The Owners - Strata Plan No 84741 v Nazero Constructions Pty Limited & Ors - [2016] NSWSC 832 - NSWSC 2016 case summary

Supreme Court of NSW|2016-05-31|Before: Bergin CJ

Judgment

These proceedings arise out of a dispute in respect of alleged defects in an apartment block at 3 Donnellan Circuit, Clovelly (the Property), built by the first defendant, Nazero Constructions Pty Limited (Nazero), under a construction contract (the Contract) with the third defendant, Iris Diversified Property Pty Limited (Iris).

The Contract

The Contract executed on 12 July 2011 was between Iris, as Principal, Nazero, as Contractor, and Mr Wardy Younan, as Guarantor. The Front Sheet of the Contract included the following: Construction Contract Formal Instrument of Agreement Incorporating Amended General Conditions of Contract AS 4000-1997 (Incorporating Amendment Nos. 1, 2 & 3)
The Formal Instrument of Agreement (the Instrument) included the following provisions: Parties 1 Iris Diversified Property Pty Ltd (ACN 128 984 056) atf Iris Diversified Property Unit Trust (ABN 29 958 749 646) of 381 Clovelly Road, Clovelly NSW, 2031 (Principal) 2 Nazero Constructions Pty Ltd (ABN 82 001 602 259) of 20/332 Military Road. Cremorne NSW, 2090 (Contractor) each a party and together "the parties" 3 Ward Younan of 20/332 Military Road Cremorne NSW, 2090 (Guarantor) Introduction A. The Principal requires the construction of the Works more particularly described in the Contract, located at 381 Clovelly Road, Clovelly New South Wales. B. The Contractor has represented to the Principal that it has the skill and expertise required to perform and execute the whole of the Works in accordance with the requirements of the Contract. C. In reliance upon the Contractor's representations the Principal wishes to engage the Contractor to perform and execute the Works on the terms set out in the Contract. D. The Contractor wishes to accept the engagement and carry out the Works on the terms set out in the Contract. E. The Guarantor unconditionally and irrevocably guarantees to the Principal due performance by the Contractor of all of its obligations and liabilities under and in accordance with the Contract. 1. Performance and Guarantee 1.1 Performance (a) The Contractor shall carry out the Works in accordance with the Contract and will perform, fulfil, comply with, submit to and observe all and singular the provisions, conditions, stipulations and requirements and all matters and things expressed or shown in or reasonably to be inferred from the Contract which are to be performed, fulfilled, complied with, submitted to or observed by or on the part of the Contractor. (b) In consideration of the promises made by the Contractor in the Contract the Principal will make payment to the Contractor at the times and in the manner provided for in the Contract. (c) The parties agree that they shall do everything reasonably necessary to give effect to the Contract. 1.2 Guarantor's Guarantee (a) In consideration of the Principal entering into the Contract with the Contractor, the Guarantor unconditionally and irrevocably guarantees to the Principal due performance by the Contractor of all of its obligations and liabilities under and in accordance with the Contract. (b) If at any time the Contractor fails to perform any of its obligations under the Contract, the Guarantor shall perform (or procure the performance of) the Contractor's obligations under the Contract and shall pay any sums that may be payable under or in connection with the Contract in consequence of the non-performance of the Contractor of any of its obligations there under. (c) The guarantee provided by the Guarantor is a continuing obligation despite any intervening payment, settlement or other thing and extends to all of the Contractor's obligations and liabilities in connection with the Contract. The Guarantor waives any right it has of first requiring the Principal to commence proceedings or enforce any other right against the Contractor or any other person before claiming from the Guarantor. (d) The guarantee provided by the Guarantor is in addition to any other security which the Principal may at any time hold and may be enforced without first having recourse to any such security. (e) The Principal's rights to the guarantee provided by the Guarantor are additional to and do not merge with or affect and are not affected by any mortgage, charge, or other encumbrance held by the Principal or any other obligation of the Guarantor to the Principal, despite any rule of law or equity or any statutory provision to the contrary. (f) To the extent that any amount is owing to the Principal in respect of the Contractor's liabilities under or in connection with the Contract, the Guarantor shall not: i) prove in competition with the Principal in respect of that amount owing if the Contractor goes into liquidation, and shall in any event account to the Principal for any amount received from such liquidation; or ii) be or claim to be, entitled to, or share in, by way of contribution, indemnity, subrogation or otherwise the benefit of any security or guarantee or a share in it now or subsequently held by the Principal in respect of the Contractor's obligations or liabilities under or in connection with the Contract. (g) The guarantee provided by the Guarantor shall expire when all the obligations of the Contractor have been performed under the Contract. 2. Contract Documents The Contract comprises the following documents together with their respective annexes and schedules which shall have priority in the following order: (a) this Formal Instrument of Agreement; (b) the general conditions of contract in the AS 4000-1997 (hereinafter called "the General Conditions"), as amended; (c) documents referred to in the General Conditions; and (d) all other Annexures to the General Conditions, together (and each one of them) termed the "Contract Documents". 3. Entire Contract (a) The documents listed in article 2 constitute the entire agreement between the parties in respect of the Works and the Contract supersedes all previous agreements, undertakings and communications, whether written or oral, relating to the subject matter of the Contract. (b) The parties shall not be entitled to rely upon nor claim at law whether in contract, tort or otherwise in law in relation to any statements, representations or warranties made or given by either party during the course of negotiations which are not contained in or referred to in this Contract and/or the Contract Documents. (c) The Contract may be varied only by written instrument executed by both parties. (d) In this Formal Instrument of Agreement words and expressions shall have the meanings as are respectively assigned to them in clause 1 of the General Conditions. 4. Contract Sum The Principal shall pay the Contractor the contract sum of $4,000,000 (exclusive of GST) (or such other sum as shall be determined from time to time in accordance with the provisions of the Contract) at the times and in the manner provided for in the Contract. 5. Work performed prior to date of execution of contract The terms of the Contract apply to all of the Works whether performed before or after the date of execution of the Contract.

Payment Dispute/First Proceedings

On 8 August 2012 Nazero served a Payment Claim on Iris for $1,095,342.16. Iris disputed that sum and an application for adjudication was made by Nazero under the Building and Construction Industry Security of Payment Act 1999. On 14 September 2012 the Adjudicator issued a Determination in Nazero's favour in the amount of $919,560.48.
On 24 September 2012 Iris commenced proceedings in the Technology and Construction List (the First Proceedings) against Nazero and the Adjudicator seeking a declaration that the Determination be declared void. Mr Younan was not a party to those proceedings.
On 28 September 2012 Iris, Nazero and Mr Younan executed a Deed of release and variation (the Deed) and on the same day consent orders were made dismissing the First Proceedings with an order that each party to the proceedings pay their own costs.

Deed of Release and Variation

The Deed included the following: 1 Iris Diversified Property Pty Ltd (ACN 128 984 056) atf Iris Diversified Property Unit Trust (ABN 29 958 749 646) of 381 Clovelly Road, Clovelly NSW, 2031 (Principal) 2 Nazero Constructions Pty Ltd (ABN 82 001 602 259) of 20/332 Military Road. Cremorne NSW, 2090 (Contractor) each a Party and together "the Parties" 3 Ward Younan of 20/332 Military Road, Cremorne NSW, 2090 (Guarantor) Background A On or about 12 July 2012, the Principal and the Contractor entered into an amended AS 4000-1997 for the construction of a residential building at 381 Clovelly Road, Clovelly NSW (Contract). B The Guarantor unconditionally and irrevocably guaranteed the due performance by Nazero of all of its obligations and liabilities under and in accordance with the Contract. C The Contractor has made Payment Claims under the Contract No 1 to 17. D Payment Claim 17 is made under clause 37.4 being the Final Payment Claim under the Contract. E Payment Claims 15, 16 and 17 remain unpaid. F Payment Claims 1 to 14 have been paid in full by the Principal. G The Principal, the Contractor and the Guarantor have agreed to settle the Disputed Claims and all other Claims that may have existed in relation to the Contract or the Works on the terms set out in this deed. The Parties agree 1 Defined terms and interpretation 1.1 Definitions in the Dictionary A term or expression starting with a capital letter. (a) which is defined in the Dictionary in Schedule 1 (Dictionary), has the meaning given to it in the Dictionary; … (d) which is defined in the Contract, but is not defined in the Dictionary, Corporations Act, or the GST Law has the meaning given to it in the Contract. … 2 Settlement 2.1 in consideration of the releases in clause 3 of this Deed the Principal will pay the Contractor $920,525 plus GST within 7 working days of receipt of the tax invoice from the Contractor ('Settlement Sum'). 2.2 The Settlement Sum in clause 2.1 includes the return of retention owing on Practical Completion and 50% of the return of retention of the end of the Defects Liability Period. 3 Releases 3.1 Subject to the parties complying with the terms of this Deed the parties release and forgo each other from all Claims against each other under the Contract whether known or unknown at the time of signing this Deed. 3.2 The release in clause 3.1 above does not extend to the Contractor's obligations under the Defects Liability Period under Contract or under the Home Building Act 1989. 3.3 The Contractor agrees not to make any claims under the Building and Construction Industry [Security] of Payment Act 1999 or to take steps to obtain any judgment against the Principal arising out of Payment Claims 14, 15 and 16. 4 Supreme Court Proceedings The Principal agrees to dismiss the Supreme Court Proceedings and each party pay its own costs which were commenced on 24 September 2012. … 6 General … 6.2 Costs, expenses and duties Except as expressly provided in this deed each Party and the Guarantor must pay its own costs and expenses of negotiating, preparing and executing this deed and any other instrument executed under this deed. … 6.4 Jurisdiction Each Party and the Guarantor irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of New South Wales. … 6.7 Authority to Execute (a) Each Party who executes this document and the Guarantor declares that they have full authority to execute those documents and that they have obtained any necessary consents or approvals. (b) Each person who executes this document on behalf of a Party under power of attorney declares that he or she is not aware of any fact or circumstance that might affect his or her authority to do so under that power of attorney. 1 Dictionary In this deed: Claims means a claim under the Contract for any monies or for any adjustment to the Contract Sum or for any EOT of Practical Completion or for costs, expense, or loss or damage on any basis whatsoever including, without limitation, a claim: (a) pursuant to the Contract; (b) in tort (including negligence); (c) on a quantum meruit; (d) pursuant to quasi contract; (e) for unjust enrichment; or (f) (without limitation) pursuant to any other principle of law or equity (including by statute or otherwise (including negligent misrepresentation). and includes any allegation of a claim. Disputed Claims means the for claims under the Contract by Nazero in relation to PC15, 16 and 17. … Execution Date means the date this deed is executed by the parties and the Guarantor. 2 Interpretation In this deed the following rules of interpretation apply unless the contrary intention appears: … (d) where a word or phrase is given a particular meaning, other parts of speech and grammatical forms of that word or phrase have corresponding meanings;

Present proceedings

On 19 February 2015 the plaintiff, The Owners Strata Plan No 84741, commenced proceedings against Nazero and Iris for damages for breach of warranties under the Home Building Act 1989. Nazero did not take part in the proceedings and did not appear when they were listed for hearing as between the plaintiff and Nazero on 16 October 2015.
On 16 October 2015 Hammerschlag J found that the structural defects as alleged had been established and entered judgment in the plaintiff's favour for $1,452,419.32 and ordered Nazero to pay the plaintiff's costs of the proceedings. These findings did not bind Iris.
The balance of the proceedings between the plaintiff and Iris continued and Iris filed a First Cross-Claim dated 30 March 2016 against Wardy Younan, the then sole director of Nazero, in which it sought a declaration that Mr Younan, as Guarantor of Nazero's obligations under the Contract, is liable to remedy any of Nazero's breaches of the statutory warranties or in the alternative, is liable to pay Iris such sum as it may be ordered to pay the plaintiff.
On 6 May 2016 orders were made for the parties to agree on questions to be determined separately before any other questions in the proceedings. On 19 May 2016 orders were made by consent for three questions to be determined separately before any other questions in the proceedings. The matter was listed for hearing on 31 May 2016.
The proceedings in relation to the separate question were heard on 31 May 2016 when Mr H Chiu, of counsel, appeared for the plaintiff; Mr A S McGrath SC, of counsel, appeared for Iris, and Mr L Gor, of counsel, appeared for Mr Younan. The questions were reduced to a single question for determination as follows: On the proper construction of the Deed of variation and release dated 28 September 2012, is the cross defendant, Ward Younan, released from any liability to the cross claimant, Iris Diversified Property Pty Limited, under the "Construction Contract; Formal Instrument of Agreement" dated 12 July 2011 between Iris Diversified Property Pty Limited, as Principal, Nazero Constructions Pty Limited, as Contractor and Ward Younan, as Guarantor.

Submissions

Although there were other matters upon which the parties addressed, it is in the circumstances appropriate to deal only with their submissions on the real issue in dispute which is whether the expression "the parties" in clause 3.1 of the Deed included Mr Younan.
Mr Younan contended that the Deed released him from all obligations or liability under the Contract. He submitted that the term "parties" in clause 3.1 of the Deed must refer to Nazero, Iris and himself because the word is not capitalised. It was also submitted that the Court should not lightly infer that the word "parties" was erroneously used instead of the word "Parties" particularly as the Deed was executed by persons who were legally represented.
Mr Younan submitted that if the purpose of the Deed was to address no more than the dispute between Iris and Nazero in relation to the First Proceedings then there was no need to make him a "counter party" to the Deed. He submitted that he was an essential party to the Deed having regard to his liability in the Instrument as "continuing despite any intervening payment, settlement or other thing".
Mr Younan also submitted that the distinction drawn in the Deed between "Disputed Claims" and "Claims" supports the proposition that the term "parties" refers to each of Iris, Nazero and himself. Reliance was also placed on the obligations in the Deed for him to pay his own costs, submit to the non-exclusive jurisdiction of New South Wales, and declare that he has authority to execute the Deed (clause 6).
Iris contended that Mr Younan was not released under the Deed in respect of the claims in these proceedings. It submitted that the word "parties" should be construed in accordance with the introductory section of the Deed which identifies Iris and Nazero as "the Parties". It was submitted that the word "parties" is simply another grammatical form of "Parties" in accordance with schedule 1 of the Deed that provides "where a word or phrase is given a particular meaning, other parts of speech or grammatical forms of that word or phrase have corresponding meanings".
Iris submitted that the release in clause 3.1 cannot extend to Mr Younan because it was subject to the parties compliance with the terms of the Deed and Mr Younan had no substantive obligations under the Deed. It was also submitted that if clause 3.1 releases Mr Younan from his obligations under the Instrument, then he is still liable with respect to breach of warranties under the Home Building Act 1989 on account of the exception to the release in clause 3.2 of the Deed. It was also submitted that it would not be commercially sensible and indeed remarkably odd if clause 3.2 excluded Nazero's obligations under that Home Building Act from the release but did not exclude the guarantee of those obligations by Mr Younan.
The plaintiff supported the submissions made by Iris.

Consideration

In determining the extent of the release in the Deed it is necessary to have regard to "the ordinary meaning of the release taking into account the terms of the Deed as a whole and by giving the words within it their natural and fair meaning. This is done having regard to their context within the Deed and in the context of the parties relationship and all relevant facts surrounding the transaction so far as was known to the parties at the time the Deed was executed": Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 324 at [77]. It is also important to identify the commercial purpose or objects to be secured by the Deed: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 325 ALR 188, 198 [47].
These were commercial parties operating within the construction industry. Nazero and Iris had been in a commercial relationship in respect of the construction of the apartment block for approximately 15 months by the time they entered into the Deed. During that period Nazero had served 17 Payment Claims on Iris, 14 of which had been paid. Payment Claim 15 was the subject of the Adjudication and the First Proceedings. Payment Claims 16 and 17 were not paid and it appears Iris disputed Nazero's entitlement to the amounts in those Claims. The outcome of the First Proceedings, had they gone to trial, would not have finalised the disputes between Iris and Nazero.
The object of the Deed was to give effect to the decision by Iris and Nazero to settle not only the First Proceedings in relation to Payment Claim 15 but also their disputes about Payment Claims 16 and 17. This required not only entry into the Deed but also the making of orders by consent to finalise the First Proceedings. The fact that the First Proceedings were to be finalised was recognised in clause 4 the Deed.
It is necessary to decide whether the expression "the parties" in clause 3.1 of the Deed referred only to Iris and Nazero or to Iris, Nazero and Mr Younan. If it is the former, Mr Younan accepted that he is not released under the Deed and the answer to the separate question should be in the negative.
The Contract defined a "party" as Iris or Nazero and "the parties" as Iris and Nazero together. The use of the expression "parties" (rather than "Parties") in in clauses 1.1(c), 3(a), (b) and (c) of the Contract clearly referred to Iris and Nazero. Mr Younan was defined as and referred to as "the Guarantor".
The Deed defined "Party" as Iris or Nazero and "the Parties" as Iris and Nazero together. Mr Younan was defined as and referred to as "the Guarantor".
Although Iris and Nazero were defined in the Deed as "the Parties", such expression is only used once after the "Background" section of the Deed and before clause 1.2 where it is recorded that "The Parties agree". All other references in the Deed in this regard were to "the parties".
The expression "Party" was used in the Deed, although on occasions the word "party" was used. The provisions relating to the costs of producing the Deed specifically referred to "each Party and the Guarantor". This was clearly intended to identify Nazero and Iris as "each Party" and Mr Younan as "the Guarantor" requiring them to pay their own costs and expenses of negotiating, preparing and executing the Deed. The same expression, "Each Party and the Guarantor", is used in clause 6.4 of the Deed pursuant to which Nazero, Iris and Mr Younan submitted to the non-exclusive jurisdiction of the Courts of New South Wales. The expression "Each party who executes this document and the Guarantor" is used in clause 6.7(a) pursuant to which Iris, Nazero and Mr Younan declared that they had full authority to execute the Deed.
The definition of the term "Execution Date" is important. It was defined as the date that the Deed "is executed by the parties and the Guarantor". This is the only instance in the Deed that the expression "the parties" is used in conjunction with the expression "and the Guarantor". It is clear that the word "parties" was intended to refer to Iris and Nazero.
Clause 3.1 released "the parties" from all "Claims" against each other as defined in the Dictionary. Clause 3.2 excluded the Contractor's (i.e Nazero's) obligations under the Defects Liability Period under the Contract or under the Home Building Act 1989 from the release in clause 3.1. Construing clauses 3.1 and 3.2 together it is clear that the intention of "the parties" was that they did not "release and forgo each other" in respect of Nazero's obligations under the Defects Liability Period under the Contract or under the Home Building Act 1989.
Taking into account the object of the Deed, the language used and the context in which the expression appears in the Deed, I am satisfied that reference to "the parties" in clause 3.1 means Iris and Nazero together. I am satisfied that it was not intended to include Mr Younan within that expression. If it had been intended to include Mr Younan in clause 3.1, then the expression "the parties and the Guarantor" would have been used.
The title "Deed of variation and release" reflected the intention to vary the existing contractual relationship and to provide certain releases. The variation was that Nazero was no longer obliged or liable to perform obligations under the Contract except those referred to in clause 3.2 of the Deed. That had a consequence for Mr Younan in that he could no longer be called upon to guarantee the performance of obligations from which Nazero had been released in clause 3.1 of the Deed. However he remains liable as Guarantor in respect of Nazero's continuing obligations referred to in clause 3.2 of the Deed.

Conclusion

The expression "the parties" in clause 3.1 of the Deed means Iris and Nazero.
The answer to the separate question is "no".
If Iris, Nazero and Mr Younan are unable to agree on a costs order, I will hear argument on the occasion that the matter is next listed.
The matter is listed for directions in the Technology & Construction List on 1 July 2016.

Amendments 23 June 2016 - typographical error DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 June 2016

The Owners - Strata Plan No 84741 v Nazero Constructions Pty Limited & Ors

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Judgment (9 paragraphs)

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