El-Rihani v Hotait
[2020] FCA 912
•30 June 2020
FEDERAL COURT OF AUSTRALIA
El-Rihani v Hotait [2020] FCA 912
File number: NSD 807 of 2018 Judge: FARRELL J Date of judgment: 30 June 2020 Catchwords: CONTRACT – construction – Deed of Separation - meaning of “future liabilities” – whether claims lodged before execution of Deed but unpaid at date of execution are “future liabilities”
CONTRACT – frustration – whether Deed of Separation frustrated by appointment of a liquidator
Legislation: Corporations Act 2001 (Cth) ss 198G, 461, 474, 588FA, 601AA Cases cited: BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24, (1982) 149 CLR 337
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Newey v Westpac Banking Corporation [2014] NSWCA 319
Date of hearing: 26 September 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 145 Counsel for the Plaintiff: Mr T Lynch SC with Ms AJ Carr Solicitor for the Plaintiff: HWL Ebsworth Lawyers Counsel for the Defendant: Mr AR Davis Solicitor for the Defendant: Chamberlains Law Firm ORDERS
NSD 807 of 2018 BETWEEN: HUSSEIN EL-RIHANI
Plaintiff
AND: BILLAL HOTAIT
Defendant
JUDGE:
FARRELL J
DATE OF ORDER:
30 JUNE 2020
THE COURT ORDERS THAT:
1.The separate questions be answered as follows:
Question 1:
Does a proper construction of clause 10.2 of the Deed of Separation dated 19 December 2016 (the Deed) mean that claims could only be lodged in accordance with the terms of the Deed for liabilities arising after the date the Deed was entered into on 19 December 2016?
Answer:
No.
Question 2:
Can a claim for contribution thereto be made in respect of liabilities incurred prior to 19 December 2016?
Answer:
Yes.
Question 3:
Is the entirety of the Deed, with respect to the liabilities of Skyworks NSW Pty Ltd, frustrated by virtue of the appointment of a liquidator to Skyworks NSW on 6 June 2018 and the liquidator’s rights to any funds paid to reduce or remove creditors of Skyworks NSW?
Answer:
No.
Question 4:
Does a party have standing to make a claim for contribution for liabilities to Skyworks NSW in circumstances where a party has not made any contribution to the liabilities prior to making the claim?
Answer:
The issue of standing to make a claim does not arise having regard to the terms of cl 10.5 of the Deed of Separation. The parties have standing to enforce cl 10.5 of the Deed from the time Skyworks NSW’s liabilities exceed the amount in the Trust Account.
Question 5:
Was Mr El Rihani deprived of standing to make a claim for contribution to the alleged debts of Skyworks NSW in circumstances of Skyworks NSW being in liquidation?
Answer:
The answer to Question 4 does not change because Skyworks NSW is in liquidation. Clause 10.5 of the Deed remains enforceable notwithstanding that Skyworks NSW is being wound up.
2.The matter be listed for a case management hearing at a date to be determined.
3.Costs relating to the hearing and determination of the separate questions be reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FARRELL J
INTRODUCTION
For several years, the plaintiff, Hussein (Sam) El Rihani (Mr El Rihani), and the defendant, Billal (Bill) Hotait (Mr Hotait), together carried on a business involving construction and property development of mostly multi-level residential premises. The entities through which that business was carried on included, among other entities, Skyworks NSW Pty Ltd, Beauchamp Developments Pty Ltd, and Parramatta Project Pty Ltd. The relationship between Mr El Rihani and Mr Hotait deteriorated and, after early 2015, Mr El Rihani and Mr Hotait did not undertake any new business together.
The projects undertaken by Mr Hotait and Mr El Rihani included “residential building work” for the purposes of the Home Building Act 1989 (NSW). Entities that undertake that work are required by that Act to give statutorily prescribed warranties which are enforceable against them for seven years, six years, or two years (depending on when the work is completed).]
By a deed dated 19 December 2016 entitled “Deed of Separation” (or Deed) made between Mr El Rihani and Parramatta Project on the one side; and Mr Hotait and Beauchamp Developments on the other side, and subject to its terms, Mr El Rihani and Mr Hotait formally agreed on a basis for the separation and termination of their construction and property development business in respect of entities including Skyworks NSW by, among other things, the transfer of ownership and control of Beauchamp Developments to Mr Hotait and Parramatta Project to Mr El Rihani.
After entry into the Deed of Separation, the only building work undertaken by Skyworks NSW was to rectify defects in residential building work done under contracts completed or terminated before or on that date.
In proceedings NSD1514/2017 commenced in this Court on 1 September 2017, Mr Hotait sought an order under s 461(1)(k) of the Corporations Act 2001 (Cth) that Skyworks NSW be wound up on the just and equitable ground, under s 461(1)(e) on the basis that directors acted in their own interest rather than that of the members as a whole, or s 233(1)(a) on the basis that Skyworks NSW’s conduct was contrary to the interests of its members or otherwise oppressive or unfairly prejudicial to a member or members. Skyworks NSW and Mr El Rihani were named as defendants in those proceedings.
On 14 March 2018, Mr El Rihani commenced proceedings in the Supreme Court of New South Wales seeking an order restraining Mr Hotait from continuing with the winding up proceedings in this Court and damages for breach of the Deed of Separation. On 6 April 2018, on Mr Hotait’s application, the Supreme Court made orders transferring those proceedings to this Court. The transferred proceedings were numbered NSD807/2018.
On 6 June 2018, by consent of the parties, this Court made orders winding up Skyworks NSW under s 461(1)(k) of the Corporations Act and appointing Liam Bailey of O’Brien Palmer as its liquidator.
An amended statement of claim and a defence have been filed in proceedings NSD807/2018.
SEPARATE HEARING
On 7 February 2019, by consent, the Court made an order pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) that the matters raised in the defence filed on 23 January 2019 at [26] be the subject of a separate hearing. Paragraph [26] of the defence is as follows:
Further, and in respect of the entirety of the Statement of Claim, the defendant states:
(a)clause 10.2 of the Deed states that the funds payable pursuant to the Deed, with respect to [Skyworks NSW], are to be held on account of future liabilities;
(b)a proper construction of clause 10.2 of the Deed means claims could only be lodged in accordance with the terms of the Deed for liabilities arising after the date the Deed was entered into on 19 December 2016;
(c)as a result of paragraphs 26(a) and 26(b) of this defence, the defendant is not liable for any claims made for liabilities incurred prior to 19 December 2016;
(d)further, the entirety of the Deed with respect to the liabilities of [Skyworks NSW] is frustrated by virtue of the appointment of a liquidator to [Skyworks NSW] on 6 June 2018 and the liquidator's rights to any funds paid to reduce or remove creditors of [Skyworks NSW];
(e)further, or in the alternative, the plaintiff does not have standing to make a claim for contribution for liabilities to [Skyworks NSW] in circumstances where the plaintiff has not made any contribution to the liabilities prior to making their claim;
(f)further, the plaintiff does not have entitlement or standing to make a claim for contribution to the alleged debts of [Skyworks NSW] in circumstances whereby [Skyworks NSW] is the subject of liquidation.
QUESTIONS FOR SEPARATE HEARING ARISING FROM THE DEFENCE AT [26]
The parties formulated the questions for the separate hearing as follows (as written):
As clause 10.2 of the Deed states that the funds payable into the Trust Account pursuant to the Deed, with respect to Skyworks NSW, are to be held on account of “future liabilities” [26(a)];
(a)does a proper construction of clause 10.2 of the Deed mean that claims could only be lodged in accordance with the terms of the Deed for liabilities arising after the date of the Deed was entered into on 19 December 2016? [26(b)]
(b)can a claim for contribution thereto be made in respect of liabilities incurred prior to 19 December 2016? [26(c)]
(c)Is the entirety of the Deed, with respect to the liabilities of Skyworks, frustrated by virtue of the appointment of a liquidator to Skyworks NSW on 6 June 2018 and the liquidator's rights to any funds paid to reduce or remove creditors of Skyworks NSW? [26(d)]
(d)Does a party have standing to make a claim for contribution for liabilities to Skyworks NSW in circumstances where a party has not made any contribution to the liabilities prior to making the claim? [26(e)]
(e)Was Mr El Rihani deprived of standing to make a claim for contribution to the alleged debts of Skyworks NSW in circumstances of Skyworks NSW being in liquidation? [26(f)]
Put shortly, the questions raised by the defence at [26] appear to be:
(1)Should the term “future liabilities” in cl 10.2 of the Deed of Separation be read restrictively, as contended by Mr Hotait, as applying only to liabilities which arose and were invoiced after 19 December 2016 when the Deed of Separation was signed (which are the Category C liabilities, as defined below) or should it be read as applying to both liabilities unpaid on 19 December 2016 and those which arose for payment after that date having regard to the context and purpose of the whole Deed, as contended by Mr El Rihani;
(2)Can a party who has not made a contribution to the Trust Account (as defined in cl 1.7(t) of the Deed of Separation) call upon the other party to make a contribution; and
(3)Did the fact that Skyworks NSW went into liquidation on 6 June 2018 affect obligations to contribute funds to the Trust Account under cl 10.5 of the Deed of Separation?
AGREED FACTS FOR THE PURPOSES OF THE SEPARATE HEARING
By a document filed on 4 June 2019 pursuant to orders of the Court, the parties agreed many of the facts referred to in the Introduction above and the following facts for the purpose of determination of the separate questions (Agreed Facts).
On about 19 or 20 December 2016, the El Rihani entities (as defined in the Deed of Separation), made the “BD Payments” (as defined in the Deed) in a nett amount of $1,096,482.09 to Mr Hotait in accordance with cll 3.1(a) and 16 and Annexure A to the Deed of Separation.
Pursuant to cl 10 of the Deed of Separation, the following amounts were contributed to the Trust Account (as defined in cl 1.1(t) of that Deed):
(1)$200,000.00 on 21 December 2016 contributed by Mr El Rihani;
(2)$200,000.00 on 23 December 2016 contributed by Mr Hotait;
and on each of 16 and 28 March 2017, a further $100,000 was paid into the Trust Account, the circumstances of which do not arise for determination on the separate question.
The Court understands from the Agreed Facts set out in [14] above that an aggregate amount of $600,000 was contributed to the Trust Account.
For the purpose only of the determination of the separate questions, an assumption is to be made that Mr El Rihani, purportedly pursuant to cl 10 of the Deed of Separation, made requests for a contribution to the Trust Account, as follows (Requests):
(1)On 28 March 2017 for 50 per cent of the amount sought;
(2)On or about 20 September 2017 for 50 per cent of the amount sought; and
(3)On or about 23 October 2018, for 50 per cent of the amount sought.
In respect of the requests referred to at [16], Mr Hotait disputed that he had the obligation to make any payment in respect of the purported requests.
The parties agreed that the payments made out of the Trust Account between 23 December 2016 and 3 May 2017 can be separated into three categories of liabilities:
(1)Liabilities for work done and/or goods provided and invoiced to Skyworks NSW before 19 December 2016 (Category A);
(2)Liabilities for work done and/or goods provided to Skyworks NSW before 19 December 2016, but invoiced thereafter (Category B); and
(3)Liabilities for work done and/or goods provided and invoiced to Skyworks NSW after 19 December 2016 (Category C).
On 16 August 2019, the parties filed particulars of payments out of the Trust Account and the date of related invoices (the Particulars) which are said to relate to the Agreed Facts at [11] and [14] of that document. The Agreed Facts at [11] state that, in accordance with cl 10 of the Deed of Separation, $380,088.93 had been paid out of the Trust Account to creditors of Skyworks NSW by 3 May 2017, leaving a balance of $10,484.96. The Court notes that:
(1)The Particulars relate to invoices issued between 21 December 2012 and 30 March 2017 to an aggregate amount of $718,843.96. Invoices referred to in the Particulars as having been issued between 21 December 2012 and 31 December 2015 and unpaid as at 19 December 2016 were for an amount of $60,855.15. At least a further $73,914.07 was invoiced between 1 January 2016 and 19 September 2016, being a date three months before the execution of the Deed on 19 December 2016, and remained unpaid on 19 December 2016. The aggregate amount said in the Particulars to be in Category A (excluding those amounts which were said to be in both Category A and Category B without differentiation) was $398,377.38. Mr El Rihani submitted that an aggregate amount of $434,894.41 had been invoiced and was unpaid on or before 19 December 2016 and that does not appear to be in dispute.
(2)Although the Agreed Facts at [11] referred to an amount of $380,088.93, the Particulars filed on 4 June 2019 say that an amount of $580,088.93 had been paid out of the Trust Account between 23 December 2016 and 3 May 2017. Counsel for the parties agreed that $580,088.93 was the correct amount leaving a shortfall of invoiced amounts of $138,755.03.
(3)The parties are unable to explain why the Agreed Facts at [11] stated that the “balance” figure remaining in the Trust Account was $10,484.96, not $19,911.07, but counsel for the parties agreed that $10,484.96 reflects the bank account statement for the Trust Account.
Invoices to an aggregate amount of $255,237.14 were said to be in Categories B and C, that is invoices raised after the Deed of Separation was signed, albeit that Category B liabilities were incurred before 19 December 2016.
DEED OF SEPARATION
The parties to the Deed of Separation are Mr Hotait, Mr El Rihani, Beauchamp Developments and Parramatta Project.
The “Introduction” to the Deed of Separation states that:
A.Hotait and El Rihani, through their nominated entities and personally, have engaged in various joint business ventures in the property development and construction industry.
B.Hotait and El Rihani have agreed to separate from each other and to do all things necessary to procure their nominated entities to separate from each other to bring about the end of their joint business ventures.
C.The parties have reached an agreement in accordance with the terms of this document.
Clause 1 contains definitions. There is no definition of “liabilities” or “future liabilities”.
Clause 2 provides as follows:
2. Agreement
2.1Hotait and El Rihani have agreed to separate and end their business relationship in accordance with this document.
2.2The parties agree that they must not take any steps to revive, recover or otherwise re-establish the business ventures which are contemplated by this document unless both parties agree in writing.
One of the purposes of the Deed of Separation was to effect the immediate transfer of:
(1)Mr Hotait’s shares and interests in Parramatta Project to Mr El Rihani; and
(2)Mr El Rihani’s shares and interests in Beauchamp Developments to Mr Hotait.
Clause 8 provides for:
(1)The sale of shares in Parramatta Project by Mr Hotait to Mr El Rihani or his nominee.
(2)Mr El Rihani to be responsible for the assessment and payment of stamp duty and notifications consequent on the sale.
(3)Mr Hotait to be responsible for any capital gains tax incurred on the sale and the parties agree that GST is not payable.
(4)Mr Hotait to warrant only that he is the absolute owner of the shares and Mr El Rihani to acknowledge that he is not relying on any representation in relation to the sale.
(5)Mr Hotait to resign as a director and secretary of Parramatta Project immediately and Mr El Rihani to notify ASIC of those facts.
(6)Mechanical provisions dealing with constitutional compliance and board meetings relating to the sale and transfer of the shares.
(7)Agreement that on completion of the sale of the shares in Parramatta Project to Mr El Rihani, all existing agreements between the parties in relation to Parramatta Project, such as shareholders agreements, are immediately terminated.
(8)Mr El Rihani to assume responsibility for the conduct, management and operations of Parramatta Project and Mr Hotait to cease all involvement with those functions.
(9)Mr El Rihani to release Mr Hotait against claims relating to shares which arose from any period up to the date of the Deed.
(10)Mr El Rihani to indemnify Mr Hotait against any claim by a third party in connection with Parramatta Project “past, present or future”.
(11)The parties to do everything necessary to terminate the construction contract between Parramatta Project and Skyworks NSW by 15 February 2017 and Skyworks NSW to forfeit the retention sum under that contract. Parramatta Project was to enter into a new construction contract with another builder nominated by Mr El Rihani.
(12)Upon completion of the sale of the shares in Parramatta Project, Mr El Rihani to procure that all finance facilities obtained by Parramatta Project are amended so that Mr Hotait and the Hotait Entities (as defined in the Deed) are not named as a guarantor or obligor under them. All such finance facilities are to be refinanced and new facilities entered into whereby Mr Hotait and the Hotait Entities are not named as a guarantor or obligor.
(13)If Mr El Rihani was “unable” to comply with the requirement to have the finance facilities relating to Parramatta Project amended to remove Mr Hotait as a guarantor or obligor by 15 February 2017 and he had not remedied that default within 14 days of Mr Hotait serving a default notice in relation to that non-compliance, Mr El Rihani “shall pay [Mr] Hotait liquidated damages at the rate of $1,081.00 per day from the expiry of the 14 day period until such time as [Mr] El Rihani complies”. The parties agreed that payment of that sum constitutes a genuine pre-estimate of the loss and damage that would be suffered as a result of the non-compliance.
(14)Mr El Rihani to be responsible for the tax liabilities of Parramatta Project.
Clause 9 generally contains the same provisions as cl 8 (with the obligations of Mr Hotait and Mr El Rihani being reversed) with respect to the sale of shares in Beauchamp Developments, with slight differences (which are not presently relevant) with respect to the termination of the building contract between Beauchamp Developments and Skyworks NSW.
The Deed of Separation provided for the way a number of companies which were not parties to the Deed were to be dealt with. Clause 3 deals with Equipment for Hire Pty Ltd. Upon execution of the Deed of Separation, Mr El Rihani was required to pay an Equipment Fee to Mr Hotait and the assets of the company were to be transferred to Mr El Rihani or his nominee: cl 3.1(a) and (b).
Once those steps are complete, the parties are required to attend to the steps necessary to effect deregistration of Equipment for Hire: cl 3.2. The steps required are set out in cll 3.3-3.5 as follows:
(1)Pass all necessary shareholder resolutions for deregistration,
(2)Ensure that the company ceases business immediately,
(3)Ensure the company’s assets are reduced to less than $1,000,
(4)Distribute profits to shareholders equally,
(5)Pay all of the company’s outstanding liabilities,
(6)Cause the conclusion of all legal proceedings involving the company,
(7)Pay all fees and penalties to the Australian Securities and Investments Commission (ASIC),
(8)After the preceding matters have been completed, lodge a Form 6010 with ASIC and the filing fee must be borne by the parties equally, and
(9)Mr Hotait and Mr El Rihani must contribute equally to the company’s tax liabilities.
Clauses 4, 6 and 7 provided for the deregistration of Skyworks Group Pty Ltd, Hornsby Projects Pty Ltd and Skye Form Pty Ltd respectively in the same way as Equipment for Hire.
Clause 5.1-5.3 deals with Skyworks NSW differently. Those clauses provide as follows:
5.1 The parties agree and acknowledge that Skyworks NSW:
(a)is presently the contracted builder for the development project undertaken by Parramatta Project;
(b)is presently the contracted builder for the development project undertaken by Beauchamp Developments;
(c)is presently the contracted builder for other projects in the state of New South Wales;
(d)will receive payments in respect of goods and services provided by Skyworks NSW as a contracting builder for projects in the state of New South Wales;
(e)will have its construction contracts with Parramatta Project and Beauchamp Developments terminated by mutual agreement in accordance with clauses 8.16 and 9.16
5.2The parties must cause for the following to be transferred to the Trust Account to be dealt with in accordance with clause 10:
(a)upon execution of this Deed, all current funds held in the financial accounts of Skyworks NSW;
(b) all future payments to be made to Skyworks NSW of any nature.
5.3Upon satisfaction of an event contemplated by clause 10.14 and the distribution of all funds held in the Trust Account (if any), the parties must cause Skyworks NSW to be deregistered unless the parties unanimously agree to sell Skyworks NSW.
It is common ground that no payments met the description in cl 5.2 so that the only moneys paid to the Trust Account were those contributed by Mr Hotait and Mr El Rihani as referred to at [14] above in the aggregate amount set out at [15] above.
Clause 10 of the Deed provides as follows (as written):
10. Trust Account
10.1The parties acknowledge and agree that moneys shall be held in the Trust Account on behalf of Skyworks NSW.
10.2The parties agree that these funds shall be held in the Trust Account on account of future liabilities of Skyworks NSW, including, but not limited to, potential building defect liabilities arising from construction works undertaken by Skyworks NSW in the state of New South Wales.
10.3The parties acting reasonably and in good faith, agree to direct Madison Marcus Law Firm Pty Ltd to pay the liabilities of Skyworks NSW from the Trust Account.
10.4Upon execution of this Deed, El Rihani and Hotait agree to each pay $200,000.00 into the Trust Account.
10.5In the event that any liability exceeds the amount held in the Trust Account at any given time, Hotait and El Rihani each agree to contribute equally to the amount exceeding the amount held up to a maximum of an additional $100,000.00 each on each occasion. If:
(a)Hotait cannot advance the additional funds required, El Rihani may advance the shortfall and such advance shall be a debt due and payable and accrue interest of 5% per annum payable by Hotait until such time that the advance plus all interest is repaid. To the extent that any monies remain outstanding from Hotait to El Rihani, that indebtedness shall constitute a charge over any real property held by Beauchamp Developments and/or Hotait and such charge may be registered by El Rihani as a charge and constitutes in El Rihani a caveatable interest. Hotait and Beauchamp Developments shall neither raise complaint nor require the lapsing of a caveat or a charge, as the case may be, where El Rihani registered such interest pursuant to this Deed. This chargeable interest accrues and is applicable under the Real Property Act 1900 (NSW) and applicable interstate land registration acts and under the common law; or
(b)El Rihani cannot advance the additional funds required, Hotait may advance the shortfall and such advance shall be a debt due and payable and accrue interest of 5% per annum payable by El Rihani until such time that the advance plus all interest is repaid. To the extent that any monies remain outstanding from El Rihani to Hotait, that indebtedness shall constitute a charge over any real property held by Parramatta Project and/or El Rihani and such charge may be registered by Hotait as a charge and constitutes in Hotait a caveatable interest. El Rihani and Parramatta Project shall neither raise complaint nor require the lapsing of a caveat or a charge, as the case may be, where Hotait registered such interest pursuant to this Deed. This chargeable interest accrues and is applicable under the Real Property Act 1900 (NSW) and applicable interstate land registration acts and under the common law.
10.6If Hotait or El Rihani form the view that the funds held in the Trust Account ought to be used to pay an liability on behalf of Skyworks NSW, then that party shall notify the other party in writing of:
(a) the nature of the liability; and
(b) the amount of the liability.
10.7The party receiving notice under clause 10.7, shall have three (3) business days from the date of receipt to respond in liability to the party issuing the notice, specifying whether:
(a) the expense is agreed; or
(b) the liability is disputed and the reasons for the dispute.
10.8If the party receiving notice under clause 10.7 fails to respond within three (3) business days from the date of receipt, then that party is deemed to have agreed to the liability claimed.
10.9If a liability claim is agreed by operation of clause 10.8(a) or clause 10.9, then the party issuing the notice under clause 10.7 shall be authorised to complete and execute a document in substantially the same form as Annexure B and deliver same to the addressee which shall have the effect of authorising Madison Marcus Law Firm Pty Ltd to deal with the funds in the Trust Account in accordance with same.
10.10If a liability claim is not agreed by operation of clause 10.7(b), then the parties shall meet within three (3) Business Days after the disagreement arose, acting reasonably and in good faith with a view to resolving the dispute and reaching an agreement. If an agreement is reached at the meeting, the parties shall both complete and execute a document in substantially the same form as Annexure B and deliver same to the addressee which shall have the effect of authorising Madison Marcus Law Firm Pty Ltd to deal with the funds in the Trust Account in accordance with same.
10.11If the parties cannot agree to direct Madison Marcus Law Firm Pty Ltd to pay a liability of Skyworks NSW from the Trust Account and the steps in clauses 10.6 to 10.10 have been adhered to, then the parties agree that a President of the Law Society of New South Wales shall appoint a suitably qualified expert to determine (after considering submissions made by each party):
(a) the amount of the liability to be paid;
(b) when the liability is to be paid;
(c) any steps to be taken by the parties to reduce the liability; and
(d)whether proceedings, negotiations or a dispute resolution mechanism ought to be instituted to object to the whole or part of the liability.
10.12The parties agree to be unconditionally bound by the decision of the appointed expert and irrevocably authorise Madison Marcus Law Firm Pty Ltd to apply the funds held in the Trust Account in accordance with the appointed expert's decision.
10.13The costs associated with the appointment of the expert and the expert's costs shall be borne by the parties equally.
10.14Upon either of the following events occurring:
(a)the expiry of all building defect warranty periods which Skyworks NSW must comply by contract, statue or common law (excluding tort) and receipt of all funds payable to Skyworks NSW; or
(b) agreement between the parties in writing,
the following shall occur:
(i)the funds held in the Trust Account shall be distributed to the parties equally (if there are funds available for distribution). For this purpose, the parties agree to provide written authority to Madison Marcus Law Firm Pty Ltd to deal with the funds held in the Trust Account in accordance with this clause; and
(ii)Skyworks NSW is to be deregistered in accordance with clause 5.3.
Clause 11 provides for notification of defects and authorisation of Madison Marcus Law Firm to apply funds held in the Trust Account in relation to them.
Clause 12 requires Mr Hotait and Mr El Rihani to maintain net assets of $1 million in each of Beauchamp Developments and Parramatta Project respectively until the expiry of all building warranty defect periods which they must comply with under contract, statute or common law (excluding tort), or until written agreement by Mr Hotait and Mr El Rihani.
Clauses 13, 14, 15 and 17 contain provisions familiar in such arrangements, including provisions dealing with confidentiality, non-disparagement, further assurance and indemnity, counterparts, independent legal advice, costs, governing law, amendments, severability, the status of pre-contractual negotiations and entire agreement, and the reasonableness of the document.
Clause 16 provides as follows:
16. Schedule of Calculations
16.1The parties agree and acknowledge that the payments to be made under this document have been calculated with reference to the financial position and calculations detailed in Annexure A.
16.2The parties have read, inspected and understood Annexure A and agree with the contents and calculations set out therein.
16.3 Each party waives any right it has to object to:
(a) the contents of Annexure A;
(b) the amounts which are payable by the parties under this Deed.
There is no “force majeure” clause.
Annexure A to the Deed was headed “Schedule of Calculations” and provided as follows (as written):
Item Agreed Value
Inc GstA Development - Hillsdale/Top Ryde $1,369,625.70 B BOND $495,985.12 B.01 Hillsdale-Build a Security Deposit ($189,400) B.02 Ryde - Sydney Water Bond ($300,000.00) B.03 Ryde-Hovik Bond ($502,570.23) C OUTSTANDING RETENTION $543,125.00 C.01 Botany C.02 Wahroonga D Formwork for Bel - Air project $300,000 E Drawing Adjustment against Personal LoanS $137,908.06 F Equipment for Hire - Crane & Car $30,000.00 G Liability From Sydney To NSW $45,000.00 H Sub- total Income to Bill (A+B+C+D+E+F+G) $2,921,643.88 I Less the below adjustment _ NSW $147,509.56 I.01 Less Frank I.02 Less - Matraville etc J Less Overhead adjustment paid by El Rihani $43,659.30 K Agent’s fees - Kingsford $99,534.71 L Less payment by Sam $842,488.00 M Total Paid to Date from Sam to Bill (I+J+K+L) $1,133,191.57 N Total Payout to Bill after Amount already paid (H-M) $1,788,452.32 O less Bond (TO BE OWNED BY HOTAIT) (O.01+ O.02) $691,970.23 O.01 Hillsdale bond $189,400.00 O.02 Bond Hovik $502,570.23 P TOTAL (N-O) $1,096,482.09 *Notwithstanding any other provision of this Deed to the contrary, El Rihani shall have until 15 February 2017 to replace the Hovik Bond. For this purpose, the payment in this Annexure A that relates to the Hovik Bond shall be disregarded when the BD Payments are paid on exchange of this Deed and completely disregarded if El Rihani successfully replaces the Hovik Bond. If El Rihani is unable to replace the Hovik bond by 15 February 2017, then the payment in this Annexure A that relates to the Hovik Bond shall be payable by El Rihani to Hotait within 14 days of a written demand from Hotait
FUTURE LIABILITIES ISSUE
Legal principles
Mr El Rihani’s written submissions in chief and in reply cite no authority for the propositions contained in them. At the hearing, senior counsel for Mr El Rihani indicated that he did not seek to cavil with the authorities relied on by Mr Hotait.
Mr Hotait relied on the following statements of principle from the High Court’s decision in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 (Mount Bruce Mining) at [46]-[51] (French CJ, Nettle and Gordon JJ) (footnotes omitted):
46The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
47.In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
48.Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
49.However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
50.Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
51.Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
Mr Hotait also relied on the following observations of the Court of Appeal of New South Wales in Newey v Westpac Banking Corporation [2014] NSWCA 319 (Newey) at [90]-[91] (Gleeson JA, Basten and Meagher JJA agreeing):
90Nonetheless it is also important to bear in mind the extent to which context and legitimate surrounding circumstances can be used as an aid in the construction of a written agreement. In McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; 81 NSWLR 690 at [17]-[18] Bathurst CJ (Macfarlan JA and Sackville AJA agreeing) said:
“[17] ... Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.
[18] This does not mean that there are not exceptional cases where, to use the words of Lord Hoffmann, something has clearly gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense: see Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [15]-[16]; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], [60]. In such a case, in my opinion, a court is entitled to depart from the ordinary meaning to give effect to what objectively speaking the parties intended ... .”
91The reference in McGrath v Sturesteps at [17] to the well-known observation of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd at 109, is a strong reminder that there is no licence for “judicial rewriting” of an agreement: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] (Basten JA; Giles and Tobias JJA agreeing); Franklins at [23] (Allsop P). The ability of courts to give commercial agreements a commercial and business-like interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Exports Services Inc at [55] (Macfarlan JA; Young JA and Tobias AJA agreeing).
Mr El Rihani’s submissions summarised
Mr El Rihani submitted that the term “future liabilities” in cl 10.2 of the Deed of Separation refers to the liabilities of Skyworks NSW which were unpaid as at 19 December 2016 (the date the Deed was entered into) or which thereafter arose for payment. He says that meaning emerges both from consideration of the express terms of the Deed as a whole (consistently with Mount Bruce Mining at [48]) and upon consideration of the Deed in the context in which execution occurred (consistently with Mount Bruce Mining at [49]).
Mr El Rihani submitted that the following may be observed about the express terms of the Deed of Separation.
First, Recital B of the “Introduction” contains an express purpose of the Deed of Separation:
Hotait and El Rihani have agreed to separate from each other and to do all things necessary to procure their nominated entities to separate from each other to bring about the end of their joint business ventures.
Second, Skyworks NSW was one of “their” entities, but not a party to the Deed.
Third, one specific purpose of the Deed of Separation is to effect the immediate transfer of shares in Beauchamp Developments to Mr Hotait and Parramatta Project to Mr El Rihani: cll 8 and 9.
Fourth, cl 5 provides for the continuing joint control of Skyworks NSW by Mr Hotait and Mr El Rihani:
(1)By cl 5.1, the parties agree that Skyworks NSW “presently” (that is, at 19 December 2016) undertakes “residential building work” and is a contracted builder for development work undertaken by Parramatta Project, Beauchamp Developments and third parties and that it will receive payments in respect of goods and services provided by it in that role.
(2)Clause 5.2 provides for (a) all currently held funds (that is, as at 19 December 2016) and (b) all future payments to Skyworks NSW of any nature to be paid to the Trust Account.
(3)Clause 5.3 provides for deregistration of Skyworks NSW or (if unanimously agreed), its sale upon satisfaction of the events contemplated by cl 10.14 being expiration of the building defects warranty periods and distribution of the balance of moneys in the Trust Account to Mr El Rihani and Mr Hotait. Deregistration is therefore the default position unless Mr Hotait and Mr El Rihani agree that Skyworks NSW should be sold.
(4)With the exception of cl 5.4(c) (Skyworks NSW’s builder’s licence to be cancelled in a manner which does not damage the prospects of Mr El Rihani and Mr Hotait to obtain builder’s licences), cll 5.4-5.6 generally provide for the same regime to effect deregistration of Skyworks NSW as that provided for Equipment for Hire, Skyworks Group, Hornsby Projects and Skye Form in cll 3, 4, 6, and 7. That includes (among other things) deregistration to be effected by resolution of the company’s shareholders, the company having ceased trading, and “all outstanding liabilities” of the company having been paid. These provisions reflect the requirements of s 601AA(2) of the Corporations Act applicable to voluntary deregistration of companies. However, while cll 3, 4, 6 and 7 provide for deregistration of the relevant companies “within a reasonable time” after execution of the Deed of Separation, the effect of cl 5.3 and cl 10.14 is that Skyworks NSW would remain under joint control for an indefinite period before cl 5.4 (and cl 5.4(f) in particular) came into operation.
Fifth, cl 10 provides for operation of the Trust Account:
(1)Under cl 10.2, funds deposited in the Trust Account were to be “held … on account of future liabilities of Skyworks NSW …”.
(2)Under cl 10.4, $200,000 was to be deposited upon execution of the Deed by each of Mr Hotait and Mr El Rihani.
(3)Under cll 10.3 and 10.6, the balance of the Trust Account from time to time was to be used “to pay the liabilities of Skyworks NSW”.
(4)Under cl 10.5, Mr Hotait and Mr El Rihani agreed that “[i]n the event that any liability exceeds the amount held in the Trust Account at any given time” they “each agree to contribute equally to the amount exceeding the amount held up to a maximum of an additional $100,000 each on each [such] occasion”.
(5)Under cl 10.6, disbursement of money from the Trust Account required agreement between Mr Hotait and Mr El Rihani.
(6)Under cl 10.7, either Mr Hotait or Mr El Rihani could oppose a payment proposed by the other on the grounds that it was not a liability of Skyworks NSW and/or its quantum exceeded the true liability of Skyworks NSW.
(7)Under cll 10.11 to 10.13, continuing disagreement between Mr Hotait and Mr El Rihani about a proposed payment was to be resolved by expert determination.
(8)Under cl 10.14, operation of the Trust Account would terminate upon the expiry of the last of the defects warranty periods applicable to any residential building work done by Skyworks NSW or the parties agreeing in writing that that should occur, whichever first occurred.
Sixth the term “future liabilities” is used only once, in cl 10.2. Importantly, it is not repeated again in the rest of cl 10 relating to the operation of the Trust Account. The term “liabilities” is used in cll 10.3, 10.5, 10.7, 10.9, 10.10 and 11, but in all those cases it is unqualified.
Seventh, the term “future” only appears in five places:
(1)In cl 10.2;
(2)In cl 5.2, which requires all “current funds” in the financial accounts of Skyworks NSW and all “future payments” made to Skyworks NSW of any nature to be paid to the Trust Account “to be dealt with in accordance with clause 10”;
(3)cl 5.4(c), which requires Skyworks NSW’s building licence to be cancelled in a manner which does not damage the prospects of Mr Hotait or Mr El Rihani “obtaining alternative building licences in the future”; and
(4)In cll 8.14 and 9.14, being reciprocal indemnities given by Mr El Rihani to Mr Hotait in relation to “Claims” by a third party in connection with Parramatta Project “past, present or future” and vice versa in relation to Beauchamp Developments.
Mr El Rihani submitted that properly interpreted, the Deed of Separation contemplates that all of Skyworks NSW’s liabilities, incurred both before and after the date of the Deed, would be discharged and Skyworks NSW would be voluntarily deregistered under s 601AA(2) of the Corporations Act unless Mr El Rihani and Mr Hotait agreed that it should be sold. On Mr Hotait’s construction of cl 10.2, liabilities arising from building defect warranties prescribed under the Home Building Act would not be covered, but for the fact that they are expressly referred to in cl 10.2. Indeed, Mr Hotait says that Category B liabilities are not covered, even though the contingent liability for all warranty claims arise by the end of the construction period. It is important that cl 10.2 uses the words “including but not limited to potential building defects” so that if contingent liabilities are embraced, so are actual liabilities. Building defects are an example of the matters covered by the words used earlier in cl 10.2, not an extension as contended by Mr Hotait.
He says that, by reference to cll 5.2, 5.3, 5.4 and 10.14 the Deed of Separation alone, a reasonable business person would not have understood the reference to “future liabilities” in cl 10.2 to mean that only some of Skyworks NSW’s creditors would be paid out of the Trust Account. The fact that cl 5.2 contemplated moneys received from Skyworks NSW’s debtors being used to augment the Trust Account would lead one to expect that the moneys in the Trust Fund would be available to meet all of its outstanding liabilities.
Senior counsel for Mr El Rihani submitted that a fundamental purpose of the Deed of Separation is to provide a scheme for obtaining the voluntary deregistration of Skyworks NSW and those entities that were to remain in joint ownership. Senior counsel noted that the Deed of Separation contemplated that only one of their joint entities (Skyworks NSW) would continue in joint ownership for any lengthy period (to deal with the run-off of building defect warranty claims), having regard to cl 10.14. That purpose would be confounded if, as submitted by Mr Hotait, the financial support contemplated by cll 5.2, 10.4 and 10.5 of the Deed of Separation could only be used to satisfy liabilities of Skyworks NSW which became due and payable after 19 December 2016, being the date of the Deed. That is because, even though cl 5.4(f) requires the payment of all “outstanding liabilities” as a condition of voluntary deregistration, Skyworks NSW would be exposed to judgements over a potentially long period until the date for termination under cl 10.14 so that Skyworks NSW would be liable to be wound up for non-payment of Category A liabilities before the building defect warranty periods elapsed and Skyworks NSW’s sale or voluntary deregistration could be achieved. Senior counsel posed the question: why would two business people who were going their separate ways do that? He asserts that that is the outcome if Mr Hotait’s preferred interpretation of cl 10.2 were correct.
Mr El Rihani says that the objective circumstances in existence at the time the Deed was executed suggest that cl 10.2 of the Deed of Separation should be interpreted as Mr El Rihani contends, because then the Trust Account is available to all creditors who had not been paid.
Mr El Rihani submitted that, if one looks beyond the terms of the Deed of Separation to the context in which it was executed, the Particulars disclose that, as at 19 December 2016, amounts owed by Skyworks NSW in respect of work done before and invoiced before that date (that is Category A liabilities) amounted to $434,894.41. That is a known objective circumstance. It is entirely orthodox to take that circumstance into account: see Mount Bruce Mining at [49].
Senior counsel submitted that it is not in dispute that the only moneys that went into the Trust Fund was $600,000 contributed by the parties, despite cl 5.2 of the Deed of Separation. From that, it can be inferred that there were no funds held by Skyworks NSW as at 19 December 2016 and there were no payments received from any other source after that date. The Particulars disclose that Category A and Category B liabilities were paid from the Trust Account between 23 December 2016 and 3 May 2017. Those payments only occurred because Mr Hotait and Mr El Rihani “acting reasonably and in good faith” directed the law firm operating the Trust Account to pay those liabilities: see cl 10.3 of the Deed. Those payments were made before any dispute arose about the meaning of “future liabilities”.
Taking the objective circumstance disclosed by the Particulars that Skyworks NSW had unpaid invoices to an amount of $434,894.41 on 19 December 2016 and the fact that no further moneys were paid into the Trust Account in accordance with cl 5.2, it should be inferred that Skyworks NSW was then, but for the support of Mr El Rihani and Mr Hotait in accordance with cl 10, unable to meet its liabilities then due and payable and their support was necessary if the Deed of Separation was to achieve the indefinite continuing existence of Skyworks NSW until its voluntary deregistration or sale following the end of the statutorily prescribed building defects warranty periods.
Mr El Rihani submitted that, while the matters raised in [57] are post-contractual conduct and he accepts that, generally, such conduct cannot be used to establish the legal meaning of a phrase or the construction of some part of an agreement, post-contractual conduct may be relied upon as a fact if it is otherwise relevant. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations: see Mount Bruce Mining at [50]. Senior counsel for Mr El Rihani submitted that examples of situations in which post-contractual conduct may be taken into account are to establish the subject-matter of an agreement or who the contracting parties are.
Senior counsel for Mr El Rihani submitted that, in this case, the post-contractual conduct serves to identify the subject-matter of cl 10.2. He says that, in this case the difference between the subject-matter of cl 10.2 and construction of the term “future liabilities” is not meaningful. The rationale for evidence of post-contractual conduct being inadmissible for the purpose of construing a document is not applicable in this case because the relevant conduct was a joint act of Mr Hotait and Mr El Rihani. Payments out of the Trust Account could only be made by their agreement having regard to cll 10.7, 10.8 and 10.9 of the Deed of Separation. So the conduct on which Mr El Rihani seeks to rely is not affected by the concern that it manifests nothing more than a subjective view.
The facts that there were over $400,000 of debts in Category A which had already fallen due for payment by Skyworks NSW on 19 December 2016 and that they were paid within three months after the Deed was executed, in circumstances where (on Mr Hotait’s interpretation) there is no other mechanism in the Deed for dealing with Category A liabilities until the end of the building defects warranty period or agreement between the parties (having regard to cl 5.3, 5.4(f) and 10.14), points to the construction for which Mr El Rihani contends because the commercial purposes contemplated by the Deed under cll 5.3 and 10.14 would be confounded if Mr Hotait were correct. The word “future” simply means something prospective. There is nothing anomalous in reading “future liabilities” in context to include those liabilities existing at 19 December 2016 which remained to be paid at or after that date and it is consistent with the apparent commercial purposes of the Deed. In the circumstances, the interpretation for which Mr Hotait contends is anomalous and uncommercial.
Senior counsel submitted that Mr El Rihani’s approach to establishing the subject-matter of “future liabilities” in cl 10.2 wholly reflects the observations made by the High Court in Mount Bruce Mining on which Mr Hotait relies and it would not involve the Court departing from the ordinary meaning of the words: see Newey at [90] which cites McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 (McGrath) at [17].
Mr Hotait’s submissions summarised
Mr Hotait submitted that the purpose of the Deed of Separation was to provide a mechanism for separating the commercial interests of Mr Hotait and Mr El Rihani from each other so as to bring an end to the joint-venture arrangement and then for the handling of building defect warranty claims going forward. The separation included a consideration of adjustment of assets and liabilities in existence on 19 December 2016 and the transfer of money to finalise the outstanding liabilities as at that date under cl 16 and Annexure A, consistently with the Deed’s purpose. That engagement with the division of assets and liabilities “must be relevant to the intention of the parties and the intention of the Deed with respect to future liabilities”. The manner in which cl 11 deals with potential building defect claims is consistent with that analysis.
Counsel for Mr Hotait submitted that Skyworks NSW was the only entity where it was anticipated that there would be an ongoing “partnership” for the run-off of building defects warranty liabilities and how the Deed of Separation dealt with other entities does not assist in the matter at hand.
Mr Hotait says that the intention of the parties is to be derived from the language used in cl 10.2 of the Deed of Separation. He says that the word “future” is clear in its operation and it has a real purpose to play: see Mount Bruce Mining at [46]-[51]. Given its ordinary meaning, the word “future” applies to liabilities that accrue after 19 December 2016, not those that accrued before that date. On the face of the document, liabilities that accrued before that date ought to have been taken into account before the execution of the Deed. Given that meaning, “future” has an entirely satisfactory effect and can hardly be said to be unjust.
Mr Hotait further submitted that, albeit that the clause is not in its terms restrictive, cl 10.2 not only uses the term “future liabilities” but it goes on to use the words “potential building defect liabilities”. A “potential” occurrence must, of its nature, be something which might occur in the future. Had the words employed in cl 10.2 been “on account of liabilities of Skyworks NSW” Mr El Rihani’s position would have greater force with respect to liabilities that had accrued before or at the time of execution of the Deed. The methodology employed in cll 10.6-10.13 for payment of liabilities out of the Trust Account and in cl 11 for identifying defects which should be paid out of the Trust Account reflect the language of cl 10.2. Counsel submitted that a reasonable reading of the Deed was that it was “geared towards” the potential for building defect claims to arise. He submitted that, taking into account those matters together with cl 5.1(d) and cl 16 and Annexure A, giving “future” its ordinary meaning in cl 10.2 is consistent with the purpose of the Deed. That purpose was to separate everything else out, close everything else down and keep Skyworks NSW as a mechanism for handling building defect claims which arise after 19 December 2016. He says that there is a consistency throughout the document that militates for finding that there is no ambiguity in the term “future liabilities”.
Mr Hotait says that, in light of the clear words of cl 10.2, to engage with the factual contextual considerations outside the Deed of Separation itself as urged by Mr El Rihani (such as having regard to the Particulars) would be to engage in a process which the High Court has encouraged courts not to do where there is no ambiguity in the document to be interpreted. The mere assertion by one party that there is a lack of clarity does not, by its assertion, amount to a basis to engage in the process of determining what is meant by a particular phrase or the need to go beyond the words themselves and consider surrounding intentions or other matters. In this case, there is no need to have regard to surrounding matters in order to give business efficacy to the terms in the document. The Deed of Separation itself provides clarity.
While Mr Hotait concedes that context and the surrounding circumstances known to both parties can be taken into account even in cases where there is an absence of apparent ambiguity, he says that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust. He acknowledges that there may be exceptional cases where something has clearly gone wrong with the language so that to interpret it in accordance with ordinary rules of syntax makes no commercial sense (see Newey at [17]-[18]), but says this is not such a case.
That said, Mr Hotait submitted that the Particulars that fall within Category A liabilities, being expenses incurred and invoiced prior to 19 December 2016, cannot be considered “future liabilities” as contemplated by the Deed when applying the ordinary definition of “future”. To interpret “future liabilities” as proposed by Mr El Rihani would require that the presence of the word “future” be totally disregarded. Category B liabilities, being expenses incurred before 19 December 2016 but for which an invoice was raised after that date, are also excluded by virtue of the phrase “future liabilities”.
For the purposes only of the determination of the separate issue Mr El Rihani concedes that Category C liabilities are caught by the phrase “future liabilities” and says that they are exactly the kind of liabilities contemplated by the phrase.
In his written submissions at [15], Mr Hotait submitted that it is an Agreed Fact that, after entry into the Deed of Separation, the only building work undertaken by Skyworks NSW was rectification of defects in residential building work done under contracts completed or terminated before or on 19 December 2016. He says that is consistent with the intent of the Deed and the clear wording of cl 10.2.
Counsel for Mr Hotait submitted that Mr El Rihani’s premise that the only money available to Skyworks NSW would be sourced from Mr El Rihani and Mr Hotait under cll 10.4 and 10.5 cannot be accepted in light of the clear words of cl 5.1(d) which anticipate that Skyworks NSW would receive “payments in respect of goods and services provided by Skyworks NSW as a contracted builder for projects in the state of New South Wales”. When queried as to how that submission was made in light of the Agreed Fact referred to at [71] above, counsel noted, and it was not disputed, that the liquidator recovered moneys from a developer in proceedings commenced before the liquidation commenced (the amount was not disclosed to the Court) and that the Agreed Fact does not amount to an agreed fact that Skyworks NSW would have no further income from sources other than Mr Hotait and Mr El Rihani. Counsel submitted that, accordingly, there is no inconsistency between the Agreed Fact, the terms of cl 5.1(d), the existence of outstanding debts as at 19 December 2016 and the interpretation of cl 10.2 for which Mr Hotait contends.
For clarity, in circumstances where the only money contributed to the Trust Account was contributed by Mr Hotait and Mr El Rihani, the Court is satisfied that:
(1)Skyworks NSW’s liquidator has no claim on the funds in the account.
(2)Section 588FA has no operation since the payment of a creditor out of the Trust Account is not a transaction involving Skyworks NSW. That payment would be made by Mr Hotait and Mr El Rihani out of their own funds, acting in their personal capacity and not as directors of Skyworks NSW.
(3)The obligations imposed on a liquidator under the Corporations Act to get in and protect a company’s assets, consider proofs of debt and pay creditors are not prejudiced by the mechanisms of the Deed of Separation. Contrary to Mr Hotait’s submission that a liquidator is “charged with the responsibility” of paying a company’s debts so that the mechanisms of the Deed may not be engaged, the Corporations Act does not preclude individuals, acting in their own right and out of their own funds, from paying the debts of a company in liquidation. The liquidator’s processes and the mechanisms of the Deed are capable of existing alongside each other.
Accordingly, all of cll 10 and 11 are capable of operation as are the obligations imposed on Mr Hotait and Mr El Rihani under cl 5.4(f), even though compliance with cl 5.5 would not be possible. In that way, the solvent winding up of Skyworks NSW can still be achieved. That was an important purpose provided for in the Deed of Separation.
Finally, the Court notes that Mr El Rihani submitted that it was Mr Hotait’s refusal to contribute to the amount claimed in the ATO’s statutory demand that resulted in his decision not to defend NSD1514/2017 and consent to the appointment of the liquidator. It appears that Mr El Rihani intends the Court to understand that the appointment of the liquidator was necessitated by Mr Hotait’s refusal to comply with cl 5.6 of the Deed so that there was “fault” attached to the allegedly frustrating event. The Court considers that it is unnecessary to decide that matter because the Court has decided that the appointment of the liquidator did not relevantly frustrate the purposes of the Deed as contended by Mr Hotait in any event.
REQUESTS FOR CONTRIBUTION ISSUE
This issue relates to separate questions (d) and (e) set out at [10] above. The parties’ submissions on this issue were sparse and Mr Hotait conceded this issue “to be the lesser of the arguments advanced”.
Submissions
Mr El Rihani submitted that under the Deed of Separation, contributions to be made to the Trust Account were to be in equal amounts and made contemporaneously with each other. Thereafter, the parties were to have joint control of the amounts contributed. He says that, as at the date of the Requests, he was and remains willing and able to contribute his 50% share of the value of the invoices the subject of the Requests. Mr Hotait disputed his liability to contribute to the Trust Fund on the basis that the Requests were not made pursuant to cl 10.5 because they did not relate to “future liabilities”.
Mr Hotait noted that Mr El Rihani has not paid to the Trust Account any amount matching the Requests. Further, under cl 10.5 of the Deed of Separation, there is a mechanism that enables contribution by one party where that party wishes to contribute but the other party either does not or cannot, but Mr El Rihani has not availed himself of this mechanism.
Consideration
Clause 10 including, relevantly, cl 10.5 is set out at [33] above.
It may be observed that neither cl 10.5 nor cl 10 as a whole contain a mechanism for either of Mr Hotait or Mr El Rihani to make requests on the other to contribute to the Trust Account. While there are mechanisms in cl 10.6 and 10.7 and subsequent clauses of cl 10 relating to approval and payment of a specific liability from the Trust Account, cl 10.5 has no such mechanism. On that basis, the question of “standing” to make a claim for contribution raised in (d) and (e) of the separate questions is moot. Having said that, there is utility in requests being made by one party to the other since, by that mechanism, the parties are put in a position to establish whether or not the occasion for contribution to the Trust Account under cl 10.5 has arisen.
The obligation to contribute to the Trust Account under cl 10.5 of the Deed of Separation is triggered by the existence of a liability exceeding the amount held in the Trust Account at any given time with the correlative obligation being imposed on Mr Hotait and Mr El Rihani to contribute up to $100,000 on each occasion when that trigger occurs. There is nothing in cl 10 which indicates that their individual obligation imposed by cl 10.5 is reliant on the other performing his obligations.
If liabilities of Skyworks NSW exceeded the amount in the Trust Account at the time the Requests were made and no contributions have since been made to the Trust Account, it may be that both Mr El Rihani and Mr Hotait are in breach of their obligations under cl 10.5. It is unnecessary for the Court to determine whether there is a breach for the purpose of determining the separate questions. Having said that, where a party who is liable to make a contribution fails to do so because the other party has indicated unwillingness to contribute that party’s share of the amounts required under cl 10.5, in an action to enforce the obligations under that clause, a Court is likely to make an order that the unwilling party make its contribution conditional on the party seeking to enforce the obligation also making its contribution.
Properly construed, the permission contained in subclauses (a) and (b) of cl 10.5 for a party to contribute funds on behalf of the other party is triggered only where the other party cannot, as opposed to will not, make the required contribution. That is both clear from the language used in those subclauses and from the consequence that interest becomes payable by the party which did not contribute from the time the other party makes a contribution under one of those paragraphs of cl 10.5.
There is no agreed fact that Mr Hotait could not, as opposed to would not, contribute to the Trust Account when the Requests were made. Accordingly, for the purposes of answering separate questions, nothing turns on the fact that Mr El Rihani did not avail himself of that mechanism.
The answer to the separate questions set out in paragraphs (d) and (e) is that the issue of standing does not arise having regard to the terms of cl 10.5 of the Deed of Separation and the obligation to make contributions imposed on both parties at the time Skyworks NSW’s liabilities exceed the amount in the Trust Account. For reasons previously given, the fact that Skyworks NSW is being wound up and a liquidator has been appointed does not affect that position.
WHAT ORDER SHOULD NOW BE MADE?
Mr El Rihani contends that, in consequence of the answers to the separate questions, the Court should make an order that, on condition that Mr El Rihani does the same, Mr Hotait pay $1,285,410.48 into the Trust Account, being the relief claimed under the amended statement of claim at [25(a)]. Mr Hotait contends that no such orders should be made having regard to the further issues to be determined consequent upon the answers to the questions the subject of this application.
The Court does not accept Mr El Rihani’s submission that it is appropriate to make the order he seeks at this stage of the proceeding. Accordingly, apart from answering the separate questions, the Court will order that the matter be listed for further case management at a date to be fixed and that costs be reserved.
I certify that the preceding one hundred and forty-five (145) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate:
Dated: 30 June 2020
2
10
1