Urban Fortune Global Ltd v Deicorp Projects

Claims for determination

1. The contention for the plaintiffs was that Deicorp PA was bound to execute and exchange contracts on the sale of the properties in the form proposed by UFG on 14 May, in favour of Polytec A1 as purchaser. Alternatively, Deicorp PA was bound to execute and exchange contracts in such form as the Court might decide would have resulted from negotiation between the parties in good faith. If specific performance was not available, the plaintiffs claimed damages. The loss of profit on the transaction was said to be $90 million.
2. The informal agreement upon which the plaintiffs rely bears what purports to be the signature of Mr Deiri on behalf of Deicorp PA. Deicorp PA denies that it is Mr Deiri's. If it is, Deicorp PA contends that the agreement does not give rise to an enforceable contractual obligation to sell the properties. Finally, if the agreement does create enforceable obligations to sell the properties, then it is still invalid or unenforceable as a result of failure to comply with provisions of the Conveyancing Act 1919 which apply to options for the purchase of residential property.
3. The proceedings were allocated an expedited hearing. The hearing was confined to the question of the enforceability of the contract. The assessment of any damages will be dealt with at a later stage, if it arises.
4. In the course of closing submissions, counsel for the plaintiffs indicated that they no longer pressed for orders for specific performance. It seems that Deicorp PA has begun construction work on the development and the plaintiffs accept that it would be impractical for the Court to decree a sale at this point. The plaintiffs press however for damages, in lieu of specific performance, under Lord Cairns' Act (see Heydon, JD, Leeming, MJ, and Turner, PG, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2014) at [24-020]-[24-025]). It therefore remains necessary for the Court to decide whether the plaintiffs were originally entitled to specific performance.
5. If the plaintiffs are not entitled to damages in lieu of specific performance, they claim damages at law for breach of contract. Up until now, the plaintiffs have been pressing for performance of the contract, despite what, on their case, is a repudiation by Deicorp PA of its contractual obligations. Strictly speaking, to pursue an alternative claim for damages at law for loss of their contractual bargain, the plaintiffs may require leave from the Court to terminate the contract: cf Meagher, Gummow & Lehane at [20-265]-[20-270]. This question does not, however, need to be explored at the moment. It can be left until a later stage of the proceedings, if that eventuates.

Chronology of key events

1. Mr Ji Xiang (known as Kenny Ji) is the representative of KDC/Polytec in Australia. He is based in Sydney. He receives instructions from Mr Lam Yung Hei (known as Jason Lam) who is based in Hong Kong. Mr Lam is an executive director of KDC and is authorised to act on behalf of UFG.
2. The events which led to this dispute began when Mr Ji was approached by Mr Xhu Zannan (known as Walton Chu) about the possible sale of the properties. Mr Chu is a real estate agent in Sydney. He operates through a company called Home789 Resources Pty Limited.
3. At the time, Deicorp Group was (and the Group remains) one of Mr Chu's clients. Mr Chu's company's offices were (and remain) located in the same building as Deicorp Group's at Redfern. Mr Chu was (and is) on the fourth floor, with Deicorp Group management (including Mr Deiri) on the third floor.
4. Mr Chu's first approach to Mr Ji took place on about 9 April last year. In an email sent on that day, Mr Chu told Mr Ji that he could persuade Deicorp Group to sell the properties for $48.96 million ($180,000 per unit).
5. Discussions between Mr Chu and Mr Ji continued by telephone, WeChat messaging and email. Mr Ji obtained instructions from Mr Lam. On 21 April Mr Ji submitted to Mr Chu for execution by Deicorp PA an earlier version of the informal agreement which is the subject of the plaintiffs' claim in these proceedings. This was a two page document headed "Indicative Letter of Offer and Exclusive Due Diligence Agreement". It set out particulars of the proposed sale together with terms for a due diligence arrangement to enable the purchaser to conduct investigations and decide whether to proceed.
6. The document had a header featuring the KDC logo and the name "Kowloon Development Company Australia". There is, however, no company or business registered in Australia under that name. The document was signed by Mr Ji. It nominated a price of $43.52 million ($160,000 per unit) and provided for settlement to occur six months after exchange.
7. On the following day, 22 April, Mr Chu sent the document back to Mr Ji with handwritten changes on it, and signed by Mr Deiri on Deicorp PA's behalf. The genuineness of this signature is not in dispute. The changes altered the price to $45 million and reduced the settlement period to three months.
8. That evening Mr Ji advised Mr Chu that this price and settlement period were acceptable. The following day Mr Ji submitted a revised form of the document which had been signed by Mr Deiri. It is this revised document which is the subject of these proceedings. I will refer to it as the "Letter Agreement".
9. The Letter Agreement was entitled "Letter of Offer and Exclusive Due Diligence Agreement", dropping the word "Indicative". The reference to Kowloon Development Company Australia was replaced with a reference to UFG. The Agreement was signed by Mr Lam on UFG's behalf.
10. I set out the terms of the Letter Agreement in full at [74] below. For present purposes, it is enough to say that the specified price and settlement period had been altered to reflect Mr Deiri's changes. It also provided for the payment of a "due diligence deposit" of one per cent of the purchase price ($450,000).
11. The Letter Agreement was emailed to Mr Chu with a covering letter addressed to Mr Deiri at Deicorp Group at 12.03 pm on 23 April (a Friday). Later that afternoon, at 3.47 pm, Mr Chu sent an email to Mr John Soliman (who is described as the Acquisition Manager of Deicorp Group) and to Mr Ji. The email asked Mr Soliman to send Mr Ji the full due diligence information package. It also asked Mr Ji to deal with Mr Soliman directly on due diligence for the purchase. Mr Chu attached to the email the earlier indicative letter of offer in the form in which it had been amended and signed by Mr Deiri. This was apparently by way of confirmation.
12. Later that evening, at 6.11 pm, Mr Chu sent an agent's sales advice to Ms Carolyn Chudleigh which recorded the sale of the properties for $45 million. Ms Chudleigh was the solicitor who had been retained by UFG on the transaction. Her firm is known as HFW.
13. On the following Monday, 26 April, Mr Chu sent Mr Ji an email at 2.36 pm which attached a scanned copy of the Letter Agreement. This bore what appeared to be the signature of Mr Deiri. In order to comply with Hong Kong regulatory requirements, Mr Ji added to his scanned copy of the Agreement, under Mr Deiri's apparent signature, the words "Fouad Deiri, Managing Director, Deicorp, 26/04/2021". Mr Ji sent a copy of the Agreement in that form to Ms Chudleigh.
14. That evening, at 8.47 pm, Ms Chudleigh wrote to Mr Anthony Jreige of HWL Ebsworth ("HWLE") who had been retained to act on behalf of Deicorp PA. Ms Chudleigh advised Mr Jreige that she was acting for UFG and asked him to send her a draft contract and vendor disclosure documents. At 8.56 pm that evening Mr Jreige advised Ms Chudleigh that he would do so shortly.
15. The money to pay the "due diligence deposit" was coming from offshore. Ms Chudleigh obtained the necessary SWIFT code from Mr Jreige and the payment was sent to HWLE's trust account on 27 April.
16. Further communications between Ms Chudleigh and Mr Jreige followed in which Ms Chudleigh stated that the due diligence period of 30 days would expire on 26 May. Mr Jreige did not demur.
17. On 5 May, a junior solicitor at HWLE sent HFW a link to a set of draft contract and vendor disclosure documents. The email stated that the form of the documents was subject to review by HWLE's client.
18. The draft contract was based on the Law Society of New South Wales standard form contract for the sale of land. It included additional special conditions. The name and address of the purchaser were stated as "TBC" (to be confirmed).
19. On 7 May, HFW raised some requisitions about the contract documents, and specifically about leases of the properties (it seems that the properties had, following acquisition by Deicorp PA, been let out until the development was ready to begin).
20. At 10.53 am on Friday 14 May, HWLE responded to HFW's requisitions. At 3.16 pm that afternoon, Ms Chudleigh wrote to Mr Jreige asking to exchange contracts immediately, and preferably that afternoon. Attached to the email was a revised contract and special conditions.
21. The revised contract identified the purchaser as "Yung Hei Lam on behalf of Polytec Australia One Pty Limited (a company yet to be formed)". The revised special conditions made four changes to HWLE's initial draft.
22. First, HWLE's draft had provided that the sale was subject to existing tenancies. HFW's draft removed this and provided instead for vacant possession on completion.
23. Second, HWLE's draft had included a special condition requiring the directors of the purchaser to provide personal guarantees. This was removed in HFW's draft.
24. Third, HWLE's draft had provided that Deicorp PA was to have the first right of refusal for the construction work on the development. The draft provided for Deicorp to lodge a tender incorporating a tender price. The purchaser might accept the tender with or without accepting the tender price. If the purchaser accepted the tender but not the tender price, and negotiations about the price failed, the purchaser could seek tenders from other parties but was required to make a "revised offer" to Deicorp. HFW's draft inserted an additional subclause to fix a time for acceptance of the revised offer, or for the parties to negotiate an agreement, failing which the right of first refusal was to lapse.
25. Fourth, HWLE's draft contained a warranty that any necessary approval from the Foreign Investment Review Board ("FIRB") had been obtained. In the absence of any express provision, this warranty would apply from the date of exchange. HFW's draft provided that the warranty only had to be given on completion.
26. Ms Chudleigh's covering letter to Mr Jreige stated: We are instructed that our client wishes to exchange contracts this afternoon. We appreciate it is 3.15pm now however if your client is available, we could exchange on electronic counterparts. We attach: 1. Contract special conditions in mark-up showing the edits requested by our client, being: a. Vacant Possession - removal of tenancy documents, obligation on vendor to deliver vacant possession. We note that the latest lease expires 26 August 2021 so with a 3 month settlement period, if we exchanged today, that would mean settling on 14 August 2021 before the expiry of that lease. Would the vendor be able to negotiate an early termination of that lease or perhaps settlement takes place on 27 August 2021? b. Removal of Guarantee clauses - this is not agreed as our client will be paying the full 10% deposit. c. Insertion of clause to place a time period within the clause for the First Right of Refusal for the construction contract - this is simply to provide some certainty for both parties. d. FIRB - FIRB warranty applicable as at completion. ... Our client is making arranging [sic] to pay the balance of the deposit into your trust account today on account of "balance deposit monies". We have also signed a section 66W certificate waiving any cooling off period. Please contact us to discuss the arrangements for exchange (appreciating you will need to obtain instructions).
27. On the same day, UFG paid an additional $4,050,000, representing nine per cent of the purchase price, into HWLE's trust accountf. Apparently, Ms Chudleigh was proceeding on the basis that the one per cent "due diligence deposit" paid under the Letter Agreement was to count towards the ten per cent deposit required by the contract.
28. Following some further follow-ups, in the course of which Mr Jreige stated that HFW's draft had been forwarded to his client for instructions, Mr Jreige wrote to Ms Chudleigh on 19 May. The email stated: Apologies for taking a while to respond. We are instructed that our client does not wish to proceed with the sale of this property. We would like to arrange for the return of the holding deposit to you. Please provide us with the account details that you would like the funds to be transferred to.
29. UFG did not accept that Deicorp PA was entitled to withdraw. On the following day, 20 May, HFW responded: … We are writing in respect of your client's purported withdrawal from its agreement with our client, and the ramifications of your client's conduct regarding which our client reserves its rights at law. Background 1. A signed and dated Letter of Offer & Exclusive Due Diligence Agreement (Agreement) exists between our respective clients (via their nominee corporate vehicles). It is dated 26 April 2021. The Agreement provides, amongst other things, that our client has the exclusive right to conduct due diligence enquiries regarding the opportunity until 26 May 2021, being a period of 30 days from the date of the Agreement. 2. Our client confirmed due diligence was successfully completed on Monday 17 May 2021. Our client also confirmed it had received formal Board Approval on Monday 17 May 2021. 3. Under the terms of the Agreement, the parties "… must use all reasonable endeavours to agree the terms of a Contract for Sale …" and further, the parties agreed to "… the intent that the Contract for Sale will be available for execution and exchange upon the Purchaser's successful completion of due diligence." (our emphasis). 4. Only the purchaser has the right to reconsider or withdraw its offer under the Agreement at any time. This is expressly stated in the Agreement under the "Conditionality" heading. 5. The communication has been as follows: [The letter summarised the correspondence between the parties and their solicitors, beginning with the letter dated 23 April enclosing the Letter Agreement signed by Mr Lam (see [23] above).] Position of the Purchaser 6. In light of the above facts, it is our client's position that the parties had concluded the terms of the Agreement, and the parties were obliged to proceed with the negotiation of the contract based on the 'in principle' commercial terms as set out in the Agreement, and progress to exchange of contracts for the sale of the property to our client. 7. Misleading and Deceptive Conduct [The letter alleged that Deicorp PA had engaged in misleading or deceptive conduct, contrary to s 18 of the Australian Consumer Law (ACL), or unconscionable conduct, contrary to s 20 of the ACL, and reserved "our client's" rights under the ACL.] 8. Breach of contract a. Whilst the above represents our client's primary causes of action, it is also our client's position that the conduct identified stands in breach of the Agreement, namely, the obligation on your client to use all reasonable endeavours to agree the terms of the contract. b. The conduct of your client does not satisfy the standard required in connection with a party using "all reasonable endeavours". There is nothing in your client's behaviour or actions that suggests your client has use any endeavours at all to agree the terms of a contract other than to submit the form of contract on 5 May 2021. ... 9. Loss and damages ... c. But for your client's wrongful conduct, the transaction would have proceeded. While the full extent of our client's loss will need to be further quantified, it is estimated to be in millions of dollars when the loss of opportunity is considered. Offer 10. Notwithstanding that our client considers that it has a strong legal case as outlined above and is also surprised that your client would treat our client with such dishonour, our client wishes, at first instance, to approach the matter on a commercial basis, and is willing to consider avenues to reach a commercial resolution to the matter. Such avenue must include the entry into of the contract for the sale of the property at the agreed price. … 13. We are instructed that in full and final settlement of its claims, our client will: a. accept the form of contract as submitted to our office by your office on 5 May 2021 (including the provision of a guarantor and a sale that is subject to tenancy); and in addition will agree to: b. provide your client with a similar first right of refusal for construction head-contractor status on a project our client intends to secure in Turramurra; and c. consider other joint venture and/or first right of refusal arrangements for construction head contractor opportunities with your client in any upcoming projects our client may undertake. Our client reserves all rights to pursue legal remedies against your client if the above proposal is not accepted within 5 business days of the date of this letter.
30. There was no response within the five day period. On 27 May, Mr Jreige sent a letter to Ms Chudleigh which enclosed a cheque for the return of the holding deposit. It is unclear from the evidence whether the rest of the deposit was returned, and, if so, when. But it was not suggested by either party that was of any significance for present purposes.
31. Polytec A1 was then incorporated on 28 May. On 4 June HFW took the matter up again with HWLE. This produced a response on 15 June. HWLE contended that there were multiple disputed versions of the Letter Agreement and that, in any event, it was not a binding agreement for the sale of the land.
32. On 14 July, HFW wrote to HWLE stating: … The parties clearly take a different view of the facts and the relevant law with respect to this transaction which it seems will need to be resolved by a Court. As you are aware, our clients maintain that, upon the proper construction of the Letter of Offer & Exclusive Due Diligence Agreement dated 26 April 2021 (Letter of Offer), [Deicorp PA] granted an option to [UFG] to purchase the Property, at the price of $45,000,000, for and on behalf of a Special Purpose Vehicle to be named prior to completion and, in the events which have happened, [Polytec A1] was so named; the option was exercised; and your client is now obliged to specifically perform. For the avoidance of doubt, we are instructed by [Polytec A1] and its trustee, [UFG], that those companies hereby ratify and affirm the contract to purchase the Property for $45,000,000. In addition, to any extent that may be necessary, and without prejudice to the efficacy of any earlier exercise of the option, [Polytec A1], as the Purchasing Entity, and [UFG], as the party contracting for the benefit of [Polytec A1] in accordance with the Letter of Offer & Exclusive Due Diligence Agreement dated 26 April 2021, hereby re-exercise the above option and indicate that they are ready willing and able to perform. …
33. There appears to have been no response to this letter. No mention was made at any point of Mr Deiri not having signed the Letter Agreement. This allegation was not made until 3 September, after the proceedings had been commenced, when it was raised in Deicorp PA's defence.

Due execution of Letter Agreement

1. The only factual issue in dispute at the hearing was whether the signature on the Letter Agreement purporting to be that of Mr Deiri was actually his. The plaintiffs' main lay witness on this question was Mr Chu. The plaintiffs also called evidence from Mr Lam and Mr Ji, both of whom were cross-examined, but it is not necessary to say anything more about their evidence.
2. Mr Chu was placed in a difficult position by the dispute. He appears to have had a lengthy business relationship with Mr Deiri prior to April last year, and that relationship has continued since. Indeed, Mr Chu was, at the time of the hearing, continuing to act for Deicorp PA on the very development which is the subject of these proceedings.
3. Mr Chu was unwilling to swear an affidavit for the plaintiffs in the proceedings. Instead, he was subpoenaed to give evidence and an outline of his expected testimony was served on the solicitors for Deicorp PA.
4. In his oral evidence, Mr Chu said that, after receiving the Letter Agreement attached to Mr Ji's email at 12.03 pm on 23 April, he took it down to Mr Deiri's office and obtained Mr Deiri's signature on it. At the same time, he obtained Mr Deiri's signature on an Agency Agreement appointing his firm as agent for the sale. Mr Chu's best recollection was that the signature had been obtained in the "mid to late afternoon" of 23 April.
5. Mr Chu was subjected to a strenuous cross-examination. The cross-examination focused largely on collateral matters of credit. Counsel put to Mr Chu that in the course of his negotiations with Mr Ji, he actively worked against the interests of his supposed client, Deicorp PA. Counsel alleged that Mr Chu withheld from his client information which suggested that a higher price could be obtained for the properties, and actively worked to persuade Mr Deiri to accept a lower price in the interests of getting a sale, and his commission. Mr Chu denied this; he said that it was Mr Deiri's choice to accept the $45 million with a three month settlement, apparently because of financial considerations which at the time made it desirable to obtain the money as quickly as possible.
6. During cross-examination, Mr Chu maintained that Mr Deiri signed the Letter Agreement and that he did so on the afternoon of 23 April. When asked why he did not send the Agreement as signed to Mr Ji until Monday, he said that he had meetings all afternoon which meant that he had no time to scan and send it.
7. In the course of preparation for the trial, Mr Chu produced the original Letter Agreement and the original Agency Agreement bearing Mr Deiri's purported signatures. These documents were examined by a forensic document examiner qualified on behalf of the plaintiffs, Ms Melanie Holt. Ms Holt was also provided with specimen signatures of Mr Deiri which were agreed to be genuine. She produced a report for the purposes of the proceedings in which she concluded that there was "very strong support" for the proposition that the signature on the Letter Agreement was genuine.
8. An affidavit in response was filed on behalf of Mr Deiri. But when it came for him to be cross-examined, the affidavit was not read and Mr Deiri was not called.
9. The only evidence from Deicorp PA on the issue came from Mr Paul Anthony Cutcliffe. Mr Cutcliffe is a real estate agent who has dealt with Mr Deiri since October 2020. His evidence was that, on the afternoon of Friday 23 April last year, he showed Mr Deiri a property at Wilberforce (near Windsor, north-west of Sydney). The inspection began at 3.00 pm and lasted for half an hour. Wilberforce is about an hour by car (which is how Mr Deiri travelled) from Deicorp Group's headquarters in Redfern. Mr Cutcliffe's evidence was not disputed and he was not required for cross-examination.
10. Counsel for Deicorp PA submitted that I should not be satisfied that Mr Deiri signed the document in the circumstances Mr Chu described, whether on Friday 23 April, or at some later point before Mr Chu returned a copy, apparently signed, to Mr Ji the following Monday. Counsel was severely critical of Mr Chu's credit. Counsel acknowledged that Mr Deiri had not given evidence, but contended that a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298) did not assist the plaintiffs. Such an inference could not be used to remedy deficiencies in the plaintiffs' case.
11. In evaluating this submission, I will start with the objective circumstantial evidence. In my view, three points stand out.
12. First, there is the earlier version of the Letter Agreement which bears Mr Deiri's amendments and signature and was signed on Thursday 22 April. As I have stated, the genuineness of that signature is not in dispute. The terms of that version of the Letter Agreement (a price of $45 million and a settlement period of three months) are reflected in the final version of the Letter Agreement. If Mr Deiri was prepared to sign an agreement in those terms, there is no reason to think that he would not have signed a restatement of the terms only a day or so later.
13. Second, there is the circumstance that, following the alleged signature, the terms of the Letter Agreement were put into effect by Deicorp Group's management and lawyers. Mr Soliman handled the due diligence and Mr Jreige handled the legal side of the transaction. Mr Jreige had been provided with an actual copy of the Letter Agreement in its purportedly signed form. It is very difficult to accept that either Mr Soliman or Mr Jreige would have done what they did if in fact Mr Deiri had not signed the Letter Agreement. Clearly, they were acting on instructions which came, directly or indirectly, from Mr Deiri himself.
14. A third, and related, point is that the denial of Mr Deiri's signature was belated. It did not find its way into HWLE's correspondence in May, June or July responding to the plaintiffs' claims. It did not emerge until after the proceedings had begun.
15. The plaintiffs' case is also supported by the expert evidence in Ms Holt's report. In cross-examination, counsel for Deicorp PA obtained Ms Holt's agreement to two propositions. The first was, in general, the more complex a signature is the more difficult it is to forge. The second was that Mr Deiri's signature was only moderately complex. But this is as far as the cross-examination went.
16. This did not, I think, take counsel very far. Ms Holt's evidence was that a highly complex signature may be almost impossible to forge. It does not follow from the evidence she gave that, as a less complex signature, Mr Deiri's was easy to forge. And none of the rest of her analysis was addressed at all. In my view, the cross-examination left Ms Holt's report essentially untouched.
17. This brings me to Mr Chu's evidence. The first point to make is that his evidence is entirely consistent with the probabilities which emerge from the objective circumstances. Mr Chu would have known that further action from Mr Soliman and from Deicorp's lawyers would be required to complete the sale. For him to have forged Mr Deiri's signature would have been an astonishingly reckless and foolish act.
18. This point goes even further. There was no apparent reason why Mr Chu, having been sent the Agreement by Mr Ji, would have thought that Mr Deiri would not have been willing to sign it, and would therefore have forged it without ever approaching him. Logically, one is forced to the hypothesis that Mr Chu approached Mr Deiri for his signature and Mr Deiri declined. This was not put to Mr Chu, and it makes the idea of Mr Chu forging the signature even more far-fetched.
19. As there may be further litigation involving Mr Chu (a possibility foreshadowed in the course of the hearing), it would be undesirable for me to go in any detail into the allegations made against Mr Chu's credit by counsel in cross-examination and final submissions. In any event, I do not think that is necessary to resolve the factual issue in this case.
20. It is enough to make two points. First, counsel's allegations were gravely damaging to Mr Chu and the cross-examination fell far short of convincing me that they were sustained. Second, I cannot see any sufficient connection between those allegations and the issue for determination in these proceedings. Even if Mr Chu did sell Deicorp PA short in his dealings with Mr Ji out of an eagerness to obtain the sale, that provides, to my mind, no reason to think that he would have lied about Mr Deiri signing the Letter Agreement.
21. In these circumstances, I do not accept the submission from counsel for Deicorp PA that there is no relevant Jones v Dunkel inference. I accept, of course, that such an inference can only be used to reinforce a finding which is otherwise founded in the evidence before the Court; it cannot otherwise fill a gap in the plaintiffs' case. But I think there are clear foundations for the necessary finding elsewhere in the evidence.
22. Had none of the witnesses been available, I think that there would have been a strong inference from the sequence of the correspondence, and especially Mr Deiri's signature on the previous version of the Letter Agreement, and the subsequent conduct of Mr Soliman and Mr Jreige, that the signature was genuine. Furthermore, there is the expert evidence of Ms Holt. There is also the evidence of Mr Chu himself.
23. In my view, the failure to call Mr Deiri to deny the signature gives rise to an extremely strong inference that his evidence would not have assisted Deicorp PA's case. There is also the fact that no evidence has been called to explain the conduct of Mr Soliman and Mr Jreige.
24. I must say that I am less sure about the timing of the signature. Mr Chu insisted that Mr Deiri signed the earlier version of the Letter Agreement on Wednesday 21 April, but the sequence of the WeChat messages and emails on the following day appear to show clearly that Mr Chu obtained Mr Deiri's signature on that document on Thursday 22 April. I also find Mr Chu's explanation for failing to email the signed version of the Letter Agreement back to Mr Ji on Friday 23 April somewhat difficult to accept when Mr Chu had time to send emails to Mr Soliman and Mr Ji at 3.57 pm and a further email to Ms Chudleigh at 6.11 pm.
25. Mr Cutcliffe's evidence establishes that Mr Deiri could not have signed the Letter Agreement on 23 April between about 2.00 pm (which is when he must have left the Redfern office, at the latest) and about 4.30 pm (which is the earliest he could have returned to the office). If he signed before 2.00 pm, I find it hard to understand why Mr Chu's email of 3.57 pm did not attach the signed version but rather attached the superseded signed version from the previous day. And there is no evidence that Mr Deiri did actually return to the office after 4.30 pm.
26. Clearly, however, by 3.57 pm, Mr Chu believed that the transaction was going ahead. I think the most plausible explanation is that, having received confirmation from Mr Ji that Mr Deiri's terms were acceptable, Mr Chu overlooked the requirement to sign the final version of the letter or regarded it as a formality, and only obtained Mr Deiri's signature on Monday. But whatever the explanation may be, I am comfortably satisfied that the signature is a genuine one.

Contractual claim under Letter Agreement

1. It was common ground that the parties to the Letter Agreement intended to create legal relations between them. It was also common ground that there was consideration moving from both sides. It followed that insofar as the Agreement included obligations which were not controversial in form (for example, the obligation on Deicorp PA not to deal with other parties during the due diligence period), those obligations were enforceable. What was in issue was whether this extended to the obligation to use reasonable endeavours to agree the terms of a contract of sale.
2. It is convenient to deal with the argument in four stages. First, what was the content of the reasonable endeavours obligation, as a matter of construction of the Agreement? Second, was the obligation contractually enforceable? Third, was that contractual entitlement displaced by the option provisions of the Conveyancing Act? Fourth, was the obligation breached and what relief is available?

Construction

1. I have already referred to the header and signature areas of the Letter Agreement. I set out the body of the Agreement (which was in tabular form) below: Transaction Acquisition of the land known as XX PARTRIDGE AVE & XX ASHFORD AVE CASTLE HILL … (the "Property") Purchasing Entity Special Purpose Vehicle entity name to be provided prior to the completion of Due Diligence. Contract Type Standard contract Purchase Price $45,000,000 inclusive of GST if applicable (Properties are existing residential so GST free) 30 days exclusive due diligence period required to complete:- Exclusive DD Period 1. Conduct detailed due diligence including but not limited to site survey to confirm current DA, land title and area, geotechnical & contamination site investigations, town planning and architectural analysis. 2. If the purchaser is unable to complete due diligence within 30 days on account of any circumstances related to the COVID-19 pandemic, it provides for an extension of due diligence period up to an additional 30 days (or another specified period) without penalty. Due Diligence Deposit 1.00% of Purchase Price Refundable Due Diligence fee to be payable at the commencement of the Due Diligence period. This 1.00% DD fee is payable to the vendors solicitor trust account and fully refundable should the purchaser elect not to proceed with the acquisition. Deposit 10.00% payable upon the exchange of contracts Settlement 3 months after the date of exchange of contract. If either the purchaser or seller is unable to close the transaction on account of any circumstances related to the COVID-19 pandemic, it provides for a postponement of closing up to 30 days (or another specified period) without penalty. Site Access Following acceptance of this offer, the purchaser and its consultants will be granted access to the Property in order to complete due diligence investigations upon request being made. Costs Each party must pay its own legal fees and other costs in relation to the transaction. Confidentiality All details of the negotiations regarding this transaction are to be kept strictly confidential by both parties. The Vendor agrees to deal exclusively with the purchaser and will not deal with or sell to any other parties whatsoever during the exclusive due diligence period. Conditionality The parties must use all reasonable endeavours to agree the terms of a Contract for Sale and any other ancillary documents to be prepared by the Vendor's solicitor to the intent that the Contract for Sale will be available for execution and exchange upon the Purchaser's successful completion of due diligence. This expression of interest must not be construed to be a legally binding offer until the purchaser satisfactorily negotiates and completes legal documentation and secures Board Approval. The purchaser reserves the right to reconsider or withdraw its offer at any time. Purchasers Solicitor To be advised.

1. It was not suggested by either counsel that the terms of any of the previous communications between Mr Chu and Mr Ji cast any light on the interpretation of the Letter Agreement. In particular, no such suggestion was made about the covering email addressed to Mr Deiri which accompanied the Letter Agreement when it was sent at 12.03 pm on 23 April (see [23] above). Presumably, that was because there was no evidence that Mr Deiri was actually privy to that covering email or any of the prior communications. The construction task must therefore be carried out within the four walls of the Agreement itself.
2. Counsel for Deicorp PA criticised the "do-it-yourself conveyancing" in the Agreement. Three particular points emerged.
3. The first centred on the reference to the "purchaser". The "Purchasing Entity" would not necessarily be known until the end of the due diligence period. That Entity could not, on the face of it, be the "purchaser" for the purpose of clauses taking effect from the beginning of the due diligence period, such as the clause conferring an entitlement on the "purchaser" to inspect the properties. On the other hand, once nominated, the Purchasing Entity was apparently the "purchaser". Counsel submitted that the Agreement was hopelessly confused on this point.
4. Secondly, counsel submitted that there was uncertainty about the deposit provisions. The so-called due diligence deposit was described in the text under that heading as a "fee". There was nothing, counsel submitted, to support Ms Chudleigh's assumption that it should be deducted from the "deposit" which was specified as ten per cent of the purchase price.
5. Thirdly, counsel drew attention to the language under "Conditionality" which referred to "[t]his expression of interest" not being construed as "a legally binding offer" and referred to the "purchaser" withdrawing "its offer at any time". Counsel submitted that this was not the language of contractual obligation. Deicorp PA was therefore not bound to proceed.
6. As counsel for the plaintiffs freely accepted, the drafting criticisms were fully justified. But despite the language difficulties, under "site access" the Agreement referred to Deicorp PA's "acceptance of this offer". UFG's representatives went to the trouble of obtaining Mr Deiri's signature on behalf of Deicorp, and, as already stated, it was common ground that the parties intended to create legal relations. In my view, it is necessary to try to give effect to the Agreement, if that can be done, despite the ineptitude of its expression: WN Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 (HL) at 514 per Lord Wright.
7. In the course of argument, counsel for Deicorp PA himself described the Letter Agreement as having involved "two quite distinct transactions". In my view many of the difficulties fall away if this analysis is adopted. The Agreement was executed by UFG and Deicorp PA. During the due diligence period they were the parties bound by the obligations recorded in it. That included an obligation to use all reasonable endeavours to agree the terms of a contract of sale. If agreement were reached, and contracts were exchanged, a new contract would come into existence between the Purchasing Entity as purchaser and Deicorp PA as vendor. This was perfectly workable because the Purchasing Entity had to have been identified before the end of the due diligence period, which was the period allowed for the preparation of the contract.
8. On this analysis, references to the "purchaser" in the Agreement are generally references to UFG. An exception is the provision under "settlement" for postponement of "closing" on account of the Covid-19 pandemic. This provision governed something which was to happen after exchange (and was presumably to be incorporated into the terms of the contract of sale). As such, the "purchaser" had to be the Purchasing Entity. There is no difficulty in reading the term "purchaser" differently in different clauses if that is what the context requires.
9. The deposit provisions were indeed somewhat awkward. The one per cent "due diligence" deposit had to be payable by UFG and the ten per cent deposit was to be paid by the Purchasing Entity (again, presumably, in accordance with the terms of the contract). However, despite the reference to a "fee", the "due diligence deposit" seems to have been a true deposit. It was expressly refundable if the "purchaser" (UFG) decided not to proceed. An entitlement to a refund in such circumstances would be difficult to reconcile with some sort of service fee payable to Deicorp PA for agreeing to deal exclusively with UFG during the due diligence period, and for providing the due diligence information to UFG. It would seem to follow that the "due diligence deposit" could not have been retained by Deicorp PA as a fee if the transaction went ahead.
10. The contract for sale as ultimately negotiated would, of course, contain terms dealing with the payment of the deposit, including any earlier holding deposit. It is not necessary to determine whether the Letter Agreement implicitly required for the contract to provide for the holding deposit paid by UFG to be credited against the deposit payable by the Purchasing Entity. At worst from the plaintiffs' point of view, the Purchasing Entity would be obliged to pay the full ten per cent deposit and UFG would have to claim the holding deposit back.
11. Against this background, I can now deal with the critical three paragraphs under the "conditionality" heading. For convenience, I set out those paragraphs again below: The Vendor agrees to deal exclusively with the purchaser and will not deal with or sell to any other parties whatsoever during the exclusive due diligence period. The parties must use all reasonable endeavours to agree the terms of a Contract for Sale and any other ancillary documents to be prepared by the Vendor's solicitor to the intent that the Contract for Sale will be available for execution and exchange upon the Purchaser's successful completion of due diligence. This expression of interest must not be construed to be a legally binding offer until the purchaser satisfactorily negotiates and completes legal documentation and secures Board Approval. The purchaser reserves the right to reconsider or withdraw its offer at any time.
12. There is no difficulty with the first paragraph. The parties agree that the obligation not to deal with anyone else during the due diligence period was a legally enforceable obligation on Deicorp PA. During that period, Deicorp was obliged to deal exclusively with UFG as the "purchaser".
13. The second paragraph imposed a mutual obligation on the parties (but, in UFG's case, subject to the third paragraph, which I deal with below) to "use all reasonable endeavours to agree the terms of a Contract for Sale and any other ancillary documents". The documents were to be prepared by the solicitor for Deicorp PA and "be available for execution and exchange" at the end of the due diligence period.
14. In my view, this language is significant. It was Deicorp PA which had to prepare the contractual documents. This included an obligation to make those contractual documents "available for execution and exchange". This had to mean execution and exchange by the Purchasing Entity, at which point a contract would come into existence. That meant that Deicorp not only had to prepare the contractual documents, but also had to proffer an executed counter-part so that exchange could take place. In effect, Deicorp's obligation was to make an offer to the "Purchasing Entity" in the form of contractual documentation agreed with UFG.
15. In the third paragraph, it is convenient to deal first with the second sentence. The phrase "at any time" covered the whole of the due diligence period. The "purchaser" who might withdraw "at any time" had to be UFG because the Purchasing Entity would not necessarily have been nominated by then (see [77] above). The "offer" which might be reconsidered or withdrawn was an offer by UFG to purchase the properties (strictly speaking, to procure the purchase by the Purchasing Entity of the properties) for $45 million.
16. In this context, the reference in the first sentence to the "expression of interest" not being construed as a "legally binding offer" is best understood as a clumsy way of saying that UFG's "offer" in the second sentence was not an offer capable of acceptance until the due diligence period had ended, the contract had been prepared and was ready for exchange, and "board approval" had been obtained. I think that, in referring to "board approval", the drafter of the Letter Agreement probably intended to refer to UFG's board, or perhaps even KDC's. Counsel for Deicorp PA however submitted that as a matter of construction the phrase had to refer to the Purchasing Entity's board, because it was the party which was to undertake the purchase. This may, strictly speaking, be correct, but I do not find it necessary to decide the question; for practical purposes, it does not appear to make any difference.
17. In my view, there is nothing in these three paragraphs, or in the balance of the Agreement, to support the submission that Deicorp PA was entitled to withdraw from the negotiations at any time. It was Deicorp which had accepted "this offer" and the reference to withdrawal was limited to UFG as "purchaser". In my view, clumsy and confusing as the language is, it still on its true construction purported to impose an obligation on Deicorp to use all reasonable endeavours to agree the form of a contract of sale, and, upon agreement, to execute a counter-part and make that counter-part available for exchange.

Enforceability

1. Counsel for the parties argued the enforceability question around two judgments of the Court of Appeal. Those decisions were Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 and United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618.
2. Coal Cliff concerned a proposed coal mining joint venture for exploitation of a coal mining application owned by the second plaintiff and which was the subject of certain exploration information owned by the first plaintiff. The first and second plaintiffs (which were related) executed a document styled "Heads of Agreement" with the first and second defendants (which were also related, and carried on an existing coal mining business nearby).
3. The critical clause in the Heads of Agreement obliged the parties to "proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture agreement (and any other Agreements) which when approved and executed will take the place of these Heads of Agreement". But this was not to prejudice the "full and binding effect of what is now agreed".
4. The Heads of Agreement contained provisions outlining the features of the joint venture agreement. Those provisions contemplated that the first defendant would purchase the first plaintiff's exploration information for $1.65 million, payable by instalments (but with the amount payable and the instalment amounts being re-calculated when the agreement was executed, to take effect of movements in the CPI). The first defendant was also to enter into a joint venture with the second plaintiff to explore and develop the coal prospect the subject of the first plaintiff's application. If permission to do so did not eventuate, the joint venture was to conduct a program of exploration and development, "in similar terms", of some other coal prospect.
5. Following the execution of the Heads of Agreement, which itself had involved negotiation between the parties' solicitors over an extended period of time, there were further negotiations on the terms of the formal joint venture agreement which went on for three and a half years. There was then a change in the person responsible for the negotiation on the defendants' side which resulted in a new, more hard-nosed, approach by them. Eventually, after several further months the negotiations were broken off.
6. At first instance, Clarke J held (Sijehama Pty Ltd v Coal Cliff Collieries Pty Ltd (Supreme Court of New South Wales, Clarke J, 10 August 1987)) that the Heads of Agreement had created a binding and enforceable contractual obligation to negotiate in good faith, which had been breached by the defendants. After a later hearing his Honour awarded damages to the first plaintiff (Sijehama Pty Ltd v Coal Cliff Collieries Pty Ltd (Supreme Court of New South Wales, Clarke JA, 7 March 1989)). The damages were assessed by reference to the $1.65 million figure for the sale of the exploration information contemplated by the Heads of Agreement, but discounted to reflect the loss of a chance. The eventual figure was $1.2 million.
7. The defendants appealed before the second plaintiff's damages were assessed. The Court of Appeal (Kirby P, Handley JA and Waddell AJA) upheld the appeal and Clarke J's judgment was set aside.
8. Kirby P, with whose reasons Waddell AJA "generally" agreed, gave the leading judgment. His Honour acknowledged the difficulty, if an obligation to negotiate in good faith were enforceable, of determining what contract would in fact have resulted. This might mean that, even if breach were established, damages would only be nominal. On the other hand, it might be possible to award damages for loss of a chance if the opportunity to negotiate had an economic value (at 25E-F).
9. In the end his Honour rejected the proposition that no promise to negotiate could ever be enforceable. However, not every promise of this type was necessarily enforceable. Whether it would be enforceable depended on the terms of the agreement in question and the other circumstances of the case. In "a small number of cases", if there were a "readily ascertainable external standard" the Court might be able to fill out otherwise vague, uncertain or illusory terms (at 27A). In other cases, depending on the circumstances, that might not be possible (at 27B). On the facts, the agreement before the Court fell into the latter class (at 27C).
10. Handley JA took a different view on the issue of principle. His Honour considered that an agreement to negotiate to be an illusory contract. Negotiations between commercial parties take place at the parties' discretion, and the speed and content of the negotiations likewise are matters for the parties' discretion (at 41G-42A). There were in his Honour's view no legal criteria by which the Court could determine whether a particular negotiating position (including a refusal to negotiate) had been taken in good faith (at 43B).
11. The later decision in United Group concerned a dispute resolution clause in a contract for the design and construction of rolling stock. The clause adopted a dispute resolution procedure beginning with the giving of a notice of dispute or difference. All disputes were to pass through three stages. The first was negotiation between the parties. The second was mediation. The third was arbitration. Some disputes were to go through a process of expert determination before passing through those three stages if the determination was not accepted.
12. Sub-clause 35.11 relevantly provided that: … the dispute or difference is to be referred to a senior representative of each of the Principal and Contractor who must: (c) meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and (d) if they cannot resolve the dispute or difference within 14 days … the matter at issue will be referred to the Australian Dispute Centre for mediation.
13. Sub-clause 35.12 went on to provide that if the dispute was not resolved by negotiation or mediation, it was to be referred to arbitration.
14. A number of disputes arose under the contract. Some had to undergo expert determination and others proceeded immediately to negotiation. The parties nominated senior representatives in accordance with sub-clause 35.11(c). A meeting took place which did not result in agreement.
15. It was agreed that the mediation provision (sub-clause 35.11(d)) was void for uncertainty, because the institution which was to appoint the mediator, the "Australian Dispute Centre", did not actually exist. The issue for determination by the Court was whether the disputes should proceed to arbitration.
16. The contractor contended that they should not. It was argued that the arbitration sub-clause was not severable and the failure of the mediation clause meant that it failed. It was also argued that, although some negotiations had already taken place under sub-clause 35.11(c), that provision was also unenforceable and this too brought down the arbitration sub-clause.
17. At first instance, Rein J concluded that the negotiation provision was not invalid. In any event, the arbitration sub-clause was severable. The disputes were therefore referred to arbitration.
18. On appeal, the leading judgment was given by Allsop P, with whom Ipp and Macfarlan JJA agreed. On the validity of the negotiation clause, Allsop P rejected the point made by Handley JA in Coal Cliff (and in other authorities) about negotiations taking place at a party's discretion. Usually this may be so, but parties may promise to negotiate in a way which limits that discretion, just as they may promise to do anything else which limits their freedom to act as they please. The existence of discretion could not, therefore, be an answer to the enforceability of the promise (see at [65], [68]).
19. Allsop P emphasised that the notion of good faith is a familiar one in the law. He also emphasised that the clause in question was a dispute resolution clause. This meant that the parties were negotiating a resolution of a dispute according to a "fixed body of contractual rights and obligations". That was a distinction "of great importance" from the facts of Coal Cliff (see at [69], see also at [78]).
20. His Honour summarised his reasoning at [74]: … a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. It may be comprised of wide notions difficult to falsify. However, a business person, an arbitrator or a judge may well be able to identify some conduct (if it exists) which departs from the contractual norm that the parties have agreed, even if doubt may attend other conduct. If business people are prepared in the exercise of their commercial judgement to constrain themselves by reference to express words that are broad and general, but which have sensible and ascribable meaning, the task of the Court is to give effect to, and not to impede, such solemn express contractual provisions. It may well be that it will be difficult, in any given case, to conclude that a party has not undertaken an honest and genuine attempt to settle a dispute exhibiting a fidelity to the existing bargain. In other cases, however, such a conclusion might be blindingly obvious. Uncertainty of proof, however, does not mean that this is not a real obligation with real content.
21. His Honour went on to uphold Rein J's conclusion that the arbitration clause did not fail because of the invalidity of the referral to mediation. His Honour said that had he concluded that the negotiation obligation was invalid, that too would have been severable and the proceedings would still have been referred to arbitration. The appeal was dismissed.
22. In the course of argument, I invited the parties to identify any decisions where the issue had been considered in the context of a claim for specific performance of, or damages for breach of, an agreement to negotiate toward a formal contract. No such authorities were referred to at the hearing. But following the hearing, counsel for the plaintiffs drew my attention to the decision of McDougall J in Crown Sydney Property v Barangaroo Delivery Authority [2018] NSWSC 1931.
23. That case concerned the development of the Barangaroo precinct to the west of Sydney's Central Business District. The land was owned (or at least controlled) by a State instrumentality, the Barangaroo Delivery Authority. The development was controlled by a Concept Plan. The Authority had already entered into agreements with two developers ("Crown" and "Lendlease") for each of them to construct buildings on the southern part of the site. Further developments were to take place on the central part of the site. Crown and Lendlease were concerned about the effect of those developments on the "sight lines" (harbour views) from their buildings.
24. The Authority's contracts with Crown and Lendlease were relevantly in the same terms. The contracts acknowledged that the "sight lines" were of "critical importance" to Crown and Lendlease. The clause in question was as follows: Prior to considering or approving any application which provides for development different to that provided for in the Concept Plan Approval (as at the date of this deed) as it relates (in part or in whole) to Central Barangaroo, the Authority will discuss and negotiate in good faith with [Lendlease] and Crown equally to agree any changes to that application so as to retain the sight lines …, while at the same time optimising the development opportunities for Central Barangaroo.
25. McDougall J considered that the commercial purpose of the clause was to give Crown and Lendlease "a seat at the table" if some alteration to the Concept Plan was in prospect. There was a dispute about how and when, as a matter of construction of the clause, the obligation to negotiate was triggered. But it was conceded by the Authority that if his Honour concluded (as he did) that the Authority's construction of the clause was incorrect, it had breached its obligation.
26. As to relief, it was apparent that the Authority accepted that, if it had failed to comply with its negotiation obligations, it should do so. McDougall J therefore only had to make a declaration of breach. No question of granting a mandatory injunction, or awarding damages, arose.
27. Returning to the two Court of Appeal decisions at the centre of the argument, counsel for Deicorp PA emphasised that the actual issue for decision in United Group was whether the parties were required to proceed to arbitration of their disputes (as opposed to the disputes being determined through the courts: see Allsop P at [22]). The decision did not involve actually enforcing clause 35.11(c) in the sense of ordering the parties to negotiate a solution to their disputes. And given the finding on severance, the conclusion that the negotiation clause was enforceable was not necessary for the Court's ultimate decision.
28. I accept that, strictly speaking, this is so. Nevertheless, the decision represents a unanimous and unmistakeable preference, expressed at Court of Appeal level, for the reasoning of Kirby P over that of Handley JA in Coal Cliff (which is probably binding on me anyway because of the concurrence by Waddell AJA in Kirby P's reasons). I must therefore proceed on the basis that an obligation to negotiate may be contractually enforceable.
29. But that does not mean that every agreement to negotiate gives rise to an enforceable contractual obligation. Whether it does so or not requires a case-by-case analysis. The actual decision in Coal Cliff was not affected by United Group. That was accepted by counsel for the plaintiffs.
30. In the present case, I am dealing with an obligation to negotiate the terms of a contract for the sale of the properties in question. It is not an agreement to negotiate a settlement of a dispute in accordance with the parties' legal rights and obligations. I have already noted how critical that distinction was to the reasoning in United Group.
31. It is notable that I was not referred to any decision involving an agreement to negotiate where the court found that a contract in a particular form should have been agreed, and ordered specific performance of that contract. Nor, apart from the first instance decision in Coal Cliff, which was overturned, was I referred to any decision where substantial damages were ordered for breach of such an agreement.
32. The decision in Crown certainly did not go so far. There seems to have been no dispute in that case on the part of the Authority that the obligation to negotiate was binding. This, perhaps, is not surprising given the Authority's status as an organ of the State government. Although the obligation was contractual in that case, it was the sort of obligation which might well have been imposed on a consent authority by planning instruments. The Authority clearly saw no difficulty with a declaration that it was, in effect, required to undertake such negotiations, and that was as far as the decision went.
33. Nevertheless, I think that the present state of authority in the Court of Appeal requires me to give whatever force I can to the negotiation obligation in the Letter Agreement. That obligation was to use "all reasonable endeavours" to agree. The standard is a purely objective one. Complications which might arise from a standard based on good faith do not need to be considered.
34. I have already explained why I consider that the obligation to use all reasonable endeavours to agree a contract for sale in the present case required Deicorp PA to make an offer. It also required Deicorp to respond to any counter-offer, either by agreeing with its terms or by making a further offer. The offers which Deicorp was obliged to make also had to be consistent with the elements which had been agreed in the Letter Agreement, such as the price and the settlement period.
35. Of itself, this did not necessarily carry any obligation to put forward particular terms. Reasonableness might permit Deicorp, in the face of a counter-offer, simply to hold its ground by re-offering the same terms initially proposed. But Deicorp was required, subject to having a reasonable opportunity to obtain any necessary legal advice and reflect on the terms to be proposed, to put and keep an offer in play.
36. It seems to me that there is no difficulty in principle with the Court having to decide whether a party subject to such an obligation has met the standard of reasonableness. Whether a complying offer has been made is a question of fact, perhaps involving issues of construction. The only other question which may arise is whether the party has had sufficient time to make an offer, or to respond to a counter-offer with a further offer. I see no reason why that cannot be determined objectively by reference to the relevant circumstances. It is no different in principle from the question which sometimes arises as to whether a particular contractual step has been taken within a reasonable time.
37. But it is a much more difficult question whether the Court can go on and find that reasonableness required the making of an offer in particular terms. In Coal Cliff, Handley JA stated that this Court, as the successor to the Court of Chancery, has been accepted as having sufficient experience to settle for itself the subordinate terms of certain types of contract: see at 38B-C. But counsel for the plaintiffs did not rely upon this in the present case. Even if the "standard contract" referred to in the Letter Agreement was the Law Society standard form contract for the sale of land, the parties quite clearly contemplated that special conditions would be negotiated. That is quite understandable, given the size and potential commercial complexity of the transaction.
38. The special conditions to be negotiated in the present case may not be as unfamiliar to the Court as the terms of the coal joint venture in Coal Cliff were. But I think that they still raised commercial considerations with which the Court could not be presumed to be familiar. And such commercial considerations would not necessarily admit of a single, objectively "correct", wording of the contract. As I discuss in more detail below, this case illustrates that fact. There is simply no relevant "known body of rights and obligations" or "readily ascertainable external standard" available to the Court to determine what the offer should have been.
39. In my view, the only part of the negotiation obligation in the Letter Agreement with contractually enforceable content was the obligation to make, and keep in play, an offer. To treat the obligation as prescribing the content of the offer would be a step too far.

Conveyancing Act option requirements

1. Counsel for Deicorp PA pointed out that, in the plaintiffs' own statement of claim, they allege that the effect of the Agreement and subsequent events was that Deicorp granted an "option" over the properties which was exercised by UFG "on behalf of" Polytec A1 by HFW's letter of 14 May (see [32] above), or alternatively HFW's letter of 14 July (see [44] above). Counsel submitted that, if contractually enforceable, this "option" (or, as it was termed in the alternative in the plaintiffs' statement of claim, "right to elect") fell foul of the requirements imposed by Division 9 of Part 4 of the Conveyancing Act with respect to options for the purchase of "residential property".
2. Counsel advanced three contentions. First, the option created by the Letter Agreement was invalid because it was exercisable within the 42 day period specified in s 66ZG. Second, there were not attached to the Agreement the documents required by s 66ZI (which include a copy of the proposed contract and the attachments required by s 52A). Third, the Agreement did not contain a statement relating to the cooling-off period required by s 66ZH.
3. Counsel for the plaintiffs submitted that none of these requirements was applicable. This was because the Agreement was not an "option" for the purposes of Division 9, and, further, the subject matter of the option was not "residential property" for the purposes of that Division.
4. The term "option" is not defined in the Conveyancing Act. In the Duties Act 1997 (s 106) a "call option" is defined as meaning "a right to require a person to sell … property that is conferred by an agreement or arrangement". I think that this accords well enough with the usual meaning to be suitable for present purposes, in the absence of a specific statutory definition.
5. The critical element in the definition is the word "right". The Agreement, as I have interpreted it, in effect required Deicorp PA to make an offer to the "special purpose vehicle" named by UFG. In that sense, it resembled an option. But the obligation was not absolute; it was to use "all reasonable endeavours". Compliance on Deicorp's part would not necessarily result in an offer actually being made.
6. Counsel for Deicorp PA pointed out that an option may be conditional. Certainly, the exercise of an option may be conditional, in the sense that contingencies may have to be satisfied before it can be exercised. But in such a case there is still, from the outset, an offer or engagement to sell, even if contingent. In the present case, that offer or engagement might never arise. In my view, the Agreement was not an "option" for the purposes of Division 9.
7. Counsel for Deicorp PA noted that the Agreement itself described the subject matter of the sale as being "residential" land, with the notation that GST did not apply. But whether that is so or not for the purposes of GST legislation, for the purposes of Division 9 there is an express definition (s 66Q in Division 8, which is applied to Division 9 by s 66Z). The definition relevantly states: (1) For the purposes of this Division, residential property is - (a) land on which are situated (or in the course of construction) not more than two places of residence, and no other improvements, or (b) vacant land on which the construction of a single place of residence alone is not prohibited by law …
8. I was not taken to any authority on the interpretation of this definition. I do not doubt that each of the ten properties which make up the parcel of land the subject of the Agreement would, considered on its own, be a "residential property" for the purposes of s 66Q. But in my view, the definition must be applied by reference to the parcel as a whole. The Agreement related to that parcel; it did not allow for the plaintiffs to purchase any of the properties individually. Taken as a whole, the land had more than one residence on it. It therefore did not satisfy the definition.
9. For these reasons, Deicorp PA's reliance on the provisions of Division 9 of Part 4 of the Conveyancing Act fails. Those provisions do not prevent the enforcement of the Agreement.

Breach

1. It will be recalled that HFW's letter of 14 May purported to terminate the due diligence period and to require Deicorp to proceed immediately to exchange of contracts on the terms of HFW's draft which was enclosed with that letter. Counsel for Deicorp PA submitted that, even if the Letter Agreement were enforceable, there was no obligation to exchange on those terms.
2. Counsel's first point fastened on the nomination of Mr Lam as purchaser, purportedly as trustee for Polytec A1, a company which did not then exist. Counsel submitted that this was meaningless and invalid. It was not possible to have a trust in favour of a non-existent entity. The purported ratification of 14 July did not work either, but in any event it came too late.
3. Furthermore, counsel submitted that it was impossible for the Court to be satisfied that Deicorp's obligation under the Agreement required it to accept the contract in the form presented by UFG. The reasonableness of UFG's terms was not self-evident. There was no obligation to accept them just because UFG put them forward.
4. I think counsel's points are well taken. The contract of sale contemplated by the parties was a contract of sale enforceable at law. The purchaser nominated was Mr Lam. His description as trustee for Polytec A1, even if it had then been incorporated, did not alter or qualify his status as the purchaser: see Heydon, JD and Leeming, MJ, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016) at [21-02]. As a natural person, I do not think Mr Lam met the description of a "special purpose vehicle" under the Agreement, which in my view contemplated a company or some other entity with limited liability.
5. I also agree that reasonableness did not require Deicorp PA to accept the terms propounded by UFG. This I think is particularly clear in the case of the changes to the guarantee and FIRB provisions.
6. The nomination of Mr Lam as purchaser (ignoring the meaningless surplusage about him acting as trustee for Polytec A1), strictly speaking, made the guarantee provision irrelevant since Mr Lam, as a natural person, did not have any directors. But that is not the way in which HFW tried to justify the omission of the special condition which had been proposed by HWLE.
7. HFW's argument was apparently premised on the idea that Polytec A1 would be the purchaser, perhaps on the basis that, when incorporated, it could, as the "beneficiary" of the "trust" acknowledged by Mr Lam, insist on being substituted as purchaser. The argument was that Polytec did not need to be supported by personal guarantees because the ten per cent deposit would be paid. But although that would give Deicorp PA some protection in the event of the contract going off before settlement, there remained a possibility that Deicorp could become entitled to damages exceeding the amount of the deposit. I see no good reason why Deicorp should have been obliged to give up its request for a guarantee in those circumstances.
8. Similarly, deferring the FIRB warranty until settlement would have no doubt been convenient to UFG, especially as on 14 May it had not even incorporated the Purchasing Entity. But I see no reason why Deicorp PA was obliged to accept the commercial risk associated with that deferral. HFW did not in their letter identify any such reason.
9. Counsel for the plaintiffs pointed out that Deicorp PA did not at any stage say that UFG's proposed amendments were unacceptable. Counsel invited me to infer that Deicorp had in fact agreed to them, and submitted that its failure to call any witnesses led to a Jones v Dunkel inference against it on this point.
10. I do not accept these submissions. There is simply no evidence before the Court that Mr Deiri ever agreed to UFG's terms of 14 May. The only inference available on the evidence, as it stands, is the inference from Deicorp PA's withdrawal from negotiations on 19 May, which suggests that he did not. Jones v Dunkel does not assist the plaintiffs.
11. It follows that the plaintiffs were not entitled to require Deicorp PA to proceed with a contract for the sale of the properties according to the terms proposed in HFW's letter of 14 May 2021. The plaintiffs' claimed entitlement to specific performance of a contract in those terms fails. It was not suggested that the plaintiffs were entitled to some alternative relief in the nature of specific performance, such as an order requiring Deicorp to negotiate towards the preparation of an agreement in some other form. Presumably this reflects the fact that the 30 day due diligence period had on any view expired before the proceedings were begun.
12. What this leaves is the claim or claims for damages for breach of contract. The assessment of damages, if any, is not to be undertaken at this stage. The question is whether the plaintiffs have established breach of the Agreement. If so, the Court should make a declaration specifying the conduct of Deicorp PA which amounted to breach, and make an order for assessment of the damages, if any, in due course.
13. Although the submissions by counsel for the plaintiffs on this question were not extensive, I assume that the plaintiffs' case is that, by HWLE's letter of 19 May, Deicorp breached its obligation to use reasonable endeavours to agree the terms of a contract for sale. On the face of it, the conduct repudiated those obligations. But the repudiation was not accepted, so it is not clear whether loss of bargain damages would be available. Presumably, this is a matter which would have to be considered as part of the assessment of any damages.
14. Counsel for the plaintiffs invited me to conclude that, had Deicorp continued the negotiations, those negotiations would have resulted in the parties agreeing to a contract in the terms proposed in HFW's letter of 14 May. As already stated, I am not satisfied on the evidence that Mr Deiri actually agreed with that proposal. He may not even have considered it. I therefore could not be satisfied, based on the evidence before me, that he would have accepted the 14 May terms as the basis for any offer that Deicorp was obliged to make. But this is not a question for determination now. It goes to the assessment of damages and would be dealt with at that stage if breach is established.
15. On the face of it, the HWLE letter of 19 May appears clearly repudiatory. But I think there is a complication. I have concluded that Deicorp PA's obligation was to make an offer, and if that resulted in a counter-offer, either to accept the counter-offer or make a further offer. Deicorp did not do so. But there is a question about when the obligation to make an offer, and keep it in play, arose.
16. The draft contract proposed by HWLE on 5 May was expressly proposed on the basis that it was subject to instructions from Deicorp PA. It does not seem that formal instructions were obtained to formalise the "offer" (I use the word "offer" in inverted commas because the form of "offer" on 5 May did not include the name of the purchaser). This point however was not taken in correspondence, and HWLE responded to HFW's letter of 14 May by saying that instructions were being sought on that letter.
17. But, although this was not explored, at least in any detail, in argument, it seems to me that there is still a problem with treating Deicorp PA's failure to make any further offer after 19 May as a repudiation. As at 19 May, UFG was apparently proceeding on the basis that the purchaser was to be Mr Lam. The "special purpose vehicle" had not been validly notified.
18. Deicorp PA did not take the point at the time. But it seems to me, as at present advised, that it was not necessary to do so. The nomination of the special purpose vehicle, like the $45 million price, was not a matter which was to be the subject of negotiation. It was one of the parameters within which the negotiations were to take place.
19. The question of personal guarantees illustrates the point. While Deicorp PA could put forward a special condition requiring guarantees before the special purpose vehicle had been nominated, the negotiations on that question could not be finalised until the nomination had taken place. Had UFG reacted to the proposed guarantee requirement by incorporating Polytec A1 with "straw" directors, Deicorp might legitimately have insisted that guarantees be provided by people of substance standing behind the company, perhaps even Mr Or himself.
20. In these circumstances I think that Deicorp's formal obligation to make an offer capable of acceptance was not triggered until the special purpose vehicle had been nominated. That had not validly happened prior to 19 May and it never did validly happen before the expiry of the 30 day due diligence period (there was a debate about whether the period ended on 23, 26 or 27 May, but it is unnecessary for present purposes to decide that issue).
21. If this is correct, there was no breach by Deicorp PA of any enforceable obligation under the Letter Agreement prior to its expiry. It is not necessary to consider whether the payment on 14 May of only nine per cent of the purchase price by way of deposit would otherwise be an obstacle to the plaintiffs' success.

Conclusions and orders

1. I have concluded that: 1. The terms of the Letter Agreement did not require Deicorp PA to proceed with a contract in the form attached to HFW's letter of 14 May 2021 and the claimed entitlement to specific performance of a contract in that form fails; 2. Deicorp PA was under an enforceable legal obligation to use best endeavours to agree the terms of a contract for sale and this required the making of an offer, in a form capable of acceptance, to the special purpose vehicle nominated by UFG; 3. but UFG did not validly nominate any such special purpose vehicle, and accordingly, Deicorp's obligation was not triggered and its failure to engage in negotiations from 19 May 2021 onwards was not a breach of any enforceable obligation it had under the Agreement.
2. These conclusions would lead to the proceedings being dismissed. But the conclusion in (3) is tentative because it was not the subject of argument, or at least full argument, before me. I will defer making orders to give the plaintiffs an opportunity to make further submissions on the point should they so wish. Otherwise, the parties should agree a minute of order to reflect the conclusions in my judgment. If possible, the minute should also deal with costs. If agreement cannot be reached I will hear further argument.
3. The orders of the Court are: 1. Adjourn the proceedings to 9:30 am on 21 October 2022 or such other time as may be arranged with my Associate. 2. Direct that the parties confer on a timetable for any supplementary submissions, or otherwise on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

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: 10 October 2022