Delaney v Delaney
[2022] VSCA 48
•4 April 2022
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0093
| PATRICK JOSEPH DELANEY | First applicant |
| PAT DELANEY CONSTRUCTIONS PTY LTD | Second applicant |
| v | |
| SEAN ANTHONY DELANEY | First respondent |
| SKILDALE PTY LTD | Second respondent |
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| JUDGES: | McLEISH, KENNEDY and MACAULAY JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 11 February 2022 |
| DATE OF JUDGMENT: | 4 April 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 48 |
| JUDGMENTS APPEALED FROM: | [2021] VSC 365; [2021] VSC 399 (Lyons J) |
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CONTRACT – Heads of agreement – Agreement to purchase interests in group entities – Provision for further negotiations – Tax implications of purchase unresolved – Whether complete purchase agreement or agreement to negotiate – Complete purchase agreement – Masters v Cameron (1954) 91 CLR 353, Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141, considered – Intention to be bound – Relevance of omission of important but inessential terms – Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, applied – Leave to appeal granted – Appeal dismissed.
CONTRACT – Specific performance – Agreement to purchase shares and units – Default by vendor – Purchaser obtaining order for specific performance – Whether vendor entitled to interest on purchase price since date for completion – No evidence as to purchaser’s receipt of income from sale property in interim – Open to judge to refuse order for interest – Harvela Investments Ltd v Royal Trust Coof Canada (CI) Ltd [1986] AC 207, applied – Leave to appeal refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr I D Martindale QC and | MW Law |
| Mr A T Schlicht | ||
| For the Respondents | Mr P W Collinson QC and | Lander & Rogers |
| Ms E Dias |
McLEISH JA
KENNEDY JA
MACAULAY JA:
The first applicant (‘Patrick’) and the first respondent (‘Sean’) are brothers. They are co-owners of the Delplant group, which consists of a number of interconnected companies and trusts. Sean is the managing director of the group. Until recently, Patrick was the operations manager. Patrick’s and Sean’s interests in the group are largely held through their respective family trusts. The second applicant (‘PDC’) and the second respondent (‘Skildale’) are the trustees of those trusts.[1]
[1]In what follows, references to Patrick’s interests in the group include his interests held through his family trust and PDC, and references to Sean’s interests include his interests held through his family trust and Skildale.
In the decade after they bought a third brother (’Joseph’) out of the group, the relationship between Patrick and Sean deteriorated. On 25 May 2020, Sean made Patrick redundant. Two days later, Sean and Patrick executed a heads of agreement. In broad terms, the agreement provided for Sean to buy Patrick out of the group for $10 million. It also provided for further negotiations (including as to tax issues) and allowed a short period of time in which a more formal agreement might be concluded.
Further negotiations were fruitless. No further agreement was concluded. Within weeks, Patrick purported to terminate the agreement.
Sean brought a proceeding in the Trial Division. After a trial, a judge found that the agreement was a complete and binding contract for Sean to purchase Patrick’s interests in the group for $10 million.[2] On 2 July 2021, the judge ordered that settlement of the agreement occur by 4 August 2021.
[2]Delaney v Delaney [2021] VSC 365 (‘Reasons’).
The judge also directed the parties’ accountants to confer in the meantime and seek to agree to effect the settlement in a way that yielded a mutually satisfactory taxation outcome. But settlement was to proceed irrespective of whether an agreement was reached. Again, no agreement was reached.
The applicants now apply for leave to appeal, relying on four proposed grounds of appeal.
The first and second proposed grounds are interlinked, and are the main focus of the application. By those grounds, the applicants contended that the judge mischaracterised the agreement as a complete agreement for the purchase of Patrick’s interests in the group. They submitted that the agreement bound the parties only to negotiate a purchase agreement. The agreement was not a complete purchase agreement because important matters (such as the structure and tax implications of the transaction, and the treatment of shareholder and beneficiary loans) were left unresolved. As a result, it was said that there was no purchase agreement capable of being specifically performed.
The third proposed ground is an alternative ground contending that, if the agreement was a purchase agreement capable of being specifically performed, the judge ought to have ordered that Sean pay interest on the $10 million purchase price. The fourth proposed ground depends on the success of the first and second proposed grounds. In short, if those grounds succeed, the parties agree that Patrick is to be paid redundancy entitlements calculated by the trial judge, including accrued long service leave entitlements.
The applicants also applied for an extension of time within which to file their application for leave to appeal, and for orders staying the trial judge’s orders pending the determination of this application for leave to appeal. At the hearing, the application for an extension of time was not opposed, and the Court indicated that it would be granted. The applicants accepted that the stay that had been sought was now moot and that application was not pressed.
For the reasons that follow, the application for leave to appeal will be granted in respect of the first two grounds only, but the appeal will be dismissed.
Factual background
Sean and Patrick each hold a half-interest in two unit trusts: Delplant Properties Trust and Mt Salazia Development Trust. Delplant Properties Trust owns real property. Mt Salazia Development Trust, the parent entity in the group structure, owns or part-owns the group businesses. These businesses are:
(a) Delplant Pty Ltd, a civil construction company (‘Delplant’);
(b) Delplant Haulage Pty Ltd, a heavy haulage company (‘Haulage’); and
(c) South East Plant Hire Pty Ltd, a plant hire company (‘Plant Hire’).
Mt Salazia Development Trust wholly owns Delplant, but indirectly, via its ownership of an interposed company, Protace Pty Ltd. It wholly owns Plant Hire, and over a quarter of Haulage.[3]
[3]The remaining shares are held by Delplant and (in equal shares) Patrick and Sean’s family trusts.
There are two non-operational companies, Hervet Pty Ltd and Trenchbox Pty Ltd. Another entity, the South East Plant Hire Partnership, ceased operating the year before the agreement.[4]
[4]Reasons, Annexure A.
Of these various entities, Sean and Patrick are directors of all but one.[5]
[5]Plant Hire’s two directors are Sean’s son James, and Patrick’s wife Kathryn. Sean and Patrick are the only directors of the remaining entities, other than Haulage which also has a third director.
As mentioned, Sean and Patrick executed the agreement on 27 May 2020. The agreement was negotiated over the course of a day, and with the involvement of the parties’ respective lawyers. The template for the agreement was a settlement agreement between the Delaney family and another family the previous year. The agreement also drew heavily from an earlier letter sent by Sean’s lawyers to Patrick’s lawyers, to which the agreement referred (‘the 24 February 2020 letter’).[6]
[6]Clause 1(a).
The agreement is brief, comprising eight clauses running over three pages. In addition to Sean and ‘Skildale’ and Patrick and ‘PDC’,[7] the nine group entities described at [11]–[13] above are listed as parties.
[7]Sean and Skildale are described in the schedule of parties as ‘SEAN ANTHONY DELANEY and his associated company’s’ [sic] and Patrick and PDC as ‘PATRICK JOSEPH DELANEY and his associated company’.
The chapeau records:
The parties have agreed to the sale of Pat Delaney’s interest in the Delplant Group to Sean Delaney interests as set out in this Heads of Agreement.
There follows the heading ‘Agreement’, under which there are eight numbered clauses.
Clause 1 is entitled ‘Settlement’. Clause 1(a) states that, ‘[f]urther to the [24 February 2020 letter] on the terms and conditions set out below, the parties agree to the following’. Clause 1(b) records that:
Sean Delaney interests acquire all of Pat Delaney interests in the Delplant Group (the interests) for the sum of $10,000,000 (settlement sum) as outlined below.
Clause 1(b) then specifies the ‘interests’ to be acquired, described as Patrick’s:
(d) ‘interests in the total interests in Mt Salazia Development Trust inclusive of [Delplant] and Protace Pty Ltd and associated companies’;
(e) ‘interests in interest and shares in [Haulage]’;
(f) ‘interests in shares and interest in Hervet Pty Ltd’;
(g) ‘interests interest [sic] in (loan and equity) in [Plant Hire] on the basis South East Plant Hire Partnership no longer exists including the proceeds of any loans and liabilities that exists [sic] between the new South East Plant Hire and the old South East Plant Hire’;
(h) ‘interests shares and interests [sic] in Delplant Properties Pty Ltd and Delplant Properties Trust and its assets’; and
(i) ‘any other company associated with the Delplant group or company’.[8]
[8]Clause 1(b)(i)–(v), (vii).
Clause 1(b) also addresses Patrick’s employment with the group entities. It relevantly provides:
vi.Patrick Delaney and/or his associates resign as Directors of [Delplant], Hervet Pty Ltd, Protace Pty Ltd, [Plant Hire], Mt Salazia Developments Pty Ltd, Trenchbox Pty Ltd and any other associated and relevant company’s [sic].
vii.Your client [sic] resigns immediately with his last day being 30th of June 2020.[9] There is no applicable redundancy payment.[10]
[9]The phrase ‘your client’ appears to have been transposed from the 24 February 2020 letter, addressed to Patrick’s lawyers.
[10]Clause 3(c) provides to like effect, and also specifies that Patrick was not to attend the premises or workplaces of any of the group entities once the agreement was executed.
Finally, cl 1(b)(ix) provides that mutual releases were to be made between the parties.
Clause 2 sets out a ‘non-compete’ clause in respect of Patrick ‘and his interests and family’.
Clause 3 is (again) entitled ‘Settlement’. Clause 3(a) provides that the settlement sum ‘shall be paid’ in three instalments, with $5,000,000 to be paid on 15 July 2020, and the balance to be paid in two equal payments on 16 November 2020 and 15 July 2021. Clause 3(b) provides that on payment of the first instalment, Patrick:
shall hand to Sean all necessary share transfers, unit transfers, executed documents as drawn by Seans Solicitors [sic] to enable the transfer of the interests and resignation as director of all companies in the delplant group [sic].
Clause 4 is entitled ‘General’. Clause 4(a) provides:
These Heads of Agreement are intended to legally bind the parties.
Clause 4(b) records that the parties:
agree to negotiate in good faith the terms of a formal agreement (Further Agreement) recording more fully and precisely the terms of this Heads of Agreement and any additional terms that the parties may reasonably require.
Clause 5 provides:
In respect of any accounting and taxation implications it is proposed would be settled by [the parties’ respective accountants] in a mutually beneficial taxation outcome for both parties inclusive of Beneficiary, Unitholder and Shareholder Loans.[11]
[11]The phrase ‘it is proposed’ also appears to have been transposed from the 24 February 2020 letter.
Clause 6 provides that if the further agreement contemplated by cl 4(b):
cannot be concluded by 10 June 2020, and this time is not extended by agreement of the parties, then the terms of this Heads of Agreement will prevail.
Clause 7 records that the parties:
agree to take all steps and do all things necessary to give legal and commercial effect to the terms of this Heads of Agreement.
Clauses 8 is a counterparts clause.
The document was executed by Sean and Patrick on their own behalf and on behalf of their respective ‘interests’. The document made no provision for execution on behalf of any of the Delplant entities named as parties.
Judge’s reasons
The judge delivered his primary judgment on 28 June 2021. Two aspects of that judgment are presently relevant.
First, the judge concluded that the agreement was a binding, and sufficiently complete, contract for Sean to purchase Patrick’s interests in the group for $10 million. In doing so, the judge rejected Patrick’s contention that the case fell into the third Masters v Cameron category; that is, that it was ‘intention of the parties not to make a concluded bargain at all, unless and until they execute a formal contract’.[12]
[12]Masters v Cameron (1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).
After comprehensively setting out the applicable legal principles — which were largely not in dispute — the judge turned to their application.[13] He considered the structure and language of the agreement to be ‘almost entirely consistent with an intention to create a concluded and immediately binding agreement’.[14] The agreement identified the vendor and purchaser, and the price to be paid.[15] It also identified with sufficient precision the assets the subject of the agreement: Patrick’s interests in the group, comprising shares and units in the group entities.[16] The fact that the agreement did not specifically address sometimes substantial loan accounts in respect of some of the entities did not render the assets to be purchased uncertain.[17]
[13]Reasons [326]–[345].
[14]Ibid [362].
[15]Ibid.
[16]Ibid [362], [385].
[17]Ibid [172], [382], [422].
Further, in both the chapeau and operative clauses, the agreement used language consistent with a concluded agreement having been reached, recording at several points that the parties ‘have agreed’ or ‘agree’.[18] Moreover, the agreement expressly recorded the parties’ intention that the agreement legally bind them,[19] as well as their agreement to do all things necessary to give the agreement legal and commercial effect.[20]
[18]Ibid [351]–[353].
[19]Ibid [355].
[20]Ibid [359].
While cl 4(b) contemplated a further agreement, there was no requirement that such an agreement be concluded. Instead, the time for concluding such an agreement was limited, and the consequence of not reaching a further agreement was that the existing agreement would ‘prevail’ — that is, continue to bind the parties.[21]
[21]Ibid [358], [398].
Similarly, cl 5 did not indicate that settling the accounting and taxation implications of the purchase was a precondition to reaching a complete and binding purchase agreement. While those matters were important to the parties, and Patrick in particular, the clause did not impose a hurdle to be cleared before the agreement would bind the parties. Instead, it offered an opportunity to implement an already binding purchase agreement in a tax-effective way. The judge said:
[V]iewed objectively, cl 5 was included to give the accountants of the parties the opportunity to agree on a mutually beneficial taxation outcome for both parties, including the treatment of any beneficiary, unitholder and shareholder loans. That opportunity is consistent with the use of the words ‘it is proposed’. That opportunity is also consistent with the fact that there is no express default position in cl 5 should such an agreement not be reached.[22]
[22]Ibid [422].
In so concluding, the judge emphasised that cl 5 was book-ended by clauses which emphasised the binding nature of the agreement: cl 4, which recorded that the agreement is ‘intended to legally bind the parties’, and cl 6, which stipulated that the agreement would ‘prevail’ absent further agreement.
Secondly, the judge rejected Patrick’s counterclaim for payment of his redundancy entitlements. Patrick had conceded that, if the agreement was enforceable, cl (1)(b)(vii) of the agreement — which provided that ‘there is no applicable redundancy payment’ — foreclosed a claim for his redundancy entitlements.[23] As the judge had concluded that the agreement was enforceable, the claim for redundancy entitlements fell away.[24]
[23]Ibid [558].
[24]Ibid [565], [568].
Following a further hearing, the judge delivered judgment dealing with costs.[25] Only one aspect of that judgment is presently relevant. The judge rejected the present applicants’ submission that a costs order against them should be offset ‘on an interest adjustment basis’ against the commercial advantage to Sean of having had the benefit of the purchase sum in the interim. The judge explained:
Any alleged benefit to Sean in retaining the settlement sum under the [agreement] until now has arisen by reason of the defendants having purported to terminate the [agreement] in June 2020, which resulted in the need for the plaintiffs to issue this proceeding.[26]
[25]Delaney v Delaney [No 2] [2021] VSC 399 (‘Costs Reasons’).
[26]Ibid [35].
Proposed grounds of appeal
There are four proposed grounds of appeal, set out below in abbreviated form:
1. The primary judge erred in fact and in law in holding that the Heads of Agreement dated 27 May 2021 was a binding contract for the acquisition of shares in each company and units in each unit trust specified in paragraph 5(b) of the orders (Delplant group), that could be enforced by the court, because the agreement embodied in the Heads of Agreement was incomplete and therefore unenforceable.
2. The primary judge erred in law in ordering the specific performance of the Heads of Agreement:
(a) until and unless the accountants settled the matters referred to them under clause 5 thereof, it being a necessary prerequisite to performance of the Heads of Agreement that those matters be settled; and
(b) on the basis that if the accountants failed to settle those matters, the taxation consequences could lie where they fell, because objectively, that was not what the parties intended should happen in that event.
3. The primary judge erred in law in refusing to allow interest to the vendors of the shares and units from the date fixed by clause 3(b) of the Heads of Agreement for completion of their acquisition to the date of their actual acquisition in accordance with the orders, in the absence of any provision in the Heads of Agreement (or an order being made) for the profits attributable to the holding of the shares and units in respect of that period to be paid to the vendor.
4. The primary judge erred in failing to make an order for the payment of long service leave in favour of the first defendant.
Proposed grounds 1 and 2 — whether there is an enforceable agreement
The first and second proposed grounds are interlinked, and it is convenient to address them together.
By these grounds, the applicants advance a more narrow position than at trial: they now accept that the agreement is a binding agreement, just not a binding purchase agreement.[27] As counsel for the applicants put it, the agreement is binding only ‘up to a point’. The agreement was said to bind the parties to negotiate a purchase agreement, but not to bind them to proceed with the purchase if no purchase agreement was reached. At the same time, counsel accepted the judge’s conclusion that the agreement contained the essential terms of the bargain for the sale of Patrick’s interests in the Delplant group to Sean’s interests, namely the assets to be sold, the price to be paid and the vendor and purchaser.[28]
[27]This was said to have the effect of neutralising some of the factors that weighed most heavily in the judge’s analysis: for example, the applicants now accept that that the essential terms were present, and that cls 4, 6 and 7 indicated the parties’ willingness to be immediately bound by the agreement.
[28]Reasons [362(2)].
This class of case, it was said, did not fall neatly within the Masters v Cameron typology, but was recognised by the Court in Nurisvan Investments Ltd v Anyoption Holdings Ltd (‘Nurisvan’).[29] In Nurisvan, this Court concluded that a heads of agreement which provided for the parties to enter into a further agreement for the purchase of shares did not bind the parties to conclude the contemplated further agreement. It was ‘no more than a contract between the parties to negotiate, in good faith’ the contemplated further agreement.[30] It will be necessary to return to Nurisvan.
[29][2017] VSCA 141.
[30]Ibid [113] (Osborn, Santamaria and Kaye JJA).
The applicants said the agreement could not bind the parties to anything more than negotiation because, as a purchase agreement, it was incomplete. An agreement was said to be incomplete if it fails to address ‘objectively important’ subject matters. This is a wider category than ‘essential terms’: the presence of essential terms was said to be necessary but not sufficient to achieve a complete agreement. Non-essential but ‘objectively important’ matters must also have been addressed.
The requisite ‘objectively important’ matters were described in a number of ways: the matters ‘usually’ found in the type of agreement, matters necessary to achieve the envisaged transaction, matters important to achieving the purpose(s) of the agreement, and matters likely to have a significant ‘impact’ on one or both of the parties.
As noted above, the applicants ultimately accepted that (as the judge recognised) the essential terms for a purchase agreement were present, but contended that there was not a complete purchase agreement because several inessential but important subject matters were unaddressed.
In broad terms, there was a single important subject not addressed: the structure of the purchase transaction, and the attendant tax implications. This was said to encompass a number of specific matters, including:
(j) the apportionment of the total $10 million purchase price across the shares and units to be acquired in the various group entities;
(k) the mechanism by which the shares and units to be purchased would be acquired;[31]
[31]For example, whether shares would be bought back by the relevant company, or units redeemed by the relevant trust, or some other means.
(l) the treatment of sometimes significant beneficiary, unitholder and shareholder loans, and, in particular whether these loans would be repaid, released or assigned;
(m) whether any price adjustment would be made in respect of any matter, including retained earnings and current year profits (in which, in the case of relevant unit trusts, the unitholders held proprietary interests); and
(n) the giving of warranties, indemnities and releases.
These matters, it was submitted, were important not only because they are commonly addressed in such transactions, but also because they were matters:
(o) addressed in the far more comprehensive predecessor agreement by which Sean and Patrick in 2007 bought their brother Joseph out of the group;
(p) the ultimate resolution of which would have a significant financial impact. For example, some of the loan accounts in question had balances in the millions of dollars;[32] and
(q) the tax consequences of which, the judge found, were viewed as important not only to the parties, but also to the group.
[32]Counsel referred, for example, to the more than $4 million owed by the two brothers to Hervet Pty Ltd.
Counsel submitted that ‘gaps in the contractual fabric’ were apt to lead to a conclusion that the contract was incomplete and therefore unenforceable, whether the matters on which agreement had not been reached were essential or were simply matters ordinarily agreed upon in transactions of the kind in question.[33]
[33]Reliance was placed on Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 131 (Brooking J) (‘Toyota’) and Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2015] NSWSC 354, [207] (Robb J).
The respondents advanced four main contentions.
First, the respondents observed that the applicants’ concession that there was a binding agreement of some sort engaged the presumption described by this Court in Ipex Software Services Pty Ltd v Hosking (‘Ipex’).[34]That is, that where the parties intend to enter a binding agreement, the Court will strive to give effect to that intention by ‘overcoming difficulties said to arise from uncertainty’ or, relevantly here, ‘incompleteness’.[35]
[34][2000] VSCA 239.
[35]Ibid [56] (Eames AJA, Batt JA agreeing at [32]).
Secondly, the respondents submitted that Nurisvan was a very different case. It was not in doubt in Nurisvan that there was not yet a purchase agreement; the question was whether there was an enforceable agreement to enter into a purchase agreement. Here the question is different: it is whether an enforceable purchase agreement already exists. Apparent similarities between the agreement at issue in Nurisvan and the present agreement disguise important differences. For example:
(r) In the Nurisvan agreement, the chapeau recorded merely a ‘wish’ to sell pursuant to a share purchase agreement to be later ‘entered into’.[36] The present agreement records, in the chapeau and cl 1, that an agreement to sell had already been reached.
(s) In the Nurisvan agreement, there was not, as in the present agreement, any completion date or any equivalent to cl 7 requiring the parties to give the agreement ‘legal and commercial effect’.
(t) The Nurisvan agreement contained clauses that would not be sensible in a binding purchase agreement, such as clauses prohibiting negotiations with a third-party purchaser.[37] The present agreement contains no such clauses.
[36]Nurisvan [2017] VSCA 141, [114] (Osborn, Santamaria and Kaye JJA).
[37]Ibid [116].
Thirdly, the respondents disputed that the absence of non-essential but ‘important’ terms renders an agreement incomplete. The absence of terms that might be routinely seen, or might be prudent or useful, is not fatal unless they are also essential — that is, that the agreement will not work without them.
Fourthly, the respondents denied that the particular matters raised by the applicants and set out at [48] above were essential in the requisite sense. Specifically:
(u) the apportionment of the purchase price did not need to be specified in the agreement, since the parties could instead conduct their own apportionment on the basis of an in globo price of $10 million;
(v) cl 3 of the agreement sets out the mechanism by which the shares and units would be acquired, providing for the transfer of the specified shares and units;
(w) the agreement specifically addresses certain loans (relating to Plant Hire). Where loans are unaddressed in the agreement (and remain unaddressed after the contemplated further negotiations and conferrals) the agreement simply leaves the status quo intact;
(x) the agreement’s silence as to possible price adjustments (including by reference to retained and current year profits) does not indicate incompleteness but instead the intention that there be no such adjustments in the absence of further agreement; and
(y) similarly, the agreement’s silence as to warranties and indemnities does not indicate incompleteness but instead the intention that there be none, again in the absence of further agreement.
Applicable principles
The essential question presented is whether the agreement is a complete purchase agreement. To answer that question, it is necessary to be clear about what is meant by the term ‘complete’. In particular, it is necessary to distinguish between two uses of the term. The distinction reflects the two different issues identified by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (‘Commonwealth Games’):[38]
[T]he question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain. That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decided that they intended to make a concluded bargain.
[38](1988) 18 NSWLR 540, 548 (citations omitted) (‘Commonwealth Games’).
The first way in which the term ‘complete’ may be used is to describe whether or not an agreement contains the terms necessary for it to constitute a binding contract — the essential terms. The essential terms are those which the parties or the law regard as ‘essential to the formation of legally binding relations’.[39] The essential terms commonly (although not always) include terms identifying the parties, subject matter, consideration or price, and date(s) for performance. Used in this sense, ‘complete’ describes an agreement that contains (or at least provides an adequate mechanism to ascertain) the essential terms, and ‘incomplete’ describes an agreement that omits or leave to be settled by later agreement one or more essential terms.[40] The presence or absence of inessential terms, however important, has no bearing on whether an agreement is ‘complete’ or ‘incomplete’ in this sense.[41]
[39]Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, 22 [57] (Gageler J) (‘Crown’); Thorby v Goldberg (1964) 112 CLR 597, 607 (Menzies J); O’Brien v Dawson (1942) 66 CLR 18, 37 (Williams J).
[40]Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604 (Gibbs CJ, Murphy and Wilson JJ); Toyota [1994] 2 VR 106, 130 (Brooking J), 170 (Tadgell J); Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37] (Tate and Beach JJA and Sifris AJA); Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1, [63] (Sackville AJA, Macfarlan JA and Gleeson JA agreeing at [1] and [2]); Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 408 [123] (Keane CJ), [223] (Finkelstein J) (‘Fortescue Metals’).
[41]Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101, 112 [29] (Ipp J, Pidgeon J agreeing at 104 [1]) (‘Anaconda Nickel’).
The second way in which the term ‘complete’ may be used is to describe whether an agreement which contains the essential terms also contains or omits inessential terms that are important enough to signal the parties’ intention whether or not to be bound.[42] In other words, this use of the term focusses not on whether an agreement contains terms necessary to constitute a legally binding contract, but whether it also contains terms sufficient to signal the parties’ willingness to be immediately bound by that contract.[43] In Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd (‘Toyota’), Brooking J described ‘incompleteness’ in this sense, as follows:
It is not only failure to agree on some essential term that tells against the existence of the intention to make an immediately binding contract. Failure to reach agreement on matters which, while not essential, are none the less matters which are ordinarily agreed upon in transactions of the class in question has the same tendency.[44]
[42]See, eg, JD Heydon, Heydon on Contract: The General Part (Lawbook Co, 2019) 86 [3.60], 88 [3.70].
[43]See, eg, Anaconda Nickel (2000) 22 WAR 101, 111 [27] (Ipp J, Pidgeon J agreeing at 104 [1]).
[44]Toyota [1994] 2 VR 106, 131 (Brooking J) (emphasis added).
In this sense, ‘complete’ describes an agreement that contains (or provides a means for identifying) enough of the important but inessential terms to signify the parties’ intention to be bound, and ‘incomplete’ describes an agreement that omits or leaves to be settled by later agreement enough of those important inessential terms to signify the absence of such an intention. The greater the number and significance of the unaddressed important matters, the greater the likelihood that the parties did not intend to be immediately bound by the agreement.[45] Conversely, where all or nearly all of the important matters are addressed, the conclusion that the parties intended to be immediately bound will be difficult to resist.[46]
[45]Commonwealth Games (1988) 18 NSWLR 540, 548 (Gleeson CJ).
[46]Darzi Group Pty Ltd v Nolde Pty Ltd (2019) 100 NSWLR 394, 399 [16] (Bathurst CJ) (‘Darzi Group’).
As noted, these two usages reflect the two related but distinct inquiries identified by Gleeson CJ in Commonwealth Games. The first inquiry is whether agreement has been reached on the essential terms constitutive of a contract; the second inquiry is whether the parties have (by agreeing on enough other important terms) expressed an intention to be bound by those terms.[47] These are distinct inquiries, and may yield different answers. The parties may intend to make a contract, but fail to do so by not agreeing on the essential terms.[48] Conversely, the parties may have reached agreement on the essential terms but not yet intend to be bound.[49]
[47]Commonwealth Games (1988) 18 NSWLR 540, 548 (Gleeson CJ); GC NSW Pty Ltd v Galati [2020] NSWCA 326, [60] (Gleeson JA, White JA and Emmett AJA agreeing at [144] and [155]); QBE Underwriting Ltd as Managing Agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd (2018) 97 NSWLR 459, 476 [70] (Leeming JA, Macfarlan JA agreeing at 462 [1], Payne JA agreeing at 487 [132]) (‘QBE’).
[48]Toyota [1994] 2 VR 106, 130 (Brooking J).
[49]See, eg, Masters v Cameron (1954) 91 CLR 353, 360–1 (Dixon CJ, McTiernan and Kitto JJ); Darzi Group (2019) 100 NSWLR 394, 425 [141] (Emmett AJA, Bathurst CJ relevantly agreeing at 397 [2]).
However, because the sufficiency of the terms of an agreement is relevant to both inquiries, because the phrases ‘essential term’ and ‘important term’ are often used interchangeably,[50] and because both inquiries raise questions of ‘completeness’ albeit in different senses,[51] the two inquiries are sometimes confused or conflated.[52]
[50]See, eg, Fortescue Metals (2011) 190 FCR 364, 432 [225] (Finkelstein J); JW Carter, E Peden and G J Tolhurst, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007) 91 [4–10].
[51]Anaconda Nickel (2000) 22 WAR 101, 110 [23] (Ipp J, Pidgeon J agreeing at 104 [1]).
[52]QBE (2018) 97 NSWLR 459, 476 [70] (Leeming JA, Macfarlan JA agreeing at 462 [1], Payne JA agreeing at 487 [132]).
It is important, therefore, to bear in mind not only that the two concepts of ‘completeness’ are distinct, but also that they inform the inquiries to which they respectively correspond in different ways. In particular, it is important to bear in mind that the two senses of incompleteness are accompanied by different consequences. If an agreement is ‘incomplete’ in the first sense, that determines the first inquiry. That is, if an essential term is missing, the consequence is that there is simply no contract.[53] But if an agreement is ‘incomplete’ in the second sense, that does not determine the second inquiry. If important inessential terms are missing or left for later, the parties might still intend to be bound; it is just less likely.
[53]Crown (2016) 260 CLR 1, 15 [31] (French CJ, Kiefel and Bell JJ).
Analysis
Against that background, it is possible to return to the applicants’ submissions. The applicants contended that the agreement was ‘incomplete’ as a purchase agreement in three different ways.
First, in parts of their written submissions, the applicants contended that the agreement was incomplete in the first sense: that is, essential aspects of the transaction were left for further negotiation, and essential terms were absent. But this contention (along with the submissions responding to it) may be left to one side because, by the time of their oral submissions, the applicants had disavowed it. As noted earlier, the applicants accepted the judge’s conclusion that the agreement contained the essential terms of the bargain for the sale of Patrick’s interests in the Delplant group to Sean’s interests; namely, the assets to be sold, the price to be paid, and the vendor and purchaser.[54]
[54]Reasons [362(2)]; see [43] and [47] above.
Secondly, the applicants contended that the agreement was incomplete in a way which conflated the first and second senses: that is, because inessential but important aspects of the transaction were not addressed, the agreement lacked the elements necessary to constitute a contract. This conflates the first and second senses because it treats the absence of important but inessential terms as fatal to the existence of a contract (incompleteness in the first sense), whereas it is relevant only to the question of intention to be bound (the second sense). The contention relied on the passage from the judgment of Brooking J in Toyota set out above. However, when read in context, the relevant passage makes it clear that it is addressing the question of intention to create a binding contract, not the question of completeness in the first sense:
It is not only failure to agree on some essential term that tells against the existence of the intention to make an immediately binding contract. Failure to reach agreement on matters which, while not essential, are none the less matters which are ordinarily agreed upon in transactions of the class in question has the same tendency. This is only the result of commonsense. And commonsense leads also to the conclusion that regard may be had, not only to the nature but also to the magnitude of the transaction in considering how likely it is that the parties would have intended to make or record a binding contract by means of some informal, vague and relatively short document.[55]
[55]Toyota [1984] 2 VR 106, 131; see also 130.
Brooking J went on to refer to authorities including Commonwealth Games, in which Gleeson CJ drew the distinction already identified.[56]
[56]Ibid, citing Commonwealth Games (1988) 18 NSWLR 540, 548.
This second contention rested also on a sentence in a previous edition of a reference work in which it was said that a contract will ‘fail for incompleteness where some essential or important part of the bargain is yet to be agreed’.[57] The words ‘or important’ were not elaborated upon by the authors, who, otherwise, in the passage in question, described ‘incompleteness’ in the first sense in orthodox terms. The applicants submitted that in the sentence in question, ‘important’ was not used as a synonym of ‘essential’ but to identify a separate category: the important but inessential parts of the bargain that must also be agreed if there is to be a contract at all.
[57]JW Carter, E Peden and G J Tolhurst, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007) 91 [4–10] (emphasis added).
The footnote accompanying the above reference cited (among other authorities) an English case, Pagnan SpA v Feed Products Ltd,[58] for the proposition that there was some ‘ambiguity’ as to what might be considered ‘essential’ for the purposes of completeness. However, Pagnan provides no support for treating any such ‘ambiguity’ as accommodating a widening of the essential terms requirement to include important but inessential terms. To the contrary, in Pagnan, Lloyd LJ expressly said that the requirement that the essential terms be agreed does not encompass ‘only a term the Court regards as important’.[59] Further, the result in Pagnan demonstrates that agreeing to terms that are economically significant to the parties but legally inessential is not necessarily a precondition to a concluded agreement.[60]
[58][1987] 2 Lloyd’s Rep 601 (‘Pagnan’).
[59]Ibid 619 (Lloyd LJ, Stocker LJ and O’Connor LJ agreeing at 620). It is possible that Lloyd LJ was here addressing the question of intention to be bound; even so, the passage still provides no support for the applicants’ argument. Lloyd LJ went on to say that there is ‘no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later’. Again, to the extent that this frames the issue as one of intention to be bound, the decision likewise does not support the applicants’ argument about incompleteness in the first sense.
[60]See the explanation in RTS Flexible Systems Ltd v Molkerei Alois MüllerGmbH & Co KG [2010] 1 WLR 753, 771–2 [45], [49] (Lord Clarke SCJ for the Court); [2010] UKSC 14.
This interpretation is confirmed when regard is had to the current edition of the same work. The footnoted reference to Pagnan is not retained in the present edition. Further, the text now omits the word ‘important’ altogether from its statement of the applicable principle, using only the word ‘essential’.[61]
[61]In the equivalent passage of the present edition ‘incompleteness’ is described as where an ‘essential term of the bargain’ has not been agreed. The words ‘or important’ no longer appear: JW Carter, Contract Law in Australia (7th ed, LexisNexis Butterworths, 2018) 94 [4–10].
The second contention therefore cannot be sustained.
Finally, the applicants squarely contended that the agreement was incomplete in the second sense. That is, although the essential terms for an agreement were present, the agreement was incomplete as a purchase agreement, because it lacked inessential terms resolving other important matters, indicating that the parties lacked the requisite intention to be bound to complete a purchase.
It is only this contention which remains. The question to be addressed is whether the number and significance of the matters said to be important but left unresolved indicate that the parties lacked the intention to be bound to proceed with the purchase.
As the authorities make clear, the question whether the parties intended to be bound involves an inquiry into the parties’ intention, objectively ascertained.[62] While not strictly a question of construction of the contract (because it is an issue which arises antecedent to any conclusion as to whether there is a contract), the terms of the putative agreement bear significantly on this issue.
[62]JD Heydon, Heydon on Contract: The General Part (Lawbook Co, 2019) 119 [4.20]; Godecke v Kirwan (1973) 129 CLR 629, 633 (Walsh J); Commonwealth Games (1988) 18 NSWLR 540, 548–50 (Gleeson CJ); Toyota [1994] 2 VR 106, 134 (Brooking J); see also Air Great Lakes Pty Ltd v KS Easter Holdings Pty Ltd (1985) 2 NSWLR 309, 313–19 (Hope JA), 330–4 (Mahoney JA), 334–8 (McHugh JA) (‘Air Great Lakes’). While there is scope for argument as to the extent to which extrinsic material going to the parties’ intentions may be admitted into evidence for this purpose, the present case raises no such issue.
The heads of agreement document contains several provisions which point to an intention on the part of the parties that they be bound to complete the sale and purchase transaction. The document records the parties as having agreed to the sale, for the sum of $10 million, with the purchase price being payable in instalments on specific dates.[63] It is also important that Patrick is recorded as resigning his employment with the group upon execution of the document, to take effect from 30 June 2020 but with him agreeing immediately not to attend any premises or workplace of the group.[64]
[63]See [19] and [24] above.
[64]See [21] above.
Most significant of all, however, is the express statement of the parties that the heads of agreement ‘are intended to legally bind’ them: cl 4. The applicants urge a construction by which this clause is directed only at the obligation in the following clause to negotiate a further ‘formal agreement’. However, that construction is not tenable. In the first place, it would amount to reading ‘[t]hese Heads of Agreement’ in cl 4 as if it referred only to cl 5. But more fundamentally, cl 6 makes it plain that, if negotiations do not produce a further agreement, the terms of the ‘Heads of Agreement will prevail’. This must refer to the terms other than the obligation to negotiate, or the provision would be meaningless.
These are in our opinion very strong indications that the parties intended that, upon execution of the heads of agreement, they would be bound to complete the sale and purchase transaction. In these ways the case is readily distinguishable from Nurisvan. As the respondents submitted, that case addressed the question whether there was an enforceable agreement to enter into a purchase agreement. But in any event, the contract contained features (to which the respondents pointed[65]) quite at odds with those identified above.
[65]See [53] above.
Against that background, the matters relied upon by the applicants as indicating the contrary conclusion are of insufficient weight. A number of these matters might well raise questions of construction, but they do not show that the parties lacked the requisite intention to be bound to complete the purchase. Taking those matters in turn:
(z) The apportionment of the purchase price was an issue closely related to the taxation and accounting treatment of the overall sale, which was expressly left for subsequent resolution. It is properly seen as a matter of detail in the overall transaction, which clearly identified the subject property and the total sale price. The fact that the parties provided for their accountants to address these matters is not inconsistent with an intention to be bound to complete the transaction.[66]
[66]Air Great Lakes (1985) 2 NSWLR 309, 329 (Mahoney JA).
(aa) The question of the mechanism by which shares and units would be acquired (whether by a simple transfer or by means such as a buy back of shares or a redemption of units) was similarly open to being resolved by further negotiation and, no doubt, the conferral of the parties’ accountants as envisaged by cl 5. It is readily apparent from cl 6 that, failing agreement to an alternative course, the transaction was to take place by transfer of the shares and units. Clause 3(b) required Patrick to provide those transfer documents upon payment of the first instalment.
(bb) The fact that some beneficiary, unitholder and shareholder loans are not specifically addressed in the agreement is equivocal. There was no evidence as to what the parties intended with regard to such loans, or what role their existence had in the negotiation of the purchase price. It is therefore impossible to say that the silence of the agreement on the future status of these loans indicated an intention not to be bound to complete the transaction. It would be equally open to conclude that the parties intended the loans not addressed in the agreement to remain on foot, in the absence of further agreement to the contrary. Similarly, it might have been envisaged that the loan accounts might ultimately be dealt with as part of the overall structure of the settlement.
(cc) The same is true, conversely, of the silence of the agreement as to the treatment of retained and current year profits. To the extent that the parties had entitlements to those amounts, we simply do not know whether they were taken into account in agreeing the purchase price. The agreement’s silence in this respect could therefore merely reflect an assumption that these entitlements subsisted, again in the absence of subsequent contrary agreement.
(dd) As to warranties, indemnities and releases, no specific matter was identified as being of particular importance in this context. These are the types of matters one would expect in the envisaged more formal agreement. Again, cl 6 made it clear that the transaction was to proceed even if such matters could not be resolved. In the case of releases, cl (1)(b)(ix) recorded the parties’ agreement for mutual releases in any event. This subject matter was therefore dealt with, albeit in a way that might well present questions of construction or implication in the event of a dispute arising.
In all the circumstances, the trial judge was correct in our opinion to find that it was established that the parties to the heads of agreement intended to enter into a binding agreement to complete the sale and purchase transaction. While we would grant leave to appeal in respect of the first and second proposed grounds, the grounds therefore fail.
Proposed ground 3 — interest
The applicants submitted that the judge wrongly declined to order that interest be paid on the settlement sum. It was said that he had overlooked a rule that, when specific performance is ordered in respect of a contract of sale, interest on the purchase price is generally payable by the purchaser from the completion date, unless the contract otherwise provides. Reliance was placed on an English decision, Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd (‘Harvela’).[67]
[67][1985] Ch 103, 123 (Peter Gibson J) (‘Harvela’).
The respondents pointed out that the applicants, before the trial judge, had argued that interest be offset against the costs ordered against them, without reference to any ‘rule’ or to authority. The judge recorded the applicants’ argument and rejected it, on the basis that the relevant delay was caused by Patrick’s purported termination of the agreement. The respondents submitted that this approach was entirely consistent with the rule in Harvela.[68] They submitted that the ordering of interest on the purchase price as a condition of specific performance is designed to prevent a delaying purchaser benefitting from their delay. Where the delaying party is, as here, the vendor, it is appropriate that the general rule give way.
[68]The rule was later clarified by the House of Lords in Harvela Investments Ltd v Royal Trust Coof Canada (CI) Ltd [1986] AC 207 (‘Harvela (HL)’).
The general rule as to interest in the context of specific performance of a contract of sale of income-producing property is a corollary of the fact that, from the date fixed for completion, the purchaser is entitled in equity to that income (unless the parties have provided otherwise). At the same time, the purchaser has retained the use of the purchase money (and the ability to earn interest on it), even though in equity it is the vendor who is entitled, from the date fixed for completion, to that money (again, in the absence of agreement to the contrary).
However, the rule is discretionary and it may be relevant that the vendor is to blame for the delay in completion. In that case, it may be that interest will be refused lest the vendor should profit from their own wrong. The resolution of that issue will involve a comparison between the amount of income earned by the purchaser and the amount of interest that the vendor would receive.[69]
[69]
The position was confirmed when Harvela went on appeal to the House of Lords. Lord Templeman explained:
There is a well recognised principle that, subject to any contractual provision to the contrary, the vendor ought to be entitled from the completion date to interest on the purchase money, which in equity belongs to the vendor, and the purchaser ought to be entitled from the completion date to the fruits of the property, which in equity belongs to the purchaser. A corresponding principle is that if the vendor is not to blame for the delay in completion, then again subject to any contractual provision to the contrary the purchaser should not be allowed to claim the fruits of the property and to retain the benefit of interest which was or could have been earned by the purchaser on the purchase price which in equity belongs to the vendor. Every case must be judged on its merits.[70]
[70]Harvela (HL) [1986] AC 207, 236–7 (Lord Fraser agreeing at 223, Lord Diplock, Lord Edmund-Davies and Lord Bridge each agreeing at 228); see also Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285, 317 [75] (McHugh and Gummow JJ), Hutchinson v Payne [1975] VR 175, 179 (Lush J).
In the present case, the applicants sought an offset to their obligation to pay costs, to reflect the fact that Sean had the use of the purchase moneys while the settlement sum remained unpaid and was entitled at the same time to income from the sale property. It can be seen that this application was consistent with the rationale for the general rule regarding interest. However, this was a case where the vendor was responsible for the delay in completion. The general rule was not necessarily applicable, for that reason. If Patrick was to claim an entitlement to interest in those circumstances, the judge would need to be satisfied that it was just to make an order to that effect, having regard to all the circumstances including the amount to which Sean was entitled by way of income from the sale property.
No material going to that question was placed before the judge, nor did the applicants seek the ordering of any steps to ascertain the position. In the circumstances, the judge was entitled on the limited material before him to refuse the applicants’ claim for interest, as he did, on the basis that ‘[a]ny alleged benefit to Sean in retaining the settlement sum … has arisen by reason of [Patrick] having purported to terminate [the agreement] in June 2020’.[71]
[71]Costs Reasons [35].
Leave to appeal on this proposed ground is therefore refused.
Proposed ground 4 — long service leave
The parties were agreed that if proposed grounds 1 and 2 succeeded, Patrick would be entitled to the redundancy payments calculated by the judge: $33,791 for long service leave and $22,610 in other redundancy entitlements. In the circumstances, that issue need not be addressed. Leave to appeal on this proposed ground is refused.
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Harvela [1985] Ch 103, 123 (Peter Gibson J), referring also to In re Hewitt’s Contract [1963]
1 WLR 1298, 1302 (Wilberforce J).
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