R & A Cab Co Pty Ltd v Kotzman
[2008] VSCA 68
•6 May 2008
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 6904 of 2004
| R & A CAB CO PTY LTD (ACN 080 885 114) |
| v |
| LINDSAY KOTZMAN |
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JUDGES: | ASHLEY and KELLAM JJA, and OSBORN AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 29 April 2008 | |
DATE OF JUDGMENT: | 6 May 2008 | |
MEDIUM NEUTRAL CITATION: | [2008] VSCA 68 | |
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Contract – Compromise of proceeding - Deed of settlement - Settlement sum largely paid - Whether respondent’s letter asserting an enforceable offsetting claim against balance of monies due to appellant a repudiation of contract – Respondent’s failure to pay balance, taking into account all circumstances, not repudiatory – Appeal against judgement reiterating master’s orders that proceeding be stayed as against respondent in substance dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr I W Upjohn | John Matthies & Co |
| For the Respondent | Mr P Ehrlich | Schetzer Brott & Appel |
ASHLEY JA:
This appeal arises out of an attempt by the respondent, Lindsay Kotzman, (‘Kotzman’ or ‘the respondent’), to rely upon a deed of settlement (‘the deed’) entered into between himself and the appellant, R & A Cab Co Pty Ltd (‘Cab Co’ or ‘the appellant’) in compromise of a proceeding in which Cab Co was plaintiff and Kotzman was fourth defendant. The appellant contends that the attempt must fail because the contract embodied in the deed was repudiated by the respondent and such repudiation was accepted by it.
To understand the issues which have arisen, it is necessary to set out a deal of the history of the matter.
In March 2003, Cab Co entered into a contract to purchase land at Kilsyth South from Kathleen and Edgar Rutty (‘the vendors’). Under the contract, $1,000 was payable as a preliminary deposit, and – apparently subject to the right of the vendors to require in certain circumstances that $350,000 be paid not earlier than six months after the day of sale – the balance of the purchase price of $570,000 was payable by 23 January 2004.
Cab Co did not complete the purchase. The vendors then sold the land to Horizon Synergy Pty Ltd by contract dated 13 February 2004.
Some five months after the date for completion of the March 2003 contract, Cab Co tendered the balance of the purchase price. The tender was rejected.
Thereafter, by writ filed 7 July 2004, Cab Co sought relief against the vendors and Horizon; and, in a provisional way, against Kotzman. He is a solicitor who at relevant times, practising under the style ‘Property and Business Commercial Lawyers’, acted as the solicitor for Cab Co.
The proceeding. Aspects of the statement of claim and of the respondent’s defence
Cab Co pleaded, as against the vendors, that they had –
· Given notice requiring payment of $350,000 when they were not entitled to do so.
· Served notice of rescission, and rescinded the contract when they were not entitled to do so.
· Wrongfully refused to complete.
· Wrongfully refused tender of the balance.
Cab Co pleaded, in respect of Horizon, that before the latter entered into the February 2004 contract it had notice that Cab Co had an equitable interest in the land. It pleaded that Horizon was guilty of knowing receipt of trust property, knowing assistance in breach of trust by the vendors, and intentional interference in contractual relations between it and the vendors.
As against the vendors and Horizon, Cab Co alleged loss and damage which it quantified at not less than $1.84 million. There were two components to this amount. First, estimated loss of profit from a proposed 14 lot subdivisional development of the land. Second, the estimated additional cost of pursuing an alternative development opportunity.
As against the respondent, the appellant pleaded breach of contractual and common law duties. By particulars, the appellant alleged that the respondent -
(a)failed to lodge a caveat to protect the [appellant’s] interest as purchaser of the land;
(b)despite being instructed to do so in or about October 2003 by the [appellant], did not lodge a caveat to protect the [appellant’s] interest as purchaser of the land;
(c)failed to investigate the entitlement of the [vendors] to call in August 2003 or at any other time for the whole or any part of the amount of $350,000.00 of the purchase price of the land;
(ca)failed to advise the [appellant] that the [vendors] were not entitled to:
(i) serve a notice under special Condition 2.1;
(ii) rescind the contract for non-compliance with such notice.
(d)failed to advise the [appellant] properly or at all as to the significance of section 4 of the Sale of land Act 1963 in relation to the contract;
(e)without the instructions of the [appellant], sent letters to the solicitors for the [vendors] dated 1 October 2003 and 24 November 2003 purporting to say that the [appellant] was treating the contract as at an end.
The appellant sought relief against the respondent on what might be called a provisional basis:
If the [appellant]:
(a) was not entitled to specific performance of the contract; and/or
(b)did not have priority over [Horizon] in respect of the interest of the [appellant] in the land under the contract;
(c)is not entitled to damages against the [vendors]and/or [Horizon] for breach of the contract or knowing assistance in breach of trust
then the [appellant] has suffered loss and damage by reason of the matters referred to in the preceding paragraph.
Particulars
The [appellant] refers to and repeats the particulars sub-joined to paragraph 11M above.
Paragraph 11M of the statement of claim particularised the damage alleged as against the vendors and Horizon.
I should mention some aspects of the respondent’s defence.
He did not admit that the vendors had breached their contract with the appellant in any of the ways alleged, or that - if breach there had been – the appellant had suffered the loss and damage which it alleged.
For the most part he did not plead to the appellant’s claim against Horizon.
He admitted being retained by the appellant in connection with the March 2003 contract. He admitted owing contractual and common law duties to it. He pleaded that, when instructed to lodge a caveat in early October 2003, he advised, as was the case, that the appellant did not have a caveatable interest. He asserted that the breaches of duty alleged against him were not causative of any loss to the appellant. He pleaded that the true cause of any loss or damage was the appellant’s financial position, including its inability to finance or procure finance for the purchase. He asserted, inter alia, that the appellant had been financially incapable of paying the $350,000 which the vendors demanded be paid in August 2003, had been financially incapable of completing the contract in January 2004, and had been unable, for financial reasons, to accept a further offer by the vendors, made in January 2004, to resell the land at the previous sale price. He pleaded also that the appellant had failed to mitigate its loss - relying upon its failure to complete, failure to accept the vendors’ alleged offer to resell, and failure to purchase and develop an alternative property.
The compromise
In July 2006, the appellant and the respondent compromised their differences. At that stage, the appellant’s proceeding was still on foot against the vendors and Horizon.
The compromise was embodied in the deed, which was executed by the appellant on 31 July, and by the respondent on about that day. Its key provisions were as follows:
1 Settlement Sum
The Fourth Defendant promises to pay and the Plaintiff accepts the Fourth Defendant’s promise to pay $150,000 (Settlement Sum) within seven (7) days of exchange of executed counterparts of this Deed.
…
3Release
Subject to payment of the Settlement Sum the Plaintiff releases and forever discharges the Fourth Defendant and the Fourth Defendant’s partners, servants, agents, successors and assigns from any and all liability whatsoever in relation to:
(a)the Claim, the Property, or the Retainer or arising out of or in connection with the matters the subject of the Claim, the Property, or the Retainer; and
(b)the Proceeding or arising out of or in connection with the matters the subject of the Proceeding, including but not limited to all claims for damages, costs, charges and expenses which exist or may hereinafter arise out of the matters the subject of the proceeding, including any costs orders made in the Proceeding.[1]
4Discontinuance of the Proceeding as against the Fourth Defendant
Upon payment of the Settlement Sum the Plaintiff promises to take (at the Plaintiff’s own expense) all steps necessary to discontinue the Proceeding as against the Fourth Defendant, with no order as to costs.
…
6Payment of Settlement Sum
The Plaintiff directs that the Settlement Sum be paid by cheque(s) made payable to the Plaintiff’s solicitors, John Matthies & Co of 416 Collins Street.
[1]‘The claim’ was Cab Co’s claim against Kotzman. ‘The property’ was the land at Kilsyth South. ‘The proceeding’ was the proceeding commenced by writ no 6904 of 2004 against the vendors, Horizon and Kotzman.
Events subsequent to exchange of the counterparts
The counterparts having been exchanged by 1 August 2006,[2] payment of the settlement sum was due by 7 August.[3]
[2]Or perhaps the next day.
[3]Or else 8 August.
Under cover of letter dated 4 August, the respondent’s solicitor sent a cheque for $146,500 to the appellant’s solicitor. The cheque was drawn on an account of the Legal Practitioners Liability Committee – in substance, the respondent’s professional liability insurer.[4]
[4]It was, I think, common ground in this Court that the solicitor then acting for the respondent was instructed by the Committee. But in the end, nothing turns on it.
The balance of $3,500 was not paid by the respondent within 7 days of exchange of counterparts. The respondent alleged that the appellant owed him a substantial amount – much in excess of $3500 - for legal costs in respect of other work performed by him for the appellant over a period of time. As will appear, he sought to gain the appellant’s acquiescence to his offsetting moneys owing to him, to the extent of $3500, against the amount still owing under the compromise.
The issue of moneys allegedly owing by the appellant had first been flagged by the respondent’s solicitors in a letter of 1 August under cover of which they had sent the counterpart executed by their client to the appellant’s solicitors. This is what the letter relevantly said:
Our client wishes to pursue his entitlement to costs against your client and we understand will issue proceedings. May we suggest that the amount owed by your client to ours be deducted from the amount payable to your client pursuant to this settlement.
The issue was not raised in the letter of 4 August to which I referred at [19]. It was revisited, however, in a letter dated 7 August 2006 sent by the respondent’s solicitors to the appellant’s solicitors. The letter said, pertinently –
We have been instructed by our client that he spoke to you on Friday 4 August 2006 in relation to payment of the balance of settlement moneys and the fee issue. He has instructed us that you would send us a letter to confirm that the plaintiff would accept the sum of $146,500.00 in full and final settlement of this matter. Please confirm that this is correct.
The appellant’s solicitors replied by letter dated 9 August 2006. The letter, apparently faxed to the respondent’s solicitors that day,[5] relevantly said this:
Our client has not agreed to the reduction referred to and requires that the full amount be paid according to the terms of settlement.[6]
[5]A hard copy was also sent. It seems to have been received on 10 August.
[6]The affidavit of Rocco Calderone, sole director of the appellant, sworn 20 December 2006, shows that the letter of 9 August was founded upon instructions given by him subsequent to the telephone call of 4 August between the appellant and the particular solicitor handling the matter for the appellant.
Subsequent to his return from a holiday on 21 August, the respondent corresponded directly with the appellant’s solicitors. On 24 August he wrote a letter which was critical to the appellant’s argument on the appeal to this Court. Later I will set out a deal of its content. It is only necessary to say, for the moment, that in part it revisited the question of a set-off against the amount still owing under the compromise.
On 28 August, the respondent again wrote to the appellant’s solicitors. A directions hearing in the appellant’s proceeding had been scheduled for 25 August. The appellant had not appeared.[7] Apart from expressing disappointment at an asserted lack of professional courtesy, the letter ‘confirm[ed]’ that the Senior Master – no doubt as a consequence of submissions made for the respondent – had made orders as follows:
Other Matters:
The Court notes that the [respondent] was not informed of the other parties’ agreement this morning for an adjournment. Counsel for the [respondent] informed the Court that the [respondent] desires to have some discussions with the [appellant’s] solicitors. These may occur during the adjournment.
Orders:
1.The Directions hearing is adjourned to 8 September 2006 at 2.15 pm in Court 3.
2.Costs of this day are costs in the proceeding.
[7]According to the letter, the particular solicitor handling the matter for the appellant had been taken ill, and the appellant’s solicitors had, by correspondence addressed to the Court, of which the respondent was unaware, belatedly sought an adjournment.
As for the disposition of the proceeding, the letter proposed the making of consent orders in accordance with an enclosed minute, which was said to reflect -
the matters set out in [the letter of 24 August], and the issues that our counsel intended to raise with your office and the Court at the aborted hearing on 25 August …
The minute of proposed orders pertinently read as follows:
Other matters:
The Court notes that the following Orders are made by consent subject to the [respondent] agreeing to reduce any claim he may have against the [appellant]for costs incurred in relation to invoice numbers 5613, 5678, 6499 and 6500 rendered by him on the [appellant] in the sum of $3,500.00.
The Court Orders by Consent –
1. That the proceeding be dismissed as against the [respondent].
2. There be no order as to costs.
In fact, the directions hearing was adjourned by consent, successively, from 8 to 22 September, and then to 29 September. The respondent was on notice from 8 September that the appellant was seeking the adjournments because it was negotiating settlement with the vendors and Horizon. He seems to have missed the possible significance of those developments so far as they might concern his position.
On 27 September – no doubt after settlement with the other defendants had been finalised[8] – the appellant’s solicitors wrote to the respondent as follows:
We note that the terms of settlement with your firm were conditional on payment.
Payment of the settlement sum has not been made.
Accordingly we have been instructed to advise that the plaintiff withdraws from all settlement discussions and will now proceed with its claim solely against the Fourth defendant. The monies thus far paid will be brought to account at trial as a partial recovery of the damages sustained.
At the directions hearing we are instructed to seek orders setting the matter down for trial.
[8]According to paragraph 33 of the respondent’s affidavit sworn 31 October 2006, he was informed by the appellant’s solicitor on 22 September that ‘finalisation of a settlement with the other defendants was now imminent’ and that the solicitor ‘wanted to effect the settlement prior to the next directions hearing …’. See also paragraph 3 of the letter of 27 September.
By letter dated 29 September, the respondent replied as follows:
As both you and your client are aware, this firm and Mr Kotzman have consistently maintained a readiness, willingness and ability to pay the amount of $3,500 due by Mr Kotzman to your client pursuant to the terms of settlement.
Further, and again as both you and your client are aware, this firm and Mr Kotzman have maintained that they have a valid and currently enforceable offsetting claim against any monies due to your client pursuant to the terms of settlement. This offset is comprised in invoices which total an amount of $14,572.45, being the fees this firm charged on account of professional services provided to your client in the period following the commencement of this proceeding. Indeed, these matters have been repeatedly raised in our recent correspondence to you and were mentioned to the Court on the occasion of the last directions hearing held on 25 August 2006 when there was no appearance by you or on behalf of your client.
Given the history of this proceeding, and amongst other matters, the fact that the terms of settlement entered into with your client did not state that time was of the essence, we find the suggestions contained in your facsimile to us of 27 September 2006 to be nonsensical and baseless.
Accordingly, so as to avoid any further and unnecessary argument and under protest we enclose a cheque in the sum of $3,500 in full and final settlement of Mr Kotzman’s obligations pursuant to the Terms of Settlement.
The tender was rejected.
The respondent’s summons filed 31 October 2006
On 31 October 2006 the respondent, by his present solicitors, filed a summons which sought, principally that the proceeding be permanently stayed (against him). The appellant might have sought to enforce the settlement in other ways. But it was not argued for the appellant that the application was not an appropriate vehicle for enforcement of the settlement, and I will proceed on the basis that it was.[9]
[9]The propriety of a similar procedure was discussed in Roberts v Gippsland Agricultural & Earth Moving Contracting Co Pty Ltd [1956] VLR 555. There, the plaintiff moved for judgment, relief different in form, but not so different in substance, from the relief sought by the respondent in this case. See 557 (Lowe and O’Bryan JJ), and 561-567 (Smith J).
The Master’s orders
On 2 February 2007 a Master ordered that –
1.Subject to [the respondent] at (sic) re-tendering the sum of $3,500 to [the appellant], the proceeding be stayed as against [the respondent].
2.[The appellant] pay [the respondent’s] costs of its summons filed 3 October 2006.
The appeal under R 77.05
Cab Co appealed. Its appeal was heard in the Practice Court on 1 March 2007. By order made the following day, the learned judge dismissed the appeal. That had the effect of reiterating the orders made by the Master.
The appeal to this Court
Now Cab Co appeals from the orders made on 1 March 2007. It seeks an order that the summons filed on behalf of the respondent on 31 October 2006 be dismissed. The grounds of appeal are as follows:
1.The learned Chief Justice erroneously found that the letter of 24 August 2006 from the Respondent to the Appellant did not amount to a repudiation of the Deed of Settlement executed 1 August 2006.
2.The learned Chief Justice erroneously found that the Appellant was obliged to warn the Respondent of its intention to terminate and to advise him that the Respondent’s construction of the Deed of Settlement was in error.
3.The learned Trial Judge erroneously found that the Respondent had mistakenly interpreted the Deed of Settlement to permit payment by set-off, when his error was not as to construction of the document but rather a mistaken belief as to the law of set-off.
The issue for determination
Counsel for the respondent conceded that his client in fact had no right of set-off in equity in respect of the allegedly unpaid costs.
Counsel for the appellant conceded that -
· The letters of 4 and 7 August 2006, the contents of which I have earlier set out, did not constitute a repudiation by the respondent of the contract embodied in the deed.[10]
· The contract was not one which made time of the essence.
[10]In consequence, no question arises whether, if such conduct had constituted a repudiation, the appellant had elected to affirm the contract by its solicitors’ letter of 9 August.
These various concessions were sensible and correct. In the event, the issue for the Court’s determination was reduced to this: did the respondent’s letter of 24 August 2006 constitute a repudiation of the contract, which repudiation was accepted by the letter of 27 September sent by the appellant’s solicitors to the respondent?
If the answer to both aspects of the issue should be ‘yes’, it follows that the compromise was no more. In that event, the appeal should be allowed and the respondent’s summons filed 31 October 2006 should be dismissed. But if the answer to either aspect of the issue should be ‘no’, then in substance the decision of the master, and of the learned judge below, was correct. The only question then would be whether it had been necessary to make an order – contingent upon the respondent re-tendering the $3,500 – that the proceeding be permanently stayed so far as it concerned the appellant and the respondent.
The argument of the parties was expressed both in writing and in oral submissions – the latter partly in answer to questions from the Bench. I set out what I understand to have been the final position which was adopted in each instance.
For the appellant, it went this way. The letter of 7 August opened-up the issue of possible set-off. The letter of 9 August made the appellant’s position very clear: that is, the appellant insisted upon being paid the full amount of $150,000. Objectively viewed, the respondent knew that this was the appellant’s position when he wrote the letter of 24 August. But that letter, although it purported to affirm the compromise agreement, was essentially a proposal to re-negotiate such agreement. A proposal to re-negotiate a contract implies repudiation of the existing contract. Moreover, the respondent made it quite clear by this letter that he would not abide the terms of the deed by paying the balance. There was an unequivocal refusal to make such payment. Again, the respondent’s failure to make payment of the balance in the period between 24 August and 27 September gave the lie to the submission that the letter of 24 August did not demonstrate an unequivocal refusal to pay. Then, on 27 September, the appellant accepted the repudiation. Nothing which had occurred in the interim precluded such acceptance.
For the respondent, counsel submitted that the letter of 24 August, viewed discretely, was not repudiatory. That was not its purport. Even if it should be described as a request to re-negotiate the compromise agreement, it did not follow that it constituted repudiation of the existing contract. The submission that every request to re-negotiate a contract implies repudiation of that contract was unsound; although such conduct might be relevant in a particular case to an argument that repudiation ought be inferred. Further, when the whole circumstances of the matter were investigated, as was necessary, it is still clearer that the letter was not an absolute refusal to perform the agreement. Rather, the respondent had raised afresh a question as to the manner of performance of the agreement – an agreement which had been very largely performed by him in any event. He had asserted a right to a set-off, and had invited discussion. The ‘whole circumstances’ included the issue having been raised earlier, the language of the letter of 24 August, the contents of the letter of 28 August and the draft minutes of orders which accompanied the letter of 28 August. Again, whilst it could not be said that the appellant’s conduct in seeking adjournments of the directions hearing amounted to an election to proceed with the contract, or gave rise to an estoppel, such conduct was relevant because it was an instance of a party not taking an opportunity to dispel an honest mistake by a defaulting party. That, in turn, bore upon assessment whether the respondent’s conduct should be accounted repudiatory. Further still, the respondent’s failure to pay the $3500 between 24 August and 27 September was not an instance of so serious a procrastination in making payment as should, of itself, be accounted repudiatory.
The letter of 24 August 2006
I must set out four passages from the respondent’s letter of 24 August; for, as I have said, that letter was central to the appellant’s argument. Thus:
We note that there has been substantial compliance with the terms of the Deed …, to the extent of approximately ninety eight per cent in value, and the settlement sum has been, as you know, settled by our indemnity insurers.
We affirm the terms of settlement as a binding agreement, notwithstanding that we vehemently deny any wrong doing on the part of this firm.
And -
4.We have incurred an obligation to meet payment of $3500 being the balance of the settlement sum.[11]
[11]Under the heading, ‘Consequence of the action bought (sic) by the plaintiff’.
And -
Notwithstanding the action that has been brought, the plaintiff has continued to use our firm to provide legal services over the last two to three years the plaintiffs outstanding balances for fees rendered by this firm to it have ranged between $35,000.00 and 15,000.00. The plaintiff has made numerous promises to pay and clear the debt, effectively hijacking this office into assisting it whilst we remained a defendant to the action that it brought. Over more recent times, i.e. over the last year, the plaintiff has undertaken through its new joint venturer, Australvic Property Management Pty. Ltd. to clear the outstanding balance of monies due to this firm. Numerous promises and undertakings by Australvic Property Management Pty. Ltd. to likewise clear the outstanding balance have not been kept. We enclose copies of undertakings made in September 2005 and April 2006 which have been broken.[12]
Finally -
Accordingly, we assert that we have an equitable right of set off with respect to the balance of $3,500.00 due under the terms of settlement against those monies owed to our firm. Alternatively, when Australvic Property Management Pty. Ltd. and/or the plaintiff chooses to make payment of the outstanding monies due to this firm, we will remit the balance of $3,500.00 due under the terms of settlement.
At present the amount outstanding by way of unpaid fees to this firm by the plaintiff is $14,572.45 in addition there is ongoing work in progress which is as yet unbilled.
Please contact the writer to discuss the proposed orders for the directions hearing tomorrow.[13]
[12]Under the heading, ‘Plaintiffs (sic) actions since proceeding started’.
[13]Under the heading, ‘Conclusion’.
Relevant Principles
The appellant’s case rested, as I have said, solely upon the submission that the respondent had repudiated the contract.[14] I should shortly state some of the key principles which emerge from the authorities.
[14]In written submissions there was reference also to ‘breach of a fundamental term’; this being constituted, it was said, by the respondent’s ‘unequivocal refusal’ to pay the full amount of the settlement by a bank cheque. The argument was not pursued orally. For completeness, the deed did not require payment by bank cheque .
First, in Shevill and Anor v The Builders Licensing Board.[15] Wilson J said that –
Repudiation of a contract is a serious matter and is not to be lightly found or inferred: Ross T. Smyth & Co., Ltd. v. T. D. Bailey, Son & Co. In considering it, one must look to all the circumstances of the case to see whether the conduct “amounts to a renunciation, to an absolute refusal to perform the contract”: Mersey Steel and Iron Co. v. Naylor, Benzon & Co. [16]
[15](1982) 149 CLR 620.
[16]Ibid 633.
In the same case, Gibbs CJ observed that a binding contract -
… may be repudiated if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract (Freeth v. Burr) or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way. [17]
[17]Ibid 625–626.
Second, whether a party’s conduct amounts to repudiation is
not ascertained by an inquiry into the subjective state of the mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party’s …intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations, and not in any other way.[18]
[18]Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 647 (Brennan J). The repudiation might, of course, be express; in which case the task is unlikely to be difficult. Note also that in some circumstances a defaulting party’s bona fide but mistaken belief in the correctness of its conduct can be relevant. See these reasons at [49].
Third, it has been stated very often that the whole circumstances of the case must be examined in order to see whether there was repudiation. Lord Keith of Kinkel put it this way in Woodar Investment Development Ltd v Wimpey Construction UK Ltd:[19]
[19][1980] 1All ER 571, 586. To the same effect, in Ross T Smyth & Co Ltd v TD.; Bailey, Son & Co [1940] 3 All ER 60, 72 Lord Wright took into account, in considering whether repudiation had been established, ‘the whole course of the transaction, before and after’ the sending of an invoice which was relied upon by the party alleging repudiation
My Lords, in deciding the issue of repudiation which arises in this appeal, the guiding principle is that enunciated by Lord Coleridge CJ in Freeth v Burr.
“In cases of this sort, where the question is whether the one party is set free by the action of the other, the real matter for consideration is whether the acts or conduct of the one do or do not amount of an intimation of an intention to abandon and altogether to refuse performance of the contract.”
The matter is to be considered objectively – per Bowen LJ in Johnstone v Milling:
“The claim being for wrongful repudiation of the contract it was necessary that the plaintiff’s language should amount to a declaration of intention not to carry out the contract, or that it should be such that the defendant was justified in inferring from it such intention. We must construe the language used by the light of the contract and the circumstances of the case in order to see whether there was in this case any such renunciation of the contract.”
The importance of looking at the whole circumstances of the case was emphasised by Lord Selborne LC in Mersey Steel & Iron Co Ltd v Naylor, Benzon & Co and by Singleton LJ in James Shaffer Ltd v Findlay Durham & Brodie.
Fourth, qualifying to some extent the principle noted at [47], in some circumstance, ‘a mere honest misapprehension, especially if open to correction, will not justify a charge of repudiation’.[20] The proposition has typically fallen for consideration where the defaulting party has acted in reliance upon an erroneous interpretation of the contract. In that particular context, the bona fides (or otherwise) of the defaulting party is a relevant factor.[21] In Australia, as in England, it has been suggested that an aggrieved party should take steps to persuade the mistaken party of its error if it wishes to rely upon that other party’s conduct as a repudiation of the contract.[22]
[20]Ross T Smyth, citation fn 19, 72 (Lord Wright).
[21]See the discussion in Paterson, Robertson & Heffey, Principles of Contract Law, (2nded, 2005), paras 22.60 to 22.65.
[22]DTR Nominees Pty Ltd v Mona Homes Pty Ltd and Anor (1978) 138 CLR 423, 432–433.
Counsel for the respondent submitted that the proposition to which I have just adverted has application beyond circumstances where the defaulting party’s error lies in an erroneous interpretation of the contract which is alleged to have been repudiated. He submitted that its reach extended to a case such as the present, where the error lay in the respondent’s misapprehension as to the availability of equitable set-off, an error which was central to the contention which the respondent raised in the various items of correspondence - and which was therefore made known to the appellant. He cited Mersey Steel & Iron Co (Limited) v Naylor, Benzon & Co[23] in support of his submission. So, counsel contended, the appellant’s failure to correct the error could be taken into account in considering whether the respondent had evinced an unequivocal determination not to perform the contract.
[23](1884) 9 App Cas 434.
On the view which I take of the present case, the matter which counsel raised need not be pursued. I will only say this. The error in Mersey Steel did not concern the interpretation of the contract – rather, the purchaser acted on erroneous advice given by a solicitor that payment could not safely be made without the leave of the court, a petition to wind-up the vendor having been presented. Yet it was held that in acting upon such advice the purchaser had not acted to show an intention to repudiate the contract.[24] So Mersey Steel does offer support for counsel’s submission that the reach of honest mistake extends beyond misinterpretation of the terms of the contract. But it is another matter whether that makes relevant to such a situation the learning about opportunity for correction. Again, Australian cases such as those mentioned by Osborn J in Talacko and others v Talacko,[25] in some of which the opportunity for correction has been mentioned, have characteristically involved the defaulting party’s reliance upon a wrong interpretation of the contract - which is not to say that the area of possible error is so limited.
[24]See the speeches of the Earl of Selborne LC at 440-441, of Lord Blackburn at 443, and of Lord Watson at 445–446.
[25][2008] VSC 128, [170]–[176].
Resolution of the appeal
In my opinion the respondent’s letter of 24 August viewed discretely, and a fortiori when the whole of the circumstances are taken into account, was not repudiatory. The following circumstances are relevant.
First, focussing only upon the letter of 24 August, the respondent -
· In terms affirmed the binding nature of the compromise agreement, and his obligation to pay the balance of $3,500.
· Made the point that, far from seeking to avoid the contractual obligation, his professional indemnity insurer on his behalf had already paid some 98 per cent of the amount which had to be paid.
· Detailed circumstances in which he claimed that there was a substantial amount in legal fees owing to him in respect of work done for the appellant over a period of time.
· Made the point that – regardless whether the appellant and Australvic had reached some agreement by which the latter would meet legal fees incurred by the former to him[26] - fees remained outstanding.
· In explaining what he claimed was the appellant’s outstanding costs liability, attached to the letter copies of documents showing the alleged state of the account, and undertakings to pay by Australvic which he claimed had been far from fully met.
· Asserted that he had a right of set-off in the circumstances, and proposed alternative courses: that a set-off be allowed to the extent of $3,500: alternatively, that the outstanding fees be paid, following which he would pay the $3,500.
[26]An agreement, assuming it existed, to which he was not a party.
I cannot agree with the submission for the appellant that this was an unequivocal refusal to pay the settlement amount as required by the deed. Plainly, it was not an express repudiation of the contract. At most, the respondent was proposing, as one of two alternatives, a different manner of paying the small outstanding balance of the settlement sum. The letter did not suggest that the respondent had purported to effect a set-off. Indeed, the copy statement of account which he attached to the letter recorded no such transaction. Neither again did the letter indicate that the respondent would attend to his obligation if and when he felt like it.[27] In substance, the letter invited discussion about the manner of payment of the balance.
[27]Compare Carr v J A Berriman Pty Ltd (1953) 89 CLR 327, 349.
Counsel for the appellant submitted that the letter constituted a request to re-negotiate the contract. He then submitted that this necessarily implied repudiation of such contract. He offered no authority in support of what he claimed to be that consequence; and I have found none. I think that the submission was unsound. An example can be given to illustrate its difficulty. In the case of a large commercial contract, of the value of millions of dollars, the submission if correct would mean that a proposal to re-negotiate the contract by adding or subtracting a little work to the value of a few thousand dollars was repudiatory of that contract.[28] Indeed, it would have that consequence, on the appellant’s submission, even if the contract had been largely performed by both parties.
[28]Assuming that no provision was made in the contract for variations thereto.
When consideration is given to all the circumstances, the situation is in my view clearer still. It is true that by his letter of 24 August the respondent returned to a matter which he had earlier raised, and in respect of which he had been rebuffed. But the letter of 7 August had not developed his argument at all. To the contrary, the body of the letter of 24 August and its appendices detailed his contention that the appellant owed him a substantial amount in legal fees. Moreover, it suggested two mechanisms – not one – in respect of payment of the balance. In other words, the respondent’s proposals were developed so as to provide a basis for discussion.
Next, the respondent’s letter of 28 August was plainly consistent, and consistent only, with an issue having been opened up for discussion. Counsel for the appellant submitted that nothing was to be gleaned from respondent’s counsel having apparently told the Senior Master on 25 August that the respondent wished to have discussions with the appellant. The discussions, it seemed to be submitted, might have been about anything. In my view, there was no substance to that submission. Other things apart, the letter of 28 August began by referring to the letter of 24 April; and the draft minutes of order attached to the letter of 28 August plainly adverted to resolution of the manner of payment of the outstanding $3,500 by means of a set-off.
I should note also the content of the letter of 27 September written by the appellant’s solicitors. It referred simply to full payment not having been made. Plainly, reliance was being placed upon late payment, not upon a repudiation of the contract by the respondent by the letter of 24 August. And yet it was submitted, in response to the respondent’s summons of 31 October, that a reasonable person in the position of the appellant would have understood the respondent to have repudiated the contract by that letter. The mental exercise envisaged by the submission was not an impossible one; but it was not much less than that.
It is not difficult, I add, to see why repudiation came to be relied upon. The appellant stood little chance of being able to show that time was of the essence. Other things apart, the deed involved a promise to pay within 7 days. But the appellant was not required to take any step to discontinue the proceeding until payment was made in fact. Moreover, the letter of 9 August, requiring performance of the contract, was written when the 7 day period fixed by clause 1 of the deed had already passed. In the event, it had not been open to the appellant to terminate without first fixing a reasonable time for performance of the respondent’s obligation to pay the outstanding balance.[29]
[29]See Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, 348-349 (Fullagar J), a building contract case. Counsel for the respondent relied upon Carr, I think, in part to support the proposition that the notice procedure may be used in situations other than conveyancing matters - albeit that it has been most often considered, in reported cases, in matters of that kind. The generality of the application of the procedure is scarcely, if at all, doubted in leading Australian texts. See Carter, Peden and Tolhurst, Contract Law in Australia, (5th ed, 2007) para 30-62, Cheshire and Fifoot’s Law of Contract, (9th Aust ed), para 21.19 at pp 1028-1029, and Paterson, Robertson & Heffey, Principles of Contract Law, (2nd ed, 2005), para 23.55.
For completeness, I should say something about the question, raised by Kellam JA in argument, whether the mere effluxion of time, particularly between 24 August and 27 September, ought be accounted repudiatory conduct. In my opinion, it did not have that character. Delay in performance of a contractual obligation may amount to a repudiation.[30] It has been said that ‘in some circumstances procrastination may be so gross and protracted as to amount to repudiation,[31] and that such a conclusion may be reached more readily in commercial than in conveyancing contracts.[32]
[30]See, for example, Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126, 150.
[31]Sindel v Georgiou and another (1984) 154 CLR 661, 671 (Mason, Murphy, Wilson, Brennan and Dawson JJ).
[32]Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, 302 (Barwick CJ and Jacobs J). Their Honours referred, in terms, not to ‘commercial contracts’ but to ‘contracts of a kind where time is usually of the essence’. In Sindel, that was taken to be a reference to ‘commercial’ contracts.
In this case, I think that there was no such procrastination, particularly where time was not of the essence, where the very large part of the respondent’s obligation to pay had been speedily met, where only the manner of payment of the balance had been raised by the respondent, and where the appellant’s side had maintained silence about that matter subsequent to the respondent’s detailed letter of 24 August.
In the event, I consider that the respondent did not repudiate the contract. There was no repudiation for the appellant to accept by the letter of 27 September. Further, that letter was otherwise ineffective to terminate the contract. In circumstances where the appellant had required performance of the contract by the respondent after the period of seven days specified by clause 1 of the deed had elapsed, no time for payment of the balance had been thereafter set by notice.
The letter of 27 September should, I think, be regarded as a repudiation of the contract by the appellant. But the respondent did not accept it. He wrote the letter of 29 September, and he tendered the balance.
It follows that the compromise was alive when the summons of 31 October 2006 was filed; and it is still alive today. The respondent is entitled to re-tender the balance of the settlement moneys,[33] and to have tender accepted.
[33]Now understanding the true situation, he evidently wishes to do so.
On re-tender, if no order was otherwise made, the deed would operate to bring the proceeding to an end, the appellant being obliged to file, at its cost, a notice of discontinuance.
In the course of the hearing, in answer to my question, counsel for the appellant undertook, if the appeal was dismissed, and if the respondent tendered the balance of $3,500, that his client would file a notice of discontinuance as contemplated by paragraph 4 of the deed. Counsel for the respondent did not strongly press an argument that such a course would be inappropriate. But he submitted that the order made by the Master, in substance reiterated by the Judge below, was an effective way of achieving the same result.[34] On balance, I agree with that submission. Assuming that the respondent pays the outstanding balance – in my opinion, the Court should set a definite time within which he must do so – the proceeding brought by the appellant against the respondent should be permanently stayed.
[34]And, it might be added, very likely cheaper for the appellant.
Orders
I would allow the appeal only so as to specify a time within which the respondent must tender the outstanding balance – I propose seven days from the date of making the orders disposing of the appeal; and so as to provide that the proceeding be permanently stayed as against the respondent in the event that tender is made.
A postscript
I have explained why, in my opinion, this appeal must in substance fail. But I should not want to be thought to be wholeheartedly endorsing the respondent’s conduct in this matter. Like it or not, as a professional man he had been sued by a client, and he had come to a compromise. No doubt it was irksome that the compromise involved him paying some money out of his own pocket. No doubt it was the more irksome to contemplate paying money by cheque to a client whom the respondent considered – it might well be with good cause – owed him a much larger amount in legal costs for other work. But it behoved the respondent to very carefully consider whether he could maintain a set-off if the appellant would not agree to the same as a practical resolution of competing entitlements. If there was any doubt,
then like it or not he should have paid the balance of $3500. The point that was reached should not have been reached, regardless of the outcome of this appeal.
KELLAM JA:
I have had the advantage of reading the draft judgment of the learned presiding judge and agree with his conclusions regarding the disposition of this appeal.
As argued before us the single issue in this appeal is whether the respondent’s letter of 24 August 2006 (‘the respondent’s letter’) constituted a repudiation of the contract, which repudiation was accepted by the appellant’s solicitor’s letter of 27 September 2006.
On no view can the respondent’s letter be seen to be an express refusal to perform the contract embodied in the deed of settlement exchanged between the parties on 1 August 2006.
The question then arises as to whether or not, in all the circumstances, the respondent’s letter can be seen to be an implied refusal to perform the contract. The test was formulated by Lord Coleridge CJ in Freeth v Burr:[35]
Whether the acts or conduct … amount to an intimation of an intention to abandon and altogether to refuse performance of the contract.
This test was approved in Mersey Steel and Iron Co Ltd v Naylor Benzon and Co[36] and in Laurinda Pty Ltd v Capalaba Park Shopping Centre & Co.[37]
[35](1874) LR 9 CP 208, 213.
[36](1884) 9 App Cas 434.
[37](1989) 166 CLR 623, 647-8.
For the reasons set out in paragraphs [53]-[54] of Ashley JA’s judgment, the respondent’s letter cannot be read as permitting an inference of unequivocal repudiation to be drawn. Furthermore, as observed by Ashley JA, when on 27 September 2006 the appellant finally responded to the respondent’s letter, the
response was not expressed in terms of acceptance of any asserted repudiation of the contract by the respondent.
The appellant did not respond to the respondent’s letter until 27 September 2006. In particular no notice requiring performance within a stipulated time was given. In Rian Financial Services Pty Ltd v Elford Investment Projects Pty Ltd[38] the then Chief Justice of the Australian Capital Territory, Miles CJ approved the following statement made in Lindgren & Ors, Contact Law in Australia, 1986 where the authors state at paragraph 1954:
Generally speaking, where time is not essential the promisor’s breach of the time stipulation does not give rise to a right to terminate unless the promisee first serves a notice requiring performance within a reasonable time.
His Honour observed that there were two exceptions to that rule - they being first, where the promisor is guilty of unreasonable delay in the performance of an express time stipulation either because the breach has had serious consequences for the promisee, or because the delay amounts to a repudiation of obligation on the part of the promisor. The second exception referred to by Miles CJ is in circumstances where the promisee terminates on the ground of anticipated unreasonable delay. Neither of those exceptions applies to this case. I agree with Ashley JA that in the circumstances before us there cannot be seen to have been unreasonable delay, particularly where the overwhelming proportion of the respondent’s obligation to pay had been met well within the time agreed between the parties and where the appellant had remained silent subsequent to the respondent’s detailed letter of 24 August 2006.
[38]NSW Conv R 55-400, 57, 698.
Finally I agree with the remarks of Ashley JA to the effect that the result of this appeal should not be seen as an endorsement of the respondent’s conduct in this matter. Indeed, I would go further and say that it is most unsatisfactory that the limited resources of this Court should be consumed by proceedings such as this in circumstances where neither the conduct of the appellant nor the respondent can be said to be particularly meritorious.
OSBORN AJA:
I agree with the reasons of Ashley JA and with the disposition of the appeal proposed by him.
More particularly, I agree that the respondent’s letter of 24 August 2006 did not evidence an objective repudiation of the contract comprised by the deed of settlement between the parties.
The terms of the letter were expressly affirmative of the contract and did not evidence a refusal to perform the contract. The plain meaning of the passages in the letter upon which the appellant relies was that the respondent was seeking to negotiate an agreement as to the manner of payment of the remnant $3,500 payable by him.
In addition, the immediately subsequent communications of the respondent confirmed that the letter of 24 August 2006 had this character.
Accordingly, the appeal must in substance fail.
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