Jadasi Investments v Loudoun-Shand

LEGISLATION CITED : Conveyancing Act 1919 (NSW) - s 55(2A) Suitor's Fund Act 1951 (NSW)

Australian Gas Light Co v Valuer-General (194) 40 SR (NSW) 126 CASES CITED : Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 Masters v Cameron (1954) 91 CLR 353

Jadasi Investments Pty Ltd - Plaintiff PARTIES : David Loudoun-Shand - First Defendant Ann Loudoun-Shand - Second Defendant

COUNSEL : Mr J E Thomson with Mr M T Hutchings - Plaintiff Mr David Day - Defendant

SOLICITORS : McIntosh McPhillamy & Co - Plaintiff Richard Steele & Co - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11905/2006 - JADASI INVESTMENTS PTY LTD v DAVID LOUDOUN-SHAND & ANOR

JUDGMENT (Appeal - Local Court -intention to enter into a contract 1 HER HONOUR: By way of summons filed 27 April 2006, the plaintiff seeks to appeal against the decision of Magistrate T H Hodgson dated 30 March 2006. The plaintiff seeks that the orders of Hodgson LCM be set aside, that verdict and judgment be entered for the plaintiff on both the claim and the cross-claim of the Local Court proceedings and an order that the defendants pay the plaintiff's costs in this Court and the Local Court. 2 The plaintiff in these proceedings is Jadasi Investments Pty Ltd (Jadasi). It was the defendant in the lower court. The first defendant is David Loudoun-Shand. The second defendant is Ann Loudoun-Shand. Both defendants were the plaintiffs in the Local Court. 3 On 30 March 2006, the Magistrate entered a verdict and judgment in favour of Mr and Mrs Loudoun-Shand in the sum of $20,000.00, entered a verdict and judgment for Mr and Mrs Loudoun-Shand's in regard to the cross-claim, with Jadasi Investments ordered to pay Mr and Mrs Loudoun-Shand's costs

Grounds of appeal 4 The grounds of appeal are that the Magistrate erred in concluding (i) that the 24 August 2002 letter "at it's highest" was "a contract to give a contract"; (ii) that the defendants/plaintiffs in the proceedings below did not intend to be bound by the 24 August 2002 letter (as amended); (iii) that the plaintiff/defendant in the proceedings below did not intend to be bound to the 24 August 2002 letter (as amended); and finally defendant/plaintiff in the proceedings below was required to issue a formal contract.

Notice of contention 5 Mr and Mrs Loudon-Shand contended that the decision of the Local Court should be affirmed on the grounds firstly, that leave be granted to the defendants to raise matters of fact; secondly, the Magistrate found (at 5) that the parties were aware of the land to be sold in the absence of any evidence of the location of the boundaries of the portions intended to be sold; and thirdly, the Magistrate found (at 7) that there was no uncertainty as to the terms regarding fencing and sub-division contrary to the evidence of the parties and in the absence of expert evidence of the location of the fences and boundaries of the portions intended to be sold.

The Local Court proceedings 6 The Local Court proceedings were commenced by Mr and Mrs Loudoun-Shand. They sought financial compensation in regard to $20,000.00 paid to Jadasi either for moneys had and received, or alternatively, for a failure of consideration with respect to an invitation to treat or under a resulting or constructive trust or for unjust enrichment and unconscionable conduct for the wrongful retention of moneys paid by them on an initial pre-contractual deposit in respect of a contract that had not materialised. Alternatively, they claimed statutory relief from the forfeiture by Jadasi Investments of a pre-contract deposit of $20,000 pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW). Jadasi claimed that the letter dated 24 August 2002 contained the terms of an agreement between the parties for the sale of approximately one thousand acres (1000 acres) of the property "Green Hills". Jadasi cross-claimed against Mr and Mrs Loudoun-Shand, seeking payment of the sum of $48,000.00, being the balance of the deposit that had not been paid.

The critical letter 7 On 24 August 2002 Mr Patteson, director of Jadasi, wrote to Mr Loudoun-Shand as follows: "Dear David, Further to your recent telephone call I confirm we will consider an offer from you to purchase part of "Green Hills" in accordance with the following terms: 1 You acquire approximately 1000 acres being all lots south of the Old Lachlan Road boundary with frontage/ access to the Goulburn/ Trunkey Road. 2. Paddocks included are Micks, West Clover, East Clover, Triangle, Swamp, Lower Barley, Top Barley, Browns, Contour, Acacia, 1st, 2nd, 3rd, Green Timber - 13 paddocks. 3. No subdivision or Council approval is required. 4. No extra fencing is required. 5. You agree to fully co-operate with the vendor in all actions necessary to give effect to the vendors agreements/obligations to advance Wind Power development to its full potential on "Green Hills" and in return you will receive 30% of the gross income receipts applicable to any installations on the land you acquire with appropriate security of the vendors rights. 6. Price $680,000 payable to the vendor as follows: $20,000 initial deposit in cleared funds as confirmation that a deal is in place after which instructions will be given to out lawyers to proceed with the contract for delivery to your lawyers as soon as possible. This amount will be refunded only if the vendor is unable to proceed for any reasons. $48,000 balance of the deposit in cleared funds on Exchange which will take place no later than 3 weeks after delivery to your lawyers of the contract. Balance on Settlement which will take place as soon as possible but no later than 1st November. 7. We will do all possible to allow you to move stock on to that part of "Green Hills" to be acquired after Exchange of contracts has taken place as agistment stock until Settlement on the same terms as current Green Hills. Agisters as soon as space is available. These terms are clean and straight forward and give you the opportunity of acquiring viable agricultural land within a time frame largely in your hands. Please advise whether or not you wish to proceed on this basis and we will then consider the deal with a final response given within a few days after your advice." 8 After receipt of this letter, it is common ground that on 30 August 2002, Mrs Loudon-Shand telephoned Mr Patterson and sought the inclusion of two paddocks named Everglades and Stringy Bark. This lead to the 24 August 2002 letter remaining in its current form other than the addition of these two paddocks, so that paragraph1 and 2 of the letter now read: "…1000 acres being all lots south of the Old Lachlan Road boundary with frontage/access to the Goulburn/Trunkey Road. Paddocks included are Micks, West Clover, East Clover, Triangle, Swamp, Lower Barley, Top Barley, Browns, Contour, Acacia, 1st, 2nd and 3rd Green Timber, Everglades and Stringy Bark - 15 paddocks." 9 On 2 September 2002 Mrs Ann Loudon-Shand for the plaintiffs drew a personal cheque for the sum of $20,000.00 and it was placed in Jadasi's bank account. 10 On 4 September 2002, after a meeting with Mr Patterson Mr and Mrs Loudoun-Shand endorsed the letter dated 24 August 2002 with the words "OK agreed" and both Mr and Mrs Loudoun-Shand signed their names. 11 In the Local Court, Mr Loudoun-Shand gave evidence that it was his understanding that by doing so, he and his wife had entered into a binding agreement to buy approximately 1,000 acres of the property from Jadasi for the sum of $680,000. Mrs Loudoun-Shand gave evidence that she understood that they had entered into a binding agreement with Jadasi to buy the property and that they "hoped" Jadasi was bound. These subsequent events, outlined above, meant that the first and the last paragraphs of the letter were otiose. 12 The issue is whether the parties intended to be bound by the critical letter or whether they only intended to be bound once a more formal agreement was entered into. This case centres around whether this letter falls within first class identified in Masters v Cameron (1954) 91 CLR 353. Masters has been helpfully summarised recently in Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [55]-[59] where Young CJ in Eq recapitulates: "55 As is well known, the High Court in Masters v Cameron (1954) 91 CLR 353 at 360, said that cases of the present type may belong to one of three classes. The three classes set out were: 1. Where the parties have reached final agreement on the terms of their contract and agree to be immediately bound but wish to restate those terms in a fuller or more precise way in a formal document; 2. Where the parties have reached final agreement on all the terms and intend not to depart in any way from them but the performance of some part of the contract is made conditional on the execution of a formal contract; 3. Where the parties intend there not to be a concluded contract unless and until a formal document is executed.

56 The vital question is always what the parties intended by the words they have used. In a case where the parties have expressly or impliedly indicated that there will be a further agreement, it is a question of construction whether the execution of a further contract is a condition of the bargain or else is merely an expression of the desire of the parties as to how their transaction will be completed: Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284, 289. Each case turns on its own facts.

57 In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628, MH McLelland J said: "There is in reality a fourth class additional to the three mentioned in Masters v Cameron ... namely, '... one in which 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.' " The words quoted derive from Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317.

58 McLelland J's decision was affirmed in this Court as GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631. The court there consisted of Kirby P, Glass and McHugh JJA. The lastmentioned gave the leading judgment with which the other two judges noted their agreement.

59 At page 634, McHugh JA said: "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 surrounding circumstances … . 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.

Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound."

The Magistrate's decision 13 The Magistrate made a number of findings [Decision pp 16-17]. They are: " Findings :

I find that there was a previous payment and return of a deposit between the parties. The Loudon-Shands clearly had a long-standing wish to purchase part of the property "Green Hills". However, I consider this relevant for the purpose of the relationship between the parties.

The language of the alleged contract does permit the vendor to withdraw. "This amount will be refunded only if the vendor is unable to proceed for any reason". This condition was inserted for the benefit of the vendor, but the vendor cannot now wave the condition and now allege a concluded contract. See submissions in Masters v Cameron .

The instructions to the solicitors in Annexure "H" contained more terms than those in the alleged contract. I do not accept they contained no more than was required to convert the t erms of the agreement into a formal contract. The instructions provide for a confidentiality clause, the right of the first refusal and the purchasers need at settlement to enter an agreement with Wind Corporation Australia Ltd. Not what I'd consider to be standard conditions in a contract.

I do not accept the Loudon-Shands understood the binding nature of the agreement. "OK agreed" indicates they wished to proceed on the basis of the conditions contained in the letter. The seller was then to give a final response after consideration. No formal response (in writing) was given. The terms of the letter envisaged a formal contract to be prepared by lawyers. On 4 September 2002, the date the Loudon-Shands signed the letter the evidence discloses finance had not been approved. Finance was a factor obviously in the minds of the purchasers and the parties presented as experienced and astute business people. If the purchasers believed they were binding themselves I'm sure they would have insisted on a condition "subject to finance".

I find that the parties were aware of the land to be sold and were familiar with the paddock names.

I find a formal contract should have issued if the seller considered he had a binding agreement. If the defendant was confident he had a concluded agreement there was nothing to prevent him serving a formal contract and insisting on proceeding. I don't accept the defendant's assertion it was the plaintiff's fault the formal contract was not forwarded. The defendant made time of the essence by his letter of 15 October 2002 to ascertain if the plaintiffs were still proceeding, further indicating the proposed purchase was not binding. In the absence of a formal response to the letter dated 28 August 2002 and agreed to on 4 September 2002; in the absence of the formal contract and the provision allowing the vendor to withdraw I do not consider the Supreme Court in those circumstances would order specific performance of the agreement.

I do not consider there was uncertainty as to the terms regarding fencing and subdivision. The Loudon-Shands had received advice from their solicitor addressing their concerns in this regard.

I find the alleged contract speaks of exchange and envisages a formal contract and its exchange. I do not accept this is not a relevant consideration as to the binding nature of the agreement. The agreement envisaged is a reasonably complex agreement involving subdivision of a rural property without survey or Council approval. As well the agreement provides for a Wind Power development. Because of these complexities I don't consider the parties intended to be legally bound prior to exchange.

I find the alleged contract, at its highest, is a contract to give a contract. I don't accept it contained all the provisions for restatement in a formal contract (eg. particulars of Wind Power scheme requiring a separate agreement)" 14 The Magistrate held [Decision p 18] that:

"Weighing up these conditions I find on balance that [the critical letter] is not a binding contract between the parties but the basis for a future contract and not of itself constituted a contract. There being no contract the $20,000.00 was paid for no consideration and is refundable. The $48,000.00 balance of deposit is not payable for the same reasons." 15 Starting with the Notice of Contention, Mr and Mrs Loudoun-Shand submitted that the Magistrate was in error in finding that the parties were aware of the land to be sold and were familiar with the paddock names. Mr and Mrs Loudoun-Shand conceded that Mr Loudoun-Shand was familiar with the paddock names but that it was "glaringly improbable" that the parties were aware of the land to be sold. 16 The Court of Appeal in Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126 (at 137 & 138), in defining what constitutes an error of law, stated that a finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal, upon which the finding is based, are capable of supporting its finding and there is evidence capable of supporting its inferences. Such a finding can be disturbed only if there is no evidence to support its inferences, or if the facts inferred by it and supported by the evidence are incapable of justifying the finding of fact based upon those inferences, or if the tribunal has misdirected itself in law. This principle has been restated in many cases. 17 There is evidence that Mrs Loudoun-Shand phoned Mr Patteson and asked to include two additional paddocks namely, Everglades and Stringy Bark. While the precise title references and exact acreage may not have been known, both parties had agreed on the description of the land that was to be purchased. The property to be sold formed part of "Green Hills" comprising approximately 1,000 acres, being all lots south of the Old Lachlan Road boundary with frontage/access to the Goulburn/Trunkey Road. The paddocks included Micks, West Clover, East Clover, Triangle, Swamp, Lower Barley, Top Barley, Browns, Contour, Acacia, 1st, 2nd and 3rd Green Timber, Everglades and Stringy Bark. A total of 15 paddocks. The Magistrate's finding was supported by evidence. This contention fails. 18 The second ground of contention is that the Magistrate erred when he found that there was no uncertainty as to the terms regarding fencing and subdivision. The natural meaning of the term "No subdivision or Council approval is required" and "No extra fencing is required" are clear. The findings were open to the Magistrate. The grounds raised in the Notice of Contention fail. 19 Jadasi submitted that the Magistrate misconstrued or misunderstood what the terms of the letter, as originally submitted, actually required or contemplated. The Magistrate said "No formal response (in writing) was given." Jadasi submitted that the letter said "final" not "formal" response and there was no requirement for further writing, even though in this case the "final response" was conduct that was documented. Due to the uncontroverted evidence as to the parties conduct between 24 August and 4 September 2002, the first and last paragraph of the letter became otiose. 20 The decisive issue is the intention of the parties, which must be objectively ascertained from the terms of the document in the light of the surrounding circumstances. 21 The communications between the parties (as outlined earlier) that Mr and Mrs Loudoun-Shand wrote "I agree" on the critical letter indicate that the Loudoun-Shands regarded themselves as bound by the agreement. They had requested that two other paddocks be added to the list of paddocks included in the sale. Jadasi's agreed by faxing of the same letter containing the extra names on 1 September 2002. The amount of $20,000 was then deposited to Jadasi's account on 2 September 2002, in compliance with paragraph 5 of the agreement. This sum was paid as confirmation that a deal was in place. 22 According to paragraph 5 of the letter, the amount of the balance of the deposit was to be refunded "only if the vendor is unable to proceed for any reason." These words cannot be construed as conveying a right to the purchaser to withdraw as per Finding 2. The Magistrate considered post-contractual conduct in making Finding 3. Finding 4, which related to finance, was irrelevant because, as I understand it, Mr Loudoun-Shand had verbal approval in relation to finance but was awaiting written approval as no final response was required (t 46.35). 23 Finding 5 and Finding 7 are correct. Even if the agreement speaks of exchange and envisages a formal contract, that does not mean that the parties did not intend to enter into a binding contract. A formal contract was not forwarded to Mr and Mrs Loudoun-Shand because they indicated that they were not proceeding. In any event a finding of this nature relates to post-contractual conduct. 24 It is my view that, when the intentions of the parties are objectively ascertained from the terms of the document and the light of the surrounding circumstances, they intended to be bound by the terms set out in the critical letter. The appeal is upheld. The parties agreed that there is no utility in remitting the matter to the Local Court. I set aside the decision of Magistrate Hodgson dated 30 March 2006. I enter judgment in favour of the defendant in the Local Court, Jadasi Investments Pty Ltd. I enter judgment in favour of Jadasi Investments Pty Ltd in the sum of $48,000 in relation the cross claim. Mr and Mrs Loudoun-Shand are to pay Jadasi's costs of the Local Court proceedings. 25 Costs are discretionary. Costs usually follow the event. The defendants David Loudoun-Shand and Ann Loudoun-Shand are to pay the costs of Jadasi Investments Pty Ltd relating to the appeal as agreed or assessed. The defendants are to have a certificate under the Suitor's Fund Act, 1951 (NSW) if applicable.

(2) The decision of Magistrate Hodgson dated 30 March 2006 is set aside.

(3) Enter judgment in favour of the defendant in the Local Court, Jadasi Investments Pty Ltd.

(4) Enter judgment in favour of Jadasi Investments Pty Ltd in the sum of $48,000 in relation to the cross claim.

(5) The defendants, David Loudoun-Shand and Ann Loudoun-Shand, are to pay the costs of Jadasi Investments Pty Ltd as agreed or assessed in both the Local Court and of these proceedings. The defendants are to have a certificate under the Suitor's Fund Act 1951 (NSW) if applicable. **********

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