Has there been an accord and satisfaction?
77As against Mr Todd, Jingalong submitted that Mr Todd was not entitled to maintain these proceedings because the Settlement Agreement (see paragraph [48] above) constituted an accord and satisfaction. Jingalong referred to the classic statement of the law in this area in McDermott v Black [1940] HCA 4; (1940) 63 CLR 161. Mr Todd submitted that, in the absence of performance of the Settlement Agreement, Jingalong had no entitlement to a judgment against him arising from the Settlement Agreement. Having regard to the relevant legal principles (set out in the next paragraph), I understood this to be a submission that the Settlement Agreement was an accord executory. Mr Pernice submitted that where, as both Mr Todd and Mr Pernice contended, Jingalong (through Mr Cameron) had committed a fraud in the manner in which it had acquired title to the Land, Jingalong should not be allowed to rely upon the Settlement Agreement. In any event, Mr Pernice submitted that the Settlement Agreement did not apply because it made no express provision for what was to occur if its terms were not fulfilled and no term to deal with that contingency could be implied. It was submitted that the effect of the Settlement Agreement was that if its terms were not complied with, the proceedings just went on.
78While the foundational principles in relation to accord and satisfaction are undoubtedly set out by the High Court in McDermott v Black, I respectfully adopt as a correct statement of the current law the decision of the Supreme Court of Western Australia Court of Appeal (comprising Newnes JA, Murphy JA and Mazza J) in Scaffidi v Perpetual Trustees Victoria Ltd [2011] WASCA 159 ("Scaffidi"):
Accord executory, accord and satisfaction, and accord and conditional satisfaction
26 Dixon J in McDermott v Black (183 - 185), said:
The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one.
...
The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.
27 As Keane J observed, however, in Blue Moon Grill Pty Ltd v Yorkey's Knob Boating Club Inc [2006] QCA 253 [20], what is important is to focus on what the parties have agreed, rather than the categorisation of their agreement as either an accord and satisfaction or an accord executory. The classification of agreements itself depends on a true appreciation of the effect of the terms agreed between the parties and the binary classification of agreements is not always adequate.
28 An accord executory, whereby a promisor promises to abandon a claim or cause of action in exchange for some active performance by the promisee is a type of unilateral contract: see the discussion in Sneddon M C and Ellingham M P, Cheshire and Fifoot's Law of Contract (9th Aust ed [4.24]).
29 The inadequacy of the binary classification into accord executory and accord satisfaction was referred to by Fullagar J in Scott v English [1947] VicLawRp 67; [1947] VLR 445.453:
The essence of the matter may be said to be that a mere 'accord' is not a contract at all. But, if we find in any particular case that there is a contract - a promise accepted in 'satisfaction' against a promise - our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action ... The question is likely to arise wherever a time is fixed for performance of the defendant's promise. In the present case, where a time is so fixed, if the compromise is a mere accord, the plaintiff could sue on the original cause of action at any time before acceptance of performance; he would not be bound to accept performance. If, on the other hand, the compromise is a new contract, he cannot sue on the original cause of action unless the time for performance has passed and there is no performance. But, if the time for performance by the defendant has passed and there is no performance, can he sue only on the new contract, the original cause of action being absolutely discharged by the new contract, or can he, at his option sue for breach of the new contract, or, rescinding the new contract, proceed on his original cause of action? The question, I think, is to be decided as a matter of construction of the new contract.
30 Fullagar J's observations were approved and applied in Nissho Iwai (Australia) Ltd v Shrian Oskar [1984] WAR 53. See also Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93, 114 (Dixon CJ & Fullagar J), 150 (Taylor J).
31 Fullagar J's reasoning was summarised by Phillips JA in Osborn v McDermott (1998) 3 VR 1, 10, who said that:
[H]is Honour contemplated a case in which the accord amounted to an immediately enforceable agreement (which suggests that there was accord and satisfaction), but that the 'satisfaction' (the discharge of existing obligations) was itself only conditional, suspending the original cause of action, but not extinguishing it, unless and until performance by the defendant according to the tenor of the agreement.
32 Phillips JA described the three categories of compromises in the following way (10 - 11):
Thus, there are three possibilities, not two. First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff's existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.
Where there is a mere accord executory, no suit can be maintained upon the compromise unless and until there has been performance, and then suit is ordinarily unnecessary. Upon default in performance, the plaintiff's existing cause of action continues unaffected. With accord and satisfaction, either party may sue upon the compromise, but only on the compromise and for nothing else: the original cause of action has gone. Where there is accord and conditional satisfaction, the plaintiff is bound to await performance and accept it if tendered, but if there be no performance, then the plaintiff may proceed according to general principles called into play when any agreement is repudiated: the plaintiff may either treat the agreement (the accord) as at an end and proceed on his original cause of action; or he may, at his option, sue on the compromise agreement, in place of the original cause of action. (emphasis added)
33 In Nissho Iwai v Shrian Oskar Brinsden J referred in similar terms to the position of a plaintiff under a compromise agreement involving, in effect, an accord and conditional satisfaction (58):
I am of the opinion that [the compromise] was no mere accord executory but a contract intended to create new antecedent obligations, but effected no absolute discharge of the cause of action but only if the defendant performed his promise. The defendant in this case failed to perform his promise and so that left the plaintiff in the position that it could sue on the new contract or rescind the new contract and proceed on the original cause of action.
See also Buseska v Sergio (1990) 102 FLR 157, 159.
79In approaching this question, I particularly adopt the observation of Keane J (then sitting as a judge of the Queensland Court of Appeal) referred to in Scaffidi that it is always important to focus on what the parties have in fact agreed and that to fit the agreement into a binary (or ternary) classification of agreements is not the primary task.
80In construing the Settlement Agreement in accordance with the usual principles of objective contractual construction, these features are significant:
(1)As is apparent from many cases considering the application of the principles in Masters v Cameron (1954) 91 CLR 353, the description "Heads of Agreement" is, at best, not determinative and, at worst, merely ambiguous on the question of whether a document so described evinces an intention on the part of the parties to be immediately legally bound. Any doubt in this case is not resolved by Clause 8 of the Settlement Agreement ("These heads of agreement have effect unless any later deed is entered into by the parties") because, in the context, I am not satisfied "effect" can be automatically construed as "legal effect". However, I will assume the Settlement Agreement was intended to have legal effect because the ultimate result is the same whatever view is taken on this point.
(2)Clauses 2,3 and 4 of the Settlement Agreement, relating to Mr Todd's debt of $30,000 to Mr Cameron, do not assist in objectively determining what the parties' intention was in relation to the various causes of action asserted in these proceedings. This is because Mr Cameron was not a party to the proceedings and there was no claim in the proceedings in relation to the $30,000. There may have been a question about the enforceability of clauses 2, 3 and 4 of the Settlement Agreement for want of consideration, but as judgment was entered against Mr Todd in reliance on those clauses (see paragraph [54] above) in his absence (although he was undoubtedly on notice of the occasion), he was not there to take the point.
(3)The Settlement Agreement nowhere refers in terms to the release of rights or a promise not to sue upon any cause of action the subject of these proceedings.
(4)Clause 7 of the Settlement Agreement provided:
The parties agree that upon payment of the amounts referred to in 1 [the purchase price for Lot 1] and 2 [the $30,000 from Mr Todd to Mr Cameron] above they will execute consent minutes in proceedings No 2012/344643, including the first cross claim be dismissed with no orders as to costs.
That provision is not entirely clear. Beyond referring to what was to happen to the First Cross-Claim (Mr Pernice's cross-claim against Jingalong and Mr Todd) it did not specify the balance of the terms of the "consent minutes". I will assume, without deciding, that the parties intended for consent minutes to be entered into dismissing the proceedings in all their aspects with no order as to costs. Nevertheless, what is clear is that the obligation to execute consent minutes did not arise until payment of both of the sums referred to. Neither of those sums was in fact paid.
(5)While the Settlement Agreement made express provision for what was to occur if Mr Todd did not pay Mr Cameron the $30,000 (the entry of judgment), it made no express provision as to what was to occur if the purchase of Lot 1 did not occur. No party suggested that any term could be implied to deal with that eventuality. They were correct not to make such a submission.
81Taking all those matters into account, especially the absence of both any language of release or forebearance to sue and any provision as to what was to occur if any of the payments for Lot 1 were not made, on its proper construction the Settlement Agreement was no more than an agreement to the effect that if the payments were made, the parties would dispose of the proceedings in the (albeit less than clear) manner specified in Clause 7 of the Settlement Agreement. There is nothing in the language of the Settlement Agreement to support the conclusion that immediately upon its execution the parties intended to extinguish whatever causes of action existed between them and replace them with their rights under the Settlement Agreement. On the contrary, it expressly provided that the extinction of their rights would only occur upon performance of the payment obligations in the Settlement Agreement, that extinction to occur by the execution of the "consent minutes" referred to in Clause 7. I accept Mr Pernice's submission that, given the Settlement Agreement has nothing to say about what was to occur to the proceedings if the requisite payments were not made, then the parties' causes of actions remained intact and, as in fact occurred, the proceedings had to continue to hearing.
82To the extent that there is any utility in categorising the Settlement Agreement in accordance with the jurisprudence set out in paragraph [78] above, it is an example of a mere accord executory. To paraphrase Phillips JA, the Settlement Agreement does not constitute a contract and is unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the parties' existing causes of action are discharged. As Philips JA goes on to observe, "Where there is a mere accord executory, no suit can be maintained upon the compromise unless and until there has been performance, and then suit is ordinarily unnecessary. Upon default in performance, the plaintiff's existing cause of action continues unaffected". The matter may be explained in this way. It is clear upon the proper construction of the Settlement Agreement that if the payments referred to in Clause 7 were tendered on or before 13 May 2013 (and not until that occurred), then Mr Pernice would have been able to compel Jingalong to transfer Lot 1 to him. Any of the parties could also then have compelled the other parties to execute the "consent minutes" (assuming there was sufficient clarity as a matter of construction about what those "consent minutes" should contain).
83For these reasons the Settlement Agreement does not prevent Mr Todd from maintaining these proceedings against Jingalong, nor does it otherwise afford any other defence to Jingalong against Mr Todd's claim. The question of whether Jingalong is entitled to damages for Mr Todd's breach of the Settlement Agreement is dealt with in paragraphs [97] and following below.