Northbuild Constructions Pty Ltd v Capital Finance Aust Ltd
[2006] QSC 81
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- Notable Unreported Decision
- Northbuild Constructions Pty Ltd v Capital Finance Aust Ltd[2006] QSC 81
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Northbuild Constructions Pty Ltd v Capital Finance Aust Ltd[2006] QSC 81
Northbuild Constructions Pty Ltd v Capital Finance Aust Ltd[2006] QSC 81
SUPREME COURT OF QUEENSLAND
CITATION: | Northbuild Constructions Pty Ltd v Capital Finance Aust Ltd & Anor [2006] QSC 081 |
PARTIES: | NORTHBUILD CONSTRUCTION PTY LTD |
FILE NO/S: | BS11381 of 2004 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 26 April 2006 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 28, 29, 30 March and 21 April 2006 |
JUDGE: | Muir J |
ORDER: | Judgment for the defendants with costs |
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where parties entered into building contract – where contract required builder to provide security to developer – where security provided in the form of bank guarantees – where contract provided for reduction in security upon practical completion of building works – where builder and developer entered into agreement for builder to provide further bank guarantees – where agreement provided that developer entitled to retain security beyond period initially contracted – where plaintiff builder contends that agreement referred only to subsequent bank guarantees – whether plaintiff entitled to release of bank guarantees – whether proper construction of agreement may be ascertained by reference to negotiations Trade Practices Act 1974 (Cth), s 52, s 87 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, applied |
COUNSEL: | P J Dunning SC with him S A McLean for the plaintiff |
SOLICITORS: | Ebsworth & Ebsworth for the plaintiff |
Introduction
- The plaintiff, Northbuild Construction Pty Ltd, (“Northbuild”) is a builder which contracted with the second defendant developer, Discovery Beach Project Pty Ltd (“Discovery”), under a building contract entered into on 23 May 2003 (“the Contract”) to build the Surfair Resort at Marcoola. The first defendant, Capital Finance Australia Limited (“Capital”), was Discovery’s financier. Under the Contract, Northbuild was required to provide security to Discovery in an amount equal to five percent of the “Guaranteed Maximum Price” of $27.25 million including GST.[1] Pursuant to clauses 10.10.2 and 10.10.3 of the Contract such security was to be reduced by 1.25 percent on the practical completion of each of Stage 1 and Stage 2. The balance was to be released upon expiration of the defects liability period, which concluded 52 weeks after final completion. The security could be provided in the form of bank guarantees.[2]
- Capital required, as a condition of its lending to Discovery, that Northbuild and Discovery enter into a “Building Contract Tie in Deed” (“the Deed”) which gave Capital rights in respect of the Contract and imposed on Northbuild and Discovery obligations in favour of Capital. In the Deed, Capital acknowledged that “it is to be the beneficiary of, and will hold, the Bank Guarantees provided by the Builder for the purposes of clause 10.10 of the Building Contract”. Clause 2.16 further provided that “The Financier will have all of the rights of, and will comply with all of the obligations of, the Customer which are contained in clause 10.10 in respect of those Bank Guarantees.”
- Bank guarantees in the amounts of $309,659, $309,659 and $619,318 respectively were procured by Northbuild in fulfilment of its contractual obligations. The guarantees were in favour of Capital and were held by Capital.
- Serious disputes arose between Northbuild and Discovery. After negotiations Northbuild and Discovery entered into a written agreement on 19 August 2004 (“the August Agreement”). It required Northbuild to provide Discovery with further bank guarantees in a total amount of $300,000 and provided in clause 8.1 that:
“[Discovery] shall be entitled to retain security which would otherwise be released on Practical Completion until sufficient disputes have been resolved through agreement or expert determination such that it is evident that Northbuild is entitled to be paid the amount it has in fact been paid.”
- The bank guarantees, on this occasion in favour of Discovery, (“the further guarantees”) are held by Capital under the Deed.
The questions for determination
- Northbuild contends that on its proper construction, clause 8.1 of the August Agreement refers only to the further guarantees.
- The defendants contend to the contrary and allege that the circumstances have not yet arisen which would entitle Northbuild to the release of any of the bank guarantees.
- Discovery and Capital further assert that if the August Agreement is to be construed as Northbuild contends, Northbuild is estopped by its conduct from relying upon such construction. They allege also that the facts relied upon in support of their estoppel argument establish misleading and deceptive conduct within the meaning of s 52 of the Trade Practices Act 1974 (Cth) and claim relief under s 87 of that Act.
- It is convenient now to set out the contractual provisions most relevant to the parties’ dispute.
Clause 10.10 of the General Conditions of the Contract
“If the Contractor provides security in the form of a Bank Guarantee then:
10.10.1the Contactor may provide any number of Bank Guarantees provided they aggregate to the amount of security required by this Agreement;
10.10.2such security will be maintained until Practical Completion is achieved in accordance with clause 9.3; and
10.10.3Upon Practical Completion of Stage 1 of the Works, the Principal must authorise the reduction of the Bank Guarantees by 1.25 percent of the Guaranteed Maximum Price.
10.10.4Upon Practical Completion of Stage 2 of the Works, the Principal must authorise the reduction of the remaining Bank Guarantees by 1.25 percent of the Guaranteed Maximum Price.”
- The Contract made provision for the release or reduction of the security provided under it where a substitute security was provided,[3] where a partial reduction in security was required,[4] and after final completion.
Clause 2.16 of the Tie in Deed
“The Financier acknowledges that (as part of its securities) it is to be the beneficiary of, and will hold, the Bank Guarantees provided by the Builder for the purposes of clause 10.10 of the Building Contract. The Financier will have all the rights of, and will comply with all of the obligations of, the Customer which are contained in clause 10.10 in respect of those Bank Guarantees.”
Clause 8.1 of the August Agreement
“8.1DBP agrees not to set off or make any deductions it claims from Northbuild unless either it has Northbuild’s agreement or there is a resolution of the dispute by expert determination or litigation which authorises the deduction. In consideration of this agreement by DBP, Northbuild agrees:
(a)to provide to DBP, within seven days, further bank guarantees for amounts totalling $300,000;
(b)that DBP shall be entitled to retain security which would otherwise be released on Practical Completion until sufficient disputes have been resolved through agreement or expert determination such that it is evident that Northbuild is entitled to be paid the amount it has in fact been paid.
The parties acknowledge that section 67N of the Building Services Authority Act does not apply because the security will be retained for both the correction of defects and the reimbursement of possible overpayments.
- Item 8.1 does not apply with respect to:
(a)the deduction of liquidated damages (to the extent the building contract enables DBP to deduct liquidated damages) once Northbuild’s entitlement to extensions of time claimed, which are currently in dispute (see item 10) are resolved by the expert determination process;
(b)the deduction of any amounts agreed between the parties or determined as part of any expert determination process entered into by the parties.”
The circumstances under which the August Agreement was entered into
- A meeting was held on 13 August 2004 at the offices of Hopgood Ganim, Capital’s solicitors, with a view to resolving the dispute between Northbuild and Discovery. Those present at the meeting were Mr Paul Boddington, the sole director of Northbuild; Paul Gordon, a partner in Ebsworth & Ebsworth, Northbuild’s solicitors; Derek Williams, a director of Discovery; Ian Briggs, a partner in Minter Ellison, Discovery’s solicitors; Ms Jennifer English, a former partner of Allens Arthur Robinson and the wife of Derek Williams; Gregory Ramsay, the Assistant General Manager Property Finance of Capital; and Paul Cullen, a partner in Hopgood Ganim. Discussions at the meeting did not include reference to the provision of any additional security by Northbuild or the retention of existing securities beyond the times stipulated in the Contract. One of the matters raised by Mr Boddington was Northbuild’s concern that the bank guarantees not be “cashed in” and that they be dealt with in accordance with the Contract. Mr Ramsay was an active participant in discussion and sought to bring about resolution of the dispute between Northbuild and Discovery.
- After the meeting Mr Briggs, in consultation with Mr Williams and Ms English, prepared a draft agreement in the form of a letter from Discovery to Northbuild. Clause 8.1 of the draft relevantly provided:
“Northbuild agrees that [Discovery] shall be entitled to retain all security provided by Northbuild.” (emphasis added)
- In a letter to Discovery of 16 August, Northbuild said in relation to the above part of clause 8.1 that Northbuild did not recall any agreement to that effect “… and it ought be deleted. Security should be progressively released under the Contract. [Discovery] also retains Paul Boddington’s personal guarantee and retains its rights in respect to defective work.”
- On 18 August 2004 Mr Briggs circulated a second draft of the proposed agreement for discussion at the meeting to be held the following day. The draft included the following editorial comment in respect of clause 8.1.
“[Discovery] concedes this matter was not discussed on 13.08.04. Several of [Northbuild’s] amendments were also not discussed. If substantial payments are to be made pursuant to item 6.1 and item 8.1(a) is amended, it is reasonable for [Northbuild] to leave its security in place until all disputes are resolved.”
- Mr Gordon responded to the second draft in an email later that day. The email did not make any comment on clause 8.1.
- Another meeting with the same attendees was held at the offices of Hopgood Ganim on 19 August 2004. Discussion centred on the 18 August draft and Discovery’s written response to it.
- In early August 2004 Northbuild was claiming that more than $8 million was owing to it under the Contract. Discovery disputed in excess of $2.5 million of Northbuild’s claims and the disputes were submitted for resolution under the Contract. Northbuild had suspended work under the Contract pending resolution of the disputes.
- In the course of the 19 August meeting, Mr Boddington was insistent that where moneys were or had been paid to Northbuild on account, Discovery could not make deductions in respect of such moneys from future progress claims.
- There was discussion about a need to increase Capital’s facility in order to meet the additional claims, should they be successful.
- Mr Williams said words to the effect that Discovery would only pay moneys on account of disputed items if secured. Mr Ramsay suggested that an additional guarantee or guarantees be provided and in the course of discussion a figure of $300,000 was arrived at. There was also discussion about whether any of the existing securities should be released at practical completion pursuant to the terms of the Contract, having regard to the substantial amount of disputed moneys being paid to Northbuild on account. In the course of the discussion concerning clause 8.1 Mr Gordon expressed concern about the words “all security” and requested the deletion of the word “all”. After some discussion, Mr Briggs and/or Ms English said words to the effect that “all” could be deleted.
The plaintiff’s argument on the construction of clause 8.1 of the August Agreement
- Clause 2.16 of the Deed operated to relieve Northbuild of the obligation to provide bank guarantees in accordance with clause 10.10 of the Contract;
- By the time of the meeting on 13 July 2004, Northbuild and Discovery were on bad terms. Northbuild had left the site and was intent on terminating the Contract unless the outcome of the meeting was satisfactory to it. Mr Boddington was demanding and obtained at the meeting approval, at least in principle, for an increase in the GMP of about $7,000,000. Retention beyond practical completion of bank guarantees was not raised at that meeting;
- Mr Brigg’s draft letter agreement prepared after the meeting contained a provision in relation to the guarantees without prior discussion or warning. That insertion was promptly rejected by Northbuild;
- The notes made by Boddington and Briggs at the 19 August meeting in relation to the additional bank guarantees are consistent with Mr Boddington’s account of the progress of the meeting;
- The August Agreement was only between Northbuild and Discovery. If there had been an intention to affect the obligations of Northbuild and Capital under clause 2.16 of the Deed. Capital would have been a necessary party;
- No one at the 19 August meeting “can satisfactorily recall” Mr Boddington ever agreeing to the retention of all bank guarantees;
- If the defendant’s case is accepted, Discovery got more than Mr Williams asked for in and prior to the 13 August meeting despite Mr Boddington’s having previously sought the early return of the existing guarantees;
- As a result of discussion at the meeting “all security” was removed from clause 1. It had been deliberately put there on the instructions of Mr Williams and Ms English. If the defendant’s construction is right, the removal of those words was pointless; and
- The conduct of the parties in September, October, November and December demonstrates a common understanding that clause 8.1 did not cover the bank guarantees in favour of Capital.
- Clause 8.1 did not contemplate all security being retained but only that security referred to in clause 8.1(a).
Summary of the first defendant’s arguments on the construction of clause 8.1
- The Building Contract “is the charter of rights between Northbuild and [Discovery]”. It confers the right on Discovery to have the bank guarantees maintained until Practical Completion;
- There is nothing inapt in describing Discovery as “retaining” these securities. Capital’s interest in them is only by way of security. Discovery is the party with the underlying proprietary interest;
- If clause 8.1(b) was intended to apply only to the “further bank guarantees” which were mentioned for the first time in clause 8.1(a), one would expect a competently and professionally drawn document to “convey this by direct and specific reference” eg “(b) that [Discovery] shall be entitled to retain the security referred to in paragraph (a) which would….”. By contrast, clause 8.1(b) was drafted by the deliberate use of the generic reference to “security which would otherwise be released on Practical Completion”;
- The reference in clause 8.1(a) to the provision “to [Discovery] … [of] further bank guarantees” suggests that these guarantees were treated by the parties as being supplementary to the Bank Guarantees which had already been provided. It is inconsistent with an intention to distinguish between [Discovery’s] securities and Capital’s securities;
- As the background facts reveal, the phrase “[Discovery] shall be entitled to retain” had a conventional meaning to these parties: see Mr Brigg’s first draft of the August Agreement;
- The reference to Discovery retaining security does not imply, by application of the maximum expressio unius, an intention to exclude securities held by Capital in its name. Application of the principle in commercial documents must be approached with care;[5]
- The purpose of clause 8.1(b) is expressly stated in the provision itself as being to provide “security” to Discovery for “reimbursement of possible overpayments” as well as for the correction of defects;
- The parties were aware of Discovery’s position that substantial monies had been already overpaid to Northbuild and that the proposed arrangement embodied in the August Agreement would involve further overpayments which would bring the total to between $1.5-2.7 million;
- Northbuild was known to be of only modest financial means. Discovery had a legal entitlement to require the existing security to be increased to 5 percent of the contract price. Absent express agreement, the existing security was liable to be reduced upon the imminent occurrence of practical completion by one half. The resolution of disputes was not expected for some months, and the parties were contemplating that Capital would be paid out before the disputes were resolved;
- The purpose of the August Agreement was to negotiate an interim arrangement whereby payments claimed by Northbuild would be made voluntarily by Discovery “on account” pending completion of dispute resolution processes;
(k)The defendant’s construction would provide Discovery with:
- security of a value of $1.5 million which was appropriate to the value of the work claimed (5 percent of the claimed contract price);
- security of a value which was appropriate to the quantum of alleged overpayments ($1.5 to 2.7m);
- modification of the ordinary security requirements in the Contract which recognises that the usual decrease in risk associated with practical completion is to be postponed until after expert determination; and
(l)That construction serves a sensible commercial purpose, whereas Northbuild’s construction does not. The consequence of the latter is that Northbuild receives potential overpayments $1.5 to 2.7m, and offers only $150,000 in additional security (half of the $300,000 offered would otherwise be released on practical completion).
Discovery’s argument on the construction of clause 8.1
- Subparagraph (b) does not say Discovery is entitled to retain “the Bank Guarantees” referred to in sub-paragraph (a) . Nor does it refer to “the Bank Guarantees”. This would have been obvious to Mr Briggs, an experienced solicitor and also Mr Gordon who reviewed the draft on 19 August;
- The parties had the apparent intention to amend the Contract insofar as it related to guarantees by way of security;
- the definition of the securities to be retained is ones “which would otherwise be released on Practical Completion”. They include the further guarantees. The use of the word “retain” is consistent with the terminology of the Contract; and
- Northbuild’s construction is inconsistent with the commercial object of the August Agreement which is to provide payment and retention by Northbuild of disputed monies but, at the same time to give Discovery security for repayment of those monies should Northbuild be found not to be entitled to them.
Relevant principles of contractual construction
- Counsel for the plaintiff and counsel for the first defendant referred in great detail to the factual background to the August Agreement and to the negotiations on 13 and 19 August as aids to construction. In transactions such as the one under consideration it is obviously important that the tribunal construing the Contract understands the commercial background against which the Contract was entered into and its commercial purpose. In Codelfa Construction Pty Ltd v State Rail Authority of NSW,[6] Mason J referred with approval to the following passage from the speech of Lord Wilberforce in Reardon Smith Line v Hansen-Tangen:
“In a commercial contract it is certainly right that the court should know the commercial purpose of the Contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”[7]
- But as Lord Wilberforce also observed in the same case:
“… when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties …
…what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the Contract is to be construed.”[8]
- The negotiations which resulted in the Contract can provide useful evidence of this nature. But there are limits to the use which may be made of the prior negotiations as an aid to construction. Mason J explained in Codelfa:
“We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”[9]
- Evidence of negotiation may also assist in ascertaining the meaning of an ambiguous word or phrase or of a word or phrase susceptible of more than one meaning.[10] But it seemed to me that Northbuild’s approach, in particular, strayed from the legitimate use of negotiations as an aid to construction into an attempt to identify the contract which, in its opinion, should have resulted from the language used in the negotiations.
- Mason J pointed out in Codelfa:
“Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.”[11]
- The role of the court in construing a contract is to “ascertain and give effect to the intentions of the contracting parties”.[12] That intention, to be determined objectively, is “what a reasonable person would have understood [the words of the contract] to mean”. And to ascertain that, “normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[13]
The construction of clause 8.1
- A literal construction of clause 8.1 favours the defendants’ arguments. Under paragraph (a) Northbuild is required to provide Discovery with “further Bank Guarantees for amounts totalling $300,000”.
- Paragraph (b), on its face, does not purport to distinguish between the existing Bank Guarantees and the further Bank Guarantees. If paragraph (b) was intended to refer only to the further Bank Guarantees, the choice of words would be odd and such intention could have been fulfilled and the paragraph’s meaning made plain by inserting, in lieu of “security which would otherwise be released on Practical Completion”, the words “such Bank Guarantees” or “such security”. Even the use of “further” to describe the new bank guarantees suggests, in the context of paragraphs (a) and (b), that the new guarantees were not to be regarded as separate to and distinct from the existing guarantees.
- One of the plaintiff’s major points is that it is inappropriate to speak of Discovery’s entitlement “to retain” the existing guarantees as they were not held by it and were not in its name but were held by Capital pursuant to clause 2.16 of the Deed. I do not attach much significance to these considerations despite a concession by Mr Briggs that he would have drafted clause 8.1 differently had he known on 19 August that the existing bank guarantees were in Capital’s name. The existing securities were provided under the Contract and, despite the terms of the Deed, are held pursuant to the provisions of the Contract. At the time the August Agreement was entered into, the existing bank guarantees were security provided under the Contract available, in accordance with the terms of the Contract, to protect Discovery against the consequences of overpayment to Northbuild.
- Capital holds the bank guarantees as part of its security and not otherwise. As Millett LJ explained in L/M International Construction Inc v The Circle Ltd Partnership:
“The answer to the manager’s submissions may be found in the application of two elementary principles... The second is that equity regards a mortgagee as having only a security interest in the mortgaged property; subject to his security, the mortgagor remains the beneficial owner (see Fairclough v Marshall (1878) 4 Ex D 37, [1874--80] All ER Rep 1261; Van Gelder Apsimon & Co v Sowerby Bridge United District Flour Society (1890) 44 Ch D 374; Turner v Walsh [1909] 2 KB 484, [1908--10] All ER Rep 822). So strongly did equity insist on this principle that it allowed the mortgagor to bring proceedings for damage to the mortgaged property without joining the mortgagee. So far as the general rule is concerned, it did not matter whether the mortgagor or the mortgagee was in possession (whatever that might mean in a case of the present kind); the rule was that the mortgagee could not bring proceedings for his own benefit without rendering himself liable to account as mortgagee in possession.”[14]
- Ward LJ added:
“This being a legal mortgage of a chose in action, I see no reason not to apply the principles set out in Fairclough v Marshall (1878) 4 Ex D 37, [1874--80] All ER Rep 1261 and Van Gelder Apsimon & Co v Sowerby Bridge United District Flour Society (1890) 44 Ch D 374. In Fairclough v Marshall (1878) 4 Ex D 37 at 48 Cotton LJ said:
‘We are here to recognize equities, and to deal with substance rather than form. It is not the mortgagees who are the owners, but the mortgagor. The mortgagor is the beneficial owner, subject to the incumbrance …’.”[15]
- Clause 2.16 of the Deed acknowledges the reality that the bank guarantees are “provided by the Builder for the purposes of clause 10.10 of the Building Contract”. If Capital has recourse to the bank guarantees, Discovery’s liability to Capital will be reduced by the guaranteed amount and Northbuild’s liability to Discovery will be reduced to the same extent.
- In these circumstances, it is not inappropriate to speak of Discovery’s entitlement to “retain” the existing bank guarantees. The description “security which would otherwise be released on Practical Completion” is a general one apt to cover any bank guarantee provided under the Contract. It is unlikely that an experienced commercial draftsman, such as Mr Briggs, would have used these words as a substitute for “the further bank guarantees”. Nor is it likely that Mr Gordon, or Mr Boddington for that matter, on reading the August Agreement on or about 19 August, would have had the understanding that clause 8.1(b) applied only to the further guarantees.
- In my view, the construction advanced by the defendants is more in accordance with the objectively determined intentions of the parties. The purpose of clause 8.1 is to:
- Protect Northbuild against the likelihood that Discovery would deduct from moneys payable under future claims by Northbuild moneys on account of disputed amounts or moneys in respect of the alleged overpayment of prior claims; and
- Provide security to Discovery for reimbursement of overpayments and for remedying of defects found to exist by the dispute resolution process then being undertaken.
The latter purpose would not be served by Northbuild’s construction.
- For the above reasons, the plaintiff fails on its construction arguments.
The negotiations
- It will be apparent from the foregoing discussion that I see no profit in subjecting the 19 August meeting to minute dissection and analysis. Those present at the meeting have somewhat different recollections as to what was said in relation to clause 8.1. Mr Boddington’s evidence is as follows. When clause 8.1 was discussed he said words to the effect that the existing bank guarantees had to be released in accordance with the terms of the contract. Mr Briggs responded by saying that this would be acceptable to Discovery as long as the further guarantees were retained “pending resolution of the disputed variations and provisional sum claims”. Mr Boddington responded that this would be acceptable to him provided that the further guarantees, although in Discovery’s name, were held by Capital. Mr Briggs said that this would be acceptable and Mr Ramsay said also that this was acceptable to Capital.
- Mr Gordon, regrettably, swears to having read Mr Boddington’s affidavits and states that “the matters deposed to in Mr Boddington’s affidavit accord with [his] recollection of what occurred at the 13 and 19 August 2004 meetings”. Later in the affidavit, however, he does set out the full extent of his recollection.
- Mr Briggs denies that the conversations deposed to by Mr Boddington took place. His recollection is that Mr Boddington demanded the release of the existing bank guarantees quite early in the discussion concerning clause 8.1 but made no similar demand after there was agreement that the further bank guarantees be provided. Mr Briggs, intending to produce an altered draft of the 19 August letter reflecting the consensus reached at the meeting, made contemporaneous notes on a copy of the draft. His notes include, “+ further BGs [Bank Guarantees] $300k” and “release of PCBG’tees [Practical Completion Bank Guarantees] when E.D [Expert Determination] confirms entitled to pay [payments]”.
- The notes record Mr Briggs’s understanding, reached from discussion at the meeting, that no bank guarantees were to be released at practical completion.
- Each of Ms English, Mr Williams and Mr Ramsay understood from discussion at the meeting that extra guarantees for $300,000 were to be provided by Northbuild and that Discovery would be entitled to retain all guarantees until disputes as to entitlements had been resolved.
- It is not surprising that interested persons on opposing sides of heated negotiations would emerge with differing recollections of what had transpired. Such participants tend to view matters through their own prisms shaped by their respective mindsets. I am of the view that the recollections of Mr Gordon and Mr Boddington, although genuinely held, are defective. I consider also that their recollections are likely to be the product, at least in part, of reconstruction, albeit unwitting.
- Mr Briggs struck me as being a fairly dispassionate observer and recorder of events. I consider it probable that he would have been careful to make notes to enable him to accurately record any consensus reached at the meeting. His notes and the document produced by him support his version of events at the meeting. I consider also that Ms English and Mr Williams were careful witnesses attempting to give the best of their respective recollections.
- The draft produced by Mr Briggs and carefully considered by Mr Gordon and Mr Boddington after the meeting does not support the conclusion that Mr Boddington then had his present understanding or recollection. The same observation applies to Mr Gordon. Conversely, I accept the submission on behalf of Capital that if the discussion in relation to clause 8.1 proceeded as Mr Boddington and Mr Gordon assert, it is quite unlikely that the draft produced by Mr Briggs and the plaintiff’s reaction to it would have been as they were. I accept Mr Briggs’ evidence that had he intended that Discovery’s entitlement to retain bank guarantees applied only to the further guarantees he would have drafted clause 8.1 differently.
- I accept Ms English’s account of the circumstances in which the phrase “all security” was altered between the draft letter discussed at the meeting and the draft produced by Mr Briggs after the meeting. Her recollection in this regard differs from that of Mr Briggs. But Mr Briggs also saw no practical significance in this alteration. Had I not concluded that Ms English’s account in this regard was accurate, I would have accepted Mr Briggs’s version. I regard his evidence on critical aspects of the meeting as more reliable than that of Mr Boddington or Mr Gordon.
- I am of the view also that the conduct of the parties after the meeting offers substantially more support for the defendants’ version of events than the plaintiff’s. The failure of the defendants for some time to refer the plaintiff to the terms of clause 8.1 can be explained by the fact that the representatives of Capital and Discovery were focusing on the issue of what was to be done with the bank guarantees in Capital’s name once its loan had been repaid. There is no such explanation for Northbuild’s failure to assert that the bank guarantee issue had been clearly and conclusively disposed of at the 19 August meeting.
- However, for the reasons already given I do not see the need to delve into the parties’ subsequent conduct. It cannot assist in the construction of clause 8.1.
- It is relevant to observe also that the plaintiff does not seek rectification for mutual mistake or on the grounds of unilateral mistake on its part induced by sharp practice on the part of the second defendant. It is thus implicitly acknowledged by the plaintiff that there was no mutual understanding reached at the meeting that it was only the further guarantees which would not be released in accordance with the terms of the Contract.
- In the course of submissions, much reliance was placed by Northbuild’s counsel on Discovery’s acceptance of Mr Gordon’s request in respect of the words “all securities” and on the failure of any witness to precisely identify when and by what language Mr Boddington moved from his stance that the existing securities were to be released pursuant to the terms of the Contract.
- What was said and left unsaid in the course of negotiations are objective facts within the knowledge of the parties. But the purpose of negotiations such as those under consideration is to produce a written instrument containing the parties’ concluded agreement. Where such an instrument is produced, its terms constitute the parties’ bargain. The negotiations have achieved their objective and, unless rectification is sought, the history of the negotiations is normally irrelevant. It is certainly not permissible, as an aid to construction of the instrument, to single out of a fluid process particular demands or assertions by one party and other party’s responses or failures to respond. A party to negotiations, as a legitimate negotiating tactic, may wish to avoid direct or even indirect confrontation. Instead of bluntly rejecting a proposal it may subtly, at a later time, introduce a counter proposal or suggest wording the adoption of which will produce a result contrary to the initial proposal.
- Even acceptance of a requested change in the wording of a draft does not necessarily establish consensus between the parties as to the legal or practical consequences of the change, particularly where the change is made in a provision which the parties understand is not in its final form.
- Many other such examples could be provided to illustrate the wisdom of the principle that evidence of negotiations is inadmissible “so far as they consist of statements and actions of the parties which are reflective of their actual intentions”. Here the representatives of Discovery did not believe that the consensus reached in relation to the release of the bank guarantees was that now asserted by the representative of Northbuild. I do not accept that even the latter had that understanding at the time the August Agreement was entered into.
Conclusion
- Northbuild did not persist with the other point identified in paragraph [9] hereof. If it had the point would have been determined against it. For the above reasons, Northbuild’s claim must be dismissed with costs. In view of the foregoing findings and conclusions it is unnecessary for me to consider the defendants’ estoppel and Trade Practices Act arguments. I will hear submissions on formal orders.
Footnotes
[1] Clause 10.8 of the Contract.
[2] Clause 1.1.1 of the Contract.
[3] Clause 10.9 of the Contract.
[4] Clause 10.10 of the Contract.
[5] The Warehouse Group (Australia) Pty Ltd v Woolworths [2005] NSWCA 269 at [148].
[6] (1982) 149 CLR 337 at 350.
[7] [1976] 1 WLR 989 at 995-6.
[8] At 996, 997.
[9] At 352.
[10] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1978) 138 CLR 423 and Codelfa (supra) at 350.
[11] At 352.
[12] Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737.
[13] Toll (FBCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179.
[14] (1995) 49 Con LR 12.
[15] Ibid.