Industrial Relations Commission of New South Wales in Court Session CITATION : Peter Smarzak v Grimes Management Services Pty Limited [2000] NSWIRComm 73 APPLICANT: PARTIES : Peter Smarzak RESPONDENT: Grimes Management Services Pty Limited FILE NUMBER: IRC3359 of 1998 CORAM: Maidment J CATCHWORDS : Notice of motion by applicant's original solicitor to recover costs from settlement sum, determination whether a binding settlement exists between parties, authority of the Court to prevent abuse or frustration of process, classes of agreement in Masters v Cameron, privity of contract. LEGISLATION CITED : Industrial Relations Act 1996 Ex parte Patience, Makinson v The Minister 40 SR 96 Abdul -Karim v Attorney General's Department [1999] NSWSC 79 CASES CITED : Darvall v NZ Securities [1990] 39 IR 215 Jackson v Sterling Industries (1987) 162 CLR 612 Masters v Cameron (1954) 91 CLR 353 Rossiter v Miller (1878) 3 App Cas 1124 HEARING DATES: 04/28/2000 DATE OF JUDGMENT: 05/12/2000 APPLICANT: Mr S Coleman of counsel SOLICITOR: Mr W Drexler Drexler & Drexler International Attorneys LEGAL REPRESENTATIVES: RESPONDENT: Mr P Tracey Magney & Rhodes APPLICANT ON MOTION: Mr J Hassett, solicitor JUDGMENT: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MAIDMENT J DATE: 12 MAY 2000 IRC98/3359 Peter Smarzak v Grimes Management Services Pty Limited. Application under s106 of the Industrial Relations Act 1996. JUDGMENT RE MOTION 1 By application under s.106 of the Industrial Relations Act 1996 ("the Act") Peter Smarzak sought orders against Grimes Management Services Pty Ltd ("Grimes"). 2 Hassett Dixon were the solicitors on the record for Mr Smarzak and Haywards the solicitors on the record for Grimes. Also Grimes had commenced proceedings against Mr Smarzak in the Downing Centre Local Court. 3 Mr Hassett , who is no longer the solicitor for Mr Smarzak, contends that the matter has been settled and that he is entitled to his fees from the settlement sum. Grimes disputes that settlement took place and, in the alternative, submits that any settlement resulted from misrepresentations from Mr Smarzak which would found rescission of the agreement to settle. THE CLAIM 4 By notice of motion Mr Hassett seeks a declaration that: The settlement agreement between the Applicant and the Respondent herein in the form of the Deed of Release annexed to the affidavit of Jonathon Hassett sworn September 1999 is binding on each of the parties. 5 and an order that: The settlement sum of $25,000 be paid by the Respondent as follows: (a) $9,245.00 to Jonathon Hassett, Solicitor. (b) $15,755.00 to the Applicant. THE FACTS 6 The following facts are established: 7 The matter, having been the subject of unsuccessful conciliation, was set down for hearing before the Commission in Court Session as presently constituted for two consecutive days to commence on 18 August 1999. 8 On about Thursday 12 August, 1999 Mr Smarzak rang Mr Hassett and said: I've settled with Grimes. They will pay me within 28 days and drop the Local Court proceedings. Can you take care of the paperwork? 9 At 10.01am on 13 August Mr Hassett received a facsimile from Mr Hayward which said: We are instructed by our client that through Graham Spring they have reached an agreement with Peter Smarzak under the following terms: 1. The respondent pay to your client $25,000 as full settlement of all or any claims your client has against the Respondent. 2. Each party is to pay their own costs in relation to these proceedings and the District Court proceedings. 3. Our client is to execute an appropriate Deed of Release which will include in its terms a Consent Order dismissing the District Court proceedings by consent with each party paying their own costs and an order dismissing proceedings in the Industrial Relations Commission with each party to pay their own costs. Can you please confirm that these matters are consistent with your instructions in order that we may advise the court and vacate the hearing dates. We require your reply to this correspondence by 3pm today (13th August 1999). 10 Within an hour Mr Hassett responded by facsimile as follows: We refer to your letter of even date. We concur with the terms of settlement there set out except it is the Local Court rather than the District Court where the other proceedings are filed. We understand the $25,000 is payable within 28 days. We agree to the vacation of the hearing on this basis, and note you will advise the Industrial Relations Commission. We will forward to you a simple Deed of Release and Notice of Discontinuance of Proceedings. 11 That day, as a consequence of a telephonic communication from Mr Hayward to the registry, the hearing days were vacated. 12 Early the following week Mr Hayward , by telephone, advised Mr Hassett that: I vacated the hearing dates last week. We are looking for a mutual deed of release, each side releases the other from all claims. 13 Mr Hassett replied: I'll do up a draft and send it to you. 14 Within two days he forwarded a deed of release to Mr Hayward . 15 On 9 September a deed of release was forwarded by Mr Hayward to Mr Hassett who responded by letter dated 13 September as follows: We refer to the Deed of Release you recently forwarded to us. The Deed is satisfactory as far as we are concerned, and we understand that we will exchange executed counterparts and you will hand over a cheque for $25,000 made payable to Hasssett Dixon Solicitors on exchange of Deeds. If this is also your understanding, please forward an execution copy to us. We note under our agreement payment is to be made on Friday. It would be helpful if we could organise a time now, kindly come back to us with a time for exchange. The writer is in Court on Friday, would Thursday be a possibility? 16 At 4.04pm on Friday 17 September Mr Hassett received a deed of release from Mr Hayward which had some minor alterations to that of 9 September. At 5.18pm that day Mr Hayward sent a further facsimile which said: Further to our earlier facsimile, we now hold a cheque for $25,000.00 which we will exchange for an executed Deed of Release. Please telephone Phil Hayward as soon as possible. 17 Mr Hassett then rang Mr Hayward and said: I've got no problem with your changes, send me a copy for execution. 18 Mr Hayward responded: Right, I'll get one to you. 19 On being informed that the settlement cheque was made out to Mr Smarzak Mr Hassett requested that it be made out to his firm, Mr Hayward agreed to organise that. 20 On Monday 20 September Mr Hassett received an execution copy of the Deed of Release and was informed by Mr Hayward that: I've got the cheque made payable to Hasset Dixon, we will be ready to go after the Deed is signed. 21 Mr Hassett then arranged with Mr Smarzak for him to attend at 4.00pm on 21 September to sign the Deed of Release, during their conversation Mr Smarzak asked and was informed who the cheque was drawn in favour of. 22 The following day Mr Hayward rang Mr Hassett and said: I don't know how to tell you this, but you've been replaced as Smarzak's solicitor. He's got a new solicitor, and my instructions are to settle with the new solicitor. I'm sorry for you, but it's not our problem. 23 Later that day Mr Hassett was informed by facsimile from Daniele Scott solicitor that Mr Smarzak would not be attending the 4.00pm appointment. A notice of change of solicitor was filed by Daniele Scott on 27 September 1999. A further change took place on 13 April 2000, Drexler & Drexler International Attorneys now are his solicitors on the record. 24 Meanwhile, on 23 September, Mr Hassett filed a notice of motion herein seeking to prevent payment of the $25,000 to Mr Smarzak. Mr Hassett's affidavit in support of the notice of motion said inter alia that he believed that Mr Smarzak intends to return to Poland and that he now believed that to have been the intention all along. 25 His affidavit said that Mr Smarzak had said to him on a number of occasions "after this case is over, I am going back to Poland" and he had said "I intend to pick up where I left off ". 26 By letter dated 28 September Mr Hayward informed Mr Hassett that: We have read your affidavit supporting your Notice of Motion received in this office yesterday. Paragraphs five and six of that affidavit make it clear that the affidavit of the applicant filed in these proceedings is, in some respects, false. My client, on the basis of these false allegations, was induced into entering into an agreement with Mr Smarzak. As there has been a material change of circumstances our clients offer of settlement is withdrawn, and it no longer considers itself bound by that offer. Accordingly, we consider the matter should be re-listed in order for the appropriate scheduling to be made in preparation for hearing. 27 A ground of relief in the s.106 proceedings was that the reputation of Mr Smarzak in Poland had been damaged and that the opportunity for him to develop a business for himself in Poland was now gone. 28 On 16 March 2000, Mr Hayward filed a notice that he had ceased to act for Grimes; Simon Horton of Magney & Rhodes is now the solicitor on the record. 29 Rightly or wrongly Mr Smarzak had determined to avoid paying the professional fees he anticipated would be claimed by Mr Hassett whilst retaining for himself the benefit of the agreement reached in compromise of the proceedings. CONSIDERATION 30 Mr Hassett claims that a settlement was effected and that he is entitled to his costs, as assessed in the sum of $9,245, to be paid from the settlement monies. Mr S Coleman , of counsel, now appearing for Mr Smarzak, supports those contentions. 31 Grimes, now represented by Mr Tacey , solicitor, submits that no agreement was reached and, in the alternative, submits that any settlement resulted from misrepresentations by Mr Smarzak which would found rescission of the agreement to settle. The standing of Mr Hassett to seek relief in this Court was also put in issue, however Ex Parte Patience; Makinson v The Minister 40 SR 96, ( Jordan CJ , Davidson and Halse Roberts JJ) , is to the contrary. That matter arose from a verdict in favour of a plaintiff against the Crown and a claim by the plaintiff's solicitor for a charging order on the verdict. Jordan CJ , who delivered the judgment of the Court, said as follows (at 100): A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as a result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, . . . . That is to say, the solicitor has an equitable right to be paid his costs out of the money; . . . 32 and, If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; . . . . 33 and (at 108) The remedy provided by the inherent jurisdiction is a flexible one. It is available whenever a right to receive money has been established as a result of legal proceedings, notwithstanding that the costs have not yet been taxed and there is not yet any formal judgment: Read v Tupper 6T.R. 361; Ross v Buxton 42 Ch. D. 190; The Paris [1896] P. 77; It will be made available whenever it is shown that there is some risk that the solicitor may otherwise go unpaid. 34 and, I see no reason, however, why this Court should not in the present application exercise its inherent jurisdiction, not against the Crown, but against the plaintiff and the mortgages, in order to ensure to the applicant the benefit of the equitable charge which he already has. 35 See also the decision by Young J in Abdul-Karim v Attorney General's Department [1999] NSWSC 79 (10 February 1999). 36 In the present case Mr Hassett has an equitable right to be paid his costs from any sum due to Mr Smarzak as a result of compromise of the s.106 proceedings. This Court and its predecessors have held, albeit in respect of interlocutory applications, that it has authority to protect its own process, for example Hungerford J , in Darvall v NZ Securities , [1990] 39 IR 215 at 220 said: Whether a particular interlocutory order is within the power of the Commission would seem then, on the authorities and in the absence of any explicit grant of power by the statute, to depend upon whether the making of the order is necessary to prevent the frustration of the Commission's due process; . . . 37 In considering the power of the Federal Court of Australia to issue Mareva type orders Deane J , in Jackson v Sterling Industries ( Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ ), said (1987) 162 CLR 612 at 623: That general power should, however, now be accepted as an established part of the armoury of a court of law and equity to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction. 38 and; In that regard, I agree with the following comments of Bowen C.J. in his judgment in the present matter [1986] 69 ALJ 92 at 97: "In relation to a statutory court such as the Federal Court it is wise to avoid the use of the words 'inherent jurisdiction'. Nevertheless a statutory court which is expressly given certain jurisdiction and powers must exercise that jurisdiction and those powers. In doing so it must be taken to be given by implication whatever jurisdiction or powers may be necessary for the exercise of those expressly conferred. The implied power for example to prevent abuse of its process, is similar to, if not identical with, inherent power." 39 Here the parties had reached agreement, nothing remained but for the signing of the Deed of Release and the payment of the cheque. The hearing dates had been vacated at short notice at the instance of Mr Hayward who had been instructed by his client that the matter had been settled. His subsequent instructions were to seek to have the matter again set down for hearing in the knowledge that Mr Hassett expected that Mr Smarzak intended to return to Poland. 40 Mr Coleman has urged that I find that an agreement emerged from the transactions earlier described. Otherwise he seeks hearing dates for his client's s.106 application (tr.19 October 1999). 41 Thus it seems to me that this Court has the power and is obliged to determine whether or not the matter has been settled if for no other reason than to ascertain whether or not a matter remains before it which requires hearing and determination. The determination of that issue is necessary, in my view, to prevent the abuse or frustration of process which must arise if, as a matter of fact and law, a binding settlement agreement exists between the parties. 42 Clearly the Court cannot allow a party which perceives some resultant forensic or tactical advantage to purport to walk away from an agreement to settle and require a hearing of the issues which have been settled by binding compromise. 43 I am also of the view that power similarly exists to grant the orders sought by Mr Hassett in order to prevent the processes of the Court being used to obtain payment other than to the solicitor on the record at the time the agreement was reached. 44 Both Mr Hassett and Mr Coleman rely upon the following passage from Masters v Cameron (1954) 91 CLR 353 at 360-361 for the proposition that, if not the first class of agreement therein described at least a second class agreement was reached between Mr Smarzak and Grimes: Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller (1878) 3 App Cas 1124 when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: " . . . as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed" (1878) 3 App Cas, at p 1151 : see also Sinclair, Scott & Co. Ltd. v. Naughton (1929) 43 CLR 310, at p 317 . A case of the second class came before this Court in Niesmann v. Collingridge (1921) 29 CLR 177 where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made "on the signing of the contract". Rich and Starke JJ. observed (1921) 29 CLR, at pp 184, 185 that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, "and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion" (1921) 29 CLR, at p 185 : see also O'Brien v. Dawson (1942) 66 CLR 18, at p 31. (at p361) 11. Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor & c. of the Poor of Kingston-upon-Hull v. Petch (1854) 10 Exch 610 (156 ER 583). The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summer-greene v. Parker (1950) 80 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v. Miller (1878) 3 App Cas 1124. Lord O'Hagan said: "Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made" (1878) 3 App Cas, at p 1149 . [my emphasis] 45 Mr Tracey argued that this matter falls within the third class above described. 46 The evidence is that Mr Hayward informed Mr Hassett on 13 August 1999 that "we are instructed by our client that through Graham Spring they have reached an agreement with Peter Smarzak", the terms of that agreement were then set out. On the same day and within the time required Mr Hassett informed Mr Hayward to the effect that, save for a misdescription, the terms of settlement put forward by Mr Hayward were correct. A contract binding upon the parties existed at least from the time of that communication from Mr Hassett and, I suspect, from the moment of mutuality between Messrs Spring and Smarzak. 47 By at least 21 September, 1999 the parties were in complete agreement upon all terms of their bargain, all that remained was the execution of the formal documents being the Deed of Release and the notices of discontinuance of proceedings annexed thereto. Thus a contract binding the parties to pay and accept the $25,000, to meet their own costs and to execute the agreement and notices of discontinuance has come into existence. 48 The view I take is that an agreement of the kind described by Lord Blackburn in Rossiter v Miller and cited above in Masters v Cameron as an example of a first class agreement exists in the present case. 49 As no evidence was tendered on behalf of Grimes during the hearing of Mr Hassett's motion, it is not established that Grimes, "on the basis of false allegations, was induced into entering into an agreement with Mr Smarzak". The reason behind the decision of Grimes to attempt to escape from its agreement is not known to this Court and speculation is not warranted. 50 Mr Tracey also based arguments upon privity of contract which were to the effect that as Mr Hassett is not a party to any agreement between Grimes and Smarzak, he is not entitled to pursue its enforcement. The short answer is that these are not enforcement proceedings and, in any event, Mr Smarzak, a party to these proceedings, also seeks that the orders be made. The decision in Ex parte Patience earlier referred to would seem to me to deny the argument. 51 Additionally, Mr Tracey contended that a substantive hearing of the issue as to the existence of the alleged agreement is required as the issue "cannot be disposed of by summary application". The short answer is that in proceedings on 19 October 1999 I informed the parties that the notice of motion would be set down for hearing after Mr Hassett's costs were assessed and that I required affidavit evidence as to the facts upon which any party would seek to rely. Mr Tracey has been afforded full opportunity to bring forward whatever material upon which he would rely. 52 It follows that Mr Hassett is entitled to the relief sought. I grant that relief. 53 Mr Hassett seeks a costs order against Mr Smarzak, or alternatively against Grimes, they through their representatives contend that each party should bear its own costs. The view I take is that Mr Hassett is entitled to his costs, however, the evidence does not disclose the rights or wrongs of Mr Smarzak's actions. On the other hand Grimes sought to walk away from a binding agreement and has persevered in its attempt to avoid it. Accordingly I order that Grimes shall be liable for the costs incurred by Hassett Dixon, as agreed or assessed, in respect of the notices of motion filed by Mr Hassett and the subsequent proceedings herein. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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