Peter Warren (Properties) P/L and 2 Ors v Jalvoran P/L

[2004] NSWSC 1149

CITATION:	Peter Warren (Properties) P/L & 2 Ors v Jalvoran P/L [2004] NSWSC 1149
HEARING DATE(S):	06/08/04
JUDGMENT DATE:	30 November 2004
JUDGMENT OF:	White J
DECISION:	1. Amended summons dismissed; 2. The plaintiffs to pay the defendant's costs; 3. Exhibits may be returned after 28 days.
CATCHWORDS:	CONTRACT - Whether letter between the parties constituted a binding agreement - Intention to execute formal contract - Construction of letter - Whether language indicated intent to be contractually bound - Objective test applied taking into account surrounding circumstances - Absence of prescribed documents under s 52A Conveyancing Act relevant to the factual matrix.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) Conveyancing (Sale of Land) Regulation 2000
CASES CITED:	Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) NSW ConvR 55-376 Masters v Cameron (1954) 91 CLR 353 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 "When Three Just Isn't Enough: The Fourth Category of 'Subject to Contract' Cases", Peden, Carter and Tolhurst, (2004) 20 (2) JCL 156 Niesmann v Collingridge (1921) 29 CLR 177 Godecke v Kirwan (1973) 129 CLR 629 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at 40 Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045; 208 ALR 213 Australian Broadcasting Corporation v XIVth Commonwealth Games (1988) 18 NSWLR 540 Allen v Carbone (1975) 132 CLR 528 Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER 570 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Farmer v Honan (1919) 26 CLR 183 Twynam Pastoral Company Pty Ltd v Anburn Pty Ltd (1989) NSW Conv R 55-498 Gay v Gooden (1989) NSW Conv R 55-445 Syd Mirror Pty Ltd v Humble Fishmonger Pty Ltd [2004] NSWSC 584 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622; 40 NSWLR 631 Souter v Shyamba Pty Ltd (2003) 11 BPR 20,369 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 G R Securities Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
PARTIES :	Peter Warren (Properties) Pty Ltd & 1 Or v Jalvoran Pty Ltd
FILE NUMBER(S):	SC 2779/03
COUNSEL:	Plaintiffs: Mr I G Harrison SC Defendant: Mr J C Kelly SC
SOLICITORS:	Plaintiffs: Hunt & Hunt Lawyers Defendant: Colin Daley Quinn

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Tuesday, 30 November 2004

2779/03 Peter Warren (Properties) Pty Ltd & Anor v Jalvoran Pty Ltd

JUDGMENT

1 HIS HONOUR: The Plaintiffs’ Claim

The defendant is the registered proprietor of land known as 17 Greenhills Avenue, Moorebank. The land is industrial land. It is leased to DGA Investments Pty Ltd, a company associated with the second plaintiff. The third plaintiff carries on a motor vehicle auction business on the property.

2 In these proceedings the plaintiffs seek a declaration that there is a binding and enforceable contract for the sale of the property between the defendant and the third plaintiff contained in a letter bearing date 15 January 2003 from the third plaintiff to the defendant. They seek an order that a formal contract signed by the first and second plaintiffs and which was submitted to the defendant’s solicitors on 13 March 2003 be exchanged. They seek an order for specific performance of the latter contract. In the alternative, counsel for the plaintiffs indicated that he would seek leave to further amend the summons, if it were necessary to do so, to seek an order for specific performance of the agreement alleged to be contained or recorded in the letter dated 15 January 2003.

The Letter of 15 January

3 The letter dated 15 January 2003 is on the letterhead of the third plaintiff, Alliance Motor Auctions Pty Ltd. It reads as follows:

“January 15, 2003
Mr G Johnson
Jalvoran Pty Limited
PO Box X4
Bankstown Airport NSW 2200
Dear Graham,
Re: ALLIANCE MOTOR AUCTIONS PTY LTD (OR NOMINEE)
PURCHASE OF 17 GREENHILLS AVENUE, MOOREBANK
We confirm our acceptance of your offer to sell the above property to Alliance Motor Auctions Pty Ltd (or its nominee) on the following terms and conditions:
? Purchase Price - $3m (plus GST if applicable calculated under the margin scheme
*? Deposit – 5% payable March 31, 2003 ON EXCHANGE OF CONTRACTS 28/2/03 (*RELEASED TO VENDOR)
? Rental Security Deposit – upon payment of 5% deposit, the rental guarantee is to be released
? Settlement by June 27, 2003

Yours faithfully
D G Attwells
General Manager


Signed as an agreement
………………………………… ……………………………
D G Attwells G Johnson”
(Handwriting in italics).

Negotiations up to the Signing of the Letter

4 This letter was either the culmination of negotiations, or a step in the negotiations, carried on between Mr Johnson, a director of the defendant and Mr Attwells, a director of the third plaintiff. Ultimately there was little difference in the evidence of each of them as to the course of negotiations. The principal difference was as to the time when certain of the conversations took place.

5 Mr Attwells was familiar with the land. In 2001 and 2002 there were discussions between him and Mr Johnson concerning the possible purchase of the property. I infer that in the lease to DGA Investments Pty Ltd that company was given an option to purchase the property for $2.75 million. It did not exercise the option. In late September or early October 2002 discussions recommenced in relation to the possible sale of the property. Mr Johnson received a valuation of the property for $3.15 million which he provided to Mr Attwells. After various discussions about price, Mr Attwells and Mr Johnson had a conversation in about December 2002. Mr Johnson deposed to that conversation in the following terms:

“I said: I’ve thought long and hard about it. I have a bank bill to roll over in March. I would be prepared to sell for $3 million provided you release the deposit to me by the end of February so I can pay out the bill, and DGA continues to pay rent at $25,000 per month to the end of June. That way I will get my $3.15 million.
He said: Are we talking 5%?
I said: I need $150,0000. 5% will do.
He said: What about GST?
I said: You’ll have to pay that, if there is any.
He said: So the deal is: purchase price $3 million, plus GST if applicable; 5% deposit; exchange of contracts by the end of February; deposit released to you; settlement at the end of June?
I said: Yes. I’ll get my solicitor to organise the contracts after Christmas.
He said: OK.
When I got up to leave:
I said: There are some old fuel storage tanks on the property. I am selling as is, so the contract will have to make that clear.
He said: Can you show me where they are?
We then left the office together and I showed Mr Attwells the location of the tanks.”

6 Mr Attwells agreed that a conversation to this effect took place although he said that it took place in October rather than December. If anything turns on this difference, I prefer the evidence of Mr Johnson. It appeared to me that his recollection of the events was more detailed and more reliable than that of Mr Attwells.

7 Mr Attwells arranged for his accountant, a Mr Hardy-Smith, to prepare an agreement for Mr Johnson’s signature. Mr Hardy-Smith prepared a letter on the letterhead of Alliance Motor Auctions Pty Ltd dated 15 January 2003. That is the letter to which I have referred in paragraph 3 above, save that at the time it was prepared the date of 31 March 2003 was not crossed out and it did not have the words in handwriting which I have italicised. Mr Attwells signed the letter and faxed it to Mr Johnson at Jalvoran Pty Ltd. Sometime later Mr Attwells telephoned Mr Johnson and asked if he had received the letter. Mr Johnson replied in the following terms:

“I said: Yes, but it does not accurately record our deal. As I explained, to you, exchange of contracts must take place before the end of February so I can use the deposit to pay out my bill. You’ve got 31 March. I need the money to pay the bill. If that is not going to happen, I am not going ahead with a sale.
He said: Oh, sure, that’s no problem.
I said: I’ll drop in, in the next day or so and we can change the letter. ”

A couple of days later Mr Johnson met Mr Attwells in the latter’s office. Mr Attwells handed him the original letter dated 15 January 2003. Mr Johnson made the handwritten changes to the letter which are set out in italics in paragraph 3. He then signed the original. He gave it to Mr Attwells to make a photocopy. Mr Johnson took the signed original letter containing the handwritten changes. Mr Attwells kept the photocopy.

Events After the Letter was Signed

8 After this meeting, Mr Attwells asked Mr Hardy-Smith whether Mr Hardy-Smith thought that the amendments to the timing of the deposit and its release would be OK. Mr Hardy-Smith said that he thought it would be OK. Mr Attwells said that he agreed and would send Mr Hardy-Smith the signed agreement. This evidence, which was led by the plaintiffs, is an admission against the plaintiffs that Mr Attwells did not consider that the parties were already bound by their having signed the letter. Mr Attwells did not initial Mr Johnson’s handwritten amendments. However this is of no moment as it was common ground that Mr Attwells orally accepted the amendments. Thereafter Mr Attwells contacted the plaintiffs’ banker, Westpac Banking Corporation, and made a request for finance.

9 On 3 February 2003 Mr Johnson asked Mr Hardy-Smith who would be his solicitors. Mr Johnson advised that he would be using Mr Michael Millgate of Colin Daley Quinn. Mr Hardy-Smith said that Mr Boyce of Hunt & Hunt would act for them and that he would send a fax to Mr Johnson to confirm the details.

10 On 25 February 2003 Colin Daley Quinn sent to Hunt & Hunt a “counterpart contract for sale of land for your perusal and approval of its terms”. Mr Millgate asked for confirmation of who would be the purchaser.

11 The letter of 15 January 2003 provided that a deposit of 5% would be payable on exchange of contracts on 28 February 2003 with that deposit to be released to the vendor. Contracts were not exchanged by that date. On 26 February 2003 Mr Millgate of Colin Daley Quinn advised Mr Hardy-Smith that Jalvoran Pty Ltd required contracts to be exchanged on or before 7 March 2003.

12 On 27 February 2003 Mr Boyce of Hunt & Hunt sent a fax to Colin Daley Quinn, which raised the following matters:

(a) he advised that he was awaiting instructions from his client as to the identity of the purchaser;

(b) whether there was any identification survey available as “our client” may wish to secure a survey of the property before exchange;

(c) certain specified documents were required to be attached to the contract;

(d) an undertaking was sought that the property would not be encumbered by a mortgage between exchange and settlement;

(e) he stipulated that the lease to DGA Investments Pty Ltd be transferred to the third plaintiff and that the transfer be registered before completion; and

(f) that the purchaser’s financier might require a stage one assessment to be carried out on contamination of the property.

13 No reference was made in the correspondence between the solicitors to there being an existing agreement for the sale and purchase of the property. At that stage neither of the solicitors was aware of the existence of the letter dated 15 January 2003.

14 On 6 March 2003 Mr Johnson asked Mr Hardy-Smith about the request for a contamination report. Mr Hardy-Smith said to him:

“ Our bank is insisting on a site audit and a full contamination report. That is going to take some time. Are you still prepared to sell? ”

15 Mr Hardy-Smith denied saying “are you still prepared to sell?”. However I prefer the evidence of Mr Johnson. There was no evident purpose in discussing the Bank’s requirements with Mr Johnson except to seek his agreement to an extension of time for exchange.

16 The draft contract of sale included a clause in which the vendor disclosed that a fuel storage tank had been installed on the property and that petroleum products may have leaked or spilled upon the property. It provided that the purchasers would make no objection, requisition or claim for rescission because of any contamination or hazardous substances found on the property. There was further discussion between Mr Johnson and Mr Hardy-Smith about the contamination clause and the bank’s requirements.

17 As will be seen from the conversation referred to in paragraph 7 above, Mr Johnson initially required contracts to be exchanged by 28 February 2003 and the deposit to be released to the vendor so that he could use the deposit to pay out a bill facility which was falling due on or shortly after that date. Mr Johnson checked his correspondence and ascertained that the rollover date was not until 14 March 2003. At some time shortly after 6 March 2003 he told Mr Hardy-Smith that he would have until Wednesday 12 March to make final arrangements for payment of his bill facility and that “I will go ahead and exchange provided the deposit is in my bank that night. If I have to find other funds I am not going ahead.” Mr Hardy-Smith replied, “I will make sure it happens”. Mr Hardy-Smith did not recall parts of this conversation and denied others. However, I accept Mr Johnson’s version of the conversation which was not challenged in cross-examination.

18 On 10 March 2003 Colin Daley Quinn advised Hunt & Hunt that the vendor required contracts to be exchanged by Wednesday 12 March 2003. Again there was no reference to the letter of 15 January 2003. They asked for the purchaser’s details and confirmed various amendments to the draft contract arising from the previous correspondence. They asked Hunt & Hunt to confirm their availability to exchange contracts.

19 On 11 March 2003 Colin Daley Quinn sent to Hunt & Hunt an updated Sewer Reference Sheet and again requested Hunt & Hunt to confirm their availability to exchange contracts.

20 On 12 March Mr Millgate of Colin Daley Quinn told Mr Johnson that contracts had not been exchanged. He said that the purchaser had advised him that there was a substantial encroachment in the vicinity of the cul-de-sac. Although the purchaser said it was not a problem for them Mr Millgate said that the vendor would need a clause saying that no requisition or claim for compensation could be made with respect to the encroachment, otherwise if the contracts were exchanged the purchaser might rescind and the deposit would have to be returned. Later that day Mr Johnson made arrangements with his bank for the bill to be partially paid from other funds and for the balance of the bill to be rolled over.

21 On 13 March 2003 Hunt & Hunt forwarded to Colin Daley Quinn a contract executed by Peter Warren Properties Pty Ltd and Mr Attwells as purchasers and a cheque payable to the defendant in the sum of $150,000. My Byers of Hunt & Hunt wrote to Colin Daley Quinn; “Please proceed to complete the exchange of contracts. We await receipt of the dated and signed counterpart contract.”

22 Mr Millgate then told Mr Johnson that he had received the contract and a bank cheque for the deposit, but a clause still needed to be included in the contract saying that the purchaser would not make any claim for compensation for the encroachment. Mr Johnson said that he was tired of being mucked about, that he had had to pay the bill and that the purchaser should be told that he was not proceeding with the sale. Mr Millgate advised Mr Byers on 13 March that the vendor would not be proceeding with the sale. On 19 March the counterpart contract signed by the first and second plaintiffs was returned to Hunt & Hunt together with the deposit.

23 The third plaintiff did not pay stamp duty on the letter of 15 January 2003. It was not until 24 March that Messrs Hunt & Hunt asserted that there was already in existence a binding contract for the sale of land recorded in the letter of 15 January 2003 from Alliance Motor Auctions Pty Ltd. Mr Byers said that that letter had “recently been given to us”. In that letter Hunt & Hunt asserted that there was a binding and enforceable contract for sale on the basis of the decision of this Court in Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) NSW ConvR 55-376. They also outlined a claim that the purchasers had acted on the assumption that there was a binding agreement with the vendor and had acted to their detriment in reliance on that assumption. However on the hearing before me the plaintiffs did not maintain any claim based on an estoppel.

24 In their letter of 24 March 2003 Messrs Hunt & Hunt said that their client required that contracts be exchanged by 5.00 pm 28 March 2003. They said that “in the circumstances we suggest that the form of contract previously agreed be the contract subject to the exchange.” However the defendant refused to proceed and these proceedings were commenced.

The Issues

25 The plaintiffs submitted that the parties intended to be immediately bound by the letter of 15 January 2003. They submitted that the letter used the formal language of offer and acceptance and that the words “signed as an agreement” indicated that the parties intended to be bound by the terms which they had then agreed. The plaintiffs submitted that the case fell within the first category of cases discussed by the High Court in Masters v Cameron (1954) 91 CLR 353 at 360 and was indistinguishable from the contract considered by Bryson J (as his Honour then was) in Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) NSW ConvR 55-376. They submitted that if the parties intended there be no binding agreement for the sale of the property until formal contracts for the sale were exchanged, there was no point at all in the execution of the 15 January 2003 letter.

26 In Masters v Cameron the High Court (comprising Dixon CJ, McTiernan and Kitto JJ) identified three classes of case where parties have reached agreement upon terms of a contractual nature but intend to record their terms in a formal document yet to be prepared. The first class of case, into which the plaintiff submitted the present case falls, is one where the parties intend to be immediately bound to the performance of the terms upon which they have agreed whilst at the same time proposing to have the terms restated in a form which is fuller or more precise but not different in effect from those agreed on. The second class of case is one in which parties have completely agreed upon all of the terms of their bargain and intend no departure from those terms and intend not to add any new terms beyond those which are expressed or implied in their agreement, but have made performance of one or more of the terms conditional upon the execution of a formal document. The relief which the plaintiffs have sought in their further amended summons suggests that the plaintiffs contend the case is in the second category.

27 The third class is one where the parties do not intend to make a concluded bargain at all unless and until they execute a formal contract.

28 There may be a fourth category of case, where the parties intend to be immediately bound by the terms upon which they have agreed whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. (Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628; but cf “When Three Just Isn’t Enough: The Fourth Category of ‘Subject to Contract’ Cases”, Peden, Carter and Tolhurst, (2004) 20 (2) JCL 156). It is unnecessary to consider the fourth category.

29 The first question is whether the parties should be taken to have intended to be bound by the terms of the letter of 15 January 2003 so that the letter can be enforced as an open contract of sale, or, by enforcing the implied promise by the defendant to execute and exchange the formal contract for sale. (Niesmann v Collingridge (1921) 29 CLR 177 at 184-5; Godecke v Kirwan (1973) 129 CLR 629 at 641, 644.) If that question is answered favourably to the plaintiffs, but the case falls in the second category, the second question which will then arise is what is the consequence of the parties not being in a position to exchange contracts on 28 February 2003? That is to say, if the case is in the second category, is the parties’ intention to join in bringing a formal contract into existence and then performing it, nonetheless conditional upon such a formal contract coming into existence prior to 28 February 2003? It was not submitted that it was the defendant’s fault that contracts were not exchanged by 28 February 2003.

Did the Parties Intend to be Bound by the Letter?

30 The first question is to be determined not by whether the parties subjectively considered that they were bound by the terms of the letter of 15 January 2003. The question rather is whether reasonable persons would regard them as bound by what they said and did having regard to the surrounding circumstances known to them, the subject matter of the contract, and the purpose and object of the transaction. Prima facie, the parties’ intention as objectively ascertained is to be determined by the construction of the document which they signed. However it is legitimate and necessary to consider the terms of that document in the light of the exchanges which preceded and followed it and giving due regard to the fact that the parties contemplated an exchange of contracts, that being the usual method for the making of contracts for sale of land in New South Wales. (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at 40; Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045 at 1050-1051 [22]; 208 ALR 213 at 221; Australian Broadcasting Corporation v XIVth Commonwealth Games (1988) 18 NSWLR 540 at 549-550; Allen v Carbone (1975) 132 CLR 528 at 531-532).

31 Moreover, in my view, the “known circumstances” to which regard can be had, include not only those circumstances which it is proved the parties had in mind, but also those which are notorious such that knowledge of them will be presumed. (Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 997; [1976] 3 All ER 570 at 575; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 351-352). Although those authorities concern the interpretation of a written contract, I see no reason to adopt a more restricted view of the surrounding circumstances to which regard may be had in ascertaining objectively whether the parties intended to be bound by what they had agreed. It would seriously weaken the objective theory of contract if a party could be heard to say that he did not know of a matter which the hypothetical reasonable person with whom the party was dealing was entitled to assume he did know. In Farmer v Honan (1919) 26 CLR 183 Barton J (at 192) pointed to the absence of usual terms normally to be expected in a contract for sale of land which a reasonable person would expect to find in such a contract, as indicating there not being an intention to contract. It was not suggested that it must be proved that the parties themselves knew that usual terms were omitted, or what they were.

32 The plaintiff submitted that the parties regarded the letter as an important record of the terms of the agreement which they had reached. They submitted that there would be no point at all to the parties signing the 15 January 2003 letter, if no contract would come into existence until formal contracts were exchanged. As noted above, they relied upon the decision in Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) NSW Conv R 55-376.

33 In Plastyne Products the purchaser wrote a letter to the vendor which set out all the essential terms for a contract for the sale of land, and stated that it was prepared to accept the vendor’s asking price. The vendor was asked to sign the copy of the letter to indicate its formal acceptance of the sale at that price, upon receipt of which the purchaser would instruct its solicitors to draw up a formal contract. The vendors signed a type written note on the letter stating “offer accepted at [the price]”. The agreement recorded in the signed memorandum did not provide for the payment of a deposit. Bryson J held that although the parties contemplated that it would be useful to have a formal contract prepared, they did not consider that the drawing up of a formal contract or any later step after the letter would change their rights in any respect. His Honour found, (at 57,468), that the parties did not contemplate making a contract by exchange. His Honour held that unless the parties were recording a binding agreement the delivery of the letter, signing a copy of it and delivering back the signed copy would be meaningless. His Honour held, (at 57,467), that the parties would not have taken those steps unless they intended to be bound by what they signed.

34 Plastyne Products lays down no new principle of law. It is true that there are some parallels between the facts of the present case and those in Plastyne Products. The case thus provides an interesting illustration of the application of established principles. However each case turns on its own facts and nothing in the factual findings in Plastyne Products dictates what should be the finding in the present case.

35 I do not accept that the signing of the letter of 15 January 2003 would be meaningless if the parties did not thereby intend to be bound by the terms to which they had agreed. In answer to a similar submission made in Twynam Pastoral Company Pty Ltd v Anburn Pty Ltd (1989) NSW Conv R 55-498 Young J (as his Honour then was) pointed out (at 58,663) that in the ordinary course of events an acknowledged agreement on terms can be expected naturally to lead to a discussion of details and in due course to the exchange of formal documents. In other words, the execution of the letter can serve the useful purpose of formally recording the terms upon which the parties had agreed and from which they would thereafter not be expected to withdraw, even though legally free to do so.

36 What then of the terms of the letter which used the language of contract?

37 In Gay v Gooden (1989) NSW Conv R 55-445, McLelland J (as his Honour then was) said that the use of words in conversation such as “agree”, “offer”, “accept” and “deal” in respect of a contemplated sale of real estate do not establish an intention to enter a binding contract at that time unless there are unusual circumstances which lead to that conclusion (at 58,226). Similarly in Syd Mirror Pty Ltd v Humble Fishmonger Pty Ltd [2004] NSWSC 584 Barrett J said (at [29]) that:

“ In commercial circles, the “ acceptance ” of an “ offer ” (particularly when it is expressed as an offer principally as to price) and the making of a “ deal ” (a word which, in this case, may or may not have been spoken at the crucial meeting) very often do not connote contractual conduct. This is especially so where exchange of contracts is expressly contemplated.”

38 This was said in relation to words in conversations rather than in correspondence. However even in correspondence reference to an agreement having been reached does not necessarily indicate a presently binding contract. Nonetheless, the use of language showing present contractual intent in correspondence has often been an important indicium that the parties intended to be immediately bound. (Niesmann v Collingridge (1921) 29 CLR 177 at 182; Godecke v Kirwan (1973) 129 CLR 629 at 640-641; Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628; 40 NSWLR 631 at 635; Souter v Shyamba Pty Ltd (2003) 11 BPR 20,369). However the language used must be considered in the context of the negotiations as a whole, and having regard to the parties’ intention to exchange formal contracts. (Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at 14,570).

39 In G R Securities Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 McHugh JA, with whom Kirby P and Glass JA agreed, said that there was a presumption that no binding agreement exists until contracts are exchanged (at 634).

40 The reason that the usual method of selling real estate in New South Wales is by formal exchange of contracts 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 .”
( Lezabar Pty Ltd & Or v Hogan & Ors (1989) NSW Conv R 55-468 at 58, 388; 4 BPR 9498 at 9501 per Gleeson CJ).

41 That consideration has greater force since s 52A of the Conveyancing Act 1919 and the Conveyancing (Sale of Land) Regulation 2000 came into force. One should not lightly attribute to the vendor the intention of foregoing the protection that the exchange of contracts to which the prescribed documents are attached, affords it.

42 Section 52A(2) of the Conveyancing Act 1919 (NSW) provides that:

“52A Contracts for sale of land
…..

(2) A vendor under a contract for the sale of land:

(a) shall, before the contract is signed by or on behalf of the purchaser, attach to the contract such documents, or copies of such documents, as may be prescribed, and
(b) shall be deemed to have included in the contract such terms, conditions and warranties as may be prescribed.”

43 The section would apply to a contract for the sale of land contained or recorded in the letter of 15 January 2003. The prescribed documents were not attached to the letter. (Conveyancing (Sale of Land) Regulation 2000 clause 5 and schedule 1). As a consequence of the prescribed documents not being attached, the purchaser would have been entitled to rescind any such contract. (Clause 19 of the Conveyancing (Sale of Land) Regulation 2000).

44 The plaintiffs submitted that the non-compliance with s 52A of the Conveyancing Act is an irrelevant consideration because there was no evidence that either Mr Attwells or Mr Johnson was aware of the requirements of that section. Section 52A does not preclude the making of an informal or open contract. Hence, the plaintiffs submitted that in the absence of evidence that Mr Johnson or Mr Attwells knew of the requirement of s 52A, the existence of that section is irrelevant to whether they intended to be immediately bound by the terms recorded in the letter of 15 January 2003.

45 I do not agree. When the Court places itself in the same factual matrix as that in which the parties were, it has regard to background facts which the parties are presumed to know even if a party does not have that fact at the forefront of his mind. (Reardon Smith Line Ltd; Hansen v Tangen [1976] 3 All ER 565 at 575; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR AT 352). In the same way when considering objectively a person’s intention to contract, the Court takes into account the usual way in which contracts are made or the absence of usual terms in contracts for sale, without proof that both parties had knowledge of what is usual. The Court should have regard to the legal setting in which the parties were placed, if their contractual intention is to be ascertained objectively. It is unlikely that reasonable observers would consider the parties intended to enter into a contract by which the vendor was bound, but which the purchaser was free to rescind. This is a particular application of the more general principle that a court will not lightly attribute to knowledgeable parties an intention to forego the protection afforded by the exchange of formal contracts, which, according to the usual practice dictated by law, attach the prescribed documents.

46 The present case has a number of features which indicate that the parties did not intend to be immediately bound by the terms of the letter of 15 January, notwithstanding the language of offer and acceptance and of agreement.

47 The first is that the parties contemplated an exchange of contracts. The letter of 15 January referred to an exchange. An exchange was frequently referred to in discussions. The parties were dealing with a valuable industrial property which may have been exposed to contamination or other environmental hazards. The transaction was of some magnitude and complexity. It is unlikely that the parties would intend to be bound before the formal exchange of contracts which made appropriate provisions for matters such as the lease, the release of the rental guarantee, any contamination of the site, and encroachments.

48 Secondly, until exchange of contracts the purchaser would be free to withdraw by rescinding the contract pursuant to clause 19 of the Conveyancing (Sale of Land) Regulation 2000.

49 Thirdly, the parties intended that a deposit would be paid but that payment would not be made until contracts were exchanged. It is inherently unlikely that the parties would intend to bind themselves prior to the payment of the deposit when they intended a deposit to be paid. The oral negotiations which preceded the preparation of the letter included the payment of a five per cent deposit, which was to be released to the vendor as part of the “deal”.

50 Fourthly, is that the letter did not contain all of the terms which had been discussed. Mr Johnson had insisted that he would be selling the property “as is” and that the contract would have to make that clear. The letter of 15 January made no such provision. An open contract in terms of the letter of 15 January would not preclude the purchaser making any objection in relation to encroachments. The vendor might be exposed to requisitions, objections or claims for compensation in relation to contamination of the land, in the absence of a provision of the kind which the parties had discussed.

51 Fifthly, the letter contemplated that Alliance Motor Auctions Pty Ltd may not be the ultimate purchaser. The letter contemplated that the purchaser would be either Alliance Motor Auctions Pty Ltd or its nominee. It is not probable that the parties intended to enter into a binding contract before the transferee had been identified. If they were to do so, the plaintiffs ran the risk that double stamp duty would be payable both on an agreement for the sale of property to Alliance Auctions Pty Ltd and its transfer to the nominated transferee.

52 Sixthly, the plaintiffs did not pay stamp duty on the agreement said to be contained or recorded in the letter of 15 January 2003. That failure was not explained. It is consistent, however, with the plaintiffs not having intended to make a binding contract.

53 Seventhly, the parties’ conduct after 15 January 2003 was not consistent with their intending to be bound by the letter of 15 January. Neither of the parties advised their solicitors of the letter of 15 January. I infer that neither of them advised their solicitors that they were already contractually bound. Mr Attwells’ discussions with Mr Hardy-Smith referred to in paragraph 8 indicate that he did not consider both parties were bound by their signatures on the letter.

54 Having regard to these considerations I do not consider that the language of agreement in the letter of 15 January indicates that the parties are to be taken as intending to be immediately bound by the terms upon which they had agreed. The “agreement” which the parties recorded was an agreement on terms, not an agreement to be bound by the terms.

55 The plaintiffs relied upon Mr Johnson’s evidence, referred to in paragraph 7 above, where he referred to the letter not accurately recording “our deal”. The plaintiffs also submitted that Mr Johnson had acknowledged that the letter recorded an agreement which he had made with Mr Attwells, albeit that in his affidavit Mr Johnson said that the agreement was one in principle only and subject to contracts being exchanged. They submitted that the letter of 15 January, although it contemplated an exchange of contracts, did not make the agreement subject to such an exchange. Nor did it describe the agreement which it recorded as being an agreement only “in principle”.

56 Whilst I accept that the letter was not expressed to be subject to exchange of contracts and that the agreement which it recorded did not contain words such as “in principle” which might indicate that it was not intended to be legally binding, it does not follow that the “agreement” which was recorded was one to which the parties intended to be immediately bound. When considered against the background to which I have referred it was an agreement on terms to be included in a formal contract, not an agreement to be immediately bound by those terms before exchange of the formal contracts.

If Letter was Binding, Obligation to Perform was Conditional

57 If I had been of a different view I would nonetheless have concluded that the contract fell into the second category and not into the first category described in Masters v Cameron. The letter refers to an exchange of contracts to take place on 28 February at which time a deposit would be payable. This would indicate that performance of the terms agreed on was conditional upon the entry into the formal contract. However, the question which would then arise is whether performance of the terms agreed on was also conditional upon those formal contracts being entered into by the date stipulated, namely 28 February 2003. Through no fault of the vendor that did not happen. My prima facie view is that the obligation to enter into the formal contract could not be enforced after the agreed time for doing so expired, without fault by the vendor, (compare Godecke v Kirwan at 641,644-5). Therefore the conditions for the performance of the defendant’s obligations under the contract were not satisfied (assuming, contrary to my finding, that there was such a contract). The result is not that there remained an open contract for the sale of the property which either party could rescind within a reasonable period. Rather, the result would be that the conditions for the performance of the parties’ obligations under the contract not having been satisfied, neither party would thereafter be bound. There was little argument on this point. It is not one which arises having regard to my other findings.

58 For these reasons the plaintiffs’ claim fails. The orders which I make are as follows:

1. Amended summons be dismissed;

2. The plaintiffs pay the defendant’s costs;

3. Exhibits may be returned after 28 days.

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Last Modified: 12/03/2004