McGorlick v Palmer

[2022] VCC 1229

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
 Suitable for Publication

GENERAL LIST

Case No.  CI-19-06034

SUSAN GRANT MCGORLICK	First plaintiff
and
BRUCE JOHN MCGORLICK	Second plaintiff
V
CATHERINE MARY PALMER	Defendant

---

JUDGE:	HER HONOUR JUDGE A RYAN
WHERE HELD:	Melbourne
DATE OF HEARING:	17 August 2021, written submissions dated 24 August, 3 and 10 September 2021
DATE OF JUDGMENT:	8 August 2022
CASE MAY BE CITED AS:	McGorlick v Palmer
MEDIUM NEUTRAL CITATION:	[2022] VCC 1229

REASONS FOR JUDGMENT
---

Subject:CONTRACT – SALE OF LAND AND BUSINESS

Catchwords:              Heads of agreement – whether a binding contract for sale of land and business – defendant refused to sign a formal contract of sale – whether defendant in breach – damages claimed for loss on resale of the land and lost value of the business

Legislation Cited:      Sale of Land Act 1962

Cases Cited:161 Castlereagh Street Pty Ltd v Citadel Property Group [2001] NSWSC 859; Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Allen v Carbone (1975) 132 CLR 528; Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622; Butler v Kenny [2022] VSCA 102; Commonwealth v Verwayen (1990) 170 CLR 394; Dowdle v Inverell Shire Council (1999) ANZ ConvR 429; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; Fitzwood Pty Ltd v Unique Goal Pty Ltd [2000] FCA 36; Horne v James [2015] NSWSC 465; Federal Commission of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; Godecke v Kirwan (1973) 129 CLR 629; HTW Valuers Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; Lezabar Pty Ltd v Hogan (1989) NSW ConvR 55-468; Love & Stewart LtdvInstone & Co (1917) 33 TLR 475; Masters v Cameron (1954) 91 CLR 353; McDonald v Commissioner of Taxation (2001) 109 FCR 207; Molongo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147; Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Sindel v Georgiou (1983) 154 CLR 661; Smith v Lush (1952) 52 SR (NSW) 207; Spencer v Commonwealth (1907) 5 CLR 418; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326; Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573; Yimin Zhang v Shanghai Wool and Jute Textile Co Ltd  [2006] VSCA 133

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S L Freire	Baker Jones
For the Defendant	Mr B Gillies	Cassidys Morrison & Teare

Table of Contents

Introduction and summary

Background

Legal principles

Issues for determination

(a)   Does the heads of agreement as varied by the deed of variation create a binding contract for sale of land and business or create an option to purchase?

Plaintiffs’ submissions
Defendant’s submissions

Analysis

(b)        Did the defendant breach the heads of agreement?

(c)        Was the defendant’s breach waived by the plaintiffs?

(d)        What is the extent of the plaintiffs’ loss or damage, if any?

Repair and maintenance costs

Plant and equipment – items missing or damaged beyond repair but not replaced

Conclusion

HER HONOUR:

Introduction and summary

1In mid-February 2017, the parties to this proceeding signed a heads of agreement (“the heads of agreement”) relating to the sale of a farm and cheesemaking business owned by the plaintiffs. The heads of agreement was later varied by a deed of variation dated 16 June 2017 (“the deed of variation”).

2In November 2017, the plaintiffs’ solicitor sent a contract of sale for real estate and an asset sale agreement to the defendant for signature and return. The defendant declined to sign the documents as she did not wish to purchase the farm and business. The plaintiffs contend the defendant was contractually obliged to sign and return the contract documents pursuant to the terms of the heads of agreement. The defendant denies she was under any legal obligation to sign and return the contract documents proffered by the plaintiffs.

3The plaintiffs seek damages caused by the defendant’s alleged breach in refusing to complete the purchase. The damages claimed include the loss incurred on a resale of the farm at a lower price, the lost value of the business and various other expenses, including repair and replacement costs. The total amount sought is $663,758.50.              

4The main issue for determination is whether the heads of agreement (as varied) created an immediately binding contract for the sale of the farm and the business.

5For the following reasons, I find that the heads of agreement did not create an immediately binding contract for the sale of the farm and business.  In my view, the heads of agreement fell within the third category identified in Masters v Cameron,[1] being an agreement to agree which is not capable of being enforced. Given this finding, the defendant was not in breach when she declined to sign and return the formal contract documents presented to her by the plaintiffs. In the absence of any breach on the part of the defendant, the plaintiffs have failed to make out their claim for damages with the result that their claim must be dismissed.

[1] (1954) 91 CLR 353

Background

6The plaintiffs are experienced farmers and ran a dairy farm in Wunghnu in the Goulburn Valley (“the farm”) for some 35 years. They started a cheesemaking business on the farm called “Locheilan Farmhouse Cheese” (“the business”) in around 2004. The business proved to be successful. The plaintiffs had stalls at farmers’ markets and shows around Victoria. They had several wholesale customers and distributors interstate and supplied their cheese directly to many restaurants around Australia.  The plaintiffs won awards for their products, including a gold medal at the World Cheese Awards in England in 2012 for their “Triple Cream Ring” cheese.

7In early 2016, the plaintiffs decided to retire. They listed the farm and the business for sale through local real estate agents. The farm was listed for sale at $1.1 million and the business for $200,000.

8The defendant, who is a dairy farmer, found out about the farm and business through an internet search. In April 2016, the defendant rang the first plaintiff and said she was interested in the farm and business and asked some general questions. The defendant’s evidence was that she was interested in leasing them with a view to purchasing later. By contrast, the first plaintiff’s evidence was that the defendant never said she was not interested in purchasing. The defendant subsequently requested financial statements for the business and was given inventory and sales figures relating to the farm and business

9On 31 August 2016, the defendant and the plaintiffs agreed to deal directly with each other regarding the sale of the farm and the business. The parties had numerous discussions about the proposed sale.

10On 19 September 2016, the defendant prepared a proposal document relating to the farm.  The defendant gave evidence that this document was prepared by her (then) partner, Mr Les Sandles (“Mr Sandles”). She was unable to recall if it had been emailed to the plaintiffs. The document begins as follows:

“Cathy and Les buy the farm at the asking price of $1.1m (no replacements) with Sue and Bruce providing Vendor Finance.** We clearly need to buy a herd of cows, but not sure what we can do right now given our cash situation.”

11Various points were identified for discussion/negotiation, including a suggested start date, potential mortgage arrangements, and the defendant’s vision for the plaintiffs’ future involvement in the business.  The document then sets out the following ideal terms for the proposed transaction:

“●    No deposit (as discussed, we don’t have one)

●Vendor Financing for 100% of the farm sale price with a second mortgage taken over Les’s farm Bankin Park.  Interest rates linked to appropriate bank rates.

●Mortgage repayments:

-         interest only for the first 12 months.

-agreed monthly payments.  Payment in arrears for the first quarter, happy to discuss this.”

12On 21 September 2016, the defendant sent an email to the first plaintiff attaching a proposed budget and a document entitled “Questions for Cathy and Les to consider”.  This document contained answers to several questions put by the plaintiffs to the defendant about the intended operation of the business, including financing.

13On 23 September 2016, the first plaintiff emailed the defendant some further questions about the proposed sale.  She said that she and her husband had visited their lawyer. They were prepared to accept interest-only payments on the $1.3 million purchase of both the farm and business for the first year.  The first plaintiff  raised several questions regarding stock and water costs. The first plaintiff also noted that they would need a deposit and suggested $30,000. The defendant responded to this email on 30 September 2016, addressing the first plaintiff’s questions and saying that if the plaintiffs were comfortable with their response, they would instruct their lawyer to prepare a draft HOA.

14On 19 October 2016, the defendant sent an email to the plaintiffs attaching a document entitled “LOCHEILAN LEASE AGREEMENT”. The document set out the defendant’s notes for the creation of a lease/heads of agreement after discussions over two meetings. In the covering email, the defendant wrote that she had combined what she thought had been the discussion points to move towards the draft of the lease agreement. She asked the plaintiffs to read the document and provide feedback. The plaintiffs considered this draft document consistent with the discussions which had been held to that point and discussions between the parties progressed. 

15The defendant and Mr Sandles started visiting the farm regularly, milking the cows and making cheese in November 2016 with the assistance of the plaintiffs and their employee. Although no agreement had yet been signed, the plaintiffs assigned all management responsibilities of the farm over to the defendant from 1 December 2016, including staff management, repairs, irrigation, livestock management, hay and pasture management.  The plaintiffs continued to pay staff wages through November and December 2016 as a sign of good faith.

16On 11 November 2016, the plaintiffs signed a contract of sale of real estate for a property in Boorolite where they intended to retire once the sale of the farm was completed. Settlement of the sale occurred on 23 February 2017 but they delayed their move while they were helping the defendant get established at the farm. The plaintiffs subsequently retired to this property in around July 2017 and continue to reside there.

17On 15 December 2016, the defendant emailed the first plaintiff a draft heads of agreement (“the draft HOA”). The defendant had obtained advice from her lawyer about the document. In the draft HOA, the parties purported to: “set out in writing the essential terms of an agreement between them in relation to the sale and purchase of land at 754 Central Mundoona Road, Wunghu, Victoria and the business known as Locheilan Farmhouse Cheese (“Proposed Transaction”)”. The parties exchanged several emails regarding the terms of the draft heads of agreement in January and February 2017. 

18The plaintiffs and the defendant subsequently signed the heads of agreement, the subject of this dispute.  Although the heads of agreement is undated, the parties accept that it was executed by the defendant and the plaintiffs in around mid-February 2017.[2]

[2]The amended statement of claim and a subsequent deed of variation refer to the heads of agreement being entered into on 19 January 2017 but the parties agreed at trial that the correct date was mid-February 2017

19The body of the heads of agreement is almost identical to the draft HOA, with the exception that Mr Sandles was no longer included as a party.  Annexure A was expanded from the draft HOA by a further five clauses. 

20There were express terms of the heads of agreement which relevantly included the following:

(a)   under the heading “Background”, ‘the sale and purchase of land at 754 Central Mundoona Road Wunghu Victoria and the business known as Locheilan Farmhouse Cheese’ was defined as the “Proposed Transaction”;

(b)   all clauses in the Heads of Agreement were intended to be legally binding on the parties (cl 2);

(c)   the parties would act reasonably to implement the Proposed Transaction (cl 3);

(d)   the parties acknowledged that they would need to enter into more detailed binding transaction documents in order to give full effect to the Proposed Transaction (cl 4);

(e)   if the parties or their nominees had not entered into binding transaction documents in relation to the Proposed Transaction by 1 December 2017, either party could give notice to the other that the Heads of Agreement was terminated.  In such event, the parties would have no further obligations to each other in relation to the matters set out in the Heads of Agreement (cl 5);

(f)    settlement of the sale and purchase of the Land and the Business would take place 12 months after entry into the Heads of Agreement (that is, on or before 19 January 2018) (Annexure A, cl 1);

(g)   immediately upon entry into the Heads of Agreement, the defendant would take over management and control of the Business. In order to facilitate this, and subject to the terms of the Heads of Agreement, the plaintiffs would lease Land to the defendant. The lease would continue for 12 months or until settlement (Annexure A, cl 2);

(h)   the defendant would pay monthly instalments of $7,430 commencing 45 days after entry into the Heads of Agreement and continuing until settlement. Until settlement, the monthly payments would be treated as rent due to the plaintiffs pursuant to a lease; upon settlement, the monthly payments would be treated as part of the consideration (Annexure A, cl 3);

(i)    the defendant would pay a deposit of $10,000 by 19 January 2017, and two further payments of $10,000 by 19 February and 19 March 2017 (Annexure A, cl 4(a));

(j)    vendor finance would be provided by the plaintiffs: the balance of the consideration then owing would be advanced for a period of 5 years after settlement at a rate of 1% greater than the rate set by NAB for fixed rate home loans (Annexure A, cl 4(d));

(k)   upon entry into the Heads of Agreement, the day-to-day management responsibilities of the defendant would include: maintenance of livestock, milking, pasture management, irrigation, farm and machinery repairs and maintenance; and maintenance of cool rooms, pasteuriser, dishwasher, dairy plant and equipment, feed system, vat, tractor and other items on the farm such as pumps and motors. For the avoidance of doubt, the defendant’s obligation was limited to maintenance and repair of plant and equipment, but not replacement (unless the defendant chose differently) (Annexure A, cl 6(b) and (h)); and

(l)    the plaintiffs authorised the defendant to lodge a caveat over the title to better secure their (sic) interests (Annexure A, cl 11).

21In January 2017, the defendant and Mr Sandles moved their cattle onto the farm and started making and selling cheese through the business. The plaintiffs assisted which included teaching Mr Sandles how to make cheese.  Although the defendant and Mr Sandles continued selling cheese as the plaintiffs had done, their sales figures were well below those achieved previously. The defendant fell behind in payments due under the heads of agreement.

22The plaintiffs raised the issue of payments due under the heads of agreement not being received on time or at all with the defendant on multiple occasions through February and March 2017. The defendant told the plaintiffs that she was experiencing financial difficulties and that she was doing her best to pay. The defendant claims that because of a lack of training provided by the plaintiffs, slower cheese production, low sales, and a marked reduction in the price of milk being paid by Murray Goulburn, she and Mr Sandles could not generate enough income to pay the agreed monthly rent of $7,430.

23By April 2017, the defendant had failed to make multiple payments due under the heads of agreement.  On 19 April 2017, the first plaintiff emailed the defendant stating that the plaintiffs had not received the money she believed they should have received, that the defendant had repudiated the heads of agreement, and the plaintiffs were taking steps to protect their property.  On 27 April 2017, the plaintiffs took repossession of the farm and changed the locks

24The parties met at a café on 2 May 2017.  According to the plaintiffs, the defendant said she was committed to proceeding with the purchase of the farm and the business, but that she needed the plaintiffs to agree to vary some of the payment terms of the heads of agreement to suit her cashflow issues.  The plaintiffs agreed to be flexible with payment terms because they wanted the sale of the farm and the business to proceed, offering to reduce the monthly rental from $7,340 per month to $4,000.  The defendant also committed to fixing things around the farm.  The plaintiffs agreed to allow the defendant and Mr Sandles back on the farm immediately.  They removed the locks the next day and instructed their agent to take the farm and business off the market. After the meeting, the first plaintiff also prepared a list of the proposed new arrangements and sent it to the defendant.

25Although the defendant and the plaintiffs discussed the proposed variations throughout May 2017, no agreement was reached.  On 31 May 2017, the plaintiffs’ solicitor issued a default notice to the defendant in respect of overdue payments under the heads of agreement (“first default notice”).  By 6 June 2017, the plaintiffs had retaken possession of the farm once more.

26The first plaintiff’s evidence was that when they had retaken possession in June 2017, both the farm and the business were in a deplorable state. There was rubbish scattered about the place, overgrown weeds, tools and equipment strewn about, damaged or in need of repair, rotting cheese curds left discarded outside the factory, and cows undernourished and thin.[3]

[3]Paragraph 46 of the first plaintiff’s affidavit sworn 5 October 2020 describes the state of affairs at the farm as at June 2017 when the plaintiffs retook possession. The first plaintiff also took various photos depicting the farm in June and December 2017 which were in the Court Book.

27The parties signed the deed of variation on 16 June 2017. The recitals of this document noted that the parties “agree to settle all disputes between them, vary the terms of the HOA and otherwise deal with each other in accordance with the terms and conditions” set out in the deed. Along with other matters, the deed of variation provides that:

(a)   the parties affirm the terms of the heads of agreement and agree to treat the heads of agreement as having continued unabated despite the notice and re-entry by the Vendors (cl 2(a) and (b));

(b)   the parties agree to continue to comply with the remaining operative parts of the heads of agreement and each of their respective obligations under the heads of agreement (cl 2(c));

(c)   the defendant shall pay $47,024 to the plaintiffs as amounts owing under the notice, and upon payment the defendant shall be entitled to resume possession of the farm (cl 3 and cl 4);

(d)   clause 15 revoked clauses 16, 18 and 19 of Annexure A to the heads of agreement and were replaced with clauses 16 to 20, which set out the procedures to be followed dealing with notices of default; and

(e)   the defendant was responsible for the costs of repairs and maintenance of all equipment on the property (cl 21(a)).

28The defendant retook possession of the farm and she made payments over the next few months. By 9 October 2017 the plaintiffs’ solicitor had issued a second notice of default to the defendant (“second default notice”) regarding outstanding payments which were due. The defendant rectified the second default notice. 

29The plaintiffs instructed their solicitor to prepare formal transaction documents for the sale of the farm and the business under the heads of agreement on 15 November 2017. On 15 November 2017, the plaintiffs’ solicitor emailed the defendant  attaching a proposed contract of sale of real estate for the farm and a proposed asset sale agreement for the business assets not already transferred.  The plaintiffs’ solicitor sent another email to the defendant on 15 November 2017 attaching a signed vendors statement.

30The defendant refused to sign the contract of sale and asset sale agreement as she did not believe she had agreed to (and did not want to) buy the farm. The plaintiffs considered this refusal a default under the heads of agreement. On 5 December 2017, the plaintiffs issued a notice of default and notice of intention to re-enter premises (“third default notice”) to the defendant. The third default notice gave notice that unless the defendant signed and returned the contract of sale and asset sale agreement and paid $440 to the plaintiffs to cover their legal costs, the plaintiffs would:

(a)   treat the default as a repudiation of the heads of agreement and deed of variation;

(b)   accept that repudiation and terminate the heads of agreement and deed of variation; and

(c)    re-enter the premises and determine the lease.

31On 5 December 2017,[4] the defendant and the first plaintiff exchanged a series of SMS messages regarding the contract of sale.  The first plaintiff told the defendant  that the plaintiffs were “not desperate to sell to you, so if want to walk away, maybe set up in Congupna or whatever that’s fine by us”. The defendant responded, noting that she “would love to stay” at the farm and asking if the plaintiffs would consider “extending the lease for 6 months to get the business locked down before taking the big purchase step”. The defendant further suggested that if the plaintiffs wanted to “sell straight away… I could stay on whilst in the process, so the farm looks it’s [sic] best and is operational.” The first plaintiff replied that she and her husband “do not want [sic] extend the lease… Either sign now or leave … Either sign or don’t and let us know please”.

[4]This date appears as 7 December in the chronology and in handwriting on the CB, but as 5 December at various points in the SMS messages. 

32On 12 December 2017, the defendant’s solicitor emailed the plaintiffs’ solicitor, noting that the lease was still on foot and that the defendant was not bound to proceed with the purchase and did not intend to do so. The email quotes from the first plaintiff’s SMS message from 5 December 2017 to support the proposition that it was clearly not a concern (to the plaintiffs) whether the sale proceeds. The defendant’s solicitor noted that his client was entitled to remain in the property until the expiry of the lease on 18 January 2018.

33In the days that followed, the first plaintiff and the defendant exchanged several more SMS messages.  On 14 December, the first plaintiff texted the defendant asking to talk with her and Mr Sandles “either tomorrow….[or] this afternoon” noting that the plaintiffs believed it necessary to “settle this before the weekend”. When the defendant refused because she was in Melbourne that day, the first plaintiff replied:

“We have reached the end of our patience.  If you want [sic] stay until the weekend either make the time to see us, or immediately deposit $10000 in our bank and we will discuss details next week.”

The first plaintiff followed up that SMS on 15 December 2017 with the following:

“As you have repudiated the HOA by not signing the contract of sale, nor paid any rent for the current usage of our farm and cheese factory, we have taken steps to secure our assets as documented by our lawyer.  We expect you to remove your animals by tomorrow.  Bruce and Sue”

34The defendant’s solicitor emailed the plaintiffs’ solicitor again on 15 December 2017 regarding the defendant’s ostensible right to remain on the farm. The plaintiffs’ solicitor responded on 18 December 2017, disputing the defendant’s interpretation of the heads of agreement, and asserting his clients’ right to possession of the farm and business under clause 19 of the deed of variation. This email continued:

“We note that your email states that your clients do not intend to proceed with the purchase of the farm and business.  This is a clear repudiation of the HOA by your clients.  To the extent that it is necessary at this juncture, our clients accept your clients’ repudiation, and elect to terminate the HOA.

Our clients will proceed to exercise their rights to retake possession of the property as foreshadowed in the Notice of Default.”

35On 15 December 2017, the farm and business were relisted for sale on the internet by the plaintiffs’ agent.

36The plaintiffs terminated the lease and took possession of the farm around 22 December 2017. Both plaintiffs gave evidence that the farm was in disarray, and that significant repairs were required to be undertaken to several items of plant and equipment used on the farm and business.

37The farm and business were advertised for sale again over the intervening months. Between 2 February 2018 and 5 May 2018, the plaintiffs’ agent received no enquiries or interest from potential buyers. On 2 July 2018, the plaintiffs sold the farm to their neighbour’s son for $750,000. They did not sell the business, claiming that upon their re-entry to the farm the business no longer existed in a form which would have easily been capable of resumption and/or resale. In paragraph 55 of the first plaintiff’s affidavit sworn 5 October 2020, she deposed to the various reasons as to why it would have been nigh impossible for the plaintiffs to have attempted to recommence the business. These included that they had no dairy cows, no stock and the factory was unusable with essential equipment missing.

Legal principles

38The issue of whether the parties intended to be immediately bound by the heads of agreement falls to be determined by applying the principles relating to the construction of contracts. These principles are well-settled.

39In Butler v Kenny,[5] the Court of Appeal recently set out in summary form the relevant legal principles concerning the construction of a contract at [27]:

[5][2022] VSCA 102

“There was no dispute below as to the proper principles to be applied in the construction of a settlement agreement; nor is there any real dispute about those principles on the appeal.  In summary:

(a)The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to the text, context and purpose of the contract.  The context includes the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract.

(b)The determination of the meaning of the terms of a commercial contract is an objective exercise.  It is necessary to ask what a reasonable businessperson in the position of the parties would have understood the terms to mean.  That will require consideration of the language of the contract, the circumstances addressed by the contract and the commercial purpose to be secured by the contract.

(c)Ordinarily, a contract is construed by reference to the terms of the contract alone.  If an expression in a contract is unambiguous, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

(d)However, sometimes, recourse to events, circumstances and things external to the contract is necessary. 

(i)First, such recourse may be necessary in determining the proper construction where a provision is ambiguous, such that there is a constructional choice to be made. 

(ii)Second, such recourse may be necessary in order to identify the commercial purpose of the contract.  In that context, an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating may assist in identifying the commercial purpose. 

(e)Even if recourse is had to events, circumstances or things external to the contract, those matters are nonetheless objective.  That is, what may be referred to are external events, circumstances or things (including those established by evidence of prior negotiations) that are known to the parties or which assist in identifying the purpose or object of the transaction.  What is inadmissible is evidence of the parties’ statements and actions which merely reflect their actual intentions and expectations.

(f)Other principles are relevant in the construction of commercial contracts.  Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result.  A commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience. 

(g)The court must have regard to all of the words used in the agreement so as to render them harmonious with one another and to ensure the congruent operation of the various components as a whole.”

40In TheEdge Development Group Pty Ltd v Jack Road Investments Pty Ltd,[6] Riordan J set out some matters which courts have considered relevant in making this determination as follows, while warning that the “utility of presumptions has been strongly doubted”:

[6][2018] VSC 326, [45]-[47] (upheld by the Court of Appeal in The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91)

“(a) Where the disputed agreement is in writing, the words used by the parties must be the strongest indicator of whether the parties intended to be legally bound.  If, on proper construction of the document, it is sufficiently clear that the parties were content to be bound immediately, then the matter is resolved irrespective of the subject matter, magnitude or complexity of the transaction or whether the parties contemplated a further contract in substitution for the first contract.

(b) Whether the informal agreement is expressed to be ‘subject to contract’ or the absence of such words.

(c) The presence of the parties’ signatures on a document said to contain the terms of the agreement suggests an intention to form binding relations; though the effect of the signature cannot, of itself, give rise to a binding agreement if the terms of the signed document do not otherwise support the characterisation of the agreement as binding.

(d) The detail of the terms, to which the parties descended in the informal agreement, may indicate whether the parties did or did not intend to be immediately bound.  As was stated by Powell JA in Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd:

In carrying out the task of determining ...  what was the relevant intention of the parties, a court may have regard, not only to the matters upon which the parties have reached their consensus, but also to the areas in respect of which they have failed to reach any consensus.

(e) An informal agreement which deals with a transaction of great magnitude or complexity ‘may suggest that the informal agreement was not intended to constitute a binding contract’.

(f) The established or common practice with respect to agreements of the type in question may indicate that the parties did not intend to be finally bound until the completion of a formal contract.  An example of such a practice is with respect to the sale of real estate.

(g) The fact that the parties did not use solicitors for the informal agreement but  proposed to do so for the formal contract, may be a factor indicating that the parties did not intend to be bound by the informal agreement.

With respect to the effect of post agreement communications, the courts have considered that such communications may be relevant to the following:

(a) Admissions by conduct of the existence or non-existence of a legally binding contract.

(b) Throwing light upon the meaning of the language in the informal agreement for the purpose of determining whether the language expresses an intention to enter or not enter contractual relations.

(c) Whether and to what extent there were uncompleted negotiations between the parties; and the significance of the uncompleted issues.”

41Riordan J further observed that where a single document is alleged to constitute the contract between the parties, the relevant intention is to be determined objectively from the text of the document construed in the context of the circumstances in which it came into being. Subsequent conduct in such a case might be limited to the questions of:

(a)     whether there were terms not included in the document that might be necessary for a concluded contract; and

(b)     admissions against interest.[7]

[7]        The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326, [47]

42A person’s intention to be legally bound by a contract is to be determined objectively and not by reference to uncommunicated subjective motives or intentions of the parties. Intention is manifested by the subject matter of the contract, the parties’ status to it, their relationship with each other and other surrounding circumstances.[8]

[8]        Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 [25]

43The parties referred to the well-known categories described by the High Court in Masters v Cameron[9]  as stated by Dixon CJ, McTiernan and Kitto JJ at paragraph 9:

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have 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. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. 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.”

[9][1954] HCA 72

44It has been recognised judicially that there is also a fourth category.[10]  This was referred to by McLelland J in Bauklham Hills Private Hospital Pty Ltd v JR Securities Pty Ltd & Ors[11] where his Honour said:

“… there is in reality a fourth class of case additional to the three mentioned in Masters v Cameron as recognised by Knox CJ and Ridge J and Dixon J in Sinclair Scott & Co v Naughton [1929] HCA 34; (129) 43 CLR 310 at 317 namely ‘one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract and substitution for the first contract containing, by consent, additional terms. Their Honours referred to the speech of Lord Lorbun in Love & StewartvInstone & Co (1917) 33 TLR 475 at 476, where his Lordship said that: ‘It was quite lawful to make a bargain containing certain terms with which one was content with dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, nonetheless that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain’.”

[10]The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd at [22]

[11][1986] 40 NSWLR 622 at 628

Issues for determination

45The parties agreed on the following key issues for determination:

(a)   Does the heads of agreement as varied by the deed of variation create a binding contract for sale of land and business or create an option to purchase?

(b)   If so, did the defendant breach the agreement?

(c)   If so, was that breach waived by the plaintiffs?

(d)   What is the extent of the plaintiffs’ loss or damage, if any?

(a)Does the heads of agreement as varied by the deed of variation create a binding contract for sale of land and business or create an option to purchase?

46It is convenient to start with the relevant terms of the heads of agreement and the deed of variation when considering the first key issue.

47The background to the heads of agreement reads:

“The parties have agreed to set out in writing the essential terms of an agreement between them in relation to the sale and purchase of land at 754 Central Mundoona Road Wunghu Victoria and the business known as Locheilan farmhouse Cheese (‘Proposed Transaction’).”

48Clause 3 of the heads of agreement requires the parties to “act reasonably to implement the Proposed Transaction”. 

49Clauses 4 and 5 of the heads of agreement reads:

“4.    Further Transaction Documents

The parties acknowledge that they will need to enter into more detailed binding transaction documents in order to give full effect to the Proposed Transaction.  Until this occurs or until this HOA is terminated (whichever comes first) they will not deal or attempt to deal or authorise any of their agents or associates to deal with or provide any information to any other person in connection with any proposal similar to the proposed transaction or which might have the effect of preventing the proposed transaction from proceeding.

5.     Expiry Date

If the parties or their nominees have not entered into binding transaction documents in relation to the Proposed Transaction by 1 December 2017, either party may give notice to the other that this HOA is terminated.  In such even, the parties will have no further obligations to each other in relation to the matters set out in this HOA.”

50The details of the Proposed Transaction are set out in Annexure A to the heads of agreement, inter alia:

“1.Bruce and Sue agree to sell to Cathy (and/or their nominee) the real estate located at 754 Central Mundoona Road Wunghu Victoria (“Land”) and cheesery business known as ‘Locheilan farmhouse Cheese’ (‘business’) for a total consideration of $1.3m (‘Consideration’).  It is agreed that the Consideration is to be allocated between the farm ($1.1m) and the business ($200,000).  Settlement of the said sale and purchase (‘Asset Transfer’) is agreed to take place 12 months after entry into this HOA. 

2.Immediately upon entry into this HOA, Cathy will take over management and control of the business on the farm.  In order to facilitate this, and subject to the terms of this HOA, Bruce and Sue will lease the farm to Cathy (‘the lease’).  The lease will continue for 12 months or until settlement of Asset Transfer.  While the lease remains in effect, Cathy will be responsible for all costs and expenses associated with the management and operation of the business and will be entitled to retain all profits derived from such management and operations.”

(Emphasis added)

51By the deed of variation the parties relevantly agreed that:

“7.Notwithstanding clause 3 of Annexure A to the HOA, the parties agree to use reasonable endeavours to enter into a lease on normal commercial terms for the farm and the business premises for a term of six months and containing revised rental payments effective from 6 June 2017…

8.For the avoidance of doubt:

(a) payments of the amounts for the deposit or rent are not refundable to Cathy for any reason; and

(b)shall be credited against the purchase price by the Vendors only in the event that the transaction for the sale and purchase of the Property and the business is completed. 

…

15. The parties agree that clauses 16, 18 and 19 in Annexure A to the HOA are revoked and replaced with clauses 16 to 20 below.

16.In the event that either party breaches the provision of this Deed or of the HOA as amended by this Deed, then the non-defaulting party shall first serve a default notice on the defaulting party describing the default and allowing a period of not less than seven days for the default to be remedied.

17. The HOA immediately ends if:

(a) the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the HOA will be ended in accordance with this clause; and

(b) the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.

18. If the HOA ends by default notice given by Cathy:

(a) any money paid by Cathy under the HOA shall be retained by the vendors absolutely, other than the deposit moneys, which are to be refunded to Cathy;

(b) Cathy shall be relieved from making any further payments under the HOA or this deed; and

(c)       Cathy may also recover any loss otherwise recoverable.

19.  If the HOA ends by default notice given by the vendors:

(a) the deposit moneys are forfeited to the vendors as the vendors’ absolute property whether the deposit has been paid or not;

(b) all other moneys paid by Cathy under the HOA or under this deed are forfeited to the vendors as the vendors’ absolute property;

(c) the vendors are entitled to possession of the property and the business;

(d) in addition to any other remedy, the vendors may within one year of the contract ending either:

(i)retain the property and sue for damages for breach of contract; or

(ii) resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by liquidated damages;

(e)the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and

(f) any determination the vendors’ damages must take into account the amount forfeited to the vendors.

20. The ending of the contract does not affect the rights of the offended party as a consequence of the default.”

(Emphasis added)

Plaintiffs’ submissions

52The plaintiffs contend that the parties objectively intended to be bound by the terms of the varied heads of agreement. They note the background to the heads of agreement records the terms agreed upon as “essential”.

53Clause 2 states that all clauses in the heads of agreement are intended to be legally binding on the parties. They suggest this language evinces the parties’ intention to be immediately bound without qualification, suggesting that there is no further qualifying language contained in the heads of agreement. There were no qualifying words such as “subject to contract”.

54The parties acknowledge in clause 4 that they will need to enter into more detailed transaction documents in order to give full effect to the proposed transaction. This evokes the language of the first category in Masters v Cameron and the fourth category identified in Baulkham Hills.

55Clause 4 goes on to provide that the parties would not attempt to deal with any person in connection to a similar transaction until such documents are entered into or the heads of agreement terminated, whichever comes first. The plaintiffs contend this clause amounts to an incursion into the plaintiffs’ rights to enter into negotiations with third parties in relation to a sale of the farm and business for the defendant’s benefit, and that such an incursion is consistent with an immediately binding contract.

56The fact that the heads of agreement is in the form of a deed indicates an intention to form binding relations.

57Clause 11 of Annexure A to the heads of agreement which authorises the defendant to lodge a caveat over the title to the farm to protect her interest under the heads of agreement, only makes sense if the defendant had contracted to purchase the farm under the heads of agreement.

58The relative completeness and certainty of the contractual terms embodied in the heads of agreement (and Annexure A) further indicate the parties’ intention to be bound. The document contains all the essential terms necessary for the sale of the farm and the business including identification of the parties, identification of the farm and the business, the prices for each, the deposit, the settlement date and the terms of vendor finance.

59The plaintiffs refute the defendant’s contention that the agreement between the parties has too many moving parts to be binding, noting that:

(a)   Annexure A contains the key terms and timetable for the transaction;

(b)   the farm to be sold was identified in the heads of agreement in the backgrounds and in clause 1 of Annexure A. In any case, the defendant had no difficulty identifying the farm when she moved onto the farm in January 2017 or when she asserted a leasehold interest in the farm on 12 December 2017;

(c)   the business the subject of the heads of agreement was clearly identified under the heading “Background” and in clause 1 of Annexure A;

(d)   the purchase price was specified in clause 1 of Annexure A; and

(e)   the defendant was put on notice that there were six titles to the farm and that the vendors’ water shares were excluded from the sale by way of the proposed form of contract of sale sent to the defendant on 15 November 2017.

60The plaintiffs submit the degree of specificity in respect of the identity of and value ascribed to the chattels and assets in the proposed form of asset sale agreement was sufficient, hypothetically speaking, so as to permit the defendant to obtain specific performance if the plaintiffs had defaulted.

Defendant’s submissions

61The defendant submits the heads of agreement contemplates a proposed transaction only and that there are too many moving parts to the agreement for it to be binding. She notes that clauses 4 and 5 of the heads of agreement were not amended by the deed of variation.

62The defendant argues that paragraph 5 of the heads of agreement operates as a sunset clause, whereby if the agreement contemplated is not reached by 1 December 2017, the heads of agreement lapses.

63The defendant further submits that by failing to issue within a year or resell within a year, there is no contractual right for the plaintiffs to claim damages, claiming that the plaintiffs are unable to prove at common law a concluded agreement with her to purchase the business and the farm. Instead, the defendant suggests that the transaction documents merely contemplate a situation in which if the agreement is not reached, then the heads of agreement comes to an end.

64The defendant also submits that further negotiation between the parties or specific identification of which title or titles constituted the farm in question would be necessary in order for the parties to complete the contract.  The chattels are not identified nor the assets of the business.

65The heads of agreement did not have a section 32 statement attached under the Sale of Land Act 1962. This meant that the defendant was denied an opportunity to rescind the contract.

66The defendant claims that the heads of agreement and deed of variation are too uncertain to be binding, and therefore failure to enter into the transaction documents does not amount to a breach on her part under the heads of agreement. The defendant stresses that the heads of agreement fell within the third category identified in Masters v Cameron.

Analysis

67As a matter of construction, I find that the heads of agreement as varied did not create an immediately binding contract of sale for the farm and business. A reasonable person considering the text of the heads of agreement and the deed of variation, in the context of the circumstances in which they came into being, would have formed the view that the parties did not intend to create a binding contract until a formal contract of sale was exchanged. In my view, the heads of agreement as varied, falls within the third class discussed in Masters v Cameron,[12] where the intention of the parties is not to make a concluded bargain unless and until they execute a formal contract.

[12] (1954) 91 CLR 353 at 360-1

68My reasons for reaching this conclusion are as follows.

69First, the heads of agreement and the deed of variation repeatedly use the expression the “Proposed Transaction”.  The definition of “propose” in the Macquarie Dictionary is to put forward for consideration or suggest as something to be done. The use of the term “proposed” is inconsistent with a construction that the transaction was immediately binding.

70Secondly, clause 4 prohibits the parties from dealing or attempting to deal with “any other person in connection with any proposal similar to the Proposed Transaction or which might have the effect of preventing the Proposed Transaction from proceeding”. This prohibition is in effect only until the further transaction documents identified are entered to “or until this HOA is terminated (whichever comes first)”. If the parties were in fact immediately bound, then there would have been no need for such a prohibition which lapses once the deal is done or the HOA is terminated. The inclusion of the prohibition in clause 4, in my view, supports the view that a reasonable bystander would consider that the heads of agreement was not meant to be immediately binding.

71Thirdly, an expiry date of 1 December 2017 is nominated at clause 5 if binding documents are not signed. This allows either party to “give notice to the other that this HOA is terminated” in which event “the parties will have no further obligations to each other in relation to the matters set out in this HOA”. No notice was given by either party by 1 December 2017. The deed of variation excused any non-compliance with terms of the heads of agreement to the date of the deed. But the point to be noted is that the parties agreed to walk away if binding documents were not signed within a specified time, which again supports a construction that the heads of agreement was not intended to be immediately binding.

72Fourthly, the deed of variation continues to refer to the sale of the farm and business as the “Proposed Transaction” only. Payments made by the defendant to the plaintiffs are still described as “rent” or “rental payments”,[13] to be “credited against the purchase price by the vendors only in the event that the transaction for the sale and purchase of the Property and the business is completed”.[14]  Again, such wording is inconsistent with there being an immediately binding contract.

[13]        See CB 69, clauses 6 & 7

[14]        CB 69, clause 8(b)

73Fifthly, as counsel for the defendant noted, if entry into the proposed transaction under the heads of agreement was immediately binding, the defendant would have effectively waived her right of recission under s32K of the Sale of Land Act 1962. The plaintiffs would have been in breach of their obligations under s32L by failing to give a compliant vendors statement to the defendant before she entered into the contract of sale of the farm and been exposed to a criminal sanction under s32L. The sale of land was a substantial transaction and the plaintiffs’ failure to give the defendant a section 32 statement beforehand meant that she lacked basic information about the land.[15] The plaintiffs’ solicitor did provide a s32 vendors statement in November 2017 together with the formal transaction documents but this was after the contract was already formed, on the plaintiffs’ case. It is highly unlikely that the parties would have intended the heads of agreement to be a binding agreement in circumstances where the requirements and rights under s32 were not met.

[15]        cf Molongo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147, [173]

74Sixthly, the heads of agreement related to the sale of real estate in part.  The usual practice in Victoria is for parties entering into a contract for the sale of land to exchange signed counterparts of a written agreement so that each party has possession of a copy signed by the other. When parties propose to enter a contract for the sale of land by this customary procedure of exchange, they do not contemplate the coming into existence of a binding contract before that exchange.[16]  Such a presumption can be displaced but only where it is expressly stated. In the absence of any wording to the contrary, the normal presumption should apply, namely, that a contract for sale of land is only created upon the exchange of counterparts. 

[16]        Per Finkelstein J in Fitzwood Pty Ltd v Unique Goal Pty Ltd [2000] FCA 36 (31 January 2000)

citing Allen v Carbone (1975) 132 CLR 528 at 533; Sindel v Georgiou (1983) 154 CLR 661 at 665-6

75The presumption was explained by Stevenson J in Horne v James,[17] where his Honour said:

[17][2015] NSWSC 465 at [15]

“There was no dispute between the parties about the following:

1.‘An agreement for the sale of property at a specified price does not necessarily indicate a legally binding contract. The magnitude, subject matter, or complexities of the transaction may indicate that the agreement was a limited one not intended to have legal effect” (per McHugh JA (with whom Kirby P and Glass JA agreed) in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634 citing Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 316 to 317);

2,In NSW the “usual method of selling real estate…is by means of the signing and exchange of contracts in the form approved by the Real Estate Institute of New South Wales” (Allen v Carbone (1975) 132 CLR 528 at 533);

3.‘Accordingly, even though the parties agree in writing that real estate is sold for a specified price, the presumption [in NSW] is that no binding contract exists until ‘contracts’ are exchanged” (per McHugh JA in GR Securities citing Smith v Lush (1952) 52 SR (NSW) 207 at 212; see also the cases referred to by Stone J in McDonald v Commissioner of Taxation (2001) 109 FCR 207 at [18]);

4.This was described by the High Court in Allen v Carbone as a “first consideration” (at 533). In Lezabar Pty Ltd v Hogan (1989) NSW ConvR 55-468 at 58-387 to 58-388, Gleeson CJ said that:

“One reason why this consideration is important is that the form of contract ordinarily used contains important provisions for the protection of both parties, and a court would not lightly attribute to knowledgeable parties an intention to forego such protection”;

5.Nonetheless, it is possible for a contract of sale of land in NSW to be effected otherwise than by exchange of contracts (for example, per Stone J in McDonald at [20]);

6.The “decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances” (per McHugh JA in GR Securities at 634, citing Godecke v Kirwan (1973) 129 CLR 629 at 638 and Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332 to 334 and 337);

7.If “the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction” (per McHugh JA in GR Securities at 634);

8.It may be that, upon the proper construction of the document, it will appear that “the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”: Sinclair, Scott & Co v Naughton at 317. This is the familiar “fourth class of case” additional to the three mentioned in Masters v Cameron (1954) 91 CLR 353 (described by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628); and

9.Nonetheless, the practice in NSW of proceeding by exchange of contracts is “so entrenched that a party contending for an intention to proceed other than in accordance with the established procedure will need clear evidence to support the contention” (per Stone J in McDonald at [21] citing Bryson J in Dowdle v Inverell Shire Council (1999) ANZ ConvR 429 at 431).”

76A similar position was taken by Windeyer J in 161 Castlereagh Street Pty Ltd v Citadel Property Group,[18] where his Honour said at paragraph 29(b):

“The common assumption and intention in agreements for the sale of land in New South Wales is that it is intended that there shall be no binding agreement until contracts are exchanged. In other words such contracts fall within the third limb of Masters v Cameron (1954) 91 CLR 353.”

[18][2001] NSWSC 859 (2 October 2001)

77His Honour then referred to several cases in support of that proposition, including GR Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited.[19]  

[19](1986) 40 NSWLR 631 at 634

78The presumption is that there is no binding contract until exchange unless there is evidence to the contrary. There was no evidence or wording to the contrary to rebut the presumption in this case. Indeed as clause 4 of the heads of agreement makes clear, the parties intended to execute more binding contractual documents. Therefore, the common presumption applied to this transaction, with the result being that there was no binding agreement between the parties until formal contracts were exchanged.

(b)     Did the defendant breach the heads of agreement?

79Having found that the heads of agreement was not a binding contract of sale, then it follows the defendant was not in breach by refusing to sign and return the contract documents. Had I found the heads of agreement was immediately binding, the defendant would, in my view, have been in breach of her obligations under clause 3 and repudiated the heads of agreement by refusing to sign and return the contract of sale documents

(c)     Was the defendant’s breach waived by the plaintiffs?

80This issue is now redundant but for the sake of completion I will deal with it. The defendant pleads in her defence that, were this the case, the plaintiffs waived reliance on the agreement during the following parts of a text message exchange between the first plaintiff and the defendant (irrelevant parts omitted, emphasis retained from defence):

The first plaintiff:     “… are you sure you want to go ahead with the purchase given the financial considerations? We are not desperate to sell to you, so if you want to walk away, maybe set up in Congupna or whatever that’s fine by us…”

The defendant:     “… Re the farm, given all the big payments are over (finding an extra $10,500 each month for cows has been tough) – I would love to stay there. Is there a chance of extending the lease for 6 months to get the business locked down before taking the big purchase step? Or maybe you want to sell straight away which I understand and I could stay on whilst in the process, so the farm looks it’s [sic] best and is operational. I know you’ve been very fair to me along the way Sue and I really do appreciate it, so I would be happy to do something for you that might help the selling price…”

The first plaintiff:   “…we are naturally concerned about finances to do with the sale, and your past record of untimely payments makes us even more concerned. We do not want to extend the lease. We have already been very generous with reduction of monthly payments, accepting late payments and so on. The 1^st December has been coming for a long time so you have had plenty of opportunity to prepare for it. Either sign now or leave without any more… Either sign or don’t and let us know please.”

81The defendant pleads that she left the property in reliance on the representation contained in those SMS messages, in particular the sections highlighted in bold.[20] She pleads that the plaintiffs waived their rights, or alternatively are estopped, from relying on the formal transaction documents and the default notice.

[20]        Defence [7.1] – [7.6]

82The plaintiffs submit that neither waiver nor estoppel is made out on the facts in this case. They say this particular exchange ought be understood in the wider context of the communications between the parties and their representatives also outlined above. The plaintiffs submit they merely drew the defendant’s attention to her various options, rather than conveying to her that if she elected not to sign the transaction documents, the plaintiffs would abandon their rights under the default notice.

83The plaintiffs also submit that the defendant’s contention that the plaintiffs waived any reliance on any further claim for damages either pursuant to the deed of variation or the heads of agreement travels beyond the defendant’s pleaded case, which is confined to reliance on the default notice (not on the heads of agreement (as varied)).[21] The plaintiffs claim that on no possible reading of the text messages could it be said that they had abandoned all rights that they had under the heads of agreement or deed of variation.  In particular, the text messages cannot possibly be understood as constituting an unequivocal abandonment of the plaintiffs’ rights to enforce the defendant’s contractual obligation to repair and maintain plant and equipment at the farm.

[21]        Defence [7.6]

84The doctrines of breach and waiver are not easily distinguished.[22] Each doctrine is underpinned by the notion that equity precludes relief in cases where the enforcement of rights would be unconscionable.[23]  In general, waiver is constituted by the deliberate, intentional and unequivocal release or abandonment of the right that is later sought to be enforced.[24]

[22]P W Young, C Croft and M L Smith, On Equity (Lawbook Co, 2009), [17.160]

[23]        Ibid

[24]Yimin Zhang v Shanghai Wool and Jute Textile Co Ltd (2006) 201 FLR 178; [2006] VSCA 133, [14] (Chernov JA, with whom Ashley JA and Bongiorno AJA agreed), citing Commonwealth v Verwayen (1990) 170 CLR 394, 423–424 (Brennan J), 473 (Toohey J), 482 (Gaudron J) and 497 (McHugh J).

85The defendant submits that her pleading of waiver is made out in two main ways. First, she submits that by the plaintiffs’ delay, both in reselling the land 15 months after the heads of agreement had come to an end, and in commencing proceedings more than two years later, they waived their rights to sue under the heads of agreement.

86Secondly, she submits the plaintiffs, by the text message exchanges identified above, waived their rights to claim damages for her alleged breach of the heads of agreement, because the plaintiffs were prepared to continue to negotiate with the defendant provided they were paid a further sum of $10,000 to remain on the premises until termination of the lease. The defendant claims that the plaintiffs elected to require the defendant to leave the property rather than remain and have the last month of her lease or be sued for damages.

87I am not persuaded that the plaintiffs waived reliance on the terms of the formal transaction documents by way of the text messages sent to the defendant.  On a plain reading of the text messages, they do not rise to the level of a waiver of the plaintiffs’ rights under the heads of agreement as varied by the deed of variation. The first plaintiff merely indicates to the defendant by these messages that she ought to make a decision in relation to the default notice and plans regarding her continued possession of the farm and business. The texts also do not support the defendant’s contention that the plaintiffs agreed to waive their entitlement to claim damages under the heads of agreement or otherwise.

88While the defendant pleaded estoppel in the alternative to waiver in her defence,[25] her counsel did not initially make submissions on this topic other than to note the finding of Keane JA in Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 at [149] that:

“…there is no separate doctrine of waiver of contractual rights based on representations or conduct by a party unless the representations or conduct amount to a binding election or are accompanied by detrimental reliance sufficient to support an estoppel or consideration sufficient to support a contractual variation.”

[25]        Defence [7.6]

89In their written closing submissions, the plaintiffs submit the defendant’s estoppel pleading fails on several levels:

(a)   First, on a fair reading of the text messages, they do not convey a representation that if the defendant elected to leave the property, rather than sign the transaction documents, the plaintiffs would not assert their rights under the default notice.

(b)   Second, it was obvious from the correspondence that passed between the parties’ solicitors between 12 and 18 December 2017 that the defendant was not labouring under any misapprehension that the plaintiffs had abandoned their rights under the default notice. The opposite was true. As was clearly exposed in the correspondence, the defendant challenged the plaintiffs’ entitlement to re-enter the property as asserted in the notice of default; the plaintiffs, on the other hand, asserted their entitlement to exercise their rights of re-entry as stated in the notice. During cross-examination in relation to these contemporaneous documents, the defendant agreed that she had never received any notification that the notice of default had been withdrawn.

(c)   Third, no detrimental reliance has been established where the defendant left the property when she had no legal right to remain on the property.

90In her submissions in reply, the defendant submits that detrimental reliance is made out where she left the property when she had a legal right to remain until the conclusion of the lease.

91I am not satisfied that the first plaintiff’s text messages amounted to a representation that the plaintiffs would not exercise their rights under the heads of agreement. Even if it was, it was not established sufficiently on the evidence that the defendant acted to her detriment in reliance upon any such representation, given the lease was about to expire a few weeks later in January 2018. The plea of estoppel is not made out.

(d)     What is the extent of the plaintiffs’ loss or damage, if any?

92For the reasons already given, the plaintiffs have not established breach and therefore the question of damages need not be determined.  If I am wrong on this, then I deal with the claim for damages below.

93The total amount claimed against the defendant by the plaintiffs is $633,758.50.  These amounts are calculated as follows:

Deficiency in purchase price for the land	$350,000.00
(less amount of deposit forfeited)	($30,000.00)
Loss of value of business	$200,000.00
Cost of default notice	$440.00
Interest on $1,300,000 (19.1.2018 – 2.7.2018)	$32,290.82
Interest on $550,000 (3.7.2018 – 19.11.2019)	$41,932.69
Interest on $550,000 (20.12.2019 – 13.12.2019)	$1,975.40
Repairs to condensing unit	$6,402.00
Repairs to pulsation system	$1,067.00
Repairs to effluent pump	$6,000.00
Repairs to pasteuriser	$3,064.60
Repairs to refrigeration units	$1,254.99
Cleaning and rubbish removal	$1,408.00
Repairs to dairy and yard	$1,144.00
Replacement fence panels	$360.00
Replacement inverter	$499.00
Replacement battery	$246.00
Replacement English peg mill	$1,000.00
Replacement air compressor	$299.00
Replacement market tent	$400.00
Replacement tractor	$9,900.00
Replacement motorbike	$3,250.00
Costs of contract and vendor statement	$825.00
Total	$633,758.50

94The first item is the deficiency in the purchase price, which is claimed at $350,000, representing the difference between the contract price of $1,100,000 less the price obtained upon resale of $775,000.

95By contract dated 2 July 2018, the plaintiffs agreed to sell the land to a third party, Mr Lawless, for $750,000. This sum did not include any amount attributable to the business.  That contract was entered into within 12 months of the heads of agreement coming to an end by the default notice.  This contract was replaced by a further contract of sale dated 18 February 2019.  This was done at the request of the purchaser who sought amendments which were agreed to by the plaintiffs.  The replacement contract was in respect to the same land for the same purchase price.  The purchase price was apportioned as between the six titles to the farm and certain cheesemaking chattels.

96The defendant contends that the plaintiffs are not entitled to damages because the plaintiffs failed to resell within a year or to issue proceedings within a year and therefore has no contractual right to claim damages.  The defendant further asserts that the plaintiffs cannot show a diminution in the value of the farm, merely a difference between the original sale price and resale price.

97The plaintiffs’ answer to this is that the contract of sale was executed by Mr Lawless within the 12-month period. On 28 June 2018, Mr Lawless paid the 10 per cent deposit and moved onto the farm. The contemporaneous correspondence passing between the solicitors for the vendor (the plaintiffs) and the purchaser (Mr Lawless), confirms that the parties considered themselves bound by the contract dated 2 July 2018.

98But even if the land had not been resold within a year, the plaintiffs still had rights under common law. The plaintiffs referred to clause 19(d) of the deed of variation which made it clear that the contractual remedies were in addition to any other remedies.

99The plaintiffs say the difference in price is recoverable from the defendant by way of liquidated damages.  The same measure of damage would apply at common law, being the difference in the market value when the farm was resold.

100The plaintiffs describe the market value of the farm variously as the price that a willing and knowledgeable but not anxious purchaser would pay a willing and knowledgeable but not anxious vendor in an arm’s length transaction,[26] and the price actually attainable in a market sale.[27] They suggest they took reasonable steps to obtain the best market price for the farm, and note that there is no suggestion that there were any inadequacies in the marketing strategy which was employed, but that it simply transpired the only interested purchaser was Mr Lawless. The sale price – $750,000 – represented the best price attainable in a market sale and was therefore reasonable.

[26]        Citing Spencer v Commonwealth (1907) 5 CLR 418

[27]        Citing HTW Valuers Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640

101The evidence shows that attempts by the plaintiffs to resell the property initially proved unsuccessful.  It has not been suggested or proved that the sale to Mr Lawless was in effect a fire sale or at a price well-below the market value.  It was not incumbent upon the plaintiffs to call expert evidence about diminution in value as argued by the defendant. If the value of the resale price was sought to be challenged, such evidence might have been adduced by the defendant. 

102As to the question of the failure to resell within time, this point ultimately goes nowhere because even if the defendant was right and the property was not sold within 12 months, the plaintiffs still retained rights at common law to sue for breach of contract and claim damages. I am satisfied that the claim for damages was not precluded under contract or at common law and that the amount claimed under this head is reasonable in all the circumstances.

103The plaintiffs claim they are entitled to the amount of the forfeited deposit of $30,000, which is subtracted from the total sum claimed in the table of damages.

104Clause 19(a) of the deed of variation provided that if the heads of agreement ended by default notice given by the plaintiffs, the deposit monies were forfeited to the plaintiffs as the plaintiffs’ absolute property. The defendant denies that this sum is forfeited as she claims that she was under no obligation to enter into the contract of sale. An alternative argument raised was that the deposit was not recoverable because it was a penalty.

105The plaintiffs submit the forfeiture of a reasonable deposit does not attract the jurisdiction of a court of equity to relieve against penalties. However, the doctrine will be attracted where the vendor attempts to exceed the customary deposit of 10 per cent of the purchase price unless special circumstances can be shown.[28]

[28]Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, 579-579, cited with apparent approval by Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ in Federal Commission of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342, [26]. See also Heydon, JD, Leeming, MJ & Turner, PJ Meagher Gummow & Lehane’s Equity Doctrines and Remedies (5th ed.) LexisNexis Butterworths (2015), [18-120].

106The plaintiffs note that in the present case, the deposit represented less than 3 per cent of the proposed purchase price for the farm.  In such circumstances, forfeiture of the $30,000 deposit does not constitute a penalty. I agree with the plaintiffs’ submission and find that the deposit sum was not a penalty.

107As for the loss of value of the business, the plaintiffs contend that upon re-entering the land there was no cheese business left in a form which would have been capable of resumption and/or resale.  All the cheese stocks had been taken away by the defendant, as had all wraps, cultures and labels.  Most of the plaintiffs’ dairy cows had been purchased by the defendant.  Items of plant or equipment were missing and customers of the business had been notified previously of the sale of the business to the defendant.  The business then was not capable of being resold and therefore, the entire value of the business had been lost. It was appropriate to assess the damages representing the value of the business at $200,000.  In circumstances where the farm was in a parlous state upon re-entry and the cheesemaking business was no longer capable of being run, I am satisfied there was no operative business which was capable of being on-sold.  Accordingly, the plaintiffs would have been entitled to recover the loss of the value of the business listed as $200,000 in the heads of agreement.

108The plaintiffs claim interest by way of damages on the unpaid contract price for the land and business of $1.3 million. The interest calculations are set out in paragraph 136 of the plaintiffs’ closing submissions.

109The interest calculations are as follows:

·        Interest on $1,300,000 (19.1.2018 – 2.7.2018) $32,290.82

·        Interest on $550,000 (3.7.2018 – 19.11.2019) $41,932.69

·        Interest on $550,000 (20.11.2019 – 13.12.2019) (omitted from statement of claim) $1,975.40

110The heads of agreement provided that vendor finance would be advanced by the plaintiffs after settlement at a rate of 1 per cent greater than the rate set by NAB for fixed rate home loans, which was stated to be “currently 4.69%”: heads of agreement, Annexure A, clause 4(d). The rate of 4.69 per cent per annum has been adopted, compounding daily as per the computation of interest under an ordinary bank home loan.

111The plaintiffs also claim loss relating to plant and equipment being repair and maintenance costs.  Clause 21(a) of the Deed of Variation imposed an obligation on the defendant to meet the costs of repairs and maintenance of all equipment on the property. The items claimed are as follows:

Repair and maintenance costs

112Condensing unit ($6,402.00): The second plaintiff’s evidence was that, in May 2017, the milk vat in the dairy had been turned on permanently (with a couple of hundred of litres of milk in it), rather than being switched to automatic, which resulted in the contents of the vat freezing and the compressor failing. The plaintiffs produced an invoice dated 13 March 2018 (“remove faulty compressor on bottom unit. Supply & fit new compressor…”) in support of this claim.

113Pulsation system ($1,067.00): The second plaintiff’s evidence was that, in November 2016, when the defendant and Mr Sandles moved in, Mr Sandles and his worker Chris had altered the pulsation systems in the dairy and in the milk machines, which led to problems down the track. On re-entry, the master unit had to be rewired. The plaintiffs produced an invoice dated 2 February 2018 (“manufacture new pulsating wiring loom. Fit new pulsating wiring loom”) in support of this claim.

114Effluent pump ($6,000.00): The second plaintiff’s evidence was that the effluent pump at the bottom of the dairy yard was not cleaned out while in the defendant’s possession. The effluent pump was not working and, as a result, effluent was running into the creek. The second plaintiff deposes to the costs incurred in repairing the effluent pump.

115Pasteuriser ($3,064.60): the second plaintiff’s evidence was, on re-entry, there was a sticker on the pasteuriser which stated that it had failed the calibration in July 2017.  The plaintiffs produced an invoice dated 28 February 2018 (“pasteurised upgrade and calibrations; digital recorder for panel mounting”) in support of this claim.

116Refrigeration units ($1,254.99): the second plaintiff’s evidence was one of the refrigeration units was not working and parts had to be replaced. The plaintiffs have produced an invoice dated 25 June 2017 in support of this claim.

117Repairs to the dairy and yard ($1,144.00): the second plaintiff gave evidence as to the repair work that needed to be done to the dairy and yard. This work is described in an invoice produced in support of this claim.

118Cleaning and rubbish removal ($1,408.00): the second plaintiff gave evidence as to the state of the land upon re-entry: the machinery shed was strewn with rubbish; there were used milk bottles in bags throughout the shed; feed supplements were riddled with rats and mice; and rubbish had been left lying around. The clean-up work is described in an invoice produced in support of this claim.

Plant and equipment – items missing or damaged beyond repair but not replaced

119Upon the plaintiffs’ re-entry onto the land, items of plant and equipment were found to be missing or damaged beyond repair but not replaced. The plaintiffs claim the replacement cost of those items as follows:

(a)   Fence panels (2 @ $180 = $360.00): the second plaintiff’s evidence was, on re-entry, two fence panels with an approximate value of $180 each were missing. The plaintiffs rely on a written sale listing price for cattle yard fence panels to substantiate this claim (2 @ $180 = $360).

(b)   Inverter ($499.00): the second plaintiff’s evidence was, on re-entry, an inverter was missing. The second plaintiff gave evidence from his own knowledge as to the original purchase price of the inverter ($499.00).

(c)   12V battery ($246.00): this battery was missing. the second plaintiff gave evidence from his own knowledge as to the original purchase price of the 12V battery ($246.00).

(d)   English peg mill ($1,000.00): the second plaintiff’s evidence was, on re-entry, the English peg mill was missing. The second plaintiff gave evidence from his own knowledge as to the original purchase price of the English peg mill ($1,000.00).

(e)   Air compressor ($299.00): the second plaintiff’s evidence was, on re-entry, the air compressor was missing. The second plaintiff gave evidence from his own knowledge as to the original purchase price of the air compressor ($299.00).

(f)    Market tent ($400.00): the second plaintiff’s evidence was, on re-entry, one of the two market tents was missing. The second plaintiff gave evidence from his own knowledge as to the original purchase price of the market tent ($400.00).

(g)   Belarus 4WD 90 HP motor 590 tractor ($9,900.00): the second plaintiff’s evidence was the tractor was old but because it was a front-end loader it had certain value. It was as good as useless when the plaintiffs returned to the factory. The plaintiffs rely on a written sale listing price for a comparable (old) tractor to substantiate this claim.

(h)   Honda 205cc quad bike ($3300): the second plaintiff’s evidence was, within a few months of the defendant being in possession of the farm, the quad bike had been run into the ground and needed to be repaired or replaced. The plaintiffs rely on a written sale listing price for a comparable quad bike to substantiate this claim.

120Finally, the plaintiffs also seek an amount of $825, being the legal costs incurred in relation to the appropriation of a formal contract and vendor statement.  It was said that these costs flow naturally from the defendant’s breach of the heads of agreement whereby she refused to execute those documents.  It was said that those costs were reasonable and should be allowed.

Summary of findings on plaintiffs’ claim for damages

121Had it been necessary to award damages, I would have been satisfied that the plaintiffs were entitled to the difference claimed following the resale of the farm which was $350,000. I would also have been satisfied that the loss of the value of the business in the sum of $200,000 was established.

122As for the interest claimed by way of damages, I would not have been persuaded that the plaintiffs are entitled to claim interest on vendors finance in circumstances where no funds were advanced by them to the defendant because the transaction did not proceed. They would have been entitled to claim interest had they advanced the finance to the defendant at the rate claimed but this did not happen. Damages are compensatory in nature. The claim for vendors finance interest, if allowed, would have resulted in an impermissible windfall for the plaintiffs, in my view.

123As for the various repairs and maintenance costs, I would have allowed the items claimed because there was evidence that these costs were incurred by the plaintiffs after they re-entered in December 2017 and were done to restore the property. The amounts appear to be reasonable in nature.

124I would not have allowed the costs sought for the various replacement costs as I was not persuaded the plaintiffs suffered any actual loss on these items. They did not purchase the replacement items in question. They did not run the business after they retook possession in December 2017. The farm was held by the plaintiffs until Mr Lawless moved in around June 2018. He purchased the farm and a number of cheesemaking chattels which were identified in his contract of sale with the plaintiffs. The chattels purchased by Mr Lawless included the tractor which the plaintiffs claim as a replacement item in this proceeding in the sum of $9,000. The plaintiffs are not entitled to this sum given the tractor was on sold by them. I was also not persuaded on the state of the evidence that the plaintiffs were entitled to the cost of a replacement quad bike as claimed.  Overall, I considered the replacement costs sought were speculative. I was not satisfied the plaintiffs discharged their onus of proof on these items.

125I would have allowed the sum of $825 claimed for legal costs for the preparation of the contract of sale and vendors statement.

Conclusion

126I will order that the plaintiffs’ claim be dismissed.

127Unless the parties can point to any reason why costs should not follow the event, I propose ordering the plaintiffs pay the defendant’s costs of the proceeding, including any reserved costs, on the standard basis to be taxed in default of agreement.

- - -

Certificate

I certify that these 41 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 8 August 2022.

Dated: 8 August 2022

Associate to Her Honour Judge A Ryan