Patel v Sengun Investment Holdings Pty Ltd
[2022] VCC 1085
•15 July 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-21-04377
| TRUPESHKUMAR RAJENDRAKUMAR PATEL | Plaintiff |
| v | |
| SENGUN INVESTMENT HOLDINGS PTY LTD (ACN 126 385 206) | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 and 29 June 2022 | |
DATE OF JUDGMENT: | 15 July 2022 | |
CASE MAY BE CITED AS: | Patel v Sengun Investment Holdings Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1085 | |
REASONS FOR JUDGMENT
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Subject:HEADS OF AGREEMENT – PURCHASE OF LAND
Catchwords: Heads of agreement – contract of sale – binding contract for the sale of property – immediately binding contract – specific performance – damages
Legislation Cited: Sale of Land Act 1962 (Vic); Planning and Environment Act 1987 (Vic); Heritage Act 2007 (Vic)
Cases Cited:Delaney v Delaney [2022] VSCA 48; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91; Masters v Cameron (1954) 91 CLR 353; Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147; Mould v Canale [2017] VSC 793; Pianta v National Finance and Trustees (1994) 180 CLR 146; Rofiza Pty Ltd v Gangley Pty Ltd [2002] NSWSC 986
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J.A. Ribbands | Koya & Co |
| For the Defendant | Mr J. Kohn | MS Justice Legal |
HIS HONOUR:
Introduction
1On 14 December 2021, the plaintiff (“Patel”) executed Heads of Agreement with the defendant (“Sengun”) in relation to the purchase of vacant land at 252-280 Ibbotson Street, St Leonards in Victoria (“the Property”). Patel paid $50,000 towards the purchase price of $4.1 million. Shortly after, Sengun advised that it no longer wished to proceed with the transaction. Patel insisted that Sengun’s solicitor prepare the Contract of Sale in accordance with the Heads of Agreement. The main issues in the proceeding are:
(a) whether the Heads of Agreement constitutes a binding contract for the sale of the Property;
(b) if it does, is Patel entitled to specific performance of the contract or is he confined to his remedy in damages.
Background
2Patel operates his own business as a property developer.
3Guner Senyuvali (“Senyuvali”) is the sole director and shareholder of Sengun. He incorporated the company in 2007 and bought the Property in 2019. Sengun conducts a property investment business. Since 2007, Sengun has purchased and sold numerous properties.
4Patel has four close friends. He and his friends are aged around their forties. They had planned amongst themselves to find a property near a beach on which, in 10 to 15 years, they could each build a beach house to enjoy.
5During the course of his work, Patel came to know an estate agent, Rakesh Kumar (“Kumar”), of Reliance Real Estate Victoria Pty Ltd. In about August 2021, Kumar called Patel to tell him that he had a property which might suit the requirements of Patel and his friends. Kumar explained where it was and the likely cost of about $4 million. In the next few weeks, Patel and his friends inspected the Property and became interested in purchasing it.
6The Property is approximately 80 acres. It is zoned “Farming”. The Property is currently vacant and is used for cropping. There is no house on the Property. Nor are the usual services connected – that is, there is no electricity, gas, sewerage or mains water.
7Kumar was familiar with the Property because Senyuvali on behalf of Sengun had retained Kumar in 2019 to sell the Property. Kumar had prepared advertising for the Property and put it on the market. There were various offers made for the Property but none of the purchase proposals was acceptable. Either the purchase price was too low or the settlement term was too long or both. Kumar’s authority expired after some months and the Property remained unsold.
8Senyuvali said that Kumar contacted him around early September 2021 to tell him that he had someone who was interested in buying the Property for about $3.9 million and that the purchaser needed a lengthy settlement. Senyuvali told Kumar that he regarded the proposed price as too low and that he wanted a short settlement.
9On 13 September 2021, Kumar sent Senyuvali an email attaching a document entitled “Deed Granting Option for the Purchase of Land”. The document was incomplete insofar as the purchaser was not identified and no price was specified. As the heading of the document suggested, Sengun as vendor merely granted an option to purchase. The option fee was $10,000. This fee was non-refundable if the purchaser did not proceed to enter a Contract of Sale to purchase the Property. If Patel did enter a contract to buy the Property, the $10,000 option fee was to be treated as part of the first deposit after he signed the contract. Under the agreement, Sengun was to provide the purchaser with a signed copy of a section 32 statement and a copy of the Contract of Sale on or before the expiration of the option period.
10When he received the email from Kumar, Senyuvali said that the document contained a lot of clauses which he had not discussed with Kumar and much of the document was unnecessary. Senyuvali explained to Kumar that he did not want to use that form of agreement.
11Later the same day, Kumar sent Senyuvali another document by email. This was entitled “Heads of Agreement to the Purchase of Land”. The document was considerably shorter containing only five clauses. The purchase price, instalment details and settlement date were also incomplete.
12When he received this document, Senyuvali said he checked the conditions of the document and required some amendments. He asked Kumar to add some clauses. The new clauses became clauses 6 and 7 of the Heads of Agreement document which was ultimately signed.
13After directing Kumar to make changes to the document, Senyuvali agreed to meet with Kumar that night at Senyuvali’s home. Kumar came to Senyuvali’s house and parked in the driveway. Senyuvali came out and went to Kumar’s car.
14Kumar showed Senyuvali a Heads of Agreement document signed by Patel. Senyuvali said he told Kumar that he did not really want to sell the Property. Nonetheless, he took the Heads of Agreement and told Kumar that he would come back to him on the following morning.
15On the following morning between about 9:00am and 10:00am, Senyuvali went to Kumar’s office. Senyuvali told Kumar that he wanted to change the first deposit figure to $50,000. Kumar amended the Heads of Agreement and sent a copy of the amended document to Patel. Patel signed the Heads of Agreement with an electronic signature and returned it to Kumar. Then Senyuvali, who was still at Kumar’s office, signed the document himself. Kumar gave Senyuvali a copy of the final version of the Heads of Agreement signed by both parties and Senyuvali left Kumar’s office.
16On the next day, Senyuvali contacted Kumar to advise him that he had decided that he did not wish to sell the Property. Kumar told Senyuvali he would speak to Patel.
17A few days later Kumar called Senyuvali. Senyuvali said in his evidence that he again told Kumar he did not want to sell the Property. He said Kumar told him that he tried to talk to the purchaser about the issue but now it was a matter between Patel and Senyuvali.
18On 21 September 2021, Kumar and Senyuvali had another conversation. In his evidence, Senyuvali said he told Kumar he was going to send him a text message and email about the matter. He asked that Kumar forward the email to Patel.
19On 21 September 2021 at about 1:46pm, Senyuvali sent Kumar a text message through WhatsApp where he said that, as advised to Kumar on 15 September 2021, he did not wish to proceed with the sale of the Property. He said that the parties had not signed a binding Contract of Sale and that the Heads of Agreement was not a binding document between the parties. He referred specifically to clause 4 of the Heads of Agreement which, he said, outlined the parties’ intent to have a formal Contract of Sale. Senyuvali asked Kumar to advise Patel of the vendor’s position and to obtain Patel’s bank details so that he could refund the $50,000 already paid. Senyuvali said he required confirmation within 48 hours that Patel had agreed to the refund and that the agreement between Patel and Sengun had come to an end. If Patel did not so agree, Senyuvali would have no option but to speak with his legal team.
20Kumar forwarded the message to Patel within minutes of receiving it from Senyuvali.
21At about 2:38pm on 21 September 2021, Senyuvali sent Kumar an email which was in the same terms as the WhatsApp message. Kumar also forwarded a copy of the email to Patel immediately upon receipt of Senyuvali’s email.
22Later on 21 September 2021, Patel’s solicitor sent an email to Kumar noting that, under the Heads of Agreement, the vendor’s solicitors were to prepare a Contract of Sale by 28 September 2021. The email sought details of the vendor’s lawyers.
23At about 1:36pm on 22 September 2021, Sengun’s solicitors sent an email to Patel’s solicitors. The substance of the email was as follows:
“We have been handed a copy of your letter dated 21 September 2021.
We are instructed that on the 15 September 2021, our client instructed the agent to advise your client that it no longer wishes to proceed with this matter.
Our client instructed that the parties did not sign a binding Contract of Sale and the Heads of Agreement was only an understanding of potential negotiations between the parties. We note that the Heads of Agreement does not expressly state that it is binding on the parties.
From reading the Agreement, it seems that at paragraph 4, the agreement outlines the potential intent of the parties however excludes the intent of the Contract of Sale which again demonstrates that the Heads of Agreement is not binding as the intent of the Contract of Sale was never discussed, drafted or agreed to.
As our client does not wish to proceed any further, kindly provide confirmation within 2 days from the date of this email that your client agrees for the Agreement to come to an end and provide bank account details to enable the refund of the holding amount.”
I note that the solicitor sending the letter on behalf of Sengun is Meryem Senyuvali, the wife of Guner Senyuvali.
24Patel’s solicitors responded to this email later the same day. The email stated that after the respective clients signed the Heads of Agreement on 14 September 2021, Patel was required to pay $50,000 which he had done, and Sengun was to prepare a Contract of Sale for the Property. The email noted that while the Heads of Agreement contemplated the parties entering into a more complete form of contract, the Heads of Agreement was binding. It said that although Sengun had sought to withdraw from the Heads of Agreement, Patel intended to hold the vendor to the agreement. The email asked for an execution copy of the Contract of Sale to be provided by 28 September 2021.
25By email on 28 September 2021, Sengun’s solicitors responded that the mere payment of a holding amount did not constitute a binding agreement. They reiterated their view that the Heads of Agreement were not binding due to a number of factors: the entire agreement between the parties had not been reached; a formal Contract of Sale had not been signed; the full terms of the contract of sale had not been negotiated; and the agreement had not been correctly executed by the vendor because a company attestation clause had not been signed. They reiterated their client’s position that the Heads of Agreement were at an end. They sought Patel’s bank details so that the $50,000 paid could be returned.
26Patel did not provide his bank details to the Sengun’s solicitor.
Is the Heads of Agreement a binding and enforceable agreement?
Legal principles
27Masters v Cameron[1] is the long-established High Court decision which addresses the principles to apply when determining whether two parties intended to enter into a binding contract in circumstances where the putative agreement contemplates a subsequent formal contractual document. In that case, the court, comprising Dixon CJ, McTiernan and Kitto JJ, said that:
“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 cases.”[2]
[1](1954) 91 CLR 353
[2] Ibid at 360
28The court identified the different cases as follows:
(a) the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound but propose to have the terms restated in a form which will be fuller or more precise but not different in effect;
(b) the parties have completely agreed upon all the terms of their bargain and intend no departure from the terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. The effect of the term to execute a formal document may be to “place upon parties an obligation, capable of being specifically enforced by the court, to sign a further contract in accordance with the informal agreement which they have already made”; and
(c) the intention of the parties is not to make a concluded bargain unless and until they execute a formal contract.
29Cases which fall within the scope of the first two categories bind the parties. However, the parties are not bound in the third category because there is no concluded agreement unless and until they sign a formal document.
30Some more recent cases have suggested that there is a fourth category where the parties intend to be bound immediately but expect to make a later more formal document which may, by agreement, contain additional terms.[3] There is some discussion in the cases about the utility of this fourth category. While it has been accepted in some cases, it has not been universally welcomed. To a degree, debate on the issue is of more academic than practical significance.
[3]See JW Carter, Contract Law in Australia (LexisNexis, 7th Ed, 2018) at [5–06]
31In each case, the court’s task is to determine whether or not the parties intended to be contractually bound. When undertaking this exercise, the court is to objectively examine the intentions of the parties to decide what, through their words and conduct, they would have led a reasonable person in the position of the other party to conclude.[4]
[4]Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 at [131]
32When examining the parties’ intentions, a court can take into account only what was conveyed by what was said or done, having regard to the circumstances in which the action and statements occurred. The court can pay no attention to the uncommunicated subjective intentions and motives of the parties.
33While courts have doubted the applicability of presumptions, there are various factors which they have taken into consideration when making this determination:
(a) where the disputed agreement is written, the words used in the agreement must be the best indicator of whether the parties intended to be legally bound. If it is sufficiently clear that the parties were content to be bound immediately, then that resolves the issue 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 agreement is said to be subject to contract, or to solicitor’s approval, or to any other condition;
(c) whether the parties have signed a document embodying the terms. This can suggest an intent to form a binding agreement. But the presence of such a document is not decisive because the signatures could be inconsistent with provisions in the body of the document;
(d) whether the terms of any alleged agreement are detailed. The level of detail could reflect the parties’ degree of commitment. A court can examine not just the matters upon which the parties have reached consensus but also matters about which there is no consensus;
(e) an informal agreement about a complex matter or a matter of major substance might suggest the informal agreement was not intended to be binding;
(f) the existence of a common practice in relation to the kind of contract in question and whether the parties have adhered to that practice might indicate the parties did not intend to be bound. Some transactions, especially those involving the sale of an interest in land, usually involve the execution and exchange of written contracts; and
(g) the fact that the parties did not use lawyers for the informal agreement but contemplated doing so for the formal contract might suggest they were not to be bound by the informal agreement.
34Courts can also examine post-contractual conduct and communications in assessing the parties’ intent to be bound. However, the scope of such examination is limited. It could be relevant:
· as an admission against interest about the existence of an agreement;
· to consider the language in the informal agreement and whether it expresses an intent to enter contractual relations; and
· whether and to what extent there were incomplete negotiations and the significance of any unresolved issues.
35In The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (“Edge”),[5] Riordan J 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.
[5][2018] VSC 326
Plaintiff’s submissions
36Patel submitted that the document prepared by Kumar (after discussion with Senyuvali) constituted a binding agreement between the parties. This was said to be the case for a number of reasons.
37First, the Heads of Agreement contained the essential elements of an agreement for the sale of land. The document identified the vendor and purchaser. It identified the land the subject of the sale. It set out the price including the instalments and the due date for each instalment.
38Secondly, the Heads of Agreement were couched in terms of offer and acceptance and purported to be a deed. This reflected the solemnity of the agreement which the parties made.
39Thirdly, while the Heads of Agreement contemplated the execution of a more complete form of contract, there was nothing in the document which suggested that the agreement was conditional, or dependent upon, or subject to further contract. The proposed Contract of Sale document merely formalised the sale but did not complete the agreement between the parties.
40Next, clause 7 of the Heads of Agreement would operate unfairly unless the Heads of Agreement were treated as a binding agreement. The $50,000 payment made by Patel would be forfeited to Sengun if Patel did not execute and exchange the Contract of Sale and section 27 document within seven days of receiving them. It was said that this would allow Sengun to keep the payment if Patel failed to execute the Contract of Sale. Patel argued that, on the interpretation which Sengun contended for, clause 7 would allow the vendor to withdraw from the sale of the Property embodied in the Heads of Agreement but still allow it to retain the $50,000 because the plaintiff failed to execute the Contract of Sale. By this means, the defendant could engage in sequential sales of the Property, withdraw from each sale by saying that there was no binding agreement until the contract of sale was signed and retain the initial money paid by the hopeful purchaser.
41Finally, the Heads of Agreement document was not an agreement to agree. Even if the agreed position on all matters was not clear, Patel argued that any lack of clarity did not mean the Heads of Agreement were uncertain or incomplete. He contended that the Court could imply any terms necessary to give meaning to the parties’ intention.
Defendant’s submissions
42Sengun submitted that the Heads of Agreement was not a binding agreement for the sale of the Property. This was said to arise from several matters.
43As a general rule, Heads of Agreement are not treated as contractually binding upon the parties.
44Agreements regarding the sale of land are not usually binding until the vendor and purchaser have executed and exchanged contracts of sale.
45The parties did not follow the usual practice adopted for the sale of an interest in land. This was particularly notable in a situation where the transaction was for a large parcel of land and the purchase price was significant.
46The Sale of Land Act 1962 (Vic) (“Sale of Land Act”) requires a vendor to provide to a purchaser before signing the Contract of Sale certain information and documents. The information includes:
·any mortgage or charge (whether registered or not);
·any rates, taxes or outgoings affecting the land and, if any are unpaid, any interest payable on the outstanding sum;
·where there is a terms contract, the vendor must supply financial information including the quantum and number of payments due, together with the total interest payable;
·any easement, restrictive covenant or other like restriction; and
·whether the land is located in a bushfire prone area.
47Sengun did not provide Patel with a section 32 vendor’s statement before Patel signed the Heads of Agreement. If the Heads of Agreement constituted an immediately binding contract for the sale of the Property, then Sengun would have contravened section 32L of the Sale of Land Act and made itself potentially liable to a penalty of up to 300 penalty units.[6] Also in that event, the purchaser would be entitled to rescind the contract under section 32K of the Sale of Land Act. In the circumstances, the Court should not find that the parties intended the Heads of Agreement to create an immediately binding agreement.
[6]1 penalty unit is equal to $184.92, therefore a fine of 300 penalty units is equal to $55,476.
48The Heads of Agreement document did not support a finding that there was a binding agreement between the parties:
·clauses 3 and 7 of the Heads of Agreement were inconsistent with an intention that there be an immediate obligation to sell the Property;
·the payment of the $50,000 did not attain the status of deposit monies until after the parties signed the Contract of Sale. Further, this amount constituted only about 1.2% of the purchase price. The date for payment of the balance of the purchase price was not clear;
·there were no special or general conditions of sale included in the document; and
·there was no specific mention in the Heads of Agreement of the nomination power and the basis upon which it could be exercised.
Analysis
49In my opinion, a reasonable person considering the text of the Heads of Agreement, construed in the context of the circumstances in which it came into being, would have believed that the parties did not intend to create a binding contract until a formal contract for the sale of the Property was executed. In the language of Masters v Cameron[7], the putative agreement reflected in the Heads of Agreement fell into the third category of cases identified by the court.
[7](1954) 91 CLR 353
50I reached this conclusion for several reasons.
51First, the Heads of Agreement did not clearly indicate an intention to be immediately bound. This arises from an examination of the terms of the document.
52The heading on the document was confusing. It appeared that Kumar and/or Sengun used “to” instead of “for”.
53Clauses 1 and 2 of the Heads of Agreement allowed Patel to inspect the land and apply for permits in connection with the Property. Neither of these matters gives a strong indication either way about whether the agreement is binding and enforceable. In Edge[8], the putative buyer was to have immediate access to the office/warehouse under a license after paying the deposit monies and executing the contract. The vendor gave Edge the keys to the premises six days before it paid part of the deposit (being 1 per cent of the purchase price). Nonetheless, the court found that there was no contract between the parties. The facts in the present case are in my view weaker than the unsuccessful claim made in Edge.
[8][2019] VSCA 91
54Clause 3 provides for a payment by Patel of $50,000. This payment becomes part of the deposit monies only after the parties sign the Contract of Sale. This suggests that the Contract of Sale is important in affecting the rights and obligations of the parties regarding the Property.
55I observe in passing that I do not agree with Patel’s submission that, on the vendor’s construction of the Heads of Agreement, it could make a succession of alleged agreements to sell the Property, decide not to complete a contract and still retain the $50,000 paid by each proposed purchaser.
56In my view, if the vendor did not sign the Contract of Sale, or otherwise failed to complete any binding contract which it entered, it could not retain money paid by a prospective buyer on the basis that the purchaser did not proceed with the purchase. On this hypothesis, the conduct of the vendor was decisive in either preventing the creation of a binding contract or causing its breach. If the prospective purchaser did not choose to act in any way which adversely affected any alleged agreement, the buyer would be entitled to the return of $50,000 paid. Only if the buyer refused to perform his obligations in accordance with the contract of sale, would he be obliged to forfeit the $50,000 paid.
57Clause 4 of the Heads of Agreement provides as follows:
“This Heads of Agreement contains the entire agreement between the Vendor and the Purchaser (save for the Contract of Sale). The Vendor and the Purchaser expressly disclaim any reliance upon any statements, conversations, representations, or warranties that are not contained in this Heads of Agreement or the Contract of Sale.”
58In my opinion, this clause contemplates that the Contract of Sale will or might include other terms not currently agreed between the parties. The first sentence of the clause indicates that the current agreement could be expanded to include whatever additional terms are in the Contract of Sale. The next sentence confirms this position. It envisages that there could be more representations and warranties which find expression in the Contract of Sale. In short, I consider this clause allows for the prospect of new or additional terms. For example, there might be further terms arising from matters disclosed in the section 32 vendor’s statement which the buyer would expect to receive. It follows from this that there is no complete and binding agreement until the parties have agreed upon the content of, and executed, a Contract of Sale.
59Clause 5 provides for time to be of the essence. Patel contended that this clause was meaningless unless there was an intention to be bound by it. That may be correct, but it does not assist in determining whether the agreement was to be binding immediately or subsequently.
60Clause 6 states that the Heads of Agreement is not a terms contract. In final submissions, both parties seemed to accept that this statement was not correct as a matter of legal principle. Patel’s argument was that such a matter was of no significance in the context. In my view, this clause says nothing of substance about the immediate enforceability of any agreement between Patel and Sengun.
61Clause 7 says that within 14 days of both parties executing the Heads of Agreement the vendor’s solicitor is to prepare and forward to the purchaser a Contract of Sale and section 27 document. The buyer then has seven days after receiving these document in which to execute them and to exchange them with the vendor. If the buyer fails to do this, the Heads of Agreement will come to an end and the buyer will forfeit the $50,000 to the vendor. The essence of the clause is that the vendor’s solicitors are bound to produce a Contract of Sale within 14 days of the parties signing the Heads of Agreement. Read with clause 4, it means that any extra terms are to be discussed and agreed upon within that time so that they can be incorporated into the written Contract of Sale.
62Apart from the matters mentioned above, I also noted two other aspects of the Heads of Agreement document.
63First, the transaction is substantial involving the purchase of 80 acres of land for $4.1 million. Usually, such transactions depend for their legal effect upon written contracts drawn up, approved by and exchanged between the solicitors for the vendor and the purchaser. Given that both Patel and Senyuvali are experienced in property matters, both of them would know this. Moreover, up until 14 December 2021 there was no evidence that either of them had engaged solicitors to document any alleged agreement. They relied upon an estate agent. Given the nature of the transaction, one might have expected that solicitors would be involved in the transaction if the parties were to be bound immediately. Their absence suggests that the parties did not see themselves as bound until formal contracts were prepared and signed.
64Secondly, I accept that the document sets out the identity of the vendor and purchaser, the land, the purchase price and the instalments. $700,000 is due to be paid within 12 months from the day of sale and the outstanding balance of $2.9 million is to be paid at settlement which is 25 months from the day of sale. However, the expression “day of sale” is ambiguous because it could mean either 14 September 2021, when the parties signed the Heads of Agreement, or the future day upon which the parties sign a Contract of Sale.
65I am inclined to favour the latter construction. I note that on 14 September 2021, Kumar made changes to the Heads of Agreement document in his office after Senyuvali came to see him. Kumar made the changes and then transmitted the document electronically to Patel for his signature before getting Senyuvali to sign on behalf of the vendor. Because he was making changes in the office, it would have been simple to specify the $700,000 payment as due on 14 September 2022 and settlement for 14 October 2023 if the parties intended to be bound from 14 September 2021 when they signed the Heads of Agreement. However, the parties did not do this.
66Thirdly, both Patel and Senyuvali would have known due to their commercial experience that, in order not to fall foul of the Sale of Land Act, it was important for vendors to give a compliant section 32 statement to prospective purchasers before they entered into a contract of sale. I find it unlikely that either party would have expected Senyuvali and his company to run the needless risk of contravening the Sale of Land Act and attracting a significant fine. It seems that there was a section 32 statement prepared in connection with the sale of the Property in 2019. However, the vendor would need to ensure that he updated the document so that it contained information current at September 2021.[9]
[9]Here, there was no evidence that Patel received the old section 32 statement before signing the Heads of Agreement.
67The importance of the section 32 statement was recognised in Kumar’s evidence. Kumar said that he had retained a copy of the section 32 statement prepared for the earlier sale campaign in 2019. Kumar gave no evidence of showing this to Patel at any time or giving him a copy. Kumar was aware that the document was out of date. In a discission with Patel before the Heads of Agreement were signed, Kumar said that he would give Patel the contract (which I infer included the section 32 statement) soon. Kumar said that Patel responded with words to the effect of “That’s fine. We will wait for that one.” This suggests that Patel was keen to see the Contract of Sale document and a current section 32 statement and that Kumar, as the vendor’s agent, knew this.
68Patel’s comments implied that Kumar made some mention of the old section 32 statement. However, because it was not current Patel wanted to see the updated version. By inference, this document and the information it contained would inform his ultimate decision about whether to buy the Property.
69I accept that there is limited utility in examining a host of cases on this issue of when the contract becomes binding. The general principles are well accepted but the difficulty arises in the application of the principles. However, considering a couple of examples of how the courts approach the question may be of some help.
70In Edge,[10] the plaintiff as a prospective buyer negotiated with the defendant to purchase an industrial/commercial property in Cheltenham. The property comprised a substantial office/warehouse and a hardstand with some temporary sheds. After some offers and counteroffers the vendor’s estate agent sent the buyers a letter setting out the terms and conditions upon which the vendor was prepared to sell the property. The letter provided for each party to sign the document and thereby agree to the terms and conditions set out. These included the parties, the property, the price, the deposit amount, the settlement date and some conditions, one of which was that the offer was subject to the contract being executed. The buyer signed a confidentiality agreement pending execution of the contract. The buyer paid the deposit sum and got the keys to the property. The vendor provided a variety of certificates and other documents to the buyer, including a planning certificate, a section 173 agreement under the Planning and Environment Act 1987 (Vic), a land information certificate, information from South East Water, a land tax certificate, documentation from the Environment Protection Authority and a certificate under the Heritage Act 2007 (Vic). As noted above, the plaintiff received the keys to the office/warehouse before it paid the deposit and signed any Contract of Sale. Thus, the transaction was well advanced when the vendor received an unsolicited third party offer to buy the property at a substantially better price. The vendor stopped its negotiations with the plaintiff and the plaintiff lodged a caveat to protect its alleged interest in the land.
[10][2018] VSC 326
71The document considered in Edge contained a clause that “the offer is subject to the contract being executed”. This was the principal reason for the trial judge’s decision. His Honour also accepted that this outcome was consistent with other aspects of the document, namely:
·the 20 per cent deposit became payable on the signing of the contract;
·the license agreement became irrevocable on the signing of the contract;
·the contract was for the sale of real estate;
·the vendor did not give the buyer a section 32 statement before it signed the letter of offer; and
·the sale of land was a substantial transaction.
72His Honour said that the effect of clause 4 was not outweighed by the payment of a 1 per cent deposit before signing the Contract of Sale, the execution of the confidentiality agreement or the provision of keys.
73The Court of Appeal took a similar view. It said the execution of the contract was important in the context because:
·the balance of the deposit of more than $1 million became payable;
·the purchaser obtained immediate access to the office/warehouse under a licence;
·time began running for the release of a deposit;
·the exchange was the deadline for the provision of a notice under section 27 of the Sale of Land Act; and
·the confidentiality agreement ceased.[11]
[11][2019] VSCA 91 at [56] – [57]
74Further, the Court of Appeal said that the letter of offer did not address some matters of significance: there was no section 32 statement provided to the buyer and it could be inferred that potentially important information about the land was not disclosed; the terms of the license to access the warehouse/office were not specified.[12] The court said that the scope of possible further negotiation was both significant and of unknown extent.
[12]Ibid [58] – [59]
75In Delaney v Delaney[13], the parties were brothers, Patrick and Sean. They were co-owners of the Delplant Group, which consisted of a number of interconnected companies and trusts. Sean was the managing director of the group. Patrick was the operations manager. Previously there had been another brother in the business but they had bought him out about 10 years earlier. After that buyout, the relationship between Sean and Patrick deteriorated. In May 2020, Sean made Patrick redundant. Two days later, Sean and Patrick executed a heads of agreement document. Broadly, the document provided for Sean to buyout Patrick’s interest in the group for $10 million. It also provided for further negotiations (including as to tax issues) and allowed a short time in which a more formal agreement might be concluded.
[13][2022] VSCA 48
76The further negotiations did not bear fruit and no further agreement was concluded. Within a short time, Patrick purported to terminate the agreement. Sean brought a proceeding in which the trial judge found the agreement was complete and binding, enabling Sean to buyout Patrick’s interest in the group. The trial judge ordered that settlement of the agreement occur by 4 August 2021. The trial judge also directed that the parties’ accountants confer and seek to agree upon a way of settling the transaction in a manner which yielded a taxation outcome satisfactory to both parties. No agreement was reached.
77The heads of agreement included terms such as:
·these heads of agreement are intended to legally bind the parties;
·the parties agree to negotiate in good faith the terms of a formal agreement, recording more fully and precisely the terms of this heads of agreement and any additional terms that the parties may reasonably require;
·in respect of any accounting and taxation implications, it is proposed it would be settled by [the parties’ respective accountants] in a mutually beneficial taxation outcome for both parties inclusive of beneficiary, unitholder and shareholder loans;
·if the further agreement contemplated by clause 4(b) could not be concluded by 10 June 2020, and this time is not extended by agreement of the parties, then the terms of this heads of agreement will prevail (clause 6);
·the parties agreed to take all steps and do all things necessary to give legal and commercial effect to the terms of this heads of agreement (clause 7); and
·clause 8 provided for the signing of counterpart agreements.
78The trial judge found that the parties intended to be bound immediately. The Court of Appeal agreed. Having regard to the terms in the heads of agreement, this conclusion is unsurprising. I note that equivalent provisions to those found in clause 4, 4(b), 6 and 7 do not appear in the Heads of Agreement before me. While Patel made much of the point that the Heads of Agreement did not explicitly say that it was subject to contract or subject to any other condition, nor did it say that it was intended to bind the parties immediately.
Specific performance
79If I had found that there was an immediately enforceable agreement the next issue is whether the Court should grant specific performance as relief.
80Patel submitted that in this case, damages was an inadequate remedy and the Court should award specific performance. The onus is on Patel to show that specific performance better achieves a just result between the parties.
81Sengun argued that the normal remedy for breach of contract is damages. Sengun questioned the comment of Barwick CJ in Pianta v National Finance and Trustees,[14] where His Honour suggested that it was appropriate to award specific performance of a contract to sell land even where the plaintiff was a developer who used the land as trading stock. Sengun referred to the decision of Campbell J in Rofiza Pty Ltd v Gangley Pty Ltd,[15] where His Honour said that where land is just trading stock, it has none of the special associations involved where land is for a person’s home. Sengun also argued that if the Court granted specific performance then the parties “would be in breach of clause 6 of the Heads of Agreement”. Clause 6 says the contract for the Property is not a terms contract. However, because there would be, under the contract, two payments before the buyer was entitled to a conveyance of the land, this contract would in fact be a terms contract. Finally, Sengun contended that Patel did not attempt to tender $450,000 as the second payment due under the Heads of Agreement. He produced no evidence to suggest that he could pay that amount.
[14](1994) 180 CLR 146 at [14]
[15][2002] NSWSC 986 at 36
Analysis
82The legal principles about the ordering of specific performance in relation to contracts for the sale of land were set out usefully by Macaulay J in Mould v Canale,[16] as follows:
“The legal principles concerning the availability of the remedy of specific performance to enforce a contract for the sale of land were conveniently summarised in the McMillan parties’ written outline of submissions:
The equitable relief of specific performance of contracts is a discretionary remedy; but, in the ordinary case of a sale of land, the court normally grants it as of course and withholds it only on proof of special facts. Hardship is a ground on which, in a proper case, a purchaser or vendor may be refused specific performance and be left to its right to damages for breach of contract at law. The hardship which moves the court to refuse specific performance is either a hardship existing at the date of the contract or a hardship due in some way to the plaintiff.
Dr I C F Spry in The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages, (9th ed 2014, Lawbook Co.) at p 63:
‘But land is property that has a fixed location and a special value, and ordinarily at least damages are not to be regarded as an adequate substitute for the right either to acquire or dispose of an interest in it. Even indeed if the purchaser intends to purchase the land in question merely in order to be able to sell it later at a profit, damages are not regarded as an adequate remedy for him. [Citing, relevantly, Adderley v Dixon [1824] EngR 376; (1824) 1 Sim & St 607; 57 ER 239 and Pianta v National Finance & Trustees Limited [1964] HCA 61; 180 CLR 146 at 151 per Barwick CJ].’
[16][2017] VSC 793 at [139] – [140]
The general rule is that the substitution of damages for specific relief ordinar[il]y occurs only when the hardship caused to the defendant through specific enforcement would so far outweigh the hardship caused the plaintiff if specific enforcement were denied that it would be unjust in all circumstances to do more than to award damages.
Specific performance will not lightly be refused when a purchaser has established the existence of a contract capable of specific performance. For a court to refuse the remedy, it would generally be necessary for the vendor to prove hardship to the vendor amounting to an injustice. Examples of cases where a Court has refused to order specific performance on the grounds of hardship illustrate the proposition that the hardship must amount to ‘oppression far outweighing the inconvenience’ to a purchaser if left to their remedy in damages. In Patel v Ali, which was relied upon by all parties in their submissions, an order for specific performance was refused where the contract of sale had been on foot for more than four years and, in the intervening period, the non‑English speaking vendor had borne three children; had become severely physically disabled; had been abandoned by her bankrupt husband; and was heavily reliant upon nearby friends and family to care for herself and her young children.”
83On the facts in this case, Sengun would not suffer any special hardship if required to specifically perform the Heads of Agreement for the sale of the Property. There is no obvious oppression or hardship which would outweigh the disadvantage to Patel in being restricted to a claim for damages. While there was no specific evidence on the point, I cannot say whether Patel and his friends were to divide the 80 acres between them or whether Patel and his friends were to take the best parts of the Property and build houses there and Patel would then develop or sell-off the unused parts of the Property. I am not prepared to assume that Patel wants the land simply as trading stock. Even if that assumption were justified, I would regard the views of Barwick CJ, Kitto and Windeyer JJ, the latter two of whom agreed generally with the reasons of Barwick CJ, Menzies and Owen JJ, as of greater precedent value than the opinion of Campbell J. Given the stated reason for their interest in the Property, Patel and his friends have long-term objectives and do not currently envisage any imminent use of the Property for building purposes for around 10 or more years.
84I attach no great significance to Patel’s failure to tender the second payment of $450,000 due under the Heads of Agreement and the failure to lead evidence that he could complete the transaction to buy the Property. By its conduct in seeking to repudiate any sale within a day or two of signing the Heads of Agreement, Sengun made clear that there was no point in Patel seeking to complete the sale. Sengun did not wish to sell the Property and nothing which Patel said or did would alter that. In the circumstances, it was no surprise that Patel understood the message which Sengun sent and did not persist in following a process which he had been told was pointless.
85For similar reasons, I am not troubled by an absence of documentary proof that Patel can complete the Heads of Agreement.[17] If an order for specific performance is made and ultimately Patel fails to fulfil his part of the bargain, that will create further issues which can be addressed if and when they arise.
[17]Patel gave evidence at trial that he was and still is in the position to pay the $450,000 immediately.
86Assuming if specific performance is ordered, that the agreement for the sale of the Property becomes a terms contract, there is a conflict with paragraph 6 of the Heads of Agreement. I do not see that this outcome should stop me from ordering specific performance. The parties’ legal characterisation of a situation cannot prevail over the assessment of the Court. If specific performance is otherwise warranted, then this clause cannot prevent it being ordered.
Conclusion
87For the reasons set out, I find that the Heads of Agreement did not create an immediately binding contract for the sale of the Property. But if it had done so, I would have awarded Patel specific performance.
88I direct the parties to confer about the form of final order and costs in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by 4:00pm on 22 July 2022, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed five A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. By 4:00pm on 25 July 2022, each party may file a reply submission limited to no more than three A4 pages.