The Owners - Strata Plan No 58087 v Matthews - [2015] NSWSC 1906 - NSWSC 2015 case summary

The parties' submissions as to the status of the settlement

There was little contest between the parties as to the legal principles applicable to determination whether the exchange of correspondence in respect of the settlement had binding effect. The primary question raised is whether the correspondence between the parties' legal representatives on 1 and 2 May gave rise to an immediately binding contract between them. In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (with whom Hope and Mahoney JJA agreed) observed that a question of this kind involves the intention of the parties to make a concluded bargain, which is related to but not the same as the question whether the parties have reached agreement upon such terms as are legally necessary to constitute a contract. His Honour also noted that: "… in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a Court will be to conclude that they had the requisite contractual intention." The Court may have regard to the parties' communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not they intended to form such an agreement: Australian Broadcasting Corp v XIVth Commonwealth Games Ltd above at 567-548; Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at [14,562].
The parties referred to the decision in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 361, Dixon CJ, McTiernan and Kitto JJ identified three categories of case which may exist where parties, which have been in negotiation, reach agreement upon terms of a contractual nature and agree that the matter of their negotiation will be dealt with by a formal contract, as follows: "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 Masters v Cameron above, the plurality further noted (at 361) in respect of the third class of case which it identified, that: "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: Governor &c. of the Poor of Kingston-upon-Hull v Petch ((1854) [1854] Eng R 995; 10 Exch 610 [156 ER 583]. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker ((1950) [1950] HCA 13; 18 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed."
A fourth category of case was identified by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 where: "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."
Ms Peden also refers to the Court of Appeal's decision in Grave v Blazevic Holdings Pty Ltd [2012] NSWCA 329. However, that case is distinguishable from the present case since there was no suggestion on the part of the appellant, in that case, that agreement had not been reached or that that agreement was conditional upon the execution and exchange of the proposed settlement deed. That position is distinct from the present case, where the 1 May letter expressly contemplated that a meeting of the Owners Corporation would be necessary to approve the settlement deed, which had not been prepared by the time of the correspondence on 1 and 2 May.
Both parties also referred to the decision of the Court of Appeal in Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 although Ms Peden, who appeared for the Owners Corporation, sought to distinguish that decision. Bathurst CJ observed (at [15]) that, in cases which did not depend on the construction of a single document, the Court was required to undertake an objective determination whether the parties intended to bind themselves to a contract: "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."
Beazley P (with whom Bathurst CJ generally agreed and Meagher JA agreed) also noted that whether parties intend to be immediately bound, where they have reached agreement as to the terms of a contract but have also agreed that a further, formal agreement is to be executed, is to be determined objectively, having regard to the "outward manifestations" of their intentions (at [64]-[65]). Her Honour also observed (at [65]) that the question was "what each party by words and conduct would have led a reasonable person in the position of the other party to believe". Beazley P also observed (at [69]) that the three classes of case in Masters v Cameron above no longer applied, if they ever were, as strict categories into which cases must fall. Her Honour noted that (at [72]) that it was relevant to consider the commercial context and surrounding circumstances of the parties' dealings in determining whether a binding agreement had come into existence. Beazley P also observed (at [83]) that it was probable, as a matter of commercial reality, that if the parties had intended to be bound without signing the relevant deed, one or both of the solicitors would have said so. The Court of Appeal also noted (per Bathurst CJ at [15] and per Beazley P at [118] (with whom Meagher JA agreed)), and consistently with the case law to which I referred above, that the Court may have regard to subsequent conduct of the parties in determining whether, at an earlier juncture, the parties intended to enter into a binding agreement.
Ms Peden submits that Mr Matthews' solicitor and barrister had "authority to settle" the proceedings. It is not necessary to address the correctness of that proposition, since the question in dispute is not one of the authority of the legal parties' representatives, but of the content of the agreement, or agreement in principle, reached between them by the exchange of correspondence.
Ms Peden submits that the agreement suggested to have been formed by the correspondence of 1 and 2 May 2015 falls within the first two classes of Masters v Cameron as an immediately binding contract, whether or not the contemplated deed of settlement came into existence, and where the deed was intended only to restate the matters in a fuller or more precise way with no difference in effect, and that the deed was merely an administrative step not intended, objectively, to effect the binding nature of the prior agreement.
The first of those classes (which, as the Court of Appeal pointed out in Pavlovic v Universal Music Australia Pty Ltd above, are not strict categories) contemplates that the parties intended 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 would be fuller or more precise but not different in effect. I cannot accept the submission that the exchange of correspondence on 1 and 2 May was of that character. First, that submission is inconsistent with the qualifying language in the 1 May letter that all of the matters put were "subject to formal resolutions being passed at a meeting of the Owners Corporation". It could not be said that the parties intended to be immediately bound to the performance of the relevant terms where that qualification excludes that possibility. Second, that proposition would involve the Owners Corporation being bound to the settlement, before it was ratified by the Executive Committee on 15 May; and, third, the Owners Corporation would then be bound to the settlement notwithstanding that it required steps to be taken which the Owners Corporation in general meeting might decline to take. Fourth, that submission tends to beg the question why, if all had been agreed between the parties on 1 and 2 May, the proceedings were then not discontinued and the then binding agreement allowed to take its course, rather than adjourned for the subsequent steps to be taken, which would only have had any useful purpose if those subsequent steps could have affected whether the parties were, in fact, bound to a settlement.
The position for which the Owners Corporation contends also has the difficulty that, if it were correct, the parties would be bound to a settlement without releases, unless they agreed to the later draft settlement deed, because the letter dated 1 May 2015 did not include releases. It seems unlikely that the parties objectively intended that result, where both their earlier correspondence and the later draft settlement deed contemplated that such releases would be given. There seems to me to be substantial force in the observation of Young J in Cleary v Masterton [1999] NSWSC 207 at [39], quoted by Beazley P in Pavlovic above at [116]-[117] that, where the parties have "brokered a deal" which contemplates a deed or release and discontinuance, then they "intend as a general rule that there is no contract until that release has been delivered and exchanged". The position would be a fortiori if the suggested agreement would exclude the release that they contemplated.
A characterisation of the correspondence as falling within the second category, as one where agreement as to all terms have been made conditional upon the execution of a formal document, again does not seem to me to give weight to the level of conditionality in the 1 May letter, which was not only conditional upon a formal document, but upon the relevant approval of the Owners Corporation, which could have been withheld. The relevant facts seem to me to be closer to the third category of case contemplated by Masters v Cameron above, where the intention of the parties was not to make a concluded bargain, unless and until they executed a formal contract, so far as the Owners Corporation's approval of the terms of the arrangement would have occurred prior to the execution of the proposed settlement deed. The Owners Corporation did not contend the correspondence of 1 and 2 May was in the fourth category noted in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd above, which contemplates that the parties were content to be bound immediately and exclusively by the terms which they had agreed, while expecting to make a further contract in substitution for the first.
Ms Peden alternatively submits that the condition for the passage of relevant resolutions by the Owners Corporation should be understood to be a "condition subsequent" to the relevant agreement, rather than a condition to its legal effect. I do not accept that submission, which, it seems to me, is not consistent with the language of the 1 May letter; does not have sufficient regard to the facts that the Executive Committee was not bound to ratify the settlement on 15 May 2015, although in fact it did so by majority; that a general meeting of the Owners Corporation might have rejected the proposed deed of settlement; and the parties are unlikely to have objectively intended that the Owners Corporation would be bound by the terms of the earlier exchange of letters, if its members had declined to approve the deed which was to give effect to that earlier exchange, or that Mr Matthews would be bound by the settlement as at 2 May without any assurance that the Owners Corporation would pass such a resolution. That submission is also starkly inconsistent with the several references in subsequent correspondence from the Owner's Corporation's solicitors to the need for a general meeting of the Owners Corporation to consider resolutions to approve and execute the proposed deed of settlement.
Ms Peden also refers to subsequent conduct, which she submits amounts to acceptance of the terms of the 1 May letter, including the preparation of short minutes of order vacating the hearing on 4 May 2015. Ms Peden also points out that the terms of the letter of 1 May 2015 contemplated some actions prior to the execution of the proposed deed of settlement including, potentially, the Owners Corporation convening a meeting to consent to lodgement of the application under s 96 of the EPAA. It seems to me that those matters are equally consistent with a settlement "in principle" falling short of a binding agreement, or the anticipation of a settlement to be implemented by the proposed deed of settlement. I note that, in any event, they did not take place where Mr Matthews had not submitted the form of the application under s 96 of the EPAA to the Owners Corporation. Ms Peden also submits that, for a significant period after the exchange of that correspondence, Mr Matthews did not dispute the fact of a settlement. That proposition is correct only in the limited sense that correspondence by Mr Matthews' solicitors over that period did not address whether there was a binding settlement or an agreement "in principle" falling short of such a binding settlement, where no dispute as to that question had arisen.
Finally, Ms Peden also submitted, in her further submissions as to whether approval in general meeting was required under the Strata Schemes Management Act that there was no evidence to suggest that lot owners in general meeting would have voted "against their own interest" by defeating a resolution to approve a settlement deed put to them. That submission depends on an assumption, which owners may or may not have shared, as to what was in their interests, and I note that one of the three members of the Executive Committee had in fact voted against the proposed settlement. In any event, the fact that owners in general meeting were to be allowed the opportunity to vote on the proposed settlement deed makes it unlikely that the Owners Corporation would have sought to commit itself to a settlement, prior to that vote, in a manner that would deprive that vote of substantive effect.
For all these reasons, I am not satisfied that a binding agreement was reached on the terms of the correspondence exchanged on 1 or 2 May 2015, still less on the terms of the later draft deed which neither party approved. The Notice of Motion dated 24 July 2015 should therefore be dismissed with costs. The proceedings should be relisted in the Registrar's List on a date convenient to the parties, for the allocation of a further hearing date.

The Owners - Strata Plan No 58087 v Matthews

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