New South Wales Supreme Court CITATION : Zreika v QBE Workers Compensation [2005] NSWSC 573 HEARING DATE(S) : 13 May 2005 JUDGMENT DATE : 17 June 2005 JURISDICTION : Equity Division JUDGMENT OF : Burchett AJ at 1 DECISION : Settlement agreement held complete, certain and enforceable. Orders to be made with costs pursuant to short minutes to be brought in CATCHWORDS : CONTRACT - contract of settlement of worker's compensation proceeding - whether contract was incomplete or uncertain, or lacked intention to be bound, where settlement required execution of Terms, Release, Admissions and Agreed Facts which had not been settled - whether it could be implied that defendants' solicitors would draft documents to contain no unreasonable demands on the plaintiff, forms called "settlement packs" used by the defendant being in existence - principles relating to uncertainty and incompleteness of contract - circumstances in which an apparently incomplete term could be read as implying a provision of reasonableness so as to give it sufficient clarity of meaning - effect on agreement to settle section of worker's compensation legislation forbidding contracting out Workers Compensation (General) Regulation 1995, reg 82 LEGISLATION CITED : Carter and Harland, Contract Law in Australia, (4th ed, 2002) at sec 258 Cheshire and Fifoot's Law of Contract (8th Australian ed., 2002) at secs. 6.5 - 6.6 Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Art Coating Pty Ltd v Gerace [2000] NSWCA 169 Ashenden v Stewarts & Lloyds (Australia) Ltd [1972] 2 NSWLR 484 Australian Iron & Steel Pty Limited v McAuley (Court of Appeal, unreported, Kirby P, Mahoney and Priestley JJA, 21 December 1984) Booker Industries Proprietary Limited v Wilson Parking (Qld) Proprietary Limited (1982) 149 CLR 600 Greater London Council v Connolly [1970] 2 QB 100 CASES CITED : Hammond v Vam Ltd [1972] 2 NSWLR 1 In Baltic Shipping Company v Dillon (the "Mikhail Lermontov") (1991) 22 NSWLR 1 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 Meehan v Jones (1982) 149 CLR 571 The Council of the Upper Hunter County & District v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Limited at 436-437 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 Jadwat Zreika (Plaintiff) PARTIES : QBE Workers Compensation (NSW) Limited (First Defendant) Lynch Warehousing Pty Limited trading as Lynch Flowers Pty Limited (Second Defendant) FILE NUMBER(S) : SC 4222 of 2004 Mr R Royle (Plaintiff) COUNSEL : Mr J M Harris (Defendants) Gergis Solicitors (Plaintiff) SOLICITORS : In House Legal Department QBE Workers Compensation (NSW) Limited (Defendants) LOWER COURT JURISDICTION : - 15 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BURCHETT AJ FRIDAY 17 JUNE 2005 4222/04 JAWDAT ZREIKA V QBE WORKERS COMPENSATION (NSW) LIMITED and LYNCH WAREHOUSING PTY LIMITED trading as LYNCH FLOWERS PTY LIMITED JUDGMENT 1 When the Roman general, Marcus Regulus, was defeated and captured in the First Punic War, the Carthaginians released him on parole to return to Rome bearing their proposals for peace, or at least an exchange of prisoners. But the Senate rejected all their overtures; whereupon Regulus, true to his pledged word, returned to face death in Carthage. These events were the subject of a celebrated homily by Cicero in De Officiis, Book III, sec. 99 et seq., where he referred to the accepted rules of warfare, with the implication that the settlement of future questions of great moment may depend on the way past agreements (such as the parole of Regulus) have been honoured. The issue in the present case involves no warring states, but it is the important one for litigation between individuals whether the obligation to keep a promise to settle a claim, made in a form that is very common in the area of worker's compensation, is binding on the worker's compensation insurer, although it becomes inconvenient for the insurer to perform it. The answer to this question may well affect the attitude of claimants towards the acceptance of the word of those representing insurers in the compensation field. 2 Of course, if what purported to be a settlement fell short in some essential respect of the elements required to constitute a concluded agreement to settle, there is no more to be said. But the law does not lightly reject as incapable of enforcement a commercial bargain the parties intended to consummate and believed to be binding. In Baltic Shipping Company v Dillon (the "Mikhail Lermontov") (1991) 22 NSWLR 1 at 9, Gleeson CJ said: The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just. Moreover, there is a particular policy of the law to encourage resolution of litigation by settlement, and that particular policy is not advanced by encouraging plaintiffs who settle litigation and later repent of their bargains to seek to avoid their contracts on the basis that they were made in circumstances of emotional vulnerability. 3 This reasoning is equally applicable to various other grounds on which a party may seek to avoid being held to his bargain. 4 The facts of the case are not complex. The arrangements for settlement of the plaintiff's claim followed the course of a pattern established by a great number of worker's compensation claims. That was not in dispute before me, although there was debate about whether certain documents generated in the defendant's office answered the description "standard", as asserted by the plaintiff's solicitor, or whether the fact that lawyers for other parties sought amendments of documents of this kind from time to time made such a description inappropriate. 5 The plaintiff on 6 November 2001 suffered, as he claimed, an injury in the course of his employment by the second defendant, the worker's compensation insurer of which was the first defendant. An application was lodged on his behalf in the Workers Compensation Commission on 22 October 2003. On 3 February 2004, an in-house solicitor for the first defendant, Ms Diana Benk, wrote to the plaintiff's solicitor a letter requesting advice as to "whether or not your client is interested in a 'wrap up' of his rights under the compensation act" (sic) and asking the solicitor to "contact this office to discuss". No immediate discussion followed, and early in March 2004 the plaintiff's solicitor was advised by the Commission of an appointment on 31 March 2004 for an examination by an "Approved Medical Specialist", a Dr Breit, attendance at such an examination being required by reg 82 of the Workers Compensation (General) Regulation 1995. However, on 24 March 2004 the plaintiff's solicitor, Ms Heidi Gergis, wrote to the first defendant, putting an offer of $90,000 "by way of a 'wrap up'" of the plaintiff's rights. 6 The response to the plaintiff's offer was a telephone call from a barrister widely experienced in the area, Mr John Catsanos, who had been instructed to act for the defendants upon the negotiation of a settlement. Mr Catsanos made an affidavit more than nine months after the event, when he could not recall the amount of his initial offer. However, Ms Gergis, who probably had a file note, was able to recall that it was $25,000. But unsurprisingly, as a barrister who had negotiated literally hundreds, if not thousands, of settlements of worker's compensation proceedings involving what he described as "Admissions, Agreed Facts and Deeds of Release", Mr Catsanos was able to swear to the terms of a quite complex statement he made of the basis on which negotiations would be undertaken. I infer he has a practice in that regard. He said words to the effect: "Any settlement will have to be a full wrap up. The Application [ie the plaintiff's application in the Commission] will have to be amended to cover any injury that the worker may have sustained, as well as nature and conditions and the whole body. They will pay him a lump sum and there will have to be awards in favour of the Respondent for weekly compensation and Section 60 expenses. He will have to give us Admissions and Agreed Facts and QBE will want a Deed of Release. Any settlement negotiations will be on this basis." 7 Before recounting what occurred following this offer, I think it is useful to consider how an applicant worker or his solicitor would reasonably understand an offer of $25,000 made upon this basis. He would understand by the words "a full wrap up" that the insurer wanted to cover every existing claim that could be covered by such an agreement, and by the following words he would understand the nature of the documents that would be required to achieve the aim. The whole context, and particularly the expressions "[h]e will have to give us" and "QBE will want", would make it clear the documents were to be drafted by the insurer's lawyers, as the established practice would in any case require. Mr Catsanos three times in his affidavit referred to documents of this kind, in the vast number of other cases embraced by his experience, as "provided on behalf of the employer". 8 But the question that was debated before me was whether the possibility of drafting variations in the documents specified meant there could be no completed agreement, or there would be uncertainty, if the offer were simply accepted. Mr Catsanos referred to requests for amendment, made "frequently" in his experience, but each type of amendment he instanced was of a kind a worker's lawyers might well consider to be necessary in a particular case as a matter of reasonableness. What was very significant, it being suggested such a settlement would lack binding force, was the fact that Mr Catsanos did not refer to a single case, of the hundreds or perhaps thousands in which he has been involved, that actually went off because of the alleged incompleteness or uncertainty of the obligations incurred. 9 In my opinion, the reason a settlement was proposed in this form by so experienced a practitioner was that it would, as he knew, be understood as requiring the named documents to be drafted by the insurer's lawyers in a reasonable form. The implied agreement as to who would draft the documents and that they would be drafted reasonably, similar documents being commonly provided for in settlements and drafted in the same way, was expected to overcome the difficulty the defendants now assert. 10 Following the offer put by Mr Catsanos, there was a series of telephone calls between him and Ms Gergis in which various figures were put and rejected. Eventually, on 21 April 2004, Mr Catsanos put a "final offer" of "$40,000 inclusive of medical expenses", and later in the same day, after obtaining instructions to accept it, the plaintiff's solicitor telephoned Mr Catsanos and said: "My client accepts your offer in the sum of $40,000 inclusive of medical expenses by way of a wrap up with facts and admissions and a deed of release." Mr Catsanos replied: "I will tell the insurance company that the matter has settled and request them to forward the terms of settlement to you." The same day, Mr Catsanos wrote to Ms Benk, as litigation service manager of the first defendant, a letter which included the following: "I confirm that following ongoing negotiations with Ms Gergis on behalf of the Applicant, the matter was settled on 19 April last [either there is an error in this date or the final telephone negotiations were on 19th, not 21st] for a total of $40,000. The basis of that settlement is that it will be a full determination of all rights to compensation. I made it clear that settlement would be on the basis of lump sum compensation with awards in favour of the Respondent in respect of weekly compensation and s60 expenses, amendment of the Application to cover all possible injuries together with Admissions, Agreed Facts and a Deed of Release. In those circumstances then I am returning your file and confirm that you will be forwarding the settlement documentation to the Applicant's solicitors." 11 Mr Catsanos also sent his memo of fees on the basis the settlement had been concluded, charging fees for "Agreeing Terms of Settlement with the Claimant". 12 On 23 April 2004 Ms Benk wrote a letter to the plaintiff's solicitor which, omitting formal parts, read: "We refer to the above matter. We enclose the following documents to be duly executed by yourselves [ sic ] and returned to our office at an early date [it will be observed no deadline was specified] to GPO Box 4085 Sydney, so we can attend to filing of the same:- 1. Agreement to Discontinue Proceedings 2. Application for Registration of Agreement 3. Agreed Facts and Admissions 4. Deed of Release 5. HIC Notice of Judgment or Settlement. Should you wish to discuss this matter further please do not hesitate to contact our office." 13 The evidence in this case included affidavits from three experienced worker's compensation practitioners. Whether or not the documents referred to in Ms Benk's letter could be described with semantic accuracy as "standard", it is clear on the evidence that there was nothing remarkable about them. They were in a common form and the letter did not refer to them as drafts to be settled, but as "documents to be duly executed". In fact, they were treated that way and returned signed in due course. 14 However, before that happened, certain events intervened which gave rise to the present dispute. 15 The first event was but a straw in the wind. Ms Benk attended the first defendant's premises on the holiday Monday, 26 April, of the Anzac Day weekend. She decided to send a further letter, dated 26 April 2004, to the plaintiff's solicitor in the following terms, omitting formal parts: "We refer to the settlement negotiations in this matter and note the Applicant has agreed to accept our offer of compensation in the total sum of $40,000.00. Please be advised that this is contingent upon Admissions, agreed facts, Findings, Common Law Release and Awards for the Respondent being entered with an interpreters [ sic ] certificate. These documents must be returned to our office prior to the issue of any binding medical assessment certificate. Failure to do so will cause the offer to be withdrawn. On 23 April 2004 we forwarded to your office the 'settlement pack'. We omitted to enclose the HIC documentation, which was noted in that document. Please ensure that these documents are forwarded to this office within 7 days." 16 This letter calls for a number of comments. In the first place, it confirms the evidence of the plaintiff's solicitor that the documents were actually "standard", at least standard for the large insurer which is the first defendant. The expression in inverted commas "settlement pack" could only indicate that. In fact, in cross-examination, Ms Benk referred to "a number of settlement packets [that] were generated" on the one day, evidencing the widespread extent of their use. If they were standard for that insurer, it is difficult to see why Mr Catsanos's reference to them did not have the quality of certainty as a reference to its standard "settlement pack", "the 'settlement pack'" as its solicitor called them, using the definite article. 17 Secondly, the letter expressly acknowledges "the Applicant has agreed to accept our offer", but then purports to add a condition which had never before been suggested and was certainly not part of the "offer". This condition is expressed to require the return of documents "prior to the issue of any binding medical assessment certificate", a condition the failure of which, it is stated, "will cause the offer to be withdrawn". As to this, it is plain law that an offer, once accepted, cannot be withdrawn. 18 Thirdly, I accept the evidence of the plaintiff's solicitor that she never received this letter. On all the evidence, I think it is more probable than not that the reason for its not being received was not an error in the post, but a failure to post it. No one gave evidence of actually posting it; it was intended to be sent under circumstances differing from the ordinary course, namely, on a holiday; and when the first defendant's solicitor herself compiled what she described as "[t]he chronology in this matter" at a time close to the events, she omitted this letter altogether. It would be a surprising coincidence if the letter was sent, despite these circumstances, but was the only letter passing between the parties to be lost in the post or otherwise misdelivered. 19 I described the letter as only a straw in the wind because, at the time it was written, the evidence does not suggest the condition sought to be included after the contract had already been made was likely to have any importance. But on the very next day, 27 April 2004, the Commission gave notice of a Medical Assessment Certificate of Dr Breit which would, in fact, become binding, if the settlement were avoided, upon the issue, after the expiration of 28 days, of a Certificate of Determination. 20 After receipt of the Medical Assessment Certificate, Ms Benk wrote on 13 May 2004 a letter which, omitting formal parts, stated the following: "We are in receipt of new binding [emphasis original] medical evidence of Dr Briet [ sic ] dated 27 April 2004. Consequently, we are instructed to retract our settlement offer." 21 It was five days later that the first defendant's solicitor received the relevant documents signed by the plaintiff. In a letter dated 22 June 2004, which contained the "chronology" I have referred to, Ms Benk wrote to the plaintiff's solicitor (inter alia): "We have not failed to honour our agreement. The agreement was retracted prior to your client forwarding to us the endorsed settlement documents. The agreement was contingent upon all documents forwarded to you on the 23 April 2004 being endorsed and signed by both the Applicant and his interpreter." 22 It will be noted that the contingency alleged in this latter was the return of the documents "prior to the issue of any binding medical assessment certificate", the contingency attempted to be imposed on 26 April, and that the documents were in fact returned before the certificate became binding by the issue of a Certificate of Determination. Nor does the letter explain how "[t]he agreement" the existence of which it admits could be "retracted". What can be retracted is an offer that has not yet been accepted so as to become an agreement. 23 It is in this situation, the plaintiff having commenced proceedings in the Supreme Court to enforce the settlement, that the defendants raise in defence, not the futile pretext that they could avoid honouring their promise by retracting their accepted offer, but that the terms of the offer made on their behalf, in accordance with a very wide practice in the worker's compensation field, were incomplete or so uncertain as to be incapable of constituting a contract upon acceptance, or even that an intention to be bound by terms offered in this form could not be found. 24 Counsel for the defendants expressly disavowed any contention that, if an agreement was intended and was sufficiently expressed to be complete and not uncertain, it could nevertheless be held void. He said, "I cannot suggest it is void". He did not argue that the provision, which has been in every Worker's Compensation Act for many years, preventing contracting out, should be construed as invalidating an agreement to settle a proceeding brought under the terms of the relevant Act. 25 Under the heading "Uncertainty and Incompleteness", the learned authors of Carter and Harland, Contract Law in Australia, (4th ed, 2002) at sec 258, state the relevant principles: "Two related, but conceptually distinct, principles are here involved. In the first place, the language used by the parties may be such that the court is unable to attribute to it a sufficiently precise and clear meaning in order to identify the scope of the rights and obligations agreed to. In such a case there is in fact no concluded agreement and the alleged contract will be held to be void for uncertainty. Second, even though the language used is perfectly clear in its meaning, if some important part of the transaction is yet to be agreed upon there is, despite appearances, in truth no completed agreement and the alleged contract will fail for incompleteness. In any given case there may in fact be elements both of uncertainty and incompleteness." 26 But in sec 260 et seq, they make it clear that the Court should strive to give effect to commercial arrangements: It has frequently been said that the courts will interpret the language used broadly and fairly (especially when approaching a document drafted by laypersons) and that it is their duty to place a reasonable meaning on that language unless this is 'utterly impossible'. While it may be questioned whether the courts do in fact always avoid the temptation 'to repose on the easy pillow of saying that the whole is void for uncertainty' (alternatively described by Goff LJ as 'a counsel of despair'), the prevailing approach is one of upholding agreements wherever possible. Difficulty of interpretation must be distinguished from absence of meaning." Cf Cheshire and Fifoot's Law of Contract (8th Australian ed., 2002) at secs. 6.5 – 6.6; Amalgamated Television Services Pty Ltd v Television Corporation Ltd [1970] 3 NSWR 85 at 92; and see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771, where Lord Steyn said, with reference to a commercial contract, that "the law generally favours a commercially sensible construction" of it. 27 In sec 262 Professors Carter and Harland refer to "the standard of reasonableness" as a solution for difficulties of construction of a contract, citing the well known decision in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, where the House of Lords gave meaning to vague terms as to quality and times of delivery by reading them as requiring what would be reasonable in the circumstances, being partly influenced by the fact that the parties themselves thought (as clearly they did in the present case) that a concluded agreement had been reached. 28 Given that in the practical context known to both parties in the present case it must have been understood the relevant documents would be drafted by the first defendant's solicitor, so as to cover its requirements in an area well trodden by experienced lawyers – and the first defendant's solicitor actually had a "settlement pack" ready drafted – I see no difficulty in implying the plaintiff would accept the documents drafted subject to their making no unreasonable demands upon him. The law is well able to apply a standard of reasonableness, even if there may be argument, in a particular instance, about its precise effect until a court has pronounced upon it, that is, until a court has been able to "decide its application": The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 at 437, per Barwick CJ. From the many examples, I cite a few. In Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 344, Samuels JA held it was appropriate to read a term referring to an unspecified "percentage profit margin", in the light of the context, as specifying one that would yield "a reasonable commercial profit", and appropriate for the court ascertain what on the evidence that would be. Similarly, in Booker Industries Proprietary Limited v Wilson Parking (Qld) Proprietary Limited (1982) 149 CLR 600 at 606, Gibbs CJ, Murphy and Wilson JJ found nothing problematic about giving meaning to a contractual obligation "to do all that is reasonably necessary" to secure a particular result. In Greater London Council v Connolly [1970] 2 QB 100 at 108, Lord Denning MR, said: "The courts are always loath to hold a condition bad for uncertainty. They will give it a reasonable interpretation whenever possible." His Lordship (with whom Lord Pearson and Sir Gordon Willmer agreed) construed a term that an unspecified period of notice be given as requiring "reasonable notice" to be given, and added: "The court can always say what is reasonable notice." Lord Pearson (with whose additional remarks also Sir Gordon Willmer agreed) said (at 111): "[T]here are a number of illustrations of cases in which the law implies that something not specified is to be understood as reasonable. In a sale of goods contract, if there is no specified price, a reasonable price is to be understood; and if an employee is to be dismissed, he must be dismissed by reasonable notice. It has to be ascertained on the facts of a particular case what is reasonable." 29 A recent illustration of their Lordships' approach is to be found in the judgment of Ipp J (with whom Pidgeon J agreed) in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101, where the problems of a long series of supposed inadequacies in a contract were repeatedly solved by resort to an implication of reasonableness. Having referred (at 112-113) to the well known remarks of Barwick CJ in The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Limited at 436-437; the dictum of Gibbs CJ in Meehan v Jones (1982) 149 CLR 571 that "[i]t is only if the court is unable to put any definite meaning on the contract that it can be said to be uncertain"; and the dictum of Mason J in the same case that "courts should be astute to adopt a construction which will preserve the validity of the contract", Ipp J suggested (at 121) that a failure to specify in a mining contract the conditions applicable to certain exploration activities could be remedied by a construction that implied "the criterion of reasonableness" so as to forbid exploration where "it would be unreasonable for the appellant to explore on that area", and his Honour added (at 122) that the "implied considerations of reasonableness cater perfectly adequately for any situation involving concurrent exploration or mining." Again (at 123), Ipp J referred to the implicit "criterion of reasonableness" as "an objective standard". Earlier, in Hammond v Vam Ltd [1972] 2 NSWLR 16 at 18, Sugerman P (with whom Holmes JA and Mason JA, as Mason CJ then was, agreed) cited Hillas & Co Ltd v Arcos Ltd for the proposition the court should not be "too astute or subtle in finding defects" in commercial contracts, but should rather seek to apply the maxim verba ita sunt intelligenda ut res magis valeat quam pereat. 30 For these reasons, in my opinion the agreement to settle the plaintiff's claim was not incomplete or relevantly uncertain, and there is no reason to deny it was made with an intention on both sides to be contractually bound. 31 The various Worker's Compensation Acts have always contained a section drafted so as to prevent contracting out of the reach of the provision made by the legislature. But this aspect of worker's compensation law has been understood as preserving a worker's rights, not as inhibiting the settlement of disputes that might otherwise come before the Commission. Indeed, in Australian Iron & Steel Pty Limited v McAuley (Court of Appeal, unreported, Kirby P, Mahoney and Priestley JJA, 21 December 1984), Kirby P and Priestley JA said: "The Workers' Compensation Commission operates on the assumption that the overwhelming majority of compensation claims in the State will be met by agreement and will never come before the Commission, save where the statute specifically requires it. The parallel operation of agreement outside the Commission and entitlements within the Commission is manifestly beneficial." 32 The competence of parties to a proceeding in the Workers' Compensation Commission to settle that proceeding by agreement had earlier been expressly affirmed by the Court of Appeal in Ashenden v Stewarts & Lloyds (Australia) Ltd [1972] 2 NSWLR 484. The court (Jacobs JA, Taylor AJA and Hardie AJA) had no difficulty in holding that a settlement agreement could determine the terms of an award to be made in the Commission, only Jacobs JA adding the qualification that the insertion in the settlement agreement of the words "without admission of liability" affected this position. 33 In Art Coating Pty Ltd v Gerace [2000] NSWCA 169, Sheller JA, Priestley JA and Foster AJA heard an appeal from an order that an agreement to commute worker's compensation payments be specifically performed by the employer. The judgment of the court, delivered by Sheller JA, held that the agreement was enforceable, although it varied the terms of the orders. 34 In my opinion the settlement in the present case is also enforceable. I order that the plaintiff bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of these reasons. Those short minutes should provide for the plaintiff's costs to be paid by the first defendant. ********** 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.