Malago Pty Ltd v AW Ellis Engineering Pty Ltd

In *Malago Pty Ltd v AW Ellis Engineering Pty Ltd*, the New South Wales Court of Appeal considered a dispute arising from Heads of Agreement concerning a super yacht marina business. The central question was whether the parties had intended to be legally bound by these Heads of Agreement, or if they were void for uncertainty or incompleteness. The case also examined whether the parties were bound by agreements reached on some terms during negotiations for a formal agreement, even before all terms were settled and a document was executed.

The Court of Appeal was required to determine whether the Heads of Agreement created a binding contract, and if so, whether specific performance could be ordered for the execution of a formal contract. A key legal issue was the extent to which a court could add provisions to an agreement in the process of ordering specific performance, particularly whether it could include terms merely consistent with and reasonable in light of the Heads of Agreement, or only those of a mechanical nature necessary to implement the existing agreement.

The Court found that the Heads of Agreement did create a binding contract, despite the intention to execute a formal document. It held that where parties intend to be bound by Heads of Agreement, they are bound even if a formal contract is contemplated, unless it is clear that the Heads of Agreement were conditional upon the execution of the formal document. Regarding specific performance, the Court clarified that a court can only add provisions that are mechanical in nature and designed to implement the existing agreement, not those that add to or vary the agreed terms, even if they appear reasonable or consistent. The Court allowed the appeal in part, setting aside some of the first instance orders and ordering specific performance of the contract, including the execution of a Formal Contract within a specified period.