Desa Buseska v Corich Sergio and Aristo Buseska [1990] ACTSC 37; (1990) 102 FLR 157 (18 October 1990)

SUPREME COURT OF THE ACT

DESA BUSESKA v. CORICH SERGIO and ARISTO BUSESKA
S.C. No. 1047 of 1987
Personal Injury
[1990] ACTSC 37; (1990) 102 FLR 157

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Personal Injury - Settlement agreement - Mistake by defendants' solicitor - Ostensible authority of solicitor - Whether enforceable contract formed - Whether contract ought to be rescinded by reason of mistake - Consideration of authorities.

Nissho Iwai (Australia) Ltd v Oskar (1984) WAR 53

Neale v Lady Gordon Lennox (1902) 1 KB 838

Hansen v Marco Engineering (Aust) Pty Ltd (1948) VLR 198

Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480

Yonge v Joynbee (1910) 1 KB 214

Bell v Lever Bros [1931] UKHL 2; (1931) AC 161

Smith v Hughes (1871) LR 6 QB 597

Goldsborough Mort and Co Ltd v Quinn [1910] HCA 20; (1910) 10 CLR 674

Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422

Alfa Loval Australia Pty Ltd v Shoalhaven Dairy Co-op Ltd and Anor (Giles J; NSWSC; 12/5/89; unreported)

Deputy Federal Commissioner of Taxation v Chamberlain (1990) 93 ALR 729

Vanzwan v Rosemary Dunstan (Kelly J; ACTSC; 11/12/80; unreported)

Neale v Gordon Lennox [1963] UKHL 4; (1902) AC 465

Shepherd v Robinson (1919) 1 KB 474

Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235

Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98

Waitemata City Council v MacKenzie (1988) 2 NZLR 242

Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528

Paino v Hofbauer (1988) 13 NSWLR 193

HEARING

CANBERRA
18:10:1990

Counsel for the Plaintiff: Mr R. Blowes

Instructing solicitors: Messrs Capon and Hubert

Counsel for the Defendants: Mr S. Wilcox

Instructing solicitors: Messrs Crossin Power Haslem

ORDER

There be judgment for the plaintiff in the sum of $31,300.00.

DECISION

The plaintiff was injured, she claimed, on 30 June 1983. Her Statement of Claim in this court, dated 31 August 1987, complains of whiplash injury. The Statement of Particulars, dated 5 June 1990, complains of continuing significant symptoms.

2. The Statement of Claim also recites that an Ordinary Claim in respect of the above injury was taken out in the Court of Petty Sessions, as it then was, on 12 July 1984. That Court was then limited to making an award of damages not exceeding $10,000.00. On 15 May 1987, the plaintiff's solicitors put an offer to the defendant's solicitors. On 26 May 1987, the defendant's solicitors (apparently) accepted that offer and on 28 May 1987, the plaintiff executed, and her solicitors despatched, signed Terms of Settlement and a Deed of Release. On 29 May 1987, the defendant's solicitor phoned the plaintiff's solicitor. He said he had made a mistake in forwarding the letter of 26 May 1987 together with the accompanying documentation.

3. Each party thereafter has declined to abandon opposing contentions as to the enforceability of the apparent accord and satisfaction of the plaintiff's claim.

4. The parties have requested that the question as to the accord and satisfaction be decided before the cause of action in negligence. This is plainly a necessary course. If the action was validly compromised, the cause of action pleaded in paragraphs 1-3 inclusive has been extinguished subject, of course, to the willingness of the parties to continue to perform the agreement. That is not to say that one party may unilaterally withdraw from the accord and satisfaction agreement. It is the same as any other agreement. If one party refuses to perform the other may either seek to hold that other party to the agreement or enforce the original cause of action, ie accept the repudiation (see, eg Nissho Iwai (Australia) Ltd v Oskar (1984) WAR 53; Neale v Lady Gordon Lennox (1902) 1 KB 838; Hansen v Marco Engineering (Aust) Pty Ltd (1948) VLR 19.8).

5. Like any other agreement, the formation of a contract of account and satisfaction may be subject to the terms being reduced to writing or to the acts of third parties such as procuring the entry of the judgment in a court. The categories of agreement referred to in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 are as much applicable to such agreements as any other.

6. The fact that the alleged agreement was effected through solicitors does not affect the validity of the agreement. The matter was one well within the usual ostensible authority of solicitors to deal with (see Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480; Yonge v Joynbee (1910) 1 KB 214). Indeed, I do not understand Mr Wilcox, for the defendants, to have asserted otherwise.

7. Each of the respective solicitors (Mr Hubert for the plaintiff, Mr MacLachlan for the defendants) gave evidence. I received affidavit evidence from each of them. The facts are not really in doubt.

8. Before 15 May 1987, the defendants had made an offer of $6,500.00 inclusive of costs. The plaintiff had rejected it.

9. On 15 May 1987, after performing certain calculations, Mr Hubert wrote to Mr MacLachlan in the following terms:-
"We refer to the above matter and are

instructed to accept a settlement offer for the
amount of $22,000.00 inclusive of all costs and
disbursements with our client assuming the
responsibility of paying back the Workers Compensation."

10. I accept that Mr Hubert sent this letter intending to solicit a proposal to settle the matter for that sum from the defendants. I further accept that he believed it would have been reasonable to have settled this action on those terms.

11. It is noteworthy that an open letter was sent the same day to the defendants' solicitors by Mr Hubert. It noted that the "Compensation" was $2,555.41. If referred to continuing "lingering damage" and said:-

"Accordingly, I would suggest that although the
matter claim (sic) may not be a large claim
with respect to the total figure, it should be
inexcess (sic) of $10,000.00 and again would ask
serious consideration to an offer done on that basis.
Perhaps a way of managing in (sic) mechanics,
would be for us to file a Discontinuance in
exchange for you obtaining a Deed of Release.
I will seek further instructions from my client
in the interim and to see if we can't arrive at
a proper figure."
"PS: I have also been instructed to forward
copies of medical reports in the aid of
arriving at a proper settlement on the conference."

12. The latter was a reference to a forthcoming settlement conference then set for 10 June 1987. Whilst this letter contained some creative grammar, it could not reasonably have been considered to have been an accompaniment to an acceptance of a previous offer of settlement. If there was any doubt as to the meaning of the "Without Prejudice" letter of the same date, this letter would have resolved any such doubt. No doubt a perusal by Mr MacLachlan of his file would have had a similar effect.

13. Nevertheless, Mr MacLachlan says, and I accept it completely, that on receipt of the "Without Prejudice" letter of 15 May 1987, he construed it as an acceptance of an offer he had previously made on behalf of the defendants. He did not check his file. He cannot recall if he read the open letter of the same date.

14. In that state of mind he wrote, on 26 May 1987, as follows:-

"We confirm that this matter has been settled
in the sum of $22,000.00 inclusive of costs and
accordingly we attach the following:-
1. The original and one copy of the Agreement
as to Judgment. Would you please sign
these and return them to us.
2. The original and one copy of the Terms of
Settlement. Would you please sign the
original and return it to us.
3. An Authority to Receive. Please have your
client execute this document and return it to us.
We undertake that we shall within 14 days of
receiving the abovementioned documents from you
lodge them at Court."

15. On 28 May 1987, Mr Hubert wrote back to Mr MacLachlan. The documents were executed and returned as suggested. However, to those documents was added a standard form "Deed of Release". That was added because the "Agreement as to Judgment" was for a sum exceeding the $10,000.00 limit of the Magistrates Court (as it then was). This matter had, of course, been foreshadowed in Mr Hubert's open letter of 15 May 1987.

16. In writing this letter, I accept that Mr Hubert believed the matter was settled. He did not entertain any doubt but that his proposal of 15 May 1987 had been accepted. So far as he was concerned, he and his client had done all they could to comply with the requirements apparently contained in Mr MacLachlan's letter of 26 May 1987.

17. When he received the letter and enclosures of 28 May 1987, Mr MacLachlan, no doubt after looking at his file, realised he had made a mistake. He rang Mr Hubert and explained that in fact he had no instructions to go beyond $8,500.00 inclusive of costs to settle the matter. He had sent the letter of 26 May 1987 in the belief that Mr Hubert's letter had accepted an offer previously made on behalf of the defendants. Mr Hubert thereafter was instructed by his client, quite properly, to hold the defendants to the apparent settlement. Equally properly, Mr MacLachlan was instructed not to accept that the matter was settled.

18. The Magistrates Court proceedings were then discontinued and proceedings commenced in this Court seeking to enforce the apparent settlement, alternatively, seeking to have damages awarded in respect of the original cause of action. I should say that, as the plaintiff had been a motor vehicle passenger, it was not likely that the matter would have been other than an assessment of damages.

19. Amended defences were filed in Court on 2 October 1990. They deny (for each defendant) that a contract of accord and satisfaction was formed. Alternatively they seek rescission for mistake.

20. Formation of a Contract: It is clear enough that Mr MacLachlan's error was not caused by or contributed to, in any real way by Mr Hubert. It is true that the letter of 15 May 1987 ("Without Prejudice") could, on a superficial reading, be consistent with the interpretation Mr MacLachlan placed on it. However, that interpretation was not sustainable on a careful reading of it. It did not refer to a previous offer. The term "accept a settlement offer" was inconsistent with a previous offer being thereby accepted. In any event, a perusal of the open letter of even date or of Mr MacLachlan's own file would have dispelled any such possible misinterpretation instantly. There was certainly no reason for Mr Hubert to believe that his letter had been or could be misinterpreted in the manner Mr MacLachlan did.

21. Mr MacLachlan's letter in reply, was consistent either with acceptance of an offer made by the letter of 15 May 1987 or with a previous offer having been accepted by that letter. In context, there was no reason for Mr Hubert to have supposed that it was written subject to the mistake under the influence of which it was written.

22. It follows that on the face of the correspondence, unless there was some condition precedent unsatisfied, an agreement was reached. The question is one of interpretation of the terms of the correspondence. (See Bell v Lever Bros [1931] UKHL 2; (1931) AC 161.) It is an objective test. (See Smith v Hughes (1871) LR 6 QB 597.)

23. Does the fact that the parties were unaware of Mr MacLachlan's mistake when they apparently agreed render the apparent agreement void?

24. The issue was resolved in the negative in Goldsborough Mort and Co Ltd v Quinn [1910] HCA 20; (1910) 10 CLR 674. That such was the law was approved in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422. The only relief is for equity to permit rescission of the agreement.

25. Condition Precedent: The nature of the compromise agreement, on its face, was one where the parties were agreed but the documentation was to be signed to carry the agreement into effect. Those documents were not a condition precedent to the agreement, nor do I understand Mr Wilcox so to contend. (See Masters v Cameron (supra).)

26. It appears that entry of judgment in or discontinuance of the Magistrates Court matter was simply something to be done in consequence of the compromise rather than a condition of it.

27. Equitable Rescission: It was urged that there was jurisdiction to rescind a compromise agreement if it appeared that it was unconscionable for the party seeking to enforce it to rely on it. This contention is, of course, correct in principle (see Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422). However, to be applicable it must appear that the plaintiff's solicitor unfairly seeks to rely on the defendants' mistake. (See also Alfa Loval Australia Pty Ltd v Shoalhaven Dairy Co-op Ltd and Anor (Giles J; NSWSC; 12/5/89; unreported; Deputy Federal Commissioner of Taxation v Chamberlain (1990) 93 ALR 729.)

28. It is clear to me that the plaintiff's solicitor did not induce Mr MacLachlan's error in any way that could have been foreseen by a reasonable man. He was not, nor should he have been, aware of Mr MacLachlan's mistake. There is, accordingly no basis for concluding that it is unconscionable for Mr Hubert's client to insist that Mr MacLachlan's clients be bound by his apparent authority.

29. Special Rules relating to Compromise: I was referred to a decision of Kelly J in Vanzwan v Rosemary Dunstan (ACTSC; 11/12/80; unreported). It was suggested that there was a general discretion to set aside or refuse to enforce a compromise when it was clearly assented to as a result of a mistake, even if that mistake was not known to or induced by the party seeking to take advantage of it and where it is not necessarily unconscionable for that party to seek to do so.

30. In that case there was unilateral mistake. Plaintiff's counsel agreed to accept $14,000.00 inclusive of costs. He had instructions to accept $14,000.00 plus costs. There was no reason for counsel for the defendant to suppose that the plaintiff's counsel was wrong. His Honour held that, in a case where counsel wrongly compromises a claim the court has a discretion to set aside the consent judgment. Having so determined, his Honour, without any further reasons being stated, exercised that discretion in favour of the plaintiff.

31. In Neale v Gordon Lennox [1963] UKHL 4; (1902) AC 465, a libel case, the "compromise" was to refer the case to an official referee to decide certain issues. Counsel for the plaintiff was authorized to agree only if the defendant withdrew the imputations. That reservation was not made known to the defendant or her counsel. Plaintiff sought to set aside the order. Earl of Halsbury L.C. (at 470) noted that the court was not bound by the unauthorised act of counsel. He said:-

"Where the contract is something which the
parties are themselves by law competent to
agree to, and where the contract has been made,
I have nothing to say to the policy of law
which prevents that contract being undone: the
contract is by law final and conclusive. But
when two parties seek as part of their
arrangement the intervention of a Court of
justice to say that something shall or shall
not be done, although one of the parties to it
is clearly not consenting to it, but in the
most distinct form said that the consent to
refer - to take it from the jurisdiction of the
ordinary tribunal - shall only be on certain
terms, to say that any learned counsel can so
far contradict what his client has said, and
act without the authority of his client as to
bind the Court itself, is a proposition which I
certainly will never assent to."

32. His Lordship noted that it might be different if it was only a question of money (471). Lord Lindley (473) rested his opinion on the fact that a Court could (or should) make an order by consent only when that consent persists up to the drawing up of the order.

33. It may be noted that the apparent agreement was to obtain something a Court could give only on the basis that the parties, as opposed to merely their counsel, consented. Consent of counsel evidenced consent of the party until the true facts were known.

34. Nevertheless, in Shepherd v Robinson (1919) 1 KB 474 the above approach was applied to a consent to judgment for debt in ignorance of a client's instructions. At 477 Bankes L.J. contrasted a compromise agreement binding the client even if beyond actual authority but within ostensible authority with consent being given to an order of the Court. In the latter case, he said:-

"...the Court will not proceed further with the
drawing up and perfecting of the order, and
will not lend its authority to compel observance
of an agreement arrived at through a mistake."

35. The Full High Court in Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235 discussed counsel's authority to compromise. The plaintiff had, in fact, consented to a compromise of an action then on for trial. She had done so most reluctantly under extreme pressure. Before judgment was drawn up, she sought to set aside the settlement. At 242, the Court said:-

"...in the circumstances of this case it does
not appear to us that the court possesses a
discretion to set aside the compromise or to
intercept the formal entry of judgment."

36. Those circumstances were contrasted with a situation:-

"...where the assistance of the court is sought
or invoked to carry a compromise into effect
which otherwise could not be enforced by the
party (243) relying on it. In such a case the
assistance may be refused on grounds not necessarily
sufficient to invalidate a simple contract."

37. The grounds upon which this was to be permitted were not, of course, spelled out. The consideration of that issue was, strictly speaking, obiter dictum. Nevertheless, the court did observe as follows (243):-

"It is said that this power of the courts is to
be exercised as a matter of discretion when in
the circumstances of the case to allow the
compromise to stand would involve injustice in
view of the restriction on counsel's authority."

38. The contrast, if any, between an equitable ground for setting aside an agreement to compromise and the "injustice" necessary to vitiate a consent to an order yet to be drawn up is not explained.

39. In Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98, Young J contrasted the grounds necessary to set aside an agreement for unilateral mistake upon the grounds set out in Taylor v Johnson (supra) with the setting aside of an order for a consent judgment or other relief by consent if "justice" or "conscience" warrant it. Apart from noting the contrast there is no real guidance as to what circumstances are sufficient for "justice" or "conscience" to set aside a consent to compromise when equity would not in "good conscience" permit rescission.

40. In Waitemata City Council v MacKenzie (1988) 2 NZLR 242, MacKenzie sought to set aside consent orders which he said he had not authorized his counsel to agree to. The latter agreed to the orders by reason of mistake. Casey J (249) held that sealed or not, a consent order could, if the interests of justice required it, be set aside. Again, what those interests are is not really explained.

41. Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528 is a recent instance. At a settlement conference a solicitor, at its conclusion, entered an incorrectly low figure on an "offer of compromise" form. Although $227,000.00 had been spoken of at the conference, $127,000.00 had been written. Having been given this document, defendant's solicitors obtained instructions to accept $127,000.00. The purported acceptance was rejected. An application was made to prevent entry of judgment based on the instrument of acceptance. Finlay J was of the view that a reasonable person in the position of the defendant's solicitor should have realised that the offer of compromise was in error.

42. The challenge to the compromise was firstly put on the basis of Taylor v Johnson (supra). Finlay J was not persuaded that these propositions of law, applied. The second basis was that the compromise was (537),

"...an agreement to a compromise of litigation
which is subject to the procedures of this
Court, (538) such procedures including the
possibility that the Court may consider it
unjust to enforce the settlement or that it is
in the interests of justice that the matter
proceed to trial."

43. His Honour was persuaded that the interests of justice required that the plaintiff be relieved of the consequences of his solicitor's error.

44. As to the judicial basis on which that relief is given, and its effect on the contract preceding it, his Honour said (538):-

"What I perceive to be the relevant principle
in the category of cases into which this matter
falls is that in an appropriate case,
especially before judgment is made, the
overriding interests of justice and the court's
concern over its own procedure may mean that
the court will not enforce a contract. Of
course, contracts made during the court's
process to settle, if they are bona fide and
not affected by any error, will normally be
enforced. But I repeat my previous observation
that whenever parties agree to a compromise of
litigation they do so subject to the procedures
of the court which include the possibility that
the court may consider it unjust to enforce the
terms of settlement or that it is in the interests
of justice that the matter proceed to trial."

45. It is quite clear that his Honour is referring to a situation where the only "agreement" is that a consent order be obtained. In that event, the refusal of the court to make it will frustrate the agreement whether or not equity would rescind it. A fortiori, if equity would set aside the underlying agreement, the fruits of it, including a consent order or consent to an order to be drawn up must similarly be set aside. (See also Deputy Federal Commissioner of Taxation v Chamberlain (supra), 741-2.)

46. With all due respect to his Honour, I would have thought that the finding that the defendant's solicitors should have realized the $127,000.00 figure was a mistake was enough to have permitted rescission of the underlying agreement.

47. The position is further clarified in the judgment of McHugh J.A. (as he then was) in Paino v Hofbauer (1988) 13 NSWLR 193, where the distinction between a compromise agreement to have consent orders made and a compromise effected by a consent order as one means to the end of its performance seems to me to be clearly recognised.

48. Nevertheless, it seems to me unsatisfactory and productive of much uncertainty if compromises requiring only the payment of money are vulnerable by reference to an uncertain criterion that would not suffice for equity to set aside the underlying agreement, but would suffice to set aside a consent order yet to be drawn up.

49. Conclusion: The present case is not one where the underlying agreement required the plaintiff or the defendants to invoke the powers of this Court or the Magistrate's Court to carry out its terms. It required only that the defendant pay $22,000.00 to the plaintiff. No consent order was required. Indeed, it may have proved difficult to obtain any order other than discontinuance of the Magistrate's Court action. It was not even necessary to have a Deed of Release. The Terms of Settlement and accompanying correspondence sufficed to evidence the compromise. It could then be separately sued on in any court of competent jurisdiction. This the plaintiff has done.

50. Accordingly, in my opinion, unless the agreement itself can be set aside, the plaintiff is entitled to have it performed. The defendant refuses to perform it but makes out no ground justifying that refusal.

51. Save in those cases where the court's intervention is necessary to effect the compromise, as in Neale v Gordon Lennox (supra), no previous case has given attention to whether the underlying agreement may nevertheless be enforced by separate action or relied on as a defence. It seems to me that unless its existence is challenged by rescission, frustration or otherwise as for any other contract, that underlying agreement cannot be simply ignored on some basis that relies on an undefined "interest of justice" which falls short of an equitable ground for rescission or frustration of that agreement.

52. In the present case, however, there is no reason, in my opinion, for the agreement which was concluded between the parties by their solicitors each acting within ostensible authority, to be set aside or regarded as unenforceable.

53. Accordingly, there will be judgment for the plaintiff for $22,000.00 and interest thereon as from the date of the agreement to pay that sum, ie (in round figures) $9,300.00, a total of $31,300.00.

54. I will hear the parties on costs.