Phillip Segal v Max Christopher Donnelly
[2012] NSWSC 833
•24 July 2012
Supreme Court
New South Wales
Medium Neutral Citation: Phillip Segal & Anor v Max Christopher Donnelly & Ors [2012] NSWSC 833 Hearing dates: 14 and 15 June 2012 Decision date: 24 July 2012 Jurisdiction: Equity Division Before: Bergin CJ in Eq Decision: Amended Summons dismissed. Order in accordance with Cross-Claim for the removal of caveat.
Catchwords: [CONTRACT] - Whether solicitor authorised by registered proprietors of property to conduct sale process on their behalf - whether emails between solicitor and plaintiffs evidence an intention to enter into binding contract - where one co-owner acted as agent for the purchasers - whether other co-owner entitled to reject offer made by plaintiffs for purchase of the Property Legislation Cited: Conveyancing Act 1919 (NSW)
Law of Property Act 1925 (UK)
Law of Property (Miscellaneous Provisions) Act 1989 (UK)Cases Cited: AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) NSW ConvR 55-299
Daulia Ltd v Four Millbank Nominees Ltd & Anor [1978] 1 Ch 231
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Masters v Cameron (1954) 91 CLR 353
Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198
Payne v Cave (1789) 3 TR 148; 100 ER 502
Seivewright v Brennan [2005] NSWSC 216
Twynam Pastoral Company Pty Ltd v Anburn Pty Ltd (1989) 6 BPR 13,448Category: Principal judgment Parties: Phillip Segal (1st Plaintiff)
Deborah Cheung (2nd Plaintiff)
Max Christopher Donnelly (1st Defendant)
Morgan John Kelly (2nd Defendant)
Daniel Ivan Cvitanovic as trustee for the Bankrupt Estate of Anthony Frank Garard (3rd Defendant)
Denis Joseph James (4th Defendant)
Fresh Start Bakeries Australia Pty Ltd (5th Defendant)Representation: Counsel:
JS Emmett (Plaintiffs)
MS Henry (1st, 2nd and 3rd Defendant)
JL Doyle (5th Defendant)
Solicitors:
Low Doherty & Stratford (Plaintiffs) Meehans Solicitors (1st, 2nd and 3rd Defendants)
Thomsons Lawyers (5th Defendant)
File Number(s): 2012/162822
Judgment
These proceedings (2012/162822) arise out of a dispute in relation to the sale of commercial premises in Warwick Farm, NSW (the Property). At the relevant times, the registered proprietors of the Property were Denis Joseph James, the fourth defendant, and Daniel Cvitanovic (as trustee for the bankrupt estate of Anthony Frank Garard) (the Trustee), the third defendant, in equal shares as tenants in common.
By the time of the events giving rise to this dispute, the Property had been passed in at an auction on 19 April 2012 at which a reserve price of $4.5 million had been set. At the time of the trial the Property was subject to a mortgage to St George Bank (the Bank) securing a debt in excess of $6.5 million. However the Bank appeared to be willing to discharge the mortgage on settlement if a sale price in excess of $4.2 million was achieved.
The plaintiffs, Dr Phillip Segal and his wife, Dr Deborah Cheung, seek an order for specific performance of what has been described as "the Email Contract" by ordering the first and second defendants, Max Christopher Donnelly and Morgan John Kelly (trustees appointed under section 66G of the Conveyancing Act 1919 (NSW)) (the 66G Trustees), to enter into a Sale Contract with them for the sale of the Property at $4.212 million. The 66G Trustees were appointed on 4 May 2012 in proceedings 2011/358132 between the Trustee as plaintiff and Mr James as defendant (the 66G proceedings). Alternatively the plaintiffs seek orders revoking the orders appointing the 66G Trustees and requiring the registered proprietors to enter into the Sale Contract with the plaintiffs. By Cross-Claim, the 66G Trustees and the Trustee seek an order for the removal of a caveat that the plaintiffs lodged on the title of the Property.
The proceedings were heard on 14 and 15 June 2012 when Mr JS Emmett, of counsel, appeared for the plaintiffs, Mr MS Henry, of counsel, appeared for the Trustee and the 66G Trustees and Mr J Doyle, of counsel, appeared for the fifth defendant, Fresh Start Bakeries Australia Pty Ltd (FSB), that has entered into a contract with the 66G Trustees to purchase the Property. The fourth defendant, Mr James, was unrepresented.
The Facts
The plaintiffs rely upon a series of emails in support of a claim that there is a binding contract between them and the registered proprietors that can be specifically enforced. It is necessary therefore to set out in detail the history of email communications between the various parties. Low Doherty & Stratford solicitors (LDS) represented the plaintiffs. Meehans Solicitors (Meehans) represented the Trustee and Ms Karen Watson of that firm had the main carriage of the matter. Thomsons Lawyers represented FSB.
Monday 30 April 2102
On Monday, 30 April 2012 at 4.21 pm LDS wrote to Ms Watson in the following terms:
We act for Phillip Segal and Deborah Cheung. Our clients' superannuation fund is prepared to contract to purchase the above property paying a 10% deposit.
Phillip Segal and Deborah Cheung will also guarantee the performance of the purchasing entity under the Contract.
Could you please provide us with a Contract for Sale.
At 4.50 pm Ms Watson wrote to Mr James enclosing a copy of a letter from Meehans to Mr James referring to the 66G proceedings and advising that orders had been made for Mr James to file evidence in those proceedings by 5.00 pm on 3 May 2012 and for the matter to be adjourned to 4 May 2012. That letter included the following:
We note that you advised that Dr Segal and Dr Cheung had made an offer of $3.6 million to purchase the property. We confirm our advice that the Trustee in Bankruptcy needed evidence that Dr Segal and Dr Cheung had capacity to complete the contract before considering the offer. We confirm your advice that you would provide us with a financial statement.
At 5.17 pm Ms Watson wrote to LDS thanking them for the 4.21 pm email and requesting "evidence" that the plaintiffs had "funds to complete the purchase by way of either a bank statement showing the purchase price or an offer by a financial institution to lend you (sic) client the funds to purchase" the Property.
Tuesday 1 May 2012
On Tuesday, 1 May 2012 at 5.55 am Ms Watson wrote to Mr James advising that FSB had made an offer of $3.7 million to purchase the Property and was "ready to exchange today". Ms Watson also advised Mr James that the offer was acceptable both to the mortgagee and to the Trustee and that "we would like to proceed to exchange today". Ms Watson asked whether this was acceptable to Mr James. Mr James responded by email at 10.39 am asking if he could see the contract and conditions that were proposed to be signed. He also asked whether Ms Watson was offering the other buyers the opportunity to counter the "FSB deal".
At 10.51 am Ms Watson advised Mr James that the Contract was in the terms provided to him by the real estate agent (the Agent) and that if "your buyers wish to make a higher offer and have the capacity to complete" then they were quite welcome to do so.
At 11.04 am Mr James wrote to Ms Watson in terms that included the following:
As this is the second offer from FSB which you insist I agree to; as half owner of property this offer reduces my liability to St George Bank by approximately $200K, before I consider signing the contract I need your guarantee this is their final and best offer.
It would be wrong for you to insisting (sic) on me signing a contract without the assurance that you have obtained the best possibly (sic) price. Once you have the best offer possible please forward a contract to myself. Signed by the trustee with the appropriate approved price, without purchaser details; I will then execute and return.
At 11.22 am Ms Watson wrote to Mr James in the following terms:
The offer by FSB is a result of your buyer's offer. I am not in a position to know whether it is their best offer but it is the highest offer on the table at the moment. Any contract that is signed by you will need to be a complete contract.
If your buyers wish to make higher offer (sic) they are welcome to do so.
alternatively we can have both parties tender to the agent signed contracts with their best offers and the 10% deposit by 12 noon tomorrow and the highest offer to be accepted.
At 2.44 pm the Agent advised Ms Watson that he had spoken to Mr James who "didn't seem to have a problem" with Ms Watson's "suggested sale method to get this finalized". The Agent advised that Mr James was meeting with "his buyers" that evening and would make contact with the Agent afterwards to let him know their position. The Agent requested Ms Watson to prepare and forward to Mr James an Irrevocable Authority document explaining the process for the following day.
At 4.39 pm LDS wrote to Ms Watson in the following terms:
I have been provided with a copy of your email to Denis James of 1 May 2012 11.22am.
Our clients have indicated that they are prepared to participate in a process as outlined in the last paragraph of your email.
I understand the time may change depending on when Mr James returns to Sydney.
I have been provided with a copy of a Contract which included 8 pages of special conditions.
Could you please provide answers to 2 questions
a) Clause 4.3 provides that the Vendor in its discretion may rescind the Contract for any reason until the date of completion. This is highly unusual unilateral right of rescission. We would request its removal.
b) Our clients Deborah Cheung and Phillip Segal will propose to sign the Contract in their own names but would request the right by novation clause to novate the Contract within 10 days of exchange to a Trustee set up for the purposes of borrowing for their superfund. Would the Vendor agree to such a clause?
At 5.10 pm Ms Watson forwarded the Irrevocable Authority to Mr James in relation to the "acceptance of the highest offer and exchange of contracts" with a request that he sign and return it as soon as possible. That document was in the following terms:
I, Denis Joseph James as Vendor hereby irrevocably authorise and instruct my solicitor Meehans Solicitors, to accept in the form of a tender final and best offers from purchasers for the purchase of the [Property].
I acknowledge that any purchaser is required to provide their final and best offer to Meehans Solicitors by 3.30pm on Wednesday 2 May 2012 together with a bank/company cheque for the 10% deposit of the final and best offer ("final offer").
I irrevocably agree to sign a contract with the purchaser that puts forward the highest final offer and irrevocably instruct Meehans Solicitors to exchange contracts with the purchaser.
A similar document was sent to the Trustee at 5.14 pm that day. It was signed by the Trustee and returned to Ms Watson by email at 5.33 pm.
At 5.22 pm Ms Watson wrote to LDS attaching the final contract which she observed had not been provided to the plaintiffs prior to that time. That communication included the following:
If your client proposes to purchase the property by their superfund then that trust should already be set up and functioning. My experience is that where a super fund has not been set up and borrowings approved is that the process takes 4 to 6 months.
Wednesday 2 May 2012
On Wednesday, 2 May 2012 at 10.44 am Mr James wrote to Ms Watson requesting a postponement of the time for the final submission of offers from the 3.30 pm deadline that day to 12.00 pm on 3 May 2012. Mr James advised that he had only returned from Cairns that morning at 10.00am and also advised as follows:
Alternate purchasers are both operating today and are unable to meet until this afternoon; following our meeting I will confirm if their intention is not to proceed, and schedule contract signing with you today if possible (late this afternoon).
At 11.52 am Ms Watson wrote to Mr James advising that she was not able to postpone the "deadline for offers" until the following day and that the "deadline" was at 3.30 pm on 2 May 2012. Ms Watson also advised Mr James that she required him to provide the signed Irrevocable Authority that was sent to him the previous day. At 12.08 pm Mr James wrote to Ms Watson as follows:
Sorry Karen there is no choice; there are two vendors here you represent not one...
At 12.32 pm Ms Watson wrote to Mr James advising that she had spoken to the Trustee and that "we can postpone until 11.00 am tomorrow at the latest". Mr James responded at 12.48 pm as follows:
Fantastic and thank you; LJH or your office???" 11am is good...
At 1.32 pm Mr James wrote to Ms Watson advising that he was unable to change the Irrevocably Authority document. He requested that Ms Watson make the alterations required and return it to him. That email also included the following:
Also change "bank or company cheque" to "cheque" this is only for exchange; bank cheque is an unfair burden.
At 3.54 pm Ms Watson responded to Mr James' email of 12.48 pm by advising "My office". At 4.03 pm Ms Watson wrote again to Mr James enclosing the amended Irrevocable Authority in which the time and the date were changed to 11 am on 3 May 2012. Ms Watson advised:
A bank cheque or company cheque is required for the deposit to ensure that the deposit is paid and funds are available. This is the usual course in property transactions.
At 4.15 pm Mr James wrote to Ms Watson in the following terms:
Karen, Sorry I will only sign to read cheque; for exchange I have never used a bank cheque... If I have a cheque at all it will be personal only...
At 5.05 pm LDS wrote to Ms Watson advising as follows:
Further to your email of this morning. Our clients' corporation will be tendering a signed Contract with a completed best offer purchase price and 10% deposit on the basis that the highest offer will be accepted at your office and contracts signed by the 2 Vendors forthwith. The 10% deposit will be 10% of the proposed purchase price not including 10% of any potential GST as referred to in your special condition 19. The cheque will be payable to LJ Hooker Commercial.
Please confirm that the above is how the sale will proceed tomorrow.
At 5.09 pm Ms Watson wrote to LDS and confirmed "that is the process to occur tomorrow".
Thursday 3 May 2012
On Thursday, 3 May 2012 at 10.32 am LDS wrote to Ms Watson in the following terms:
We refer to our previous correspondence. Our client had instructed their accountants, Barel Accountants, to obtain a new company to act as the purchaser. There was a major power outage in the Easter (sic) Suburbs which disabled our clients' accountants internet facility and this is continuing this morning, and they were unable to set up a company because of the power failure. Our clients wish to participate in the process and suggest two alternatives:
1. That the process continue today, the nominated purchasers being Deborah Cheung and Phillip Segal with the attached novation clause to be included in the Contract.
2. The process occur tomorrow morning with the proposed purchaser being the new corporation.
Ms Watson responded at 10.39 am as follows:
The process will continue today it cannot be postponed until tomorrow as we are in Court tomorrow in relation to this sale today is the last opportunity.
At approximately 11.00 am on 3 May 2012 Mr James attended Ms Watson's office. There is no issue that he attended in the capacity as agent for the plaintiffs and also on his own behalf. He was accompanied by Leslie Szkirpan. Also in attendance were the representatives for FSB being Wilfred Lazar, Robert Beatty, the managing director, and Tom Boyce of Thomsons Lawyers, solicitors for FSB.
The FSB representatives had been at Meehans' office from approximately 10.40 am. In the presence of all in attendance Ms Watson said:
You have attended today to put forward your offers for the purchase of the [Property]. If you wish to make an offer please provide it now with your bank cheque.
At this stage Mr James handed Ms Watson a contract and said "We are offering $4,212,000". Ms Watson said "This offer does not comply with the rules of the process. You haven't provided a bank cheque for the deposit as required and the contract provides for a nominee for the purchaser". The contract identified the Purchaser as "Deborah Cheung and Phillip Segal or nominated superfund".
The following conversation then took place:
Mr James: I don't agree that we have to provide a bank cheque. I accept the personal cheque.
Ms Watson: There are two vendors, the Trustee requires the deposit to be bank cheque in accordance with the irrevocable authority I hold and the authority that was sent to you.
Ms Watson then asked whether the representatives for FSB would like to make an offer. Mr Beatty advised that they would like to have "a discussion in private first". Mr James then said:
If they aren't going to make an offer we have the highest offer and I accept that.
Ms Watson repeated that the offer made by Mr James on behalf of the plaintiffs did not comply with the rules of the process.
Ms Watson then took the FSB representatives into a separate office. Mr James then approached Ms Watson and the following conversation took place:
Mr James: If Fresh Start won't make an offer our offer should be accepted.
Ms Watson: You haven't provided a bank cheque and the Trustee won't accept a personal cheque. There is a National Australia Bank down the road if you wish to arrange a bank cheque, what I propose in the best interest of all parties is to extend the process until 5pm, that way you can go and get a bank cheque by 5pm and Fresh Start can make an offer.
Mr James: That's not fair, Fresh Start know what our offer is.
Ms Watson: That's your fault, you volunteered that information. To be fair to both potential purchasers as neither has provided an offer in accordance with the process, I can extend the deadline until 5.00 pm today you can get a bank cheque and/or make a higher offer.
Mr James: Can we EFT the money.
Ms Watson: As long as you also provide a copy of the receipt evidencing the money being transferred before 5pm that would be acceptable but you also need to nominate the purchaser and remove "or nominated superfund" from the contract.
Mr James subsequently asked Ms Watson whether she could email Meehans' account details to Dr Segal. Ms Watson said:
I can but he must also provide verification before 5pm that the money has been transferred to the trust account.
There was then some discussion between FSB and Mr James as to whether they could reach agreement whereby FSB purchased the Property and provided a lease to Mr James. After Ms Watson consulted the Trustee, the following conversation took place:
Ms Watson: As we don't have any conforming offers the trustee proposes that we extend the time for making an offer until 5pm today. Any offers must be in the form of a signed contract in exchangeable form with a nominated purchaser and a bank cheque or confirmation the deposit has been transferred into Meehans' trust account by 5.00 pm.
Mr James: You can't do that, it's not fair, we are the only ones who made an offer and I accept that offer.
Ms Watson: Denis you have not provided a bank cheque for the deposit. The trustee requires a bank cheque for the deposit, your purchasers are related entities to you and the trustee doesn't have confidence that a personal cheque will be honoured, your clients have been asked to provide evidence of their ability to pay the purchase price and nothing has been provided. The fairest option in the trustee's opinion is to extend the time until 5pm today.
Mr James: Well I don't agree.
After this discussion the parties left Meehans' offices.
At 4.45pm Mr Beatty returned to Meehans' offices with his colleague, Mr Lazar. There was then a conversation with Mr Meehan to the following effect:
Mr Beatty: Did their funds clear?
Mr Meehan: No. The funds have not been received. Nor has a bank cheque, although we have been advised that the money has been transferred.
Mr Meehan asked Mr Beatty to provide a signed contract and bid. Mr Beatty then presented Mr Meehan with an envelope in which there was a bank cheque in the amount of $430,000 and a signed contract providing for a purchase price of $4.3 million.
At 5.15 pm LDS wrote to Ms Watson in the following terms:
I understand that at the tender process today the following occurred:
1. You informed the parties present that this was a tender process in place and that exchange was to occur with the highest offer.
2. Dennis James gave you Segal and Cheung's offer and a cheque for the deposit.
3. Fresh Start Bakeries would not disclose their offer. They did not tender a signed contract nor a cheque for the deposit.
4. I assume that when I wrote to you yesterday confirming the tender process and you responded "I confirm that is the process to occur tomorrow" that you had the instructions of Mr Cvitanovic to confirm the tender process. You had Mr James' agreement.
5. On Mr Cvitanovic's instructions (not Mr James) you would not accept a personal cheque. This is incongruous since the other party offered no cheque.
6. You decided to extend the tender process to 5.00pm today against the express instructions of one of the Vendors. This could only help the non-conforming tenderer.
7. Segal and Cheung followed the process confirmed in your email and the other party did not. It would now appear on the instructions of one of the Vendors the process had not been followed. To change the process you need instructions from both Vendors.
8. In my view:
(a) The Segal and Cheung contract should be exchanged;
(b) If the Segal and Cheung contract is not exchanged then, if you are receiving conflicting instructions you should not act on the sale.
At 7.03 pm Ms Watson responded to LDS as follows:
I refer to your email below and reply as follows:
1. You are correct, but the parties were also informed that they would be required to provide a bank cheque or company cheque representing the 10% deposit with the offer;
2. Mr James gave me an offer but did not provide a bank cheque or company cheque for the 10% deposit. Mr James was advised that we would wait for him to get a bank cheque for the deposit alternatively the deposit could be electronically transferred to our trust account that day with the receipt forwarded to us. Our trust account details were provided to Mr James immediately. Neither of these things have occurred.
3. Fresh Start Bakeries did not disclose their offer as the offer presented by Mr James did not include a bank cheque or company cheque for the deposit as advised would be required.
4. We do have Mr Cvitanovic's instructions for the tender process and as you are aware Mr James attended the process and was aware of the rules of the tender process;
5. Both vendor's (sic) are required to agree to the offer with deposit provided. All parties were fully aware that the deposit was required to be paid by bank cheque or company cheque for the trustee to accept the offer.
6. The deadline was extended until 5pm to provide your client with the opportunity to provide a bank cheque or electronically transfer the 10% deposit.
7. You are misinformed, the process was not followed by your client and the deadline was extended for the benefit of both potential purchaser's (sic).
8. Your view is based on incomplete information, both vendor's (sic) have not accepted your client's offer as a deposit by bank cheque, company cheque (or at Mr James request by EFT) has not been provided to complete your client's offer.
Notwithstanding any of the above, the matter is before the Supreme Court at 10am tomorrow morning. We can advise that we have now received an offer from Fresh Start Bakeries in a sealed envelope which I will not be opening until both vendor's (sic) are with me at the Supreme Court tomorrow.
Friday 4 May 2012
On 4 May 2012 Ms Watson attended the Court for the hearing of the 66G proceedings. Also in attendance were the Trustee, Mr James, Mr Szkirpan and Dr Cheung. Prior to the hearing and in the presence of those persons, excluding Mr Szkirpan, Ms Watson advised that she had received an offer from FSB in a sealed envelope. Ms Watson then opened the envelope and said that FSB had made an offer of $4.3 million with a signed contract and bank cheque in the amount of $430,000. Mr James immediately said "No, I don't accept". Ms Watson then said that they would then continue with the 66G proceedings. On that day the 66G Trustees were appointed as trustees for the sale of the Property.
Subsequent Events
On 8 May 2012 Meehans wrote to LDS advising that:
The Trustees appointed have returned your client's executed contract and we note that your client deposited into our Trust Account on Friday, 4 May 2012 the sum of $422,100. Please advise how and where your client would (sic) those funds returned.
On 8 May 2012 the National Australia Bank (NAB) wrote to Dr Segal in the following terms:
I can confirm that as per the written instruction attached, and in addition to the emailed instructions below which confirms the beneficiary account numbers emailed from the solicitor, that $422,100 was transferred on the 03/05/2012 utilising internal NAB financial systems eBOBS.
As both donor and beneficiary accounts were NAB accounts, I can confirm that the transfer was instantaneous, and the money would have been available and visible to the beneficiary immediately after the transfer having taken place on 03/05/2012.
I note that the beneficiary account was checked after the transaction had taken place to confirm the funds had been transferred correctly as per normal bank policy.
In his evidence in these proceedings Dr Segal was not able to identify when it was that the NAB transferred the funds to Meehans' trust account. However his evidence establishes that he was conscious of a need to provide some confirmation of the transfer or receipt of the funds into Meehans' trust account. During the course of cross-examination he gave the following evidence (tr 14-15).
Q. To what extent did you have any other communications with representatives of the NAB that afternoon about your instructions to transfer the funds to Meehans' account?
A. I was very keen to get a written --
HER HONOUR
Q. No, no, you are just being asked what other --
A. I had one or two phone calls and I sent text messages confirming my email address so that I could - because - sorry, I was told that I had been sent confirmation. I had not received confirmation so I did follow-up conference calls to make sure they would send it to me and I actually texted my email address again to the bank in case they were using the wrong email address.
EMMETT
Q. Just so I understand, you have said there were two conversations.
A. I could look up my phone log and I will give you a better timeframe, but there were more than one. There was a conversation asking for it. There was a conversation that it hadn't yet arrived. Maybe one or two conversations. I had sent text messages on my email address just in case they were using - because - sorry they had said they had sent it. I had not received it, despite re-sending it, so I did send another - I sent a text message on my email address.
Q. Who was the last conversation with?
A. I only spoke to Jason Hopkins.
Q. And what did he say in the last conversation?
A. That he had sent it.
Q. Had sent?
A. The confirmation email to me that the money had been transferred.
There was no written communication confirming that the funds had been transferred at a specific time, in particular prior to 5.00 pm on 3 May 2012. The letter from Meehans to LDS on 8 May 2012 advised that the funds were deposited into Meehans' account on 4 May 2012.
Ms Watson was cross-examined as to whether she had checked to see that the funds had been transferred into the Meehans' trust account on the evening of 3 May 2012. Ms Watson gave evidence that she did not check to see whether the funds had been deposited that evening nor did she check on the morning of 4 May 2012. Ms Watson also gave evidence that she did not ask her firm's accounts department about it at all (tr 56).
Consideration
The first issue for determination is whether the emails evidence an intention by the registered proprietors, the Trustee and Mr James, to be legally bound to sell the Property to the plaintiffs if: (1) the plaintiffs tendered to Meehans "by 11 am on 3 May 2012" an executed Sale Contract together with a cheque for the 10% deposit of the purchase price stipulated in the Sale Contract; and (2) the purchase price was the "highest offer" tendered by that time. There is an issue whether the cheque for the deposit had to be a bank cheque if the proposed purchaser was to be an individual(s), or a company cheque if the proposed purchaser was to be a corporation.
The plaintiffs submitted that the "crucial" emails in respect of the claim that a binding contract was entered into are those between LDS and Meehans at 5.05 pm and 5.09 pm on 2 May 2012. It was submitted that at 5.09 pm Ms Watson confirmed that the "process" for the sale of the Property on 3 May 2012 was that which was contained in the email from LDS at 5.05 pm. That "process" described in the LDS email was:
Our clients' corporation will be tendering a signed Contract with a completed best offer purchase price and 10% deposit on the basis that the highest offer will be accepted at your office and contracts signed by the 2 Vendors forthwith. The 10% deposit will be 10% of the proposed purchase price not including 10% of any potential GST as referred to in your special condition 19. The cheque will be payable to LJ Hooker Commercial.
It was contended that if the plaintiffs fulfilled the conditions, or complied with the process as described, and their "offer" was the "highest" then the registered proprietors were required to accept it and exchange contracts.
The plaintiffs submitted that the contract could be characterised as a unilateral contract (or an "if" contract) pursuant to which the registered proprietors became bound to sell the Property to the plaintiffs once they performed or satisfied the conditions in the unilateral contract. In support of these submissions the plaintiffs relied on Daulia Ltd v Four Millbank Nominees Ltd & Anor [1978] 1 Ch 231 in which the Court of Appeal (Buckley, Orr and Goff LJJ) dismissed an appeal from Brightman J who held that there was no cause of action disclosed in the re-amended Statement of Claim. The questions for the Court of Appeal included whether the facts as pleaded established a valid unilateral contract. If they did there was no issue that they disclosed a breach of contract. A further question was, if the facts as pleaded established that there was unilateral contract, whether it was unenforceable for want of a written note or memorandum to satisfy section 40 of the Law of Property Act 1925 (UK) (a provision (now repealed and replaced by s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (UK)) in terms similar to s 54A of the Conveyancing Act 1919), unless there were sufficient acts of part performance to take the case out of the statute.
The facts as pleaded were that the plaintiffs and the defendants agreed to a proposed sale by which the plaintiffs were to purchase properties from the first defendants for a price of £825,000 payable by a banker's draft for the deposit of £41,250 and the balance of £783,750 to be payable on completion. It was alleged that the terms of the agreement were partly oral and partly in writing and insofar as they were in writing they were contained in draft contracts the terms of which the parties were aware. Insofar as they were oral, it was alleged that a representative of the first defendants promised that they would enter into a contract for the sale of the properties with the plaintiffs, if the plaintiffs procured a banker's draft for the deposit, attended the first defendants' offices before 10.00 am on 22 December 1976 and tendered to the first defendants the plaintiffs' part of the contract and the banker's draft. It was alleged that in reliance on the promise, the plaintiffs procured the banker's draft for the deposit, executed and signed their part of the contract for sale and attended the first defendants' offices ready to tender the contract and the banker's draft, but the first defendants refused to exchange their part of the contract.
Goff LJ said at 238-239:
Was there a concluded unilateral contract by the first defendants to enter into a contract for sale on the agreed terms? The concept of unilateral or "if contract" is somewhat anomalous, because it is clear that, at all events until the offeree starts to perform the condition, there is no contract at all, but merely an offer which the offeror is free to revoke.
Doubts have been expressed whether the offeror becomes bound so soon as the offeree starts to perform or satisfy the condition, or only when he has fully done so.
In my judgment, however, we are not concerned in this case with any such problem, because in my view the plaintiffs had fully performed or satisfied the condition when they presented themselves at the time and place appointed with the banker's draft for the deposit, and their part of the written contract for sale duly engrossed and signed and there tendered the same, which I understand to mean proffered it for exchange. Actual exchange, which never took place, would not in my view have been part of the satisfaction of the condition but something additional which was inherently necessary to be done by the plaintiffs to enable, not to bind, the first defendants to perform the unilateral contract.
Accordingly in my judgment, the answer to the first question must be in the affirmative.
Even if my reasoning so far be wrong the conclusion in my view is still the same for the following reasons. Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer.
In respect of whether the unilateral contract was a contract for the sale or disposition of land or any interest in land, Goff LJ said at 240-241:
It is clear to me that ex hypothesi it is not a contract for the sale of land or any interest in land because it is a separate and independent contract to enter into such a contract.
In my judgment, however, it is equally clearly a contract for some other disposition of an interest in land.
...
Now, in the present case we have a contract to enter into a proper written contract for the sale of land. Such a contract if entered into would be specifically enforceable and would therefore give the plaintiffs a right to the land in equity and so would create and give them an equitable interest in the land. It follows in my judgment that the unilateral contract was a contract to dispose of an interest in land, because it was a contract to do something which would have that effect in law.
Buckley and Orr LJJ agreed with Goff LJ that the appeal should be dismissed and in his own reasons Buckley LJ also agreed that a "contract to exchange agreements is a contract for the creation of, and consequently for the disposition of, an interest in land within section 40 of the Law of Property Act 1925" (at 246).
Goff LJ's conclusion in relation to the offeror's inability to revoke the offer after the offeree had embarked on performance was doubted in Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198. The Full Court of the Federal Court (Lockhart, Lindgren and Tamberlin JJ) observed, at 227, that, "there is no exposition of the juristic basis for the general proposition stated". Indeed their Honours did not accept that there was a universal proposition that an offeror is not at liberty to revoke the offer once the offeree "commences" or "embarks upon" performance of "the sought act of acceptance". Their Honours said at 228:
If and to the extent that any of the authorities to which we have referred say otherwise, we would respectfully disagree. In any event, even if it be assumed that an offeror has impliedly promised not to revoke in consideration of a commencement of performance of the act of acceptance, it would not follow that a purported revocation would be ineffective. On the contrary, in the absence of specific relief in respect of that promise, the offeror's revocation would be effective, although leaving the offeror liable in damages.
It should not be thought that the absence of a universal rule is unjust. In the circumstances of a particular case, it may be appropriate to find that the offeror has entered into an implied ancillary contract not to revoke, or that the offeror is estopped from falsifying an assumption, engendered by it, that the offeree will not be deprived of the chance of completing the act of acceptance.
A question to be considered is whether Ms Watson's email included an offer by the registered proprietors with an indication that they would be bound to exchange contracts with the highest bidder without further negotiation on acceptance by performance of the terms of the offer. The circumstances are not dissimilar to an auction at which no reserve has been set.
In AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 Holland J was dealing with a case involving an auction at which it had ultimately been announced that the highest bidder should be the purchaser. His Honour observed that the ratio decidendi of Payne v Cave (1789) 3 TR 148; 100 ER 502 was that "the bidder is not a conditional purchaser but is no more than an offeror" and consequently "no contract can come into existence unless and until his bid is accepted" (at 9457). After reviewing the authorities, Holland J said at 9458:
An auction remains, in my opinion, an invitation to treat. If the fact that there is a reserve price is notified, it indicates to the bidders that an offer below the reserve price will or may not be considered. If the sale is advertised as being without reserve or to the highest bidder, it means that the highest bid is an offer that is liable to be accepted and, if accepted, will make a contract but the vendor remains free to withdraw the property from sale or decline to accept any bid.
In Seivewright v Brennan [2005] NSWSC 216, Young CJ in Eq, in construing regulation 18 made under the Property, Stock and Business Agents Act 2002, said at [31], that Holland J's words in AGC (Advances) Ltd v McWhirter made it clear that the "old condition in contract law", that the "highest bidder shall be the purchaser", did not change the general law of auctions that it was "only when the hammer fell that there was a concluded deal". His Honour also said that, "up until that time, any bid that is "accepted" does not give rise to the formation of a contract" and:
If it did, every time a higher bid was put in there would be some sort of breach of contract, and that cannot be the law. There must be some sort of conditional offer, or conditional acceptance in the making of a bid at an auction up until the time that the hammer falls. In my view, until that time it is open to the auctioneer to make a decision, even if he has previously indicated that a bid is accepted, that a bid will not be considered when he brings down the hammer.
In any event, the defendants submitted that the email exchange does not evidence an objective intention that the plaintiffs and the registered proprietors would be immediately bound in respect of the sale of the Property. It was submitted that the email from LDS to Meehans refers to the tendering of an offer for acceptance and that this did not reflect an intention to be immediately bound. It was further submitted that the offer to be tendered was by an unidentified corporation and it is improbable that the parties intended to enter into a binding contract before the transferee had been identified. The defendants also submitted that the email from Meehans to LDS merely confirmed a "process" that was to be followed rather than evidencing any intention by the Trustee and/or Mr James to be bound legally to the plaintiffs.
In support of these submissions the defendants relied upon Young J's decision in Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd (1989) 6 BPR 13,448. That case involved an application for specific performance of an "informal contract", said to be evidenced by two letters dated 31 March 1989, for the purchase of a rural property by the plaintiff from the defendant for $10.85 million. The first letter dated 31 March 1989 was from "The Manildra Group", rather than from the defendant, to the plaintiff and was signed by the managing director in terms that included the following:
We wish to confirm our telephone conversation of today's date that you wish to purchase the property known as "Milton Downs" from us on the following basis:
1. Purchase Price - $10,850,000.
2. Included in the sale to be all plant, machinery and improvements as per the list given to you by Mr Honan yesterday, on a walk-in walk-out basis but not including livestock.
3. All existing sowing of crops to be continued on your behalf at your expense as from today's date including seed costs.
4. All works such as fencing to be continued at your expense and all accounts to be submitted to you.
5. The Manildra Group would want first option to purchase the wheat crop grown on "Milton Downs" this year.
6. Any claim for commission on this sale will be defended by the vendor in consultation with your solicitors but any settlement amount including our legal costs to be for the purchasers account.
7. We require back from you settlement terms amd timing.
8. As we have discussed, all details of the sale to remain strictly confidential until settlement.
9. All expenses excluding salaries are at your expense as from today's date.
The response from the plaintiff on the same day was in terms that included the following:
We confirm our agreement and acceptance of the purchase of Milton Downs in accordance with the understanding expressed in your fax of March 31st.
Purchase Price $10,850,000
Inclusions as per paragraph 2 of your fax
I confirm that the houses as listed will be completed by you.
Paragraphs 3 and 4 - confirmed.
I will liaise with Mr Davis with respect to procedures, payments and approval of programmes.
Paragraph 5 - confirmed.
Paragraphs 6 - agreed
Paragraph 7 - settlement terms normal period 6 weeks from exchange of contracts and 14 days notice to complete.
Paragraphs 8 & 9 - confirmed.
I further confirm that we would like first option to purchase the livestock on "Milton Downs".
Further to our telephone conversation this afternoon I confirm you have agreed to sell and we have agreed to purchase Milton Downs in accordance with the above arrangement.
Please sign as form of acceptance on your behalf and return to me by fax today.
After considering the principles in Masters v Cameron (1954) 91 CLR 353 at 360 and McLelland J's observations in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) NSW ConvR 55-299 in relation to the fourth class of case additional to the three mentioned in Masters v Cameron, Young J held that although the words used by the parties gave some indication of "present contract" they were weakened by several factors. They were not words of confirmation of a pre-existing agreement made verbally; the vendors were not identified; and there were obviously many matters, for instance, the deposit and the date of settlement "still to be sorted out" (at 13,453). The evidence established that "The Manildra Group" was a registered business name for all wholly owned companies of Honan Investments Pty Ltd. His Honour referred to the fact that the communications were between the chief executive officers of the respective companies and in those circumstances it was more likely that such persons rather than "underlings" would make a binding agreement. His Honour said at 13,454:
There are two possibilities, one is that the parties have made a contract in that they both recognize that was open to adjust their rights by consent when the replacement contract was made. The other possibility is that they have not yet reached the stage when they regarded themselves as having entered into binding relationships.
His Honour was satisfied that the material before him strongly favoured the view that "there was no intention of the parties to make a binding contract by their exchange of faxes" (at 13,454). The factors that pointed to that conclusion included the complexity of the transaction, the large purchase price, the fact that the deposit was not considered in the faxes, and that no contract was in fact exchanged between the parties. In this latter regard his Honour had referred to McHugh JA's observations in the appeal from McLelland J (GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631) that there was a presumption that no binding contract existed until contracts were exchanged.
The defendants in the present case submitted that the parties' communications in Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd were far more detailed than those in the present case and yet the Court held there was no intention to make a binding contract.
In the present case one factor pointing to a lack of intention to be legally bound by what has been referred to as the "crucial" emails of 2 May 2012, is that the parties continued to negotiate about the "process" and/or the terms of the Sale Contract on the morning of 3 May 2012. Importantly, LDS suggested "two alternatives" - either an amendment to the Sale Contract to include a novation clause or for the "process" to occur on 4 May 2012 by which time it was anticipated that the plaintiffs' accountant would have "set up a company" that could be 'the proposed purchaser".
Another factor pointing to a lack of intention to be immediately legally bound is that Ms Watson was only authorised by the Trustee at the time that she wrote the email confirming the "process". The notes made by Mr James soon after the meeting of 3 May 2012 include an entry for 2 May 2012 in relation to the Irrevocable Authority. The notes make clear that Mr James was not going to sign the Irrevocable Authority authorising Ms Watson to act on his behalf and record, "I will be there so no need for authority plus I don't trust" Ms Watson. It is clear that Mr James had decided that he would not instruct Ms Watson because he was going to be present as one of the co-owners of the Property on 3 May 2012 at the time that the process was to take place at Meehans' office.
There is the additional factor that, on the one hand, the Trustee required the deposit to be paid by way of bank cheque or, if the purchaser was to be a company, by company cheque and, on the other, Mr James advised that he would accept a personal cheque. Accordingly there was no agreement between the co-owners as to the "process".
Another factor that points against the parties intending to be legally bound by the emails of 2 May 2012 is that there was no discussion between any of the parties as to whether any bid or offer had to be above the bids that had already been rejected. The defendants submitted that the plaintiffs' claims of a binding contract defy commercial reality. It was submitted that it could hardly have been the intention of the parties in the circumstances where the Property had been passed in at auction and previous offers had been made to purchase the Property at $3.6 million and $3.7 million, that the highest bid had to be accepted irrespective of whether it was far below previous bids and/or market value.
The plaintiffs submitted that the only condition that they had to satisfy in making the "highest" offer was the provision of a cheque for the deposit together with a signed Sale Contract. It was submitted that there was no condition of which they were aware that the Trustee would not accept a personal cheque. That submission cannot be accepted. The email communications between Ms Watson and Mr James make very clear that the Trustee would not agree to anything other than a bank cheque and /or a company cheque if the purchaser were to be a corporation. In his affidavit sworn on 29 May 2012, Dr Segal gave evidence that copies of these emails were forwarded to him by Mr James. In any event, Mr James, as agent for the plaintiffs, well knew that the Trustee would not accept a bank cheque. I am satisfied that the plaintiffs knew that the Trustee required a bank cheque for the deposit or a company cheque if the purchaser was to be a corporation.
From time to time during the meeting on 3 May 2012 Mr James acted both in his own capacity as co-owner of the Property and as agent for the plaintiffs. For instance, he was acting as agent for the plaintiffs when he put forward the Sale Contract with the personal cheque. When Ms Watson indicated that the Trustee did not accept the personal cheque, Mr James, as co-owner, indicated to Ms Watson that he did accept the personal cheque. Additionally when Ms Watson indicated that the Trustee intended to extend the process to 5 pm, Mr James, as co-owner, indicated that he did not agree to the process being so extended.
There is no doubt that Mr James indicated to Ms Watson that he did not agree to any extension and, in those circumstances, it is not necessary to deal with the events after Ms Watson indicated to Mr James that the plaintiffs' offer was not accepted, because it did not include a bank cheque for the deposit. Even if that is not correct, I am not satisfied that if the "process" was varied by providing an extension of time to 5 pm within which the plaintiffs could transfer the deposit electronically to Meehans' account, there was no confirmation of the receipt or transfer of the funds to the account by that time. Nor am I satisfied that the funds were in fact deposited by that time.
There is the additional factor that the purchasers were identified as "Deborah Cheung and Phillip Segal or nominated superfund". Although LDS had suggested an amendment to the Sale Contract to permit novation to the plaintiffs' company, no such amendment was included in the Sale Contract.
There was an issue in relation to some of the conversation that occurred on 3 May 2012 regarding the extension of time for the completion of the process to 5 pm that day. Ms Watson claimed that she informed Mr James that it would be acceptable (to the Trustee) if the plaintiffs tendered a contract that identified the purchaser and removed the offending words "or nominated superfund" and provided a copy of the receipt evidencing the money being transferred to Meehans' trust account before 5 pm. Mr James claimed that Ms Watson did not say that the words "or nominated superfund" were required to be removed from the Sale Contract. It was suggested to Ms Watson in cross-examination that during the meeting she made "no complaint" about the contract referring to a nominated superfund. Ms Watson claimed that she did say those words (tr 55). Mr Beatty recalled that Ms Watson said that confirmation that the deposit had been transferred into Meehans' trust account by 5 pm "must be provided" (tr 71). However Mr Beatty was not asked any questions as to whether Ms Watson had made mention of the "nominated superfund" during the meeting on 3 May 2012. Mr Beatty was asked whether Ms Watson said that any offers had to be in "the form of a signed contract in exchangeable form with a nominated purchaser", but he could not recall that detail (tr 71).
The plaintiffs submitted that there was no mention of the words "or nominated superfund" in the plaintiffs' contract in the email exchange on the evening of 3 May 2012. Although there is no mention of this matter in that email exchange, it must be remembered that Ms Watson was responding to an e-mail in which there was no mention of it in the first place. Mr James notes do not mention this matter. However I am not satisfied that that is decisive. On balance I prefer Ms Watson's evidence on this matter. No such Sale Contract was tendered and the identity of the purchasers remained uncertain. In any event the Contract proffered by the plaintiffs with their names and the words "or nominated superfund" did not properly identify the purchaser.
The defendants also argued that the "process", certainly known to both the Trustee and Mr James, was that any offers had to be put forward "by 11 am on 3 May 2012". The Irrevocable Authority instructing Meehans to exchange contracts with the purchaser who put forward the highest offer acknowledged that "any purchaser" was "required to provide their final and best offer to Meehans by 11 am on 3 May 2012". Mr James, as agent of the plaintiffs, knew that he was required to put their offer forward by that time. No offer was put forward by 11 am. In those circumstances, the defendants argued that what occurred thereafter was quite a new regime in which Ms Watson commenced to outline what was to occur, but before she could complete her explanation, Mr James produced the Sale Contract and the personal cheque from the plaintiffs. If it be correct that the "process" required the submission of offers by 11 am, then the "process" that was adopted thereafter imposed no obligations on either the Trustee or Mr James to accept any offer.
It was contended for FSB that having regard to the complexity of the transaction and the process that was advised, they were entitled to expect that the 11.00 am deadline would be strictly enforced. Having been advised that there was a competitive bidding process that would expire by 11.00 am, it was submitted that the representatives of FSB were entitled to adopt the attitude of waiting to see whether any bids were made by that time. It was submitted that after the expiry of the "deadline" at 11.00 am the process was "anew" and one that was not authorised by Mr James, albeit that the Trustee appears to have given instructions to Ms Watson to allow the parties until 5.00 pm on 3 May 2012 to tender for the purchase of the Property. It is not necessary to decide this issue having regard to the conclusions I have reached below.
In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 McHugh JA, with whom Kirby P and Glass JA agreed said at 634:
In New South Wales, real estate is ordinarily sold by signing and exchanging contracts in the form approved by the Real Estate Institute and Law Society. Accordingly, even though the parties agree in writing that real estate is sold for a specified price, the presumption is that no binding contract exists until "contracts" are exchanged: Smith v Lush (1952) 52 SR (NSW) 207 at 212; 69 WN (NSW) 220 at 222; Allen v Carbone (1975) 132 CLR 528 at 533.
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However, 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: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337. If the terms of the 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.
I am not satisfied that the emails of 2 May 2012 amount to a legally binding contract between the registered proprietors and the plaintiffs. If the emails amounted to a unilateral contract of the kind referred to in Daulia Ltd v Four Millbank Nominees Ltd & Anor, the offeror was entitled to require full performance of the condition that had been imposed and, short of that, was not bound (per Goff LJ at 239). The Trustee was entitled not to accept the plaintiffs' offer because it did not include a bank cheque for the deposit.
If the email exchange amounted to a binding contract there was a failure to comply with s 54A of the Conveyancing Act 1919. It was not seriously argued that there was any memorandum to satisfy s 54A, rather it was argued that there were acts of part performance that took the contract out of the statute. I do not accept that part performance can be established in this case by the plaintiffs proffering a Sale Contract without a bank cheque.
On the assumption that the requirement for a personal cheque was waived by a variation to allow an electronic transfer of the deposit by 5 pm (a variation to which s 54A was applicable) with confirmation of the transfer by that time, the plaintiffs failed to establish either of those matters. There was nothing in the evidence to establish that the funds were in fact transferred before 5pm on 3 May 2012, although there was evidence in the NAB email that the funds were transferred on 3 May 2012. Mr Beatty's recollection was that Mr Meehan informed him that the plaintiffs' funds for the deposit had not cleared, although they had been "advised that the money has been transferred". There was no evidence from whom that indication had come. That is not evidence that the condition imposed by the Trustee through Ms Watson, that there had to be "confirmation" from the plaintiffs that the funds had been transferred into the trust account, had been fulfilled. Indeed, as referred to earlier, Dr Segal was not able to establish what time the funds were transferred to Meehans' account. Certainly there was no evidence of any confirmation from the plaintiffs before 5pm on 3 May 2012. The email from LDS to Meehans at 5.15 pm made no mention of the transfer of the funds. It was claimed in that email that Ms Watson had extended the "tender process" to 5pm "against the express instructions" of one of the vendors. The email from the Bank on 8 May 2012 is silent as to the time at which the funds were transferred. Additionally, the claim would also fail by reason of non-compliance with s 54 A of the Conveyancing Act 1919.
Orders
The Amended Summons is dismissed. I make the order in paragraph 1 of the Cross-Claim for the removal of the Caveat lodged by the plaintiffs. Subject to any application being made within 14 days for an order otherwise, the plaintiffs are to pay the defendants' costs of the proceedings and the cross-claimants' costs of the Cross-Claim.
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Decision last updated: 24 July 2012
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