Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd; TWT Property Group Pty Limited v Cenric Group Pty Limited

[2019] NSWCA 87

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd; TWT Property Group Pty Limited v Cenric Group Pty Limited [2019] NSWCA 87

Hearing dates:

5 March 2019

Date of orders:

30 April 2019

Decision date:

30 April 2019

Before:

Meagher JA at [1];
Gleeson JA at [2];
McCallum JA at [179].

Decision:

(1)   Appeal dismissed with costs.

 

(2)   Cross-appeal dismissed.

 (3)   The cross-appellant, TWT, pay the first cross-respondent, Cenric’s, costs of the cross-appeal.

Catchwords:

APPEAL – contract – where parties entered into various contractual arrangements to undertake excavation works including harvesting natural sandstone – whether the primary judge erred in finding the parties formed a concluded agreement to vary the terms of the head contract and the sub-contract – where credit findings are challenged – importance of establishing a Fox v Percy type error

 

APPEAL – contract – whether the primary judge erred in finding the cross-appellant’s show cause notice and termination of the head contract were invalid – effect of variation of the head contract – whether the primary judge erred in finding a breach of an implied term of good faith and reasonableness

  APPEAL – contract – where parties entitled to share in royalties from sale of sandstone – whether the primary judge’s construction of the term capping the contractor’s share of the royalties was wrong

Legislation Cited:

Environmental Planning and Assessment Act 1979 (NSW), s 96
Uniform Civil Procedure Rules 2005 (NSW), r 42.1, Pt 51.36(2)

Cases Cited:

Adventure World Travel Pty Ltd v Newsom (2014) 86 NSWLR 515; [2014] NSWCA 174
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Australian Broadcasting Corporation v Roman XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622
Beatty v Guggenheim Exploration Company (1919) 225 NY 380
B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9,251
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Garry Rodgers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; ATPR 41-703
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2201] HCA 70
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
M W B Business Exchange Centres Ltd v Rock Advertising Ltd [2018] 2 WLR 1603
Overlook Management (BV) v Foxtel Management Pty Ltd [2002] NSWSC 17
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Sagacious v Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Sinclair, Scott & Co v Naughton (1929) 43 CLR 310
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 615; [HCA] 52
Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2012] VSC 175
United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177

Category:

Principal judgment

Parties:

Bundanoon’s Appeal
Bundanoon Sandstone Pty Ltd (Appellant)
Cenric Group Pty Ltd (First Respondent)
TWT Property Group Pty Ltd (Second Respondent)

  TWT Property Group’s Appeal
TWT Property Group Pty Limited (Cross-Appellant)
Cenric Group Pty Limited (First Cross-Respondent)
Bundanoon Sandstone Pty Limited (Second Cross-Respondent)

Representation:

Counsel:
Bundanoon Sandstone Pty Ltd (No appearance) (Appellant / Second Cross-Respondent)
C R C Newlinds SC / D A Hughes / R Thrift (First Respondent / First Cross-Respondent)
B Coles QC / B De Buse (Second Respondent / Cross-Appellant)

  Solicitors:
Mills Oakley (Appellant / Second Cross-Respondent)
Clyde & Co (First Respondent / First Cross-Respondent)
Hicksons Lawyers (Second Respondent / Cross-Appellant)

File Number(s):

2018/323797

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

Cenric Group v TWT Property Group [2018] NSWSC 1570

Date of Decision:

18 October 2018

Before:

McDougall J

File Number(s):

2018/99816

HEADNOTE

[This headnote is not to be read as part of the judgment]

Cenric Group Pty Ltd (Cenric) entered into a head contract with TWT Property Group Pty Ltd (TWT), which included excavation works at TWT’s development site in Pyrmont, and the harvesting of natural sandstone within the site boundaries.

Cenric engaged a sub-contractor Bundanoon Sandstone Pty Ltd (Bundanoon) to perform the work. Pursuant to the sub-contract, Bundanoon was entitled to retain the proceeds of the sales of the sandstone, less royalties that were payable to Cenric at an agreed rate. Pursuant to the head contract, Cenric was entitled to retain part of the royalties it received up to a capped amount, and obliged to pay the balance of all monies received to TWT.

After delays to completion of the work, and disputes between the three parties regarding the payment of royalties, TWT issued a show cause notice and took the work out of Cenric’s hands. Subsequently, Bundanoon terminated its sub-contract with Cenric and was engaged directly by TWT to continue harvesting the sandstone.

Cenric commenced proceedings against TWT and Bundanoon alleging that both the head contract and the sub-contract had been varied by oral agreement to allow for an extension of time, and that TWT’s show cause notice and termination of the contract were invalid. Cenric sought damages from both defendants for breaches of contract, and judgment against Bundanoon for unpaid royalties for the sandstone.

TWT cross-claimed against Cenric seeking liquidated damages for delay and damages for the cost to complete.

The primary judge (McDougall J) dismissed TWT’s cross-claim and ordered judgment for Cenric against Bundanoon in the amount of $3,958,651.08. Bundanoon appealed from that judgment but abandoned its appeal shortly prior to the hearing. TWT cross-appealed.

The principal issues on TWT’s cross-appeal were:

Whether the primary judge erred in making factual and credit findings that the parties had formed a concluded agreement to vary the terms of the head contract and the sub-contract.

Whether the primary judge erred in finding that TWT’s show cause notice and termination of the head contract were invalid.

Whether the primary judge erred as to the proper construction of the cap on the royalties that Cenric was entitled to receive for the harvested sandstone.

The Court (Gleeson JA, Meagher JA and McCallum JA agreeing) dismissed the cross-appeal and held:

As to issue (1):

At a meeting of the parties on 19 February 2018, TWT, Cenric and Bundanoon formed a binding contract to vary the date for practical completion of the excavation works under the head contract and the sub-contract and agreed other terms. This took the form of a concluded, oral agreement without the need for further writing and formality, while contemplating a further document between TWT and Cenric containing, by consent, additional terms: at [112]-[120], [123]-[129].

G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634; Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628E applied.

Insofar as this conclusion was based upon findings of credit, the primary judge had the considerable advantage of seeing the witnesses, and TWT did not establish that the primary judge’s conclusions were erroneous by reason of incontrovertible facts or uncontested testimony, or that the decision was glaringly improbable or contrary to compelling inferences: at [74], [77]-[80], [87].

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [23], [28]-[29] applied.

As to issue (2):

TWT’s show cause notice and termination of the head contract were invalid because the parties had formed a binding oral contract to vary the head contract to extend the time for completion: at [150].

Further, there was no error in the primary judge’s additional conclusion that TWT had breached an implied term of good faith and reasonableness in the head contract in closing its mind on the subject and determining to terminate the head contract regardless of any cause that Cenric might show: at [154]-[160].

Adventure World Travel Pty Ltd v Newsom (2014) 86 NSWLR 515; [2014] NSWCA 174 at [26]; Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 at [163], [185]; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 257F, 258E-259A; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 369B-C; United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177 at [61]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [11]-[12], [146]-[147] applied.

As to issue (3):

A reasonable business person would have understood cl 28A(f) of the head contract (as varied by relevant provisions of a letter dated 30 June 2017) to mean that Cenric was entitled to retain 50 per cent of the royalties up to a cap of $3 million, as the primary judge found: at [169]-[175].

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] applied.

Judgment

1. MEAGHER JA: I agree with Gleeson JA, for the reasons his Honour gives, that the cross-appeal should be dismissed with costs. As Bundanoon’s appeal was abandoned, that appeal also should be dismissed with costs.

2. GLEESON JA: This proceeding concerns a dispute between a principal and contractor in relation to a head contract for demolition, shoring and excavation works at a development site in Harris Street, Pyrmont. Part of the works involved the excavation of sandstone. It is common ground that sandstone, specifically, Sydney yellow block sandstone, is a valuable resource given the need for this material in the repair and maintenance of public buildings in Sydney.

3. With the approval of the principal, the contractor engaged a sub-contractor to perform the works and harvest the sandstone. Under the sub-contract the sub-contractor agreed to pay a royalty to the contractor in relation to harvested sandstone. Under the head contract, as varied, the contractor was entitled to retain part of the royalties it received from the sub-contractor up to a capped amount and obliged to pay the balance of all moneys received to the principal.

4. Various disputes arose between the parties. One concerned the failure of the sub-contractor to pay royalties to the contractor, and the absence of any royalty payments from the contractor to the principal. Another concerned the principal’s attempt to ascertain the price at which the sub-contractor had sold the sandstone to a government entity. Another concerned delay in completion of the works beyond the date for practical completion. Yet another concerned whether the parties agreed on 19 February 2018 to vary the terms of the head contract and the sub-contract to extend the scope of works and also agreed on other terms.

5. Ultimately, in March 2018, the principal issued a show cause notice under the head contract and then took the works out of the contractor’s hands. The sub-contractor followed by terminating the sub-contract. The principal then engaged the sub-contractor directly to complete the harvesting of the sandstone under the head contract and to carry out further harvesting.

6. The contractor, Cenric Group Pty Ltd (Cenric), commenced proceedings against the principal, TWT Property Group Pty Ltd (TWT) and the sub-contractor, Bundanoon Sandstone Pty Ltd (Bundanoon). TWT cross-claimed against Cenric. Of the 26 agreed issues for determination at trial, three issues have present relevance. The primary judge, McDougall J, found that: (a) the parties agreed on 19 February 2018 to extend the works under the head contract, and implicitly the sub-contract, to include the harvesting of further sandstone referred to as the bench 4 work, and also agreed other terms; (b) TWT was not entitled to issue a show cause notice and take the works out of Cenric’s hands in March 2018. Hence, Cenric was not liable to TWT for liquidated damages of $222,917.20 plus damages for the costs to complete the head contract; and (c) the maximum amount of royalties that Cenric was entitled to retain for all sandstone harvested was 50 per cent of the royalties received from Bundanoon until Cenric had retained for itself an amount of $3 million: Cenric Group Pty Ltd v TWT Property Group Pty Ltd [2018] NSWSC 1570.

7. On 25 October 2018, the primary judge made declarations and orders giving effect to his reasons, including:

• a declaration of trust with respect to the sale proceeds received by the sub-contractor, Bundanoon, from the sale of the sandstone (order 1);

• judgment for Cenric against Bundanoon in the amount of $3,958,651.08 payable within 21 days (order 2);

• a declaration that:

… on a proper construction of the Head Contract, upon [Cenric’s] receipt of royalties from [Bundanoon], [Cenric] is obliged to:

(a) pay to [TWT] an amount equal to 50% of the royalties received from [Bundanoon] (calculated without reference to the set-off referred to in Order 2) until [Cenric] has retained for itself an amount of $3,000,000.00; and,

(b) thereafter pay to [TWT] an amount equal to 100% of the royalties received from [Bundanoon].

(order 3); and

• that TWT and Bundanoon pay Cenric’s costs of its claim against TWT, and that TWT pay Cenric’s costs of the cross-claim (orders 6 and 8).

8. Bundanoon appealed against the decision and TWT cross-appealed.

Bundanoon’s appeal

9. The appeal by Bundanoon was abandoned shortly prior to the hearing. By email addressed to the Registrar of the Court dated 28 February 2019, the solicitors for Bundanoon advised they had received instructions that their client no longer wished to prosecute its appeal. Bundanoon did not appear at the hearing. The appropriate order is that the appeal be dismissed with costs.

TWT’s cross-appeal

10. The cross-appeal by TWT is directed to three issues: first, a challenge to his Honour’s factual and credit findings as to whether a concluded agreement was formed on 19 February 2018 varying the terms of the head contract and also the sub-contract (grounds 1 and 3); second, a challenge to his Honour’s finding that TWT’s show cause notice and termination of the head contract were invalid (ground 4A); and third, the proper construction of the cap on the royalties received by Cenric from Bundanoon which Cenric was entitled to retain for all sandstone harvested (ground 4). Grounds 2 and 5 were not pressed.

11. For the reasons that follow, the cross-appeal should be dismissed.

Factual background

12. TWT is the developer of the site at Harris Street, Pyrmont and represented the owner. The chairperson of TWT is Mr Tian, a Chinese national. Mr Gavin (Weidong) Zhang is a director of TWT with day-to-day responsibility for its activities in this State. Mr Nelson Silva is TWT’s project manager for the site; his services were supplied to TWT by Argentum Group Pty Ltd (Argentum).

13. Cenric is a construction company involved in the management of large-scale demolition and excavation works. Mr William Tambouras (William) is the director of Cenric, but its activities are controlled on a day-to-day basis by his son, Mr Steven Tambouras (Steven), who is an undischarged bankrupt.

14. Bundanoon is engaged in the harvesting and sale of sandstone. The director and controller of its activities is Mr Troy Stratti.

15. TWT obtained development consent for construction of a multi-dwelling building on the site. It was a condition of the consent that TWT should investigate and assess the natural sandstone within the site boundaries to see whether there was any that could be quarried and used.

16. On 20 June 2017, Cenric entered into a contract with TWT (head contract), which included the undertaking of excavation works. The methodology for harvesting the sandstone required the removal of overburden. Once sandstone was reached, at about Reduced Level (“RL”) 23, it was proposed to excavate it in three strata or benches. The approved level to which excavation could be performed was RL 18.5. By cl 28A of the head contract, the terms of which are set out in full at [34] below, Cenric was obliged to harvest any saleable sandstone under the site and pay TWT an amount equalling 50 per cent of the net value of any sandstone sold.

17. The terms of the head contract were varied by a letter dated 30 June 2017 (the 30 June letter), the terms of which are set out in full at [40] below. By the variation, Cenric agreed to guarantee to TWT a minimum yield of sandstone, royalty rates were agreed for different grades of sandstone, and Cenric agreed to pass on all monies received over a capped amount to TWT.

18. With the consent of TWT, Cenric engaged Bundanoon as its sub-contractor to carry out the works and harvest the sandstone. Bundanoon commenced work in early July 2017, however, the sub-contract was not signed by Bundanoon’s director, Mr Stratti, until 6 November 2017, when it was dated 27 June 2017. The sub-contract provided that Bundanoon would harvest the sandstone and pay to Cenric a “royalty” at agreed rates. Relevantly, the royalty payable for first class yellow block sandstone was $1,000 per cubic metre. The sub-contract further provided that Bundanoon’s costs of harvesting the sandstone would not be charged to Cenric, but would be funded by Bundanoon from the sale of sandstone.

19. By early November 2017, the excavation works had exposed harvestable sandstone. However, a number of disputes began to arise. TWT expressed dissatisfaction with Cenric’s rate of progress. Cenric blamed TWT and Bundanoon for the delays. TWT and Cenric became concerned about Bundanoon’s failure to pay any royalties for sandstone that had been harvested. Bundanoon was unhappy that TWT had sought to ascertain the price at which sandstone was being sold by Bundanoon to the Department of Public Works and Services (DPWS).

20. In addition, Bundanoon wanted a letter of title from TWT setting out its authority to sell the sandstone to the DPWS. In mid-November 2017, Mr Stratti reacted somewhat explosively when TWT was unwilling to provide a draft letter that had been prepared by Cenric’s solicitors. He began destroying blocks of sandstone that had already been harvested and then refused to leave the site, staying overnight and sleeping in an excavator. The primary judge observed that TWT took seriously Mr Stratti’s threat and its partial implementation, and on 20 November 2017, TWT’s project manager, Argentum, provided the letter of title to Bundanoon: Judgment at [72]. The primary judge found that the letter of title created a trust in respect of the proceeds from the sale of sandstone. The trustee was Bundanoon and the beneficiary was Cenric: Judgment at [193]-[194].

12. At about this time, TWT was considering whether to harvest sandstone below RL 18.5. On 4 December 2017, TWT applied to modify the development consent to allow for deeper harvesting of sandstone to occur from a fourth layer or “bench”. This was referred to as the “bench 4 work” or “s 96 work”. The latter descriptor was a reference to the need for amendment to the development consent pursuant to s 96 of the Environmental Planning and Assessment Act 1979 (NSW) (“the EPA Act”). The EPA Act has since been repealed and replaced.

13. On 13 December 2017, Mr Tian, his daughter, and Mr Zhang met with Mr Stratti of Bundanoon and pressed him for a higher royalty. Mr Stratti told Steven of his meeting with representatives of TWT and their demand for a higher royalty rate. On 22 December 2017, Mr Silva emailed Mr Stratti seeking written confirmation of the new rate and stating that if it was not received that day then all activities would cease on site. On 1 January 2018, Mr Stratti met with Ms Tian and Mr Zhang and again discussed the royalty rate. In early January 2018, TWT issued a stop works notice to Cenric, and also Bundanoon. On 9 January 2018, TWT notified Cenric to resume activities on the site.

14. Following discussions at an on-site meeting on 15 January 2018, Mr Donovan Sia of Argentum sent an email to Cenric on 19 January 2018 requesting a proposal to excavate an additional level to the amended RL, being a reference to the proposed bench 4 work.

15. On 1 February 2018, Cenric submitted for TWT’s approval “Variation 5 – Additional sandstone harvesting and excavation works to proposed RL15.4”, which attached Bundanoon’s proposal for this variation dated 24 January 2018. The stated variation sum was $621,924 (excluding GST and profit margin). Cenric’s proposed variation included the following statement in “Annexure A – Basis of claim”:

Pursuant to cl 36.2 the Contractor notes that the proposed variation will take 7 working weeks, thus adjusting the date for practical completion (Refer Annexure D; Extension of Time No 7). This EOT is submitted without delay cost and is a claim for the additional time only in respect of the variation scope of works. The preliminaries cost for the additional works in the variation have been estimated and provided in Annexure B for the Project Manager to assess, pursuant to Clause 36.4 “Pricing”.

25. Mr Silva responded to Steven on 2 February 2018 first by email stating that he found the Bundanoon proposal “a bit confusing” and seeking clarification, and then by letter stating that TWT did not propose to instruct a variation to the existing contract, but rather would bring that contract and its scope to a conclusion, and should TWT proceed with the additional level of excavation, it proposed to put forward a new contract on similar terms.

26. Later on 2 February 2019, Steven sent an email to Mr Stratti of Bundanoon passing on TWT’s queries in relation to proposed variation and seeking his response. In that email, Steven referred to Mr Silva’s advice that TWT was looking at drafting a new contract for the additional harvesting, and commented:

I personally believe this is a tactic Nelson is playing to shore up his position to hit us both with liquidated damages at the conclusion of the current contract. If the variation Cenric has submitted in conjunction with your offer is accepted as is, then the EOT is agreed to (I have claimed additional 7 weeks for us to complete to RL 15.4) and they will find it extremely difficult to claim liquidated damages. I have purposely drafted the variation this way to protect us both, I am sure you would agree with this.

27. On 7 February 2018, Mr Silva, on behalf of TWT, sent an email to Mr Paul Thurloe of the Department of Finance, Services and Innovation (the Department) asserting that ownership of the sandstone remained with TWT as no payment had yet been received, and seeking a meeting with representatives of the Department and the relevant minister.

28. The weekly site update minutes prepared by TWT dated 13 February 2018 recorded:

Bulk Excavation DC Level (RL 18.7) – with the current progress, it is foreseen that the finish date may extend to the end of February.

29. TWT’s communications with the Department came to the attention of Bundanoon. On 16 February 2018, Bundanoon’s solicitor sent an email to Cenric expressing Bundanoon’s strong concern and objection at the enquiries that TWT was making in an attempt to find out more about the terms of sale as between Bundanoon and DPWS. Steven on-forwarded this email to Mr Zhang that day and requested an urgent explanation as to why the current contractual arrangement was being questioned and why this had been brought to his attention via a third party.

30. Mr Silva and Steven exchanged further emails on this topic on 17 and 18 February 2018. Mr Silva asserted that neither Cenric nor Bundanoon had exclusive rights to speak with the Department concerning sandstone sold to the DPWS. Steven responded by urging Mr Silva to carefully consider any future approaches to the government or Bundanoon and required an immediate written retraction of any misleading or false statements made to the government, Bundanoon or any other party by TWT. Also on 18 February 2018, Steven sent a lengthy email to Mr Stratti updating him on his communications with TWT and asserting that TWT’s conduct was an intentional, reckless and malicious attempt to interfere with the binding confidential agreement between the relevant parties.

19 February 2018 meeting

31. The events recited above precipitated a meeting on 19 February 2018 at TWT’s offices attended by representatives of TWT, Cenric and Bundanoon. There was a significant factual contest at trial about what happened at the meeting, in particular, whether an agreement of some form was reached between the parties. The primary judge found that TWT, Cenric and Bundanoon agreed to vary the terms of the head contract and implicitly the sub-contract to include the proposed bench 4 work and also agreed other terms including an extension of time: Judgment at [100].

32. On 27 February 2018, TWT obtained s 96 modification approval for the bench 4 work. On 9 March 2018, TWT served a notice to show cause on Cenric. Cenric responded on 16 March 2018 disputing that it was in breach of the head contract. On 19 March 2018, TWT served a takeout notice on Cenric which purported to take the works out of Cenric’s hands. The following day, 20 March 2018, Bundanoon purported to terminate the sub-contract. On 23 March 2018, TWT engaged Bundanoon directly to carry out the remaining works under the head contract and the further works in relation to the s 96 work.

Relevant terms of the head contract

33. The head contract comprised a number of documents. For present purposes, the material terms are as follows. Cenric was obliged as the contractor to carry out and complete the WUC [work under the contract] in accordance with the Contract (cl 3 of the instrument of agreement). The contract sum was specified as $2,229,172 excluding GST but subject to adjustment.

34. Clause 28A of the general conditions (as amended) dealt with “Sandstone” and provided:

28A Sandstone

a) Part of the WUC will involve the excavation of sandstone.

b) The Contractor must investigate the saleability of the sandstone, including the manner in which the sandstone should be excavated and otherwise handled so as to maximise the potential to sell the sandstone for the greatest possible price.

c) Within 5 business days of the date of execution of the Contract, the Contractor must provide to the Project Manager a report (Sandstone Management Report) setting out:

i) the findings of the investigation referred to in clause 28A(b); and

ii) consistent with the findings of the investigation, the Contractor’s methodology for the excavation and handling of the sandstone excavated in the course of the WUC.

d) When sandstone is encountered in the course of the WUC, the Contractor must:

i) promptly (and before disturbing the sandstone) notify the Project Manager in writing;

ii) excavate and otherwise handle the sandstone in accordance with the Sandstone Management Report; and

iii) take all reasonable steps to promptly sell the sandstone that is excavated.

e) The Contractor must report all such sales of sandstone to the Project Manager, providing details of the quantity sold, the purchaser and the price paid.

f) Within 5 business days of any sale of the sandstone, the Contractor must pay to the Principal an amount equal to 50% of the net value of the sandstone sold, being the purchase price paid for the sandstone, less the Contractor’s reasonable costs incurred by selling the sandstone (other than the costs that would have been incurred by the Contractor had the Contractor disposed of the sandstone rather than selling it).

35. Clause 34.1 provided that Cenric shall proceed with the WUC diligently with due expedition and without delay, and ensure that the WUC reaches practical completion by the date for practical completion, which was specified in Item 7 of Annexure Part A as being 100 working days from the date on which the Principal gives the Contractor possession of the site, based on a six-day working week. Clause 34.2 provided for notice of delay and cls 34.3 to 34.5 dealt with extensions of time. It is common ground that the date for practical completion was 28 November 2017.

36. Clause 34.7 dealt with liquidated damages. Item 24 of Part A specified a rate of $4,000 per day. Cenric’s total maximum liability for liquidated damages was limited by the cap in cl 34.7(e) to 10 per cent of the contract sum. It was common ground that the amount of liquidated damages under the head contract was capped at $222,917.20. TWT’s position prior to the 19 February 2018 meeting was that the cap had already been reached and exceeded.

37. Clause 39 dealt with default or insolvency. Relevantly, cl 39.2 provided that if Cenric committed a substantial breach, TWT could give a written show cause notice. Substantial breach was defined (without limitation) to include failure to proceed with due expedition and without delay (cl 39.2(d)). Clause 39.2 included a deeming provision which applied without otherwise limiting the operation of the clause, and provided that it should be sufficient evidence of the contractor’s substantial breach, and a substantial breach, under any of the sub-clauses (a) to (f) of cl 39.2, if the project manager, acting reasonably, made a statutory declaration stating his honest and reasonable belief in the facts which would comprise such a substantial breach, as may justify the principal to take any action under or pursuant to cl 39.2. The clause further provided that any such statutory declaration shall only have effect if the project manager acts in good faith and makes the statutory declaration before the principal takes any action in relation to cl 39.2.

38. Clause 39.3 dealt with the content of a show cause notice. Clauses 39.4 and 39.5 dealt with the consequences should Cenric fail to show reasonable cause in accordance with the notice. It is not necessary to set out the terms of cl 39.5 which concern the obligations of TWT having taken the work out of Cenric’s hands. Clause 39.4 provided:

Clause 39.4 Principal’s rights

If the Contractor fails to show reasonable cause by the stated date and time, the Principal may by written notice to the Contractor:

a) take out of the Contractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or

b) terminate the Contract.

Upon either event, the Principal may require the Contractor to answer any questions and provide any information that the Principal may require in relation to any subcontractors of the Contractor including:

i) the amount of work the subcontractors have completed;

ii) the amount of money the Contractor has paid the subcontractor with regard to WUC;

iii) any monies that have been claimed by the subcontractor but not yet paid and whether the Contractor considers that money to be due and owing or about to become due and owing;

iv) whether the subcontractor has caused delay; and

v) whether the subcontractor has carried out the WUC in a good and workmanlike manner and/or whether there are defects in the WUC undertaken by the subcontractor.

This obligation survives any termination of the Contract.

39. Clause 40A dealt with termination for convenience and is not relevant, given it is not relied upon by TWT.

30 June letter

40. As indicated, cl 28A of the general provisions of the head contract was amended by the 30 June letter, the terms of which letter should be set out in full:

With respect to clause 28A of the Contract we note that you have provided a Sandstone Management Report from Bundanoon Sandstone dated 26 June, 2017.

Pursuant to the terms of the contract we direct that the methodology and process proposed in that Report be adopted on the following terms and conditions:

Quantities of sandstone referred to in the report are based on the excavation proposed and approved in the current Development Approval No. D/2016/916.

Whilst the anticipated yield of sandstone will likely exceed the minimum quantities noted of 1,000 cubic metres of each of the First Class, Second Class and Third Class sandstone, the Principal is guaranteed this minimum yield.

The rates to apply to the sale of the harvested sandstone is:

$1,000 per cubic metre for First Class Sandstone

$700 per cubic metre for Second Class Sandstone

$500 per cubic metre for Third Class Sandstone.

Any sandstone of each of the above classes that is harvested is to be sold and the same rates apply. In this respect we note that these quantities are minimum estimates only and greater quantities are anticipated. In addition the Principal may make an application for approval for modification to the DA to allow additional excavation, which may increase the quantity of sandstone or any or either of these classes, and in which case again the same rates will apply.

Pursuant to clause 28A(f) of the Contract the Principal is entitled to receive a payment amount which will be calculated based on the applicable rates noted in this letter for sandstone excavated and is to be paid within 2 weeks after completion of the excavation of the sandstone.

In circumstances where the quantity of sandstone is beyond current estimates, or the quantity of First Class or any of the other classes of Sandstone extracted exceeds current estimates, the maximum additional payment to the Contractor under Clause 28A of the Contract is the amount of $2million with the balance and/or all other amounts realised on the sale of the sandstone in its entirety to be paid to the Principal.

We have agreed with you for a 3.5 week extension of the date for practical completion for the harvesting works to be conducted and completed, without any delay damages, prolongation cost or other payment being claimable or payable as a result of such extension of time.

For the purposes of clause 28A(e) the Principal directs that a representative of the Principal must be present and agree and certify the quantity of sandstone and the class of that sandstone, before that sandstone is removed from the site.

Please acknowledge receipt and your agreement with the above by signing and returning a copy of this letter.

Relevant terms of the sub-contract

41. The primary judge observed that the sub-contract is a difficult document given that it was signed about four months after work commenced and by that time some of its provisions had been overtaken by progress (or lack of it) on the site. In addition, his Honour observed there was some internal inconsistency between important provisions of the sub-contract: Judgment at [32].

42. For present purposes, it is only necessary to refer to the following provisions of the sub-contract. The scope of the Sub-contract Works was identified in “Sch A – Subcontract Particulars” as “Demolition, Shoring, Excavation and Sandstone Harvesting”.

43. Schedule E to the sub-contract divided the sub-contract works into six elements. Relevantly, work element 5 dealt with sandstone extraction and provided as follows:

Work Element 5 – Sandstone Extraction

a. The full excavation package including the reinstallation of the sandstone wall adjacent to the childcare.

b. The subcontractor during the initial excavation works is to prepare the job site to conduct a salvage preparation period where essential information will be gathered in order to prepare the site for a successful yellow block harvest.

c. The approximate time for the sandstone harvesting only is 6 to 10 weeks, in which these works run concurrently with the Excavation works.

d. The proposed [sic] to harvest yellow block sandstone will need to adhere to the DPWS – Public Buildings Stone Program ‘stone supply’ requirements.

e. The sale of the sandstone harvest to the Government or private buyer will be facilitated by Bundanoon Sandstone.

f. The sandstone harvesting cost will be funded from the sale of the sandstone harvest and no claim will be submitted to Cenric or TWT for this process.

g. The subcontractor anticipates that based on current geotechnical and building design information, sandstone harvest yield of 1000 – 2000 cubic meters of first class yellow block sandstone is estimated as a minimum.

h. Royalty offer payable to Cenric Group for the yellow block sandstone by Bundanoon Sandstone includes:

i. First Class Sandstone: $1,000 per cubic metre

ii. Second Class Sandstone: $700 per cubic metre

iii. Third Class Sandstone: $500 per cubic metre

i. ‘First Class Sandstone’ any stone which meets the standards for the DPWS in relation to engineering, aesthetic causes, empirical testing (and any other quality testing required by DPWS) as restoration quality, ‘yellow block’ sandstone.

j. ‘Second Class Sandstone’ any stone suitable for restoration use either by DPWS or private parties but falling [sic] to meet the requirements of ‘yellow block’.

k. ‘Third Class Sandstone’ any other sandstone having commercial value but not suitable for restoration purposes.

44. Clause 1 defined Milestones to mean those activities “critical to the performance of the Subcontract Works specified in Schedule G”. That schedule set out four Milestones, with their corresponding dates for achievement:

Milestone	Milestone Date
Excavation Works Commence	28th June 2017
Excavation Work Completed	6th September 2017
Sandstone Harvesting Works Commence	7th September 2017
Sandstone Harvesting Works Completed	1st November 2017

45. Clause 17 dealt with extension of time. Relevantly, cl 17(b) provided that Bundanoon must perform the sub-contract works to meet each Milestone by no later than the applicable Milestone Date. Clause 17(c) and (d) dealt with an extension of time where the work was delayed by a Qualifying Cause of Delay as specified in Item 12 of Sch A, namely, delays caused by Cenric, variations directed by Cenric, and any breach of the sub-contract by Cenric.

46. Clause 27 dealt with liquidated damages and made provision for two circumstances in which liquidated damages of $4,000 per day were payable by Bundanoon to Cenric. The first was if Bundanoon failed to achieve a Milestone by the date required under the construction program or to bring the Sub-contract Works to completion by the Date for Completion, which was defined in Sch A as 20 weeks from the commencement of the demolition works. The second was if Bundanoon failed to complete the Sub-contract Works by the Date for Practical Completion and Cenric became liable for liquidated damages for delay in achievement of practical completion under the head contract. This latter obligation was described in argument as a “knock-on” provision.

47. The three issues raised by the cross-appeal are sensibly dealt with in the temporal order in which they arise.

A. Was a concluded agreement reached on 19 February 2018?

48. The primary judge addressed this question under the heading “Issues 1, 2 and 6: the meeting of 19 February 2018 and its consequence(s)”. Before summarising the findings on this issue, reference should be made to his Honour’s earlier and more general credit findings.

Credit findings

49. His Honour accepted that on the crucial events, Steven, in general, sought to give accurate and honest evidence: Judgment at [53]; that the evidence of William, given his relatively peripheral involvement, did not have any great weight: at [54]; that there was real difficulty in accepting either Mr Zhang or Mr Silva as witnesses of truth, and the evidence of Steven was preferred where it conflicted with that of Mr Zhang or Mr Silva: at [55]-[58]; and that Mr Stratti’s evidence, which had a chameleon-like quality, ought not to be accepted where it conflicts with other testimony (including, specifically, that of Steven) unless supported by other acceptable evidence, or consistent with the probabilities viewed objectively, or against self-interest: at [59]-[61].

19 February 2018 meeting

50. The primary judge found that Steven’s account of the meeting was substantially accurate and this was corroborated by three sources: his file note, Mr Zhang’s file note, and Mr Stratti’s evidence: Judgment at [84]. His Honour continued at [85]:

[85] In my view, the first and third of those matters provide strong reasons for accepting the substance of Steven’s account. I do not think that Steven’s file note was anything other than an honest attempt to summarise accurately what had happened at the meeting. Mr Stratti’s corroboration is powerful because, as between TWT and Cenric and in relation to what happened at the meeting, Mr Stratti is effectively neutral.

51. Steven’s file note of the 19 February 2018 meeting, relevantly included the following:

19/2/18 – Meeting with TWT/Bundanoon @ St Leonards (with rent from Argentum / TWT to Government)

Gavin Zhang

Nelson Silva

Troy Stratti

William Tambouras

Steven Tambouras

Mizuki Stratti

Frank (Troy’s translator)

Mr Tian

Tina Tian (10.15am)

Minutes

•   Discuss letter sent from Argentum / TWT to Department of Finance.

•   Discuss action Government will take with letter.

•   I explained the events from Friday evening and over the weekend.

•   Frank has translated this to the Chairman, Mr Tian.

•   Troy explained first letter from TWT sent to Government on 8/2. The day the first payment was received.

•   Second claim was submitted on 14/2.

•   A second letter was sent on the 14/2 from TWT to Government.

•   The Attorney General has formally written to Troy over the correspondence sent and the issue.

•   Troy explained the entire process from cutting, shaping, documenting, and transport from Harris St – Fig St.

•   Troy explained about helping to maintain and good relationship. He is demanding an apology for the inconvenience caused. If not, he will go down a different path.

•   Troy explaining about an injunction.

•   Troy has briefed x 2 senior counsels to lodge the injunction over the site.

•   He has explained to us that he will lodge that with the count [sic] at the conclusion of the meeting.

•   He has stated that one of the SC’s has also been reviewing Nelson’s / TWT’s email to misleading and deceptive conduct.

• Troy goes on to explain that he does not want to proceed with the section 96 works. He will complete his contract and remove Bench 3.

•   He has turned to Nelson and requested a formal apology.

•   Nelson speaking and justifying his actions in a response back to Troy.

•   Chairman’s daughter Tina and Chairman Mr Tian begin arguing in the background in Chinese.

•   Chairman’s daughter has an outburst and storms out of the room.

•   The conversation continues between Nelson / Gavin and Troy about the content of the correspondence from TWT to Government. Troy then shows me a letter he has prepared for the injunction. I have read this letter briefly but confirm.

•   The chairman comes in and requests Troy and his translator speak to them in a separate room. He is going to meet with Tina his daughter and chairman.

•   Gavin and Nelson have remained in the room on their own with us and Troy’s wife.

•   After over an hour at least, Troy and the chairman together with Frank translator re-enter the room. I spoke with Kon Lawyer in the meantime. … I told off Gavin and mentioned how disrespectful they were. He went to find them to try and resume the meeting.

•   Troy and his translator behind to speak and translate. They basically state that they have both reached a resolution regarding the royalty. Troy goes on to say that he has agreed out of respect and good faith to the Chairman that he will increase the royalty rate to which he will write formally to Cenric outlining the discussion and agreements they have reached.

•   He then passes me his iPad with a letter that he requests I read to the room. It is a letter I read as it is directed to Gavin and Nelson from Troy’s solicitor.

•   The Chairman excuses himself and leaves the room.

•   Troy then says once I have read the letter that he will send a final version of it.

•   Gavin then proceeds to bring up the threats Troy received throughout the early stages of the project.

• I then ask what discussions or agreement to [sic] place regarding the section 96 works. Troy proceeds by saying that he will increase the royalty payable from the current $1000 per m3 to $1200 per m3 for Bench 4 only. And this is for 1000 m3 of stone minimum estimated.

•   He then said that he agreed to this as a compromise for any penalties or damages that Nelson wanted to impose. So that no LD’s to be enforced.

•   Troy then stated there will be no new contract as he would not be entering into any new agreement. Troy has stated there is already a contract in place. Just sign their variation with the new rate.

•   We are all then in agreeance that once approved from Council is recovered in the coming days, that we continue onto cleaning scraping the floor and loading out bench 3. Once bench 3 is complete we will excavate in preparation to expose bench 4.

Meeting Concluded.

52. Mr Zhang’s handwritten file note relevantly included the following:

… Troy communicated with a senior barrister briefly last night. They has prepared the relevant materials, it will be resolved through legal ways if it cannot reach an agreement. Injunction; another lawyer will investigate for misleading and deceit behavior, antony general will be involved.

Troy just wants to solve this problem, not by legal ways. He just want the content promised in the first contract. He asked for an apology from TWT again, and recall the letter.

The situation of letter:

There is no room for Troy to hide.

Troy received the letter from government on his birthday, 8th Feb. Because Tina received the business card from government, some issues happened after that.

Final situation: chairman and Troy reached an agreement for new royalty fee: $1200 per m3.

Nelson to liaise with Cenric to sign the new contract, confirm the program and cost. [sic]

53. His Honour found that the accounts that Mr Silva and Mr Zhang gave of the meeting were unsatisfactory: Judgment at [87].

54. As to Mr Zhang, his Honour found that the evidence of the meeting contained in his first two affidavits was inconsistent in significant ways with the account given in his file note: Judgment at [87].

55. As to Mr Silva, his Honour found that there were substantial inconsistencies between what he said in his second affidavit, which had been served in draft and had been affirmed when he gave oral evidence, and Mr Zhang’s file note (and what Mr Zhang conceded in the course of his cross-examination): Judgment at [88].

56. In each case, his Honour found that these inconsistencies were neither insignificant nor negligible and could not be said to relate to peripheral issues: Judgment at [87] and [88].

57. His Honour concluded that to the extent that there were any discrepancies of a significant nature between Steven’s evidence and that of Mr Zhang and Mr Silva, he preferred Steven’s evidence: Judgment at [89].

58. His Honour observed that while William’s evidence did not corroborate Steven’s account of what was said and agreed at the meeting that was explicable given that William felt that he had been treated disrespectfully and he was accordingly angry. His Honour found, based on William’s cross-examination, that he did not participate in the discussion to any great extent and to the extent that he did, he did not appear to follow it: Judgment at [90].

59. Turning to the content of the meeting, the primary judge found that there were several parts to the meeting. At various points in time the representatives of TWT and Bundanoon left the meeting and Mr Tian, his daughter Ms Tina Tian, Mr Stratti and Frank (the interpreter) had a separate meeting, and after some time had passed, all the representatives returned to the meeting: Judgment at [91]-[92]. The primary judge continued making the following findings at [93]-[99]:

[93]   Mr Tian, Mr Stratti and Frank emerged from their meeting. According to Steven, from whose evidence I take what follows, Mr Stratti said words to the effect:

The Chairman [Mr Tian] and I have reached a resolution regarding the royalty. I have agreed out of respect and good faith to the Chairman to increase the royalty rate, and I will write formally to Cenric outlining the agreement we have reached.

[94]   As Mr Stratti was speaking, Frank translated (presumably to Mr Tian) what he was saying. Mr Tian then left the room.

[95] Steven said that the discussion continued between himself and Mr Stratti, in the presence of Messrs Zhang and Silva. Steven asked Mr Stratti what had been agreed with Mr Tian and Mr Stratti said that he had agreed to increase the royalty payable to Cenric from $1,000 to $1,200 for bench 4 (or s 96) sandstone to a minimum quantity of 1000 m³.

[96]   Steven asked, in the presence of Messrs Zhang and Silva, whether there would be a new contract or whether the bench 4 work would be done as a variation to the existing contract. Mr Stratti said that there would be a variation because he was not prepared to sign a new contract.

[97]   Steven then asked “[a]nd what about liquidated damages”. Mr Stratti replied, still in the presence of Messrs Zhang and Silva, saying “there will be no penalties or liquidated damages, like Nelson wanted to impose”.

[98]   Steven said “[d]id everybody hear that? Does everybody agree with that”. He said that Mr Zhang “nodded” and Mr Stratti said “yes, I’m cool”.

[99]   Steven said that “Troy is going send me a letter about the new rate of $1,200 per m³”, and that he would “prepare a revised variation 5”. That was a reference to a variation seeking a further extension of time of 7 weeks.

60. The primary judge concluded at [100]:

[100]   It follows, and I find, that at the meeting of 19 February 2018, Cenric, TWT and Bundanoon agreed that:

(1)   the head contract between Cenric and TWT would be varied to include the bench 4 work;

(2)   by necessary implication, the subcontract between Cenric and Bundanoon would be varied likewise;

(3)   the subcontract would be varied further to provide for royalties to be paid on bench 4 sandstone at a rate of $1,200 per m³ (presumably for first class yellow block), with a minimum quantity of 1,000 m³;

(4)   TWT would not seek to recover liquidated damages from Cenric for delays up until 19 February 2018; and

(5)   TWT would grant the extension of time that Cenric had sought.

Grounds 1 and 3

61. Grounds 1 and 3 are connected. Ground 1 asserts that the primary judge erred in finding that there was a concluded agreement between Cenric, TWT and Bundanoon on 19 February 2018 by failing to give weight to or disregarding evidence to which he was obliged to have regard, relevantly, evidence of William, Mr Zhang and Mr Stratti, and giving weight to or having regard to evidence which he should have disregarded, relevantly, evidence of Steven. Five reasons were advanced as sub-grounds in support of this contention.

62. Ground 3 asserts, in the alternative, that the primary judge erred in finding that there was a concluded agreement and should have found that there was no agreement. Four reasons were advanced as sub-grounds in support of this contention.

Consideration

63. When considering whether a binding contract was formed at the meeting on 19 February, it is of assistance to address the three questions identified by Mahoney JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326, namely: (1) did the parties arrive at a consensus?; (2) if so, was it such a consensus as was capable of forming a binding contract?; and, (3) if it was, did the parties intend that the consensus at which they arrived should constitute a binding contract?

64. Ground 1 is directed to the first question. There was only a faint challenge by TWT in oral argument directed to the second question. Ground 3 is directed to the third question.

Was there a consensus at the 19 February meeting?

Ground 1.1

65. Ground 1.1 asserted that the case advanced by Cenric through its pleading did not allege an oral agreement was reached with Mr Zhang on behalf of TWT and accordingly, Cenric failed to prove its case entirely.

66. The pleading to which this submission is directed is Cenric’s Technology and Construction List Statement filed 4 June 2018. TWT’s submission emphasised that there was no reference to Mr Zhang having agreed anything on behalf of TWT in the particulars to paragraph 24 of Cenric’s List Statement. That may be accepted, but the point goes nowhere.

67. Shortly after the List Statement had been filed, Cenric filed an affidavit of Steven dated 12 July 2018 which dealt in detail with the 19 February meeting. That affidavit deposed to the statements made at the meeting by Mr Stratti and Steven in the presence of Mr Silva and Mr Zhang, including that Mr Zhang nodded in response to Steven’s question towards the end of the discussion as to whether everyone had heard and agreed to what Mr Stratti had said.

68. No objection was taken by TWT at trial that the case advanced by Cenric was outside the particulars of its “pleaded” case in the List Statement. That is unsurprising given that both Mr Zhang, in his second affidavit of 26 July 2018, and Mr Silva in his unsworn but adopted affidavit dated 31 July 2018, responded to Steven’s affidavit of 12 July 2018. There is no merit in ground 1.1.

Grounds 1.2 to 1.5

69. In its written submissions, TWT identified these sub-grounds as directed to challenging three findings. First, that William’s evidence was relatively peripheral, and his evidence could be disregarded; second, that Mr Stratti corroborated Steven’s evidence; and third, that Mr Zhang’s file note was corroborative of Steven, and was inconsistent with his own evidence. TWT expanded upon these factual challenges in its statement under Pt 51.36(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), challenging among others, the favourable credit finding in relation to Steven.

70. Insofar as the findings are based on credit findings, TWT accepted that in order to succeed on appeal, it must establish that the judge’s conclusions were erroneous by reason of incontrovertible facts or uncontested testimony or the decision is glaringly improbable or contrary to compelling inferences: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28], [29]. It must also be accepted that insofar as the judge made credibility findings, he had the very considerable advantage of seeing the relevant witnesses give their oral evidence and thus was able to bring to bear aspects of judgment and appraisal that are simply unavailable to this Court: Fox v Percy at [23].

Steven

71. TWT challenged the finding that Steven gave “accurate and honest evidence” that was supported by contemporaneous documents, or otherwise corroborated, or that it was consistent with the probabilities: Judgment at [53].

72. First, TWT pointed to Steven’s email to Mr Stratti on 2 February 2018 referred to at [26] above, stating that he had purposely drafted the variation to protect Cenric and Bundanoon from any liquidated damages claim. In oral argument, senior counsel for TWT submitted that this communication reflected negatively on Steven’s commercial honesty, as he was confessing to Mr Stratti an underhand proposal for an extra seven weeks’ extension of time. When pressed to explain this characterisation of the email, counsel for TWT did not pursue the submission.

73. Next, TWT submitted that Steven gave a substantially different account of the variation for the bench 4 work immediately after the 19 February meeting to that advanced in his evidence. TWT pointed to an email from Steven to Mr Silva on 27 February 2018 and submitted that Steven did not suggest any agreement between himself and Mr Zhang. That may be accepted, but more importantly, the email was copied to Mr Zhang and asserted what had been agreed at the meeting between Cenric and TWT. The absence of any express reference to Mr Zhang having made the alleged variation on behalf of TWT is not significant.

74. TWT also pointed to the letter from Cenric to TWT of 27 February 2018 setting out the revised variation 5, and submitted that Steven did not refer in that letter to the meeting, but referred to the earlier alleged directions given by TWT which are not relied upon by Cenric. The draft letter comprising revised variation 5 must be read together with the covering email from Steven to Mr Silva, copied to Mr Zhang, dated 27 February 2018. On a fair reading of the two documents, Steven was asserting that a variation of the head contract had been agreed at the 19 February meeting. The challenge to the favourable credit finding in relation to Steven should be rejected.

William

75. As indicated, the primary judge acknowledged that William’s evidence did not corroborate Steven’s account of what was said and agreed at the meeting, and gave two reasons for disregarding William’s evidence: first, that he did not have any great knowledge or memory of the meeting; and second, his involvement was “relatively peripheral”: Judgment at [54] and [90].

76. TWT submitted that this finding was not substantiated by the cross-examination of William, unless the starting point was that Steven’s account should be accepted. According to the submission, the cross-examination of William revealed that he was angry at the meeting, but not that his involvement was peripheral.

77. Having reviewed the cross-examination of William, the criticism of his Honour’s characterisation of William’s involvement at the meeting should be rejected. No error been shown in his Honour’s finding concerning William’s memory or knowledge of the meeting.

78. With respect to William’s role as the director of Cenric, TWT put its case at trial, as the primary judge noted, as an attack on the credibility of both William and Steven on the basis that Steven had sought, in effect, to conceal the fact that he was the true directing mind of TWT, and that William was merely a front: Judgment at [51]. His Honour observed that this attack miscarried, finding that it was clear that Steven has and had the principal responsibility for the conduct of Cenric’s operations: Judgment at [52]. That finding is not challenged. There is no error in his Honour’s related finding that William’s involvement was relatively peripheral.

79. No error has been demonstrated in his Honour’s finding that William’s evidence did not have any great weight.

80. The separate complaint by TWT in this context directed to Steven’s credit also goes nowhere given that it was open to his Honour to conclude, as he did, that “there is no real connection” between Steven’s evidence about his role as a director and his evidence on the principal matters in issue: Judgment at [52].

Mr Stratti

81. TWT challenged the primary judge’s finding that the discussion recorded in Steven’s affidavit of 12 July 2018 (pars 200-206) involving Mr Stratti and Steven continued in the presence of Mr Stratti and Mr Zhang: Judgment at [95]. TWT submitted that Mr Stratti’s evidence was that he did not observe Mr Zhang or “Mr Stratti” to be involved. The reference by TWT to “Mr Stratti” is presumably an error, and should be understood as a reference to Mr Silva. Mr Stratti accepted in his affidavit of 30 July 2018 that the discussion recorded in Steven’s affidavit (at pars 200 to 206), much of which he accepted, occurred in the presence of Mr Zhang and himself and he did not deny Steven’s evidence that Mr Silva was also present.

81. Next, TWT emphasised that Mr Stratti was not challenged in cross-examination regarding his affidavit evidence (par 9) that he never discussed liquidated damages with Mr Tian when they met in the separate room together with Mr Tian’s daughter, and the interpreter, Frank. Mr Stratti adhered to that account in cross-examination and said that his later statement to the meeting concerning no penalties or liquidated damages was his own view of what the new arrangement between the parties would be. According to the submission, the primary judge failed to take this into account when finding that Mr Stratti corroborated Steven’s evidence. I do not agree.

82. TWT’s submission ignored the context of the finding that Mr Stratti, in substance, corroborated Steven’s evidence. This finding was directed, not to the separate meeting between, among others, Mr Stratti and Mr Tian, but to the later discussion by Mr Stratti in the presence of Mr Zhang, Mr Silva and Steven. Mr Stratti agreed in his affidavit (par 11) that in response to Steven’s question “and what about liquidated damages?” he said, “There will be no penalties or liquidated damages, that’s what royalties are for”. In cross-examination, Mr Stratti adhered to the account given in his affidavit, and said that he was putting forward his view of what the new arrangement would be.

83. That Mr Stratti denied that he qualified his statement concerning “no penalties or liquidated damages” with the words “like Nelson wanted to impose” (being a reference to Mr Silva), does not assist TWT. The primary judge did not accept this qualification, preferring the evidence of Steven where it conflicted with Mr Stratti. In any event, the conflict between Steven and Mr Stratti on this issue was minor. Plainly, the proposal by Mr Stratti that there would be no penalties or liquidated damages was for the mutual benefit of Cenric and Bundanoon, given their respective liabilities for liquidated damages under the head contract and the sub-contract.

84. Next, TWT pointed to evidence given by Mr Stratti in cross-examination that at the end of the meeting there was a discussion and he agreed that Bundanoon would pay to TWT a royalty of $1,200. According to the submission, this answer was inconsistent with Steven’s evidence and file note, which the primary judge accepted, that Mr Stratti said that he had agreed to increase the royalty payable to Cenric from $1,000 to $1,200 for bench 4 sandstone to a minimum quantity of 1,000 cubic metres.

85. TWT’s submission ignored that Mr Stratti agreed in his affidavit (par 10) with the account given by Steven in his affidavit (par 202) that, when reporting to the meeting what he had agreed with Mr Tian, Mr Stratti said words to the effect, “We agreed that I would increase the royalty payable to Cenric from $1,000 to $1,200 for Bench 4 only” (emphasis added). Insofar as Mr Stratti deposed (par 10) that he did not recall stating a quantity of 1,000 m3 of stone, the difference between Mr Stratti and Steven is immaterial. Mr Stratti generally adhered to this account in cross-examination, although he also gave evidence that the increased royalty would be paid to TWT, explaining that at that point in time he believed that was the case.

86. The primary judge had the benefit of viewing the witnesses as they gave their evidence. Accepting that there was some inconsistency in Mr Stratti’s answers in cross-examination as to whether he referred to the increased royalty being payable to Cenric or to TWT, it was open to his Honour to prefer the evidence of Steven where it conflicted with that of Mr Stratti. TWT has not demonstrated that this finding was contrary to incontrovertible facts or uncontested testimony, or is glaringly improbable or contrary to compelling inferences: Fox v Percy at [28], [29].

Mr Zhang

88. TWT submitted that it was not reasonable to describe the file notes taken by Mr Zhang and Steven as corroborative of any matter in dispute or of each other. The difficulty with this submission is that it does not reflect his Honour’s approach to the evidence or his findings.

89. His Honour started with Steven’s testimonial evidence of what happened at the meeting and then considered whether Steven was corroborated by other sources or contradicted by the evidence of Mr Silva and Mr Zhang. His Honour’s finding that Steven’s account is “substantially” corroborated by, among others, Mr Zhang’s file note, is qualified by the acknowledgement that Mr Zhang’s file note does not correspond exactly to Steven’s evidence: Judgment at [84]. What his Honour found provided “strong” reasons for accepting the substance of Steven’s account, was Steven’s file note and Mr Stratti’s corroboration.

90. Insofar as Mr Zhang’s evidence conflicted with that of Steven, his Honour found that Mr Zhang’s evidence was unsatisfactory. TWT complains in its factual challenges that the reasons given for this finding are inadequate. I do not agree. Mr Zhang made three affidavits: 12 July 2018, 26 July 2018 and 31 August 2018. His written notebook (but not his note of the 19 February meeting) was first referred to in his third affidavit. Contrary to TWT’s submission, it was open to his Honour to infer that Mr Zhang had sought to conceal his note of the meeting in his first two affidavits because he recognised that it was inconsistent with what he had said in those affidavits. That is apparent from the following matters.

91. In his first affidavit (par 35), Mr Zhang accepted that the topics of an increase in the royalty rate and liquidated damages had been discussed at the 19 February meeting, but asserted no agreement had been reached. In his second affidavit (pars 23 and 25), Mr Zhang said he did not recall that Mr Stratti ever said that the increased royalty rate would be payable to Cenric and he denied that he discussed the topic of liquidated damages with Mr Stratti.

92. In cross-examination, Mr Zhang initially denied any discussion about liquidated damages and then said he could not recall such a discussion. Later, Mr Zhang acknowledged that the topic was raised and discussed during part of the meeting with William and Steven. When taken to his second affidavit, Mr Zhang gave a non-responsive answer to the proposition that the topic of liquidated damages was discussed between TWT and Cenric. Later in cross-examination, Mr Zhang accepted that agreement was reached at the meeting for the increased royalty payment at $1,200 per cubic metre in relation to the s 96 work.

93. Mr Zhang admitted that he had access to his note of the meeting when he prepared his affidavits, but could not offer a reason why this note was not referred to in his first or second affidavits. The note directly contradicted Mr Zhang’s evidence that there was no agreement at the meeting; the note recorded that Mr Tian and Mr Stratti had reached an agreement for a new royalty fee of $1,200 p/m3.

94. As Cenric pointed out at the trial and again on appeal, there were other aspects of Mr Zhang’s note that are inconsistent with Mr Zhang’s first and second affidavits, which were adverse to his reliability. Reference to three matters in Mr Zhang’s second affidavit will suffice. Mr Zhang denied (par 18) that Mr Stratti said he would pursue criminal charges against Mr Silva for misleading or deceptive conduct. That is contradicted by Mr Zhang’s note which recorded, “Another lawyer will investigate for misleading and deceit [sic] behaviour”.

95. Next, Mr Zhang said (par 17) that he could not recall Mr Stratti holding up his iPad at the meeting and showing that he had received a payment from the government. In his oral evidence in chief, Mr Zhang corrected this evidence and said that, after reading his notes of the meeting, he recalled that Mr Stratti showed his iPad to the Chairman of TWT, Mr Tian (Black 1/190P-T).

96. Mr Zhang also said (par 19) that he did not recall Mr Stratti saying that he did not want the s 96 work and “I want to complete my contract with Cenric to the conclusion of bench 3 and then move on to another project”. That is contradicted by Mr Zhang’s note which records with reference to Mr Stratti, “just want the content promised in the first contract” being a reference to the subcontract.

97. No error has been demonstrated in his Honour’s acceptance of Steven’s evidence where it conflicted with Mr Zhang’s evidence.

98. Given the findings of the primary judge, set out at [59] above as to what was agreed at the meeting on 19 February, the statements and conduct of the parties manifest a clear consensus to vary the head contract, and also the sub-contract on the terms found by his Honour.

Was the consensus capable of forming a binding contract?

99. TWT submitted that the consensus, as found by the primary judge, was not capable of forming a binding contract because there was no agreement as to the length of the extension of time granted under the head contract and the sub-contract. That submission ignored his Honour’s finding at Judgment [100(5)], which is to be read with the finding at Judgment [99], that the statement by Steven at the conclusion of the meeting that he would prepare a revised variation was a reference to a variation seeking an extension of time of seven working weeks. That finding is not challenged.

100. TWT accepted in argument that the reference by the primary judge to an extension of time may be taken to be the extension of time that Cenric had sought in its proposed variation 5 dated 1 February 2018, namely, an extension of seven weeks. TWT also accepted that the extension of time would commence when the current DA level under the head contract, RL 18.5, was reached and completed. Those concessions were properly made. The consensus reached at the 19 February meeting, relevantly, with respect to an extension of time, was sufficiently certain to be capable of forming a binding contract.

Did the parties intend the consensus to constitute a binding contract?

101. TWT submitted in the alternative that if ground 1 is not made out, then the statements and conduct of the parties, including Mr Zhang nodding his head, should not be taken to indicate an intention to be immediately contractually bound. The submission continued that the parties had reached a consensus on the matters on which they had agreed which might form the basis of a concluded agreement, which would be the subject of further writing and formality.

102. Both parties accepted that the question whether a concluded agreement was formed is to be determined objectively: Australian Broadcasting Corporation v Roman XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [65]-[66].

103. As to the absence of writing and formality, Cenric submitted that this case falls within the so-called fourth category of Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, referring to G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634 (McHugh JA, Kirby P and Glass JA agreeing), which affirmed the decision of McLelland J (as his Honour then was) in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628E.

104. In G R Securities, both McHugh JA, in this Court, and McLelland J, at first instance, pointed out that a fourth class of case additional to the three mentioned in Masters v Cameron at 360-362 was recognised by Knox CJ, Rich and Dixon JJ in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely:

… one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

Grounds 3.1 and 3.2

105. These sub-grounds focus on fact-finding relevant to the application of these principles, and it is convenient to address them together.

106. Regarding the statement by Mr Stratti to the meeting involving Steven, Mr Zhang and Mr Silva that Mr Stratti had agreed with Mr Tian to increase the royalty rate, TWT characterised it as merely a statement of intent as to the provision of a formal letter from Bundanoon to Cenric setting out terms. That submission mischaracterises the primary judge’s findings as to what was said and done at the meeting. In response to Steven’s question as to what had been agreed with Mr Tian, Mr Stratti stated that he had agreed with Mr Tian to increase the royalty rate payable to Cenric for the bench 4 work only. The reference by Steven at the end of the conversation to Mr Stratti sending a letter to Cenric about the new rate was merely confirmatory of the agreement as between Bundanoon and Cenric of the new rate payable to Cenric for the bench 4 work.

107. TWT emphasised that Mr Tian was not present during the subsequent discussion at which the consensus was reached. However, that is not to the point. As explained below in relation to sub-ground 3.3, Mr Zhang had authority as a director of TWT to bind TWT to the variation agreed between the parties.

108. Nor does it matter that it was Mr Stratti who put the terms of the proposed variation to the representatives of TWT and Cenric. His Honour found that Steven’s questions and Mr Stratti’s responses occurred in the presence of Mr Zhang and Mr Silva. Importantly, at the conclusion of the discussion, Steven sought confirmation that everyone had heard the discussion and agreed with what was proposed. Each of Mr Zhang and Mr Stratti indicated their assent.

Ground 3.3

109. TWT submitted that the statements by Mr Stratti and the request by Steven for acceptance of them by Mr Zhang could not reasonably be regarded as an offer to TWT to accept the variation of the head contract because the terms of the statements were subject to a written variation being prepared and its terms agreed, and the only indication of assent was made by Mr Zhang nodding his head.

110. It is convenient to start with TWT’s challenge to the significance of the finding that Mr Zhang “nodded” in response to Steven’s question whether everyone had heard the discussion and agreed with what was proposed. It is not in dispute that assent to an agreement may be expressed in words or by conduct, including by nodding one’s head when expressly asked whether a person agrees to a particular proposal. TWT sought to deflect significance being given to Mr Zhang’s conduct by contending that Mr Silva, as the project manager nominated under the head contract, was the only person with the relevant decision-making authority for TWT.

111. The difficulty with this submission is that the power of Mr Silva as the project manager to direct variations under cl 36.1 of the head contract was facultative only; it did not exclude the authority of Mr Zhang as a director of TWT to agree to a variation to the head contract. In any event, the power to direct variations under cl 36.1 was limited by the requirement that such a direction be given “before the date of practical completion”. Here, as mentioned, it is common ground that date (25 November 2017) had passed by the time of the meeting. That is not to say that TWT could not itself agree with Cenric to a variation of the head contract.

112. Undoubtedly, as a director of TWT, Mr Zhang had authority to agree to a variation of the head contract. The objective conduct of Mr Zhang by nodding his head in response to Steven’s question, and not stating that TWT did not agree to what had been proposed, can be taken as indicating an intention that TWT be immediately bound by the terms of the consensus.

113. Next, TWT submitted that a background circumstance which tended against the conclusion that the parties intended to be immediately bound by their consensus at the meeting, is that there is no suggestion that TWT ever abandoned its position, as stated in its 2 February 2018 letter, that there would be no variation of the head contract to extend the works to include the bench 4 work, but rather TWT intended that there be a new contract in respect of any further works.

114. That TWT did not expressly abandon its earlier stated position can be accepted. Nonetheless, there are other circumstances that support the view that TWT’s intention had changed by the time of the 19 February meeting.

115. First, the circumstances confronting TWT at the meeting were quite different to those pertaining at the beginning of February 2018. At the time of the meeting, TWT was confronted with the threat of court proceedings by Bundanoon, including injunctive relief, which might delay the works under the head contract and the sub-contract.

116. Second, TWT did not have a replacement for Bundanoon readily available to complete the extraction of the sandstone under the head contract and any bench 4 work. It had earlier objected to Gosford Quarries as a suitable sub-contractor to Cenric. Mr Silva, on behalf of TWT, first approached another sandstone contractor, Maroota Sandstone Quarry, on about 17 February 2018 to see if it could carry out the harvesting works. TWT had not received any offer capable of acceptance, let alone any commitment from Maroota, by the time of the 19 February meeting.

117. Third, the primary judge found that Mr Stratti made plain at the meeting that there would be a variation of the existing contractual arrangements to extend the work to include the bench 4 work because he was not prepared to sign a new contract: Judgment at [96]. There is no challenge to that finding. Nor did Mr Zhang or Mr Silva say at the meeting that TWT maintained its position stated on 1 February 2018 that the bench 4 work would be the subject of a new contract.

118. The dispute raised by Bundanoon concerning TWT’s alleged interference in its contractual relations with DPWS was undoubtedly serious. The risk to TWT of the likely delay if that dispute was not quickly resolved was significant. Each of TWT, Cenric and Bundanoon had competing commercial objectives: TWT sought an increase in the royalty on the proposed bench 4 work, and Cenric and Bundanoon sought to avoid penalties and liquidated damages for delay under the head contract and the sub-contract. Given those circumstances, there is no error in his Honour’s finding that TWT, through Mr Zhang, is to be taken by his conduct in nodding his head, as having acceded to Mr Stratti’s demand, which Steven embraced, that there be a variation rather than a new contract for the bench 4 work, on the terms of the consensus reached at the meeting.

119. Further and contrary to TWT’s submissions, his Honour’s finding is not inconsistent with the subsequent conduct of Bundanoon by its solicitors sending to TWT on 19 February 2018 a final version of the draft letter to TWT, which was read out by Steven at the meeting. The subject matter of the solicitor’s letter to TWT was a complaint by Bundanoon that TWT had been communicating with the Department and had made inaccurate statements to the effect that Bundanoon did not have good or adequate title to the sandstone that it was harvesting at the Harris Street site. Bundanoon sought a written apology from TWT in relation to what it described as “the delays, interference and misleading statements made to [the Department] regarding [Bundanoon’s] ability to carry out work which it is contracted to undertake by Cenric”.

120. Those demands by Bundanoon are not inconsistent with the parties intending to have reached a concluded agreement at the meeting in relation to the variation of the head contract and the sub-contract.

Ground 3.4

121. This sub-ground asserted that the restriction on variations being made other than in writing, both in the head contract and in the sub-contract, was inconsistent with the parties intending their consensus at the meeting to be immediately binding.

122. The primary judge held that a no-oral-modification clause cannot prevent the parties to a contract from agreeing orally to vary it, that principle being no more than an affirmation of the basic principles of contractual autonomy. Reference was made to the judgment of Cardozo J in Beatty v Guggenheim Exploration Company (1919) 225 NY 380 at 387-388 and intermediate appellate authority in Australia affirming that principle: Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91. See also GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50 (Finn J). TWT did not directly challenge his Honour’s finding or these authorities. Accordingly, it is not necessary to discuss the contrary view of such clauses taken by the Supreme Court of the United Kingdom in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] 2 WLR 1603.

121. Nevertheless, TWT submitted that the existence of a concluded agreement, without the need for further writing and formality, is made more unlikely in the present case because of the emphasis on the requirement of writing in the provisions of the existing contractual documents, the nature of the contract, the history of requiring written documents to effect modification and change, and the purported requests for an oral variation in the same terms only a fortnight previously, which had been unequivocally rejected by TWT. This submission ignores the contextual matters referred to at [115]-[117] above, which support the conclusion that the parties were content to reach an agreement without the immediate formality of writing. In addition, TWT’s submission ignores the following background circumstances.

122. First, prior to the 19 February meeting TWT had requested and received from Cenric on 1 February 2018 a detailed written proposal regarding the bench 4 work, which included Bundanoon’s letter dated 24 January 2018. It is incorrect to characterise Cenric’s proposal as a “request” for an oral variation. The “proposal” was submitted by Cenric to TWT “for approval” in response to an email request by Mr Sia of Argentum, the project manager, on 19 January 2018. (Nothing turns on the disputed earlier oral request by TWT for such a proposal which Cenric asserted had been made at a meeting on 15 January 2018.)

123. Second, Cenric had responded to queries from TWT concerning its proposal for the bench 4 work in circumstances where TWT had requested further information in order to “very quickly confirm the arrangement of the section 96 level of Sandstone Harvesting”.

124. Third, the approval for the proposed bench 4 work was known to be imminent at the time of the meeting on 19 February.

125. Fourth, it is significant that Mr Tian, the chairperson of TWT, personally attended the meeting on 19 February and reached an oral agreement with Mr Stratti which resolved the longstanding dispute over the amount of royalties payable by Bundanoon by increasing the rate payable on the proposed bench 4 work.

126. Fifth, the account given by Steven of the conclusion of the meeting is consistent with a formal and concluded resolution to the meeting of business persons. On his Honour’s findings, Steven went through the terms of the proposed variation one by one, which addressed each of the issues between the parties. For abundant clarity, he then asked if everyone agreed. At that point, he received clear and objective indications of assent from Mr Zhang on behalf of TWT and Mr Stratti on behalf of Bundanoon.

127. The conduct of the parties at the meeting, viewed objectively, may be taken as intending that the consensus at which they had arrived should constitute a binding contract as between TWT and Cenric on the one hand, and Cenric and Bundanoon on the other hand, while contemplating a further document between TWT and Cenric in relation to revised variation 5, which might contain additional terms as agreed.

TWT’s reliance on subsequent conduct

130. TWT pointed to subsequent correspondence passing between Cenric and TWT after the meeting of 19 February as being consistent with TWT’s contention that no concluded agreement had been reached at that meeting.

131. It is well established that post-contractual conduct is admissible on the question of whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [25] (Heydon JA) citing Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669, 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147 at 9,149, 9,154 – 9,156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR [97,023] (“Film Bars”) at 9,255.

132. However, there are limits as to the use to which subsequent communications can be put. Relevantly for present purposes, two matters need to be kept in mind. First, “the probative value of such subsequent communications must be found in the light they throw on the proper interpretation of the earlier communications alleged to constitute a contract”: Film Bars at 9,255. For example, as McLelland J there explained, subsequent communications may show that, at the time of the allegedly contractual communications there were other uncompleted negotiations between the parties concerning matters omitted from the allegedly contractual communications such that the allegedly contractual dealings could not properly be interpreted as mutual assent to be bound.

133. Second, subsequent communications may be legitimately used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract: Film Bars at 9,255. However, as McLelland J also observed in Film Bars at 9,255-9,256, the “probative force [of an admission] will usually vary inversely with the strength of the available direct evidence of the matters in question”.

134. There is an additional consideration with respect to the probative force of post-contractual conduct as "constituting an admission of the state of the parties' rights": County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [162] (McColl JA). To the extent the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless: Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [83] (Beazley P); at [121] (Basten JA, Gleeson JA agreeing).

Application of principles

135. TWT pointed to four pieces of correspondence post the 19 February meeting. The first was an email from Mr Silva to Steven dated 22 February 2018 in which Mr Silva requested that Steven telephone him as it had been reported to him that Steven had stated that the additional s 96 work would be a variation to the head contract, which was contrary to what had been discussed and was contained in Mr Silva’s letter of 2 February 2018.

136. The second was an email from Mr Silva to Steven dated 26 February 2018 in which Mr Silva asserted that “at no time during the meeting in which I was present” was it discussed or agreed that liquidated damages currently to be imposed under the head contract would be waived by TWT.

137. The third was an email from Steven to Mr Silva dated 27 February 2018 in which Steven set out a number of the matters that he asserted were agreed at the meeting of 19 February. TWT drew attention to the concluding two paragraphs of that email which are set out below:

Having discussed the logistics and program for the additional harvesting and excavation works this morning on site with our Contractor, we request you provide Cenric with a direction by CoB Wednesday 28/2 to either continue harvesting and excavation works as per the agreed revised Variation V005 attached (dated 27/2/18) proposal or to complete to the current DA approval.

A prompt direction will allow Cenric to either plan for and continue with the additional harvesting and excavation works to the S96 R.L. or commence detailing and trimming to the current DA approval in preparation for the demobilisation from the site.

138. The fourth was the revised variation 5 dated 27 February 2018 which was attached to the email from Steven to Mr Silva of 27 February 2018 “for approval”.

139. The essential difficulty with TWT’s reliance upon this correspondence is the absence of any relevant admission by Cenric as to the non-existence of the variation of the head contract, which the primary judge found was agreed on 19 February 2018. Insofar as these documents contained self-serving statements by both parties as to what had been agreed or not agreed at the meeting, that does not assist the present inquiry. The first and second documents fall into this category. They contain no more than self-serving statements as to Mr Silva’s subjective state of mind as to what he asserted did not occur at the meeting.

140. With respect to the third document, TWT submitted that the paragraphs in Steven’s email document extracted at [137] above constituted an acknowledgement by Cenric that no concluded agreement had been reached at the meeting. I do not agree. First, the subject matter and context of the requested direction concerned the logistics and programming by Cenric of works on site. TWT did not point to any evidence that, at the time of drafting this email, Steven was aware that TWT’s application for approval of the bench 4 work had been approved that day, namely, 27 February 2018. An available inference is that Steven’s email was directed to determining whether the s 96 approval had been granted, and was not an acknowledgment that the parties had not concluded an agreement at the meeting.

141. Second, reading the third and fourth documents together, as one ought to given that the revised variation 5 was attached to Steven’s email, these documents assert that the amendments to the initial variation 5 proposal put forward by Cenric on 1 February 2018 were agreed at the 19 February meeting. Such statements are not inconsistent with Cenric’s position as to the existence of a variation formed on 19 February 2018.

142. TWT’s reliance on the subsequent communications with Cenric does not assist its challenge to the primary judge’s finding that a concluded agreement was reached at the meeting.

B. Validity of takeout notice

143. The primary judge addressed this question under the heading “Issues 3 and 4: Validity of the show cause notice”.

144. The show cause notice was dated 9 March 2018 and based on an alleged substantial breach by Cenric of the head contract in two respects: substantial departure from the construction programme and failure to proceed with due expedition and without delay. The notice required Cenric to show cause in writing as to why TWT should not exercise its rights to take the head contract works out of Cenric’s hands. As indicated, Cenric responded on 16 March 2018 disputing TWT’s show cause notice. TWT followed by issuing the takeout notice on 19 March 2018, thereby terminating the head contract.

145. The primary judge accepted Cenric’s submissions that there were three reasons why the show cause notice was not valid. The first was that the agreement of 19 February 2018 included as a term that TWT would grant Cenric a seven week extension of time: Judgment at [108]. His Honour found that the obvious inference from the agreement for extension of time is that the parties accepted that a “qualifying cause of delay … on the critical path” had occurred. That was a reference to cl 34.3(a) of the head contract. His Honour explained that the italicised expression was defined to mean, in substance, something done or omitted to be done by TWT, Argentum (or Mr Silva) or contractors other than those engaged by Cenric, referring to sub-par (a) of the definition of the italicised expression in cl 1 of the head contract.

146. His Honour continued at [109]-[110]:

[109] The proposition that Cenric had failed to achieve completion by the date for practical completion cannot be sustained, because the effect of the agreement to grant an extension of time is to extend accordingly the date for practical completion.

[110] Equally, the agreement for extension of time is fundamentally inconsistent with the proposition that Cenric had proceeded otherwise than diligently with due expedition and without delay. Mr DeBuse did not submit otherwise.

147. The primary judge accepted Cenric’s second submission that the show cause notice was not issued in good faith, because Mr Zhang had determined, at the time the notice was issued, to take the works out of Cenric’s hands regardless of the substance of any cause that Cenric might show: Judgment at [111]. After referring to Mr Zhang’s evidence in cross-examination, his Honour continued at [112]:

In short, TWT, through Mr Zhang, had closed its mind on the subject. It was not prepared to accept as valid any cause that Cenric might show. It was determined to take the work out of Cenric’s hands regardless. TWT’s attitude is redolent of bad faith.

148. The primary judge also accepted Cenric’s third submission that the show cause notice was issued for an ulterior purpose, namely, the wish of TWT to contract direct with the Bundanoon for the bench 4 work, and to receive the whole of the royalty payable by Bundanoon for itself: Judgment at [114]. His Honour gave the following reasons at [115]:

The inference that I would draw from the whole of the evidence, were it necessary to do so, is that TWT regretted the bargain it had made with Cenric on 19 February 2018. It decided, instead, to get entirely for itself the benefit of royalties in respect of the level 4 sandstone. That was the true motivation for the show cause notice, and provides the true explanation for Mr Zhang’s closed mind. I do not propose to set out the detail of the evidence that supports the drawing of that inference, since it is at most a further alternative reason for concluding that the show cause notice was invalid. I will simply note that Cenric’s written submissions include a detailed chronology referring to all the evidence on this point.

Ground 4A

149. Ground 4A contended that the primary judge erred in finding that the takeout notice was given by TWT to Cenric as a result of bad faith on the part of TWT. Three reasons were advanced in sub-grounds 4A.1-4A.3 as follows:

4A.1 Such a finding was dependant on the finding of an agreement on 19 February 2018 to not rely upon the liquidated damages clause in the head contract and to vary the head contract to include the work approved under section 96 of the Environmental Planning and Assessment Act 1979 (NSW) which for the reasons set out above were made in error.

4A.2 The take out notice was the result of gross delay by Cenric and the limitation on the damages recoverable by TWT from Cenric for such delay under the head contract.

4A.3 TWT was entitled, in circumstances, where there was no remaining remedy for breach of the obligation by Cenric to pursue the work diligently, to have regard to its own commercial interest and it was not in bad faith to do so and the show cause explanation was in any event inadequate.

Consideration

150. The conclusions on grounds 1 and 3, that the parties had formed an oral agreement that was capable of, and did vary, the head contract and the sub-contarct, are dispositive of the validity of the show cause notice as his Honour found. As such, ground 4A does not strictly arise. So much was accepted by TWT.

151. Nonetheless, in accordance with Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12], I have considered whether ground 4A should be resolved on the alternative assumption that there was no binding agreement on 19 February containing the terms found by the primary judge: relevantly, that TWT would not seek to recover liquidated damages from Cenric for delays up until 19 February, and extending the date for completion by the time sought by Cenric, namely seven weeks.

152. Cenric submitted that the second and third reasons his Honour gave for finding the show cause notice invalid were independent of the conclusion that there was a binding contract made at the 19 February meeting. The submission continued that it followed that, if his Honour had erred in finding a binding variation of the head contract existed between the parties, these reasons would still stand. Upon analysis, that is not so in relation to the third reason. The basis of his Honour’s finding that TWT had an ulterior purpose in issuing the show cause notice is that the notice was sent to give effect to TWT’s plan to cut Cenric out of its entitlement to royalties for the bench 4 work. It follows that if there was no binding contract formed on 19 February 2018, Cenric had no “entitlement” to royalties for the bench 4 work and hence the show cause notice could not have been issued for the ulterior purpose as found by his Honour.

153. Accordingly, it is sufficient to address the second reason given by his Honour that the show cause notice is invalid because TWT’s attitude is redolent of bad faith.

154. The power to issue a show cause notice under cl 39.2 of the head contract is conferred for the purpose of giving advance notice of taking the work out of the contractor’s hands or terminating the head contract. It is well accepted that, where a contractual power is given to one party for a purpose but in terms wider than necessary for the protection of its legitimate interests, the exercise of the power may be constrained by implied obligations of reasonableness and good faith: Adventure World Travel Pty Ltd v Newsom (2014) 86 NSWLR 515; [2014] NSWCA 174 at [26]. This Court held that such obligations applied in relation to the exercise of the powers given in the agreement in Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 at [163], [185]. However, it is also well accepted, as it was pointed out in Burger King at [172], referring to Garry Rodgers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; ATPR 41-703 at [37], that the obligation does not restrict a party from promoting its own legitimate interests.

155. TWT did not dispute that such obligations should be implied in the present case as part of the head contract. That is consistent with the approach adopted in this Court in a number of decisions involving commercial contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 257F, 258E-259A (Priestley JA); Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 369B-C (Sheller JA, Powell and Beazley JJA agreeing); United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177 at [61] (Allsop P, Ipp and Macfarlan JJA agreeing); Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [11]-[12] (Allsop P), [146]-[147] (Hodgson JA, Macfarlan JA agreeing).

156. This Court has noted that the necessity for the implication of such terms in commercial contracts has not been universally accepted: Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144] (Bathurst CJ, Macfarlan and Meagher JJA agreeing). Among others, there have been criticisms of the implication of such terms at law in all commercial contracts and suggestions that it may be more appropriate that such terms be implied ad hoc: Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [3]-[4] (Warren CJ, Osborn AJA agreeing), [25] (Buchanan JA, Warren CJ agreeing); Specialist Diagnostic Services Pty Ltd v Healthscope Pty Ltd [2012] VSCA 175 at [86] (Buchanan, Mandie and Osborn JJA). Those issues need not be considered in the present case.

157. TWT confined its challenge, relevantly, to the primary judge’s factual findings that Mr Zhang had a “closed mind”, and that the show cause notice was not issued in good faith.

158. TWT submitted that its state of mind and conduct in taking the work out of Cenric’s hands was honest and reasonable, if one accepted it was operating under the following assumptions. First, that Cenric had committed a substantial breach in failing to complete the work. Second, that Cenric could not assert rights based upon the 19 February meeting because no binding contract was formed. Third, that TWT’s liquidated damages entitlement was exhausted.

159. The difficulty with this characterisation of TWT’s state of mind and conduct is that it ignores the unchallenged findings, which underpin his Honour’s conclusion that TWT’s attitude was redolent of bad faith. In Overlook v Foxtel [2002] NSWSC 17, Barrett J, as his Honour then was, said (at [68]) “[i]n many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith”.

160. Here, there is no challenge to the findings that TWT’s state of mind at the time the show cause notice was issued was that it had already decided to take the work out of Cenric’s hands, regardless of the substance of any cause that Cenric might show, and that TWT was not prepared to accept as valid any cause that Cenric might show: Judgment at [111]-[112]. Those findings were well open to his Honour on the basis of Mr Zhang’s evidence in cross-examination, which his Honour set out at Judgment [111]. There is no error in his Honour’s finding that TWT, through Mr Zhang, had closed its mind on the subject.

C. Royalty cap

161. The primary judge addressed this question under the heading “Issue 25: Cap on royalties”.

162. This issue involved a question of the construction of cl 28A(f) of the head contract and the relevant provisions of the 30 June letter, in particular, the first, second and fourth bullet points, which for convenience, are set out below (numbering added):

(1) Quantities of sandstone referred to in the report are based on the excavation proposed and approved in the current Development Approval No. D/2016/916.

(2) Whilst the anticipated yield of sandstone will likely exceed the minimum quantities noted of 1,000 cubic metres of each of the First Class, Second Class and Third Class sandstone, the Principal is guaranteed this minimum yield.

(3) …

(4) In circumstances where the quantity of sandstone is beyond current estimates, or the quantity of First Class or any of the other classes of Sandstone extracted exceeds current estimates, the maximum additional payment to the Contractor under Clause 28A of the Contract is the amount of $2 million with the balance and/or all other amounts realised on the sale of the sandstone in its entirety to be paid to the Principal.

163. His Honour addressed the issue of construction at [261]-[263]:

[261]   The cap deriving from the last sentence of the fourth bullet point becomes relevant in the circumstances defined by its opening words: “where the quantity of sandstone is beyond current estimates, or the quantity of First Class or any of the other classes of Sandstone … exceeds current estimates”. The sentence then recognises that the amount payable to Cenric under cl 28A arising by reason of that event will be capped at $2 million.

[262]   The obvious construction is that:

(1) Cenric is entitled to be paid 50% of the royalties payable on the “current estimates” of sandstone; and

(2) for all sandstone harvested beyond those “current estimates”, Cenric is entitled to be paid 50% of the royalties up to a maximum of a further payment of $2 million.

[263]    What, then, were the “current estimates”? The letter of 30 June 2017 does not identify them. It refers to a “minimum” estimate of 1000 m³ of each class of sandstone, which was thought likely to be exceeded. That minimum yield is guaranteed to TWT. However, in an email dated some four days earlier, the parties had identified the then known estimates. Steven told Messrs Silva and Zhang that according to geotechnical investigations and other sources of information, the site was estimated to contain:

(1) 1000 to 2000 m³ of harvestable first class sandstone;

(2) 1000 m³ of harvestable second class sandstone; and

(3) a small amount, less than 1000 m³, of harvestable third class sandstone.

164. His Honour concluded that, as at 30 June 2017, the “current estimates” of recoverable, or harvestable, sandstone that were the subject of cl 28A were those set out in [263(1)-(3)] of his reasons, and it followed that Cenric was entitled to be paid 50 per cent of the royalties received on the harvest of sandstone up to the limits of those estimates, and thereafter Cenric is entitled to be paid 50 per cent of the royalties up to a maximum of $2 million: Judgment at [264].

165. The effect of his Honour’s reasons is that Cenric is entitled to retain 50 per cent of the royalties up to a cap of $3 million.

Ground 4

166. Ground 4 contended that the primary judge erred in his construction of the cap of $3 million on the royalties that Cenric was entitled to retain. TWT submitted that his Honour should have found that, on its true construction, the cap was $2 million after which Cenric had to account to TWT for all royalties received from Bundanoon.

167. On TWT’s preferred construction, the total amount that Cenric is entitled to retain as a result of royalty receipts from Bundanoon is $2 million made up of:

1. $1 million based on the “current estimates” of 2,000 cubic metres resulting in receipts of $2 million (2,000 x $1,000) for which Cenric has to account to TWT for $1 million; and,

2. 50 per cent of a further $2 million from any additional payment for sandstone beyond the “current estimates”.

Consideration

168. Although the applicable principles are not in dispute, brief mention should be made of the following propositions.

169. The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]. That enquiry requires consideration of the language used by the parties in the contract, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation at [35]. An appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”: Electricity Generation at [35], referring to Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 (Mason J). Further, it is well accepted that commercial contracts are to be given a businesslike interpretation: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 at [11], [43]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [20]-[26]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40].

170. Plainly, there is a constructional choice between whether Cenric is entitled to retain 50 per cent of the royalties up to $3 million, as the primary judge found, or only up to an amount of $2 million, as TWT contends. Neither party suggested that the constructional choice is assisted by reference to any background material.

171. The context in which the words “the maximum additional payment to the Contractor” in the 30 June letter are to be understood is that, under the arrangements between Cenric and Bundanoon, Bundanoon was obliged to pay royalties to Cenric on the harvested sandstone at the specified rates.

172. As to the text, TWT pointed to the terms of cl 28A and the 30 June letter and emphasised that it was not required to pay Cenric, but rather Cenric was required to pay TWT. On TWT’s construction, the words “the maximum additional payment to the Contractor” mean, in effect, the gross amount which Cenric received from Bundanoon rather than the net amount which Cenric is entitled to retain in respect of royalty payments beyond the “current estimates” of sandstone available for harvesting. That is, the words “payment to the Contractor” refer to payment in fact to Cenric, rather than the ultimate position as to what royalties Cenric may retain.

173. The difficulty with this construction is that the $2 million cap referred to in the 30 June letter is not expressly qualified by an obligation on Cenric to account to TWT for 50 per cent of the “additional” payment by Bundanoon to Cenric of $2 million. The absence of such a qualification supports the alternative view which his Honour adopted, that the words “payment to the Contractor” refer to the ultimate position as to what royalties Cenric may retain with respect to any additional harvesting, beyond the current estimates.

174. The better view is that the words “payment to the Contractor” refer to Cenric’s entitlement to be paid (and retain) 50 per cent of the royalties for all sandstone harvested beyond the “current estimates”, up to a maximum of $2 million. It is only the amount of the royalties paid to Cenric on the sale of any sandstone beyond the current estimates, in excess of the “additional” amount of $2 million, which are to be paid by Cenric in their entirety to TWT.

175. No error has been demonstrated in the primary judge’s construction of the royalty cap.

Conclusion and orders

176. As the appeal by Bundanoon was abandoned, the appeal should be dismissed with costs.

177. The cross-appeal by TWT has failed. There is no reason why the costs of the cross-appeal should not follow the event in respect of the only active respondent to the cross-appeal, namely, Cenric: UCPR, r 42.1.

178. Accordingly, I propose the following orders:

1. Appeal dismissed with costs.

2. Cross-appeal dismissed.

3. The cross-appellant, TWT, pay the first cross-respondent, Cenric’s, costs of the cross-appeal.

179. McCALLUM JA: I agree with Gleeson JA.

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Decision last updated: 30 April 2019