Darebin Court Properties Pty Ltd v Fortress Pty Ltd [2001] VSC 256

11. On 28 March 2001 Schroeder delivered the plaintiff's final offer to purchase the properties from the defendants to Taylor and left it with him.

"I am hereby authorised on behalf of this company to make this offer to purchase the subject site from the Vendors. PARTICULARS: VENDOR: PURCHASER: DAREBIN COURT PROPERTIES PTY LTD AND OR NOMINEES ADDRESS: Land known as 6-8 Dorcas Street, Melbourne SUBJECT SITE: Vol 8037 Fol 500 and Vol 9896 Fol 839 PURCHASE: PRICE OFFERED: $4,500,000 [Four million and Five hundred thousand Dollars Australian] TERMS: Sales Deposit 5% $225,000 [Two hundred and twenty five thousand dollars], Payable upon signing of contract of sale. Purchase Balance 95% $4,275,000 [Four million, Two hundred and seventy five thousand dollars], Payable 120 days from date of signing contract of sale. CONDITIONS: Signed Contract of Sale required Contract of sale unconditional based on present TP

Notice of Decision to grant permit

Subject site to be unencumbered

Contract of sale to be accompanied by one complete set of 1:200 set TP documents and description and copy of file of pertinent TP Documents.

Confirmation of unrestricted use of TP Documents by the purchaser. Vacant possession. Lot 10 Vacant possession Lot 9 by mutual arrangement but not later than 120 days from signing contract of sale.

We are prepared to agree to the demolition and retention of buildings to above ground level of lot 9 to Mr Taylor's son as discussed by mutual arrangement. OFFER: OUR OFFER IS VALID TO: 12am, THURSDAY, 29.03.2001 CONTRACT: If this offer is acceptable to the vendors, we are prepared to proceed with a contract of sale immediately, as soon as practicable. To establish the bona fides of our offer we accompany this offer with a Cheque in the amount of $8,000 prior to the payment of the deposit. This Cheque will form part of the deposit upon acceptance of our offer. We await your favorable response. DAREBIN COURT PROPERTIES PTY LTD (Signed) HUGH SCHROEDER FRAIA DIRECTOR"

Some two hours later, Taylor telephoned Schroeder. He said to him:

"'Hugh, I congratulate you I have accepted your final offer and I will instruct my solicitors forthwith to prepare a Contract of Sale on the basis of your offer. I am faxing to you a copy of the signed accepted offer, and will you please countersign and fax it back to me straight away.' He told me that there were a couple of small mistakes in the Lot numbers, which he had amended and initialled and requested that I initial them also."

20. Taylor's phone call was made in the presence of the defendant's agent, Leon Kriewaldt. He has sworn an affidavit corroborating Schroeder's account of the conversation.

23. The following alterations were made by Taylor to the written offer:

26. On page 1, alongside the typed words "payable upon signing of contract of sale", Taylor wrote "To be released to vendor". That was a reference to the deposit being released. On the second page "Lot 9" is substituted for "Lot 10" and "Lot 10" is substituted for "Lot 9" where appearing on the typed document. In so far as Lot 9 is concerned, the original typing read: "Lot 10 vacant possession 30 April 2001. Lot 9 by mutual arrangement but not later than 120 days from signing contract of sale"; so Lot 10 has been changed to Lot 9, the date for vacant possession inserted and Lot 10 has been changed to Lot 9. At the end of the document Taylor wrote: "Accepted subject to contract" and then signed it on behalf of each defendant. Taylor then faxed it to Schroeder. When he received the faxed copy Schroeder signed or initialled the alterations and countersigned the bottom of the second page under Taylor's signature and the date.

29. On 30 March Kriewaldt telephoned Schroeder and told him that Taylor had told him (Kriewaldt) that he had a problem completing the contract due to the special condition of providing copyright in the plans.

32. On 4 April 2001 there was a meeting between Taylor, Schroeder, Kriewaldt and another member of Kriewaldt's staff. At the meeting Taylor stated that he could not comply with his agreed terms of the agreement and therefore they had no contract. He instructed Kriewaldt to return the preliminary deposit, which was the $8,000, which the plaintiff had paid. He also said to Schroeder that he should make a new offer and start again, to which Schroeder told him that the contract was on the table and he did not agree to rescission of it. Schroeder then told him that if the town planning requirement was a problem then they could offer an amendment, to which Taylor replied that he wanted until Monday to think it over. Schroeder then asked Taylor whether he had entered into an agreement with any other person and Taylor responded "No".

35. Shortly after that meeting Schroeder caused caveats to be lodged on the titles to the two properties so as to protect the plaintiff's interests.

38. By contracts dated 30 March 2001 the defendant sold the two properties to a third party for $5 million. Settlement of those sales is scheduled to take place on 30 July 2001.

41. On 9 May the plaintiff filed a writ in the court naming Taylor's two companies as defendants and by which it seeks:

"A. Specific performance of the sale agreement. B. An order that the Defendants take all necessary steps and do all things necessary to complete the sale agreement. C. Damages for breach of the sale agreement in lieu of, or in addition to specific performance."

45. On 5 June 2001 the defendants filed a summons in the court by which they seek orders under s.90(3) of the Transfer of Land Act 1958 that the caveats be removed.

48. The case for the defendants is that the document signed by Taylor and Schroeder on 28 March 2001 did not constitute a binding contract between the plaintiff and the defendants and accordingly that the plaintiff has no caveatable interest in the properties. In that regard they contend that the case falls into the third category of cases identified by the High Court in Masters v. Cameron (1954) 91 C.L.R.353.

51. The passages relied upon in Masters are those at p.360 et seq of the decision, which read:

"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. 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."

"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."

"The question depends upon the intention disclosed by the language the parties have employed and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: Farmer v. Honan. Nor is any formula, such as 'subject to contract', so intractable as always and necessarily to produce that result: cf. Filby v. Hounsell. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v. Marchioness of Ely: 'if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation'. Again, Sir George Jessel M.R. said in Crossley v. Maycock: 'if the agreement is made subject to certain conditions then specified or to be specified by the party making it, or by his solicitor, then, until those conditions are accepted, there is no final agreement such as the Court will enforce'. This being the natural meaning of 'subject to contract', 'subject to the preparation of a formal contract', and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract."

59. It is argued on behalf of the plaintiff that the case does not fall into the third category but rather the first. In that respect it is said:

4. the date for completion of the purchase is agreed; and

5. there are no further terms required to make it a binding concluded agreement.

67. It is said that despite the wording of the offer to purchase document, in particular the first words appearing under the word "Condition", namely, "Signed contract of sale required" and the words at the foot of the document, "Accepted subject to Contract", if one has regard to the surrounding circumstances both prior to and at the time the document was signed by the parties, it was the intention of the parties that there should be an immediately binding contract.

73. In the first place it was the plaintiff which specifically provided in the offer to purchase that a "signed contract of sale (was) required".

76. In the second place, after Taylor wrote on the offer the words "Accepted subject to Contract" and then signed and dated the offer, Schroeder countersigned the document.

79. In the third place the offer provides that if the offer is acceptable to the vendors "we are prepared to proceed with a contract of sale immediately, as soon as practicable".

82. In the fourth place the deposit of $225,000 is not payable until the contract of sale is signed and the balance of purchase money is payable 120 days from the date of the signing of the contract.

85. In my opinion those matters show that what was agreed upon by the parties was intended to be the basis of a future contract between the parties. Until that occurred there was no binding contract between them.

88. Even had I not been persuaded that the document signed on 28 March was not a binding contract, nevertheless in the circumstances of the case I would have ordered the removal of the caveats.

91. The plaintiff is a $2 company. Schroeder is its sole director and secretary and holds the two shares. If the present contract to sell the properties was frustrated by reason of the presence of the caveats the defendants would face an immediate loss of $500,000.

94. It would seem to me that if the defendants subsequently succeed at the trial of the proceeding they may have some difficulty in recovering that loss from Schroeder and/or his company.

97. If on the other hand the caveats are removed, the sale to the third party is finalised, and the plaintiff ultimately succeeds at trial, then it should not face difficulty in recovering from the defendants an appropriate award of damages. Although there is a mortgage over the property registered in the name of the second defendant, the property registered in the name of the first defendant appears to be unencumbered.

100. I should say I have grave scepticism concerning the large profit Schroeder has sworn the plaintiff would make if it proceeded to complete the contract and develop the site. That would seem to me to be so much "pie in the sky".

103. The defendants' application is made pursuant to the provisions of s.93 of the Act. There is no evidence that the caveats in question have been registered. In that event the appropriate section of the Act is s.103.

106. Recently the Registrar of Titles devised a form of order he would prefer the court to make in cases of this nature. It covers the possibility that by the time the order is made the caveat in question will have been registered and provides for the appropriate order in the event that it has not been. I propose to make such orders in the present case.

1. The Registrar of Titles is ordered pursuant to s.93 of the Transfer of Land Act 1958 to remove caveat No. X405547E from the land in Certificate of Title Volume 9896 Folio 839. In the event that the said caveat has not been recorded the Registrar is ordered not to record the said caveat, to reject the said caveat and to return the said caveat to the lodging party.

2. The Registrar of Titles is ordered pursuant to s.93 of the Transfer of Land Act 1958 to remove caveat No. X405548B from the land in Certificate of Title Volume 8037 Folio 500. In the event that the said caveat has not been recorded the Registrar of Titles is ordered not to record the said caveat, to reject the said caveat and to return the said caveat to the lodging party.

3. The costs of the application are reserved pending the hearing and determination of the proceeding or further order.