Pernice v Jingalong Pty Limited & Anor [2015] HCATrans 227 (11 September 2015)

Last Updated: 18 September 2015

[2015] HCATrans 227

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S40 of 2015

B e t w e e n -

BRETT PERNICE

Applicant

and

JINGALONG PTY LIMITED

First Respondent

GREGORY GEORGE TODD

Second Respondent

Application for special leave to appeal

GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 SEPTEMBER 2015, AT 1.01 PM

Copyright in the High Court of Australia

MR R.D. WILSON, SC: May it please the Court, I appear with my learned friend, MR D.H. NAGLE, for the applicant. (instructed by Hancock Alldis & Roskov)

MR R.E. DUBLER, SC: May it please the Court, I appear with MR S. KANAGARATNAM for the first respondent. (instructed by A.L. Wunderlich & Co)

GAGELER J: Mr Wilson.

MR WILSON: Your Honours will have seen that this application concerns a consideration of the principles applicable to compromise agreements reached at mediations and whether the decision of this Court in Masters v Cameron extends to the determination of obligations arising under those compromise agreements where time is fixed for performance.

The point we want to agitate, your Honours, is nicely put by Justice Fullagar in Scott v English in 1947 in a passage partly quoted by his Honour Justice Sackville at paragraph 67 where Justice Fullagar pointed out that the question is likely to arise wherever a time is fixed for performance of the defendant’s promise as to whether the effect of the contract:

is to discharge the original cause of action absolutely . . . or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action.”

Your Honour, the heads of agreement, the subject of this application, appear in the application book at 59, 60 and I will shortly turn to the applicant’s construction of the heads of agreement after dealing with the Masters v Cameron point, but by way of summary, Mr Pernice says that upon their construction as a whole he accepted an obligation to purchase Lot 1 for $350,000 by the designated date, 13 May 2013, not in absolute discharge of his claim to Lot 1 but in conditional discharge so that if either Jingalong did not complete or Mr Todd did not contribute by paying $206,000 he could either sue under the heads of agreement or terminate and revert to the original cause of action.

Your Honours, this construction was squarely in play in the Court of Appeal. Your Honours, it is significant that at first instance Jingalong stated that it would not raise the agreement as a defence to Mr Pernice’s claim but only to Mr Todd’s claim and, indeed, my learned friend, Mr Nagle, took the point in the Court of Appeal but that matter was not dealt with by the Court of Appeal at all and the question does arise, your Honours, as to the trial at first instance having been run differently in relation to the evidence which would have been adduced had it been known that the point would have been taken against us at first instance.

Your Honours, may I deal with the first special leave point concerning Masters v Cameron in this concept? Your Honours, it is a short point and it is this. Masters v Cameron cannot assist in determining whether an agreement is an accord and satisfaction as found by the Court of Appeal or an accord and conditional satisfaction as contended by Mr Pernice because those classes of cases satisfy the Masters v Cameron category 1 test as being immediately binding agreements. The difference in the cases is a consequence of the breach.

It is only where the issue is is the agreement binding that Masters v Cameron properly comes into play. In this case, the Court of Appeal’s finding, based on clauses 1 and 8 at J78, that the heads of agreement were a Masters v Cameron category 1 case was determinative in the conclusion, we say erroneous, that the heads of agreement were an accord and satisfaction because at J92 the Court of Appeal concluded that that finding would be inconsistent.

GAGELER J: At where did you say?

MR WILSON: J92, your Honours.

GAGELER J: J92 means what?

MR WILSON: I will take your Honour to the judgment in the Court of Appeal.

KEANE J: Paragraph 92, is it?

MR WILSON: Paragraph 92, yes.

GAGELER J: Right.

MR WILSON: Thank you, page 37 in the Court of Appeal’s decision. If your Honours go to J92, page 33 of the judgment, page 83 of the application book. If your Honours go to line 4, his Honour Justice Sackville observed that:

Given that the Settlement Agreement was intended to create binding legal obligations –

harking directly back to the Masters v Cameron finding –

it would not be consistent with that purpose to interpret the Settlement Agreement as leaving intact the pre-existing causes of action of Mr Todd and Mr Pernice, depending on whether they were prepared to make their respective contributions to the agreed purchase price for Lot 1.

Your Honour, that submission takes me into the question of the applicant’s proper construction of the heads of agreement. Whilst accepted that the meaning of the heads of agreement is not clear, there are a number of pointers to the parties’ intentions. The applicant wishes to make four points, your Honours. The first is that what is clear from clause 7 is that the parties intended the proceedings to remain on foot. Clause 7 was the clause which provided that it was only upon the payment of the amounts that the proceedings would be dismissed.

What is clear from that, your Honours, is that the parties intended the proceedings to remain on foot until Mr Todd and Mr Pernice made their payments and what follows from that, and to quote your Honour Justice Keane’s decision in Blue Moon v Yorkey’s Knob Boating Club in 2006 when your Honour was sitting in the Queensland Court of Appeal, your Honour observed at paragraph [22][:

A clear statement of intention would be necessary to impose an immediately binding obligation on the parties to procure the dismissal of the pending proceedings irrespective of the fate of the terms of the settlement.

But in this case there is no clear statement of intention.

KEANE J: But that is irrespective of the fate of the terms of the settlement. The question here is, were the terms of the settlement intended to be the new charter of the parties’ rights?

MR WILSON: Yes.

KEANE J: The Court of Appeal have concluded that the terms of the settlement are the new terms of a new charter, so one looks to that charter to see what the parties’ rights are and to enforce it.

MR WILSON: Well, your Honours, the first submission is that the Court of Appeal erred in finding that the new charter, the heads of agreement, constituted the only charter. In other words, that - - -

KEANE J: Well, if it is the charter it is the only charter. That is the whole point.

MR WILSON: That is the whole point. We say erroneously because the whole decision was infected by the application of the Masters v Cameron test. It was the finding that the decision that the charter was intended to create finality and be immediately binding which affected - we say infected - the whole of the reasoning of the court because whether or not, your Honour, the charter was the binding future conduct for the parties or whether or not, as we say, Mr Pernice was entitled, if the charter was not performed by Mr Todd, to revert back to his original cause of action was infected by the Masters v Cameron finding. So that is the central attack, and is the error in this particular case.

KEANE J: But how does it give rise to any question of principle as opposed to simply the application of settled principles for the proper construction of this particular document in its very peculiar circumstances?

MR WILSON: Your Honour, the question of principle arises in the context of the construction of the agreement, that the question of principle was the application of Masters v Cameron to compromise agreements where there is this issue as to whether or not an accord and satisfaction or an accord and conditional satisfaction.

GAGELER J: In a sense you are not saying that Masters v Cameron was incorrectly applied. You are just saying that it did not answer the question of construction.

MR WILSON: Indeed, the wrong question was asked. So, if I can turn to the third special leave point, it was a question of whether or not there is a principle that - in the interpretation of compromise agreements whether there is a preference to regard those compromise agreements as being the new charter, to use your Honour Justice Keane’s terminology, or whether or not there is a contrary principle that the normal presumption is that the parties would intend performance to be the charter rather than the promise itself.

What seems to have happened, your Honour, is since the introduction of section 73 of the Civil Procedure Act in 2005 in this State, there are a significant number of positions which seek specific performance of agreements reach that mediation where the issue of performance and the issue of the binding nature is considered in the context of Masters v Cameron and what seems to have happened is that that is why the inquiry – the first inquiry undertaken by Justice Sackville was the Masters v Cameron question and we say wrong question. One has to look to the true nature of the agreement.

We say, your Honour, returning to the points I was seeking to make in relation to the construction of the agreement, that there are four short points where we say that the court got it wrong because the court observed at judgment paragraph 95, it accepted that if clause 7 stood alone it might suggest that it is only when these amounts are actually paid that the causes of action of Todd and Pernice will be discharged. It got around that by implying from clauses 1 and 5 a discharge or release, and it was the Masters v Cameron finding which was central to the finding of an immediate implied release.

KEANE J: You are talking about Masters v Cameron - is your point that the court was wrong to conclude that the parties intended to be legally bound when they signed the compromise agreement?

MR WILSON: No, your Honour. The court was not wrong but it did not answer the question. It was the wrong inquiry.

GAGELER J: You are saying that does not tell you whether it is accord and satisfaction or accord and conditional satisfaction in itself.

MR WILSON: No, because both satisfy the test. It is a simple point and - - -

GAGELER J: It is so simple that it is hard to see that the Court of Appeal got it wrong.

MR WILSON: What the Court of Appeal, in my submission, did was it concluded, following Masters v Cameron, that the heads of agreement were immediately binding, the parties had reached finality in the agreements. It therefore concluded from that, implied, that there was an immediate discharge and there was an implied release by Todd and Pernice of their rights.

KEANE J: They did not. They held that the parties intended to be bound by the terms of the agreement, so it was an agreement intended to be binding. The question then was, was the intention reflected in the terms intended to be binding such that as a matter of construction if it was not performed the parties would be left to pursue their original claims unaffected by it, and the question is simply whether, as a matter of its proper construction, the point that Justice Sackville is addressing at paragraphs 95 and 96, whether it was intended that the parties should have all their rights in that document or, if those rights were not performed, they could then go back to what was there before. That is all they did.

MR WILSON: Indeed, your Honour, and in that context it was not necessary to pose the Masters v Cameron question at all because the parties - the way the case went to the Court of Appeal there was no question about the binding nature of the agreement. The issue was what were the consequences of it and that is why the proposition is put, the submission is put, that it is a Masters v Cameron finding which infected the interpretation, the construction of the agreement. Your Honours, the third point in relation to the construction is this.

KEANE J: All that Justice Sackville – all the court made of Masters v Cameron is made at paragraph 78. In the last sentence, paragraph 78:

To apply the classification stated by the High Court in Masters v Cameron at 360, cl 8 demonstrates that the parties reached finality in arranging the terms of their bargain and intended to be immediately bound to the performance of those terms, even though they contemplated that a more formal deed might subsequently be drawn up.

MR WILSON: Yes, your Honour, that was the finding in relation in Masters v Cameron and the words of Masters v Cameron as I took your Honours to earlier, were echoed in paragraph 92 where his Honour said:

Given that the Settlement Agreement was intended to create binding legal obligations, it would not be consistent with that purpose to interpret the Settlement Agreement as leaving intact –

the rights of the parties under clause 7. Your Honour, the Court of Appeal misconstrued the heads of agreement because it did not come to grips with the implications – the direct implication of the wording of clause 7. Your Honour, the fact that - - -

KEANE J: But they – rightly or wrongly, you cannot say they did not come to grips with it because they have addressed it from paragraphs 93 to 97 and, having addressed it at some considerable length, came to a conclusion about it.

MR WILSON: Perhaps my wording “did not come to grips” - did not accurately come to grips. We say the construction was wrong. The fact that Mr Pernice was not jointly and severally liable for the payment by Mr Todd of the $206,000 when combined with the terms of clause 7 strongly suggests, your Honour, that Mr Pernice did not give an immediate release but whilst being prepared to accept a lesser amount than his perceived rights wished to ensure that if prompt settlement did not occur he would be entitled to revert to his original cause of action.

Then, your Honour, the Court of Appeal then read down clause 7. It said, well, what is the real purpose of clause 7 and it found that the purpose of clause 7 was simply questions of enforcement. But if the effect of clause 7 of the terms of agreement is as the Court of Appeal found that it constituted an immediate binding agreement, it constituted an accord and satisfaction, well, then there would have been no reason for clause 7 to be there for the dismissal upon payment because if there was an accord and satisfaction upon entry into the heads of agreement the parties would have been entitled to move the court to dismiss the proceedings immediately.

GAGELER J: Well, paragraphs 96 and 97 provide an explanation for clause 7.

MR WILSON: Yes, and we say that the wording of clause 7 does not support that explanation. Clause 7 is said to be there for enforcement purposes. Under section 73 of the Civil Procedure Act, one does not need a clause in heads of agreement for enforcement and, indeed, the wording of clause 7 does not talk about enforcement, it talks about dismissal.

KEANE J: But once you descend to the point where you are arguing about the effect of the words, you are really not complaining about any question of principle, you are just complaining about how the court has interpreted this particular document which is reasonably unusual in its terms.

MR WILSON: I accept that, your Honour, and that is why the Masters v Cameron point, in my submission, as your Honour said, it is such a simple point but the wrong question was asked. It deflected the court from the proper inquiry, and we say that in the context of heads of agreement, which we say on either construction was binding, that it was the wrong question.

Your Honours, what happened - we say that Mr Pernice was entitled in the event of default by Mr Todd to terminate and sue on his original cause of action and that is in fact what occurred. At the hearing, your Honours, Mr Pernice proceeded on his first cross-claim in which he sought an order that Jingalong transfer Lot 1 to him. It was a derivative form of pleading in this sense, that what it did, it pleaded the agreement between him and Mr Todd for the purchase of Lot 1 for $300,000 and then relied upon the amended statement of claim pleaded by Mr Todd related to Todd’s claim to Lot 1 from Jingalong for $1.

GAGELER J: Where are we going with this particular submission?

MR WILSON: The point is, your Honour, that if your Honours are with me that the rights of Mr Pernice under the heads of agreement were either enforce the heads of agreement or revert back to the original cause of action, we say, on that construction, this is in fact what happened. He terminated the heads of agreement, he having been ready, willing and able to complete. He was able to terminate it and he proceeded with his first

cross-claim at the hearing before the primary judge. As it transpired it was not necessary for the primary judge to determine it because the cross-claim was predicated on the basis that if Todd’s claim was found to be successful then it did not need to be articulated.

So, your Honours, the special leave point is the Masters v Cameron point. We say that the Court of Appeal, with the greatest respect, erred in the construction of the heads of agreement and, most importantly, the case was run at first instance on the basis that the heads of agreement, the promise, would not be used as a defence to our claim and then subsequently a point was taken in the Court of Appeal over objection by my learned friend, Mr Nagle, in circumstances where it was not dealt with by the Court of Appeal. Those are my submissions, may it please the Court.

GAGELER J: Yes, thank you, Mr Wilson. Mr Dubler, we do not need to hear from you.

The decision of the Court of Appeal in this case turned on the application of very well-settled principles of construction to a handwritten settlement agreement. We are not satisfied that any issue of principle would arise in an appeal to this Court. Nor are we satisfied that there is sufficient doubt about the correctness of the decision of the Court of Appeal to warrant a grant of special leave. Special leave will be refused with costs.

The Court will now adjourn to 2.15 pm on Tuesday, 6 October in Canberra.

AT 1.22 PM THE MATTER WAS CONCLUDED