Hills Industries Ltd T/A Hills Eco v Hiley - [2012] SADC 148

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

HILLS INDUSTRIES LTD T/A HILLS ECO v HILEY & OTHERS

[2012] SADC 148

Judgment of His Honour Judge Beazley

9 November 2012

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT - WHETHER CONCLUDED CONTRACT

AGENCY - AUTHORITY OF SOLICITOR
Claim by plaintiff, as vendor of solar products, for monies owing to it by Ecological Homes Pty Ltd (the first defendant) as purchaser and Timothy John Walsh (the second defendant), and Lewis Howard Hiley (the third defendant) as guarantors pursuant to agreement in writing dated 25 January 2007 - where the goods not paid for - the first defendant placed into liquidation and the second defendant declared bankrupt - the third defendant asserts that the plaintiff entered into an enforceable agreement to compromise its claim against the third defendant. The action came on for trial on the limited basis as to whether there was a concluded and enforceable agreement as to settlement of the action as between the plaintiff and the third defendant - question as to authority of solicitor for the plaintiff to compromise the within claim - whether parties not bound until the execution of the Deed by the parties and its counterparts exchanged.
Held: An immediately binding agreement to compromise the litigation was entered into by the parties by no later than 3 November 2008. The terms of that agreement obliged the plaintiff to execute its counterpart of the deed.
Lucke v Cleary & Ors [2011] 111 SASR 134; Masters v Cameron (1954) 91 CLR 353; Allen v Carbone (1975) 132 CLR 528; Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540; Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173; Ewing International LP v Ausbulk Ltd (No2) [2009] SASC 381; Humphris-Clark v Lazaridis [2010] NSWSC 318; RT & YE Falls Investments v the State of New South Wales & Ors [2001] NSWSC 1027; Pianta v National Finance & Trustees Ltd (1964) 38 ALJR 232; Lazaridis v Humphris-Clark [2010] NSWCA 349; Jago v Coastal Watch Pty Ltd [2009] NSWSC 594; Ciszek Venterprise Financial Solutions Pty Ltd [2010] NSWSC 1265; 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245; Branir v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 ; Tayor v Johnson (1983) 151 CLR 422; Toll (FGCT) v Alphapharm (2004) 219 CLR 165; Brynes v Kendle (2011) 243 CLR 253; GR Securities Pty Ltd v Baulkham Hills Private Hospital (1986) 40 NSWLR 63; Stirnemann v Kaza Investments [2011] SASCFC 77; Segal v Donnelly [2012] NSWSC 833; Profile Events v West Beach Trust [2011] SASCFC 1; Hopcroft v Edmunds (No 2) [2012] SASC 94; Commonwealth Bank of Australia v Carotino [2011] 111 SASR 573; Abadeen Group v Bluestone Property Services [2009] NSWCA 386; Hearse v Staunton [2010] NSWSC 954; A W Ellis Engineering v Malago [2012] NSWSC 55; Malago v AW Ellis Engineering 2012] NSWCA 227; Grant v Grant (2012) NSWSC 725; Painaway Aust v JAKL Group (2011) 249 FLR1 at [197]; Corrandini v Lovrinov Crafter (2000) 77 SASR 125; Pritchard v Djz Constructions Pty Ltd (2012) NSWCA 196; Padstow Corporation Pty Ltd v Fleming (2011) NSWSC 1337; James v Surf Road Nominees Pty Ltd (2004) NSWCA 475; Blazevic Holdings Pty Ltd v Grave (2011) NSWSC 287; Re: Sneyd (1883) 25 Ch D 338; Re: London Borough of Ealing (1980) 2 ALL ER 548; ASB Bank Ltd v Teng HC AK [2007] NZHC 149; Foakes v Beer (1984) 9 AC 605; Stilk v Myrick (1809) 109 ER 1168; Wigan v Edwards & Anor (1973) 47 ALJR 586; Homeguard Products (NZ) v Kiwi Packaging (1981) 2 NZLR 322; Thompson v Aust Capital Television (1986) 186 CLR 574; Carr v Thomas (2009) NSWCA 208, considered.

HILLS INDUSTRIES LTD T/A HILLS ECO v HILEY & OTHERS
[2012] SADC 148

Introduction

The substantive issue in this trial, is whether the parties to existing litigation had entered into a binding agreement to compromise that litigation. In particular it involves the question as to whether those parties had evinced a common intention, to become immediately bound by terms recorded in an unexecuted “Deed of Settlement”.[1]
[1] R T & Y E Falls Investment Pty Ltd v The State of NSW [2001] NSWSC 1027 at [50] per Palmer J
This issue, which has been described as “vexed”, has been the subject of significant academic comment;[2] and a flood of recent case law.[3] In Crawley v Crawley Land,[4] Atkinson J adopted the following from Lord Bingham of Cornhill:
The law loves compromise.
It has good reason to do so … A party who settles forgoes the chance of total victory, but avoids the anxiety, risk, uncertainty and expenditure of time which is inherent in almost any contested action, and escapes the danger of total defeat. The law reflects this philosophy, by making it hard for a party to withdraw from a settlement agreement … But there is always a catch. To negotiate a final and binding settlement agreement, to make sure that all necessary matters are covered, to express the terms clearly and unambiguously … may call for as much skill, including legal skill, as fighting the action.
[2] “When is an agreement not a contract” – J Knowles & A Stewart (2004) 18(2) CLQ 21;
“Is there a binding contract?” – P Butt – (2005) 79(4) ALJ 205;
“Contract: what contract?” – T Thomas – (2010) 26(5) BCL 304;
“But we agreed!” – A Monichino – (2007) 81(8) LIJ 52;
“Arrangements Preliminary to formal contracts”, - H K Lucke – 3 U Ad LR 47;
“Masters v Cameron – a common problem”, - D Caspersonn – (1997) 11(4) CLQ 17
[3] Stirnemann v Kaza Investments [2011] SASCFC 77; Segal v Donnelly [2012] NSWSC 833; GR Securities v Baulkham Hills Private Hospital (1986) 40 NSWLR 631 at 634; Profile Events v West Beach Trust [2011] SASCFC 1; Hopcroft v Edmunds (No 2) [2012] SASC 94; Commonwealth Bank of Australia v Carotino [2011] SASCFC 110; Painaway Australia Pty Ltd v Jakl Group [2011] 249 FLR 1 at 51; Abadeen Group v Bluestone Property Services [2009] NSWCA 386; Hearse v Staunton [2010] NSWSC 954; A W Ellis Engineering v Malago [2012] NSWSC 55; Lucke v Cleary and Others (2011) 111 SASR 134, Masters v Cameron (1954) 91 CLR 353, Allen v Carbone (1975) 132 CLR 528, Byrnes v Kendle (2011) 243 CLR 253, Humphris-Clark v Lazaridis (2010) NSWSC 318, Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540, Grant v Grant (2012) NSWSC 725; 400 George Street (Qld) v B G International Ltd [2010] QCA 245
[4] [2012] QSC 294
The subject action, which was instituted on 26 August 2008, also involves, some complex subsidiary issues of law. One of those issues is whether a formal, executed Deed was fundamental to address an apparent lack of consideration for a creditor to accept less than its full liquidated claim.
Hills Industries Ltd (‘the plaintiff’) claimed to be entitled to judgment, as against three named defendants, for the liquidated sum of $89,308.65, together with interest thereon, pursuant to a written agreement for the sale and purchase of certain solar products.
It was asserted by the plaintiff that the first named defendant, Ecological Homes Ltd (‘Ecological Homes’) was the purchaser of those products; and that the second and third named defendants, Timothy John Walsh, (‘Timothy Walsh’) and Lewis Howard Hiley, (‘Mr Hiley’) respectively, were co-guarantors of the obligations of Ecological Homes.
There is no dispute as to the form of guarantee and indemnity, nor that Timothy Walsh and Mr Hiley were bound, at least initially, by it.
Indeed there is no dispute that the plaintiff sold to Ecological Homes, the quantum of solar products alleged by it, nor that the sum claimed by the plaintiff remains outstanding.
The catalyst for the subject dispute is that, by 14 October 2008, Ecological Homes had been placed into liquidation, and Timothy Walsh had been, or was about to be declared bankrupt.[5] This left Mr Hiley, in practical terms, as the sole remaining defendant.
[5] The evidence is unclear as to when an Order for Sequestration of the estate of Timothy Walsh was made. However I infer that it must have been made on or about 13 October 2008 from Ex P1 – email dated 13/10/08 from Mr Hiley.
The plaintiff, by its solicitors, and Mr Hiley, entered into negotiations for the compromise of the subject proceedings. Eventually a revised form of Deed of Settlement was prepared and presented to those parties for execution by them, and for the exchange of counterparts of the Deed.
The applicable principles of law, to which I will later refer, are well established.[6]
[6] Masters v Cameron (1954) 91 CLR 353; Branir v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [293]; Lucke v Cleary & Others [2011] 111 SASR 134 at [56 – 60]
It is, however, the application of those settled principles which has given rise to difficulties in the subject case, particularly having regard to the expectation of the parties that a “Deed of Settlement” would be executed by them, and the counterparts exchanged.[7]
[7] 400 George St (Qld) Pty Ltd v B G International Ltd; cf Humphries – Clark v Lazaridis [2010] NSWSC 318; “What is a Deed?” (2010) 84(12) ALJ 810, Malago v AW Ellis Engineering Ltd [2012] NSWCA 227
The plaintiff has not executed the Deed. Mr Hiley asserts that he has executed the Deed, and stands ready and willing to give effect to it.
The Court must be satisfied not only that the parties reached a consensus that was capable of forming a binding contract, including that it is sufficiently certain, but that the parties did so with the ‘objective common intent that such consensus should constitute an immediately binding contract’.[8]
[8] Painaway Australia Pty Ltd v JAKL Group Pty Ltd [2011] at [195] and [232]; and Air Great Lakes v K S Easter (Holdings) (1985) 2 NSWLR 309
The plaintiff asserts that any ‘agreement’ reached between them, was not intended to be binding until the Deed had been executed by both parties and the counterparts exchanged. It asserts that until that time, the plaintiff was entitled to withdraw from any “arrangement” with Mr Hiley.
Whether or not the parties are found to have entered into a binding agreement to compromise the proceedings is to be determined objectively, having regard to the respective communications between the parties and the context in which they were made.[9]
[9] Allen v Carbone (1975) 132 CLR 528; Tayor v Johnson (1983) 151 CLR 422; Toll (FGCT) v Alphapharm (2004) 219 CLR 165; Brynes v Kendle (2011) 243 CLR 253; and GR Securities Pty Ltd v Baulkham Hills Private Hospital (1986) 40 NSWLR 63 but query Western Export Services Inc v Jireh International [2011] HCA 45
A question which arises is whether the facts of the subject case fall within ‘the type’ of contract in respect of which there is a “rebuttable presumption”,[10] or at least an expectation that neither party will be bound until each of them has executed and exchanged a formal document. [11]
[10] The notion of a presumption was criticised in Branir v Owston Nominees (No 2) (2001) 117 FCR 424 at [293]
[11] See Summit Properties Pty Ltd v Comserv (No 784) (1981) 2 BPR 9173; Hopcroft v Edmunds (No2) [2012] SASC 94; and 400 George St (Qld) v B G International Ltd [2010] QCA 245; Painaway Australia Pty Ltd v JAKL Group, supra, at [218] and [237]
Upon the completion of the hearing, I reserved my decision. I thereafter became aware that similar issues were to be considered by the Full Court of the Supreme Court;[12] and, indeed, by respective Courts of Appeal in other jurisdictions.[13]
[12] Stirnemann v Kaza Investments [2011] SASCFC 77; Segal v Donnelly [2012] NSWSC 833; GR Securities v Baulkham Hills Private Hospital (1986) 40 NSWLR 631 at 634; Profile Events v West Beach Trust [2011] SASCFC 1; Hopcroft v Edmunds (No 2) [2012] SASC 94; Commonwealth Bank of Australia v Carotino [2011] SASCFC 110; Lucke v Cleary and Others (2011) 111 SASR 134,
[13] Malago v AW Ellis Engineering [2012] NSWCA 227; Segal v Donnelly [2012] NSWSC 833; Joseph Gomes v Moono Constructions Pty Ltd [2012] NSWSC 909
While it is trite that each case depends upon its own facts, it must be said that there are marked differences in the dicta in some of that case law.[14]
[14] Contrast Hopcroft v Edmunds (No 2) Supra at [366]; R T & Y E Falls Investments Pty Ltd v NSW [2001] NSWSC 1027 at [53]; Abadeen Group v Bluestone Property Services, Supra; with the dicta in Lucke v Cleary & Others, Supra; Branir Pty Ltd v Owston Nominees (No 2), Supra; and Painaway Aust v JAKL Group (2011) 249 FLR1 at [197]
I accordingly thought it prudent to await guidance from those courts as to reconciling the dicta in the recent case law.

The conduct of the trial

When the trial commenced, I was concerned that if I were to determine as a preliminary point, the construction of the “Deed of Settlement”,[15] it may have left a number of other issues unresolved.
[15] T. p 3. See Lucke v Cleary [2011] SADC 41
Counsel for Mr Hiley however submitted that he relied solely upon the terms of the “Settlement Agreement”, and had abandoned any other defence which may have been open.[16] In the event that I were to determine that there was no binding agreement entered into by the parties, the plaintiff would be entitled to judgment on its claim.
[16] T. p 4. In paragraph 6 of his written submission, the defendant had asserted a defence that the plaintiff had permitted the credit account to be extended without authority. No question of estoppel was pleaded.
The parties indicated that the only evidence that they would seek to tender was respectively, a book of documents detailing the relevant correspondence between them, and some brief evidence from the plaintiff’s Group National Manager, Mr Peter Brewer. The plaintiff elected not to call its solicitors to give evidence.
While the parties are to be commended for their respective attempts to simplify the proceedings, the manner in which the trial was conducted led to some difficulties, as to what matters had been agreed. As an example, Mr Hiley did not give evidence, and the plaintiff’s counsel submitted that there was no evidence that he had executed the Deed, despite the admitted correspondence.
The pleadings were not particularly helpful, however there was no prejudice to either party. The pleadings were unhelpful in identifying those issues.[17]

Procedural Matters

[17] T. p 22, See Corrandini v Lovrinov Crafter (2000) 77 SASR 125 at 139; contrast Branir Pty Ltd v Owston Nominess (No2) Pty Ltd (2001) 117 FCR 424, and Ciszek v Enterprise Financial Solutions [2010] NSWSC at [39]

The admissibility of evidence as to context

It is trite that a court will generally examine the context in which the alleged agreement was reached by the parties. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[18] the High Court explained:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[18] [2004] 219 CLR 597 at 589
In Australian Broadcasting Corporation v XIV Commonwealth,[19] Gleeson CJ said:
… In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron (1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, of which the present is a good example, there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract.
It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron (at 360). That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
Reference has earlier been made to “intention”. Cases which typically give rise to problems of the kind presently under consideration are cases in which there is no doubt that the parties had a common intention that at some stage, and by some means, they would enter into contractual relations. They have entered into negotiations for that specific purpose. The problem which arises is that they have exchanged communications which, on the one hand, use the language of agreement but, on the other hand, disclose an expectation that at some future time a document embodying the terms of their contractual arrangement will be brought into existence. Where, as in the present case, the communications which the parties have exchanged are in writing, the question of their "intention" is, prima facie, to be resolved objectively, and as a matter of construction of the relevant documents. Thus, in Sinclair Scott Co Ltd v Naughton (at 317), dealing with precisely such a problem as arises in the present case, the majority in the High Court said:
… We think, as a matter of construction, that the execution of the further contract was a condition or term of the bargain and not a mere expression of the desire of the parties as to the manner in which a transaction already agreed to will in fact go through … The case is not one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.
[19] (1988) 18 NSWLR 540

In order to determine whether the parties intended to conclude an immediately binding contract, their post-contractual conduct may be taken into account. Brambles Holdings Ltd v Bathurst City Council.[20]
[20] (2001) 53 NSWLR 153, para 25, per Heydon JA

Without prejudice correspondence

In some of the correspondence, Mr Hiley expressed his proposals, to compromise the subject litigation, as being “without prejudice”.
These documents were admissible to prove whether there was a concluded contract. See Needlework Warehouse v Chansonette Pty Ltd.[21] In any event both parties to the dispute consented to their tender in evidence,[22] and Mr Hiley, in his defence, pleaded the relevant documents, thereby waiving any privilege.[23]
[21] [2006] FCA 1525
[22] Evidence Act, 1929 (SA) s 67(2)(a)
[23] Western Australia v South Equities Corporation (1996) 69 FCR 245, and Yogogawa Aust v Alstom [2009] SASC 377

The evidence

The background facts are documented in various emails, and drafts passing between the parties and tendered by consent in the subject action.
While the documents are not in dispute, the parties differ as to the inferences which may be drawn from them.
In order to understand the respective submissions of the parties, it is convenient to first set out in a chronological form, a synopsis of the relevant documents tendered at the trial.

The relevant documents and events

The pre Deed of Settlement documents

By written agreement dated 12 December 2007 the plaintiff, as manufacturer of certain solar products, appointed Ecological Homes as a distributor of the plaintiff’s products throughout Australia.[24]
[24] Exhibit P2
Purportedly,[25] on 25 January 2007, the plaintiff, as vendor, and Ecological Homes, as purchaser, entered into a written agreement for the sale and purchase of solar products upon certain credit trading account terms (“the credit arrangements”). Those terms included the provision by the plaintiff of monthly credit of $20,000, “to be reviewed in time as sales volumes grow”.[26]
[25] It may be that the correct date is 25 January 2008, following the execution of the Distribution Agreement on 12 December 2007
[26] Ex P1.1, page 1
On, the same day, purportedly, on 25 January 2007, Timothy Walsh and Mr Hiley, as directors, of Ecological Homes, executed a form of “Guarantee and Indemnity”, in which they each agreed to guarantee payment of all amounts owing by Ecological Homes to the plaintiff in connection with the credit arrangement. In addition, they each agreed to indemnify the plaintiff against any liability or loss arising from any costs, charges or expenses incurred in connection with the guaranteed liability not being recoverable from Ecological Homes.
Between 2 April 2008 and 26 May 2008, Ecological Homes became indebted to the plaintiff, pursuant to the terms of the credit arrangements, in the sum of $81,144.23.[27]
[27] Exhibit P1.2
The plaintiff appointed a collection agency to recover the sums outstanding from Ecological Homes.[28] A notice, entitled “Final Demand,” claiming the sum of $81,144.23, was served upon Ecological Homes on 23 June 2008.
[28] Kemps Mercantile Agency – Exhibit P1.2
On or about 26 August 2008, the plaintiff, by its solicitors on the record, Lindquist Partners, instituted the subject proceedings against Ecological Homes, Timothy Walsh and Mr Hiley.[29]
[29] Evidence of Mr Brewer TP21
On 30 September 2008 the plaintiff served Mr Hiley with the subject proceedings in the State of New South Wales.
Mr Hiley did not file a Defence to the subject proceedings, within the time prescribed by the Rules of Court.
Mr Hiley, instead, made contact with the plaintiff’s group national credit manager, Mr Peter Brewer.
On 10 October 2008, Mr Brewer informed Mr Hiley, by email, that the plaintiff proposed to obtain judgment against him, in consequence of his failure to file a defence. He offered to delay any enforcement against Mr Hiley upon condition that he entered into a repayment plan to reduce the judgment debt. He further stated, inter alia that:
At the same time our action to wind up Ecological Homes will continue, which will result in the appointment of a liquidator. At the same time we will continue with bankruptcy action against Tim Walsh, until a Trustee in Bankruptcy is appointed… The details of my proposal will need to be formalised to give yourself and Hills something of substance, and we can agree the details a little later.
By email in reply dated 13 October 2008, Mr Hiley did not assert any defence to the plaintiff’s proceedings, but pointed to his difficult financial position. He proposed, on a “without prejudice basis”, the following:
Proposal
I borrow $40,000 off my sister and pay this to Hills in exchange for a deed of settlement and full release from all liability. (my emphasis)
Lewis Hiley to then cooperate with Hills fully in relation to any information required for Tim Walsh or Ecological Homes.
By email reply of 13 October 2008, Mr Brewer proposed a “counter offer”:
Upon receipt of $40,000 into our Solicitor’s trust A/c, Hills will forebear legal action against you whilst Hills pursues Tim Walsh.
Acceptance of $40,000 will not constitute full and final settlement, but the funds would be held in trust in the name of Lewis Hiley, while Tim Walsh is pursued.
On 14 October 2008, Ecological Homes was wound up by order of the Supreme Court of South Australia.
By email dated 14 October 2008, Mr Hiley repeated his offer of $40,000, as representing half of the debt, and requested ‘a covenant not to sue in the form of a deed’ saying:[30] (my emphasis)
if I am forced into bankruptcy there will be nothing I can pay as my debts are substantial as a result of debts that arose through Ecological Homes and Endless Solar.
[30] Contrast the earlier request for a deed of release. The covenant not to sue was presumably included to overcome the problems raised by a “full release”. It may be that the plaintiff did not understand the significance of that covenant.
On 15 October 2008, by email, Mr Brewer advised Mr Hiley that judgment would not be entered against him, provided the sum of $40,000 was paid into the plaintiff’s solicitor’s trust account as a priority.
Our acceptance of $40,000 into our solicitors Trust A/c will be our concession to you of suspension of legal action against you while we pursue Tim Walsh. Acceptance of $40,000 will not constitute full and final settlement – merely a delay until Tim’s matters are resolved in full.
By email dated 15 October 2008, solicitors, Lindquist Partners, informed Mr Hiley that they were instructed by the plaintiff in relation to the matter and, inter alia:
That they had been instructed to forebear from signing judgment until further notice to you upon the understanding that:
1.You will forward the sum of $40,000 to be held in our Trust Account in relation to this matter pending a final resolution of this matter.
2.You will forward to us a list of your assets and liabilities and supporting documentation such that our client is in a position to commercially assess your offer of $40,000 in full settlement…
On 17 October 2008 Mr Hiley forwarded an email, direct to Mr Brewer, enclosing various documents, including an Asset and Liability Statement; and a document purporting to be a draft Deed of Settlement. He increased his offer to $41,000. Mr Hiley asserted that he had a defence to the subject proceedings in that he had been excluded from the business of Ecological Homes from June 2007. He said further that:
The plaintiff, with full knowledge, had permitted Tim Walsh to purchase goods using the Ecological Homes credit account beyond the $20,000 credit limit of the account.
On the day prior to your email, I was under the impression that I had reached an agreement with Mr Brewer to the effect that: (my emphasis)
Hills would enter into a Deed of Settlement with me;
The deed would contain a covenant not to sue;
The covenant would be provided by Hills in return for a lump sum payment by me of half the debt in question.
The debt in question, as specified in the Summons and Statement of Claim is $81,144.23.’

§The “Assets and Liabilities Statement” disclosed an excess of liabilities over assets of $1,717,333.00, even without any allowance for the subject debt.

§The draft settlement deed (“the Draft Deed”), which made provision for its “Execution as a Deed”, provided, relevantly:

1.Hills and Hiley consent to the Court making orders as set out in the Consent Orders.
2.Hiley shall pay Hills the sum of forty-one thousand dollars inclusive of costs and interest (‘the settlement sum’) to Hills shall be due and payable on or before twenty-eight (28) days of exchange of duly signed counterparts of this Deed. (my emphasis)
(b) On receipt of clear funds in relation to the Settlement Sum,
(i) Hills covenants not to sue Hiley; (my emphasis)
(ii)Subject to (iii) below, Hiley shall provide cooperation in providing information and evidence to assist Hills in the Proceedings as against Walsh and any subsequent legal proceedings by Hills to enforce any judgment obtained by Hills against Walsh in the Proceedings; and

(iii)Hills shall prepay Hiley his reasonable costs in the provision of the cooperation referred to in (ii) above.

3.In the event that Walsh files and serves as against Hiley a cross-claim in the proceedings, Hills shall pay and indemnify, and keep indemnified, Hiley, in relation to his legal costs in relation to the cross-claim…..’
5.The parties agree that they shall hold the duly signed consent orders in escrow until exchange of duly signed counterparts of this Deed….

By email dated 22 October 2008, Messrs Lindquist Partners responded, inter-alia:
Our client has instructed us that they will accept your settlement offer in the sum of $41,000 subject to the terms of the draft Deed of Settlement with some minor amendments.
Could you please provide a copy of the proposed Consent Orders referred to as Annexure ‘C’ in the Deed of Settlement. Please note the Recital ‘H’ needs to be amended to read ‘less’ in the second line.
Our client has some concerns about paragraph 2 of the proposed Deed of Settlement. What are the nature of your costs that you suggest in paragraph 2(b)(iii). In addition, it should be a term of the Deed that should you make any recovery from Walsh or Ecological Homes Pty Ltd, you will account to Hills for such recovery.
By email dated 24 October 2008 to Mr Hiley, Lindquist Partners said:
Could you please respond with an email to enable settlement terms to be finalised.
By email dated 24 October 2008 to Lindquist Partners, Mr Hiley enclosed an amended draft deed, and copy of the proposed consent orders. He requested confirmation that the amendments were “acceptable to you”. He proposed that Lindquist Partners, inter alia:
arrange for Hills to execute a counter-part of the Deed … we will email each other to advise on completion of the above steps … we will then simultaneously exchange our respective counter-parts of the Deed and the consent orders, in the process dating each document as per the date of exchange.
· The amended draft deed included each of the amendments requested by those solicitors, and clarified clause (2)(b)(iii) thereof so as to provide: ‘Hiley’s reasonable costs shall be his out of pocket expenses and his time charged out at $140 inclusive of GST per hour’.
The consent orders provided that the proceedings as between the plaintiff and Mr Hiley be discontinued, and that, as between the plaintiff and Mr Hiley, each pay its own costs.
By email dated 24 October 2008, Lindquist Partners informed Mr Hiley that they would obtain instructions from their client in relation to “the amended terms of the Deed of Settlement”.
On 30 October 2008 Lindquist Partners, replied to Mr Hiley, in full, as follows:
We refer to our email dated 24 October 2008.
Our client agrees to the terms of the Deed of Settlement except for paragraph 2b(iii).
We are instructed by our client that when you first contacted them, you advised that you would offer assistance forthwith without any suggestion requesting an hourly payment.
Accordingly, our client will execute the Agreement with that Clause removed and the consequential amendment to Clause 2b(ii). Our client’s position is non-negotiable. We await your urgent response.
By email dated 31 October 2008 to Lindquist Partners, Mr Hiley consented to the deletion of Clause 2b(iii) and the consequential amendment to Clause 2(b) (ii) requested by them.
By email dated 3 November 2008 Lindquist Partners confirmed the agreement, stating:
To facilitate execution by counterpart, could you please send the Agreement amended as agreed as an attachment, so that I can forward same for execution by my client.
Notwithstanding that email, on 5 November 2008 it was Lindquist Partners who sent a further email to Mr Hiley enclosing, as an attachment, the amended Deed of Settlement, and stating:
Could you please execute the same. Our client will execute the counterpart shortly, and we will advise you when that occurs.

The settled Deed of Settlement

It is appropriate to set out, in full, the terms of that Deed of Settlement, as forwarded by Lindquist Partners:
THIS DEED of SETTLEMENT is made on the        day of            2008
PARTIES:
BETWEEN
HILLS INDUSTRIES LIMITED (ABN 35 007 573 417) t/as Hills Eco of 162 Halifax Street, Adelaide in the State of South Australia, 5000 (‘Hills’);
AND
LEWIS HOWARD HILEY of Unit 4, 60 Park Street, Erskineville, in the State of New South Wales, 2043 (‘Hiley’).
RECITALS:
Hills is the Plaintiff and Hiley is the Third Defendant in proceedings No. 1348 of 2008 issued in the District Court of South Australia (‘the Proceedings’).
The Summons and Statement of Claim filed in the Proceedings are annexed hereto and marked respectively ‘A’ and ‘B’.
Hiley is a party to the Proceedings on the basis that he allegedly signed a personal guarantee, with Timothy John Walsh, the Second Defendant in the Proceedings as co-guarantor to personally guarantee the obligations and performance of Ecological Homes Pty Ltd (ABN 49 106 358 650), the First Defendant in the Proceedings.
Hiley disputes liability to pay the debt the subject of the Proceedings.
On a no admissions of liability basis, Hiley entered into ‘without prejudice’ negotiations with Hills with respect to the debt in question.
Hills and Hiley have come to an agreement about the settlement of the Proceedings pursuant to which Consent Orders are to be made by the Court as set out forth in Annexure ‘C’ hereto (‘the Consent Orders’).
The parties have conducted negotiations and have reached an agreement to settle the Proceedings. This Deed sets out the terms of the Settlement Agreement, including the rights and obligations of each party under the Settlement Agreement.
Hills intends to pursue the Proceedings as against Walsh and as a result recover whatever payment it can from Walsh and Walsh alone less the settlement Sum referred to below.
OPERATIVE PART:
1.     Hills and Hiley consent to the Court making orders as set out in the Consent Orders.
2.     Hiley and Hills agree as follows:
(a)Hiley shall pay Hills the sum of forty one thousand dollars inclusive of costs and interest (‘the Settlement Sum’) to Hills [which] shall be due and payable on or before twenty eight (28) days of exchange of duly signed counterparts of this Deed;
(b)    on receipt of clear funds in regards to the Settlement Sum;
(i)     Hills covenants not to sue Hiley;
(ii)Hiley shall provide co-operation in providing information and evidence to assist Hills in the Proceedings as against Walsh and any subsequent legal proceedings by Hills to enforce any judgment obtained by Hills against Walsh in the Proceedings.
3.     In the event that Walsh files and serves as against Hiley a cross-claim in the Proceedings, Hills shall pay and indemnify, and keep indemnified, Hiley in relation to his legal costs in relation to the cross-claim.
4.     Hiley agrees that if he recovers any payment from Walsh as a result of the Proceedings or in connection with the subject matter of the Proceedings, Hiley shall account to Hills for such payment including but not limited to, paying such monies to Hills.
5.     The provisions of this Deed may be pleaded by Hills or by Hiley (as the case may be), in bar to any existing or future proceedings in any court, tribunal or before any body or person exercising judicial power, which give rise to any issues of fact or law arising in the Proceedings.
6.     The parties agree that they shall hold the duly signed Consent Orders in escrow until exchange of duly signed counterparts of this Deed, whereupon they shall immediately file the Consent Orders in the Registry of the District Court of South Australia or if the Proceedings are transferred to a court in New South Wales, the Registry of that court.
7.     The parties acknowledge that before entering into this Deed, they and each of them, have had an opportunity to receive such legal and other advice relating to this Deed as it considers necessary and appropriate, and to consider other options that may be available in relation to the matters in dispute.
8.     This Deed is governed by the Law of New South Wales and the parties submit to the non-exclusive jurisdiction of the courts of New South Wales.
9.     The Parties shall bear their own costs of preparing and finalising this Deed.
EXECUTED AS A DEED
SIGNED, SEALED AND DELIVERED         )
by LEWIS HOWARD HILEY  )
in the presence of:  )…………………..
……………………………………
Witness
……………………………………
Print Name
EXECUTED by HILLS INDUSTRIES LTD    )
(ABN 35 007 573 417) in accordance with           )
Section 127 of the Corporations Act (Cth)          )
in the presence of:  )
……………………………………     …………………………………
Secretary/Director  Director
……………………………………     …………………………………
Print Name  Print Name

Post Deed of Settlement documents and events

By email dated 7 November 2008, Mr Hiley advised Lindquist Partners:
I have signed the counterpart and I want advice from you that your client has signed their counterpart. I will then arrange a date for simultaneous exchange by email and that will be the date of the Deed to be inserted in the first line of the Deed.
By email dated 12 November 2008 to Lindquist Partners, Mr Hiley noted as follows:
This afternoon at 4.00pm I received a telephone call from Mr Peter Brewer of your client.
He is under the impression that no deal has been done to effectively release me from liability in excess of my proposed payment to $41,000 as detailed in the concluded Deed of Settlement.
Last Friday, 7 November, I sent to you an email that said I had signed my counterpart and was ready to exchange.
Please advise when you will be ready to exchange your counterpart and confirm the covenant not to sue referred to in the deed.
Would you also please be good enough to discuss matters with Mr Brewer to remedy any misunderstanding.
By email dated 13 November 2008 Lindquist Partners advised Mr Hiley that their client had not signed their counterpart and that they would obtain instructions.
By email 17 November 2008 Mr Brewer advised Mr Hiley that the plaintiff’s Board of Directors were not prepared to grant a full release. He said further:
I advocated to the Hills Board the arrangement as discussed with yourself, ie that we would hold the $41K in a trust a/c under your name, until such time as all avenues against Tim Walsh were exhausted. The Board were comfortable with that arrangement. (my emphasis)
However, the Deed as prepared by you is a somewhat different arrangement again, and seeks to grant you a full release, which did not form part of the original discussion I had with yourself. (my emphasis)
I have now been instructed by the Hills Board, that if you are seeking a full release, I am only authorised to accept a minimum of $51,000 to finalise this.
In an email dated 17 November 2008 to Mr Brewer, Mr Hiley expressed his opinion that a concluded agreement had been reached as evidenced by the Deed.

By email dated 18 November 2008, Lindquist Partners informed Mr Hiley that:
We note that Mr Brewer has made further contact with you. We are instructed that our client has not, and will not, execute the Deed of Settlement in its current terms.
By email dated 18 November 2008 to Lindquist Partners, Mr Hiley repeated his opinion that a concluded agreement had been reached, and sought “a written assurance” from the plaintiff.
By email dated 21 November 2008 to Mr Hiley, Mr Brewer stated:
Lewis, on the basis of your position we regretfully have to advise that our offer to settle will be withdrawn effective 5.00pm SA time today. We will be instructing our solicitor to resume immediately with Bankruptcy action against you for the full debt, and costs. In that event, you need to appreciate that we will not be disposed to negotiate further down the track, as we intend to see the matter through to its conclusion.
On 25 November 2008 Mr Hiley informed Mr Brewer, by email, that he would be overseas from 10 December 2008 and 11 January 2009.
On 12 December 2008 the plaintiff signed judgment against Mr Hiley in default of filing a Defence and proceeded to issue a Bankruptcy notice against him.
On 15 September 2009 the default judgment obtained by the plaintiff was set aside by order of a Master of the Court.

The oral evidence

The plaintiff called Mr Brewer to give evidence as to the terms of the guarantee executed by Mr Hiley. Evidence from Mr Brewer, as to the negotiations leading to the Deed of Settlement, is prima facie, admissible on the same basis as the tendered documents, Branir v Owston Nominees (No 2).[31]
[31] (2001) 117 FCR 242 at 512
What however, is not relevant, is Mr Brewer’s personal understanding or intention.
Recently, in AW Ellis Engineering Pty Ltd v Malago Pty Ltd,[32] Sackar J. in adopting a passage from Lewison & Hughes,[33] noted:
Facts which were known to only one of them will not be relevant … where a fact is known to one party and not the other, [while] in theory it may well have played a part in forming the intention of the party who knew that fact … it will not be admitted in evidence, because the court is seeking not the actual intention of one party to the contract, but the presumed mutual intention of both of them.
[32] [2012] NSWSC 55
[33] “The Interpretation of Contracts in Australia”, (2012) at p 118
Accordingly the oral evidence sought to be adduced by the plaintiff from Mr Brewer must be directed to the presumed mutual intention, rather than to what he personally understood or anticipated.
In examination in chief, Mr Brewer gave some very brief evidence as to the standard terms of the plaintiff’s then Distribution Agreement. Mr Brewer was cross examined as to the role of the plaintiff’s solicitors, Lindquist Partners, as disclosed in the tender documents.
Mr Brewer said that:

He was the person who ‘dealt’ with those solicitors, and conceded that they had acted for the plaintiff at least in October and November 2008.[34]

He had not seen the email from Lindquist Partners dated 22 October 2008 to Mr Hiley which referred to the acceptance of the offer of $41,000. He said – ‘I don’t know that I agreed to that’.[35]

He had been given a copy of the Deed of Settlement in October 2008, and had reviewed it. He had provided instructions to those solicitors as to any ‘problem’.[36]

[34] T. p 21

[35] T. p 22

[36] T. p 23

The pleadings

As I have already noted, the pleadings in the subject case are unhelpful. There is no utility in setting them out in detail. The plaintiff’s pleading simply sets out the particulars of the alleged debt owing to it. It does not address, at all, the principal issue at the trial.
In his defence, filed on 28 September 2009, Mr Hiley asserts that the plaintiff entered into a concluded and binding agreement with him to compromise the subject proceedings.
There is clearly a distinction between the “Settlement Agreement” as pleaded by Mr Hiley, and the unexecuted “Deed of Settlement”.
Mr Hiley pleads that “all causes of action that the plaintiff had against him merged into a Settlement Agreement”.[37] (my emphasis) This implicitly raises the question of the need for the “Deed of Settlement,” to be executed, if there is no consideration for the “Settlement Agreement”.
[37] See Defence [1]
I therefore take that pleading to mean that if Mr Hiley succeeded in his defence, the causes of action and the “Settlement Agreement” would be merged in any judgment.[38]
[38] Re: Sneyd (1883) 25 Ch D 338; Re: London Borough of Ealing (1980) 2 ALL ER 548 at 550; ASB Bank Ltd v Teng HC AK [2007] NZHC 149
He pleaded that such an agreement had been reached on alternative occasions. He pleaded, initially, that an oral agreement had been reached with Mr Brewer in the sum of $40,000.[39] The suggestion of such an agreement being reached orally at that time, was implicitly abandoned by counsel during submissions. In my opinion it was properly abandoned. There was no such alternative agreement reached, despite Mr Hiley’s email dated 17 October 2008. The latter email reflects Mr Hiley’s anxiety that he may be facing judgment for the full amount. He could not have genuinely believed that an “agreement” to compromise had been negotiated at that time. Indeed negotiations continued thereafter, leading to an increase in the offer to the sum of $41,000, and to the final alleged agreement on 31 October 2008, but no later than 3 November 2008.
[39] Defence: paragraph 3
The defendant did not file a counterclaim nor seek relief by way of a declaration as to a subsisting and binding agreement to compromise the claim.
The plaintiff did not file a reply to that defence.[40] Pursuant to the Rules of Court, the plaintiff is taken to have denied the allegations in the defence. There is no doubt that it denied that any such binding agreement had been made. In the absence of any specific pleading, by way of reply, the bases for a bare denial are not immediately apparent. A bare denial of a binding agreement may be based on various grounds. One can however glean from the opening of counsel that the plaintiff asserted:
[40] See 6 DCR 101(3)

That there was no intention to enter into a binding agreement until the Deed of Settlement was executed by the parties, and the counterparts exchanged.

That the terms of the ‘agreement’ between the parties was uncertain because of the use of the term ‘covenant not to sue’.

That the plaintiff’s solicitors did not have expressed, implied, nor ostensible authority to enter into a concluded and immediately binding agreement.

That in order to overcome the lack of consideration inherent in a creditor receiving, in such a compromise a portion only of its liquidated debt, a Deed had to be executed.

The plaintiff’s counsel had faintly submitted that there was no evidence that Mr Hiley had executed the Deed. I do not accept that submission in light of the email from Mr Hiley on 7 November 2008 as to his execution of the counterpart. In any event nothing turns upon that issue. Malago v AW Ellis Engineering, infra.
No issue was taken by the defendant as to the absence of a reply. It was clear from the written submissions of the defendant that he was well aware of the issues in dispute. Contrast Branir v Owston Nominees (No 3).[41]

Submissions of Counsel

[41] (2001) 117 FCR 242 at 502

The plaintiff’s submissions

Counsel for the plaintiff submitted that as an objective fact, the plaintiff did not intend to be bound by the Deed of Settlement until it executed, and exchanged the counterparts.
He pointed to its post ‘presentation of the deed’ conduct, in which it refused to execute the Deed, and, instead, purported to continue negotiations. He stressed that throughout his negotiations with Mr Hiley, Mr Brewer had been patently clear that the plaintiff would not release Mr Hiley from liability for the full debt. He referred to the ‘covenant not to sue’, as being vague, implicitly submitting that Mr Brewer may have misunderstood what it meant. By implication, he noted the lack of consideration for the deed. He submitted that there could be no doubt that the need for ‘a deed’ had been proposed by Mr Hiley alone. Accordingly any arrangement with the plaintiff’s solicitors was premised upon the execution of the Deed by the plaintiff company.
He submitted that everyone was aware, that if it were a ‘deed’, then it had to be executed by the plaintiff company. Indeed Lindquist Partners had informed Mr Hiley that he had sent it to the plaintiff for execution. It was for the Board of the plaintiff to decide to execute it or not.
Mr Turon referred to the case of 400 George Street, supra, and submitted that the subject arrangement falls within the third class of case identified by the High Court in Masters v Cameron, supra, namely that the common intention was that no one would be bound until the deed was executed by both parties, and the counterparts exchanged.

The defendant’s submissions

Counsel for the defendant, Mr Lazarevich, detailed the history of the credit arrangements between the plaintiff and Ecological Homes.
He submitted that the ‘true context’ disclosed that the plaintiff was presented with three major difficulties. Firstly, Mr Hiley had professed a defence to the subject litigation, on the basis that the plaintiff had knowingly increased credit to Timothy Walsh. Secondly, Timothy Walsh had announced his intention to become bankrupt, and the plaintiff needed help from Mr Hiley to pursue him.
Finally, Mr Hiley had produced a list of assets and liabilities which disclosed a deficiency of $1.7 million. On those bases it is hardly surprising it was submitted, that a negotiated settlement was beneficial to the plaintiff, with funding to come from a third party.
He submitted that the correspondence from Lindquist Partners was clear. The parties had clearly reached settlement of the subject proceedings. The consideration included the assistance to be given by Mr Hiley and the abandonment of his defence.
He submitted that all of the terms were agreed after extensive negotiations. The form of deed was approved by both parties after amendments sought by the plaintiff. There was nothing left to be resolved. There was no reservation of rights. He submitted that the discussions relating to execution and exchange of counterparties, was simply directed to the time for payment. The Deed was sought by the defendant alone in the event that there was no consideration for the payment of portion only of the debt.
He submitted that in signing the counterpart, Mr Hiley could himself be sued on the deed. See 400 George Street, supra.
He submitted that there could be no doubt that Lindquist Partners had ostensible authority to negotiate a compromise of the litigation on behalf of the plaintiff. It was not a complex transaction, but the resolution of a mere debt. Indeed he submitted that the correspondence itself suggested actual authority.
Accordingly, he submitted that the subject arrangement fell within either the first or second classes of contract identified in Masters v Cameron, supra.

Discussion

Before determining the substantive issue as to whether the parties evinced a common intention to be immediately bound by the “agreement” to compromise the litigation, I will deal with some general issues that arose from the evidence and the submissions.
·Release – covenant not to sue

As is apparent from the documents, Mr Hiley initially sought a “full release from all liability”. From 14 October 2008, his proposals were directed to “a covenant not to sue, in the form of a deed”.
At all times, save for the emails subsequently forwarded by Lindquist Partners, the plaintiff, by its National Credit Manager, Mr Brewer, had consistently refused to grant a “release” to Mr Hiley. In this respect I refer to his email to Mr Hiley dated 17 November 2008.
I will not speculate as to why the plaintiff purported to withdraw from the “arrangement” nor whether Mr Brewer understood the significance of the distinction between a “covenant not to sue” and a “release”. It may be that he was concerned that any “release” of Mr Hiley may prevent recovery from Timothy Walsh. It may be that he thought it meant no more than that the plaintiff would not proceed immediately against Mr Hiley. As I have noted, his own understanding is irrelevant. AW Ellis Engineering v Malago Pty Ltd, supra.
There was, with respect, no uncertainty or vagueness in the expression “covenant not to sue”. It has been described “as not directly putting an end to the obligation but is a contract not to enforce it”.[42]
[42] Glanville Williams “joint obligations” at 107 – 108. See Murray-Oates v J J A dd Pty Ltd (1999) 76 SASR 38
In James v Surf Road Nominees,[43] the Court of Appeal said:
[38] The starting point in consideration of the circumstances in which a joint or joint and several guarantor may be discharged from liability under a guarantee is the principle that the discharge by the principal of the co-guarantor discharges the other co-guarantors. The old authorities explain the principle in terms that “the [guarantee] is not or ceases to be that which [was] guaranteed”: Re Wolmerhausen (1890) 62 LT 541; Smith v Wood [1929] 1 Ch 14; Hancock v Williams (1942) 42 SR (NSW) 252 at 255; Walker v Bowry (1924) 35 CLR 48.
[39] The modern statement of the rule is that the undertaking of a joint or several obligation usually involves an implication the co-guarantees will remain in place for the duration of the guarantee. There may of course be an express provision to that effect. In either case, a release of one guarantor will release the other guarantors from liability, as otherwise there will be a breach of the relevant condition of the guarantee.
….
[41] It is a question of construction whether a covenant operates as a release or a covenant not to sue. If, upon its proper construction, in the context of the whole document in which the covenant is found, an intention is found not to release all joint and several promisors, that will point to a covenant not to sue. In that case, a co-promisor will not be discharged from liability….
[43] [2004] NSWCA; Carr v Thomas [2009] NSWCA 208; Padstow Corp Pty Ltd v Fleming [2011] NSWSC 1337; Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574
Clearly the plaintiff intended to proceed against Timothy Walsh, irrespective of its arrangements with Mr Hiley. If the arrangements with Mr Hiley constituted a “release”, it would operate to release Timothy Walsh as well. If they constituted a “covenant not to sue”, then Timothy Walsh’s liability to the plaintiff would not be extinguished.
In the subject case there is no doubt that the covenant not to sue protected the plaintiff’s position as against Timothy Walsh.

Promise to accept less than the full debt.

The basic principle is that consideration is essential for a binding contract.[44] Generally, payment, or a promise to pay, part only of a debt does not constitute consideration for that promise.
[44] Foakes v Beer (1884) 9 AC 605; Stilk v Myrick (1809) 170 ER 1168
In a recent case involving the question of a lack of consideration for the payment of a reduced sum, in MP Investments Nominees v Bank of WA Ltd,[45] Judd J said:
[107] The bank submitted that even if an agreement as alleged were to be found there was a want of valuable consideration, because the plaintiffs were under existing obligations to perform the contract to repay the facilities and interest, and any refinancing costs they might have incurred were not incurred as a consequence of any such agreement.
[110] The plaintiffs argued that the strict approach to the matter of consideration, enunciated in Foakes v Beer had been replaced in Australia by a more “sophisticated” approach following the decision in William v Roffey Brothers & Nichols (Contractors) Ltd. As a consequence, the plaintiffs argued, a practical benefit enjoyed by the bank or some prejudice avoided may constitute adequate consideration so as to permit the enforcement of the promise as a contract.
[111] The defendants drew a distinction between executory contracts, where something more was to be done by the promisee in performance of the contract; and cases where the only remaining act was the repayment of money advanced by a lender. In the former category of case the promisor might have enjoyed a real and tangible benefit or avoided a material detriment by offering an additional payment or granting an indulgence. Such cases are exemplified by the facts in Williams v Roffey Bros and Musumeci v Winadell Pty Ltd.
[112] I accept that there are cases in which a benefit may be obvious even though there are existing contractual obligations and entitlements. The case of a contractor offered an inducement to continue to perform his contract so as to avoid a greater loss is but one example. I also accept that in the case of banker and customer, circumstances may arise in which a bank may compromise its position in order to secure certainty of payment and avoid cost, inconvenience and perhaps loss associated with recovery action. There remains, however, a question of principle involving the requirement that there be consideration moving from the promisee.
[113] In Amos v Citibank Ltd the Queensland Court of Appeal, referring to the facts in Williams v Roffey Bros, said,
In circumstances in which a contract of that character remains at least to some extent executory on both sides, it is not difficult to identify as the consideration the commercial benefit which results from having performance in fact carried out, or, conversely, the detriment likely to be suffered if it is not. See also Musumeci v Winadell Pty Ltd (1994) 34 out, or, conversely, the detriment likely to be suffered if it is not. See also Musumeci v Winadell Pty Ltd, which is a further instance of that kind, where the decision in Williams v Roffey was followed at least in part. But it is a different matter where, as here, the subject matter of agreement is not a contractual obligation which is still to be performed, but simply a debt which has arisen, become due, and is payable forthwith by one party to the other. It may be that, as Peter Gibson LJ has said, “when a creditor and a debtor, who are at arms length, reach agreement on the payment of a debt by instalments to accommodate the debtor, a creditor will no doubt always see a practical benefit to himself in so doing”: see Re Selectmove Ltd [1995] 1 WLR 474 at 481, where, the Court of Appeal declined to extend Williams v Roffey to an alleged agreement to pay the whole debt by instalments in the future. Even that is not the case we are now called on to consider. Here the debtor claims no more than that the creditor has agreed, and is consequently bound, to accept a sum less than the amount that was incontrovertibly due to him. In those instances, and in the absence of anything resembling an estoppel, the common law rule continues to prevail that some valuable consideration in law must be shown for the creditor’s promise to release the unpaid balance of the debt.
[45] [2012] VSC 43
Amongst the exceptions to this principle,[46] are:

That the “agreement” to accept part only of the debt by the creditor is formalised in a Deed.
[46] Carter & Others, Contract Law in Australia, 5^th Ed, 2007 [6-50] – [6-64]

In that situation, no consideration is required, and the “agreement” is binding.
S 41 of the Law of Property Act 1936, details, inter alia, the manner of execution of a deed, and, in particular, provides that delivery of a deed, and, indenting, are not necessary in any case.
Relevantly, s 41(5) provides that if executed in accordance with the section, the document is a deed, “if the document is expressed to be a deed”.
In 400 George Street (Qld) Pty Ltd v B G International Ltd[47] a case involving an “arrangement” which specifically provided that “no legally binding agreement is made by the parties …until mutually agreed legal documentation”, the Court of Appeal affirmed:
A deed is very different from a contract. On a contract for the sale of land, the contract is not binding on the parties until they have exchanged their parts. But with a deed, it is different. A deed is binding on the maker of it, even though the parts have not been exchanged, as long as it has been signed….
[47] (2010) QCA 245

There is no doubt that the proposed “Deed of Settlement” was intended to operate as a Deed. If executed, no issue as to the lack of consideration for the plaintiff accepting less than its full entitlement would arise.

Where the debtor genuinely disputes being liable for the debt.

The preamble to the Deed includes an assertion that Mr Hiley had a defence to the plaintiff’s claim.
In Wigan v Edwards,[48] Mason J said:
A promise to do precisely what the promisor is already bound to do is a sufficient consideration, when it is given by way of a bona fide compromise of a disputed claim, the promisor having asserted that he is not bound to perform the obligation under the pre-existing contract or that he has a cause of action under that contract.
[48] (1973) 47 ALJR 586 at 594-5
In light of the concessions from counsel for Mr Hiley, it is unnecessary to consider this question. It was not addressed by counsel in any detailed manner. The assertion that the credit limit was exceeded appears to have had little or no merit.

By part payment by a stranger

It is trite that where a creditor agrees to accept part payment of a debt from someone other than the debtor, in full settlement, the creditor’s receipt of that sum prevents any recovery from the debtor of the balance.
Mr Hiley had proposed to the plaintiff that the sum of $41,000 would be sourced from his sister, given his impecuniosity as disclosed in the list of assets and liabilities. However, his sister was not a party to the Deed. Accordingly this exception does not apply in the subject case.

By Accord and Satisfaction

Mr Hiley agreed to assist the plaintiff by “providing information and evidence” in any claim against Timothy Walsh.
In McDermott v Black, Dixon J said:[49]
… promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing, or paying an ascertained sum of money and the other party may agree to accept, not the promises but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promises in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promises are performed.[50]
[49] (1940) 63 CLR 161 at 183
[50] See Pollak v National Bank Ltd [2002] FCA 237 at [8]
In addition Mr Hiley might have advanced a case on the basis that there was a benefit to the plaintiff in obtaining $41,000 forthwith as against the dubious prospect of recovering from him any sum in light of his apparent impecuniosity.
In the event that I were to find that there was a binding agreement to enter into a Deed, I do not need to address this issue further.

The authority of a Solicitor to compromise litigation

It has long been established that a solicitor, on the record, has at least ostensible authority to settle litigation on behalf of his client. Donellan v Watson (1990) 21 NSWLR 335 at 342; and Needlework Warehouse Pty Ltd, supra, at [83].
In Lucke v Cleary,[51] the Full Court distinguished such cases from agreements involving “non-litigious business”, in respect of which solicitors generally have no such ostensible authority to bind their client.[52] In the context of “non litigious business”, it has been held that where parties contemplate the exchange of a formal contract, a solicitor does not have authority to conclude a contract by correspondence without an exchange. See Zhang v P302 SPV Pty Ltd.[53]
[51] (2011) 111 SASR 134 at [60]-[64]
[52] Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146 at 152; Summit Properties Pty Ltd v Comserv (No784) Pty Ltd (1981) 2 BPR 9173, and Zhang v VP 302 SPV Pty Ltd [2009] NSWSC 73
[53] (2009) NSWSC 73
In Lucke v Cleary, while affirming that a legal practitioner has ostensible authority to bind his client to a contract which compromises the litigation, the Court stressed that such ostensible authority is confined to a contract that genuinely relates to the litigation and contains no terms which are collateral to the action.
It is clear from the documents that the asserted binding agreement to compromise, genuinely related to the subject litigation, and contained no such collateral terms. Notwithstanding Mr Brewer’s evidence, there is nothing in the evidence to suggest that Lindquist Partners acted in any way contrary to their instructions. What was said in Malago v AW Ellis Engineering, infra, at [47] by the Court of Appeal is apposite in the subject case:
Without a clear indication otherwise I would not conclude that the parties intended to bind themselves as to an agreement containing terms not agreed by the respective solicitors without instructions from the parties. The evidence indicates, as one would expect, that they were guided by their client’s instructions in the negotiations and were not acting as independent arbiters.
Accordingly, at the least, they had both implied and ostensible authority to bind the plaintiff.[54]
[54] Across Australia Finance v Bassenger (2008) NSWSC 799
The substantive question which remains is whether the parties intended to be bound until the Deed was executed and the counterparts exchanged. I turn to that issue now.

The intention to be bound

The starting point is the dicta of the High Court in Masters v Cameron, supra. In Humphries-Clark v Lazaridis,[55] the relevant principles were recently restated at [24] – [26].
[24] The real issue in this case is whether a binding agreement was reached. In Masters v Cameron (1954) 91 CLR 353 the High Court referred to the three classes into which a case may fall where parties have been negotiating and reach agreement and also agree that the matter of their negotiation shall be dealt with in a formal contract: Dixon CJ, McTiernan & Kitto JJ at 360. Those classes may be stated shortly as: (1) where parties intend to be immediately bound to the performance of the terms agreed, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect; (2) where the parties have reached complete agreement on all the terms and intend no departure from or addition to those terms, but nevertheless may have made performance of one or more of the terms conditional upon the execution of a formal document; and (3) the parties do not intend to make a concluded bargain unless and until they execute a formal contract. Dixon CJ, McTiernan & Kitto JJ said at 360:
In each of the first two cases there is a binding contract; in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. In the third case the parties have merely agreed to agree in the future.
[25] A fourth class has been recognised as one in which the parties are content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms: Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 per Knox CJ, Rich and Dixon JJ at 317. In this regard, in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 McLelland J, as his Honour then was, referred to the following passage of the speech of Lord Loreburn in Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475 at 628:
It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.
[55] [2010] NSWSC 318

The application of those principles

In the Australian Broadcasting Corporation case, supra, the Court set out a list of factors to guide Courts in the application of these principles. Those factors included the “size, importance and complexity of the subject matter, the conduct of the parties before and after making the contract, and whether the informal agreement showed that the parties had reached consensus on all matters of importance, not just on the main matters of importance”.
It is helpful to have regard to some observations made in the case law, albeit in different factual circumstances. Abadeen Group Pty Ltd v Bluestone Property Services [2009] NSWSC 386 at [113].
Masters v Cameron involved an “arrangement” between the parties for the sale of the land, as contained in a memorandum which was expressed to be “subject to the preparation of a formal contract of sale acceptable to the vendor’s solicitors”. The Court held that, despite the memorandum having provided that the formal contract should be on the same terms and conditions and indeed a deposit was paid, there was no binding agreement.
There is abundant authority that in respect of real estate conveyancing “arrangements” there is a rebuttable presumption that “no such contract will be binding until a formal document is executed and counterparts exchanged”. Allen v Carbone (1975) 132 CLR 528 at 532-533; Sindel v Geogiou (1984) 153 CLR 661 at 667; GR Securities Pty Ltd v Baulkham Hills Private Hospital (1996) 40 NSWLR 631 at 634, 400 George Street (Qld) Pty Ltd v BG International Pty Ltd [2010] QSC 66 at [39]. Contrast Branir v Owston Nominees (No 2) (2001) 117 FCR 424 at [365].
Similarly in the context of a substantial commercial transaction it is said to be a “general rule” that the court should be reluctant to find a common intention that a binding informal contract had come into existence at any time prior to the execution of the formal document. See RT & YE Falls Investments v State of NSW (2001) NSWSC 1027 at [53]; Guilfoyle Developments Pty Ltd v Frumar at [62]; Commonwealth Bank of Australia v Carotino [2011] 111 SASR 573.
In Hopcroft v Edmunds (No2),[56] Blue J was considering an alleged “agreement” to share in the profit of a valuable abalone licence. His Honour said:
Where a formal contractual document is prepared with provision for execution by both parties, the ordinary expectation is that the parties will not be bound until all parties have executed the document. In Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd,[57] a formal lease was drawn up and signed by the lessee but not the lessor. The New South Wales Court of Appeal held that there was no contract. Glass JA said:[58]
Many contracts are made in an informal way when the parties have passed beyond the negotiating stage by reaching an agreement upon all the terms of the bargain. But there are other forms of negotiation in which the achievement of an agreement upon terms fails to produce a binding agreement because the parties contemplate that it is not the settlement of the terms but the completion of some ceremony which marks the state at which the contract comes into existence. It is well understood that the exchange of contracts for the sale and purchase of land is such a ceremony without which a bargain of that kind cannot be struck. The terms of the correspondence between the solicitors already noted objectively evince an intention that neither client was to be bound by the memorandum of lease at the moment when all of the terms had been settled by the solicitors. Some further ceremony was required whether it was to be the contemplated lodgement by registration of a memorandum duly executed by the lessor’s solicitors or the earlier ceremony whereby both lessor and lessee reciprocally bound themselves by bilateral execution of a registrable Memorandum of Lease.
[56] (2012) SASC 94 at 366
[57] (1981) 2 BPR 9173.
[58] (1981) 2 BPR 9173 at 9175-9176.
There has been a flood of case law with respect to asserted compromises of litigation.
In Humphries-Clark v Lazaridis[59], the relevant facts were that the parties to proceedings for professional negligence, had informed the Court that the action had settled. The terms contained in a letter were that the sum of $4,999.99 would be paid in full settlement, upon a consent order being entered, and a Deed of Release executed by the plaintiff in the initial proceedings. A draft Deed provided that payment would be made within 28 days of the “execution and exchange” of the Deed. The plaintiff refused to execute the Deed.
[59] [2010] NSWSC 318
The Court held at [38] that:
The agreement reached as documented in [the] letter recorded the agreement to the terms of the consent orders finalising the litigation, the amount to be paid to the defendant and the agreement that the parties “will enter into a Deed of Release” … I am satisfied that when the parties used that expression, they understood and intended that they would sign a Deed….This was not an agreement to agree at some time in the future … there were no further matters to be agreed”.
The Court was satisfied that the agreement fell within the first category of Masters v Cameron, despite some differences between the letter and the proposed Deed. Declaratory relief and an order for specific performance was granted.
On appeal,[60] it was argued that there was no agreement as to the form of the Deed of Release, nor any evidence that the defendant was ready and willing to enter into it.
[60] [2010] NSWCA 349
Allsop ACJ for the Court dismissed the application saying:
The events smacked of agreement from start to finish on the afternoon in which it occurred. There was certainly a document to be drafted but it was an immediately binding agreement … I do not think there is any vice in failing to identify a readiness, willingness and ability to proceed with that agreement.
On a similar fact situation, save that the proceedings involved a claim for damages rather than a liquidated claim, the Full Court in Lucke v Cleary, supra, reached the same conclusion; saying at [68]-[70]:
True it is that the agreement concluded by the parties … contemplated that there would be mutual discharges and releases to be perfected in a deed, the execution of which would fix the date for settlement … and further negotiations as to its content.
Nonetheless I consider that the parties had reached a binding agreement. The essential terms were set out … it would be erroneous to construe what occurred as evincing an intention … to reserve negotiating positions until such time as a Deed was executed. This was not an “in-principle” agreement.
To similar effect were the respective decisions in Stirnemann v Kaza Investments Pty Ltd;[61] Crawley v Crawley Land Pty Ltd;[62] and Blazevic Holdings Pty Ltd v Grave.[63]
[61] [2011] SASCFC
[62] [2012] QSC 294
[63] [2011] NSWSC 287
In the Blazevic Holdings case, the parties, through their solicitors had exchanged emails detailing terms of a compromise of the litigation, and which included the execution of a Deed of Release.
It had similarly been submitted that as one of the parties had not executed the Deed, and no money had been paid, there could be no binding agreement to compromise the litigation. Nicholas J noted that the relevant documents had not been restricted by words such as “settled in principle”.
He concluded at [40]:
I find that the deed was intended to record this agreement, and that its execution by the parties was neither required not intended before the agreement had binding effect … I am satisfied that when counsel agreed that a deed of release was prepared …. It was intended to be the mechanism for payment of the agreed amounts to the plaintiff and for mutual releases of all claims including those in these proceedings.

Application to the subject case

As I have already determined, the plaintiff’s solicitors on the record, had at least ostensible authority to compromise the litigation on behalf of the plaintiff. I have also referred to the ordinary expectation that parties will not be bound, until execution, by a formal contractual document which provides specifically for execution by both.
I also readily accept that the magnitude, subject matter or complexity of the transaction may in an appropriate case lead to an inference that the parties’ common intention was not to be bound until a formal agreement was executed. The subject case was however a relatively minor matter in respect of a debt. The terms of the “Deed of Settlement” were not in any way complex. To a large extent they benefitted the plaintiff by obliging Mr Hiley to assist it in its actions against Timothy Walsh.
It is clear from the tendered documents that by 3 November 2008, at the latest, all of the terms of the compromise, and indeed the form of the Deed of Settlement had been agreed.
Indeed from 22 October 2008, when the plaintiff’s solicitors had informed Mr Hiley that his offer of $41,000 had been accepted subject to some amendments, it was the plaintiff’s solicitors who proposed various amendments.
By 31 October 2008 the amendments proposed by the plaintiff’s solicitors had been agreed by Mr Hiley. It was the plaintiff’s solicitors who were pressing for the counterpart to be executed by Mr Hiley, and stating on 5 November 2008 that “our client will execute the counterpart shortly”. (my emphasis)
I am left in no doubt that the parties had reached agreement to compromise the litigation in terms of the Settled Deed.
There was no reservation in the terms of that agreement. It was not an “in principle” agreement. Indeed the Recital to the Deed expressly stated that “the parties have conducted negotiations and have reached an agreement to settle the proceedings. This Deed sets out the terms of the Settlement Agreement, including the rights and obligation of each party under the Settlement Agreement”. Nothing at all was left to be agreed.
The terms of the Deed, merely confirmed what was disclosed in the emails. In my opinion they indicate in plain and unequivocal language that the parties, objectively, intended to bind themselves immediately by 3 November 2008, while expecting the Deed to be executed in due course. Ciszek v Enterprise Financial Solutions, supra.

Conclusion

Accordingly, I am satisfied that the parties entered into a binding agreement no later than 3 November 2008, in the terms set out in the “Deed of Settlement”. While the Deed of Settlement was probably required by Mr Hiley as insurance in the event that there was a lack of consideration, it was not necessary for it to be executed before the compromise was binding. The Deed of Settlement was intended to be the mechanism for payment of the sum of $41,000 by Mr Hiley. In my opinion it is not to the point that the Deed was not executed by the plaintiff. I do not need to further consider the question of consideration. The agreement merges into the judgment. Were it necessary to do so I would have found that consideration for the agreement was provided by accord and satisfaction. Scaffidi v Perpetual Trustees Victoria.[64]
[64] (2011) WASCA 159
The plaintiff was and remains obliged to execute the counterpart of the Deed so as to implement the agreement reached. GR Securities Pty Ltd v Baulkham Hills Private Hospital per McHugh JA, supra at 634-635.
Were it necessary for me to find that Mr Hiley was ready and willing to settle, I would have found in his favour in light of the documents tendered by consent.
In Mehmet v Benson[65] the High Court noted that the question as “to whether or not a party has been and is ready and willing to perform is one of substance and not to be resolved in a technical or narrow sense.
[65] (1965) 113 CLR 295 at 307
The defendant is not required to show that in the past he has strictly and literally complied with all his obligations under the contract or “even that he is ready and willing to strictly perform them in the future”.[66]
[66] Guilfoyle Developments v Frumar [2012] NSWSC 859 at [87]

Orders

I have found that the parties had entered into a binding agreement on 3 November 2008.
Counsel for Mr Hiley had submitted that the agreement required the proposed deed to be executed before the payment of $41,000 was required to be made by him.
In the ordinary course I would have ordered that the agreement made on 3 November 2008 be specifically performed. That order would have necessitated a further order obliging the plaintiff to execute the Deed of Settlement set out in these Reasons.
I am concerned about the costs for the parties in those circumstances.
In my opinion an order declaring the agreement of 3 November 2008 to be valid and substituting, and making provision for payment may indeed be more appropriate for the parties.
It may be that neither party would now obtain any benefit from the executed Deed. I assume that the plaintiff would no longer wish to oblige Mr Hiley to assist it, given Timothy Walsh’s bankruptcy. The “agreement” will have merged into the judgment.
In the alternative it may be appropriate for an even simpler order, namely for the exchange of a cheque and a release. See Lazaridis v Humphries-Clark, supra, at [9] and the Needlework Warehouse case, supra, at [92-93].
There also remains to be decided, issues as to interest and costs.
The parties should have the opportunity to agree upon the final terms of any declaration or orders to give effect to these Reasons.
I will hear the parties as to those matters.