Horne v James

Supreme Court of NSW|2015-04-20|Before: Stevenson J

Solicitors: Gerard K McCarthy (Plaintiff) Taylor & Whitty Pty Ltd (Defendants) File Number(s): SC 2013/382439

Introduction

On 13 May 2013 the plaintiff, Mr Matthew Horne, and the defendants, Mr Raymond and Mrs Adele James, executed a document called "Heads of Agreement" in respect of a farming property owned by Mr and Mrs James near Finley, known as "Willaura".
On that date, Mr and Mrs James also owned an adjoining property known as "Clevedon". Mr Horne's parents, Mr Christopher and Mrs Joanne Horne, owned another property known as "Bushfield" which adjoined both Willaura and Clevedon.
The matter for consideration in this case is whether, on its proper construction, the Heads of Agreement is a binding and enforceable agreement for the sale of Willaura by Mr and Mrs James to Mr Matthew Horne.
My conclusion is that it is not.
The result is that the proceedings must be dismissed.

The events leading to the execution of the Heads of Agreement

The recollections of the various witnesses as to the events leading up to the execution of the Heads of Agreement differed to some extent. However, the following matters were common ground: 1. Mr Horne approached Mr and Mrs James to ascertain their interest in selling Willaura. Mr Horne placed his first approach to Mr and Mrs James in mid-March 2013 whereas Mr and Mrs James placed the approach in February 2013. Nothing turns on the difference. 2. Mr Horne followed the matter up with Mr and Mrs James sometime later. Mr Horne placed that event in late April 2013 whereas Mr and Mrs James placed it at 3 May 2013. Again, nothing turns on the difference. 3. Mr Horne, together with his wife Mrs Lucy Horne, and his father, Mr Christopher Horne, inspected Willaura on Sunday 5 May 2013. 4. Mr Horne and his father visited Mr and Mrs James again on 7 May 2013. 5. Mr Horne made telephone calls to Mr and Mrs James on Thursday 8 and Friday 9 May 2013. 6. By 9 May 2013, the parties had reached an oral agreement, in principal, that Mr and Mrs James would sell Willaura to Mr Horne for $695,000. 7. Sometime between 5 and 9 May 2013, Mr Horne told Mr and Mrs James that he wished to have access to Willaura to sow a crop of canola. 8. Any canola crop would have to be sown at around that time. 9. On Sunday 12 May 2013 (that is, the day before execution of the Heads of Agreement) Mr Horne and his father sowed a canola crop on Willaura. 10. At least by the time they came to execute the Heads of Agreement on the evening of the following day, Monday 13 May 2013, Mr and Mrs James knew that the crop had been sown.
What is disputed is whether Mr Horne said anything to Mr and Mrs James to the effect of requiring a "legally binding agreement" prior to the exchange of formal contracts for sale. Such evidence was received without objection. However, I do not think I can take it into account.
As Mason J famously said in Codelfa Constructions Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352: "…insofar as [prior negotiations] consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself".
Mason J went on to make clear that "statements made during the course of negotiations indicative of the unilateral intentions of each party" are not admissible on the question of construction (at 354).
What the parties intended to achieve in the Heads of Agreement is a matter to be determined objectively by reference to the words that they used in the document, the mutually known surrounding circumstances and the commercial purpose of objects to be secured by the agreement.
Thus, the High Court recently stated in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7: "…this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of the commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose of objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties…intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (per French CJ, Hayne, Crennan and Kiefel JJ at [35]) [citations omitted]
In Newey v Westpac Banking Corporation [2014] NSWCA 319, the Court of Appeal explained the effect of Woodside as follows: "As subsequently observed by Leeming JA (Ward and Emmett JJA agreeing) in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184 at [71], Woodside endorses and requires a contextual approach to the construction of commercial contracts and 'ambiguity' is to be evaluated having regard to surrounding circumstances and commercial purposes or objects. To the extent that what was said in the reasons of three members of the High Court when refusing special leave in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 supports the contrary proposition, Jireh should be regarded as inconsistent with what was said in Woodside at [35], for the reasons explained in Mainteck at [72]-[86]. See also Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 at [41] where the Full Court of the Federal Court of Australia (Allsop CJ, Siopis and Flick JJ) agreed with the conclusion in Mainteck and with the reasons given there in elaboration at [72]-[86]." (per Gleeson JA at [89], with whom Basten and Meagher JJA relevantly agreed)." (See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323 at [37] and [38] per Macfarlan JA, with whom Meagher and Barrett JJA agreed).
Similarly, although evidence of what Mr Horne wrote and said to the solicitor who prepared the Heads of Agreement (Mr Gerard McCarthy) was admitted without objection, I do not consider it to be relevant to the question before me.

The usual practice in New South Wales concerning the sale of land

There was no dispute between the parties about the following: 1. "An agreement for the sale of property at a specified price does not necessarily indicate a legally binding contract. The magnitude, subject matter, or complexities of the transaction may indicate that the agreement was a limited one not intended to have legal effect" (per McHugh JA (with whom Kirby P and Glass JA agreed) in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634 citing Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 316 to 317); 2. In NSW the "usual method of selling real estate…is by means of the signing and exchange of contracts in the form approved by the Real Estate Institute of New South Wales" (Allen v Carbone (1975) 132 CLR 528 at 533); 3. "Accordingly, even though the parties agree in writing that real estate is sold for a specified price, the presumption [in NSW] is that no binding contract exists until 'contracts' are exchanged" (per McHugh JA in GR Securities citing Smith v Lush (1952) 52 SR (NSW) 207 at 212; see also the cases referred to by Stone J in McDonald v Commissioner of Taxation (2001) 109 FCR 207 at [18]); 4. This was described by the High Court in Allen v Carbone as a "first consideration" (at 533). In Lezabar Pty Ltd v Hogan (1989) NSW ConvR 55-468 at 58-387 to 58-388, Gleeson CJ said that: "One reason why this consideration is important is that the form of contract ordinarily used contains important provisions for the protection of both parties, and a court would not lightly attribute to knowledgeable parties an intention to forego such protection"; 1. Nonetheless, it is possible for a contract of sale of land in NSW to be effected otherwise than by exchange of contracts (for example, per Stone J in McDonald at [20]); 2. The "decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances" (per McHugh JA in GR Securities at 634, citing Godecke v Kirwan (1973) 129 CLR 629 at 638 and Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332 to 334 and 337); 3. If "the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction" (per McHugh JA in GR Securities at 634); 4. It may be that, upon the proper construction of the document, it will appear that "the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms": Sinclair, Scott & Co v Naughton at 317. This is the familiar "fourth class of case" additional to the three mentioned in Masters v Cameron (1954) 91 CLR 353 (described by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628); and 5. Nonetheless, the practice in NSW of proceeding by exchange of contracts is "so entrenched that a party contending for an intention to proceed other than in accordance with the established procedure will need clear evidence to support the contention" (per Stone J in McDonald at [21] citing Bryson J in Dowdle v Inverell Shire Council (1999) ANZ ConvR 429 at 431).

The proper construction of the Heads of Agreement

The Heads of Agreement does not purport to be a contract for the sale of Willaura in the usual Law Society of New South Wales/Real Estate Institute of New South Wales form. Thus, the presumption to which the above authorities refer arises; namely, that the parties did not intend the Heads of Agreement to be a binding agreement for the sale of Willaura.
Of course, that presumption must give way to the words used in the Heads of Agreement, if those words compel a contrary conclusion. I will now consider the words used by the parties.

The recitals

The recitals to the Heads of Agreement do not, in my opinion, bespeak a binding agreement for the sale of Willaura.
Recital B states that Mr Horne and Mr and Mrs James "have reached an agreement" for the sale of Willaura. That was true. An oral agreement had been reached prior to 13 May 2013 (see [7(6)] above). But Ms Byrne, who appeared for Mr Horne, did not suggest that that oral agreement was binding. Of course it was not.
Recital C states that the parties wished to enter into a Heads of Agreement "setting out their intentions" in relation to both "the sale" and "the arrangements to apply pending the parties entering into the Contract for Sale". This language makes clear that the parties contemplated entering into a contract for sale at some time in the future, and that what the parties were seeking to do in the Heads of Agreement was to set out "their intentions" in relation to such a sale.

The operative provisions

Those "intentions" appear in the body of the Heads of Agreement. There is a heading, "Now it is Agreed as Follows". But what "[f]ollows" is not, in my opinion, an unconditional agreement by Mr and Mrs James to sell Willaura to Mr Horne.
What is stated, in cl 1 of the Heads of Agreement, is that "subject to the parties entering into the Contract for Sale", Mr and Mrs James "[have] agreed to sell" Willaura to Mr Horne. The language used in cl 1 is not of present agreement. For example, the parties did not say that Mr and Mrs James "hereby" agree to sell Willaura to Mr Horne, or anything to that effect. The agreement referred to must be the oral agreement reached several days earlier. The parties make clear in cl 1 that such agreement is to be "subject to the parties entering into the Contract for Sale".
What follows is that Mr and Mrs James agreed to instruct their solicitor to prepare a contract for sale and submit the same to Mr Horne (in cl 2). Mr Horne agreed to enter into the contract for sale "for exchange purposes" "upon approval of the Contract" (in cl 3). The "approval" there referred to must be by Mr Horne, as purchaser.
The Heads of Agreement does record an unconditional agreement that, pending entry by the parties into a contract for sale, Mr and Mrs James allow Mr Horne to have access to the property to sow canola and wheat crops.
As I read the Heads of Agreement, that is the only substantial agreement contained in it.
Otherwise, the only unconditional agreements in the Heads of Agreement are: 1. the agreement of Mr and Mrs James in cl 2 to instruct their solicitor to prepare a contract for sale and submit the same to Mr Horne; and 2. the agreement of Mr Horne to enter into a contract for sale "for exchange purposes" "upon approval [by him]" of that contract for sale (in substance, an agreement to agree).
As a complement to Mr and Mrs James's agreement that Mr Horne "have access to the property" to sow crops, Mr Horne acknowledged, in cl 5, that such activity would be "at his own cost, expense and risk".
In cl 6 of the Heads of Agreement, Mr Horne acknowledged and agreed that: "…should the parties not enter into the Heads of Agreement or should any subsequent Contract for Sale not proceed to completion for any reason other than the default [of Mr and Mrs James]…" Mr Horne would not be entitled to be compensated for any work performed by him under "this agreement or the Contract for Sale".
According to its black letter, cl 6 contemplated that the parties might not enter into the Heads of Agreement ("should the parties not enter into the Heads of Agreement"). But cl 6 of the Heads of Agreement could only be enlivened once the parties entered into the Heads of Agreement. The parties cannot be taken, in my opinion, to have contemplated, by cl 6, that the very agreement in which cl 6 exists might not be executed. That would be an absurd result.
To adopt the language of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [25], "something has gone wrong with the language". There is an obvious mistake. The reference in cl 6 to "the Heads of Agreement" should be to "a Contract for Sale".
In those circumstances, applying the principles enunciated by the High Court in Fitzgerald v Masters (1956) 95 CLR 420 at 426 to 427 per Dixon CJ and Fullagar J, and by the Court of Appeal in Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [20] and [21], my opinion is that I should construe cl 6 by reading the words "the Heads of Agreement" as "a Contract for Sale".
I am fortified in coming to this conclusion by the language used by the parties later in cl 6 to describe the Heads of Agreement; namely, "this agreement". Had the parties, in cl 6, intended to refer to the Heads of Agreement, they would in my opinion have used that language.
Thus, on its proper construction, cl 6 bespeaks a contemplation by the parties that, notwithstanding execution of the Heads of Agreement, a contract for sale might not follow.
So construed, cl 6 of the Heads of Agreement makes perfect sense. By cl 4 of the Heads of Agreement, Mr and Mrs James agreed to allow Mr Horne access to the property to sow a crop. By cl 5 of the Heads of Agreement, Mr Horne agreed that such activity would be at his own cost, expense and risk. And by cl 6 of the Heads of Agreement (construed as I have set out above), the parties contemplated that a contract for sale might not be entered between them, or that any such contract might not be completed by reason of a fault attributable to Mr Horne. The parties agreed that in either of those events, Mr Horne would receive no compensation for any work performed by him on Willaura either pursuant to the Heads of Agreement itself ("this agreement") or any subsequent "Contract for Sale".
I do not see that cl 7 takes the matter any further. In that clause the parties did no more than agree that, if there was to be a contract for sale, it was to include terms of the kind set out in that clause.
Nor do I see cl 10, and in particular cl 10.3, as casting further light on the parties' intentions. Each of cll 10.1, 10.2 and 10.3 has work to do, whatever may be the correct construction of the Heads of Agreement. As to cl 10.3, upon which Ms Byrne placed particular reliance, no matter how the Heads of Agreement is construed, the parties (particularly Mr Horne) had an obvious interest in enforcing it against the estate of the other, in the event of that other's untimely death.
For those reasons, my opinion is that the language used by the parties shows that they have reached a binding agreement that Mr Horne could have access to Willaura to sow a crop (no doubt with a view to him contracting to buy Willaura), but not a binding agreement to purchase Willaura.

The surrounding circumstances known to the parties

I accept Ms Byrne's submission that surrounding circumstances known to the parties included the parties' knowledge that Mr Horne wished to sow a canola crop on Willaura, that the time by which such a crop could be sown was fast coming to a close and that Mr Horne's parents owned the adjoining property "Bushfield".
It was also a mutually known fact that Mr and Mrs James had an oral share farming agreement with a Mr Stan Armstrong in relation to Willaura, and that they terminated that share farming agreement on about 8 May 2013 (five days before execution of the Heads of Agreement) in order to allow Mr Horne to sow canola on that part of Willaura formerly share farmed by Mr Armstrong.
Assuming it is permissible to take those matters into account in construing the Heads of Agreement, they do not lead me to any different conclusion. They are either neutral, or consistent with the conclusion that the Heads of Agreement is no more than a binding agreement that Mr and Mrs James allow Mr Horne access to Willaura to sow crops.
Ms Byrne drew my attention to the familiar High Court authorities of Niesmann v Collingridge (1921) 29 CLR 177 and Godecke v Kirwan (to which I have already referred at [15(6)] above), as well as the more recent authorities of Plastyne Products Pty Ltd v Gall Engineering Company Pty Ltd (1988) NSW ConvR 55-376 (per Bryson J) and Souter v Shyamba Pty Ltd [2002] NSWSC 929 (per Palmer J).
In each of those cases, relatively informal arrangements were held to be binding contracts for the sale of property.
However, as Walsh J observed in Godecke v Kirwan, the "question is one of construction in each case of the document or documents which are put forward as showing that a contract was made" (at 638). The wording of the documents in question in each of the cases to which Ms Byrne referred was quite different to that of the Heads of Agreement here. In none of those cases did the document state that the agreement was conditional or subject to execution of a formal contract (see Niesmann v Collingridge at 184 per Rich and Starke JJ, Godecke v Kirwan at 644 per Gibbs J, Plastyne Products at 57-462-3, and Souter v Shyamba at [23]).
There are other differences between the circumstances in those four cases such as to render those authorities helpful in a general way, but in no way determinative of the particular case before me.

Part performance

On the third day of the hearing I granted Ms Byrne leave to amend Mr Horne's defence to Mr and Mrs James's amended first cross-claim to include as follows: "…if the 'Heads of Agreement' of 13 May 2013 does not evidence all the written terms for the disposition of land, it is an agreement evidenced by a memorandum in writing signed by the persons to be charged on the 13th May 2013 and is enforceable as a contract for the sale of land due to acts of part performance by the Plaintiff in reliance on the agreement of the 13th May 2013."
In her opening written submissions, Ms Byrne said: "Other than pursuant to performance of the agreement there is no other possible explanation for the plaintiff being on the defendants' land for a significant period of time engaged in carrying out: Paddock preparation, earthworks and clearing fallen timber Digging of trenches Application of herbicides and pesticides Sowing of seeds and the application of fertiliser Transferring water from the Home's property to 'Willaura' Top dressing with urea With the net result that the land was significantly improved by the plaintiff's endeavours and expenditure. … The post contractual conduct of the parties is evidence of part performance of the [Heads of Agreement] such that the defendants cannot succeed in their claim that the [Heads of Agreement] signed by them on the 13th May 2013 did not evidence all the written terms for the sale of 'Willaura' and is not an enforceable agreement for the sale of land…".
I accept the submission of Mr Corsaro SC, who appeared with Mr Blount for Mr and Mrs James, that the allegation of part performance is not to the point.
Mr Horne's contention is that the Heads of Agreement, itself, constitutes a binding and enforceable agreement for the sale to him by Mr and Mrs James of Willaura for $695,000.
For the reasons I have set out above, I do not accept that case and have come to the conclusion that although the Heads of Agreement constituted a binding agreement by Mr and Mrs James to permit Mr Horne access to Willaura to sow a canola crop, it was not a binding agreement by them to sell Willaura to Mr Horne.
Mr Horne's conduct after signing the Heads of Agreement cannot change that conclusion.
In any event, the conduct on which Mr Byrne relies is as consistent with a binding agreement permitting Mr Horne access to Willaura to sow a crop as it is with a binding agreement for the sale of Willaura. Acts of part performance must be "unequivocally and in their own nature referable to some such agreement as that alleged": Khoury v Khouri [2006] NSWCA 184; 66 NSWLR 241 at [16] per Hodgson JA.
As Mr Corsaro submitted: "Mr Horne's entry onto Willaura was not referable to a final oral agreement for the sale of land such that his actions gave rise to an equity. Mr Horne's entry onto Williaura was referable to his contractual right under the Heads of Agreement…to enter onto the land to sow Canola and Wheat crops in contemplation of entering into an agreement for the sale of the land by an exchange of contracts in approved form. Mr Horne harvested the crops and made a profit of $8,800…The agreement was discharged by performance and Mr Horne has been excluded from the land since the harvesting of the crops…". [emphasis in original]
In any event, a plea of part performance is only relevant to an allegation of an oral contract for sale of land to defeat a defence based on the statute of frauds; Conveyancing Act 1919 (NSW) s 54A.
As Ms Byrne herself said in her opening submissions: "The doctrine of part performance 'applies to trump unmeritorious defences based on the Statute of Frauds 1677 or counterpart legislation. Equity gives relief where it would be unconscionable for the defendant to assert there is no contract where the plaintiff has acted in reliance on the assumption that there was a contract': [Young, Croft & Smith, On Equity (2009 [Thomson Reuters Lawbook Co.]) at [16.960]]."
But that is not this case. Mr Horne does not contend for an oral contract. He relies on the Heads of Agreement itself. No question of part performance arises.

Conclusion as to the Heads of Agreement

For those reasons, my conclusion is that although the Heads of Agreement bound Mr and Mrs James to allow Mr Horne access to Willaura to sow his canola crop, the Heads of Agreement does not constitute a binding agreement for the sale by Mr and Mrs James to Mr Horne of Willaura.

"Unjust" contract or misleading or deceptive conduct?

Mr and Mrs James's case was that if the Heads of Agreement did constitute a binding contract for the sale of Willaura, it should be set aside as being "unjust" within the meaning of the Contracts Review Act 1980 (NSW) or by reason of Mr Horne's allegedly unconscionable or misleading or deceptive conduct.
In light of the conclusions to which I have come, it is not necessary for me to express any view about these claims.
However, I do not accept them and will briefly state my reasons.
The basis of these claims is that, in the course of negotiations, Mr Horne, who is a stock and station salesperson employed by Elders, wore his Elders uniform and represented to Mr and Mrs James that, based on his knowledge and experience as a stock and station salesperson, the price he was offering for Willaura was a "fair price". Mr and Mrs James alleged that Mr Horne said words to the effect of "I would know" and "my offer is as good as you will get" and "I promise you won't have anyone else offer that much".
Mr and Mrs James also relied on evidence that, at the relevant time, Mrs James had had recent surgery and was suffering after effects from that surgery.
Mr and Mrs James are each experienced farmers. Mr James has been a farmer for some 55 years. Mrs James has been a farmer for some 29 years and has a number of tertiary qualifications including a Bachelor of Applied Science (Agriculture).
Both Mr and Mrs James gave me the impression that they had a clear understanding of the value of Willaura and were not people likely to be distracted by the importuning of a local stock and station salesperson seeking to persuade them of the true value of their property.
Mr and Mrs James submitted that, if the Heads of Agreement was found to be binding and specifically performable, I should vary its terms to provide for a purchase price of $770,000, being the value attributed to the property by a valuer, Mr Mackenzie Burge. The valuer called by Mr Horne, Mr John Henderson, valued Willaura at $695,000 (the figure in the Heads of Agreement).
I heard the evidence of Mr Burge and Mr Henderson concurrently.
Neither witness asserted error of principle on the part of the other. They agreed that the differences between them concerned matters about which expert minds could fairly differ, namely their assessment of comparable sales. Each agreed that the opinion of the other was "within the range predicated by the sales".
In those circumstances, had I been called upon to do so, I would not have varied the Heads of Agreement in the manner contended for by Mr and Mrs James.

Conclusion

Mr Horne has failed to establish the case for which he contended.
The summons should be dismissed.
I will hear the parties as to costs.

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