Amcor Limited T/as Australian Paper Manufacturers v Watson & Anor

NEW SOUTH WALES COURT OF APPEAL

CITATION: AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR [2000] NSWCA 21

FILE NUMBER(S):
40209/99

HEARING DATE(S): 16 February 2000

JUDGMENT DATE: 03/03/2000

PARTIES:
Amcor Limited t/as Australian Paper Manufacturers - Appellant
Janine Watson - First Respondent
Paper Industry Engineers Pty Limited - Second Respondent

JUDGMENT OF: Meagher JA Sheller JA Heydon JA

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): 12708/91

LOWER COURT JUDICIAL OFFICER: Hulme J

COUNSEL:
D B McGovern - Appellant
J M Ireland QC - First Respondent
J A McIntyre SC - Second Respondent

SOLICITORS:
Phillips Fox - Appellant
Masons - First Respondent
Vandervords - Second Respondent

CATCHWORDS:
Contracts
Contracts Review Act 1980
'Unjust' contract
Unjust consequence or result
Relevant considerations
Agreement to compromise litigation
Inequality of bargaining power
Inability to protect own interests by reason of mental incapacity
Blameless conduct of party against whom relief sought

LEGISLATION CITED:
Compensation to Relatives Act 1897
Contracts Review Act 1980

DECISION:
Appeal dismissed with costs

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL

CA 40209/99
CL 12708/91
MEAGHER JA
SHELLER JA
HEYDON JA

AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR

The plaintiff agreed to compromise proceedings brought by her against the first and second defendants for compensation upon her husband’s death. The second defendant was a party to the agreement; the first defendant was not.

There was evidence before the trial Judge that the plaintiff suffered pathological avoidance to issues relating to her husband’s death and the subsequent legal proceedings. She could not sensibly apply her mind to these issues. She was afraid of giving evidence and had expressed a desire for the litigation to be over. She agreed to settle her claim on the basis of costs only despite legal advice that she stood to recover more from the litigation. There was no conduct on the part of the second defendant which could have been criticised.

Hulme J at first instance declared the compromise unjust and void under the Contracts Review Act 1980 (Watson v Paper Industry Engineers Pty Limited [1999] NSWSC 98). The second defendant appeals from this decision.

Held: (by Sheller JA, Meagher and Heydon JJA agreeing)

Section 7(1) of the Contracts Review Act conditions the Court’s power to intervene on a finding that the contract (or a provision thereof) was unjust in the circumstances relating to the contract at the time it was made. Prior to intervention, the Court must also consider that it is just to do so. Further, any intervention must be for the purpose of avoiding, as far as practicable, an unjust result.
Section 9(2) of the Act contains a non-exclusive list of matters to which the Court shall have regard, to the extent that they are relevant to the case. Each matter should be treated, not necessarily as a hallmark of the unjust contract, but as a matter to which the Court shall have regard.
West v AGC (Advances) Limited (1986) 5 NSWLR 610, considered.
Section 9 does not impose an obligation to show that the contract was unjust because it was produced by unfair or unjust conduct on the part of a party to it.

Baltic Shipping Company v Dillon; ‘Mikhail Lermontov’ (1991) 22 NSWLR 1, followed.
Baltic Shipping Company v Dillon (1993) 176 CLR 344, referred to.

In finding the contract unjust within the meaning of the Act, Hulme J properly applied s7(1) and correctly took into account all relevant matters, namely, the substantial inequality in bargaining power between the parties, the plaintiff’s inability to reasonably protect her interests (despite the benefit of legal advice), the plaintiff’s inability to give her solicitor instructions, the fact that the second defendant had notice of these matters and the fact that setting aside the contract restored the parties to rights and obligations they had before the contract was entered into. Hulme J also took into account the desirability of holding parties to agreements into which they had voluntarily entered. That the Court should encourage compromise of litigation was also relevant. No weight, however, was attached to the absence of the first defendant from the contract.

Cases

Baltic Shipping Company v Dillon (1993) 176 CLR 344.
Baltic Shipping Company v Dillon; ‘Mikhail Lermontov’ (1991) 22 NSWLR 1.
Gibbons v Wright (1954) 91 CLR 423.
Harvey v Phillips (1956) 95 CLR 235.
Lewis v Combell Constructions Pty Limited (1989) 18 NSWLR 528
West v AGC (Advances) Limited (1986) 5 NSWLR 610.

Statutes

Compensation to Relatives Act 1897

Contracts Review Act 1980

ORDERS

Appeal dismissed with costs.

THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL

CA 40209/99
CL 12708/91
MEAGHER JA
SHELLER JA
HEYDON JA

Friday, 3 March 2000

AMCOR LIMITED t/as AUSTRALIAN PAPER MANUFACTURERS v WATSON & ANOR

JUDGMENT

MEAGHER JA: I agree with Sheller JA.
SHELLER JA:
INTRODUCTION
This appeal is about whether a plaintiff’s agreement to compromise proceedings brought by her under the Compensation to Relatives Act 1897 was rightly found to be unjust within the meaning of the Contracts Review Act 1980. The plaintiff sued Paper Industry Engineers Pty Limited (PIE), her late husband’s employer, and Amcor Limited (t/as Australian Paper Manufacturers) (Amcor), the occupier of the factory where he worked. Amcor was a party to the compromise. PIE was not. On 26 February 1999 Hulme J declared the compromise void. Amcor appeals from this decision. The terms of the compromise were claimed to be:
1. That the second defendant [Amcor] would, without admission of liability pay to the plaintiff the sum of $5,000 in respect of its costs;
2. The plaintiff would take such steps as it were required (sic) to discontinue the proceedings.
COMMON LAW PROCEEDINGS
On 20 May 1991 the plaintiff and first respondent in the appeal, Janine Watson, began the proceedings by statement of claim against the second respondent, PIE, and appellant, Amcor to recover damages for their negligence in causing the death in November 1989 of the plaintiff’s husband, Stuart Daniel Watson. Both defendants filed defences. In 1991 PIE filed a cross-claim against Amcor. This was amended in November 1996. On 3 June 1991 the plaintiff obtained an award against PIE in the sum of $167,000 in the Compensation Court. On 25 February 1993 the plaintiff married Andrew Goulding, who is now named as her tutor in the proceedings. By 6 June 1994 Mr Mason, the plaintiff’s solicitor, had served on the defendants, and sought consent to the filing of a draft amended statement of claim to include a claim for nervous shock suffered by the plaintiff.
On 16 May 1996 Mr Mason received a notice of motion filed by Amcor seeking orders that the plaintiff file Pt 33 r8A particulars. This led to Mr Mason’s letters of 21 May and 4 June 1996 seeking instructions from the plaintiff. In the first letter Mr Mason wrote:
“We have refrained to date as on our instructions it would appear that there will be a substantial difficulty on quantum of damages and a likelihood the amount recovered in common law proceedings in the Supreme Court would be less than that obtained before the Workers Compensation Court.
In those circumstances the action before the Supreme Court will merely allow paper industry engineers [sic] to recover the amount of compensation they have already been paid from Amcor by way of reimbursement and have no real effect in providing any further damages to you. In those circumstances it must be now decided whether the proceedings continue and perhaps the best method of resolution of the matter would be to put an offer of settlement to Amcor Limited solicitors Phillips Fox that the matter be settled on the basis of costs only thereby relieving any liability you have to us in respect of costs and finalising the matter once and for all.
We would welcome the opportunity to discuss this aspect of the matter with you and the matter generally and would appreciate if you might telephone our Mr Mason and or make an appointment for conference with Mr Mason as soon as possible.
We note that a Notice of Motion has been filed and which [sic] is returnable before the Court on the 27 May 1996 and if it was the case that the matter was to prepare on the basis of negotiation for settlement as to costs only then we would need some time prior to that to negotiate that settlement with the other side.”
On 7 June 1996 Mr Mason deposed to the following conversation with the plaintiff:
“Me:    ‘I have been trying to contact you for some time. You haven’t to date replied to my letters and phone calls.’
Plaintiff: ‘It has taken me a long time to respond to you as your letters distress me.’
Me:     ‘It is important that you contact me when I write to you and telephone you. The Second Defendant Amcor is seeking orders that we file our Part 33 Statement.’
Plaintiff:         ‘What does that mean?’
Me:     ‘That means that I have not been able to file all the necessary documents to bring this matter to hearing and largely because you have failed to contact me when required. Amcor’s solicitors want us to file documents or go away. The Second Defendant also asserts that you will not recover in excess of the monies recovered in the Compensation Court proceedings.’
Plaintiff:         ‘What do you think?’
Me:     ‘I don’t have current figures showing what Stuart would be earning now but as he was on very high income and your husband is on a lower income by comparison I believe you stand to recover substantially more in these proceedings. I would advise you to continue proceedings.   Do you wish to continue with the proceedings? There is also the question of nervous shock you suffered and the loss of Stuart’s labour with the house renovations.’
Plaintiff:         ‘I’m afraid of giving evidence again. I feel unable, I am distressed right now, I don’t know what to do. I just know that I don’t want to go back to Court.’
Me:     ‘I could write to both of the Defendants and canvas the question of settlement for a moderate amount representing costs and subject to payment of costs the proceedings could be discontinued. I think you would also need indemnities from both Defendants in relation to payments you have received particularly those made by the employer. Do you wish me to write that letter?’
Plaintiff:         ‘Yes, I’ll leave it to you.’ ”
At this time both the plaintiff and her solicitor contemplated that he would write to, and attempt to settle with, both defendants.
On the same day Mr Mason wrote to Mr Glascott of Phillips Fox, Amcor’s solicitors, in part as follows:
“We would observe that it is our view that the Plaintiff would if she proceeded recover substantial amounts in respect of general damages for nervous shock as well as economic loss arising out of the death of her husband. Bearing in mind their respective ages at the date of the death of her husband and his salary which on a comparables basis at this time would still give a loss of her current husbands [sic] earnings and the deceased’s comparable employees earnings of approximately $600.00 per week.
The nervous shock issue in our view is quite significant and appears to have deteriorated over the years. It was very evident in our recent meeting with our client. Our client is considering her position so far as proceeding with the proceedings and without prejudice should she decide to withdraw them this would be on the basis that there be some agreement by one or both respondents to pay her costs incurred and on each defendant releasing her from any right of recovery in respect of monies paid or received.”
Nearly three months later on 4 September 1996, Mr Glascott recorded the following conversation with Mr Mason:
“- We can offer $5,000 costs (final offer)
- Pl to discontinue
- he is concerned Vandervords (w/comp insurer’s sol) will get $
- I don’t think so - its for costs, not damages
- Will contact client and get back to me.”
Vandervords were and are PIE’s solicitors.
On 6 September 1996 Mr Mason and the plaintiff spoke on the telephone. According to Mr Mason’s file note he told the plaintiff of Amcor’s offer of $5,000 for the plaintiff to discontinue proceedings. He also told her that, in his view that she would get much more. He told her that his costs to date would be between $7,000 and $10,000 and that if PIE did not make up the difference, she would have to pay him. The plaintiff said she did not know how she would pay Mr Mason but he assured her that he would make some arrangements. She said that Mr Mason could put a counter offer of $7,500. She also told him she was distressed and anxious. Mr Mason told her he understood.
On the same day, Mr Mason wrote to Mr Glascott:
“We refer to the above matter and to our telephone discussions with your Mr Glascott in relation to the above matter. We confirm that in relation to the offer of resolution of this matter by payment of our costs, we have taken instructions from our client and are instructed to advise you that upon payment of our costs in the sum of $7,500.00 the proceedings will be discontinued. Should your client be in agreement, we will take the necessary steps to discontinue this action.”
On 11 September 1996, Mr Glascott spoke to Mr Mason. According to Mr Glascott’s file note, Mr Glascott offered $5,000 costs to discontinue which Mr Mason accepted. Mr Glascott said “I don’t think $5,000 costs creates a liability in the plaintiff to the first defendant (workers compensation insurer).” The note continued “we to prepare notice of discontinuance and terms of settlement.”
On 17 October 1996, Mr Mason wrote to Mr Glascott referring to previous correspondence and
“our telephone discussions with Simon Glascott and agreement reached that this matter would be settled on the basis of your client paying the costs of this firm in the sum of $5,000.00.
You will appreciate that Pt 21 of the Rules allow discontinuance only by consent of the defendants or with the leave of the Court. We envisage that it may be necessary to move the Court as the First Defendant may not consent to the withdrawal of the matter.”
On the same day Mr Mason wrote to Vandervords indicating that he had received instructions from the plaintiff that she did not wish to proceed with the proceedings any further
“as she feels unable mentally to continue bearing in mind the trauma suffered by her late husband and the consequent affect [sic] on the Plaintiff. The Plaintiff was grossly affected by the death of her husband, however she has attempted to re-start her life and has re-married and has recently given birth to a child. We, of course, have given advice to our client on this matter and with the benefit of that advice, and bearing in mind her current mental state, she has determined that she wishes this matter to be discontinued.
We were concerned that our client, although discontinuing, is still exposed to our costs and in an endeavour to provide some relief for our client we have had discussions with the solicitors for Amcor Pty Limited who have consented to pay the sum of $5,000.00 of our client’s costs of this firm acting for her to date. Our client will remain liable to us for the balance of our fees and at this point we would similarly ask you to seek instructions as to whether you would be prepared to pay the balance of our costs in this matter in the further sum of $5,000.00 and consent to the discontinuance in order that our client might put this matter behind her.”
A form of notice of discontinuance for endorsement of consent to the discontinuance on behalf of the first defendant was enclosed. Vandervords replied that their client did not consent. Hulme J observed that the terms of Mr Mason’s letter of 17 October 1996 to Vandervords were not calculated to enhance his bargaining position.
On 14 November 1996, Mr Glascott wrote to Mr Mason confirming settlement of the plaintiff’s claim on the basis that the plaintiff discontinue the proceedings and that his client pay costs in the sum of $5,000. The letter continued:
“As you are aware, the first defendant has advised that it does not consent to the proceedings being discontinued. That would not disentitle our respective clients finalising their differences as agreed.”
APPLICATION TO AVOID COMPROMISE
On 3 July 1998, the plaintiff filed a notice of motion in the proceedings for declarations that any agreement between the plaintiff and Amcor did not constitute an enforceable settlement because there was no finality of agreement or, in the alternative, that the agreement was void and unenforceable pursuant to the Contracts Review Act. On 24 September 1998, Amcor filed an amended notice of motion for a declaration that, on 11 September 1996, the plaintiff and Amcor agreed to compromise the proceedings on terms that Amcor would without admission of liability pay to the plaintiff the sum of $5,000 in respect of its costs and that the plaintiff would take such steps as were required to discontinue the proceedings and for orders that the plaintiff specifically perform the agreement and have leave to discontinue the proceedings. These applications came on for hearing before Hulme J on 23 September 1998.
Various arguments were put on behalf of the plaintiff to Hulme J. The declaration his Honour made was based on a finding that the compromise agreement was unjust within the meaning of the Contracts Review Act. His Honour made a number of significant findings. He referred to a report of Dr Shand dated 13 September 1993 and the following history recorded in that report.
“[The plaintiff] has pathological anxiety and issues the usual instructions and safety precautions. She gets shaky with panic and diarrhoea, eg if her husband is late home by half an hour. When driving she has blank periods and can’t recall phases of a trip which makes her feel dangerous on the road. To a question she said that depression suddenly comes about every six months and lasting up to a month. She wants to cry and gets bitchy and irritable. She wants to do nothing and sometimes gives up.”
Hulme J referred to Dr Shand’s diagnosis as follows:
“[She is] still suffering from a bereavement reaction with neurotic features. She is unable to let go of her dead husband and does not want to. In a somewhat extraordinary fashion she has managed to combine this with a second satisfactory marriage and she is trying to get pregnant….Symptoms include pathological anxiety with particular focus on her current husband and intermittent depression with tension and irritability. She consults a counsellor now and then but has no need of any other treatment. Residual disorder is fairly mild and she is getting on with her life in a satisfactory fashion. In keeping with this she showed no signs of clinical nervous disorder at interview even if she was tearful on occasions about losing her husband. I would regard the symptoms she still has as attributable to the death of her first husband.”
By 6 June 1994, Phillips Fox had received a copy of Dr Shand’s report.
On 11 June 1998, Dr Westmore examined the plaintiff. He prepared a report of 16 June 1998 as well as two further supplementary reports. In one of those dated 7 July 1998 and addressed to Mr Mason’s firm, Dr Westmore said:
“It is very difficult to make specific comments about a particular day or month so long ago, however, it is my view that this woman has suffered a pathological grief reaction which commenced from the time of her husband’s death and remains in place today.
She is not able at this time, in my view, to provide you with instructions due to her psychiatric incapacity and on the balance of probability she was not able to provide you with instructions in June 1996. It is most unlikely she would have been any different at that time than she is today, indeed, she is likely to have been worse.”

Part of Dr Westmore’s evidence was that the plaintiff was suffering from a pathological grief reaction which was characterised by a number of different features including anxiety and depression. He thought her condition was such that she would have great difficulty in providing Mr Mason with instructions, mainly because she was so “avoidant” in terms of addressing communications from his office. Dr Westmore said:
“Mrs Watson suffers pathological avoidance with regard to the issues relating to the death of her first husband and the subsequent legal matters. She has anxiety and depression when these issues are raised, this affects her capacity to attend and concentrate, to remember relevant details and subsequently to be able to instruct her solicitors in and [sic] appropriate way ….. While there is no indication that this woman cannot manage her affairs in a general sense, it is my view that she cannot manage her affairs in relation to the current proceedings.”
He said that the plaintiff, if provided with proper advice, was able to make a decision in the litigation but “I think the concern psychiatrically is whether …… the death of her first husband….. influences in an inappropriate way decisions that she might make regarding a legal case associated with the death of her first husband” and “I think she has a pathological avoidance of this issue and evidence in her lifestyle that she has avoided dealing with the death of her first husband”. He said the plaintiff was dealing with the death of her first husband in a pathological, that is to say unhealthy abnormal way. Dr Westmore said he had a concern
“whether she can really, at the moment as she is, apply her mind in a sensible way to the issues relating to the death of her first husband”
and
“she might wish to prematurely close her case and that would be a classic behaviour associated with this condition, wanting to get rid of it, lock it away, get it out of her life, and not really deal with the difficulty of the litigation, difficulty of having to deal with the memory of her husband, circumstances of his death, memory of her experience at and around the time he died, because that’s the way she is dealing with it, she has pushed it out of her level of consciousness and from a psychological perspective one of the dangers is that she will want to preclude, inappropriately, prematurely, simply to get rid of pain or avoid dealing with pain associated with the memory.”
Hulme J accepted Dr Westmore’s evidence except in so far as Dr Westmore’s remarks seemed to constitute an expression of opinion about the plaintiff’s legal capacity, a matter which his Honour said involved legal tests which he was not satisfied Dr Westmore correctly understood.
The plaintiff gave evidence. Hulme J accepted what she said in the following passage:
“On the occasions that I had contact with my solicitor Mr Mason on the telephone or if he would ring or leave a message for me to call, it would cause great emotional disturbance and bring back many memories and I would have great difficulty in returning his telephone calls and would sometimes take up to a week to build up to telephoning my solicitor or would not telephone him. If my solicitor sent me a letter on many occasions I would not open the letter for two or three days because of my distress, or sometimes never open it. On each of these occasions I would become extremely emotional, have bouts of crying and it would make it all as if it was happening over and over again.”
Hulme J said:
“Giving evidence was obviously difficult for the Plaintiff. I accept her when she said that she ‘just wanted it all over and done with’ because it was just too upsetting. I understand the ‘it’ to have been the litigation. I accept also that this was because dealing with it brought back memories of when her first husband was killed and that this used to make her sick, at times for days.
I accept also her solicitor’s evidence to the effect that he had considerable difficulty in obtaining information or instructions from the Plaintiff. I accept his evidence that in conversation on 7 June 1996 he informed the Plaintiff that the Second Defendant was asserting the Plaintiff would not recover if she proceeded more than had been recovered in the Compensation Court proceedings, that his view [sic] she stood to recover substantially more and would advise her to continue and that the Plaintiff said to him she was afraid of giving evidence again, she didn’t know what to do but knew she did not want to go back to court. I also accept that he raised the possibility of the case being settled for a moderate amount representing costs and on terms of receiving indemnities in respect of payments previously received. He asked the Plaintiff whether she wished such a letter written and was told ‘Yes, I’ll leave it to you.’ ”
His Honour accepted Mr Mason’s evidence that he had told the plaintiff that she would recover substantially more.
Hulme J was of the opinion that the communications between the plaintiff’s solicitor and the solicitors for Amcor were calculated to constitute a contract between those parties to compromise the dispute between them. His Honour said:
“In my view they were. Although in the letter of 7 June, Mr Mason indicated clearly that any compromise he was contemplating would involve all three parties. The subsequent correspondence and discussions between Mr Mason and Phillips Fox are in terms indicative of a two, and not three, party agreement. The number of instances of this is sufficient to prevent one concluding that these negotiations were all under the aegis of the letter of 7 June and that any agreement reached was conditional on the third party to the litigation concurring. In particular do the references to the possibility of any moneys paid by Phillips Fox’s client being payable by the Plaintiff to the First Defendant lead to this conclusion. Whatever the First Defendant’s rights in this regard arising under the terms of the Workers Compensation legislation, those rights were, as is obvious to anyone practising in personal injury claims in this Court, susceptible of variation or defeat by a suitably arranged settlement of the proceedings in this Court and the terms of the conversations of 4 and 11 September are only consistent with there being no agreement with the First Defendant concerning the matter.
It was urged on behalf of the Plaintiff that any agreement with the Second Defendant was conditional upon the First Defendant becoming a party to it or the Plaintiff making some other arrangement with the First Defendant. However, in light of the terms of the correspondence and discussions which I have set out above, this argument is untenable.
Although the reference to indemnities in Mr Mason’s remarks just prior to the Plaintiff saying ‘Yes I’ll leave it to you’ referred to …. above make it doubtful whether he had the Plaintiff’s actual authority to make a two party agreement with the Second Defendant, there can be no doubt that , subject to any matters flowing from any incapacity the Plaintiff may have had, he had ostensible authority from the Plaintiff to effect the agreement he did.”
Notwithstanding the evidence of Dr Westmore, Hulme J remained unpersuaded that the plaintiff in 1996 lacked the capacity to understand the nature of the transaction when it was explained. His Honour referred to Gibbons v Wright (1954) 91 CLR 423 at 438, and said that he thought the probabilities were that she had the requisite capacity to understand. In any event, there was no evidence to suggest that any incapacity which the plaintiff had to contract was known to Phillips Fox or Amcor.
Hulme J turned then to consider whether the contract was unjust and should be set aside pursuant to the terms of the Contracts Review Act. The plaintiff had submitted that Amcor was aware of the potential value of the claim and, implicitly, that it was worth considerably more than the plaintiff received under the compromise. However, his Honour was not prepared to conclude that Amcor probably believed that the settlement arrived at was unduly favourable to it and unfavourable to the plaintiff and said that, in the circumstances and given the limits of the evidence before him, it was unnecessary and not appropriate that he attempt to value the plaintiff’s claim. The reasons for judgment continued:
“In determining whether a contract is unjust, Section 9 of the Contracts Review Act requires the Court to have regard to all the circumstances of the case and to a number of specific matters referred to in sub-section 9(2). Among the circumstances which are relevant is the desirability of parties being held to agreements into which they have voluntarily entered. Furthermore, the compromise of litigation is something which the courts encourage and there are significant disadvantages not only for a party whose compromise may be set aside but for the public if such compromises come to be treated as but provisional. The continuation of litigation has disadvantages for all litigants including the Plaintiff and the fact that the contract I have held to exist was entered into with the benefit of legal advice operates against any suggestion that the contract was unjust.
Most of the matters to which sub-section 9(2) of the Act requires that the court have regard do not argue in favour of the Plaintiff’s claim under that Act. However, two do. In light of Dr Westmore’s reports and evidence and my assessment of the Plaintiff, I am satisfied that notwithstanding the Plaintiff was being advised by her solicitor, there was a material, and I would say substantial, inequality in bargaining power between the Plaintiff and the Second Defendant. On the same grounds I am also satisfied that the Plaintiff was not reasonably able to protect her own interests.
I would also conclude that the Second Defendant through Phillips Fox had some notice of the first of these matters. They had notice of the matters referred to in the report of Dr Shand, including the diagnosis of pathological anxiety and neurotic features although there is nothing in the report to suggest that the Plaintiff suffered disability in her response to, or conduct of, the litigation. The letter of 7 June from Mr Mason is not as clearly expressed as it might have been but the statement that ‘the nervous shock issue … is quite significant and appears to have deteriorated’ and was ‘very evident’ is a statement that the Plaintiff’s condition was worse. When attention is also had to Mr Mason’s expressed view that the Plaintiff would, if she proceeded, recover substantial amounts and to the observation that (nevertheless) the Plaintiff was considering withdrawing, in effect, with only her costs paid, it seems to me that the letter gave notice to the Second Defendant that there was some weakness in the Plaintiff’s bargaining power (not attributable to weakness in her case) and ability to protect her own interests.”
One factor, according to Hulme J, merited specific mention. The agreement reached directed no attention to the position of the employer, PIE. His Honour said:
“In light of the terms of the letter of 7 June and, one may add, the logic of any desire the Plaintiff may have had to be out of the litigation, it is difficult to avoid the conclusion that the making of an agreement with only the Second Defendant was a mistake. It left the Plaintiff exposed either to continue the action (which rather defeated the object of the negotiations) or at the mercy of the First Defendant or the Court so far as the First Defendant’s costs were concerned. It is, I think, clearly to be inferred that this was never intended by the Plaintiff or her solicitor.
Although I suspect Mr Glascott must have been pleasantly surprised that Mr Mason did not complicate the settlement discussions by insisting on the involvement of the First Defendant, on the question of whether the contract was unjust, I am not disposed to give the matter referred to in the preceding paragraph any weight.”
Hulme J’s conclusion that the contract was unjust within the meaning of the Contracts Review Act and his reasons for that conclusion were expressed as follows:
“However the two matters to which I have referred earlier can not be so regarded. Their weight is such that in my view, notwithstanding the factors which argue to the contrary and, in particular, that there was no conduct on the part of the First [sic Second] Defendant which can be criticised, the contract of compromise was unjust. I am also of the view that, for the purpose of avoiding as far as practical an unjust result, I should make an order declaring the contract void.
In this regard, although I do not need to rely on the matter, it is also appropriate to record that that, subject to one qualification, setting aside the contract but restores the parties to rights and obligations which they had prior to the compromise being entered into and which were laid down by law as presumably a fair consequence of the death of the Plaintiff’s husband and subsequent events. The qualification is that since the compromise, any right the Plaintiff had to pursue a claim for nervous shock has presumably become barred by the Limitation Act unless the Plaintiff succeeds in obtaining orders from the Court which may avoid this result. (The question of whether the Plaintiff should be allowed to amend her Statement of Claim was raised during the hearing before me but stood over.)”
APPEAL
Amcor appeals against this conclusion. Both the plaintiff and PIE, have filed notices of contention. The plaintiff further amended her notice, by leave of the Court, to the effect that the Court should have exercised a discretion not to hold the plaintiff to the contract of compromise by refusing the application to discontinue (see Lewis v Combell Constructions Pty Limited (1989) 18 NSWLR 528 and Harvey v Phillips (1956) 95 CLR 235 at 242-3) or, alternatively, that in the absence of participating consent by PIE, there was no binding unconditional agreement for compromise between the plaintiff and Amcor. The first of these contentions Hulme J adverted to but did not decide. His Honour decided the second contention against the plaintiff.
In the forefront of Amcor’s submission was an argument that, in coming to his conclusion that the contract was unjust within the meaning of the Contracts Review Act, his Honour failed properly to apply s7(1) of the Act which provides as follows:
“Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a)it may decide to refuse to enforce any or all of the provisions of the contract;
(b)it may make an order declaring the contract void, in whole or in part;
(c)it may make an order varying, in whole or in part, any provision of the contract;
(d)it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument; or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.”
The subsection conditions the Court’s power to intervene on a finding that the contract in question or a provision of it has been unjust in the circumstances relating to the contract at the time it was made. Further, before the Court intervenes it must consider it just to do so and any intervention must be for the purpose of avoiding, as far as practicable, an unjust consequence or result. Sometimes insufficient attention is paid to these conditions and the purpose of the exercise of the power and too much to the matters listed in s9(2), two of which Hulme J referred to.
Section 9(1) provides:
“In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:
(a)compliance with any or all of the provisions of the contract; or
(b)non-compliance with, or contravention of, any or all of the provisions of the contract.”
Section 9(2) begins with the words:
“Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:….”
The language is not exclusive but the matters listed are matters to which the Court shall have regard to the extent that they are relevant to the circumstances. Each should be treated, not as necessarily a hallmark of the unjust contract, but, as the subsection says, a matter to which the Court shall have regard.
In West v AGC (Advances) Limited (1986) 5 NSWLR 610 at 620 and following McHugh JA, as his Honour then was, discussed the operation of the Contracts Review Act and said at 621:
“Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s9(4), and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances even though none of the provisions of s9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust.”
Amcor would have us read Hulme J’s judgment as saying no more than that because there was a material inequality in bargaining power between the parties to the contract and the plaintiff was not reasonably able to protect her interests, it followed that the contract was unjust and should be avoided. This approach divorces one small part of the reasoning from the rest.
The proposition that at the time the compromise agreement was made in 1996 there was an inequality in bargaining power between a widow, albeit advised by a solicitor, seeking to recover damages for the negligence which caused her late husband’s death and one of the defendants, Amcor, a large corporation probably supported by its insurer, is irrefutable. Nor could there be any doubt, particularly having regard to the evidence of Dr Shand and Dr Westmore, that the plaintiff was not reasonably able to protect her interests because of her physical and mental capacity. In this respect, s9(2)(e) states the relevant matters to which the Court shall have regard as follows:
“(e) whether or not:
(i)any party to the contract (other than a corporation) was not reasonably able to protect his or her interests; or
(ii)any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity;”
I would not read para (e) as in some way excluding as relevant the first of these matters simply because the plaintiff was represented by a person apparently reasonably able to protect her interests. One of the critical factors here was that the plaintiff was unable to give her solicitor instructions. This is a matter or circumstance to be taken into account in determining whether the contract was unjust whatever the capacity of the solicitor. Of course the fact that the plaintiff had a solicitor to advise her cannot be ignored and is a relevant matter to be taken into account.

In Baltic Shipping Company v Dillon; ‘Mikhail Lermontov’ (1991) 22 NSWLR 1 at 9 Gleeson CJ, who formed the majority of the Court with Kirby P, said:
“The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just. Moreover, there is a particular policy of the law to encourage resolution of litigation by settlement, and that particular policy is not advanced by encouraging plaintiffs who settle litigation and later repent of their bargains to seek to avoid their contracts on the basis that they were made in circumstances of emotional vulnerability. Litigation is stressful for most people who have the misfortune to become involved in it. Most people regard the prospect of a long and expensive court case with dismay. People often settle legal claims for less than they are worth because of a desire to avoid what they see as greater evil. In its own way, this is often a calculated decision and it is frequently a prudent one. This is not enough to sustain relief under the Contracts Review Act. However, in the present case there was more.
The starting point for a consideration of whether the settlement agreement, including the release, was ‘unjust in the circumstances’ is the conclusion reached in relation to the first issue, which produces the result that the respondent settled her claim for less than one-tenth of what it was worth. Further, there are the findings made by Carruthers J that there was material inequality in bargaining power between the parties to the contract and that the respondent’s capacity to protect her interests was, owing to her physical and emotional condition, diminished. Those findings have not, in my view, been successfully challenged. Finally, there is the view of his Honour, which I also consider to be justified, that the appellant at the least adopted a course of conduct including denying any liability, and confronting the respondent with the prospect of potentially enormous litigation, which of its nature was likely to, and did, subject her to a form of pressure which had the effect, even if not the purpose, of taking advantage of the inequality of bargaining power and of her diminished capacity to protect her own interests.”
At 20, Kirby P, as his Honour then was, said that it was a mistake to read into the language of s9 an obligation to show that the contract was unjust because it was produced by unfair conduct or unjust conduct on the part of one of the parties to it. The list in s9(2), as the subsection makes plain, is not exclusive. Kirby P said:
“The duty of a court remains to have regard to ‘all the circumstances of the case’. It must consider the ‘public interest’, including in the observance of agreements duly entered. But in the end, the focus of attention must be upon the contract. The court must decide whether ‘in the circumstances’ the contract is ‘unjust’. A contract may be ‘unjust’ because of peculiarities inherent in the circumstances of one of the parties of which the other party was quite ignorant. It may be ‘unjust’ although the other party has acted quite honourably and lawfully. ……. Finally, the grant of relief is discretionary.”
The High Court granted special leave to appeal from the decision of the Court of Appeal on grounds which included the question whether the respondent was entitled by reason of the operation of the Contracts Review Act to relief from the deed of release. However, during the hearing of the appeal, special leave to appeal on this question was rescinded (see Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 347). On 7 February 1992, when announcing this decision, Mason CJ said:
“In this case, the members of the Court of Appeal took into account, inter alia, the following matters in deciding that the contract was unjust: the comparison between the value of the respondent’s cause of action and the amount agreed to be paid in settlement; an inequality in bargaining power of the parties; a diminished capacity of the respondent to protect her interests and the conduct of the appellant in denying liability.
Those matters can be said to be ‘circumstances relating to the contract’, so as to entitle the Court to consider them in deciding whether the contract was unjust. The appellant submits that those circumstances, or some of them, were immaterial to the finding that the contract was unjust. We do not consider this argument to be soundly based.”
Hulme J referred to the following relevant matters. By 6 June 1994 the plaintiff had formulated a claim for nervous shock against both defendants. Her solicitor Mr Mason’s opinion was that the plaintiff would recover substantially more if the Common Law proceedings went ahead than she had recovered in the Compensation Court proceedings. Mr Mason gave evidence that the plaintiff’s reticence in providing instructions to him caused undue delay in the prosecution of the proceedings. The plaintiff had a recollection that she had discussed the proceedings with Mr Mason and expressed a desire not to be in court again. The medical evidence in August 1993 was that she was still suffering from a bereavement reaction with neurotic features and that in June 1998 she was not able to provide Mr Mason with instructions due to her psychiatric incapacity and, on the balance of probability, was not able to provide such instructions in June 1996. She was not able to apply her mind in a sensible way to the issues relating to her first husband’s death. She might wish prematurely to close her case. She wanted to get rid of it, lock it away, get it out of her life and not really to deal with the difficulty of the litigation, the difficulty of having to deal with the memory of her husband and the circumstances of his death and the memory of her experience at and around the time he died. Hulme J accepted the plaintiff’s evidence when she said that she “just wanted it all over and done with” because it was “just too upsetting”, the “it” being a reference to the litigation. His Honour also accepted that this was because dealing with it brought back memories of when her first husband was killed.
The plaintiff gave the following evidence:
“Q.      You also mentioned, in your affidavit, what recollections you had of conversations with your solicitor in or about, or contact with your solicitor in or about, early June 1996? A. I can’t remember that.
Q.       Do you remember how you felt at that time? A. I just wanted it all over and done with.
Q.       Why was that? A. It’s just too upsetting.
Q.       Why was it upsetting you? …….. A. It just brought back all the memories of when my husband was killed.
Q.       Did that affect your state of mind? A. Yes.
Q.       How would you describe your state of mind when those memories were brought back? A. Sorry, can you say that again?
Q.       How was your state of mind affected, or how would you describe the change to your state of mind when those memories were brought back to you? A. I just couldn’t think clearly. It used to just make me sick.
HIS HONOUR: Q. In what way did it make you sick. Did you vomit? A. No. I would end up with diarrhoea and my body would shake. I would feel sick. It would come up to my throat, but - and my whole body would just shake.
Q.       How long would that sort of thing go on for? A. It could be days.”
Hulme J accepted that the plaintiff said to her solicitor that she was afraid of giving evidence again. In coming to his decision, his Honour expressly took account of the circumstances that it was desirable that parties be held to agreements into which they had voluntarily entered, that the Court should encourage the compromise of litigation and not treat such a compromise as but provisional, that the continuation of the litigation had disadvantages for all litigants including the plaintiff and that the plaintiff had entered into the contract with the benefit of legal advice. Hulme J drew particular attention to the consequences of not simultaneously reaching a compromise with PIE though he gave this matter no weight.
His Honour also referred to the matter, which Mr Ireland QC, who appeared for the plaintiff, urged upon us though more in the context of whether there was an agreement at all or at most a conditional agreement, that there was some doubt whether Mr Mason had the plaintiff’s authority to reach a compromise with Amcor alone. There is also, though his Honour made no reference to this, some doubt whether Mr Mason had the plaintiff’s authority to accept anything less than $7,500 on account of costs.
CONCLUSION
A proper and fair reading of Hulme J’s reasons for judgment has led me to the conclusion that, in considering whether the contract was unjust within the meaning of the Contracts Review Act, his Honour carefully considered all the relevant matters and circumstances, which he had carefully set out and about which he had made findings. Those matters and circumstances amply supported his Honour’s conclusion that the contract was unjust in the circumstances relating to it at the time it was made. When making the order declaring the contract void, it is clear from the reasons that his Honour considered it just to do so. His Honour said he was of the view that for the purpose of avoiding as far as practicable an unjust result, he should make an order declaring the contract void. His Honour did not, as counsel for Amcor urged, ignore its position. He observed that Amcor, through their solicitors, had some notice of the matters referred to in the report of Dr Shand and the plaintiff’s disability in her response to, or conduct of, the litigation. He recorded that, subject to the plaintiff’s more recent claim for nervous shock, setting aside the contract restored the parties to rights and obligations which they had before the compromise was entered into, namely the consequences at law to Amcor of negligently causing the death of the plaintiff’s husband. Looked at as a whole, I can detect no error in his Honour’s reasoning and no basis for interfering with his Honour’s exercise of the power vested in him by s7(1) of the Contracts Review Act.I respectfully agree with his conclusion. Accordingly, the appeal should be dismissed with costs.
It is not necessary for us to deal with the alternative arguments in the notices of contention.
HEYDON JA: I agree with Sheller JA.
******

LAST UPDATED: 03/03/2000

[2000] NSWCA 21

3 March 2000

Key Legal Topics

Areas of Law

Contract Law

Statutory Interpretation

Legal Concepts

Appeal

Remedies

Statutory Construction