Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq)

1. [1]

   On 17 December 2010, the plaintiff, Fitz Jersey Pty Ltd, entered into a contract (the “Building Contract”) with the first defendant, Atlas Construction Group Pty Ltd, to construct a large mixed residential and commercial development on a property in Mascot owned by Fitz Jersey. The development was to be known as “Mascot Square” (the “Mascot Square Project”).

2. [2]

   The Building Contract provided for:

3. [3]

   Atlas commenced work on the development in 2010. Construction was completed by January 2016. Fitz Jersey makes no complaint about the quality of the work done by Atlas. This is not a defects case.

4. [4]

   Ultimately, the development comprised 500 residential apartments together with some commercial space. The Building Contract provided for work to proceed in respect of two “separable portions” each comprising a number of towers. The parties referred to these as “Separable Portion 1” and “Separable Portion 2”. In some documents the parties referred to these as “Stage 1” and “Stage 2”.

5. [5]

   Fitz Jersey is a property development company controlled by Mr Kie Chie Wong and his wife Ms Ann Pin Lim. The parties referred to Ms Lim as “Mrs Wong”. I shall do the same.

6. [6]

   Atlas was a building company owned and controlled by interests associated with its directors, Mr Robert Yazbek and Mr Scott Sweeney. It is now in liquidation.

7. [7]

   Mr Wong and Mr Yazbek shared an extensive business relationship extending back to 1985. Prior to the Mascot Square Project, Mr Wong and Mr Yazbek had worked on a number of building projects, including the construction of Mr and Mrs Wong’s residence in Maroubra and the construction of Mr and Mrs Wong’s son’s residence in Paddington. Mr Wong and Mr Yazbek had developed a relationship of mutual respect and trust.

8. [8]

   However, in 2016, Mr Wong and Mr Yazbek fell out.

9. [9]

   That led, in November 2016, to Atlas serving on Fitz Jersey a payment claim (the “Payment Claim”) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “SOPA”) for some $10.75 million.

10. [10]

    The bulk of the amount claimed in the Payment Claim was for a “CPI increase” for the amount payable in respect of Separable Portion 2 (the “CPI Uplift”), an “Early Completion Bonus”, “Carbon Tax Costs” and a claim for “Finishes and appliances upgrade” (the “Upgrades”). I will refer to these, together, as the "Payment Claim Items”.

11. [11]

    On 6 January 2017, an Adjudicator made a determination under the SOPA in favour of Atlas in the sum claimed (the “Adjudication Determination”). Atlas registered the Adjudication Determination as a judgment in this Court and procured the issue of a garnishee order (the “Garnishee Order”). Atlas caused the Garnishee Order to be served on Fitz Jersey’s bank with the result that, on 3 February 2017, Atlas received the sum of some $11 million representing the amount of the Adjudication Determination together with interest and costs.

12. [12]

    On 6 February 2017, Mr Yazbek and Mr Sweeney, as directors of Atlas, resolved to pay some $4 million of that $11 million to the Australian Taxation Office (ATO) and then resolved to declare dividends (the “Dividends”) which caused all but $400,000 of the balance of the proceeds of the Adjudication Determination to be paid to the shareholders of Atlas. Those shareholders were companies associated with Mr Yazbek and Mr Sweeney; Kebzay Pty Ltd and Sweenham Pty Ltd respectively. Kebzay held 90% and Sweenham 10% of the issued share capital in Atlas.

13. [13]

    Fitz Jersey contends that Atlas thereby acted in breach of s 254T of the Corporations Act 2001 (Cth) and in breach of Atlas’s Constitution. Fitz Jersey also contends the Dividends constituted an alienation of property with intent to defraud creditors for the purpose of s 37A of the Conveyancing Act 1919 (NSW).

14. [14]

    Fitz Jersey contends that, in resolving to declare the Dividends, Mr Yazbek and Mr Sweeney acted in breach of their duties as directors. Fitz Jersey also contends that the declaration and payment of the Dividends was a voidable transaction for the purposes of s 588FE of the Corporations Act by reason of being an unfair preference, uncommercial transaction, insolvent transaction and unreasonable director related transaction for the purposes of ss 588FA, 588FB, 588FC and 588 FDAC respectively of the Corporations Act.

15. [15]

    The Dividends were paid on 8 February 2017.

16. [16]

    On 6 February 2017, Mr Yazbek and Mr Sweeney also caused loans by Atlas to Kebzay and Sweenham (the “Shareholders’ Loans”) to be written off.

17. [17]

    On 4 April 2018, Mr Yazbek and Mr Sweeney resolved to appoint administrators to Atlas. On 18 May 2018, the creditors of Atlas resolved to place the company into liquidation.

18. [18]

    In June, July and November 2019 the Liquidator of Atlas conducted examinations (the “Liquidator’s Examination”) under s 596A of the Corporations Act of Mr Yazbek, Mr Sweeney and other persons to whom I will return.

19. [19]

    On 16 September 2019, the Liquidator admitted Fitz Jersey as a creditor of Atlas in the sum of some $10.7 million. On 5 March 2020, that amount was increased to $12.8 million.

20. [20]

    In December 2019, the Liquidator caused Atlas to assign to Fitz Jersey a number of causes of action against Mr Yazbek and Mr Sweeney (the “Assignments”). The Court approved the Assignments on 16 December 2019 pursuant to Corporations Act, Sch 2 - Insolvency Practice Schedule (Corporations), s 90-15(1) and ss 477(2B) and 477(2)(c) of the Corporations Act.

21. [21]

    Fitz Jersey seeks to prosecute those causes of action in one of the three proceedings before the Court (the “2017 Proceedings”).

22. [22]

    The effect of the Assignments is that some part of the fruits of any success Fitz Jersey has in these proceedings will be paid to Fitz Jersey, and some to the Liquidator. I will invite submissions on this question, as appropriate, once these reasons are published.

23. [23]

    The defendants to the 2017 Proceedings include Mr Yazbek, Kebzay, Mr Sweeney and Sweenham. Also joined as defendants are Mr Yazbek’s wife, Mrs Annette Yazbek, and corporate entities associated with Mr Yazbek and Mr Sweeney. Fitz Jersey seeks to trace the funds represented by the Dividends into the hands of those parties.

24. [24]

    It is in these proceedings that Fitz Jersey also alleges Mr Yazbek and Mr Sweeney acted in breach of their duties as directors by causing the Shareholders’ Loans to be written off.

25. [25]

    Two other proceedings were heard concurrently to the 2017 Proceedings, with evidence in each being evidence in the other. The parties referred to the other two proceedings as the “2019 Proceedings” and the “2020 Proceedings”. Those proceedings involve appeals by Mr Yazbek and Mr Sweeney and by Fitz Jersey against the Liquidator’s admission of Fitz Jersey as a creditor of Atlas. Mr Yazbek and Mr Sweeney contend that Fitz Jersey should not be admitted as a creditor of Atlas at all. Fitz Jersey contends that the amount to which it should be admitted should be increased significantly.

26. [26]

    In the 2019 and 2020 Proceedings, Fitz Jersey makes a number of claims concerning Atlas’s entitlements under the Building Contract (the “Building Contract Claims”). The Building Contract Claims include that Atlas was not entitled to the amounts claimed in the Payment Claim, that Fitz Jersey is entitled to liquidated delay damages (“Liquidated Damages”) against Atlas and to restitution of various costs and charges that it paid Atlas during the course of construction. These matters are relevant to the amount for which Fitz Jersey can prove in Atlas’s liquidation and to whether Atlas and Fitz Jersey have suffered damage by reason of the Dividends.

27. [27]

    To a large extent, resolution of the issues in the 2017 Proceedings will resolve these issues.

28. [28]

    Most of the hearing time before me was devoted to Fitz Jersey’s “Dividends Claim”.

29. [29]

    At the heart of the Dividends Claim is the very serious proposition that by reason of an agreement (the “2013 Agreement”) reached between Mr Wong, Mr Yazbek, and Mr Sweeney at a meeting in February 2013 (the “February 2013 Meeting”), Atlas had already been paid for the Payment Claim Items and thus that Mr Yazbek and Mr Sweeney “did not hold a genuine belief that Atlas was entitled” to make those claims in the Payment Claim.

30. [30]

    Fitz Jersey’s case is that, accordingly, Mr Yazbek and Mr Sweeney must have known, when they resolved to declare the Dividends, that by reason of s 32 of the SOPA, Fitz Jersey would ultimately be entitled to recover from Atlas the amount of the Adjudication Determination, that Fitz Jersey was thus a “creditor” of Atlas for the purposes of s 254T of the Corporations Act and that Atlas for that reason was not entitled to pay the Dividends. There is more to Fitz Jersey’s Dividends Claim than this, but this suffices for the moment and for the purpose of explaining how the Dividends Claim relates to the Building Contract Claims.

31. [31]

    To resolve Fitz Jersey’s Dividends Claim, it is necessary to determine, amongst other things, whether Atlas was entitled to make the claims in the Payment Claim for the Payment Claim Items.

32. [32]

    Resolution of that matter depends on, amongst other things, the ambit of the 2013 Agreement. Determination of the ambit of the 2013 Agreement depends, in turn, amongst other things, on what to make of a letter that Mr Yazbek, Mr Sweeney and a Mr David Stevens [2] sent to Mr and Mrs Wong on 11 October 2016 (the “October Letter”). That is because, in the October Letter, Mr Yazbek and Mr Sweeney [3] gave an account of the 2013 Agreement that they have since eschewed, including in their evidence before me.

33. [33]

    Resolution of Fitz Jersey’s Dividends Claim also requires resolution of Fitz Jersey’s and Atlas’s entitlements under the Building Contract which, in turn, depends on the ambit of the 2013 Agreement.

The hearing

1. [34]

   The hearing occupied 21 hearing days including 5 days devoted to submissions. Because of the COVID-19 pandemic, the proceedings were conducted virtually.

2. [35]

   The proceedings were efficiently conducted by the legal teams for Fitz Jersey and Atlas. I had the benefit of comprehensive written and oral submissions at the conclusion of the hearing.

3. [36]

   The legal representatives of the parties are to be congratulated on the manner in which they cooperated to ensure that a lengthy and complicated case was able to be effectively presented in the virtual courtroom.

Decision

1. [37]

   The October Letter did not set out the terms of the 2013 Agreement. [4]

2. [38]

   The 2013 Agreement did not deal with the Payment Claim Items. [5]

3. [39]

   Under the Building Contract, Atlas was not entitled to all of the sum represented by the Adjudication Determination. [6]

4. [40]

   The payment by Atlas of the Dividends contravened s 254T of the Corporations Act [7] and was an alienation of property intended to defraud Atlas’s creditors for the purposes of s 37A of the Conveyancing Act. [8]

5. [41]

   The declaration and payment of the Dividends was:

6. [42]

   By resolving to declare the Dividends, Mr Yazbek and Mr Sweeney acted in breach of their duties as directors. [14]

7. [43]

   By causing the Shareholders’ Loans to be written off Mr Yazbek and Mr Sweeney caused Atlas to engage in an uncommercial transaction for the purposes of s 588FDA of the Corporations Act which was also voidable by reason of s 588FE of the Corporations Act. [15]

8. [44]

   The proceeds of the Dividends may be traced as I set out below. [16]

9. [45]

   As the assignee of the Liquidator, Fitz Jersey is entitled to orders under s 588FF of the Corporations Act having the effect that the persons who received the benefits of the voidable transactions pay Atlas an amount representing that benefit. [17]

The course of events

1. [46]

   For the purposes of determining the ambit of the 2013 Agreement and the parties’ entitlements under the Building Contract, it is necessary to consider, in some detail, the events that led to the declaration and payment of the Dividends on 6 and 8 February 2017, as well as events thereafter.

2. [47]

   In the course of recounting these matters, I will refer to the parties’ submissions on various questions as they arise. Atlas is in liquidation and played no role in these proceedings although, as I have described, a number of its causes of action have been assigned to Fitz Jersey. Thus, Atlas itself did not make any submissions in the proceedings. Although there are nine active defendants to Fitz Jersey’s claims, their defence was in substance advanced by Mr Yazbek and Mr Sweeney, the two former directors of Atlas and the defendants most closely involved the progress of the Mascot Square Project and the decision to declare the impugned Dividends. Accordingly, unless the context requires otherwise, when referring to the submissions advanced on behalf of the defendants, I will refer to the “Directors”.

3. [48]

   As I have mentioned, Mr Wong and Mr Yazbek had a business relationship which dated back to the 1980s.

4. [49]

   In 2009, Mr Wong approached Mr Yazbek about the possibility of doing “another property development”. Mr Yazbek said he would see if could locate a suitable property. Thereafter, he introduced Mr Wong to the Mascot site.

5. [50]

   Fitz Jersey exchanged contracts to purchase the Mascot site in February 2010. The contracts for purchase were completed in April and August 2010.

6. [51]

   In 2010, Mr Wong intended to retain all of the apartments in the development and lease them out, once they were completed. [18]

7. [52]

   In that context, Mr Yazbek said that in around March 2010, shortly after Fitz Jersey had exchanged contracts to purchase the Mascot site, he had this conversation with Mr Wong:

8. [53]

   Mr Yazbek said he believed that, as a result of this discussion, he and Mr Wong had an understanding that Mr Yazbek, or a related entity, would manage the properties after construction and that he in turn would forgo causing Fitz Jersey to be charged a project management fee.

9. [54]

   Mr Wong denied that in 2010 he asked Mr Yazbek to manage the units. Mr Wong said he did not discuss with Mr Yazbek who was going to manage the rental of any units until 2014.

10. [55]

    Mr Yazbek deposed that he discussed this further with Mr Wong at the February 2013 Meeting, to which I refer below.

11. [56]

    By October 2016, it was Mr Yazbek’s perception that Mr Wong had, in effect, reneged on this understanding. This appears to have contributed to their falling out in October 2016. I return to these matters below.

12. [57]

    During the same conversation, Mr Yazbek deposed that Mr Wong said:

13. [58]

    Mr Wong did not, in terms, dispute this conversation.

14. [59]

    It is corroborated by Mr Sweeney’s affidavit evidence that, a short time after Fitz Jersey exchanged contracts to purchase the Mascot site, Mr Yazbek said to him:

15. [60]

    I find that there was an agreement to the effect to which Mr Yazbek deposed. I will refer to this agreement as the “Development Agreement”.

16. [61]

    I will return to this when considering the Building Contract issues and Fitz Jersey’s claim for reimbursement of amounts it paid Atlas prior to the date of the Building Contract.

17. [62]

    During 2010, Atlas performed work relevant to the development application that it lodged with The City of Botany Bay (the “Council”) on 12 July 2010 for the project. The Directors contend that Atlas performed this work pursuant to the Development Agreement.

18. [63]

    Between 4 May 2010 and 26 July 2010, Atlas sent Fitz Jersey four invoices for an amount a little under $2 million (including GST) for work described as “costs as per project cash flow”. Fitz Jersey paid these amounts, and now claims reimbursement of some of them. I return to this below.

19. [64]

    The Council received a significant number of objections to the proposal. Atlas participated in meetings with the Council in late 2010 with a view to addressing those objections.

20. [65]

    Development approval to the second development application was given by the Council on 3 August 2011.

21. [66]

    As I have said, the Building Contract was executed on 17 December 2010.

22. [67]

    It is common ground that the Building Contract contained a number of terms that called for a degree of formality that the parties did not observe. For example, cl 34.2 stated that any “party becoming aware of anything which will probably cause delay to WUC [20] shall promptly give the Superintendent and the other party written notice of that cause and the estimated delay”. It is common ground that Fitz Jersey did not appoint a Superintendent and that clauses such as these, and other clauses requiring formalities, were not used by the parties. Mr Wong’s and Mr Yazbek’s relationship was conducted with less formality than these clauses required.

23. [68]

    A second, amended, development application was lodged with the Council on 19 April 2011.

24. [69]

    The amendments involved reducing the height of the towers to be constructed and the construction of a single car park structure referrable to both Separable Portion 1 and Separable Portion 2. This had the effect that work on the basement car park, to serve both Separable Portion 1 and Separable Portion 2, would commence at the same time. It also meant that the basement car park would be constructed lower into the ground than hitherto planned. This had implications for a number of issues arising under the Building Contract, particularly because of the relatively high water table at the site.

25. [70]

    The Council granted deferred approval to the second development application on 19 August 2011 and operational consent on 10 October 2011.

26. [71]

    On 7 September 2011, Atlas wrote to Fitz Jersey:

27. [72]

    There is a high water table in the Mascot area. This meant that work for the excavation of the basement car park involved the construction of “cut-off walls” into the ground around the perimeter of the basement to control ground water. This work commenced in October 2011. I return to the detail of this below.

28. [73]

    Works continued on the project throughout 2012. Atlas invoiced Fitz Jersey for the work done. The invoices were paid promptly.

29. [74]

    By July 2012, Mr Wong had decided that, once the project was completed, he would sell the apartments in Separable Portion 1 but retain those in Separable Portion 2. Mr Yazbek deposed that “as part of that process, I considered and determined that the apartments [that Mr Wong proposed to sell] would be more attractive to both owner-occupier purchasers as well as investors if they included superior internal fixtures and finishes, including better quality tapware and appliances”.

30. [75]

    These proposed improvements are the Upgrades which comprise one of the Payment Claim Items.

31. [76]

    In that context, Mr Yazbek said he had this conversation with Mr and Mrs Wong:

32. [77]

    Mr and Mrs Wong denied having such a conversation with Mr Yazbek.

33. [78]

    Mr Wong said that “I did not give an instruction or instructions to use better quality or more expensive fittings or appliances” and that “Mr Yazbek did not say that the appliances and fittings were going to be ‘upgraded’ and I never discussed any such ‘upgrade’ with him”.

34. [79]

    Mr Wong said that “on a number of occasions throughout the project” Mr Yazbek had said words to the effect “I am building a higher quality building. We are using things like German taps, better quality carpet, Daikin air conditioners and other good quality brands for things like washing machines” and that “I had not requested Mr Yazbek to do these things”.

35. [80]

    Mrs Wong said that she did not “hear or participate in a conversation with Mr Yazbek” to the effect of that asserted by Mr Yazbek but said that “at the beginning of the Mascot project” she recalled hearing Mr Wong and Mr Yazbek having a conversation to the effect:

36. [81]

    Mrs Wong said:

37. [82]

    In the October Letter, Mr Yazbek and Mr Sweeney stated:

38. [83]

    Fitz Jersey accepted, in closing submissions, that this passage “lends some support to the notion that there was an agreement of the type claimed by Mr Yazbek for an upgrade to appliances and tapware”.

39. [84]

    However, the passage also states that any such agreement was on the basis that there would be “no charge” in relation to any such upgrade.

40. [85]

    As I discuss below, there is controversy as to the accuracy of other statements made by Mr Yazbek and Mr Sweeney in the October Letter. But when this passage from the October Letter is seen in its context, I see no reason to doubt that it reflects Mr Yazbek’s and Mr Sweeney’s recollection that although the “upgrades” would cost an addition $2 million they would not be charged to Fitz Jersey.

41. [86]

    I will return to this when considering the October Letter in detail but, for present purposes, record my finding that, if there was an agreement about the Upgrades of the kind for which Mr Yazbek contends, that agreement included a term that there be “no charge” to Fitz Jersey for the upgrades.

42. [87]

    Mr Yazbek deposed that in August 2012 he had this further conversation with Mr Wong:

43. [88]

    Mr Wong denied having this conversation. He said:

44. [89]

    In closing, Fitz Jersey submitted:

45. [90]

    Mr Yazbek and Mr Sweeney pointed to a number of emails in which carpet is referred to but, as Fitz Jersey submitted, they are equivocal as to whether there was an agreement of the kind deposed to by Mr Yazbek.

46. [91]

    No reference is made to carpet in the October Letter.

47. [92]

    In those circumstances, I am not satisfied that there was any agreement between Mr Yazbek and Mr Wong which would have justified Atlas making any additional charge for upgrading the carpet.

The events of 2013

1. [93]

   The most significant event in 2013 was the February 2013 Meeting at which the 2013 Agreement was reached.

2. [94]

   Mr Wong, Mr Yazbek, Mr Sweeney and Atlas’s then Chief Financial Officer, Mr Matthew Vartuli attended the meeting.

3. [95]

   No participant in the meeting made a contemporaneous note of what was agreed at the February 2013 Meeting.

4. [96]

   It is, however, common ground that at the meeting Mr Wong agreed to increase the contract price under the Building Contract by $10 million and that he caused Fitz Jersey to pay that extra $10 million to Atlas later in 2013. What is in dispute is what that $10 million was intended to cover.

5. [97]

   In the October Letter, Mr Yazbek and Mr Sweeney purported to give an account of what was agreed at the February 2013 Meeting.

6. [98]

   Before me, Fitz Jersey relied on the October Letter as setting out an accurate account of what was in fact agreed at the February 2013 Meeting. Its case that the amounts claimed by Atlas in the Payment Claim were, to Mr Yazbek’s and Mr Sweeney’s knowledge, false depends on this.

7. [99]

   Mr Yazbek and Mr Sweeney dispute that what they wrote in the October Letter about the February 2013 Meeting was an accurate account of what happened and assert they wrote the letter to get Mr Wong “to the table”.

8. [100]

   According to the October Letter, the extra $10 million that Mr Wong agreed be paid pursuant to the 2013 Agreement was for the Payment Claim Items, that is:

9. [101]

   I will return to the October Letter below. For the reasons I later explain, my conclusion is that it does not accurately set out the terms of the 2013 Agreement. None of Mr Wong, Mr Yazbek, Mr Sweeney or Mr Vartuli in their affidavits said that it did; nor did any of them give an account of what was agreed at the February 2013 Meeting to the effect asserted in the October Letter.

10. [102]

    I will return to those matters but set out here the accounts given by the participants in their affidavits as to what was said in February 2013.

11. [103]

    The accounts given in their affidavits by Mr Yazbek, Mr Sweeney and Mr Vartuli, although inconsistent with the October Letter, are consistent with what was in fact claimed in the Payment Claim so far as concerns the 2013 Agreement. These accounts are also consistent with the statutory declarations each made in December 2016 in support of the subsequent Adjudication Application. I return to these matters below.

12. [104]

    It is common ground that the background to what was discussed at the February 2013 Meeting included that, as a result of the revisions to the development following the approval of the second development application:

13. [105]

    Mr Wong’s affidavit account of the meeting was that Mr Yazbek said words to the effect:

14. [106]

    Mr Wong said that Mr Yazbek showed him a drawing, but that he said:

15. [107]

    Mr Wong said that Mr Yazbek continued:

16. [108]

    Mr Wong said that he could not recall whether, at this meeting, Mr Yazbek also said that there were other matters that were causing increased costs of the project.

17. [109]

    Mr Wong said that he did not believe what Mr Yazbek had said about the amount of profit he would make on the project but that “I did not want to argue with him, and I did not want him to stop work on the project if he was unhappy. I was also concerned that if I did not offer him something extra he might find a way to compromise on the quality of the work or do something to my disadvantage.”

18. [110]

    Mr Wong said that, for that reason, he asked Mr Yazbek:

19. [111]

    Mr Wong said that “I extended my hand and Mr Yazbek shook my hand”.

20. [112]

    Mr Wong said that he then asked either Mr Sweeney or Mr Vartuli:

21. [113]

    Thus, on Mr Wong’s account of it in his affidavit, he made an unprompted suggestion to increase the contract price under the Building Contract by $10 million, as an extra “all up” payment to complete the job.

22. [114]

    Mr Yazbek said that, about a week before the meeting he had a telephone conversation with Mr Wong:

23. [115]

    At the meeting, Mr Yazbek said that he had this conversation with Mr Wong:

24. [116]

    Thus, on Mr Yazbek’s account of it, the additional $10 million payment was a figure calculated by reference to the anticipated extra $15 million cost of lowering the car park/basement area further into the water table, less savings of $5 million anticipated by reason of the reduction in the number of apartments and the removal of the proposed swimming pool from the development.

25. [117]

    Further to the conversation that Mr Yazbek said that he had with Mr Wong in March 2010, [21] Mr Yazbek said that during the February 2013 Meeting, he asked Mr Wong whether Mr Wong was “happy for Atlas to now commence works on Stage 2”, that is, the works called for in relation to Separable Portion 2. As I have said, by now, Mr Wong had decided that Fitz Jersey would sell the apartments in Separable Portion 1 but retain and rent out the apartments in Separable Portion 2.

26. [118]

    Mr Yazbek said that Mr Wong agreed and that they then had this conversation:

27. [119]

    Mr Yazbek said that Mr Wong said:

28. [120]

    Mr Yazbek said that he saw Mr Wong’s response as confirming their understanding that, once Separable Portion 2 was complete, and the apartments in it rented out, an entity associated with Mr Yazbek would manage those apartments.

29. [121]

    Mr Sweeney and Mr Vartuli gave similar accounts of the February 2013 Meeting to that of Mr Yazbek.

30. [122]

    Mr Sweeney said he recalled that Mr Yazbek “did most of the talking” at this meeting and that Mr Yazbek said:

31. [123]

    Mr Sweeney continued:

32. [124]

    Mr Sweeney deposed that thereafter he heard Mr Yazbek and Mr Wong have this conversation:

33. [125]

    Mr Vartuli’s recollection of the conversation was that Mr Yazbek said to Mr Wong:

34. [126]

    Mr Vartuli said that Mr Wong then said “[o]k. I agree” and that Mr Wong then shook hands with Mr Yazbek and Mr Sweeney.

35. [127]

    Mr Vartuli said that “[n]o other variations or claims were discussed [at] the 2013 Meeting while I was in the room”.

36. [128]

    On 15 October 2013, Atlas sent Fitz Jersey an invoice entitled “Progress Claim No 26 – construction” for $10 million. The Progress Claim Master Sheet on the reverse side of the invoice stated that the $10 million was:

37. [129]

    In the meantime, work commenced on Separable Portion 2.

38. [130]

    The Directors now accept that work on Separable Portion 2 commenced in March 2013. In the Payment Claim, Atlas contended that Separable Portion 2 had commenced in June 2013. The Directors now accept that this is not correct. This is relevant to the amount Atlas was able to claim for the CPI Uplift. I return to this below.

39. [131]

    A matter in dispute is whether the $10 million the subject of the 2013 Agreement was, as Mr Yazbek and Mr Sweeney asserted in the October Letter but now deny, calculated by reference to, amongst other things, the Payment Claim Items, that is the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades.

40. [132]

    In the course of late 2013 and during 2014, Atlas created a number of internal documents relating to the Mascot Square Project. These documents contained forecasts of the amounts payable by Fitz Jersey to Atlas but made no reference to the Payment Claim Items.

41. [133]

    Mr Yazbek and Mr Sweeney gave different reasons for this.

42. [134]

    Mr Yazbek said in cross-examination that he always intended Atlas would charge Fitz Jersey for the Payment Claim Items but was waiting until the end of the project to discuss these with Mr Wong.

43. [135]

    On the other hand, Mr Sweeney said that “we were well aware” of Atlas’s right to charge for the Payment Claim Items but that “we hadn’t made a final decision” about charging for those items and did not make a final decision until “around about October” 2016.

44. [136]

    During cross-examination, and in closing submissions, Fitz Jersey emphasised these matters. They are relevant to the terms of the 2013 Agreement. For the reasons I set out when discussing the 2013 Agreement, I do not see these matters as weighing heavily in the balance. [23] However, I will set out the occasions identified by Fitz Jersey as being ones on which, on its case, it would be expected that Atlas would, but did not, refer to the Payment Claim Items.

45. [137]

    The first of these is a “GST Model” that Mr Vartuli prepared on 3 December 2013. That document included the following table:

46. [138]

    The model did not include any amounts for the Payment Claim Items, notwithstanding the fact that Atlas would then have been able to determine the amounts of the CPI Uplift, the Early Completion Bonus for Separable Portion 1 and the Upgrades to the apartments within Separable Portion 2.

47. [139]

    In that regard, Mr Vartuli gave the following evidence:

48. [140]

    Mr Yazbek said:

49. [141]

    Mr Yazbek said that the reason that the Payment Claim Items were not included in the budget was not because he had no intention of causing Atlas to charge for these items, but because “we were going to wait till the end of the project and sit with [Mr Wong] and work it out with him”.

50. [142]

    Mr Sweeney said that the document was prepared for Fitz Jersey’s benefit and “it’s got nothing to – it’s not really to do with Atlas.” That explanation cannot be correct. The document was clearly an internal Atlas document.

The events of 2014

1. [143]

   In February 2014, Atlas’s insurance broker, Mr Joe Gemmola from McCormick Harris, sought information as to the “actual value of work completed” for the period between 28 February 2013 to 28 February 2014. [24]

2. [144]

   Mr Gemmola also asked for “the estimated value of work for the Mascot project for the 2014/15 year”.

3. [145]

   On 5 February 2014, Mr Sweeney forwarded Mr Gemmola’s email to Mr Vartuli stating:

4. [146]

   Mr Vartuli replied:

5. [147]

   On 11 February 2014, Mr Sweeney wrote to Mr Gemmola:

6. [148]

   On 14 February 2014, Mr Sweeney wrote to Ms Tory, with a copy to Mr Gemmola and Mr Vartuli:

7. [149]

   The four figures in the bullet points totalled $190 million, being the $180 million contract price in the Building Contract together with the $10 million paid as a result of the 2013 Agreement.

8. [150]

   Mr Sweeney’s email thus suggested that, as at 14 February 2014, Atlas’s estimate of the “value of work for the Mascot project for the 2014/15 year” [26] was $31 million on the basis of total remaining construction costs of $190 million. Mr Sweeney made no reference to the Payment Claim Items.

9. [151]

   Mr Sweeney said in cross-examination that:

10. [152]

    That led to Mr Sweeney giving this evidence:

11. [153]

    Fitz Jersey submitted that the “obvious explanation” for Mr Sweeney’s failure to refer to the Payment Claim Items was that he understood them to have been incorporated into the 2013 Agreement.

12. [154]

    Fitz Jersey made a like submission in relation to further documents, to which I refer in the following narrative of events, in which no reference was made to the Payment Claim Items. As I have said, I will return to the significance of these “omissions” when considering the 2013 Agreement. For now, in what follows, I will record the documents in question but not repeat, each time, Fitz Jersey’s “obvious explanation” submission.

13. [155]

    On 24 February 2014, Mr Vartuli sent an email to Mr Yazbek and Mr Sweeney:

14. [156]

    As Mr Vartuli stated, at this point there was $37 million left for Atlas to claim out of the $190 million fixed contract sum under the Building Contract.

15. [157]

    Mr Vartuli was explaining to Mr Yazbek and Mr Sweeney that it looked as if there was $2 million “before tax profit remaining in the [j]ob” (being the $37 million “left in claims” plus the “current surplus of cash” of $5 million less the $40 million “left in costs”) and that for that reason “no further ordinary dividends … be called until we are closer to the completion of the job”.

16. [158]

    Mr Vartuli made no mention of the Payment Claim Items.

17. [159]

    On 20 May 2014, Mr Vartuli sent Mr Sweeney an email headed “Program and Cash Flow” which stated:

18. [160]

    Mr Vartuli attached to his email a document called “Estimated Cash Flow January 2014 to October 2014” which included the following:

19. [161]

    In his email, Mr Vartuli said that the “total amount owing for [Mr Wong]” was $26.5 million [27] being the total of the figures in Mr Vartuli’s table for July, August, September and October 2014 for “Construction” (being construction costs) and for “Client” (that is, the Reimbursables). [28]

20. [162]

    Mr Vartuli did not include in that amount any of the Payment Claim Items.

21. [163]

    On 23 July 2014, Mr Vartuli sent Mr Sweeney an updated version of the “Estimated Cash Flow January 2014 to October 2014”.

22. [164]

    Again, the document did not include any provision for the Payment Claim Items.

23. [165]

    On 15 September 2014, Atlas sent Fitz Jersey its final construction costs invoice for $7 million (including GST).

24. [166]

    There was attached to that invoice a “Progress Claim Master Sheet” in the following form:

25. [167]

    As the bottom line of that schedule shows, the invoiced amount of $7 million when added to the amount of “Previous Claims” ($1 less than $183 million) totalled the contract price of $190 million.

26. [168]

    There was no reference in this final invoice to the Payment Claim Items.

27. [169]

    Mr Sweeney said that the reason why there was no claim in this invoice for the Payment Claim Items was that:

28. [170]

    On 7 November 2014, Fitz Jersey entered into an “Exclusive Management Agency Agreement” with a company called Mascot Square Property Pty Ltd in relation to the 315 apartments in Separable Portion 2 that Mr Wong had decided Fitz Jersey would retain.

29. [171]

    Mascot Square Property Pty Ltd, later known as Serendipity Pty Ltd, was owned as to 70% by Mr Yazbek, as to 20% by Mr Sweeney and as to 10% by Mr Stevens. Mr Stevens is a real estate agent. [29]

30. [172]

    The Exclusive Management Agency Agreement was expressed to commence on 1 October 2014 and be terminated by either party giving not less than 365 days’ notice.

31. [173]

    The document entitled Mascot Square Property Pty Ltd to a management fee of 8% in relation to all rental received.

32. [174]

    Mr Yazbek regarded this agreement as being of great value and as reflecting the understanding he had with Mr Wong arising from their March 2010 and February 2013 conversations to which I have referred.

33. [175]

    As the terms of this document show, although Mr Yazbek said that he understood his agreement with Mr Wong was that “we’d keep the management rights indefinitely while [Mr Wong] or his family owned the property”, the arrangement as documented was more limited.

The events of 2015

1. [176]

   Between March and September 2015, a number of spreadsheets dealing with cost analyses and cashflow forecasts was circulated between Mr Vartuli, Mr Sweeney and Mr Yazbek.

2. [177]

   The first of these was attached to an email sent by Mr Vartuli to Mr Sweeney on 13 March 2015 and indicated that the only amount that Atlas expected to receive from Fitz Jersey was $47,986.70 which related to upgrades in relation to a particular apartment or apartments.

3. [178]

   Mr Vartuli circulated a similar document on 2 June 2015. This document did not refer to the $47,986.70 referred to in the 13 March 2015 document but identified $40,000 as a cash inflow for “[i]nvoice KC floor and Miele” being a payment expected in respect of Mr and Mrs Wong’s son’s apartment.

4. [179]

   There was no mention of the Payment Claim Items in these documents.

5. [180]

   In March 2015, Mr Gemmola, the insurance broker, made a further enquiry of Mr Sweeney as to the “value of work to complete”. Mr Sweeney told Mr Gemmola that the value of “completed construction work” as at 28 February 2015 was $189 million.

6. [181]

   On 23 June 2015, Atlas’s external accountant, Mr Peter White, a partner at Ernst & Young (later “EY”), wrote to the solicitor acting on the sale of units in Separable Portion 1 stating:

7. [182]

   Mr White said he thought Mr Vartuli “acquiesced to my suggestion” that Atlas’s bank account be closed. However, my attention was not drawn to any evidence that this in fact occurred.

8. [183]

   In around June 2015, Mr Yazbek and Mr Sweeney had a falling out. As a result, on 24 June 2015, Mr Yazbek ceased to be a director of Atlas (although his company, Kebzay, remained a 90% shareholder). Mr Yazbek returned as a director of Atlas on 27 September 2016.

9. [184]

   By the second half of 2015, work on the Mascot Square Project was approaching completion.

10. [185]

    On 14 July 2015, an interim occupation certificate for the buildings that were last to be completed was issued.

11. [186]

    On 9 September 2015, the Council inspected the public domain landscaping works and certified them as being “satisfactorily complete”. The joint report of the parties’ programming experts, Ms Karen Wenham for Fitz Jersey and Mr Chris Peter for the Directors, suggests that Atlas reached practical completion for Separable Portion 2 on around 17 November 2015.

12. [187]

    Atlas used a software program called “Jobpac” which Mr Vartuli described as a “cost management software”.

13. [188]

    On 6 December 2015, Mr Sweeney sent an email to Mr Vartuli:

14. [189]

    Mr Vartuli replied:

15. [190]

    Mr Vartuli agreed that the Jobpac software was necessary to make some aspects of claims against Fitz Jersey.

16. [191]

    Mr Sweeney gave this evidence about Jobpac in cross-examination:

17. [192]

    Similarly, Mr Vartuli gave this evidence:

18. [193]

    Shortly before service of the Payment Claim, Mr Vartuli caused Atlas to revive its subscription to Jobpac. Fitz Jersey submitted that this showed that the fact that in December 2015 Mr Sweeney caused Atlas to cease to use Jobpac bespoke Mr Sweeney’s understanding that Atlas then had no further claims on Fitz Jersey. However, in the absence of evidence as to how the Xero software, to which Atlas migrated following the shutting down of Jobpac, operated, I do not see what conclusion I can draw about this.

The events of 2016

1. [194]

   In June 2016, Mr Yazbek was involved in a separate property development project in Rosebery through an associated company, Botany Road Project Pty Ltd. This development was known as the “Asper” property development

2. [195]

   In his affidavit, Mr Yazbek said that the Asper development:

3. [196]

   In cross-examination, Mr Vartuli described this as a “crisis” for Mr Yazbek.

4. [197]

   In those circumstances, Mr Yazbek gave this evidence:

5. [198]

   The matter was not taken further in cross-examination. Although much was made in closing submissions about Mr Yazbek’s “crisis”, in the absence of Mr Yazbek’s evidence being further explored in cross-examination, I am not prepared to draw any inferences adverse to Mr Yazbek on this account.

6. [199]

   In September 2016, Mr Sweeney arranged to have a meeting with Mr Wong.

7. [200]

   Mr Sweeney deposed that the conversation was as follows:

8. [201]

   Mr Wong’s recollection of the meeting was a little different. He deposed that the conversation was to this effect:

9. [202]

   Mr Sweeney disputed saying to Mr Wong that he was “going to wind up Atlas on Monday”.

10. [203]

    Evidently, at around this time, Mr Yazbek wished to resume his role as director of Atlas.

11. [204]

    Thus, on 20 September 2016 Mr Sweeney, on behalf of Sweenham wrote to Mrs Yazbek referring to a “proposed circular resolution” sent to Sweenham on 19 September 2016 “proposing resolutions for the appointment of Mr Vartuli and Mr Yazbek as directors”.

12. [205]

    In his letter, Mr Sweeney argued against Mr Vartuli becoming a director and complained about recommendations that Mr Vartuli made:

13. [206]

    In cross-examination, Mr Sweeney agreed that, at this time, he was “worried about the solvency of Atlas”.

14. [207]

    Nonetheless, Mr Sweeney disputed that the time of his conversation with Mr Wong was an “ideal time” to ask Mr Wong to pay the Payment Claim Items.

15. [208]

    In his 20 September 2016 letter, Mr Sweeney also said:

16. [209]

    In the Liquidator’s Examination, Mr Sweeney accepted that this was not true.

17. [210]

    The following exchange took place between Mr Miller SC, who was briefed for the Liquidator, and Mr Sweeney:

18. [211]

    Mr Yazbek resumed his position as a director of Atlas on 27 September 2016. Other than what I have set out, the circumstances in which this occurred were not explored before me.

19. [212]

    Also, at around this time, the relationship of trust that had hitherto existed between Mr Wong and Mr Yazbek broke down.

20. [213]

    Mr Yazbek professed not to know precisely why this occurred.

21. [214]

    The explanation given in Fitz Jersey’s closing submissions was that “after speaking with Mr Sweeney, Mr Wong was upset with Mr Yazbek and refused to speak to him” and that Mr Wong had received advice from his former accountant, Mr George Vernados, that the 8.8% management fee in the 7 November 2014 Exclusive Management Agency Agreement with Serendipity was excessive.

22. [215]

    Mr Vartuli said that in about September 2016, Mr Wong called him and said:

23. [216]

    Mr Vartuli said he relayed this to Mr Yazbek who said that he had tried to call Mr Wong but that Mr Wong did not return his calls.

24. [217]

    Mr Vartuli said in his affidavit that in late September 2016 he had this conversation with Mr Wong:

25. [218]

    Mr Vartuli’s then spoke to Mr Yazbek:

26. [219]

    Mr Vartuli said that sometime later Mr Wong called him and they had this conversation:

27. [220]

    At around this time, Mr Yazbek called on Mrs Wong at Mr and Mrs Wong’s home. Mr Wong said that, after that visit, Mrs Wong said to him:

28. [221]

    Whether or not Mr Vartuli’s evidence, or Mr Wong’s evidence of his conversations with Mrs Wong, explains why it was that Mr Wong fell out with Mr Yazbek, the die was cast. So far as the evidence discloses, Mr Wong and Mr Yazbek have not spoken since.

29. [222]

    Evidently as a result of these matters, on 6 October 2016 Fitz Jersey under the hand of Mr Wong, wrote to Serendipity:

30. [223]

    Mr Yazbek saw this letter as Mr Wong going back on his arrangement with Mr Yazbek about managing the apartments in Separable Portion 2. He agreed that he was upset and disappointed about Mr Wong’s decision.

31. [224]

    This led to Mr Yazbek and Mr Sweeney [30] writing the October Letter.

32. [225]

    The October Letter went through several drafts. Mr Vartuli circulated the first draft on the morning of 10 October 2016.

33. [226]

    Mr Vartuli’s draft included the following:

34. [227]

    Mr Vartuli’s draft thus purported to be an account of the 2013 Agreement.

35. [228]

    Mr Stevens proposed relatively minor changes to Mr Vartuli’s draft.

36. [229]

    Mr Vartuli circulated a further draft which included changes suggested by Mr Yazbek. One of the changes made at Mr Yazbek’s instigation was to delete the last dot point in Mr Vartuli’s original draft and to replace it with the following:

37. [230]

    Later on 10 October 2016, Mr Sweeney circulated a further copy of the draft on which he had made some manuscript notes. Mr Sweeney’s email read:

38. [231]

    The next day, 11 October 2016, Mr Yazbek, Mr Sweeney and Mr Stevens signed the final version of the October Letter.

39. [232]

    The October Letter was addressed to Mr and Mrs Wong. It opened:

40. [233]

    There are then listed a large number of matters that the letter’s authors contended had been “done over the years to underline our commitment to you and your family”.

41. [234]

    As I have mentioned, [31] one of those matters included:

42. [235]

    The letter then turned to the February 2013 Meeting and stated, in the final iteration of the passage in Mr Vartuli’s draft that I have set out above:

43. [236]

    I have emphasised, by underlining, the three matters that, on Mr Yazbek’s, Mr Sweeney’s and Mr Vartuli’s affidavit account of the 2013 Agreement, were the components of the calculation leading to the agreed further payment by Fitz Jersey to Atlas of $10 million: the lowering of the basement, the reduction in the number of apartments and the elimination of the swimming pool.

44. [237]

    I have emphasised, using italics, the items that Mr Yazbek and Mr Sweeney [32] in this letter contended had been discussed at the February 2013 Meeting but which (a) were not mentioned in their affidavit accounts of that meeting and (b) were said by each [33] in cross-examination before me not to have been discussed in February 2013.

45. [238]

    These are the Payment Claim Items: the CPI Uplift, the Early Completion Bonus (which incorporates the “extension of time” claim), the Carbon Tax Costs and the Upgrades.

46. [239]

    The letter continued (based on the passage introduced to the draft by Mr Yazbek [34] ):

47. [240]

    Mr Yazbek here referred to Mr Wong not honouring his “commitment” concerning “property management”. This was a reference to Mr Yazbek’s understanding, based on his October 2010 and February 2013 conversations with Mr Wong, that interests associated with him (ultimately Serendipity) would manage the apartments in Separable Portion 2 that Fitz Jersey proposed to retain. As I have said, Mr Yazbek said that he felt upset and disappointed that on 6 October 2016 Fitz Jersey had given notice that the Exclusive Management Agency Agreement was to be terminated. Mr Yazbek said he felt that Mr Wong had thereby “reneged” on his arrangements with Mr Yazbek.

48. [241]

    The reference to Atlas needing to “reassess” its “options under the contracts to collect the outstanding money owed to us that is due” led to the service of the Payment Claim.

49. [242]

    Thus, Mr Sweeney gave this evidence, in answer to a question from me:

50. [243]

    The October Letter, by its terms, purports to give an account about what happened in the February 2013 Meeting leading to the 2013 Agreement.

51. [244]

    However, each of Mr Yazbek, Mr Sweeney and Mr Vartuli gave evidence before me that, despite what I see to be the clear terms of the October Letter, it did not accurately set out the elements of the 2013 Agreement.

52. [245]

    In particular, each of Mr Yazbek, Mr Sweeney, Mr Vartuli said that, despite the terms of the October Letter, there was no mention at the February 2013 Meeting of the Payment Claim Items; that is of the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs or the Upgrades.

53. [246]

    Although Mr Wong did not give evidence that his recollection of the 2013 Agreement was as set out in the October Letter, and indeed gave no evidence about the October Letter save that he read it “very briefly”, the October Letter became, before me, the centrepiece of Fitz Jersey’s case as to the true subject matter of the 2013 Agreement.

54. [247]

    If the October Letter truly sets out the elements of the 2013 Agreement, the $10 million payment made by Fitz Jersey to Atlas at the end of 2013 was on account of all of the Payment Claim Items - the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades - as well as the net extra cost of lowering the basement, after taking account of the reduction in the number of units and the removal of the swimming pool.

55. [248]

    This has important implications for Fitz Jersey’s case. That is because, as I have said, if the account given in the October Letter of the 2013 Agreement is the truth, then to a large extent by serving the Payment Claim, Atlas was making a claim for work for which it had already been paid.

56. [249]

    I return to consider what to make of the October Letter later in these reasons. As I have already mentioned, my conclusion is that the October Letter did not set out what Mr Yazbek and Mr Sweeney then believed to be the content of the 2013 Agreement and was written to encourage Mr Wong to negotiate with them about the management rights of the apartments in Separable Portion 2.

57. [250]

    Mr Wong replied on 13 October 2016:

58. [251]

    In mid-October 2016, Atlas retained Mr Scott Mort, a building and construction lawyer from Bradbury Legal.

59. [252]

    In 2010, when an employed solicitor at Gadens Lawyers, Mr Mort had assisted in the drafting of the Building Contract.

60. [253]

    Mr Mort made an affidavit in the proceedings before me. He was not cross-examined. His evidence is thus unchallenged.

61. [254]

    Mr Mort deposed that in mid-October 2016, Mr Sweeney telephoned him and said:

62. [255]

    Several days later Mr Mort met with Mr Sweeney and Mr Vartuli. Mr Mort said Mr Yazbek may also have been present.

63. [256]

    Mr Mort said they discussed Mr Wong’s 6 October 2016 notice of termination of the Exclusive Management Agency Agreement.

64. [257]

    Mr Mort deposed that he then had the following conversation with Mr Sweeney:

65. [258]

    I will return to the passage I have emphasised when considering the ambit of the 2013 Agreement. For present purposes, the point is that Mr Sweeney was instructing Mr Mort, during what he must have then regarded as a confidential and privileged occasion, that Atlas had not to date claimed all to which it was entitled under the Building Contract.

66. [259]

    Mr Mort’s evidence also makes clear that he made the suggestion that Atlas make the Payment Claim under the SOPA.

67. [260]

    Thus, Mr Mort deposed:

68. [261]

    On 17 October 2016, Mr Sweeney sent Mr Mort a copy of the Building Contract as well as “a letter we sent to KC”; obviously the October Letter.

69. [262]

    Mr Mort replied the same day:

70. [263]

    On 18 October 2016, Mr Vartuli sent an email to Mr Yazbek and Mr Sweeney:

71. [264]

    On 24 October 2016, Mr Sweeney sent an email to a quantity surveyor, Mr Keng Choo from Kinlay Grinham Casey Burne, stating that:

72. [265]

    On 25 October 2016, Mr Mort sent an email to Mr Sweeney and Mr Vartuli:

73. [266]

    It is clear from Mr Mort’s reference to “the $10M variation” that Mr Sweeney or Mr Vartuli had said something to him about the 2013 Agreement.

74. [267]

    In closing submissions, it was suggested on behalf of Fitz Jersey that this reference suggested “some degree of apprehension regarding the interaction between the claim that was being prepared and the 2013 Agreement” on the part of Mr Sweeney and Mr Vartuli.

75. [268]

    It was also suggested on behalf of Fitz Jersey that:

76. [269]

    However, I do not see anything sinister in Mr Mort’s expressed need to know if there was anything “out there” in relation to the “$10M variation” that “might contradict our claim”.

77. [270]

    Although this matter was not explored in cross-examination, it appears probable to me that, by 25 October 2016, Mr Mort had seen the October Letter and had been told that there was no contemporaneous note or record of the February 2013 Meeting or the 2013 Agreement.

78. [271]

    Mr Mort said that at around this time he advised Mr Sweeney:

79. [272]

    On 26 October 2016, Mr Sweeney replied to Mr Mort’s 25 October 2016 enquiry by saying that he did not believe Fitz Jersey had any documents other than the October Letter and Atlas’s 23 October 2013 payment claim for the $10 million agreed at the February 2013 Meeting.

80. [273]

    A short time later Mr Sweeney sent Mr Mort a copy of the October Letter.

81. [274]

    On 7 November 2016, Mr Vartuli contacted the service provider of the Jobpac software “urgently” to “assist me with getting the Jobpac software loaded onto my PC”.

82. [275]

    As I have set out above, in December 2015, Mr Sweeney had instructed Mr Vartuli to close down the Jobpac software. His explanation was that Atlas had “migrated” to a cheaper and simpler software known as Xero.

83. [276]

    As I have said, in the absence of an exploration in cross-examination of the functions and capabilities of the Xero software, I am not able to draw any conclusion from this.

84. [277]

    On 15 November 2016, Atlas served on Fitz Jersey the Payment Claim pursuant to s 13 of the SOPA.

85. [278]

    Mr Mort said:

86. [279]

    The Payment Claim claimed an amount of $10,748,466.31 calculated as follows:

87. [280]

    The claim of $10,748,466.31 included the following amounts in respect of the Payment Claim Items:

88. [281]

    These items constituted $8,656,734.92 or around 80% of the claimed amount.

89. [282]

    In the October Letter, Mr Yazbek and Mr Sweeney had asserted these matters were the subject of the 2013 Agreement and in the following amounts:

90. [283]

    The Payment Claim Items were set out in the Payment Claim, highlighted in yellow, as follows:

91. [284]

    The items that Mr Yazbek, Mr Sweeney and Mr Vartuli deposed to as being the subject of the 2013 Agreement are also highlighted in yellow under the heading “Separable Portion 1” in the box denoting “VA01”. The “Original Sum” ascribed to this item was “$10,000,000.00” and “This Claim” was “$0”. The item was described as the “agreed sum” for “lowering the basement”, less an adjustment for “GFA”, [35] and “other design changes”. [36] This is consistent with Mr Yazbek’s, Mr Sweeney’s and Mr Vartuli’s evidence about the 2013 Agreement. I return to these matters below.

92. [285]

    On 24 November 2016, Ms Linda Holland, then Special Counsel at Gillis Delaney Lawyers, wrote to Mr Vartuli stating that Gillis Delaney acted for Fitz Jersey and that:

93. [286]

    This was the first statement made on behalf of Mr Wong and Fitz Jersey as to the content of the 2013 Agreement.

94. [287]

    On 29 November 2016, Fitz Jersey served a Payment Schedule pursuant to s 14 of the SOPA, pursuant to which it specified a “Scheduled Amount” of “$NIL”.

95. [288]

    The Payment Schedule contained the following table explaining why the Scheduled Amount was “$NIL”:

96. [289]

    The references in this table to “Early Completion Bonus[es]” assumes a significance in relation to the parties’ contentions as to the nature of the agreement so far as concerns those bonuses. [37]

97. [290]

    In the Payment Schedule, Fitz Jersey contended that Atlas was not entitled to a progress payment by reason of the “absence of a reference date within the last 12 months”.

98. [291]

    The Payment Schedule also asserted a “Previous Commercial Settlement” in following terms:

99. [292]

    Fitz Jersey was here asserting, in effect, that the October Letter accurately set forth the terms of the 2013 Agreement.

100. [293]

     On 29 November 2016, having read the Payment Schedule, Mr Mort telephoned Mr Sweeney and gave him this advice:

101. [294]

     Mr Sweeney responded:

102. [295]

     On 1 December 2016, Mr Mort sent an email to Mr Yazbek, Mr Sweeney and Mr Vartuli stating:

103. [296]

     Mr Mort’s reference to “the meeting” and “the deal” was, obviously, a reference to the February 2013 Meeting and the 2013 Agreement.

104. [297]

     Mr Vartuli replied a few hours later:

105. [298]

     Mr Sweeney replied, also on the same day:

106. [299]

     The following day Mr Yazbek’s Executive Assistant sent Mr Mort Mr Yazbek’s response to Mr Mort’s 1 December 2016 enquiry. That response included:

107. [300]

     Mr Yazbek, Mr Sweeney and Mr Vartuli were not cross-examined about what they said in these emails to Mr Mort about the content of the 2013 Agreement. The only cross-examination on these emails was of Mr Vartuli in relation to another aspect of the emails, to which I refer below. The account each gave as to the 2013 Agreement was inconsistent with what Mr Yazbek and Mr Sweeney had said in the October Letter but, in substance, the same as they gave in the statutory declarations to which I will shortly refer and in their evidence before me.

108. [301]

     I will return to these emails when considering the parties’ submissions concerning the October Letter and the 2013 Agreement. I see the emails as providing a vital insight into the true position in relation to these issues. The communications are on their face privileged as they are confidential communications made between officers of Atlas and Atlas’s solicitor made for the purpose of the solicitor giving legal advice to Atlas. [38] During closing submissions, I was informed that the reason these otherwise privileged documents have come to light is that the Liquidator made them available to those advising Fitz Jersey. Whether or not Mr Yazbek, Mr Sweeney or Mr Vartuli at the time understood the implications of that privilege was not explored in cross-examination, but they each must have understood the communications to be confidential. I return to this below.

109. [302]

     In support of the Adjudication Application that Atlas was to make on 13 December pursuant to s 17 of the SOPA, Mr Yazbek, Mr Sweeney and Mr Vartuli made statutory declarations on 6 December 2016 in which they gave an account of the February 2013 Meeting.

110. [303]

     Each was consistent with the affidavit evidence given before me.

111. [304]

     In his statutory declaration, Mr Yazbek stated:

112. [305]

     In his statutory declaration, Mr Sweeney said:

113. [306]

     In his statutory declaration, Mr Vartuli said:

114. [307]

     Earlier in his statutory declaration, Mr Vartuli said:

115. [308]

     In cross-examination and final submissions much was made of the fact that, in his 1 December 2016 email to Mr Mort, Mr Vartuli had said that “the purpose of the meeting” was also to “discuss Property Management”.

116. [309]

     On behalf of Fitz Jersey it was submitted that Mr Vartuli’s omission of this detail from his statutory declaration showed that he had “made a dishonest statutory declaration in support of the Adjudication Application”. I do not accept that submission. In his 2 December 2016 response to Mr Mort’s enquiry and in his statutory declaration, Mr Yazbek said that “property management” was discussed, namely the management of the apartments that Fitz Jersey proposed to retain in Separable Portion 2. An obvious reason why Mr Vartuli may not have referred to this aspect of the February 2013 Meeting was that it was not relevant to the matters claimed in the Payment Claim or to be claimed in the Adjudication Application.

117. [310]

     I have referred to Mr Sweeney’s engagement of Mr Choo from Kinlay Grinham Casey Burne to prepare a valuation of the change in the basement structure of the project.

118. [311]

     On 1 December 2016, Mr Choo sent Mr Sweeney his report. He valued the basement variation at $10,388,020 (excluding GST).

119. [312]

     On the same day Mr Sweeney retained a different quantity surveyor, Mr Tom Lander of Washington Brown, and asked him to value the basement works “for the purposes of a payment claim and any subsequent legal action”.

120. [313]

     Mr Sweeney said that his reference to “subsequent legal action” was to an adjudication under the SOPA.

121. [314]

     On 12 December 2016, Mr Lander sent Mr Yazbek, Mr Sweeney and Mr Vartuli a draft report which valued the basement variation at $15,016,836.

122. [315]

     Mr Sweeney sent an email to Mr Lander stating, amongst other things:

123. [316]

     In cross-examination, Mr Sweeney agreed that he was suggesting to Mr Lander that Mr Lander’s conclusion as to the costs of the basement variations was so close to the estimate that Mr Yazbek put to Mr Wong in February 2013, that it might appear to be a contrived figure. Mr Sweeney agreed that, for that reason, he suggested Mr Lander might consider altering his opinion by lowering it to a figure in the order of $14.86 million.

124. [317]

     As it turned out, Mr Lander’s ultimate valuation was $14,711,359.

125. [318]

     This led to Mr Sweeney giving this evidence in cross-examination:

126. [319]

     The evidence does not reflect well on Mr Sweeney, as he acknowledged.

127. [320]

     On 13 December 2016, Atlas served on Fitz Jersey an Adjudication Application pursuant to s 17 of the SOPA.

128. [321]

     Mr Mort was alert to the fact that the claims made in the Payment Claim concerning the Payment Claim Items (the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades) were inconsistent with the statements made about those matters in the October Letter.

129. [322]

     Thus, on 12 December 2016, the day before the Adjudication Application was served, Mr Mort emailed Mr Yazbek, Mr Sweeney and Mr Vartuli:

130. [323]

     Mr Mort’s reference to “the infamous ‘letter’” is, obviously, a reference to the October Letter.

131. [324]

     Later on 12 December 2016, Mr Mort returned to the subject of the October Letter and wrote to Mr Yazbek, Mr Sweeney and Mr Vartuli:

132. [325]

     It is evident, from Mr Mort’s description of the October Letter as being “infamous”, that he had discussed its inconsistency with the manner in which the 2013 Agreement had been dealt with in the Payment Claim with some or all of Mr Yazbek, Mr Sweeney and Mr Vartuli. Although the matter was not explored in cross-examination, one or more of Mr Yazbek, Mr Sweeney and Mr Vartuli must have instructed Mr Mort that, despite its terms, the October Letter did not reflect their recollection of what had been agreed in February 2013. Indeed, the responses that Mr Yazbek, Mr Sweeney and Mr Vartuli made to Mr Mort’s 1 December 2016 email are consistent only with that conclusion.

133. [326]

     This conclusion is also supported by Mr Yazbek’s evidence given in cross-examination:

134. [327]

     Although Mr Yazbek’s evidence in the passage I have emphasised was not responsive to my question, it confirms to my mind that Mr Yazbek explained to Mr Mort that the October Letter did not represent his recollection of the February 2013 Meeting. This explains the explanation, to which I will return, that Mr Mort sought to give about the October Letter in the Adjudication Application. It is also consistent with the account given by Mr Yazbek, Mr Sweeney and Mr Vartuli of the 2013 Agreement in their statutory declarations made in support of the Adjudication Application.

135. [328]

     Further, support for these conclusions arises from the following evidence given by Mr Sweeney:

136. [329]

     The cross-examiner did not explore to whom Mr Sweeney was referring when he said he had spoken about the use of “wrong tenses” in the October Letter “before to other people”.

137. [330]

     I infer that Mr Sweeney was referring to Mr Mort.

138. [331]

     Further, in Mr Mort’s later email of 12 December 2016, he spoke of “explaining away the letter”. I would infer from this that Mr Mort had advised Mr Yazbek, Mr Sweeney and Mr Vartuli that the October Letter stood in such stark contrast to the claim articulated in the Payment Claim that it ought be disclosed, and explained, in the Adjudication Application.

139. [332]

     Mr Mort dealt with the matter head on in the Adjudication Application and advanced many of the arguments that the Directors now make in these proceedings.

140. [333]

     Thus, part of the Adjudication Application read:

141. [334]

     In these passages, Atlas sought to distance itself from the assertions made in the October Letter concerning the 2013 Agreement and stated that the letter “does not represent [Atlas’s] position under the contract”.

142. [335]

     The Adjudication Application, somewhat disingenuously, and inconsistently with what Mr Mort had said in his first 12 December 2016 email, said that the letter was “not even prepared or sent by [Atlas]” but rather by the directors of Serendipity. It also, somewhat blithely, asserted that the October Letter “outlines and summarises some of the many negotiations that have taken place” between the parties [39] and that it “unhelpfully” appeared to “mix” comments in relation to the meeting in 2013 and settlement negotiations in 2016.

143. [336]

     I do not find these passages in the Adjudication Application to be an entirely satisfactory explanation for the divergence between the assertions in the October Letter and the Payment Claim.

144. [337]

     However, the contentions advanced by Atlas in the Adjudication Application so far as concerns the 2013 Agreement are in substance those advanced before me.

145. [338]

     Thus, Atlas also contended in the Adjudication Application:

146. [339]

     In substance, these are the same matters for which the Directors contend in these proceedings.

147. [340]

     In the Adjudication Application it was also asserted:

148. [341]

     The statement that Atlas had been seeking to negotiate a settlement with Fitz Jersey since January 2016 was not true, as both Mr Yazbek and Mr Sweeney acknowledge.

149. [342]

     I will return to this when dealing with Fitz Jersey’s submissions on credit.

150. [343]

     For the purposes of Fitz Jersey’s Adjudication Response, on 20 December 2016 Mr Wong also made a statutory declaration in which he stated, concerning the February 2013 Meeting:

151. [344]

     This was the third iteration of Mr Wong’s and Fitz Jersey’s account of the 2013 Agreement. The first was Ms Holland’s email of 24 November 2016. The second was in the Payment Schedule.

152. [345]

     Fitz Jersey’s Adjudication Response included:

153. [346]

     On 21 December 2016, shortly after he had reviewed Fitz Jersey’s Adjudication Response, Mr Mort deposed that he had this conversation with Mr Sweeney:

The events of 2017

1. [347]

   On 6 January 2017, the Adjudicator appointed under the SOPA published the Adjudication Determination that the amount payable by Fitz Jersey to Atlas pursuant to s 22 of the SOPA was $11,023,619.76 (including interest and Fitz Jersey’s share of the Adjudicator’s fees).

2. [348]

   On 12 January 2017, in response to email enquiries from Mr Sweeney, Mr Mort gave this advice:

3. [349]

   Mr Mort also said that he was arranging to meet Mr Ian Roberts SC “to give him a rundown on where things are at so that he can hit the ground running at the end of January if required”.

4. [350]

   On 13 January 2017, Fitz Jersey filed a Summons in this Court seeking a declaration that the Adjudication Determination was void and an order in the nature of certiorari quashing the Adjudication Determination.

5. [351]

   This was the commencement of the 2017 Proceedings. The Summons had a return date of 3 February 2017.

6. [352]

   Fitz Jersey also filed a Technology and Construction List Statement. The List Statement contended that the Adjudicator has no jurisdiction to make a determination of the Adjudication Application because the Payment Claim was not a valid payment claim under the SOPA. In effect, the List Statement repeated the reference date argument made in the Payment Schedule and in the Adjudication Response.

7. [353]

   Fitz Jersey did not seek a stay on the enforcement of the Adjudication Determination.

8. [354]

   On 13 January 2017 Mr Sweeney asked Mr Mort “what are your thoughts on the summons?”.

9. [355]

   Mr Mort replied:

10. [356]

    By then Mr Mort had already retained Mr Roberts. Mr Mort said that in mid-January 2017 he wrote to Mr Roberts and Ms Julie Wright of counsel (who had been retained earlier) and that they had this conversation:

11. [357]

    On 16 January 2017 Ms Holland wrote to Mr Mort requesting copies of various documents including the development approvals, the architectural plans, all as-built drawings and documentary evidence of increases or decreases in the scope of work.

12. [358]

    This request reflected the fact that Fitz Jersey held very little documentation concerning the project.

13. [359]

    On 16 January 2017, an Adjudication Certificate was issued pursuant to s 24 of the SOPA showing that the Adjudicated Amount after the addition of interest and Fitz Jersey’s share of the Adjudicator’s fee was $11,023,619.76.

14. [360]

    On 17 January 2017, Atlas caused the Adjudication Certificate to be filed as a judgment in this Court.

15. [361]

    On 17 January 2017, Mr Mort applied for the Garnishee Order, directed to Fitz Jersey’s bank, the National Australia Bank Ltd (NAB).

16. [362]

    Mr Mort reported to Mr Yazbek, Mr Sweeney and Mr Vartuli that:

17. [363]

    On 18 January 2017, Mr Sweeney emailed Mr Mort:

18. [364]

    Later that day Mr Mort replied:

19. [365]

    The Garnishee Order was issued on 27 January 2017 and served on NAB that day.

20. [366]

    Mr Sweeney asked Mr Mort:

21. [367]

    Mr Mort replied:

22. [368]

    On 20 January 2016, Mr Mort replied to Ms Holland’s letter of 16 January 2017 refusing to provide the documents requested and giving reasons for that refusal by reference to particular provisions in the Building Contract.

23. [369]

    On 31 January 2017, Mr Vartuli telephoned Mr White at EY.

24. [370]

    In his affidavit, Mr White deposed to this conversation:

25. [371]

    There was evidence that, throughout the project, the Directors had resolved to declare dividends in favour of their companies, Kebzay and Sweenham, as and when funds were available for that purpose. However, this is the first reference in the evidence of the Directors’ intention to declare the Dividends the subject of Fitz Jersey’s claim in these proceedings.

26. [372]

    Mr White said that Mr Vartuli then asked him to assist in preparation of draft minutes and that Mr Vartuli said:

27. [373]

    On 31 January 2017, Mr Vartuli prepared the first draft of the minutes ultimately executed on 6 February 2017 by Mr Yazbek and Mr Sweeney recording their resolution to make a payment to the ATO and to pay the Dividends.

28. [374]

    Mr Vartuli sent a copy to Mr Sweeney and, later in the day, to Mr White.

29. [375]

    On 1 February 2017, Mr White returned Mr Vartuli’s draft with some suggested additions.

30. [376]

    Between 1 and 6 February 2017, several iterations of the draft were prepared.

31. [377]

    At 3.31pm on 1 February 2017, Mr Mort sent an email to Mr Sweeney, Mr Yazbek and Mr Vartuli:

32. [378]

    Later on 1 February 2017, Mr Sweeney sent an email to Mr Yazbek and Mr Vartuli, which read:

33. [379]

    In cross-examination, and in closing submissions, Fitz Jersey placed great weight on the passages in this email which I have emphasised.

34. [380]

    In relation to the statement in the email that “I still think the sooner we call the dividend the better” by Mr Sweeney, Mr Yazbek agreed that Mr Sweeney had previously said to him “that exact thing, ‘the sooner we call the dividend the better’”.

35. [381]

    Mr Sweeney said in cross-examination:

36. [382]

    Mr Sweeney’s statement that “we have waited for this money for over a year to try and sort out an agreement with KC” was similar to the statement made in the Adjudication Application to the effect that there had been negotiations throughout 2016 with Mr Wong. As Mr Sweeney knew, this was not true.

37. [383]

    Mr Sweeney concluded by saying that “circumstances may change in the near future”.

38. [384]

    In relation to that statement Mr Sweeney gave this evidence:

39. [385]

    Mr Yazbek was taken to this passage of the email and gave this evidence:

40. [386]

    Later Mr Yazbek said:

41. [387]

    In his affidavit, Mr White said that on 1 February 2017 he had this further conversation with Mr Vartuli:

42. [388]

    During the Liquidator’s Examination Mr White was not able to recall the conversations with Mr Yazbek to which he had deposed in his affidavit in these proceedings.

43. [389]

    Before me, Mr White gave this evidence:

44. [390]

    Mr White earlier said that he had been able to refresh his memory by having:

45. [391]

    Mr White was asked which emails he had used to refresh his memory. Mr White identified some emails. Fitz Jersey submitted that it is improbable that those documents could have assisted Mr White to recall the critical conversations.

46. [392]

    Ultimately, Mr White gave this evidence:

47. [393]

    Fitzy Jersey submitted that the accounts given by Mr White in his affidavit of his conversation with Mr Vartuli “cannot be accepted as an accurate reflection of what was said at the time” and:

48. [394]

    I do not accept that submission. I accept Mr White’s evidence that, having reflected more carefully, for the purpose of these proceedings, on what was said in his conversations with Mr Vartuli, he was able for that purpose to recall their substance, notwithstanding the fact that he was not able to do so at the Liquidator’s Examination. Although Fitz Jersey’s submission was that Mr White had unintentionally reconstructed his recollection, Fitz Jersey’s submission was, in substance, that Mr White had made up his affidavit account of his conversation with Mr Vartuli. I do not accept that this is what happened.

49. [395]

    In cross-examination Mr White gave further evidence as to what advice he ultimately proffered to Mr Yazbek and Mr Sweeney about the Dividends. I will return to that below.

50. [396]

    Fitz Jersey’s Summons in the 2017 Proceedings, filed on 13 January 2017, was returnable for directions before Hammerschlag J at midday in the Technology and Construction List on 3 February 2017.

51. [397]

    During the morning on 3 February 2017, Ms Holland circulated proposed “consent orders” for the progress of Fitz Jersey’s challenge to the Adjudication Determination. Those proposed orders included that Fitz Jersey pay the amount of the Adjudication Determination into Court pending the outcome of the challenge to the Adjudication Determination.

52. [398]

    A short time later, at 11.16am, the NAB paid Atlas $11,023,799.76 in response to the Garnishee Order.

53. [399]

    Fitz Jersey was at this stage unaware that the Garnishee Order had been applied for, issued, and now complied with.

54. [400]

    Fitz Jersey only became aware these matters a short time later when, at Court, Mr Mort told Ms Holland what had occurred.

55. [401]

    At Court, Mr Mort and Ms Holland had this conversation:

56. [402]

    Hammerschlag J stood the 2017 Proceedings over until 10 February 2017.

57. [403]

    At around this time Mr Vartuli and Mr White had this conversation:

58. [404]

    During the afternoon of 3 February 2017, Ms Holland wrote to Mr Mort:

59. [405]

    Later on 3 February 2017, Mr Mort responded:

60. [406]

    On Saturday 4 February 2017, Mr Vartuli sent an email to Mr Yazbek and Mr Sweeney:

61. [407]

    Later on 4 February 2017, Mr Sweeney sent an email to Mr Yazbek and Mr Vartuli:

62. [408]

    A short time later, Mr Vartuli sent Mr Yazbek and Mr Sweeney an email setting out his calculation that the quantum of the dividends payable to Kebzay would be $6,103,403 and to Sweenham would be $678,156.

63. [409]

    Later on 4 February 2017, Mr Vartuli circulated a further draft of the proposed directors’ minutes. This draft specified that the dividend would be $27.13 per share.

64. [410]

    During the afternoon on Sunday 5 February 2017, Ms Holland wrote to Mr Mort:

65. [411]

    During the morning of 6 February 2017, Mr Vartuli circulated a further draft of the proposed directors’ minutes.

66. [412]

    Around noon, Mr White sent an email commenting:

67. [413]

    A few minutes later, Mr Vartuli emailed Mr White, with a copy to Mr Yazbek and Mr Sweeney, an amended version of the draft minute and stating “[p]lease confirm this is ok to proceed”. Mr White did not reply to that enquiry until 5.20pm by which time the resolution to declare the Dividends had been passed.

68. [414]

    A short time later, Ms Holland followed up the letter sent the previous day stating:

69. [415]

    Mr Mort replied:

70. [416]

    Sometime between 1pm and 2pm, Mr Mort telephoned Mr Sweeney and had this conversation:

71. [417]

    At 2pm on 6 February 2017, Fitz Jersey made an application to McDougall J for an order that the amount paid to Atlas under the Garnishee Order be repaid to Fitz Jersey so that Fitz jersey could pay it into Court, or alternatively an order that Atlas swear an affidavit setting out in effect what happened to the money.

72. [418]

    Mr Sweeney telephoned Mr Yazbek to inform him of Fitz Jersey’s application. During that telephone conversation they had this conversation:

73. [419]

    McDougall J dismissed Fitz Jersey’s application for interlocutory injunctive relief. His Honour held that although “there may be a legitimate basis for impugning the adjudicator’s determination”, the relief should be refused on discretionary grounds particularly because Fitz Jersey had not hitherto sought to restrain Atlas from enforcing the Adjudication Determination and because “in the present case, there is no evidence to suggest that [Atlas], if called upon, would not be able to repay the $11 million”. [41]

74. [420]

    At about 4.30pm, Mr Mort telephoned Mr Yazbek and Mr Sweeney and had this conversation:

75. [421]

    Following that telephone conversation, Mr Sweeney then said to Mr Yazbek:

76. [422]

    Mr Yazbek and Mr Sweeney had not informed Mr Mort of their intention to declare a dividend. Mr Mort did not learn of the declaration and payment of the Dividends until the following year.

77. [423]

    In his affidavit Mr Yazbek said:

78. [424]

    At around 5pm on 6 February 2017, Mr Yazbek and Mr Sweeney, as directors of Atlas, met.

79. [425]

    The Minutes of the meeting record:

80. [426]

    The Minutes thus repeated the statements that had been made in the Adjudication Application, and in Mr Sweeney’s 1 February 2017 email to the effect that there had been attempts to settle matters with Fitz Jersey during the proceeding 12 months. Each of Mr Yazbek and Mr Sweeney knew that this was not true.

81. [427]

    The Minutes then purported to recite what had occurred since Atlas served the Payment Claim. Although the Minutes read as if those matters were discussed at the meeting, Mr Yazbek and Mr Sweeney agreed that the Minutes had been prepared in advance and were adopted without discussion.

82. [428]

    After reciting the events which had occurred since Atlas served its payment claim in November 2016, the minutes continued:

83. [429]

    At 5.20pm Mr White replied to Mr Vartuli’s midday enquiry as to whether it was “ok to proceed” by emailing that it was “good to go”.

84. [430]

    By then, the resolution to declare the Dividends had been passed. Evidently, none of Mr Yazbek, Mr Sweeney or Mr Vartuli were concerned to wait for Mr White’s final confirmation of the form of the minute.

85. [431]

    At around 6.30pm on 6 February 2017, and after the above resolutions had been passed Ms Holland wrote to Mr Mort:

86. [432]

    The parties referred to this letter as the “Holland Letter”.

87. [433]

    Fitz Jersey relies on the Holland Letter as giving Atlas notice that Fitz Jersey proposed to amend the 2017 Proceedings to make a claim under the Building Contract, as contemplated by s 32 of the SOPA.

88. [434]

    Neither the Holland Letter, nor an email that Ms Holland wrote early the next day, explained what Fitz Jersey’s claim under the Building Contract would be. Indeed, Fitz Jersey’s case is that until in the circumstances I discuss below it obtained documentation from Atlas during the course of 2017, it did not know, beyond what it had asserted in the Payment Schedule and Adjudication Response, what rights it had under the Building Contract.

89. [435]

    Fitz Jersey did not circulate its proposed Amended List Statement making a claim under the Building Contract until December 2017 and did not formally amend its List Statement until February 2018.

90. [436]

    Early on 7 February 2017, Ms Holland wrote an email to Mr Mort:

91. [437]

    On 7 February 2017, Mr Mort sent an email to Mr Yazbek, Mr Sweeney and Mr Vartuli summarising the events of 3, 5 and 6 February 2017 and concluding:

92. [438]

    Mr Sweeney replied instructing Mr Mort to prepare a draft letter making demands that, ultimately, Atlas did not pursue and continued:

93. [439]

    Later on 7 February 2017, Mr Mort sent an email to Mr Yazbek and Mr Sweeney:

94. [440]

    On 8 February 2017, Atlas paid the Dividends.

95. [441]

    The amount paid to Kebzay was $6,103,403. The amount paid to Sweenham was $678,156.

96. [442]

    On 6 February 2017, Kebzay was indebted to Atlas in the sum of $449,085 and Sweenham in the sum of $6,000.

97. [443]

    These sums were the amounts that remained owing by Kebzay and Sweenham to Atlas from larger amounts that, over the years, had been loaned by Atlas to Kebzay and Sweenham. Atlas had loaned these amounts from monies retained from amounts contingently due by Atlas to various subcontractors (the “Retentions”).

98. [444]

    The loans were payable on demand and, during 2015 and 2016, Atlas had called on Kebzay and Sweenham to repay the loans as and when Atlas was required to return the Retentions to the subcontractors.

99. [445]

    By 6 February 2017, Atlas had no further obligation to return any of the Retentions to any of its subcontractors. That is, as between Atlas and its subcontractors, Atlas was entitled to retain the Retentions because the subcontractors had failed to carry out requisite work or rectify defects.

100. [446]

     Thus, as at 6 February 2017, Atlas did not need to call on the loans in order to pay the Retentions to subcontractors.

101. [447]

     Nonetheless, monies remained owing by Kebzay and Sweenham to Atlas.

102. [448]

     On 6 February 2017, Mr Vartuli caused the loans to be written off.

103. [449]

     Mr Vartuli explained:

104. [450]

     In the Liquidator’s Examination, Mr Vartuli said that, nonetheless, he for some reason backdated the write offs to the dates that appear in the General Ledger.

105. [451]

     Despite Mr Vartuli’s evidence, and despite the fact that Mr Yazbek and Mr Sweeney had admitted in their List Response that the Shareholders’ Loans were “written off on or about 6 February 2017”, in closing submissions it was submitted on their behalf:

106. [452]

     Reference was made to entries in Atlas’s General Ledger Report of manual journal entries suggesting that the write offs had occurred on those November dates.

107. [453]

     This submission was repeated orally.

108. [454]

     It should not have been made.

109. [455]

     It was contrary to the evidence and to the admission the List Response.

110. [456]

     I will return to Fitz Jersey’s submission as to the implications of these write offs later in these reasons.

111. [457]

     On 9 February 2017, Fitz Jersey filed a Notice of Intention to Appeal from McDougall J’s decision of 6 February 2017.

112. [458]

     That appeal was heard on 3 March 2017 and dismissed on 23 March 2017. [42]

113. [459]

     On 6 April 2017, Fitz Jersey filed an Amended Summons in the 2017 Proceedings seeking an order that the judgment obtained by Atlas against Fitz Jersey as a result of the Adjudication Determination be set aside and an order that Atlas repay the amount that Atlas had garnished from Fitz Jersey’s bank account.

114. [460]

     On 27 October 2017, the 2017 Proceedings were listed for directions before Hammerschlag J.

115. [461]

     The following exchange took place between Hammerschlag J and senior counsel for Fitz Jersey:

116. [462]

     The exchange with Hammerschlag J makes clear that, as at 27 October 2017, Fitz Jersey’s focus in the 2017 Proceedings remained on challenging the Adjudication Determination rather than the underlying issues under the Building Contract.

117. [463]

     Nonetheless, during 2017, Atlas discovered to Fitz Jersey many thousands of documents. Fitz Jersey also caused some 35 subpoenas to be issued to various subcontractors and consultants resulting in the production, between July and August 2017, of approximately 26 folders of documents.

118. [464]

     On 11 December 2017, after Fitz Jersey had obtained these documents, Ms Holland circulated to Mr Mort a proposed Further Amended List Statement which, for the first time, made claims under the Building Contract.

119. [465]

     That Further Amended List Statement was ultimately filed on 2 February 2018.

120. [466]

     Thereafter, as I have set out earlier, on 4 April 2018, Mr Yazbek and Mr Sweeney resolved that Atlas be placed into voluntary administration. A short time later, on 18 May 2018 Atlas was placed into liquidation.

121. [467]

     Mr Yazbek, Mr Sweeney, Mr Vartuli and Mr Mort attended the Liquidator’s Examinations in June and November 2019.

Credit

1. [468]

   Both parties made extensive submissions on credit.

2. [469]

   The credit of Mr Wong, Mr Yazbek, Mr Sweeney and Mr Vartuli is relevant to their evidence as to the 2013 Agreement.

3. [470]

   The credit of Mr Wong and Mr Yazbek is also said to be relevant to the Development Agreement and the Upgrades Agreement. However, as I set out above, Mr Wong does not dispute Mr Yazbek’s evidence about the Development Agreement and Mr Yazbek and Mr Sweeney said in the October Letter that the Upgrades had been effected at “no charge”. Thus, I do not see the credit of Mr Wong and Mr Yazbek as having great significance concerning those issues.

4. [471]

   The credit of Mr Yazbek and Mr Sweeney is also relevant to the question of their state of mind when they declared the Dividend.

5. [472]

   Overall, for the reasons I explain when dealing with the critical issues of the October Letter and the 2013 Agreement, I have been able to decide those issues without reference to the credibility of the evidence of the witnesses. Rather, I have been guided by reference to the objective circumstances and the probability of events.

6. [473]

   I am conscious of the restraint I must exercise in forming a view about the credibility of Mr Wong, Mr Yazbek, Mr Sweeney and Mr Vartuli based upon their demeanour when giving evidence. Giving evidence is a stressful, alien experience for most people. I have in mind Atkin LJ’s familiar aphorism that “an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of the evidence with known facts, is worth pounds of demeanour”. [43]

7. [474]

   I must weigh my impressions as to demeanour “carefully against the probabilities” and “examine whether the disputed evidence is consistent with the incontrovertible facts”. [44]

8. [475]

   However, as cross-examination of each Mr Yazbek and Mr Sweeney exceeded three days, and that of Mr Wong exceeded a day, I have had a lengthy period during which to observe the manner in which those witnesses gave evidence.

9. [476]

   That opportunity was, if anything, the better by reason of the proceedings being conducted virtually. The witnesses were facing the camera through which their evidence was being recorded and thus, more or less, directly towards me.

10. [477]

    This was of less significance in the case of Mr Wong and Mr Yazbek, who were sitting on the far side of the table on which the camera recording their evidence was mounted. However, in the case of Mr Sweeney and Mr Vartuli, the camera was placed directly in front of their seated position, thereby giving me a much clearer view of the manner in which they gave their evidence than would have been possible during a live hearing.

11. [478]

    I did not gain the impression, from what I saw of the manner in which Mr Yazbek, Mr Sweeney and Mr Vartuli gave evidence, that they were doing otherwise than endeavouring to give the best of their recollection.

12. [479]

    I am less confident as to what conclusion, if any, I should draw from the manner in which Mr Wong gave his evidence. Mr Wong has Parkinson’s Disease and said that his affliction is affecting his memory at a rate that has progressed over recent years. He gave his evidence cautiously and professed not to recall many details.

13. [480]

    However, in relation to the critical issue of what he said to Mr Yazbek during the 2013 meeting, he presented as having a clear recollection.

14. [481]

    Returning to Mr Yazbek and Mr Sweeney, their evidence did establish that on a number of occasions they have made statements that they must have known not to be true.

15. [482]

    I describe in detail below Mr Yazbek’s and Mr Sweeney’s involvement in the October Letter. Their involvement in the October Letter does them no credit.

16. [483]

    Both Mr Yazbek and Mr Sweeney were involved in the formulation of the Adjudication Application’s wording. As I set out above, the Adjudication Application contains statements as to negotiations with Mr Wong during 2016 that Mr Yazbek and Mr Sweeney must have known were not true.

17. [484]

    Both signed the minutes of 6 February 2017 which contained similarly untrue statements about such negotiations.

18. [485]

    Both Mr Yazbek and Mr Sweeney lodged proofs of debt with the Administrators of Atlas in which they falsely asserted that Atlas had made no loans to shareholders. As I have set out above, Atlas made loans to both Kebzay and Sweenham.

19. [486]

    Mr Sweeney also made the statement in his 20 September 2016 letter to Mrs Yazbek to which I have referred that, at the Liquidator’s Examination, he accepted was untrue.

20. [487]

    As to Mr Vartuli, he was also a party to the creation of the October Letter. He also knew of the false statements in the Adjudication Application and in the 6 February 2017 minutes concerning the state of negotiations with Fitz Jersey in 2016.

21. [488]

    These are all matters to be borne in mind when considering critical events, especially the October Letter and the 2013 Agreement.

22. [489]

    However, as I have said, I am able resolve those issues without undue reliance on matters of credit.

The October Letter

1. [490]

   As I have said, the October Letter became the centrepiece of Fitz Jersey’s case concerning the contents of the 2013 Agreement.

2. [491]

   Fitz Jersey submitted that the October Letter was “the most reliable written record in evidence of the 2013 Agreement”.

3. [492]

   The October Letter reads as if it is giving an account of what happened at the February 2013 Meeting and thus of the terms of the 2013 Agreement.

4. [493]

   However, as I have said, it was the evidence of Mr Yazbek, Mr Sweeney and Mr Vartuli (although Mr Vartuli did not sign the October Letter) that the letter did not represent their recollection of what happened at the February 2013 Meeting. Rather, the letter was written to persuade Mr Wong to enter negotiations in relation to the management of the units in Separable Portion 2 that Mr Wong decided Fitz Jersey would retain. In closing, the Directors submitted that “its obvious purpose was to ignite a response from Mr Wong and bring him to the negotiating table”.

5. [494]

   In their affidavits, Mr Yazbek, Mr Sweeney and Mr Vartuli each referred in passing to the October Letter but without asserting that the account given in the October Letter of the February 2013 Meeting was not their recollection of what happened.

6. [495]

   That assertion emerged only in cross-examination.

7. [496]

   Each was cross-examined at length about the October Letter and on the basis that the October Letter did set out what happened at the February 2013 Meeting.

8. [497]

   In his affidavit, Mr Yazbek gave this evidence about the October Letter:

9. [498]

   When first asked about the October Letter, Mr Yazbek gave this evidence:

10. [499]

    However, Mr Yazbek went on to say that, despite the terms of the October Letter, the CPI Uplift, the Early Completion Bonus and the Carbon Tax Costs were not discussed at the February 2013 Meeting.

11. [500]

    Mr Yazbek then gave this evidence in answer to questions from me:

12. [501]

    A short time later, Mr Yazbek gave this evidence:

13. [502]

    In his affidavit Mr Sweeney simply said of the October Letter:

14. [503]

    When first asked about the October Letter, Mr Sweeney gave this evidence:

15. [504]

    However, a short time earlier Mr Sweeney had given this evidence:

16. [505]

    This response from Mr Sweeney was not followed up by the cross-examiner. In particular, Mr Sweeney was not tackled about the apparent inconsistency between his answers, and the form of the October Letter.

17. [506]

    That led me to have this exchange with Mr Sweeney:

18. [507]

    Mr Sweeney then gave evidence occupying almost four pages of the transcript, to which I will return, to the effect that statements made in the October Letter concerning certain of the Payment Claim Items, namely the Early Completion Bonus and the Upgrades could not, for various reasons, have been matters agreed at the February 2013 Meeting.

19. [508]

    In the course of that evidence Mr Sweeney said:

20. [509]

    Later, Mr Sweeney gave this evidence in response to a question from me:

21. [510]

    In his affidavit, Mr Vartuli simply said of the October Letter:

22. [511]

    Mr Vartuli gave this evidence about the October Letter in answer to questions from me:

23. [512]

    Mr Miller asked Mr Vartuli questions about the October Letter in the Liquidator’s Examination:

24. [513]

    In contrast to Fitz Jersey’s position before me, it appears that the Liquidator’s position was that the October Letter was not an accurate account of the 2013 Meeting.

25. [514]

    Thus, Mr Miller put to Mr Vartuli, shortly after the passages to which I have referred:

26. [515]

    My attention was not drawn to any like cross-examination of Mr Yazbek or Mr Sweeney by Mr Miller.

27. [516]

    Mr Stevens also signed the October Letter.

28. [517]

    Little, if any, attention was given during the hearing to Mr Stevens’s role in relation to the October Letter. As I have said, on 10 October 2016, he made some “suggested mark ups” to the October Letter, although, as he was not present at the February 2013 Meeting, he could have had no direct knowledge of what occurred on that occasion.

29. [518]

    In his affidavit, he said he was “shocked” to have received Mr Wong’s letter of 6 October 2016 terminating the Exclusive Management Agency Agreement.

30. [519]

    In relation to the October Letter, he simply said that “on 11 October 2016 I signed a letter addressed to KC and Ann”.

31. [520]

    Mr Stevens was not required for cross-examination.

32. [521]

    Thus, the evidence of Mr Yazbek, Mr Sweeney and Mr Vartuli was that the October Letter was written with the objective of encouraging Mr Wong to meet with them to discuss a way forward. Mr Vartuli said the objective was “to get KC to meet with us face to face to discuss his concerns and repair our relationship of over 30 years”. Mr Sweeney said that the letter was “meant to show the amount of money that we could be due and, hopefully, get Mr Wong to sit down with us”.

33. [522]

    Mr Sweeney agreed that the letter was “poorly written”, was “just a list … to show what we’re entitled to claim under the contract” and was by “no means meant to be minutes of that meeting”.

34. [523]

    Mr Vartuli agreed that that the letter was “badly drafted” and was intended to “highlight to Mr Wong … all the things we’d done” and “wasn’t meant to be a note of the meeting”.

35. [524]

    In closing submissions, Fitz Jersey submitted that the latter evidence from Mr Sweeney and Mr Vartuli was so similar that it “casts doubt over the reliability of both of their evidence on the point”. But this was not put to either Mr Sweeney or Mr Vartuli.

36. [525]

    At one point, I asked Mr Vartuli whether he had spoken to Mr Yazbek or Mr Sweeney about “what evidence you should give in these proceedings about this letter”. Mr Vartuli replied, “No, I haven’t”.

37. [526]

    No other such question was asked of Mr Yazbek, Mr Sweeney or Mr Vartuli.

38. [527]

    In those circumstances, I can see no basis upon which I could conclude that Mr Yazbek, Mr Sweeney and Mr Vartuli have colluded in relation to the evidence that they have given about the October Letter.

39. [528]

    The October Letter was carefully written. As I have described, Mr Vartuli prepared a draft which was settled on the basis of suggestions from Mr Yazbek, Mr Sweeney and, less importantly, Mr Stevens.

40. [529]

    Accepting that there was, to use Mr Sweeney’s words, a “community writing” of the document, I am not persuaded that the use of wrong “tenses and stuff” explains the form of the document. Despite Mr Sweeney’s and Mr Vartuli’s protestations that the letter was not supposed to be a “minute” of the February 2013 Meeting, that is how it reads. The letter reads as if it is an account of what its authors contend was agreed at the February 2013 Meeting. That account is deployed in the letter to argue for the reasonableness of Atlas’s conduct in agreeing to a $10 million payment for the various items listed, which include the Payment Claim Items; and to lead to the complaint that Mr Wong no longer wanted to “honour” his “commitment” to “provide us with the property management” of the apartments in Separable Portion 2.

41. [530]

    I am not able to accept that any of Mr Yazbek, Mr Sweeney or Mr Vartuli somehow misunderstood the effect of the language which they chose to use in the October Letter.

42. [531]

    Rather, I find that they deliberately chose to convey that the terms of the 2013 Agreement were as set out in the October Letter.

43. [532]

    However, for the reasons that follow, I am also persuaded that Mr Yazbek, Mr Sweeney and Mr Vartuli did not believe, when they composed, and in the case of Mr Yazbek and Mr Sweeney, signed, the October Letter that it accurately set forth their recollection of the 2013 Agreement.

44. [533]

    This conclusion reflects badly on Mr Yazbek and Mr Sweeney. They sent a letter to Mr and Mrs Wong which contained allegations that they understood to be untrue.

45. [534]

    However, I see that question as being distinct from the wider question of what was in fact agreed at the February 2013 Meeting.

46. [535]

    I have three reasons for concluding that the account given by Mr Yazbek and Mr Sweeney in the October Letter of the 2013 Agreement did not reflect their true understanding of the terms of the 2013 Agreement.

47. [536]

    The first relates to Mr Wong’s evidence.

48. [537]

    In closing submissions, Fitz Jersey said that “it is true that Mr Wong does not give evidence that recites a version of the 2013 meeting that covers off all the matters in the October 2016 Letter”.

49. [538]

    That understates matters. A more complete statement is that Mr Wong has never asserted that the October Letter accurately set out the terms of the 2013 Agreement.

50. [539]

    In his affidavit in chief, Mr Wong simply said that he received the October Letter after having told Mr Stevens that “the management agreement will be terminated”.

51. [540]

    In his affidavit in reply, Mr Wong did not respond to the evidence that Mr Yazbek gave in his affidavit about the October Letter.

52. [541]

    In cross-examination, Mr Wong said that he read the October Letter “very briefly” and passed it on to the “lawyers”; although, as I have said, in his letter of 13 October 2016 he said that he had “reviewed the contents of” the October Letter.

53. [542]

    It is not surprising that Mr Wong did not give evidence that he believed that the October Letter represented the true position as, at least in one respect, the October Letter contradicts the evidence that Mr Wong has given.

54. [543]

    As I have set out, the October Letter asserts that Atlas agreed to update the finishes in some of the units at an additional cost of $2 million, albeit at “no charge”. Mr Wong’s evidence is that there was no such agreement.

55. [544]

    Although Mr Wong’s account of the 2013 Agreement included a reference to Mr Yazbek speaking about the “possible introduction of the carbon tax on materials”, his account of the 2013 Agreement was nothing like that asserted in the October Letter.

56. [545]

    As Mr Yazbek, Mr Sweeney and Mr Vartuli were cross-examined on the basis that the October Letter set out what happened at the February 2013 Meeting and the terms of the 2013 Agreement, I had this exchange with senior counsel for Fitz Jersey during his cross-examination of Mr Yazbek:

57. [546]

    Several days later, during cross-examination of Mr Sweeney, I had this further exchange with counsel:

58. [547]

    In response, senior counsel later drew my attention to Mr Wong’s affidavit evidence, that I have set out above, that he could not recall whether at the February 2013 Meeting Mr Yazbek had also said that there were other matters that were causing increased costs of the project. Senior counsel continued:

59. [548]

    In final submissions, the Directors contended that the October Letter could not constitute an admission “when there is no fact in issue because Mr Wong has not given evidence about that fact” and that the October Letter “cannot be a self-referential admission”.

60. [549]

    Whether or not the October Letter can be an admission, it is certainly evidence of post contractual conduct capable of relevance to the question of the terms of the 2013 Agreement. [46]

61. [550]

    Nonetheless, my conclusion is that Mr Wong’s recollection of the 2013 Agreement is no more than as set out in his affidavit. I find that Mr Wong does not have a recollection that the terms of the 2013 Agreement were as set out in the October Letter.

62. [551]

    Otherwise, surely, he would have said so.

63. [552]

    I find that to be a reason to be cautious about accepting Fitz Jersey’s submission that the October Letter is the “most reliable” record of the 2013 Agreement.

64. [553]

    It appears to me to be more likely that it has been seized upon, by those advising Fitz Jersey, as a means by which to take Fitz Jersey’s case to a point beyond the limits of Mr Wong’s recollection.

65. [554]

    My second reason for concluding that the account given by Mr Yazbek and Mr Sweeney in the October Letter of the 2013 Agreement did not reflect their true understanding of the terms of the 2013 Agreement is that, since writing the October Letter, Mr Yazbek, Mr Sweeney and Mr Vartuli have given a number of accounts of the February 2013 Meeting, none of which is to the effect of the October Letter. All are to the effect of the evidence given in the proceedings before me.

66. [555]

    It does not necessarily follow from that, that those subsequent accounts are correct. However, those accounts do suggest that the account given in the October Letter is not correct.

67. [556]

    The first, and most important, of these is constituted by the responses given by Mr Yazbek, Mr Sweeney and Mr Vartuli to Mr Mort’s 1 December 2016 request that they each “put in your own words describe your recollection of ‘the meeting’ and ‘the deal’”.

68. [557]

    Each gave an account of the February 2013 Meeting and the 2013 Agreement to the effect of their evidence before me. [47]

69. [558]

    Mr Vartuli’s response was the most succinct. He said:

70. [559]

    None of Mr Yazbek, Mr Sweeney or Mr Vartuli was challenged in relation to this aspect of their evidence.

71. [560]

    As I have said, Mr Yazbek, Mr Sweeney and Mr Vartuli must have regarded the communications with Mr Mort to be confidential.

72. [561]

    The accounts given separately by Mr Yazbek, Mr Sweeney and Mr Vartuli to Mr Mort are consistent with their evidence before me. Unless Mr Yazbek, Mr Sweeney and Mr Vartuli were colluding to give Mr Mort a concocted account of their recollections as to the 2013 Agreement – and no such suggestion was put to them – there is no reason that I can see for the three men to do other than give Atlas’s then solicitor an honest account of their recollection. This was an unguarded moment in which none of Mr Yazbek, Mr Sweeney and Mr Vartuli had reason to be otherwise than truthful.

73. [562]

    I regard these emails as providing a vital insight into the true states of mind of Mr Yazbek, Mr Sweeney and Mr Vartuli.

74. [563]

    I have referred to Mr Mort’s 12 December 2016 references to the “infamous letter” that “we are explaining away” and to the explanation that Mr Mort caused to be included in the Adjudication Application for the October Letter, including that it “does not represent [Atlas’s] position under the Contract”.

75. [564]

    For the reasons I have set out above, my conclusion is that in the period leading up to the service of the Adjudication Application, Mr Yazbek and Mr Sweeney instructed Mr Mort that the October Letter did not represent their actual recollection of the February 2013 Meeting or the 2013 Agreement.

76. [565]

    The first overt manifestation of Mr Yazbek and Mr Sweeney eschewing the account given in the October Letter of the 2013 Agreement was the Payment Claim.

77. [566]

    In the Payment Claim, the 2013 Agreement was described, in the table I have set out in full above, under the headings “Separable Portion 1” and “Variations”, as follows:

78. [567]

    That description confines the elements of the 2013 Agreement to “lowering the basement”, the “clause 47 adjustment for GFA” [48] (obviously a reference to the reduction of apartments from 515 to 500) and “other design changes” (evidently the elimination of the swimming pool).

79. [568]

    This is consistent with the accounts given by Mr Yazbek, Mr Sweeney and Mr Vartuli in their affidavits before me. It is also consistent with the instructions given by the three men to Mr Mort in their emails of 1 and 2 December 2016.

80. [569]

    Further, the accounts given in the Adjudication Application and the statutory declarations made by Mr Yazbek, Mr Sweeney and Mr Vartuli as to the 2013 Agreement were to the effect of the evidence given before me; and inconsistent with the assertions in the October Letter.

81. [570]

    My third reason for concluding that the October Letter does not reflect Mr Yazbek’s and Mr Sweeney’s recollection of the February 2013 Meeting or the 2013 Agreement is the improbability of at least one of the matters stated as having been agreed in the October Letter as, in fact, having been agreed.

82. [571]

    I have referred to the evidence that Mr Sweeney gave about the statements made in the October Letter concerning the Early Completion Bonus and the Upgrades.

83. [572]

    That evidence was given over four transcript pages. It was given spontaneously in response to an enquiry I made after Mr Sweeney had rejected the proposition put to him by senior counsel for Fitz Jersey that the October Letter was a “fair summary of what the $10 million was for”; and when that response was not explored by the cross-examiner. I intervened from time to time over those four pages, but only to gain an understanding of the points that Mr Sweeney was trying to make.

84. [573]

    I gained the distinct impression that, during this evidence, Mr Sweeney was endeavouring to give an honest account of why at least one of the matters stated in the October Letter as having been estimated or agreed at the February 2013 Meeting could not, as a matter of fact, have then been estimated or agreed. Mr Sweeney did not suggest that none of the matters recorded could have then been estimated or agreed. Indeed, Mr Sweeney accepted, without prompting, that some matters could have been estimated or agreed. It was this aspect of Mr Sweeney’s evidence that, in particular, struck me as having the ring of truth to it.

85. [574]

    An example of the latter evidence was in relation to the statement in the October Letter concerning the CPI Uplift.

86. [575]

    The October Letter stated that a matter agreed at the February 2013 Meeting was:

87. [576]

    The CPI Uplift was to be calculated by reference to when work on Separable Portion 2 commenced.

88. [577]

    As at February 2013, work on Separable Portion 2 had not commenced. One of the matters discussed at the February 2013 Meeting was when Mr Wong would give authority for Atlas to commence work on Separable Portion 2.

89. [578]

    In that regard, Mr Sweeney said:

90. [579]

    Later, Mr Sweeney accepted that, as at February 2013, he thought that commencement of work on Separable Portion 2 was “imminent”.

91. [580]

    Thus, in relation to this aspect of the October Letter, Mr Sweeney in effect accepted that Atlas could have estimated an amount for the CPI Uplift along the lines asserted in the October Letter as having been agreed at the February 2013 Meeting.

92. [581]

    A further example was the Carbon Tax Costs.

93. [582]

    The October Letter stated that a matter that had been agreed at the February 2013 Meeting was:

94. [583]

    Mr Sweeney accepted this matter could have been estimated in February 2013 (although he denied it had been discussed at the February 2013 Meeting).

95. [584]

    The October Letter claimed that it had been agreed at the February 2013 Meeting:

96. [585]

    In relation to that issue Mr Sweeney said:

97. [586]

    However, Mr Sweeney’s evidence concerning the Early Completion Bonus was that it would not have been possible in February 2013 for the parties to arrive at the conclusion stated in the October Letter concerning that matter.

98. [587]

    The October Letter stated that a matter agreed at the February 2013 Meeting was:

99. [588]

    As I discuss in more detail below when considering the Building Contract issues, cl 34.8 of the Building Contract provided for an Early Completion Bonus of $3,575 for each of Separable Portion 1 and Separable Portion 2 for each day by which practical completion was achieved earlier than the date for practical completion.

100. [589]

     There is an issue in these proceedings, which I deal with later in these reasons, as to whether any Early Completion Bonus was payable if Separable Portion 1 and Separable Portion 2 commenced on different dates.

101. [590]

     As at February 2013, Atlas had not finished work on Separable Portion 1 and had not commenced work on Separable Portion 2.

102. [591]

     In those circumstances, Mr Sweeney said that it would have been impossible for there to have been an agreement, as at February 2013, about the payment by Fitz Jersey to Atlas of an Early Completion Bonus or let alone one calculated over a two year period.

103. [592]

     Mr Sweeney said:

104. [593]

     Mr Sweeney continued:

105. [594]

     Later in the cross-examination, it was suggested to Mr Sweeney that it would have been possible in February 2013 to make an estimate of the Early Completion Bonus that Atlas might be entitled to. However, Mr Sweeney disputed this.

106. [595]

     This exchange occurred:

107. [596]

     Mr Sweeney’s point, which I accept, was that while it might theoretically have been possible in February 2013 to come up with an estimate of the Early Completion Bonus to which Atlas might in the future be entitled, any such estimate could be little better than a guess.

108. [597]

     I find this to be a compelling reason to conclude that, despite the terms of the October Letter, any Early Completion Bonus to which Atlas might become entitled was not discussed at the February 2013 Agreement and is not the subject of the 2013 Agreement.

109. [598]

     For these reasons, my conclusion is that the October Letter did not set out Mr Yazbek’s and Mr Sweeney’s true recollection of the terms of the 2013 Agreement.

110. [599]

     As I have said, this conclusion reflects badly on Mr Yazbek’s and Mr Sweeney’s credit.

111. [600]

     It also means that I do not accept Fitz Jersey’s landmark submission that the October Letter constitutes the most reliable, or indeed any, guide as to the terms of the 2013 Agreement.

The 2013 Agreement

1. [601]

   It is common ground that at the February 2013 Meeting the parties reached a binding agreement that Fitz Jersey pay to Atlas a further $10 million by way of an increase of the Contract Sum under the Building Contract.

2. [602]

   None of Mr Wong, Mr Yazbek, Mr Sweeney or Mr Vartuli made a contemporaneous note or record of the meeting as to what was agreed.

3. [603]

   The only documentary record of what was agreed is in Atlas’s 15 October 2013 progress claim for the $10 million which described the relevant “item” as being “Additional Construction Cost as agreed”. [50] I see that description of the subject of the 2013 Agreement as being neutral in relation to the issues I must determine.

4. [604]

   So far as the evidence reveals, none of Mr Wong, Mr Yazbek, Mr Sweeney or Mr Vartuli turned their minds to recalling and reducing to writing their recollection of the 2013 Agreement until October or November 2016. Again, this is a neutral factor, as this applies to each of the four men.

5. [605]

   In closing submissions my attention was drawn to the familiar and memorable observations of McLelland CJ in Eq in Watson v Foxman [51] that:

6. [606]

   Particularly in a case such as this, where a comprehensive attack has been made by both sides on the credit of the witnesses called by the other, the most reliable guide as to what in all probability occurred comprises the “contemporary materials, objectively established facts and the apparent logic of events”. [52]

7. [607]

   It is for Fitz Jersey to prove the contents of the 2013 Agreement. As that agreement was reached orally, is not the subject of any contemporaneous note or memorandum, and where the participants did not seek to record in writing the recollection of what occurred for a period of over three years, it is necessary that Fitz Jersey actually persuade me that the 2013 Agreement was in the terms contended.

8. [608]

   As Hammerschlag J said in BM Sydney Building Materials Pty Ltd v AWT Building Group (Aust) Pty Ltd: [53]

9. [609]

   In its List Statement, now the Fourth Further Amended Technology & Construction List Statement, Fitz Jersey propounds three alternative formulations of the 2013 Agreement.

10. [610]

    The first, described in the List Statement as the “Settlement Agreement” is:

11. [611]

    The contention here is that the effect of the 2013 Agreement was that Fitz Jersey would pay Atlas $10 million on account of “any additional construction costs” that might “be claimable” at the time, or at any time “thereafter”.

12. [612]

    Thus, the “Settlement Agreement”, if proved would have the effect that, in consideration of Fitz Jersey making a further payment of $10 million to Atlas, Atlas agreed to forego any claim for “additional construction costs” then, and until the end of the project; no matter how such a claim might arise and notwithstanding the provisions in the Building Contract for, amongst other things, variations and extensions of time.

13. [613]

    Alternatively, Fitz Jersey propounds what it described as the “Alternative Settlement Agreement” as follows:

14. [614]

    The “Alternative Settlement Agreement”, if proved, would have the effect of precluding Atlas from making any further claim for additional costs associated with the basement car park (Atlas makes no such claim) and for Carbon Tax Costs (a relatively minor aspect of its Payment Claim). However, it would not preclude Atlas from making a claim in respect of the CPI Uplift, Early Completion Bonus or the Upgrades. Arguably the “Alternative Settlement Agreement” would require Atlas to give Fitz Jersey a credit in relation to the reduction in the number of units from 515 to 500 as, on this iteration of the 2013 Agreement, that factor was not mentioned.

15. [615]

    Fitz Jersey did not, in final submissions, pursue the “Alternative Settlement Agreement” contention with any enthusiasm. That was for good reason as, in my opinion, Mr Wong’s evidence as to what was agreed at the February 2013 Meeting provides no support for it. On Mr Wong’s account of it, he offered the $10 million “to finish the whole project”; not only in relation to the basement and Carbon Tax Costs.

16. [616]

    Finally, Fitz Jersey contends for the “2nd Alternative Settlement Agreement” as follows:

17. [617]

    The “2nd Alternative Settlement Agreement” depends entirely on the proposition that the statements made by Mr Yazbek and Mr Sweeney in the October Letter accurately recorded what occurred in the February 2013 Meeting. As I have rejected Fitz Jersey’s case in relation to the October Letter, I will not further consider the “2nd Alternative Settlement Agreement”.

18. [618]

    I have set out above the evidence given by Mr Wong in his affidavit before me concerning the 2013 Agreement.

19. [619]

    To reiterate, Mr Wong said that Mr Yazbek said:

20. [620]

    Mr Wong said that he could not recall whether Mr Yazbek said that there were “other matters” that were causing cost increases but that he, Mr Wong, said:

21. [621]

    In cross-examination, Mr Wong said:

22. [622]

    Thus, on Mr Wong’s account of it, he made an unprompted suggestion to increase the Contract Price under the Building Contract by $10 million. And this in the absence of any preceding discussion with Mr Yazbek about what “extra money” and increased costs Atlas would incur by reason of the two elements that Mr Wong said Mr Yazbek mentioned: extra steel for the car park and the possible introduction of the carbon tax.

23. [623]

    In cross-examination, Mr Wong offered this evidence as to how he arrived at the figure of $10 million:

24. [624]

    The effect of this evidence is that, according to Mr Wong, he did not apply any process of reasoning to reach the figure of $10 million but “just put a figure of $10 million to cover” whatever increases in cost because he was “generous and compassionate”.

25. [625]

    In my opinion, a fair description of what Mr Wong said he did was, as I enquired of him, to “pluck a figure out of the air”.

26. [626]

    I find this evidence troubling. It appears to me to be improbable that a businessman and property developer of Mr Wong’s deep experience would offer to resolve a problem, of the kind that he said Mr Yazbek described, in such a peremptory manner. It also appears to me to be improbable that a builder of Mr Yazbek’s deep and lengthy experience would accept such an offer as an “all in” settlement of the issues that he had, on Mr Wong’s evidence, raised with Mr Wong.

27. [627]

    As at February 2013, construction of Separable Portion 1 had not been completed. Construction of Separable Portion 2 had not commenced. The Building Contract provided for such matters as variations and extensions of time. As the Directors submitted, it would have been a major risk for Atlas, at such a relatively early stage of the project (which had already faced challenges with a development approval) to relinquish the entirety of its contractual rights in exchange for an amount that, as Mr Wong accepted, was not a large sum in the context of the lump sum price of $180 million.

28. [628]

    I have set out above the accounts given in the affidavits of Mr Yazbek, Mr Sweeney and Mr Vartuli of the February 2013 Meeting.

29. [629]

    The effect of their evidence is that Mr Yazbek proposed a $10 million increase in the Contract Price under the Building Contract by reference to three specified integers: the increased costs of lowering the basement car park, the reduction in the number of apartments in the development from 515 to 500 and the elimination of the swimming pool.

30. [630]

    The recollections of Mr Yazbek, Mr Sweeney and Mr Vartuli as to what was said do not precisely align. But it is clear from their evidence that, on their account of it, the $10 million figure was arrived at by reference to the integers to which I have referred.

31. [631]

    I see no basis to conclude that Mr Yazbek, Mr Sweeney and Mr Vartuli have colluded to give consistent evidence. It was not suggested to them in cross-examination that they had.

32. [632]

    As I have set out, their accounts as to what happened at the February 2013 Meeting first emerged in response to Mr Mort’s email enquiry of 1 December 2016.

33. [633]

    In effect, Mr Yazbek, Mr Sweeney and Mr Vartuli repeated those accounts of the 2013 Agreement in the statutory declarations they made in December 2016 and in their affidavits in these proceedings.

34. [634]

    The objective circumstances are consistent with the accounts given by Mr Yazbek, Mr Sweeney and Mr Vartuli. As a matter of fact, because of the second development approval, it was necessary to, at an increased cost, lower the basement car park into the water table. As a matter of fact, the number of apartments was reduced from 515 to 500. As a matter of fact, it had been decided that no swimming pool would be constructed in the development.

35. [635]

    These matters all point to the probability that Mr Wong’s recollection of what was said at the February 2013 Meeting is not correct and that, rather, the recollections of Mr Yazbek, Mr Sweeney and Mr Vartuli should be preferred.

36. [636]

    The conduct of the parties after February 2013 is consistent with the 2013 Agreement being in the terms deposed by Mr Yazbek, Mr Sweeney and Mr Vartuli and inconsistent with Mr Wong’s account of the meeting.

37. [637]

    As the Directors put in final submissions:

38. [638]

    Fitz Jersey did not respond to this submission either orally or in its note in reply.

39. [639]

    Atlas did not make any claim for the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades until it served the Payment Claim.

40. [640]

    It is true, as Fitz Jersey pointed out, that under the Building Contract Atlas could have made these claims much earlier.

41. [641]

    It is also true, as Fitz Jersey submitted, that Mr Yazbek and Mr Sweeney gave different explanations as to why they had decided to not make a claim for the Payment Claim Items until service of the Payment Claim in November 2016.

42. [642]

    Mr Yazbek’s explanation was:

43. [643]

    In cross-examination it was put to Mr Yazbek that he had caused Atlas to delay charging Fitz Jersey for the CPI Uplift “because that had been the subject of the 2013 [A]greement”.

44. [644]

    Mr Yazbek replied:

45. [645]

    During the proceedings, it was emphasised that Mr Wong was a very prompt payer and that he caused Fitz Jersey to promptly settle Atlas’s progress payments.

46. [646]

    It was also common ground before me that Mr Wong is a wealthy man. Thus, as Mr Yazbek said in the evidence I have just quoted, Mr Wong was “good for the money”.

47. [647]

    The Mascot Square Project was very profitable from Atlas’s point of view.

48. [648]

    On Mr Wong’s account of the February 2013 Meeting, Mr Yazbek said “I can only make about $8 million on the job”.

49. [649]

    In Mr Sweeney’s September 2016 conversation with Mr Wong, both Mr Wong and Mr Sweeney agreed that Mr Wong asked how much Atlas had made on the project. On Mr Sweeney’s account of it, he told Mr Wong that Atlas had made “a lot more” than $10 million. On Mr Wong’s account of it, Mr Sweeney told him that Atlas made “more” than “between $40 and $50 million”.

50. [650]

    Whatever the true position is about that, I found particularly significant Mr Yazbek’s statement, as I have set out above, that there was “no rush to ask for money” from Mr Wong because “we had the cash flow, we made our profits”. That suggests that from Mr Yazbek’s point of view, the Mascot Square Project was profitable and that it was for that reason not necessary for Atlas to pursue such claims as the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades.

51. [651]

    In his affidavit, Mr Sweeney gave this explanation for Atlas’s decision to claim for these items:

52. [652]

    In cross-examination, Mr Sweeney gave this evidence:

53. [653]

    Mr Sweeney’s explanation is a little different from that of Mr Yazbek. Whereas Mr Yazbek deposed that he had always intended that Atlas would in due course claim for Payment Claim Items, Mr Sweeney’s evidence was that, until October 2016, he and Mr Yazbek had not made a decision about that matter.

54. [654]

    I do not attach great significance to that difference because there is objective confirmation that, in October 2016, Mr Yazbek and Mr Sweeney’s state of mind was that Atlas was entitled to make the claim for the Payment Claim Items.

55. [655]

    That confirmation comes from the unchallenged evidence of Mr Mort. As I have set out above, [58] in mid-October, Mr Sweeney instructed Mr Mort:

56. [656]

    As I have said, [59] Mr Sweeney made this statement to Mr Mort on an occasion he must have regarded as being confidential and privileged. I see no reason to think that Mr Sweeney was doing anything other than truthfully relaying to Mr Mort Atlas’s position.

57. [657]

    In these circumstances, my conclusion is that there are three reasons why Mr Yazbek and Mr Sweeney did not cause Atlas to make a claim against Fitz Jersey for the Payment Claim Items earlier than in the Payment Claim.

58. [658]

    The first was because Mr Yazbek understood that Mr Wong could be relied upon to pay any amounts to which Atlas was entitled under the Building Contract promptly. The second was because Mr Yazbek thought that the project had been sufficiently profitable such that Atlas need not necessarily make a claim for the Payment Claim Items at all. The third was because of the prospect that Atlas, or some other entity associated with Mr Yazbek and Mr Sweeney, might pursue further development opportunities with Mr Wong.

59. [659]

    I am satisfied on the basis of this evidence that these decisions were not made because of any apprehension on the part of Mr Yazbek and Mr Sweeney about the terms of the 2013 Agreement.

60. [660]

    It is also true, as Fitz Jersey submitted, that there is no documentary reference in Atlas’s books, prior to October 2016, of any entitlement or expectation of Atlas for payment in respect of the Payment Claim Items.

61. [661]

    As I have set out in my detailed narrative of the events leading to the declaration of the Dividend, Mr Sweeney had communications with Atlas’s insurance broker in which forecasts were made as to Atlas’s likely entitlements under the Building Contract which made no reference to the Payment Claim Items. Mr Vartuli prepared cash flow forecasts and other like documents that referred to the payments anticipated to be made to Atlas by Fitz Jersey but which did not refer to any expectation of payment in respect of the Payment Claim items.

62. [662]

    However, I am persuaded that the reason for those “omissions” is that, until the falling out between Mr Wong and Mr Yazbek in around October 2016 neither Mr Yazbek nor Mr Sweeney had made a decision as to whether those matters would be pursued.

63. [663]

    I am not persuaded that the reason such entries appear in Atlas’s books is because of any apprehension by Mr Yazbek and Mr Sweeney as to the terms of the 2013 Agreement.

64. [664]

    For all these reasons, my conclusion is that I should accept the evidence given by Mr Yazbek, Mr Sweeney and Mr Vartuli as to the terms of the 2013 Agreement.

65. [665]

    It follows that by making the claims in the Payment Claim for the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades, Atlas was not making a claim for work for which it had already been paid by reason of the 2013 Agreement.

66. [666]

    I will now turn to what entitlement Atlas had under the Building Contract in relation to those matters.

The Building Contract issues

1. [667]

   For the reasons set out above, the CPI Uplift, the Early Completion Bonus, the Carbon Tax Costs and the Upgrades were not the subject of the 2013 Agreement. Accordingly, Atlas’s entitlements under the Building Contract must be considered on that basis.

2. [668]

   A question arises as to the date of commencement of the WUC, or “Work Under Contract”.

3. [669]

   This gives rise to what I have found to be a very difficult question of construction.

4. [670]

   The principles of construction to be applied are well known. The leading statement is in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd: [60]

5. [671]

   It has also been said, correctly, that:

6. [672]

   The parties’ submissions in relation to the proper construction of this aspect of the Building Contract focused on the “words actually used”.

7. [673]

   Fitz Jersey’s case is that, on the proper construction of the Building Contract, WUC includes design work.

8. [674]

   There is no dispute that Atlas performed design work for the project, commencing in March 2010, some nine months before the Building Contract was executed on 17 December 2010.

9. [675]

   I do not see the fact that Atlas performed this design work prior to entry into the Building Contract as being itself significant. It would have been open to the parties to make provision in the Building Contract for work commenced earlier. [62] The question is whether that is what the parties did here.

10. [676]

    The issue is of vital importance because, if Fitz Jersey is correct:

11. [677]

    Under the Building Contract the “contract sum” was comprised of the lump sum of $180 million (increased by reason of the 2013 Agreement to $190 million) and:

12. [678]

    The “Contractor’s design obligations” was defined to mean:

13. [679]

    “[D]esign documents” was defined to mean:

14. [680]

    Thus, both the definitions of “[c]ontractor’s design obligations” and “design documents” referred to the design of “the Works”.

15. [681]

    The expression “the Works” was defined to mean:

16. [682]

    Thus, the definition of “the Works” referred to the whole of “the work” (lower case) under the Contract.

17. [683]

    In turn the “work” was, somewhat unhelpfully, simply defined to include:

18. [684]

    WUC was defined as follows:

19. [685]

    The adjacent marginal note read:

20. [686]

    “[D]ate of commencement” was defined to mean:

21. [687]

    Thus, “WUC” is “the work”, not “the Works”, that Atlas was required to carry out under the Building Contract.

22. [688]

    As “the Works” means “the whole of the work” to be carried out, there is an argument that the parties intended that “the work” include “the Works”.

23. [689]

    That suggests, although not unambiguously in my view, that, looking at the definitions alone, “the Works” is a subset of “WUC” and not the other way around.

24. [690]

    It would follow that, as the “[c]ontractor’s design obligations” are defined by reference to design of “the Works” rather than “the work”, the “WUC” would include “design”.

25. [691]

    However, there are a number of other clauses in the Building Contract which suggest, and in my opinion compel, a different conclusion.

26. [692]

    Clause 14.1 provided:

27. [693]

    This clause provides that Atlas was responsible for the care of “the whole of the WUC” including, looking at the last paragraph of the clause, the care of the “unfixed items” and “things entrusted … or brought onto the site” referred to.

28. [694]

    Those words suggest that what is contemplated is an obligation on Atlas to be responsible for the care of “things” that is, physical objects, including of the kind described.

29. [695]

    The fact that the obligation under cl 14.1 is in respect of the care of the “whole” of the “WUC”, including those “things” suggests that the parties’ intention was, returning to the definition of WUC, that WUC meant the physical “work” of construction rather than design work.

30. [696]

    I find it hard to envisage what “care” the parties could have contemplated that Atlas take of any design work.

31. [697]

    The chapeau to cl 14.1 stated that the provisions in cl 14.1 were subject to the exceptions provided in cl 14.3.

32. [698]

    Clause 14.3(f) read:

33. [699]

    This subclause refers to defects in “the design of WUC”.

34. [700]

    That suggests that the parties intended WUC was something separate from its design.

35. [701]

    Clause 16A provided:

36. [702]

    The clause went on to specify, as the risks to be insured, Atlas’s liability for such matters as “the cost of making good fair wear and tear or gradual deterioration”, the “cost of making good faulty design, workmanship and materials”, “consequential loss” and “damages for delay in completing or for the failure to complete the Works” (together with a number of other matters).

37. [703]

    The obligation on Atlas under cl 16A to take out the relevant insurance could only take effect when the Building Contract was executed (17 December 2010). The fact that it obliged Atlas to take out the nominated insurance “before commencing WUC” suggested that the parties’ intention was that “WUC” would only encompass Atlas’s activity from the date of the Contract.

38. [704]

    Further, the clause obliged Atlas to take out the nominated insurance in respect of the “things” referred to in cl 14.1, suggesting that the parties intended that WUC would not include any activity prior to the date when such “things” could be insured. That provides a further indication that the parties did not intend WUC to include design activities which took place prior to the contract.

39. [705]

    These clauses obliged Atlas to effect professional indemnity insurance (cl 16B) and employee liability insurance (cl 18) “before commencing WUC”.

40. [706]

    As those obligations could only have been imposed on Atlas as at the date of the Building Contract, they provide further indication that the parties did not intend WUC to include design activities prior to the date of the contract.

41. [707]

    Clause 17 provided:

42. [708]

    As “date of commencement” was defined to mean the date on which “the contractor commences WUC” the obligation under cl 17 on Atlas to effect public liability insurance “[b]efore the date of commencement” had the effect that Atlas was obliged to effect such insurance before “commencing WUC”.

43. [709]

    As the obligation under cl 17 could only have arisen as at the date of the Building Contract, that provides a further indication that the parties did not intend WUC to include design activities prior to the date of the Building Contract.

44. [710]

    For those reasons, my conclusion is, on the proper construction of these provisions in the Building Contract, WUC does not include the design work commencing in March 2010, as that was work performed by Atlas prior to the date of the Contract.

45. [711]

    For the reasons I have set out above, [65] I am satisfied that Mr Wong and Mr Yazbek did make the Development Agreement in 2010.

46. [712]

    This is relevant to a claim that Fitz Jersey makes to be reimbursed for amounts totalling a little under $2 million including GST in relation to invoices that Atlas sent Fitz Jersey between May and July 2010 as follows:

47. [713]

    My opinion is those amounts were payable by Fitz Jersey to Atlas pursuant to the Development Agreement. I can see no basis upon which Fitz Jersey is entitled to reimbursement of those amounts.

48. [714]

    It is common ground that the Building Contract contemplated that Separable Portion 1 and Separable Portion 2 could start at the same time, or at different times.

49. [715]

    It is also common ground that the Building Contract provided that the time for practical completion was:

50. [716]

    Fitz Jersey’s primary submission was that the Separable Portions commenced on the same date, namely, March 2010, by reason of the fact that WUC included design work. For the reasons I have set out above, I have not accepted that submission.

51. [717]

    In my opinion, the evidence shows that the parties conducted themselves upon the basis that Separable Portion 1 commenced earlier than Separable Portion 2.

52. [718]

    As I have set out above, on 7 September 2011, Atlas wrote to Fitz Jersey advising commencement of “Stage 1 works”.

53. [719]

    To repeat, Atlas wrote:

54. [720]

    The first work that Atlas caused to be performed was excavation for a bentonite cut-off wall for the basement car park. By reason of the change of design as anticipated by the second development application there was now to be a joint car park for Separable Portion 1 and Separable Portion 2. The result was that, necessarily, work on that joint car park commenced at the same time. Nonetheless, it is clear that the parties regarded this work as being referrable only to Separable Portion 1.

55. [721]

    On 15 December 2011, Atlas sent to Fitz Jersey a Progress Claim 4 for $3,300,000 (plus GST). On the reverse of that Progress Claim was a “Progress Claim Master Sheet” in the following form:

56. [722]

    The Master Sheet differentiated between the work done for Stage 1 and Stage 2 [66] and showed Progress Claim 4 under the heading “Total This Claim” and the amount of all “Previous Claims” under the heading “Stage 1”.

57. [723]

    The Master Sheet recorded that no amount had been claimed by Atlas in respect of Stage 2.

58. [724]

    Similarly, the Progress Claim Master Sheet on the reverse of Atlas’s 15 February 2013 claim for $4.8 million was in this form:

59. [725]

    This schedule showed that Atlas’s claim for $4.8 million was only for work on Stage 1 (for work on Buildings A, B and C) and that Atlas’s “Claim[s] to Date” were a fraction under $70 million, including $34.2 million for the basement car park: all described as work under Stage 1.

60. [726]

    This payment claim was made at about the time of the February 2013 Meeting and thus about the time of the 2013 Agreement.

61. [727]

    As I have said, it was at the February 2013 Meeting that Mr Yazbek and Mr Sweeney were hoping to get permission from Mr Wong to proceed with Separable Portion 2, that is Stage 2.

62. [728]

    On 16 April 2013, Atlas sent a further payment claim to Fitz Jersey. This payment claim was for $11 million (plus GST). The Progress Claim Master Sheet on the reverse of this claim was in the following form: [67]

63. [729]

    As can be observed from this Master Sheet, the claims made by Atlas in respect of work on the basement car park were attributed only to Stage 1 with Atlas contending that 93.8% of the basement car park work had been by then performed.

64. [730]

    The Master Sheet also shows that Atlas had commenced making claims in respect of Stage 2.

65. [731]

    Mr Wong caused Fitz Jersey to pay these invoices without demur.

66. [732]

    The parties thus conducted themselves on the basis that the work done by Atlas in respect of the basement car park was referrable to Separable Portion 1 and not Separable Portion 2. This was notwithstanding the fact that ultimately, the excavation would provide for a car park for use by occupants of both Separable Portions.

67. [733]

    For those reasons, my conclusion is that work on Separable Portion 1 commenced prior to work on Separable Portion 2.

68. [734]

    As I have set out above, Atlas’s letter of 7 September 2011 to Fitz Jersey stated that Atlas would commence “contract works” at the site on 12 September 2011 and that “Stage 1 works incorporate the construction of the Basement Car Park, Ground floor podium and buildings A, B and C”.

69. [735]

    As I have said, the first work that Atlas caused to be performed was the construction of the bentonite cut-off wall.

70. [736]

    Fitz Jersey’s programming expert, Ms Karen Wenham, stated in her report that she had been instructed that works had commenced on 11 September 2011.

71. [737]

    However, the Council issued the first construction certificate on 11 October 2011.

72. [738]

    In his affidavit, Mr Sweeney stated:

73. [739]

    That evidence was not challenged and in those circumstances I find that work on Separable Portion 1 commenced on 20 October 2011.

74. [740]

    It is common ground that assuming, as I have found, that work in Separable Portion 2 commenced on a different date to Separable Portion 1, then construction of Separable Portion 2 commenced on 7 March 2013.

75. [741]

    In the Payment Claim, Atlas contended that the commencement of Separable Portion 2 was 12 June 2013. This was evidently on the basis of instructions that Mr Sweeney gave Mr Mort that work on Separable Portion 2 was the subject of a “staged” commencement between March and June 2013. However, in closing submissions before me, the Directors accepted that this was not correct and that work on Separable Portion 2 commenced on 7 March 2013.

76. [742]

    This has implications for the claim Atlas made for the CPI Uplifts, to which I will return.

77. [743]

    The Building Contract contains a number of provisions which assume the involvement of a Superintendent. As I have mentioned Fitz Jersey did not appoint a Superintendent.

78. [744]

    It is common ground that, in those circumstances, the parties’ obligations under the Building Contract are to be assessed on that basis.

79. [745]

    In closing written submissions, the Directors contended that Fitz Jersey was not entitled to seek restitution of the monies it contended it had paid Atlas on the basis that quasi-contractual obligations did not arise where, as here, there were existing contractual obligations governing the same subject matter. [68]

80. [746]

    The short answer to this contention is that Fitz Jersey is not seeking restitution of the funds it paid Atlas. Rather it is contending that, under the Building Contract, it made payments to Atlas for which Atlas was not contractually entitled and that, as a matter of contract, it is entitled to reimbursement of those amounts.

81. [747]

    Clause 34.8 of the Building Contract provided that Atlas was entitled to an Early Completion Bonus if it achieved practical completion earlier than the date for practical completion.

82. [748]

    The Building Contract made a different provision for the date for practical completion depending on whether work on Separable Portion 1 commenced on the same date as work on Separable Portion 2. [69]

83. [749]

    It is common ground that if work on the two Separable Portions commenced at the same time, Atlas had 48 months to achieve practical completion.

84. [750]

    On the other hand if, as I find did happen, work on Separable Portion 1 commenced on a different date to work on Separable Portion 2, Atlas had 30 months to achieve practical completion for each Separable Portion.

85. [751]

    Fitz Jersey contends that, assuming (as I have found) that work on the two Separable Portions commenced on different dates, on the proper construction of the Building Contract, Atlas had no entitlement to an Early Completion Bonus.

86. [752]

    This contention gives rise to another difficult question of construction. Again, the parties’ submissions were focused on the language used in the Building Contract.

87. [753]

    Clause 34.8 provided:

88. [754]

    Clause 34.8 thus contemplated the possibility that Atlas would achieve practical completion earlier than the date for practical completion and that, if that occurred, Atlas be paid a “bonus” at the daily rate specified in “Item 30(a)”.

89. [755]

    Clause 34.7 contained a corresponding provision contemplating the possibility that Atlas did not achieve practical completion by the date for practical completion and provided for Liquidated Damages at the daily rate specified in “Item 29”.

90. [756]

    The Building Contract contained an Annexure entitled “Part A” which comprised a total of 37 “Items”. I will call this “General Annexure Part A”.

91. [757]

    General Annexure Part A included two separate sub-annexures each labelled “Part A Separable Portions” which were to be completed “only if the Contract provides for separable portions”. As the Building Contract did “provide for separable portions”, the two sub-annexures were completed. [70] I will call these documents the “Separable Portions Part A”. Apart from describing the Separable Portions themselves differently, they were completed (or not completed: I will return to this) in the same way.

92. [758]

    Each of the Separable Portions Part A documents contained 6 of the 37 “Items” listed in General Annexure Part A; namely Items 7, 14, 15, 29, 30 and 31. Unlike Item 30 in General Annexure A, Item 30 in the Separable Portions Part A documents contained sub-Items 30(a) and 30(b); consistently with the references in cl 34.8 of the Building Contract.

93. [759]

    Items 14, 15 and 31 in the Separable Portions Part A documents were completed in the same manner as their analogues in General Annexure Part A. These items are not centrally relevant to the construction question I am considering. However, items 7, 29 and 30 in the two Separable Portions Part A documents were completed in a different manner than in General Annexure Part A.

94. [760]

    Item 7 in General Annexure Part A provided for the period of time for practical completion as follows:

95. [761]

    Thus, if Separable Portions 1 and 2 commenced on the same date, the time for practical completion was 48 months from the date of the commencement.

96. [762]

    But if the Separable Portions were commenced separately, then reference was (“refer to”) to be made to Item 7(b) of “Annexure Part A of the relevant Separable Portion”: that is to the relevant Separable Portions Part A document.

97. [763]

    Item 7 in each of those documents provided for practical completion to take place within 30 months from the date of commencement of the relevant Separable Portion.

98. [764]

    These are the provisions having the effect I set out above concerning different dates for practical completion, depending on whether work on the Separable Portions commenced at the same time, or at different times.

99. [765]

    The parties obviously intended that if, as has happened, work on the Separable Portions commenced on different dates, the provision in Item 7 of the Separable Portions Part A documents would prevail over the provision in Item 7 of the General Annexure Part A.

100. [766]

     Items 29 and 30 of General Annexure Part A were the following form:

101. [767]

     A number of things should be noted about these provisions.

102. [768]

     The first is that they provided for Liquidated Damages or an Early Completion Bonus at the rate of $7,150 per day.

103. [769]

     The second is that there was no Item 30(a) or 30(b) as contemplated by cl 34.8 of the Building Contract.

104. [770]

     The third is that the footnote to each of Item 29 and Item 30 provided that “[i]f applicable” those provisions should be deleted and instead the parties should complete the equivalent item in the “separable portions section” of the Annexure Part A; that is in the Separable Portions Part A documents.

105. [771]

     The only occasion on which it would be “applicable” to delete Items 30 and 31 of the General Annexure Part A and instead to complete the “equivalent item” in the Separable Portions Part A documents would be when, as happened, the development was to proceed in Separable Portions. This was also contemplated by the provision in the Separable Portions Part A documents that they should only be completed in that event. [71]

106. [772]

     In the Separable Portions Part A documents, Items 29 and 30 were in the following form:

107. [773]

     Thus, Item 29 here provided for Liquidated Damages at the Rate of $3,575 per day (half the rate specific in Item 29 of the “General Annexure Part A”).

108. [774]

     Item 30 contained a sub-Item 30(a) and 30(b) (as contemplated by cl 34.8) but was left blank.

109. [775]

     Fitz Jersey’s case is that the parties left Item 30 blank deliberately, thus bespeaking their intention that if the Separable Portions were commenced separately, and even if Atlas achieved practical completion of those Separable Portions earlier than the date of practical completion, it would nonetheless not be entitled to an Early Completion Bonus. It was a corollary of that submission that Atlas would nonetheless be exposed to the possibility of paying Liquidated Damages if it did not achieve practical completion of each Separable Portion by the date for practical completion of that Separable Portion.

110. [776]

     Fitz Jersey did not point to any reason why the parties would make a different provision for an Early Completion Bonus merely because the Separable Portions were commenced on different dates; nor why the parties would agree that Atlas was not entitled to an Early Completion Bonus merely because the Separable Portions were commenced on different dates. I can see no rational reason why the parties would so intend. It would be a commercial absurdity to suppose that the parties intended that if the Separable Portions happened to commence on different dates, no matter what the reason, Atlas would remain exposed to the possibility of paying Liquidated Damages for delayed completion, but not be entitled to an Early Completion Bonus for early completion.

111. [777]

     It is obvious to me that Item 30 in each of Separable Portion Part A documents were left blank by mistake.

112. [778]

     As I have said, the footnote to Items 29 and 30 in General Annexure Part A, and the provision in the Separable Portions Part A documents show that it was the parties’ intention that if, as was the case here, the development proceeded by Separable Portions, Items 29 and 30 in the General Annexure Part A would be deleted. Instead, the “equivalent item in the separable portions section of Annexure Part A” that is, Items 29 and 30 in each of Separable Portion Part A documents, would be completed.

113. [779]

     “Something has gone wrong” [72] with the manner in which Item 30 of Separable Portion Part A documents was completed, namely, the parties inadvertently failed to delete the provision in Items 29 and 30 General Annexure Part A and to complete the corresponding items in the Separable Portions Part A documents by inserting the daily rate of $3,575.

114. [780]

     This conclusion is also consistent with the references in cl 34.8 to Items 30(a) and 30(b), which items appear only in the Separable Portions Party A documents, and not in General Annexure Part A.

115. [781]

     The Directors did not seek equitable rectification of the Contract but submitted that rectification is available by construction.

116. [782]

     In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq), Leeming JA said: [73]

117. [783]

     Leeming JA continued: [75]

118. [784]

     It is of course true that, as Lord Hoffmann said in Chartbrook Ltd v Persimmon Homes Ltd [80] that the Court does “not readily accept that people have made mistakes in formal documents”. [81] Nonetheless, as his Lordship continued:

119. [785]

     Further, the parties post-contractual conduct is consistent only with them understanding that Atlas was entitled to an Early Completion Bonus, assuming the contractual entitlements for such a bonus were satisfied, whether or not Separable Portion 1 was commenced on a different date to Separable Portion 2.

120. [786]

     Thus, in its calculation in its Payment Schedule that the Scheduled amount was $NIL, Fitz Jersey recited that it had paid Atlas an Early Completion Bonus for Separable Portion 1 in the sum of $1,229,800 and in respect of Separable Portion 2 in the sum of $600,600. [83]

121. [787]

     For those reasons, my conclusion is that the Building Contract should be construed so that Item 30 in each of the Separable Portion Part A documents be read as including:

122. [788]

     A further issue relevant to whether Atlas is entitled to an Early Completion Bonus is its entitlement to extensions of time.

123. [789]

     Clause 34.3 of the Building Contract provided that Atlas was entitled to an extension of the time for carrying out the Work under the Contract, including reaching practical completion, if the Superintendent assessed that Atlas “is or will be delayed in reaching practical completion by qualifying cause of delay”.

124. [790]

     As it is common ground that Fitz Jersey did not employ a Superintendent, the clause cannot be applied in accordance with its terms. However, by reason of the definition of the “date for practical completion” the Court can determine whether Atlas was entitled to any Extension of Time for the purposes of cl 34.3 of the Building Contract.

125. [791]

     These matters were the subject of competing evidence from the parties’ programming experts, Ms Wenham on behalf of Fitz Jersey and Mr Chris Peter on behalf of the Directors.

126. [792]

     Ms Wenham allowed 174.5 working days for inclement weather, whereas Mr Peter allowed 119.5 days for Separable Portion 1 and 194.5 days for Separable Portion 2.

127. [793]

     Mr Peter made his assessment on the basis of an “Inclement Weather Day Register” maintained by Atlas.

128. [794]

     Mr Sweeney gave this evidence about the Inclement Weather Day Register:

129. [795]

     Ms Wenham did not have regard to Atlas’s Payment Claim of the Inclement Weather Day Register.

130. [796]

     Rather, Ms Wenham sought to verify the dates in the Inclement Weather Day Register by reference to Bureau of Meteorology records of rainfall and other weather events in the Mascot area generally and her own assessment of whether what was reported in the Inclement Weather Day Register was likely to have stopped work.

131. [797]

     I see no reason to doubt the accuracy of the Inclement Weather Day Register maintained by Atlas, notwithstanding the fact that Mr Sweeney made the adjustments to which he referred when preparing the Payment Claim.

132. [798]

     I also see no basis to conclude that the Inclement Weather Day Register, as adjusted by Mr Sweeney, was not an accurate and fair guide of the extent to which inclement weather delayed the progress of the development.

133. [799]

     For those reasons, I propose to adopt Mr Peter’s conclusions, in preference to those of Ms Wenham.

134. [800]

     The next question is what Extension of Time should be allowed for the changes in the design of the basement by reason of the approval of the 2011 development application. This had the result that the basement was built deeper into the water table so as to service each of Separable Portion 1 and Separable Portion 2.

135. [801]

     Against the possibility that the Court might find that the 2013 Agreement did not deal with the extra costs of those changes to the basement, the parties adduced evidence from geotechnical engineers; Mr Patrick Wong for Fitz Jersey and Dr Brian Burman for Atlas. Each provided reports setting out the design that they contended should have been adopted for the revised basement. Ms Wenham and Mr Peter agreed that if Mr Wong’s design was adopted, there should have been an Extension of Time of 80 days and if Dr Burman’s design was adopted there would have been an Extension of Time of 111 days.

136. [802]

     On behalf of Fitz Jersey it was submitted that the “as built” design was closer to that advocated by Mr Wong than that advocated by Dr Burman because, as built, a full depth cut-off wall was adopted, as Mr Wong’s model proposed.

137. [803]

     Each of Mr Wong and Dr Burman agreed the design proposed by the other was “feasible” and that professional minds could fairly differ as to the appropriate means to lower the basement.

138. [804]

     As the programmers’ opinions as to Extension of Time on this question turned on which of Mr Wong’s or Dr Burman’s design was adopted, I propose to allow an Extension of Time in an amount being a mean of the figures adopted by Ms Wenham and Mr Peter, namely, 95 days.

139. [805]

     The remaining debate is what Extension of Time should be allowed for work associated with the building of a deceleration lane in a road adjoining the development, other public infrastructure augmentations and for landscaping of an adjacent public park.

140. [806]

     Mr Peter opined that 19.5 working days should be allowed for the first two of these and 29 working days for the landscaping.

141. [807]

     On the other hand, Ms Wenham opined that no Extension of Time ought to be allowed for any of these matters.

142. [808]

     Ms Wenham expressed the opinion that the deceleration lane and other augmentations were described in the original 2010 development application and, in any event, could reasonably have been undertaken parallel with other work. As to the public park landscaping, Ms Wenham expressed the opinion that this work was similar to that proposed in the original development application such that there would be no impact on the time it took to complete the works.

143. [809]

     However, in his affidavit, Mr Sweeney gave detailed evidence of the change in the scope of work caused by the building of the deceleration lane, the other public infrastructure works and the public park landscaping. These were works called for by the Public Domain DA (DA12/205) which was submitted to the Council on 7 November 2012 and was not approved until 6 August 2013. This required that the location of the public park be changed as well as works associated with the deceleration lane including lay back areas and utilities works augmentations.

144. [810]

     Mr Sweeney was not challenged about those matters and I find that Atlas was entitled to the extensions of time proposed by Mr Peter.

145. [811]

     The question of whether Fitz Jersey is entitled to Liquidated Damages under cl 34.7 of the Building Contract depends upon the outcome of my findings in relation to the Early Completion Bonus.

146. [812]

     I understand that the effect of my findings is that Atlas was entitled to an Early Completion Bonus, although I am not in a position to calculate precisely the amount of that bonus.

147. [813]

     It would follow that Fitz Jersey was not entitled to Liquidated Damages.

148. [814]

     Clause 36.5 of the Building Contract provided that at the date of commencement of Separable Portion 2, the contract sum in respect of Separable Portion 2 should be adjusted in accordance with the increase in the Consumer Price Index since the date of the Contract. This is the CPI Uplift.

149. [815]

     I have found that Separable Portion 2 commenced on 7 March 2013.

150. [816]

     As the Payment Claim wrongly asserted that Separable Portion 2 had commenced on 12 June 2012, it is common ground that it overstated the amount due by Fitz Jersey to Atlas for the CPI Uplift by $226,587.

151. [817]

     Clause 11.2 of the Building Contract provided that if a “legislative requirement” necessitated a change in identified works and came into effect after the date of the Building Contract but could not reasonably then have been anticipated by Atlas, and that this caused Atlas “to incur more … cost than otherwise would have been incurred”, Atlas would have been entitled to an increase in the contract sum.

152. [818]

     Atlas contended that the introduction of the Carbon Tax by the Clean Energy Act 2011 (Cth) caused concrete prices to increase by $1 per cubic metre. Atlas’s quantity surveyor expert, Mr David Madden, assessed an increase of $0.95 per cubic metre as being reasonable. However, in closing submissions, the Directors accepted that they had not adduced evidence to prove that Atlas had paid any increased amount for concrete based on the carbon tax and that, in effect, this claim was not proven. Later in closing submissions, the Directors sought to tender further evidence to make out this part their claim. I refused to allow that evidence to be adduced.

153. [819]

     It follows that the Directors have not shown that Atlas has entitlement to any payment on account of Carbon Tax Costs.

154. [820]

     In the Payment Claim, Atlas claimed $978,890 for “Carpet and PC Item Upgrades”. The “PC Items” were the AEG appliances and Hans Grohe tapware that Mr Yazbek and Mr Sweeney stated in the October Letter were “an additional $2m in cost at no charge”.

155. [821]

     For the reasons I set out earlier, I have no reason to doubt that this reflected Mr Yazbek’s recollection that although these “upgrades” would cost an additional $2 million they would not be charged to Fitz Jersey.

156. [822]

     Leaving aside allegedly upgraded carpet, the amount claimed for these items before me was calculated by the Directors’ quantity surveyor, Mr Madden, to be $759,988 as set out in his schedule attached. Attachment A - Madden Table (141221, pdf)

157. [823]

     It is common ground that there is a mathematical error in this schedule and that it overstates Atlas’s claim by $67,387 (excl GST).

158. [824]

     The Scope of Works specified in the Building Contract was, relevantly, that all units should include:

159. [825]

     Most of the items in Mr Madden’s table are either Hans Grohe or AEG PC items (and therefore ones that Atlas said it had installed at “no charge”) or Caroma items.

160. [826]

     My attention was not drawn to any evidence showing that any other item in Mr Madden’s schedule was otherwise than “equivalent” to Westinghouse, that being the standard specified in the Building Contract.

161. [827]

     As to the claim made by Atlas in the Payment Claim for “carpet”, the Directors contended for an amount of $151,515 for upgraded carpet.

162. [828]

     The Contract provided for “tile and carpet to living areas and kitchens” and “carpet to bedrooms” without specifying what standard of carpet was to be used.

163. [829]

     The Directors rely upon the conversation to which Mr Yazbek deposed with Mr Wong that I have set out above. [84] As I have set out, Mr Wong denied that conversation. For the reasons there set out, I am not able to be satisfied that the conversation took place as Mr Yazbek deposes.

164. [830]

     In any event, Mr Sweeney’s contemporaneous communications suggests that there was no carpet upgrade at the time.

165. [831]

     For example, on 16 August 2012, Atlas’s architect, Turner & Associates, wrote to Mr Sweeney stating:

166. [832]

     Mr Sweeney replied to that email stating:

167. [833]

     At that stage, carpet needed to be organised for Separable Portion 1 which appears to explain Mr Sweeney’s reference to the “first 185” apartments. His language is not that of change or upgrade.

168. [834]

     In those circumstances, I am not persuaded that the Directors have established that Atlas had an entitlement to the upgrades contended for.

169. [835]

     In the Payment Claim, Atlas referred to the following amounts as having been “paid to date”:

170. [836]

     Fitz Jersey contends that Atlas was not entitled to some of these amounts.

171. [837]

     The Building Contract provided for:

172. [838]

     Clause 2.1(b) of the Building Contract provided that Fitz Jersey would pay Atlas:

173. [839]

     By cl 2.6 of the Building Contract, Fitz Jersey agreed to reimburse Atlas “for all costs incurred in relation to the Contractor’s design obligations”.

174. [840]

     As I have set out earlier in relation to the question of whether WUC included design work, the expression “Contractor’s design obligations” was defined to mean:

175. [841]

     Item 10 was left blank.

176. [842]

     “Design documents” was defined, in turn, to mean:

177. [843]

     The Reimbursables were listed in Part E of the Building Contract as follows: [85]

178. [844]

     Fitz Jersey accepts that if a fee or a subcontractor cost was charged to Atlas and that fee or subcontractor cost fits properly within any of the bullet points set out under the heading “Exclusions and/or Principal costs”, that amount is properly reimbursable by Fitz Jersey to Atlas. Fitz Jersey accepts that it is not material if a particular fee or charge was shown under the wrong heading in the Payment Claim.

179. [845]

     In closing written submissions, the Directors contended that many of the claims made by Fitz Jersey for reimbursable costs were statute barred.

180. [846]

     However, cl 37.2 of the Building Contract provides that payments:

181. [847]

     In closing oral submissions, the Directors accepted that, by reason of that provision, Fitz Jersey’s claim for reimbursement of payments made by it to Atlas after entry into the Building Contract were not out of time.

182. [848]

     The Directors maintained the submission that Fitz Jersey was out of time to make a claim for reimbursement for payments made prior to entry into the Building Contract.

183. [849]

     However, as Fitz Jersey pointed out in reply submissions, the payments made by Fitz Jersey prior to entry into the Building Contract were included by Atlas in the Payment Claim as being “paid to date” and were thus treated by Atlas as being paid under the Building Contract.

184. [850]

     The Directors also maintained the submission that, because the provision in cl 37.2 concerning payments being “on account only” did not apply to the “final payment”, the clause had no application to the amount of the Adjudication Determination as that was a payment made in response to the Payment Claim.

185. [851]

     However, cl 37.4 of the Building Contract provides that, for a payment claim to be a “final payment” it must be endorsed as the “Final Payment Claim”.

186. [852]

     The Payment Claim was not so endorsed.

187. [853]

     For those reasons, the Directors’ limitation defences fail.

188. [854]

     In final written submissions the Directors pointed out that a company associated with Mr Wong, Emichrome Pty Ltd, made some $32 million in payments to Atlas. The Directors submitted:

189. [855]

     In closing oral submissions and in light of the provision in cl 37.2 of the Building Contract that such payments were “on account only”, this submission was not pressed.

190. [856]

     I turn now to Fitz Jersey’s claim regarding the four heads of reimbursements.

191. [857]

     Atlas made a claim for these “reimbursements” on the basis that they fell within the first bullet point referred to above, namely, “Consultants or any design fees”.

192. [858]

     Fitz Jersey accepts that, of this sum, Atlas was entitled to $6,046,518.

193. [859]

     The dispute is as to the balance of $1,383,365.24.

194. [860]

     Of that sum, Fitz Jersey’s quantity surveyor expert, Mr David Hardiman, has identified a large number of items that, in his opinion, cannot be characterised as “Consultants or any design fees”.

195. [861]

     The total amount of the items so identified is $1,083,611.27.

196. [862]

     Mr Hardiman listed the items that he contended could not be characterised as “consultants or any design fees” in the attached table, which also includes the response made to Mr Hardiman’s contentions by the Directors’ quantity surveyor, Mr David Madden, and Mr Hardiman’s rejoinder. Attachment B - Hardiman (773083, pdf)

197. [863]

     In closing submissions, the Directors accepted that Mr Madden had identified invoices totalling $314,855.42 that “are probably not reimbursable”.

198. [864]

     In closing submissions, Fitz Jersey identified invoices from five subcontractors identified in Mr Hardiman’s schedule as being “plainly not reimbursable” under any of the heads of Reimbursables and not otherwise chargeable.

199. [865]

     These were:

200. [866]

     Otherwise, in closing submissions, I was not taken to the detail of Mr Madden’s response to these, and other contentions of Mr Hardiman, nor to Mr Hardiman’s rejoinder.

201. [867]

     However, on behalf of Fitz Jersey it was submitted that:

202. [868]

     From my analysis of Mr Madden’s comments, this appears to be a fair summary of them.

203. [869]

     Mr Hardiman also identified a large number of invoices, totalling $299,754.49 which he summarised as being “claimed costs for which substantiation has not been found”.

204. [870]

     Mr Hardiman concluded invoices were not “substantiated” if he was not able to locate a hard or soft copy of the invoices, even if there were a “line item” in Atlas’s electronic Jobpac records that suggested such an invoice had been received by Atlas.

205. [871]

     Mr Hardiman summarised those costs in the document attached. Attachment C - Hardiman (2691235, pdf)

206. [872]

     However, as the Directors pointed out, all of the invoices in respect of which Atlas sought and obtained reimbursement from Fitz Jersey, including those under this heading, were recorded in Atlas’s Jobpac system by reference to the issuer of the invoice, and the date and amount of the invoice. Print outs from the Jobpac system recording these matters is in the Court Book.

207. [873]

     There is no suggestion that the Jobpac entries were maintained otherwise than in the normal course of business. I see no reason to doubt their accuracy.

208. [874]

     Accordingly, I find that an entry in the Jobpac system to be a sufficient substantiation of the existence of an invoice for present purposes.

209. [875]

     In these circumstances, I find that Fitz Jersey is entitled to be reimbursed for the amount that Mr Hardiman identified as not being able to be characterised as consultant’s fees: $1,083,611.27.

210. [876]

     Fitz Jersey accepts that Atlas was entitled to all but $123,610 of this amount, being:

211. [877]

     The Directors accepted that $33,039.36 of this amount is liable to be refunded to Fitz Jersey.

212. [878]

     As all the invoices under this heading were recorded in the Jobpac system, I find them to be substantiated.

213. [879]

     Otherwise, on the basis of Mr Hardiman’s conclusions, I allow Fitz Jersey the figure of $53,794.

214. [880]

     Of this amount, Fitz Jersey accepts that Atlas was entitled to be paid $87,806 and seeks to recover the difference of $221,606.

215. [881]

     Mr Hardiman and Mr Madden agree that $84,307.37 of the amount charged by Atlas to Fitz Jersey under this heading could not be substantiated in the sense I have outlined above.

216. [882]

     However, all the invoices were recorded in the Jobpac system and were thereby substantiated.

217. [883]

     As Fitz Jersey did not advance any other submission under this heading, I do not allow Fitz Jersey any amount on this account.

218. [884]

     Fitz Jersey accepts that, of this sum, Atlas was entitled to $59,252 and seeks to recover the difference of $244,209, of which sum, I was informed, the Directors allow $2,565.

219. [885]

     Mr Hardiman said he was not able to find substantiation for $107,381 of this amount and that, where substantiation was available, in the form of an invoice, it did not provide him with “assistance on understanding why the costs have been claimed”.

220. [886]

     Mr Madden agreed that there was no substantiation available for $77,173.65 of the amount that Atlas had claimed under this heading.

221. [887]

     Mr Hardiman’s analysis was contained in the attached schedule. Attachment D - Hardiman (9621855, pdf)

222. [888]

     In his schedule, Mr Hardiman did not identify which of the invoices in his schedule was not only not substantiated but also not otherwise claimable by Atlas. Fitz Jersey’s closing submissions took the matter no further.

223. [889]

     All the invoices under this heading were recorded in the Jobpac system and were thus substantiated.

224. [890]

     Accordingly, I am not prepared to make any allowance to Fitz Jersey on this account.

225. [891]

     I have found that the reduction in the number of units to be constructed from 515 to 500 was one of the subjects of the 2013 Agreement.

226. [892]

     It follows that any further claim by Fitz Jersey on this account is not available.

227. [893]

     Ultimately, it became common ground that the costs of lowering the basement into the water table was the subject of the 2013 Agreement and, for that reason, no further claim is available to Fitz Jersey on this account.

228. [894]

     For those reasons, my conclusions concerning the Building Contract issues are:

The Dividends claim

1. [895]

   I have set out above the circumstances that led to the Directors’ resolution on 6 February 2017 to declare the Dividends.

2. [896]

   Atlas was a single project company.

3. [897]

   That project was the Mascot Square Project which was complete well before 6 February 2017.

4. [898]

   The Directors were not proposing that Atlas engage in any further work. Atlas was, in effect, at the end of its working life. Indeed, Mr Yazbek wanted to retire.

5. [899]

   Atlas had no significant source of future income.

6. [900]

   Once the Dividends were paid, Atlas retained an amount in the order of $400,000.

7. [901]

   The evidence of both Mr Yazbek and Mr Sweeney was that this amount was set aside to fund claims that Atlas wished to pursue against Fitz Jersey, being the “other claims” that, in his email of 7 February 2017, Mr Mort had advised were “not easily proven”. [86]

8. [902]

   Mr Yazbek and Mr Sweeney did not intend for the funds retained by Atlas to be devoted to a defence of any future possible claims made by Fitz Jersey under the Building Contract, let alone to pay any such claim.

9. [903]

   As I have set out above, things moved rapidly following publication of the Adjudication Determination on 6 January 2017 and the issue of an Adjudication Certificate on 16 January 2017.

10. [904]

    Thus, so far as concerns the Garnishee Order:

11. [905]

    By no later than 31 January 2017, Mr Yazbek and Mr Sweeney had decided to declare the Dividends.

12. [906]

    Thereafter, steps to prepare the documents necessary to cause the Dividends to be paid were taken urgently and in anticipation of Atlas’s receipt of the proceeds of the Garnishee Order (the “Garnisheed Amount”).

13. [907]

    Thus:

14. [908]

    Throughout the project, it had been Mr Yazbek’s and Mr Sweeney’s practice to declare dividends in favour of Kebzay and Sweenham, rather than pay themselves a salary or drawings.

15. [909]

    However, so far as Kebzay and Sweenham were concerned, there was no pressing need for the declaration of the Dividend in their favour to be made on 6 February 2017.

16. [910]

    As to Kebzay, Mr Yazbek gave this evidence:

17. [911]

    Atlas paid Kebzay the Dividend of $6,103,420 on 8 February 2017.

18. [912]

    On 9 February 2017, Kebzay transferred $6,103,000 to Kebzay Investments Pty Ltd where the funds remained until 27 June 2017.

19. [913]

    In those circumstances, Mr Vartuli gave this evidence:

20. [914]

    Atlas paid the Dividend of $678,156 to Sweenham on 8 February 2017.

21. [915]

    It remained in Sweenham’s bank account until 20 February 2017 until it was transferred to a company called SGS Investments Pty Ltd.

22. [916]

    The funds were largely used to contribute to the acquisition of a property in Bondi by a company called Castlefield Corner Pty Ltd in May 2017.

23. [917]

    Mr Sweeney gave this evidence in an affidavit he swore shortly before the hearing:

24. [918]

    I discuss these matters in greater detail below when dealing with the question of tracing.

25. [919]

    For present purposes, the point is that neither Kebzay nor Sweenham was in urgent need of funds as at 6 or 8 February 2017.

26. [920]

    The pace with which matters progressed from mid-January 2017 to 6 February 2017 shows that Mr Yazbek and Mr Sweeney had determined to enforce the Adjudication Determination as vigorously and expeditiously as possible and to declare the Dividends and thereby dispose of the vast bulk of the proceeds of the Adjudication Determination and the Garnisheed Amount as soon as possible.

27. [921]

    They kept a close watch of the progress of NAB’s processing of the Garnishee Order, the likely time of the funds’ arrival in Atlas’s account and of the clearance of those funds, the current pendency of the 2017 Proceedings, including Fitz Jersey’s 6 February 2017 application to have the amount of the Adjudication Determination returned to Fitz Jersey so that it could pay the funds into Court.

28. [922]

    As soon as Mr Mort told Mr Sweeney and Mr Yazbek that Fitz Jersey’s application had been unsuccessful, and without getting a final clearance from Mr White, Mr Yazbek and Mr Sweeney resolved to declare the Dividend.

29. [923]

    Neither Kebzay nor Sweenham had a need for the funds that would warrant such haste.

30. [924]

    Mr Yazbek agreed in cross-examination that the declaration of the Dividend left no money sufficient for Atlas to continue to defend the proceedings commenced by Fitz Jersey. Thus, Mr Yazbek gave this evidence:

31. [925]

    Mr Yazbek continued:

32. [926]

    Mr Yazbek and Mr Sweeney must have known that Mr Wong would cause Fitz Jersey to seek to recover the money that had been garnisheed from Fitz Jersey’s account.

33. [927]

    Mr Sweeney was referred to that possibility when he said in his 1 February 2017 email that “circumstances may change in the near future”; [87] as both Mr Sweeney [88] and Mr Yazbek [89] acknowledged.

34. [928]

    Indeed, Mr Yazbek said he understood that Mr Wong would “make our life hell unless we make sure we cross all our I’s and dot all our t’s [sic].” [90]

35. [929]

    Further, Mr Yazbek gave this evidence about his state of mind after Mr Mort told him of the Holland Letter:

36. [930]

    Mr Sweeney must also have understood this.

37. [931]

    In these circumstances, my conclusion is that, as Fitz Jersey submitted, Mr Yazbek’s and Mr Sweeney’s motivation in declaring and paying the Dividends was to remove funds from Atlas before Fitz Jersey could further progress the claim they understood Fitz Jersey was bound to make to recover the Garnisheed Amount, being the claim foreshadowed in Ms Holland’s 5 February 2017 email [91] and, in terms, following declaration of the Dividends in the Holland Letter which foreshadowed a “claim for repayment of the garnisheed amount of $11,023,799.76”.

38. [932]

    It is well established that the object of the SOPA is to provide “a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract”. [92] The Act creates “a ‘pay now, argue later’ system for the prompt resolution of disputes concerning progress payments”. [93] Under that system, “a progress payment, on account, should be made promptly and … any disputes over the amount finally due should be decided separately”, with that later “final determination” to “be by a court or by an agreed alternative dispute resolution procedure”. [94]

39. [933]

    Inherent in a payment under the SOPA is that is it provisional. Thus, in Lahey Constructions Pty Ltd v State of New South Wales, [95] Bell P [96] stated:

40. [934]

    A payment under the SOPA is an “interim payment on account”. [97]

41. [935]

    By February 2017, Mr Yazbek and Mr Sweeney had been engaged in the construction industry for many years. Mr Yazbek obtained his building qualifications and licence in 1979 and had worked in the construction industry between then and the time of the Mascot Square Project. Mr Sweeney had been involved in the building industry since 1999.

42. [936]

    Both must have been familiar with the SOPA and the interim nature of payments made under that Act.

43. [937]

    At the Liquidator’s Examination, Mr Sweeney agreed that he understood this.

44. [938]

    Thus, he gave this evidence:

45. [939]

    Before me, Mr Sweeney stated that this evidence was true.

46. [940]

    On the other hand, Mr Yazbek gave this evidence before me:

47. [941]

    I do not accept this evidence. I do not accept that a builder with Mr Yazbek’s vast experience in the construction industry would not understand that payments made under the SOPA were interim or provisional and thus that the payment to Atlas of the amount garnisheed from Fitz Jersey’s bank account was not a final payment but was one that Fitz Jersey could contest on the occasion when Atlas’s and Fitz Jersey’s final rights under the Building Contract were determined.

48. [942]

    Mr Yazbek accepted that he ensured that Atlas sent its clients a notation that “[t]his is a claim under the Building and Construction Industry Security of Payment Act”. He said he understood that “if a payment schedule was not provided in response to a payment claim within time, the full amount claimed would become payable under the Security of Payment Act”. He had been to the adjudication stage under the SOPA on a previous occasion. He had attended Continuing Professional Development seminars that referred to the SOPA and its basic features. He acknowledged that the SOPA was “a big game-changer in the industry in terms of payment”.

49. [943]

    In any event, later in his cross-examination, Mr Yazbek said that he understood, in early February 2017 that “there was a possibility that Mr Wong may pursue Atlas under the contract”.

50. [944]

    The Directors relied on the advice they got from Mr Mort and Mr White.

51. [945]

    Turning first to Mr Mort, I have set out that in mid-October 2016, Mr Sweeney, on behalf of Atlas, retained Mr Mort to advise Atlas about the recovery of what Mr Sweeney described to Mr Mort as being “a lot of money under the construction contract” that Fitz Jersey owed Atlas. [98]

52. [946]

    Mr Mort advised Atlas to proceed under the SOPA by issuing a payment claim.

53. [947]

    Mr Mort gave advice as to the contents of the Payment Claim and, later, the Adjudication Application.

54. [948]

    Mr Mort also gave advice to Mr Yazbek and Mr Sweeney as to the contentions advanced by Fitz Jersey in the Payment Schedule and in the Adjudication Response.

55. [949]

    That advice included:

56. [950]

    As I have said, Mr Yazbek and Mr Sweeney did not seek Mr Mort’s advice about the Dividends. Mr Mort said he did not become aware of the payment of the Dividends until the middle of 2018.

57. [951]

    Mr Yazbek and Mr Sweeney were cross-examined as to whether they sought advice from Mr Mort about what was described in submissions as “Atlas’ final rights”; that is, as to what entitlement Atlas would ultimately be shown to have as against Fitz Jersey under the Building Contract.

58. [952]

    Mr Yazbek gave this evidence:

59. [953]

    The cross-examination later turned to when Mr Mort told Mr Yazbek about the Holland Letter, and thus of Fitz Jersey’s stated intention to amend its Summons to include a claim for repayment of the Garnisheed Amount on the basis that Atlas was not entitled to these monies under the Building Contract. Mr Yazbek gave this evidence:

60. [954]

    In the passages I have emphasised, Mr Yazbek gives an account of the advice he received from Mr Mort which goes beyond that which I have set out above, particularly from Mr Mort’s affidavit itself.

61. [955]

    Mr Sweeney gave more nuanced evidence:

62. [956]

    A short time later, Mr Sweeney gave this evidence:

63. [957]

    In his affidavit, Mr Mort said:

64. [958]

    I find this unchallenged evidence to be the most reliable guide as to what advice Mr Mort in fact gave Mr Yazbek and Mr Sweeney about Atlas’s “entitlement” to the Garnisheed Amount. It accords in substance with Mr Sweeney’s evidence.

65. [959]

    Contrary to Mr Yazbek’s evidence, I think it unlikely that Mr Mort would have advised that there was “no hope for [Fitz Jersey] to get their money” or that Atlas had “received everything according to the contract”. Mr Mort was an experienced construction lawyer, obviously familiar with the SOPA and the provisional and interim nature of payments made under the SOPA. The only information Mr Mort had about Fitz Jersey’s position under the Building Contract was that revealed in the Payment Schedule and in the Adjudication Determination; namely, the reference date point and Fitz Jersey’s contentions concerning the 2013 Agreement.

66. [960]

    Mr Mort obviously thought little of the reference date point and, so far as concerns the 2013 Agreement was doubtless being guided by his instructions from Mr Yazbek, Mr Sweeney and Mr Vartuli as to what occurred at the February 2013 Meeting. Otherwise, he was in no position to advise Mr Yazbek and Mr Sweeney that there was “no hope” that Fitz Jersey would ultimately prevail or that Atlas had received “everything according to the contract”. Indeed, in closing submissions, it was submitted on behalf of both Fitz Jersey and the Directors that Mr Mort was not in a position to give such advice.

67. [961]

    In any event, it was not put to Mr Mort that he gave advice to the effect alleged by Mr Yazbek.

68. [962]

    Mr Mort’s advice was confined to the task at hand: making the Payment Claim, following it up with the Adjudication Application, realising the proceeds of the resultant Adjudication Determination and advising on Fitz Jersey’s prospects of overturning the Adjudication Determination.

69. [963]

    I have found that Mr Yazbek and Mr Sweeney understood that the payment to Atlas represented by the Garnisheed Amount was interim and provisional and that, to adopt Mr Sweeney’s words at the Liquidator’s Examination, that “Fitz Jersey could make a claim under the contract”. [107] They must have known that Mr Wong would cause Fitz Jersey to seek to enforce such rights as it had under the Building Contract and, to the extent possible, recover the Garnisheed Amount.

70. [964]

    They did not seek, and Mr Mort did not give advice about that matter.

71. [965]

    I have described how, on 31 January 2017, Mr Vartuli, on behalf of Atlas, retained Mr White to provide Mr Yazbek and Mr Sweeney with “advice as [to] whether they are able to pay a dividend and what matters they will need to consider” in that regard.

72. [966]

    As I have set out, Mr White gave the following advice:

73. [967]

    Ultimately, in cross-examination, Mr White gave this evidence:

74. [968]

    As this evidence reveals, the advice Mr White gave Mr Vartuli and Mr Sweeney was limited. It was limited to the matters arising under s 245T of the Corporations Act and under Atlas’s Constitution that would require consideration before a dividend was declared. It was also as to the form of the minutes to record the declaration of the Dividends; although, as Mr White noted in the last sentence I have set out, ultimately a different form of Minutes was used than that which Mr White recommended.

75. [969]

    In this evidence, Mr White is clear that he did not give advice about whether it was “a good idea” for Mr Vartuli and Mr Sweeney to declare a dividend or whether the declaration of the Dividends was “permitted” under either s 254T or under the Constitution.

76. [970]

    Thus, although Mr Vartuli retained Mr White to give advice “as [to] whether they are able to pay a dividend”, Mr White did not give any advice to that effect. The advice ultimately given was of a mechanical nature. As he said, he did not seek to give a “papal blessing” to the declaration of the Dividends.

77. [971]

    Section 254T of the Corporations Act provides:

78. [972]

    Section 124(1)(d) of the Corporations Act provides that a company has the power to “distribute any of the company’s property among the members”. Section 254U, which applies as a replaceable rule, [108] permits directors of a company to determine that a dividend is payable and to fix the amount of the dividend, the time for payment of the dividend and the method of its payment. As a replaceable rule, s 254U may be displaced by a company’s constitution. [109] Here, Atlas’s Constitution provided that replaceable rules applied to the extent that they were not displaced or modified by the Constitution. The Constitution then effectively restated s 245U but also provided that a dividend could only be paid out of the profits of the company.

79. [973]

    The effect of s 124(1)(d) and the relevant provisions of Atlas’s Constitution was to confer upon the Directors a discretionary power to declare and pay dividends.

80. [974]

    That power was to be exercised in a manner consistent with the requirements of s 254T and Atlas’s Constitution.

81. [975]

    The present form of s 254T was introduced into the Corporations Act by the Corporations Amendment (Corporate Reporting Reform) Act 2010 (Cth). Prior to the amendment, s 254T provided that a “dividend may only be paid out of profits of the company”.

82. [976]

    Since s 254T has been amended, it is now lawful to pay dividends out of capital provided that the requirements of s 254T are observed.

83. [977]

    As set out above, s 254T(1)(a) provides that a company must not pay a dividend unless immediately before the dividend is declared its assets exceed its liabilities by an amount sufficient for the payment of the dividend.

84. [978]

    Section 254T(2) provides that, for that purpose, a company’s assets and liabilities are to be calculated in accordance with accounting standards in force at the relevant time.

85. [979]

    Fitz Jersey and the Directors adduced evidence from expert accountants on this question; Mr John Leotta for Fitz Jersey and Mr Christopher Westworth for the Directors.

86. [980]

    In their joint report, Mr Leotta and Mr Westworth agreed:

87. [981]

    The Garnisheed Amount received by Atlas on 3 February 2017 was an asset in Atlas’s hands.

88. [982]

    However, as the experts agreed, if the Garnisheed Amount could not be recognised as revenue, then a corresponding liability was also necessary to be recognised.

89. [983]

    Mr Leotta explained this in concurrent evidence in answer to a question from me:

90. [984]

    Mr Westworth did not dispute this statement by Mr Leotta. Indeed, it is consistent with the last bullet point of their agreed position, as I have set out above.

91. [985]

    Thus, the experts’ agreed position was that if the Garnisheed Amount could not be recognised as revenue, Atlas could treat it as an asset (cash at bank) but would also have to book a liability being “deferred revenue”.

92. [986]

    Mr Leotta and Mr Westworth, in their reports, referred to two accounting standards, AASB 111 and AASB 137.

93. [987]

    The only standard to which the experts referred to as being relevant to the question of whether the Garnisheed Amount could be treated as revenue was AASB 111. AASB 111 is entitled “Construction Contracts”.

94. [988]

    As I have set out, Mr Leotta and Mr Westworth agreed that “the contract between Atlas and Fitz Jersey was one that was subject to the requirements of AASB 111”. The debate between Mr Leotta and Mr Westworth was whether the requirements of AASB 111 were satisfied. Mr Leotta contended that they were not, and Mr Westworth contended that they were.

95. [989]

    Nonetheless, in closing written submissions the Directors contended that AASB 111 had no application to payments made under the SOPA. I will return to this below.

96. [990]

    It was common ground between Mr Leotta and Mr Westworth that AASB 137 only has application if AASB 111 is not engaged.

97. [991]

    AASB 111 came into effect on 1 January 2005.

98. [992]

    It describes its “objective” as follows:

99. [993]

    As is there stated, a “primary issue in accounting for construction contracts is the allocation of contract revenue”.

100. [994]

     The Standard dealt with contract revenue in cll 11 to 15.

101. [995]

     Clause 12 provided that:

102. [996]

     Neither Mr Leotta nor Mr Westworth contended that Atlas’s receipt of the Garnisheed Amount should be treated as “consideration received” for the purposes of cl 12 of the Standard. That was, no doubt, because Atlas did not receive the Garnisheed Amount as a payment under the Building Contract, but, rather, under the SOPA and on account of its entitlements under the Building Contract.

103. [997]

     Instead, Mr Leotta and Mr Westworth focused on cl 14 of the Standard which is in the following terms:

104. [998]

     Clause 14 is directed to the question of whether a contractor may treat as contract revenue an amount that is not “received” or “receivable” under the construction contract but is, rather, an amount that the contractor “seeks to collect” under the construction contract from the principal for “costs not included in the contract price”.

105. [999]

     The clause refers to the uncertainty which might arise in relation to such a claim. It is directed to whether a sufficient level of certainty can be established as to the claim being realised so as to warrant it being included in contract revenue.

106. [1000]

     The clause speaks of certainty often depending on the outcome of negotiations and then refers to matters that must be established in order that an amount claimed may be included in contract revenue.

107. [1001]

     Those matters are, implicitly, that negotiations have taken place, and explicitly that, first, negotiations have reached an advanced stage such that it is probable the customer will accept the claim, and second, the amount that the customer will accept can be measured reliably.

108. [1002]

     Here, there had been no negotiations between Fitz Jersey and Atlas, let alone negotiations that had reached an advanced stage such that the amount Fitz Jersey would be willing to accept in relation to the amounts sought in the Payment Claim could then be measured reliably. Instead, Atlas had invoked the provisions of the SOPA and achieved success; albeit on the interim or provisional basis for which the SOPA provides.

109. [1003]

     I raised this matter with Mr Westworth as follows:

110. [1004]

     Mr Westworth’s contention that the requirements of cl 14 were satisfied was based upon his understanding that a payment to a contractor under the SOPA was equivalent to a payment following a final determination of the contractor’s rights as against the principal.

111. [1005]

     Thus, Mr Westworth gave this evidence:

112. [1006]

     Mr Westworth was not correct in thinking that an adjudication process under the SOPA had the effect of “exhausting all the processes that the building contract allows”.

113. [1007]

     In those circumstances I cannot see how the requirement of AASB 111 were satisfied.

114. [1008]

     If they were not, and if AASB 111 applies, Atlas was not entitled to book the Garnisheed Amount as revenue under AASB 111 and was obliged to book the liability as deferred revenue.

115. [1009]

     As I have said, the Directors contended that, despite Mr Westworth’s focus on AASB 111, that Standard did not apply to claims made under the SOPA.

116. [1010]

     It is true that the Standard does not refer, in terms, to the SOPA. But the Standard came into effect after the SOPA was proclaimed and deals specifically with construction contracts. Further, the opening sentence of cl 14 is expressed sufficiently widely to cover any claim that a contractor seeks to collect for costs not included in the price under the construction contract.

117. [1011]

     In any event, as I have said, Mr Westworth accepted that the Standard applied to the Building Contract and did not dispute the potential application of the Standard to Atlas’s receipt of the Garnisheed Amount under the SOPA.

118. [1012]

     The result is that, as at 6 February 2017, the date that the Dividends were declared, Atlas did not have assets exceeding its liabilities sufficient to allow payment of the Dividends.

119. [1013]

     Accordingly, the requirements for s 254T(1)(a) were not satisfied.

120. [1014]

     The Directors pointed to what they contended to be alarming consequences from this conclusion.

121. [1015]

     These were encapsulated in questions that the Directors’ senior counsel put to Mr Leotta in cross-examination, in this passage:

122. [1016]

     Thus, Mr Leotta’s evidence, which I accept, was that the fact that a payment received by a contractor under the SOPA could not be treated as revenue did not have the effect that the contractor could not use the money.

123. [1017]

     As Fitz Jersey submitted:

124. [1018]

     What Atlas could not do in this case was to use the Garnisheed Amount received under the SOPA to fund the payment of the Dividends because, for the reasons I have set out, at the time the Dividends were declared Atlas’s assets did not exceed its liabilities sufficient for the payment of the Dividends.

125. [1019]

     As Fitz Jersey submitted:

126. [1020]

     AASB 137 is entitled “Revisions, Contingent Liabilities and Contingent Assets”.

127. [1021]

     As I have found that AASB 111 applied to the Garnisheed Amount received by Atlas, it is not necessary to consider the application of this Standard.

128. [1022]

     Section 254T(1)(c) provides that a company must not pay a dividend unless the payment of the dividend “does not materially prejudice the company’s ability to pay its creditors”.

129. [1023]

     I have found that under the Building Contract, Atlas was not entitled to claim and recover all the amounts in the Payment Claim, and was, therefore, not entitled to the entirety of the Garnisheed Amount.

130. [1024]

     In particular, I have found that:

131. [1025]

     I have found that Atlas was not disentitled to an Early Completion Bonus by reason only of work to Separable Portions 1 and 2 commencing on different dates. I have also made findings in relation to the extensions of time to which Atlas was entitled. However, I received no submissions about, and am unable to determine, the value of any Early Completion Bonus to which Atlas was entitled. In particular, I am not able to say whether Atlas was entitled to the Early Completion Bonuses claimed in the Payment Claim: $1,229,800 for Separable Portion 1 and $600,000 for Separable Portion 2. It was not suggested on behalf of the Directors that Atlas was entitled to a greater Early Completion Bonus than was claimed in the Payment Claim.

132. [1026]

     Accordingly, the amount that Atlas recovered from Fitz Jersey under the SOPA, the Garnisheed Amount, is considerably in excess of its entitlement under the Building Contract (the “Excess”).

133. [1027]

     Although the amount of the Excess can only be determined by reference to my findings concerning the Building Contract issues, Fitz Jersey’s entitlement to the Excess has existed at all times since the events giving rise to that entitlement occurred.

134. [1028]

     The making of the Adjudication Determination and Atlas’s successful recovery of the amount the subject of the Adjudication Determination did not alter this.

135. [1029]

     This is by reason of s 32 of the SOPA which provides that nothing in Pt 3 of the SOPA affects any right that a party to a construction contract may have under the contract.

136. [1030]

     By reason of cl 37.2 of the Building Contract, all payments made by Fitz Jersey to Atlas, [110] were on account only. Fitz Jersey had a contractual right to repayment of amounts overpaid.

137. [1031]

     On the date that the Dividends were paid, 8 February 2017, Fitz Jersey was not able to articulate its claim for the Excess. That was because of what Fitz Jersey described as the “information asymmetry” between it and Atlas at that time. Fitz Jersey was not able to articulate its claim for the Excess until it had access to the relevant documentation during the course of 2017, in the circumstances I have described.

138. [1032]

     But Fitz Jersey’s entitlement to the Excess existed from February 2017 by reason of:

139. [1033]

     Contrary to the Directors’ submissions, it is not the case that as at 8 February 2017, “Fitz Jersey had no ‘s 32’ claim under the contract against Atlas”. Fitz Jersey had not then made a “s 32 claim” and did not do so until December 2017. But Fitz Jersey’s entitlement to make a “s 32 claim” had by then accrued. There was nothing more that needed to occur to perfect Fitz Jersey’s entitlement to bring its “s 32” claim, apart from it obtaining documents from Atlas to enable it to know the true extent of that claim and how to frame the claim. The events giving rise to its claim had occurred prior to Atlas’s receipt of the Garnisheed Amount. No doubt the time during which Fitz Jersey was required to bring the claim had started running well before Atlas received the Garnisheed Amount.

140. [1034]

     For those reasons, my conclusion is that Fitz Jersey was a creditor of Atlas on the date that the Dividends were paid.

141. [1035]

     I have been able to reach this conclusion without reference to authority.

142. [1036]

     Cases decided in the context of Ch 5 of the Corporations Act have accepted that the word “creditor” may extend to those entitled to prove in a winding up: for example, Heesh v Baker. [111]

143. [1037]

     In Re Centro Properties Ltd and CPT Manager Ltd in its capacity as responsible entity of Centro Property Trust, [112] Barrett J (as his Honour then was) expressed the tentative view that:

144. [1038]

     His Honour qualified his tentative opinion by pointing out that, because the Corporations Act has no general definition of “creditor”, the “meaning of the term in a particular provision will be very much influenced by context”. [114]

145. [1039]

     His Honour observed that:

146. [1040]

     I see nothing in these observations inconsistent with my conclusion that Fitz Jersey was a creditor of Atlas on 8 February 2017. That is, whether or not Barrett J’s tentative conclusion that “creditor” for the purposes of s 254T includes any party that would be entitled to prove in a hypothetical winding up (which, of course, would include Fitz Jersey as it has in fact proved in Atlas’s winding up), Fitz Jersey was, in my opinion, on any view of the matter, a creditor of Atlas at the relevant time.

147. [1041]

     The parties also referred to the recent consideration by Ball J of s 254T in DSHE Holdings (Receivers & Managers Appointed) (in liq) v Abboud (No 3), National Australia Bank Ltd v Abboud (No 4). [116]

148. [1042]

     His Honour considered whether the reference to “creditor” in s 254T included a reference to future creditors and said:

149. [1043]

     Although the Directors relied upon this passage, I do not think it assists them. Fitz Jersey was not a “future creditor” of the kind to which Ball J was referring in the passage I have emphasised. It was not a person who did not “exist” at the time the Dividends were paid. The “future creditors” in focus in DSHE Holdings were persons with whom the relevant entity could in the future be expected to contract and incur debts to at some undefined future point during the course of its trade. Fitz Jersey was not in that position. It was in an existing contractual relationship with Atlas and was a party that, I have found, by reason of the SOPA, had overpaid its counter party and was entitled to recoup the overpayment.

150. [1044]

     For these reasons, my conclusion is that Fitz Jersey was a “creditor” of Atlas on the date the Dividends were paid.

151. [1045]

     In DSHE Holdings, Ball J noted that there was no case directly on point on the question of what constituted a material prejudice to a company’s ability to pay its creditors for the purposes of s 254T(1)(c). However, his Honour noted that identical wording in other sections of the Corporations Act had received judicial consideration. [118]

152. [1046]

     Thus, in In the matter of CSR Ltd, [119] Keane CJ and Jacobson J said, in relation to s 256B of the Corporations Act: [120]

153. [1047]

     Ball J, in DSHE Holdings, added that:

154. [1048]

     In Connective Services Pty Ltd v Slea Pty Ltd, [123] the High Court said of s 260A of the Corporations Act: [124]

155. [1049]

     I see no reason why s 254T(1)(c) should not be construed in conformity with these authorities. This was evidently Ball J’s view in DSHE Holdings.

156. [1050]

     Section 254T provides that a company “must not” pay a dividend “unless”, relevantly, the payment of the dividend does not materially prejudice its ability to pay its creditors.

157. [1051]

     In relation to a relevantly indistinguishable provision in the Corporations Act, it has been held a company will not be able to take the proscribed action unless affirmatively satisfied that taking the action will not so prejudice its ability to pay its creditors.

158. [1052]

     Thus, in In the matter of Molopo Energy Ltd; Molopo Energy Ltd v Keybridge Capital Ltd, [126] White J (as his Honour then was) said, in relation to s 256B(1) of the Corporations Act (which provides that a company may reduce its share capital if the reduction does not materially prejudice the company’s ability to pay its creditors):

159. [1053]

     White J’s decision was cited with approval by Markovic J in Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (in liq) (Receivers and Managers Appointed) which was concerned with s 257A of the Corporations Act, which provides a company may buy back its own shares if the buy-back does not materially alter its ability to pay its creditors. [128]

160. [1054]

     White J found support for his conclusion in s 1324(1B) of the Corporations Act which provides that if the ground relied on in an application for an injunction under s 1324(1) was a contravention of, relevantly, s 256B, the court must assume the conduct complained of contravenes the section unless “the company or person proves otherwise”.

161. [1055]

     Thus, his Honour said, immediately after the passage I have set out:

162. [1056]

     Section 254T is not referred to in s 1324B(1B) and my attention was not directed to any other like provision of the Corporations Act in which s 254T is referred to.

163. [1057]

     However, in my opinion the language used in s 254T, which is, if anything, stronger than that used in ss 256B and in ss 257A, is itself sufficient to compel the same conclusion in relation to s 254T as White J came to in relation to s 256B and Markovic J in relation to s 257A.

164. [1058]

     A company “must not” pay a dividend “unless” each of the requirements of s 254T(1)(a), (b) and (c) is satisfied. On its proper construction, the effect of the section is that unless it can be affirmatively said by a company that the declaration of a dividend will not materially prejudice its ability to pay its creditors, the payment of the dividend is prohibited.

165. [1059]

     The Directors did not make a submission to the contrary. Indeed, their closing submissions in effect accepted that this was correct.

166. [1060]

     For the reasons I have set out, my conclusion is that Fitz Jersey was a creditor of Atlas when the Dividends were paid on 8 February 2017.

167. [1061]

     It is obvious that the payment of the Dividends did, as a matter of fact, materially prejudice Atlas’s ability to pay Fitz Jersey whatever amount Fitz Jersey might ultimately prove to be its entitlement under the Building Contract: as it turns out, the Excess.

168. [1062]

     For that reason alone, Atlas was not entitled to pay the Dividends.

169. [1063]

     Further, Atlas was not able to pay the Dividends unless it was affirmatively able to say that the payment of the Dividends would not materially prejudice its ability to pay its creditors, and Fitz Jersey in particular. For all practical purposes, this means that Atlas could not resolve to pay the Dividends unless Mr Yazbek and Mr Sweeney could have had such affirmative satisfaction.

170. [1064]

     In my opinion, they could not have been so affirmatively satisfied.

171. [1065]

     It is true that Mr Yazbek’s and Mr Sweeney’s only knowledge of Fitz Jersey’s contentions concerning its entitlements under the Building Contract were those revealed in the Payment Schedule and in the Adjudication Response. It is also true that I have found that their view about Fitz Jersey’s contentions concerning the 2013 Agreement was correct.

172. [1066]

     However, they:

173. [1067]

     In these circumstances, my opinion is that Fitz Jersey was correct to submit that Mr Yazbek and Mr Sweeney could not have had the requisite level of satisfaction that payment of the Dividends would not materially prejudice Atlas’s ability to pay its creditors, while there was any significant uncertainty regarding the position vis-à-vis Fitz Jersey.

174. [1068]

     For the reasons I have set out, there was considerable uncertainty about that position.

175. [1069]

     In closing submissions, on behalf of the Directors, the rhetorical question was asked: how long must the Directors of a company that has received a payment under the SOPA wait for a “section 32” claim to be made before declaring a dividend from the funds received?

176. [1070]

     Thus, the Directors submitted:

177. [1071]

     In closing oral submissions, senior counsel for the Directors said:

178. [1072]

     These submissions do not take into account the extraordinary circumstances in which the Directors found themselves in February 2017.

179. [1073]

     The Directors knew that Atlas was, in February 2017, at the end of its corporate life, had no significant future revenue, was in a dispute with Fitz Jersey under the Building Contract and would have minimal assets if the Dividends were paid.

180. [1074]

     It was for Atlas, and thus, in effect, for the Directors, to achieve the requisite level of satisfaction that the Dividends could be declared in light of the provisions of s 254T of the Corporations Act. Atlas could not lawfully declare the Dividends until the requisite degree of certainty could be achieved.

181. [1075]

     Steps Atlas could have taken, short of waiting for the expiry of the limitation period, included:

182. [1076]

     Atlas was not obliged to take any such steps. But nor was it entitled to pay the Dividends otherwise than consistently with s 245T.

183. [1077]

     As Fitz Jersey submitted, if this was a problem for the Directors, that was because of the unusual circumstances I have set out above. As was put in final submissions

184. [1078]

     On behalf of the Directors it was submitted that Fitz Jersey’s case did not “contemplate the counterfactual that if a declaration of dividends was not made on 6 February 2017, it would have inevitably been made at the end of the 2017 financial year at a point in time when no claim was still forthcoming from Fitz Jersey and there is no evidence that, at that point in time, Atlas was disentitled from declaring the dividend”.

185. [1079]

     The submission was made in support of the proposition that Fitz Jersey had suffered no loss by reason of the declaration of the Dividends.

186. [1080]

     For present purposes, the point is that there is no evidence from either Mr Yazbek or Mr Sweeney that, had they not resolved to declare the Dividends on 6 February 2017 they would have “inevitably” done so by 30 June 2017.

187. [1081]

     In any event, the circumstances that existed as at 6 February 2017, that have led me to conclude that the payment of the Dividends was in contravention of s 254T of the Corporations Act, still obtained as at 30 June 2017. This is notwithstanding the fact that Fitz Jersey had not, by then, articulated the basis on which it was to make its claim under the Building Contract.

Claim under s 37A of the Conveyancing Act

1. [1082]

   Section 37A(1) of the Conveyancing Act provides, relevantly, that:

2. [1083]

   The section requires three elements to be proved.

3. [1084]

   Here, there was an alienation of property, being the payment by Atlas of the Dividends.

4. [1085]

   There was no controversy about this before me.

5. [1086]

   This is the key element for the purposes of these proceedings. There was no controversy as to the relevant principles.

6. [1087]

   They are that:

7. [1088]

   In my opinion, all of those elements are present in this case and show that Atlas, by acting through Mr Yazbek and Mr Sweeney, had the requisite intention. There was no pressing need to declare the Dividends. The Dividends were declared in great haste. Mr Yazbek’s state of mind was that Atlas was “going to pay the dividend no matter what”.

8. [1089]

   Most importantly, the Directors’ motivation was to remove funds from Atlas before Fitz Jersey could further progress the claim they understood Fitz Jersey was bound to make to recover the Garnisheed Amount, as foreshadowed in Ms Holland’s 5 February 2017 email and in the Holland Letter. The effect of the declaration of the Dividends was to leave Atlas with no money to deal with Fitz Jersey’s foreshadowed claim, let alone sufficient to refund the Garnisheed Amount.

9. [1090]

   It is true that the Directors sought advice from Mr Mort and Mr White. However, that advice was limited in the ways I have set out above.

10. [1091]

    I find that Atlas paid the Dividends with the intent of defrauding its creditor, Fitz Jersey, within the meaning of s 37A as construed by the authorities to which I have referred.

11. [1092]

    A creditor is prejudiced for the purpose of s 37A if the debtor has put the asset, or its worth, beyond the reach of creditors. [138]

12. [1093]

    As Fitz Jersey was a creditor of Atlas when the Dividends were paid, and the effect of the declaration of the Dividends was to put that part of the Garnisheed Amount beyond Fitz Jersey’s reach, Fitz Jersey was a “person thereby prejudiced” for the purpose of s 37A.

13. [1094]

    For that reason, the declaration of the Dividends is voidable at Fitz Jersey’s instance.

14. [1095]

    The Court can achieve the effect of avoiding a transaction made in the circumstances contemplated by s 37A “by such measures as seem appropriate in the case”. [139]

15. [1096]

    In its List Statement, Fitz Jersey seeks orders avoiding the payment of the Dividends.

16. [1097]

    I propose to make orders avoiding the payment of the Dividends and causing them to be “restored” [140] to Atlas.

Breach of director’s duties

1. [1098]

   In final submissions, Fitz Jersey submitted that by declaring the Dividends the Directors acted in breach of three duties they owed Atlas.

2. [1099]

   There was no dispute before me as to the principles relevant to those duties.

3. [1100]

   A director must act bona fide in the interest of a company as a whole.

4. [1101]

   The duty is a subjective one.

5. [1102]

   In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), [141] Drummond AJA said: [142]

6. [1103]

   Though the test as described here is subjective, there are limits. A director cannot escape the reach of the duty by adjudging the interests of the company to be such as no reasonable board of directors would judge those interests to be: R P Austin and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) at [8.100.6].

7. [1104]

   In considering what is in “the best interest of the corporation” directors may have to consider the interest of creditors.

8. [1105]

   Thus, in Australian Securities and Investments Commission v Maxwell, [143] Brereton J (as his Honour then was) said:

9. [1106]

   Similarly, in Kalls Enterprises Pty Ltd (in liq) v Baloglow, [145] Giles JA observed:

10. [1107]

    The “real and not remote risk” test is adopted in Ford, Austin and Ramsay’s Principles of Corporations Law [146] where it is suggested that the duty to consider the interests of creditors arises where a company is “facing insolvency (there is a real and not remote risk of insolvency)” or where “some contemplated transaction threatens the solvency of the company.”

11. [1108]

    Fitz Jersey submitted that the Directors also had a duty not to permit their interests to conflict with the interests of Atlas.

12. [1109]

    It has been held that the “modern Australian formulation of the conflict rule” [147] that the fiduciary “is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons to whom he is bound to protect”. [148]

13. [1110]

    The Directors accepted that the relationship between a director and a company is a traditional, status based, fiduciary relationship, [149] and did not dispute they owed this duty to Atlas and that the duty was fiduciary in nature.

14. [1111]

    Finally, Fitz Jersey submitted that the Directors had a duty “not to exercise a power conferred upon the relevant director in order to obtain some private advantage or for any purpose foreign to the power (that is, to exercise the powers conferred upon him for a proper purpose)”.

15. [1112]

    A director must not exercise his or her power for any collateral or improper purpose, but only for the purposes for which they were conferred.

16. [1113]

    The principles were summarised in the familiar statement by Ipp J (as his Honour then was) in Permanent Building Society (in liq) v Wheeler: [150]

17. [1114]

    An assessment of whether a director has exercised his or her powers for an improper purpose involves a two-step process:

18. [1115]

    This question is to be determined objectively.

19. [1116]

    Fitz Jersey submitted that each of these duties was a fiduciary duty.

20. [1117]

    There is a controversy about this, the nature of which I summarised in ET-China.com International Holdings Ltd v Cheung: [151]

21. [1118]

    In ET-China, I set out [152] the submissions of counsel for the first defendant in that case, which submissions were in effect adopted by the Directors in this case:

22. [1119]

    For the reasons I set out below, my conclusion is that the Directors were in breach of each of the duties the subject of Fitz Jersey’s submissions, including the proscriptive, and uncontroversially fiduciary, duty not to act in conflict. It is therefore not necessary for me to express a view about whether the Directors’ prescriptive duties were also fiduciary.

Voidable transactions under the Corporations Act

1. [1120]

   In addition to alleging that by paying the Dividends Atlas had contravened s 254T of the Corporations Act and s 37A of the Conveyancing Act, Fitz Jersey contended that the payment of the Dividends was:

2. [1121]

   In those circumstances, Fitz Jersey contends that the declaration of the Dividends was a voidable transaction for the purposes of s 588FE of the Corporations Act and, as assignee from the Liquidator, seeks orders under s 588FF of the Corporations Act to the effect that the Dividends and their proceeds be restored to Atlas.

3. [1122]

   In answer to all these complaints, the Directors submitted that an assessment of their conduct must take into consideration s 189 of the Corporations Act.

4. [1123]

   Section 189 provides:

5. [1124]

   The Directors submitted:

6. [1125]

   However, as I have set out above, advice that the Directors received from Mr Mort and Mr White was limited.

7. [1126]

   As for Mr Mort, his advice was as to the processes under the SOPA and as to Fitz Jersey’s prospects of having the Adjudication Determination quashed. Mr Mort was not asked to and did not give advice about Fitz Jersey’s prospects of making a “s 32 claim” under the Building Contract. Mr Mort was not asked to give advice about the Dividends and, indeed, did not know about them until the following year.

8. [1127]

   As for Mr White, for the reasons I have set out, his advice was mechanical in nature and, in particular, was not as to whether the declaration of the Dividends was “a good idea”.

9. [1128]

   For those reasons, and assuming that such reliance as the Directors gave on the advice they received from Mr Mort and Mr White satisfies the requirements of s 189 of the Corporations Act and is, thus, taken to be “reasonable”, it does not, in my opinion, take the Directors’ position any further.

10. [1129]

    Fitz Jersey submitted that the payment of the Dividends was an “unfair preference” for the purposes of s 588FA of the Corporations Act.

11. [1130]

    Section 588FA(1) provides:

12. [1131]

    Assuming Atlas’s contravention of s 254T of the Corporations Act did not have the effect of rendering void the declaration of the Dividends (a matter about which I received no submissions), once the Dividends were declared Kebzay and Sweenham became creditors of Atlas for the amount of the Dividends. [153]

13. [1132]

    The payment of the Dividend resulted in Kebzay and Sweenham receiving from Atlas more than they would receive from Atlas in respect of that debt if the transaction was set aside and Kebzay and Sweenham were to prove in Atlas’s winding up for the debt.

14. [1133]

    By receiving the Dividends, Kebzay and Sweenham received 100 cents in the dollar of the debts due to them (assuming that they were creditors as at 8 February 2017). Were Kebzay and Sweenham to prove in the winding up of Atlas they would receive either nothing (on the basis that the Liquidator refused to accept their proof of debt because of the contravention of s 254T), or considerably less than 100 cents in the dollar as they would have to prove in Atlas’s winding up in competition with Fitz Jersey.

15. [1134]

    The Directors submitted that the claim that the payment of the Dividends was a preference would fail “if the Dividend payment was lawful or Fitz Jersey is found not to have been a creditor at the time of the Dividend Payment” but otherwise offered no resistance to these conclusions.

16. [1135]

    Fitz Jersey submitted that the declaration and payment of the Dividends was also an “uncommercial transaction” for the purpose of s 588FB of the Corporations Act.

17. [1136]

    Section 588FB is in the following terms:

18. [1137]

    By declaring the Dividends, Atlas contravened s 254T of the Corporations Act and made an alienation of property with intent to defraud its creditors for the purpose of s 37A of the Conveyancing Act. It must follow that the declaration of the Dividends was an uncommercial transaction.

19. [1138]

    That is because no reasonable person in Atlas’s circumstances would have entered a transaction which caused those contraventions.

20. [1139]

    Senior counsel for the Directors accepted that this was so, subject to one qualification. Thus, we had this exchange:

21. [1140]

    Counsel then continued:

22. [1141]

    Counsel then submitted that a reasonable person in Atlas’s position would consider there was a benefit to Atlas in causing a dividend to be paid to Mr Sweeney because he “was effectively driving this construction”, and “the only way he was paid was through a dividend” and that the payment of the dividend “ensures that Mr Sweeney gets paid for the labour he is providing and the services he is providing”.

23. [1142]

    It is true that the evidence establishes that the means by which Mr Yazbek and Mr Sweeney were rewarded for their services to Atlas was by payment of dividends.

24. [1143]

    However, I cannot see how it could follow that it was in Atlas’s interests that it pay a dividend to Mr Yazbek or Mr Sweeney in contravention of s 254T of the Corporations Act.

25. [1144]

    I find the declaration and payment of the Dividends to be an uncommercial transaction for the purpose of s 588FB of the Corporations Act.

26. [1145]

    Fitz Jersey submitted that the declaration and payment of the Dividends was also an unreasonable director-related transaction for the purposes of s 588FDA of the Corporations Act.

27. [1146]

    Section 588FDA is in the following terms:

28. [1147]

    Relevantly to the Dividends issue, what must be established under s 588FDA is that:

29. [1148]

    In that regard:

30. [1149]

    In closing submissions, senior counsel for the Directors did not dispute that Fitz Jersey had established the matters in (a) and (b) of [1148] above.

31. [1150]

    As to the matter in (c), it is obvious that no reasonable person in Atlas’s position would pay a dividend in contravention of the requirements of s 254T of the Corporations Act, let alone in circumstances where the payment constituted an alienation of property intended to defraud creditors for the purposes of s 37A of the Conveyancing Act.

32. [1151]

    Further, counsel in effect accepted that if by paying the Dividends Atlas had contravened s 254T of the Corporations Act, it would follow that it had engaged in a transaction that a reasonable person in Atlas’s position would not have engaged in and thus, the requirements of (c) were also established.

33. [1152]

    Thus, I had this exchange with counsel:

34. [1153]

    I find that the payment and declaration of the Dividends was an unreasonable director-related transaction for the purposes of s 588FDA of the Corporations Act.

35. [1154]

    Fitz Jersey also submitted that the declaration and payment of the Dividends was an “insolvent transaction” for the purpose of s 588FC of the Corporations Act.

36. [1155]

    Section 588FC provides:

37. [1156]

    I have found that the declaration and payment of the Dividends was both an unfair preference given by Atlas and an uncommercial transaction of Atlas.

38. [1157]

    In order that it also be an insolvent transaction for the purpose of s 588FC it is necessary also to show that, relevantly, Atlas became insolvent “because of … the declaration and payment of the Dividends”.

39. [1158]

    Section 95A of the Corporations Act provides:

40. [1159]

    I have found that Fitz Jersey was a “creditor” of Atlas at the time that the Dividends were paid. I have found that Fitz Jersey then had an accrued right to sue Atlas for the amount due to it under the Building Contract.

41. [1160]

    The expression “debt” is not defined in the Corporations Act.

42. [1161]

    Although a right to general contractual damages is not a debt, a right to an amount that could be “clearly ascertainable and not a matter for assessment” may be a debt. [158]

43. [1162]

    The question of whether debt is incurred depends on when, in substance and commercial reality, the company is exposed to the relevant liability. [159]

44. [1163]

    Fitz Jersey also had a restitutionary entitlement to recover the amount due under the Building Contract by reason of s 32(3)(b) of the SOPA which provides:

45. [1164]

    Further, as s 95A refers to a person’s inability to pay all the person’s debts, there is no reason to exclude the contingent or prospective debts. [160]

46. [1165]

    I have made findings which allow it to be determined what amount was due by Atlas to Fitz Jersey under the Building Contract. In my opinion that amount was a debt.

47. [1166]

    Such a debt was one which was “due and payable”, as Fitz Jersey was entitled then to sue Atlas to judgment immediately, without any intervening event occurring. [161] As it happened, Fitz Jersey was not in a position to do that because in February 2017 it did not have sufficient documentation to hand. That is, it could not then, as a practical matter, make its “s 32 claim” under the Building Contract. But its entitlement to do so had arisen.

48. [1167]

    Further:

49. [1168]

    For these reasons, and consistently with my conclusion that Fitz Jersey was a creditor of Atlas at the time the Dividends were paid, my conclusion is that the amount that, based on my findings as to the Building Contract issues, can now be found to be due by Atlas to Fitz Jersey was a debt “due and payable” at that time.

50. [1169]

    The payment of the Dividends left Atlas with a little over $400,000 in liquid assets. Its financial statements at FY17 showed a total equity of a little over $200,000. Atlas had no significant source of future revenue. The payment of the Dividends rendered Atlas unable to pay Fitz Jersey and thus unable to pay its debts as and when they fell due and thus insolvent.

51. [1170]

    On behalf of the Directors, it was submitted that this conclusion was not open in the absence of evidence led by Fitz Jersey as to insolvency. However, although expert forensic accounting evidence as to insolvency is often helpful, the question of insolvency is ultimately one for the court. [163]

52. [1171]

    Further, on behalf of the Directors it was submitted that “another aspect to solvency is the company’s ability to turn to third parties for funds”. Reference was made to Mr Yazbek’s evidence that:

53. [1172]

    However, Mr Yazbek did not give evidence of his preparedness to advance funds to Atlas for the purpose of Atlas meeting such obligations as it may be proved to have to Fitz Jersey.

54. [1173]

    Further, where:

55. [1174]

    There is no such evidence here.

56. [1175]

    For these reasons, my conclusion is that the payment of the Dividends did render Atlas insolvent and that, accordingly, the declaration and payment of the Dividends was an insolvent transaction for the purposes of s 588FC of the Corporations Act.

57. [1176]

    Section 588FE provides that a transaction is voidable [165] if, relevantly:

58. [1177]

    As I have found that the payment of the Dividends was an insolvent transaction, an uncommercial transaction and an unreasonable director-related transaction, it follows that the payment of the Dividends is a voidable transaction.

Article 85 of Atlas’s Constitution

1. [1178]

   Article 85 of Atlas’s Constitution provided that “dividends may only be paid out of profits of the Company”.

2. [1179]

   Fitz Jersey made numerous references in its closing submissions to Atlas having contravened Article 85 but, in the passages of its submissions directed to Article 85 did not, so far as I can make out, actually develop an argument that the Dividends were not paid out of profits.

3. [1180]

   Having at one point of its closing submissions made the point that the question of “profits” was a matter to be determined in accordance with accounting standards (a matter about which Mr Leotta and Mr Westworth were agreed [170] ) Fitz Jersey submitted, without analysis of any accounting standards:

4. [1181]

   The reference in this submission to the Directors being “held liable for breach of contract” was a reference to Fitz Jersey’s submissions concerning s 140 of the Corporations Act which provides, relevantly:

5. [1182]

   In the absence of a developed submission that the Dividends were not paid out of profits I do not propose to consider this point further, save to record that in Dungowan Manly Pty Ltd v McLaughlin, [171] Bathurst CJ said that there was “some doubt as to whether the statutory contract formed by s 140 of the Act gives rise to a claim for damages for breach”. [172]

Breaches of duty

1. [1183]

   I have found that the Directors caused Atlas to pay the Dividends in circumstances where:

2. [1184]

   It was not in Atlas’s interests that it act in contravention of s 254T or make an alienation of property with intent to defraud its creditors.

3. [1185]

   I have also found that by resolving to declare the Dividends, the Directors caused Atlas to make an undue preference for the purposes of s 588FA of the Corporations Act, enter an uncommercial transaction for the purposes of s 588FB of the Corporations Act, and engage in an insolvent transaction for the purposes of s 588FC of the Corporations Act.

4. [1186]

   I have also held that the Directors engaged in an unreasonable director-related transaction for the purposes of s 588FDA of the Corporations Act.

5. [1187]

   It was not in Atlas’s interests that this conduct occur.

6. [1188]

   It was, on the other hand, in the Directors’ interests that the events giving rise to these matters, the declaration and payment of the Dividends occur.

7. [1189]

   It must follow from these conclusions that the Directors have acted in breach of their obligations:

8. [1190]

   As I have said, there is no controversy that the latter duty was fiduciary in nature.

The flow of funds

1. [1191]

   Fitz Jersey presented detailed submissions concerning the transactions and cash movements following the payment of the Dividends to Kebzay and Sweenham on 6 February 2017.

2. [1192]

   Those contentions were summarised in two documents entitled “Transactions Following Payment to Kebzay Pty Ltd” and “Sweenham Transactions”. Copies of those documents (the “Kebzay Flow Chart” and “Sweenham Flow Chart” respectively) are attached. Attachment E - Flow Charts (116734, pdf)

3. [1193]

   Ultimately, in final submissions, the Directors accepted that “the calculations” in those documents were correct.

4. [1194]

   The Directors also accepted the correctness of the following analysis made by Fitz Jersey concerning the proceeds of the Dividends paid to Kebzay and Sweenham.

5. [1195]

   As to the dividend paid to Kebzay:

6. [1196]

   As to the dividend paid to Sweenham:

7. [1197]

   Fitz Jersey accepted that it is not entitled to double recovery and submitted that “this may be dealt with by an appropriate order limiting the maximum recovery”.

8. [1198]

   I will invite submissions as to how that process should be undertaken.

Relief – equitable tracing

1. [1199]

   In the light of this (now uncontroversial) analysis, Fitz Jersey developed detailed submissions as to how the proceeds of the Dividends could be traced:

2. [1200]

   Ultimately, the Directors offered only four answers to these submissions.

3. [1201]

   First, the Directors submitted “as a threshold matter” that for equitable tracing to be available against an “Alleged Recipient Party”, Fitz Jersey was required to establish that the Directors had breached their fiduciary duties. [173]

4. [1202]

   In Australia, the better view is that a fiduciary relationship is not a precondition for equitable tracing. [174]

5. [1203]

   In any event, I have held that the Directors were in breach of their fiduciary duties. [175]

6. [1204]

   Second, the Directors submitted:

7. [1205]

   That submission was not developed by reference to authority.

8. [1206]

   Here, the breaching fiduciaries were Mr Yazbek and Mr Sweeney. The Dividends were the proceeds of Mr Yazbek’s and Mr Sweeney’s breach of fiduciary duty. Mr Yazbek and Mr Sweeney caused Atlas to pay the Dividends.

9. [1207]

   The Dividends were received by Kebzay and Sweenham.

10. [1208]

    Mrs Yazbek was the sole director of Kebzay. But Kebzay gave no consideration for the Dividends. It was a volunteer. I see no difficulty tracing the Dividends through the hands of Kebzay.

11. [1209]

    Mr Sweeney was the only director of Sweenham. Sweenham knew what Mr Sweeney knew. [176]

12. [1210]

    As Sweenham knew what Mr Sweeney knew, it must follow that it was knowingly involved in Mr Sweeney’s breach of fiduciary duty. For that reason, again, there is no difficulty tracing the Dividends through the hands of Sweenham.

13. [1211]

    Fitz Jersey’s analysis, as set out in the Kebzay Flow Chart, shows that payment made from 620 Botany Road Pty Ltd to Kebzay No 3 Pty Ltd, which included money traceable from the Kebzay Dividend was in repayment of an existing loan owed by 620 Botany Road Pty Ltd to Kebzay No 3 Pty Ltd.

14. [1212]

    Accordingly, the Directors submitted that Kebzay No 3 Pty Ltd was a bona fide purchaser for value without notice and that the proceeds of the Dividend could not be traced to Kebzay No 3 Pty Ltd by reason of the principles in Re Diplock’s Estate. [177]

15. [1213]

    However, Mr Yazbek was the sole director of both 620 Botany Road Pty Ltd and Kebzay No 3 Pty Ltd at all relevant times. Those companies are taken to know what Mr Yazbek knew. Kebzay No 3 Pty Ltd therefore did not receive the funds without notice of Mr Yazbek’s breach of fiduciary duty.

16. [1214]

    Most of the dividend paid to Sweenham was paid to Castlefield Corner Pty Ltd and used by Castlefield to purchase a property in Bondi.

17. [1215]

    Mr Sweeney had only a 25% interest in Castlefield and was one of only four directors of Castlefield.

18. [1216]

    There is no suggestion that the other directors or shareholders of Castlefield had any involvement in Mr Sweeney’s breach of fiduciary duty or knowledge of it.

19. [1217]

    However, Castlefield is taken to know that which Mr Sweeney, as one of its directors, had a duty to tell it, [178] and “in ordinary circumstances, if a director knows information which is important to the affairs of the company, he is under a duty both to communicate that information to the company and to receive it”. [179]

20. [1218]

    As Fitz Jersey submitted, it was important for Castlefield to know that the funds being applied for its benefit were the proceeds of Mr Sweeney’s breach of fiduciary duty because “Castlefield was entitled to expect that the funds applied by Sweenham would be Sweenham’s, not another person’s”.

21. [1219]

    Mr Sweeney had a duty to inform Castlefield about these matters. It follows that Castlefield must be taken to have known that the relevant part of Sweenham’s contribution included the proceeds of Mr Sweeney’s breach of fiduciary duty.

22. [1220]

    In any event, if, contrary to these conclusions, any of Fitz Jersey’s claims premised on the formal rules of tracing failed, its claims for relief under s 588FF, as assignee of the Liquidator, remain.

Relief – statutory tracing – s 588FF of the Corporations Act

1. [1221]

   Section 588FF provides, relevantly:

2. [1222]

   Orders under s 588FF of the Corporations Act may be made “on the application of a company’s liquidator”.

3. [1223]

   The Liquidator has assigned to Fitz Jersey his entitlement to make an application under s 588FF.

4. [1224]

   Fitz Jersey accepts that, nonetheless, any relief granted should be for the payment or transfer of property to “the company”, that is Atlas, in liquidation.

5. [1225]

   It has been held that:

6. [1226]

   Further, as Barrett J said in New Cap Reinsurance Corp Ltd v A E Grant: [181]

7. [1227]

   The Court’s discretion is broad and is not necessarily constrained by factors that might arise in an exercise of equitable tracing.

8. [1228]

   The Court’s task is to make orders that give effect to the statutory scheme under Pt 5.7B, which is concerned with the recovery of property or money for the benefit of the creditors of the company in liquidation.

9. [1229]

   Fitz Jersey placed particular emphasis on the breadth of the language used in s 588FF(1)(c) which enables the Court, on the application of the liquidator, to require a person pay to the company the “benefits” the person has received “because of” the voidable transaction in question.

10. [1230]

    In White in his capacity as joint and several liquidator of Port Village Accommodation Pty Ltd (in liq) v ACN 153 152 731 Pty Ltd (in liq), [182] the Court said (footnotes omitted):

11. [1231]

    In my opinion, Fitz Jersey was correct to submit that the language of s 588FF(1)(c) does not require a strict application of the rules of equitable tracing. It merely requires common sense causation between the voidable transaction and the benefit received. Unlike a knowing receipt claim, it does not focus on the knowledge of a recipient.

12. [1232]

    The analysis conducted by Fitz Jersey as set out above shows that each of Botany Road Projects Pty Ltd, 620 Botany Road Pty Ltd, Kebzay Custodian No 2 Pty Ltd, Mr Yazbek, Mrs Yazbek and Castlefield received “benefits” “because of” the voidable transactions to which I have referred.

13. [1233]

    In their closing written submissions, the Directors made no reference to s 588FF, apart from reciting it as an element of Fitz Jersey’s claim. In those submissions, the Directors asserted that Fitz Jersey’s contentions concerning ss 588FA, 588FC and 588FDA were “unsustainable” but only because “each of them hinges on a finding that Fitz Jersey was a creditor at the time of the payments”.

14. [1234]

    It was only in the Directors’ “Note in Reply” delivered following oral submissions that attention was directed to the ambit of s 588FF. In that note, the point made was that because, it was said, Fitz Jersey could not demonstrate that Atlas had suffered any loss as a result of the payment of the Dividends, its submissions concerning the breadth of s 588FF(1)(c) “adopts the conceptual lens of loss seen through the eyes of Fitz Jersey and not the liquidator of Atlas”.

15. [1235]

    However, as the authorities I have set out make clear, s 588FF is not directed to recompensing any loss of the company in liquidation may have suffered but, rather, to restoring to that company assets for the benefit of its creditors.

16. [1236]

    Otherwise the Directors did not challenge Fitz Jersey’s contentions concerning s 588FF nor deal with the authorities I have set out above concerning the section.

17. [1237]

    Turning to the particular transactions relied on by the Directors, the process of “statutory tracing” permitted by s 588FF enables Fitz Jersey, as assignee of the Liquidator, to “trace” the benefit of the proceeds of the voidable transactions, that is the Dividends:

18. [1238]

    I propose to invite submissions from Fitz Jersey as to the precise orders that it, as assignee of the Liquidator, proposes. I will give the Directors an opportunity to make submissions about the form of those orders.

Relief – damages and equitable compensation

1. [1239]

   In its closing submissions, Fitz Jersey contended that there should be an award of “damages or equitable compensation” against Mr Yazbek and Mr Sweeney and orders for equitable compensation against Botany Road Project Pty Ltd, 620 Botany Road Pty Ltd, Kebzay Custodian No 2 Pty Ltd, Mrs Yazbek, Sweenham and Castlefield.

2. [1240]

   The precise basis upon which such orders should be made was not developed in final submissions. I will invite further submissions about those questions following delivery of these reasons.

The Shareholders’ Loans

1. [1241]

   I have outlined above the circumstances in which the Shareholders’ Loans were written off on 6 February 2017.

2. [1242]

   The loans were written off. That is, they were forgiven.

3. [1243]

   Fitz Jersey contends that the writing off of the Shareholders’ Loans was an unreasonable director-related transaction for the purposes of s 588FDA of the Corporations Act.

4. [1244]

   I have set out the provisions of s 588FDA above.

5. [1245]

   Relevantly to the Shareholders’ Loans issue, what must be established is:

6. [1246]

   The Directors did not contest the propositions that the writing off of the Shareholders’ Loans constituted either a payment by Atlas or a transfer or other disposition of property by Atlas to a “close associate” of one of Atlas’s directors.

7. [1247]

   Debate focused on the question of whether it might be expected that a reasonable person in Atlas’s circumstances would not have entered into the transaction; that is, would not have written off the Shareholders’ Loans.

8. [1248]

   In that regard, as I have set out above, it is established that:

9. [1249]

   The Directors pointed to the fact that, as at 6 February 2017:

10. [1250]

    However:

11. [1251]

    In those circumstances, I am satisfied that a reasonable person in Atlas’s position would not have written off the loans and that, accordingly, they were unreasonable director-related transactions for the purposes of s 588FDA of the Corporations Act.

12. [1252]

    In substance, the Directors answer to this aspect of Fitz Jersey’s claim was that if the Shareholders’ Loans had not been written off, they would have been paid to Kebzay and Sweenham as dividends. This appeared to be an argument that Atlas had suffered no loss by reason of the write offs.

13. [1253]

    However, neither Mr Yazbek nor Mr Sweeney gave evidence that, had the Shareholders’ Loans not been written off, they would have caused dividends in corresponding amounts to have been declared in favour of Kebzay and Sweenham.

14. [1254]

    In the absence of such evidence, I am not prepared to so find.

Conclusion

1. [1255]

   I will give the parties an opportunity to consider these reasons and then invite submissions as to the matters I have indicated, [188] any further matters that require resolution and as to the orders needed to finalise the proceedings.