New South Wales Supreme Court CITATION : Dubel Pty Limited –v- G&A Constructions Pty Limited [2007] NSWSC 934 HEARING DATE(S) : 9 October 2007 JUDGMENT DATE : 22 October 2007 JUDGMENT OF : Hammerschlag J DECISION : The report is adopted with modifications. The balance to be repaid by the defendant to the plaintiff is varied to $109,422.69. CATCHWORDS : CIVIL PRACTICE AND PROCEDURE – Notice of motion for adoption of referees' report pursuant to r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) – Adoption opposed on ground that referees erred in findings – Referees not shown to have acted incorrectly in principle or in any other respect – Report adopted CONTRACT – Whether conversation amounted to oral agreement - whether parties intended to be immediately bound - whether exchange of correspondence in any event amounted to binding agreement LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2005] NSWSC 662 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 Astor Properties Pty Ltd v L'Union des Assurance de Paris (1989) 17 NSWLR 483 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 CASES CITED : Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 Howard Smith & Co Limited v Varawa (1907) 5 CLR 68 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Masters v Cameron (1954) 91 CLR 353 G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 631 Helmos Enterprises Pty Limited v Jaylor Pty Limited (2005) 12 BPR 23,021 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1996) 40 NSWLR 622 PARTIES : Dubel Pty Limited (ABN 22 000 817 505) (formerly Belmadar Constructions Pty Ltd) G&A Constructions Pty Limited (ABN 14 007 839 456) FILE NUMBER(S) : SC 55039/2005 COUNSEL : D. Miller (Plaintiff / Cross Defendant) R. Newton (Defendant / Cross Claimant) SOLICITORS : Avendra Singh Strati & Kam Lawyers (Plaintiff/ Cross Defendant) James R Knowles Lawyers Pty Ltd (Defendant / Cross Claimant) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AND CONSTRUCTION LIST TECHNOLOGY HAMMERSCHLAG J 22 OCTOBER 2007 55039/2005 DUBEL PTY LIMITED (ABN 22 000 817 505) (FORMERLY BELMADAR CONSTRUCTIONS PTY LTD)& ORS –V- G&A CONSTRUCTIONS PTY LIMITED JUDGMENT Introduction 1 HIS HONOUR: This is a contest as to whether a report to the Court by referees appointed under r 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") should be adopted. 2 The plaintiff (Dubel Pty Limited, formerly Belmadar Constructions Pty Ltd) sued the defendant (G&A Constructions Pty Limited) in the District Court of New South Wales for damages for breach of a subcontract for the installation by the defendant of formwork and placement of concrete ("the works") at the Mildura West Water Treatment Plant in the State of Victoria. 3 The defendant cross-claimed for monies for work done, for damages for alleged breach by the plaintiff and for wrongful termination of the subcontract. The proceedings were transferred to this Court because the amount claimed by the defendant exceeded the jurisdiction of the District Court. 4 On 11 May 2007 Bergin J referred the whole of the proceedings for enquiry and report to joint referees, Mr D J Radcliffe and Mr M G Rudge SC. 5 On 16 August 2007 the Court received their report. 6 Central features of the contest between the parties before the referees, and relevant to the present contest before me, were the following: a the plaintiff contended that a contract (that is the subcontract for the construction of the works) had been concluded between the parties in about August 2003. The defendant contended that no concluded agreement had been entered into; b the plaintiff contended that at meetings on 19 and 20 January 2004 the contract was varied so that the plaintiff obtained a right forthwith to terminate the employment of the defendant if at any time the defendant fell behind in a programme for the completion of the works which it proffered to the plaintiff on 19 January 2004, and so that upon termination the defendant's only entitlement to payment would be the value of the works carried out to that date valued as a percentage of the agreed contract sum. The defendant contended that no, or no binding, variation agreement had been entered into; and c the plaintiff contended that, exercising the right of termination conferred by the variation agreement, it brought the contract to an end on 10 March 2004. The defendant contended that the plaintiff's purported termination was a repudiation of the contract because there was no such right to terminate, and the defendant cross-claimed for damages. 7 The referees found that: a the parties had contracted in about August 2003, and that their contract was at all material times up to January 2004 constituted by documents referred to in pars 2 to 7 of the report (although it should be mentioned that neither par 2 nor par 6 refers to any document); b the contract was varied at meetings between the parties on 19 and 20 January 2004; c the details of the variation were accurately recorded in a letter from the plaintiff's solicitors to the defendant's solicitors dated 21 January 2004, which, amongst others, contained the following paragraph: "If it is the case that, if at any time, G&A is behind in its programme, its employment may be terminated forthwith at Belmadar's discretion and G&A's only entitlement to payment will be to the value of the works carried out to that date valued as a percentage of the agreed contract sum." d the variation agreement conferred on the plaintiff a right to terminate the defendant's services if the defendant fell behind in its programme, which the defendant did, and which caused the plaintiff, as it was entitled to do, to terminate the defendant's services on 10 March 2004. 8 I shall refer to the agreement found to have been entered into in January 2004 as the "variation agreement", to the term entitling the plaintiff to terminate as the "termination term" and to the agreement relating to the proposed bonus as the "bonus agreement". 9 The referees went on to determine, on the basis of their findings, the amounts payable by each party to the other, the final result being a balance of $119,809.69 repayable by the defendant to the plaintiff. 10 The plaintiff, by Notice of Motion dated 31 August 2007, moves for the adoption of the report, with the exception of one paragraph. It also moves for judgment for the monetary amount owed to it and for ancillary orders. 11 The paragraph of the report, the adoption of which the plaintiff does not support, is par 284 which states: "It is apparent from the above reasons that in our view Belmadar should now return G&A's bank guarantees." 12 This finding is inconsistent with the principal findings of the referees because there is no occasion for the plaintiff to return the defendant's bank guarantees given the report is conclusive that the defendant owes the plaintiff money. It follows that if the report is otherwise to be adopted the quoted paragraph is wrong. The defendant did not contend otherwise. On the other hand, if the variation agreement is unsustainable the outcome may be that the paragraph is correct. 13 The defendant opposes adoption of the report insofar as the referees found the variation agreement and, consequentially, that the plaintiff validly terminated the employment of the defendant. 14 Amongst the defendant's claims heard by the referees was a claim for $20,774 for raising the height of walls and associated works to the wash water tank. That amount was derived from two amounts of $10,387 payable under invoices nos. 728 and 735 respectively rendered by the defendant to the plaintiff. The referees mistakenly found the claim to be a duplication. They therefore allowed the defendant only $10,387 when they should have allowed it $20,774. Accordingly, an additional amount of $10,387 is to be allowed to the defendant in any event. Factual Background 15 The dealings between the parties commenced with a request by the plaintiff on 15 July 2003 to the defendant for a quotation to carry out the relevant works. That request indicated that "Proposed Subcontract Conditions" would be "AS2124 Amended". 16 AS2124 is a standard form of building contract. AS2545 is part of the same suite of standard forms but contains "Subcontract conditions". Both AS2124 and AS2545 contain provisions concerning default by the subcontractor which enable (and require) the employer or main contractor (as the case may be) to give the contractor or subcontractor (as the case may be) notice to show cause where the contractor or subcontractor commits a substantial breach and enable termination where there is a failure to show reasonable cause why the contract should not be terminated. 17 The defendant responded to the plaintiff's request with a quotation under cover of a letter dated 28 July 2003. The defendant wrote: "Our quote is subject to the company's view and acceptance of Head Contract and proposed Subcontract Conditions: AS 2124 as Amended." 18 On 8 August 2003 the plaintiff wrote to the defendant confirming verbal advice of its "intent to enter into a sub-contract agreement" for a negotiated lump sum price. Amongst others, in that letter, the plaintiff said that it was proposed that the "subcontract agreement" would be based on the provisions of the Head Contract as amended to suit the defendant's "Scope of Works". Two bank guarantees totalling 5 percent of the subcontract price were to be lodged as security. 19 No formal agreement was executed. However, the defendant embarked upon carrying out the works. 20 By January 2004 the works were in delay. 21 In a letter dated 16 January 2004 from the defendant's solicitors to the plaintiff's solicitors they raised the question whether the conditions of AS2124 were applicable to the contract or whether it was a "simple common law contract with terms as set out in the correspondence and implied by law". 22 Meetings were held between the parties on 19 and 20 January 2004. 23 Those present for the plaintiff included Mr Marrocco – its construction director, Mr McFarlane – a project manager and Mr Maas – a project manager. Mr Alec Day, a director of the defendant, attended. 24 On 19 January 2004, and given the delay, Mr Marrocco gave the defendant a choice. He said: "You have a choice. You go away and think about it. Come back and tell me what the solution should be. Either we sack you or you tell me how long you want to take to finish the work and the cost." 25 On 20 January 2004 Mr Day proffered a written programme for the completion of the works, and a conversation to the following effect took place: "Mr Day: I am proposing to finish the work in 8 weeks. I want $80,000 as the bonus for finishing in that time. Mr Marrocco: You have lost too much time already. If you start losing more time during this 8 week [sic] because of your safety or other reasons, then you're not going to get an extension of time. We will only agree to an extension of time for inclement weather and for variation. If you miss the target date by a day or two then for every day that you miss we will deduct money from the bonus and we will also charge you liquidated damages. But, if you fall a week or so behind the programme then we will sack you. If you continue working the way you have done so far, you will be sacked. If you get sacked you cannot get the bonus. Mr Day: I agree. If I don't meet this programme, then I expect to be sacked . Mr Marrocco: We will talk to our lawyer and ask him to prepare an agreement. He will write to your lawyer to set it all out. I will get Craig McFarlane to do that." 26 Mr McFarlane's evidence was substantially to the same effect except that he attributed to himself words to the following effect: "So it is agreed. If G & A continue on site, as part of the $80,000 bonus agreement, progress will be statused initially on Friday next week and if progress is not achieved then G & A agree to be terminated." 27 Mr McFarlane made notes of the meeting which were in evidence before the referees. The relevant part of his notes reads: "If G & A continue as part of $80,000 bonus agreement, progress will be statused initially on Friday next week & if progress not achieved G & A agree to terminate in which case they will be paid for work done to date + reasonable payment for varies only." 28 On 21 January 2004 the plaintiff's solicitors wrote to the defendant's solicitors. The letter (the entirety of which is set out in the report) includes the following statements: "… My instructions are that some further agreements have been reached by the parties in discussions held on 19 and 20 January and this will affect the terms of the contract. A form of AS 2545, amended to reflect the terms of the Head Contract on a back-to-back basis and the agreements reached on 19 and 20 January, will be forwarded to G&A soon for execution. 3. Program … As was discussed on 19 and 20 January, Belmadar is prepared to accept G & A's commitment to complete its works as shown in all drawings issued to G & A to date so as to achieve the following targets: (a) finish all work (including items not expressly stated in the programme eg patching coil tie holes and concrete repairs) except for the penetrations on or before 17 March 04 ( 'Target 1' ); (b) finish the penetrations on or before 25 March 04 ( 'Target 2' ). This is on the basis that the target dates above will be extended for the following reasons only: · delays due to inclement weather provided that G&A will not be entitled to an extension of time for the first four days lost due to inclement weather. This is because the target dates already include an allowance of 4 working days for wet weather; · for any variations directed by Belmadar after 20 January 04. This is reflected in the last programme provided by G & A on 20 January and Belmadar accepts it. It was agreed that Belmadar would conduct regular reviews of G&A's progress, with the first one being at 4pm on Friday 30 January 04. If it is the case that, if at any time, G&A is behind in its programme, its employment may be terminated forthwith at Belmadar's discretion and G&A's only entitlement to payment will be to the value of the works carried out to that date valued as a percentage of the agreed contract sum. …. 5. Bonus To obtain G&A's commitment to the achievement of the target dates in section 3 above, Belmadar has agreed to pay to G&A the sum of $80,000 ("bonus") should the works be completed within those periods as follows: (a) if G&A achieves Target 1, then the bonus sum will become due but not yet payable; (b) the bonus will be paid only after Target 2 is achieved; (c) if G&A does not achieve any or both of the targets on the target dates set out in section 3 above, then the bonus will be reduced by the sum of $1,667 for each working day that achievement of either or both of the targets is delayed PROVIDED that if G&A's employment is terminated before Target 2 is achieved then G&A will not have any entitlement at all to the bonus. This arrangement does not affect Belmadar's entitlement that may accrue to any liquidated damages. Since the work of G & A is critical to the achievement of Practical Completion by Belmadar, liquidated damages will be the same as that under the Head Contract, being $2,500.00 per day. …." 29 On 23 January 2004 the defendant's solicitors responded. Their response included the following statements: "We are instructed that our client agrees in principle that your letter sets out the basis upon which your client has allowed our client to continue work on site. However, our client clearly reserves the right to take issue with any matters in the formal agreement to be furnished which it does not believe accords with what has been agreed between the parties." 30 On 27 January 2004 Mr Singh, from the plaintiff's solicitors, sent a draft of the proposed subcontract AS2545. 31 Before the referees Mr Singh gave evidence and was cross-examined. His evidence was that he had a conversation with Mr Richards of the defendant's solicitors in which Mr Richards said that he was not familiar with that suite of documents. Mr Singh undertook to send Mr Richards "a standard form that I have. It's been amended somewhat along the lines of my practice, but it will give you an idea of the form of contract". 32 Mr Singh then retrieved from his database the AS2545 form of contract which had standard amendments that he usually sent out when negotiating a contract on that basis. 33 The draft AS2545 document which Mr Singh sent to Mr Richards had within it the notice to show cause provisions. It contained no reference to the programme, the variation agreement, the termination term or the bonus agreement. 34 On 29 January 2004 Mr Singh e-mailed Mr Richards asking for an indication of when he could expect comments from Mr Richards on the draft. 35 No comments were ever received and no formal contract in the form of AS2545 (or in any other form) was ever executed. 36 Nevertheless the defendant continued with the works and, as was envisaged in the 21 January 2004 letter, the defendant's progress was subjected to review on Friday 30 January 2004. 37 Ultimately, the programme, which had as its commencement date 19 January 2004 and was to run for eight weeks to 12 March 2004, was not met by the defendant and the plaintiff purported to exercise its right of termination on 10 March 2004. The relevant findings of the referees 38 Before the referees, the defendant contended that there was no concluded agreement pursuant to which the plaintiff employed the defendant. 39 The referees were satisfied that there was an agreement in place between the parties at all material times up to January 2004 and that the agreement was constituted by the documents referred to in paragraphs 2 to 7 of the report. No documents are referred to in paragraph 2 or 6. AS2124 itself is not mentioned in any of those paragraphs. The referees made no finding as to whether any of the terms in that form became part of the agreement. 40 Before me Mr R Newton of counsel, who appeared for the defendant, did not challenge the finding of a contract up to January 2004. Rather, he put not only that that there was a contract on foot prior to the January meetings but that it incorporated the notice to show cause provisions (whether in AS2125 or AS2545) which provisions were inconsistent with the variation agreement. 41 Having regard to the nature of the challenge by the defendant to the variation agreement findings it is necessary to set them out in full. The referees found as follows: " 43. We are also satisfied that the parties did in fact vary their agreement at the meetings on 19 and 20 January 2004 and that the details of that variation were accurately recorded in the letter from Belmadar's solicitors to G & A's solicitors of 21 January 2004. Whether Mr. Day gave instructions to his solicitors to agree "in principle" to the terms contained in Belmadar's solicitors letter or not does not seem to us to matter greatly. We are satisfied by the evidence of Messrs. Domenic Marracco [sic], Maas and McFarlane referred to above, that the meetings on 19 and 20 January 2004 did discuss and agree to the variation to the contract in the terms set out in Belmadar's solicitor's letter of 21 January 2004. Insofar as Mr. Day suggested that the question of immediate termination was not discussed, we reject that evidence. Not only do we prefer the evidence of the Belmadar witnesses on this topic, but we also note Mr. McFarlane's contemporary diary entry referring to the discussion of an immediate termination arrangement in the event of non performance. 44. If it is significant as to whether or not Mr. Day gave instructions to his solicitors to write the letter of 23 January 2004 we find that he did in fact give those instructions. The "agree in principle" reference seems to indicate an intention to clear up the AS2524 [sic] issue. It appears that Mr. Day had forgotten his instructions because of a car accident about which he gave evidence which had impaired his memory somewhat. In this regard we note that Mr. Day had prepared in January 2006 a chronology of events in which he specifically refers to the exchange of correspondence between the solicitors on 21 and 23 January 2004 (see exhibit D4, annexure 35). 45. We have not yet dealt with the submission of Mr. Newton that if there was a varied agreement brought into existence on 19 and 20 January 2004, it contained terms in the standard form AS2524 [sic] which entitled G & A to a notice to show cause rather than a peremptory termination. 46. Although the AS2524 [sic] document was referred to in Belmadar's solicitor's letters of 21 January 2004, it was not included with that letter, but rather was sent by Mr. Singh to G & A's solicitors on 27 January 2004. We accept Mr Singh's evidence that he did in fact send the amended AS2524 [sic] to G & A's solicitors on 27 January and sought to follow up a response from them on two subsequent occasions without success. It seems to us that insofar as the parties did contemplate that the agreement would incorporate AS2524 [sic], they also contemplated that the general printed form providing for a notice to show cause procedure would yield to the quite specific and negotiated agreement concerning an immediate right to terminate upon failure by G & A to keep up with its 8 week program. It is to be noted in this regard that G & A's solicitors at no time between 23 January 2004 and termination of the contract on 10 March 2004 sought to raise with Belmadar's solicitors any disagreement with the specific terms of Belmadar's solicitors 21 January 2004 letter. No positive evidence was led from Mr Day on this issue. 47. We also note that nobody from the solicitors acting for G & A in January 2004 was called to give evidence. 48. It follows that for reasons which we set out later in this report, the Belmadar termination pursuant to the varied contract was valid." 42 The references to "AS2524" were (and it was not put otherwise) intended to be references to AS2545. The defendant's contentions 43 Before me it was agreed with counsel that the defendant would make its submissions first. 44 It was put on behalf of the defendant that: a nothing in the conversations found by the referees to have occurred on 19 and 20 January 2004, properly construed, gave rise to a term which with sufficient clarity conferred a right of immediate termination on the plaintiff or provided for the defendant to be compensated for work done to the date of termination based on a percentage of the contract. Mr Day revealed an expectation of being sacked, he did not assent to the plaintiff being given a right summarily to terminate the defendant's employment; b the conversations on 19 and 20 January 2004 did not disclose a binding agreement because any agreement was subject to the execution of formal documentation which did not occur; c the notice to show cause provisions were incorporated into the parties' agreement and failure to meet the programme could result in termination but only after compliance with those provisions; d the letter dated 21 January 2004 sought, by way of "embellishment" of what had been said at the meetings, to articulate and impose the termination term which had not been agreed; and e the responding letter dated 23 January 2004 was not agreement to be bound by the terms articulated in the 21 January 2004 letter. It was no more than an expression, in principle, of an agreement with the basis upon which the plaintiff had allowed the defendant to continue with the work on site and the assent expressed was not binding but was conditional on the subsequent execution of a formal contract. 45 It was put that, because the notice to show cause provisions contained in AS2124 or AS2545 (which are relevantly in identical terms) were inconsistent with the termination term, the Court should examine critically the referees' finding which abrogated the protections conferred on the defendant by those provisions. The plaintiff's contentions 46 On behalf of the plaintiff, for which Mr D Miller of counsel appeared, it was put that: a the referees had made a clear finding of fact that a conversation in terms of, and with the effect of, what was articulated in the 21 January 2004 letter as the variation agreement (including the termination term) had taken place and there was no basis for that finding to be disturbed; b the various conversations deposed to in the plaintiff's affidavit evidence, corroborated by Mr McFarlane's file note, established the parties' agreement to the variation agreement (including the termination term); c there was further support for the finding of fact in the response from the defendant's solicitors on 23 January 2004 agreeing in principle that the 21 January 2004 letter set out the basis upon which the plaintiff had allowed the defendant to carry on working at the site; d nothing in the conversations warranted the conclusion that the parties did not intend the variation agreement to be immediately binding; and e in the alternative, it was put that the conclusion of a binding variation agreement was sustainable on a further basis, namely that the exchange of correspondence itself gave rise to a binding agreement and that the further execution of formal documentation was a proper construction of that correspondence not a pre-condition to the coming into effect of a binding agreement. Hence, it was put, even if the finding of the referees of a binding agreement arising from the conversations could not be sustained, the report in its conclusion should be adopted, albeit in varied form. The relevant principles regarding consideration of a referee's report 47 Under r 20.24(1) UCPR if a report is made under r 20.23, the Court may on a matter of fact or law, adopt, vary or reject the report in whole or in part. It may decide any matter on the evidence taken before the referee, with or without additional evidence. 48 It is necessary to state only briefly the applicable principles to be applied in the present matter. 49 The Court has a wide discretion in relation to the adoption or rejection of a referee's report. The discretion is to be exercised judicially having regard to the interests of justice in the particular circumstances of each case. Rejection of the report will be appropriate if the referee has made a significant error of principle or has misapprehended the evidence. Where the subject matter of dissatisfaction with the report is a question of law or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. Generally the referee's finding of fact should not be re-agitated in the Court so that the Court will not ordinarily interfere with findings of fact based upon a choice of conflicting evidence: see Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2005] NSWSC 662 at [12]-[14]; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60. 50 The Court may adopt a referee's answers to the questions referred without adopting the reasons given by the referee: Astor Properties Pty Ltd v L'Union des Assurance de Paris (1989) 17 NSWLR 483. The relevant contractual principles 51 In construing whether an oral exchange amounts to a concluded agreement and what "construction" or meaning should be given to an agreement asserted to be reached during a conversation, the subjective beliefs of the parties are generally irrelevant in the absence of any assertion of an estoppel or other non-contractual remedy. As with a written contract, "construction" of an oral agreement is an objective question for the Court : Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106; Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 164. 52 Whether parties who reach agreement intend to be immediately bound depends on their intention as disclosed by the language they have employed. Where they contemplate the subsequent execution of a formal contract but do not express their agreement to be subject to, or conditional upon, the execution of a formal document, whether they intended to be immediately bound again depends upon their intention, disclosed by the language they have used. Subsequent conduct may not generally be used to construe the terms of a previously concluded agreement but it may be considered in determining whether their dealings gave rise to a binding contract. Post-contractual conduct is not admissible on the question of what a contract means but is admissible on whether a contract was formed: Howard Smith & Co Limited v Varawa (1907) 5 CLR 68 at 77; Brambles Holdings Limited v Bathurst City Council at 163 –164. 53 The existence of matters of importance on which the parties have not reached consensus in the informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal agreement. In order to determine in what areas they were and were not in agreement, and what matters they considered necessary in order for an agreement to exist, it is legitimate to examine their subsequent conduct. An important consideration will normally be the commercial context in which the dispute arises, and a most significant feature of that context will relate to those things which the parties regard, or would ordinarily expect to regard, as matters to be covered by their contract: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, at 548 per Gleeson CJ. 54 Parties may agree to be bound immediately even though they may wish to restate their terms in a fuller or more precise way in a formal document or they may agree to be bound immediately even though there would be a more formal agreement subsequently which could contain other terms: Masters v Cameron (1954) 91 CLR 353 at 360; G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 631; Helmos Enterprises Pty Limited v Jaylor Pty Limited (2005) 12 BPR 23,021 at [52], [55] and [56]. Consideration 55 Did the parties in their conversations come to the variation agreement including the termination term? 56 The evidence of Messrs Marrocco, Maas and McFarlane as to what occurred at the meetings on 19 and 20 January 2004 was accepted by the referees in preference to the evidence of Mr Day whose evidence was that immediate termination was not discussed. There is no warrant for the Court to interfere with that finding, which was clearly properly made. 57 The referees were satisfied that the details of the variation agreement were accurately recorded in the 21 January 2004 letter. 58 Leaving aside what was articulated in the 21 January 2004 letter, in my view, an objective assessment of the words used during the conversations at the 19 and 20 January 2004 meetings, as recounted in the affidavit evidence, results in the conclusion that the termination term was agreed. 59 Although Mr Day's words were couched in terms of an expectation of being sacked, it is difficult to reconcile his statement with anything other than an acceptance that the plaintiff would be entitled to terminate without more if the defendant fell behind the programme. 60 There were stronger and perhaps clearer articulations of this in Mr McFarlane's note that "G&A agree to terminate" and in his affidavit to the effect that "then G&A agree to be terminated". 61 On any of these articulations the clear meaning of the words used was that termination was to be the outcome if the defendant fell behind the programme other than because of inclement weather or variations. 62 The terms of the variation agreement asserted were clearly articulated in the 21 January 2004 letter. Although that articulation could not rise higher than the evidence of the conversations themselves, the defendant's assent in principle in its response on 23 January 2004 shows that both parties took the same meaning from a conversation between them (which meaning was clearly open). This is solid support for the conclusion that the words used (objectively viewed) had the meaning so articulated and understood. 63 In my view, the referees correctly concluded, and there was sufficient evidence for them to conclude, that what was said amounted to agreement between the parties that if the defendant fell behind in the programme the plaintiff could terminate forthwith. 64 I do not consider that there is any error disclosed in their approach. 65 Did the parties intend to be immediately bound on 20 January 2004 or to be not bound until execution of formal documentation? 66 For the following reasons I find that the parties intended to be immediately bound: a at no point during the conversations were words used to the effect that any agreement was subject to, or conditional upon, the execution of formal documentation; b the parties had operated since August 2003 without the execution of formal documentation and the finding of a binding agreement from then was not challenged before me; c on Mr McFarlane's evidence, Mr Marrocco said that the plaintiff's lawyer would write to the defendant's lawyer "to confirm this agreement"- terminology consistent with an immediately binding arrangement; d the commercial context was that the plaintiff considered it was already in a position to take steps to sack the defendant. It did not do so but rather allowed the defendant to continue work on site on the basis of two principal matters of agreement: firstly, adherence by the defendant to the new programme with the associated right to terminate, and secondly, the payment, for performance, of a bonus of $80,000 to the defendant. It was on the basis of these matters that the defendant was permitted to continue, and upon which it did continue its work on site. The subjects one might, from the context, expect the parties to have covered were covered; e the defendant embarked on the programme in accordance with what was agreed on 20 January 2004 and articulated in the correspondence without execution of either AS2124 or AS2545. The parties' subsequent conduct favours the conclusion that they intended immediately to be bound; f no submission was made on behalf of the defendant that any term, condition or subject which was, or was considered by the parties to be, material to their arrangement was not the subject of agreement; g in its Notice of Grounds of Defence, the defendant admitted the entry into of the "Bonus Agreement" and in its cross-claim sued on it. The payment of the bonus was predicated on meeting the target dates set out in section 3 of the 21 January 2004 letter which section contained the clearly articulated termination term. If the bonus agreement was binding, it is difficult to see why the cognate variation agreement would not be; and h nothing in the material at the time of the conversations supports the conclusion that the execution of a formal agreement was intended to be a pre-condition to the binding nature of the arrangement they had reached. 67 There is also merit in the submission put by Mr Miller that by their written exchange comprising the letters of 21 and 23 January 2004 the parties entered into a binding agreement containing the termination term. 68 The 21 January 2004 letter comprehensively stated the terms of the arrangement. It contained no words to the effect that the arrangement was conditional. On the contrary, it sought to elicit any area of disagreement, failing which it made it clear that it would proceed on the basis that the terms agreed would apply to the defendant's continued employment. What was agreed was to be "recorded" in the formal agreement. The formal agreement was to be a recording of the agreement not a precondition to it. 69 In its 23 January 2004 response the defendant reserved the right (which it no doubt had in any event) to take issue with any matters in the formal agreement which did not accord with "what has been agreed between the parties", language consistent with there being on foot an agreement. Used in the manner they were here, the words in the 23 January 2004 letter "our client agrees in principle" did not import the idea that there had necessarily to be agreement on further terms to be embodied in the formal agreement and did not derogate from the other compelling considerations indicating binding consensus: see Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1996) 40 NSWLR 622 per McLelland J at 628; and G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1996) 40 NSWLR 631 per McHugh J at 635-636. The reference in that letter to "in principle" agreement was to the accuracy of the recounting in the 21 January 2004 letter of what had been agreed. That assertion did not amount to one that there was no binding agreement but one only "in principle". 70 In this context too it is relevant that the defendant embarked on the programme in accordance with what was agreed on 21 January 2004 and articulated in the correspondence without execution of any formal document. 71 If, as Mr Newton put, the parties' agreement already incorporated the terms of AS2124 or AS2545 there is even less reason to assume that they regarded the formal re-adoption of those terms as a pre-requisite to give the variation agreement force. 72 The 23 January 2004 response ended off, "[w]e look forward to your reply in due course". There was no suggestion of urgency with respect to formal agreements and, in the meantime, the defendant proceeded to work according to the programme and with the bonus in mind. 73 It was put that the form of the document proffered by Mr Singh under cover of his email of 27 January 2004 was consistent with there being no binding agreement because it did not contain any reference to the variation agreement or the bonus agreement. 74 This submission is not accepted. Firstly, Mr Singh did not proffer the documents as reflective of the particular arrangements emanating from the meetings and exchange of correspondence, but as a base document. Secondly, the parties' conduct in proceeding with performance is inconsistent with the requirement that the execution of a modified document was a pre-condition to a binding agreement. Thirdly, the bonus agreement was clearly regarded by both parties at the time, and in the proceedings before the referees, as binding. 75 As to the submission that the notice to show cause provisions were incorporated into the parties' agreement and failure to meet the programme could result in termination but only after compliance with those provisions, the parties' agreement reached during the conversations was that there were to be only two exceptions to the right to terminate, namely inclement weather or variations. If delay was due to either, there was no right of termination. Falling behind for any reason other than inclement weather or variations would give rise to the plaintiff's right to terminate. There was accordingly no scope for a notice to show cause. Whether the parties' agreement immediately prior to the variation agreement or pursuant to it was otherwise to incorporate the terms of AS2124 or AS2545, which included notice to show cause provisions which applied to other circumstances, is not material. It did not apply to these ones. 76 Even if it be the case that as at 20 January 2004 the notice to show cause provisions in AS2124 governed the relationship between these parties, by that time the landscape had changed. The variation agreement (including the termination term) was new as was the bonus agreement and they were both concluded against the background of the defendant's delay. 77 The referees' finding was that insofar as the parties contemplated incorporating AS2545, they also contemplated that the general printed form providing for a notice to show cause procedure would yield to the quite specific and negotiated variation agreement. In my view, insofar as there was to be a formal agreement it would have to reflect in more formal form what had previously been agreed. Strictly, therefore, it is not a question of the printed form yielding to the specific variation agreement but rather a question of whether the ultimate formal document, if there had been one, would have accorded with what had been agreed between the parties. However, on either analysis, the result is the same. 78 With respect to the submission put on behalf of the defendant that precise terms for remuneration of the defendant in the event of termination cannot be derived from what was said at the meetings, Mr McFarlane's notes referred to the defendant being paid for work done to date and reasonable payment for variations only. None of the parties attribute any precise reference in the conversations to the remuneration being determined on the basis that work carried out to the date of termination would be valued as a percentage of the agreed contract sum as expressed in the 21 January 2004 letter. 79 Leaving aside the response in the 23 January 2004 letter which agreed in principle with the expressed basis upon which the defendant was allowed to continue to work, it does not seem to me that the absence of specific reference in the conversation to the method of valuation of the work (of which a percentage basis would be one) detracts from the existence of the variation agreement. Also, before the referee it was put to Mr Maas (albeit compendiously) that the matters in the 21 January 2004 letter including valuing the work as a percentage of the agreed contract sum were not discussed at the meeting and he did not agree. The matter was not taken further. The exact words may not have been said but there is sufficient to be confident that that is what the parties understood. 80 In my view, the submission that there was no variation agreement until the parties had executed formal documentation should not be accepted. Conclusion 81 In my view, the referees have not been shown to have acted incorrectly in principle or in any other respect. 82 Their principal conclusion on the variation agreement can be sustained in any event on a further basis, namely, that the correspondence itself brought about a binding agreement. 83 The result is accordingly that the report is adopted with the modifications that: a Paragraph 284 is deleted; b The balance to be repaid by the defendant to the plaintiff is varied to $109,422.69. 84 The parties are to bring in Short Minutes and I will hear them on costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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