin to accrue on or about 1 September 2012, the amount of interest that would then become payable was not so large in the scheme of things. It certainly was not large if, as Mr Williams says, he was very confident of being paid a short time after the Flights Discussion occurred. Adopting rough calculations, on the basis of a 20 per cent annual interest rate on

$350,000, interest would be $70,000 per annum or $17,500 for the quarter between 1 September and 1 December 2012. This was not a large amount of money when regard is had to the amounts that Mr Williams expected to obtain from pending settlements and projects that he was engaged in, including the $3 million of profit that he anticipated being paid after 20 June 2012.

• [135] Mr Williams was prepared to offer $50,000 (in February 2012) to buy an extension of time until 31 March 2012, and to offer approximately $25,000 (in May 2012) to buy additional time and to thereby improve his cashflow, and to have the money he owed Taycon available for other projects and to pay other debts.

• [136] In May 2012, he was prepared to offer $25,000 to obtain a reasonable period to defer paying the $325,000 he owed Taycon, and to be relieved from the obligation to pay interest on that amount at the agreed rate during that reasonable period.

• [137] The "Achilles' heel" is an understandable reconstruction in the light of the large interest claim made by Taycon in subsequent legal proceedings. In my view, Mr Williams' evidence in that regard is affected by hindsight bias. It is not a reliable recollection.

• [138] Also, if Mr Williams considered, as he said in his evidence, that the 20 per cent interest provided for in the Deed was "outrageous", then he would have attempted to amend that term at the meeting in April 2012, just as he amended other terms in the draft deed that he did not like. He at least would have said something about it.

• [139] Mr Williams was prepared to agree to a 20 per cent interest rate applying after 1 June 2012, as part of a negotiation whereby he delayed a payment that had been due on 31 March until 30 May. He says that in April he was prepared to accept the interest rate provided for in the Deed because he was confident that he would have the funds to repay and, therefore, "I wasn't ever worried about it being applied". The same logic applies to the agreement that was struck after the Flights Discussion in May. If Mr Williams is correct in saying that he expected that he would be able to pay the

$350,000 in a short time, then an interest obligation that only began to apply some months later would not have been a matter of great concern to him at the time.

• [140] I conclude that Mr Williams' principal motivation in promising to pay the price of flights in an amount that came to be estimated at $25,000 was to buy more time to pay the $325,000 that he already owed and the additional $25,000 that he promised to pay. He was confident that a metaphorical boat would arrive in port in the near

future, enabling him to pay Taycon on a delayed date. The $25,000 he effectively promised bought him a reasonable period, which in the circumstances would have been at least several weeks and probably in the order of three months.

• [141] Mr Williams did not crave certainty about the date for eventual payment. The understanding that the additional $25,000 bought him a reasonable period gave Mr Williams a flexibility compared to a fixed date. In addition, a reasonable period, rather than a fixed period, was something that would be agreed between individuals who trusted each other and who both expected Mr Williams to be able to pay the

• [142] Mr Williams' submissions also point to the long delay by Taycon in claiming interest. However, this is explicable.

• [143] First, no interest under clause 4 was payable for a reasonable period, being a period in the order of three months after 30 May 2012. Accordingly, Taycon demanded to be paid the remaining $200,000 in August and was given two cheques totalling that amount in late August. No interest was claimed or claimable for the period between 1 June and 1 September 2012 because of the agreement that had been struck. Taycon would have been content to be paid the outstanding $200,000 in early September, when the cheques were presented, but they were dishonoured. The timing of the delivery of the cheques suggests that the parties accepted that a period of up to three months to pay the $350,000 was a reasonable period.

• [144] Second, the issue of being paid the $200,000 that remained outstanding and any interest that began to accrue in September 2012 on it, was overtaken by Mr Williams' tempting offer to Mr Taylor of a five per cent/$750,000 interest in the Rasmussen project. Discussion and negotiations about the Rasmussen project occupied the parties for a long period after September 2012. Mr Taylor clung to the hope that an agreement would be concluded that would yield a corporate entity under his control five per cent or an estimated $750,000 share of the profit and, subsequently, a 10 per cent or $1,500,000 share of the profit.

• [145] The parties' prolonged attempts to negotiate and document a binding agreement in relation to the Rasmussen project explains why Taycon did not commence proceedings for a very substantial period for the balance of the $200,000 plus interest at 20 per cent on the outstanding balance from time to time.

• [146] During oral submissions I raised the possibility that the parties did not in fact reach an agreement after the Flights Discussion. Neither party adopted that position. If I had reached the conclusion that, having regard to the parties' words and conduct, an agreement to vary was not reached in May 2012, then the parties' rights would be governed by the Deed, with interest accruing on $324,819.02 from and including 1 June 2012 at the rate provided for in clause 4.1 of the Deed, with credit being given for the repayments made over the years and which I have earlier tabulated.

• [147] On reflection, I consider the parties are correct and there was an agreement. Courts should not make a bargain for the parties if, upon analysis, the parties have not agreed.

However, in this matter an agreement was reached in May 2012. It was not a matter of great complexity or in a written document that used terms that were uncertain or open to a variety of meanings. Instead, the determination of its terms involves the application of the principles I earlier outlined in deciding what was agreed. When the parties have shown by their conduct that they understand and can apply the terms of the agreement they reach, a court should be reluctant to disregard such conduct and find that no agreement was reached or that it is uncertain.

• [148] In reaching my conclusion I have placed primary emphasis on the objective, factual, surrounding material, the financial circumstances in which the parties were placed, and the inherent commercial probabilities.

• [149] I conclude that the parties reached an agreement whereby the sum then owing, together with an additional amount of $25,180.98, so as to make the total $350,000, would not be payable for a reasonable time. The additional amount of approximately

$25,000 was promised in exchange for this forbearance. The nature of the relationship between the parties and their shared expectation that Mr Williams would be able to pay the $350,000 within a short time, meant that they did not fix a date for its payment. The implicit understanding in the circumstances was that, in return for the additional $25,000, Mr Williams would be given a reasonable further period to pay. In the absence of a fixed time for repayment, a term requiring repayment within a reasonable period would be implied. Also, if an agreement is silent as to the time for repayment it is taken to be repayable on demand.9 Taycon demanded repayment in August 2012 of the outstanding balance of $200,000, and Mr Williams responded to this demand by giving it two cheques totalling $200,000 drawn on his company.

• [150] By their conduct, the parties appeared to accept that a reasonable time for the

$350,000 to be repaid was three months from the existing date for payment. On that basis, the remaining $200,000 should have been paid by the end of August 2012, with interest accruing on that outstanding balance on and after 1 September 2012, calculated in accordance with clause 4 of the Deed.

• [151] Subject to my determination of the next two main issues, the amount owed by Mr Williams to Taycon should be calculated accordingly, taking into account the payments that were made between 18 June 2014 and 28 July 2023, as set out in the earlier table of repayments.

The second issue: Was a binding agreement concluded at a lunch in October 2012 over the Rasmussen development project?

• [152] The second factual issue for determination differs from the first. It is not a "word-on-word" contest about the terms of a binding agreement. The issue is whether there was an immediately binding agreement concluded at a restaurant meeting on or about 16 October 2012. There was not a great detail of contest between the oral evidence of Mr Taylor and Mr Williams about what was discussed on that occasion. The issue is what lawyers like to describe as a _Masters v Cameron_10 issue.
• [153] I have extensively previewed the issue at [34]-[54].

1. GoConnect Ltd v Sino Strategic International Ltd (in liq) [2016] VSCA 315 at [55]; Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [36].

10 [1954] HCA 72; (1954) 91 CLR 353.

• [154] The essential factual issue is whether, as a result of a conversation on 16 October 2012, the parties' rights and obligations under the agreement that had been reached in May 2012 were set aside and replaced by an agreement that was immediately binding on Taycon and which gave rights to an unidentified party associated with Mr Taylor to share in the profit that Mr Williams hoped would be realised from the Rasmussen Project.

• [155] Mr Williams' case is that an agreement was made at the lunch meeting that was immediately binding, and that its terms were that:

"(a) the balance then owing to Taycon, $200,000, would be invested into a project for the rezoning of property in Rasmussen instead of being repaid in accordance with any earlier agreements;

(b) in the event that Mr Williams, through his company Wingate Properties Pty Ltd, received a success fee from that project, he would pay a 5% share or $750,000 to Taycon; and

(c) Mr Williams would, in any event, guarantee the return of the

$200,000 which Taycon invested (Guaranteed Return)"

• [156] This is what Mr Williams pleads to be the Rasmussen Agreement, as distinct from what is elsewhere described by him as the Varied Rasmussen Agreement or the Second Rasmussen Agreement, which he pleads was made in mid-2013. According to his pleading, the Varied Rasmussen Agreement increased Taycon's share from five per cent to 10 per cent of the increased value of the Rasmussen land, after rezoning was obtained. The Varied Rasmussen Agreement is pleaded to have been made in an oral discussion at a café in Brisbane on a date that was prior to 8 April 2013. However, Mr Williams' oral evidence suggested that it was made in late 2013.

• [157] Returning to the alleged Rasmussen Agreement that Mr Williams contends was made and became immediately binding at the lunch meeting on or about 16 October 2012, Taycon's position is that no concluded agreement was reached between Taycon and Mr Williams on that occasion. It accepts that, while there was an agreement of sorts and Mr Taylor was enthusiastic to pursue the opportunity that Mr Williams introduced him to, the parties could not be said to have intended to conclude a legally enforceable contract that was immediately binding, because they contemplated that other matters would need to be discussed, negotiated, the subject of legal and accounting advice, and documented in a formal contract. Until the contract was finalised and signed, there was no legally binding agreement, and each party was at liberty to withdraw from the arrangement.

• [158] Mr Williams' recollection is that the conversation occurred in around October 2012 at the Piaf restaurant in South Brisbane. He outlined to Mr Taylor what he and his associates had in mind to pursue the rezoning of the land at Rasmussen, and Mr Williams' view that, upon rezoning, the value of the land would increase from its purchase price to about $30 million. According to Mr Williams:

"I discussed with Mr Taylor ... the concept of him investing, for want of a word, the $200,000 that I then owed him into a profit-share benefit

on the project of five per cent, and I am of the view that words to the effect were said by Mr Taylor that 'That sounds like a great opportunity'."

I immediately note the difference between sharing in the profit on the project and the plea which refers to "a success fee".

• [159] Mr Williams recalls writing down some figures on a piece of paper and explaining that, assuming a value of $30 million and the cost of the rezoning, the profit to be shared between Payce11 would be $15 million, such that Mr Taylor's five per cent would be $750,000.

• [160] Mr Williams' recollection is that Mr Taylor was enthusiastic about the opportunity and said that it "sounded great and that he would like to pursue it".

• [161] Mr Williams recalls that after the discussion about the five per cent profit share, Mr Williams personally guaranteed that "no matter what happened on the Rasmussen Project, I would repay Tom - or Taycon, rather than Tom - Taycon, the $200,000." That was the existing debt.

• [162] Later in his evidence-in-chief he clarified that he was obligated to pay the $200,000 within 12 months, but there was no discussion in relation to interest on the $200,000 that he guaranteed to pay. His recollection was that towards the end of 2013 (rather than the mid-2013 period which had been pleaded on his instructions), he proposed at another meeting in a restaurant with Mr Taylor that as the 12 months was coming up and he had not made any payment of the $200,000 that he was obligated to make, that he would increase the percentage from five per cent to 10 per cent in return for Mr Taylor agreeing that there would be no set period of time for the repayment of the

• [163] Returning to the initial meeting in October 2012, Mr Taylor's evidence was that after the cheques had "bounced" Mr Williams told him about the Rasmussen land that Mr Williams and a Brian Boyd were going to buy for about four-and-a-half million dollars, rezone and then sell for $20 million or more. Mr Taylor's recollection is that he was told that he would get $750,000 out of that project, but if it did not happen, Mr Williams would personally guarantee him a return of $200,000 in addition to the

$200,000 that was owing in relation to the deed of debt.

• [164] Mr Taylor's recollection was that the $750,000 represented a five per cent share of "the action" and then the share was later "bumped up to 10 per cent".

• [165] Mr Taylor responded to the five per cent/$750,000 offer by saying that he was "interested", but that they needed to get something formalised, and that Mr Williams planned to meet with his solicitor, a Mr Greg O'Meara, who was going to draft up an offer and put it to Mr Taylor, so he could get his lawyers and accountants to advise what the best entity was to invest. This was because Taycon, as a licensed entity, faced severe problems without a cashflow, would not be financially viable if it was not paid the debt, and might face regulatory problems and penalties from the QBCC. Taycon was not an option to be the entity to invest.

1. An entity associated with a Mr Brian Boyd with whom Mr Williams did business through entities described as "Wingate Communities" and "Wingate Properties".

• [166] Later in his evidence Mr Taylor explained that he was intent on having the $200,000 owed to Taycon paid to it before he could invest in the Rasmussen Project. As he explained, "I wanted that money out of Taycon back into Taycon, so I could then go to the bank and borrow some more money". This is consistent with an email that he sent to Mr Williams on 9 October 2012, before the meeting the following Tuesday at the Piaf restaurant. Mr Taylor wrote:

"I would like to catch up at some stage to discuss your proposal and our requirements as to cashflow, etc."

• [167] As previously discussed, there was no clarity in the discussion that occurred at the Piaf restaurant in October 2012 about the corporate entities that would be involved from Mr Taylor's side in the "investment" in the Rasmussen Project and, in particular, the entity that would be entitled to the five per cent profit share.

• [168] The nature of the "investment" was vague. Mr Taylor was given to understand by Mr Williams that the investment would be in the form of units in a unit trust that would undertake the project. Mr Williams says that he had a completely different conception. No entity associated with Mr Taylor would have a share in the project. There simply would be an obligation to pay five per cent of the profit.

• [169] Which corporate entity or entities associated with Mr Williams would be obliged to pay the five per cent profit was not stated or agreed at the meeting.

• [170] There was no clarity about how profit would be calculated as between the participants in the project or what any entity associated with Mr Williams would be entitled to a share of the project's profit. For example, would Mr Williams and entities associated with him and Mr Boyd and entities associated with him be entitled to claim the cost of consulting services and other contributions they made to the project in obtaining the required development approval? In other words, how would the profit which Mr Taylor hoped to share to the extent of five per cent be calculated?

• [171] There was no agreement about when the profit would be derived and how the entitlement to a five per cent profit share interacted with the guaranteed $200,000 return. For example, if the development approval was not obtained and a profit derived within 12 months would Mr Taylor, Taycon, or some other entity associated with him simply be paid the guaranteed sum of $200,000? What if the Rasmussen Project yielded a large profit shortly after the $200,000 was paid? Would the

$200,000 be deducted from the profit share of five per cent? Would, instead, the guaranteed amount of $200,000 be all that the Taylor interests were entitled to if the project did not yield a profit within 12 months?

• [172] The evidence of what was said at the October 2012 meeting at the Piaf restaurant indicates that Mr Williams and Mr Taylor agreed only in general terms that Mr Taylor would be prepared to "invest" $200,000 in the Rasmussen Project. The precise nature of the investment, the terms upon which the $200,000 was to be invested, when and by whom the investment would be made, and many other matters that would have to be the subject of further discussion, negotiation, legal advice and documentation were not agreed at the lunch meeting.

• [173] These matters tell strongly against a binding agreement having been concluded at the restaurant meeting in October 2012.

• [174] Mr Taylor sought advice and there were various items of correspondence about the entity through which he would invest in the project. Mr Taylor had occasion to visit Townsville because an aunty had died there and he looked at the land. Before travelling there in October he told Mr Williams that he would like to travel to Townsville "if the offer is still on" and indicated that he had an active interest in the project.

• [175] On 29 November 2012, Mr Taylor wrote "I think the land settles next week and I want to see what is formally on offer". This language is not suggestive of an already concluded agreement.

• [176] On 8 January 2013, Mr Williams provided an update about the Rasmussen Project and asked Mr Taylor how he would be placed to meet "to review the work to date and set a way forward to document the arrangement between us".

• [177] Later, emails variously refer to an arrangement or an agreement. For example, on 9 May 2013, Mr Taylor sent a text message to Mr Williams that said "I would like this arrangement formalised". Use of the words "agreement" or "arrangement" in emails is not decisive. Reference to an agreement is consistent with the kind of agreement that was reached at the October 2012 lunch, and such an agreement is not necessarily legally binding at the time it is made. It may be an informal agreement that the parties do not intend to be binding at that stage.

• [178] Communications written by Mr Williams in 2013 also are equivocal. For example, on 13 May 2013, Mr Williams wrote to his solicitor, Mr O'Meara, asking for a meeting about Rasmussen and advising "I want to enter into a Profit Share Agreement with a Tom Taylor". He did not write that he had entered into such an agreement and wanted Mr O'Meara to document it, so as to formalise an already concluded and binding agreement.

• [179] Matters dragged on and led to further discussions between Mr Williams and Mr Taylor, whereby Mr Taylor's profit share was to be increased from five per cent (with an estimated return of $750,000) to 10 per cent (with twice that return, namely

• [180] Communications continued in the following years. In June 2014, Mr Taylor wrote to Mr Williams saying that he needed funds to service his commitments and suggested that he should present one of the cheques in the sum of $100,000, that Mr Williams had previously given him. Mr Williams wrote back asking "Can we stick to the Rasmussen deal? I can deposit $50,000 into your account this morning and confirm when it is done". Mr Taylor was pleased to be offered $50,000 because he needed it as soon as possible. These communications in 2014 are not particularly illuminating. Mr Williams was offering to deposit $50,000 to avoid having a cheque drawn on his company for $100,000 presented. This is consistent with on offer to partially pay a debt of $200,000 that remained unpaid under the 2012 agreement. It might be consistent with partial payment of a guaranteed payment of $200,000 under the Rasmussen arrangement. In any case, the reference to "the Rasmussen deal" does not indicate whether the deal was a legally binding agreement.
• [181] Similar observations apply to Mr Taylor's requests in November 2014, in which he reported that he had a cashflow issue and complained that the matter had been "dragged out". He asked Mr Williams if he was in a position to loan him $50,000 that could be adjusted when settlement happened on the Rasmussen Project. Counsel for Mr Williams focuses upon the use of the word "loan" as distinct from "advance" or "pay" or "repay". He submits that if there had been no binding arrangement in relation to Rasmussen, then the occasion for Mr Taylor to ask for a loan would not have arisen.

• [182] I place little weight upon this email. It seems that Mr Taylor must have realised by 2014 that his only hope of being paid by Mr Williams was if Mr Williams made a profit out of the Rasmussen Project. The request for Mr Williams to loan him $50,000 is equivocal as to whether it was a binding Rasmussen agreement or not. Mr Taylor, like Mr Williams, appeared to pin his hopes on a profit emerging from the much- delayed Rasmussen Project.

• [183] That Mr Williams did not regard the Rasmussen agreement to have been formally concluded and that he therefore remained vulnerable to a claim to pay the $200,000 balance of the original debt is shown by his trying to interest Mr Taylor in investing in a new project, Melrose Park, in mid-2019. He wrote to Mr Taylor on 5 June 2019 about settling a final amount, asked for a copy of the Deed of Debt Acknowledgement, and proposed linking the settlement to Mr Williams' profit share in the Melrose Park Project.

• [184] If Mr Williams had understood that his obligations under the 2012 Deed has been replaced by a binding agreement in respect of the Rasmussen Project, he would have had no occasion to ask for the 2012 Deed in order to settle the amount he owed Taycon and to propose an investment in Melrose Park.

• [185] The matter became the subject of a dispute and Mr Taylor placed the matter in the hands of his lawyers, who initiated proceedings initially in the Magistrates Court so as to avoid a limitations defence. Communications between the parties continued, including a document that was drafted by Mr Taylor's lawyers. Its recitals about the history of the matter are not particularly probative. It does not refer to an agreement, only to an offer being made in 2012, and asserts that Mr Williams agreed in March 2016 that Taycon's interest in the Rasmussen deal was $1,500,000. This alleged admission by Mr Williams does not reflect the reality of the situation because there was only an offer of a percentage in the Rasmussen Project, not a fixed amount. Therefore, the recital is unreliable. It was the kind of recital that might be included to explain why matters would be resolved for the $1,500,000 that the recital alleged Mr Williams and his company owed Taycon.

• [186] Assertions made in 2019 and 2020 are not particularly probative on the present issue. The matters that were discussed in October 2012 and more contemporaneous documents are more important.

• [187] Finally, that Mr Williams (as well as Mr Taylor) did not regard the deal they discussed over the Rasmussen Project as having been concluded and binding as from the time of their meeting in October 2012 is apparent from its late appearance in this proceeding. The alleged Rasmussen Agreement defence was only pleaded this year, leading to the adjournment of the trial. There was no satisfactory explanation given at this trial for its late appearance by way of defence.

Were the terms discussed in October 2012 sufficiently certain and complete to be legally enforceable and did the parties intend their agreement to be immediately binding?

• [189] In October 2012, many matters remained to be discussed, negotiated, the subject of legal and accounting advice, and documented before a legally binding agreement was signed and concluded.

• [190] The matters discussed at the meeting at the Piaf restaurant in October 2012 involved an informal agreement or arrangement that provided a basis for further discussion. The terms of the agreement were not sufficiently certain to constitute a legally enforceable agreement that was immediately binding or an agreement that was binding, subject to the formality of a document that would simply record and reflect its terms. As discussed, many terms remained to be negotiated and agreed. There were fundamental misunderstandings between the parties about the nature of the "investment" and no agreement about the entity that would make the $200,000 investment at some stage and receive a share of the profit.

• [191] Mr Williams' submissions contest that there was not a binding agreement because the entity that was going to take up the offer had yet to be identified. He submits that the proposal was for the $200,000 then owed to Taycon to be applied to the Rasmussen proposal. He contends that because no other entity was mentioned at the lunch meeting it must have been Taycon that was the only other party to the agreement.

• [192] This submission is unpersuasive. Mr Williams' case is that Taycon was prepared that day to waive, forego, or somehow abandon its existing right to be paid $200,000 by Mr Williams. If that is so, then it is uncertain what it obtained in return or, more precisely, the investment vehicle that would obtain the right to a five per cent profit share once Mr Williams was relieved of his existing obligation to pay $200,000. Also, the entity that would pay the profit share to Mr Taylor's entity was not identified. An agreement between Mr Williams and Taycon as parties would not be suited to imposing obligations on other unspecified corporate parties. In other words, the parties who were relieved of obligations (Mr Williams in particular), the parties who assumed obligations (one of Mr Williams' investment vehicles possibly along with his co-venturers) and the party that acquired new rights (Mr Taylor's preferred investment vehicle), as well as Taycon, would need to be identified and become parties to an agreement that was documented and executed by those parties.

• [193] This is what Mr Taylor anticipated happening. Mr Williams also anticipated engaging his lawyer, but no such agreement was ever produced. Negotiations dragged on for years.

• [194] There simply was insufficient certainty about fundamental matters such as the nature of the investment and how a five per cent share would be arrived at, and when it would be paid.

• [195] Mr Williams' submissions raise three matters that are said to demonstrate that the parties did enter into a legally binding agreement in the course of the oral conversation that occurred in the restaurant in October 2012.
• [196] The first is Mr Williams' evidence that there was no discussion at that meeting about the agreement being documented. As noted, Mr Taylor's understanding was that the agreement would need to be documented. I am not convinced of the reliability of Mr Williams' recollection that there was no discussion in the course of the October 2012 meeting about the agreement being documented. The passage of time, self-interest and reconstruction impair the reliability of his evidence. In any case, if there was no discussion at the meeting about the agreement being documented, this does not mean that a legally enforceable agreement was concluded at the lunch meeting. It is consistent with the agreement being of a general kind that was not presently binding and which would be followed by further discussions.

• [197] The subject matter of the agreement and its terms were matters of some complexity. One would not infer that Taycon and Mr Williams intended to conclude a formal contract based on their discussions that day. Other matters needed to be discussed, resolved and documented. The better view is that the parties did not intend to be legally bound until these matters were attended to.

• [198] The second matter relied upon in Mr Williams' submission is the evidence that Mr Taylor was enthusiastic about the proposal and saw it as being "too good to pass up". Mr Taylor's enthusiasm for the proposal is not in dispute. It was a tempting and apparently generous offer. This does not mean that he agreed to be immediately bound without the terms of the agreement, including the parties to it, being documented. As I have noted, his evidence that he needed to get an offer in writing from Mr Williams so he could assess it and obtain legal and accounting advice about how to "move it forward" and then to formalise an agreement was convincing.

• [199] Many parties to negotiations are enthusiastic and aspire to make a profit. It does not mean that they agree to be immediately bound based on a general understanding about what may be entailed in an ill-defined "investment" in a project being undertaken by unnamed corporate entities.

• [200] The third matter relied upon in submissions are the communications that followed, which included the language of "agreement" and "arrangement". As already noted, the language is consistent with an informal agreement or arrangement that is not presently legally binding.

• [201] For these reasons, I decline to find that the parties made a binding agreement at the lunch meeting in October 2012 in relation to the Rasmussen Project.

• [202] The parties were in broad agreement about the principles governing the penalty doctrine. The law has been authoritatively stated in recent decisions of the High Court and, therefore, it is unnecessary to chart the history of the law in this area. The most recent High Court decision cited by the parties is Paciocco v Australia and New Zealand Banking Group Limited.12 In the earlier authority of _Ringrow Pty Ltd v BP Australia Pty Ltd_13 it was said that for a contractual provision to be a penalty:

12 (2016) 258 CLR 525; [2016] HCA 28.

13 [2005] HCA 71; (2005) 224 CLR 656 at 669 [32].

"The propounded penalty must be judged 'extravagant and unconscionable in amount'. It is not enough that it should be lacking in proportion. It must be 'out of all proportion'."

• [203] The decision in Paciocco consisted of separate reasons. They are distilled in the New South Wales Court of Appeal decision in Arab Bank Australia Ltd v Sayde Developments Pty Ltd.14 McDougall J (with whom Gleeson JA and Sackville AJA agreed) said:15

"(1) Lord Dunedin's propositions were not 'rules of law', but 'distillations of principle': at [143] (Gageler J); compare at

[32] (Kiefel J) and at [260] (Keane J).

(2) The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance: at [29] (Kiefel J); at [127], [159], [166] (Gageler J); at [254], [259], [273] (Keane J).

(3) One way of testing whether the impugned stipulation is penal - intended to punish - is to inquire whether the sum that it stipulates to be payable on breach (as I have indicated, the equitable origins and continuing equitable operation of the principle have no present relevance) is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach: at [29], [54] (Kiefel J); at [158]-[162] (Gageler J); at [221] (Keane J).

(4) 'Damage' in this sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation: at [33], [42]- [47] (Kiefel J); at [145], [160]-[162] (Gageler J); at [216], [283](Keane J).

(5) The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post): at [62] (Kiefel J); at [169] (Gageler J).

(6) Mere disproportion between the stipulated sum and the possible damage is not enough to indicate 'penalty'; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation: at [54] (Kiefel J); at [164] (Gageler J); at [221], [240],

14 [2016] NSWCA 328; (2016) 93 NSWLR 231.

• [204] The judgments in Paciocco emphasised the importance of having regard to legitimate commercial and other interests. Kiefel J (as the Chief Justice then was) stated:16

"The process to be undertaken in order to determine whether an amount is unconscionable or extravagant was not further explained in Dunlop and Clydebank. The figure agreed to be paid cannot be compared with a sum certain, as is the case with Lord Dunedin's first 'test'. It can only be gauged against the identified interests of the party in whose favour the stipulation is made."

• [205] Earlier in her reasons Kiefel J referred to the question of whether a provision for payment of a sum of money on default is "out of all proportion to the interests of the party which it is the purpose of the provision to protect".17 Her Honour also stated that:18

"[A] sum may not be stipulated for payment on default if it is stipulated as a threat over the person obliged to perform ...

[I]t may not be stipulated where the purpose and effect of requiring payment is to punish the defaulting party ...

It may be inferred ... that a sum stipulated for payment on default is a penalty if it bears no relation to the possible damage to or interest of the innocent party."

• [206] For a provision to be "distinctly punitive in its character" it must do more than provide a very strong incentive to perform. The incentive to perform must be, as Gageler J (as the Chief Justice then was) stated, "so far out of proportion with the positive interest in performance that the negative incentive amounts to deterrence by threat of punishment".19
• [207] Gageler J also observed20 that the innocent party's interest can be broader than mere compensation for damages and can encompass interests in contractual performance which are "intangible and unquantifiable", even extending beyond the twin limbs of foreseeability in Hadley v Baxendale.21
• [208] Keane J in Paciocco stated:22

"Given the importance of the values of commercial certainty and freedom of contract in the law, the courts will not lightly invalidate a contractual provision for an agreed payment on the ground that it has the character of a punishment."

• [209] The penalty doctrine applies to contractual interest provisions, where an agreement to pay interest operates as a form of damages for late repayment.23

21 (1854) 9 Exch 341 [156 ER 145].

23 Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 at [47]- [48].

• [210] The defence relating to penalties advanced by Mr Williams relies upon the general law, rather than any statutory prohibition on unconscionable conduct.

• [211] Taycon had a legitimate interest in maintaining cashflow that was essential to the operation of its relatively small business.

• [212] Its business model was to only ever do one job at a time. It generally had one or two carpenters and Mr Taylor working on a job. It relied upon its overdraft facility with the Commonwealth Bank and maintaining a good relationship with its bank. The overdraft was limited and once it exceeded $50,000 the bank charged rates in excess of 15 per cent.

• [213] If a debt like that owed by Mr Williams was not paid, then, as Mr Taylor explained, it "created a lot of hardship and distress" because the business was "hamstrung".

• [214] By mid-April 2012, when the Deed Acknowledging Debt eventually came to be signed by Mr Williams, Mr and Mrs Taylor had to sell small shareholdings in Telstra and the CBA that were owned by a related company and transfer the net proceeds into Taycon's bank account.

• [215] On 13 April 2012, Taycon's local business banker had been instructed to dishonour a payment for a Router machine.

• [216] Taycon had to negotiate a temporary extension of its overdraft up to $80,000 and the approval was granted on the basis that the extended amount had to be repaid on 30 May 2012.

• [217] The official cash rate target set by the Reserve Bank of Australia over the relevant periods in 2011 and 2012 are agreed. The parties also agree that major Australian banks were, during each of those periods, offering loans at rates of no more than four per cent higher than the RBA rates.

• [218] At the time, the overdraft rate was approximately 12 per cent on sums less than

$50,000 and approximately 15 per cent for balances in excess of $50,000.

• [219] Taycon's legitimate interests were not confined to exposure to interest rates of more than 15 per cent on an overdraft account. The absence of cashflow inhibited its entire business strategy. It hamstrung its ability to take on new building projects whereupon it would immediately incur costs on a new job associated with the supply of materials, engaging subcontractors and other expenses. If it did not have the cashflow and financial resources to take on the next job, then potential customers would go elsewhere and the opportunity to move without delay from one job to the next would be lost. Mr Taylor and other employees would have to be engaged in sideline work and a lack of cashflow would challenge the business' ability to continue the employment of its few carpenters.

• [220] Individuals like Mr and Mrs Taylor could not be reasonably required to deplete their superannuation and continue to loan money to Taycon. Taycon had legitimate interests in obtaining credit from a commercial source like the Commonwealth Bank

and in maintaining its relationship with the bank, rather than calling upon Mr and Mrs Taylor to deplete their financial resources by propping it up.

• [221] The provision for interest in clause 4 of the draft deed protected Taycon's legitimate interests.

• [222] The provision was not the product of unequal bargaining power. Mr Williams was a sophisticated businessperson who wished to delay payment to pursue valuable business opportunities and for his own cashflow purposes. Mr Williams was able to negotiate at the April meeting an extension of time to repay a debt that was due on 31 March until 30 May 2012. He was able to negotiate interest on the debt to not accrue until 1 June 2012, rather than 1 April 2012 as stated in the draft deed. At the subsequent meeting that involved the Flights Discussion he was able to negotiate further extensions of time for payment that affected when interest would begin to accrue.

• [223] In seeking a provision for interest to accrue in the event of default on payment, Mr Taylor had no interest in punishing Mr Williams. Clause 4 of the agreement was not drafted and insisted upon by Mr Taylor as some kind of threat to punish Mr Williams in the event he defaulted.

• [224] The terms of the interest provision, including the date after which interest would accrue, were the subject of a process of negotiation.

• [225] The agreed rate was a reasonable reflection of the costs and other disadvantages to Taycon of being kept out of money owed to it, as well as the commercial and other advantages to Mr Williams in not having to pay the money sooner.

• [226] The provision for interest differed in form from the earlier lump sum late payment fee of $50,000 that Mr Williams offered and Mr Taylor accepted. I do not rely upon the $50,000 as a basis to calibrate an effective rate of interest for Taycon's loss of use of money up to and including 31 March 2012. It simply is part of the commercial context in judging whether the interest provision in the Deed should be judged to be "extravagant and unconscionable in amount".

• [227] When the Deed came to be signed in April the $324,819.02 that had earlier been invoiced had been outstanding for some time and, as a result of the parties' negotiations, it became payable on 30 May 2012, with interest only beginning to accrue on 1 June 2012.

• [228] The parties did not expect in mid-April when the Deed was signed, or in May when their agreement was varied as a result of the Flights Discussion, that Mr Williams would be in default and interest would need to be charged. To the extent the contingency of default was taken into account, the parties did not envisage that Mr Williams would take a very long time to pay what he owed, together with interest. He was always confident of being paid in the near future and being able to pay Taycon. His confidence was transmitted to Mr Taylor.

• [229] The question of whether the agreed provision for interest is a penalty takes into account the circumstances that applied when the agreement was made, not at the time of breach, and certainly not on the basis of a retrospective view many years later. No defence or cross-claim is brought in reliance upon statutory provisions to argue that

claiming interest over a period of years in respect of an interest rate that was anticipated to apply for only a short time is unconscionable.24

• [230] In determining whether the interest that was payable on default is "out of all proportion" to the legitimate interests of Taycon, one might start with Taycon's obligation to pay 15 per cent interest on an overdraft balance that exceeded $50,000. That is only one financial consequence of not being paid on time. A delay in payment and obtaining essential cashflow had other consequences and risks for Taycon. The absence of cashflow inhibited its ability to take on new work, and jeopardised its business model and financial viability.

• [231] The interest to which Taycon became entitled was not "extravagant and unconscionable in amount" in the circumstances that prevailed at the time Mr Williams agreed to the provision. It was commensurate to the financial and other consequences to Taycon of non-payment. The provision was not stipulated for the purpose of punishment and it bore a relationship to the potential damage that would be suffered by Taycon in the event of default. The interest rates stipulated an amount that was not disproportionate, let alone "out of all proportion". It was not unconscionable or extravagant. It was not lacking in proportion to Taycon's interest in Mr Williams performing his obligation to pay a large debt that was important to Taycon's cashflow and the conduct of its business. The amount that was owed was a substantial amount to Taycon's business.

• [232] I conclude that the provision as to interest that was agreed by the parties is not a penalty. Its purpose was not to punish for non-payment. Its purpose was to compensate Taycon for the consequences of being deprived of the use of money it was owed and which it needed to conduct its business.

• [233] As appears from my conclusion on the first issue, Taycon is entitled to judgment on the basis that the outstanding balance of $200,000 should have been paid on or before 31 August 2012, and that interest on outstanding balances accrued in accordance with clause 4 of the Deed, from and including 1 September 2012.

• [234] The parties are directed to calculate the amount owed by Mr Williams to Taycon on the basis of these findings, after taking into account the agreed repayments.

• [235] The calculation should be to a fixed date upon which judgment will be entered. I propose a date in the week commencing 29 January 2024. I will adjourn the matter to a date to be fixed in that week. If the amount is not agreed, then I will make directions for the further hearing of the matter. Otherwise, I expect to give judgment that day and also hear short submissions on costs in the event the parties are unable to agree an appropriate order as to costs.

• [236] The only order I will make today is that the matter be adjourned to a date to be fixed in the week commencing 29 January 2024. The parties are directed to confer and communicate with my Associate about a date and time for a short hearing that week.

24 cf PSAL Ltd v Kellas-Sharpe & Ors [2012] QSC 31.