Cacao Story Pty Ltd v An Nam Viet Group Pty Ltd

The Court is presently dealing with an Amended Notice of Motion filed by the Defendants in relation to settlement of proceedings in this Division reached on 18 December 2018 and brought pursuant to s 73 of the Civil Procedure Act 2005 (NSW). The Plaintiff's primary position is that it accepts that there was a settlement, but contends that the settlement was on terms different to that advanced by the Defendants. In the alternative, the Plaintiff contends that the alleged settlement is void for uncertainty.

Mr V. R. Gray of Counsel appears for the Plaintiff, and Mr M. Klooster of Counsel appears for the Defendants.

The First Defendant agreed to purchase a business operated by the Plaintiff in Chatswood for $75,000 pursuant to a written agreement largely in the standard form, dated 24 April 2018 (“the Contract”). The Contract required the payment by the First Defendant of a deposit of $20,000 to the sales agent. The premises out of which the business was to be operated were leased and the parties recognised that a new lease was to be obtained from the landlord. The new lease was to be organised by the First Defendant and payment of the balance was due five days after receipt of the new lease from the landlord's solicitor. The new lease was received on 25 June 2018 and completion was due on or no later than 2 July 2018.

The Plaintiff allowed the First Defendant to enter the premises prior to completion of the Contract. There was a clause in the Contract which dealt with that circumstance. The Second Defendant guaranteed the due performance of the Contract by the First Defendant, and also agreed to indemnify the Plaintiff against all loss of purchase money, interest and other moneys payable under the Contract: see sch 1 of the Contract at CB 47.

The First Defendant paid the deposit of $20,000 to the sales agent as required, but did not complete the Contract on 2 July 2018, a breach which had not been rectified as at 1 November 2018. On that date the Plaintiff commenced proceedings in this Court by Statement of Claim seeking an order for specific performance of the Contract by the First Defendant, and an order that the Second Defendant pay all moneys due pursuant to the guarantee and indemnity: see CB 7-14.

There were disputes between the parties as to whether or not rent was payable by the First Defendant and, if so, as to how much, but what is at present relevant is that as at the date of an Offer of Compromise made on 16 November 2018 to the Defendants by the Plaintiff, the Plaintiff asserted that $73,215.40 was owing by the Defendants to the Plaintiff (and that amount was derived after deducting the deposit that had been paid by the First Defendant to the sales agent, and also an amount for rent of $18,599.68 paid by the First Defendant to the Plaintiff: see CB 106).

On 18 December 2018 a settlement conference was held at the offices of Strathfield Law, the Plaintiff's solicitors. In attendance were a representative of the Plaintiff, Mr Guon (who is a director of the Plaintiff); representatives of the Defendants; Mr Jun Lee and Mr Ko, solicitors for the Plaintiff; and Mr Snelgrove, the Defendant's solicitor. Mr Snelgrove had not acted on the purchase but was subsequently appointed by the Defendants for the purposes of proceedings against them.

There is no longer any dispute as to what was said at the meeting. Mr Lee's version is corroborated by Mr Ko and Mr Guon: see paras 8-13 of Mr Lee's affidavit (CB 99-100), paras 3-4 of Mr Ko’s affidavit (CB 132-133), and paras 3-4 of Mr Guon's affidavit (CB 94-95). Mr Lee's affidavit, relevantly, is as follows:

No document was prepared to reflect the terms of the agreement reached between the solicitors for the parties. Nor was any note prepared by either solicitor of what had been agreed on the day. The Court must, therefore, construe the words used as deposed by Mr Lee to determine what, objectively, was meant by them.

In Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640, 656-657 at [35], French CJ, Hayne, Crennan and Kiefel JJ reiterated the approach to be taken to the construction of commercial contracts, saying:

The Defendants paid the following amounts:

Mr Klooster points out that the deposit, on the authority of Woolworths Ltd v About Life Pty Ltd [2017] NSWSC 1117; [2017] 18 BPR 36,983 per Emmett JA, belonged to the First Defendant whilst the Contract remained on foot and executory. Mr Gray did not dispute this characterisation in submissions today.

Mr Gray emphasises that there was no mention of the deposit in the conversation between Mr Lee and Mr Ko, on the one hand, and Mr Snelgrove on the other.

There was some debate before me as to what in fact was the maximum that the Plaintiff was entitled to as at the date of the Offer of Compromise and the settlement conference. Further clarification this afternoon has established that, effectively, what the Plaintiff was entitled to, if all its claims were met, was an amount of $88,000 approximately. That amount includes $15,000 for legal costs, and it is arrived at after deduction of the $20,000 deposit.

Mr Gray contended that the offer, even as the Plaintiff claims it should be interpreted (that is, $65,000 plus the $20,000 deposit), was a reasonable offer and the Plaintiff should not be seen as giving nothing away on the construction of the Contract which it advances. Its maximum entitlement was approximately $108,000 (i.e. $73,000 plus $15,000 for costs and the $20,000 deposit) and the Plaintiff was offering to accept (on the Plaintiff’s contentions) $85,000 (which figure includes the $20,000 deposit).

Mr Klooster disputes that, and says that acceptance of an offer of $85,000 would involve an amount very close to everything that the Plaintiff was claiming and not much of a settlement offer at all. This ignores the fact that the deposit was deducted to arrive at the figure of $73,000.

Of importance, however, is the fact that the Offer of Compromise provided for a net additional payment of $40,000 where the gross sum claimed was $73,000 (see CB 106) because it permitted application of the deposit in reduction of the $60,000. The only significant change on 18 December 2018 was that an additional amount for legal costs of $15,000 was identified and the offer put by the Plaintiff was increased from $60,000 to $65,000. The considerations which led to the offer being made by the Plaintiff at the figure communicated are not known. Offers can be made that, objectively, appear to be very or extremely reasonable, and indeed are to be encouraged, especially where legal costs are part of what is sought.

I accept that the size of an offer might be a relevant matter in determining the likelihood of whether, objectively, it can be concluded that what was intended was what is claimed, but the difference between the terms of the Offer of Compromise on 16 November 2018 and the offer made on 18 December 2018 at the settlement conference on the Defendants’ construction is quite marginal. Looked at from a different angle, the jump, on the Plaintiff's construction, from a required payment by the Defendants of a net $40,000 to the payment of net $65,000 in the space of a month is an extensive increase, and I do not think the argument really goes any way to support the Plaintiff's claimed construction.

I should also note that Mr Gray accepted that his written submission that the amount payable under the settlement was $70,707.93 is erroneous, that the amount due under the settlement was $65,000 and that the only amount not paid, on the Plaintiff’s case, is the $20,000 deposit.

Another submission that Mr Gray made, which I reject, is that the deposit had already been paid. The deposit had been paid to the sale agent but it had not been paid to the Plaintiff. I have referred earlier to the reasoning behind that.

Whilst it is true that neither Mr Lee nor Mr Snelgrove referred to the deposit at the settlement conference, I regard it as of considerable significance that Mr Lee made reference to the Offer of Compromise, wanting to know what the defendants' response to it was. This led to discussion about the extent of legal fees which would have to be paid if the offer was accepted. Mr Lee advised that the fees were $15,000 to date. Mr Ko, after obtaining instructions, advised that $65,000 would settle the matter, with each party to pay their own legal costs, and Mr Snelgrove, after taking instructions, advised that the offer of $65,000 was accepted by his clients.

Obviously, Mr Lee, Mr Ko and Mr Snelgrove were well aware of the contents of the Offer of Compromise, and it clearly provided for the application of the $20,000 deposit to the $60,000 settlement sum referred to in the Offer of Compromise. Mr Gray agreed that that was how para 2 of the Offer of Compromise reads, but he informed me that his solicitor did not agree that that was what was intended. In my view, para 2 of the Offer of Compromise was clearly intended to treat the deposit of $20,000 as part of the payment of the $60,000 proposed in the Offer of Compromise. In the context of the pre-existing Offer of Compromise introduced by the Plaintiff’s solicitor into the settlement discussion (which offer contemplated application of the deposit in partial payment), the increase of the amount sought by the Plaintiff from $60,000 to $65,000 objectively proceeded on the same basis articulated in the Offer of Compromise, namely, acceptance that the deposit would be part of the payment of the settlement amount by the Defendants to the Plaintiff. If the Plaintiff wanted the deposit not to be treated as part of the $65,000 and to be additional to the settlement amount, it was incumbent on Mr Lee or Mr Ko to say so, not only because they had introduced the Offer of Compromise into the discussion of resolution but also because the deposit, to their knowledge, had not yet been paid to the Plaintiff and would only be paid to the Plaintiff on instructions being given by the Defendants that the sales agent could release it to the Plaintiff, which is what in fact occurred after the settlement conference.

Mr Gray put an alternative argument to the effect that there was an ambiguity concerning the terms of the agreement, and that it might have been intended that the deposit was to be part of the $65,000 or it might not, both possibilities being open and therefore creating an uncertainty leading to the Contract being void. He referred to Raffles v Wichelhaus [1864] 159 ER 375, in which it was held by Mellish and Cohen LJJ that there was a latent ambiguity in the contract because the defendants had agreed to purchase Surat cotton to be delivered by the vessel “Peerless”, due to arrive from Bombay, and there were in fact two vessels fitting that description at the relevant time.

It has been observed that:

I do not regard this as a case of latent ambiguity or one giving rise to any uncertainty. The Defendants agreed to pay $65,000 (of which $24,208.73, it was accepted, had been received) and it was implicit that the deposit to be released would be part of that payment.

I find that the settlement agreement reached on 18 December 2018 was for the payment by the Defendants of the amount of $65,000 in full and final settlement of the Plaintiff's claims, that the Defendants were entitled to have the deposit of $20,000 applied as part of that payment, and that those payments have been made.

Accordingly, I think that the Defendants must succeed on their Notice of Motion. The proceedings should be dismissed. The Plaintiff is to pay the Defendant's costs of the Notice of Motion on the ordinary basis.