The penalty issue on appeal
46 If the appellants' characterisation of the 2016 terms of settlement was correct, default in making the final $8,000 instalment payment gave rise to a contingent liability of $68,000, as well as costs and interest (totalling over $83,000). If accepted as a new liability, and not a pre-existing debt, that amount would comfortably exceed any genuine pre-estimate of the loss suffered by Dairy Farmers by reason of breach of the 2016 terms of settlement. Dairy Farmers did not seek to contend otherwise. It follows that this issue does not need to be considered further. The live question is one of construction of the 2016 terms of settlement, which, in turn, is a question of characterisation.
47 The appellants' case on appeal on the issue of construction of the 2016 terms of settlement may be shortly stated as follows:
(1) The primary judge failed to construe the terms of the 2016 terms of settlement as a whole.
(2) In particular, the effect of cl 6, described as the "release clause", is that Dairy Farmers' claim for $100,000 was released with immediate effect, and was replaced by claims arising from the terms of settlement.
(3) While release clauses usually only operate in favour of a debtor once the obligation to pay has been met, as was the case with the clause reproduced in Cameron at [8], cl 6 operated immediately and was not subject to any of in the instalment payments being made.
(4) The entitlement to enter judgment for $100,000 upon default of the instalment terms, while described by reference to the statement of claim, was not a continuation of that pre-existing claim. This was on the basis that cl 5 makes reference to the proceedings having to be "reinstated". It was submitted that the claim could not be described as being reinstated unless it had already been given up and ceased to exist upon the 2016 terms of settlement being executed.
(5) Having released the appellants from the prior damages claim for $100,000, the 2016 terms of settlement stipulated a new contingent right to be paid the balance of $100,000, but only if there was a breach of the contractual obligation to pay any of the instalments. Authority dealing with release clauses that operated only once payment obligations had been complied with was therefore inapplicable.
(6) Alternatively, the primary judge erred in applying McDermott v Black at 183-4, because, in holding that the 2016 terms of settlement were of the kind that it is only the payment of the lesser sum that gives rise to the creditor giving up the claim for the larger sum, his Honour failed to have regard to the effect of cl 6 in the release having immediate effect in giving up prior rights.
48 Dairy Farmers' case on appeal on the issue of construction of the 2016 terms of settlement was that the primary judge:
(1) referred to all of the clauses of the 2016 terms of settlement, so could not be said to have failed to have regard to any of them, especially cl 6;
(2) understood the appellants' submissions by reason of summarising them at [18]-[20] and appreciated the appellants' reliance on the proposition that the 2016 terms of settlement constituted an accord and satisfaction by which Dairy Farmers relinquished their prior cause of action, requiring the effect of cl 6 to be determined;
(3) understood Dairy Farmers' contrary submissions by reason of summarising them at [21] and [22], by which it was contended that the 2016 terms of settlement as a whole, including cl 6, had a contrary meaning;
(4) expressly or, alternatively, by inference, construed the whole of the 2016 terms of settlement, referring both to [29] and to parts of the transcript of the hearing before his Honour;
(5) by citing and quoting from Electricity Generation Corporation in relation to the interpretation of commercial contracts, must be taken to have considered the 2016 terms of settlement as a whole; and
(6) was taken repeatedly to cl 6 during the course of the hearing before his Honour, again referring to parts of the transcript.
49 The extensive authority surveyed by the primary judge leads to the conclusion that this Court should be very slow to infer erroneous reasoning or material oversight, especially as to any of the paragraphs of the relative short 2016 terms of settlement. The real question is not whether his Honour considered all of the paragraphs of that document, but rather whether the conclusion his Honour reached as to its legal meaning and effect has been shown to be wrong, either by overt mischaracterisation or by omission.
50 The question of a penalty clause in this appeal is best framed by several observations about the 2016 terms of settlement. The terms of cl 3, read in isolation, would operate to preserve the appellants' pre-existing liability to pay to Dairy Farmers $100,000, less any payments already made, but adding costs and interest. Clause 4 is of less significance to the question of construction, being only a mechanical provision to enable judgment to be entered in accordance with cl 3 in the event of default. As such, the live question raised by the appellants' case is whether the meaning to be given to cl 3 is affected by the terms of cl 5 and/or cl 6.
51 In the case of cl 5, the appellants placed considerable reliance on the use of the word "re-instatement". As noted above, the appellants contended that there can only be a need to re-instate a proceeding if it is not a presently existing right prior to the reinstatement. Dairy Farmers submitted that the use of that word constituted only a procedural requirement. The argument advanced by Dairy Farmers should be accepted. Significantly, the 2016 terms of settlement did not constitute a stand-alone document. They were, on their face, and having particular regard to the Local Court "NOTICE OF ORDERS MADE" to which they were attached, a record of orders to be made by that court by the consent of the parties. They reflected a settlement of the proceedings, albeit clearly expressed in contingent terms. Once those orders were made, as the heading immediately prior to the clauses of the 2016 terms of settlement makes clear, the Local Court proceedings were to become dormant.
52 Upon execution of the 2016 terms of settlement, and certainly upon the Local Court making orders by consent in those terms, the parties would have known that there were to be no more court dates, appearances or other steps to be taken in court, provided the instalment payments took place. From the moment of the orders being made by the Local Court, and, practically speaking, from the moment of the execution of the 2016 terms of settlement, the Local Court proceedings were, procedurally, at an end - but only procedurally, and only on a contingent basis. If the contingency of payment of the instalments did not take place, then the proceedings would need to be brought back before the Local Court. It was only in that limited procedural sense that the terms of settlement provide for the proceedings to be "re-instated". In this way, cl 5 can and should be read in a way that is harmonious with the terms of cll 1, 2, 3 and 4, rather than in a way that changes their meaning (and the meaning of cl 3 in particular).
53 In the case of cl 6, it is capable of being read in two entirely different ways, depending on whether the appellants' "re-instatement" argument, contrary to the above, is accepted. The key issue is the meaning to be given to the word "otherwise", insofar as it is stated that the "parties otherwise hereby and forever release and discharge one another from all actions, claims, suits, demands, damages and costs" arising from the dispute in question. On the appellants' interpretation, the use of that word should be taken to have precluded the continuation of any rights not set out in the 2016 terms of settlement. On the basis of the appellants' "re-instatement" argument, cl 6 is therefore said to reinforce the cessation of Dairy Farmers' pre-existing claim for $100,000. In support of this interpretation, it was submitted that this clause would not be necessary if cl 5 is interpreted in the manner contended for by Dairy Farmers. With respect to counsel for the appellants, the problem with this submission is that the favourable meaning to be given to the word "otherwise" depends first on the "re-instatement" argument he advanced being accepted. This plank of the appellants' argument therefore cannot be accepted.
54 On Dairy Farmers' interpretation, cl 6 did not entail the release of any right to enforce the pre-existing debt if the instalment payments were not made. Rather, its effect was to release any right that would otherwise have existed to obtain the remaining $60,000 if the compromised sum of $40,000 had been paid as agreed, as well as any other rights that might have been left over from the prior contractual relationship between the parties. In other words, cl 6 ensured that, if the $40,000 was paid as agreed, there would be nothing left between the parties.
55 Dairy Farmers went one step further, submitting that the 2016 terms of settlement operated so that either cll 1, 2 and 6 were operative, or cll 3, 4 and 5 were operative. That was to say that the release in cl 6 would only have effect if cl 2 was complied with. The problem with that interpretation is that it does not give effect to the use of the word "hereby" in cl 6. Clause 6 was intended to take effect from the moment of execution, but it did not have the effect on cl 3 contended for by the appellants. That is because cl 6 goes further than only operating in conjunction with cll 1 and 2, but does not go so far as to alter the meaning of cl 3.
56 So far as possible, cl 6 must be interpreted as part of a coherent whole agreement, supporting and being consistent with the other clauses, rather than being in stress with any of them, or changing, by a mere drafting side-wind, the meaning of any of them. That is achieved if cl 6 is interpreted as supporting the bargain between the parties to limit their dispute to the outstanding debt of $100,000, which was acknowledged by the appellants to be owed by them to Dairy Farmers.
57 The existing $100,000 debt was to be satisfied in one of two ways. Either the appellants could pay the five instalments of $8,000 on time, in which case their liability to Dairy Farmers would be discharged once and for all. In the event that the appellants failed to make any of the instalment payments on time, Dairy Farmers could instead elect to enforce its $100,000 debt, less any instalment payments made, together with costs and interest. Clause 6 operates to reinforce that bargain. But it goes further than that, reflecting a wider agreement. In its terms, cl 6 operates to curtail any other rights beyond the $100,000 debt immediately upon execution, both otherwise owed by the appellants or by Dairy Farmers, irrespective of whether the five instalments were paid or not.
58 Put simply, if the appellants paid the five instalments of $8,000 on time, then it was all over between the parties. If the appellants did not pay all of the instalments and on time, then Dairy Farmers would have a right to enforce the $100,000 debt already acknowledged in the 2014 settlement less payments made, plus interest and costs, but nothing more. The parties agreed to confine the ambit of any further actions between them.
59 It was submitted by the appellants that, even if it is accepted that cll 3, 4 and 5 of the 2016 terms of settlement provide for enforcement of the Dairy Farmers' original claim of $100,000, it remains to be determined whether those clauses imposed a penalty. In particular, it was submitted that the Court would need to determine whether Dairy Farmers' loss of not receiving the final payment of $8,000 was out of all proportion to insisting on the claim for the full outstanding sum of $68,000, citing Jobson v Johnson [1989] 1 WLR 1026 at 1039. However, I do not accept that this submission demonstrates any error in the primary judge's application of Cameron and the finding that the present case was one in "which a creditor agrees to accept payment of part of his debt in full discharge if certain conditions are met but stipulates that if the conditions are not met, he will be entitled to recover the original debt".
60 It follows that the primary judge was correct in concluding that the 2016 terms of settlement did not constitute an accord and satisfaction of Dairy Farmers' original claim, and, accordingly, did not involve the enforcement of any penalty when cll 3, 4 and 5 were acted upon by Dairy Farmers in response to the appellants' default. Grounds of appeal 3 and 4 must therefore fail.