Taouk v Assure (NSW) Pty Ltd

[2017] NSWCA 227

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227
Hearing dates:	20 July 2017
Decision date:	08 September 2017
Before:	Beazley P at [1]; White JA at [2]; Sackville AJA at [9]
Decision:	1.   Grant leave to the extent necessary to enable the appellant (Mr Taouk) to appeal from the orders made by Sackar J on 23 May 2017. 2.   Note the appellant’s Amended Notice of Appeal dated 26 June 2017. 3.   Appeal allowed in part. 4.   Set aside order 2(c) made by Sackar J on 23 May 2017. 5.   Otherwise dismiss the appeal. 6.   Vary the costs order made by Sackar J on 16 June 2017 so that it reads as follows:    The plaintiff to pay the defendant’s costs of the determination of the separate Questions on an indemnity basis. 7.   The appellant pay 75 per cent of the respondent’s (Assure’s) costs of the appeal (including the summons for leave to appeal).
Catchwords:	CONTRACT – construction of a deed varying an agreement for the development of a site – whether the variation deed intended to effect a fundamental change in the financial arrangements between the parties – necessity to construe the variation deed in context   PROCEDURAL FAIRNESS – whether the appellant denied procedural fairness by entry of judgment on the respondent’s cross-claim – whether determination of separate questions on liability left issues of quantum unresolved
Legislation Cited:	Real Property Act 1900 (NSW), s 74MA Supreme Court Act 1970 (NSW), ss 101(1)(a), 103 Uniform Civil Procedure Rules 2005, r 28.2, r 51.33(3)
Cases Cited:	Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 343 ALR 58 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Hall v Nominal Defendant (1966) 117 CLR 423; [1966] HCA 36 HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735 Lee v New South Wales Crime Commission [2012] NSWCA 262 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Royal Botanic Gardens v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5 Sanofi v Parke Davis Pty ltd (No 1) (1982) 149 CLR 147; [1982] HCA 9 Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 339 ALR 200 South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR18,961 Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 534 Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778 Western Export Services Inc v Jirch International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1
Texts Cited:	JW Carter, The Construction of Commercial Contracts (Hart Publishing Ltd, 2013)
Category:	Principal judgment
Parties:	Joseph Taouk (Appellant) Assure (NSW) Pty Limited (Respondent)
Representation:	Counsel: Mr D Pritchard SC / Mr A Macauley (Appellant) Mr J Stoljar SC/ Mr PD Reynolds (Respondent)   Solicitors: Gardner Ekes Lawyers (Appellant) MLH Lawyers (Respondent)
File Number(s):	2017/166532; 2017/185625
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Citation: [2017] NSWSC 534 Date of Decision: 23 May 2017 Before: Sackar J File Number(s): 2016/264640

HEADNOTE

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

The respondent (Assure) and the appellant (Mr Taouk) were parties to a Development Agreement to erect townhouses on land of which Assure was the registered proprietor. Pursuant to the Development Agreement, Assure engaged a company (Berowra Developments) to undertake the construction work. Mr Taouk guaranteed the performance of Berowra Development’s obligations.

The Development Agreement was subsequently amended by a Variation Deed that altered the terms in which Assure was to pay the “Consideration Amount” to Mr Taouk on successful completion of the Project. The Consideration Amount, in effect, was to be the profit from the joint venture after allowing for Assure’s contribution.

Berowra Development defaulted in its obligations. Assure incurred expense in completing the Project.

Mr Taouk sought to recover financial contributions made by him to the Project. His claim was based on the terms of the Development Agreement and the Variation Deed. Assure cross-claimed against Mr Taouk to enforce his guarantee.

Mr Taouk’s claim was dismissed by the Equity Division and Assure’s cross-claim succeeded.

On appeal by Mr Taouk the principal issue was whether the Variation Deed amended the Development Agreement so as to entitle Mr Taouk to be reimbursed for his monetary contributions to the Project.

Held, Sackville AJA (Beazley P and White JA agreeing)

(1) In construing the Variation Deed, it was necessary to have regard to the surrounding circumstances and commercial objects of the agreement. These included the antecedent contract: [101]-[104].

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[49]; Mainteck Services Pty Ltd v Stein Heurtey SA 92014) 89 NSWLR 633; [2014] NSWCA 184.

(2) The Variation Deed, construed in context, was not intended to effect a fundamental change in the financial arrangements embodied in the Development Agreement. Its effect was limited to altering the formula for calculating the Consideration Amount. Thus the Variation Deed did not create an entitlement in Mr Taouk to recover any contributions made by him to the Project: [121].

A second issue was whether Mr Taouk had been denied procedural fairness by the primary Judge entering judgment on the cross-claim. The primary Judge answered separate questions in Assure’s favour but Mr Taouk was not given an opportunity to dispute the quantum of Assure’s cross-claim.

Held, Sackville AJA (Beazley P and White JA agreeing)

Mr Taouk had to be given an opportunity to put his case on quantum: [149]. Thus his appeal had to be allowed to the extent of setting aside the judgment entered in the cross-claim: [153].

Held in relation to costs, White JA (Beazley J agreeing, Sackville J dissenting)

Mr Taouk is to pay 75 per cent of Assure’s costs of the appeal, including the application for leave to appeal: [8]

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Sackville AJA and his Honour’s proposed orders, with which I agree except in relation to his proposed orders in respect of costs. In that regard, I agree with the order for costs proposed by White JA and with his Honour’s reasons for that order.

2. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Sackville AJA. Save for one matter, I agree with his Honour’s reasons and proposed orders.

3. The one matter on which I differ from Sackville AJA concerns his Honour’s proposed order 7 dealing with the costs of the appeal. I would order that Mr Taouk pay 75 per cent of Assure’s costs of the appeal, including the application for leave to appeal.

4. At the hearing on 23 May 2017 before the primary judge Mr Pritchard SC opposed Assure’s application for the entry of judgment in the sum of $3,266,518.14 for the costs of construction paid by Assure relating to the Development Agreement up to and including 12 December 2016 on the basis that the separate hearing had been a hearing as to liability only and not quantum. The primary judge asked whether Mr Taouk wanted to have another trial on the question of whether the amount of $3,266,518.14 had been actually expended. Mr Pritchard replied that Mr Taouk wanted to have an investigation in relation to the quantum of any liability the primary judge had found had been incurred. The primary judge took the view that the hearing had been conducted on the basis that Mr Taouk had challenged Mr Harsany’s evidence as to the extent of the expenditure so that the question of quantum had been litigated. The primary judge took the view that having regard to the way the hearing had been conducted it should not be open to Mr Taouk to challenge the quantum of Assure’s expenditure.

5. On appeal Mr Pritchard disclaimed any intention to challenge the quantum of Assure’s expenditure. He submitted that on the proper construction of the Development Agreement, had the Developer obtained finance for construction costs on security of the Berowra land, the proceeds of sale of the lots would have been applied in discharging Assure’s and the Developer’s liability to the financier that was secured over the lots. To that extent Mr Taouk’s liability as guarantor and indemnifier would have been discharged. Mr Pritchard submitted that where Assure borrowed the money to pay construction costs instead of the Developer, but the moneys borrowed were repaid from the sale of the lots, Assure could not claim the amount so repaid as a funding shortfall from Mr Taouk. He submitted that the fact that it was Assure and not the Developer who borrowed the moneys against the Berowra property was irrelevant if the money borrowed by Assure to pay for the construction had been repaid from sales. This submission was not advanced on the hearing before the primary judge on 23 May 2017. In oral submissions Mr Stoljar accepted that the point was arguable and did not press Assure’s opposition to an order setting aside order 2(c) made by the primary judge on 23 May 2017.

6. Little time was spent on this issue in written and oral submissions in comparison to the other issues. In my view Mr Taouk’s success on this issue does not warrant a substantial discount of the costs that he should pay in respect of his unsuccessful appeal.

7. I accept that the fact that the particular argument was not raised before the primary judge would not necessarily deprive Mr Taouk of his costs if that had been the only issue in the appeal. Nonetheless it is a relevant consideration.

8. Prima facie, Assure is entitled to its costs of the appeal on all issues except order 2(c) made on 23 May 2017, and Mr Taouk is entitled to his costs of his application for leave to appeal and his successful appeal against the entry of judgment for $3,266,518.14. But such orders would result in a complex and time-consuming costs assessment if a costs assessor were to determine how much time was spent on the appeal and how much on the application for leave. I agree with Sackville AJA’s approach that there should be a single costs order made in respect of both the appeal and the application for leave and that a costs order should be made in favour of Assure, but with a discount having regard to Mr Taouk’s success in having order 2(c) made on 23 May 2017 set aside. Having regard to the amount of time and space taken up on the hearing of the appeal and in the written submissions, I do not agree that a notional setting-off of costs could lead to a discount of as much as 75 per cent. The parties’ written submissions that addressed the issue whether judgment should be entered for Assure occupied a little over ten per cent of the submissions. On the hearing of the appeal the time devoted to the issue was about the same. The extent of the discount is a matter of impression and does not depend upon arithmetic. Nonetheless, in my view the discount should not be more than 25 per cent. Accordingly I would order that Mr Taouk pay 75 per cent of Assure’s costs.

9. SACKVILLE AJA: The appellant (Mr Taouk) and the respondent (Assure) were parties to what has been described as a joint venture to erect 17 townhouses on land at Kita Road Berowra (Berowra Property). Mr Taouk appeals from a decision of the Equity Division (Sackar J) dismissing his claim to be reimbursed for moneys contributed to the project. [1] Mr Taouk also appeals against orders made by the primary Judge granting judgment in favour of Assure against Mr Taouk on its Cross-Claim. The orders included judgment for Assure against Mr Taouk in the sum of $3,266,518.14.

   1. Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 534 (Primary Judgment).

10. Mr Taouk’s claim in the Equity Division proceedings raised a very large number of issues. In an effort to confine the issues the primary Judge made on order pursuant to Uniform Civil Procedure Rules 2005 (UCPR), r 28.2 for the separate determination of nine questions. These included questions relating to the construction of a Development Agreement and a Deed of Variation to which Mr Taouk and Assure were parties. The issues of construction were the principal focus of the appeal, although other issues were also raised.

11. The primary Judge answered the nine questions in favour of Assure. His Honour subsequently made the orders against which Mr Taouk appeals.

The proceedings

12. Assure was the registered proprietor of the Berowra Property. By an agreement in writing entered into on 12 June 2012 (Development Agreement) Assure engaged Berowra Development Pty Ltd (the Developer) to develop the Berowra Property (Berowra Project). Under the Development Agreement Mr Taouk provided Assure with a guarantee and indemnity in relation to the Developer’s performance of its obligations. The Development Agreement was varied on 28 May 2015 by a Deed of Variation executed by Assure, the Developer and Mr Taouk (Variation Deed). Mr Taouk’s case largely depended on a particular construction of cl 2 of the Variation Deed. [2]

    2. The material provisions of the Variation Deed are reproduced at [62]-[64] below.

13. The Developer entered into an agreement with HGH Construction Pty Ltd, later Edifice Australia Pty Ltd (the Builder), to carry out the construction work required under the Development Agreement (Building Agreement). Mr Taouk was the sole director and shareholder of the Builder.

14. The construction work was not completed by the completion date specified in the Development Agreement. The Developer was subsequently deregistered. Assure then retained a third party to supervise completion of the construction work on the Berowra Project.

15. Between February 2016 and June 2016, Mr Taouk lodged three caveats over the title to the Berowra Property. Each caveat claimed that Mr Taouk had an interest in the Berowra Property under the terms of the Development Agreement and the Variation Deed. The first caveat was withdrawn, the second lapsed and the third was removed on 13 July 2016 by a consent order made on an application by Assure pursuant to s 74MA of the Real Property Act 1900 (NSW).

16. Mr Taouk commenced the Equity Division proceedings on 7 September 2016. By an Amended Statement of Claim (ASOC) filed on 5 October 2016 he pleaded a number of causes of action to support his claim to recover financial contributions he alleged he had made to the Berowra Project. The ASOC included a claim founded on cl 2 of the Variation Deed.

17. Assure filed a Cross-Claim on 17 October 2016 claiming that Mr Taouk was liable to it under the guarantee and indemnity in the Development Agreement since the Developer had defaulted in the performance of its obligations to undertake construction of the townhouses. Assure also alleged that Mr Taouk had failed to comply with his funding commitments under the Development Agreement.

18. On 24 November 2016, the primary Judge made interim orders by consent restraining Assure from distributing the proceeds of sale of the townhouses on the Berowra Property, subject to limited exceptions. Mr Taouk gave the usual undertaking as to damages. It appears that the interim regime was continued by orders made on 2 March 2017.

19. On 15 December 2016, the primary Judge made orders by consent pursuant to UCPR, r 28.2 for the separate determination of nine questions, of which six concerned Mr Taouk’s claims and three concerned Assure’s Cross-Claim. The separate questions are not easy to follow when read in isolation since they are drafted by reference to the pleadings and the contents of an exhibit to an affidavit of Mr Taouk.

20. The hearing took place over four days from 6 to 9 February 2017. Oral closing submissions were made on 2 March 2017.

21. The Primary Judgment was delivered on 4 May 2017. His Honour gave the following answers to the six separate Questions that are relevant to the appeal:[3]

    3. Primary Judgment at [381].

“Question 1 - Breaches of Agreement: [Assure] is not liable to [Mr Taouk] for alleged breaches of agreement pleaded at paragraphs [2]-[27] of the Amended Statement of Claim (Claim) and as traversed at paragraphs [2]-[27], [36]-[39] of the Defence to the Claim (Defence);

…

Question4 - Unjust Enrichment: [Assure] is not liable to [Mr Taouk] for unjust enrichment as alleged at paragraph [34] of the Claim;

Question 5 -Alleged Paragraph 8 Payments: the claims for payments pleaded in paragraph [8] of the Claim are not claims that [Mr Taouk] is entitled to bring against [Assure];

Question 6 -AllegedTab 33SchedulePayments: none of the claims for payments particularised in the schedule at Tab 33 of the Exhibit to [Mr Taouk’s] Affidavit dated 2 December 2016 are claims that [Mr Taouk] is entitled to bring against [Assure];

Question 7 – Breaches of Agreement,Cross-Claim: [Mr Taouk] is liable to [Assure] for breaching the Development Agreement as alleged at paragraphs [2]-[30] of the Cross-Claim (Cross-Claim) as traversed at paragraphs [2]-[30] of the Defence to the Cross-Claim;

Question 8 – Liability as Guarantor and Indemnifier,Cross-Claim: [Mr Taouk] is liable to [Assure] pursuant to a guarantee and indemnity as alleged at paragraphs [31]-[33] of the Cross-Claim as traversed at paragraphs [31]-[33] of the Defence to Cross-Claim; and

…”

22. The primary Judge invited the parties to submit short minutes of order giving effect to the answers to the separate Questions. As the parties could not agree, they made submissions as to the appropriate orders at a hearing on 23 May 2017. On that day the primary Judge made orders, including the following:

“1.   [Mr Taouk’s] claim be dismissed.

2.   In relation to the Cross-Claim:

a.   a declaration that [Mr Taouk] is liable to [Assure] pursuant to the indemnity in clause 24.1 of the development agreement between [Assure], [Mr Taouk] and [the Developer] dated June 2012 (Development Agreement) for the actual amount of all losses, liabilities, costs and expenses incurred and to be incurred by [Assure] in connection with:

i.   the occurrence, cure and attempted cure of all defaults by [the Developer] and [Mr Taouk] under the Development Agreement;

ii.   the administration, enforcement or attempted enforcement or preservation or attempted preservation of any rights under the Development Agreement and ‘Project Documents’ as defined therein;

b.   a declaration that [Mr Taouk] is liable to [Assure] pursuant to the guarantee in clause 24.2 of the Development Agreement in respect of the due and punctual performance by [the Developer] of the obligations on its part to be performed under the Development Agreement;

c.   judgment for [Assure] against [Mr Taouk] in the sum of $3,266,518.14 for the costs of construction paid by [Assure] relating to the Development Agreement up to and including 12 December 2016.

3   The interim regime, as continued by order of the Court on 2 March 2017, be set aside. [Assure’s] right to make any claim pursuant to the usual undertaking as to damages given by [Mr Taouk] be reserved.

…

8.   The balance of the Cross-Claim be stood over to a date to be determined by the Court.”

23. The interim regime referred to in Order 3 relates to the interim orders preventing distribution of the proceeds of sale of townhouses constructed on the Berowra Property. The balance of the Cross-Claim referred to in Order 8 refers to the further hearing required to quantify Assure’s damages claim against Mr Taouk.

24. The parties subsequently made written submissions to the primary Judge on costs. In a judgment delivered on 16 June 2017, his Honour ordered Mr Taouk to pay the costs of the proceedings relating to the determination of the separate questions and the Cross-Claim on an indemnity basis. [4] His Honour held that the terms of Mr Taouk’s indemnity under the Development Agreement required him to pay the costs incurred by Assure on an indemnity basis.

    4. Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778 (Costs Judgment).

23. Mr Taouk’s Amended Notice of Appeal challenges the answers given to Questions 1, 4, 5, 6, 7 and 8. He also challenges Orders 1, 2 and 3 made by the primary Judge on 23 May 2017. Mr Taouk has filed a summons seeking leave to appeal but contends that he is entitled to appeal as of right notwithstanding s 103 of the Supreme Court Act 1970 (NSW) (Supreme Court Act). [5] Assure says that leave is required but does not oppose the grant of leave. The hearing in this Court was conducted on the basis that if leave to appeal is required it would be granted.

    5. Section 103 of the Supreme Court Act provides as follows:

Leave to appeal?

26. In my view, Mr Taouk is entitled to appeal as of right from the order dismissing his claim as the order finally disposed of the rights of the parties in relation to that claim. [6] For the reasons given in Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd, [7] s 103 of the Supreme Court Act does not require leave to appeal if the answers to separate questions result in the trial court making a final order disposing of the rights of the parties.

    6. Supreme Court Act 101(1)(a); Hall v Nominal Defendant (1966) 117 CLR 423; [1966] HCA 36 at 439-440 (Taylor J), at 443-444 (Windeyer J); Sanofi v Parke Davis Pty Ltd (No 1) (1982) 149 CLR 147; [1982] HCA 9 at 152-153 per curiam.

    7. [2017] NSWCA 184 at [90]-[95] (Sackville AJA, Gleeson and Leeming JJA agreeing).

27. The position is different with respect to Mr Taouk’s appeal against the orders made on Assure’s Cross-Claim. These orders do not finally dispose of the rights of the parties in the Cross-Claim as they contemplate a further hearing as a result of which additional orders will presumably be made, including orders concerning the damages payable by Mr Taouk. Therefore Mr Taouk requires leave to appeal against the orders made on the Cross-Claim.

28. The issues raised by Mr Taouk on his appeal from the orders made on the Cross-Claim (which was heard concurrently with the application for leave to appeal) involve a claim of denial of procedural fairness. If the argument is not addressed, serious injustice may result. [8] It is appropriate, therefore, that leave be granted to appeal from the orders made on the Cross-Claim.

    8. See Lee v New South Wales Crime Commission [2012] NSWCA 262 at [12] (Bathurst CJ, Macfarlan and Barrett JJA agreeing).

29. If, contrary to my view, Mr Taouk requires leave to appeal from the order dismissing his claim, leave should be granted. The issues raised by the ASOC and the Cross-Claim in the Equity Division proceedings are closely related and should be dealt with together on the appeal.

Background facts

30. In or about December 2009, Assure purchased three of the four lots comprising the Berowra Property. Assure acquired the fourth lot in August 2012. The total price for the four lots was $2,332,500.

31. On 9 June 2011, a quantity surveyor commissioned by Assure estimated total construction costs for the project at approximately $3.35 million inclusive of GST.

32. On 12 January 2012, Mr Harsany, the sole director and shareholder of Assure, met Mr Taouk for the first time at the offices of a real estate agent. Mr Taouk’s account of the conversation was that Mr Harsany agreed to a $5.7 million cap on construction costs and also agreed that he would arrange finance for the project. The primary Judge, however, rejected this account. His Honour accepted Mr Harsany’s evidence that Mr Taouk said that he would obtain all relevant finance and that the costs of the construction would be approximately $3 million. The primary Judge also accepted Mr Harsany’s evidence that he told Mr Taouk that he would allow up to $3.7 million for construction costs. [9]

    9. Primary Judgment at [131].

Proposal

33. On 27 March 2012, a proposal was circulated between Assure and Mr Taouk (Proposal). It appears that the Proposal was prepared at or after a meeting between Mr Harsany, Mr Taouk and their solicitors. The Proposal was later incorporated verbatim as Schedule 8 to the Development Agreement. The Proposal (and Schedule 8) included the following provisions:

“1.   Assure Trust is to provide the land to be developed … .

2.   Berowra Development Pty Ltd is to refinance the existing mortgage and arrange the construction finance (‘the finance’), guarantee the finance and contract a builder to complete the project as per the DA documentation, Marketing materials and Finishes Schedule.

3.   Land Value of all 4 Lots for the purpose of the development is agreed to be $2,750,000.

4.   Berowra Development Pty Ltd is to arrange finance of approx. $5,455,000 and pay costs of obtaining the finance excluding interest on borrowings and ongoing bank fees.

5.   An amount equal to $2,200,000 plus short-term loan lending costs and interest is to be available from the development loan upon signing of the development agreement and/or commencement of the development loan for the purposes below –

a.   Pay out of the existing bank finance facility obtained to settle No. … Kita Road approx. $460,000

b.   Pay out of the existing short-term private funding facility arranged to assist with settlement of No.8 Kita Road.

c.   Pay out the existing NAB loan facility for the remaining properties approx. $1,320,000

d.   The balance of the initial $2,200,000 plus short-term lending costs and interest to be paid in cash to Assure Trust as part payment of its equity in the land.

6.   Berowra Development Pty Ltd is to use the remaining part of the development loan for completion of the project including completion of documentation, obtaining the Construction Certificate, Construction, Services, Certification and Subdivision Costs excluding Council Section 94 Contributions.

7.   Berowra Development Pty Ltd is to engage a builder to complete works using a design and construct contract. An amount of $3,700,000 inc GST is to be the maximum amount chargeable under the contract. Any shortfall in finance or any further amount required to reach completion is to be contributed by Berowra Development Pty Ltd or the Guarantor of the development agreement.

8.   Council Section 94 Contributions are to be additional to the construction contract for calculation of the total project costs.

9.   Real Estate Agent commissions are to be additional to the construction contract for calculation of the total project costs. The agencies and commissions are to be agreed by both parties.

10.   Bank interest and ongoing fees are to be additional to the construction contract for the calculation of total project costs.

11.   On completion Assure Trust shall be able to retain payment for the balance of the land in the form of property or cash.

12.   The balance of funds from sales after deducting the costs listed above are to be shared 50/50 between the 2 parties upon completion. The gross value of the completed product will be determined by the sales value of sold townhouses and/or the agreed value of remaining townhouses. Either party can choose to take their share of the balance in either townhouse form ex GST or cash form less GST.

13.   Any savings in the cost of construction below $3,700,000 is to be shared 50/50 between both parties.

14.   Time to complete the project is anticipated to be 18 Months.”(Emphasis added.)

Incorporation of the Developer

34. The Developer was incorporated on 29 March 2012. The directors were Ms Han, a nominee of Mr Harsany, and Mr Tawk, a nominee of Mr Taouk. The nominees were equal shareholders. Later in 2012 Ms Han’s shares were transferred to Mr Tawk and she resigned as a director.

Building Agreement

35. On 20 May 2012, the Developer and the Builder executed the Building Agreement. It relevantly provided as follows:

“RECITALS

A.   The Principal [the Developer] requires the design and construction of a new residential terrace/townhouse development comprising seventeen townhouses situated at … Kita Road, Berowra Heights NSW 2082.

B.   The Contractor [the Builder] represents and warrants that it has the necessary experience, skills, capabilities and equipment to carry out the completion of the work under the Contract, including the construction, the supply of goods and materials and the control of subcontractors associated with the work under the Contract, and has agreed to do so on the terms set out in the Contract.

C.   The parties now wish to evidence in writing their agreement for the completion of the work under the contract.

OPERATIVE PROVISIONS

The Principal and the Contractor agree as follows

(1)   The Contractor will carry out work under the Contract for the Principal in accordance with the Contract Documents.

(2)   The Principal will pay the Contractor the lump sum of $2,850,000 (Two Million Eight Hundred and Fifty Thousand Dollars) (excluding GST) as the contract sum for the Contractor’s due and proper performance of the Works in accordance with the Contract Documents.

…

(4)   The parties promise to carry out and complete all their obligations in accordance with the Contract Documents.”

Development Agreement

36. Assure, the Developer and Mr Taouk executed the Development Agreement on 12 June 2012. Clause 2 stated the objectives of the Development Agreement as follows:

“(a)   the Developer must develop by planning, designing, constructing and commissioning the Site in accordance with the terms and conditions of this Agreement.

(b)   the Owner and the Developer must act, co-operate and negotiate in good faith to agree such further terms and specifications requested by the Owner for the development of the Site in accordance with the Objectives …”.

The “Site” was a reference to the Berowra Property.

37. The Development Agreement included provisions to the following effect:

• The Developer was required to construct and develop “the Developer’s Project” so as to achieve practical completion by the completion date of 20 August 2013 (cll 13.1 and 15.1). “The Developer’s Project” was defined to mean the works described in the Proposal, the development plan approved by the Council and the Developer’s Design Documentation (cl 1.1).

• If practical completion did not occur by the completion date the Developer was obliged to pay Assure liquidated damages in accordance with a formula (cl 15.5).

• The Developer unreservedly accepted responsibility for all risks relating to the Developer’s Project (cl 5.1). The Developer also indemnified Assure for any losses or liability resulting from defects in the works (cll 13.5(a), (c), 13.13). Clause 22, which was headed “Development Costs”, stated that the Developer was “responsible for all costs in relation to the Developer’s Project”, except as otherwise expressly provided (cl 22).

• Assure was required to pay the Developer the “Consideration Amount”, in the manner specified in Schedule 6 (cl 4.1).

• Mr Taouk and the Developer indemnified Assure against all losses, liabilities and expenses (including legal expenses on a full indemnity basis) in connection with any default by the Developer (cl 24.1). Mr Taouk also guaranteed to Assure the Developer’s performance of its obligations under the Development Agreement (cl 24.2).

38. Schedule 6 to the Development Agreement provided a formula for calculating the Consideration Amount. In effect, the formula provided for the Developer to receive 50 per cent of the net profits of the Berowra Project. The net profits were to be calculated by deducting from gross proceeds of sale the agreed value of the Berowra Property provided by Assure ($2.75 million), the development costs of the Berowra Project (with construction costs capped at $3.7 million) and an unspecified component for “Owner’s Equity”. Clause 2 of Schedule 6 provided that the Consideration Amount was payable upon completion of the sale of the last lot within the Berowra Project.

39. Schedule 6 was subsequently amended by the Variation Deed. The text of Schedule 6, as amended by the Variation Deed, is reproduced below. [10]

    10. See at [64] below.

40. As has been noted, Schedule 8 to the Development Agreement reproduced the “Proposal” the terms of which have been set out above. [11] “Proposal” was defined in cl 1.1 of the Development Agreement to mean “the offer to undertake the Developer’s Project by the Developer as set out in Schedule 8”.

    11. See at [33] above.

Purchase of the final lot

41. Assure purchased the last of the four lots comprising the Berowra Property on 10 August 2012. For this purpose Assure borrowed funds from the Commonwealth Bank and a further amount of $200,000 from a Mr El Khoury. Mr Harsany’s evidence was that he asked Mr Taouk to advance the $200,000 in accordance with his obligation under the Development Agreement but Mr Taouk failed to do so. Mr Taouk claimed that he had in fact arranged the loan provided by Mr El Khoury. The primary Judge rejected Mr Taouk’s evidence. [12]

    12. Primary Judgment at [274].

Financing of the Development Project

42. On 3 December 2012, Mr Taouk applied for a construction certificate in respect of the Development Project. The construction certificate was issued on 18 July 2013.

43. On 4 January 2013, Mr Harsany emailed Mr Taouk expressing his concern about delays in arranging finance and suggesting that “the whole thing could fall apart in the next few days”. In the second week of March 2013, emails were exchanged referring to the difficulties in obtaining finance from the ANZ Bank.

44. On 20 March 2013, Westpac provide an “Expression of Interest” offering a loan facility of $5.2 million to refinance the existing debt on the Berowra Property and assist in the construction of the 17 townhouses. The offer was addressed to “Joseph Taouk Assure (NSW) Pty Ltd”. The security was to be a registered mortgage over the Berowra Property.

45. The following day Mr Harsany asked Mr Taouk whether the borrowing entity should be Assure or the Developer. It is not clear what response was received but on 21 May 2013 Westpac made an offer of finance to Assure. The offer was for a loan of $5.2 million for a term of one year and three months secured by a mortgage over the Berowra Property. The terms of the offer stated that $3,045,000 would be available for construction of the townhouses. Mr Taouk and the Developer were to provide guarantees for the loan. A condition precedent was that pre-sale contracts to the value of $5 million had to be achieved prior to drawdown.

46. On 31 May 2013, Mr Harsany informed Westpac that he and Mr Taouk were considering “streamlining … the structure” to remove the Developer and have a “simple Owner and Builder contract to complete the works”.

47. On 27 July 2013, Westpac approved the loan facility of $5.2 million to Assure.

48. It appears that construction on the Berowra Project commenced in September 2013. The first drawdown on the Westpac loan occurred on 17 September 2013.

49. In his evidence Mr Taouk claimed that from late 2013 until mid-July 2014 there were shortfalls in the funds required to continue construction and that he made payments himself to sub-contractors of the Builder. Mr Harsany gave evidence that although he considered that the Developer and Mr Taouk were obliged to meet shortfalls, he borrowed funds to be applied to the Berowra Project.

50. In an email of 29 August 2014, Mr Harsany complained to Mr Taouk about the latter’s failure (as Mr Harsany alleged) to secure funding and delays in completing the Berowra Project. Mr Harsany demanded a “serious response … with some very serious funding commitments” and suggested the engagement of a project manager to oversee the Berowra Project properly. The email also noted that Mr Harsany would be forced to send formal notices relating to contractual defaults later that day.

51. In August 2014, Assure entered into a Loan Agreement with CEG Capital and Equity Group Direct Securities Pty Ltd (CEG Capital). Under the Loan Agreement Assure borrowed $500,000 for a term of six months at a (non-default) interest rate of three per cent per month. The loan was secured on a second mortgage of the Berowra Property. Guarantees and indemnities were provided by Mr Harsany, Mr Taouk and two others.

Email exchanges

52. 5 November 2014, Mr Harsany emailed Mr Taouk as follows:

“I have some better news however though prior to it happening, I believe we should agree to the terms of our revised JV agreement moving forward. We have discussed in the past this should be adjusted as you wanted to be fair and even more so now if I provide all of the funds on the project.

Please consider that the following terms of our JV agreement haven't been met and a couple of other notes –

•   I still never received the approx $200K that was due for me to live on after obtaining the development loan. (I have only recently drawn 200K from CEG which is based on Berowra)

…

•   I've been struggling financially since we first agreed on the JV in Feb 2012 and signed it in May 2012.

•   I've had to put up with a lot of problems, stress and threats on the project due to the poor site management and lack of cashflow.

•   I will be providing all of the funds and shortfalls on the project based on security over the property. This will include –

•   The balance of funds to complete and pay outstanding creditors up to the amount of approx. $900,000 (Progress claims to be paid on a weekly basis or so)

•   The CEG loan up to an amount of approx $280,000

•   Section 94 Contributions approx. $170,000

•   Plus interest to the bank until settlement of approx. say up to $120,000

•   Total being approx $1,470,000 (This is quite an accurate assessment of cost to complete including creditors)

For this to happen, we would need to pay out CEG with the loan you have proposed or other funds plus reach an agreement on the JV adjustment.

Please propose what you think would be a fair adjustment and I'll get an agreement of the adjustment drafted up by my lawyer in the next hour or so. Note that I need to confirm this by tomorrow morning before meeting with the bank when the funds will be confirmed. I can have this agreement to you tonight if we reach a fair agreement.” (Emphasis in original.)

53. Mr Taouk replied saying that he agreed and knew Mr Harsany to be fair. He asked Mr Harsany to note a number of matters including payments he said that he had made to the Berowra Project. Mr Taouk also pointed out that he had not received wages for the year to date.

54. On 6 November 2014, Mr Harsany stated in an email that up to that time $2,989,521 had been paid on the Berowra Project, of which $2,689,000 had been provided by the Bank. The balance had come from CEG Capital ($180,000), $50,000 from GST credits repaid by Mr Harsany and $150,000 from another project that Mr Harsany had guaranteed. The email said that on these figures it was unlikely that Mr Taouk had contributed anything at all.

55. In a subsequent email of 6 November 2014, Mr Harsany acknowledged that there was a point at which Mr Taouk “may have contributed more than was paid from the bank … but that has since been repaid and even overpaid”.

56. On 19 December 2014, an email from a firm of solicitors set out the proposed disbursement of funds from a loan of $500,000 to be provided by St Peter’s Holdings Pty Ltd. It is not entirely clear who the borrower was but $374,500 was to be paid out of the borrowed funds to CEG Capital.

57. Mr Harsany sent an email to Mr Taouk on 12 March 2015 following a telephone conversation between them:

“As discussed on the phone today, we did cover the fact that an adjustment to the profit share arrangement would be appropriate given the long-term burden I've carried on the project.

Following the email below in Nov, it was suggested and agreed to finalise the adjustment based on actuals including equity input. As I suspected the figures look far away from a 50/50 input even after I have allowed for a 15% profit margin on all the building expenses for you.   

…

I would like you to have a quick look at the [spread]sheets. Note I have included all constructions costs to date that we have agreed on from recent and previous correspondence. You'll see that we are definitely going to reach the construction costs limit anyway. If I have missed any expenses, which I may have this will only mean we are even closer to the limit now.

So instead of wasting too much more time going through the construction expenses as these become less relevant now that we are reaching the limit, I'd like to confirm our terms moving forward to completion so we can make this a smooth transition on settlements.

So in essence I want to confirm the formula as –

Gross sales as per contracts -

$9,550,000 inc GST.

Less capped construction cost -

$3,700,000 inc GST.

Less finance and other non-building contract costs as described in agreement – TBC by Van Nguyen [Mr Taouk’s accountant]

Less land equity ($2,750,000 less loans) as per agreement – TBC by Van Nguyen

Nguyen

Balance –

TBC by Van Nguyen (Based on our original const target of $3.5Mil, this was approx $2 Mil)

So the profit share is something that needs to be negotiated between you and I. There are a few payments for finance costs etc that need to be added to the reconciliation table but it won't change the average outcome much which sits around 16% input from you over the course of the project if I give you a bonus 15% share for being the builder/borrower.

…

In saying all of the above I really want to reach an agreement on this before we get any closer to settlement. Of course I don't want to push you take a share of 16% but I'd like to confirm the amendment that was agreed below. Please have a think and let me know what you would propose is a fair adjustment. I want to be very fair however I hope you don't forget the struggle I've been through as I also respect your efforts.   

I would also suggest that due to the nature of the payments etc. we probably would be better to lock things in without having to go back through every invoice and receipt. That wouldn't be fun for either of us.

…” (Emphasis in original.)

58. Mr Taouk’s response was to ask whether Mr Harsany was saying that Mr Taouk’s share was 16 per cent. Mr Harsany replied as follows:

“Firstly as I said, I’m not looking to adjust your share anywhere near 16%..... this was sent through for discussion.

Based on all the actual average figures of equity or payment towards the project from each side over the life of the project since signing, Yes what you have contributed on average is 16%.....

However that is after giving you the 15% consideration for Builder’s margin. …

I’ve built that spreadsheet to show who has really been carrying the project for the majority of time and why I was so stressed throughout the project. Other than the first 200K from Edmond it shows that you didn’t really contribute until around Oct last year. In fact you went into negative input in the 2 quarters before that.

Anyway, as I said it’s only a guide to show you why I felt things were so unfair until late last year and then I was also raising the loan increase from Westpac. I had a feeling your input was low but didn’t know that low. I expect more like 25-30% based on a 15% builder’s margin.

…

Let me know what you think would be a fair outcome….”

59. On 29 March 2015, Mr Harsany sent Mr Taouk an email which included a draft provision that became cl 2 of the Variation Deed:

“Following on from our conversation yesterday, we don’t have access to a soft copy today however we are happy for your lawyer to add in clarification into Clause 2 of Schedule 6 which can be hand written and initialed.

We would suggest something like the following –

‘Not withstanding any other terms within the agreement, the balance of Development Costs are to be paid or reimbursed to relevant parties prior to payment of the Consideration Amount.’

It could be done in one sentence.

If he is not happy with that then please ask him to draft the clarification he requires as it was always accepted and assumed that all parties expenses or contributions would need to recognised [sic] prior to calculation of the consideration amount.”

As will be seen, the suggested clause, subject to minor stylistic changes, became cl 2 of the Variation Deed.

Refinancing   

60. On 30 March 2015, Westpac increased Assure’s loan facility from $5,200,000 to $5,993,000. The increase was subject to a requirement that the loan be repaid in full by 15 May 2015.

61. On 28 April 2015, Assure received an offer of finance from Balanced Securities Ltd. The offer was for a facility of $6.7 million or 65 per cent of the “as is” market value of the Berowra Property. The term of the facility was to be six months.

Variation Deed

62. The Variation Deed was executed on 28 May 2015. The Deed contained the following recitals:

“A.   On 12 June 2012, the Owner [Assure] and the Developer entered into an agreement (“Development Agreement”) in respect to redevelopment of [the Berowra Property].

B.   The Development Agreement set out terms and conditions which regulate the redevelopment of the [Berowra Property].

C.   The Guarantor [Mr Taouk] agreed to guarantee the obligations of the Developer under the Development Agreement.

D.   [Assure], the Developer and the Guarantor have agreed to vary the Development Agreement as set out in this Deed of Variation.”

63. The “Operative Provisions” of the Variation Deed included the following:

“2.   Notwithstanding any other terms within the Development Agreement, the balance of the Development Costs are to be paid or reimbursed to the relevant parties prior to payment of the Consideration Amount.

3.   In clause 1 of Schedule 6 – ‘CONSIDERATION AMOUNT’ of the Development Agreement, the formula for calculation of the ‘CA’ (Consideration Amount) is replaced with the following:

CA = GV – (LV + DC)

2

4.   In clause 1 of Schedule 6 – ‘CONSIDERATION AMOUNT’ of the Development Agreement, ‘GV’ (Gross Value) is hereby determined and confirmed as $9,550,000.00 inclusive of GST.

5.   The Developer, the Guarantor and the Owner agree and confirm that the ‘GV’ (Gross Value) of $9,550,000.00 inclusive of GST will be the maximum amount for the purposes of calculation of the ‘CA’ (Consideration Amount) as referred to in clause 1 of Schedule 6 of the Development Agreement. The Developer and the Guarantor acknowledge and agree that any benefit or additional amount derived from a ‘GV’ (Gross Value) of above $9,550,000.00 inclusive of GST, for any reason whatsoever, is to be for the sole benefit of the Owner only.

6.   In the event of any termination or rescission of any contracts for the sale of land the subject of this development Site, the Owner is entitled to resell any such related property or properties at its sole and absolute discretion, and this shall not affect the Consideration Amount or ‘GV’ as referred to in the Development Agreement.

7.   Except to the extent as varied, amended or confirmed by this Deed of Variation, all rights and obligations arising from and as set out in the existing Development Agreement shall remain in full force and effect.

8.   This Deed of Variation shall not be taken to constitute a waiver of any kind in respect to the Development Agreement. Any waiver must be expressly set out in writing.

…

11.   The Vendor and the Purchaser confirm the terms and conditions [of] the Development Agreement, any amendments to the Development Agreement as set out herein and all the terms contained in this Deed of Variation in all respects.”

It is not clear why cl 11 of the Variation Deed referred to “the Vendor and the Purchaser” rather than to “the Owner and the Developer”.

64. There was no reference in the operative provisions of the Variation Deed to Schedule 1 of the Variation Deed. However, it was common ground that Schedule 1 formed part of the Variation Deed. Schedule 1 amended Schedule 6 to the Development Agreement so that it read as follows (also taking into account the amendments effected by cll 3 and 4 of the Variation Deed to the formula for determining the Consideration Amount):

“SCHEDULE 6

CONSIDERATION AMOUNT

1.   The ‘Consideration Amount’ means the amount calculated in accordance with the formula below:

CA = GV (LV + DC + OE)      CA = GV - (LV + DC)

2            2

Where:

CA   means the Consideration Amount

GV   means the Gross Value of the Project as determined by sales of the lots within the Project or a valuation obtained from the Valuer, as determined by the Owner. (determined and confirmed as maximum of $9,550,000 inclusive of GST, with any amount above to be for sole benefit of the Owner only)

LV   means the agreed land value of $2,750,000.00.

DC   means the costs of the development which are limited to:

(a)   agent's commissions on sales of lots in the Project;

(b)   construction costs capped at $3,700,000.00 inclusive of GST;

(c)   interest payable to any bank in relation to borrowings for the Project;

(d)   Council contributions payable pursuant to s.94;

(e)   legal costs and disbursements in relation to any matters arising during the course of the development of the Project;

(f)   legal costs and disbursements involved in relation to the sale of any lots in the Project; and

(g)   GST and transaction liabilities, contingent or otherwise, payable in respect of the Project or the sales of any lots in the Project; and

(h)   Payment to the Guarantor of any contribution made by the Guarantor to the acquisition of the land and project.

OE   means the Owner's equity being the amount of $ ……….. less any moneys paid by the Developer to the Owner for the Owner's equity portion in accordance with the Proposal.

2.   The Consideration Amount will be payable upon completion of the sale of the last lot within the Project.

In the event that the Owner chooses to retain any lots in the Project, the Consideration Amount will be payable upon the sale of the last lot in the Project that the Owner has chosen not to retain.”

As can be seen, Schedule 1 to the Variation Deed did not remove the definition of “OE” in Schedule 6, but the removal of “OE” from the formula rendered the definition otiose.

Later developments

65. The Developer was deregistered by the Australian Securities and Investments Commission on 23 August 2015.

66. In February 2016, Assure arranged for an advance of $4,819,000 to be provided by Baccus Investments Ltd. The advance was to be used to refinance existing mortgages. However, approximately $460,000 of the advance was apparently paid directly to Assure.

67. On 22 April 2016, Mr Harsany acknowledged in an email sent after a meeting with an accountant that Mr Taouk had made “significant contributions”: as follows:

“1.   200K for the settlement of [the last lot acquired].

2.   80K for the commencement of the original Westpac development loan

3.   Around 200K to pay off the CEG loan

4.   There have been some smaller amounts paid to Westpac later in the piece ….”

The email also stated that the payment of $200,000 was not paid as part of the Development Agreement. This statement seems to refer to the second of the two payments of $200,000 identified in the email.

68. On 20 May 2016, Assure’s solicitors notified the Builder’s solicitors that because of the “ongoing mismanagement of completion and defect works”, the Builder and its subcontractors were no longer to attend the Berowra Property. The notification stated that Devlan had been engaged to manage completion of the works.

Primary Judgment

69. The primary Judge set out in some detail the principles relevant to the claims made by Mr Taouk. Relevantly for present purposes, his Honour addressed the principles relating to:

• the construction of contracts generally; [13] and

• the construction of contracts to vary. [14]

  13.    Primary Judgment at [68]-[71].

  14.    Primary Judgment at [72]-[74].

70. The primary Judge provided the following overview of the case: [15]

“[104]   Mr Taouk’s case primarily centred on two grounds. First, Mr Taouk alleged a string of conversations with Mr Harsany spanning from January 2012 to late 2016, which, in addition to the Agreements, entitled him to be reimbursed for his alleged financial contributions to the Berowra Development. These conversations amounted, according to Mr Taouk, to oral agreements and/or oral terms which either stood alone or alternatively were superimposed upon the existing Agreements. Secondly, Mr Taouk sought to prove he made, or had made on his behalf, these financial contributions to Berowra Development.

[105]   Assure, on the other hand, maintained the parties[’] rights and liabilities were confined to those set out in the Agreements. Assure rejected the conversations alleged by Mr Taouk, and submitted any payments Mr Taouk did make were in accordance with his liabilities as a Guarantor of the Developer, and Indemnifier of the Development Agreement.

[106]   At hearing, the main issues in dispute turned on the credit of the witnesses, and whether any of the conversations Mr Taouk alleged took place not only did take place, but altered the rights and liabilities of the parties as understood under the Agreements.”

15.    Primary Judgment at [104]-[106].

71. The primary Judge noted that the only witnesses who gave evidence were Mr Taouk and Mr Harsany. His Honour did not find Mr Taouk to be a credible witness. [16] By contrast, Mr Harsany gave truthful answers supported by contemporaneous material. [17] For these and other reasons the primary Judge rejected Mr Taouk’s account of conversations that he claimed gave rise to enforceable oral agreements or to oral variations of written agreements. [18] There is no challenge to these factual findings.

    16. Primary Judgment at [114].

    17. Primary Judgment at [122].

    18.    Primary Judgment at [123]-[159].

Question 1

72. The primary Judge recorded that Mr Taouk’s claim to be entitled to reimbursement of moneys allegedly contributed by him to the Berowra Project relied largely on the terms of cl 2 of the Variation Deed. [19] Mr Taouk’s argument was that cl 2, when construed in the context of the Variation Deed as a whole and the correspondence between the parties, entitled him to be reimbursed for his monetary contributions in the Berowra Project. [20]

    19. Clause 2 of the Variation Deed is reproduced at [63] above.

    20. Primary Judgment at [162].

73. His Honour rejected Mr Taouk’s claim. Assure’s only obligation under the Development Agreement was to pay the Consideration Amount to the Developer (not to Mr Taouk). The Developer was required to bear the commercial risks and costs of the Berowra Project. Furthermore, Mr Taouk was liable as guarantor and indemnifier to meet any shortfall in funding and to provide any further moneys required to complete the works. [21]

    21.    Primary Judgment at [164]-[165].

74. In his Honour’s view, nothing in the Variation Deed altered the respective payment obligations of Assure or Mr Taouk under the Development Agreement. [22] Mr Taouk had argued that he was a “relevant party” within cl 2 of the Variation Agreement who was entitled to be “paid or reimbursed” prior to payment of the Consideration Amount. [23] However, in his Honour’s view, cl 2 merely prohibited payment of the Consideration Amount without prior reimbursement of the Development Costs. Since Assure had not paid the Consideration Amount it was not in breach of cl 2. [24]

    22.    Primary Judgment at [176]-[177].

    23. Primary Judgment at [182].

    24. Primary Judgment at [184].

75. In any event, cl 2 referred only to reimbursement of “Development Costs”. The definition of “Development Costs” as amended by Schedule 1 to the Variation Deed referred only to payments to the Guarantor, not payments by the Guarantor. Thus cl 2 read in conjunction with the amended definition of “Development Costs” did not apply to payments made by Mr Taouk. [25]

    25. Primary Judgment at [186].

76. The primary Judge considered that it was not open to Mr Taouk to rely on surrounding circumstances to support his construction of cl 2. There was no ambiguity in the provision that justified recourse to the surrounding circumstances. [26] In any event:[27]

“[190]   … There was not the slightest suggestion in any of the materials carefully considered that Mr Harsany was agreeing or intimating he would recognise Mr Taouk’s alleged contribution to the project so as to relieve him from his liability under the terms and conditions of the arrangement, in particular the guarantee and the shortfall.”

26. Primary Judgment at [189].

27. Primary Judgment at [190].

Question 4

77. After dealing with matters no longer in dispute, the primary Judge addressed Question 4 (unjust enrichment). His Honour observed that Mr Taouk had not made any response of substance to Assure’s submissions that he could not establish any claim based on unjust enrichment, not least because the claim presupposed a “radical alternation of the parties’ negotiated contractual rights”. [28] His Honour accepted Assure’s submissions.

    28. Primary Judgment at [244].

Question 5

78. Question 5 related to eight so-called “paragraph 8 payments” totalling $389,300 that Mr Taouk claimed he had made to the Berowra Project at Assure’s request. The primary Judge rejected Mr Taouk’s claims. The only challenge on appeal is to the findings in relation to two of the alleged payments, namely $220,000 and $15,000. Both payments were said to have been made on 23 December 2014.

79. The primary Judge noted that Mr Taouk had not tendered conventional financial records to support his claims and had failed to produce such documents in response to notices to produce. [29] Mr Taouk had acknowledged that his evidence as to the source of funds allegedly paid and the arrangements with third parties who were said to have provided funds could be seen as “confused or confusing”. His Honour thought that this was an understatement. [30]

    29. Primary Judgment at [260].

    30. Primary Judgment at [261].

80. The primary Judge pointed out that he had already rejected Mr Taouk’s argument as to the construction of cl 2 of the Variation Deed. Nonetheless his Honour considered it important to deal with each of the alleged payments to demonstrate the difficulties facing Mr Taouk even if he had been successful on his construction argument. [31]

    31. Primary Judgment at [264].

81. The primary Judge rejected Mr Taouk’s claim to recover the sum of $220,000 on the ground that the payment had allegedly been made by St Peter’s Holding Pty Ltd, the trustee of a trust of which Mr Taouk was apparently a 25 per cent beneficiary. His Honour considered that no legal principle deems a payment by a trustee to be the act of any particular beneficiary of the trust. [32] In any event, in the absence of banking records the evidence was not clear that the Trust had actually made the payment. [33] The claim to recover the sum of $15,000 failed because the evidence failed to establish that Mr Taouk had made the payment. [34]

    32. Primary Judgment at [295].

    33.    Primary Judgment at [297]-[301].

    34. Primary Judgment at [303].

Question 6

82. Question 6 related to a very large number of payments allegedly made by Mr Taouk, described as the “Tab 33 payments”. Question 6 identified seven categories of payments, which his Honour further refined into three categories. These were payments made by the Builder, payments made by third parties and payments made from Mr Taouk’s credit card. [35]

    35. Primary Judgment at [309].

83. The primary Judge accepted Assure’s submission that payments made by the Builder could not be characterised as payments made by Mr Taouk. There was no evidence that the funds used by the Builder were loans made to it by Mr Taouk. [36] Even if Mr Taouk had lent funds to the Builder, it was the Builder that was obliged to repay him not Assure. Moreover, Mr Taouk, as the guarantor for the Berowra Project, was simply making the payments he was required to make under the Development Deed. [37]

    36. Primary Judgment at [313].

    37. Primary Judgment at [314].

84. In any event, the primary Judge was satisfied that the Builder had been reimbursed by Assure for its contributions to the Berowra Project. Indeed bank statements showed that in some cases the Builder had been reimbursed more than its entitlement. [38]

    38. Primary Judgment at [315].

85. Mr Taouk claimed that payments made by various third parties including Mr Tawk (Mr Taouk’s cousin) were made on Mr Taouk’s behalf and should be regarded as payments by Mr Taouk himself. The primary Judge rejected the claims based on payments by Mr Tawk as there was no evidence that Mr Taouk had reimbursed Mr Tawk. In any event, Mr Tawk did not give evidence and therefore did not corroborate the alleged arrangement. [39] The evidence concerning alleged payments by other third parties was equally unsatisfactory. The alleged payments gave rise to no cause of action for Mr Taouk against Assure. [40]

    39. Primary Judgment at [319].

    40.    Primary Judgment at [320]-[325].

82. The payments made by Mr Taouk through his credit card could not be recovered from Assure. Mr Taouk made the payments from Assure because he was contractually obliged to make the payments towards completion of the Berowra Project. In any event, if Mr Taouk had a claim it could only be against the Developer or the Builder. [41]

    41. Primary Judgment at [327].

Question 7

87. Assure claimed that Mr Taouk breached the Development Agreement by failing to contribute the shortfall in finance as required by cl 7 of Schedule 8. Assure also alleged that Mr Taouk did not pay Assure for its equity in the Berowra Property as required by cll 4 and 5 of Schedule 8. [42]

    42. The relevant provisions of Schedule 8 are reproduced at [33] above.

88. The primary Judge accepted Assure’s submission that Mr Taouk and the Developer were expressly obliged to pay any shortfall in finance and any smaller amounts required to complete the Berowra Project. The Developer had the primary obligation, but to the extent that the Developer did not discharge its obligations Mr Taouk was liable to pay pursuant to cl 7 of Schedule 8 and as the Guarantor under cl 24.2 of the Development Agreement. [43] His Honour found that Assure had made payments totalling $3,266,518.14 to the Developer, subcontractors and Devlan. None of these moneys had been provided or arranged by Mr Taouk or the Developer. [44]

    43. Primary Judgment at [337].

    44. Primary Judgment at [341].

Question 8

89. Question 8 turned on whether Mr Taouk was liable to Assure pursuant to his guarantee and indemnity. The primary Judge was satisfied that the Developer had engaged in a “Defaults Event” for the purposes of cl 24 of the Development Agreement. Accordingly, Mr Taouk’s indemnity was engaged. [45] The guarantee was also engaged because the Developer failed to complete the Berowra Project by the date for Practical Completion (20 August 2013). [46] The guarantee and indemnity underwrote the Developer’s failure to rectify defects in the works.

    45. Primary Judgment at [349].

    46. Primary Judgment at [352].

90. His Honour was satisfied that the Developer failed to fulfil most if not all of its obligations under the Development Agreement, thereby engaging Mr Taouk’s liability as indemnifier and guarantor. The question of quantification would be determined at a later date. [47]

    47. Primary Judgment at [375].

Making of orders

91. The primary Judge made orders at a further hearing held on 23 May 2017. I refer later to the circumstances in which the orders were made. [48]

    48. See at [148] below.

Reasoning: the question of construction

92. Grounds 1-3 of Mr Taouk’s Amended Notice of Appeal challenge the primary Judge’s answer to Question 1. Mr Pritchard SC, who appeared with Mr Macauley for Mr Taouk, contended that the primary Judge erred in construing cl 2 of the Variation Deed as a provision concerned only with the timing for payment of the Consideration Amount.

Mr Taouk’s submissions

93. Mr Pritchard accepted the primary Judge’s statement of the principles governing construction of a commercial agreement, subject to one qualification. Mr Pritchard submitted that the primary Judge was wrong to hold that textual ambiguity in a contract is a pre-requisite to a court having regard to the objective circumstances existing at the time the parties enter into a contract. Mr Pritchard contended that the authorities established that a contextual approach is required when construing a contract. A conclusion that a contract has a plain meaning can therefore only be reached after regard is had to the context.

94. Mr Pritchard submitted that construction of the Variation Deed required reference to the surrounding circumstances. Those included:

• the fact that the Developer “fell away from the picture” and played no active role in the Berowra Project;

• the refinancing of the Berowra Project through Westpac;

• the fact that both parties had made contributions to the Berowra Project (as Mr Harsany accepted in his evidence);

• Mr Harsany’s complaints that he had made disproportionate contributions to the Berowra Project;

• the fact that by March 2015 construction costs had almost reached the cap of $3.7 million referred to in Schedule 6 to the Development Agreement; and

• the email exchanges between Mr Harsany and Mr Taouk which showed that Mr Harsany proposed to adjust the parties’ respective interests in the Berowra Project.

These matters, so Mr Pritchard contended, demonstrated that the objective of the Variation Deed was to adjust the parties’ respective interests in the Berowra Project in the light of their unequal contributions and Assure’s ongoing role in financing the works.

95. Mr Pritchard contended that the “relatively plain and unqualified” language of cl 2 of the Variation Deed demonstrates that both parties were to be paid or reimbursed their respective contributions to the Berowra Project. He submitted that:

• the expression “the balance of the Development Costs” in cl 2 has to be understood as referring to those Development Costs not yet repaid or reimbursed to the parties;

• the phrase “relevant parties” in cl 2 recognises that not only Assure but also Mr Taouk contributed to the Berowra Project;

• in the absence of a definition, there is no reason to limit “Development Costs” to costs of the development within the definition of “DC” in Schedule 6 to the amended Development Agreement; and

• the introduction of subpar (h) into the definition of “DC” in Schedule 6 was clearly intended to prevent Mr Taouk recovering twice for his contributions and makes sense only if cl 2 can be read as entitling Mr Taouk to be paid for his contributions to the Berowra Project.

96. Mr Prichard contended that the opening words of cl 2 of the Variation Deed make it clear that it is intended to be a clause of paramount effect, taking precedence over all provisions of the Development Agreement. Accordingly, so he argued, it is not necessary to reconcile the various provisions of the Development Agreement and the Variation Deed. In his oral submissions Mr Pritchard embraced the proposition that cl 2 of the Variation Deed has the effect of discharging Mr Taouk from the guarantee and indemnity he provided pursuant to cl 24 of the Development Agreement. (Mr Pritchard’s written submissions were not entirely clear on this point.) Indeed, Mr Pritchard went further and submitted that the effect of cl 2 is to require Assure to pay all costs of construction to the extent that the Westpac advance proved insufficient for the purpose.

97. According to Mr Pritchard, this construction makes commercial sense. Both parties are to repay their respective financial contributions (cl 2). Any moneys repaid by Assure to Mr Taouk are to be deducted from any profits payable to him (Schedule 6, definition of “DC”). [49] Mr Taouk is now to share in profits from the Berowra Project up to an agreed “Gross Value” of $9.55 million, so that any proceeds above that figure are to be enjoyed solely by Assure (cll 4 and 5). The payments that Assure has to make to Mr Taouk pursuant to cl 2 of the Variation Deed come out of the proceeds of sale of the townhouses as and when they are received by Assure.

    49. As amended by Schedule 1 of the Variation Deed, see at [64] above.

Assure’s submissions

98. Mr Stoljar SC, who appeared with Mr Reynolds for Assure, submitted that the construction advanced by Mr Taouk would amount to a fundamental alteration of the parties’ respective financial responsibilities for the financing and conduct of the Berowra Project. The effect would be to release Mr Taouk from his guarantee and indemnity (as Mr Prichard submitted) and entitle him to recover all of his past contributions to the Berowra Project, notwithstanding that the Development Agreement required Mr Taouk to make those contributions. This result could not be reconciled with the express provisions in the Variation Deed confirming that the Development Agreement remains in full force and effect save for the specific changes effected by cl 2.

99. Mr Stoljar pointed out that cl 2 of the Variation Deed does not say that Assure is obliged to reimburse Mr Taouk for any contributions he made to the Berowra Project. He submitted that cl 2 merely prohibits payment of the Consideration Amount until all Development Costs have been paid or reimbursed. In essence, it is merely a provision relating to the timing of the final Consideration Amount. Subparagraph (h) of the definition of “DC” is designed to prevent Mr Taouk receiving double payment for amounts for which Assure previously reimbursed him in respect of contributions to the acquisition of the Berowra Property or to the Berowra Project.

100. Mr Stoljar only faintly resisted Mr Pritchard’s contention that cl 2 of the Variation Deed must be construed having regard to the surrounding circumstances. However, he submitted that the primary Judge took those circumstances into account and correctly concluded that they do not assist Mr Taouk’s construction of cl 2. There is nothing in the objective circumstances to suggest that Mr Harsany was recognising or contemplating that Mr Taouk’s contributions would be recognised so as to relieve him from all of his obligations under the Development Agreement.

Principles of construction

101. The approach to the construction of contracts was authoritatively stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd [50] (Woodside):

“[35]   Both [parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. 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’. As Arden LJ observed in Re Golden Key Ltd, [51] unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". (Most citations omitted.)

50. (2014) 251 CLR 640; [2014] HCA 7 at [35].

51. [2009] EWCA Civ 636 at [28].

102. This statement of principle was endorsed by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [52] (Mount Bruce). In that case, French CJ, Nettle and Gordon JJ explained that:[53]

“[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.” (Citation omitted.)

52. (2015) 256 CLR 104; [2015] HCA 37 at [46]-[49] (French CJ, Nettle and Gordon JJ); at [109] (Kiefel and Keane JJ). See also Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 339 ALR 200 at [78] (Gageler, Nettle and Gordon JJ); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 343 ALR 58 at [8]-[9] (Kiefel, Bell and Gordon JJ).

53. Mount Bruce at [50].

103. In Mainteck Services Pty Ltd v Stein Heurtey SA [54] (Mainteck), Leeming JA rejected the proposition that the question of whether a contractual provision is ambiguous can and should be resolved before regard is had to the surrounding circumstances and the commercial purposes or objects of the contract. [55] Leeming JA pointed out that the proposition was inconsistent with the reasoning of the High Court in Woodside. His Honour observed that the words of a contract do not have a “natural” meaning that can be determined in isolation from the context in which they are used. Accordingly, a conclusion that language has a plain meaning reflects the outcome of a process of interpretation that has regard to context. [56]

     54. (2014) 89 NSWLR 633; [2014] NSWCA 184.

     55. The proposition was based on observations made by the High Court on a special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2012) 85 ALJR 1.

     56.    Mainteck at [77]-[80] (Ward and Emmett JJA agreeing).

104. There is no dispute in the present case that the primary Judge correctly held that in construing a contract to vary an earlier contract, the antecedent contract forms part of the context that must be considered. His Honour referred to the judgment of Rix LJ in HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co, [57] where his Lordship said that in principle it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. Rix LJ also said he could not see:

“how the relationship of the two contracts can be decided without considering both of them. In essence there are, it seems to me, three possibilities. Either the later contract is intended to supersede the earlier, in which case the above principles apply. Or, the later contract is intended to live together with the earlier contract, to the extent that that is possible, but where that is not possible it may well be proper to regard the later contract as superseding the earlier. Or the later contract is intended to be incorporated into the earlier contract, in which case it is prima facie the second contract which may have to give way to the first in the event of inconsistency. …”[58]

It was not suggested by Mr Pritchard that the Variation Deed was intended to supersede the Development Agreement, although he did submit that it had the effect of discharging Mr Taouk from his guarantee and indemnity.

57. [2001] EWCA Civ 735; [2001] CLC 1480 at [83] (Mummery and Peter Gibson LJJ agreeing).

58. HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co at [84]. See also South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1990) 10 BPR18,961 at [43] (Spigelman CJ) (affirmed Royal Botanic Gardens v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5; JW Carter, The Construction of Commercial Contracts (Hart Publishing Ltd, 2013) at [7]-[19].

Context of the Variation Deed

105. The relevant provisions of the Variation Deed have been referred to above. [59] They are of particular significance in construing the Variation Deed. The recitals record that the parties entered into the Development Agreement and that they have agreed to vary the Development Agreement in the manner set out in the Variation Deed. Accordingly, the terms of the Development Agreement are of particular significance in construing the Variation Deed.

     59.    See at [62] to [64] above.

106. The submissions made on Mr Taouk’s behalf at times seemed to suggest that the surrounding circumstances that can be taken into account include the negotiations between the parties preceding execution of the Variation Deed, even if the negotiations reveal only the parties’ subjective intentions. Clearly, however, it is only the objective circumstances known to both parties that can be considered in construing the Variation Deed.

107. The most significant objective circumstances known to both Mr Harsany and Mr Taouk prior to the execution of the Variation Deed are the following:

• neither the Developer nor Mr Taouk had arranged finance for the Berowra Project as required by Schedule 8 to the Development Agreement;

• Assure had borrowed funds in its own name from CEG in connection with the Project at a high rate of interest on the security of a second mortgage over the Berowra Property;

• Assure had contributed other funds to the Project;

• as Mr Harsany acknowledged in his evidence, Mr Taouk or entities associated with him had contributed funds to the Project (although the amounts were disputed and the primary Judge found that the amounts were paid either in satisfaction of Mr Taouk’s obligations as guarantor or voluntarily[60] );

• the Developer was a guarantor of the Westpac advance of $5.2 million but (as Mr Pritchard accepted) by the time the Variation Deed was executed it had effectively ceased to play any active role in the Project (and was deregistered shortly thereafter);

• the costs of construction had nearly reached the cap of $3.7 million provided in Schedule 6 to the Development Agreement;

• as the primary Judge found, payments made by Edifice towards the Project, which Mr Taouk claimed were contributions made on his behalf, were reimbursed by Assure; [61] and

• Mr Harsany had complained at length that his contributions towards the Project were much greater than those of Mr Taouk notwithstanding that Mr Taouk had guaranteed the Developer’s performance of its obligations under the Development Agreement and that Assure was not obliged to make any monetary contributions.

60. Primary Judgment at [252].

61. Primary Judgment at [315].

Construction of the Variation Deed

108. The starting point for the construction of a contract must be the contractual language used by the parties. Clause 2 of the Variation Deed states that notwithstanding any other terms within the Development Agreement:

“the balance of the Development Costs are to be paid or reimbursed to the relevant parties prior to payment of the Consideration Amount”.

109. Clause 2 must be read with the other provisions of the Variation Deed and regard must be had to the terms of the Development Agreement. Clauses 3 to 5 are all concerned with the formula in Schedule 6 to the Development Agreement for determining the Consideration Amount payable by Assure on completion of the Project. Clause 3 alters the formula by removing the reference to “OE” (Owner’s Equity). Clause 4 places a dollar figure ($9.55 million) on “GV” (the Gross Value of the Project as determined by sales). Clause 5 states that the “GV” of $9.55 million is to be the maximum amount for the purposes of calculating the Consideration Amount and that Assure is entitled to the benefit of any “GV” above $9.55 million. Clause 6 entitles Assure, in the event that contracts of sale are rescinded or terminated, to resell at its discretion without affecting the Consideration Amount.

110. Clauses 7, 8 and 11 state in various ways that all rights and obligations arising from the Development Agreement remain in full force and effect, except insofar as they are amended or varied by the Variation Deed.

111. Schedule 1 to the Variation Deed modifies the formula for calculating the Consideration Amount. It does so by inserting in the definition of “DC” (costs of the development) subpar (h):

“Payment to the Guarantor of any contribution made by the Guarantor to the acquisition of the land and project”.

112. It can be seen that the operative provisions of the Variation Deed either modify the formula for determining the Consideration Amount or confirm that the Development Agreement, save as amended by the Variation Deed, remains in full force and effect. [62] The language of cl 2, although not entirely free from ambiguity, suggests that it too is concerned with payment of the Consideration Amount. It modifies Schedule 6 to the Development Agreement by requiring that all Development Costs not yet paid or reimbursed (“the balance of Development Costs”) be paid or reimbursed to the parties entitled to be paid or reimbursed (“the relevant parties”) prior to payment of the Consideration Amount (this being Assure’s only obligation under the Development Agreement to make a payment to the Developer).

     62.    The other provisions of the Variation Deed deal with formal matters. Clause 9 states that the Variation Deed will be governed by the laws of New South Wales. Clause 10 requires the parties to do everything necessary to give effect to the Variation Deed. Clause 12 records that the parties have received legal advice.

112. Read in this way, cl 2 of the Variation Deed amends the time at which Assure is to pay the Consideration Amount to Mr Taouk. Pursuant to cl 2 of Schedule 6 to the Development Agreement, Assure was required to pay the Consideration Amount upon completion of the last sale of a lot within the Berowra Project. This obligation arose regardless of whether all costs of the development had actually been paid or reimbursed by that stage. Thus Assure was obliged to pay the Consideration Amount to Mr Taouk even if some costs of construction had been incurred but not yet paid or reimbursed. The effect of cl 2 of the Variation Deed is to postpone the payment of the Consideration Amount until the “balance of the Development Costs” have either been paid or reimbursed to the “relevant parties”. The relevant parties are third parties who have provided goods, services or finance to enable the Berowra Project to be completed and who have not yet been paid or reimbursed.

113. The insertion by the Variation Deed of subpar (h) of the definition of “DC” (costs of the development) in the Consideration Amount formula fits comfortably with this construction of cl 2. Subparagraph (h) addresses the situation where payments have been made to Mr Taouk in respect of contributions made by him to the Berowra Project and the acquisition of land. It ensures that those payments are taken into account in assessing the Consideration Amount to be paid by Assure to Mr Taouk.

114. An objective fact known to the parties was that (as his Honour found) Assure reimbursed Mr Taouk for some construction costs paid by him even though Assure was under no contractual obligation to do so. The effect of inserting subpar (h) into the definition of “DC” (costs of the construction) is to ensure that the amount reimbursed by Assure is deducted from “GV” (Gross Value) for the purpose of calculating the Consideration Amount. In the absence of subpar (h), Mr Taouk would retain the benefit of the amounts Assure had reimbursed him. If the total costs of construction exceeded $3.7 million (as the parties appreciated was virtually inevitable when the Variation Deed was executed) Mr Taouk would also have the benefit of a higher Consideration Amount. This is because construction costs were capped at $3.7 million for the purposes of calculating the figure (“DC”) to be deducted from “GV” (Gross Value) so as to produce the Consideration Amount payable to Assure. To put the matter another way, in the absence of subpar (h), Assure in effect would have reimbursed Mr Taouk twice over, at least if the costs of construction exceeded $3.7 million.

115. As Mr Pritchard acknowledged in oral submissions, it is essential to his argument that “Development Costs” in cl 2 of the Variation Deed means all costs in relation to the Berowra Project, regardless of whether they exceed the $3.7 million cap. Pursuant to cl 22 of the Development Agreement the Developer was responsible for meeting all these costs and Mr Taouk guaranteed the Developer’s performance of its obligation. On the construction advanced by Mr Pritchard cl 2 of the Variation Deed effected fundamental changes in the arrangements between the parties. These included Assure rather than Mr Taouk becoming responsible for all costs of construction not covered by the Westpac advance or, perhaps, all costs incurred over and above the cap of $3.7 million. Accordingly, as Mr Pritchard acknowledged, on this approach it would be Assure that assumed the risk of a loss on the Berowra Project rather than Mr Taouk.

116. It is true that cl 22 of the Development Agreement is headed “Development Costs”, but the heading does not form part of the Development Agreement (cl 1.9). More importantly, as has been pointed out, the operative provisions of the Variation Deed, focus on amending the Consideration Amount formula in Schedule 6 to the Development Agreement. Each of the relevant provisions addresses the mechanisms for calculating and paying the Consideration Amount. Having regard to the context, the expression “Development Costs” in cl 2 of the Variation Deed should be construed as meaning “DC” (the costs of construction), as defined in the Consideration Amount formula (as amended).

117. There are other textual difficulties confronting Mr Pritchard’s submissions. Most obviously, cl 2 does not say in terms that Assure is to reimburse Mr Taouk all costs payable by him in addition to paying him the Consideration Amount. If the parties intended to bring about such a fundamental change in their rights and obligations under the Development Agreement, they might have been expected to say so clearly and not employ the curiously vague expression “relevant parties”. They might also have been expected to provide a means of calculating the amounts due to Mr Taouk and a stipulation as to how Assure was to pay those amounts to Mr Taouk.

118. Secondly, cl 2 of the Variation Deed states that the balance of the Development Costs are to be paid or reimbursed before the Consideration Amount is paid. On Mr Taouk’s case, cl 2 entitles Mr Taouk to be reimbursed the entirety of his contributions to the Berowra Project regardless of when he made those contributions. Mr Pritchard’s contention that the expression “the balance of the Development Costs” refers to that portion of the Development Costs not yet reimbursed to Mr Taouk is a strained interpretation of the language. The wording is apt to refer to the balance of the construction costs not yet paid or reimbursed to the “relevant parties” who have provided the goods, services or finance to the Berowra Project. Once again, if it had been intended that Assure should reimburse Mr Taouk for all contributions made by him not yet reimbursed it would have been very easy to say so.

119. Thirdly, Mr Pritchard accepted that on the construction he proposed, cl 2 of the Variation Deed would not only entitle Mr Taouk to be reimbursed for all his contributions to the Berowra Project but would discharge him from the guarantee and indemnity he gave pursuant to cl 24 of the Development Agreement. It is difficult to see the point of the provisions in the Variation Deed preserving the full force and effect of the Development Agreement and the rights and obligations arising therefrom given that the Developer in effect had been removed from the Berowra Project (as both parties knew) and that Mr Taouk would have no further liabilities and owe no further obligations to Assure. Mr Pritchard correctly pointed out that the opening words of cl 2 indicate that the provision is intended to operate notwithstanding any other terms of the Development Agreement. Nonetheless, it is still necessary to give the terms of the Variation Deed a harmonious construction. Mr Taouk’s construction of cl 2 allows for very little work if any for cll 7, 8 and 11 of the Variation Deed to perform.

120. There is in my view nothing in the objective circumstances that can be taken into account that warrants a different construction of cl 2 of the Variation Deed. The circumstances that have already been referred to support Assure’s construction of cl 2. The fact that both parties had contributed to the costs and that Mr Harsany was complaining that he had contributed a disproportionate amount does not warrant a construction of cl 2 that is at odds with the text and structure of the Variation Deed and in effect replaces the Development Agreement with an entirely new regime.

Reasoning: Paragraph 8 payments

122. Ground 4(a) of Mr Taouk’s Amended Notice of Appeal challenges the primary Judge’s answer to Question 5 insofar as it relates to the two payments totalling $235,000 allegedly made by Mr Taouk at Assure’s request. [63] The primary Judge’s answer to Question 5 was that the claims for payment pleaded by Mr Taouk in par 8 of the ASOC were not claims he was entitled to make.

     63. See at [78]-[81] above.

123. It is not necessary to deal with Ground 4(a) since Mr Pritchard accepted that Mr Taouk cannot succeed in his claim to the two amounts unless his construction argument is accepted. If it was necessary to address Ground 4(a), I would uphold the primary Judge’s findings.

124. The documentary evidence shows that payments totalling $220,000 were made to CEG Capital on 23 December 2014 in reduction of Assure’s line of credit with CEG Capital. An email in evidence suggests that the payment may have been made from funds advanced to St Peter’s Holdings Pty Ltd (St Peter’s) by La Trobe Financial Services at about the same time. Mr Taouk had a 25 per cent beneficial interest in the trust of which St Peter’s was apparently the trustee.

125. The primary Judge was not satisfied that St Peters actually made the payment to CEG Capital or that the payment had been made on behalf of Mr Taouk. His Honour pointed out that the email did not prove the fact of payment and that Mr Taouk had neither tendered banking records nor produced them in response to the notice to produce. Moreover, the date of the email was difficult to reconcile with Mr Taouk’s evidence as to the circumstances in which the payments were made and no evidence had been called from people who could have explained the transaction. His Honour attributed little significance to the email from Mr Harsany of April 2016 because it was not clear whether it was an admission or simply recording Mr Taouk’s claim. In any event, the email had not been put to Mr Harsany in cross-examination.

126. The primary Judge’s finding largely depended in part upon his assessment that Mr Taouk was an unreliable witness and the absence of records that would have substantiated Mr Taouk’s claims. The finding has not been shown to be erroneous.

127. The finding by the primary Judge in relation to Mr Taouk’s claim to $15,000 likewise has not been shown to be erroneous.

Reasoning: Tab 33 payments

128. Ground 4(b) of the Amended Notice of Appeal contends that the primary Judge erred in dismissing Mr Taouk’s ASOC without determining all of Mr Taouk’s claims for reimbursement. In substance, this is a challenge to the answer given by the primary Judge to Question 6. In that answer, his Honour concluded that none of the claims for the items particularised by Mr Taouk in Tab 33 were claims that Mr Taouk was entitled to bring against Assure.

129. Paragraph 11 of the ASOC alleged that over the course of the Berowra Project Mr Taouk paid or caused others on his behalf to pay in excess of $2 million towards the costs of construction. Mr Taouk provided particulars of par 11 of the ASOC in Tab 33 of an exhibit to one of his affidavits. The particulars comprised 304 separate items involving payments totalling $1,907,247.58.

130. Question 6 asked whether seven categories of items allegedly paid for by Mr Taouk could be claimed by him. The seven categories identified in Question 6 did not cover all 304 items in Tab 33. Only 37 items were specifically referred to in the seven categories. As has been seen, the primary Judge considered that the seven categories set out in Question 6 could be further refined into three categories. His Honour then addressed Mr Taouk’s claims by reference to each of the three categories and rejected the claims.

131. Mr Pritchard’s complaint about the primary Judge’s approach is that his Honour only addressed Mr Taouk’s claims in respect of the 37 items and did not consider the remaining 267 claims totalling approximately $1.59 million. Mr Pritchard accepted that this complaint only arises if his construction of cl 2 of the Variation Deed is adopted. Since it has not been adopted, Ground 4(b) does not arise for determination.

132. Had it been necessary to determine Mr Pritchard’s contention that his Honour should not have dismissed Mr Taouk’s ASOC without determining all 304 items claimed by him, I would have rejected the argument. An examination of the transcript of the pre-trial directions hearing held on 23 November 2016 shows that his Honour was endeavouring to identify points of principle that if decided against Mr Taouk would finalise his claim to payment of all 304 items in Tab 33. The seven categories of items identified in Question 6 were clearly intended to be representative of all 304 items. His Honour wished to resolve the issues of principle presented by each of the categories (ultimately reduced to three). If the answer to Question 6 was wholly unfavourable to Mr Taouk, that would be the end of the Tab 33 claims. If the answer was wholly or partly favourable, his Honour envisaged that the issues could go off to a referee as in a building case. In this case, however, the answers were wholly unfavourable to Mr Taouk.

133. There was no unfairness to Mr Taouk in this process. He had an opportunity to adduce evidence and advance arguments on the points of principle determined by the primary Judge. The answer to Question 6 resolved all of the claims made in par 11 of the ASOC.

Reasoning: sufficiency of reasons

134. Ground 6 of the Amended Notice of Appeal contends that the primary Judge failed to give reasons for rejecting Mr Taouk’s arguments that he was not liable on the guarantee and indemnity and that Questions 7 and 8 should have been answered accordingly. No submissions were made in support of this ground. In any event, it is without substance.

Reasoning: Mr Taouk’s Guarantee and Indemnity

135. Ground 7 of the Amended Notice of Appeal contends that the primary Judge erred in failing to hold that Mr Taouk’s guarantee and indemnity had been discharged or did not cover the obligation Assure claimed the Developer had breached. Four alleged errors are identified:

(a)   the primary Judge should have found that the relevant provisions of the Development Agreement had been abandoned by the parties;

(b)   Assure engaged a contractor other than the Developer to complete the construction work;

(c)   cl 2 of the Variation Deed varied Mr Taouk’s obligations under the Development Agreement; and

(d)   the Developer was not obliged to pay Assure for Assure’s equity in the Berowra Property as contemplated by the Development Agreement Schedule 8 cl 5(d), because that provision was inconsistent with Schedule 6 of the Development Agreement.

136. Senior counsel for Mr Taouk accepted at the trial that abandonment had not been pleaded. The primary Judge made it clear that abandonment could not be raised if it had not been pleaded. No application was made to amend the ASOC. No error has been demonstrated in his Honour’s approach. Accordingly, the first of the four alleged errors has not be established. The second alleged error adds nothing to the first.

137. The third alleged error repeats matters already addressed and rejected.

138. The fourth alleged error was not the subject of oral submissions. Mr Taouk’s written submissions accepted that cl 5(d) of Schedule 8 to the Development Agreement obliged the Developer to pay Assure the balance of the initial $2.2 million after paying out existing loans. The argument that his obligation was inconsistent with the Consideration Amount formula was neither pleaded nor put to the primary Judge. No argument was advanced by Mr Taouk as to why he should be permitted to raise the argument on appeal. Had the point been pleaded, Assure may have wished to adduce evidence as to why the dollar figure attributed to “OE” in the original Consideration Amount formula had been left blank.

139. In any event, it is difficult to see why the incomplete reference to “OE” in the original Consideration Amount formula (which was removed by the Variation Deed) is inconsistent with the substantive obligation imposed on the Developer by cl 5(d) of Schedule 8. The formula is concerned with the quantum of the Consideration Amount to be paid by Assure to Mr Taouk. It does not address the Developer’s substantive obligations under the Development Agreement.

Reasoning: Entry of judgment on Assure’s Cross-Claim

140. Grounds 8-10 of the Amended Notice of Appeal contend that the primary Judge erred in entering judgment for $3,266,518.14 on Assure’s Cross-Claim. Mr Pritchard submitted that Mr Taouk had been denied procedural fairness because Questions 7 and 8 raised only issues of liability and not of quantum. It was made clear at the hearing in the Equity Division proceedings, so he argued, that any issue relating to quantification of Assure’s Cross-Claim would be addressed later in the proceedings.

141. Mr Pritchard submitted that although the primary Judge found that Assure contributed amounts totalling $3,266,518.14 to the construction costs[64] that was not the end of the inquiry so far as quantum was concerned. To determine whether Assure had suffered any loss or damage for which Mr Taouk was liable under the guarantee and indemnity or otherwise under the Development Agreement, it was necessary to identify the source of the funds used by Assure to make the payments.

     64. Primary Judgment at [341].

142. Mr Pritchard pointed out that the Development Agreement contemplated that the Developer would borrow about $3.2 million on the security of the Berowra Property for the costs of construction. [65] It was also contemplated, so Mr Pritchard argued, that the funds borrowed by the Developer would be repaid out of the proceeds of sale of the townhouses. If, therefore, Assure borrowed moneys used for the costs of construction but repaid the borrowed funds from the proceeds of sale of the townhouses, it would not have suffered any loss for which Mr Taouk would be liable (given that the Developer had not borrowed any moneys itself). Mr Pritchard also submitted that there was a live issue as to whether all moneys borrowed by Assure on the security of the Berowra Property had in fact been applied to construction costs.

     65. Development Agreement Schedule 8, cll 4-6 reproduced at [33] above. This figure seems to have been derived by deducting from the borrowings of $5.455 million the sum of $2.2 million to be paid in cash to Assure for its equity in the Berowra Property.

143. Assure’s Cross-Claim alleged multiple breaches by the Developer of the Development Agreement. The breaches included the Developer’s failure to arrange the required finance and to complete the construction work by the completion date. The Cross-Claim also alleged that Mr Taouk breached his obligations under the Development Agreement by failing to make up any shortfall on finance or to pay the amounts required to bring the Berowra Project to completion.

144. Assure pleaded that it had suffered loss and damage by reason of the breach of the Development Agreement by the Developer and Mr Taouk. The loss and damage included the costs incurred by Assure in completing the construction works and rectifying numerous defects and the loss of its entitlement to liquidated damages against the Developer in respect of the Developer’s contractual breaches. Assure claimed that Mr Taouk was liable in damages for his own breaches of the Development Agreement and was also liable under the terms of the guarantee and indemnity.

145. The quantification of the loss sustained by Assure, assuming that Mr Taouk is liable for any such loss, potentially could take some time to resolve. No doubt it was with this in mind that the primary Judge confined Questions 7 and 8 to issues of liability. The Questions asked whether Mr Taouk was liable to Assure:

• for breaching the Development Agreement in the manner alleged in the Cross-Claim (Question 7); and

• pursuant to the guarantee and indemnity as alleged in the Cross-Claim (Question 8).

146. The parties’ written submissions to the primary Judge made it clear that Questions 7 and 8 were limited to issues of liability. For example, Assure’s closing submissions on the Cross-Claim stated that:

“It is important to note that Preliminary Questions 7 and 8 are limited to examining whether Mr Taouk is liable for breaches of the Development Agreement or is liable pursuant to the guarantee and indemnity. It is necessary for the Court to determine whether the Development Agreement contains the clauses alleged by Assure and whether Mr Taouk is liable pursuant to their operation. Proof of loss or damage and quantum do not arise at this stage for consideration and will not be addressed.”

147. The Primary Judgment set out his Honour’s answers to the Questions and invited the parties to prepare short minutes of order. [66] His Honour also noted that further directions might be needed in view of the answers to Questions 7 and 8. [67]

     66.    Primary Judgment at [381]-[382].

     67. Primary Judgment at [383].

148. The primary Judge heard argument on the form of orders on 23 May 2017. In the course of argument it was pointed out that senior counsel then appearing for Mr Taouk had accepted during the trial that there was no issue concerning the amounts actually paid by Assure. On this basis, his Honour stated that he saw no reason why judgment should not be entered against Mr Taouk for the amounts paid by Assure in respect of construction costs. He then proceeded to make orders, including Order 2(c) giving judgment in favour of Assure against Mr Taouk in the sum of $3,266,518.14 for the costs of construction relating to the Development Agreement up to and including 12 December 2016. His Honour apparently had in mind that upon the hearing of the balance of the Cross-Claim judgment might be entered for additional amounts paid by Assure.

149. It is fair to say that the arguments Mr Taouk wishes to advance on quantum were not put with particular clarity at the hearing on 23 May 2017. Nonetheless, having regard to the form of Questions 7 and 8 and the manner in which the Equity Division proceedings were conducted Mr Taouk must be given an opportunity to put his case that Assure has not suffered loss or damage or, if it has, that the amount recoverable is less than the judgment awarded by the primary Judge.

150. Assure’s written submissions on the appeal contended that no practical injustice had been occasioned by the course adopted by the primary Judge. However Mr Stoljar in his oral submissions, while not conceding the force of the contentions advanced on behalf of Mr Taouk, maintained only faint opposition to them.

151. It follows that the appeal must be allowed to the extent of setting aside Order 2(c) made by the primary Judge. Order 8, which stands over the balance of the Cross-Claim, will provide the opportunity for the parties to deal with the question of quantum in the Equity Division proceedings. It will be a matter for the primary Judge to determine whether any of the arguments Mr Taouk seeks to advance go beyond issues of quantum and amount to an attempt to relitigate issues of liability.

152. The findings made by the Primary Judge as to the payments made by Assure have not been disturbed. The further hearing should therefore proceed on the basis of those findings. There is no occasion to make an order for a new trial of part of the matter in controversy in accordance with UCPR r 51.53(3). [68] That is because the Cross-Claim is part heard and provision has been made for the hearing of the remaining issues in dispute on the Cross-Claim.

     68. UCPR r 51.53(3) provides as follows:

Orders

153. The following orders should be made:

1.   Grant leave to the extent necessary to enable Mr Taouk to appeal from the orders made by Sackar J on 23 May 2017.

2.   Note Mr Taouk’s Amended Notice of Appeal dated 26 June 2017.

3.   Appeal allowed in part.

4.   Set aside order 2(c) made by Sackar J on 23 May 2017.

5.   Otherwise dismiss the appeal.

154. Mr Taouk’s Amended Notice of Appeal seeks an order setting aside the costs order made by Sackar J on 16 June 2017. His Honour ordered Mr Taouk to pay Assure’s costs of the proceedings, being the costs of the determination of the separate Questions and the costs of the Cross-Claim on an indemnity basis. [69] Since Mr Taouk has failed in his challenge to the determination of the separate Questions, the order for indemnity costs should remain insofar as the order relates to the separate Questions.

     69. Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778.

155. Mr Taouk has succeeded in setting aside the judgment in Assure’s favour on the Cross-Claim. The indemnity costs order should be set aside insofar as it relates to the Cross-Claim. Whether such an order is appropriate having regard to the outcome of the Cross-Claim will be a matter for the primary Judge.

156. The following order should therefore be made:

6.   Vary the costs order made by Sackar J on 16 June 2017 so that it reads as follows:

The plaintiff to pay the defendant’s costs of the determination of the separate Questions on an indemnity basis.

157. Mr Taouk has succeeded in setting aside the judgment in favour of Assure on its Cross-Claim, but has otherwise failed in his appeal. The other issues were the focus of the written submissions and occupied most of the time at hearing. It is appropriate that Mr Taouk pay 25 per cent of Assure’s costs of the appeal (including the summons for leave to appeal). The following additional order should therefore be made:

7.   Mr Taouk pay 25 per cent of Assure’s costs of the appeal (including the summons for leave to appeal).

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Endnotes

“An appeal shall, by leave of the Court of Appeal, lie to the Court of Appeal from a decision in proceedings in the Court of any question or issue ordered to be decided separately from any other question or issue.”

“If it appears to the Court that some ground for a new trial affects part only of the matter in controversy, or one or some only of the parties, the Court may order a new trial as to that part only, or as to that party or those parties only.”

Decision last updated: 08 September 2017