GEEBUNG INVESTMENTS PTY LID v VARGA GROUP

Court of Appeal (NSW)|1995-06-15|Before: Abadee J, Gleeson CJ, Kirby P, Powell JA

GEEBUNG INVESTMENTS PTY LID v VARGA GROUP INVESTMENTS NO 8 PTY LTD

GLEESON CJ, KIRBY P and POWELL JA 15 June 1995, 11 October 1995 [1995] NSWCA 166

CONTRACT - whether binding contract whether not binding until formal agreements signed - settlement of litigation by parties in absence of lawyers - shaking of hands - subsequent solicitors' correspondence - held: (by maj): Concluded agreement - essential terms were resolved - correspondence consistent with agreement - appeal dismissed.

CONTRACT - whether enforceable - settlement of litigation - conversation by parties in absence of lawyers - agreement on settlement figure - agreement on instalments - parties shake hands on agreement - subsequent equivocal correspondence between solicitors - need for agreement on court to give effect to settlement and to terminate court proceedings - dispute arises as to periodic payment of instalments - inconsistent assertions of achievement of settlement and entitlement to other rights - primary judge (Abadee J) holds that enforceable agreement was achieved at meeting of the parties - alternatively, that the subsequent correspondence between solicitors removed existing doubts and provided enforceable agreement - on appeal

COSTS - indemnity costs - order of - resistance of party to settlement agreement in litigation - whether conduct so unreasonable as to warrant order of indemnity costs - whether abuse of process

(Gleeson CJ and Kirby P; Powell JA dissenting): (1) The informal agreement reached at the meeting between the parties and the subsequent correspondence sufficiently evinced an intention of the parties to create binding legal obligations and a binding contract was made. Masters v Cameron (1954) 91 CLR 353; Godecke v Kirwin (1973) 129 CLR 629; Allen v Carbone (1975) 132 CLR 528; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 (CA) applied, Frombars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Liquorland (Australia) Pty Ltd v GYC Holdings Pty Ltd and Ors, Court of Appeal (NSW), unreported, 28 October 1994; [1994] NSWJB 110 considered; Maconachie v Harpur (1993) 79 LGERA 75 (NSWSC) and Bettison v Insurance Corporation of British Columbia (1988) 22 BCLR (2d) distinguished; (2) Discussion by the Court of the considerations relevant to the differentiation between (a) agreements contemplating formalities and discussions which would not be legally enforceable agreements until the formalities were concluded; (b) the intention of parties to achieve a concluded agreement and whether in the evidence they have been successful in doing so; and (c) agreements upon essentials with lawyers to give effect to settlement by formalities and absence of true binding agreement because the remaining issues are significant and not mere formalities.

Powell JA dissenting): No error sufficiently shown to authorise disturbance of discretionary costs order.

Gleeson CJ The facts of the case are stated in the judgments of Kirby P and Powell JA, and it is unnecessary for me to repeat them. I agree with Kirby P that the appeal should be dismissed. In a case such as the present, there are two, sometimes related, questions which require to be considered. The first is whether the parties to the putative contract intended to make a concluded agreement.

The second is whether they succeeded in doing so. The answer to the second question may depend upon a number of factors, including whether the parties have reached agreement upon all the terms necessary, in the circumstances, to constitute a contract. In that connection, an implication of terms, or resort to considerations of reasonableness, may assist a conclusion that a contract has been made. (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548.)

As the decision in the Australian Broadcasting Corporation case illustrates, the fact that parties to negotiations have agreed upon the major matter under discussion, confidently believing that the remaining matters to be decided will be sorted out later between them or their lawyers, without any difficulty, can sometimes create a misleading appearance of consensus. Such parties may well believe that they have a "deal" or a "bargain", and speak and act accordingly, whilst at the same time knowing and intending that further and more detailed agreement is necessary. For that reason, conduct such as shaking hands, or using the language of agreement, can be ambiguous. The resolution of the ambiguity may require more detailed factual and legal analysis.

The agreement said to have been made in the present case was an agreement to settle a pending Equity suit.

The Equity suit arose out of a contract for the sale and purchase of real estate, for a price in excess of $4.5 million. The purchaser had paid a deposit of $459,000. The purchaser allegedly failed to complete the purchase in accordance with the terms of the contract, and the vendor purported to terminate the contract, and forfeit the deposit. The vendor then commenced the Equity proceedings, seeking a declaration that the contract had been terminated, and that the deposit had been forfeited, and claiming damages in an amount in excess of $1.75 million. The vendor also claimed interest and costs.

Abadee J, found that, at a meeting between the principal officers of the vendor and the purchaser, (the principal officer of the purchaser also being a guarantor of its obligations), in the presence of a real estate agent, the parties agreed to settle the Equity proceedings on the basis that, in satisfaction of the vendor's claim, the purchaser (and the guarantor) would agree to pay, in addition to the forfeited sum of $459,000, a further sum of $300,000 by equal six-monthly instalments of $50,000 each.

The parties did not have their lawyers present at the meeting. It was common ground that those present contemplated that the solicitors would draw up Terms of Settlement. It was also common ground that they had no conversation about the formalities involved in the disposal of the pending Equity suit.

In an appropriate case, it is open to a court to find that lay clients, in the absence of their lawyers, have settled pending litigation between them, even though there are some formalities as to the disposition of the legal proceedings left to be worked out by the lawyers. In such a case, the agreement made by the parties may clearly imply what is to be done by the lawyers. On the other hand, if the nature of the dispute between the parties is such that its resolution necessarily requires agreement on certain points, or if the parties themselves contemplate that they must agree on those points, then failure to agree on such

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points cannot be ignored by a court in the supposed interest of giving effect to the expectations of the parties. That would be to disregard their intentions. As to the question whether, in the present case, there was an intention to make a binding contract at the meeting of 7 October 1990, it is pointed out on behalf of the appellant that there were no lawyers present at the meeting, that the pending Equity suit involved a large amount of money, and that it was clearly understood that the lawyers would prepare formal Terms of Settlement. These are important considerations. Even so, it must be observed that the nature of the dispute between the parties was fairly simple. The vendor was claiming to have terminated a contract for the sale of land, to have forfeited the deposit, and to be entitled to further monies by way of damages, interest and costs. When, against that background, Mr Varga and Mr Hayes said that they would "settle for $300,000", their meaning was clear enough. On the evidence, I see no error in Abadee J's conclusion that they intended, then and there, to be bound to a settlement agreement.

As to the sufficiency of what they agreed on 7 December 1990, the primary argument advanced on behalf of the appellant was that the parties failed to agree upon the necessary details of the disposition of the pending Equity suit. Counsel for the appellant points out that, up to 7 December 1990, there was an unresolved question as to whether the contract for the sale had been validly terminated, or was still on foot, and that question had to be resolved for there to be an effective settlement of the litigation.

Having regard to the nature of the dispute, in my view an express agreement that the dispute would be settled by the payment by, or on behalf of, the purchaser of a further amount of $300,000, and that this in turn would be accepted by the vendor in settlement of the claims of the vendor, was both unambiguous and sufficiently comprehensive. The vendor was asserting that the contract had been terminated by the vendor. The vendor had already received a deposit of $459,000, which had been forfeited. The vendor was claiming, in addition, to be entitled to general damages, interest and costs. When Mr Varga said that he would "settle for $300,000", his meaning was clear. He must have meant, and been taken by Mr Hayes to mean, that the payment of an additional $300,000 would be accepted by the vendor in full satisfaction of its claims. By implication, that involved an acquiescence on the part of the purchaser in the proposition that the contract had been terminated, and that the deposit had been forfeited and, at the same time, a willingness on behalf of the vendor to accept the sum of $300,000 in satisfaction of its claims for damages, interest and costs.

When, in due course, the vendor's solicitors prepared, and submitted to the other solicitors, draft orders for the disposition of the Equity proceedings, the draft orders reflected precisely the view of the agreement outlined above. There was no suggestion from the purchaser's solicitors that they should take any different form.

Two other matters of detail which were of relatively minor importance, but which cannot be dismissed as insignificant, also require consideration.

It was agreed on 7 December 1990 that the amount of $300,000 would be paid in equal six-monthly instalments. In the exchange of correspondence between the parties' solicitors in early 1991, there was disagreement over two matters. The first was whether the date for payment of the first instalment was 1 March 1991, or 31 March 1991. The second was whether the period of grace to be allowed in respect of default in payment of an instalment was to be 14 days or 28 days.

It is in the manner in which he dealt with those two questions of detail that there is a degree of uncertainty in the findings of Abadee J.

The three people present at the meeting on 7 December 1990 were Mr Varga, Mr Lamont and Mr Hayes. Abadee J rejected Mr Hayes as an unreliable witness, and accepted the evidence of Mr Varga and Mr Lamont. Unfortunately, however, in relation to the two matters of detail mentioned above, there was some inconsistency between what Mr Varga said, and what Mr Lamont said.

If Abadee J had simply accepted the evidence of Mr Lamont, no problem would have arisen. His account of what was said at the meeting on 7 December 1990 would clearly have supported a finding that Mr Varga and Mr Hayes agreed that the first instalment would be paid during March 1991 (ie by 31 March 1991), and that the period of grace was 28 days. On the other hand, if Abadee J had accepted Mr Varga's account of what happened, neither of those conclusions would have been possible.

In his reasons, which were given ex tempore, Abadee J dealt with this matter by saying that, even if an agreement had not been reached on 7 December 1990, it was reached as a result of the exchange of letters between the solicitors on 12 February 1991.

It is of significance that, although the language of those letters is not free from ambivalence, when the solicitors attempted to sort out matters of detail they did so by exchanging assertions as to what had been agreed on 7 December 1990. The solicitors for the vendor at an early stage (by 17 January 1991) accepted that the period of grace was 28 days, but it was not until 4 February 1991 that they wrote that, although their client still believed that the agreement made on 7 December 1990 provided for the first payment to be on 1 March 1991, the vendor was agreeable to a commencement date of 31 March 1991.

It seems that what Abadee J meant in his findings about these two matters was that, without having to make a decision as to whether he accepted Mr Varga or Mr Lamont on those details, he was prepared to find that, even if no agreement on these matters had been reached on 7 December 1990, there was agreement no later than 12 February 1991. Whilst it might have made this court's task a little easier if his Honour had made a finding as to whether he preferred the evidence of Mr Varga or Mr Lamont, I see no error in his ultimate conclusion.

As to the question of the costs order made by Abadee J, there is no reason to interfere with the exercise of his Honour's discretion.

Kirby P This is an appeal from orders of Abadee J. His Honour upheld a claim by Varga Group Investments No 8 Pty Ltd (the respondent) for $300,000 with interest. The respondent alleged that this sum was due to it as a result of an agreement to settle certain proceedings in the Equity Division of the Supreme Court. In those proceedings the respondent had sought certain declarations and orders in respect of a contract for the sale of land by it to Geebung Investments Pty Ltd (the first appellant) guaranteed by the second appellant. The appellants contest his Honour's decision. They have also appealed against the award of indemnity costs against them.

The resolution of that challenge obviously depends on the outcome of the principal controversy between the parties.

It was the respondent's case before Abadee J that certain oral communications between the parties, which took place at the offices of a real estate agent, constituted a binding agreement to settle the Equity proceedings. In the

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alternative, the respondent argued that the subsequent written communications between the solicitors for the parties constituted such an agreement.

Abadee J held that a binding agreement existed as a result of the oral discussion at the offices of the real estate agent. He further held that, if he had erred in this conclusion, there was, in any event, a binding agreement as a result of the later written communications between the parties' solicitors.

The appellants argue that no such binding agreement exists either as a result of the oral communications between the parties or as a result of the subsequent written communications. Indeed, the appellants rely on the later written communications for evidence of the fact that no binding agreement had arisen out of the oral communications. The appellants also argue that, both in respect of the meeting of 7 December 1990 and the subsequent written communications, a consensus had not been reached upon all matters essential to give rise to a binding agreement enforceable at law. Alternatively, the appellants argue that the parties did not intend to be bound immediately but only upon the eventual execution of the documentation necessary to define and formalise their agreement.

It is first necessary to say something briefly about the nature of the Equity proceedings the subject of the alleged settlement, and the context in which they arose.

The respondent commenced proceedings in the Equity Division against the appellants on 6 April 1990. The events said to have given rise to this suit are set out in the respondent's statement of claim. On 23 March 1989 the first appellant entered into a written contract for sale with the respondent, under which it agreed to buy from the respondent certain property in Gordon Street, Marrickville for the sum of $4,590,000. By a deed of guarantee and indemnity, also dated 23 March 1989, the second appellant, Mr Graham Hayes, who was a director of Geebung, guaranteed to the respondent payment of the purchase price by Geebung and its performance of the agreement. At that time the sum of $229,500 was paid by Geebung to the respondent by way of a deposit. Subsequently, on 12 December 1989, the contract for sale was varied. An additional sum of $229,500 was paid as a deposit, bringing the total deposit paid to $459,000. The date for completion of the purchase was agreed to be 20 December 1989.

By a letter dated 21 December 1989, the respondent purported to terminate the sale agreement and to claim the forfeitured deposit. On 26 March 1990, the respondent demanded from Geebung the sum of $1,756,790.27, being the damage claimed to have been suffered by it as a result of the failure of Geebung to complete, or to pay the balance of the purchase price as agreed.

On 6 April 1990 the respondent commenced its proceedings in the Equity Division, seeking declarations that it had validly terminated the agreement of sale and that the deposit was forfeited to it, as well as damages and other orders. On 24 May 1990 the appellants filed a defence in which it was denied, inter alia, that the agreement had been validly terminated, or that the deposit had been forfeited.

It is in this context that the meeting of 7 December 1990 and the subsequent correspondence between the solicitors about settlement took place.

A MEETING OF THE PARTIES IN THE ABSENCE OF SOLICITORS

Mr Julius Varga, a Director of the respondent, swore an affidavit the substance of which Abadee J accepted, concerning the events of the meeting of 7 December 1990. According to Mr Varga, the meeting was arranged by Mr Peter Lamont, a real estate agent of Raine and Horne Pty Ltd. Messrs Varga, Lamont and Hayes,

attended at Raine and Horne's offices at about 1lam None of the parties' solicitors was present. According to Mr Varga's affidavit, a conversation to the following effect took place at that time:

"6. I recall a conversation occurring to the following effect: Lamont: 'I have called this meeting to see if we can resolve this without having to go to Court.'

Varga. "We shouldn't have to go to Court over this. Why don't we see what we can do here'.

We then discussed the history of the sale of the property and I recall a conversation to the following effect:

Hayes: 'It will be at least 5 years before this matter is heard by the Court. I can wait that long'.

Varga: 'I don't want this to go to Court because lawyers cost a lot of money'.

During our discussions, either Mr Lamont or I mentioned a settlement figure of $300,000.00. I remember words to the following effect being said: Varga. "Well Graham, I will accept $300,000.00'.

Lamont: 'Look Graham, Julius is very fair. You should accept. It's a reasonable figure and your wife will be very happy if this case is settled'.

Varga.: 'We would like $50,000.00 as a first instalment'. Hayes: I can make the first payment in March of next year because I will be in funds with the onset of the Easter season'."

Mr Varga added in this affidavit that he could not recall who suggested that the instalments be paid at six monthly intervals. However, he clearly recalled that instalments were discussed and that the agreed sum was to be interest free. Mr Varga's affidavit continued:

'I also said to Hayes words to the following effect:

Varga: 'If you default on any instalment payment, then the full amount then owing will become immediately payable'. Hayes: 'Yes, okay'.

Mr Lamont, the Director of Raine and Horne, also swore an affidavit in the proceedings. The substance of his affidavit was also accepted by Abadee J. His version of the meeting, as set out in his affidavit (with a rejected portion omitted), was as follows:

"5. Well I invited Mr Hayes and Mr Varga to the meeting, I said words to the effect:

"My purpose in calling a meeting is to try and resolve the matter without it being litigated in Court.'

The meeting lasted approximately one hour and although I cannot now recall the terms of all the conversations, I do recall saying words to the following effect: Lamont: "You wouldn't want to be made bankrupt Graham. There is a cost of a social nature if this matter were to be fought in Court which will have an effect on your family.'

The essential thrust of the discussion between Mr Varga and Mr Hayes was to the following effect (this being a very encapsulated form of the substance of much longer conversations): Varga: 'Okay, I will settle for $300,000. When will you pay it?'

Hayes: 'I can't pay it now. I will need time to pay.'

Varga 'We would want at least $50,000 as a first instalment.'

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Hayes: 'I could pay you $50,000 next March when my cash-flow improves because of Easter. ' (I specifically remember Mr Hayes saying this.)

Hayes: I will need 6 months to accumulate another $50,000 so I will have to pay the balance at 6 month intervals.'

Varga.: 'What about interest? That's going to mean payments over three and a half years.'

Varga: 'I won't insist on interest but if you default, the whole amount will have to be payable.'

Hayes: 'You'd better give me some time just in case.'

Varga: 'll give you 28 days from the date when the payment is due which is a very generous period.'

Mr Varga, I think said words to the following effect:

'Tl get my solicitor to draw up an agreement and we can both sign it.

Abadee J preferred the evidence of Mr Varga and Mr Lamont where it conflicted with that of Mr Hayes. Counsel for the appellants did not seek to draw the Court's attention to any of Mr Hayes' evidence.

In addition to his affidavit evidence, Mr Varga gave oral evidence. In cross-examination he said:

"Q. You said to Mr Hayes did you not that you would have your solicitor prepare an agreement?

A. That is what my solicitor will do. I don't know. We settled the case on this basis and I advised my solicitors what was going on at this meeting.

Q. Iam asking you about what you said to Mr Hayes and I am suggesting to you what you said to Mr Hayes was words to the effect that you would have your solicitor prepare an agreement. That is right, isn't it?

Mr Varga agreed in cross-examination that he had not mentioned a time period with regard to the default provision discussed. He said that one had been agreed and the time period was 14 days. It will be recalled that Mr Lamont gave evidence in his affidavit, to which he adhered in cross-examination, that the default period discussed was 28 days.

The cross-examination of Mr Varga continued as follows:

"Q. I am suggesting to you that at the meeting held in December 1990 Mr Hayes said in effect that he would be happy if the proceedings could be settled.

Q. And he went on to say that he could probably agree to a settlement of proceedings if the instalments were right?

Q. And he said to you didn't he at some stage during the meeting that the lawyers would have to draw up an agreement?

It is not in issue, as this evidence demonstrates, that the parties contemplated the preparation of a written document by their lawyers. The central issue in the proceedings was whether the "agreement" such as was reached was sufficiently certain to be given legal effect. Put another way, it was whether or not the parties contemplated that they would be bound immediately or only later, when the formal agreement was executed. THE SUBSEQUENT CORRESPONDENCE BETWEEN THE SOLICITORS

On 8 January 1991 the solicitors for the respondent wrote to the solicitors for the appellants. The letter was expressed to be "without prejudice". It was in the following terms:

"We refer to the recent telephone conversation between your Mr Fitzgerald and our Mr Searle and confirm that UPON OUR INSTRUCTIONS OUR RESPECTIVE CLIENTS HAVE AGREED UPON A SETTLEMENT OF THIS MATTER.

It is our understanding that the terms of the settlement are that your client will pay to our client a further sum of $300,000, payment being made as to $150,000 by Ist March 1991 and thereafter instalments of $50,000 each six months. We also understand that subject to payment on or before the due dates there will be interest paid. However should any payment not be made within 14 days of any due date, then the full amount of the balance of the agreed settlement will be immediately payable. Finally we understand that our respective clients have agreed that each party is to bear its own costs of the Supreme Court proceedings.

PLEASE ADVISE IF YOUR CLIENT AGREES TO THIS SETTLEMENT. IF SO WE WILL PREPARE AND FORWARD TO YOU TERMS OF SETTLEMENT" (emphasis added).

The claim in the first sentence of this letter was not in terms contradicted in the ensuing correspondence by the appellants. The final two sentences of the letter cast some doubt about the suggested concluded agreement. But that assertion must be read with the claim that a settlement had been agreed, as earlier stated.

On 16 January 1991 the solicitors for the appellants replied to the letter set out above that they had received instructions that "the amount of $300,000 shall be paid by six instalments of $50,000 each, the first of which will be payable on the 31 March 1991 with subsequent payments being made each six months within twenty eight days being the period of grace to be given".

Three apparent points of difference between the letter of 8 January and this reply may be noted. First, the equal instalments of $50,000 as opposed to the $150,000 first payment mentioned in the letter of 8 January 1991; secondly, the date of 31 March 1991 mentioned by the appellants' solicitors as the first date of payment as opposed to the date of 1 March 1991 mentioned by the respondent's solicitors; and thirdly, the 28 day period of grace asserted by the appellants, as opposed to the 14 day period asserted by the respondent's solicitors.

On 17 January the respondent's solicitors replied to the last mentioned letter of 16 January, advising as follows:

"... our client confirms the settlement proposal as set out in your letter save that the first instalment is payable on I March 1991, not 31 March 1991.

The reference in our letter of 8 January 1991 to a payment of $150,000 by first March was an error on our part.

We should be grateful if you would take instructions from your client as to the date upon which the first payment is to be made.

Subject to there being agreement as to the dates for repayment we will prepare and submit to you Terms of Settlement".

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On 30 January 1991 the appellants' solicitors wrote to the respondent's solicitors stating:

"Further to our telephone conversation we confirm that the instructions of our clients are that the payments are to commence on the 31 March 1991. Please advise your client's attitude".

On 4 February 1991 the respondent's solicitors wrote to the appellants' solicitors in reply to their letter of 30 January, stating:

"We... advise that although our client believes that the agreement made with your client provided for the commencement of payments as from Ist March 1991, for the purposes of finalising the settlement, it is agreeable to the commencement date of 31 March 1991.

We will shortly submit to you Terms of Settlement for your approval ".

On 12 February 1991 the respondent's solicitors again wrote to the appellants' solicitors advising:

"... our client will accept payment of the first instalment on 31st March 1991 with subsequent instalments being made six monthly thereafter. We enclose Draft Minutes of order for your approval. If approved we will arrange for the matter to be relisted before the Registrar to have the orders made."

It might be noted that the reference to the enclosure of the Draft Minutes was the first time such a method of disposal of the Equity proceedings was raised after the suggested agreement. The enclosed Draft Minutes of Orders provided, inter alia, for the Court to make a declaration that the contract for sale had been validly rescinded, and to note the agreement of the parties that damages totalling $759,000 were payable by the appellants to the respondent. Such damages included $459,000, $50,000 of which was to be paid by 31 March 1991, and the remainder by instalments in 6 monthly periods each of $50,000. An order was sought for the payment of the $300,000 in accordance with the agreement as noted. In addition, para4 of the Draft Minutes provided:

"Orders that in the event that the defendants fail to make any instalment payment within 28 days of the due date of the balance of the total sum of $300,000 then outstanding shall be payable by the defendants to the plaintiff forthwith upon written demand ".

Finally, an order was sought that no interest would be payable and that each party should bear his/its own costs of the proceedings.

On 25 February 1991 the respondent's solicitors wrote to the appellants' solicitors, noting that the appellants' solicitors had not replied to the letter of 12 February 1991. The letter continued:

"Please advise if your client consents to orders being made in accordance with the draft Minutes".

On 20 March 1991 the respondent's solicitors again wrote to the appellants' solicitors stating:

"IT IS OUR OPINION THAT OUR RESPECTIVE CLIENTS HAVE REACHED A CONCLUDED AGREEMENT pursuant to which your clients are to make further payments to our client totalling $300,000 such payments being made by monthly instalments of $50,000, the first payment to be made by 31 March 1991.

It is our opinion that although the Equity Division proceedings have not been formally resolved there is, as between our respective clients, a binding and enforceable agreement.

It is a matter of considerable concern to our client that your clients, for reasons unknown to our client, have failed to acknowledge their approval of the Draft Minutes of Orders as submitted to you on 12 February 1991.

We are instructed to put your clients on notice that in the event that the first instalment payment of $50,000 due by 31 March 1991 is not paid by that date our client will further consider its position as to both the settlement agreement and the Agreement for Sale of Land. IN THIS REGARD WE NOTE THAT OUR CLIENT WOULD BE AT LIBERTY TO ACCEPT A REPUDIATION OF THE SETTLEMENT AGREEMENT AND TO PURSUE THE REMEDIES FOR BREACH OF THE AGREEMENT FOR SALE. A matter that may influence our client's decision as to the further action to be taken against your clients is the amendments presently being made to the Stamp Duties legislation permitting a party not primarily liable for the payment of stamp duty to tender in evidence an unstamped document.

Your clients should appreciate that our client is adamant that this matter should be concluded within the very near future. Should your clients continue to delay completion of the matter our client will take such further action as it may be advised". (emphasis added)

This letter contains equivocal assertions. The first emphasised passage asserts the existence of a concluded agreement. The second emphasised passage suggests a belief on the part of the respondent's solicitors that, notwithstanding the asserted settlement agreement, the respondent could elect to accept repudiation of the settlement agreement freeing it to pursue its rights under the agreement, the subject of the original litigation.

The findings of the primary judge As I have stated, Abadee J preferred the evidence of Mr Varga and Mr Lamont to that of Mr Hayes. Counsel for the appellant in these proceedings has not sought to challenge his Honour's conclusion in this regard. The appeal has proceeded accepting his Honour's findings in this regard.

Concerning the affidavit evidence of Mr Varga and Mr Lamont as to the meeting of 7 December 1990, Abadee J said:

"Tt is of course true, as was pointed out by counsel for the defendant, that it is perhaps open to some debate as to whether at the end of that meeting there was in fact a discussion as to when the first of the instalments was to be paid, whether on | March, or 31 March and whether, perhaps, there was in fact agreement that in the event of there being a default in payment, the balance of any monies due under the agreement would be payable within a period of 14 days or 28 days. That having been said, it is true that there is some question about whether those last two matters were in fact the subject of full agreement. I am disposed, however, to accept that the better view is that there was agreement reached in relation to when the instalments were to commence, i.e. some time in March, and were it necessary so to hold, I would be disposed to the view that there was also some agreement reached in relation to the operation of a triggering mechanism for the payment of the whole of the sum agreed in the event of there being a default in relation to one of the instalments".

Abadee J did not define precisely what the agreement which he found provided. As Gleeson CJ has pointed out, it is unfortunate that Abadee J did not clarify his preference as between the evidence of Mr Varga and Mr Lamont where they differed. The appellants disputed that the disagreement as to whether or not payments were to begin on | or 31 March could be described as an "agreement" that the payments were to commence "some time in March'.

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"T am satisfied that in consequence of the conversations that occurred on 4 December 1990, that agreement was reached between Mr Varga and Mr Hayes that the Equity litigation would be and should be settled and settled upon the basis that there would be a payment, an additional payment, of $300,000 by the Ist and 2nd defendants, such to be paid by six instalments at six monthly intervals and further, an agreement that there would be no interest paid in relation to any one or more of those instalments. I consider that on the probabilities, at that meeting there was a discussion about when the first of the instalments was due and, secondly, a further discussion about a triggering clause for the recovery of the whole of the sums in the event of there being a default in payment of one or more of the instalments.

In respect of the last two matters, even if I be wrong in that conclusion, I am satisfied that they were both matters dealt with in correspondence between the solicitors, both in January and again in March 1991. So in the absence of agreement in relation to the first of the instalment dates or the triggering clause where it is necessary to find, then I would find that in January and March, that both these matters were dealt with at the very least by way of variations of the agreement made on 4 December 1990, that agreement being to settle the action in terms of the payment of $300,000, such to be paid by six instalments of $50,000 at six-monthly intervals with no interest".

Abadee J then returned to his earlier findings about the meeting of 7 December 1990, stating:

"T am also satisfied that there was a certain agreement reached on that day in the terms that I have stated. I am also satisfied that there was a clear intention of the parties to reach such an agreement with the intention that the agreement would involve the resolution of the outstanding Equity dispute. I am satisfied that the agreement was reached for good and valid commercial reasons as between Mr Varga on the one hand and Mr Hayes on behalf of both the defendants.

I am also satisfied it was intended there should be an agreement to resolve the litigation. It was intended that after the agreement was reached containing the certain terms to which I have made reference, that there was to be in due course a formal (sic) document prepared by the respective solicitors to implement the agreement contained in the terms to which I have made reference. In other words, what was extant was to be formalised in writing between the parties with the mechanics of implementation perhaps to be formal by the parties' solicitors in order to give effect to the essential agreement reached in December 1990.

Assuming I be wrong in that view that there was an agreement reached in December 1990 and which was varied by correspondence in January 1991 and March 1991 as I have already mentioned, I am satisfied in this case that the correspondence between the parties' solicitors after 4 December 1990 and prior to 21 March 1991 was in unambiguous terms and reflected in itself an agreement between the parties to settle the litigation. In other words, it matters little as to whether one views the matter in terms of an agreement standing alone in December 1990 to settle or as varied perhaps by variations in January and March 1991 or whether the correspondence alone constitutes the agreement. However one views the matter an agreement to settle was reached between the parties".

Abadee J interpreted Mr Hayes' evidence in cross-examination as follows:

"[H]e did concede at the very least that what took place in December of 1990 in his view represented "the bones of an agreement". Indeed, I considered that he went further in his evidence. He appears to have acknowledged that when he was

present in Mr Lamont's room and the matter of settlement was raised, that he accepted that the conversation would lead to a business conclusion which would resolve the Equity litigation. Indeed, he also said that when he left the room it was his understanding that an agreement had been reached for settlement of the Equity litigation for the additional sum of $300,000 to be payable by instalments over six-monthly intervals. He had an understanding that there would be no interest payable.

He also gave evidence in cross-examination that it was his understanding after the meeting of 4 December 1990 that if the sum of $300,000 was paid, that it would put an end to the Equity litigation dispute. He also said that he understood that the role of the lawyers was to essentially put down in writing what was discussed".

THE PRINCIPLES FOR DETERMINING THE EXISTENCE OF A CONTRACT

There are two discrete legal issues raised by this appeal. First, whether the informal agreement allegedly reached by the parties as a result of their communications and/or their subsequent written communications ("the informal agreement") evinced an objective intention on their part to create legal obligations. Secondly, whether the terms reached in the informal agreement answer the legal requirements of a binding contract. These questions are in practice closely interrelated. As Gleeson CJ observed in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 (CA) at 548:

"To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact in commonsense, 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."

In a well-known passage in Masters v Cameron (1954) 91 CLR 353, at 360, Dixon CJ, McTiernan and Kitto JJ said:

"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."

In the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed)

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in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution."

It follows, as the High Court noted, that the mere fact that it is agreed that a formal agreement is to be prepared later does not, by itself, show that the parties continue in negotiation. At 361, their Honours said: "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 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) 80 CLR 304 or simply because they wish to reserve to themselves a right to withdrew at any time until the formal document is signed."

"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 (1919) 26 CLR 183. Nor is any formula such as 'subject to contract' so intractable as always and necessarily to produce that result: cf Filby v Hounsell [1896] 2 Ch. 737."

The Court went on to declare that the use of such a formula certainly creates a presumption that no contract was intended to be formed.

It is well settled that a court may have regard to the parties' communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not the parties intended to form a binding agreement: See eg Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 547-8; Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd and Ors (Unreported, Court of Appeal 28 October 1994), Powell JA at 39-40; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647, 668; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68; Marek v Australian Conference Association Pty Ltd [1994] 2 QdR 521, 529; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251, 9255; and B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147, 9149 and 9156.

Thus, if the agreement in the present case is alleged to have arisen from the oral discussion, regard may be had to the subsequent correspondence to throw light upon that assertion. If the agreement arose from the subsequent correspondence, it is necessary to look at the correspondence as a whole: Thomas Hussey v John Horne-Payne and G.M. Horne-Payne (1879) 4 App. Cas. 311, at 316 per Earl Cairns LC Gleeson CJ pointed out in Lezabar Pty Ltd v Hogan (1989) 4 BPR 9498 (CA) at 9500-9501, that where the parties have made an informal agreement which amounts to a limited consensus", and it is necessary for the Court to determine whether a concluded contract subsists" "the Court will construe their language, and characterise their conduct, where appropriate, by reference to any surrounding circumstances which are properly to be regarded as throwing light upon their intention."

TREND OF AUTHORITY INDICATING RELEVANT CONSIDERATIONS

A review of some of the authorities will reveal the considerations which have been regarded by the courts as material in the finding of the existence, or non-existence, of a subsisting contract as a result of an informal agreement where it is not in dispute that the parties contemplated the subsequent execution of a formal document:

In Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647, the plaintiffs had been negotiating with the defendants, who were ship owners, for the use of the plaintiff's wharf. Negotiations by correspondence were entered into, and after an exchange of letters the defendants wrote to the plaintiffs saying that they were willing to conclude with the plaintiffs for wharfage on the basis of six pence per ton and "will be glad if you will make a contract for our approval and signature". The plaintiffs replied that they noted with pleasure the defendants' decision to accept the wharfage rate and that they would "arrange a contract accordingly". The High Court of Australia affirmed a decision of Higgins J which held that this correspondence did not constitute a binding contract between the parties. Griffith CJ, at 666, said:

"There are a great number of details incident to a contract of that sort, and it might be anticipated that the parties would come to some understanding about them before a formal agreement was entered into. They were matters of detail as to which there would probably be little or no difficulty, but still they were matters to be settled, and not left at large to be determined from time to time as occasion might arise."

At 668, Griffith CJ also considered it to be significant that the plaintiffs had prepared a draft agreement in which appeared various conditions which were not mentioned in that correspondence and some of which, indeed, were inconsistent with the correspondence. At 669, Griffith CJ concluded that the letters did not disclose a concluded agreement enforceable at law. The subsequent correspondence revealed that it was not in the contemplation of the parties that they were to be bound to a legal agreement until all essential preliminaries had been agreed to and a formal contract incorporating those terms drawn up. Isaacs J, who, with the rest of the Court agreed with Griffith CJ, additionally fastened upon the words "for our approval and signature" in the penultimate letter. He said, at 671-672:

"Merely to say that formal reduction into writing of the arrangement already made was necessary would, I think, not give effect to the words 'for our approval and signature'. It was not a request to make out a contract which should represent the arrangements of the parties already expressed, but it was a request for a document which the defendants were to see and consider and approve and sign, as a condition of the obligation existing at all. I think this question may very fairly be put:- Suppose the document on being submitted to the defendants was not approved by them, did the parties mean that nevertheless a contractual obligation should exist? I do not think they did."

It will be recalled that in the present case the correspondence from the respondent's solicitors of 4 February refers to the submission of Terms of Settlement to the appellants "for your approval". On 12 February they enclosed draft Minutes of Orders "for your approval'. The question is whether this showed a want of agreement on the part of the parties or an attempt to secure concurrence to the formalities of an agreement which had already been struck;

In Summergreene v Parker (1960) 80 CLR 304, Latham CJ said, at 315, that where changes can be made in the terms proposed and new terms are introduced there is no binding agreement between the parties;

Godecke v Kirwan (1973) 129 CLR 629 is an example of a case in which an agreement, contemplating the execution of a formal contract, was held to be binding upon the parties notwithstanding that they envisaged a later written document evidencing their agreement. In that case both vendor and purchaser had signed a document for the sale and purchase of land headed "Offer and

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Acceptance". That document described the land, stated the purchase price, noted the receipt of the deposit, described the manner in which the balance of the purchase price was to be paid and declared in CL3, that the taking of possession should occur "upon signing an execution of a formal contract of sale within 28 days of acceptance of this offer'. Walsh J, with whom Gibbs and Mason JJ agreed, did not consider that CL3 rendered the document too uncertain to constitute a binding contract. Nor did he consider that it revealed an intention by the parties not to be bound until a formal contract had been executed, (at 639 - 641);

In Allen v Carbone (1975) 132 CLR 528 Stephen, Mason and Murphy JJ held that parties to a signed agreement referring to the sale of property contemplated that they would not be bound until a formal contract had been signed by them and exchanged by their solicitors. In that case the owner of certain real estate accepted orally an offer by an estate agent to purchase property on behalf of another party. Subsequently, the owner signed a document authorising the sale of his property and agreeing to enter into a contract for sale "in form approved by the Real Estate Institute of New South Wales". The stipulated deposit was paid and the agent told the owner's solicitor that the property had been sold. Their Honours set out the factors which they considered relevant to drawing the appropriate inference. The first consideration was that the usual method of selling real estate in New South Wales was by the signing and exchange of contracts in the form approved by the Real Estate Institute of New South Wales (at 533). However, this was not the sole indicium of an intention not to be presently bound. Their Honours continued, in observations which seem more general in their application:

"Then there is Ex. D which in our opinion puts the issue beyond all doubt. Prepared by Mr Cummings [the estate agent] and signed by the respondent [owner], it makes provision for the signing of a formal contract, a contract which as we know contains detailed terms and conditions neither agreed upon nor discussed in the conversation... Viewed in this light the conversation of 11 July amounted to no more than a preliminary agreement which preceded the giving of instructions to solicitors and assigning an exchange of contracts in the usual way. And it was a preliminary agreement which was not in itself a binding contract."

The Court made an additional observation, at 533, which cautioned against self-serving assertions:

'Although the appellant's solicitors asserted in correspondence that a binding contract was made, it was to the appellant's interest to make such a claim and it was a claim made after it appeared that the respondent would not proceed with the sale.

In the present case, the first unequivocal written assertion on the part of the respondent's solicitors of the existence of a presently binding agreement was made by their letter of 20 March 1991;

To similar effect was the decision of this Court in B Seppelt and Sons v Commissioner for Main Roads (1975) 1 BPR 9147 (NSWCA). In that case it was held that correspondence between the Commissioner of Main Roads and a company concerning the sale of land in lieu of resumption, where a price of $385,000 was agreed upon, could not be held to amount to a binding contract. Mahoney JA considered the nature of the transaction - the purchase of a city building for $385,000 - to be relevant to this conclusion (at 9151). His Honour also considered that the fact that the parties contemplated the transaction being dealt with by lawyers, while not conclusive, also supported an inference that the

parties intended the agreement to be binding only upon the drawing up of a formal contract of sale (at 9154). Glass JA expressed similar views (at 9149).

Likewise in Bridle Estates v Myer Realty Pty Ltd (1977) 51 ALJR 743 (HC), a document signed by the vendors of certain real property which specified that that land would be "available for sale" on terms specified "subject always to preparation and execution of a formal contract of sale", was held in the circumstances not to amount to a presently subsisting contract for the sale of land. Again, the statements of principle in this case extend beyond contracts specific to the sale of real property and the practice of using standard forms for such agreements. Of the three judges deciding the case, Barwick CJ and Aickin J stated (at 744 and 749 respectively) that the fact that it was the usual practice in Queensland to sell land by a written instrument in a particular form approved by the Real Estate Institute was not a factor that they regarded as determinative of the non-existence of a contract. Rather, both Barwick CJ and Aickin J concluded that, on the evidence, the only conclusion available was that the negotiations between the parties were always undertaken on the basis that there would be no contract until the execution and issuing of a formal document by the parties. Although Jacobs J primarily based his decision on the ground disclaimed by Barwick CJ and Aickin J, he was reinforced in his conclusion by the consideration that the written document which was signed by the vendor did not contain a term the subject of oral negotiations concerning a minor matter, namely an undertaking to replace all missing survey pegs before settlement. Jacobs J considered, at 747, that this pointed to a "lack of actual consensus" which was all the more reason to find against the existence of a binding contract;

Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 (SC) shares some features in common with the facts presently before the Court. At a meeting between principals without their legal advisers, an oral agreement was made to sell a business for a named price. After this meeting, the vendor's solicitors sent the purchasers a letter setting out the terms of that oral agreement and enclosing a draft contract to be executed under the common seal of each of the parties. That draft contract included a number of provisions additional to what had been discussed at the meeting. McLelland J said, at 9255:

"[T]he probative value of such subsequent communications must be found in the light they throw on the proper interpretation of the earlier communications alleged to constitute the contract. They may, for example, show that at the time of the alleged contractual communications there were other, uncompleted negotiations between the parties concerning matters omitted from the allegedly contractual communications, in the light of which the allegedly contractual dealings could not properly be interpreted as mutual assents to be bound...

More commonly, perhaps, such subsequent communications may be legitimately used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract".

McLelland J held that the conduct of the plaintiffs solicitors, in continuing to negotiate the terms of the formal contract, could be used as an admission that an enforceable agreement did not exist (at 9256). McLelland J also considered that the fact that it was in the contemplation of both parties that there would be a formal exchange of contracts was strongly suggestive that no binding agreement existed. He added that the "nature and magnitude of the transaction were such as to suggest the importance of having a formal contract providing clear evidence

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of its terms". On this basis, McLelland J considered that the letter written after this oral discussion served to confirm the non-existence of a contract rather than to speak against it (at 9257);

The circumstances of that case may be contrasted with those of Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 3091 (CA). In that case, the parties had signed a written agreement for the sale of a business. The agreement set out material particulars, terms and conditions, and annexing a standard form contract for the sale of a business. The business in question was a commuter airline service. Notwithstanding these indicia of a binding agreement, it was argued that references in the document to the "proposed agreement" and to "further agreement" militated against the existence of a presently binding contract. These submissions were rejected by the Court. Hope JA considered that, in view of the matrix of facts, the term "proposed agreement" only revealed an intention of the parties that a more formal document should be drawn up and did not disclose an intention that there should be no binding agreement unless and until that formal document was executed (at 321). See also Mahoney JA, at 327; McHugh JA, at 339;

In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 (CA) it was common ground that the parties were negotiating with each other towards an agreement for the grant of television broadcasting rights for the Commonwealth Games. It was in the contemplation of both parties that a formal document would be drawn up reflecting the agreement reached. The parties had clearly reached consensus as to the price. Indeed, half of the purchase price had already been paid. Gleeson CJ (with whom Hope and Mahoney JJA agreed) considered that, in determining whether the parties would have wished to reach express terms on a given subject matter relating to the agreement, it was relevant, indeed necessary, to look to their conduct (at 545-6). His Honour also thought it important to understand the commercial context of an alleged agreement, and in particular the subjects, which the parties by their conduct regarded as matters to be covered by their agreement (at 548). One such issue in that case which was not the subject of express agreement, and which the subsequent communications between the parties showed was of considerable importance to them, was the precise scope of the purchaser's broadcasting rights. Another, was the contingency of a boycott of the Games by some Commonwealth countries. The evidence upon which the respondents relied, in order to assert the existence of a binding agreement, included internal communications and communications with third parties by the vendors suggesting a subsisting contract. Concerning these submissions, Gleeson CJ said:

"[E]ven an assertion that 'an agreement has been concluded' is equivocal when one bears in mind the nature of the issue in the case. It is not in doubt that the parties regarded themselves as having reached an agreement on price and, further, that they had no reason to expect that there would be any difficulty in coming to terms on other matters concerning their relationship".

See also Walker Corporation Ltd v Australia NIB Pty Ltd (1995) ATPR 40,181 [41-377], at 40,196-7 (FC). In Commonwealth Games Gleeson CJ considered that, overall, the evidence revealed no more than that "the parties had made an agreement on the most important subject of their transaction, that is, the price, in the confident expectation that they would in due course come to terms on the other issues that needed to be addressed" (at 551). The correspondence between

the parties subsequent to the alleged agreement revealed that no binding contract between the parties had come into existence.

These statements of Gleeson CJ in Australian Broadcasting were approved by the Appeal Division of the Supreme Court of Victoria in Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 (Brooking, Tadgell and JD Phillips JJ). In that case Brooking J also said:

"[T]he magnitude, subject matter or complexity of the transaction may suggest that the informal agreement was not intended to constitute a binding contract" (at 138).

To similar effect was the reasoning of Powell JA in the most recent case in this series - Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd and Ors, unreported, Court of Appeal (NSW), 28 October 1994; [1994] NSWJB 110. Powell JA said:

"[I]n carrying out the task of determining, in such a case as this was, what was the relevant intention of the parties, a Court may have regard, not only to the matters upon which the parties have reached a consensus, but also to the area in respect of which they have failed to reach any consensus" (at 40).

Powell JA added that the Court may have regard to what appears to be the established, or at least the common, practice in relation to agreements of the type in question. In that case it had been successfully claimed at first instance that an oral agreement between the owner of a liquor business in a shopping mall and a prospective purchaser amounted to a binding contract. Clearly, the parties had agreed on a price for the sale of the business. They shook hands at the close of their meeting. It was also common ground, however, that the parties contemplated that a written contract would be prepared by their solicitors, executed and exchanged. It was held on appeal that the evidence did not reveal a presently subsisting contract for the sale of the business. I dissented.

The particular case of the pre-litigation settlement "agreements" has given rise to a number of authorities relevant to the binding force of informal arrangements said by one side - but denied by the other - to be a binding agreement.

In Marek v Australasian Conference Association Pty Ltd [1994] 2 QdR 521, the Full Court of the Supreme Court of Queensland held that an alleged tripartite agreement to settle litigation by means of the sale of certain property did not amount to a binding agreement. The Court was influenced by the consideration that it was contemplated that solicitors would assist in the preparation of the contract for the sale of the real estate.

"[A]lthough the documents to give effect to the parties' ambitions were unlikely to be complex, obviously there was plenty of scope for future contention even if a broad consensus were reached on the central points. That risk would be reduced if the parties chose the traditional course of postponing their contract until after the documents were prepared and their terms discussed with the three clients. The correspondence and the solicitors' oral communications show that that was how the negotiations were approached"

The Court added that, in any event, the fact that "negotiations are at an end does not necessarily mean that a contract has been concluded" (at 529).

By way of contrast, in Maconachie v Harpur (1993) 79 LGERA 75, Young J in the Supreme Court of this State held that a binding settlement agreement existed where the parties had signed a written agreement and were represented by their solicitors.

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In the Canadian case of Bettison v Insurance Corporation of British Columbia (1988) 22 BCLR (2d), a lawyer for a plaintiff who had been rendered a quadriplegic in a car accident had been negotiating with the defendant's insurer for a settlement of the claim. By chance, the plaintiffs attorney, in an elevator, encountered an attorney employed by the insurer. The latter offered the plaintiffs attorney $900,000 to settle the claim. The plaintiffs attorney wrote to the insurer's attorney purporting to accept this offer. The insurer asserted that no offer had been made and no binding agreement effected. The plaintiff brought an action to enforce the alleged settlement agreement. Southing J in the Supreme Court of British Columbia found that no such contract existed. His Lordship held that the plaintiffs attorney could not reasonably have construed the conversation as amounting to an offer capable, upon acceptance, of giving rise to a binding and enforceable agreement.

Before this Court, the appellants argued that neither the oral discussion nor the subsequent correspondence gave rise to a binding agreement. Far from amounting to an enforceable agreement, the subsequent correspondence confirmed that no such agreement existed. The appellants pointed to the large amount at stake in the litigation and in the proposed settlement, and to the fact that neither party was legally represented at the pertinent meeting, although both parties had been represented in the Equity proceedings. The appellants also pointed to the lack of consensus as to the actual date of the first instalment payment, and the operation of the "trigger" mechanism. In addition, it was submitted that no consensus had been reached as to the manner of disposal of the Equity proceedings. Indeed, it was urged, this was not even adverted to during the oral discussions, and only emerged during the subsequent correspondence.

The subsequent communications confirmed, according to the appellant, the fact that these terms were not agreed upon. They became the subject of later negotiation. It was submitted that the issue of how the proceedings were to be disposed of was an "essential matter" which only emerged during the later correspondence. It was never finally resolved. There was also no evidence of agreement concerning the question of costs until the subsequent written correspondence.

The respondent, on the other hand, argued that a binding oral agreement arose as a result of the meeting of 7 December 1990. In the alternative, it submitted that the later correspondence achieved a binding agreement. The respondent denied that there was any essential conflict between the evidence of Mr Varga and Mr Lamont as to the default period even though (as is usually the case in unrecorded discussions) there were differences in their respective recollections. Although Mr Varga "thought" that the default period was 14 days, there had later been an agreement on this issue whatever its original terms. The parties clearly contemplated that a formal written agreement would come into existence. However, the execution of such a formal agreement was not a condition precedent to the formation of a binding agreement. The manner of disposal of the Equity proceedings, it was argued, was a matter of machinery. It was not essential to the substance of the settlement agreement. Further, the forfeiture of the $459,000 deposit was necessarily implied in the settlement agreement.

Counsel for the respondent agreed during argument that the respondent's common law action was necessarily premised on an assertion of a right to recover the money in debt. Therefore, such an asserted right was only consistent with the rights under the Equity proceedings having merged in the settlement agreement.

Counsel sought to explain the apparently contrary assertion by the respondent's solicitors in their letter of 20 March 1991 as reflecting a mistaken view on their part of the solicitors.

It was further submitted for the respondent that the request to the appellants to consent to draft orders containing, inter alia, orders for payment of the $300,000 and a declaration of the validity of the forfeiture of the $459,000 were not inconsistent with the existence of a presently enforceable agreement embracing these rights. Although these orders may have been in a sense unnecessary, they were a way of tidying up the previous litigation and ensuring that the Equity proceedings were not "left in limbo".

The principles to be derived from the authorities, relevant to the resolution of the present appeal, may be summarised as follows:

The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal agreement, does not mean that that informal agreement is not presently binding;

The fact that the parties contemplate the drawing up and execution of a formal contract is a consideration which may point to the conclusion that no presently binding agreement was intended until that formal contract is executed;

The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it the less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the "major matters", their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document (see in particular Masters v Cameron (1954) 91 CLR 353, at 361; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647, at 666; and Marek v Australian Conference Association Pty Ltd [1994] 2 QdR 521, at 528);

In order to determine in what areas the parties were, and were not, in agreement, and what matters they considered necessary in order for an agreement to exist, it is legitimate to examine their subsequent conduct. Where correspondence between the parties after an informal agreement refers to important terms and conditions not mentioned during that informal discussion, it may more readily be inferred that the earlier discussion was simply a preliminary negotiation and not a binding agreement;

Depending on the size, importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding;

It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding;

Depending on the subject matter, where the parties have not used solicitors but intended to do so for the drawing up of their formal agreement, that may also be a factor which will point to the non-existence of a binding agreement until the contemplated formalities have been agreed; and

Where a binding agreement is said to have been formed as a result of correspondence, it is necessary to look at that correspondence as a whole. It is wrong to isolate any part of the correspondence from the rest in order to prove

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At a glance

Court

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Judgment (360 paragraphs)

Parties

Cases Cited (17)

Cited By (8)