The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd
[2019] VSCA 91
•24 April 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0091
| THE EDGE DEVELOPMENT GROUP PTY LTD (ACN 105 329 726) | Applicant |
| v | |
| JACK ROAD INVESTMENTS PTY LTD (ACN 112 898 763) as trustee for the Jack Road Investments Unit Trust | Respondent |
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| JUDGES: | KAYE, McLEISH and HARGRAVE JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 22 March 2019 |
| DATE OF JUDGMENT: | 24 April 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 91 |
| JUDGMENT APPEALED FROM: | [2018] VSC 326 (Riordan J) |
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CONTRACT – Formation – Sale of land – Letter of offer signed by parties – Parties agreed to adopt vendor’s standard contract of sale – 1 per cent of contract price payable on signing offer, balance of 20 per cent deposit on execution of contracts – Purchaser to have access to premises under licence on execution of contract – Terms confidential until execution of contract – No vendor’s statement provided – Condition in letter of offer that ‘offer is subject to the contract being executed’ – Whether offer subject to letter being signed or to future contract of sale – Whether signed letter of offer binding – Masters v Cameron (1954) 91 CLR 353, applied – Molonglo Group (Aust) Pty Ltd v Cahill [2018] VSCA 147, considered – Sale of Land Act 1962, s 32 – Relevance of post-signature conduct or negotiations – Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141, applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P G Cawthorn QC with Mr D V Aghion | SLF Lawyers |
| For the Respondent | Mr I G Waller QC with Mr S Hopper | HWL Ebsworth Lawyers |
KAYE JA
McLEISH JA
HARGRAVE JA:
On 2 and 3 November 2017 the parties to this application for leave to appeal signed a letter headed ‘Offer to Purchase’ in respect of land at 9-11 Charlton Avenue, Cheltenham (also known as Ambrose Avenue, Cheltenham). The parties are in dispute as to whether that letter was a binding contract for the sale of the property. A judge in the Trial Division held that it was not and refused an application for specific performance.[1] For the reasons that follow, the judge was correct to do so and leave to appeal should be refused.
[1]The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326 (‘Reasons’).
Background
The letter was signed on 2 November 2017 by The Edge Development Group Pty Ltd (‘The Edge’, described in the letter as ‘the Purchaser’) and on the following day by Jack Road Investments Pty Ltd (‘Jack Road’, described as ‘the Vendor’). Following the signing of the letter, a higher offer was made by a third party and Jack Road asked The Edge to provide its best and final offer. In response, The Edge lodged a caveat over the property and sought specific performance of the agreement it alleged was constituted by the signed letter.
It is necessary to describe further the relevant communications between the parties. In September and October 2017 Mr Matt Stammers on behalf of The Edge sent by email a number of offers to purchase the property to Mr James Davie, the real estate agent acting on behalf of Jack Road. None of those offers were signed by the parties. There was no evidence as to any discussions or other communications between the parties in the course of these email communications, but plainly the potential sale of the property was being discussed.
On 30 October 2017, Mr Davie sent to Mr Peter Ten Dam of Jack Road a draft ‘letter of offer’ which the two had evidently discussed. The letter was substantially in the form of the document that was subsequently signed. It took the form of a letter from Mr Davie to The Edge, headed ‘Offer to Purchase’. It set out the terms that Mr Davie ‘would envisage that a vendor’s standard contract of sale would incorporate’ and made provision for the signature of the parties.
On 2 November 2017 Mr Stammers sent Mr Davie what he described as ‘the signed Heads of Agreement’, as well as a ‘Confidentiality Agreement’. The Edge’s representative had signed the letter and inserted the date 2 November 2017, while adding two further handwritten conditions, numbered 5 and 6. Mr Davie then sent an email to Mr Ten Dam, as well as Mr Stammers, attaching the signed document and noting ‘the two amendments’. As well as those amendments, there had been alterations in the particulars of the certificate of title and quite extensive changes to the conditions set out in the earlier version. Again, these had presumably been the subject of some discussion. In addition, the words preceding the terms now stated that the vendor’s standard contract of sale ‘will be adopted and would incorporate the following details’.
The letter, which remained dated 30 October 2017, was on the letterhead of the vendor’s real estate agent. It was titled as an ‘Offer to Purchase’ and, after setting out the title details of the property, proceeded as follows:
Further to recent discussion please find below the proposed terms and conditions to purchase the above property.
The vendor’s standard contract of sale will be adopted and would incorporate the following details.
Vendor Jack Road Investments Pty Ltd as trustee for The Jack Road Investments Unit Trust (ABN 46 841 054 622)
Purchaser The Edge Development Group (ABN 61928 358 363) or TBA
Property 9-11 Charlton Avenue, Cheltenham (Vol 11598, Folio 133, being Lot B on PS713837R)
Price$6,000,000 plus GST if applicable
Deposit 20% of Purchase price being $1,200,000 to be paid on execution of the Contracts of Sale. (1% payable on signing the Offer to Purchase)
Settlement:14th June, 2018
Conditions:
1. The purchaser to have immediate access to Office/warehouse under a license upon payment of deposit and execution of the Contract of Sale provided that the purchaser will be responsible for the cost of any services or utilities used by the purchaser and the property is accessed at the purchaser’s risk.
2. The Purchaser agrees to release the full deposit being $1,200,000 at the expiry of 30 days from the exchange of contracts. The vendor agrees to provide to the purchaser prior to exchange a notice pursuant to section 27 of the Sale of Land Act 1962 (Vic) and the purchaser agrees to sign and return the notice to the vendor on exchange.
3. The purchaser agrees to be bound by the terms of the Confidentiality Deed Poll (provided with this letter) relating to the purchase of the property including all terms and conditions.
4. The offer is subject to the contract being executed.
5. The Confidentiality Agreement ceases upon execution of the contract of sale.
6. Once deposit is released, the Licence Agreement cannot be revoked under any circumstances unless settlement was not to occur.[2]
[2]As mentioned, conditions 5 and 6 were added in handwriting.
The letter concluded ‘[w]e hereby agree to the above terms and conditions’ with space for signatures ‘[f]or and on behalf of Vendor’ and ‘[f]or and behalf of Purchaser’. The letter was countersigned by Jack Road’s representative on 3 November 2017 and a copy was provided to Mr Davie. He sent the ‘executed Letter of Offer’ to Mr Stammers and Mr Ten Dam, noting that ‘occupation of the warehouse is subject to the license agreement and its terms’. This appears to have been a reference to a licence pursuant to which Jack Road had licensed a third party to use the land, it being necessary to pass over the licensed land in order to access the warehouse mentioned in the letter.
The Confidentiality Deed Poll referred to in the letter was also signed by The Edge’s representative on 2 November 2017. Under cl 1.1, confidential information was relevantly defined to include ‘the Transaction and any terms of the Transaction’ and ‘the terms of this deed’. The ‘Transaction’ was defined as ‘the proposed sale of the Property by the Vendor’ with the property being 9-11 Charlton Avenue, Cheltenham. Clause 2.1 of the deed obliged The Edge, in consideration of Jack Road disclosing the confidential information to it, to keep that information confidential.
Under cl 10 the deed would expire on the earlier of the date of a written agreement by the parties to end the deed or the date of the confidential information being generally available in the public domain. However, it was accepted by the parties at trial that the effect of condition 5 of the signed letter was that the confidentiality obligations would cease upon execution of a contract of sale.
On 6 November 2017 Mr Stammers emailed Mr Ten Dam stating ‘I’m around on Wednesday if you would like to catch up for a coffee to discuss way forward with Contract and Licence Agreement’. On the following day Mr Ten Dam proposed that they meet on Thursday instead (presumably Thursday 9 November 2017).
On 9 November 2017 Mr Davie issued a tax invoice to The Edge for the ‘1% Deposit payable on signing Offer to Purchase’. Also on 9 November Mr Ten Dam provided to Mr Stammers a copy of the third party licence agreement, and a variation of that licence. On 10 November 2017, The Edge’s representatives were given keys to the property and on 16 November 2017 The Edge paid $60,000, being the 1 per cent instalment of the 20 per cent deposit. On 17 November 2017, Mr Ten Dam provided Mr Stammers with copies of a number of certificates and documents in respect of the property of a kind that might be included in a vendor’s statement, including a register of titles search statement, a deed of restrictive covenant, planning and heritage certificates, a roads certificate, various council certificates, a water company information certificate, environmental certificates and a certificate as to land tax.
A telephone call was also organised for 17 November 2017. Mr Ten Dam sent an email to Jack Road’s solicitor stating:
Riad, could you provide a dial in number for us to have a con call at 4.00 pm. I think it would be helpful to explain the documents to the purchaser, any action items etc in anticipation of the final docs being issued early next week.
Mr Stammers was copied in to this email. He responded to Mr Ten Dam, asking ‘[w]hat is the hold up with the contract?’ and confirming that ‘[t]hat time is fine for me’.
On 20 November 2017, Mr Davie emailed Mr Stammers to ask for a marked-up plan outlining a variation that The Edge wanted to make to the third party licence. On 28 November 2017, Mr Ten Dam emailed Mr Davie and Mr Stammers stating:
Gents,
I attach a draft of the Variation to Licence to be agreed by Licensee – Mirvac Home Buildings (VIC) Pty Ltd. The Variation to Licence is required to facilitate access and the lease over the property.
This document will form [sic] of the sale documentation which remains subject to approval by Abacus.[3]
The evidence did not explain why it was considered necessary to vary the licence or whether there were any discussions about a lease.
[3]Abacus was a company holding shares in Jack Road.
On 30 November 2017 Mr Ten Dam emailed Mr Davie, stating:
Further to our telephone conversation last night, I confirm that the vendor has received an unsolicited offer from a third party for a purchase price that is substantially higher than the price offered by The Edge Development Group under the letter of offer dated 30 October 2017.
I confirm that the vendor now provides The Edge Development Group with the opportunity to provide its best and final offer by 5:30pm today for the vendor’s consideration.
Mr Davie forwarded the email to Mr Stammers.
On 1 December 2017 The Edge lodged a caveat over the property relying on a ‘Purchaser’s contract’ with the registered proprietor.
On 4 December 2017 the solicitors for Jack Road sent a letter to The Edge, claiming that the signed letter was not binding and therefore did not give rise to a caveatable interest. On 17 January 2018 Jack Road lodged an application seeking removal of the caveat. The Edge then commenced an application for specific performance of the signed letter and the transfer of the property.
Masters v Cameron
It is convenient to set out the relevant passages from the High Court’s judgment in Masters v Cameron.[4] First, the Court described three kinds of case:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. 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.[5]
[4](1954) 91 CLR 353.
[5]Ibid 360 (Dixon CJ, McTiernan and Kitto JJ) (citations partly omitted).
The Court went on to explain that, in each of the first two cases there is a binding contract:
[I]n the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ‘… as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed’: see also Sinclair, Scott & Co Ltd v Naughton [(1929) 43 CLR 310, at p 317]. A case of the second class came before this Court in Niesmann v Collingridge [(1921) 29 CLR 177] where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made ‘on the signing of the contract’. Rich and Starke JJ observed, at pp 184, 185 that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox CJ, held that there was no difficulty in decreeing specific performance of the agreement, ‘and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion’: see also O’Brien v Dawson [(1942) 66 CLR 18, at p 31].[6]
[6]Ibid 360–1 (citations partly omitted).
The Court explained that the third class was ‘fundamentally different’:
They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c of the Poor of Kingston-upon-Hull v Petch. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker [(1950) 80 CLR 304] or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v Miller. Lord O’Hagan said: ‘Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made’. And Lord Blackburn said: ‘parties often do enter into a negotiation meaning that, when they have (or think they have) come to one mind, the result shall be put into formal shape, and then (if on seeing the result in that shape they find they are agreed) signed and made binding; but that each party is to reserve to himself the right to retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say. Whenever, on the true construction of the evidence, this appears to be the intention, I think that the parties ought not to be held bound till they have executed the formal agreement’. So, as Parker J said in Von Hatzfeldt-Wildenburg v Alexander in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract.[7]
[7]Ibid 361–2 (citations partly omitted).
Next, the Court turned to the question how the contract is to be construed and, in particular, the effect of expressions such as ‘subject to contract’:
The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: Farmer v Honan [(1919) 26 CLR 183]. Nor is any formula, such as ‘subject to contract’, so intractable as always and necessarily to produce that result: cf Filby v Hounsell. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v Marchioness of Ely: ‘if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation’. Again, Sir George Jessel MR said in Crossley v Maycock: ‘if the agreement is made subject to certain conditions then specified or to be specified by the party making it, or by his solicitor, then, until those conditions are accepted, there is no final agreement such as the Court will enforce’.
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. Indeed, Lord Greene MR remarked during the argument in Eccles v Bryant and Pollock that when the expression ‘subject to contract’ was used he had never known a case in which it had been suggested, much less held, that this did not import that there was nothing binding till the exchange of parts of the formal contract was made. The effect of the early cases on the subject was stated by Sir George Jessel MR in Winn v Bull when he said in a passage which has become well-known: ‘It comes, therefore, to this, that where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says; it is subject to and is dependent upon a formal contract being prepared. When it is not expressly stated to be subject to a formal contract it becomes a question of construction, whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail’.[8]
[8]Ibid 362–3 (citations partly omitted).
In the earlier case of Sinclair, Scott & Co Ltd v Naughton,[9] the High Court recognised a class of case in which ‘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’.[10] This kind of case amounts to a variation upon the first of the categories set out in Masters v Cameron, the difference being that the parties contemplate agreeing upon future terms which will be added to the existing, binding, arrangement, rather than envisaging only the creation of a document to the same effect as the terms already agreed.[11] This has been recognised as amounting to a ‘fourth category’.[12] As with the first and second categories, a document falling within the fourth category is an immediately binding contract.
[9](1929) 43 CLR 310 (‘Sinclair, Scott’).
[10]Ibid 317 (Knox CJ, Rich and Dixon JJ).
[11]The Court in Masters v Cameron cited the relevant page of Sinclair, Scott in connection with its discussion of the first category.
[12]Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141 [103] (Osborn, Santamaria and Kaye JJA) (‘Nurisvan’); Molonglo Group (Aust) Pty Ltd v Cahill [2018] VSCA 147 [135] (Maxwell ACJ, Whelan and Kyrou JJA) (‘Molonglo’); see also G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA with Kirby P and Glass JA agreeing) (‘G R Securities’); Lucke v Cleary (2011) 111 SASR 134, 149–50 [57]–[58] (Stanley J with Gray and David JJ agreeing).
Primary judge’s reasons
The trial before the primary judge proceeded on the basis of an agreed chronology and the tendering of key documents and email communications. There was no oral evidence.
The primary judge described as ‘well established’ the authorities in relation to whether a preliminary agreement is binding where a subsequent formal contract is contemplated.[13] He set out the three categories established in Masters v Cameron, as well as the fourth category mentioned above. However, the judge stated that ‘the categorisation does not greatly contribute to the decision in the particular case’, because ‘the decisive issue is whether or not the parties intended to be contractually bound’.[14]
[13]Reasons [38].
[14]Ibid [42] quoting Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248 [26] (Giles JA with McColl JA and Young CJ in Eq agreeing); see also Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 617 [69] (Beazley P).
In applying the principles the judge held that the signed letter fell into the third, non-binding, category in Masters v Cameron. The judge held that ‘a reasonable person considering the text of the document construed in the context of the circumstances in which it came into being, would have believed that the parties did not intend to create binding relations until a formal contract of sale of land was executed’.[15] He reached that conclusion principally because of condition 4 of the letter, which stated that ‘[t]he offer is subject to the contract being executed’.[16] The judge rejected an argument by The Edge that condition 4 referred to the letter itself, rather than a future contract, becoming binding. He also rejected an argument that condition 4 had different wording, and therefore a different operation, from the ‘subject to contract’ or ‘subject to the preparation of a formal contract’ language considered in Masters v Cameron.
[15]Ibid [48].
[16]Ibid [49].
The judge had regard to the emphasis in the authorities on parties being able to rely upon a consistent meaning of ‘subject to contract’. He noted that:
counsel were unable to identify any authority where the words ‘subject to contract’ or similar, in the context of the construction of a single document, did not lead to the Court finding the parties had no intention to enter into a binding contract.[17]
[17]Ibid [56].
The judge held that, in addition to the effect of condition 4, it was significant that it was only after execution of a formal contract of sale that the 20 per cent deposit became payable and the licence agreement became irrevocable. Furthermore, the access licence was expressed to commence upon payment of the deposit and execution of the contract of sale. The judge also held that it was relevant that the confidentiality obligations ceased upon execution of the formal contract because there ‘is no apparent reason why the confidentiality obligations would cease, on the execution of the formal contract, unless it was intended that it was at that time that the agreement would become unconditional’.[18]
[18]Ibid [58(a)(vi)].
The judge regarded the fact that the contract was for the sale of real estate as reinforcing the conclusion that the signed letter fell into the third category. In that regard, the judge noted that Jack Road did not give The Edge a statement pursuant to s 32 of the Sale of Land Act 1962 before The Edge signed the letter. If the letter was a contract for the sale of land, there was a risk that Jack Road would have committed an offence under that Act and The Edge would have been permitted to rescind the contract under s 32K(3). The judge held that it would be surprising if a binding agreement was intended in these circumstances.[19] The proposed sale was a substantial contract and the failure to provide a vendor’s statement meant that basic information was unknown to the purchaser.[20] The judge held that although the standard contract of sale referred to in the letter was detailed, ‘it could be expected that significant issues could arise with respect to the proposed licence agreement, goods and services tax and the disclosures in the certificates required under s 32 of the Sale of Land Act 1962’.[21]
[19]Ibid [58(c)] citing Molonglo [2018] VSCA 147 [173] (Maxwell ACJ, Whelan and Kyrou JJA).
[20]Ibid [58(d)].
[21]Ibid.
In relation to the payment of a 1 per cent deposit upon signing the letter, the judge held that a deposit may not be strongly indicative of an intention to be bound. The obligation to provide a notice pursuant to s 27 of the Sale of Land Act was held to be of limited significance because the notice would only have effect after the exchange of contracts and payment of the full deposit. The judge regarded the confidentiality deed poll as consistent with an explanation that ‘if the negotiations do not result in a binding agreement, the parties may wish to maintain confidentiality’.[22]
[22]Ibid [59(c)].
The Edge had pointed to the fact that it was given keys and access to the office and warehouse as evidence of an intention to be bound by the letter. However, the
judge held that there was no evidence as to the basis upon which Jack Road provided the keys to The Edge prior to execution of a contract of sale.[23]
[23]Ibid [59(d)].
Proposed grounds of appeal
In its application for leave to appeal, The Edge set out the following proposed grounds of appeal:
1. The learned trial judge erred in finding at [48]ff of the trial reasons, that on the proper construction of the sale agreement and having regard to the surrounding circumstances in which it was made, the sale agreement was not enforceable because the parties did not intend to create binding relations until a formal contract of sale was executed - the ‘third category’ of Masters v Cameron (1954) 91 CLR 353.
2. The learned trial judge ought to have found that the parties intended to be immediately bound by the agreement while expecting to make a further contract is substitution for the agreement containing, by consent, additional terms – the ‘fourth category’ of Masters v Cameron.
3. The learned trial judge erred, at [59(d)] of the trial reasons, in discounting the significance of the admitted fact that after execution of the agreement and prior to the execution of any formal contract of sale, the respondent provided the applicant with a key and access to the property without placing any condition or restriction upon that access.
4. The learned trial judge ought to have found that, because of the giving of access, execution of a formal contract of sale was not a precondition to formation of a binding and enforceable contract; alternatively if execution of a contract of sale was a precondition, then it was waived.
In the course of the hearing, counsel for The Edge accepted that proposed grounds 3 and 4 should be understood as sub-grounds contingent on the success of proposed grounds 1 and 2. In substance, all the grounds were directed to the question whether the letter fell within the so-called ‘fourth category’ rather than, as the judge held, the third category in Masters v Cameron.
Submissions
Senior counsel for The Edge put his argument in two ways. First, he submitted that, properly construed, the reference in condition 4 to ‘the contract being executed’ was a reference to the provision made for signing of the letter itself. It was noted that the letter contained an ‘offer to purchase’ which was capable of acceptance and would become binding upon signature by both parties. Reliance was placed on the distinction in the letter’s language between the ‘contract’ in condition 4 and the references elsewhere to the ‘Contract of Sale’. It was contended that condition 4 ‘had no work to do’ and that, once the letter was signed, the condition ‘was spent’.
Secondly, it was submitted that, even if condition 4 referred to the signing of a future document, the effect was still to create an immediately binding contract, in the ‘fourth category’. It was submitted that all of the essential terms necessary to sell the land were contained in the letter of offer.[24] The identities of the vendor and purchaser were known, the price was agreed, the settlement date was also agreed, provision was made for release of deposits and the formal contract was to be the vendor’s standard contract of sale. Further, the letter stated unequivocally that the vendor’s standard contract of sale ‘will be adopted’. The Edge also pointed to the rights and obligations that arose upon signing the letter, emphasising the 1 per cent deposit, the confidentiality deed poll and the right of access to the land under the licence agreement.
[24]Counsel relied on Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 [31] (Keane JA with McMurdo P and Atkinson J agreeing).
In a departure from the agreed position at trial, The Edge submitted before us that the confidentiality deed poll would not cease upon execution of a contract of sale in any event, because cl 10 provided for expiry of the deed poll upon the later of written agreement between the parties and the entry into the public domain of the confidential information without breach of the agreement. As such, condition 5 of the letter of offer only satisfied one of the two requirements for expiry of the confidentiality regime.
It was submitted that subsequent conduct of the parties could be used as evidence as to whether there was an intention to be bound.[25] The execution of the confidentiality deed poll,[26] the payment of the initial deposit, the provision of a key, the granting of access to the property, and the negotiations with respect to a formal contract of sale, were all said to point towards an intention to be bound. In particular, it was submitted that provision of the key and access to the office and warehouse was only consistent with the existence of a binding contract. It was submitted that any presumption created by condition 4 was displaced by the subsequent conduct of the parties. Alternatively, if execution of a contract of sale was a precondition to formation of a contract, that had been waived by the provision of access.
[25]Reliance was placed on Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269 [37] (Tate and Beach JJA and Sifris AJA), Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 547–8 (Gleeson CJ with Hope and Mahoney JJA agreeing) and Nurisvan [2017] VSCA 141 [110]–[111] (Osborn, Santamaria and Kaye JJA).
[26]Strictly speaking this was not post-signature conduct. The deed poll was signed on 2 November 2017 and Jack Road countersigned the letter on 3 November.
As to the failure to provide a s 32 statement, The Edge contended that this requirement is for the benefit and protection of the purchaser, who could therefore waive it. The Edge pointed to this Court’s decision in Molonglo as demonstrating that a substantial real estate transaction could be binding despite the absence of a s 32 statement and the presence of a clause making the offer ‘conditional upon the purchaser’s solicitor’s approval of the final contract of sale and Section 32 Vendor Statement documentation’.[27]
[27][2018] VSCA 147 [164(c)].
In response, Jack Road submitted that condition 4 referred to execution of a formal contract of sale. It was noted that, where the offer of purchase was referred to in the text of the letter, the language of ‘signing’ was used, whereas where the contract of sale was referred to the word used was ‘execution’. Condition 4 used the latter term. It was also submitted that, even where all the essential terms of a contract are present, ‘subject to contract’ language can show that the parties ‘wish to reserve themselves a right to withdraw until the formal document is signed’.[28]
[28]Masters v Cameron (1954) 91 CLR 353, 361 (Dixon CJ, McTiernan and Kitto JJ).
Jack Road submitted that any attempt to read down condition 4 or to consider it ‘spent’ would be inconsistent with principles of contractual construction and that a court will strain against an interpretation rendering a clause nugatory. The fact that the letter stated that the ‘standard contract of sale will be adopted’ was said to support the conclusion that the contract referred to in condition 4 was the standard contract rather than the letter itself. Moreover, there would have been no point in providing for the deposit to be paid in two stages if both stages turned on the same event.
On that basis, the question became the effect of the ‘subject to contract’ language in condition 4. It was submitted that Masters v Cameron held 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’.[29] It was submitted that this presumption was stronger in the case of sales of land, especially where there had been no s 32 statement provided. It was pointed out that s 32L of the Sale of Land Act 1962 makes it an offence for a vendor to fail to give a purchaser such a statement before the purchaser signs the contract of sale, and s 32K permits the purchaser to rescind the contract in that circumstance.
[29]Ibid 363.
Jack Road contended that the substantial size of the property and the price both pointed against the possibility that the parties intended to be bound by a summary document, especially where significant matters were still to be negotiated, including in relation to the proposed licence agreement, GST and the s 32 disclosures. It was submitted that key terms of the licence were not clear, in particular any occupancy fee, repair obligations, rights relating to termination if settlement were to fail, and whether there was a need for a variation of the third party licence.
In addition, it was submitted that, if the letter of offer became binding upon signature by the parties, there would have been no point in providing for the release of the full deposit at a later stage, or for the confidentiality deed poll to apply after the letter was signed. Rather, Jack Road submitted that the confidentiality deed poll was consistent with ongoing negotiations and the right of Jack Road to withdraw in the event that a better offer was received. On this analysis, the purpose of the confidentiality deed poll was to prevent a third party bidder from becoming aware of the terms, and in particular the price, of the transaction. It was submitted that the plain intention of the parties was that the confidentiality regime came to an end upon execution of a contract of sale, despite the terms of cl 10 of the deed poll.
Jack Road submitted that evidence of subsequent conduct was not admissible on the question of formation. It relied upon Nurisvan, in which this Court stated that, where the purported contract is a single document, rather than a chain of correspondence:
it is difficult to understand how subsequent negotiations between the parties, and, in particular, their subsequent attitude to the Heads of Agreement, could be determinative of the question whether, at the time the document was executed, it was intended to be a binding contract between the parties.[30]
Counsel for Jack Road acknowledged that Nurisvan takes a more permissive approach to subsequent conduct, as distinct from negotiations.[31] It was submitted that, even if subsequent conduct could be taken into account, there was no evidence of the basis on which the key was provided and access was granted. The Edge bore the burden of proof on this issue. There was also no basis for The Edge’s waiver argument in respect of the granting of access.
[30][2017] VSCA 141 [110] (Osborn, Santamaria and Kaye JJA).
[31]Ibid [84].
Jack Road submitted that, if subsequent conduct could be considered, it pointed away from the letter being binding. Counsel noted that the email of 6 November from Mr Stammers to Mr Ten Dam asked whether he ‘would like to catch up for a coffee to discuss way forward with Contract and Licence Agreement’. Similarly, the correspondence regarding the finalisation of the licence agreement suggested that negotiations were still ongoing. In an email on 28 November 2017 there was reference to The Edge having a ‘lease over the property’ rather than a licence and to the variation to the third party licence as forming part ‘of the sale documentation which remains subject to approval by Abacus’. Counsel also relied on an email between Mr Ten Dam and Mr Davie on 15 November 2017 where ‘commercial rental’ for the property was discussed.
Analysis
It is convenient to set out the principles applicable to the resolution of this case, as recently summarised by this Court in Molonglo.[32] First, the meaning of contractual terms is to be ascertained objectively having regard to the language of the contract and, where appropriate, the surrounding circumstances known to the parties. In Electricity Generation Corporation v Woodside Energy Ltd,[33] French CJ, Hayne, Crennan and Kiefel JJ said:
[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.[34]
[32][2018] VSCA 147 [130]–[149] (Maxwell ACJ, Whelan and Kyrou JJA).
[33](2014) 251 CLR 640.
[34]Ibid 656–7 [35] (citations omitted).
Likewise, where the issue is not the meaning of a term but whether the parties intended that the document in which it appears should be a binding contract, the issue is ‘to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being’.[35] Again, it is relevant to take into account the commercial context and surrounding circumstances of the parties’ dealings.[36] The parties’ pre-contractual conduct is relevant and admissible on the issue of what each party by their words and conduct would have led a reasonable person in the position of the other party to believe.[37]
[35]Nurisvan [2017] VSCA 141 [110] (Osborn, Santamaria and Kaye JJA).
[36]Ibid [106]; G R Securities (1986) 40 NSWLR 631, 634 (McHugh JA with Kirby P and Glass JA agreeing).
[37]Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 97578, 14,563 (Kirby P); Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 616–7 [64]–[65] (Beazley P).
Finally, post-contractual conduct can also be admissible on the issue of whether the parties intended a document to be a binding contract, but only in limited circumstances, such as where the conduct constitutes an admission against interest.[38] Otherwise, the general position is that post-contractual conduct is not admissible for the purpose of construing a contract.[39] The Court in Nurisvan explained that it may be relevant to examine correspondence and communications between the parties, including subsequent to the document in question, to place that document in the context of the negotiations and determine whether the parties intended it to constitute the terms of a binding agreement.[40] Alternatively, even where there was no chain of correspondence providing context to the creation of the relevant document, subsequent negotiations and communications between the parties may be relevant to demonstrate the nature and extent of the terms that might be necessary for the conclusion of a binding agreement but which were not included in the document in question.[41]
[38]Molonglo [2018] VSCA 147 [132] (Maxwell ACJ, Whelan and Kyrou JJA); Nurisvan [2017] VSCA 141 [81]–[84] (Osborn, Santamaria and Kaye JJA); Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269 [37] (Tate and Beach JJA and Sifris AJA).
[39]Nurisvan [2017] VSCA 141 [77] (Osborn, Santamaria and Kaye JJA), citing FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350 (Brooking J); Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235; James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583, 603 (Lord Reid); Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 164 [26] (Heydon JA); Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582 [35] (Gummow, Hayne and Keifel JJ).
[40]Nurisvan [2017] VSCA 141 [110].
[41]Ibid [111], citing Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540, 547–8 (Gleeson CJ with Hope and Mahoney JJA agreeing).
Against that background, it is convenient to turn to the first argument relied upon by The Edge regarding the meaning of condition 4 of the letter of offer. That argument depended upon the use of the expression ‘the contract’, drawing a distinction between that term and ‘contract of sale’ which, with slight variation, was used to describe the instrument that was to be adopted and to fix the time for paying the balance of the deposit, the grant of access to the office and warehouse and the cessation of the confidentiality agreement. The submission was, in essence, that the reference in condition 4 was intended not to be a reference to the formal execution of contracts of sale but to the signing of the letter itself.
The argument has several difficulties. First, the letter does not uniformly use the language in the manner the argument assumes. In particular, condition 2 refers to the release of the deposit 30 days after ‘the exchange of contracts’. Yet the deposit was not due to be paid until ‘the execution of the Contracts of Sale’. It would not make sense to provide for release of the deposit 30 days after signing the letter, at which time the deposit might not yet have become payable by reason of the contract of sale not having been executed. In this respect, the letter appears to use the terms ‘contracts’ and ‘Contracts of Sale’ synonymously. At the same time, it refers to itself as ‘the Offer to Purchase’.
Secondly, on the other hand, the letter does appear to use ‘sign’ to refer to the offer of purchase, rather than ‘execute’ which is used several times when referring to the anticipated contractual document. Condition 4 does not provide that the offer is subject to the contract being ‘signed’. Taken with the point already made regarding the language of ‘contract’, it also does not provide that the offer is subject to ‘this Offer to Purchase’ being ‘signed’ by the parties.
Thirdly, aspects of the letter of offer would have no apparent commercial purpose if the argument were to be accepted. The parties would be bound to keep details of the transaction, including the price, confidential, even though Jack Road would be contractually required to honour the sale and therefore unable to accept a higher offer from a third party. In addition, there would be provision for the full deposit not to be paid until the execution of the envisaged contract of sale. In effect, there would be a binding sale of a property for $6,000,000 with a deposit of only $60,000. It is not clear what purpose would be served by providing for the cessation of confidentiality obligations, and payment of the overwhelming balance of the deposit, upon later execution of the contract of sale, other than to reflect the fact that it was at that point that the parties were to become bound.
Fourthly, the argument has the result that, immediately upon the signing of the letter by the parties, condition 4 is spent. Indeed, even without condition 4, given the provision for signatures indicating the agreement of the parties to ‘the above terms and conditions’, the letter was without legal effect until it was signed. Condition 4 would therefore not really be ‘spent’ upon the letter being signed. It would never have any work to do at all.
The better view is therefore that, when condition 4 refers to ‘the contract being executed’, it is referring to the contract described earlier in the document, namely the ‘vendor’s standard contract of sale’ which is to be adopted, on the execution of which the balance of the deposit will become payable and access to the office and warehouse will be provided. That construction reflects the text of condition 4, and is harmonious with other references to the contract.
The first argument advanced by The Edge must therefore be rejected. The next question is, given that ‘the contract’ in condition 4 is the envisaged contract of sale, what is the legal effect of the offer being ‘subject to the contract being executed’? This is of course the Masters v Cameron question.
While framed as an issue of categorisation, the parties accepted, consistent with the authorities including Masters v Cameron itself, that the question is ultimately one of interpretation of the letter of offer, to which the ordinary rules of construction apply. The starting point is the text of condition 4, in particular the expression ‘subject to the contract being executed’. Whether or not it is strictly correct to treat these words as giving rise to a presumption, their ‘natural meaning’ is that what has been agreed upon is the basis of a future contract and not a contract already constituted.[42]
[42]Masters v Cameron (1954) 91 CLR 353, 362–3 (Dixon CJ, McTiernan and Kitto JJ).
Read in context, the execution of the contract is significant not only because the condition in condition 4 is satisfied, but because of other matters for which the letter of offer provides. The balance of the deposit, a significant sum over $1 million, becomes payable. The Edge obtains immediate access to the office and warehouse under a licence. Time starts to run for the release of the deposit. The exchange of contracts is also the deadline for the provision of a notice under s 27 of the Sale of Land Act for that purpose. In addition, the confidentiality agreement is expressed to cease. Finally, once the deposit is released, the licence becomes irrevocable unless settlement does not occur.
These matters all suggest that the time of execution of the contract of sale was intended to mark a significant transition in the relations between the parties. A substantial sum of money was to change hands and physical access to part of the property was to be provided. The process of releasing the deposit was to be set in train. The parties were to become free to disclose the terms of the transaction to third parties. These matters are all consistent with the contractual terms becoming binding at that stage.
In addition, there were significant matters not addressed in the letter of offer. First, as is evident from the surrounding circumstances known to the parties, no vendor’s statement under s 32 of the Sale of Land Act had been provided to The Edge. There is no evidence as to the discussions between the parties preceding the signing of the letter of offer, and it is possible that some of the matters the subject of such a statement were disclosed during those discussions. However, it is apparent that no formal statement was provided. It can be inferred that potentially significant information about the subject land had not been disclosed to the purchaser. Moreover, this gave The Edge the right, if the letter of offer constituted a contract of sale, to rescind the contract under s 32K. It also rendered Jack Road liable to criminal sanction under s 32L. Without being in any way conclusive,[43] these matters tend to suggest that the parties did not intend the letter to constitute a contract of sale.
[43]See Molonglo [2018] VSCA 147 [169] (Maxwell ACJ, Whelan and Kyrou JJA).
Secondly, the terms of the licence to access the office and warehouse were not specified in the letter. Nothing was said about the relationship between that licence and the rights of the existing third party licensee, which might itself require variation. There was no mention of a licence fee or obligations in respect of repairs. The letter was not explicit as to what would happen if settlement did not proceed, except to say that the licence would then cease to be irrevocable. Nor did it provide for the position as to revocation before the deposit was released. At that point the licence was to become irrevocable pending settlement, so presumably it was envisaged that it was revocable before that point, but no terms were specified governing that possibility.
It may be accepted that the ‘fourth category’ by definition contemplates there being some outstanding matters of negotiation. But the importance and extent of the matters left unresolved will be important. A contract may also fit into the fourth category more readily if the matters still to be resolved are specified in the document said to be binding in advance of that resolution. That is because the parties can then be seen to have turned their minds especially to the matters that are yet to be agreed and to have isolated them for different treatment from those which have been agreed. Such a circumstance is more readily seen as involving a presently binding arrangement. So, in Molonglo, the contract was expressly made conditional on the provision of the s 32 statement. Here, in contrast, the scope of possible further negotiation is both significant and of unknown extent.
Taken together, these considerations lead to the conclusion that the parties did not intend the letter of offer to constitute a contract of sale, to be the subject of a later document but binding the parties in the meantime. Instead, the execution of a contract of sale was intended to mark the point at which the transaction became legally binding. That conclusion is unaffected by reading the letter of offer along with the confidentiality deed poll, to which the letter refers and which was signed at more or less the same time. As already mentioned, the confidentiality arrangement was consistent with the parties remaining in a state of negotiation, and its cessation upon execution of the contract of sale is one indication that the parties were thereafter bound by what they had agreed. The Edge’s submission in this Court that the terms of the confidentiality deed poll provided differently as to its cessation should be rejected. Clause 10 provided that the terms expired on the later of the parties’ agreement to that effect and the date of the confidential information entering the public domain. But there was nothing to stop the parties agreeing, as they did in the letter of offer, that the agreement would cease without the latter condition being specified. The handwritten amendment to that effect was plainly intended to have overriding operation.
Nothing in the post-signature conduct of the parties leads to any different result. The provision of keys and access to the office and warehouse before a formal contract had been executed was not explained in the evidence. The evidence therefore does not enable these matters to be treated as admissions on the part of Jack Road as to the legal effect or operation of the letter of offer. No other basis for having regard to those matters was suggested. Equally, the evidence does not allow the Court to evaluate The Edge’s argument that provision of the key and access amounted to a waiver of the terms of condition 4. Even if that argument had been pleaded and argued at trial, there was no evidentiary basis for its acceptance.
To the contrary, if evidence of post-signature conduct is taken into account, in the form of negotiations between the parties showing the context in which the letter of offer was signed and exemplifying matters left unresolved in the letter, the conclusion already reached as to the construction of condition 4 is reinforced. In particular, later communications serve to confirm that considerable information would be provided in the s 32 statement and that a variation to the third party licence was thought to be required, which in turn called for discussions between the parties, who were provided with a draft.
It should be added that the parties made other submissions as to similarities and differences between this and previous cases. We have briefly referred to Molonglo in that context, but have otherwise not found such comparisons especially helpful. Each case ultimately depends on the documents in question and other relevant evidence.[44]
[44]Ibid [171].
Conclusion
For these reasons, the primary judge was correct to refuse the relief sought by The Edge. In our view, this was a very clear case where ‘subject to contract’ had its ordinary meaning, which places the document in the third category of Masters v Cameron.
Leave to appeal should be refused.
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