Smart v Smart

Supreme Court of NSW|2023-02-21|Before: Robb J

JUDGMENT

The primary question in this case is whether the Court should make an order for the specific performance of an alleged agreement embodied in a document called "Terms of Agreement" that was executed at a mediation conducted on 9 December 2020 between the members of a family called Smart (Terms of Agreement). A secondary issue arises only if the Court decides that the Terms of Agreement are not enforceable or that the Court should exercise its discretion not to order specific performance. In that case, it will be necessary for the Court to decide what orders should be made to effect a proper severance of the interests of the parties.
The parties are Ms Joyce Smart and her sons Robert, Michael and David Smart. Given that all of the parties have the same surname, I will with no disrespect intended, refer to the parties by their given names. The plaintiffs are Joyce, Robert and Michael and David is the defendant.
On the first day of the hearing the Court was advised that Joyce had lost capacity to conduct her claim and the Court received a consent of Robert to act as Joyce's tutor for the purposes of the proceedings.
In circumstances that will be explained more fully below, the parties engaged in family businesses in or near Gundagai in this State. They did so initially in a rural partnership with Lawrence Glendon Smart, who was respectively the husband of Joyce and the father of their sons. Laurence died on 21 November 2015, leaving a will dated 30 August 1990 by which he divided his estate equally between the four parties to these proceedings.

Terms of Agreement

As the Terms of Agreement is a brief document, I will set it out now, as follows: "TERMS OF AGREEMENT 9/12/2020 PARTIES DAVID SMART JOYCE SMART ROBERT SMART MICHAEL SMART WHEREAS David, Joyce, Robert and Michael each maintain an interest in the: - (a) Property known as "Nangus Homestead" Nangus NSW being a farm property of approximately 1640 acres and property 120 Sheridan St, Gundagai; (b) partnership historically known as (trading as) "LG & JJ Smart & Sons" ABN 77 033 676 892 and trust Smart Family Trust ABN 25034695018 The parties have agreed to determine David's interest in the Property and Partnership + Trust on the following terms: - 1. Joyce, Robert + Michael will pay to David the total sum of $2,500,000 on or by 31 March 2021. 2. David will on or by, 31 March 2021 transfer all of his interest in the Property and Partnership to Joyce, Robert and Michael (or their nominee) 3. The parties agree to apportion the payment referred to in clause 1 in such manner as agreed after obtaining independent accounting and taxation advice. 4. The parties will enter into a Deed of Settlement and Release consistent with these terms in conjunction with the settlement referred to at clauses 1 and 2 above. 5. The parties will do all things reasonably required to give full effect of this Agreement. 6. On or before 21 December 2020, Robert, Michael and Joyce shall sign all transfer or documents required to transfer to David his interest in water entitlements: WAL 32921, WAL 4094 + WAL 3699 Executed as an agreement - 9/12/2020 [signed by the four parties and by Richard Rolfe as mediator/witness]."

Agreed statement of issues

The parties conducted the hearing on the basis of an agreed statement of issues dated 15 February 2023, so it will not be necessary for the Court to consider the pleadings in a comprehensive way. It will be convenient to set out the terms of the agreed statement of issues, before I explain the parties' positions in relation to the issues and certain adjustments to the issues that were made during the course of the hearing: "Primary claim 1. Whether the document signed by the parties on 9 December 2020 (Agreement): (a) was immediately binding upon the parties; or (b) made certain terms conditional (and, if so, the terms and conditions to be met); or (c) was not binding unless and until recorded in a signed Deed. 2. Whether, in context, the terms of the Agreement are insufficiently certain or complete to constitute a binding agreement in respect of the: (a) identification of "property" the subject of the Agreement; (b) terms relating to the sale of real property the subject of the Agreement; (c) assets of the "partnership"; (d) terms relating to the Water Access Licences; and (e) absence of terms addressing the Trust. 3. Whether the Agreement is void in whole or in part by reason of any such uncertainty or incompleteness. 4. Whether, insofar as the Agreement relates to land, it is not enforceable by reason of non-compliance with section 54A of the Conveyancing Act 1919 (NSW). 5. Whether: (a) on its proper construction, it was the intention of the parties that no part of the Agreement was enforceable unless it was binding and enforceable in relation to each of the Property, the Partnership, the WALs and the Trust; and (b) whether the Agreement, as construed by the court, finally resolves all disputes about the Partnership, Trust, WALs and Property and is binding and enforceable in relation to each. 6. If the Agreement is binding, whether, on its proper construction, it is binding only as an agreement to agree or to negotiate further in relation to the Property, the Partnership, the WALs and the Trust. 7. If the Agreement is binding, whether, on its proper construction, it is a condition precedent to the enforceability of any part of the agreement that there is an enforceable agreement in relation to each of the Property, the Partnership, the WALs and the Trust. 8. Whether the Court would make an order for specific performance in relation to all or any part of the agreement. Cross-claim 9. If the agreement is not binding and enforceable in relation to the Partnership, whether: (a) the plaintiffs have engaged in any of the following in respect of the Partnership Act 1892 (NSW) (Act): (i) prevented the cross-claimant from participating in the partnership, in breach of s 24(5); (ii) denied the cross-claimant access to the partnership books and records, in breach of s 24(9); and (iii) failed to render true accounts and full information to the cross-claimant, in breach of s 28; (b) pursuant to section 39 of the Act, whether David Smart was entitled to have the property of partnership realised and the affairs of the partnership wound up on the death of Lawrence Smart in 2015. 10. If the Agreement is not binding and enforceable, whether the interest of the parties in the Properties, Partnership, WALs and Trust should be separated and relief granted in accordance with the cross-claim."

Explanation of issues

It will be convenient to begin by making a number of observations to explain the agreed statement of issues and related matters and to provide some relevant background.
Clause 3 of the Terms of Agreement required the parties to make a future agreement as to how the payment required by clause 1 should be apportioned. Clause 4 required the parties to enter into a subsequent deed of settlement and release. That has given rise to the primary issue as to whether the Terms of Agreement created an immediately binding contract, as the parties have not agreed as to the apportionment and David has declined to execute the draft deed that was submitted to him by the solicitor for the plaintiffs.
The dispute between the parties turns substantially on the application of observations made by the High Court in Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, as elaborated by McLelland J (as his Honour then was) in Baulkham Hills Private Hospital v GR Securities Pty Ltd (1986) 40 NSWLR 622. In the former case, the High Court said at 360-363 (footnotes omitted): "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 classes. 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. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common… Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own… The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape…" In the latter case, McLelland J added to these three conceptual categories a fourth in the following terms, at 628: "There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, 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 Court of Appeal has made the following observations concerning the application of these principles in Feldman v GNM Australia Ltd [2017] NSWCA 107 (Beazley P, McColl and Macfarlan JJA agreeing): "[68] As this last cited passage makes apparent, and as is clear from Australian authority, the categories identified in Masters v Cameron are neither strict nor prescriptive. Nor are they exclusive nor necessarily exhaustive. Rather, they describe circumstances in which a finally binding contract may or may not have come into existence. McHugh JA pointed this out on the appeal in the Baulkham Hills case: see GR Securities v Baulkham Hills Private Hospital, at 634-635: "… 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." [69] In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 the plurality, Gaudron, McHugh, Hayne and Callinan JJ, observed, at [25], that: "…not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the 'intention to create contractual relations' requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules." (citations omitted) [70] Their Honours further stated that "intention" in this context describes what "would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened". This statement reflects the objective theory of contract which is the law in Australia: see Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7. The same point was made by Bathurst CJ in Pavlovic v Universal Music Australia. The Chief Justice, at [15], explained that: "It is well established that the question of whether the parties intended to bind themselves to a contract is to be determined objectively, having regard to the intention disclosed by the language the parties have employed: Masters v Cameron [1954] HCA 72; 91 CLR 353 at 362. In cases such as the present, which do not depend on the construction of a single document, what is involved is the objective determination of the question from the communications between the parties in their context and the parties' dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550. As was said by Mahoney JA and McHugh JA in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, that includes consideration of what the parties said or wrote (at 334, 337)." [71] In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Gleeson CJ stated, at 458, in the context of a 'Masters v Cameron dispute': "In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract … In many cases … there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract."
The plaintiffs' position in the proceedings is straightforward. They claim that the Terms of Agreement created an immediately binding contract, and the only need for relief is for the Court to order David to perform his obligations under that contract. That will be the end of the matter, as the effect of that performance will be to terminate the commercial arrangement between the plaintiffs on the one hand and David on the other. No further relief need be considered in relation to the winding up of the Partnership or the Trust or the sale of any of the properties. Clause 6 of the Terms of Agreement, according to the plaintiffs, stands outside the manner in which the contract dealt with the other relevant assets, as it required the plaintiffs to sign transfers so that David would become the sole owner of his shares in the relevant WALs. Although the plaintiffs signed transfers, for reasons that will be explained below, David's shares in the WALs have not effectively been transferred to him. The plaintiffs' position on this issue is simple: clause 6 remains enforceable and the plaintiffs will do whatever is required of them to ensure that David receives the title to his shares in the WALs.
The plaintiffs therefore submit that the outcome of the proceedings only turns on Issue 1(a). For this purpose they contend that the proper legal analysis of the Terms of Agreement is that it has the effect of the first category described in Masters v Cameron. Alternatively, if necessary, it has the effect of the fourth category added by McLelland J, in that even if the Terms of Agreement did not record all of the contractual terms intended by the parties, it was nonetheless intended to be immediately binding in relation to the terms that it did record, with the parties intending to add additional agreed terms in the future.
David responded by contending that the proper legal analysis of the Terms of Agreement is that it falls within the third category in Masters v Cameron, being that the parties did not intend to be bound by a contract unless and until they agreed the terms of and executed the Deed of Settlement and Release. Alternatively, even if, as contemplated by the third category, the parties had agreed all of the necessary terms, the performance of those terms was conditional upon the execution by the parties of the Deed of Settlement and Release and that has not occurred.
The result is that, in substance, all of the issues included in the agreed statement of issues, other than Issue 1(a), arise in the case propounded by David.
David's defence as filed pleaded an estoppel claim against the plaintiffs, based upon a statement alleged to have been made by their solicitor during the mediation (par 25), and a claim that the Terms of Agreement, if otherwise binding, should be rescinded for breach by the plaintiffs of a duty to disclose and the provision by the plaintiffs of inaccurate financial information (par 26). At the hearing, David was given leave to file in court an amended defence that abandoned these claims.
The relief claimed by David in his cross claim, as filed, included orders for the appointment of trustees for sale of the properties owned in common by the parties, for the dissolution of the Partnership, for the appointment of receivers of the Partnership assets, and for the taking of partnership accounts. These prayers for relief initially underlay Issues 9 and 10 in the Agreed Statement of Issues.
David acknowledged that these issues only arise if the Court finds that the Terms of Agreement did not create an immediately binding contract between the parties that ought to be enforced by the Court. However, he correctly noted that there is agreement on the pleadings that the relations between the parties have irretrievably broken down, so that the parties cannot reasonably be expected to carry on business together and that it is appropriate that their respective interests in all of the assets should be separated.
As I understand David's position, as reflected in the final written and oral submissions made on his behalf, he accepts that the optimal cost-effective means of separating the interests of the parties might not comprise the appointment of receivers and the making of an order for the comprehensive taking of partnership accounts over a period stretching for decades. If the Court finds that the Terms of Agreement did not create an immediately binding contract that ought to be performed, it will be necessary for the Court to decide what orders should be made to separate the assets belonging to the parties. Even if the Court finds that a binding contract was made, it may be appropriate for the Court to address the alternative position against the possibility that the Court's primary determination will not be sustained. The parties identified a number of issues that will need to be determined judicially, before the Court could attempt to formulate cost-effective orders in consultation with the parties that may involve the referral of necessary questions of detail to a referee. Those issues are: 1. has David established an entitlement to an order for the taking of partnership accounts (even if the Court ultimately fashions an alternative order sufficient to protect David's interests); 2. was the Partnership in which David was a partner dissolved upon the death of Lawrence, or did David continue in a new partnership with the plaintiffs thereafter until that partnership was dissolved in the course of these proceedings; and 3. are the several rural lots that are registered in the names of the three brothers beneficially owned by the brothers or by the members of the Partnership involving the plaintiffs and Lawrence (so that each of the parties will be entitled to an equal one quarter interest because of the effect of Lawrence's will)?
I will defer further consideration of all of these issues until I have determined the primary question of whether the Terms of Agreement created an immediately binding contract between the parties.

The Terms of Agreement

I record at the outset that I am satisfied that the Terms of Agreement was intended to be immediately binding and that the document is sufficiently certain to be enforceable and that the Court should make an order for specific performance in the exercise of its discretion.
As stated in the extract from Masters v Cameron that is set out above: "The question depends upon the intention disclosed by the language the parties have employed". Furthermore, the significance of the language must be determined in accordance with its objective meaning and not in accordance with the parties' subjective intention or reservations.
It is also significant, as a matter of background context that would have been understood by all parties, that the Terms of Agreement was executed by all parties at the culmination of a mediation the purpose of which was to finally resolve a substantial dispute between members of a family that was preventing them from pursuing their separate commercial futures. The context of the Terms of Agreement, being a mediation, cannot be conclusive and the legal analysis of its effect must bow to the proper interpretation of the words used and any contrary objective evidence. However, it is material that the very object of a mediation is to achieve a final settlement. A record of an agreement reached that it is not intended to be binding but does not include an express qualification to that effect is likely to be counter-productive. The mediation was conducted with the assistance on both sides of solicitors and counsel and under the auspices of an experienced mediator, in the person of Mr Richard Rolfe, who has signed the Terms of Agreement as "Mediator/Witness". The Court can infer that the Terms of Agreement was written out by hand at the end of the mediation process and was executed by the parties and witnessed by the mediator as an act of some solemnity. Even though clauses 3 and 4 required the parties to attend to additional matters, there is nothing in the evidence to show that the parties did not think that the execution of the Terms of Agreement brought the mediation to a conclusion and that they would be bound by its terms.
That conclusion is consistent with an objective reading of the wording of the Terms of Agreement, taken individually and as a whole, which describes a global and comprehensive resolution of the dispute by means of an agreed payment by the plaintiffs to the defendant of the amount of $2,500,000, in return for the transfer by the defendant to the plaintiffs of the whole of his interest in the commonly held property; save only for the separate requirement in clause 6 that the plaintiffs execute transfer documents so that the defendant would gain sole title to his shares in the commonly owned WALs.
The Court should not ignore the parties' choice of the heading of the document, as being "Terms of Agreement". That of itself weighs in favour of a conclusion that the parties intended to be bound by the terms in the document, as that is what the word "agreement" means generally to ordinary people.
I am satisfied that what may be described as the recitals in pars (a) and (b) of the Terms of Agreement adequately and completely describe all of the property interests owned in common by the parties that were required to be dealt with in order to allow the performance of the Terms of Agreement to cause an effective separation of the interests of the plaintiffs and the defendant. Those property interests comprised the rural property known as "Nangus Homestead", the butcher shop in Gundagai from which the Trust operated the butchery, the Partnership, and the Trust. In this respect, I reject David's argument that either: (1) the reference to "Nangus Homestead" was limited to the "Homestead" lot (to the exclusion of the other rural lots that comprised the one farming operation), or (2) the use of the term lead to uncertainty as to what was intended to be comprehended by what I have called recital (a). First, the evidence establishes that the total area of the rural lots was about 1,640 acres, so that it is clear that the drafter of the document inserted the area of the whole in order - successfully - to exclude the possibility of doubt or uncertainty. Secondly, as the clear objective intent of the mediation process was to achieve an agreement that dealt with the whole of the property interests held in common by the parties, it would be proper, as a matter of construction, to resolve any doubt that truly existed by construing the wording as encompassing the whole of a particular property. Otherwise, the improbable result would arise that the parties had reached a formal agreement that entailed an obvious and serious omission that would imperil the utility of the entire process.
I am also satisfied that the chapeau that precedes the individual clauses makes it clear that the parties intended that the Terms of Agreement would determine David's interest in all the commonly held property, which was comprehensively and simply described as "the Property and Partnership + Trust". Words that have clearly been chosen to comprehend everything relevant should be treated as having that effect.
In clause 1, the inclusion of the world "total" in the description of the amount that the plaintiffs were required to pay to David, being "the total sum of $2,500,000", assists the construction that the plaintiffs were required to pay one amount for the transfer by David to them of the whole of his interests in the commonly held property.
That said, it must be acknowledged that clause 2, which is the term that required David to make a transfer of property to the plaintiffs, specifically refers to "the Property and the Partnership" but not to the Trust. The absence of a reference to an interest in the Trust must be understood in the context that the chapeau, as noted above, did encompass the Trust as well as the other two forms of property. I am satisfied that the absence of a reference to the Trust in clause 2 is immaterial to the question of whether the wording of the Terms of Agreement is sufficiently certain so as to make the contract enforceable.
I acknowledge that the evidence does not objectively explain why clause 2 omits to refer to David's interest in the Trust. There is some evidence, albeit scant, that is consistent with a finding that the Trust was a discretionary trust. The profit and loss statement for the Trust for the year ended 30 June 2018 recorded beneficiary distributions to Anne Smart and Megan Smart, who are the wives of Michael and Robert. The statement of the beneficiaries' funds refers to Michael, Anne, Robert and Megan as having beneficiaries' accounts. The profit and loss statement for the Trust for the year ended 30 June 2019 recorded a distribution to Joyce. The statement of the beneficiary accounts recorded that each of the plaintiffs, as well as Anne and Megan, had accounts. The compilation report and the director's declaration in the 2018 accounts refer to "the director of the trustee company". The same parts of the 2019 accounts do not refer to any company, but simply to "the trustee", and provision is made for Michael to sign as trustee. This evidence suggests that the Trust is a discretionary trust, but does not do so conclusively and does not identify the trustee. The evidence is consistent with the issue of how David might effectively transfer or disclaim his interest in the Trust - whichever may have been appropriate - not being entirely clear or straightforward to those present at the mediation. In these circumstances, it is appropriate for the Court to construe the Terms of Agreement on the basis that, for reasons that cannot be known with certainty, the drafter of the document left the formalities of the determination of David's interest in the Trust to be dealt with in accordance with clause 5, which required the parties to do all things reasonably required to give full effect to the agreement.
The presence of clause 5 in the Terms of Agreement also supports the finding that it was intended to create an immediately binding contract. If that were not so, and the parties understood that there would be no contract in the absence of some future agreement or specified event, the inclusion of a term requiring the parties to do all things reasonably required to give full effect to the agreement would appear redundant.

Defendant's submissions

I will now turn to address the submissions made on behalf of David in favour of a conclusion that the Terms of Agreement was not intended to give rise to an immediately binding contract and as to the uncertainty of the Terms of Agreement, notwithstanding the considerations that I have just discussed.
First, David submitted that it was significant that "the parties' assets were a mixed bag of land, partnership interests, WALs and an uncertain interest in a Trust". Those interests were assembled over the course of decades and in circumstances where there appeared to be uncertainty as to the way that certain assets were acquired, such as the additional lots. These circumstances were submitted to create an "inherent unlikelihood" that the Terms of Agreement was intended to finally deal with the parties' affairs. Those circumstances were submitted to point to the conclusion that the Terms of Agreement falls within the third class of case identified in Masters v Cameron. I accept that there was some uncertainty concerning the beneficial ownership of some parts of the commonly held property that had not been resolved by the time of the mediation. That uncertainty probably extended to whether some of the rural lots were held by the brothers or by the partners. There was a real dispute concerning how the various financial statements treated David's entitlements. The Court cannot form a view about the relative extent of any material uncertainties. The existence of those uncertainties was, however, a practical reason for the parties to come to a global settlement that obviated the need for an expensive and time-consuming exercise in minutely determining David's true entitlement. The existence of the uncertainties is a reason for the Court to conclude that the Terms of Agreement was intended finally to resolve the dispute, rather than to prolong it. If, which I do not accept, David's submission that this is a class three was correct, that would undermine the whole purpose of the mediation and the execution of the Terms of Agreement, because there would be no final agreement and separation of the parties interests until they had separately agreed how to resolve all of the uncertainties in the process of agreeing the terms of the Deed of Settlement and Release.
David also submitted that the choice of the third category as the applicable one was supported by the presumption that exists in New South Wales that, where there is a sale of land, the parties intend not to be bound until a formal exchange of contracts has taken place. Of the authorities referred to by David as supporting that presumption, I will refer only to the recent decision of the Court of Appeal in Fisher v Degnan [2022] NSWCA 202 at [83]-[90], [120]-[121]. It is clear that such a presumption applies to the ordinary case of a contract for the purchase of land between strangers. It is not a presumption that will apply in every context where the substance of the contract is the transfer of title to real property. There are a number of reasons for the existence of the presumption. The following may not be exhaustive, but one reason arises out of almost universal custom and practice involving vendors and purchasers at arms' length, solicitors, conveyancers and real estate agents. There is a common if not universal expectation that, in order to remove possibility of doubt, it will be the formal active exchange of contracts that binds the parties. Further, there is sufficient complexity in even relatively simple contracts for the sale of real property as between strangers for there to be a need for the contract to deal with many specific issues that must be resolved with certainty in order to make the process of completion of the contracts certain and efficient. There is usually a need for a process of negotiation which must take place before the contract becomes binding upon exchange. The reasons that underpin the general presumption may have no currency at all where the subject of the agreement is no more than the provision of a transfer in registrable form in the PEXA workspace where the transferee expects to take title to the subject property 'as is'. That is the case a fortiori where - as in the present case - the transferee is already an owner and the object of the transfer is the transfer of the balance of the interest in the property held by the transferor.
Although the presumption exists, it does not apply in the present case. In a similar pastoral family context, in Woodhouse v Woodhouse [2022] NSWSC 204 at [195], Ward CJ in Eq (as her Honour then was) accepted that "the sale of the [relevant property] was not, and was never intended by the parties to be, by way of the orthodox form of land conveyance in New South Wales (that is, by way of exchange of a standalone written contract)…". In any event, there is nothing in the evidence or in the wording of clause 4 of the Terms of Agreement to suggest that the parties had an intention to negotiate and exchange conventional contracts for the sale of land as part of the process of agreeing the terms of the Deed of Settlement and Release.
I have explained above, in the context of considering the meaning of what I have called recital (a), my conclusion that the reference to the area of the "Nangus Homestead" justified a finding that the parties intended to refer to all of the separate contiguous rural lots that constituted the one farming property. David's submissions refer to aspects of the affidavit evidence in which some of the parties speak inconclusively and inconsistently of "Nangus Homestead" as being areas called "Homestead" and "Yallambee", as a basis requiring the Court to conclude that there is material uncertainty in the description of the properties intended by the parties to be the subject of the Terms of Agreement. I am satisfied that the occasional differences in terminology used by some witnesses is immaterial and does not overcome the conclusion justified by the reference in the document to an area that encompasses all relevant rural lots.
Clause 3 of the Terms of Agreement required the parties to come to a future agreement as to how the payment referred to in clause 1 was to be apportioned, after independent accounting and taxation advice had been obtained. The existence of the provision gives rise to the possibility that the Terms of Agreement could not constitute an immediately enforceable contract because it expressly required the parties to reach a future agreement on a particular subject matter. That might prevent the Terms of Agreement being within the first category for the purposes of Masters v Cameron, and leave the plaintiffs in the position that there could only be an enforceable contract if the criteria for the fourth category identified by McLelland J were satisfied.
In the general case, circumstances may be imagined where the plaintiffs and David would have inconsistent objectives concerning the apportionment of the amount to be paid. If, for example, the plaintiffs, who were in the position of purchasers, were required to pay stamp duty on the transfers, then it would be in their interest to minimise the amount of the payment apportioned to the price for the transfer of the interest in the rural lots. David, on the other hand, might have an interest in the price for the properties being increased, because it would be to his long-term benefit for the GST base to be higher rather than lower. If this were the reality of the agreement process, the interests of the parties may have diverged to a sufficient extent so as to make the need to agree on the apportionment in the future a matter of substance that may have justified a finding that the Terms of Agreement had deferred agreement on an essential term of the contract. However, in the present case David did not contest the submission made by the plaintiffs that the effect of s 274 of the Duties Act 1997 (NSW) is that ad valorem duty under the Act will not have been chargeable in relation to any transfers of land the subject of the Terms of Agreement. That is because, as the plaintiffs submitted, for the purposes of this section, the land is used for primary production, the transferor and the transferees are members of the same family, and the business that is carried out on the land will continue to be carried on. Consequently, the plaintiffs submitted, the amount of the clause 1 payment that is apportioned to the price for the rural lots will not be significant to the plaintiffs because they would not have to pay ad valorem duty on the price.
Although David did not contest this submission, it is not clear that s 274 would have applied to the transfer of the property in Gundagai, which is the property from which the butchery is operated. There was a suggestion in the evidence that the plaintiffs operated the butchery in conjunction with their farming operation, which included the provision of meat to be sold from the butchery. It is doubtful that this arrangement would satisfy the requirement that the property be used for primary production. However, this uncertainty in the validity of the plaintiffs' submission is probably immaterial. As the Terms of Agreement was not an arms' length agreement between strangers, if any stamp duty was payable by the plaintiffs on any transfer, the Chief Commissioner would probably have required that the ad valorem duty be calculated on the basis of objective evidence of the value of the relevant property, rather than the result of any apportionment as between the parties to these proceedings.
Relevantly, it has not been shown that the plaintiffs had any real interest in the outcome of the apportionment process that would have put them at odds with David in a way that would make the performance of clause 3 of the Terms of Agreement contentious. There was some evidence that clause 3 was inserted at the request of David's solicitor to give David time to obtain accounting and taxation advice so that the result of the apportionment would be advantageous to him. In all of the circumstances, I am satisfied that the Terms of Agreement would have constrained the plaintiffs to act reasonably in relation to their acceptance of any apportionment proposed by David, and accordingly the presence of clause 3 is not a valid ground for treating the Terms of Agreement as an agreement to agree, and thus not presently enforceable at the time that it was made.
Finally, clause 4 of the Terms of Agreement on its face required the parties to enter into a Deed of Settlement and Release. In the context of the extract from Masters v Cameron that I have set out above, the High Court added, at 360-361 (footnotes omitted): "Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: "…as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed": see also Sinclair, Scott & Co. Ltd. v Naughton."
It is a common practice when parties agree to settle disputes by means of a simple agreement expressed in straightforward language that they also agree to incorporate the terms of their agreement in a formal deed that also includes common terms, not inconsistent with the agreement already reached, but which may buttress the effectiveness of the settlement and formally bar further disputation on the subject of the agreement. Such terms include comprehensive releases in common form. This practice may reflect a common appreciation that the real object of a mediation is to achieve an enforceable settlement agreement, and that objective will be facilitated if the parties are only required to agree the substantive terms that really matter, and may be undermined if the parties are also required at the same time to agree the wording of usual and uncontentious terms that are commonly described as being within the rubric of 'boilerplate'. I am satisfied that clause 4 of the Terms of Agreement conforms to this practice, and is not inconsistent with the document recording an agreement intended by the parties to be enforceable at the time that it was made.
David made an additional submission as to why the Terms of Agreement did not record an enforceable contract, even if it would have done so by application of the legal principles that applied under the law of contracts. That submission was based upon s 54A of the Conveyancing Act 1919 (NSW), which relevantly provides: 54A Contracts for sale etc of land to be in writing (1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged…
David submitted that, in order to be sufficient for the purposes of this section, the agreement in writing, or the memorandum or note thereof, must show agreement by the parties to, and state, all the essential terms of the bargain; that is, at least, the parties, the property, and the price. The effect of this submission was that the Terms of Agreement could not be enforceable against David in relation to the property described in what I have called recital (a), all of which is land, because there is no specification in clause 1 or elsewhere of separate prices for the transfer of the individual parcels of land. David relied upon the decision of Ward CJ in Eq in Woodhouse v Woodhouse at [200], where her Honour said: "[200] In that regard, it is noted that, to fall within the statutory requirement for a "memorandum or note" of the agreement which is "in writing" and signed as required; there must be a memorandum or note of all the material terms of the contract and, in particular: parties, price, property and summary of essential promises (Tweddell v Henderson [1975] 1 WLR 1496; 2 All ER 1096…"
The effect of this submission is that parties cannot agree to enter into one contract for the sale for a single undifferentiated price of a number of properties, including land or an interest in land, in a manner whereby the contract will be enforceable in relation to the sale of the land or an interest in land. For the contract to be enforceable, David submits that a separate price must be specified in the contract for each parcel of land or interest in land.
Section 54A requires that for the contract to be enforceable "the agreement" must be in writing or there must be some memorandum or note thereof. That necessarily means that the terms of the agreement that are essential in the particular case to make the agreement whole must be included in the document. It is well-established that, where the only subject of the agreement is land or an interest in land, one of the essential terms is the price. However, it does not follow that, if a particular agreement provides for the sale of more than one parcel of land or interest in land, or for the sale of land or an interest in land together with other types of property, s 54A requires that there be a separate price stated for each parcel of real property. It is the agreement that must be recorded in the writing, and if one certain price is specified to cover all of the property agreed to be sold then the requirement that all essential terms be included is satisfied.
In Woodhouse v Woodhouse, Ward CJ in Eq relied upon the decision of Plowman V-C in Tweddell v Henderson [1975] 1 WLR 1496. In that case, a builder who owned a plot of land entered into an oral agreement to build a bungalow on the land and to sell the land with the completed bungalow to the purchaser for the single, combined price of £8,700. The parties agreed that, for the stated price, the builder would include variations from the original plan and that the purchaser would pay the combined price in four instalments. The memorandum relied upon by the purchaser in her suit for damages for breach of contract included all of the oral terms except those that concerned the variations and the payment of the price by instalments. His Lordship dismissed the claim on the basis that the memorandum was inadequate, and the equivalent of s 54A was not satisfied. His Lordship said at 1503-4: "…But that unfortunately, or fortunately, according to which party is concerned, does not conclude this matter, because it is a well-recognised principle that a note or memorandum to satisfy the section has to contain all the material terms of the alleged contract. Mr. Burton, for the defendant, points out that neither in that letter itself nor in the specification which was enclosed in it, and which can admittedly be read together with the letter, is there any reference to any of the variations to which I have already referred. There is no reference to the undertaking by the defendant to make up the road at his own expense, there is no reference to the payment of the purchase price of £8,700 by stages, and, as I have already pointed out, the only reference to the concrete pathway is an inaccurate reference in that it refers to a pathway which is to go only part of the way round the house and not the whole of the way round. Mr. Hughes answers these submissions as follows: he submits that a distinction has to be drawn between terms of a contract which relate to the actual transfer of the interest in the land and terms which relate to other matters, in this case to what the builder is going to do by way of work in relation to the house. He submits that all the relevant terms in relation to the transfer of the interest in the house are to be found in that letter of September 5, and that the omission of the other terms which relate to what the builder is going to do are irrelevant so far as section 40 is concerned. In certain circumstances it may be that some terms of a contract relating to land are within section 40 and some are not, but the difficulty it seems to me in this case is that the price of £8,700 was not simply the price for the sale of the bungalow without these variations; the price included the various variations and other matters and there is no way of severing the figure of £8,700 so as to attribute so much of it to the cost of the land and the bungalow and so much of it to the variations. Secondly, as applied to this case, the difficulty of Mr. Hughes' argument seems to me to be this, that assuming for the moment that the provision as to the manner in which the purchase money is to be paid is a material term of the contract, then his argument seems to me to have no relevance to that. It is nor some incidental matter that the builder is throwing in, such as picture rails or china rails, or a longer garage, but it is a term - and I am assuming for the moment that it is a material term - relating to the manner in which the purchase money is to be paid. Mr. Hughes, however, submits that the only terms that need be stated in a memorandum are material terms, and that "material terms" means terms of substance or importance, and he quoted authority to substantiate that, and that the provision for stage payments, as they are called, was not a material term in that sense. I am unable to accept that argument. It seems to me that the provision that the purchase money was to be paid not at the end of the day, when the bungalow had been completed and was ready for handing over, but by the four stages to which I have referred is a material term in every relevant sense, and there is no reference to it anywhere in the alleged memorandum. Accordingly, and I must say with some regret, because I think the plaintiff has been hardly treated, I have come to the conclusion that the defence of section 40 must succeed in this case, and that although the plaintiff has the merits, the defendant has the law, and I must accordingly dismiss this action."
The agreement was not simply an agreement for the sale of a parcel of land, but was an agreement by the builder to construct a bungalow on land owned by him and then to sell the land to the purchaser. The memorandum was inadequate because it did not include the term requiring payment of the price by instalments, and probably also because it did not include reference to the major agreed variations. There is no suggestion that it was relevant that the price was a single composite price for the land and the building work to be done. That reflects the position that s 54A requires the essential terms of the agreement to be recorded in writing, and although the price of the land is an essential term if the subject of the agreement is limited to that property, the recording of a single composite price will be sufficient where land or an interest in land is sold together with other property.

Transfer of David's interest in the WALs

An issue was canvassed at the hearing concerning the relevance of the fact that the plaintiffs have not completed the transfer to David of David's shares in the WALs, and that the approval for the transfer has lapsed because it was not completed within the time period stipulated in the approval. The only relevance of this issue raised on the pleadings is the claim in par 24(b) of the amended defence that, even if the Terms of Agreement created a valid contract, the Court should exercise its discretion to refuse to order specific performance because the plaintiffs themselves breached clause 6 of the Terms of Agreement by failing to transfer to David his interests in the relevant WALs by 21 December 2020. David does not appear to have referred to this issue in his final oral or written submissions. The plaintiffs' response to this issue is that they have performed their obligations, to the extent possible, by signing and returning all WAL transfer documents and that they are ready willing and able to perform their remaining obligations, including by taking all steps necessary on their part to cause the shares in the WALs to be transferred to David.
The only express obligation imposed upon the plaintiffs by clause 6 of the Terms of Agreement is that, on or before 21 December 2020, they shall sign all transfers or other documents required to transfer to David his interest in the three named WALs. The evidence establishes that the plaintiffs did indeed sign the transfers by the specified date. Clause 6 did not oblige the plaintiffs to cause the transfers to become effective by 21 December 2020, or at all. Literally, it did not even require the plaintiffs to do anything particular with the signed transfers. I raised the possibility at the hearing that clause 6, on its proper construction, may have imposed upon the plaintiffs an implied obligation to provide the signed transfers to David or to do something else necessary in order to make the transfers effective. This possibility was not explored at the hearing, and the evidence was not comprehensive in relation to the transfer process or who was responsible for taking the necessary steps.
The plaintiffs in fact provided the signed transfers to David on 22 December 2020, which, on a view of the proper construction of the Terms of Agreement that has not been addressed, may have been one day late. Nothing turns on this, as the timing of the provision of the signed transfers had no effect at all on the transfer process, and, in any event, time has not been shown to be of the essence. The evidence includes the steps taken by various parties to cause the transfers to be effectively made. That included the issue by WaterNSW on 23 December 2020 to a water trading agent who apparently acted for David (see Annexure B to the Affidavit of Robert Edward Smart made 10 December 2021) of a Notice of Decision and instruction details that effectively approved the transfers but stipulated: (a) that the required dealings had to be registered with NSW Land Registry Services (NSW LRS) for them to take effect; and (b) the dealings had to be lodged within six months of the date of the decision, which required lodgement for registration by 22 June 2021. The agent then attempted to implement the transaction. It appears that the plaintiffs' solicitor was active in this process and that the parties cooperated at the instance of the agent. One cause of some delay was the need to obtain documents of title for WALs from the NAB and from a previous solicitor for the plaintiffs. Steps were required to be taken before the documents of title could be produced to NSW LRS. This process was not completed before the approvals expired on 22 June 2021. It may be that the only impediment to completion was the failure of David to provide his documents of title, which were required to be lodged with the transfers at NSW LRS. It is not necessary to attribute blame for this outcome, and the evidence does not in any event adequately permit the attribution of blame. This does not matter, as the evidence gives no reason for the Court to believe that the application process cannot be repeated successfully, given that the necessary documentation can now simply be renewed or is at hand. As noted, the plaintiffs remain willing to facilitate the relevant interests in the WALs being transferred to David. The orders to be made in association with the order that David specifically perform the Terms of Agreement should include an order that the plaintiffs take all steps reasonably necessary on their part to cause the transfers to take place. This issue is not a proper basis for denying specific performance of the agreement.

Cross claim

As I have found that the Terms of Agreement created a valid contract and that an order should be made for its specific performance, the cross claim must be dismissed. It is not necessary to consider in a comprehensive way what orders would have been appropriate if the cross claim had been proved. That is in part because I consider that the evidence is not sufficient to enable the Court at this stage to formulate those orders with sufficient precision.
As I have explained above, a number of issues of substance would have required determination before the Court could have made proper orders on the cross claim. I will now deal with those issues, to the extent that is now appropriate.
The first issue involves the determination of the partnerships that have been in existence that have involved the parties. As noted above, the parties have correctly agreed that the Partnership (involving the parties and Lawrence) was dissolved upon Lawrence's death. I am satisfied that, although the plaintiffs continued to operate the Partnership's business in partnership, David was not one of the continuing partners. The issue may have been contentious if David had participated in a real way in the business of the new partnership after his father's death. However, he has had absolutely no involvement in that business, and the business has not in any way treated him as being one of the partners (except perhaps for the insignificant continuation of the use of the Partnership's name, which included "and Sons", which remained accurate, even if the only sons to which it applied were Robert and Michael). Given that s 1(1) of the Partnership Act defines partnership as "…the relation which exists between persons carrying on a business in common with a view of profit", there was no continuing partnership involving David as there was no relevant relation between David and the other plaintiffs. The fact that the continuing partners used David's property without his specific authorisation is immaterial because it did not involve the plaintiffs carrying on a business in common with David.
The next issue is whether the rural lots that were purchased in the names of the three brothers alone were held by them beneficially for the five partners in the Partnership, because those properties were purchased with partnership funds, either by contribution to their prices or by repayment of borrowed monies. I will determine this issue on the basis of the evidence and submissions that are before the Court, although I consider that the issue raises conceptual and evidentiary questions that have only faintly been addressed. The plaintiffs approached the issue on the basis that the determination of the issue rested solely on the question of who paid for the additional rural lots. The plaintiffs submitted that the Court should find that the Partnership made all the payments, so the Court should find that the three brothers held the additional rural lots on a resulting trust for the members of the Partnership. Notwithstanding the dearth and the indefiniteness of the evidence, I would find on the balance of probabilities that the additional rural lots were paid for, one way or another, with the funds of the Partnership. That is because the evidence, such as it is, would support a finding that the individual partners were not wealthy, and the amount of the Partnership profits that were distributed to them were only sufficient for their individual subsistence. However, it does not follow as a matter of law that the beneficial ownership of property resides in whoever has paid the price, whether that price be paid at the time of acquisition or by later instalments. The issue is much more complicated conceptually than the plaintiffs' case would suggest, and will often depend upon complex and nuanced findings of fact.
Given that the relevance of anything said by this Court is contingent, and in the absence of detailed submissions from the parties, this judgment does not call for a comprehensive discussion of the legal principles that apply in this context. It is sufficient to observe that the issue of where beneficial ownership resides primarily depends upon the intent of the parties involved in the acquisition of the property. The fact that a party may have paid the price is not relevant because payment creates an entitlement to beneficial ownership, but because of a rebuttable presumption that it is intended by the parties involved that the party who receives title will hold the property beneficially for the party who pays the price. Where, as in this case, the two partners who do not share in the acquisition of title are the parents of the partners who do so, the presumption of advancement may counter the presumption referred to above, as it may be presumed that the parents intended to make a gift to their sons. Furthermore, the significance of the subsequent repayment of the loans that were taken out to purchase the additional rural lots does not depend solely on the fact of later instalments being paid, but requires a finding of the intention that existed between the relevant parties at the time of acquisition as to how the subsequent payment of instalments of any borrowing made to purchase the property would affect the beneficial ownership. Mere later repayment of instalments of the price, in the absence of the existence of a relevant intention as to beneficial ownership, does not alone lead to incremental transfer of the beneficial ownership from the party with the title to the party paying the instalments. The simple fact is that in the present case there is no evidence that would permit the Court to make proper findings on any of these crucial matters.
In the circumstances, I find that the plaintiffs have not proved that the entitlement to full beneficial ownership of any of the properties purchased in the names of the brothers alone differs from the registered ownership. Furthermore, one thing that the evidence does clearly prove is that, at the time each of the additional rural lots was purchased, a positive decision was made by the members of the Partnership that the titles would be registered solely in the names of the brothers. That suggests an intention by the members of the Partnership that the properties would be acquired beneficially by the brothers alone. That conclusion is justified even before the Court considers the possible application of the presumption of advancement.
The final issue is whether David has established an entitlement to an order for a partnership accounting for the period in which the Partnership was in existence up until the death of Lawrence. I am satisfied in principle that David is entitled to a form of accounting that meets his needs and that is appropriate to the circumstances of his case. I would not on the basis of the present evidence simply order that a comprehensive partnership accounting take place for the Partnership for the period of its existence.
It is sufficient to note that I accept that David has established that he received no income from the Partnership after 2008, and that the Partnership's accounts for the financial years 2007 to 2010 show that David had significant partners' funds that he has never been paid. At the end of the 2010 year, David's partners' funds were shown as being $419,218.67. Although he remained a partner, David was not treated as a partner in the accounts from 2011. There may be other grounds to justify a finding that the Partnership did not properly account to David during its existence, but the evidence does not justify comprehensive findings on that subject.
Were it necessary to do so, a number of significant issues would be required to be identified and addressed. One would be the significance of David's unilateral withdrawal of his services from the Partnership's business from 2008. Another would be whether the remaining partners in the Partnership owe a debt to David in relation to his interest in the Partnership at the time of its dissolution. David may be entitled to compensation for the unauthorised use of his property by the new partnership operated by the plaintiffs after the dissolution of the Partnership. In principle, David would be entitled to the appointment of trustees for sale of the properties that are owned in common by him and some or all of the plaintiffs. A more comprehensive effort would be required to determine the terms of the Trust, its nature, and David's rights as a beneficiary. If the Trust is a discretionary trust, David's rights may be limited, and there may be a real issue as to whether David is entitled to an order that a new trustee be appointed or an order that the Trust be wound up. It is obvious that an appreciation of the forensic difficulty and costs in resolving these outstanding questions - many of which may be in fact beyond sensible adversarial resolution - prompted the parties to agree to the Terms of Agreement.
In all of these circumstances, it clearly would be an idle and pointless exercise for the Court to attempt to formulate comprehensive orders that would only become applicable if my conclusions about the enforceability of the Terms of Agreement were set aside. If that were to occur, then it would be necessary for the parties to address in much more substantial detail than has occurred to date the difficult issues that would require consideration in order for the property interests of the parties to be separated and resolved in a rational and cost-effective way.
The orders that I will make in favour of the plaintiffs have been taken from the prayers in the statement of claim. Those orders are expressed in simple and general terms. It may be that if the parties are unable to reach a sensible and practical agreement as to how the orders should be carried out, it will be necessary for the plaintiffs to propose and for the Court to consider making more specific orders to deal with any problems that arise. I will give the parties leave to approach the Court for the purpose of obtaining additional orders to give proper effect to the orders that will be made.

Orders

The orders of the Court are: The Court: 1. Declares that the agreement entitled "Terms of Agreement" dated 9 December 2020, and executed by each of the plaintiffs and the defendant (the Agreement), is valid and enforceable between the parties. 2. Orders that subject to the proper performance of the Agreement by the plaintiffs the defendant specifically perform the Agreement. 3. Orders that the plaintiffs perform their obligations in clause 6 of the Agreement and further that the plaintiffs take all steps that are reasonably required to cooperate with the defendant in causing the transfer to the defendant of the Water Access Licences referred to in that clause in a timely manner. 4. Orders that the cross claim be dismissed. 5. Orders that the defendant pay to the plaintiffs their costs of these proceedings. 6. Grant leave to the parties to apply to the Associate to Robb J or to the Associate to the Equity Duty Judge in case of the unavailability of Robb J on three days' notice for the making of any further orders that are necessary or desirable to give effect to these orders.

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: 31 March 2023

Partnership Act 1892(NSW)ss 1(1), 33

At a glance

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Judgment (11 paragraphs)

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Legislation Cited (3)

Cases Cited (14)