Lee & Ors v Ross & Ors

1 By their Statement of Claim filed on 11 June 1997 the Plaintiffs sue the Defendants for damages for wrongful repudiation of a contract by which the Defendants agreed to sell to the Plaintiffs a property at 31 Yeramba Street, Turramurra ("the Property") for the sum of $291,000. 2 The Defendants ("the Vendors") say that a binding contract for sale of the Property never came into existence because there was no exchange of identical counterparts. Alternatively, they say that if a contract existed it was validly rescinded by them for wrongful repudiation by the Plaintiffs ("the Purchasers"). The Purchasers have joined the Registrar General as a Defendant in these proceedings, claiming damages under s.126 and s.127 of the Real Property Act 1900 (NSW) for permitting lapse of a caveat which they had lodged against the Property, whereby the Vendors were able to sell the Property to a third party who subsequently became the registered proprietor.

3 The issues upon which the case was fought need to be identified with some care because they are not all clearly reflected in the pleadings. Further, as the trial proceeded, the Purchasers shifted their ground on some issues and abandoned others. However, the issues were sufficiently delineated by the time that the parties came to make their final submissions. No party took the point that an issue, as finally argued, had not been properly pleaded and particularised. All parties had prepared an outline of their final submissions, to which Counsel spoke. 4 The Purchasers' Amended Statement of Claim pleaded the case for specific performance and for damages in lieu thereof very simply. Paragraph 2 of the Amended Statement of Claim alleged that by a contract in writing dated 24 January 1997 the Vendors agreed to sell and the Purchasers agreed to purchase the Property for the sum of $290,000 "upon and subject to the terms in the said contract for sale" . The pleading continued by alleging that the Purchasers gave a notice to complete, that they were at all times ready, willing and able to complete, that the Vendors refused to complete, and that the Purchasers thereby suffered loss and damage. 5 The Vendors' Defence denied paragraph 2 of the Amended Statement of Claim and in paragraph 38 pleaded in answer to the whole of the Amended Statement of Claim that there had been no binding agreement between the parties. The particulars to that paragraph gave as the ground for that conclusion of law that the Purchasers had made alterations to the counterpart contract signed by them prior to exchange of contracts without the consent of the Vendors. A Cross Claim filed by the Vendors sought a declaration that no binding contract had come into existence, upon the same ground. 6 In their Defence to the Cross Claim the Purchasers simply denied the allegation of "no binding contract", and nothing more. Thus far, one would have thought that issue was joined as to whether the counterpart contract signed by the Purchasers had been materially altered prior to exchange, and whether a contract had come into existence by reason of a valid exchange of counterparts in the usual way. 7 However, when Mr Murr SC, who appeared with Mr Freeman for the Purchasers, came to put his final submissions, he conceded (at T100.48ff) that there had been no exchange of identical counterparts of the contract and that a contract between the parties had not come into existence in the usual way, that is, by a formal exchange which marks the point at which the parties have agreed to become bound by the terms contained in the counterpart contract. 8 Rather, said Mr Murr, what had happened in this case was that "the formation of the contract and the negotiation are in truth the same proceeding" : the contract signed by the Vendors and forwarded to the Purchasers' solicitor was an offer; that offer was not accepted in terms because the Purchasers' solicitor made alterations not previously agreed between the parties; the counterpart signed by the Purchasers containing the alterations and returned to the vendors was, in fact, a counter-offer to the Vendors; the counter-offer was accepted by the Vendors, not by any writing, but by conduct on their part so that a contract thereupon came into existence; and, although a formal document containing the terms as amended by the counter-offer was never signed by the Vendors, a memorandum of the contract sufficient for the purposes of s.54A Conveyancing Act 1919 (NSW) was constituted by certain subsequent correspondence between the parties, signed by one of the vendors. 9 As I have noted, neither Ms Sofroniou, who appeared for the Vendors, nor Mr P. Walsh, who appeared for the Registrar General, took objection that the Purchasers' case as finally put had not been pleaded; they met Mr Murr's submissions head on. I will, therefore, treat the issue as formulated by Mr Murr to have been properly raised for determination. 10 Other issues raised by the Purchasers in their Amended Statement of Claim, particularly those alleging fraud, were not pursued. In the end, therefore, the issues may be summarised thus:

• did the Purchasers and Vendors in fact agree upon the terms of the contract;

• if so, was there a sufficient memorandum of the contract for the purposes of s.54A of the Conveyancing Act ;

• if a binding contract came into existence between the Vendors and the Purchasers:

did the mode of performance required by the Purchasers constitute a wrongful repudiation, which was accepted by the Vendors; or

did the Vendors wrongfully repudiate the contract entitling the Purchasers to specific performance or to rescind and sue for damages;

if a binding contract came into existence so that the Purchasers were deprived of an equitable interest in the Property by reason of the lapse of their caveat and the registration of a transfer to a third party, have the Purchasers established a claim against the Registrar General under either the former s.126 or the former s.127 of the Real Property Act on the ground that the Registrar General allowed the caveat to lapse without proper cause.

11 The Vendors are Mr Ross and his wife and daughter; Mr Ross has always acted in relation to the sale of the Property with their authority and pursuant to General Powers of Attorney in his favour which they had executed in November 1995. 12 In November 1996 a real estate agent, Mr Cho, who is Korean, approached Mr Ross and told him that he had buyers for the Property if the Vendors were willing to sell. Mr Cho was acting for the Purchasers, Mr and Mrs Lee and their son and daughter-in-law, who are also Korean. Although the Property was not then listed for sale, Mr Ross had procured a subdivision into two lots, a vacant lot and a lot on which was constructed a derelict cottage and garage which Mr Ross had intended to demolish. 13 Mr Ross and the other Vendors were willing to sell and eventually an agreement was negotiated for the sale of the lot upon which the cottage was erected. Mr Ross decided to act for himself and the other Vendors on the conveyance. He is not a lawyer but he has had some experience in real estate dealings. Mr Ross drew up a contract, using the standard Law Society and Real Estate Institute form, 1996 edition. 14 On the front page of the contract, in the space provided for "Completion date" Mr Ross inserted "4 weeks or 28 days after the date of this contract" ; he described the Property by reference to the lot number in the Deposited Plan. Against the item "Improvements" there are a number of boxes to be ticked; Mr Ross put ticks in the boxes marked "HOUSE" and "garage". Against the item "Inclusions" Mr Ross put ticks in the boxes marked "blinds", "curtains", "light fittings" and "stove". Directly under the item "Inclusions" is an item "Exclusions" . Against this item, Mr Ross wrote "SANDSTONE BLOCKS AND AWNING MATERIAL (PART CONSTRUCTED)" . 15 Mr Ross says that the only sandstone blocks on the Property are the substantial sandstone blocks which form the foundations of the cottage and the garage. This evidence has not been contradicted. Mr Ross regarded the sandstone as worth about $40,000 to $50,000. 16 Mr Ross says that he had made it clear to the Purchasers, through Mr Cho at a discussion in Mr Cho's office in December 1996, that it would be a term of the sale that the Purchasers would demolish the cottage and garage, that the Vendors would retain ownership of the sandstone blocks which formed the foundations, and that the Purchasers would place the blocks on the adjacent lot in the subdivision which the Vendors were to retain. 17 I accept Mr Ross's evidence as to what was said at this meeting. Not only was it not contradicted by the Purchasers but Mr Lee (Snr) confirmed that he and his wife attended a meeting with Mr Ross in Mr Cho's office on 13 December 1996. Mr Lee gave the following evidence as to what was said at the meeting about the sandstone blocks: " Q: And at the time you first saw the property, 31 Yeramba St, it had a two bedroom cottage on it; correct? A: Yes, there was.

Q: And you wished to build a house so that you and your wife could live together with your son and his wife; correct? A: That's correct.

Q: And the bottom of the house was made of sandstone; wasn't it? A: That's correct.

Q: So, the idea as at the end of 1996 was that you didn't want to move into the cottage that was already there? A: No, that's correct.

Q: And I think, at one stage, around the end of 1996, you met with Mr Cho, who was your agent? A: Yes.

Q: Where he, Mr Ross, asked you, "What do you plan to do with the land" and your wife said, "We want to demolish the house and build a new house"? A: That's correct.

Q: And Mr Cho said to you, "Mr Ross wants the sandstone. If you are going to demolish the house" and your wife said, "Okay"; do you recall that? A: That's right.

Q: So, to get the sandstone that Mr Ross was asking you for, the house had to be demolished; didn't it? A: That's right.

Q: Did you change your mind when you got upset about leaving the sandstone to Mr Ross? A: No, no we were going to give the sandstone to him.

Q: The sandstone that was part of the house that was existing on the land? A: Yes." 18 Mrs Lee's evidence was: " Q: If you could turn to a page of the Special Conditions in that contract, the last of those three pages down the bottom are the words, 'All sandstone on site remains the property of the vendor' et cetera? Do you remember how those words came to be put on the contract? A: As far as I know Ross, the vendor, wanted the stone and we agreed to give it to them and that's all I know.

Q: Is it something you discussed with Mr Kwon, your solicitor? A: When we went there to sign, Mr Kwon confirmed that, 'Now the sandstone, you are going to give this sandstone to the vendor' and we said, 'Yes'." 19 It will be noted at once that if the Vendors wished to retain ownership of the material comprising the foundations of the cottage and garage on the Property, so that the cottage and garage would have to be demolished in order to effect that intention, it was inappropriate for Mr Ross to have ticked the boxes marked "HOUSE" and "garage" next to the item "Improvements" on the front page of the contract. Such markings would indicate to a conveyancer used to dealing with the standard form contract for sale that the Property was being sold with a house and garage erected upon it and that the house and garage, as erected, would pass on the conveyance. That impression would have been confirmed by the ticks placed in the boxes for "blinds", "curtains", "light fittings" and "stove" against the item "Inclusions". 20 However, there can be no doubt that Mr Ross intended that the house and garage be demolished and that the sandstone foundations would remain the property of the Vendors because he inserted in his own handwriting a Special Condition 45 in the contract, namely: "ALL SANDSTONE ON SITE REMAINS THE PROPERTY OF THE VENDOR." 21 Mr Ross, his wife and daughter signed the contract which he had prepared and Mr Ross gave it to Mr Cho in early January 1997. Mr Cho forwarded it to the Purchasers' solicitor, Mr Kwon, who is also Korean. 22 On 24 January 1997, Mr and Mrs Lee (i.e. the parents) went to Mr Kwon's office for the purpose of signing the contract. As Mr Ross had prepared only one contract rather than two counterparts, it seems clear enough that Mr Kwon photocopied that document to provide a photocopy counterpart which the Purchasers could sign and exchange. 23 Mr Kwon explained the contract in Korean to Mr and Mrs Lee. He suggested a number of changes to which Mr and Mrs Lee agreed. Mr Kwon then made the following alterations on the photocopy counterpart. 24 First, he drew lines through Special Condition 29 to indicate that it was deleted. That Special Condition provided for the release of the deposit in certain circumstances. Next, Mr Kwon drew lines through Special Condition 41, by way of deletion. That Special Condition provided for the payment of interest by the Purchasers if they failed to complete the contract by the stipulated date. Finally, in Special Condition 45, Mr Kwon made an addition in his own handwriting. Probably because Mr Ross's handwriting had not come out clearly on the photocopy, Mr Kwon overwrote what Mr Ross had originally written so that, with his own addition, the Special Condition now read: "ALL SANDSTONE ON SITE REMAINS THE PROPERTY OF THE VENDOR WHO SHALL MAKE SUITABLE ARRANGEMENT FOR REMOVAL." 25 Pausing at this point, it will be seen that the amendment to Special Condition 45 introduced a new term which was capable of causing further misunderstanding and disagreement. Mr Ross may have thought that what he had written in Special Condition 45 sufficiently encapsulated what he says had been agreed orally in his discussion with Mr Cho and Mr and Mrs Lee in Mr Cho's office on 13 December 1996, namely, that the Purchasers would demolish the cottage and garage and would place the sandstone blocks on the Vendors' adjacent lot. But, of course, the form of contract which Mr Ross submitted, particularly Special Condition 45, did not state these terms with any clarity: it said nothing about who had the responsibility of demolishing the cottage and removing the sandstone and when that would be done. Mr Kwon's amendment to Special Condition 45, while saying nothing express about demolition of the cottage, at least made it clear that the Purchasers intended that the Vendors be responsible for removing the sandstone at their cost. 26 There is no direct evidence as to what the cost of removing the sandstone would have been. However, the sandstone comprised the foundations of the cottage and the garage, and the uncontradicted evidence of Mr Ross is that he regarded it as worth between $40,000 and $50,000. From this I infer that the volume of sandstone blocks would be quite considerable and that if Mr Ross had had to make his own arrangements to engage labour and equipment to remove it the cost would not be trifling. 27 To return to the narrative: all amendments to the photocopy counterpart made by Mr Kwon were initialled by Mr and Mrs Lee and, later in the day, by their son and daughter-in-law. Mr Kwon dated the photocopy counterpart "24 January 1997" and sent it back to Mr Cho by way of exchange, together with the Purchasers' cheque for the deposit. Mr Kwon did not send a covering letter to Mr Ross drawing attention to the amendments which he had made nor did he ever request that the counterpart of the contract containing the amendments be executed by the Vendors and returned to him. It is hardly necessary to say that a prudent solicitor should have taken both steps, especially when the other parties to the transaction were not legally represented. 28 Mr Cho delivered the photocopy counterpart to Mr Ross on or about 24 January. Mr Ross said that he did not then notice the amendments which had been made by Mr Kwon; he noticed them a few days later, or perhaps a week, afterwards.

29 Mr Ross says in his affidavit evidence that he rang Mr Cho and said: "The Lees have changed some parts of the contract that we didn't agree to."

Mr Cho responded: "Don't worry. It's okay, Mr Lee has a solicitor, there's no problem." 30 Mr Ross expanded on this evidence in cross examination. He says that in this conversation he was given assurances by Mr Cho that when the cottage was demolished by the Purchasers the sandstone blocks would be placed on the adjacent vacant lot retained by the Vendors. He gave this evidence: " Q: In relation to [Special Condition] 45 it would have been quite open for you to have gone back to Mr Cho or Mr Kwon or whatever and say, "I am not happy with [Special Condition] 45 in its present form and I am not prepared to agree to that in its present form". A: I could have.

Q: But again do I take it, hoping for the best and hoping the contract to be worked out, you were prepared to accept [Special Condition] 45 in the form that it was included in the contract? A: No, that is not true, I was prepared to accept their verbal assurance it wasn't going to happen despite what was said there. It made a lot of sense which didn't involve a lot of costs as they agreed the sandstone was mine, to drop that at the boundary at my cost, it would make no sense to put the blocks on my block when the bulldozers are right there and they are using it to knock the house down. It didn't seem to be material, a difference that would impact on me.

Q: We understand that, but despite the fact that you had received some verbal assurances or oral assurances from Mr Cho about what was going to happen, you didn't at any stage say "Well, in that case we had better amend the contract and change the working of Special Condition 45", did you? A: No, because I was desperately trying to get the deal through so I could purchase another property which I was committed to.

Q: So for that reason you were prepared to leave the words of Special Condition 45 in the contract in the form in which it had been returned to you by Mr Cho? A: Yes.

Q: Once this document had been returned to you you certainly regarded as the contract as being made and on foot, didn't you? A: Yes.

Q: And you conducted a considerable amount of correspondence over the following weeks largely with Mr Kwon? A: Yes.

Q: Where there were issues that arose under the contract of the parties' liabilities, correct? A: Yes.

Q: And you agree with me, don't you, that you conducted all of that correspondence on the assumption that you and the Lees had entered into a contract in the form of the document before you ? A: No, as I pointed out, apart from the differences and the variations made by the Lees I was, I had the understanding that if the property sold for a certain amount of money I would get the sandstone and place that on the other block .

Q: Let me clarify this - A: That is not what is in the contract .

Q: Can I just put this, you knew you had a written document ? A: Yes .

Q: Outside the written document you had or believed you had an oral arrangement with Mr Lee as to what would happen to the sandstone ? A: Yes .

Q: But as far as the written contract that you had was concerned, your understanding was it was the document in front of you, Exhibit P1 ? A: I understand that that is the contract but I also understood the effect, what would happen at settlement. I am conscious that that would happen. Although these changes had been made I was very clear what I wanted and what had to happen .

Q: And it was your understanding that you had an agreement to that effect ? A: By jointly a verbal discussion and written document, and although this didn't reflect what I originally put in there, I didn't expect them to become issues, these appear to be peripheral issues .

Q: Again to clarify this, you were prepared to go forward on the basis that you had this written document and you had or believed you had an understanding reached orally by Mr Cho as to what would happen to the sandstone blocks on settlement ? A: Yes, and beyond ." [Emphasis added] 31 It is important to assess correctly the significance of this evidence. It must be kept in mind that although the Vendors pleaded that no contract had come into existence because of alterations to the counterpart made by the Purchasers without their consent, the Purchasers did not plead in response that the Vendors were estopped from denying the existence of a binding contract by reason of some words or conduct on their part upon which the Purchasers had relied. One must be careful, therefore not to use this evidence as to Mr Ross's "failure to protest" as one would do if one were considering whether silence on his part, after he became aware of Mr Kwon's alterations to the counterpart, constituted a representation to the Purchasers that the Vendors agreed to the counter-offer contained in the altered counterpart, so as to estop the Vendors from now asserting that they did not, in fact, agree. Rather, the evidence can go only to the question whether one can infer from Mr Ross's silence that he did, in fact, agree to the counter-offer in the terms in which it was expressed in the counterpart. 32 In my opinion, this evidence shows that Mr Ross did not agree. That Mr Ross said that he regarded the contract as on foot when the signed photocopy counterpart was returned to him must be understood in the context of his evidence, read as a whole. Mr Ross made it clear in this evidence that he regarded the "contract" as comprising not only the written document but also the oral terms about the sandstone which had been agreed in his meeting with Mr and Mrs Lee on 13 December 1996, even though those oral terms were inconsistent with the counterpart as amended in Special Condition 45. Mistakenly, he regarded Mr Cho's assurances as sufficient to bind the Purchasers to the oral terms agreed in Mr Cho's office on 13 December 1996. No one suggests that Mr Cho was the agent of the Purchasers for the purpose of binding them to the terms as to the removal of sandstone insisted upon by Mr Ross. Mr Cho was only the conduit pipe for negotiations between the Vendors and the Purchasers. Mr Ross told Mr Cho that the Vendors did not agree to the addition which the Purchasers' solicitors had made to Special Condition 45. Mr Cho apparently did not pass on to the Purchasers that Mr Ross had rejected the counter-offer comprised in the photocopy counterpart and that sale was, therefore, still in the negotiation stage. Instead, Mr Cho made a representation as to the Purchasers' position which he was not authorised to make. 33 I accept as truthful Mr Ross's evidence that "although these changes [to Special Condition 45] had been made I was very clear what I wanted and what had to happen … it was [my] understanding that [I] had an agreement by, jointly a verbal discussion and a written document … and [I] was prepared to go forward on the basis that [I] had this written document … and on an understanding reached orally by Mr Cho as to what would happen to the sandstone blocks on settlement" . My reasons for accepting this evidence are as follows. 34 First, Mr Ross's evidence as to the discussions in Mr Cho's office on 13 December 1996 was not only unchallenged, it was supported: see paras 17, 18. Second, Mr Ross clearly regarded the sandstone blocks as an important issue right from the start of negotiations with the Purchasers and it is inherently unlikely that he would easily have made the concessions which the Purchasers sought in amended Special Condition 45. Third, because a response which Mr Ross sent to the Purchasers' requisitions on title on 13 February 1997, before any dispute as to the sandstone blocks had arisen, clearly shows that Mr Ross believed that the Vendors were selling "vacant land", not land upon which there was a house or upon which there was material to be demolished and removed by the Vendors. Fourth, Mr Ross's account of the oral terms "included" in the contract as to the sandstone blocks has been consistent from the very beginning: see e.g. his letters to Mr Kwon of 27 February and 3 March 1997, his letters to Mr Cho and Mr Kwon of 5 March and 6 March, and his letter dated 14 March 1997 to Mr Svir, the Purchasers' subsequent solicitor. Fifth, Mr Ross's evidence throughout cross examination on this point remained resolute and unshaken - it had the ring of truth to it.

35 Thus far I have been concerned with the question whether Mr Ross in fact agreed to the counter-offer contained in the photocopy counterpart executed by the Purchasers. For the reasons I have given, I am satisfied that he did not agree. But that finding does not, of course, end the matter because Mr Murr says that Mr Ross's conduct subsequent to the return to him of the Purchasers' counterpart manifested acceptance of the counter-offer which it contained. 36 The conduct of Mr Ross upon which Mr Murr relies as manifesting acceptance of the counter-offer is twofold. The first is silence when, according to Mr Murr, Mr Ross should have protested. The second is that, by letter dated 13 February 1997, Mr Ross responded to the Purchasers' request for particulars of title. Mr Ross's letter dated 13 February is the only possible conduct on the part of the Vendors which could be construed as an acceptance of the counter-offer because disagreement between the parties broke out shortly afterwards. 37 Mr Murr's submission on the first point appears at T106.41ff. He submits that when Mr Ross prepared the contract for sale and sent it to the Purchasers' solicitors, that was: " … the opening salvo in the negotiations and the response to it is that he gets back from them a specific alteration to a specific clause and an alteration which, on the basis of his evidence, differs from the terms negotiated in the previous course of negotiation, in regard to a different contract. And it really is the position that it is up to him at this stage, nobody being bound at this stage, to say: 'No, I'm sorry, I don't agree with this and this is not what I was told by Mr Cho you were prepared to agree to'.

But that has to be said, whether orally, whether in correspondence between solicitors, however. The time to act is then and say, 'No, I don't agree with this'. But his response in fact, for reasons which he gives, he says he is given certain assurances by Mr Cho that he relies upon, he was anxious to complete. He didn't see it as a big deal at the time, not something likely to cause trouble. All of the reasons that people have for entering into contracts that they are not completely happy with. But the fact is that is what he did. He didn't amend the term, didn't protest it, didn't say he wanted it changed. He was prepared to accept it. Prepared to accept it no doubt on the basis of assurance given to him not by the Lees but by a real estate agent who was his agent and in the expectation that it will all turn out all right.

But the fact of the matter is that was the term he agreed with and that is the term by which he was bound." 38 As to the second aspect of Mr Ross's conduct, Mr Murr points to the fact that on 30 January 1997 the Purchasers' solicitor, Mr Kwon, wrote to the Vendors enclosing requisitions on title, and on 13 February 1997 Mr Ross replied on the Vendors' behalf answering those requisitions. The heading of Mr Ross's letter refers to "Sale of Property Ross to Lee" . Mr Murr says that this letter clearly implies acceptance of the counter-offer constituted by the Purchasers' signed photocopy counterpart (T105.5, written submissions para 1.3). 39 As to the first point, namely that Mr Ross's silence constituted acceptance of the counter-offer by conduct, the way in which Mr Murr puts this submission comes close to an assertion that the Vendors are estopped from denying that they accepted the counter-offer by keeping silent when they ought to have protested. Yet, as I have noted, estoppel has not been pleaded as part of the Purchasers' case and it has never been raised as an issue in the proceedings. I accept that conduct, not founding an estoppel, can amount to implied acceptance of a contractual offer or counter-offer: see e.g. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, at 528-31 per Kirby P. Nevertheless, in the circumstances of this case, I am unable to accept that mere silence on the Vendors' part after receipt of the Purchasers' varied counterpart implied acceptance of a counter-offer by conduct. For the reasons given at length below in discussion as to Mr Murr's second point, I am satisfied that the Vendors' silence after receipt of the Purchasers' varied counterpart was the consequence of a mistaken belief, held both by Mr Ross and by the Purchasers, that a contract containing an oral term had come into existence by exchange of counterparts on 24 January 1997. 40 As to Mr Murr's submission on the second point, namely, that Mr Ross's replies to requisitions on title constituted an acceptance of a counter-offer, it will be seen that the submission founds upon "the classical theory of contract formation based upon offer and acceptance" : per Mason P in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, at 155. However, as Heydon JA (as his Honour then was) observed in the same case at 176 (para 71): "While the process by which many contracts are arrived at is reducible to an analysis turning on the making of an offer, the rejection of the offer by a counter-offer and so on until the last counter-offer is accepted, that analysis is neither sufficient to explain all cases nor necessary to explain all cases. Offer and acceptance analysis does not work well in various circumstances.

Another example concerns the exchanges of contracts to sell land, which are hard to analyse in offer and acceptance terms; despite that, Lord Greene MR observed of the practice: 'Parties become bound by contract when, and in the manner in which, they intend and contemplate becoming bound. That is a question of the facts of each case ... ' ( Eccles v Bryant and Pollock [1948] Ch 93 at 104)."

41 The phenomenon of exchange of contracts, particularly contracts for the sale of land, has a particular significance which must be borne in mind when, as here, a party asserts that a contract for sale of land has come existence by informal means. In Sindel v Georgiou (1984) 154 CLR 661, at 665, the High Court said: "The usual practice in New South Wales is for parties entering into a contract for the sale of land to exchange signed counterparts of a written contract so that, in consequence of the exchange, the purchaser has possession of a copy signed by the vendor and the vendor has possession of a copy signed by the purchaser: Allen v Carbone (1975) 132 CLR 528 at 533; Brien v Dwyer (1978) 22 ALR 485; 141 CLR 378 at 391; Smith v Lush (1952) 52 SR (NSW) 207 at 212. When the parties propose to enter into a contract for the sale of land by the customary procedure of exchange they do not contemplate the coming into existence of a binding contract before the exchange takes place. The exchange 'is the crucial and vital fact which brings the contract into existence' : Eccles v Bryant and Pollock [1948] 1 Ch 93 at 99. The ceremony of exchange constitutes a mutual acknowledgment that the bargain has been struck."

42 In that case, the parties to a contract for sale of land had come to complete agreement as to all the terms. Contracts were exchanged but one of the counterparts omitted certain details which had been included in the other counterpart. All omitted details had, nevertheless, been agreed. At 667, the Court said: "The question whether the delivery of parts in identical terms is essential must ultimately depend on the parties' intention. The answer to this question determines the manner in which the contract becomes binding. And as Lord Greene MR emphasized in Eccles v Bryant (at p 99), the manner in which the contract is to be created so as to become binding is to be gathered from their intention, express or implied. In ascertaining their intention, we must take account of those factors which favour an insistence on documents in such a form as will evidence with certainty a contract and the terms of that contract, factors expressed and underlined by Lord Greene MR in Eccles v Bryant (at p.99) and by Lord Denning MR in Harrison v Battye ([1975] 1 WLR at p.60). We must also take account of the real intention of the parties, giving due weight to their objective - the making of a binding contract by means of the exchange of parts. And if the parties, through negotiations between their solicitors, have agreed on the terms of their bargain and settle on an exchange of parts in order to seal that bargain, it would usually accord with their intention to treat the exchange as creating a binding contract, notwithstanding the lack of correspondence in the parts, so long as that lack of correspondence is capable of being remedied by rectification. It will be otherwise when it appears that the parties intend to be bound only by an exchange of parts in identical terms or when the prior negotiations do not completely settle the terms of the bargain and the parties look to the parts as exchanged to fix these terms.

This approach places less emphasis on the advantage of bringing into existence a document which establishes with certainty the terms of the contract and more emphasis on the intention of the parties in creating a contract by the ceremony of exchange, the terms of the bargain having already been determined." 43 The manner in which, and the time at which, parties intend to become bound by contract are questions of fact. In the present case, I am satisfied on the evidence that the common intention of both parties was to enter into a contract in accordance with the usual practice, that is, by exchange of identical counterparts. In particular, I am satisfied that it was not the common intention of the parties that the sending of a counterpart executed by the Vendors be regarded as an offer, the return by the Purchasers of an executed counterpart containing material alterations be regarded as a counter-offer and that an acceptance of the counter-offer bringing a contract into existence would be manifested by some informal means, such as conduct. My reasons are as follows. 44 First, although Mr Ross was not a lawyer, he believed that he had sufficient experience in real estate dealings to act on the conveyance himself. His responses to the Purchasers' requisitions on title and his subsequent correspondence with the Purchasers' solicitors reveal considerable familiarity with conveyancing procedures. It is a fair inference, therefore, that Mr Ross knew that the usual practice for entering into contracts for the sale of land in New South Wales was by exchange of executed counterparts in identical terms. Mr Kwon, as a solicitor, would certainly know the usual practice and its importance. 45 Where parties go through the ritual of exchange of counterparts in conformity with the usual practice for the sale of land in New South Wales, there must be a strong inference that their common intention is that they will not be contractually bound unless the ritual is properly performed in all substantial respects. Only if the ritual is so performed do the parties know with certainty when they are bound and by what terms they are bound. If parties intend to forego that certainty by contracting in a different, less formal manner, that intention should emerge clearly from all the surrounding circumstances. 46 Second, when Mr Kwon sent the amended counterpart to Mr Cho he did not draw to the attention of Mr Ross or, so far as the evidence reveals, to the attention of Mr Cho, that the amended counterpart in fact constituted a counter-offer; Mr Kwon certainly never sought explicit acceptance of a counter-offer nor did he request a counterpart contract containing the amended Special Condition 45 executed by the Vendors. Simply forwarding the Purchasers' executed counterpart to the real estate agent, with the Purchasers' cheque for a deposit, indicated an intention that that act would constitute a valid exchange, resulting in a binding contract coming into existence with a concomitant immediate obligation on the Purchasers' part to pay the deposit to the agent. 47 Third, whereas the counterpart contract which Mr Ross sent to Mr Kwon was undated, the photocopy counterpart returned by Mr Kwon had been dated by him "24 February 1997" . This indicates that Mr Kwon's intention was that the contract was to come into existence on that day by means of the return of the Purchasers' executed counterpart. If the Purchasers' executed counterpart was intended as a counter-offer, a contract could only have come into existence when that counter-offer was accepted by the Vendors and Mr Kwon had no way of knowing on 24 January whether, or when, the Vendors might accept the counter-offer. 48 Fourth, Mr Kwon sent his requisitions on title to the Vendors on 30 January 1997. Mr Kwon had had no communication from Mr Ross between 24 January and 30 January, let alone any communication suggesting that Mr Ross had accepted a counter-offer contained in the Purchasers' counterpart contract. Yet, clearly enough, Mr Kwon's sending the requisitions assumed that by 30 January there was already a contract in existence. The letter referred to "Lee purchase from Ross" , enclosed requisitions and advised that Mr Kwon would submit a Transfer in due course. Mr Kwon's assumption that a contract existed must be founded upon an intention and a belief that a valid exchange of contracts had taken place on 24 January in accordance with the usual practice. 49 Fifth, Mr Ross's evidence was that once he had received the Purchasers' counterpart contract he "regarded the contract as being made and on foot" , although he believed the contract included an oral term previously agreed. There is no evidence to suggest that Mr Ross regarded the negotiations as still continuing and that he was obliged to accept a counter-offer if a contract was to come into existence. 50 For these reasons, I conclude that the common intention of the parties was that a contract would come into existence only upon exchange of counterparts in accordance with the usual practice, and that that intention miscarried for two reasons: first, because the parties had not in fact agreed prior to exchange upon a material term, namely, Special Condition 45; and second, because a concluded agreement was not brought about by the very process of exchange since the counterparts in relation to Special Condition 45 were not identical. 51 For the same reasons, I am satisfied that it was never the common intention of the parties that Mr Ross's replies to requisitions would be an acceptance of the counter-offer contained in the Purchasers' varied counterpart and that upon those replies being sent a binding contract would thereupon come into existence. Rather, the fact that Mr Kwon sent requisitions on title and Mr Ross replied was the consequence of a mistaken belief held by both parties that a contract had already come into existence by a valid exchange of counterparts on 24 January 1997, and that the normal conveyancing procedures now had to be followed. 52 It follows from the above that, in my opinion, a binding contract for sale of the Property never came into existence between the Vendors and the Purchasers, so that there should be judgment for the Defendants on the Plaintiffs' Amended Statement of Claim. 53 For the sake of completeness, however, I should deal with the other issues raised.

Whether counter-offer accepted by replies to requisitions

54 Even if it is correct to regard the Purchasers executed photocopy counterpart as a counter-offer, I am unable to accept the submission that Mr Ross's reply to Mr Kwon's requisitions on title was an acceptance of that counter-offer. 55 It is certainly true that Mr Ross's letter dated 13 February 1997 in reply to the requisitions on title was headed "Sale of Property Ross to Lee" and contained the statement that "to allow settlement to proceed …" the Vendors were prepared to make an arrangement relating to a certain writ of execution. However, in answer to requisitions 17A(e) and 18B, both relating to buildings on the Property, Mr Ross replied: "Not applicable - sold as vacant land" . 56 The varied photocopy counterpart signed by the Purchasers, said to be the counter-offer, provided that the Property was sold with a cottage and a garage as "improvements" . Mr Ross's replies to requisitions 17A(e) and 18B, therefore, contradicted the terms of the counter-offer contained in the Purchasers' executed counterpart in a substantial particular. The letter, read as a whole, did not accept the Purchasers' counter-offer in terms but introduced a new term, namely, that the land Property was sold as vacant land. 57 The introduction of a new term in a purported acceptance of an offer or counter-offer results in no contract: see e.g. Cheshire & Fifoot's Law of Contract (8th Australian Ed., 2002) para 3.25. 58 In reality, Mr Ross's reference to the sale of the Property as vacant land in his reply to requisitions on title demonstrates that negotiations between the parties had not yet been concluded on an essential term of the contract: the Vendors' position was that it was the Purchasers' obligation to demolish the cottage and garage and to provide to the Vendors the sandstone blocks forming part of the foundations, at the Purchasers' cost; it was the Purchasers' position that whatever sandstone blocks were on the Property would be removed at the Vendors' cost.

59 The further one gets from the first and essential issue - was there a concluded agreement and a binding contract - the more artificial the other issues raised for determination become and the more their attempted resolution demonstrates that no concluded agreement came into existence between the parties in the first place. 60 Ms Sofroniou submits that even if the Purchasers' varied counterpart contract constituted a counter-offer which the Vendors accepted by conduct, there is no sufficient memorandum in writing of the contract signed by the Vendors or their lawfully authorised agent, so that under s.54A of the Conveyancing Act the contract is unenforceable. 61 Mr Murr responds by saying that Mr Ross's letter dated 13 February 1997 answering requisitions on title constitutes a sufficient memorandum for the purpose of s.54A because it is signed by Mr Ross, who holds general powers of attorney for the other Vendors, and because the letter refers to "sale of property Ross to Lee" . Mr Murr says that the letter therefore refers to a "transaction", i.e. a sale, and he relies on the following passage from the majority judgment in Harvey v Edwards, Dunlop and Company Ltd (1927) 39 CLR 302, at 307: "It is also well settled that the memorandum 'need not be contained in one document; it may be made out from several documents if they can be connected together.' They may be connected by reference one to the other; but further, 'if you can spell out of the document a reference in it to some other transaction, you are at liberty to give evidence as to what that other transaction is, and, if that other transaction contains all the terms in writing, then you get a sufficient memorandum within the statute by reading the two together'." 62 In that case the Court immediately went on to note (at 308) that an oral agreement had been established between the appellant, the respondent and a third party as to the compromise of certain proceedings between the respondent and the third party. The terms of that agreement had subsequently been set out in a letter from the appellant's solicitors to the respondent's solicitors. The respondent's solicitors wrote back referring to the proceedings between the respondent and the third party, and the terms of their letter were consistent with the terms of the oral agreement as summarised in the letter from the appellant's solicitors. The Court held (at 309-310) that the respondent's solicitor's letter expressly referred to the proceedings between the respondent and the third party so that the correspondence between the parties' solicitors connected up together and, taken together, recognised that an agreement had been made between the parties in the terms set out in the appellant's solicitor's letter. Accordingly, the Court concluded that the letter signed by the respondent's solicitors was a sufficient memorandum for the purpose of the Statute of Frauds . 63 In the present case, for the reasons I have given, I am satisfied that no agreement had been concluded between the parties prior to 13 February 1997 as to the terms upon which the cottage and the garage on the Property would be demolished and the sandstone blocks made available to the Vendors. Accordingly, unlike the situation in Harvey v Edwards, Dunlop & Co , the only "transaction" to which Mr Ross's letter could refer was not a concluded sale agreement but, rather, a sale agreement which was still in the course of negotiation, even though the parties mistakenly believed otherwise. 64 In short, in my opinion, the facts of this case are very different from those in Harvey v Edwards, Dunlop & Co and the principle enunciated in that case has no application here.

65 In case I am wrong in all of the foregoing conclusions I will give my findings and conclusions as to the contentions of each of the Purchaser and the Vendors that the other side has wrongfully repudiated the contract. 66 If a contract ever came into existence between the Vendors and the Purchasers it must have been because Mr Ross, on behalf of the Vendors, accepted the counter-offer contained in the varied photocopy counterpart executed by the Purchasers, so that the terms of the contract would be as contained in that document. Strange as it may seem, it appears that Mr Kwon did not retain a complete copy of the counterpart executed by the Purchasers which he had amended and returned to Mr Ross. It emerged only after the hearing commenced that the version of the contract retained in Mr Kwon's file, which was later taken over by Mr Svir, the Purchasers' present solicitor, was not complete. Critically, that version did not contain the page upon which Special Condition 45 appeared. How this could have happened is not explained but the fact that it undoubtedly did happen explains the misunderstandings which arose shortly after 27 January 1997. 67 The contract was due to be settled on 28 February 1997. On 27 February Mr Kwon had a telephone conversation with Mr Ross in which he told Mr Ross that he needed the keys of the cottage on the Property in order to carry out a final inspection prior to settlement. Mr Ross said that the cottage had to be demolished and that the sandstone blocks forming the foundations were the property of the Vendors and had to be left on the Vendors' adjoining land at the time of demolition. Mr Kwon replied that the contract provided that the Vendors were selling a house but that he would get instructions. 68 Later that day, Mr Kwon rang Mr Ross and the following conversation occurred: "Kwon: "As per the contract, you have sold the house, there is no requirement for the purchaser to give you the sandstone."

Ross: "There was a specific agreement as to the sandstone and it is even listed in the exclusions."

Kwon: "Mr Ross, you have ticked the box which says 'house', therefore you are selling the house, but you should seek your own legal advice."

Ross: "Well, settlement cannot proceed tomorrow unless we resolve this issue."

Kwon: "The matter is up to you, my client's exercising his rights under the contract"." 69 It can be seen at once that Mr Kwon and the Purchasers were taking a position completely inconsistent with the terms of the contract, read as a whole together with Special Condition 45. The explanation may well be that the copy contract retained by Mr Kwon did not include the page containing Special Condition 45 so that Mr Kwon had regard only to the front page of the contract. It is strange, however, that Mr Kwon was not alerted to a problem when Mr Ross gave replies to requisitions on title which stated that the Property was being sold "as vacant land" . 70 Nevertheless, it is clear that on 27 February the Purchasers were requiring performance of the contract in a manner which required the Vendors to sell the Property with an existing cottage and garage and that they denied the right of the Vendors to retain the sandstone blocks comprising the foundations of those structures. This stated attitude prompted Mr Ross to write two letters to Mr Kwon on 27 February referring to the sale of the Property as "vacant land" and confirming that he required the sandstone blocks to be placed on the Vendors' adjoining land. 71 Mr Ross sent a stream of facsimiles to Mr Kwon over the following few days. On 3 March he sent a facsimile referring to the "contract agreement for sandstone to be placed by the Purchaser on adjoining site at time of demolition" and requesting urgent advice as to the Purchasers' position. On 4 March he sent a facsimile referring to a telephone conversation with Mr Kwon earlier that day, advising that he still had not received advice as to the Purchasers' position and enclosing a Notice to Complete. 72 On 5 March, Mr Kwon responded to Mr Ross's facsimile letter of 4 March, as follows: "We have been instructed to respond to your claims contained in the facsimile message as follows:-

1. Proposed settlement could not be affected [sic] on 28 February 1997 due to your refusal to accept the conditions of the contract.

3. We have never given you any undertaking, but in any rate please refer to this letter.

Sandstone blocks on both left and right hand sides of the house were to be taken by you at your costs and the contract stipulates that the purchaser shall obtain the house and garage including the sandstone foundation." 73 On 6 March, Mr Ross responded, saying (correctly) that the only sandstone blocks on the Property were part of the house and garage and referring at length to the verbal agreement reached between the parties in the presence of Mr Cho on 13 December 1996. 74 On 7 March, Mr Ross sent a Notice of Termination and a lengthy letter to Mr Kwon. In the Notice of Termination the Vendors stated that it was their intention to terminate the contract on the ground of the Purchasers' refusal to comply with the contract conditions. The letter advised that the Vendors intended to "proceed to make alternative arrangements for disposal of property effective immediately" and concluded by stating that the Vendors intended to enforce their rights flowing from termination of the contract. 75 While the terms of the Notice of Termination might possibly be construed as indicating an intention to terminate in the future, there is no doubt that the letter states an intention to act immediately in a manner which is inconsistent with the continuation of the contract. Accordingly, when the two documents are taken together I have no doubt that on 7 March the Vendors evinced an intention to terminate the contract forthwith. 76 I am satisfied that as at 7 March the Purchasers were firmly maintaining the position that the contract provided for the sale of a "complete house" and that the Vendors were not entitled to the sandstone forming part of the foundations. Not only does this position emerge from Mr Kwon's letter of 5 March but it was restated by the Purchasers' subsequent solicitor, Mr Svir, in his letters of 12 and 14 March: see also Mr Svir's evidence at T62.15-.25. Why the Purchasers were maintaining this position in the light of their previous attitude that the Vendors could have the sandstone blocks, expressed at the meeting which took place with Mr Cho on 13 December 1996, has never been explained. 77 I am satisfied that by 7 March 1997 the Purchasers had clearly manifested an intention to perform the contract in a manner substantially inconsistent with their obligations and not in any other way: see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, at 634. The Purchasers were denying outright the entitlement of the Vendors to retain property in the sandstone blocks forming the foundations of the cottage and garage, which entitlements the contract gave them. This denial constituted a wrongful repudiation of the contract which was accepted by the Vendors, who validly terminated the contract on 7 March. 78 I note finally on this point that Mr Murr's submission was that the Vendors were not entitled to give a Notice to Complete on 4 March and were not entitled to terminate the contract on 7 March for the Purchasers' failure to complete. All I need to say is that the Vendors' right of termination on 7 March did not depend upon their right to issue a Notice to Complete or upon the Purchasers failure to comply with such a Notice; the Vendors' right to terminate arose because of the Purchasers' wrongful repudiation of the contract as a whole.

79 From the foregoing reasons it will be apparent that, in my view, the Purchasers' claim against the Registrar General must fail. A contract for sale of the Property never came into existence; even if it did, by reason of the Vendors' valid termination on 7 March 1997, the Purchasers thereafter had no interest in the Property which was capable of protection by a caveat. Whether the Registrar General allowed the caveat to lapse rightly or wrongly, the Purchasers can have suffered no loss or damage by reason of its lapse.

80 There will be judgment for the Defendants on the Plaintiffs' Amended Statement of Claim. There will be a declaration in terms of paragraph 7(i) of the Amended Cross Claim of the First to Third Defendants. Additional relief is claimed in the Amended Cross Claim which has not been the subject of extensive submissions. 81 I will stand the proceedings over for a short time to enable the parties to bring in Short Minutes of Order reflecting these reasons for judgment. I will then hear further argument, if any, as to ancillary relief and as to costs. - oOo -

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