Vero Insurance Ltd v Tran

[2008] NSWCA 358

New South Wales

Court of Appeal

CITATION:	Vero Insurance Ltd v Tran [2008] NSWCA 358
HEARING DATE(S):	15 December 2008
JUDGMENT OF:	Macfarlan JA at 1, 20, 22; Gyles AJA at 2; Handley AJA at 21
EX TEMPORE JUDGMENT DATE:	15 December 2008
DECISION:	Appeal dismissed with costs.
CATCHWORDS:	CONTRACTS - specific performance - where memorandum setting agreement of mediation contained unfinalised parts - whether memorandum an enforceable agreement or merely an agreement to agree - construction of clauses of agreement to mediate as to means of reaching settlement - MEDIATION - where memorandum setting agreement of mediation contained unfinalised parts - whether memorandum an enforceable agreement or merely an agreement to agree - construction of clauses of agreement to mediate as to means of reaching settlement
CATEGORY:	Principal judgment
PARTIES:	Vero Insurance Ltd - Appellant Minh Ai Tran - First Respondent Thi Nguyen Phan - Second Respondent Full Brick Homes Pty Limited (ACN 063 559 946) - Third Respondent Martin Barratt - Fourth Respondent Maureen Barratt - Fifth Respondent Ian Harley Bailey - Sixth Respondent
FILE NUMBER(S):	CA 40125/08
COUNSEL:	TGR Parker SC and PJ Bambagiotti - Appellant F Corsaro SC and B Bradley - First and Second Respondents
SOLICITORS:	Mills Oakley - Appellant Just in Case Legal - First and Second Respondents
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 5172/06
LOWER COURT JUDICIAL OFFICER:	Hamilton J
LOWER COURT DATE OF DECISION:	22 April 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	Vero Insurance Ltd v Tran [2008] NSWSC 363

40125/08

MACFARLAN JA
HANDLEY AJA
GYLES AJA

Monday, 15 December 2008

VERO INSURANCE LIMITED v MINH AI TRAN & 5 ORS

Judgment

1 MACFARLAN JA: Acting Justice Gyles will deliver the first judgment.

2 GYLES AJA: This is an appeal from the dismissal of a specific performance suit seeking enforcement of what was said to be an agreement reached at a mediation to settle finally a District Court building dispute. The primary judge founded his decision upon his construction of the agreement to mediate. The mediation agreement, which was entered into on the day before the mediation took place, had provisions which dealt with the question of settlement and enforcement. They were clauses 9 and 10, which are as follows:

“9. The Mediation may be terminated:

(a) by agreement between the parties to terminate the mediation.

(b) upon execution of a Settlement Agreement in respect of the proceedings;

(c) by the Mediator giving written or oral notification to the parties if, after consultation with the parties, the Mediator forms the view that the Mediator will be unable for whatever reason to assist the parties to achieve resolution of the proceedings.

10. (a) In the event that one or more of the disputed issues is or are settled, as the case may be, either of the parties is at liberty to enforce the terms of the settlement agreement by judicial proceedings.
(b) In those proceedings the parties may adduce evidence of and incidental to the settlement agreement.”

3 The mediation, which took place on 22 August 2006, did not arrive on that day at the execution of a Settlement Agreement. Rather, what occurred was that at about 5pm the mediator read out a series of terms which had, in his view, been agreed. That, of course, was the result of a series of discussions between the parties. There was a dispute, on the evidence, as to precisely what occurred and I will come back to that.

4 During the course of the evening of 22 August one of the parties, the owners of the house, to which I will refer later, advised the mediator that they did not wish to proceed with the terms and conditions, as they were described, which had been referred to earlier. One of the parties, the insurer of the owners for building defects, took the view that the terms read by the mediator had constituted a settlement.

5 On the following day, 23 August, the mediator sent to all of the parties what was described as a memorandum of agreement for resolution of District Court proceeding number 1046/2004. He had forwarded that with a letter, the substance of which is as follows:

“ RE: FULL BRICK HOMES PTY LIMITED v. TRAN AND ANOR
I refer to the mediation of the District Court proceedings No.1046 of 2004.
At the conclusion of the mediation the parties and their legal representatives agreed that the whole of the proceedings and the claims made in them would be resolved in accordance with an extensive agreement. The agreement was recorded by me in writing. I undertook to have the agreement typed and to include in it for consideration by the parties, any matter which I thought was not adequately considered. The purpose being to ensure finality and enforceability.
Enclosed is a copy of the Interim Terms of Settlement prepared by me during the course and at the conclusion, of the mediation process. The matters which were not the subject of express agreement at the conclusion of the mediation are underlined or separately noted. The most important of these is paragraph 5.
On the evening of 22 August 2006, Mr Tran telephoned me and sent a fax to me, as attached, indicating that the owners “can not accept the terms and conditions put to us”. Notwithstanding this advice, I considered it appropriate to complete the exercise which I undertook.
I look forward to the advice of the parties as to whether the draft agreement accords with their understanding of the agreement made at the conclusion of the mediation.”

6 The memorandum of agreement which was enclosed included some items in square brackets and some underlined. Those are the items which the mediator described in his memorandum as being matters which were not the subject of express agreement at the conclusion of the mediation. In due course I will come back to the terms of that memorandum.

7 His Honour held that the method prescribed by the mediation agreement for settlement of the proceedings was by execution of a Settlement Agreement within the meaning of cl 9(b). His Honour did contemplate, apparently, that there might be an agreed oral variation of that process or procedure, but without descending into detailed reasons, his Honour indicated that he did not think the facts would sustain such a variation.

8 The parties to the mediation agreement and to the litigation were, as I have said: the owners of a house which was built, Minh Ai Tran and Thi Nguyen Phan who are the active respondents on this appeal; Full Brick Homes Pty Limited, the builder; Martin Barratt and Maureen Barratt, the principals of that company; and Vero Insurance Limited, the insurer. The mediator is also a party in name but has never taken an active part. The builder and its principals have taken no active part in the litigation.

9 The insurer appeals against the dismissal of its claim for specific performance of what it claims was a settlement. It had pleaded an agreement in terms of the memorandum prepared by the mediator but omitting terms which were clearly then not agreed.

10 The manner in which the matter was dealt with by the primary judge means that a number of issues which were argued by those opposing specific performance were not considered by his Honour, including, in particular, findings as to what precisely had been agreed orally. Evidence had been filed on behalf of various witnesses. There had been cross-examination and a number of documents had also been tendered. The matter had proceeded over some days. His Honour made some comments about credit but did not resolve the contested questions of fact.

11 It lies upon the appellant here, claiming specific performance, to show that, if it could succeed in persuading the Court that his Honour was wrong about the construction of the agreement to mediate, there was either enough material to conclude that there was an enforceable oral agreement arrived at by 5pm on 22 August 2006 or at least that there was proper evidence going to that issue which would require remission to the Equity Division for hearing and determination.

12 During the course of argument on the part of the appellant’s counsel this morning it became apparent that there were some serious issues as to the completeness of the arrangements, if I could describe them that way, which were recorded in the mediator’s memorandum. Two in particular were the focus of much of the debate. That issue requires some closer attention to the form of the mediator’s communication, which matches, in relevant ways, the pleading.

13 It is necessary to know something of the context in order to understand what took place. The dispute concerned the construction of a cottage. The owners claimed, with the support of experts, that it was defective from the ground up. The slab itself was unsafe and there were many defects in the work above the slab. The builder denied the defects. Its insurer was involved in the litigation directly and was also an important player in the mediation of the dispute.

14 The structure of the proposed settlement of the case turned upon a method or process by which the necessary rectification work would be identified and done and, perhaps more importantly for the owners, all necessary certificates would be obtained and received in relation to the proper and safe completion of the building as it was their intention to sell it. It is best, I think, to set out the whole of the alleged agreement although, in the end, only a relatively small part of it is critical:

“A. On 22nd August 2006 a mediation of disputes involved in District Court Proceedings No.1046 of 2004 was conducted at the National Dispute Centre.
B. At the conclusion of the mediation the parties reached agreement for the resolution of the proceedings in the following terms:-
1. The Mediator will facilitate the identification of the Scope of Work to rectify defective work in breach of contract by the Builder in the construction of the Owners residence from above the level of the ground floor slab.
2. The facilitation will involve Michael Cantali on behalf of the owners and Geoff Gleeson (“the engineers”) for the Builder and Vero and Martin Barratt of Full Brick Homes. In the event that the facilitation does not conclude by agreement, such difference as to the scope of contractual rectification work that remain will be referred to [recommended Geoff Markham] (the expert) to determine as an expert, the Scope of Work necessary to rectify the Owners residence for contractual breaches by defective and incomplete work from above the level of the ground floor slab.
3. The expert determination by [?Geoff Markham?] will be undertaken in accordance with the Institute of Arbitrators and Mediators Australia Rules for Expert Determination as amended by agreement between the parties and the expert and the costs of the expert determination shall be shared equally between the Builder, the Owners and Vero.
4. During the course of the facilitation process, Vero will procure the structural engineering certificate form the structural designer, McVay referred to in paragraph 9(i) below.
5. Upon completion of the facilitation/expert determination process and the identification of the Scope of Work to rectify contractual breaches, the engineers on behalf of the respective parties and Martin Barratt will prepare a program for the execution of rectification work setting out the staging of performance and identify any period during which the Tran residence might need to be vacated. [?Vero to pay for alternative accommodation???]
6. In the event that the engineers and Martin Barratt are not able to agree as required by paragraph 5 the remaining issues as between them will be determined by the expert as part of the expert determination process.
7. The Owners will carry out such non contractual rectification or incomplete works which the Council requires to be performed prior to the issue of an Occupation Certificate or which are agreed be carried out by the engineers or determined by the expert .
8. Following the completion of the Council required works, or any non contractual rectification works agreed by the engineers or determined by the expert, the Builder will carry out and complete the agreed or determined Scope of Rectification Works and the execution of those works will be inspected by Geoff Gleeson.
9. On competition of the rectification works by the Builder, Vero and the Builder will provide to the Owners, in such terms as will permit the issue by the Council of an Occupation Certificate for the residence, [Note that the terms of the Certificates will be addressed as part of the facilitation process and if not agreed by the expert.]
i. A Certificate from the structural engineer designer, [McVay] as to the design and structural adequacy of the reinforced concrete structural elements as built;
ii. A Certificate of satisfactory completion of construction within the residence of the rectification works in accordance with the BCA;
iii. Pest Certificates, if not already provided.
10. Upon completion of the rectification work, the Builder will submit the application for the occupancy certificate for the Owners’ residence to the Council.
11. Upon completion of the rectification works, and the delivery of the Certificates required by Council for the issue of the Occupancy Certificate then:-
i. The proceedings by the Builder will be discontinued or dismissed with no orders as to costs.
ii. The proceedings by the Owners will be discontinued and the Owners will provide a release to the Builder, Mr and Mrs Barratt and Vero in respect of all claims made by the Owners in the proceedings.
12. On the dismissal or discontinuance of all proceedings, Vero will pay to the Owners (without admission of liability) $75,000.00 as a contribution to their costs of the proceedings.”

15 It will immediately be observed that cl 2 has in square brackets the words, “[recommended Geoff Markham]”. Clause 3 has the same square brackets and the same name. It is accepted that, although the name may have been mentioned during the course of the mediation on 22 August, there was no agreement by the parties present, including the builder, that Mr Markham would be the expert. It will also be observed that there is no timetable included in the memorandum by which any of these events would take place, and in particular there is no period within or date by which the work would be complete.

16 It seems to me that the structure of the settlement depended wholly upon a proper identification of the scope of works to rectify the defective work. That, after all, was what the District Court case was about. The quite sensible arrangement proposed was that the mediator would facilitate that. That facilitation would also involve named experts and the principals of the builder themselves but with an expert independent of those parties to determine the scope of work in default of agreement. In my opinion, without identification of the particular expert, that is simply an agreement to agree, unless there were a mechanism by which that expert would be chosen and selected in default of agreement. I can find no such mechanism.

17 It was submitted by counsel for the appellant that cl 3 of the alleged agreement solved the problem because the Rules of the Institute of Arbitrators and Mediators Australia for Expert Determination include a process by which an independent expert might be selected. In my view, cl 3 deals not with the selection of the expert but rather with the process by which the expert will conduct the expert determination. There is, indeed, an open question as to whether or not the Rules were present at the mediation but it does not seem to me to be necessary to resolve that issue. For my part, I cannot agree that the memorandum prepared by the mediator reflects an enforceable agreement. It is not contended that any oral agreement would go further than the written document in this respect.

18 It also seems to me that the absence of a timetable is of some significance, although it is a rather different point to that involving the absence of an agreed expert. There is evidence as to what took place at the mediation concerning that matter. It may be that this is a case of the memorandum of agreement being insufficient in that it did not record something which was agreed; or it is conceivable that it also might be deficient as an agreement because that important topic was not the subject of particular agreement. Because of the defect in relation to nomination of an expert, it is not necessary to come to a final view about this matter.

19 I would prefer to ground the decision on the issue of incompleteness of the alleged agreement rather than on the construction of the agreement to mediate. There is much to be said for the construction of the latter favoured by the primary judge. However, this was a Court-ordered mediation. There are statutory provisions and rules which govern the conduct of mediations in the District Court. I am not completely satisfied that the construction which has been accorded these clauses fully and adequately takes account of the statutory background which needs to be accommodated. There are other possible arguments which were advanced against specific performance which, in my view, it is unnecessary to consider.

20 Thus, for reasons which differ from those of the primary judge in some respects, I would dismiss the appeal with costs.

21 MACFARLAN JA: I agree with Gyles AJA.

22 HANDLEY AJA: I also agree with Gyles AJA.

23 MACFARLAN JA: The order of the Court will be that the appeal be dismissed with costs.

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