What to do if you settle a court action and the other party defaults?

By Ryan Attard, Law Clerk, and Alicia Hill, Principal

Recently, the Supreme Court of Victoria heard the case of Australian Xinyangfeng Fertilizer Pty Ltd v Freshwater [2020] VSC 450 which provides an example of one of the mechanisms available to parties when another party defaults on a settlement agreement to hold the defaulting party to the bargain struck. The plaintiff, Australian Xinyangfeng Fertilizer (AXF), sought reinstatement of their original proceedings against the first defendant, Andrew Freshwater (Mr Freshwater). These proceedings had been settled by a settlement agreement, with judgment against Mr Freshwater in the sum of $205,000, being the balance owing under the agreement together with costs and interest. The re-opening of the old case fast-tracked enforcement of the original agreement, saving time and the cost of initiating new proceedings.

Background

AXF was the registered proprietor of a farm at 2248 Tantanon Road, Mathoura (the Farm) where it sought to run a large sheep farming enterprise. Mr Freshwater was employed as a farming consultant who was to serve as the Farm’s manager. At the time, he was also the sole director of Moorella Farming Pty Ltd and Certified Dorper Lamb Pty Ltd (which was the trustee of IAG Farm Inputs Hybrid Trust and the Australian Precision Farming Hybrid Trust).

In the original proceedings, AXF alleged that Mr Freshwater represented to AXF that they should purchase goods from IAG Farm Inputs as it was well established in the farming industry. As part of the deal, IAG Farm Inputs would supply and deliver seeds, fertilizer and other farming goods. Mr Freshwater also allegedly asserted that Australian Precision Farming was well-known and that they should provide labour for the Farm.

In the court case, AXF contended that Mr Freshwater’s representations were misleading and deceptive, or likely to mislead or deceive. In reliance of his advice, AXF made payments for seeds, fertilizer and farming products. However, supply agreements were entered which were not fully delivered. AXF claimed losses totalling $352,481. One key issue involved the purchase of an airseeder which Mr Freshwater said was a 2014 model when, in fact, it was a 2007 model. AXF claims they would not have purchased the airseeder had they known.

Orders were made for a trial and for mediation in the interim.

On 1 November 2018, the parties agreed to settle the matter and entered into a deed of settlement and release. This included payment in instalments of $360,000 by Mr Freshwater to AXF. After $110,000 was paid, the airseeder would be returned to Mr Freshwater.

These orders were made on 9 November 2018 by consent. Importantly, AXF reserved the right of reinstatement of proceedings if the orders were breached.

Mr Freshwater had paid enough for return of the airseeder by April 2019, with $155,000 in total paid from the commencement of the deed of settlement. A moratorium was placed on the payments for April to September 2019, and $5,000 of October 2019. However, Mr Freshwater did not make any payments, alleging that the airseeder was returned in an extremely poor condition. He said he would finalise the payments once AXF returned the airseeder to its original state.

Supreme Court of Victoria

AXF sought for the proceedings to be reinstated and for judgment in the sum of $205,000. In return, it said it would fix the airseeder. In this, AXF sought ‘what is, in effect, an order enforcing the agreement specifically’ (citing the Full Court of the Supreme Court of Victoria in Roberts v Gippsland Agricultural Earthmoving Contracting Co Pty Ltd [1956] VLR 555). The Court looked to its ability to enforce the terms of the settlement without new proceedings being initiated. This was because there was no substantial question of fact that needed to be decided and this was merely the enforcement of a previous agreement.

This was reinforced by the express term in the settlement deed which allowed for the reinstatement of the proceeding in the case of any default. This meant there was further clarity as to the power of the Court to use its summary powers to settle enforcement issues instead of going through the arduous and costly process of initiating fresh proceedings.

Mr Freshwater was ordered to pay $205,000 in relief to AXF, being the balance of settlement monies owing.

Relevance

This case serves as a reminder of the Court’s power to summarily hear a matter arising from a deed of settlement. Parties can reserve their right to recommence proceedings if any settlement agreement is breached. This saves time and costs, with parties not required to initiate new proceedings. By doing this, you will avoid unnecessary proceedings which could be mitigated by relying on the Court’s ability to settle matters as was done above and by ensuring you reserve your right to reinstate proceedings.

If you have an enquiry regarding enforcing settlement deeds or any issue raised by this article please contact Alicia Hill (03) 8450 0200 or via email Alicia.hill@mst.com.au.