Goodwin v Rana

District Court of NSW|2019-06-07|Before: Mr P

Judgment

The plaintiff by amended notice of motion seeks the following orders: 1. Leave be granted to rely upon the Amended Statement of Claim served upon the defendants' former solicitor and the defendants personally on 6 May 2019. 2. The court orders that service of the Amended Statement of Claim was affected on 6 May 2019. 3. Leave be granted to rely upon the Amended Statement of Claim in this Amended Motion. 4. Pursuant to r 14.28 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") the defence be dismissed for the facts, matters and reasons set out in the affidavits prepared for this motion. 5. Judgment be entered for the plaintiff in the sum of $266,000. 6. The defendants are to pay the plaintiff/applicant on the motions costs of the proceedings on the maximum basis pursuant to r 42.4(d) UCPR. 7. The defendants are to pay the costs of the motion on the maximum basis pursuant to r 42.4(d) UCPR. 8. Interest for the plaintiff/applicant of $60,743.93 on the judgment amount ($266,000) from date of filing the first claim being 19 May 2016 up to the date of these proceedings being 23 May 2019. 9. Any other order the court is required to make to give effect to these orders.
The defendant's response at the time of the hearing is to submit that the total sum of $266,000 is not payable, but that the amount unpaid under an agreement the parties entered into (and for which the defendants are in default) is and should be payable. This has transformed these proceedings into an application for summary judgment; the question is which of the two sums is payable to the plaintiff.

The circumstances leading to this application

The plaintiff, a builder, brought proceedings in 2016 in which he claimed the sum of $183,000 as a debt, which was defended on the basis of alleged building defects. The sums in dispute arose from the performance of building works in 2011 by the plaintiff at property owned by the defendants.
The issues between the parties were resolved by Deed of Released dated 4 October 2018 ("the deed"). The defendants made the first payment of $50,000 (affidavit of Mr Goodwin, Exhibit B) but then refused to make any further payments. The plaintiff then commenced these proceedings, initially seeking payment of the sum under the deed.
The defendants put on a defence to that claim as follows: "3. As to paragraph 7 - 10 (inclusive) of the Statement of Claim, the defendants say that they agreed to the terms of the Deed relying on representations and warranties from the plaintiff as builder of the residence, the subject of the Deed, entered into the Deed relying on those representations and warranties and that the plaintiff has made false representations and breached the warranties causing the non-payment of the money claimed. Particulars (a) the plaintiff failed to construct the residence in accordance with Development Application; (b) the plaintiff made unauthorised changes to the residence; (c) the plaintiff installed the kitchen on the ground floor and not on level 2; (d) the plaintiff constructed a three bedroom house and not a four bedroom house; (e) the residence is defective and not constructed in a proper and workmanlike manner. 4. In answer to the whole of the Statement of Claim, the defendants reserve the right to file a Cross-Claim and claim damages from the plaintiff and say that payment of the sum claimed would be in breach of the Deed, unjust and inequitable."
The plaintiff's Amended Statement of Claim puts forward two alternative scenarios in terms of the amount being claimed. The plaintiff has now advised the court that the form of assessment based on the sums calculated from the deed is now no longer pressed.
The defendants have now filed an amended defence in which they withdraw all claims of defects and now admit liability for payment of the sums owing in the deed. The whole of the previous defence is deleted and the claim in relation to the sum owing in the deed is admitted.
Initially, both parties agree that the deed, referred in more detail below, was indeed repudiated by the defendants and the question was one of the extent of their obligations, namely the outstanding sum unpaid under the deed or the claim as particularised in the statement of claim. However, this repudiation concession was later withdrawn by the defendants.
The issues in the case are: 1. whether the mere signing of the deed by the plaintiff amounted to accord and satisfaction, meaning that the plaintiff can no longer sue for the original sum claimed; 2. whether the conduct of the defendants amounted to repudiation capable of being accepted as such by the plaintiff; and 3. whether these are issues appropriate for a summary judgment application in relation to the sum of $266,000 (the defendants do not dispute that the plaintiff is entitled to summary judgment for the amount owing under the deed).
The asserted acts of repudiation are: 1. The first default by non-payment under the deed, namely the sum of $16,666.66 on 26 November 2018, which default was not rectified after notice of the default was given under Clause 3.1(a) on 28 November 2018 and the defendants given seven days to rectify. 2. When the plaintiff commenced proceedings for the recovery of the sums outstanding in accordance with the provisions in the deed, the defendants filed the defence set out above, which alleged breaches of what appear to be the Home Building Act 1989 (NSW) (s 18B - statutory warranty) and the Fair Trading Act 1987 (NSW) (misleading or deceptive conduct). These were in fact statute-barred (and was at the time of execution of the deed), which may explain the defendants reserving their right to cross-claim for damages on the basis the "payment of the sum claimed would be in breach of the Deed, unjust and inequitable", which is suggestive of a claim for oppression or under the Contracts Review Act 1980 (NSW). 3. The solicitors for the defendants answered particulars along the same lines on 5 March 2019 and there was no rectification of the default (a position which remained open up until the hearing of this application), despite the deed providing that payment of each instalment was a "time is of the essence" provision (Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 348 - 9 per Fullagar J).

The relevant clauses in the deed

The relevant clauses in the deed are as follows:
The definition of "Settlement Sum" in clause 1.1 of the deed provides: "Settlement Sum means the sum of $150,000.00 inclusive of any GST and costs payable pursuant to this Deed."
Clause 3 provides: "3. DEFAULT 3.1 If the Settlement Sum is not paid in accordance with Clause 2.1 then: (a) The Releasor will give the Releasees notice in writing of the asserted failure to comply with Clause 2.1, and provide the Releasees 7 days in which to rectify the default. (b) For the purpose of compliance with Clause 3.1(a), the notice shall be provided to McDonald Johnson Lawyers on behalf of the Releasees. (c) If the Releasees do not rectify the default within 7 days of notification, then: i. so much of the Settlement Sum as is then outstanding shall fall immediately due and payable to the Releasor; ii. the Releasor may sue upon this Deed to recover so much of the Settlement Sum as is outstanding as a debt, and iii. the Releasor may also take steps to realise that debt by enforcing his rights pursuant to the Mortgage and Caveats in Clause 2.3 above, so long as the Releasor never at any time receives more than the total of the Settlement Sum."
Clause 4 provides: "4. RELEASE In consideration of payment of the Settlement Sum, the Releasor acknowledges and agrees that:- (a) The Releasees will forever be released and discharged from all Claims which the Releasor has now, or may have in the future against the Releasees, arising from, or in any way connected with, the matters the subject of the Proceedings or costs of or ancillary to the Proceedings; and (b) these releases and discharges may be pleaded by the Releasees as a bar to any Claim commenced by the Releasor touching upon or concerning the Proceedings or the subject matter of the Proceedings, other than proceedings to enforce the terms of this Deed."

The plaintiff's submissions

As there has been no payment of the default sum or any attempt to rectify the default position by tender of the sum owing, the plaintiff now seeks payment of the whole of the sum claimed, noting that the challenges to the claim for the whole of the sum are not only statute-barred but have been withdrawn.
This claim is made on the basis that the conduct of the defendants, in not only refusing to pay but in bringing fresh proceedings (including a foreshadowed cross-claim), amounts to repudiation of the deed (Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 at [44]). This is because the conduct in question was not merely a failure to perform obligations under the deed, but a revival of the very claims which had been settled. Any reasonable person standing in the shoes of the plaintiff would be entitled to regard such conduct as amounting to repudiation (Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 648).
The first question is whether the conduct of the party in breach demonstrates an intention on its part to repudiate the contract, "or more precisely whether such an intention is to be inferred from those events": The Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147 at [47]-[48]. The second question is whether, by accepting the breaches and seeking to recover the monies from the defendants, they have made their election between enforcing or repudiating the agreement reflected in the deed, in that they have accepted the repudiation and brought the contract reflected in the deed to an end. The plaintiff submits that he is entitled to do so because he has an election between seeking specific performance of the deed or damages which arise as the result of the repudiation, and has chosen the latter.
It is not in dispute that, as the plaintiff's entitlement to recover damages includes all loss that flows from the repudiation, the original debt and any other damages (including a set fee for legal costs) may also be claimed if repudiation is established and the "satisfaction" part of the equation is made out. These may be pleaded as the original debt and actual costs of enforcement. No challenge was made to the quantum of these costs or to the plaintiff's entitlement to claim them.
Both parties also agree that there would have to be an offset for the $50,000 the defendants have already paid.

The defendant's position

I asked counsel for the defendant what was asserted to be the "satisfaction" part of the "accord and satisfaction" formula, and in particular whether it would be claimed that part performance of the deed (by making the first payment) meant that there was an accord and conditional satisfaction of the kind explained in Bartlett v Mouncey [1998] FCA 418 (citing McDermott v Black (1940) 63 CLR 161 at 184 - 5).
The defendants' position is that the plaintiff's entitlement is restricted to entitlement to sue on the deed, in that this is the only way to read the provisions of paragraph 3 of the deed. In other words, merely signing the agreement amounts not only to accord but also to satisfaction. As signing the deed is "accord and satisfaction", the releasor's cause of action is destroyed and is replaced by the rights under the deed.

The relevant authorities

The defendants refer me to the explanation by McColl JA in El-Mir v Risk [2005] NSWCA 215 at [49]-[50] of accord and satisfaction as follows: "49 Where there is an agreement to accept a promise in satisfaction of the cause of action, "the original cause of action is discharged from the date when the promise is made": McDermott v Black per Starke J (at 176); Dixon J (at 183 - 185); see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd (at 644) per Scrutton LJ. 50 The consequences of the discharge of the original cause of action by accord and satisfaction were explained by Phillips JA (with whom Winneke P and Charles JA agreed) in Osborn & Bernotti t/as G04 Productions v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 at 8, in a passage referred to with apparent approval by Gummow and Hayne JJ in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [56]. Phillips JA said: "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 the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit." (emphasis added)"
McColl JA refers to the discussion of this issue in Osborn v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 where the court stated at 7-8: "The fundamental distinction between the effect of a compromise by way of mere accord executory and the effect of a compromise by way of accord and satisfaction is that the former does not operate to discharge existing rights and duties unless and until the accord is performed, whereas the latter operates as a discharge immediately the accord (or agreement) is achieved. The reason for the difference is effect flows from their different nature. The first, the mere accord executory, is the compromise of an existing cause of action if and when something is done (usually to the direct advantage of the plaintiff) whereas the second, the accord and satisfaction, is the compromise of an existing cause of action in return for the promise that something be done. To put it more shortly, in return for abandoning his cause of action the plaintiff accepts, in the case of the former, an act, and in the case of the latter, a promise. The classic statement of the relevant distinction is in the judgment of Dixon J. in McDermott v. Black (1940) 63 CLR 161, especially at 183-5. Suffice it to note that at 184-5 his Honour said: 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 liability is immediate; if the performance, then there is no discharge unless and until the promise is performed."
The defendant's position is that satisfaction occurs the moment the deed is signed. As a result, the deed replaces the causes of action originally sued upon, regardless of whether there was any payment at all.
However, where there are a series of payments of the kind set out here, the terms generally reflect (as I find is the purpose of clause 4 as set out above) that the promise to release the opposing party from liability does not occur upon the signing of the deed, but relies upon consideration in the form of the settlement sum for the release: Martinez v Park Trent Properties Group Pty Ltd (No 2) [2016] NSWSC 1661 at [100] - [102] per Schmidt J. The reason for this is obvious, in that the potential for liability for an amount larger than the settlement operates as an incentive to comply with the agreement.
As a result, the plaintiff's cause of action remains "alive and unimpaired", as explained in McDermott v Black per Dixon J: "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."
More recently, in Pollak v National Australia Bank Limited [2002] FCAFC 55 at [22], the Full Court of the Federal Court explained these principles as follows: "22 We agree with the primary judge that the Agreement does not disclose an intention that the Bank's promise to release Mrs Stern from the debt should take effect immediately upon execution of the Agreement. Like His Honour we conclude that the Agreement, when entered into, was an accord and conditional satisfaction rather than an immediate accord and satisfaction. That is, the Agreement, on its execution, was an existing and enforceable agreement between the parties for performance according to its tenor but it did not operate to discharge the debt unless and until there was performance (Osborn v McDermott - see [8] above). The fact that, as the appellant rightly contends, Mrs Stern came under an immediate and irreversible obligation to sell certain properties and to deal with the proceeds of sale in the way required by the Agreement, does not in any way compel a conclusion that the Agreement is an immediate accord and satisfaction. It is simply one of the factors to be taken into account in identifying the true construction of the Agreement. The same may be said of the other factors relied upon by the appellant (see [12] above). Their impact, whether looked at individually or together, is insufficient to counteract the clear intention revealed by the factors identified in [20] and [21] above."
Applying these principles to the deed: 1. Clause 2.1 sets out the payment schedule and clause 2.2 sets out that security is to be provided, which is to remain until the final payment in the settlement sum is made (clause 2.4). 2. Clause 2.3 provided for the proceedings to be dismissed with no order as to costs. A dismissal of that nature would not prevent new proceedings to recover the original debt and damages. Security was given to allow for the full satisfaction of the terms of the deed in clause 2.2 and this security remains in place until the final payment is made: Hunters Hill Council v Hakim [2016] NSWSC 1598. 3. Clause 3 provides what is to occur where there is default, namely that all of the payments fall due and are payable to the releaser, who may then claim (by inference, without going to court) these sums from the security, providing that any such enforcement of rights does not exceed the total of the settlement sum.
Whether or not there has been accord and satisfaction is, however, generally a question of fact, as counsel for the defendants points out in his written submissions at paragraph 20, citing Hunters Hill Council v Hakim at [54]. That would normally be a significant problem in a summary judgment application, but it must be acknowledged that, if the defendants default without repudiating the contract, the amount payable is the sum acknowledged by the defendants in the amended defence and judgment could be entered for that sum, conformably with the admissions made to this effect by the defendants in paragraph 7 of their written submissions.
However, the plaintiff submits that the conduct of the defendants went far further than mere non-payment, in that an affirmative defence was filed pleading the statute-barred claims and foreshadowing a cross-claim for damages, and that this went on for over six months. An initial concession that there had been repudiation was withdrawn in the course of submissions. In those circumstances, is summary judgment possible for the amended claim for $266,000?
As the Court of Appeal noted in The Craftsmen Restoration & Renovations Pty Ltd v Boland at [47]-[48], whether or not repudiation occurred is a question of fact, often inferred from the evidence. I sought clarification from the parties as to what the issues of fact would be and, while I did not receive any specific information, it seems clear to me that the question of whether there has in fact been repudiation is likely to involve contested issues of fact of the kind set out in paragraph 20 of the defendants' written submissions.
Another issue of concern to me is the quantification of the sums arising in relation to the repudiation, and in particular of the legal costs which are to be claimed.

Decision

The terms of the defence make it clear that the defendants acknowledge liability, albeit for a sum less than that claimed by the plaintiff. Those concessions would entitle the plaintiff to judgment for that sum, but the plaintiff has abandoned that part of the alternatively pleaded statement of claim and now seeks the higher figure for repudiation ($266,000).
Noting the very high bar necessary for summary judgment and the potential for disputed issues of fact concerning repudiation and quantum, the conclusion to which I have come is that the plaintiff's application for summary judgment should be refused, and the matter should go to trial in the usual way.
This would enable the defendants either to tender or to pay the monies owed under the deed into court and for there to be evidence about not only acts amounting to repudiation but also quantum, such as the legal costs which form part of the sum claimed. The parties may also benefit from mediation.
In arriving at this conclusion I have been guided by judgments concerning the treatment of summary dismissal of claims in the Commercial List in the Supreme Court of New South Wales (including the applicable Practice Note) and by the provisions of ss 56 - 62 Civil Procedure Act 2005 (NSW).
Another of the reasons for my concern is that the solicitors for the defendants have recently withdrawn, apparently as a consequence of their earlier advice given to the defendants, which led to the defence that was initially drafted. Not only has a new solicitor come into the matter on their behalf in a notice of motion which came on in a very short time, but their counsel had to be replaced at the last minute after counsel who held the brief was admitted to hospital. The circumstances in which an admission concerning repudiation was withdrawn suggest to me that the defendants are, with no disrespect to the very able counsel appearing on their behalf, conducting these proceedings on the run and may be at a disadvantage in the presentation of their case. Delay of a few more months in the resolution of this claim is preferable to injustice.
However, the dismissal of the notice of motion should not result in an order as to costs at the present time. Costs of the notice of motion should be determined by the trial judge. If the plaintiff is successful at trial, that will no doubt result in an application for indemnity costs. However, I note the defendants were prepared to agree to judgment being entered for the sum they agreed to be owing ($100,000 plus costs to be agreed or assessed: written submissions, paragraph 7). The defendants may similarly have grounds for seeking appropriate costs orders at the trial if that is the case.
The parties to bring in short minutes for a timetable for evidence to ready the matter for hearing, and for the allocation of a final hearing date in the sittings later this year.

Orders 1. Plaintiff's amended notice of motion dismissed. 2. Costs of this application reserved to the trial judge. 3. Matter stood over to Friday 14 June 2019 before Gibson DCJ for the parties to hand up Consent Orders for the future conduct of these proceedings, including but not limited to a timetable for evidence, a date for mediation and/or informal settlement conference and the allocation of a hearing date.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 June 2019

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