Jingalong Pty Limited v Todd

1. [1]

   MEAGHER JA: I agree with Sackville AJA.

2. [2]

   LEEMING JA: I agree with Sackville AJA.

3. [3]

   SACKVILLE AJA: The principal issue in this appeal is whether Heads of Agreement dated 12 March 2013 (Settlement Agreement), entered into by parties to proceedings in the Equity Division, constitutes a binding and enforceable contract. The appellant (Jingalong) relies upon the Settlement Agreement to defeat claims made by the first respondent (Mr Todd) and the second respondent (Mr Pernice) to hold interests in land at Nowra of which Jingalong is the registered proprietor (Property).

4. [4]

   The interest claimed by Mr Todd relates to a portion of the Property comprising 100 acres, referred to in the proceedings as Lot 1. Mr Pernice also claims to be entitled to an interest in Lot 1, but there is in substance no dispute between Mr Todd and Mr Pernice that if Mr Todd is entitled to require Jingalong to transfer Lot 1 to him he will nominate Mr Pernice as the transferee.

5. [5]

   The primary Judge (Kunc J) held that the Settlement Agreement was an “accord executory” which was unenforceable “giving rise to no new rights and obligations pending performance”: Todd v Jingalong Pty Ltd [2014] NSWSC 362 at [82]. Since Mr Todd chose not to comply with the terms of the Settlement Agreement, his Honour held that there had been no performance. It followed that the Settlement Agreement did not prevent either Mr Todd or Mr Pernice from pursing their pre-existing causes of action against Jingalong in respect of Lot 1.

6. [6]

   Having reached this conclusion, the primary Judge considered the claims of Mr Todd and Mr Pernice on their merits and upheld them. His Honour made a declaration that Jingalong holds Lot 1 on trust for Mr Todd and, subject to Mr Todd reimbursing certain expenses to Jingalong, ordered Jingalong to execute a transfer of Lot 1 in favour of Mr Todd. His Honour also made an order requiring Mr Todd to nominate Mr Pernice as the transferee, provided that Mr Pernice paid $20,000 to Mr Todd within 14 days of the judgment. The sum of $20,000 represented the unpaid balance of the purchase price of $300,000 agreed between Mr Todd and Mr Pernice, the latter having paid instalments to Mr Todd amounting to $280,000.

7. [7]

   On the appeal, Jingalong accepts that if the Settlement Agreement is not binding and enforceable, the appeal must be dismissed. Jingalong says, however, that the primary Judge erred in concluding that the Settlement Agreement was an accord executory. According to Jingalong, his Honour should have held that the Settlement Agreement, upon execution, was binding on the parties and operated to satisfy the claims against Jingalong made by Mr Todd and Mr Pernice. I refer later (at [37]) to the orders sought by Jingalong if the appeal is allowed.

8. [8]

   Mr Todd supports the primary Judge’s holding that the Settlement Agreement was an accord executory which, in the absence of performance, did not discharge Mr Todd’s cause of action against Jingalong. Mr Pernice also supports the primary Judge’s construction of the Settlement Agreement.

9. [9]

   I have concluded that the Settlement Agreement is binding and enforceable. Accordingly, the claims made by Mr Todd and Mr Pernice against Jingalong have been satisfied.

Background

1. [10]

   The primary Judge made detailed findings of fact which resolved a number of conflicts in the evidence. The following is a somewhat simplified outline of a rather complicated factual background.

2. [11]

   Prior to 2000, Mr Todd was the registered proprietor of the Property. From about 2000, he worked on a plan to subdivide the Property. The plan provided for the creation of Lot 1, although the subdivision was to proceed in stages.

3. [12]

   In late 2002 or early 2003, Mr Todd and Mr Pernice entered into an oral agreement under which Mr Pernice agreed to purchase Lot 1 for $300,000, payable by instalments. This agreement was never reduced to writing.

4. [13]

   Between June 2003 and August 2007, Mr Pernice paid Mr Todd instalments amounting to $280,000 towards the agreed purchase price of $300,000. Mr Pernice also carried out a number of improvements to Lot 1, which he apparently used as a hobby farm. The primary Judge found (at [12]) that Mr Pernice was ready, willing and able to pay the balance of the purchase price ($20,000) to Mr Todd. It was this amount that was specified in the orders to which I have referred (at [6] above).

5. [14]

   By about 2003 Mr Todd had only partially completed the roadworks that were required for the subdivision of part of the Property that included Lot 1. At this stage, Mr Todd became concerned that he would be unable to complete the subdivision. He entered into discussions with a Mr Poulton with a view to Mr Poulton buying the Property. The discussions proceeded on the basis that Mr Todd would make further contributions towards the construction of roads and Mr Poulton would agree that Mr Todd or his nominee could receive a transfer of Lot 1 for a consideration of $1.00.

6. [15]

   On 22 December 2005, Mr Todd entered into a written contract of sale to sell the Property to Mr and Mrs Poulton for $1.4 million (Poulton Contract of Sale). The Poulton Contract of Sale included a special condition that, upon completion of the subdivision, the purchasers would transfer Lot 1 to Mr Todd or his nominee for the agreed sum of $1.00.

7. [16]

   The Poultons subsequently encountered difficulties in completing the subdivision of the Property despite Mr Todd contributing additional funds and materials for the required roadworks. Mr Poulton informed Mr Todd that the mortgagee, Westpac, was threatening to repossess the land. This advice prompted Mr Todd to lend significant sums to Mr Poulton to assist in completing the works required for the subdivision.

8. [17]

   In mid 2010, Mr Todd became aware that Mr Poulton was having contracts prepared for the sale of the Property in order to discharge the debts incurred by Mr Poulton and his wife. On 23 June 2010, Mr Todd lodged a caveat over the Property claiming an equitable interest in Lot 1 pursuant to the terms of the Poulton Contract of Sale.

9. [18]

   In October 2010, Mr Todd introduced Mr Poulton to Mr Cameron, a director of Jingalong. Mr Todd effected the introduction because he understood that Mr Cameron was willing to consider providing funds to enable the subdivision project to be completed.

10. [19]

    In late November 2010, Mr and Mrs Poulton entered into a Joint Venture Agreement (JVA) with Jingalong. The details of the JVA are not presently relevant, except that the terms expressly acknowledged Mr Todd’s interest in Lot 1. Mr Todd was not a party to the JVA, although he was given a copy of it.

11. [20]

    On 18 February 2011, the first stage of the subdivision of the Property was registered. The first stage of the subdivision was known as Lots 5 and 6 of DP 1161782 (First Subdivision) and incorporated Lot 1.

12. [21]

    Following registration of the First Subdivision, Mr Todd continued to provide materials for the roadworks required for the second stage of the subdivision. He also continued to discuss the project with Mr Poulton and Mr Cameron. As the result of one such discussion with Mr Cameron, Mr Todd agreed to withdraw his caveat so as to permit a sale of part of the Property to Jingalong.

13. [22]

    On 25 October 2011, Jingalong and the Poultons entered into a Deed of Settlement (2011 Deed). The 2011 Deed provided for the parties to enter into a contract for the sale of Lot 5 (part of the First Subdivision, including Lot 1) to Jingalong. The purchase price for Lot 5 was $500,000.

14. [23]

    The primary Judge found (at [42]) that Mr Cameron never intended Jingalong to give effect to Mr Todd’s entitlement under the Poulton Contract of Sale to receive a transfer of Lot 1 for $1.00. His Honour also found (at [43]) that Mr Todd would not have withdrawn the caveat over the Property if he had known of Mr Cameron’s intentions.

15. [24]

    On 30 November 2011, Jingalong became the registered proprietor of lot 5. Shortly thereafter, Mr Cameron told Mr Todd that any issue concerning Lot 1 was a matter between Mr Todd and Mr Poulton.

16. [25]

    On 22 August 2012, Mr Todd lodged a further caveat over Lot 5 claiming an equitable interest in Lot 1 (Second Caveat). On 22 October 2012, a lapsing notice was issued in respect of the Second Caveat.

17. [26]

    On 16 November 2012, Mr Todd commenced proceedings against Jingalong and Mr Pernice. By an amended statement of claim filed on 18 February 2013 (ASC), Mr Todd sought an order extending the time for expiration of the Second Caveat. He also sought declarations that he was entitled, as against Jingalong, to the benefit of the right to purchase Lot 1 for $1.00 and that Jingalong held Lot 1 in trust for him. In addition, Mr Todd sought a declaration that he was entitled to nominate Mr Pernice as the person “entitled to have the benefit of the declaration” concerning the right to purchase Lot 1 (Order 2A).

18. [27]

    Mr Todd pleaded that Jingalong had been party to the arrangement whereby Mr Todd was entitled to receive a transfer of Lot 1 for $1.00 once the subdivision was effected. Mr Todd alleged, among other things, that Jingalong had acted unconscionably in asserting that it held the Property free of Mr Todd’s beneficial interest in Lot 1 and that Jingalong had acted fraudulently in obtaining registration of its interest while denying Mr Todd’s interest in Lot 1. Mr Todd pleaded that Jingalong had not acquired an indefeasible title to the Property, notwithstanding its registration as proprietor, since fraud is an exception to the indefeasible title of the registered proprietor pursuant to s 42 of the Real Property Act 1900 (NSW) and Jingalong (so Mr Todd alleged) had procured registration through fraud.

19. [28]

    In the event that Mr Todd was not entitled to a declaration that he could nominate Mr Pernice as the transferee of Lot 1, he sought a declaration that Mr Pernice was only entitled to recover from Mr Todd the deposit and contributions Mr Pernice had paid in respect of Lot 1 (Order 2B). The ASC admitted that Mr Pernice had paid a deposit of $50,000, but did not quantify the additional instalments Mr Pernice had paid.

20. [29]

    Jingalong filed an amended defence on 4 March 2013 in response to the ASC. Jingalong denied that Mr Cameron had agreed to any arrangement whereby Mr Todd would be able to purchase Lot 1 for $1.00 upon completion of the subdivision of the Property. Jingalong further pleaded that any arrangement concerning Lot 1 was a matter between the Poultons and Mr Todd. Jingalong denied that it had undertaken to honour any such arrangement and denied that it had acted fraudulently in obtaining registration of its own interest without recognising Mr Todd’s interest in Lot 1.

21. [30]

    On 4 March 2013, Mr Pernice filed a cross-claim in the proceedings (First Cross-Claim). He sought a declaration that Jingalong held Lot 1 on trust for him and an order that Jingalong transfer Lot 1 directly to him. Mr Pernice sought a variety of orders in the alternative, including an order that Mr Todd repay him the sum of $280,000 that he had paid as contributions in respect of Lot 1, together with interest on that sum. On the same day, Mr Pernice filed a defence to Mr Todd’s ASC. Mr Pernice submitted to Order 2A, but opposed Order 2B insofar as it limited Mr Pernice from claiming interest on the amounts he had paid to Mr Todd.

22. [31]

    On 12 March 2013, shortly after Jingalong filed its amended defence and Mr Pernice filed the First Cross-Claim, the parties attended a mediation. The outcome of the mediation was that the parties executed the Settlement Agreement. The Settlement Agreement, which was in handwritten form, provided as follows:

23. [32]

    Mr Todd subsequently thought better of his entry into the Settlement Agreement and decided that he did not wish to comply with it. He did not attend completion of the Settlement Agreement which Jingalong’s solicitors proposed should take place on 13 May 2013.

24. [33]

    The following day, 14 May 2013, Jingalong’s solicitors sent a notice to complete to Mr Todd’s solicitors and to Mr Pernice’s solicitors. The notice to complete required Mr Todd to pay the sum of $206,000 to Jingalong, provide a withdrawal of a third caveat (which, by agreement between the parties, had replaced the Second Caveat) and execute consent minutes dismissing the proceedings. The notice to complete also required payment of the sum of $30,000 to Mr Cameron. Mr Todd did not comply with the notice to complete.

25. [34]

    On 30 May 2013, the Court entered judgment in favour of Jingalong against Mr Todd for the sum of $30,000, apparently in accordance with cl 3 of the Settlement Agreement.

26. [35]

    On 20 September 2013, Jingalong filed a cross-claim in the proceedings (Second Cross-Claim) naming Mr Todd and Mr Pernice as cross-defendants. Jingalong sought a declaration that Mr Todd was in breach of the Settlement Agreement and an order that he pay damages. Jingalong also claimed orders that it was entitled to set off any award of damages in its favour against any relief awarded to Mr Todd pursuant to the ASC. Although Mr Pernice was named as a cross-defendant, it does not appear (despite some ambiguity in Prayer 4 of the relief claimed) that Jingalong was seeking relief directly against Mr Pernice. However, Jingalong sought an order that it was entitled to set off any damages awarded to Mr Pernice against Jingalong pursuant to the First Cross-Claim. The basis for Jingalong’s set off claim does not emerge with any clarity from the Second Cross-Claim.

27. [36]

    On 25 October 2013, Jingalong filed a Third Amended Defence to Mr Todd’s ASC (3AD). The 3AD pleaded the Settlement Agreement (described as “the Heads of Agreement”) as a bar to Mr Todd’s claims, as follows:

28. [37]

    I have summarised (at [6]) the orders made by the primary Judge. Jingalong’s notice of appeal seeks in lieu of those orders the following declarations and orders:

Primary Judgment

1. [38]

   The primary Judge identified (at [76]) three issues for determination as follows:

2. [39]

   The primary Judge accepted (at [79]) that it is necessary to focus on what the parties agreed, rather than on a binary classification of an agreement as either an accord and satisfaction or an accord executory. Nonetheless, his Honour considered that the authorities establish that an agreement between parties to a dispute, on its proper construction, may amount to a mere accord executory, which does not constitute a contract nor give rise to new rights and obligations pending performance. In the case of such an agreement, when there is performance, but only then, the plaintiff’s cause of action against the defendant is discharged.

3. [40]

   The primary Judge considered (at [80]) that in construing the Settlement Agreement in accordance with the usual principles, certain features were significant:

4. [41]

   The primary Judge concluded as follows:

5. [42]

   The primary Judge went on to hold (at [96]) that, by reason of Mr Todd’s prior equitable interest and Jingalong’s dishonest conduct in refusing to recognise that interest despite having agreed to do so, Jingalong held Lot 1 on constructive trust for Mr Todd. In addition, Mr Todd had a right to receive a transfer of Lot 1 on tendering $1.00 to Jingalong.

6. [43]

   His Honour noted that Jingalong’s claim for damages for breach of the Settlement Agreement failed because of the holding that the Settlement Agreement was a mere accord executory (at [97]). However, even if an enforceable claim for damages had arisen and accepting that service of the Second Cross-Claim constituted Jingalong’s acceptance of Mr Todd’s repudiatory conduct, Jingalong had not established any loss entitling it to damages (at [98]).

7. [44]

   His Honour noted (at [103]) that Mr Pernice had made it clear that his cross-claim would not be pressed if the Court concluded that Mr Todd was entitled to a transfer of Lot 1 from Jingalong, either to himself or his nominee. There was no dispute between Mr Todd and Mr Pernice that the nominee would in fact be Mr Pernice. Accordingly, his Honour was not required to adjudicate on the First Cross-Claim.

Submissions

1. [45]

   Jingalong submitted that the Settlement Agreement constituted an immediately binding agreement between the parties and not a mere accord executory. Mr Dubler SC, who appeared with Mr Kanagaratnam for Jingalong, relied on the terms of the Settlement Agreement which, so he argued, brought the Settlement Agreement within the first class identified in Masters v Cameron [1954] HCA 72; 91 CLR 353 at 360, namely an agreement whereby the parties have reached finality in arranging the terms of the bargain and intend immediately to be bound to performance, even if some terms may have to be restated more precisely. Mr Dubler pointed particularly to the language used in cll 1 and 8 of the Settlement Agreement. Clause 1 created an enforceable contract for the sale and purchase of Lot 1 for $350,000 (even if a more formal agreement may have been envisaged), while cl 8 could have had no purpose other than to demonstrate that the Settlement Agreement was to create immediate rights and obligations.

2. [46]

   Mr Dubler contended that it was a very strained interpretation of the Settlement Agreement to suggest that Jingalong, despite tendering performance of the contract of sale of Lot 1, could not compel Mr Todd or Mr Pernice to make their respective contributions to the purchase of Lot 1. Even worse, on the primary Judge’s construction, Mr Todd could choose simply to ignore the Settlement Agreement and proceed with the litigation. That construction made “no commercial sense”, particularly having regard to the context in which the Settlement Agreement was concluded. The Settlement Agreement had been executed following a mediation designed to resolve the litigation then on foot in the Equity Division.

3. [47]

   Jingalong’s second submission assumed acceptance of the first. On that assumption, Mr Dubler submitted that the Settlement Agreement, properly construed, incorporated an agreement by Mr Todd to compromise his claim to be entitled to a transfer of Lot 1 from Jingalong upon payment of $1.00. Mr Pernice also agreed to compromise any claim he had against Jingalong or Mr Todd in relation to Lot 1. Mr Todd’s claim to Lot 1 was fundamentally inconsistent with his agreement that Mr Pernice was entitled to receive a transfer of Lot 1 from Jingalong, upon payment of $350,000, of which Mr Todd was obliged to contribute $206,000. Similarly, Mr Pernice’s claim to Lot 1 was fundamentally inconsistent with his agreement to pay $144,000 towards the agreed purchase price of $350,000 for Lot 1 and to obtain a right to require Mr Todd to contribute the remaining $244,000. Thus the Settlement Agreement constituted an accord and satisfaction of the claims of both Mr Todd and Mr Pernice against Jingalong.

4. [48]

   In the course of argument, Mr Dubler was asked to explain the interaction between cll 1 and 5 of the Settlement Agreement. His explanation was as follows:

5. [49]

   Mr Dubler submitted that cl 7 of the Settlement Agreement was not inconsistent with viewing the parties’ agreement as an accord and satisfaction. He contended that cl 7 was primarily concerned with the question of costs. Further, it contemplated that enforcement of the Settlement Agreement might take place in the proceedings in the Equity Division. If that occurred, the orders referred to in cl 7 would be made upon payment of the amounts specified in cll 1 and 2. Whatever its precise operation, cl 7 could not convert cll 1 and 5 of the Settlement Agreement into a purely discretionary arrangement.

6. [50]

   Thirdly, Mr Dubler submitted that the primary Judge was incorrect in his approach to Jingalong’s claim for relief when his Honour assumed, for the sake of argument and contrary to his holding, that the Settlement Agreement was binding on the parties. On this assumption, his Honour considered that service of the Second Cross-Claim constituted acceptance by Jingalong of Mr Todd’s repudiation of the Settlement Agreement. Mr Dubler submitted that Jingalong had never accepted Mr Todd’s conduct as terminating the Settlement Agreement and, on the contrary, had been at pains to ensure that the Settlement Agreement remained on foot. Accordingly, Jingalong was entitled to enforce the Settlement Agreement against Mr Todd and Mr Pernice, including by a decree of specific performance.

7. [51]

   Fourthly, Mr Dubler contended that if Jingalong (contrary to his submission) had accepted Mr Todd’s repudiation of the Settlement Agreement such as to revive Mr Todd’s cause of action, any relief to Mr Todd should be conditioned upon him paying $206,000 to Jingalong, as he had promised.

8. [52]

   Mr Todd supported the primary Judge’s holding that the Settlement Agreement was an accord executory. Mr Brezniak, who appeared for Mr Todd, submitted that Jingalong had agreed to accept $350,000 for the transfer of Lot 1 to Mr Pernice, but as the payment envisaged by cl 1 of the Settlement Agreement had not been made, there had been no discharge of any cause of action available to the parties to the proceedings.

9. [53]

   Mr Brezniak pointed to features of the Settlement Agreement that favoured this construction:

10. [54]

    Mr Pernice submitted that the Settlement Agreement clearly contemplated that the proceedings would be finalised only when the sum of $350,000 was paid to Jingalong on 13 May 2013, in accordance with cl 1. This required two separate parties, Mr Todd and Mr Pernice, to make two separate payments. As this never happened, the Settlement Agreement could not operate as a satisfaction of their claims.

11. [55]

    Mr Nagle, who appeared for Mr Pernice, contended that the intention of the Settlement Agreement was that the proceedings would be disposed of only when each of Mr Todd and Mr Pernice made the payments identified in cl 5. Mr Nagle emphasised that Mr Todd and Mr Pernice did not have identical interests, as demonstrated by the First Cross-Claim in which Mr Pernice claimed repayment of $280,000 plus interest from Mr Todd. Yet the Settlement Agreement did not address Mr Pernice’s claim against Mr Todd. This was a compelling reason why the Settlement Agreement should be construed so that Mr Pernice’s claims were satisfied only when Lot 1 was actually transferred to him.

12. [56]

    Mr Nagle submitted that if the Settlement Agreement was intended to be final and binding, Jingalong could have enforced the sale agreement created by cl 1 against both Mr Todd and Mr Pernice. But Jingalong had not attempted to do so, indicating that cl 1 did not create an immediate obligation enforceable against Mr Pernice.

Reasoning

1. [57]

   The orders sought by Jingalong in its notice of appeal differ from those it sought in the Second Cross-Claim. The differences are as follows:

2. [58]

   Jingalong’s submissions, as has been seen, proceeded on the basis that the Settlement Agreement was binding on the parties and that it had not been terminated by Jingalong. Jingalong also contended that the Settlement Agreement operated to discharge any cause of action that either Mr Todd or Mr Pernice had against it. Mr Dubler early in his argument said that one issue in the proceedings was whether the Settlement Agreement was “amenable to an order for specific performance by any of the parties”.

3. [59]

   Mr Dubler was then asked why Jingalong had sought only declaratory relief in its notice of appeal and had not at any stage sought an order for specific performance. Mr Dubler responded by saying that he would give some thought to the question of relief. He later advised the Court that:

4. [60]

   However, Mr Dubler neither sought leave to amend the notice of appeal or the Second Cross-Claim. Nor did he indicate that if the appeal succeeded, the matter should be remitted to the Equity Division to consider any application by Jingalong for a decree of specific performance of the Settlement Agreement. The position is therefore that Jingalong, apart from seeking orders dismissing the claims by Mr Todd and Mr Pernice, seeks only declaratory relief.

5. [61]

   A second procedural point was adverted to in argument. Jingalong’s Second Cross-Claim in effect sought to enforce the Settlement Agreement in the same Equity Division proceedings which (in Jingalong’s case) had been resolved by the Settlement Agreement. No difficulty was raised about this procedure at the trial and Mr Dubler submitted that there was no need for Jingalong to institute fresh proceedings. He did not go into any detail as to why this was so.

6. [62]

   The answer lies in s 73 of the Civil Procedure Act 2005 (NSW), which provides as follows:

7. [63]

   The common law rule was that the release of a cause of action once accrued had to be by deed under seal: McDermott v Black [1940] HCA 4; 63 CLR 161 at 176 (Starke J); Scaffidi v Perpetual Trustees Victoria Ltd [2011] WASCA 159; 42 WAR 59 at [14] per curiam. However, the common law also recognised that a cause of action could be discharged by an agreement for valuable consideration if it amounted to an accord and satisfaction: McDermott v Black at 183 (Dixon J); Scaffidi v Perpetual Trustees at [16]. In Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; 186 CLR 574, Gummow J (at 610) explained that:

8. [64]

   As has been seen, the parties invoked the principles relating to accord and satisfaction and accord executory to advance their respective interpretations of the Settlement Agreement. The argument reflected the analysis of Dixon J (Rich and McTiernan JJ agreeing) in McDermott v Black [1940] HCA 4; 63 CLR 161. The key passages from that judgment are as follows (at 183-185):

9. [65]

   In McDermott v Black, Starke J quoted (at 176) the statement of Lord Atkinson in Morris v Baron & Co [1918] AC 1 at 35:

10. [66]

    In Osborn v McDermott [1998] 3 VR 1, Phillips JA (Winneke P and Charles JA agreeing) explained (at 8) the traditional dichotomy:

11. [67]

    Phillips JA qualified this analysis by accepting (at 9) the opinion expressed by Fullagar J in Scott v English that there is another possibility. Fullagar J pointed out (at 453) that it may be necessary:

12. [68]

    It follows from Fullagar J’s analysis that there are at least three alternatives: mere accord executory, accord and satisfaction and accord and conditional satisfaction: Osborn v McDermott at 10. The availability of these alternatives suggests that care should be taken not to approach the construction of an agreement by reference to pre-determined categories of accords. As Keane JA observed in Blue Moon Grill Pty Ltd v Yorkey’s Knob Boating Club Inc [2006] QCA 253 at [20] (and as the primary Judge recognised), it is important to focus on what the parties have agreed, rather than with the categorisation of that agreement as an accord and satisfaction, an accord executory or some other kind of accord.

13. [69]

    Each agreement must be construed in accordance with accepted principles of construction: see Scaffidi v Perpetual Trustees Victoria Ltd at [27]. These principles are well established. They require the court to assess the intention of the parties objectively, having regard to the language they have used, the surrounding circumstances known to the parties and the objects the agreement is intended to secure: Taylor v Johnson [1983] HCA 5; 151 CLR 422 at 428 (Mason ACJ, Murphy and Deane JJ); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] per curiam; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]-[41] per curiam; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 at [8] (Gleeson CJ).

14. [70]

    It has been suggested that courts have a preference for construing a compromise agreement as extinguishing the original cause of action only upon performance of the agreement, rather than immediately on entry into the agreement: NC Seddon, RA Bigwood and MP Ellinghaus, Cheshire & Fifoot Law of Contract (10th Aust ed 2012, LexisNexis Butterworths) at [22.11] n 74. I doubt that this is a general principle applicable to all compromise agreements. The authors cite in support of the supposed principle the observations of Fullagar J in Scott v English at 452-453. However, Fullagar J’s observations were directed to the common situation where a concession is made by a creditor to a debtor. His Honour endorsed the comment made by Sir William Holdsworth that such concessions “are generally made with a view to performance and not to the obtaining of a counter-promise from the debtor, which may very likely lead to fresh litigation” (W Holdsworth, History of English Law (1925) vol 8, at 84). The other authorities cited by the authors, insofar as they deal with the issue at all, are to the same effect: see Deputy Commissioner of Taxation v Hadidi (1994) 51 FCR 453 at 461 (Beaumont and Heerey JJ); Nissho Iwai (Australia) Ltd v Oskar [1984] WAR 53 at 58 (Brinsden J); R & A Cab Co Pty Ltd v Rutty [2007] VSC 62 at [12] (Warren CJ). Compromise agreements not incorporating concessions by creditors to debtors may involve different considerations.

15. [71]

    In McDermott v Black, Dixon J observed (at 186-187) that at law the only case in which a promise not to sue is held to be a bar and in consequence a release or extinguishment of the right of action, is where the promise not to sue is general, that is not to sue at any time (citing Forde v Beech (1848) 11 QB 852 at 871; 116 ER 693 at 700 per Parke B). Dixon J went on to explain that:

16. [72]

    As I have noted, Dixon J decided McDermott v Black on the ground that the agreement by the purchasers to withdraw the allegations of misrepresentation, in consideration of an extension of time to complete the contract constituted a release of any cause of action available to the purchaser based on the misrepresentations. However, his Honour would have been prepared to uphold an equitable plea if the legal defence were not enough. Once it was determined that the parties intended that the purchaser should not be at liberty to revive the allegations and rely on them in the proceedings, a court of equity would have no difficulty in restraining an action at law (at 189). See also Scaffidi v Perpetual Trustees at [14]-[21] and cases cited there.

17. [73]

    At first sight the Settlement Agreement has some gaps and curious features. In construing the Settlement Agreement, however, the context is important. The document came into existence as the result of a mediation between the parties to the proceedings in the Equity Division, all of whom were legally represented. The document is handwritten doubtless reflecting the fact, common to many mediations, that agreement was reached after a period of intensive negotiations, but without the parties necessarily having the opportunity to consider successive drafts of the agreement free from urgent time pressures.

18. [74]

    It is also important to appreciate the issues in contest in the Equity Division proceedings at the time the mediation took place and the Settlement Agreement was signed. Mr Todd asserted that there was an agreement in place, pursuant to which he was entitled to receive a transfer of Lot 1 for a consideration of $1.00. He claimed that Jingalong was a party to this agreement and, in any event, had undertaken to implement its terms. Mr Todd further alleged that Jingalong had engaged in unconscionable conduct and had acted fraudulently in refusing to recognise his interest in Lot 1. Jingalong’s fraud was said to deny it the indefeasible title to the Property that it otherwise would have obtained as a registered proprietor under s 42 of the Real Property Act.

19. [75]

    Jingalong denied that it was a party to the alleged agreement concerning Lot 1 or that it was bound to respect the terms of that agreement. It denied the allegations of unconscionable conduct and fraud.

20. [76]

    To some extent, there was common ground between Mr Todd and Mr Pernice. Mr Todd did not dispute that he held his beneficial interest in Lot 1, in effect, in trust for Mr Pernice. Nor did he dispute that Mr Pernice had paid $280,000 as instalments of the agreed purchase price of $300,000 for Lot 1. However, as Mr Nagle pointed out in argument, Mr Pernice claimed that Mr Todd was obliged to pay interest on the sum of $280,000, a claim disputed by Mr Todd. Mr Pernice also sought relief directly against Jingalong in respect of Lot 1.

21. [77]

    Mr Dubler’s submissions on behalf of Jingalong recognised that it is necessary to consider separately whether the Settlement Agreement was intended to bind the parties immediately and, if so, what effect it had on the proceedings. In particular, he accepted that it is necessary to determine separately whether the Settlement Agreement was intended to satisfy the causes of action asserted by Mr Todd and Mr Pernice against Jingalong and by Mr Pernice against Mr Todd. I think that Mr Dubler was correct to approach the question of construction in this way.

22. [78]

    The context in which the Settlement Agreement came into existence suggests that the parties intended to enter into a binding and immediate agreement. But there are more direct textual indications that the Settlement Agreement, objectively assessed, was intended to bind the parties immediately. The clearest indication is cl 8, which states that “These Heads of Agreement have effect unless any later deed is entered into by the parties”. It is difficult to see what purpose cl 8 could have except to make it clear that the Settlement Agreement, notwithstanding its handwritten form and lack of detail, was intended to bind the three parties. To apply the classification stated by the High Court in Masters v Cameron at 360, cl 8 demonstrates that the parties reached finality in arranging the terms of their bargain and intended to be immediately bound to the performance of those terms, even though they contemplated that a more formal deed might subsequently be drawn up.

23. [79]

    The primary Judge assumed (at [80]) that cl 8 was intended to show that the Settlement Agreement was to have legal effect, although his Honour observed that “effect” does not necessarily mean “legal effect”. Mr Nagle attributed little significance to cl 8 on the ground that it was “surplusage”. In my opinion, neither his Honour’s observation nor Mr Nagle’s characterisation of cl 8 diminishes its significance as a statement of the parties’ intention to be immediately bound. It is a basic principle of construction that a contract will be read as a whole and that a court will strain against an interpretation that renders a particular clause nugatory or of no effect: Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402 at 411 (Lockhart and Hill JJ); Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401 at [30] (Leeming AJ, Meagher AJ and Sackville AJA agreeing); K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Law Book Co) at [7.03].

24. [80]

    Clause 1 provides an additional indication that the parties intended the Settlement Agreement to be immediately binding. By using the expression “it is hereby agreed”, the parties evinced an intention that Jingalong and Mr Pernice would be immediately bound by their agreement that Mr Pernice would buy and Jingalong would sell Lot 1 for the stipulated price of $350,000. Similarly, cl 5 of the Settlement Agreement implies that Mr Todd and Mr Pernice have reached a binding agreement, at least as between themselves, as to the contribution each is to make to the price to be paid by Mr Pernice to Jingalong.

25. [81]

    It is true, as Mr Todd submitted and the primary Judge pointed out, that the Settlement Agreement makes no provision for what was to happen in the event that either Mr Pernice or Jingalong did not complete the sale of Lot 1 by 13 May 2013, or if Mr Todd failed to make his agreed contribution of $206,000 to the purchase price. But having regard to the language of cll 1 and 8, the absence of any such provision does not detract from the conclusion that the Settlement Agreement was intended to be binding, any more than the absence of provisions specifying the consequences of non-compliance prevent an open contract of sale of land being given legal effect.

26. [82]

    Clause 7 of the Settlement Agreement, which states that the parties agree that on payment of the amounts referred to in cll 1 and 2, they will execute consent minutes, also does not detract from this conclusion. Whatever its significance for the effect of the Settlement Agreement on the causes of action pleaded by Mr Todd and Mr Pernice, it suggests that the parties intended to create immediate rights and obligations.

27. [83]

    The second question identified by Mr Dubler is the effect, if any, of the Settlement Agreement on the causes of action pleaded by Mr Todd and Mr Pernice in the Equity Division proceedings. The key provisions of the Settlement Agreement bearing on this question are cll 1, 5 and 7. It is also necessary to consider the significance of the absence of an express provision whereby Mr Todd and Mr Pernice agreed to release whatever rights they may have had against Jingalong or to accept Jingalong’s promise to transfer Lot 1 for the price of $350,000 as a discharge of their respective causes of action.

28. [84]

    Clause 1, on its face is an agreement between Mr Pernice and Jingalong for the former to buy and the latter to sell Lot 1 for the price of $350,000, payable no later than 13 May 2013. As I have noted, the language (“It is hereby agreed”) suggests that each party is immediately bound by his or its promise to complete the sale on the agreed terms by 13 May 2013.

29. [85]

    Clause 5 is rather curiously expressed. It records an agreement between Mr Todd and Mr Pernice as to their respective contributions to the purchase price to be paid to Jingalong. Clause 5 does not expressly say that Jingalong will look to Mr Pernice only for $144,000 of the purchase price and that it will look to Mr Todd for the balance of $206,000. Nor does it expressly state that Mr Todd is incurring an obligation to Jingalong to contribute $206,000 to the purchase price. Nonetheless, the statement that Mr Todd and Mr Pernice “are not jointly and severally liable to Jingalong … for the full amount” implies that each is severally liable to Jingalong for his respective contribution. This interpretation is supported by the opening words of cl 5 which specifically record that “in relation to the payment to Jingalong in clause 1” Mr Todd and Mr Pernice agree that their respective contributions will be $206,000 and $144,000.

30. [86]

    The language of cll 1 and 5, read together suggests that:

31. [87]

    Understood this way, cll 1 and 5 constitute an acceptance by Mr Todd and Mr Pernice of Jingalong’s promise to transfer Lot 1 for $350,000 (on the basis of the several contributions by Mr Todd and Mr Pernice) as a discharge of their respective causes of action against Jingalong. Jingalong’s agreement to transfer Lot 1 to Mr Pernice for $350,000 is inconsistent with the preservation of the claimed entitlement of each of Mr Todd and Mr Pernice to receive a transfer of Lot 1 from Jingalong for a nominal consideration. Clearly the agreement represents a compromise between the opposing claims of the parties to the beneficial interest in Lot 1.

32. [88]

    Moreover, this is not a case of a creditor agreeing to forego a claimed debt in return for a smaller payment by the debtor. Jingalong disputed the allegations of fraud and unconscionable conduct made against it and contended that it was not bound to recognise the claims to Lot 1 advanced by Mr Todd and Mr Pernice. That the primary Judge ultimately found against Jingalong on these issues does not alter the fact that the competing claims were unresolved at the date of the Settlement Agreement. It is one thing for an agreement apparently favourable to a debtor not to be carried to completion because the debtor fails to perform an obligation imposed by the agreement. It is another to construe an agreement that reflects a compromise between competing claims to mean that a party can prevent the agreement having any legal effect by simply refusing to perform acts that party has agreed to perform.

33. [89]

    In particular, it would be a strange result if either Mr Todd or Mr Pernice could prevent the Settlement Agreement having any legal effect by refusing to make his agreed contribution to the purchase price of Lot 1. On their construction of the Settlement Agreement, Mr Pernice could elect to proceed with the purchase of Lot 1 or to resume the litigation as though the Settlement Agreement had not been entered into. Moreover, Mr Pernice was entitled to wait until 13 May 2013 before making that election. Mr Nagle was not clear as to Jingalong’s position while Mr Pernice (or Mr Todd) decided whether or not to proceed with the purchase of Lot 1. Presumably, however, Jingalong also could have resiled from its agreement to sell Lot 1 to Mr Pernice for $350,000 at any time prior to 13 May 2013. It is difficult to reconcile such a result with the language of cll 1 and 5 of the Settlement Agreement.

34. [90]

    Both the primary Judge and the respondents placed considerable significance on the absence of a clause by which Mr Todd and Mr Pernice released their claim against Jingalong, or acknowledged that their claims had been satisfied. But if an agreement is inconsistent with the continuation of a claim or cause of action, it is not difficult to construe the agreement as incorporating a release or discharge of the claim or cause of action.

35. [91]

    In McDermott v Black, the purchaser’s withdrawal of allegations that a vendor of shares had made fraudulent representations in return for an extension of time to complete the purchase of the shares, was construed by the High Court to mean that the purchaser’s cause of action was discharged. Dixon J said this (at 186):

36. [92]

    In this case, the agreement by Jingalong to sell Lot 1 for $350,000 to Mr Pernice, and the agreement by Mr Todd and Mr Pernice to contribute defined shares of the purchase price, was inconsistent with Mr Todd or Mr Pernice retaining the right to receive a transfer of Lot 1 from Jingalong for a nominal consideration (or, for that matter, with Jingalong’s claimed entitlement to retain Lot 1 free from adverse claims). Viewed objectively, the purpose of the sale agreement incorporated in cl 1 of the Settlement Agreement was to resolve the competing claims to a beneficial interest in Lot 1. Given that the Settlement Agreement was intended to create binding legal obligations, it would not be consistent with that purpose to interpret the Settlement Agreement as leaving intact the pre-existing causes of action of Mr Todd and Mr Pernice, depending on whether they were prepared to make their respective contributions to the agreed purchase price for Lot 1.

37. [93]

    Clause 7 of the Settlement Agreement, upon which Mr Todd and Mr Pernice placed some emphasis, is also a curious provision. For example, it is not at all clear why cl 7 provides that the parties will execute consent minutes disposing of the proceedings upon payment of both the amounts referred to in cll 1 and 2 of the Settlement Agreement. Clause 2 requires Mr Todd to pay $30,000 to Mr Cameron (who is not a party to the proceedings) by 13 May 2013. Clause 3 establishes a mechanism for enforcing Mr Todd’s obligation, namely entry of judgment against Mr Todd in favour of Jingalong, presumably in the sum of $30,000. It is hard to see why payment of the $30,000 by Mr Todd should have any bearing on orders made in the Equity Division proceedings in relation to the claims made by Mr Todd and Mr Pernice against Jingalong or by Mr Pernice against Mr Todd.

38. [94]

    Clause 7 also does not expressly identify what orders the consent minutes are to incorporate in relation to Mr Todd’s claims pleaded in the ASC, although it does state that the consent minutes should dismiss Mr Pernice’s First Cross-Claim. The parties seemed to accept that cl 7 is intended to incorporate orders dismissing the ASC, even though it does not expressly say so. I am content to proceed on that basis.

39. [95]

    Allowing for the curious features of cl 7, I accept that there is some tension between that provision and cll 1 and 5 of the Settlement Agreement. The stipulation that the parties will execute consent minutes disposing of the proceedings upon payment of the amounts referred to in cll 1 and 2, if it stood alone, might suggest that it is only when those amounts are actually paid that the causes of action of Mr Todd and Mr Pernice will be discharged. But the Settlement Agreement has to be read as a whole and the context to which I have referred must be taken into account. When that is done, the effect of cll 1 and 5 of the Settlement Agreement is to substitute the promise made by Jingalong (to transfer Lot 1 in return for payment of $350,000) for the pre-existing causes of action vested in Mr Todd and Mr Pernice. In other words, Jingalong’s promise to transfer Lot 1 in return for the promises by Mr Todd and Mr Pernice to pay a total of $350,000 discharged their claims to be beneficially entitled to Lot 1.

40. [96]

    This does not mean that cl 7 serves no purpose. It seems to be drafted on the assumption that Mr Todd and Mr Pernice will do what they have agreed to do (that is, pay between them the sum of $350,000 by 13 May 2013) and that Jingalong will transfer Lot 1 to Mr Pernice, as it has agreed to do. On this assumption, it would be necessary to dispose formally of the proceedings. Clause 7 does so by requiring consent orders to be executed (and presumably filed) and also finalises the question of the costs of the proceedings, which otherwise would have remained unresolved.

41. [97]

    The language of cl 7 may also reflect the possibility that Jingalong might be required to enforce the Settlement Agreement. So long as the Equity Division proceedings remained on foot, Jingalong could institute enforcement action in those proceedings pursuant to s 73 of the Civil Procedure Act. If that were to occur (as it has), cl 7 ensures that the Equity Division proceedings remain on foot pending determination of the enforcement action by Jingalong.

42. [98]

    Jingalong’s written submissions did not invoke the equitable principles applying to an agreement for value to release an obligation. Those principles were referred to in oral argument in response to questions from the bench, but they were not subject to any detailed analysis. I therefore do not think it appropriate to consider whether, assuming (contrary to my holding) that the common law principles of accord and satisfaction do not apply, Jingalong can rely on equitable doctrines to support a submission that Mr Todd and Mr Pernice released their respective causes of action against Jingalong. However as the judgment of Dixon J in McDermott v Black makes clear, it should not be assumed that the equitable principles were circumscribed by the limitations imposed on the common law doctrine of accord and satisfaction. On the contrary, the equitable principles were not so circumscribed.

43. [99]

    Under the Settlement Agreement Mr Todd accepted Jingalong’s promise to transfer Lot 1 to Mr Pernice upon payment of $350,000 in place of his cause of action against Jingalong. Thus Mr Todd’s cause of action was satisfied upon his entry into the Settlement Agreement. Similarly, Mr Pernice accepted Jingalong’s promise to transfer Lot 1 to him upon payment of $350,000 in place of his cause of action against Jingalong. Mr Pernice’s cause of action was also satisfied upon his entry into the Settlement Agreement.

44. [100]

    The parties did not devote close attention to whether the Settlement Agreement satisfied Mr Pernice’s cause of action against Mr Todd. In my view, however, Mr Pernice accepted Mr Todd’s promise to contribute to the purchase price of Lot 1 and to acquiesce in a transfer of Lot 1 directly to Mr Pernice as satisfying any claim Mr Pernice had against Mr Todd in relation to instalments of purchase price previously paid.

Orders

1. [101]

   I have referred (at [57]) to the orders sought by Jingalong in its Notice of Appeal and how they differ from the relief sought by Jingalong in the Second Cross-Claim. I have also recorded (at [59]-[60]) that Jingalong was prepared to “submit” to an order for specific performance, but that no application was made to amend the Notice of Appeal or the Second Cross-Claim.

2. [102]

   This Court is bound to comply with the direction in s 63 of the Supreme Court Act, which provides as follows:

3. [103]

   In Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286, Barwick CJ and Jacobs J (Stephen J agreeing) pointed out (at 307) that when this Court exercises the powers conferred by s 75 of the Supreme Court Act in relation to an appeal, the Court’s duty under s 63 must be borne in mind. His Honour said that this proposition was particularly important in cases in which the appropriate curial relief depends on equitable doctrines and rules, especially those relating to specific performance.

4. [104]

   In Neeta v Phillips itself, a purchaser claimed a declaration that a contract had not been validly rescinded. The summons sought no other relief, except costs. The High Court held that the contract had not been validly rescinded, but declined to grant declaratory relief, for these reasons (at 307):

5. [105]

   I have concluded that the Settlement Agreement satisfied any cause of action available to Mr Todd and Mr Pernice against Jingalong and Mr Pernice’s cause of action against Mr Todd. These conclusions justify orders dismissing Mr Todd’s ASC and Mr Pernice’s First Cross-Claim.

6. [106]

   Jingalong has not yet formulated a claim for specific performance and no findings have yet been made that would justify making such an order. In the absence of any claim for equitable relief it is also not known whether either Mr Todd or Mr Pernice would wish to defend a claim by Jingalong for an order for specific performance of the Settlement Agreement.

7. [107]

   In these circumstances, the declarations sought by Jingalong should not be made unless and until it formulates a claim for consequential relief and all matters in controversy between the parties have been resolved. The Second Cross-Claim should therefore be remitted to the Equity Division for further hearing in the light of these reasons for judgment. Should either Mr Todd or Mr Pernice seek orders in relation to the Settlement Agreement consistent with this judgment, they will have the opportunity to make an appropriate application.

8. [108]

   The orders I propose are as follows:

9. [109]

   The costs of the proceedings in the Equity Division should be a matter for that Court to determine in the light of the orders ultimately made.