Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc

[2] The principal issue on this application is whether on their proper construction, the terms of settlement agreed upon on 14 April 2005 extinguish the right of the parties to maintain their respective claims and counterclaims. As to that issue the parties agree upon the circumstances in which the terms of settlement were entered into and agree that there is no evidence other than what is contained in the material which would impact upon the construction question.[1] Thus the application is more correctly characterised as a separate determination of an issue rather than a summary judgment application. At all events, the parties agree that I should determine the construction point.

[3] It is useful to set out the background facts in brief compass. In early 1999, the parties entered into a contract (called the "Food Service Agreement") whereby the applicant granted the respondent an exclusive right to provide catering services on the Club's premises, in consideration for BMG's payment to the applicant of a fee.[2] The Food Service Agreement stated that BMG would comply with all relevant statutory requirements in the course of its work.

[4] At the end of every year, the Club would review the performance of the respondent and decide whether to extend the term for a further year. The effect of extending the term for a year would be to reinstate the agreement for a minimum three year term. If, in any year, the Club decided against extending the contract, the remaining two years of the Food Service Agreement would be left to run.

[5] The Food Service Agreement continued until January 2004 when the applicant decided against reinstating it. The major reason cited for terminating the Food Service Agreement, was that BMG had failed to maintain the food services area to an appropriate standard of cleanliness as required by the Food Act 1981.[3]

[6] In January 2005, BMG gave notice to the applicant contending that the agreement had in fact been extended for a further three years. This was contested by the Club, which instituted proceedings seeking a declaration that the contract had come to an end on or before 20 January 2005.[4] The respondent defended that claim and counterclaimed for a declaration, specific performance and in the alternative damages pursuant to s 82 of the Trade Practices Act 1974 (Cth).[5] The Further Amended Defence and Counterclaim was filed on 13 April 2005.

[7] Obviously extended litigation was not in the interests of either party, because on 14 April 2005 the parties signed the Terms of Settlement.

[8] Smooth relations between the parties did not persist. On 4 May 2005 the Club wrote to BMG alleging that it had breached the terms of settlement, and advised that BMG's licence to enter the club and provide services was terminated.[6] In a letter dated 10 May 2005, BMG's solicitors responded, stating it was terminating the terms of settlement, and reviving the earlier proceedings.[7]

[9] Because they are critical to the outcome of this application, the terms of settlement[8] are set out in full. They read as follows:

"1. That the Blue Moon Grill Pty Ltd continue to provide catering services to the Yorkeys Knob Boating Club Inc in accordance with the terms of the Food Service Agreement and Deed of Amendment (save in-so-far as those terms do not conflict with the terms of this settlement) up until 30 June 2005.

2. That the Yorkeys Knob Boating Club Inc and Blue Moon Grill Pty Ltd agree that Blue Moon Grill Pty Ltd 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 Yorkeys Knob Boating Club Inc pay Blue Moon Grill Pty Ltd the sum of $60,000 on or before 30 June 2005.

4. That Blue Moon Grill Pty Ltd hereby agrees to consent to orders from the Supreme Court denying them access to and give full possession of Yorkeys Knob Boating Club Inc premises to Yorkeys Knob Boating Club Inc from 1 July 2005 if they have not given possession by that time.

5. Upon performance by the Yorkeys Knob Boating Club Inc and Blue Moon Grill Pty Ltd 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."[9]

[10] The above terms indicate a significant change in the rights of the respective parties under the earlier agreement. By para 2 no rent is now payable by BMG. By para 3 there is a requirement for a certain payment to be made. By para 4 the commercial arrangement between the parties will end on 1 July 2005.

[11] But the focus of the application is on the effect of the terms of para 5. This paragraph contains three concepts -

(i) the circumstances in which the earlier proceedings will be dismissed;

(ii) the mutual discharge and release from actions, claims and demands; and

(iii) the authorisation of solicitors to take necessary steps.

The question is whether it was the intention of the parties, as revealed by those words, to put an immediate end to the earlier proceedings.

[12] The Club argues that the mutual discharge and release from actions and claims had the effect of immediately extinguishing those proceedings. In other words, the agreement itself provided an accord and satisfaction. BMG argues that by reason of the words "Upon performance by..." which introduce clause 5, the discharge is dependent upon the performance of the agreed terms which rendered the agreement as an accord executory. Each argument has superficial merit depending upon which of the concepts one focuses attention.

[13] Mr Philp of Senior Counsel for the Club, contends that the word "and" between the first and second concept is to be read disjunctively. The "and" between the second and third concepts conjunctive and together they suggest that there was an accord and satisfaction. He further contends that the compromise of the proceedings was not dependant upon any actual performance but on the agreement to implement the terms of settlement - namely, BMG's rent-free occupation of the premises for the stated period and the payment by the Club of $60,000. In this submission he relies particularly on the principles expressed in McDermott v Black.[10]

[14] Mr Jacobs of counsel for BMG argued for a finding that the accord remained executory and that as a consequence, BMG was entitled to pursue its claims in the earlier proceedings as well as any new claims arising from the failed performance of the terms of settlement. Mr Jacobs referred to and relied upon a decision of Mandie J in Commonwealth Bank v Mile Oak Pty Ltd.[11]

Did the execution of the terms of settlement result in accord and satisfaction?

[15] An accord and satisfaction arises if there is an acceptance by a claimant of something in place of his/her cause of action. As Dixon J (as he then was) explained in McDermott:-

"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 a 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, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed."[12]

[16] The statement of principle has been followed in a number of cases. See particularly Ballantyne v Philpott[13] and Thompson v Australian Capital Television Pty Ltd.[14] The latter case was concerned with the effects of the release of one of two tort feasors. Gummow J dealt with the distinction between the defence of release and that of accord and satisfaction. He 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...

The existence of a release did not necessarily indicate the receipt by the plaintiff of satisfaction in respect of the legal wrong in question. There was, at best, a presumption that this was so."[15]

[17] Similarly, in Baxter v Abacelo Pty Ltd[16] Gummow and Hayne JJ cited with approval a passage from the judgment of Phillips JA in Osborn v McDermott[17]:-

"Where there is an accord and satisfaction, the agreement for compromise may be enforced, and indeed only that agreement may be enforced, because ex hypothesi the previous cause of action has gone; it has been 'satisfied' by making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit."

[18] In Commonwealth Bank of Australia v Mile Oak (supra) the terms of settlement provided for:-

(a) The payment by the fourth defendant of a sum of $25,000 some five months after the date on which the terms were agreed;

(b) Release and discharge of the plaintiff from all claims arising out of the counterclaim;

(c) If the $25,000 was not received, the plaintiff would be entitled to have the proceedings reinstated and to obtain judgment for the full amount of claim; and

(d) Upon payment of that sum by the fourth defendant, the plaintiff forever releases and discharges all suits and claims.

[19] These terms unequivocally provide for satisfaction of the accord only upon actual payment of the settlement sum and for the right to reinstate the earlier proceedings if the sum is not paid. As such, it was an example of an accord executory as Mandie J found.[18] In this application 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.

[20] The formal dismissal of the earlier proceedings only after performance of giving up possession (i.e. after 30 June 2005) is not strictly inconsistent with the notion of earlier discharge and release. Whilst that clause may allow an inference that the earlier proceedings remained alive that has to be weighed against the competing inferences arising from other express terms and the circumstances. One suggested reason for delaying the formal dismissal is BMG's consent to orders for further relief of a kind different to that raised in the earlier proceedings.

[21] The Terms of Settlement were agreed upon the day following the delivery of the Further Amended Defence and Counterclaim. The issues raised in the pleadings at that time indicated substantial areas of conflict relating to the maintenance of hygiene standards which had prompted earlier notices of alleged breaches of those standards and relating to the duration of the licence to provide catering services and questions of Trade Practices Act damages.

[22] To the extent that the Terms of Settlement required ongoing compliance with the food service agreement, if the settlement depended on performance by BMG 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.

[23] I am satisfied that the intention of the parties was to bring about this effect and further that by agreeing to the terms of settlement there was a mutual discharge of the earlier proceedings by entering into the terms of the agreement reached. That being the case, the proper construction of the terms of settlement would result in the issue raised in para 6B of the Statement of Claim, is not maintainable and that part of the plaintiff's claim should be dismissed.

[24] I will so order and adjourn for further hearing the issue of costs of the application giving each party 14 days in which to furnish written submissions.

[2] Ex B to Affidavit of John Raymond Reis Bottoms filed 12/07/2005

[3] Ex B to Affidavit of John Raymond Reis Bottoms filed 12/07/2005

[4] Ex B to Affidavit of John Raymond Reis Bottoms filed 12/07/2005

[5] Ex B to Affidavit of Christopher Rose sworn 21 July 2005

[6] Ex A to Affidavit of Christopher Henry Rose filed 25/07/2005

[7] Ex C to Affidavit of Christopher Henry Rose filed 25/07/2005

[8] Ex A to Affidavit John Raymond Reis Bottoms filed 12/07/2005

[9] Ex A to Affidavit of John Bottoms sworn 12 July 2005

[10] [1940] HCA 4; (1940) 63 CLR 161

[11] (2001) VSC 12

[13] (1961) QdR 562

[14] [1996] HCA 38; (1996) 186 CLR 574

[16] [2001] HCA 66; (2001) 205 CLR 635

[17] (1998) 3 VR 1 at 8

[18] See Commonwealth Bank of Australia v Mile Oak Pty Ltd at para 7