The Owners - Strata Plan No 58087 v Matthews

[2015] NSWSC 1906

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners – Strata Plan No 58087 v Matthews [2015] NSWSC 1906
Hearing dates:	23 November 2015
Decision date:	15 December 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Notice of Motion dated 24 July 2015 should be dismissed with costs.
Catchwords:	REAL PROPERTY – strata title – management and control – where lot owner and Owners Corporation negotiated to settle existing proceedings between them – where ‘agreement in principle’ was reached in correspondence – where agreement was subject to formal resolutions being passed at general meeting – whether a binding agreement existed.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) s 73 - Environmental Planning and Assessment Act 1979 (NSW) s 96 - Strata Schemes Management Act 1996 (NSW) ss 12, 13, 16, 21, 21(1), 21(2), 21(4), 28
Cases Cited:	- 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488 - Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 - Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 - Calderbank v Calderbank [1975] 3 All ER 333 - Cleary v Masterton [1999] NSWSC 207 - Grave v Blazevic Holdings Pty Ltd [2012] NSWCA 329 - Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 - Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 - Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp Strata Plan 71623 [2009] NSWSC 882
Category:	Procedural and other rulings
Parties:	The Owners – Strata Plan 58087 (Plaintiff) Dennis Raymond Matthews (Defendant)
Representation:	Counsel: E. Peden (Plaintiff) S. Nixon/A. Jordan (Defendant)   Solicitors: Grace Lawyers (Plaintiff) Clayton Utz (Defendant)
File Number(s):	2013/260115

Judgment

1. By Notice of Motion filed on 24 July 2015, the Plaintiff, The Owners – Strata Plan No 58087 (“Owners Corporation”) seeks a declaration under s 73 of the Civil Procedure Act 2005 (NSW) that the Owners Corporation and the Defendant, Mr Dennis Matthews, entered into a binding settlement agreement on the terms contained in a Deed of Settlement attached to an email dated 5 June 2015 from Owner Corporation’s solicitors to Mr Matthews’ solicitors and an order that the Owners Corporation and Mr Matthews specifically perform the settlement deed. That document was a draft deed of settlement which has not subsequently been approved by either the Owners Corporation or Mr Matthews and, as Mr Matthews points out, the Owners Corporation did not advance submissions in support of the contention that there was a binding agreement on the terms of the draft deed. I understand the claim on that basis is not pressed, and it could not have succeeded had it been pressed where neither party had adopted that draft deed.

2. Alternatively, the Owners Corporation seeks a declaration under s 73 of the Civil Procedure Act that the Owners Corporation and Mr Matthews entered into a binding settlement agreement on the terms contained in a letter dated 1 May 2015 from the Owners Corporation’s solicitors to Mr Matthews’ solicitors and an email dated 2 May 2015 from the Owners Corporation’s solicitors to Mr Matthews’ solicitors. I will return to the contents of those documents below. The application was argued before me on that basis.

3. The application is brought under s 73 of the Civil Procedure Act which provides that the Court may exercise its jurisdiction to determine any question in dispute between the parties as to, relevantly, the terms on which proceedings have been settled and make such orders as it considers appropriate to give effect to such a determination. There was little dispute as to the applicable principles, and the motion requires a determination of whether any binding settlement was reached on the relevant facts.

The affidavit evidence and chronology of events

4. The Owners Corporation’s application is supported by an affidavit dated 23 July 2015 of Ms Sylvia Quang, a solicitor employed by Owners Corporation’s solicitors. Ms Quang’s affidavit sets out the history of the proceedings including the correspondence which led to the “settlement” on which the Owners Corporation rely. The Owners Corporation also relies on an affidavit of Ms Valerie James dated 31 August 2015. Ms James is employed by the strata managers of the relevant strata scheme and refers to what she describes as a notice and minutes of an executive committee meeting held on 15 May 2015 together with the voting papers received by the strata managers pursuant to the notice of meeting, to which I will also refer below.

5. The dispute that is the subject of the proceedings turns on whether Mr Matthews is, pursuant to a special by-law, entitled to park in a car space at the unit block, which The Owners Corporation contends is a visitors parking space. That dispute was listed for hearing before me in early May 2015 but that hearing did not proceed for the reasons noted below.

6. By letter dated 1 December 2014, marked “without prejudice save as to costs” but admitted without objection, the solicitors for Owners Corporation repeated an earlier settlement proposal (which is not itself in evidence) which contemplated that Mr Matthews would lodge an application under s 96 of the Environmental Planning and Assessment Act 1979 (NSW) (“EPAA”) seeking to modify a requirement for two visitor carparking spaces at the unit block; subject to “formal motions” being passed on receipt of that application, the Owners Corporation would consent to that application being made, although it would not consent to or support the modification being sought; and specified consequences would follow if the application was refused or granted. The proposal contemplated that the proceedings would be discontinued and each party would pay their own legal costs; the parties would mutually release each other in respect of claims arising from the special by-law; and “[t]he agreement is subject to a formal settlement deed to be approved at a general meeting of the Owners Corporation”.

7. A further letter dated 3 February 2015 from the Owners Corporation’s solicitors referred to matters addressed in the respective parties’ joint expert report and broadly repeated the earlier proposal, including the statements that the agreement was subject to a formal settlement deed to be approved at a general meeting of the Owners Corporation.

8. By letter dated 27 April 2015, Mr Matthews’ solicitors wrote to the Owners Corporation’s solicitors, again without prejudice save as to costs, confirming that Mr Matthews “is prepared to resolve the matter on the following basis”:

“1 [Mr Matthews] lodges the s 96 application a copy of which is enclosed;

2.   [The Owners’ Corporation] consents as owner in respect of the common property to that lodgement;

3.   [The Owners Corporation] can take whatever position it wishes in respect of it in terms of objection, though in our view it should support it in order to remove any question about compliance with the consent;

4.   The current Supreme Court proceedings are discontinued with no order as to costs;

5. If Council approves the s 96, that would be the end of the matter;

6.   If Council refuses the application, or it is a deemed refusal, then our client can file a Class 1 appeal in the Land and Environment Court in respect of it and can appeal any LEC decision to refuse;

7. If the Court approves the s 96, again, that should be the end of the matter.

8.   The parties enter an appropriate Deed in that regard.”

That letter in turn enclosed a detailed document which was a proposal for the reallocation of one visitor parking space to resident parking at the units. As at that date, both the Owners Corporation’s previous offers of settlement and Mr Matthews’ solicitor’s offer set out in his letter of that date contemplated that a deed of settlement would be executed, and at least the Owners Corporation’s offers required approval of that deed by the Owners Corporation in general meeting. That offer contained in that letter was not accepted by the Owners Corporation.

9. By a further letter dated 1 May 2015, again without prejudice save as to costs, the Owners Corporation’s solicitors referred to previous advice by the Owners Corporation on several occasions that, upon receipt of the application under s 96 of the EPAA and “subject to formal motions being passed at a meeting of the Owners Corporation”, the Owners Corporation would consent to lodgement of that application. Mr Matthews submits, and I accept, that the reference to the recent correspondence in the opening of that letter tends to link that letter with the earlier correspondence which had contemplated a settlement deed, subject to the approval of the Owners Corporation in general meeting. In any event, the terms of that letter itself contemplated that approach.

10. The 1 May letter set out a proposed resolution of the matter in fifteen paragraphs, expressly “subject to formal resolutions being passed at a meeting of the Owners’ Corporation”. The first of those paragraphs provided that:

“If all of the terms below are accepted by [Mr Matthews], the parties agree to vacate the hearing on 4 May 2015 and adjourn the matter for [a] directions hearing, pending the parties entering into a settlement deed.”

The further points contemplated that the Owners Corporation would then issue a notice of meeting within seven days to consider Mr Matthews’ application under s 96 of the EPAA; that the Owners Corporation would provide (or, more precisely, committed to provide) its consent to the lodgement; that a settlement deed would be drafted “and put to a meeting of the Owners Corporation for approval”; and that, once the settlement deed was executed (presumably, if it was approved by the Owners Corporation at the proposed meeting), the parties would sign and file a notice of discontinuance in respect of the proceedings. So far as that proposal contemplated that the notice of discontinuance of the proceedings would be signed and filed after the settlement deed was executed, that necessarily depended on the prior step of approval by the Owners Corporation before it was executed. That letter also contemplated that specified steps would follow in relation to the application under s 96 of the EPAA. That letter also proposed that Mr Matthews would indemnify the Owners Corporation for any costs and other expenses should Council take enforcement action against it “from the settlement date” until the determination of foreshadowed appeals to the Land and Environment Court, and that Mr Matthews was to pay the Owners Corporation’s costs of the proceedings from 8 September 2014 as agreed or assessed on the ordinary basis.

11. That letter contemplated two meetings of the Owners Corporation, the first to pass a resolution to provide its consent to the lodgement of the application under s 96 of the EPAA and the second to determine whether to approve a settlement deed which had not then been drafted. It seems to me that, so far as that letter contemplated that a settlement deed would be put to a meeting of the Owners Corporation for approval, it necessarily also contemplated that the Owners Corporation might not approve that deed at that meeting. As Mr Matthews points out, it also appears that the 1 May letter was not complete, so far as the parties’ previous correspondence, including the offers of 1 December and 3 February, and the later draft deed of settlement, contemplated releases between the parties, which were not addressed in that letter. That letter was described as a settlement offer pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333.

12. Communications then took place between Counsel retained for the parties, seeking to reach agreement as to the level of costs payable by Mr Matthews. By a text message dated 2 May 2015, the Owners Corporation’s solicitor advised its Counsel that:

“O[wners] C[orporation] agrees to settle in accordance with all of the conditions in our letter dated [1 May 2015] save that [Mr] Matthews is to pay $35K for our costs to be paid on exchange of settlement deeds. I can send an email confirming if agreed.”

13. By an email sent on Saturday 2 May 2015, presumably following that exchange, the Owners Corporation’s solicitors advised Mr Matthews’ solicitors that:

“In accordance with the discussion between our respective [C]ounsels I confirm [Mr Matthews] has agreed to accept all of the conditions contained in our letter dated 1 May 2015, save that [Mr Matthews] agrees to pay [the Owners Corporation’s costs] in the sum of $35,000.00. The payment of $35,000.00 is to be made at the time of exchanging settlement deeds.

I will be writing to the Court advising the matter has settled in principle and the Short Minutes of Order will be prepared for Monday.”

14. Also on 2 May 2015, the Owners Corporation’s solicitors advised my Associate that:

“The matter has settled in principle and the parties will prepare appropriate Short Minutes of Order for His Honour’s consideration on 4 May 2015.”

The use of the language “in principle” here, and in subsequent correspondence from the Owners Corporation’s solicitors to which I refer below, is significant. In Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 at [18], Brereton J observed that the phrase “agreed in principle” is often used to indicate that “although consensus on a matter has apparently been reached, there is not yet a final agreement” and that the words “settled in principle” refer to a “state of consensus somewhat short of settled”. In that case, Brereton J was considering the same issue as arises here, where the parties had reached a degree of consensus about a settlement, and had advised the Court that the matter was “settled in principle”.

15. On 4 May 2015, the parties appeared before me. Ms Peden, who appears for the Owners Corporation, initially advised that “this matter has settled”, handed up agreed Short Minutes of Order and then observed that:

“We’re seeking some time in order for the deed of settlement to be drawn up. My client is an Owners’ Corporation and in order to finalise arrangements there needs to be meetings held, [etc]. The timeframe is agreed. We anticipate that by 15 June [2015] everything will be finalised in a document and the final orders could be made.” (Ex R1).

I then noted that there may be no alternative than to accede to vacating the hearing date, but that I had reservations about doing so where two hearing days could be lost if a difficulty were to emerge by 15 June 2015, the date to which Ms Peden had referred, and I asked Ms Peden whether the proper description of the then position was that the parties had reached “agreement in principle”, which was the language used in their email to my Associate, or whether the matter had advanced beyond that. Ms Peden responded that:

“Your Honour, the matter has settled but it needs to be finalised in a documentary form. I don’t anticipate that there will be difficulties with that form. The reason for the time is that a meeting will need to be called of the Owners’ Corporation, which takes several weeks.”

16. I then delivered a short judgment indicating the reasons why I would make the orders sought, including vacating the hearing date, in which I noted that there was “some risk in vacating a hearing date, if ultimately any settlement which now exists may not come to fruition by reason of difficulties at that [body corporate] meeting”, but also noted that no useful purpose would be served by forcing the parties to a hearing which neither of them sought. In the event, the difficulties which the Court had then recognised as a possibility have come home.

17. Further correspondence between the Owners Corporation’s and Mr Matthews’ solicitors followed, to which I can refer briefly. By email dated 4 May 2015, the Owners Corporation’s solicitors noted that the Owners Corporation would call a meeting to pass a resolution providing its consent to the lodgement of Mr Matthews’ application under s 96 of the EPAA, but noted that the solicitors had not received the form of that application, as distinct from the submissions in support of it. Mr Matthews’ solicitor foreshadowed that he would provide that form on 5 May 2015. That did not occur.

18. A notice of meeting of the Executive Committee was dated 11 May 2015 and the motion for that meeting provided:

“That the Executive Committee of The Owners – Strata Plan No 58087 RESOLVES to settle the Supreme Court proceedings against Dennis Raymond Matthews (owner of lot 16) being case number 2013/260115 in accordance with the terms identified in the letter from Grace Lawyers to Duffy Law Group (Mr Matthew’s [sic] solicitors) dated 1 May 2015 (attached), save that Mr Matthews is to pay the Owners Corporation’s costs in the sum of $35,000.”

An explanatory note in the notice, attributed to the strata managers, indicates that:

“This meeting is to ratify the Executive Committee’s decision to consent to settle and make the offer, in the proceedings against Dennis Raymond Matthews (owner of lot 16), contained in the attached letter drafted by Grace Lawyers.”

Although that note appears to assume that there was an earlier decision by the Executive Committee, there is no evidence of such an earlier decision. It appears that meeting proceeded by the return of voting papers to the strata manager. Those voting papers, and the minutes of the Executive Committee meeting (which incorrectly record a physical meeting) indicate that the members of the Executive Committee voted, by majority, to settle the proceedings on that basis.

19. The Owners Corporation’s solicitors followed up on the position on 19 May 2015 and again on 5 June 2015. By their email dated 5 June 2015, the Owners Corporation’s solicitors attached a “proposed settlement deed” and their covering email expressly noted that:

“The attached deed is still subject to final approval and a formal resolution at a meeting of [the Owners Corporation] to execute the same.”

That email requested advice whether the attached deed was acceptable to Mr Matthews and foreshadowed that the Owners Corporation would, following that advice, issue the relevant notice to call a general meeting “to consider resolutions to approve and execute the deed”. The draft settlement deed substantially followed the mechanism proposed in the earlier correspondence. Recital M contemplated that the settlement would occur “on the terms contained in this Deed”; clause 2 contemplated that certain steps would take place before and after the entry into the settlement deed, including Mr Matthews’ consent to the repeal of the exclusive use by-law which was in issue and an indemnity by Mr Matthews to the Owners Corporation for enforcement action taken against it, operative from the date of the settlement deed; clause 3 provided for the Owners Corporation to convene an executive committee meeting, to pass approval resolutions in respect of the s 96 application; clause 4 provided for mutual releases and clause 5 for a covenant not to sue; clause 6 provided for the discontinuance of the proceedings, within 14 days from the date of exchange of the deed and clause 9 contained an entire agreement provision, which provided that:

“This Deed constitutes the entire agreement between the Parties and there are no other agreements or arrangements whether written, oral or implied relating to the subject matter of this Deed other than those expressly set out herein.”

Whatever the significance of that clause, had the deed of settlement been executed, it seems to me that it has little weight where that did not occur. There plainly were other arrangements, at that point, in respect of the subject matter of the draft deed, including at least the agreement or agreement in principle that had previously been drawn to the Court’s attention. The Notice of Discontinuance attached to that draft deed in turn provided for consent to discontinue the proceedings “in accordance with the terms of the Settlement Deed executed by the parties”.

20. It appears that Mr Matthews subsequently terminated his then solicitor’s instructions, for reasons which are not disclosed by the evidence. The next directions hearing before the Court was then adjourned to allow Mr Matthews to obtain alternative legal representation and, by their email dated 15 June 2015, the Owners Corporation’s solicitors recorded their understanding that Mr Matthews would be “seeking further representation with the intention of finalising the in principle settlement”. That email was inconsistent with the position for which the Owners Corporation now contends, so far as it contemplated that an “in principle” settlement remained to be finalised and did not identify any understanding that settlement had already been effected, even on a basis that contemplated the execution of a more detailed document.

21. The Owners Corporation’s solicitors again followed up with Mr Matthews on 3 July 2015 and, on 4 July 2015, Mr Matthews advised the Owners Corporation’s solicitors that he intended to resume proceedings once he had representation, without troubling to provide any explanation of his change of position. The Owners Corporation now seeks to enforce the settlement that it contends had previously been reached, over Mr Matthews’ opposition.

What approval was required for the settlement under the Strata Schemes Management Act

22. I should now address the question of the nature of approval of the Owners Corporation that would have been required for the settlement agreement and its implementation. The parties initially did not make submissions as to the nature of any approval required under the Strata Schemes Management Act 1996 (NSW) or the Owners Corporation’s constitution (which, in the event, does not exist) for entry into and implementation of the settlement or proposed settlement. It seemed to me that the existence of any statutory or constitutional requirement for approval of the settlement, or the steps to be taken to implement it, by the Owners Corporation in general meeting would be relevant to whether the parties had objectively intended to bind themselves to a settlement without such approval being obtained. I therefore invited supplementary submissions as to that matter after the conclusion of the hearing.

23. The Owners Corporation submitted that approval for the entry and implementation of the 1 May letter and its acceptance in the 2 May email was capable of being given by either the Executive Committee or by lot owners at general meeting. Section 12 of the Strata Schemes Management Act prescribes that an owners corporation has the functions, which is defined to include powers, imposed and conferred on it under the Act. Section 16 of the Act provides that an owners corporation must appoint an executive committee, which is responsible for the day-to-day running of the strata scheme. Ms Peden in turn noted that decisions could be made on behalf of an owners corporation under the Strata Schemes Management Act, including by a person employed to assist the owners corporation in the exercise of one or more functions with sufficient delegated authority to make the relevant decision (under s 13 of the Act), by an executive committee subject to specified restrictions (under s 21 of the Act); or by a strata managing agent with sufficient delegated authority to make the relevant decision (under s 28 of the Act). A decision of an executive committee is taken to be the decision of the owners corporation; however, if there is an inconsistency between the two decisions, the owners corporation’s decision prevails (s 21(1)). The executive committee may decide anything other than a decision that is required by or under any Act to be made by the owners corporation by unanimous resolution or special resolution or in general meeting, or a decision on any matter or type of matter that the owners corporation has determined in general meeting is to be decided only by the owners corporation in general meeting (s 21(2)). Notwithstanding the appointment of an executive committee, the owners corporation may continue to exercise all or any functions conferred on it by the Act (s 21(4)).

24. Ms Peden also referred to the helpful summary of the position under s 21 of the Act by Barrett JA in 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488 at [25] as follows:

“Taken together, the provisions of s 21 are to the effect that the owners corporation, acting directly through a meeting, may decide any matter relevant to its functions and that, except in relation to matters identified in s 21(2) as being within the exclusive province of a meeting of the owners corporation, the decision-making power of the corporation so acting co-exists with a corresponding decision-making power of the executive committee, a body by which the owners corporation ‘may be assisted’.”

The parties also drew my attention to the decision of Bryson J in Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp Strata Plan 71623 [2009] NSWSC 882 at [44], where his Honour observed that an executive committee had the power to terminate a contract, whether or not they were directed to do so by owners in general meeting.

25. Mr Nixon, who appeared for Mr Matthews, in turn pointed out that there was reason to require approval of a settlement deed at a general meeting of the Owners Corporation because, even if that deed were approved by the Executive Committee, a decision of the Owners Corporation in general meeting to the contrary would prevail under s 21(4) of the Strata Schemes Management Act. That submission may need to be qualified by reference to any ability of Mr Matthews to rely on the indoor management rule in that regard. In any event, it seems to me that submission has limited force, since the Owners Corporation could reasonably have taken upon itself the risk that owners would seek to override a decision of the Executive Committee in that respect.

26. Mr Nixon also pointed out that a decision to repeal the special by-law granting Mr Matthews’ exclusive use of a parking space, if his application under s 96 of the EPAA was unsuccessful, was an essential feature of the proposed settlement, and its implementation would require a special resolution in general meeting. Ms Peden acknowledged that certain decisions could not be made by the Executive Committee in general meeting, which included matters which required a unanimous resolution or special resolution in general meeting. Ms Peden submitted that the settlement contemplated by the 1 May letter did not, under the Strata Schemes Management Act, require such a general meeting, on the basis that it did not itself involve the repeal of the relevant special by-law, although it contemplated that step might in future occur depending on events contemplated by that letter. I accept that submission. It does not seem to me that that requirement for approval in general meeting extended to the entry into the settlement, as distinct from the repeal of that by-law depending upon the outcome of the steps contemplated by it.

27. I am therefore satisfied that a settlement could potentially have been reached without the approval of the owners in general meeting, although that leads to the question whether the exchange of correspondence on which the Owners Corporation relies provided for that result.

The parties’ submissions as to the status of the settlement

28. There was little contest between the parties as to the legal principles applicable to determination whether the exchange of correspondence in respect of the settlement had binding effect. The primary question raised is whether the correspondence between the parties’ legal representatives on 1 and 2 May gave rise to an immediately binding contract between them. In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (with whom Hope and Mahoney JJA agreed) observed that a question of this kind involves the intention of the parties to make a concluded bargain, which is related to but not the same as the question whether the parties have reached agreement upon such terms as are legally necessary to constitute a contract. His Honour also noted that:

“… in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a Court will be to conclude that they had the requisite contractual intention.”

The Court may have regard to the parties’ communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not they intended to form such an agreement: Australian Broadcasting Corp v XIVth Commonwealth Games Ltd above at 567–548; Geebung Investments Pty Ltdv Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at [14,562].

29. The parties referred to the decision in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 361, Dixon CJ, McTiernan and Kitto JJ identified three categories of case which may exist where parties, which have been in negotiation, reach agreement upon terms of a contractual nature and agree that the matter of their negotiation will be dealt with by a formal contract, as follows:

“It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”

30. In Masters v Cameron above, the plurality further noted (at 361) in respect of the third class of case which it identified, that:

“Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v Petch ((1854) [1854] Eng R 995; 10 Exch 610 [156 ER 583]. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker ((1950) [1950] HCA 13; 18 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed.”

31. A fourth category of case was identified by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 where:

“the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.”

32. Ms Peden also refers to the Court of Appeal’s decision in Grave v Blazevic Holdings Pty Ltd [2012] NSWCA 329. However, that case is distinguishable from the present case since there was no suggestion on the part of the appellant, in that case, that agreement had not been reached or that that agreement was conditional upon the execution and exchange of the proposed settlement deed. That position is distinct from the present case, where the 1 May letter expressly contemplated that a meeting of the Owners Corporation would be necessary to approve the settlement deed, which had not been prepared by the time of the correspondence on 1 and 2 May.

33. Both parties also referred to the decision of the Court of Appeal in Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 although Ms Peden, who appeared for the Owners Corporation, sought to distinguish that decision. Bathurst CJ observed (at [15]) that, in cases which did not depend on the construction of a single document, the Court was required to undertake an objective determination whether the parties intended to bind themselves to a contract:

“from the communications between the parties in their context and the parties’ dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications.”

34. Beazley P (with whom Bathurst CJ generally agreed and Meagher JA agreed) also noted that whether parties intend to be immediately bound, where they have reached agreement as to the terms of a contract but have also agreed that a further, formal agreement is to be executed, is to be determined objectively, having regard to the “outward manifestations” of their intentions (at [64]–[65]). Her Honour also observed (at [65]) that the question was “what each party by words and conduct would have led a reasonable person in the position of the other party to believe”. Beazley P also observed (at [69]) that the three classes of case in Masters v Cameron above no longer applied, if they ever were, as strict categories into which cases must fall. Her Honour noted that (at [72]) that it was relevant to consider the commercial context and surrounding circumstances of the parties’ dealings in determining whether a binding agreement had come into existence. Beazley P also observed (at [83]) that it was probable, as a matter of commercial reality, that if the parties had intended to be bound without signing the relevant deed, one or both of the solicitors would have said so. The Court of Appeal also noted (per Bathurst CJ at [15] and per Beazley P at [118] (with whom Meagher JA agreed)), and consistently with the case law to which I referred above, that the Court may have regard to subsequent conduct of the parties in determining whether, at an earlier juncture, the parties intended to enter into a binding agreement.

35. Ms Peden submits that Mr Matthews’ solicitor and barrister had “authority to settle” the proceedings. It is not necessary to address the correctness of that proposition, since the question in dispute is not one of the authority of the legal parties’ representatives, but of the content of the agreement, or agreement in principle, reached between them by the exchange of correspondence.

36. Ms Peden submits that the agreement suggested to have been formed by the correspondence of 1 and 2 May 2015 falls within the first two classes of Masters v Cameron as an immediately binding contract, whether or not the contemplated deed of settlement came into existence, and where the deed was intended only to restate the matters in a fuller or more precise way with no difference in effect, and that the deed was merely an administrative step not intended, objectively, to effect the binding nature of the prior agreement.

37. The first of those classes (which, as the Court of Appeal pointed out in Pavlovic v Universal Music Australia Pty Ltd above, are not strict categories) contemplates that the parties intended to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which would be fuller or more precise but not different in effect. I cannot accept the submission that the exchange of correspondence on 1 and 2 May was of that character. First, that submission is inconsistent with the qualifying language in the 1 May letter that all of the matters put were “subject to formal resolutions being passed at a meeting of the Owners Corporation”. It could not be said that the parties intended to be immediately bound to the performance of the relevant terms where that qualification excludes that possibility. Second, that proposition would involve the Owners Corporation being bound to the settlement, before it was ratified by the Executive Committee on 15 May; and, third, the Owners Corporation would then be bound to the settlement notwithstanding that it required steps to be taken which the Owners Corporation in general meeting might decline to take. Fourth, that submission tends to beg the question why, if all had been agreed between the parties on 1 and 2 May, the proceedings were then not discontinued and the then binding agreement allowed to take its course, rather than adjourned for the subsequent steps to be taken, which would only have had any useful purpose if those subsequent steps could have affected whether the parties were, in fact, bound to a settlement.

38. The position for which the Owners Corporation contends also has the difficulty that, if it were correct, the parties would be bound to a settlement without releases, unless they agreed to the later draft settlement deed, because the letter dated 1 May 2015 did not include releases. It seems unlikely that the parties objectively intended that result, where both their earlier correspondence and the later draft settlement deed contemplated that such releases would be given. There seems to me to be substantial force in the observation of Young J in Cleary v Masterton [1999] NSWSC 207 at [39], quoted by Beazley P in Pavlovic above at [116]–[117] that, where the parties have “brokered a deal” which contemplates a deed or release and discontinuance, then they “intend as a general rule that there is no contract until that release has been delivered and exchanged”. The position would be a fortiori if the suggested agreement would exclude the release that they contemplated.

39. A characterisation of the correspondence as falling within the second category, as one where agreement as to all terms have been made conditional upon the execution of a formal document, again does not seem to me to give weight to the level of conditionality in the 1 May letter, which was not only conditional upon a formal document, but upon the relevant approval of the Owners Corporation, which could have been withheld. The relevant facts seem to me to be closer to the third category of case contemplated by Masters v Cameron above, where the intention of the parties was not to make a concluded bargain, unless and until they executed a formal contract, so far as the Owners Corporation’s approval of the terms of the arrangement would have occurred prior to the execution of the proposed settlement deed. The Owners Corporation did not contend the correspondence of 1 and 2 May was in the fourth category noted in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd above, which contemplates that the parties were content to be bound immediately and exclusively by the terms which they had agreed, while expecting to make a further contract in substitution for the first.

40. Ms Peden alternatively submits that the condition for the passage of relevant resolutions by the Owners Corporation should be understood to be a “condition subsequent” to the relevant agreement, rather than a condition to its legal effect. I do not accept that submission, which, it seems to me, is not consistent with the language of the 1 May letter; does not have sufficient regard to the facts that the Executive Committee was not bound to ratify the settlement on 15 May 2015, although in fact it did so by majority; that a general meeting of the Owners Corporation might have rejected the proposed deed of settlement; and the parties are unlikely to have objectively intended that the Owners Corporation would be bound by the terms of the earlier exchange of letters, if its members had declined to approve the deed which was to give effect to that earlier exchange, or that Mr Matthews would be bound by the settlement as at 2 May without any assurance that the Owners Corporation would pass such a resolution. That submission is also starkly inconsistent with the several references in subsequent correspondence from the Owner’s Corporation’s solicitors to the need for a general meeting of the Owners Corporation to consider resolutions to approve and execute the proposed deed of settlement.

34. Ms Peden also refers to subsequent conduct, which she submits amounts to acceptance of the terms of the 1 May letter, including the preparation of short minutes of order vacating the hearing on 4 May 2015. Ms Peden also points out that the terms of the letter of 1 May 2015 contemplated some actions prior to the execution of the proposed deed of settlement including, potentially, the Owners Corporation convening a meeting to consent to lodgement of the application under s 96 of the EPAA. It seems to me that those matters are equally consistent with a settlement “in principle” falling short of a binding agreement, or the anticipation of a settlement to be implemented by the proposed deed of settlement. I note that, in any event, they did not take place where Mr Matthews had not submitted the form of the application under s 96 of the EPAA to the Owners Corporation. Ms Peden also submits that, for a significant period after the exchange of that correspondence, Mr Matthews did not dispute the fact of a settlement. That proposition is correct only in the limited sense that correspondence by Mr Matthews’ solicitors over that period did not address whether there was a binding settlement or an agreement “in principle” falling short of such a binding settlement, where no dispute as to that question had arisen.

35. Finally, Ms Peden also submitted, in her further submissions as to whether approval in general meeting was required under the Strata Schemes Management Act that there was no evidence to suggest that lot owners in general meeting would have voted “against their own interest” by defeating a resolution to approve a settlement deed put to them. That submission depends on an assumption, which owners may or may not have shared, as to what was in their interests, and I note that one of the three members of the Executive Committee had in fact voted against the proposed settlement. In any event, the fact that owners in general meeting were to be allowed the opportunity to vote on the proposed settlement deed makes it unlikely that the Owners Corporation would have sought to commit itself to a settlement, prior to that vote, in a manner that would deprive that vote of substantive effect.

36. For all these reasons, I am not satisfied that a binding agreement was reached on the terms of the correspondence exchanged on 1 or 2 May 2015, still less on the terms of the later draft deed which neither party approved. The Notice of Motion dated 24 July 2015 should therefore be dismissed with costs. The proceedings should be relisted in the Registrar’s List on a date convenient to the parties, for the allocation of a further hearing date.

**********

Decision last updated: 21 December 2015