Lachlan v HP Mercantile Pty Limited

Judgment 1The plaintiff ("Dr Lachlan") commenced these proceedings against the first defendant ("HPM") in 2009. Declaratory relief was sought to the effect that certain choses in action were not able to be enforced by HPM against Dr Lachlan. Dr Lachlan subsequently filed an amended Summons. In May 2010, HPM filed a Cross-Claim against Dr Lachlan pursuant to which it sought to recover amounts which it claimed were owed to it, as the assignee from the lender, in respect of four loans. As at 30 April 2010, the total amount outstanding on the loans was claimed to be about $1,325,000. Interest was claimed to be running on the four loans at rates per annum which ranged from 15% to 21%. 2In June 2011 there was a settlement of the proceedings which culminated in the making of consent orders by White J on 28 June 2011. Relevantly, the following orders were made: "3. In accordance with the Deed of Release and Assignment dated 24 June 2011 entered into between the plaintiff/ cross-defendant and the first defendant/ cross-claimant ("the Deed") a copy of which is attached hereto, the Court makes the following orders. 4. The plaintiff/ cross-defendant's application be dismissed. 5. The plaintiff/ cross-defendant will pay to the first defendant/ cross-claimant the amount of $300,000 in accordance with the payment schedule contained in the Deed. 6. If the plaintiff/ cross-defendant defaults under the payment arrangements contained in the Deed and such default entitles the first defendant/ cross-claimant under the Deed to commence recovery action against the plaintiff/ cross-defendant, the first defendant/ cross-claimant is granted leave to immediately enter judgment under its Cross-Claim in these proceedings in its favour as follows: (a) Judgment for the first defendant/ cross-claimant against the plaintiff/ cross-defendant in the amount of $1,570,292.12 less any payments made by the plaintiff/ cross-defendant under the Deed. (b) The plaintiff/ cross-defendant to pay to the first defendant/ cross-claimant interest on the amount in order 6(a) above at the prescribed Court rate from 24 June 2011. (c) The plaintiff/ cross-defendant to pay the first defendant/ cross-claimant's costs in these proceedings, including the plaintiff/ cross-defendant's application, as agreed or assessed. 7. An affidavit from the first defendant/ cross-claimant's solicitor attesting to a default by the plaintiff/ cross-defendant under the payment arrangements contained in the Deed and that such default entitles the first defendant/ cross-claimant under the Deed to commence recovery action against the plaintiff/ cross-defendant shall be accepted by the Court as conclusive evidence of the matters contained therein. 8. On the plaintiff/ cross-defendant completing its obligations under the Deed in accordance with the terms of the Deed, the first defendant/ cross-claimant will cause a notice of discontinuance to be filed in the Cross-Claim with no orders as to costs, including the costs of the plaintiff/ cross-defendant's application, to the intent that each party bear their own costs. 9. On the plaintiff/ cross-defendant completing its obligations under the Deed in accordance with the terms of the Deed, the parties consent to the vacating of any existing costs orders in these proceedings." 3By a Notice of Motion filed on 17 January 2014, HPM seeks the entry of judgment in its favour against Dr Lachlan in the sum of $1,656,366.52, in accordance with order 6, consequent upon a default by Dr Lachlan in his obligations under the Deed. The Deed provided for the payment by Dr Lachlan of an amount of $300,000 (the Net Settlement Amount) in twenty six instalments. In circumstances which will be more fully described below, Dr Lachlan failed to pay the final instalment of $10,000 in accordance with the provisions of the Deed. The Deed further provided that in the event of default in the payment of an instalment, HPM could commence recovery action against Dr Lachlan. 4The Deed, which was executed on 24 June 2011, between Dr Lachlan (as "the Grower") and HPM on 24 June 2011 contained numerous recitals concerning the four loans the subject of the Cross-Claim, followed by recitals M to P which were in the following terms: "M. HPM, through a series of assignments, is the assignee of all rights, title and interest in the Loans and further all monies due and owing by the Grower (if any) to the previous manager of the Schemes ... pursuant to the Project Agreements. N. The Grower has commenced litigation against HPM for declaratory relief against HPM and HPM has filed a Cross-Claim against the Grower for recovery of the amounts owing under the Loans ... O. The Grower hereby unconditionally affirms and confirms the debt obligations under the Loans and the Project Agreements such that the Grower's obligations to repay those debts are current and continuing obligations and where required, are hereby renewed. P. The Grower and HPM wish to settle the Court Action and the Grower wishes to exit the Schemes and HPM has agreed to acquire the Grower's Allotment(s) (if any) in the Schemes and release the Grower from its obligations to HPM under the Loans and the Project Agreements on the terms and conditions contained herein." 5 The operative part of the Deed relevantly contains the following: "2. On execution of this Deed the Grower will provide to HPM the signed Consent Orders. HPM undertakes that it shall only act upon the leave granted to it under the Consent Orders in the event of a Default. 3. In consideration of the Grower providing to HPM the executed Consent Orders HPM has agreed to accept as settlement of the Court Action, payments in accordance with the terms of this Deed. ... 5. In consideration for HPM entering into this Deed, the Grower shall pay to HPM the Net Settlement Amount to be paid by Instalments on the Due Dates in accordance with Item 7 of the Schedule. 6. On receipt by HPM of the Net Settlement Amount in cleared funds, and upon the Grower assigning the Grower's Allotment(s) (if any) to HPM, and provided that a Default has not occurred that has not been rectified in accordance with the terms of this Deed or otherwise as agreed to by HPM, HPM: a. releases the Grower from all sums of money, accounts, actions, proceedings, claims, demands, costs and expenses whatsoever ... it may have now or may have in the future against the Grower in respect to the Loans, the Project Agreements, the Allotment(s), the Schemes, the Cross-Claim and/or the Court Action; b. shall as soon as reasonably practicable cause a notice of discontinuance to be filed in the Court Action and served on the Grower's legal representative; c. indemnifies the Grower against any actions, proceedings, claims or demands whatsoever ... in respect to the Loans. 9. Each Instalment is to be received by HPM (either in HPM's office or by direct deposit to HPM's bank account) on the Due Date or on the Payment Arrangement Date (if any) for each Instalment. 10. Where a Default has occurred and a Grower fails to rectify the Default within seven (7) calendar days of being notified of the Default in writing by HPM, then the Judgement Debt, less any payments made by the Grower under this Deed, shall immediately become due and payable by the Grower to HPM. HPM shall then be entitled to commence any actions, proceedings or processes (including but not limited to) acting on the leave granted to it under the Consent Orders, to recover the Judgement Debt, less any payments made by the Grower under this Deed, from the Grower without the need for any further notice. ... 15. The Grower shall indemnify HPM for any legal costs and expenses incurred as a result of any Default, including but not limited to any legal costs and expenses incurred as a result of any recovery actions commenced by HPM in accordance with this Deed. ... 17. Any notice or statement to be given or demand to be made pursuant to this Deed shall only be duly given or made if in writing and if: ... b. Sent through the post in a pre-paid envelope or wrapper to the address of the relevant party as specified in this Deed, or such other address as such party may from time to time notify, in which case service shall be deemed to be effected three business days (determined by reference to the recipient's address) after the date of posting; ..." 6In the Schedule to the Deed, the Court Action is identified in Item 3 as the present proceedings. The Schedule included the following: "Item 4 (Judgement Debt) $1,570,292.12 ... Item 7 (Instalments and Due Dates) 1. A first payment of $50,000 payable on or before 24 June 2011, followed by; 2. Twenty four (24) consecutive monthly payments of $10,000 each, payable on the fifteenth (15) day of each month, with the first such payment due on 15 July 2011 and the last such payment due on 15 June 2013, followed by; 3. A final payment of $10,000 payable on 15 July 2013." 7Dr Lachlan, by a Notice of Motion filed on 4 February 2014 (as amended by a Further Notice of Motion filed in court on 18 March 2014) seeks various orders including an extension of time for compliance in respect of the last instalment under the Deed, and a stay of order 6 made on 28 June 2011 so as to prevent the entry of judgment as sought by HPM. 8There is no doubt that between about 24 June 2011 and 1 July 2013, Dr Lachlan paid each of the instalments required under the Deed in that period. There is a dispute as to whether a number of those payments were made late, but I do not think that anything turns upon this. If there was any Default (as defined in the Deed) in relation to any of those payments, HPM did not issue any notice under clause 10 of the Deed in respect of such. 9It is clear that when Dr Lachlan sent his cheque in June 2013 for the payment of the instalment due on the fifteenth of that month, he was under the erroneous impression that this was the last instalment required under the Deed. The letter accompanying the cheque referred to the "June and final 2013 payment for $10,000". Accordingly, Dr Lachlan did not pay the final payment of $10,000 which became payable on 15 July 2013. 10For some reason, which was not explained in the evidence, HPM did not, for many months, take any action in relation to the failure to make the final payment. It was not until 16 December 2013 that HPM sent a notice pursuant to clause 10 of the Deed to the address of Dr Lachlan as stated in Item 2 of the Deed. In fact, this address was incorrect, and the letter was returned to HPM. Accordingly, on 6 January 2014 HPM sent a notice pursuant to clause 10 of the Deed to an address for Dr Lachlan which it held on file. This notice, which was signed by Mr Ross Chapman, as director of HPM, was in the following terms: "We refer to the Deed of Release and Assignment between you and HP Mercantile dated 24 June 2011 ("the Deed"). Under the Deed you were required to make a payment of $10,000 to HP Mercantile on 15 July 2013. HP Mercantile has not received this payment and you are in default of the terms of the Deed. HP Mercantile hereby gives you notice in accordance with clause 10 of the Deed, and you are required to rectify the default by making the payment of $10,000 that was due for payment on 15 July 2013 within 7 calendar days. Failure to make this payment to HP Mercantile within the required period will result in the Judgement Debt (as defined in the Deed) becoming immediately due and payable. If you have any queries in relation to this matter please do not hesitate to contact me on (02) 9247 8262." 11As this notice was sent in a pre-paid envelope to an address apparently notified by Dr Lachlan, clause 17(b) of the Deed would deem the notice to have been served three business days after the date of posting. On that basis, the notice would be deemed to have been served on 9 January 2014. The evidence establishes that Dr Lachlan in fact received the notice on about that date. 12Dr Lachlan did not take any action in relation to the notice until about 13 January 2014 when he sent a letter by registered post to HPM in the following terms: "I have returned from leave to find your letter demanding another payment, as usual without substantiation. I stated with my last payment in June 2013 that it was the final payment, which you did not deny or correct. If you are correct then why has it taken 6 months to contact me to point out the error and then make a demand for immediate payment. Please send me my loan re-payment history in order that I can reconcile that with my records, which are being promulgated by my accountant." 13Dr Lachlan did not receive any response to that letter. The evidence was not clear as to when the letter was received by HPM. It is likely to have been received on either 14 or 15 January 2014. 14On about 13 January 2014, Dr Lachlan instructed his accountant, Mr Williamson, to review the payments that had been made pursuant to the Deed. Late in the afternoon of 14 January 2014, Mr Williamson sent an email to Dr Lachlan which was in the following terms: "I have put together the payments which I could see in xero, the total being $240k. I just looked at the deed which says that you have to pay $250k with the last $10 on the 15 July. The last payment I see is on the 1st. Let me know if you need anything else." 15Mr Williamson's email attached a spreadsheet which showed that twenty four payments of $10,000 each had been made by Dr Lachlan, with the last payment being made on 1 July 2013. Just before 3:00pm on 15 January 2014, Dr Lachlan sent an email to Mr Williamson thanking him for the information. It appears that Dr Lachlan may not have read Mr Williamson's email until 15 January 2014. 16On the basis that the notice pursuant to clause 10 of the Deed was served upon Dr Lachlan on 9 January 2014, Dr Lachlan had until 16 January 2014 to rectify the Default the subject of the notice, failing which the Judgement Debt less any payments made by the plaintiff under the Deed would immediately become due and payable. 17Nevertheless, and despite the advice he had received from Mr Williamson, Dr Lachlan took no immediate steps to make the $10,000 payment which was being demanded, or make contact with HPM in relation to the situation. 18Dr Lachlan gave evidence that on about 17 and 18 January 2014, he stayed with his brother who suffers from health problems and required his assistance at that time. Dr Lachlan further states that on about 20 January 2014, he located his own copy of the Deed amongst his records and was able to confirm that the Deed required a final payment of $10,000 on 15 July 2013. He then checked that information against the spreadsheet which Mr Williamson had sent him, and also against his bank records. Dr Lachlan stated that "this confirmed to me that I have missed the final payment." 19By letter to HPM dated 21 January 2014 (sent by registered post on 22 January 2014) Dr Lachlan informed HPM that Mr Williamson had now correlated the Deed with his electronic records, and it appears that the final payment should have been made on 15 July 2013. Enclosed with the letter was a cheque for that final payment in the sum of $10,000. HPM received the letter on 24 January 2014. Of course, by that time, HPM had already filed its Notice of Motion. HPM credited the $10,000 against the Judgement Debt under the Deed as from 24 January 2014. The cheque was not actually banked until 14 February 2014. 20Dr Lachlan seeks an extension of the time within which to comply with his obligation under order 3 made by White J on 28 June 2011 to make the final payment of $10,000. This order is sought pursuant to Uniform Civil Procedure Rules rr 1.12 or 36.5. Those rules apply where a time for doing something is fixed by an order of the Court (r 1.12) or required to be done within a specified time by an order of the Court (r 36.5). 21HPM accepts that the requirement for Dr Lachlan to pay the instalments within the times stipulated in the Deed was incorporated into an order of the Court, such that the Court's powers under rr 1.12 and 36.5 were enlivened (compare In the matter of Prismex Technologies Pty Ltd; Colin Lindsay Taggert v John [2013] NSWSC 292 at [27] - [29]). 22It must be recognised that the relevant consent orders of the Court were based upon an agreement, made freely and voluntarily, between the parties. Whilst the Court retains a discretion to give an extension of time for compliance in such cases (see Paino v Hofbauer (1988) 13 NSWLR 193 at 198E) the existence of a binding contract which is not itself able to be varied or set aside is a significant factor. As McHugh JA stated in Paino (supra) at 198F: "... when a party asks that a consent order based on a contract should be set aside or varied and the underlying contract could not be set aside or varied, the case would need to be exceptional before the Court would exercise its discretion in favour of an applicant. Moreover, by itself the failure of an applicant to comply with the terms of a consent order based on a contract could rarely, if ever, be a sufficient ground to vary the order. This is particularly so when the parties have stipulated that time for the performance of the parties' obligations was to be of the essence of the agreement." 23Reference should also be made to the statements made in Paino (supra) by Clarke JA at 200F - 201B. I note, in passing, that Mr Knowles of Counsel, who appeared for HPM, made a formal submission that Paino (supra) was incorrect insofar as it decided that an extension of time could be given for compliance with consent orders even where there was no basis for setting aside the underlying contract. I am, of course, bound by Paino (supra). 24Mr Coleman of Senior Counsel, who appeared with Ms Wright for Dr Lachlan, accepted that it was necessary for Dr Lachlan to show that the case was an exceptional one so as to justify the exercise of the discretion in his favour. It was submitted that the case was exceptional for essentially the following reasons: (a)between June 2013 and January 2014, Dr Lachlan laboured under a mistaken belief that he had paid all amounts due under the Deed, and it was only for that reason that he was in breach of the obligation to make the final payment; (b)HPM was aware, or should have been aware, of Dr Lachlan's mistake, but did not bring this to his attention; (c)HPM waited six months to chase up the final payment and then did so during the summer holiday period, when Dr Lachlan was in fact away; (d)after receipt of the notice in January 2014, Dr Lachlan reasonably requested information from HPM so he could reconcile its information with his own information which his accountant was gathering, but this request was ignored by HPM; (e)Dr Lachlan, immediately upon satisfying himself that there was indeed a final payment of $10,000 outstanding, took steps to pay the amount to HPM; and (f)HPM has suffered no real prejudice as a result of the late payment, which has been received and banked, but if no extension of time is granted Dr Lachlan will be liable to pay in excess of $1.65 million (and would thereby face bankruptcy) whereas if the payment had been made on time, he would have no further liability to HPM. 25Mr Coleman also pointed out that unlike the position in Paino (supra), the time for making instalments under the Deed was not expressly made to be of the essence. 26Mr Knowles submitted that there was nothing exceptional about the case, which should be viewed as one where Dr Lachlan's own error led to his failure to make the final payment in July 2013 and, following receipt of the notice in January 2014 and advice from his accountant that there was a final payment outstanding, failed to take steps to make the payment within the stipulated time, or even to telephone Mr Chapman to discuss the situation. He submitted that there was no obligation upon HPM to provide the information requested by Mr Lachlan in the letter he sent on about 13 January 2014, and in any event, Mr Lachlan and his accountant were themselves able to ascertain that the payment required by the notice was in fact overdue. Reference was made to the following passage from the judgment of McHugh JA in Paino (supra) at 199: "[The respondents] knew that to maintain those benefits they had to comply strictly with the time stipulations as set out in cl 5 and cl 6 of the order. They failed to adhere to those stipulations. The appellants are entitled to retain what is now lawfully theirs. Sympathy for the plight of the respondents is not sufficient reason to deprive the appellants of their rights. The present plight of the respondents is the foreseeable and inevitable consequence of an agreement which required them to make payments on the due dates or forfeit their benefits. This Court ought not to exercise its discretionary power to confer a further benefit on the respondents when to do so would conflict with the parties' free and voluntary agreement." 27Mr Knowles further submitted that the absence of a time of the essence provision was not relevant in circumstances where the Deed provided for a notice regime which called for payment by a certain date, failing which certain consequences would flow, and in any event, as the passage from Paino (supra) quoted above (at [22]) shows, even if time is not of the essence, failure to comply with the terms of a consent order based on a contract is rarely a sufficient ground to vary the order. 28It was further submitted that whether HPM knew or ought to have known of Dr Lachlan's mistake was irrelevant because the notice served in January 2014 put Dr Lachlan on notice of the error and gave him the opportunity to correct it. Finally, it was submitted that HPM would suffer prejudice if an extension of time was granted because the effect of that would be to deprive it of its contractual rights. 29Assuming the enforceability of the Deed, and clause 10 in particular, it is no doubt true that a failure to rectify a Default in accordance with clause 10 of the Deed has significant consequences. The Judgement Debt (as defined) becomes immediately due and payable. That is an amount very much greater than the amount which Dr Lachlan would have to pay if he paid the Net Settlement Amount in accordance with the Deed. Yet that is the effect of the agreement reached by the parties to settle the litigation between them and, aside from the question whether clause 10 of the Deed is a penalty and thus unenforceable (which question is dealt with later in these reasons), there is no suggestion that the agreement is unenforceable, void or voidable. 30In all the circumstances, I am not persuaded that it would be an appropriate exercise of discretion to extend the time for Dr Lachlan to comply with his obligations to pay the final instalment so that those consequences are avoided. The initial failure to make the payment on time was the result of an error made by Dr Lachlan. I do not think that HPM was under any obligation to remind Dr Lachlan of his obligations, or otherwise take steps to protect him from the consequences of a failure to comply with the Deed. In any event, the notice which Dr Lachlan received on about 9 January 2014 clearly informed him that there was in fact an overdue payment. The notice, which was given under clause 10 of the Deed, also stated that failure to rectify the default within seven calendar days would result in the Judgement Debt becoming immediately due and payable. Dr Lachlan gave no evidence as to whether he thought the seven calendar days ran from the date of the notice or (as provided in clause 10 of the Deed) the date of receipt of the notice. 31In either case, the situation called for prompt action on Dr Lachlan's part in his own interest. Whilst I accept that it was reasonable for Dr Lachlan to seek information ("my loan re-payment history") from HPM to confirm that there was indeed an overdue payment, I do not think that it was reasonable for him to seek that information by sending a letter in the post on about 13 January 2014. Such a letter could, at best, be expected to be received by HPM on 14 January 2014. If he thought that the seven days ran from the date of the letter, 14 January 2014 was already too late to comply with the notice. If he thought that the seven days ran from the date of receipt of the notice, 14 January 2014 left very little time for a response, a consideration of the response, and if necessary the effecting of a payment by 16 January 2014. 32Mr Chapman, in the course of his cross-examination, stated that HPM did not keep "a loan re-payment history" as requested by Dr Lachlan in his letter. However, it is clear that HPM had the ability to produce what is described as a "Judgment Debt Statement", a spreadsheet which shows the dates payments are due and the dates payments are received, as well as interest and Judgement Debt calculations. Such a statement could have been sent to Dr Lachlan in answer to his request. 33However, it is unlikely that the provision of such information would have made any practical difference. By the mid-afternoon of 15 January 2014 at the latest, Dr Lachlan had received advice from his accountant, who had evidently looked at the Deed, that only $240,000 out of $250,000 had been paid and that a payment of $10,000 was due on 15 July 2013. This advice, which was backed up by a spreadsheet of payments made, confirmed the accuracy of what was stated in the notice. There was no reason for Dr Lachlan to not accept the advice as reliable. 34Despite that advice, Dr Lachlan did not take the prompt action which the situation demanded. No attempt was made to make the payment, or even to make telephone contact with Mr Chapman. It appears that Dr Lachlan may have wanted to see the Deed for himself (and check it against his own bank records) before making any further payment. It therefore seems unlikely that the provision of a "Judgment Debt Statement" would have caused him to make the payment earlier than it was in fact made. 35I should also note that I do not think that the failure of HPM to respond to Dr Lachlan's letter was a breach of an implied term of good faith (which I am prepared to assume exists). Neither do I think that HPM, in proceeding to rely upon Dr Lachlan's failure to comply with the notice given under clause 10 of the Deed, is in breach of any such obligation. Clause 10 of the Deed requires only that notice of a Default be given in writing. The notice which was given clearly specified the Default, and it provided a telephone number for use if there were any queries. I do not think that relying upon Dr Lachlan's failure to comply with the notice is a failure on the part of HPM to act in good faith merely because it had received Dr Lachlan's letter (which did not request any extension of time) and had not responded to it. 36Viewed overall, it seems to me that the failure to comply with the notice, and the consequences which flow from that, must be treated as Dr Lachlan's own fault. I am not prepared to hold that HPM contributed in any material way to that failure. Some sympathy may be held for Dr Lachlan in the situation he is in, but, as McHugh JA stated in Paino (supra) at 199C, such sympathy is not sufficient reason to deprive HPM of its contractual rights arising from Dr Lachlan's failure. For these reasons, I decline to make an order extending the time for compliance with order 3 in respect of the final payment of $10,000. 37Dr Lachlan also sought a stay of order 6 to prevent HPM from proceeding to enter judgment in accordance with that order. The stay was sought pursuant to s 61 of the Supreme Court Act 1970 (NSW). Essentially the same considerations were relied upon as grounds for the stay as were relied upon in support of an extension of time. Reference was made to In the matter of Prismex Technologies Pty Ltd (supra) at [40] where Brereton J stated: "...courts have a discretion to decline to enforce their decrees where it would be inequitable to do so." 38After discussing the relevant authorities, his Honour continued at [49]: "On those authorities, it seems to me therefore that courts have a discretion to decline to enforce their orders where it would be inequitable to do so at the time when enforcement is sought. The necessary corollary of that is that, pursuant to Supreme Court Act 1970 s61, the court may stay further proceedings including enforcement, where there is an equitable objection to doing so. Previously - that is to say before Judicature and the Supreme Court Act, a Court of Equity would have restrained the plaintiff by injunction from proceeding or issuing enforcement. The effect of s61 is that that should now be done by a stay in the proceedings "either generally or to such extent as the court thinks fit"." 39Brereton J then referred to various statements concerning the nature of equitable relief, in particular statements to the effect that equity relieves against fraud, accident and mistake. Dr Lachlan contended that the circumstances of his case were attended by mistake. 40It is true that in June 2013 Dr Lachlan made a mistake as to whether the payment then due was the final payment required under the Deed. HPM did not contribute to that mistake, although it could be said that in not following up the failure to make the final payment, HPM may have contributed to the continuation of the mistake. However, when Dr Lachlan received the notice in January 2014, he was at least put on notice that he may have been wrong. Certainly the notice made it clear that HPM was asserting that a further payment had to be made. Dr Lachlan then made his own inquiries and by 15 January 2014 had been given advice which confirmed the accuracy of HPM's position. Dr Lachlan's mistake should have been clear to him by then. There was still time to comply with the notice and avoid the detrimental consequences of a failure to comply. There was no evidence that the taking of steps to comply was not possible or would not have been effective for any reason. Yet Dr Lachlan failed to act with alacrity. Indeed, in the circumstances, his conduct may be described as dilatory. I do not think that his failure to comply with the notice can be attributed to any relevant mistake on his part, let alone a mistake to which HPM materially contributed. Accordingly, I do not think that grounds have been made out for a stay of order 6. 41I turn now to consider HPM's claim for an order that judgment be entered in its favour as contemplated by order 6 made on 28 June 2011. HPM submits that, for the purposes of order 6, Dr Lachlan has defaulted in the making of a payment under the Deed and that such default entitles it under clause 10 of the Deed to commence recovery action. It is submitted that HPM is entitled to immediately proceed to enter judgment in accordance with order 6. 42In opposition that course, it was submitted on behalf of Dr Lachlan that, in so proceeding, HPM was in breach of an implied obligation of good faith, and in any event, clause 10 of the Deed is unenforceable as a penalty. An estoppel argument which was made in written submissions was abandoned at the hearing. An argument that there was an implied term that HPM was obliged to inform Dr Lachlan that he was mistaken that the June 2013 payment was the final payment, was only faintly pressed at the hearing. I do not think that such a term should be implied. It fails the test of necessity (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346 - 347; [1982] HCA 24; Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 422 and 441 - 442; [1995] HCA 24). Further, for the reasons given earlier (see at [35]), I do not think that HPM is in breach of any obligation of good faith. It is necessary, however, to consider the remaining question of whether clause 10 of the Deed is a penalty. 43Mr Coleman submitted that under the consent orders, there was only one debt, namely, the debt of $300,000 which was payable in accordance with the Deed as the Net Settlement Amount (see clauses 3 and 5 of the Deed). It was further submitted that the very much larger Judgement Debt referred to in the Deed is and was not a present debt, but becomes due and payable only if there is an unrectified Default as described in clause 10 of the Deed and, further, the entry of judgment in accordance with order 6 requires the leave of the Court. In these circumstances, so it was submitted, the obligation to pay the Judgement Debt following Default should be seen as operating in terrorem to induce performance of the primary obligation to pay the Net Settlement Amount. It was put that the case falls within the general principle described by the High Court in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 at [10]: "In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation." 44Mr Knowles submitted that there was no penalty in this case because it was an example of a situation where a present debt was owed to a creditor who agrees to accept part payment of the debt in full discharge provided certain conditions are met, but stipulates that if the conditions are not met, the full amount of the debt is payable. In cases of that kind, it has been held that there is no penalty (see Thompson v Hudson (1869) LR 4 HL 1 at 15-16, 27-28 and 30; O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 367, 380 and 386; [1983] HCA 3; Acron Pacific Limited v Offshore Oil NL (1985) 157 CLR 514 at 518; [1985] HCA 63). 45Mr Knowles emphasised some of the recitals to the Deed, particularly recitals N and O, in support of the submission that Dr Lachlan owed debts under the Loans. It was submitted that, viewed as a matter of substance, the Deed provided for a settlement of the proceedings on the basis that if certain conditions were met, HPM would accept less than the amount of the debts and provide a release to Dr Lachlan, but if those conditions were not met, HPM could recover the full amount of the debts. It is implicit in this submission that when the Deed was entered into, Dr Lachlan was indebted to HPM in the amount of the Judgement Debt ($1,570,292.12). Mr Coleman accepted that if there was a present debt in that amount, then there was no penalty. 46The position in this case differs from that found in many of the cases in this area. The agreement between the parties did not provide for a judgment in a higher amount which would not be enforced if certain conditions were met (compare In the matter of Prismex Technologies Pty Ltd (supra); Attwells v Marsden [2011] NSWSC 38; Perpetual Trustee Co Ltd v Mitchell [2010] NSWSC 825). Neither is there any express acknowledgement that a particular higher amount was then due and payable, as occurred, for example, in Perpetual Trustee Co Ltd v Aspley Specialist Centre Pty Ltd [2010] QSC 232. It appears, however, that the lack of an express acknowledgment of such indebtedness does not necessarily mean that the principle referred to in [44] above will not apply. 47In Cameron v UBS AG [2000] VSCA 222, the Swiss Bank Corporation obtained a judgment against the appellant in Switzerland for the Australian dollar equivalent of $8.4 million and sought to enforce the judgment through proceedings instituted in Victoria. The appellant disputed the claim. Later, the respondent (as a successor to Swiss Bank Corporation) and the appellant entered into a Deed of Settlement. The Deed provided for the payment of a Settlement Sum of $1 million payable in five equal monthly instalments, and further provided that in default of such payment, the respondent would be at liberty to reinstate the proceedings, be substituted as the plaintiff, and obtain judgment by consent for sums which totalled $8.4 million (plus costs) less the amount of any payments made under the Deed. Following a default in payment under the Deed, the respondent successfully obtained judgment accordingly. On appeal, the leading judgment was given by Phillips JA. At [19], his Honour noted the submission of the appellant to the effect that the sum of $8.4 million was merely the sum due and allegedly owing under the Swiss judgment, and continued at [20] - [22]: "[20] That is the key to this appeal. Although the defendant was wont in argument to approach this case as if the deed was simply an agreement for the payment by the defendant to the plaintiff of $1 million, that is not what it was; it was a bargain about the enforcement of the Swiss judgment. The sum of $8.4 million for which judgment in Victoria was to be obtained by consent under clause 3 was the sum for which judgment had already been recovered in Switzerland, the judgment which the plaintiff was seeking to enforce in this proceeding as successor to the Swiss Bank in the Swiss proceeding. That sum was quantified before the terms of settlement were entered into; the dispute was only over the plaintiff's right to enforce the Swiss judgment in Victoria, a right asserted in the Statement of Claim in this proceeding and denied by the defendant in his defence. By the terms of settlement, the defendant secured to himself one last opportunity to pay a much lesser sum in full and final satisfaction of what the plaintiff was claiming in Victoria in reliance upon the Swiss judgment. For the opportunity to pay that lesser sum, the defendant bargained away any defence he had to enforcement of the judgment in Victoria, consenting to judgment here if he may default in payment of the lesser sum modo et forma. That makes this case quite different from those in which the Courts have refused to lend assistance to the enforcement of a penalty. It is more akin to those cases described by Gibbs CJ in O'Dea where the sum payable upon default is already due and owing and the chance to pay a lesser sum or on terms is being offered as a privilege or indulgence: see also Acron Pacific. [21] Yet, according to the defendant that was not this case in that, consistently with the pleadings in which the defendant was denying all liability, the Deed embodying the terms of settlement contained no acknowledgement of his liability for the sum of $8.4 million for which judgment could be entered by consent under clause 3, with the result that it could not be said before default occurred under clause 2 that any sum was owing by the defendant subject only to the opportunity being extended to pay a lesser sum, and on terms. But I reject that submission. In O'Dea, there was nothing between the parties prior to their entry into the lease between them, which accordingly was the sole source of any obligation of either; and so it was in most of the other cases cited to us. Here, there was a considerable history which led directly to the terms of settlement and the deed. The Swiss Bank had recovered judgment for $8.4 million in a Swiss court and the plaintiff, as its successor, was seeking to enforce it here, while the defendant was seeking to resist enforcement in Victoria. It was in that context that the terms of settlement came into being, the defendant obtaining thereby the opportunity to secure a release from what was claimed under the foreign judgment by paying the settlement sum by instalments, and the bank securing in return the withdrawal of all defences, should there be default. In those circumstances, the consent to judgment can be seen as doing no more than formalising a liability acknowledged, by implication, when the terms of settlement was agreed and the deed was entered into. [22] In my opinion, when read fairly, these terms of settlement did contain, by implication, an acknowledgement by the defendant of his liability for the $8.4 million should there be default and thus an acknowledgement of liability which, though conditional, was effective when the terms of settlement were agreed. Immediately before the terms of settlement, there was a dispute about the enforceability of the Swiss judgment and so about the amount owing by the defendant under it; but, as I see it that dispute was finally resolved by the terms themselves and the deed. From that point onwards, the defendant was acknowledging his liability in respect of the Swiss judgment subject only to this: that if he paid a lesser sum according to clause 2, he could have a release from the larger sum. In those circumstances, according to the cases to which I have referred, the provision in clause 3 for consent to judgment is not a penalty." 48Winneke P, who agreed with Phillips JA, stated at [3]: "... At the time when the deed was executed, the respondent had a right to enforce an existing debt constituted by the judgment of the Swiss Court. By the Deed of Settlement it forebore to exercise that right on condition that the indulgence which it afforded to the appellant, namely to pay a lesser sum over a period of time, was fulfilled. By entering into the deed, the appellant implicitly acknowledged that the judgment debt was due and payable by his agreement that, if he did not meet the conditions upon which the indulgence was granted to him, he would submit to judgment in the amount of such judgment debt; thereby giving up any defences which he claimed to have. In my opinion, there is nothing inequitable or penal about such a compromise." 49Buchanan JA stated at [26] that the substance of the transaction was that a claim based on a foreign judgment was compromised by the appellant agreeing to judgment for the amount of the claim, but obtaining an opportunity to satisfy the claim by paying a lesser sum by instalments. His Honour further stated at [27] - [28]: "[27] ... The substance of the matter was not affected by the manner of its drafting. A penalty did not arise because, instead of an acknowledgement of debt in the amount of the claim followed by a provision enabling that obligation to be satisfied by payment of a lesser sum in a specified manner, the deed provided for payment of a lesser sum than the claim followed by an agreement to suffer judgment for the amount of the claim if the lesser sum was not paid. [28] The obligation to pay $8,400,000 was not one which sprang from the deed unheralded. Its genesis lay in the past dealings between the appellant and the respondent's predecessor. In my opinion the case is to be equated with those 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. At one end of the spectrum covered by those cases is an undisputed judgment debt. Further towards the middle of the range is a sum ascertained in a suit in Chancery before a final decree has been made. At the other end of the spectrum, but still within it in my view, is the present case where the debt is the subject matter of a claim which is disputed but is not suggested to be a colourable device." 50Cameron (supra) was considered by Ashley J in Australian Management Consultants Pty Ltd v Direct Mortgage Funding Pty Ltd [2003] VSC 202. In that case, terms of settlement contained an agreement by the plaintiff to accept a higher amount in full and final settlement of all claims, provided that if instalments totalling a lesser amount were paid by the defendant they would be accepted in full and final satisfaction. It was further provided that if there was default in paying the instalments, the plaintiffs would be at liberty to enter judgment by consent for the higher amount (less any monies paid). Ashley J stated at [52]: "In my view, the situation falls within the class of case epitomised by Thompson v Hudson, an authority often cited, and recently applied in Cameron. The facts are not quite the same as in Cameron. But the question is one of principle, not identity of facts. As a matter of principle, it seems to me that there is no essential difference between terms of settlement which arise out of a plaintiff's disputed claim to enforce a foreign judgment and terms arising out of a plaintiff's disputed entitlement to a money sum or damages in connection with a commercial dispute. In either event it is open for a defendant, in substance, to acknowledge his liability to a plaintiff by entry into terms of settlement. That is what happened in Cameron" 51That observation by Ashley J was cited with apparent approval by Nettle JA in Calcorp (Australia) Pty Ltd v 271 Collins Pty Ltd [2010] VSCA 259 at [20]. That case involved terms of settlement which contained an agreement by the defendants to pay $200,000 in instalments, in default of which the plaintiff was entitled to enter judgment for the full amount of the plaintiff's claim "in the agreed sum" of $262,648.96 less amounts paid, plus interest and costs. The leading judgment was delivered by Nettle JA (with whom Redlich and Harper JJA agreed). His Honour held that the terms of settlement contained an implicit acknowledgement that the sum of $262,648.96 was due to the plaintiff (see at [17] - [23]). The decision of the Queensland Court of Appeal in Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd [2000] QCA 221 was distinguished on the basis that in that case, there was nothing in the terms of the deed of settlement which implied that the debtor acknowledged the amount which was due (see at [24]). 52Zenith Engineering Pty Ltd (supra) was also distinguished by McMurdo J in Perpetual Trustee Co Ltd v Aspley Specialist Centre Pty Ltd (supra) at [25] in circumstances where there was an express acknowledgement of present indebtedness. 53In Zenith Engineering Pty Ltd (supra), the deed of settlement required the defendant to pay $55,000 by certain instalments "in full settlement of the plaintiff's claim and the defendant's counter-claim". The deed further provided that if a payment was not made on the due date, the plaintiff would be entitled to enter judgment "for the full amount claimed" (which was $72,567.13) plus interest and costs. The Queensland Court of Appeal upheld the primary judge's conclusion that this provision constituted a penalty. 54Pincus JA (with whom Chesterman J agreed) stated at [4]: "The quotation from O'Dea's case (at 367) set out above, defining a set of circumstances to which the equitable doctrine preventing recovery of penalties cannot apply, speaks of a creditor agreeing to accept "payment of part of his debt". That expression is difficult to treat as apt in the present case; there was a claim made for an alleged debt, but it was disputed. The amount properly due was never established, because the case was settled. It cannot be said, then, that it has been shown that the sum claimed in the action was a debt, part of which the applicant agreed to accept in full discharge. ..." 55After citing with approval a statement of principle found in the 1996 edition of Professor Parkinson's "The Principles of Equity", Pincus JA continued at [9]: "Here, the stipulated sum was neither in form nor substance a present debt; it was merely an amount claimed." 56White J, to similar effect, stated at [13] that the amount claimed in the pleading which was disputed in the defence and counterclaim could not be characterised as a "present debt, a debt actually due and owing ...". 57In the light of these authorities, it is clear that an important question in this case is whether the agreement reached between Dr Lachlan and HPM in June 2011, as reflected in the Deed and the consent orders, contained an implicit acknowledgement by Dr Lachlan that he was indebted to HPM for the amount of the Judgement Debt. 58The context in which the agreement was made was, of course, the litigation that was then on foot. By his amended Summons, Dr Lachlan sought declaratory relief. HPM, by its cross-claim, sought to recover amounts said to be owing by Dr Lachlan under four loans. According to that cross-claim, the amount outstanding on the four loans as at 30 April 2010 was about $1,325,000. If interest is added at the claimed rates in respect of the period to the date of the Deed (24 June 2011), the total amount outstanding would exceed (by about $20,000) the Judgement Debt of $1,570,292.12. Dr Lachlan, by his defence to the cross-claim, disputed his liability to HPM on various grounds. 59The Deed and the consent orders embody a compromise of that dispute. As part of that compromise, Dr Lachlan (by recital O to the Deed) unconditionally confirmed the debt obligations under the four loans, and further stated that his obligations to repay those debts were "current and continuing obligations". 60The Deed further provided for consent orders to be made. The consent orders provided that Dr Lachlan's claims were dismissed and Dr Lachlan was obliged to pay $300,000 in accordance with the Deed. The consent orders further provided that if Dr Lachlan discharged his obligations under the Deed, the cross-claim would be discontinued with no order as to costs (and all existing costs orders would be vacated), but if there was default in those obligations and the Deed entitled HPM to commence recovery action, then HPM had leave to immediately enter judgment on the cross-claim for $1,570,282.12 (the Judgement Debt as defined in the Deed) less any payments made under the Deed, plus interest and costs. 61This case differs from Calcorp (Australia) Pty Ltd (supra) in that there is no express statement here that the amount for which judgment was to be entered in the event of default was "an agreed sum". Nevertheless, applying the reasoning of the Victorian Court of Appeal in Cameron (supra), which was applied by Ashley J in Australian Management Consultants Pty Limited (supra), it is proper to regard the terms upon which Dr Lachlan agreed that HPM could enter judgment against him in the amount of the Judgement Debt (less the amount of any payments made under the Deed) as an implicit acknowledgement on his part that he was then indebted to HPM in that amount. 62It is important to consider the substance of the matter. HPM was pursuing Dr Lachlan for the amount outstanding on the loans, which was an amount at least as great as the Judgement Debt. As part of a compromise, Dr Lachlan confirmed the existence of that indebtedness, and at the same time secured the opportunity to obtain a discharge by paying a lesser sum (the Net Settlement Amount). If, however, the Net Settlement Amount was not made in accordance with the Deed, Dr Lachlan, who accepted that he was indebted to HPM under the loans, would submit to a judgment being entered against him for the Judgement Debt less the amount of any payments made under the Deed. In my opinion, implicit in this agreement is an acknowledgement on Dr Lachlan's part that he is indebted to HPM for the amount of the Judgement Debt. 63Zenith Engineering Pty Ltd (supra) can be distinguished from the circumstances present here. In Zenith Engineering Pty Ltd (supra), the conclusion that the higher amount was merely the amount claimed was based, so it seems to me, on the particular terms of the deed of settlement which described the higher amount as "the full amount claimed". The higher amount therefore bore the character of something that was merely claimed. Here, the higher amount is not so described. It is defined in the Deed as "the Judgement Debt". Viewed in the context of the Deed as a whole, particularly the contents of recital O, I do not think it is possible to regard the Judgement Debt as merely an amount claimed, and not a present debt. 64For these reasons, the case seems to me to be one where a creditor agrees, on certain conditions, to accept part payment of a debt in full discharge, but stipulates that if the conditions are not met, the full amount of the debt (implicitly acknowledged by the debtor to be the Judgement Debt) is payable. It is well established that the doctrine of penalties does not apply in such a situation. 65I conclude, therefore, that HPM is entitled to enter judgment on its cross-claim against Dr Lachlan in accordance with order 6 made on 28 June 2011. Also, in accordance with order 6, Dr Lachlan should pay HPM's costs of the proceedings, as agreed or assessed. I direct the parties to bring in Short Minutes to give effect to these reasons.