Plaintiff v Defendant

Supreme Court of Victoria|2010-05-28|Before: PAGONE J

CONTRACT - Formation - Offer and acceptance - Exchange of letters - Contemplation of formal agreement - Whether parties intended to be immediately bound - Regard to surrounding circumstances.

1 The plaintiff ("Knowles") contends that it has a binding agreement with the defendant ("Crowncross") for the sale of a property at 1197-2005 Malvern Road, Malvern East. The binding agreement is said to be constituted by a letter dated 9 December 2009 signed by the CEO of Knowles, Mr Rod Gee, and countersigned by the sole director of Crowncross, Mr Campbell McKenzie. Crowncross maintains that there was only an agreement to negotiate a contract but that their agreement was that there was to be no concluded contract until a formal contract was executed by both parties. It maintains that no such concluded contract was ever executed by both parties although the draft written contract it gave to Knowles was executed by Knowles and returned to Crowncross for the latter's execution. Knowles has asserted its claim to the property by lodging a caveat which Crowncross seeks to have removed by counter-claim in this proceeding.

2 There was little dispute between the parties about the legal principles applicable to the resolution of their dispute. Both parties maintained that to determine whether there was a legally binding contract it was necessary for me to determine whether the intention of the parties objectively ascertained from the terms of the document when read in light of the surrounding circumstances showed that the parties had intended to be bound.[1] There was also little dispute between the parties about the facts from which the conclusion was to be drawn. The dispute between them was essentially about the conclusions to be drawn and the significance that I should place on each or any of the various facts which were said to point in one or other direction.

3 The letter of 9 December 2009 relied upon by Knowles contemplated the subsequent creation of a written contract to govern the sale of the property. The letter referred to the existence of a draft contract and contemplated subsequent negotiation of certain aspects of the draft between Knowles and Crowncross. In Masters v Cameron[2] the Court explained what might be contemplated by parties who appeared to reach agreement upon terms of a contractual nature that were to be recorded in a subsequent formal contract. In that case it was said:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, 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. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.[3]

The Court explained that in the first two cases there was a binding contract[4] but that the third was fundamentally different.[5] Which conclusion is to be drawn depends upon the "intention disclosed by the language the parties have employed",[6] and to this one might add, of course, that the agreement must be one capable of constituting a valid and binding contract capable of being enforced by specific performance.[7]

4 A fourth category was said to exist in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd[8] by reference to the agreement identified in Sinclair, Scott & Co Ltd v Naughton[9] 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".[10] In such a case the failure to fulfil a condition may be taken as satisfied where a party makes it impossible for a condition of the contract to be fulfilled[11] or a condition may be implied where necessary to give effect to the bargain.[12] Whatever the potential number of categories may be to the principle considered in Masters v Cameron[13], in each case "the decisive issue is always the intention of the parties"[14] which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances.[15] Indeed it may not so much be a matter of there being four categories of cases, but that the one question of the intention of the parties may be revealed in many ways of which four have been conveniently described for exposition and analysis.

5 There have been many cases which have considered the application of these principles to the particular facts which each case has occasioned. Each case is, and must be, dependant upon its particular facts because in each case the fundamental enquiry is about the intention of the particular parties to the dispute by reference to their particular and specific facts and circumstances. In PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd[16] it was said:

Geebung Investments Pty Ltd v Varga Group Investments (No.8) Pty Ltd raised a question whether an oral agreement to settle a proceeding, intended to be formalised in an executed document, was binding upon the parties in the absence of such a document. A majority of the New South Wales Court of Appeal held that the parties had evinced an intention to enter into a binding agreement, and were bound by it. The case did raise the Masters v Cameron issue; but again it was not the present case factually.

Kirby P said this:

It is well settled that a court may have regard to the parties' communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not the parties intended to form a binding agreement: ...

and:

The principles to be derived from the authorities, relevant to the resolution of the present appeal, may be summarised as follows:

1 The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal agreement, does not mean that that informal agreement is not presently binding.
1. The fact that the parties contemplate the drawing up and execution of a formal contract is a consideration which may point to the conclusion that no presently binding agreement was intended until that formal contract is executed.
2. The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it the less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the "major matters", their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document ...
In order to determine in what areas the parties were, and were not, in agreement, and what matters they considered necessary in order for an agreement to exist, it is legitimate to examine their subsequent conduct ...
1. Depending on the size, importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding.
2. It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding.

...

8 Where a binding agreement is said to have been formed as a result of correspondence, it is necessary to look at that correspondence as a whole. It is wrong to isolate any part of the correspondence from the rest in order to prove or disprove the existence of a binding agreement ... (footnotes omitted)[17]

In applying these principles it is important that particular reasons given to explain the outcome of a particular case, in its facts and circumstances, not be elevated to prescriptive principles of law applicable to all. In some circumstances a fact which may point to a binding contract in one context may not in another. Thus, for example, the fact that parties may be sophisticated and be represented by experienced and specialised lawyers may indicate that there was no intention to be bound by an agreement before a formal contract was prepared by the lawyers,[18] whilst on other occasions the existence of experienced and specialised lawyers may confidently provide the opposite conclusion. Similarly the use of words like "offer" and "accept" may in some circumstances need to be taken as having been used "with knowledge of their legal implications"[19] whilst in another case such formal words might not be thought to be enough.[20] In each case what must steadfastly be kept in mind is that it is the intention of the parties that is to be determined rather than the application of some preconceived presumption which in a given case may bear no relationship to the intention which the particular parties had. The objective intention of the parties is fact based and the inquiry is the determination of the parties' actual intention by reference to the objective circumstances;[21] the task is not one of the law imputing an intention to the parties which they did not have in fact or to do so by reference to criteria that may not bear a relationship to the actual intention of the particular parties in question.

6 The circumstances in which the letter agreement of 9 December 2009 came to be made was the desire by Crowncross to sell the property and the desire by Knowles to acquire it. In October 2009 Crowncross appointed Kelemen Commercial Pty Ltd to sell the property to Pace Development Group. Mr Andrew Egan was the person handling the sale of the property for Crowncross and, on 2 December 2009, called Mr Gee to inform him of an opportunity to purchase the property. Knowles conducts a nursing home business from premises including premises near to the property in Malvern which Crowncross was seeking to sell. Mr Gee was known to Mr Egan from previous transactions and suggested the Crowncross property in Malvern as an excellent opportunity for Knowles given that the latter was seeking to redevelop its portfolio including their own existing property nearby. On that day Mr Egan sent to Mr Gee an Expressions of Interest document prepared for Crowncross and expressed to be closing by 15 December 2009 for the site described as the Malvern Residential Development Site. Mr Gee was informed by Mr Egan that the asking price was $5,500,000 with a settlement period of not longer than 6 months. Later that day Mr Egan sent Mr Gee a number of emails with considerable information about the property which was then available to Mr Egan. These included various plans, diagrams and other documents describing the property, and a copy of a decision by VCAT granting a permit to use and develop the land for accommodation as a retirement village. Mr Egan also informed Mr Gee that Crowncross had received offers for the property of $5,250,000 with an 18 month settlement term and $5,050,000 with a 6 month settlement period, but that the proposed purchaser was having difficulty obtaining the deposit and that, therefore, Crowncross was looking for an alternative purchaser. Mr Gee apparently then visited the site, made various enquiries and secured authority from Knowles to make an offer on its behalf.

7 On 7 December 2009 Mr Gee verbally offered Crowncross, through Mr Egan, $5,050,000 on a 6 month settlement period to purchase the property. On the same day Mr Egan provided Mr Gee with a draft Contract of Sale of the land which had been prepared by Arnold Bloch Leibler ("ABL") as solicitors for Crowncross. On the following day, 8 December 2009, Mr Egan advised Mr Gee that the offer of $5,050,000 was rejected by Crowncross. Mr Gee asked whether an offer of $5,250,000 with an 18 month settlement period would be acceptable but was told that Crowncross wanted $5,250,000 with a 6 month settlement period. Mr Gee then informed Mr Egan that he wanted to secure the property and that he would give him a letter confirming the terms which he understood from the verbal conversation would be acceptable to the vendor. In other words, Mr Gee verbally informed Mr Egan that he would be making a written offer of $5,250,000 payable with a settlement term of 6 months which Mr Gee understood were the terms which the vendor wanted to receive and would accept. On that day Mr Egan requested from Crowncross the preparation of a formal contract to sell the property to Knowles supplying for that purpose the name of the purchaser as "J & G Knowles and Associates PL and or Nominee" and giving the ACN, address and details of its solicitor for the purposes of the sale. That request was sent to ABL through a Mr Mark Harrison on behalf of Crowncross.

8 On the following day, 9 December 2009, Mr Gee sent the written letter of offer to Mr Egan by email at 11.25am in the following terms:

Further to our discussions in regard to the abovementioned property, and receipt of information in the form of a preliminary Section 32 document and draft Contract of Sale, we convey the following offer to purchase the property:

Property: 1197-2005 Malvern Road, Malvern East - being Lot 2 on Plan of Subdivision 507399P

Purchaser: J & G Knowles and Associates Pty Ltd (or nominee) - ACN 005 219 572: ABN 222 899 623 42.

Purchase Price: $5,250,000

Deposit: 10% upon execution of the Contract of Sale

Settlement Terms: 6 months from the Date of Sale

Special Conditions: none except that the form of contract will need to be agreed between the Purchaser and Vendor. We note that a draft Contract exists and we would undertake to negotiate certain aspects of that with the Vendors [sic] solicitor as soon as we have confirmed acceptance of this offer by the Vendor. We comment that our solicitor, Chris Daly of our office is in a position to provide immediate feedback to the Vendors [sic] solicitor upon acceptance of this offer; we would expect that the contract should be exchanged within 5 business days of acceptance of this offer.

Please have the vendor confirm acceptance of this offer by 4pm on Friday the 11th December 2009, or the offer will lapse.

At the foot of the letter was a space for the countersigning by a Director of Crowncross with appropriate spaces for insertion of the person's name and signature. It stated in terms:

I,............................. Director of Crowncross Pty Ltd, confirm acceptance of the offer herein.

Signed by (print name): ................ Dated; day of December, 2009

This letter was sent with a covering email referring to previous conversations between Mr Gee and Mr Egan. Its terms are not without significance in confirming both the eagerness of Knowles to acquire the property and its intention that there be a binding agreement by no later than the date identified in the attached letter. The covering email said:

Andrew,

As discussed and set out in the attached.

As you are aware, we were hopeful of securing the site on the terms previously conveyed being $5.050m, and 6 months settlement - our offer herein is a significant uplift on where we had hoped to "land" the deal, and as such we trust you will do whatever you can to make it happen. We will not get involved in a "dutch auction" .... not having crack at you here, but if Mr Harrington says he's getting other offers & enquiry etc, you need to iron him out - we are the real McCoy!

Good Luck!!

On the same day Mr McKenzie signed as Director of Crowncross at the foot of the letter of 9 December 2009. It was sent by Mr Harrison to Mr Egan in the same email as Mr Egan's authority was altered to remove the restriction upon him to sell the property on behalf of Crowncross only to Pace Developments. That email also informed Mr Harrison that contracts were "being done now and should be out this afternoon". The signed letter of offer was sent by Mr Egan to Mr Gee at 4.58pm on 9 December 2009 and on the same day Knowles received a draft contract (in which it appeared as purchaser) and a signed vendor statement.

9 The following week a meeting occurred on 14 December 2009 at which requests were made for some amendments to the formal contract concerning some matters including the use of the margin scheme for GST purposes, the amount payable for default interest and requests by Knowles that it be able to use the planning permit plans for the permitted development. The meeting was organised through Mr Egan by an email to Ms Lisa Lane (a lawyer at ABL) stating that "Knowles Group have requested a meeting in ABL offices to sign contract documentation". The email suggested Monday 14th between 1.00pm - 2.00pm to hold the meeting and requested her to organise the meeting "with the vendor" and to confirm the meeting time. It took place on the 14th and appears to have concluded on the basis that Ms Lane agreed to seek instructions from Crowncross on a number of issues, in particular the application of the margin scheme for GST purposes and the position of the architects in relation to the use of the plans.

10 It seems that one or more of the issues discussed at the meeting on 14 December 2009, if accepted by Crowncross as a variation of any agreement reached on 9 December 2009, would have had the effect of increasing the economic value of the subject matter of the sale. On 16 December 2009 Ms Lane wrote to Knowles' solicitor, Mr Chris Daly, referring to the meeting and to subsequent emails in the intervening days, and informed Mr Daly of her instructions from Crowncross (described in the letter as "vendor") that it would consider the additional items requested by Knowles (in the letter described as "proposed purchaser") only on the basis of an increased purchase price of $6,000,000. The reason for that was explained to be that Crowncross considered that considerable value attached to the licence to use the endorsed plans which Knowles had requested. The letter then went on to note that the parties were no longer within the 5 day negotiating period but that Crowncross was willing to negotiate further "on a non-exclusive basis with an aim to reach an agreement" acceptable to both parties. That correspondence prompted Knowles' solicitor to write immediately and, amongst other things, to sign without amendment the written contract which had previously been supplied by ABL on behalf of Crowncross and to send a cheque by way of deposit.

11 These facts and circumstances lead me to conclude that the letter of 9 December 2009 signed on behalf of Knowles and countersigned on behalf of Crowncross was intended by the parties to be binding upon them. The letter was written by a person with business experience and acumen familiar with the terms of offer and acceptance for the purchase of property. It was received and signed on behalf of a company eager and willing to sell a property. That company had appointed an agent for that purpose and had sought expressions of interest from potential purchasers. In my view the parties could not have intended other than to be bound to buy and sell the property by their signed letter on 9 December 2009. The parties were sophisticated and experienced in property dealings. They consciously adopted terms of offer and acceptance and did so in the context of careful dealings through an agent appointed to secure a binding sale. It is true that the parties contemplated that their agreement would subsequently find expression in a more formal written contract but that was to occur in the context of the parties agreeing to be bound upon the terms set out in the letter of 9 December 2009, and in the context of the letter of 9 December 2009 being sent knowing that the terms were those sought by Crowncross and acceptable to both. The point of the letter was to reach a binding agreement.

12 The circumstances are not materially unlike those considered in Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd[22] although, as I have previously said, each case must be considered upon its own facts because the relevant inquiry is not whether some other parties on similar facts may be found to have had the relevant intention but rather the relevant inquiry is whether the parties on the particular facts had the necessary intention to be bound. The decision, however, like others,[23] shows that an agreement may be binding even when there has been an absence of agreement upon all possible subjects of negotiation. Crowncross had prepared a form of contract upon which it had been willing to sell the property but Knowles did not accept that form of contract as the basis upon which it would be bound. The letter of 9 December 2009 made clear that the form of contract was to be a matter for negotiation and, therefore, I do not accept that the terms of the agreement in the letter dated 9 December 2009 were that the parties would be bound by the form of contract which had been supplied. I do conclude, however, that the letter of 9 December 2009 was sufficient in its terms to constitute a validly binding contract capable of specific performance and intended by the parties to bind them in the absence of any subsequent agreement. The subject matter of the sale is clearly identified in the letter as are its primary terms concerning price and date of payment. Such other terms may be implied into that agreement as may be necessary to give effect to that bargain without the need to incorporate the actual draft supplied by Crowncross as prepared by its solicitors.

13 Accordingly Knowles is entitled to declarations that it has an equitable interest in the property as purchaser and that Crowncross is bound by the agreement. It is also entitled to an order for specific performance of the agreement. Subject to any submissions about costs I will order that:

1. The plaintiff has an equitable interest in the property at 1197-2005 Malvern Road, Malvern East - being Lot 2 on Plan of Subdivision 507399P as purchaser.

2. The plaintiff, as purchaser, and the defendant, as vendor, are bound by the agreement made by them as constituted and contained in a letter dated 9 December 2009 signed on behalf of each of them ("the agreement").

3. The defendant convey to the plaintiff title to the property at 1197-2005 Malvern Road, Malvern East - being Lot 2 on Plan of Subdivision 507399P upon the plaintiff paying all moneys due upon the sale as contained in the agreement.

4. The cross claim and all other claims are dismissed.

[1] Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629, 638 (Walsh J); GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA); Sagacious Procurement Pty Ltd v Symbion Health Limited [2008] NSWCA 149 (Unreported, Giles, Hodgson and Campbell JJA, 11 August 2008) [68] (Giles JA).

[3] Ibid 360 (Dixon CJ, McTiernan and Kitto JJ).

[8] (1986) 40 NSWLR 622, 628 (McLelland J).

[10] Ibid 317 (Knox CJ, Rich and Dixon JJ).

[11] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 637 (McHugh JA); Mackay v Dick (1881) 6 AC 251, 270 (Lord Watson).

[12] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Rentiers Pty Ltd v Wingara Wine Group Pty Ltd [2010] VSC 156 (Unreported, Pagone J, 27 April 2010).

[14] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA).

[15] Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629, 638 (Walsh J); GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA).

[17] Ibid 504-5 (Ashley JA, with whom Maxwell P and Nettle JA agreed).

[18] Carruthers v Whitaker [1975] 2 NZLR 667, 671 (Richmond J); Bradshaw v Henderson [2010] QCA 8 (Unreported, Holmes JA, Atkinson and Fryberg JJ, 5 February 2010) [19] (Holmes JA).

[19] Federation Properties Pty Ltd v Tzioras [2001] VSC 125 (Unreported, Byrne J, 1 May 2010) [62].

[20] Amatruda v Chandler [2001] VSC 93 (Unreported, Byrne J, 10 April 2010) [13]-[14].

[21] Sagacious Procurement Pty Ltd v Symbion Health Limited [2008] NSWCA 149 (Unreported, Giles, Hodgson and Campbell JJA, 11 August 2008) [105] - [106] (Giles JA).

[22] [2009] QCA 60 (Unreported, McMurdo P, Keane JA and Atkinson J, 20 March 2009).

[23] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631.

At a glance

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Judgment (51 paragraphs)

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Cases Cited (7)