By Notice of Motion filed on 26 May 2016 the Plaintiffs, Mr Michael Petronaitis and Mr John Petronaitis ("Messrs Petronaitis") seek a declaration, as against the Defendant, Ms Dalia Petronaitis ("Ms Petronaitis") that they and Ms Petronaitis entered into an enforceable agreement to settle these proceedings on the terms of specified consent orders. Mr Marshall, who appears for Ms Petronaitis, accepts that those consent orders would properly record the agreement reached if, contrary to his submission, such an agreement had been reached.
The Messrs Petronaitis also seek ancillary relief, including an order for specific performance of the settlement agreement for which they contend and, in default of Ms Petronaitis complying with that order, an order that the consent orders be executed by the Registrar in Equity on her behalf under s 94 of the Civil Procedure Act 2005 (NSW). The application is brought in circumstances of some urgency since there is presently a hearing of several days listed to commence in less than one week's time. The jurisdictional basis of the application is s 73 of the Civil Procedure Act which provides that the Court may exercise its jurisdiction to determine any question in dispute between the parties as to, relevantly, the terms on which the proceedings have been settled and make such orders as it considers appropriate to give effect to such a determination.
I will first refer to the affidavit evidence and then to the two substantial issues that are ultimately in dispute between the parties. The affidavit evidence largely addresses events at a mediation on 19 May 2016, which was undertaken by Mr Berecry as mediator, under the terms of a Mediation Agreement dated 18 May 2016. Clauses 16-23 of that agreement, to which Mr Marshall refers in submissions, deal with confidentiality. Clause 27 deals with settlement and clauses 28-29 deal with enforcement of a settlement agreement as follows:
"Settlement
27. If agreement is reached at the mediation, the terms of the agreement must be written down and signed by the parties before they leave the mediation.
Enforcement of the settlement agreement
28. Any party may enforce the terms of the settlement agreement by judicial proceedings.
29. For the purposes of para 28, any party may call evidence of the settlement agreement including evidence from the mediator and any other person engaged in the mediation."
I will address a contest between the parties as to the effect of those clauses below.
The Messrs Petronaitis rely on the affidavit of their solicitor, Mr Coles, dated 26 May 2016 which deals with the background to the proceedings and the conduct of the mediation. Mr Coles refers to a statement made in opening by counsel for Ms Petronaitis, Mr Lawrence, that Ms Petronaitis would like to know what happened between the sale of a property at Bronte for about $2.3 million and the position where the estate had a present value of about $1.8 million. Mr Coles' evidence is that counsel for the Messrs Petronaitis, Ms Foda, then explained the transactions which had reduced the value of the estate as comprising the discharge of a loan secured by a mortgage over the property, legal fees from earlier proceedings, and costs associated with an earlier sale that had been restrained on Ms Petronaitis' application and amounts due to a nursing home. There is some conflict in the evidence as to precisely what was said in this respect, and as to who said it, and when it was said, to which I will refer below.
Mr Coles in turn refers to subsequent offers and counter offers made by the parties and discussions as to whether the settlement would proceed by consent orders or would also include a deed. Mr Coles gives evidence of a last offer made by Ms Petronaitis and a counter offer made by the Messrs Petronaitis which he understood was accepted, from what he was told by counsel for the Messrs Petronaitis, although he was not present when that occurred. He obtained written instructions from the Messrs Petronaitis in respect of the terms of that arrangement. He refers to further events including the preparation of consent orders by counsel for Ms Petronaitis, Mr Lawrence, a request by Mr Lawrence for further documents to be provided in order to establish the value of the estate, and, ultimately, Ms Petronaitis' (or her solicitor's) refusal to sign the relevant consent orders.
The Messrs Petronaitis also rely on an affidavit of Ms Foda who also gave evidence of events at the mediation. She also refers to Mr Lawrence having raised, in opening, the question as to the balance of proceeds of the sale for the Bronte property, but her evidence is that Mr Coles, rather than she, answered the question, although the form in which she sets out the answer has the oddity that it refers to "mum's death" which is not something one would have expected Mr Coles, or indeed Ms Foda, to have said. Her evidence differs from Mr Coles as to whether she or he answered the question, and whether it was answered in the opening or later, at about mid-morning, but otherwise substantially indicated the answer had the same content.
Ms Foda also refers to her detailed notes of offers and counter offers made during the course of the mediation and to discussions with Mr Lawrence, who was not called by Ms Petronaitis to contradict her evidence. She refers to an offer made at about 4.30pm by her (Foda 27.5.16 [23]) which was accepted by Mr Lawrence, following which he said, "[w]e have a deal". (For completeness, I note that Mr Coles' evidence would put that step a little later in the afternoon, between 5.00 and 5.30pm, although little turns on that matter for present purposes). Mr Marshall fairly noted, in closing submissions, that he had not put to Ms Foda that her account of this conversation was incorrect. Ms Foda also refers to preparation of consent orders by Mr Lawrence, and to her acceptance of the form of orders and a renunciation of probate contemplated by those orders.
Ms Foda's evidence is that Ms Petronaitis' solicitor, Mr Barrak, returned to the question of the difference between the sale price of the Bronte property and the value of assets in the estate, well after the conversation between counsel and also after the consent orders had been prepared and provided to Ms Petronaitis for signature, and then requested documents to support that difference. Ms Foda's evidence is that she foreshadowed that those documents could be provided while insisting that their provision was not part of the agreement that had been reached. She also refers to subsequent developments, by which Mr Barrak declined to sign the consent orders and to additional terms that Mr Lawrence, upon instructions, sought to have included in the consent orders, which were not accepted by Ms Foda although her evidence is that she confirmed the willingness of the Messrs Petronaitis to provide supporting documents, outside the scope of the agreement they claimed had been reached.
Ms Petronaitis in turn relies on Mr Barrak's affidavit dated 3 June 2016. Mr Barrak refers to a conversation on 22 March 2016 with Mr Coles as to the sale price of the Bronte house and says that he asked whether legal costs or other expenses were paid by the estate. Mr Coles does not recall that conversation. Given the findings that I have reached on other grounds, nothing turns on whether that conversation occurred for the purposes of this judgment.
Mr Barrak sets out his account of the mediation, and refers to Mr Lawrence having opened by seeking an "accounting" for the $500,000 that was the difference between the proceeds from the sale of the Bronte property and the assets in the estate. Even if Mr Lawrence said, as Mr Barrak claims, in opening that the difference "needs to be accounted for in settlement", I do not accept that that reference in opening made the settlement conditional on that matter, where there is no suggestion that such a condition was included in the multiple offers and counter offers that continued until a counter offer was made by Ms Foda on behalf of the Messrs Petronaitis and accepted by Mr Lawrence on behalf of Ms Petronaitis in the late afternoon.
Mr Barrak's evidence is in turn that Mr Coles, rather than Ms Foda, explained how the funds had been spent, and the content of his evidence is broadly similar to that of Mr Coles and Ms Foda in that respect, although he puts that conversation at mid-morning rather than in the opening. Mr Barrak also refers to some documents having been provided by Mr Coles "in the afternoon". On balance, I find that those documents were provided in the late afternoon, after issues had been raised by Mr Barrak, after the 4.30pm conversation had occurred and after consent orders had been prepared, rather than prior to that conversation as Mr Barrak's affidavit may imply. Nothing turns on that, given the other findings that I have reached.
Mr Barrak in turn refers to several handwritten notations which he had proposed, the first version of which made the consent orders conditional on "substantiation" of the difference between the value of the property and the value of the estate within seven days and provided for liquidated damages payable if the accounting was not provided. Less extreme versions of that condition were subsequently provided, and there was discussion between the counsel for the parties about them.
On Mr Barrak's evidence, Mr Lawrence had the first version of that condition with him when he provided draft consent orders to Ms Foda. Mr Barrak was not present when that occurred, and cannot and does not say whether Mr Lawrence in fact provided such a condition to Ms Foda at that time. I infer that Mr Lawrence's evidence as to that matter would not have assisted Ms Petronaitis, where he was not called without explanation. In any event, on balance, I prefer Mr Coles' and Ms Foda's evidence that this matter was first raised subsequent to the provision of the draft consent orders. Again, nothing turns on that matter, in my view, since I will find below that an agreement was reached between counsel for the parties at about 4.30pm which itself gave rise to the settlement, and did not depend upon the provision of draft consent orders.
Mr Barrak then addresses additional versions of the notation which it is not necessary to address for the purposes of this judgment. I do not accept his evidence that any of those notations were agreed by the legal representatives of the Messrs Petronaitis, if paragraph 42 of his affidavit is intended to convey that impression.
The Messrs Petronaitis in turn rely on affidavits of Ms Foda and Mr Coles in response to Mr Barrak's affidavit, which take issue with Mr Barrak's affidavit. I have had regard to those affidavits, and to the cross-examination of each of Ms Foda, Mr Coles and Mr Barrak. I accept Mr Foda's and Mr Coles' account of the chronology of events, and would prefer that evidence to Mr Barrak's evidence to the extent that it is necessary to reach any determination between them. However, I need not resolve a number of the matters addressed in cross-examination since the matter can, in my view, be determined essentially on uncontested evidence.
I turn now to the matters in dispute between the parties. Mr Marshall submits, first, that the effect of the Mediation Agreement, the relevant clauses of which I set out above, is that agreement can only be reached in writing and not orally. I do not accept that submission. I have had regard to, but need not address at length, the principles of construction most recently summarised by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 at [46]ff and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances, relevantly that these conversations occurred in the course of a mediation, where the parties would at least be seeking to reach finality as to the matters in issue between them, if agreement could be reached between them as to the relevant terms.
I accept that a mediation agreement could readily provide that any agreement could only be reached in writing, and that no oral agreement had any binding effect, and that may or may not be common in such agreements: Rilga Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632; (2014) 103 ACSR 370 at [61]ff. However, in my view, cl 27 of the Mediation Agreement does not have that effect, read on its own or in the context of the Mediation Agreement as a whole.
As Mr Marshall fairly recognises in submissions, cl 27 plainly contemplates that agreement may be reached at the mediation, implicitly orally, before it is written down, although it imposes an obligation on the parties to write down and sign that agreement before they leave that mediation. That clause is capable of operating sensibly, both by allowing effect to be given to the earlier, antecedent, oral agreement, but at the same time seeking to avoid disputes as to its terms if the parties comply with their obligation to record it in writing. On the findings I have reached, that obligation was breached by Ms Petronaitis in this case.
Clause 28 in turn provides for the enforcement of the settlement agreement by judicial proceedings. If the parties complied with cl 27, that would involve the enforcement of a written agreement, but that clause is not so limited. Clause 29 in turn permits evidence of the mediator and persons engaged in the mediation to be called in proceedings to enforce the settlement agreement. That provision seems to me to contemplate, or at least extend to, the calling of such evidence to prove the existence of an oral agreement, consistent with s 131 of the Evidence Act 1995 (NSW). I do not read that clause as limited, as Mr Marshall suggested, to proof of authenticity of the written agreement or the signatures to it, although I accept that those limited circumstances would fall within it. It would have been readily possible to draft a clause in the narrower form for which Mr Marshall contends, had that been the parties' objective intention.
Ms Petronaitis therefore fails as to her first submission, that the agreement reached between the parties can only take effect in written form. I note, for completeness, that Mr Marshall referred to case law, largely prior to the introduction of s 131 of the Evidence Act, indicating the desirability of limits on leading evidence of what occurred at a mediation, and suggested that it was undesirable that the parties should have to lead evidence of oral exchanges at a mediation to enforce an agreement. It seems to me that little is gained by asking what is desirable, as a matter of principle, rather than what the relevant clauses of the Mediation Agreement provide as a matter of their proper construction. However, if one were to ask that question, one might equally respond that it is also undesirable that a settlement reached at a mediation, by an oral exchange, if subsequently proved by evidence, should be unenforceable because one party, in breach of its obligations under a mediation agreement, fails to sign it. In any event, parties who take the view for which Mr Marshall contends can readily provide for that result in the terms of the mediation agreement, if they wish to do so. As I have noted above, this Mediation Agreement does not do so.
Mr Marshall, in his second submission, does not contest the terms of the exchange between Mr Lawrence and Ms Foda at 4.30pm, or a little later if Mr Coles' evidence is preferred, but submits that that exchange provided for some but not all of the matters that needed to be resolved and was in the third, rather than the fourth, category in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 361. I do not accept that submission for reasons that I will now indicate. I should first refer to the applicable case law and I have drawn, in doing so, on my summary of that case law in The Owners - Strata Plan No 58087 v Matthews [2015] NSWSC 1906.
In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (with whom Hope and Mahoney JJA agreed) observed that a question of this kind involves the intention of the parties to make a concluded bargain, which is related to but not the same as the question whether the parties have reached agreement upon such terms as are legally necessary to constitute a contract. His Honour also noted that:
"… in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention."
The Court may have regard to the parties' communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not they intended to form such an agreement: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd above at 547-548; Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at [14,562].
In Masters v Cameron above at 360, Dixon CJ, McTiernan and Kitto JJ identified three categories of case which may exist where parties, which have been in negotiation, reach agreement upon terms of a contractual nature and agree that the matter of their negotiation will be dealt with by a formal contract, as follows:
"It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract."
In Masters v Cameron above, the plurality further noted (at 361) in respect of the third class of case which it identified, that:
"Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v Petch [(1854) 10 Exch. 610 [156 E.R. 583]. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker [(1950) 80 CLR 304] or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed."
A fourth category of case was identified by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 ("Baulkham Hills Private Hospital") at 628 where:
"the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms."
In Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313, Bathurst CJ observed (at [15]) that, in cases which did not depend on the construction of a single document, the Court was required to undertake an objective determination whether the parties intended to bind themselves to a contract:
"from the communications between the parties in their context and the parties' dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications."
Beazley P (with whom Bathurst CJ generally agreed and Meagher JA agreed) also noted that whether parties intend to be immediately bound, where they have reached agreement as to the terms of a contract but have also agreed that a further, formal agreement is to be executed, is to be determined objectively, having regard to the "outward manifestations" of their intentions (at [64]-[65]). Her Honour also observed (at [65]) that the question was "what each party by words and conduct would have led a reasonable person in the position of the other party to believe". Beazley P also observed (at [69]) that the three classes of case in Masters v Cameron above no longer applied, if they ever were, as strict categories into which cases must fall. Her Honour noted that (at [72]) that it was relevant to consider the commercial context and surrounding circumstances of the parties' dealings in determining whether a binding agreement had come into existence. Beazley P also observed (at [83]) that it was probable, as a matter of commercial reality, that if the parties had intended to be bound without signing the relevant deed, one or both of the solicitors would have said so. The Court of Appeal also noted (per Bathurst CJ at [15] and per Beazley P at [118] (with whom Meagher JA agreed)), and consistently with the case law to which I referred above, that the Court may have regard to subsequent conduct of the parties in determining whether, at an earlier juncture, the parties intended to enter into a binding agreement.
Having regard to the authorities to which I have referred above, I am satisfied that the oral agreement formed between counsel, at about 4.30pm, amounted to an agreement within the fourth class contemplated by Baulkham Hills Private Hospital, above, in the sense that the parties had by that time reached an agreement by which they were bound, although they expected to make a further contract, in the form of consent orders, including a notation under s 95 of the Succession Act 2006 (NSW) or a deed, which may include additional terms.
I have regard to the fact that, as Ms Muir, who appears for the Messrs Petronaitis, points out, the case law has recognised that it would at least be common that settlement in litigation can be reached when the barristers or solicitors involved "shake hands", whether literally or metaphorically, and that that is capable of giving rise to an arrangement within the fourth class in Baulkham Hills Private Hospital above: Howe v Connell (Supreme Court of New South Wales, Young J, 25 September 1997, unrep); Jennings v Jennings [2015] NSWSC 1826 at [19]. There is here no doubt that both counsel had their respective clients' authority, whether actual or ostensible, in respect of a settlement, and that counsel's agreement, to the extent that it was otherwise binding, binds their respective clients.
The factors which support the conclusion that the agreement formed at this point falls within the fourth category in Baulkham Hills Private Hospital above include the terms were comprehensive, as to the amount payable to Ms Petronaitis, the amounts then payable to the Messrs Petronaitis, the forgiveness of Ms Petronaitis' debt, the use of the 1997 will and the fact that one of the executors under it would renounce, and that there would be no order as to Ms Petronaitis' costs and the Messrs Petronaitis' costs would be paid from the estate on an indemnity basis. That conclusion is supported by the absence of any express statement by Ms Petronaitis' legal representatives, prior to the exchange between counsel at 4.30pm, seeking to condition a settlement on the provision of documents, or an accounting, for the difference between the sale proceeds of the Bronte property and the balance of the estate. While I accept that that issue was raised, in some form, in the opening of the mediation, Ms Petronaitis and her legal representatives then allowed the negotiations to go forward, through multiple offers and counter offers, to reach a conclusion at 4.30pm on a basis that did not address it. That conclusion is also supported by the uncontested evidence that Mr Lawrence confirmed that he had instructions to that effect and Ms Foda then advised "[w]e have a deal".
The reference to the difference between the sale price of the Bronte home and the value of the estate in opening could have been addressed by an additional term of the settlement, but it did not become such a term through the lengthy series of offers and counteroffers to which I have referred. I do not accept that Mr Barrak's additional clauses were raised at the same time as the consent orders, but nothing turns on that, because in any event an agreement had been reached prior to drafting the consent orders in the exchange between the parties' counsel and any variation by adding additional terms to that agreement would have had to have been consensual. As I noted above, Mr Marshall accepts that the consent orders properly implement the agreement, if it existed.
Mr Marshall points to the fact that the parties did not abandon the mediation until several hours after the oral agreement between counsel because, he submits, the parties "continued to negotiate". That submission requires a first qualification, namely that part of that time was directed to Mr Lawrence preparing the consent orders, and that part of it was spent in waiting for Ms Petronaitis to sign the consent orders, which did not occur. A substantial period was then spent in Mr Lawrence proffering additional terms, on Mr Barrak's instructions, and Ms Foda responding to the effect that agreement had previously been reached, but sensibly, not refusing to engage in further discussion until ultimately Mr Lawrence confirmed that the consent orders would not be signed.
The fact that discussion continued does not undermine, and indeed is not inconsistent with, the fact that an agreement in the fourth category in Baulkham Hills Private Hospital had been reached at 4.30pm and was enforceable in its terms, if no other provisions were agreed between the parties. I also do not accept that Ms Foda's subsequently engaging with the suggested additional conditions, albeit on the basis that she continued to insist that agreement had previously been reached, or Mr Coles' subsequent attempts to locate and produce documents, indicated acceptance that this remained an open issue, necessary to be resolved in order to reach a binding agreement, as distinct from being a sensible and constructive attempt to bring Ms Petronaitis to the point at which she was comfortable in signing, or authorising her solicitor to sign, the consent orders as, on the findings that I have reached, she was obliged to do.
In these circumstances I find that a binding agreement was reached between the parties, with the consequence that the orders sought by the applicants, the Messrs Petronaitis, should in substance be made. It will follow that the hearing that is presently listed before Stevenson J to commence next Tuesday should also be vacated. I should note, however, that no submissions were made about, and I have not had regard to, any approvals of any settlement that may be required for the purposes of the Succession Act or for probate purposes.
This proceeding brings the parties only to the point that they would have been, had they executed consent orders inter partes without the need for the Court's intervention, and does not substitute for any approvals which may be required, and would have been required had such consent orders voluntarily been signed by the parties. I express no view, one way or the other, as to whether any such approvals are required.
[3]
Costs
A question arises as to the form of costs order to be made in this matter. That question involves two questions, first, who should pay the costs and second, the basis on which they should be paid. The Messrs Petronaitis seek an order that their costs be paid on an indemnity basis from a fund of the estate which comprises the legacy payable to Ms Petronaitis.
The first aspect of that order is that it has the consequence that Ms Petronaitis bears the cost of this application, from her share of the estate. It seems to me that that result is plainly correct, so far as Ms Petronaitis took the view, wrongly as my judgment indicates, that she was not bound to execute or have her legal representatives execute the consent orders. It seems to me that, having taken that view, the compensatory purpose of a costs order requires that the Messrs Petronaitis, who have been put to the costs of this application by reason of the view taken by Ms Petronaitis, should be paid the costs of this application.
It would be entirely inconsistent with the usual basis on which costs are ordered, for a compensatory purpose, to provide for those costs to be paid from the estate, particularly where that appears to have the consequence, in the present circumstances, that the fixed legacy to Ms Petronaitis would remain intact, and the legacy paid by the successful parties to this application would be depleted in order to fund the costs of the proceedings. I accept that it might be that that result could be avoided by other forms of drafting, but it seems to me that it is properly avoided by an order in this form, and I need not search for other forms of drafting which might have the same result.
The second question is whether such costs should be paid on an indemnity basis. Mr Marshall submits that there has been no improper conduct by Ms Petronaitis in respect of this application such as to warrant an order for costs on an indemnity basis. I do not make an order for costs on such a ground, and it is not necessary for me to determine whether such an order could have been made on that basis, where I do not do so.
It seems to me, however, that costs should be ordered on an indemnity basis. The form of the settlement which had been reached by the parties contemplated that the executors' costs would be met on an indemnity basis, consistent with the approach that is common in this jurisdiction. Had the settlement agreement been complied with, the executors would not have been out of pocket in respect of their costs, Ms Petronaitis' legacy would have been intact and the Messrs Petronaitis would in turn have received the amounts contemplated by the settlement in respect to them.
It seems to me that the proposition put by Mr Marshall, that costs should be ordered in favour of the executors on an ordinary basis, leaves them out of pocket, so far as the costs recovered on a party/party basis would potentially be less than those incurred, and that again would be an inappropriate result so far as it is inconsistent with the terms of the settlement agreement that the parties had reached. I will, however, insert in order 5 the additional words "reasonable costs" which could not possibly be contested. That in turn provides an element of safety for Ms Petronaitis, so far as unreasonable costs would not be recoverable on that basis.
I make orders in accordance with the short minutes of order initialled by me and placed in the file.
[4]
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Decision last updated: 14 June 2016