CONTRACT - Settlement of litigation on terms - Construction of terms - Whether appellant in breach - Consideration of the purpose of the settlement and the circumstances in which it was made - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, applied - Whether one of the settlement terms imposes a penalty for breach of other terms - Nature of a penalty clause - Whether the impugned clause included implied admissions of liability - Whether purpose of that clause was to require the payment of damages, or merely to provide an alternative form of consideration - Cameron v UBS AG [2000] VSCA 222; (2000) 2 VR 108, applied - Appeal dismissed.

1 This appeal arises out of proceedings to enforce an agreement (the 'settlement agreement') made on 23 February 2001 between, on the one hand, the appellant Jan Emil Talacko and, on the other, the respondents - his sister Helena Marie Talacko, together with the widow and children of his brother Peter. The intention of the parties was to resolve a proceeding which had been commenced in October 1998 by the respondents against the appellant. Unfortunately, however, resolution has proved elusive.

2 In 1948, at the time of their departure from Europe to settle in Australia, the appellant's parents (Alois and Anna Talacko) owned property in their country of origin (the former Czechoslovakia) and in what was then the German Democratic Republic (East Germany). According to lists prepared by the appellant himself, it included five substantial buildings in the centre of Prague, land in Kbely (a suburb of the Czech capital), horticultural land on the outskirts of that city (in a location known as Repy), a forest at Sucha in the north-east of what is now the Slovak Republic, and an apartment building and adjacent land in Dresden.

3 In the succeeding years, at a time when both Czechoslovakia and East Germany were under communist rule, this and other privately owned property was seized by the State. But, in the months following November 1989, the communist regime fell in each country, to be replaced by governments prepared to undertake the restitution of some of the land which had earlier been expropriated.

4 By this time, both Alois and Anna were dead. Their children - Helena, Peter and Jan - were interested in reclaiming their parents' former holdings. In 1989, discussions were opened between them with this in mind. As the present respondents (who were, before that, the plaintiffs) to these proceedings allege, by March 1991, the discussions had resulted in an agreement that the siblings would join in seeking the restitution to them of the property seized from their parents. They also agreed (or so the respondents would have it) that any property thus restored would be shared equally between them.

5 The appellant denies that any agreement of the kind alleged was made by March 1991 or at all. Indeed, he takes a very different position to that of the respondents. He points out that, regardless of any interest the siblings might otherwise have had in the property, the applicable laws restricted the restoration of a significant portion of that property to citizens who by a specified date were also resident in the jurisdiction. The appellant, alone among the siblings, met that qualification. He, therefore, became the sole recipient of that significant portion. What is more, he shouldered the burden - with (he alleges) minimal help from any of the respondents - of conducting on the family's side the complicated dealings without which restitution would not have been effected. That, together with his general animosity towards the respondents, is the best reason he can advance for the fact that, 20 years after restitution was first broached, he has received - to the entire exclusion of his late brother (and his brother's heirs), and the almost entire exclusion of his sister - so much of their parents' land as has now been returned. (The appellant's additional argument, as put forward at first instance - that the respondents had repudiated the terms of a settlement of this litigation, and that that repudiation affected their rights - was rejected by Osborn J. His Honour's rejection is not the subject of appeal.)

6 The appellant, then, has made no significant admissions. On the contrary, he has denied that any agreement of the kind alleged was made by March 1991 or at all. Moreover, he is entitled to rely upon the fact that the burden of proof rests with the respondents. On the other hand, he has not suggested that any of the property the subject of the present dispute was acquired by him independently of the process of restitution; he has not claimed that he has acquired it by purchase, or as a beneficiary under a will, or in accordance with applicable laws of intestacy, or somehow

otherwise than by reason of the fact that he is a child of Alois and Anna, and met the residential qualifications for reclaiming the property.

7 In these circumstances, the burden of proof rests lightly upon the respondents. Because Jan did not acquire the property presently in dispute independently of the process of restitution, and because that process applied to him only because he was a child of his parents, there is, in our opinion, an evidential burden upon him to displace his siblings' claim to an equal share in the property.

8 Yet no matter how one examines the arguments put forward by Jan, one cannot escape the fact, unchallenged by any contradictory evidence, that restitution of much valuable real property, formerly owned by the parents of the appellant and his siblings, has been effected by Jan and for Jan, to the exclusion of Helena, and of Peter's heirs. The appellant, with no superior claim other than his residential qualification and his greater contribution of time and effort, has received and retained almost all of it, while never giving any practical recognition to the claims of the respondents.

9 They do not include Peter, who died on 24 November 1995. His widow, Margaret, now claims as his executor; and his children - Alexandra, Martin and Rowena - claim for themselves what they say would have been Peter's one third share had he remained alive. They join with Helena, who sues by her litigation guardian. That guardian is Helena's son - and he, in common with the appellant, is named Jan. Helena claims a one third interest for herself. Because the parties are related, we shall - where convenience dictates - refer to them by their given names (with 'Jan' being a reference to the appellant). No disrespect is intended.

10 This, then, is the context in which the settlement agreement was made. The proper construction of the terms of that settlement is the subject of this appeal. In construing the contentious terms, the Court is, in the present circumstances, required to consider not only the text of the document in which the terms of the settlement

were embodied, but also the surrounding circumstances known to the parties and the purpose and object of the transaction.[1]

11 Despite his denial that he was a party to the March 1991 agreement, or any other agreement of that kind, Jan has limited his attack upon the identity of the properties in question to queries about their description, and has not contested his parents' former title to them. Nor does he challenge several other findings made by Osborn J in one of the two judgments now under present appeal. Yet an acknowledgement by Jan that his siblings had an interest, whether pursuant to the agreement upon which they relied or otherwise, in the European holdings of their parents, is implicit in these findings. Osborn J, after referring to Jan as 'the defendant', to the appellants as 'the plaintiffs', and to the latter's allegation that 'an agreement was reached between the three siblings to pursue ... restitution [of their parents' former properties] together, and share the proceeds equally as between the three', continued:

In 1991 following the passage of a series of restitution laws in Czechoslovakia, Helena, Peter and the defendant exchanged powers of attorney, declarations and testamentary documentation in order to give effect (as the plaintiffs allege) to such an arrangement.

In August 1991, the defendant also prepared documents setting out details of his parents' assets with varying degrees of particularity and gave these to Peter and Helena.

In September 1991, the defendant made application for the restitution of the central Prague properties. At the time, he alone of the three siblings was residentially qualified to make such a claim, being both a Czech citizen and resident in the Czech Republic.

His brother Peter was granted residency rights shortly after the expiration of the deadline for making the relevant claims.

In March 1992, a series of properties within central Prague were restituted to the defendant either solely or in part. Thereafter, other properties forming part of his parents' estate were either restituted to him or purchased by him.[2]

In November 1995, Peter Talacko died.

In 1996, dispute arose over the payment of charges with respect to property jointly claimed by the plaintiffs and the defendant in Dresden.

In 1997, the defendant refused to co-operate in the sale of the Dresden property to a third party.

Dispute then continued between the plaintiffs and the defendant with respect to the parties' entitlements and obligations concerning both the Dresden and the Prague properties.[3]

In each case a further description of the land would be necessary for the purposes of effecting transfer. The evidence is that the origin of the descriptions [of the land the subject of] ... the terms is to be found in two lists of properties prepared by the defendant prior to the commencement of the proceedings between the parties and describing the property interests held by his father and mother at the date his parents fled from Czechoslovakia. The relevant properties were further described in evidence before me and in particular by way of the evidence of the defendant. As at the date of settlement, the properties and more particularly the defendant's interest in them required further particularisation before transfer documentation could be prepared.[4]

13 On 24 April 2008, Osborn J delivered reasons for judgment on the preliminary question of liability. His Honour construed the settlement agreement (and in particular, clauses 1 and 3)[5] and held that Jan had breached its terms by failing to sign transfer documents relating to the Dresden properties. The following appears at [134] of his Honour's judgment:

The reasons offered for the defendant's failure to execute the documentation were variously described in evidence by the defendant, but I am satisfied that the fundamental reason was simply that he did not accept the plaintiffs were entitled, as a matter of fairness, to a transfer of the properties the subject of the terms. In turn, he wished to evade compliance with his obligation to execute the transfer documentation. Thus, he variously stated concerning his obligations with respect to the terms:

• It was his job to recover the property and he had to correct the evils of the past;
• You don't offer a bunch of flowers to someone who attacks you;
• He did all the work;
• He spent a lot of money by way of incidental costs in pursuing recovery of the land;
• Helena did nothing by way of comparable effort;
• Peter visited the country but couldn't bear it and didn't want to come back;
• "I know I spent a lot of time a lot of ... a lot of expenses and I could not see that somebody could come along and get the benefit of all my work without moving a finger and I think on reflection if that was the case I would do the same thing again because that's how I felt at the time." [citation omitted]

14 The remaining issues for determination at first instance, including whether clause 6 was void for uncertainty, the value of the properties and the assessment of equitable compensation, were heard by Kyrou J who delivered his judgment on 24 November 2009.[6] Kyrou J held that the respondents were entitled to enter judgment for equitable compensation under clause 6 of the settlement agreement and made the following orders:

(a) €4,740,830.00; and

(b) €296,079.00 by way of interest.

1. The Defendant pay to the Secondnamed to Fifthnamed Plaintiffs:

(a) €4,740,830.00; and

(b) €296,079.00 by way of interest.

1. The Defendant pay the Plaintiffs' costs of the proceeding since it was reinstated on 8 July 2005, including reserved costs, on an indemnity basis. Any payments already made pursuant to previous costs orders are to be treated as payments on account of the costs due under this judgment and are to be set-off accordingly. Any costs incurred by the Defendant in any taxation of costs on a party and party basis that are thrown away by reason of costs being awarded on an indemnity basis must also be set-off against any amount assessed on an indemnity basis.

15 Jan now appeals against the respective orders made by Osborn J and Kyrou J. A cross-appeal by the respondents was abandoned.

(a) whether, on the proper construction of the terms of the settlement agreement (and particularly clause 3), Jan breached the agreement by failing to sign the Dresden transfer documents (the 'construction issue');[7]

(b) whether clause 6 was void as a penalty (the 'penalty issue');[8]

(c) if clause 6 was not a penalty, whether it operated (when triggered) on the basis that all of the allegations in the amended statement of claim which were extant when the settlement agreement was entered into, were to be taken as admitted, permitting damages to be assessed on that basis (the 'admission issue').[9]

17 On 5 October 2010, Jan issued a summons seeking leave to admit new evidence. At the hearing of the appeal, his counsel sought leave to amend the notice of appeal to take account of that new evidence. These reasons also deal with the application to admit new evidence and for leave to amend the notice of appeal.

[t]he defendant [was] to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 on the amended statement of claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 on the amended statement of claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars under paragraph 6 on the amended statement of claim hereto.

This clause does not apply to any interest in land purchased by the defendant as from this date.

19 Clause 3 of the settlement agreement stipulated what would happen if the above transfers could not be given effect to within 12 months. It provided that:

If by reason of applicable law or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms, in respect of a particular property or properties,[10] the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell such property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction. [Emphases added]

20 In the proceedings before Osborn J, Jan contended that he had not breached clause 1 of the settlement agreement by failing to transfer his interest in the Dresden properties, because clause 3 had come into operation at the time of the alleged breach. It was submitted that the words 'some other cause' in clause 3 meant that if, for any reason, any part of clause 1 were not given effect to within 12 months, the obligation to transfer no longer applied.

The terms contemplated that clause 1 ought to be the primary mechanism. However, if that mechanism could not be given effect to within 12 months, the terms contemplated moving to the secondary mechanism in clause 3. This would conclude the arrangements with the greatest possible expedition in the event the primary mechanism proved ineffective within the nominated period.[11]

22 It was also submitted that the words 'at the direction of the plaintiffs' in clause 3 did not create a condition precedent to the operation of the provision, but simply qualified the method of sale adopted by Jan. The obligation to sell after 12 months automatically took the place of the obligation to transfer created by clause 1.[12]

23 Having regard to the words of the settlement agreement and context in which it was made, his Honour held that:

(a) clause 3 referred to the failure of clause 1 to take effect by reason of 'factors external to the parties';[13]

(b) the word 'shall' in clause 3 required Jan to sell if the property could not be transferred for an external reason and the respondents directed Jan to do so - it did not require the respondents to give such a direction;[14] and

(c) Jan had breached clause 3 by failing to transfer the Dresden properties.

The land in issue is not necessarily to be regarded simply as a commercial asset. It formed part of the plaintiffs' claimed family inheritance. The effect of the settlement was thus not merely to give them financial compensation but part of this inheritance. It should thus not be readily assumed that the parties intended to provide for sale of the property as an outcome, save in circumstances where the transfer of the land to the plaintiffs could not occur.[15]

25 Counsel for the respondents submitted that Osborn J had correctly held that clause 3 was concerned with the frustration of clause 1 by factors external to the parties. If clause 3 had been intended to apply if the land transfers did not occur for any reason, clause 1 would have provided for extinguishment of the rights and obligations which it created after the 12 month period. As his Honour had said, acceptance of Jan's submission would have meant that, even if the process of transferring one or more of the clause 1 properties had been under way at the expiration of the 12 month period, clause 3 would have prevented that transfer occurring after the 12 months had expired. In addition, acceptance of Jan's submission would have allowed Jan to thwart clause 1 by delaying any transfer, in order to force a sale of the properties.

26 Counsel for the respondents also relied on evidence that Martin, Rowena and Alexandra wanted to maintain a connection with their grandparents' properties, in support of his Honour's conclusion that the land 'was not simply to be regarded as a commercial asset'.[16] Particular emphasis was placed on an affidavit sworn by Martin Talacko on 20 September 2006[17] in which he said that he 'wanted to participate actively in helping to restore the properties' and referred to 'the family heritage in Prague' and the 'family estate in Prague'.[18] In their written outline of submissions, the respondents also referred to Rowena's evidence in the proceedings before Kyrou J that 'we would like to have reached a sort of equitable place that included all the properties that had belonged to our grandparents', although Rowena also gave evidence that she had wanted one of the Prague properties to be sold so that an apartment could be bought for use of the family in the old part of Prague.

27 In their Amended Notice of Contention, the respondents also alleged that: 'The Court could have relied upon the statements contained in Exhibit L as supporting its preferred construction of clause 3'.

28 Exhibit L was a translation of a legal document apparently provided to the Land Office of Prague by Jan, setting out details of the assets of his parents. This referred to Helena having an interest in a property at Holesovice-Bubny (Prague) and 'HPJ' (said to mean Helena, Peter and Jan) having interests in one of the lots of land at Repy.

29 Counsel for Jan submitted that the words 'by reason of applicable law, or some other cause' which introduced clause 3 should have been given their broadest meaning. The settlement agreement, read as a whole, meant that if, for any reason, the land was not transferred within 12 months of entry into the agreement, the obligation to transfer was replaced by the obligation to sell.

30 His Honour was said to have wrongly taken the view that the land 'formed part of the plaintiffs' claimed family inheritance' and that therefore it should not be 'readily assumed that the parties intended to provide for sale of the property as an outcome, save in circumstances where the transfer of the land to the plaintiffs could not occur'.[19]

31 It was submitted that there was nothing in the circumstances in which the settlement agreement was made which justified his Honour treating the obligation to transfer land as the primary obligation imposed on Jan and the obligation to pay the net proceeds of any sale to the respondents (or at their direction) as secondary. The respondents' claims in the 1998 proceedings had always included a claim for monetary relief. They lived in Australia and there was no reason to conclude that any one of them would have wanted to live on the property or have wanted to obtain ownership of the land, as opposed to obtaining a share in its value.

32 Counsel for Jan also argued that the need to accommodate the interests of the various respondents indicated that transfer was not intended to be the preferred mechanism for satisfying the respondents' claims. It would have been difficult and productive of dispute between the joint owners if jointly owned foreign properties were retained and had to be managed. Further, Czech law had a residency requirement in relation to property holdings which meant that it would have been necessary to identify an eligible transferee of the Czech properties. These matters were said to support a construction under which sale of the properties and division of the proceeds was 'the primary mechanism, but with a short (12 month) window in which a transfer mechanism could be explored by [the respondents] as an alternative'.

33 Counsel for Jan also submitted that there was no evidence that Martin had an attachment to any of the properties referred to in clause 1. These did not include the properties in Prague. Although his affidavit referred to the latter, it made only fleeting reference to the other properties. The Dresden properties were the only properties to which clause 1 applied and which Martin had deposed to visiting. In paragraph 4(10) of his affidavit, he recorded his own father's suggestion that they be sold and the proceeds invested in Melantrichova (one of the Prague properties).

34 In response to the respondents' Notice of Contention, Jan submitted that Exhibit L was filed by his Czech lawyer long after the settlement agreement was entered into and in any case, any light it might cast on Jan's subjective intention was irrelevant in determining the objective meaning of clauses 1 and 3.

35 Grounds of appeal 4 and 5 alleged that his Honour had further erred in holding that Jan had breached the terms of the settlement agreement by failing to sign transfer documents in relation to the Dresden properties, when the plaintiffs

had not nominated a transferee; and had not presented the Dresden transfer documents to the defendant for signature until after 12 months had expired.

36 Although these grounds were not formally abandoned, counsel for Jan did not specifically address them in his submission. In any case, it is unnecessary to deal with them because these grounds turned on the question whether clause 3 replaced the obligation to transfer created by clause 1.

Conclusion on the construction issue (grounds 1-6)

37 In our opinion, his Honour correctly held that the introductory words of clause 3, read in the context in which the settlement agreement was made, confined its operation to the situation where clause 1 could not take effect for reasons external to the parties. There is little to add to his Honour's impeccable reasoning in support of that conclusion.

38 The meaning of clause 3 had to be ascertained by reference to what a reasonable person would have understood the clause to mean. In determining the objective meaning of clause 3, his Honour was required to consider the purpose of the settlement agreement, and the circumstances in which it was made.[20] As we have said, the settlement agreement was made to resolve a dispute in which the respondents claimed interests in property which had been or were in the process of being restored to Jan, but which had formerly been owned by their parents or grandparents.

39 The respondents claimed that an agreement between Jan and his siblings, originally reached in January or February 1990 and refined in March 1991, provided that each sibling would take steps 'to regain the Properties, and that the Properties would, once regained, be divided between them in equal shares'. Although Peter had died by the time that proceedings were instituted in 1998 to enforce that agreement, its whole focus was to obtain restitution of the properties which had been owned by the parents of Jan, Peter and Helena. That was the case even though the alleged agreement also provided that the proceeds of sale of any of the properties would be held by the relevant siblings for the benefit of him or herself and the others in equal shares.

40 The statements made by Martin, Rowena and Alexandra were in the form of affidavits which formed part of the evidence available for use in the proceedings before both Osborn J and Kyrou J. Those statements are evidence only of those parties' subjective intentions and were made well after the settlement agreement was made. It is doubtful whether they would have been admissible to interpret the objective meaning of clause 3.[21] But Osborn J's reasoning did not depend on the parties' evidence about their personal links with the relevant properties or their wishes as to whether they should be retained or sold. In his reasons, his Honour referred to the circumstances which ultimately resulted in the respondents commencing proceedings against Jan and later entering into the settlement agreement. These have been reproduced in paragraph [11] above.

41 It was these circumstances which led his Honour to infer that, under the settlement agreement, '[t]he land in issue is not necessarily to be regarded simply as a commercial asset. It formed part of the plaintiffs' claimed family inheritance'.[22] In our view, that conclusion is unimpeachable.

42 In construing the settlement agreement, his Honour also took account of the fact that it was not the product of considered professional drafting, but was written in several hands. It was made shortly after the parties had been involved in mediation and reflected a compromise entered into between family members who had a prior history of dealing with each other. At the time, although Jan had already obtained restitution of a series of properties within central Prague and a number of other properties,[23] there remained properties forming part of the family estate which were yet to be restituted.[24] It can therefore be assumed that the respondents' purpose in entering the agreement was to receive a fair share of other properties owned by their parents/grandparents.

43 We also consider that the plain meaning of clause 3, when read in combination with clause 1, indicated that it was intended to operate only if the transfers of property were frustrated for some external cause. We reach that conclusion for the following reasons.

44 First, the words 'some other cause' were preceded by the words 'by reason of applicable law'. An 'applicable law' which prevented a transfer being made was an event external to the parties. This supports the view that 'some other cause' has a similar meaning.

45 Secondly, the choice of the expression, 'cannot be given effect to', rather than 'is not given effect to', supports the construction adopted by his Honour.

46 Thirdly, all of the parties were aware that the bureaucratic processes required in order to obtain restitution might take a considerable time and that, because the respondents were not Czech residents, transfer to a nominee might be necessary. In these circumstances, it made sense for the parties to provide that transfer of the specified properties would be the primary means of satisfying their claims, whilst providing for the sale at their direction, if the transfer was frustrated by external events occurring after 12 months had passed.

47 There would be no point in providing in clause 1 for transfer of the properties, if, as Jan contended, the settlement agreement were only intended to give the respondents a share in the value of the properties. If, on the other hand, transfer was intended to be the primary mechanism provided by the settlement agreement, it would have made no sense to impose an automatic time limit on the operation of clause 1, when the parties were aware that there might well be delay in obtaining restitution.

48 In that context, we note that Jan's counsel at trial seems to have conceded that transfer was the primary mechanism.[25] Jan's submission on appeal appears to have partly resiled from that submission. The written outline of submissions on appeal contends that:

[the residency requirement imposed by Czech law, which required identification of an eligible transferee] tend[s] towards a construction of the Terms which views sale as the primary mechanism, but with a short (12 month) window in which a transfer mechanism could be explored by the plaintiffs as an alternative.

49 Fourthly, clause 1 was not time limited, as might have been expected if the obligation to sell in clause 3 were intended to operate after 12 months, if transfer did not occur for any reason within that period.

50 Fifthly, the obligation to transfer in clause 1 was not confined to named properties which Jan owned, but also applied to property which he 'shall have'. No time limit applied to property which Jan might acquire in the future under relevant restitution laws. We agree with his Honour that it would be contrary to the effect of clause 1 to hold that no obligation to transfer applied to subsequently acquired properties.

51 Sixthly, we agree with his Honour's conclusion that the words 'shall at the direction of the parties and at their cost, take all reasonable steps to sell back property or properties at best market value' are a precondition to the operation of the obligation to sell. Contrary to Jan's submission, they do not simply relate to the mode of sale. It would be contrary to the grammatical placement of words in that clause to interpret the provision for direction as applying only to the mode of sale.

52 Seventhly, we note that this construction of clause 3 benefited all the parties to the settlement agreement. His Honour's construction gave the respondents a right to have a share in the properties transferred to them, and prevented Jan from thwarting that right by failing to take steps to obtain restitution within the 12 month period. But it also relieved Jan of the obligation to transfer, if external events frustrated the transfer process. He was not obliged to sell the property in the absence of a direction by the respondents, but the respondents were not required to give a direction within the 12 month period and had to pay the costs of any sale which they directed.

54 Clause 6 of the settlement agreement provided that, in the event of breach, the respondents would be entitled to enter judgment requiring Jan to pay equitable compensation for breach of fiduciary duty in respect of each of the properties recovered or obtained by him, together with the costs of recovering judgment. The remaining three grounds of appeal allege that Kyrou J:

1. ... erred in rejecting ... the Defendant's submission that clause 6 of the Terms was a contractual penalty and therefore unenforceable.
2. ... erred in:

(a) holding ... that an amount of equitable compensation assessed by a Court in accordance with equitable principles can never be a penalty;

(b) holding ... that the Defendant's execution of the Terms constituted ... an implicit acknowledgement of liability so as to make them analogous to the terms of settlement considered in Cameron v UBS AG [2000] VSCA 222; (2000) 2 VR 108, when:

(i) on their proper construction the Terms contained no such acknowledgement, and none is implicit;

(ii) unlike the terms considered in Cameron, the Terms contained an unconditional release having immediate effect on execution; and

(iii) the Terms were further distinguishable from the terms considered in Cameron by reason of the existence in the Terms of numerous and varied obligations on the part of the Defendant, breach of any of which (whether the consequences of such breach were fundamental, or minor, or any level of significance between) enlivened clause 6, whereas the terms considered in Cameron imposed only a single obligation namely the payment of a sum of money less than that which had already been the subject of a Swiss Court judgment;

(c) distinguishing ... the reasoning of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1; [1915] AC 79, 87 on the basis that the facts of the instant case do not involve payment of a 'lump sum', notwithstanding that:

(i) the facts of the instant case nonetheless provide for what upon assessment will amount to an identical monetary remedy regardless of the nature of the breach, and

(ii) it was the identicality of remedy for disparate breaches, and not the fact that the identical remedy was described as a 'lump sum', which underpinned Lord Dunedin's reasons in Dunlop;

(d) declining ... to have regard to the potential applicability of clause 6 to relatively minor or inconsequential breaches of the Terms, and treating the possibility of complete failure to comply at all with the Terms as 'the only sensible comparison' (at [277]) with the outcome dictated by clause 6, and any regarding comparison with other potential breaches as 'unrealistic and artificial' (at [284]), when the Terms expressly imposed on the Defendant a range of obligations the potential consequences of breach of which varied from the fundamental to the very minor, and most levels of significance in between, and clause 6 in its terms expressly operated in respect of any of those breaches;

(e) failing (by reason of having fallen into the error contended for in paragraph (d) above) to hold that the assessment of equitable compensation pursuant to clause 6, which was inevitably to be calculated in the millions of Euros, would be extravagant and unconscionable in relation to at least some potential breaches of the Terms, eg a failure to pay on time the $150,000 in costs due on 23 June 2001 so as to breach clause 5 of the terms, or an omission to pay in a timely fashion a few hundred Euros [sic] worth of Dresden council rates so as to breach clause 9(iv) of the Terms.

1. ... erred in holding ... that clause 6 of the Terms had the effect that if the Defendant was found to have breached the Terms in any way, then for the purpose of assessing whether any and if so what equitable compensation was payable by the Defendant pursuant to that clause:

(a) the allegations of breach of fiduciary duty in the Amended Statement of Claim dated 18 May 2000 were taken to have been admitted by the Defendant;

(b) the Plaintiffs were not required to prove any of those allegations; and

(c) the Defendant was not entitled to contest any of those allegations.[26] [emphases in original]

55 If one accepts that a substantive claim to the property in question underpins Jan's resistance to the respondents' opposing assertion of right, his protest that clause 6 of the settlement agreement imposes a penalty has superficial attraction. Assume, by way of illustration, that Jan does have a substantive claim, never explicitly or by implication abandoned, to the property in dispute; a claim which is in dispute but which a court might well uphold. Assume further that he and his opponents in litigation are parties to an agreement by which a portion of that property is to be transferred by him to those on the other side of the dispute; but which also includes a requirement that - on breach by him of his obligations under it - he must not only forego those claims but also give up to the innocent party all the property over which his claim was made. That requirement might well be held to be a penalty.[27]

56 But that is not this case. It is true that Jan's legal title to some at least of the properties is, it seems, good according to the local law, he being the only member of the family who at the relevant time met the qualifications for ownership. But his position changes if there is no substance to the proposition that he has, or at all events at the time he entered into the settlement agreement had, a beneficial interest, overriding that of his siblings, in the property in question. And although counsel for the appellant has bravely clothed the skeletal frame of his case with the vestments of beneficial ownership, these, when subjected to examination, dissolve as floss before a candle.

57 Jan's problem is that, no matter how many barriers he may have erected against particular positions taken by the respondents, and no matter how many of their allegations he may have formally denied, he has never by evidence confronted the gravamen of their case. It is that he has received property the title to which has as its foundation nothing better than that he is the child of his parents. But his parents had not one, but three, children. Each of the other two assert a claim, the equal of that of their brother, to a beneficial interest in that property. By contrast, he has failed to advance even the semblance of an argument in support of the proposition that, once due allowance has been made for the trouble and expense he has incurred in the process of effecting the restitution of this property, his beneficial interest in it should trump that of his two siblings, Helena and Peter (or, rather, in the case of Peter, Peter's descendants) - in other words, the respondents.[28] They now assert their respective right to nothing more than the monetary value of a beneficial interest which, save for such diminution in it as an assessment of equitable damages may be found to be warranted, is equal to Jan's. There can be no penalty in paying that which, independently of the clause said to impose the penalty, is due to the payee.

58 Suppose that, in the settlement agreement, Jan had acknowledged that he had had transferred to him alone property which had belonged to his parents before its expropriation by the State. In the light of such an acknowledgement, his right to retain for himself, to the exclusion of his siblings, the beneficial interest in all of that property upon its subsequent restitution (not to his parents, now dead, but to him as merely one of their three children) would have been highly questionable. Were there an answer to that question, it was for Jan to provide it. But (to expand upon the present hypothesis) if Jan's entitlement to retain the beneficial interest in the restored property were questionable, whatever questions remained would have been swept away were he to have also accepted the fact that he and his siblings had agreed upon an equal distribution. Jan would then have been in an analogous position to someone who acknowledges his or her present indebtedness in a certain amount and, in return for the creditor's agreement to accept a lesser sum if paid by a certain date, agrees that, should the debtor default before the due date in performance of a number of obligations - some minor, others less so - the full debt will be paid immediately.

59 In this case, Jan has not explicitly conceded the facts upon which the hypothesis employed above is based. Indeed, in his defence, he denied that he entered into any agreement such as the respondents allege was finalised in March 1991. He also denied that he held the relevant properties in a fiduciary capacity and that he breached any fiduciary duty.

60 In argument on the appeal, counsel for Jan submitted that clause 6 of the settlement agreement operates on what he described as a 'synthetic' basis. As we understand the argument, it is that clause 6 contains no admissions at all. The Court must nevertheless assume certain facts to be true, albeit that they are in fact in contest, and on the (assumed) basis of their truth proceed to assess an amount which - if they were true - would be payable as equitable compensation. That, it was submitted, is a long way short of an admission.

61 Yet by agreeing to the settlement agreement, Jan not only did not deny, but positively asserted, that he held the legal interest in the properties described in clause 1. For without such an interest, he could not transfer them to the respondents. He could not, in other words, do the very thing which by the settlement agreement he was bound to do (ie, transfer the properties); or, failing that, to sell the properties and pay across the proceeds of sale.

62 From what is, in effect, an assertion of ownership, it is in this case a very short step (in the absence of any evidence to contradict the prima facie claim to equality of interest) to an admission that Jan's ownership was as a fiduciary for himself and the respondents. Indeed, it is in our opinion inevitable that Kyrou J should have reached the conclusion he did: that, by Jan's agreement (expressed in clause 6 of the settlement agreement) to the respondents' entitlement to the entry of judgment for an order that he pay equitable compensation for breach of fiduciary duty in respect of each of the properties recovered by him, Jan implicitly admitted all the facts necessary to support that entitlement. Given Jan's failure to explain how he acquired a beneficial interest superior to that of Helena or Peter in the clause 1 properties, and indeed in 'each of the properties ... (as defined in the amended statement of claim) recovered or obtained by him', and given, in particular, his failure to dispute by evidence the respondents' case that he acquired his interest through the process of restitution of property formerly owned by the parents of himself and his siblings, the proper construction of the settlement agreement leads inexorably to the conclusion that they contain an implicit admission of Jan's liability. And that liability, in turn, must be based upon the proposition that he held and holds the relevant property as a fiduciary for himself, for Helena, and for Peter's children.

63 It is not only that, without the admission, the entry of judgment (to which he explicitly agreed) would have no basis, and the purpose and object of the transaction would be defeated. It is also that, having regard to the text of the settlement agreement, and in particular to the circumstances known to the parties - the restitution of family property, with the family consisting of the three siblings - no conclusion is possible other than that Jan made the admission in question.

64 There are also the unchallenged findings of Osborn J, set out at paragraphs [11]-[12] above; findings which are consistent with the facts included in the hypothesis postulated in paragraph [58] above. The respondents' case is based upon them. They have given evidence consistent with it, and have been cross-examined on that evidence. The litigation has been running for years, with a myriad of opportunities for Jan to challenge the respondents' fundamental premises, and a myriad of reasons why, if it were possible to mount a credible challenge, he would have done so. He has not.

65 The admission being established, Kyrou J was correct in giving an affirmative answer to the question posed at paragraph 8 of his judgment: 'Are the [respondents] entitled to enter judgment for equitable compensation without having to prove that the [appellant] owed them a fiduciary duty or that he breached it?' But if they are so entitled, equitable compensation cannot be a penalty. For equitable compensation - given that it is compensation to which the person to be compensated is entitled - and a penalty, are by definition quite different.

66 The appellant took exception to what the appellant said was his Honour's finding that an amount of equitable compensation assessed by a court in accordance with equitable principles can never be a penalty. If, somehow, that compensation goes to one who is not entitled to it - the definition of 'equitable compensation' makes it difficult to think of a viable example - then the appellant's argument might succeed. But once the entitlement is established, as it is here, then (as his Honour held) 'it is simply not open to the [appellant] to seek to prevent the [respondents] from obtaining in this Court that which he irrevocably agreed they could obtain on the basis that any amount assessed by the Court would be a penalty'.[29]

67 Grounds 7 and 8(a) of the grounds of appeal therefore fail.

68 Ground 8(b) of those grounds alleges that Kyrou J incorrectly drew an analogy between the present case and that of Cameron v UBS AG.[30] We disagree.

69 Cameron was a judgment debtor. A Swiss court had given judgment against him for the equivalent in Swiss currency of $8.4 million. USB AG was the successor to the successful party in the Swiss proceedings. It sought, against Cameron's objection, to enforce the Swiss judgment in Victoria. The Victorian proceedings were settled on the basis that Cameron would pay $1 million in five equal instalments; but clause 3 of the terms of settlement provided that, if he defaulted in the payment of any one of these, UBS AG would be entitled to apply to reinstate the proceedings and to enter judgment for the amount of the Swiss judgment ($8.4 million). It was a further term of the settlement that Cameron would consent both to the reinstatement, and to judgment for the amount he was ordered by the Swiss court to pay.

70 Cameron was late in the payment of the first instalment. USB AG accordingly applied to the trial division of this Court for judgment in the sum of $8.4 million. It succeeded. Cameron appealed. He contended that clause 3 constituted a penalty.

71 The Court of Appeal (Winneke P and Phillips and Buchanan JJA) held unanimously that it did not. Winneke P was of the opinion that, by entering into the deed of settlement, Cameron implicitly acknowledged that the Swiss judgment debt was an existing debt which UBS AG had the right to enforce. By the deed, it forbore to exercise that entitlement. But there was a condition. In return for the forbearance, Cameron was required to pay - in accordance with a prescribed timetable - a lesser sum by instalments. He thereby gave up all of his claimed defences to the enforceability of the orders of the Swiss court. According to Winneke P, there was nothing inequitable or penal about such a compromise.

72 Phillips JA noted the general rule that, where a party to a contract is obliged by one of its terms to pay a sum of money to another upon a breach of the contract, the term will be unenforceable as constituting a penalty if the amount to be paid exceeds a genuine pre-estimate of the loss likely to be caused by the breach. But that is not to say that, if it is not a genuine pre-estimate of loss, a sum payable on breach must necessarily be a penalty. By the terms of settlement, Cameron secured to himself one last opportunity to pay a much lesser sum in full satisfaction of the claim made by UBS AG in reliance upon the Swiss judgment. For that opportunity Cameron bargained away any defence he had to enforce that judgment in Victoria. The terms of settlement had to be construed in the context of the 'considerable history' which led directly to those terms.[31] His Honour held that, in those circumstances, the requirement to pay $8.4m on failure to meet on time the obligation to pay an instalment of the lesser sum, was not imposed (as in the case of a penalty) 'merely to induce or compel compliance' with the latter obligation,[32] and was not, therefore, intended to secure for UBS AG 'a benefit or advantage which is altogether collateral to the purpose of the main agreement (because ex hypothesi it goes beyond mere compensation for the breach)'.[33] Accordingly, 'the consent to judgment [in Victoria] can be seen as doing no more than formalising a liability acknowledged, by implication, when the terms of settlement were agreed and the deed was entered into'.[34]

73 Buchanan JA agreed that the appeal should be dismissed for the reasons given by the President and Phillips JA. His Honour acknowledged that, despite the decision of the Swiss court, Cameron had maintained his denial of liability. It was nevertheless misleading to conclude that he remained free of any obligation until, as part of the settlement, he agreed to suffer judgment upon default. Rather, '[t]he substance of the transaction was that a claim based on a foreign judgment was compromised by [Cameron] agreeing to judgment for the amount of the claim, but obtaining an opportunity to satisfy the claim by paying [a] lesser sum by instalments'.[35] His Honour continued:

It was conceded by the appellant that if the deed had taken the form of an acknowledgment of the obligation to pay the amount of the Swiss judgment followed by a promise to pay a lesser sum and thereby satisfy the first obligation, no question of penalty would have arisen. In my view that was the effect of the deed when looked at as a whole. The substance of the matter was not affected by the manner of its drafting. A penalty did not arise because, instead of an acknowledgment 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.[36]

74 As we understand these judgments, they draw a distinction between, on the one hand, a provision intended 'merely to induce or compel compliance' with a contractual obligation and, on the other, a provision central to the purpose of the main agreement. A concession that a debt is owed or an obligation is due will, if the clause alleged to constitute a penalty provides for its discharge, point strongly if not conclusively to the conclusion that that clause is not a penalty. If other indicia point likewise to that clause being central to the main purpose of the bargain, because, for instance, it is central to the consideration offered by one party for the participation of the other in the contractual arrangements, then an argument that it does not amount to a penalty would be strengthened.

75 That, in our opinion, is the position in this case. The respondents bargained for the transfer to them of the properties identified in clause 1 of the settlement agreement. If a transfer were not possible, they were prepared to accept the value of those properties on their sale. These were ends which the appellant promised to effect; and he also promised, should he fail to fulfil any of the obligations placed upon him by those terms, to revert to an alternative basis for securing to the respondents that which was due to them - that is, to pay to them the monetary value, assessed on the basis that it was equitable compensation, of their interest in so much of the land as was returned to the family following the reversal of the decision to expropriate it from the siblings' parents.

76 This last promise was not, therefore, merely collateral to 'the purpose and object of the transaction'. It was not, in other words, collateral to the main purpose of the settlement. On the contrary, it was front and centre to that purpose. It was no more or less than a just reflection - clauses 1 and 3 of the settlement agreement encompassing alternative versions of the same thing - of that which Jan was in duty bound to accord to them. As such, it was also an alternative form of consideration given by Jan in return for the respondents ceding to him their proprietary interest in the properties.

77 Cameron v UBS AG may be compared with the Queensland case of Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd.[37] Judgment in the latter was given on 6 June 2000, whereas the Cameron judgment was delivered on 23 November that year. It appears that Zenith was not cited in Cameron, although both cases involved a deed of settlement in which one party agreed to pay the other a sum of money by instalments; and in both cases a clause of the deed provided that, if any instalment were not paid on the due date, the innocent party would be entitled to enter judgment for a larger sum. In Zenith that clause was held to be unenforceable as a penalty. In Cameron it was not.

78 The Court of Appeal of the Supreme Court of Queensland (Pincus JA, with whom White and Chesterman JJ agreed) distinguished the deed of settlement before it from one in which a stipulated sum is presently due but the debtor is granted an indulgence to pay by instalments. In those circumstances it is not a penalty for the creditor to provide, as a condition of granting the indulgence, that it would be withdrawn if the debtor defaulted in the payment of an instalment.[38] This principle, however, has no application where the stipulated sum is not owing as a present debt. And, the Court held, it was not owing in Zenith because it was no more than the amount claimed - but far from established as being due - under a contract to carry out engineering work. In Zenith, Queensland Crane and Machinery Pty Ltd had filed a defence disputing liability for certain of the sums making up the plaintiff's claim, and (by a counter-claim) it was further asserted that the work had been defective. The amount properly due was not established before the matter was settled on the basis that a sum considerably less than the amount claimed would be paid by instalments; but were any payment not made on the due date (time being of the essence) the plaintiff would be entitled to enter judgment for a stipulated sum, that being the full amount claimed, together with costs.

79 In our opinion, Zenith can be distinguished from both the present case and Cameron. In Cameron, as in the present case, there was a 'considerable history' from which the court could draw the compelling inference - even stronger in this case than in Cameron - that the provision attacked as being a penalty was not intended 'merely to induce or compel compliance' with a contractual obligation, but rather was not only 'central to the main purpose of the bargain' but also part of an implied admission that the so-called 'penalty' was in truth a sum of money or the fulfilment of an obligation independently owed to the party not in breach. These factors were not present in Zenith. There, the context in which - the historical setting against which - the settlement was reached did not allow the drawing of an inference such as that which, in Cameron, the Court was entitled to draw.

80 If we are wrong in concluding that Cameron may be distinguished from Zenith, then we would in any event follow Cameron. Not only is it a decision of this Court, but in our opinion it was correctly decided.

81 Ground 8(b)(i) of the grounds of appeal therefore fails.

82 Ground 8(b)(ii) relies on the fact that, unlike the terms in Cameron, the terms in the present case contained an unconditional release having immediate effect on execution. It is sufficient to say, in dismissing this ground, that we conclude, as did Kyrou J, and for the reasons which he gave, that the release in clause 8 does not affect the rights conferred on the respondents to enter judgment for equitable compensation.

83 Nor can ground 8(b)(iii) succeed. One may without hesitation accept, as the appellant correctly points out, that a single lump sum payable by way of compensation on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage, will often qualify as a penalty. But if the sum payable is a sum to which the creditor is entitled, subject only to his or her agreement to accept a lesser sum if certain undertakings of differing importance are fulfilled, then failure to honour even a minor promise may trigger the obligation to pay the whole.[39] And no penalty would be involved even though the damage suffered by the creditor might be negligible. It cannot be a penalty to be required to pay what is due.

84 In this case the respondents are, as the facts establish and as Jan has in effect conceded, entitled (subject to the terms of settlement and after taking into appropriate account his trouble and expense in obtaining restitution) to an equal share in the restored property. On breach of the terms, that entitlement translates into the right to equitable compensation for the appellant's denial of it. By analogy with the case of the defaulting debtor, it matters not - once the right is established - that the triggering breach is of the most minor kind. No penalty can arise.

85 There is nothing in this conclusion which conflicts with the decision of the House of Lords in Dunlop Pneumatic Tyre Co Pty Ltd v New Garage & Motor Co Ltd.[40] In the course of delivering the leading speech in that case, Lord Dunedin noted the presumption (it is, as his Lordship observed, no more than that) that a contractual term will be a penalty when 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage'.[41] In the present case, the presumption is inapplicable because, in truth, the amount awarded as equitable compensation is more akin to a liquidated sum to which the respondents are entitled as a matter of proprietary right than it is to an unliquidated amount payable in a lump sum by way of compensation. In other words, the amount awarded merely embodies one of the forms by which the respondents are entitled to receive their share of their parents' (or grandparents') former property, now restored to the family.

86 This being so, grounds 8(c), 8(d) and 8(e) of the grounds of appeal must fail. The entitlement to equitable compensation properly arises not as a penalty but as the consequence of the fact that any breach by Jan of the settlement agreement will result in the respondents' interest in the property coming to them in the form of equitable compensation rather than in one of the alternative forms (as described in, respectively, clauses 1 - a transfer of the properties there listed - and 3 - the proceeds of sale of those properties). On any view, the respondents are entitled to one of these three alternatives. That they receive equitable compensation rather than either of the other alternatives cannot, therefore, result in any penalty.

87 Counsel for Jan submitted that equitable compensation amounted to a penalty because the amount calculated as such compensation exceeded the value of the land described in clause 1 of the settlement agreement. Kyrou J dismissed this contention on two bases. First, because it represented one of the three alternatives to which we refer above, and the respective values of those alternatives are therefore irrelevant;[42] and secondly because, on one valid view of the evidence, if clause 6 of the settlement agreement were the relevantly operative provision, the respondents would receive equitable compensation of some €9 million, whereas were clause 1 or clause 3 to be the mechanism by which their entitlement be received, they would acquire either property worth some €16 million or an equivalent amount representing the sale price of those properties. The receipt of a lesser sum cannot be a penalty.

88 In summary, it is our opinion that Kyrou J was correct in holding that, by executing the settlement agreement, Jan agreed that, if he breached the terms of the agreement, the respondents would be entitled to enter judgment for an order that the appellant pay equitable compensation for breach of fiduciary duty in respect of each of the relevant properties and interests (that is, to the remedy provided for by clause 6 of the settlement agreement) on the basis that he was to be taken as having admitted the respondents' allegations in so far as they supported their entitlement to that remedy.[43] For this reason, and those given in more detail above, the final ground of the grounds of appeal, ground 9, would also fail.

89 We add that we also agree with Kyrou J in his analysis of the relevant authorities, including his conclusion that in Ringrow Pty Ltd v BP Australia Pty Ltd,[44] the High Court confirmed that the basic principles governing the law of penalties in Australia are derived from the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd.[45]

90 As we have said, counsel for Jan sought leave for the admission of new evidence relating to alleged breaches of undertakings made by the respondents.

91 The undertakings were made in the following circumstances. On 22 February 2008, prior to the delivery of reasons by Osborn J on the preliminary issue of liability, the respondents commenced proceedings against Jan in the District Court of Prague seeking relief arising from alleged breaches of the settlement agreement. (We describe these as the 'parallel proceeding'.) The first application for dismissal or a permanent stay of the parallel proceeding was heard by Osborn J on 28 April 2008 and was dismissed on 26 June 2008, on the basis that the respondents undertook not to take any further steps in the parallel proceeding.

92 In January 2009, Jan made a second application for a stay, in which he claimed that the undertakings already given were ineffective to prevent the further conduct of the parallel proceeding. Expert evidence was given that the District Court of Prague could proceed on its own motion to make a decision without the respondents taking any further steps. Kyrou J dismissed the second application on 11 March 2009 on the basis of further undertakings given by the respondents. The terms of one of the undertakings was:

The Plaintiffs will instruct their Czech attorneys to take whatever steps are properly open to them to notify the District Court of these undertakings and also to report to them upon the steps so taken. The Plaintiffs will inform the Defendant and the Court of those steps in a timely way.

93 On 13 July 2010, Kyrou J ordered that the respondents file and serve an affidavit setting out the steps they had taken to comply with this undertaking. In the Joint Summary of Facts prepared for the purposes of this appeal, the parties agreed that the affidavit filed and served by some of the respondents on 4 August 2010 disclosed that the District Court had not been notified of the second set of undertakings.

94 Counsel for Jan submitted that it would have been open to Kyrou J to find that the breach of the undertakings was not the result of an oversight, but the product of the respondents' deliberate decision to keep both the Czech and the Victorian proceedings on foot. If the undertakings had not been made, the trial division proceedings would almost certainly have been stayed and the judgments appealed from would never have been entered. This was a case in which judgment was obtained by 'surprise, malpractice or fraud'[46] and for that reason, the trial division judgments (or at least the judgment of Kyrou J) should be set aside.

95 In the alternative, it was submitted that the new evidence was admissible in the interests of justice, because the failure to comply with the undertakings was concealed from the trial judge.

96 The respondents' counsel submitted that the respondents had acknowledged that their Czech lawyers failed to notify the Czech court of the undertaking and had apologised to the Court for the breach. Counsel submitted that:

The explanations are that they were given certain advice about the sensitivity of Czech lawyers and the Czech court and that they thereafter became distracted by the behaviour of the Appellant who divested himself of the Czech properties which have been the subject matter of proceedings in this Court.

97 In affidavits sworn or affirmed in August 2010, Helena's litigation guardian, Alexandra, Rowena and Martin deposed that:

The other Plaintiffs and I received advice from Mr Hlavička [ie, their attorney in the Czech Republic] and we formed the view that he did not believe it was appropriate for him to send copies of our Undertakings to the District Court in Prague, but that he may do so if we specifically instructed him to do so. I object to producing Mr Hlavička's advice on the grounds of legal professional privilege.

I was puzzled and confused by Mr Hlavička's advice and sought further legal advice from Mr Hlavička and Counsel representing me in this Proceeding. It became apparent that Mr Hlavička was emphatic that it would not be proper for him to send copies of our Undertakings to the District Court in Prague. I formed the view that Czech lawyers would consider that the District Court would regard our Undertakings as being entirely irrelevant to the matters before it and possibly an attempt to influence the Court in an improper way. As a result I was conscious of the possibility of potentially insulting the District Court in Prague, however I did not wish or intend to insult the Supreme Court of Victoria either. I object to producing the advice I have received; it is privileged.

I acknowledge that in spite of Mr Hlavička's advice, I could have insisted that he forward a copy of my Undertaking to the District Court in Prague. I also acknowledge that I could have sent a copy of my Undertaking to the District Court in Prague myself. However, I was reluctant to act directly against the legal advice I had been given without giving the matter further thought and consideration.

The process of seeking further advice regarding this matter and considering what action I should take was overtaken by subsequent events. On 11 June 2009, before I had obtained further legal advice regarding provision of my Undertaking to the District Court in Prague, I learnt that the Defendant had divested himself of the Czech Properties and donated them, by way of gift, to his sons David Talacko and Paul Talacko. Thereafter, I was very involved in three months of proceedings relating to steps taken against the Defendant, including injunction proceedings, freezing order proceedings, contempt proceedings, the securing of a valuation report, the commencement of Supreme Court of Victoria Proceeding No 7819 of 2009 and the possibility of ancillary proceedings in the Czech Republic. I was then engaged in the preparation for and the conduct of the trial of this matter in October and November 2009, and receiving judgment in December 2009, with the consequential hearings on interest and costs.

From early June 2009, I formed the view that there was little that could be done in the Czech Petition proceeding anyway since the Defendant had divested himself of the Czech Properties. I was completely distracted from the question of the Undertakings.

From January 2010, I was further distracted by and involved in issues relating to whether the Defendant would be further restrained within the jurisdiction, the interlocutory steps in Proceeding No 7819 of 2009, execution of the judgment obtained in this Proceeding, the issuing of bankruptcy notices following upon the Defendant failing to pay the judgment debt, and then the issuing of bankruptcy proceedings in the Federal Court of Australia. The Czech Petition proceeding was not at the forefront of my considerations. I sincerely apologise to this Honourable Court for my failure to provide a report on the matter.

98 It was further submitted that the explanation for breach of the undertaking was reasonable and justified clemency and that, in any case, no substantive steps were taken by the Czech court while the proceedings were under way in the trial division. The respondents' counsel contended that Jan must have been aware that no report had been made to him as required by the undertaking, but he had not previously raised that matter with the respondents or the Court. This indicated that the breach of undertakings had not prejudiced him.

99 In addition, there was no prejudice to Jan because the parallel proceeding in the Czech court had subsequently been withdrawn. Finally, counsel for the respondents submitted that, even if the trial judge had been aware of the breach of undertaking, this would not necessarily have resulted in a dismissal of the proceedings below, because the respondents could then have been ordered to withdraw the parallel proceeding.

100 Appellate courts are reluctant to set aside a judgment simply because new evidence has come to light. As Dixon CJ said in Council of the City of Greater Wollongong v Cowan:[47]

If cases are put aside where a trial has miscarried through misdirection, misreception of evidence, wrongful rejection of evidence or other error and if cases of surprise, malpractice or fraud are put on one side, it is essential to give effect to the rule that the verdict, regularly obtained, must not be disturbed without some insistent demand of justice. The discovery of fresh evidence in such circumstances could rarely, if ever, be a ground for a new trial unless certain well-known conditions are fulfilled. It must be reasonably clear that if the evidence had been available at the first trial and had been adduced, an opposite result would have been produced or, if it is not reasonably clear that it would have been produced, it must have been so highly likely as to make it unreasonable to suppose the contrary. Again, reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the first trial.[48]

101 In Commonwealth Bank of Australia v Quade,[49] the High Court[50] referred to the above passage and said:

The words 'rarely, if ever' in the above passage leave open the possibility of exceptional circumstances justifying a departure from the general rule even in the class of case to which the general rule is directed. It is not, however, necessary to pursue that aspect of the matter for the purposes of the present case. Nor is it necessary to consider whether the somewhat obscure qualification expressed by Dixon CJ in the words 'or, if it is not reasonably clear that it would have been produced, it must have been so highly likely as to make it unreasonable to suppose the contrary' represents other than an illusory relaxation of the primary test (ie 'reasonably clear that ... an opposite result would have been produced').[51]

102 Where a judgment has been obtained by fraud,[52] or, in the absence of fraud, where there is a real possibility that, if undisclosed evidence had been before the court, a different result would have been reached,[53] the judgment may be set aside. In our view, the fraudulent or innocent non-disclosure of evidence is not analogous to the breach of an undertaking made in the course of proceedings.[54]

103 Even if the breach of an undertaking could, in exceptional circumstances, lead to the setting aside of a judgment, it would be mere speculation to conclude that Kyrou J would not have made orders for equitable compensation in favour of the respondents, if his Honour had been aware that the respondents had (perhaps inadvertently) breached the undertaking they had given not to pursue the parallel proceeding. There was no 'real possibility' that this would have occurred. If this matter had been drawn to his Honour's attention in the course of proceedings, the respondents might have been required to withdraw the parallel proceeding before judgment was delivered in the trial division. The respondents have now done so. For these reasons, we would dismiss the application for admission of new evidence as to the breach of undertaking and for leave to amend the grounds of appeal.

104 Breach of an undertaking may amount to a contempt of court.[55] Order 75 of the Supreme Court (General Civil Procedure) Rules 2005 sets out the procedure in

contempt proceedings. Under r 75.06, an application to punish a party to proceedings for contempt is to be made by summons, to be served personally on the respondent. In order to determine whether the breach was contumelious or accidental, the parties would have to give evidence and be cross-examined. It might also be necessary for the parties to call experts as to the reasons given by the respondents' Czech lawyers for the failure to advise the District Court of Prague of the undertakings given to this Court. During the hearing of the appeal, it was drawn to counsel's attention that the appropriate process for punishing a contempt of court would be for Jan to make an application by way of summons under r 75.06.

105 I have had the benefit of reading the draft joint reasons of Neave and Harper JJA with which I agree.

[1] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[2] The only property in dispute is that acquired by Jan by the process of restitution and does not include property purchased by him.

[3] Talacko v Talacko [2008] VSC 128 ('Osborn J reasons'), [13]-[21].

[5] These are set out at [18] and [19] below.

[6] Talacko v Talacko [2009] VSC 533 ('Kyrou J reasons').

[8] Grounds of appeal 7 and 8(a), (c) (d) and (e).

[10] The version of the settlement agreement typed for inclusion in the Appeal Book interpreted the original handwritten agreement as providing for a full stop after the word properties and capitalisation of the following word. On closer inspection of the handwritten agreement, it appears that there was neither a full stop nor capitalisation. Nothing turns on this.

[12] Jan also contended that he had not breached the agreement because the respondents had not nominated a transferee or presented the documents for transfer of the Dresden property to Jan for signature within the 12 month period.

[17] As well as deposing to other matters, Martin repeated the contents of his witness statement filed in the discontinued proceeding before Ashley J.

[18] The respondents also relied on an affidavit of 13 May 2008 (ie, after Osborn J delivered his reasons) sworn by Alexandra Bennett which contains material about a letter she received from her father Peter, when he visited Czechoslovakia in 1991 in which he said that he had been 'chasing paper in relation to the properties' and that Helena and Jan would not have given up their entitlements 'unless they expected to have a reasonable share of family property'.

[20] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[21] The law as to the admissibility of evidence of subsequent conduct as an aid to interpretation of contractual terms is uncertain: N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract (9th ed, 2008), [10.16]. See Administration of Papua New Guinea v Daera (1973) 130 CLR 343, 446 (Gibbs J); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 348 (Mason J); FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343 (Brooking, Nathan and Eames JJ); Ryan v Textile Clothing & Footwear Union of Australia [1996] VicRp 67; [1996] 2 VR 235, 261-2 (Hayne JA); but cf Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290, 304-12 (Santow J); Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, 315-16 (Kirby P), 326-8 (Priestly JA).

[24] See, eg, ibid [86], [87], [93].

[25] See [21] above.

[26] Ground 9 was abandoned, but see also [88] below.

[27] See, eg, Zenith Engineering Pty Ltd v Queensland Crane & Machinery Pty Ltd [2000] QCA 221; [2001] 2 Qd R 114.

[28] Of course, if the settlement agreement were implemented as originally intended, Jan would acquire interests, exclusive of any interest of the respondents, in so much of the relevant land as is not described in clause 1.

[30] [2000] VSCA 222; (2000) 2 VR 108 ('Cameron').

[37] [2000] QCA 221; [2001] 2 Qd R 114 ('Zenith').

[38] The Protector Endowment Loan and Annuity Co v Grice (1880) 5 QBD 592.

[40] [1914] UKHL 1; [1915] AC 79.

[41] Ibid 87, citing Lord Watson in Lord Elphinstone v Monkland Iron & Coal Co (1886) 11 AC 332.

[44] [2005] HCA 71; (2005) 224 CLR 656.

[45] [1914] UKHL 1; [1915] AC 79.

[46] Commonwealth Bank of Australia v Quade (1991) 178 CLR 134, 140-1 (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ); Foody v Horewood [2007] VSCA 130.

[47] [1955] HCA 16; (1955) 93 CLR 435.

[48] Ibid 444 (Williams, Webb, Kitto and Taylor JJ concurring).

[50] Mason CJ, Deane, Dawson, Toohey and Gaudron JJ.

[52] For the test to be applied in setting aside a judgement for fraud see Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, 538-9 (Kirby P, Hope and Samuels JJA concurring); Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691.

[53] Quade (1991) 178 CLR 134, where the Commonwealth Bank had failed to discover a substantial number of relevant documents which were in its possession.

[54] The deliberate making of an undertaking without any intention to fulfil it might perhaps amount to fraud, but there is no evidence that this occurred here.

[55] Cf Morgan v Victoria [2008] VSCA 267; (2008) 22 VR 237, 253-4 (Nettle and Ashley JA, with whom Pagone AJA agreed).