Stirnemann v Kaza Investments Pty Ltd - [2011] SASCFC 77

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
STIRNEMANN v KAZA INVESTMENTS PTY LTD
[2011] SASCFC 77
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Vanstone and The Honourable Justice Peek)
29 July 2011
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT - WHERE CONCLUDED CONTRACT
Appeal against a decision of a District Court Judge that the parties had entered into a binding contract for the sale and purchase of land – the Judge held that the parties entered into the contract via facsimile transmissions – facsimile referred to “further necessary paperwork to be prepared by a lawyer” – formal Law Society pro forma contract was subsequently drawn up and executed by the appellant but possibly not the respondent.
Whether there was a binding agreement between the parties – whether the words “I will arrange for further necessary paperwork to be prepared by a lawyer” meant that there was more to be done to conclude a binding agreement – whether those words could be equated with the words “subject to contract” – whether the learned trial Judge was permitted to have regard to the formal Law Society contract as extrinsic evidence – whether the Judge erred in awarding the respondent all of its costs of action.
Held: substantive appeal dismissed – the facsimile transmissions between the parties constituted a binding agreement for the sale of the property – the Judge was correct in categorising the case as being within the first of the three categories of cases in Masters v Cameron – the words “further necessary paperwork” indicated no more than the respondent would arrange for a lawyer to provide such documents, if any, as were necessary to effect transfer and the formalities associated with settlement – not necessary to consider whether trial Judge may have used extrinsic evidence of the Law Society contract – appeal as to the costs order allowed to the limited extent of awarding an amount equivalent to the amount of two days’ counsel fee rather than one day’s counsel fee.
Masters v Cameron (1954) 91 CLR 353, applied.
Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68; Barrier Wharfs Ltd v W Schott Fell & Co Ltd (1908) 5 CLR 647; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"subject to contract"

STIRNEMANN v KAZA INVESTMENTS PTY LTD
[2011] SASCFC 77

DOYLE CJ: I would dismiss the appeal against the order for specific performance made by the District Court on 17 December 2010, but would allow the appeal against the order for costs made by the District Court on 22 December 2010. As to the costs order, I would order that para 1 of that order be varied to provide that the amount to be paid by the plaintiff to the defendant be fixed at two days’ counsel fees rather than one day’s counsel fee. I agree with the reasons given by Peek J, and there is nothing that I wish to add.
VANSTONE J: I agree with the orders proposed and with the reasons Peek J has written.
PEEK J. This is an appeal against a decision of the District Court that the parties had entered into a binding contract for the sale and purchase of land.
Background
The appellant was, and is, the registered proprietor of a residential property at Christies Beach (hereafter “the property”). In 2002, Dr Fuller, the sole director of the respondent company, was then a neighbour of the appellant and negotiated with him, through the agency of the appellant’s partner, Ms Bossenberry, to buy the property. On 6 and 7 November 2002 there was an exchange of facsimile transmissions in relation to the purchase of the property which appeared to record agreement as to parties, subject matter and price. The critical facsimile sent by Dr Fuller to Ms Bossenberry, referred to by the Judge as the “facsimile contract”, concluded with the words:
As soon as I receive your acceptance I will arrange for further necessary paperwork to be prepared by a lawyer and forwarded up to you.
Dr Fuller had his solicitor prepare a formal contract in the standard terms of the pro forma Law Society of South Australia contract (hereafter “the Law Society contract”) which was then executed by the appellant and returned to Dr Fuller’s solicitor in late November 2002. Settlement was originally set for the week commencing 16 December 2002 but did not proceed at that time. There was no term that time was of the essence.
On 24 December 2002 Ms Bossenberry sent an email on behalf of the appellant to the respondent’s solicitor, advising that he wished to cancel the contract; she sent a further email to the same effect on 6 January 2003.
The District Court trial
Dr Fuller maintained that the Law Society contract was valid and binding and commenced proceedings in the Supreme Court seeking specific performance which proceedings were subsequently transferred to the District Court. The respondent’s case on the pleadings was that the Law Society contract had been executed by it on about 9 December 2002 after the contract had been returned to it by the appellant and therefore before the purported withdrawal by the appellant on 24 December 2002. The appellant conceded on the pleadings that this was so.
The matter was listed for trial on 19 February 2008 but shortly before that date Dr Fuller’s solicitors inadvertently supplied the appellant with a copy of a privileged letter dated 10 January 2003 which appeared to assert that Dr Fuller had not executed the Law Society contract prior to the purported withdrawal by the appellant on 24 December 2002.
As a result, the trial was postponed. Dr Fuller and the respondent entered into a Deed of Assignment on 6 June 2008 whereby the benefit of the agreement said to be constituted by the exchange of facsimiles was assigned to the respondent. The respondent then amended the pleadings to assert that, in the alternative to its original case, the “facsimile contract” bearing date 7 November 2002[1] sent from Dr Fuller to the appellant with its subsequent amendments and signatures reflecting the concluded negotiations of the parties, amounted to a concluded contract. The “facsimile contract” became exhibit P2 and appeared as follows:
[1] His Honour ultimately found that it had in fact been originally sent on the previous day but this is of no moment.
Dear Sir,
I refer to my recent discussions with Ms Bossenberry. Further to those discussions I now confirm my offer to purchase your property situated at 12 Erin Street being the property comprised in Certificate of Title Register Book Volume 5628 Folio 362 for the sum of $110,000 and in addition I will meet legal fees relating to the transaction.
This purchase would be in my name and/or such other person or entity as I may subsequently nominate.
Assuming that you notify me of your acceptance straight away settlement would be completed some time during the week beginning the 16^th December.
I am aware that the property is tenanted and I am happy for the existing tenancy arrangements to continue. If there is a written tenancy agreement you will need to have a copy sent to me.
If you are agreeable please sign the acceptance clause at the foot of this letter and fax it back to me as soon as possible on fax number 8382 0162.
As soon as I receive your acceptance I will arrange for further necessary paperwork to be prepared by a lawyer and forwarded up to you.
Yours faithfully,
(Signed)
…………………………
SIMON FULLER
FAX NO.
I Cameron Edward Stirnemann, the registered proprietor of the property situated at 12 Erin Street, Christies Beach accept the above offer.
(Signed)
………………………….
CAMERON EDWARD STIRNEMANN
The trial proceeded to judgment. His Honour was not prepared to find for the respondent on the basis of the Law Society contract on an onus of proof basis: he was not prepared to hold that it had been executed by Dr Fuller prior to 24 December 2002, but was equally not prepared to hold that it had not been. He observed:[2]
[42]…I do not find as fact that Dr Fuller and Mr Sim did not sign the contract on 9 December. They may well have. However, on the evidence I have before me, I cannot be satisfied on balance that they did sign the contract on 9 December. Neither has a distinct recollection of having done so and there is the uncertainty caused by Mr Sims’ letter to Dr Fuller. While I do not find that Dr Fuller did not sign the contract on 9 December 2002, I will assume he did not for the purposes of my factual and legal analyses.
[2] Kaza Investments Pty Ltd v Stirnemann (No 2) [2010] SADC 151.
However, his Honour proceeded to find that the “facsimile contract” evidenced a binding contract for the sale of the property and ordered specific performance; he held that it came within the first of the three classes in Masters v Cameron[3] and that the later Law Society contract came within the formal documents that the parties had intended would be drawn up pursuant to the facsimile contract. His Honour stated:[4]
[48]The plaintiff submits that the fax contract was a binding agreement. There was a verbal agreement between Dr Fuller and Ms Bossenberry on the telephone of which there was a written memorandum. However one characterises what was said by each on the telephone, there was an agreement for the sale and purchase of the property for $110,000. Both parties endorsed the fax contract indicating their agreement. It was a term of the fax contract that there would be a further written agreement but that was merely a term of the fax agreement. The fax agreement was not conditional upon the execution of the later written agreement. There are no words to that effect. The fax agreement was not in my view an agreement to enter an agreement. It was itself the agreement, but its fuller expression would be set out in a later written agreement. It was a term of the fax agreement that Dr Fuller might nominate another entity as the purchaser in the later agreement. The agreement is of the first class of contract referred to in Masters v Cameron…
[3] (1954) 91 CLR 353.
[4] Kaza Investments Pty Ltd v Stirnemann (No 2) [2010] SADC 151.
Was the Judge correct in finding that a binding contract existed?
The appellant contended on appeal that the words “I will arrange for further necessary paperwork to be prepared by a lawyer” meant that there was more to be done to conclude a binding agreement and, in fact, the words were equivalent to phrases such as “subject to contract”. He called in aid the statement by Dixon CJ, McTiernan and Kitto JJ in Masters v Cameron:[5]
This being the natural meaning of “subject to contract”, “subject to the preparation of a formal contract”, and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract.
[5] (1954) 91 CLR 353, 362-363.
The respondent contended that, to the contrary, the very absence of the words “subject to contract” in fact distinguished the present case from that aspect of the decision in Masters v Cameron[6] and referred to the familiar passage where Dixon CJ, McTiernan and Kitto JJ delineated three classes of agreements thus:[7]
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
[6] In Masters v Cameron (1954) 91 CLR 353, 359, the words “subject to the preparation of a formal contract of sale” appeared in the relevant memorandum.
[7] Ibid 360.
Unsurprisingly, the respondent submitted that the trial Judge had been correct in finding that the present was an instance of the first of those classes.
I consider that his Honour was plainly correct in his finding. The facsimile “contract” included each of the fundamental elements of a valid contract for the sale of real property: the names of the vendor and purchaser, an adequate description of the land and the consideration. There was nothing in the words of the facsimile to suggest that the parties intended to re-negotiate any of these terms and nothing to suggest that the lawyer(s) drawing up the final contract would have the power to vary those essential terms. In the circumstances, the words “I will arrange for further necessary paperwork to be prepared by a lawyer” meant no more than Dr Fuller would arrange for a lawyer to provide such documents, if any, as were necessary to effect transfer and the formalities associated with settlement.
The Law Society contract as extrinsic evidence of the parties’ intent?
A question arose on the hearing of the appeal as to whether, in support of the respondent’s case that the “facsimile contract” was a binding contract, the trial Judge was permitted to have regard to the fact that a formal Law Society contract was indeed subsequently drawn up and accepted by both parties, thus supporting the proposition that the “facsimile contract” was capable of being carried through to settlement.
It appears to be clear that a court may use “post-contractual conduct” as an aid in determining whether a contract has been entered into at all whereas the distinct question of using such conduct as an aid to interpreting the meaning of terms is much more debateable.[8] Thus in Pethybridge v Stedikas Holdings Pty Ltd,[9] Campbell JA (Beazley JA agreeing) stated:
[59]… The present state of the law throughout Australia on whether and if so when it is possible to use post-contractual conduct as an aid to construction of the contract is not yet settled: see the authorities cited in Cheshire and Fifoot's Law of Contract, 8th Australian edition, p 392-393; Cross on Evidence, 7th Australian edition, para [39290]; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 318 [109], per Kirby J. The more restrictive view, favoured in this Court, is that subsequent communications cannot be looked to as an aid to construction of a contract, but can be looked to as an aid to deciding whether a contract has been entered into at all: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-164, [2001] NSWCA 61 at [25]-[26]; Magill v National Australia Bank Ltd (2001) Aust Contract R 90-131 at 91,609-91,610, [2001] NSWCA 221 at [50]-[53] per Ipp AJA (with whom Meagher and Heydon JJA agreed); Walker v Andrew (2002) 20 ACLC 1476 at 1483-1484, 116 IR 380 at 388, [2002] NSWCA 214 at [39]; Independent Timber Importers v Mercantile Mutual Insurance (2002) 12 ANZ Ins Cas 61-543 at 76,367, [2002] NSWCA 304 at [17]; El-Mir v Risk [2005] NSWCA 215 at [66]. …
[8] See Barbara McDonald and Jane Swanton, ‘Subsequent conduct as an aid to interpretation of a contract – “the refuge of the desperate”?’ (1993) 67 Australian Law Journal 864. See also J W Carter, LexisNexis, Carter on Contract (at July 2010) [13-100].
[9] [2007] NSWCA 154.
In Brambles Holdings Ltd v Bathurst City Council,[10] Heydon JA (as he then was) stated:[11]
The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669, 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147 at 9,149, 9,154–9,156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9,251 at 9,255.
[10] (2001) 53 NSWLR 153.
[11] Ibid 163.
The two leading early High Court decisions[12] cited, both involved later conduct inconsistent with a binding contract. In the first of these, Howard Smith & Co Ltd v Varawa,[13] Griffith CJ held:[14]
Having regard to the subsequent conduct of the parties, to which I will directly call attention, I have no doubt that the message of 4pm was not intended to have a contractual operation at all, but was merely a notification to Miles of the intention of Moller’s principals.
The case of Hussey v Horne-Payne was referred to and relied upon by the learned Judges of the Full Court. In that case it was held that, although two letters of a correspondence seemed on their face to constitute a complete contract, it was open to show by other documents and oral evidence that no complete and concluded contract had in fact been made. In the present case we have nothing but written documents, to which I will now refer. It is plain that, the question being whether the parties had in fact concluded an agreement on 1st December, any statements or conduct on their part after that date inconsistent with the existence of a concluded contract are relevant for this purpose.
[12] The proposition is also supported by the more recent High Court case of Allen v Carbone (1975) 132 CLR 528.
[13] (1907) 5 CLR 68.
[14] Ibid 77-78.
In the second decision, Barrier Wharfs Ltd v W Schott Fell & Co Ltd,[15] Higgins J, in considering whether a binding agreement existed, examined the subsequent conduct of the parties and again held that there was no concluded contract. On appeal to the Full Court of the High Court, Griffith CJ, in dismissing the appeal, stated:[16]
I agree, therefore, with the conclusion of the learned Judge below that up to that time there was no concluded contract. It appears to me that what the defendants did was to intimate their willingness to enter into a contract upon the basis of the terms as to which there had been a provisional agreement, but that a formal contract must be drawn up, which was to be approved by them, and that that approval was to be given before a concluded contract should come into existence.
It is said for the plaintiffs that, even if that were so primâ facie, yet the subsequent correspondence showed that in fact there was a contract entered into on 6th February; and that, if there was any ambiguity in the terms of that contract, the subsequent correspondence showed what the real intention of the parties was. For the defendants it is said that, even if the documents up to 6th February on their face disclosed primâ facie a concluded contract, the subsequent correspondence was in the nature of continued negotiation, and showed that a concluded contract had not been entered into. I do not think it is necessary to refer in detail to that correspondence. It is sufficient to refer to one or two of the letters. …
In my judgment the learned Judge below was right in his conclusion that there was no concluded contract in fact; that the letters did not on their face disclose a contract. I think further that, if primâ facie they disclosed a contract, the subsequent correspondence shows that it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature.
[15] (1908) 5 CLR 647.
[16] Ibid 668-669.

However, while the principle may be expected to be applied more often in cases of definitive positive conduct of the parties demonstrating a view that they were not bound, there seems to be no reason why, in an appropriate case, evidence may not demonstrate a view held by the parties that they are bound. In the New South Wales Court of Appeal decision of Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd,[17] Gleeson CJ considered the relationship between this principle and the precepts in Masters v Cameron and stated:[18]
In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, of which the present is a good example, there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract.
[17] (1988) 18 NSWLR 540.
[18] Ibid 548.
In the present case, the learned trial Judge did not use the Law Society contract as post-contractual conduct militating in favour of his conclusion that the “facsimile contract” fell within the first class in Masters v Cameron. Since I have been able to come to a clear view that his Honour was correct without resort to a consideration of the suggested post-contractual conduct, I find it unnecessary to express a final view on the correctness of the respondent’s contention that such conduct could be taken into account in the present case.
A question of costs
His Honour awarded the respondent all of its costs of action other than its costs of opposing the appellant’s applications of 6 and 19 February 2008 (in relation to the matter of whether the Law Society contract had been signed prior to 24 December); the respondent was ordered to pay the appellant’s costs of those applications.
The appellant essentially argues that his Honour incorrectly exercised his discretion in that he failed to take into account the fact that the respondent’s claim originally depended upon the Law Society contract and that it was only on 23 September 2009 that it amended its pleadings to rely for the first time on the facsimile contract. He also argues that the respondent only became possessed of the right to sue the appellant on the facsimile contract on 6 June 2008 after Dr Fuller had assigned the chose in action by way of a deed of assignment. The appellant submitted that his Honour erred in failing to take into account the following matters as referred to in his written outline of submissions:
36.The learned trial judge, in his judgement on costs, erred in the exercise of his discretion in that he failed to have regard to the fact that:
36.1. the respondent commenced the action claiming that the contract entered into between the parties was the Law Society contract said to be executed on or about 9 December 2002.
36.2. the respondent concealed from the court and also from the appellant that it had not executed the agreement prior to the attempts by the appellant to withdraw from the contractual negotiations.
36.3. the respondent ran the action for four years and ran it to the listed trial date in the District Court when it was aware that the Law Society contract had not been executed at the material time.
36.4. until 6 June 2008, being the date of the assignment of the chose in action, the respondent was not entitled to bring a claim in relation to the contract said to be comprised by the facsimile transmissions.
36.5. the respondent only pleaded an alternative case because it made inadvertent disclosure of exhibit P9 which alerted the respondent and the court to the fact that the Law Society agreement had not been executed.
36.6. the case based on the Law Society contract and the case based on the facsimile transmission were different agreements reached on different dates.
36.7. the fact that the respondent failed with respect to the only cause of action it was entitled to pursue between the commencement of the action and the assignment on 6 June 2008.
The appellant thus submitted that his Honour ought to have awarded the respondent its costs only from either the date of the assignment or, alternatively, from the date of the amendment to the pleadings. In response, the respondent submitted that his Honour did in fact take into account all of the matters set out above.
I consider that it has not been established that his Honour did not adequately take into account these matters. His Honour held that there was an inter-relationship between the facsimile contract and the Law Society contract, both being relevant to various issues irrespective of the ultimate basis of the claim; there was considerable overlap between such issues in all the circumstances. Further, the dispute as to the signing of the Law Society contract did not dictate an order as sought by the appellant since his Honour did not make a finding either way as to its signing and did not make a finding in the nature of wilful concealment by the respondent.
However, there is one matter in relation to which the Court is justified in intervening and this is the decision of the Judge not to award the appellant his costs thrown away as a result of the adjournment of the trial which was scheduled to commence on 19 February 2008, the adjournment resulting from the respondent’s late change of position following the inadvertent disclosure of the 10 January 2003 letter. His Honour awarded the appellant a lump sum equivalent to one day’s counsel fee but that amount included both the appellant’s application for specific directions dated 6 February 2008 (Master Norman) and also the appellant’s oral application made on 19 February 2008 before Chivell DCJ in relation to the adjournment of the trial. It is clear that the award did not include any allowance for the costs thrown away as a result of the adjournment of the trial. In my view, an amount equivalent to the amount of two days’ counsel fee rather than one day’s counsel fee should be awarded in all the circumstances.
Conclusion
I would allow the appeal to the limited extent of varying the costs order as stated above but would otherwise dismiss the appeal.