El-Mir v Risk

[2005] NSWCA 215

CITATION:	El-Mir & 1 Or v Risk [2005] NSWCA 215
HEARING DATE(S):	25 August 2004
JUDGMENT DATE:	24 June 2005
JUDGMENT OF:	Handley JA at 1; Ipp JA at 2; McColl JA at 3
DECISION:	(1 ) Appeal allowed with costs.; (2) Judgment and orders of the District Court made on 18 July 2003 set aside.; (3) Grant leave to the appellants to amend their Notice of Grounds of Defence by adding para 3A in accordance with the Draft Amended Notice of Grounds of Defence tendered during the hearing of the appeal subject to such terms as to the costs of the earlier proceedings in the District Court and the reference as this Court may impose after receiving further submissions.; (4) Order pursuant to DCR Pt 26 r 5AA that the questions of fact and law raised by para 3A of the Amended Defence be tried separately from any other question.; (5) If the appellants succeed on the separate questions direct that judgment be entered for them in the action and for the plaintiff on the cross-claim, the costs of the separate hearing to be in the discretion of the judge presiding at that hearing. ; (6) If the appellants fail on the separate question direct that judgment be entered for the plaintiff in the action for $199,172.88 with effect from 30 July 2003, the costs of the separate hearing to be in the discretion of the judge presiding at that hearing.; (7) The respondent to file written submissions as to the terms, if any, to be imposed as a condition of granting leave to amend within 14 days.; (8) The appellants to file written submissions in reply within a further 14 days.; (9) The respondent to file any submissions in reply within a further 7 days.; (10 )The respondent to have a certificate under the Suitors' Fund Act 1951.

CATCHWORDS:	CONTRACT - accord and satisfaction - whether terms of settlement amounted to accord and satisfaction of claims under building contract - effect of accord and satisfaction - discharge of original cause of action - WAIVER - whether filing of defence and cross-claim constituted waiver - PRACTICE AND PROCEDURE - amendment of pleadings to accord with basis upon which reference conducted -APPEAL - Referee's report - appeal from adoption of referee's report - whether judge erred in ordering report be adopted. (D)
LEGISLATION CITED:	Building Services Corporation Act 1989 Commercial Arbitration Act 1984 District Court Rules 1973 Home Building Act 1989
CASES CITED:	Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270; (2004) 208 ALR 630 Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA [1985] 1 WLR 925 Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421 Ballantyne v Phillott [1961] HCA 17; (1961) 105 CLR 379 Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 Day v McLea (1889) 22 QBD 610 Etlis & Anor v New Age Constructions (NSW) Pty Ltd & Anor [2005] NSWCA 165 Fair Trading Administration Corp v Sleigh (2000) 48 NSWLR 512 Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500 Illawong Village Pty Ltd v State Bank of New South Wales [2004] NSWSC 18 Jarvan Pty Ltd (in liq) formerly John R Carr & Associates Pty Ltd v Seery (NSW Court of Appeal, unreported, 1 December 1998) Koutsourais and Anor v Metledge and Associates [2004] NSWCA 313 Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 Magill v National Australia Bank Ltd [2001] NSWCA 221; (2001) Aust Contract R 90-131 McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 Melbourne Money Pty Ltd v Bryant (1994) ASC 56-275 Miles v New Zealand Alford Estate Company (1886) 32 Ch D 266 Neuchatel Asphalte Co Ltd v Barnett [1957] 1 WLR 356 Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (NSW Court of Appeal, unreported, 8 June 1994) Osborn & Bernotti t/as G04 Productions v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 Owners of the Cargo of the Kronprinz v Owners of the Kronprinz (1887) 12 App Cas 256 Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 Sali v SPC Ltd (1993) 67 ALJR 841 State of New South Wales v Thomas; State of New South Wales v Welling [2004] NSWCA 52 State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574 Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 Woolworths Ltd v Kelly (1991) 22 NSWLR 189
PARTIES:	Abdullah El-Mir (First Appellant) Mona El-Mir (Second Appellant) Gary Risk (Respondent)
FILE NUMBER(S):	CA 40661/03
COUNSEL:	J Bartos (First and Second Appellants) E M Olsson SC (Respondent)
SOLICITORS:	David Begg & Associates (First and Second Appellants) Snelgroves Solicitors (Respondent)

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 9850/00
LOWER COURT JUDICIAL OFFICER:	Balla DCJ

CA 40661/03
DC 9850/00

HANDLEY JA
IPP JA
McCOLL JA

Friday, 24 June 2005

Abdullah EL-MIR and Mona EL-MIR v Gary RISK

Judgment

1 HANDLEY JA: In this matter I have had the benefit of reading the judgment of McColl JA in draft and agree that the appeal should be allowed for the reasons she has given.

2 IPP JA: I agree with McColl JA.

3 McCOLL JA: This is an appeal from a decision of Balla DCJ in proceedings for the adoption of a referee’s report pursuant to Part 28B of the District Court Rules1973 in which her Honour refused an application by the appellants to dismiss or permanently stay the proceedings. The appellants sought that relief on the basis that they had a complete, albeit not pleaded, defence to the respondent’s claim. They asserted in short that the proceedings had been finally settled at an arbitration in 1997. They sought leave to plead that settlement by way of defence. The primary judge refused their application to amend and rejected their argument that the proceedings had been settled. She ordered that the referee’s report be adopted. She entered a verdict and judgment for the respondent in the sum of $199,172.88.

Statement of the case

4 The respondent is a builder who performed residential building work for the appellants pursuant to a building contract in 1994. A dispute arose. The respondent said he was owed money. The appellants complained about the quality of the works he had performed.

5 The respondent, relying on a provision in the building contract, sought to recover the monies said to be owing to him by recourse to commercial arbitration pursuant to the Commercial Arbitration Act 1984. The appellants cross-claimed alleging the respondent’s building work was defective. The arbitration proceeded before the late Mr E E Morris, in June 1997. Both parties had legal representation. After some evidence had been taken the matter was, as the arbitrator was informed by the respondent’s solicitor Mr Snelgrove, “settled”. The terms of settlement were read onto the transcript as well as being reduced to writing in a document signed by the parties’ solicitors. The document was headed “Terms of Settlement”, dated 27 June 1997 and stated:

“1. Each party, without admission, withdraws their respective claims and cross claims against the other party.

2. Each party is to bear its own costs of the arbitration.

3. Each party to bear equally the costs of the arbitrator.”

I shall refer to this document as the “1997 Settlement”.

6 At the time the document was read onto the record, the respondent and the male appellant respectively accepted and acknowledged the terms of settlement. Their responses were recorded on the transcript.

7 In early 1998 the appellants made an insurance claim in respect of the respondent’s allegedly defective work on the Building Services Corporation pursuant to the Home Building Act 1989. There is no direct evidence of that claim before the Court. It appears, however, that the Department of Fair Trading wrote to the respondent concerning the claim. This elicited a letter from Mr Snelgrove dated 29 April 1998 to the Department. The appellants relied upon the contents of that letter before the primary judge as confirming their contention that the 1997 Settlement had disposed of the proceedings. Mr Snelgrove wrote:

“With regard to the solicitors for Mr Elmir’s ‘understanding’, we agree that at the time the matter was settled, Mr Elmir’s solicitors indicated that they would still be pursuing an insurance claim with the Department of Fair Trading. The writer indicated that that was a matter for them, however, the settlement may well prevent such a claim proceeding and the settlement would be pleaded as a bar to any claim Mr Elmir may try to make to the Department . It is clearly the writer’s recollection that the settlement was achieved in the arbitration on ‘this understanding’.
Ultimately, it is therefore a matter for the Department as to whether or not they wish to proceed with paying out the claim and then try to recover from our client …
Accordingly, we believe that the matter is at an end . Further, take notice that should the Department pay any monies to Mr Elmir and seek recovery from our client, those proceedings will be strenuously defended and Mr Elmir will be joined in those proceedings as a third party.” (emphasis added)
It appears tolerably clear from this letter that Mr Snelgrove was asserting that the 1997 Settlement had effected a complete resolution of the proceedings as between the appellants and the respondent.

8 Mr Snelgrove’s letter of 29 April 1998 came into the hands of the appellants’ then solicitors, having, no doubt, been sent to them by the Department of Fair Trading. They, in turn, forwarded the letter to Mr W S Veitch of counsel, who had appeared for the appellants at the arbitration, apparently in order to obtain his account of the circumstances in which the 1997 Settlement had been concluded. Mr Veitch responded on 16 February 1999 advising:

“5. On the morning of … the second hearing day, Mr Snelgrove approached both Mr Roskov [the appellants’ solicitor] and the Writer with the suggestion that the Proprietor (Mr Elmir) ought to make a claim on the insurance provisions of the Home Building Act 1989 as the arbitration could then be settled on a simple straight- forward basis leaving it to others to resolve and hence saving the costs of proceeding further …
9. In reply to Mr Snelgrove’s paragraph 4 it is correct that Mr Snelgrove was advised that in response to his suggestion your Client would be making an insurance claim with the Department of Fair Trading. With respect to Mr Snelgrove, at no time did he indicate that the proposed settlement may well prevent such a claim proceeding, indeed, as the Writer recalls, that remote exigency was one of the reasons that prompted my Instructing Solicitor to agree to jointly draft and settle with Mr Snelgrove the terms of settlement in the way that they did.
10. At no time was it suggested in my presence that ‘the settlement would be pleaded as a bar to any claim that Mr Elmir would try to make to the Department’ .
11. The recollection of Mr Snelgrove so far as the Writer is concerned is in error when he contends that ‘that the settlement was achieved in the arbitration on ‘this understanding’.
12. The intention was at all times that a claim would be made and that the Builder … would then be brought to account .” (emphasis added)

It is apparent from this letter that Mr Veitch was asserting that while the arbitration proceedings had been resolved as between the appellants and the respondent, the parties had entertained the possibility of a claim being made against the respondent, presumably by the Department of Fair Trading as a result of the appellants making an insurance claim.

9 On 29 April 1999 Mr Snelgrove swore an affidavit before the Fair Trading Tribunal in what was described as an appeal pursuant to s 89A of the Home Building Act 1989. Mr El-Mir was described as the appellant in those proceedings. The Fair Trading Administration Corporation was the respondent. After setting out the history of the proceedings, including the terms of the 1997 Settlement, Mr Snelgrove’s affidavit continued:

“6. I say that at the time of the agreement at the Arbitration I had a discussion with Mr Roskov, the solicitor for Mr Elmir. Mr Roskov said to me words to the effect, ‘regardless of what happens today, we will still be making a claim with the insurance held by the Building Services Corporation’. I said words to the effect in reply, ‘what your client does is a matter for him, however, what occurs today will be used by our client to prevent your client successfully making a claim to the Building Services Corporation’ . I recall Mr Roskov saying words to the effect, ‘How will this effect the insurance claim?’ I replied, ‘That is a matter for your client to take advice on’ …
9. I say that at the time of dictating this letter [this was a reference to his 29 April 1998 letter], I am informed by Mr Risk and verily believe that $99,221.00, being monies owed to him under the building contract, remains outstanding.” (emphasis added)

10 Mr Bartos, who appeared for the appellants on appeal but not below, informed the Court that the appellants’ claim pursuant to the Home Building Act was rejected. It appeared to be common ground that the claim was rejected because of the 1997 Settlement. This decision, assuming it accurately reflects the basis of rejection, appears to be have been based on the proposition that the Department’s right to recover from builders monies paid to owners in respect of defective building work depended upon the owners having a legal right to recover against the builder. Reading between the lines, therefore, it appears the Department may have taken the position that it would not make payments to owners which could not be the subject of recovery action against the builder.

11 In Fair Trading Administration Corporation v Sleigh [2000] 48 NSWLR 512, this Court held that the Fair Trading Administration Corporation could seek to recover monies it had paid to owners in respect of defective building work pursuant to the Building Services Corporation Act 1989, independently of any legal right in the owners to recover those monies from the builder. Following that decision, according to Mr Bartos, the relevant government authority agreed in April 2000 to reconsider the appellants’ claim, but the matter was “put on hold” when the respondent commenced the present proceedings in the District Court.

12 The proceedings (the “District Court proceedings”) were commenced by an Ordinary Statement of Claim issued in the District Court on 6 December 2000. The Statement of Claim was not served immediately, however it appears that notice that it had been issued came to the attention of the appellants’ then solicitors in April 2001. This elicited a letter to the respondent’s solicitors relevantly in the following terms:

“We note that this matter was settled pursuant to terms of settlement dated 27 June 1997.
We enclose herewith copies of the following,
1. Letter from Snelgrove & O’Brien to Department of Fair Trading dated 29 April 1998.
2. Affidavit of Peter John Snelgrove dated 29 April 1999.
We note the contents of items 1 and 2. We are somewhat perplexed with the said proceedings, as the matter with your client has been settled.
We would suggest that your client discontinue the said proceeding without delay, as our client has not incurred any costs at this stage.
Please note that if your client refuses to discontinue the said proceeding, this letter will be tendered at the hearing in support of an application for costs on an indemnity basis from the date hereof.”

13 Mr Snelgrove responded to that letter on 2 May 2001 relevantly stating:

“We confirm that an Ordinary Statement of Claim was issued from the District Court on 6th December 2000. The need for issuing the same arose as the limitation period would have shortly expired thereafter.
It has not formally been served on your client as we were awaiting the outcome of proceedings between your client and the Department of Fair Trading …”

14 The letter went on to deal with formal matters concerning the matter being transferred to the Construction List in the District Court. It studiously avoided responding to Mr Roskov’s assertion that the matter had been settled – perhaps because Mr Snelgrove would have had to explain how the commencement of the District Court proceedings could be accommodated with his 29 April 1998 letter to the Department of Fair Trading.

15 In due course the Statement of Claim was served and, on 22 August 2001, the appellants filed a defence and cross-claim for defective work. The defence did not refer to the settlement: cf Pt 9 r 9, District Court Rules 1973 which required any matter a defendant alleged made a claim of the opposite party not maintainable to be specifically pleaded.

16 Directions hearings took place on 3 October 2001, 13 December 2001, 19 March 2002, 28 May 2002, 19 July 2002 and 12 August 2002 during which the District Court proceedings were case-managed and detailed orders were made to prepare the matter for hearing. The appellants did not raise the issue of the settlement at any of these hearings.

17 On 30 August 2002 by consent the District Court proceedings were referred to Mr B J O’Mara, referee, pursuant to Part 28B of the District Court Rules 1973. The respondent filed and served evidence in written form. The appellants did not file or serve any evidence. Nor did they provide a copy of either their defence or cross claim to the referee.

18 The appellants finally claimed the matter had been resolved because of the 1997 Settlement at a preliminary conference before Mr O’Mara on 22 October 2002. He granted an adjournment of 21 days to enable the appellants to seek a stay of the proceedings.

19 It appears that nothing was done within 21 days but, rather, on 25 November 2002, the appellants sought a further adjournment of the reference as their solicitor had been unable to get instructions because the male appellant was ill. Mr O’Mara refused the adjournment application and, apparently by consent, set the matter down for hearing for 3 days commencing on 17 March 2003. He gave the appellants leave to file and serve any evidence by 16 December 2002. They did not comply with this order.

20 In 2003 the appellants’ solicitor filed a Notice of Motion in the District Court which sought a rescission of the order referring the matter to Mr O’Mara. They relied upon an affidavit sworn by Mr Roskov which stated baldly:

“This matter has previously been the subject of arbitration proceedings whereupon the proceedings were settled.”

The 1997 Terms of Settlement were not annexed to the affidavit. Garling DCJ heard the motion on 12 March 2003. It was dismissed without, apparently, his Honour considering the substantive question concerning the significance of the mooted settlement but, rather, because the reference hearing was imminent and the issue should first be considered by the referee.

21 At the hearing of the reference on 17 March 2003 Mr Warwick Ward who appeared for the appellants argued that the matter had been settled. There is no transcript of the proceedings before the referee – however it is apparent that on this occasion the document embodying the 1997 Settlement was provided to Mr O’Mara. Ms Olsson SC, who appeared for the respondent in this Court and on the reference, informed the Court that when Mr Ward raised the issue of the 1997 Settlement her first argument was that any settlement had been waived by the filing of the defence and cross-claim. Mr O’Mara did not record that argument in his report no doubt because he disposed of the matter by accepting Ms Olsson’s submission that the 1997 Settlement merely recorded “that the parties withdrew their respective claims at that time”. As noted in his report, Mr O’Mara “ruled that the dispute had not been settled”. Mr Ward advised the referee that “as a result of the previous ruling the Defendant would withdraw from the reference”. He then left the hearing room and the matter proceeded in the appellants’ absence. On 21 March 2003 the referee delivered a report substantially in favour of the respondent to the District Court.

The adoption hearing

22 On 28 April 2003 the appellants filed a Notice of Motion seeking orders dismissing or permanently staying the District Court proceedings. The motion was supported by an affidavit sworn by Mr Roskov to which he annexed the 1997 Terms of Settlement and the correspondence and affidavits concerning the 1997 Settlement to which I have referred in the Statement of the Case. On 1 May 2003 the respondent filed a Notice of Motion for adoption of the referee’s report. The primary judge heard both Notices of Motion on 18 July 2003.

23 Mr Ward argued before the primary judge that the District Court proceedings should be dismissed or stayed on the basis that, having been resolved by the 1997 Settlement, their continuance constituted an abuse of process. It appears that Mr Ward founded his argument upon an estoppel said to arise from the 1997 Settlement. The primary judge examined a copy of the 1997 Terms of Settlement. She was not persuaded that the document gave rise to any estoppel as submitted by counsel for the appellants. In her Honour’s view, the terms “clearly provide that each of the parties simply withdrew their respective claims and cross-claims”.

24 The appellants also sought to rely upon Mr Snelgrove’s 29 April 1998 letter and Mr Veitch’s 16 February 1999 letter as evidencing the parties’ intention that the 1997 Settlement would bar any further proceedings. Her Honour rejected that submission, holding that neither document could have the effect for which counsel for the appellants contended.

25 Her Honour also accepted the respondent’s submission that a court would “probably find” that the filing of the appellants’ defence and cross-claim in the District Court proceedings constituted a waiver of any estoppel which did arise. She found it “extremely unlikely” that the estoppel defence would succeed.

26 The primary judge also rejected an argument put by the appellants’ counsel that the proceedings should be stayed pursuant to s 53 of the Commercial Arbitration Act 1984.

27 During the hearing Mr Ward made an oral application to amend the appellants’ defence to raise the issue of the 1997 Settlement. It does not appear he provided a copy of the proposed amendment to the court. The application was refused. The primary judge took into account the “interests of justice”, in the context of the history of the proceedings. She was satisfied that there had been “gross unexplained delay” in making the application to amend, having regard to the failure to raise the 1997 Settlement at any of the directions hearings. Her Honour also considered that the appellants had been given “ample opportunity” to ensure that their defences incorporated all relevant legal grounds.

28 The primary judge was not satisfied that the respondent would not be prejudiced should the application for amendment be allowed. Considering the building work was performed in 1994 and it was 2003 at the time of judgment she was not persuaded that the respondent would be “adequately compensated for further delay by an order for costs in his favour”.

29 Accordingly her Honour dismissed the appellants’ Notice of Motion.

30 The primary judge noted that the respondent’s motion for the adoption of the referee’s report was only resisted on the basis of the two “new” defences she had rejected. She rejected an application by the appellants to vary the interest awarded by the referee on the basis of the respondent’s delay. She ordered that the referee’s report should be adopted. That report awarded the respondent $88,541.31 damages which, with interest to 18 July 2003, led to a verdict and judgment in the respondent’s favour of $199,172.88. The appellants appeal from that judgment.

Issues on appeal

31 The case as finally advanced by the appellants on appeal did not emerge until supplementary written submissions were filed two days before the hearing of the appeal. These submissions clearly raised, for the first time as I understand it, the argument that the 1997 Settlement amounted to an accord and satisfaction of the parties’ respective claims.

32 During the hearing of the appeal, Mr Bartos sought and obtained leave to file in Court a Second Further Amended Notice of Appeal which sought a judgment in favour of the appellants on the basis that this Court should conclude that the 1997 Settlement barred the respondent from maintaining his claim.

33 The appellant’s argument could only be said to have “improved” as the oral submissions progressed so that, in the final analysis, the following issues emerged:

1. Whether the primary judge erred in adopting the referee’s report.

2. Whether the primary judge erred in not permitting the appellants to amend their defence to plead the 1997 Settlement.

3. Whether the appellants had a reasonably arguable case that the 1997 Settlement amounted to an accord and satisfaction.

4. Whether the filing of the defence and cross-claim amounted to a waiver of the 1997 Settlement.

Submissions on appeal

34 The appellants submitted that the primary judge’s exercise of her discretion to permit pleadings to be amended miscarried. They also argued that her Honour should have found that the respondent’s claim was in fact barred or estopped.

35 In supplementary submissions filed two days before the hearing of the appeal, the appellants submitted that “the terms of settlement properly interpreted amount to accord and satisfaction of the parties’ respective claims”, relying upon McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 at 173 - 176 and 183 – 186 and Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA [1985] 1 WLR 925 at 933.

36 On this basis they argued that the referee’s decision that the dispute between the parties had not been settled was an error of law entitling the primary judge to reject his report: see Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270; (2004) 208 ALR 630 AT [15] – [16]; Etlis & Anor v New Age Constructions (NSW) Pty Ltd & Anor [2005] NSWCA 165 at [24] – [26].

37 The appellants conceded that the application to amend their defence to raise the issue of the 1997 Settlement was made at a late stage of the proceedings. They submitted, however, referring to State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146, that in the circumstances of the case the application should have been granted. They contended that the issue of the 1997 Settlement was clearly arguable and of such importance that, had it been resolved in their favour, it would have resulted in dismissal of the District Court proceedings. They argued that any prejudice to the respondent due to the lateness of the amendment application could have been compensated for by an appropriate costs order.

38 The respondent submitted that the appellants had identified no error of law which would warrant the intervention of this Court.

39 Ms Olsson argued that the terms of the 1997 Settlement could not amount to accord and satisfaction. While she accepted that satisfaction could have been achieved by, for example, the giving of a release, she argued that until that occurred the accord remained executory: McDermott v Black (at 183) and 184, per Dixon J. She submitted that, on its proper construction, the 1997 Settlement was merely an agreement that both parties agreed to withdraw their claims in the same sense that withdrawal and discontinuance is used in the Supreme Court and District Court rules, leaving open the possibility that the subject matter of the arbitration could be re-agitated at some future time. Accordingly, she contended, the 1997 Settlement did not operate as a bar to the District Court proceedings.

40 Ms Olsson also submitted that in order to establish there had been a valid compromise of the claim the appellants had to demonstrate that there had been an accord which was complete, certain in its terms and that satisfaction had been given or promised in return for the promised or actual forbearance to pursue the claim: see Chitty on Contracts, 28th Ed, para 23 – 013. She argued that the only compromise demonstrated by the 1997 Settlement was a mutual agreement to withdraw the arbitration claims without any agreement (or accord) to forebear from their further pursuit. She contended that unequivocal evidence was required to found a conclusion that the 1997 Settlement constituted an agreement not to bring any future or fresh claims.

41 Next, Ms Olsson argued that even if an estoppel did arise by virtue of the 1997 Settlement, it was either waived or “unequivocally renounced“ by the appellants when they filed and served their defence and cross-claim in the District Court proceedings. She relied upon The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 473 – 474, per Toohey J.

42 Ms Olsson pointed to the fact that the appellants’ defence did not refer to the 1997 Settlement. She also submitted that the appellants’ cross-claim, which asserted a claim sounding in damages in respect of the building work, was inconsistent with the proposition that the 1997 Settlement precluded further claims. Thus Ms Olsson argued that, whether it was described as “waiver” or “election”, the appellants had by their pleadings effectively lost any right to rely upon the 1997 Settlement. She also relied upon the appellants’ conduct in appearing through legal representatives at numerous directions hearings in which consent was given for the hearing of the matter on the pleadings as filed as amounting to an unequivocal waiver of any rights they might have had to rely upon the 1997 Settlement.

43 Alternatively, Ms Olsson submitted that the parties had mutually agreed, by their participation in the District Court proceedings, to abandon the 1997 Settlement: see Wallera Pty Ltd v CGM Investments Pty Limited [2003] FCAFC 279 at [32], [40].

44 Ms Olsson emphasised that the primary judge was given no explanation for the appellants’ continued failure to plead the 1997 Settlement. She submitted that the only conclusion which could be drawn was that the appellants were unwilling to abandon their cross-claim, which would have been the inevitable result of pleading the settlement as a bar to the District Court proceedings.

45 Ms Olsson contended the primary judge’s discretion to consider the appellants’ application to amend their defence had not miscarried. She submitted it was appropriate for the primary judge to consider the interests of justice having regard to the history of the matter and to conclude that the failure to raise the 1997 Settlement in any defence or at any directions hearing constituted a “gross unexplained delay” and that the appellants had been given “ample opportunity to ensure that their defences incorporated all relevant legal grounds”.

46 Ms Olsson finally submitted that State of Queensland v JL Holdings Pty Ltd was distinguishable because it related to an application to amend made six months before trial in relation to a recently discovered matter. By comparison, she argued, the appellants’ solicitors had been fully aware of the 1997 Settlement as they had both acted in the arbitration and written to the respondent’s solicitors concerning the effect of the 1997 Settlement in April 2001.

Consideration

47 Although the logical order of the issues was as I have earlier outlined, it is necessary to address the issues out of that order to dispose of the appeal. The first issue which arises is whether the appellants had a reasonably arguable case that the 1997 Settlement constituted accord and satisfaction.

48 The “essence of accord and satisfaction ‘is the acceptance by the plaintiff of something in place of his cause of action’, … the accord is the agreement or consent to accept the satisfaction … upon provision of the satisfaction, there is a discharge which extinguishes the cause of action”: Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500 per Gummow J at [116] citing Dixon J in McDermott v Black at 183 – 185; see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at 643 per Scrutton LJ. In Thompson v Australian Capital Television Pty Ltd and Other [1996] HCA 38; (1996) 186 CLR 574 at 610, Gummow J emphasised that accord and satisfaction “requires acceptance of something in place of the full remedy to which the recipient is entitled”. (emphasis added)

49 Where there is an agreement to accept a promise in satisfaction of the cause of action, “the original cause of action is discharged from the date when the promise is made”: McDermott v Black per Starke J (at 176); Dixon J (at 183 – 185); see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd (at 644) per Scrutton LJ.

50 The consequences of the discharge of the original cause of action by accord and satisfaction were explained by Phillips JA (with whom Winneke P and Charles JA agreed) in Osborn & Bernotti t/as G04 Productions v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 at 8, in a passage referred to with apparent approval by Gummow and Hayne JJ in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [56]. Phillips JA said:

“Where there is an accord and satisfaction, the agreement for compromise may be enforced, and indeed only that agreement may be enforced , because ex hypothesi the previous cause of action has gone; it has been ‘satisfied’ by the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit.” (emphasis added)

51 In other words, the role of an accord is to replace the former contract with a new one (eodem modo quo oritur, eodem modo dissolvitur): Professor Brian Coote, Common Forms, Consideration and Contract Doctrine, (1999) 14 Journal of Contract Law 116 at 123. Accord and satisfaction provides the means whereby a cause of action which a plaintiff has can be rendered unenforceable: Illawong Village Pty Ltd v State Bank of New South Wales [2004] NSWSC 18, at [262] – [263] per Campbell J.

52 If the promisor fails to perform the promise, the promisee’s only remedy is to sue for breach of the promise. There cannot be a return to the original obligation or claim: see Anson’s Law of Contract, 27th Ed at 492; see also Koutsourais & Anor v Metledge & Associates [2004] NSWCA 313 at [49] – [51] per Bryson JA (Hodgson JA, with whom Beazley JA concurred, agreed (at [7]) with Bryson JA’s consideration of the issue of accord and satisfaction, although disagreeing with his Honour’s ultimate conclusion).

53 If a party to the accord and satisfaction sought to revert to the original cause of action the accord could be pleaded, at least in equity, as having operated as a release - as Dixon J explained in McDermott v Black (at 186 – 187, footnote added):

“At law, ‘the only case in which a covenant or promise not to sue is held to be pleadable as a bar, or to operate as a suspension and by consequence a release or extinguishment of the right of action, is where the covenant or promise not to sue is general, not to sue at any time. In such cases, in order to avoid circuity of action, the covenants may be pleaded in bar as a release ... for the reason assigned, that the damages to be recovered in an action for suing contrary to the covenant would be equal to the debt ... or sum to be recovered in the action agreed to be forborne’ (per Parke B., Ford v. Beech (1848) 11 Q.B. 852, at p. 871 [116 E.R. 693 at p. 700]).

But equity did not follow the law in its refusal to give effect to the agreement of the parties. At law an accord and satisfaction was not pleaded in bar of an action upon a specialty but in equity the debt was treated as discharged, and, before the Judicature Act , the creditor was restrained from proceeding at law for its enforcement…”

See also McDermott v Black (at 176) per Starke J.

54 The question whether there has been an accord and satisfaction is one of fact”: Day v Mclea (1889) 22 QBD 610 at 613 per Lord Esher MR; Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421 at 427, per Jordan CJ; see also Neuchatel Ashphalte Co Ltd v Barnett [1957] 1 WLR 356. It turns upon determining the parties’ intentions, which may be discerned from the terms of any document said to constitute all or part of the agreement or in the surrounding circumstances: Ballantyne v Phillott [1961] HCA 17; (1961) 105 CLR 379 at 398 per Menzies J.

55 While it is a question of fact whether there has been accord and satisfaction, a reference to some cases which have considered that issue assist in determining whether there is an arguable case of accord and satisfaction here.

56 In McDermott v Black, a purchaser claimed to have been induced to enter into a contract of sale of shares by fraudulent misrepresentations made by the vendor. Prior to the date of completion, the purchaser by letter complained of the misrepresentations, but in a later letter he withdrew all allegations imputing anything improper to the vendor conditionally upon the vendor granting him an extension of time to complete the contract. This extension of time was granted. The High Court (Latham CJ dissenting) held that the withdrawal of the allegations in consideration of an extension of time for completion was not too vague to constitute a contract of accord and satisfaction: see Starke J (at 175, 176); Dixon J (at 183 – 186). Latham CJ was of the view (at 172) that “ ... the agreement to withdraw the allegations and the actual withdrawal of the allegations did not amount to or imply any promise ... never to rely upon the allegations as a cause of action”. Dixon J said (at 185 – 186):

“The ‘withdrawal of all allegations imputing anything improper to’ the defendant conditionally upon the latter’s agreeing to three-weeks’ further time for payment of the balance of purchase money clearly amounts to an election to affirm the contract. It does, I think, imply a promise not to revive the allegations. ... The untechnical and inexact expression, ‘withdraw allegations’, no doubt causes some difficulty. But it must be borne in mind that the purpose was to settle or compromise a very definite dispute ... The withdrawal of the allegations of improper conduct meant, in my opinion, that he would make no claim based upon misrepresentation but would accept the promise of further time instead ... But I think that, consistently with principle, the agreement to withdraw in consideration of a grant of time can be regarded as an accord and satisfaction.”

57 In Ballantyne v Phillott (at 384) Dixon CJ observed that “[a] question of accord and satisfaction is seldom easy”. As much can be seen from that case which considered whether an accord and satisfaction could be inferred from a statutory declaration which stated that “any action or proceeding in any court heretofore commenced by the said (respondent) against the said (appellant) shall be discontinued and that such action or proceeding shall not again be commenced by or on behalf of the said (respondent) against the said (appellant)”, that “…the said (respondent) waives all and any rights or claims whatsoever which he has or may have had against the said (appellant) by virtue of such action or proceeding or otherwise howsoever” and that “…the said (appellant) has no right or claim against the said (respondent) in respect of or arising out of any such action or otherwise howsoever”. The High Court was divided on whether that amounted to accord and satisfaction.

58 Menzies and Windeyer JJ held that it was not an accord and satisfaction because there was no consideration for the respondent’s agreement to discontinue the proceedings. Although Menzies J was satisfied (at 397) that if it could be found that the parties were “ ‘composing their differences’… by each promising to give up claims against the other, it would not matter that the language used is not promissory” in order for an accord to be found” he concluded (at 398) that the appellant’s acknowledgment that no right or claim existed was inconsistent with the implication of a promise as “[i]t is the denial, not a withdrawal, of any claim and does not in the known circumstances amount to consideration.”

59 Dixon CJ held (at 390) that the appellant’s statement “that she had no right or claim” against the respondent amounted to consideration for the appellant's promise, even though it was not a “claim which a judge would enforce”. According to his Honour, it should “be deemed enough” as “[i]t is a result that accords with their mutual intentions and I think that it is authorized by this peculiar branch of law”.

60 The appellants rely upon Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA (at 933), where Goff LJ, who delivered the judgment of the Court, said:

“It was against the background of those facts that the judge had to consider whether there had been a mutual abandonment of the reference to arbitration, or alternatively whether the owners could invoke the principle of equitable estoppel. In considering the first of those questions, he first of all drew attention to the fact that a distinction must be drawn between abandonment of the reference, with the claimant’s cause of action, if any, remaining intact, and abandonment of both the reference and the cause of action. However, he rejected the possibility that the parties could in this case have agreed to abandon the reference alone, while leaving the claim intact, or that there was any representation to that effect. With this conclusion we agree . We recognise, of course, that there may be circumstances in which, for some special reason, parties may agree to abandon a reference while leaving the claim intact - for example, if they decide to bring an arbitration to an end so that the matter can be resumed before different arbitrators, or before the court. But if parties simply agree to bring a reference to arbitration to an end - to drop hands, so to speak—the ordinary inference must be that they intend that the relevant claim, or claims, should also go . There is nothing in the present case to suggest that there should be any departure from that ordinary inference.” (emphasis added)

61 Goff LJ also observed (at 933) that:

“The owners’ abandonment of the reference, with all that this implies, including an abandonment of any right to obtain a declaratory award or to ask for an order for costs, would constitute good consideration for the abandonment of the charterers’ claim as well as their abandonment of the reference.”

62 Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA was not a case of accord and satisfaction, but, rather, one which considered whether a claim required to be submitted to arbitration could, by prolonged inactivity of the parties, be discharged by abandonment. However it is a useful illustration of the inference which may be drawn from the parties’ agreement, in this case, to discontinue the arbitration.

63 Melbourne Money Pty Ltd v Bryant (1994) ASC ¶56-275 (Supreme Court of Victoria Appeal Division, 12 August 1994, BC9401196), upon which the respondent relied in support of his argument that the 1997 Settlement amounted to a withdrawal and discontinuance in the sense referred to in rules of court, concerned the effect of consent orders made in the Victorian Credit Tribunal which recorded that:

“1. The Application against Jayan Seetal is withdrawn.

2. By consent - a) The Applicant is released from all liability to the Respondent pursuant to the loan contract dated 14th February 1986 and the mortgage dated 13th August 1986. b) The Applicant releases the Respondent from all liability pursuant to the loan contract dated 14th February 1986 and the mortgage dated 13th August 1986. c) No order for costs.”

64 The appellant argued in Melbourne Money Pty Ltd v Bryant that this compromise precluded the respondent from bringing a second application before the Credit Tribunal. It relied upon Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. The facts are complex and do not require repetition. While Ormiston J (with whom Tadgell and Smith JJ agreed) inclined to the belief that the parties did not intend that there should be a consent order permitting the respondent to withdraw her application or that that was the manner in which the first application was to be terminated, he also concluded (BC9401196 at 31) that even if that had been the parties’ intention, that would not have barred the respondent’s rights to reopen the second transaction. He reached this conclusion by applying the proposition that the effect of a withdrawal or discontinuance of proceedings “shall not be a defence to a subsequent proceeding for the same, or substantially the same, cause of action”: see Kronprinz, Owners of the Cargo of v Owners of the Kronprinz (The Ardandhu) (1887) 12 App Cas 256 and Spencer Bower and Turner: Res Judicata (2nd ed.), para 34-para 40). He observed that:

“In essence, if a party wishes to have matters disposed of finally with no orders made against that party, it should seek and obtain a dismissal, whether by consent or otherwise. If all that occurs is that the other party seeking to make a claim is allowed, by consent of the other party, to discontinue its proceeding or withdraw any part of its proceeding, then the matter is not res judicata or capable of giving rise to an issue estoppel and it may be raised a second time in further proceedings.”

65 The question of accord and satisfaction was not considered in Melbourne Money Pty Ltd v Bryant. That case illustrates one interpretation which may be given to the effect of withdrawing proceedings. However, the question is ultimately to be resolved by a consideration of the parties’ intention in the circumstances of each case.

66 In this case, in my view, there is an available inference that the parties’ intention was to walk away from the arbitration and any claims they had against each other. For the purposes of determining whether the appellants have an arguable case of accord and satisfaction reference may be made to the solicitors’ subsequent correspondence and Mr Snelgrove’s 1999 affidavit. Subsequent conduct cannot be used as an aid to the construction of the 1997 Settlement (see Magill v National Australia Bank Ltd [2001] NSWCA 221; (2001) Aust Contract R ¶90-131 at [50] – [53]). However evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively of the "aim" of the transaction, is admissible: see Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 348 per Mason J.

67 The correspondence and affidavit are, however, some evidence of the circumstances surrounding the making of the 1997 Settlement which evidence, if adduced at a hearing, would be capable of supporting the appellants’ contention that that agreement amounted to accord and satisfaction.

68 The respondent’s reliance upon the language of withdrawal rather than release in the 1997 Settlement is a matter which can be debated at the appropriate time. However as I have earlier noted, accord and satisfaction can be found in non-promissory language: Ballantyne v Phillott (at 397) per Menzies J. In Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266 Bowen LJ (at 291) observed that it is not necessary to use “language of any particular form, or writing of any particular character” in order to establish a forbearance. A promise to forbear may be implied: Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 203 per Samuels JA.

69 In my view the appellants have an arguable case that the 1997 Settlement amounted to accord and satisfaction. It is capable of being construed as mutual promises by the appellants and the respondent to forbear from pursuing their respective rights under the building contract by not proceeding with the arbitration. The requirement of consideration would, in this case, be fulfilled by the parties’ mutual promises not to proceed, to bear their own costs and to contribute equally to the arbitrator’s costs.

Waiver and abandonment

70 That leaves the questions whether the appellants have waived or abandoned their right to rely upon accord and satisfaction or, if they have not, whether the primary judge erred in refusing them leave to amend their defence.

71 Once it is understood that accord and satisfaction operates to discharge the original cause of action as I have earlier explained then, in my view, there can be no question of waiver. The effect of the accord and satisfaction argument succeeding in this case would be that any causes of action arising under the building contract were discharged by their mutual agreement not to pursue the arbitration upon the terms of the 1997 Settlement. If the 1997 Settlement amounted to an accord and satisfaction, the original cause of action could not be revived whether by conduct amounting to waiver or abandonment.

72 However even if that is incorrect, in my view, the appellants’ failure to plead the 1997 Settlement and their other participation in the District Court proceedings did not constitute waiver.

73 In The Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394, although there were divergent reasons for the High Court’s conclusion that the Commonwealth could not revive a statute of limitations defence which had not been pleaded, all members of the court were of the view that the mere failure to plead the defence could not, in light of the right to amend until judgment was delivered, amount to waiver: see Mason CJ at 408 – 409, Brennan J at 426, Deane J at 447, Dawson J at 456, Toohey J at 473, Gaudron J at 485 and McHugh J at 498.

74 The point which ultimately told against the Commonwealth in the majority’s view, (albeit two, Toohey and Gaudron JJ, decided the case on the basis of waiver and two, Deane and Dawson JJ, decided it on the basis of estoppel) was that its stance “… from the beginning, consistent with its communications to Mr Verwayen's advisers, was that it was not relying upon the Limitation Act, indeed that it was not defending the action, save as to the amount of damages to be awarded to Mr Verwayen [and] [i]t was on that footing that the plaintiff pursued his action for damages right through to the listing of the action for the assessment of damages”: see Toohey J (at 473).

75 That could not be said to be the case here. The appellants’ first response when they became aware of the District Court proceedings was to assert that the proceedings had been resolved pursuant to the 1997 Settlement. As I have earlier noted, Mr Snelgrove never responded to that assertion which was, at least arguably consistent with his April 1998 letter and 1999 affidavit. He must, in my view, have been conscious that there was always a possibility that the appellants would raise that assertion in the District Court proceedings.

76 Failure alone to plead the 1997 Settlement, as The Commonwealth of Australia v Verwayen demonstrates, did not constitute waiver. Nor, in my view did filing the cross-claim. The appellants could have pleaded the 1997 Settlement at the outset, but also relied upon the matters raised in the defence and cross-claim for more abundant precaution i.e. in case their argument of accord and satisfaction failed. It is true that the appellants then participated in various case management procedures and consented to the matter going to a referee. However the appellants did raise the 1997 Settlement before the referee before the reference hearing commenced and have persisted with it thereafter.

77 Accordingly, in my view, even if the issue of waiver was available, the circumstances of this case would not warrant such a finding. In my view the primary judge erred in concluding that a court would probably find that the filing of the appellants’ defence and cross-claim constituted a waiver. Nor, for the same reasons, did the appellants abandon the 1997 Settlement.

Amendment of defence

78 The final question is whether the primary judge ought to have permitted the appellants to amend their defence.

79 In my view her Honour’s exercise of her discretion concerning the amendment of the appellants’ defence miscarried for two reasons. First, for reasons I have explained, her Honour misapprehended the legal principle underlying the defence and, therefore, concluded that the defence was “extremely unlikely” to succeed.

80 Secondly, her Honour appears not to have appreciated that the amendment the appellants sought formalised the defence that had been agitated before the referee. The appellants contended, relying upon Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 287, that “the parties [had] chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities”.

81 While in the ordinary course, the relief granted at trial is confined to that available on the pleadings, if evidence is led at a trial upon which the other party joins issue, it is too late to take a pleading objection during final addresses and “it becomes the duty of the trial judge to require the pleadings to be amended to reflect the conduct of the trial and the issues litigated between the parties”: State of New South Wales v Thomas; State of New South Wales v Welling [2004] NSWCA 52 at [16] per Handley JA (with whom Beazley JA and Stein AJA agreed).

82 The principle was clearly laid down in Leotta v Public Transport Commission of New South Wales (1976) 50 ALJR 666 at 668, where Stephen, Mason and Jacobs JJ said:

“The only question which arises on this appeal is whether there was any evidence of negligence upon which the jury might find a verdict in favour of the appellant. Much attention was paid in the New South Wales Court of Appeal and in the argument upon this appeal to the fact that the case which the appellant at the trial sought to have submitted to the jury was factually different from that alleged in the statement of claim and the particulars of negligence included therein. But the duty of the trial judge was clear. If in the cause of action upon which the plaintiff sued there had emerged at the conclusion of the evidence facts which, if accepted, established that cause of action, then it was the duty of the trial judge to leave the issue of negligence to the jury. The pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence which had emerged. Part 20, r 1(2) of the New South Wales Supreme Court Rules provides that all necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings. Now, and for many years past , a plaintiff does not fail by being refused leave to amend or through failure formally to apply for amendment, where the evidence has disclosed a case in the cause of action fit to be determined by the tribunal of fact. Particularly is this so when the action finally determines the rights of the parties in the cause of action. ” (emphasis added)

83 In fairness to the primary judge it should be made plain that it is not clear the application to amend was advanced before her with the clarity which emerged on appeal. Nevertheless, in my view, the primary judge ought to have given leave to the appellants to amend their defence to plead the 1997 Settlement.

Adoption of the referee’s report

84 The appellants contend that the referee erred in law in his construction of the 1997 Settlement and that primary judge should not have adopted his report. It was common ground that a referee’s report may be rejected if it reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence: Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (at 563) per Gleeson CJ.

85 It has been held that an appeal from the decision of a judge adopting and giving effect to the report of a referee appointed pursuant to Pt 72 r 13 of the Supreme Court Rules 1970 (which are in the same terms as District Court Rules 1973, Pt r 28B.12) is concerned with error on the part of the judge, not with reviewing the referee’s report: Nine Network Pty Limited v Kennedy-Miller Television Pty Limited (NSW Court of Appeal, unreported, 8 June 1994) per Gleeson CJ (with whom Meagher and Handley JJA agreed). Part 72 r 13 is in the same terms as District Court Rules 1973, Pt r 28B.12 pursuant to which the primary judge adopted the referee’s report. A judge’s decision to adopt, vary or reject a referee’s report in whole or in part can be challenged if it could be shown to be based upon a material error on the part of the judge: ibid; see also Jarvan Pty Ltd (In Liq) formerly John R Carr & Associates Pty Ltd v Seery (NSW Court of Appeal, unreported, 1 December 1998, per Stein JA, with whom Meagher and Sheller JA agreed)].

86 In my view the appellants have demonstrated that the primary judge erred in concluding that the appellants did not have an arguable case that the 1997 Settlement barred the respondent’s claim.

Interest

87 The appellants’ final ground of appeal was that, even if it was open to the primary judge to adopt the referee’s report, her Honour erred in failing to remit the report for further consideration on the question of interest or, in the alternative, failed to consider the question of interest on her own motion. The primary judge considered this issue and declined to vary the award in circumstances where the appellants had had use of the funds over the relevant period.

88 The appellants have not demonstrated that the primary judge erred in her exercise of discretion in this respect.

Conclusion

89 In my view it would not be appropriate for this Court finally to determine the construction of the 1997 Settlement. That issue may turn upon both the Terms of Settlement and the circumstances surrounding their execution. It should be determined at a separate trial pursuant to Pt 26 r 5AA of the District Court Rules.

90 The consequence is that the appeal should be allowed. The appellants should be given leave to amend.

91 The effect of directing a separate hearing under DCR Pt 26 r 5AA of the issue raised by para 3A of the Notice of Grounds of Defence added by leave granted by this Court is that the issue of accord and satisfaction -which should have been tried as a preliminary issue before a reference was ordered - will now be tried after a reference, a report from the referee, and the adoption of that report by Balla DCJ.

92 If the defendants succeed on the separate question the whole of the costs of the earlier interlocutory proceedings, the reference, and the hearing of the cross-motions before Balla DCJ will have been completely wasted. Although the appellants are not personally responsible for this state of affairs it seems to me that this Court may be bound to impose terms as to the costs that will be thrown away if the defence succeeds as a condition of granting leave to amend. As the parties did not address on this issue they should make written submissions about the proper costs order consequent upon granting leave to amend.

Orders

93 In my opinion the following orders should be made:

(1) Appeal allowed with costs.

(2) Judgment and orders of the District Court made on 18 July 2003 set aside.

(3) Grant leave to the appellants to amend their Notice of Grounds of Defence by adding para 3A in accordance with the Draft Amended Notice of Grounds of Defence tendered during the hearing of the appeal subject to such terms as to the costs of the earlier proceedings in the District Court and the reference as this Court may impose after receiving further submissions.

(4) Order pursuant to DCR Pt 26 r 5AA that the questions of fact and law raised by para 3A of the Amended Defence be tried separately from any other question.

(5) If the appellants succeed on the separate questions direct that judgment be entered for them in the action and for the plaintiff on the cross-claim, the costs of the separate hearing to be in the discretion of the judge presiding at that hearing.

(6) If the appellants fail on the separate question direct that judgment be entered for the plaintiff in the action for $199,172.88 with effect from 30 July 2003, the costs of the separate hearing to be in the discretion of the judge presiding at that hearing.

(7) The respondent to file written submissions as to the terms, if any, to be imposed as a condition of granting leave to amend within 14 days.

(8) The appellants to file written submissions in reply within a further 14 days.

(9) The respondent to file any submissions in reply within a further 7 days.

(10) The respondent to have a certificate under the Suitors’ Fund Act 1951.

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