Phantom Precision Engineering Pty Ltd v Luscombe
[2021] SASC 59
•28 May 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeal: Civil)
PHANTOM PRECISION ENGINEERING PTY LTD v LUSCOMBE
[2021] SASC 59
Judgment of the Honourable Justice Lovell
28 May 2021
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - ANSWERING PLEADINGS - DENIALS AND NON-ADMISSIONS
DEEDS - DEED OF RELEASE - GENERAL WORDS OF RELEASE
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - ADMISSION OF FURTHER EVIDENCE - IN GENERAL
The respondent advanced $100,000 to the appellant. An issue arose as to whether the advance was a loan or an investment. In any event, the appellant argued that it had been released from liability by virtue of a Deed of Settlement and Release.
A Magistrate considered the existence of a loan agreement and quantum of the claim were established on the pleadings. The Magistrate rejected the appellant's submissions as to the construction of the Deed or that the evidence established an accord and satisfaction. Judgment was entered in favour of the respondent.
On appeal, the appellant complained that the Magistrate erred in finding the existence of the loan and quantum of the claim had been established on the pleadings and that in any event the evidence could not support such findings (grounds 1 and 2). If the Magistrate was found not to have so erred, the appellant contended that the Deed and surrounding circumstances otherwise released the appellant from liability (grounds 3 and 4).
The respondent made an oral application to adduce fresh evidence establishing the quantum of the claim, should the appellant be successful raising grounds 1 and 2.
Held, refusing the respondent's application for fresh evidence:
1. It is not in the interests of justice to allow the fresh evidence.
Held, allowing the appeal on grounds 1 and 2, dismissing the appeal on grounds 3 and 4, and dismissing the respondent's original claim:
1. The Magistrate erred in interpreting the pleadings such that neither the existence of a loan agreement or the quantum of the claim had been established;
2. The evidence does not establish the existence of a loan agreement or the quantum of the respondent's original claim;
3. The proper construction of the Deed would not have released the appellant from liability for the purported loan;
4. The evidence did not establish an accord and satisfaction.
Magistrates Court Act 1991 (SA) s 42; Magistrates Court (Civil) Rules 2013 (SA) r 24(1)(b); Uniform Civil Rules 2020 (SA) rr 100, 286(3), referred to.
Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Crampton v The Queen (2000) 206 CLR 161; El Mir v Risk (2006) 22 BCL 16; [2005] NSWCA 215; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500; Fox v Percy (2003) 214 CLR 118; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSC 519; Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112; James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583; JGS v R [2020] SASCFC 48; Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 ; Lederberger (as executors of the deceased estate of Lederberger) v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 ; McDermott v Black (1940) 63 CLR 161; O’Loughlin v Mount (1998) 71 SASR 206; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26; R v Birks (1990) 19 NSWLR 677; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; Steicke v Pederick (2019) 134 SASR 114; Sunlight Nominees v Zotti and Zotti [2019] SASCFC 11; Taylor v Hayes (1990) 53 SASR 282; Viscariello v Livesey [2013] SASC 99, considered.
PHANTOM PRECISION ENGINEERING PTY LTD v LUSCOMBE
[2021] SASC 59
Magistrates Appeal – Civil
LOVELL J:
Overview
Mr Luscombe (“the respondent”) advanced monies to Phantom Precision Engineering Pty Ltd (“the appellant”). The monies were advanced under an informal and undocumented repayment arrangement which the respondent characterised as a loan. The respondent filed a claim in debt for recovery of the alleged loan. A dispute between the parties arose as to the proper characterisation of the advance. The appellant contended that the monies advanced were an investment. The appellant also argued that a Deed of Settlement and Release (the “Deed”), which the parties had entered into, was a bar to the respondent’s claim.
At trial in the Magistrates Court, the Magistrate accepted the respondent’s submissions and found that the monies were advanced by way of a loan. She also rejected the appellant’s construction of the Deed. The appellant appeals those findings.
Background
The respondent was a director of the appellant company. On or about 6 November 2014, the respondent provided a sum of $100,000 to the appellant for the purchase of a small engineering firm. At around the same time, a Mr Randall Wilson and Mr Grant Gilbert also forwarded monies to the appellant for the same purpose, in the sums of $100,000 and $250,000, respectively. From time to time, payments were made by the appellant to the respondent, but payments ceased on or about 3 May 2018. Consistent with his categorisation of the monies as a loan, on 18 March 2019, the respondent issued a notice of demand for $61,434.17 which he claimed to be outstanding. The notice went unanswered. On 6 May 2019, proceedings were commenced in the Magistrates Court for recovery of the alleged debt.
The appellant defended the claim for debt on the basis that the advance was not a loan, but rather an investment. The appellant claimed payments were made to the respondent (and Mr Randall Wilson and Mr Grant Gilbert, collectively categorised as “the Investors”) only when surplus funds became available for distribution. Consequently, the appellant contended that no loan agreement existed nor was there any debt owed to the respondent.
In any event, the appellant claimed that the Deed executed by inter alia the respondent and the appellant provided for full and final settlement of any dispute between the parties, upon payment of a settlement sum by the appellant. The appellant pleaded that “the Dispute” as defined in the Deed covered the alleged debt. Consequently, upon payment of the settlement sum in March 2018, the appellant submitted it was released from the alleged loan. Further, the appellant contended that the Deed contained a covenant by the respondent not to sue.
In the further alternative, the appellant contended that the Deed and other evidence (namely communications between the parties following execution of the Deed and the further payment of $750 by the appellant to the respondent) released the appellant from liability, as a consequence of an accord and satisfaction.
The trial
No oral evidence was called at trial; the parties were content to argue their cases on various tendered documents. The parties agreed there was no written agreement relating to the alleged debt. Nor did the parties dispute the existence of the Deed, and whilst the Deed was not dated, the parties agreed it was executed in about March 2018.
There were three main issues at trial. First, whether the monies advanced were a loan or an investment. Secondly, if it was a loan, how much of the loan remained unpaid. Thirdly, whether the respondent released the appellant from the alleged debt in any event.
The Magistrate found the existence of the loan agreement and the quantum of the claim were established on the pleadings. Further, the Magistrate held the appellant was not released from liability by operation of the Deed nor was she satisfied that there was evidence of accord and satisfaction. Consequently, judgment was ordered against the appellant in the sum of $61,434.17.
Principles on appeal
The appeal is governed by s 42 of the Magistrates Court Act 1991 (SA). The appeal is therefore by way of rehearing but with the power to receive further evidence. The appellate court must conduct a real review of the evidence and the judicial officer’s findings and reasons. On issues involving the assessment of the truthfulness, credibility and reliability of a witness, the appellate court must make due allowance for the advantage held by the judicial officer in seeing and hearing the witnesses. Here, the Magistrate has no advantage in that regard as no oral evidence was called by either party. Hence, the appellate court, for practical purposes, is in as good a position as the Magistrate. The appellate courts are not excused from the tasks of drawing their own inferences and conclusions. The court must carry out its statutory function. If the appellate court concludes that the judgment is wrong it must overrule it.[1]
[1] Fox v Percy (2003) 214 CLR 118; Taylor v Hayes (1990) 53 SASR 282.
Grounds of appeal
The appellant complained on appeal that the Magistrate erred in her interpretation of the pleadings and consequently erred in finding the existence of the loan and quantum of the claim were established (Grounds 1 and 2). In the event that the Magistrate’s interpretation of the pleadings is upheld, the appellant contended the Magistrate erred in the construction of the Deed, and erred in finding the appellant was not otherwise release from liability (Grounds 3 and 4).
Existence of the loan and quantum of the loan
The pleadings
It is necessary to set out the pleadings in this matter as the Magistrate concluded that the pleadings established both the existence of a loan agreement between the parties and the quantum of the loan said to be outstanding.
The relevant part of the respondent’s particulars of claim are as follows:
Particulars
1. In or about the 6th November 2014, the plaintiff, then a director of the defendant company, made a loan of $100,000, to the defendant, to assist in the purchase of a small engineering firm.
2. The defendant has, from time to time, made payments to the plaintiff in repayment of the loan, the last of such payments being made on or about 3 May 2018.
3. The sum of $61,434.17 remains due and owing to the plaintiff.
4. By Notice of Demand dated 18 March 2019, the plaintiff demanded payment of the above amount. The Notice of Demand was duly served on the defendant on or about 18 March 2019.
5. On 11 April 2019, the plaintiff through its solicitors, gave notice to the defendant in writing on an intended claim pursuant to Rule 21A of the Magistrates Court (Civil) Rules 2013.
6. The defendant has refused, neglected or otherwise failed to pay the claim in the amount of $61,434.17.
AND the plaintiff claims:
1. Claim of $61,434.17
2. Interests; and
3. Costs.
(emphasis in original)
In response, the appellant pleaded in its Defence as follows:
…
2. Denies particulars at paragraphs 1 and 2 of the Claim and further says:
2.1 The Plaintiff together with Mr Randall Wilson and Mr Grant Gilbert (“the Investors”) forwarded money to the Defendant for the purpose of purchasing a small engineering firm. Monies were forwarded to the Defendant in amounts as follows (“the Investment”):
2.1.1 The Plaintiff in the amount of $100,000;
2.1.2 Mr Randall Wilson in the amount of $100,000; and
2.1.3 Mr Grant Gilbert in the amount of $250,000.
2.2 There was no loan agreement between the Defendant and the Plaintiff.
2.3 The Defendant made payments on the Investment to the Plaintiff together with the other Investors when surplus funds became available for distribution.
2.4 By way of Deed executed by inter alia the Plaintiff and the Defendant (“the Deed”), the parties agreed to the full and final settlement of any Dispute including in relation to monies forwarded by the Plaintiff to the Defendant upon payment of a settlement sum by the Defendant (“the Settlement Sum”):
2.3.1 [sic] Dispute as defined by the Deed “means the dispute as to the repayment of monies forwarded pursuant to the loan agreement secured by the charge together with the repayment of all monies forwarded to Phantom [the Defendant] from Bargwanna, all Gilbert family members, Gilbert Motors and companies, Momentum, Simon Luscombe [the Plaintiff] and all members of the Luscombe family”.
2.5 The Defendant continued to make payments on the Investment to the Plaintiff together with the other Investors when surplus funds were available for distribution until payment of the Settlement Sum was finalised.
2.5.1 During the period between around 22 September 2017 and 15 March 2018, the Defendant was paying to the Plaintiff monthly amounts of $1,500.00 when surplus funds became available.
2.5.2 The payments to the Investors would cease once the Settlement Sum was paid.
2.5.3 On or around 9 March 2019, the Settlement Sum was paid in full pursuant to the Deed, and in settlement of any amounts owing by the Defendant to the Plaintiff.
2.5.4 On or around 22 March 2018, the Defendant paid to the Plaintiff $750.00 representing 50% of the $1,500.00 amount otherwise payable in March, given that the Settlement Sum was paid approximately half way through that month.
2.5.5 In or around April 2018, the Defendant [sic] sought payment of an additional $750.00 from the Defendant for the month of March 2018 which was disputed by the Defendant.
2.5.6 For commercial reasons only, on or around 7 May 2018, the Defendant paid to the Plaintiff the further amount of $750.00, referable to the March $1,500.00 payment and on the basis that this payment would finalise any demands the Plaintiff would have against the defendant.
2.6 Pursuant to the Deed, no amounts remain outstanding from the Defendant to the Plaintiff following payment of the Settlement Sum.
2.7 The Deed in conjunction with the payment of the Settlement Sum were effective as a full and final accord and satisfaction respectively and served to release the Plaintiff of the subject matter of this Claim.
3. Denies paragraph 3 of the Claim and repeats paragraph 2 of this Defence.
4. Admits paragraph 4 of the Defence [sic] only to the extent that a Notice of Demand dated 18 March 2019 was sent to the Defendant but otherwise denies the content of said demand.
…
(emphasis in original)
The Magistrates Court (Civil) Rules 2013 (SA), as in operation at the time, provided that in a general jurisdiction claim in the Magistrates Court, the pleadings must comply with the Supreme Court Civil Rules 2006 (“SCR”).[2]
[2] Rule 24(1)(b).
The respondent’s pleading is appropriate given the nature of the claim. With all due respect to the person who drafted the appellant’s Defence, it could not be said to be an example of clarity.
SCR 100 relevantly states:
100—Requirements for defence
(1) A defence—
(a) must raise any preliminary issue; and
(b) must indicate which (if any) allegations in the plaintiff's statement of claim the defendant admits or does not propose to challenge at the trial; and
(c) must specifically raise any special defence on which the defendant relies; and
(d) must state the basis of each special defence on which the defendant relies (including reference to any statutory provision on which the defendant relies); and
(e) must contain a short statement of the material facts and matters on which each special defence is based.
…
(5) If a statement of claim contains an allegation, the defendant is to be taken to deny the allegation unless the defence indicates that the allegation is admitted or that the defendant does not propose to challenge it at the trial.
In relation to the argument on the pleadings the Magistrate stated:
It will be evident from those matters addressed at paragraphs 2.1 and 2.1.1 of the defence that Phantom agrees there was payment to it by Mr Luscombe of $100,000 on or about 6 November 2014. Further, it is evident from paragraphs 2.3 and 2.5 that Phantom agrees it made payments to Mr Luscombe towards the advanced amount. Phantom’s denial with respect to the loan agreement at paragraphs 2 and 2.2 of the defence must be read in the context of what is contained in paragraphs 2.1 to 2.7, which identify that what Phantom disputes is the characterisation of the agreement whereby Mr Luscombe advanced $100,000 to it as a ‘loan’; it says it was an ‘investment’. However, I agree with Mr Douglas that in this case that is a distinction without a difference. There is no assertion in the defence that the money was advanced for some form of capital or other return, or that there would be shares or any other guarantee of a return on investment to Mr Luscombe. On Phantom’s own admission at paragraph 2.3 (and again reflected at paragraph 2.5), it made payments to Mr Luscombe ‘on the Investment…when surplus funds became available for distribution’. That is, Phantom admits it made periodic repayments with respect to the advancement of $100,000 to it by Mr Luscombe.
In those circumstances in my view it does not remain for Mr Luscombe to formally prove the existence of the loan agreement, or that he and the defendant were the parties to it.
I am of the same view with respect to the quantum of the plaintiff’s claim. Although the defendant at paragraphs 3, 4 and 6 of the defence denies the corresponding paragraphs of the claim dealing with the topic of the amount of the claim, those denials must be read in the context of the remaining matters in the defence, and in particular those in paragraph 2. Indeed, at paragraph 3 of the defence the defendant expressly ‘repeats paragraph 2…’, after denying paragraph 3 of the claim. Paragraph 2 sets out what the defendant says are the circumstances in which there is an absolute bar to the plaintiff’s claim to be entitled to more repayments than those already made to him. That is, the defence makes plain that Phantom’s denial that it is liable to pay Mr Luscombe $61,434.17 is it is not liable to do so because, whilst it did make some payments to him pursuant to the terms of the agreement (paragraphs 2.3 and 2.5), it is not obliged to make any further payment under the arrangement from March 2018, when there was settlement pursuant to the terms of the Deed (paragraphs 2.6 and 2.7).
(emphasis added)
As can be seen, the Magistrate held that the appellant had, in its filed Defence, agreed to receiving a sum of $100,000 from the respondent, and agreed to making payments to the respondent towards the advanced amount. The Magistrate considered that what the appellant actually disputed was the categorisation of the agreement as a “loan”; the appellant said it was an “investment”. The Magistrate accepted the respondent’s submission that this was “a distinction without a difference”. The Magistrate held that the respondent was not required to formally prove the existence of the loan agreement or that he and the appellant were parties to it.
I am unable to agree with the Magistrate’s interpretation of the pleadings. The Defence clearly denies that the advance of money was a loan. True it is that the Defence characterises the advance of money as an “investment” with no further particulars, but I am unable to agree that such characterisation is a “distinction without a difference”. Having denied it was a loan, and then pleaded that payments would be made “when surplus funds were available”, the appellant put in issue the terms of the arrangement. It was common ground that there was no written agreement. Hypothetically, if there were never any surplus funds, whatever that expression may mean, or if surplus funds became unavailable after a period of time, was there an obligation to repay the monies advanced at all? The agreement, and the terms of the agreement were put in issue by the Defence.
Further, SCR 100(5) states that an allegation in a statement of claim, unless the defence indicates that the allegation is admitted, is taken to be denied. The Defence was poorly drafted and unclear but that does not make it an admission. The respondent could have sought particulars to clarify the Defence but he did not do so. In my view, the Magistrate erred in finding that the appellant admitted the loan which must have included a finding that there was a term it was repayable at the time the summons was issued. The Defence does not admit those matters.
Turning to the quantum of the respondent’s Claim, the Magistrate considered the denials in the appellant’s Defence should be read in the context of the entire Defence. Paragraph 3 of the Defence stated that the appellant “denies paragraph 3 of the Claim and repeats paragraph 2 of this Defence”. The Magistrate reasoned that by repeating “paragraph 2 of this Defence”, the appellant restricted the denial of the quantum of the claim to the determination of the “Deed of Release”. That is, the appellant did not deny that the specified amount remained outstanding but alleged that it did not have to pay the amount due to the operation of the Deed.
Regrettably, I am unable to agree with the Magistrate’s interpretation. Paragraph 2 of the Defence is a plea that is wider than a simple reliance on the Deed’s operation. The beginning of paragraph 2 denies the existence of the loan and characterises the advance of money as an investment. It is not restricted to an allegation of relying only on the Deed (which is pleaded in paragraph 2.4 to 2.7 inclusive) as an absolute bar to the respondent’s claim for further payments. Further, paragraph 4 of the Defence is consistent with the denial of the amount outstanding. In my view, it was not open to the Magistrate to conclude that paragraph 3 of the Defence was an admission. The operation of SCR 100(5) is relevant to this aspect of the Defence. The Defence is poorly drafted, unclear and bordering on ambiguous, but despite those problems it is not an admission of the quantum of the Claim.
Thus, even if I am wrong in finding that the appellant did not admit the “loan” on the pleadings, it is clear that it put the quantum of the Claim in dispute. The respondent has not, on the pleadings, proved the quantum of his claim.
The evidence
The Magistrate did not go on to consider whether the evidence called by the parties established the loan and the quantum of the claim. The respondent did not file a Notice of Alternate Contention relying on an alternative basis for proving his claim. However, the question of the evidence and what weight it should be given was argued before the Magistrate and also before me. I will decide the question.
At trial, the respondent tendered six documents, four of which are relevant to this question.[3] I have considered the documents. The appellant submitted:
The documents tendered by Mr Luscombe were inconsistent with each other and with his pleaded case. One document suggested a loan between Phantom and Momentum. Another document suggested a loan between Dunedin Dental Attachments and Mr Luscombe, and a separate smaller loan between Mr Luscombe and Phantom. A further document recorded a loan between Mr Luscombe and Phantom for a different amount, albeit one consistent with the amount Mr Luscombe claimed he initially advanced, but recorded this loan as having been repaid. None of the documents provided support for Mr Luscombe’s case that on or about 6 November 2014 he advanced the sum of $100,000. Importantly, none of the documents provide any support for a finding that the amount of $61,434.17, the amount claimed by Mr Luscombe, was due and payable by Phantom – none of the documents even refer to this amount or to anything from which this amount could be inferred. They are in fact directly inconsistent with Mr Luscombe’s case on outstanding indebtedness and quantum.
[3] Exhibit P1.
The documents tendered must be read in conjunction with what the appellant did admit in the pleadings. Even allowing for the admissions in the pleadings (that is, monies in the sum of $100,000 were advanced by the appellant) I agree with the appellant’s submissions on the combined effect of the documents. There are weak inferences, from my reading of the documents, that support the respondent’s submissions. However, the documents, or inferences that can be drawn from the documents, do not establish, on the balance of probabilities, the respondent’s case on the existence of the “loan”. If I am wrong in reaching that conclusion, the documents, or inferences that can be drawn from the documents, do not and cannot establish the quantum of the respondent’s claim.
In my view, the respondent, at trial, did not establish the basis or the quantum of the Claim, nor could he have established the basis or quantum of the Claim on the evidence tendered.
Can the respondent call further evidence?
Counsel for the respondent made an oral application to adduce fresh evidence on appeal. The respondent submitted that, if the only aspect not established is quantum, he should be allowed to adduce further evidence on appeal as to the alleged outstanding amount. Alternatively, the matter should be remitted to the Magistrate for further evidence to be called.
Mr Douglas, counsel for the respondent, conceded on appeal that prior to closing the respondent’s case at trial he was aware of the appellant’s submissions on the pleadings issue and the alleged absence of evidence. He accepted that he made a forensic decision at trial not to call further evidence. Nonetheless, Mr Douglas submitted that it would be in the interests of justice to allow either fresh evidence to be adduced on the appeal or to remit the matter to the Magistrate for further evidence to be called. To that end, Mr Douglas sought to tender an affidavit of the respondent which exhibited bank statements and various spreadsheets said to evidence payments made by the appellant in accordance with the alleged loan agreement.
The appellant opposed the application. The appellant submitted that the respondent made a forensic decision as to how to prove his case by relying on the pleadings and the documents discussed earlier. That is, the respondent’s counsel made a tactical decision not to call the respondent and that decision is fatal.
Applicable principles
SCR 286(3) permits this Court, at its discretion, to hear further evidence on a question of fact. In considering the operation of this rule, Blue J in Sunlight Nominees v Zotti and Zotti stated:[4]
Common law courts considering the exercise of the power to order a new trial generally required an applicant to satisfy two criteria:
1. the evidence sought to be admitted could not with reasonable diligence have been obtained for use at the trial; and
2. if the evidence had been available at the trial, it is reasonably clear that an opposite outcome would have resulted.
However, these criteria were not rigid and were applied with some flexibility in reconciling the competing demands of justice and finality.
In CDJ v VAJ the High Court held that the common law criteria do not apply as such to the discretion to admit new evidence on a statutory appeal conferred by section 93A(2) of the Family Law Act 1975 (Cth). Nevertheless the extent to which the evidence was or could by the exercise of reasonable diligence have been available at trial and the extent to which the evidence was capable of resulting in a different result are clearly critical factors to be taken into account in the exercise of the discretion.
In Viscariello v Livesey White J held, or proceeded on the basis, that the approach articulated by the High Court in CDJ v VAJ applies to the determination of a civil Magistrates appeal (under section 40 of the Magistrates Courts Act 1991 (SA)) because the provisions of rule 286(3)(a) of the Supreme Court Civil Rules 2006 (SA) are in very similar terms to section 93A(2) of the Family Law Act 1975 (Cth). It appears that both parties on the appeal before the single Judge proceeded on this basis and I therefore assume that the reception of the new evidence on appeal to the single Judge was to be determined on this basis.
[4] [2019] SASCFC 11 at [39]–[42] (citations omitted).
I gratefully adopt the approach suggested by Blue J. The ability or otherwise of the appellant to have obtained the evidence for use at first instance, and any explanation for him not having done so, are important considerations. Ordinarily, further evidence is not received to enable a party to patch up deficiencies in its case if those deficiencies could have been addressed by the exercise of ordinary diligence at first instance.[5] The test is ultimately one of what the Court determines is in the interests of justice and there must be a real possibility that an opposite result would have been reached had the evidence been before the Court at first instance. Public interest in the finality of litigation is also an important consideration.[6]
[5] Viscariello v Livesey [2013] SASC 99 at [132].
[6] Steicke v Pederick (2019) 134 SASR 114 at [7]; Viscariello v Livesey [2013] SASC 99 at [132].
I also bear in mind that the general rule is that a party is bound by the conduct of counsel. The judgment of Gleeson CJ in R v Birks is frequently cited in this context:[7]
[a]s a general rule, a party is bound by the conduct of his or her counsel, and counsel have a wide discretion as to the manner in which proceedings are conducted. Decisions as to what witnesses to call, what questions to ask or not to ask, what lines of argument to pursue and what points to abandon, are all matters within the discretion of counsel and frequently involve difficult problems of judgment, including judgment as to tactics. The authorities concerning the rights and duties of counsel are replete with emphatic statements which stress both the independent role of the barrister and the binding consequences for the client of decisions taken by a barrister in the course of running a case.
[7] R v Birks (1990) 19 NSWLR 677 at 683.
As Gleeson CJ also observed, in Crampton v The Queen, albeit in the context of a criminal trial, the trial cannot be regarded as a “preliminary skirmish in a battle destined to reach finality before a group of appellate judges”. [8]
[8] (2000) 206 CLR 161 at [16].
More recently, in JGS v R, I noted that:[9]
[i]ssues argued on appeal need to be considered in the context of the manner in which the trial was conducted. Decisions, for example, such as not objecting to evidence, not asking for specific directions and pursuing, or not pursuing, a particular line of defence are part of the wide discretion that counsel exercises at trial. For example, the absence of a request of the Trial Judge to consider giving himself various directions affords some practical indication of their relevance to the issues at trial. Thus, while there are exceptions, an appellant is generally bound by the case he ran at trial.
Consideration of fresh evidence application
[9] JGS v R [2020] SASCFC 48 at [39] (citations omitted).
There is no doubt in this matter that the evidence was available to be called at trial. The failure to produce the evidence at trial is not of itself fatal on the application; the ultimate decision turns on what the Court determines is in the interests of justice.
I accept, for the purpose of the argument, that the evidence, if admitted, would likely prove the quantum of the Claim and possibly the existence and terms of a “loan”. Counsel at trial made a forensic decision to proceed without it. Mr Douglas accepted that he made that forensic decision. The decision, given the matter was in the Magistrates Court and that costs should be kept to a minimum, was not unreasonable. I also accept that the Defence was unclear. However, the lack of clarity was a matter that should have been dealt with well prior to trial.
The documents sought to be adduced require explanation by the respondent. The appellant would, if the evidence was allowed, be entitled to cross-examine the respondent. This would likely lead to further evidence from the appellant. It may wish to call further evidence and would be entitled to do so. That is, the entire matter may have to be relitigated or at least a substantial part of it. The appellant conducted the trial on the evidence produced by the respondent. To allow the application would be, in effect, to start the trial afresh. To allow fresh evidence to be called in these circumstances would not be in the interests of justice. I refuse the application to call fresh evidence.
For the same reasons, I would not remit the matter to the Magistrate for further hearing. To do so would simply be to allow the respondent to change his mind about how to conduct the trial. The finality of litigation is a significant impediment to such a course.
Conclusion on Grounds 1 and 2
I would allow the appeal on Grounds 1 and 2 and I would dismiss the respondent’s claim.
In these circumstances, it is strictly unnecessary for me to decide the other grounds of appeal. However, given they were argued before the Magistrate and on appeal, I will proceed to determine them.
Grounds 3 and 4
It was common ground that inter alia the appellant and respondent entered into a Deed of Settlement and Release (“the Deed”) in March 2018. The other parties to the Deed were Mr Randall Wilson, Bargwanna Pty Ltd (“Bargwanna”), Momentum Medical Technologies Pty Ltd (“Momentum”), and Ms Margaret Gilbert (as executor of the Estate of Mr Grant Gilbert). The respondent was the sole director and shareholder of Momentum. That is, both the respondent personally and his company, Momentum, where named parties to the Deed. Bargwanna was Mr Gilbert’s company.
An issue arose at trial as to the construction of the Deed. The appellant argued that on a proper construction of the Deed, the respondent had released the appellant or alternatively had covenanted not to sue the appellant. The respondent submitted that the Deed was confined to resolving a more narrow dispute such that the appellant’s liability in relation to the alleged loan was not impacted by the execution of the Deed.
The Deed
The Magistrate concluded that the Deed, properly construed, did not release the appellant from the loan that she found had been admitted in the pleadings. I agree with the conclusion reached by the Magistrate in relation to the effect of the Deed, although for slightly different reasons. My reasons follow.
Legal principles of construction
The usual principles applying to the construction of a contract apply to the construction of a deed.[10] The plurality of the High Court in Electricity Generation Corporation v Woodside Energy Ltd provided the following summary of the relevant principles:[11]
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
[10] See Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45.
[11] (2014) 251 CLR 640 at [35] (citations omitted).
A written contract is to be construed by reference to its text, context and purpose. The construction of a commercial contract is to be approached on the basis that the parties intended to produce a commercial result. The court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, and the market in which the parties are operating.[12] Therefore, consideration must be given, not only to the text of the documents, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction.[13] The terms of a commercial contract are to be understood objectively, by what a reasonable business person would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. The objective background includes the contract’s external context comprising facts notorious or known to both parties to which its terms refer. However, evidence of the subjective intentions of the parties is not admissible. Such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself.[14]
[12] Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350 quoting Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995–6.
[13] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22].
[14] Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352.
Evidence of the parties’ post-contractual conduct cannot be used to interpret a written contract. The High Court in Agricultural and Rural Finance Pty Ltd v Gardiner has authoritatively stated that:[15]
it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made.
[15] (2008) 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ) quoting James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603 (Lord Reid).
The principle as espoused above appears to be accepted now as settled law.[16] However, the principle does not affect the law concerning the use of subsequent conduct for purposes other than the construction of a written contract; for example, such evidence may be used for identifying the subject matter of an oral contract.[17]
Use of the recitals in the Deed
[16] See, eg Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [10]–[11]; Lederberger (as executors of the deceased estate of Lederberger) v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 at [27], [31]; Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [120].
[17] See, eg County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [17]– [20], [24].
The Deed, as is common with deeds, included recitals. The use that can be made of recitals when interpreting a deed is not without its complexities. The High Court in Grant v John Grant & Sons Pty Ltd (“Grant”) set out the principles by reference to which a court will decide whether a general release will be held to cover a particular dispute.[18] The rule is that the general words of a release will, in an appropriate case, be read down to conform to the contemplation of the parties at the time the release was executed;[19] the recitals may be used to elicit the parties’ intentions in that regard.
[18] (1954) 91 CLR 112.
[19] Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 at 29.
In Franklin Pty Ltd v Metcash Trading Ltd, Campbell JA helpfully articulated guidelines on how recitals may be relevant to the task of interpretation.[20] Relevantly, he observed:[21]
·Recitals are part of the agreement, and can be used as an aid to construction of an operative provision in an agreement.
·Nevertheless, there is a distinction between the operative terms of a deed and the recitals. Although the recitals can assist in the construction of a deed they are not themselves operative terms.
·Recitals can provide a means of proving background facts that are themselves legitimate aids to construction of the deed as a whole.
·A direct conflict between the operative provision and a recital is resolved in favour of the operative provision.
[20] 76 NSWLR 603 at [379]–[390] (Allsop P and Giles JA agreeing).
[21] 76 NSWLR 603 at [379]–[390] (Allsop P and Giles JA agreeing). Note: Campbell JA referred to other “guidelines” not relevant to the disposition of this case. See also Nicholas Seddon, Seddon On Deeds (Federation Press, 2015) 177.
Thus, the generality of the operative words may be controlled by the recitals.[22] The courts may have regard to the recitals to ensure that wide terms of release are not construed as covering disputes other than the ones the subject of the deed. However, as the appellant submitted, the rule mentioned in Grant is not absolute. Where the operative parts of the agreement are clear and unambiguous, they are not to be read down or read contrary to the express terms of the operative clauses even if they are inconsistent with the recitals.[23]
Discussion
[22] Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 125–126.
[23] O’Loughlin v Mount (1998) 71 SASR 206 at 217 (Lander J) (Cox and Bleby JJ agreeing).
The starting point when construing a deed is to ascertain the commercial purpose. Both parties accepted that the evident commercial purpose of the Deed was to affect an exit of shareholders, namely the respondent/Momentum and Mr Gilbert/Bargwanna, from the appellant and Mr Wilson. So much can be accepted, although that purpose does not necessarily involve settling all outstanding loans, or perhaps more specifically all personal loans made by a party to the Deed, to the appellant. While the proposition relied upon by the appellant can be seen to be a “commercial and businesslike construction” so can the more narrow interpretation of the Deed.
The appellant relied on Clause 2 and what it submitted was a broad definition of “the Dispute”, which relevantly reads:
“the Dispute” means the dispute as to repayment of monies forwarded pursuant to the loan agreement secured by the charge together with the repayment of all monies forwarded to Phantom from Bargwanna, all Gilbert family members, Gilbert Motors and companies, Momentum, Simon Luscombe and all members of the Luscombe family.
(emphasis added)
In particular, the appellant relied upon the passage emphasised above, in arguing that the Deed covered more than “monies forwarded pursuant to the loan agreement secured by the charge”. That is, the Deed covered the alleged loan the subject of the respondent’s claim by personally naming the respondent.
Clause 4 of the Deed relevantly states:
Settlement
4.1 In full and final satisfaction of the Dispute:
4.1.1 Phantom and Wilson will pay, and Bargwanna has agreed to accept, the Settlement Amount in full and final settlement of the Dispute;
4.1.2 Bargwanna will transfer, and Phantom and Wilson have agreed to accept, all shares held by it in Phantom to Wilson and/or nominee.
4.2 Payment of the Settlement Amount in accordance with clause 4.1 above shall be made by EFT to Bargwanna’s bank account …
4.3 The Parties will comply with clause 4.1 of this Deed on or before the Settlement Date.
4.4 Upon compliance with clause 4.1 of this Deed, on the Settlement Date Momentum will transfer the shares held by it in Phantom to Wilson and/or nominee.
The appellant submitted that Clause 4 and the definition of “the Dispute” in Clause 2, when read together, should be construed as the parties agreeing to not only transfer their shareholding to the appellant but also release the parties from any commercial dealings with each other.
In my view, there are difficulties with that interpretation. Clause 5 relevantly states:
Release and Discharge/Discontinuance
5.1. Upon execution of this Deed of Settlement and Release Phantom and Wilson hereby release, discharge and forever hold harmless Bargwanna and Momentum from any and all Claims; and
5.2 Upon payment of the settlement sum in accordance with clause 4 above, Bargwanna and Momentum hereby release, discharge and forever hold harmless Phantom and Wilson from any and all claims.
5.3 In the event Phantom and/or Wilson fail to make payment of the Settlement Amount in accordance with paragraph 4 of this Deed:
5.3.1 Bargwanna will be entitled to enter judgment against Phantom and/or Wilson in the District Court of South Australia for the Settlement Amount plus Bargwanna’s reasonable costs of entering judgment against Phantom and/or Wilson; and
5.3.2 Phantom and/or Wilson will consent to judgment being entered against it for the amount referred to in paragraph 5.3.1 above.
Clause 5 does not refer at all to the respondent personally, only the company he controls, namely Momentum. That is, the release clause, on its face, makes no mention of the respondent personally releasing the appellant from any claim, only that Momentum releases the appellant and Mr Wilson from any and all claims (cl 5.2) and vice versa (cl 5.1).
The appellant submitted that the omission of the respondent by name in Clause 5 was “an unintentional drafting error where every other ‘Party’ including Mr Luscombe’s own company Momentum, is the subject of the releases”. I cannot accept that submission. The appellant has not made an application for rectification of the Deed. I must interpret the Deed as it currently reads, that is the respondent is not mentioned. I further note that the respondent is named personally in Clause 6, as is Momentum, whereby they agree not to compete against the business of the appellant.
It cannot be said that the Deed is a model of textual coherence. Against this background of ambiguity the recitals become relevant. The recitals relevantly state:
RECITALS:
A. In or about April 2013 Phantom requested and Bargwanna agreed to provide financial accommodation and in true [sic][24] into a loan agreement (“the Loan Agreement”).
B. In or about July 2013 Phantom and Bargwanna executed a deed of charge in relation to the funds provided pursuant to the Loan Agreement (“the Charge”).
C. A dispute has arisen in relation to the repayment of moneys forwarded under the loan agreement and secured under the charge.
D. Phantom and Wilson do not accept the validity of the Charge.
E. Without any admission of liability, the Parties have agreed to resolve the Dispute on the terms set out in this deed.
(emphasis is original)
[24] Counsel agree that “in true” is most likely incorrect and should be “entered”.
The respondent relied upon Recital C which he submitted restricts “the Dispute” sought to be resolved by the Deed to the “repayment of moneys forwarded under the loan agreement and secured under the charge”. This matches the first part of the definition of “the Dispute” as referred to earlier. I do not accept that submission.
Recital C refers to a dispute. Recital E, which refers specifically to the Dispute, given the capitalisation of the word, must be a reference to the definition contained in Clause 2. That is, it must be a reference to the wider dispute, as submitted by the appellant. In my view, the recitals do not assist in resolving the commercial tension that exists in the operative provisions of the Deed.
The appellant submitted that when construing the Deed, I should have regard to the surrounding circumstances. I agree with that submission in general. However, the appellant submitted that I could have regard to the subsequent conduct, and in particular emails passing between the respondent and Mr Wilson on behalf of the appellant, in interpreting the Deed. Given the principles outlined earlier, I reject that submission. The emails, at best, suggest a subjective view of the respondent. Such views, whether expressed orally, in writing or by conduct, cannot be used in relation to interpreting the Deed and its objective meaning as at the time it was executed.
I accept that the Deed must be construed in its commercial context. However, the question remains whether the purpose of the Deed was to release the parties from all and any claims or whether it was for a more limited purpose, namely to enable all the shares to be transferred to, and be held by, the appellant.
There is a tension between Clause 2 and the operation of Clauses 4 and 5. I have not found the issue easy to resolve. In the absence of clear language, a court should be slow to infer that a party intended to surrender rights and claims. In my view, the wording of Clauses 4 and 5 is sufficiently clear that, when looked at objectively, the Deed does not release the appellant from any and all claims from the respondent, as opposed to any and all claims from the company he controlled, namely Momentum. I agree with the respondent’s submissions that recording an express release of the respondent’s claim would have been a simple matter.
I reject the appellant’s submissions on the construction of the Deed.
The same arguments apply in relation to the question of whether the Deed contains a covenant not to sue. I reject the appellant’s submissions in relation to that aspect as well.
Accord and Satisfaction
Subsequent to the execution of the Deed, the respondent and the appellant, or its representatives, communicated by email. The respondent considered he was entitled to a payment of $750, which the appellant disputed. However, in the end, the appellant paid the $750 stating that it was paid “with the clear understanding that no further claim for more money and no further contact as per the Deed of Settlement” [sic] will be made. The respondent did not respond to the last email; the money was paid to the respondent.
The appellant submitted that in the context of the dispute recorded in the email, the respondent, by accepting the sum of $750, accepted the terms on which it was offered, namely there would be no further claims. The appellant submitted that there was accord and satisfaction giving rise to a release by the respondent.
Legal principles
The essence of accord and satisfaction is the acceptance by a person of something in place of their cause of action. The accord is the agreement or consent to accept the satisfaction, and upon provision of the satisfaction, there is a discharge which extinguishes the cause of action.[25] The accord and satisfaction requires acceptance of something in place of the full remedy to which the recipient is entitled.[26] The question of whether there has been an accord and satisfaction is one of fact.[27] It turns upon determining the parties’ intentions, which may be discerned from the terms of the documents said to constitute all or part of the agreement or from the surrounding circumstances.[28]
Discussion
[25] Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at [116] citing McDermott v Black (1940) 63 CLR 161 at [183]–[185].
[26] El Mir v Risk (2006) 22 BCL 16; [2005] NSWCA 215 at [48]; Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500, 610 (Gummow J).
[27] El Mir v Risk (2006) 22 BCL 16; [2005] NSWCA 215 at [54]–[55].
[28] Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSC 519 at [35] (Emerton J).
Having considered all of the email evidence the Magistrate found:
[a]t its highest the emails and the account transactions document amount to evidence of Phantom’s understanding of the effect of the Deed, namely that it considers it no longer has a repayment obligation to Mr Luscombe. The evidence is not capable of establishing that Mr Luscombe was of the same understanding such that there was an agreement between them. Although in the emails of 20 March and 30 April 2018 Mr Luscombe refers to ‘the final payment’, I consider that does not advance the matter in terms of construing the Deed as releasing Phantom from the loan – it is neutral. In particular, I consider that it is not sufficient evidence, of itself or together with any of the other evidence on which to found a conclusion that Mr Luscombe agreed that Phantom could be released from any further obligation with respect to repayment to him of the loan. Further, I consider there is no other evidence which has that result.
For these same reasons, in my opinion the evidence tendered at the trial does not establish there was an agreement between these parties either in the form of a release by accord and satisfaction or a covenant not to sue.
I have reviewed the evidence. The appellant’s submissions are based on documentary evidence only as no oral evidence was called. Having reviewed the evidence, I agree with the findings of the Magistrate. The evidence is insufficient to establish accord and satisfaction.
I dismiss Grounds 3 and 4.
Orders
1.The respondent’s oral application to adduce further evidence is refused.
2.The appeal is allowed.
3.The judgment entered in the Magistrates Court against the appellant is set aside.
4.The respondent’s claim in action AMCCI-19-1738 against the appellant is dismissed.
5.I will hear the parties on the question of costs of the appeal.
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