Avopiling (WA) Pty Ltd v Central Systems Pty Ltd
[2015] WASC 82
•11 MARCH 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: AVOPILING (WA) PTY LTD -v- CENTRAL SYSTEMS PTY LTD [2015] WASC 82
CORAM: ALLANSON J
HEARD: 25 FEBRUARY 2015
DELIVERED : 11 MARCH 2015
FILE NO/S: CIV 2512 of 2014
BETWEEN: AVOPILING (WA) PTY LTD
Plaintiff
AND
CENTRAL SYSTEMS PTY LTD
Defendant
Catchwords:
Contract - Intention of parties - Settlement of existing dispute - Whether full and final settlement - Whether enforceable agreement - Turns on own facts
Legislation:
Nil
Result:
Judgment for plaintiff
Declarations made
Category: B
Representation:
Counsel:
Plaintiff: Mr W C J Zappia
Defendant: Mr A P Hershowitz
Solicitors:
Plaintiff: Jackson McDonald
Defendant: Minc Group
Case(s) referred to in judgment(s):
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Blair v Curran [1939] HCA 23; (1939) 62 CLR 464
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Howard Smith and Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21
ALLANSON J: The plaintiff and the defendant were in dispute over amounts owing under a construction contract. The plaintiff had issued a writ. In an exchange of phone text messages, the defendant offered and the plaintiff accepted an amount 'in full and final settlement'. The issue in the present action is whether the parties formed an enforceable agreement to settle their dispute, and, if so, whether it included the settlement of a foreshadowed counterclaim by the defendant.
The plaintiff, Avopiling (WA) Pty Ltd, is engaged in the business of carrying out piling, foundation and other construction work in Western Australia. The defendant, Central Systems Pty Ltd, is a civil construction company.
On or about 18 December 2013, Avopiling and Central entered into a written agreement titled 'Subcontract Agreement Roy Hill Package 2 ‑ Bridge Construction Avopiling ‑ Piling Works Revision 4 Subcontract Agreement No 004413-CON-SCA-002' (the Contract). Pursuant to this agreement, Avopiling provided to Central two bank guarantees with the National Australia Bank as security. Each guarantee was for $167,195.37.
It is not necessary for the purpose of these reasons to consider the terms of the Contract in any detail.
The Tripartite Agreement
Eureka Personnel Pty Ltd entered into a subcontract with Avopiling.
On 24 June 2014, Avopiling, Central, and Eureka Personnel executed an agreement (the Tripartite Agreement), under which Central was to pay Eureka Personnel a subcontract payment of $526,935.01 that was owed to Eureka Personnel by Avopiling. By cl 2(e), Avopiling agreed that this payment by Central was to be deducted from the final payment due to Avopiling under the Contract. Otherwise, the Tripartite Agreement was expressed to not affect the claims made by Avopiling under the Contract, or the final amount due and payable under the Contract.
The dispute
In 2013 and 2014, disputes arose between Avopiling and Central.
On 30 April 2014, Central gave notice to Avopiling that the scope of the works was reduced, and that it required immediate demobilisation.
On 1 July 2014, Central gave notice of a review of subcontract status, and an assessment of the amounts outstanding between the parties 'in the interest of ensuring prompt contract closeout'. In that assessment, Central asserted that Avopiling owed it about $646,000, an amount calculated taking into account the payment made by Central to Eureka Personnel. The amount also took into account other deductions, including three amounts described as 'back charges'.
Avopiling gave notice of dispute, dated 16 July 2014. The notice of dispute also referred to the Tripartite Agreement, the direct payment made by Central to Eureka Personnel, and Avopiling's agreement to the deduction of that amount from the final amount due and payable to it under the contract.
On 22 August 2014, in a letter from Jackson McDonald (the solicitors for Avopiling) to Mr Mancini (the solicitor acting for Central), Avopiling restated its claims.
On 27 August 2014, Central responded to each of those letters. In response to Avopiling's threat of legal action, Central stated that any action would be vigorously defended, and that Central would counterclaim for amounts owing, as set out in the letter, including 'Interim Deductions Applicable' in the sum of $1,479,612.24. That amount was included in a deductions summary in the letter from Central dated 1 July 2014 and is the total of five separate claims, including the amount paid by Central to Eureka Personnel.
On 4 September 2014, Central wrote to Avopiling advising that it intended to take recourse against the full amount of security it currently held, being progress claim retentions and the two NAB guarantees. That precipitated the first application in this court.
The injunction application
On 8 September 2014, Avopiling filed an ex parte motion for an interlocutory injunction to restrain Central from having recourse to and converting the two guarantees. In a letter enclosing that application and supporting documents, Avopiling advised that it was finalising a writ of summons to be filed in the Supreme Court.
The writ
On 16 September 2014, Avopiling issued a writ, with an indorsement of claim, in which it claimed various amounts owing to it by Central. Avopiling claimed the sum of $2,598,276, alternatively damages for breach of contract. In par 1(b)(iii) of the indorsement, Avopiling claimed:
[Central] has failed to correctly assess the Variations pursuant to the Contract and failed to pay [Avopiling] all outstanding amounts owing under the Contract as follows:
A.the sum of $1,177,973 (plus GST) (alternatively $994,488 (plus GST)) due to access to the site not being continuous;
B.the sum of $383,863 (plus GST), being the difference between the amounts previously certified, agreed or determined as being payable and the amount previously paid to or on behalf of [Avopiling] under the Contract;
[Subparagraphs C to H detail specific variations claimed by Avopiling; subparagraph I has a claim for an amount in respect of revised rates]
The writ was served with an accompanying letter dated 17 September 2014. Together with the writ, the letter included an affidavit of Douglas Ashcroft, sworn 16 September 2014 and filed in support of the injunction application. The action number in the injunction application is different from the action number in the proceedings commenced by the writ. There could, however, be no misunderstanding on the part of Central that both actions were in relation to the same dispute. The affidavit attached various documents, including the letters from Central to Avopiling of 1 July and 27 August 2014.
The affidavit of Mr Ashcroft also contained a calculation setting out the difference between the total of the amounts agreed as payable by Central to Avopiling, the amount awarded in an adjudication determination on 29 August 2014, and the total amount paid to or on behalf of Avopiling under the Contract. In pars 11 to 14 of his affidavit Mr Ashcroft stated:
11.Avopiling has received payments from Centrals under the contract in the amount of $2,531,342 (exc GST) and payment of the further amount awarded to Avopiling in the adjudication totalling $323,095 (exc GST).
12.In addition to this amount the sum of $479,031 (exc GST) was paid on behalf of Avopiling to a subcontractor, Eureka Personnel Pty Ltd. Accordingly, the total amount paid to or on behalf of Avopiling is $3,333,469 (exc GST).
13.The difference between the total amount certified, agreed and determined as being payable under the Contract (leaving aside Avopiling's further claims) and the amount paid to or on behalf of Avopiling is $383,863.
14.At present, Central is in effect withholding from Avopiling the sum of $383,863 (exc GST) in addition to the bank guarantees held as security under the Contract.
It is readily apparent that the amount referred to in pars 13 and 14 are the same amount in subpar 1(b)(iii)B in the indorsement on the writ.
The negotiations
In early September before the filing of either the first injunction application, or the filing of the writ, Andrew Ellison, a director of Central, contacted Avopiling about the possibility of settling their dispute. The first contact was with Bas Ganeshan Baskaran, the General Manager of the Avopiling Group, on 4 September 2014. Later negotiation was with Avetic Tevanian, a director of Avopiling.
Following the filing of the writ, the negotiations took place in the context of an existing action, and an injunction application that was then waiting to be heard. The time before the injunction application was listed was longer than usual because Central undertook not to realise its security, thus allaying any urgency.
The evidence at trial
Evidence was given by Mr Baskaran, Mr Tevanian for Avopiling, and Mr Ellison for Central. A trial bundle was tendered by consent.
The oral evidence was largely directed to the telephone conversations between Mr Ellison and the two Avopiling representatives. It shows a period of negotiation in which the parties discussed the amount required to settle the dispute. While recollections differed about what was said, there were two areas of relevant disagreement:
1.Mr Baskaran said he discussed the calculation of the amount claimed by Avopiling. In particular, he said he referred to the Eureka Personnel payment as part of that amount. Mr Tevanian said he also referred to the Eureka Personnel payment. Mr Ellison said it was not mentioned by either of them, and that there was not a 'line by line' breakdown of amounts claimed.
2.Mr Ellison said that he advised Mr Tevanian that he was acting at the request of his fellow directors 'with a view to trying to resolve [Avopiling's] claims against [Central] in the Action on a commercial basis'. In one of the earliest discussions, he told Mr Tevanian that the settlement discussions related only to the action in the Supreme Court and 'that if any agreement was reached it was to be subject to the lawyers preparing a formal agreement containing all the necessary terms and conditions and was required to be signed by the parties'. He said that he advised Mr Tevanian that 'nothing would be binding until that agreement was signed'. Mr Tevanian denied that was said.
Neither party had any contemporaneous notes which relate directly to the two contentious areas. The witnesses were apparently attempting to tell the truth as they remembered it and nothing emerged which led me to form any adverse view of any of them.
Mr Ellison and Mr Tevanian also exchanged text messages on 15, 20, 21 and 22 September. On 15 September, Mr Ellison suggested that both parties were going to waste a lot of money on legal fees unless they could reach a settlement, and encouraged Mr Tevanian to think of a figure that Avopiling would settle for.
On 21 September, Mr Ellison sent this message:
Let's settle this matter, put behind us and look for new opportunities to work together. I will be over your way in a couple if [sic] weeks, I will arrange to meet up with you for lunch. We are both going to spend more money in court this week, come on we are wasting our money. We are so close, not far away, I have offered you every dollar and more that I have, $500k is a very good offer. I ask you to please accept this offer. Let's settle and move on. Help me find a solution.
Mr Tevanian responded: 'when you get to $575k send me the confirmation'.
There was further discussion regarding amount, with Mr Ellison urging Mr Tevanian to find a solution.
On 24 September, Mr Ellison referred to the application listed in court the following Friday regarding the bank guarantees and suggested the parties reach an agreement before then. In a later message, Mr Ellison offered $520,000. The messages have a degree of informality, but in effect each party recognised that the difference between them would be expended in legal fees. Mr Ellison maintained his offer at $520,000. Mr Tevanian attempted to increase it by $10,000, and then by $5,000. There followed this exchange:
[Mr Ellison] I am out for dinner, sorry can't take your call. I can agree on $520k, I'm very sorry but can't increase anymore
[Mr Tevanian] Ok you win.
[Mr Ellison] Please can you confirm that you accept my offer of $520k as full and final settlement.
[Mr Tevanian] That is we get our bank guarantees back. No back charges from your side. You pay $520k + GST
[Mr Ellison] I don't know what you are talking about, nobody has told me about any back charges. Do you know something I don't know? From my understanding, my offer is to $520k and we hand back your bank guarantees. If you think there is anything other than this, then let me know and I will find out and come back to you. This is a new subject that you are talking about.
[Mr Tevanian] No there is noting [sic] that I know. I am just confirming it. Back charges I mean delays and LD.
[Mr Ellison] I will advise my lawyer that we have reached a settlement and ask him to talk with your lawyer tomorrow morning. Thank you for working with me on this.
[Mr Tevanian] Okay $520k + GST thanks.
The parties then exchanged expressions of goodwill. Any goodwill was short lived. Mr Ellison said, in evidence, that he was suspicious of the reference to back charges, and asked one of his fellow directors. He was then told about the payment to Eureka Personnel, although it would not, on my understanding of the expression, normally be regarded as a back charge.
Intention to be bound
The question of whether the parties had an intention to create a legally binding contract is determined objectively by drawing inferences from what they said and did in the course of their dealings. What would each party, by its words and conduct, have led a reasonable person in the position of the other party to believe: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] ‑ [41]. To resolve this dispute the court does not search for uncommunicated motives or intentions: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 [25]. The parties being at odds on whether there was a legally binding contract formed, Avopiling, as the party asserting the contract, bears the onus of proof: see Ermogenous [26]. I am satisfied it has proved an agreement.
The fact that the parties intended to later embody their agreement in a formal contract does not deny the existence of an agreement, with the intention to be immediately bound. It is not necessary to repeat the classes identified by Dixon CJ, McTiernan & Kitto JJ in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360 ‑ 362. It is sufficient to refer to the statement of principle in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA):
[T]he decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd & Ors v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332 ‑ 334, 337. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.
I am satisfied the parties demonstrated an intention to make a legally binding agreement. They were communicating through a medium which normally lends itself to social rather than commercial purposes. What is said by the parties in correspondence needs to be considered in the context of the correspondence and the whole of the parties' conduct: see Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551, 14,552 (Gleeson CJ); 14,570 (Kirby P). I take into account the medium they used, and the informal nature of some of their comments. But while they also exchanged less formal remarks, the words used regarding the agreement included reference to both accepting an offer and reaching settlement. This was in the context where the dispute had been formally stated in detail by each party in correspondence, including a notice of dispute. Proceedings had commenced in this court, and a court date was days away. Both parties to the text exchange were directors of their companies. They had been negotiating on the amount for about 20 days. Mr Ellison was urging Mr Tevanian to reach a settlement rather than waste money on legal fees.
I have had regard to the evidence of Mr Ellison that he had stipulated in their earliest discussions that nothing would be binding without a signed agreement. It is difficult to resolve the dispute between the parties as to what was said. On balance, I do not regard the conduct of the parties in their negotiations, and in particular what Mr Ellison said in the texts on 24 September, as consistent with any such reservations. Even if it had been said on an earlier occasion, it was not part of what was agreed.
There must, objectively, be agreement upon those terms that are legally necessary to form a contract: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548. Counsel for Central submitted in written submissions that the parties had not resolved the legally necessary terms for a settlement: for example, they had not discussed how the earlier proceedings were to be disposed of, or when the bank guarantees were to be handed over. He did not press that submission at the hearing. I do not regard any of the matters that needed to be resolved as essential to the agreement. It is proper to imply terms, either as an implication of law or to give business efficacy to the contract: things required to be done by each party are to be done within a reasonable time; and each party is to do all such things as are necessary to enable the other to have the benefit of the agreement.
I have had regard to the subsequent conduct of the parties in determining, objectively, whether they intended to form the agreement alleged: see Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 [110] ‑ [111]. Statements or conduct inconsistent with the existence of a contract may be relevant. In particular, statements or conduct showing a common understanding that the parties are not legally bound until a formal contract is executed will be probative of the non-existence of a contract: Howard Smith and Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68.
On 25 September 2014, Mr Mancini sent an email to Jackson McDonald, advising:
I am instructed by my client that the parties reached a settlement agreement last night. Can you please call me as soon as possible to arrange for a deed of settlement to be prepared and executed this morning.
Mr Giorgio of Jackson McDonald replied:
We also have been instructed that the matter has settled a $520k + GST in full and final settlement and handing back of bank guarantees. I will check whether the defects liability period survives. In the meantime I would appreciate it if you would do a draft deed.
We agree that tomorrow's hearing can be adjourned, costs reserved.
It is, in my opinion, probative of the existence of a contract that each party had instructed solicitors that settlement was reached. The fact that the solicitors discussed a draft deed of settlement is not inconsistent with a binding agreement having already been made. The fact that Mr Giorgio identified the issue of the defects liability period, which had not been referred to by Mr Tevanian and Mr Ellison, does not make their agreement incomplete or unenforceable. It is not a matter which was legally essential to the settlement of the dispute defined in the correspondence and the writ.
On 27 September 2014, Mr Ellison sent an email to Mr Tevanian in which he said that they needed to discuss how Central was to be paid or repaid the payment made to Eureka Personnel. That email is not probative of whether there was a legally binding agreement, although it may show disagreement about its scope upon a proper construction.
In full and final settlement
The offer made on behalf of Central, and accepted on behalf of Avopiling, was stated to be in full and final settlement. The court should have regard to the context known to both parties to understand what a reasonable person in the position of the parties would understand they were intending to fully and finally settle.
The use of words of settlement must, in context, have been in reference to the existing dispute. That dispute had reached the stage of the issue of proceedings. To identify what was intended to be settled, the first thing to consider is the writ.
There is, in my opinion, a direct inclusion of this amount. Under subcl 2(e) of the Tripartite Agreement, the payment to Eureka Personnel is to be deducted from the final payment due to Avopiling under its contract with Central. The claim in the writ for all outstanding amounts owing under the Contract, in itself, requires the payment to Eureka Personnel to be taken into account.
The writ also specifically includes a claim for a sum described as 'the difference between the amounts previously certified, agreed or determined as being payable and the amount previously paid to or on behalf of [Avopiling] under the Contract'. Avopiling relies on this claim ‑ the payment to Eureka Personnel being an amount paid on its behalf. I accept, however, that the amount paid on behalf of Avopiling in the Tripartite Agreement was not paid 'under the Contract', so there could be room for uncertainty.
That uncertainty cannot, however, survive in the light of the other evidence. In the proceedings for an injunction, the plaintiff had filed the affidavit of Mr Ashcroft, dated 16 September 2014. The writ and that affidavit were served at the same time. It makes clear that Avopiling was claiming a sum calculated after allowing for the amount due as a result of the Tripartite Agreement. Whether Mr Ellison was aware of the payment to Eureka Personnel (and whether it was discussed in telephone conversations with Mr Baskaran or Mr Tevanian) is not to the point. Central must be taken to be aware of it, and to be aware that the claim in the action was net of this sum. Central, as a party to the Tripartite Agreement, and the party making the payment, was also aware that the payment had been made.
The writ is consistent with the history of the dispute between the parties. From the Central letter of 1 July 2014, the scope of the dispute had consistently been defined in terms of the net amount each side claimed was owing, and the payment to Eureka Personnel (and Avopiling's acceptance that it had to be deducted from money owing to it) had been an explicit part of each party's position.
The terms of relief
Avopiling seeks quite detailed relief. It is necessary to deal with it step‑by‑step. First, it seeks:
A declaration that the Settlement Agreement is legally binding and enforceable and contained the following express terms:
(a)the defendant would pay to the plaintiff the sum of $520,000 (plus GST) (Settlement Sum);
(b)the defendant would release (or would procure) the release to the plaintiff of the NAB guarantees; and
(c)the Settlement Agreement was in full and final settlement of all claims between the parties in connection with, arising out of or in relation to the Subcontract.
The first two subparagraphs are express terms of the agreement. As to subpar (c), in my opinion, the express term is that the agreement was in full and final settlement of the dispute between the parties. On its proper construction, it coincides with the relief in subpar (c) but the declaration should be confined to what was expressed.
Second, Avopiling also seeks a declaration that it was an implied term of the agreement that Central pay the settlement sum and release the guarantees within a reasonable time after the date of the settlement agreement. As I have said above, I believe that is a term implied by law. On the evidence led in these proceedings, I am not able to say whether, in all the circumstances, a reasonable time for the defendant to pay the settlement sum was seven days. The Contract between Avopiling and Central provided for payment within the month following acceptance of a payment claim. If the parties are unable to agree an order regarding reasonable time for payment, I will hear them further. I am, however, satisfied that seven days is a reasonable time for the release of the NAB guarantees.
Avopiling also requests a declaration that Central had agreed to settle 'the Eureka Payment Claim' (a defined term in the statement of claim, referring to the claim made by Mr Ellison on 27 September 2014, for payment by Avopiling of the amount paid by Central to Eureka Personnel) and that, as a consequence, any liability for that amount that Avopiling may have had to Central has been discharged. I do not regard that as a necessary order. It is established law that 'a judicial determination directly involving an issue of fact or law disposes once [and] for all of the issue, so that it cannot be raised [afterwards] between the same parties or their privies': see Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531 ‑ 532. A declaration merely stating the effect of the judgment is not called for.
Avopiling also seeks consequential orders, including that Central do all things and execute all documents which are necessary for it to do in order to dismiss the earlier proceedings and to cancel and return the NAB guarantees. I will make the order regarding the guarantees. The proceedings described as the 'earlier proceedings' are being case managed by me. If the parties cannot agree on how to terminate those proceedings, I will make any necessary orders in that action. I note that, consistently with Avopiling's claim that the settlement was in full and final satisfaction of their existing dispute, they seek no orders regarding costs incurred in those proceedings before 27 September 2014.
I will order that Central pay Avopiling the sum of $572,000 (including GST). Interest should be payable on that amount, but the date from which interest should run depends upon what was a reasonable time for payment after the settlement agreement was made.
Finally, Avopiling seeks an order that Central be restrained from taking any steps to recover any amounts from it arising from the Eureka Payment Claim. This order is unnecessary for the same reasons why I will make no declaratory order regarding the Eureka Payment Claim.
I will hear the parties as to final orders unless they can be agreed.
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