BETWEEN : PROP WEST PTY LTD ATF PROP WEST TRUST

Practice and procedure - Application to summarily enforce terms in a compromise agreement - Consent order a result of compromise agreement - Liberty to apply - Whether there is a binding contract - Matter to be determined summarily only if no real question to be tried - Whether the agreement has been frustrated - Turns on own facts

Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74

Australian Hardboards Ltd v Hudson Investment Group Ltd [2007] NSWCA 104; (2007) 70 NSWLR 201

Cliffs Robe River Iron Associates v Dravo Pty Ltd [1988] WAR 322

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Cristel v Cristel [1951] 2 KB 725

Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593

Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350

Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Thomas v Cummins [2009] WASC 228

1 LE MIERE J: The plaintiff applies to summarily enforce the terms of a compromise agreement resulting in or reflected in the consent orders made by a Registrar on 21 December 2009. I will begin with some brief observations about the background to the making of the consent orders.

2 The plaintiff and the defendant each hold half of the units in the CVW Unit Trust (the Trust). The defendant is the trustee of the Trust. The sole asset of the Trust is a commercial property known as Unit 3, 40 Lord Street, East Perth (the Property). The Property is mortgaged to BankWest. The Property was rented to companies associated with the defendant and its sole director, Stephen Vining. In July 2009 those companies ceased paying rent.

3 On 22 October 2009 the plaintiff caused to be issued an originating summons seeking the following orders:

1. a vesting order vesting the Trust with the Property;
2. an order that the plaintiff be appointed administrator of and responsible for the vesting of the Trust and the vesting of the Trust be dealt with in the following manner:

(a) the plaintiff obtain an independent valuation of the Property (the Independent Market Valuation);

(b) the plaintiff appoint a licensed REIWA agent of its choosing to list the Property for sale at the price of the Independent Market Valuation; and

(c) the Property be sold at or about the price indicated in the Independent Market Valuation.

1. An order that the defendant account to the Trust for any profits it made in relation to the unauthorised mortgage to Perpetual Trustee Co.

4 An agreement in writing was made by the parties at a mediation conference on 17 December 2009 and reduced to writing. On 21 December 2009 a Registrar made orders by consent of the parties in the same terms as the written agreement of 17 December 2009 (Consent Orders). The written agreement and the Consent Orders are in the following terms:

1. The plaintiff is to arrange that the President of the Australian Institute of Valuers and Land Econ (Inc) appoint an independent valuer to:

(a) value the current sale price based on vacant possession of Unit 5/40 Lord Street, East Perth ('the property'); and

(b) value the annual fair market rental of the property as at 1 June 2009 ('the rent')

(together 'the valuation').

1. The plaintiff and defendant are to pay the costs of the valuation in equal shares.
2. On the first day of the calendar month following receipt of the valuation, the current tenants of the property are to pay Ood Investments Pty Ltd as trustee for the CVW Unit Trust ('the CVW Unit Trust') the pro-rata rent from 1 September 2009 to the first day of the calendar month following receipt of the valuation. The current tenants of the property must also, on the last day of each subsequent month up to and including 30 April 2010, pay the rent, on a monthly basis, to the CVW Unit Trust.
3. The CVW Unit Trust is to distribute all rental payments it receives to the plaintiff and the defendant in equal shares.
4. Ood Investments Pty Ltd be appointed as trustee for sale of the property.
5. Upon receipt of the valuation, Ood Investments Pty Ltd is to appoint Knight Frank to market the property for sale with vacant possession.
6. Upon sale of the property, the encumbrances are to be immediately paid out and any disputed portion of the sale proceeds is to be held in an interest bearing account at Westpac Bank open in the names of both the plaintiff and the defendant to which both are signatories.
7. Ood Investments Pty Ltd is not to further encumber or charge the property pending sale.
8. Both parties and Ood Investments Pty Ltd in its capacity as trustee for sale of the property have liberty to apply.

5 I do not propose to give a detailed outline of all of the evidence in this matter. The parties are in dispute about a number of matters, and it is common ground that this is not an appropriate occasion to attempt the resolution of any disputed facts. Therefore I simply provide the following broad overview of the factual background to this application.

6 After the Consent Orders were made the plaintiff took steps to arrange for the valuation. The plaintiff retained Independent Valuers of Western Australia to prepare a valuation of the Property. The plaintiff did so in the mistaken belief that it was only necessary to appoint an independent valuer from a list provided by the Australian Institute of Valuers and Land Econ (Inc) on the Institute's website. The plaintiff's solicitor forwarded a copy of the valuation report to the defendant's solicitors. The defendant's solicitors said, in effect, that the valuation report was not in accordance with the Consent Orders because the valuer was not appointed by the Institute. The plaintiff accepted that contention and on or about 10 February 2010 requested the President of the Institute to appoint an independent valuer to value the Property.

7 In the meantime, on 7 January 2010 BankWest commenced proceedings in this court against the defendant for vacant possession of the Property. BankWest applied for summary judgment. On 30 March 2010 the Master ordered judgment for BankWest and ordered the defendant to deliver up to BankWest vacant possession of the Property within 28 days.

8 The President of the Institute nominated Dennis Volk 'to undertake a value determination of the' Property. On 2 March 2010 Mr Volk wrote to Stephen Vining in the following terms:

Dear Sir

Sale Price and Rental Determination of Unit 5, 40 Lord Street, East Perth, WA 6000

The writer has received from the Australian Property Institute a Presidential Nomination to undertake the sale price and rental determination in respect to the above mentioned property pursuant to Consent Order of the Supreme Court of Western Australia dated 21 December 2009.

The writer has no conflict of interest in this matter and accepts the appointment subject to written agreement by both parties to the following terms and conditions pertaining to my engagement.

1. To pay the costs of the determination within seven days of receipt of invoice and neither party shall be entitled to receive a copy of my determination until these charges have been paid in full. The fee will be calculated in accordance with the Scale of Fees under the Land Valuers Licencing Act 1978.
2. To pay other costs including travel and legal fees which I, in my absolute discretion, incur. No legal opinion will be sought without reference to the parties or their representatives.
3. To acknowledge the determination will be final and binding and no correspondence will be entered into following the publication of my determination.
4. To acknowledge no responsibility will be accepted by me to any other third party who may use or rely upon the whole or any part of the determination.
5. In the event the parties reach a resolution prior to the completion of the determination, works completed up to the notification date of such agreement will be charged at $300 per hour or part thereof plus GST plus disbursements.

When the parties agree in writing to the terms and conditions outlined above; it is intended to hold a 'without prejudice' meeting between the parties and/or their representatives. The procedural meeting will cover the following items:

1. Points of agreement
2. Points of disagreement
3. Submissions
4. Inspection
5. Provision of lease documentation
6. Any other matters

In order for me to proceed with this determination, I require both parties to acknowledge the appointment by signing and returning the enclosed copy of correspondence.

I note there is an element of urgency surrounding this matter as additional items are subject to the delivery of my determination and therefore I would appreciate your prompt reply.

Yours faithfully,

Signature

Dennis Volk B BUS, AAPI

Joint Managing Director

Valuation Service

I/We ________________ hereby confirm our acceptance to the appointment of Dennis Volk of DTZ (WA) Pty Ltd to undertake a sale price and rental determination of Unit 5, 40 Lord Street, East Perth, Western Australia 6000, on the above terms and conditions.

9 The defendant has declined to accept the appointment of Mr Volk to undertake a sale price and rental determination of the Property on the terms and conditions set out in Mr Volk's letter. By a letter of 23 April 2010 to the plaintiff's solicitors the defendant's solicitor stated:

As previously advised, your client undermined the orders of the court by defaulting in its mortgage repayments which resulted in the bank seeking and obtaining judgment in Supreme Court CIV 1025 of 2010 (the Judgment). Pursuant to the Judgment our client must inter alia deliver up vacant possession of the property to the bank.

It is clear that the consent orders have been undermined by your client's actions and cannot now be put into effect. The bank has obtained judgment and our client does not intend to engage DTZ to proceed on what will only be a waste of money in the circumstances.

10 The plaintiff now applies for an order that the defendant consent in writing to the appointment of Dennis Volk of DTZ Australia to undertake a valuation of the Property. The plaintiff says that there are two sources of the court's power to make the order sought. The first is the power of the court to make orders pursuant to the liberty to apply which was one of the Consent Orders. The second source is the court's inherent jurisdiction to summarily enforce a compromise agreement.

Inherent jurisdiction to summarily enforce a compromise

11 In Thomas v Cummins [2009] WASC 228 Beech J at [26] - [30] recently summarised the principles governing the exercise of the court's inherent jurisdiction to summarily enforce a compromise:

The terms of the Tomlin order in this action contemplate enforcement of the compromise agreement in the schedule. On certain conditions, that is a permissible course: E F Phillips & Sons Ltd v Clarke [1970] 1 Ch 322, 325. That will be permissible provided that:

(1) the terms of the order include a qualified stay and liberty to apply; and

(2) the application to enforce is strictly to enforce the terms embodied in the orders and the schedule, and does not depart from the agreed terms.

In this case the first condition is satisfied. The second condition is very much in issue.

By this application Mr Thomas seeks to enforce the compromise agreement in a summary way. In that respect, substantially the same principles apply to any motion to enforce a compromise agreement, whether recorded in a Tomlin order or not. An agreement compromising the action can be summarily enforced by an application in the action, provided that the court is 'clearly satisfied that justice can be done under the summary procedure': Roberts v Gippsland Agricultural & Earth Moving Contracting Co Pty Ltd [1956] VicLawRp 86; [1956] VLR 555; General Credits (Finance) Pty Ltd v Fenton Lake Pty Ltd [1985] 2 Qd R 6, 9 - 10; Dalmation Nominees Pty Ltd v Marinovich (Unreported, WASC, Library No 980670, 20 November 1998) 12 - 14.

Whether justice can be done under the summary procedure requires consideration of all the circumstances of the case, including:

(a) the extent to which extraneous matters to the original action are involved;

(b) how substantial the questions to be determined are;

(c) to what extent questions of credibility are likely to arise; and

(d) whether pleadings and discovery may be desirable: Roberts v Gippsland (564); General Credits v Fenton Lake (9 - 10).

In Dalmation Nominees v Marinovich (14), Murray J suggested that an application to summarily enforce an agreement to compromise an action should be viewed as akin to an application for summary judgment under O 14 of the Rules of the Supreme Court 1971 (WA). Consequently, it is for an applicant for summary enforcement to satisfy the court that there is no real question to be tried.

Summary of the issues

In this case there are two questions on which Mr Thomas must succeed: first, is it clear that the orders sought do no more than enforce the terms of the compromise agreement; and secondly, is it clear that the agreement is still on foot (ie that Ms Cummins' purported termination was legally ineffectual)? By 'clear' I mean the contrary is not arguable, so as to make summary judgment appropriate.

12 Paragraph 9 of the Consent Orders reserved liberty to the parties to apply. An order granting liberty to apply enables further orders to be made which are necessary for the purpose of implementing and giving effect to the relief already ordered or as it is sometimes called 'working out the order': Cristel v Cristel [1951] 2 KB 725, 729 - 730; Australian Hardboards Ltd v Hudson Investment Group Ltd [2007] NSWCA 104; (2007) 70 NSWLR 201, [50]. Orders made to work out an order arise, for example, upon a decree for specific performance where the unsuccessful defendant declines to sign all documents and do whatever is necessary to ensure that the contract is performed. The reservation of liberty to apply ensures that the court may then make orders to secure that the relevant contract is enforced by the defendant by, for example, appointing the appropriate officer of the court to execute the necessary documents of conveyance so as to give title to the successful plaintiff: Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74, 88.

13 Prima facie, liberty to apply does not entitle a party to come and ask that the order itself shall be varied. On the other hand, there are many orders as to which the process of carrying the primary order into effect may require supervision, with the consequence that further or supplementary orders or directions may be needed to enable it to achieve its purpose: Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593, 598 (McPherson SPJ).

14 Paragraph 1 of the Consent Orders is that the plaintiff arrange that the President of the Institute appoint an independent valuer to value the matters there set out. The appointment of a valuer necessarily requires that the valuer be retained on certain terms and conditions. Order 2 of the Consent Orders is that the plaintiff and defendant pay the costs of the valuation in equal shares. If there is a disagreement between the parties concerning the terms and conditions on which the valuer is to be appointed then the resolution of that difference is a matter which may be resolved pursuant to the liberty to apply. Where the valuer's terms are entirely reasonable the court should accordingly so order. If an order requiring the defendant to agree to the terms and sign an acknowledgement to that effect is an order to work and complementary to the Consent Orders, then the order sought by the plaintiff should be made. Even if the further order made by the court were to be regarded as a variation, if it is supplementary to the orders made and for the purpose of working them out then the order should be made.

15 The application pursuant to the liberty to apply may be determined summarily or after a hearing to determine disputed matters of fact: Australian Hardboards Ltd v Hudson [63] - [71]. The matter should be determined summarily only if the court is satisfied that there is no real question to be tried. Otherwise, the court should give directions for the resolution of the issues between the parties.

16 The defendant opposes the making of the orders on the following grounds. First, the defendant does not admit that the Consent Orders were made pursuant to an agreement between the parties. Secondly, the order sought goes beyond enforcing a term of the agreement, if there was an agreement, and goes beyond working out the Consent Orders. That is because it requires the defendant to do something which it was not required to do by the agreement or the Consent Orders. The defendant says that the agreement and the Consent Orders required the plaintiff to arrange for the valuation and the defendant is required to do no more than pay for half of the cost. Thirdly, the defendant says that the agreement which gave rise to the Consent Orders, if there was an agreement, is no longer on foot because it has been frustrated. That is because BankWest has obtained possession of the Property to sell it and it is no longer possible for the defendant to sell the Property as required or envisaged by the Consent Orders. Fourthly, the defendant says that the court should not enforce the Consent Orders because it would be an exercise in futility. That is because the defendant cannot sell the Property as required or envisaged by the Consent Orders.

17 The plaintiff seeks a summary determination of these orders. The court should only grant the summary relief if there is no real question to be tried. That is so whether the court is to exercise its power pursuant to the liberty to apply or its inherent jurisdiction to enforce the Consent Orders. Accordingly, it is necessary to consider the issues raised by the defendant.

18 The defendant submits that a consent order might or might not be the product of a binding contract depending on the circumstances leading up to its making. Many procedural orders which are made by consent do not conclude binding contracts. The situation is more accurately described as two solicitors conferring for the purpose of formulating an order which could be made without argument: Cliffs Robe River Iron Associates v Dravo Pty Ltd [1988] WAR 322, 324 - 330.

19 The Consent Orders are not procedural orders. They were made at a mediation conference and resolve differences between the parties by creating substantive rights. The agreement between the parties was reduced to writing and signed by or on behalf of the parties. The Consent Orders were made in the same terms as the written agreement. Peter Curtis, a director of the plaintiff, swears that the written agreement is 'the agreement Vining and I signed at [the mediation] conference'. The defendant has not put on any evidence to dispute that assertion. For the purposes of this application I find that the agreement between the parties which led to the Consent Orders was a binding contract.

20 The plaintiff submits that the parties to an agreement are taken to agree to do all that is reasonably necessary to secure performance of their contract: Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350, [88] - [92] (Buss JA). The plaintiff says that the defendants refusal to accept and confirm the appointment of Mr Volk on the terms and conditions he has specified is a breach of both the implied term of the agreement and of the court's orders.

21 There is a strong current of authority that there is implied in every contract a duty of co-operation: Cheshire and Fifoot's Law of Contract (9th ed, Australia) [10.41]. The duty is usually defined in the following formula:

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.

Butt v M-Donald (1896) 7 QLJ 68, 70-1 (Griffiths CJ) ... Secured Income Real Estate (Aust) Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 597 at 607 (Mason J, Barwick CJ, Gibbs, Stephen, Aickin JJ concurring).

The underlying principle is that contracting parties must not only adhere to the letter of the contract, but take all such necessary or additional steps in the performance of the contract that will contribute to the full realisation of the bargain: Cheshire and Fifoot op cit [10.41]. The duty to co-operate has limits. The obligation is limited to what can be reasonably required in the circumstances: Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 610 - 615 (Mason J).

22 The agreement and Consent Orders provide for the plaintiff to arrange for the valuation and for the plaintiff and the defendant to pay for it equally. It may be reasonable to imply a term that the defendant would agree in writing to the appointment of the valuer nominated by the President of the Institute and would agree to the payment of at half the valuer's fee within seven days, as Mr Volk has requested. However, it is arguable that some of the terms and conditions specified by Mr Volk go beyond what can be reasonably required in the circumstances. Mr Volk requires the parties to agree to pay costs in addition to the costs of the determination including travel and legal fees which Mr Volk may, in his absolute discretion, incur. It is not obvious that the valuation task involves incurring legal fees. Further, Mr Volk requires the parties to acknowledge that the determination will be final and binding. That is a condition one would more readily expect to be part of an arbitration agreement than a valuation retainer. Furthermore, Mr Volk intends to hold a without prejudice meeting to cover: points of agreement, points of disagreement, submissions, inspection, provision of lease documentation and any other matters. Such a procedure is a more common feature of an arbitration than an expert valuation.

23 The burden is on the plaintiff to persuade the court that there is no answer to its case. I am not satisfied that there is no real question to be tried on this issue.

24 The defendant says that the agreement has been terminated by frustration. In order for frustration to occur there must be a frustrating event or course of events. A contract may be frustrated if events occurred that results in a situation fundamentally or radically different from that in contemplation when the contract was made: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337. Whether a fundamental difference exists between the contemplated and actual situation often depends on the degree to which the benefit of performing the contract has been diminished by the event in question: Cheshire and Fifoot op cit [19.7]. Another criterion of fundamental difference is the extent to which the commercial purpose for which the contract was made can still be accomplished: Cheshire and Fifoot op cit [19.8].

25 It is arguable that the purpose, or one of the purposes, of the agreement was the sale of the Property by the defendant and that the obtaining of a valuation of the current sale price of the Property was for that purpose. That purpose can no longer be achieved because BankWest has taken, or will take, possession of the property for the purposes of a mortgagee sale.

26 Both parties blame the other for the events that have occurred. The plaintiff says that the mortgage was not paid because the defendant failed to ensure that the tenants paid the rent and furthermore that the defendant, as guarantor, did not discharge the outstanding mortgage payments. The defendant says that BankWest has taken the steps it has because the plaintiff defaulted in payment of the mortgage.

27 The doctrine of frustration is often said to operate only on events for which neither party is responsible. However, the common law allows for the possibility of a frustrating event caused or 'induced' by one of the parties. But causing or inducing a frustrating event must usually involve a breach of the contract serious enough to confer a right of termination on the innocent party: Cheshire and Fifoot op cit [19.23]. A party responsible for the event cannot rely on frustration by that event. To do so would be to escape liability for breach by means of self-induced frustration. It is not clear precisely what degree of responsibility for the event in question will preclude a party from relying on frustration. Some element of fault, blame, or other culpable responsibility for the course of events must be established: Cheshire and Fifoot op cit [19.23].

28 I am not satisfied that there is no real issue to be tried in relation to frustration. There is an issue whether or not the events that have occurred are frustrating events. There is an issue whether or not the defendant may rely upon those events.

29 There is an issue whether the court should compel a defendant to perform his obligations specifically if it cannot at the same time ensure that the whole of the agreement can be performed. It is not necessary to further consider this issue because for the reasons I have already outlined it is not appropriate to summarily enforce the agreement between the parties or the Consent Orders or to make the order sought pursuant to the liberty to apply granted by those orders. That is another matter that remains to be resolved.

30 For the reasons stated it is not appropriate to summarily enforce the terms of the compromise agreement resulting in or reflected in the Consent Orders or to make such an order pursuant to the liberty to apply granted to the parties. There are questions that need to be decided that are not appropriate to be decided by a summary procedure. The court should give whatever procedural directions are needed to enable those issues to be decided.