Radovanovic v Stekovic

Court of Appeal (NSW)|2024-05-02|Before: Meagher JA, Gleeson JA, Payne JA, McGrath J

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant was the sole registered proprietor of real property in Queanbeyan, New South Wales, which in 2020 he agreed to sell for $675,000. Before settlement, the appellant's sister and her husband (the respondents) asserted an equitable interest in the property and placed a caveat on its title. In October 2020, to enable settlement to proceed, the parties (who were represented by solicitors) came to an agreement: the respondents would remove the caveat and the appellant's conveyancing solicitor, BDN, would retain the net sale proceeds in its trust account pending resolution of the underlying dispute. The purchaser paid the net sale proceeds ($546,409.17) into BDN's trust account, where it remained until May 2022. That month, communicating by solicitor, the appellant informed the respondents he proposed to have the funds paid out to himself after 14 days. The respondents replied, again by solicitor, that they were prepared to litigate, and had briefed counsel to settle originating process. In a separate email, marked "Calderbank Offer", the respondents also made an offer to settle the dispute, which the appellant rejected. However, in June 2022, the appellant by his solicitor made his own settlement offer ("the counteroffer"), in an email marked "without prejudice, save as to costs". The counteroffer had two clauses: (1) the appellant would authorise BDN to pay the respondents $225,000 out of the net sale proceeds; (2) the parties would enter into a "Deed of Settlement and Release", containing "standard provisions" on mutual release, mutual non-disparagement and confidentiality and a term that the parties would bear their own costs. The respondents, by solicitor, accepted this counteroffer. No deed was executed. In August 2022, the appellant stated that he was not bound by the agreement to accept his counteroffer. The respondents commenced proceedings, and the primary judge found the counteroffer was binding. The appellant appealed, arguing that in the circumstances, acceptance of the counteroffer did not give rise to a binding settlement agreement. The main question was whether in light of all the circumstances including the terms of the counteroffer and the acceptance, a reasonable person in the position of the parties would have taken them to have intended to enter into a binding contract. There were three issues: (i) Did clause 2 of the counteroffer mean that execution of a deed was a condition precedent to any agreement? (ii) Was the agreement constituted by the counteroffer and the acceptance unenforceable because it lacked "key terms"? (iii) Did the surrounding circumstances, including the parties' communication by Calderbank letters, indicate an intention to be bound? The Court held (Payne JA, Meagher and Gleeson JJA agreeing at [1] and [2] respectively), dismissing the appeal: On issue (i): (1) Nothing in the language of clause 2, including the fact it was a numbered clause of the counteroffer, suggested the parties intended their agreement to be subject to deed: [46]-[47]. Clause 2 of the counteroffer was simply an unfulfilled term of the parties' bargain: [47]-[48]. Godecke v Kirwan (1973) 129 CLR 629; Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284 cited. On issue (ii): (2) The counteroffer was a complete agreement. It was commercially obvious that the appellant was to retain the balance of the funds after the respondents received the settlement sum, and no explicit term was needed to that effect: [56]. Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604; [1982] HCA 53 cited. (3) Nor was a term needed requiring the respondents to authorise BDN to pay out the net sale proceeds. The respondents were not persons "on whose behalf" BDN received the net sale proceeds, within the meaning of s 138 of the Legal Profession Uniform Law: [58]-[63]. (4) Comparing the counteroffer with the language of the respondents' proposed draft settlement deed did not lead to a conclusion that key terms were lacking: [57], [64]. That language simply clarified the obvious. On issue (iii): (5) No special words are needed to give a settlement offer the effect it had in Calderbank v Calderbank [1975] 3 All ER 333. Calderbank offers are simply offers that do not comply with the relevant rules of court relating to the making of offers of compromise. Where parties are represented, the phrase "without prejudice, save as to costs", as appeared in the counteroffer, ordinarily engages the Calderbank principles: [70]. Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [27] cited. (6) Calderbank offers operate by fixing a point in time after which, when seeking a favourable costs order, an offeror can argue the offeree acted unreasonably in maintaining proceedings despite the offer: [71]. To make that function possible, parties who proceed by Calderbank offer ordinarily intend to be bound immediately upon acceptance of the offer: [68], [71]. (7) That proceedings had not commenced did not alter the conclusion that the counteroffer was a binding Calderbank offer: [72]-[76]. There was real urgency to settle, since the appellant was threatening to pay the net sale proceeds to himself and the respondent had briefed counsel: [75]. It was irrelevant that a formal offer of compromise under UCPR r 20.26 was unavailable: [73]. The parties had a genuine incentive to reach a binding settlement before expensive and uncertain proceedings were commenced: [78].

Judgment

MEAGHER JA: I agree that the orders proposed by Payne JA should be made for the reasons his Honour gives.
GLEESON JA: I agree with Payne JA.
PAYNE JA: The appellant, Goran Radovanovic, and the second respondent, Jovanka Stekovic, are siblings. The second respondent is married to the first respondent, Milivoj Stekovic.
From June 1999 to November 2020, the appellant was the sole registered proprietor of a property in Queanbeyan ("the property"). In 2020, the appellant negotiated the sale of the property to a third party for $675,000. On 6 July 2020, contracts were exchanged, with settlement scheduled for 9 October 2020.
The respondents asserted an equitable interest in the property arising from what they alleged was an agreement between the parties to this appeal, together with Bogdanka and George Radovanovic (the parents of the second respondent and the appellant), and Gordana Radovanovic, the appellant's former wife. On 2 October 2022, solicitors acting for the respondents, Chamberlains Law Firm ("Chamberlains"), sent the solicitor acting for the appellant on the sale of the property, Baker Deane & Nutt ("BDN"), a letter setting out the basis for the respondents' asserted equitable interest in the property. Chamberlains' letter demanded that the sale proceeds of the property be held in BDN's trust account pending the resolution of the dispute. To protect their asserted equitable interest, on 6 October 2020, the respondents lodged a caveat which was recorded on the title of the property.
On 13 October 2020, the appellant, now represented by the firm North Herring Lawyers ("North Herring"), proposed the following arrangement to allow the sale of the property to go ahead: To enable the settlement to proceed, I am instructed that my client agrees to the net proceeds of sale being retained by Baker Deane & Nutt Lawyers, in their trust account, pending the resolution of the dispute between our respective clients.
On 15 October 2020, Chamberlains, on behalf of the respondents, agreed to this proposal by email. On 13 November 2020, at the direction of the appellant the purchaser transferred the net proceeds of sale, $546,409.17, into BDN's trust account. The respondents removed the caveat.

The settlement negotiations

By early 2022, the net sale proceeds of the property remained in BDN's trust account.
On 23 May 2022, North Herring emailed Chamberlains, referring to the net sale proceeds held in BDN's trust account and informing the respondents that the appellant intended to instruct BDN to release those funds to him after 14 days: I am instructed to put your client on notice that following the expiration of 14 days from the date of this letter, namely 6 June 2022, my client intends to instruct [BDN] to release those funds to him. If your client intends to make any claim in relation to those monies, they should do so by 4 pm on 6 June 2022.

The respondents' settlement offer

On 30 May 2022, Chamberlains, on behalf of the respondents, replied to North Herring's email with two letters. The first letter set out the history of the dispute and proposed a mediation conference, explaining that the respondents had briefed counsel to settle a draft statement of claim.
The second letter was marked "Without Prejudice Save as to Costs" and contained a separate section headed "Calderbank Offer", which contained the respondents' offer for "resolving this matter". The offer had three parts: 1. The appellant would authorise BDN to pay the respondents $233,500 out of the net sale proceeds comprising $225,000 (being one third of the sale price of the property) plus $500 (being the initial deposit the respondents said that they paid for the purchase of the property) plus $8,000 (being reasonable reimbursement for the contributions, both monetary and labour, which the respondents said that they expended towards improvements and upkeep to the property). 2. The parties would enter a Deed of Settlement and Release which would include standard provisions "surrounding": 1. Mutual releases from all claims to the extent permitted by law; 2. Mutual non-disparagement; and 3. Mutual confidentiality. 1. The parties would bear their own costs.

The appellant's counteroffer

On 3 June 2022, North Herring sent an email to Chamberlains which attached a letter dated 2 June 2022 marked "Without prejudice, save as to costs" which referred to the letters of 30 May 2022 from Chamberlains and relevantly stated: I refer to your letters of 30 May 2022 upon which I have sought instructions. In particular, I refer to your clients Calderbank offer made at paragraph 2 of your "without prejudice" letter of that date. I am instructed to reject that offer. However, I am also instructed to make a counteroffer in the hope that proceedings can be avoided as follows: 1. My client will authorise Baker Deane & Nutt to pay to your clients from the funds held an amount of $225,000.00; 2. The parties enter into a Deed of Settlement and Release which will include standard provisions surrounding: a. Mutual releases from all claims to the extent permitted by law; b. Mutual non-disparagement; c. Mutual confidentiality; and d. That the parties each bear their own costs relating to the dispute, including the preparation and execution of the Deed and Settlement and Release. So that your clients have the opportunity to seek advice in relation to the above offer, I am instructed that my client will not take any step in relation to the funds held by Baker Deane & Nutt. I am instructed to provide you with further reasonable written notice should those instructions change.
The appellant's counteroffer thus had two essential components: 1. The appellant would authorise BDN to pay the respondents $225,000 from the net sale proceeds (being the amount identified in the respondents' settlement offer as one third of the sale price of the Property); 2. The parties would enter a Deed of Settlement and Release containing the same standard provisions as suggested in the respondents' settlement offer, including a provision that each party would bear their own costs.
Later, on 3 June 2022, Chamberlains replied by email to North Herring accepting the counteroffer on the respondents' behalf: We refer to your without prejudice letter of 3 June 2022 and are instructed to accept the counteroffer contained therein. Please provide the Deed of Settlement and Release for our clients' consideration at your earliest convenience.

Subsequent events

During June and July 2020, Chamberlains repeatedly contacted North Herring, asking when it could expect North Herring's draft of a Deed of Settlement. North Herring informed Chamberlains they were preparing a draft Deed, but no such document was ever sent.
On 25 July 2022, North Herring sent Chamberlains the following correspondence: I have spoken with [the appellant] last week and he has advised that he does not intend to sign the draft Deed of Settlement. In those circumstances, I have ceased acting for [the appellant], who has advised that he will seek new representation.
The appellant retained new solicitors, Warlows Legal ("Warlows"). On 22 August 2022, Chamberlains sent a letter to Warlows demanding that the appellant comply with what they said was a "binding and enforceable agreement".
On 21 December 2022, the respondents commenced proceedings in the Equity Division of the Supreme Court, seeking a declaration that the counteroffer was a binding agreement and an order in the nature of specific performance in relation to a draft deed annexed to the summons.

Primary judgment

On 29 November 2023, the primary judge found that the parties intended their 3 June 2022 settlement agreement to be binding: Stekovic v Radovanovic [2023] NSWSC 1471 ("the primary judgment").
Before the primary judge, the appellant argued that the counteroffer was conditional on the execution of a deed of settlement and, because no such deed was executed, the counteroffer was never binding. The primary judge found that the dispute engaged the long-standing principles established in authorities like Masters v Cameron (1954) 91 CLR 353, which concern cases where negotiating parties agree that they will later create a formal contractual document. In Masters v Cameron, Dixon CJ, McTiernan and Kitto JJ identified the following "categories" of cases in which parties have agreed on terms, but also agreed that those terms will be dealt with by subsequent formal documentation: 1. First category: where 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; 2. Second category: where 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; and 3. Third category: where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In the first two categories there is a binding contract, but in the third there is not: Masters v Cameron at 360-1. In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628, McLelland J explained that there is in reality a fourth class of case 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 primary judge recognised that the Masters v Cameron classifications are not to be applied as strict "categories" into which such cases must fall: Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 at [69] citing Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at [25]. Rather, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337; G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634.
The question of whether the parties reached an agreement is to be decided objectively. That is, it is to be decided by reference to what the parties' words and conduct would be reasonably understood to convey, not upon their actual beliefs and intentions: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [34].
The appellant argued that this case belonged to the "third category" of Masters v Cameron, where the parties do not intend to make a concluded bargain at all unless or until they execute a formal contract.
The correct approach, the primary judge held, was to determine whether, given all the circumstances, a reasonable person in the position of the parties would have taken them to have intended to contract. The primary judge cited, at length, the recent decision of this Court in Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102 at [64]-[68] which summarised the legal principles relevant to whether an agreement between parties was binding. His Honour also referred to Narayan v Narayan [2022] NSWSC 1685 and Wong v Wong [2022] FCA 78 as cases applying those principles in factual circumstances similar to those in this case.
The primary judge found that establishing the objective intention of the parties involves looking at the words that were used in each of the counteroffer and the acceptance of the counteroffer in their context. The general context for the consideration of the language used in the counteroffer and acceptance was the parties' dispute over the respondents' alleged equitable interest in the property, the registered proprietor of which was the appellant. By setting out the basis of their claim in Chamberlains' letter of 2 October 2020 and lodging the caveat on the title of the property on 6 October 2020, the respondents indicated the seriousness of their intention to maintain their position in that dispute. The appellant initially agreed (in North Herring's letter of 13 October 2020) that the net proceeds from the sale of the property were to be held in BND's trust account pending the resolution of the dispute, but on 23 May 2022 announced that he would instruct his solicitors to release the funds to him on 6 June 2022. This indicated that he also intended to maintain his position in the dispute in an earnest way and would be acting swiftly to obtain all of the funds from the sale of the property for himself.
The primary judge concluded that the specific context for understanding the words used in the communications of 2 and 3 June 2022 was that the course of correspondence was consistently marked "without prejudice save as to costs" (often referred to as a Calderbank offer), commencing with the offer made in the letter of 30 May 2022 from Chamberlains, the rejection of that offer and the counteroffer made in the North Herring letter of 2 June 2022 and the acceptance of the counteroffer contained in the email of 3 June 2022 from Chamberlains. By marking the relevant communications in this way, the parties were attempting finally to settle serious claims which were seriously contested without the need to resort to court proceedings. By using the words in the marking, each side was expressly indicating that they were attempting to bring the dispute to an end without incurring further and likely significant legal costs by putting the other side at risk of having to pay those costs in the event that the Calderbank offer made was not accepted and a less favourable outcome was obtained in the prospective proceedings. As observed in Narayan at [14]-[18], the contractual context created by a Calderbank offer is one that lends itself to a finding of an intention to be contractually bound immediately.
The primary judge rejected the appellant's submission that a Calderbank letter cannot take effect as such because it was sent prior to the commencement of proceedings. This Court in Ofria v Cameron (No 2) [2008] NSWCA 242 held that a Calderbank letter sent in advance of proceedings would, if accepted, obviate the need for the proceedings and "should be given as much weight, if not more, than an offer made in the course of pending proceedings". No challenge was made on appeal to that finding. The primary judge also rejected the appellant's submission that an offer cannot be regarded as a Calderbank letter unless it expressly states that a special costs order will be sought by the party sending it. No challenge was made on appeal to that finding.
As to the text of the first critical communication, the primary judge concluded that counteroffer in the letter of 2 June 2022 not only contained the "without prejudice save as to costs" marking but also expressed "the hope that proceedings can be avoided" before setting out the enumerated proposed terms on offer. The primary judge observed about the language used that: 1. The first proposed term was that "[the appellant] will authorise BDN to pay to [the respondents] from the funds held an amount of $225,000" (emphasis added). The use of the word "will" created the unqualified expression of intention as to the future event of payment, consistent with it being an executory promise. 2. The second proposed term was "[t]he parties enter into a Deed of Settlement and Release which will include standard provisions surrounding" the matters listed in sub-paragraphs (a)-(d) (emphasis added). Again, this was an unqualified expression of intention to enter into a Deed of Settlement and Release containing the standard provisions. The objective intention from the terminology used was that the parties agreed that there would be a Deed of Settlement and Release and that it would include mutual releases, mutual non-disparagement, mutual confidentiality with each party bearing their own costs. In other words, the parties had already agreed the contents of the Deed of Settlement and Release if the counteroffer was accepted. There was no language to suggest that upon acceptance the agreement would be superseded by the Deed of Settlement and Release which would contain additional but not yet agreed terms. The language was more akin to the terms of the agreement being recorded in the Deed of Settlement and Release rather than being effected by it. Applying terminology used in the High Court in Godecke, the primary judge considered that the contemplated execution of the Deed of Settlement and Release was "a mere expression of the desire of the parties as to the manner in which the transaction already agreed will in fact go through".
The primary judge found that the objective intention immediately to be bound by an acceptance of the counteroffer was also supported by the language appearing immediately after the two enumerated terms of the counteroffer. That language was: So that your clients have the opportunity to seek advice in relation to the above offer, I am instructed that my client will not take any step in relation to the funds held by Baker Dean & Nutt. I'm instructed to provide you with further reasonable written notice should those instructions change.
The primary judge found that this language suggested that if the counteroffer was to be accepted, no step would be taken by the appellant in relation to those funds other than what was agreed, but if it was not accepted, the funds might be paid to the appellant on his instructions. Treating those words as though they carry no intention immediately to be bound upon the acceptance of the counteroffer would mean that the respondents remained at constant risk that the funds might be disbursed to the appellant until such time as the Deed of Settlement and Release was executed. The primary judge found that this was not, objectively seen, the intention of any party.
As to the text of the second critical communication, the acceptance in the email of 3 June 2022, the primary judge noted that it too was marked "without prejudice save as to costs". The email contained the simple expression that Chamberlains were "instructed to accept the counteroffer contained therein". The primary judge found that this language was unequivocal and unqualified. Nothing new or additional to what was contained in the terms of the counteroffer was suggested by the words used. The primary judge acknowledged that the words "[p]lease provide the Deed of Settlement and Release for our clients' consideration at your earliest convenience" gave rise to the possibility that there was some further consideration to be given by the respondents, but concluded that, objectively, those words in context should be understood merely to ensure that the Deed of Settlement and Release accurately recorded the terms contained in the counteroffer without abrogation or addition to them.
The primary judge rejected the appellant's submission that the parties had left a key term of substance yet to be agreed. In its letter of 13 October 2020, North Herring proposed that BDN would hold the net proceeds of sale of the property in their trust account "pending the resolution of the dispute between our respective clients". This term was accepted in Chamberlains' email of 15 October 2020. His Honour found that the counteroffer and acceptance (on 2 and 3 June 2022 respectively) definitively constituted "the resolution of the dispute between [the] respective clients" because they expressly provided for the appellant to authorise BDN to pay $225,000 to the respondents from the funds held on trust and for there to be a release by the respondents of "all claims to the extent permitted by law" against the appellant. In other words, the balance of the monies left in the trust account were then free for the appellant to authorise BDN to release to him or at his direction. The primary judge found that the terms of the counteroffer make it clear that the appellant was the person with authority over the BDN trust account. It would be commercial nonsense for the respondents to still be able to control the release of the balance of those funds after they had received $225,000 and released all claims to the balance.
Finally, the primary judge concluded that the post-contractual communications were consistent with the parties reaching a binding settlement with the acceptance of the counteroffer on 3 June 2022. Chamberlains were consistently requesting for the Deed of Settlement and Release to be provided to them by North Herring. None of the responses to those requests suggested any lack of agreement by the appellant. No further negotiations were being contemplated, pressed or held in any of that correspondence. No queries were raised until the appellant refused to sign the Deed of Settlement and Release.
On 15 December 2022, after allowing the parties to make submissions about orders and relief, the primary judge made the following declarations and orders Stekovic v Radovanovic [2023] NSWSC 1602 ("the orders judgment"): (1) A declaration that an immediately binding and enforceable agreement was made on 3 June 2022 between the plaintiffs and the defendant as evidenced by the letter dated 2 June 2022 from the defendant's solicitors to the plaintiffs' solicitors and the email dated 3 June 2022 from the plaintiffs' solicitors to the defendant's solicitors. (2) Order the defendant to authorise and direct Baker Deane & Nutt to pay the plaintiffs the amount of $225,000 from the funds held on trust by Baker Deane & Nutt from the sale of 8 Donald Road, Queanbeyan, New South Wales. (3) Order the defendant to pay interest upon the sum of $225,000 for the period from 10 June 2022 to 18 December 2023 (the due payment date) pursuant to section 100 of the Civil Procedure Act 2005 (NSW) totalling $22,491.99. (4) Order the cross-summons filed 13 June 2023 be dismissed. (5) Order the defendant to pay the plaintiffs' costs of the proceedings, as agreed or assessed.
The primary judge found that it was unnecessary to require the parties to enter into the draft deed which had been annexed to the respondents' summons.

Grounds of appeal

In his notice of appeal, the appellant advanced five grounds which repeated the essence of his unsuccessful case before the primary judge: 1 The primary judge erred in finding that the objective intention of the parties was to be immediately bound by the agreement expressed in the counteroffer made by the solicitors for the appellant by letter dated 2 June 2022 and the acceptance of that counteroffer by the solicitors for the respondents by email dated 3 June 2022. 2 The primary judge erred in failing to find that a key term of substance was yet to be agreed between the parties thus making the purported agreement incomplete: Stekovic v Radovanovic [2023] NSWSC 1471 at [61(8)]. 3 The primary judge erred in finding that the appellant was the person with authority over the Baker Deane & Nutt trust account, not the respondents: Stekovic v Radovanovic [2023] NSWSC 1471 at [61(8)]. 4 The primary judge erred in failing to consider or find that the entry into a deed of settlement was a condition or term of the bargain struck by the parties. 5 The primary judge erred by placing to much weight on the fact that the communications dated 2 June 2022 and 3 June 2022 were marked "without prejudice save as to costs": Stekovic v Radovanovic [2023] NSWSC 1471 at [61(3)-(5)].
No challenge was made by the appellant to any of the legal principles applied by the primary judge. In oral submissions, counsel for the appellant, Ms Collaris, summarised the appellant's case as comprising three arguments: 1. Properly construed, the counteroffer was conditional on execution of a deed of settlement and was not binding unless a deed of settlement was executed. This was the argument made by ground 4. 2. The counteroffer did not include a key term of substance, which was either a term generally disposing of the balance of the net sale proceeds, or a term explicitly requiring the respondents to authorise the release of that balance to the appellant. The agreement was therefore not binding. This was the argument made by grounds 2 and 3. 3. Nothing in the circumstances surrounding the agreement indicated that the parties intended to be bound. This was the argument made by grounds 1 and 5.
I will address the appellant's three arguments in sequence.

First argument - Was the counteroffer conditional on execution of a deed of settlement?

The appellant's first argument turned on the language of the counteroffer, which I have set out at [12] above.
Clause 2 of the counteroffer envisioned the parties entering a "Deed of Settlement and Release". The appellant described this clause as a "condition of the bargain" and submitted that while that condition was unfulfilled, the contract was incomplete. The appellant submitted that "the fact that entry into a deed was expressed and enumerated as condition 2 of the offer has the same effect as if the document had said that condition 1 was subject to deed".
The appellant submitted that, because clause 2 was unfulfilled, acceptance of the counteroffer did not give rise to a binding agreement. I reject that submission. An otherwise binding agreement remains binding even if one of its terms is unfulfilled. The relevant question is whether, determined objectively, the parties intended that some event had to occur before the agreement would be binding.
In Godecke v Kirwan, Walsh J at 638-639 cited Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284, Parker J at 288-289 for the following proposition: It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.
The Court's task is to decide whether properly construed clause 2 of the counteroffer provides that the execution of a deed is a condition precedent to the parties having made any agreement at all, or whether it is a promise to execute such a deed and accordingly an unfulfilled term of the parties' binding agreement. The appellant submitted that by its language and in context, clause 2 demonstrated that the parties intended to be bound only after a deed was executed: 1. That the clauses of the counteroffer were numbered, with clause 1 requiring payment of the settlement sum and clause 2 requiring execution of a deed, was said to show the parties intended the agreement to be "subject to deed"; and 2. The counteroffer's language was said to differ significantly from language used in cases, for example Narayan, where there were written agreements that stated their terms would later be "recorded" or "reflected" in a deed. Such agreements were binding at the outset. Clause 2, however, required the parties not to "record" their agreement in a deed, but to "enter into a Deed of Settlement and Release". That, the appellant said, showed the parties intended their bargain to be subject to entry into a deed.
I reject the appellant's submissions. The primary judge was correct to conclude that the objective intention immediately to be bound by an acceptance of the counteroffer was demonstrated by the language used in the counteroffer and the acceptance and the context in which the communications were made.
The fact that clauses in a written document are numbered does not, of itself, lead to a conclusion that one clause is subject to the other, or that one clause must be fulfilled before the document will become a binding agreement. If anything, the numbering used tends against the appellant's submission that the requirement for a formal settlement deed was a condition precedent to a binding agreement. The numbering used is consistent with the primary judge's finding that the execution of the deed was another term of their agreement and "a mere expression of the desire of the parties as to the manner in which the transaction already agreed will in fact go through".
Clause 2 contains no language indicating that the agreement is not binding until formal contract, such as "subject to deed" or that the parties agree "in principle". Rather, clause 2 is best understood as a term of the parties' agreement, by which they will "enter into" a settlement deed containing the identified terms. Under clause 2, the deed is to include "standard provisions". Clause 2 does not contemplate that the deed will include anything beyond the agreed standard terms.
The primary judge was correct to conclude that on its proper construction, clause 2 was a mutual promise between the parties to enter into a deed containing the particulars in subclauses (a) to (d) of clause 2 at some future point. It did not make the parties' agreement conditional on entry into a deed. Neither the language used in the counteroffer and the acceptance nor the context suggested that the parties' agreement would be superseded by a later deed which would contain additional but not yet agreed terms.
Ground 4 of the notice of appeal should be rejected.

Second argument - Was the counteroffer a complete agreement?

The appellant's second argument was that the counteroffer was not binding because it did not include a key term of substance. This argument referred to grounds 2 and 3 of the appellant's notice of appeal. The appellant offered two different formulations of the allegedly missing "key term". Both formulations related to the $321,409.17 left in BDN's trust account after the settlement sum of $225,000 was deducted and paid from the net sale proceeds of the property.
First, the appellant submitted that the necessary term was one specifying that the appellant was to receive the balance of the funds. Without this term, the appellant said, the counteroffer was not commercially effective. The appellant contrasted the counteroffer with the proposed settlement deed the respondents annexed to their originating process. Clause 2(a) of that proposed deed specified that the balance of the sale proceeds would be paid to the appellant.
Secondly, the appellant argued that the absent term was one requiring the respondents to authorise BDN to release the balance funds to the appellant. This was the argument the appellant principally advanced in oral submissions. A term requiring the respondents' authorisation was necessary, the appellant said, because contrary to the primary judge's finding, the respondents had authority over the BDN trust account. That, in the appellant's submission, was by reason of s 138(1)(b) of the Legal Profession Uniform Law (NSW) ("LPUL"), which forbids a law practice from disbursing trust money except on the direction of the "person on whose behalf it is received". Because of the parties' dealings, it was submitted that BDN held the sale proceeds on trust for both the appellant and the respondents, at least to the extent of the respondents' caveatable interest. It followed, the appellant said, that the respondents were persons "on whose behalf" the sale proceeds were received, and therefore their authority was necessary under s 138 of the LPUL to release the balance funds.
It was submitted that as the counteroffer contained no express term requiring the respondents to give this direction, it was not a complete agreement. The appellant contrasted the counteroffer with the respondents' proposed settlement deed, where clause 2(b) required "both parties" to cooperate to provide all "documents, directions, and written authority necessary to … enable Baker Deane and Nutt to release the Net Sale Proceeds".
The principles applicable to cases of "incomplete" agreements described by the primary judge are not in dispute. An agreement that is incomplete will not give rise to an enforceable contract: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604; [1982] HCA 53.
The question is whether anything necessary for the contract's operation has been left to be settled by further agreement between the parties. If so, then the contract may well be incomplete and unenforceable. If a legally essential term is missing, then the contract is likely to be incomplete.
Applying those principles to the present case, it is clear that the agreement made upon acceptance of the counteroffer was complete and nothing was left to be settled by further agreement. After payment of $225,000 to the respondents, the balance of the fund could immediately be released to or at the direction of the appellant. That was obvious and required no clarification. It was plain, as the primary judge found, that the commercial intention of the agreement was that the respondents' claims would be settled in exchange for the settlement amount and the balance of the fund could be disposed of by or at the direction of the appellant. No allegedly missing "key term" was needed to clarify this intention.
I also reject the appellant's suggestion that comparing the counteroffer with the respondents' proposed deed showed the counteroffer was incomplete on the basis that clause 2(a) of that deed expressly provided that the balance of the funds would be paid to the appellant. That clause simply made clear that which was otherwise obvious, namely that the appellant would retain for his own use whatever funds were not paid out under the settlement agreement to the respondents.
I also reject the appellant's submission about the second formulation of the key term, namely a term requiring the respondents to authorise BDN to release to the appellant the balance of the net sale proceeds retained in the firm's trust account. The appellant's arguments relied upon s 138(1)(b) of the LPUL which provides: 138 Holding, disbursing and accounting for trust money in general trust account (1) Except as otherwise provided in this Part, a law practice must-- (a) hold trust money deposited in the law practice's general trust account exclusively for the person on whose behalf it is received; and (b) disburse the trust money only in accordance with a direction given by the person. Civil penalty: 50 penalty units.
The purpose of s 138 of the LPUL is to ensure that law practices do not disburse trust funds other than in accordance with the instructions of their clients. It may readily be accepted that when money is received "on behalf" of more than one person, each must give authority to disburse the relevant funds: Wilson v Gilles [2020] NSWSC 657 per Rees J at [26]-[29]. The relevant question, however, is whether the respondents were persons "on whose behalf" BDN received the sale proceeds from the property. That question must be answered "no".
In the sale of the property, BDN's only client was the appellant, who was the sole registered proprietor of the property. BDN owed the appellant, and only the appellant, fiduciary duties as his lawyer. When BDN received the proceeds of sale of the property, it received those proceeds on behalf of its client, the appellant.
It may readily be accepted that the respondents claimed, in their 2 October 2020 letter, an equitable interest in the property. That claim did not make the respondents clients of BDN. To the contrary, the claim was notified to BDN in their capacity as the appellant's lawyers. Notification of the appellant, via his lawyers, of the claim was a necessary step for the respondents in seeking to assert their claim, which could, if necessary, have been the subject of proceedings, including proceedings seeking declaratory and injunctive relief.
BDN did not agree to hold the net proceeds of the sale of the property on trust for the respondents, nor could they without the fully informed consent of the appellant. There is no evidence that BDN, on its own behalf, ever gave an undertaking to hold the net proceeds of the sale of the property on trust for the respondents.
Nor do I accept the appellant's suggestion that BDN was somehow a party to the October 2020 agreement, by which the appellant and respondents agreed that BDN would retain the net sale proceeds in its trust account pending resolution of the dispute. That agreement was between the appellant and the respondents. BDN's assent was neither given nor sought, and there is no basis to conclude BDN somehow undertook to hold the proceeds on trust for the respondents. Further, by reason of s 138(1) of the LPUL, BDN could only deal with the net sale proceeds in its trust account on the instructions of the appellant. BDN did not become party to the agreement between the appellant and the respondents by receiving copies of the correspondence. The copies of correspondence were sent to BDN to notify that firm of the parties' agreement, not to make BDN party to that agreement.
Finally, I reject the appellant's argument that comparing the counteroffer with the respondents' proposed settlement deed leads to any different result. Clause 2(b), which required the parties to give all necessary directions for payment, was exactly the kind of "standard provision" the counteroffer contemplated that the deed would include. The inclusion of those clauses was an incident of cautious legal drafting and does not demonstrate that BDN was a party to the October 2020 agreement or that in making and accepting the counteroffer, the parties did not intend immediately to be bound.
I would reject the appellant's second argument. The counteroffer was not lacking a key term and bound the parties as soon as it was accepted. Grounds 2 and 3 should be rejected.

Third argument - Do the surrounding circumstances indicate an intention to be bound?

The appellant's third argument was that there was nothing in the surrounding circumstances that indicated an intention immediately to be bound. The appellant sought to demonstrate that, even though the counteroffer was a self-described settlement proposal, made by the appellant and accepted by the respondents, there was no contract.
The primary judge found that because they were marked with the words "without prejudice save as to costs" and sent in the context of serious settlement negotiations, the counteroffer and the respondents' email accepting that offer were, objectively viewed, intended to operate as the making of, and acceptance of, a Calderbank offer. His Honour then set out passages from Narayan at [15]-[18] which supported the proposition that a Calderbank offer is ordinarily immediately binding upon acceptance. The primary judge was plainly correct that this was an important aspect of relevant surrounding circumstances.
Calderbank offers are well understood by the legal profession to be a flexible and less formal mode of resolving disputes than the making of offers of compromise under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). A Calderbank offer that did not have immediate binding effect upon acceptance, but depended upon whether or not a formal document was ultimately agreed, makes little sense given how Calderbank offers are used in practice and the legal principles which apply to them. An offeror obtaining a better result at trial than the Calderbank offer does not achieve an automatic costs consequence unlike, generally, offers of compromise made under the UCPR. However, a Calderbank offer is relevant to the Court's discretion as to costs. In the exercise of that discretion a Court enquires into whether the offeree's rejection or non-acceptance of the Calderbank offer by the stipulated time or within the stipulated period was not unreasonable in all the circumstances. That inquiry can be complex. A Calderbank offer which required consensus on the terms of a later deed to bring about a binding settlement would depart from the perceived advantages of such an offer in a number of respects: 1. It would leave uncertain the date from which the Calderbank offeror might be entitled to a favourable costs order. 2. It would make it easier for the unsuccessful offeree to say their rejection of the offer was not unreasonable. 3. If parties embarked on trying to negotiate a deed, the inquiry would become far more complex, and less predictable in its outcome. The Court would have to consider the conduct of the negotiations and the positions of the respective parties.
The appellant accepted that his counteroffer made "without prejudice save as to costs" was a Calderbank offer. However, in her oral address, counsel for the appellant submitted that the words "without prejudice save as to costs", in context, did not indicate an intention to be bound, because those words had other functions. In particular, the appellant submitted that the words "without prejudice" were included so that the letter could not be adduced in evidence, with the exception created by the words "save as to costs" allowing the letter to be used in a costs argument. The appellant submitted that those words were included to protect the parties' position, but that without more did not indicate that acceptance of the offer was intended to bind the parties. The appellant submitted that an inference of an intention to be bound would arise only if the counteroffer used words like "this offer is made in accordance with the Calderbank principles".
I reject the appellant's submission. There is no special requirement to include the words "Calderbank letter" or "Calderbank principles" to give a settlement offer the effect it had in Calderbank v Calderbank [1975] 3 All ER 333. No special label is required to be attached to a genuine offer to resolve actual or threatened proceedings. Calderbank offers are simply offers that do not comply with the relevant rules of court relating to the making of offers of compromise: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [27]. Objectively determined, parties to litigation who are represented by solicitors (as these parties were) know that expressions like "without prejudice save as to costs" ordinarily reveal an intention to engage the Calderbank principles.
The essence of those principles is that a Calderbank offer fixes a time for acceptance of an offer of settlement. If the offer is not accepted, the offer may be deployed in subsequent argument about costs to demonstrate the terms upon which the maker of the offer was willing to resolve the dispute and be bound. Those terms include the time by which the offer was open for acceptance. Provided the time allowed was reasonable, ordinarily it will fix the point from which it may be said, relevant to the question of costs, that as between the parties the offeree was acting unreasonably in continuing to maintain the proceedings in the face of the offer. To function in that way, a Calderbank offer must be capable of acceptance, and where accepted will ordinarily bind the parties immediately, notwithstanding that the agreement thus formed may contain executory promises. It is no answer that the words "without prejudice" and "save as to costs" may have independent meanings. An objective bystander, familiar with the usual significance of the phrase "without prejudice, save as to costs", would conclude that by using it in their correspondence, the parties intended the counteroffer, once accepted, would immediately be binding. Nothing in the circumstances indicates otherwise, as I explain below.
The appellant also argued that, given proceedings were not then on foot, the words "without prejudice save as to costs" here did not suggest an intention to be bound. Since litigation had not been commenced, it was not open to the parties to make a formal offer of compromise under the rule 20.26 of the UCPR. The appellant submitted that "if an offer is made by way of letter in a pre-litigation context, then it is invariably headed without prejudice, save as to costs". The appellant appeared to suggest that the words "without prejudice, save as to costs" were included pro forma, and therefore did not reveal an intention to be bound.
I reject this submission. It is true that it was not open to the parties to proceed by offer of compromise under the UCPR r 20.26 since no proceedings were on foot. It does not follow that the words "without prejudice save as to costs" were somehow pro forma and could not indicate an intention to be bound. The parties chose to mark their correspondence with those words. They did so knowing that the appellant had threatened, in his 23 May 2020 letter, to pay the net sale proceeds to himself, and that the respondents had responded, in their 30 May 2020 letter, by briefing counsel to draft originating process. In those circumstances, an objective bystander would have concluded that the words "without prejudice save as to costs" showed the counteroffer was a Calderbank offer and was intended upon acceptance to bind the parties at once.
The appellant submitted that the inference usually drawn that acceptance of a Calderbank offer was binding should not be drawn here, because there was no urgency to settle. Narayan, it was submitted, was distinguishable because in that case, after proceedings began, the plaintiff made a Calderbank offer to settle the proceedings on terms recorded in an annexed deed of settlement. The appellant submitted that the parties were here "at the very beginning of their negotiations", and a mediation had not yet begun. Nor was the counteroffer accompanied by a draft deed. These circumstances, the appellant submitted, showed the parties did not intend to be bound until a deed was executed.
I reject the appellant's submissions. In the present case, there was real urgency in settling the dispute at the time the counteroffer was made by the appellant. On 23 May 2020, the appellant threatened to have the net sale proceeds paid out to him alone after 14 days. The respondents replied, making an offer to settle and, importantly, stating that they had briefed counsel and were preparing originating process. An objective observer would conclude that the parties intended the acceptance of the appellant's counteroffer would end their dispute once and for all and that they intended immediately to be bound.
The primary judge was correct to conclude that in this case acceptance of the Calderbank offer evinced an intention immediately to be bound, even though proceedings had not yet commenced. Proceedings were clearly threatened and, objectively, were imminent if settlement could not be reached. If proceedings were commenced both sides faced significant risk. The costs of any Equity suit would be substantial compared to the size of the available fund. The outcome was uncertain. The circumstances made settlement pressing, and the parties had a genuine incentive to reach a binding settlement before expensive proceedings with an uncertain outcome were commenced. Objectively determined, by making and accepting a Calderbank offer, the parties indicated they intended immediately to be bound. The primary judge was right to reach that conclusion.
The appellant submitted that, even if the Calderbank status of the counteroffer was one factor showing the parties intended to be bound, there were other factors that militated against that conclusion which the primary judge should have given greater weight. Those factors were: 1. The fact the counteroffer did not contain "key terms", that is, terms about the distribution of the net sale proceeds. 2. The fact the respondents' proposed deed of settlement, annexed to their summons, contained certain "key terms". 3. The fact that none of the parties, themselves or through their solicitors, expressed an intention to be immediately bound. 4. The fact that, between 3 June 2022 and 25 July 2022, the respondents' solicitors did not seek to enforce the counteroffer, but instead repeatedly asked the appellant to prepare the deed of settlement. 5. The fact that the respondents did not attempt to enforce their equitable interest in the property between its sale on 13 November 2020 until invited to do so by the appellant on 23 May 2022.
None of these factors, individually or together, causes me to think that the primary judge erred in concluding that acceptance of the appellant's counteroffer created an immediately binding agreement. That is because: 1. I have rejected the appellant's argument about an allegedly missing "key term" at [50]-[65] above. 2. I have rejected the appellant's argument about the relevance of terms contained in the respondents' proposed draft deed at [57] and [64] above. 3. The parties' subjective intentions are largely irrelevant; the parties' objective intentions emerge from their conduct and language, even when there is no explicit statement of those intentions. 4. I reject the suggestion the respondents did not seek to enforce the counteroffer. It was a term of the counteroffer that the parties prepare a deed of settlement. By requesting a draft deed, the respondents were seeking to perform the agreement's terms. The respondents' conduct indicated they believed the agreement was binding. 5. The respondents' delay in enforcing their underlying equitable claim is irrelevant to whether the agreement made by acceptance of the counteroffer was binding. At no point before 3 June 2022 did the respondents renounce their claim. In response to the appellant's 23 May 2022 letter, the respondents retained counsel to draft originating process. The parties were in dispute, and the acceptance of the counteroffer was, objectively, intended to bring that dispute to an immediate end, with binding effect.
No error in the decision of the primary judge has been shown. I would reject the appellant's third argument. It follows that grounds 1 and 5 of the notice of appeal should be dismissed.

Conclusion and orders

For the foregoing reasons, I would reject each of the appellant's grounds in support of his appeal. I propose the following orders: 1. Appeal dismissed. 2. Appellant to pay the respondents' costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 May 2024

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (14 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (21)

Cited By (4)