Taycon Pty Ltd v Williams [2023] QSC 297

David Pearce  |  Gemma Osborne  |  Jarryd Cox

Key takeout

This case is a reminder of the fundamental importance of properly documenting an agreement.  Courts may be tasked with interpreting a party’s recollections of events, meetings or conversations, and a party’s prospects of achieving a favourable outcome in a construction dispute can ultimately hinge off its ability to provide compelling evidence of any representations or statements made during key conversations.  The absence of clear documentation such as notes, emails or letters can expose a party to the risk that a court may interpret a meeting, conversation or agreement incorrectly, or in a manner which is unhelpful.  

In determining whether an interest clause in a construction contract is a penalty, a court will consider the legitimate interests of the party to whom interest is to be paid.  Where a contractor has a legitimate interest in maintaining cashflow in order to operate a business, an interest rate which is proportionate to that interest is not to punish for late payment.  Rather, it is to compensate the contractor for the consequences of being deprived of the use of money it was owed and which it needed to conduct its business.

Facts

The facts and background of this case were important because the court used them to establish what were the terms of the agreement.

In 2005 Mr Williams engaged Taycon Pty Ltd (Taycon), a small-scale builder to construct a home in Brisbane.    In 2011 Mr Williams’ home suffered significant flood damage and required substantial repairs.  Taycon was engaged to undertake the repairs and to make improvements to the home. The works were completed in late 2011.  By February 2012, Mr Williams owed Taycon $324,819.02, which included a deferred payment fee of $50,000. 

Taycon engaged a solicitor who drafted a deed acknowledging the debt (deed).  Clause 4 of the deed (interest clause) provided for an interest rate of 20% per annum, compounding daily, if Taycon was not paid by 30 May 2012 (due date).  The parties signed the deed.  By May 2012, Taycon was under pressure from his bank to repay its outstanding facilities.  Following numerous offers, conversations and negotiations between the parties Taycon commenced proceedings against Mr Williams for the balance of $200,000 plus interest at 20% on the outstanding balance.

Factual dispute 1 – May 2012 conversation as to debt due

In May 2012 Mr Taylor, Taycon’s director, lamented to Mr Williams that he could not afford to visit Milan to attend a furniture exhibition with his wife. Mr Williams subsequently initiated a discussion about the cost of business class fares for Mr Taylor and his family.  Mr Williams offered to pay the airfares, which were estimated to be around $25,000, and the parties agreed to increase the amount owed from $324,819.12 to $350,000 to cover those costs. 

Mr Williams submitted that the agreement to pay the extra $25,000 meant that interest under the deed would not be chargeable and Mr Williams would have an endless amount of time to pay the debt as no timeframe was stipulated.  Mr Taylor rejected this, submitting that the debt would still attract interest and relied on assurances made by Mr Williams that he would be paid soon or within a reasonable time.  The court accepted Mr Taylor’s evidence and decided that a three month extension was appropriate, pushing the due date to 31 August 2012.

September 2012 email – time to pay

Mr Williams did not pay his debt by the due date.  From May to October 2012 Mr Taylor followed up Mr Williams numerous times requesting payment.  Mr Williams presented himself as a sophisticated businessman and consistently made representations that he was on the brink of obtaining a large amount of money which would enable him to pay Taycon what he owed.  Mr Williams paid $100,000 to Taycon on 9 July 2012 and an additional $50,000 on 25 July 2012, reducing the debt from $350,000 to $200,000.  Mr Williams continued to stall further payments until Mr Taylor demanded payment in August.  Following this Mr Williams provided two cheques each for $100,000. When presented to the bank the cheques were dishonoured.  On 18 September 2012 Mr Taylor emailed Mr Williams advising that no more extensions were going to be provided and that the cheques were being cashed on 23 September 2012 .

Factual dispute 2: evidence of 16 October 2012 conversation

Following the September email Mr Williams made a further offer to Mr Taylor.  Mr Williams emailed Mr Taylor advising him of a site in Townsville which was ‘going to be rezoned to Residential from Rural Living’.  The email mentioned that Mr Williams was ‘buying it at Rural Living value for $4.5m and post rezoning it will be worth more than $20m.’  Mr Williams offered Mr Taylor an opportunity to invest the outstanding $200,000 into the venture, stating that ‘assuming a value increase of $15m then a 5% interest gives a return of $750,000.’  Mr Williams also noted he would be happy to personally guarantee a return of $200,000 within a year.  Following that email Mr Taylor and Mr Williams met to discuss the venture.  Both Mr Taylor and Mr Williams provided differing recollections to the court of what was discussed at the meeting.  The contention was whether the meeting constituted the parties entering into a binding agreement.

Was the interest clause a penalty?

Mr Williams paid the principal debt in full by 28 July 2023.  Still in dispute was the interest payable under the deed.  Mr Williams submitted that the interest clause was void as a penalty.  Taycon rejected that submission.

Decision  

Judgment was given for Taycon. The court was tasked with interpreting what was agreed to at meetings which had no written documentation.  It found that in deciding the existence or terms of an oral agreement consideration of surrounding circumstances and post-contractual conduct was permissible.

Dispute 1: May 2012 conversation – was a contract formed?

The court decided that the parties had reached an agreement, the consequence of which was that in return for the additional $25,000, Mr Williams would be given a reasonable further period to pay.  In the absence of a fixed time for repayment, a term requiring repayment within a reasonable period would be implied.  By their conduct, the parties appeared to accept that a reasonable time was three months from the due date.  On that basis the remaining $200,000 should have been paid by the end of August 2012, with interest accruing on that outstanding balance on and after 1 September 2012. 

 Dispute 2: 16 October 2012 conversation – enthusiasm was not enough to form a contract

Mr Williams submitted that the discussion constituted a binding agreement, relying on three persuading factors:

1. There was no discussion at the meeting about the agreement being documented.
2. Mr Taylor was enthusiastic about the proposal and saw it as being ‘too good to pass up’.
3. The communications following the meeting involved language of ‘agreement’ and ‘arrangement’.

Mr Taylor’s understanding of the agreement was that it needed to be formally documented as key matters such as the investment vehicles and how the profit share would be executed were not clarified.

The court found that given the complexity of the agreement, the better view was that the parties did not intend to conclude a formal contract based on their discussions that day.  The Court also noted that a party’s enthusiasm does not necessitate an intention to be bound.  Finally, the Court identified that the language used between the parties was not suggestive of an already concluded agreement.

Interest clause was not a penalty  

In deciding whether the interest clause was a penalty, the court considered that Taycon had a legitimate interest in maintaining cashflow that was essential to the operation of its business.  The court also considered the financial hardship that Taycon endured due to Mr Williams’ inability to pay his debts.  Due to the nature of Taycon’s business, the absence of cashflow inhibited its entire business strategy and hamstrung its ability to take on new building projects where it would need to immediately incur costs associated with the supply of materials, engaging subcontractors and other expenses. The court assessed that the bargaining power between the parties was equal. The payment of interest was not to punish Mr Williams for non-payment. Its purpose was to compensate Taycon for the consequences of being deprived of the use of money it was owed and which it needed to conduct its business. On that basis, the court held that the clause was not a penalty.