FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - Application to set aside bankruptcy notice - whether debt owing at date of bankruptcy notice.

CONTRACT - Settlement of action - accord and satisfaction - whether accord executory, accord and satisfaction or accord and conditional satisfaction - whether original judgment merged in settlement.

Osborn v McDermott (Victorian Court of Appeal, 29 March 1996, unreported)

Re Ferngully Stockfeeds Pty Ltd (1996) 20 ACSR 496

McDermott v Black (1940) 63 CLR 161

Scott v English [1947] VLR 445

Buseka v Sergio (1990) 102 FLR 157

COL BARTLETT v PAUL AND SIOBHAN MOUNCEY

QG 7448 of 1997

COOPER J

BRISBANE

24 APRIL 1998

THE COURT ORDERS THAT:

1.         The application be dismissed.

2.         The applicant pay the respondents’ costs of and incidental to the application to be taxed, if not agreed.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

This is an application by the debtor, Colin Bartlett, to set aside a bankruptcy notice dated 1 July 1997, and served on 7 July 1997.  The bankruptcy notice particularised a total debt of $85,556.30 based on a judgment debt of $83,203.81.

The applicant disputes the validity of the bankruptcy notice on the grounds that the amount stated in the notice is not owed by him at all;  nor was it owed as at 1 July 1997.  The background to this application appears from the affidavit of Stephen John Pyman (“Mr Pyman”) filed 14 August 1997 and the affidavit of Darrin William Edwards (“Mr Edwards”) filed 30 July 1997. 

The judgment debt arose pursuant to an order of the Queensland Building Tribunal on 4 February 1997.  That judgment was filed in the District Court on 27 February 1997 pursuant to s 91 of the Queensland Building Services Authority Act 1991 (Qld).  The applicant subsequently filed an application for leave to appeal in the District Court.  The application for leave to appeal was to be heard on 8 April 1997.  The parties’ then solicitors, Mr Pyman of Barwicks for the applicant and Brett Freudenberg (“Mr Freudenberg”) of Corrs Chambers Westgarth for the respondents, settled the dispute on 7 April 1997.

The settlement was effected in a telephone conversation on 7 April 1997 between Mr Freudenberg and Mr Pyman after a number of conversations on that day containing offers and counter-offers.  Both Mr Pyman and Mr Freudenberg were called to give evidence.  Mr Pyman’s recollection did not extend further than his notes, although there was no real conflict between his version of the conversation and Mr Freudenberg’s version.

I accept that the settlement occurred on the basis set out in the letter from Corrs Chambers Westgarth to Barwicks dated 8 April 1997.  That letter, so far as is relevant, said :-

“...

We confirm our clients are willing to accept your client’s offer to settle this matter on the following conditions:

·      your client pay the sum of $47,029.00 by 7 May 1997;

·      the amount once received will be in full and final satisfactiion [sic] of the outstanding claims our clients have against each other;

·      the parties are to bear their own costs of and incidental to the Application.

We enclose our proposed Settlement Deed detailing this agreement for your client to execute.

We confirm today at the Application to seek leave to appeal, the matter will be adjourned to the settlement list with the liberity [sic] for it to be relisted.”

The application for leave to appeal was, by consent, adjourned to the settlement list on 8 April 1997, with no order as to costs.

Barwicks confirmed the terms of settlement in a letter dated 10 April 1997 that, so far as is relevant, said :-

“We acknowledge receipt of your letter dated 8 April 1997.  We agree with the terms of settlement as set out in that letter.

We are taking our client’s instructions in relation to the deed of settlement enclosed by you.

You will appreciate that it was not a term of the settlement negotiations that such a deed be executed.”

The deed of settlement and a subsequent variation to that deed were not executed. 

The applicant failed to make the payment of $47,029 or any part of it by 7 May 1997 or at all.  The respondents then sought to continue with enforcement of the original judgment for $83,203.81 which resulted eventually in the issue of the bankruptcy notice the subject of this application.

The issue for decision in this case is whether the terms of the settlement entered into on 7 April 1997 are such that in the event of non-payment by the applicant of the settlement sum the respondents were precluded from enforcing the original judgment.

Although the applicant’s solicitors in a letter dated 9 May 1997 asserted that the judgment debt had merged in the settlement, and that the respondents’ only remedy in the event of non-payment of the $47,029 was to sue the applicant for $47,029 as an amount due under the settlement, that submission was not made by counsel for the applicant on the hearing of the application.  Rather, it was submitted that the judgment at all times remained in existence until payment, and in default of payment, remained on foot but subject to the application for leave to appeal, then in abeyance in the District Court.  Counsel for the applicant submitted that the terms of settlement, properly construed, provided its own remedy for the applicant’s failure to make the agreed payment.  That remedy was relisting by the respondents of the applicant’s District Court application for leave to appeal.  The issue of a bankruptcy notice, it was submitted, was not a remedy permitted by the settlement.

It was submitted by counsel for the applicant that such a result followed from a proper construction of the terms of settlement contained in the letter from the respondents’ solicitors dated 7 April 1997 and the file note of the final telephone conversation on that date made by Mr Freudenberg of his conversation with Mr Pyman.  The file note said :-

“T/o Stephen Pyman

Client is willing to settle re: his offer for $47,029.00 inc

- Payment/$47,029.00 be made within 30 days (ie due 7.5.97)

-The matter be adjourned to the settlement list with the liberty to have it relisted.

-If the entire amt is paid then the appl’n for leave will be discontinued.

- The amount once received will be in full & final satisfaction of order.

- The parties bear their own costs re: appl’n.

Said OK

- Fax him a letter outlining the settlement & the order dated tomorrow will be in terms of the agreement.”

Implicit in the applicant’s submission is the contention that the settlement took effect as a binding contract immediately upon the acceptance by Mr Pyman of the offer put by Mr Freudenberg in the telephone conversation at about 4.50 pm on 7 April 1997.

The respondents submitted that the settlement was conditional upon the payment by the applicant of the settlement sum, and that the settlement did not take effect until that payment was made.  That is, in the event of a failure to pay, the parties remained in their pre-settlement position.  In those circumstances, it was submitted, the respondents were entitled to enforce the judgment they had obtained prior to the settlement in any way they saw fit, including the issue of a bankruptcy notice.

Counsel for the respondents further submitted that the construction of the agreement contended for by the applicant produced the result that the respondents’ sole remedy for the failure of the settlement, due to the default of the applicant, would be to relist an application for leave to appeal from a judgment in their own favour, an application in respect of which the respondents had no interest other than to see it dismissed with costs.  Such a result was characterised by counsel as odd and not a commonsense one or one designed to advance the respondents’ interest.  It was submitted that such a result was so unlikely to have been intended, that the construction contended for by the applicant should be rejected.

Whether or not the settlement was to take effect before the payment of the agreed sum depends upon the intention of the parties as disclosed by the language of their communications and their conduct.  Further, even if the settlement is binding immediately it may, by its terms, condition the extinguishment of the cause of action or the non-enforcement of any judgment, upon the due performance by the other party of the act which constitutes the consideration for the forbearance to sue or execute:  Osborn v McDermott (per Phillips JA, with whom Winneke P and Charles JA agreed,, Victorian Court of Appeal, 29 March 1996, unreported at 18 - 19);  Re Ferngully Stockfeeds Pty Ltd (1996) 20 ACSR 496 at 518 - 523.

In Osborn v McDermott, Phillips JA after review of the authorities (at p 18) said :-

“... First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff’s existing cause of action is discharged.  Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation.  Somewhere between the two, is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties before performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.”

The construction of the settlement contended for by counsel for the applicant, arguably leads to the settlement being a mere accord executory.  This follows because, the construction contended for by the applicant, that the respondents’ only remedy for a breach of the applicant’s promise to pay is to relist the application for leave to appeal, effectively means the respondents are unable to enforce the applicant’s promise to pay.  The inability to enforce this promise to pay renders that promise illusory as consideration to support a binding agreement.  I neither accept the construction sought to be placed on the settlement by the applicant nor regard the settlement as a mere accord executory.

Central to the submission of counsel for the applicant was that the settlement was a binding agreement and that the ability to relist the application for leave to appeal was the contractual remedy provided to the respondents under the settlement for breach by the applicant of the promise to pay the agreed sum by the due date.

I do not accept that the ability to relist was intended to provide a remedy to the respondents.  The purpose of the parties in adjourning the application for leave to appeal and in providing for liberty to relist the application becomes apparent from a consideration of what each party was prepared to give up under the settlement and at what stage or point in time that was to occur.

On 7 April 1997 the respondents had a judgment in the sum of $83,203.81.  There is no evidence to suggest that the judgment was stayed or that there was in existence any circumstance which prevented enforcement of it at the suit of the respondents.  On that date the applicant had a pending application in the District Court to seek leave to appeal from the order of the Queensland Building Tribunal, which had been registered as a judgment in the District Court.

As a consequence of the agreement of the solicitors, the applicant did not abandon his application for leave to appeal, nor did he agree to its dismissal or withdrawal in consequence of the agreement being made.  Rather, the application was to be placed in abeyance by being adjourned to the settlement list;  it remained capable of being reactivated because the agreement of 7 April 1997 provided that there be liberty for the application to be relisted.  The right to seek leave to appeal remained as an enforceable right against the respondents until there was full and final satisfaction of the outstanding claims of the parties against each other.  Under the second dot point of the letter of 7 April 1997, that was to occur once the agreed amount was received.  In the context, that meant received by the respondents from or on behalf of the applicant.  It follows that, absent the mutual discharge of the mutual claims, the applicant’s right to proceed with his application for leave to appeal was not lost.  Until the agreement was performed the applicant gave up no rights in respect of the application for leave to appeal.

Clearly the agreement to adjourn the application, with liberty to have it relisted, was, at a minimum, to protect and keep available to the applicant such rights as he may have acquired by the filing of the application for leave to appeal in the District Court.  On the other hand, it is difficult to see that the right to relist the application for leave to appeal was of any benefit at all to the respondents, other than to seek to have the application dismissed for want of prosecution with costs, in the event that the applicant defaulted in payment.

The respondents did not give up any rights in respect of the judgment for $83,203.81.  The words “the amount once received will be in full and final satisfaction” mean that the discharge of the obligation on the merger of the judgment will occur upon receipt of the agreed sum and not otherwise.  The adjournment of the application for leave to appeal was for the purpose of allowing the applicant the period of thirty days to make the payment.  The continued existence, albeit in abeyance, of the application for leave to appeal confirms that the intention of the parties was that the judgment would remain throughout that period until payment occurred.  The respondents gave up no rights in respect of their judgment absent payment by the applicant of the agreed sum within thirty days.

The power to relist the District Court application was predominantly for the benefit of the applicant and to allow the parties to dispose of that application depending upon whether the settlement was carried into effect or not;  it was not intended to operate in any way to limit the respondents’ right to enforce their judgment.  Upon the proper construction of the settlement the only circumstance which had the potential to impact on the respondents’ right to enforce the judgment was receipt by them of $47,029 on or before the due date.

The construction of the settlement which I adopt means that it was the act of payment, and not the promise of payment which was to be given and taken in satisfaction of the judgment.  Thus, there was no immediate accord and satisfaction arising from the agreement of the solicitors on 7 April 1997:  McDermott v Black (1940) 63 CLR 161 at 184 - 185;  Osborn v McDermott at 13;  Scott v English [1947] VLR 445 at 451 - 452.  Accordingly, the respondents were not left to seek to enforce the settlement by suing the applicant for the sum of $47,029 in lieu of enforcing their existing judgment for $83,203.81.

Was the settlement a binding agreement or merely an accord executory?

In my view there was an immediately binding agreement and the case was not one of a mere accord executory.  If the applicant had tendered the sum of $47,029 within the due time, the respondents were obliged to accept it.  In the circumstances in which the settlement was agreed, it is implicit that the respondents agreed to forebear from executing or seeking to enforce the judgment for a period of thirty days in consideration of the applicant agreeing to pay $47,029 within that period of time.  The agreement was a binding accord and a conditional satisfaction of the type discussed in Scott v King and Osborne v McDermott.  When the applicant failed to make the payment the respondents were entitled to accept the repudiation and rescind:  Osborn v McDermott at 19;  Scott v King at 453;  Buseka v Sergio (1990) 102 FLR 157 at 159.

By letter dated 8 May 1997 the respondents’ solicitors wrote to the applicant’s solicitors and said, amongst other things :-

“The settlement was always conditional upon and did not come into effect until, receipt of $47,029.00 by 7 may 1997.  As this payment has not occurred and our client’s patience has been exhausted, we propose to continue with the enforcement of the original Judgment in its entirety.”

As mentioned earlier, the applicant’s solicitors wrote in reply on 9 May 1997 alleging that the judgment had merged in the settlement and denying the respondents’ right to enforce the original judgment.  In this view, they were in error.

The letter of 8 May was a sufficient acceptance of the applicant’s repudiation, and sufficient notice to the applicant of the respondents’ rescission of the accord.  The respondents were thereafter free to enforce the judgment because the conditions attaching to the conditional satisfaction were never satisfied and the respondents’ rights under the judgment had remained throughout.

Counsel for the applicant made no submissions in support of the application other than that the respondents were, in consequence of the settlement, only entitled to re-list the applicant’s application for leave to appeal in the District Court and were precluded from taking proceedings in bankruptcy.  As this ground fails for the above reasons, the judgment in favour of the respondents entitled them to payment of the sum of $83,203.81 by the applicant.  The judgment debt had not been paid or satisfied at the date of issue of the bankruptcy notice.  The respondents were entitled to the issue of a bankruptcy notice in reliance upon the judgment.

The application to set aside the bankruptcy notice is dismissed with costs.

Associate:

Dated:              24 April 1998