ARE THE HEADS BINDING?
38 Mr Morahan of counsel, for the plaintiff, put the following as supporting the conclusion that the parties did not intend immediately to be bound:
a firstly, use of the title "Heads of Agreement", which he put indicated that the Heads were preliminary only. He relied upon a statement by Barrett J in L M I Australasia Pty Limited v Baulderstone Hornibrook Pty Limited [2001] NSWSC 886 at [23] to the effect that the title 'Heads of Agreement', may be taken to indicate that it is of a preliminary nature only;
b secondly, the use of the words in cl 1 of the Heads "It is the intention of the Parties to enter into a further full Deed of Settlement in due course." This, he put, contemplated not only execution of a further instrument but one which the parties contemplated would contain further terms;
c thirdly, the use in cl 3 and cl 7 of the Heads of the words "… and the observance of the agreed terms of settlement" which, it was put, was a reference to the further terms of settlement which were to be embodied in the further full instrument contemplated by cl 1; and
d fourthly, the third and sixth defendants' subsequent conduct in not paying or offering to pay the amounts provided for in cl 2.1 and cl 2.3 by 30 May 2007, which was conduct inconsistent with an intention immediately to be bound.
39 A critical difficulty facing the plaintiff is that nothing was identified on his behalf as any matter of importance upon which the parties had not reached consensus in the Heads. It was not put that there was any such matter.
40 In my view, the parties, by the Heads, reached agreement on those things which they regarded (or would ordinarily be expected to have regarded) as required to be covered by their settlement. These were the amounts to be paid and when they were to be paid, the terms of the releases which were to be given in consideration of those payments, and in respect of the third defendant, the further work to be done by it. That work was specified clearly and precisely in cl 6. It was not put that any aspect of cl 6, nor indeed any other provision, was uncertain or incomplete.
41 The use of the description "Heads of Agreement" may indicate preliminary agreement but it does not bear upon whether the agreement, even if preliminary, is or is not binding. That depends on the operative provisions of the instrument. The provisions here foreshadow the entry into of a further instrument in due course.
42 The substance of the operative provisions, and whether the words used by the parties in them indicate an intention immediately to be bound, is the critical matter. The use of the description "Heads of Agreement" is not inconsistent with the parties intending immediately to be bound, but nevertheless contemplating a further formal document.
43 Mr Morahan placed some significance on the words in cl 3 and cl 7 "observance of the agreed terms of settlement" putting that this was a reference to further terms to be agreed in the further instrument. Those words in cl 3 and cl 7, in my view, refer to the additional obligations upon the third defendant only (in contrast to the fourth and sixth defendants whose only obligation was to pay) to carry out the work specified in cl 6.
44 If the parties had subsequently agreed further terms which made payment conditional upon other matters not specified in the Heads, those words could refer or could have referred to further agreed terms. However, it is only the third defendant to whom those words apply. The only obligation on the fourth defendant and sixth defendant was an obligation to pay. The third defendant on the other hand was required to carry out certain work. That, in my view, is to what the reference in cl 3 and cl 7 by the words, "observance of the agreed terms of settlement", relates.
45 The Heads embody separate arrangements between the plaintiff on the one hand and each of the three defendants on the other.
46 There is no logical or rational reason why the third defendant's settlement would be conditional upon more terms being agreed, whereas that of the fourth and sixth defendants would not. This is a further indication that the reference to the "agreed terms of settlement" in cl 3 and cl 7 is not a reference to such further obligations as might have been incurred by the third defendant upon the entry into of some later full and further instrument in due course, but rather to the work described in cl 6.
47 Mr Morahan put that the plaintiff's solicitors, in their letter of 23 May 2007, indicated a view that there was no binding agreement. If the view of the solicitors be relevant, it seems to me that the letter says nothing of the binding or otherwise nature of the Heads. It appears to me to draw a distinction between the Heads and the subsequent proposed Deed of Settlement. If anything, the letter points in the other direction.
48 There are various additional clear indications that the parties by the words they used intended immediately to be bound.
49 Firstly, by cl 11 the parties agreed that they were not to disclose or permit to be disclosed either directly or indirectly to any other person the terms of the agreement except to the extent by law or for the enforcement of its terms. (emphasis added). This is a clear indication of an intention that the Heads were immediately enforceable.
50 Secondly, there are a number of provisions which, if the Heads were not intended to be binding, would have no field of operation. These include:
a clause 10 by which the parties agreed that "This Agreement", meaning the Heads, was available to be pleaded as a bar to the plaintiff's claim to the extent that such claim is stated to be released by the agreement;
b clause 12 which is an agreement to bear the costs of the instructions and preparation of "this Agreement";
c clause 13 which provides for further assurances; and
d clause 14 under which the parties executing the Heads warranted their authority to do so.
51 In my view, this case falls into the well known category 1 in Masters v Cameron where parties intend immediately to be bound 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. At the lowest, it falls into the category considered in G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited and Helmos Enterprises Pty Limited v Jaylor Pty Limited, where parties agree immediately to be bound but expect to make a further contract which by consent might contain additional terms.
52 Mr Morahan placed substantial emphasis on subsequent conduct. He focused his submissions on what, he put, was an indication that the third and sixth defendants did not intend to be bound because neither had sought to make payment by 30 May 2007.
53 Given my conclusion that the terms of the Heads clearly indicated that the parties intended immediately to be bound, their subsequent conduct in not paying by the due date would be a breach of their obligations not any indication of any intention not originally to be bound.
54 There is further difficulty for the plaintiff, it seems to me, in the context of the events as they unfolded that the conduct relied upon cannot fairly be described as indicating such an intention.
55 The parties envisaged the execution of a further formal deed. Their legal representatives embarked on trying to finalise one. As a matter of practicality moneys were not paid, given an expectation that a further document would be executed. Nothing emanating from any of the defendants at any time, or from the plaintiff until the letter of 22 August 2007, on a fair reading, indicated any intention that the Heads were not binding in original form.
56 The subsequent conduct, at best, is ambiguous and would not form any safe ground for a conclusion that there was no intention immediately to be bound especially given the clear terms of the Heads, see: Ryan (Receiver & Manager of Homfray Carpets Australia Pty Ltd) v Textile Clothing & Footwear Union Australia [1996] 2 VR 235 at 238.
CONCLUSION
57 Given my conclusion that the Heads were binding, it follows that the proceedings between the parties were settled on its terms.
58 There are, in my view, some questions which arise with respect to relief.
59 In prayer 1, a declaration is sought that the proceedings as against the third and sixth defendants have been compromised.
60 It follows from what I have said that the proceedings have been so compromised.
61 I do not consider however, that there would be any utility in making a declaration in those terms.
62 The next prayer is for an order that the plaintiff specifically perform his obligations under the Heads. There do not appear to be any obligations performable by the plaintiff other than the carrying out of work, which is not susceptible to such an order.
63 It was not put by Mr Morahan that any delay in payment was a breach entitling the plaintiff to have terminated the Heads. Tender of payment has been duly made and tender of performance by the third defendant has been duly made.
64 In these circumstances, a decree for specific performance is also of no utility.
65 The proceedings as against the sixth defendant are dismissed.
66 Under the terms of settlement each party is to pay its own costs of the proceedings. Accordingly, there will be no order as to costs other than in respect of the Motion.
67 The plaintiff is to pay the sixth defendant's costs of the Motion dated 14 November 2007.
68 In a letter of 2 November 2007 the third defendant tendered to proceed with the work. It clearly offered to perform its obligations under the Heads. In those circumstances, it seems to me the appropriate relief is that the proceedings against the third defendant should also be dismissed.
69 The proceedings against the third defendant are dismissed and the plaintiff is to pay the third defendant's costs of the Motion dated 14 November 2007.
**********