Kelso v The Salvation Army

[2001] NSWSC 191

CITATION:	Kelso v The Salvation Army [2001] NSWSC 191
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2989/00
HEARING DATE(S):	20/03/01
JUDGMENT DATE:	23 March 2001
PARTIES :	Angela Gwyneth Kelso - Plaintiff The Salvation Army (New South Wales) Property Trust - First Defendant The Royal Far West Children's Health Scheme - Second Defendant The Royal Flying Doctor Service (New South Wales Section) - Third Defendant Alan William Donald - Fourth Defendant David Charles Vickery Morgan - Fifth Defendant
JUDGMENT OF:

COUNSEL :	Mr D.J. Hammerschlag SC - Plaintiff Mr R.J. Weber - First, Second and Third Defendants Mr M. Christie - Fourth and Fifth Defendants
SOLICITORS:	Teece Hodgson & Ward - Plaintiff Blake Dawson Waldron - First, Second and Third Defendants Alfred J. Morgan & Son - Fourth and Fifth Defendants
CATCHWORDS:	Contract - formation of contract - whether parties intended to be bound - Trusts - intention to create trust
CASES CITED:	Masters v Cameron (1954) 91 CLR 353 Geebung Investments Pty Ltd v Varga Investments Pty Ltd (1995) 7 BPR 14,551 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
DECISION:	The claims in the Further Amended Statement of Claim are dismissed; The plaintiff must pay the costs of all five defendants.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

FRIDAY, 23 MARCH 2001

2989/2000 - KELSO v THE SALVATION ARMY (NEW SOUTH WALES) PROPERTY TRUST & ORS

JUDGMENT

HIS HONOUR:

Background

1    By her Will dated 7 April 1993 Mrs Doreen Carnella Roughley appointed the fourth and fifth defendants as executors and, after giving certain items to the plaintiff, made provision concerning her house at 9 Arnold Street, Killara. She directed that the trustees should hold the house upon trust to allow the plaintiff to live there for as long as she might wish, subject to her maintaining the property in good and habitable repair to the satisfaction of the trustees (clause 4.1). Other relevant provisions concerning the house were as follows:-

“4.2 Until my niece the said ANGELA GWYNNETH KELSO has in the opinion of my trustees ceased to live in the residence permanently or to comply with the conditions of her right of occupation the residence shall not be sold without her consent
4.4 My Trustees may permit the said ANGELA GWYNNETH KELSO to renovate the residence during her occupation provided such renovations are at the expense of the said ANGELA GWYNNETH KELSO
4.5 When my niece the said ANGELA GWYNNETH KELSO has in the opinion of my trustees has (sic) ceased to live permanently in the residence or to comply with her right of occupation then the residence shall form part of the residue of my estate”

2    Clauses 4.6 and 4.7 of the Will dealt with the residuary estate. Clause 4.6 directed the trustees to apply the income of the residuary estate in paying rates and taxes levied on the house, as well as other outgoings including repairs, with a power to resort to capital should the income be insufficient for those purposes. Clause 4.7 directed that the residuary estate be held on trust to pay the net income from it, first, as set out in clause 4.6 and, thereafter, to the plaintiff during her lifetime and that, after her death, the residuary estate be divided equally among the first, second and third defendants (referred to below as “the charities”).

3    Mrs Roughley died on 5 October 1995. Probate of the Will dated 7 April 1993 was on 1 February 1996 granted to the fourth and fifth defendants (referred to below as “the trustees”). The inventory attached to the probate lists as assets of the deceased the house at 9 Arnold Street, Killara at an estimated or known value of $530,000 and several deposits with banks. After allowing for debts, the net value of the estate was $673,419.

Relief claimed by the plaintiff

4    By her Further Amended Statement of Claim, the plaintiff claims the following relief:

“1. A declaration that in the events that have occurred there was concluded and there is on foot a binding agreement between the Plaintiff on the one hand and the Charities on the other, under which the Charities became obliged upon the sale of the property situated at 9 Arnold Street, Killara, New South Wales, forthwith to pay or direct the Executors to pay to the Plaintiff the sum of $550,000 out of the proceeds of sale.
2. A declaration that in the events that have occurred, the said sum of $550,000:
(a) has been due, owing and payable by the Charities to the Plaintiff since 12 November 1998;
(b) is being held by the Executors in trust, for the benefit and to the account of the Plaintiff.
3. A declaration that the Charities, have in breach of the Agreement, failed to pay or to direct the Executors to pay the sum of $550,000 to the Plaintiff on behalf of each of the Charities.
4. An order that the Charities forthwith pay or direct the payment, and the Executors forthwith pay to the Plaintiff $550,000, together with interest from 12 November 1998 to the date of payment.
5. Damages and/or equitable compensation.
6. Costs.
7. Further or alternative relief.”

Facts

5    The evidence was entirely documentary and consisted, for the most part, of letters written by the parties’ solicitors, being Teece Hodgson & Ward (“THW”) for the plaintiff, Blake Dawson Waldron (“BDW”) for the charities, and Alfred J. Morgan & Son (“AJM”) for the trustees.

6    The chain of correspondence in evidence begins with a letter from THW to BDW dated 11 March 1998 which canvassed the possibility that the house might be transferred to the plaintiff in return for payment to the charities. Thereafter, a variation developed and was pursued. It involved what was, in broad conceptual terms, a purchase of the plaintiff’s interest in the estate by the charities for a price of $550,000. That proposal was referred to in the letter from THW to BDW dated 18 May 1998 which read as follows:

“We refer to our telephone conversation with Mr Jim Armitage on 15 May 1998 and note your instructions that the charities are prepared to renew their offer to our client dated 16 March 1998 of purchasing the whole of our client’s interest in the estate of the late Doreen Carnella Roughley by paying to her the amount of $550,000.
We note that you will contact the executor’s solicitors and inform them of the settlement and ascertain what is required to evidence the agreement.”

7    On 3 June 1998 THW wrote to AJM, purportedly by way of confirmation of a telephone conversation of 2 June 1998, saying that the plaintiff and the charities had “reached and (sic) agreement to settle the estate on the basis that the charities purchase the whole of our client’s interest of the estate of the late Doreen Carnella Roughley by paying to her the amount of $550,000”. The letter went on:

“We had understood the solicitor for the charities would contact you direct in order to arrange for the necessary documents to evidence the agreement reached.
We should be pleased to receive the settlement documentation as soon as it has been prepared.”

8    A letter of 23 July 1998 from THW to BDW began:

“We refer to the above matter [Estate late Doreen Carnella Roughley] and now enclose draft Deed of Release for your consideration. Please let us have your comments in relation to the Deed of Release.”

A draft Deed accompanied the letter. The parties to it were the plaintiff, the charities and the trustees. The effect of the operative provisions of the draft Deed was as follows:
1. By clause 1, the plaintiff surrendered all her interest under the Will of Mrs Roughley in the residuary estate.
2. By clauses 2(a) and (b), the plaintiff and the charities agreed that certain expenses relevant to the subject matter of the Deed should be treated as expenses of administration and paid out of the residuary estate.
3. By clause 2(c), the plaintiff and the charities agreed that subject to certain payments (including a payment by the charities to the plaintiff of the sum of $550,000), the residuary estate would be paid to the charities to be divided equally between them.
4. By clause 2(d), the plaintiff and the charities agreed that the charities would pay the plaintiff the sum of $550,000 within fourteen days of the date of the Deed.
5. By clause 2(f), the plaintiff and the charities agreed that each would accept the benefits of the Will of Mrs Roughley as varied by the Deed in full satisfaction of all claims against Mrs Roughley’s estate whether arising at common law or in equity or by statute.
6. By clause 3, each party to the Deed agreed to do all acts and execute all documents necessary to give effect to the Deed.

9    The proposal evidenced by this draft Deed thus involved surrender by the plaintiff of all her interest in the residuary estate under Mrs Roughley’s Will so that the residuary estate would be divided immediately among the charities in equal shares subject to payment by the charities to the plaintiff of the sum of $550,000.

10    On 21 August 1998, THW wrote to the trustees themselves, care of AJM. The letter read as follows:

“We refer to the above matter [Estate late Doreen Carnella Roughley] and confirm that our client and the charities entitled to the remainder of the residue of the estate have reached an agreement to settle this matter.
Our client requests that the estate realty be sold as soon as possible and that the executors provide us with a proposal for the sale of the property for our client’s instructions.
It has been agreed between the parties that the Deed of Release shall be executed following the sale of the estate realty.”

11    By letter dated 24 August 1998, BDW notified THW of the agreement of the charities that the plaintiff

“in consideration of the surrender of all other claims she may have under Mrs Roughley’s Will or otherwise in relation to her estate, shall be entitled to receive the sum of $550,000 out of the estate when the first distribution is made to beneficiaries.”

The letter continued:

“The charities also agree that arrangements for sale of the property at 9 Arnold Street, Killara should proceed as soon as reasonably practicable and we have so informed Messrs Alfred J. Morgan & Son, the solicitors for the executors.
Would you please confirm your client’s agreement to the arrangements outlined above.”

12    It will be noted that the arrangement thus outlined by BDW differed from that reflected in the draft Deed to which reference has already been made. It was still contemplated that the plaintiff would surrender her rights under Mrs Roughley’s Will and in relation to the estate and would receive $550,000 for doing so. However, the BDW letter of 24 August 1998 contemplated that the sum of $550,000 would be received by the plaintiff “out of the estate when the first distribution is made to beneficiaries”; whereas the draft Deed had contained an agreement between the plaintiff and the charities that the sum of $550,000 would be paid by the charities to the plaintiff within fourteen days after the date of the Deed.

13    BDW also wrote to AJM on 24 August 1998. They described the position which had been reached between the plaintiff and the charities as follows:

“The Charities and Mrs Angela Kelso have agreed that the amount which Mrs Kelso is to receive from the Estate, in consideration of the surrender of her life interest, is $550,000, to be paid when the first distribution to beneficiaries is made.”

By the same letter, the charities indicated their wish to assist the plaintiff by having arrangements for the sale of the house dealt with as expeditiously as reasonably practicable.

14    On 1 September 1998, THW wrote to BDW as follows:

“We refer to the above matter [Estate late Doreen Carnella Roughley] and confirm that our client agrees to the arrangements outlined in your letter of 24 August 1998.”

15    On 11 September 1998, AJM wrote to THW as follows:

“We refer to your letter dated 21 August 1998. The trustees have instructed Larke & Moore First National Real Estate to commence a sales campaign with a proposed auction on 1 October 1998.”

Thereafter the house was sold, with settlement occurring on 12 November 1998. It is clear from the evidence that the trustees effected the sale with the consent of all beneficiaries, that is to say, both the plaintiff and the charities. There is also evidence that the proceeds of sale, after allowing for legal and survey fees, agent’s commission and advertising, amounted to $780,732.20.

16    By letter dated 5 November 1998 addressed to the trustees care of AJM, THW said that they were still to finalise “the Deed of Arrangement” with the charities and went on to ask whether it could be arranged for the plaintiff to receive a cheque in her favour for $550,000 on settlement of the sale of the house. AJM replied on 6 November 1998 that they had (no doubt in their capacity as solicitors for the vendor under the Contract for Sale which by then was on foot) directed the purchasers to make payment to the estate of D.C. Roughley. The letter went on:

“Payment to your client should occur shortly after the trustees have sighted the agreement between the charities and your client provided the agreement authorises the payment and suitably releases the trustees from any breach of trust by the making of the payment. It would seem to the writer that it is therefore appropriate that the trustees be a party to any agreement given that they require a release.”

17    Although sighting by the trustees of an agreement between the charities and the plaintiff was stated to be a pre-condition to payment by the trustees to the plaintiff, the real intention on the part of the trustees was that they also should be party to any such agreement.

18    On 13 November 1998, BDW wrote to THW with suggested amendments to the draft Deed of Release submitted by THW on 23 July 1998. BDW proposed that clause 2(d) of the Deed be replaced. Clause 2 as a whole began with the words “Mrs Kelso and the Charities jointly and severally agree”. The new clause 2(d) proposed by BDW in their letter of 13 November 1998 was as follows:

“that this deed constitutes a direction by the Charities to the Executors that when the residuary estate is to be distributed among the Charities, then, before or at the same time as the first payment is made to the Charities themselves, the Executors will make payments to Mrs Kelso on behalf of each of the Charities, out of their respective entitlements, such payments to be $183,334 on behalf of Royal Flying Doctor Service of Australia (NSW Section) and $183,333 each on behalf of the other Charities.”

This, of course, reflects the payment mechanism outlined in the BDW letter of 24 August 1998 to THW.

19    On 18 November 1998, THW wrote to BDW referring to the BDW letter of 13 November 1998 and enclosing a draft Deed incorporating the BDW suggested amendments as well as additional amendments made by THW themselves. In the area of payment and mechanism for payment, this revised draft Deed differed from both the earlier draft Deed and the replacement clause 2(d) suggested by BDW. There was no longer a clause 2 consisting of opening words of agreement between the plaintiff and the charities, followed by a number of separate paragraphs including a paragraph relating to payment. Rather, the revised draft (in which the plaintiff, the charities and the trustees were all shown as parties) contained a stand-alone clause 5 as follows which imposed a direct payment obligation upon the trustees:

“The Executors shall pay to Mrs Kelso the amount of $550,000, it being intended that this Deed constitutes a direction by the Charities to the Executors that when the residuary estate is to be distributed amongst the Charities, then before or at the same time as the first payment is made to the Charities themselves, the Executors will make payments to Mrs Kelso on behalf of each of the Charities, out of their respective entitlements, such payments to be $183,333 each on behalf of the other Charities.”

(The attempt to streamline the BDW drafting by replacing the reference to one amount of $183,334 and two others, each of $183,333, miscarried here - the words “on behalf of the other Charities” are neither appropriate nor sensible, whatever the intention may have been.)

20    On 3 December 1998, in response to an inquiry from THW (by letter dated 30 November 1998), BDW confirmed on behalf of the charities that the terms of the draft Deed submitted with the THW letter of 18 November 1998 were acceptable to the charities. The letter continued:

“We assume that approval of the draft deed by Mrs Roughley’s executors will also be required. Please let us know when you are ready to proceed further.”

The charities thus acknowledged that their concurrence in the proposed way forward was, of itself, insufficient and that approval of the trustees was also required.

21    THW then made inquiries of the trustees in relation to the revised draft Deed and, by letter dated 17 December 1998, AJM made two “preliminary comments” one of which related to a minor drafting matter and the other of which was substantial:

“The draft deed does not contain an indemnity or release of the trustees in respect of the notional capital gains tax liability. The draft deed intends the payment to your client to occur when the residuary estate is distributed or when it is capable of distribution, accordingly the estates’ (sic) tax position should be resolved prior to any distribution. This will result in a delay in payment to your client.”

22    On 23 December 1998, THW sent to the trustees a letter which commenced as follows:

“We refer to your letter dated 17 December 1998 and now enclose draft deed which has been amended in light of your comments.”

23    The letter went on to assert that indemnity of the trustees in respect of any capital gains tax liability was not required. It also said that, as it was clear that there was no dispute about the amount the plaintiff was to receive, the sum of $550,000 “due to her” should be placed into an interest bearing account “pending distribution of the legacy”. This request was made “considering that the agreement was reached in August and the deed is yet to be finalised and there is still no assurance of when the payment can be made”. Such a separate deposit was afterwards established with the apparent concurrence of the charities. The evidence on that aspect is referred to below.

24    BDW subsequently prepared a draft of an entirely new document entitled “Deed of Termination”. They submitted this to THW by way of a letter dated 24 March 1999. The plaintiff, the charities and the trustees were all named as parties. By the first operative clause, the plaintiff, the charities and the trustees:

“hereby terminate the trusts of the will and agree that the income and assets held by the trustees shall be distributed to Mrs Kelso and the charities as follows
(a) all income including gains from the sale of any assets held by the trustees of the trusts of the will shall be distributed to the charities in equal shares;
(b) an amount of $550,000 from the capital held by the trustees of the trusts of the will shall be distributed to Mrs Kelso;
(c) subject to clause 2, the balance remaining of the capital held by the trustees of the trusts of the will shall be distributed to the charities in equal shares.”

(Clause 2 allowed the trustees to withhold a sum for costs and expenses relating to administration.)

25    BDW also wrote to the trustees, care of AJM, on 24 March 1999. They submitted to the trustees the new draft Deed and, in relation to capital gains tax, said:

“We confirm that if the trusts of the will of the late Mrs Roughley are terminated in accordance with the enclosed Deed prior to 1 July 1999, no capital gains tax should be payable on the gain from the sale of the property at 9 Arnold Street, Killara because the Charities will be entitled to all income for the tax year which will end on the date the Deed is signed because the present trusts of the will will terminate at that time. The trustees will then hold the amount obtained by them on account of costs and expenses, on a separate trust of which the Charities are the only beneficiaries entitled to the income and capital remaining after payment of costs and expenses.”

26    THW’s comments on the new draft were conveyed to BDW by letter dated 22 April 1999. The comments were, in essence, that there was no provision for interest to be paid to the plaintiff on the agreed sum of $550,000 and that no time for payment to Mrs Kelso is specified. In relation to interest, THW said:

“As you are aware agreement to pay this amount [the $550,000] to our client was reached in approximately July last year and we consider that our client is entitled to interest upon this amount from at least the date of sale of the property. This requirement was discussed with your Mr Cannon on 18 February 1999.”

27    On 18 June 1999, BDW wrote to THW again about the form of Deed BDW had forwarded with their letter of 24 March 1999. They discussed in some detail the capital gains tax issue which had already been raised in general terms by AJM on behalf of the trustees. From that point, two aspects of the capital gains tax issue came to occupy the parties’ attention. First, there was the question of where the liability for any such tax would fall in accordance with the income tax legislation. Second, there was the question of who, as between the parties, should bear any capital gains tax expense. The trustees had already made it clear that they sought indemnity against the eventuality that they might become liable for the tax. It was recognised that if, on the other hand, the parties liable were the charities, their tax exempt status would mean that no tax became payable at all. As well as discussing the possible tax ramifications, the BDW letter of 18 June 1999 to THW enclosed a redrafted Deed which, so far as capital gains tax was concerned, sought to ensure that any tax liability would rest with the tax exempt charities or, if that miscarried, that the burden of any tax which became payable would be shared as to one half by the plaintiff and one half by the charities.

28    THW responded on 22 June 1999 pointing out that the revised Deed did not address the matters they had raised in their letter of 22 April 1999 (interest on the $550,000 and a time for payment) and, more substantially, making the following assertion:

“In this matter an offer was made by your clients to resolve the outstanding issues between the parties on 28 January 1998. Negotiations continued between the parties until a final agreement was reached on 24 August 1998, evidenced by your letter to us of that date and our letter in response dated 1 September 1998. At no time during those negotiations was it ever a condition of settlement that there would be no capital gains tax liability to your client. Indeed at that time the estate realty had not yet been sold. The first mention of capital gains tax was by your Mr Armitage on 10 November 1998.”

29    THW then wrote to the trustees care of AJM on 24 June 1999 also referring to “the binding agreement reached with the Charities”. They said that that agreement “terminates the life estate”, so that the plaintiff was entitled to the sum of $550,000 in lieu of her life interest and the charities were entitled to the residue. They concluded with an assertion that it could not be said that there was any beneficiary presently entitled to income (that being a matter relevant to identification of the party liable for tax under the income tax legislation). By a letter dated 30 June 1999 to BDW, THW re-stated their client’s position, namely that “a binding agreement to settle this matter” had been reached and was evidenced by particular pieces of correspondence, with the only matter remaining following that agreement being to reduce the terms to the form of a Deed. Furthermore, they said, the conduct of the parties both at that time and subsequently, including the sale of the property, also meant that the charities were estopped from denying that there was a binding agreement. They said that the “draft Deed of Termination No 2” (no doubt a reference to the most recent draft prepared by BDW and submitted with the letter containing the detailed discussion of the capital gains tax issue) did not reflect the agreement reached as there was no mention of capital gains tax liability in that agreement.

30    All three firms of solicitors were party to subsequent correspondence concerning capital gains tax. THW and AJM each sought counsel’s opinion on the matter. The correspondence raised the possibility of seeking a ruling from the Commissioner of Taxation. No concluded view emerged on the two central capital gains tax questions, namely, whether any liability to tax resulted from the sale of the house and, if so, where the taxation legislation caused that liability to fall in the context of the estate. Nor were steps taken to approach the Commissioner for a ruling.

31    It is necessary to refer also to correspondence concerning separate investment by the trustees of the sum of $550,000. In their letter of 24 June 1999 to the trustees, THW asserted that the plaintiff’s life estate had been terminated and that she was presently entitled to the sum of $550,000 in lieu thereof. The possibility that $550,000 might be placed in a separate interest bearing account had been raised in THW’s letter of 23 December 1998 to the trustees to which reference has already been made. But by a letter of 11 February 1999 to the trustees, THW asked that that possibility not be pursued. On 12 January 2000, however, THW requested, by letter to AJM, that “our client’s agreed amount of $550,000 be separately invested at a better interest rate than that presently being obtained by the executors”. AJM replied on 28 January 2000 that the trustees proposed placing that amount in a separate investment when an existing term deposit matured on or about 12 February 2000. On 14 February 2000, THW wrote to AJM stating the plaintiff’s preference that the separated sum should be invested with AGC. Before receiving that letter, however, the trustees had invested $550,000 in three bills of exchange upon which the acceptor was Westpac Banking Corporation (AJM’s letter of 13 April 2000 to THW).

32    Finally, it is necessary to refer to evidence of distributions of income to the plaintiff. By a letter of 17 March 2000, AJM informed THW that the trustees had decided to make a distribution of trust income to the plaintiff. The letter continued:

“By trust income we refer to the interest accrued on the proceeds of the sale. The trustees propose to pay an amount proportionate to your client’s interest in the proceeds of the sale of the home. The figure which our clients have in mind is the figure of $31,208.00. Unless your client informs us otherwise, the trustees propose to distribute this sum to your client upon confirmation from you that she is willing to receive it.”

By their reply of 23 March 2000, THW stated an assumption that “the calculation that has been made is determined by reference to the entitlement of our client to the sum of $550,000” and invited reply should that assumption be incorrect. They also said:

“Our client is prepared to receive the payment on account of her entitlement generally.”

33    Subsequently, on 6 September 2000 and 15 February 2001, AJM wrote to THW enclosing cheques (in the first case for $17,429.43 and in the second for $15,198.93) “being interest accrued on the sum of $550,000 held by the trustees”.

The plaintiff’s case

34    Mr Hammerschlag SC who appeared for the plaintiff put his client’s case on two bases. First, he contended that on or about 24 August 1998, the plaintiff agreed with the charities that, in consideration of the plaintiff surrendering all claims she may have under her life interest in Mrs Roughley’s residuary estate, the charities would direct the trustees to pay the plaintiff the sum of $550,000. This agreement, it was said, was constituted by the exchange of letters between HTW and BDW dated 24 August 1998 and 1 September 1998 and the draft Deed the terms of which were agreed between the plaintiff and the charities by the exchange of letters between their respective solicitors dated 18 November 1998 and 3 December 1998. Mr Hammerschlag further said that the alleged agreement contained an express term in the form of clause 5 of the draft Deed and, either expressly or by implication, a term that the sum of $550,000 was to be paid to the plaintiff free of any liability the trustees might have for capital gains tax.

35    The second basis advanced by Mr Hammerschlag on the plaintiff’s behalf was that, because the sale of the house was effected by the trustees at the request of the plaintiff and with the consent of the charities, the trustees’ receipt of the proceeds caused the plaintiff’s interest to be, to the extent of $550,000, converted into cash which, at all times since its receipt by the trustees, has been held by them in trust for and on behalf of the plaintiff and to her benefit.

Was an agreement concluded ?

36 In contending that the plaintiff and the charities intended to and did make a concluded agreement by means of documents which passed between their solicitors, Mr Hammerschlag seeks to place the matter within the first of the classes mentioned in Masters v Cameron (1954) 91 CLR 353 on the footing that “the parties reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect”. Both Mr Hammerschlag and Mr Weber (who appeared for the charities) referred to the following passage in the judgment of Kirby P in Geebung Investments Pty Ltd v Varga Investments Pty Ltd (1995) 7 BPR 14,551 as identifying the relevant principles:

“1. The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal agreement, does not mean that that informal agreement is not presently binding.
2. The fact that the parties contemplate the drawing up and execution of a formal contract is a consideration which may point to the conclusion that no presently binding agreement was intended until that formal contract is executed.
3. The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it the less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the ‘major matters’, their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document (see in particular Masters v Cameron (1954) 91 CLR 353, at 361; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647, at 666; and Marek v Australasian Conference Association Pty Ltd [1994] 2 QdR 521 at 528).
4. In order to determine in what areas the parties were, and were not, in agreement, and what matters they considered necessary in order for an agreement to exist, it is legitimate to examine their subsequent conduct. Where correspondence between the parties after an informal agreement refers to important terms and conditions not mentioned during that informal discussion, it may more readily be inferred that the earlier discussion was simply a preliminary negotiation and not a binding agreement.
5. Depending on the size, importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding.
6. It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding.
7. Depending on the subject matter, where the parties have not used solicitors but intended to do so for the drawing up of their formal agreement, that may also be a factor which will point to the non-existence of a binding agreement until the contemplated formalities have been agreed.
8. Where a binding agreement is said to have been formed as a result of correspondence, it is necessary to look at that correspondence as a whole. It is wrong to isolate any part of the correspondence from the rest in order to prove or disprove the existence of a binding agreement. The same approach should be taken to the analysis of words and phrases within the correspondence. Reference to an ‘agreement’ having been reached does not necessarily prove the existence of a presently binding contract. Conversely, references to a ‘proposed’ agreement, and similar expressions, will not necessarily mean that no agreement presently exists. It is a question of how the words are to be interpreted in their context, and in the light of the correspondence, viewed as a whole.”

37 Mr Weber, counsel for the charities, said that from a point preceding the letters of 24 August 1998 and 1 September 1998 on which Mr Hammerschlag relied, the plaintiff and the charities had contemplated not only that there would be a formal document but also that the trustees would be party to it. He pointed to the letter of 23 July 1998 from THW to BDW with which the former submitted a draft Deed which included the trustees as parties in addition to the plaintiff and the charities. That letter and the evidence more generally, it was said, show that it was always the intention that any concluded arrangement for the conversion of the plaintiff’s interest into cash would be a multilateral arrangement which included the trustees. Mr Weber also said that, while under the rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282, the trustees may have been bound to accept an arrangement agreed to by all beneficiaries (being sui juris and absolutely entitled), they were entitled first to appropriate trust assets to meet trust liabilities (Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306), so that their concurrence was a necessary element.

38    Mr Christie who appeared for the trustees made it clear that the question whether a binding agreement existed between the plaintiff and the charities was one on which his clients did not wish to make submissions.

39 Useful guidance in this area is provided by the following remarks of Gleeson CJ in Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540:

“In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, of which the present is a good example, there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract.”

This is perhaps a more broadly based statement of principles touched upon by Kirby P in items 4 and 8 of the above extract from his judgment in the Geebung Investments case.

40    It is true that the correspondence between THW and BDW refers in several places to the “agreement” between the plaintiff and the charities. The crucial letters of 24 August 1998 and 1 September 1998 clearly do so. The former (from BDW to THW) confirms that the charities “agree” that the plaintiff “in consideration of the surrender of all other claims she may have under Mrs Roughley’s will or otherwise in relation to here estate, shall be entitled to receive the sum of $550,000 out of the estate when the first distribution is made to beneficiaries”. The latter (THW to BDW) conveys confirmation that the plaintiff “agrees to the arrangements outlined in your letter of 24 August 1998”. But, as the authorities show, verbal formulations viewed in isolation are rarely determinative of whether a contract has been concluded. The real question is as to the parties’ intention objectively discovered and assessed. It is for that reason that resort to the whole of the surrounding circumstances and contemporary statements of the parties is so important.

41    In the present case, the letters of 24 August 1998 and 1 September 1998 upon which Mr Hammerschlag principally relies must be viewed in the whole of their context. The former, written by Mr Armitage of BDW and addressed to Ms Kennedy of THW, begins by referring to “our telephone conversation on 21 August”. Also in evidence is a letter of that same date, 21 August 1998, written by THW to the trustees under Ms Kennedy’s reference. It says that the plaintiff and the charities “have reached an agreement to settle this matter” and that “it has been agreed between the parties that the Deed of Release shall be executed following the sale of the estate realty”.

42    It is inferred from this letter of 21 August 1998 that, when Ms Kennedy spoke to Mr Armitage on the telephone on that day, the common intention of the plaintiff and the charities, at least as Ms Kennedy understood it, was that “the Deed of Release” would play a central role in their agreement and would be the vehicle by which it was consummated. This is further borne out by the THW letter of 5 November 1998 to the trustees (signed by Ms Kennedy) the second paragraph of which reads:

“We are still to finalise the deed of arrangement with the charity beneficiaries, if it is the case that the deed has been finalised by settlement please let us know whether it can be arranged for our client to receive a cheque in her favour in the sum of $550,000 on settlement of this sale.”

43    As I read this paragraph of the letter of 5 November 1998, finalisation of “the deed of arrangement with the charity beneficiaries” was regarded by THW as a necessary preliminary to the creation of the plaintiff’s right to receipt of the $550,000. The AJM reply on the trustees’ behalf dated 6 November 1998 shows that the trustees were of the same mind.

44    The other items upon which Mr Hammerschlag placed particular reliance are the letter of 18 November 1998 from THW to BDW and the letter of 3 December 1998 from BDW to THW. These, he said, show that the plaintiff and the charities had reached agreement on the form of the Deed which was to be the final element of their contract. It is true that BDW, by the letter of 3 December 1998, said that the terms of the draft Deed submitted with THW’s letter of 18 November 1998 were “acceptable to” the charities. But the BDW letter went on:

“We assume that approval of the draft deed by Mrs Roughley’s executors will also be required. Please let us know when you are ready to proceed further.”

Here, as with the letters of 24 August 1998 and 1 September 1998, there is a clear underlying assumption that finality of bargain is dependent upon concurrence by the trustees in the terms of the formal Deed. As the evidence shows, no such concurrence was forthcoming in relation to the form of Deed which was the subject of the letters of 18 November 1998 and 3 December 1998. Indeed, the emergence of the capital gains tax issue at a later stage resulted in abandonment of that form of Deed in favour of a new draft prepared by BDW.

45    In these circumstances and having regard to the whole of the surrounding circumstances in accordance with the approach advocated by Gleeson CJ in Australian Broadcasting Commission v XIVth Commonwealth Games Ltd, it is not possible to conclude that this matter comes within the first class in Masters v Cameron. Rather, it is within the third class:

“Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”

46    Execution of a Deed among the plaintiff, the charities and the trustees was, on the evidence, seen by all parties (including, pertinently for present purposes, the plaintiff and the charities) as an essential and central element of the arrangement they were attempting to reach. It follows that the concluded agreement upon which Mr Hammerschlag based the first part of his client’s case did not come into existence.

Is there a separate trust ?

47    The second part of the case put by Mr Hammerschlag for the plaintiff was, in essence, that intentions of relevant parties, as shown by the evidence, caused the trustees to stand possessed of the proceeds of the sale of the house, to the extent of $550,000, upon trust absolutely for the plaintiff. Mr Hammerschlag referred to the general principle that the essence of the creation of a trust is intention. He said that, on the evidence, there was a relevant intention that the $550,000 which came to be separately invested in Westpac accepted bills should, as it were, belong immediately to the plaintiff and that that was sufficient to constitute a trust with respect to that sum.

48    The assertions of THW on the plaintiff’s behalf in relation to the sum of $550,000 were that she was “now entitled to [it] in lieu of her life interest” (THW letter of 24 June 1999) and that it was “our client’s agreed amount” (THW letter of 12 January 2000). But the trustees, for their part, did not, on the evidence, acknowledge that the sum of $550,000 was held for the account of the plaintiff. In their letter of 28 January 2000 to THW, the trustees made it clear that they regarded that sum as held “on a short term basis pending the resolution of the disputes between the parties” - clearly enough, a reference to the impasse which, following the emergence of the capital gains tax issue, had been reached in relation to the proposal under which the plaintiff’s interest would be converted into cash. In their letter of 13 April 2000 to THW, AJM simply said that the sum of $550,000 “is presently held on a bank bill, copy attached”. The “copy attached” is in fact a copy of a document whereby Westpac confirmed its sale “to you” of “the securities listed below”, that is, the three bank accepted bills of exchange to which reference has already been made. The “you” thus referred to by Westpac is, no doubt, the addressee of the document, namely, “The Estate of the Late Doreen Carnella Roughley”.

49    The intention of the plaintiff is, in any event, of no real relevance. The plaintiff could not be said on any basis to have occupied in relation to any asset of the estate a position akin to that of a settlor who, by appropriate manifestation of intention, may cause a trust to attach to property within his disposition.

50    While the plaintiff may at some point have formed an intention (or, perhaps more accurately, a desire) that $550,000 of the estate’s cash would be held upon trust for her absolutely, there was no such intention on the part of the trustees. Both when the house was sold and when the separate investment was arranged, they had an expectation that there would emerge in due course a fully formulated and properly documented arrangement which would cause the plaintiff to become entitled to receive $550,000. In expectation of this outcome, they were prepared to pay attention to the wishes of the plaintiff concerning interim investment of that sum. At no time did they acknowledge her right to direct how it should be invested, although they were prepared to entertain her suggestions. Nor is there evidence that they ever sought to invest the funds with the plaintiff’s preferred party (AGC). Investment in Westpac accepted bills of exchange occurred as a result of the trustees’ unilateral decision, albeit a decision accommodating the plaintiff’s wish that the sum concerned should attract a better rate of return than was currently being earned on the trustees’ other investments. The Westpac investment was, on its face, an investment of “The Estate of the Late Doreen Carnella Roughley”. There is no mention of the plaintiff and no indication that the trustees ever intended to hold assets of the estate otherwise than upon the trusts of the Will.

51    Nor can the evidence concerning distributions of income to the plaintiff support an inference of an intention of the trustees to hold the separated $550,000 for the sole benefit of the plaintiff. The evidence on that matter is entirely consistent with an intention that no entitlement to be paid the sum of $550,000 would arise in the plaintiff unless and until the projected arrangement under which she was to receive cash upon extinguishment of her interest in the estate had been created by appropriate documentation.

52    To the extent (if any) that the intentions of the charities may be relevant to this aspect of the plaintiff’s case, the evidence does not indicate that they ever intended the trustees to stand possessed of $550,000 for the sole benefit of the plaintiff.

Conclusion

53    In the result, therefore, the plaintiff is unsuccessful in establishing an entitlement to the relief she seeks.

54    The house has, of course, been sold, and it is not disputed that the sale was made by the trustees with the consent of the plaintiff (see clause 4.2 of the Will). It is also common ground, as I understand it, that the plaintiff never took up residence in the house in exercise of the right arising under clause 4.1 of the Will. In those circumstances, the proceeds of the sale of the house became part of the residuary estate which, subject to due administration, is to be held in accordance with clause 4.7 upon trust to pay the income to the plaintiff during her life and, after her death, to divide the whole among the charities equally.

55    The claims in the Further Amended Statement of Claim are dismissed. The plaintiff must pay the costs of all five defendants.

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Last Modified: 03/27/2001