[Edited and updated 13.2.12] I have two taxations at the moment where accord and satisfaction is pleaded as a defence, in proceedings governed by the Legal Profession Act 2004 (Vic). In the first, the client and the solicitor cut a deal in relation to costs, and the client subsequently sought to tax the costs. In the second, a non-associated third party payer and the client cut a deal in relation to the amount the former was obliged to pay the latter pursuant to a loan agreement, and the third party payer has now brought an application against the client’s solicitors for taxation.
Accord and satisfaction is a litigation estoppel. It serves a similar function to res judicata where the original dispute is quelled by contractual agreement (i.e. a ‘settlement’) rather than by judicial determination. It is what stops a party who settles a pre-litigious dispute from suing on it, and, depending on how the proceeding is disposed of (withdrawn, discontinued, struck out, dismissed, judgment for one party), may also be what stops a party to litigation who settles it from re-instituting it (res judicata flowing from the Court’s orders disposing of the proceeding is the other possibility).
Helpfully, the NSW Court of Appeal recently drew the authorities on accord and satisfaction together in El-Mir v Risk [2005] NSWCA 215 and provided a cute little restatement of the law, which is reproduced below. There seems to be little authority on accord and satisfaction preventing taxation where disputes in relation to the quantification of liability for legal fees are settled before the institution of taxation proceedings. Certainly, the US Court of Appeals for the Third Circuit had no difficulty with the application of accord and satisfaction as a bar to taxation: Michael J Benenson Associates, Inc v Orthopedic Network of New Jersey 2002 U.S. App. LEXIS 23559; 54 Fed. Appx. 33, and the Federal Court seems to have assumed the possibility in Amos v Monsour Pty Ltd (formerly Monsour Legal Costs Pty Ltd) [2010] FCA 741, but in neither case was the question argued. Does anyone know of any other useful authorities?
Now, that re-statement of the law, from Justice of Appeal McColl’s judgment, with which Justices of Appeal Ipp and Handley agreed:
‘[48] The “essence of accord and satisfaction ‘is the acceptance by the plaintiff of something in place of his cause of action’, … the accord is the agreement or consent to accept the satisfaction … upon provision of the satisfaction, there is a discharge which extinguishes the cause of action”: Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500 per Gummow J at [116] citing Dixon J in McDermott v Black at 183-185; see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at 643 per Scrutton LJ. In Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574 at 610, Gummow J emphasised that accord and satisfaction “requires acceptance of something in place of the full remedy to which the recipient is entitled” (emphasis added).
[49] Where there is an agreement to accept a promise in satisfaction of the cause of action, “the original cause of action is discharged from the date when the promise is made”: McDermott v Black per Starke J (at 176); Dixon J (at 183-185); see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd (at 644) per Scrutton LJ.
[50] The consequences of the discharge of the original cause of action by accord and satisfaction were explained by Phillips JA (with whom Winneke P and Charles JA agreed) in Osborn & Bernotti t/as G04 Productions v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 at 8, in a passage referred to with apparent approval by Gummow and Hayne JJ in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [56]. Phillips JA said:
Where there is an accord and satisfaction, the agreement for compromise may be enforced, and indeed only that agreement may be enforced, because ex hypothesi the previous cause of action has gone; it has been “satisfied” by the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit.
(emphasis added)
[51] In other words, the role of an accord is to replace the former contract with a new one (eodem modo quo oritur, eodem modo dissolvitur): Professor Brian Coote, “Common Forms, Consideration and Contract Doctrine” (1999) 14 Journal of Contract Law 116 at 123. Accord and satisfaction provides the means whereby a cause of action which a plaintiff has can be rendered unenforceable: Illawong Village Pty Ltd v State Bank of New South Wales [2004] NSWSC 18, at [262] – [263] per Campbell J.
[52] If the promisor fails to perform the promise, the promisee’s only remedy is to sue for breach of the promise. There cannot be a return to the original obligation or claim: see Anson’s Law of Contract, 27th ed at 492; see also Koutsourais v Metledge & Associates [2004] NSWCA 313 at [49] – [51] per Bryson JA (Hodgson JA, with whom Beazley JA concurred, agreed (at [7]) with Bryson JA’s consideration of the issue of accord and satisfaction, although disagreeing with his Honour’s ultimate conclusion).
[53] If a party to the accord and satisfaction sought to revert to the original cause of action the accord could be pleaded, at least in equity, as having operated as a release – as Dixon J explained in McDermott v Black (at 186-187, footnote added):
At law, “the only case in which a covenant or promise not to sue is held to be pleadable as a bar, or to operate as a suspension and by consequence a release or extinguishment of the right of action, is where the covenant or promise not to sue is general, not to sue at any time. In such cases, in order to avoid circuity of action, the covenants may be pleaded in bar as a release … for the reason assigned, that the damages to be recovered in an action for suing contrary to the covenant would be equal to the debt … or sum to be recovered in the action agreed to be forborne” (per Parke B, Ford v Beech (1848) 11 QB 852, at p 871 [116 ER 693 at p 700]).
But equity did not follow the law in its refusal to give effect to the agreement of the parties. At law an accord and satisfaction was not pleaded in bar of an action upon a specialty but in equity the debt was treated as discharged, and, before the Judicature Act, the creditor was restrained from proceeding at law for its enforcement.
See also McDermott v Black (at 176) per Starke J.
[54] The question whether there has been an accord and satisfaction is one of fact”: Day v Mclea (1889) 22 QBD 610 at 613 per Lord Esher MR; Bagnall v National Tobacco Corp of Australia Ltd (1934) 34 SR (NSW) 421 at 427, per Jordan CJ; see also Neuchatel Ashphalte Co Ltd v Barnett [1957] 1 WLR 356. It turns upon determining the parties’ intentions, which may be discerned from the terms of any document said to constitute all or part of the agreement or in the surrounding circumstances: Ballantyne v Phillott [1961] HCA 17; (1961) 105 CLR 379 at 398 per Menzies J.
[55] While it is a question of fact whether there has been accord and satisfaction, a reference to some cases which have considered that issue assist in determining whether there is an arguable case of accord and satisfaction here.
[56] In McDermott v Black, a purchaser claimed to have been induced to enter into a contract of sale of shares by fraudulent misrepresentations made by the vendor. Prior to the date of completion, the purchaser by letter complained of the misrepresentations, but in a later letter he withdrew all allegations imputing anything improper to the vendor conditionally upon the vendor granting him an extension of time to complete the contract. This extension of time was granted. The High Court (Latham CJ dissenting) held that the withdrawal of the allegations in consideration of an extension of time for completion was not too vague to constitute a contract of accord and satisfaction: see Starke J (at 175-176); Dixon J (at 183-186). Latham CJ was of the view (at 172) that “the agreement to withdraw the allegations and the actual withdrawal of the allegations did not amount to or imply any promise … never to rely upon the allegations as a cause of action”. Dixon J said (at 185-186):
The “withdrawal of all allegations imputing anything improper to” the defendant conditionally upon the latter’s agreeing to three-weeks’ further time for payment of the balance of purchase money clearly amounts to an election to affirm the contract. It does, I think, imply a promise not to revive the allegations. … The untechnical and inexact expression, “withdraw allegations”, no doubt causes some difficulty. But it must be borne in mind that the purpose was to settle or compromise a very definite dispute … The withdrawal of the allegations of improper conduct meant, in my opinion, that he would make no claim based upon misrepresentation but would accept the promise of further time instead … But I think that, consistently with principle, the agreement to withdraw in consideration of a grant of time can be regarded as an accord and satisfaction.
[57] In Ballantyne v Phillott (at 384) Dixon CJ observed that “[a] question of accord and satisfaction is seldom easy”. As much can be seen from that case which considered whether an accord and satisfaction could be inferred from a statutory declaration which stated that “any action or proceeding in any court heretofore commenced by the said (respondent) against the said (appellant) shall be discontinued and that such action or proceeding shall not again be commenced by or on behalf of the said (respondent) against the said (appellant)”, that “the said (respondent) waives all and any rights or claims whatsoever which he has or may have had against the said (appellant) by virtue of such action or proceeding or otherwise howsoever” and that “the said (appellant) has no right or claim against the said (respondent) in respect of or arising out of any such action or otherwise howsoever”. The High Court was divided on whether that amounted to accord and satisfaction.
[58] Menzies and Windeyer JJ held that it was not an accord and satisfaction because there was no consideration for the respondent’s agreement to discontinue the proceedings. Although Menzies J was satisfied (at 397) that if it could be found that the parties were “‘composing their differences’ … by each promising to give up claims against the other, it would not matter that the language used is not promissory in order for an accord to be found” he concluded (at 398) that the appellant’s acknowledgment that no right or claim existed was inconsistent with the implication of a promise as “[i]t is the denial, not a withdrawal, of any claim and does not in the known circumstances amount to consideration”.
[59] Dixon CJ held (at 390) that the appellant’s statement “that she had no right or claim” against the respondent amounted to consideration for the appellant’s promise, even though it was not a “claim which a judge would enforce”. According to his Honour, it should “be deemed enough” as “[i]t is a result that accords with their mutual intentions and I think that it is authorized by this peculiar branch of law”.
[60] The appellants rely upon Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA (at 933) where Goff LJ, who delivered the judgment of the Court, said:
It was against the background of those facts that the judge had to consider whether there had been a mutual abandonment of the reference to arbitration, or alternatively whether the owners could invoke the principle of equitable estoppel. In considering the first of those questions, he first of all drew attention to the fact that a distinction must be drawn between abandonment of the reference, with the claimant’s cause of action, if any, remaining intact, and abandonment of both the reference and the cause of action. However, he rejected the possibility that the parties could in this case have agreed to abandon the reference alone, while leaving the claim intact, or that there was any representation to that effect. With this conclusion we agree. We recognise, of course, that there may be circumstances in which, for some special reason, parties may agree to abandon a reference while leaving the claim intact – for example, if they decide to bring an arbitration to an end so that the matter can be resumed before different arbitrators, or before the court. But if parties simply agree to bring a reference to arbitration to an end – to drop hands, so to speak-the ordinary inference must be that they intend that the relevant claim, or claims, should also go. There is nothing in the present case to suggest that there should be any departure from that ordinary inference.
(emphasis added)
[61] Goff LJ also observed (at 933) that:
The owners’ abandonment of the reference, with all that this implies, including an abandonment of any right to obtain a declaratory award or to ask for an order for costs, would constitute good consideration for the abandonment of the charterers’ claim as well as their abandonment of the reference.
[62] Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA was not a case of accord and satisfaction, but, rather, one which considered whether a claim required to be submitted to arbitration could, by prolonged inactivity of the parties, be discharged by abandonment. However it is a useful illustration of the inference which may be drawn from the parties’ agreement, in this case, to discontinue the arbitration.
[63] Melbourne Money Pty Ltd v Bryant (1994) ASC 56-275 (Supreme Court of Victoria Appeal Division, 12 August 1994, BC9401196), upon which the respondent relied in support of his argument that the 1997 Settlement amounted to a withdrawal and discontinuance in the sense referred to in rules of court, concerned the effect of consent orders made in the Victorian Credit Tribunal which recorded that:
1. The Application against Jayan Seetal is withdrawn.
2. By consent (a) The Applicant is released from all liability to the Respondent pursuant to the loan contract dated 14th February 1986 and the mortgage dated 13th August 1986. (b) The Applicant releases the Respondent from all liability pursuant to the loan contract dated 14th February 1986 and the mortgage dated 13th August 1986. (c) No order for costs.
[64] The appellant argued in Melbourne Money Pty Ltd v Bryant that this compromise precluded the respondent from bringing a second application before the Credit Tribunal. It relied upon Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. The facts are complex and do not require repetition. While Ormiston J (with whom Tadgell and Smith JJ agreed) inclined to the belief that the parties did not intend that there should be a consent order permitting the respondent to withdraw her application or that that was the manner in which the first application was to be terminated, he also concluded (BC9401196 at 31) that even if that had been the parties’ intention, that would not have barred the respondent’s rights to reopen the second transaction. He reached this conclusion by applying the proposition that the effect of a withdrawal or discontinuance of proceedings “shall not be a defence to a subsequent proceeding for the same, or substantially the same, cause of action”: see Kronprinz, Owners of the Cargo of v Owners of the Kronprinz (The Ardandhu) (1887) 12 App Cas 256 and Spencer Bower and Turner: Res Judicata (2nd ed), para 34-para 40. He observed that:
In essence, if a party wishes to have matters disposed of finally with no orders made against that party, it should seek and obtain a dismissal, whether by consent or otherwise. If all that occurs is that the other party seeking to make a claim is allowed, by consent of the other party, to discontinue its proceeding or withdraw any part of its proceeding, then the matter is not res judicata or capable of giving rise to an issue estoppel and it may be raised a second time in further proceedings.
[65] The question of accord and satisfaction was not considered in Melbourne Money Pty Ltd v Bryant. That case illustrates one interpretation which may be given to the effect of withdrawing proceedings. However, the question is ultimately to be resolved by a consideration of the parties’ intention in the circumstances of each case.
[66] In this case, in my view, there is an available inference that the parties’ intention was to walk away from the arbitration and any claims they had against each other. For the purposes of determining whether the appellants have an arguable case of accord and satisfaction reference may be made to the solicitors’ subsequent correspondence and Mr Snelgrove’s 1999 affidavit. Subsequent conduct cannot be used as an aid to the construction of the 1997 Settlement (see Magill v National Australia Bank Ltd [2001] NSWCA 221; (2001) Aust Contract R 90-131 at [50] – [53]). However evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively of the “aim” of the transaction, is admissible: see Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 348 per Mason J.’
