Vitek v Estate Homes Pty Ltd

[2008] NSWSC 931

CITATION:	Vitek & Anor v Estate Homes Pty Ltd & Ors [2008] NSWSC 931
HEARING DATE(S):	5 September 2008
JUDGMENT DATE :	5 September 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
EX TEMPORE JUDGMENT DATE:	5 September 2008
DECISION:	Motion dismissed.
CATCHWORDS:	CONTRACT – Whether informal agreement to compromise proceedings “subject to documentation” was immediately binding. Held: Agreement not binding until documentation executed.
CATEGORY:	Principal judgment
CASES CITED:	Allen v Carbone (1975) 132 CLR 528 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Masters v Cameron (1954) 91 CLR 353 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 Smith v Lush (1952) 52 SR (NSW) 207
PARTIES:	Peter Vitek (First Plaintiff/1st Cross Defendant (1)) Shoshana Vitek (Second Plaintiff/2nd Cross Defendand (1)) Estate Homes Pty Ltd (First Defendant/Cross Claimant (1)) Siamac Taheri (Second Defendant) Veeda Taheri (Third Defendant/Cross Claimant (2)) Bernard O’Donnell (3rd Cross Defendant (1)/ Cross Defendant (2))
FILE NUMBER(S):	SC 1847/05
COUNSEL:	G.P. Segal OAM (Plaintiffs) J.S. Van Aalst (First and Second Defendants) W.G. Muddle SC (Third Defendant) G.P. Craddock SC (Third Cross Defendant)
SOLICITORS:	Charles G. Roth & Co (Plaintiffs) John Hertz & Assoc (First & Second Defendants) O’Hara & Co (Third Defendant) HWL Ebsworth (Third Cross Defendant)

1847/05 Vitek & Anor v Estate Homes Pty Ltd and Ors

JUDGMENT – Ex tempore

5 September, 2008

1    Before the Court are two Notices of Motion. The first, filed by the Third Cross Defendant, Mr O’Donnell, seeks a declaration that there is a binding agreement for compromise of these proceedings, and an order that that agreement be specifically performed by the execution of a certain draft deed. The second Notice of Motion filed by the Plaintiffs, Mr and Mrs Vitek, seeks a declaration that, if there is a binding agreement for compromise, then the other parties have breached that agreement, and an order that they pay interest from a certain date together with damages. The facts are agreed. The evidence is comprised of documents which are admitted by consent. The factual circumstances are in very short compass. 2    On 15 September 2003, Mr and Mrs Vitek entered into a contract to sell a property at Redfern to the First Defendant (“Estate Homes”). Performance of the contract by Estate Homes was guaranteed by the Second and Third Defendants, Mr and Mrs Taheri. The solicitor acting in the conveyance on behalf of Estate Homes and Mr and Mrs Taheri was Mr O’Donnell. 3    In April 2005, Mr and Mrs Vitek commenced proceedings against Estate Homes and Mr and Mrs Taheri seeking a declaration that the contract had been repudiated by Estate Homes, and claiming damages against it and Mr and Mrs Taheri. Estate Homes and Mr and Mrs Taheri filed a Cross Claim alleging that they had been induced to enter into the contract, and to give the guarantee by misrepresentations made by Mr and Mrs Vitek as to the nature and quality of the land, and that they had validly rescinded the contract. To that Cross Claim they joined as Third Cross Defendant Mr O'Donnell, alleging that in the performance of his retainer as their solicitor he had acted negligently. They claimed indemnity against Mr O'Donnell in respect of any damages which they might be ordered to pay to Mr and Mrs Vitek. 4    By a Second Cross Claim, Mrs Taheri alone sued Mr O'Donnell for negligence in failing to advise her adequately in relation to the guarantee which she had given. 5    The proceedings were set down for a five day trial before Barrett J commencing on 12 May 2008. The solicitor for Mr and Mrs Vitek was Mr Charles Roth, who instructed Mr G. Segal of Counsel. The solicitor for Estate Homes and Mr Taheri was Mr John Hertz, who instructed Mr Van Aalst of Counsel. The solicitor for Mrs Taheri was Mr Damien Tudehope, who instructed Mr Muddle SC. The solicitor for Mr O'Donnell was Ms Donaldson, who instructed Mr Craddock SC. 6    Over some days prior to the commencement of the trial the parties engaged in settlement negotiations. Mr Tudehope was the conduit used by all parties for the communication of offers and counter-offers. 7    At 11.05 a.m. on 9 May 2008, Mr Tudehope sent by facsimile a letter to Mr Roth as follows:

“We refer to the offer contained in your correspondence dated 8 May, 2008.

We confirm that your offer closed at 4.00pm on 8 May, 2008 but was extended by your clients subject to variations to 10.30am on 9 May, 2008.

We confirm that our clients instruct us that the offer is to settle is agreed subject to the following minor variations:

1. Judgment of the Plaintiffs in the sum of $800,000.00;

2. Payment to the Plaintiffs of $800,000.00 as follows
a) $300,000.00 within 28 days of 12 May, 2008;
b) Balance within 9 months of 12 May, 2008;
c) Interest on any unpaid ($730,000.00) amount from 12 May, 2008 is to accrue at the rate of 12% per annum to be paid monthly in advance, time of the essence.

3. Security to be provided on execution and exchange of deed in the amount of $730,000.00 of a nature and form acceptable to the Plaintiffs. (In this regard we note that our clients had previously provided particulars of title in respect of three properties which they propose to sell to avail themselves of sufficient funds to be able to effect the settlement. Those three properties are again offered as security and we note you also require security over the property recently purchased by our client namely, 81 Gurney Crescent, Seaforth). Please note that in the event that our client pays the sum of $500,000.00 within 28 days or at a time earlier than 9 months from 12 May, 2008 our client will require a release of the Gurney Crescent, Seaforth property on the making of that payment.

4. Judgment stayed until any default by the defendants or nine months from 12 May, 2008 whichever is the earlier;

5. Execution and exchange of deeds reflecting the above to be executed on Monday 12 May, 2008.

Would you please attend to the preparation of the security documentation and the relevant deeds which you require to be executed. You might, at your earliest convenience, submit the security documents to us for execution by our clients.”
8    At 3.15 p.m. that day, a draft deed containing the terms of the settlement which had been prepared by Mr Segal was sent by e-mail to the representatives of the other parties. At 4.33 p.m. that day Mr Roth sent an e-mail to all other parties advising that Mr Segal and Mr Van Aalst had agreed on some amendments to the draft deed. A copy of the amended deed was attached. 9    When the case was called on for hearing at 10.00 a.m. on 12 May, Mr Segal appeared for Mr and Mrs Vitek. Mr Van Aalst appeared for Estate Homes and Mr Taheri, Mr Tudehope appeared for Mrs Taheri, and Ms Donaldson for Mr O'Donnell. The transcript, which is in evidence, records the following:

“SEGAL: Subject to documentation, the matter has been resolved. We estimate we need an hour or two to finalise the documentation. If it’s convenient for your Honour to take this course, might we contact your Honour’s Associate?

HIS HONOUR: Let me know when you are ready.”
10    As at that time, the draft deed embodying the terms of the compromise had been agreed by Mr Segal on behalf of Mr and Mrs Vitek, and by Mr Van Aalst on behalf of Estate Homes and Mr Taheri, but not by those representing Mrs Taheri and Mr O'Donnell. 11    Later the same day at about 12.20 p.m. Ms Donaldson sent an e-mail to the representatives of the other parties attaching the draft deed showing the amendments which she sought. Those amendments were agreed by Mr Van Aalst on behalf of Estate Homes and Mr Taheri by e-mail sent at about 4.00 p.m. At about 5.42 p.m. that day Mr Segal sent to Mr Van Aalst an e-mail setting out some further minor amendments to the deed. 12    At about 6.30 p.m. that day Mr Segal sent to Ms Donaldson a draft form of Short Minutes of Order which would have disposed of the proceedings by consent in accordance with what was said to be the compromise reached between the parties. 13    The matter had been stood over to 13 May at 10.00 a.m. There were discussions between the representatives of the parties. Prior to the matter being called on, Mr Segal informed the other parties that Mrs Taheri had been admitted to hospital, and said that the matter should probably stand down until 2 o'clock. The other parties agreed, and the matter was stood down until 2 o'clock that day. 14    At 2.00 p.m. the parties again appeared before his Honour, Mr Segal appearing for Mr and Mrs Vitek, Mr Van Aalst appearing for Estate Homes and Mr Taheri, Mr Muddle SC appearing for Mrs Taheri, and Mr Brierley and Ms Donaldson appearing for Mr O'Donnell. 15    Mr Muddle informed his Honour that Mrs Taheri had been admitted to hospital. A note of what was said to his Honour records that Mr Muddle said that his client's position was that the matter had settled "subject to negotiations" . In short, Mr Muddle informed his Honour that Mr Tudehope had been unable to get instructions in relation to final settlement of the proceedings. He advised that if Mr and Mrs Vitek wanted the case to proceed then he would seek an adjournment. In the result his Honour adjourned the proceedings until 10.00 a.m. on the following day. 16    On 14 May 2008 the parties again appeared before his Honour. There is a transcript of what was said, and it will be necessary to return to it in more detail in relation to the second Notice of Motion which I will have to deal with. However, for the purpose of determining whether or not a concluded and binding agreement for compromise had been effected between the parties, it is sufficient to note that it was the position of Mr and Mrs Vitek, Estate Homes and Mr Taheri, and Mrs Taheri that there had been no settlement of the proceedings, and that the matter should be given directions to enable it to come on for a hearing at a later date. 17    Mr Craddock SC, who appeared for Mr O'Donnell, raised the issue that there may well have been a binding compromise of the proceedings. His Honour did not return to that issue, but simply stood the matter over for further directions. 18    Those are the circumstances in which the question now comes before the Court as to whether there had been, as at 12 May, a binding and concluded agreement for settlement between the parties. Mr O'Donnell contends, by the motion which he has filed, that there is such an agreement, and he seeks specific performance of it by the execution of a deed setting out the terms. Mr and Mrs Vitek, and Mrs Taheri take a completely neutral position as to whether or not a binding agreement was concluded. They have not made any submissions in opposition to Mr O'Donnell's motion. Mr Van Aalst for Estate Homes and Mr Taheri contends that there was no binding and enforceable agreement. 19    The question is straightforward, and founded on scant but non-contentious evidence; the answer will be a matter largely of the impression which that evidence creates. I accept that judicial minds may differ as to the impression which that evidence creates. 20    Mr Craddock submits that this is a case falling within either the first or the so-called fourth category of contracts referred to in Masters v Cameron (1954) 91 CLR 353, at 360ff, and in Sinclair Scott & Co Ltd v Naughton (1959) 43 CLR 310, at 317. Mr Craddock says that this is a case in which the parties had agreed upon all of the terms set out in Mr Tudehopes letter of 9 May 2008, as at 10am on 12 May 2008, as evidenced by their assent to what was said to Barrett J at that time. The parties then expressly contemplated that they would formally document the agreement and that there would be a deed later executed by them. Nevertheless, says Mr Craddock, the common intention of all parties which is to be inferred from the circumstances is that they would be bound immediately by the terms of the 9 May letter. Accordingly, he says, that this is a case in the first category of Masters v Cameron so that there is a presently binding compromise between the parties. 21    Alternatively, Mr Craddock says that this case falls within the fourth class of Masters v Cameron , namely, the parties contemplated that, while the terms set out in the 9 May letter and agreed on 12 May were binding, nevertheless they would be at liberty to incorporate additional terms by agreement in the course of documenting the transaction. 22    There is no dispute that all parties were aware of the terms of the compromise set out in Mr Tudehope’s letter of 9 May 2008 as at 10am on 12 May 2008. There is no dispute that each of the parties assented to the proposition enunciated by Mr Segal to his Honour that "subject to documentation the matter has been resolved" . There is no dispute to the proposition that if the parties evidenced an intention to be bound immediately by any agreement then the terms of that agreement are the terms set out in Mr Tudehope's letter of 9 May. 23    The question comes down simply to this: did the parties, by informing his Honour that “subject to documentation the matter has been resolved” , evince a common intention, objectively determined, that the terms of the 9 May letter were now immediately binding and effective. 24    Mr Craddock submits that this was a fairly simple compromise, in fairly common form, of a straightforward litigation. The essential terms had been agreed. The parties were informing his Honour that only a short time – “an hour or two” according to the transcript – would be required to finalise documentation. All parties assented to that proposition and, accordingly, that circumstance evinces a common intention that the agreement should be binding immediately and that documenting it formally was only a matter of machinery, not a pre-condition to the agreement becoming binding. 25    On the other hand, Mr Van Aalst emphasises the fact that Mr Segal said that the proceedings were resolved "subject to documentation" . Mr Van Aalst urges that the parties’ legal advisers assented to the use of those words very deliberately. There had been draft settlement deeds flowing backwards and forwards between them; all amendments proposed to the deed had not yet been agreed by all parties. Mr Van Aalst says that there is no reason to suppose that the parties did not mean what they said to Barrett J – that is, that the proceedings were resolved to a condition – so that it is to be inferred that they intended to be bound only upon finalisation of documents and the execution of them. 26    It has been said on a number of occasions by Courts of high authority that the nature of the transaction which is the subject matter of an alleged informal agreement is an important consideration in determining whether the agreement is intended to be immediately binding, or binding only upon the execution of the formal documentation which is anticipated. 27    For example, where an informal contract for the sale of land is made, even if ti does not incorporate the words, “subject to contract” , it is assumed, at least in New South Wales, that the parties intend that there that there will be no binding and enforceable agreement for sale unless and until formal contracts prepared by their solicitors are exchanged in the normal way; Smith v Lush (1952) 52 SR (NSW) 207, at 212; Allen v Carbone (1975) 132 CLR 528, at 533. 28 Again, it is said in cases such as Sinclair Scott & Co Ltd v Naughton (supra), Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251, and GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, at 634, that the more complex a commercial transaction, the more likely is it that the parties do not intend to be bound except upon finalisation of negotiations as reflected in a formally executed and exchanged document. There could be little doubt that the legal representatives of the parties in this case would have been aware of these general considerations at the time that they announced to Barrett J that the matter had been settled “subject to documentation” . 29    In my opinion, that it has not been demonstrated that the parties had a common intention that the compromise embodied in the 9 May letter would be immediately binding and that execution of a deed embodying its terms was only a formality. This was not a case where the terms of settlement were so straightforward that there was nothing further to be agreed other than whether there would be a verdict for one side or the other or whether there would be a certain sum paid by one side to the other and who would bear the costs. The terms set out in the 9 May letter concern not only the payment of money but how that money would be paid, by whom, and the security to be given for payment. The terms of the compromise as set out in the draft deed prepared on 9 May by Mr Segal are in themselves somewhat complex. It seems to me that, in view of the amount of money involved in the transaction, the fact that there were a number of disparate parties, four in number, each with separate representation and separate interests to protect, and in view generally of the complexity of the proposal, the parties would be taken to intend exactly what was conveyed to his Honour on 12 May, i.e., that the matter had been resolved subject to a condition, that condition being the formal execution of documentation embodying the agreement in terms acceptable to all parties. That condition has not been fulfilled. 30    For those reasons, the Motion filed on behalf of Mr O'Donnell should be dismissed. 31    Mr Muddle, on behalf of Mrs Taheri, seeks an order that Mr and Mrs Vitek pay the costs of their motion seeking declarations. Mr Segal at the conclusion of my reasons as to whether or not there was a binding agreement between the parties said that, in view of the conclusion which I reached, Mr and Mrs Vitek now wished to withdraw their application as set out in their own Notice of Motion. He said that it was therefore not necessary for me to deal with what conclusion I would have reached on that application had my decision on Mr Craddock's application been otherwise. In other words, whatever the result hereafter of any appeal, Mr and Mrs Vitek do not wish to press the relief claimed against Mrs Taheri. In those circumstances it seems to me that Mr and Mrs Vitek should pay the costs of Mrs Taheri of appearing in answer to their Motion. 32    I order Mr O'Donnell to pay the costs of his Motion of Estate Homes and Mr Taheri. 33    Mr Segal seeks Mr and Mrs Vitek's costs of the Motion filed by Mr O'Donnell up to the time that Mr and Mrs Vitek made it known to Mr O'Donnell's advisors that they intended to submit to the order of the court. Mr and Mrs Vitek were clearly necessary parties to the application by Mr O'Donnell. I think that they should have their costs up to the time that they indicated that they would not oppose the application. 34    Mr Segal does not press any order for costs in respect of his appearance today in answer to Mr O'Donnell's motion. 35    I think Mrs Taheri is in the same position as Mr and Mrs Vitek and should have her costs in relation to Mr O'Donnell's motion up until the time she made her position clear. 36    Whatever costs have been incurred by Estate Homes and Mr Taheri in respect of the motion filed by Mr and Mrs Vitek will be paid by Mr and Mrs Vitek.
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