New South Wales Supreme Court CITATION : No. 96 Factory Bargains v Kershel [2003] NSWSC 421 HEARING DATE(S) : 13 May 2003 JUDGMENT DATE : 13 May 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Agreement reached for settlement of litigation. Order for specific performance of that agreement. CATCHWORDS : CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - whether agreement reached for settlement of litigation - significance of statement to court that litigation settled LEGISLATION CITED : Trade Practices Act 1974 (Cth) CASES CITED : Masters v Cameron (1954) 91 CLR 353 PARTIES : No. 96 Factory Bargains Pty Ltd - Plaintiff Kershel Pty Ltd - Defendant FILE NUMBER(S) : SC 2473/03 COUNSEL : N Carney - Plaintiff/Respondent J T Johnson - Defendant/Applicant SOLICITORS : Clive Potts & Associates - Plaintiff/Respondent Macedone Christie Willis - Defendant/Applicant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J TUESDAY 13 MAY 2003 2473/03 NO. 96 FACTORY BARGAINS PTY LTD v KERSHEL PTY LTD JUDGMENT – Ex Tempore 1 HIS HONOUR: This is a dispute between the lessee and lessor of some premises which are used as premises for storage and sale of goods. There were disputes between those parties, which led to the lessee being in arrears of rent. The lessor served on it a statutory demand. In response to that statutory demand the lessee took proceedings under s 459G Corporations Act 2001 to set the demand aside. In those proceedings the lessee claimed that it had an offsetting claim, arising from alleged misrepresentations about the profits which the lessee would derive from carrying on its business in the leased premises. The lessee contended that this offsetting claim would entitle it to have the lease re-written under s 87 of the Trade Practices Act. 2 On 13 March 2003 the Court found that there was sufficient substance in those contentions of the lessee to justify the setting aside of the statutory demand. 3 The lessee did not commence proceedings to seek to make good the rights it claimed to have under the Trade Practices Act. By 17 April 2003 it was still in arrears of rent. On that day the lessor locked the lessee out of the premises. The lessee thereupon started the proceedings in which I am presently hearing this notice of motion. The proceedings were seeking orders under s 87 of the Trade Practices Act to amend the amount of rent payable under the lease and the amount of the bond payable under the lease. The proceedings also sought a declaration that the plaintiff was not in breach of the lease and, in the alternative, relief against forfeiture, damages, interest and costs. 4 That same day, 17 April 2003, the lessee also filed a notice of motion seeking immediate relief against its exclusion from the premises. On 17 April Palmer J granted that immediate relief to the lessee. Notwithstanding that Palmer J made the orders on the occasion when the initiating process was filed in court, the legal representatives for the lessor had come to hear of the lessee's intention to bring those proceedings, and were represented before Palmer J. His Honour granted the interlocutory injunction which was sought, but for a very limited period of time. The matter was stood over until 24 April 2003 and directions were given for the readying of the principal proceedings for hearing. 5 This caused the parties to start some settlement negotiations. The evidence before me begins with an exchange of correspondence between their respective solicitors on 22 April 2003, where terms for settlement were being negotiated. That exchange of correspondence shows that on that day there were some topics concerning which there was consensus, and some topics concerning which there was not consensus. 6 On 23 April 2003 there was, in the morning, a conversation between the respective solicitors. Mr Potts, solicitor for the lessee, gives evidence that he had a telephone conversation with Mr Prowse, solicitor for the lessor, as follows: "During the mid-morning work period on 23 April 2003 I had a phone communication with Prowse as follows: Me: 'My clients told me they will tough it out for the rest of the five-year lease period although they are not happy about the decision. Would your client be prepared to proceed on that basis and without any further penalty?' Prowse replied: 'I believe that in addition to bringing all of the arrears and other amounts they owe up-to-date, they will have to forego the benefit of the costs order against my client in the last proceedings. They could have made this decision months ago and avoided all the costs my client has had to incur.' Me: 'They want your client to do a few things.' I then said: 'I believe that the terms of settlement ought to be subject to the execution of a formal Deed of Agreement. My clients won't be bound until the agreement is signed.' Prowse replied: "It better be done quickly because we won't agree to extending the injunction where your client delays the matter any further. I will get some instructions and prepare an agreement.'" 7 Mr Prowse disputes some aspects of this conversation. He agrees that the first two paragraphs of direct speech set out in it were said, but disagrees with the rest. The cross-examination of Mr Potts resulted in his conceding he did not use the words, "My clients won't be bound until the agreement is signed." There were no contemporaneous file notes of the conversation tendered by either side. In all of those circumstances, I am not persuaded that the last three paragraphs of direct speech set out in Mr Potts' account occurred. I mention this for completeness only, as I doubt that it will make a difference to the eventual result. 8 Later in the day on 23 April, Mr Potts sent a letter to Mr Prowse as follows: "Further to our discussions today in relation to the revised settlement offer, we confirm our instructions as follows: 1. That the lease be reinstated in its terms without variation. 2. That No 96 discontinues its current application to the Court and foregoes once and for all its rights under the Trade Practices Act. 3. That No 96 pays by way of bank cheque the balance April 2003 rent, the bond and the outgoings as per invoice BUT subject to verification based upon invoices, et cetera." 4. That No 96 reimburses forthwith the lessor for stamp duty paid on the lease. 5. That No 96 foregoes its rights to require lessor to pay costs as ordered in the previous proceedings. 6. That each party will be responsible for its own costs in the current proceedings. 7. That No 96 tenders a Notice of Withdrawal from the current proceedings to which Kershel can consent. 8. That Kershel will repair and make good the ventilator system in the roof of the subject premises so as to put same in good working order and condition. 9. That Kershel will erect at its cost a cyclone wire fence along the front side boundary of the premises to divide 103 from 101 Cawarra Road and provide a proper secure environment in which our client may work. No 96 seeks that Mr Lowe enter 101 via the front gate should he require entry to 101. 10. That Kershel will ensure that the two fire escape doors within 101 ground floor area are unlocked so as to permit, in accordance with fire safety regulations, the escape of persons lawfully upon the demised premises when the lessee's business is open. 11. That all rights are reserved under the lease in relation to the lessor's compliance with any other regulatory matter. Given time constraints, it is suggested that payment of the amounts owing be delayed pending final agreement and the execution of appropriate documents. Perhaps the remainder of April rent and the bond could be paid this afternoon, with the balance of the moneys to be paid on execution of agreement. It is suggested that you draw up any appropriate agreement you feel would be in your client's interest to have signed. We await your advices." 9 To that, Mr Prowse replied on the same day: "I refer to your letter forwarded to me by facsimile at 13.46 today. My client agrees with all terms of settlement contained within that document. In order to demonstrate your client's preparedness to comply with the proposed terms, please have your client pay the outstanding rent and the bond to Warner Pane by 4pm this afternoon. I would anticipate that the proceedings will be adjourned for one week tomorrow, subject to the continuation of Order 4 of the short minutes dated 17 April 2003. I will then draft an appropriate deed of release for execution prior to the adjourned date." 10 Later on the afternoon of 23 April 2003 Mr Potts wrote to Mr Prowse attaching a receipt from the real estate agent who managed the premises evidencing payment of the outstanding rent and bond. Mr Potts continued: "We will advise shortly the name of the solicitor appearing on our behalf at tomorrow's 10am list." 11 Pursuant to Palmer J's orders, the matter came back before him on 24 April. On that date a typed document which was signed by the respective counsel for the lessor and the lessee was handed to the Court. The body of the document as signed by counsel said: "The Court notes that the matter has settled and by consent makes the following orders: 1. [An order extending the injunction until 4pm on 2 May 2003.] 2. The summons and notice of motion be stood over to 9.30am on 2 May 2003 for the purpose of enabling the parties to draw and execute terms of settlement; 3. There be no order as to costs." 12 His Honour made orders in accordance with those short minutes, after first amending the second order to make provision for the summons and notice of motion to be stood over before the Registrar on 2 May 2003 for the purpose of enabling the parties to draw and execute terms of settlement. 13 Mr Prowse sent to Mr Potts a draft deed of settlement. It was under cover of a letter saying: "I refer to my letter of 23 April 2003 and enclose for your attention a draft deed of settlement setting out the terms agreed on that date. Please let me have your comments." A draft deed of settlement was enclosed. 14 On 1 May, Mr Potts wrote back seeking to amend certain provisions of the deed. 15 The matter was back in court on 2 May 2003. On that day counsel for the plaintiff and solicitor for the defendant signed short minutes of order which said: "The Court notes that the matter has settled and by consent makes the following orders: 1. [Injunction extended to 6 May 2003]. 2. The summons and notice of motion be stood over to 9.30am on 16 May 2003 for the purpose of enabling the parties to draw and execute terms of settlement. 3. There be no order as to costs." 16 Those short minutes of order were ones which were typewritten. The Registrar made orders in accordance with them, save only that the reference to 16 May 2003 was amended so that it became a reference to 6 May 2003. 17 On 2 May there was also a facsimile from Mr Prowse to Mr Potts dealing with the queries and requests which Mr Potts had raised concerning the draft deed. Later that day, Mr Prowse sent a facsimile to Mr Potts saying: "I refer to the appearance before the Supreme Court today and my letter this morning. The Deed has been prepared in accordance with the items agreed and using the form prepared by you. The deed should be ready to be exchanged on Tuesday morning, 6 May 2003 and the proceedings ready to be disposed of. If not, we will consider the matter not to be settled and we will seek to have your client's action struck out. I enclose a final executable copy of the Deed." 18 On 4 May 2003 Mr Norbury and Ms Zhou, people who effectively control the lessee, wrote to the agent managing the premises. Their letter began: "Further to our pre-arranged meeting in your office last Wednesday 23 April 2003, we now wish to verify the terms and conditions of the financial settlement negotiated by our solicitor Clive Potts and Kershel's solicitor, J Prowse of Macedone Christie Willis." 19 On 5 May Mr Potts wrote to Mr Prowse noting that the matter was due before the Court the next day and seeking a further short extension of the injunction. That letter said, amongst other things, that the lessee would continue to seek relief against forfeiture until the deed agreement in final form was signed. It also said that there were "inconsistencies in relation to our client's respective understanding of the terms of settlement for the reinstatement of the lease", in certain respects, which he then discussed. 20 The matter came before Barrett J on 6 May. On that occasion it became clear to Mr Prowse, from what was said to his Honour by counsel for the lessee, that the lessee was saying that the correspondence of 23 April 2003 did not constitute a final and binding agreement to settle the proceedings. Prior to hearing that statement, Mr Prowse had not been informed by anyone representing the plaintiff that the proceedings had not been settled. 21 Today, the lessor brings a notice of motion seeking a declaration that by an exchange of letters between the solicitors acting on behalf of the plaintiff and defendant on 23 April 2003 and subsequent conduct of the plaintiff on that day and representations to the Court in these proceedings on 24 April 2003, there exists a legally binding agreement under which the plaintiff and the defendant agreed to settle these proceedings. 22 The notice of motion also seeks an order that the plaintiff specifically perform the agreement by execution of the deed of settlement annexed to Mr Prowse's affidavit, that is, the deed of settlement which he sent under cover of his letter of 29 April 2003. 23 The question before the Court is whether the parties have reached an agreement in the circumstances which I have outlined. The contention of the lessor is that the agreement is one which falls within the first category in Masters v Cameron (1954) 91 CLR 353. The contention of the lessee is that the situation falls into the third category in Masters v Cameron. The first category is one whereby (at 360): "... 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 the form which would be fuller, or more precise, but not different in effect." 24 The third category in Masters v Cameron is one where: "The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract." 25 In the factual situation which I have outlined, there are a number of factors which point against the parties having intended to bind themselves by the correspondence on 23 April. In the letter of 22 April 2003 there was a request by Mr Potts to Mr Prowse: "Would you please respond by email, making appropriate changes to the draft deed emailed earlier today and emailing it back so that I can email copy to counsel." 26 It is clear that the parties intended that there would be a further document which would embody their agreement and it is also clear that it was contemplated that that document would be one which would meet with the approval of the lawyers. However, those factors are not enough in themselves to enable the Court to choose between the first and third categories in Masters v Cameron. 27 The most significant matter, in my view, is the statement which was made to the Court, formally on two separate occasions, that the proceedings had settled. That is a statement which could not accurately be made if the intention of the parties was that the settlement might fall apart if agreement could not be reached on the terms of a document to embody the settlement. In my view, the parties have agreed to settle the litigation on the terms of the correspondence of 23 April 2003. 28 I am not persuaded, however, that the Deed is one which accurately embodies the terms of that correspondence. Without reciting the full extent of the difference, it seems to me that there are matters concerning the ventilation system and any possible regulatory breaches which might have been outstanding where the Deed does not reflect the terms of the letters of 23 April. In saying this, I am not seeking to be exhaustive. The existence of those differences is sufficient to reach the conclusion that the lessor should not have the second order which it seeks today, namely, a mandatory order for execution of that Deed. 29 I make a declaration in accordance with paragraph 1 of the notice of motion filed 6 May 2003. I order that that agreement ought be specifically performed. I grant liberty to the parties to restore the matter on three days' notice, one to the other, to seek directions for the carrying out of that specific performance. 30 An application is made for indemnity costs of the appearance before Barrett J and of the appearance before me today. The basis upon which this is put is that it is an extremely serious matter for litigation to be settled and then for that settlement to be departed from. It is put that it is of particular seriousness when the matter settled is one which, on the evidence which has emerged today, was made on the instructions of the client. 31 The purpose of indemnity costs is not for the Court to show its disapproval of anyone's conduct. In the present case, even though the facts fell out in the way I have found them to be, there was still legitimate room for argument about whether the proceedings had indeed been settled. I would not regard this as an appropriate case for an order for indemnity costs. Further, the lessor failed to get one of the orders sought in the notice of motion. 32 I order the plaintiff in the proceedings to pay the costs of the defendant of the notice of motion. ********** Last Modified: 05/21/2003 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.