Stephenson v Dwyer

Stephenson v Dwyer - [2006] NSWSC 1439 - NSWSC 2006 case summary — Zoe

[50]

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.

[56]

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 ."

[65]

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.

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