Teviot Downs Estate Pty Ltd v MTAA Superannuation Fund (Flagstone Creek and Spring Mountain Park) Property Pty Limited
[2003] QSC 403
•5 December 2003
SUPREME COURT OF QUEENSLAND
CITATION:
Teviot Downs Estate Pty Ltd & Anor v MTAA Superannuation Fund (Flagstone Creek and Spring Mountain Park) Property Pty Limited [2003] QSC 403
PARTIES:
TEVIOT DOWNS ESTATE PTY LTD
ACN 091 379 207
(first applicant)
ROBPHIL PTY LIMITED ACN 105 282 353
(second applicant)
v
MTAA SUPRANNUATION FUND (FLAGSTONE CREEK AND SPRING MOUNTAIN PARK) PROPERTY PTY LIMITED ACN 082 445 663
(respondent)FILE NO:
S9778 of 2003
DIVISION:
Trial Division
PROCEEDING:
Originating application
DELIVERED ON:
5 December 2003
DELIVERED AT:
Brisbane
HEARING DATE:
2 December 2003
JUDGE:
Mullins J
ORDER:
Application be dismissed
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – MATTERS NOT GIVING RISE TO BINDING CONTRACT – SALE OF LAND – where purchaser of land seeks order for specific performance against vendor in respect of an agreement for the sale of land alleged to be contained in or evidenced by writing – where purchaser made offer by way of letter for the purchase of the land that was accepted by vendor - whether the parties concluded a legally binding contract – whether solicitors for vendor had any express or implied authority to contract on behalf of the vendor – whether the land to be sold was precisely identified – no binding contract
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Marek v Australasian Conference Association Pty Ltd [1994] 2 QdR 521
Masters v Cameron (1954) 91 CLR 353
Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310COUNSEL:
PA Keane QC and JH Dalton for the applicants
SL Doyle SC and BT Porter for the respondentSOLICITORS:
Blake Dawson Waldron for the applicants
Allens Arthur Robinson for the respondent
MULLINS J: The first applicant or, alternatively, the second applicant seeks an order for specific performance against the respondent as vendor in respect of an agreement for the sale of land alleged to be contained in or evidenced by writing and entered into on or about 29 August 2003.
Relevant facts
The respondent owns certain land in the Beaudesert Shire known as Spring Mountain. The respondent is a wholly owned subsidiary of Motor Trades Association of Australia Superannuation Fund Pty Ltd (“MTAA Super”) which is the trustee of the MTAA Industry Superannuation Fund for which secretariat services are provided by Motor Trades Association of Australia Limited (“MTAA”). Mr George Kochel is the Executive Officer (Property & Insurance) of MTAA. Mr Michael Delaney is the executive chairman, a director and the secretary of the respondent, as well as being the principal executive officer, a director and the secretary of MTAA Super.
Mr Robert Phillips, a director of the first applicant, sent a letter dated 22 August 2003 on the letterhead of the first applicant to Mr Kochel of the MTAA in the following terms:
“Thank you for meeting with me earlier this week and conveying your Board’s view that it would put to the Trustees an offer for Spring Mountain at $11,000,000.
1.We offer to purchase the en globo land at Spring Mountain for $11,000,000 plus GST calculated under the margin scheme.
2.Our offer is subject to 30 day exclusive due diligence period (to start upon the provision of vendor’s information) during which time access will be required to all available information and to the site. Written authority to obtain information from Beaudesert Shire Council will also be required.
3.Purchaser will be a special purpose vehicle owned and controlled by David, Richard and Justin Scheinberg and Robert Phillips and with appropriate personal guarantees. Purchaser will furnish bank and trade references if required.
4.The property to be purchased is all of the undeveloped land held at Spring Mountain, plans, data, brand names, trade marks, intellectual property, approvals, consultants’ reports valuations, estate signage agreements, promotional material, and any bonds or contribution credits with BSC.
5.The agent (Alex McWilliam) is retained and paid by the purchaser.
6.Due to forthcoming sale of two other properties that we would wish to purchase should Spring Mountain be unavailable, this offer is firm until 10 am on Friday 29 August after which it may be withdrawn at any time without notice.
7.Deposit of 1% payable upon contract followed by a further 9% to be lodged when the contract becomes unconditional upon due diligence. Balance to be settled in 45 days thereafter. We will forward you a signed contract (with guarantees) early next week as a token of our commitment to purchase. This contract is capable of acceptance by MTAA, alternatively, we are prepared to negotiate in good faith the terms of the contract or use the Association’s solicitor’s contract.”
By letter dated 25 August 2003 on the letterhead of the first applicant and signed by Mr Phillips to Mr Kochel of the MTAA, a draft contract for the purchase of the en globo land at Spring Hill in the form of the Contract – Commercial Lands and Buildings (second edition GST reprint) adopted by the Real Estate Institute of Queensland and approved by the Queensland Law Society was submitted which showed the respondent as the vendor of the land and the second applicant as the purchaser. Mr Phillips is the sole director and the secretary for the second applicant. The letter stated:
“Please find enclosed our contract for the purchase of the en globo land at Spring Mountain for $11m. This follows on from the offer which we submitted last week.
I understand that it is reasonably common practice in Queensland for purchasers to prepare contracts and we submit this contract as a token of our preparedness to be bound to purchase. This is shown by the terms of the personal guarantees given by myself and David and Richard Scheinberg. We have tried to make the contract as uncontroversial as possible but we are willing to negotiate the terms of this contract or your solicitor’s contract as required. We have not enclosed our cheque for the initial deposit as we do not know who the stakeholder is – presumably it will be your solicitor. We will forward it as soon as we know.
I reiterate that our offer to purchase is open for acceptance until 10 am on Friday 29 August at which point it may be withdrawn depending upon our success in acquiring one of two other properties.
Please call me if you have any issues concerning our offer or the contract.”
After receiving the letter of offer dated 22 August 2003, Mr Kochel sought advice from accountants PricewaterhouseCoopers regarding potential GST implications of selling the property. In his affidavit filed by leave on 2 December 2003 Mr Kochel swears to being rung by Mr Phillips a number of times on 27 and 28 August 2003 and having a conversation with Mr Phillips on either 27 or 28 August 2003 in which Mr Kochel advised the substance of the advice received from the accountants that the vendor could not rely on the existing June 2000 valuation which it had and would need to have a new valuation as at July 2000. The June 2000 valuation for the en globo land at Spring Mountain was for the sum of $4.5m. Mr Kochel swears to stating to Mr Phillips “I can’t tell you what the new valuation is or what the GST amount will be, as I do not have the re-evaluation.”
Mr Phillips sent an email to Mr Kochel dated 28 August 2003 in the following terms:
“I just wanted to put on record that we accept that we will pay the purchase price as well as the amount of GST that you are required too (sic) pay based on your June 2000 valuation of approx. $4.5m. The all up figure is around $11.6m.”
At the hearing of the application Mr Phillips was required for cross-examination by the respondent. Mr Phillips in the substantive affidavit which he swore in support of the originating application that was filed on 30 October 2003 had not referred to the telephone conversation with Mr Kochel on 27 or 28 August 2003 or his email sent on 28 August 2003.
In his affidavit filed on 20 November 2003, Mr Phillips did make reference to that telephone conversation and email in the following terms:
“5.During the same telephone conversation referred to in paragraph 3 above, Mr George Kochel of MTAA asked me to confirm that the purchaser would pay GST, based on the MTAA’s June 2000 valuation, in addition to the offer price of $11,000,000.00, and I did so confirm.
6.On 28 August 2003 I sent an e-mail to Mr George Kochel of MTAA confirming that in addition to the purchase price of $11,000,000.00, the purchaser would pay the amount of GST MTAA was required to pay based on the MTAA’s June 2000 valuation of approximately $4,500,000.00, resulting in a total purchase price of approximately $11,600,000.00.”
In the oral evidence given by Mr Phillips he stated that “It had been our offer to use our valuation and that was what – the agreement was whether we should be using your valuation or our valuation” and he acknowledged that during the conversation with Mr Kochel he conceded that the purchaser would use the vendor’s valuation for the GST calculation, but that he “had no understanding that they were commissioning a new one”. The email which Mr Phillips sent on 28 August 20003 supports his evidence as to what his understanding was of that conversation, but it does not mean that his understanding was correct.
Mr Kochel was not required for cross-examination. In view of the fact that Mr Kochel had sought the accountants’ advice on the GST implications of the sale of the Spring Mountain land by the respondent, it is likely that he would have been accurate in conveying that advice to Mr Phillips to the extent that it affected the proposed purchase. There was no challenge to the correctness of Mr Kochel’s understanding of the advice of the accountants.
Neither party submitted that the discrepancy in the evidence of Mr Kochel and Mr Phillips on the content of the conversation about the GST implications of the sale required the dispute between the parties to proceed to trial.
Mr Kochel did not respond to Mr Phillips’ email to correct the reference to the June 2000 valuation, in the light of Mr Kochel having conveyed to Mr Phillips that a new valuation as at July 2000 would need to be obtained. The substance of the email from Mr Phillips, however, is that the purchaser will pay the purchase price as well as the amount of GST. Although Mr Phillips then went on to state that “The all up figure is around $11.6m”, that does not appear to be the operative part of the email which confirms what the offer was in the letter of 22 August 2003 which was to pay the purchase price of $11m plus GST calculated under the margin scheme. There was no evidence about whether a valuation of the land as at 1 July 2000 would be much different to the existing June 2000 valuation.
By facsimile dated 29 August 2003 on MTAA Super letterhead and sent to Mr Phillips of “Teviot Downs” Mr Delaney advised as follows:
“As discussed with George Kochel of my Office, I write now to confirm that the MTAA Superannuation Fund has considered your letter of 22 August for the purchase of Spring Mountain Estate. In the result the Trustee has agreed to accept your offer of $11 million plus GST on the terms that you have proposed.
In that connection, I would be grateful if you could provide me with a list of the due diligence information that you require. Upon your receipt of the information MTAA will grant a 30 day exclusive due diligence period.
If you have any queries, I would be grateful if you could in the first instance contact the Fund’s Solicitor, Mr Robert Gardini and his contact phone number is (02) 9360 4050.”
It is not apparent what was intended by the reference in this letter to the discussion with Mr Kochel. The inference from the second paragraph of the letter is that the “30 day exclusive due diligence period” was to be granted, irrespective of the process of negotiating a formal contract. This paragraph also appears to have been responsive directly to numbered paragraph 2 of the letter of offer dated 22 August 2003 which made the offer conditional upon a “30 day exclusive due diligence period”.
Mr Phillips sent an email to Mr Kochel at 3.16pm on 29 August 2003 which included the following:
“This is further to Michael Delaney’s letter of today accepting our offer for the en globo land at Spring Mountain and your telephone call of around 10 am to me conveying this. I appreciated that you called me when you did and I thank you for your ongoing co-operation.
I will arrange for our solicitor to get to your solicitor, hopefully today, a list of the due diligence information that is needed from MTAA. I understand that our respective solicitors will now move finalise the contract. As you will appreciate, we need to have the contract signed so that we can commit to the expenditure of the due diligence process. I would like for this to be resolved on Monday and Tuesday of next week so that I can arrange for our due diligence team to meet on Wednesday when I will be in Brisbane next and then I can arrange to have the process started.”
The solicitor for the second applicant sent a letter to the New South Wales solicitor of the respondent on 29 August 2003 confirming that the second applicant wished to “proceed to execution of a contract as soon as possible to enable the due diligence process to proceed” and seeking comments in relation to the draft contract. The letter stated:
“I confirm that it has already been agreed between the parties that the margin scheme clause will be amended to provide that the purchaser must accept the Vendor’s valuation of the property as at 1 July 2000”.
The letter also set out a list of information which was required to commence investigation of the priority issues in relation to due diligence.
On 4 September 2003 the second applicant’s solicitors forwarded on behalf of the second applicant a cheque drawn on the first applicant’s account for the initial deposit of $110,000. The Brisbane solicitors of the respondent on 5 September 2003 forwarded a confidentiality agreement for signature by the second applicant relating to the provision of the due diligence information. That was signed by the second applicant by 11 September 2003. Comments on the draft contract were made by the solicitors for the respondent on 29 September 2003. The description of the property being sold under the contract was altered to reflect the fact that registered allotments had been included in the draft contract by the second applicant that were not part of the en globo parcels. That letter alerted the second applicant to the fact that the respondent had received another offer from an interested party and had amended the clause dealing with due diligence period to provide for it to expire on 3 October 2003. The solicitor for the second applicant advised the solicitor for the respondent on 29 September 2003 that the contract, incorporating the respondent’s amendments, was being signed by the second applicant and the guarantors and would be provided to the respondent’s solicitors by 30 September 2003. That was done together with the deposit cheque of $990,000. On 3 October 2003 the second applicant’s solicitors sent a letter to the respondent’s solicitors by facsimile and email advising that the second respondent had completed its due diligence investigations and was satisfied and that the agreement was therefore unconditional.
By letter dated 3 October 2003 the solicitor for the respondent advised that “the Trustee did not approve the proposed sale of englobo land” at the Spring Mountain Estate to the second applicant.
Issues
The main issue that was raised by the application was whether a legally binding contract between either the first or the second applicant and the respondent came into effect on 29 August 2003 when the first applicant received the facsimile of that date from MTAA Super.
Although the second applicant sought to pursue an alternative claim for relief for specific performance on the basis that an agreement for the sale of the subject land was entered into on or about 29 September 2003 when the respondent’s solicitors returned to the second applicant’s solicitors the amended contract, there is no basis for concluding that the solicitor for the respondent had any express or implied authority to contract on behalf of the respondent. In fact, the evidence of that solicitor was that he was acting as town agent for the respondent’s New South Wales solicitors and his express instructions were to refer all matters to those solicitors. The second applicant therefore cannot succeed in respect of the alleged agreement of 29 September 2003.
In relation to the agreement alleged to have been entered into on 29 August 2003, another issue which arose was whether the land to be sold was precisely identified. The respondent relied on the fact that the description of the land in the draft contract submitted on 25 August 2003 on behalf of the second applicant was amended by the respondent. That amendment, however, was due to the need to make the description of the land in the contract accord with what the parties appeared to be ad idem about which was that it was the “en globo land at Spring Mountain” owned by the respondent that was for sale.
Relevant law
The applicants relied on the well known formulation in Masters v Cameron (1954) 91 CLR 353, 360:
“Where parties who have been 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.”
Apart from those three classes of case, it is accepted that there is a fourth class so recognised in Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310, 317:
“…one in which the parties were content to be bound immediately and exclusively by the terms they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.”
See Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628.
In determining which of the four classes the agreement between the parties falls into, a discerning feature is whether the parties intended to be legally bound by the agreement. The following passage from the judgment of McHugh JA (with whom the other members of the court agreed) in G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 is instructive:
“An agreement for the sale of property at a specified price does not necessarily indicate a legally binding contract. The magnitude subject matter, or complexities of the transaction may indicate that the agreement was a limited one no intended to have legal effect: Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 316-317. 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 through 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. The vendor contends that the proper conclusion to be drawn from the sale of land, buildings and equipment which constitute a hospital containing sixty-two beds is that the sale was to be the subject of a form contract drawn up by lawyers.
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 a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.
Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that “the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”: Sinclair, Scott & Co Ltd v Naughton (at 317).”
The relevance of the nature of the subject matter of the agreement was also emphasised in Marek v Australasian Conference Association Pty Ltd [1994] 2 QdR 521, 527-528.
Decision
Matters in favour of finding that the parties had reached a binding agreement on 29 August 2003 include:
(a) the letter of offer dated 22 August 2003 was framed in order to seek an acceptance;
(b) it was sent by the first applicant on behalf of the company which it described would be nominated as the purchaser;
(c) although the identity of the second applicant as the purchaser was not specifically disclosed in the letter dated 22 August 2003, it was disclosed in the draft contract sent on 25 August 2003 of which the respondent had knowledge, before sending the letter dated 29 August 2003;
(d) the draft contract sent on 25 August 2003 did not displace the offer of 22 August 2003;
(e) the first and/or second applicants wished to have a confirmation on whether or not the offer would be accepted by 10 am on 29 August 2003, so that the applicants could determine whether they should pursue the purchase of other property;
(f) the concern of the respondent about the GST implications of the sale of the land was clarified by the respondent, before sending the letter of 29 August 2003, so that the offer could be accepted in the terms it was made;
(g) the express acceptance in the letter of 29 August 2003 was of the offer made in the letter of 22 August 2003;
(h) it can be inferred that the letter of 22 August 2003, though on MTAA Super letterhead was sent on behalf of the owners of the subject land;
(i) that the parties contemplated a subsequent contract did not prevent the exchange of correspondence on 22 and 29 August 2003 from constituting a legally binding contract.
The applicants submitted that the acceptance by the respondent of the offer made on behalf of the second applicant fell either within the second class identified in Masters v Cameron or the so called fourth class.
Although there is a symmetry about the offer made on 22 August 2003 and the acceptance in accordance with its terms on 29 August 2003, it is not likely when the proposed transaction was for no less than $11m that the parties intended to become bound upon the communication of the acceptance on 29 August 2003 to a contract for the purchase by the second appellant of the land, subject to that agreement being replaced by the formal contract when the terms were resolved. The exchange of this correspondence had to be viewed in the context of being a significant transaction.
Apart from the size and nature of the transaction, there are other indicia that the parties did not intend to be legally bound upon the sending of the letter of 29 August 2003:
(a) the lack of identification in numbered paragraph 4 of the letter of 22 August 2003 of the ancillary property to be sold with the land;
(b) the letter of 22 August 2003 did not specify that the applicants required a binding acceptance of the offer before 10am on 29 August 2003, but merely indicated that the offer could be withdrawn after that time;
(c) it was contemplated that signing of the draft contract to be submitted on behalf of the purchaser would be a method of acceptance of the offer;
(d) the forwarding of the draft contract on 25 August 2003 was described as “a token of the preparedness to be bound to purchase” which was unnecessary if the offer was intended to be capable of producing a legally binding contract upon acceptance;
(e) the eagerness with which the applicants sought to have a formal contract executed;
(f) the provision of the guarantees from the proposed guarantors was an important part of the offer and it is unlikely that the parties intended to be bound to the transaction without those guarantees being provided;
(g) the extent of the matters to be covered in the formal contract document.
In the context of the transaction of such magnitude and some complexity and in the light of the actual communications between the parties from 22 to 29 August 2003, the weight and balance of factors for and against whether the parties intended to be bound to a contract as a result of the communication of the acceptance of the offer by the letter of 29 August 2003 is against the creation of a legally binding contract between the second applicant and the respondent on 29 August 2003.
Order
It follows that the order that should be made is that the application be dismissed.
I will hear submissions on costs.
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