Blue Moon Grill P/L v Yorkey's Knob Boating Club Inc [2006] QCA 253

Quinn & Scattini (Brisbane) acting as Town Agent for Cameron A Price (Smithfield) for the appellant

[1] JERRARD JA: In this appeal I have read the reasons for judgment of Keane JA and those of Philippides J, and respectfully agree with those reasons and orders.

[2] KEANE JA: The appellant (to whom I shall refer as "the plaintiff") contends that the learned primary judge erred in concluding that, on the proper construction of terms of settlement agreed between the parties, the plaintiff's proceedings then pending against the respondent ("the defendant") were discharged immediately upon the execution of the terms of settlement.

[3] Some brief reference to the background to the execution of the terms of settlement is necessary to an understanding of the arguments agitated by the plaintiff on this appeal.

[4] In 1999, the parties entered into a contract ("the Food Service Agreement"). Under this contract, the defendant granted the plaintiff the exclusive right to provide catering services on the defendant's premises. In return, the plaintiff agreed to pay a fee to the defendant and to comply with all relevant statutory requirements in relation to the provision of catering services.

[5] The Food Service Agreement was renewable at the election of the defendant at the end of each year. Under a mechanism in the Food Service Agreement, the effect of such an election by the defendant was to reinstate the Food Service Agreement as a contract for a minimum three year term.

[6] In January 2003, the defendant chose not to extend the Food Service Agreement.

[7] In January 2005, the plaintiff asserted that the Food Service Agreement had been continued in effect by agreement between the parties for a further three years from 1 February 2005. The plaintiff asserted that a new agreement had been made between the parties by correspondence in November and December 2004. The defendant disputed these assertions, and commenced proceedings seeking a declaration that the Food Service Agreement had come to an end on or before 20 January 2005. The plaintiff defended these proceedings and counterclaimed, with an amended defence and counterclaim being filed on 13 April 2005.

[8] The terms of settlement document was signed the next day on 14 April 2005.

[9] On 4 May 2005, the defendant wrote to the plaintiff, asserting that the plaintiff had breached the terms of settlement and purporting to terminate the plaintiff's licence to enter the defendant's premises to provide catering services.

[10] The plaintiff responded on 10 May 2005, stating that it was terminating the terms of settlement and that it intended to revive its counterclaim in the earlier proceedings. The plaintiff then commenced proceedings seeking, inter alia, a declaration that the agreement contained in the terms of settlement came to an end on 4 May 2005, and directions with a view to pursuing its counterclaim in the earlier proceeding.

[11] The defendant countered with its own application to the primary judge, the determination of which is the subject of this appeal. As has been mentioned, the primary judge upheld the defendant's contention that the claims in the pending proceedings had been discharged by the terms of settlement.

[12] The terms of settlement document was signed by the solicitors for each party. The document was headed "Terms of Settlement". It contained the following terms:

"1. That the [plaintiff] continue to provide catering services to the [defendant] in accordance with the terms of the Food Service Agreement and Deed of Amendment (save in-so-far as those terms do not conflict [sic] with the terms of this settlement) up until 30 June 2005.

2. That the [defendant] and [the plaintiff] agree that [the plaintiff] will not pay rent under the Food Service Agreement and Deed of Amendment (as amended) for the period 15 April to 30 June 2005.

3. That the [defendant] pay [the plaintiff] the sum of $60,000 on or before 30 June 2005.

4. That [the plaintiff] hereby agrees to consent to orders from the Supreme Court denying [it] access to and give [sic] full possession of [the defendant's] premises to [the defendant] from 1 July 2005 if they have not given possession by that time.

5. Upon performance by the [defendant] and [the plaintiff] of the terms of this settlement the current Supreme Court proceedings between the parties in this matter be dismissed with no order as to costs, and the parties hereby discharge and release each other from any actions, claims or demands of whatsoever nature or howsoever arising out of this matter, and agree to instruct their solicitors to sign such documents and take such steps as are necessary to give effect to the terms of this agreement."

[13] The learned primary judge determined that the intention of the parties, as revealed by cl 5 of the terms of settlement, was "to put an immediate end to the earlier proceedings".[1] On his Honour's analysis, cl 5 consisted of three parts, of which the first was concerned with "the circumstances in which the earlier proceedings will be dismissed", the second was concerned with "the mutual discharge and release from actions, claims and demands", and the third was concerned with "the authorisation of solicitors to take necessary steps".[2]

[14] His Honour referred to authorities, such as McDermott v Black[3] and Baxter v Obacelo Pty Ltd,[4] which distinguish between an accord and satisfaction and an accord executory.[5] His Honour held that the Terms of Settlement afforded an example of accord and satisfaction, in that:

"there is a mutual discharge by the parties of their respective claims. The terms by which this is expressed suggest their intention was for the discharge to have immediate effect. The performance of the terms of settlement was similarly expressed in clause 5 as an obligation on both parties."[6]

[15] The primary judge concluded that the intention of the parties was that "by agreeing to the terms of settlement, there was a mutual discharge of the earlier proceedings by entering into the terms of settlement".[7] His Honour evidently treated the "discharge ... from any actions, claims or demands" in the second component of cl 5 as having immediate operation in respect of the "current Supreme Court proceedings" referred to in the first part of that clause.

[16] The plaintiff contends that the primary judge's analysis of cl 5 into its component parts is apt to lead to error in that, by reading the three components of cl 5 separately, one's appreciation of the effect of the parts of the clause may be denied the benefit of seeing the parts in the context of the whole.

[17] It may also be noted that his Honour's analysis of the component parts of cl 5 omits reference to the use of the conjunction "and" between the three components, and does not recognise that the discharge of "actions, claims and demands" is neither open-ended nor referable to the "current ... proceedings between the parties", but is limited to "actions, claims and demands ... arising out of this matter". Further, the expression "this matter" is also used earlier in cl 5, where the "current proceedings between the parties" are identified as the proceedings "in this matter". Finally, the third part is not merely an "authorisation to solicitors to take necessary steps", but an agreement by the parties to ensure through their solicitors that effect is given to the agreement.

[18] The plaintiff argues that the ordinary meaning of the opening words of cl 5 of the terms of settlement is that only upon performance of all the terms of settlement will the proceedings be dismissed. The plaintiff submits that the use of the conjunction "and", immediately preceding the reference to the discharge and release in cl 5, means that the discharge and release is also conditioned on the performance of the terms of settlement. It submits that the word "hereby" when read in context is to be understood as referring to the terms of settlement as itself effecting the release without the need for a further release. As a result, the plaintiff submits that the primary judge erred in treating the second component of cl 5 as having immediate operation.

[19] The plaintiff also submits that, even if the second component of cl 5 was to have immediate effect, that cannot mean that the parties' obligations in relation to the dismissal of the pending proceedings were to take effect immediately, and even if the terms of settlement were not actually performed.

[20] In a discussion of the issues which arise on this appeal, it is important to focus on what the parties have agreed rather than with the categorisation of that 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, as Phillips JA explained in Osborn v McDermott,[8] the binary classification of agreements is not always adequate.

[21] It is also necessary to bear in mind that "[w]hen construing a commercial document in the ordinary way the task of the court is to ascertain and give effect to the intentions of the contracting parties."[9] Of course, the parties' intentions must be determined objectively.

[22] The third general observation that one may make is that, while there are uncertainties which attend the interpretation of cl 5, there are some reasonably reliable pointers to the parties' intentions. If one thing is clear from cl 5, it is that the pending proceedings should be kept on foot until the terms of settlement had been performed. A clear statement of intention would be necessary to impose an immediately binding obligation on the parties to procure the dismissal of the pending proceedings irrespective of the fate of the terms of settlement. The second thing which is clear is that the words "hereby discharge" in the second part of cl 5 are not apt to refer to "current proceedings". Thus, the "discharge" in the second part of cl 5 is hardly a clear statement of an intention immediately to bind the parties to procure the dismissal of the pending proceedings irrespective of the fate of the terms of settlement.

[23] If the parties had assumed an obligation immediately to procure the discharge of the current proceedings upon the signing of the terms of settlement (on the basis that the current proceedings fell within the class of "actions, claims or demands" identified in the second component of cl 5), there would be no reason of real substance for keeping those proceedings on foot. The rights and liabilities involved in the current proceedings would be immediately at an end, and the claims in those proceedings would be unenforceable. The discharge in the second component of the terms of settlement document could be pleaded by the defendant as a complete answer to the plaintiff's claims before the terms of settlement had been performed. Thus, on the view taken by the primary judge, in the event of a failure to perform the terms of settlement, the only action which the plaintiff could bring would be an action for breach of the terms of settlement. Such a result would, in my respectful opinion, be inconsistent with the intent of the parties as expressed in the introductory words of cl 5.

[24] The primary judge was of the view that there was no "strict inconsistency" between the agreement for the dismissal of the pending proceedings only after performance of the terms of settlement and the notion of an immediate release and discharge.[10]

[25] His Honour recognised that, on his interpretation of cl 5, the only purpose served by the postponement of the dismissal of the "current Supreme Court proceedings" is that the pending proceedings would continue to provide a procedural vehicle for applications to the court to enforce the rights and liabilities created by the terms of settlement.[11] In my respectful opinion, there are a number of considerations which make it difficult to accept that the introductory provisions of cl 5 are explicable on the basis that they are mere machinery intended only to facilitate an application to enforce the terms of settlement. The first is that any such application could easily be made by way of originating application.

[26] Secondly, it is frequently the case that the parties to a commercial dispute will wish to ensure that, in the event of a default in performance of settlement terms, the innocent party, ie the party not in breach of the settlement terms, will be able to enforce to the fullest extent possible the rights which it claims existed prior to the compromise and which would have been diminished by the terms of the compromise had it been carried into effect. A party to an action may be willing to accept less than what it believes to be its true legal entitlements in exchange for prompt and certain settlement, while wishing to ensure that, if prompt performance of the settlement should not occur, it will be at liberty then to enforce its original rights to the fullest extent which the law will allow. The parties may seek to ensure that they are not limited by the terms of settlement to the rights conferred by the settlement in the event of a failure by one party to perform its side of the settlement. In my view, the language of the introductory words of cl 5 affords an indication of just such an intention.

[27] The defendant contends that this indication is equivocal. It may be accepted that there is some force in this contention, but, in a case of uncertainty as to the true intention of the parties, a court should prefer that construction which prevents a contract breaker from taking advantage of its own breach.[12] On the view urged by the defendant, one party could breach the terms of settlement and the innocent party would be left with no rights save those conferred by the terms of settlement itself. That result is avoided by the adoption of the view urged by the plaintiff. Indeed, on the view urged by the plaintiff, both sides have the wholesome incentive to perform the terms of settlement, in that breach of those terms may, at the election of the innocent party, result in the continuation of the pending proceedings and the ultimate enforcement of the parties' rights and obligations, uncompromised, and strictly according to law.

[28] It is well established that "[c]ommercial documents should be construed so as to make commercial sense of them."[13] It is necessary to seek to construe cl 5 as a whole, and to read it so that it is not internally contradictory. Even if the plaintiff's submission in relation to the significance of the words "and ... hereby discharge ..." is not accepted, it is, I think, possible to construe cl 5 so that the immediate release of "actions, claims or demands arising out of the matter" does not contradict the postponement of the dismissal of the pending proceedings. The point to be made here is that cl 5 differentiates between the "dismissal" of the current proceedings and the discharge of "actions, claims or demands". The "actions, claims or demands" referred to as such in the second part of cl 5 are those which arise "out of this matter". They are not the "actions, claims or demands" which constitute the matter nor are they the "current ... proceedings between the parties". The first part of cl 5 is concerned with the current proceedings. That is a different subject matter from the subject matter of the second part of the clause.

[29] In my view, the second part of cl 5 may be read harmoniously with the first part of the clause. The second part is concerned with "actions, claims or demands" not yet actually made in the pending proceedings but which might be alleged to arise from the dealings between the parties which led to the pending proceedings. In this way, whether or not the introductory words of cl 5 are to be taken to apply to the balance of the clause after the first "and", it can, in my respectful opinion, be seen with tolerable clarity that the claims in the pending proceedings were not to be discharged unless the terms of settlement had been performed by both sides.

[30] The defendant urged that the primary judge was correct to accord decisive significance to the evident desire of the parties for certainty in their relationship.[14] In this regard, his Honour said:[15]

"To the extent that the Terms of Settlement required ongoing compliance with the food service agreement, if the settlement depended on performance by [the plaintiff] of such provisions, it would be at serious risk of the earlier proceedings being revived by minor default on its part. It seems to me unrealistic that the parties would have entered into settlement which was so precariously balanced. If the terms of settlement are construed so as to have the effect that the earlier proceedings were at an end, then the parties would have certainty as to the duration of the licence arrangement and as to the financial arrangements which existed between them."

[31] The plaintiff submits that this last passage reveals that the primary judge failed to appreciate that the plaintiff's rights under the terms of settlement were, on either of the competing views of the proper construction of the terms of settlement, placed in this "precarious balance" because the plaintiff remained obliged to provide service in accordance with the standards in the Food Service Agreement. Accordingly, so it is urged by the plaintiff, the construction of cl 5 of the terms of settlement preferred by the primary judge did not meet the concern adverted to by his Honour. Clearly, there is force in this argument.

[32] More importantly, however, while the evident desirability of bringing certainty to the parties' commercial relationship may be accepted, it does not follow that one should therefore conclude the parties intended immediately to discharge the existing proceedings by entering into the terms of settlement. The parties would be exposed to the uncertainties involved in the termination of the terms of settlement and the renewal of the pending litigation only as the result of the breach of the terms of settlement by one party and the exercise by the innocent party of a choice to continue with the current proceedings rather than to enforce the terms of settlement. The certainty provided by the terms of settlement would be jeopardised only by a breach of those terms, and then only if the party not in breach were to choose to pursue its rights in the pending proceedings. The party in breach could hardly be heard to complain about such a result brought about by its own breach of contract.

[33] For these reasons, I consider that the appeal should be allowed. The orders made below should be set aside. The defendant should pay the plaintiff's costs of the application below, and of this appeal, to be assessed on the standard basis.

[34] PHILIPPIDES J: The issue in this appeal is whether the terms of settlement entered into by the parties on 14 April 2005 operated as an immediate discharge of the claims and counterclaims of the parties in proceedings then pending. At first instance, the primary judge accepted the respondent's contention that on the proper construction of the terms of settlement there was an immediate discharge of the pending proceedings, so that the appellant was restricted to pursuing such claims as it had from the failed performance of the terms of settlement. Such a construction avoids the complicating prospect of factual disputes arising as to whether a party to a failed compromise in pursuing its rights in pending proceedings does so by taking advantage of its own breach.

[35] I have had the advantage of reading the reasons for judgment of Keane JA and respectfully agree with those reasons and the orders proposed. I agree that the words of the first part of clause 5 ought not be construed as merely reflecting an intention to provide a procedural mechanism for the "formal dismissal" of the pending proceedings. The distinction made in cl 5 of the terms of settlement between the dismissal of the pending "proceedings", which was expressed to occur only "upon performance" of the terms of settlement and the release and discharge of "actions, claims or demands ... arising out of this matter", to which the parties "hereby" agreed, is an important indication of the intention of the parties. The distinction provides a means of reconciling the first and second parts of cl 5, even if the second part is interpreted as having immediate operation, and supports the interpretation contended for by the appellant that the first part of cl 5 is to be construed as indicating an intention to preserve the pending proceedings so that they might be pursued in the event of a default in performance of the terms of settlement.

[1] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [11]. See also [22] - [23].

[2] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [11].

[3] [1940] HCA 4; (1940) 63 CLR 161 at 184 - 185.

[4] [2001] HCA 66; (2001) 205 CLR 635.

[5] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [15] - [19].

[6] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [19].

[7] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [23].

[8] [1998] 3 VR 1 at 9 - 11. See also Pollak v National Australia Bank Ltd [2002] FCA 237 at [8];

El-Mir v Risk [2005] NSWCA 215 at [47] - [50].

[9] Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715 at 737.

[10] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [20].

[11] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [20].

[12] Cheall v Association of Professional Executive Clerical & Computer Staff [1983] 2 AC 180 at 189; Alghussein Establishment v Eton College [1988] 1 WLR 587 at 591 - 595; Hope Island Resort Holdings Pty Ltd and Anor v Jefferson Properties (Qld) Pty Ltd and Ors [2005] QCA 315; Appeal No 1086 of 2005, 26 August 2005 at [8], [47] - [49].

[13] See Geroff & Ors v CAPD Enterprises P/L & Ors [2003] QCA 187; Appeal No 9031 of 2002, 9 May 2003 at [36] and MSW Property P/L v Law Mortgages Queensland P/L [2003] QCA 487; Appeal No 7541 of 2002, 7 November 2003 at [45].

[14] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [22].

[15] Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2005] QSC 251; SC No 209 of 2005, 17 August 2005 at [22].