Notice of Contention - Accord and Satisfaction
97In case the Court considered that on the true construction of the Engagement Letter JP Morgan was entitled to the balance of its invoiced fees, Consolidated Minerals contended on appeal, as it had at first instance, that JP Morgan was nevertheless precluded from recovering that balance as a result of the parties having reached an accord and satisfaction.
98To establish the existence of an accord and satisfaction it was necessary for Consolidated Minerals to show as a first and essential step in its argument that JP Morgan agreed to forego the unpaid balance. Consolidated Minerals said that this had occurred by reason of JP Morgan's acceptance of an offer made by Consolidated Minerals in its letter of 6 February 2008 (see [26] above) to pay JP Morgan $20,000,000 (by means of the cheque enclosed with that letter) if JP Morgan agreed to give up its claim for the balance of the invoiced fees.
99I agree with the conclusion of the primary judge that on its proper construction the letter of 6 February 2008 did not make that offer. As a result, JP Morgan's banking of the cheque enclosed with that letter did not result in it foregoing the balance of its claim.
100In the second paragraph of the letter of 6 February 2008 Consolidated Minerals stated its disagreement with JP Morgan's claim. In the third paragraph it stated its view about the level of JP Morgan's entitlement. That paragraph was not expressed in terms of an offer of compromise of a claim but as an assertion of a view. The word "[a]ccordingly" indicated that the enclosed cheque there referred to was designed to give effect to that view about what was owed. The words "in full and final settlement of this matter" would in my view have been regarded by a reasonable reader of the letter as indicating that Consolidated Minerals was paying the full amount to which it considered JP Morgan was entitled and that JP Morgan should understand that Consolidated Minerals would not pay any more. The final paragraph reinforced this interpretation of what went earlier as I consider that the effect of what it said was that Consolidated Minerals hoped (and perhaps, anticipated) that in light of the view that Consolidated Minerals had expressed and its payment of $20,000,000 JP Morgan would not attempt to pursue its claim for the balance of its invoiced fees.
101I see nothing in the letter to indicate that Consolidated Minerals was expressly or impliedly asserting that if JP Morgan banked the cheque it would be taken to have agreed not to pursue the balance of its claim or that Consolidated Minerals was offering to pay $20,000,000 in return for JP Morgan agreeing not to pursue its claim.
102Consolidated Minerals submitted that the fact that the letter was marked "WITHOUT PREJUDICE" indicated that the letter should be construed as one whereby an offer was made by Consolidated Minerals to settle a dispute between the parties as to JP Morgan's entitlement.
103Such a marking is of course frequently made in the context of settlement negotiations to preclude correspondence being used as an admission in the event the dispute the subject of the negotiations fails to settle. It may have been able to be used here to preclude the letter being used as an admission but that does not mean that it converted the letter into one conveying a settlement offer when the words of the letter do not otherwise support such an interpretation.
104In any event the marking of the letter was an equivocal act, particularly as the author (Mr Baxter, described in the letter as Consolidated Minerals' Managing Director) appears, so far as the evidence goes, to have been a lay person. The placing of the marking on the letter may simply have resulted from an unthinking repetition of the same marking that was on Mr Baxter's letter of 24 December 2007 (see [27] above). That letter contained statements by Consolidated Minerals, which were capable of amounting to admissions, concerning JP Morgan's entitlement to its invoiced fees, JP Morgan's invoice being at that time completely unpaid. There may therefore have been good reason to mark that letter "WITHOUT PREJUDICE" even though clearly no settlement offer was made by it.
105Consolidated Minerals further submitted that the letter of 6 February 2008 should be construed against the background of its letter of 24 December 2007. The latter letter however simply stated reasons why JP Morgan's fee entitlement was less than what JP Morgan had claimed. It was a precursor to the definitive view put in the letter of 6 February 2008 about JP Morgan's entitlement and does not assist Consolidated Minerals in its attempt to characterise the letter of 6 February 2008 as one containing an offer.
106The letter of 24 December 2007 concluded with the statement that "[w]e would be pleased to discuss these matters with you and look forward to reaching an amicable agreement". The only evidence of a subsequent discussion to which the Court's attention was directed was one between Mr Abbott of Consolidated Minerals and Mr Gidney of JP Morgan that took place on 5 February 2008 (see [25] above). Neither party suggested on the appeal that any agreement was reached in this discussion. That final statement in the letter of 24 December 2007 cannot be regarded as giving to the letter of 6 February 2008 a meaning which its text does not bear. The terms of the letter of 6 February 2008 indicate that that letter was not an attempt to procure an agreement but a statement of Consolidated Minerals' position, no doubt intended to be supported by its apparent reasonableness in paying the whole of what it considered to be due.
107Consolidated Minerals relied upon the decision of the English Court of Appeal in Rustenburg Platinum Mines Ltd v South African Airways [1979] 1 Lloyd's Rep 19 in which the defendant sent to the plaintiffs a cheque for less than the full amount to which the plaintiffs had claimed they were entitled. The plaintiffs banked the cheque after signing the form of receipt on the reverse side of the cheque. This form said "[r]eceived with thanks from SA Airways [the defendant] ... in payment of claim TC 1546/70". The Court of Appeal unanimously held that there had been no accord and satisfaction precluding the plaintiffs pursuing the balance of their claim.
108Denning MR said:
"... the mere offer of payment of a sum which is received is not in itself an accord and satisfaction. There must be sufficient material in the documents to be seen that it is paid and accepted in full and final settlement. There is nothing here, it seems to me, to come up to that standard at all" (at 22).
He went on to say that the signature of the form of receipt was "not sufficient to be a settlement of the case" (at 22 - 3).
109Eveleigh LJ said that he did not consider that the banking of the cheque and the signing of the form of receipt indicated "an acceptance on the basis of full and final satisfaction". He went on to say:
"If necessary, I would be prepared to hold that the payment into the bank was explicable on the basis that the parties recognised that at least that sum of money was recoverable. In other words, that that would be the minimum as to which part there was no dispute between the parties" (at 24).
110The view expressed by the third member of the court, Sir David Cairns, was to the same effect. He said that the letter enclosing the cheque "did not make it at all plain that the [sum of money] was offered in full and final settlement" (at 25).
111These views are in my opinion consistent with those that I have earlier expressed in relation to the facts of the present case. To adopt the words of Sir David Cairns, Consolidated Minerals' letter of 6 February 2008 "did not make it at all plain that [the sum of $20,000,000] was offered in full and final settlement".
112Consolidated Minerals emphasised in its submissions that its letter of 6 February 2008 used the expression "in full and final settlement" and submitted that the judgment of Denning MR (and I add, that of Sir David Cairns) contemplated that use of that expression would indicate that an accord and satisfaction had been achieved, or at least intended. However the situation that the English Court of Appeal contemplated would need to exist if an accord and satisfaction were to be found (but which was not in fact found to exist in that case) was one where on its true construction the relevant communication offered to make a part payment upon the basis that, if accepted, it would be received "in full and final settlement" of the claim in question. As I have sought to demonstrate, the expression "in full and final settlement" was here used in a different fashion. Here it was used as an adamant statement that Consolidated Minerals would pay no more than the amount of the cheque enclosed with the letter.
113JP Morgan raised other points in response to Consolidated Minerals' contention that there had been an accord and satisfaction. It is unnecessary to deal with these other points in any detail, as JP Morgan is in my view entitled to succeed on its first point on this issue, that is, that the letter of 6 February 2008 did not contain any offer of settlement.
114As to JP Morgan's contention that there was no acceptance by it of an offer, it is sufficient for me to say first that whether JP Morgan's banking of the cheque constituted an acceptance of an offer contained in the letter of 6 February 2008 would of course depend upon the terms of the offer and what (if anything) was said in the letter, expressly or by implication, about the means of accepting it. If on its true construction the letter had contained an offer indicated in the letter to be capable of acceptance by the banking of the cheque without the need for any further communication with Consolidated Minerals, that banking would have completed the formation of the contract (subject to the question of consideration to which I refer below). In these circumstances JP Morgan's letter of 12 February 2008 (see [29] above) stating that the payment left an unpaid balance to which it was entitled, arriving as it did on the day after the cheque was banked, would not have affected the formation of the contract.
115The second alternative submission of JP Morgan was that there was no consideration for the alleged accord and satisfaction. On this issue each party drew attention to an internal document of the other party. JP Morgan submitted that Mr Abbott's memorandum of 1 February 2008 (see [24] above) showed that Consolidated Minerals thought that its liability exceeded $20,000,000 and that the alleged offer of 6 February 2008 did not therefore involve any element of compromise by Consolidated Minerals. That is, it did not involve an offer, made in an attempt to dispose of the dispute, to pay more than the amount for which it considered itself to be liable.
116On the other hand Consolidated Minerals pointed to the fact that one of the alternative calculations in JP Morgan's spreadsheet (see [30] - [31] above) showed a liability of less than $20,000,000, suggesting, so Consolidated Minerals said, that Consolidated Minerals' payment of $20,000,000 involved an element of compromise because it included an amount for which it may not have been liable.
117In my view these internal documents are irrelevant to the issue at hand. The question of consideration, like that of offer and acceptance, is to be determined upon an objective basis. As Allsop P pointed out in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 264 ALR 15 at [4], the High Court made it clear in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 that "contract formation [is] to be objectively assessed". The requirement of consideration is an aspect of contract formation.
118In Ermogenous , Gaudron, McHugh, Hayne and Callinan JJ distinguished, in the context of considering the contract formation element of intention to create legal relations, between the necessary "objective assessment of the state of affairs between the parties" and the irrelevant "identification of any uncommunicated subjective reservation or intention that either may harbour" (at [25]). Equally the reliance by the parties in the present case, in the context of the issue of consideration, on internal documents that were not communicated between them and did not evidence the communication between them of any relevant facts or views conflicts with the need to undertake an "objective assessment of the state of affairs between the parties" and is therefore impermissible.
119The position would have been otherwise if there had been evidence that both parties knew and accepted, and semble communicated to each other, the same view about whether JP Morgan was entitled to either more or less than $20,000,000 (compare Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352 per Mason J). As it was, the evidence of the uncommunicated internal documents of the parties did not suggest that they had the same view about the minimum fee entitlement of JP Morgan. At best it may have indicated that Consolidated Minerals thought it was more than $20,000,000 and JP Morgan thought it was less.
120What an objective bystander would have observed concerning the communications between the parties was that, first, JP Morgan submitted an invoice for a large amount, secondly, that by its letter of 24 December 2007 Consolidated Minerals disputed that JP Morgan was entitled to the whole of that amount and gave reasons for that assertion, and thirdly, that by its letter of 6 February 2008 Consolidated Minerals offered (the existence of an offer and an acceptance are to be assumed for the purpose of examining the issue of consideration) to compromise JP Morgan's claim by paying it a lesser sum in satisfaction of the whole. Bearing in mind that the Court is not concerned with the adequacy of the consideration, my view is that, determined on this objective basis, there was consideration for the assumed agreement by way of accord and satisfaction in that an existing dispute was settled by one party paying part of the amount claimed and, in return, the other agreeing to forego its claim for the balance.