Sola Basic Australia Limited v Morganite Ceramic Fibres Pty Limited

Sola Basic Australia Limited (the applicant) sought special leave to appeal to the High Court of Australia from a decision of the majority of the Court of Appeal of New South Wales. The dispute arose from proceedings commenced by an insurer, in the name of its insured, to recover damages representing payments made to the insured for losses suffered. This action was based on the insurer's right of subrogation. The proceedings had previously been the subject of a preliminary trial before Smart J, who considered two issues: whether an accord and satisfaction constituted a defence to the proceedings, and if so, whether that defence was effective against the insurer.

The legal issues before the High Court concerned the interpretation and effect of an alleged accord and satisfaction between the applicant and the respondent. Specifically, the court was required to determine whether a written accord and satisfaction, evidenced by two telexes and subsequently performed, extended beyond the replacement cost of a transformer that had repeatedly failed. The applicant contended that the accord and satisfaction covered more than just the replacement cost, while the majority of the Court of Appeal, in the judgment of Priestley JA, found that no such accord and satisfaction existed or, alternatively, that it was not effective against the insurer.

The applicant argued that the majority's approach was unsustainable. They submitted that Meagher JA, in dissent, correctly construed the documents as establishing an accord and satisfaction that was effective against the insurer. The majority, however, viewed the matter not as a construction issue but as a question of what the terms of the accord and satisfaction were. Priestley JA concluded that if an agreement existed, it was to be found in the first telex, treated as an acceptance of an earlier offer, or that the second telex constituted a counter-offer which was not accepted by performance. The applicant contended that this latter conclusion overlooked the parties' agreement that an accord and satisfaction had been reached and performed. The applicant manufactured transformers and sold one to the respondent in 1983, which experienced five failures in 1984.