The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd
[2018] VSC 326
•19 June 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2018 00032
| THE EDGE DEVELOPMENT GROUP PTY LTD (ACN 105 329 726) | Plaintiff |
| v | |
| JACK ROAD INVESTMENTS PTY LTD (ACN 112 898 763) as trustee for the Jack Road Investments Unit Trust | Defendant |
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JUDGE: | RIORDAN J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 6 June 2018 |
DATE OF JUDGMENT: | 19 June 2018 |
CASE MAY BE CITED AS: | The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VSC 326 |
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CONTRACT – Formation – Intention to create legal relations for sale of land – Masters v Cameron (1954) 91 CLR 353 – Informal agreement stated ‘The offer is subject to the contract being executed’ – Where plaintiff purchaser sought specific performance of the informal agreement – Contemplation of future ‘formal’ contract of sale of land – Principles to be applied when the issue is whether parties intended to be bound by a single document – Vendor later contracts to sell land to third party.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Aghion | SLF Lawyers |
| For the Defendant | I Waller QC with S Hopper | HWL Ebsworth Lawyers |
HIS HONOUR:
By originating process filed 16 February 2018, the plaintiff (‘The Edge’) seeks specific performance of an agreement with the defendant (‘Jack Road’) for the sale of land at 9-11 Charlton Avenue Cheltenham (also known as Ambrose Avenue, Cheltenham), being the land described in Certificate of Title volume 11598 folio 133 (‘the Land’).
The relevant facts are not contested; but Jack Road contends that, despite its acceptance of The Edge’s offer to purchase the Land, there was no intention to enter into binding legal relations until execution of a formal contract. Such a formal contract was, in the event, never executed; and I find that, in the circumstances, no binding legal relations arose between the parties for the sale of the Land to The Edge.
Background
The certificate of title for the Land was created by the registration of plan of subdivision PS 713837R on 15 September 2015.
The Land is situated on the western side of Ambrose Avenue, Cheltenham and the improvements are:
(a) a substantial office/warehouse constructed on the northern part of the Land (‘the office/warehouse’);
(b) a hardstand with some temporary site sheds on the southern part of the Land (‘the hardstand’); and
(c) a driveway on the eastern side of the office/warehouse (‘the driveway’).
By an undated Licence to Occupy, Jack Road granted a non-exclusive licence to Mirvac Home Builders (Vic) Pty Ltd (‘Mirvac’) to occupy part of the hardstand, for the purpose of Mirvac using the temporary site sheds for the storage of construction materials and waste. The term of the licence was from 10 August 2015 until terminated by either party on one month’s notice.
By a letter from Mirvac to Jack Road, date stamped 23 May 2016 and signed by both parties, the Mirvac licenced area was increased by extending the area of the hardstand and incorporating the driveway.
By email of 4 September 2017 to James Davie of DBRE Property (Jack Road’s real estate agents), Matt Stammers of The Edge attached the first letter of offer to purchase the Land on the following terms:
Purchase Price: $5,280,000
Deposit:10% being $528,000 payable on exchange of sale contract. Full deposit to be released to vendor at the expiry of 30 days from exchange of contract
Settlement: 90 days from exchange of contract
By email of 13 September 2017 to Mr Davie of DBRE and another, Mr Stammers of The Edge attached the second letter of offer to purchase the Land on the following terms:
Purchase Price: $6,000,000
Deposit:20% being $1,200,000 payable on exchange of sale contract. Full deposit to be released to vendor at the expiry of 30 days from exchange of contract
Settlement: 2 Years from exchange of contract
Special Condition: Purchaser to have immediate access to Office/Warehouse under License Agreement upon payment of deposit
By email of 4 October 2017 to Mr Davie of DBRE, Mr Stammers attached the third letter of offer to purchase the Land on relevantly the same terms as the second letter of offer except the settlement date was reduced to 12 months from exchange of contract.
By email of 23 October 2017 to Mr Davie of DBRE, Mr Stammers of The Edge attached the fourth letter of offer to purchase the Land on relevantly the same terms as the third letter of offer. The email stated:
As per our conversation today, we have had our own advice on the environmental site assessment dated October 2015 on the abovementioned property. Some of the outcomes/commentary of this report which we are now aware of is:
•Further investigation would be required to satisfy any audit requirements (as part the Environmental Overlay), we would need to allow $200k and 6 months for completion of an audit;
•Former decommissioned fuel storage infrastructure - to date no information on contamination conditions in this area;
• Asbestos type, extents, quantity etc;
•Potential soil gas issues (landfill gases) from breakdown of linseed oil impacted soils.
Given these above issues, we have amended our last offer, to now be unconditional.[1]
It does include an expiry of acceptance to be this Friday 27th October 2018, and we also confirm that this is our final offer on this property.
Please give me a call should you have any questions.
[1]Emphasis added. How the ‘last offer’ was conditional was not explained on the evidence.
By letter dated 30 October 2017 to Mr Ciernan Kayes of The Edge, Mr Davie of DBRE proposed the following terms and conditions for the sale of the Land – with provision at the foot of the letter for each party to sign under the words ‘We hereby agree to the above terms and conditions’ (‘the execution clause’):[2]
[2]As between Mr Davie of DBRE and Mr Ten Dam of Jack Road, the letter had undergone several rounds of revision in which new conditions were added. However, no evidence was led which suggested that these earlier drafts were ever provided to The Edge in the course of negotiating the purchase, nor was it contended that they had been.
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 11525, Folio 128, 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.
By email of 2 November 2017 at 1.05 pm to Mr Davie of DBRE and another, Mr Stammers of The Edge stated:
As agreed, attached is the signed Heads of Agreement and Confidentiality Agreement.
Can you also let me know when we will get some form of clarity or notice on whether GST is applicable or not on this purchase.
Also can we get a copy of the Mirvac License Agreement.
The attached letter dated 30 October 2017, with the execution clause signed on behalf of The Edge, included the following two additional handwritten conditions:
5.The Confidentiality Agreement ceases upon execution of a contract of sale.
6.Once deposit is released, the Licence Agreement cannot be revoked under any circumstances unless settlement was not to occur.
By email of 2 November 2017 at 2.32 pm to Peter Ten Dam of Jack Road and Mr Stammers of The Edge, Mr Davie of DBRE stated:
Please find attached LoO for the property.
Also note the two amendments to the letter.
As I am away on conference tomorrow please send the executed LoO to Matt directly.
Upon acceptance and receipt of the LoO I will send Matt an invoice for the 1% payable.
If you have any questions please call me.
By email of 2 November 2017 at 4.01 pm to Mr Stammers of The Edge and Mr Ten Dam of Jack Road, Mr Davie of DBRE requested that Mr Stammers fill out the Confidentiality Deed Poll and return it, which Mr Stammers did.
Under The Confidentiality Deed Poll, The Edge agreed, in summary, that it would not disclose confidential information including the terms of the proposed sale of the Land until the later of a written agreement to end the deed or the confidential information becoming generally available in the public domain. However, it was accepted by the parties that the effect of condition 5 was that the confidentiality obligations would cease upon execution of the contract of sale.
By email of 3 November 2017 to Mr Stammers of The Edge and Mr Ten Dam of Jack Road, Mr Davie of DBRE attached the letter dated 30 October 2017, with the execution clause now signed on behalf of Jack Road. The covering email also said:
… as discussed please note that occupation of the warehouse is subject to the license agreement and its terms.
The final form of the letter dated 30 October 2017 as signed by the parties (‘the signed letter’) was 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 11525, Folio 128, 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.
On Monday 6 November 2017 at 9.28 am to Mr Ten Dam of Jack Road, Mr Stammers of The Edge said:
I’m around on Wednesday if you would like to catch up for a coffee to discuss way forward with Contract and License Agreement.
By reply email dated Tuesday 7 November 2017 at 7.07 pm to Mr Stammers, Mr Ten Dam deferred the proposed meeting to 9 November 2017. No evidence was led as to whether that meeting ultimately took place or, if it did, what matters were discussed at the meeting.
By email of 9 November 2017 to Mr Stammers of The Edge, Mr Davie of DBRE attached an invoice to The Edge for ‘1% Deposit payable on signing Offer to Purchase’.
By email of 9 November 2017 to Mr Stammers of The Edge and another, Mr Ten Dam of Jack Road attached a copy of the original licence agreement and the variation with Mirvac.
On 10 November 2017, Jack Road gave The Edge the keys to the premises.
On 16 November 2017, The Edge paid the 1% deposit of $60,000.
By email of 17 November 2017 to Mr Stammers of The Edge, Mr Ten Dam of Jack Road attached the following certificates with respect to the Land to be included in the Vendor’s Statement being:
(a) A register search statement.
(b) Application to record covenant under s 88(1) of the Transfer of Land Act 1958.
(c)Deed of restrictive covenant between Mirvac and Jack Road in which Jack Road covenanted not to use the Land for various prohibited uses.
(d)A caveat by United Energy Distribution Pty Ltd with respect to a lease dated 9 February 2016 with respect to the lease and easements for a substation site.
(e)An application by a Responsible Authority for the making of a Recording of an Agreement under s 181 of the Planning and Environment Act 1987 with respect to an agreement under s 173 of the Planning and Environment Act 1987.
(f)Agreement under s 173 of the Planning and Environment Act 1987 between Bayside City Council and Jack Road. The agreement relates to the provision of public open space of the development of the Land.
(g)Premium planning and heritage certificate dated 3 November 2017.
(h)Roads certificate dated 3 November 2017.
(i)Land information certificate dated 13 November 2017.
(j)Information statement from Southeast Water under s 158 of the Water Act 1989.
(k)Land tax clearance certificate from the State Revenue Office dated 3 November 2017.
(l)Building certificate from the Bayside City Council dated 10 November 2017 relating to details of any permit or certificate of inspection issued in the previous 10 years.
(m)Letter from Bayside City Council dated 3 November 2017 with respect to flood prone land, overland flow land, bushfire prone land, termite area and alpine area.
(n)Certificate pursuant to s 58 of the Heritage Act 2017 from Heritage Victoria dated 2 November 2017.
(o)EPA priority sites register extract from EPA Victoria dated 2 November 2017.
(p)Designated bushfire prone areas dated 16 November 2017 from the Department of Environment, Land, Water and Planning.
By email of 17 November 2017 at 8.13 am to Mr Ten Dam of Jack Road, Mr Stammers of The Edge thanked him for the information and asked what time suited for a telephone call.
By email of 17 November 2017 at 8.50 am to Jack Road’s solicitors copied to Mr Stammers of The Edge, Mr Ten Dam of Jack Road stated:
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.
By email of 17 November 2017 at 9.26 am to Mr Ten Dam of Jack Road, Mr Stammers of The Edge asked ‘What is the hold up with the contract?’
By email of 20 November 2017 to Mr Stammers of The Edge, Mr Davie of DBRE asked for a marked up plan to show the variation that The Edge wanted to make to the plan attached to the Mirvac licence.
By email of 28 November 2017 to Mr Davie of DBRE and Mr Stammers of The Edge, Mr Ten Dam of Jack Road stated:
Gents,
I attach 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.
The proposed variation to the licence referred to a Revised Licence Area, which provided access from Ambrose Avenue across the driveway and to the northern end of the hardstand. It also refers to the fact that Jack Road ‘has granted (or will grant) a lease of the Land. The evidence did not explain why it was considered necessary to vary Mirvac’s non-exclusive licence or whether there were any discussions about a lease.
By email of 30 November 2017 at 11.05 am to Mr Davie of DBRE, Mr Ten Dam of Jack Road stated:
Dear James
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.
By email of 30 November 2017 at 11.09 am to Mr Stammers of The Edge, Mr Davie of DBRE forwarded the above email and stated:
As per our discussion last night please see the email below [being Mr Ten Dam’s email of 11.05 am].
On 1 December 2017, The Edge lodged caveat AQ505842Y over the Land claiming an interest as purchaser.
On 17 January 2018, Jack Road lodged an application under s 89A of the Transfer of Land Act 1958 for the caveat to lapse.
On 16 February 2018, The Edge filed this proceeding seeking specific performance of the sale of the property.
Plaintiff’s submissions
On behalf of The Edge it was submitted that there was a binding agreement to sell; and that condition 4 did not prevent the signed letter from becoming immediately binding for the following reasons:
(a) Condition 4 is ambiguous because it is unclear whether ‘the contract’ is a reference to:
(i) the agreement itself (being the agreement documented by the signed letter); or
(ii) ‘the vendor’s standard contract of sale’ referred to in the preamble to the signed letter.
(b) If condition 4 refers to the execution of a later, formal contract of sale, then it should be read as an obligation to execute such formal contract. This merely serves as a mechanism for activating the obligations to pay the full deposit, the provision of the required notice under s 27 of the Sale of Land Act 1962, the access to the office/warehouse and the cessation of the confidentiality agreement. Accordingly, the signed letter was in the second category of Masters v Cameron.[3]
[3](1954) 91 CLR 353 (Dixon CJ and McTiernan and Kitto JJ). The categories are considered at [38]-[42] below.
(c) The words ‘subject to the contract being executed’ as they appear in condition 4 have a different natural meaning to the words ‘subject to contract’ or ‘subject to the preparation of a formal contract’ as referred to in Masters v Cameron.[4]
[4]Ibid, 362–363.
(d)The fact that, prior to an exchange of contracts:
(i) The Edge was obliged to pay a deposit of 1%;
(ii)Jack Road was obliged to provide a notice pursuant to s 27 of the Sale of Land Act 1962 (which The Edge was to sign and return on exchange);
(iii) The Edge was obliged to execute a confidentiality agreement; and
(iv) The Edge was provided with the keys to the office/warehouse,
is inconsistent with the signed letter being intended to be non-binding until execution of the formal contract of sale.
Defendant’s submissions
On behalf of Jack Road it was submitted that, for the following reasons, the signed letter constituted no more than an agreement between the parties to agree to enter into a contract for the sale of the Land. Accordingly, that informal agreement fell into the third category referred to in Masters v Cameron.[5] Jack Road submitted as follows:
[5](1954) 91 CLR 353 (Dixon CJ and McTiernan and Kitto JJ).
(a)An express statement that ‘the vendor’s standard contract will be adopted and would incorporate the following details … The offer is subject to the contract being executed’ is inconsistent with an intention to be contractually bound.
(b)The signed letter relates to a sale of a substantial parcel of land at a significant price and, as a matter of common sense, parties would not expect to be bound by such a summary document particularly with respect to real estate.
(c)The payment of the 1% of the purchase price does not attain the status of a deposit until a binding contract of sale is executed unless the examination of facts suggests otherwise.[6] In this case:
[6]Ibid 365.
(i) The payment is only 1% and is not described as a deposit.
(ii)Under the terms of the signed letter, the deposit did not become payable until ‘execution of the Contracts of Sale’.
(d)The signed letter leaves significant aspects of the agreement to be negotiated including:
(i)although it states the vendor’s standard contract of sale will be adopted, there is no evidence that such a standard form existed;
(ii)condition 1 speaks of a licence to access the property but the terms of the licence are unclear and required the vendor to negotiate a variation of the licence with Mirvac; and
(iii)no date is set for the execution of the formal contract of sale.
(e)The deposit is not released until 30 days after the exchange of contracts and condition 6 provides that ‘once the deposit is released, the licence agreement cannot be revoked under any circumstances’. If the signed letter was binding there is no reason why the licence would not be immediately irrevocable.
(f)Conditions 3 and 6 provide that the purchaser is bound by a confidentiality deed poll which ceases ‘upon execution of the contract of sale’. These conditions would be unnecessary if the signed letter constituted a binding contract of sale.
Legal principles
The principles to be applied in determining whether the parties intended to enter into a binding contract in circumstances where a subsequent formal contract is contemplated are well established.
In Masters v Cameron the High Court said that:
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 [7]
which the Court identified as follows:
(a)The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound but propose to have the terms restated in a form which will be fuller or more precise but not different in effect (‘the first category’).
(b)The parties have completely agreed upon all the terms of their bargain and intend no departure from the terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. The effect of the term to execute a formal document may be to ‘place upon the parties an obligation, capable of being specifically enforced by the court, to sign a further contract in accordance with the informal agreement which they have already made’ (‘the second category’).[8]
(c)The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In these circumstances, no binding agreement arises (‘the third category’).
[7](1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).
[8]Godecke v Kirwan (1973) 129 CLR 629, 639 (Walsh J). Also see Niesmann v Collingridge (1921) 29 CLR 177, 182 (Knox CJ).
A fourth category, by way of variation on the first category, was suggested by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd,[9] as arising when the parties intend to be bound immediately by the terms on which they have agreed while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.
[9](1986) 40 NSWLR 622, 628.
This fourth category has been accepted in many subsequent cases[10] and was confirmed on appeal.[11] However, the Court of Appeal did not appear to adopt the nomenclature of an additional category. Rather, McHugh JA said as follows: [12]
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.[13] 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.
[10]See, for example, Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486, 4945 (Ipp J); Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101, 110 [24] (Ipp J, Pidgeon J agreeing); Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44, [86]–[88] (Handley AJA).
[11]GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 6345. (McHugh JA, with whom Kirby P and Glass JA agreed).
[12]Ibid 634.
[13]Godecke v Kirwan (1973) 129 CLR 629, 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 332–4, 337.
The concept of a fourth category has also been the subject of some criticism;[14] and ‘the … classifications are no longer, if they ever were, applied as strict categories into which such cases must fall’.[15] I adopt the approach of Giles JA in Tasman Capital Pty Ltd v Sinclair, who observed that ‘the categorisation does not greatly contribute to the decision in the particular case’,[16] because the decisive issue is whether or not the parties intended to be contractually bound.[17]
[14]See E Peden, J Carter and G Tolhurst, ‘When Three Just Isn’t Enough: The Fourth Category of the “Subject to Contract” Cases’ (2004) 20 Journal of Contract Law 156, who say at 156: ‘While the recent cases do, of course, acknowledge that intention is fundamental, we are troubled by the mechanistic idea — implicit in the cases — that everything depends on categories. Everything does indeed depend on categories, but not on the ability to create new categories to meet specific fact situations.’ The learned authors conclude that the second category, the scope of which is often misunderstood or underestimated, together with the first, is capable of capturing scenarios thought otherwise to fall within the purported fourth category (at 165–6).
[15]Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 617 [69] (Beazley P with whom Bathurst CJ and Meagher JA agreed).
[16][2008] NSWCA 248 [26] (with whom McColl JA and Young CJ agreed), a decision reported in (2008) 75 NSWLR 1, but the relevant portion is not included in that report.
[17]The leading statement to this effect is given by McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634. That an inquiry as to intention, to be objectively determined, is the decisive issue is additionally confirmed by Cooma Clothing Pty Ltd v Create Invest Develop Pty Ltd (2013) 46 VR 447, 460 [40] (Nettle and Neave JJA); Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [147] (Maxwell ACJ, Whelan and Kyrou JJA); Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 617 [69] (Beazley P with whom Bathurst CJ and Meagher JA agreed); and Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2016) 329 ALR 1, 110 [702] and 111 [712] (Edelman J).
The Court ascertains objectively whether there was an intention to create contractual relations by asking what each party, by words and conduct, would have led a reasonable person in the position of the other party to believe.[18] The circumstances that are properly taken into account ‘are so varied as to preclude the formation of any prescriptive rules’.[19] However, when the issue is whether parties intended to be bound by a single document, it is ‘to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being’.[20]
[18]Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [131] (Maxwell ACJ, Whelan and Kyrou JJA) citing Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 616 [65] (Beazley P with whom Bathurst CJ and Meagher JA agreed).
[19]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[20]Nurisvan Investment Ltd & Anor v Anyoption Holdings Pty Ltd (2017) VSCA 141 [110] (Osborn, Santamaria and Kaye JJA); cited with approval in Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [131] (Maxwell ACJ, Whelan and Kyrou JJA).
In any event, when undertaking the determination as to intention:
(a) what is considered is that which is ‘objectively … conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened’; [21] and
(b) what is not considered are the uncommunicated subjective motives or intentions of the parties, which are irrelevant.[22]
[21]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105–6 [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[22]Ibid.
The utility of presumptions has been strongly doubted;[23] but matters that have been considered relevant in undertaking this determination have included the following:
[23]Ibid 106 [26]-[27]; Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd [2000] VSC 155, [29] (Mandie J).
(a) Where the disputed agreement is in writing, the words used by the parties must be the strongest indicator of whether the parties intended to be legally bound. If, on proper construction of the document, it is sufficiently clear that the parties were content to be bound immediately, then the matter is resolved irrespective of the subject matter, magnitude or complexity of the transaction or whether the parties contemplated a further contract in substitution for the first contract.[24]
[24]GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA); cf Sinclair, Scott and Co v Naughton (1929) 43 CLR 310, 317–18 (Knox CJ, Rich and Dixon JJ).
(b) Whether the informal agreement is expressed to be ‘subject to contract’[25] or the absence of such words.[26]
[25]Masters v Cameron (1954) 91 CLR 353, 362 (Dixon CJ, McTiernan and Kitto J).
[26]Niesmann v Collingridge (1921) 29 CLR 177, 182 (Knox CJ).
(c)The presence of the parties’ signatures on a document said to contain the terms of the agreement suggests an intention to form binding relations; though the effect of the signature cannot, of itself, give rise to a binding agreement if the terms of the signed document do not otherwise support the characterisation of the agreement as binding.[27]
(d)The detail of the terms, to which the parties descended in the informal agreement, may indicate whether the parties did or did not intend to be immediately bound. As was stated by Powell JA in Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd:
In carrying out the task of determining … what was the relevant intention of the parties, a court may have regard, not only to the matters upon which the parties have reached their consensus, but also to the areas in respect of which they have failed to reach any consensus.[28]
(e)An informal agreement which deals with a transaction of great magnitude or complexity ‘may suggest that the informal agreement was not intended to constitute a binding contract’.[29]
(f)The established or common practice with respect to agreements of the type in question may indicate that the parties did not intend to be finally bound until the completion of a formal contract.[30] An example of such a practice is with respect to the sale of real estate.[31]
(g)The fact that the parties did not use solicitors for the informal agreement but proposed to do so for the formal contract, may be a factor indicating that the parties did not intend to be bound by the informal agreement.[32]
[27]Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2016) 329 ALR 1, 110–11 [709]-[710] (Edelman J) and the authorities cited therein. On the effect given to the agreement’s terms, see GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA); and Sinclair, Scott and Co v Naughton (1929) 43 CLR 310, 317–18 (Knox CJ, Rich and Dixon JJ).
[28](unreported, 28 October 1994, NSWCA) 40.
[29]Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 137 (Brooking J); Geebung Investments Pty Ltd v Varga Investments Pty Ltd No 8 Pty Ltd (1995) 7 BPR 97,578, 19 (Kirby P).
[30]Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd (unreported, 28 October 1994, NSWCA (Powell JA) 40; approved in Geebung Investments Pty Ltd v Varga Investments Pty Ltd No 8 Pty Ltd (1995) 7 BPR 97,578, 16 (Kirby P).
[31]Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 97,270, 6 (McHugh JA, with whom Mahoney and Priestley JJA agreed); Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd [2000] VSC 155, [29] (Mandie J).
[32]Geebung Investments Pty Ltd v Varga Investments Pty Ltd No 8 Pty Ltd (1995) 7 BPR 97,578, 19 (Kirby P). See also, Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 97,270, 5 where Mahoney JA (with whom McHugh and Priestley JJA agreed) said: ‘The lawyer’s role may be merely that of finalising what is already an operative agreement; or it may be to draw out the implications, and so the questions, inherent in an informal consensus so that the parties may make an operative decision in relation to them. Where it is contemplated that, in relation to such questions, the parties may differ and that, unless a further consensus be arrived at, there will be no binding contract, the initial consensus is not a contract.’
With respect to the effect of post agreement communications, the courts have considered that such communications may be relevant to the following:
(a)Admissions by conduct of the existence or non-existence of a legally binding contract.[33]
(b)Throwing light upon the meaning of the language in the informal agreement for the purpose of determining whether the language expresses an intention to enter or not enter contractual relations.[34]
(c)Whether and to what extent there were uncompleted negotiations between the parties; and the significance of the uncompleted issues.[35]
[33]Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97,023, 9255–6 (McClelland J).
[34]Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 550 (Gleeson CJ, with whom Hope and Mahoney JJA agreed).
[35]Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97,023, 9255 (McClelland J); Geebung Investments Pty Ltd v Varga Investments Pty Ltd No 8 Pty Ltd (1995) 7 BPR 97,578, 18 (Kirby P).
However, as observed above at [43], where a single document is alleged to constitute the contract between the parties (as opposed to a contract alleged to have arisen orally or from an exchange of correspondence) the relevant intention is to be determined objectively from the text of the document, construed in the context of the circumstances in which it came into being.[36] The relevance of subsequent conduct, in such a case, may be limited to the questions of:
(a) whether there were terms not included in the document that might be necessary for a concluded contract;[37] and
(b) admissions against interest.[38]
[36]Nurisvan Investment Ltd & Anor v Anyoption Holdings Pty Ltd (2017) VSCA 141 [110] (Osborn, Santamaria and Kaye JJA); cited with approval in Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [131] (Maxwell ACJ, Whelan and Kyrou JJA).
[37]Ibid [111]. Also see Australian Broadcasting Corporation v XIVth Commonwealth Games (1988) 18 NSWLR 540, 549–550 (Gleeson CJ, with whom Hope and Mahoney JJA agreed) and authorities cited therein.
[38]Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [132] (Maxwell ACJ, Whelan and Kyrou JJA).
Decision
In my opinion, 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. Otherwise stated, in the language of Masters v Cameron, the agreement documented by the signed letter falls into the third category identified by their Honours in that case.
Principally, I consider that this result is determined by condition 4 of the signed letter, which stated that ‘The offer is subject to the contract being executed’.
I reject the submission of counsel for The Edge that condition 4 is ambiguous and may refer to the signed letter itself being executed rather than a later formal contract of sale. The signed letter contemplates that:
(a) there would be a contract of sale incorporating the terms in the signed letter and
(b) the execution or exchange of formal contracts would regulate the payment of deposit, the release of the deposit and the cessation of confidentiality obligations.
In my opinion, the reference to ‘the contract’ in condition 4 should be understood as a reference to the contemplated formal contract of sale.
I also reject the contention of counsel for The Edge that the offer being ‘subject to the contract being executed’ has a different natural meaning to the words ‘subject to contract’ or ‘subject to the preparation of a formal contract’ as referred to in Masters v Cameron.[39] In my opinion, the meaning of the words used in condition 4 are, if anything, even clearer than those considered by the High Court, as these words not only envisage the drawing of a formal document; but the need to execute that document in order to enliven any obligations which might flow from the concluded bargain.
[39] (1954) 91 CLR 353, 362-363 (Dixon CJ and McTiernan and Kitto JJ).
The reasonable person in the position of The Edge reading the text of the signed letter would, in my opinion, be in no doubt that the sole purpose for the introduction of the words in condition 4 was ‘to protect [Jack Road] by some suitable words from being bound by the negotiation they are conducting’.[40]
[40]Winn v Bull (1877) 7 Ch D 29, 32 cited in Masters v Cameron (1954) 91 CLR 353, 363 (Dixon CJ and McTiernan and Kitto JJ).
The importance of respecting the intention of the parties, as reflected in the text of agreements, is well established. As Dixon CJ, McTiernan and Kitto JJ observed in Masters v Cameron:
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. Nor is any formula, such as ‘subject to contract’, so intractable as always and necessarily to produce that result. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v Marchioness of Ely [1865] 46 All ER 1066, 1069: ‘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’…
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 recognised 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 (1948) Ch 93, 94 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. [41]
[41](1954) 91 CLR 353, 362–3.
The importance of persons of commerce being able to rely upon the courts adopting a consistent meaning to the words ‘subject to contract’ or similar was emphasised by Warrington LJ in Chillingworth v Esche,[42] when he said:
It has been undoubted ever since the decision of Sir George Jessel in Winn v Bull that the words ‘subject to the preparation and approval of a formal contract’ in a document prevented the document from being held to be a final agreement of which specific performance could be enforced, and it has been the practice of estate agents to insert these words to prevent parties being imposed upon. In many cases it is important to avoid the disastrous results of entering into open contracts, and I think it would be most mischievous to throw any doubt on the effect and meaning of such expressions. I do not overlook what was said by Lord Sterndale in Rossdale v Denny in this court: ‘I am far from saying that there may not be an unconditional offer and acceptance of a binding contract although the letters may contain the words “subject to a formal contract”, but certainly those words do point in the direction of the offer or acceptance being conditional’. But it seems to me that too much importance has been attributed to those expressions of Lord Sterndale, and I think what he meant to say was that the words in question indicate in themselves no binding bargain, and are merely conditional, but that there might be other circumstances which would induce the Court not to give them that meaning in a particular case.
[42][1924] 1 Ch 97, 110–111 (Citations omitted).
In Alpenstow Ltd v Regalian Properties Plc,[43] citing the above quotation with approval,[44] Nourse J recognised the rarity of the Court finding grounds not to give the words ‘subject to contract’ their usual meaning, stating:
Although the test above propounded admits of the possibility of a very strong and exceptional context which would induce the court not to give the words ‘subject to contract’ their clear prima facie meaning in a particular case, Mr Evans-Lombe, who appears for the defendants, has told me that he has been unable to find a case depending on the construction of a single document where that has been the result. There have been cases where the effect of the words has been held to be displaced by a subsequent unconditional offer and acceptance, but that is rather different territory.[45]
[43][1985] 1 WLR 721.
[44]Ibid 729.
[45]Ibid 730.
Similarly, in argument before me, 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. Further, it was not contended that we were in ‘different territory’,[46] because the parties had agreed, subsequent to the signing of the letter, that the agreement was to be binding.
[46]Ibid.
The importance of the use of the words ‘subject to contract’ in determining the intention of the parties was more recently emphasised by the Court of Appeal in Cooma Clothing Pty Ltd v Create Invest Develop Pty Ltd, where Nettle and Neave JJA said:
Where parties to a contractual arrangement express a commercial arrangement as being ‘subject to contract’ they may be taken to intend that the creation of a binding contractual relationship is to be postponed until a formal contract has been drawn up and executed. Particularly is that so when the subject matter of the arrangement is the sale of or other dealing with land.[47]
[47](2013) 46 VR 447, 460 [40].
I accept the submissions made by counsel for Jack Road that an intention not to be bound until a formal contract was executed is also consistent with the following:
(a) The fact that it was only after execution of a formal contract of sale that:
(iii) the 20% deposit became payable;
(iv)the licence agreement contemplated by the conditions became irrevocable (expressed to be once the deposit was released; but The Edge agreed to consent to the release of the deposit only on exchange of contracts);
(v) The Edge was licensed to have access to the office/warehouse (expressed to be upon payment of the deposit and execution of the ‘Contract of Sale’); and
(vi)the confidentiality obligations on the parties ceased. 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.
(b) The contract was for the sale of real estate.
(c)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. Accordingly, if the signed letter was a contract for the sale of land, Jack Road would have committed an offence under s 32L of the Sale of Land Act 1962 and be subject to a penalty of 300 penalty units. Further, although binding on Jack Road, The Edge would have been entitled to rescind the contract pursuant to s 32K(3) of the Sale of Land Act 1962.[48] In these circumstances, it would be ‘surprising’ if Jack Road would have intended the signed letter to be a binding agreement.[49]
(d)The sale of the Land was a substantial transaction. Although the terms to be ‘incorporated’ into the vendor’s standard contract of sale were quite 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. The failure by Jack Road to provide a vendor’s statement meant that The Edge lacked ‘basic information’ about the Land.[50]
[48]Subject to the loss of the right to rescind under the conditions set out in s 32K(4) of the Sale of Land Act 1962.
[49]Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [131] (Maxwell ACJ, Whelan and Kyrou JJA) [173].
[50]Ibid [173].
I do not consider that the clear meaning of condition 4, or the above considerations, are outweighed by the following matters relied upon by The Edge:
(a)The payment of a deposit of 1% prior to execution of the Contract of Sale.
Even the payment of a substantial deposit may not be strongly indicative of an intention to be bound immediately.[51]
(b)Jack Road was obliged to provide a notice pursuant to s 27 of the Sale of Land Act 1962.
However, the notice would only have any effect after the exchange of contracts and the full payment of the deposit, when Jack Road could apply for its release.
(c)The execution of a confidentiality agreement.
The execution of a confidentiality agreement, prior to entry into a binding agreement, is consistent with the parties being involved in commercial negotiations in circumstances where, if the negotiations do not result in a binding agreement, the parties may wish to maintain confidentiality.
(d)The Edge was provided with the keys to the office/warehouse.
The provision of the keys before execution of the formal contract was not in accordance with the signed offer, which only provided for access after execution of the ‘Contract of Sale’. There was no evidence as to the basis upon which Jack Road provided the keys to The Edge prior to execution of the Contract of Sale.
[51]Masters v Cameron (1954) 91 CLR 353, 365 (Dixon CJ and McTiernan and Kitto JJ).
Orders
I propose to order that the proceeding be dismissed.
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