AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR

AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR - [2000] NSWCA 21 - NSWCA 2000 case summary — Zoe

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AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR The plaintiff agreed to compromise proceedings brought by her against the first and second defendants for compensation upon her husband's death. The second defendant was a party to the agreement; the first defendant was not. There was evidence before the trial Judge that the plaintiff suffered pathological avoidance to issues relating to her husband's death and the subsequent legal proceedings. She could not sensibly apply her mind to these issues. She was afraid of giving evidence and had expressed a desire for the litigation to be over. She agreed to settle her claim on the basis of costs only despite legal advice that she stood to recover more from the litigation. There was no conduct on the part of the second defendant which could have been criticised. Hulme J at first instance declared the compromise unjust and void under the Contracts Review Act 1980 (Watson v Paper Industry Engineers Pty Limited [1999] NSWSC 98). The second defendant appeals from this decision. Held: (by Sheller JA, Meagher and Heydon JJA agreeing) (1) Section 7(1) of the Contracts Review Act conditions the Court's power to intervene on a finding that the contract (or a provision thereof) was unjust in the circumstances relating to the contract at the time it was made. Prior to intervention, the Court must also consider that it is just to do so. Further, any intervention must be for the purpose of avoiding, as far as practicable, an unjust result. (2) Section 9(2) of the Act contains a non-exclusive list of matters to which the Court shall have regard, to the extent that they are relevant to the case. Each matter should be treated, not necessarily as a hallmark of the unjust contract, but as a matter to which the Court shall have regard. West v AGC (Advances) Limited (1986) 5 NSWLR 610, considered. (3) Section 9 does not impose an obligation to show that the contract was unjust because it was produced by unfair or unjust conduct on the part of a party to it. Baltic Shipping Company v Dillon; 'Mikhail Lermontov' (1991) 22 NSWLR 1, followed. Baltic Shipping Company v Dillon (1993) 176 CLR 344, referred to. (4) In finding the contract unjust within the meaning of the Act, Hulme J properly applied s7(1) and correctly took into account all relevant matters, namely, the substantial inequality in bargaining power between the parties, the plaintiff's inability to reasonably protect her interests (despite the benefit of legal advice), the plaintiff's inability to give her solicitor instructions, the fact that the second defendant had notice of these matters and the fact that setting aside the contract restored the parties to rights and obligations they had before the contract was entered into. Hulme J also took into account the desirability of holding parties to agreements into which they had voluntarily entered. That the Court should encourage compromise of litigation was also relevant. No weight, however, was attached to the absence of the first defendant from the contract. Cases Baltic Shipping Company v Dillon (1993) 176 CLR 344. Baltic Shipping Company v Dillon; 'Mikhail Lermontov' (1991) 22 NSWLR 1. Gibbons v Wright (1954) 91 CLR 423. Harvey v Phillips (1956) 95 CLR 235. Lewis v Combell Constructions Pty Limited (1989) 18 NSWLR 528 West v AGC (Advances) Limited (1986) 5 NSWLR 610. Statutes Compensation to Relatives Act 1897 Contracts Review Act 1980 ORDERS Appeal dismissed with costs.

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COMMON LAW PROCEEDINGS 3 On 20 May 1991 the plaintiff and first respondent in the appeal, Janine Watson, began the proceedings by statement of claim against the second respondent, PIE, and appellant, Amcor to recover damages for their negligence in causing the death in November 1989 of the plaintiff's husband, Stuart Daniel Watson. Both defendants filed defences. In 1991 PIE filed a cross-claim against Amcor. This was amended in November 1996. On 3 June 1991 the plaintiff obtained an award against PIE in the sum of $167,000 in the Compensation Court. On 25 February 1993 the plaintiff married Andrew Goulding, who is now named as her tutor in the proceedings. By 6 June 1994 Mr Mason, the plaintiff's solicitor, had served on the defendants, and sought consent to the filing of a draft amended statement of claim to include a claim for nervous shock suffered by the plaintiff. 4 On 16 May 1996 Mr Mason received a notice of motion filed by Amcor seeking orders that the plaintiff file Pt 33 r8A particulars. This led to Mr Mason's letters of 21 May and 4 June 1996 seeking instructions from the plaintiff. In the first letter Mr Mason wrote: "We have refrained to date as on our instructions it would appear that there will be a substantial difficulty on quantum of damages and a likelihood the amount recovered in common law proceedings in the Supreme Court would be less than that obtained before the Workers Compensation Court. In those circumstances the action before the Supreme Court will merely allow paper industry engineers [sic] to recover the amount of compensation they have already been paid from Amcor by way of reimbursement and have no real effect in providing any further damages to you. In those circumstances it must be now decided whether the proceedings continue and perhaps the best method of resolution of the matter would be to put an offer of settlement to Amcor Limited solicitors Phillips Fox that the matter be settled on the basis of costs only thereby relieving any liability you have to us in respect of costs and finalising the matter once and for all. We would welcome the opportunity to discuss this aspect of the matter with you and the matter generally and would appreciate if you might telephone our Mr Mason and or make an appointment for conference with Mr Mason as soon as possible. We note that a Notice of Motion has been filed and which [sic] is returnable before the Court on the 27 May 1996 and if it was the case that the matter was to prepare on the basis of negotiation for settlement as to costs only then we would need some time prior to that to negotiate that settlement with the other side."

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His Honour accepted Mr Mason's evidence that he had told the plaintiff that she would recover substantially more. 24 Hulme J was of the opinion that the communications between the plaintiff's solicitor and the solicitors for Amcor were calculated to constitute a contract between those parties to compromise the dispute between them. His Honour said: "In my view they were. Although in the letter of 7 June, Mr Mason indicated clearly that any compromise he was contemplating would involve all three parties. The subsequent correspondence and discussions between Mr Mason and Phillips Fox are in terms indicative of a two, and not three, party agreement. The number of instances of this is sufficient to prevent one concluding that these negotiations were all under the aegis of the letter of 7 June and that any agreement reached was conditional on the third party to the litigation concurring. In particular do the references to the possibility of any moneys paid by Phillips Fox's client being payable by the Plaintiff to the First Defendant lead to this conclusion. Whatever the First Defendant's rights in this regard arising under the terms of the Workers Compensation legislation, those rights were, as is obvious to anyone practising in personal injury claims in this Court, susceptible of variation or defeat by a suitably arranged settlement of the proceedings in this Court and the terms of the conversations of 4 and 11 September are only consistent with there being no agreement with the First Defendant concerning the matter. It was urged on behalf of the Plaintiff that any agreement with the Second Defendant was conditional upon the First Defendant becoming a party to it or the Plaintiff making some other arrangement with the First Defendant. However, in light of the terms of the correspondence and discussions which I have set out above, this argument is untenable. Although the reference to indemnities in Mr Mason's remarks just prior to the Plaintiff saying 'Yes I'll leave it to you' referred to …. above make it doubtful whether he had the Plaintiff's actual authority to make a two party agreement with the Second Defendant, there can be no doubt that , subject to any matters flowing from any incapacity the Plaintiff may have had, he had ostensible authority from the Plaintiff to effect the agreement he did."

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25 Notwithstanding the evidence of Dr Westmore, Hulme J remained unpersuaded that the plaintiff in 1996 lacked the capacity to understand the nature of the transaction when it was explained. His Honour referred to Gibbons v Wright (1954) 91 CLR 423 at 438, and said that he thought the probabilities were that she had the requisite capacity to understand. In any event, there was no evidence to suggest that any incapacity which the plaintiff had to contract was known to Phillips Fox or Amcor. 26 Hulme J turned then to consider whether the contract was unjust and should be set aside pursuant to the terms of the Contracts Review Act. The plaintiff had submitted that Amcor was aware of the potential value of the claim and, implicitly, that it was worth considerably more than the plaintiff received under the compromise. However, his Honour was not prepared to conclude that Amcor probably believed that the settlement arrived at was unduly favourable to it and unfavourable to the plaintiff and said that, in the circumstances and given the limits of the evidence before him, it was unnecessary and not appropriate that he attempt to value the plaintiff's claim. The reasons for judgment continued: "In determining whether a contract is unjust, Section 9 of the Contracts Review Act requires the Court to have regard to all the circumstances of the case and to a number of specific matters referred to in sub-section 9(2). Among the circumstances which are relevant is the desirability of parties being held to agreements into which they have voluntarily entered. Furthermore, the compromise of litigation is something which the courts encourage and there are significant disadvantages not only for a party whose compromise may be set aside but for the public if such compromises come to be treated as but provisional. The continuation of litigation has disadvantages for all litigants including the Plaintiff and the fact that the contract I have held to exist was entered into with the benefit of legal advice operates against any suggestion that the contract was unjust. Most of the matters to which sub-section 9(2) of the Act requires that the court have regard do not argue in favour of the Plaintiff's claim under that Act. However, two do. In light of Dr Westmore's reports and evidence and my assessment of the Plaintiff, I am satisfied that notwithstanding the Plaintiff was being advised by her solicitor, there was a material, and I would say substantial, inequality in bargaining power between the Plaintiff and the Second Defendant. On the same grounds I am also satisfied that the Plaintiff was not reasonably able to protect her own interests. I would also conclude that the Second Defendant through Phillips Fox had some notice of the first of these matters. They had notice of the matters referred to in the report of Dr Shand, including the diagnosis of pathological anxiety and neurotic features although there is nothing in the report to suggest that the Plaintiff suffered disability in her response to, or conduct of, the litigation. The letter of 7 June from Mr Mason is not as clearly expressed as it might have been but the statement that 'the nervous shock issue … is quite significant and appears to have deteriorated' and was 'very evident' is a statement that the Plaintiff's condition was worse. When attention is also had to Mr Mason's expressed view that the Plaintiff would, if she proceeded, recover substantial amounts and to the observation that (nevertheless) the Plaintiff was considering withdrawing, in effect, with only her costs paid, it seems to me that the letter gave notice to the Second Defendant that there was some weakness in the Plaintiff's bargaining power (not attributable to weakness in her case) and ability to protect her own interests."

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I would not read para (e) as in some way excluding as relevant the first of these matters simply because the plaintiff was represented by a person apparently reasonably able to protect her interests. One of the critical factors here was that the plaintiff was unable to give her solicitor instructions. This is a matter or circumstance to be taken into account in determining whether the contract was unjust whatever the capacity of the solicitor. Of course the fact that the plaintiff had a solicitor to advise her cannot be ignored and is a relevant matter to be taken into account. 35 In Baltic Shipping Company v Dillon; 'Mikhail Lermontov' (1991) 22 NSWLR 1 at 9 Gleeson CJ, who formed the majority of the Court with Kirby P, said: "The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just. Moreover, there is a particular policy of the law to encourage resolution of litigation by settlement, and that particular policy is not advanced by encouraging plaintiffs who settle litigation and later repent of their bargains to seek to avoid their contracts on the basis that they were made in circumstances of emotional vulnerability. Litigation is stressful for most people who have the misfortune to become involved in it. Most people regard the prospect of a long and expensive court case with dismay. People often settle legal claims for less than they are worth because of a desire to avoid what they see as greater evil. In its own way, this is often a calculated decision and it is frequently a prudent one. This is not enough to sustain relief under the Contracts Review Act . However, in the present case there was more. The starting point for a consideration of whether the settlement agreement, including the release, was 'unjust in the circumstances' is the conclusion reached in relation to the first issue, which produces the result that the respondent settled her claim for less than one-tenth of what it was worth. Further, there are the findings made by Carruthers J that there was material inequality in bargaining power between the parties to the contract and that the respondent's capacity to protect her interests was, owing to her physical and emotional condition, diminished. Those findings have not, in my view, been successfully challenged. Finally, there is the view of his Honour, which I also consider to be justified, that the appellant at the least adopted a course of conduct including denying any liability, and confronting the respondent with the prospect of potentially enormous litigation, which of its nature was likely to, and did, subject her to a form of pressure which had the effect, even if not the purpose, of taking advantage of the inequality of bargaining power and of her diminished capacity to protect her own interests."

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37 The High Court granted special leave to appeal from the decision of the Court of Appeal on grounds which included the question whether the respondent was entitled by reason of the operation of the Contracts Review Act to relief from the deed of release. However, during the hearing of the appeal, special leave to appeal on this question was rescinded (see Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 347). On 7 February 1992, when announcing this decision, Mason CJ said: "In this case, the members of the Court of Appeal took into account, inter alia, the following matters in deciding that the contract was unjust: the comparison between the value of the respondent's cause of action and the amount agreed to be paid in settlement; an inequality in bargaining power of the parties; a diminished capacity of the respondent to protect her interests and the conduct of the appellant in denying liability. Those matters can be said to be 'circumstances relating to the contract', so as to entitle the Court to consider them in deciding whether the contract was unjust. The appellant submits that those circumstances, or some of them, were immaterial to the finding that the contract was unjust. We do not consider this argument to be soundly based." 38 Hulme J referred to the following relevant matters. By 6 June 1994 the plaintiff had formulated a claim for nervous shock against both defendants. Her solicitor Mr Mason's opinion was that the plaintiff would recover substantially more if the Common Law proceedings went ahead than she had recovered in the Compensation Court proceedings. Mr Mason gave evidence that the plaintiff's reticence in providing instructions to him caused undue delay in the prosecution of the proceedings. The plaintiff had a recollection that she had discussed the proceedings with Mr Mason and expressed a desire not to be in court again. The medical evidence in August 1993 was that she was still suffering from a bereavement reaction with neurotic features and that in June 1998 she was not able to provide Mr Mason with instructions due to her psychiatric incapacity and, on the balance of probability, was not able to provide such instructions in June 1996. She was not able to apply her mind in a sensible way to the issues relating to her first husband's death. She might wish prematurely to close her case. She wanted to get rid of it, lock it away, get it out of her life and not really to deal with the difficulty of the litigation, the difficulty of having to deal with the memory of her husband and the circumstances of his death and the memory of her experience at and around the time he died. Hulme J accepted the plaintiff's evidence when she said that she "just wanted it all over and done with" because it was "just too upsetting", the "it" being a reference to the litigation. His Honour also accepted that this was because dealing with it brought back memories of when her first husband was killed. 39 The plaintiff gave the following evidence: "Q. You also mentioned, in your affidavit, what recollections you had of conversations with your solicitor in or about, or contact with your solicitor in or about, early June 1996? A. I can't remember that. Q. Do you remember how you felt at that time? A. I just wanted it all over and done with. Q. Why was that? A. It's just too upsetting. Q. Why was it upsetting you? …….. A. It just brought back all the memories of when my husband was killed. Q. Did that affect your state of mind? A. Yes. Q. How would you describe your state of mind when those memories were brought back? A. Sorry, can you say that again? Q. How was your state of mind affected, or how would you describe the change to your state of mind when those memories were brought back to you? A. I just couldn't think clearly. It used to just make me sick. HIS HONOUR: Q. In what way did it make you sick. Did you vomit? A. No. I would end up with diarrhoea and my body would shake. I would feel sick. It would come up to my throat, but - and my whole body would just shake. Q. How long would that sort of thing go on for? A. It could be days."

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