Stephenson v Dwyer

Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Barrier Wharfs Ltd v W Scott Fell and Company Ltd (1908) 5 CLR 647 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 Beaton v McDivitt (1987) 13 NSWLR 162 Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 CASES CITED : HCK China Investments Ltd v Solar Honest Ltd (1999) 165 ALR 680 Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 Lennon v Scarlett and Co (1921) 29 CLR 499 Lipari v Olives (2001) 10 BPR 19,373 Pagnan S.P.A v Feed Products Ltd [1987] 2 Lloyd's Rep 601 Pieper v Edwards [1982] 1 NSWLR 336 Player v Isenberg [2002] NSWCA 186 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Wigam v Edwards (1973) 47 ALJR 586

PARTIES : ROBERT STEWART DWYER (1st Defendant) RUTH ANNE MADDIGAN (2nd Defendant) SIMON PAUL POIDEVIN (3rd Defendant) PAULA BRUCE (4th Defendant)

Mr V R Gray (Plaintiffs) COUNSEL : Mr English (1st Defendant) Mr R Dubler SC and Mr P Bolster (4th Defendant)

Lang Gellert & Noonan (Plaintiffs) SOLICITORS : Surry Partners (1st Defendant) Verekers (4th Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2105/05 ALAN STEPHENSON AND ANOR. V ROBERT STEWART DWYER & OTHERS JUDGMENT 1 HIS HONOUR: The plaintiffs, Alan and Valerie Stephenson, claim an order under s 89(1)(b) of the Conveyancing Act 1919 extinguishing a right of footway over their land at No 174 Beach Street, Coogee in favour of two neighbouring properties, Nos 170 and 172, which are respectively owned by the third and fourth defendants, Simon Poidevin and Paula Bruce. The claim is based on an alleged extinguishment agreement between the defendants. Mr Poidevin has filed a submitting appearance save as to costs. The other defendants, Robert Dwyer and his wife Ruth Maddigan (collectively "the Dwyers"), are the predecessors in title of the plaintiffs and have also filed a submitting appearance, save as to costs. They cross-claim, however, for specific performance of the alleged extinguishment agreement. The only party who opposes the claim and cross-claim is Ms Bruce.

2 Section 89(1)(b) relevantly provides: (1) Where land is subject to an easement… the Court may from time to time, on the application of any person interested in the land, by order modify or wholly or partially extinguish the easement… upon being satisfied: … (b) that the persons of the age of eighteen years or upwards and of full capacity for the time being or from time to time entitled to the easement… have agreed to the easement… being modified or wholly or partially extinguished, or by their act or omissions may reasonably be considered to have abandoned the easement… wholly or in part…

3 The parties are or were adjoining neighbours at Nos 170, 172 and 174 Beach Street, Coogee. Viewed from north to south: (a) No 170 is owned by Simon Poidevin, the third defendant. He resides there with his wife and family. (b) No 172 is owned by Paula Bruce, the fourth defendant. She purchased it on 20 May 2003. The houses on Nos 170 and 172 are separated by a brick party wall. (c) No 174 is owned by Mr and Mrs Alan and Valerie Stephenson, the plaintiffs. They contracted to purchase it on 23 July 2004 from the Dwyers. In that contract the Dwyers undertook to take all reasonable steps to have the right of footway removed from the title prior to settlement and, if it was not removed, agreed to assign their rights against Ms Bruce to have her right of footway released. (d) No 176 is located on the corner of Beach and Dudley Streets. The owner is not a party to the proceedings.

4 The right of footway, which is roughly one metre wide, passes from a point on the southern boundary of No 170, across the rear boundary of No 172, across No 174 and across the rear boundary of No 176 to Dudley Street. The right of footway is also shown on the titles of Nos 168A and 168 immediately to the north of No 170, but they appear to have abandoned its use. When the right of footway was originally created many years ago, it ran along the rear boundary of all six properties. However, some years ago the Dwyers, Mr Poidevin and the then owner of No 168A had purchased and subdivided a property which fronted Dudley Street and which ran along the rear of Nos 168A to 176. This extended their properties and gave Nos 170 and 174 access to Dudley Street. This explains why the right of footway now intersects Mr Dwyer's land rather than running along its rear boundary.

5 No relief is sought as against Nos 168, 168A or 176.

6 The agreement required by s 89(1)(b) is said to be a document entitled "Proposal" signed on or about 23 November 2003 by the defendants. Ms Bruce contends that this document does not constitute a binding contract. She submits that: (a) the signed proposal was not a legally binding agreement because: (i) there was no intention to be legally bound; (ii) it was subject to an express condition precedent that the parties obtain approval from their mortgagees to the release of the rights of footway and the creation of easements for support; (b) the signed proposal is not enforceable by the plaintiffs or Mr Dwyer because there was no consideration passing from the Dwyers as promisees to Ms Bruce as promisor for her release of her right of way; (c) alternatively, if the signed proposal was a legally binding agreement, it was discharged following written repudiation by Mr Poidevin which was accepted in writing by Ms Bruce and communicated to the Dwyers. I note that this raises the following legal question: Where there is a tripartite agreement between A, B and C which A repudiates, can B accept the repudiation and bring the contract to an end without the consent of C? In this scenario A is Mr Poidevin, B is Ms Bruce and C is the Dwyers. No authority directly in point was cited. (d) no order can be made under s 89(1)(b) because the mortgagee of Ms Bruce's land is a necessary party but has not been joined; (e) relief under s 89(1)(b) and by way of specific performance should be refused on discretionary grounds.

7 There were differences in the evidentiary recollections of Mr Dwyer, Mr Poidevin and Ms Bruce as to some aspects of the background to, and circumstances surrounding, execution of the proposal in November 2003. My impression was that all witnesses gave their evidence honestly and to the best of their recollection. Ms Maddigan did not give evidence, her affidavit being rejected because she was not made available for cross-examination.

8 On 4 April 2003 Ms Bruce exchanged contracts to purchase No 172. At the time she was aware of encroachments from No 170 to the north. In April 2003 she left notes in the mailboxes of the Poidevins and the Dwyers requesting them to telephone her to view her proposed building plans for No 172.

9 In April or May 2003 Ms Bruce met the Dwyers at their home. According to Mr Dwyer, she asked whether he thought the Poidevins would agree to relinquish their right of way. He said yes and that Mr Poidevin had already committed to the extinguishment. Ms Bruce said she was keen to extinguish it also because she really needed the extra metre or so for her garden. According to Ms Bruce's competing evidence, they discussed her building plans at that meeting. On her account, Mr Dwyer said that the Dwyers would her allow her building plans to go through, but wanted her to relinquish the right of way; and that everyone in the row had agreed. She said she would think about it but if everyone agreed she would try and fit in. Mr Dwyer denied that he said everyone in the row had agreed and he had no recollection of her responding as she claimed to that proposition.

10 Ms Bruce met with Mr Poidevin at his home immediately thereafter and they discussed her building plans and an encroachment of his building.

11 The completion of Ms Bruce's purchase occurred on 20 May 2003. On 21 May 2003 she wrote to the Dwyers stating: I thought it may be a good thing to put in writing to you my commitment to sorting out the rear lane situation. I am in agreement to relinquish the right of way and there is no reason why I shouldn't. I support the formalising of this legally which should be of benefit to all of the terraces. I obviously need some limited access during external renovation work and would therefore ask that any alteration to title be affected from the time that these works are concluded.

The builder has asked for access to cart out demolition material and I have told him it is not possible and to go through the front of the house. Any work that occurs in the back courtyard area may require some access. I will endeavour to give you notice and discuss protection of your area and also discuss length of access for works. I hope this would not be intrusive.

My mobile no is XXXX XXXXXX. Please phone me at any time if there is a problem during the renovation works.

She testified that when she wrote this letter she thought that she should be cooperative, if, as Mr Dwyer had said, everyone in the row had agreed.

12 On or about 3 June 2003 the Dwyers visited Ms Bruce and gave her a copy of a proposal. According to her evidence, Mr Dwyer said they wanted her to relinquish the easement, again said that everyone else in the row had agreed, said that "there will be a formal document to sign and lodge later"; and there was also a discussion about the reference to the easements for support in the document. In cross-examination Mr Dwyer appeared to accept that he gave her a copy of the proposal but could not recall the details of their conversation.

13 Mr Dwyer's alleged statement that everyone in the row had agreed is only relevant to a discretionary defence raised by Ms Bruce to the specific performance claim, namely, that she was thereby misled. If it were necessary to decide this point, I would be inclined to say that I am not satisfied that he made the statement, nor that it was material to her consideration of the matter, taking into account that neither was asserted in her correspondence or orally. It is unclear what "the row" precisely means. There is no evidence as to whether everyone in the "row" had agreed except for Mr Dwyer's oral evidence, which I accept, of his loose and informal arrangement with Mr Poidevin which is reflected in a letter dated 15 July 2004 from his solicitors to Ms Bruce's solicitors that "if the right of way that linked the various adjoining properties could be extinguished, and all the affected parties agreed, that they would participate in that arrangement".

14 Ms Bruce had further discussions with the Dwyers and the Poidevins about her building plans in May 2003. According to Mr Dwyer, on or about 28 May 2003 he told Ms Bruce he would ask his lawyer to draw up a proposal detailing the agreement they had come to and the legal process that needed to be followed in order to formally relinquish her right of way on their respective title deeds. In response to her query whether she was committing herself to any legal costs at that stage, he said he would cover the legal costs. Ms Bruce denied that this conversation occurred. Nothing appears to turn on whose evidence on this point is correct: it is therefore unnecessary to decide it.

15 Ms Bruce's internal building work commenced in June 2003 and required the complete gutting of her house. On 16 June 2003 she wrote a second letter to the Dwyers stating: Sorry it has taken me a while to get back to you. I wonder if you could ask Simon if he would consider cross easements for support. Whereas his building and gate encroach my land the back fences cross both boundaries at points and therefore have minor encroachments which go both ways.

I have had verbal approval from the council for work at the front of the house. I now need written approval, prices from builders and a time schedule. I am hoping the present builder will continue with all the work which should save time. I should be able to commit to something more definite re time as soon as I confirm the builder for the outside work.

16 Shortly afterwards the Dwyers attended Mr Poidevin's home and Mr Dwyer told him the substance of the contents of this letter. Mr Poidevin told Mr Dwyer that his wife enjoyed the use of the right of way to allow access to Dudley Street and that he would have to discuss the proposal with his solicitor and surveyor - which he later did.

17 In early October 2003 Ms Bruce moved into No 172. Shortly afterwards Ms Maddigan told her that the Dwyers were selling No 174.

18 On or about 12 November 2003 Mr Dwyer's solicitors, Surry Partners sent him a fax enclosing "the amended proposal for you to review and if it is in order, pass on to Paula Bruce and the Poidevins for signing. Perhaps three copies should be made and signed by everyone with each party retaining a copy". Mr Dwyer said in an affidavit that he hand delivered copies to Ms Bruce and Mr Poidevin. However, in cross-examination he said that he could not recall accurately whether he handed it to Ms Bruce or whether he left it at her property. Ms Bruce said she did not receive a copy.

19 The draft sent on 12 November 2003 differed from the draft given to Ms Bruce in June in the following respects: paragraph 5 under the heading "Current Status" was new; paragraphs 5 and 6 under the heading "Proposal" were new; in paragraphs 5 and 8 under the heading "Steps to be Taken" there was a reference to "easements" (plural) which previously was in the singular; and paragraph 9 under the heading "Steps to be Taken" previously read: "The Dwyers reimburse the Poidevins and Ms Bruce for their reasonable legal expenses".

20 This document was executed at the Dwyers' home on or about 23 November 2003 with a handwritten amendment to paragraph 9 to which I refer below.

21 Mr Dwyer, Mr Poidevin and Ms Bruce differed in their recollections as to how that meeting came about and as to precisely what occurred at the meeting. I doubt that anything much turns on the resolution of those differences; however, as the submissions dwelt upon them, I will address them. Mr Dwyer recounted in his affidavit that some days before the meeting he delivered copies of the latest draft proposal to Ms Bruce and Mr Poidevin. Mr Poidevin said that he received a copy and that Ms Bruce told him before the meeting that she had received a copy. She denied receiving a copy. Mr Dwyer said that some days before the meeting and after he had delivered the copies, he and Ms Bruce spoke to each other to the effect that they should get together and sign the agreement. In contrast, Ms Bruce said that Mr Dwyer asked her to attend the meeting to sort out a problem that had arisen because she had arranged for the bricking up of Mr Poidevin's access gate to the right of way. She testified that Mr Dwyer had encouraged her to go ahead and do this and had told her that Mr Poidevin had agreed. On the day that bricking up commenced, Mr Poidevin had spoken to her saying his wife was upset and that he knew nothing about it. However, Mr Dwyer testified that the bricking up occurred later, in December 2003. Mr Poidevin testified equivocally in oral evidence that the bricking up occurred in the last quarter of 2003 and he did not recall whether it was before or after the proposal was signed. Ms Bruce's evidence as to the timing of the bricking up was corroborated by her son-in-law Andrew Taylor who said he carried out the work before 6 November 2003 when he commenced another job. He also testified that he went abroad on 30 November 2003 and did not return until 18 January 2004. I accept that the bricking up probably occurred in early November 2003.

22 I think that the bricking up was in anticipation of a contract to extinguish the right of way. However, I do not accept the plaintiff's submission that the bricking up evidences that the signed proposal itself was to have contractual effect. I review below the 2004 correspondence relating to the bricking up.

23 The meeting at which the proposal was signed took place at the Dwyers' home on or about 23 November 2003 (a Sunday) at about 10 am. I think that it probably occurred on that day. If it did not, then it probably occurred on the preceding day. The precise day is not significant. According to Mr Dwyer he made additional copies of the proposal on his photocopier and, at the meeting, gave each of Mr Poidevin and Ms Bruce a copy, read it aloud clause by clause, stopping at appropriate times and asking whether everyone was happy with each clause. Mr Poidevin gave evidence to similar effect. Ms Bruce denied this. She said that at the meeting she only saw the second page of the document when Mr Dwyer showed it to her and that she was unaware beforehand that this was to be a signing occasion.

24 I am satisfied that Mr Poidevin's recollection was erroneous in one respect relating to discussions concerning Ms Bruce's responsibility for legal expenses. He testified that a few days after receiving the draft from Mr Dwyer in November 2003 he had a conversation with Ms Bruce. He said that in that conversation he asked her whether Mr Dwyer had given her a copy of the proposed agreement and that she replied in the affirmative and added that she was "not happy about paying any legal expenses". In similar vein, he testified that at the meeting they went through the proposal before signing it and when they got to paragraph 9 she said "I don't agree with this. I'm not going to pay any more expenses"; that Mr Poidevin said "Yes. This is wrong. I thought we agreed that you (i.e. Mr Dwyer) and I would pay all the expenses"; and that Mr Dwyer then said "Yes we did and I will change this now". According to Mr Poidevin's evidence, Mr Dwyer then crossed out paragraph 9 and wrote a new paragraph 9. Mr Poidevin's recollection must be in error because paragraph 9 in its typed form provided for the Dwyers and Mr Poidevin to reimburse Ms Bruce for her reasonable legal expenses. Paragraph 9 of the earlier June draft had provided that the Dwyers would reimburse the Poidevins and Ms Bruce for their reasonable legal expenses. It was the handwritten amendment at the meeting that made her liable for her own legal expenses. This casts a shadow over the reliability of Mr Poidevin's evidence that Ms Bruce told him before the meeting that she had received a copy of the proposal.

25 However, having listened to the evidence, I accept the evidence of Mr Dwyer and Mr Poidevin that Mr Dwyer distributed a copy of the proposal at the meeting and read it over. I also accept that Mr Dwyer provided Mr Poidevin with a copy of the proposal prior to the meeting and that he left a copy at Ms Bruce's house. That would have been consistent with the advice which his solicitor gave him in the solicitor's covering facsimile of 12 November when sending him a copy of the draft proposal. However, I accept that, for whatever reason, this document did not come to Ms Bruce's attention prior to her attending the meeting.

26 I do not think that the resolution of the disputed points to which I have referred has any significant bearing on the outcome of the case.

27 The proposal document signed by the defendants on or about 23 November 2003 is in the following terms: PROPOSAL RIGHT OF FOOTWAY OVER PROPERTIES AT BEACH STREET COOGEE

Current Status

1. A right of footway up to 1.1 metres wide passes through 172 Beach Street (Bruce Property) and 174 Beach Street (Dwyer Property),
2. The Bruce Property and 170 Beach Street (Poidevin Property) have the right to use the footway.
3. The above rights have been legally created and are shown on the titles to each of these properties.
4. A wall and fence from the Poidevin Property encroaches on to the Bruce Property by up to 0.47 m.
5. A fence from the Bruce Property encroaches on to the Poidevin Property.

Proposal

1. The Bruce Property releases the Dwyer Property from the right of footway.
2. The Poidevin Property releases the Dwyer Property from the right of footway.
3. The Poidevin Property releases the Bruce Property from the right of footway.
4. The Bruce Property grants the Poidevin Property an easement for support for the encroachment on to its property.
5. The Poidevin Property grants the Bruce Property an easement for support for the encroachment on to its property.
6. The Dwyers and Poidevins share equally the costs of preparing the survey plans and the documents to release the right of footway and create the easements for support.

Advantages for Each Property

1. The Poidevin Property - the encroachment issue is rectified.
2. The Bruce Property - the right of footway is removed from their title and the encroachment issue is rectified.
3. The Dwyer Property - the right of footway is removed from their title.

Steps to be Taken

1. Each property owner signifies their in principle approval by signing at the end of the proposal.
2. The Dwyers arrange for the survey to be drawn up identifying the location of the easements for support.
3. The Dwyers arrange for the easements for support and the release of the right of footway to be drawn up.
4. All parties sign release of right of footway.
5. The Poidevins and Ms Bruce sign the easements for support.
6. Each party obtains approval from their mortgagees to the release of right of footway and easements for support.
7. Each party arranges for their certificates of title to be produced at the Land & Property Information Office.
8. The Dwyers lodged the release of footway and easements for support for registration.
9. All parties pay their own legal expenses. The Dwyers and Poidevins reimburse Ms Bruce for her reasonable legal expenses and share the survey and other expenses equally.

Signed by each of the parties. The Dwyers

28 This document was typed except for paragraph 9 under "Steps to be Taken" which was handwritten and which replaced typed words which had been struck out (as shown above). This change was made by Mr Dwyer at the meeting when the document was executed. Ms Bruce had been given an earlier draft of the document by Mr Dwyer in June 2003. In that draft paragraph 9 read: "The Dwyers reimburse the Poidevins and Ms Bruce for their reasonable legal expenses". There were a couple of other changes from that draft in the document as executed.

29 It may be noted that the document provides for the release of Mr Poidevin's and Ms Bruce's rights of footway over the Dwyers' land but not for any release of the Dwyers' right of footway over No 176 to the south.

30 The parties' written submissions proceeded on the assumption that the agreement required by s 89(1)(b) is a legally binding agreement. The question having arisen during oral submissions, the plaintiffs submitted that s 89(1)(b) may not require that the agreement be legally binding. However, the authorities appear to have proceeded on the basis that s 89(1)(b) requires proof of a legally binding agreement and I was not referred to any authority which suggested otherwise. In Lipari v Olives (2001) 10 BPR 19,373 at 19,375 [13] Brownie AJ dismissed a cross-claim for specific performance and for an alternative order under s 89 on the basis that "the parties reached what a non-lawyer would regard as an agreement, but… the agreement was not one that was legally binding". See also Pieper v Edwards [1982] 1 NSWLR 336 (CA) at 338 - 339. I propose to proceed on the basis that it is necessary to prove a legally binding agreement under s 89(1)(b). If that be wrong, and if the signed document in the present case did not amount to a legally binding agreement, I consider that, in the circumstances of the case, this would be such a powerful discretionary consideration that no order should be made under that provision.

31 The signed proposal evidences a consensus. The threshold question is whether the parties' intention, objectively ascertained, was that the consensus at which they arrived should constitute a binding contract.

32 In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 627 McLelland J (whose decision was affirmed on appeal at 40 NSWLR 631) quoted with approval the dictum of Mahoney JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326 (CA) who said, when considering the question whether there was a binding contract: "In considering this question, in a context such as the present, it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?" In Player v Isenberg [2002] NSWCA 186 Beazley JA (with whom Giles JA and Ipp AJA agreed) reviewed the authorities relating to intention to create an immediately binding contract: 49 The appellants further argued that the parties did not intend, by their discussions on 1 July, to create an immediately binding contract. There are a multitude of cases in which it has been held that notwithstanding substantial concurrence as to the terms of a proposed contract the parties did not intend to be finally bound until terms were formally agreed. In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634, McHugh JA (Kirby P and Glass JA agreeing), referring to Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 316-317 said: The magnitude, subject matter, or complexities of the transaction may indicate that the agreement was a limited one not intended to have legal effect. 50 In Geebung Investments v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at 14,569, Kirby P observed: The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it the less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the 'major matters', their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document (see in particular Masters v Cameron (1954) 91 CLR 353 at 361; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647 at 666; and Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521 at 528). … Depending upon the size, importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding. It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding. … 51 Similarly, in Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 9329, Mahoney JA at 9334 (Priestley JA agreeing), after citing T S Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147, Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 and the cases therein, said it was less likely in large and complex transactions that parties intended to be bound by conversations. 52 In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (Hope JA and Mahoney JA agreeing) said it was " commonsense " that the " more numerous and significant" the areas to be agreed upon, the less likely the conclusion could be drawn that they had intended to be bound.

33 In Pagnan S.P.A v Feed Products Ltd [1987] 2 Lloyd's Rep 601 at 611 it was held at first instance by Bingham J, whose decision was upheld on appeal: The general principles to be applied in deciding the issue in this case are not, I think, open to much doubt. The Court's task is to review what the parties said and did and from that material to infer whether the parties' objective intentions as expressed to each other were to enter into a mutually binding contract. The Court is not of course concerned with what the parties may subjectively have intended. As Lord Denning M.R. put it in Storer v. Manchester City Council , [1974] 1 W.L.R. 1403 at p. 1408H: In contracts you do not look into the actual intent in a man's mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying " I did not intend to contract " if by his words he has done so. His intention is to be found only in the outward expression which his letters convey. It they show a concluded contract, that is enough.

34 Similarly, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] the High Court held in a joint judgment: This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.

35 There are a number of textual indicators in the signed proposal document which strongly suggest that there was no intention that it should have binding effect.

36 The word "proposal" is repeated in the title, in the second sub-heading and in paragraph 1 under the sub-heading "Steps to be Taken". The word "proposal" suggests an offer, preliminary to a contract. Use of the words "contract", "agreement" or even "heads of agreement" would have been more suggestive of a binding agreement than the term "proposal", but such words do not appear anywhere in the document.

37 The phrase "in principle approval" appears in paragraph 1 under the sub-heading "Steps to be Taken". Paragraph 1 states: "Each property owner signifies their in principle approval by signing at the end of the proposal". The phrase "in principle agreement" or similar is commonly used in pre-contractual negotiations and generally indicates, unless the context requires otherwise, that there is no intention yet to enter into a binding contract. In Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 Brereton J said at [18]: "Although no general rule can be stated about the phrase 'agreed in principle', I think it can be said that it is a phrase often used by lawyers to indicate that, although consensus on a matter has apparently been reached, there is not yet a final agreement. 'Settled in principle' is a state of consensus somewhat short of 'settled'". The phrase "in principle approval" is, I think, further removed from indicating a binding contract than "agreed in principle".

38 The phrase "agreement in principle" arose for consideration in G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631. The Court of Appeal upheld the decision of McLelland J at first instance that a contract for the sale of a hospital was constituted by an exchange of letters. The circumstances were unusual. The purchaser's offer to purchase concluded by saying that it was expected that the vendor's written response "would constitute a legally binding acceptance until such time as it is superceded [sic] by a formally binding agreement". The vendor's counter-offer concluded "On receipt of such written acceptance, our client would consider there to be a legally binding agreement in principle between yourself and it, until such time as formal Contracts were exchanged as aforesaid". The purchaser's acceptance of the counter-offer stated "We have instructed our solicitors… accordingly and they will be in contact with you concerning the formal contract". At first instance sub nom Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628 McLelland J said: I do not consider that any implication of an intention not to be legally bound which might otherwise be suggested by the words " agreement in principle" can prevail over the clear import of the words " legally binding" . The intention of the parties to be legally bound by their consensus is sufficiently clearly expressed to take the case out of the third class of cases referred to in Masters v Cameron (1954) 91 CLR 353 at 360-362, that is, " ... cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own" (at 361). 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 ."

39 Affirming McLelland J's decision on appeal, McHugh JA (with whom Kirby P and Glass JA agreed) held at 634 - 636: An agreement for the sale of property at a specified price does not necessarily indicate a legally binding contract. The magnitude, subject matter, or complexities of the transaction may indicate that the agreement was a limited one not intended to have legal effect… In New South Wales, real estate is ordinarily sold by signing and exchanging contracts in the form approved by the Real Estate Institute and Law Society. Accordingly, even though the parties agree in writing that real estate is sold for a specified price, the presumption is that no binding contract exists until " contracts" are exchanged…

However, 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… If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction…

If the words " in principle" did not appear in the letter of 21 March, it would be impossible to contend that this correspondence did not constitute a binding agreement for the sale of the land, buildings, equipment and business name. Although the words " in principle" are curious, they cannot prevail against the conclusion to be drawn from the words a "legally binding agreement" . Those words convincingly indicate that the parties intended to be bound immediately…

Under the agreement each party was obliged to do all that was necessary on his part to enable the other party to have the benefit of the agreement concluded by the correspondence… This included doing everything necessary to enable contracts to be exchanged by 18 April 1986… If the parties agreed on additional terms, they would be added to the formal contract. If they did not, the formal contract would give effect only to the agreed terms and conditions of the correspondence. The case, therefore, is one where the parties were bound by the informal agreement but expected to make a further contract which by consent might contain additional terms…

40 The next textual consideration is that the document, under the heading "Steps to be Taken", required further documents to be drawn up, executed and registered. One of the further documents was a survey identifying the location of easements for support. It is reasonable to infer that no party affected by that survey was bound to execute an easement for support without having an opportunity to negotiate over the terms of the survey. Another document which had to be prepared and executed was a "release of right of footway". Such a document affecting property rights would normally be expected to be settled by a lawyer and to be open to negotiation as to its terms before it became binding.

41 The final textual consideration is that the proposal provided that all parties pay their own legal expenses. This was in a context where further documents affecting property rights remained to be drawn up. The first time that a clear need for legal advice would arise would be when documents were being drawn up which would bring about a contractually binding relationship affecting property rights. In contrast, the proposal was executed by the parties without legal advice, except that Mr Dwyer had his solicitor draft the document.

42 The significance of the identified textual considerations is perhaps strengthened by the fact that the document was drafted by Mr Dwyer's lawyer who may be taken to have understood their significance.

43 The document was executed at the home of the Dwyers at about 10 am one day, probably on a weekend, without the assistance of lawyers and in informal circumstances over a cup of tea. The informality of the occasion lends support to the conclusion that the parties did not intend to be contractually bound by this document.

44 Written communications between the parties subsequent to execution of the proposal also tend to support the conclusion that the parties did not intend it to be contractually binding. In Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 78 Griffiths CJ (with whom O'Connor J agreed) said: "It is plain that, the question being whether the parties had in fact concluded an agreement on 1st December, any statements or conduct on their part after that date inconsistent with the existence of a concluded contract are relevant for this purpose". In Barrier Wharfs Ltd v W Scott Fell and Company Ltd (1908) 5 CLR 647 at 668 and Lennon v Scarlett and Co (1921) 29 CLR 499 at 509 the High Court accepted that subsequent correspondence or negotiations between the parties could be looked at to show that no contract had been concluded on an earlier date. In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 547 - 548 Gleeson CJ (with whom Mahoney and Hope JJA agreed) said: "There is ample authority for the proposition that reference may be made to the correspondence between the parties subsequent to 13 June 1986 for the purpose of showing that 'it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature': Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 669 per Griffiths CJ". Gleeson CJ added at 550: "It is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter". In that case the question was the same as that in the present case, namely, whether the parties intended to make a concluded contract.

45 Subsequent correspondence between the parties between May and July 2004 lends support to the conclusion that the signed proposal was not intended to constitute a binding contract. It commenced with a letter dated 30 May 2004 which Mr Poidevin and his wife wrote to Ms Bruce: We are writing to request you restore our access behind the rear of your property 172 Beach Street. The lane way is, at present, illegally blocked. You will need to reinstate the path as it was . Also, the gate needs to be replaced, which was removed without our consent. To insure [sic] our safety there must be protection provided from your dog, for example, a fence. We request it be done as soon as possible.

46 Ms Bruce replied by letter dated 14 June 2004: I am in receipt of the letter given to me by Robin last Friday a week ago. This follows a request from Simon not to open the right of way for the time being.

I hope you understand it was never my idea to close the right of way and the only action I have taken is on invitation from you through Bob and then later a commitment from you Simon that you will pay half the building cost of the wall. Your original communication to me through Bob was to request an easement for support. I now assume you withdraw that request and no longer require the encroachment.

Unless I hear otherwise I will take it you agree to remove your encroachment and ask you to do so as soon as it can be arranged. Please let me know when this work will be carried out.

When I take the wall down I will realign the fence so as to place the gate on the boundary and deal with that at the same time rather than reinstate the gate twice. I will need to organise surveyors and will give you as much notice as possible.

I am still endeavouring to commence this work within the two weeks as I indicated to Robin however I will confirm dates with you this week once I hear back from the surveyors.

Andrew can reinstate the gate. The right of passage will not be fenced or returned to the way it was originally.

47 On 16 June 2004 the Poidevins replied by letter stating: We have received and reviewed your letter in regards to restoring our access. We continue to request, as we have previously written, that the access be restored as quickly as possible. In regards to moving our boundary, we are seeking legal opinion and under no circumstances can the current boundary be altered. The gate can be reinstated where it was. We also note that the path must be of the same width that it was before you tore it up.

Concerning the issue of our encroachment, our lawyer will be contacting you promptly.

48 On 17 June 2004 Ms Bruce wrote a letter in reply: I have just received your letter and phoned the surveyor, Gannon and Grignell, to follow up my request for him to identify the rear boundary. Barry Brignell has done the previous survey work on the property. He has just told me it could still be up to two weeks before he can get here due to his workload. On request he told me he would come as soon as possible. I would like to assure you I am accepting responsibility for reinstating the right of way. I will let you know when he is coming and I will follow up with another phone call next week.

The gate however will be placed on the boundary once it is identified.

49 By letter dated 25 June 2004 Ms Bruce's solicitors, Verekers, wrote to the Poidevins' solicitors, Taylor Scott: I refer to the 'Without Prejudice' conference had on 24 June 2004 attended by:-

1. Tony Brookes for Mr and Mrs Dwyer
2. You for Mr and Mrs Poidevin; and
3. Ms Bruce and myself.

I note that the conference was held on a without prejudice basis but such noted I confirm that my client acknowledges her obligations to:-

1. remove a fence placed across the Right of Way, as has been requested by Mr Poidevin; and
2. to ensure that the attributes of the Right of Way, as noted in the restriction burdening my client's property, will not be interfered with by my client; to the extent any interference is identified that interference will be removed.

My client, acknowledging her obligations and prepared to act forthwith to discharge them, presently acts on the assumption that Mr and Mrs Poidevin require Ms Bruce to refrain from the immediate removal of the wall on the boundary pending consideration of matters Mr Brooks may put for Mr and Mrs Dwyer. If this assumption is incorrect, would you advise me accordingly and my client will then move directly to fulfil [sic] her obligations as the proprietor of land burdened by the Right of Way and as required by your client.

50 On 29 June 2004 Ms Bruce's solicitors, Verekers, wrote to Mr Dwyer's solicitor, Mr Brooks: Thank you for your letter of 28 June 2004 which has been sent to my client for instructions.

Without pre-empting my clients instructions, I note referable to the first paragraph on page 2 of your letter as follows:-

1. There is no issue that the Poidevins have demanded the demolition of the wall to which you refer and that my client, in response to such demand, immediately agreed to the demolition of the wall.
2. Even if the facts were, as contended in your letter, is it not the case that the Poidevin's requirement for demolition of the wall rebuts the conclusion pressed in your letter? 51 By letter dated 6 July 2004 Ms Bruce's solicitors, Verekers, wrote to the Poidevins' solicitors, Taylor and Scott: I refer to previous correspondence and am instructed that my client will be taking steps to remove the wall. The only cause for delay has been to commission a surveyor to correctly identify the boundary.

In this respect my client holds the belief that your clients may be away and I am instructed to confirm that whilst the survey work will be undertaken, Ms Bruce will wait till your clients return before proceeding with the demolition of the wall as requested.

52 In my view, this subsequent correspondence reinforces the conclusion that when the parties signed the proposal in November 2003 they did not intend it to be a binding agreement. The Poidevins' accessway to the right of way still remains bricked up. I accept Ms Bruce's explanation that this is because Mr Poidevin or his solicitors indicated that they did not wish the status quo to be disturbed in that regard until the dispute was resolved.

53 In summary, in my opinion a textual analysis of the signed proposal leads to the conclusion that the parties did not have the intention, objectively ascertained, that it would constitute a binding contract; and this conclusion is reinforced by the undisputed surrounding circumstances and the subsequent conduct of the parties.

54 That is sufficient to dispose of the summons and the cross-claim and to resolve the proceedings in favour of Ms Bruce. It is unnecessary to deal with the remaining issues. In that regard, in Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 81 ALJR 352 at [172] Callinan J said: Sometimes it will be appropriate for courts other than final courts to deal with all issues. For example, in a case in which a plaintiff fail[s] on the issue of liability, it will often be useful for a trial judge to assess damages to cover the possibility that an appellate court may take a different view of liability. But as a general proposition…, all civil courts, including intermediate appellate courts, should confine themselves to the issues which are necessary for the disposition of the case.

55 I make the following orders: (1) Order that the summons be dismissed. (2) Order that the plaintiffs pay the defendants' costs. (3) Order that the cross-claim be dismissed. (4) Order that the cross-claimants pay the cross-defendants' costs. (5) Liberty to apply on three days' notice. (6) The exhibits may be returned.

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