The Friendly Backpacker and Will Ang Drive Pty Ltd
[2022] VCC 2188
•13 December 2022
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
Expedited List
Case No. CI-21-02772
| The Friendly Backpacker | Plaintiff |
| v | |
| Will Ang Drive Pty Ltd | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 November 2022 | |
DATE OF JUDGMENT: | 13 December 2022 | |
CASE MAY BE CITED AS: | The Friendly Backpacker and Will Ang Drive Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 2188 | |
REASONS FOR JUDGMENT
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Subject:CONTRACTS – PRELIMINARY AGREEMENTS
Catchwords: Option to purchase – Sale of land - Consideration – Construction of terms - Whether intended to be immediately binding - Whether specifically enforceable - Masters v Cameron (1954) 91 CLR 353 applied - Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 considered.
Legislation Cited: Sale of Land Act 1962 (Vic) s 32.
Cases Cited:Masters v Cameron (1954) 91 CLR 353; Loftus v Roberts (1902) 18 TLR 532; Kekewich v Manning [1851] 42 ER 519; Mountford v Scott [1975] Ch 258; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353; Corin v Patton (1990) 169 CLR 549; Tran v Hoang(who is sued in his capacity as executor of estate of Khiem Tran, deceased) [2022] VSCA 194; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375; Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503; Birdsey v Vincent [2017] VSC 27; United Group Resources Pty Ltd & Ors v Calabro & Ors (No 5) (2011) 288 ALR 1; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91; Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147; Godecke v Kirwan (1973) 129 CLR 629; 428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd [2009] VSC 133; Verrocchi v Messinis [2016] VSC 490; McGorlick v Palmer [2022] VCC 1229; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622; Sinclair, Scott & Co v Naughton (1929) 43 CLR 310; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill [2017] VSC 641; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326; Commissioner of State Revenue v Politis [2004] VSC 126; Foster v TW (Vic) Pty Ltd [2020] VSC 533; Twenty Four Outdoor Australia Pty Ltd v J and H West Nominees Pty Ltd [2020] VCC 1676; J and H West Nominees Pty Ltd v Twenty Four Outdoor Australia Pty Ltd [2021] VSCA 337; Harvey v Pratt [1965] 2 All ER 786; Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199.
Texts Cited:Halsbury's Laws of Australia; C E Croft and R Hay, Bradbrook, Croft and Hay’s Commercial Tenancy Law (3rd Edition); Lexis Nexis, John Carter, Carter on Contract.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J McKay | Tisher Liner FC Law |
| For the Defendant | Mr P Ehrlich KC with Mr R Kornhauser | P&B Law |
Factual Background
The Issues
Issue 1: Does the Agreement fail for want of consideration such that it is not enforceable in law or in equity?
Plaintiff’s submissions
Defendant’s submissions
Analysis
Issue 2: If the answer to issue 1 is NO, does the Agreement otherwise fail because the plaintiff did not pay the sum of $5,000.00 to the defendant or some person with authority to accept that sum on behalf of the defendant, such that there was no executed consideration?
Plaintiff’s submissions
Defendant’s submissions
Analysis
Issue 3: If the answer to sub-paragraphs (a) and (b) is NO does the Agreement: fall within the third category of the categories set out in Masters v Cameron, or fall within the first or fourth category of the categories set out in Masters v Cameron?
Plaintiff’s submissions
Defendant’s submissions
Analysis
Issue 4: If the answer to sub-paragraphs (a) and (b) is NO and the Agreement falls within the first or fourth category of the categories set out in Masters v Cameron is the Agreement otherwise not enforceable because it is uncertain and incomplete as to its terms?
Plaintiff’s submissions
Defendant’s submissions
Analysis
Issue 5: Did the Plaintiff (and/or its nominee) duly exercise an option arising under or in connection with the Agreement?
Plaintiff’s submissions
Defendant’s submissions
Analysis
Conclusion
HER HONOUR:
1In this proceeding, the plaintiff (“The Friendly Backpacker”) seeks to specifically enforce a document headed “Offer to Purchase” dated 1 April 2021 against the defendant (“Will Ang Drive”). The plaintiff claims that the Offer to Purchase is an agreement for the grant of an option to purchase in respect of the land at 41-43 William Angliss Drive, Laverton North, in Victoria, for the sum of $5,500,000.00.
2The defendant denies that the Offer to Purchase is an enforceable agreement by which the defendant immediately bound itself to the actual grant of an option to purchase its land. It says that the Offer to Purchase does not constitute a binding, enforceable contract at law, and is not specifically enforceable in equity.
3In my judgment, the document headed “Offer to Purchase” dated 1 April 2021 is an enforceable agreement. Therefore, the plaintiff is entitled to judgment for specific performance. My reasons in respect of each ground are set out below.
4Accordingly, there is judgment for the plaintiff. I also order that the defendant pay the plaintiff’s costs of and incidental to the proceeding on a standard basis to be taxed in default of agreement, unless either party has a basis for seeking a different order as to costs. I invite the parties to prepare draft orders to give effect to these reasons. I will determine any issue concerning costs on the papers.
Factual Background
5This dispute relates to land at 41 to 43 William Angliss Drive, Laverton North, in Victoria (“the Land”). The Agreement was embodied in a document headed “Offer to Purchase”, which was signed on behalf of the plaintiff and defendant on or around 7 April 2021. The Agreement contained terms to the following effect:
a) The defendant agreed to give the plaintiff a right to enter into a contract of sale to purchase the Land.
b) The option could be exercised between 1 July 2021 and 15 July 2021.
c) The defendant would provide the plaintiff with a contract of sale and statement under s32 of the Sale of Land Act 1962 (Vic) (“SLA”), and have an option drawn up that included the contract of sale.
d) The sale price was $5,500,000.00.
e) GST was not applicable on the basis that the sale of the Land was deemed to be the sale of a “going concern”.
f) A 10% deposit was to be paid upon the signing of the contract of sale and statement under s32 of the SLA, of which $5,000.00 was payable by the purchaser at the execution of the Agreement.
g) The initial $5,000.00 deposit was to be non-refundable (and to come off the purchase price) on the basis that the option was agreed.
h) Settlement was to occur 60 days from the signing of the contract of sale.
i) The balance of the purchase price was payable upon settlement.
j) The purchaser was to be the plaintiff and/or its nominee.
k) The sale was to be subject to a lease back to the tenant, Board Pro Pty Ltd (“Board Pro”), commencing on the settlement date.
l) The rental under the lease was to be fixed at $80.00 per square metre for 4,067 square metres, equalling $325,360.00 per annum plus GST and outgoings.
m) The lease was to expire two years from settlement.
n) A further paragraph of text was included above the execution panels which stated:
“We are in agreement with the above terms and conditions and are prepared to execute the contract and section 32 documentation (subject to solicitor review) on this basis.”
6In late 2020, the plaintiff, by its director Ronald Lazarovits (“Lazarovits”) and through Charlie Woodley of Colliers International (“Woodley”), a real estate agent, approached the defendant through its primary selling agent Joel Davy of Knight Frank (“Davy”), to express interest in purchasing the Land.
7The parties thereafter engaged in negotiations as to the terms of a potential sale, which was to include a lease agreement pursuant to which the defendant would lease the premises back from the plaintiff after the sale.
8On 25 March 2021, the plaintiff provided a signed “Offer to Purchase” to the defendant. On 1 April 2021, the plaintiff provided a second signed “Offer to Purchase”. The Offer to Purchase was signed by the defendant on 7 April 2021.[1]
[1] Court Book (“CB”) pp447-460.
9On 7 May 2021, the plaintiff was provided with a proposed Put and Call Option Deed, contract of sale, vendor’s statement, and leaseback agreement for review. On 19 May 2021, the plaintiff responded with various changes to the 7 May 2021 documents, including in respect of matters the subject of the Offer to Purchase.[2]
[2] CB pp554-725.
10On 24 May 2021, the defendant advised that it would not proceed with the proposed transaction.[3]
[3] CB p749.
11In order for the Court to understand the context in which the Agreement was executed, and indeed the genesis of the parties’ dispute, it is necessary to consider a number of emails, text messages and documents which transpired as communications between the parties.
12The communications between parties commenced on 30 November 2020 when Woodley emailed Lazarovits a floor plan of the Land and sent a further email outlining the rent sought by the defendant under the proposed lease-back on 17 January 2021.[4]
[4] CB pp430-432.
13On 22 March 2021, an unsigned offer was sent by email by Davy to Keegan Anderson (“Anderson”), one of the defendant’s directors, which contained many of the terms ultimately included in the Agreement. At 4.30pm on the same day, James Arnold (“Arnold”), the defendant’s other director, responded with the following:[5]
“Happy to proceed with the below if the lease back period is 2 years from the settlement date (and) the $80/m2 is fixed for the two years”.
[5] CB pp440-441.
14Woodley then submitted the offer to Lazarovits for his “review and execution”.[6]
[6] CB p444.
15On 23 and 24 March 2021, text messages were exchanged between Woodley and Davy. Lazarovits emailed the signed offer to Woodley on 25 March 2021, which was then forwarded by Woodley to Davy on that same day. The covering email from Woodley and reply by Davy read as follows: [7]
“As discussed on the phone and in previous emails, can you please confirm an agency fee split of 50-50 between Colliers and Knight Frank on the basis that a contract of sale and vendor statement at the subject property is agreed and executed by both purchaser and vendor. Apologies on the thoroughness of the above but need protection given Colliers wont be on the authority’.
…
‘Hey mate, Colliers will be entitled to 50% of the fee for the sale of 41-43 William Angliss Drive, if able to introduce a successful purchaser. Hope this help(s).”
[7] CB pp457-459.
16Davy then met with the defendant’s representatives regarding the plaintiff’s offer. On 29 March 2021 at 8.01pm, Davy emailed Woodley the following:[8]
“Apologies in the delay in coming back to you on this. I sat down with the owners of 41 – 43 William Angliss Drive, Laverton North and they have come back with 1 or 2 changes. They accept the price $5.5 million. 60 days settlement. 2 year lease from Settlement date. They did not accept 3% increases. They need the contract dated (signed) 1/7/2021– This is due to tax implications. They will get the lease and contract of sale prepared on this basis if your purchaser is agreeable to this amendment. So in terms of a timeline. Sign 1.7.2021 – 60 day settlement takes us to Monday the 30th August. Lease exp Monday 30th august 2023. I confirm we are not dealing with any other parties and upon agreeance of this deal the vendor will start preparing contracts.”
[8] CB pp461-463.
17That same evening Woodley emailed Lazarovits stating:[9]
“Please see the below email form Knight Frank who’s looking after the vendor. Happy to chat tonight or first thing in the morning. I am going to investigate whether we can arrange an ‘agreement to purchase’ which will provide you with security that you will purchase the property given the delay in signing the contract. Thanks and sorry for the delay once again.”
[9] CB p459.
18Further email correspondence was exchanged between Lazarovits and Woodley on the same 29 March 2021 evening seeking the defendant to sign the proposed Agreement:[10]
“Need someone’s signature on a document at least regarding the date and price and rental and term. I had to sign, I think they should too.’
…
‘If you are happy with the below regarding the dates, we can get them to add it to the signed document, initial it and sign it tomorrow. Please let me know.’
…
Okay. I’ll have the document added to, initialed and signed. The other agent isn’t working with anyone else and has confirmed in writing that they’ve accepted the offer. I’ll speak to the agent first thing in the morning and get the document signed for you with the below agreement in place. Thanks again for your patience today.”
[10] CB p461.
19Woodley emailed Lazarovits a revised copy of the proposed Agreement on 30 March 2021 at 1.18pm. On 31 March 2021 at 1.12pm, Lazarovits emailed Woodley the outlined option structure that was adopted in the executed version of the Agreement:[11]
“Hi Charlie The correct way to do this is that I will pay $5k, non refundable but to come off the purchase price for an option to enter into a contract to purchase 41-43 William Angliss drive with the basic terms and conditions we have outlined in the previous documentation. That includes the leaseback at the agreed rental and the purchase at the agreed price . Exercise of the option to take place between 1st July 2021 and 15th July 2021 . they should produce the contract , the section 32. they should get the option drawn up as it has to include the contract . I can get the lease back done . in the meantime everyone should stick to the deal so time is of the essence.”
[11] CB pp466, 474-476.
20Woodley responded to Lazarovits that afternoon confirming that the outlined option structure would be passed onto the defendant for their consideration and feedback. On 1 April 2021 at 9.41am, Woodley emailed Lazarovits and confirmed that the Agreement had been amended to reflect the proposed option structure and shortly after Davy emailed Arnold “Just getting it all signed off now with a 5k holding deposit upon signing of the contract”.[12]
[12] CB pp479-487.
21On 1 April 2021 at 11.18am, Lazarovits emailed Woodley and attached the signed Agreement. On 1 April 2021 at 11.20am, Woodley emailed Davy saying, “See attached. Get it done!”. Woodley responded to Lazarovits shortly after that the signed Agreement had been passed on to the vendor.[13] By email dated 1 April 2022 at 11.26am, Davy sent the signed letter of offer to Arnold and Anderson and said:
“…Please see the attached signed letter of offer.
We have been able to get agreement on the dates of signing and have put in a $5,000 non refundable holding deposit that he will pay to secure the property while contracts are prepared and reviewed.
If you could please sign and return asap so I can go out to my families Easter lunch and start having a few beers. …”
[13] CB pp499.
22A text exchange then occurred that afternoon at 1.45pm between Davy and Arnold as follows:[14]
“Can you please sign and return the doc I sent you via email”.
….
“Joel go and have a few beers it is done, not back to work until Wednesday you will get the signed copy then”.
[14] CB p500.
23Davy then relayed the message to Woodley on 1 April 2021 at 2.57pm:[15]
“He has said it is a done deal and has asked me to take it off the market. He will be counter signing the contract and emailing across on Wednesday when back in the office. They have requested the $5,000 be paid upon receipt of the counter signed offer. Thank you for all your hard work. Have a good Easter.”
[15] CB p498.
24Woodley in turn relayed these communications to Lazarovits. On 7 April 2021, a copy of the Agreement was provided to the plaintiff. The covering email from Woodley to Lazarovits stated:[16]
“Please see the attached offer to purchase which has now been executed by the vendor. As agreed in the offer, could you please transfer the $5,000.00 non-refundable deposit which will form a part of the 10% deposit if and when the contract of sale and section 32 is fully executed”.
[16] CB pp501, 503-506.
25The plaintiff paid the $5,000.00 to Colliers on 8 April 2021 and a receipt was issued by Woodley the following day. The receipt described the payment as being for a “deposit”, and specified the “owner” as being the defendant and described the money as having been received into trust. Later that day, Woodley sent an email to Davy to confirm payment and on 9 April 2021 emailed Davy the trust receipt.[17]
[17] Supplementary CB p1141.
26The $5,000.00 was never transferred out of Collier’s trust account to Knight Frank or the defendant and no request for any such transfer was made.
27The next significant communications occurred around 20 April 2021. Woodley emailed Davy querying whether Board Pro were open to a director’s guarantee or a security deposit on the lease agreement and apologising for “continual negotiation”.[18] Arnold responded on 22 April 2021, refusing the request for the director’s guarantee and attaching a draft lease that made no provision for a security deposit. The draft lease was in the standard Law Institute of Victoria form.
[18] CB pp513-514.
28On 30 April 2021, Chris Mackie (“Mackie”) of PB Law, the defendant’s solicitors, emailed Davy notifying him that “we have drawn the option deed, contract, vendor’s statement, and leaseback” and further asked if the plaintiff had agreed to the square meterage.[19]
[19] CB p438.
29The transaction documents including the option deed, contract of sale, s32 vendor’s statement and draft lease were sent to Davy on 6 May 2021. This email was forwarded by Davy to Woodley and then by Woodley to Lazarovits on 7 May 2021.[20]
[20] CB p554 attached documents CB pp555-725.
30Lazarovits reviewed the documents and then sent the following email to Woodley on 19 May 2021, which was forwarded to Davy the same day:[21]
“Hello Charlie
1. There are some confusing numbers about the rental . The proposed lease says 325360 pa .this would be before GST . I think this is probably the right number.
2. All outgoings, including land tax are payable by the tenant. This is not a retail lease .
3. Security deposit of some sort is appropriate. Not all the terms of the standard lease were specifically discussed , but in all such leases some form of security deposit is normal and is envisaged in the REIV’s standard lease . it should be either 3 month’s rental , or directors guarantees. I do not care which , but one or the other .
4. I will be making a substitution as to the purchasing party but I will do this through the 1 solicitors to avoid confusion.
5. While I have tried to accommodate the vendor’s request to sign up after June 30 , we now find this will cost us approx. $50K more in stamp duty because of government changes. this is a significant amount of money and so either we sign up before this becomes legislation , or some accommodation is made in the lease to compensate me , or some accommodation is made in the lease to compensate me , or some 30 accommodation is made to the purchase price .
6. Please confirm the total area including the office space .
7. Re schedule 12 many leases today are specifying 30M
Regards…”
[21] CB pp735-736.
31On 24 May 2021 at 4.00pm, Arnold sent an email to Davy stating “As per our conversation today we are not going to proceed with the sale of William Angliss. Kind regards, James Arnold”.[22] Davy emailed Woodley shortly afterwards saying, “As discussed – Just got this. Thrown the toys out of the cot regarding the latest email asking for changes to the deal”.[23]
[22] CB p749.
[23] CB pp761-763.
32Woodley and Davy then corresponded in relation to saving the deal on the terms originally agreed, however, on 25 May 2021 at 2.17pm Woodley emailed Lazarovits stating:[24]
“Hi Ron,
As discussed over the last 24 hours, please see the below print screen from Joel Davy’s phone (Knight Frank). Joel followed up with the vendor then again today and they still do not wish to proceed with the sale of the subject property. Please let me know once you’ve spoken with your legal team. Thanks,
Charlie”.
[24] CB pp769-770.
33Lazarovits signed the option deed on behalf of the plaintiff and caused its lawyers, Tisher Liner FC to forward it to Woodley by email stating, “Please ensure that the Vendor signs the Put and Call Option documentation and sends them back to us by way of exchange no later than seven (7) days from the date hereof”.[25] Woodley responded shortly after confirming that the two documents were passed onto Davy and Knight Frank and that it would be sent to the vendor and its legal team. Davy received the signed deed and forwarded it to Arnold and Anderson on 1 June 2021.
[25] CB pp771-944.
34On 10 June 2021, PB Law wrote to Tisher Liner FC denying the existence of an enforceable agreement.[26] The plaintiff lodged a caveat on the Land on 15 June 2021, and sent formal notices exercising the option on 1 July 2021.[27]
[26] CB pp947-948.
[27] CB pp949-1122.
The Issues
35The central issue in dispute is whether the Agreement pleaded and headed “Offer to Purchase”, dated 1 April 2021 is an enforceable agreement and, therefore, specifically enforceable in equity by specific performance or mandatory injunction. In turn, and as agreed by the parties, the Court must determine the following issues in this proceeding:
a) Does the Agreement fail for want of consideration such that it is not enforceable in law or in equity?
b) If the answer to sub-paragraph (a) is NO, does the Agreement otherwise fail because the plaintiff did not pay the sum of $5,000.00 to the defendant or some person with authority to accept that sum on behalf of the defendant, such that there was no executed consideration?
c) If the answer to sub-paragraphs (a) and (b) is NO does the Agreement:
a)fall within the third category of the categories set out in Masters v Cameron;[28] or
b)fall within the first or fourth category of the categories set out in Masters v Cameron?
d) If the answer to sub-paragraphs (a) and (b) is NO and the Agreement falls within the first or fourth category of the categories set out in Masters v Cameron is the Agreement otherwise not enforceable because it is uncertain and incomplete as to its terms?
e) Did the plaintiff (and/or its nominee) duly exercise an option arising under or in connection with the Agreement?
[28] (1954) 91 CLR 353.
Issue 1: Does the Agreement fail for want of consideration such that it is not enforceable in law or in equity?
Plaintiff’s submissions
36The plaintiff submits that the correspondence of 7 April 2021 suggests that parties were treating the $5,000.00 sum as consideration that had been “agreed”, and that was “non-refundable” even though it would later form part of a deposit. It says that the $5,000.00 initial sum was paid to one of the defendant’s selling agents, Colliers, on 8 April 2021 and a receipt was issued by Woodley the following day. Woodley emailed Davy the trust receipt which stated, “see attached confirmation of payment for the non-refundable deposit which has been received at our end. Please let Boardpro know we’ve received it and pass on if necessary”.[29]
[29] Supplementary CB p1141.
37The plaintiff contends that, assessed objectively, it is apparent that the parties understood that a binding agreement had been concluded and that the $5,000.00 sum was paid pursuant to an obligation under that contract and as consideration for the rights conferred.
38The plaintiff rejects the defendant’s contention that the $5,000.00 was not an option fee but was instead a part payment of the 10% deposit that was payable upon formal contracts being signed. It refers to the Agreement itself which reflects that the “$5,000 is payable by the purchaser at the execution of this agreement. This initial $5,000 deposit is non-refundable (to come off the purchase price) on the basis that the option is agreed”. The clause provides that the $5,000.00 was payable “upfront” when the Agreement was signed, was described as an “initial” deposit, was said to be “non-refundable” and it was justified on the basis that the “option was agreed”.
39The plaintiff contends that the meaning of the above words is that the $5,000.00 was a non-refundable payment to secure the Agreement to grant the option after which it was to be treated as part payment of the 10% deposit if and when the formal contract proceeded. Further, that the $5,000.00 was payable immediately upon the document being signed and not later when the formal option was executed. In turn, there was a binding contractual obligation that arose immediately upon the signing of the Agreement. The defendant has no explanation as to why the money was being transferred at all if no concluded agreement had been reached. Referring to correspondence dated 1 April 2021, Arnold, through his agent, Davy, in fact called for payment of the $5,000.00 when the Agreement was signed.
Defendant’s submissions
40The defendant submits that the Agreement is not specifically enforceable in equity because the Agreement was not supported by consideration. Further, it relies on the equitable maxim that equity will not assist a volunteer or enforce a non-binding agreement.
41The defendant contends that on the plain reading of the Agreement that there was no fee paid in consideration of the grant of the option. The defined term “Option Fee” is not found in the Agreement and its use aims to cloak the fact that no consideration moved from the plaintiff to the defendant for the grant of the option to purchase.
42Further, the defendant submits that the $5,000.00 was not a fee paid in consideration for any promise provided the defendant under the Agreement let alone an option fee for the grant of an immediate and enforceable option. Instead, on its plain reading, the part of the defined “Sale Deposit” was payable if and when the proposed contract of sale was agreed and executed. It was not referrable to the Agreement.
43Additionally, the $5,000.00 was fully refundable in the event the option agreement referred to in the ‘special conditions’ was not subsequently agreed. In turn, the defendant argues that the plaintiff had an unfettered discretion as to whether or not to agree to the option. The defendant cites Williams LJ’s reasoning in Loftus v Roberts[30] whereby where a contractual promise is accompanied by words which reflect that a promisor has discretion or an option to carry out the promise, the result is that there is no contract.
[30] (1902) 18 TLR 532 at 534.
44The defendant argues that the expression “non-refundable” is to be read with the words “(to come off the purchase price) on the basis that the option is agreed (see below: special conditions)”. These words make clear that the $5,000.00 would only become non-refundable if the option referred to in the ‘special conditions’ was agreed. Given this reference, it says it is impossible to construe the words as referring to an option that was already agreed. Further, that the words “on the basis that the option is agreed (see below: special conditions)” must be given the meaning that the $5,000.00 would only be non-refundable on the basis that the option referred to in the ‘special condition’ is agreed and subject to that sum being off-set against the purchase price if exercised. Therefore, at its highest, the defendant contends, the $5,000.00 was no more than a refundable holding fee.
45Given the above, the defendant submits, that there being no consideration for the grant of the option, the Agreement fails for want of consideration and is, therefore, unenforceable in law and equity. It refers to the recent case of Re Tran; Tran v Hoang[31] (“Re Tran”), citing Knight Bruce LJ in Kekewich v Manning,[32] in which McMillan J reasoned that:[33]
“… it is clear generally, if not universally, that a gratuitously expressed intention, a promise merely voluntary, or to use a familiar phrase, nudum pactum, does not (the matter resting there) bind legally or equitably.”
[31] [2021] VSC 318 (“Re Tran”).
[32] [1851] 42 ER 519 at 524.
[33] Re Tran at [159].
46The defendant argues that no consideration changed hands, as consideration for the grant of option, and that the plaintiff could have obtained an enforceable option in consideration of a genuine option of $1 citing the authority of Mountford v Scott,[34] however, did not do so. It says that the option fee of $5,000.00 was not executed as it was paid to the plaintiff’s agent, Colliers, and held on trust as a deposit and never paid to the defendant. By reference to s24 of the SLA, it cannot be characterised as an option fee, as a matter of law, as it was held by Colliers as a stakeholder and, therefore, fully refundable to the plaintiff if no contract of sale eventuated.
[34] [1975] Ch 258 at 264.
Analysis
47At the heart of contract law is the notion that certain promises may be enforced as contractual promises. The criterion for the validity, and legal effect of such a promise, is the concept of ‘consideration’ which signifies that something of value has been given for the promise. Consideration does not merely qualify the ability to enforce a promise but also gives recognition to an obligation being described as contractual.[35]
[35] Lexis Nexis, Carter on Contract [06-001] Bird's eye view.
48The leading authority in respect of discretionary promises is Placer Development Ltd v Commonwealth[36] in which Kitto J emphasised the general principle that, where a promise is subject to an unqualified and unfettered discretion as to whether it will be performed, the promise is illusory. In turn, where a promise is put forward as consideration for the enforcement of a promise or performance is discretionary it is not consideration and the promise is not enforceable.[37]
[36] (1969) 121 CLR 353.
[37] Lexis Nexis, Carter on Contract [06-320] Discretionary promises.
49Justice McMillan in Re Tran[38] emphasised the equitable maxim that “equity will not assist a volunteer”, however, referring to Corin v Patton,[39] confirmed that a person is not a volunteer where they have provide valuable consideration which adopts a broad meaning. It should be noted that Re Tran involved very different circumstances to the present case concerning the enforcement of a Deed in respect of a ‘gift’ in the sum of $300,000.00. Further, on appeal, Kyrou, Sifris and Macaulay JJA found that the promise contained in the relevant clause of the Deed itself created an immediate binding promise to pay, subject to only an allowance to make payment until the specified date.[40]
[38] Re Tran at [159].
[39] (1990) 169 CLR 549.
[40] Tran v Hoang (who is sued in his capacity as executor of estate of Khiem Tran, deceased) [2022] VSCA 194 at [68]-[70] and [81].
50In my view, and in agreeance with the plaintiff, the correspondence between the parties coupled with the Agreement itself, objectively assessed, reflects an immediate binding promise between the parties whereby the $5,000.00 was being paid for an obligation under the Agreement and in consideration for the rights conferred being the Offer to Purchase.
51The meaning of the words “$5,000 is payable by the purchaser at the execution of this agreement. This initial $5,000 deposit is non-refundable (to come off the purchase price) on the basis that the option is agreed” plainly suggests that the amount was payable, and as consideration, to secure the Agreement to grant the option. Further, it cannot be said that the promise was subject to an unqualified or unfettered discretion on behalf of the plaintiff given it was necessarily to be treated as part payment of the 10% deposit if and when the formal contract proceeded.
52The defendant’s submissions that the $5,000.00 payment was a part payment of the 10% deposit that was payment upon formal contracts being signed, does not accord with the terms of the Agreement itself nor the conduct or correspondence between parties. The $5,000.00 was immediately payable upon the signing of the Agreement and not later when the formal option was executed and, further, was called for by Arnold through Davy on 1 April 2021 when the Agreement was signed. The only commercially logical basis for its justification would be if the option was agreed and, upon signing of the Agreement and payment of the $5,000.00, a contractual obligation was created between the parties in respect of the option. Accordingly, the Agreement does not fail for lack of consideration.
Issue 2: If the answer to issue 1 is NO, does the Agreement otherwise fail because the plaintiff did not pay the sum of $5,000.00 to the defendant or some person with authority to accept that sum on behalf of the defendant, such that there was no executed consideration?
Plaintiff’s submissions
53The plaintiff submits that it paid the $5,000.00 sum to the defendant’s selling agents on 8 April 2021. It argues that the plaintiff’s director understood Woodley to be acting for the defendant pursuant to a corresponding arrangement with Davy to share the commission. The deposit was accordingly paid to Colliers rather than Knight Frank.
54The plaintiff rejects the defendant’s submissions that Woodley, and thereby Colliers, was not acting as its agent. It says that that Colliers possessed the defendant’s ostensible authority to accept the $5,000.00. Further, it refers to the email correspondence of 1 April 2021 where Davy emailed Woodley seeking payment and Woodley responding to Davy to confirm the payment of the $5,000.00 into Colliers’ trust account. Woodley further emailed Davy the trust receipt on 9 April 2021.
55The plaintiff argues that it is inconceivable that Davy failed to pass on this information to the defendant and it had to have known that the $5,000.00 had been paid into Colliers’ trust account. Afterwards, neither Davy nor any other representative for the defendant took issue with the deposit being in Colliers’ trust account and Woodley had indicated that he would transfer the funds to Knight Frank, if necessary.
56The plaintiff further submits that the receipt issued by Woodley following payment on 8 April 2021 described the payment as being for a “deposit”, specified the “owner” as the defendant and that the money was received into trust under the Estate Agents Act1980 (Vic). The $5,000.00 was never transferred out of the Colliers trust account to Knight Frank, or the defendant, and no further request for such transfer was made. This was despite the defendant requesting the sum being paid immediately upon the Agreement being signed. Accordingly, the plaintiff submits that Colliers received the $5,000.00 as agent of the defendant.
57The plaintiff also relies on communications and correspondence after the execution of the Agreement around April 2021 between Woodley and Davy. Woodley queried if Board Pro were open to a director’s guarantee or three month security deposit on the lease agreement. This email was forwarded by Davy to Arnold who responded refusing the call for the director’s guarantee and attached a standard form draft lease without provision for a security deposit. The plaintiff argues that, notably, Arnold made no comment as to Woodley’s identity or role in the transaction, despite Davy asking Arnold to specifically comment on the email sent by Woodley, which suggests that Arnold was aware that Woodley was acting with Davy as a selling agent.
58The plaintiff further references the text messages and emails exchanged between Woodley, Davy and Lazarovits in March 2021 which demonstrate that Knight Frank had promised Colliers a 50% share of the commission in the event Woodley introduced a successful buyer of the Land. In turn, that Woodley’s communications with Lazarovits occurred with the knowledge of Knight Frank and both were working in conjunction to sell the Land with a view of sharing the commission from the defendant.
Defendant’s submissions
59The defendant rejects the plaintiff’s submission that Woodley was the defendant’s agent. It submits that the defendant never authorised Woodley to act as its agent and nor is there any evidence to suggest this.
60The defendant further contends, citing Pacific Carriers Ltd v BNP Paribas,[41] that it is not alleged that Woodley held himself out as the defendant’s agent which in any case would be insufficient to vest Woodley with ostensible authority.
[41] (2004) 218 CLR 451.
61The defendant instead submits that Woodley, having been approached by and at the request of the plaintiff, submitted its offers to the defendant’s agent Davy on behalf of the plaintiff. Accordingly, that Woodley did not become the defendant’s agent by doing so.
62The defendant further relied on the email correspondence between Lazarovits and Woodley of 27 January 2021. It argues that this makes clear that Woodley could not have been acting as the agent for the defendant because if it were the case it discloses a breach of the duty of loyalty.
63The defendant rejects that the $5,000.00 sum was paid to the account of the defendant and that Colliers was an agent of the defendant. However, the defendant views this to be a moot point because regardless of who Colliers was the agent for, the $5,000.00 payment was received as a “deposit”.
Analysis
64Traditionally, the term ‘agency’ means an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.[42] Ostensible or apparent agency arises where one person by their words or conduct represents to another that a third-person has been authorised as agent, and in reliance the other person enters into transactions with the third person.[43]
[42] Halsbury's Laws of Australia 15-5 Meaning of ‘agency’.
[43] Ibid at 15-60 Agency by estoppel (ostensible or apparent authority).
65The New South Wales Court of Appeal in Essington Investments Pty Ltd v Regency Property Pty Ltd[44] considered, in detail, the principles relevant to ostensible authority.
[44] [2004] NSWCA 375.
66In Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd,[45] Diplock LJ considered the distinction between the actual authority of an agent and an apparent or ostensible authority, emphasising that the representation which creates apparent authority may take a variety of forms of which the commonest is representation by conduct. Diplock LJ said:[46]
“The commonest form of representation by a principal creating an ‘apparent’ authority of an agent is by conduct, namely, by permitting the agent to act in management or conduct of the principal’s business.”
[45] [1964] 2 QB 480 at 502-4.
[46] Ibid at 505.
67The above principles were also discussed by the High Court in Pacific Carriers Ltd v BNP Paribas.[47] More recently, Daly AsJ in Birdsey v Vincent[48] at [60] distilled the following key principles in respect of the doctrine:
a) the doctrine of ostensible authority is grounded in principles of estoppel;
b) the onus of establishing any ostensible authority lies with the party seeking to bind the putative principal;
c) there is some overlap between the concepts of implied actual authority and ostensible authority;
d) it is the conduct of the principal, not the agent, which gives rise to any ‘holding out’ with respect to the authority of the agent; and
e) an agent’s representations as to his authority may not be irrelevant to the issue of ostensible authority if the principal, by reason of a previous course of dealing, or by putting an agent in a position of authority, creates a situation where it can be inferred that the agent’s representation as to his or her authority is correct.
[47] (2004) 78 ALJR 1045 at 1053.
[48] [2017] VSC 27.
68Justice Hodgson’s reasoning in Essington Investments Pty Ltd v Regency Property Pty Ltd[49] is of particular relevance. In that case, all the relevant representations were made by the agent and so the real question was whether they were themselves authorised by the principal and so made by the principal, or were relevantly “permitted” to be made by the principal. Critically, Hodgson JA reasoned as follows, which was affirmed by Justice McKerracher in United Group Resources Pty Ltd v Calabro (No 5),[50] in respect of a representation by silence or a principal’s inaction:[51]
“In my opinion, one circumstance in which it may be said that representations are permitted to be made is where a principal knows that an agent engaged on the principal’s behalf is making representations as to the agent’s authority, is able to prevent such representations being made or countermand them, but does not do so. There is arguably, in these circumstances, something like a representation by silence: the circumstances call for some action by the principal to ensure that persons are not misled by the agent, and the principal does not take that action”.
[49] [2004] NSWCA 375 at [44]-[45].
[50] [2004] NSWCA 375 at [45] referring to (2011) 288 ALR 1.
[51] Ibid.
69Adopting the reasoning of Hodgson JA in Essington Investments Pty Ltd v Regency Property Pty Ltd[52] and in my view, whether or not there was actual authorisation for Woodley to make representations so that they were actually made by the defendant, it is clear that Arnold at least knowingly permitted the following representations to be made by Woodley such that Woodley was acting with Davy as the defendant’s selling agents. It is noted that the Agreement itself has both Collier’s and Knight Frank’s logos on it and Woodley and Davy’s names and contact details in the signature section. Accordingly, that the plaintiff did pay the sum of $5,000.00 to the Colliers trust account and Woodley had authority to accept that sum on behalf of the defendant.
[52] Ibid.
70Of particular significance is the email correspondence of 1 April 2021 where Davy emailed Woodley seeking payment and Woodley responded to Davy confirming the payment of the $5,000.00 into Colliers’ trust account and then had emailed Davy the trust receipt on 9 April 2021. I agree with the plaintiff that Woodley, and therefore Colliers, had ostensible authority to accept the $5,000.00 and that Davy passed on this information to Arnold. Further, I agree that the earlier correspondence and communications of March 2021 emphasise that Woodley and Davy where working together to sell the Land as conjunctional agents, with a view to share any commission payable by Arnold, and, accordingly, communications between Woodley and Lazarovits would have occurred with Davy’s and the defendant’s knowledge.
71Critically, neither Davy nor the defendant corresponded or made clear any issue with the $5,000.00 being in the Colliers trust account, which amounts to what Hodgson JA in Essington Investments Pty Ltd v Regency Property Pty Ltd[53] termed “something like a representation by silence”. The very nature of the circumstances, and transaction indeed, would necessarily call for some action by Arnold to ensure the plaintiff was not misled by Woodley, which it did not. Indeed, Woodley had indicated that he would transfer the funds to Knight Frank if necessary. The $5,000.00 was never transferred out of the Colliers trust account and no further request for such transfer was made by the defendant.
[53] Ibid.
72The point above is also relevantly applicable to correspondence after the execution of the Agreement in April 2021, between Woodley and Davy, in respect of the director’s guarantee and security deposit of the lease agreement. The email correspondence was forwarded by Davy to Arnold, who then responded. Again, neither Arnold or Davy, despite the opportunity, made any comment or offered clarification as to Woodley’s role or identity.
73The very course of dealings and correspondence between parties, both before and after the execution of the Agreement, highlights a situation whereby it can be inferred that Woodley’s representations, as to his authority as the defendant’s selling agent, were correct. Further, the conduct of Arnold gives rise to the required ‘holding out’ with respect to the authority of Woodley and Colliers such that the plaintiff has fulfilled its onus in establishing the ostensible authority of Woodley acting for the defendant pursuant to a corresponding arrangement with Davy.
Issue 3: If the answer to issues 1 and 2 is NO does the Agreement: fall within the third category of the categories set out inMasters v Cameron,[54] or fall within the first or fourth category of the categories set out in Masters v Cameron?
[54] (1954) 91 CLR 353.
Plaintiff’s submissions
74The plaintiff’s submissions cites the Victorian Court of Appeal’s recent decisions of The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd[55] (“Edge Development”) and Molonglo Group (Aust) Pty Ltd v Cahill[56] (“Molonglo”) which considered the enforceability of preliminary agreements.
[55] [2019] VSCA 91 (“Edge Development”).
[56] [2018] VSCA 147 (“Molonglo”).
75The plaintiff submits that, much like other Masters v Cameron cases, there are aspects of the Agreement which support arguments in favour of a binding agreement and also those that undermine it. The plaintiff summarises the factors in favour of the binding agreement as follows.
76The Agreement was signed by the parties and that, as in Molonglo, the parties are described as the “vendor and purchaser” which is suggestive of a binding agreement and, further, the purchaser is described as the plaintiff “and/or nominee”. Additionally, the fundamental operative provision is couched in terms indicative of a binding agreement.
77Each of the fundamental terms of the Agreement were stated with clarity. In addition to the Agreement containing the words “offer” in several places it also states that “should you be in agreement with the above terms & conditions, please sign where indicated below and email a copy of this letter back to myself as soon as possible so we may seek the Vendors (sic) approval”. An execution panel was also added for the defendant who then signed the document, emphasising an implicit intention to conclude a binding agreement.
78The text above the execution clause reflecting “subject to solicitor review” is prefaced with the words “We are in agreement with the above terms and conditions and are prepared to execute the contract and section 32 documentation”, suggesting a binding promise to execute formal contracts on agreed terms.
79The parties specified an exercise date for the option stating “The option can be exercised between 1st July 2021 & 15th July 2021”. The notion of the deal being deferred without agreement being reached does not accord with a mandatory period of exercise being specified.
80The plaintiff summarises the factors against a binding agreement and responds to the defendant’s submissions as follows.
81The plaintiff rejects the defendant’s contention that the Agreement left matters to be documented in further instruments, in particular, that the option was to be “drawn up” and “agreed” by the parties. It argues that the important terms of the option, to create a binding agreement, were already reflected in the Agreement. It relies on the High Court’s reasoning in Masters v Cameron in respect of the first and fourth categories whereby the existence of a binding agreement that will be the subject of a more detailed subsequent instrument does not invalidate the earlier agreement merely because a more detailed instrument is anticipated.
82The defendant relies on the words “subject to solicitor review” and says that a formal contract was to be expressed in a form satisfactory to its solicitors and in accordance with what the solicitors considered fairly appropriate. The plaintiff responds that the words “subject to solicitor review” did not confer discretion on the plaintiff’s lawyers to decide the terms of the bargain and, therefore, cannot be characterised as an ‘agreement to agree’. Instead, the effect was to ensure the plaintiff’s lawyers had opportunity to review the formal documents which was necessary, given the Agreement stated the vendor had to provide the contract of sale, s32 of the SLA and have the option drawn up. The plaintiff submits that a right of ‘review’ does not connote a right to dictate terms and further relies on the reasoning in Godecke v Kirwan[57] and Molonglo[58] which upheld an agreement, notwithstanding it was made conditional upon the purchaser’s solicitors approval of a final contract.
[57] (1973) 129 CLR 629 per Gibbs J at [17].
[58] Molonglo at [32].
83The defendant asserts that the section 32 statement was to be provided in due course, rather than being attached to the Agreement, which demonstrates that no binding agreement was intended. The plaintiff again relies on Molonglo[59] in which a preliminary agreement was held to be binding notwithstanding the fact the vendor’s statement had not been provided.
[59] Ibid at [175].
84The plaintiff rejects the defendant’s contention that there was no stipulation in the Agreement that the plaintiff would remain liable should the Land be purchased by a nominee. The plaintiff concedes that the nomination clause contained the express confirmation that the original party was bound together. However, it argues that it is well accepted in law that a nomination always leave the principal purchaser still liable under the contract.[60] It relies on Justice Judd’s reasoning in 428 Little Bourke Street Pty Ltd v Lonsdale Street Café[61] whereby where there is a nomination clause, the purchaser is still bound and all the purchaser is doing is being given the ability to transfer the property at the point of conveyance to another person who is the nominee. The nominee does not have the right to the property necessarily in its own right nor rights to acquire it against the vendor. The purchaser is still bound.[62]
[60] Transcript at pp124-125.
[61] [2009] VSC 133 per Judd J at [25].
[62] Transcript at pp124-125.
85The plaintiff also rejects that neither party promised to execute the contract and section 32 documentation given the Agreement itself specifically reflects this. The Agreement states “We are in agreement with the above terms and conditions and are prepared to execute the contract and section 32 documentation” which it says confirms the parties’ agreement to the terms of the deal.
86The defendant argues that it is established and common practice of such agreements that parties did not intend to be bound until formal contracts were signed. Citing Molonglo[63], the plaintiff says that the usual practices of conveyancing and formal written contracts are not decisive reasons for finding against the validity of a preliminary agreement.
[63] Molonglo at [124], [152], [160], and [173]-[175].
87The plaintiff responds to the defendant’s submission that the agreement is vague and incomplete and that formal contracts were at large which points to a lack of intention, by saying that the Agreement contained the key terms for the option and it is not an issue that it was not adorned with standard boilerplate terms of the formal contract. The defendant relies on its own suite of formal transaction documents which it says contains many matters not stated in the Agreement. Again, the plaintiff relies on the first and fourth categories of Masters v Cameron in which this can occur and still result in a binding preliminary agreement.
Defendant’s submissions
88The defendant’s submissions also relies on Masters v Cameron in which the High Court identified three categories of cases with the first two categories constituting binding, enforceable agreements.[64] Further, it addressed the fourth category of cases that has since been recognised.
[64] Masters v Cameron per Dixon CJ, McTierman and Kitto JJ at 360-362.
89The defendant analogises the current facts to Masters v Cameron in which the formal contract, which on the same conditions as those agreed, were to be “satisfactory to my solicitors” and no binding contract was held to be made because of the use of the words, “this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions”.
90It argues that the natural meaning of the words “subject to contract”, and like phrases, is that there is no intention to be immediately bound unless and until a formal contract is agreed and executed. In other words, that the Agreement falls within the third category of cases in Masters v Cameron. The Agreement uses words of a similar effect, being “subject to solicitor review”. The defendant says that in this case multiple formal agreements were ‘drawn up’ and the operative words of the Agreement were also qualified by words “subject to solicitor review” which is identical to the words found in Masters v Cameron.
91The defendant argues that the objective intention of the parties in executing the Agreement was to set out the terms upon which they would be prepared to execute an option agreement, which would include the contract of sale, lease agreement, and section 32 statement, and to be bound only if and when the option was drawn up and executed, subject to solicitor review. On this basis, it rejects the plaintiff’s submission that the Agreement falls within the first or fourth category of Masters v Cameron. Further, that no reasonable person could infer that the parties had reached finality in all terms of the bargain and intended to be immediately bound yet proposed to have terms restated in a form that was more detailed and precise, however, not different in effect.
92Citing Verrocchi v Messinis,[65] the defendant says that the words used by parties are the strongest indicator of whether parties intend to be legally bound. The Agreement was not an option agreement and draws distinction between “this agreement” being the offer to purchase and the Option Deed subsequently ‘drawn up’ by the defendant and ‘agreed’ by the parties. The defendant rejects the plaintiff’s submissions that the words “on the basis that the option is agreed (see below: special conditions)” meant that the defendant had already agreed to grant an option. The ‘option’ referred to is the proposed option to be drawn up pursuant to the special conditions. Further, that on its terms, the Agreement was used to register an option to purchase by the plaintiff and to seek the defendant’s approval on the terms contained. Accordingly, that it reflects that the plaintiff was prepared to execute the contract, meaning the future execution, which would bind the parties and that the plaintiff’s preparedness to execute a contract was “subject to solicitor review”.
[65] [2016] VSC 490 at [34] (“Verrocchi”).
93Referring to Molonglo, the defendant argues that the Agreement specified the purchaser was to be “The Friendly Backpacker (and or nominee)” yet contained no stipulation that the plaintiff would remain liable should the land be purchased by a nominee. The defendant would have been bound to sell to an insolvent nominee, and the plaintiff have no ongoing liability, making the contract entirely illusory. In Molonglo, the words “but the named Purchaser remains personally liable for the due performance of all the Purchaser’s obligations under this Agreement” showed intent to be bound, which is different on the current facts.
94The defendant further submits that there were a large number of commercially significant matters that parties had yet to decide, which is indicative of parties’ intention not to be bound by the Agreement. It argues that the terms of the proposed option deed, contract of sale and lease were almost entirely at large. The defendant refers to the scope and significance of terms left unagreed by the form of the proposed Put and Call Option Deed, Contract of Sale and Lease Agreement, which were subsequently drawn up and detailed matters not the subject of the Agreement. It further relies on the continued negotiations after signing the Agreement, and that accordingly, the plaintiff cannot rely on the first or fourth category of Masters v Cameron.
95The defendant also says that the magnitude, complexity and subject matter of the proposed transaction suggest that the Agreement was not intended to bind the parties. It submits that parties were involved in negotiations of an important and complex piece of commercial real estate worth over $6,000,000.00 and also represented by sophisticated lawyers. Therefore, the prima facie inference is that they would not intend to be bound until the precise terms of the agreement had bene finalised or executed. Further, referring to McGorlick v Palmer,[66] that the Court should have regard to the established common practice in agreements of the type in question, being an offer to purchase concerning the sale and lease of real estate, where standard practice is that parties would not have intended to be bound until the execution of a formal agreement. It is also expected that a transaction of this type would only be entered into after the preparation of a section 32 statement suggesting that the parties did not intend the Agreement to constitute a binding agreement.
[66] [2022] VCC 1229 per Judge Ryan at [74]–[76].
96The defendant further relies on the parties’ conduct after signing the Agreement. On 20 April 2021, the plaintiff sought a director’s guarantee or security deposit on the proposed lease agreement and, in doing so, Mr Lazarovits apologised for the “continual negotiation”. The defendant refused to offer a director’s guarantee or a security deposit. The plaintiff again sought a director’s guarantee or security deposit on the proposed lease agreement on 19 May 2021 noting that “not all the terms of the standard lease were specifically addressed” prior to the Agreement. On the same day, the plaintiff also sought to negotiate an amendment to the date by which the option could be exercised or the price payable under the proposed contract of sale which were both matters expressly dealt with in the Agreement. The requests were also provided under cover an email from Woodley stating that “[a]fter the below is sorted [being the proposed amendments], hand it over to the legal teams for final discussions, working towards [an] exchanging [of] contracts”. The defendant submits that the conduct of the plaintiff not only reflects that there remained significant terms that were not yet the subject of a concluded agreement but that the intention was not to be bound by the terms in the Agreement.
97The defendant additionally relies on the parties’ conduct prior to the Agreement. It says the Agreement was presented as an update to the 25 March 2021 Offer to Purchase signed by the plaintiff which was prepared by Woodley after Lazarovits agreed that the documents were “just [the Plaintiff’s] intention of offer and doesn’t need to be complicated”. Further, that there was nothing in the conduct of the parties between 25 March 2021 and 1 April 2021 which was intended to make a transition into a legally binding relationship. The defendant rejects the plaintiff’s reference to correspondence between Lazarovits, Woodley and Davy demonstrating the parties’ intention for the Agreement to be binding. Instead, it argues that all that the correspondence evidences is that the parties reached agreement on the terms of the transaction which were documented in the Agreement and that such an agreement, on terms of a contractual nature, cannot itself demonstrate an intention to be bound.
Analysis
98The 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. As stated by French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd:[67]
“[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”.
[67] (2014) 251 CLR 640.
99Justice Riordan in Verrocchi[68] recently summarised the principles to be applied in determining whether parties intended to enter into a binding contract in circumstances where a subsequent formal contract is contemplated.
[68] Verrochi at [27] to [31].
100The High Court in Masters v Cameron[69] reasoned 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.”
[69] (1954) 91 CLR 353 per Dixon CJ, McTiernan and Kitto JJ at 360.
101The three classes were identified as follows, with only the first two classes said to form a binding contract:
1. The parties have agreed on all terms and intend to be immediately bound to perform those terms, but at the same time purpose to have the terms of their bargain restated in a form which will be fuller or more precise but not different in effect.
2. The parties have agreed on all terms and intend no departure from, or addition to, that which the 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.
3. The parties do not intend to make a concluded bargain at all, unless and until they execute a formal contract.
102Since Masters v Cameron, a fourth category has also been accepted in many subsequent cases namely in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd,[70] which was confirmed on appeal.[71] It should be noted that the fourth category has been the subject of criticism, however, Riordan J adopted the approach of Giles JA in Tasman Capital Pty Ltd v Sinclair at [26]:[72]
“the categorisation does not greatly contribute to the decision in the particular case’ because whether or not the Court will find a contract is determined, in each category, by whether the parties intended to be legally bound to the informal agreement — such intention being objectively ascertained”.
[70] (1986) 40 NSWLR 622 at 628 relying on Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317.
[71] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 per McHugh JA at 634–635 (with whom Kirby P and Glass JA agreed).
[72] Verocchi at [31] referring to [2008] NSWCA 248 per Giles JA at [26] (with whom McColl JA and Young CJ agreed).
103The fourth category identified reflected what the High Court concluded in Sinclair, Scott & Company Ltd v Naughton[73] whereby the parties wish to be bound immediately and exclusively by the terms agreed and expect to make a further subsequent contract in substitution for the first contract, containing, by consent, additional terms.
[73] (1929) 43 CLR 310 at 317.
104Justice Riordan clarified that, in searching for intention to create contractual relations, the Court must undertake an objective assessment of the state of affairs between parties before, at the time of and after entry into said Agreement. Critically, what is considered ‘objective’ is what is based on what is said or done with regard to the circumstances in which it occurred. Uncommunicated motives or intentions are irrelevant. The central question is what a reasonable person would infer from observing all of the dealings between parties.[74]
[74] Verocchi at [32]-[33] referring to Goulburn-Murray Rural Water Authority v Rawalpindi[2010] VSC 166 per Ross J at [153].
105Both parties relevantly referred to the recent Victorian Court of Appeal case of Molonglo, which was subsequently considered in Edge Development.
106In Molonglo, the parties executed a document described as an “Agreement to Purchase” (“Cahill Agreement”) for the purchase of a commercial property in Collingwood. The agreement set out six special conditions including the following which reflected, “This offer is conditional upon the purchaser’s solicitor’s approval of the final contract of sale and Section 32 Vendor Statement documentation”. The Court of Appeal viewed the following terms of the Cahill Agreement as supportive of an immediately binding contract as distinct from an agreement to negotiate or an ‘agreement to agree’:[75]
a) The title suggested that the document was intended to create immediate rights and obligations in relation to the purchase of the property. If parties had intended the document to be an agreement to agree they would have used a different title;
b) The descriptions of parties as “vendor” and “purchaser” are ordinarily descriptions in a document relating to the sale of a property that denote the property is being sold by the person described as ‘vendor’ to the person described as ‘purchaser’. It is not uncommon for parties to be described in non-prescriptive terms in documents which are not intended to constitute binding contracts;
c) The document contains all essential terms for a contract for the sale of land namely the parties, the property and the price;
d) The references to ‘nominee’ support the characterisation of an immediately binding contract for the sale of the property. If the parties had intended the document to be an agreement to negotiate such a contract, there would have been no need for provisions enabling a nominee to be substituted for the proposed purchaser prior to completion of the negotiations;
e) The nomination clause is an indication that the document was intended to be an immediately binding contract for the sale of the property;
f) The use of the present tense in the words indicates that the purchaser is buying the property by virtue of the Cahill Agreement rather than an agreement that may result from future negotiations;
g) The reference to approval of the ‘final’ contract by the purchaser’s solicitor suggests that the parties intended for the Cahill Agreement to itself constitute a contract for the sale of the property.
[75] Molonglo at [163].
107Relevantly, the Court of Appeal further adopted the trial judge’s reasoning in respect of the following indicators:[76]
a) The fact the transaction involves a real estate transaction of considerable value may weigh against an intention as does the absence of a section 32 statement or an upfront deposit. However, the relevant intention is key regardless of the subject matter, magnitude or complexity of the transaction.[77]
b) Section 32K(3) of the SLA provides for circumstances in which a binding contract might be rescinded, which suggests that there can be circumstances in which a contract will be in existence even though a s32 statement has not been provided.[78]
c) Although the first 5% of the deposit is only payable on exchange of formal contracts, the agreement makes provision for the payment of the deposit earlier by reference to the ‘balance’ being paid on return of documentation by the purchaser. The fact that monies may be ‘refunded’ if the vendor withdraws prior to formal document is also consistent with this construction.[79]
[76] Molonglo at [150] referring to Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill & Anor [2017] VSC 641 per Kennedy J at [179].
[77] Ibid at [179]-[189].
[78] Ibid at [181].
[79] Ibid at [182].
108The Court of Appeal viewed the following terms of the Cahill Agreement as not supporting of an immediately binding contract:[80]
a) The fact that an obligation to pay part of the deposit only arises on the exchange of contracts indicated that parties intended that no binding contract for the sale of the property until the parties exchanged contracts in the future.
b) The fact that settlement was not due until 24 months from the signing of the contracts.
c) The special conditions opening words “This offer is conditional upon the purchaser’s solicitor’s approval of the final contract of sale and Section 32 Vendor Statement documentation” suggests that the document is not an immediately binding contract.
d) The brief nature of the document and the absence of many standard clauses that are typically found in a contract for the sale of land in Victoria.
[80] Ibid at [164].
109It also assessed the condition that required solicitor’s approval of the sale document and analysed its significance.[81] The Court of Appeal concluded that the provisions of the special condition regarding approval of the final contract and the vendor’s statement by its solicitor did not mean that the Cahill Agreement was an ‘agreement to agree’ rather than an immediately binding contract for the sale of the property. Any additional terms together with the existing terms form the contract and if the parties failed to agree on any additional terms the contract would be confined to the existing terms. Critically, the Court of Appeal said:[82]
“The opportunity afforded by special condition 1 for the parties to agree to additional terms was not intended to provide either of them with a unilateral right to treat the existing terms as not giving rise to an immediately binding contract for the sale of the Property.”
[81] Ibid at [169]
[82] Ibid per Maxwell ACJ, Whelan and Kyrou JA at [169].
110The Court of Appeal then went on to examine the surrounding circumstances known to both parties and the parties’ pre-contractual and post-contractual conduct. It was concluded that the surrounding circumstances and conduct of parties supported the conclusion that based on the terms of the Cahill Agreement it was intended to constitute an immediately binding contract.[83]
[83] Ibid at [174] and [176]-[177].
111In Edge Development,[84] the Victorian Court of Appeal found that a letter of offer signed by parties but expressed as “subject to the contract being executed” did not amount to a binding contract for sale of the relevant property. The primary judge, in applying the principles, held that the signed letter fell into the third non-binding category in Masters v Cameron and 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 for the sale of the land was executed.[85] The conclusion was reached principally on the basis of condition 4 of the letter which stated that “[t]he offer is subject to the contract being executed”.
[84] Edge Development at [25].
[85] The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326 per Justice Riordan at [48].
112The Court of Appeal found that it was a clear case where the words “subject to contract” was given its ordinary meaning and upheld the trial judge’s decision that condition 4 of the letter demonstrated the parties’ intention not to be bound at that stage. The Court reasoned the following:[86]
a) the word “contract” in condition 4 was not ambiguous as the letter used the word “sign” when referring to the letter, yet “execute” when referring to the contract for sale;
b) aspects of the letter would have no commercial purpose if it did not require the formal contract of sale to be executed;
c) the “natural meaning” of “subject to contract” is that the parties were not bound until a formal document was executed;
d) the execution of a formal contract marked a “significant transition in the relations between the parties” because it triggered significant obligations such as payment of a 20% deposit, cessation of confidentiality obligations and access to the property;
[86] Edge Development at [48]-[54].
e) while the fourth category in Masters v Cameron contemplates there being some outstanding matters, the importance and extent of those matters is relevant. There were significant matters not addressed in the letter; and
f) subsequent conduct of the parties did not provide clear evidence of any admission by any party that the letter was intended to be binding and, therefore, was irrelevant to the consideration.
113The Court of Appeal noted that parties had made submissions as to the similarities and differences between the current case and previous cases. Whilst it had considered cases such as Molonglo, in the context, it clarified that each ultimately depends on the documents in question and other relevant evidence.[87]
[87] Ibid at [64].
114In relation to the ‘nomination clause’ submissions, Judd J in 428 Lt Bourke St Pty Ltd v Lonsdale St Café Pty Ltd[88] referred to Nettle J in Commissioner ofState Revenue v Politis[89] who commented on the effect of nomination clauses as follows:[90]
“Plainly, however, under most nomination clauses the nominee would not acquire any rights as against the vendor, let alone the rights of the purchaser; for most nomination clauses constitute no more than a power in the purchaser to require the vendor to complete the contract by transfer of the land to the purchaser’s nominee. In such cases the purchaser has rights as against the vendor to have the land transferred to the purchaser or to the purchaser’s nominee, at least upon payment of the purchase price. And the purchaser has an interest in the land, in the nature of an equitable fee simple (assuming that the contract provides for purchaser of the fee simple), although of course that really means no more than that the contract is susceptible to an order for specific performance at the suit of the purchaser. But the nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract. And for the same reason, the nominee has no standing in equity to obtain an order for specific performance of the contract. He must sue in the name of the purchaser or join the purchaser as a defendant. Therefore, such if any interest as the nominee may have in the land is one which derives from the purchaser, and relevantly the most that can be said is that the nominee may acquire an interest in the land equivalent to that which the purchaser had or would have had under the contract of sale”.
[88] [2009] VSC 133 at [24]-[25].
[89] [2004] VSC 126.
[90] Ibid per Nettle J at [15].
115Justice Judd also clarified that a nomination clause does not act as a novation of a contract nor give the nominee contractual rights under it.[91] More recently, JR Matthews in Foster v TW (Vic) Pty Ltd,[92] citing Judd J, reasoned that it is beside the point that a plaintiff intended to nominate another party to receive the transfer of the property. The plaintiff as purchaser under the contract is and remains the proper plaintiff.
[91] 428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd [2009] VSC 133 per Judd J at [18]–[39].
[92] [2020] VSC 533 at [50].
116In my view, and based on the terms of the Agreement, surrounding circumstances, parties’ pre and post contractual conduct, and the principles affirmed in both Molonglo and Edge Developments in respect of binding agreements, the Agreement containing the offer to purchase option constitutes an immediately binding agreement which falls within either the first or fourth category of cases in Masters v Cameron, however, more likely the fourth category.
117The terms of the Agreement that support the plaintiff’s contention that it constitutes an immediate binding contract for the option to purchase the Land are as follows:
a) The title “Agreement to Purchase” suggests the document was intended to create immediate rights and obligations in relation to the Land;
b) The execution clause contains an acknowledgment that the signer had authority to enter the Agreement. Further, the Agreement is signed by both parties, evidencing a clear intention beyond merely identifying the terms of an agreement parties were intending to enter at a later date;
c) The Agreement itself contains all essential and fundamental terms for the contract for the sale of Land being the parties’ names, the property and the price;
d) The parties are described as “vendor” and “purchaser” which is language suggestive of a binding agreement;
e) The words “and/or nominee” is used after the purchaser’s name, which again supports the characterisation of the document as an immediately binding contract for sale. Further, that the rights and obligations as purchaser remained with the plaintiff who is the proper plaintiff under the contract;
f) The operative provision, being “Vendor agrees to give the purchaser the right to enter into a contract of sale to purchase 41-43 William Angliss Drive, Laverton North. The option can be exercised between 1st July 2021 and 15 July 2021. Vendor to provide contract of sale and section 32 and have the option drawn up as it should include the contract of sale”, uses language indicative of a binding obligation;
g) The $5,000.00, as addressed in my reasons above, was payable immediately and the very clause imposing this obligation describes the sum as a “deposit” that was “non-refundable” and stated as being done because the “the option is agreed”. This evidences a clear intention of a binding agreement in which the sum was payable now and could not be refunded as an agreement was reached;
h) Further, the phrase “execution of this agreement” used in clauses relating to the deposit emphasised the parties’ intention of reaching an agreement. Indeed, the very execution and signing of the Agreement marked the transition in the legal relations between parties because it trigged obligations such as the immediate payment of the $5,000.00 sum;
i) The words “We are in agreement with the above terms and conditions and are prepared to execute the contract and section 32 documentation” suggests that a binding agreement was made to execute formal contracts on the agreed terms; and
j) The terms provide that “The option can be exercised between 1st July 2021 & 15th July 2021” and indicate that parties specified the option exercise date and a specific period would not have been contemplated had it merely been an ‘agreement to agree’.
118The terms of the Agreement that supports the defendant’s contention that it does not constitute an immediate binding contract for the option to purchase the Land are as follows:
a) The terms of the Agreement reflect that “This offer is conditional upon the purchaser’s solicitor’s approval of the final contract of sale and Section 32 Vendor Statement documentation”. These words suggest that the document is not an immediately binding contract for the option to purchase but a precursor ‘agreement to agree’ before a formal contract for sale;
b) The established common practice of agreements of the type in question in particular the expectation of the provision of a section 32 statement. It can be inferred that potentially significant information about the subject Land had not been disclosed to the purchaser and may render criminal liability under s32 of the SLA. Such matters do tend to suggest that the parties did not intend the Agreement to constitute a binding agreement; and
c) The brief nature of the Agreement and absence of standard clauses found in a contract for sale undermines the document being characterised as being a binding contract especially with regard to the magnitude, complexity and subject matter of the transaction worth over $6,000,000.00 and relating to commercial real estate.
119It is clear that the Agreement was drafted rapidly and somewhat haphazardly with apparent inconsistencies and contradictions culminating into the current dispute as to whether parties intended the option to purchase to constitute a binding agreement. The terms clearly indicate that parties intended that Woodley and Davy were to prepare further documents, being a final contract of sale and section 32 documentation, which would substitute the Agreement. It is evident that parties intended if there was disagreement on any additional terms that the Agreement containing the option to purchase would still remain operative.
120Further, and in agreeing with the Court in Molonglo and the plaintiff’s submissions, it should be noted that the relevant intention is key regardless of the subject matter, magnitude or complexity of transaction and there can be circumstances in which a contract will be in existence even though a section 32 statement has not been provided.[93] Additionally, the provision of a condition requiring a solicitor’s approval of the contract sale document does not mean that there is no immediately binding agreement, nor does it confer an unilateral right to treat the existing terms as such.[94] In my view, such a conditional term should be distinguished from a provision that reflects “subject to contract” in which case its ordinary and unambiguous meaning would be adopted in accordance with the reasoning in Masters v Cameron and Edge Development in the context of other circumstances.
[93] Molonglo at [179]-[189] and [181]-[182].
[94] Ibid per Maxwell ACJ, Whelan and Kyrou JA at [169].
121Accordingly, I am of the view that the Agreement falls squarely within either the first or fourth category of Masters v Cameron. I will now, necessarily, consider the surrounding circumstances and the parties’ pre and post contractual conduct to assess whether it supports my conclusion.
122The circumstances and conduct that support my conclusion are as follows:
a) The genesis and underlying purpose of the Agreement is documented and highlights that the parties reached agreement on the key terms of sale in March 2021, however, the defendant’s representatives sought to defer the execution of formal contracts until after 30 June 2021 for taxation purposes;
b) In light of the above, the option-structure was adopted and was the primary reason why no contracts were executed or entered into in April 2021. Email correspondence from Woodley to Lazarovits dated 29 March 2021 confirms the nature and purpose of the signed Agreement containing the option-structure as such;
c) After signing the Agreement, Arnold messaged Davy clarifying his position in respect of the Agreement and subsequent email correspondence between Davy and Woodley confirm the clear position and intention of the Agreement to be binding; and
d) Indeed, it is clear that parties did continue to negotiate terms in respect of the lease and contract of sale after signing the Agreement. In April and May 2021, Lazarovits sought a security deposit or director’s guarantee on the lease and for formal contracts to be executed prior to 30 June 2021 because of an increase in stamp duty in the new financial year. This was rejected by Arnold and Lazarovits then proceeded to request Woodley to go forward on the terms according to the Agreement, having signed and return the formal contracts. It is clear from the correspondence between Woodley and Arnold that the parties were negotiating further terms to be added, which if consented to would necessarily form part of the subsequent substituted agreement. Given there was disagreement in respect of additional terms between Lazarovits and Arnold, the Agreement with the option to purchase remained operative which is what Lazarovits sought.
123In light of the above matters, I am of the view that the parties’ pre and post contractual conduct and the surrounding circumstances support my conclusion that they intended to be immediately bound by the Agreement, which falls squarely within the first or fourth category of Masters v Cameron. A reasonable person considering the terms of the Agreement, construed in the context of the circumstances in which it came into being, would not consider that the parties intended to create binding relations until a formal contract of sale of the Land was executed.
Issue 4: If the answer to issue 3 is NO and the Agreement falls within the first or fourth category of the categories set out in Masters v Cameron is the Agreement otherwise not enforceable because it is uncertain and incomplete as to its terms?
Plaintiff’s submissions
124The plaintiff rejects the defendant’s contention that the Agreement is vague and incomplete and unenforceable and that the terms of the formal contract were at large. It contends that the Agreement contained the key terms for both the option and lease agreement.
125The plaintiff further submits that, citing Molonglo, that each of the fundamental terms in respect of the option are stated with clarity. Further, referring to Justice Croft and Robert Hay KC in Commercial Tenancy Law (3rd edition) at 1.5,[95] that the elements required for a sufficiently certain lease agreement, being the area of demise, parties, rent or consideration, term or duration is defined with precision in the Agreement.
[95] C E Croft and R Hay, Bradbrook, Croft and Hay’s ‘Commercial Tenancy Law’, 3rd edition, at 1.5. (“Commercial Tenancy Law”).
126The plaintiff responds to the defendant’s reliance on correspondence dated 19 May 2021 between Lazarovits, who reviewed the transaction documents, and Woodley. This correspondence was then forwarded to Davy. It says the reference to “confusing numbers about the rental” is inconsequential as the rent of $325,360.00 was stated in the Agreement. Further, that the Agreement provided the payment of a specified rent “plus GST and outgoings”, suggesting that all outgoings were to be payable by the tenant. It concedes that there was no agreement to render the plaintiff liable for land tax or any other type of outgoing, however, that the lease contained terms usually included in a retail lease that rendered the landlord liable for land tax and management fees. The lease was not a retail lease, which was a departure from the terms, and Lazarovits sought to remedy this accordingly.
127In respect of the security deposit and director’s guarantee, the plaintiff concedes that these matters had not been previously agreed. However, it argues that some form of security bond is contained in many leases and that Lazarovits would necessarily seek the inclusion of such term even though it had not been agreed previously.
Defendant’s submissions
128The defendant submits, in the alternative, that the proposed option agreement, contract of sale and lease agreement were yet to be drafted with the majority of the terms not being subject of preliminary negotiations let alone agreed. In turn, the defendant argues that at its highest, the Agreement was no more than an ‘agreement to agree’ which is uncertain, incomplete and cannot be enforced.
129The defendant relies on the correspondence between Lazarovits, who reviewed the transaction, and Woodley on 19 May 2021, which was then forwarded to Davy. It argues that the parties clearly continued to negotiate terms of the proposed option, contract of sale and lease agreement.
130The defendant further submits that the plaintiff sought a director’s guarantee or a security deposit on the proposed lease agreement and noted that “not all the terms of the standard lease were specifically discussed” prior to the Agreement.
Analysis
131I have already considered whether the option to purchase itself is sufficiently certain and complete to form a binding and enforceable Agreement between the parties in respect of the Land. However, it is still necessary to consider if my conclusions also extend to the lease agreement.
132Judge Ryan, of this Court, recently considered the issue of an agreement for lease as distinct from a lease in Twenty Four Outdoor Australia Pty Ltd v J and H West Nominees Pty Ltd[96] which was also affirmed on appeal.[97] The Victorian Court of Appeal concluded that a leased premises need not be described with absolute precision to be effective and support an order for specific performance. It reasoned as follows:[98]
“The description needs only to be sufficient to convey with reasonable clarity, as a matter of construction of the agreement, the subject matter of the demise.”
[96] [2020] VCC 1676.
[97] J and H West Nominees Pty Ltd v Twenty Four Outdoor Australia Pty Ltd [2021] VSCA 337.
[98] Ibid at [59].
133As the authors in Commercial Tenancy Law note:[99]
“An agreement for lease must be distinguished from a lease. The former is a contract whereby the parties bind themselves to give and take respectively a lease at some time in the future. The latter contains words of present demise, which may be express or implied; a lease is a specie of conveyance, and the question is whether the parties intend that an estate in land shall be force of their agreement be conveyed by one to the other, If they do so intend, there is a lease. An agreement for lease contemplates that an estate will be conveyed by some further act at some time. This is not to say that the term of a lease must commence as soon as the lease is granted. The term may be made to commence in the future, in the past or at the present.”
[99] Commercial Tenancy Law at 4.1.
134In Harvey v Pratt,[100] Lord Denning reasoned that the four certainties required to form the essential elements of an agreement to lease are: the term, area of demise, commencement rate and rent.
[100] [1965] 2 All ER 786 at 1026.
135In my view, and adopting the reasoning of Judge Ryan in Twenty Four Outdoor Australia Pty Ltd v J and H West Nominees Pty Ltd,[101] I find that the Agreement contains a binding and enforceable agreement for lease which is not merely an ‘agreement to agree’. There is no dispute that the essential terms of a lease agreement are necessarily specified and it is, therefore, of no consequence that the security deposit or director’s guarantee had not been previously agreed. Further, that such evidence and circumstances is consistent with my earlier conclusions that the Agreement falls within the first or fourth category of Masters v Cameron and it is clear that parties were negotiating further terms to be added to the lease agreement, which if consented to, would necessarily form part of the subsequent substituted agreement.
[101] [2020] VCC 1676.
136Indeed, and in agreeing with the plaintiff, the very terms of the Agreement clearly reflect the essential terms as follows:
a) The sale was to be subject to a lease back to the tenant, Board Pro Pty Ltd qualifying the area of demise as the Land itself;
b) The rental under the lease was to be fixed at $80 per square metre for 4,067 square metres equalling $325,360.00 per annum plus GST and outgoings;
c) The lease back to the tenant Board Pro Pty Ltd would commence on the settlement date; and
d) The lease was to expire two years from settlement.
137Contrary to the defendant’s submissions, what is critical is that the terms of the lease within the Agreement convey with reasonable clarity the subject matter and essential terms. Absolute precision in the description is not required.[102] Accordingly, the Agreement containing the option to purchase and lease agreement is sufficiently certain and complete to form a binding agreement such that plaintiff is entitled to have it specifically performed.
[102] J and H West Nominees Pty Ltd v Twenty Four Outdoor Australia Pty Ltd [2021] VSCA 337 per Kyrou, McLeish and Sifris JJA at [59] and [67] referring to Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 per Mason J at 211-12.
Issue 5: Did the Plaintiff (and/or its nominee) duly exercise an option arising under or in connection with the Agreement?
Plaintiff’s submissions
138The plaintiff responds to the defendant’s submissions in respect of the exercise of the Put and Call Option and unilateral right to an option by arguing that, properly construed, the Agreement is to grant the plaintiff merely a unilateral option. It says, on the proper construction of Agreement, the terms conferred a one way option in favour of the plaintiff for the ability to call on the option for the $5,000.00 non-refundable sum.[103]
[103] Transcript at p108.
139The plaintiff concedes that, when the formal Option Deed was drawn-up and provided to the plaintiff, there were Put and Call provisions drafted. The plaintiff did not convey to the defendant that it was not a Put and Call option and did eventually execute the Put and Call Option Deed and sent it to the defendants.[104]
[104] Transcript at p108.
140The plaintiff submits that the parties had never even considered this issue and the defendant is now utilising the Put and Call Option deed to argue that the terms of the Agreement were radically transformed. Regardless, the plaintiff contends that negotiations were concluded and then the tax issue was raised by the defendant which required a deferral of the execution of formal contracts and, in turn, that the defendant had agreed to give the option.[105]
[105] Transcript at pp108-109.
141The plaintiff further submits that it was contemplated that the Agreement would be fairly rapidly drafted and progressed and, therefore, was a preliminary agreement envisaged to be in place for a few weeks until a formal option deed was drafted and executed.[106]
[106] Transcript at pp109-110.
142The plaintiff rejects the defendant’s suggestion of the commercial unlikelihood of such a course of action by the defendant to enter such an agreement in exchange for $5,000.00, as this was indeed its very intention given the taxation issue raised. The issue was never raised by the defendant despite weeks of negotiation and all terms were agreed in principle to the point of drawing up formal contracts. Following this, the defendant sought a deferral in exchange for the $5,000.00 sum to preserve the rights of the plaintiff in the Agreement until a formal option deed was drawn up. It says there is nothing commercially unsound about this construction.[107]
[107] Transcript at p110.
143The plaintiff says the Put and Call Option Deed was prepared by the defendant and so if additional terms were included that is inconsequential as the relevant Agreement was signed on 7 April 2022 and the subsequent Put and Call Option Deed cannot bring into question the nature of the Agreement or be used to question the intention by the inclusion of bilateral reciprocal options later in time.[108]
[108] Transcript at p110.
144The plaintiff submits that in respect of exercising the option itself, on 28 May 2021, Tisher Liner FC Law, the plaintiff’s solicitors, signed and returned the document. A few days earlier, the defendant had reneged on the Agreement and refused to sign the option or otherwise proceed, to which the plaintiff responded by sending all the documents in fully executed form. This included the Put and Call Option Deed. The plaintiff submits that it has never taken issue with this.[109]
[109] Transcript at p111.
145The plaintiff, referring to the Masters v Cameron, says that the conduct and circumstances necessarily follows the established category of cases in which there was a head of agreement, which was then amplified in the course of further negotiations to achieve a more fulsome expression of the Agreement with additional terms which the plaintiff signed and returned to the defendant. Further, that the correspondence of 28 May 2021 emphasises the plaintiff’s intent on proceeding with the Agreement, to which it then submitted and executed the documents prepared and provided by the defendant.
Defendant’s submissions
146The defendant submits that, even if the Court were to find that the Agreement was a binding agreement for the option to purchase the Land, the plaintiff failed to exercise the option between 1 July 2021 and 15 July 2021.
147It contends that on 1 July 2021, the plaintiff purported to unilaterally execute a draft Put and Call Option deed, unexecuted by the defendant, and exercise an option to purchase the Land pursuant to that deed. Further, that the draft Put and Call Option deed was given to the plaintiff only for the purposes of review and was not capable of unilateral acceptance.
148The defendant submits that, even if the Agreement is binding and enforceable, the plaintiff’s purported exercise of the option does not constitute performance of the option that was granted under the Agreement. It says this on the basis that the option exercisable under the draft Put and Call Option deed is different to the option granted by the Agreement. The plaintiff contends that there is a distinction drawn in the Agreement between the offer to purchase and the option subsequently drawn up and agreed, being the Put and Call Option deed the plaintiff executed on 1 July 2021.
149The defendant further submits that the plaintiff properly conceded to the contract of sale and draft Put and Call Option deed being not enforceable and does not seek specific performance of the option purported to be exercised under the draft Put and Call Option deed.
Analysis
150As articulated earlier, three classes were identified in Masters v Cameron, with only the first two classes said to form a binding contract:
1. The parties have agreed on all terms and intend to be immediately bound to perform those terms, but at the same time purpose to have the terms of their bargain restated in a form which will be fuller or more precise but not different in effect.
2. The parties have agreed on all terms and intend no departure from, or addition to, that which the 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.
3. The parties do not intend to make a concluded bargain at all, unless and until they execute a formal contract.
151The fourth category identified reflected what the High Court concluded in Sinclair, Scott & Company Ltd v Naughton,[110] whereby the parties wished to be bound immediately and exclusively by the terms agreed and expected to make a further subsequent contract in substitution for the first contract, containing, by consent, additional terms.
[110] (1929) 43 CLR 310 at 317.
152In my view, and consistent with my earlier conclusions, that the Agreement falls within the first or fourth category of cases in Masters v Cameron, the Put and Call Option deed alongside other documents provided by the defendant and signed and executed by the plaintiff on 1 July 2021 does not put into question the binding and enforceable nature of the Agreement nor the parties intention because of the inclusion of subsequent additional terms.
153The intention of the parties was clear and commercially viable, based on the terms of the Agreement and surrounding circumstances, of an option in favour of the plaintiff for the ability to call on the option for the $5,000.00 non-refundable sum because of a tax issue raised by the defendant requiring a deferral of the execution of formal contracts. The parties clearly wished to be bound by the terms of the Agreement and necessarily expected to make a further subsequent contract in substitution with additional terms. In agreeance with the plaintiff, the Put and Call Option deed does not transform the nature, terms or intent of the Agreement.
154The plaintiff sent formal notices to the defendant exercising the option in the Agreement on 1 July 2021 along with other documents prepared by the defendant. Accordingly, I find that it did duly exercise the option in accordance with the terms of the Agreement within the requisite period.
Conclusion
155For the foregoing reasons, there is judgment for the plaintiff.
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Certificate
I certify that these 50 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 13 December 2022.
Dated: 13 December 2022
Nikki Thomson
Associate to Her Honour Judge Burchell
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