Carbone v Australia Wide SKIPTRACING Services P/L - [2007] SASC 324

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
CARBONE & ORS v AUSTRALIA WIDE SKIPTRACING SERVICES P/L
[2007] SASC 324
Judgment of The Honourable Justice Duggan
31 August 2007
PROCEDURE - JUDGMENTS AND ORDERS
Appeal from magistrate who found that prior to commencement of trial parties had reached settlement - magistrate entered consent judgment - parties had not agreed on time for payment of monies owing - whether parties had reached a completed agreement - time for making payment must be considered in conjuction with consequences for failure to pay on time - time to pay an important condition in circumstances - magistrate entered judgment on terms not agreed by either party. Held: appeal allowed and orders of magistrate set aside.
Custom Credit Corporation Ltd v Gray [1992] 1 VR 540; Forestry Commission of New South Wales v Stefanetto (1975) 133 CLR 507; Summergreene v Parker (1950) 80 CLR 305, applied.

CARBONE & ORS v AUSTRALIA WIDE SKIPTRACING SERVICES P/L
[2007] SASC 324
Magistrates Appeal

DUGGAN J. The appellants (the plaintiffs and the third party) brought an action against the respondent (the defendant) in the Adelaide Magistrates Court. It was alleged in the statement of claim that the plaintiffs contracted to provide various services to the defendant and that the defendant failed to pay outstanding invoices. The defendant denied the claim and pleaded that there had been payment of the debt. The defendant also counterclaimed for the costs of making good alleged faulty workmanship by the plaintiffs.
The matter was set down for trial commencing on 21 May 2007. A few days before the trial the parties engaged in settlement negotiations. On the morning on which the trial was to commence the court was told that there was a dispute as to whether the parties had agreed to settle the matter. The defendant then successfully applied to amend the defence. In the amended defence the defendant claimed that the parties had reached a settlement whereby the plaintiffs and the third party were to pay the defendant the sum of $4000 inclusive of costs. The matter was adjourned to the following day when submissions were made on the question whether there had been an agreement to settle the action.
There was no significant dispute about the facts relied upon by the defendant in support of the claim that the parties had reached agreement on a settlement.
On 30 May 2007 the learned magistrate announced his finding that a settlement between the parties had been reached. He ordered that there be judgment for the defendant against the plaintiffs and the third party in the sum of $4000.
The solicitors for the parties entered into negotiations in an attempt to settle the matter on Friday 18 May 2007. On the afternoon of that day the solicitors for the plaintiffs and the third party wrote to the defendant’s solicitors as follows:
We refer to your telephone attendance with the writer this day.
As consistent with that conversation our client puts forth an offer of $4,000.00 in full and final settlement of the matter presently listed for trial on Monday 21^st May 2007.
We confirm you are currently obtaining your client’s instructions.
This letter is written without prejudice save that we reserve our right to refer to this letter on the question of costs in any proceedings before the Court.
We await your response.
The letter was forwarded by facsimile transmission and the solicitors for the defendant replied on the same afternoon:
We refer to your letter of even date, received by way of facsimile transmission, detailing your client’s offer to settle.
We confirm that you are making this offer on behalf of the Plaintiff and the Third Party.
Accordingly, having conferred with our client our instructions are that the Plaintiff and the Third Party consent to Orders in the following terms:
1Judgment in favour of the Defendant as against the Plaintiff and the Third Party, jointly and severally, in the sum of $4,000.00 inclusive of costs, such Judgment to be satisfied within 14 days of the making of the Order;
2In the event of default of payment of the sum referred to in the preceding paragraph within 14 days, then Judgment in favour of the Defendant as against the Plaintiff and the Third Party, jointly and severally, will be in the full amount of the Defendant’s Counterclaim, with costs to be taxed or agreed.
Please confirm that your client and the Third Party agree to the said Orders being made on Monday, 21 May 2007.
It was conceded on behalf of the plaintiffs and the third party that the consequences of failure to pay on time were agreed orally between the parties. However, it is common ground that the parties had not agreed on the time to pay. Furthermore, the plaintiffs and the third party argued that the stipulation as to the consequences of the failure to pay on time constituted a penalty which was unenforceable.
The defendant’s counsel submitted to the magistrate that agreement had been reached on the essential term that the plaintiffs and the third party would pay $4000 to the defendant in full and final settlement of the action. According to the argument, the fact that the parties did not reach agreement on the time to pay did not alter the fact that a binding agreement to settle the action for the agreed sum had been reached.
In his reasons for decision the magistrate stated:
The plaintiff’s view is there is no agreement between the parties not because the solicitors could not agree the time for payment, but because the provisions relating to the consequences of non-payment amount to a penalty. The plaintiff says these terms are unlawful because they constitute a penalty and so the court could not make such an order, even with the consent of the parties.
His Honour went on to deal with the argument that the consequences of a breach of the agreement contended for amounted to a penalty of the type discussed in Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co Ltd[1]. In the light of his remarks set out above, he did not turn his mind to the question whether there had been an agreement in the first place.
[1] [1915] AC 79.
According to the submission of the plaintiffs and the third party on the hearing of the appeal, the argument which they presented before the magistrate was twofold. They claimed to have raised the argument as to penalty and, in addition, the argument that the parties were not agreed on an essential term, namely, the requirement as to when payment was to be made.
In my view the crucial question is whether the parties reached a completed agreement.[2] It is clear that they did not agree on time to pay despite the fact that they attempted to do so. The negotiations between the parties reveal that the issue of time was important to them. The plaintiff and the third party stipulated for a period of 30 days and, when the defendant refused to agree to this period, the plaintiffs and the third party said they would be prepared to accept a period of 21 days. The defendant was adamant that the amount had to be paid within 14 days and the plaintiffs and the third party withdrew their offer of 21 days.
[2] cf. Summergreene v Parker (1950) 80 CLR 305 at 315-316.
The time for the making of payment has to be considered in conjunction with the consequences of failure to pay on time. If payment was not made on time the plaintiffs and the third party became liable for the full amount of the counterclaim, namely, $12,000.
It is my view that, in these circumstances and considered against the background of the negotiations, the parties cannot be said to have reached an agreement sufficient to constitute the basis of a consent judgment. There was a clearly defined area of non-agreement and neither party was prepared to accept the proposal put forward by the other party.
Custom Credit Corporation Ltd v Gray[3] provides a useful analogy. A consumer mortgage entered into between the parties did not sufficiently indicate the date on which the first instalment was to be paid. In a joint judgment McGarvie and Gobbo JJ stated:[4]
In a transaction such as this, with the detailed provisions in the offer document as to the consequences of failure to pay an instalment on the due date, the parties to the agreement made by the acceptance of the offer obviously contemplated that such a default might occur. They could hardly have contemplated otherwise. The legal rights and obligations which, subject to the Credit Act, follow the failure to pay an instalment on the due date are potentially of vital importance to each party.
. . . . . .
To have a smooth and effective commercial operation, this type of contract needs to have the date for the payment of each instalment clearly stated in the contract so that there can be no doubt or argument about it.
[3] [1992] 1 VR 540.
[4] Ibid at 550.
The situation is a fortiori where, as in the present case, the parties directed their attention to the issue but failed in their attempts to agree on the time within which payment of the judgment sum was to be paid.
Faced with this difficulty, the magistrate entered judgment on a basis which had not been proposed by either party. He ignored the condition relating to the consequences of default which both parties had agreed upon and, in addition, did not include in the order a requirement as to time to pay. The effect was to make a contract for the parties and to enter a consent judgment on terms which had not been consented to by them.
If I am right in concluding that the parties did not reach a completed agreement, the question whether the default provision is a penalty becomes academic. In any event, the consent judgment did not include this stipulation.
Nevertheless, it is appropriate that I state my view that this provision would not amount to a penalty. As Mason J pointed out in Forestry Commission of NewSouth Wales v Stefanetto[5]:
The distinction between a penalty (when it takes the form of an obligation to pay a sum of money in the event of a breach of contract) and liquidated damages is that the latter is a genuine pre-estimate of loss or damage (Dunlop Pneumatic Tyres Co Ltd v New Garage and Motor Co Ltd [6]) whereas the former is not.[7]
[5] (1975) 133 CLR 507 at 519.
[6] [1915] A C 79 at 86.
[7] See also PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615 per Meagher JA at 650.
In the present case the defendant was prepared to forgo its counterclaim if the matter settled on the conditions which it put forward. The consequences of failure to pay the amount agreed upon would have resulted in a liability to pay the amount of the damages claimed by way of counterclaim. There would have been no liability in excess of the amount originally claimed. In my view, this condition would not have operated as a penalty.
The appeal will be allowed and the orders made by the magistrate set aside. The action will be remitted to the Magistrates Court for trial.