Godecke v Kirwan

Godecke v Kirwan - [1973] HCA 38 - HCA 1973 case summary — Zoe

[30]

It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored. The court was there concerned with a case in which an acceptance of an offer had been stated expressly to be "subject to" certain conditions, including a condition that the purchaser's solicitors "approved the title to, and covenants contained in the lease, the title from the freeholder and the form of contract". The quoted passage cannot be accepted, in my opinion, without further explanation or elaboration, as a comprehensive statement of the tests by which in all cases it is to be determined as a matter of construction whether or not a binding contract has been made. It postulates a choice between two alternatives. It assumes that it must always be intended either that the execution of a further contract "is a condition or term of the bargain" or "a mere expression of the desire of the parties" as to the manner in which the transaction will go through. But there are cases in which a provision as to the execution of a further contract is not to be construed as a mere expression of desire or as a "condition" of the bargain, if by that is meant a condition upon which is dependent the coming into existence of a binding agreement. It may be a term of a concluded agreement and may place upon the parties an obligation, capable of being specifically enforced by the court, to sign a further contract in accordance with the agreement which they have already made. The decision of this Court in Niesmann v Collingridge [1] is a direct authority for those propositions, which I have stated in a form based upon the language used in their judgment in that case by Rich and Starke JJ. [2] . In the same case Knox C.J. expressed [3] the opinion that it was in the contemplation of the parties that a formal contract should be signed and that they meant that the acceptance of the offer should be followed by the execution of a contract by both parties. Thus the provision referring to a further contract was held not to be a mere expression of desire but to be one of the terms to which the parties had agreed. The exposition of the law on this subject which is contained in the judgment of this Court in Masters v Cameron [4] recognizes the case of Niesmann v Collingridge [1] as a case belonging to the second of the three classes described [2] , in which the execution of a formal contract is not a condition of the existence of a binding agreement, but is a condition of the performance of one or more of the terms of an agreement by which the parties are immediately bound. 1. [1912] 1 Ch. 284, at pp. 288-289. 2. (1921) 29 C.L.R. 177. 3. (1921) 29 C.L.R., at pp. 184-185. 4. (1921) 29 C.L.R., at p. 182. 5. (1954) 91 C.L.R. 353, at pp. 360-364. 6. (1921) 29 C.L.R. 177. 7. (1954) 91 C.L.R., at p. 360.

[34]

It is necessary now to consider whether the foregoing view as to the effect of the document can be supported, having regard to the inclusion in it of cl. 6. In many cases there has been an acceptance of the principle which in Rossiter v Miller [2] Lord O'Hagan expressed by saying that "if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed": see also the speech of Lord Blackburn in the same case [3] ; the citation of the statements of Lord O'Hagan and Lord Blackburn in Niesmann v Collingridge [4] ; and see Masters v Cameron [5] . The question arises whether or not that principle is made applicable here by cl. 6, under which the respondent might have required the signing of a contract containing terms other than those set out in the offer. On this question I have obtained much assistance from the judgment of Bray C.J. in Powell v Jones [6] , a case to which we were not referred in argument. His Honour was there concerned with a clause in an agreement for a lease, but I think that his discussion of that clause is applicable to a similar clause contained in an agreement for sale. The offer to take a lease included a provision that the agreement for lease was "to be in terms and to contain such special clauses as the Landlord may require" to be prepared by the landlord's agent and signed when ready. His Honour construed this as meaning that both the terms and the special clauses were to be such as the landlord might require. His Honour [7] quoted passages from the speech of Viscount Dunedin in May and Butcher Ltd v The King [8] including the statement that "a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties". His Honour referred also to other authorities including Sweet and Maxwell Ltd v Universal News Services Ltd [1] in which an agreement contained a provision for a lease to be taken on certain terms one of which was "the lease shall contain such other covenants and conditions as shall be reasonably required by Sweet and Maxwell" [2] . In that case the Court of Appeal held that there was a concluded contract for the taking of a lease which was capable of specific performance. What the lessor could demand was limited by the requirement that it must be reasonable and in the event of a dispute between the parties as to the reasonableness of a requirement the court could decide whether it was reasonable or not: see [3] . Bray C.J. considered that the provision with which he was concerned was not a mere agreement to agree, notwithstanding that it did not refer to the reasonableness of what the landlord might require. His Honour considered that the agreement was enforceable because what the relevant provision left to be determined was not dependent upon any further agreement between the parties. It is clearly established that a binding agreement may be made which leaves some important matter, e.g. the price, to be settled by the decision of a third party. I agree with respect with the view of Bray C.J. that, subject to the qualifications to which he refers [4] , there is no reason in principle for holding that there cannot be any binding contract if some matter is left to be determined by one of the contracting parties.

[45]

Clause 6 does not require that the additional terms should be the subject of agreement between the parties. The inclusion of additional terms depends on the unilateral requirement of the solicitors for the vendor, subject to the qualification that the requirement must be reasonable. It is well established that the parties to a contract may leave terms - even essential terms - to be determined by a third person: Foster v Wheeler [2] ; May and Butcher Ltd v The King [3] . In such a case the contract is not bad for uncertainty because if the third person settles the terms the contract will thereby be rendered certain. It is no objection that the power to determine the terms and conditions to be incorporated in the contract is left to the solicitors for one of the parties: Axelsen v O'Brien [4] (see also Suttor v Gundowda Pty Ltd [5] , and Christison v Warren [6] ). In Axelsen v O'Brien [4] an agreement for the sale of land provided (inter alia) that the vendor should execute a nomination of trustees over the land to trustees appointed by the purchasers and should hand such nomination to the solicitors for the purchasers upon the purchasers paying £500 and upon the trustees executing a bill of mortgage securing payment of the balance of the purchase price. The agreement further provided: "The bill of mortgage shall contain such other terms and conditions as shall be required by Corser Sheldon & Gordon of Maryborough, solicitors, not inconsistent with the above terms." It appears that that firm of solicitors, which consisted of one member only, was acting for the purchasers. It was contended that there was no complete and concluded contract because the further terms of the bill of mortgage remained to be arranged or determined. The Court rejected this contention. Latham C.J. pointed out [1] that the terms of the bill of mortgage did not depend upon agreement between the parties because it was for the solicitor to settle the terms. The Court further held that the terms of the bill of mortgage were not an essential part of the contract, but merely a subsidiary means of carrying it into effect, and that the failure of the solicitor to settle the terms would not be a bar to specific performance - the Court in granting specific performance would settle the terms if the solicitor did not [2] . The same considerations seem to me to be applicable in the present case. The fact that cl. 6 left it to the solicitors for the vendor to decide what other covenants and conditions should be included in the "further agreement" did not mean that it was necessary that the parties should agree as to further terms. The clause does not introduce any uncertainty into the agreement, or render it in any way incomplete and would present no obstacle to its specific performance.

[47]

I should perhaps make it clear that it does not necessarily follow from what I have said that an agreement which left further terms to be settled by one of the parties, rather than by his solicitors, would be treated as a concluded contract. In May and Butcher Ltd v The King [3] , Viscount Dunedin suggested that a sale of land which left the price to be settled by the buyer himself would be good. With great respect, it seems to me that there would be no binding contract in such a case, which would fall within the principle that "where words which by themselves constitute a promise are accompanied by words which show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought": Thorby v Goldberg [1] , citing Loftus v Roberts [2] ; Placer Development Ltd v The Commonwealth [3] . It might be suggested that the same principle would not apply if the determination of the price were left to the seller, for then it would be the promisee, not the promisor, who was left with the discretion as to performance. However, in Beattie v Fine [4] , Cussen J. drew no such distinction and held that an option for renewal "at a rental to be agreed upon by the lessor" did not give rise to any contractual obligation. He based his decision on the principle of Loftus v Roberts [5] , but the same conclusion might have been reached by holding that there can be no concluded bargain if a vital matter (such as price or rental) has been left to the determination of one of the parties (see also the dicta in Foster v Wheeler [6] ). Perhaps it may be different where agreement has been reached on all essential terms but the determination of subsidiary matters has been left to one of the parties. In Sweet & Maxwell Ltd v Universal News Services Ltd [7] it was held by the Court of Appeal that an agreement for a lease which was to contain "such other covenants and conditions as shall be reasonably required" by the lessor was sufficiently certain to be a concluded contract for a lease and was capable of specific performance. In Powell v Jones [8] , Bray C.J. went further and upheld the validity of an agreement for a lease which was "to be in terms and to contain such special clauses as the landlord may require". His Honour said [9] that "there is nothing in the Sweet and Maxwell Case [7] to indicate that the Court of Appeal would have held the agreement to make the lease unenforceable if the word "reasonably" had been omitted". I am, with respect unable to agree with that observation, for it seems to me that the members of the Court of Appeal in Sweet & Maxwell Ltd v Universal News Services Ltd [7] placed considerable reliance on the fact that the parties had imported the familiar and objective standard of reasonableness - see [10] . However, it is unnecessary to express any concluded opinion on these matters because, as I have said, in the present case the settlement of the further terms is left to the determination of persons who are not parties to the contract.

At a glance

Court

Decision date

Before

Source

Judgment (52 paragraphs)

Parties