Lovrinov v Jusufovic - [2014] SADC 203

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
LOVRINOV v JUSUFOVIC
[2014] SADC 203
Decision of His Honour Judge Beazley
5 December 2014
PROCEDURE
Appeal, out of time, against order of a Master made on 2 June 2014, dismissing the appellant’s application to set aside a consent judgment entered in favour of the respondent, on 29 November 2013 - the parties agreed to compromise the subject action on terms that the appellant pay the sum of $51,000 to the respondent by instalments - further term that appellant provide a duly executed notice of consent for the sum of $87,822.13 to be held in escrow ('the higher sum') - in event of breach by the appellant, the respondent entitled to enter judgment for the higher sum - the said notice to consent executed by the appellant's solicitor - appellant defaulted in payment of instalments - judgment formally entered upon the filing of the notice for the higher sum of $87,822.13 - whether judgment regularly obtained – whether there was a concluded and enforceable agreement to settle – question as to the authority of the solicitor for the appellant to compromise the subject claim – whether parties not bound until the execution of a Deed – whether the judgment sum based upon a term of the agreement which was void as a penalty – the appellant did not attend at hearing of the appellant’s own application – the Master proceeded in absence of the appellant.
Held: The right of appeal is circumscribed by Rule 6 DCR 286. The consent judgment was regularly obtained by the respondent. An immediately binding agreement to compromise the subject action as between the appellant and the respondent entered into no later than 30 October 2013 by exchange of correspondence. Agreement not subject to execution of a Deed. The agreement not void as a penalty. The Master correctly determined that the applicant had no arguable defence on the merits to the respondent’s claim. Appeal dismissed.
District Court Act, 1991 (SA) s 43; District Court Rules, 2006 6 DCR 227, 230, 235, 242, 281, 286 and 288, referred to.
Lucke v Cleary & Ors (2011) 111 SASR 134; Masters v Cameron (1954) 91 CLR 353; Humphris-Clark v Lazaridis [2010] NSWSC 318; Lazaridis v Humpris - Clark [2010] NSWCA 349; Hills Industries Ltd v Hiley [2012] SADC 148; Legal Practice Management (Vic) P/L v Simms Corp Hotels & Leisure P/L [2013] VSC 734; Allen v Carbone (1975) 132 CLR 528; Toll (FGST) v Alphapharm (2004) 219 CLR 165; Byrnes v Kendle (2011) 243 CLR 253; A W Ellis Engineering v Malago P/L [2012] NSWSC 55; Donellan v Watson (1990) 21 NSWLR 335 at 342; Zhang v P302 SPV P/L [2009] NSWSC 73; Hopcroft v Edmunds (No 2) [2012] SASC 94 at 366; Blazevic Holdings v Grave [2011] NSWSC 287; Ciszek v Enterprise Financial Solutions [2010] NSWSC 1265; Cameron v UBS AG [2000] 2 VR 108; Zenith Engineering v Queensland Crane & Machinery P/L [2001] 2 Qd R 114; RT & YE Falls Investments Pty Ltd v The State of NSW [2001] NSWSC 1027; Philp v D M Aston & Co [2010] SASC 114; Spencer v The Commonwealth (2010) 241 CLR 118; Mittiga v Community Corporation [2012] SASC 202; Geemaz Management Pty Ltd v Geelong Motors [2013] VSC 571; Edwards v Petterson (1997) 47 SASR 63; Peck v Peck [2011] SASCFC 63; Lachlan v H.P. Mercantile [2014] NSWSC 356; Calcorp Aust v 271 Collins Pty Ltd [2010] 29 V.R. 462; "Contract - Penalty" (2014) 88 ALJ 241 at 242, considered.

LOVRINOV v JUSUFOVIC
[2014] SADC 203
Introduction

This is an appeal by the defendant, Goran Lovrinov (‘the appellant’) from orders made by a Master of this Court on 2 June 2014. The Master had, on that day, dismissed an interlocutory application by the appellant to set aside a ‘consent’ judgment obtained by the plaintiff, Aldin Jusufovic (‘the respondent’), on 29 November 2013.
The subject orders of the Master were made in the absence of the appellant, who had failed to appear at the hearing on 2 June 2014. At that time some seven months had elapsed since the entry of the ‘consent’ judgment, and the hearing had been adjourned twice to meet the appellant’s convenience. The Master proceeded to hear the application in his absence, and thereafter delivered extensive ‘Ex Tempore’ Reasons in support of his order that the appellant’s application should be dismissed.
The appeal raises some complex issues of law, including the authority of a solicitor to compromise an action on behalf of a party; whether a clause in an ‘agreement’ to pay a larger sum in the event of a default in the payment of the compromised sum may constitute, in law, a penalty such as to render such a clause void;[1] whether the ‘consent’ judgment obtained by the respondent was regularly obtained under the Rules of Court,[2] and whether the Court ought proceed in the absence of a party if the other party can be compensated with costs.[3]
[1]    Legal Practice Management (Vic) Pty Ltd (In Liq) v Simms Corp Hotels & Leisure Pty Ltd [2013] VSC 734.
[2]    Philp v D M Aston & Co [2010] SASC 114 at [50].
[3]    Edwards v Petterson (1987) 47 SASR 63; Peck v Peck [2011] SASCFC 63.
The substantive issue in the appeal however is whether the appellant and respondent had entered into a binding agreement to compromise the subject litigation. In particular it involves the vexed question as to whether the parties had evinced a common intention to become immediately bound, notwithstanding the fact that neither party had executed certain documents, which had been referred to in the correspondence between the parties, namely a ‘Deed of Settlement and Release’ and a ‘Deed of Single Asset Security’.[4]
[4] RT & YE Falls Investment P/L v The State of NSW [2001[ NSWSC 1027 at [50], per Palmer J.
The appellant asserted that, as an objective fact, he did not intend to be bound by any compromise until the respective ‘Deeds’ had been executed by both parties.
Recently I had occasion to note that these issues have been the subject of significant academic comment, and a flood of recent case law.[5] It is apt to repeat the comments of 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.
[5] Hills Industries Ltd v Hiley [2012] SADC 148.
The subject appeal highlights the need for care in drafting Settlement Deeds, with the risk that certain clauses may constitute a penalty and be void.[6]
[6] Zenith Engineering v Queensland Crane & Machinery [2001] 2 Qd R 14.
The background
The respondent commenced proceedings against the appellant on 26 November 2010. The respondent claimed that he had entered into a contract with the appellant on 1 May 2009, pursuant to which the appellant had agreed to purchase, for the sum of $80,000, the respondent’s Café business together with plant and equipment. He claimed that the appellant had breached the terms of that contract by failing to pay the purchase price on 9 June 2009, or at all. He accordingly claimed the sum of $81,997 as damages together with interest and costs.
In his Defence and Amended Cross-Claim, the appellant asserted:
·that he was not liable on the contract as there had been a total failure of consideration.
·that he was merely an agent for a person whom he identified as Patrick Bouhamdan, and
·that he had loaned monies to the respondent, and had performed services for him for which he had not been paid.
The appellant contemporaneously filed a third party notice directed to Mr Bouhamdan, claiming an indemnity, in the event, that he was obliged to pay any sum to the respondent.
The Master noted that the Court records disclosed an ‘unfortunate’ history, with an extensive number of interlocutory hearings between 2010 and 2013.[7]On numerous occasions the appellant had failed to attend hearings including upon an Application for Summary Judgment,[8] issued by the respondent very early in the litigation. On each occasion the Court granted indulgences to the appellant who was then unrepresented.
[7] Reasons 2/6/14 at p.3.
[8] Transcript 16/6/11.
The subject action, as between the appellant and the respondent, was set down for trial, which was scheduled to commence on 7 November 2013.
On 29 October 2013, the appellant, through his solicitors, made a ‘without prejudice’ offer to settle the subject proceedings, by the payment, by instalments, of the sum of $51,000, inclusive of costs and interest, to the respondent.[9]
[9] As to 'without prejudice' offers, See Needlework Warehouse v Chansonette Pty Ltd [2006] FCA 1525.
Those instalments required the payment of $5,000 by 15 November 2013; $20,000 within ninety days of that date, and the balance of $26,000 within a further ninety days of the latter date.
On 30 October 2013 the respondent’s solicitors intimated that they would accept the aforementioned offer of $51,000 payable by instalments. However, they introduced some additional terms, by way of ‘securing the payment of the said sum of $51,000’.
Those additional terms required the appellant to execute two ‘Deeds’, and to execute a Notice to Consent to Judgment in a higher sum of $125,413.05, inclusive of costs and interest. The latter would be held in escrow by the respondent to ensure the payment of the ‘compromise’ sum of $51,000. In the event of a breach, the respondent was entitled to file the ‘consent’ judgment for the higher sum. The two ‘Deeds’ were respectively identified as a ‘Deed of Settlement and Release’, and a ‘Single Asset Security Deed’.
On 1 November 2013, the appellant’s solicitors replied with a counter offer whereby the appellant would agree to those additional terms save that the Offer to Consent to Judgment would be limited to the settlement sum of $51,000 plus costs of $25,000 and pre-judgment interest later fixed at $11,822.13.
This counter-offer was accepted by the respondent on the same day. The appellant’s solicitor executed the Notice to Consent to Judgment in that revised sum of $87,822.13. The Notice was forwarded to the respondent’s solicitors to be held by them, in escrow, to await the payment of the compromise sum.
It is plain that in the event that the appellant had paid the sum of $51,000, his liability to the respondent would have been extinguished and the Notice returned to him. However on 15 November 2013, the appellant failed to pay the first instalment of $5,000 in accordance with the terms of the agreement. As it transpired he has paid none of the instalments.
Between 18 November 2013, and 21 November 2013, the solicitors representing the respondent corresponded with the appellant’s solicitors demanding the instalment payment and warning them as to the consequences of non-payment.
On 22 November 2013, a company cheque, purportedly drawn on behalf of the appellant, in the sum of $5,000, was delivered to the respondent’s solicitors. It was dishonoured some four days later on 26 November 2013. Further correspondence was exchanged between the respective solicitors. Ultimately, on 29 November 2013, the respondent’s solicitor filed the duly executed Notice of Offer to Consent to Judgment in the sum of $87,822.13 in the Registry of this Court. Judgment was then formally entered in favour of the respondent against the appellant in the sum of $87,822.13 pursuant to Rule 6 DCR 227.
By late December 2013, the respondent had issued bankruptcy proceedings against the appellant. The relevant Bankruptcy Notice was served upon him on 30 January 2014.
On 20 February 2014, the appellant, out of time, issued the subject application to set aside the ‘consent’ judgment. By affidavit sworn on the same day, the appellant acknowledged that he did offer to settle the action for the full and final settlement of $51,000 inclusive of costs and interest.
The appellant’s application was adjourned by the Master on 1 April 2014 and 19 May 2014. The appellant had failed to attend on either occasion. He asserted that he had been obliged to travel overseas to visit his ill mother. The Master adjourned the application to 2 June 2014, but warned the appellant that he would proceed in his absence.
On 2 June 2014 the appellant again failed to attend for the hearing of his application to set aside the judgment. The appellant asserted that he was ill. On this occasion, the Master determined that he should proceed to deal with the application notwithstanding the failure of the appellant to attend at that hearing.
The Master explained:
Whilst I have the usual reluctance about proceeding [in the absence of the appellant], I consider that I can accept the appellant’s material that he has filed at its highest and therefore afford justice to the appellant … Given the history of the matter and the view I formed about the merits of the application, I am prepared to accede to the application of the respondent to deal with the matter today in the absence of the appellant notwithstanding the risks involved in such an unusual course of action.[10]
[10] Reasons, 2/6/14 at p 3.
The Master’s reasons
The Master delivered ex-tempore reasons for the orders that he ultimately made. The Master noted the admission made by the appellant as to the offer to compromise. He noted that the appellant was unable to depose to direct knowledge of any dealings between the respective solicitors. Those dealings were documented in affidavits already filed in Court. There was no dispute as to those dealings which had, in any event, been confirmed by correspondence between those solicitors.
The Master turned to the question of the form of the Notice to Consent to Judgment for the higher amount, stating:
It is not uncommon in this Court for parties to resolve their disputes by entering into what might be colloquially called a “time payment arrangement” relating to a reduced sum of money from that initially sought in the plaintiff’s claim. It is also not uncommon for parties to enter into an arrangement that, in default of that time payment arrangement being honoured, a larger sum, or perhaps even the full amount of the plaintiff’s claim, would be paid and to hold a consent judgment to that effect as a type of security’.[11]
[11] Master's Reasons T. p 8-9.
The Master then turned to the question of the authority of the appellant’s solicitors to resolve the litigation. He noted that the appellant had not asserted in any affidavit that his solicitor did not have actual authority to compromise the proceedings on his behalf. However he correctly detailed the case law as to ostensible authority of legal practitioners. He concluded that the appellant’s solicitor, Mr ‘W’ did have, in any event, ostensive authority to bind the appellant to the subject agreement, to compromise the litigation between the appellant and the respondent.
He said:
I can find no basis for any conclusion that Mr ‘W’ did not have the authority to enter into a binding contract of settlement of the type evident from the exchange as set out in FDN 53 and which are not contradicted in the affidavit of the appellant – even when that affidavit is accepted to its fullest extent – as I do.
There is no attempt by the appellant to, in any way, impugn the conduct of Mr ‘W’ in his affidavit in FDN 51.
If one accepts, as I do, the affidavit in FDN 51, then what the appellant asserts in his affidavit is a matter between the appellant and the solicitor acting for him at the time.
It does not impact, in any way, upon the evident contractual relations which the parties struck through their agents (the solicitors) as deposed to in FDN 53.
Therefore, accepting the appellant’s affidavit at its highest does not contradict, in my view, the fact of a resolution or contract of compromise being struck.
There being no payment made by the appellant at any time then the respondent was clearly entitled to terminate the time payment arrangement, and, to lodge the Consent to Judgment which the respondent held in escrow’.[12]
[12] Master's Reasons T. p 14.
The Master then turned his mind to the question of whether there was an immediately binding agreement. He very carefully set out the relevant caselaw.
The Master referred to the correspondence between the parties, and in particular to a letter from the respondent’s solicitors to the appellant’s solicitor, dated 30 October 2013. In that letter the respondent’s solicitor had made it patently clear that either party could sue on the exchange of letters.
The Master, with respect, very properly applied the dicta of the High Court in Masters v Cameron[13] and that of the Full Court of the Supreme Court in Lucke v Cleary.[14] He reasoned that, objectively, the evidence was consistent with an immediately binding agreement, concluding:[15]
Therefore, for those reasons, I do not consider that this arrangement falls into a category where the parties did not intend to be immediately bound by the agreement that was struck between the solicitors, and for which the appellant must, on orthodox principles, assume responsibility for the conduct of his then solicitor.
[13] (1954) 91 CLR 353
[14] (2011) 111 SASR 134
[15] Master's Reasons T. p 18.
Orders
The Master ordered that the appellant’s application to set aside the ‘consent’ judgment be dismissed, and that the appellant must pay the respondent’s costs in any event, which costs he certified as fit for counsel.
Notice of Appeal
The appellant did not file a Notice of Appeal against the orders of the Master until 10 October 2014. Pursuant to the Rules of Court, such a Notice of Appeal must be filed within 21 days of the receipt of the Reasons which were emailed to the parties on 6 June 2014.
In his Notice of Appeal the appellant sought orders that the Master’s decision to dismiss the appellant’s application be ‘revoked and allow the appellant to continue with it further in this court’. He set out some nine grounds of appeal. Six of those grounds related to the Master’s decision to proceed to hear the application in the absence of the appellant.
Two of the grounds of appeal related to the appellant’s personal circumstances. In ground 8, however, the appellant asserted that the Master had erred in concluding that there was a binding agreement prior to the execution of the respective Deeds of Settlement.
Extension of Time
The appellant seeks an extension of time for the filing of the Notice of Appeal. As is plain the appellant was some three months out of time in lodging the Notice of Appeal.
In Frankos v Hocking[16] Gray J, said:
When considering the reasons for delay, regard will be had to whether the delay is attributable to the party or the solicitor. The former will operate more severely against the applicant … It must, however, be constantly borne in mind that discretion is a wide one and that at the end of the day the court will do what the interests of justice require.
[16] [2000] SASC 128
In expanding upon the grounds set out in the Notice of Appeal, the appellant explained that he was not aware of the limitation of time to appeal. He said that he had only became aware of any limitation, when he had approached Court staff to make an application.
The respondent did not make any formal submission with respect to an extension of time. By inference he, in effect, submitted that it was pointless to extend the time, as the appellant had no arguable grounds of appeal.

I proceeded to hear the merits of the appeal before considering whether an extension of time ought to be granted for the filing of the Notice of Appeal, nunc pro tunc, until 10 October 2014.[17]
[17] see Philp v DM Aston [2010] SASC 114.
Nature of the Appeal
The Appeal is brought pursuant to s43 of the District Court Act 1991, and District Court Rule, 6 DCR 286.
The scope of 6 DCR 286 has been the subject of some differing views of Judges of this Court, and in particular as to whether this Court, on appeal, may interfere with the exercise of a discretion in the absence of any demonstrable error in the Reasons of the Master.[18]
[18] Adelaide Bank Ltd v Lucke [2010] SASC 59.
In McLean v DID Piling Pty Ltd[19], Layton J referred to various recent decisions of the Full Court of the Supreme Court, that affirmed the requirement for a Court to find error before exercising the discretion afresh.
[19] [2010] SASC 33 at [19]-[23].
Her Honour concluded that in respect of the equivalent of 6 DCR 286 a Court on an appeal from the Master ought to apply the principles set out by the High Court in House v The King.[20]
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the Judges comprising the appellate court consider that, if they had been in the position of the primary Judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the Judge acts upon a wrong principle, if he allow extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the material for doing so. It may not appear how the primary Judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case although the nature of the error may not be discoverable, the exercise of the discretion is to be reviewed on the ground that a substantial wrong has in fact occurred.
[20] (1936) 55 CLR 499 at 505.
It is trite that the Court retains an inherent power to set aside even a consent order notwithstanding that it was part of a contract for the compromise of an action.[21]
[21] Du Pont De Nemours v Commissioner of Patents (1987) 16 FCR 423, and Rule 6 DCR 242.
A Court however would be reluctant to set it aside unless there were grounds to also set aside the underlying agreement to compromise, upon which the consent order is based.
In Paino v Hofbauer,[22]McHugh JA said:
… when a party asks that a consent order based on a contract be set aside or varied and the underlying contract could not be varied; the case would need to be exceptional before the Court would exercise its discretion in favour of an applicant.
[22] (1988) 13 NSWLR 193 at 198E.
Where the applicant’s asserted defences are entirely without merit, a Court should not set aside even a default judgment. In Weng Ge Lou v Christianos,[23] the Full Court of the Supreme Court refused to set aside a default judgment in a case where the applicant had previously acknowledged his indebtedness, and, in context, the proposed defence could only properly be construed as an attempt to delay and frustrate the plaintiff.
[23] Unreported Decision of Full Court of the Supreme Court, 10/4/90, (B.C. 9000410).
The hearing of the appeal
The appellant appeared in person. The respondent was represented by Mr Evans, of counsel. I am satisfied that the appellant is a highly intelligent man who feels genuinely aggrieved that a bankruptcy notice had been issued against him. He also felt genuinely aggrieved by the Master’s decision to deal with his application in his absence.
Appellant’s submissions
The appellant ultimately restricted his submissions, on appeal, to the issue as to whether there was a binding agreement between the parties to compromise the action at any time prior to the execution of the respective ‘Deeds’. He submitted that in the event that there was no underlying binding agreement to compromise the action, then the consent order could not stand.
In effect he abandoned the suggestion that his solicitor, Mr ‘W’, did not have authority to compromise the action. He explained that Mr ‘W’ had indeed taken his instructions with respect to the offers which had passed between the parties from time to time.
He conceded that he had instructed Mr ‘W’ to compromise the action on terms that he pay the sum of $51,000 inclusive of costs and interest. He acknowledged that Mr ‘W’ had informed him of the respondent’s first counter offer which would have required him to execute a ‘Notice to Consent’ to judgment. Notice in the sum of $125,413.05. He had rejected that offer. He accepted that Mr ‘W’ had been instructed by him to counter offer a Notice of Consent in the sum of $87,822.13, which was to be held in escrow.
Indeed the terms of the offer had come from him. He said that while he had not been shown the Notice to Consent to Judgment in the specific sum of $87,822.13 inclusive of interest and costs, he had been made aware of those figures and had ‘understood those figures’ to be correct.[24]
[24] T. p 6.
He was adamant however that this ‘agreement’ was conditional upon the respective ‘Deeds’ being executed. He asserted that he believed that no binding agreement had come into existence as the ‘Deeds’ were not executed.
The question, of course, is whether objectively, from the proven facts, a reasonable person would have reached the conclusion that these parties intended to enter into an immediate binding agreement to compromise. In Byrnes v Kendle;[25] the High Court explained ‘that these conclusions flow from the objective theory of contractual obligation. Contractual obligation does not depend on actual mental agreement’.
[25] [2011] HCA 26 at [100].
Respondent’s submissions
Counsel for the respondent, Mr Evans, relied principally upon the findings and reasons of the Master. He submitted that the appeal was entirely without merit. He submitted that the agreement to pay a higher figure than that which was the subject of the compromise, was not a penalty, but was a genuine pre-estimate of the respondent’s loss. It was calculated specifically by reference to the Rules of Court, with respect to pre-judgment interest, and included a relatively modest agreed sum for costs. He submitted that indeed the higher figure of $125,413.05 would also have been a reasonable sum in the circumstances, and also not a penalty. As to the immediately binding nature of the agreement between the parties, he submitted that, objectively, the parties were both aware that it was not subject to the execution of the ‘Deeds’.
Discussion
Although the appellant did restrict himself, on appeal, to the sole issue as to whether there was an immediately binding agreement to compromise prior to the execution of the respective ‘Deeds’, I will also briefly deal with each of the other issues addressed by the Master.
·Did the Master err in proceeding in the absence of the appellant?
The appellant asserts that the Master ought to have adjourned the application to set aside the consent judgment, and to relist it for another occasion.
In Edwards v Petterson,[26] the Full Court of the Supreme Court, when considering a different Rule of Court, said:
While, of course, the Court cannot in general terms, look with much sympathy upon parties who do not obey the Rules of Court, in one respect or another, or who absent themselves when they ought to be present, it is nevertheless a rare case in which such conduct is allowed to deprive a party entirely of his or her rights, more particularly if the other party can be compensated with costs.
[26] (1987) 47 SASR 63.
In my opinion this was one of those rare cases. This was not an application to set aside a default judgment. It was a consent judgment. See Peck v Peck,[27] The appellant had delayed filing the application to set aside the judgment. He had previously been granted two adjournments of his application, to meet his convenience.
[27] [2011] SASCFC 63.
The Master had adopted an approach which was extremely favourable to the appellant. What was at issue before him was whether there was a binding agreement to compromise the proceedings, and whether the consent order ought be varied or set aside. It was, on its face, a discrete issue raised by the appellant.
It was a documentary case, with all relevant documents having been placed before the Court. The Master was alive to all inferences which could properly be drawn from those documents. He elected to treat the evidence before him at its highest in favour of the appellant, akin to a summary judgment application under Rule 6 DCR 232.[28] He considered what he regarded as all possible defences which might have been open to the appellant, even those which had not been pleaded by him.
[28] See Spencer v The Commonwealth (2010) 241 CLR 118, and Mittiga v Community Corporation [2012] SASC 202.
In my opinion it was a proper exercise of the discretion to proceed in the absence of the appellant. There must be finality in litigation, particularly in the case where a consent judgment had been entered, and significant delays had occurred. See Peck v Peck;[29] Monkton v Stephenson;[30] Forsyth v Gibbs;[31] and Zinc & Copper Corp v Clayton UTZ.[32]
·The authority of a Solicitor to compromise litigation
[29] [2011] SASCFC 63 at [36 - 38].
[30] [2011] NSWSC 67.
[31] [2008] QCA 103.
[32] [2004] NSWSC 1235.
In light of the appellants’ concession, on appeal, as to the express instructions given to his solicitor, Mr ‘W’, I will only briefly canvass this topic.
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,[33] 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.[34] 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.[35]
[33] (2011) 111 SASR 134 at [60]-[64].
[34] 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.
[35] (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 before the Master that the asserted binding agreement to compromise, genuinely related to the subject litigation, and contained no such collateral terms. 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, Mr ‘W’ had both implied and ostensible authority to bind the appellant.[36]
[36] Across Australia Finance v Bassenger (2008) NSWSC 799.
The substantive question which remains is whether the parties intended to be bound until the ‘Deeds’ were executed. I turn to that issue now.
· The intention to be bound
·The principles of law
The starting point is the dicta of the High Court in Masters v Cameron, supra, recently restated in Humphries-Clark v Lazaridis,[37] 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.
[37] [2010] NSWSC 318.
In Australian Broadcasting Commission v XIV Commonwealth Games Ltd,[38] 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’.
[38] (1988) 2 BR 318.
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),[39] 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,[40] 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:[41]
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.
[39] (2012) SASC 94 at 366
[40] (1981) 2 BPR 9173.
[41] (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[42], 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’.
[42] [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 were granted.
On appeal,[43] 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.
[43] [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.
In respect of a similar fact situation, involving 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;[44] Crawley v Crawley Land Pty Ltd;[45] and Blazevic Holdings Pty Ltd v Grave.[46]
[44] [2011] SASCFC.
[45] [2012] QSC 294.
[46] [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 noted, the appellant’s solicitor, Mr ‘W’ had, at least, ostensible authority to compromise the litigation on his behalf. I have also referred to the ordinary expectation that parties will not be bound, until execution, of a formal contractual document.
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. The terms of the proposed ‘Deeds’ were prepared entirely for the benefit of the respondent, to enable him to better secure the payment by the appellant.
It is plain from the documents before the Master that by 1 November 2013 all of the terms of the compromise had been agreed, and the duly executed ‘Notice of Consent to Judgement’ had been produced to the respondent.
Indeed the parties could have been in no doubt as to the binding nature of the agreement as canvassed in the correspondence, in light of the terms of the letter from the respondent’s solicitor dated 30 October 2013:
… the terms of settlement are to be record in a deed, but the settlement is not subject to a deed. In other words, if you were instructed to agree to these conditions, then either party could sue the other on the exchange of letters as reflecting binding essential terms.
These terms were at least implicitly accepted by email from the appellant’s solicitor dated 1 November 2013. There was no reservation as to the terms of the agreement to compromise. It was not an ‘in principle’ agreement.
In my opinion the correspondence confirms in plain and unequivocal language that the parties, objectively, intended to bind themselves immediately by 1 November 2013, while expecting a ‘Deed’ or ‘Deeds’ to be executed in due course. Ciszek v Enterprise Financial Solutions, supra.
Conclusion
Accordingly not only do I respectfully adopt the Master’s conclusion on this topic, I, separately, am satisfied that the parties entered into an immediately binding agreement no later than 1 November 2013, in the terms set out in the correspondence. While the ‘Deeds’ were significant to the respondent in the event that there was a default, it was not necessary for them to be executed before the compromise was binding. In my opinion it is not to the point that the ‘Deeds’ were not executed by either party. The agreement merges into the consent 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.[47]
Is a term of an agreement which provides for a higher sum to be paid upon default by a party, void as a penalty?
[47] (2011) WASCA 159.
This final matter is somewhat contentious. It was not a matter expressly considered by the Master, save for him noting that such terms are “not uncommon” in this court.
The appellant, even when represented by solicitors, had not pleaded that such an arrangement was void as a penalty. It was therefore hardly surprising that the Master did not refer to that question. It follows that this question was not the subject of a ground of appeal, nor was it argued by the appellant.
I raised it, of my own motion, albeit briefly in the course of submissions by counsel for the respondent.
In his Reasons the Master implicitly distinguished between arrangements which provided for a reduced sum from that initially claimed; and those which provide for a higher payment in the event of default.[48]
[48] Master's Reasons, 2/6/14 at pgs 8 - 9.
The question as to whether the latter type of arrangement may constitute a ‘penalty’ has been the subject of recent caselaw, and academic comment.[49]
·The principles of law
[49] Legal Practice Management (Vic) Pty Ltd (In Liq) v Simms Corp Hotels & Leisure [2013] VSC 734;
Lachlan v H P Mercantile [2014] NSWSC 356;
Cameron v UBS AG [2000] 2 VR 108;
Zenith Engineering Pty Ltd v Queensland Crane [2001] 2 Qd 114;
Calcorp Aust v 271 Collins Pty Ltd [2010] 29 VR 462.
The caselaw has been described by some academics as ‘confusing’, and by another as ‘at variance ... and the question which must be asked is as to whether in consequence of the breach to pay a lesser sum, the plaintiff is seeking an exorbitant amount in no way related to its genuine pre-estimate of loss for that breach’.[50]
[50] See 'Contract: Penalty' (2014) 88 ALJ 241 at 242.
In Ringrow Pty Ltd v BP Australia,[51] the High Court considered the question of penalties, in circumstances ‘where not every aspect of the arguments were raised below in the Full Court or at trial’. The Court affirmed the law with respect to a genuine pre-estimate of damage, but explained, at [30]-[31]:
... consideration of the purpose of the law of penalties shows why the proportionality doctrine does not exist … the law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships … there is much to be said for the view that the courts should return to … allowing parties to a contract greater latitude in determining what their rights and liabilities will be, so that an agreed sum is only to be characterised as a penalty if it is out of all proportion to damage likely to be suffered as a result of breach … it explains why the proposed penalty must be judged ‘extravagant and unconscionable’ in amount.
[51] [2005] HCA 71.
In Legal Practice Management (Vic) Pty Ltd (In Liq) v Simms Corp Hotels & Leisure Pty Ltd, Supra, Sloss J. considered the terms of a ‘Deed’ which provided that an “outstanding claim” for $132,394.12 was compromised by the payment of a lesser sum of $80,000 by instalments. Relevantly the ‘Deed’ provided that:
In the event that ... one or more instalments are not paid ... then the Respondent is entitled to have judgment entered in its favour ... for the total amount of $132,394.12 ...
The plaintiff submitted that the term was not a penalty because there was an implied acknowledgement of indebtedness for the full amount, and that if the action had not been settled the plaintiffs would have recovered, at the least, the higher sum. The defendant had submitted that there was no present debt for the higher amount.
The Court held that the higher sum was indeed a penalty and the ‘Deed’ was accordingly void. There was a complicating factor in that case because the alleged debt of $132,394.12 was not owed by the individual defendant, but a group of debtors.
In Cameron v UBS AG, supra, the Court of Appeal (Vic) held that a clause enabling a party to recover $8.4 million in the event of a failure by the other party to pay a compromised sum of $1 million was not a penal clause because it was a sum due under a judgment of a Foreign Court.
In Calcorp Aust v 271 Collins Street, Supra, the Court of Appeal (Vic) held that a clause enabling a party to recover $262,648 together with interest and indemnity costs in the event of a failure by the other party to pay the compromised sum of $200,000 was not a penalty. It reached that conclusion because the higher sum was a genuine pre-estimate of the losses and because the defendant had implicitly acknowledged that the plaintiff was so entitled to the greater sum.
In Zenith Engineering Pty v Queensland Crane, supra, the Court of Appeal (Qld) held that a clause enabling a party to recover $72,567 in the event of a failure by the other party to pay the compromised sum of $55,000 by instalments was void as a penalty. It reached that conclusion because the higher sum ‘bears no rational relationship to the loss the applicant suffered by late payment of an instalment’.
In Perpetual Trustee Co Ltd v Aspley Specialist Centre[52] in distinguishing the Zenith case, the Court of Appeal (Qld) said:
Where a stipulated sum is presently due and owing as a debt and the creditor grants the debtor an indulgence to pay the debt by instalments it is not a penalty for the creditor to provide, as a condition of granting the indulgence, that the indulgence will be withdrawn if the debtor defaults in the payment of an instalment.
[52] [2010] QSC 232.
Most recently in Lachlan v H.P. Mercantile Pty Ltd[53] Darke J. held that the sum of $1,570,292.12 in the event of a failure to pay the compromised sum of $300,000 in instalments, was not a penalty.
[53] [2014] NSWSC 356.
While noting that there was no express acknowledgment that the full amount had been owing, the Court said that the important question is whether the agreement reached between the parties contained an implicit acknowledgement of the full amount.
The common factor in each case was the attempt by the ‘beneficiary’, of an agreement to enforce a term of that agreement which obliged the other party to pay a higher sum upon their default. The question in each case was whether the other party had impliedly admitted liability for the higher sum. If not, was the ‘beneficiary’ seeking an exorbitant amount which was in no way related to a genuine pre-estimate for the breach?
·Application of those principles to the subject case
In the subject case it is unclear whether the Master was in receipt of the terms of the proposed, but unexecuted, ‘Deeds’. I repeat that the question as to whether the term was a penalty or not was not argued before him, nor was it strictly in issue on this appeal.
Copies of the unexecuted ‘Deeds’ were tendered during the appeal.[54] Unless seen in context they might appear to have been somewhat unfortunately expressed.
[54] Ex A A1.
Not only was there no express acknowledgement that the higher amount of $87,822.13 was owing, the ‘Deed of Settlement and Release’ is expressed as ‘both [‘the Respondents’] allegations and [‘the Appellants’] counter allegations are denied by the other party’. (my emphasis).
It is clear from the context that at least the denial by the appellant was in conflict with the correspondence.
Ultimately, in my opinion it does not matter whether there was an express acknowledgement in the proposed ‘Deeds’.
As noted in the Lachlan case, supra, the context in which the agreement was made was that the litigation was on foot. The date fixed for trial was a few days away.
It was the appellant who had made the offer of $51,000 to the respondent.
While the terms of the unexecuted ‘Deed’ are of some weight on this topic, in my opinion, it was implicit from the terms of the agreement in the correspondence that the appellant had acknowledged that the higher sum was due, and was being compromised by the payment of the lesser sum.
The obligation to pay the higher sum in the consent judgment did not arise out of the blue. It was the total of the agreed figure of $51,000; a relatively modest amount for costs, and a genuine pre-judgment interest amount. Those figures had been calculated by the appellant and proposed to the respondent.
As noted by Nettle AJ in the Calcorp case, supra, at [20] to [23], the terms of settlement must be viewed in context against the history of the proceedings and the background to the contract of purchase of the Café business. The respondent was simply agreeing in effect to waive costs and interest on the $51,000 if the latter was paid on time.
In my opinion while the appellant had disputed the respondent’s claim on the summons, in the absence of evidence, other than that contained in the correspondence, he must be taken to have impliedly acknowledged that he was indebted to the extent of $87,822.13, but had compromised it by the payment of $51,000 by instalments. In my opinion the terms of the agreement do not constitute a penalty. In my opinion the judgment was regularly obtained by the respondent.
In passing, in my opinion, the earlier counter offer of the respondent seeking a consent order in the sum of $125,413.05 would clearly have been a penalty. It was not merely exorbitant but was unrelated to the settlement figure.
There is, however no need to further discuss any question of a penalty as the lack of a pleading, the absence of a ground of appeal, and the dearth of evidence does not permit of any conclusion other than that the terms requiring the execution of a consent judgment in the sum of $87,822.13 to be held ‘in escrow’, was not a penalty.
Conclusion
As is apparent from these Reasons I respectfully agree with the findings and conclusions of the Master. In my opinion the appellant had no arguable defence which could have prevented the respondent from entering and enforcing the consent judgment.
I repeat that it was a proper exercise of the discretion by the Master to proceed in consequence of the appellants’ failure to attend at the hearing of his application.
Accordingly I affirm the orders of the Master. While I would have granted the extension of time to file the ‘Notice of Appeal’, nunc pro tunc, in the event that the ‘Grounds of Appeal’ were meritorious, in light of my conclusions I decline to grant the extension of time sought by him.
The appellant cannot resist an order for costs against him.
Formal Orders
The formal orders of the Court are:
1.   That the application for an extension of time to appeal is refused.
2.   That the orders of the Master are affirmed.
3.   That the appeal is dismissed.
4.   That the appellant pay the respondent’s costs of the appeal on a party/party basis.
5.   That the third party proceedings as between the appellant and Mr Bouhamdan be listed for a directions hearing before the Master.