Court of Appeal (WA)|2011-08-01|Before: Newnes JA

SCAFFIDI -v- PERPETUAL TRUSTEES VICTORIA LTD [2011] WASCA 159 (1 August 2011)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SCAFFIDI -v- PERPETUAL TRUSTEES VICTORIA LTD [2011] WASCA 159

BETWEEN : MARIA SCAFFIDI by her next friend THE PUBLIC TRUSTEE

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : PERPETUAL TRUSTEES VICTORIA LTD -v- SCAFFIDI [2010] WASC 401

Contracts - Deed of settlement - Construction - Whether deed of settlement validly terminated - Whether original cause of action against appellant could be continued - Legal principles concerning releases and covenants not to sue - Whether settlement deed an accord and satisfaction or accord and conditional satisfaction - Person under disability - Effect of court approval

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549

Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635

Benfield v Australian National Railways Commission (1992) 8 WAR 285

Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2006] QCA 253

Commonwealth Bank of Australia v Cluness [1997] NSWSC 222; (1997) 8 BPR 15,467

Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312

Dalle-Molle v Manos [2004] SASC 102; (2004) 88 SASR 193

Dalmation Nominees Pty Ltd v Marinovich (Unreported, WASC, Library No 980670, 20 November 1998)

Eden v Naish (1878) 7 Ch D 781

Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500

Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3; (1972) 126 CLR 449

JF & BE Palmer Pty Ltd v Blowers & Lowe Pty Ltd (1987) 16 FCR 89; (1987) 75 ALR 509

Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428

McDermott v Black [1940] HCA 4; (1940) 63 CLR 161

Nissho Iwai (Australia) Ltd v Shrian Oskar [1984] WAR 53

Osborn v McDermott (1998) 3 VR 1

Perpetual Trustees Victoria Ltd v Scaffidi [2010] WASC 401

Rhodes v Swithenbank (1889) 22 QBD 577

Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd [1956] VicLawRp 86; [1956] VLR 555

Smith v Mapleback [1786] EngR 203; (1786) 1 TR 441

State Bank of New South Wales v Commonwealth Savings Bank of Australia (1985) 6 FCR 524

Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93

Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574

Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689

Wood v Public Trustee (WA) (1995) 16 WAR 58

1 This is an application for leave to appeal from the judgment of Master Sanderson, in which the learned master held, in effect, that a settlement deed relating to the compromise of the action in the court below had been validly terminated, and that the first respondent (the plaintiff in the action below - Perpetual) was at liberty to continue its cause of action against the appellant (the defendant in the action below - Mrs Scaffidi). The master's reasons are contained in Perpetual Trustees Victoria Ltd v Scaffidi [2010] WASC 401. It was accepted by the parties that the learned master's judgment was interlocutory in nature, and that leave to appeal was therefore required pursuant to s 60(1)(f) of the Supreme Court Act 1935 (WA). The second respondent did not participate in the appeal. He filed a notice of intention stating that he would accept any order in the appeal other than as to costs.

2 For the reasons which follow, leave to appeal should be granted but the appeal should be dismissed. Perpetual's notice of contention is also without merit.

3 It is convenient to commence with a consideration of the background to the litigation in the court below. In recounting the history of the litigation, we will use the same shorthand expressions which the parties used when describing the litigation and the claims involved in it, in their settlement deed.

4 In CIV 1376 of 2008, Perpetual sued Mrs Scaffidi to enforce a mortgage which she allegedly granted over certain properties to secure moneys lent by Perpetual (the Claim). Mrs Scaffidi denied the Claim. She alleged that she did not receive the money, that her signature had been forged, and she counterclaimed against Perpetual on the basis that, in any event, the mortgage should be set aside on the equitable ground of unconscionable conduct (the Counterclaim). Mrs Scaffidi also joined her son, Mr Scaffidi, as a third party, and alleged, amongst other things, that he, in effect, granted the mortgage on her behalf and was guilty of misleading and deceptive conduct (the Third Party Claim).

5 There was a mediation in 2009, following which Perpetual, Mrs Scaffidi and Mr Scaffidi entered into a settlement deed. Mrs Scaffidi was under a disability at the time, and the settlement deed required court approval under O 70 r 10 of the Rules of the Supreme Court 1971 (WA).

6 The settlement was approved on 19 January 2010 by Master Chapman, who made the following orders:

The proposed compromise is in the interest of the Defendant.
The proposed compromise which is annexed to these orders to be given effect in the terms incorporated in the deed.
There be no order as to costs.

7 The settlement deed required Mr Scaffidi to pay $550,000 to Perpetual within 21 days of the court approval. He did not do so within the time stipulated, or at all.

8 In May 2010, case management of the action and the third party proceedings was reactivated by the consent of the parties.

9 On 11 August 2010, Mrs Scaffidi, by her guardian ad litem, issued a summons seeking a stay of the proceedings by Perpetual and certain declarations as to the effect of the settlement deed. On 12 October 2010, Perpetual issued notices to each of Mr Scaffidi and Mrs Scaffidi purporting to terminate the settlement deed by reason of Mr Scaffidi's non-payment of the sum of $550,000. Perpetual then issued its own chamber summons seeking a declaration, amongst other things, that it had validly terminated the settlement deed and that Perpetual was entitled to pursue the action to trial and judgment.

10 The settlement deed, entered into by Perpetual, Mrs Scaffidi by her guardian ad litem, and Mr Scaffidi, provided relevantly as follows:

CONDITIONS PRECEDENT

This Deed is subject to and conditional upon (1) an application to the Court being made by 22 December 2009 on behalf of Mrs Scaffidi pursuant to Order 70 Rule 10 of the Rules of the Supreme Court of Western Australia for approval of the settlement between Perpetual and Mrs Scaffidi contained herein ('the Approval') and (2) the Approval being granted by the Court within three months of such application being made.

If the Approval is not granted within such time or at all, this Deed will cease to have effect and none of the parties will continue to be bound by any of its terms.

RECITALS

The Parties have agreed to resolve the Dispute in the manner set out in this Deed. Without any admission of liability on the part of any party, the Parties have agreed that Mr Scaffidi or his nominee will pay Perpetual the Settlement Sum in full and final settlement of the Claim, the Counterclaim and the Third Party Claim subject to the terms of this Deed.

...

2.1 Joint and several covenants

If a Party comprises two or more persons, the covenants and deeds made or entered into on the part of that party bind and must be observed and performed by those persons jointly and each of them severally and may be enforced against any one or any two or more of them.

...

2.2 Headings

Except in the Schedule, headings in this Deed are for convenience and identification of clauses only and do not otherwise affect its interpretation.

...

3.1 Mr Scaffidi (or his nominee) must pay the Settlement Sum to Perpetual within 21 days of the Approval.

3.2 Payment of the Settlement Sum will be by bank cheque made payable to Downings Legal and delivered to the offices of Downings Legal by Mr Scaffidi within the time stipulated in clause 3.1.

3.3 Within 7 days of receipt of the Settlement Sum, Perpetual will at the election of Mr Scaffidi provide either:

3.2.1 To Mr Scaffidi's solicitors, a Form of Transfer of Mortgage to Mr Scaffidi (or his nominee) executed by Perpetual, the original Mortgage and duplicate certificate of title; or

3.2.2 To Mrs Scaffidi's solicitor, a form of discharge of the Mortgage and duplicate certificate of title.

3.4 Upon payment of the Settlement Sum, the Parties will cause consent orders to be filed at the Supreme Court of Western Australia dismissing the Claim, the Counterclaim and the Third Party Proceedings with no order as to costs and vacating all previous costs orders.

3.5 In consideration of payment of the Settlement Sum within the time stipulated in clause 3.1 of this Deed, each Party releases and discharges the other Parties from all liability now existing or which might, but for this Deed, arise in respect of:

(a) the Claim;

(b) the Counterclaim;

(c) the Third Party Claim;

(c)[sic] the Dispute; and/or

(d) any legal or other costs, charges, fees or expenses arising from the Claim, the Counterclaim the Third Party Claim and/or the Dispute.

4.1 Party not to take action

A party must not at any time take or continue any action, suit or proceeding, or make any claim or demand of any nature against any other party or anyone else arising out of the circumstances that gave rise to the Dispute.

4.2 Bar to proceedings

Other than in proceedings taken to enforce the provisions of this Deed, this Deed may be pleaded as a bar to any action or proceeding mentioned in clause 4.1

...

Each party must sign this Deed and do all acts and things necessary or desirable to implement and give full effect to the provisions and purpose of this Deed.

11 The grounds of appeal, as explained at the hearing by counsel for Mrs Scaffidi, may be summarised and grouped as follows:

(a) the effect of the approval of the settlement deed by Master Chapman on 19 January 2010, was to make the terms of the settlement orders of the court, and accordingly no party could terminate it without obtaining court approval, or without obtaining a discharge or variation of the court's order approving the compromise (ground 2);

(b) the settlement deed, on its proper construction, constituted an accord and satisfaction (ground 8);

(c) upon approval of the settlement deed, Perpetual had a right to obtain an order for payment of the sum of $550,000, or a right to enforce Mr Scaffidi's obligation to pay the said sum, but had no other relevant rights (ground 5);

(d) the settlement deed, by cl 4, on its proper construction, operated to preclude Perpetual from suing on its original cause of action, and only permitted Perpetual to sue Mr Scaffidi pursuant to cl 4.2 and cl 9 of the settlement deed (grounds 1, 3 and 6);

(e) the non-payment of the $550,000 did not entitle Perpetual unilaterally to terminate the settlement deed, and the deed could only be terminated by Perpetual and Mrs Scaffidi together (ground 4);

(f) Perpetual could not terminate the settlement deed and therefore maintain its cause of action against Mrs Scaffidi, because to do so would be to permit Perpetual to take advantage of its (alleged) breaches of cls 4.1, 4.2 and 9 of the settlement deed (ground 7).

12 The grounds of appeal raise, in essence, two fundamental issues:

(a) the proper construction of Master Chapman's orders; and

(b) the proper construction of the settlement deed.

13 It is convenient to address the second issue first and to commence a consideration of that issue by reference to certain aspects of the law with respect to the compromise of actions.

14 Technically, at common law, a release is a discharge under seal of an existing obligation or right of action: Commonwealth Bank of Australia v Cluness [1997] NSWSC 222; (1997) 8 BPR 15,467, 15,474. The common law rule was that the release of a cause of action once accrued must be by deed under seal: McDermott v Black [1940] HCA 4; (1940) 63 CLR 161, 176; Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574, 610. Consideration is not required for a promise in a deed: Leonard v Booth [1954] HCA 64; (1954) 91 CLR 452, 474; Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3; (1972) 126 CLR 449, 462.

15 The existence of a release by deed did not necessarily indicate the receipt by the plaintiff of satisfaction in respect of the original wrong in question: Thompson v Australian Capital Television Pty Ltd (611).

16 Under the common law, the release of an obligation created other than by deed could also be brought about by an agreement for valuable consideration if it amounted to an accord and satisfaction: McDermott v Black (183); Thompson v Australian Capital Television Pty Ltd (610 - 611); Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500, 544.

17 In Thompson v Australian Capital Television Pty Ltd (610), Gummow J said:

Accord and satisfaction (the former being the agreement or consent to accept the latter) requires acceptance of something in place of the full remedy to which the recipient is entitled, coupled with provision of the consideration agreed upon.

18 In the case of both release by deed and release by accord and satisfaction, the release 'discharges and extinguishes the obligation': Federal Commissioner of Taxation v Orica (544).

19 At law, an obligation created by deed, however, could only be released by deed and not by accord and satisfaction. For that reason, an accord and satisfaction was not pleaded in bar of an action upon a specialty: McDermott v Black (187); Federal Commissioner of Taxation v Orica (544). (As to specialty debts see Saunders v Milsome (1866) LR 2 Eq 573, 575.)

20 On the other hand, equity would enforce an agreement for value to release an obligation, whether the obligation was originally created by deed or not: McDermott v Black (187); Federal Commissioner of Taxation v Orica (544). Hence, the statements in cases that 'such agreements operated as releases and thus as discharges': Federal Commissioner of Taxation v Orica (544).

21 Prior to the Judicature Act, such an agreement, including an agreement by way of covenant not to sue, was enforced by common injunction restraining the plaintiff from pleading the facts to the contrary, at least if the consideration under the agreement was neither illusory nor inadequate. In the Judicature system, the agreement may be pleaded directly in bar by way of equitable defence if the plaintiff asserts its original right or cause of action: Thompson v Australian Capital Television Pty Ltd (610); McDermott v Black (187).

22 Further, at common law, a covenant not to sue involving a single promisor, although not a release under seal or an accord and satisfaction, if it were unlimited in time and general and unconditional, could also be pleaded in bar in order to avoid circuity of action: McDermott v Black (186 - 187); Thompson v Australian Capital Television Pty Ltd (609), where Gummow J said:

The reason why a covenant not to sue of this nature has been held to provide a plea in bar was more fully explained by Williston in the following passage (163):

'This is to avoid circuity of action; for, if the plaintiff in the original action should recover, the defendant could recover precisely the same damages back for breach of the covenant to forbear or not to sue. Instead of permitting the double action, the court produces the same effect more simply by giving judgment for the defendant in the original action.' (164) (emphasis added)

23 Similarly, in Smith v Mapleback [1786] EngR 203; (1786) 1 TR 441, 446, Buller J said:

[I]t is a maxim in law so to judge of contracts as to prevent a multiplicity of actions; therefore this must be taken to be a surrender, in order to prevent two actions instead of one ... And it is on that ground, that the Courts have construed express words of covenant into a release. As supposing the obligee of a bond covenanted that he would not sue on it, the Courts say that shall operate as a release; for if it operated only as a covenant, it would produce two actions.

24 Where, however, there were several joint promisors, the law did not apply the circuity of action principle so as to treat a covenant not to sue one as the release of the other. A covenant not to sue one joint obligor was treated as simply a covenant not to enforce the obligation. The law with reference to the difference between joint promisors and single promisors, was summarised in this regard by Glanville Williams in 'Joint Obligations', Butterworth & Co, 1949 as follows (107 - 108):

Whereas a release of one joint debtor discharges all, a covenant not to sue, it is held, does not. The argument, for what it is worth, is that where there is a single promisor a release will discharge him by putting an end to the obligation; whereas a covenant not to sue does not directly put an end to the obligation but is a contract not to enforce it. It is true that if the creditor were able to claim on the obligation in breach of his covenant the defendant would be able to counterclaim for damages for breach of covenant; and as the two claims would cancel out the court short-circuits the whole proceeding by dismissing the plaintiff's claim in the first instance. But this is only where there is a single promisor; if there are several joint promisors, and the creditor sues others than those whom he covenanted not to sue, the argument based on circuity of proceedings does not apply, and the action will succeed. The point was clearly put in Clayton (Lacy) v Kynaston (1701):

'A perpetual and absolute covenant, for example, to an obligor, that the obligee would never sue upon the obligation, is a release; or if it be with condition never to sue, it will be a defeasance, though there be no words not to sue in the obligation, but only in the condition of it; and the reason of this is to avoid a circuity of action; because there one should precisely recover the same damage that he has suffered by the other's suing the bond. A is bound to B and B covenants never to put the bond in suit against A; if afterwards B will sue A on the bond, he may plead the covenant by way of release. But if A and B be jointly and severally bound to C in a sum certain, and C covenants with A not to sue him, that shall not be a release, but a covenant only; because he covenants only not to sue A but does not covenant not to sue B for the covenant is not a release in its nature, but only by construction, to avoid circuity of action; for where he covenants not to sue one, he still has a remedy, and then it shall be construed as a covenant, and no more.'

25 The rule developed against the background that a release by deed or accord and satisfaction granted to one joint obligor discharged the others. As a consequence, the courts were reluctant to construe an agreement with one joint obligor as a release rather than a covenant not to sue. See Thompson v Australian Capital Television Pty Ltd (581 - 582, 608 - 609); JF & BE Palmer Pty Ltd v Blowers & Lowe Pty Ltd (1987) 16 FCR 89; (1987) 75 ALR 509, 511 - 512. Thus, even if a document were expressed as a release, if it expressly reserved the plaintiff's rights against the other parties jointly liable, it would be read as a covenant not to sue and would not operate as a release of the others: Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635, 650 [26].

Accord executory, accord and satisfaction, and accord and conditional satisfaction

26 Dixon J in McDermott v Black (183 - 185), said:

The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one.

...

The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.

27 As Keane J observed, however, in Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2006] QCA 253 [20], what is important is to focus on what the parties have agreed, rather than the categorisation of their agreement as either an accord and satisfaction or an accord executory. The classification of agreements itself depends on a true appreciation of the effect of the terms agreed between the parties and the binary classification of agreements is not always adequate.

28 An accord executory, whereby a promisor promises to abandon a claim or cause of action in exchange for some active performance by the promisee is a type of unilateral contract: see the discussion in Sneddon M C and Ellingham M P, Cheshire and Fifoot's Law of Contract (9th Aust ed [4.24]).

29 The inadequacy of the binary classification into accord executory and accord satisfaction was referred to by Fullagar J in Scott v English [1947] VicLawRp 67; [1947] VLR 445, 453:

The essence of the matter may be said to be that a mere 'accord' is not a contract at all. But, if we find in any particular case that there is a contract - a promise accepted in 'satisfaction' against a promise - our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action ... The question is likely to arise wherever a time is fixed for performance of the defendant's promise. In the present case, where a time is so fixed, if the compromise is a mere accord, the plaintiff could sue on the original cause of action at any time before acceptance of performance; he would not be bound to accept performance. If, on the other hand, the compromise is a new contract, he cannot sue on the original cause of action unless the time for performance has passed and there is no performance. But, if the time for performance by the defendant has passed and there is no performance, can he sue only on the new contract, the original cause of action being absolutely discharged by the new contract, or can he, at his option sue for breach of the new contract, or, rescinding the new contract, proceed on his original cause of action? The question, I think, is to be decided as a matter of construction of the new contract.

30 Fullagar J's observations were approved and applied in Nissho Iwai (Australia) Ltd v Shrian Oskar [1984] WAR 53. See also Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93, 114 (Dixon CJ & Fullagar J), 150 (Taylor J).

31 Fullagar J's reasoning was summarised by Phillips JA in Osborn v McDermott (1998) 3 VR 1, 10, who said that:

[H]is Honour contemplated a case in which the accord amounted to an immediately enforceable agreement (which suggests that there was accord and satisfaction), but that the 'satisfaction' (the discharge of existing obligations) was itself only conditional, suspending the original cause of action, but not extinguishing it, unless and until performance by the defendant according to the tenor of the agreement.

32 Phillips JA described the three categories of compromises in the following way (10 - 11):

Thus, there are three possibilities, not two. First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff's existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.

Where there is a mere accord executory, no suit can be maintained upon the compromise unless and until there has been performance, and then suit is ordinarily unnecessary. Upon default in performance, the plaintiff's existing cause of action continues unaffected. With accord and satisfaction, either party may sue upon the compromise, but only on the compromise and for nothing else: the original cause of action has gone. Where there is accord and conditional satisfaction, the plaintiff is bound to await performance and accept it if tendered, but if there be no performance, then the plaintiff may proceed according to general principles called into play when any agreement is repudiated: the plaintiff may either treat the agreement (the accord) as at an end and proceed on his original cause of action; or he may, at his option, sue on the compromise agreement, in place of the original cause of action. (emphasis added)

33 In Nissho Iwai v Shrian Oskar Brinsden J referred in similar terms to the position of a plaintiff under a compromise agreement involving, in effect, an accord and conditional satisfaction (58):

I am of the opinion that [the compromise] was no mere accord executory but a contract intended to create new antecedent obligations, but effected no absolute discharge of the cause of action but only if the defendant performed his promise. The defendant in this case failed to perform his promise and so that left the plaintiff in the position that it could sue on the new contract or rescind the new contract and proceed on the original cause of action.

See also Buseska v Sergio (1990) 102 FLR 157, 159.

The parties' contentions as to the essential nature of the settlement deed

34 The contest between the parties was whether the settlement deed was an accord and satisfaction, as Mrs Scaffidi contended, or an accord and conditional satisfaction, as found by the learned master and as contended for by Perpetual. Neither party contended that it was an accord executory.

35 Mrs Scaffidi's submissions were, in essence, twofold. First, it was said that cl 3.5, properly construed, effectuated an immediate release of Perpetual's cause of action against Mrs Scaffidi once the settlement deed was approved by Master Chapman. It was contended in that regard that the satisfaction received by Perpetual was Mr Scaffidi's promise to pay the Settlement Sum and that the satisfaction was not intended to be the actual payment of the Settlement Sum. Secondly, it was said on behalf of Mrs Scaffidi (written submissions par 94) that the master erred because 'clause 4 of the Settlement Deed is a covenant by [Perpetual] not to sue (without a time limit or condition) save to enforce the obligations of the Settlement Deed, which also operates to release the previous claims against [Mrs Scaffidi]'. It is said that cl 4 operates, immediately with effect upon court approval, to preclude Perpetual suing Mrs Scaffidi on the Claim.

The proper construction of the settlement deed

36 Clause 3.5 in terms provides for a release 'in consideration of [sic for]' the 'payment of the Settlement Sum' within the stipulated time. It does not refer to Mr Scaffidi's promise to pay the settlement sum. Clause 3.1 requires the payment to be made to Perpetual. Clause 3.5 is not, accordingly, with respect to Perpetual, a mere release under seal. It is also, evidently, intended to operate by way of accord and satisfaction, with the satisfaction being the 'payment [to Perpetual] of the Settlement Sum' within the stipulated time, and not merely a promise to pay the sum in question.

37 With respect to Mr Scaffidi and Mrs Scaffidi, their position is somewhat different. It is difficult, in relation to Mr Scaffidi and Mrs Scaffidi, to characterise the payment of the settlement sum to Perpetual itself as satisfaction in the sense of 'an acceptance [by them] of something in place of the full remedy to which the recipient is entitled' (adopting and adapting the words in Thompson v Australian Capital Television Pty Ltd (610)) when neither is a recipient of the settlement sum.

38 Nevertheless, it must be presumed that the releases by Mrs Scaffidi and Mr Scaffidi in favour of each other and Perpetual in cl 3.5 were intended to operate contemporaneously with Perpetual's release of Mrs Scaffidi. Accordingly, cl 3.5 must be construed as providing that the releases by Mrs Scaffidi and Mr Scaffidi are contingent upon Mr Scaffidi's payment of the settlement sum to Perpetual. It is unnecessary for present purposes to consider whether the releases received by Mrs Scaffidi constituted a satisfaction for the rights alleged in the Counterclaim and the Third Party Claim. For present purposes, it is sufficient to note that all of the releases in cl 3.5 are given under seal and are contingent upon the payment to Perpetual in accordance with cl 3.1. If and upon taking effect, each release in cl 3.5 'discharges and extinguishes' the underlying cause of action to which it relates: Federal Commissioner of Taxation v Orica (544).

39 The contingent nature of the releases in cl 3.5 also finds support in cls 3.3 and 3.4. Clause 3.5 is preceded by cl 3.4, which provides that 'Upon payment', the parties will cause the Claim, Counterclaim and Third Party Claim to be dismissed. By cl 3.3, it is only seven days after 'receipt' of payment by Perpetual that it is obliged either, in effect, to assign the mortgage to Mr Scaffidi or to put Mrs Scaffidi in a position to discharge the mortgage. In this regard, in our view, it is clear that the stipulation in cl 3.1 combines the characteristics of both a promissory and contingent condition, as to which see McTier v Haupt [1992] VicRp 46; (1992) 1 VR 653, 657; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, 555 - 556; Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, 704. Such a term may be contrasted with a merely promissory condition in a tripartite contract where breach by the promisor of the condition does not entitle the promisee of the obligation to terminate as against the third party to the contract: State Bank of New South Wales v Commonwealth Savings Bank of Australia (1985) 6 FCR 524, 550 - 552.

40 Further, the construction advanced by Mrs Scaffidi that cl 3.5 effected an immediate release upon approval by Master Chapman produces an absurdity. On that construction, Mrs Scaffidi's property could be indefinitely encumbered by a mortgage which was unenforceable. That is so because Perpetual is only obliged to transfer the mortgage or provide Mrs Scaffidi with the means to have it discharged within '7 days of receipt of the Settlement Sum'. If Mr Scaffidi were never to pay the sum of $550,000, even after having been successfully sued to judgment, the mortgage would remain on the title, but be unenforceable. To counter that acknowledged absurdity, counsel for Mrs Scaffidi was driven to argue at the hearing of the appeal that cl 3 properly construed meant, in effect, that Perpetual was obliged under cl 3.3 to transfer the mortgage to Mr Scaffidi at his direction, either upon payment to Perpetual of the settlement sum of $550,000 within the stipulated time, or, in the event of non-payment, upon Mr Scaffidi being put into bankruptcy. Thus, it was said, Perpetual could be obliged to transfer the mortgage to Mr Scaffidi, at his direction, even if Perpetual never received a cent of the $550,000 which Mr Scaffidi was obliged to pay under cl 3.1. It is apparent from this that the problem with the absurdity of the principal construction advanced on behalf of Mrs Scaffidi is not alleviated by recourse to this further proposed construction, which collapses under the weight of its own inherent absurdity.

41 Clause 4.1 is, in effect, a covenant not to sue. Clause 4.2 is defined by reference to the scope of cl 4.1 as it relates to the pleading of the deed as a bar 'to any action or proceeding mentioned in cl 4.1'. Clause 4 must be read in context, and the settlement deed must be construed as a whole, so as to give, so far as possible, an harmonious construction to all of its provisions. Clause 4 does not in terms refer to the Claim, Counterclaim and Third Party Claim. The words 'any action, suit or proceeding, or ... any claim or demand of any nature ... arising out of the circumstances that gave rise to the Dispute' appear to us, in context, to be referring to other actions and claims which might arise from the circumstances of the Dispute, rather than the Claim, Counterclaim and Third Party Claim which the parties have explicitly addressed in cls 3.3, 3.4 and 3.5.

42 Even if we are wrong in that view, and cl 4.1 included, on its proper construction, a covenant not to sue on the Claim, Counterclaim and Third Party Claim, there is no reason to suppose that the parties intended those claims to be effectively sterilised from the commencement of the deed, when the release and discharge of the claims (under cl 3.5) are, in effect, conditional upon the payment of the settlement sum.

43 Clause 9 requires the parties to do all acts and things necessary or desirable 'to implement and give full effect to the provisions and purpose' of the deed. Clause 9 is a servant of the substantive rights and obligations found elsewhere in the deed. It does not create new rights or obligations inconsistent with the operative provisions of the deed which it is designed to serve, including, relevantly, cls 3 and 4.

44 Finally, although the settlement deed does not expressly provide for termination for the breach of non-fulfilment of conditions, clear words are required to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law: Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 [23]. There is no provision in the settlement deed which precludes the parties from relying on their general law rights arising from the performance or non-performance of the deed.

45 For these reasons, the construction of the deed advanced by Mrs Scaffidi should be rejected.

46 The above conclusions, in substance, are sufficient to dispose of the grounds of appeal which depend upon the proper construction of the settlement deed. For completeness, we will address, briefly, the points in the appeal raised in subpars (b) to (f) set out in [11] above of these reasons.

47 For the reasons given above, on the proper construction of cl 3.5 and in the events which have happened, there was no accord and satisfaction of Perpetual's cause of action against Mrs Scaffidi. Perpetual's rights were not confined to enforcing Mr Scaffidi's obligation to pay the settlement sum. Clause 3.1 also operated as a contingent condition, the non-fulfilment of which entitled Perpetual to terminate the deed. Similarly, the settlement deed did not operate to preclude Perpetual from suing on its original cause of action in the event of non-payment of the settlement sum. Perpetual was entitled to terminate the deed, without Mrs Scaffidi's consent or co-operation, because cl 3.1 operated not only as a promissory condition, but as a contingent condition, the non-fulfilment of which gave Perpetual the right to terminate under the general law. Its rights under the general law were not excluded by the terms of the deed. Further, it was not in breach of cls 4.1 and 4.2, or cl 9, in terminating and exercising its rights under the general law.

48 The other principal issue in the appeal was whether the effect of Master Chapman's approval of the settlement deed was to turn the terms of the deed into orders of the court, so that a breach of the deed constituted a breach of the court's orders.

Compromise of action by person under disability

(1) No settlement or compromise, and no acceptance of money paid into court, whenever entered into or made, in any cause or matter (other than an appeal to the Court of Appeal) in which there is a claim by or on behalf of or against a person under disability, shall be valid unless it is approved by the Court.

(2) An application for approval under paragraph (1) -

(a) if made before the hearing of a cause or matter, shall be by summons in chambers;

(b) if made during the trial of an action or issue, shall be to the trial Judge on motion,

and shall be supported by affidavit and by the opinion of an independent counsel; but the Court or Judge may dispense with the necessity of obtaining counsel's opinion.

(3) In this Rule settlement includes an acceptance of an offer to consent to judgment.

50 The court has inherent power to approve an agreement to compromise an action brought on behalf of the person under a disability if it is satisfied that it is for the benefit of the person to do so. Order 70 r 10 merely provides a framework to enable the court to exercise its power: Wood v Public Trustee (WA) (1995) 16 WAR 58, 62.

51 The need for court approval of any compromise is that if the next friend or guardian ad litem does anything in the action beyond the mere conduct of it, it must be for the benefit of the person under the disability and if it is not, the person under the disability will not be bound: Rhodes v Swithenbank (1889) 22 QBD 577, 579. The purpose of the requirement for leave is to ensure that the settlement is fair and reasonable, to provide a means by which the other party can obtain a valid discharge, and to ensure that the solicitors for the party under the disability are paid only their proper costs: Benfield v Australian National Railways Commission (1992) 8 WAR 285, 292.

52 As to the second of those considerations, an agreement made by a person lacking mental capacity is voidable against the other party if the other party knew of the lack of capacity: Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423, 441; Dalle-Molle v Manos [2004] SASC 102; (2004) 88 SASR 193 [16]. Accordingly, it would 'be unsafe for a [party] to enter into a compromise with a [party] under a disability suing by a next friend as such a contract may well be voidable': Wood v Public Trustee (WA) (63).

53 The effect of Master Chapman's orders was to render the settlement deed enforceable against Mrs Scaffidi. The orders did not, by their express terms, or by necessary implication, make the terms of the deed into orders of the court. Master Chapman's orders are to be understood as rendering valid and efficacious the agreement of compromise, thereby enabling the parties to 'sue on the new contract' or, if it were terminable under the general law, 'rescind the new contract and proceed on the original cause of action': see Nissho Iwai v Shrian Oskar (58); Buseska v Sergio (159).

54 If, of course, the compromise agreement were subsequently enforced, the court might then make orders requiring performance of its terms, either in separate proceedings or, in certain circumstances, on motion in the original proceedings. Since the Judicature Act 'such a compromise may be converted into an order of the court upon a motion by any party interested and enforced like a judgment': Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd [1956] VicLawRp 86; [1956] VLR 555, 557 citing Daniell's Chancery Practice (8th ed, vol 1, 646) (emphasis added). See also Dalmation Nominees Pty Ltd v Marinovich (Unreported, WASC, Library No 980670, 20 November 1998) 11 - 14. Master Chapman's orders were not in the nature of an enforcement of the settlement deed, but were made for the purpose, relevantly, of rendering the settlement deed enforceable.

55 Some authority, by way of analogy, may be found in Shaw v Shaw [1965] HCA 39; (1965) 113 CLR 545. In that case, the High Court considered the effect of s 87(1)(k) of the Matrimonial Causes Act 1959 (Cth) which provided that the court could 'sanction an agreement for the acceptance of a lump sum or periodic sums or other benefits in lieu of rights under an order made in respect of [certain matters], or any right to seek such an order'. Barwick CJ, with whom Kitto, Taylor and Windeyer JJ agreed, said (549):

The Court is given power to sanction such an agreement so that it will be binding on the parties according to its terms so far as they relate to matters within that part of the Act. No doubt, a Court asked to sanction such an agreement will consider closely its provisions realizing not merely that the parties are foregoing rights to the Court's immediate intervention but that they must thereafter rely upon the contractual rights which the agreement gives.

56 Accordingly, the orders of Master Chapman are not to be construed as the court ordering that the settlement deed be carried out in accordance with its terms.

57 For the above reasons, leave to appeal should be granted, but the appeal should be dismissed.

58 By the notice of contention, Perpetual contends that even if Mrs Scaffidi established any of her grounds of appeal, Mrs Scaffidi should be denied any relief on her summons filed 11 August 2010, including, relevantly, a stay of the Claim because, in effect:

(a) she is seeking the equitable remedy of 'specific performance' and she is a volunteer, or there was a total failure of consideration, and the court should refuse 'specific performance' because 'the granting of such relief' would result in hardship to Perpetual in being unable to enforce its mortgage; and

(b) Mrs Scaffidi should not obtain the benefit of 'declaratory relief or the like' because equitable relief may be declined on the grounds of hardship and unfairness.

59 As the notice of contention is to be considered on the basis that Mrs Scaffidi has succeeded on any of her grounds of appeal, it may be assumed that there was accord and satisfaction of Perpetual's cause of action against Mrs Scaffidi by virtue of the promise to pay the settlement sum, that Perpetual covenanted, by deed, to release and never to sue Mrs Scaffidi on the Claim, and that the accord and satisfaction, the release by seal and the unconditional covenant under seal not to sue, all came into immediate effect upon approval of the settlement deed by Master Chapman. Accordingly, for the purpose of the notice of contention, it is to be assumed that there was a release or discharge of Perpetual's cause of action against Mrs Scaffidi at law immediately upon approval of the deed of settlement. In these circumstances (and whilst ever the deed were on foot), any subsequent purported revival by Perpetual of its original cause of action against Mrs Scaffidi would be 'foredoomed to fail' and would constitute an abuse of process: Walton v Gardiner (1993) 177 CLR 378, 393. That being the position at law, any purported revival of the Claim in the action by Perpetual could consequently be stayed as an abuse of process without any recourse by Mrs Scaffidi to equitable relief. There was no suggestion that, procedurally, a stay application in these circumstances could not be brought by summons - as to which, see Eden v Naish (1878) 7 Ch D 781, 786. Nor was there a submission to the effect that the deed was unenforceable at law on the grounds of public policy.

60 Moreover, Mrs Scaffidi on her summons did not seek specific performance. The notice of contention seems to assume that declaratory relief is, or is equivalent to, an equitable remedy and that the traditional barriers to equitable relief apply equally to declaratory relief. That submission cannot be accepted: Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428, 450 - 456; Meagher RP, Heydon JD & Leeming MJ_, Meagher, Gummow and Lehane's_ Equity: Doctrines & Remedies (4th ed, 2002) [19-155].

61 For these reasons, were it necessary to determine the notice of contention, it could not be upheld.

Ankar Pty Ltd v National Westminster Finance

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (135 paragraphs)

SCAFFIDI -v- PERPETUAL TRUSTEES VICTORIA LTD [2011] WASCA 159 (1 August 2011)

Accord executory, accord and satisfaction, and accord and conditional satisfaction

Parties

Legislation Cited (2)

Cases Cited (23)