Hussain v Haynoum Developments Pty Ltd

1. [1]

   BEAZLEY P: I have had the advantage of reading in draft the reasons of McDougall J. I agree with his Honour's reasons and with the orders he has proposed.

2. [2]

   LEEMING JA: I agree with the orders proposed by McDougall J, and, subject to the following, with his Honour’s reasons.

3. [3]

   Subject to statute, people, including commercial people, are free to reach and rely on oral agreements which bind them. However, doing so is apt to lead to difficulties where the parties have fallen out. The present appeal well illustrates those difficulties. Haynoum Developments promised to lend money to the appellants to fund their property development, and did in fact make seven advances between 1 October and 1 December 2009 totalling $309,000, without any formal agreement, which gave rise to disputes as to when the funds were repayable and what interest rate would be charged. Likewise, Mr Haykal’s retainer to provide structural engineering services to the appellants was wholly oral, giving rise to the principal issue at trial, which was whether he was entitled to withhold certification pending his being paid.

4. [4]

   A consequence of the underlying agreements being oral and disputed is that the primary judge will be called upon to make findings of primary fact. There was force in the submission made by the appellants that there were very few findings of fact made by the primary judge following a five day trial. Despite its centrality, there was no finding at all as to the terms of Mr Haykal’s retainer. That in turn led to grounds of appeal and written submissions directed to a failure to give adequate reasons.

5. [5]

   The reasons of the primary judge also failed separately to address the claim for statutory unconscionable conduct. To be fair, the case at trial seems largely, although not entirely, to have been pursued on the basis that the defences of duress and unconscionable conduct were interchangeable. That is not so: the common law defence of duress (like undue influence in equity), looks to the quality of the consent of the weaker party, while the focus of the statutory prescription against conduct which is, in all the circumstances, unconscionable, is the conduct of the stronger party; cf Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 and Kakavas v Crown Melbourne Ltd [2013] HCA 25; 250 CLR 392 at [117]. The fact that statutory unconscionability may involve a more wide-ranging inquiry (Australia and New Zealand Banking Group v Karam [2005] NSWCA 344; 64 NSWLR 149 at [66]) does not gainsay the difference between the two matters pleaded by the appellants.

6. [6]

   However, in oral submissions, minimal complaint was made of those deficiencies per se. Instead, counsel for the appellants focussed on two bases on which, so it was said, Mr Haykal’s conduct was unlawful. Neither involved overturning any findings of fact. The first was that Mr Haykal was in breach of an implied term to provide certification promptly. The second drew upon an allegation in the defence to the cross-claim that Mr Haykal was subject to obligations under clauses 162A, 162B and 162C of the Environmental Planning and Assessment Regulation 2000 (NSW). There were good reasons for taking that more precise approach. Those reasons included the limited ability of this Court in hearing the appeal to make disputed findings of primary fact, and the fact that establishing either of those bases would demonstrate material error by the primary judge.

7. [7]

   I agree with what McDougall J has said about the way in which the appellants accepted that their case stood and fell based on those two bases on which, so it was said, Mr Haykal’s conduct was unlawful. Early in oral submissions there was the following exchange based on the implied term to provide certification promptly:

8. [8]

   I agree with McDougall J’s reasoning and conclusions that no basis was shown in the evidence to sustain findings either that there was an implied term as alleged, or that Mr Haykal was a certifying authority.

9. [9]

   However, it should not be thought that this is an appeal whose outcome turned upon the forensic choices made in its preparation and presentation. Even if reliance had been placed on other matters raised in the notice of appeal, such as the failure to give reasons or the failure to address part of the appellants’ case, the outcome would be the same. It is not difficult to explain why.

10. [10]

    There was ample evidence that the appellants, assisted by solicitors, had time to consider the deed. There was no dispute that some 12 months earlier, Haynoum Developments had lent them $309,000. Notwithstanding that there was a dispute as to the quantum of Mr Haykal’s fees, his issuing of a payment claim (exceeding $97,000) complying with s 13 of the Building and Construction Industry Security of Payments Act 1999 (NSW) and the appellants’ failure to provide a payment schedule meant that the appellants on any view owed $406,000, and had the benefit of most of that amount interest free for a year. In those circumstances, I would not be satisfied that there has been “some substantial wrong or miscarriage” occasioned by the dismissal of the cross-claim, so that there would be no power to order a new trial: Uniform Civil Procedure Rules 2005 (NSW), Pt 51, r 51.53, leaving as the only available order that the appeal be dismissed.

11. [11]

    McDOUGALL J: The respondents sued the appellants to recover money said to be owing under a deed made on 17 November 2010. The appellants admit that they executed the deed, but say they did so as a result of conduct on the part of the second respondent (Mr Haykal) that amounted to duress or to “statutory” unconscionability.

12. [12]

    The essential question for decision is whether the conduct in question was unlawful. If it was not unlawful then, as Mr McGrath of Senior Counsel (who appeared with Mr Robinson of Counsel for the appellants) conceded, his clients’ appeal could not succeed.

13. [13]

    For the reasons that follow, the conduct in question was not unlawful. It follows that in my view, the appeal must be dismissed with costs.

Brief background

1. [14]

   The appellants wanted to develop land that they owned at Telopea, by constructing seven townhouses on it. They engaged Mr Haykal to provide structural engineering services. Those services included undertaking the structural design, inspecting the work at various stages to ensure that it accorded with the structural design, and (at the completion of the works) providing a certificate of compliance.

2. [15]

   The first appellant (Haynoum Developments) advanced sums totalling $309,000.00 to the appellants to assist them in carrying out the development. The appellants borrowed the remainder of the money needed, $1.6 million, from Arab Bank Australia Ltd.

3. [16]

   The appellants appointed Mr Joe El Masri as principal certifying authority (PCA) for the purposes of s 109E of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act). One of Mr El Masri’s functions was to issue a final occupation certificate, in accordance with s 109H of the EPA Act. He could not, or would not, do this without Mr Haykal’s certificate.

4. [17]

   The appellants entered into contracts for sale of some of the townhouses “off the plan”. It is common ground that the appellants could not require the purchasers to complete those sales until, among other things, Mr El Masri had issued the final occupation certificate.

5. [18]

   As the development neared completion, Mr Haykal pressed the appellants to pay his fees, and to repay the money advanced by Haynoum Developments (a company with which he was associated) together with interest. The appellants resisted. Mr Haykal said that he would not provide his certificate, that the structural works he inspected accorded with his design, unless the appellants gave him and Haynoum Developments some assurance of payment. Accordingly, after numerous discussions and after drafts had been exchanged between the parties and their respective legal advisers, the deed in question was signed.

6. [19]

   By that deed, the appellants agreed to pay, and the respondents agreed to accept between them, a total of $431,000.00 in satisfaction of all claims that the latter had against the former arising out of the development. Although the appellants sought to argue otherwise, this amounted to a compromise of the respondents’ total claims.

7. [20]

   The fees claimed by Mr Haykal exceeded $97,000.00. Because he had submitted a payment claim for those fees pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) and the appellants had not provided a payment schedule, s 14(4) of the Act operates. It has the effect that the appellants are indebted to Mr Haykal for the full amount of the claimed fees. When one adds, as well, interest on the sum of $309,000.00 for 12 months at the rate claimed by Haynoum Developments (15% per annum), it is obvious that the total of the respondents’ claim would exceed the amount that they agreed to accept.

The conduct complained of

1. [21]

   The conduct that the appellants say was unlawful was Mr Haykal’s conduct in refusing to issue his certificate until the appellants executed the deed. The appellants say that this conduct was unlawful for two reasons.

2. [22]

   First, they say, it was a term of the contract between them and Mr Haykal that Mr Haykal should deliver the certificate promptly, so as to enable Mr El Masri as PCA to issue the final occupation certificate. That term, the appellants say, was implied. They say that in the circumstances I have described, Mr Haykal breached that term.

3. [23]

   Second and alternatively, the appellants say, the conduct was unlawful by reason of cls 162A to 162C of the Environmental Planning and Assessment Regulation 2000 (NSW) (the EPA Regulation).

4. [24]

   The first of those arguments was raised, although perhaps not with the precision with which it was advanced in this Court, before the primary judge. The second was not.

First argument: term of the contract?

1. [25]

   The retainer of Mr Haykal was oral, not written. The uncontentious evidence goes no further than saying that the appellants asked him to undertake the services that I have described, and he agreed to do so. There is a dispute as to whether his fee was to be a total of $11,000.00, inclusive of GST, for all those services. Nothing of present moment turns on that (in part because it is not relevant to the question of implication of a term, and in part because, as between the appellants and Mr Haykal, the amount of his claim has been established in the manner that I have described).

2. [26]

   The first appellant (Mr Hussain) said that Mr Haykal agreed to be paid at the end of the project. Mr Haykal, I think, disputed this. If that evidence were accepted (and the primary judge made no finding), then, depending on what is meant by “the end of the project”, it might provide some support for the proposition that, on the proper construction of the contract, Mr Haykal was required to perform all the services, before being paid, and was not entitled to withhold the certificate until he was paid. However, that is not the way the appellants’ case was put on appeal.

3. [27]

   When one turns to the implication of a term, there is no basis shown why the term should be implied. If one turns to the classic statement of Lord Simon of Glaisdale, speaking for the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283, five things must be shown before a term can be implied into a contract:

   1. (1)

      it must reasonable and equitable;

   2. (2)

      it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

   3. (3)

      it must be so obvious that “it goes without saying”;

   4. (4)

      it must be capable of clear expression; and

   5. (5)

      it must not contradict any express term of the contract.

4. [28]

   As His Lordship recognised, those conditions may overlap.

5. [29]

   In the present case, minds may differ as to the application of the first of those conditions. It is not necessary to express a concluded view. That is because, in my view, the second and third conditions are not satisfied. The implied term for which the appellants contend was not necessary to give business efficacy to contract. Nor was it so obvious that it “goes without saying”.

6. [30]

   As to the second condition: the contract between the appellants and Mr Haykal could work perfectly well without the implied term. There was the express retainer to provide the services. There was an obligation to provide those services as and when necessary. The contract would work perfectly well if Mr Haykal invoiced the appellants for the services as he provided them, and they paid him. Equally, the contract would work perfectly well if, at the conclusion of performance and when Mr Haykal was in a position to provide the certificate, he invoiced the appellants and they paid him.

7. [31]

   In this case, the argument as to “business efficacy” really means “business efficacy from the perspective of the appellants”. The appellants in truth are not asking the Court to imply a term to make their contract with Mr Haykal work. They are asking the Court to supply a term for which they could have negotiated, but did not; a term to make the contract work in their favour in the events that have occurred.

8. [32]

   As to the third condition, why is the suggested implied term so obvious that “it goes without saying”? Again, that could only be so from the perspective of the appellants. From Mr Haykal’s perspective, it might be thought to be equally obvious that he should retain a lien over the fruits of his labours until he was given some assurance of payment. The appellants are seeking to have the Court renegotiate the contract, to have effect as they now wish it had been made.

9. [33]

   It is not necessary to deal with the fourth and fifth conditions, other than to say that they would have been satisfied.

10. [34]

    In my view, the “implied term” argument goes nowhere.

Second argument: the EPA Regulation

1. [35]

   Clause 162A of the EPA Regulation deals with the occasions on which building work must be inspected (called “critical stage inspections”), and by whom those inspections must be carried out. I set out the first three subclauses:

2. [36]

   Regulation 162B requires a record of inspections to be kept. Again, I set out the first three subclauses:

3. [37]

   Clause 162C applies where a required inspection has been “unavoidably missed”. It is not necessary to set out its terms.

4. [38]

   Clauses 162A and 162B refer back to s 109E of the EPA Act. That section requires a person having the benefit of a development consent or complying development certificate to appoint a PCA. I set out subss (1), (1A) and (3):

5. [39]

   Section 109E appears in a context that provides for certification of work, and for who may provide that certification: sections 109C, 109D. I set out s 109C(1),(2) and s 109D(1):

6. [40]

   The expressions “accredited certifier”, “certifying authority”, and “principal certifying authority” are all defined in s 4(1) of the EPA Act. I set out those definitions:

7. [41]

   Section 109H provides for restrictions on the issue of occupation certificates. Subsections (1) and (5) are relevant. I set out those subsections:

8. [42]

   Finally, for present purposes, s 109M prohibits occupation or use of a new building unless an occupation certificate has been issued. Subsection (2) provides for some exceptions to the general prohibition, but it has not been suggested that any of them were, or might have been, engaged.

9. [43]

   The short answer to this argument is that Mr Haykal was not appointed to act as a certifying authority, and did not so act.

10. [44]

    Clause 162A of the EPA Regulation provides, with the irrelevant exception noted in subcl (3), that “critical stage inspections may be carried out by the principal certifying authority or, if the principal certifying authority agrees, by another certifying authority”. It follows that Mr Haykal could only have been acting as a certifying authority (assuming that he was qualified to be a certifying authority), if Mr El Masri had requested him so to act. Mr McGrath did not point to any evidence of such a request. Perhaps, if the point had been properly raised in the appellants’ pleadings, some attention might have been paid to proving what was required. But since the point was not pleaded, it appears to have gone unnoticed.

11. [45]

    Some confusion in this respect was introduced by the respondents’ defence to the amended cross-claim. In para 21B, the respondents pleaded that they, and Mr Haykal in particular, “at all times acted in accordance with” Mr Haykal’s obligations under s 109E of the EPA Act and cls 162A to 162C of the EPA Regulation. However, the pleading did not describe what (if anything) those obligations may have been, or why it was that, in the circumstances of this case, they had been imposed on Mr Haykal.

12. [46]

    In my view, the argument based on the EPA Regulation fails.

Unconscionability

1. [47]

   Although Mr McGrath appeared to accept that the conclusions that I have just reached would be fatal to his clients’ appeal, I should mention briefly their case based on unconscionability. The pleaded case did not invoke unconscionability under the general law. It relied on s 51AC of the Trade Practices Act 1976 (Cth) and s 43 of the Fair Trading Act 1987 (NSW) (both of which were in force at the relevant time). The pleaded case of unconscionability relies on the matters with which I have dealt. Although the pleadings seem to go further, invoking concepts such as “superior bargaining position” and “want of good faith”, on analysis in each case they are traced back to the matters with which I have dealt.

2. [48]

   In any event, it is clear from the evidence as a whole that the negotiations that led up to the making of the deed were drawn out over a month or more, and that each side had the benefit of legal advice. No doubt, the appellants were under some pressure to come to terms with the respondents. Until that happened, the respondents could exploit the superior bargaining position which they enjoyed because Mr El Masri needed Mr Haykal’s certificate. But once it is seen that the exploitation of that superior position involves no unlawful conduct, what remains is an everyday negotiation, in which the party in the stronger position is usually able to get at least most of what it wants.

3. [49]

   There was an issue raised before the primary judge as to whether the appellants were substantially impecunious by 17 November 2010, and needed to complete the sales to restore their financial health. The primary judge rejected this aspect of their evidence. He gave reasons which, although brief, showed why he did so. In short, the primary judge concluded that the appellants had failed to produce documentary evidence to support the bald and conclusory assertions of impecuniosity in their affidavits.

4. [50]

   In my view, to the extent that the question of impecuniosity is relevant, no error has been shown in this aspect of the reasoning of the primary judge.

Notice of contention

1. [51]

   The respondents sought to rely on a notice of contention that had been provided (to use a neutral word) well out of time. They needed, but had not been given, leave to file that notice. For my part, I would not grant the respondents the leave that they need. There are two reasons. The first is that, on the conclusions I have reached, the respondents do not need to rely on the notice of contention. The second is that one of the grounds at least raises an unpleaded issue (as to the appellants’ asserted acquiescence and unclean hands) that could and should have been pleaded in the defence to the amended cross-claim. Since it is by no means clear that the appellants could not have adduced evidence to deal with this ground, it is now too late for the respondents to seek to rely on it.

Other issues

1. [52]

   I agree with the observations of Leeming JA at [3] to [7] and [9], [10].

Conclusion

1. [53]

   In my view, the appeal should be dismissed with costs.